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8 Taxable and exempt benefits. The PAYE system 12 mins

8 Taxable and exempt benefits. The PAYE system 12 mins

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8.3

Julia is employed by C plc at a salary of £20,000 each tax year. For the tax year 2015/16 C plc paid
Julia's corporate gym membership at a cost of £1,200. Julia receives no other benefits from C plc.
Which form, if any, does C plc use to report this benefit to HM Revenue and Customs (HMRC) and
by what date must it be submitted to HMRC?
A
B
C
D

P11D – 6 July 2016
P11D – 31 May 2016
P9D – 6 July 2016
Tax free benefit – no form required

(2 marks)
(Total = 6 marks)

9 Verdi

19 mins

The following scenario relates to questions 9.1 to 9.5.
Verdi is setting up a business and will be employing twelve individuals. He understands that he will need
to operate the Pay As You Earn (PAYE) system for income tax and national insurance contributions.
9.1

9.2

Which of the following methods can Verdi use to submit information electronically under the Real
Time Information (RTI) system?
(1)
(2)
(3)

Commercial payroll software
HMRC's Basic PAYE Tools software
Payroll provider

A
B
C
D

1 and 2
2 and 3
1 and 3
2 only

Which of the following information will be included in the first Full Payment Submission (FPS)
made by Verdi?
(1)
The amounts paid to employees
(2)
Deductions made under PAYE
(3)
Details of employees who have started employment
A
B
C
D

9.3

2 and 3
1 and 2
1 and 3
1, 2 and 3

(2 marks)

When must Verdi make his FPSs and when must he pay the corresponding PAYE if he does so
electronically?
A
B
C
D

9.4

(2 marks)

Report
End of tax month
End of tax month
On or before any day
when he pays someone
On or before any day
when he pays someone

Payment
14 days after end of tax month
17 days after end of tax month
14 days after end of tax month
17 days after end of tax month

(2 marks)

Verdi makes both his first and second Full Payment Submission (FPS) each six weeks late.
What are the monthly penalties that HMRC will impose?
A
B
C
D

First FPS
Nil
£200
Nil
£100

Second FPS
£200
£200
£100
£100

(2 marks)

Practice question bank

385

9.5

At the end of the tax year, Verdi must provide each employee with a form showing total taxable
earnings for the year, tax deducted, code number, NI number and the employer's name and
address.
What is the name of this form and by when must it be provided?
A
B
C
D

Name of form
P60
P60
P11D
P11D

Date by when must be provided
6 July following the end of the tax year
31 May following the end of the tax year
6 July following the end of the tax year
31 May following the end of the tax year

(2 marks)
(Total = 10 marks)

10 Azure plc

19 mins

The following items have been provided by a UK company, Azure plc, to employees earning more than
£8,500 a year.
(a)

A loan of £16,000 at 0.75% a year to Andrew on 6 October 2015. The loan was not for a qualifying
interest purpose.

(b)

A £7,000 interest free loan to Penelope on 6 April 2015 which was used to finance her daughter's
wedding.

(c)

The loan of a TV to Charles from 6 June 2015, the asset having cost the company £800 in 2012
and having had a market value of £500 in June 2015.

(d)

A long service award in December 2015 to Demelza, the company secretary, comprising a gold
wrist watch costing £1,000. Demelza has been employed by the company since December 1989.

(e)

Removal expenses of £9,500 to Janet in September 2015 who moved from Plymouth to Liverpool
to take up a new position in the Liverpool office in July 2015.

(f)

The provision of two mobile phones to Lawrence on 6 April 2015 both of which were available for
private use as well as business use. Azure plc paid £120 for the hire of each of the mobile phones
for the tax year. The market value of each of the phones was £500. The cost of the calls made
during the year was £300 for one of the phones and £400 for the other phone. 70% of these
expenses related to business use.

