Revision Pack 2022/23

Your exam -

Date: MAY 2023

Length: 3 hours

3 sections:

Section A: 3 Compulsory Questions – Income tax, VAT, Corporation tax

Section B: 2 questions out of 3

Final tips/pointers

.    Practice as many questions as possible, Melville, Q packs, comprehensive examples, revision pack, class tests

.    Do not audit answers

.    Do the questions in the pack either as a mock or timed!!

.    Take 5 minutes at the start to skim read whole paper! Choose questions and choose order you are attempting them – its your paper!!

.    You are provided with TAX TABLES – use these when revising, be familiar with their layout/what you are given

.    Be mindful of timing – it is a long exam

.    Pro formas! You are NOT given these in the exam – must learn format

.    Keep calm

. Keep neat!

Taxation

Revision Question Bank  INDEX of QUESTIONS

Revision Class:

Revision QB

Revision class

Question 1

Ash is employed by Bale Limited as a sales advisor. The following information is available for the tax year 2022/23.

Employment with Bale

1)   During the tax year 2022/23 Ash was paid a gross annual salary of £72,300 from Bale.  Income tax of £22,272 was deducted from this figure under PAYE.

2)   In addition to her salary, Ash made all of her sales targets and she received the following bonus payment from Bale:  £22,000 paid on 30 April 2022 and was in respect of the year ended 31 December 2021.

3)  Throughout the tax year Bale provided Ash with a diesel powered car which had a list price of £22,500. Ash paid a £500 contribution to the capital cost of the car when it    was first provided. The car has an official CO2 emission rate of 173 grams per

kilometre. Bale pay for all of the running costs of the car including private fuel.

4)   Bale provided Ash with living accommodation throughout the 2022/23 tax year.  The company had purchased the property in 2018 for £180,000.  Improvements costing  £13,000 were made to the property during June 2019.  The annual value of the

property is £7,800 and the rental value is £600 per month.

5)  Throughout the tax year 2022/23 Bale paid for Ash’s subscription to Sales Team

Today at a cost of £150 – this publication allows her to keep up to date with current sales techniques.

6)  Ash has the use of an onsite gym free of charge – the gym is available to all Bale employees. The provision of the membership would normally cost Ash £350 per annum.

7)   Bale paid £610 for medical insurance for Ash for the year.

Property income

1)  Ash lets out an apartment in the city centre.  It is a furnished apartment which was let from 6 April 2022 to 30 September 2022 at a monthly rent of £500 payable in advance. On 30 September 2022 the tenant left owing two months rent which Ash  has tried to recover, however she has been unsuccessful.  Ash has been unable to let the house out since the previous tenant left.  In March 2023 Ash spent £600 repairing the roof of the property which was damaged in a storm.

Other income

1)   During the tax year 2022/23 Ash received building society interest of £3,600 and dividends of £950. These were the actual cash amounts received.

2)    During the tax year 2022/23 Ash made Gift Aid donations to national charities totalling £3,500 net.

Required:

(a) Calculate the income tax payable by Ash for the tax year 2022/23.  (22 marks)

(b)  Calculate the total amount of National Insurance Contributions that will have been paid by Ash and by Bale Limited in respect of the tax year 2022/23. (3 marks)

(Total 25 marks)

Revision Class Question 2

Mr Protractor owns Stationery Company supplying small business with goods. He has only recently become VAT registered and  has asked for your assistance in preparing his VAT    return for the quarter ended 31 December 2022.

1.   Cash sales were £34,000 of which £4,000 related to trade magazines; the remainder were standard rated.

2.   Credit sales for larger items totaled £52,942.  These sales were all standard rated. Mr Protractor offers his customers a 15% discount for payment within 30 days of   invoice. 75% of his customers paid within 30 days.

3.   Mr Protractor purchased a Van at a cost of £13,000 (VAT inclusive price) to be used solely in the business for making deliveries.

