May 2011 Exam Paper Tax II Ni

Taxation II
Northern Ireland
2nd Year Examination
May 2011
Paper, Solutions & Examiner’s Report

Taxation II (NI) May 2011 2nd Year Paper
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Although they are published by us, we do not necessarily endorse these solutions or agree with the views
expressed by their authors.
There are often many possible approaches to the solution of questions in professional examinations. It
should not be assumed that the approach adopted in these solutions is the ideal or the one preferred by us.
Alternative answers will be marked on their own merits.
This publication is intended to serve as an educational aid. For this reason, the published solutions will
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particularly the case where discursive answers are involved.
This publication is copyright 2011 and may not be reproduced without permission of Accounting
Technicians Ireland.
© Accounting Technicians Ireland, 2011.


Accounting Technicians Ireland

2nd Year Examination: Summer 2011 Paper

Paper : TAXATION II (Northern Ireland)

Wednesday 18th May 2011 – 2.30 p.m. to 5.30 p.m.
INSTRUCTIONS TO CANDIDATES

PLEASE READ CAREFULLY

For candidates answering in accordance with the law and practice of Northern Ireland.

Candidates should answer the paper in accordance with the appropriate provisions up to
and including the Finance Act, 2010. The provisions of the Finance Act, 2011 should be
ignored.

Allowances and rates of taxation, to be used by candidates, are set out in a separate booklet
supplied with the examination paper.

Answer ALL THREE QUESTIONS in Section A, and ANY TWO of the FOUR questions in Section
B. If more than TWO questions are answered in Section B, then only the first two questions,
in the order filed, will be corrected.

Candidates should allocate their time carefully.

All workings should be shown.

All figures should be labelled as appropriate e.g. £s, units, etc.

Answers should be illustrated with examples, where appropriate.

Question 1 begins on Page 2 overleaf.

The following insert is included with this paper.

 Tax Reference Material (NI)
 VAT 100 Form (QUESTION 2)
 Multiple Choice Answer Sheet (QUESTION 7)
3
S2011 Taxation II (NI) (NTXN)

SECTION A

Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section

QUESTION 1 (Compulsory)

Tictock Ltd has been operating for some years selling specialist high value clocks for commercial
use. The Income statement for the year ended 31.3.2011 shows the following:‐

£ £
Sales ................................................................................................... 864,000
Less cost of sales……………………………………… (380,000)
Gross Profit…………………………………………… 484,000
Add Interest Receivable (note 1) …………………… 60,000
Rental Income Receivable (note 2) ………………… 72,000
616,000
Less: Expenses
Wages and Salaries…………………………………… 84,000
Administration expenses (note 3) …………………… 16,800
Rates & Insurance…………………………………… 15,600
Postage & Stationery………………………………… 12,000
Advertising (note 4) ………………………………… 21,600
Travel & Entertaining (note 5) ……………………… 24,000
Discount Allowed…………………………………… 13,200
Depreciation ………………………………………… 49,200
Profit on sale of non current assets (note 6) ………… (60,000)
Bad Debts written off………………………………… 14,400
(190,800)

Net Profit 425,200

Notes:

1. Interest receivable is all considered to be non trade.

2. Rental Income receivable is net of all allowable expenses for tax purposes.

3. Administration expenses include a general 2% provision for bad debts amounting to
£2,000.

4. Advertising costs include:‐ £

Gifts of 1000 company logoed memory sticks ......... 9,000
Christmas luxury food hampers with company
logo to the top 100 customers ........................................ 5,000
4

QUESTION 1 (Cont’d)

5. Travel & Entertaining costs is made up of:‐ £
Employees travel expenses .............................................. 12,000
Employees subsistence allowances ............................. 6,000
Director Speeding Fine ....................................................... 500
Entertaining customers ...................................................... 4,500
Staff .............................................................................................. 1,000
24,000

6. Profit on sale of non‐ current assets resulted in chargeable gains of £40,000

7. Capital purchases in the year have been:‐

21 June 2010 Plant & Machinery 28,800
4 September 2010 New Central Heating Unit 15,200
14 February 2011 Car CO2 emission 100g/km 22,000

Required:

a) Calculate the Corporation Tax payable by the company for year ended 31 March 2011

b) Outline to the company the implications of:

1) Submitting their tax return late.

