ACCA Strategic Professional – Options

ACCA

Strategic Professional – Options

Advanced Taxation (ATX-UK) (Finance Act 2019)

EXAM KIT For June 2020 to March 2021 examination sittings

ATX–UK: ADVAN CE D TAXATION (FA2019)

P.2 KAPLAN PUBLISHIN G

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library.

Published by:

Kaplan Publishing UK

Unit 2 The Business Centre

Molly Millar’s Lane

Wokingham

Berkshire

RG41 2QZ

ISBN: 978-1-78740-420-5

© Kaplan Financial Limited, 2019

Printed and bound in Great Britain.

The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.

All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.

Acknowledgements

These materials are reviewed by the ACCA examining team. The objective of the review is to ensure that the material properly covers the syllabus and study guide outcomes, used by the examining team in setting the exams, in the appropriate breadth and depth. The review does not ensure that every eventuality, combination or application of examinable topics is addressed by the ACCA Approved Content. Nor does the review comprise a detailed technical check of the content as the Approved Content Provider has its own quality assurance processes in place in this respect.

The past ACCA examination questions are the copyright of the Association of Chartered Certified Accountants. The original answers to the questions from June 1994 onwards were produced by the ACCA and have been adapted by Kaplan Publishing.

KAPLAN PUBLISHIN G P.3

CONTENTS Page

Index to questions and answers P.5

Analysis of past exams P.13

Exam technique P.15

Exam specific information P.17

Kaplan’s recommended revision approach P.21

Kaplan’s detailed revision plan P.25

Tax rates and allowances P.37

Time limits and election dates P.43

Section

1 Practice questions 1

2 Answers to practice questions 159

Key features in this edition

In addition to providing a wide ranging bank of real past exam questions, we have also included in this edition:

• An analysis of all of the recent exams.

• Exam specific information and advice on exam technique.

• Our recommended approach to make your revision for this particular subject as effective as possible.

This includes step by step guidance on how best to use our Kaplan material (study text, pocket notes and exam kit) at this stage in your studies.

• An increased number of enhanced tutorial answers packed with specific key answer tips, technical tutorial notes and exam technique tips from our experienced tutors.

• Complementary online resources including full tutor debriefs and question assistance to point you in the right direction when you get stuck.



You will find a wealth of other resources to help you with your studies on the following sites:

www.mykaplan.co.uk

www.accaglobal.com/en/student.html

Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to [email protected] with full details, or follow the link to the feedback form in MyKaplan.

Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions.


INDEX TO QUESTIONS AND ANSWERS

INTRODUCTION The style of current ATX exam questions changed fairly recently and significant changes have had to be made to questions in light of the legislative changes in recent Finance Acts.

Accordingly, many of the old ACCA questions within this kit have been adapted to reflect the new style of exam and the new rules. If changed in any way from the original version, this is indicated in the end column of the index below with the mark (A).

Also included are the marking schemes for past ACCA real examination questions to assist you in understanding where marks are earned and the amount of time to spend on particular tasks. Note that if a question has been changed from the original version, it will have also been necessary to change the original ACCA marking scheme. Therefore if a question is marked as adapted (A) you should assume that this also applies to the marking scheme.

Note that the majority of the questions within the kit are past ACCA exam questions, the more recent questions are labelled as such in the index.

KEY TO THE INDEX

ANSWER ENHANCEMENTS We have added the following enhancements to the answers in this exam kit:

Key answer tips

All answers include key answer tips to help your understanding of each question.

Tutorial note

All answers include more tutorial notes to explain some of the technical points in more detail.

Top tutor tips

For selected questions, we ‘walk through the answer’ giving guidance on how to approach the questions with helpful ‘tips from a top tutor’, together with technical tutor notes.

These answers are indicated with the ‘footsteps’ icon in the index.



ONLINE ENHANCEMENTS

Question debrief

For selected questions, we recommend that they are to be completed in full exam conditions (i.e. properly timed in a closed book environment).

In addition to the ACCA’s technical answer, enhanced with key answer tips and tutorial notes in this exam kit, online you can find an answer debrief by a top tutor that:

• works through the question in full

• points out how to approach the question

• how to ensure that the easy marks are obtained as quickly as possible, and

• emphasises how to tackle exam questions and exam technique.

• These questions are indicated with the ‘clock’ icon in the index.

Online question assistance

Have you ever looked at a question and not known where to start, or got stuck part way through?

For selected questions, we have produced ‘Online question assistance’ offering different levels of guidance, such as:

• ensuring that you understand the question requirements fully, highlighting key terms and the meaning of the verbs used

• how to read the question proactively, with knowledge of the requirements, to identify the topic areas covered

• assessing the detail content of the question body, pointing out key information and explaining why it is important

• help in devising a plan of attack.

With this assistance, you should then be able to attempt your answer confident that you know what is expected of you.

These questions are indicated with the ‘signpost’ icon in the index.

