Jan 19 T

Ping has worked for Brakes Ltd for many years. From 1 July 2017 he had use of a company car with a list price of £15,000 and CO2 emissions of 167g/km. Brakes Ltd paid for all running expenses of the car except diesel fuel. The car benefit assessable on Ping in 2017/18 is....

(165-95)/5 = 14 Percentage = 20 + 14 + 3 (diesel) = 37% Car benefit = 37% x 15,000 x 9/12 = £4,163

31 Q

31 A

David earns £60,000 a year. He is entitled to a basic personal allowance. He has unpaid tax of £1,120 from 2017/18 which is to be paid through the PAYE system. David's tax code for 2018/19 is ...........................

905L £ Allowance: Personal allowance 11,850 Less deduction (unpaid tax)£1,120 x 100/40 -higher rate taxpayer (2,800) Net allowances 9,050 David's tax code is therefore 905L.

Which of the following actions by a taxpayer would not constitute tax evasion? A Obtaining tax-free interest by investing in an ISA B Claiming capital allowances on a fictitious item of plant C Choosing not to declare rental income received D Failing to notify HMRC of a profitable trade commenced two years ago

A - This is a legitimate way to reduce tax, whereas the others all constitute tax evasion and are illegal.

Which of the following is chargeable to income tax? A Interest from a NS&I investment account B Dividends received from an Individual Savings Account C £10 Lottery winnings D Scholarship awarded by a university

A - interest from a NS&I investment account - chargeable. All the rest are exempt from income tax.

David began trading on 1 May 2017. On that date he brought a car into the business (business use only) valued at £10,000. The car has CO2 emissions of 128g/km David made up his first accounts to 31 December 2017. What is the maximum capital allowance that David can claim for the period to 31 December 2017? A £1,200 B £1,800 C £6,667 D £10,000

A - £1,200

Q 26

A A bill from a hotel for £480 (including VAT of £80) for a meal - Add back £480 E A bill from a hotel for £5,000 (excluding VAT) for the annual staff party - Do not adjust Entertaining customers is disallowable expenditure but entertaining staff is allowable. Furthermore irrecoverable VAT (on UK client entertaining) is allowable only if the expenditure to which it relates is allowable. As the client entertaining is disallowable the VAT on this is also disallowable.

Noah is a wine merchant with a year ended 31 March 2018. Which two of the following are allowable expenses in calculating Noah's taxable trading profits? A A gift of a £10 bottle of wine to each of 200 potential new customers as a marketing method to entice them to buy more wine in the future B Gifts to his two employees of a wine hamper costing him £60 for each employee C Legal costs relating to the acquisition of a 25-year lease on new business premises D Donation to a national charity

A A gift of a £10 bottle of wine to each of 200 potential new customers as a marketing method to entice them to buy more wine in the future, ie, a trade sample. B Gifts to his two employees of a wine hamper costing him £60 for each employee. A sample of trading stock to potential customers is allowable - it is irrelevant that it is alcohol. Gifts to employees are allowable. The legal fees on a new short lease are disallowable. Donations to national charities are disallowable.

Q 16

A Add back £300 £ The write off of the former employee loan needs to be added back 500 The recovery of the former employee loan must be deducted (200) Net effect 300 The write off of trade debts is allowable, as is the movement on specific provisions.

Andy is a sole trader and a higher-rate taxpayer. His accounting profit for the year ended 31 March 2018 includes a deduction of £938, which is the amount of a donation made to a local hospital under the Gift Aid scheme on 1 February 2018. Select whether the following statements are true or false relating to this donation. An amount of £938 must be added back to the accounting profit to arrive at the adjusted trading profit A True B False The basic rate band must be extended by £938 to correctly calculate Andy's tax liability C True D False

A An amount of £938 must be added back - True D The basic rate band must be extended by £938 - False The basic rate band must be extended by the gross amount of £1,173 (£938 × 100/80)

Sam is a sole trader with an accounting profit of £42,674 for the year ended 31 March 2018. The following two items are included in the accounts in arriving at the accounting profit. Select what adjustment, if any, needs to be made to arrive at the tax-adjusted trading profit. Bank interest received of £280 on the business bank account. A Deduct £280 B Add £280 C Do not adjust Profit of £490 on disposal of a machine D Add £490 E Deduct £490 F Do not adjust

A Bank interest received of £280 on the business bank account - Deduct £280 E Profit of £490 on disposal of a machine - Deduct £490 Both of these amounts have increased accounting profit but neither are trading income, so a deduction must be made for each one.

Flynn has been a sole trader for many years. His profit and loss account to 31 January 2018 includes the following items of expenditure. Which two are fully allowable in calculating Flynn's taxable trading profits? A Costs of registering a patent for trade use B Payment of a parking fine incurred by Flynn while travelling on business C Payment of £12,000 to his wife Freya for working as one of his shop assistants. The other assistants earn £8,000 per annum for working similar hours D The legal costs for renewing the 10-year lease on his shop premises

A Costs of registering a patent for trade use. D The legal costs for renewing the 10-year lease on his shop premises. Costs of registering a patent for trade use are specifically allowable. Fees for renewal of a short lease are allowable. Parking fines incurred by a sole trader are always disallowable. The payment to his wife is only partly allowable.

Which two of the following items are treated as 'non-taxable income' for income tax purposes? A Income tax repayment interest B Interest paid on a loan between two friends C National Lottery winnings D Pension income E Tips given to staff by customers

A Income tax repayment interest C National Lottery winnings

A professional accountant is asked by her father, a partner in the firm employing her, to overstate the allowable expenses in a client's tax-adjusted accounts. He is offering to recommend she receive a bonus payment if she does this. Which two threats to objectivity is the professional accountant faced with in this situation? A Self-interest B Self-review C Familiarity D Intimidation

A and C - The family connection leads to a familiarity threat. The bonus offered constitutes a self-interest threat.

Which two of the following are functions carried out by HMRC? A Collect and administer direct taxes B Pay and administer jobseekers allowance C Enforce the minimum wage rules D Pay and administer the state pension

A and C - collect and administer direct taxes and enforce the minimum wage rules.

