FWA REVISION

SECTION ONE: MULTIPLE CHOICE (20 possible marks)

1. Most of the taxes in UK are _________.

A. direct taxes
B. indirect taxes
C. indirectly collected by the government
D. flat-rate taxes

2. Which of the following refers to past legal decisions written by the courts in the course of
deciding cases?
A. acts of Parliament
B. statutory Instruments
C. HMRC publications
D. case law

3. Which of the following is a case of tax evasion?

A. contributions to tax-free individual savings accounts (ISAs)
B. donating larger amounts to approved charities
C. making contributions to personal pension plans in excess of available allowances
D. none of the above

4. Vicky is visiting UK once every year since 2010 but has not been a UK resident in any of the
preceding tax years. In 2019, he arrives in the UK on 6 April and wishes to spend maximum
days but would not like to become UK resident for the tax year 2019/20. If Vicky has no any
UK ties, how long should he stay?
A. less than 46 days
B. less than 16 days
C. less than 90 days
D. less than 183 days

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5. Rizwan makes a chargeable gain of £21,900 during the tax year 2019/20. This gain does not
qualify for entrepreneur’s relief. What is the amount of taxable gain for Rizwan for the tax
year 2019/20?
A. £21,900
B. £10,050
C. £10,200
D. £11,700

6. The latest filing date for a personal paper return for the tax year 2019/20 where notice to
file tax return issued by HM Revenue & Customs on 15 May 2020 is__________.
A. 15 May 2020
B. 31 October 2020
C. 31 December 2020
D. 31 January 2020

7. Which of the following is not likely to be used as a badge of trade?

A. length of ownership of goods
B. age of the taxpayer
C. intentions of the taxpayer
D. frequency of transactions

8. Hill View Limited published accounts for the year ended 31 March 2020 in April 2020 and
filed tax return for the financial year 2019 in November 2020. If no any compliance check
enquiry related to FY 2019 is pending or expected, Hill View Limited must keep the records
up to__________.
A. 31 March 2026
B. 31 March 2021
C. 30 November 2026
D. 31 December 2020

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9. Unless advised otherwise by HM Revenue & Customs, a VAT registered trader must keep
records for inspection for_________.
A. 6 years
B. 1 year
C. 3 years
D. 4 years

10. JP Mehra, a VAT registered trader, purchased a motor car in July 2019 for £20,000
excluding VAT. He could not recover VAT paid because the car is not wholly used for
business purposes. JP Mehra subsequently sold the car in February 2020 for £18,000
excluding any VAT. What is the output tax payable on this sale?
A. £3,600
B. £2,000
C. £4,000
D. £0

END OF SECTION ONE

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FWA REVISION

SECTION TWO: CONSTRUCTED RESPONSE QUESTIONS (80 possible marks)

11. Perry works for Mahr Ltd. He also owns and runs a small trading business as a sole trader.
Following information relates to the tax year 2019/20:

£
Employment income (before deduction of PAYE tax) 75,000
Trading income (taxable) 33,500
Dividends 6,250
Building society interest 2,200
Qualifying interest paid 1,000
Contribution to personal pension plan (net) 6,500
Mahr Ltd. has deducted £28,000 PAYE tax from payments made to Perry. Perry has donated
£3,600 in gift aid to an approved local charity during the tax year 2019/20.
Required:
Assess the income tax liability of Perry for the tax year 2019/20.
Answer : Non-savings Savings Dividend Total
Income income income
£ £ £ £
Employment income 75,000
Trading income 33,500
Dividends 6,250
Building society interest _______ 2,200 _____
Total income 108,500 2,200 6,250 116,950
Less: qualifying interest (1,000)
Net income 107,500 2,200 6,250 115,950
Less: revised PA (10,838)
Taxable income 96,662 2,200 6,250 105,112
Computation of tax payable:
Non-savings income £

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FWA REVISION

£50,125 x 20% 10,025

(96,662 – 50,125) x 40% 18,615
Savings income
£500 x 0% 0
£1,700 x 40% 680
Dividend income
£2,000 x 0% 0
(£6,250 – 2,000) x 32.5% 1,381

Total tax liability 30,701

Less PAYE tax (28,000)
Tax payable 2,701

Workings:
1. Personal allowance:

£
Gross amount of gift aid donations (3,600 x 100/80) 4,500
Gross amount of pension plan contributions (6,500 x 100/80) 8,125
Adjusted net income (115,950 -12,625) 103,325
Less: income limit (100,000) (100,000)
Excess 3,325
Personal allowance 12,500
Less: half excess (3,325 x ½) (1,662)
Revised personal allowance 10,838
2. Extended basic and higher rate limits
£37,500 + £12,625 = £50,125
£150,000 + £12,625 = £162,625

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12. Agha is a sole trader who has been in business for many years preparing accounts to 5
April each year. His recent results have been as follows:
Year ended 5 April 2019 profit £19,500
Year ended 5 April 2020 loss 31,900
Agha received dividend income of £6,300 and £4,900 in 2018/19 and 2019/20 respectively.
Agha has no other income in 2019/20.
Required:
Assess taxable income for 2018/19 & 2019/20, and determine the amount of trading loss
to carry forward to the tax year 2020/21, if Agha wishes to claim loss relief against general
income of the current and preceding year (quickest claim).

Answer:
2018/19 2019/20

Trading profit 19,500 0

Dividend income 6,300 4,900

Total income 25,800 4,900

Less loss relief (25,800) (4,900)

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Net income 0 0

Less: PA 0 0

Taxable Income 0 0

If Agha claims the trade loss relief against general income, loss to carry forward
to 2019/20 is £1,200 (31,900 - 30,700). Although the loss relief is produced
quickly, Agha wasted personal allowance and nil rate band for divided income in
2018/19.

13. Peter and Noreen are running a partnership business since 2014 and prepare accounts to
31 March each year. For the year ended 31 March 2020, taxable trading profits are
£90,000. Peter is allocated an annual salary of £10,000 and the remaining profits are then
shared between Peter and Noreen in the ratio of 1:2. However, on 31 May 2019 they
agreed to new terms that allow annual salaries of £10,000 to each partner and equal share
of remaining profit or loss.
Required:
Assess taxable profits of each partner assuming none of the partners has any other during
the tax year 2019/20.

Answer:
Total Peter Noreen
Total profit before allocation 90,000
Profit (April – May 2019)
90000*2/12 15,000
Salary to Peter 10000*2/12 (1,667) 1,667 -

Allocation of remaining profits (13,333) 4,444 8,889

Profit (June 19-March
2020)90000-15000 75,000
Salaries (16,667) 8,333 8,333

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Balance after salaries 58,333

Allocation of remaining profits (58,333) 29,167 29,167
Profit allocated to each partner 90,000 43,611 46,389

14. In February 2011, Patricia made a lifetime chargeable transfer of £229,000. On 10 January
2020, she makes a gift of £430,000 to a trust. The trustees agree to pay the inheritance tax
due.
Required:
Assess inheritance tax liability of the trustees (donee) on the gift made in January 2020.

Answer:
No lifetime transfer in 7 years before 10 January 2020. So nil rate band available is
£325,000.
£
Value of lifetime transfer 229,000
Less: AEs 2019/20, 2018/19 b/f (6,000)
Net chargeable transfer 223,000
Less: nil rate band (325,000)
Chargeable lifetime transfer 0
IHT payable 0

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FWA REVISION

15. Ravi Ryan Ltd manufactures chemicals for use in textile industries. Ravi Ryan Ltd is a UK
resident company and prepares accounts to 31 March every year. The company’s
statement of profit or loss for the year ended 31 March 2020 is as follows:

Notes £ £

Gross profit 1,222,000

Other income

Dividends income 1 30,000

Profit on sale of business premises 2 54,800

Property rental income 3 15,000

Bank interest 4 18,320

118,120

Expenses

Impaired debt (all trade) 8,500

Depreciation 191,600

Professional fees 5 42,000

Repairs and renewals 6 128,000

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FWA REVISION

Other expenses 7 72,000

(442,100)

Interest payable 8 (41,900)

Profit before taxation 856,120

Notes:

1) Dividends income of £30,000 was received from a UK company.

