ACCA Paper F6 Taxation Classroom Notes

ACCA Paper F6 Taxation (FA2007)
Taught Course
June 2008 Exams
Tutor Contact Details

name telephone email
Slide 2
Health & Safety Procedures

Fire alarm = continuous bell Fire Exits Assembly point First aid
Slide 3
Course Administration
Start and finish times Breaks Daily attendance register
The attendance register will shortly be passed round the class; please ensure that the information you give is correct. Please note if you are a company sponsored student, then your attendance / non-attendance will be reported to your employer.
Slide 4
Facilities
Toilets Canteen/common room Drinks machines Internet facilities After class study room
Switch off Mobile Phones
Slide 5
Pass Assurance
You must: Book on both a taught and revision course. Attend all classes (on time). Submit both course exam 1 by 10th April 2008 and course exam 2 by 8th May 2008, and score at least 30% on each (i.e. make a reasonable attempt). Certain sponsoring firms have their own internal submission dates which override the pass assurance dates affected students will be notified by their employer. If you fail the exam in June and qualify for Pass Assurance you can attend any taught, revision or question day course for the same paper free of charge for the next sitting
Slide 6
Syllabus
A B C D E F G
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The UK tax system Income tax liabilities Corporation tax liabilities Chargeable gains National insurance Value added tax Obligations of tax payers
Examiner & Format of the Exam

Examiner: David Harrowven Format of the Exam Question 1 Income tax question involving self employment and employment. Could include VAT. Marks 25-30
Question 2
Corporation tax question; groups and 25-30 overseas aspects will account for 1/3 of marks. Could include VAT. Chargeable gains Will test the remainder of the syllabus Will test the remainder of the syllabus 20 15 10 100
Question 3 Question 4 Question 5 Total

Slide 8
Key Dates for the June 2008 exam

Registered with ACCA by Exam entry by Exam date Exam results 31 December 2007 15 April 2008 Monday 2 June 2008 18 August 2008
Slide 9
Classroom Tuition and Home Study

Classroom tuition
Key areas of the syllabus
Home study
Home study is vital for this paper Question practice essential 2 course exams Guidance at the end of each day
ACCA Forum www.bpp.com/accaforum Helpline for queries

Slide 10
Paper F6 Taxation Chapter 1
Introduction to the UK tax system
Structure of the UK tax system

Government
HMRC
Lord Chancellor
Officers
Receivable Management Officers
General Commissioners
Special Commissioners
Slide 12
The computation of taxable income and income tax liability
Lecture example 1 (solution 1)

Income tax computation 2007/08 NSI Employment income Net Income Less: PA Taxable income 40,000 40,000 (5,225) 34,775
Slide 14

Income tax thereon: 2,230 10% 32,370 22% 175 40% 34,775 Tax liability Less: tax suffered at source Tax payable
Slide 15
223 7,121 70 7,414 (7,414) Nil

NSI Employ. inc. BDI Divis Net Income Less: PA Tax income 38,000 (5,225) 32,775 3,750 1,250 3,750 38,000 3,750 1,250 1,250 SI Divs
Slide 16

Income tax thereon:
2,230 10% 30,545 22% 32,775 1,825 20% 34,600 1,925 40% (3,750 1,825) 1,250 32.5% 37,775 Tax liability Less: Tax suffered at source (1,250 10% + 3,750 20% + 7,203) Tax payable
Slide 17
223 6,720 365 770 406 8,484 (8,078) 406
Income tax rates

Higher rate band
40%
34,600
40%
32.5%
Basic rate band 2,230 Lower rate band
22%
20%
10%
10%
NSI
10%
SI
10%
DI
Slide 18

PAA Less (25,000 20,900) 7,690 (2,050) 5,640
Slide 19

(a) Income tax computation 2007/08 NSI Employment income Less: PA Taxable income 100,000 (5,225) 94,775
Slide 20

Income tax thereon: 2,230 10% 32,370 22% 34,600 60,175 40% 94,775 223 7,121 24,070 31,414
Slide 21

(b) Taxable income = 42,370 Income tax thereon: 2,230 10% 42,370 22% 44,600 50,175 40% 94,775 Tax saving = 31,414 29,614 = 1,800 1,800/10,000 = 18%
Slide 22
94,775
Extended basic rate band (32,370 + 7,800 x 100/78) 223 9,321 20,070 29,614
Employment income
Employment income
Salary Bonus Commission / tips Benefits Allowable deductions Employment income
Slide 24
X X X X X (X) X
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Travel expenses
Home No allowable deduction Permanent workplace Allowable deduction Temporary workplace < 40% or 24 months
Slide 25
Lecture example 1 (solution)

Actually paid 35p 11,000 miles Allowed: 10,000 40p 1,000 25p 11,000 Allowable deduction 4,000 250 (4,250) (400) 3,850
Slide 26
Taxable and exempt benefits. The PAYE system
Benefits basic rule

Total Earnings 8,500 & directors Marginal cost to employer
< 8,500
Second hand value

Slide 28

Accommodation Annual value Additional charge [(175,000 - 75,000) 6.25%] Eee contribution Taxable benefit 6,250 (2,500) 6,750 3,000
Slide 29

Accommodation expenses: PIID employee assessed on lower of: (a) expenses (b) 10% net earnings = 10% (7,000 + 2,000) ... Taxable benefit
Slide 30
1,800
900
= 900 (lower amount)

Use of asset: 2005/06 2006/07 2007/08 1,000 20% 6/12 = 1,000 20% = 1,000 20% 9/12 = 100 200 150 450
Slide 31

Gift of asset: 2007/08 higher of: (1) (2) MV at date of gift = MV when first provided less values already assessed: = 1,000 - 450 = ... Taxable benefit = 600 550 600
Slide 32
Company cars (P11D & directors only)

Working CO2 Less Divide by 5 Round DOWN Add x list price
Slide 33
X (140) X X X 15% X% X

Car benefit (a) Vauxhall Vectra g/km = Less base line round down = 3% % = 15 + 3 = 18% Benefit = 16,500 18% = 2,970
Slide 34
158 (140) 18 5 = 3.6
Lecture example 4 (solution 2) (b) If car were diesel Benefit = 15% + 3% + 3% = 21% 21% x16,500 = 3,465 (c) Basic benefit (above) = 6/12 Less contribution = 3,465 1,733 (1,000) 733
Slide 35
Pensions
a) Adjusted basic rate band = 32,370 + (3,900 x 100/78) = 37,370
Slide 37

b) Income Tax liability Employment income Less: personal allowance Taxable income Income Tax thereon: 2,230 @ 10% 37,370 @ 22% 15,175 @ 40% 54,775
Slide 38
60,000 (5,225) 54,775
223 8,221 6,070 14,514
Lecture example 2
Salary Less pension contribution Benefits 50,000 (5,000) 8,000 53,000 NB: Employers contribution is tax free
Slide 39

Adjusted basic rate band = 32,370 + (187,200 x 100/78) = 272,370 Taxable Income: Employment income Less: personal allowance Taxable income
Slide 40
350,000 (5,225) 344,775

Income Tax thereon: 2,230 @ 10% 272,370 @ 22% 70,175 @ 40% 344,775 Additional tax on excess contributions: (240,000 225,000) @ 40% TAX LIABILITY
Slide 41
223 59,921 28,070 88,214
6,000 94,214
Property income
1,600 x 9/12 2,000 x 3/12 1,200 500 1,700
Slide 43
Property Income
000s Rental income (accruals) Less: expenses (accruals) Advertising Agents fees Repairs Property income profit / (loss)
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X X X X (X) X / (X)

Rents Less: agents commission mortgage interest wear and tear(10% x 2,400) Less: losses bfwd 2,400 (360) (500) (240) (500) 800
Slide 45
Premium on a short lease

Part of premium = Property income Rent = Property income
Landlord
Premium
Grants < 50 yr lease
Rent
Tenant
Slide 46

Premium Less 2% (15 1) 60,000 Rent (9/12 8,000) Property income assessment 60,000 (16,800) 43,200 6,000 49,200
Slide 47
Tenant is a trader? Lecture example 4

Property income = 43,200 Landlord Premium 60,000
Grants 15 yr lease
Tenant
Trading deduction = 43,200 / 15 = 2,880pa
Slide 48
Computing trading income
Badges of trade
Buy & sell Profit
The Badges of Trade
How is the profit taxed?

