Paper T9 (UK)

Certified Accounting Technician Examination

Advanced Level

Preparing Taxation
Computations
(UK Stream)
Tuesday 15 June 2010

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours
This paper is divided into two sections:
Section A – ALL TEN questions are compulsory and MUST
be attempted
Section B – ALL FOUR questions are compulsory and MUST
be attempted
Tax rates and allowances are on pages 2–4.
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

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

TAX RATES AND ALLOWANCES

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

Income tax
Basic rate £1–£37,400 20%
Higher rate £37,401 and above 40%

Note:
A starting rate of 10% applies to the first £2,440 of savings income where such income falls within the first £2,440
of taxable income.
UK dividends will be taxed at 10% when they fall within the basic rate band and 32·5% thereafter.

Personal allowance
Personal allowance £6,475

Company car benefit

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

Car fuel benefit

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

Authorised mileage allowances: cars

Up to 10,000 miles 40p
Over 10,000 miles 25p

Pension scheme limits

Annual allowance £245,000

The maximum contribution that can qualify for tax relief without evidence of earnings is £3,600.

Official rate of interest

4·75% (assumed)

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 Capital allowances
%
Plant and machinery
General pool – First year allowance 40
– Writing down allowance 20
Special rate pool 10
The first-year allowance of 40% applies to expenditure during the period 6 April 2009 to 5 April 2010
(1 April 2009 to 31 March 2010 for limited companies).
Motor cars
CO2 emissions up to 110 grams per kilometre 100
CO2 emissions between 111 and 160 grams per kilometre 20
CO2 emissions over 160 grams per kilometre 10
Annual investment allowance
First £50,000 of expenditure 100
Industrial buildings
Writing-down allowance 2

Corporation tax
Financial year 2007 2008 2009
Small companies rate 20% 21% 21%
Full rate 30% 28% 28%
Small companies rate lower limit 1,300,000 1,300,000 1,300,000
Small companies rate upper limit 1,500,000 1,500,000 1,500,000
Marginal relief fraction 1/40 7/400 7/400

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

Value added tax (VAT)

Standard rate – Up to 31 December 2009 15·0%
– From 1 January 2010 onwards 17·5%
Registration limit £68,000
Deregistration limit £66,000

Capital gains tax

Rate of tax 18%
Annual exemption £10,100
Entrepreneurs’ relief – Lifetime limit £1,000,000
– Relief factor 4/9ths

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 National insurance contributions
(Not contracted out rates)
%
Class 1 Employee £1 – £5,715 per year Nil
£5,716 – £43,875 per year 11·0
£43,876 and above per year 11·0
Class 1 Employer £1 – £5,715 per year Nil
£5,716 and above per year 12·8
Class 1A 12·8
Class 2 £2·40 per week
Class 4 £1 – £5,715 per year Nil
£5,716 – £43,875 per year 8·0
£43,876 and above per year 1·0
Where weekly or monthly calculations are required the Class 1 limits shown above should be divided by 52 (weekly)
or 12 (monthly) as applicable.

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 This is a blank page.
Section A begins on page 6.

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Section A – ALL TEN questions are compulsory and MUST be attempted

Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to
each multiple choice question.
Two marks will be awarded for each correct answer.

1 Which one of the following is not statutory legislation?

A Capital Allowances Act 2001
B Extra Statutory Concession A1
C Income Tax (Trading and Other Income) Act 2005
D Statutory Instrument 2008/2682

2 Which one of the following is not business travel for the purpose of an income tax expense claim?
A Travel to visit a client
B Travel from home to a temporary place of work
C Travel to and from a permanent place of work
D Travel to visit a trade fair relevant to the employer’s business

3 Jimmy is an employee earning £36,000 a year, payable in equal monthly amounts. In December 2009 he received
a bonus of £8,000.

What were Jimmy’s national insurance contributions (NIC) for December 2009?
A £1,157
B £423
C £110
D £1,210

4 Peter is a sole trader preparing accounts to 31 December each year. For the tax year 2008–09 he submitted his tax
return on 14 February 2010.

By which date must HM Revenue and Customs (HMRC) give written notice of their intention to commence an
inquiry?
A 31 December 2010
B 31 January 2011
C 14 February 2011
D 30 April 2011

5 Which of the following are exempt from capital gains tax for an individual?
(1) Damages for personal injury
(2) Qualifying corporate bonds (QCBs)
(3) Gilt-edged securities
(4) Receipts of compensation for damaged assets
(5) Goodwill
A (1), (2) and (5)
B (2), (3) and (4)
C (1), (2) and (3)
D (1), (3) and (5)

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6 A factory, which had always been used as a business asset, was sold on 14 May 2009 resulting in a gain of £60,000.
A depreciating asset, also used as a business asset, was purchased on 12 August 2009 using all the proceeds from
the sale of the factory. The gain of £60,000 was heldover. The depreciating asset will continue to be used as a
business asset until it is sold on 14 October 2019.

