53604533 ACCA F6 Final Assessment Answers J11 With Marks

ACCA

Paper F6

Taxation June 2011

Final Assessment – Answers

To gain maximum benefit, do not refer to these answers until you have completed the final assessment questions and submitted them for marking.

P A PER F6 ( UK ) : TAXATION (FA2010)

2 KAPLAN PUBL ISHI NG

© Kaplan Financial Limited, 2010

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F I NA L AS S ES SM E N T A NS WE R S

KAPLAN PUBL ISHI NG 3

1 MIRABELLE MARTINEAU

Key answer tips

This question has a mix of business income tax, personal tax and VAT. This is a common style for question 1 in the exam.

In part (a) you must remember to first calculate capital allowances, then adjust the profits for each accounting period for those allowances or charges before applying the basis period rules. Both opening and closing year rules are tested here.

Part (b) has a reasonably straightforward income tax computation. Even if you get part (a) wrong, you will still get the marks for part (b) if you calculate the income tax based on your figure from part (a).

In part (c) you are asked to give brief explanations of your treatment of each item so do not lose the marks for these by ignoring this requirement.

Part (d) has a few marks for deregistration points. Short written sections like this are common in the exam. Remember that VAT will be between 10 to 15 marks in the real examination. You therefore cannot afford to ignore it and the basic rules must be learnt. They are easy marks to gain if you have learnt the material.

(a) Trading income assessments

Tax year Basis period Amount assessable £ 2010/11 Actual basis (1.7.10 – 5.4.11)

£7,950 (W1) × 9/12

5,963

2011/12 CYB (y/e 30.6.11) (W1) 7,950 2012/13 CYB (y/e 30.6.12) (W1) 49,055 2013/14 Final assessment (W3)

1.7.12 – 30.9.13

35,032

Workings

(W1) Profits for accounting periods

Adjusted profits Capital allowances (W2)

Net

£ £ £ 1.7.10 – 30.6.11 25,000 (17,050) 7,950 1.7.11 – 30.6.12 50,000 (945) 49,055 1.7.12 – 30.9.13 35,000 5,995 40,995

Tutorial note:

The net balancing charge is added to the adjusted trading profits in the period of cessation.



(W2) Capital allowances computation

Pool P.U. car B.U. Allowances £ £ £ £ Year ended 30.6.11 Additions no AIA Car – CO2 emissions > 160 g/km 14,000 Additions with AIA (£7,000 + £9,000) 16,000 Less: AIA (16,000) 16,000 –––––– Nil Less: WDA (10%) (Note 1) (1,400) x 75% 1,050

––––– –––––– TWDV c/f Nil 12,600 –––––– Total allowances 17,050 –––––– Year ended 30.6.12 Less: WDA (10%) (1,260) x 75% 945 ––––– –––––– –––––– TWDV c/fwd Nil 11,340

Final period: 1.7.12 – 30.9.13 (Note 3)

Disposals (8,500) (8,000) ––––– –––––– (8,500) 3,340 Balancing charge 8,500 (8,500) ––––– Balancing allowance (3,340) x 75% 2,505 –––––– ––––– Net balancing charge on cessation (5,995) –––––

Tutorial note:

1. The private use car has CO2 emissions exceeding 160 grams per kilometre. It therefore only receives a 10% WDA, before taking account of private use and only claiming the business use percentage.

2. The other additions are eligible for both the AIA and WDA at 20%, however all of the expenditure is covered by the AIA and therefore WDA is not required.

3. In the final accounting period there are no writing down allowances, AIA or FYA. Instead the tax written down value of each category of plant in the computation is compared with the sales proceeds and a balancing charge or allowance calculated.

The balancing allowance on the car used privately is restricted by the business use proportion just like the WDA in the previous periods.



