Extra Book - June 2015 Final

ACCA
Paper P6 (UK)
Advanced Taxation (ATX)
Extra Book (E-book)

(Revision)
June 2015
Interactive World Wide Ltd, April 2015

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
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Contents
PAGE
KEY QUESTIONS
EXAM TIPS
EXTRA QUESTIONS
ANSWERS TO EXTRA QUESTIONS
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43
K E Y Q U E S T IO N S
KEY QUESTIONS LEADING TO SUCCESS

Question
REVISION QUESTION
Must
Apple Ltd, Banana Ltd
E-book p9
Forti Ltd group
Booklet p29
Frank Coltrane
The Bar and Hoop Ltd group
Should
Booklet p19
RK Q54
Opus Ltd
Booklet p45
Flame plc group
RK Q61
Particle Ltd group
RK Q57
Epon Ltd
Booklet p 11
The Cacao Ltd group Recorded
RK Q58
The Janus plc group
RK Q60
Sperry Ltd
RK Q53
Skank Ltd and Kurt Ltd
RK Q67
RK Q71
Drench, Hail and Rain Ltd

Saturn Ltd Recorded
Complet
ed
RK Q64
Hutt plc
Palm plc
Could
RK Q51
RK Q56
Band plc and Trumpet Ltd
RK Q72
Zorro plc
E-book p11
Hock and Knuckle Ltd
RK Q59
Glenz Ltd and Petzold
RK Q62
Overseas aspects of CT
Loriod plc
RK Q67
Juglans and Larix Ltd
RK Q52
Self-Employment
Sophie Power
E-book p24
Josie Jones
E-book p28
Ziti
E-book p30
Grifter
RK Q49
Ellroy - Recorded
RK Q34
Maria and Nucleus Recorded
RK Q35
Sally Slim
E-book p37
Desiree and Duchess
RK Q36
K EY Q U E S T I O N S
Question
Barry Brick
E-book p34
Ziti and Ravi
Booklet p41
Harry, Natalie and Katy
E-book p31
Tetra and Winston partnership
RK Q7
Ellington and Co.

Dana Day
RK Q33
RK Q38
Faure and the Bah-Tock
RK Q28
Banda Ross
Mirtoon
RK Q31
RK Q43
Adam Snook
RK Q32
Gloria Seaford Recorded
RK Q39
Piquet
Booklet p67
Inheritance Tax
Blu Reddy
E-book p41
Brad
Booklet p15
Charleston Dance
RK Q21
Una Won and Alona
RK Q17
Noland - Recorded
Rk Q20
Kepler and Galileo
RK Q46
Mabel Porter Recorded

Ava and Hayworth Farm
RK Q9
RK Q14
Alvaro Pelorus
RK Q45
Cuthbert
RKQ18
Pescara
Booklet p33
Capital gains tax

Stanley Beech Recorded
RK Q40
Ernest and Georgina
RK Q12
Ash and Vulcan
RK Q8
Fitzgerald Recorded
RK Q13
Vine and Passata Ltd

Calisia and Farfisa
RK Q41
RK Q10
Employment Income
Shuttelle
Benny Korere - Recorded
Poblano
Booklet p17
RK Q24
RK Q27
K E Y Q U E S T IO N S
Question
Jerome and Tricycle Ltd
RK Q42
Pita plc
Booklet p49
Cliff and Amanda - Recorded
RK Q3
Fedora and Smoke Ltd
RK Q26
Dokham Graham
RK Q6
Coral and Reef plc
RK Q49
Chloe Sound
E-book p18
Investment income and

Overseas aspects
Capstan
RK Q2
Surfe
RK Q16
Samuel Mit
E-book p14
Jan
RK Q44
Boson and Higgsia
RK Q48
Companies & shareholders
James and Quark Ltd
RK Q25
Fran and Babyface Ltd
E-book p21
Personal tax and Ethics

Jack Pot
Alan Ethics
E-book p20
E-book p23
E X A M T IP S
EXAM TIPS FOR ACCA P6 JUNE 2015

Inheritance tax
IHT with the death estate including BPR, APR and valuation rules (including
related parties). Rules relating to deemed domicile for IHT. Gifts with
reservation.
Capital gains tax
Tax implications of making lifetime gifts into a trust.
Disposal of shares using matching rules and takeovers and mergers.
Overseas aspects of capital gains and the temporary residence rules.
Companies and corporation tax
Company selling shares and the substantial share exemption or a company

selling its trade and assets or a big company question on groups,
S.37 current and carry back with group relief and possibly consortium relief.
Anti avoidance legislation regarding the restricted rules regarding the
carry forward of trading losses on a change of ownership and rules relating
to pre-entry capital losses.
Companies choosing how to allocate chargeable gains
How to share the annual investment allowance between companies in a 75%

group. Relief for non-trading deficits.
A long period of account for companies, payment of corporation tax by

instalments, research and development expenditure for large
companies.
Overseas branch v subsidiary and transfer pricing
Close companies, benefits to shareholders and loans made by a close

company and close investment holding companies (pay corporation tax at
the main rate).
Unincorporated businesses
Badges of trade, partnership with a partner joining/leaving with opening

year rules, Due date for VAT registration and pre-registration input VAT and
maybe disaggregation rules.
Trading losses at the beginning or middle of the trading cycle for a sole
trader/partnership.
Cash basis of accounting for small businesses
Disincorporation of a business, conditions for disincorporation relief
Income tax
Employment income - making choices between extra salary or various

taxable benefits, calculating the annual after tax income, mileage allowance,
accommodation benefit and tax free benefits.
Share incentive plans and share option plans. The conditions for a
company to issue share incentive plans and tax consequences of
early withdrawal.
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EXTRA QUESTIONS
Investments into a personal pension scheme versus occupational
Tax advantages of investing in a venture capital trust, EIS, SEIS and the
conditions the company must satisfy.
Self-assessment for individuals, consequences of filing the tax return late

and paying the balancing payment late.
Errors on the return and penalties prompted and unprompted disclosure.
VAT
Partial exemption for VAT, opting to tax a building, electronic filing of the
VAT return, Errors on the VAT return.
Group registration for VAT, conditions, advantages and disadvantages.
Overseas aspects of VAT including exports and imports.
Ethics
Ethics and deliberate tax defaulters which results in HMRC having lost
revenue in excess of 25,000. The GAAR available to HMRC The professional
code of ethics, including money laundering and the difference between tax
avoidance and tax evasion.
Duties of a senior accounting officer, retention of a tax refund or the

procedure to follow before becoming a tax adviser.
EXTRA QUESTIONS
QUESTION 1 APPLE LTD GROUP

Apple Ltd owns 60% of the shares in Banana Ltd and the other 40% of Banana
Ltds shares are owned by Cherry Ltd. All companies prepare accounts to 31 March
each year.
In the year ended 31.3.15 Apple Ltd made a trading loss of 120,000 and on the 28
February 2015 Apple Ltd sold an office building for 450,000. The company
incurred 2,000 of legal costs and estate agents fees in connection with the
disposal. The office building had been acquired for 160,000 (including stamp duty
land tax and legal costs) on 1 June 1998. Apple Ltd reinvested in another freehold
office building costing 270,000 on 31 March 2015 and claimed rollover relief.
Apple Ltd has a trading loss of 25,000 and a capital loss of 20,000 at 1 April
2014.
Banana Ltd regularly makes taxable trading profits of 900,000 and has rental
income of 20,000 per annum.
Cherry Ltd has taxable trading profits of 350,000 each year.
Banana Ltd pays a dividend of 100,000 on 1 January 2015.
Required:
(a)
Assuming the overall objective of the group is to minimise the total

corporation tax liability of the group, calculate the total corporation
tax liability of the group after relieving Apple Ltds trading loss in the
year ended 31 March 2015.
(b)
How much stamp duty land tax is payable by Apple Ltd?
(c)
What effect would it have if Apple Ltd had acquired the shares in
Banana Ltd on 1 December 2014?
The indexation allowance factor:

June 1999 to February 2015 0.564
The retail price indexes:
June 1998
163.4
February 2015
255.5
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EXTRA QUESTIONS
(c)
Corporation tax liability if Apple Ltd acquired the shares in Banana Ltd
on 1 December 2014
A Ltd
B Ltd
C Ltd
(medium)
(large)
Y/e 31.3.15 Y/e 31.3.15 Y/e 31.3.15
P
C (W1)
Capital loss
R
Nil
178,000
(20,000)
_______
Total profits
158,000
S.37 current
(
)
Qualifying charitable donations
(Nil)
_______
Taxable total profits
Consortium relief
_______
900,000
20,000
_______
920,000
_______
(Nil)
_______
920,000
(Nil)
_______
350,000
(
)
_______
Adjusted taxable total profits

FII (100,000 x 40%) x 100/90
Augmented profits
10
_______
_______
_______
_______
_______
350,000
44,444
_______
394,444
_______
EX T R A Q U E S T I O N S
ELECTION TO EXEMPT THE OVERSEAS BRANCH PROFITS

FROM UK CORPORATION TAX
Compute the corporation tax of Zorro plc a UK resident company, if the election is
not made to exempt the overseas branch profits from UK corporation tax and
explain the total tax liability of the company. The rate of foreign tax is 18% and
assume Zorro plc pays UK corporation tax at 21% due to the number of associated
companies in the group.
UK
Trading profits
O/S
FTS
100,000
Overseas profits
140,000
Qualifying charitable donation
(2,000)
______
98,000
______
_______
140,000
_______
______
_______
______
(
)
_______
______
_______
25,200
CT @ 21%
Less: DTR
Corporation tax on
UK income
UK corporation profits
of overseas branch
Corporation tax
paid in Zowata
Total tax paid

by Zorro plc
Compute the corporation tax paid by Zorro plc if the election is made to exempt the
profits of the overseas branch from UK corporation tax
UK
Trading profits
O/S
FTS
100,000
Overseas profits
140,000
Qualifying charitable donation
(2,000)
______
98,000
______
_______
140,000
_______
______
_______
______
(
)
_______
______
_______
25,200
CT @ 21%
Less: DTR
Corporation tax on
UK income
UK corporation profits
of overseas branch
Corporation tax
paid in Zowata
Total tax paid

by Zorro plc
11
EXTRA QUESTIONS
QUESTION 2 CARVER LTD

Carver Ltd normally prepares statements of profit or loss to 31 December each
year. On 31 July 2014, Carver Ltd will sell the business as a going concern to Blade
Ltd, an unconnected company. The assets will be sold for the following amounts:
Freehold premises (cost 1,608,000 on 1 August 2006)

