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ACCA Passcards
Paper F6
Taxation (UK)
FAs 2015
For exams in September 2016,
December 2016 and March 2017
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Fundamentals Paper F6
Taxation FAs 2015
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Preface
Contents
Welcome to BPP Learning Media's ACCA Passcards for Fundamentals Paper F6 Taxation (UK).
They save you time. Important topics are summarised for you.
They incorporate diagrams to kick start your memory.
They follow the overall structure of the BPP Learning Media Study Texts, but BPP Learning Media's
ACCA Passcards are not just a condensed book. Each card has been separately designed for clear
presentation. Topics are self contained and can be grasped visually.
ACCA Passcards are still just the right size for pockets, briefcases and bags.
ACCA Passcards focus on the exam you will be facing.
Run through the complete set of Passcards as often as you can during your final revision period. The day
before the exam, try to go through the Passcards again! You will then be well on your way to passing your
exams.
Good luck!
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Preface
Page
1
Employment income
21
25
Pensions
Contents
Page
Partnerships and limited liability
partnerships
63
12
67
13
71
14
33
15
Business reliefs
85
Property income
39
16
91
43
17
Capital allowances
49
95
18
103
113
55
10
Trading losses
59
11
19
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121
20
21
Losses
129
22
Groups
133
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Page v
Page
23
137
24
An introduction to VAT
141
25
151
Contents
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Topic List
The overall function and purpose of
taxation in a modern economy
Different types of taxes
Principal sources of revenue law and
practice
Tax avoidance and tax evasion
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Different types
of taxes
Principal sources of
revenue law and practice
Tax avoidance
and tax evasion
Economic factors
Taxation represents a withdrawal from the UK economy. Tax policies can be used to encourage and
discourage certain types of activity.
Encourages
Saving
Charitable donations
Entrepreneurs
Investment in plant and machinery
Social factors
Tax policies can be used to redistribute wealth
Direct taxes tax only those who have these resources
Indirect taxes discourage spending
Progressive taxes target those who can afford to pay
Discourages
Smoking
Alcohol
Motoring
Environmental factors
Taxes may be levied for environmental
reasons
Climate change levy
Landfill tax
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Direct
taxes
Indirect
taxes
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Different types
of taxes
Principal sources of
revenue law and practice
Tax avoidance
and tax evasion
Income tax
Individuals
Partnerships
Corporation tax
Companies
Individuals
Partnerships
Companies (in the form of corporation tax)
Inheritance tax
Individuals
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Different types
of taxes
Principal sources of
revenue law and practice
Tax avoidance
and tax evasion
Practice
Statements of practice
Extra-statutory concessions
Explanatory leaflets
Revenue and Customs Brief
Internal Guidance (HMRC manuals)
Agent Update
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European Union
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Different types
of taxes
Principal sources of
revenue law and practice
Tax avoidance
and tax evasion
Tax evasion
Tax avoidance
Suppressing information, or
Illegal
Legal
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Different types
of taxes
Principal sources of
revenue law and practice
Tax avoidance
and tax evasion
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Scope of
income tax
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Computing
taxable income
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Chargeable/
Exempt income
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Deductible
interest
Computing
income tax
Gift aid
Only home in UK
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Scope of
income tax
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Computing
taxable income
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Chargeable/
Exempt income
Aggregation of income
A basic principle of income tax is the aggregation of
income. All of an individual's income for a tax year is
added up in a personal tax computation as total income.
Net income
Total income minus deductible interest and trade losses.
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Deductible
interest
Computing
income tax
Taxable income
Net income minus personal allowance.
Tax liability
The amount of tax charged on income.
Tax payable
The balance of the tax liability still to be paid.
Gift aid
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Personal allowance
10,600 for 2015/16
Restrict if adjusted
net income > 100,000
by 1 for each 2 excess
(nil if > 121,200).
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Scope of
income tax
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Computing
taxable income
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Chargeable/
Exempt income
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Deductible
interest
Computing
income tax
Gift aid
Types of income
Property income
Exempt income
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Scope of
income tax
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Computing
taxable income
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Chargeable/
Exempt income
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Deductible
interest
Computing
income tax
Gift aid
Deductible interest
Interest paid on a particular type of loan is
deducted from total income to compute net
income.
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Scope of
income tax
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Computing
taxable income
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Chargeable/
Exempt income
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Deductible
interest
Computing
income tax
Gift aid
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Scope of
income tax
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Computing
taxable income
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Chargeable/
Exempt income
Deductible
interest
Computing
income tax
Gift aid
Gift aid
Gift aid donations are charitable gifts of money which qualify for tax relief.
Donor must make a gift aid declaration to the charity.
Basic rate
Basic rate tax relief given by treating
donation as net of basic rate tax
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Child benefit
income tax charge
Transferable personal
allowance
Jointly held
property
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Child benefit
income tax charge
Transferable personal
allowance
Jointly held
property
Election made to
HMRC online by
transferor
spouse/civil partner
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Child benefit
income tax charge
Transferable personal
allowance
Jointly held
property
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3: Employment income
Topic List
Basis of assessment
Allowable deductions
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Employment and
self-employment
Employed or self-employed
An employee works under a contract of service and
a self-employed person under a contract for services.
