Technician/Level 4 Diploma (QCF)

Accounting Qualification

Answers

Technician/Level 4 Diploma (QCF)

Preparing business taxation computations (BTC)

December 2010

Note:

The model answers may, in parts, be longer than would be expected of candidates in the exam. The fuller version is given for teaching purposes.

Section 1

Task 1.1

AIA / General pool / Car (60%) / Car (25%) / Car – 223g/ km / Total
£ / £ / £ / £ / £
Balance brought forward / 25,140 / 10,010 / 15,800
Non AIA additions / 12,670
WDA 10% / 1,267 / 1,267
11,403
AIA additions
Before 6 April 2009 / 13,440
AIA / 13,440 / 13,440
After 6 April 2009 / 40,550
Balance of AIA / 36,560 / 36,560
3,990
WDA 20% / 5,028 / 5,028
WDA 20% / £3,000 / 2,002 / 801
WDA 20% / £3,000 / 3,000 / 2,250
20,112 / 8,008 / 12,800
FYA 40% / 1,596 / 2,394 / 1,596
22,506
60,942

Task 1.2

Total / Richard / John
£ / £ / £
Accounting profit / 150,942
Less: capital allowances / 60,942
90,000
To 30 September 2009
Profit sharing ratio = 1:1 / 67,500 / 33,750 / 33,750
To 31 December 2009
Salary - £15,000 X 3/12 / 3,750 / 3,750
Profit sharing ratio: 1:2 / 18,750 / 6,250 / 12,500
Balance / 22,500 / 10,000 / 12,500
Total / 90,000 / 43,750 / 46,250

Task 1.3

Each partner assessed on £33,000
Dates:
1 January 2008 to 5 April 2008
3/12 x £33,000 / £8,250

Task 1.4

(a) / £ / £
Goodwill:
Proceeds / 45,000
Warehouse:
Proceeds / 187,500
Cost / 56,325 / 131,175
176,175
Entrepreneur’s relief – 4/9 x £176,175 / 78,300
Net capital gain / 97,875
(b)
Date payable: 31 January 2011

Task 1.5

From:
To:
Sent:30 November2010
Subject:Re: Payments to HMRC
You are right in stating that both you and John have paid two types of NIC: Class 2 and Class 4.
Class 2
This is payable at a fixed rate of £2.40 per week.It applies if your profits are above £5,075, but below that amount nothing is payable. You are right in that this payment is normally made direct to HMRC on a either a monthly or quarterly basis.
Class 4
This NIC is more complex. It is calculated by applying a fixed percentage to your profit figure. Where this is below £5,715, there is no NIC payable. Where the profits are between £5,715 and £43,875, a rate of 8% is applied to the profit. Above £43,875, an additional rate of 1% applies to the excess.
Unlike Class 2, Class 4 is payable at the same time as the income tax liability.
As you and John are in a partnership, each of you must pay both Class 2 and Class 4 as individuals. The profit figures used in the computations are your own share of the profits, and not the total partnership profits.
I hope this information answers your queries.
Regards
AAT Student

Task 1.6

All documentation must be kept that relates to the tax affairs for a particular tax year.

Examples would include invoices, receipts, bank statements, cheque stubs, account records.

All documents must be kept for 5 years from the filing date, being 31 January 2016 for 2009/10.

Section 2

Task 2.1

General pool / Short life asset / Total
£ / £ / £ / £
WDV b/f / 278,900 / 49,050
Transfer SLA / 49,050 / (49,050)
327,950
AIA additions:
Plant / 65,200
AIA / 50,000 / 50,000
15,200
WDA 20% / 65,590 / 65,590
262,360
FYA – 40% / 6,080 / 9,120 / 6,080
271,480
Water efficient plant / 15,820
FYA – 100% / 15,820 / 15,820
Total allowances / 137,490

Task 2.2

£ / £
Net profit / 399,026
Add:
Gifts of food / 3,980
Entertaining suppliers / 1,885
Legal costs – share capital / 4,700
Depreciation / 325,619 / 336,184
735,210
Less:
Bank interest received / 4,600
Dividends received / 7,920
Capital allowances (Task 2.1) / 137,490 / 150,010
Adjusted trading profits / 585,200

Task 2.3

£
Adjusted trading profit / 585,200
Bank interest received / 4,600
PCTCT / 589,800

Task 2.4

£
PCTCT (Task 2.3) / 589,800
Dividends (7,920 x 100/90) / 8,800
‘Profits’ / 598,600
£589,800 x 28% / 165,144.00
Less: SCMR
((1,500,000) – 598,600) x 589,800/598,600 x 7/400 / 15,542.60
CT payable / 149,601.40
Date payable: 1 December 2010

Task 2.5

Date by which tax return must be filed with HMRC / 28 February 2012
Date by which company can amend the filed tax return / 28 February 2013
Date until whichrecords must be kept / 28 February 2017
Dates on which corporation tax instalments will be due / 14 September 2011
14 December 2011
14 March 2012
14 June 2012

Task 2.6

From:
To:
Sent:30 November2010
Subject:Re: New premises
I am happy to give you some information that will explain your options for taxation purposes.
When you sell one business asset, the gain from this asset may be ‘rolled over’ against the cost of buying another business asset.
The principle behind this relief is that when a company reinvests the proceedsof one business asset into another business asset, then the gain from the sold asset can be ‘rolled over’ against the cost of the new asset. This means that no tax is payable on the gain of the old asset. Instead, the cost of the new asset is reduced by the gain made, deferring the time when the tax on the gain is payable. If a company continually reinvests the proceeds from one asset to another, the tax liability never materialises.
The condition for this relief is that both assets must be business assets, which both of these are. Also,the new asset must be bought between twelve months before and three years after the sale of the old asset.
The chargeable gain that would be made on the old premises would be £118,500. This would be taken off the cost of the new building, to give a new base cost of £481,500. This would then be used in the capital gain computation when this new building is subsequently sold.
I hope this information answers your queries and reassures you that a large tax bill should not materialise on the sale of the current premises.
Regards
AAT Student

Working:

£

Proceeds460,000

Cost250,000

210,000

Indexation allowance

£250,000 x 0.366 91,500

Gain118,500