Apply Badges of Trade
Deem to be TRADING PROFIT
Non-trading (potential)CAPITAL GAIN
INCOME TAX
Slide 50
CGT (usually preferable)
Adjustment of profits proforma

Net profit per accounts Add: Disallowed expenditure Less: Income not taxed as trading income Non- taxable income Capital allowances: P&M and IBAs Taxable trading profit X X (X) (X) (X) X
Slide 51
End of day 1 - what to do now

Reinforce todays learning Develop question skills
Course Companion
Course notes review
Study text review
Question practice
Slide 52
Capital allowances
Plant & machinery
Function with which P&M CAs

Slide 54
vs
Setting within which Building no CAs /poss IBAs
First Year Allowances (FYAs)

FYAs 50% Never time apportion 40% FYAs most assets most assets (except cars) (except cars)
Small businesses 2 yrs from 1/4/06
Slide 55
Medium business and small bus from 1/4/07
Lecture example 1 - Foxtrot (solution)

FYA TWDV bf Additions Disposals WDA @ 25% FYA @ 50% FYA @ 100%
Slide 56
Pool 28,000 (2,000) 26,000 (6,500)
Total
30,000
(8,000) (14,000) 8,000 27,500
6,500 8,000 14,000 28,500
WDAs for cars

Cars NB vans, trucks etc are not cars direct to separate column for each general pool 25% no FYA
Slide 57
12,000
> 12,000
max 3,000 pa

Pool Y/e 31/12/07 TWDV bf WDA @ 25% Y/e 31.12.08 WDA @ 25% TWDV cf
Slide 58
Car 13,000 (3,000) 10,000 (2,500) 7,500
Total
25,000 (6,250) 18,750 (4,688) 14,062
9,250
7,188

Privately Used (80%) Y/e 31.12.06 Additions FYA 40% Y/e 31.12.07 WDA 25% TWDV cf 8,000 (3,200)x80% 4,800 (1,200)x80% 3,600 Total
2,560 960
Slide 59
Balancing adjustments
Disposal
general pool deduct proceeds (limited to cost) continue 25% WDA no bal allow unless cessation
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expensive car deduct proceeds (limited to cost) no further WDA bal allow or bal charge

Accounting period ending on 31/12/2007 (a) TWDV Disposal (Proceeds ltd to cost) (Balancing charge) (b) TWDV Disposal (Proceeds) (Balancing charge) (c) TWDV Disposal (Proceeds) Balancing allowance
Slide 61
4,500 (14,000) (9,500) 4,500 (8,000) (3,500) 4,500 (3,000) 1,500
Lecture example 5 - solution

FYA TWDV bf Additions Disposals 20,000 (9,800) 5,200 FYA 50% FYA 100% WDA 25% BC BA 1,500 TWDV cf
Slide 62
GP 15,000
CAR 80% 20,000
SLA 4,000
Total
(25,000) (5,000)
(800) 3,200 1,500 17,000
(1,500) (17,000) (1,300) 5,000x80% (3,200) _______ NIL _____ NIL
1,300 (4,000) 3,200 19,000
5,400

Allowable expenditure Less land 500,000 (100,000) 400,000 Offices qualify as <25% of 400,000
Slide 63

IBAs Y/e 30/6/2005: (WDA n/a as not in use by 30/6/05) Y/e 30/6/2006 and Y/e 30/6/2007: WDA 4% 100,000 = 4,000 p.a.
Slide 64
IBAs proforma 1st user

Cost Y/e 31/12/05 WDA @ 4% Y/e 31/12/06 WDA @ 4% Y/e 31/12/07 WDA @ 4% X (X) (X) (X)
Residue before sale
Slide 65
Subsequent users
IBA = Residue before sale Spread over the remaining tax life (to the nearest month) Tax life
Acquisition
1st used 25 years tax life expires
Slide 66

(i) IBAs with industrial use Anna Y/e 31/12/03 WDA @ 4% Y/e 31/12/04 to Y/e 31/12/06 WDA @ 4% x 3 years TWDV @ disposal/RBS (12,000) 84,000 100,000 (4,000) 96,000
Slide 67

(ii) New user Beth
84,000 / 21 = 4,000
Slide 68
Assessable trading income
Current Year Basis (CYB)

Problem
Accounts prepared for A.Ps Income tax returns prepared for FISCAL YRS (6th April 5th April)
Solution
Tax the AP which ends in the fiscal yr
Slide 70
Lecture example (1a) (solution)

Y/e 31 March 2008
AP
1/4/07
31/3/08
FY
6/4/07
5/4/08
Slide 71
Lecture Example 1(b) (solution)

Y/e 30 April 2007
AP
1/5/06
30/4/07
FY
6/4/07
5/4/08
Slide 72
3 problems of CYB
May not be one 12m AP ending in the FY
COMMENCEMENT
CESSATION
CHANGE OF Y/E
Opening yr rules
Closing yr rules
Change of a/c date rules
Slide 73
Opening yr rules
1ST YEAR ACTUAL BASIS Is there an A.P ending in the 2nd FISCAL YEAR? YES How long is the A.P? <12m Tax FIRST 12m from commencement
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NO Use actual FISCAL YR (6 April - 5 April)
12m Tax 12m to the a/c date
Overlap profits
Some profits taxed twice Depends on choice of yr end:
30 April = 11 mths o/lap 31 March = 0 mths o/lap
Relief available:
on cessation change of a/c date
Slide 75

2005/06 Actual (1/1/06 5/4/06) (3/6 10,000) 2006/07 AP < 12 mths First 12 mths (1/1/06 31/12/06) 1/1/06 30/6/06 1/7/06 31/12/06 (6/12 18,000) O/lap profits: 2007/08 2008/09
Slide 76
5,000
10,000 9,000 19,000 5,000 9,000 26,000 14,000 18,000
CYB (yr to 30/6/07) 1/1/06 5/4/06 1/7/06 31/12/06 CYB (yr to 30/6/08)

2005/06 2006/07 Actual (1/1/06 5/4/06) (3/18 28,000) No AP ending in FY Actual basis 6/4/06 to 5/4/07 (12/18 28,000) 2007/08 AP > 12m 12m to a/c date (12/18 28,000) O/lap profits: 2008/09 CYB (yr to 30/6/08) 1/7/06 5.4.07
Slide 77
4,667
18,667
18,667 26,000 14,000 14,000

2006/07 Actual (1/7/06 5/4/07) (9/18 18,000)
2007/08 AP > 12 mths 12 mths to 31.12.07 (12/18 18,000) 2008/09 CYB (Y/E 31/12/08) O/lap profits: 1/1/07 5/4/07 (3/18 18,000)
Slide 78
9,000
12,000 15,000 3,000
Closing yr rules
Penultimate F.Y - Normal CYB Final F.Y - Tax any profits missed so far - Less: o/lap relief X
X (X) X
Slide 79

19,000 22,000 12,000 (3,500) 30,500
2006/07 CYB (y/e 31.12.06) 2007/08 Yr to 31.12.07 3mths to 31.3.08 Less: o/lap relief
Slide 80
Approach to sole trader questions

1 2 Adjust the profit for each AP (add back.deduct.) Calculate CAs for each AP
Opening yrs / change of A/C date WDA x n/12 Closing yrs
BA / BC
3 Deduct 2 from 1 4 Apply opening / change of A/C date / closing yr rules

