jazib

Extra Practice Exam Question A1 (December 2003)
Li Fung commenced in self-employment on 1 October 1998. She initially prepared accounts to 30 June, but changed her accounting date to 31 March by preparing accounts for the nine-month period to 31 March 2002. Li’s taxable profits since she commenced trading have been as follows:
Nine-month period ended 30 June 1999 18,600
Year ended 30 June 2000 24,900
Year ended 30 June 2001 22,200
Nine-month period ended 31 March 2002 16,800
Year ended 31 March 2003 26,400

Required:
1) State the qualifying conditions that must be met for a change of accounting date to be valid. (3 marks)
2) Calculate Li’s trading (business) income for 1998-99, 1999-00, 2000-01, 2001-02 and 2002-03. (9 marks)
3) Advise Li of the advantages and disadvantages for tax purposes of changing her accounting date from 30 June to 31 March. (3 marks)

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ADBot

jazib

Extra Practice Exam Question A2 (June 2008 C)
(a) Paul is aged 52 and has been married to Susan, who is 51, for the past twenty years. He works as a customer relations manager for a large UK resident company. His annual salary is £42,000 and he has received bonuses of £5,000 and £6,000 on 1 May 2007 and 1 May 2008 respectively. These bonuses were paid in respect of the company’s years ending 31 March 2007 and 31 March 2008.

In addition Paul received the following benefits in the tax year 2007–08:
• The use of a company owned house for him and his family. The company purchased the house on 14 June 2004 for £159,000. Paul first moved into the house on 2 October 2006 when it had a market value of £260,000. Paul has occupied the house throughout 2007–08 paying rent to the company of £400 per month. The rateable value of the house is £3,000. The house is not job-related. Paul pays for all of the household expenses.
• A payment of 45p per mile for the business use of Paul’s own car. Paul received this for a total of 12,000 miles in the tax year 2007–08 of which 9,000 have been on business trips and 3,000 on travelling to and from work. Paul’s place of work is not temporary.
• Workplace parking. This was calculated as worth £6 per day for each of the 215 days that Paul attended work during the tax year 2007–08.
• Free private medical insurance. This had cost the company £800 for the tax year 2007–08, it would have cost Paul £960 if he had arranged the cover himself.
• The use of a company owned computer. Paul has been provided with a computer to use at home for both business and private usage. Paul estimated that the private usage amounted to 40% and the business usage 60%. The computer was first provided in May 2006 when it had a market value of £2,400 and Paul has used it throughout the whole of the tax year 2007-08. Paul’s company deducted £9,280 income tax (PAYE) from Paul’s income during the tax year 2007–08.

Paul’s other income for the tax year 2007–08 was:
Bank interest £4,800
Dividends from UK companies £1,800
Building society interest £800

The bank interest is from an account held in joint names with his wife Susan and is the total amount due for both Paul and Susan. The building society interest is from an Individual Savings Account (ISA). All three amounts shown are the cash amounts received or credited to the accounts.

Paul paid £156 (net) to a UK registered charity under the gift aid scheme and a fee of £380 to an HM Revenue & Customs (HMRC) approved relevant professional body, required for his position in the company. Both of these payments were made during December 2007.

Required:
Calculate the income tax payable by Paul for the tax year 2007–08. (19 marks)

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jazib

(b) Charlie owns a house, which he rents out fully furnished. It is not rented out as furnished holiday accommodation.

The house had been rented for £800 a month for the two years up to 31 December 2007. The same family had been occupying the house during this period and all the rent had been paid with the exception of the last amount due for December 2007. Despite all possible attempts to recover this month’s rent it still remains unpaid and it is doubtful that it will ever be collected.

From 1 January 2008 a new tenant occupied the property and the rent was increased to £880 per month. The rent due for January 2008 and February 2008 was paid on time but the rent for March 2008 was not paid until 24 April 2008.

Charlie’s expenditure in respect of the house was:
• House contents insurance: £600 in January 2007 and £800 in January 2008 Both amounts were paid in advance for the year to come.
• Letting agent’s commission: 10% of the gross rents receivable (including those outstanding).
• Minor repairs: £250 in August 2007
• Water rates: £300 for the period 1 April 2007 to 31 March 2008.
• A new entrance porch: £1,500 in June 2007 Charlie always claims wear and tear allowance for the furniture.

Required:
Calculate the Charlie’s in property income for the tax year 2007–08 (8 marks)

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jazib

(c) Paul wants to start making contributions to a pension plan. His employer has advised him that they have an HMRC registered occupational pension scheme that he can join. However, a friend has told him that both he and his employer can contribute to a personal pension plan instead. He has asked you, as his tax advisor, for information on the two forms of pension scheme. You have arranged a meeting with Paul to discuss the information he requires.