Paul Sarbanes is a self-employed garage proprietor in Leeds. On 22 December 2017 he made the following gifts. Identify whether each gift is allowable or disallowable when calculating Paul's tax adjusted trading profit. A case of wine costing £48 to a customer. Each bottle had the name of the garage on the label. A Allowable B Disallowable Four bottles of spirits costing £90 to an employee. C Allowable D Disallowable Cash bonus of £60 to each of his three junior employees. E Allowable F Disallowable

A case of wine costing £48 to a customer. Each bottle had the name of the garage on the label. B Disallowable Gifts to customers of alcohol Four bottles of spirits costing £90 to an employee. C Allowable Gifts to employee are allowable as part of staff costs (but benefit on employee) Cash of £60 to each of his three junior employees. E Allowable Cash bonus to employee is simply remuneration, ie, part of staff costs (but taxable on employee)

Sally is provided with accommodation which originally cost her employer £45,000 in 1983. In 2008 £15,000 was spent on capital improvements. Sally first occupied the property on 6 April 2017 when its market value was £425,000. The annual rateable value of the property is £18,000. What is the taxable benefit of the living accommodation for 2017/18? A £18,000 B £8,750 C £26,750 D £60,000 Assume an official rate of interest of 2.5%.

A £18,000 The taxable benefit of expensive living accommodation is calculated in two parts. Where accommodation is provided more than six years after its acquisition and its original cost plus improvements as at first occupation exceeds £75,000 market value is used instead of original cost. In this case Sally first occupies the property more than six years after its acquisition. However its original cost plus improvements is only £60,000. Thus the property does not qualify as expensive accommodation (despite its current market value) and Sally is only taxable on the annual rateable value.

Imogen is a sole trader and her accounts show £7,700 on repairs and maintenance during the year to 30 September 2017. Repair to a newly acquired second hand machine to make it useable £2,400 Repairs to the roof of the office damaged in a storm £3,800 Redecorating the office £1,500 How much should be added back to the accounting profit for tax purposes? A £2,400 B £3,900 C £5,300 D £7,700

A £2,400 Repairs to a newly acquired second hand asset are not allowable if the repair is required in order to make it fit for purpose. Roof repairs and redecorating are maintenance in order to take an asset back to its original condition hence allowable.

Lesley first occupied accommodation provided by her employer on 6 January 2018. The property was originally purchased by her employer in 2013 for £325,000. Capital improvements were made to the property in 2015 at a total cost of £45,000. Lesley pays her employer £12,000 per annum in rent. The annual rateable value of the property is £19,000. What is the value of the taxable benefit for the living accommodation in 2017/18? A £3,594 B £14,375 C £3,313 D £6,594 Assume an official rate of interest of 2.5%.

A £3,594 The benefit is calculated as follows. £ Annual rateable value 19,000 Less: contribution by employee (12,000) 7,000 Additional yearly rent (£325,000 + £45,000 - £75,000) x 2.5% 7,375 Total benefit 14,375 Pro rate for actual occupation in the year x (3/12) 3,594 Note that the additional yearly rent is based on the original cost plus capital improvements made before the start of the tax year in which the benefit is charged, ie, before 6 April 2017 in this case.

Q 18

A £490 Fines of the proprietor are merely an appropriation of profits and disallowed. Gifts out of stock to a UK educational establishment are specifically allowable. Trade subscriptions are allowable.

Jacob receives a monthly salary of £3,000 and an annual bonus payable on 30 April each year, although the bonus actually relates to the previous year ended 31 March. His recent bonuses have been as follows: Relating to Date paid Amount Year ended 31 March 2017 30 April 2017 £16,500 Year ended 31 March 2018 30 April 2018 £13,400 What is Jacob's employment income assessment for 2017/18? A £52,500 B £49,400 C £16,500 D £13,400

A £52,500 Jacob's employment income for the year is the amount actually received in the tax year, ie, his salary of £36,000 plus the bonus of £16,500 received on 30 April 2017.

At what rates is tax charged on savings income? A 0%, 7.5%, 32.5%, 38.1% B 0%, 20%, 40%, 45% C 0%, 20%, 32.5% D 20%, 32.5%, 40%, 45%

B - the rates at which tax is charged on savings income are 0% (starting rate band and savings income nil rate band), 20% (savings basic rate band), 40% (savings higher rate band) and 45% (savings additional rate band).

Oliver is employed by Munton plc and earns £20,000 a year. He also receives the following benefits during 2017/18: Meal vouchers of £2 per day (240 working days in year) Pension advice costing £100 Ticket to sporting event from a customer of Munton plc worth £50 What are Oliver's taxable benefits for 2017/18? A £0 B £480 C £580 D £530

B - £480 Meal vouchers = £2.00 240 = £480 Pension advice up to £150 is exempt (assume available to all employees) Entertainment provided by third party is exempt

Simon takes goods from his business with a selling price of £540. The cost price is £360. He pays £100 for the goods. Simon's accounts show the transaction as drawings of £360. What is the adjustment required? A No adjustment required B £80 C £180 D £540

B - £80 Add back profit (£540 - £360) = £180 - £100 (paid by Simon) = £80

Your manager has made the following statements about what qualifies as job related living accommodation. 1 The accommodation is provided for the better performance of an employee's duties and it is customary to be so provided. 2 The accommodation is provided for security reasons. 3 The accommodation enables the employee to work longer hours by reducing time spent commuting. 4 Accommodation provided to directors owning more than 5% of the company is never job related. Select which of the following options identifies which of these statements is/are true. A All of them B 1 and 2 only C 1, 2 and 3 only D 1, 2 and 4 only

B 1 and 2 only Accommodation is not job related simply because it enables the employee to work longer hours by reducing time spent commuting. Accommodation provided to directors owning more than 5% of the company is only job related if it is provided for reasons of security.