(W3) Final assessment

2013/14 Final assessment (1.7.12 – 30.9.13) £ Profits not yet assessed (W1) 40,995 Less: Overlap profits (£7,950 × 9/12) (5,963) –––––– 35,032 ––––––

(b) Income tax computation – 2013/14

Total Other Dividends £ £ £ Trading income 35,032 35,032 Dividends (£10,190 × 100/90) 12,122

12,122

–––––– –––––– –––––– Total income Less: Personal allowance

47,154 (6,475)

35,032 (6,475)

12,122

–––––– –––––– –––––– Taxable income 40,679 28,557 12,122 –––––– –––––– –––––– Income tax £ 28,557 at 20% (other income) 5,711 8,843 at 10% (dividends) 884 ––––– 37,400 3,279 at 32.5% (dividends) 1,066 ––––– 40,679 ––––– –––––– Income tax liability 7,661 Less: Tax credit on dividends (£12,122 × 10%) (1,212)

–––––– Income tax payable 6,449

–––––– Capital gains tax payable – 2013/14 £ Chargeable gain 21,920 Less: Annual exemption (10,100)

–––––– Taxable gain 11,820

–––––– Capital gains tax payable (£11,820 x 10%) (Note) 1,182

––––––

Tutorial note: As the chargeable gain qualifies for Entrepreneurs’ relief, it is taxed at 10%.



(c) VAT return – quarter ended 30 June 2013

Explanation £ Output VAT Standard rated supplies (95% × £25,000 × 20%) 1 4,750 Zero rated supplies (VAT at 0%) Nil Input VAT (Note 1) Car repairs (1/6 × £705) 2 (117) Repairs to mini tractor (1/6 × £470) 3 (78) Entertaining customer 4 Nil Staff Christmas lunch (1/6 × £141) 5 (23) Other expenses (1/6 × £2,350) (392)

––––– VAT payable 4,140

–––––

Explanation of treatment

1. Where a discount is offered, VAT is calculated as if the full discount had been taken irrespective of whether the customer does actually take the discount.

2. No apportionment of motor expenses is necessary provided there is some business use of the car (Note 2).

3. Normal business expense.

4. VAT on entertaining of customers is irrecoverable.

5. VAT on staff entertaining is recoverable.

Tutorial note:

1. The expenses are quoted inclusive of VAT; therefore the input VAT element is 20/120 or 1/6.

2. All of the input VAT on the motor repairs and servicing costs and similar expenses of the car are recoverable despite the 25% private use, as there was some business use.

However, if private fuel were provided with the car:

– all of the input VAT on the fuel would be recoverable, but

– there would be an output VAT charge made based on the scale rate applicable to

the CO2 emissions of the car.

As there is no mention of fuel in the question, it is assumed that there is none charged in the accounts, and therefore no output VAT to be charged.



(d) Deregistration

• Mirabelle is required to deregister when she ceases trading.

• She must notify HMRC by 30 October 2013 (i.e. within 30 days of cessation).

• At the date of deregistration there is a deemed supply of all stock and assets on hand on which input VAT was reclaimed. This is treated as a supply at replacement cost.

• The business has to account for output tax on this deemed supply although it can be ignored if it is no more than £1,000.

ACCA marking scheme

Marks (a) 1.7.10 – 30.6.11 Car WDA 1.0 Private use restriction 0.5 AIA expenditure of £7,000 + £9,000 0.5 AIA at 100% 0.5 1.7.11 – 30.6.12 WDA 1.0 1.7.12– 30.9.13 Balancing charge 1.0 Balancing allowance 1.0 Tax adjusted profits for accounting periods 1.0 Profits for tax years 2010/11 1.0 2011/12 and 2012/13 1.0 2013/14 with reduction for 'overlap' profits 1.5 _____

10.0 –––––

(b) Dividend income grossed up 1.0 Personal allowance 0.5 Other income at 20% 1.0 Dividend income − basic rate band at 10% 0.5 Remainder of dividends in higher rate band 0.5 Tax suffered on dividends 0.5 Capital gains annual exemption 0.5 Capital gains tax payable at 10% 0.5 _____

5.0 –––––

(c) Output tax – standard rated sales including discount 1.0 Output tax – no VAT on zero rated sales 0.5 Input tax car repairs 1.0 Mini tractor repairs 0.5 Entertaining customers 0.5 Entertaining staff 0.5 Other expenses 0.5 Notes and explanations 2.5 _____

7.0 –––––

(d) Need to deregister 1.0 30 day time limit for notification 1.0 Deemed supply of stock and assets 1.0 _____

3.0 ––––

Total

25.0 –––––––



2 SPECTRUM LTD

Key answer tips

A long question on corporation tax including in parts (a) and (b) a detailed adjusted profit computation, capital allowances and a calculation of taxable total profits. Part (c) has 8 marks for group tax aspects.