Slide 81

Pool 1/3/07 31/7/08 Addns qual for FYA FYA 50% x 21,000 21,000 (10,500) 10,500 10,500 10,500 10,500 Allow
Slide 82

The profits of the first period of account are as follows: Period of a/c Working Profits 31,500
1/3/07 31/7/08
(42,000 10,500)
THEN APPLY OPENING YEAR RULES
Slide 83
Fiscal yr
Basis
Working
Assessment 1,853 22,235 22,235
06/07 07/08 08/09
1/3/07 5/4/07 6/4/07 5/4/08
(31,500 x 1/17) (31,500 x 12/17)
12m end 31/7/08 (31,500 x 12/17)
O/lap profits: 1.8.07 - 5.4.08 8/17 x 31,500 = 14,823
Slide 84
Change of accounting date

Impact on o/lap
Worst 30 April
M 10 J 9 J 8 A 7 S 6 O 5 N 4 D 3 J 2
Best 31 March
F 1
11m
0m
RELIEVE O/LAP CREATE O/LAP

Slide 85
Approach to questions
Identify the yr of change (YoC)
Earliest of
1st FY A/Cs not made to old date 1st FY A/Cs are made to new date
All yrs before YoC

Tax 12m to the OLD date Tax 12m to the NEW date <12m tax 12m to the end of gap (create o/lap) >12m tax the whole gap (relieve n mths o/lap)
All yrs after YoC YoC = find the GAP!
Slide 86
Lecture example 7 -(solution)
Fiscal Yr
06/07 07/08 08/09 09/10
Dates
Y/e 30/9/06 Y/e 30/9/07
20,000 27,000
12 mths to 30.4.08 30,250 GAP < 12 mths 27,000) 19,000 + (5/12 x (7mths) create 12mth period
YoC
Y/e 30/4/09
32,000
Fiscal Yr
06/07
Dates
Y/e 31/12/06
42,000 07/08 Y/e 31/12/07 37,000 15 mths to 31.3.09 68,000 relief 08/09 GAP > 12 mths (15mths) tax gap & claim 3mths o/lap YoC (5,000) Less 3mth o/lap 63,000 09/10 Y/e 31/3/10 49,000
Trading losses
Income tax losses

Net profit / (loss) in a/cs X / (X) Add : disallowed expenses X Less : income taxed elsewhere (X) capital allowances (X) Trading loss (X)
OPTIONS ?
Slide 90
Step 1 - Set out the proforma Step 2 - Copy in numbers from qn. Step 3 - Slot in the losses (using the rules) Step 4 - Remember loss memo
Slide 91

Relief against income 2006/07 2007/08 Trading income 2,000 8,000 Other income 8,000 10,000 8,000 (i)(10,000) (ii)(2,000) Relief vs income NIL 6,000 Net Income
Loss memo: Year end 30.06.07 (i) Loss relief 06/07 (ii) Loss relief 07/08 12,000 (10,000) (2,000) NIL
2008/09 6,000 8,000 14,000 14,000
Slide 92
2006/07 Trading income 20,000 Carry forward ______ 20,000 Other income 2,000 22,000 Relief vs income (22,000) _____ Nil Net Income ______
2007/08 ______ Nil 2,000 2,000 (2,000) ______ Nil ______
2008/09 ______ Nil 2,000 2,000 (2,000) ______ Nil ______
2009/10 10,000 (10,000) ______ Nil 2,000
______ Nil ______
Slide 93

Loss memo
Y/end 31/12/07 (i) Loss relief- 2006/07 - 2007/08
30,000 (22,000) (2,000 6,000
Carry forward
6,000
Slide 94

Loss memo Bfwd from y/end 31/12/07 Y/end 31/12/08 Loss relief - 2007/08/2008/09 Carry forward (ii) Carry forward relief 09/10 Carry forward 10,000 (2,000) 8,000 8,000 14,000 (10,000) 4,000 4,000 6,000
Slide 95

Trading income 2005/06 2006/07 2007/08 2008/09 2009/10 Actual (1/7/05 5/4/06) 9/12 x (40,000) = 12m to A/C date (y/e 30/6/06) = CYB (y/e 30/6/07) CYB (y/e 30/6/08) CYB (y/e 30/6/09) nil nil 24,000 30,000 36,000
Slide 96

Loss relief 2005/06 Relief vs income/early year loss relief 9/12 x 40,000 Loss relief vs NI Loss relief vs NI 30,000 - 2005/06 - 2004/05 - 2002/03 - 2003/04 - 2004/05 40,000 (30,000) 10,000
2006/07
12m to A/C date less used in 2005/06
Loss relief 2006/07 and/or 2005/06 Loss relief 2003/04, 2004/05 and 2005/06
Slide 97

Carry forward relief Loss 07/08 08/09 40,000 (24,000) (16,000) nil
Advice: Take early year loss relief of 30,000 in 02/03 tax repayment and earliest relief Also early year loss relief of 10,000 in 03/04.
Slide 98
Terminal loss relief

12m 6/4
PENULTIMATE FY FINAL FY
cessation
Loss X Profit (X) (ignore if profit) X
Loss O/ lap
X X X
TERMINAL LOSS
Slide 99
Closing year rules proforma: 2005/06 Trading 8,000 TLR ______ ______ 2006/07 10,000 ______ ______ 2007/08 4,000 ______ ______ 2008/09 nil ______ ______
Slide 100

Terminal loss calculation Final FY 08/09 (6.4.08 30.6.08) 3/9 x (27,000) Penultimate FY 07/08 (1.7.07 5.4.08) 6/9 x (27,000) 3/12 x 4,000 Loss available under TLR
Slide 101
(9,000)
(18,000) 1,000 (17,000) (26,000)

* Loss of 26,000 available
Closing year rules proforma b/fwd: 2005/06 2006/07 2007/08 2008/09 Trading 8,000 10,000 4,000 nil TLR ______ (iii) ______ (ii) ______ (i) ______ (8,000) (10,000) (4,000) Nil Nil Nil Nil ______ ______ ______ ______
* UNRELIEVED TLR = 4,000
Slide 102
Losses on incorporation
Company Business Business TLR available Incorporation relief c/fwd vs future income from co.
Trading loss
Loss vs income available C/Fwd NOT available
Slide 103
Partnerships and limited liability partnerships
Partnerships
Net profit of p/ship Add : disallowed expenses Less: income taxed elsewhere capital allowances Adjusted p/ship profits X X (X) (X) X
Split according to p/ship agreement Treat as separate sole traders

Slide 105

R 1.7.06 31.3.07 (45,000 to allocate) Salary (x 9/12) Balance (3:2) 3,750 24,750 _____ 28,500 16,500 _____ 16,500 3,750 41,250 _____ 45,000 S Total
1.4.07 30.6.07 (15,000 to allocate) Balance (1:1) 7,500 _____ _____ 36,000 7,500 _____ _____ 24,000 15,000 _____ 60,000
Slide 106
J Salary Balance (3:2) Trading loss 6,000 (21,600) _____ (15,600) _____
K nil (14,400) _____ (14,400) _____
Total 6,000 (36,000) _____ (30,000)
Slide 107

Share of profits/losses: A 6m to 31.12.07 (3:1) 12,000 B 4,000 Total 16,000
Y/end 31.12.08 (1:1)
(10,000)
(10,000)
(20,000)
Slide 108

Assessments 2007/08
Actual (1.7.07 5.4.08)
12,000 + 3/12 x (10,000) 4,000 + 3/12 x (10,000) 2008/09

CYB y/end 31.12.08
9,500 1,500
(10,000) less used in 07/08 Available loss

Slide 109
(10,000) 2,500 (7,500)

NIL
Trading assessment
2,500 (7,500)
NIL

Options for loss in 08/09

Relief vs income vs net income:

2007/08 2008/09
Early year loss relief vs net income:

2005/06 2006/07 2007/08
Carry forward relief vs first available profits of same trade
Slide 110