Goodwill (internally generated)
Machinery and equipment (no item sold for more than cost)
2,215,000
290,000
187,000
The balance on the main pool for the purposes of capital allowances as at
31 December 2013 was 231,500. Machinery costing 38,000 was purchased in
March 2014.
Q1 What is the chargeable gain on the disposal of Carver Ltds business in
the final accounting period? (Assume the indexation factor from August
2006 to July 2014 is 0.256.)
A
672,352
451,608
195,352
485,352
Q2 Assuming that Carver Ltd prepares a final set of accounts for the 7
month period to 31 July 2014 what is the taxable trading profit in the final
accounting period?
Assume that the companys trading profits was
150,000 before adjusting for the sale of the business.
A
Profit of 361,990
Profit of 440,000
Profit of 207,500
Profit of 357,500
12
Question 3 India Ltd and Kilo Ltd

Kilo Ltd is a 100% subsidiary of India Ltd. Both companies are UK resident trading
companies and pay corporation tax at the main rate due to the large number of
other subsidiaries in the group.
In February 1998, India Ltd bought a property for 300,000. This property was
transferred to Kilo Ltd for the same amount in March 2010. Its market value at
that time was 510,000. This property had always been used for trading purposes.
In April 2015 India Ltd received an offer from a third party to acquire all of the
share capital of Kilo Ltd for a price of 1,200,000. India Ltd had acquired the shares
in Kilo Ltd in June 2007, the indexed cost of the shares was 195,000. Kilo Ltds
biggest asset is the property it had acquired from India Ltd in March 2010, which
was valued at 1,000,000.
Required:
(i)
Assuming the sale of Kilo Ltd takes place in June 2015, explain and
evaluate the tax implications of India Ltd selling the shares in Kilo Ltd.
Your answer should include calculations quantifying the degrouping
charge and explain the effect on the corporation tax payable by Kilo Ltd
and India Ltd if the proposed sale of Kilo Ltd takes place in the year
ended 31 March 2016.
(ii)
What effect would the sale of the shares have on the corporation tax
payable by India Ltd in the year ended 31 March 2016 if the companies
were investment companies.
Indexation factor
February 1998 March 2010 - 0.377
13
EXTRA QUESTIONS
QUESTION 4 SAMUEL MIT

Samuel has been resident in the UK for tax purposes since 1 May 2006 but is not
UK domiciled.
In 2014/15 he has the following income:
(a)
(b)
(c)
UK trading income
10,000
Non UK rental income
105,000 (He remits 6,000 to the UK)
UK trading income
20,000
UK trading income
20,000
Overseas withholding tax at 5% was deducted at source. The figures are

given before deducting withholding tax.
Required:
(i)
You are required to advise Samuel whether or not he should claim the
remittance basis in 2014/15.
(ii)
What difference would it make to your answer (i) if Samuel had been
UK resident since 1 May 2001?
14
Example - June
June is resident in Australia but is UK domiciled. She works full-time in Australia as
an ophthalmic optician and has an annual salary of 40,000 she pays Australian
tax. June lives in Australia with her husband and children. Junes youngest
daughter Nicola is in full-time education in UK and goes home during the summer
holidays. The family all visit the UK for one month each year.
Junes father who lived in the UK died on 6 April 2014 and she returned to the UK
for the funeral and to visit her mother. What is Junes residence status in 2014/15
if she stays in the UK for the following alternative number of days during 2014/15?
Time in
the UK
30 days
Automatically Resident in OZ
Automatically
Resident in UK
How many ties

with the UK
Conclusion
Test 1
Test 2
60 days
Test 1
Test 2
190 days
Test 1
Test 2
110 days
Test 1
Test 2
15
EXTRA QUESTIONS
Question 5 Minnie, Mickey and Kitty

Minnie
Mickey
Kitty
Salary
25,000
45,000
155,000
List price of car
12,200
16,400
84,600
CO2 of car
84 g/km
108 g/km
138 g/km
Type of engine
Petrol
Petrol
Diesel
Date first provided
1.1.14
1.7.14
6.4.14
80%
70%
40%
5,000
4,500
6,600
Amount paid to employer towards the

running costs of the car
Nil
100 per month
Nil
Employer provides fuel for private use
Yes
Yes
No
Private use
Employer running costs and fuel
Compute the car benefit and fuel benefit for Minnie, Mickey and Kitty in 2014/15
and what is their tax cost?
2014/15
Car benefit
Fuel benefit
Tax cost to the

employee
Type of car
Minnie
Type of car
Mickey
Kitty
16
Type of car
Employment Income Example

Ralf has an annual salary of 60,000
(a)
Compute the annual tax cost to Ralf of receiving an

annual salary of 60,000.
Income Tax
Salary
Less:
PA
Taxable income
Income tax
31,865 x 20%
18,135 x 40%
-------50,000
--------
Class 1 primary national insurance

60,000
(10,000)
-------50,000
--------
12% x (41,865 7,956) 4,069

2% x (60,000 41,865) 363
------4,432
-------
6,373
7,254
------13,627
(b) Ralf will receive a bonus of 10,000 from his employer

in 2014/15, what is his additional annual after tax
income?
17
EXTRA QUESTIONS
QUESTION 6 CHLOE AND ASHLEY SOUND

You act as tax adviser to Chloe Sound and her husband Ashley who are
shareholders of Sound Limited. They are both higher rate taxpayers.
Chloe owns 80% of the shares in Sound Ltd with the other 20% being owned by
Ashley who is not an employee of the company.
Car provided to Chloe
She drove 20,000 miles in 2014/2015 of which 10,000 will be for business
purposes.
The car will have a petrol engine with a list price of 15,000 (including VAT) and
CO2 emission of 169 grams per kilometre.
Car provided to Ashley
It has the same list price and CO2 emission as the one provided to Chloe.
Running costs of the cars
The running costs of the cars including fuel for private use will be paid by Sound Ltd
the running costs per car will be as follows.
Insurance
550
Repairs/servicing
600
Road fund licence
175
Petrol
1,700
All figures include VAT where appropriate.

Loan from Sound Ltd to Chloe
Sound Ltd made a loan to Chloe of 18,000 on 6 April 2015. The loan will be
interest free and will be repaid by Chloe on 1 February 2022.
Sound Ltd
Is VAT registered.
It is a small company and prepares statements of profit or loss to 31 March each
year.
Required:
(a)
Explain the income tax, national insurance, VAT and corporation tax
implications of the car provided to Chloe.
(5 marks)
(b) What are the income tax, national insurance and corporation tax
implications of the car provided to Ashley?
(5 marks)
(c) Explain the income tax, national insurance and corporation tax
implications of this loan and explain the annual tax cost if the loan
had instead been made to Ashley.
(5 marks)
(d)
18
What is it called if Sound Ltd transfers the business to Chloe and

Ashley?
(1mark)
Example - Tom Cruise

2014/15
Non Savings
Income
Salary
Dividend
(12p x 90,000 = 10,800
x 100/90)
Personal Allowance
Taxable Income
Dividend
Income
Total
Income
Notional
tax
credit
45,000
12,000
(10,000)
-------35,000
--------
1,200
------12,000
-------
-------47,000
--------
3,900
-------3,900
-------11,527
(1,200)
(1,200)
(7,627)
--------
--------
(7,627)
-------
Nil
--------
2,700
-------
2,700
-------
Income Tax
Non- Savings Income
31,865 x 20%
3,135 x 40%
-------35,000
------Dividend Income
12,000 x 32.5%
6,373
1,254
Income tax liability
--------7,627
Notional tax credits

PAYE
Income tax payable
10,800 x 25%
12,000 x 22.5%
General rule
Payments on account are payable if a person has self employed income, rental
income or is a higher/ additional rate taxpayer and owes extra income tax on
dividend income or interest income.
Payments on Account for 2015/16 are due
Payment on account 1
31 January 2016
31 July 2016
Exception to the general rule

No payments on account are due in 2015/16 if the income tax payable in 2014/15
was small <1,000 or IT Payable x 100 < 20%
IT Liability
19
EXTRA QUESTIONS
QUESTION 7 JACK POT

Jack Pot is employed by On-line Casino plc as the marketing director and has had a
salary of 270,000 for many years. He has invested 37,000 (gross) into his
personal pension scheme every year up to 2013/14. During the tax year 2014/15,
Jack made contributions of 70,000 (gross) into his personal pension scheme. He
is also a member of the On-line Casino plc occupational pension scheme and he
annually invests 5,000 into this scheme.
Required:
(i)
What amount of personal pension contribution will qualify for tax

relief at source in 2014/15?
(ii)
What annual allowance does Jack use in 2014/15?
(iii) What amount of contribution in 2014/15 qualifies for tax relief?
(iv) What is Jacks annual allowance charge in 2014/15?
(v)
Compute Jacks income tax liability in 2014/15 and provide a

reconciliation of the income tax that has been saved in 2014/15.
(vi) What is Jacks unused annual allowance to carry forward to 2015/16,

if instead of investing 70,000 in his personal pension plan he
actually invested 45,000?
20
Question 8 Fran and Babyface Ltd

Fran is the sole shareholder of Babyface Ltd, she has owned the shares since the
company was incorporated on 1 December 2007. Babyface Ltd will transfer the
business to Fran on 1 January 2015. Babyface Ltd owns the following assets.
Cost to
Babyface Ltd
Market value at
1 January 2015
Freehold workshop
20,000
50,000
Goodwill
Nil
40,000
Equipment
2,000
Indexation
allowance
Tax written
down value
on 1 January
2015
4,000
800
Required:
(a)
Explain whether disincorporation relief can be claimed by Fran and Babyface Ltd.
(b)
Explain the tax cost if disincorporation relief is not claimed. You should assume the
company pays corporation tax at the small profits rate.
(c)
Explain the tax cost if Fran and Babyface Ltd jointly claim disincorporation relief.
21
EXTRA QUESTIONS
(a)
Disincorporation relief is not claimed
Assets being
transferred
Tax position for Babyface Ltd
Tax position for Fran
Freehold workshop
Intangible fixed asset

(goodwill)
Plant and machinery
Conclusion
Tax cost to Babyface Ltd
(b)
Disincorporation relief is claimed

