Taxation - Tenjin Technology 2057 Solution Francine Income tax computation for 2017 € Schedule E...

TaxationRepublic of Ireland (ROI)

Suggested Solutions to Practice Questions

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Table of Contents

Chapter 2: ..................................................................................................................... 2

Chapter 3: ..................................................................................................................... 6

Chapter 4: ................................................................................................................... 9

Chapter 5: ................................................................................................................... 15

Chapter 6: ................................................................................................................... 19

Chapter 7: ................................................................................................................... 23

Chapter 8: ................................................................................................................... 25

Chapter 9: ................................................................................................................... 30

Chapter 10: ................................................................................................................... 38

Chapter 11: ................................................................................................................... 41

Chapter 12: ................................................................................................................... 49

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2055 Solution

Madeleine O'GaraIncome tax computation for 2017

€ €Schedule E salary 55,710Taxation:

€33,800 x 20% 6,760

€21,910 x 40% 8,76415,524

Non-refundable tax credits (4,660)10,864

Refundable tax credits (10,330)Tax payable by Madeleine O'Gara 534

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Chapter 2

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2056 Solution

JamesIncome tax computation for 2017

€ €Schedule D Case I income 43,900Taxation:€37,800 x 20% 7,560€6,100 x 40% 2,440

10,000Non-refundable tax credits (4,325)Tax payable by James 5,675



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2057 Solution

FrancineIncome tax computation for 2017

€Schedule E pension 26,500Taxation:€26,500 x 20% 5,300Non-refundable tax credits (5,275)

25Refundable tax credits (400)Tax repayable to Francine 375



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2058 Solution

FrancineIncome tax computation for 2017

€ €Schedule E income 40,730Taxation:€37,800 x 20% 7,560€2,930 x 40% 1,172

8,732Non-refundable tax credits (4,990)

3,742Refundable tax credits (3,220)Tax payable by Francine 522



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2059 Solution

FrankieIncome tax computation for 2017

€ €Schedule E salary 67,000Schedule E bonus 6,000Schedule E benefit-in-kind (gross €320/80%) 400Other income 15,700

89,100Taxation:€33,800 x 20% 6,760€55,300 x 40% 22,120


25,500Refundable tax credits (PAYE paid in 2017) (20,700)Tax payable by Frankie 4,800


Chapter 3


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2061 Solution

JohnIncome tax computation for 2017

€ €Schedule E salary 58,000Schedule E benefit-in-kind (company car) (w1) 5,580Schedule E benefit-in-kind (gym membership) 830Other income 9,500

73,910Taxation:€33,800 x 20% 6,760€40,110 x 40% 16,044


19,504Refundable tax credits (PAYE paid in 2017) (17,800)Tax payable by John 1,704

Workingw1

Company car benefit-in-kind €Original market value 31,000Business travel (kms) 37,800BIK percentage 18%(€31,000 x 18%) 5,580



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2062 Solution

HenryIncome tax computation for 2017

€ €Schedule E salary 54,000Schedule E bonus 2,900Schedule E benefit-in-kind (preferential loan) (w1) 2,588Schedule E benefit-in-kind (company car) (w2) 5,136Other income 7,300

71,924Taxation:€37,800 x 20% 7,560€34,124 x 40% 13,650


16,260Refundable tax credits (PAYE paid in 2017) (14,800)Tax payable by Henry 1,460

Workings

w1Preferential loan €€64,700 x 4% 2,588

w2Company car €Original market value 21,400Business travel (kms) 20,200BIK percentage 30%

6,42020% reduction (criteria met) (1,284)

5,136



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1134 SolutionThe correct answer is option (b).Tutorial note:Schedule D Case V


Chapter 4


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2063 Solution

MaryIncome tax computation for 2017

€ €Schedule D Case IV income (w1) 6,082Schedule E salary 52,000Schedule E bonus 4,700Schedule F income (w2) 2,638

65,420Taxation:€33,800 x 20% 6,760€25,538 x 40% 10,215€6,082 x 39% 2,372

19,347Non-refundable tax credits: 3,300DIRT deducted (w1) 2,372

(5,672)13,675

Refundable tax credits:PAYE paid in 2017 14,200Dividend withholding tax (w2) 528

(14,728)Tax repayable to Mary 1,053

Workingsw1Schedule D Case IV income Net DIRT (39%) Gross

€ € €31 March 2017 1,330 850 2,18030 September 2017 2,380 1,522 3,902

3,710 2,372 6,082

w2Schedule F income Net DWT (20%) Gross

€ € €15 March 2017 1,070 268 1,33815 September 2017 1,040 260 1,300

2,110 528 2,638



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2065 Solution

StefanoIncome tax computation for 2017

€ €Schedule D Case V income (w2) 1,474Schedule E income (w3) 65,031Schedule F income (w3) 913

67,418Taxation:€33,800 x 20% 6,760€33,618 x 40% 13,447


16,907Refundable tax credits:PAYE paid in 2017 (€15,630 + €2,120) 17,750Dividend withholding tax (w4) 183

(17,933)Tax repayable to Stefano 1,026

Workings

w1BIK - company car €Original market value 30,500Business mileage kms (34,200 kms x 75%) 25,650Annual equivalent (25,650/5 x 12) 61,560BIK percentage 6%

1,830BIK for period from 1 Aug to 31 Dec 2017 (1,830 x 5/12) 763

w2Schedule D Case V income € €Rental income 5,700Expenses:Mortgage interest (€3,970 x 80%) 3,176Painting and general upkeep 360Insurance on building 240Management fee for rent collection 360RTB registration 90

(4,226)1,474

w3

Schedule E income €Salary 56,000Commission paid for the 11-month period 5,300Commission paid January 2018 750Round sum travel expenses (€122 per month for four months) 488BIK - company car (w1) 763BIK - holiday 1,730

65,031



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w4

Schedule F income Net DWT (20%) Gross

€ € €February 2017 420.00 105.00 525.00August 2017 310.00 77.50 387.50

730.00 182.50 912.50

Tutorial notes:No credit in 2017 for PAYE deducted from commission paid in 2018.Entertainment expenses are business expenses - no BIK.Training course is relevant to business - no BIK.