Basis
of assessment
Allowable
deductions
Factors
The degree of control exercised over the
person doing the work
Whether he must accept further work
Whether the other party must provide further work
Whether he provides his own equipment
Whether entitled to benefits eg pension
Whether he hires his own helpers
What degree of financial risk he takes
What degree of responsibility for investment
and management he has
Whether he can profit from sound management
Whether he can work when he chooses
The wording used in any agreement between
parties
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Employment and
self-employment
Basis
of assessment
Allowable
deductions
Employment income
Employees/directors are taxed on income from
the employment:
Cash earnings
Benefits
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Employment and
self-employment
Basis
of assessment
Allowable
deductions
Exam focus
If you have to decide whether an expense
is deductible, put yourself in HMRC's
position and try to find an argument
against deducting it. If you can find a
specific argument, the expense is probably
not deductible.
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Taxable
benefits
Exempt
benefits
Non-cash benefits
Taxed on most employees
Vouchers
Cash vouchers
Credit token
Non-cash vouchers
Taxable on all employees (cost of providing benefit)
Including excluded employees
The PAYE
system
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Accommodation
Living expenses
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Vans
3,150 charge if available for private
use (not home/work commuting)
594 charge for private fuel
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Taxable
benefits
Loans
1
The PAYE
system
Cars
Annual taxable benefit for the private use of a car is (price of car capital
contributions) % related to CO2 emissions.
Only taxed on
P11D employees
Exempt
benefits
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Other benefits
Taxable value of other benefits charged on
employees other than excluded employees
Excluded employees taxed only on secondhand
value as cash earnings
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Taxable
benefits
Exempt
benefits
The PAYE
system
Exempt benefits
Loans of up to 10,000
Entertainment and gifts provided by a third party for an employee
by reason of his employment
Long service awards of up to 50 per year of service
Job related accommodation
Workplace nurseries
Other childcare provided by employer
Recreational/sporting facilities available to employees generally
Works buses and mini-buses
Bicycles provided for cycling to work
Parking places at or near work
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Taxable
benefits
Exempt
benefits
The PAYE
system
The PAYE system collects tax from employees each payday, with the intention that over a tax year, the correct total of tax due
will be collected.
Payment
The employer must pay over the tax and NIC deducted
up to the 5th of each month by the 22nd of that month if
electronic payment (19th if by cheque). Penalties for late
payment (except first).
Quarterly payment is allowed if the average
monthly total of tax and NICs is less than 1,500
Forms
Form P60 to employee by 31 May
Forms P11D/P9D to HMRC and employee by 6 July
Form P45 to employee when leaves employment
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5: Pensions
Topic List
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Types of
pension scheme
Contributions to
pension schemes
Pension Schemes
Employees only
Defined Benefits
Pension based on
earnings and
length of service
All individuals
Money Purchase
No guarantee of amount
of pension. Investments
are used to 'build up' fund
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Types of
pension scheme
Contributions to
pension schemes
Annual limit
Lifetime allowance
Relevant earnings
3,600 pa
Annual allowance
40,000 for 2015/16
C/f unused allowance max three years
Tax charge on excess treat as
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Employer contributions
5: Pensions
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Types of
pension scheme
Occupational
pension
Contributions to
pension schemes
Personal
pension
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Types of
pension scheme
Rest reinvested to
provide taxable
pension income as
required by individual
Contributions to
pension schemes
25% if excess
taken as pension
55% if excess
taken as lump sum
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5: Pensions
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Notes
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6: Property income
Topic List
Computation
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Computation
Property income
Property income covers rent from UK property.
Computation
1 Calculate property income profits on an
2
3
4
Exception
For furnished residential lettings, a 10% wear
and tear allowance can be claimed.
Capital allowances are not available.
Exception
Keep a separate pool of profits/losses from
letting furnished holiday lettings.
Losses
Losses are carried forward against future
income from the UK property business.
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Computation
On a commercial basis
Available for letting for 210 days in the tax year
Actually let for 105 days in the tax year
Not in longer term occupation for more than 155 days during the tax year
Rent-a-room scheme
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Notes
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Topic List
Badges of trade
The adjustment of profits
Cash basis of accounting
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Badges
of trade
The adjustment
of profits
Cash basis of
accounting
Badges of trade
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Badges
of trade
The adjustment
of profits
Cash basis of
accounting
Certain items of expenditure are not deductible for trading income purposes and so must be added back to the
net accounts profit when computing trading profits. Conversely other items are deductible.