2) Failing to maintain records for the appropriate time.

3) For the period of A/C to 31 March 2011 how long must they retain
their records.
Total 20 Marks

5


WINGSPAN Ltd is a company resident in the UK which operates a business selling aeronautical
parts. The company is registered for VAT in the UK and accounts for VAT in the normal manner.
The following transactions took place in the quarter ended 31 December 2010.

£
OUTPUTS
Sales in the UK (excluding VAT)………… ……………………… 630,600
Sales in France (customers VAT registered in France) ………… 208,806
Sales in ROI (customers VAT registered n ROI) ………………… 17,500
Sales in ROI (not VAT registered) ……………………………… 90,000
Sales in Canada…………………………………………………… 30,560

INPUTS (Figures include VAT where applicable)
Purchases of materials UK suppliers……………………………… 238,640
Purchases of material from Germany ……………………………… 133,420
Purchase of machinery……………………………………………… 168,000
Salaries & Wages…………………………………………………… 110,500
Rent of premises (note 1) ………………………………………… 12,000
Telephone………………………………………………………… 860
Electricity………………………………………………………… 1,600
Advertising………………………………………………………… 20,000
Repairs & Maintenance……………………………………………… 8,667
Motor Expenses : Repairs etc………………………………………… 6,240
Diesel for co vehicles (note 2) …………………… 3,075

Note 1 VAT at standard rate has been paid on the rent of the premises.

Note 2 Diesel for company vehicles includes diesel purchased for cars used by
company directors. These cars are:
1) Mercedes CLK CO2 emissions 205g/km.
2) BMW 320D CO2 emissions 230g/km.

Required

1. Calculate the VAT payable/reclaimable by WINGSPAN Ltd for quarter ended 31
December 2010.

2. Complete the form VAT 100 for quarter ended 31 December 2010 and outline the date
on which any VAT becomes payable.

3. Briefly outline the consequence of a VAT registered trader submitting a VAT return
and/or payment late.
Total 20 Marks

6


Greg has been employed for some years by BIGBUILD Ltd at a basic salary of £125,000 per
annum and a handsome bonus based on his performance and company profits achieved. The
bonus is calculated annually and paid in the June following. Details of salary and bonus in the last
two years are as follows:‐

Gross PAYE
Salary Deducted
£ £
Basic Salary 125,000 42,520
Bonus y/e 31.3.2010
(Paid June 2010) 36,000 9,000
Bonus y/e 31.3.2011
(Paid June 2011) 45,000 12,600

In addition, Greg receives a generous benefits package which includes

1) a company car which is used by him for private purposes. The vehicle is a Land Rover
Discovery which was purchased new in June 2009 at a cost of £24,800. The vehicle has
CO2 emissions 220g/km. The company cover all costs of insurance, petrol and servicing.

2) His employer contributes to an Inland Revenue approved pension scheme for Greg and
contributions this year have been as follows:‐

Employer contribution £4,500
Employee contribution (@ 6% Basic salary) £2,700

3) BIGBUILD Ltd also pay private medical insurance premiums on behalf of Greg, his wife
Jan and four children. In 2010/11 premiums amounts to £1,800.

4) BIGBUILD contribute £55pw to an approved childminder for Greg’s youngest child
Ffion.

5) Greg has also secured from his employer an interest free loan of £70,000 which was
used to purchase a small holiday cottage in Wales for use by himself and his family. He
received this loan in January 2008 but repayments over 10 years have only commenced.
The first repayment of £7,000 was made in January 2011.

Other income/expenditure for the year 2010/11 has been as follows:‐

£ £
Furnished Holiday Lettings:‐
Income received 2200
Less allowable expenses (2900)
Net Loss (700)

Question 3 continued on next page
7


The property is let all year round with a view to making a profit and was let for 3 months in
2010/2011. Losses B/F from previous years on this property amount to £500

National Savings Bank Interest received
£
Ordinary Account 65

Investment Account 82
Bank Deposit Interest Received (Net) 216
(on Joint A/C with Jan)
Dividends received from JACKS PLC (Net) 2,340

In addition, Greg has made approved Gift aid donations in the year amounting to £5400 (net).

