The Institute of Chartered Accountants in England and Wales

PRINCIPLES OF TAXATION Professional Stage Knowledge Level

Study Guide

For exams in 2013

www.icaew.com

Contents

1 Introduction 1

2 Principles of Taxation 2

3 Study guide 3

4 Syllabus and learning outcomes 19

5 Key Resources 30

Study Guide 1

1 Introduction

1.1 What is the Principles of Taxation module and how does it fit within the Professional Stage? Structure

The syllabus has been designed to develop core technical, commercial, and ethical skills and knowledge in a structured and rigorous manner.

The diagram below shows the twelve modules at the Professional Stage, where the focus is on the acquisition and application of technical skills and knowledge, and the Advanced Stage which comprises two technical integration modules and the Case Study.

The knowledge base

The aim of the Principles of Taxation module is to enable students to understand the general objectives of tax and to calculate income tax, national insurance contributions, capital gains tax, corporation tax and VAT in straightforward scenarios.

Progression to application level

The knowledge base that is put into place here will be taken further in the Application level Taxation module, where the aim will be to enable students to prepare tax computations and provide tax advice to individuals and companies, again in straightforward scenarios. The above taxes introduced at Knowledge level are taken to a higher level, and in addition inheritance tax is covered at Application level.

Progression to Advanced Stage

The Advanced Stage papers – Business Reporting (BR) and Business Change (BC) – then take things further again, also introducing stamp duty and stamp duty land tax. The aims of BR being that students can apply analysis techniques, technical knowledge and professional skills to resolve real-life compliance issues faced by businesses – including circumstances where overseas taxes affect national taxes. In the BC paper taxation is particularly important. The aim is to ensure that students can provide technical advice in respect of issues arising in business transformations eg mergers and acquisitions.

The above illustrates how the knowledge of taxation principles gives a platform from which a progression of skills and taxation expertise is developed.

Principles of Taxation 2

2 Principles of Taxation

2.1 Module aim To enable candidates to understand the general objectives of tax and to calculate income tax, national insurance contributions, capital gains tax, corporation tax and VAT in straightforward scenarios.

2.2 Specification grid This grid shows the relative weightings of subjects within this module and should guide the relative study time spent on each. Over time the marks available in the assessment will equate to the weightings below, while slight variations may occur in individual assessments to enable suitably rigorous questions to be set.

Weighting (%)

Objectives, types of tax and ethics 10 Administration of taxation 20 Income tax and national insurance contributions 20 Capital gains tax and chargeable gains for companies 10 Corporation tax 20 VAT 20 100

Study Guide 3

3 Study guide

3.1 Help yourself study for your ACA exams

The right approach 1 Develop the right attitude

Believe in yourself Yes, there is a lot to learn. But thousands have succeeded before and you can too.

Remember why you are doing it You are studying for a good reason: to advance your career.

2 Focus on the exam

Read through the Syllabus in this guide

This tells you what you are expected to know.

3 The right method

See the whole picture Keeping in mind how all the detail you need to know fits into the whole picture will help you understand it better.

The Practical significance and Working context to each chapter in the study guide put the material into context.

The Learning objectives and Section overviews in the study manual show you what you need to grasp.

Use your own words To absorb the information (and to practise your written communication skills), you need to put it into your own words.

Take notes. Answer the questions in each chapter. Draw mindmaps. Try 'teaching' a subject to a colleague or friend.

Give yourself cues to jog your memory

The Study Manual uses bold to highlight key points.

Try colour coding with a highlighter pen. Write key points on cards.

4 The right recap

Review, review, review Regularly reviewing a topic in summary form can fix it in your memory. The Study Manual helps you review in many ways.

Each Chapter Summary will help you to recall that study session.

The Self-test actively tests your grasp of the essentials.

Go through the Examples in each chapter a second or third time.

Principles of Taxation 4

3.2 Study cycle The best way to approach the Study Manual is to tackle the chapters in order. We will look in detail at how to approach each chapter below but as a general guide, taking into account your individual learning style, you could follow this sequence for each chapter.

Key study steps Activity

Step 1 Topic list

This topic list is shown in the contents for each chapter and helps you navigate each part of the book; each numbered topic is a numbered section in the chapter.

Step 2 Introduction

The practical significance and working context sections for each chapter, set out in this study guide give you the big picture in terms of the context of the chapter. The Examination context guidance shows what the examiners are looking for and tells you why the topics covered in the chapter need to be studied.

Step 3 Section overviews

Section overviews give you a quick summary of the content of each of the main chapter sections. They can also be used at the end of each chapter to help you review each chapter quickly.

Step 4 Explanations

Proceed methodically through each chapter, particularly focusing on areas highlighted as significant in the chapter introduction or study guide.

Step 5 Note taking

Take brief notes, if you wish. Don't copy out too much. Remember that being able to record something yourself is a sign of being able to understand it. Your notes can be in whatever format you find most helpful: lists, diagrams, mindmaps.

Step 6 Examples

Work through the examples very carefully as they illustrate key knowledge and techniques.

Step 7 Answers

Check yours against the suggested solutions, and make sure you understand any discrepancies.

Step 8 Chapter summary

Review it carefully, to make sure you have grasped the significance of all the important points in the chapter.

Step 9 Self-test

Use the Self-test to check how much you have remembered of the topics covered.

Step 10 Learning objectives

Ensure you have ticked off the Learning objectives.

Moving on... When you are ready to start revising, you should still refer back to the Study Manual.

As a source of reference (you should find the index particularly helpful for this).

As a way to review (the Section overviews, Examination context, Chapter summaries and Self-test questions help you here).

Remember to keep careful hold of the Study Manual – you will find it invaluable in your work.

Stud

y G

uide

5

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

1 In

tro

duc

tio

n t

o t

axat

ion

Ever

y p

erso

n in

the

UK

is a

ffect

ed b

y ou

r ta

x sy

stem

in s

ome

way

, oft

en o

n a

daily

bas

is a

nd

with

out

even

rea

lisin

g it.

The

re a

re c

urre

ntly

ov

er 2

0 ta

xes

in t

he U

K al

thou

gh y

ou w

ill o

nly

stud

y th

e m

ost

com

mon

of t

hese

for

your

ex

ams.

We

pay

tax

on t

he m

oney

we

earn

and

on

the

thi

ngs

we

buy

and

this

tax

is u

sed

by t

he

gove

rnm

ent

to p

ay fo

r ou

r sc

hool

s, h

ospi

tals

, ro

ads

and

so o

n.

As g

over

nmen

ts a

nd b

usin

ess

prac

tices

cha

nge,

th

e ta

x sy

stem

cha

nges

. In

the

UK

we

have

an

annu

al F

inan

ce A

ct c

ycle

whi

ch b

egin

s w

ith th

e Au

tum

n St

atem

ent,

usua

lly in

late

Nov

embe

r, an

d en

ds w

ith th

e en

actm

ent o

f a F

inan

ce A

ct th

e fo

llow

ing

sum

mer

. Thi

s is

supp

lem

ente

d by

a h

uge

body

of c

ase

law

and

pra

ctic

al in

terp

reta

tion.

U

nfor

tuna

tely

, the

new

law

is u

sual

ly ju

st a

dded

to

the

exist

ing

law

and

so

the

over

all l

egisl

ativ

e bu

rden

incr

ease

s ov

er ti

me.

The

re a

re re

gula

r cal

ls fo

r a p

rogr

amm

e of

tax

simpl

ifica

tion,

but

al

thou

gh th

ere

has

been

muc

h di

scus

sion,

we

have

se

en li

ttle

real

cha

nge.

It is

imp

orta

nt t

o ha

ve a

goo

d ov

eral

l fee

l for

the

ta

x sy

stem

ear

ly in

you

r st

udie

s so

tha

t yo

u kn

ow

whe

re t

o lo

ok fo

r th

e de

taile

d ru

les

whe

n yo

u ne

ed t

hem

late

r on

.

Sto

p a

nd

th

ink

It is

like

ly t

hat

you

have

per

sona

lly b

een

payi

ng t

ax

on y

our

vario

us s

ourc

es o

f inc

ome/

gain

s fo

r so

me

time.

Hav

e yo

u st

opp

ed t

o th

ink

abou

t ho

w t

his

affe

cts

the

deci

sion

s th

at y

ou m

ake?

Do

you,

for

inst

ance

, reg

ular

ly in

vest

mon

ey in

tax

free

in

divi

dual

sav

ings

acc

ount

s?

The

volu

me

and

com

plex

ity o

f tax

law

is

now

suc

h th

at m

any

busi

ness

es h

ave

to

spen

d co

nsid

erab

le a

mou

nts

of t

ime

just

on

tax

adm

inis

trat

ion.

Whe

n a

busi

ness

st

arts

to

trad

e it

mus

t in

form

HM

Rev

enue

&

Cus

tom

s. W

ithou

t ad

vice

from

an

acco

unta

nt, a

bus

ines

s m

ay p

ay t

oo m

uch

tax

and

mis

s de

adlin

es.

Man

y bu

sine

ss d

ecis

ions

will

hav

e ta

x co

nseq

uenc

es a

nd w

ill b

e di

scus

sed

at

boar

d le

vel.

Tax

is n

ow v

ery

impo

rtan

t as

m

ost

larg

e co

mp

anie

s op

erat

e on

a g

loba

l ba

sis

and

will

cho

ose

whi

ch c

ount

ry t

hey

wan

t th

eir

busi

ness

to

be b

ased

in a

t le

ast

par

tly o

n th

e ba

sis

of t

ax c

ost.

A b

ank

mig

ht r

evie

w it

s po

sitio

n to

dec

ide

whe

ther

the

UK

is s

till t

he b

est

plac

e fo

r it

to b

e ba

sed.

Dep

endi

ng o

n th

e ta

xes

paid

it

can

effe

ctiv

ely

choo

se w

hich

go

vern

men

t re

ceiv

es it

. Thi

s p

uts

it in

a

stro

ng p

ositi

on.

At

the

othe

r en

d of

the

sp

ectr

um y

ou m

ay

enco

unte

r ta

x in

the

con

text

of a

gro

win

g bu

sine

ss t

akin

g on

its

first

em

ploy

ee a

nd

sett

ing

up a

pay

roll.

Sm

all b

usin

esse

s of

ten

stru

ggle

mos

t w

ith t

ax a

dmin

istr

atio

n an

d ca

n be

nefit

mos

t fr

om s

ensi

ble

tax

advi

ce

and

pla

nnin

g. Ju

st k

now

ing

in a

dvan

ce

how

muc

h ta

x is

pay

able

and

whe

n, w

ill

help

a s

mal

l gro

win

g bu

sine

ss

cons

ider

ably

. The

acc

ount

ant

advi

sing

on

how

to

clai

m a

tax

cre

dit

or a

llow

ance

will

he

lp h

is c

lient

to

succ

eed.

Read

thr

ough

cha

pter

one

of t

he

stud

y m

anua

l qui

ckly

to

obta

in

the

back

grou

nd k

now

ledg

e of

w

hich

you

mus

t be

aw

are.

Lea

rn

the

two

defin

ition

s in

the

ch

apte

r.

Fina

lly w

ork

thro

ugh

the

self-

test

q

uest

ions

car

eful

ly t

o en

sure

th

at y

ou h

ave

gras

ped

the

mai

n po

ints

in t

he c

hapt

er.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

1a,

b, c

, d, e

.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

Id

entif

y th

e so

cial

just

ice

prin

cip

les

bein

g ap

plie

d fo

r ta

xatio

n pu

rpos

es

Re

cogn

ise

exte

rnal

influ

ence

s on

the

UK

taxa

tion

syst

em

U

nder

stan

d w

hich

tax

es a

pply

to

diff

eren

t ta

xpay

ers

eg p

artn

ersh

ips,

com

pan

ies

Id

entif

y th

e re

spon

sibi

litie

s of

H

M R

even

ue &

Cus

tom

s

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Prin

cip

les

of

Taxa

tio

n

6 Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

2 In

tro

duc

tio

n t

o in

com

e ta

x

Inco

me

of d

iffer

ent

typ

es is

tax

ed a

t di

ffere

nt

rate

s of

inco

me

tax.

