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ACCA
Advance Taxation (P6)
(FA-2016)

Summary Notes
By: Arif Javed (FCCA)

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Table of contents
Contents
Introduction to UK taxation
Income tax
Family tax planning
Tax adjusted trading profits
Basis of assessment for trading profits
Trading losses
Employment income
Business property income
Investment schemes
Partnership tax rules
Income tax overseas aspects
Personal financial planning
Corporation tax
Chargeable gain for companies
Groups of companies
Overseas aspects of companies
Capital gain tax (CGT)
Overseas aspects of CGT
Value added tax (VAT)
Overseas aspects of VAT
Inheritance tax (IHT)
Overseas aspects of IHT
Taxation for trusts

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Prepared by: Arif Javed (FCCA), 0321- 66 96 281

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65

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
INTRODUCTION TO UK TAXATION
There are five major types of taxes in UK
1
...

Corporation Tax (CT)
3
...

Value added Tax (VAT)
5
...


UK Taxation

Income Tax (IT)

Paid by individuals
on incomes

Corporation Tax
(CT)

Capital Gain Tax
(CGT)

Value Added Tax
(VAT)

Inheritance Tax
(IHT)

Paid by companies
on incomes and
capital gains

Paid by individuals
on capital gains

Paid by individuals
and companies on
sales turnover

Paid by individuals
on transfer of value
during lifetime or at
death

Direct tax is one which is directly paid to HMRC by the tax payer
...


3

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Income tax
Income tax is paid by individuals on taxable income on the basis of tax year
...
Tax year 2015-16 runs from 6 April 2016 to 5 April
2017
...

Taxable income
Taxable income is calculated as:

Trading profits
Employment income
Business property income
Foreign income
Other income
Investment income
Dividend income
Gross income
Qualifying interest
Net income
Personal allowance
Taxable income

NSI
£
x
x
x
x
x
--x
(x)
--x
(x)
-x
---

SI
£
x
--x
--x
-x
---

DI
£
x
--x
--x
-x
---

Once the taxable income is calculated, income tax is calculated using following rates
...
5%
32
...
1%

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
New changes from FA 2016-17
Saving income
For basic rate tax payers:
For higher rate tax payers:
For additional rate taxpayers:

First £1,000 is taxed at 0% (SI nil rate band)
First £500 is taxed at 0% (SI nil rate band)
No saving income nil rate band

Dividend income
For all tax payers:

First £5,000 is taxed at 0% (DI nil rate band)

Income tax liability is calculated
1
...
Then on saving income
3
...
Both these payments are made 80% and grossed up as
net amount*100/80
...

 When calculating tax for spouses, £1100 of personal allowance can be
transferred from one spouse to other spouse to improve its utilization
...

 Income tax payable is calculated by deducing tax credit from income tax liability
...

Qualifying interest
Qualifying Interest ► Interest on qualifying loan
Qualifying loan
► Loan used for qualifying purposes
Qualifying purposes
1
...

To invest in an employee controlled company
3
...

To invest in a co-operative
5
...

To purchase plant or machinery for use in employment
Qualifying interest = Qualifying loan × Official rate of interest

5

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Exempt incomes from income tax
 Lottery income
 Bond prizes
 Betting
 Game winning
 Income from NS & I saving certificates
 Income from individual saving account (investment limit in ISA is £15,240)
 Income from individual learning account
 Income from ordinary account in national saving bank (NSB)
 Dividends from shares held in venture capital trust (VCT)
 Income tax repayment supplement
UK residence
Following individuals are automatically not resident in UK
...

 A person who is in the UK for less than 46 days during a tax year, and who has
not been resident during the three previous tax years
...

Following individuals are automatically resident in UK
 A person who is in the UK for 183 days or more during a tax year
...

 A person who carries out full time work in the UK
...

There are five UK ties as follows:
1
...

3
...

5
...

Having a house in the UK which is made use of during the tax year
...

Being in the UK for more than 90 days during either of the two previous tax years
...


These ties are applied on below table which will be provided in exam
...


6

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]

Days in
UK

Previously resident

Not previously resident

Less than
16

Automatically not resident

Automatically not resident

16 to 45

Resident if 4 UK ties (or
more)

Automatically not resident

46 to 90

Resident if 3 UK ties (or
more)

Resident if 4 UK ties

91 to 120

Resident if 2 UK ties (or
more)

Resident if 3 UK ties (or
more)

121 to 182

Resident if 1 UK tie (or
more)

Resident if 2 UK ties (or
more)

183 or
more

Automatically resident

Automatically resident

Effect of residence on income tax
Resident
=
Pays income tax on UK plus foreign income
Non-resident =
Pays income tax on UK income only

7

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Split year basis
When split year basis apply, a person leaving the UK will become non-resident from the
date of departure and a person coming to UK will become resident from the date of
arrival
...
Children are also separate tax payers
...
If higher amount is transferred it will count as
parent income for income tax purposes
...
However it
can be shared in actual ratio by taking an election if total income tax of the family
can be saved doing so
...