31.5.07
31.5.05
6m
31.5.06
6m
1:1
1/12/05 B joins
2:2:1
Slide 111

Sharing of Profits y/end 31.5.05 (1:1) y/end 31.5.06 Up to 1.12.05 (1:1) 6/12 x 51,000 From 1.12.05 (2:2:1) 6/12 x 51,000 Total 33,000 M 16,500 G 16,500 B -
25,500 25,500 51,000 72,000
12,750 10,200 22,950 28,800
12,750 10,200 22,950 28,800
5,100 5,100 14,400
y/end 31.5.07 (2:2:1)

Slide 112
Assessments: M & G M 2005/06 (y/end 31/5/05) 2006/07 (y/end 31/5/06) 2007/08 (y/end 31/5/07) 16,500 22,950 28,800 G 16,500 22,950 28,800
Slide 113
Bs accounting periods: 1.12.05 31.5.06 (6m) Y/end 31.5.07 5,100 14,400
Slide 114

Bs assessments: 2005/06 Actual (1.12.05 5.4.06) 5,100 x 4/6 2006/07 1st 12m (1.12.05 30.11.06) 5,100 + 6/12 x 14,400 CYB (y/end 31.5.07) 3,400
12,300 14,400
2007/08
O/lap profits: 1.12.05 5.4.06 1.6.06 30.11.06
6/12 x 14,400
3,400 7,200 10,600
Slide 115

Reinforce todays learning Further develop question skills
Course Companion
Course notes review
Study text review
Question practice
Course Exam 1 by 10 April
Slide 116
Paper F6 - Taxation FA2007
Joe Bloggs 0207 123 4567 Joe@bpp.com
Computing chargeable gains
Rates of CGT table

NSI 40% 34,600 22% 2,230 20% 10% 20% SI 40% Div 32.5% Gains 40%
10%
10%
10%
10%
Slide 119
Illustration
Chargeable gain Annual exemption Taxable gain CGT payable 6,700 x 20% 800 x 40% 7,500
Slide 120
16,700 (9,200) 7,500
Basic rate band left 34,600 27,900 = 6,700 1,340 320 1,660
Capital gains tax

Paid by individuals
2007/08
5/10/08 31/01/09
Gain
Inform HMRC
CGT due
Slide 121
Calculation of gain
Gross proceeds Less selling expenses Less cost Gain/(loss) X (X) (X) X/(X)
Slide 122
Taper relief
6/4/98
IA Taper relief
Depends on
complete yrs of o/ship since 6/4/98 + bonus yr for NBAs
Slide 123
business vs non-business asset
Business assets
Definition of BA
Asset used in trade Shares
of a of an of a sole- partner employ ment trader -ship
unquoted
5%
employee
trading co
Slide 124

a) 6/4/98 5/4/07 = 9 years (+1 as NBA) b) 12/5/99 12/5/07 = 8 years c) 13/12/03 13/12/06 = 3 years
Slide 125
Lecture example 2 (solution (a))

(a) Proceeds of sale Less: cost Gain Gain after taper relief (10 Oct 1998 - 9 Oct 2006 = 9 years) 30,000 x 25% 7,500 200,000 (170,000) 30,000
Slide 126
Lecture example 2 (solution (b))

(b) Proceeds of sale Less: cost Gain Gain after taper relief (10 Oct 1998 - 9 Oct 2007 = 9 years) 30,000 x 65%
Slide 127
200,000 (170,000) 30,000
19,500
Losses & taper relief

Asset 1 (100%) Indexed gain CY capital losses Capital losses b/fwd Chargeable gain Less AE Taxable gain
Slide 128
Asset 2 (70%) X
Asset 3 (25%) X
Total
X (X)1 X (X)1 nil
(X)2 X x 70% X
__ X x 25% X X (9,200) X

NBA Taper % Gain per Q CY loss 90% 45,000 (21,000) 24,000 NBA 100% 10,000 (10,000) 21,600 (9,200) 12,400
Gain after TR 90% Less: AE Taxable gain
Slide 129

Gain Less losses bfwd (12,000 9,200) Gain after taper relief 25% Annual exemption Losses cfwd (12,000 2,800) = 9,200
Slide 130
12,000 (2,800) 9,200 2,300 (9,200) NIL
Computing chargeable gains further aspects
Calculation of gain
Gross proceeds Less selling expenses Less cost Less Indexation allowances to 4/98 Rise in RPI x cost Indexed Gain/(loss)
Slide 132
X (X) (X) (X) X/(X)
Indexation and losses

Proceeds Less cost Less IA Indexed gain/(loss) 10,000 (7,000) (5,000) nil 10,000 (17,000) nil (7,000)
NB IA CANNOT CREATE OR INCREASE A LOSS
Slide 133
Lecture example 1 solution 1

(1) Mr Dunstable Proceeds Less selling expenses Less cost Less indexation allowance 0.752 x 15,000 (11,280) NIL
Slide 134
27,000 (1,500) (15,000) 10,500

(2) Sam Proceeds Less cost Less indexation allowance 0.021 x 90,000 Gain after TR 60%
Slide 135
140,000 (90,000) (1,890) 48,110 28,866

Proceeds Less selling expenses Less Cost Less Enhancement Less IA 0.683 x 15,000 Gain after TR 25%
Slide 136
43,000 (2,500) (15,000) (8,000) 17,500 (10,245) 7,255 1,814
Part disposal
Set 10 warriors - value 1m - cost 20,000 Sell Keep Gain? for 100,000 worth 400,000 - Proceeds = 100,000 Cost? 20,000 x 100,000/500,000 = 4,000
Slide 137

Proceeds Less selling expenses 40 Cost x 30,000 40 + 35 IA 0.339 x 16,000 After TR (9 + 1yrs) 60% Cost of remaining land = 30,000 - 16,000 = 14,000 = 8,746 40,000 (4,000) (16,000) 20,000 (5,424) 14,576
Slide 138

Transfer Julie to Joseph @ NG/NL i.e cost Plus IA 8,000 x 0.470 Deemed proceeds Disposal by Joseph Proceeds Less cost IA 11,760 x 0.213 Gain after TR 60% =
Slide 139
8,000 3,760 11,760 20,000 (11,760) (2,505) 5,735
3,441
Compensation
Compensation = proceeds
Asset destroyed
Asset damaged
Full disposal
Part disposal A A+B
R/O if replaced < 12m
Restoration = enhancement
Slide 140

Sept 1997 Compensation recd Less cost 40,000 x IA 0.244 x 16,923 Gain in 97/98 33K 33K + 45K 33,000 (16,923) 16,077 (4,129) 11,948
Base cost of cottage 40,000 - 16,923
= 23,077
Slide 141

July 2007 Proceeds Cost - cottage - restoration IA on cottage IA on restoration After TR @ 60%
Slide 142
95,000 (23,077) (33,000) 38,923 = 0.269 x 23,077 = 0.016 x 33,000 (6,208) (528) 32,187 19,312

Compensation recd Less cost Taxable now (40,000-36,000) Deferred gain 40,000 (30,000) 10,000 (4,000) 6,000
Gain after taper relief 80% Base cost of new asset 36,000 - 6,000
Slide 143
3,200 = 30,000
Chattels and Principal Private Residence relief
Chattels
Tangible moveable property Wasting Life < 50yrs P+M Dogs Racehorses Non wasting Life > 50yrs Antiques Elephants
Slide 145
Chattel rules
Cost Proceeds < 6,000 > 6,000
< 6,000
EXEMPT
GP = 6,000
Restrict gain
> 6,000
NORMAL CGT RULES
5/3 (GP-6,000)
Slide 146

a) Proceeds Comm Cost IA 500 x 0.5 9,000 1,000 (500) (250) 7,250 Compare to 5/3 (GP - 6,000) = 5/3 (9,000 - 6,000) = 5,000 Gain = 5,000
Slide 147

b) Proceeds deemed Cost Allow loss * No IA - cannot increase a loss 6,000 (7,000) (1,000)
Slide 148
PPR
Occup. before 3 yrs - any reason Any period - working abroad 4 yrs - working elsewhere in UK
* Last 36 mths always deemed occup.
Deemed occup.
Occup. after
Slide 149
1.4.83
1.4.84
1.4.89
Occupied
1.10.89 1.04.02 30.9.04 Rented Last 3 yrs
30.9.07 Sale
Occupied
Overseas
12
60
180
36
294
Slide 150
Gain Less PPR 114/294 x 100,000 Less letting exemption Lower: PPR claimed =38,776 De minimus = 40,000 Gain due to letting 30/294 x 100,000 = 10,204 After TR 60%
Slide 151
100,000 (38,776)
(10,204) 51,020 30,612
Business reliefs
Exam approach gift relief