With a question this long you must spend time reading the question properly, then work methodically through the information. Note the requirement in the adjusted profit computation to include all items mentioned in the notes, with a zero by those items that do not require adjustment.

(a) Tax adjusted trading profit – year ended 31 March 2011

£ £ Profit before taxation 241,640 Depreciation 84,200 Gifts to customers – rucksacks (Note 1) 0 Donation to political party 5,200 Gifts to customers – champagne (Note 1) 1,720 Long service award (Note 2) 0 Gift Aid donation (Note 3) 800 Donation to national charity (Note 3) 200 Donation to local charity (Note 3) 0 Trade debts recovered 0 Trade debts written off 0 Loan to customer written off 4,100 Accountancy and audit fee 0 Costs of registering trademark (Note 4) 0 Legal fees – purchase of a new lease (Note 5) 2,100 Debt collection 0 Legal fees – court action 900 Replacing roof (Note 6) 0 Office extension (Note 6) 49,400 Entertaining 2,160 Car lease (15% × £5,000) (Note 7) 750 Disposal of office building 78,100 Loan interest received 15,410 Loan interest payable (trading) (Note 8) 0 Capital allowances on plant and machinery (W) 64,040 Industrial buildings allowance (Note 9) 0 ––––––– ––––––– 393,170 157,550

(157,550) ––––––– ––––––– Tax adjusted trading profit 235,620 –––––––



Tutorial notes:

1. Gifts to customers are an allowable deduction if they cost less than £50 per recipient per year, are not of food, drink, tobacco, or vouchers exchangeable for goods, and carry a conspicuous advertisement for the company making the gift.

2. The Gift Aid donation to charity is an allowable deduction from total profits in the corporation tax computation, it is therefore not also an allowable deduction in the adjustment to profits computation.

Other donations to charity that are not made under the Gift Aid scheme are also not allowable in the adjustment of profits computation, unless a small gift to a local charity.

3. The long service award is deductible in calculating the trading profit. 4. The costs of registering a trademark are wholly and exclusively for the purposes of

the trade and therefore allowable. 5. The costs of taking out a new lease (rather than the renewal of an existing short

lease) are not allowable. 6. The replacement of the roof is allowable since the whole structure is not being

replaced. The office extension is not allowable, being capital in nature. 7. Leases of cars with CO2 emissions exceeding 160 grams per kilometre have a flat

rate disallowance of 15% of the lease costs charged in the income statement. 8. Interest on a loan used for trading purposes is deductible in calculating the trading

profit on an accruals basis.

9. There is no balancing adjustment on the sale of an industrial building.

Working: Plant and machinery capital allowances

£

Pool £

Exp. car £

SL asset £

Allowances£

TWDV b/f 10,000 17,500 2,300 Additions with AIA 57,800 Less: AIA (Max £100,000)

(57,800)

57,800

–––––– Nil Disposal proceeds (Note 1) (31,100) (460) –––––– –––––– ––––– 10,000 (13,600) 1,840 Balancing charge 13,600 (13,600) Balancing allowance (1,840) 1,840 WDA (20%) (2,000) 2,000 Addition (with FYA) Low emission car 16,000 Less: FYA (100%) (16,000) 16,000 –––––– Nil ––––– ––––– ––––– TWDV c/f 8,000 Nil Nil ––––– ––––– ––––– –––––– Total allowances 64,040 ––––––


1 0 KAPLAN PUBL ISHI NG

Tutorial note

1. The sale proceeds for the expensive motor car sold are restricted to original cost.

2. The car with CO2 emissions of 107 grams per kilometre is a low emission car, eligible for 100% FYA.

(b) Taxable total profits – y/e 31 March 2011

£ Trading profit 235,620 Interest income (W1) 11,310 Chargeable gain (W2) 20,100 ––––––– 267,030 Less: Gift Aid donation (800)

––––––– Taxable total profits 266,230

–––––––

Workings

(W1) Interest income

£ Loan interest 15,410 Less: Non-trade debt written off (4,100) –––––– Interest income 11,310 ––––––

(W2) Chargeable gain

£ Sale proceeds 276,000 Less: Cost (197,900) ––––––– Unindexed gain 78,100 Less: Indexation allowance (58,000) ––––––– Chargeable gain 20,100 –––––––

(c) Effect on taxable total profits

(i) Group relief

• Spectrum Ltd owns more than 75% of the share capital of Rainbow Ltd. They therefore form a group for group relief purposes.