Online question enhancements and answer debriefs will be available on MyKaplan at:

www.mykaplan.co.uk

INDE X TO QUESTION S AND ANSWERS


TAXATION OF INDIVIDUALS Page number

Question Answer Past exam (Adapted)

Employment

1 Vikram Bridge 1 159 Pilot 07 (A)

2 Morice and Babeen plc 3 164 Dec 11

3 Hyssop Ltd

4 170 Sept/Dec 15

4 Methley Ltd

6 177 Sept/Dec 16 (A)

5 Damiana plc

7 181 Sept/Dec 17

6 Demeter 9 186 Dec 18

Unincorporated businesses

7 Gloria Seaford 11 190 Dec 06 (A)

8

Kantar 13 197 Dec 14

9 Piquet and Buraco 16 207 Dec 14

10 Ray and Shanira 17 213 Mar/Jun 16 (A)

11 Amy and Bex

20 222 Mar/Jun 16

12 Juanita

21 227 Sept/Dec 16

13 Meg and Laurie

23 232 Sept/Dec 17

14 Rod 25 236 Mar/Jun 19

Changing business scenarios

15 Stanley Beech 26 240 Pilot 07

16

Desiree 28 244 Jun 10 (A)

17 Farina and Lauda

29 250 Dec 13

18 Ziti

32 262 Jun 14



Page number


Changing business scenarios

19 Jonny

34 276 Sept/Dec 15 (A)

20 Snowdon

38 283 Mar/Jun 18

21 Enid 41 291 Sep 18

22 Wanda

42 296 Dec 18

Capital taxes

23 Joan Ark 45 304

24 Alex 47 311 Pilot 05 (A)

25 Mabel Porter

48 317 Dec 06

26 Kepler 50 324 Jun 08 (A)

27 Surfe 51 330 Dec 11

28 Ash 53 338 Dec 12

29 Brad

54 344 Jun 13 (A)

30 Pescara

56 350 Dec 13 (A)

31 Cada

58 357 Dec 14 (A)

32 Eric

59 364 Mar/Jun 16

33 Sabrina and Adam

61 370 Sept/Dec 17

34 Aqil 62 374 Sep 18

35 Liber 63 377 Dec 18

36 Maia

65 383 Mar/Jun 19

Multi tax personal including overseas

37 Nucleus Resources

67 390 Dec 08 (A)

38 Poblano

70 401 Jun 10 (A)



Page number


Multi tax personal including overseas

39 Sushi

73 411 Dec 10 (A)

40 Mirtoon

75 418 Dec 11 (A)

41 Shuttelle

78 430 Jun 13 (A)

42 Jodie

79 436 Jun 15

43 Cate and Ravi

82 445 Jun 15

44 Waverley

83 451 Sept/Dec 16 (A)

45 Noah and Dan

86 457 Mar/Jun 17 (A)

46 Max

87 463 Mar/Jun 18 (A)

Personal finance, business finance and investments

47 Gagarin 89 467 Jun 08 (A)

48 Tetra

90 472 Jun 12

49 Monisha and Horner

91 479 Dec 13

50 Stella and Maris

93 487 Sept/Dec 15 (A)

51 Pippin

95 492 Mar/Jun 17

52 Florina, Kanzi and Winston

97 502 Sept/Dec 17 (A)

53 Jessica

100 509 Mar/Jun 18

54 Dee

101 514 Sep 18

TAXATION OF CORPORATE BUSINESSES

Family company issues

55 Trifles Ltd 104 521 Dec 10 (A)

56 Banger Ltd and Candle Ltd

105 527 Dec 12 (A)



Page number


Family company issues

57 Bamburg Ltd

107 534 Jun 14

58 Nocturne Ltd

108 540 Jun 15

59 Gail 109 546 Mar/Jun 16

60 Maria and Granada Ltd 112 553 Mar/Jun 16 (A)

61 Acryl Ltd and Cresco Ltd 114 558 Sept/Dec 16 (A)

62 Traiste Ltd 115 564 Mar/Jun 17

63 Dent Ltd 117 569 Mar/Jun 19

Groups, consortia and overseas company aspects

64 Daube Group

119 573 Dec 10 (A)

65 Drench, Hail Ltd and Rain Ltd

122 586 Dec 11 (A)

66 Janus plc Group

124 595 Jun 12 (A)

67 Liza

127 604 Jun 13

68 Spetz Ltd Group

128 609 Dec 13 (A)

69 Klubb plc

130 613 Dec 14

70 Helm Ltd Group

131 619 Jun 15 (A)

71 Sprint Ltd and Iron Ltd 133 624 Sept/Dec 15 (A)

72 Cinnabar Ltd 136 630 Sept/Dec 15 (A)

73 Hahn Ltd Group 138 635 Sept/Dec 16 (A)

74 Heyer Ltd Group

140 643 Mar/Jun 17

75 Achiote Ltd

142 649 Mar/Jun 17

76 Harrow Tan Ltd

144 655 Sept/Dec 17

77 Set Ltd Group

148 663 Mar/Jun 18



Page number


Groups, consortia and overseas company aspects

78 Grand Ltd Group

150 668 Sep 18

79 Eet Ltd Group

153 677 Dec 18

80 Plad Ltd and Quil Ltd

156 683 Mar/Jun 19


ANALYSIS OF PAST EXAMS

The table below summarises the key topics that have been tested in recent examinations.

Note that the references are to the number of the question in this edition of the exam kit.