Caroline is a sole trader and identified the following amounts which have not been included in her accounts. Select how each item should be treated in the adjustment to profits working in order to determine Caroline's tax adjusted trading profit. Caroline has personally paid for her home telephone bills which include calls of £1,000 of which 30% relates to business A Increase trading profits by £300 B Reduce trading profits by £300 C Do not include in calculating tax adjusted trading profits Caroline made a £200 donation to a local hospice, this was not paid under the Gift Aid scheme D Increase trading profits by £200 E Reduce trading profits by £200 F Do not include in calculating tax adjusted trading profits

B Caroline has personally paid for her home telephone bills - Reduce trading profits by £300 E Caroline made a £200 donation to a local hospice - Reduce trading profits by £200

Sunil is employed as a hairdresser by Hairy Monsters. He is paid £30,000 per annum and provided with a number of benefits. Select whether the following benefits are taxable or exempt from income tax. Employer contributions to occupational pension scheme A Taxable B Exempt Childcare vouchers for use with an approved provider worth £40 per week C Taxable D Exempt Living accommodation E Taxable F Exempt

B Employer contributions - Exempt D Childcare vouchers - Exempt E Living accommodation - Taxable

Niamh's accounts for the year ended 30 September 2017 showed legal and professional fees of £8,000. Which two of the following costs are not allowable in calculating her tax-adjusted trading profit? A Fees incurred in the recovery of a trade bad debt B Legal fees for a successful appeal against a tax assessment C Renewal of a ten-year lease on business premises D Fees for preparation of the annual accounts E Cost of taking out a new five-year lease on business premises

B Legal fees of a successful appeal against a tax assessment E Cost of taking out a new five-year lease on business premises

Paola is a sole trader. She has deducted the two items listed below in arriving at her draft tax adjusted profits of £46,223 for the year ended 28 February 2018. Select whether an adjustment to profits should be made for each of the following items in order to determine Paola's final tax-adjusted trading profits. A restaurant bill for £432 for a staff party attended by Paola and all three employees A Adjust B Do not adjust Staff costs of £3,298 relating to work undertaken preparing the accounts for the business by Paola's husband C Adjust D Do not adjust

B Restaurant bill - do not adjust D Staff costs - do not adjust

Which two of the following are not fundamental principles as stated in the ICAEW Code of Ethics? A Integrity B Professional intellect C Objectivity D Courtesy and consideration

B and D - Professional intellect and courtesy and consideration are required of a professional accountant but are not of themselves fundamental principles.

Which two of the following are direct taxes? A Excise duty B Capital gains tax C Value added tax D Corporation tax

B and D - capital gains tax and corporation tax. The others are indirect taxes.

Which two of the following taxes may be payable by a company? A National insurance at 2% on its taxable trading profits B Corporation tax at 19 % on its taxable trading profits C Capital gains tax at 10% on its chargeable gains D Value added tax at 20% on its purchases

B and D - corporation tax (payable by a company on its income and gains) and value added tax (as a supplier and a final consumer of goods and services). A company may pay national insurance on employees' earnings, but not on its own income and never at 2%.

Which two of the following sources of income are non-savings income? A Interest from a building society B Property income C Dividend from a UK company D Trading profits

B and D - property income and trading profits are non-savings income. Interest from a building society is savings income. Dividend from a UK company is dividend income.

Soria deducted the following amounts in arriving at her taxable trading profits of £65,329 for the year ended 31 March 2018. Select whether an adjustment to profits should be made for each of the following items in order to determine Soria's final tax adjusted trading profit. £10,000 as salary to her husband who works two days per week as a bookkeeper for her business A Adjust B Do not adjust Irrecoverable VAT of £3,500 on a company car purchased for an employee C Adjust D Do not adjust

B £10,000 of salary to her husband who works two days per week as a bookkeeper - Do not adjust C Irrecoverable VAT of £3,500 on a company car purchased for an employee - Adjust As Soria's husband is being paid a reasonable salary for the work done no adjustment is required. VAT cannot be recovered on motor cars as the VAT legislation forbids this recovery. Irrecoverable VAT is added to the overall cost of the car for the business. As the purchase of a car is capital expenditure it is disallowable and the VAT on this is also disallowable. The VAT should be included as part of the cost of the car in the capital allowances computation.

Duncombe Ltd purchased a flat in London in 2001 for £280,000. On 6 February 2018 the company recruited a new sales director and allowed him to live in the flat for the remainder of 2017/18. The market value of the flat in February 2018 was £375,000. The company installed double glazing in March 2008 at a cost of £14,000 and air-conditioning in March 2018 at a cost of £29,000. What is the 'cost' of the flat for the purpose of computing the additional yearly rental benefit for 2017/18? A £404,000 B £375,000 C £323,000 D £389,000

B £375,000 More than six years since acquisition so use market value at first use. Market value at Feb 2018 will already include increase for March 2008 enhancement. March 2018 enhancement not included until 2018/19.

Q 17

B £4,300 The flight must be added back as it is not wholly and exclusively for business purposes (duality). Entertaining of customers must always be disallowed ie, added back. The staff entertaining is allowable for the business as long as it is reasonable (the individuals will however have a taxable benefit for employment income purposes as it exceeds the limit permitted for employment income purposes of £150 pa).

Q 20

B £428 added back The amount to be added back/disallowed is 15% × £3,800 × 9/12 = £428 There is a 15% disallowance as the car has CO2 emissions that exceed 130g/km.

Perry received income from various sources during 2018/19. Which two of the following are exempt from income tax? A £100 of National Savings & Investments Direct Saver Account interest B £80 of National Savings Certificate interest C £40 of interest received on a loan to his friend George D £56 of dividends received from a shareholding in X plc E £40 of dividends received on Y plc shares held in a stocks and shares ISA

B £80 of National Savings Certificate interest E £40 of dividends received on Y plc shares held in a stocks and shares ISA

Tricia is employed by Wilton Ltd at a salary of £15,000 per year. She is also entitled to taxable benefits of £3,860. She has no tax overpaid or underpaid from previous tax years. What is Tricia's tax code for 2017/18? A 1150L B 765L C 799L D 763L

C - 799L £ Allowance: Personal allowance 11,850 Less deduction (taxable benefits) (3,860) Net allowances 7,990 Tricia's tax code is therefore 799L.

What are the dates of the Financial Year 2017? A 1 April 2016 to 31 March 2017 B 1 January 2017 to 31 December 2017 C 1 April 2017 to 31 March 2018 D 6 April 2017 to 5 April 2018

C - Financial Year 2017 runs from 1 April 2017 to 31 March 2018.

How is higher rate tax relief given for a Gift Aid donation? A Deducted from net income B Treated as paid net of higher rate tax C Basic rate band extended by grossed up donation D No higher rate tax relief given

C - higher rate tax relief is given by extending the basic rate band by the grossed up donation.

Which of the following is an allowable expense? A Gift of fleece jackets to customers with trade logo costing £55 each B Increase in general provision for bad debts C Legal expenses on employment contracts D Gift Aid donation

C - legal expenses on employment contracts - allowable Gift of fleece jackets to customers with trade logo costing £55 each - disallowable as exceeds £50 per customer General provision for bad debts - disallowable

Governments change their tax policy to achieve 'social justice'. Which of the following has not been an important principle of social justice in modern politics? A Progressive principle B Ability to pay principle C Neutrality principle D Regressive principle

C - the neutrality principle (taxes should not distort choice). The encourage/discourage examples earlier in this chapter show that governments do not generally want taxes to be neutral.