 One spouse can also transfer £1100 of his/her personal allowance to other
spouse to improve its utilization
...
For example
tax can be minimized through family tax planning or increasing tax free investments in
the portfolio
...

Tax evasion
It is a way reducing the tax liabilities illegally by misleading HMRC
...
It is not allowed by
HMRC
...

Capital allowances
In tax year 2016-17 capital allowances are only available on expenditure on Plant and
machinery
...


Annual investment allowances (AIAs)
...


Written down allowances (WDAs)
...


AIAs are restricted to £200,000 per annum
...

b/f balances
2
...

All the motor cars except for low emission car acquired during the period
 WDAs are available @ 8% on special rate pool and @ 18% on all other assets
...


10

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Basis of assessment for trading profits
Trading profits are assessed on the basis of “basis periods” which are selected from
period of accounts
...

Starting rules
 First basis is from start of trade to following 5th April and taxed in first tax year
...
Basis period is 12 months
period which ends at accounting date in that tax year
...

If there is loss in overlapped period it is taken into account in first period only
(loss is not overlapped/double counted)
...

 If last and second last accounting dates fall in the same tax year, then last and
second last periods of accounts are added up (second last accounting date is
ignored) giving rise to one long period of account
...

 All the overlapped profits are relieved from the last tax year profits
...

One long period of account
...

One short period of account
...

Two accounting dates in a tax year
...

No accounting date in a tax year
...
Any period which is not covered by new and previous basis period is called
relieved period
...

One short period of account
New accounting date is date of change and basis period is 12 months back from that
date
...

Two accounting dates in a tax year
If there are two accounting dates in a tax year, first date is ignored
...

No accounting dates in a tax year
If a tax year is skipped and new accounting date is chosen in next tax year, same date
in skipped tax year is treated as accounting date of change and this will result in one
short period of account as above
...

 If profits are decreasing accounting date should be set later in the tax year
...

Loss relief against net income
 Loss is relieved against net income of current and previous tax year in
any order
...

2
...

 Residual loss after relieving against net income of current year of
previous year can be relieved against net capital gains of the same
year
...

Brought forward loss relief
...

4
...

 Trading loss of first four tax years can be carried back against net
income for three tax years on FIFO basis
...

Incorporation loss relief
...

6
...

 Loss of the last 12 months period (terminal loss) is carried back
against trading profits of three tax years from the start of last 12
months period on LIFO basis
...
Pension contributions paid to approved occupational pension scheme
...
Traveling expenses
...
Authorized mileage allowance
...
Contributions to HMRC approved professional bodies
...
Expenses incurred wholly, exclusively and necessarily for the performance of
duties
...
Certain liabilities and insurance against them
...


14

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Taxable benefits
Accommodation benefit
Job related accommodation is exempt from tax
...

Job related accommodation is that which is
 Provided to employee so that employee can perform his/her duties in a better
way
...

 Provided customary to all employees
...

 Required by the employer to occupy it
...

Taxable benefit for non job related accommodation
For employer owned accommodation
 Gross ratable value/annual value = Normal benefit
For letted in accommodation
 Higher of
Gross ratable value/annual value and rent paid by employer/cost to employer
= Normal benefit
Expensive accommodation
 Accommodation with cost of more than £75,000
...

Additional taxable benefit on expensive accommodation is calculated as follows:
(Cost-75,000)*3%
Company car benefit (only if car is also used for personal use)
Annual benefit = (list price – capital contribution) × %age
Capital contribution is restricted to £5,000
...

Company car fuel benefit
Annual fuel benefit = 22,200 × %age
If fuel is not provided for the full year, it is time apportioned on monthly basis
...

Van benefit (only if also used for personal use)
 Annual benefit for van is £3,150
...

Commercial vehicle
If an employee is provided with a commercial vehicle which is also used for private
purposes, no taxable benefit will arise for this
...

Child care benefit
Nursery facility
= exempt
Cash facility
= within limit exempt and above this it is taxable
Limit is
 £55 per week for basic rate tax payer
 £28 per week for higher rate tax payer
 £25 per week for excessive rate tax payer
Child benefit income tax charge
Income tax charge arises as 1% of the child benefit per £100 of adjusted net income in
excess of £50,000
...