• Spectrum can claim group relief for Rainbow’s loss. Spectrum Ltd’s taxable total profits would therefore have been reduced by £46,800.



Group rollover relief

• Spectrum Ltd owns more than 75% of the share capital of Rainbow Ltd. They therefore form a capital gains group.

In a gains group, gains realised by one group company can be rolled over into assets acquired by another group company.

• The sale proceeds from the disposal of the office building are not fully reinvested, and so £6,000 (£276,000 – £270,000) of the chargeable gain cannot be rolled over and would still be chargeable.

Spectrum Ltd’s taxable total profits would therefore have been reduced by £14,100 (£20,100 – £6,000).

(ii) Corporation tax liability – year ended 31 March 2011

£ Original taxable total profits 266,230 Less: Group relief (46,800)

Gain rolled over (14,100)

––––––– Revised taxable total profits 205,330

––––––– Corporation tax (£205,330 at 28%) 57,492 Less: Marginal relief (W) 7/400 × (£750,000 – £205,330) (9,532) –––––– Corporation tax liability 47,960

––––––

Working: Corporation tax rate

Spectrum Ltd has one associated company.

The small profits rate limits are therefore:

Upper limit (£1,500,000 x 1/2) £750,000

Lower limit (£300,000 x 1/2) £150,000

The taxable total profits = Augmented profits (as there is no FII), therefore the company is a marginal relief company.



ACCA marking scheme Marks (a) Adjusted profit computation Depreciation 0.5 Donation to political party 0.5 Gifts to customers – rucksacks allowable, correct treatment 0.5 Gifts to customers – champagne not allowed 0.5 Gift Aid donation 0.5 Donation to national charity 0.5 Donation to local charity 0.5 Trade debts recovered 0.5 Trade debts written off 0.5 Non-trade debt written off 0.5 Accountancy and audit fee 0.5 Costs of registering trademark 0.5 Legal fees – new lease 0.5 Debt collection 0.5 Legal fees – court action 0.5 Repairing roof 0.5 Office extension 0.5 Entertaining 0.5 Car leasing costs 0.5 Disposal of office building 0.5 Loan interest received 0.5 Interest payable 0.5 IBA – no balancing charge 1.0 Capital allowances computation AIA additions 0.5 Balancing charge on car 1.0 Balancing allowance on short life asset 1.0 WDA on pool 0.5 AIA on equipment 1.0 FYA on low emission car 1.0 _____

17.0 –––––

(b) Taxable total profits Transfer of trading profit from part (a) 0.5 Interest income 1.5 Chargeable gain 2.0 Gift Aid 1.0 _____

5.0 –––––

(c) Effect of new subsidiary on taxable total profits Group relief 2.0 Rollover relief 2.0 _____

4.0 –––––

(d) Calculation of CT liability Revised taxable total profits 1.0 Tax at 28% 1.0 Small profit rate limits 1.0 Marginal relief 1.0 _____

4.0 ––––

Total

30.0 ––––––



3 SAM, EMMA AND KIREN

Key answer tips

A typical capital gains question with a series of disposals, testing the rules for principal private residence, compensation for a damaged asset and Entrepreneurs relief.

Note that part (c) asks for the capital gains tax payable so do not just calculate the chargeable gain.

(a) Sam

£ Sale proceeds (March 2011) 165,000 Less: Cost (January 1997) (60,000)

Enhancement (June 1998) (25,000) ––––––– 80,000 Less: Principal private residence relief (W1) (62,066) ––––––– 17,934 Less: Letting relief (W2) (17,934) ––––––– Chargeable gain Nil –––––––

Workings

(W1) Principal private residence relief

Total period of ownership: January 1997 to March 2011 = 171 months

£ Full exemption : Owner occupation (January 1997 to August 1998) = 20 months

20/171 × £80,000 9,357 Last 36 months (April 2008 to March 2011)

36/171 × £80,000 16,842 Partial exemption: Balancing period when a third of the house let (September 2008 to March 2008) = 115 months

