Scenario-based questions: income tax

1 During 2018/19, Mildred received interest income of £100 on a loan she had made to her
friend, Dot.
Mildred has been employed part-time by ABC Ltd since 2008. She received the following
remuneration package in 2018/19:
 salary £15,000 per year;
 free meals offered to all staff in the work canteen, which cost the company £560 for
Mildred;
 childcare vouchers of £45 per week (ie, £2,340 pa) which have been provided since
2008; and
 use of a RDE2 compliant diesel company car since 1 July 2018 with CO2 emissions of
135 g/km. ABC Ltd paid £16,000 for the car although it has a list price of £18,000.
Mildred pays for all her private fuel.
Mildred received £18,900 of dividends in January 2019 from a UK company.
Mildred has also run her own business as a sole trader for many years. Mildred has
calculated her taxable trading profits for 2018/19 to be £30,700. In arriving at her taxable
trading profits, Mildred deducted the following amounts:
 £2,000 for legal and professional fees relating to the acquisition of a new five-year
lease of business premises;

 £170 accountancy fees for preparation of annual accounts;

 Mildred's class 2 national insurance liability of £153; and

 £150 of irrecoverable VAT relating to the purchase of stock for which Mildred has lost
the VAT invoice.
Requirement
Using the standard format below, compute Mildred's taxable income for 2018/19. You
should enter a number in each relevant box. If an amount is not taxable enter a zero or a
dash into the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Interest from loan to Dot
Dividends
Net income
Personal allowance
Taxable income
W1 – Trading income
£
Trading profits
Legal and professional fees
Accountancy fees
Class 2 NIC
VAT re stock purchase
Tax-adjusted trading profits

ICAEW 2019 Scenario-based questions: income tax 91

 W2 – Employment income
£
Salary
Free meals
Childcare vouchers
Car
Total employment income
LOs 3a, 3c, 3e, 3j

2 Elan received £100 interest income from a building society ISA during 2018/19.
Elan has been employed part-time by DEF Ltd for many years. He received the following
remuneration package in 2018/19:
 salary £21,000 per year;
 a bonus of £1,250 in respect of the year ended 31 March 2018, paid on 31 May 2018;
 mobile phone, costing DEF Ltd £240 per annum; and
 use of a petrol company car with CO2 emissions of 122 g/km, and a list price of
£20,000. The company also paid for all of Elan's private fuel.
Elan received £112,000 of dividends in January 2019 from a UK company.
Elan has also run his own business as a sole trader for many years. Elan has calculated his
taxable trading profits for 2018/19 to be £44,100. In arriving at his taxable trading profits,
Elan deducted the following amounts:
 £1,200 written off as a bad debt because a customer has gone into liquidation;
 £50 parking fines incurred by an employee while visiting a customer;
 £600 in respect of entertaining clients at a summer party; and
 £50 paid to a local charity for which Elan received an advertisement for his business in
the charity's newsletter.
Requirement
Using the standard format below, compute Elan's taxable income for 2018/19. You should
enter a number in each relevant box. If an amount is not taxable enter a zero or a dash into
the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
ISA interest
Dividends
Net income
Personal allowance
Taxable income

92 Principles of Taxation: Question Bank ICAEW 2019

 W1 – Trading income
£
Trading profits
Bad debt written off
Parking fine
Entertaining
Donation to charity
Tax-adjusted trading profits

W2 – Employment income
£
Salary
Bonus
Mobile phone
Car
Total employment income
LOs 3a, 3c, 3e, 3j

3 Becky received £175 of bank interest income during 2018/19.

Becky has been employed part-time by GHI Ltd for several years. She received the
following remuneration package in 2018/19:
 salary £16,000 per year;
 pension advice, costing £125 in respect of Becky, and offered to all employees;
 use of a bicycle which cost GHI Ltd £280 for business and private journeys, as provided
to all employees; and
 provision of a house owned by GHI Ltd, with an annual value of £12,000. The house
cost the company £200,000 in 2013. The official rate of interest on 6 April 2018 was
2.5%.
Becky received £7,500 of dividends in December 2018 from an overseas company.
Becky has also run her own business as a sole trader for many years. Becky has calculated
her draft taxable trading profits for 2018/19 to be £19,000. In arriving at her draft taxable
trading profits, no account has been taken of the following amounts as Becky was unsure of
the correct treatment:
 £20 parking fine incurred by Becky when visiting a client;
 £80 Gift Aid donation to a national charity;
 overdraft interest of £160 on Becky's business bank account; and
 professional fees of £300 incurred in collecting debts from customers who were slow in
paying.