Thi

s m

akes

it d

iffic

ult

to

calc

ulat

e an

indi

vidu

al's

inco

me

tax

liabi

lity

and

inde

ed a

com

mon

crit

icis

m o

f the

tax

sys

tem

is

that

the

'man

in t

he s

tree

t' ca

nnot

und

erst

and

his

own

tax

bill.

One

way

of h

elpi

ng p

eopl

e to

dea

l with

co

mp

lexi

ty in

the

tax

sys

tem

is t

o us

e te

chno

logy

. Ena

blin

g co

mp

uter

sof

twar

e to

do

muc

h of

the

cal

cula

tion

mea

ns t

hat

the

pub

lic

does

not

nee

d to

und

erst

and

the

unde

rlyin

g p

rinci

ple

s.

Ther

e ha

s be

en a

str

ong

driv

e fr

om g

over

nmen

t in

rec

ent

year

s to

enc

oura

ge p

eopl

e to

use

in

tern

et fi

ling.

HM

Rev

enue

& C

usto

ms

has

resp

onde

d to

thi

s by

bui

ldin

g on

line

filin

g fa

cilit

ies

into

its

own

web

site

. If y

ou lo

ok a

t its

ho

me

pag

e at

ww

w.h

mrc

.gov

.uk

you

will

see

so

me

of t

he s

ervi

ces

on o

ffer.

Indi

vidu

als

can

file

thei

r ow

n pe

rson

al t

ax r

etur

ns d

irect

ly o

nlin

e w

hich

will

mea

n fa

ster

and

mor

e ac

cura

te

pro

cess

ing

than

with

pap

er r

etur

ns a

nd in

the

ca

se o

f a t

ax r

efun

d be

ing

due,

it w

ill b

e p

aid

mor

e qu

ickl

y.

Sto

p a

nd

th

ink

Do

you

unde

rsta

nd y

our o

wn

tax

bill?

It is

like

ly th

at

you

rece

ive

empl

oym

ent i

ncom

e an

d po

ssib

ly in

com

e fr

om v

ario

us in

vest

men

ts s

uch

as d

ivid

end

inco

me

and

bank

/bui

ldin

g so

ciet

y in

tere

st. D

id y

ou re

alise

th

at y

ou m

ust p

ay d

iffer

ent r

ates

of t

ax o

n ea

ch o

f th

ese

type

s of

inco

me?

In p

ract

ice,

muc

h of

the

acc

ount

ant's

job

will

be

to c

heck

and

the

n in

terp

ret

the

figur

es p

rodu

ced

by t

heir

own

com

pute

r sy

stem

and

HM

Rev

enue

& C

usto

ms'.

Mos

t w

ill u

se s

oftw

are

to p

rep

are

thei

r cl

ient

s' t

ax r

etur

ns. T

his

will

incl

ude

a co

mp

utat

ion

of t

he t

ax p

ayab

le, a

nd m

ay

incl

ude

othe

r su

pp

ortin

g sc

hedu

les

and

sum

mar

ies.

How

ever

, we

all k

now

tha

t co

mp

uter

s ar

e on

ly a

s go

od a

s th

e da

ta

inp

ut a

nd t

he s

kills

of t

he p

rogr

amm

er. A

co

mp

uter

can

not

rep

lace

a s

kille

d ac

coun

tant

who

kno

ws

the

clie

nt a

nd

unde

rsta

nds

the

busi

ness

' nee

ds. A

goo

d ac

coun

tant

can

add

per

spec

tive

and

give

ad

vice

bey

ond

mer

e co

mp

lianc

e w

ork.

Und

erst

andi

ng h

ow a

per

son'

s in

com

e ta

x lia

bilit

y is

put

tog

ethe

r w

ill b

e us

eful

not

on

ly in

a w

ork

cont

ext

but

also

in y

our

per

sona

l and

fam

ily li

fe.

Read

Sec

tion

1 of

cha

pte

r tw

o an

d le

arn

the

list

of e

xem

pt

inco

me

in s

ectio

n 1.

3.

In S

ectio

n 2

it is

ver

y im

por

tant

to

wor

k th

roug

h th

e w

orke

d ex

ampl

es a

nd in

tera

ctiv

e q

uest

ions

car

eful

ly. T

hese

ens

ure

that

you

can

app

ly t

he m

ain

poin

ts s

tudi

ed.

Sect

ion

3 of

thi

s ch

apte

r is

vita

lly

imp

orta

nt a

nd s

houl

d be

w

orke

d th

roug

h th

orou

ghly

. Th

e ex

amp

les

and

inte

ract

ive

que

stio

n ar

e vi

tal f

or y

our

stud

ies

and

you

shou

ld w

ork

thro

ugh

them

all

care

fully

.

Onc

e yo

u ar

e ha

pp

y w

ith t

he

abov

e, w

ork

thro

ugh

Sect

ion

4 of

the

cha

pte

r. A

gain

the

ex

amp

les

and

que

stio

n ar

e th

e m

ost

impo

rtan

t pa

rt o

f the

se

ctio

n.

Fina

lly, c

ompl

ete

the

self-

test

q

uest

ions

at

the

end

of t

he

chap

ter.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

3a,

b, i

. In

the

exa

min

atio

n, c

andi

date

s m

ay b

e re

qui

red

to:

D

iffer

entia

te b

etw

een

item

s w

hich

are

tax

able

and

exe

mp

t fo

r in

com

e ta

x p

urp

oses

C

alcu

late

tax

able

inco

me,

w

here

inco

me

has

been

re

ceiv

ed n

et o

f inc

ome

tax

or

with

out

dedu

ctio

n of

tax

at

sour

ce

C

ateg

oris

e ta

xabl

e in

com

e as

no

n sa

ving

s, s

avin

gs o

r di

vide

nd in

com

e an

d ca

lcul

ate

the

tax

liabi

lity

Id

entif

y ho

w t

ax r

elie

f is

give

n fo

r G

ift A

id

C

omp

ute

the

allo

wan

ces

avai

labl

e fo

r ta

xpay

ers

aged

65

and

over

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Can

dida

tes

have

his

toric

ally

p

rep

ared

wel

l for

thi

s ar

ea o

f the

sy

llabu

s. B

ette

r p

rep

ared

ca

ndid

ates

are

abl

e to

per

form

wel

l in

the

mor

e di

fficu

lt ar

eas

of G

ift

Aid

and

allo

wan

ces

for

taxp

ayer

s ag

ed 6

5 an

d ov

er.

Stud

y G

uide

7

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

3 Em

plo

ymen

t in

com

e

Mos

t p

eop

le a

re in

tere

sted

in t

heir

emp

loym

ent

pac

kage

. Em

ploy

ers

reco

gnis

e th

at a

flex

ible

and

m

oder

n sy

stem

for

rew

ardi

ng t

heir

empl

oyee

s re

sults

in a

hap

pier

and

mor

e co

mm

itted

w

orkf

orce

. The

y al

so k

now

tha

t on

e of

the

la

rges

t co

sts

of r

unni

ng a

bus

ines

s w

ill b

e th

e co

st o

f the

pay

roll,

so

it is

impo

rtan

t to

ens

ure

it is

cor

rect

.

Whi

lst

we

have

som

e ba

sic

rule

s w

hich

iden

tify

wha

t is

tax

able

and

whe

n, t

he g

over

nmen

t al

so

uses

the

tax

sys

tem

to

influ

ence

wha

t em

plo

ymen

t be

nefit

s p

eop

le p

refe

r. F

or

exam

ple

, env

ironm

enta

l dam

age

caus

ed b

y C

O2

emis

sion

s ar

e a

maj

or c

once

rn a

nd r

ecen

t ta

x ch

ange

s m

ean

that

em

plo

yees

cho

osin

g el

ectr

ic

cars

or

cars

whi

ch p

rodu

ce lo

w e

mis

sion

s ar

e ta

xed

less

tha

n th

ose

who

driv

e ‘g

as g

uzzl

ers’

.

You

will

find

tha

t so

me

rule

s ar

e q

uite

str

ange

an

d th

is is

oft

en b

ecau

se t

hey

wer

e in

trod

uced

a

long

tim

e ag

o. A

n ex

ampl

e of

thi

s is

the

di

stin

ctio

n w

hich

is m

ade

betw

een

peop

le

earn

ing

mor

e or

less

tha

n £8

,500

, whe

re

diffe

rent

tax

rul

es a

pp

ly.

Sto

p a

nd

th

ink

Thin

k ab

out

the

bene

fits

your

em

plo

yer

pro

vide

s fo

r yo

u. A

re t

hese

ben

efits

par

t of

you

r em

plo

ymen

t pa

ckag

e be

caus

e of

the

ir ta

x-ef

ficie

nt

stat

us?

Do

you

know

how

to

qua

ntify

the

m fo

r ta

x p

urp

oses

?

Whi

lst

ther

e ar

e so

me

basi

c ru

les

for

wha

t is

tax

able

, a p

erso

n's

take

hom

e p

ay c

an

be a

ltere

d dr

amat

ical

ly b

y th

e m

ake

up

and

timin

g of

the

ir re

mun

erat

ion.

An

acco

unta

nt w

ill b

e ex

pect

ed t

o un

ders

tand

how

an

indi

vidu

al's

emp

loym

ent

inco

me

will

be

taxe

d an

d gi

ve a

dvic

e on

how

tax

can

be

min

imis

ed.

Som

etim

es d

iffer

ent

part

s of

our

tax

le

gisl

atio

n w

ill in

tera

ct. A

cho

ice

whi

ch

may

red

uce

inco

me

tax

mus

t al

so b

e co

nsid

ered

in t

he c

onte

xt o

f oth

er t

axes

an

d ta

x cr

edit

clai

ms

to e

nsur

e th

at t

he

best

ove

rall

resu

lt is

ach

ieve

d fo

r a

clie

nt. I

t is

impo

rtan

t to

kee

p up

to

date

and

ale

rt

for

chan

ging

legi

slat

ion.

Und

erst

andi

ng y

our

clie

nt m

eans

look

ing

beyo

nd h

is b

usin

ess

need

s an

d it

will

be

com

mon

to

advi

se a

com

pany

not

onl

y on

co

rpor

atio

n ta

x, b

ut a

lso

to a

ssis

t w

ith

PAYE

issu

es a

nd g

ive

advi

ce t

o th

e di

rect

ors

on t

heir

per

sona

l tax

as

wel

l.

Alth

ough

the

re is

a lo

t to

lear

n, y

ou w

ill

find

that

frie

nds

and

fam

ily w

ill b

e ke

en t

o te

st t

he e

xten

t of

you

r kn

owle

dge

in t

his

area

too

.

Read

qui

ckly

thr

ough

Sec

tion

1 of

thi

s ch

apte

r bu

t pa

y p

artic

ular

at

tent

ion

to t

he w

orke

d ex

ampl

e.

Sect

ion

2 is

vita

lly im

por

tant

as

you

mus

t be

abl

e to

cal

cula

te

the

valu

e of

the

var

ious

tax

able

be

nefit

s co

vere

d. W

ork

thro

ugh

the

exam

ple

s an

d q

uest

ions

ca

refu

lly. L

earn

as

man

y of

the

ex

emp

t be

nefit

s as

you

can

.

In S

ectio

n 3

ther

e ar

e th

ree

exam

ple

s on

the

cal

cula

tion

of

PAYE

cod

es t

hat

you

shou

ld

wor

k th

roug

h ca

refu

lly.

Fina

lly w

ork

thro

ugh

the

self-

test

q

uest

ions

at

the

end

of t

he

chap

ter.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

2b

, d, 3

c.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

D

eter

min

e ho

w b

enef

its a

re

taxa

ble

on P

11D

em

ploy

ees

D

eter

min

e ho

w b

enef

its a

re

taxa

ble

on P

9D e

mpl

oyee

s

Id

entif

y w

hich

ben

efits

are

ex

emp

t

C

alcu

late

an

emp

loye

e’s

PAYE

co

de

U

nder

stan

d th

e op

erat

ion

of

the

PAYE

sys

tem

.

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Can

dida

tes

need

to

take

gre

at c

are

whe

n ca

lcul

atin

g th

e va

lue

of a

be

nefit

, as

ofte

n on

e im

port

ant

pie

ce o

f inf

orm

atio

n is

mis

sed

whe

n w

orki

ng t

his

out.