Deductible expenditure
Expenditure incurred wholly and exclusively for
trade purposes
Gifts to customers not costing more than 50 per
donee per year
Interest on borrowings for trade purposes
Pre-trading expenditure
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Badges
of trade
Non-deductible expenditure
Fines and penalties
Depreciation
Appropriations (eg salary and interest paid to
proprietor)
Capital expenditure
Entertaining
Legal fees relating to capital items
General provisions
Any expense not incurred wholly and exclusively for
trade purposes
Gift aid donations
Political donations
Part of leasing cost of cars with CO2 emissions over
130 g/km
The adjustment
of profits
Cash basis of
accounting
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Badges
of trade
Cash basis of
accounting
The adjustment
of profits
Cash received
Expenses paid
less
Includes
capital
expenditure
on P&M
(except cars)
Election required
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Profit
Loss
Taxable
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Badges
of trade
The adjustment
of profits
Cash basis of
accounting
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8: Capital allowances
Topic List
What is plant?
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What
is plant?
Allowances on
plant and machinery
Special
assets
There are two sources of the rules on what qualifies as plant and is therefore eligible for capital allowances.
Statute
Statutory exclusions
The following items are excluded as plant by statute.
Buildings and parts of buildings
However, utility systems provided to meet the
particular requirements of the trade, lifts, alarm
systems and several other items can be plant
Structures, with some exceptions: dry docks and
pipelines
Land
Statutory inclusions
Computer software qualifies as plant by statute.
Case law
The courts tend to allow items as plant if they
perform a function (eg moveable office
partitions) in the particular trade, rather than
form part of the setting within which the trade
is carried on.
Machinery
Machinery also qualifies for allowances where
machinery is given its ordinary every day
meaning.
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What
is plant?
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Allowances on
plant and machinery
Special
assets
Deduct lower of
(i) Disposal proceeds
(ii) Original cost
8: Capital allowances
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What
is plant?
Allowances on
plant and machinery
Special
assets
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8: Capital allowances
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What
is plant?
Allowances on
plant and machinery
Special
assets
Not cars
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Topic List
Commencement
Cessation
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Current year
basis
Commencement
Cessation
Opening years
Tax year
Basis period
Overlap profits
Any profits taxed twice are
overlap profits. They may be
deducted on cessation.
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Current year
basis
Commencement
Cessation
Final year
The basis period for the final year starts at the end of the basis period for the previous year and ends at cessation.
Any overlap profits are deducted from the final year's profits.
Example
Brenda has been carrying on a sole trade for many years preparing accounts to 30 April each year. She closes down
her business on 30 September 2015. The results of her final two periods of trading are:
y/e 30 April 2015
p/e 30 September 2015
24,000
5,000
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Notes
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Topic List
Carry forward of trading losses
Set against general income
Opening and closing years
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Carry forward of
trading losses
Set against
general income
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Carry forward of
trading losses
Set against
general income
Example
Losses in two overlapping basis periods are
given to the earlier tax year only.
Exam focus
Before recommending relief against general income, consider
whether it would lead to the waste of the personal allowance.
This is often a significant tax planning point.
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Carry forward of
trading losses
Set against
general income
Opening years
Closing years
Computation of loss
Relief is given in
the latest year first
(LIFO)
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Sharing profits
between partners
Losses
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Sharing profits
between partners
Losses
Losses
Partners are entitled to the same loss reliefs as
sole traders:
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Notes
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Topic List
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NICs for
employees
CLASS 1A
CLASS 1
Primary
Employees pay contributions of
12% of earnings between the
primary threshold and the upper
earnings limit; 2% on earnings
above the upper limit.
Secondary
Employers pay contributions of
13.8% on all earnings for
employees aged 21 or over
above the secondary threshold.
Exam focus
Not reduced by expenses
or pension contributions
Employment allowance
reduction up to 2,000
per employer for tax year
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NICs for
employees
Class 2
Class 2 are paid at a flat weekly rate. Paid under
self assessment. Due by 31 January 2017 for
2015/16.
Class 4
Class 4 NICs are 9% of any profits falling between
a lower and an upper limit and 2% above upper
limit. Class 4 NICs are collected at the same time
as the associated income tax liability.
Exam focus
In questions which ask whether someone
should trade as a sole trader or through a
company (as a director) the cost of NICs
often tips the balance in favour of being a
sole trader.
Profits are the taxable profits, as reduced by trading
losses. Personal pension contributions do not
reduce profits.
These limits will be given to you on the exam paper.
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Notes
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Chargeable persons,
disposals and assets
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Basic
computation
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Losses
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The charge to
CGT for individuals
Spouses and
civil partners
Part
disposals
Damage, loss
or destruction
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Chargeable persons,
disposals and assets
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Basic
computation
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Losses
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The charge to
CGT for individuals
Spouses and
civil partners
Part
disposals
Damage, loss
or destruction
Computation
Compute a gain as follows:
Proceeds
Less cost
X
(X)
__
Gain
X
__
Include:
(1) Original cost of the asset or market
value if that was used as proceeds for the
person who sold the asset to this
individual.
(2) Enhancement expenditure which was
reflected in the state and nature of the
asset at the time of disposal or was on
preserving the owner's legal right to the
asset.
(3) Incidental costs of acquisition and
disposal.