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2066 Solution

JosieIncome tax computation for 2017

€ €Schedule D Case IV income (w1) 795Schedule D Case V income (w2) 1,752Schedule E income (w4) 59,200Schedule F income (w5) 713

62,460Taxation:€33,800 x 20% 6,760€27,865 x 40% 11,146€795 x 39% 310

18,216Non-refundable tax credits (excluding DIRT) 3,300DIRT (w1) 310

(3,610)14,606

Refundable tax credits:PAYE paid in 2017 13,460Dividend withholding tax (w5) 143

(13,603)Tax payable by Josie 1,003

Workings

w1Schedule D Case IV income €Deposit interest received (net) 485DIRT (€795 x 39%) 310

795w2

Schedule D Case V income € €Rental income 6,100Expenses:Mortgage interest paid (€4,660 x 80%) 3,728Painting and general upkeep 240Insurance on property 380

(4,348)1,752

w3BIK - preferential loan € €Annual (€20,000 x 13.5%) 2,700BIK from 1 Sep to 31 Dec 2017 (€2,700 x 4/12) 900

w4Schedule E income €Salary 55,000Bonus for year ended 31 December 2017 (paid in January 2018) 3,300Benefit-in-kind (preferential loan) (w3) 900

59,200



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w5Schedule F income Net DWT (20%) Gross

€ € €Dividends received 570 143 713

Tutorial note:Cost of extension to kitchen is capital expenditure.



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2067 Solution

JeremySchedule D Case I tax adjusted profit for 2017

€ €Profit per financial statements 23,920

Add back:

Depreciation 5,280Jeremy’s salary 35,000Preliminary tax paid 9,100Application for planning permission 3,220Legal fees for holiday home 2,400Car expenses (€4,630 x 75%) 3,473Van expenses (€3,410 x 20%) 682Home electricity 630Holiday home electricity 230New storage heater (capital expenditure) 730Landline bill (€2,060 x 40%) 824Home bill (€640 x 90%) 576Childrens' mobile phones 710Client entertainment 2,980Son's 21st birthday 790Capital repayments on loan (€3,370 - €1,150) 2,220Loan interest on holiday home 4,130New cash register (capital expenditure) 1,380

74,355

Deduct:

Deposit interest received 2,810Dividends received 1,690

(4,500)Tax adjusted Schedule D Case I profit 93,775


Chapter 5


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2069 Solution

MichaelSchedule D Case I tax adjusted profit for 2017

€ €Profit per financial statements 1,579Add back:Depreciation 23,803Interest on late payment of VAT 1,800Purchase of new premises 1,690Home phone (€1,390 x 70%) 973Business phone (€2,900 x 10%) 290Personal mobile bill 990Salary - Michael 33,500Pension - Michael 3,350Parking fines 432Car expenses (€2,910 x 15%) 437Van expenses (€4,620 x 20%) 924Apartment light and heat ((€8,060 - €1,540) x 30%) 1,956Hot water boiler (capital expenditure) 1,540Donation to charity 450Political donation 540Loss on disposal of noncurrent assets 4,600Increase in general allowance for irrecoverable debts 1,810

79,085Deduct:Dividends received (3,990)




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2071 Solution

SunnivaSchedule D Case I tax adjusted profit for 2017

€ €Loss per financial statements (6,932)Add back:Depreciation 19,000Furniture for new rental apartment (capital expenditure) 6,500New furniture for salon (capital expenditure) 7,900Advertising for tenant 250Donation to St Vincent de Paul 500Drawings 27,300Entertainment of suppliers 1,190Motor expenses (€1,990 x 40%) 796New electrical equipment 1,570Permanent health insurance (personal) 560Medical insurance (personal) 760Insurance on apartment 520Motor insurance (€520 x 40%) 208Stockbroker fees 470Planning permission 1,460Purchase of new tanning machine (capital expenditure) 3,010Preliminary tax payment 6,900Interest on underpaid PAYE/PRSI 1,399Loss on disposal of noncurrent assets 960

81,253

Deduct:

PAYE/PRSI not included, paid personally 1,780

Dividends received 2,693

Rental income from apartment 8,710

(13,183)

Tax adjusted Schedule D Case I profit 61,138



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2073 Solution

RorySchedule D Case I tax adjusted profit for 2017

€ €Loss per financial statements (2,971)Add back:Depreciation 14,460New furniture for office (capital expenditure) 5,200New wooden floor for apartment (capital expenditure) 3,600Telephone (€3,750 x 25%) 938Home phone (€580 x 75%) 435Drawings 31,630Income tax payment 7,280Pension contribution 2,214Running costs of Rory’s car - personal (€4,100 x 60%) 2,460Lease charges re Rory’s car - personal element (€5,880 x 60%) 3,528Lease charges re Rory’s car - additional (w1) (528)Parking fines 247Clamping fees 312Property insurance (€2,780 x 40% (relating to apartment)) 1,112Loan capital repayments (€19,130 - €5,170) 13,960Loan interest (€5,170 x 40% (relating to apartment)) 2,068New radiators (capital expenditure) 3,020Heating for premises ((€5,030 - €3,020) x 25%) 503Electricity for premises (€3,130 x 25%) 783Increase in general allowance 180

93,402Deduct:Rental income 12,000


Workings

w1Additional deduction for lease charge €List price of the car is less than €24,000.Business element of lease charge (€5,880 x 40%) 2,352Total deduction available ((€24,000/€19,600) x €2,352) 2,880

528



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2074 SolutionTerry Hughes

Year of assessment Year Basis of assessment €2014 1 From 1 June 2014 to 31 December 2014:

€19,000 x 7/12 11,083

2015 2 Twelve months ended 31 May 2015 19,000

2016 3 General rule - 12 months ended 31 May 2016 21,300

Year 2 revision € €Assessed profit 19,000

Actual year 2 from 1 Jan 2015 to 31 Dec 2015:1 Jan to 31 May 2015 (€19,000 x 5/12) 7,9171 Jun to 31 Dec 2015 (€21,300 x 7/12) 12,425

20,342Actual year 2 profit is greater than assessed year 2 profit.No adjustment required.