Required
State in detail how each of the above items would be treated for 2015/16, computing the amount of any
taxable benefit.
(10 marks)

11 Pensions
11.1

12 mins

In the tax year 2015/16, Treena earned £3,500 from part time work, trading income of £2,000 and
gross bank interest of £500.
What is the maximum gross pension contribution that Treena could have made during the tax year
2015/16 on which there would have been tax relief?
A
B
C
D

386

Practice question bank

£3,500
£5,500
£3,600
£6,000

(2 marks)

11.2

In the tax year 2015/16, Jemima earned a salary of £90,000 and she paid a contribution of £15,000
to her employer's occupational pension scheme. Jemima has no other sources of income.
What is Jemima's taxable income for the tax year 2015/16?
A
B
C
D

11.3

£90,000
£75,000
£64,400
£60,650

(2 marks)

Assume it is March 2016. Rio started in business as a sole trader on 6 April 2013 and had the
following results:
2013/14
2014/15
2015/16

£20,000
£30,000
£85,000

Rio had not made any pension provision prior to 2014/15 but on 6 April 2014 he joined a personal
pension scheme and made a contribution of £17,000 (gross) on that date. He now wishes to make
a pension contribution in March 2016.
What is the maximum gross pension contribution that Rio can make in March 2016 on which there
will be tax relief without incurring an annual allowance charge?
A
B
C
D

£63,000
£113,000
£85,000
£83,000

(2 marks)
(Total = 6 marks)

12 Gary, George and Geraldine

19 mins

The following scenario relates to questions 12.1 to 12.5.
Gary
Gary has taxable income of £44,400 for 2015/16, all from employment income and after deduction of his
personal allowance. He paid £4,000 (net) into his personal pension scheme in 2015/16.
George
George has trading income of £15,000 for 2015/16. In this tax year he also has property business income
from a furnished holiday letting of £8,000 and gross bank interest of £1,200. George wants to know the
tax consequences of accessing his pension fund of £500,000 when he reaches the age of 55 under flexible
access drawdown.
Geraldine
Geraldine had trading income of £60,000 in 2014/15. She paid £25,000 (net) into her personal pension
scheme in 2014/15. This was the first year in which she had been a member of a registered pension
scheme. She has trading income of £130,000 in 2015/16. She now wishes to make a personal pension
contribution in March 2016. Geraldine hopes to build up a pension fund of £1,500,000 by the time she is
aged 55 when she will start taking pension benefits. She will take the excess of the fund over the lifetime
allowance as a lump sum.
12.1

What is Gary's income tax payable for the tax year 2015/16?
A
B
C
D

£11,403
£10,603
£10,403
£8,880

(2 marks)

Practice question bank

387

12.2

What are George’s relevant earnings for 2015/16?
A
B
C
D

12.3

Lump sum taxable at 55%, pension income taxable at 25%
Tax-free lump sum of up to 25% of pension fund, remainder taxable as pension income
Tax-free lump sum of up to 50% of pension fund, remainder taxable as pension income
All withdrawals taxable as pension income
(2 marks)

What is the maximum net personal pension contribution that Geraldine will be able to make in
March 2016, obtaining tax relief and without resulting in a tax charge?
A
B
C
D

12.5

(2 marks)

What are the tax consequences of George accessing his pension fund under flexible access
drawdown?
A
B
C
D

12.4

£3,600
£15,000
£23,000
£24,200

£40,000
£48,750
£32,000
£39,000

(2 marks)

What will Geraldine’s tax position be if she takes the excess of the fund over the lifetime allowance
as a lump sum?
A
B
C
D

She will be subject to income tax at her marginal rate of tax on the lump sum
She will be subject to income tax at the rate of 55% on the lump sum
She will be subject to income tax at the rate of 25% on the lump sum
She will not be subject to income tax on the lump sum

(2 marks)

(Total = 10 marks)

13 Property income
13.1

12 mins

Paul rents out a flat which is fully furnished. The house does not qualify as a furnished holiday
letting. For the tax year 2015/16 Paul's property business income and expenses are:
Rent receivable
Expenses accrued:
Water rates
Agent's fee
Insurance

£
12,000
200
1,200
400

What is the wear and tear allowance that Paul can claim in the tax year 2015/16?
A
B
C
D
13.2

£1,020
£1,140
£1,180
£1,200

(2 marks)

Laura granted an 11 year lease on a property to a tenant for a premium of £30,000.
What is the amount of the premium on which will Laura be chargeable to income tax?
A
B
C
D

388

Practice question bank

£23,400
£6,000
£30,000
£24,000

(2 marks)

13.3

Which of the following statements about furnished holiday lettings are TRUE?
(1)

The accommodation must be available for commercial let as holiday accommodation to the
public generally for at least 105 days during the tax year.

(2)

The accommodation must not have more than 155 days in the tax year in longer term
occupation.

(3)

The wear and tear allowance applies on furniture provided in the furnished holiday letting.

(4)

The income from furnished holiday lettings qualifies as relevant earnings for pension
contributions.