Assets being
transferred
Tax position for Babyface Ltd
Tax position for Fran
Freehold workshop
Intangible fixed asset

(goodwill)
Plant and machinery
22
QUESTION 9 ALAN ETHICS

You act as financial advisor to Alan and his wife. Recently you have received papers
proving that on the last two tax returns Alans wife had neglected to report rent
received on a property that she lets out to students. Whilst not wishing to upset the
family, you are unsure as to the action which should be taken in respect of this
matter. The engagement letter between you and your client does not contain a
general permission to disclose such matters to HMRC.
Required:
(a)
Explain what action a chartered certified accountant should take in

these matters.
(b) Explain the consequences if the tax adviser assists a client who is
conducting their tax affairs dishonestly, your answer should include
the penalties that will be imposed by HMRC if the tax adviser is
cooperative compared with where the tax adviser is uncooperative.
(Total: 10 marks)
23
EXTRA QUESTIONS
QUESTION 10 SOPHIE POWER

Sophie began trading on 1 November 2014 and her first statement of profit or loss
up to 30 April 2015 and showed an adjusted trading profit before deduction of
capital allowances of 49,000. The results for her second accounting period to 30
April 2016 showed a profit of 72,000.
She made the following purchases of assets:
1 October 2014
Office equipment
13,200 (incl)
1 November 2014
Motor car
(CO2 emission 126g/km)
20,000 (incl)
16 April 2015
Office shelving
600 (incl)
The car purchased on 1 November 2014 was used by Sophies personal assistant
80% for business purposes.
Required:
(a)
What are Sophie's taxable trading profits for 2014/15 and 2015/16?
(b)
What is the extra tax cost in 2014/15 as a result of her trading

income assuming Sophies only other income is 25,000 of rental
income.
(c)
What are Sophies payments on account in 2015/16 and state the due
date for paying them?
Assume Sophie registered for VAT voluntarily on 1 November 2014.

Standard rate of VAT
24
20% (1/6)
Part (a)
Taxable trading profits
Tax year
2014/15
2015/16
These are calculated using the following procedure

Step 1
Accounting date
Start date
First tax year she has taxable trading profits
Accounting period 1 begins on
Step 2
Compute the tax adjusted accounting profits for each accounting period
AP1 (6 months)
1.11.14 30.4.15
AP2 (12) 1.5.15 -30.4.16
Accounting profit per the question
49,000
72,000
______
______
______
______
Less: Capital allowances (W1)
25
EXTRA QUESTIONS
1.11.14 - 30.4.15 (6mths)

AIA
Main pool
Capital allowances
AIA additions
Equipment
1.10.14 Equipment
16.4.15 Shelving
______
AIA
100%
(
[UL = 500,000
x 6/12= 250,000]
______
______
Medium CO2 car
Cost
______
WDA
______
TWDV c/f
______
Total capital allowances
______
1.5.15 30.4.16
WDA
18% x
)
______
TWDV c/f
______
______
26
Step 3
Taxable period
Taxable trading
profit
27
EXTRA QUESTIONS
QUESTION 11 JOSIE JONES

Self-employment
(1)
Josies trading profits for the final two periods of trading were as follows:
Year ended 30 April 2013 (after deducting capital allowances)
48,000
Year ended 30 April 2014

Twomonth period ended 30 June 2014
98,200
16,600
The figures given for the year to 30 April 2014 and the 2 months to 30 June
2014 are before taking account of capital allowances.
(2)
The tax written down value of the capital allowances main pool at 1 May 2013
was 13,200. On 21 May 2014 Josie purchased computer equipment for
3,600. All of the items included in the main pool were sold for 7,700 on 30
June 2014, with no item being sold for more than its original cost.
(3)
Josie has unused overlap profits brought forward of 41,700.
What is Josies total national insurance liability in 2014/15?

A
3,531
B 64,000
3,638
D 3,495
Answer
Taxable trading profits in

2014/15
Class 4 national insurance in 2014/15
Class 2 national insurance in 2014/15
28
Taxable trading profits in 2014/15

Step 1
Accounting date:
Stop date:
Final tax year:
Step 2
Determine the tax adjusted accounting profits.
Profits
Capital
Allowances
Tax adjusted
account profit
Main
pool
Capital
allowances
Capital allowances
y/e 30/4/14
TWDV b/f
WDA
______
TWDV c/f
_____
1/5/14 30/6/14
_____
Additions
Disposal
______
Balancing allowance
______
TWDVc/f
______
Step 3
Convert into taxable trading profits by applying the closing year rules.
Tax year
Taxable period
2014/15
Taxable
trading
profit
1/5/13 30/6/14
Less:
Overlap profits
_______
_______
______
29
EXTRA QUESTIONS
QUESTION 12 ZITI
Ziti has decided to cease trading, but cant decide whether to cease on 31 January
2016 or 30 April 2016.
The tax adjusted trading profits for the year ended 30 April 2014 were 55,000.
From 1 May 2014, it can be assumed that the business generates trading profits of
5,000 per month. The only tax adjustment required to this figure is in respect of
capital allowances.
The tax written down value of the main pool as at 30 April 2014 was nil. I
purchased business equipment for 6,000 on 1 August 2014. There have been no
disposals of equipment since 30 April 2014. The equipment will be sold for 10,000
regardless of which cessation date is chosen.
In each case I would prepare accounts for the year ending 30 April 2015 and then
to the date of cessation or disposal.
-
Ziti has overlap profits from when he took over the business of 9,000.
All of the equipment is moveable and no item has a cost or market value of
more than 6,000.
What is the effect on the income tax in 2015/16 and 2016/17 if Ziti sells
his business on 30 April 2016 instead of 31 January 2016?
30
A Increases by 4,013
B Reduces by 4,013
C Reduces by 10,360
D Increases by 10,360
QUESTION 13 - HARRY, NATALIE AND KATY

Harry and Natalie have been trading in partnership for many years.
Natalie decided to retire from the partnership on 30 September 2014. Katy joined
the partnership on the same day.
The profit sharing arrangements are summarised below
The profit sharing arrangements: until 30 September 2014
Harry
Natalie
Capital introduced
200,000
500,000
Interest on capital
9%
9%
12,000
12,000
Harry
Katy
Capital introduced
200,000
300,000
Interest on capital
9%
9%
12,000
15,000
Annual salaries
Profit sharing ratio
From 1 October 2014
Annual salaries
Profit sharing ratio
In the year ended 31 December 2014, the partnership made trading profits before
adjusting for capital allowances of 266,600. Forecast trading profits for the year
ended 31 December 2015 are 289,000. On 30 June 2014 the partnership acquired
some equipment for 20,000.
Natalie has overlap profits from a previous change of accounting date of 9,500
and overlap profits from commencement of 14,300.
Required:
(a)
Compute the allocation of the partnerships profits between Harry,

Natalie and Katy for both accounting periods.
(6 marks)
(b)
Show the assessable trading profits for all three partners for all
relevant tax years. Clearly show the tax year in each case and the
dates of the basis periods. State the amounts of any overlap profits
and the periods to which they relate.
(9 marks)
(c)
Calculate Natalies income tax and national insurance for 2014/15,

assuming she invests 8,000 (net) each year in a personal pension
scheme.
(5 marks)
31
EXTRA QUESTIONS
(Total: 20 marks)
PARTNERS JOINING AND LEAVING THE PARTNERSHIP

Step 1
Determine the accounting date =
Harry
Natalie
Katy
Start date
First tax year has T
AP (1) begins on
Stop date
Final tax year has T
(a) Allocation of partnerships profits between Harry, Natalie and Katy
Step 2- Determine the TAAPs and TAALs for each AP

Capital
allowance
Year ended 31.12.14
266,600
Year ended 31.12.15
289,000
TAAP of the
partnership
Share the profits between the partners according to the PSA during the accounting period
Year ended 31 December 2014

1.1.14 30.9.14
Total
Harry
Natalie
Katy
1.10.14 31.12.14
Total
Harry
Natalie
Katy
32

Total
Harry
Natalie
Katy
Summary of tax adjusted accounting profits of each partner
(b) The taxable trading profits for each partner in all tax years.
Step 3 - TAAPs Ts for each partner separately

Harry (middle of the trading cycle)
Tax
year
Tax
year
Period of profit assessable
Natalie (end of the trading cycle)

Tax
year
Tax
year
Final
Tax
year
Katy (beginning of trading cycle)
Tax
year
Tax
year
33
EXTRA QUESTIONS
QUESTION 14 BARRY BRICK

Barry commenced a new self-employment business on 6 April 2014. The following
information is available for the year ended 5 April 2015:
Sales receipts 75,000, with a further 750 owing on 5 April 2015.
Purchases of inventories 20,000
Closing inventories in hand at 5 April 2015 680,
On 10 June 2014 a car with CO2 emissions of 136 grams per kilometre was
purchased at a cost of 15,000. Barry drove 12,000 business miles and 4,000
private miles.
Total motor expenses were 3,600.
Computer equipment was purchased at a cost of 2,500
Other expenses (all allowable) cost 17,600, with a further 400 owed as payables
at 5 April 2015.
Required:
(a) State the necessary conditions that must be satisfied for a business to
use the cash basis of accounting instead of the accrual basis and
explain the rules that apply for deducting allowable expenses.
(b) Calculate Barrys taxable trading profits assuming:
(c)
(i)
The accruals basis is used.
(ii)
The cash basis is used.
Make a recommendation as to which basis Barry should use in

2014/15.
(d) State the difference in his total tax cost in 2014/15 if the cash basis is
used.
34
(bi)
Tax adjusted trading profits using the

normal rules
Sales revenue receivable in the tax year

Cost of sales
Opening inventories
Purchases
Less: Closing inventories
---------Cost of sales
---------Less:
Allowable expenses
Motor expenses
Other expenses payable
Less: Capital allowances
--------Tax adjusted accounting profit/(loss)

---------
(bii) Tax adjusted trading profits using the

cash basis
Sales revenue received in the tax year

Less: Purchases
Less: Allowable expenses paid in the tax year
Motor expenses
Cost of computer
Other expenses paid in the tax year
-------Tax adjusted accounting profit/(loss)
--------
35
EXTRA QUESTIONS
QUESTION 15 BOUNCY LTD