115/171 × £80,000 × 2/3 35,867 –––––– 62,066 ––––––

(W2) Letting relief

Lowest of:

£

(a) PPR relief 62,066 (b) Maximum letting relief 40,000 (c) Gain after PPR which relates to letting 17,934



(b) Emma £ Proceeds (compensation) 30,000 Less: Deemed Cost

£12,500 × £5,000£30,000

£30,000+

(10,714)

–––––– Chargeable gain 19,286

––––––

Revised base cost:

Cost 12,500 Less: Amount used in 2010/11 computation (10,714) –––––– Revised base cost 1,786

––––––

Tutorial note

Emma has not used the proceeds for restoration of the asset so a part disposal calculation must be performed.

No rollover election is possible unless proceeds are used for restoration.

(c) Kiren

Gain on sale of shares £ Sale proceeds 88,000 Less: Cost (32,000)

–––––– Chargeable gain qualifying for Entrepreneurs’ relief 56,000 ––––––

Tutorial note

Entrepreneurs’ relief is available because:

• Kiren holds more than a 5% interest in an unquoted trading company

• she works for the company, and

• has owned the shares for more than 12 months.

Capital gains tax: £

Gain not qualifying for Entrepreneurs’ relief: Painting 8,000 Less: Annual exemption (part) (8,000) ––––– Nil –––––



Gain qualifying for Entrepreneurs’ relief:

£

Sale of shares 56,000 Less: Balance of annual exemption (£10,100 – £8,000) (2,100) –––––– Taxable gain 53,900 –––––– CGT liability (£53,900 x 10%) 5,390 –––––– Due date 31.1.2012

Tutorial note

The annual exemption should be deducted first from gains not qualifying for Entrepreneurs’ relief. Then, if applicable, gains qualifying for Entrepreneurs’ relief.

If non-qualifying gains are taxable, they are taxed at 18%/28% whereas gains qualifying for Entrepreneurs’ relief are taxed at 10%.

In this question, the level of taxable income for Kiren is irrelevant as all of the non-qualifying gain is covered by the annual exemption and all of the taxable gain is a qualifying gain and therefore taxed at 10%.

ACCA marking scheme Marks (a) Sam Cost 0.5 Enhancement 0.5 Full exemption 2.0 Partial exemption 2.0 Letting relief 2.0 _____

7.0 –––––

(b) Emma Part disposal calculation 2.0 Revised base cost 1.0 _____

3.0 –––––

(c) Kiren Gain 1.0 Annual exemption 2.0 Tax at 10% 1.0 Due date 1.0 _____

5.0 –––

Total

20.0 –––––



4 CHRISTA WATSON

Key answer tips

This is a classic IHT question, dealing with lifetime gifts and a death estate. The IHT calculations should be straightforward involving a number of lifetime gifts which become chargeable on death and then the tax on the death estate. However remember that the requirement also asks for explanations and so the calculations on their own will not give full marks. The question should not pose too much difficulty to a well-prepared and well-practised student.

Lifetime gifts – lifetime inheritance tax

• Chargeable lifetime transfers (CLTs) into a trust could have lifetime IHT payable if in excess of the nil rate band.

Gifts from one individual to another are potentially exempt transfers (PETs) and there is no lifetime tax payable on these gifts.

• Cash transfers to Christa’s son in 2005 and 2006 are therefore PETs and no lifetime IHT is payable.

However, the value of the gifts (whether PETs or CLTs) are established at the time of the gift and the annual exemption allocated to the first gifts in the tax year (see below).

PETs are ignored in the cumulation for calculating lifetime tax on CLTs.

• The transfer into the trust is a CLT, however the chargeable value of the gift (£208,000) is below the nil rate band at that time (£285,000) and therefore there is also no lifetime tax payable on this gift (see below).