21,300

2017 4 General rule - 12 months ended 31 May 2017 23,000


Chapter 6


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2076 SolutionCarol Angelheart

Year of assessment Year Basis of assessment € €2014 1 From 1 August 2014 to 31 December 2014

€16,000 x 5/9 8,889

2015 2 Accounting period is less than 12 months.Actual basis applies (1 Jan to 31 Dec 2015)

(i) From 1 Jan to 30 Apr 2015:€16,000 x 4/9 7,111

(ii) From 1 May to 31 Dec 2015:€28,600 x 8/12 19,067

26,178

2016 3 General rule - 12 months ended 30 April 2016 28,600

Year 2 revisionYear 2 was assessed on actual basis. No revision arises.

2017 4 General rule - 12 months ended 30 April 2017 37,600



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2080 SolutionBart Banjo

Year of assessment Year Basis of assessment € €2012 1 From 1 September 2012 to 31 December 2012:

€34,900 x 4/9 15,511

2013 2 Twelve months ended 31 October 2013(i) 1 Nov 2012 to 31 May 2013:

€34,900 x 7/9 27,144(ii) 1 Jun to 31 Oct 2013 41,400

68,544

2014 3 General rule - 12 months ended 31 October 2014 44,300

Year 2 revision € €Assessed profit 68,544

Actual year 2 from 1 Jan 2013 to 31 Dec 2013:1 Jan to 31 May 2013 (€34,900 x 5/9) 19,3891 Jun to 31 Oct 2013 41,4001 Nov to 31 Dec 2013 (€44,300 x 2/12) 7,383

68,172Actual year 2 profit is less than assessed year 2 profit.Profit in year 3 is reduced by the excess. (372)

43,928

2015 4 General rule - 12 months ended 31 October 2015 63,500

2016 Penultimate Twelve months ended 31 October 2016 58,000

Penultimate year revisionActual from 1 January 2016 to 31 December 2016:1 Jan to 31 Oct 2016 (€58,000 x 10/12) 48,3331 Nov to 31 Dec 2016 (€23,000 x 2/5) 9,200

57,533Actual penultimate year profit is less than original assessment.No adjustment to original assessment.

58,000

2017 Final Actual basis (1 Jan 2017 to 31 Mar 2017)€23,000 x 3/5 13,800



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2083 Solution

(a) Gavin CrumworthSchedule D Case I tax adjusted profit for 2017

€ €Profit per financial statements 3,088Add back:Depreciation 4,790Charitable donations 200Client entertainment 350Drawings - goods 7,000Child minder 5,000Drawings 28,100Retirement annuity contribution 13,000Home telephone (€380 x 80%) 304New computer (capital expenditure) 1,200Car expenses (€1,130 x 80%) 904Car insurance (€810 x 80%) 648

61,496

Tax adjusted Schedule D Case I profit 64,584

(b) Gavin Crumworth ceased trading on 31 August 2017, therefore 2017 is the final year of trading.

Assessable income for 2017 is based on actual profits arising from 1 January 2017 to 31 August 2017:

€€64,584 x 8/12 43,056



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2084 Solution

NellieIncome tax computation for 2017

€ €Schedule D Case V income (w1) 3,330Schedule E salary 71,000

74,330Taxation:€33,800 x 20% 6,760€40,530 x 40% 16,212

22,972Non-refundable tax credits:Single person tax credit 1,650PAYE employee tax credit 1,650Tuition fees ((€2,100 - €1,500) x 20%) 120Dependent relative credit (mother's income greater than €14,504) nil

(3,420)19,552

Refundable tax credits:PAYE paid in 2017 (21,320)Tax repayable to Nellie 1,768

Working

w1Schedule D Case V income € €Rental income (€680 x 12) 8,160Expenses:Mortgage interest (€4,700 x 80%) 3,760Insurance 660Maintenance 410

(4,830)3,330


Chapter 7


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2086 Solution

SaoirseIncome tax computation for 2017

€ €Schedule E salary 57,100Schedule E BIK (€31,500 x 30%) 9,450

66,550Taxation:€37,800 x 20% 7,560€28,750 x 40% 11,500

19,060Non-refundable tax credits:Single person tax credit 1,650Single person child carer tax credit 1,650Incapacitated child credit 3,300PAYE employee tax credit 1,650Rent tax credit (maximum for single person aged 45) 40Medical expenses (€720 x 20%) 144

(8,434)10,626

Refundable tax credits:PAYE paid in 2017 (10,100)Tax payable by Saoirse 526



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2089 Solution

Lenny KennyPension contribution relief for the year ended 31 December 2017

€Schedule E salary 28,600Net relevant earnings 28,600At age 26, the relevant percentage of net relevant earnings is 15%.Maximum relief that can be claimed in 2017 (€28,600 x 15%) 4,290

Premiums paid in 2017 4,200Carried forward from 2016 440

4,640

Amount on which tax relief can be claimed in 2017 4,290


Tutorial note:Carry forward of unused premiums to 2018 350

Chapter 8


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2090 Solution

Miguel ParkerPension contribution relief for the year ended 31 December 2017

€ €Schedule D Case II income 85,800Other income (not qualifying as net relevant earnings):Rental income 5,600Deposit interest 4,400

10,000Allowances:Deed of covenant (12,000)Excess charges (2,000)Net relevant earnings 83,800At age 54, the relevant percentage of net relevant earnings is 30%.Maximum relief that can be claimed in 2017 25,140

Premiums paid in 2017 23,400



Tutorial note:Carry forward of unused premiums to 2018 nil


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2091 Solution

RoryIncome tax computation for 2017

€ €Schedule E salary 63,800Pension contribution (w1) (9,345)

54,455Charges:Deed of covenant (1,500)

52,955Taxation:€33,800 x 20% 6,760€19,155 x 40% 7,662

14,422Non-refundable tax credits:Single person tax credit 1,650PAYE employee tax credit 1,650Medical expenses (w3) 22Tuition fees ((€2,150 - €1,500) x 20%) 130

(3,452)10,970

Tax on deed of covenant (€1,500 x 20%) 300

Refundable tax credits:PAYE paid in 2017 (12,180)Tax repayable to Rory 910

Tutorial note:The covenant is in favour of an adult aged over 65 years in which case the maximum amount on which taxrelief can be claimed is 5% of the covenanter’s total income.