Sept/Dec 2016

Mar/Jun 2017

Sept/Dec 2017

Mar/Jun 2018

Sep 2018

Dec 2018

Mar/Jun 2019

IHT Lifetime gifts Q12 Q51 Q52, Q33 Q20, Q46 Q54, Q34 Q35 Q36 Death estate Q45 Q52 Q22 Diminution in value Q12 Q20 BPR/APR Q33 Q34 Q36 Gift with reservation Quick succession relief Consequences of lifetime giving

Q12 Q52, Q33 Q46 Q35

Overseas aspects Q44 Q45 Q54

Trusts Description Tax treatment CGT Basic computations Q44 Q52, Q5 Q54 Q35 Damaged assets Shares Q51, Q62 Q52, Q5 Q35 Q36, Q14 Reorganisations Capital gains tax reliefs: Incorporation relief Q44 Q21 Entrepreneurs’ relief Q44, Q61 Q5 Q46 Q21 Q35 Q36 Gift relief Q52, Q33 Q20, Q46 Q34 Q36 PPR relief Q45 Q6 Planning Q54 Q35 Overseas aspects Q44 Q45 Q46

Income Tax Personal tax computations

Q12 Q51, Q62 Q52 Q20 Q54 Q22, Q6 Q36

Redundancy payments Q62 Q53 Share options and share incentives

Q4 Q5 Q6 Q36, Q14

Employment benefits Q4 Q62 Q52 Q53 Q6 Q36, Q63 Employed v self employed

Property business profits

Overseas aspects of income

Q4, Q44

NICs Q12 Q51, Q62 Q5 Q20 Q21 Q36, Q63



Sept/Dec 2016

Mar/Jun 2017

Sept/Dec 2017

Mar/Jun 2018

Sep 2018

Dec 2018

Mar/Jun 2019

Self Employed Income − Opening year rules Q14 − Change a/c date Q13 − Closing year rules Q12, Q44 Q51 − Capital allowances Q12 Q51, Q76 − Trading losses Q13 Q53 Q21 Q22 Q14 − Partnerships Q53 Q14 Badges of trade Self-assessment Employee v partner Q13

Corporation Tax Anti-avoidance − trading losses

Loss relief Q61, Q76 Q76 Q77 Q80 Loan relationships Research and development Q5 Q77 Q63 Intangible assets Q75 Transfer pricing Q73 Q75 Close companies Q4 Q34 Purchase of own shares Q62 Personal service company Groups Q73 Q76 Q76 Q77 Q78 Q79 Q80 Consortium relief Capital gains implications including rollover

Q73 Q76 Q76 Q77 Q78, Q34 Q79

Pre entry cap loss Q76 Substantial shareholding exemption

Q61 Q75 Q76 Q78

Overseas Aspects Q77 Q79 Q80 Extraction of profits (salary vs. dividend)

Q62 Q52 Q21

Liquidation Q61 Administration Q73 Q76 Q5 Q77 Q79

Financial planning Investments Q33 Q54 Pensions Q52, Q33 Q53 Q6 EIS/SEIS/VCT Q51 Q54

Stamp Duty/SDLT Q76 Q76 Q78

VAT Registration/deregistration Q61 Q76 Q21 Q22 Q63 Schemes Q76 Partial exemption Q20 Groups Q73 Q80 Land and buildings Q75 Q78 Q79 Transfer of going concern Q78 Overseas aspects Q13 Q77 Ethical issues Q73 Q76 Q52 Q20 Q78 Q22 Q80


EXAM TECHNIQUE

• We recommend that you spend 15 minutes reading the questions at the beginning of the exam: – read the questions and examination requirements carefully, and – begin planning your answers. See the Exam Specific Information for advice on how to use this time for this exam.

• If 15 minutes are spent reading the exam, this leaves three hours to attempt the questions. • Divide the time you spend on questions in proportion to the marks on offer:

– one suggestion for this examination is to allocate 1.8 minutes to each mark available (180 minutes/100 marks), so a 10 mark question should be completed in approximately 18 minutes. If you plan to spend more or less time than 15 minutes reading the exam, your time allocation per mark will be different

– within that, try to allow time at the end of each question to review your answer and address any obvious issues.

Whatever happens, always keep your eye on the clock and do not over run on any part of any question!

• If you get completely stuck with a question: – leave space in your answer area, and – return to it later.

• Stick to the question and tailor your answer to what you are asked. – Pay particular attention to the verbs in the question. – Try to apply your comments to the scenario where possible.

• If you do not understand what a question is asking, state your assumptions. Even if you do not answer in precisely the way the examining team hoped, you should be given some credit, if your assumptions are reasonable.

• You should do everything you can to make things easy for the marker. The marker will find it easier to identify the points you have made if your answers are legible.

• Written questions: Your answer should have: – a clear structure – a brief introduction, a main section and a conclusion. Be concise. It is better to write a little about a lot of different points than a great deal about one or two points. If you are sitting the exam as a Computer Based Examination (CBE) then you will have the choice of producing your answer using a word processor or spreadsheet. For answers that are mostly written you may find the word processor most useful.

