ACCA

Paper F6
Taxation
Tuition Mock Examination
December 2010
Question Paper

ALL FIVE questions are compulsory and MUST be attempted.

Rates of tax and tables are printed on pages 3–5.

Time Allowed 15 minutes Reading and planning

3 hours Writing

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS
© The Accountancy College Ltd, October 2010.
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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permission of The Accountancy College Ltd.

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SUPPLEMENTARY INSTRUCTIONS
1 Calculations and workings need only be made to the nearest £.
2 All apportionments should be made to the nearest month.
3 All workings should be shown.

TAX RATES AND ALLOWANCES

The following tax rates and allowances are to be used in answering the
questions.

Income tax
2009/10 %
Basic rate £1 to £37,400 20
Higher rate £37,401 and above 40
A starting rate of 10% applies to savings income where it falls within the first
£2,440 of taxable income.

Personal allowances

£
Personal allowance 6,475
Personal allowance for those aged 65 to 74 9,490
Personal allowance for those aged 75 and over 9,640
Income limit for age-related allowances 22,900

Cars benefit percentage

The base level of CO2 emissions is 135 grams per kilometre. A lower rate of 10%
applies to petrol cars with CO2 emissions of 120 grams per kilometre or less.

Car fuel benefit

The base level figure for calculating the car fuel benefit is £16,900.

Authorised mileage allowance payments (AMAP)

First 10,000 business miles 40p per mile
Any business miles above 10,000 25p per mile.

Pension scheme limits

Annual allowance £245,000
Lifetime allowance £1,750,000
The maximum contribution that can qualify for tax relief without any earnings is
£3,600.

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 Capital allowances

Plant and machinery

General Pool – First year allowance (6.4.09 – 5.4.10) 40%
- Writing down allowance 20%
Special rate pool – Writing down allowance 10%

Motor cars
CO2 emission up to 110g per kilometre 100%
CO2 emission between 111 and 160g per kilometre 20%
CO2 emission over 160g per kilometre 10%
Annual investment allowance £50,000
Writing down allowance 20%
Enhanced capital allowances (ECA) on energy saving and water saving plant
100%

Industrial buildings allowance

Writing down allowance 2%

Corporation tax

Financial year 2006 2007 2008 2009

Small companies rate 19% 20% 21% 21%

Full rate 30% 30% 28% 28%

Lower limit (£) 300,000 300,000 300,000 300,000

Upper limit (£) 1,500,000 1,500,000 1,500,000 1,500,000

Marginal relief fraction 11/400 1/40 7/400 7/400

Marginal relief
(M – P) × I/P × Marginal relief fraction

Extended loss relief

Extended loss relief is capped at a maximum of £50,000. For limited companies it
applies to loss making accounting periods ending between 24 November 2008 and
23 November 2010.

Value added tax

Registration limit £68,000
Deregistration limit £66,000
Standard rate – up to 31 December 2009 15%
- from 1 January 2010 onwards 17.5%

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 Rates of interest
Official rate of interest: 4.75%
Interest on underpaid tax: 2.5% (assumed)

Capital gains tax

£
Annual exemption for individuals 10,100
Rate of CGT for individuals 18%

Entrepreneurs’ relief

Lifetime limit £1,000,000

Reducing fraction 4/9

National Insurance (not contracted out rates)

Class 1 Employee
£1 to £5,715per year Nil
£5,716 to £43,875 per year 11%
£43,876 and above per year 1%

Class 1 Employer
£1 to £5,715 per year Nil
£5,716 and above per year 12.8%
Class 1A 12.8%

Class 2 Small earnings exception limit £5,075

£2.40 per week

Class 4
£1 to £5,715 per year Nil
£5,436 to £43,875 per year 8%
£43,876 and above per year 1%

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ALL FIVE questions are compulsory and MUST be attempted

1
Matthew Gilham is the managing director of Sparkle Ltd, a cleaning company that
he set up 5 years ago. His wife Gemma recently started her own business – GG’s
horse riding school.
The following information is available for the tax year 2009/10:

Matthew Gilham
1. Matthew receives director’s remuneration of £3,500 per month from Sparkle
Ltd.
2. Sparkle Ltd provides Matthew with a diesel powered company car with a list
price of £54,000. The car originally cost the company £38,000 and is
currently worth £24,000. Matthew contributed £8,000 towards the original
cost of the car. The CO2 emission rate of the car is 212 grams per kilometre.
The company also provides fuel for both business and private journeys and
Matthew contributes £50 per month towards the private fuel.
3. From 6 October 2009, Sparkle Ltd will pay for Matthew’s private healthcare at
an annual cost of £620.
4. Matthew pays an annual professional subscription of £350 to the Institute of
Directors.
5. In addition to a £9,000 dividend he received from Sparkle Ltd on 1 July 2009,
Matthew also received dividends of £900 from other small investments in
2009/10.
6. Matthew received £860 interest from his building society account and £260
from his Individual Savings Account (ISA)
7. Matthew contributed £350 per month into his personal pension scheme.