4.   Other purchases including stock for resale were £18,000, £2,000 of which related to the trade magazines.

5.   Many of the small businesses which Mr Protractor Supplies are going out of business and he had a number of bad debts.   He has written off the following as

unrecoverable:

.    £600 for an invoice due for payment on 28 February 2022; and

.    £500 for an invoice due for payment on 1 November 2022

Unless otherwise stated assume all figures are VAT exclusive.

Required:

a) Calculate Mr Protractor’s VAT payable/receivable  for the quarter. (7 marks)

b) Explain why magazines were treated differently to his other sales. (2 marks)

c) Explain the flat rate scheme to Mr Protractor – who is eligible and how it operates. (4 marks)

Revision Class Question 3

Supersmell Ltd is a manufacturer of luxury bathing goods based in the UK.  Supersmell Ltd’s Income statement for the year ended 31 March 2023 is below:

Gross profit

Operating expenses:

Depreciation

Gifts and donations (note 1)     Repairs and renewals (note 2) Professional fees (note 3)

Other expenses (note 4) Operating profit

Dividends (note 5)

Disposal of industrial

building(note 6)

Interest payable (note 7) Profit before tax

£

(59,900)  (4,100)  (40,800)  (8,800) (330,000)

£

956,800

(443,600)

Note 1 Gifts and Donations

£

Gifts to customers food hampers costing £35 each                                                                    770

Gifts to employees (3 wedding presents and 3 retirement gifts)                                                 270

Donation to a national charity (made under gift aid scheme)                                                       600

Donation to sponsor local hockey team – they provided a beauty hamper for a raffle                120

Donation to a political party                                                                                                       300

Note 2 Repairs and renewals

The figure of £40,800 included in the draft accounts includes:

£14,800 for replacing the roof of a warehouse which was in disrepair; and

£26,000 for adding factory sale shop to their warehouse premises so that the general public can benefit from factory prices for their bathing goods.

Note 3 professional fees

Accountancy and audit fee

Legal fees in the connection to the issue of share capital

Legal fees in relation to the issue of a 4% debenture loan to purchase machinery which was subsequently cancelled

Legal fees in relation to the defence of the company’s internet domain name

£

2,300

3,100

1,800

1,600

Note 4 Other expenses

This figure in the draft accounts includes:

.    £3,700 for entertaining customers

.    £1,700 for entertaining employees (36 full time and 10 part time employees)

.    £400 for staff counselling services for an employee who was made redundant

.    £2,600 fine for false advertising

.    The remaining expenses are all allowable.

Note 5 Dividends received

During the year ended 31 March 2023 Supersmell received dividends of £27,000 from

Foamy ltd an unconnected UK company, dividends of £100,000 from Bubbles Ltd a wholly owned subsidiary and dividends of £18,000 from Cologne Ltd, this is company based in     France in which Supersmell acquired 75% of the shares during a takeover bid which was  finalised in October 2022  These are the actual cash amounts received.

Note 6 Disposal of industrial building

The profit of £60,000 is in respect of a factory that was sold on 31 January 2023 for £300,000. The factory had been purchased on 1 April 2005 for £240,000.  [Ignore   indexation]

Note 7 Interest payable

The interest payable is in relation to a 6% debenture loan stock used to fund trading

activities that was issued in 2011.  Interest of £47,100 was paid on 30 June 2022 and again on 31 December 2022.

Note 8 Plant and machinery

On 1 April 2022 the tax written down value of plant and machinery was as follows:

General pool

High emission car

£

8,200

19,800

The following transactions took place during the year ended 31 March 2023:

4)  Tommy is provided with fuel for private journeys by Powerari.

5)   Powerari provided Tommy with living accommodation since 1 January 2022.  The company had purchased the property in 2019 for £160,000, and it was valued at  £185,000 on 1 January 2022.  The annual value of the property is £9,100.

6)  Throughout the tax year Powerari provided Tommy with the use of two mobile

phones. The telephones each cost £250 when purchased by the company.

7)  Tommy regularly travels to Powerari’s head office in Italy.  He has spent 30 nights in Italy over the tax year.  Powerari pay a daily allowance of £10 to cover the cost of     incidental expenses whilst away from home.