Required

a) Compute the total Benefit in kind chargeable on Greg for 2010/11.

b) Calculate Greg’s Income tax liability for 2010/11.

c) State clearly the date by which any tax due will be payable.

Total 20 Marks

8

SECTION B

Answer ANY TWO of the FOUR questions in Section B
QUESTION 4

Fraser Ltd has operated for some years and has had the following results

Y/E Y/E Y/E Y/E 6 M/E Y/E
31.12.06 31.12.07 31.12.08 31.12.09 30.6.10 30.6.11
Trade Profit/Loss (43,500) 165,000 7,500 15,000 127,500 (330,000)
Interest Income 15,000 16,500 1,500 3,000 18,000 21,000
Chargeable Gains/ 27,000 (7,500) NIL NIL 3,000 (1,500)
Losses
Gift Aid Donation NIL 1,500 NIL NIL 4,500 1,500

Fraser has no associated companies

Required

a) Compute the Profits chargeable to Corporation Tax for all periods shown on the basis
that loss relief is claimed as soon as possible.

b) State what relief is available for

1) Trade losses not yet relieved.

2) Capital losses not yet relieved.

3) Unrelieved Gift Aid donations.

Total 20 Marks

9

QUESTION 5

After years of running a successful beauticians salon Rosie Grimshaw who is widowed and
resident in the UK has decided to retire to the country. Rosie has not made any previous business
disposals since 5 April 2008. During 2010/11 she has disposed of the following assets:‐

i) On 1st July 2010 sold the salon for £1,400,000 to include the following:‐

Sales Cost
Proceeds
£ £
Premises 800,000 The premises had been acquired by Rosie’s
husband for £280,000. He transferred it to
Rosie when it was worth £350,000
Fixtures & Fittings 250,000 400,000
Goodwill 300,00 120,000
Stock 50,000 75,000
1,400,000

Capital allowances where applicable have been claimed on the fixtures & fittings
Costs of disposal have been incurred as follows:‐
£
Agents Fee re sale of property 7,000
Advertising 1,870
Legal Fees 3,500
Accountants Fee for CGT planning 4,000
16,370

ii) Sold a painting for £12,500 which she had bought for £2,500 some years ago.
Auctioneers fees of 5% of gross proceeds were charged.

iii) Sold four acres of land for £40,000 of a ten acre plot that she had acquired some years
earlier for £20,000. At the date of sale, the remaining six acres were valued at £24,000.

iv) Sold 6,000 shares in Spec Builders plc to her son Jason for £30,000 (their market
value). She had previously bought the shares on 1 March 2007 for £78,000. Jason has
since sold these shares in January 2011 for £27,000.

Required

a) Calculate the Gross taxable gains /losses for Rosie in the 2010/11 year on each of the
disposals above assuming that she has no other income in the year.

b) Briefly outline to Rosie the significance of the date of 23 June 2010 for disposals made
and the CGT payable.

c) Advise Rosie specifically, what relief if any can be claimed by her for the loss sustained
on the disposal of shares to her son Jason.
Total20 Marks

10

QUESTION 6

Joyce operates a business as a self employed software supplier trading under the name of
Software Solutions. Trevor works for the business and he receives a monthly salary of £3,500
and this year also received a bonus of £6,500 paid in January 2011.

He drives a company car with a benefit value of £4,500. No fuel is provided. He is also in receipt
of private medical insurance at a cost to the business of £750.

Tax adjusted Profits assessable in the year 2010/11 amount to £65,000.