Bouncy Ltd - An unquoted UK resident company
Funds required by Bouncy Ltd
-
Bouncy Ltd needs to raise 530,000.
Part of the money raised will contribute towards the purchase of new
commercial premises for use by Bouncy Ltd.
New premises
-
Will cost 481,750 including value added tax (VAT) in January 2014.
Will be used in connection with all aspects of Bouncy Ltd's business.
The VAT position of Bouncy Ltd

-
In the year ending 31 March 2013, 28% of Bouncy Ltd's supplies were exempt
for the purposes of VAT. The managing director of Bouncy Ltd expects this
percentage to increase to 36% in the current year to 31 March 2014.
Irrecoverable input tax due to the company's partially exempt status exceeds
the de minimis limits.
Required:
(a)
How much input tax will be recovered by Bouncy Ltd in respect of the
new premises in the year ending 31 March 2014.
When preparing this calculation you should take advantage of any
opportunities available to improve the tax position of the company.
(b)
36
69,372
51,660
51,387
57,810
Assuming the percentage attributable to exempt supplies in the year

ended 31 March 2014 is the projected percentage, what annual
adjustment is required by Bouncy Ltd in the year ended 31 March
2014?
A
642
1,285
574
1,148
QUESTION 16 SALLY SLIM

Sally Slim has been a self-employed manufacturer of clothing since 1 June 2005.
She has the following income and chargeable gains.
2013/14
2014/15
2015/16
(projected)
Taxable trading profit/(loss)
2,100
(84,000)
14,200
Property business profits
60,160
9,400
9,000
Chargeable gains
23,300
96,000
14,500
(before the annual exempt amount)

The chargeable gains have been realised on the disposal of quoted shares and are
not eligible for entrepreneurs relief.
Required:
(a)
State the factors that will influence an individuals choice of loss relief
claims.
(b)
State the alternative strategies available to Sally in respect of her

trading loss for the tax year 2014/15.
(c)
Explain using supporting calculations where necessary which of the

strategies will save the most tax and calculate the total tax saved via
the operation of this strategy.
37
EXTRA QUESTIONS
The most tax efficient use of the trading loss

2014/15
Option 1
Option 2
Option 3
(84,000)
Tax
saving
Option 1 S.64 current

Income Tax
Trading income
Rental income
Total income
Less: S.64 current
Net income
Less: Personal allowance
Taxable income
Before
deducting the
loss
2014/15
Nil
After deducting
the loss
2014/15
Nil
9,400
-----9,400
9,400
------9,400
------
-------
(10,000)
-------------
Loss
Memo
84,000
(10,000)
------------
Income tax
Capital gains tax
Option 1 S.261 current
Chargeable gains
Net chargeable gains
S.261 against gains
Before
deducting loss
2014/15
96,000
-----96,000
-------
Less:Annual exempt amount

Taxable gains
C
38
(11,000)
After deducting
loss
2014/15
96,000
-----96,000
-------(11,000)
Option 2 S.64 carry back

Income Tax
Trading income
Rental income
Total income
Less: S.64 carry back
Net income
Before
deducting
the loss
2013/14
2,100
After
deducting
the loss
2013/14
2,100
60,160
-----62,260
60,160
------62,260
-----(10,000)
-------
Loss
Memo
84,000
------(10,000)
-------
Taxable income
-------
-------
Capital gains tax

Option 2 S.261 carry
back
Chargeable gains
S.261 against gains

Taxable gains
Before
deducting
the loss
2013/14
23,300
-----23,300
After
deducting
the loss
2013/14
23,300
-----23,300
---------
---------
(11,000)
(11,000)
---------
---------
39
EXTRA QUESTIONS
Option 3
(1) S.64 carry back
Income Tax
Trading income
Rental income
Total income
Less: S.64 carry back
Net income
Taxable income
IIncome tax
Before
deducting
the loss
2013/14
2,100
After
deducting
the loss
2013/14
2,100
60,160
-----62,260
60,160
------62,260
-------
-------
(10,000)
-------------
Loss
Memo
84,000
(10,000)
-----------
Capital gains tax
Chargeable gains
Before
deducting
the loss
2013/14
23,300
-----23,300
-------

Taxable gains
After
deducting
the loss
2013/14
23,300
-----23,300
--------
(11,000)
(11,000)
--------
---------
Capital gains tax

(2) S.64 current 2014/15 No income tax is saved but 9,400 of the loss
is used up (see option 1)
Capital gains tax
Before
After deducting
(3) S.261 current
deducting loss
loss
2014/15
2013/14
Chargeable gains
96,000
96,000
------------Net chargeable gains
96,000
96,000
S.261 against gains
-------------Less:Annual exempt amount
Taxable gains
40
(11,000)
(11,000)
---------
---------w w w . s t ud yi nt e r a c t i ve . o r g
QUESTION 17 BLU REDDY

On 15 January 2015 Blu Reddy made a gift of 200,000 1 ordinary shares in
Purple Ltd, an unquoted investment company, to a trust.
Before the transfer Blu owned 300,000 shares and his wife owned 100,000
out of Purple Ltds issued share capital of 500,000. On 15 January 2015
Purple Ltd shares were worth 1 each for a holding of 20%, 2 each for a
holding of 40%, and 4 each for a holding of 80%
Blu has not made any previous gifts and you should ignore annual
exemptions.
Required:
(i)
(ii)
Calculate the lifetime inheritance tax that will be payable in

respect of Blus gift of 200,000 1 ordinary shares to a trust if:
(1)
the trust pays the tax arising from the gift; or
(2)
Blu pays the tax arising from the gift.
(4 marks)
Assuming that Blu pays the tax arising from the gift of 200,000
1 ordinary shares, calculate the additional inheritance tax that
would be payable in respect of the gift if Blu were to die on 30
June 2019.
Note: You should assume that the nil rate band of 325,000
remains unchanged.
(4 marks)
41
EXTRA QUESTIONS
42
A N S W ER S T O E X T R A Q U E S T I O N S
A1 APPLE LTD GROUP

(a)
Step 1
Draw the group structure.
C Ltd
A Ltd
40%
60%
B Ltd
Step 2
Analyse the group.
Associated companies = 2
A Ltd, B Ltd
C Ltd
UL
750,000
1,500,000
LL
150,000
300,000
75% loss groups = none

Consortium = 1
Consortium company = B Ltd
Consortium members = A Ltd, C Ltd
w w w . s t ud y i nt e r a c t i v e . o r g . uk
43
ANSWERS TO EXTRA QUE STIONS
Step 3
Set up the corporation tax computations for all companies required by the question.
P
C (W2)
Capital loss
R
Total profits
S.37 current
Consortium relief (W1)
FII (100,000 x 40%) x 100/90
Augmented profits
CT (FY 2014)
150,000 x 20%
808,000x 21%
350,000 x 21%
A Ltd
(medium)
Y/e 31.3.15
B Ltd
(large)
Y/e 31.3.15
Nil
178,000
(20,000)
900,000
_______
158,000
(8,000)
(Nil)
_______
150,000
C Ltd
Y/e 31.3.15
20,000
_______
920,000
_______
150,000
(Nil)
_______
920,000
(112,000)
_______
808,000
_______
150,000
_______
_______
808,000
_______
(Nil)
_______
350,000
_______
350,000
44,444
_______
394,444
_______
30,000
169,680
73,500
Less: Marginal relief

1/400 x (1,500,000 394,444)
x 350,000/394,444
Corporation tax
(2,452)
_______
71,048
_______
The total corporation tax payable by the Apple Ltd group is 270,728.
Step 4
Set up the loss memo.
Loss memorandum
120,000
A Ltd uses
the loss
S37 current
B Ltd uses the loss

consortium relief
Consortium relief with B Ltd

S.37 current with A Ltd
44
120,000
(112,000)
(8,000)
_______
Nil
_______
(W1) The maximum loss which A Ltd can surrender to B Ltd is lower of:
(1)
(2)
% x CCs P/L
60% x 920,000 =
552,000
100% x CMs P/L =
120,000
(W2) Chargeable gains on disposal of office building
Sale proceeds
Less
Selling costs
Net sale proceeds
Cost
Unindexed gains
Less
IA
255.5 163.4/163.4
IA = .564 x 160,000
Indexed gain
Partial rollover relief
Chargeable gains
450,000
(2,000)
_______
448,000
(160,000)
_______
288,000
(90,240)
_______
197,760
(
)
_______
178,000
_______
(b)
The commercial office building bought by Apple Ltd, stamp duty land tax must be
paid at 3% as the building costs more than 250,000. SDLT is 8,100 (3% x
270,000).
(c)Corporation tax liability if Apple Ltd acquired the share in Banana Ltd on
1 December 2014
P
C (W3)
Capital loss
R
Total profits
S.37 current
Consortium relief (W1)
FII (100,000 x 40%) x 100/90
Augmented profits
ww w. stu dyi n t e ra cti v e . or g
A Ltd
(medium)
Y/e 31.3.15
B Ltd
(large)
Y/e 31.3.15
Nil
178,000
(20,000)
900,000
_______
158,000
(80,000)
(Nil)
_______
78,000
C Ltd
Y/e 31.3.15
20,000
_______
920,000
_______
(Nil)
_______
920,000
(40,000)
_______
_______
78,000
_______
_______
880,000
_______
(Nil)
_______
350,000
_______
350,000
44,444
_______
394,444
_______
45
(W3) Maximum consortium relief

Acquisition of
Banana Ltd
(Cm) Apple Ltd

1.4.14
a = 12
31.3.15
c = 4 months
(CC) Banana Ltd

b = 12
31.3.15
1.4.14
1.12.14
The maximum loss which A Ltd can surrender to B Ltd is lower of:
B Ltd (1)
A Ltd (2)
46
% x CCs P/L
60% x 920,000 x 4/12
184,000
100% x CMs P/L 120,000 x 4/12
40,000
A2 CARVER LTD
ANSWER 1
Answer C
The chargeable gain assessable on Carver Ltd is 195,352.
The capital gain on the disposal of Carver Ltds business will be assessed only on
the disposal of the chargeable asset, in this case, the premises.
Consideration of the premises 31.07.14