Rory's covenant payment is within the limit to obtain maximum tax relief.

Working

w1Pension contribution €Salary 63,800Deed of covenant (1,500)Net relevant earnings 62,300At age 27, the relevant percentage of net relevant earnings is 15%.Maximum relief that can be claimed in 2017 9,345



w3Medical expenses €Doctors' prescriptions 450Reimbursed by medical expense insurers (340)Qualifying for relief 110



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Tax relief at 20% 22Tutorial note:No relief available for routine dental expenses.



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2092 Solution

John and MarieIncome tax computation for 2017

€ €Schedule D Case II income 16,200Schedule E income 17,280

33,480

Threshold for being exempt from income tax 36,000

PAYE paid in 2017 (and therefore repayable to John and Marie) 2,600



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2093 Solution

Charlie and OonaghIncome tax computation for 2017

€ €Schedule D Case II income 5,090Schedule E salary 90,000

95,090Pension contributions (w1) (22,500)

72,590Taxation:€42,800 x 20% 8,560

€29,790 x 40% 11,91620,476

Non-refundable tax credits:Married personal tax credit 3,300PAYE tax credit - Charlie 1,650Earned income tax credit - Oonagh 950Medical expenses (w3) 174Home carer tax credit (w2) 1,100

(7,174)13,302

Refundable tax credits:PAYE paid by Charlie in 2017 (13,970)Tax repayable to Charlie and Oonagh 668

Workings

w1Pension contributions €Net relevant earnings 90,000At age 43, the relevant percentage of net relevant earnings is 25%.Maximum relief that can be claimed in 2017 22,500

Premiums paid in 2017 (€2,100 x 12) 25,200


w2Home carer tax credit or increased standard rate tax band €

(i) Home carer tax credit (maximum) 1,100(ii) Increased standard rate tax band (€5,090 x 20%) 1,018

In this case, option (i) is the more valuable option.Tutorial note:They must choose between the home carer tax credit and the increased standard rate tax band. Theycannot have both.

w3Medical expenses €Hospital visits 276GP visits 244


Chapter 9


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Prescriptions 348Qualifying for relief 868Tax relief at 20% 174Tutorial note:No relief available for routine dental expenses.



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2094 Solution

Miguel and BunnieIncome tax computations for 2017

Miguel Miguel Bunnie Bunnie€ € € €

Schedule E salary 61,900 26,300Pension contributions (w1) (12,380)

49,520 26,300Taxation:€26,300 x 20% 5,260€7,500 x 20% (t/f Bunnie's max. unused standard band to Miguel) 1,500€33,800 x 20% 6,760€8,220 x 40% 3,288

11,548 5,260Non-refundable tax credits:Personal tax credit 1,650 1,650PAYE employee tax credit 1,650 1,650Tuition fees ((€1,890 - €1,500) x 20%) 78

(3,300) (3,378)8,248 1,882

Refundable tax credits:PAYE paid in 2017 (7,840) (2,060)Tax payable 408Tax refund 178

Workings

w1Pension contributions - Miguel €Net relevant earnings 61,900At age 37, the relevant percentage of net relevant earnings is 20%.Maximum relief that can be claimed in 2017 12,380





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2096 Solution

Margaret and ColumIncome tax computations for 2017

Margaret Margaret Colum Colum€ € € €

Schedule E salary 48,200 58,700Pension contributions (w1) (6,870)Pension contributions (w2) (10,570)

41,330 48,130Taxation:€33,800 x 20% 6,760€7,530 x 40% 3,012€33,800 x 20% 6,760€14,330 x 40% 5,732

9,772 12,492Non-refundable tax credits:Personal tax credit 1,650 1,650PAYE employee tax credit 1,650 1,650Medical expenses (w3) 119Incapacitated child credit 1,650 1,650

(5,069) (4,950)4,703 7,542

Refundable tax credits:PAYE paid in 2017 (4,380) (7,020)Tax payable 323 522

Workings

w1Pension contributions - Margaret €Net relevant earnings 48,200At age 26, the relevant percentage of net relevant earnings is 15%.Maximum relief that can be claimed in 2017 7,230



w2Pension contributions - Colum €Net relevant earnings 58,700At age 32, the relevant percentage of net relevant earnings is 20%.Maximum relief that can be claimed in 2017 11,740



w3Medical expenses €



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Expenses incurred 660Disallow:Eye tests (14)Dental checkups (53)Qualifying expenditure 593Tax relief at 20% 119



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2098 Solution

Toby and SophieIncome tax computations for 2017

Toby Toby Sophie Sophie Joint Joint

€ € € € € €Schedule E salary 69,100 20,400 89,500Charges:Deed of covenant (2,730) (2,730)

66,370 20,400 86,770Taxation:€33,800 x 20% 6,760€32,570 x 40% 13,028€20,400 x 20% 4,080€63,200 x 20% 12,640€23,570 x 40% 9,428

19,788 4,080 22,068Non-refundable tax credits:Personal tax credit 1,650 1,650 3,300Employee PAYE tax credit 1,650 1,650 3,300Medical expenses (€3,480 x 20%) 696 696

(3,300) (3,996) (7,296)16,488 84 14,772

Tax on deed of covenant (€2,730 x 20%) 546 54617,034 84 15,318

Refundable tax credits:PAYE paid in 2017 (15,340) (160)Tax payable 1,694Tax refund 76

Year of marriage relief Toby Sophie Total€ € €

Tax liability as single person 17,034 84 17,118Tax liability under joint assessment 15,318Additional liability as single persons 1,800

Date of marriage is 15 July 2017 => relief for six months (€1,800 x 6/12) 900Toby's portion (€900 x €17,034/€17,118) 896Sophie's portion (€900 x €84/€17,118) 4

Tutorial notes:The covenant is in favour of an adult aged over 65 years in which case the maximum amount on which taxrelief can be claimed is 5% of the covenanter’s total income.