2) Profit on sale of business premises

Business premises were sold on 15 October 2019 for £590,000. The chargeable gain on
sale has been computed to £49,800.
3) Property rental income was received during the year in respect of a commercial
property held as an investment and is let out to an unconnected company. Rental
amount received covers the rental period from 1 April 2019 to 31 March 2020.
4) Bank interest received
The bank interest is the amount accrued to 31 March 2020 on deposits not held for
trading purposes.
5) Professional fees are as follows:
Legal fees in connection with the issue of loan notes (N.8) £9,700
Legal fees in connection with fine for breach of health and safety rules 2,100
Accountancy and audit fee 15,400
Legal fees in connection with the issue of share capital 14,800
42,000
6) Repairs and Renewals
Repairs and renewals includes £90,700 for constructing an extension to the company’s
manufacturing premises and £37,300 for repainting interior of the company’s
headquarter.
7) Other expenses
Other expenses include:

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FWA REVISION

Charitable donation to a qualifying local charity £8,000

Entertaining customers 3,200
8) Interest payable
A note was issued on 1 August 2019, proceeds of which was used for trading purposes.
Interest amount given in the profit statement was paid on 31 March 2020 and is the
amount accrued to that date.
9) Capital allowances on plant and machinery
The tax written down value of main pool at 1 April 2019 was £1,118,750.
In the year to 31 March 2019, following assets were purchased:

1 June 2019 Machinery £130,000

12 November 2019 Van 17,500
Company disposed of plant on 15 December 2019 for £12,000 (original cost £16,000).
Required:
a. Assess Ravi Ryan’s tax adjusted trading profits for the year ended 31 March 2020. Start
with the profit before taxation of £856,120 and list all of the items in the statement of
profit and loss indicating by the use of a zero (0) any items that do not require
adjustment. Assume that the company claims maximum available capital allowances.

b. Assess Ravi Ryan Ltd’s taxable total profits for the year ended 31 March 2020.

c. Assess the corporation tax liability of Ravi Ryan for the year ended 31 March 2020.

15. Answer:
a.
£ £
Profit before taxation 856,120
Add:

Impaired debt (all trade) 0

Depreciation 191,600

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FWA REVISION

Accountancy and audit 0

Legal fee-share capital 14,800
Legal fees-loan notes 0

Legal fees-health & safety 2,100

Repairs and renewals: extension 90,700
Repairs and renewals: repainting 0
Entertaining customers 3,200
Other expenses: qualifying charitable donation 8,000
Interest payable 0 310,400
Deduct:
Dividends income 30,000
Profit on sale of building premises 54,800

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 Property rental income 15,000
Bank interest 18,320
Capital allowances* 346,715
(464,835)
Profit adjusted for tax purposes

701,685 Computation of capital allowances

AIA Main pool Allowances
TWDV b/f. 1,118,750
Additions qualifying for AIA
01/06/18 130,000
12/11/18 17,500
147,500
AIA (147,500) 147,500
Disposals (12,000)
1,106,750

WDA@18% (199,215) 199,215

TWDV c/f 907,535
Maximum capital allowances 346,715
Marking scheme:

b.
Trading profit £701,685
Chargeable gain 49,800

Property rental income 15,000

Bank interest 18,320
Total profits 784,805
Less qualifying charitable donation (8,000)
Taxable total profits 776,805
 c.

Corporation tax liability £776,805 x 19% = £147,593

16. Hariby Ltd has provided the following information for the quarter to 31 March 2020:
1) Sales consisted of £45,000 standard rated sales and £15,000 zero rated sales.
2) Purchases of trade goods were all standard rated and totaled £31,000.
3) Standard rated expenses were £7,600, including £350 for entertaining UK customers.
4) Goods costing £250 were taken out of inventory for private use. The replacement cost
of goods was £300.
5) A photocopier (for use in office) costing £6,400 was purchased.
All figures exclude VAT.
Required:
Assess the VAT liability of Hairby Ltd for the quarter ended 31 March 2020.

Answer: £
Output VAT:
Sales (£45,000 x 20%) 9,000
Goods for private use (£300 x 20%) 60

Total output VAT 9,060

Input VAT:
Purchases
(£31,000 x 20%) (6,200)
Expenses
(£7,600 - £350) = £7,250 x 20% (1,450)
 Photocopier
(£6,400 x 20%) (1,280)
VAT payable £130

SAMPLE FWA EXAM