Gemma Gilham
1. Gemma commenced self employment on 1 May 2009 when she opened her
horse riding school. She prepared her first set of accounts to 30 June 2010.
2. Gemma’s profit and loss account for the period to 30 June 2010 is as follows:
£ £
Gross Profit 26,100
Expenses
Motor expenses (3) 3,750
Insurance 1,250
Professional Fees (4) 800
Telephone 750
Other Expenses (5) 1,900
Depreciation 2,600 11,050
Net Proft 15,050
1. Motor expenses include £1,600 relating to a car of which Gemma has
60% private use.
2. Professional fees include £500 accountancy fees and £300 allowable
legal advice.

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 3. Other expenses includes £100 donation to a local horse sanctuary, £30
parking fine and £500 for 100 promotional calendars given to new
customers. The remaining expenses are all allowable.
4. Capital Allowances for the period ended 30 June 2010 are £6,800.
5. Gemma received £360 interest from her bank account.

Other Information
Matthew and Gemma jointly own a property that they rent out. In 2009/10 the
rental income accrued, net of expenses was £4,600.

Required:
(a) Calculate Matthew’s employment income for 2009/10 (5 marks)
(b) Calculate Gemma’s trading income for 2009/10 and 2010/11, clearly
identifying any overlap profits (8 marks)
(c) Calculate the income tax liability for both Matthew and Gemma for
2009/10 (9 marks)

(d) How could they have arranged their affairs in a more tax efficient
manner? (3 marks)
(25 marks)

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2
(a) Major Ltd is a manufacturing company which has been trading for many
years. It owns the following shares in other companies:
Minor Ltd 60%
Cellar Inc 90%
Yale Gmbh 10%
Cellar Inc and Yale Gmbh are both resident overseas.
Major Ltd has always prepared its accounts to 31 March, but has decided to
change its accounting date to 30 September. The following information is
available:

Trading Profits
The tax adjusted trading profit, before capital allowances, for the six month
period ended 30 September 2009 is £206,900.

Plant and Machinery

The accounts show the following additions and disposals:
£
1 May 2009 Purchased machinery 46,700
10 July 2009 Purchased a BMW motor car – CO2 emissions 155g/km 35,000
8 August 2009 Purchased a Ford motor car – CO2 emissions 105g/km 10,000
24 August 2009 Purchased machinery 21,500

21 April 2009 Sold Mercedes motor car 20,100

The BMW is used 30% for private use by the managing director.
The tax written down values brought forward at 1 April 2009 are as follows:
£
General pool 36,100
Mercedes car 25,400

Dividends received
During the period ended 30 September 2009 the following dividends were
received from its investments:
£
Minor Ltd 10,500
Cellar Inc 56,100
Yale Gmbh 3,600

Interest received
The company received interest of £10,600 from its bank account.

Interest payable
Loan interest of £3,000 was payable in respect of a loan taken out to
purchase the shares in Cellar Inc.

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 Disposal
Major Ltd sold an office building on 10 August 2009 for £580,600. The
building had been purchased on 10 March 2007 for £510,300. The indexation
allowance for this period is £52,200.

Required:
Calculate Major Ltd’s corporation tax liability for the 6 month period
ended 30 September 2009, clearly stating the due date for payment.
(16 marks)
(b) On 1 January 2010 Major Ltd intends to purchase 80% of the share capital in
another UK resident company – Small Ltd. Small Ltd has historically made
trading losses and is expected to do so in the foreseeable future.

Required:
Explain the tax implications of purchasing the shares in Small Ltd.(6 marks)
(c) Major Ltd intends to purchase a new freehold factory in March 2010. The
purchase price is expected to be in the region of £600,000.

Required:
Explain any reliefs or allowances that are available to reduce or defer
the company’s corporation tax liability if the intended purchase goes
ahead. (4 marks)
(d) Major Ltd employs a full time managing director to oversee the running of the
company. He has a salary of £54,000 and has the use of a company car with
a taxable benefit of £5,100.