Toby's covenant payment is within the limit to obtain maximum tax relief.



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2100 Solution

Sean and LorraineIncome tax computations for 2017

Sean Sean Lorraine Lorraine€ € € €

Schedule D Case II 92,600Schedule E salary 30,500Pension contributions - Sean (w1) (8,280)Pension contributions - Lorraine (w2) (23,150)

22,220 69,450Taxation:€22,220 x 20% 4,444€9,000 x 20% (t/f Sean's max. unused standard band to Lorraine) 1,800€33,800 x 20% 6,760€26,650 x 40% 10,660

4,444 19,220Non-refundable tax credits:Personal tax credit 1,650 1,650PAYE employee tax credit 1,650Earned income tax credit 950Medical expenses (w3) 250

(3,300) (2,850)1,144 16,370

Refundable tax credits:PAYE paid in 2017 (1,260)Tax payable 16,370Tax refund 116

Workings

w1Pension contributions - Sean €Net relevant earnings 30,500At age 50, the relevant percentage of net relevant earnings is 30%.Maximum relief that can be claimed in 2017 9,150

Premiums paid in 2017 (€690 x 12) 8,280


w2Pension contributions - Lorraine €Net relevant earnings 92,600At age 47, the relevant percentage of net relevant earnings is 25%.Maximum relief that can be claimed in 2017 23,150



w3



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Medical expenses €Expenses incurred 1,790Reimbursed by medical expenses insurers (540)Qualifying for tax relief 1,250Tax relief at 20% 250



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2101 Solution

Pete and CathyIncome tax computation for 2017

€ €Schedule D Case II 144,500Pension contributions (w1) (17,250)

127,250Taxation:€42,800 x 20% 8,560€84,450 x 40% 33,780

42,340Non-refundable tax credits:Married persons' tax credit 3,300Earned income tax credit 950Home carer tax credit 1,100Medical expenses (w2) 898

(6,248)36,092

PRSI:€144,500 x 4% 5,780

USC:€12,012 x 0.5% 60€6,760 x 2.5% 169€51,272 x 5.0% 2,564€29,956 x 8.0% 2,396€44,500 x 11.0% 4,895

10,084Total payable 51,956Preliminary tax paid (47,300)Amount payable by Pete and Cathy 4,656

Workings

w1Pension contribution €Net relevant earnings 144,500Earnings ceiling for pension contributions 115,000

Maximum net relevant earnings for pension contributions 115,000At age 28, the relevant percentage of net relevant earnings is 15%.Maximum relief that can be claimed in 2017 17,250



w2Medical expenses €Mother's medical expenses 3,950


Chapter 10


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Family medical expenses 540Qualifying for tax relief 4,490Tax relief at 20% 898



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2102 Solution

Mattie and DanaIncome tax computation for 2017

€ €Schedule D Case I 146,100Pension contributions (w1) (23,000)

123,100Taxation:€42,800 x 20% 8,560€80,300 x 40% 32,120

40,680Non-refundable tax credits:Married persons' tax credit 3,300Earned income tax credit 950Home carer tax credit 1,100Tuition fees ((€2,030 - €1,500) x 20%) 106

(5,456)35,224

PRSI:€146,100 x 4% 5,844

USC:€12,012 x 0.5% 60€6,760 x 2.5% 169€51,272 x 5.0% 2,564€29,956 x 8.0% 2,396€46,100 x 11.0% 5,071

10,260Total payable 51,328Preliminary tax paid (54,410)Amount repayable to Mattie and Dana 3,082

Tutorial note:Tax relief obtained by an individual at source means that no tax credit is required to be included in theincome tax computation for the medical insurance premiums.

Working

w1Pension contribution €Net relevant earnings 146,100Earnings ceiling for pension contributions 115,000

Maximum net relevant earnings 115,000At age 38, the relevant percentage of net relevant earnings is 20%.Maximum relief that can be claimed in 2017 23,000





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2103 Solution

(a) Margaret Mill `` € €Monthly salary 4,600.00Pension contribution (540.00)

4,060.00Taxation:€3,566.67 x 20% 713.33€493.33 x 40% 197.33Monthly tax credit (412.50)

(498.16)USC:€1,001.00 x 0.5% 5.01€563.33 x 2.5% 14.08€3,035.67 x 5.0% 151.78

(170.87)PRSI (class A1):€4,600 x 4% (184.00)Net pay per month 3,206.97

(b) Richie McCraw € €Weekly salary 668.00Notional salary (BIK) 23.27

691.27Taxation:€650.00 x 20% 130.00€41.27 x 40% 16.51Weekly tax credit (63.46)

(83.05)USC:€231.00 x 0.5% 1.16€130.00 x 2.5% 3.25€330.27 x 5.0% 16.51

(20.92)PRSI (class A1):€691.27 x 4% (27.65)

559.65BIK (non-cash) (23.27)Net pay calculation 536.38


Chapter 11


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2104 SolutionThomas Leahy Jan Feb Mar Apr May Jun

€ € € € € €Monthly salary 3,020.00 3,020.00 3,020.00 3,510.00 5,030.00 3,510.00Taxation:€2,816.67 x 20% 563.33 563.33 563.33 563.33 563.33 563.33€203.33 x 40% 81.33 81.33 81.33€693.33 x 40% 277.33 277.33€2,213.33 x 40% 885.33Monthly tax credit (275.00) (275.00) (275.00) (275.00) (275.00) (275.00)