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Chargeable persons,
disposals and assets
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Basic
computation
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Losses
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The charge to
CGT for individuals
Spouses and
civil partners
Part
disposals
Damage, loss
or destruction
Deduct allowable capital losses from gains in the tax year in which they arise (before deducting the annual
exempt amount).
Any loss which cannot be set off
is carried forward to set against
future gains.
Example
Zo made gains of 14,100 in 2015/16. She had brought
forward capital losses of 8,000.
Brought forward capital losses of 3,000 will be set off in
2015/16 to preserve annual exempt amount of 11,100.
The remaining losses will be carried forward to 2016/17.
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disposals and assets
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Basic
computation
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Losses
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Spouses and
civil partners
Part
disposals
Damage, loss
or destruction
Deduct the annual CGT exempt amount of 11,100 (2015/16) to compute an individual's taxable gains.
from gains not qualifying for
entrepreneurs' relief first
10% entrepreneurs' relief gains
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Rates
18% within basic rate band
taxable income and
gains qualifying for
entrepreneurs' relief
deducted first
remember to increase
limit by gross gift aid
donations/personal
pension contributions
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disposals and assets
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Basic
computation
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Losses
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The charge to
CGT for individuals
Spouses and
civil partners
Part
disposals
Damage, loss
or destruction
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Chargeable persons,
disposals and assets
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Basic
computation
3:41 AM
Losses
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The charge to
CGT for individuals
Spouses and
civil partners
Part
disposals
Damage, loss
or destruction
Part disposals
On a part disposal, you are only allowed to take
part of the cost of the asset into account.
Costs attributable solely to the part disposed of
are taken into account in full
For other costs, take into account A/(A+B) of
the cost
A is the proceeds of the part sold
B is the market value of the part retained
Example
X owns land which originally cost 30,000. It sold a
quarter interest in the land for 18,000. The
incidental costs of disposal were 1,000. The
market value of the three-quarter share remaining
is estimated to be 36,000. What is the chargeable
gain?
Proceeds
18,000
Less incidental costs of disposal
(1,000)
_____
17,000
Less
Page 77
18,000
18,000 + 36,000
30,000
(10,000)
______
7,000
_____
_____
(013)ACF6PC13_CH13.qxp
Chargeable persons,
disposals and assets
1/21/2016
Basic
computation
3:41 AM
Losses
Damage
Page 78
The charge to
CGT for individuals
Spouses and
civil partners
Part
disposals
Damage, loss
or destruction
Loss or destruction
If all the proceeds are applied for the replacement of the asset
within 12 months, any gain can be deducted from the cost of
the replacement asset.
(014)ACF6PC13_CH14.qxp
1/21/2016
3:41 AM
Page 79
Chattels
Wasting assets
Private residences
(014)ACF6PC13_CH14.qxp
1/21/2016
3:41 AM
Page 80
Chattels
Wasting
assets
Private
residences
Chattels
A chattel is an item of tangible moveable property
(eg a painting).
Wasting chattels
Wasting chattels are exempt from CGT
unless capital allowances could have been
claimed on them.
Chattels with a remaining estimated useful life
of 50 years or less.
(014)ACF6PC13_CH14.qxp
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Page 81
Wasting
assets
Chattels
Private
residences
Wasting asset
A wasting asset is one with an estimated remaining useful life of
50 years or less and whose original value will fall over time.
Wasting assets have their cost written down
over time on a straight line basis.
Example
Jo bought a copyright with a remaining life of 40 years
for 10,000. He sold the copyright 15 years later for
30,000. Calculate the gain arising.
Proceeds
30,000
Less cost (10,000 25/40)
(6,250)
______
Gain
23,750
______
______
Page 81
Exception
Assets eligible for capital allowances
and used in a trade do not have their
cost written down.
(014)ACF6PC13_CH14.qxp
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Page 82
Chattels
Wasting
assets
Private
residences
Absences of up to three
years for any reason
Absences while employed
abroad
Absences of up to four
years while working
elsewhere
These periods
must normally
be preceded
and followed
by a period of
actual
occupation
Exam focus
Draw up a table of periods present or absent, exempt months and chargeable months. Check
that the total of exempt and chargeable months is correct, to avoid making mistakes.
(014)ACF6PC13_CH14.qxp
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Page 83
Business use
When part of residence is used exclusively for business purposes, that part of gain is
taxable. Last 18 months exemption does not apply.
Letting exemption
A gain arising whilst a PPR is let is exempt up to
the lower of:
1 40,000
Permitted area
The private residence exemption covers a
house plus up to half a hectare of grounds.
A larger area may be allowed for
substantial houses.
