Friday Five Focus on Taxation – 9 October – 5 Questions in 5 Minutes

Friday Five Focus on Taxation – 5 Questions in 5 Minutes Every Friday

What’s this all about?

Check out the new format of our Friday Five quiz. Each week, we ask questions relating to one of these topics: Investments, Taxation, Pensions, Protection, or Regulation. This week, our Friday Five is relevant to Taxation; this is useful as you prepare for the CII’s R03 or AF1 exams. The challenge is for you to answer them in 5 minutes. Answers at the bottom of the page.

Questions

IMPORTANT! These questions relate to examinable tax year 2020/21, examinable by the CII until 31 August 2021.

1. Liz has been off work sick for 6 months and is being paid through her employer’s income protection (IP) policy. Which of the following statements concerning the tax treatment of the IP is correct?
   1. Liz will receive a gross amount of IP benefit from her employer as sick pay.
   2. The premiums paid by the employer are not classed as an allowable expense.
   3. The benefit is paid directly to the employer and treated as a trading receipt.
   4. The premiums are treated as a benefit in kind for Liz.

2. A company pays a basic rate taxpaying director a dividend. What is the tax liability for both the company and the director?
   1. There is no tax implication for the company, and the director receives the income with a 10% tax credit which satisfies his liability.
   2. The company is liable to corporation tax on the dividend payment, and the director is liable to income tax at 7.5% if it is in excess of their dividend allowance.
   3. There is no tax implication for the company; the director receives the income gross and is liable to tax at 7.5% if it is in excess of their dividend allowance.
   4. The company claims the dividend payment as an expense, and the dividend is taxed at 7.5%.

3. Caroline is one of 4 trustees for the Elliott family trust. She lives in Spain; although, all the other trustees are UK-resident. What is her liability regarding any tax liability arising from the trust?
   1. As she is not the nominated person to deal with HMRC, she has no accountability.
   2. Caroline would be liable for one quarter of any trust liabilities.
   3. Caroline is jointly liable for the full amount of any tax that is due.
   4. As Caroline lives in Spain, the trust is not liable to UK tax.

4. XYZ plc has made up its accounts for the 16-month period ending 31 January 2021. On what accounting periods, will CT be charged?
   1. There will be one 16-month long accounting period.
   2. There will be a twelve-month accounting period to 30 September 2020, and a four-month accounting period to 31 January 2021.
   3. There will be a four-month accounting period to 31 January 2020 and a twelve-month accounting period to 31 January 2021.
   4. There will be two accounting periods which will end on 5 April 2020 and 5 April 2021 respectively.

5. What strategies might be considered for Henry who is contemplating making lifetime gifts as part of his Inheritance Tax planning? Tick all that apply.
   1. Make a gift into a discretionary trust of an amount over the nil rate band
   2. Make outright gifts and hope to survive them by 7 years
   3. Make a gift into a bare trust as this is a potentially exempt transfer
   4. Make a gift of his business to his wife to ensure he uses his nil rate band

Answers

1. C – See R03 Study Text, Chp 1
   Grab our taster mock exam paper for CII R03. Click here to download.

2. C – See R03 Study Text, Chp 8
   Grab our taster mock exam paper for CII R03. Click here to download.

3. C – See R03 Study Text, Chp 1
   Grab our taster mock exam paper for CII R03. Click here to download.

4. B – See R03 Study Text, Chp 8
   Grab our taster mock exam paper for CII R03 Click here to download.

5. BC – See R03 Study Text, Chp 11
   Grab our taster mock exam paper for CII R03. Click here to download.

How did you find this week’s questions? Did you complete them in 5 minutes? Did you get them all correct? Do you disagree with any?

If you found this quiz useful for your CII exam revision, please do share it with your colleagues.