16

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Loan benefit
 Taxable benefit will arise if employer provides a beneficial loan (at less than full
interest) to employee
...
The exemption applies where medical treatment is provided to an
employee to assist them to return to work after a period of absence due to ill-health or
injury
...

 Medical insurance for employees in overseas is exempt
...

 All other medical benefits are taxable
...

Use of asset benefit
If an employee is provided with an asset for private use by his employer, it will give rise
to a taxable benefit at the rate of 20% of the cost of the asset
...
VAT) per employee
...

Sporting or recreational facilities available to employees generally and not to
general public
...

Bicycles or cycling safety equipment provided to enable employees to get to and
from work or to travel between one workplace and another
...

Up to £15,000 pa paid to an employee who is on full time course lasting a year
(with average full time attendance of at least 20 weeks), if amount exceeds
£15,000, full amount is taxable
...

Transport/overnight cost where public transport is disrupted by industrial action
...

Employer contributions towards additional house hold cost incurred by an
employee who works wholly or partly at home up to £4/week
...
Tax on benefits covered in dispensation is paid
under PAYE settlement agreement
...

Share schemes
Two types of schemes are
1
...
Share options:
options to buy shares are granted to employees
Share incentives
MV of shares granted
Price paid by employee
Taxable income

£
x
(x)
X

Share options
Event
Approved
Grant of No tax
option
Exercise No tax
of
option
Disposal
of
shares
at latter
date

= Sale proceeds
- Cost of option
- Exercise price
= Chargeable gain

Unapproved
No tax
= MV at exercise date
- Cost of option
- Exercise price
= Taxable income
= Sale proceeds
- MV at exercise date
= Chargeable gain

Approved share option and incentive schemes
1
...
Company share option plan (CSOP)
3
...
Share incentive plan (SIP)

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Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Scheme summaries

Participation
Maximum value

Exercise period
Issue price
Others

SAYE
All employees
£5 to £500 per month

SCOP
Selected employees
£30,000 per
employee

3 or 5 years
Not <80% of MV

3 to 10 years
MV
Excluded from
scheme if owns >30%
shares of company

SIP
Participation
Awarded free shares
Purchase partnership shares

Awarded matching shares
Dividends
Holding period
Base cost of shares

EMI
Selected employees
£250,000 per
employee
Total £3m Maximum
Up to 10 years
MV to avoid IT
Gross assets ≤ £30M
Employees < 250
For ER purposes
ownership period
starts from grant date
and no need to own ≥
5% OSC

All employees
Max £3,600 per year
Max = lower of
£1800 and
10% of salary
Max 2 per partnership shares
Tax free if invested in further shares
5 years for full benefit
MV when removed from plan

Lump sum payments
Wholly exempt
o Statutory redundancy
payments
o Payment for injury,
disability or death
o Lump sum payment from
an approved pension plan

20

Partially exempt
o Ex-gratia payments
- First £30,000 exempt
- This limit is reduced
by statutory
redundancy payments
received

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

Wholly taxable
Any other payment received
which is
- expected from employer
- or contractual
- or for restrictive
covenants

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Business property income
Main Performa for computation of property income
£
Rent
Taxable premium
Total rental
Allowable expense
Taxable rental income





£
x
x
--x
(x)
---x
---

Rent is accounted for on accrual basis
...


Replacement furniture relief
This is a relief available for furnished properties which are rented for residential
purposes
...

Furnishings include items like beds, televisions, fridges and freezers, carpets and floor
coverings, curtains, crockery and cutlery
...
Relief is only for
replacement of furniture and furnishings
...

 Rent paid on original lease is deducted as an expense
...


21

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Real estate investment trust (REIT)
- REIT is a listed company which invests in UK properties
...

- Dividends received from REIT are taxed as other income
...

Annual rent from room
≤ 7500
=
exempt
> 7500
=
taxable
Furnished holiday letting income
A property is treated as furnished holiday letting if it fulfills the following conditions
1
...

2
...

3
...
Property is actually let for at least 105 days in a tax year (on average basis)
...
Property is available for short term lettings only (not for more than 31 days)
...
If property is let for more than 31 days (long term letting), the cumulative letting
period during the tax year must not exceed 155 days
...

Tax consequences for furnished holiday letting income
1
...

2
...

Business property losses
Business property loss is carried forward against business property income from future
periods
...