• Computations: It is essential to include all your workings in your answers and ensure that they are clearly labelled. Although computations may be prepared using standard formats, you should always think about whether there is an easier way to arrive at the answer by working in the margin, say. If you are sitting the exam as a CBE then you may find the spreadsheet function most useful for computations.



• Reports, memos and other documents: Some questions ask you to present your answer in the form of a report, a memo, a letter or other document. Make sure that you use the correct format – there could be easy marks to gain here.


EXAM SPECIFIC INFORMATION

THE EXAM

FORMAT OF THE EXAM Number of marks Section A: Two compulsory case-study questions: Question 1 35 Question 2 25 There will be five ethics marks and four professional skills marks in this section. Section B: Two compulsory 20 mark questions, covering both business and personal tax issues 40 marks in total ––––– 100 ––––– Total time allowed: 3 hours and 15 minutes.

Note that:

• From March 2020, strategic professional exams will become available by computer based examination. This is being phased in on a market by market basis over the following sittings. The exam format may impact upon your approach to revision. For more information regarding what is available in your market, we therefore advise consulting ACCA Global.

• Candidates will be expected to undertake both calculation and narrative work. The questions will be scenario based and may involve consideration of more than one tax, some elements of planning and the interaction of taxes.

• Every ATX exam will include an ethical component for five marks in section A. The questions on ethics will be confined to the following areas:

– prospective clients

– conflicts of interest

– disclosure of information to HM Revenue & Customs

– money laundering

– tax irregularities

– tax avoidance

– tax evasion.

• Apart from the above, any subject may be tested anywhere in the exam for any number of marks.

• The exam will not just test ATX knowledge: TX knowledge is still highly examinable, but will be tested in a more advanced way.



• The requirements of a section A question may be presented in one of two different ways:

– given in full at the end of the question, or

– a brief overview can be provided at the end of the question with a reference to the detailed requirements in the body of the question.

PASS MARK

The pass mark for all ACCA Qualification examinations is 50%.

EXAM SPECIFIC IN FORMATION


SUGGESTED APPROACH TO THIS EXAM The ATX examination will be 3 hours and 15 minutes long, with no separate time allocated for reading and planning. However, reading and planning are crucial elements of your examination technique and it is important that you allocate time in the examination to this.

Spend time reading the examination questions carefully. As stated earlier, we recommend that 15 minutes should be spent reading the questions.

There is no choice of questions in the exam, but there is a decision to be made regarding the order in which you should attempt the questions.

Therefore, in relation to ATX, we recommend that you take the following approach with your reading and planning:

• Skim through the whole exam, assessing the level of difficulty of each question.

• Annotate on the question next to the mark allocation the amount of time you should spend on each part. Or, if you are sitting a computer based exam, make a note in the scratch pad or answer space. Do this for each part of every question.

• Decide the order in which you think you will attempt each question:

This is a personal choice and you have time on the revision phase to try out different approaches, for example, if you sit mock exams.

A common approach is to tackle the question you think is the easiest and you are most comfortable with first.

Others may prefer to tackle the longest questions first, or conversely leave them to the last.

Psychologists believe that you usually perform at your best on the second and third question you attempt, once you have settled into the exam, so not tackling the bigger Section A questions first may be advisable.

It is usual however that students tackle their least favourite topic and/or the most difficult question in their opinion last.

Whatever your approach, you must make sure that you leave enough time to attempt all questions fully and be very strict with yourself in timing each question.



• For each question in turn, read the requirements and then the detail of the question carefully.

Always read the requirement first as this enables you to focus on the detail of the question with the specific task in mind.

For computational questions:

Highlight key numbers/information and key words in the question, or use the scratch pad or answer space to make notes to yourself to remember key points in your answer.

For written questions:

Take notice of the format required (e.g. letter, memo, notes) and identify the recipient of the answer. You need to do this to judge the level of sophistication required in your answer and whether the use of a formal reply or informal bullet points would be satisfactory.

Plan your beginning, middle and end and the key areas to be addressed and your use of titles and sub-titles to enhance your answer.

For all questions:

Spot the easy marks to be gained in a question and parts which can be performed independently of the rest of the question. For example, tax payment dates, ethical issues, laying out the answer in the correct format etc.

Make sure that you do these parts first when you tackle the question.

Don’t go overboard in terms of planning time on any one question – you need a good measure of the whole exam and a plan for all of the questions at the end of the 15 minutes.

By covering all questions you can often help yourself as you may find that facts in one question may remind you of things you should put into your answer relating to a different question.

• With your plan of attack in mind, start answering your chosen question with your plan to hand, as soon as you are ready to start.

Always keep your eye on the clock and do not over run on any part of any question!

DETAILED SYLLABUS The detailed syllabus and study guide written by the ACCA can be found at:

www.accaglobal.com/en/student.html


TAX RATES AND ALLOWANCES

Throughout this exam kit:

1 You should assume that the tax rates and allowances for the tax year 2019/20 and for the Financial year to 31 March 2020 will continue to apply for the foreseeable future unless you are instructed otherwise.