ICAEW 2019 Scenario-based questions: income tax 93

 Requirement
Using the standard format below, compute Becky's taxable income for 2018/19. You should
enter a number in each relevant box. If an amount is not taxable enter a zero or a dash into
the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Bank interest
Dividends
Net income
Personal allowance
Taxable income
W1 – Trading income
£
Trading profits
Fine
Donation
Overdraft interest
Professional fees
Tax-adjusted trading profits
W2 – Employment income
£
Salary
Pension advice
Bicycle
Accommodation
Total employment income
LOs 3a, 3c, 3e, 3j

4 During 2018/19, Mandy received interest of £120 from a National Savings and Investments
Direct Saver account.
Mandy has been employed part-time by JKL Ltd since 2008. She received the following
remuneration package in 2018/19:
 salary £25,000 per year;
 gift of a painting from a client worth £60;
 eye test, costing £20, offered to all employees who use VDU equipment; and
 from 1 October 2018, use of a van for 20% work, 80% private use, with CO2 emissions
of 150 g/km. The van had a list price of £9,000 and JKL Ltd paid for all Mandy's private
fuel.
Mandy received £9,000 of dividends in March 2019 from an ISA.

94 Principles of Taxation: Question Bank ICAEW 2019

 Mandy has also run her own business as a sole trader for many years. Mandy has calculated
her taxable trading profits for 2018/19 to be £34,000. In arriving at her taxable trading
profits, Mandy deducted the following amounts:
 £300 for the cost of gifts of a bottle of wine (£20 per bottle) to 15 clients;
 £375 for redecorating the office;
 a donation to a UK political party of £250; and
 legal fees of £800 for the review of employment contracts.
Requirement
Using the standard format below, compute Mandy's taxable income for 2018/19. You
should enter a number in each relevant box. If an amount is not taxable enter a zero or a
dash into the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Direct Saver interest
Dividends
Net income
Personal allowance
Taxable income
W1 – Trading income
£
Trading profits
Gifts
Redecorating
Donation
Legal fees
Tax-adjusted trading profits
W2 – Employment income
£
Salary
Gift from client
Eye test
Van
Total employment income
LOs 3a, 3c, 3e, 3j

ICAEW 2019 Scenario-based questions: income tax 95

 5 Jorge received £500 of premium bond winnings during 2018/19.
Jorge has been employed part-time by MNO Ltd since 2013. He received the following
remuneration package in 2018/19:
 salary £45,000 per year;
 private medical insurance, costing MNO Ltd £500;
 a parking space at the office of MNO Ltd, which saved Jorge £500 pa; and
 childcare vouchers of £50 per week (ie, £2,600 pa) which he has received since 2013.
Jorge received £950 of dividends in June 2018 from a UK company.
Jorge has also run his own business as a sole trader for many years. Jorge has calculated his
draft taxable trading profits for 2018/19 to be £112,000. In arriving at his draft taxable
trading profits, no account has been taken of the following costs as Jorge was unsure of the
correct treatment:
 £800 for a staff party for two employees;
 £2,000 for stock donated to a local school;
 £5,000 on salary for himself; and
 £1,500 written off on a loan to a former employee.
Requirement
Using the standard format below, compute Jorge's taxable income for 2018/19. You should
enter a number in each relevant box. If an amount is not taxable enter a zero or a dash into
the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Premium bond winnings
Dividends
Net income
Personal allowance
Taxable income
W1 – Trading income
£
Trading profits
Staff party
Stock donation
Salary
Loan write off
Tax-adjusted trading profits
W2 – Employment income
£
Salary
Private medical insurance
Parking space
Childcare vouchers
Total employment income
LOs 3a, 3c, 3e, 3j