369.66 369.66 369.66 565.66 1,173.66 565.66USC:€1,001.00 x 0.5% 5.01 5.01 5.01 5.01 5.01 5.01€563.33 x 2.5% 14.08 14.08 14.08 14.08 14.08 14.08€1,455.67 x 5.0% 72.78 72.78 72.78€1,945.67 x 5.0% 97.28 97.28€3,465.67 x 5.0% 173.28

91.87 91.87 91.87 116.37 192.37 116.37PRSI (class A1):€3,020.00 x 4% 120.80 120.80 120.80€3,510.00 x 4% 140.40 140.40€5,030.00 x 4% 201.20Net pay 2,437.67 2,437.67 2,437.67 2,687.57 3,462.77 2,687.57



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2106 Solution

(a) Carol Angelheart € €Monthly salary 3,870.00Notional salary 590.00

4,460.00Pension contribution (200.00)

4,260.00Taxation:€3,566.67 x 20% 713.33€693.33 x 40% 277.33Monthly tax credit (412.50)

(578.16)USC:€1,001.00 x 0.5% 5.01€563.33 x 2.5% 14.08€2,895.67 x 5.0% 144.78

(163.87)PRSI (class A1):€4,460 x 4% (178.40)Net pay 3,339.57Notional salary (590.00)Take home pay 2,749.57

(b) Gavin Crumworth € €Weekly salary 640.00Taxation:€640.00 x 20% 128.00

Weekly tax credit (63.46)(64.54)

USC:€231.00 x 0.5% 1.16€130.00 x 2.5% 3.25€279.00 x 5.0% 13.95

(18.36)PRSI (class A1):€640 x 4% (25.60)Net pay 531.50Trade union subscription (53.00)Take home pay 478.50



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2108 Solution(a) Jerry Ryan Oct Nov Dec

€ € €Gross pay for PAYE 4,775.00 10,465.00Cumulative gross pay for PAYE 51,950.00 56,725.00 67,190.00Cumulative SRCOP 35,666.67 39,233.34 42,800.01Cumulative tax at 20% 7,846.67 8,560.00Cumulative tax at 40% 6,996.66 9,756.00Cumulative gross tax 14,843.33 18,316.00Cumulative tax credits 4,125.00 4,537.50 4,950.00Cumulative tax 9,521.67 10,305.83 13,366.00Tax deducted this period 784.16 3,060.17

Gross pay for PRSI 5,195.00 11,395.00Employee PRSI at 4% 207.80 455.80Employer PRSI at 10.75% 558.46 1,224.96

Gross pay for USC 5,195.00 11,395.00Cumulative gross pay for USC 51,950.00 57,145.00 68,540.00Cumulative USC cut-off point at 0.5% 11,011.00 12,012.00Cumulative USC due at 0.5% 55.06 60.06Cumulative USC cut-off point at 2.5% 6,196.67 6,760.00Cumulative USC due at 2.5% 154.92 169.00Amount chargeable at 5.0% 39,937.33 49,768.00Cumulative USC due at 5.0% 1,996.87 2,488.40Cumulative USC 2,006.22 2,206.85 2,717.46USC deducted this period 200.63 510.61

Tutorial note:Medical insurance premiums are not paid by Jerry Ryan's employer. They are deducted and paid out ofJerry Ryan’s salary. Therefore no BIK arises.

(b) Julie HollowayEmergency basis applies Week 1 Week 2 Week 3 Week 4 Week 5

€ € € € €

Gross weekly pay 317.00 317.00 317.00 317.00 317.00Taxation:€317 x 20% 63.40 63.40 63.40 63.40 63.40Weekly tax credit (31.73) (31.73) (31.73) (31.73)Tax due for each week 31.67 31.67 31.67 31.67 63.40USC:€317 x 8% 25.36 25.36 25.36 25.36 25.36Net weekly pay 259.97 259.97 259.97 259.97 228.24

Tutorial note:Julie Holloway's income is below the weekly threshold for employee PRSI (0% applies).



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2109 Solution

(a) Pedro Flightlow Jul Aug Sep Oct Nov Dec€ € € € € €

Monthly salary 3,820.00 3,820.00 3,820.00 3,820.00 3,820.00 3,820.00Bonus 1,340.00

3,820.00 3,820.00 5,160.00 3,820.00 3,820.00 3,820.00

Cumulative monthly salary 3,820.00 7,640.00 12,800.00 16,620.00 20,440.00 24,260.00Taxation:Cumulative salary x 20% 764.00 1,528.00 2,560.00 3,324.00 4,088.00 4,852.00Cumulative tax credits 1,925.00 2,200.00 2,475.00 2,750.00 3,025.00 3,300.00Cumulative tax 85.00 574.00 1,063.00 1,552.00Paid in previous periods (85.00) (574.00) (1,063.00)Tax payable this month 85.00 489.00 489.00 489.00USC:Cumulative cut-off point at 0.5% 7,007.00 8,008.00 9,009.00 10,010.00 11,011.00 12,012.00Cumulative cut-off point at 2.5% 3,943.33 4,506.67 5,070.00 5,633.33 6,196.67 6,760.00

Cumulative at 0.5% 19.10 38.20 45.05 50.05 55.06 60.06Cumulative at 2.5% 94.78 140.83 154.92 169.00Cumulative at 5.0% 48.83 161.62 274.40Cumulative USC 19.10 38.20 139.83 239.71 371.60 503.46Paid in previous periods (19.10) (38.20) (139.83) (239.71) (371.60)USC payable this month 19.10 19.10 101.63 99.88 131.89 131.86PRSI (class A1)Employee PRSI payable at 4% 152.80 152.80 206.40 152.80 152.80 152.80

Net pay per month 3,648.10 3,648.10 4,766.97 3,078.32 3,046.31 3,046.34Employer PRSI payable at 10.75% 410.65 410.65 554.70 410.65 410.65 410.65

(b) Quade Shanley Jan Feb Mar Apr€ € € €

Monthly salary 2,860.00 2,860.00 2,860.00 2,860.00Bonus 2,710.00

2,860.00 2,860.00 2,860.00 5,570.00Pension contribution (190.00) (190.00) (190.00) (190.00)