Prin

cip

les

of

Taxa

tio

n

8 Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

4 Tr

adin

g p

rofi

ts

In s

ome

busi

ness

es, i

t is

obv

ious

tha

t tr

adin

g is

ta

king

pla

ce. P

erha

ps

the

clie

nt h

as o

pen

ed a

sh

op o

r bo

ught

an

exis

ting

busi

ness

from

so

meo

ne e

lse.

How

ever

, in

othe

r ca

ses

it ca

n be

m

ore

diffi

cult

to e

stab

lish

whe

ther

a p

erso

n ha

s a

taxa

ble

busi

ness

. The

re is

a m

ass

of c

ase

law

to

help

det

erm

ine

this

. A p

rofit

mot

ive

can

be a

si

gnifi

cant

poi

nter

tow

ards

the

exi

sten

ce o

f a

trad

e, b

ut t

his

may

not

be

enou

gh o

n its

ow

n.

Man

y on

e-of

f tra

nsac

tions

cou

ld b

e tr

eate

d as

ca

pita

l gai

ns in

stea

d an

d th

e ta

x co

nseq

uenc

es

will

be

very

diff

eren

t. M

any

indi

vidu

als

have

bo

ught

and

sol

d go

ods

on e

Bay

with

out

real

isin

g th

at w

hat

they

wer

e ac

tual

ly d

oing

was

tr

adin

g, a

nd t

hat

they

cou

ld b

e lia

ble

to p

ay t

ax

on t

heir

prof

its. H

M R

even

ue &

Cus

tom

s ha

s be

en t

akin

g a

clos

e in

tere

st in

thi

s ty

pe o

f ac

tivity

, and

eBa

y no

w r

equi

res

thos

e us

ing

the

site

to

regi

ster

as

eith

er t

radi

ng o

r no

n-tr

adin

g m

embe

rs.

95%

of t

he b

usin

esse

s w

hich

exi

st in

the

UK

are

smal

l and

mos

t of

the

se a

re u

ninc

orp

orat

ed.

Alth

ough

the

y m

ay n

ot p

ay v

ery

muc

h in

com

e ta

x on

the

ir p

rofit

s w

hen

com

par

ed t

o th

e co

rpor

atio

n ta

x pa

id b

y la

rge

mul

tinat

iona

l co

mpa

nies

, the

y ar

e im

port

ant

cogs

in t

he

whe

els

of t

he e

cono

my.

Gov

ernm

ent

trie

s to

en

cour

age

busi

ness

by

givi

ng t

ax r

elie

f for

som

e bu

sine

ss e

xpen

ses,

alth

ough

not

all.

St

op

an

d t

hin

k

Your

frie

nds/

fam

ily m

ay o

ften

buy

and

sel

l cer

tain

va

luab

le it

ems.

Hav

e yo

u ev

er s

top

ped

to

thin

k ab

out

whe

ther

the

y ar

e tr

adin

g?

A s

igni

fican

t pr

actic

al p

robl

em is

id

entif

ying

whe

n a

new

tra

de a

ctua

lly

begi

ns. I

t is

rar

e th

at a

clie

nt s

eeks

the

he

lp o

f an

acco

unta

nt b

efor

e st

artin

g up

a

new

bus

ines

s. T

here

is u

sual

ly s

ome

early

ac

tivity

and

it is

oft

en o

nly

as t

he b

usin

ess

need

s to

see

k ex

tern

al fi

nanc

e or

as

the

first

dea

dlin

es lo

om t

hat

the

entr

epre

neur

th

inks

abo

ut a

skin

g fo

r ta

x ad

vice

.

Unf

ortu

nate

ly t

his

can

be t

oo la

te fo

r so

me

and

they

may

hav

e al

read

y in

curr

ed la

te

notif

icat

ion

or fi

ling

pena

lties

. The

job

is

then

one

of f

indi

ng o

ut w

hat

has

hap

pen

ed a

nd n

egot

iatin

g re

duce

d p

enal

ties

befo

re lo

okin

g fo

rwar

d an

d he

lpin

g th

e bu

sine

ss w

ith it

s pl

ans

for

the

futu

re.

For

larg

er u

ninc

orp

orat

ed b

usin

esse

s, t

he

finan

cial

acc

ount

s m

ay h

ave

been

p

rep

ared

qui

te s

epar

atel

y fr

om t

he t

ax

com

put

atio

ns o

f the

bus

ines

s ow

ners

. The

ac

coun

tant

will

the

n ha

ve t

o go

thr

ough

th

e fig

ures

mak

ing

chan

ges

for

the

diffe

renc

es b

etw

een

tax

and

acco

untin

g la

w a

nd p

ract

ice.

Sm

alle

r bu

sine

sses

may

on

ly p

rep

are

tax

com

put

atio

ns in

the

firs

t p

lace

, per

haps

with

add

ition

al s

tate

men

ts

bein

g pr

epar

ed fr

om t

ime

to t

ime

to

supp

ort

busi

ness

pla

ns o

r ca

sh fl

ow

fore

cast

s.

Wha

t is

tax

able

and

in w

hich

yea

r is

an

ongo

ing

chal

leng

e.

Read

qui

ckly

thr

ough

Sec

tion

1 of

cha

pter

four

. You

sho

uld

be

awar

e of

the

bad

ges

of t

rade

. Th

en r

ead

Sect

ion

2.

Sect

ion

3 is

the

mos

t im

por

tant

pa

rt o

f the

cha

pter

and

you

m

ust

wor

k th

roug

h it

slow

ly a

nd

care

fully

. It

is im

por

tant

tha

t yo

u ha

ve a

ver

y go

od g

rasp

of w

hen

exp

endi

ture

is a

llow

able

or

disa

llow

able

.

The

wor

ked

exam

ple

in S

ectio

n 4

is t

he m

ost

impo

rtan

t p

art

of

this

fina

l sec

tion.

The

self-

test

que

stio

ns a

t th

e en

d of

the

cha

pte

r co

ver

the

mos

t im

port

ant

poin

ts le

arnt

so

finis

h th

e ch

apte

r by

wor

king

th

roug

h th

em.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

3d

, e.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

Id

entif

y an

d us

e th

e ba

dges

of

trad

e in

a g

iven

sce

nario

D

eter

min

e w

heth

er

exp

endi

ture

incu

rred

is

allo

wab

le o

r di

sallo

wab

le in

ca

lcul

atin

g tr

adin

g p

rofit

s

C

orre

ctly

dea

l with

oth

er

adju

stm

ents

req

uire

d to

ca

lcul

ate

adju

sted

tra

ding

pr

ofits

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Stud

y G

uide

9

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

5 C

apit

al a

llow

ance

s

Whe

n a

com

pany

, a s

ole

trad

er o

r a

par

tner

ship

dr

aws

up a

ccou

nts,

the

re w

ill n

orm

ally

be

a de

duct

ion

for

the

dep

reci

atio

n of

cap

ital a

sset

s.

The

pur

pos

e of

thi

s is

to

spre

ad t

he c

ost

of t

hese

as

sets

ove

r th

e tim

e th

at t

hey

are

to b

e us

ed t

o ge

nera

te in

com

e. T

he t

ax s

yste

m d

eals

with

ca

pita

l ass

ets

quite

diff

eren

tly fr

om fi

nanc

ial

repo

rtin

g. C

apita

l allo

wan

ces

are

the

dedu

ctio

n th

at is

giv

en fo

r ta

x pu

rpos

es in

res

pect

of

cap

ital e

xpen

ditu

re in

stea

d of

dep

reci

atio

n.

In p

ract

ice,

the

cap

ital a

llow

ance

s w

hich

are

gi

ven

will

usu

ally

acc

eler

ate

tax

relie

f for

the

co

sts

of b

uyin

g fix

ed a

sset

s. T

he e

xpen

ditu

re o

n m

ost

pla

nt a

nd m

achi

nery

qua

lifie

s fo

r al

low

ance

s at

the

rat

e of

18%

eac

h ye

ar o

n a

redu

cing

bal

ance

bas

is, b

ut t

he g

over

nmen

t pe

riodi

cally

intr

oduc

es h

ighe

r ra

tes

of r

elie

f for

sh

ort

per

iods

of t

ime.

Thi

s is

to

enco

urag

e bu

sine

sses

to

brin

g fo

rwar

d th

eir

capi

tal

expe

nditu

re p

lans

and

to

try

to b

oost

gro

wth

in

the

econ

omy.

Mor

e ge

nero

us r

ates

are

als

o us

ed

to e

ncou

rage

exp

endi

ture

on

othe

r as

sets

whi

ch

have

rec

ently

incl

uded

env

ironm

enta

lly fr

iend

ly

cars

and

ene

rgy

savi

ng e

qui

pm

ent.

Sto

p a

nd

th

ink

Hav

e yo

u ev

er w

onde

red

how

tax

rel

ief i

s gi

ven

for

cap

ital e

xpen

ditu

re a

nd/o

r w

heth

er t

ax r

elie

f is

give

n fo

r al

l typ

es o

f exp

endi

ture

? If

tax

relie

f wer

e gi

ven

for

the

dep

reci

atio

n ch

arge

d on

ass

ets

thro

ugh

the

acco

unts

the

re w

ould

be

sign

ifica

nt

pot

entia

l for

tax

able

pro

fit t

o be

man

ipul

ated

by

the

choi

ce o

f dep

reci

atio

n ra

te. C

onse

que

ntly

, a

stan

dard

ised

tax

allo

wan

ce is

giv

en t

o p

reve

nt t

his

man

ipul

atio

n.

The

gene

ral r

ule

whe

n w

orki

ng o

ut

taxa

ble

prof

its is

tha

t an

y de

prec

iatio

n th

at

has

been

cha

rged

in w

orki

ng o

ut

acco

untin

g pr

ofits

is n

ot d

educ

tible

in

com

put

ing

taxa

ble

pro

fits,

so

it m

ust

be

adde

d ba

ck. C

apita

l allo

wan

ces

are

then

ca

lcul

ated

on

cert

ain

typ

es o

f ass

et, a

nd

are

dedu

cted

from

pro

fits

to a

rriv

e at

ta

xabl

e pr

ofits

.

Som

e sp

ecia

l typ

es o

f ass

et h

ave

to b

e ke

pt

sep

arat

ely

iden

tifie

d, fo

r ex

amp

le

item

s w

here

the

re is

an

elem

ent

of p

rivat

e us

e by

the

sol

e tr

ader

or

part

ner.

For

larg

er b

usin

esse

s, t

he c

apita

l al

low

ance

s co

mp

utat

ion

will

be

done

us

ing

soft

war

e. S

mal

ler

busi

ness

es m

ay d

o th

e ca

lcul

atio

ns b

y ha

nd, b

ut in

all

case

s,

accu

rate

rec

ord-

keep

ing

is e

ssen

tial a

nd

the

com

plia

nce

cost

s of

doi

ng t

his

have

re

cent

ly b

een

exam

ined

by

the

prof

essi

on

and

gove

rnm

ent,

with

a v

iew

to

sim

plify

ing

reco

rd k

eepi

ng a

nd r

educ

ing

cost

s.

Read

qui

ckly

thr

ough

Sec

tion

1,

but

take

car

e to

spe

nd t

ime

on

the

pro

form

a co

mpu

tatio

n.

Sect

ions

2 t

o 7

are

very

im

port

ant

and

shou

ld b

e st

udie

d th

orou

ghly

. You

sho

uld

wor

k th

roug

h al

l of t

he w

orke

d ex

ampl

es a

nd q

uest

ions

ver

y ca

refu

lly.

Fini

sh t

he c

hapt

er b

y co

mpl

etin

g al

l of t

he s

elf-

test

qu

estio

ns.

The

spec

ific

syl

lab

us r

efer

ence

fo

r th

is c

hap

ter

is: 3

e.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be re

quire

d to

:

C

alcu

late

writ

ing

dow

n al

low

ance

s fo

r sh

ort

or lo

ng

perio

ds o

f acc

ount

Id

entif

y w

hich

ass

ets

are

elig

ible

for

first

yea

r al

low

ance

s

C

orre

ctly

ap

ply

the

ann

ual

inve

stm

ent

allo

wan

ce

C

orre

ctly

tre

at c

ars

and

othe

r as

sets

with

priv

ate

use

by t

he

sole

tra

der

or p

artn

er

D

eter

min

e th

e am

ount

of a

ny

bala

ncin

g ad

just

men

t

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

A m

etho

dica

l app

roac

h is

req

uire

d to

cal

cula

te c

apita

l allo

wan

ces.