(5)

If an individual has a furnished holiday letting and another letting, two income statements
must be prepared in order to identify separate profits and losses.

A
B
C
D

1, 2 and 4
2, 4 and 5
1, 4 and 5
3, 4 and 5

(2 marks)
(Total = 6 marks)

14 Rafe

19 mins

On 1 May 2015, Rafe started to invest in rented properties. He bought two houses in the first three
months, as follows.
House 1
Rafe bought house 1 for £62,000 on 1 May 2015. It needed a new roof before it was fit to be let out. Rafe
paid £5,000 for the work to be done in May. He then let it unfurnished for £600 a month from 1 June to
30 November 2015. The first tenant then left, and the house was empty throughout December 2015. On 1
January 2016, a new tenant moved in. The house was again let unfurnished. The rent was £6,000 a year,
payable annually in advance.
Rafe paid water rates of £320 for the period from 1 May 2015 to 5 April 2016 and a buildings insurance
premium of £480 for the period from 1 June 2015 to 31 May 2016.
House 2
Rafe bought house 2 for £45,000 on 1 July 2015. He spent £1,200 on routine redecoration and £2,300 on
furniture in July, and let the house fully furnished from 1 August 2015 for £7,800 a year, payable annually
in advance. Rafe paid water rates of £360 for the period from 1 July 2015 to 5 April 2016, a buildings
insurance premium of £440 for the period from 1 July 2015 to 30 June 2016 and a contents insurance
premium in respect of his own furniture of £180 for the period from 1 August 2015 to 31 July 2016. He
claimed the wear and tear allowance for furniture.
During 2015/16 Rafe also rented out one furnished room of his main residence. He received £4,600 and
incurred allowable expenses of £875.
Required
Compute Rafe's property business income for 2015/16.

(10 marks)

Practice question bank

389

15 Computing trading income
15.1

15.2

12 mins

Which of the following items of expenditure will Walter NOT be allowed to deduct in calculating his
tax-adjusted trading profit before capital allowances?
(1)

Installing air conditioning in his workshop

(2)

Repairing the central heating in his offices

(3)

Redecorating his showroom

(4)

Building a wall around his showroom car park

(5)

Making initial repairs to a recently acquired second-hand office building which was not
usable until the repairs were carried out

A
B
C
D

1, 2 and 4
2, 4 and 5
1, 4 and 5
3, 4 and 5

(2 marks)

Allie is a sole trader and has a profit of £160,000 on her statement of profit or loss for the year
ended 31 December 2015. Included within this figure are these expenses:
(1)
(2)
(3)

£3,000 legal fees in connection with renewing a 15-year lease of Allie's business premises
£180 car parking fines incurred by Allie whilst visiting clients
£40 hamper of food for customer

What is Allie's tax adjusted profit for the year ended 31 December 2015?
A
B
C
D
15.3

£160,040
£163,180
£163,220
£160,220

(2 marks)

Terry started in business on 6 April 2015 and prepared his first set of accounts to 5 April 2016. He
elected to use the cash basis. During the year to 5 April 2016 Terry invoiced his customers for
£50,200 of which £4,000 was owed as receivables at 5 April 2016. Terry incurred expenses during
the year to 5 April 2016 of £20,000 of which £1,500 was owed as payables on 5 April 2016.
What is Terry's tax adjusted profit for the year ended 5 April 2016?
A
B
C
D

£24,700
£27,700
£32,700
£30,200

(2 marks)
(Total = 6 marks)

16 Margaret

19 mins

The following scenario relates to questions 16.1 to 16.5.
On 6 April 2015, Margaret acquired a country house called The Cedars and immediately started a sole
trader guest house business in it. Two-thirds of The Cedars was used by guests and one-third by
Margaret. The following information is relevant for the year to 5 April 2016.

390

(i)

Revenue was £36,000 of which £500 was owed as receivables at 5 April 2016.

(ii)

Furniture for guest use was acquired for £2,500.

(iii)

A plot of land was acquired to provide parking solely for the use of guests for £7,500.

(iv)

Gas and electricity bills relating to the whole of The Cedars amounted to £7,400. Cleaning and
gardening costs, again relating to the whole of The Cedars, amounted to £1,800. Margaret also

Practice question bank

spent £2,000 on providing food eaten by her and the guests. There were no amounts outstanding
at 5 April 2016. The fixed rate adjustment for private use of business premises for one occupant is
£350 per month.
(v)

Margaret purchased a motor car on 6 April 2015. She drove 15,000 miles in the car during the year
of which 12,000 miles were for journeys relating to the guest house business.