Required

a) Outline the amount of National Insurance contributions payable in the year stating
clearly

1. The class payable
2. Payable by whom and by what date.

The business is currently registered for VAT and sells at present exclusively in the UK. Joyce is
considering expanding to sell to ROI. She is unclear how this affects her VAT status and is unsure
how sales in ROI should be treated

Required

b) Outline clearly to her how she should treat

1. Sales to non business customers in the ROI
2. Sales to business customers in the ROI.

Total 20 Marks
11

QUESTION 7

The following multiple choice question consists of twenty parts, each of which is followed by
FOUR possible answers. There is ONLY ONE right answer in each part.

Requirement

Indicate the right answer to each of the following twenty Parts

N.B. Each part carries 2 marks

[1] Dev, a sole trader takes goods for his own use from his local corner shop. He should
account for Income Tax on these goods at:‐

a) Cost price of goods, net of VAT.
b) Selling price of goods, net of VAT.
c) Cost price of goods including VAT.
d) Selling price of goods including VAT.

[2] Matt is a VAT registered builder. He enters into a contract with Jan to build an
extension to her home. The overall contract price is £50,000 (gross) which includes
kitchen appliances costing £7,500 (gross). Matts VAT position in respect of this
transaction is

a) Nil. No VAT due on extension.
b) Refund due £1,117.02
c) VAT Payable £7,446.80
d) VAT Payable £6,329.78

[3] Before any VAT paid can be deducted as Input tax, which of the following criteria is NOT
required to be met:‐

a) The recipient of the supply or person acquiring the goods must be a
taxable person.
b) The supplies must have been incurred for the purpose of the business.
c) The person seeking to claim input tax must hold a valid invoice or other
document.
d) The goods or services on which the input VAT was charged must have
been paid for by the person seeking to claim the input tax.
12


[4] Employee John is provided with a company van to carry out the company’s business.
John is allowed to take the van home with him in the evenings and at weekends for
unrestricted personal use. All costs, including fuel, in respect of the van are covered by
the company. The van cost £18,500 when purchased new in March 2010. The total
benefits in kind assessable on John for y/e 5 April 2011 will be:‐

a) Nil
b) £3,000
c) £3,500
d) £3,700

[5] Neatfit Ltd ceased trading on 31 March 2011. The last accounts prepared for the
company covered the eighteen months to 31 March 2011. The final corporation tax
assessment will cover the period:‐

a) 1 January 2011 – 31 March 2011.
b) 6 months ended 31 March 2011.
c) 12 months ended 31 March 2011.
d) 18 months ended 31 March 2011.

[6] Colm sold an antique bureau in July 2010 realising a capital gain of £10,000. If this was
his only gain in the tax year, Colm is obliged to make a return on this gain on or before:‐

a) 31 August 2010.
b) 5 April 2011.
c) 31 January 2011.
d) 31 January 2012.

[7] John George is a director and major shareholder in Jacks Ltd. John’s current account is
currently overdrawn by £5,000. As a result, the company will be required to make a
payment under S455 CTA 2010 (formerly S419 ICTA 1988) of:‐

a) Nil – Payment exempt as John is a Director.
b) £1,250
c) £1,000
d) £2,000
13


[8] In 2010/11 Kevin has chargeable capital gains of £40,000 and allowable losses of
£10,000

He also has allowable losses of £20,100 brought forward. The amount of allowable
losses available for carry forward to 2011/12 will be:‐

a) £200
b) Nil
c) £29,900
d) £9,900

[9] Ashton Peacock is a self employed butcher with a net Income Tax Liability at 2010/11 of
£18,000. Interim payments were made based on his 2009/10 tax position of £7,000 on
31 January 2011 and 31 July 2011. If the outstanding liability of £4,000 is not paid until
30 June 2012 surcharges due will be:‐

a) Nil
b) £200
c) £400
d) £100

[10] Paula makes up her accounts to 30 June each year. During the year to 30 June 2010
Paula had made the following total capital acquisitions:‐

Plant & Equipment £120,000
Fixtures & Fittings £ 15,000
Motor Car CO2 emissions
150g/km £ 26,000

Assuming Paula makes the maximum claim possible, her claim in the year 2010/11 will
be :

a) £82,200
b) £115,200
c) £67,700
d) £55,200
Total 20 Marks

14

2nd Year Examination: May 2011
Taxation II (NI)
Suggested Solutions
Students please note: These are suggested solutions only; alternative answers
may also be deemed to be correct and will be marked on their own merits.
Question 1 Tictock Ltd
Corporation Tax Computation