Th

is c

an b

e an

unn

eces

saril

y tim

e-co

nsum

ing

area

if s

uch

an

appr

oach

is n

ot a

dopt

ed.

Prin

cip

les

of

Taxa

tio

n

10

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

6 Tr

adin

g p

rofi

ts –

bas

is o

f as

sess

men

t

Seve

ral p

eopl

e w

orki

ng t

oget

her

in p

artn

ersh

ip

can

be a

sim

ple

and

effi

cien

t w

ay fo

r a

smal

l bu

sine

ss t

o gr

ow a

nd p

rosp

er. T

he p

artn

ers

all

own

a sh

are

of t

he b

usin

ess

and

will

be

rew

arde

d by

see

ing

thei

r bu

sine

ss g

row

as

a di

rect

res

ult

of t

heir

ende

avou

rs. I

t do

es n

ot

suffe

r fr

om t

he le

gal c

onst

rain

ts a

nd a

dditi

onal

pa

perw

ork

requ

ired

by c

omp

any

law

, so

can

also

be

che

aper

to

run

with

less

fear

of f

ailin

g to

sa

tisfy

lega

l rep

ortin

g re

quire

men

ts.

His

toric

ally

, man

y pr

ofes

sion

s pr

ohib

ited

the

use

of a

cor

pora

te s

truc

ture

as

a m

eans

of o

fferin

g pr

ofes

sion

al s

ervi

ces

by t

heir

mem

bers

. Thi

s m

eant

tha

t on

ce a

bus

ines

s gr

ew b

eyon

d th

e si

ze

of a

sol

e tr

ader

, the

re w

as li

ttle

alte

rnat

ive

but

for

acco

unta

nts,

sur

veyo

rs, s

olic

itors

and

so

on t

o fo

rm t

heir

busi

ness

es a

s pa

rtne

rshi

ps. M

any

of

thes

e gr

ew t

o be

ver

y la

rge.

The

par

tner

ship

rem

ains

a p

opul

ar b

usin

ess

med

ium

tod

ay. I

t is

use

d by

all

typ

es o

f tra

de

from

sm

all b

uild

ing

firm

s, c

ater

ers

and

artis

ts, t

o in

tern

atio

nal a

rchi

tect

s, la

wye

rs a

nd

acco

unta

nts.

Man

y of

the

se n

ow u

se t

he s

peci

al

typ

e of

par

tner

ship

cal

led

a lim

ited

liabi

lity

par

tner

ship

(LL

P) w

hich

offe

rs t

hem

lega

l p

rote

ctio

n w

hen

thin

gs g

o w

rong

, but

the

tax

p

rinci

ple

s ar

e th

e sa

me

whe

ther

the

par

tner

ship

is

tra

ding

as

an L

LP o

r no

t.

Sto

p a

nd

th

ink

You

pro

babl

y kn

ow t

hat

busi

ness

es m

ay p

rep

are

acco

unts

to

any

date

the

y ch

oose

. Hav

e yo

u ev

er

stop

ped

to

won

der

how

we

deci

de w

hich

tax

yea

r th

e p

rofit

s of

a p

erio

d of

acc

ount

sho

uld

be t

axed

in

?

It is

ver

y lik

ely

that

if y

ou a

re t

rain

ing

to b

e an

acc

ount

ant

in p

ract

ice,

you

will

be

emp

loye

d by

a p

artn

ersh

ip. I

t m

ay b

e th

at

you

inte

nd o

ne d

ay t

o se

t up

you

r ow

n p

ract

ice,

per

hap

s sp

ecia

lisin

g in

tax

, and

if

so y

ou m

ay d

ecid

e to

sha

re o

wne

rshi

p of

yo

ur b

usin

ess

with

col

leag

ues

and

set

up a

pa

rtne

rshi

p of

you

r ow

n.

Whe

neve

r yo

u be

gin

to r

evie

w a

clie

nt's

tax

affa

irs, i

t is

imp

orta

nt t

o be

ver

y cl

ear

abou

t th

e tr

adin

g m

ediu

m w

hich

is b

eing

us

ed fo

r th

e tr

ansa

ctio

ns y

ou a

re lo

okin

g at

. The

tax

con

seq

uenc

es o

f tra

ding

as

a pa

rtne

rshi

p fo

llow

inco

me

tax

prin

cipl

es

and

each

par

tner

's in

tere

st in

the

bus

ines

s w

ill b

e go

vern

ed b

y th

eir

prof

it sh

arin

g ag

reem

ent.

The

spec

ial t

ax r

ules

for

open

ing

and

clos

ing

year

s of

tra

ding

ap

ply

to

indi

vidu

al

part

ners

as

each

spe

cific

par

tner

join

s or

le

aves

a b

usin

ess.

The

inte

ract

ion

of t

he

acco

untin

g ru

les

whi

ch d

eter

min

e ac

coun

ting

prof

its, t

he t

ax r

ules

for

dete

rmin

ing

taxa

ble

pro

fits,

and

the

n th

e ru

les

for

asse

ssin

g in

com

e sh

ares

in

spec

ific

tax

year

s, c

an le

ad t

o so

me

ineq

uita

ble

divi

sion

s of

the

bus

ines

s’s

tax

char

ge b

etw

een

the

part

ners

. For

thi

s re

ason

, man

y p

artn

ersh

ips

use

a ta

x re

serv

e to

ret

ain

cash

with

in t

he c

ontr

ol o

f th

e bu

sine

ss t

o sm

ooth

out

som

e of

the

se

affe

cts.

How

ever

it is

impo

rtan

t to

re

mem

ber

that

thi

s do

es n

ot c

hang

e th

e un

derly

ing

prin

cipl

e th

at e

ach

part

ner

is

taxe

d as

an

indi

vidu

al.

Can

dida

tes

ofte

n fin

d th

e ru

les

cove

red

in t

his

chap

ter

qui

te

com

plic

ated

whe

n th

ey b

egin

th

eir

stud

ies.

How

ever

, the

rul

es

are

fund

amen

tal a

nd y

ou m

ust

be a

ble

to a

ppl

y th

em in

any

gi

ven

situ

atio

n. T

he s

ecre

t to

ac

hiev

ing

this

is t

o p

ract

ise

as

man

y ex

ampl

es a

s po

ssib

le.

Gra

dual

ly y

ou w

ill le

arn

the

tech

niqu

e fo

r w

orki

ng o

ut

taxa

ble

prof

its. W

ork

thro

ugh

all

of t

he q

uest

ions

and

exa

mp

les

in S

ectio

ns 1

to

4 ca

refu

lly.

Do

not

begi

n th

e se

ctio

n on

p

artn

ersh

ips

until

you

are

ver

y co

nfid

ent

with

the

pre

viou

s se

ctio

ns o

f the

cha

pte

r.

The

self-

test

que

stio

ns p

rovi

de

addi

tiona

l pra

ctic

e at

ap

ply

ing

the

rule

s. W

ork

thro

ugh

them

ca

refu

lly.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

3f,

g, h

.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

C

orre

ctly

ap

ply

the

cur

rent

yea

r ba

sis

for

taxi

ng t

radi

ng p

rofit

s

C

alcu

late

the

tax

able

tra

ding

pr

ofits

in t

he o

peni

ng y

ears

of a

bu

sine

ss, i

nclu

ding

ove

rlap

pr

ofits

D

eter

min

e th

e ta

xabl

e tr

adin

g p

rofit

s in

the

fina

l tax

yea

r of

a

busi

ness

U

nder

stan

d ho

w p

artn

ersh

ip

pro

fits

are

allo

cate

d to

in

divi

dual

par

tner

s an

d ar

e ta

xed

on t

hem

indi

vidu

ally

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

A s

igni

fican

t am

ount

of p

ract

ice

is

req

uire

d by

can

dida

tes

in o

rder

to

be a

ble

to d

eal e

ffici

ently

with

op

enin

g ye

ar r

ules

for

sole

tra

ders

an

d pa

rtne

rshi

ps.

Stud

y G

uide

11

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

7 N

atio

nal

insu

ran

ce c

on

trib

utio

ns

Nat

iona

l ins

uran

ce c

ontr

ibut

ions

(N

IC)

wer

e in

trod

uced

ear

ly in

the

20t

h ce

ntur

y an

d w

ere

mea

nt a

s a

tem

por

ary

mea

sure

. Ove

r 90

yea

rs

late

r th

ey a

re s

till w

ith u

s an

d no

w y

ield

the

UK’

s se

cond

larg

est

sour

ce o

f inc

ome

from

tax

atio

n;

we

can

assu

me

that

NIC

s ar

e un

likel

y to

be

abol

ishe

d.

The

tax

is p

aid

on e

arni

ngs.

The

larg

est

amou

nt

colle

cted

rel

ates

to

empl

oyed

per

sons

, bot

h pe

rson

ally

(ie

ded

ucte

d fr

om s

alar

ies)

, and

als

o th

at p

aid

by e

mpl

oyer

s (ie

as

a ta

x on

the

sal

ary)

. Bu

sine

sses

pre

fer

to u

se s

elf-

empl

oyed

wor

kers

as

they

do

not

pay

NIC

on

self-

empl

oyed

wor

kers

’ in

voic

es. T

he w

orke

rs t

hem

selv

es w

ould

oft

en

rath

er b

e ta

xed

as s

elf-

empl

oyed

as

the

NIC

rat

e is

lo

wer

, ie

it sa

ves

tax.

Unf

ortu

nate

ly t

he

empl

oyed

/sel

f-em

ploy

ed c

lass

ifica

tion

is n

ot a

m

atte

r of

cho

ice,

but

one

of l

aw.

The

high

cos

t of

NIC

s ha

s al

so d

riven

man

y hi

gh-

earn

ing

indi

vidu

als

to u

se t

ax-s

avin

g av

oida

nce

sche

mes

. At

one

time

ther

e ap

pear

ed t

o be

mor

e fin

e w

ine

in t

he h

ands

of s

uch

peop

le t

han

coul

d po

ssib

ly h

ave

real

ly e

xist

ed, b

ut t

hey

had

been

pa

id ‘i

n ki

nd’ t

o av

oid

NIC

. Oth

er a

sset

s, s

uch

as

plat

inum

spo

nges

, hav

e al

so b

een

popu

lar

at

vario

us t

imes

as

the

avoi

danc

e in

dust

ry s

ough

t to

re

duce

tax

bill

s. T

hese

day

s m

ost

such

con

triv

ed

avoi

danc

e sc

hem

es h

ave

been

sto

pped

.

NIC

rem

ains

a s

ubst

antia

l cos

t fo

r em

ploy

ers

both

in

abs

olut

e te

rms

and

in t

he c

osts

of

adm

inis

terin

g th

e ta

x.

Sto

p a

nd

th

ink

Do

you

real

ise

how

muc

h of

you

r in

com

e is

tak

en

in n

atio

nal i

nsur

ance

? H

ave

a lo

ok a

t yo

ur la

st

pay

slip

. Is

it m

ore

than

you

tho

ught

? D

o yo

u th

ink

of it

as

a ta

x?

Just

as

man

y of

the

pop

ulat

ion

have

te

nded

to

igno

re n

atio

nal i

nsur

ance

in t

he

pas

t, s

o to

o ha

ve m

any

in t

he t

ax a

nd

acco

untin

g pr

ofes

sion

s. N

ever

thel

ess,

bot

h th

e st

ruct

ure

and

the

amou

nt r

aise

d by

th

e ta

x ar

e w

orth

y of

car

eful

scr

utin

y.

The

mis

clas

sific

atio

n of

wor

kers

(em

plo

yed

or s

elf-

emp

loye

d) w

ill le

ad t

o th

e w

rong

cl

asse

s an

d am

ount

s of

nat

iona

l ins

uran

ce

bein

g p

aid.