Cost 1.08.06
Unindexed gain
Less: Indexation allowance Aug 2006 July 2014
1,608,000 0.256
Chargeable gain
2,215,000
(1,608,000)
_________
607,000
[]
[]
(411,648)
__________
195,352
__________
[]
[]
[2]
ANSWER 2
Answer D
The taxable trading profits are 357,500.
For a company, goodwill is not a chargeable asset, it is defined as an intangible
fixed asset. Therefore the profit or loss made on the disposal of an intangible fixed
asset increases/reduces the taxable trading profits of Carver Ltd. The profit
realised on the disposal of the goodwill is: 290,000 Nil (as internally generated)
= 290,000.
For plant and machinery, in the final accounting period there is no AIA, WDA or
FYA, according to the general rule only balancing allowances and balancing charges
will apply.
Period 1.01.2014 31.07.2014
Main pool
TWDV 1.01.2014
Addition March 2014
231,500
38,000
_______
269,500
(187,000)
_______
82,500
(82,500)
_______
Nil
_______
Disposal
Balancing allowances
TWDV c/fwd
Balancing allowances
Capital allowance
[]
[]
[]
82,500
______
[]
82,500
______
47
The tax adjusted trading profit for the 7 month period to 31.07.2014 is:
Profit per the question
+
150,000
[]
290,000
[1]
Income that should be credited but wasnt

Profit on disposal of goodwill
Capital allowanced
Less: Balancing allowance
82,500
______
82,500
______
_______
440,000
_______
357,500
[3]
48
A 3 India Ltd and Kilo Ltd

(i) Tax implications of India Ltd selling the shares in Kilo Ltd
(1)
Gain on the sale of shares in Kilo Ltd
From the perspective of the India Ltd group, there should be no corporation tax
payable on the disposal of the shares. This is because at least 10% of the shares
have been held for a continuous period of at least 12 months in the last two years.
As a result, the substantial shareholding exemption applies, and no corporation tax
will be payable on any chargeable gain realised on the disposal of shares.
(2)Degrouping charge
However, the departing company (Kilo Ltd) owns an asset which was transferred to
it within six years prior to the company leaving the group. As a result, a degrouping charge arises.
The asset is deemed to be disposed of and immediately re-acquired at the market
value at the date of the original inter-group transfer.
As the asset was transferred on a no gain / no loss basis, the original cost is
indexed up to the date of transfer (from India Ltd to Kilo Ltd).
The degrouping charge is evaluated as the chargeable gain that would have been
realised at the date when the property was originally transferred, if at that date the
companies had not been members of the same 75% capital gains group.
The potential degrouping gain is therefore calculated as follows:
Disposal proceeds (MV at date of inter group

transfer)
Less: Cost (February 1998)
Less: Indexation to date of inter group transfer
300,000 0.377
Chargeable gain (degrouping charge)
510,000
300,000
113,100
(413,100)
96,900
Rules relating to the degrouping charge

The degrouping charge should be added to the sale proceeds for the shares.
India Ltd is treated as having sale proceeds of 1,296,900 (1,200,000 + 96,900).
This figure is then used to evaluate the chargeable gain on the disposal of the
shares. As the substantial share exemption (SSE) applies on the disposal of the
shares in Kilo Ltd this means the degrouping charge is exempt from corporation
tax.
(ii) Companies were investment companies

The substantial share exemption no longer applies and there will be a chargeable
gain assessable on India Ltd in the chargeable accounting period in which the
shares are sold.
The sale of the shares will have the effect of increasing the corporation tax payable
by India Ltd.
49
Disposal of shares in Kilo Ltd
Sale proceeds
Less: Indexed cost
1,296,900
(195,000)
----------
Indexed gain
1,101,900
-----------
The corporation tax of India Ltd will increase by 231,399 (21% x 1,101,900) in
the year ended 31 March 2016.
A4 - SAMUEL MIT
(a)Remittance basis claim in 2014/15
Samuel is UK resident in 2014/15 but not UK domiciled. This means that Samuel
must pay UK income tax on his overseas income but has two options for taxing his
overseas income and capital gains.
Option 1 the remittance basis if an election is made
Option 2 the arising basis applies automatically if no election is made
The option that Samuel should choose is the one that minimises his total tax cost.
Income Tax Payable under the two alternatives indicate that Samuel should make
the remittance basis election as this will save him 477 of tax (33,377 32,900).
Remittance Basis Election Made
No Remittance Basis Election Made
Trading income
Overseas rent remitted
Trading income
Overseas rent
Total income
Personal allowance
Taxable income
10,000
6,000
______
16,000
______
16,000
______
Income tax
3,200
Less: DTR
(300)
------2,900
50
Taxable income
_______
112,500
_______
Income tax
20% 16,000
Tax charge on
Unremitted income
Personal allowance
(10,000
(115,000 100,000)
10,000
105,000
_______
115,000
(2,500)
30,000
______
32,900
______
20%
40%
31,865
80,635
Less: DTR
6,373
32,254
(5,250)
_______
112,500
_______
_______
33,377
_______
Samuel has been UK resident 7 out of

the previous 9 tax years, he must pay
a remittance basis charge (RBC) of
30,000 on his unremitted income and
capital gains.
(b)
overseas income.
Option 1 the remittance basis if an election is made
Option 2 the arising basis applies automatically if no election is made
The option that Samuel should choose is the one that minimises his total tax cost.
Income Tax Payable under the two alternatives indicate that Samuel should not
make the remittance basis election as this will save him 9,250 of tax (40,377
31,127).
Remittance Basis Election Made
No Remittance Basis Election Made
Trading income
Overseas rent remitted
Trading income
Overseas rent
Total income
Personal allowance
Taxable income
20,000
25,000
______
45,000
______
45,000
______
Income tax
20% 31,865
40% 13,135
______
45,000
______
Less: DTR
5% x 25,000
Tax charge on
unremitted income
Personal allowance
Taxable income
20,000
90,000
_______
110,000
(5,000)
_______
105,000
_______
Income tax
6,373
5,254
20%
40%
31,865
73,135
_______
105,000
_______
6,373
29,254
_______
35,627
Less:DTR
(1,250)
30,000
______
40,377
______
5% x 90,000
(4,500)
---------
31,127
---------
51
(c)
overseas income and capital gains.
Option 1 the remittance basis automatically as his unremitted income and capital
gains are less than 2,000.
The remittance basis applies automatically as Samuels unremitted income is
2,000. The income tax liability is 6,202 computed below:
Trading income
Overseas rent
remitted
Total income
Taxable income
20,000
24,500
______
44,500
(10,000)
______
34,500
______
Income tax
31,865 x 20%
2,635 x 40%
______
34,500
______
Less: DTR
6,373
1,054
(1,225)
5% x 24,500
Income tax Liability
6,202
_____
(ii)If Samuel had been UK resident since 1 May 2001, this represents at least 12
out of the previous 14 tax years. If Samuel makes the remittance basis election in
this case, the remittance basis charge (RBC) on his unremitted income and capital
gains is now 50,000 instead of 30,000.
(A)
The remittance basis election should not be made
Income tax remittance basis election

made

not made
52,900
33,377
(B)
The remittance basis election should not be made

made

not made
60,377
31,127
(C)
The remittance basis applies automatically so the answer is the same as in (i).
52
Answer 5 - Minnie, Mickey and Kitty

Car benefit
Minnie
Fuel benefit
Tax Cost
CO2 emission = 84 g/km
Minnie basic rate
Type of car = Medium emission

petrol
Car benefit in 2014/15
Income tax cost

Fuel benefit
11% 12,200
Mickey
1,342
______
746
11% 21,700
20% x (1,342 + 2,387)
2,387
______
CO2 emission = 108g/km
Mickey higher rate
Type of car = High emission

petrol
%
Income tax cost
12% + (105 95) 5 = 14%

Fuel benefit
14% 16,400 9/12
1,722
1,240
14% 21,700 9/12
40% x (822 + 2,278)
2,278
______
Less:
Amount paid to
employer towards
running costs
100 9
Kitty
(900)
______
822
______
CO2 emission = 138 g/km
Kitty
Type of car = High emission
Additional rate
Income tax cost
15% + (135 95) 5 = 23%

8,756
23% 84,600
Fuel benefit
(45% x 19,458)
Nil
______
19,458
53
A6 CHLOE SOUND
(a)
Company Car For Your Personal Use

Chloe is running the business as a company Sound Limited two completely
separate legal entities, and she is treated as an employee of the company.
Income Tax
The tax implications mean that Chloe must pay income tax on a car benefit
and a fuel benefit.
The car benefit is determined as a percentage of the cars list price when first
registered. The percentage increases from the base percentage of 12% (for
petrol cars) as the CO2 emission (pollution) increases above the base figure,
which is fixed by HM Revenue & Customs at 95 grams per kilometre. The
percentage increases by 1% for every five grams above the base figure. The
car you mention has a CO2 emission of 169 grams per kilometre, which is 70
grams above the limit (165 (round down so that it ends with a 0 or 5)
95)/5; this means the base percentage of 12% must increase by 14%. The
percentage to use is therefore 26%.
Car Benefit (26% x 15,000)
3,900
Income Tax Payable (40%)
1,560
Additionally a fuel benefit is subject to income tax as the employer (Sound

Ltd) is paying for some or all of the private fuel for the company car. This is
also based on the cars CO2 emission so the same percentage applies as for
the car benefit. This is multiplied by a base figure 21,700.
Fuel Benefit (26% 21,700) =
5,642
Income Tax Payable (40%)
2,257
It is worth noting that if the cost of the private fuel is less than 2,257, in
this case the cost of the private fuel is 850 (50% 1,700 = 850), it is
advisable for Chole to reimburse her employer the cost of all the private
fuel, as this will avoid you paying income tax of 2,257. This will save her
1,407 (2,257 850).
National Insurance
No NIC is payable by Chloe on taxable benefits.
Sound Ltd as the employer must pay class 1A national insurance on the car
benefit and also the fuel benefit (unless you pay for your private fuel) at
13.8%
Class 1A 1,317
54
(3,900 + 5,642) 13.8%
VAT
Sound Ltd is VAT registered and as such can reclaim some of the input VAT
suffered.
1
Input VAT on the purchase cost of the car is irrecoverable.
Input VAT on repairs and servicing can be reclaimed 100 (1/6 600)
No input VAT is suffered on insurance and road tax, as these are exempt
supplies.
Input VAT on the cost of private and business fuel can be reclaimed
283 (1/6 1,700) provided the output VAT is increased by the
appropriate scale charge.
Corporation Tax
Sound Ltd can reduce it trading profits by the costs incurred in running your
car (excluding VAT). The company can also claim capital allowances on the
cost of the car (including VAT).
Allowable Expenses
Insurance
Repairs (600 100)
Road Tax
Petrol (1,700 283)
Capital allowances WDA [8% x 15,000]
Class 1A
550
500
175
1,417
1,200
1,295
_____
5,137
_____
The company will save corporation tax of 1,027 (20% x 5,137).