A taxpayer has net income of £42,800 in 2017/18. What savings income nil rate band is he entitled to? A £11,500 B £5,000 C £1,000 D £500

C - £1,000

Patrick's accounts show £16,550 on repairs and maintenance during the year to 30 September 2017: Demolishing out-house and building new toilets £5,950 Repainting offices £3,600 Installing new heating system £7,000 How much should be added back to the accounting profit? A £9,550 B £10,600 C £12,950 D £16,550

C - £12,950 Demolishing out-house and building new toilets: disallowable, capital Repainting offices: allowable Installing new heating system: disallowable, capital

Sandra works for Julian (a sole trader) as a part-time salesperson at a salary of £6,000 a year. On 31 December 2017, she received a bonus of £2,000 in respect of Julian's trading results for the year ended 30 September 2017. She expects to receive a bonus of £2,500 in December 2018 in respect of the year ended 30 September 2018. What are Sandra's assessable earnings for 2017/18? A £6,000 B £7,250 C £8,000 D £8,250

C - £8,000 Sandra's basic salary is £6,000. She is also taxed on the bonus of £2,000 received in the tax year 2017/18.

Robert has an annual salary of £56,000 and has received the following benefits during 2017/18: - Childcare vouchers of £45 per week (£2,340 per year); and - Meal vouchers of £5 per day for 240 days of the year. Robert has been receiving these benefits since 2009. Select which of the following correctly identifies Robert's taxable benefits for 2017/18. A £2,084 B £3,540 C £1,200 D £884

C £1,200 Childcare vouchers of up to £55 per week are exempt as Robert was in the scheme before 6 April 2011 (otherwise only £28 per week would be exempt as he is a higher rate taxpayer). Meal vouchers are taxable in full.

Sumira moved into a house provided by her employer on 6 August 2017 when the market value was £499,000. The house cost £465,000 in January 2012. The annual rateable value of the property is £21,000. What is the taxable benefit for the living accommodation in 2017/18? A £28,067 B £6,500 C £20,500 D £30,750 Assume an official rate of interest of 2.5%.

C £20,500 She moves in less than six years after purchase and so the taxable benefit for expensive accommodation is the annual rateable value plus: ((original cost less £75,000) × official rate of interest). The taxable benefit then needs to be prorated for the actual period of use in the tax year, ie, 6 August 2017 - 5 April 2018 for 2017/18: [£21,000 + ((£465,000 - £75,000) x 2.5%)] x 8/12 = £20,500

Gerrard works for Frame Ltd. He has use of a staff canteen which is available to all employees. The meals in the canteen cost him £1.50 per day although the cost of providing the meals equates to £2.50 per day. He uses the canteen 200 days each year. He was also reimbursed overnight expenses totalling £30 when he worked away from home in Edinburgh for 4 nights. How much additional employment income will Gerrard have as a result of the provision of the two benefits? A £230 B £210 C £30 D £10

C £30 No benefit for the canteen as it is made available to all employees. As the overnight expenses exceed £5 per night the whole amount becomes chargeable.

Q 19

C £300 Fines or interest relating to tax are specifically disallowed for individuals so £100 is disallowed. The renewal costs of a short lease are allowable. The employer's pension contributions are allowable in the year actually paid so £200 is disallowed.

Emily is provided with a company flat as a benefit of her job in addition to her annual salary of £66,000. Emily's employer rents the flat at an annual cost of £15,000. The annual rateable value of the flat is £8,900. Emily makes a contribution to the rent of £7,000 per annum. What is the taxable benefit of the flat? A £15,000 B £8,900 C £8,000 D £1,900

C £8,000 The taxable benefit is the higher of the annual rateable value and the rent paid by the employer (if any) less any contribution by the employee: £ Higher of rent/rateable value 15,000 Less employee contribution (7,000) Taxable benefit 8,000

Gerald is employed by Zoom plc at a salary of £30,000 a year. He is provided with a car available for private use from 1 November 2017. The car has CO2 emissions of 102g/km and a list price of £18,000. The car has a diesel engine. What is the taxable car benefit in 2017/18?

CO2 emissions are 102g/km, round down to 100g/km Appropriate percentage: (100 - 95) = 5g/km in excess of threshold 5 ÷ 5 = 1% 20% + 1% + 3% (diesel) = 24% List price is £18,000 £18,000 x 24% x 5/12 = £1,800

A professional accountant has been asked to act for a taxpayer who is negotiating a redundancy settlement with his employer. The employer concerned is a company which is one of the professional accountant's existing clients. Which of the following statements is true in this situation? A The conflict here is between the accountant and the existing client. B There is a perceived conflict of interest here but no actual conflict. C The professional accountant must not inform the employer or the company of the situation. D There is an actual conflict here between the company and the employee

D - There is an actual conflict here between the company and the employee. This should be disclosed to both parties.

Sergio bought a new car at a cost of £14,000 on 7 October 2017. The CO2 emissions of the car are 60g/km. What capital allowances can he claim in respect of the car for the year ended 31 March 2018? A £0 B £1,260 C £2,520 D £14,000

D - £14,000 The car is a qualifying low emission car (CO2 emissions 75g/km or less). 100% FYA for such cars.

Terry has been trading for many years making up accounts to 31 March each year. He has however decided to change his accounting date to 31 December and makes up accounts for the nine months to 31 December 2017. At 1 April 2017, the tax written down value of his main pool was £8,000. On 12 July 2017, Terry bought a van for use in the business costing £16,000. What are the maximum capital allowances that Terry can claim for the nine month period to 31 December 2017? A £3,240 B £4,320 C £17,440 D £17,080

D - £17,080

Marcus has been trading for many years, making up accounts to 5 April. The tax written down value of the main pool was £900 at 6 April 2017. The only other asset in the business for capital allowances purposes was a car bought in 2016, which Marcus uses 75% for business purposes. The tax written down value of the car at 6 April 2017 was £7,000. On 1 September 2017 Marcus sold the car for £8,100. The original cost was £7,800. What are the maximum capital allowances available to Marcus for the year ended 5 April 2018? A £1,700 B £1,500 C £(438) D £300

D - £300

William Pitt is a self-employed tax adviser in Coventry. In the year ended 31 March 2018 he made the following gifts. All of the recipients are registered charities. 1 £50 to the renovation fund for Coventry Cathedral (a local charity) 2 £50 to the World Wide Fund for Nature (a national charity) via the Gift Aid Scheme 3 £25 to the National Trust (a national charity) Select which of the following options shows the gift(s) allowed when computing William's trading profits assessment? A All of them B 3 only C 1 and 2 only D 1 only

D 1 only Only gifts to local charities are allowable.