Page 83
(014)ACF6PC13_CH14.qxp
1/21/2016
3:41 AM
Page 84
Notes
(015)ACF6PC13_CH15.qxp
1/21/2016
3:41 AM
Page 85
Topic List
Entrepreneurs' relief
Rollover relief
Gift relief
(015)ACF6PC13_CH15.qxp
1/21/2016
3:41 AM
Page 86
Entrepreneurs'
relief
Entrepreneurs' relief
Available for material disposal of
business assets
Gift
relief
Rollover
relief
Business assets
Sole trader business/partnership
Shares in 'personal' trading company owned by
employee/officer
'Personal' trading company
requires
shareholding/voting rights
of at least 5%
(015)ACF6PC13_CH15.qxp
1/21/2016
3:41 AM
Page 87
Entrepreneurs'
relief
Exam focus
If a question mentions the sale of some
business assets and the purchase of
others, look out for rollover relief but do not
just assume that it is available: the assets
might be of the wrong type, eg moveable
plant and machinery.
Page 87
Rollover
relief
Gift
relief
Eligible assets
Land and buildings (including parts of buildings) occupied
as well as used only for the purposes of the trade.
Fixed (that is, immovable) plant and machinery.
Goodwill
A depreciating asset is one with an
expected life of 60 years or less
(eg fixed plant and machinery).
(015)ACF6PC13_CH15.qxp
1/21/2016
3:41 AM
Page 88
Entrepreneurs'
relief
Rollover
relief
Gift
relief
(015)ACF6PC13_CH15.qxp
1/21/2016
3:41 AM
Page 89
Entrepreneurs'
relief
Gift relief
Gift relief may be claimed to defer gains arising on
business assets.
Page 89
Rollover
relief
Gift
relief
Qualifying assets
(015)ACF6PC13_CH15.qxp
1/21/2016
3:41 AM
Page 90
Notes
(016)ACF6PC13_CH16.qxp
1/21/2016
3:42 AM
Page 91
Topic List
Matching
The computation
Alterations of share capital
(016)ACF6PC13_CH16.qxp
1/21/2016
3:42 AM
Page 92
Matching
The
computation
Alterations of
share capital
The matching rules for shares held by an individual are different to the matching rules for shares held by a
company. Take care not to confuse the two.
Exam focus
Learn the 'matching rules' because a crucial
first step to getting a shares question right is
to correctly match the shares sold to the
original shares purchased.
(016)ACF6PC13_CH16.qxp
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Page 93
The
computation
Matching
The computation
The computation is proceeds less cost.
Page 93
Alterations of
share capital
The cost
(016)ACF6PC13_CH16.qxp
1/21/2016
3:42 AM
Page 94
Matching
Bonus issues
Bonus issue shares are acquired at no cost.
Add the number of shares to the share pool.
Rights issues
The
computation
Alterations of
share capital
(017)ACF6PC13_CH17.qxp
1/21/2016
3:42 AM
Page 95
(017)ACF6PC13_CH17.qxp
1/21/2016
3:42 AM
Returns
Page 96
Records and
appeals
Payment of tax
Penalties
Filing date
The latest filing date for filing a 2015/16 tax return is:
(1) 31 October 2016 (paper)
(2) 31 January 2017 (electronic)
Compliance checks
(017)ACF6PC13_CH17.qxp
1/21/2016
3:42 AM
Records and
appeals
Returns
Records
Records must, in general, be kept
until the later of:
(1) Five years after the 31 January
following the tax year concerned
(where the taxpayer is in
business); or
(2) One year after the 31 January
following the tax year, otherwise
Page 97
Payment of tax
Penalties
Appeals
A taxpayer may appeal against:
Any assessment, except a self-assessment
An amendment to a self-assessment or a disallowance
of a claim or election, following a compliance check or
discovery
Penalties
The appeal may be settled by internal review. If not, the
hearing is before Tax Tribunal.
Powers
HMRC can investigate dishonest conduct by tax agent
penalty up to 50,000.
HMRC may make assessments to recover tax due and
determinations which effectively force the filing of a return.
Page 97
(017)ACF6PC13_CH17.qxp
1/21/2016
Returns
3:42 AM
Page 98
Records and
appeals
Payment of tax
Payments on account (POA) of income tax and Class 4
NICs must be made on 31 January in tax year and on
the following 31 July.
The final payment of income tax and Class 4 NICs must
be paid on 31 January following the tax year.
All CGT is due on 31 January following the tax year.
Interest
Interest runs on:
(1) POAs from the normal due dates (31 Jan and 31 July).
(2) Any final payment and CGT from the later of:
(i) 31 January following tax year
(ii) Three months after the notice to file a tax return was issued
Payment of tax
Penalties
(017)ACF6PC13_CH17.qxp
1/21/2016
3:42 AM
Returns
Page 99
Records and
appeals
Payment of tax
Penalties
(017)ACF6PC13_CH17.qxp
1/21/2016
3:42 AM
Returns
Page 100
Records and
appeals
Payment of tax
Penalties
(017)ACF6PC13_CH17.qxp
1/21/2016
3:42 AM
Page 101
Page 101
(017)ACF6PC13_CH17.qxp
1/21/2016
3:42 AM
Page 102
Notes
(018)ACF6PC13_CH18.qxp
1/21/2016
3:42 AM
Page 103
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
CLTs and
PETs
Page 104
Transfer of
nil rate band
Transfer of
nil rate band
Payment
of IHT
By individuals
Lifetime or death
Transfer of value
A gratuitous disposition which results in an
individual being worse off.