2 Calculations and workings need only to be made to the nearest £.

3 All apportionments should be made to the nearest month.

4 All workings should be shown.

INCOME TAX Normal

rates Dividend

rates Basic rate £1 – £37,500 20% 7.5% Higher rate £37,501 – £150,000 40% 32.5% Additional rate £150,001 and above 45% 38.1% Savings income nil rate band – Basic rate taxpayers £1,000 – Higher rate taxpayers £500 Dividend nil rate band £2,000 A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income.

Personal allowance

Personal allowance £12,500 Transferable amount £1,250 Income limit £100,000 Where adjusted net income is £125,000 or more, the personal allowance is reduced to zero.

Residence status

Days in UK Previously resident Not previously resident

Less than 16 Automatically not resident Automatically not resident 16 to 45 Resident if 4 UK ties (or more) Automatically not resident 46 to 90 Resident if 3 UK ties (or more) Resident if 4 UK ties

91 to 120 Resident if 2 UK ties (or more) Resident if 3 UK ties (or more) 121 to 182 Resident if 1 UK tie (or more) Resident if 2 UK ties (or more)

183 or more Automatically resident Automatically resident

Remittance basis charge

UK resident for: Charge Seven out of the last nine years £30,000 12 out of the last 14 years £60,000



Car benefit percentage

The relevant base level of CO2 emissions is 95 grams per kilometre.

The percentage rates applying to petrol cars (and diesel cars meeting the RDE2 standard) with CO2

emissions up to this level are:

50 grams per kilometre or less 16% 51 grams to 75 grams per kilometre 19% 76 grams to 94 grams per kilometre 22% 95 grams per kilometre 23%

Car fuel benefit The base figure for calculating the car fuel benefit is £24,100.

Company van benefits The company van benefit scale charge is £3,430, and the van fuel benefit is £655.

Individual savings accounts (ISAs)

The overall investment limit is £20,000.

Property income

Basic rate restriction applies to 75% of finance costs relating to residential properties.

Pension scheme limits Annual allowance £40,000 Minimum allowance £10,000 Threshold income limit £110,000 Income limit £150,000 Lifetime allowance £1,055,000 The maximum contribution that can qualify for tax relief without any earnings is £3,600.

Approved mileage allowances: cars Up to 10,000 miles 45p Over 10,000 miles 25p

TAX RATE S AND ALLOWANCE S


Capital allowances: rates of allowance Plant and machinery Main pool 18% Special rate pool 6% Motor cars New cars with CO2 emissions up to 50 grams per kilometre 100% CO2 emissions between 51 and 110 grams per kilometre 18% CO2 emissions over 110 grams per kilometre 6% Annual investment allowance Rate of allowance 100% Expenditure limit £1,000,000

Cash basis accounting Revenue limit £150,000

Cap on income tax reliefs

Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income.

CORPORATION TAX

Rate of tax – Financial year 2019 19% – Financial year 2018 19% – Financial year 2017 19% Profit threshold £1,500,000

VALUE ADDED TAX Standard rate 20% Registration limit £85,000 Deregistration limit £83,000



INHERITANCE TAX: nil rate bands and tax rates

Nil rate band £ 6 April 2019 to 5 April 2020 325,000 6 April 2018 to 5 April 2019 325,000 6 April 2017 to 5 April 2018 325,000 6 April 2016 to 5 April 2017 325,000 6 April 2015 to 5 April 2016 325,000 6 April 2014 to 5 April 2015 325,000 6 April 2013 to 5 April 2014 325,000 6 April 2012 to 5 April 2013 325,000 6 April 2011 to 5 April 2012 325,000 6 April 2010 to 5 April 2011 325,000 6 April 2009 to 5 April 2010 325,000 6 April 2008 to 5 April 2009 312,000 6 April 2007 to 5 April 2008 300,000 6 April 2006 to 5 April 2007 285,000 6 April 2005 to 5 April 2006 275,000 Residence nil rate band 150,000 Rate of tax on excess over nil rate band – Lifetime rate 20% – Death rate 40%

Inheritance tax: Taper relief

Years before death Percentage reduction

More than 3 but less than 4 years 20% More than 4 but less than 5 years 40% More than 5 but less than 6 years 60% More than 6 but less than 7 years 80%

CAPITAL GAINS TAX Normal

rates Residential

property Lower rate 10% 18% Higher rate 20% 28% Annual exempt amount £12,000 Entrepreneurs’ relief and investors’ relief – Lifetime limit £10,000,000 – Rate of tax 10%

TAX RATE S AND ALLOWANCE S


NATIONAL INSURANCE CONTRIBUTIONS

Class 1 Employee £1 – £8,632 per year Nil £8,633 – £50,000 per year 12% £50,001 and above per year 2% Class 1 Employer £1 – £8,632 per year Nil £8,633 and above per year 13.8% Employment allowance £3,000 Class 1A 13.8% Class 2 £3.00 per week Small profits threshold £6,365 Class 4 £1 – £8,632 per year Nil £8,633 – £50,000 per year 9% £50,001 and above per year 2%

RATES OF INTEREST (assumed) Official rate of interest 2.50% Rate of interest on underpaid tax 3.25%% Rate of interest on overpaid tax 0.50%