Required:
Calculate all national insurance contributions relating to the
managing director’s salary and company car. (4 marks)
(30 marks)

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3

(a) Peter Morrison has recently decided to retire and invest in a holiday home in
Spain. In order to do this he has had to sell some assets.
During 2009/10 Peter has made the following disposals:
1. Unquoted shares
Peter sold his shares in Mega Magnets Ltd to his son on 14 May 2009 for
£15,100. They had been purchased in January 2006 for £9,500 and
were worth £25,000 in May 2009. Peter has never worked for Mega
Magnets Ltd.
2. Sole trader business
Peter has run his sole trader business since January 1995, but decided to
retire and sell his business on 25 July 2009 for £495,000. This was made
up as follows:

OMV July 2009 Cost January 1995

Goodwill 150,000 -
Freehold property 300,000 120,000
Net current assets 45,000 30,000
495,000 150,000
3. Antique table
On 1 October 2009 Peter sold his antique table for £7,600. He had
originally been given the table in May 2000 when it was worth £4,800.
4. Quoted shares
Peter purchased 1,000 shares in Blueprint plc for £3,000 in July 2000.
He then took up a rights issue of 1 for 2 in January 2003 paying £2.50
per share. Peter sold 1,000 shares on 3 December 2009 for £4,500.
5. Motor vehicle
Peter sold his vintage motor car on 10 February 2010 for £8,900. He
had purchased the car in August 2008 for £6,100 and spent £1,100
restoring it to its present condition.
Peter has capital losses brought forward from earlier years of £36,800.

Required:
(i) Calculate Peter’s capital gains tax liability for 2009/10 and state
the due date for payment. Assume Peter makes no claims for
reliefs other than Entrepeneurs’ relief. (12 marks)
(ii) Explain any reliefs available that would enable Peter to defer
some of the capital gains. Clearly show calculations to illustrate
the amount that could be deferred. (4 marks)

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(b) Peter’s wife Mary also decided to sell some shares that she had held for many
years. The following information is available:
25 October 2001 Purchased 3,000 shares in Mirror Image Plc for £2,400
12 May 2005 Mirror Image Plc was taken over by Black Glass Plc.
Mary received two £1 ordinary shares and 50p cash for
every 3 Mirror Image Plc shares. Immediately after the
takeover each £1 ordinary share in Black Glass Plc was
quoted at £3.50.
10 September 2009 Sold all shares in Black Glass Plc for £8,200.

Required:
Calculate Mary’s capital gains tax liability for 2009/10 assuming no
other disposals. (4 marks)
(20 marks)

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4
Candy Ltd is a confectionery company. It has been suffering from declining
turnover in recent years and therefore the directors decided to cease trading on 30
June 2009.
Recent results have been as follows:

y/e y/e 3 m/e y/e y/e

31.03.06 31.03.07 30.06.07 30.06.08 30.06.09
£ £ £ £ £
Trading profit/(loss) 26,000 47,000 5,000 30,000 (142,000)

Interest income 6,000 4,000 800 2,600 2,100

Chargeable gains/(loss) - 16,000 - (18,000) 24,000

Gift Aid donations (5,000) (5,000) - (5,000) (5,000)

Required:
(a) Calculate Candy Ltd’s PCTCT for all the above accounting periods,
assuming the company claims relief for its losses as early as possible.
Clearly state any unrelieved amounts as at 30 June 2009. (9 marks)
(b) How would your answer differ if the company had continued trading?
(6 marks)
(15 marks)

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5
(a) Management Services Ltd is VAT registered. The following information is
available for the quarter ended 31 March 2010:
£
Sales – standard rated 15,600
Sales – zero rated 3,300
Expenses – standard rated 2,600
Expenses – zero rated 800
The above figures exclude VAT.

Required:
(i) Calculate the amount of VAT payable by Management Services
Ltd for the quarter ended 31 March 2010 and state the due date
for payment. (3 marks)
(ii) Advise Management Services Ltd whether it would be beneficial
to use the flat rate scheme, assuming the applicable flat rate
percentage is 9%. (3 marks)
(b) Management Services Ltd issued an invoice for £3,300 + VAT in October 2009
to a customer who has now gone into liquidation. Management Services Ltd
intends to write off the bad debt and wish to reclaim the output VAT.

Required:
Explain the conditions that need to be met to enable Management
Services Ltd to reclaim the VAT on the bad debt. (2 marks)
(c) Management Services Ltd is about to start offering customers an early
settlement discount of 10% if they settle their invoice within 21 days. The
financial controller is unsure whether this will have an impact on the VAT
calculation.

Required:
Explain whether the early settlement discount will impact on the VAT
calculation. (2 marks)
(10 marks)

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