Poor Green Lights for Business Tax FA2012

emuratty

Has anyone else noticed how poor the green lights are for business tax?

Some of the questions are incredibly badly written, with no punction etc, just a typed list of descriptions and figures, with some random words and figures in the middle of the sentences.

I've noticed at least one question with an incorrect answer - where their answer doesn't make sense. e.g. working out an AIA for a capital allowances question and the answer tells me that the period amounts are £18,750 and £25,000 - giving a total of £30,000 !!!

One question doesn't include a year end date and so is impossible to answer.

I've emailed the AAT, but got an automated response saying they will respond to me in 8 working days. My exam is in 2 weeks so that doesn't really help me.

Dahir Ahmed

Hiya
Yes, I have.

However, your assertion that "...at least one question with an incorrect answer..." is, I believe, incorrect.

The question asks us to calculate the maximum annual investment allowance that can be claimed (obviously with regards to the purchases that the company has made).

That's £25,000 (for the three months ended 31 March 2012) + £5,000 (they can't claim £18,750 when they only spent £5,000 on a machine for the nine months ended 31 December 2012).

Hope that makes sense.

emuratty

Thanks for explaining that as I had thought you just added it altogether for the year so I probably need to revisit this section.

Your explaination makes sense, however it would have been clearer if they had explained that in their answer I suppose.

Just struggling generally with the way the questions are very poorly worded with seemingly irrelevant figures in the middle of a sentence.

Thanks for your help

emuratty

Ok, I've taken a look at the Kaplan textbook again about the AIA question. The textbook says:

"where a company has a year-end other than 31 March, the maximum AIA is found via time apportionment"

It then goes on to give an example of 31 December 2012 year end with a maximum AIA of £43,750 - it doesn't seem to mention anything about the relevance of when the purchases are made within the financial year.

I can't see any other reference in the text that would explain Dahir's answer.

Can anyone shed any light on this?

Dahir Ahmed

That's indeed the maximum allowance that can be claimed provided the company actually spends that much (or more) on AIA eligible purchases.
A company can't claim AIA for what it has not actually spent i.e. in this case, they'd be claiming £43,750 even though they only spent £35,000 (I think), which I think is incorrect.

Nps1976; could you please be so kind as to clarify/confirm and put us out of our misery?. Thanks a million.

emuratty

Hi again Dahir

In the question the company has made 2 purchases during the year. Here is the question text

"A company has a year end 31 December 2012 and purchased one machine on 1 February 2012 for £35,000 and a second on 1 November 2012 for £5,000. Calculate the maximum annual investment allowance that can be claimed."

Available answers are
£40,000, £25,000 and £30,000

So I calculated the maximum available as £43,750, but of course they have only spent £40,000 in total, so I selected £40,000 as my answer.

The greenlight shows the correct answer as £30,000, which would make sense as per your explanation, but seems to contradict my text book. Perhaps it's Kaplan that's wrong and not AAT?

In the Kaplan Revision Kit there are 2 similar questions to this - both with year ended 31 Dec 2012 - the first (question 14) has a purchase of £86,750 in February 2012, the second (question 18) has a purchase of £45,650 in March 2012. The answers for both show the company claiming a full AIA of £43,750.

There's also a question in the Kaplan Textbook (Chapter 4 Activity 8) with a year ended 30 Sep 2012 with purchases of £55,000 in January 2012 and £10,000 in March 2012. The answer shows claiming a full AIA of £62,500 (£100,000 x 6/12 plus £25,000 x 6/12), which of course using your way the AIA they could claim would be £50,000.

Hope someone can clarify this.

Thanks
Emma

Dahir Ahmed

Hi again Emma.:001_smile:
I stand corrected. You're indeed right. I've revisited the Capital Allowances chapter and your workings are correct.

Sorry and thank you.

emuratty

Thanks for your help with this Dahir

I'm still unclear which is the correct way to work it out as it still contradicts the answer given in the greenlight question, so I am now wondering if Kaplan have got it wrong.

There's a pdf on the AAT learning resources about capital allowances and it says

This means that up to £25,000 can be claimed in the period to 31 March 2012 and up to £18,750 in the period to 31 December 2012.