STANDARD PENALTIES FOR ERRORS Taxpayer behaviour

Maximum penalty Minimum penalty – unprompted disclosure

Minimum penalty – prompted disclosure

Deliberate and concealed

100% 30% 50%

Deliberate but not concealed

70% 20% 35%

Careless 30% 0% 15%

STAMP DUTY LAND TAX

Non-residential properties Up to £150,000 0% £150,001 – £250,000 2% £250,001 and above 5%

STAMP DUTY

Shares 0.5%




TIME LIMITS AND ELECTION DATES Income tax

Election/claim Time limit For 2019/20

Agree the amount of trading losses to carry forward

4 years from the end of the tax year in which the loss arose

5 April 2024

Current and prior year set-off of trading losses against total income (and chargeable gains)

12 months from 31 January following the end of the tax year in which the loss arose

31 January 2022

Three year carry back of trading losses in the opening years


31 January 2022

Three year carry back of terminal trading losses in the closing years

4 years from the end of the last tax year of trading

5 April 2024

Set-off of loss on the disposal of unquoted trading company shares against income


31 January 2022

Transfer of assets eligible for capital allowances between connected parties at TWDV

2 years from the date of sale

National Insurance Contributions


Class 1 primary and secondary – pay days

17 days after the end of each tax month under PAYE system

(14 days if not paid electronically)

22nd of each month

Class 1 A NIC – pay day 22 July following end of tax year

(19 July if not paid electronically)

22 July 2020

Class 2 NICs – pay days Paid under self-assessment with balancing payment

31 January 2021

Class 4 NICs – pay days Paid under self-assessment with income tax



Capital gains tax


Replacement of business asset relief for individuals (Rollover relief)

4 years from the end of the tax year: – in which the disposal occurred or – the replacement asset was

acquired

whichever is later

5 April 2024 for 2018/19 sale and 2019/20 acquisition

Holdover relief of gain on the gift of a business asset (Gift relief)

4 years from the end of the tax year in which the disposal occurred

5 April 2024

Disapplication of incorporation relief

2 years from the 31 January following the end of the tax year in which the business is transferred

If sell all shares by 5 April following tax year of incorporation:

Time limit 12 months earlier than normal claim date

31 January 2023

31 January 2022

EIS reinvestment relief

5 years from 31 January following the end of the tax year in which the disposal occurred

31 January 2026

Entrepreneurs’ relief and Investors’ relief

12 months from 31 January following the end of the tax year in which the disposal occurred

31 January 2022

Determination of principal private residence

2 years from the acquisition of the second property

TIME L IMITS AN D ELE CTION DATE S


Self-assessment – individuals


Pay days for income tax and class 4 NIC

1st instalment:

31 January in the tax year

2nd instalment:

31 July following the end of tax year

Balancing payment:

31 January following the end of tax year

31 January 2020

31 July 2020

31 January 2021

Pay day for CGT and class 2 NIC 31 January following the end of tax year 31 January 2021

Filing dates If notice to file issued by 31 October following end of tax year

If notice to file issued after 31 October following end of tax year

Paper return: 31 October following end of tax year Electronic return: 31 January following end of tax year

3 months from the date of issue of the notice to file

31 October 2020

31 January 2021

Retention of records

Business records Personal records

5 years from 31 January following end of the tax year

12 months from 31 January following end of the tax year

31 January 2026 31 January 2022

HMRC right of repair 9 months from date the return was filed

Taxpayers right to amend a return

12 months from 31 January following end of the tax year

31 January 2022

Error or mistake claim 4 years from the end of the tax year 5 April 2024

HMRC can open an enquiry 12 months from submission of the return

HMRC can raise a discovery assessment

– No careless or deliberate behaviour

– Tax lost due to careless behaviour

– Tax lost due to deliberate behaviour

4 years from the end of the tax year 6 years from the end of the tax year 20 years from the end of the tax year

5 April 2024 5 April 2026 5 April 2039

Taxpayers right of appeal against an assessment

30 days from the assessment – appeal in writing



Inheritance tax


Lifetime IHT on CLTs

– pay day

Gift before 1 October in tax year:

Following 30 April

Gift on/after 1 October in tax year:

6 months after the end of the month of the gift

30 April 2020

Death IHT :

on lifetime gifts within seven years of death (CLTs and PETs)

and on the estate value

6 months after the end of the month of death

Deed of variation 2 years from the date of death – in writing

Transfer of unused nil rate band to spouse or civil partner

2 years from the date of the second death

Corporation tax

Election/claim Time limit

Replacement of business asset relief for companies (Rollover relief)

4 years from the end of the accounting period: – in which the disposal occurred or – the replacement asset was acquired

whichever is later

Set-off of brought forward losses against total profits (income and gains)

2 years from the end of the accounting period in which the loss is relieved

Current year set-off of trading losses against total profits (income and gains), and

12 month carry back of trading losses against total profits (income and gains)

2 years from the end of the accounting period in which the loss arose

Surrender of current period and brought forward losses to other group companies (group relief and consortium relief)

2 years after the claimant company’s accounting period

Election for transfer of capital gain or loss to another company within the gains group

2 years from the end of the accounting period in which the disposal occurred by the company actually making the disposal

TIME L IMITS AN D ELE CTION DATE S


Self-assessment – companies


Pay day for small and medium companies 9 months and one day after the end of the accounting period