Thi

s ca

n ha

ve a

n im

pac

t on

th

e p

erso

n’s

futu

re e

ntitl

emen

t to

sta

te

bene

fits.

HM

Rev

enue

& C

usto

ms

regu

larly

list

s ca

lcul

atio

n of

the

am

ount

ch

arge

able

to

natio

nal i

nsur

ance

as

one

of

the

mos

t co

mm

only

mad

e er

rors

.

A fu

rthe

r co

mpl

icat

ion

in p

ract

ice

aris

es

whe

re p

eop

le a

re b

oth

emp

loye

d an

d se

lf-em

plo

yed,

or

whe

re t

hey

have

mor

e th

an

one

job

at t

he s

ame

time.

The

re a

re

annu

al li

mits

to

the

amou

nt o

f nat

iona

l in

sura

nce

whi

ch h

as t

o be

pai

d, w

hich

m

ost

wor

kers

will

be

unab

le t

o ap

ply

with

out

prof

essi

onal

adv

ice.

Read

qui

ckly

thr

ough

Sec

tion

1.

Then

wor

k th

roug

h th

e ex

ampl

es a

nd in

tera

ctiv

e qu

estio

n in

Sec

tion

2 ve

ry

care

fully

.

Read

thr

ough

Sec

tions

3 t

o 5

payi

ng p

artic

ular

att

entio

n to

the

w

orke

d ex

ampl

e an

d in

tera

ctiv

e qu

estio

n in

Sec

tion

5.

Fini

sh t

he c

hapt

er b

y co

mpl

etin

g th

e se

lf-te

st

ques

tions

.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

2b

, 3j.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

C

alcu

late

nat

iona

l ins

uran

ce

cont

ribut

ions

pay

able

by

empl

oyee

s an

d th

eir

empl

oyer

s

C

alcu

late

nat

iona

l ins

uran

ce

cont

ribut

ions

pay

able

by

sole

tr

ader

s an

d pa

rtne

rs

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Prin

cip

les

of

Taxa

tio

n

12

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

8 C

apit

al g

ain

s ta

x –

ind

ivid

uals

Inco

me

tax

is c

harg

ed o

n a

per

son'

s in

com

e fr

om t

radi

ng, e

mp

loym

ent

or d

eriv

ed fr

om

owne

rshi

p o

f inv

estm

ents

. Cap

ital g

ains

tax

is

the

tax

pai

d on

the

incr

ease

in t

he v

alue

of a

ca

pita

l ass

et w

hen

it is

dis

pos

ed o

f. Th

is

imm

edia

tely

rai

ses

a nu

mbe

r of

issu

es, s

uch

as

how

in p

ract

ice

to d

eter

min

e w

hen

a sa

le is

of a

ca

pita

l ite

m a

nd w

hen

it is

of a

rev

enue

item

. G

ener

ally

spe

akin

g a

one

off s

ale

of s

omet

hing

on

whi

ch y

ou d

id n

ot in

tend

to

mak

e an

im

med

iate

pro

fit fr

om s

ellin

g w

ill g

ive

rise

to a

ca

pita

l gai

n.

Ther

e ha

ve b

een

times

dur

ing

the

past

40

year

s w

hen

the

gene

ral l

evel

of i

nfla

tion

has

reac

hed

doub

le fi

gure

s. C

ompa

nies

, but

not

indi

vidu

als,

m

ay d

educ

t an

inde

xatio

n al

low

ance

from

the

ga

in t

o re

mov

e th

e ef

fect

of i

nfla

tion

on t

he

incr

ease

in v

alue

of t

he a

sset

. The

inde

xatio

n al

low

ance

is b

ased

on

the

mov

emen

t in

the

re

tail

pric

e in

dex.

Prio

r to

199

8 in

divi

dual

s w

ere

also

ent

itled

to

dedu

ct a

n in

dexa

tion

allo

wan

ce.

Ther

e ar

e m

any

othe

r re

liefs

whi

ch r

educ

e ch

arge

able

gai

ns, p

artic

ular

ly fo

r as

sets

use

d by

bu

sine

sses

.

Sto

p a

nd

th

ink

It is

gen

eral

ly o

bvio

us w

hen

you

are

earn

ing

inco

me

on w

hich

you

mus

t p

ay t

ax. H

owev

er,

wou

ld y

ou r

ecog

nise

whe

n yo

u m

ight

be

subj

ect

to

cap

ital g

ains

tax

on

the

disp

osal

of a

cap

ital a

sset

?

Indi

vidu

als

repo

rt a

ny c

apita

l gai

ns t

ax

paya

ble

on s

uppl

emen

tary

pag

es w

ithin

th

e sa

me

annu

al t

ax r

etur

n th

at is

use

d fo

r in

com

e ta

x se

lf as

sess

men

t pu

rpos

es. N

ot

ever

ythi

ng n

eeds

to

be r

epor

ted;

for

exam

ple,

a s

mal

l gai

n fr

om t

he s

ale

of ju

st

one

asse

t w

hich

is b

elow

the

ann

ual

disc

losu

re t

hres

hold

doe

s no

t ne

ed t

o be

in

clud

ed. I

f on

the

othe

r ha

nd t

here

hav

e be

en m

any

such

dis

posa

ls, t

hey

will

pr

obab

ly n

eed

to b

e sh

own.

The

com

ple

x na

ture

of p

arts

of t

he c

apita

l ga

ins

tax

syst

em w

e ha

ve t

oday

is la

rgel

y cr

eate

d by

the

his

toric

al b

uild

up

of

legi

slat

ion.

One

aim

beh

ind

the

intr

oduc

tion

of s

wee

ping

cha

nges

in 2

008

has

been

to

sim

plify

the

sys

tem

. Thi

s ha

s in

volv

ed m

akin

g th

e ba

sic

com

put

atio

n m

ore

stra

ight

forw

ard.

Cha

nges

in 2

010

have

how

ever

rei

ntro

duce

d th

e lin

k be

twee

n th

e ta

xatio

n of

inco

me

and

gain

s.

Read

thr

ough

Sec

tion

1.

Sect

ion

2 is

mor

e im

port

ant

and

you

mus

t st

udy

the

wor

ked

exam

ple

and

inte

ract

ive

ques

tion

care

fully

.

Sect

ion

3 is

als

o ve

ry im

port

ant

and

the

wor

ked

exam

ples

and

in

tera

ctiv

e qu

estio

n sh

ould

be

wor

ked

thro

ugh

care

fully

.

Onc

e yo

u ar

e co

mpl

etel

y ha

ppy

with

sec

tions

tw

o an

d th

ree

you

shou

ld w

ork

thro

ugh

Sect

ion

4 on

cha

ttel

s.

Fina

lly c

ompl

ete

the

self-

test

q

uest

ions

at

the

end

of t

he

chap

ter.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

4a,

b, c

.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

D

eter

min

e w

hen

a ga

in o

r lo

ss

aris

es

C

omp

ute

a ga

in o

r lo

ss o

n di

spos

al o

f a c

apita

l ass

et

C

alcu

late

the

cap

ital g

ains

tax

p

ayab

le fo

r th

e ta

x ye

ar

C

alcu

late

any

gai

n or

loss

on

disp

osal

of a

cha

ttel

For e

xtra

que

stio

n pr

actic

e on

thes

e to

pics

go

to th

e se

ctio

n of

the

Que

stio

n Ba

nk c

over

ing

this

chap

ter.

Stud

y G

uide

13

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

9 C

orp

ora

tio

n t

ax

Com

pani

es p

ay c

orpo

ratio

n ta

x on

the

pro

fits

of

an a

ccou

ntin

g pe

riod.

Usu

ally

thi

s is

the

sam

e as

th

e p

erio

d fo

r w

hich

the

y p

rep

are

and

pub

lish

(for

larg

er c

ompa

nies

) th

eir

acco

unts

, but

the

re

are

exce

ptio

ns w

hich

you

will

mee

t in

thi

s ch

apte

r.

Whe

n yo

u lo

ok a

t a

set

of p

ublis

hed

acco

unts

, yo

u w

ill s

ee t

hat

the

effe

ctiv

e ra

te o

f cor

por

atio

n ta

x p

aid

on it

s p

rofit

bef

ore

tax

will

var

y en

orm

ousl

y fr

om c

ompa

ny t

o co

mpa

ny a

nd

year

to

year

. Thi

s ra

te h

as b

ecom

e ve

ry

impo

rtan

t in

rec

ent

year

s as

boa

rds

of d

irect

ors

are

judg

ed o

n th

eir

tax

per

form

ance

as

wel

l as

thei

r tr

adin

g pr

ofits

. A t

ax r

ate

whi

ch is

too

hig

h m

ay in

dica

te t

hat

the

com

pan

y m

ay b

e m

issi

ng

tax

relie

fs a

nd c

redi

t op

port

uniti

es; t

oo lo

w a

nd

they

may

be

accu

sed

of s

hirk

ing

thei

r co

rpor

ate

resp

onsi

bilit

y to

pay

the

ir ' fa

ir sh

are'

.

Sto

p a

nd

th

ink

Whe

n yo

u do

bus

ines

s w

ith s

omeo

ne, t

hink

abo

ut

whe

ther

the

bus

ines

s is

run

as

a so

le t

rade

r, o

r as

a

com

pan

y. T

here

are

ver

y di

ffere

nt t

ax

cons

eque

nces

for

each

.

Ther

e ar

e m

any

fact

ors

whi

ch c

an a

ffect

a

com

pany

' s co

rpor

atio

n ta

x lia

bilit

y. It

is

impo

rtan

t no

t on

ly t

o id

entif

y co

rrec

tly

taxa

ble

trad

ing

pro

fits,

but

als

o to

ca

lcul

ate

corr

ectly

any

tax

rel

ief f

or fi

xed

asse

ts w

hich

wer

e p

urch

ased

dur

ing

the

perio

d. T

he d

ate

on w

hich

an

item

of

pla

nt is

pur

chas

ed a

nd t

he le

ngth

of t

he

com

pany

' s ac

coun

ting

per

iod

are

both

re

leva

nt. I

n p

ract

ice,

the

exa

ct d

ate

of

pur

chas

e is

gov

erne

d by

sp

ecifi

c ta

x ru

les,

al

thou

gh t

hese

are

not

with

in t

he s

cop

e of

th

is t

ext.

A fu

rthe

r pr

actic

al d

iffic

ulty

will

be

to

dete

rmin

e ho

w m

any

com

pan

ies

are

asso

ciat

ed, p

artic

ular

ly w

hen

deal

ing

with

a

larg

e gr

oup.

Thi

s is

ver

y im

port

ant

whe

n de

term

inin

g th

e co

rpor

atio

n ta

x ra

te t

o be

ap

plie

d. S

omet

imes

you

will

find

tha

t in

pr

actic

e se

vera

l gro

ups

of c

ompa

nies

may

be

link

ed t

oget

her

by a

com

mon

sh

areh

olde

r or

per

haps

by

part

ners

co

nnec

ted

thro

ugh

a lim

ited

liabi

lity

part

ners

hip.

For

tuna

tely

for

the

purp

oses

of

thi

s ex

am, s

uch

prac

tical

diff

icul

ties

will

no

t ar

ise.

You

shou

ld r

ead

Sect

ion

1 fa

irly

qui

ckly

.

Sect

ions

2 a

nd 3

are

mor

e im

port

ant

and

you

mus

t w

ork

thro

ugh

all o

f the

wor

ked

exam

ples

and

inte

ract

ive

ques

tions

car

eful

ly.

The

mai

n ra

te o

f cor

pora

tion

tax

and

the

mar

gina

l rel

ief f

ract

ion

chan

ged

betw

een

FY20

11 a

nd

FY20

12 s

o yo

u ne

ed t

o be

abl

e to

cal

cula

te t

he c

orpo

ratio

n ta

x lia

bilit

y fo

r a

com

pany

tha

t ha

s an

acc

ount

ing

perio

d w

hich

st

radd

les

the

two

finan

cial

yea

rs.

The

exam

ples

in t

he s

tudy

m

anua

l cov

er t

his

thor

ough

ly.

Ensu

re t

hat

you

wor

k th

roug

h th

em c

aref

ully

and

und

erst

and

them

.

Ensu

re y

ou le

arn

the

defin

ition

of

'aug

men

ted

pro

fits'.

Fina

lly c

ompl

ete

the

self-

test

q

uest

ions

at

the

end

of t

he

chap

ter.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

4c,

5a, b

, c,

d.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

Id

entif

y th

e co

rrec

t ch

arge

able

ac

coun

ting

per

iods

of a

co

mpa

ny

C

alcu

late

the

tax

able

tot

al

prof

its fo

r a

com

pany

C

alcu

late

the

cor

por

atio

n ta

x p

ayab

le b

y a

com

pan

y

U

nder

stan

d th

e im

pac

t of

as

soci

ated

com

pan

ies

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Prin

cip

les

of

Taxa

tio

n

14

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

10

Val

ue a

dd

ed t

ax

VAT

is a

n in

dire

ct t

ax le

vied

on

supp

lies

of g

oods

an

d se

rvic

es. A

s su

ch it

is c

olle

cted

on

beha

lf of

th

e go

vern

men

t by

reg

iste

red

trad

ers

who

pay

it

over

to

HM

RC o

n a

regu

lar

basi

s: m

onth

ly,

quar

terly

or

annu

ally

. We

all p

ay V

AT,

but

re

gist

ered

tra

ders

can

als

o re

cove

r so

me

of t

he

VAT

whi

ch t

hey

pay

on

thei

r p

urch

ases

. The

go

vern

men

t co

llect

s a

huge

pro

port

ion

of it

s an

nual

rev

enue

in t

he fo

rm o

f VA

T w

hich

mak

es

the

tax

extr

emel

y im

port

ant

in p

ract

ice.

Oth

er c

ount

ries

with

in t

he E

urop

ean

Uni

on h

ave

thei

r ow

n VA

T-eq

uiva

lent

tax

es a

nd t

here

are

st

rict

rule

s go

vern

ing

how

eac

h M

embe

r St

ate

can

oper

ate

the

tax.

Thi

s ha

s le

ft t

he t

ax o

pen

to

abus

e in

rec

ent

year

s an

d es

timat

es o

f the

cur

rent

le

vel o

f 'M

issi

ng T

rade

r In

tra

Com

mun

ity',

or

caro

usel

, fra

ud w

ithin

the

UK

rose

at

one

stag

e to

an

est

imat

ed £

4bn

of t

ax b

eing

lost

eac

h ye

ar.

Legi

slat

ive

chan

ges

have

sin

ce b

roug

ht t

hat

leve

l do

wn

sign

ifica

ntly

.

Sto

p a

nd

th

ink

If a

busi

ness

has

to

char

ge V

AT

on it

s sa

les,

tho

se

sale

s be

com

e m

ore

exp

ensi

ve fo

r th

e un

regi

ster

ed

cons

umer

and

can

mak

e th

e bu

sine

ss le

ss

com

pet

itive

. Thu

s m

any

busi

ness

es d

epen

d on

go

od V

AT

advi

ce a

nd a

com

pet

ent

acco

unta

nt

shou

ld a

lway

s re

mem

ber

to a

dvis

e on

the

VA

T co

nseq

uenc

es o

f par

ticul

ar c

ours

es o

f act

ion.

The

curr

ent

leve

l of t

he V

AT

thre

shol

d m

eans

tha

t m

any

busi

ness

es w

hich

are

la

rge

enou

gh t

o us

e a

pro

fess

iona

l adv

iser

w

ill n

eed

to r

egis

ter

for

VAT.

Reg

istr

atio

n br

ings

with

it e

xtra

adm

inis

trat

ive

req

uire

men

ts a

nd a

lso

mea

ns t

hat

the

pric

es w

hich

the

bus

ines

s ch

arge

s to

the

ge

nera

l pub

lic w

ill b

e hi

gher

. How

ever

, it

can

also

be

bene

ficia

l for

a b

usin

ess

to

regi

ster

for

VAT.

It is

imp

orta

nt t

o un

ders

tand

how

and

w

hen

to a

ccou

nt fo

r VA

T an

d to

als

o be

aw

are

of w

hen

this

diff

ers

from

the

dire

ct

taxe

s, in

com

e an

d co

rpor

atio

n ta

x. A

lso,

be

caus

e VA

T is

dea

lt w

ith d

urin

g a

busi

ness

's ac

coun

ting

per

iod,

it is

ver

y m

uch

a 're

al t

ime'

tax

. If a

clie

nt is

uns

ure

abou

t ho

w t

o ac

coun

t fo

r a

part

icul

ar

tran

sact

ion,

the

pro

blem

will

nee

d to

be

solv

ed w

ithin

a m

atte

r of

wee

ks r

athe

r th

an a

fter

the

end

of t

he t

ax y

ear

or

acco

untin

g pe

riod.

It is

not

alw

ays

obvi

ous

from

legi

slat

ion

whe

ther

goo

ds a

re

char

geab

le t

o VA

T, a

nd if

the

y ar

e, w

hat

rate

sho

uld

be u

sed.

Read

thr

ough

Sec

tions

1 a

nd 2

q

uick

ly t

o ga

in a

gen

eral

feel

of

how

VA

T w

orks

.

Sect

ion

3 on

reg

istr

atio

n is

im

port

ant

and

is w

orth

wor

king

th

roug

h ca

refu

lly.

The

exam

ple

s co

verin

g th

e ta

x p

oint

, dis

coun

ts a

nd t

he fu

el

scal

e ch

arge

in S

ectio

n 4

are

very

imp

orta

nt.

To fi

nish

the

cha

pter

you

can

sk

im t

hrou

gh S

ectio

n 5

and

then

att

emp

t th

e se

lf-te

st

que

stio

ns a

t th

e en

d of

the

ch

apte

r.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

6a,

b, c

, d, e

.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

D

eter

min

e w

hen

a tr

ansa

ctio

n is

with

in t

he s

cop

e of

VA

T, a

nd

the

imp

act

of it

bei

ng a

tax

able

or

exe

mpt

sup

ply

Id

entif

y w

hen

VAT

regi

stra

tion/

dere

gist

ratio

n ar

e re

qui

red/

desi

rabl

e

C

alcu

late

the

VA

T ap

ply

ing

to a

su

pp

ly, s

tart

ing

at e

ither

the

VA

T in

clus

ive

or e

xclu

sive

figu

re

D

eter

min

e th

e ta

x p

oint

of a

su

pp

ly

D

eal w

ith u

nusu

al a

spec

ts o

f in

put

tax

and

out

put

tax

suc

h as

bad

deb

ts, d

isco

unts

etc

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Can

dida

tes

have

hist

oric

ally

bee

n w

eak

at V

AT q

uest

ions

. Thi

s is

prob

ably

bec

ause

ther

e ar

e a

larg

e nu

mbe

r of s

mal

l iss

ues

to d

eal w

ith

rath

er th

an o

ne m

ain

pro

form

a to

le

arn.

It is

ess

entia

l tha

t can

dida

tes

take

tim

e to

und

erst

and

and

beco

me

com

pete

nt a

t VAT

at a

n ea

rly s

tage

.

Stud

y G

uide

15

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

11

Val

ue a

dd

ed t

ax –

fur

ther

asp

ects

Succ

essi

ve g

over

nmen

ts h

ave

cont

inue

d to

in

trod

uce

furt

her

sche

mes

des

igne

d to

sim

plify

VA

T ad

min

istr

atio

n to

mak

e it

less

of a

bur

den

for

busi

ness

.

Man

y bu

sine

sses

com

plet

e th

eir

own

VAT

retu

rns

and

just

ask

the

ir ac

coun

tant

to

deal

with

pr

oble

ms.

Alth

ough

a b

usin

ess

is m

erel

y co

llect

ing

VAT

on

beha

lf of

the

gov

ernm

ent,

man

y st

ill r

esen

t ha

ving

to

pay

ove

r th

e ca

sh w

hen

it fa

lls d

ue.

Inde

ed, f

or m

any

smal

ler

busi

ness

es, c

olle

ctin

g an

d pa

ying

VA

T ca

n cr

eate

sev

ere

cash

flow

di

fficu

lties

.

Sto

p a

nd

th

ink

Did

you

rea

lise

that

VA

T ad

min

istr

atio

n ca

n be

a

sign

ifica

nt b

urd

en fo

r bu

sine

sses

? A

com

pet

ent

acco

unta

nt c

an p

rovi

de in

valu

able

sup

por

t by

ad

visi

ng o

n w

hen

thes

e ad

min

istr

ativ

e bu

rden

s ca

n be

alle

viat

ed, o

r by

hel

pin

g a

busi

ness

with

its

VAT

adm

inis

trat

ion.

Acc

ount

ing

for

VAT

and

payi

ng t

he t

ax o

n tim

e is

an

imp

orta

nt p

art

of a

bus

ines

s's

regu

lar

adm

inis

trat

ion.

An

acco

unta

nt c

an

help

a b

usin

ess

by a

dvis

ing

on t

he s

pec

ial

sche

mes

for

whi

ch it

may

be

elig

ible

.

Som

e of

the

se s

chem

es ju

st r

educ

e pa

perw

ork

by c

uttin

g do

wn

on t

he

freq

uenc

y of

ret

urns

, but

oth

ers

can

actu

ally

red

uce

the

amou

nt o

f VA

T w

hich

a

busi

ness

pay

s ov

er t

o H

MRC

. Not

all

busi

ness

es w

ill b

enef

it fr

om u

sing

the

sc

hem

es, h

owev

er, s

o it

is im

port

ant

to

unde

rsta

nd w

hen

they

are

rel

evan

t.

Read

thr

ough

Sec

tion

1,

wor

king

car

eful

ly t

hrou

gh t

he

wor

ked

exam

ple

s an

d in

tera

ctiv

e qu

estio

n.

Then

ens

ure

that

you

kno

w h

ow

the

relie

fs c

over

ed in

Sec

tion

2 w

ork.

Read

qui

ckly

thr

ough

Sec

tion

3.

Rem

embe

r to

att

empt

the

sel

f-te

st q

uest

ions

at

the

end

of t

he

chap

ter.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

2a,

d, 6

e, f

.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

C

alcu

late

the

VA

T p

ayab

le o

r re

clai

mab

le fo

r a

per

iod

Id

entif

y th

e sc

hem

es a

vaila

ble

to s

mal

l bus

ines

ses

and

app

ly

the

rule

s of

the

sch

emes

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Prin

cip

les

of

Taxa

tio

n

16

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

12

Ad

min

istr

atio

n o

f ta

x

The

self

asse

ssm

ent s

yste

m is

bui

lt on

the

prem

ise

that

indi

vidu

als

and

com

pani

es a

sses

s th

eir o

wn

tax.

Th

is pl

aces

a c

onsid

erab

le a

dmin

istra

tive

burd

en o

n th

e ta

xpay

er.

As

wel

l as

oblig

atio

ns t

o su

bmit

data

, the

ta

xpay

er a

lso

has

the

right

to

mak

e ch

ange

s la

ter

on.

A c

ompa

ny’s

ret

urn

will

dup

licat

e m

uch

of t

he

info

rmat

ion

whi

ch is

req

uire

d by

Com

pani

es

Hou

se a

nd t

here

are

dev

elop

men

ts w

ithin

go

vern

men

t to

per

suad

e as

man

y sm

alle

r co

mpa

nies

as

poss

ible

to

alig

n th

eir

filin

g of

the

tw

o se

ts o

f inf

orm

atio

n.

Indi

vidu

als

and

com

pani

es m

ust

reta

in r

ecor

ds.

Reco

rd r

eten

tion

may

invo

lve

elec

tron

ic s

tora

ge

of d

ata

for

som

e ta

x pa

yers

, alth

ough

acc

essi

ng

the

rele

vant

mat

eria

l aft

er a

num

ber

of y

ears

ha

ve p

asse

d ca

n pr

ove

prob

lem

atic

in p

ract

ice.

Mee

ting

dead

lines

and

ret

aini

ng r

ecor

ds a

re v

ery

impo

rtan

t if

taxp

ayer

s ar

e to

avo

id u

nnec

essa

ry

inte

rest

and

pen

altie

s. D

efau

lting

on

thes

e ob

ligat

ions

can

hav

e fa

r-re

achi

ng a

nd s

erio

us

cons

eque

nces

. For

exa

mpl

e, m

any

com

pani

es in

th

e co

nstr

uctio

n in

dust

ry r

ely

on b

eing

abl

e to

us

e a

spec

ial s

chem

e fo

r th

eir

subc

ontr

act

wor

k;

if th

ey h

ave

paid

the

ir co

rpor

atio

n ta

x la

te o

n m

ore

than

tw

o oc

casi

ons,

the

y ca

n be

exc

lude

d fr

om t

he s

chem

e an

d th

en t

he la

rger

bui

ldin

g co

mpa

nies

will

not

use

the

m.

Sto

p a

nd

th

ink

Did

you

real

ise h

ow im

port

ant i

t is

to e

nsur

e th

at a

tax

retu

rn is

file

d on

tim

e an

d th

at ta

x is

paid

by

the

due

date

? If

this

is no

t don

e pe

nalti

es c

an b

e co

nsid

erab

le.

The

adm

inis

trat

ive

rule

s w

hich

you

will

be

cove

ring

in t

his

chap

ter

are

impo

rtan

t.

Taxp

ayer

s, p

artic

ular

ly t

hose

in b

usin

ess,

w

ill n

eed

to e

nsur

e th

at t

hey

have

the

sy

stem

s in

pla

ce t

o m

eet

the

vario

us

dead

lines

as

they

fall

due

and

that

the

ir ca

sh fl

ow e

ncom

pass

es p

aym

ent

of t

ax o

n tim

e. M

ost

corp

orat

e tr

ansa

ctio

ns w

ith

HM

RC a

re n

ow e

lect

roni

c an

d ov

er t

he la

st

few

yea

rs t

here

has

bee

n a

grad

ual s

hift

as

busi

ness

es p

repa

re fo

r th

is.

Reco

rd r

eten

tion

will

con

tinue

to

be

impo

rtan

t. U

sual

ly t

axpa

yers

will

nee

d to

ke

ep r

ecor

ds fo

r si

x ye

ars,

how

ever

, in

case

s w

here

the

re h

as b

een

inad

equa

te

disc

losu

re, H

MRC

has

pow

ers

to m

ake

a di

scov

ery

asse

ssm

ent

whi

ch c

ould

ext

end

back

as

far

as 2

0 ye

ars

in e

xtre

me

case

s.

Add

ition

ally

, you

nee

d to

kno

w w

hat

hap

pen

s w

hen

HM

RC c

ondu

cts

a co

mp

lianc

e ch

eck

into

a t

axp

ayer

's ta

x re

turn

and

wha

t th

e co

nseq

uenc

es c

ould

be

. The

tax

paye

r ha

s ce

rtai

n rig

hts

of

app

eal a

nd t

hese

can

be

very

imp

orta

nt,

for

exam

ple,

whe

re H

MRC

has

mad

e un

real

istic

dem

ands

. Whe

re in

tere

st a

nd

pena

lties

are

impo

sed,

a w

ell p

repa

red

acco

unta

nt c

an s

ave

a cl

ient

con

side

rabl

e su

ms.

This

is a

larg

e ch

apte

r co

ntai

ning

the

adm

inis

trat

ion

of

all t

he t

axes

cov

ered

in t

he

prin

cipl

es o

f tax

atio

n sy

llabu

s.

Sect

ions

1 t

o 4

are

imp

orta

nt a

s th

ey c

over

the

com

mon

pen

alty

re

gim

es a

pply

ing

acro

ss a

ll th

e ta

xes.

Read

car

eful

ly t

hrou

gh e

ach

of

Sect

ions

5 t

o 12

, wor

king

ca

refu

lly t

hrou

gh t

he e

xam

ple

s an

d q

uest

ions

, as

they

out

line

spec

ific

rule

s on

indi

vidu

al t

axes

.

Skim

rea

d th

roug

h Se

ctio

n 13

.

Fina

lly c

ompl

ete

the

self-

test

q

uest

ions

at

the

end

of t

he

chap

ter.

The

spec

ific

syl

lab

us r

efer

ence

s fo

r th

is c

hap

ter

are:

2a,

c, d

, e, f

.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

D

eter

min

e du

e da

tes

for

emp

loye

rs' P

AYE

and

nat

iona

l in

sura

nce

retu

rns

and

pay

men

ts, i

nclu

ding

pen

altie

s fo

r no

n co

mpl

ianc

e

D

eter

min

e w

hen

a ta

x re

turn

is

req

uire

d an

d its

sub

mis

sion

da

te, i

nclu

ding

the

pen

altie

s fo

r no

n co

mp

lianc

e

Id

entif

y th

e ad

min

istr

ativ

e is

sues

affe

ctin

g in

divi

dual

s an

d co

mpa

nies

D

eter

min

e th

e p

aym

ent

date

s an

d am

ount

s of

pay

men

ts t

o be

mad

e by

bot

h in

divi

dual

s an

d by

com

pan

ies

of a

ll si

zes

Id

entif

y an

d ca

lcul

ate

the

pen

altie

s an

d in

tere

st p

ayab

le

by in

divi

dual

s an

d co

mp

anie

s fo

r no

n co

mpl

ianc

e

Re

cogn

ise

whe

n p

enal

ties

for

VAT

are

due

and

dete

rmin

e th

e am

ount

of t

he p

enal

ties

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Stud

y G

uide

17

Stud

y Pe

rio

d

Prac

tica

l sig

nif

ican

ce

Wo

rkin

g c

on

text

A

pp

roac

h

Sylla

bus

ref

eren

ces

and

exa

m

con

text

D

ue

Dat

e

13

Eth

ics

Belo

ngin

g to

a p

rofe

ssio

nal b

ody

requ

ires

adhe

renc

e to

a c

ode

of e

thic

s. T

his

is p

art

of

wha

t di

ffere

ntia

tes

a C

hart

ered

Acc

ount

ant

from

un

qua

lifie

d ac

coun

tant

s. C

lient

s, m

embe

rs o

f th

e p

ublic

, and

the

gov

ernm

ent

reco

gnis

e th

at

we

are

req

uire

d to

adh

ere

to e

xact

ing

stan

dard

s an

d so

exp

ect

a ce

rtai

n st

anda

rd o

f beh

avio

ur

from

us.

Mon

ey la

unde

ring

has

been

a m

ajor

pro

blem

in

the

past

and

, to

com

bat

this

, pro

fess

iona

ls a

re

requ

ired

to p

artic

ipat

e in

its

prev

entio

n by

re

port

ing

cert

ain

susp

icio

ns r

elat

ing

to t

he

pro

ceed

s of

crim

e.

Sto

p a

nd

th

ink

Acc

ount

ants

hav

e be

en fi

ned

for

non-

com

plia

nce

with

the

Cod

e of

Eth

ics,

and

hav

e ha

d cl

aim

s ag

ains

t p

rofe

ssio

nal i

ndem

nity

insu

ranc

e fo

r br

each

es o

f con

fiden

tialit

y. E

ven

in t

he r

elat

ivel

y sh

ort

time

that

the

ant

i-mon

ey la

unde

ring

regu

latio

ns h

ave

exis

ted

acco

unta

nts

have

bee

n p

rose

cute

d. It

is e

ssen

tial t

hat

pro

fess

iona

l ac

coun

tant

s sh

ould

act

eth

ical

ly in

all

of t

heir

wor

k.

Ethi

cal c

onsi

dera

tions

und

erpi

n al

l of y

our

stud

ies

as w

ell a

s yo

ur w

ork

expe

rienc

e.

You

will

oft

en m

ake

ethi

cal d

ecis

ions

w

ithou

t ev

en r

ealis

ing

it, b

ut s

omet

imes

yo

u m

ay fi

nd y

ours

elf i

n a

qua

ndar

y an

d be

uns

ure

how

to

act.

Thi

s is

whe

n th

e C

ode

of E

thic

s w

ill b

e of

ass

ista

nce.

You

need

to

know

wha

t to

look

out

for

and

how

to

act.

You

sho

uld

alw

ays

take

pa

rtic

ular

car

e in

rel

atio

n to

clie

nt

conf

iden

tialit

y; n

ot a

lway

s an

eas

y ta

sk.

Ethi

cs c

an b

e a

very

dry

top

ic.

The

best

ap

pro

ach

is t

o re

ad t

he

chap

ter

in s

ever

al s

hort

sitt

ings

m

akin

g no

tes

on t

he e

ssen

tial

poi

nts

as y

ou g

o al

ong.

Fina

lly, a

ttem

pt

the

self-

test

q

uest

ions

at

the

end

of t

he

chap

ter.

The

spec

ific

syl

lab

us r

efer

ence

fo

r th

is c

hap

ter

is: 1

f, g

.

In t

he e

xam

inat

ion

cand

idat

es m

ay

be r

equi

red

to:

A

pp

ly t

he fi

ve fu

ndam

enta

l pr

inci

ples

to

give

n sc

enar

ios

D

eter

min

e sa

fegu

ards

to

be p

ut

in p

lace

whe

n th

reat

s ar

e m

ade

to t

he fu

ndam

enta

l prin

cipl

es

A

dvis

e on

the

eth

ical

res

olut

ion

of c

onfli

cts

G

ive

app

rop

riate

gui

danc

e re

latin

g to

con

flict

s of

inte

rest

, m

oney

laun

derin

g an

d th

e di

stin

ctio

n be

twee

n ta

x ev

asio

n an

d av

oida

nce

For

extr

a q

uest

ion

pra

ctic

e on

th

ese

top

ics

go t

o th

e se

ctio

n of

th

e Q

uest

ion

Bank

cov

erin

g th

is

chap

ter.

Prin

cip

les

of

Taxa

tio

n

18

Study Guide 19

4 Syllabus and learning outcomes

Covered in chapter

1 Objectives, types of tax and ethics Candidates will be able to explain the general objectives of tax, the influences upon the UK system of tax, the different types of tax in the UK and will be able to recognise the ethical issues arising in the course of performing tax work.

In the assessment, candidates may be required to:

(a) Identify the objectives of tax in general terms of economic, social justice and environmental issues, the range of tax opportunities open to the government and the relative advantages of different types of tax in meeting the government’s objectives. 1

(b) Recognise the impact of external influences, including EU tax policies, on UK tax objectives and policies. 1

(c) Classify entities as individuals, partnerships, or companies for tax purposes and state how they are taxed. 1

(d) Identify who is liable for the following taxes, how the taxes apply to income, transactions and assets, identify the government bodies responsible for the taxes, and determine when an individual or entity comes within the scope of the taxes: 1

Capital gains tax Corporation tax Income tax National insurance VAT

(e) Recognise the importance of the budget cycle, tax year and the following sources of UK tax law and practice: 1

Legislation Case law HM Revenue & Customs manuals, statements of practice, extra statutory

concessions and press releases

(f) Identify the five fundamental principles given in the IFAC Code of Ethics for Professional Accountants and the ICAEW Code of Ethics, and the guidance in relation to a tax practice with regard to: 13

The threats and safeguards framework Ethical conflict resolution

(g) Identify the following: 13

Conflict of interest Money laundering Tax avoidance and tax evasion

2 Administration of taxation Candidates will be able to identify the obligations the UK system of tax imposes on taxpayers and the implications for taxpayers of non-compliance.

In the assessment, candidates may be required to:

(a) Identify the records which companies and individuals must retain for tax purposes and state the periods for which the records must be retained. 11,12

Principles of Taxation 20

Covered in chapter (b) Identify the key features of the PAYE and national insurance system and calculate

PAYE tax codes for employees. 3, 7

(c) Identify the key features of the self assessment system for both companies and individuals. 12

(d) Determine, in straightforward cases, due dates for:

Companies’, sole traders’, partners’ and individuals’ tax returns, tax payments and payments on account 12

Businesses’ VAT returns and payments 11

Employers’ PAYE and national insurance returns and payments 3,12

(e) Identify and calculate the interest and penalties due for:

Late submissions of and/or incorrect returns, and 12 Late and/or incorrect payments of tax 12

(f) Identify the periods within which HM Revenue & Customs can enquire into a taxpayer’s returns or other information and tax liabilities and recognise the taxpayer’s right of appeal and the process for dealing with disputes. 12

3 Income tax and national insurance contributions Candidates will be able to calculate the amount of income tax owed by or owed to individuals and the amount of national insurance payable.