2,670.00 2,670.00 2,670.00 5,380.00

Cumulative salary for PAYE 2,670.00 5,340.00 8,010.00 13,390.00Cumulative SRCOP 2,816.67 5,633.34 8,450.01 11,266.68Taxation:Cumulative at 20% 534.00 1,068.00 1,602.00 2,253.34Balance at 40% 849.33Cumulative tax credits (275.00) (550.00) (825.00) (1,100.00)Cumulative tax 259.00 518.00 777.00 2,002.67Paid in previous periods (259.00) (518.00) (777.00)Tax payable this month 259.00 259.00 259.00 1,225.67

Cumulative salary for USC and PRSI 2,860.00 5,720.00 8,580.00 14,150.00USC:



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Cumulative cut-off point at 0.5% 1,001.00 2,002.00 3,003.00 4,004.00Cumulative cut-off point at 2.5% 563.33 1,126.66 1,689.99 2,253.32

Cumulative at 0.5% 5.01 10.01 15.02 20.02Cumulative at 2.5% 14.08 28.17 42.25 56.33Cumulative at 5.0% 64.78 129.57 194.35 394.63Cumulative USC 83.87 167.75 251.62 470.98Paid in previous periods (83.87) (167.75) (251.62)USC payable this month 83.87 83.88 83.87 219.36PRSI (class A1:)Employee PRSI payable at 4% 114.40 114.40 114.40 222.80

Net pay before deduction of trade union subscription 2,212.73 2,212.72 2,212.73 3,712.17Trade union subscription (50.00) (50.00) (50.00) (50.00)Monthly net pay 2,162.73 2,162.72 2,162.73 3,662.17Employer PRSI payable at 10.75% 307.45 307.45 307.45 598.78



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2110 Solution

(a) Roger Lee Nov Dec Total€ € €

Gross pay 9,530.00Pension contribution (1,300.00)

8,230.00

Cumulative salary for PAYE 38,100.00 46,330.00 46,330.00Cumulative SRCOP 39,233.33 42,800.00Taxation:Cumulative x 20% 7,620.00 8,560.00Balance x 40% 1,412.00Cumulative tax credits (4,537.50) (4,950.00)Cumulative tax 3,082.50 5,022.00Paid in previous periods (3,082.50)Tax payable 3,082.50 1,939.50 (5,022.00)

Cumulative salary for USC and PRSI 43,600.00 53,130.00USC:Cumulative cut-off point at 0.5% 11,011.00 12,012.00Cumulative cut-off point at 2.5% 6,196.67 6,760.00

Cumulative at 0.5% 55.06 60.06Cumulative at 2.5% 154.92 169.00Cumulative at 5.0% 1,319.62 1,717.90Cumulative USC 1,529.60 1,946.96Paid in previous periods (1,529.60)USC payable this month 1,529.60 417.36 (1,946.96)PRSI (class A1:)Employee PRSI payable at 4% 1,744.00 381.20 (2,125.20)

Net pay for December and for the year 5,491.94 37,235.84

(b) Lenny Kenny Week 1-3 Week 4-6 Week 7-9

€ € €Gross weekly pay 310.00 600.00 550.00Taxation:€310 x 20% 62.00€600 x 20% 120.00€550 x 20% 110.00Tax credits (62.00) (62.00) (62.00)

58.00 48.00USC:€231.00 x 0.5% 1.16 1.16 1.16€79.00 x 2.5% 1.98€130.00 x 2.5% 3.25 3.25€239.00 x 5.0% 11.95€189.00 x 5.0% 9.45

3.14 16.36 13.86PRSI:



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€600 x 4% 24.00€550 x 4% 22.00

Net weekly pay 306.86 501.64 466.14Employer's weekly PRSI at 8.5% 26.35Employer's weekly PRSI at 10.75% 64.50 59.13



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2111 Solution

Jimmy Rate VAT VATOutput VAT: € € €Amounts invoiced to customers (net of VAT) 40,696 23% 9,360Input VAT:Purchase of goods for resale (inclusive of VAT) 29,900 23% 5,591Purchase of van (inclusive of VAT) 13,600 23% 2,543Purchase of motor vehicle (category E, no input credit)Petrol - no input creditDiesel (inclusive of VAT) 551 23% 103Repairs and servicing (inclusive of VAT) 1,080 13.50% 128Car hire - no input credit allowedHotel and meals for staff - no input credit allowedTelephone (inclusive of VAT) 620 23% 116Electricity (inclusive of VAT) 220 13.50% 26Input credit (8,507)Net VAT payable 853


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2113 Solution

Dermot Flaherty € € €Cash payments received and lodged 34,987Electronic transfers into the bank account 7,140Cash received as part payment 810Total cash received (inclusive of VAT) 42,937VAT on cash receipts at 13.5% 5,107

Self-supply (inclusive of VAT) 1,320

Goods used for own purposes (self- supply) are considered to be a sale.

VAT on self-supply at 23% 247

Purchase of goods from a UK supplier (exclusive of VAT) 3,790Accounted for as a sale and purchaseVAT on purchase from UK supplier at 23% 872Output VAT 6,226

Purchase of goods (inclusive of VAT) 26,400VAT on purchase of goods at 23% 4,937

Purchase of goods from a UK supplier (exclusive of VAT) 3,790VAT on purchase from UK supplier at 23% 872

Motor expenses:Diesel (inclusive of VAT) 885VAT on diesel at 23% 165

Repair costs (inclusive of VAT) 1,001VAT on repair costs at 13.5% 119

Telephone costs (30% business) (inclusive of VAT) 202VAT on telephone costs at 23% 38

Legal fees (inclusive of VAT) 3,400VAT on legal fees at 23% 636Input VAT (6,767)VAT receivable 541

Tutorial notes:Irrecoverable debt has no VAT implications because output VAT is accounted for on a cash receipts basis.

Van insurance is VAT exempt.Personal motor vehicle insurance is irrelevant for business VAT return purposes.