96 Principles of Taxation: Question Bank ICAEW 2019

 6 Sandra received bank interest income of £100 during 2018/19.
Sandra has been employed part-time by PQR Ltd, which operates a cookery school, since
2010. She received the following remuneration package in 2018/19:
 salary £20,000 per year;
 attendance at a health and safety annual course for people working with catering
equipment, costing the company £80;
 assets for private use being a television with a market value of £825 when first provided
in 2015, and a mobile phone with contract costs for 2018/19 of £150; and
 free cookery classes for her son. A member of the public would have paid £500 to
attend the classes. PQR Ltd spent an extra £100 on ingredients for Sandra's son to
attend.
Sandra received £540 of dividends in February 2019 from a UK company.
Sandra has also run her own business as a sole trader for many years. Sandra has calculated
her taxable trading profits for 2018/19 to be £28,400. In arriving at her taxable trading
profits, Sandra deducted the following amounts:
 £1,600, which was the cost of leasing, for business use only, a new car with CO2
emissions of 150 g/km from 1 May 2018 until the end of 2018/19;

 employer's national insurance contributions of £567, paid in respect of Sandra's

employee;

 legal fees of £1,000 in respect of the renewal of a five-year lease over an industrial unit
Sandra uses for her business; and

 £150 for depreciation of office equipment used for Sandra's business.

Requirement
Using the standard format below, compute Sandra's taxable income for 2018/19. You
should enter a number in each relevant box. If an amount is not taxable enter a zero or a
dash into the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Bank interest
Dividends
Net income
Personal allowance
Taxable income
W1 – Trading income
£
Trading profits
Car lease
Employer's NIC
Legal fees
Depreciation
Tax-adjusted trading profits

ICAEW 2019 Scenario-based questions: income tax 97

 W2 – Employment income
£
Salary
Health and safety course
Assets for private use
Cookery classes
Total employment income
LOs 3a, 3c, 3e, 3j

7 During 2018/19, Leanne received interest income of £60 on a National Savings and
Investments investment account.
Leanne has been employed part-time by STU Ltd for many years. She received the
following remuneration package in 2018/19:
 salary £18,500 per year;
 pension contribution by the company of £925;
 from 1 October 2018, use of a RDE2 compliant diesel car with CO2 emissions of
72 g/km. STU Ltd paid £20,000 for the car although it has a list price of £23,000.
Leanne pays for all her private fuel; and
 a medical check-up with a private doctor which cost the company £500 and would
have cost Leanne £600 is she had paid for it herself.
Leanne received £500 of dividends in March 2019 from a UK company.
Leanne has also run her own business as a sole trader for many years. Leanne has
calculated draft her taxable trading profits for 2018/19 to be £19,500. In arriving at her draft
taxable trading profits, no account has been taken of the following amounts as Leanne was
unsure of the correct treatment:
 £6,000 for building work to extend the office in which Leanne works;
 £230 interest payable on loan to extend office;
 accountancy fees of £500 for payroll services; and
 £100 of irrecoverable VAT relating to the cost of advertising in the local newspaper for
which Leanne has lost the VAT invoice.
Requirement
Using the standard format below, compute Leanne's taxable income for 2018/19. You
should enter a number in each relevant box. If an amount is not taxable enter a zero or a
dash into the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Investment account
Dividends
Net income
Personal allowance
Taxable income

98 Principles of Taxation: Question Bank ICAEW 2019

 W1 – Trading income
£
Trading profits
Building work
Interest
Accountancy fees
VAT re advertising
Tax-adjusted trading profits

W2 – Employment income
£
Salary
Pension contribution
Car
Medical
Total employment income
LOs 3a, 3c, 3e, 3j

8 During 2018/19, Simon received £15 of income tax repayment interest, which related to
overpaid income tax from 2016/17.
Simon has been employed part-time by VWX Ltd for many years. He received the following
remuneration package in 2018/19:
 salary £10,000 per year;
 bonus of £200 in respect of the year ended 30 June 2018, paid on 31 July 2018.
 vouchers for a supermarket which can be used to buy £1,000 of goods, and which cost
VWX Ltd £950; and
 private use of a camera from 1 July 2018, when the company acquired it for £1,500.
Simon paid £90 during 2018/19 towards the use of the camera.
Simon received £1,000 of dividends in May 2018 from an overseas company.
Simon has also run his own business as a sole trader for many years. Simon has calculated
his taxable trading profits for 2018/19 to be £29,600. In arriving at his taxable trading
profits, Simon deducted the following amounts:
 costs of redecorating his office of £500;
 £2,000 fine for breach of Health and Safety regulations;
 £1,500 being a contribution to his personal pension scheme; and
 £200 fee to arrange an overdraft on his personal bank account to pay for materials.
Requirement
Using the standard format below, compute Simon's taxable income for 2018/19. You
should enter a number in each relevant box. If an amount is not taxable enter a zero or a
dash into the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Repayment interest
Dividends
Net income
Personal allowance
Taxable income