Y/E 31 March 2011
a)
£
Trading Income (see below) 228,400
Property Income 72,000
Interest Receivable 60,000
Chargeable Gains 40,000
PCTCT 400,400
Profits = £400,400x28% 112,112.00

Less Marginal relief
7
/400 x (1,500,000 – 400,400) (19,243.00)
Corporation Tax Payable 92,869.00 payable 1.1.2012
Trading Income
£ £
Net Profit per accounts 425,200
Add : Disallowable Expenditure

General Provision for bad debt 2,000
Advertising: Luxury Hampers 5,000
Travel: Directors speeding fines 500
Entertaining customers 4,500
Depreciation 49,200 61,200
Less Income assessable elsewhere 486,400
Interest Receivable 60,000
Rental Income receivable 72,000
Profit on sale non current assets 60,000
(192,000)
Less Capital allowances (below) (66,000)
228,400
15

Capital Allowances
A.I.A (28.800 + 15,200) = 44.000
FYA 100% Car 22,000
66,000
b) 1. If the company are late in submitting their tax return they will receive a
fixed penalty or £200
2. Failure to keep proper records can result in a fine of £3,000
3. Records for the poa to 31.3.2011must be kept until 31.3.2017
Question 2 WINGSPAN LTD

VAT Payable
Q/E 31 December 2010
Gross VAT NET
OUTPUTS £ £ £
Sales in UK 740,95500 110,35500 630,60000
Sale in France 208,80600 - 208.80600
00
Sales in ROI (VAT 17,500 - 17,500000
Reg)
Sales in ROI (Non 105,75000 1575000 90,00000
VAT Reg)
Sales in Canada 30,56000 - 30,56000
Deemed Supply
Mercedes 42500 6330 36170
BMW 49600 7387 42213
1,104,49200 126,24217 978,24983
VAT due on 156,76850 23,34850 133,42000
acquisitions EU
1,261,26050 149,59067 1,111,66983
INPUTS
Purchases UK supplies 238,64000 35,54213 203,09787
Purchases EU 156,76850 23,34850 133,42000
Purchase Machinery 16800000 2502128 142,97872
Rent 1200000 178723 10,21277
Telephone 86000 12809 73191
Electricity 160000 23830 1,36170
Advertising 20,00000 297872 17,02128
Repairs & Man 866700 129083 7,37617
M/E (6240+3075) 931500 138734 792766
615,85050 91,72242 524,12808
16

As the return will be required to be submitted on line the date for submission and
payment will be by 3 7.2.2011
£
Box 1 126,242-17
2 23,348-50
3 149,590-67
4 91,722-42
5 57,868-25
6 1,111,669-83
7 524,128,08
8 316,306-00 (208,806 +17,500 +90,000)
9 133,420-00
2) VAT will be payable on line by 7.2. 2011
3) HMRC will issue a default surcharge notice which will extend to 31.12.2011.
Further defaults in this surcharge period will be as follows:-
1st default 2% tax due
2nd default 5% tax due
3rd default 10% tax due
4th default 15% tax due
17

Question 3 GREGG
a) Benefit in kind chargeable 2010/11
£
Company Car
(24,800x33% 8,184
Company Fuel
(18,000 x 33%) 5,940
14,124
Private medical 1,800
Childminder Fees -
Interest Free Loan
(70,000 = 63000 x 4%) 2,660
2
18,584
b) Income Tax Computation

2010/11
£ N/S S Div
Income From Employment
Salary 125,000 125,000
Bonus (30.6.10) 36,000 36,000
B.I.K (above) 18,584 18.584
179,584 179,584
Loss on Furnished Lettings (700) (700)
(note 1)
NSB Interest Ordinary - - - -
Investment 82 82
Bank Deposit Int
(216/0.80 = 270/2 135 135
Dividend Income
(2340/0.90 2,600 2,600
Total Income 181,701 178,884 217 2,600
Less Personal - - - -
Allowances
Taxable Income 181,701 178,884 217 2,600
37400+5400/0.80 = £44150 EBR 2