Under this scheme individuals invest in unquoted shares and get following tax benefits:
 Tax reducer of 50% of investment
 No CGT if shares are held for 3 years
 Capital losses are allowable and can be elected to relieve against net income
(like trading losses)
 SEIS shares qualify for IHT BPR relief if owned for 2 years
 Investment can be carried back for one year

23

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Other points
o Maximum investment limit is £1,00,000 per year
o Maximum tax reducer = 100,000 * 50% = £50,000
o Tax reducer can reduce ITL to nil, cannot create a income tax repayments
o Dividends from EIS are taxed in normal way
o Deferral relief is not available
o Investor must
- subscribe for new shares
- not be an employee or director of the company
- have ≤ 30% interest in the company
o the investee company must
- be unquoted trading company
- carrying on a qualifying trade
- have no excluded activities
- have sound financial position
- have ≤ 25 full time employees
- have gross assets ≤ £200,000 after investment
- use at least 90% of the funds raised within 2 years for qualifying activities
- cannot raise more than £150,000 under SEIS scheme in three year period
Venture capital trust (VCT)
VCT is a listed company which invests in unquoted trading companies (qualifying as
EIS investments)
...

Class-2:
paid by self-employed @ £2
...

Class-3:
voluntary
Class-4:
paid by self-employed on net trading profits
Note: All the rates and limits related to NIC will be given in exam
...

 Contribution to personal scheme (gross amount) is used to extend basic rate
band for income tax
...
Net relevant earnings (NRE)
NRE =
Net trading profits
+
Employment income
+
Furnished holiday letting income
2
...
Unused annual allowance can be
carried forward for three tax years
...
Any
amount above this (life time allowance) is taxable
...
Each partner in partnership pays tax on his/her
share of profits
...

 Capital allowance on assets owned by partnership are deducted from partnership
profits whereas on assets owned by individual partners are deducted from profit
share of individual partners
...

 When a partner leaves the partnership it is treated as ceasing the trade
...

 Distributable profit is shared among partners which is calculated as:
£
Adjusted trading profit
Salaries payable to partners

Interest on capital payable to partners

Interest on drawing

A
B

A
B

A
B

Distributable profits

£
x

x
x
--

(x)

x
x
--

(x)

x
x
--

x
--x
---

Limited liability partnership
 Liability of each partner is limited to the amount of capital invested
...

 Loss relief against general income or against early years against non partnership
income is restricted to the amount of capital invested and is subject to overall cap
of £25,000
...
Here is summary:
R & D in UK
Taxable on arising basis

NR in UK
Exempt

R but ND in UK
Depends upon unremitted amount
≤ 2,000
> £2,000
Remittance basis apply Arising basis apply
automatically and
automatically and
personal allowance is
personal allowance is
available
available
- All overseas income
taxed as non saving
income
- DTR is available

But can elect
remittance basis:
- Personal allowance
not available
- Remittance basis
charge applies

Remittance basis charge (RBC)
RBC is an additional tax which is added in income tax liability of an individual
...




Credit method
Tax is paid in both countries
...


28

No treaty agreement
In absence of treaty agreement, HMRC
provide a unilateral relief
...
Then
relief is claimed for double taxation
...
UK tax on overseas profits
...
Foreign tax on overseas profits
...

 Accounting period can be ≤ 12 months but cannot be more than 12 months
...

Rate of corporation tax (FY-2016)
For FY 2016 rate of corporation tax is 20% regardless of the level of profits of the
company
...

 A company having augmented profit up to profit threshold is called small
company and is required to all CT in one payment which is due on first of 10 th
month after end of accounting period
...



Profit threshold is reduces when company has accounting period of less than 12
months and/or has associated companies
...
First of 12 months and second of remaining months and then
tax is calculated for each accounting period
...

Capital allowances
Capital allowances are calculated in the same way as for IT but on the basis of
accounting period instead of period of account
...

Business property income
Business property income is also calculated in the same way as for IT with one
difference
...

Dividend income
Dividends are not taxable under CT rules
...
It is deducted from
total profits when calculating taxable total profits
...

interest received and paid is treated in investment
income
...

Loss relief against total profits
...

 In case of cessation trading loss of last 12M period is carried back for
36 months from the start of last 12M period on LIFO basis
...

Brought forward loss relief
...


31

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Thin capitalization
o Companies can obtain additional debts from connected companies to increase
the tax benefit on interest expense
...

o Company will be caught under these rules if its gearing exceeds 50%
...
Controlled by any number of directors or
2
...