Pay day for large companies Instalments due on 14th day of:

– Seventh, Tenth, Thirteenth, and Sixteenth month after the start of the chargeable accounting period

Filing dates Later of:

– 12 months from the end of the accounting period

– 3 months form the issue of a notice to deliver a corporation tax return

Companies error or mistake claim 4 years from the end of the accounting period

HMRC can open an enquiry 12 months from the actual submission of the return

Retention of records 6 years from the end of the accounting period

Value added tax


Compulsory registration

Historic test:

– Notify HMRC – Charge VAT

Future test:

– Notify HMRC

– Charge VAT

30 days from end of the month in which the threshold was exceeded

Beginning of the month, one month after the month in which the threshold was exceeded 30 days from the date it is anticipated that the threshold will be exceeded

the date it is anticipated that the threshold will be exceeded

(i.e. the beginning of the 30 day period)

Compulsory deregistration 30 days from cessation

Filing of VAT return and payment of VAT End of month following the return period

KAPLAN PUBLISHIN G 1

Section 1

PRACTICE QUESTIONS

TAXATION OF INDIVIDUALS

EMPLOYMENT

1 VIKRAM BRIDGE (ADAPTED)

Vikram Bridge has been made redundant by Bart Industries Ltd, a company based in Birmingham. He intends to move to Scotland to start a new job with Dreamz Technology Ltd.

The following information has been extracted from client files and from meetings with Vikram.

Vikram Bridge: – Is unmarried, but has been living with Alice Tate since 2006. The couple have four

young children. – Receives dividends of approximately £7,800 each year and makes annual capital

gains of approximately £3,200 in respect of shares inherited from his mother. – The couple have no sources of income other than Vikram’s employment income and

the £7,800 of dividends.

Made redundant by Bart Industries Ltd on 28 February 2020:

– Vikram’s employment contract entitled him to two months’ notice or two months’ salary in lieu of notice. On 28 February 2020 the company paid him his salary for the two-month period of £4,700, and asked him to leave immediately.

– On 30 April 2020 the company paid him a further £1,300 in respect of statutory redundancy, together with a non-contractual lump sum of £14,500, as a gesture of goodwill.

Job with Dreamz Technology Ltd:

– Starts on 1 October 2020 with an annual salary of £50,480. – The company will contribute £9,400 in October 2020 towards Vikram’s costs of

moving to Scotland. – In November 2021, the company will issue free shares to all of its employees. Vikram

will be issued with 200 shares, expected to be worth approximately £2,750.


2 KAPLAN PUBLISHIN G

Moving house:

– Vikram’s house in Birmingham is fairly small; he intends to buy a much larger one in Glasgow.

– The cost of moving to Glasgow, including the stamp duty land tax in respect of the purchase of his new house, will be approximately £12,500.

– To finance the purchase of the house in Glasgow Vikram will sell a house he owns in Wales, in August 2020.

Holiday home in Wales:

– Was given to Vikram by his mother on 1 September 2011, when it was worth £145,000.

– Vikram’s mother continued to use the house regularly until her death on 1 May 2020, when she left the whole of her estate to Vikram.

– At the time of her death the house had severe structural problems and was valued at £140,000.

– Vikram has subsequently spent £18,000 improving the property and expects to be able to sell it for £195,000.

– Vikram is keen to reduce the tax payable on the sale of the house and is willing to transfer the house, or part of it, to Alice prior to the sale if that would help.

Required:

Prepare explanations, including supporting calculations where appropriate, of the following issues suitable for inclusion in a letter to Vikram.

(a) The taxable gain on the sale of the house in Wales in August 2020, together with the potential effect of transferring the house, or part of it, to Alice prior to the sale, and any other advice you consider helpful. (3 marks)

(b) The inheritance tax implications in respect of the house in Wales on the death of Vikram’s mother. (2 marks)

(c) The income tax treatment of redundancy payments received from Bart Industries Ltd and Vikram’s taxable income in the tax year 2020/21. (4 marks)

(d) The income tax treatment of the receipt by Vikram of the shares in Dreamz Technology Ltd. (3 marks)

(e) How Vikram’s job with Dreamz Technology Ltd will affect the amount of income tax due on his dividend income for 2022/23 and future tax years. Explain how and when this tax will be collected. (6 marks)

Ignore national insurance contributions in answering this question.

You may assume that the rates and allowances for the tax year 2019/20 will continue to apply for the foreseeable future.

(Total 18 marks)

PRACTICE QUESTION S: SECTION 1


2 MORICE AND BABEEN PLC Walk in the footsteps of a top tutor

Morice is the finance director of Babeen plc. Babeen plc is a non-close quoted trading company. Morice wants to provide information to the company’s employees on a proposed Save As You Earn (SAYE) share option scheme, a medical care scheme and payments to employees for driving their own cars on business journeys.

The following information has been obtained from a telephone conversation with Morice.

Proposed SAYE scheme rules:

– Employees will invest in the scheme for five years. – The scheme will permit monthly investments of between £5 and £750. – The scheme will be open to all employees and directors who are at least 21 years old

and have worked full-time for the company for at least three years. – The share options granted under the scheme will enable employees to purchase

shares for £2.48 each.