Diminution in value
The value of the transfer is always the loss to the
donor.
(018)ACF6PC13_CH18.qxp
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Page 105
Chargeable transfer
2015/16 325,000
Chargeable lifetime
transfer (CLT)
immediate charge to
tax. Gift to trust.
Page 105
Chargeable
transfer on
death.
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
CLTs and
PETs
Page 106
Death
estate
Transfer of
nil rate band
Payment
of IHT
Small gifts
Marriage
Annual (3,000)
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
Page 107
CLTs and
PETs
Transfer of
nil rate band
Death
estate
Payment
of IHT
Exam focus
(1) Take into account all chargeable transfers in seven yrs before this
transfer (including PETs which have become chargeable)
(2) Calculate the tax at 40% on excess of the gross CLT over nil rate
band at death
(3) Deduct taper relief if death between threeseven yrs after transfer
(4) Deduct lifetime tax but no repayment if exceeds tapered death tax
Page 107
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
CLTs and
PETs
Page 108
Death
estate
Transfer of
nil rate band
Payment
of IHT
Tax on death
IHT on a PET made in seven years before death is calculated as follows:
(1) Take into account all chargeable transfers in seven yrs before this
transfer (including other PETs which have become chargeable)
(2) Calculate tax @ 40% on excess over nil rate band at death
(3) Deduct taper relief if death between threeseven yrs after transfer
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
Page 109
Death
estate
CLTs and
PETs
Transfer of
nil rate band
Payment
of IHT
Death estate
All property owned immediately before death
Less debts, funeral expenses
Incurred for consideration or
imposed by law (eg tax to
date of death)
Page 109
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
CLTs and
PETs
Page 110
Death
estate
Transfer of
nil rate band
Payment
of IHT
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
CLTs and
PETs
Page 111
Transfer of
nil rate band
Death
estate
Payment
of IHT
Effect
Nil rate band of A increased by unused nil rate
band of B
Claim
Within two years of end of month of A's death b y
A's PRs.
(018)ACF6PC13_CH18.qxp
Scope/basic
principles
1/21/2016
Exemptions
3:42 AM
CLTs and
PETs
Page 112
Transfer of
nil rate band
Transfer of
nil rate band
Payment
of IHT
Payment of IHT
Event
Due date
Later of
(1) 30 April just after end of tax year
(2) Six months after end of month of tr ansfer
Trustees
PET
Donee
Death estate
PRs
Earlier of
(1) Delivery of account
(2) Six months from end of month of donor's
death
(019)ACF6PC13_CH19.qxp
1/21/2016
3:42 AM
Page 113
(019)ACF6PC13_CH19.qxp
Accounting
periods
Residence
1/21/2016
Taxable total
profits
3:42 AM
Page 114
Loan
relationships
Long period
of account
Computing
corporation tax
Period of account
A period of account is the period for which accounts are prepared.
Accounting period
An accounting period is the period for which
corporation tax is charged.
(019)ACF6PC13_CH19.qxp
Accounting
periods
Residence
1/21/2016
Taxable total
profits
3:42 AM
Page 115
Loan
relationships
Long period
of account
Computing
corporation tax
Residence
A company is resident in the UK if it is
incorporated in the UK or if its central management
and control are in the UK.
Page 115
19: Computing taxable total profits and the corporation tax liability
(019)ACF6PC13_CH19.qxp
Accounting
periods
Residence
1/21/2016
Taxable total
profits
3:42 AM
Page 116
Loan
relationships
Long period
of account
Computing
corporation tax
X
X
X
X
X
__
X
(X)
(X)
__
X
__
Dividends from other companies (UK and overseas) are not included in taxable total profits.
(019)ACF6PC13_CH19.qxp
Accounting
periods
Residence
1/21/2016
Taxable total
profits
3:42 AM
Page 117
Loan
relationships
Long period
of account
Computing
corporation tax
Trading profits
Remember there is no disallowance of expenditure
or restriction of capital allowances for private use.
Proforma
X
__
X
X
X
__
(X)
__
X
__
(019)ACF6PC13_CH19.qxp
Accounting
periods
Residence
1/21/2016
Taxable total
profits
3:42 AM
Page 118
Loan
relationships
Long period
of account
Computing
corporation tax
Loan relationships
A company that borrows or invests money has a loan relationship.
(019)ACF6PC13_CH19.qxp
Accounting
periods
Residence
1/21/2016
Taxable total
profits
3:42 AM
Page 119
Loan
relationships
Long period
of account
Computing
corporation tax
Division of profits
Divide profits between the accounting periods as follows:
Trading income: time apportion the amount before
capital allowances
Example
If A Ltd prepares accounts for the fifteen months
to 31.12.15, there will be one 12 month
accounting period to 30.9.15 and a second three
month accounting period to 31.12.15.