(b)
Company Car For Ashleys Personal Use

Ashley is a shareholder of a close company. He is not an employee of Sound
Ltd and as such the income tax treatment of the car is not the same as for
you.
Income Tax
Ashley must pay income tax at 25% on a distribution. He is treated as if he
has received a dividend equivalent to the car and fuel benefit which would
have been assessable on him had he been an employee of Sound Ltd.
Dividend Received
9,542 (3,900+ 5,642)
Income Tax at 25% must be paid by Ashley 2,385

National Insurance
No NIC is payable by Ashley or by Sound Ltd.
Corporation Tax
The company will incur running costs in connection with Ashleys car. These
costs are not an allowable expense and therefore will not reduce the
companys trading profits.
55
Loan from Sound Ltd to Chloe
(1)
Corporation tax Sound Ltd

This will be a loan from a close company (Sound Ltd has two shareholders)
to a shareholder. Accordingly Sound Ltd will be required to pay HMRC
4,500 (25% x 18,000) on 1 January 2017. HMRC will repay the 4,500 to
the company nine months after the end of the accounting period in which
the loan is repaid or written- off.
(2)
Income tax Chloe
Chloe will be required to pay income tax on a loan benefit. The loan
benefit will be 585 (3.25% x 18,000) and Chloe will pay annual income
tax of 234 (40% x 585).
(3)
National insurance Sound Ltd
Sound Ltd will be required to pay class 1A national insurance of 81

(13.8% x 585).
56
A7 - JACK POT
(i)
The amount of personal pension contribution that qualifies for tax relief at
source in 2014/15 is 90,000. Greater of:
(1)
Basic amount
(2)
100% relevant earnings 270,000 5,000)
3,600
265,000
As Jack actually invests less than the maximum in 2014/15 he can only claim
tax relief on the amount invested
70,000.
(ii)
Annual allowance used by Jack in 2014/15 is 59,000. The means Jack will
get tax relief on 59,000 in 2014/15 and will have an annual allowance
charge of 11,000. The available annual allowance must be reduced by Jacks
contribution into the occupational pension scheme.
2014/15 annual allowance (40,000 -5,000)
35,000
Unused annual allowance b/f

2011/12 45,000 - 37,000)
8,000
2012/13
8,000
2013/14
8,000
______
59,000
______
Tax year
Pension payment qualifying

for tax relief(gross)
Unused annual
allowance
2011/12
37,000
8,000
(45,000 37,000)
2011/12
37,000
8,000
2012/13
37,000
8,000
Total
24,000
(iii)
The personal pension contribution that qualifies for tax relief in 2014/15 is the
lower of 70,000 (X1) and 59,000 (X2)
59,000
(iv)
Jacks annual allowance charge in 2014/15 is 11,000. The amount of

personal pension payment that qualifies for tax relief at source in 2014/15 of
70,000 is greater than Jacks total annual allowance limit of 59,000.
Annual
allowance
charge
Pension payment
qualifying for
tax relief at source in
2014/15
Annual
allowance
limit in
2014/15
70,000
59,000
11,000
57
(v)
Income tax liability 2014/15:
Employment income
270,000
Less: Payment into the occupational pension
(5,000)
Annual allowance charge
11,000
_______
276,000
Less: Personal allowance (note)
(Nil)
_______
276,000
_______
Taxable income
Income tax:
Extend basic rate band
101,865
20%
20,373
Basic band
31,865
118,135
_______
220,000
40%
47,254
Add: Extension
70,000
_______
101,865
_______
Extend additional rate band

56,000 x 45%
_______
276,000
_______
25,200
______
92,827
______
Band
150,000
Add: Extension
70,000
_______
220,000
_______
Tutorial note:
No personal allowance is available as the adjusted net income is 206,000
(276,000 70,000) which is more than 120,000.
Income tax payable if no investment is made into the personal pension
scheme is 105,377
Income tax liability 2014/15:
Employment income
265,000
_______
265,000
Less: Personal allowance (note)
(Nil)
_______
265,000
_______
Taxable income
20% x
31,865
6,373
40% x
118,135
_______
150,000
47,254
115,000
_______
265,000
_______
51,750
45% x
_______
105,377
_______
Income tax saving by investing in the personal pension plan = 26,550

Tax relief at source (20% x 70,000)
14,000
Tax relief at the end of the tax year (105,377 92,827)
12,550
26,550
58
(vi) If Jack invested 45,000 in his personal pension scheme, his annual allowance
charge is Nil.
Jack uses up his annual allowance as follows.
2014/15 Annual allowance
35,000
Used annual allowance

2011/12
8,000
2012/13
2,000
______
45,000
______
The unused annual allowance now carried forward to 2015/16 is:
2012/13
6,000
2013/14
8,000
59
A8 FRAN AND BABYFACE LTD

(a)
Disincorporation relief is available in this case because all the following
conditions are met.
-
The business is being transferred as a going concern
[]
All the assets of the business must be transferred to the shareholders (except
for any cash)
[]
The total value of any land and buildings and goodwill must not exceed
100,000.
The shareholder (in this case David) has owned the shares for at least 12
months prior to the transfer.
[]
(b) The tax cost if disincorporation relief is not claimed

Corporation tax Babyface Ltd
A chargeable gain will be realised on the disposal of the workshop of

26,000
Sale proceeds
50,000
Less: Cost
(20,000)
_______
30,000
After tax sales proceeds

Less: Indexation allowance
(4,000)
--------
Indexed gain
26,000
40,000
Profit on disposal of the intangible fixed asset

(increases the taxable trading profits)
Total increase in taxable total profits
66,000
Corporation tax Babyface Ltd

66,000 x 20%
(c)
13,200
The tax cost if disincorporation relief is not claimed

No tax cost if the joint election is made.
The cost of the workshop for Fran is deemed to be 20,000 the lower of
market value at the time of transfer 50,000 and the original cost 20,000.
The cost of the goodwill for Fran is deemed to be nil, the lower of market
value 40,000 and net book value nil.
Fran will use these deemed costs when she subsequently disposes of these
assets.
60
A9 ALAN ETHICS
(a)
The accountant should write to Alans wife and:
-
confirm the information received
advise her that any undisclosed income should be disclosed to HMRC as soon
as possible.
request her permission to disclose the information to HMRC and
set out the likely consequences to the taxpayer of the failure to disclose this
information.
The authorities should not be informed at this stage as there is still a duty of
confidentiality between the accountant and client.
If the client refuses to disclose the omission, then the accountant should:
-
cease to act for the client
inform the taxpayer in writing
inform HMRC that he no longer acts for the client, but without giving reasons
inform the firms money laundering officer of the situation who will decide if
the matter is serious enough to be reported to the National Crime Agency
(NCA).
(b)
Dishonest conduct by a tax agent
-
If a tax agent acts dishonestly when assisting a client with his tax affairs so
that there is a loss of tax, HMRC may investigate the agents conduct and
require access to files.
Penalties maybe imposed for failure to provide access to files, comprising an

initial penalty of 300 and daily penalties of up to 60 per day. Penalties may
also be imposed for the dishonest conduct ranging from 5,000 where the
agent has been cooperative in all respects to 50,000 where the agent has
been totally uncooperative. Dishonest conduct does not include negligence or
bad work.
61
A10 SOPHIE POWER

(a)
Sophies Taxable Trading profits in 2014/15 and 2015/16
2014/15
29,750
2015/16
70,062
Step 1
Accounting date
30 April
Start date
1 November 2014
First tax year
2014/15
[1]
Step 2 -Determine the tax adjusted accounting profits for each accounting period.
Accounting profit per the question

Less: Capital allowances (W1)
TAAPs
1.11.14 - 30.4.15 (6 mths)
AIA additions
1.10.14 Equipment
(13,200 - 13,200 x 1/6)
16.4.15 Shelving
(600 1/6 x 600)
AIA
49,000
72,000
[]
(13,300)
______
35,700
______
(3,276)
______
68,724
______
[]
Main
pool
Capital
allowances
11,000
500
[]
[]
______
11,500
AIA
100% 11,500
[UL = 500,000 x 6/12= 250,000]
Medium CO2 car

Cost
WDA
18% 20,000 6/12
TWDV c/f
[]
(11,500)
______
Nil
______
11,500
Nil
[]
20,000
______
20,000
(1,800)
______
18,200
[]
1,800
[]
______
13,300
______
1.5.15 30.4.16
[]
WDA
18% x 18,200
(3,276)
______
TWDV c/f
14,924
______
62
3,276
[]
______
3,276
______
Step 3
Year
Tax
year
Period of profits assessable
2014/15
1.11.14 - 5.4.15
5/6 35,700
29,750
[1]
2015/16
(30.4.15)
General rule option 1

Year ended 30.4.15 No only
Have 6 months of TAAP to 30.4.15
Special rule option 2
T= TAAP of first 12 months of trading
1.11.14 31.10.15
35,700 + 6/12 x 68,724
T=
70,062
[2]
________
10 marks
________
(b)
The extra tax cost in 2014/15 of Sophie having 29,750 of trading income is
10,548.
2014/15
Income
Taxable income
Rental
income
25,000
(10,000)
______
15,000
______
Extra income tax

20% x 16,865 (31,865 15,000)
40% x 12,885
______
29,750
______
Class 4 national insurance
9% x (29,750 7,956)
2.75 x 52 x 5/12
Trading
income
Total
29,750
______
29,750
______
3,373
5,154
_____
8,527
_____
44,750
______
8,527
1,961
60
______
10,548
______
63
(c)
Payments on account for 2015/16
31 January 2016
31 July 2016
6,744
6,744
x (8,527 + 20% x
15,000 + 1,961)
The payment on account for 2015/16 is half of Sophies income tax and class 4
national insurance contributions that she paid last year 2014/15.
Answer 11 Josie Jones

Taxable trading profit in 2014/15 is 64,000
Answer A

9% x (41,865 7,956)
3,052
2% x (64,000 41,865)
443
-----3,495
-------
36
2.75 x 52 x 3/12
-------
Total national insurance = 3,531

Step 1
Accounting date:
30 April
Stop date:
30 June 2014
Final tax year:
2014/15
64
Step 2
Determine the tax adjusted accounting profits.
Profits
Capital
Allowances
Tax adjusted
account profits
1/5/13 30/4/14
98,200
(2,376)
95,824
1/5/14 30/6/14
16,600
(6,724)
9,876
Main
pool
Capital
allowances
Capital allowances
y/e 30/4/14
TWDV b/f
13,200
WDA 18% 13,200
(2,376)
______
10,824
TWDV c/f
1/5/14 30/6/14
Additions
3,600
Disposal
(7,700)
______
6,724
Balancing allowance
2,376
_____
2,376
_____
6,724
______
6,724
______
Step 3
Convert into taxable trading profits by applying the closing year rules.
Tax year
Taxable period
2014/15
1/5/13 30/6/14
95,825 + 9,876 =
Taxable
trading
profit
105,700
Less:
Overlap profits
(41,700)
_______
64,000
_______
64,000
______
65
A12 ZITI
Answer B
2015/16
Cessation
31.1.16
2016/17
100,000
30.4.16
54,000
Nil
61,000
Total income
tax
29,267
Difference
4,013
11,227
+
14,027
-------25,254
Calculations comparing the two possible methods of disposal

Option (1) Ziti closes down the business on 31 January 2016
(1)
Taxable trading profits if Ziti closes down the business
2014/15
55,000
2015/16
100,000
These figures are calculated as follows.

