INTERMEDIATE TAXATION

HANDBOOK

Unit Leader - Dr Syam Rasaratnam

E-mail: Syamarlah.Rasaratnam@beds.ac.uk

Guide for students on the Universitys regulations

Here is a summary of some of the key elements of the Universitys regulations as
they affect your experience of your course. For definitive information, please
consult the full text of the regulations which can be found at
www.beds.ac.uk/aboutus/qa/documents
Registration
Each year, you must register for your course and the diet of individual units you
will be taking.
Passing units and progressing
Courses are divided into stages. To be eligible to progress from one stage to the
next you must have gained the required number of academic credits at the
appropriate level. For undergraduate courses, a stage corresponds to one year
of full-time study. Masters courses are normally divided into two stages: the
taught component; and the dissertation.
To pass a unit, you must attempt the assessment and gain a grade of D-.
Some professional or accrediting bodies will not accept students for membership
if they have assessments graded E, so please check your course handbooks
carefully for the specific regulations applying to your course.
To progress between stages on undergraduate courses, you must pass 90
academic credits with a grade of D- and have attained a grade of E in your
remaining 30 credits.
To progress between stages on postgraduate courses, you must pass all
academic credits with a grade of D-). You must attempt all
assessments/examinations.
In the final stage of your course, you must normally accumulate all the academic
credits needed for the award for which you are registered. For certain
undergraduate courses, the board of examiners has the power to compensate
you where you have attempted but failed up to 30 credits. Compensation is not

an entitlement, however, but is made on an individual basis by a board of

examiners taking into account an overall view of your attainments. See
regulation 3.2.4 for more information.
Certain professional or accrediting bodies may not accept students for
membership if they have been compensated.
Retrieval of failure in a unit
If you fail elements of assessment within a unit, you may attempt referral
assignment(s) and/or resit the examination (if part of the assessment regime).
Resits and referrals may be attempted on one occasion only, and attract a
maximum pass grade of D-.
If you fail to pass the unit after having attempted referrals and/or resits, you may
retake the unit during the next academic year.
Honours classifications
Honours classifications are calculated on the basis of your best 90 credits at both
stages 2 and 3. The 90 credits at stage 2 count 1/3 towards your degree
classification, whereas the 90 credits at stage 3 count 2/3. Your Honours project
or equivalent piece of independent work must be included in the 90 credits at
stage 3, irrespective of the grade awarded.
Remember!
If you are not fully registered on your course, you risk being sanctioned by the
University, which means that you will not, for example, have access to BREO, to
learning resources facilities, or to the results of your assessments. Fees must be
paid on time.
Complaints and Appeals
We want your student experience while you are at the University to be
outstanding and memorable. Sometimes, however, things can go awry, and we
have a variety of means to enable you to express your views and to seek
redress. Thus you can:

make a suggestion about how to improve one of the Universitys services by

completing the online form at www.beds.ac.uk/aboutus/qa/students

raise the matter directly with your personal tutor, field manager, head of
department or faculty office

ask your course representative to raise the matter at the field committee
meeting

ask the Students Union for advice

complete the online complaints form at

www.beds.ac.uk/aboutus/qa/students (see complaints policy in the Quality
Handbook at www.beds.ac.uk/aboutus/qa/documents)

send an appeal to the Faculty Manager, if you believe that an assessment

decision has been taken unfairly (see appeals policy in the Quality
Handbook at www.beds.ac.uk/aboutus/qa/documents)

Taxation
Introduction
This unit builds on previous financial and accounting studies and takes a critical
view of the complex principles of taxation and the workings of the UK tax system.
The unit analyses how taxation depends on the capacity in which a person acts,
whether as a sole trader, a partner or a company. Students will evaluate the
importance of the tax rules when making decisions. It goes on to give students
an understanding of the complexity of the tax rules and the important distinction
between tax avoidance and tax evasion. The income tax rules will be critically
examined as will the rules about national insurance, appraised in detail in this
unit, including the reliefs and exemptions.
Students will learn how to assess the tax liability of an individual from case study
data. The tax legislation and techniques are applied to a variety of situations
where the emphasis is on tax planning and tax policy.
The approach to study used will represent a focus towards the skills and
competences needed by the Accounting professional as this unit is recognised by
the ACCA for exemption purposes for its paper F6, and is designed to meet those
needs.
Content
General
The structure and administration of taxation.
The history and development of the UK taxation system.
Recent developments in case law and UK fiscal policy.
The development of taxation policy in the UK.
Individuals and Partnerships
Income tax. The distinction between capital and revenue.
Taxation of interest. Residence and domicile.
How fiscal policies affect the individual taxpayer.
Income tax, including self assessment. The exemptions and reliefs available from
income tax.
Loss relief. National insurance and the PAYE system.
Revenue law cases
Delivery
There are 2 hours of lectures per week and 1 hour of seminars/tutorials.