(vi)

Other allowable expenses were £2,000 of which £900 was owed as payables at 5 April 2016.

Margaret will elect to use the cash basis for accounting for the tax year 2015/16 and will use fixed rate
expenses where available. She expects to make a loss in period of account ending 5 April 2017.
16.1

What is the amount of revenue that will be taxable in the tax year 2015/16 and the amount of other
allowable expenses that will be allowable in that tax year?
Revenue
A
B
C
D

16.2

Land for guest parking
£7,500
£Nil
£7,500
£Nil

(2 marks)

£11,200
£7,467
£7,000
£5,000

(2 marks)

What is the amount of the allowable motoring expenses?
A
B
C
D

16.5

Furniture
£2,500
£2,500
£450
£450

What is the amount of a household expenses in item (iv) that are allowable under the cash basis?
A
B
C
D

16.4

(2 marks)

What are the amounts which are allowable in relation to the furniture and the plot of land for guest
parking?
A
B
C
D

16.3

£36,000
£36,000
£35,500
£35,500

Other allowable
expenses
£2,000
£1,100
£2,000
£1,100

£5,000
£3,000
£5,750
£5,400

(2 marks)

How will Margaret be able to relieve the loss that she expects to make in the tax year 2016/17?
(1)
(2)
(3)

Against general income of 2016/17
Against general income of 2015/16
Carry forward against future trading profits of the guest house business

A
B
C
D

1, 2 and 3
3
1 and 2
1 and 3

(2 marks)
(Total = 10 marks)

Practice question bank

391

17 Archie

29 mins

Archie's statement of profit or loss for the year to 31 March 2016 was as follows.
£
Gross profit
Other income
Impairment trade losses recovered (previously written off)
Profit on sale of office
Building society interest

£
246,250

373
5,265
1,900
7,538

Expenses
General expenses
Repairs and renewals
Legal and accountancy charges
Subscriptions and donations
Impairment losses (trade)
Salaries and wages
Travel
Depreciation
Rent and rates
Net profit

73,611
15,000
1,200
7,000
500
30,000
8,000
15,000
1,500
(151,811)
101,977

Notes
(1)
General expenses include the following.
Entertaining staff
Entertaining suppliers
(2)

Repairs and renewals include the following.
Redecorating existing premises
Renovations to new premises to remedy wear and tear of previous
owner (the premises were usable before these renovations)

(3)

500

£
200
50
30
100
820
1,200

Subscriptions and donations include the following.
Donations under the gift aid scheme
Donation to a political party
Sports facilities for staff
Subscription to trade association

392

£
300

Legal and accountancy charges are made up as follows.
Debt collection service
Staff service agreements
Tax consultant's fees for special advice
45 year lease on new premises
Audit and accountancy

(4)

£
1,000
600

£
5,200
500
600
100

(5)

Travel expenses included Archie's motoring expenses of £2,000. 25% of his use of his car was for
private purposes.

(6)

Capital allowances amounted to £2,200.

Practice question bank

Required
Compute Archie's taxable trading profit for the accounting period to 31 March 2016. You should start with
net profit figure of £101,977 and you should indicate by the use of zero (0) any items which do not require
adjustment.
(15 marks)

18 Capital allowances
18.1

18.2

12 mins

Which of the following items COULD be plant which is eligible for capital allowances?
(1)
(2)
(3)
(4)
(5)

Refrigerator for coffee shop
Extension to office building
Decorative mirror in restaurant
Sound insulation in a recording studio
A bridge

A
B
C
D

1, 2 and 3
2, 3 and 4
1, 4 and 5
1, 3 and 4

(2 marks)

Julian is a sole trader who prepares accounts to 5 April each year. He acquired a car for both
business and private purposes on 1 October 2015. The car has a CO2 emission rate of 165 grams
per kilometre and cost £21,000. The private mileage for Julian's period of account to 5 April 2016
was 25% of the total mileage for that year.
What is the maximum amount of capital allowances that Julian can claim in respect of the car for
the year ended 5 April 2016?
A
B
C
D

18.3

£1,260
£3,780
£2,835
£1,680

(2 marks)

Olive started trading on 1 October 2015 and prepared her first set of accounts to 31 December
2015. On 10 October 2015 she acquired machinery at a cost of £135,000.
What is the maximum amount of capital allowances that Olive can claim for the period ended 31
December 2015?
A
B
C
D

£135,000
£126,800
£125,450
£125,000

(2 marks)
(Total = 6 marks)

19 Saruman

19 mins

The following scenario relates to questions 19.1 to 19.5.
Saruman is the sole proprietor of a small engineering business. He has previously prepared accounts
annually to 5 April but has decided to prepare accounts for the nine-month period to 31 December 2015.
The following tax written down values are brought forward on 6 April 2015:
Main pool
Special rate pool
Motor car for Saruman's use (30% private use)

£56,800
£500
£6,000

The following disposals and additions were made during the period ended 31 December 2015.