Hettie has worked for the same employer (a manufacturing company) for 30 years. She has an annual salary of £12,000 and has received the following benefits during 2017/18. - Long service award of an original oil painting worth £1,400; and - Free bus pass worth £455 to enable Hettie to travel from home to work on a public bus service which the employer subsidises. Select which of the following correctly identifies Hettie's taxable benefits for 2017/18. A £1,855 B £1,400 C £455 D £0

D £0 Long service awards are exempt where minimum service is 20 years and are not in cash and equate to less than £50 per year of service. Subsidies to public bus services with free travel for employees in return, are exempt. Hettie's taxable benefits are therefore £0.

Alexandra works for an airline. She received the following benefits during 2017/18: - Gifts of jewellery from a customer worth £200; and - Provision of free flights when there are spare seats available on the plane. The market value of the flights taken during the year is £4,550. Select which of the following correctly identifies Alexandra's taxable benefits for 2017/18. A £4,750 B £4,550 C £200 D £0

D £0 Non-cash gifts from a third party of up to £250 per tax year from the same donor are exempt. Where an employee receives a benefit for which there is no specific rule under the benefits code, the benefit should be assessed based on the marginal cost to the employer. Given that the plane would operate with or without Alexandra on board and there were always spare seats available, the marginal cost to her employer of Alexandra's travel is nil. Her total taxable benefit is therefore £0.

Q 15

D £11,320 Only a reasonable payment to a family member is allowable, so add back Peter's excess salary of £11,000 (£14,000 - £3,000) The private proportion of Marion's motor expenses is not allowable 40% × £800 = £320

Q 24

D £19,846 The disallowable elements to be added back are those relating directly to Sam (ie, his drawings). £ Sam's salary 17,000 Class 2 contributions (for Sam) 146 Sam's pension contributions 2,700 19,846

The following sentences have been included in a draft letter to a client who is about to start a new business. Identify whether each statement is correct or incorrect. Expenditure shown in the profit and loss account is not always allowable for tax purposes. Disallowable expenditure must be added back when computing the taxable trading profits. A Correct B Incorrect The building that you are acquiring is dilapidated and requires repair work. You are not able to use the building until this work has been completed. The additional expenditure incurred on this repair work is allowable when computing taxable trading profits. C Correct D Incorrect

Expenditure shown in the profit and loss account is not always allowable for tax purposes. Disallowable expenditure must be added back when computing the taxable trading profits. A Correct - the profit in the P&L account has been reduced by this amount therefore it should be added back. The building that you are acquiring is dilapidated and requires repair work. You are not able to use the building until this work has been completed. The additional expenditure incurred on this repair work is allowable when computing taxable trading profits. D Incorrect - the expenditure on the second hand asset makes it fit for purpose, so is capital expenditure and is not allowable.

Jasper has net income of £45,000 in 2017/18. His husband Henry has net income of £30,000. Jasper was born on 26 September 1930 and Henry was born on 26 September 1945. What is the married couples allowance for 2017/18 and who will claim it?

HELP

Charlie commenced work as an employee of House Medical Corporation on 1 July 2017. On 1 July 2017 Charlie was provided with a company car which runs on diesel with a list price of £18,000 and CO2 emissions of 140g/km. Charlie pays for all his private fuel. In calculating Charlie's total employment income for 2017/18, the amount which will be included for the car benefit is ...

In calculating Charlie's total employment income for 2017/18, the amount which will be included for the car benefit is £4,320 140 - 95 = 45g/km 45 / 5 = 9% Taxable percentage 32% (20% + 9% + 3% diesel) £18,000 x 9/12 x 32% = £4,320 The benefit is time apportioned as the car was available from 1 July 2017

Identify whether the following statements are correct or incorrect. Pippin is provided with a van by his employer Joker Ltd. Pippin has an assessable van benefit if, in addition to business journeys, he uses the van to travel from home to work. A Correct B Incorrect Piers makes a nominal contribution towards the fuel cost on his company car of £10 per month. This accounts for about 95% of his private use. Piers is able to reduce his fuel benefit by £120 pa. C Correct D Incorrect

Pippin is provided with a van by his employer Joker Ltd. Pippin has an assessable van benefit if, in addition to business journeys, he uses the van to travel from home to work. B Incorrect - for a van benefit private use does not include travel from home to work. This is different to the provision of a company car. Piers makes a nominal contribution towards the fuel cost on his company car of £10 per month. This accounts for about 95% of his private use. He is able to reduce his fuel benefit by £120 pa. D Incorrect - a contribution towards private fuel only reduces the benefit if it is a 100% contribution (reducing the benefit to nil).

In 2017/18 Jacob was provided with various benefits by his employer Bony Ltd, a manufacturer of televisions, in addition to his salary of £50,000 per annum. Identify the amount chargeable as employment income for each benefit. Private health insurance, costing Bony Ltd £800. The same insurance would have cost Jacob £1,100. A £800 B £1,100 A television out of stock which cost £200 to manufacture but would cost Bony Ltd £800 to buy in from another supplier. C £200 D £800 A car parking space at a car park near to the office which cost Bony Ltd £500 in 2017/18. E £0 F £500

Private health insurance, costing Bony Ltd £800. The same insurance would have cost Jacob £1,100. A £800 PHI = £800 as cost to employer A television out of stock which cost £200 to manufacture but would cost Bony Ltd £800 to buy in from another supplier. C £200 Television = £200 as marginal cost to employer A car parking space at a car park near to the office which cost Bony Ltd £500 in 2017/18. E £0 Car parking space = Nil as exempt

Blanche Ltd purchased a flat in Leeds in 2012 for £310,000. The company's finance director moved into the flat on 1 April 2017 and lived there throughout 2017/18. The market value of the flat on 1 April 2017 was £375,000. The company installed a new kitchen in May 2014 at a cost of £17,000 and double glazing in June 2017 at a cost of £16,000. The 'cost' of the flat for the purpose of computing the additional yearly rental benefit for 2017/18 is...