Deemed proceeds Less cost Less IA on cost Indexed gain Gift relief (balance) Actual proceeds less cost
Slide 153
X (X) (X) X Step 1 (X) Step 3 X Step 2
Effect on donee
Base cost of asset MV Gift relief X (X) X Taper relief clock starts again (ie lose TR accrued by donor)
Slide 154

Deemed proceeds (MV) Less cost Less IA Indexed gain Gift relief Actual proceeds less cost
(95,000 50,000)
Slide 155
210,000 (50,000) (33,600) 126,400 Step 1
(81,400) Step 3 45,000 Step 2
Actual proceeds less cost

(95,000 50,000)
45,000 Step 2 25% 11,250
TR % Chargeable gain
Slide 156

Disposal by son Proceeds Cost (210,000 - 81,400) 250,000 (128,600) 121,400 No taper relief as owned for < 1 year
Slide 157

Deemed proceeds (MV) Less cost Less IA Indexed gain 200,000 (100,000) (70,000) 30,000 Step 1
Slide 158

Indexed gain Gift relief 270+130 30,000 x 30,000 Step 1 Step 3 (28,571) Step 2 1,429
270+130+ 20
Actual proceeds less cost is NA Gain taxed now
Slide 159
Gain taxed now TR % Chargeable gain
1,429 25% 357
Slide 160

Son acquires asset at MV Gift relief 200,000 (28,571) 171,429
Slide 161
Rollover relief
Proceeds Cost IA Gain 80k (20k) (20k) 40k
Sell asset 12m

50k Tax now Proceeds not reinvested = 30k Gain = 40k Less (30k) Defer 10k Base cost Less
Slide 162
36m Reinvest
100k All gain deferred Base cost 100k Less (40k) 60k
50k (10k) 40k

Proceeds Less cost IA: 0.277 x 140,000 Indexed gain Tax now: Proceeds not reinvested (250K- 230K) Rollover relief
Slide 163
250,000 (140,000) (38,780) 71,220
(20,000) 51,220
Base cost of new asset: Cost Gain rolled over Base cost 230,000 (51,220) 178,780
Slide 164
Depreciating assets
Asset 2 life 60 years
Lease 60 years Fixed plant & machinery
SAME APPROACH AS ROR, BUT DONT DO STEP 4 (REDUCE BASE COST) Gain held over instead
Slide 165
Depreciating assets
Held over until: earliest of
new asset sold
stop using in trade
10 yrs
Slide 166

Proceeds Less cost 125,000 (75,000) 50,000 All proceeds reinvested Holdover tapered gain of 25,000 (50% x 50,000) until sale of plant on 7 December 2007.
Slide 167

Disposal of P&M Proceeds Less cost Loss 140,000 (160,000) (20,000)
NB. Capital Loss not available as relief given through capital allowances
Slide 168
Incorporation
Shares cash
CO.
Buys
L+B
Gains
L+B
Incorporation Relief
G/WILL P+M STOCK

Cessation B/C or B/A Trade profits
G/WILL P+M STOCK

Transfer @ TWDV Transfer @ cost
Slide 169
Mixed consideration
Relief restricted if mixed consideration
Indexed gain x MV shares Total consideration
Taper relief on remaining gain
Slide 170
Base cost of shares

Base cost of shares MV Incorporation relief X (X) X Taper relief clock starts again (ie lose TR accrued by donor)
Not beneficial if likely to sell shares < 2yrs
Slide 171

Gains on chargeable assets (100+120+70+80) Incorporation relief 370,000 x 800
1000
370,000
(296,000) 74,000 25% 18,500
Gain taxed now TR % Chargeable gain

Slide 172

Base cost of shares for future disposal: MV Incorporation relief 800,000 (296,000) 504,000
Slide 173
Shares and securities
Share matching for individuals

6/4/98 Disposal
4 FA1985 pool
3 Post 4/98 acqns
1 Same day
2 Next 30 days
Indexed to 4/98
NOT POOLED
Slide 175

Lower of: (1) up = 165 + (170-165) = 166.25 (2) Average of highest and lowest marked bargains (164 + 171)/2 = 167.5 166.25 x 20,000 = 33,250
Slide 176

Matching of shares Disposal Same day Next 30 days (FIFO) Post 5.4.98 (LIFO) FA85 Pool 12,000 nil (6,000) (3,000) (3,000) nil
Slide 177

(a) Acquisition in 30 days after disposal:
Proceeds 6,000/12,000 58,000 = Cost Loss 29,000 (30,000) (1,000)
Slide 178

(b) Post 5.4.98 acqn 7/10/03
Proceeds 3,000/12,000 58,000 = 14,500 Cost (12,000) 2,500 Note: no TR as o/ship is less than 3 yrs.
Slide 179

(c) FA85 Pool No At 5.4.98 Disp 10,000 (3,000) 7,000 Cost 25,000 (7,500) 17,500 Indexed Cost 40,271 (12,081) 28,190
Slide 180

(c) FA85 Pool 14,500 (7,500) 7,000 (4,581) 2,419 Proceeds 3,000/12,000 58,000 = Cost Unindexed gain I.A (12,081 7,500) Indexed gain Taper relief 6.4.98 5.4.07 = 9 yrs Plus 1 bonus yr = 10 yrs
Slide 181
Lecture example 2 (solution 6) Total gains

Post 5/4/98 FA85 Pool Total
TR % Gain Less CY loss Net gain TR% Chargeable gain

Slide 182
100% 2,500 (1,000) 1,500 x 100% 1,500
60% 2,419 2,419 x 60% 1,451 2,951
Bonus / rights issues

Bonus issue Free shares Not an indexing event
Slide 183
Rights issue Pay for new shares Indexing event
Allocating bonus / rights issue shares

EXAMPLE: May 1989 August 2000 July 2001 BI / RI 1 for 2 Total held 7,500 22,500 2,500 7,500 FA85 pool 15,000 5,000 Post 5/4/98
Prorate BI / RI to holdings held at time of issue
Slide 184

No June 1999 BI Proceeds Cost 3000/4500 x 3,000 3,000 1,500 4,500 Cost 3,000 3,000 10,000 (2,000) 8,000 Gain after taper relief (8 years) 70% x 8,000 = 5,600
Slide 185
Lecture example 4 (solution 1) Actual shares held

Bought FA1985 11.9.99 10,000 2,000 12,000 RI
5,000 1,000 6,000 RI (1 for 2) 12,000/2
Slide 186
Hold
15,000 3,000 18,000

Matching of shares Disposal Same day (FIFO) Next 30 days Post 5.4.98 (LIFO) FA85 pool 5,000 nil nil (3,000) (2,000) nil
Slide 187

(a) Post 5.4.98 acqn on 11.9.99 No Shares acqd 11.9.99 Rights issue 1:2 @ 2.75 2,000 1,000 3,000 Cost 5,000 2,750 7,750
Slide 188

(a) Post 5.4.98 acqn on 11.9.99
Proceeds 3,000/5,000 15,000 = Cost Taper relief 11.9.99 10.9.07 = 8 yrs