• The transfer of shares to her son in July 2009 will also be a PET and no lifetime tax is payable. £ 28.3.05 PET Transfer of value 146,000 Less: AE 2004/05 (3,000) AE 2003/04 b/f (3,000)

––––––– Chargeable amount 140,000

–––––––

20.6.05 PET Transfer of value 137,000 Less: ME (5,000) AE 2005/06 (3,000) AE 2004/05 – already used (Nil)


–––––––



11.3.06

PET

£

Transfer of value 118,000 Less: AE 2005/06 – already used (Nil) AE 2004/05 – already used (Nil)


–––––––

3.3.07 CLT Transfer of value 211,000 Less: AE 2006/07 (3,000) AE 2005/06 – already used (Nil)


––––––– 20.7.09 PET Transfer of value 150,140 Less: AE 2009/10 (3,000) AE 2008/09 b/f (3,000)


–––––––

Tutorial note:

The historic nil rate bands given in the question in respect of the PETs are not required as they do not give rise to an IHT liability during the donor’s lifetime.

Inheritance tax implications of Christa’s death

As a result of Christa’s death on 23 March 2011, IHT will arise on:

(i) any CLTs and PETs within seven years of the date of death (i.e. between 23.3.2004 and 23.3.2011), and

(ii) her estate value at death.

Christa is a widow and her husband died leaving his entire estate to her.

He will not have used any of his nil rate band and his unused proportion will be available to her on her death.

Therefore, on Christa’s death she is entitled to a nil rate band of £650,000 (i.e. her £325,000 plus an additional 100%).



IHT on CLTs and PETs becoming chargeable on death

• There is no IHT due on the PETs in 2005 and 2006 and the CLT in 2007 as they are covered by the nil rate band as shown below:

Gross Chargeable Transfer (GCT)

IHT

£ £ £ 28.3.05 PET Chargeable amount 140,000

––––––– 140,000 Nil

––––––– 20.6.05 PET Chargeable amount 129,000

––––––– 129,000 Nil

––––––– 11.3.06 PET Chargeable amount 118,000

––––––– 118,000 Nil

––––––– 3.3.07 CLT Chargeable amount 208,000

––––––– 208,000 –––––––

Nil –––––––

Covered by nil rate band 595,000 –––––––

• The PET in July 2009 which becomes chargeable is not covered by the nil rate band and therefore IHT is payable on death. This is calculated as follows:

20.7.09 PET

£ £

Chargeable amount 144,140 NRB at death (above) 650,000 GCTs in 7 yrs pre gift (include PETs which become chargeable on death)

(20.7.02 – 20.7.09) (see above) (595,000) –––––––

(55,000)

––––––– Taxable amount 89,140

––––––– IHT due on death (£89,140 x 40%) 35,656 Less: Taper relief (20.7.09 to 23.3.11) (< 3 years)

(Nil)

Less: IHT paid in lifetime (PET) (Nil) ––––––– IHT payable on death 35,656

––––––– • The IHT is payable by the son by 30 September 2011.



IHT on death estate

• The value of Christa’s estate is calculated as follows: £ £

Shares in Spade Ltd 81,800 House 250,000 Investment property 175,000 Less: Outstanding mortgage (75,000) ––––––– 100,000 Other assets 650,000

–––––––– 1,081,800 Less: Outstanding tax bills (5,250) Funeral expenses (2,650) –––––––– 1,037,900 NRB at death 650,000 GCTs in 7 yrs pre death (23.3.04 – 23.3.11) (£595,000 above + £144,140)

(739,140)

––––––– (Nil) ––––––––

Taxable amount 1,037,900 ––––––––

IHT payable (£1,037,900 x 40%) 415,160 ––––––––

• The IHT is payable by the executors by 30 September 2011.

ACCA marking scheme Marks Lifetime gifts: lifetime tax – cash transfers to son - PETs 0.5 – transfer to trust - CLT 0.5 – annual exemptions 2.0 – marriage exemption 0.5 – no lifetime tax 1.0 IHT on death arises on – PETs within 7 years of death 0.5 – the death estate 0.5 Lifetime gifts: lifetime tax – NRB at death 2.0 – IHT due on death 0.5 – taper relief – none available 0.5 – lifetime tax paid – none 0.5 – due date 0.5 IHT on death estate – estate assets 2.0 – outstanding mortgage 0.5 – allowable deductions 1.0 – GCTs in last 7 years 0.5 – no NRB available 0.5 – IHT at death 0.5 – due date 0.5 –––––

Total

15.0 –––––



5 LOSER LTD

Key answer tips

This question tests the rules for corporation tax losses.