The 'cost' of the flat for the purpose of computing the additional yearly rental benefit for 2017/18 is £327,000. £327,000 = original cost plus enhancement pre 2017/18 = £(310,000 + 17,000) Market value is only relevant if owned for six years before first use. The double glazing is not included because it was not installed before the start of this tax year, however it will be used to calculate the benefit in 2018/19.

Newburgh Ltd has agreed to provide each of its employees, all of whom are basic rate taxpayers, with a mobile telephone for the whole of 2017/18. The company will pay £420 per year to hire the telephone inclusive of all calls made by the employees. Newburgh Ltd will also provide its employees with vouchers worth £70 per week for 48 weeks per year for use with an approved child carer. The additional employment income for each of the company's employees in 2017/18 as a result of the provision of the two benefits is ...

The additional employment income for each of the company's employees in 2017/18 as a result of the provision of the two benefits is £720 Telephone = £0 Childcare = £(70 - 55) x 48 weeks = £720

Donna owns a shoe shop that she has run as a sole trader for many years. In the year ended 31 December 2017 she took shoes for herself from the shop which had cost £220. The shoes retailed at a total of £450. No adjustment has been made in the accounts relating to the shoes. The amount by which accounting profits need to be increased to arrive at trading profits, in relation to the shoes is...

The amount by which accounting profits need to be increased to arrive at trading profits, in relation to the shoes is £450 As no adjustment has been made in the accounts the profits must be increased by the full retail price. If the accounts had already been adjusted for the cost element then the only adjustment required would be for the profit of £230 (£450 - £220).

Q 25

The amount to be added back in calculating the tax adjusted profits is £2,300 There are two amounts that are specifically disallowed by legislation: £ Legal fees on the preparation of the partnership agreement 800 Legal fees relating to a new 10-year lease on the office premises 1,500 2,300

Pirro was first provided with a computer by his employer in October 2012 when it was purchased for £2,800. He still has use of the computer for both private and essential business purposes during 2017/18, although his employers have retained ownership. The benefit assessable on Pirro in respect of the computer is ...

The benefit assessable on Pirro in respect of the computer is zero. As the private use of the computer is insignificant (computer required for essential business use), there will be no assessable benefit.

Freddie's employer provides him with a diesel company car with a list price of £16,000 on 6 April 2017. The car has CO2 emissions of 45g/km. What is Freddie's car benefit for 2017/18?

The car has emissions not exceeding 50g/km so the percentage used is 13%. As it is a diesel car this must then be increased by 3% to 16%. £16,000 x 16% = £2,560

Tom has traded as a greengrocer for many years. In his year ended 30 April 2017 he took fruit and vegetables from the business which cost £350. He could have sold the goods for £600. Tom has not recorded this transaction in his accounts. The amount to be added back to the net profit per the accounts to arrive at taxable trading profits for the year ended 30 April 2017 is A £600 B £350 C £250 D £0

The correct answer is A If the transaction has not been recorded in the accounts the full selling price must be added back. Alternatively if the cost of the goods had been recorded as drawings the profit of £250 would have to be added back.

Joshua is given the use of some music equipment by his employer on 6 September 2017 for private purposes. At the time it was first made available to Joshua it had a market value of £8,460 although it originally cost £10,000 two years ago when purchased for company use. What is the taxable benefit for the music equipment for 2017/18? A £987 B £1,167 C £1,692 D £2,000

The correct answer is A Use of an employer asset is taxable based on the market value when first used by an employee 20%: £8,460 x 20% x 7/12 (pro rated for actual use in tax year) = £987

Leo, a sole trader, allowed the following amounts in arriving at his draft taxable trading profits of £180,000 for the year ended 31 March 2018. Select how each item should be treated in the adjustments to profits working in order to determine Leo's final taxable trading profits. Leo included £550 relating to the write off of a loan to an employee who left the business some time ago. A Add back £550 B Deduct £550 C Do not adjust Leo deducted £600 relating to charitable donations to Oxfam (a national registered charity). A Gift Aid declaration had been made in respect of the donation. D Add back £600 E Do not adjust

The correct answer is A, D Loan write off - add back £550, Donations - add back £600. The loan write off is not trade related as it is not part of its trade to lend money, and it is not part of employee remuneration. The loan write off cannot be taxed as a benefit on the employee as he left the business some time ago. As it would originally have been deducted in arriving at the draft taxable trading profits figure, it needs to be added back to eliminate it. The charitable donation is a Gift Aid donation, not a trading expense. Therefore £600 included in the draft trading profits figure should be added back.

Dewi and Dilys are married. Dewi is a basic rate taxpayer earning only a salary and Dilys pays no tax. Dilys has elected to transfer £1,150 of her personal allowance to Dewi. Which letter will complete Dewi's tax code? A L B M C N D K

The correct answer is B M in Dewi's code indicates he is the recipient of the marriage allowance.

Identify the effect of the following items on the relevant tax liabilities. Mark has employment income in 2017/18 of £160,000, and no other sources of income. On 1 February 2018 Mark paid £2,100 to a charity under the Gift Aid provisions. In 2017/18 the Gift Aid payment will A increase Mark's income tax liability B decrease Mark's income tax liability C have no impact on Mark's income tax liability

The correct answer is B Mark is an additional rate taxpayer so the basic rate band and the higher rate limit are both extended by the grossed up Gift Aid payment to reduce his tax liability (more taxable at 20% rather than 45%).