Slide 189
9,000 (7,750) 1,250

(b) FA85 Pool No At 5.4.98 10,000 RI 5,000 15,000 Disp (2,000) 13,000
Cost 15,000 13,750 28,750 (3,833) 24,917
Indexed cost 16,282 13,750 30,032 (4,004) 26,028
Slide 190

(b) FA85 Pool 6,000 (3,833) 2,167 I.A (4,004 3,833) Indexed gain Taper relief 6.4.98 5.4.07 = 9 yrs
Slide 191
Proceeds 2,000/5,000 15,000 = Cost
(171) 1,996

Total gains
Post 5.4.98 FA85 pool TR % Gain TR% Chargeable gain 25% 1,250 x 25% 313 25% 1,996 x 25% 499 812 Total
Slide 192
Takeovers share for share exchange

B Ltd shares A Ltd C Plc shares Not a disposal New shares have same cost & acqn date as old shares
Slide 193
C Plc 100% B Ltd

Millie Ltd swapped 30,000 shares in Bear plc for Disney plc shares. (Cost of Bear shares = 2 30,000 = 60,000) Shares received in Disney plc Ordinary shares 30,000/4 x 3 = 22,500 Preference shares 30,000/4 x 1 =7,500
Slide 194

Total value at takeover Ord. Pref. Base cost Ordinary shares: 112,500 x 60,000 118,500 6,000 x 60,000 Preference shares: 118,500 56,962 3,038 60,000 22,500 5 7,500 80p 112,500 6,000 118,500
Slide 195

Reinforce todays learning Further develop question skills
Course Companion
Course notes review
Study text review
Question practice
Slide 196
ACCA Paper F6 - Taxation FA2007
Joe Bloggs 0207 123 4567 Joe@bpp.com
Computing profits chargeable to corporation tax
Scope of corporation tax

UK company
Incorporated in UK
or
Managed & controlled from UK
Chargeable to UK CT on WORLDWIDE profits

Slide 199
Loan Relationships
Loan for trade?
Yes Forms part of trading income

Slide 200
No Forms part of investment income
Chargeable gains companies

Proceeds Less cost Unindexed gain Less IA
% increase in RPI to 3 d.p. x cost
X (X) X (X) X
Indexed gain
Slide 201

Proceeds (Dec 07) Cost (May 84) Enhancement exp (Sept 86) Unindexed gain Less: IA on cost: 202.7 89.0 = 1.278 x 12,000 89.00 Less: IA on enhancement: 202.7 98.3 = 1.062 x 2,000 98.30 Indexed gain
Slide 202
40,000 (12,000) (2,000) 26,000
(15,336)
(2,124) 8,540
Year end position

Gains in yr Losses in yr X (X) X include in CT comp
Slide 203
X OR (X) (X) c/fwd vs future gains

FA 85 pool Aug 96 Index to Dec 96 154.4-153.1/153.1 x 2,750 Addition Dec 96 Index to July 97 157.5-154.4/154.4 x 6,023 Addition July 97 2,000 4,000 4,000 10,000 121 4,000 10,144 1,000 2,000 3,250 6,000 No 1,000 Cost 2,750 Indexed cost 2,750 23 3,250 6,023
Slide 204

No 4,000 Index to July 07 198.5-157.5/157.5 x 10,144 Disposal (3,000) 1,000 (7,500) 2,500 2,640 12,784 (9,588) 3,196 Cost 10,000 Indexed cost 10,144
Slide 205

Proceeds Cost Unindexed gain IA (9,588 7,500) Indexed gain 17,000 (7,500) 9,500 (2,088) 7,412
Slide 206

12 mths to 31.8.07 Adjusted profit (12:4) Less CA (working below) Trading income Property income (accruals) Gain Less: Gift aid (paid) PCTCT 2,700,000 4 mths to 31.12.07 900,000
Slide 207

FYA Y/e 31/08/07 TWDV bfwd WDA @ 25% P/e 31/12/07 Additions General pool 30,000 (7,500) 22,500 17,500 17,500 WDA @ 25% x 4/12 FYA @ 50% (8,750) 8,750 29,375
Slide 208
Allows 7,500 7,500
22,500 (1,875)
1,875 8,750 10,625

12 mths to 31.8.07 Adjusted profit (12:4) Less CA (working) 2,700,000 (7,500) 4 mths to 31.12.07 900,000 (10,625) 889,375 4,000 40,000 (paid) (20,000) 2,684,500 933,375
Trading income 2,692,500 Property income(accruals) 12,000 Gain Less: Gift aid PCTCT
Slide 209
Computing the corporation tax liability
Tax Calculation PCTCT x CT % determine FYs

FY07 = 1/4/07 31/3/08
profits
Limits
PCTCT + FII
CT Rates Graph
% 30 30% (MR)
30%
20 20% 300k
Slide 212
1,500k
Profits
Lecture example 1 (solution (a))

Basic calculation 2,120,000 x 30% = 636,000
Slide 213
Lecture example 1 (solution (b))

Profits: = PCTCT + FII = 60,000 + 10,000 = 70,000 < 300,000 SCR applies CT payable: = 60,000 x 20%
Slide 214
= 12,000
Marginal relief
Formula: fraction x (upper limit profits) x PCTCT profits fraction 1/40 upper limit 1,500,000
300k 1.5m
Slide 215

Profits: = PCTCT + FII = 400,000 + (9k *100/90) = 410,000 Full rate less MR = 400,000 x 30%
Less MR 1/40 (1,500,000 410,000) x 400/410
120,000
(26,585)
GCT payable
Slide 216
93,415

PCTCT FII (9,000 x 100/90) Profits CT payable FY06 200,000 x 19% x 3/12 FY07 200,000 x 20% X 9/12 9,500 30,000 39,500
Slide 217
200,000 10,000 210,000
Short chargeable accounting periods
1,500,000
X n/12
where n is number of months in short AP
300,000
Slide 218

Profits: = PCTCT + FII = 50,000+ (9,000 x 100/90) = 60,000 CAP < 12 months (4 mths) 1,500,000 x 4/12 = 500,000 300,000 x 4/12 = 100,000
Small company rate applies 50,000 x 20% = 10,000

Slide 219
Associates
A Ltd 51% B Ltd 2 Assocs 51%
A Ltd Mr A 51% C Ltd
B Ltd
3 Assoc 2 Assocs
A Ltd 51% B Ltd 51% C Ltd 3 Assocs
Associated companies significance

Divide limits
1,500,000 300,000
/n Where n is no of associated co.s
Profits = PCTCT + FII

Ignore divis from associated co.s
Slide 221

Lower limit: 300,000/4 x 9/12 = 56,250 Upper limit: 1,500,000/4 x 9/12 = 281,250 Profits = 230,000 + 30,000 = 260,000 CT payable: 230,000 @ 30% Less 1/40(281,250-260,000)x230/260
69,000 (470) 68,530
Slide 222
Losses
Corporation tax losses

000s Net profit / loss in accounts Add: expenditure not deductible for tax Less: items not taxed as trading income - income assessable elsewhere - non-taxable income Less: Capital allowances - Plant and machinery - Industrial buildings Adjusted Trading Loss
Slide 224
X / (X) X (X) (X) (X) (X)
(X)
NIL
Loss relief proforma

2006 Trading income C/fd relief Other inc/gains CYR CBR Charges PCTCT X (X)2 (X) X (X) X (X) X X (X)1 X 2007 nil 2008 X (X)3 X
Slide 225

Year ended 31 July 2006 Trading income Investment income Total profits CYR CBR PCTCT (50,000)2 ______ 10,000 nil 10,000 50,000 60,000 2007 nil 50,000 50,000 (50,000)1
Slide 226

Loss memo: Y/e 31/07/07 1) cy 2) c/b loss remaining 100,000 (50,000) (50,000) nil
Slide 227

