ACCA TX ^UK Syllabus B. Income Tax And Nic Liabilities - Class 1 and 1A NIC - Past Papers ^{2 / 4}

You should assume that today’s date is 1 March 2014.
George, a software developer, was born on 11 June 1986. He has accepted a one-year contract to update software for Xpee plc.

(1) The contract will run from 6 April 2014 to 5 April 2015, with a fee of £40,000 payable for the entire year of the contract. A condition of the contract is that George will have to do the work personally and not be permitted to sub-contract the work to anyone else.

(2) George will work from home, but will have to attend weekly meetings at Xpee plc’s offices to receive instructions regarding the work to be performed during the following week.

(3) George will not incur any significant expenses in respect of the contract apart from the purchase of a new laptop computer for £3,600 on 6 April 2014. This laptop will be used 100% for business purposes.

(4) During the term of the contract, George will not be permitted to work for any other clients. He will therefore not have any other income during the tax year 2014–15.

(5) George’s tax liability for the tax year 2013–14 was collected through PAYE, so he will not be required to make any payments on account in respect of the tax year 2014–15.

George has several friends who are also software developers. He understands that his employment status is not clear cut but that his income tax liability for the tax year 2014–15 will be the same regardless of whether he is treated as employed or as self-employed. However, George appreciates that there are advantages to being classed as self-employed.

Required:
(c) If George is treated as being an employee of Xpee plc instead of self-employed:

(ii) Calculate the additional amount of national insurance contributions which he personally will suffer for the tax year 2014–15. (2 marks)

Richard had three employees working for him in his restaurant during the tax year 2012–13 as follows:

(1) A chef who was employed throughout the tax year 2012–13 on a gross annual salary of £46,000. The chef was provided with a petrol powered motor car (see the plant and machinery information in part (a) above) throughout the tax year. The list price of the motor car is £16,800, this is the same as its cost. Richard did not provide any fuel for private journeys.

(2) A part-time waitress who was employed for 20 hours per week throughout the tax year 2012–13 on a gross annual salary of £7,400.

(3) An assistant chef who was employed for eight months from 6 August 2012 to 5 April 2013 on a gross monthly salary of £2,200.

Required:
Calculate the employers’ class 1 and class 1A national insurance contributions which Richard Feast would have incurred in respect of his employees’ earnings and benefit for the tax year 2012–13.

Note: You are not expected to calculate the national insurance contributions suffered by the employees or by Richard in respect of his self-employment. (6 marks)

John and Rhonda Beach are a married couple. The following information is available for the tax year 2012–13:

John Beach
(1) John is aged 59 and is employed by Surf plc as a sales director. During the tax year 2012–13, he was paid gross director’s remuneration of £184,000.

(2) During the tax year 2012–13, John contributed £28,000 into Surf plc’s HM Revenue and Customs’ registered occupational pension scheme. The company contributed a further £12,000 on his behalf. Both John and Surf plc have made exactly the same contributions for the previous five tax years.

(3) During the period 6 April to 31 October 2012, John used his private motor car for both private and business journeys. He was reimbursed by Surf plc at the rate of 60p per mile for the following mileage:

(4) During the period from 1 November 2012 to 5 April 2013, Surf plc provided John with a petrol powered motor car which has a list price of £28,200 and an official CO2 emission rate of 206 grams per kilometre. Surf plc also provided John with fuel for both his business and private journeys.

(5) During 2009 Surf plc provided John with a loan which was used to purchase a yacht. The amount of loan outstanding at 6 April 2012 was £84,000. John repaid £12,000 of the loan on 31 July 2012, and then repaid a further £12,000 on 31 December 2012. He paid loan interest of £1,270 to Surf plc during the tax year 2012–13. The taxable benefit in respect of this loan is calculated using the average method.

(6) During the tax year 2012–13, John made personal pension contributions up to the maximum amount of available annual allowances, including any unused amounts brought forward from previous years. These contributions were in addition to the contributions he made to Surf plc’s occupational pension scheme (see note (2)). John has not made any personal pension contributions in previous tax years.

(7) John owns a holiday cottage which is let out as a furnished holiday letting, although the letting does not qualify as a trade under the furnished holiday letting rules. The property business profit for the year ended 5 April 2013 was £6,730.

Rhonda Beach
(1) Rhonda is aged 66 and during the tax year 2012–13 she received pensions of £8,040.

(2) In addition to her pension income, Rhonda received gross building society interest of £21,400 during the tax year 2012–13.

Required:
(b) Calculate the class 1 and class 1A national insurance contributions that will have been suffered by John Beach and Surf plc in respect of John’s earnings and benefits for the tax year 2012–13. (4 marks)

On 6 April 2011 Flick Pick, aged 23, commenced employment with 3D Ltd as a film critic. On 1 January 2012 she commenced in partnership with Art Reel running a small cinema, preparing accounts to 30 April. The following information is available for the tax year 2011–12:

Employment
(1) During the tax year 2011–12 Flick was paid a gross annual salary of £23,700.

(2) Throughout the tax year 2011–12 3D Ltd provided Flick with living accommodation. The company had purchased the property in 2002 for £89,000, and it was valued at £144,000 on 6 April 2011. The annual value of the property is £4,600. The property was furnished by 3D Ltd during March 2011 at a cost of £9,400.

Partnership
(1) The partnership’s tax adjusted trading profit for the four-month period ended 30 April 2012 is £29,700. This figure is before taking account of capital allowances.

(2) The only item of plant and machinery owned by the partnership is a motor car that cost £15,000 on 1 February 2012. The motor car has a CO2 emission rate of 190 grams per kilometre. It is used by Art, and 40% of the mileage is for private journeys.

(3) Profits are shared 40% to Flick and 60% to Art. This is after paying an annual salary of £6,000 to Art.

Property income
(1) Flick owns a freehold house which is let out furnished. The property was let throughout the tax year 2011–12 at a monthly rent of £660.

(2) During the tax year 2011–12 Flick paid council tax of £1,320 in respect of the property, and also spent £2,560 on replacing damaged furniture.

(3) Flick claims the wear and tear allowance.

Value added tax (VAT)
(1) The partnership voluntarily registered for VAT on 1 January 2012, and immediately began using the flat rate scheme to calculate the amount of VAT payable. The relevant flat rate scheme percentage for the partnership’s trade is 12%.

(2) For the quarter ended 31 March 2012 the partnership had standard rated sales of £59,700, and these were all made to members of the general public. For the same period standard rated expenses amounted to £27,300. Both figures are stated inclusive of VAT.

(3) The partnership has two private boxes in its cinema that can be booked on a special basis by privileged customers. Such customers can book the boxes up to two months in advance, at which time they have to pay a 25% deposit. An invoice is then given to the customer on the day of the screening of the film, with payment of the balance of 75% required within seven days. For VAT purposes, the renting out of the cinema boxes is a supply of services.

Required:
(b) State what classes of national insurance contribution will be paid in respect of Flick Pick’s income for the tax year 2011–12, and in each case who is responsible for paying them.

Note: You are not required to calculate the actual national insurance contributions. (4 marks)