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ACCA Paper F6 Formats/ Short Notes
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ACCA Paper F6 Taxation (UK)
Initial booster
This is not an exhaustive note for ACCA paper F6. And this note
does not cover full syllabus of the paper F6. However it may be
handy as a startup in taxation. Some major calculations and
confusing items are jotted down here considering exam kit and
study text. A note of own working is the best note of all and
advisable. Wishing your success through Hard Work and self-
developed Techniques.
MD. Inzamum - UL – Haque
Individual Income Tax Computation
Taxpayer’s Name:
Income Tax Computation – 2013/14
Non-
savings
Income
£
Savings
Income
£
Dividend
Income
£
Total
Income
£
Employment Income
Trading Income
Property Income
Savings Income:
(e.g. Building Society Interest (including Tax Credit)
Uk Dividends (including Tax Credit)
Total Income
Less> Interest Payment
Net Income
Less> Personal Allowance
Taxable Income
Income Tax:
On Non-savings Income
At basic rate @20%
At higher rate @40%
At additional rate @ 45%
On Savings Income
At Starting rate @10%
At basic rate @20%
At higher rate @40%
Additional rate @45%
On Dividend Income
At basic rate @10%
At higher rate @32½
At additional rate @37½
Income Tax Liability
Md. Inzamum-Ul-Haque [[email protected]]
Tax Suffered At Source:
PAYE
Bank Interest Income
Building Society Interest
Dividend Income
Income Tax Payable
Exceptional (Gross Amount )
Government Securities
National Savings Bank Investment Account
Exempt Income:
Individual savings Account (ISA)
National Savings Investment and Certificate (NSI
& C)
Lottery, Gaming and Betting
Gift, Aid, Donation
Benefits:
Payment counted as gross though actually paid net
amount
Basic rate band extended by the Gross amount
e.g. 1,800 X 100/80 = 2,250 (counted by charity)
Actually Paid
Band Extended to (32,010+2,250)
Married Couple/ Civil Partner
H : W (70 : 30) if noted, otherwise 50 : 50
Md. Inzamum-Ul-Haque [[email protected]]
Property Income
Unfurnished Lettings Furnished Lettings Furnished Holiday
Lettings
Rent:
Less> Insurance
Agents fee
Repairs
Interest on loan
Bad Debt
Council Rates
Water Rates
Wear & Tear
Allowance
Other
Management Expenses
Net Income (Rental)
££
(£)
(£)
(£)
(£)
(£)
(£)
(£)
(£)
(£)
(£)
(£)
££
General Allowance
Depreciation
Capital Expenditure
Disallowed
However, get Wear & Tear
Allowances = { 10% (Rental Income
– Council Tax – Water Rates) }
Condition:
1) Available for
lettings at least 210
days a year
2) Actually let for at
least 105 Days in
that 210 day period
3) No more than 155
days in total one
Periods of “longer
term occupation”
“longer term
occupation”
Continuous period of
31 days in which the
property is occupied
by the same person
Md. Inzamum-Ul-Haque [[email protected]]
Rent a Room Relief
(Owner Must be accommodated)
owner
Lower of:
Rent
Less> Allowable
Expenses
Rental Income
££
(£)
££
Rent
Less> Rent a room
Relief
Rental Income
££
4,250 (Fixed)
£££
Property Income
Lease
Premium
Less> 2% (n-1) X Premium
Assessable amount
Alternative calculation:
Property business income=
Premium (51 – n)/50
£
(£)
£
££
Letting
Pension
Occupational
(Arranged by the Company/Employer)
Personal
(Arranged by self/ Employee)
Higher of :
i. £3600
ii. 100 % Relevant Earnings
Employment Income
Trading Income
Furnished Holiday Lettings
Govt. Listed
Basic Rate band extends
Md. Inzamum-Ul-Haque [[email protected]]
Bonus
*** All Employees Receipt basis except directors
For Employees
Earlier of:
For Directors
Earliest of:
Date of Entitlement
Date paid
Determination of payment
<Cut off Date>
Benefits
Exempt Benefit
• Occupational Pension Scheme
• Canteen Facilities (if all can access)
• Luncheon Vouchers (up to
15p/working day
• Gift by 3rd Party (£250/tax yr
/source)