30/6/04 Trading C/f Investment 10,000 Cy C/b Charges PCTCT URNTC
Slide 228
30/6/05 30,000 10,000 (40,000)2
30/6/06 nil 10,000 (10,000)1
30/6/07 15,000 (5,000)3 10,000
20,000
(5,000) 25,000
(5,000)
nil 5,000
(5,000)
nil 5,000
(5,000) 15,000

Loss memo: Y/e 30/6/06 1) CY 2) CB y/e 30/6/05 3) CF y/e 30/6/07 loss remaining 55,000 (10,000) (40,000) (5,000) Nil
Slide 229

30/9/04 Trading Investment Gains CY CB Gift aid PCTCT (300) (300) (300) 3,000 500 1,000 6 months to 31/3/05 9,000 (9,000)4 16,000 600 12,000 600 nil 600 5,000 31/3/06 31/3/07 31/3/08
(16,600)3 (12,600)2 (5,600)1
NB carry back 36 mths, but how much to y/e 30/9/04?
Slide 230

Loss memo: Y/e 31/3/08 1) Current 2) C/b y/e 31.3.07 3) C/b y/e 31.3.06 4) C/b 6m to 31.3.05 45,800 (5,600) (12,600) (16,600) (9,000) 2,000 Max offset = 4,500 x 6/12 = 2,250 Max loss available to c/back is 2,000
Slide 231

30/9/04 Trading Investment Gains CY CB Gift aid PCTCT URNTC
Slide 232
6 months to 31/3/05 9,000 -
31/3/06 16,000 600
31/3/07 12,000 600
31/3/08
3,000 500 1,000 (2,000)5 (300) 2,200
600 5,000 (5,600)1
(9,000)4 (16,600)3 (12,600)2 nil (300) nil 300 (300) nil 300
nil
Groups
Associated companies significance

Divide limits
1,500,000 300,000
/n Where n is no of associated co.s
Profits = PCTCT + FII

Ignore divis from associated co.s
Slide 234

A
Butter Ltd 100% 60% 60% Worth Ltd Tolleys Ltd acqd 31/3/07 dormant CCH Inc A 40% 80% Willans Ltd
Budget Ltd sold 31/10/07
Slide 235
Revised limits 1,500,000 4 300,000 4 = 375,000 = 75,000
Slide 236
Losses group definition

Beware sub-subsidiaries 75% effective interest (EI) needed:
A Ltd 75% B Ltd 75% C Ltd EI = 75% x 75% = 56.25%
Slide 237

A Ltd 90% B Ltd 100% C Ltd 80%
How many associated co.s? D Ltd 5 How many loss groups? 90% 2
E Ltd
Slide 238
Example of a group via foreign parent

A Inc 90% B Ltd 80% C Ltd
3 associates loss group = B & C

Slide 239
Group relief planning

Minimise the groups tax liability
Profits 1,500,000 / n 30% 32.5% 300,000 / n 20% 3rd 2nd 1st Take P down to 20% level
Slide 240
Illustration of marginal rates

Dash Ltd has PCTCT of 2m for year end 31.3.08. GCT = 2m x 30% = 600,000 60,000 390,000 150,000 600,000
300,000 300,000 1,200,000 1,500,000 500,000 2,000,000
@ 20% @ 32.5% @ 30%
Slide 241

Working: revised limits 1,500,000 / 2 300,000 / 2 750,000 150,000
Gordon Ltd is paying tax @ 32.5% Tony Ltd is paying tax @20%
Slide 242

Tony Ltd should surrender the whole of its loss to Gordon Ltd
Gordon Ltd PCTCT Tax @ 30% 1/40 (750k 500k) 1/40 (750K 400k) 143,750 Tax saving 32,500 ie. 32.5%
Slide 243
Before 500,000 150,000 (6,250)
After 400,000 120,000 (8,750) 111,250
First, find the revised limits: 1,500,000 / 3 300,000 / 3 500,000 100,000
Slide 244

Rates before relief: H Ltd Trading inc. Other PCTCT (pre-relief) 825 180 1,005 S Ltd nil 30 30 B Ltd 105 5 110
Tax rate
Slide 245
30%
20%
32.5%

Optimum use?
H Ltd Tax rate Loss relief Potential tax saving S Ltd B Ltd 32.5% (20)
30% (20)
or
20% (20)
or
(10k x 32.5% + (10k x 20%) = 5.25K
20 x 30% (20 x 20%) = 4k = 6K
OR could GR 10k to each of H and B saves 10k x 32.5% + 10k x 30% = 6,250
Slide 246
Non-coterminous year ends
Loss (20k) Y/e 31/12/07
H Ltd Lower of
Loss (20k) x 9/12 =(15k) Profit 30K x 9/12 =22.5K Profit 30K
S Ltd Y/e 31/3/08
Slide 247
Implications
Assets transferred at no gain, no loss (NG/NL) Elect for deemed NG/NL transfers One unit for rollover relief
Slide 248

Building transferred at NG/NL = cost + IA to date of transfer. ie: 140,000 + (0.53 140,000) = 214,200 Glove Ltd has a base cost for the building of 214,200 for a future disposal.
Slide 249
Utilise losses
A Ltd Selling asset at gain
100% B Ltd
Trfrs asset Capital losses
Sells asset & offsets gain Manipulate tax by NG/NL transfer

Slide 250
Implications
A Ltd 32.5% 100% B Ltd 20% Reduce tax liability by NG/NL transfer Trfrs asset Selling asset at gain
Slide 251
Capital losses
Actual transfer of asset not necessary Elect to treat asset as transferred Election within 2yrs of end of AP
Slide 252
Overseas matters for companies
UK resident company
A Ltd Incorporated in UK Managed & controlled from UK
or
Chargeable to UK CT on WORLDWIDE profits Foreign income will be taxed overseas too = Double taxation
Slide 254
Non-resident company
A Inc Incorporated overseas Managed & controlled overseas
and
Only subject to UK CT on UK trading profits / gains Always tax at 30%
Slide 255
Overseas expansion
Profit/loss incl in As trade income
A Ltd
Dividend incl in As foreign income
Overseas branch - UK CAs - Not an associate

Slide 256
Overseas subsidiary - No group relief - Associate
Double Tax Relief (DTR)

DTR lower of:
Actual foreign tax UK tax on foreign income
GCT Total PCTCT x foreign income
Slide 257
Double Tax Relief (DTR)

WHT
When dividend paid Rate always given
ULT (overseas subsidiaries only)

Must own 10% votes Formula:
Gross divi x tax actually paid PAT
Slide 258
Impact of WHT & ULT

Net dividend received in the UK WHT Dividend declared by foreign company ULT What dividend would have been if no foreign CT tax
Slide 259
80 -20 100 -50 150

Bradley Limited : y/e 30.6.07 Total Trading income Foreign income (W1) ------------PCTCT ------------------------- -------------------- --------850,000 UK 850,000 Foreign
Slide 260

WHT Cash dividend WHT 100k x 20 / 80 Gross dividend Taxable foreign income Total foreign tax Foreign income 100,000 25,000 125,000 125,000 25,000 25,000 Foreign tax
Slide 261

Bradley Limited : y/e 30.6.07
Total Trading income Foreign income (W1) PCTCT 850,000 125,000 ------------975,000 ------------UK 850,000 125,000 ------------ --------850,000 125,000 ------------ --------Foreign
Slide 262

PCTCT GCT @ 30% Less MR: 1/40 x (1,500,000 975,000) Total GCT tax liability (13,125) 279,375 975,000 292,500
Slide 263

DTR Average rate UK tax:
Total tax 279,375 ------------ x 100 -------------- x 100 = 28.654% PCTCT 975,000
Slide 264

DTR Lower of: UK tax on foreign dividend = Foreign income x average UK rate = 125,000 x 28.654% = 35,817 Actual foreign tax paid = 25,000
Slide 265

DTR offset Total tax liability Less DTR Tax payable 279,375 (25,000) -----------254,375 -----------Slide 266

Total Trading Foreign (W1&2) Charges PCTCT (50,000) (50,000) UK Foreign
1,600,000 1,600,000
Slide 267