Practice question bank

393

Disposals:

Additions:

20 April 2015
21 May 2015




20 June 2015



21 May 2015



Plant £12,000 (original cost £10,000)
Motor car for Saruman's own use £7,200
(original cost £8,923)
Plant £800 (original cost £3,000)
New motor car for Saruman's own use £19,000
CO2 emissions 150 g/km. Private use of this car is 20%.

Saruman is considering buying a new motor car for use by sales representative in January 2016. He is
considering two cars. Motor car [1] has CO2 emissions of 70g/km. Motor car [2] has CO2 emissions of
140g/km. The motor car will be the only acquisition in the year to 31 December 2016.
19.1

What is the balancing charge that arises on the disposal of Saruman’s car?
A
B
C
D

19.2

(2 marks)

£6,210
£5,940
£8,280
£7,920

(2 marks)

What is the maximum writing down allowance on the special rate pool for the period to 31
December 2015?
A
B
C
D

19.5

£912
£1,520
£1,140
£1,216

What is the maximum writing down allowance on the main pool for the period to 31 December
2015?
A
B
C
D

19.4

(2 marks)

What is the maximum writing down allowance on Saruman’s new car for the period to 31
December 2015?
A
B
C
D

19.3

£1,200
£840
£360
£2,046

£68
£40
£500
£30

(2 marks)

How will the purchase of the motor car for use by the sales representative be treated if Saruman
wishes to claim maximum capital allowances in the year to 31 December 2016?
(1)
(2)
(3)

A
B
C
D

It will be given a 100% first year allowance
It will be added to the main pool and given writing down allowances of 18% as part of the
pool
It will be added to the special rate pool and given writing down allowances of 8% as part of
the pool
Motor car [1]
1
2
2
1

Motor car [2]
2
3
1
3

(2 marks)
(Total = 10 marks)

394

Practice question bank

20 Tom

29 mins

Tom prepares accounts to 30 June. Despite substantial investment in new equipment, business has been
indifferent and he will cease trading on 31 December 2019. His last accounts will be prepared for the six
months to 31 December 2019.
The tax written down values at 1 July 2015 were as follows.
£
33,500
4,400

Main pool
Short life asset (acquired 1.5.14)
Additions and disposals have been as follows.

£
20.9.15
15.7.16
14.7.18
10.5.19

Plant cost
Car for own use cost
Plant sold for
Short life asset sold for

27,000
13,400
340
2,900

Private use of the car was 20% for all years. The car emits CO2 of 105g/km.
At the end of 2019, the plant will be worth £24,000 and the car £10,600.
Required
Calculate the capital allowances for the periods from 1 July 2015 to 31 December 2019, assuming the
capital allowances rates for 2015/16 apply throughout.
(15 marks)

21 Assessable trading income
21.1

12 mins

Frank started trading on 1 January 2015. He prepared his first set of accounts for the 13-month
period to 31 January 2016. His tax adjusted trading profit for this period was £19,500.
What are Frank's overlap profits?
A
B
C
D

21.2

£1,500
£3,250
£4,500
£3,000

(2 marks)

Fredericka stopped trading on 31 March 2016. Her tax adjusted profits for the last two periods of
account were:
y/e 31.1.16
p/e 31.3.16

£10,000
£2,500

Fredericka had £1,000 of overlap profit when she started trading.
What is Fredericka's taxable trading income for the tax year 2015/16?
A
B
C
D
21.3

£12,500
£11,500
£9,833
£1,500

(2 marks)

Renee commenced trading on 1 January 2015. She prepared her first set of accounts for the
18 month period to 30 June 2016.
What is Renee's basis period for the tax year 2015/16?
A
B
C
D

1 July 2015 to 30 June 2016
6 April 2015 to 5 April 2016
1 January 2015 to 31 December 2015
1 January 2015 to 5 April 2015

(2 marks)
(Total = 6 marks)
Practice question bank

395