• Medical Insurance
• Christmas Party (£150/Head)
• One mobile phone
• Nurseries/Child care(£55/week)***
• Removal Expenses(£8,000/yr)
• Private incidental
expense/Overnight
Expenses(£5/night in Uk, £10/night
overseas
All Employee
• Luncheon Vouchers
• Living
Accommodation
P11D Employees
• Luncheon
Vouchers
• Living
Accommodation
• Car Benefit
• Fuel Benefit
• Loan Benefit
Md. Inzamum-Ul-Haque [[email protected]]
Living Accommodation Benefit
£ £
Higher of :
i. Rent Actually Paid to owner ££
ii. Rent Actually Received from company ££
Higher should be taken– £££
Add> Expensive Living Accommodation
(Cost of Providing Accommodation - £ 75000) X 4%
£
Less> Non Availability (x/ X) £
Less> Employee Contribution £
Living Accommodation Benefit £££
6 years Rules
Less than 6 years > Purchase Price
More than 6 years > Current MV + All CapEx made up to date
Asset Benefits
£
Higher of:
i. Purchase Price / Market Value (MV)
ii. Rental Value
* Higher will be taken
Add > 20% X MV when it is first provided £
Less > Non Availability £
Less > Employee Contribution £
Assessable Benefit £££
Md. Inzamum-Ul-Haque [[email protected]]
Gift After use of Asset Benefit
£
Higher of:
1. Original Purchase Price
2. Market value when gifted
Or, Higher of:
1) Current MV
2) (Original Price – Benefit to
date)
££
££
£££
Less > Benefit Already Assessed
11/12 MV X 20 % X Fraction (if any)
13/14 MV X 20 % X Fraction (if any)
Less> Employee Contribution
(£)
(£)
(£)
Assessable Benefit £££
Car Benefit
£
List price of car × Appropriate % ££
Add> Accessories ££
Less> Employee Contribution (££)
Less> Non availability (££)
Assessable benefit £££
*** Appropriate % Restricted up to 35%
*** Petrol + 3% = Diesel Rate
If a van (of normal maximum laden weight up to 3,500 kg) is made available for an employee's private
use, there is an annual scale charge of £3,000. The scale charge covers ancillary benefits such as
insurance and servicing.
No taxable benefit where an employee takes a van home (ie uses the van for home to work travel) but
is not allowed any other private use.
Where private fuel is provided, there is an additional charge of £564*. If the van is unavailable for
part of the year, or fuel for private use is only provided for part of the year, the benefit is scaled down.
Md. Inzamum-Ul-Haque [[email protected]]
If a commercial vehicle of normal maximum laden weight over 3,500 kg is made available for an
employee's private use, but the employee's use of the vehicle is not wholly or mainly private, no
taxable benefit arises except in respect of the provision of a driver
Fuel Benefit
£
£21,100 X Appropriate % (same as car) ££
Less> if pay full than benefit is zero, otherwise counted as full as benefit Nil/(££)
Less> Non Availability (proportion to month) (££)
Fuel benefit £££
Base rate 95 gm / km
Consumption 273gm/km
For 95 gm/ km rate applicable for diesel engine = (11+3) =14
Additional rate applicable (270 – 95)/5 =35
49
Restricted to 35 %
Beneficial Loan
Average Method of Interest
Loan amount + Outstanding Balance
2
The interest benefit is not taxable if the total
of all non-qualifying loans to the employee
did not exceed £5,000 at any time in the tax
year.
A qualifying loan is one on which all or
part of any interest paid would qualify for
tax relief.
Precise Method
Calculates the benefit day by day on the balance
actually outstanding.
However, calculations in the exam should be on a
monthly basis
Loan obtain 2013/14 August for £10,000
5 April 2014 repaid £5,000
27 August 2014 repaid residual amount.
Loan interest rate was 2% below ORI.
ORI- Official rate of interest.
Assume ORI remained at 4%.
Md. Inzamum-Ul-Haque [[email protected]]
When the £5,000 threshold is exceeded,
a benefit arises on interest on the whole
loan, not just on the excess of the loan over
£5,000.