Page 119
(019)ACF6PC13_CH19.qxp
Accounting
periods
Residence
1/21/2016
Taxable total
profits
3:42 AM
Page 120
Loan
relationships
Long period
of account
Computing
corporation tax
(020)ACF6PC13_CH20.qxp
1/21/2016
3:43 AM
Page 121
Topic List
Disposal of shares
Rollover relief
(020)ACF6PC13_CH20.qxp
1/21/2016
3:43 AM
Page 122
Calculation of
chargeable gains
Disposal of
shares
Rollover relief
Computation
Compute a gain as follows:
Proceeds
Less allowable cost
Less indexation allowance
X
(X)
(X)
__
Chargeable gain
X
__
(020)ACF6PC13_CH20.qxp
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Page 123
Calculation of
chargeable gains
Disposal of
shares
Rollover relief
Page 123
(020)ACF6PC13_CH20.qxp
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Page 124
Calculation of
chargeable gains
The cost
Disposal of
shares
Rollover relief
Operative event
Operative events are acquisitions and disposals
(apart from bonus issues)
(020)ACF6PC13_CH20.qxp
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3:43 AM
Page 125
Page 125
(020)ACF6PC13_CH20.qxp
1/21/2016
3:43 AM
Page 126
Calculation of
chargeable gains
Disposal of
shares
Rollover relief
Eligible assets
Land and buildings (including parts of buildings) occupied
as well as used only for the purposes of the trade.
Fixed (that is, immovable) plant and machinery.
(020)ACF6PC13_CH20.qxp
1/21/2016
3:43 AM
Page 127
Page 127
(020)ACF6PC13_CH20.qxp
1/21/2016
3:43 AM
Page 128
Notes
(021)ACF6PC13_CH21.qxp
1/21/2016
3:43 AM
Page 129
21: Losses
Topic List
Trading losses
Non-trading losses
(021)ACF6PC13_CH21.qxp
1/21/2016
3:43 AM
Page 130
Trading
losses
Non-trading
losses
Trading losses
A company's trading loss may be:
(1) Set against other profits of the same accounting
period
(2) Set against profits of the previous 12 months
(3) Carried forward to set against the first available
profits from the same trade
Reliefs (1) and (2) need to be claimed. A company can choose to claim
relief (1) only (ie relief (1) but not relief (2)). However, if relief (2) is to be
claimed, relief (1) must be claimed first. Relief (3) is given automatically to
any loss not relieved under (1) or (2).
(021)ACF6PC13_CH21.qxp
1/21/2016
3:43 AM
Cessation of trade
The 12 month carry back period in (2) above is
extended to 36 months where the trading loss
arose in the 12 months prior to the cessation of
trade.
Qualifying charitable donations are unrelieved.
Page 131
Page 131
21: Losses
(021)ACF6PC13_CH21.qxp
1/21/2016
3:43 AM
Page 132
Trading
losses
Non-trading
losses
Non-trading losses
Capital losses
Capital losses can only be set against
capital gains in current or future
accounting periods. They must be set
against the first available gains.
(022)ACF6PC13_CH22.qxp
1/21/2016
3:43 AM
Page 133
22: Groups
Topic List
Group relief
Chargeable gains group
(022)ACF6PC13_CH22.qxp
1/21/2016
3:43 AM
Page 134
Group
relief
Chargeable
gains group
(022)ACF6PC13_CH22.qxp
1/21/2016
3:43 AM
Page 135
Available profits
Profits available to absorb group relief are total profits
less qualifying charitable donations and current and
brought forward losses.
Page 135
22: Groups
(022)ACF6PC13_CH22.qxp
1/21/2016
3:43 AM
Page 136
Group
relief
Chargeable
gains group
Rollover relief
All members of a chargeable gains group may be
treated as a single unit for the purpose of rollover
relief.
(023)ACF6PC13_CH23.qxp
1/21/2016
3:43 AM
Page 137
(023)ACF6PC13_CH23.qxp
1/21/2016
3:43 AM
Page 138
Returns
Returns
A company must normally file its CT return by the due
filing date which is the later of:
Twelve months after the end of the period to which
the return relates
Three months after a notice requiring the return was
issued
Payment
of tax
Compliance checks
(023)ACF6PC13_CH23.qxp
1/21/2016
3:43 AM
Page 139
Returns
Due dates
Payment
of tax
Quarterly instalments
For a 12 month AP instalments are due in:
Months 7 and 10 in the period
Months 1 and 4 in the following period
For an AP less than 12 months instalments are
due in:
Month 7 of the period
Then at three monthly intervals
Final payment in month 4 of next period
Amount of instalment is 3 CT/n where n is
length of AP and CT is amount due in
instalments
Instalments are due on 14th day of the month
Interest on overdue tax runs from the due date. Overpaid tax earns interest. Interest received and
interest paid are dealt with as credits and debits on a non-trading loan relationship.