When would the heldover gain of £60,000 become chargeable to capital gains tax?
A 12 August 2009
B 14 May 2019
C 12 August 2019
D 14 October 2019

7 A company has the following expenses in its profit and loss account:
Legal fees for the purchase of a new building £800
Legal fees for defending an action for faulty goods £1,500
Entertainment of staff (the company has 20 employees) £3,200
Patent royalties in connection with the company’s trade £1,000

How much must be added back to the company’s accounting profit when computing the tax adjusted trading
profit?
A £2,300
B £800
C £4,000
D £5,000

8 A Ltd has one 100% owned subsidiary, B Ltd. In addition the A Ltd holds 40% of the shares in another company,
C Ltd. Dividends of £9,000 are received from B Ltd and £4,500 from C Ltd.

How much is included as franked investment income (FII) in A Ltd’s tax calculation?
A £15,000
B £9,000
C £5,000
D £4,500

9 Which of the following is a requirement for a business to be allowed to join the value added tax (VAT) flat rate
scheme?
A A tax exclusive annual taxable turnover of up to £150,000
B A tax inclusive annual total turnover of up to £225,000
C A tax exclusive annual turnover of up to £68,000
D A tax exclusive standard rated turnover of up to £150,000

10 X Ltd always submits its value added tax (VAT) returns by post.

The VAT return for the quarter ending 30 April 2010 should be submitted to HM Revenue and Customs (HMRC)
by which date?
A 30 May 2010
B 31 May 2010
C 30 June 2010
D 31 July 2010

(20 marks)

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Section B – ALL FOUR questions are compulsory and MUST be attempted

1 (a) David, an employee, received the following benefits during the tax year 2009–10:
– The use of a diesel powered company car with a recommended list price of £100,000. The car was first
provided in October 2007 and had been used throughout the tax year 2009–10 for both business and
private purposes. The car has CO2 emissions of 179 grams per kilometre. David paid £100 a month towards
the cost of the diesel. The diesel had cost the company a total of £2,900 during the tax year 2009–10 of
which £2,000 was in respect of private motoring.
– A loan of £10,000 had been advanced in January 2009 to help David purchase a yacht. David repaid
£3,000 of this loan on 31 December 2009 but the balance of £7,000 is still outstanding. The company
charged David 2·5% interest throughout the tax year 2009–10.
– Course fees amounting to £3,000 were paid by the company in respect of training courses relevant to
David’s employment.
– A computer, with a value of £800 when first provided in January 2009, was made available to David for
his private use throughout the tax year 2009–10. The computer was not used for business purposes.
– His employer paid David incidental expenses amounting to £12 per night for 60 days overseas business
travel, and £4 per night for 40 days UK business travel, during the tax year 2009–10.

Required:
Calculate, for the purposes of income tax, the value of each of the benefits provided to David for the tax year
2009–10. (12 marks)

(b) Stuart has been in partnership with Fahrid for many years. During the accounting years ending 31 May 2009
and 31 May 2010 the partnership had tax adjusted trading profits of £108,000 and £116,000 respectively. The
profits are always split 60% to Stuart and 40% to Fahrid.
Stuart borrowed £10,000 from a local bank in January 2009 to help purchase plant and machinery for use in
the partnership. Interest is charged at a rate of 8% per year. The full amount of the loan is still outstanding.
Stuart paid £1,600 net to a personal pension plan during the tax year 2009–10.
Stuart received the following investment income during the tax year 2009–10:
Interest from a national savings certificate £1,800
Interest from a national savings bank investment account £600
Premium bond prizes £250
UK dividends £900
The above amounts are the actual amounts received or credited to the account.

Required:
Calculate the income tax payable by Stuart for the tax year 2009–10.
Note: you should ignore capital allowances. (10 marks)

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(c) Doreen rents out a fully furnished house. The house does not qualify as furnished holiday accommodation. In
the tax year 2009–10 she had the following income and expenditure.
Rental income £1,200 per month
Water rates £360 per year
Insurance £240 per year
Agents fees 12% of gross income received
Doreen always claims the wear and tear allowance for furniture.
The house was let throughout the whole of the tax year 2009–10 apart from one month when Doreen lived in
the property herself.