£10,000 held for (10k X(.04-.02) X 8/12) = £ 133
Repaid £5,000
Held Remaining £5,000 for (5k X (.04-.02) X
5/12)= £41
Beneficial Loan =£(133+41) = £ 174
NIC – National Insurance Contribution
Class 1:
(a) Class 1 primary (Paid by Employee)
(b) Class 1A and Class 1B Secondary (Paid by Employer)
*** Payable On 19th July following tax year by cheque.if
***Electronic payment 22nd July following Tax year
Class 1 primary
%
£1 - £7755 Nil
£7756 - £41450 12
Over £ 41450 2
Class1 secondary rate:
%
£1 - £7696 Nil
Over £7696 13.8
Class 1A: Based on employee’s benefit @ 13.8% rate paid by employer
Not Calculated on
relevant earnings
salary/ wages
Bonus
Benefit
Commission
Sick pay
Tips
Non cash vouchers
****Exclude benefits
Md. Inzamum-Ul-Haque [[email protected]]
***(Payable 19th of July following the tax year)
Class 2: Chargeable on Self-employed person @ £2.7/week or £140.4/year (£2.7 × 52 weeks)
Class 4: self-employed - based on trading profit
%
£1 - £7755 Nil
£7756 - £41450 9
Over £ 41450 2
Summary:
Primary paid by employee on Earnings
Class 1:
Secondary paid by employer on Earnings
Class 1A: Paid by employer based on employee’s benefit
Class 2: Self-employed £2.70/ week
Class 4: Self-employed based on trading profit
Trading income
£
Net Profit per account X
Add:
Depreciation, amortization X
Capital expenditure X
Loss on disposal X
Private element to motor car X
Telephone bill (private) X
Leasing car (CO2 130gm/km exceed, then 15% of rental charge X
Expensive salary (extra element) X
Interest on capital investment (if owner only) X
Subscription and donation
Political parties donation
X
Drawings
(goods, selling price)
X
Md. Inzamum-Ul-Haque [[email protected]]
Interest in overdue tax X
Fees associated with acquiring NCA X
Non trading (employee loan) bad debts X
XX
Less:
Profit on disposal (X)
Subscription and donation
Professional fees (REHAB, BGMEA)
Donate to local agency
Condition:- it must be educational, religious, recreational,
cultural, for trading purpose – promoting business
(X)
Gift:
To employee
To customer
Condition:-
(1) less than £50/ customer/ year
(2) not food, tobaccos, drinks
(3) carrying business logo/ sign
(X)
Legal fees for chasing debts (X)
Charge incurred in defending the title of the assets (patent,
registration)
(X)
Capital allowance (X)
Entertainment for stuffs (X)
Any revenue expenditure incurred in the 7 years before a business
commence to trade
(X)
(XX)
Tax Adjusting trading profit/ (Loss) XXX/(XX)
Capital Allowance
Md. Inzamum-Ul-Haque [[email protected]]
Plant and Machinery
General Pool
Excluded:
(1) Expensive Motor Cat
(2) Cars with CO2 Emission 130gm/km
(3) Assets with Private usage by the proprietor
(4) Expenditure incurred on short life where an election de-pool is made
(5) Special Rate Pool
Annual Investment Allowance (AIA) [ 6April to 5April]
1st 250,000 Expenditure X 100% = 250,000
Than WDA (Written Down Allowance) or FYA (First Year Allowance)
1) 40% Temporary FYA
2) 100 % FYA on Low emission Car
(CO2 < 95gm/Km)
General Pool @ 18 %
Special Rate pool @ 8%
AIA AIA
WDA FYA
AIA & WDA Pro-rated
FYA Never Pro-rated
WDA & FYA Never simultaneously
Motor Car Based on CO2 Emission Rate [ Never gets AIA ]
Low Emission Car ≤ 95gm/km
100 % FYA
General Pool (WDA @ 18 %
96 gm/km – 110gm/km
Special Rate pool WDA@10%
CO2 emission ≥ 130 gm /km
Expensive Car, cooler machine
Md. Inzamum-Ul-Haque [[email protected]]
Md. Inzamum-Ul-Haque [[email protected]]
Trading Loss
Step by Step Procedure for accommodating trading losses
2011/12 2012/13 2013/14
Trading Income
Less> Brought forward loss
Other Income
3
Total Income 2
Less> Interest Payment
Less> Loss Relief
1
Net Income
Less> Personal Allowance
Taxable Income
Chargeable Gain Tax
Individual Company
Disposal Proceeds
Less> Incidental Cost
(Auction fees, sales Commission,
Advertisement etc.)