Page 139
(023)ACF6PC13_CH23.qxp
1/21/2016
3:43 AM
Page 140
Notes
(024)ACF6PC13_CH24.qxp
1/21/2016
3:43 AM
Page 141
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
Taxable and
exempt supplies
3:43 AM
Registration
Page 142
Accounting and
administration
Valuation of
supplies
Deduction of
input tax
Supplies
Gift of goods
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
Taxable and
exempt supplies
Zero-rated supplies
3:43 AM
Page 143
Registration
Accounting and
administration
Reduced-rated supplies
Taxable at 5%
Can recover input VAT
Eg fuel for domestic use
Page 143
Deduction of
input tax
Exempt supplies
Not taxable
Cannot recover input VAT
Eg insurance, education and health services
Taxable at 0%
Can recover input VAT
Eg food, books and newspapers
Valuation of
supplies
Standard-rated supplies
Taxable at 20%
Can recover input VAT
All supplies which are not zero-rated,
reduced-rated or exempt
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
Taxable and
exempt supplies
3:43 AM
Registration
Page 144
Accounting and
administration
Compulsory registration
Valuation of
supplies
Deduction of
input tax
Voluntary registration
Advantages
Increased administration
Penalties if VAT/return is late
Increased cost for non-registered customers
Notification required
within 30 days of the end
of the 12 month period.
Registration takes effect
from the end of the month
following the 12 month
period.
Exam focus
The examiner may set VAT questions requiring
advice to new traders (should they register, etc).
(024)ACF6PC13_CH24.qxp
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3:43 AM
Voluntary deregistration
Can deregister voluntarily if the value of taxable
supplies in the following one year period will not
exceed 80,000.
Page 145
EXCEPTIONS
Page 145
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
Taxable and
exempt supplies
3:43 AM
Registration
Page 146
Accounting and
administration
Valuation of
supplies
Group registration
Available to companies under common control.
Representative member accounts for all VAT.
Simplifies VAT
accounting
Improves
cash flow
Deduction of
input tax
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
Taxable and
exempt supplies
3:43 AM
Registration
Page 147
Accounting and
administration
Valuation of
supplies
Deduction of
input tax
VAT period
Substantial traders
Page 147
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
Taxable and
exempt supplies
3:43 AM
Page 148
Registration
Accounting and
administration
Valuation of
supplies
Deduction of
input tax
Administration
Tax point
Each supply is treated as taking place on the tax point.
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
3:43 AM
Page 149
Registration
Taxable and
exempt supplies
Accounting and
administration
Valuation of
supplies
Deduction of
input tax
Value of supply
The value of a supply is the VAT-exclusive price.
1
6
Example
Discounts
Page 149
1
6
(024)ACF6PC13_CH24.qxp
Scope
of VAT
1/21/2016
Taxable and
exempt supplies
3:43 AM
Page 150
Registration
Accounting and
administration
Valuation of
supplies
Deduction of
input tax
Non-deductible VAT
VAT on motor cars not wholly used for business purposes
VAT on business entertaining (except overseas customers)
VAT on domestic accommodation for directors
VAT on non-business items
Fuel
VAT on:
Fuel used for business purposes: fully deductible
Fuel used for private purposes: fully deductible
but account for output VAT based on actual cost
of fuel or a set scale figure
(025)ACF6PC13_CH25.qxp
1/21/2016
3:43 AM
Page 151
Topic List
VAT invoices and records
Penalties
Overseas aspects
Special schemes
(025)ACF6PC13_CH25.qxp
1/21/2016
3:43 AM
Page 152
VAT invoices
and records
Penalties
Overseas
aspects
Special
schemes
Records
VAT records must be kept for six years.
(025)ACF6PC13_CH25.qxp
1/21/2016
3:43 AM
VAT invoices
and records
Default surcharge
First late return/payment commences surcharge
period, then:
Default involving late
Surcharge as a percentage
payment of VAT in the
of the VAT outstanding
surcharge period
at the due date
First
2%
Second
5%
Third
10%
Fourth and over
15%
2% and 5% surcharges are not normally demanded
unless the amount due would be at least 400. For
the 10% or 15% surcharges a minimum of 30 is
payable.
Every time there is a default, the surcharge period is
extended to the anniversary of the end of the default period.
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Penalties
Overseas
aspects
Special
schemes
Errors
Common penalty regime applies for errors on
returns
Errors not exceeding greater of:
10,000 (net error); or
1% net VAT turnover for return period (max
50,000)
may be corrected on the next return. Other errors to
be notified in writing, eg letter.
Penalties for error may be imposed in both cases.
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Penalties
Overseas
aspects
Special
schemes
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Penalties
Special
schemes
Overseas
aspects
Advantages
Only one VAT return each year so fewer
occasions to trigger a default surcharge.
Ability to manage cash flow more accurately.
No need for quarterly calculations for input
tax recovery.
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Disadvantages
Need to monitor future taxable supplies to
ensure turnover limit not exceeded.
Timing of payments have less correlation to
turnover (and hence cash received).
Payments based on previous year's turnover
may not reflect current year turnover.
25: Further aspects of VAT
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Penalties
Overseas
aspects
Special
schemes
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Notes
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Notes
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Notes
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Notes
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Notes
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Notes
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Notes
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Notes