The material to be covered in seminars/tutorials is given in this booklet. Students

are expected to cover the material indicated independently and to arrive at the
seminar ready to discuss the issues and practise the tax computations.
Assessment
.
The only assessment for this is a 3 hour examination. This is an unseen
examination. No books or notes may be taken into the examination.
Students may, however, use a non-programmable calculator.
The exam paper will comprise of two sections:
Section A contains a number of short questions drawing upon your
understanding of the overall course and contributing a maximum of 25 marks in
total.
Section B will offer a choice of any three questions from a selection of four, with
each question to be equally weighted as 25 marks. Each question in this section
will require in-depth knowledge of a specific area of taxation and an ability to
demonstrate an understanding of that area, coupled with an ability to compute
accurate answers.
Reading
Essential
Melville, Alan Taxation-Finance Act 2015, 21st ed. Pearson Education, London,
England
Can be ordered from
http://www.pearsoned.co.uk/student/html/20110801V/index.asp?code=ZP031M
You will get a discount and free shipping

Background
Texts
Whillans Tax tables 2015/16, Butterworths

Journals
British Tax Review
Certified Accountant
Journal of International Accounting, Auditing and Taxation
Taxation
Internet
businesslink.gov.uk
hmrc.gov.uk
lexisnexis.co.uk/tax
taxation.co.uk
tax.org.uk
taxationweb.co.uk

Lecture Schedule
All references to reading are to Melville, Alan (2015) Taxation-Finance Acts 2015,
21st ed. Pearson Education, London, England unless specifically indicated
otherwise.
Lecture

Reading

Introduction &
Background of the UK taxation system
System of administration

CH 1, 2

Week 2

Personal Allowances Reliefs

CH 3 & CH 4

Week 3

Income from property

Income from Savings and Investment

CH 5 & 6

Week 4

Income from Employment 1

CH. 7

Week 5

Income from Employment 2

CH 8

Week 6

Income from self-employment

CH 9

Week 7

Basis periods

CH 10

Week 8

Capital allowances

CH11

Week 9

Trading losses

CH 12

Week 10

Partnerships

CH 13

Week 11

Pension contributions, Payment of

income tax, interest and penalties,
National Insurance

CH 14, 15 & 16

Week 1

Week 12

Revision

Week 13 to 14 Exam period

Tutorials
Week 1

No tutorials

Week 2

2.1, 2.2, 2.3, 2.4, 2.5 and 2.6

Week 3

3.1 to 3.9, 4.1 to 4.9

Week 4

5.1 to 5.7 & 6.1 to 6.6

Week 5

7.1 - 7.5

Week 6

8.1 - 8.5

Week 7

9.1 to 9.8

Week 8

10.1-10.9

Week 9

11.1-11.5

Week 10

12.1 to 12.6

Week 11

13.1 to 13.5, 14.2, 14.3, 14.7, 15.1, 15.4, 16.4, 16.5

Week 12

Revision

Week 13 to 14

Exam period

The references to the questions come from the book on Taxation by Alan
Melville.
It is recommended that students buy Taxation-Finance Act 2015 21 st edition by
Alan Melville.

SPECIMEN EXAM Summer 2015 based on FA 2014. Please note that your
exam will be based on FA 2015

University of Bedfordshire
University of Bedfordshire Business School
Department of Accounting and Finance
TAXATION
UNIT CODE AAF013-2
MAIN EXAMINATION PAPER
2014/15(based on Finance Act 2014)
Date of Exam:

May 2015

Start Time:

TBA

Time Allowed:

3 hours (inclusive of reading time)

Unit Co-ordinator:

M Ahson

INSTRUCTIONS TO CANDIDATES

Student must answer all questions in Section A and three from section
B.

All questions in Section B carry equal marks.

This is a closed book examination.

No material, including dictionaries, is allowed in the examination

room, but a non-programmable calculator may be used.

Calculations should be made to the nearest month and pound

Please start each question on a new page

DO NOT OPEN THIS PAPER UNTIL INSTRUCTED TO DO SO BY THE

SENIOR INVIGILATOR.