Required: Write brief notes, to be used at a meeting with Paul, explaining the following points:
• The maximum contributions allowed per year.
• The method(s) of him obtaining relief.
• The tax effects, if any, of the company making contributions to the plans on his behalf.
Note: your answer should only cover the above points. You are not required to mention the rules on receiving benefits on retirement. (8 marks)

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jazib

Extra Practice Exam Question A3 (December 2002)
On 30 September 2007 Mark Kett ceased trading as a marketing consultant. He had been self-employed since 1 July 1996. On 1 October 2007 Mark commenced employment as the marketing manager of Sleep-Easy plc. The company runs a hotel. The following information is available for 2007–08:

Self-employment
1. Mark has tax adjusted trading profits of £57,600 for the year ended 30 June 2007, and profits of £17,400 for the three month period to 30 September 2007. These figures are before taking account of capital allowances.
2. The tax written down values for capital allowances purposes at 1 July 2006 are as follows:
General pool 43,800
Expensive motor car 24,900
The expensive motor car is used by Mark, and 40% of the mileage is for private purposes.
3. On 15 August 2006 Mark purchased office furniture for £8,900. All of the items included in the general pool were sold for £43,200 on 30 September 2007. On the cessation of trading Mark personally retained the expensive motor car. Its value on 30 September 2007 was £15,400.
4. Mark has unused overlap profits brought forward of £9,800.

Employment

1. Mark is paid a salary of £6,250 per month by Sleep-Easy plc, from which income tax of £1,890 per month has been deducted under PAYE.
2. During the period from 1 October 2007 to 5 April 2008 Mark used his private motor car for business purposes. He drove 10,000 miles in the performance of his duties for Sleep-Easy plc, for which the company paid an allowance of 20 pence per mile. The relevant Inland Revenue authorized mileage rates to be used as the basis of an expense claim are 40 pence per mile for the first 10,000 miles, and 25 pence per mile thereafter.
3. On 1 October 2007 Sleep-Easy plc provided Mark with an interest free loan of £80,000 so that he could purchase a new main residence.
4. During the period from 1 October 2007 to 5 April 2007 Mark was provided with free meals in Sleep-Easy plc’s staff canteen. The total cost of these meals to the company was £1,200.

Other information
1. During 2007–08 Mark received dividends of £2,880 (net).
2. Mark’s payments on account of income tax in respect of 2007–08 totaled £24,400.

Required:
a) Calculate Mark’s Trading Profits for 2007–08. You should prepare separate capital allowance computations for each period of account. (10 marks)
b) Calculate the income tax payable by Mark for 2007–08, and the balancing
payment or repayment that will be due for that tax year. (12 marks)
c) Advise Mark as to how long he must retain the records used in preparing his tax return for 2007–08, and the potential consequences of not retaining the records for the required period. (3 marks)

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jazib

Extra Practice Exam Question A4 (December 2002)
For the purposes of this question you should assume that today’s date is 15 March 2007.

Carol Courier is employed by Quick-Speed plc as a delivery driver, and is paid a salary of £26,000 p.a. She contributes 5% of her gross salary into Quick-Speed plc’s Inland Revenue approved occupational pension scheme.

As an alternative to being employed, Quick-Speed plc have offered Carol the opportunity to work for the company on a self-employed basis. The details of the proposed arrangement for the year ended 5 April 2008 are as follows:
1) Carol will commence being self-employed on 6 April 2007.
2) Her income from Quick-Speed plc is expected to be £38,000.
3) When not working for Quick-Speed plc, Carol will be allowed to work for other clients. Her income from this work is expected to be £4,500.
4) Carol will lease a delivery van from Quick-Speed plc, and 100% of the mileage will be for business purposes. The cost of leasing and running the delivery van will be £4,400.
5) When she is unavailable Carol will have to provide a replacement driver to deliver for Quick-Speed plc. This will cost her £2,800.
6) Carol will contribute £2,000 (gross) into a personal pension scheme during 2007–08.
This will provide her with the same benefits as the occupational pension scheme provided by Quick-Speed plc.

Required:
a) (a)Assuming that Carol does not accept the offer from Quick-Speed plc and continues to be employed by the company, calculate her income tax and Class 1 NIC liability for 2007–08. (5 marks)
b) (b)Assuming that Carol accepts the offer to work for Quick-Speed plc on a self-employed basis from 6 April 2007 onwards, calculate her income tax, Class 2 NIC and Class 4 NIC liability for 2007–08. (6 marks)
c) (c)Advise Carol as to whether it will be beneficial to accept the offer to work for Quick-Speed plc on a self-employed basis. Your answer should be supported by a calculation of the amount by which Carol’s income for 2007–08 (net of outgoings, income tax and NIC) will increase or decrease if she accepts the offer. (4 marks)

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jazib

Extra Practice Exam Question A5 (December 2001)
Ruby Chan has been a self-employed computer consultant since 1989. Her income for 2007-08 is as follows:
Tax adjusted trading profit 26,700
Property Income 3,300
Building society interest (net) 5,200
Capital gain 12,400
The capital gain is after taking account of indexation and taper relief. Ruby’s payment on account for the year 2007-2008 amounted to £3,280

Required:
a) Calculate the income tax, Class 4 NIC and CGT payable by Ruby for 2000 (8 marks)
b) Calculate Ruby’s balancing payment for 2007-08 and payment on account for 2008-09. Your answer should include the relevant due dates. (2 marks)
c) Advise Ruby of the consequences of not filing her self-assessment tax return and not making the balancing payment for 2007-08 until 31 May 2008. (5 marks)

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djvicky

thx for this cause