Step 1
Accounting date:
30 April
Stop date:
31 January 2016
Final tax year:
2015/16
AP final ends:
31 January 2016
[]
Step 2
Determine the tax adjusted accounting profits for each accounting
period.
Profit
(CA)/ +BC
TAAPs
y/e 30.4.14
66
55,000
1.5.14 30.4.15
5,000 12
60,000
1.5.15 31.1.16
5,000 9
45,000
(6,000) (W1)
BC = 10,000 (W1)
54,000
[1]
55,000
Working
(W1) Capital allowances for each accounting period
AIA
Main
pool
Capital
allowances
1.5.14 30.4.15
TWDV b/f
Nil
Add: AIA
Additions in accounting period
Equipment
6,000
Less: AIA
(6,000)
_____
Nil
_____
TWDV c/f
6,000
Nil
______
Nil
[]
[]
______
6,000
______
1.5.15 31.1.16 (final accounting period)

Disposal
(10,000)
______
(10,000)
______
Nil
______
Balancing charge
TWDV c/f
[]
(10,000)
[]
______
(10,000)
______
Step 3
Determine the taxable trading profits.
TAAPs
Taxable trading profits for each tax year
Convert using closing year rules
Year
Tax year
Taxable period
Taxable
trading
profits
2014/15
y/e 30.4.14
2015/16
(final tax
year)
1.5.14 31.1.16
54,000 + 55,000
Less
55,000
109,000
(9,000)
_______
100,000
_______
[]
[1]
[]
100,000
67
Income tax 2015/16

2015/16

100,000
(10,000)
_______
90,000
_______
31,865 20%
58,135 40%
______
90,000
______
6,373
23,254
[]
[]
[1]
______
29,627
______
Option (2) Ziti Sells the business as a going concern on 30 April

2016
(1)
Taxable trading profits if the business is sold as a going

concern in the following tax years
2014/15
55,000
2015/16
54,000
2016/17
61,000
Step 1
Accounting date:
30 April
Stop date:
30 April 2016
Final tax year:
2016/17
AP final ends
30 April 2016
[]
Step 2
Determine the tax adjusted accounting profits for each accounting
period.
y/e 30.4.14
y/e 30.4.15
y/e 30.4.16
5,000 12
68
Profit
(CA)/+BC
TAAPs
BC = 10,000
55,000
54,000
70,000
60,000
[1]
Step 3
TAAPs
Taxable trading profits for each tax year
Convert
Year
Tax year
Taxable period
(T)
2014/15
y/e 30.4.14
55,000
[]
2015/16
y/e 30.4.15
54,000
[]
2016/17
(final tax
year)
1.5.15 30.4.16
Less:
Overlap profits
70,000
[]
(9,000)
______
61,000
______
[]
61,000
Income tax
2015/16
Taxable trading profit

Less:
Personal allowance
Taxable income
31,865 20%
12,135 19,135 40%
______ ______
44,000 51,000
______ ______
2016/17
54,000
61,000
[]
(10,000)
______
44,000
______
(10,000)
______
51,000
______
[]
6,373
4,854
6,373
7,654
______
11,227
______
______
14,027
______
[]
69
A13 - HARRY, NATALIE AND KATY

(a)
Allocation of partnership profits between Harry, Natalie and Katy
Determine the accounting date =
Harry
Natalie
Katy
Start date
1.10.14
First tax year has T
2014/15
AP (1) begins on
1.10.14
Stop date
30.9.14
Final tax year has T
2014/15
Step 2
Determine the tax adjusted accounting profit for each accounting period, if
necessary by adjusting the accounting profits and calculating the capital allowances
for each accounting period.
Year ended 31.12.14
266,600
Year ended 31.12.15
289,000
Capital
allowance
TAAP of the
partnership
(20,000)
246,600
289,000
Share the profits between the partners according to the PSA during the accounting
period.
Share the profits between the partners according to the PSA during the accounting
period.
1.1.14 30.9.14 (9M)
Total
Harry
Natalie
Salary
18,000
9,000
9,000
Interest
47,250
13,500
33,750
119,700
_______
184,950
_______
34,200
______
56,700
______
85,500
_______
128,250
_______
Katy
9% x 200,000 x 9/12
9% x 500,000 x 9/12
Balance (2:5)
9/12 x 246,600
70
______
Nil
______
1.10.14 31.12.14
(3m)
Total
Salary (3/12)
Harry
Natalie
Katy
6,750
3,000
3,750
11,250
4,500
6,750
43,650
______
61,650
______
21,825
______
29,325
______
21,825
______
32,325
______
246,600
86,025
128,250
32,325
Total
Harry
Natalie
Katy
Salary
27,000
12,000
15,000
Interest
45,000
18,000
27,000
Balance
217,000
_______
289,000
_______
108,500
_______
138,500
_______
108,500
_______
150,500
_______
Interest (3/12)
9% x 200,000 x 3/12
9% x 300,000 x 3/12
Balance (1:1)
Summary of tax adjusted accounting profits of each partner

Harry
Year ended 31.12.14
128,250
1.10.14 31.12.14
Katy
86,025
1.1.14 30.9.14
Year ended 31.12.15
Natalie
32,325
138,500
150,500
71
(b)
The taxable trading profits of Harry, Natalie and Katy
Step 3
Harry (middle of the trading cycle)
Tax year
Tax year
2014/15
Year ended 31.12.14
86,025
2015/16
Year ended 31.12.15
138,500
Natalie (end of the trading cycle)

Tax year
Tax year
Final tax
year
2014/15
1.1.14 30.9.14
128,250
Less: Overlap profits
(14,300)
Less: Overlap profits
(9,500)
_______
104,450
_______
104,450
Katy (beginning of trading cycle)
Tax year
Tax year
2014/15
1.10.14 5.4.15
32,325 + 3/12 x 150,500
2015/16
69,950
Year ended 31.12.15
150,500
Overlap profits of Katy are 37,625 (3/12 x 150,500)
72
(c)
Income tax and national insurance contributions from Natalie in 2014/15
Income tax liability in 2014/15 payable by Natalie
104,450
Adjusted net income

Net income
104,450
Less:
Personal pension
9,600 x 100/80
Adjusted net income
Taxable income
(12,000)
_______
92,450
______
(10,000)
_______
94,450
_______
Income tax
43,865 20%
8,773
50,585 40%
_______
94,450
_______
20,234
Extend basic rate band

Basic band
31,865
Add:
_______
29,007
_______
Personal pension
12,000
_______
43,865
_______
National insurance contributions in 2014/15 payable by Natalie

Class 2 NIC (6.4.14 30.9.14)
2.75x 52 x 6/12
71
Class 4 NIC
9% x (41,865 7,956)
3,052
2% x (104,450 41,865)
1,252
4,304
73
A14 - BARRY BLOCK

(a)
The conditions to use the cash basis
(i)
The annual turnover must not exceed 81,000
(ii)
The business must belong to a sole trader or a partnership
(iii)
The business can continue using the cash basis if the turnover exceeds
81,000 but must stop using it once turnover reaches 162,000.
The rules that apply when calculating the taxable trading profits using
the cash basis
(1)
For sales receipts during the tax year and include any sales of plant and
machinery (ignore sales of cars)
(2)
Purchases during the tax year, include the cost of any plant and
machinery bought during the tax year (ignore motor cars)
(3)
If a car is used for business use, deduct AMAP when calculating the
motor expenses figure.
(4)
If the trader uses his home to carry on his business then the allowable
expense is a fixed flat rate deduction which will be given in the exam.

(b)
Tax adjusted trading profits using the normal

rules
Sales revenue receivable in the tax year
75,750
Less: Cost of sales

Purchases of inventories
20,000
Less: Closing inventories
(680)
______
19,320
______
Cost of sales
(19,320)
Less: Allowable expenses

Motor expenses
3,600 x 12,000/16,000
(2,700)
Other expenses payable

17,600 + 400
(18,000)
Less: Capital allowances

AIA 100% x 2,500
+ WDA 8% x 15,000 x 12000/16,000
Tax adjusted accounting profits
74
(3,400)
______
32,330
______

(ii)
Tax adjusted trading profits using the cash

basis
Sales revenue received in the tax year

Less: Purchases of inventories
75,000
(20,000)
Less: Allowable expenses

Motor expenses
10,000 x 45p + 2,000 x 25p
(5,000)
Cost of computer
(2,500)
Other expenses paid in the tax year

Tax adjusted accounting profit
(17,600)
______
29,900
______
It is advisable for Barry to use the cash basis as this will minimise the amount of
income tax and class 4 national insurance payable in 2014/15.
(d) The difference in the tax cost is reduction in his total tax by 705 [29% x
(32,330 29,900)].
75
A15 BOUNCY LTD

Input VAT that can be recovered by Bouncy Ltd in respect of the new premises is
57,810
Answer D
-
Bouncy Ltd is a partially exempt business.