Property income

1)  Tommy lets out a property – an unfurnished apartment which was let from 1 August  2022 to 5 April 2023 at a monthly rate of £820 payable in advance.  During July 2022 Tommy incurred estate agent marketing costs of £875.  Over the tax year Tommy

paid interest of £1,800 in respect of a loan that was taken out to purchase the property.

2)  Tommy insured the property at a total cost of £660 for the year ended 30 June 2022 and £1,080 for the year ended 30 June 2023.

Other income

1)   During the tax year Tommy received building society interest of £1,760 and dividends of £720. These were the actual cash amount received.

2)  On 4 August 2022 Tommy won a triathlon and received a prize of £100.

3)   During the tax year Tommy made Gift Aid donations to national charities totaling £2,340 net.

Required:

(a) Calculate the income tax payable by Tommy Zoom for the tax year 2022/23 (23

marks)

(b)  Calculate the total amount of national insurance contributions that will have been  Paid by Tommy Zoom in respect of the tax year 2022/23. (2 marks)

(Total 25 marks)

QUESTION 2

Bobby  Cavalli  runs  a  clothes  shop  selling  clothes  to  men,  women  and  children.   He  is registered for Value Added Tax (“VAT”), and he has come to you for advice about his VAT return  for  the   quarter  ended   31   December  2022.    Bobby  has  provided  the  following information:

(1)   Cash sales amounted to £42,000, of which £28,000 was in respect of sales of adult clothes and £14,000 was in respect of sales of children’s clothes;

(2)   Sales invoices totalling £12,000 were issued in respect of credit sales.  These sales were all standard rated. Bobby offers all customers a 5% discount for payment within one month of the sales invoice and 90% of customers pay within this period.

(3)   Purchase and expense invoices totalling £19,200 were received from VAT registered suppliers which Bobby always pays within 2 months.  This  figure  is  made up as follows:

£

Standard rated purchases          11,200

Zero rated expenses                     8,000

Total

19,200

(4)   On  30  November  2022 Bobby wrote off the following two bad debts for sales of standard rated supplies:

i.   £300 for an invoice due for payment in 15 July 2022; and

ii.   £800 for a sales invoice due for payment on 10 April 2022

Bobby has been told by his friend Johnny that there is a different type of scheme for accounting for VAT called the cash accounting scheme, at the minute he uses a traditional approach for accounting for VAT, however he is keen to know more about the cash accounting scheme.

Required:

(a) What is the difference between an exempt and a zero rated supply?           (2 marks)

(b) Calculate the amount of VAT payable by Bobby for the quarter ended 31 December 2022. (5 marks)

(c) State the submission date by which the VAT return for this period was due for submission. (1 mark)

(d)  Advise Bobby of the conditions that he must satisfy before being permitted to use the VAT cash accounting scheme and the implications of joining the scheme. (5 marks)

Unless otherwise stated all figures are exclusive of VAT.

(Total 13 marks)

Question 2 A

Xen

During the first month of trading Xen’s  business incurred the following costs (all of the figures are exclusive of VAT):

.    Insurance £950

.    Train fares £800

.    Taxis £210

Tax

.    Entertaining £700

Cathy Gilligan

The business made sales of £9,500 (including VAT) to UK customers, and £7,000 (excluding VAT) to overseas customers.

Required

Calculate the amount of VAT, if any, in respect of each of these items.  (You

must show in your answer the appropriate rate of VAT (0%, 20% or exempt) for each item). (7 marks)

QUESTION 3

RB Question

Antrim Sawmills Limited

Antrim Sawmills Limited is a UK resident company which processes raw wood supplies.  It has always made up accounts to 31 August. In the year ended 31 August 2022 the company's net profit was £422,875 which was arrived at after charging and crediting the following items:

Expenditure

Gift Aid donation paid

Legal Expenses

Bad Debts

Income

Debenture Interest

Bank Interest

Dividend

Note 1

£

(Note 1)

(Note2)

(Note 3)

(Note 4)

(Note5)

58,000

10,000

42,000

64,000

5,000

11,250

Fine for not fitting saws with protective guards                                  £10,000

Note 2 Bad Debts: