You are a tax assistant in a firm of Chartered Accountants. The firm has are part of a team that deals with small tax payers operating in Zambia. Your Tax senior has assigned you some responsibilties relating to some clients whose information is presented in the extracts below. You should deal with each client separately. many clients and you Client 1 -Jane Longwani Jane commenced to trade on 1 July 2018 and prepared the first set of accounts for the eighteen months period ended 31 December 2019. Your firm advised Jane to register for Value Added Tax (VAT) immediately she commenced to trade on 1 July 2018. Jane had bought goods for resale on 1 May 2018 for K109,620 (including VAT) and all of these goods were stil available for sale at 1 July 2018. Jane is now interested in knowing the total amounts of VAT and income tax that were payable by her for the period of trading ended 31 December 2019. The statement of profit or loss for the period as shown below. Sales Revenue (excluding VAT) Less cost of goods sold: Purchases (including goods bought on 1 May 2018) Closing inventory Cost of sales Gross Profit 1.720,000 Royalties received Government Bond Interest received 54,200 1,038,800 Wages and salaries 235,000 119.000 Depreciation of motor vehicles 276,080 180,670 Other revenue expenses Rent paid Total expenses Net Profit The following additional information is available: (1) Turnover and expenses accrued evenly throughout the eighteen months' period. 10% of the turnover consists of zero rated supplies and 30% consist of exempt supples. The rest of the turnover consists of standard rated supplies. (2) 70% of purchases and other revenue expenses are attributed to the taxable turnover. The remaining 30% are attributed to exempt supplies. The rent was paid for the business premises that has been occupied by Jane and used to produce both taxable and exempt (3) Jane had the folowing transactions in implements, plant and machinery during the eighteen months period: Page 2 of 8 Date Cost Required: (a) Client 1 ) Explain the possible reasons why Jane Longwani was advised to register for VAT 1 September 2018 Bought Toyota Camry Motor Car 1 September 2018 Bought Vienna office fumiture 1 February 2019 Toyota Hilux Motor Van 31 March 2019 Sold Vienna office furniture (VAT exclusive) 31 March 2019 Bought office 31 March 2019 Bought Sikete office fumiture 60,000 20,300 87,000 (18,000) 43,500 45,240 when she commenced to trade on 1 July 2018. Calculate the VAT paid by Jane for each of the tax years 2018 and 2019. You MUST clearly show the amounts of output tax and the recoverable input tax for each supply for each of the two tax years. Monthly figures of VAT are NOT REQUIRED [18 Marks] (4) has been agreed with the Commissioner General that Jane has private use of 25% in the Calculate the capital allowances for each of the tax years 2018 and 2019. Toyota Camry motor car. The other revenue expenses of K150,800 shown in the statement [10 Marks] of profit or loss include K29,000 motor car expenses relating to the Toyota Camry motor car (5) Unless stated otherwise, all of the above figures are VAT inclusive where applicable. (6) The figures for Royalties received, Govenment Bond interest received and Rent paid are (v) Calculate the final taxable business profit for each of the tax years 2018 and 2019. Marks () Assuming that the income tax rates and bands for the tax year 2019 apply to the tax gross amounts. Withholding Tax had been deducted at source where applicable. year 2018 as well, calculate the income tax paid by Jane for each of the tax years 2018 and 2019. Client 2- Patrick Phiri (vi) Explain how the VAT and income tax you have calculated above should have been Patrick commenced in business on 1 January 2018 trading as Patrick & Co. At the start of the tax year 2018, his provisional income was K642,000. He calculated and paid the provisional income tax correctly on the due dates and he also submitted the return of provisional income for the tax year 2018 correctly. At the end of the tax year 2018, Patrick's final taxable business profit was K695,000. Patrick calculated the balance of income tax at the end of the tax year 2018 and he also calculated the provisional income for the tax year 2019 at K700,000 in January 2019. properly paid, stating the relevant due dates and the amounts payable on each due date (b) Client 2 Assuming that the income tax rates for the tax year 2019 apply to the tax year 2018 as well, calculate the amount of provisional income tax paid by Patrick for the tax Marks year 2018 and the balance of income tax for the tax year 2018. Calculate the amount of provisional income tax payable by Patrick for the tax year 2019 and prepare a schedule showing the due dates and the amount payable on [6 Marks] As a result of unfavourable business conditions at the start of the year 2019, Patrick started experiencing cash flow problems from 1 February 2019 and a result, he paid the provisional income tax for the quarter ended 31 March 2019 and also submitted the return of provisional income for the tax year 2019 on 30 June 2019. In addition, he paid the provisional income tax for the quarter ended 30 June 2019 together with the balance of income tax for the tax year 2018 on 18 September 2019. He also submitted his self-assessment income tax retum for the tax year 2018 on 18 September 2019. Cash flow problems were fully resolved after 18 September 2019 and Patrick is certain that all the outstanding taxes thereafter would be paid each due date. Advise Patrick of the amounts of penalties and interest on overdue taxes on a [12 Marks] payments made up to and including 18 September 2019. (v) Advise Patrick of the amounts of penalties chargeable on tax returns submitted late. [2 marks] () State the possible reasons why the Commissioner General has subjected Patrick's In October 2019, Patrick received a notice from the Commissioner General stating that his self assessment Income tax returm for the tax year 2018 was the subject of a compl iance check. When computing taxable income of K695,000 for the tax year 2018, it is alleged that Patrick deducted a non-allowable private expense of K45,600. The Commissioner General therefore raised an assessment for underpaid income tax of K17,100 in respect of the tax year 2018 and this notice was served on Patrick on 31 October 2019. No adjustment was required to the return of provisional income for the tax year 2019 as this return was not subjected to the compl ance check self-assessment income tax return for the tax year 2018 to a compliance check. [6 marks] (vi) Explain the initial altemative courses of action that are open to Patrick following receipt of the notice of assessment showing additional income tax payable for the tax Marks year 2018 of K17,100. (vi) Advise Patrick of the interest on overdue tax and penalties that he may be iable for as a result of the Commissioner General's compliance check into his self assessment income tax return for the tax year 2018 and state a possible reason why [8 Marks] Bank of Zambia discount rate these penalties and interest may apply You have leamt that the Bank of Zambia discount rate is 19.25% for the period from 1 January 2018 to 31 December 2019. TOTAL: 100 MARKs] END OF ASSIGNMENT QUESTION PAPER Page 3 of 8 Page 4 of 8 You are a tax assistant in a firm of Chartered Accountants. The firm has are part of a team that deals with small tax payers operating in Zambia. Your Tax senior has assigned you some responsibilties relating to some clients whose information is presented in the extracts below. You should deal with each client separately. many clients and you Client 1 -Jane Longwani Jane commenced to trade on 1 July 2018 and prepared the first set of accounts for the eighteen months period ended 31 December 2019. Your firm advised Jane to register for Value Added Tax (VAT) immediately she commenced to trade on 1 July 2018. Jane had bought goods for resale on 1 May 2018 for K109,620 (including VAT) and all of these goods were stil available for sale at 1 July 2018. Jane is now interested in knowing the total amounts of VAT and income tax that were payable by her for the period of trading ended 31 December 2019. The statement of profit or loss for the period as shown below. Sales Revenue (excluding VAT) Less cost of goods sold: Purchases (including goods bought on 1 May 2018) Closing inventory Cost of sales Gross Profit 1.720,000 Royalties received Government Bond Interest received 54,200 1,038,800 Wages and salaries 235,000 119.000 Depreciation of motor vehicles 276,080 180,670 Other revenue expenses Rent paid Total expenses Net Profit The following additional information is available: (1) Turnover and expenses accrued evenly throughout the eighteen months' period. 10% of the turnover consists of zero rated supplies and 30% consist of exempt supples. The rest of the turnover consists of standard rated supplies. (2) 70% of purchases and other revenue expenses are attributed to the taxable turnover. The remaining 30% are attributed to exempt supplies. The rent was paid for the business premises that has been occupied by Jane and used to produce both taxable and exempt (3) Jane had the folowing transactions in implements, plant and machinery during the eighteen months period: Page 2 of 8 Date Cost Required: (a) Client 1 ) Explain the possible reasons why Jane Longwani was advised to register for VAT 1 September 2018 Bought Toyota Camry Motor Car 1 September 2018 Bought Vienna office fumiture 1 February 2019 Toyota Hilux Motor Van 31 March 2019 Sold Vienna office furniture (VAT exclusive) 31 March 2019 Bought office 31 March 2019 Bought Sikete office fumiture 60,000 20,300 87,000 (18,000) 43,500 45,240 when she commenced to trade on 1 July 2018. Calculate the VAT paid by Jane for each of the tax years 2018 and 2019. You MUST clearly show the amounts of output tax and the recoverable input tax for each supply for each of the two tax years. Monthly figures of VAT are NOT REQUIRED [18 Marks] (4) has been agreed with the Commissioner General that Jane has private use of 25% in the Calculate the capital allowances for each of the tax years 2018 and 2019. Toyota Camry motor car. The other revenue expenses of K150,800 shown in the statement [10 Marks] of profit or loss include K29,000 motor car expenses relating to the Toyota Camry motor car (5) Unless stated otherwise, all of the above figures are VAT inclusive where applicable. (6) The figures for Royalties received, Govenment Bond interest received and Rent paid are (v) Calculate the final taxable business profit for each of the tax years 2018 and 2019. Marks () Assuming that the income tax rates and bands for the tax year 2019 apply to the tax gross amounts. Withholding Tax had been deducted at source where applicable. year 2018 as well, calculate the income tax paid by Jane for each of the tax years 2018 and 2019. Client 2- Patrick Phiri (vi) Explain how the VAT and income tax you have calculated above should have been Patrick commenced in business on 1 January 2018 trading as Patrick & Co. At the start of the tax year 2018, his provisional income was K642,000. He calculated and paid the provisional income tax correctly on the due dates and he also submitted the return of provisional income for the tax year 2018 correctly. At the end of the tax year 2018, Patrick's final taxable business profit was K695,000. Patrick calculated the balance of income tax at the end of the tax year 2018 and he also calculated the provisional income for the tax year 2019 at K700,000 in January 2019. properly paid, stating the relevant due dates and the amounts payable on each due date (b) Client 2 Assuming that the income tax rates for the tax year 2019 apply to the tax year 2018 as well, calculate the amount of provisional income tax paid by Patrick for the tax Marks year 2018 and the balance of income tax for the tax year 2018. Calculate the amount of provisional income tax payable by Patrick for the tax year 2019 and prepare a schedule showing the due dates and the amount payable on [6 Marks] As a result of unfavourable business conditions at the start of the year 2019, Patrick started experiencing cash flow problems from 1 February 2019 and a result, he paid the provisional income tax for the quarter ended 31 March 2019 and also submitted the return of provisional income for the tax year 2019 on 30 June 2019. In addition, he paid the provisional income tax for the quarter ended 30 June 2019 together with the balance of income tax for the tax year 2018 on 18 September 2019. He also submitted his self-assessment income tax retum for the tax year 2018 on 18 September 2019. Cash flow problems were fully resolved after 18 September 2019 and Patrick is certain that all the outstanding taxes thereafter would be paid each due date. Advise Patrick of the amounts of penalties and interest on overdue taxes on a [12 Marks] payments made up to and including 18 September 2019. (v) Advise Patrick of the amounts of penalties chargeable on tax returns submitted late. [2 marks] () State the possible reasons why the Commissioner General has subjected Patrick's In October 2019, Patrick received a notice from the Commissioner General stating that his self assessment Income tax returm for the tax year 2018 was the subject of a compl iance check. When computing taxable income of K695,000 for the tax year 2018, it is alleged that Patrick deducted a non-allowable private expense of K45,600. The Commissioner General therefore raised an assessment for underpaid income tax of K17,100 in respect of the tax year 2018 and this notice was served on Patrick on 31 October 2019. No adjustment was required to the return of provisional income for the tax year 2019 as this return was not subjected to the compl ance check self-assessment income tax return for the tax year 2018 to a compliance check. [6 marks] (vi) Explain the initial altemative courses of action that are open to Patrick following receipt of the notice of assessment showing additional income tax payable for the tax Marks year 2018 of K17,100. (vi) Advise Patrick of the interest on overdue tax and penalties that he may be iable for as a result of the Commissioner General's compliance check into his self assessment income tax return for the tax year 2018 and state a possible reason why [8 Marks] Bank of Zambia discount rate these penalties and interest may apply You have leamt that the Bank of Zambia discount rate is 19.25% for the period from 1 January 2018 to 31 December 2019. TOTAL: 100 MARKs] END OF ASSIGNMENT QUESTION PAPER Page 3 of 8 Page 4 of 8