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PROFESSIONAL LEVEL TAX COMPLIANCE, Exercises of Finance

Birmingham City UniversityFinance

Assume that the Finance Act 2020 rates and allowances as set out in the ICAEW Learning Materials for exams in 2021 will continue to apply in ...

Typology: Exercises

2021/2022

Uploaded on 09/27/2022

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PROFESSIONAL
LEVEL
TUESDAY 7 SEPTEMBER 2021
2.5 HOURS
TAX COMPLIANCE
This exam consists of five questions (100
marks).
Marks breakdown
Question 1 7 marks
Question 2 13 marks
Question 3 25 marks
Question 4 20 marks
Question 5 35 marks
Assume that the Finance Act 2020 rates
and allowances as set out in the ICAEW
Learning Materials for exams in 2021
will continue to apply in 2020/21 and
future years unless you are specifically
instructed otherwise.
The relevant Hardman's Tax Rates and
Tables book is available as a resource
in each question.
Important Information:
1. Please read the instructions carefully
before you begin your exam.
Starting and ending the exam
2. Click on the right arrow in the header to
begin the exam. The exam timer will
begin to count down.
3. A warning is given five minutes before
the exam ends. When the exam timer
reaches zero, the exam will end. To end
the exam earlier, navigate to the last
question and click the right arrow button.
Click the Submit button to close the
exam.
Encountering issues during the exam
4. If you encounter any issues during the
delivery of the exam you should alert the
invigilator (or online chat support if you
are sitting remotely). Neither the
invigilator nor the online chat support
can advise you on how to use the
software.
Preparing your answers
5. Respond directly to the exam question
requirements. Do not include any
content of a personal nature, this
includes your name or any other
identifying content.
6. You may use a pen and paper for draft
workings. Any information you write on
paper will not be read or marked.
7. The examiner will take account of the
way in which your answers are
structured. You must make sure your
answers and workings are clearly visible
in the word processing area when you
submit your exam. Only your answer in
the word processing area will be
marked. You must copy over any data
from the spreadsheet area to the
word processing area for marking.
The examiner will not be able to expand
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Partial preview of the text

Download PROFESSIONAL LEVEL TAX COMPLIANCE and more Exercises Finance in PDF only on Docsity!

PROFESSIONAL

LEVEL

TUESDAY 7 SEPTEMBER 2021

2.5 HOURS

TAX COMPLIANCE

This exam consists of five questions ( marks). Marks breakdown Question 1 7 marks Question 2 13 marks Question 3 25 marks Question 4 20 marks Question 5 35 marks Assume that the Finance Act 2020 rates and allowances as set out in the ICAEW Learning Materials for exams in 2021 will continue to apply in 2020/21 and future years unless you are specifically instructed otherwise. The relevant Hardman's Tax Rates and Tables book is available as a resource in each question.

Important Information:

  1. Please read the instructions carefully before you begin your exam. Starting and ending the exam
  2. Click on the right arrow in the header to begin the exam. The exam timer will begin to count down.
  3. A warning is given five minutes before the exam ends. When the exam timer reaches zero, the exam will end. To end the exam earlier, navigate to the last question and click the right arrow button. Click the Submit button to close the exam. Encountering issues during the exam
  4. If you encounter any issues during the delivery of the exam you should alert the invigilator (or online chat support if you are sitting remotely). Neither the invigilator nor the online chat support can advise you on how to use the software. Preparing your answers
  5. Respond directly to the exam question requirements. Do not include any content of a personal nature, this includes your name or any other identifying content.
  6. You may use a pen and paper for draft workings. Any information you write on paper will not be read or marked.
  7. The examiner will take account of the way in which your answers are structured. You must make sure your answers and workings are clearly visible in the word processing area when you submit your exam. Only your answer in the word processing area will be marked. You must copy over any data from the spreadsheet area to the word processing area for marking. The examiner will not be able to expand

rows or columns where content is not visible. After the exam

  1. If you are sitting in an exam centre and believe that your performance has been affected by any issues which occurred during the exam, you must inform your invigilator at the time of the occurrence and follow up with ICAEW directly after your exam. You will then need to submit a special consideration application to ICAEW if you wish us to consider such issues, as per our published policy. If you are sitting remotely please submit your special consideration application referring to anything of note which occurred and will have been recorded, for use as evidence to support your case. A student survey is provided post-exam for feedback purposes.