Required:
Calculate Doreen’s business property income for the tax year 2009–10. (5 marks)

(27 marks)

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2 (a) Stem Ltd, a UK company, made the following purchases and disposals of capital items during its nine-month
accounting period ending 31 December 2009:
Purchases:
25 June 2009 – A machine for £28,000
4 August 2009 – A machine for £30,000
7 October 2009 – A machine for £40,000
2 December 2009 – A car for £20,000
Disposal:
14 October 2009 – Plant for £6,000 (original cost £4,000)
Notes:
The machine purchased on 7 October 2009 was purchased on a hire purchase agreement with 24 monthly
payments of £2,000 starting in October 2009.
The car has CO2 emissions of 163 grams per kilometre.
The tax written down value of Stem Ltd’s general pool brought forward on 1 April 2009 was £220,000.

Required:
Calculate the maximum capital allowances that Stem Ltd can claim for the nine-month period ended
31 December 2009. (9 marks)

(b) Petal Ltd sold 3,000 shares in Bud Ltd on 19 October 2009 for £21,000. Bud Ltd has one million shares in
issue.
Petal Ltd had purchased shares in Bud Ltd as follows:
14 June 2002 1,000 shares for £3,000
17 July 2006 3,000 shares for £10,000
Relevant indexation factors are:
June 2002 to July 2006: 0·127
June 2002 to October 2009: 0·279
July 2006 to October 2009: 0·136

Required:
Calculate the chargeable gain on Petal Ltd’s disposal of shares in Bud Ltd. (5 marks)

(c) Bulb Ltd has one 100% owned subsidiary and prepares accounts to 31 March every year. In its accounting year
to 31 March 2010 Bulb Ltd had the following income and expenditure:
Income:
Adjusted trading profit £600,000
Non-trade interest £20,000
UK dividends (not from subsidiary) £4,500
Chargeable gain £10,000
Expenditure:
Non-trade interest £4,000
Gift aid donation £6,000
Bulb Ltd had trading losses of £200,000 and capital losses of £3,000 brought forward as at 1 April 2009.

Required:
Calculate the corporation tax payable by Bulb Ltd for the year ended 31 March 2010. (8 marks)

(22 marks)

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3 (a) Eddie, a UK resident, made the following disposals of capital assets in the tax year 2009–10:
15 April 2009: An antique table was sold for £3,000. The table had originally been purchased in June 2006
for £8,000. Eddie incurred selling expenses of £300.
17 August 2009: A 20% share of a painting was sold for £28,000. The original painting had been purchased
for £60,000 and the remaining 80% share had a current market value of £140,000. Eddie incurred selling
expenses of £500.
12 February 2010: A Victoria Cross medal was sold for £50,000. The medal had been awarded to Eddie’s father
and had a value of £22,000 when inherited by Eddie in May 2007.
Eddie had unused capital losses of £4,000 brought forward from the tax year 2008-09.

Required:
Calculate the capital gains tax payable by Eddie for the tax year 2009–10 and state the due date of payment.
(11 marks)

(b) Tanya purchased a house in London on 1 March 1983 and sold it on 28 February 2010. Tanya had the following
pattern of occupation and absences during her ownership of the property:
Event Period Detail
1 1 March 1983 to 28 February 1985 Lived in the house
2 1 March 1985 to 28 February 1990 Employed overseas
3 1 March 1990 to 28 February 1994 Employed in Scotland
4 1 March 1994 to 28 February 1997 Lived in the house
5 1 March 1997 to 28 February 2010 Lived with her mother and never returned to her own
house
During Tanya’s absences the house was left empty apart from the periods 1 March 1990 to 28 February 1994
and 1 March 1997 to 28 February 1999 when the house was let on a commercial basis to friends.
Tanya has never owned any other property and has always treated this house as her main residence.

Required:
Using the table format shown below state, with reasons, in respect of Tanya’s entire period of ownership:
(i) Each period covered by, or not covered by, principal private residence (PPR);
(ii) Each period covered by letting relief.
Event Exempt Chargeable Letting Reason
years years relief
years
1
2
3
4
5
(7 marks)

(18 marks)

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4 (a) Soula is a sole trader who has recently registered for value added tax (VAT). Soula trades with other businesses
in the European Union (EU).

Required:
(i) State the conditions, which must be met for supplies of goods to businesses in other EU member states,
to be classified as zero-rated; (3 marks)
(ii) State the tax point for acquisitions of goods from other businesses in the EU. (3 marks)

(b) Lin, a sole trader, paid the following amounts of tax for the tax year 2008–09:
Income tax £16,000
Class 4 national insurance contributions £3,000
Capital gains tax £1,700
For the tax year 2009–10 Lin’s final tax assessments are expected to be as follows:
Income tax £19,300
Class 4 national insurance contributions £3,500
Capital gains tax £2,300

Required:
In respect of Lin’s 2009–10 tax liabilities, state the due dates of payment of tax, together with the amounts
payable on each date.
Note: you should ignore any payments on account for the tax year 2010–11. (7 marks)

(13 marks)

End of Question Paper

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