Provision of loan to shareholders
For the company
 Tax charge of 25% of amount of loan
 Payable to HMRC on the date when CT of that accounting period is due
 No tax charge is loan is repaid before due date of CT
 Tax charge will be recovered from HMRC when shareholder repays the loan
 If loan is written off, its related tax charge also need to be written off
 Tax charge needs not to be paid if
o Amount of loan is ≤ 15,000
o Individual is full time working employee
o Individual owns ≤ 5% of the company shares
For shareholder
 No implication at the loan is made
 If loan is written off it is treated as dividends received and becomes taxable

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Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Provision of benefits to shareholders
For company
 Cost of providing benefits is deductible trading expense
For shareholders
 Taxable benefits are calculated using employment income rules
Personal Service Company
 A company for which individual is the sole owner and employee
...

 Any amount which has after all payments is treated as notional salary for the
individual and becomes taxable
...
8/113
...

 Person disposing off the asset is a chargeable person
...

Chargeable asset
Chargeable asset is an asset that is not exempt
...

 Qualifying corporate bonds
...

Chargeable person
Any individual or company is a chargeable person
...

Exempt disposals
Following disposals/transfers are exempt
 Inter spouse transfers
...

 Transfers to national bodies
...

Chargeable gains for companies
Chargeable gain for companies is calculated as follows:
Sale proceeds
Incidental cost of disposal
Net sale proceeds
Allowable cost
Un-indexed gain
Indexation allowance
Indexed/chargeable gain

34

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

£
x
(x)
x
(x)
x
(x)
x

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Allowable cost
Allowable cost includes purchase cost, incidental cost of purchase and
enhancement cost
...

Same day acquisition
...

Previous 9 days acquisition
...

Share pool
...

Wasting chattels
 A chattel with useful life of less than or equal to 50 years is called wasting
chattel
...

 Gain on wasting chattels on which capital allowances are not available is
exempt and loss is not allowable
...


Sale proceeds

> £6,000


Taxable
...


But restricted to
5/3× (gross
proceeds - 6,000)

Allowable
...
Gain is calculated as sale proceeds less NBV
...

There are two types of deferral reliefs available to companies
1
...

Heldover relief
These both reliefs are available on capital gain arising on disposal of non depreciating
business asset
...

 It is calculated as gain – sale proceeds not reinvested
...

Heldover relief
 When a non depreciating asset is sold and its sale proceeds are reinvested in a
depreciating asset, heldover relief is available
...

 Base cost of replacement asset is equal to its original cost
...

 Held over gain crystallizes on earliest of
1
...

2
...

3
...

Reorganization & take over
 The value of shares issued under reorganization or takeover can be different
form the value of shares bought back
...

 If cash is received under reorganization it is treated as part disposal
...
51% group
2
...
75% chargeable gain group
51% group/controlling group
All the associated companies form controlling group
...

Chargeable gain group
Direct holding
=
Indirect holding
=




at least 75%
at least 50%

Intra group transfers in this group are not chargeable transfers
...

If a group company disposes an asset and other company acquires asset,
rollover or held over relief can be claimed if conditions are met
...

 Tax will be calculated at the time asset was transferred to the company within
group but becomes chargeable at the time of leaving
...

Pre-entry capital losses
 Pre-entry capital losses cannot be netted off with capital gain of other group
companies
...


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Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Consortium relief
A consortium exists where
- Two or more companies own at least 75% of another company (target company)
- No company owns more than 75%
- No company owns less than 5%
- Investing companies are known as consortium members
- Target company is known as consortium company

Consortium
member
B
(£40,000)

Consortium
member
A
£50,000

10%

a) £60,000
b) (£60,000)

60%

Consortium
Company



Consortium member can relieve its loss against Consortium Company leaving its
own profits
...

 Consortium Company will relieve its loss against its own total profits first and any
residue loss can be relieved against consortium member
...

a) Full loss of £50,000 of consortium member A can be relieved against £6,000
(60,000*10%) loss of Consortium Company
...


39

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Overseas aspects of companies
Overseas income can arise from
1
...
Subsidiary
Branch/agency
 It is treated as extension to the UK trade
...

 Branch losses can be claimed and capital allowances on its assets can also be
claimed by UK Company
...

 Double tax may be paid on branch profits for which double taxation relief (DTR)
is available
...

 Dividends received are not taxable under CT rules
...

 If holding in subsidiary is more than 50%, it becomes associated company and
dividends from it are not added in taxable total profits
...

 Shareholders are treated as they have sold their shares and chargeable gain
arises on it
...


40

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Capital gain tax (CGT)
Individuals pay capital gain tax on chargeable gain
...

Rate of CGT for gain arising on sale of residential property is 18% in basic rate
band, and 28% in higher rate band
...

Chargeable gain qualifying for Entrepreneurs’ relief (ER) is taxed at the rate of
10% irrespective of the band in which it falls
...