Question 2 Nadia started a restaurant business in April 2020 , registering for VAT immediately. On 30 April 202 0 , Nadia was granted a 10-year lease of restaurant premises in Birmingham. The owner of the premises opted to tax the building. Nadia paid a premium of £200,000 and the rent is £16,000 per year. Both amounts are stated exclusive of any VAT. Nadia was four months late submitting a land transaction form. She forgot to include the stamp duty land tax (SDLT) on the lease premium, or to pay any SDLT. As soon as she realised her mistake, Nadia corrected the submission and she paid all of the SDLT, five months after it was due. Both the delay and the omission occurred because Nadia was very busy with her restaurant. Nadia's restaurant makes freshly-cooked food, prepared to order, which is then served to customers at tables inside the premises. Requirements

  1. Calculate the stamp duty land tax (SDLT) payable by Nadia in respect of:
  • the lease premium
  • the lease rentals. ( 4 marks)
  1. Explain, with supporting calculations, the maximum penalties and interest due from Nadia in respect of the land transaction form and payment of SDLT. Assume that the interest rate on overdue SDLT is 2.6%. ( 4 marks)
  2. Explain:
  • the difference between single and multiple supplies for VAT;
  • whether Nadia is making single or multiple supplies; and
  • whether Nadia is supplying goods, or services, or both. ( 5 marks) Total: 13 marks

Question 3. Fola, who is UK resident and domiciled, made two disposals of assets during 2020/21. In January 2009, Fola bought 500 shares in Vrist plc for £12 per share (a shareholding of less than 1%). In February 2012, Vrist plc made a 1-for-5 bonus issue. In June 2016, Fola took up a 1-for-3 rights issue at £35 per share. In June 2020, Fola gave all the Vrist plc shares to her daughter. On the date of the gift, Vrist plc shares were quoted at 2400p to 2656p, with marked bargains of 2440p, 2560p and 2600p. In July 2020, Fola sold a house that she had never lived in. The house cost £18 7 ,000 in 2014 and was sold for its market value of £23 7 ,000. In 2020/21 Fola had employment income of £32,500 and bank interest of £2,000. Requirement Calculate Fola's capital gains tax payable for 2020/21. ( 10 marks) Question 3. Sam died on 5 April 2021. He was UK resident and domiciled all his life. Sam’s lifetime transfers were: June 2013 A gross chargeable transfer of £315, August 2016 A cash gift of £ 2 2,000 to his son as a wedding gift May 2020 A gift of 1,600 Rotarc plc shares (a shareholding of less than 1%) to his son. On the date of the gift, Rotarc plc shares were quoted at 12 00p to 1328 p, with marked bargains of 1220 , 1280 and 13 00p. On 5 April 2021, Rotarc plc shares were quoted at 1225 p to 1385 p, with marked bargains of 1260p, 1321p and 1368 p. Sam's assets and liabilities at the date of his death were:

  • An overseas shareholding in Giltias Inc, a company registered in Ofiria. The shares were valued at £48,000 on 5 April 2021 and Ofirian death taxes of £18,240 were paid. £ 7 , 200 of additional administrative expenses were incurred to sell the shares after Sam’s death.
  • A commercial property valued at £ 750 ,000, subject to a mortgage of £6 5 ,
  • Chattels valued at £56,
  • A bank overdraft of £ At the time of his death Sam owed £15,000 of income tax and capital gains tax for 2020/21. He left his entire estate to his son. Requirement Calculate the inheritance tax payable as a result of Sam's death. ( 15 marks) Total: 25 marks

2022 : new subsidiary Entwicz Ltd will buy a subsidiary company next year. Entwicz Ltd's directors would like your firm of ICAEW Chartered Accountants to prepare the subsidiary's corporation tax returns from 2022 onwards. Requirements

  1. Calculate the corporation tax payable by Entwicz Ltd for the year ended 31 March 2021. Show the amount of any loss carried forward. (17 marks)
  2. Explain what client due diligence is, and why it will be needed before your firm can provide tax services to Entwicz Ltd’s new subsidiary company. (3 marks) Note: Ignore VAT and stamp taxes. Total: 20 marks

Question 5. Stooj Partners Larry, Moe and Shemp traded in partnership as Stooj Partners for many years. Annual salaries were taken by Moe and Shemp only, of £6,000 and £18,000, respectively. Remaining profits were shared equally between all three partners. Recent partnership profits were: £ Year ended 31 December 2019 66, Year ended 31 December 2020 1 5,0 00 Overlap profits brought forward were: £ Larry 525 Moe 750 Shemp 1, Shemp left the partnership on 31 December 2020. Shemp During 2020/21, Shemp received the following income:

  • Cash of £18,000 from the Stooj partnership on 31 December 2020
  • A lump sum of £45,000 from his £450,000 personal pension fund. Shemp drew this on his 55th birthday on 21 December 2020. After this, he received a cash pension payment of £3,200 on the first of each month, after deduction of basic rate tax.
  • £75 in premium bond prizes
  • £2,860 of bank interest
  • £940 of interest on gilt-edged securities
  • £39,000 of UK dividends
  • £1,095 of child benefit. Shemp’s spouse had adjusted net income of £ 180 ,000 in 2020/21. Shemp made two donations to UK charities during 2020/21: cash of £800, and some units in an authorised unit trust valued at £500. Requirements (a) Allocate the trading profits of the partnership for the years ended 31 December 2019 and 2020 to the three partners. ( 6 marks) (b) Calculate Shemp's taxable trade income for 2020/21. ( 2 marks) (c) Calculate Shemp's national insurance contributions for 2020/21. Identify each class of contribution. ( 3 marks) (d) Calculate Shemp's income tax payable for 2020/21. Show your treatment of each item of income and explain the treatment of the child benefit. ( 14 marks)