W1
Cash div WHT: 20/80 x 300K ULT: 375/800 x 220 Foreign income
Slide 268
Foreign
o/s tax
300,000 75,000 375,000 103,125 478,125 103,125 178,125 75,000

Total Trading Foreign Charges PCTCT UK Foreign 1,600,000 1,600,000 478,125 (50,000) (50,000) 478,125 478,125
2,028,125 1,550,000
Slide 269

Divide limits: 1.5m / 2 = 750K 300k / 2 = 150K
Slide 270

PCTCT GCT @ 30% DTR Average rate UK tax: 30% 2,028,125 608,437
Slide 271

DTR Lower of: UK tax = 478,125 x 30% = 143,437 foreign tax = 178,125
Slide 272

DTR offset Total tax liability Less DTR Tax payable 608,437 (143,437) -----------465,000 ------------
Slide 273
Transfer pricing
> 50 % A Ltd
Sells goods MV = 1m UK tax advantage
B Inc
Sell to B for 600k Profit now overseas
Self-assess PCTCT & adj by 400k

Slide 274
An introduction to value added tax
Taxable & exempt supplies (sales)

Supplies TAXABLE std rated 17.5% (& 5%) zero rated 0% cannot register cannot recover INPUT VAT EXEMPT
register with HMCE
recover INPUT VAT

Slide 276
Compulsory registration
Two registration tests exist: Historic test
Previous 12 months Taxable supplies > 64k
End of each month
- e.g. exceed limit on 30 November - Notify HMCE within next 30 days (by 30th December) - Registered from start of next month (1st January)
Slide 277
Compulsory registration
Forward looking (future) test
Today 30 Days Taxable supplies > 64k
- 30 Days to notify HMCE - Registered from start of the 30 day period
Slide 278

Annual turnover does not exceed 64,000 until 31 March 2008 (on month by month basis) Jack does not become liable until then. He must notify HMRC within 30 days i.e by 30 April 2008 He will then be registered from 1 May 2008.
Slide 279
Voluntary registration
- Must be making TAXABLE supplies Advantages Disadvantages
Recover input VAT Kudos Discipline Avoid late registration penalty Administration burden Risk of penalties on errors Prices go up for non-VAT registered customers (need to look at customer status)
Slide 280

Reclaimable VAT Vans (28,200 x 7/47) Lorry (29,375 x 7/47) Entertaining employees (5,875 x 7/47) 4,200 4,375 875 9,450 Capital Allowances Cars Vans Lorry
Slide 281
14,335 24,000 (FYA?) 25,000 (FYA?)
(25% WDA) (28,200 - 4,200) (29,375 - 4,375)
Van - in use post registration Stock - still held at date of registration 1,400 2,100
NB: VAT on accountancy fees are not recoverable as > 6 months prior to registration.
Slide 282
Tax point
Example sale on credit
Order recd Goods despatched Invoice issued Cash recd
Qtr1
Qtr2
Qtr3
Qtr4
Which VAT return is the sale recorded in?
Slide 283
Tax point
Earliest of: Goods despatched / service completed Invoice issued * Cash received * If invoice is within 14 days of despatch, or provision of the service, this will be the TP
Slide 284
(a) 16 June 2007 (b) 30 June 2007
Slide 285
VAT on private fuel

Can reclaim! But extra output tax (ie additional sale)
scale charge
VAT return
Output tax Scale charge Input tax VAT paid on all fuel X (X)
Slide 286

Value for the quarter (FROM RATES & TABLES) Car 1 243 1/3 Car 2 317 2/3 211.33 292.33 Output tax 7 / 47 292.33 Input tax 7/ 47 300
Slide 287
81
43.54 (44.68)
Further aspects of VAT
Administration
SERIOUS MISDECLARATION PENALTY
Error in return Serious? > 1m or 30% X GAT
OR
Accept under-assessment Serious? > 1m or 30% X TAT
Penalty = 15% x error

Slide 289

>1m?
Error 94,000 17.5% = 16,450
> 30% * GAT?

GAT = 33,000 + 16,450 + 16,000 = 65,450 30% = 19,635
Error < 30% GAT no penalty

Slide 290
Default surcharge
Q1 Q2 Q3 Q4
VAT PAID RETURN SUBMITTED
LATE
LATE
ON TIME
LATE
LATE
LATE
ON TIME
-
LATE
5% penalty (reset SLN)
RESULT
SLN Issued
2% penalty (reset SLN)
SLN removed after 4 consecutive clean returns

Slide 291
Annual accounting
Normal filing = quarterly within 1m of end of quarter Option for small businesses = annual returns Small = Taxable supplies < 1,350,000
10% 31/7/05 10% Y/e 31/3/06 31/5/06
90% x Estimated liability (month 4 12)
1 x VAT return
Slide 292

(a) Output VAT 95,000 85% 7/47 Input VAT 15,800 7/47 VAT payable = (2,354) 9,673
Can weigh the 777 additional VAT against easier administration
12,027
(b) Using the flat rate scheme 95,000 11% = 10,450

Slide 293

Reinforce todays learning Further develop question skills BPP Learn Online (bulletin boards, FAQs)
Course Companion
Course notes review
Study text review
Question practice
Course Exam 2 by 8 May
Slide 294
End of day 4 - Three Steps to Success
Step 1 Learning
Step 2 Practise & revise
Step 3 Final rehearsal
Taught course
Revision course
Question day
Slide 295

ACCA Paper F6 Taxation Classroom Notes

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ACCA Paper F6 Taxation (FA2007)

Tutor Contact Details

Health & Safety Procedures

Examiner & Format of the Exam

Question 3 Question 4 Question 5 Total

Key Dates for the June 2008 exam

Classroom Tuition and Home Study

ACCA Forum www.bpp.com/accaforum Helpline for queries

Paper F6 Taxation Chapter 1

Introduction to the UK tax system

Structure of the UK tax system

Receivable Management Officers

Paper F6 Taxation Chapter 2

The computation of taxable income and income tax liability

Lecture example 1 (solution 1)

Lecture example 1 (solution 2)

223 7,121 70 7,414 (7,414) Nil

Lecture example 2 (solution 1)

Lecture example 2 (solution 2)

223 6,720 365 770 406 8,484 (8,078) 406

Income tax rates

Basic rate band 2,230 Lower rate band

Lecture example 3 (solution 1)

Lecture example 4 (solution 2)

Lecture example 4 (solution 3)

Lecture example 4 (solution 3)

Paper F6 Taxation Chapter 3

Lecture example 1 (solution)

Paper F6 Taxation Chapter 4

Taxable and exempt benefits. The PAYE system

Benefits basic rule

Second hand value

Lecture example 1 (solution)

Lecture example 2 (solution)

= 900 (lower amount)

Lecture example 3 (solution 1)

Lecture example 3 (solution 2)

Company cars (P11D & directors only)

Lecture example 4 (solution 1)

158 (140) 18 5 = 3.6

Paper F6 Taxation Chapter 5

Lecture example 1 (solution 1)

a) Adjusted basic rate band = 32,370 + (3,900 x 100/78) = 37,370

Lecture example 1 (solution 2)

60,000 (5,225) 54,775

223 8,221 6,070 14,514

Lecture example 3 (solution 1)

350,000 (5,225) 344,775

Lecture example 2 (solution 2)

223 59,921 28,070 88,214

Paper F6 Taxation Chapter 6

Lecture example 1 (solution 1)

1,600 x 9/12 2,000 x 3/12 1,200 500 1,700

Lecture example 2 (solution 1)

Premium on a short lease

Grants < 50 yr lease

Lecture example 3 (solution)

Tenant is a trader? Lecture example 4

Trading deduction = 43,200 / 15 = 2,880pa

Paper F6 Taxation Chapter 7

Computing trading income

The Badges of Trade

(1,500) (17,000) (1,300) 5,000x80% (3,200) ___ NIL _ NIL