Taxed:
N/S 44150x 20% = 8,830.00

N/S 112,600 x 40% = 45,040.00
156,750 53,870.00
N/S 22134 x 50% = 11,067.00 Rates
S 217 x 50% =108.50
18

Div 2,600 x 421/2% =1,105.00
66,150.50
Less Tax Paid at source
PAYE Salary (42,250.00)

Bonus (9,000.00)
Bank Deposit Int (27.00) Tax credits
Dividend Income (260.00)
o/s I.T Due £14,343.50
b) Outstanding Income Tax Due £14,343.50 payable by 31 January 2012
Note 1
As the property is available for letting for >140 days and is actually currently let > 70
days the loss incurred on the property will be available for offset against other income
in the year.
19

Question 4 FRASER LTD
a) C.T. Liability
y/e y/e y/e y/e 6mle y/e

31.12.06 31.12.07 31.12.08 31.12.09 30.6.10 30.6.11
Trade Profits - 165,000 7,500 15,000 127,500 -
Less S393 (1,500)
(1)
163,500
Interest Income 15,00 16,500 1,500 3,000 18,000 21,000
Chargeable Gains 27,000 - - - 3,000 -
Less Capital (3,000)
losses b/f
42,000 180,000 9,000 18,000 145,500 21,000
Less S393(1) (a) (42,000) (21,000)
S393 (1) (b) (9,000) (145,500)
Gift Aid (1,500)
Donations
PCTCT - 178,500 9,000 9,000 - -
Unrelieved - - - - 4,500 1,500
Charges
LOSS MEMO
TRADE LOSSES
£ £
Y/E 31.12.06 (43,500) Y/E 30.6.11 (330,000)
Less S393(1) (a)
Offset against Current profits (42,000) (21,000)
before charges
1,500
C/F S393 (1) (1,500)
C/B S393 (1) )(b) 6 mle 30.6.10 (145,500)
6
/12 31.12.09 x (9,000)
18,000
Unrelieved Trade Losses 154,500
CAPITAL LOSSES
Y/E 31.12.07 (7,500)
Used c/f 30.6.10 3,000
(4,500)
Y/E 30.6.2011 (1,500)
(6,000)
20

b) Unrelieved losses/charges will be dealt with as follows
 Trade losses – C/F against Future trade Profits S393) (1)
 Capital losses – C/F set against future capital gains
 Unrelieved Gift Aid Donations – lost
21

Question 5 Rosie Grimshaw
a) Gross taxable gains
1. £
Disposal Proceeds
Premises 800,000
Goodwill 300,000
Less Acquisition Costs 1,100,000
Premises (280,000)
Goodwill (120,000)
700,000
Less Selling Costs
(16,370 – 4,000) (12,370)
687,630
2. £
Proceeds of Painting 12,500
Less costs of sale (625)
Net Proceeds 11,875
Less Cost of purchase (2,500)
9,375
Max 5/3* (12,500 – 6,000) =
£10,833
3.
Sale of Land (Part Disposal)
£
Proceeds 40,000
Less attributable cost
40,000 x (12,500)
20,000 =
40,000 +24000
27,500
4.
Spec Builders PLC Shares £
Proceeds 30,000
Less cost 78,000
(48,000)
b) Gains arising on disposals made before 23 June 2010 are taxed at a rate of
18% irrespective of the individual’s total taxable income
Gains arising on disposals made on or after 23 June 2010 are taxed at either
18% or 28% depending on the individual’s taxable income.
In calculating CGT payable taxpayers will be able to deduct losses and the
annual exemption amount in the best way to minimise the tax due.
c) This is a loss on a disposal to a connected person. The loss is only allowable

on a gain on a disposal to the same connected person.
22

Question 6 Trevor
a) Trevor NIC
Total earning + 3500 x 12 = 42,000

Bonus = 6,500
48,500
NIC Payable as follows:-
CLASS 1
Primary Contribution £
(43,875 – 5,715) = 38,160 x 11% = 4197.60
(48,500 – 43,875) = 4,625 x 1% = 46.25
4243.85 Payable by Joyce
Secondary Contribution £
(48,500 – 5,715) =42,785 x 128% = 5,476.48 Payable by
Trevor
All Class 1 contributions payable within 14 days of the end of each tax month (19th
month)
Class 1A Payable on Benefits £