Section A: Answer all the questions in this section

Question 1
David (age 35) is provided with a house to live in by his employer, Hewitt Ltd.
The company acquired the property in 1995 at a cost of 80,000 and it has an
annual value of 2,500. The property was worth 400,000 on 6 April 2014 and
300,000 when first made available to David in May 2010.
The employer provides ancillary services (cleaning, heating and lighting) which
cost the employer 120 per month. David contributes 40 per month towards
these services.
The company has also provided David with a low interest loan of 8,000 on 5
July 2014. David repaid 2,000 of the loan on 5 January 2015 and paid interest
of 100 on the loan during 2014/15.
Required:
Calculate the taxable benefit arising from the provision of the property and
loan for 2014/15.
(Total 7
marks)
Question 2
Sage (age 47) had the following income during the tax year ended 5 April 2015:
Employment income 92,000 (with PAYE deducted of 30,105), bank interest
(net) 4,400, and dividends from UK companies 9,900.
Required:
Calculate the income tax payable by Sage for the year ended 5 April 2015.
(Total 8
marks)
Question 3
Juliet (aged 35) has the following income in the year ended 5 April 2015:
Partnership profit of 110,800, net interest from her bank deposit account of 80,
and dividends from UK companies of 90. She paid 2,000 for loan interest on a
loan to acquire an interest in the partnership. She also paid 1,600 (net) to her
personal pension.

Required:
Calculate the income tax payable by Juliet for the year ended 5 April 2015.
(Total 10
marks)

Section B Answer any three out of four questions

Question 4
Ahmad is a self-employed musician. His profit and loss account for the year
ended 5 April 2015 was as follows:

Fee income
97,240
Depreciation
1,980
Motor expenses
(note 1)
5,600
Professional fees
(note 2)
2,110
Repairs and renewals
(note 3)
2,360
Telephone
(note 4)
830
Travelling and entertaining (note 5)
960
Other expenses
(note 6)
2,050
(15,890)
Net profit
81,350
(1)
(2)
510

All motor expenses were for business purposes.

The figure for professional fees consists of 840 for accountancy fees,

for personal tax advice in respect of the tax year 2014-15, and 760
for legal
fees in connection with the defense of Ahmad business internet
domain
name.
(3)
and

The figure for repairs and renewals consists of 1,900 for a new guitar,
460 for repairing this guitar when it was damaged.

(4)
All of

Ahmad uses his mobile telephone to make business telephone calls.

the mobile phone expenses are included in the expense figure of

830,
although 160 of this cost relates to private telephone calls.
(5)

The figure for travelling and entertaining includes 370 for entertaining
clients, and 120 for parking fines.

(6) The figure for other expenses includes 100 for a donation to a
political party,
230 for a trade subscription to the Institute of Musicians, and 625
for
Ahmad golf club membership fee.
In addition to his self-employed income, Ahmad received dividends of 7,560
during the year.
The brought forward balance on the main pool on 6th April 2014 was 32,800.
Required:
a) Calculate Ahmads adjusted taxable profits (after any capital
allowances due) for the year ended 5 April 2015.
(Please start with the net profit of 81,350 and include all items from
notes 1 to 7 showing zero (0) if they do not need adjusting).
(18 marks)
b) Calculate Ahmads taxable income, income tax liability, Class 2 and
Class 4 national insurance liabilities for 2014/15.
(7 marks)
(Total marks 25)

Question No 5
Janet owns and runs a small manufacturing business. She makes up her
accounts to 5th April of each year and is currently calculating her Capital
Allowances for the year ended 5th April 2015.

Plant and machinery

Main Pool
30,000
Short life asset
7,000
Private use car 1 (CO2 emissions 165g/km)
15,000
The short life asset consists of computer equipment purchased in August 2013.
Additions and disposals during the year are as follows:
Additions:
Equipment December 2014
Machinery February 2015
Private use car 2 (CO2 emissions 155g/km) December 2014

30,000
65,000
20,000

Disposals:
Machinery (cost 16,000) March 2015 sale proceeds
4,000
Private use car 1
March 2015 sale proceeds
7,000
Computer equipment (Short life asset) purchased in August 2013 100
Both the private use cars have an agreed private usage of 30%.
Required:
1. Calculate Janets capital allowances for the year ended 5 th April 2015.
20 marks
2. Explain what should be classified as Plant and Machinery for the
purposes of Capital Allowances. Give two examples of assets which
can be included in this category.
5 marks
(Total 25 marks)

Question No 6
Ricardo aged 28, is employed as an engineer by PJ Ltd.
(1) During the tax year 2014/15 he was paid a gross annual salary of
93,000.
(2) On 1 June 2014 PJ Ltd provided Ricardo with an interest free loan of
13,500 so that he could purchase a new motor car.
(3) During the period from1 June 2014 to 5 April 2015 Ricardo used his
private motor car for business and private purposes. He received no
reimbursement from PJ Ltd for any of the expenditure incurred.
Details of Ricardos travel during the period are as follows:
Normal daily travel between home and permanent workplace
3,400
Travel between permanent workplace and PJ Ltd customers
11,400
Travel between home and a temporary workplace for one month 1,600
(4) During the tax year 2014/15 Ricardo paid interest of 220 (gross) on a
personal loan taken out on 1 January 2014 to purchase a laptop
computer for use in his employment with PJ Ltd. He also made a
charitable contribution of 1600 under the Gift Aid scheme, which he
does every year.
Other information
i. Ricardo has savings of 12,500 in a building society deposit
account.
ii.

