Taxation (ACCA F6 )

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BEN JAMES
Assume you are employed as a tax assistant in a firm of Accountants. The son of one of your clients,
Ben James, has approached the firm for tax advice regarding his income tax position. You have been
assigned the task to providing Ben with tax advice in the form of a written report.
Ben is a qualified Chartered Certified Accountant and is assessing his option with regard to two job
roles he has been offered. The roles are quite different and offer different benefits and Ben would
like some help deciding which of the two options would offer him the higher disposable income.
Role 1 – Recruitment Consultant
Ben will start on 6 April 2014 and receive a monthly salary of £3,600, which will increase by 5% after
a six month satisfactory probation period. Ben will automatically join the company bonus scheme
when he joins the company. The bonus scheme pays out every month based on 2.5% of the value of
placements in the month before the payment. Historically new recruits can expect the following
placement values in their first year of their employment:
Period Monthly Placements Period Monthly Placements
Months 1-3 Nil Months 7-9 £3,600
Months 4-6 Nil Months 10-12 £4,040
Ben will be automatically enrolled in the company pension scheme which means that he will need to
contribute 7% of his salary into the scheme, the company will pay 5% of his salary into the scheme
on Ben’s behalf.
Ben will have use of a fully expensed company car, including fuel, but he will need to contribute £25
per month towards private fuel. New recruits are provided with a new VW Passat 2.0Diesel with a list
price of £24,000 and CO2 emission of 128g/km. Because of the volume of purchases made by the
company, they buy these cars at a discounted price of £22,000. Although Ben would be happy with a
VW Golf with the same engine and a list price of £21,000. The company also pays for parking for all
employees at the office at an annual cost of £240 per person.
A mobile phone (T-phone3 at a cost of £450) and laptop (PH Evoke at a cost of £1,200) will be
provided. Ben will also have both business and private use of the company projector for
presentations. Ben is Treasurer of a small charity and having use of the projector would be very
useful for regular presentations he makes on behalf of the charity. The market value of the projector
on 6 April 2014 was £3,250. A suitable small projector for the occasional charity work could be
obtained for £200.
Private medical health cover is provided for all employees and their families at a cost of £80 per
month. If Ben were to take out a similar policy it would cost him £120 per month.
As this role is not accounting based, this employer will not pay Ben’s annual subscription to the
Association of Chartered Certified Accountants. Ben will therefore need to pay the subscription of
£300 himself.
Role 2 – Management Accountant
The package from this company includes a higher salary but fewer benefits. The starting salary is
£47,000 per annum again starting 6 April 2014. The company does not provide a company car but
instead pays higher rates of mileage for employees (60p per business mile) when they use their car
on business travel.
It is anticipated that Ben will travel 20,000 miles in 2014/15 and of these 15% will be business. Ben is
grateful that the company will pay his £300 annual subscription to the Association of Chartered
Certified Accountants.
Ben will again be automatically enrolled in the company pension scheme, but this is a minimum
scheme and Ben only needs to contribute 2% of his salary and the company will also contribute 2%
of his salary into the scheme in 2014/15. Because contributions to this scheme are low the returns
will also be low, Ben will therefore take out a personal pension instead and withdraw from the
company scheme. An equivalent pension to the recruitment role will mean he will need to contribute
10% of his salary into the scheme.
Ben uses approximately £2,000 of private fuel per annum which would have to be paid out of
disposable income if he took up role 2.
Other information
Ben is married to Janine who has a micro business delivering baby music and dancing classes which
generate a sales income of £12,000 per annum. As it is a hobby she has never claimed any expenses
for this business and pays her £400 of tax on time every year. Janine pays £2,500 per annum for the
license to run the classes and travels around 150 miles a week getting to classes. She also looks after
their only child for which the couple receive child benefit of £82 per month.
Ben and Janine have a joint account which generates interest received of £220 in 2014/15. Janine
also has a National Savings Investment Account which generates interest received of £125 in
2014/15. They also were lucky enough to have a lottery win of £17,500 in 2014/15 and are looking
for ways to invest this money tax efficiently.
Ben inherited shares in a FTSE listed company from which he receives dividend income of £4,750 per
annum. Janine donates £20 per month to a National charity.
Ben and Janine also have a property which they rented out during all of 2014/15 at a rent of £550
per month. The mortgage cost of this property was £475 per month (Capital £200 and Interest £275).
They redecorated the house in the year at a cost of £400 and the kitchen needs replacing which if
they carried out the work would cost around £2,000. They are considering using some of the lottery
money to pay off some of the mortgage and reduce the monthly payments.
Whichever job Ben accepts he wants to have private health cover for his family and a new car,
preferably a VW Golf 2.0Diesel. The vehicle can be acquired under a contract hire agreement for
£260 per month.
Requirements
Write a word processed report of between 1,500 and 2,000 words, excluding appendices and stating
the word count, which addresses the following issues:
1. An estimate of the total Income Tax and National Insurance liability payable by Ben under
each remuneration package, including an explanation of how any income or profits are
taxed. You should also identify and compare Ben’s disposable income in each case on a
comparable basis.
2. Assuming Ben takes role 1, advise him and Janine of how they could minimise their Income
Tax and National Insurance liabilities and maximise tax efficient investments. Wherever
possible include calculations of tax savings to justify your advice.
3. Ben has heard something about having to pay back child benefit when income levels get to a
certain point. Explain to Ben how the system works and how it could affect him and Janine if
he takes up either of these roles. Assume none of the tax efficiencies in requirement 2. have
been taken up in answering this part of the requirement.
Additional Guidance
The assignment should be based on the Finance Act 2014. You can ignore VAT, Inheritance Tax and
Capital Gains Tax.
Computations are required and should be presented as appendices using Microsoft Excel. Detailed
computations should be included, along with printouts of the formulae used with row and column
headings and work to the nearest £. State any assumptions made.
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