(4,500 + 750) = 5,250 x 12.8% 672.00 Payable by Trevor
Due by 19 July following
the relevant year of
assessment
CLASS 2
£
£2.40 x 52 = 124.80 Payable by Trevor
Monthly/quarterly in
arrears
CLASS 4
£
(5715 – 43,875) = 38,160 x 8% = 3052.80
(65,000 – 43,875) = 21,125 x 1% = 211.25
3264.05 Payable by
Trevor
In two equal instalments
31 .1.in year of
assessment
31.7 in year of
Assessment
23

b)

DESPATCHES WITHIN EU
Sold to non business Charge UK VAT in the normal

customer way and include it in the UK
VAT return
Sold to business Zero rate the supply of goods if:

customer in another
EU country  the goods are sent out of
the UK to somewhere in
another EU country;
 The customer is genuinely

registered for VAT in
another EU country;
 The supplier obtains the

customer’s VAT
registration number –
including the two letter
country code – and shows
it on their sales invoice;
 and
 The supplier holds

evidence that he goods
were delivered to another
EU country.
The value of the goods and

services must be accounted for in
the suppliers’ VAT Return in Box
6 and Box 8 in the usual way. If
any VAT is due in the destination
country, then the customer pays it
to the tax office in their country.
24

Question 7
Multiple choice
Q1 B
2 D
3 D
4 C
5 B
6 D`
7 B
8 A
9 B
10 A
Notes
2) 50,000 * 7/47 = 7446.00

Less Input tax
7,500 8 7/47 = (1,117.02)
6,329.78
10)
120,000 CLAIM
15,000
135,000
AIA* (62,500) 62500
72,500
32,000
104,500
WDA 20% (20,900) 20,900
83400
*AIA 9/12 * 50,000 = 37,500

3/12 * 100,000 =25,000
62,500
25

2nd Year Examination: May 2011
Taxation II (NI)
Examiner’s Report

General Comment
Once again the intention this year is to examine the core elements of the syllabus
and concentrate on the major subject areas. Overall performance was much in
line with May 2010 with only a slight decrease in the pass rate (62% achieving >
50 marks compared to 64% in 2010 ) but a sizeable drop in performance of
candidates achieving > 60 marks (30% compared to 42% in 2010).

Summary Stats

Q1 Q2 Q3 Q4 Q5 Q6 Q7 TOTAL
Av Mark 11 13 11 11 9 9 9 53
No. 253 253 253 100 193 54 154
Attempting

MARKS RANGE No. Achieving % 2010
%
18‐49 96 38 36
50‐59 82 32 22
60+ 75 30 42
253 100 100
QUESTION 1

This question was a basic Corporation Tax computation for a company with no
associates but a level of Profit that left them eligible for Marginal Relief. Students
generally dealt well with the requirement to adjust profits to determine Income
from Trade but a surprising number did not the identify that Income assessable
elsewhere had to reappear in the question then as Property Income, Interest
Receivable and Chargeable Gains! The three requirements of part b to the
question were generally poorly answered with some students either talking
vaguely about fines and penalties and a surprising number unaware of the
specific date for retention of company records. The specific rules and availability
of Capital Allowances again this year were not known by a number of candidates.

QUESTION 2

This VAT question was the question that scored most highly of all questions on
the paper and it is encouraging to see that most students dealt well with the
completion of the entries for the VAT 100 form. Most dealt well with the Deemed
Supplies for the Output Tax but some seemed confused then with the amount of
Input Tax that could be reclaimed. Once again it is imperative that students know
the due dates for the submission of returns and that they understand the system
26

for the issue of Default Surcharge Notices and the implications of default within
the notice period. Once again vague reference to fines and penalties is not fully
sufficient to secure full marks available.