Peri is self-employed and in December 2017 he made the following gifts. Select whether each of the following gifts is allowable or disallowable when calculating Peri's tax adjusted trading profit. A food hamper costing £35 to each client. Each hamper basket had the name of the business on the outside. A Allowable B Disallowable A food hamper costing £60 to each employee. Each hamper basket had the name of the business on the outside. C Allowable D Disallowable

The correct answer is B, C Gifts to customers of food are disallowable Gifts to employees are allowable for company as part of staff costs, but a taxable benefit for employees

Pryor, Feinstein and Hill are employees of Boxer Ltd each earning £40,000 per annum. Boxer Ltd is to provide Pryor with a company van, Feinstein with a company car and Hill with a company bicycle. Pryor and Feinstein will use their vehicles for business and for commuting to work only. Hill will use his bicycle for commuting only. All employees had the option of a company bicycle. Identify whether each of the employees has a taxable or exempt benefit in relation to their mode of transport. Pryor's company van is A Taxable B Exempt Feinstein's company car is C Taxable D Exempt Hill's company bicycle is E Taxable F Exempt

The correct answer is B, C, F Pryor's company van. Exempt - as the only private mileage is commuting Feinstein's company car. Taxable - as some private mileage Hill's company bicycle. Exempt - as available to all employees

Tadzio, a sole trader, has included the following amounts in arriving at his draft taxable trading profits. Select how each amount should be treated in the adjustments to profits working in order to determine Tadzio's final taxable trading profits. Tadzio has calculated a profit on disposal of a machine to be £3,250. A Add back £3,250 B Deduct £3,250 C Do not adjust Tadzio and his salesman incurred parking fines of £200 and £100 respectively while on business. D Add back £200 E Add back £300 F Do not adjust

The correct answer is B, D The profit on disposal of the machine is shown in the accounts but is dealt with by capital allowances for tax purposes. The profit on disposal must be deducted. Parking fines of employees while on business are an allowable expense, but parking fines of the proprietor are not allowable. Therefore Tadzio's fines of £200 must be added back.

Which of the following is an allowable expense for a sole trader? A Repairs to a newly purchased second-hand machine. The repairs were essential before the machine could be used B Write-off of a loan to a former employee C Legal fees for the renewal of a 20-year lease D Donation to a small local charity, under the Gift Aid scheme

The correct answer is C The fees for renewal of a short lease are allowable (fees for a new short lease would be disallowable). As the second-hand machine was not fit for purpose when purchased, the repairs are deemed to be capital, so not allowable. The repairs will be included as part of the capital cost within capital allowances. Former employee loans are not for trade purposes therefore not allowable. Donations to small local charities are allowable if not under the Gift Aid scheme. Where donations are made under the Gift Aid scheme, tax relief is given via the income tax computation instead.

Since 1 January 2016 Amy has been provided with an apartment by her employer. The annual value of the accommodation is £1,500. The original cost of the apartment to her employer in 2001 was £81,000. The market value of the apartment on 1 January 2016 was £165,000, and on 6 April 2017 was £180,000. The official rate of interest at 6 April 2017 is 2.5%. What is Amy's accommodation benefit for 2017/18? A £1,500 B £2,250 C £3,750 D £1,650

The correct answer is C £ Annual value 1,500 plus (Cost - 75,000) 2.5%, but cost is replaced with MV when first made available if more than 6 years after purchase £(165,000 - 75,000) x 2.5% 2,250 3,750

In addition to his wages, Massimo has received income from various sources during 2018/19. Which two of the following are exempt from income tax? A Pension income B Interest received on a loan to his son C Dividends from shares held in an ISA D Gratuities and tips received from customers E Premium bond winnings

The correct answer is C and E Pension income is taxable. Loans made on a non-commercial basis are still taxable. Tips and gratuities should be declared as income and are subject to tax.

Huckleberry, a sole trader, has calculated the following amounts which have yet to be included in his final taxable trading profits. Select how each item should be treated in order to determine Huckleberry's final taxable trading profits. Huckleberry has calculated his irrecoverable VAT on UK client entertaining to be £4,656 A Increase taxable trading profits by £4,656 B Reduce taxable trading profits by £4,656 C Do not include in taxable trading profits Huckleberry gave his customers calendars worth £35 each bearing the business logo. In total he spent £3,500 on the calendars. D Increase taxable trading profits by £3,500 E Reduce taxable trading profits by £3,500 F Do not include in taxable trading profits

The correct answer is C, E Irrecoverable VAT - do not include Gifts - reduce taxable trading profits Irrecoverable VAT is only allowed as a business expense if the item to which it relates (ie, the client entertaining) is itself allowable for income tax. As client entertaining is disallowed, so too is the associated VAT. Gifts to customers are allowed as long as they cost less than £50 each, bear the business logo and are not food, tobacco or alcohol.

Amanda is employed and has a salary as follows. Employer's year ended 31 December 2017 £36,000 pa 31 December 2018 £37,500 pa Amanda is paid on the last working day of every month. During 2017/18 she also received dividend income of £400. What is Amanda's taxable income for 2017/18?

The correct answer is D NSI DI Total Salary £ £ £ 9/12 x £36,000 27,000 3/12 x £37,500 9,375 Dividend 400 Net income 36,375 400 36,775 Less personal allowance (11,850) (11,850) Taxable income 24,525 400 24,925

On 1 October 2017 Mariano started his employment with Punch Ltd and was immediately provided with a car. The car has CO2 emissions of 107g/km and a list price of £14,000. Mariano pays for all of his own petrol relating to the car. What is Mariano's car benefit for 2017/18?

The correct answer is £ 1,540 107g/km = 20 + (105 - 95) ÷ 5 = 22% Mariano only has the car for six months of the year. Car benefit = 22% x £14,000 x 6/12 = £1,540

Schoolteachers working at Eastminster School Ltd (a private fee paying school) are provided with places for their children to attend the school at £2,000 pa. The normal fee levels are £10,000 pa. The average total cost to the school of providing a place is £7,500 pa but the additional cost per child of providing a place is £3,000 pa. The employment income assessable on a teacher sending his only child to the school is...

The correct answer is £1,000 £ Marginal cost of providing the place 3,000 Less employee contribution (2,000) 1,000

On 1 June 2017 Nadav leased a car (CO2 emissions 125g/km) for use in his business. During his year ended 31 March 2018 he incurred hire charges of £2,450. Nadav uses the car 45% of the time for business. The hire charge allowable as a deduction against trading profits is ...

The correct answer is £1,103 No flat rate disallowance as CO2 emissions do not exceed 130g/km. Private use by the sole trader is disallowable and only the business use proportion of the hire charge is allowable. Allowable deduction = £2,450 × 45% = £1,103

On 1 June 2017 Nadav leased a car (CO2 emissions 135g/km) for use in his business, incurring hire charges of £3,500 in his year ended 31 March 2018. Nadav's sales manager will use the car, which had a retail price when new of £20,000, 60% of the time for business. The hire charge allowable as a deduction against trading profits is ...