The general rule states that for these businesses only part of the input VAT
suffered by the business is recoverable.
It is possible for the company to apply the percentage for last year, which is
beneficial in this case as the percentage attributable to exempt supplies is
expected to increase in the future.
Input VAT recoverable = 57,810 (481,750 1/6 72%).
Bouncy Ltd
The input VAT which must be repaid to HMRC next year is 642.
Answer A
Capital goods scheme
-
For partially exempt businesses buying premises, the capital goods scheme
applies to them if the premises cost > 250,000.
This scheme assumes that the input VAT reclaimed on the premises (72%)
applies to the period of ownership of the building up to a maximum of ten
years.
Each year the company must make an annual adjustment, if the proportion of
exempt/taxable supplies increases or decreases. The annual adjustment will
mean the company either reclaims some extra input tax or repays some input
tax.
If the proportion of taxable supplies reduces to 64%, the annual adjustment
means that additional input VAT must be repaid to HMRC for the year ended
31 March 2014.
481,750 1/6 (72 - 64) % = 642
_____________
10
76
Answer 16 Sally Slim

(a)
Factors that will influence an individuals choice of loss relief claim are:
(i)
The rate of income tax or capital gains tax at which relief will be
obtained, with preference being given to income or capital gains charged
at the highest rate.
(ii)
The timing of the relief obtained, with a claim against total income/
capital gains of the current year or preceding year resulting in earlier
relief than a carry forward claim against future trading profits.
(iii)
The extent to which the income tax personal allowance and the capital
gains tax annual exempt amount will be wasted by using a claim against
total income/capital gains.
(b)The alternative strategies available to relieve the loss

S.64 current Deduct the trading loss from total income in 2014/15
S.64 carry back- Deduct the trading loss from total income in 2013/14
S.261 current Deduct the unrelieved trading loss from chargeable gains
of 2014/15.
(c) The recommended strategy for relieving Sallys trading loss realised in
2014/15 is determined using the exam technique below
Step 1
Accounting date
Start date
= 1.6.05
First tax year
= 2005/06
Step 2
Adjust the accounting profits/ losses; compute the capital allowances for each
accounting period.
77
Step 3
Find the loss available, and assessments of the new business
Step 4 List the possible ways of relieving the loss
Option 1
2014/15
(84,000)
Option 2
Option 3
S.64
S.261
S.64
S.261
S.83
S.64
S.64
S.261
Current
Current
C/back
C/back
C/f
C/back
Current
Current
2014/15
2014/15
2013/14
2013/14
2015/16
2013/14
2014/15
2014/15
Nil
18,742
14,499
3,444
1,720
14,499
Nil
6,300
+
1,230
18,742
Tax
19,663
22,029
saving
It is recommended that the trading loss is relieved under option 3 as this

saves the most tax. The calculations of the tax saving from each option is
shown below.
Step 5 evaluate the tax saving from each option listed above and complete
the summary table.
Option 1 S.64 current + S261 current

(i) S.64 Current in 2014/15
Income tax
Total income
Before deducting
the loss
After deducting
the loss
2014/15
2014/15
9,400
9,400
S.64 Current
Net income
Taxable income
Income tax
78
(9,400)
Loss Memo
84,000
S.64
(9,400)
-------
--------
--------
9,400
Nil
74,600
(10,000)
(10,000)
--------
-------
Nil
Nil
-------
-------
Nil
Nil
S.261 (74,600)
--------Nil
-------
Conclusion - No income tax is saved

(ii) S.261 Current in 2014/15
Capital gains tax
Before deducting
the loss
After deducting the

loss
2014/15
2014/15
96,000
96,000
Chargeable gains
S.261 Current
Less: AE
Taxable gains
(74,600)
-------
--------
96,000
21,400
(11,000)
(11,000)
--------
-------
85,000
10,400
CGT
X 18%
31,865 x 18%
5,736
53,135 x 28%
14,878
-------
-------
-------
85,000
20,614
1,872
CGT saving 18,742
--------
-------
(20,614 1,872)
Option (2) S.64 carry back + S261 carry back + S83 carry forward
(i) S.64 carry back to 2013/14

Income tax
Total income
Before deducting
the loss
After deducting
the loss
2013/14
2013/14
62,260
62,260
S.64 Carry back

Net income
Taxable income
(52,100)
-------
--------
62,260
10,160
(10,000)
(10,000)
--------
-------
52,260
160
-------
-------
Income tax
84,000
S.64
(52,100)
31,900
S.261 (23,300)
8,600
S.83
(8,600)
Nil
X 20%
31,865 x 20%
6,373
20,395 x 40%
8,158
-------
52,260
14,531
32
-------
--------
-------
Loss Memo
Income tax saving

14,499
(14,531 32)
79
(ii) S.261 Carry back in 2013/14

Before
deducting the
loss
After deducting
the loss
2013/14
2013/14
Chargeable gains
23,300
S.261 Carry back
23,300
(23,300)
-------
--------
23,300
Nil
(11,000)
(11,000)
--------
-------
Taxable gains
12,300
Nil
12,300 x 28%
3,444

Less: Annual Exempt Amount
X 18%
CGT saving
Nil
3,444
Option 2 - S.83 Carry forward to 2015/16
Trading profits
Before
deducting the
loss
After
deducting the
loss
2015/16
2015/16
14,200
14,200
S.83 carry forward

Rental income
Total income
Taxable income
Income tax
(8,600)
9,000
9,000
-------
--------
23,200
14,600
(10,000)
(10,000)
--------
-------
13,200
4,600
-------
-------
2,640
920
IT saving
1,720
80
Option 3 S.64 carry back + S64 current and S.261 current
S.64 carry back to 2013/14

Before deducting
the loss
After deducting
the loss
2013/14
2013/14
62,260
62,260
Total income
S.64 Carry back
Net income
Taxable income
(52,100)
Loss Memo
84,000
S.64
(52,100)
-------
--------
--------
62,260
10,160
31,900
(10,000)
(10,000)
--------
-------
52,260
160
-------
-------
-------
X 20%
Nil
S.64
(9,400)
22,500
S.261 (22,500)
------Income tax
31,865 x 20%
6,373
20,395 x 40%
8,158
-------
------
-------
52,260
14,531
32
-------
--------
-------
Capital gains tax in 2013/14

Before deducting
the loss
After deducting the

loss
2013/14
2013/14
23,300
23,300
-------
--------
23,300
23.300
(11,000)
(11,000)
--------
-------
Taxable gains
12,300
12,300
12,300 x 28%
3,444
Chargeable gains

12,300 x 18%
2,214
Conclusion The capital gains tax saving is 1,230 (3,444 2,214)
81
Option 3 - S.64 Current in 2014/15

Before deducting the
loss
After deducting
the loss
2014/15
2014/15
9,400
9,400
Total income
S.64 Current
Net income
(9,400)
-------
--------
9,400
Nil
(10,000)
(10,000)
--------
-------
Nil
Nil
-------
-------
Nil
Nil
Taxable income
Income tax
Option 3 - S.261 current in 2014/15
Chargeable gains
Before deducting the

loss
After deducting
the loss
2014/15
2014/15
96,000
96,000
S.261 Current
(22,500)
-------
--------
96,000
73,500
(11,000)
(11,000)
--------
-------
85,000
62,500
-------
-------
5,736
5,736
53,135/30,635 x 28%
14,878
8,578
-------
-------
-------
85,000
20,614
14,314
--------
-------

Taxable gains
CGT
31,865 x 18%
Conclusion The capital gains tax saving is 6,300 (20,614 14,314).
82
QUESTION 17 BLU REDDY

Inheritance tax payable as a result of a gift into the trust
The value of the chargeable lifetime transfer is calculated using the
diminution in value principle
Before
After
No.
No.
Blu Reddy
300,000
100,000
Wife
100,000
100,000
--------
--------
400,000
200,000
---------
---------
80%
40%
MV per share
[1]
Value before
300,000 4
1,200,000
[]
100,000 2
(200,000)
_________
[]
Value of CLT
1,000,000
_________
Value after
(1)
IHT paid during the donors lifetime if the trustee pays the IHT
135,000.
Computation 1 IHT payable during Blu Reddys lifetime
Description
NRB in 2014/15 = 325,000
15/1/2015 CLT1 1,000,000
[1]
Gross
IHT
Net
1,000,000
135,000
865,000
IHT
(1,000,000 325,000) 20%
(2)
IHT paid during the donors lifetime if the Blu pays the IHT 168,750.
Computation 1 IHT payable during Blu Reddys lifetime
Description
NRB in 2014/15 = 325,000
15/1/2015 CLT1 1,000,000
[1]
Gross
IHT
Net
1,168,750
168,750
1,000,000
IHT
(1,000,000 325,000) 25%
83
Computation 2 Additional IHT payable as a result of Blu

Reddys death on 30 June 2019
Additional IHT payable by the trustee (the donee) when Blu dies is
33,750.
Description
Gross
IHT
15/1/15 CLT1(computation 1) 1,168,750
337,500
[1]
4-5 years (40%)
(135,000)
[1]
Less: IHT paid(computation 1)
(168,750)
_______
33,750
_______
[1]
NRB in 2019/20 325,000

IHT (1,168,750 325,000) 40%
Less: Taper relief
IHT payable on Blus death
84
___
6
___

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Extra Book (E-book)

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ANSWERS TO EXTRA QUESTIONS

KEY QUESTIONS LEADING TO SUCCESS

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Investment income and

Boson and Higgsia

Companies & shareholders

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Personal tax and Ethics

EXAM TIPS FOR ACCA P6 JUNE 2015

Capital gains tax

Tax implications of making lifetime gifts into a trust.

Disposal of shares using matching rules and takeovers and mergers.

Overseas aspects of capital gains and the temporary residence rules.

Companies and corporation tax

Company selling shares and the substantial share exemption or a company

Companies choosing how to allocate chargeable gains

How to share the annual investment allowance between companies in a 75%

A long period of account for companies, payment of corporation tax by

Overseas branch v subsidiary and transfer pricing

Close companies, benefits to shareholders and loans made by a close

Badges of trade, partnership with a partner joining/leaving with opening

Cash basis of accounting for small businesses

Disincorporation of a business, conditions for disincorporation relief

Employment income - making choices between extra salary or various

Investments into a personal pension scheme versus occupational

Self-assessment for individuals, consequences of filing the tax return late

Errors on the return and penalties prompted and unprompted disclosure.

Group registration for VAT, conditions, advantages and disadvantages.

Overseas aspects of VAT including exports and imports.

Duties of a senior accounting officer, retention of a tax refund or the

QUESTION 1 APPLE LTD GROUP