ICAEW 2019 Scenario-based questions: income tax 99

 W1 – Trading income
£
Trading profits
Decorating
Fine
Pension contribution
Overdraft fee
Tax-adjusted trading profits

W2 – Employment income
£
Salary
Bonus
Vouchers
Camera
Total employment income
LOs 3a, 3c, 3e, 3j

9 Finlay received £300 of interest on Treasury stock during 2018/19.

Finlay has been employed part-time by YZZ Ltd since 2010. He received the following
remuneration package in 2018/19:
 salary £15,000 per year;
 meal vouchers of £4 per day for 240 days;
 from 1 January 2019, provision of living accommodation, a flat, which was rented by
the company for £12,000 pa. The annual value of the flat was £13,000 and market
value was £200,000. Finlay paid £300 to the company for use of the flat in 2018/19;
and
 attendance at the summer party for staff, which cost YZZ Ltd £120 per employee.
Finlay received £810 of dividends in March 2019 from an ISA.
Finlay has also run his own business as a sole trader for many years. Finlay has calculated his
draft taxable trading profits for 2018/19 to be £50,000. In arriving at his draft taxable
trading profits, no account has been taken of the following amounts as Finlay was unsure of
the correct treatment:
 £2,100 for a contribution into an occupational pension scheme for Finlay's employee;
 £1,700 on registering a patent to use in Finlay's business;
 £1,000 on customer gifts of diaries, costing £10 each and bearing the name of Finlay's
business; and
 £190 subscription to the local Chamber of Commerce.

100 Principles of Taxation: Question Bank ICAEW 2019

 Requirement
Using the standard format below, compute Finlay's taxable income for 2018/19. You should
enter a number in each relevant box. If an amount is not taxable enter a zero or a dash into
the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Treasury stock interest
Dividends
Net income
Personal allowance
Taxable income
W1 – Trading income
£
Trading profits
Pension contribution
Patent
Diaries
Subscription
Tax-adjusted trading profits

W2 – Employment income
£
Salary
Meal vouchers
Accommodation
Summer party
Total employment income
LOs 3a, 3c, 3e, 3j

10 Victoria received lottery winnings of £17,000 during 2018/19.

Victoria has been employed part-time by ABC Ltd since 2012. She received the following
remuneration package in 2018/19:
 salary £122,770 per year;
 attendance at a football match with a client, with ticket costing £60 paid by the client;
 use of childcare facilities at her place of work, costing ABC Ltd £5,000 in respect of
Victoria's daughter; and
 use of a company car with CO2 emissions of 100 g/km. The list price was £35,000, and
ABC Ltd paid a further £500 on 6 April 2018 for accessories for the car. Victoria paid
£4,000 towards the car's purchase. Victoria pays for all her private fuel.
Victoria received £5,000 of dividends in January 2019 from a UK company.

ICAEW 2019 Scenario-based questions: income tax 101

 Victoria has also run her own business as a sole trader for many years. Victoria has
calculated her taxable trading profits for 2018/19 to be £19,000. In arriving at her taxable
trading profits, Victoria deducted the following amounts:
 £1,000 Gift Aid donation to a national charity;
 £800 repairs to the roof of her office building;
 £1,500 legal fees in relation to a new lease over a storage unit; and
 £900 for the purchase of goods which Victoria then took from the business for her own
use, without recording the withdrawal. The goods could have been sold for £1,200.
Requirement
Using the standard format below, compute Victoria's taxable income for 2018/19. You
should enter a number in each relevant box. If an amount is not taxable enter a zero or a
dash into the relevant box.
Non-savings Savings Dividend
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Lottery winnings
Dividends
Net income
Personal allowance
Taxable income
W1 – Trading income
£
Trading profits
Donation
Repairs
Legal fees
Goods
Tax-adjusted trading profits