The correct answer is £2,975 Flat rate disallowance of 15% as CO2 emissions exceed 130g/km and lease taken out after 5 April 2013. Private use by an employee is irrelevant. 15% x £3,500 = £525 Allowable deduction = £3,500 - £525 = £2,975

Amy began working for Samuel Ltd on 6 July 2017. On that day she received a company car with a list price of £20,000 and CO2 emissions of 152g/km. Samuel Ltd paid for all running expenses of the car including petrol, for Amy's private use. The taxable benefit assessable on Amy in 2017/18 is...

The taxable benefit assessable on Amy in 2017/18 is £9,266 (150-95)/5 = 11 Percentage = 20 + 11 = 31% Car benefit = 31% x 20,000 x 9/12 = £4,650 Fuel benefit = 31% x 23,400 x 9/12 = £5,441

Esmerelda has been provided with a diesel company car by her employer for a number of years. The diesel car has CO2 emissions of 100g/km and an original list price of £19,000. Esmerelda left the employment on 5 February 2018. What is the taxable benefit for the car for 2017/18?

The taxable benefit for the diesel company car is: 100g/km - 95g/km ÷ 5 = 1% + 20% + 3% diesel supplement = 24% 24% x £19,000 10/12 pro rated for time of Esmerelda's employment = £3,800

Quasimodo has been provided with a diesel company car by his employer since 6 October 2017. The diesel car has CO2 emissions of 70g/km and a list price of £22,000. Quasimodo chose optional accessories worth £4,500 and three months after acquisition he had 'go faster' stripes added at a cost of £95. What is the taxable benefit for the car for 2017/18?

The taxable benefit for the diesel company car is: 13% + 3% = 16% 16% x (£22,000 + £4,500) x 6/12 pro rated for actual use = £2,120 Optional accessories added after the time of purchase which cost less than £100 are excluded from the calculation.

Wilma has been provided with a diesel company car for a number of years with CO2 emissions of 90g/km. It had an original list price of £33,000 although the company bought it second hand for £24,000. Wilma pays her employer £50 per month towards the private use of her car. What is the taxable benefit for the car for 2017/18?

The taxable benefit for the diesel company car, which has CO2 emissions exceeding 75g/km but less than 95g/km, is: 19% + 3% (diesel) = 22% 22% x £33,000 (car list price) - £600 (employee contribution) = £6,000 The original list price is used to compute the taxable benefit.

Gertrude has been provided with a petrol company car by her employer since 6 April 2017. The car has CO2 emissions of 90g/km and a list price of £10,000. Gertrude is also provided with petrol for business and private use. She repays 5p per mile for the private fuel although current petrol prices equate to 15p per mile. Gertrude estimates her private mileage at 5,000 miles for 2017/18. What is the taxable benefit for the car and fuel for 2017/18?

The taxable benefit for the petrol company car, which has CO2 emissions exceeding 75g/km but less than 95g/km, is: Car benefit = 19% x £10,000 = £1,900 Fuel benefit = 19% x £23,400 = £4,446 Where private fuel is only partly repaid by the employer no reduction is given to the taxable benefit. Either the private fuel benefit is fully reimbursed by the employee or the full £22,600 at the appropriate percentage is taxable on the employee.

Monet Ltd purchased a flat in London in 1999 for £280,000. On 1 March 2013, when the flat had a market value of £565,000, Mustafa joined the company and began to live in the flat. The annual gross rateable value of the flat is £8,675. The taxable benefit of the flat in 2017/18 is... Use an official rate of interest of 2.5%.

The taxable benefit of the flat in 2017/18 is £20,925 £ Annual value 8,675 Additional yearly rental benefit £(565,000 - 75,000) x 2.5% 12,250 Taxable benefit 20,925

Harry is an employee of Table Ltd earning a salary of £30,000 per annum. Harry has been provided with a company car for a number of years. The car had a list price of £25,000 and CO2 emissions of 162g/km. Table Ltd paid for all running expenses of the car including diesel fuel for private use. The taxable benefits assessable on Harry in 2017/18 are ....

The taxable benefits assessable on Harry in 2017/18 are £16,184 (160-95)/5 = 13 Percentage = 20 + 13 + 3 (diesel) = 36% Car benefit = 36% x 25,000 = £9,000 Fuel benefit = 36% x 23,400 = £8,424

Frollo's employer provides him with a petrol company car on 6 July 2017. The petrol car has CO2 emissions of 90g/km. Frollo's employer provides all fuel, for which Frollo pays £5 per month to the employer. The full cost of private fuel is at least £50 per month. What is Frollo's fuel benefit for 2017/18?

With emissions exceeding 75g/km but less than 95g/km, the percentage is 19%. £22,600 x 19% x 9/12 = £3,221 No deduction is allowed for an employee's contribution to payment for private fuel unless the employer is reimbursed in full.

Kyl Ltd has agreed to provide each of its employees with a bicycle costing £850 for use at home and for travelling to work. The bicycles will remain the property of Kyl Ltd. The company will also provide its employees with vouchers worth £25 per week for 44 weeks per year for use with an approved child carer. How much additional employment income will each of the company's employees have in a full year as a result of the provision of the two benefits? A £0 B £170 C £1,100 D £1,270

£0 No benefit for cycle equipment made available to all employees. No benefit for childcare vouchers of less than or equal to £55 per week for those in the scheme before 6 April 2011. For those joining the scheme on or after 6 April 2011 there is no benefit for childcare vouchers of less than or equal to £55 per week for a basic rate taxpayer, £28 per week for a higher rate taxpayer or £25 per week for an additional rate taxpayer. In all cases they must be for use with approved childcare providers.

John works for Ernley Ltd earning a salary of £18,000 per annum. On 1 May 2017 Ernley Ltd provided John with a new company van which had a list price of £6,700 and CO2 emissions of 96g/km. John uses the vehicle for both business and private purposes (50/50 business/private). John pays for all of his private fuel. What is John's taxable benefit for the van in 2018/19?

£3,071 £3,350 x 11/12 = £3,071 = Pro rated van benefit There is no fuel benefit as no private fuel is paid for by the employer.

Fred is provided with a two-year-old van by his employer. In addition to home to work journeys, Fred uses the van extensively at weekends. The van has a list price of £8,950 and CO2 emissions of 91g/km. Fred's employer pays for all his private petrol. What is the taxable benefit for 2017/18?

£3,983 The taxable benefit for a company van with private use is £3,350. The van fuel benefit is £633. Private use of vans does not include home to work, however the weekend use results in a taxable benefit.