During the tax year 2014/15 Ricardo received building society

interest totalling 600 from this account. This was the actual cash
amount received.

iii.

During the tax year 2014/15 Ricardo received dividend income of

18,000 from UK companies.

iv.

During the tax year 2014/15 Ricardo made net contributions to a

registered pension scheme of 4,000.

Required:
(a) Calculate Ricardo's income tax Liability for the tax year 2014/15.
(b) Write a memo to Ricardo to explain how his Class 1 Primary and
Class 1 Secondary National contributions are calculated-no actual
calculation is required.
(Total marks 25)

Question No 7
Mary Archer is a 78 years old widow. She has owned a building for 15 years
which was let out at an annual rental of 20,000 until 31 December 2014. With
effect from 1 January 2015 the rent was increased to 25,000 per annum. Rent is
paid quarterly in advance and all payments were received on time apart from a
sum of 6,250, which was due on 1 April 2015 but not paid until 1 June 2015.
The following expenses were incurred in connection with the property during
2014/15:
Repairs re-tiling roof

6,500

Repairs water damage due to burst pipe

3,800

Estate agent's letting fees

2,500

Interest on loan of 100,000 to purchase property

8,500

Accountant's fees

750

Mary lives in a large house and also lets rooms to students from the local
college. For the tax year 2014/15 she received total rent of 5,250. She also
incurred total expenses of 1,250 attributable to these lettings.
Details of Marys other income for 2014/15 are as follows:
State pension

5,312 gross

UK company dividends

27,000 net

Required
(a) Calculate Mary's income tax Liability for the tax year 2014/15
(18 Marks)
(b) What is the maximum amount eligible for tax relief which an
individual can contribute towards pension (assuming a registered
pension scheme) during 2014-15?
(4
Marks)
(c) How is tax relief given for pension contributions?
Marks)

(3
Total 25 marks

SUMMARY OF TAX DATA

INCOME TAX AND NATIONAL INSURANCE (2014/15)
Income Tax Allowances
Personal Allowance
Abatement of allowance where income exceeds

10,000
100,000

Age Allowance (65-74)

10,500

Age Allowance (75+)

10,660

Abatement of allowance where income exceeds 27,000

Income limit for standard personal allowance 100,000

Income Tax rates and taxable bands

Starting rate for savings

10%

1 to 2,880

Basic rate

20%

1 to 31,865

Higher rate

40% 31,866 to 150,000

Additional rate

45%

over 150,000

Note: dividends are taxed at 10%, 32.5% and 37.5%.

Official rate of interest

3.25%

Car benefit percentage

Price CO2 emission percentage
CO2 emissions
percentage
0 emission cars (electric cars)
0%
petrol cars:
75g/km or less
5%
76g/km to 94g/Km
11%
95g/Km
12%
each additional 5g/Km
1% increase
diesel cars
add 3%
Maximum charge at:
35%
The actual emissions figure, if not a multiple of five, should be rounded down
to the nearest multiple of five before applying the above.
Car fuel benefit
The base figure for calculating car fuel benefit is 21,700.

National Insurance rates

Class 1:
Primary:
Monthly/annual earnings:

Not Contracted
Contracted Out
Out
On the first 663/7,956
Nil
Nil
On the next 2,674/32,084
12%
10.6%
On the next 152/1,825
12%
12%
On remaining earnings above 3,489/41,865
2%
2%
In addition, those who are contracted out are entitled to a rebate of
2.42/month
Secondary:
Monthly/annual earnings:

Not Contracted
Out
On the first 663/7,956
Nil
On the next 2,674/32,088
13.8%
On remaining earnings above 3,337/40,040
13.8%
Class 1A
13.8%

Class 2:
Class 3:
Class 4:

Contracted Out
Nil
10.4%
13.8%
13.8%

2.75 per week small earnings exemption limit 5,885

13.90 per week
9% of Trading profits between 7,956 and 41,865, plus 2% on
all profits above 41,865