It then goes on to give an example question, however I can't get the answer to display to see how they work it out.

https://www.aat.org.uk/system/files/study_resources/Business-tax-basic-capital-allowance.pdf

I'll double check with my tutor at college on Thursday

MarieNoelle

emuratty wrote: »

"A company has a year end 31 December 2012 and purchased one machine on 1 February 2012 for £35,000 and a second on 1 November 2012 for £5,000. Calculate the maximum annual investment allowance that can be claimed."

Available answers are
£40,000, £25,000 and £30,000

So I calculated the maximum available as £43,750, but of course they have only spent £40,000 in total, so I selected £40,000 as my answer.

The greenlight shows the correct answer as £30,000, which would make sense as per your explanation, but seems to contradict my text book. Perhaps it's Kaplan that's wrong and not AAT?

In the Kaplan Revision Kit there are 2 similar questions to this - both with year ended 31 Dec 2012 - the first (question 14) has a purchase of £86,750 in February 2012, the second (question 18) has a purchase of £45,650 in March 2012. The answers for both show the company claiming a full AIA of £43,750.

There's also a question in the Kaplan Textbook (Chapter 4 Activity 8) with a year ended 30 Sep 2012 with purchases of £55,000 in January 2012 and £10,000 in March 2012. The answer shows claiming a full AIA of £62,500 (£100,000 x 6/12 plus £25,000 x 6/12), which of course using your way the AIA they could claim would be £50,000.

Hope someone can clarify this.

Thanks
Emma

Hi Emma,
you have to first calculate how much you can claim for the first period i.e first 3 months of 2012 at £100,000; maximum you can claim is £25,000 (1/4 of £100,000).
then you can claim 9 months at £25,000 (£18,750)
so for your first purchase the maximum you can claim is £25,000
for the 2nd you can only claim what you spent £5,000
giving you a total of £30,000.


When you do the apportionment, you need to take one period at a time, and not add up the total. I haven't done the calculations for the other questions but I am almost certain it will work.:001_smile:


Edit: sorry I stand corrected, your Kaplan examples do not make sense at all!


Hope this helps,
MN

Dahir Ahmed

I couldn't get the answer to display either on that final example in the e-learning module.

Going by the examples I've revisited and the one's you've detailed, I think it matters not when a purchase/addition was made. As long as purchases/additions are made within the 12 month accounting period, they go into the "AIA column" in the Capital Allowances computation as it were. Then the hybrid AIA allowance is subtracted from the total figure of AIA eligible purchases/additions.

emuratty

Hi MN

Thanks for your reply. I understand your workings completely and it makes perfect sense. However the Kaplan textbook says that you add it together as an allowance for the whole year, and every example and practice question in Kaplan shows it calculated that way.

In the question above for year ended 30th September, both purchases would fall in the 6th month period to 31st March 2012. The AIA for this period would be £100,000 x 6/12 = £50,000. However the answer shows claiming AIA of £62,500 - which they show calculated as £100,000 x 6/12 + £25,000 x 6/12.

The other questions I mention above are all shown with answers calculated the same way.

On the AAT's practice assessment, question 1.7, the company has a year ended 30 November 2012. In the answer it shows a calculation giving an AIA of £50,000 (100,000 x 4/12 + 25,000 x 8/12). However the only purchase qualifying for AIA is in January 2012 for £28,040. The AIA for the period Dec 11 to Mar 12 would calculate as £33,333 - so either way the whole purchase would be exempt. So that question doesn't really help !