 National saving certificates
...
For the tax year 2016–17 the lifetime qualifying limit is
unchanged at £10 million
...


41

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Payment of CGT
CGT is paid on 31 January after the end of tax year in which chargeable gain arises
...

Part disposal
Same rules as covered in CT
...

Same day acquisition
...

Following 30 days acquisition (FIFO basis)
...

Share pool
...

Reorganization and takeover
Same rules as covered in CT
...

Heldover relief
Same rules as covered in CT
...

 MV at the time gift is treated as sale proceeds
...

 GR is restricted if all the chargeable assets of the company whose shares are
being transferred are not business assets
...
But if he goes abroad for full time employment and resumes his
status as UK residence within three years and does not sell the asset while
abroad, gain will not become chargeable
...

 Incorporation relief is calculated as
= gain*considerations received in shares/total considerations received
 To claim this relief business must be transferred as going concern to the
incorporation
...

 Any gain related to period of occupation and deemed occupation is exempt
period
...

 Periods of deemed occupation are
1
...
This period must be
proceeded and preceded by actual occupation
...
Any period of absence up to four years due to work or employment in UK
...
Any period of absence due to work or employment in overseas
...
Any period of absence in which employee is living in job related
accommodation in UK
...
Last 18 months before disposal
...

 Letting relief is lowest of:
1
...

2
...
Gain related to letting period
...

- Maximum gain that can be deferred is equal to amount reinvested in EIS shares
...

- This held over gain will crystallize when EIS shares will be sold in future
...

Negligible value claim
o This relief can be claimed if value of an asset becomes negligible
o Assets is treated as sold (and loss claimed) and bought back at MV (cost for
future)
Capital losses
 Capital losses can only be relieved against capital gains
...

 Secondly brought forward loss is relieved against capital loss in excess of annual
exemption of £11,100
...

o Capital loss arising in TY of death can be carried back for three tax years against
capital gains on LIFO basis
...

Transfer to trust
Lifetime gift
o Chargeable disposal at full MV
o Gift relief available as transfer is
immediately chargeable to IHT

Transfer on death
o No gain no loss
o Trustees acquire the asset at probate
value (MV) on date of death

Stamp duty and stamp duty land tax
Stamp duty
 Charged @ 0
...
Here is summary:
R & D in UK
Chargeable on arising
basis
Losses are allowable

NR in UK
Exempt

DTR is available

R but ND in UK
Depends upon unremitted capital gain
≤ 2,000
Remittance basis apply
automatically and
annual exemption is
available
- overseas loss
allowable
- DTR is available

Remittance basis charge (RBC)
Same as in income tax
Double taxation relief (DTR)
Same as in income tax

47

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

> £2,000
Arising basis apply
automatically and
- Annual exemption is
available
- Overseas loss
allowable
But can elect
remittance basis:
- annual exemption not
available
- Remittance basis
charge applies
- DTR is available

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Value added tax (VAT)
VAT is an indirect tax which is levied on taxable turnover
...

 Output VAT is tax on sales proceeds
...

 Input VAT is tax purchases and expenses which paid to suppliers and then
recovered from HMRC if the person is registered for VAT and tax is recoverable
...

VAT period
VAT is accounted for and paid on quarterly basis
...

Tax point
It is the date on which taxable supply is treated as incurred
...
However if payment/invoice is
made before basic tax point or within 14 days from the basic tax point, it will
become actual tax point
...
However if
payment/invoice is made before basic tax point or within 14 days from the basic
tax point, it will become actual tax point
...

VAT and discount (modified)
VAT is charged on actual amount received if discount is offered for prompt payments
...

VAT on motor car expenses
Business
Use
Purchase price
Running cost

Non business
Use

Recoverable Non recoverable
Recoverable Non recoverable

Business + Non business
Use
Non recoverable
Recoverable

Fuel for business use
If fuel is provided to employees for business use only, VAT incurred on it is recoverable
...
The scale charges
will be given in exam paper
...

 Gift is a sample
...

Drawings of goods
Goods withdrawn by the owner of the business are treated as sold at their market value
and output VAT applies
...

 HMRC needs to be informed within 30 days from the end of month in which limit
is exceeded
...

Future test
 If taxable turnover of 30 days period is expected to exceed registration threshold,
VAT registration becomes compulsory
...

 Registration will apply from the start of that 30 days period
...
Registration can apply from any agreed date
...

 If cumulative taxable turnover for the following 12 months period is not expected
to exceed £81,000, compulsory registration will not apply
...

 One company will be selected as representative member who will submit group
VAT return
...

 Application to create
...

De-registration
Compulsory de-registration
 If a person ceases to make taxable supplies, its registration will be cancelled
...