In the assessment, candidates may be required to:

(a) Recognise the main sources of taxable and non-taxable income. 2

(b) Calculate the personal allowance available to an individual according to personal circumstances including personal age allowances and married couples allowance. 2

(c) Calculate assessable employment income for an employee or director, including taxable and exempt benefits. 3

(d) Recognise the badges of trade. 4

(e) Allocate given items of business expenditure as allowable or disallowable for tax purposes and calculate the adjusted trading profits after capital allowances on plant and machinery of a sole trader or partnership. 4, 5

(f) Allocate the tax adjusted profits of a partnership to each partner and calculate the final assessable profits for each partner for any given tax year. 6

(g) Calculate the assessable trading profits for a new unincorporated business and identify the overlap profits on the commencement of trade. 6

(h) Calculate the final assessable trading profits for an unincorporated business ceasing to trade. 6

(i) Calculate total taxable income and the income tax payable or repayable for employed and self-employed individuals. 2

(j) Calculate the total national insurance contributions payable by employees, employers and self-employed individuals. 7

Study Guide 21

Covered in chapter

4 Capital gains tax and chargeable gains for companies Candidates will be able to calculate the amount of capital gains tax payable by individuals and the chargeable gains subject to corporation tax.

In the assessment, candidates may be required to:

(a) Classify persons, assets and disposals as either chargeable or exempt for capital gains purposes. 8

(b) Calculate the chargeable gains and losses on the disposal of assets, including indexation where appropriate. 8

(c) Calculate total taxable gains for both individuals and companies and for individuals calculate the capital gains tax payable. 8

5 Corporation tax Candidates will be able to calculate the amount of corporation tax payable by companies.

In the assessment, candidates may be required to:

(a) Identify chargeable accounting periods for a company. 9

(b) Recognise the effect of having one or more associated companies on corporation tax payable. 9

(c) Allocate given items of business expenditure as allowable or disallowable for tax purposes and calculate the adjusted trading profits after capital allowances on plant and machinery. 9

(d) Calculate the taxable total profits and the corporation tax payable for a company resident in the UK which has no associated companies and an accounting period of 12 months or less. 9

6 VAT Candidates will be able to calculate the amount of VAT owed by or owed to businesses.

In the assessment, candidates may be required to:

(a) Classify supplies in given straightforward situations as exempt, zero rated, standard rated, subject to a reduced rate of 5% or outside the scope of VAT. 10

(b) Recognise the implications of supplies being classified as standard rated, zero rated or exempt. 10

(c) Identify when a business could or should register or deregister for VAT and state the time limits. 10

(d) Determine the tax point for a supply of goods or services. 10

(e) State the principles of VAT payable or repayable on the supply of goods or services by a taxable person and calculate the monthly, quarterly and annual VAT payable or repayable by a business. 10, 11

(f) State the alternative schemes for payment of VAT by businesses. 11

Principles of Taxation 22

4.1 Technical knowledge The tables contained in this section show the technical knowledge in the disciplines of financial reporting, audit and assurance, ethics and taxation covered in the ACA syllabus by module.

For each individual standard the level of knowledge required in the relevant Professional Stage module and at the Advanced Stage is shown.

The knowledge levels are defined as follows:

Level D

An awareness of the scope of the standard.

Level C

A general knowledge with a basic understanding of the subject matter and training in its application sufficient to identify significant issues and evaluate their potential implications or impact.

Level B

A working knowledge with a broad understanding of the subject matter and a level of experience in the application thereof sufficient to apply the subject matter in straightforward circumstances.

Level A

A thorough knowledge with a solid understanding of the subject matter and experience in the application thereof sufficient to exercise reasonable professional judgement in the application of the subject matter in those circumstances generally encountered by Chartered Accountants.

Key to other symbols:

→ the knowledge level reached is assumed to be continued

Study Guide 23

Taxation

Professional Stage

Title

Prin

cip

les

of

Taxa

tio

n

Taxa

tio

n

Ad

van

ced

Sta

ge

Objectives of taxation C → →

Ethics A → →

HM Revenue & Customs B → →

Tax evasion and avoidance C B A

BUSINESS TAXATION

Administration B → →

Appeals C → →

Payments B A →

Penalties and interest B A →

Self assessment B A →

Chargeable gains

Chargeable assets C B →

Chargeable disposals C B →

Chargeable persons C B →

Chattels: wasting and non-wasting B → →

Costs of acquisition and disposal C B →

Indexation B A →

Leases A

Nil gain/nil loss transfers A →

Part disposals B →

Pre 31 March 1982 assets A →

Qualifying corporate bonds A

Relief for capital losses A →

Reorganisations and reconstructions A

Shares and securities (including bonus and rights issues) A →

Chargeable gains reliefs

Entrepreneurs' relief A →

Gift relief A →

Incorporation relief A →

Roll-over relief A →

Substantial shareholding exemption A →

Principles of Taxation 24

Professional Stage

Title

Prin

cip

les

of

Taxa

tio

n

Taxa

tio

n

Ad

van

ced

Sta

ge

Trading profits

Adjustments to profits B A →

Badges of trade B A →

Capital allowances B A →

Foreign currency transactions A

Long periods of account C A →

Pension contributions B A

Royalty payments B →

Royalty receipts B →

Unincorporated businesses

Basis of assessment – current year basis B A →

Change of accounting date B →

Commencement and cessation of trade B A →

Overlap profits and treatment of opening year losses B A →

Partnerships B A →

Trading losses A →

Companies – taxable total profits

Property income (including lease premiums) A →

Trading profits B A →

Loan relationships B A →

Loan relationships – worldwide debt cap B

Intangible assets B A

Research and development expenditure B A

Research and development tax credits A

Miscellaneous income B A →

Chargeable gains B A →

Indexation A →

Qualifying donations B A →

Relief for capital losses A →

Trading losses A →

Use of deficit on non-trading loan relationships A →

Study Guide 25

Professional Stage

Title

Prin

cip

les

of

Taxa

tio

n

Taxa

tio

n

Ad

van

ced

Sta

ge

Corporation tax computation

Chargeable accounting periods C B A

Close companies A →

Corporation tax liability B A →

Distributions B →

Double tax relief (including underlying tax and withholding tax) B

Liquidation A

Provision of services through a company A

Rates of tax B A →

Residence C B →

Groups

Associated companies C B A

Capital gains groups A →

Changes in group structure A

Change in ownership B A

Consortium relief A

Controlled foreign companies A

Degrouping charges A

Group loss relief A →

Group relationships A →

Non-coterminous accounting periods A →

Overseas companies and branches A

Pre-acquisition gains and losses A

Rollover relief A →

Transfer of assets A →

Transfer pricing A

Stamp Duty and Stamp Duty Land Tax

Basic principles B

Chargeable occasions B

Exemptions B

Principles of Taxation 26

Professional Stage

Title

Prin

cip

les

of

Taxa

tio

n

Taxa

tio

n

Ad

van

ced

Sta

ge

VAT

Administration B → →

Appeals C → →

Capital goods scheme A

Group aspects A →

Input VAT A → →

Output VAT A → →

Overseas aspects A →

Partial exemption B →

Payments A → →

Penalties and interest A → →

Property transactions A →

Registration and deregistration A → →

Small business reliefs A → →

Taxable person A → →

Taxable supplies A → →

Transfer of a business as a going concern B →

VAT records and accounts A → →

PERSONAL TAXATION

Administration

Administration B → →

Appeals C → →

PAYE B → →

Payments B A →

Penalties and interest B A →

Self assessment B A →

Employees

Allowable deductions against employment income A →

Employment income B A →

Share schemes A

Statutory Mileage Rates Scheme A →

Taxable and exempt benefits B A →

Termination payments B →

Study Guide 27

Professional Stage

Title

Prin

cip

les

of

Taxa

tio

n

Taxa

tio

n

Ad

van

ced

Sta

ge

Other income

Dividends from UK companies B A →

Enterprise Investment Scheme B

Investment income B A →

ISAs B B →

Property income C A →

Lease premiums A →

Savings income B A →

Venture Capital Trusts B

Income tax computation

Exempt income B A →

Gift Aid B A →

Income tax liable and payable B A →

Income tax charge on child benefit B →

Independent taxation and jointly owned assets B A

Married couples allowance B A →

Pension contributions: Provisions for retirement B A

Pension contributions: Tax reliefs B A

Personal age allowance B A →

Personal allowance B A →

Rates of tax B A →

Taxable persons C A →

Capital gains tax

Annual exempt amount B A →

Chargeable assets C B →

Chargeable disposals C B →

Chargeable persons C B →

Chattels: wasting and non wasting B → →

Connected persons A →

Converted trading losses B →

Costs of acquisition and disposal C B →

Leases A

Nil gain/nil loss transfers A →

Principles of Taxation 28

Professional Stage

Title

Prin

cip

les

of

Taxa

tio

n

Taxa

tio

n

Ad

van

ced

Sta

ge

Part disposals B →

Pre 31 March 1982 assets A →

Qualifying corporate bonds A

Rate of tax B A →

Reorganisations and reconstructions A

Shares and securities (including bonus and rights issues) A →

Capital gains tax reliefs

Letting relief A →

Principal private residence relief A →

Reinvestment relief under EIS B

National insurance contributions

Administration C B →

Classes of NIC C B →

Directors B →

Maximum contributions C →

Taxable benefits B →

Basic principles of inheritance tax

Chargeable persons B →

Chargeable property B →

Excluded property B →

Inter-spouse transfers A →

Rates of tax A →

Related property B →

Seven year accumulation period A →

Inheritance tax on lifetime transfers

Discretionary trusts A →

Potentially exempt transfers A →

Inheritance tax on death

Death estate A →

Deeds of variation B →

Lifetime transfers A →

Reliefs and exemptions from inheritance tax

Agricultural property relief B →

Annual exemption B →

Business property relief A →

Gifts to charities and political parties A →

Study Guide 29

Professional Stage

Title

Prin

cip

les

of

Taxa

tio

n

Taxa

tio

n

Ad

van

ced

Sta

ge

Gifts with reservation of benefit B →

Marriage exemption A →

Normal expenditure out of income A →

Quick succession relief B →

Small gifts exemption A →

Taper relief A →

Overseas aspects of personal taxation

Arising basis A

Deemed domicile for IHT A

Domicile A

Foreign assets, income and gains A

Double tax relief A

Ordinary residence A

Remittance basis A

Residence A

Temporary absence A

UK taxation of non-domiciled individuals A

Ethics Codes and Standards

Ethics Codes and Standards Level Professional Stage modules

IFAC Code of Ethics for Professional Accountants

(parts A, B and C and Definitions)

A

ICAEW Code of Ethics

(icaew.com/regulations)

A

Assurance

Business and Finance

Law

Principles of Taxation

Audit and Assurance

Business Strategy

Financial Reporting

Taxation

APB Ethical Standards 1-5 (revised)

Provisions Available to Small Entities (revised)

A Assurance

Audit and Assurance

Principles of Taxation 30

5 Key Resources

STUDENT SUPPORT TEAM

T +44 (0)1908 248 250 E studentsupport@icaew.com

STUDENT WEBSITE

icaew.com/students student homepage icaew.com/exams exam applications, deadlines, regulations and more icaew.com/cpl credit for prior learning/exemptions icaew.com/examresources examiners comments, syllabus, past papers, study guides and more icaew.com/examresults exam results

TUITION

If you are receiving structured tuition, make sure you know how and when you can contact your tutors for extra help.

If you aren’t receiving structured tuition and are interested in classroom, online or distance learning tuition, take a look at our tuition providers in your area on icaew.com/exams

ONLINE STUDENT COMMUNITY

The online student community allows you to ask questions, gain study and exam advice from fellow ACA and CFAB students and access our free webinars. There are also regular Ask an Expert and Ask a Tutor sessions to help you with key technical topics and exam papers. Access the community at icaew.com/studentcommunity

THE LIBRARY & INFORMATION SERVICE (LIS)

The Library & Information service (LIS) is ICAEW's world-leading accountancy and business library. You have access to a range of resources free of charge via the library website, including the catalogue, LibCat. icaew.com/library