Part (a) of the question asks for factors influencing a company’s choice of loss relief. This should be an easy few marks for repetition of textbook knowledge.

In part (b) the question also tests the treatment of capital losses and property business losses. Always set out the calculation of taxable total profits in a loss question in a columnar format.

(a) Factors that will influence a company’s choice of loss relief

The following factors are important:

• The rate of corporation tax at which relief will be obtained, with preference being given to profits charged at the marginal rate or the main rate.

(FY 2008, 2009 and 2010 29.75% and 28%, FY 2007 32.5% and 30%)

• The timing of the relief obtained, with a claim against total profits resulting in earlier relief than a claim to carry forward losses against future trading profits.

• The extent to which relief for Gift Aid donations will be lost, since they cannot be carried forward.

(b) Taxable total profits y/e

30.6.2008 p/e

31.3.2009 y/e

31.3.2010 y/e

31.3.2011 £ £ £ £ Trading income 123,400 Nil 36,400 Nil Loss relief b/f (Note 1) (15,000) − − − ––––––– –––––– –––––– –––––– 108,400 Nil 36,400 Nil Property income Nil 4,500 8,100 5,600 Chargeable gain (Note 2) (£7,000 – £7,000 loss b/f)

Nil

––––––– –––––– –––––– –––––– 108,400 4,500 44,500 5,600 Property loss (Note 3) (3,600) ––––––– –––––– –––––– –––––– 104,800 4,500 44,500 5,600 Loss relief (Notes 4 to 6) – current year (4,500) (5,600) – carry back 12 months (21,200) (44,500) ––––––– –––––– –––––– –––––– 83,600 Nil Nil Nil Gift Aid (9,600) Wasted Wasted Wasted ––––––– –––––– –––––– –––––– Taxable total profits 74,000 Nil Nil Nil ––––––– –––––– –––––– –––––– Unrelieved Gift Aid 800 1,200 1,100 –––––– –––––– ––––––



£ Loss memorandum – period ended 31.3.09 Loss for period ended 31.3.09 25,700 Offset in the period (4,500) –––––– 21,200 Carried back 12 months to year ended 30.6.08 (21,200) –––––– Carried forward Nil –––––– Loss memorandum – year ended 31.3.11 Loss for year ended 31.3.11 128,300 Offset in the period (5,600) –––––– 122,700 Carried back 12 months to year ended 31.3.10 (44,500) –––––– Unrelieved loss carried forward (Note 6) 78,200 ––––––

Tutorial note

1. The trading losses brought forward must be set off against the first available trading profits (i.e. in the year to 30 June 2008).

2. The capital losses brought forward are set off against the chargeable gain arising in the period ended 31 March 2009.

The unrelieved capital losses of £3,000 (£10,000 − £7,000) are carried forward for offset against future chargeable gains.

3. The property business loss for the year to 30 June 2008 is automatically set off against total profits of the same year.

4. The unrelieved amount of trading loss for the period ended 31 March 2009, £21,200 (£25,700 – £4,500) is carried back to the year ended 30 June 2008.

5. The unrelieved amount of trading loss for the period ended 31 March 2011, £122,700 (£128,300 – £5,600) is carried back to offset the profits before Gift Aid in the year ended 31 March 2010.

6. The remainder of the loss for the year ended 31 March 2011 of £78,200 is unrelieved and will be carried forward for offset against the first available trading profits.

(c) If Loser Ltd had ceased trading on 31 March 2011

• The trading loss for the final 12 months of trading can be relieved against total profits for the previous 36 months under terminal loss relief rules.

• Therefore the unrelieved losses of £78,200 can be fully set off in the year ended 30 June 2008.



ACCA marking scheme Marks (a) Rate of corporation tax 1.0 Timing of relief 1.0 Impact on Gift Aid 1.0 _____

3.0 –––––

(b) Trading income 0.5 Loss relief brought forward 1.0 Property business income 0.5 Property business loss relief 1.0 Capital loss and gain 2.0 Loss relief against total income 3.0 Gift Aid 1.0 Unrelieved trading loss 1.0 _____

10.0 –––––

(c) Carry back loss for 36 months 1.0 Loss fully utilised 1.0 _____

2.0 –––––

Total

15.0 –––––

53604533 ACCA F6 Final Assessment Answers J11 With Marks

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