 Registration will cancel from the end of month in which supplies ceased
...
Registration will be
cancelled from any agreed date
...

 Output VAT is calculated on the market value of stocks and capital assets at the
date of de-registration
...

 All the stocks and capital assets in stock at the time cessation, on which input
VAT was claimed, are chargeable for VAT
...


50

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Transfer of trade
 A trade can be transferred as a going concern or on piecemeal basis
...

 If a trade is transferred on piecemeal basis, means that trade is closed and
individual assets are then sold, it is treated as a taxable supply
...

 A VAT invoice should be issued within 30 days from the date when supply is
treated as incurred
...

1
...

2
...

3
...

Pre-registration input VAT on services
Pre-registration input VAT on services can be recovered if following conditions are met
...
Services must have been acquired for use in business
...
Services must have been acquired within 6 months period prior to date of
registration
...

 Limit is higher of £10,000 and 1% of net output VAT
...

 Default interest will be charged if total of net errors is more than the limit
...
Cash accounting scheme
2
...
Flat rate scheme
Cash accounting scheme
Under cash accounting scheme, input VAT is recovered when payment is made to
suppliers and output VAT is paid when payment is received from customers, means that
accounted for on cash basis
...

 All the previous VAT returns and payments must have been made on time
...

 Annual VAT return is due to be filed within 2 months from the end of relevant
VAT year
...

 Payments on account are to be made on monthly basis, starting from the 4rth
month of the VAT year
...

 Each payment on account is calculated as 10% of previous year VAT
...

Conditions for annual accounting scheme
 Expected taxable turnover for the following 12 months period at the time of
joining the scheme must not exceed £1,350,000
...


52

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Flat rate scheme
 Under flat rate scheme, only one calculation is required for VAT
...

Conditions for flat rate scheme
 Expected taxable turnover for the following 12 months period at the time of
joining the scheme must not exceed £150,000
...

Land and building
Types of supplies
Zero rated
 Freehold sales
 Leases for >21 years
 Residential and
charitable buildings

Standard rated
o Sale of new (within 3
years of construction)
freehold commercial
buildings

Exempt
- All other supplies of
land and buildings

Opting to tax
 VAT registered vendor or lesser of a building can opt to tax the buildings which
are otherwise exempt
...

Its conditions and impacts are as:
Conditions
 Election must be filed within 30 days of
signing
 Can be withdrawn within initial 3 month
cooling off period or after 20 years
 Election cannot be made for par of the
building

53

Impact
 Supply becomes a taxable supply
 Input tax can be recovered
 Future supplies (sale or rent) will be
standard rated
 New owners are bound by previous
owner’s election except for transfer
within VAT group

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
VAT default surcharge
 Default means submitting a VAT return late or making the VAT payment late
 Surcharge period is 12 month period from the end of quarter of default
 Surcharge is the penalty payable resulting from the default
Surcharge rates are:
Default surcharge
First
Second
Third
Fourth
Fifth

Surcharge as% of unpaid VAT
HMRC issues notice
2% (not payable if < £400)
5% (not payable if < £400)
10% or £30 whichever higher
15% or £30 whichever higher

After first default each default should be in surcharge period
...


54

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Overseas aspects of VAT
Imports from outside EU (goods)
- VAT is charged as it were a custom duty
- Directly collected from importer at the time of importation
- If imported goods are immediately placed in a bonded warehouse or tax free
zone, VAT is postponed until goods are removed from the warehouse or zone
...
This allows
payment of VAT on 15th of the month after month of importation
...

- Net effect is same as goods were bought from UK
...

Export outside UK (goods)
 Export of goods outside UK is zero rated supply
...

 It applies on gratuitous/intentional transfers of capital assets
...
It is
calculated as = total wealth before transfer – total wealth after transfer
 IHT applies on lifetime transfers and death transfers
...

 Non UK domiciles individual pays IHT on transfer of UK assets only
...

Lifetime transfers
Two types of lifetime transfers are:
1
...

Chargeable lifetime transfer (CLT)
Potentially exempt transfer (PET)
 It is a transfer to another individual
 It is exempt from lifetime IHT
Chargeable lifetime transfer (CLT)
 It is a transfer to discretionary trust
 It is chargeable for lifetime IHT
Death transfer
All the death estate (total wealth owned by the deceased) is transferred to descendants
or other entities according to deceased person’s will at the time of the death
...

Rate of IHT
Nil rate band ($325,000)
Above nil rate band

=
=
=

nil
20% for lifetime transfer
40% for transfer on death

Death tax
It applies on death estate and all lifetime transfers (CLTs and PETs) made within 7
years before death
...