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2114 Solution

(a) Amy O'Brien Rate VAT VATOutput VAT: € € €Receipts from sales (w1) 588,257Cash sales used for staff payments and drawings 31,800Total cash receipts (VAT inclusive) 620,057 13.5% 73,751Input VAT:Purchases for resale 237,620 23.0% 54,653Purchases for resale 69,590 13.5% 9,395Purchases not for resale 45,150 23.0% 10,385Purchases not for resale 10,440 13.5% 1,409Adjustments:Reverse incorrect purchase for resale 5,730 (1,318)Include correct purchase for resale 5,180 1,191Reverse VAT on petrol - no input credit 514 23.0% (118)Reverse VAT on entertainment - no input credit 1,577 23.0% (363)Reverse VAT on hotel expenses - no input credit 376 9.0% (34)Reverse VAT on purchase of television - no input credit 747 23.0% (172)

(75,028)VAT receivable 1,277

(b) Annual return of trading details For resale For resale Not for resale Not for resale

23% 13.50% 23% 13.50%

€ € € €Purchases 237,620 69,590 45,150 10,440AdjustmentsCorrection of purchase for resale amount 5,180

(5,730)Petrol (514)

Entertainment (1,577)

Hotel expenses (376)

Television (747)

237,070 69,590 41,936 10,440Workingsw1Receipts from sales €Opening receivables 136,300Invoices issued (including VAT) 599,167Closing receivables (147,210)

588,257


Not for resale

0%

€

514

1,577

376

7473,214


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2115 Solution

Homer Kelly Rate VAT VATOutput VAT: € € €Receipts lodged to the bank account (w1) 619,575Staff salaries paid out of cash (€1,540 x 12) 18,480Drawings paid out of cash (€2,600 x 12) 31,200Other expenses paid out of cash:Electricity 1,010Suppliers of raw food 2,260Total cash receipts (inclusive of VAT) 672,525 9.0% 55,530Self-supply of raw food 4,569 0%Supplies from Germany (VAT exclusive) 89,230 23.0% 20,523

76,053Input VAT:Raw food 228,440 0%Food for resale 162,490 23.0% 37,373Purchase of company car (20% partial input credit) 27,300 23.0% 1,256Supplies from Germany 89,230 23.0% 20,523Accountancy fees 6,800 23.0% 1,564Electricity 3,370 13.5% 455

(61,171)VAT payable 14,882

Tutorial note:Wages are not subject to VAT.

Workings

w1Receipts lodged to the bank account €Gross receipts 632,220Repayment of bank loan (12,645)

619,575



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2116 SolutionFred

(a) A person is obliged to register for VAT if the turnover threshold is exceeded, or is likely to be exceeded, in a12-month period.

Therefore, a person supplying services who forecasts that sales are likely to exceed €37,500 in a 12-monthperiod must register for VAT.

A person supplying goods is required to register for VAT if sales are likely to exceed €75,000 in a 12-monthperiod.

(b) When registered for VAT, a person is entitled to deduct VAT charged on goods and services that arepurchased for use in the business.

To be entitled to the input credit, there must be proper VAT invoices in respect of the purchases.

No deduction is allowed for VAT paid on the following:

1. The provision of food, drink, accommodation or other personal service;

2. Entertainment expenses;

3. The acquisition, hiring or leasing of motor vehicles (see exception noted below);

4. The purchase of petrol;

5. VAT paid on self-supplies.

Tutorial note:A taxable person engaged in fully VATable activities is entitled to claim an input credit of 20% of VATincurred on the purchase or hire of company cars that are used at least 60% for business purposes.

This input credit only applies to cars that are categorised as A, B or C.

If the car is disposed of or ceases to be used for at least 60% business purposes within two years, some orall of the VAT input credit claimed will be clawed back.

(c) VAT-registered persons are usually liable to VAT based on the date that invoices are issued to customers.

For example, VAT charged on all invoices issued in March and April 2017 should be included in the VATreturn for March/April 2017.

The cash receipts basis allows a VAT-registered person to pay VAT based on the VAT period in which cashis received from customers for goods/services supplied.

The cash receipts basis is available to a business if:

1. At least 90% of supplies are to unregistered persons; or

2. Turnover from supplies of goods/services is not likely to exceed €2,000,000 per annum.

(d) Most commonly, a VAT-registered person accounts for VAT on a two-monthly basis, January/February,March/April, May/June, July/August, September/October, and November/December on a Form VAT3.

This is required to be submitted by the 19th of the month following the end of the VAT period.

This date is extended to the 23rd of the month following the end of the VAT period if the VAT returns andpayments are filed electronically.

The Form VAT3 shows the amount of VAT payable on sales, the amount of input VAT and the net VAT dueto the Revenue Commissioners or VAT refund due to the trader.



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A VAT-registered person may opt to pay VAT by direct debit in monthly instalments. As a consequence, theVAT-registered person would then be permitted to make an annual VAT return.

If the direct debit payments are not sufficient to meet the full VAT liability for the year, any balance is payablewith the annual VAT return.

If this balance is more than 20% of the full VAT liability, the VAT-registered person would be charged interestfrom the midpoint of the year.

A VAT-registered person is also be required to submit an Annual Return of Trading Details, which givesdetails of sales and purchased for the year, analysed by the various VAT rates applicable to sales andpurchases.



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2118 Solution

Fintan Rate VAT VATOutput VAT: € € €Invoices issued (including VAT) 292,654 23.0% 54,724Goods purchased from UK (VAT exclusive) 18,500 23.0% 4,255

58,979Input VAT:Purchases for resale 176,400 23.0% 40,572Purchases for resale 53,400 13.5% 7,209Purchases not for resale 51,156 23.0% 11,766Purchases not for resale 17,088 13.5% 2,307Goods purchased from UK 18,500 23.0% 4,255Adjustments:Petrol (VAT inclusive) (2,086) 23.0% (390)Lease of car (€881 x 12) (10,572) 23.0% (2,432)Home electricity bills (910) 13.5% (123)Irrecoverable debt 4,100 23.0% 943

(64,107)VAT receivable 5,128



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