Disposal Proceeds
Less> Incidental Cost
(Auction fees, sales Commission,
Advertisement etc.)
Net Disposal Proceeds
Less> Allowable Cost
(Original Purchase cost+
improvement expenditure)
Net Disposal Proceeds
Less> Allowable Cost
(Original Purchase cost+
improvement expenditure)
Chargeable Gain Chargeable Gain
Less> Annual Exemption 10,900 Less > Indexation Allowance (W)
Taxable Gain Taxable Gain
Tax Charge @ 18 % or 28% Tax Charge
Calculate Each aggregate CG
Following Tax year 31 January Current Tax Year
Md. Inzamum-Ul-Haque [[email protected]]
Chattel : Tangible and Moveable Asset e.g. Plant and Machinery
Rules:
1) Buy and Sell < £6,000 than exempt
2) Buy and Sell £6,000 than Normal Way
3) Buy > £6,000 but sell < £6,000 than Deemed Proceed (Sell) £6,000
Example:
Purchase £10k and Sell £3k
Deemed Proceed £6k
Less> Cost £10k
Chargeable Loss (£4k) (Less)
4) Buy < £6,000 but Sell > £6,000
e.g. Purchase £ 5,000
Sell £ 10,000; CG = 5/3 X (10k-6k) = £6,667
CG will be 5/3 X (Gross Sale Price - £6,000) [Maximum]
Therefore, Sale proceed £ 10,000
Less> Cost (£ 5,000)
Chargeable Gain £ 5,000
Part Disposal:
Original Cost X SP of Disposal Part/(SP of Disposed Part + MV of Remaining Part)
Md. Inzamum-Ul-Haque [[email protected]]
Shares and Securities
Determining Share price :
Lower of:
(1) LP+ ¼ (HP – LP) [ Quarter Method]
(2) (LP+HP)/2 [Average Method]
For Individual For Company
Rules:
(1) Take the Share same Day Purchase
(2) From following 30 Days
(3) Share Pool
Calculation :
(1) Share Acquisition the Same Day
Disposal Proceed
(Total Sales Price X Taken Same Day / No of share would sold)
Less> Cost (No of Share X Purchase Price)
Capital Gain
(2) Following 30 Days
Disposal Proceeds (Total Sales Price X Taken from 30 Days/ No of
share would sold)
Less> Cost (No of Share X Purchase Price)
Capital Gain
(3) Share Pool :
Disposal Proceed
(Total Sales Price X Taken Same Day / No of share would sold)
Less> Cost (W1)
Capital Gain
Workings:
Year No Of Share Cost
2011 XX ££
Rules:
(1) Same Day Purchase
(2) During the 9 Days
before the sale
(taking earlier
acquisitions first)
(3) Shares in the FA 1985
Share Pool
Md. Inzamum-Ul-Haque [[email protected]]
2012 XX ££
Disposal (XX) (££)
Bal. C/F XX ££
For Company Rules (1) & (2) is same as individual
Share Pool System
FA 1985 > Up to Date while Sale/ Purchase
No of Share Unindexed Cost Indexed Cost
28 Sep 1983 Purchase 1200 3000 3000
Index Rise (3000 X 0.101) 303
2 Jan 1985 Purchase 2000 5750 5750
Share Value 1985 3200 8750 9053
Sale 1985 (2000) (5469) (5658)
Share Pool C/F 1200 3281 3395
Indexation Allowance
Final Calculation
£
Sale Proceed 10,000
Less> Cost (5,469)
Unindexed Capital Gain 4,531
Less> Indexation Allowance (189)
Indexed Capital Gain 4,342
A Comprehensive Example:
Bonus Issue : Free of Cost
Right Issue : Lower Price/ 1st Priority
For Individual
No of Share Cost
1982 Purchase 2000 2000
1983 Purchase 1000 1500
3000 3500
Company Issue Bonus 1982 (2 : 1)
Md. Inzamum-Ul-Haque [[email protected]]
Bonus Issue
(3,000 X ½)
1500 _
Balance at 1985 4500 3500
Purchase 1986 1000 1000
Balance at 1990 5500 4500
Company Issues Right (2:1) , Share Price @ £ 0.50
Right Issue
(5500 X ½) X £0.5
2750 1375
8250 5875
Relief
PPR(Principal Private
Residence)
For Selling Principal
Private Residence
Entrepreneur’s Relief
For Selling part or full
Business
Rollover Relief
For Reinvestment
Holdover Relief
Holdover Relief
P S
Market Value (MV)
£40k
Purchase Value £30k
Calculation for Parent
£ If Parent: £
Sales Proceed
(MV)
40k Deemed Purchase
(MV)
40k
Less> Cost (30k) Less> Holdover
Relief
(10k)
Capital Gain 10k Base Cost 30k
Less> Holdover
relief
(10k)
Nil
If Son:
Deemed Purchase 50k
Less> Cost (30k)
Capital Gain 20k
Gifted
Md. Inzamum-Ul-Haque [[email protected]]
P S
Son Paid £20k
Or £35k
Calculation for Parent
£ Workings: £
Deemed Sales
Proceed
40k Actually Sales
Proceed
20k/35k
Less> Cost (30k) Less> Cost (30k)
Capital Gain 10k Chargeable
Gain
Nil/5k
Holdover Relief (10k)/(5k)(bal
fig.)
Chargeable Now Nil/ £5k
Calculation for
Son
Deemed Proceeds
(MV)
40k Payment from
when gifted
Less>Holdover
Relief
(5k) Less> Purchase
Price
Base Cost 35k Chargeable
Now
Rollover Relief
Asset cost £30k
Sales Proceed £60k
New Asset Cost £70k (PP) / if £50k
Full Reinvestment
£
Sales Proceed 60k
Less> Cost (30k)
Capital Gain 30k
Less> Rollover Relief (30k)
Chargeable Gain Nil
Partial Reinvestment
Lower Of:
Chargeable Gain (W1)
Not invested (60k – 50k) = 10k (Chargeable Now)
Workings 1:
Sales Proceed 60k
Less> Cost (30k)
Capital Gain 30k
A2 Reinvestment Cost 50k
Transfer Price $40k
PP
$3
0k
Md. Inzamum-Ul-Haque [[email protected]]
Asset 2
Purchase Price 70k
Less>Rollover Relief (30k)
Base Cost 40k
Less> Rollover Relief (20k)
Base Cost 30k
Rollover Relief= (Initial PP – Not Invested Now)
Entrepreneur Relief
Business Sale £100k
Business Cost £50k
£
Sales Proceed 100k
Less> Cost (50k)
Capital Gain
(X4/9 =22,222)
50k
Less> Entrepreneurs Relief (22)
Capital Gain 28
Restricted £1m lifetime
Corporation Tax (Paid by Company)
£
Source of Income
Trading Income
Property Income
Interest Income
Chargeable/Capital Gain(From Workings)
X
X
X
X
XX
Less> Gift, Aid, Donation ( X100/80) (X)
Profit Chargeable to corporation Tax (PCTCT) XX
Add> Franked Investment Income (FII) X
Profits XXX
Determine the Tax Year based on
Applied on
Md. Inzamum-Ul-Haque [[email protected]]
Dividend Received
Subsidiary Company
(Not Accounted For)
Other Company
(FII – Franked Investment Income)
Corporation Tax rate
Small Profits Rate 20% (2013) and Full Rate 23%
Limit ≤£300,000 and ≥1,500,000
OR, 23% with marginal Relief
Marginal Relief : Standard Fraction X (U - A) X N/A
Example:
£ £
PCTCT 169k 344k
FII (5400 X 100/90) 6k 6k
Profits 175k 350k
Corporation Tax Payable 169k X 20%
=
344k X 23%
=
Less> Marginal Relief(W)
Accounting Period Vs. Period of Accounting
Profit Could be apportioned in accordance with period