W2 – Employment income
£
Salary
Football match
Childcare
Car
Total employment income
LOs 3a, 3c, 3e, 3j

102 Principles of Taxation: Question Bank ICAEW 2019

Scenario-based questions: corporation tax
1a Kennedy Ltd, an unquoted trading company, prepares accounts to 31 December and has
no related 51% group companies. The draft accounting profits for the year ended
31 December 2018 are £1,595,000. The following items have been added or deducted in
arriving at the draft accounting profit:
Note £
Depreciation 202,400
Loan interest payable 1 1,000
Qualifying donation 2 6,000
Exempt dividends received 3 18,000
Bank interest receivable 3,000
Notes:
(1) Interest payable on a loan to buy an investment property.
(2) The qualifying donation of £6,000 in the accounts comprises £3,800 paid during the
accounting period and an accrual of £2,200 that the company had agreed to pay but
was not paid until 10 January 2019.
(3) Exempt dividends received from unrelated UK companies.
In addition, the following items have not yet been included in the accounts:
 Car leasing charges of £4,200 were incurred for a car used by the managing director.
The car has emissions of 165 g/km and is used 20% for private purposes.
 The company purchased computer equipment during the year ended 31 December
2018 costing £110,000. The tax written down value on the main pool at 1 January 2018
was £0.
Requirement
Using the standard format below, compute Kennedy Ltd's taxable total profits for the year
ended 31 December 2018. You should enter a number in each relevant box. If an amount is
not taxable or no adjustment is required you must enter a zero or a dash into the relevant
box.
£
Trading income (W1)
Non-trading loans
Dividends
Qualifying donation
Taxable total profits
W1 – Trading income
£
Draft accounting profits
Depreciation
Loan interest payable
Qualifying donation
Exempt dividends received
Bank interest receivable
Car leasing charges
Capital allowances
Trading income

ICAEW 2019 Scenario-based questions: corporation tax 103

 1b In the year ended 31 December 2019 Kennedy Ltd expects taxable total profits of
£1,490,000 and is expected to receive exempt dividends of £20,000 from unrelated UK
companies and £5,000 of exempt dividends from an unrelated French company.
Requirement
Complete all the boxes below and state the first date by which any corporation tax should
be paid in relation to the year ended 31 December 2019. Input the date in the format
DD/MM/YYYY (eg, 03/04/2019 for 3 April 2019).
£
Taxable total profits
Exempt ABGH distributions
Augmented profits

First payment of corporation tax due date

LOs 5b, 5c, 5d

2a Sigil Ltd, an unquoted trading company, prepares accounts to 31 March and has no related
51% group companies. The draft accounting profits for the year ended 31 March 2019 are
£125,000. The following items have been added or deducted in arriving at the draft
accounting profit:
Note £
Depreciation 6,300
Loan interest payable 1 2,000
Profit on disposal of asset 2 12,000
Exempt dividends received 3 4,000
Bank interest receivable 5,000
Employee loan interest 4 600
Notes:
(1) Interest payable on a loan to buy a small shareholding in an unrelated company.
(2) Sigil Ltd sold an asset realising a profit on disposal of £12,000. The chargeable gain
arising is £9,000.
(3) Exempt dividends of £3,000 received from unrelated UK companies and £1,000
received from unrelated German companies.
(4) Interest of £600 was received on a loan made to an employee in respect of the nine
months from 1 April 2018 to 31 December 2018. The employee owed a further £200 in
interest as at 31 March 2019.
In addition, the following item has not yet been included in the accounts:
 The company purchased a car for £20,000 on 1 July 2018 for use by the managing
director. The car has emissions of 105 g/km and is used 30% for private purposes. The
company has not previously owned any plant or cars.
Requirement
Using the standard format below, compute Sigil Ltd's taxable total profits for the year
ended 31 March 2019. You should enter a number in each relevant box. If an amount is not
taxable or no adjustment is required you must enter a zero or a dash into the relevant box.

104 Principles of Taxation: Question Bank ICAEW 2019