I've emailed the AAT about the greenlight, but I'm not holding out much hope of getting a reply before my exam.

emuratty

Here's the HMRC's explanation, which confirms that you add them together, but adds a restriction on the amount claimable for the part-year period April 2012 onwards, which isn't mentioned at all in my text book:

http://www.hmrc.gov.uk/capital-allowances/plant.htm#12

If your accounting period spans 1/6 April 2012

Where a business has an accounting period that spans 1/6 April 2012 - the date of the decrease from £100,000 to £25,000 - the maximum allowance for that business's transitional period is made up of two parts:
• the AIA entitlement, based on the previous £100,000 annual cap for the portion of a year falling before the date of the change
• the AIA entitlement, based on the new £25,000 cap for the portion of a year falling on or after date of change

Example: a business with a calendar year accounting period from 1 January 2012 to 31 December 2012 would calculate its maximum AIA entitlement based on:
• the proportion of a year from 1 January 2012 to 31 March 2012, that is, 3/12 x £100,000 = £25,000
• the proportion of a year from 1 April 2012 to 31 December 2012, that is 9/12 x £25,000 = £18,750

The business' maximum AIA for this transitional accounting period would therefore be the total of (a) + (b) = £25,000 + £18,750 = £43,750.

However, for the part period falling on or after 1 April 2012 even if the company spent more than £18,750 no more than £18,750 of the business' actual expenditure in that part period would be covered by its AIA entitlement.

MarieNoelle

Hi Emma,
I remember when this new £25,000 allowance came in, there was a lot of discussions in various accountancy forums as to how this would be applied practically. I wonder if this explanation from HMRC came later on to clarify matters, later than when Kaplan published their revision kit! I have never used their material but there may be a section on their website for erratum (like Osborne used to). Worth checking?

emuratty

Thanks MN
I'm not studying with Kaplan so it looks like I don't have access to the forums etc on their website. I'll check it through with my tutor.
In any case I'll let you know if I get a response back from the AAT about it.
Thanks again
Emma

StuartW

Hi emuratty - thanks for bringing this to our attention. I'm forwarding your remarks regarding the quality of the FA2012 tests to the team concerned, and I'll also try and get clarification regarding the Green Light question content.

Could you let me know which email address you contacted please?

emuratty

Hi StuartW

Thanks, I sent to it membershipsupport@aat.org.uk - I wasn't sure if this was the correct email address, but it was one I had corresponded with previously.

The greenlights are such an important resource when revising for the exams. I want to make sure I understand how to work this out so I don't do it the wrong way in my exam and lose points.

Thanks again
Emma

emuratty

Well still no response from the AAT on this, however it would appear from looking at the HMRC website and these 2 very useful articles I found on the web that what you need to do is work out the AIA for the whole year (in the 31st Dec 2012 example this would be £43,750). The only restriction would then be that the AIA for purchases made after 1/6 April would be restricted to £18,750. However, there would be no restriction on the purchases made prior to 1/6 April and you could claim your maximum AIA for those purchases, i.e. up to £43,750.

So for the greenlight question it would appear that the answer should be £40,000 and not £30,000 !

http://www.cap-allow.com/articles/capital-allowances-annual-investment-allowance

http://www.claritaxbooks.com/2012/03/annual-investment-allowances-%E2%80%93-transitional-rules/

I spoke to my college tutor about this yesterday and she too was confused as she thought both periods were resticted to the purchases made within them, but after looking at the textbook and HMRC website she felt this is probably wrong. She is seeking further clarification from a tax advisor for me!

My exam is on 2nd July and at this stage I feel that I don't really care which is the "right" way, I just want to get the marks in the exam. I can figure out the "right" way at a later date if I ever need to. Come on AAT send me a response to my email.

After all this, I bet the question doesn't even come up in the exam :001_smile:

Dahir Ahmed

Wish you the best.

I've got mine on the 29th.

emuratty

Good luck Dahir

emuratty

StuartW wrote: »

Hi emuratty - thanks for bringing this to our attention. I'm forwarding your remarks regarding the quality of the FA2012 tests to the team concerned, and I'll also try and get clarification regarding the Green Light question content.

Could you let me know which email address you contacted please?

Well I never heard back from the AAT about this and I had my exam yesterday. Incidentally there was a capital allowances question with a CAP that straddled the 2 financial years, but they didn't tell you when during the year the purchases had been made, so I claimed the full AIA I had calculated for the year up to the amount of the purchases.

On last checking a couple of days ago the green lights were still as bad as they were previously with random words or figures in the middle of sentences!!!!

Come on AAT sort it out.