57

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Tapper relief
Tapper relief reduces the death tax on lifetime transfers which occurred more than 3
years back from date of death
...
The reduction is as
follows:
Years before
Death
Over 3 but less than 4 years
Over 4 but less than 5 years
Over 5 but less than 6 years
Over 6 but less than 7 years

Percentage
reduction
%
20
40
60
80

Transfer of a spouse’s unused nil rate band
If on death of one spouse his/her nil rate band is not fully used, the unused fraction
transfers to surviving spouse but can only be used on death of that (surviving) spouse
...

Exemptions
Following exemptions apply to IHT
1
...

Small gift exemption (applies to lifetime transfer only)
3
...

Normal expenditure out of income (applies to lifetime transfers only)
5
...

Charity exemption (applies to lifetime and death transfers)
7
...
If transferring spouse is UK domicile and
transferee spouse is non UK domicile, then maximum £325,000 can be transferred
without incurring IHT charge
...
Small gifts can be made to
more than one donees in a tax year
...

 £2,500 if the gift is made by a grandparent or by one of the couple getting
married to the other
...

Normal expenditure out of income
If a small amount is transferred which does not affects the living standard of the donor, it
can be claimed as revenue expenditure instead of capital transfer and IHT will not
apply
...
Qualifying party is one
which has:
- Two members elected to the house of commons or
- One member elected and at least 150,000 votes were casted for the party
Charity exemption
Lifetime or death transfer to a charity is exempt from IHT
...

Annual exemption
It is the last deduction while calculating chargeable transfer
...
Unused exemption can be carried forward for one year but will be used after
utilizing current year annual exemption in next year
...

 Net amount is transferred to the done
...


59

Prepared by: Arif Javed (FCCA), 0321- 66 96 281

ACCA P6 (UK) Summary Notes [ADVANCE TAXATION]
Seven year accumulation period
 Each transfer (lifetime or death) has its own nil rate band
...

 It means if we are calculating lifetime tax, PET made in last 7 years will not
reduce the nil rate band
...

Advantages of lifetime transfers
 A PET is completely exempt after seven years
...

 Even if the donor does not survive for seven years, taper relief will reduce the
amount of IHT payable after three years
...

Valuation of shares and securities
Unquoted shares
Shares valuation division of HMRC provides this valuation
...
Quarter up rule = LQP + (LQP + HQP)/2
2
...

Cum dividend price =
Ex dividend price + next dividend payment
Unit trusts
Unit trusts are valued at lowest bid price
...

Related property valuation is calculated as:
Value of combined assets * A/(A+B)
For assets
A
=
value of donor’s assets
B
=
value of related parties assets
For shares
A
=
number of shares held by donor
B
=
number of shares held be related parties
IHT reliefs
1
...
Agricultural property relief (APR)
Business property relief (BPR)
 BPR is available on relevant business property
...

 It applies automatically if conditions are satisfied, need not to be claimed
Business property
Type of property
Unincorporated business
Unquoted shares and securities
Quoted shares and securities
Land, buildings, plant or machinery used in a business

%age relief
100%
100%
50%
50%

Excepted assets
Excepted assets are those assets on which BPR is not available
...

 If a relevant property is replaced in previous 2 years period, then combined
period of ownership of those properties should be 2 years out of last 5 years
...


Restriction of BPR
If shares of a company are transferred which has excepted assets, BPR is calculated
as:
=
transfer of value * (value of qualifying assets/value of total assets)
Withdrawal of BPR on death
If BPR conditions are not satisfied at the date of death BPR is withdrawn
...

Minimum period of ownership
 For owner managed property
=
2 years
 For tenanted property
=
7 years
 If agricultural property was inherited on death of a spouse, couple’s combined
period of ownership should be 2 years
...

Quick succession relief (QSR)
QSR applied where successive chargeable events occur in 5 years time period
...

Gift with reservation
 Gift with reservation is a lifetime transfer where title is transferred but transferor
remains beneficiary of the assets transferred
...

Tax treatment
 If transferor remains beneficiary of the asset till death, it is included in his death
estate
...

Payment of IHT
Due date for payment of IHT is
Lifetime tax =
latter of
30 April following the end of the TY in which the gift is made
...

Death tax
=
Six months from the end of the month in which death occurred
...
Discretionary trust
2
...

 Income from discretionary trust is received net of 45%
...

 Income generated by the trust is entitled to one beneficiary called life tenant
...

 Income from IIP trust is received 20% net and 10% if it is dividends
...
Immediate post death interest (IPDI) trust
2

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