Detailed explanations, with supporting calculations, requested by Morice:

– Whether or not each of the proposed rules will be acceptable for a SAYE scheme. – The tax and national insurance liabilities for the employee in the illustrative example

below in respect of the grant and exercise of the share options, the receipt of the bonus and the sale of the shares on the assumption that the scheme referred to meets all of the HMRC conditions.

Illustrative example – SAYE scheme that meets HMRC conditions: – The share options will be granted on 1 January 2021 to purchase shares at £2.48

each. – The employee will invest £250 each month for five years. – A bonus equal to 90% of a single monthly payment will be paid at the end of the five-

year period. – The amount invested, together with the bonus, will be used to exercise share

options. – The share options will be exercised on 31 December 2025 and the shares will be sold

on the same day. – The employee’s interest in the employing company will be less than 1%. – A share in the employing company will be worth: £3.00 on 1 January 2021

£4.00 on 31 December 2025

Medical care scheme: – Babeen plc is to offer free private health insurance to its employees. – The health insurance will cost the company £470 annually per employee. – The insurance would cost each employee £590 if they were to purchase it personally. – Employees who decline the offer will be able to borrow up to £12,500 from Babeen

plc to pay for medical treatment. – The loans will be interest-free and repayable over four years.

Payments to employees for driving their own cars on business journeys:

– For each mile driven – 36 pence. – For each mile driven whilst carrying a passenger – an additional 3 pence.


4 KAPLAN PUBLISHIN G

Required:

(a) Prepare the DETAILED explanations, with supporting calculations, as requested by Morice in respect of the proposed SAYE scheme. (10 marks)

(b) Explain the income tax and national insurance implications for the employees of Babeen plc of:

(i) the medical care scheme (3 marks)

(ii) the payments for driving their own cars on business journeys. (4 marks)

You should assume that the rates and allowances for the tax year 2019/20 apply throughout this question.

(Total: 17 marks)

3 HYSSOP LTD Walk in the footsteps of a top tutor

Hyssop Ltd wishes to provide assistance with home to work travel costs for Corin, who is an employee, and also requires advice on the corporation tax implications of the purchase of a short lease and the value added tax (VAT) implications of the sale of a warehouse.

Hyssop Ltd:

– Is a UK resident trading company. – Prepares accounts to 31 December each year. – Is registered for VAT. – Leased a factory on 1 February 2020.

Corin:

– Is resident and domiciled in the UK. – Is an employee of Hyssop Ltd, who works only at the company’s head office. – Earns an annual salary of £55,000 from Hyssop Ltd and has no other source of

income.

Hyssop Ltd – assistance with home to work travel costs:

– Hyssop Ltd is considering two alternatives to provide assistance with Corin’s home to work travel costs.

Alternative 1 – provision of a motorcycle:

– Hyssop Ltd will provide Corin with a leased motorcycle for travelling from home to work.

– Provision of the leased motorcycle, including fuel, will cost Hyssop Ltd £3,160 per annum. This will give rise to an annual taxable benefit of £3,160 for Corin.

– Corin will incur no additional travel or parking costs in respect of his home to work travel.

PRACTICE QUESTION S: SECTION 1


Alternative 2 – payment towards the cost of driving and provision of parking place:

– Hyssop Ltd will reimburse Corin for the cost of driving his own car to work up to an amount of £2,240 each year.

– Corin estimates that his annual cost for driving from home to work is £2,820. – Additionally, Hyssop Ltd will pay AB Parking Ltd £920 per year for a car parking space

for Corin near the head office.

Acquisition of a factory:

– Hyssop Ltd acquired a 40-year lease on a factory on 1 February 2020 for which it paid a premium of £260,000.

– The factory is used in Hyssop Ltd’s trade.

Disposal of a warehouse:

– Hyssop Ltd has agreed to sell a warehouse on 31 December 2020 for £315,000, which will give rise to a chargeable gain of £16,520.

– Hyssop Ltd had purchased the warehouse when it was newly constructed on 1 January 2017 for £270,000 (excluding VAT).

– The warehouse was used by Hyssop Ltd in its trade until 31 December 2019, since when it has been rented to an unconnected party.

– Until 1 January 2020, Hyssop Ltd made only standard-rated supplies for VAT purposes.

– Hyssop Ltd has not opted to tax the warehouse for VAT purposes. – The capital goods scheme for VAT applies to the warehouse.

Required:

Note: You should ignore value added tax (VAT) for parts (a) and (b).

(a) Explain, with the aid of calculations, which of the two alternatives for providing financial assistance for home to work travel is most cost efficient for:

(i) Corin. (5 marks)

(ii) Hyssop Ltd. (3 marks)

(b) Explain, with the aid of calculations, the corporation tax implications for Hyssop Ltd of the acquisition of the leasehold premises on 1 February 2020, in relation to the company’s tax adjusted trading profits for the year ended 31 December 2020 and its ability to roll over the gain on the sale of the warehouse. (8 marks)

(c) Explain, with the aid of calculations, the VAT implications of the disposal of the warehouse on 31 December 2020. (4 marks)

(Total: 20 marks)

ACCA Strategic Professional – Options

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