QUESTION 3

It was considered that this would have been a question that a lot of students
expected to see this year with the introduction of the 50% tax band and higher
rate charges and restriction of allowances for top earners. A lot of students
seemed unaware of this! A couple of other notable comments would be the
issues as follows:‐
1) The treatment of Personal Pension plans and the requirement to extend the Basic Rate
Band
2) Ability to offset the loss on Furnished Lettings due to period let
3) Students wrongly Grossing up NSB Investment account interest and ignoring the
exemption on NSB Ordinary Account.
4) The incorrect calculation of the Benefit in Kind chargeable on the Interest frees Loan
in the year.
QUESTION 4

As always some students struggle with a standard Corporation Tax Loss question
which has appeared in the manual, on past papers and indeed on Pilot papers
and cannot in any way be considered to be an obscure question. Once again a lot
struggled with the Layout, the carry back of losses to short accounting periods
and the basic requirement to show a Loss Memo. Valuable marks were also lost
in part b) where there was a requirement to state how specifically you would
deal with unrelieved trade losses, capital losses and unrelieved gift aid
donations.

QUESTION 5

This question was a very popular question answered by 76% of all candidates as
an optional question. Candidates should always note carefully what they are
being asked to calculate. The question was “What was the Gross Chargeable
Gain” in the four separate disposals and there was therefore no requirement to
worry about ER or rates of CGT applicable. Basic rules re disposals of chattels at
>£6,000 should be known. Similarly only a couple of candidates either
recognised or mentioned the fact that the loss on the disposal of shares was to a
connected person and that this therefore impacts on the use of such a loss!

QUESTION 6

This did not prove to be a popular question with candidates with only 21%
electing to choose this question. The average mark was a little lower mainly as a
result of the following
1) Failure to state date NIC payable
2) Failure to recognise Minimum limits for payment of NIC
27

3) Failure to identify all classes of NIC payable i.e. Class 1, 1A, Class 2 and Class 4.
While some candidates did recognise the fact that NIC is payable on the value of
benefits under Class 1A they did not separate these out!
Part b) to the question on the VAT implications of trading within the EU was
generally well answered.

QUESTION 7

Unusually this Multiple Choice question was the second most popular question
on the optional Section B of the paper with 61% of candidates electing to answer
it. Once again it must be emphasised that there is no negative marking in a
multiple choice question therefore students MUST answer all 10 questions. The
correct answer is there even at a guess!
28

May 2011 Exam Paper Tax II Ni

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Paper, Solutions & Examiner’s Report

NOTES TO USERS ABOUT THESE SOLUTIONS

© Accounting Technicians Ireland, 2011.

2nd Year Examination: May 2011

Question 1 Tictock Ltd

Corporation Tax Computation

Profits = £400,400x28% 112,112.00

Add : Disallowable Expenditure

Question 2 WINGSPAN LTD

2) VAT will be payable on line by 7.2. 2011

b) Income Tax Computation

37400+5400/0.80 = £44150 EBR 2

N/S 44150x 20% = 8,830.00

Less Tax Paid at source

PAYE Salary (42,250.00)

b) Outstanding Income Tax Due £14,343.50 payable by 31 January 2012

y/e y/e y/e y/e 6mle y/e

 Trade losses – C/F against Future trade Profits S393) (1)

 Capital losses – C/F set against future capital gains

 Unrelieved Gift Aid Donations – lost

a) Gross taxable gains

c) This is a loss on a disposal to a connected person. The loss is only allowable

Total earning + 3500 x 12 = 42,000

NIC Payable as follows:-

Class 1A Payable on Benefits £

Sold to non business Charge UK VAT in the normal

Sold to business Zero rate the supply of goods if:

 The customer is genuinely

 The supplier obtains the

 The supplier holds

The value of the goods and

2) 50,000 * 7/47 = 7446.00

*AIA 9/12 * 50,000 = 37,500

2nd Year Examination: May 2011

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AIA 9/12 50,000 = 37,500