Paper F6

282 Pages·2011·1.41 MB·English

Paper
tAxAtion (uK)
F6
(FA 2010)
ACCA QuAlifiCAtion
Course notes
June 2011 examinations
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F1 Accountant in Business
F2 Management Accounting
F3 Financial Accounting
F4 Corporate & Business Law
F5 Performance Management
F6 Taxation (UK)
F7 Financial Reporting
F8 Audit and Assurance
F9 Financial Management
P1 Governance, Risk & Ethics
P2 Corporate Reporting
P3 Business Analysis
P4 Advanced Financial Management
P5 Advanced Performance Management
P6 Advanced Taxation (UK)
P7 Advanced Audit & Assurance
The besT Things
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June 2011 Examinations Paper F6 a

Contents
Syllabus i
Tax rates and allowances iii
1 The UK Tax System 1
2 Income tax computation 5
3 Property Income and Investments – Individuals 17
4 Tax Adjusted Trading Profit – Individuals 23
5 Capital Allowances and Industrial Buildings Allowances 27
6 Trading Profit – Basis Periods 43
7 Tax Adjusted Trading Losses – Individuals 51
8 Partnerships 59
9 Employment Income 63
10 Pension Schemes 73
11 National Insurance Contributions (NIC) 75
12 Corporation tax 77
13 Calculation of Corporation Tax Liability 81
14 Long Period of Account 85
15 Tax Adjusted Trading Losses – Companies 87
16 Chargeable Gains – Companies 93
17 Chargeable Gains – Companies – Further Aspects 97
18 Chargeable Gains – Companies – Reliefs 103
19 Corporation Tax – Groups 107
20 Overseas Aspects – Companies 113
21 Capital Gains Tax – Individuals 117
22 Capital Gains Tax – Individuals – Shares 123
23 Capital Gains Tax – Individuals – Reliefs 127
24 An Introduction to Inheritance Tax 139
25 Inheritance Tax arising on lifetime gifts as a result of death and the death estate 145
26 Value Added Tax – VAT 153
27 Self Assessment and Payment of Tax for Companies 165
28 Self-Assessment and Payment of Tax for Individuals 169
Answers to examples 173
Practice Questions 229
Practice Answers 245
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b June 2011 Examinations Paper F6

Questions and Answers index
Question Answer
Page no. Page no.
1 UK Tax System Tax avoidance and tax evasion 229 245
2 Kate Income tax calculation 229 245
3 Jessica Income tax calculation – restriction of personal allowances 229 246
4 Karl Income tax calculation – additional rates 229 246
5 Mr & Mrs Elderely Personal age allowance and planning aspects 229 247
6 Michael Restriction of personal age allowances 230 248
7 Peter Property Business Profit 230 248
8 Matthew Property Business Losses 230 249
9 Charlie Rent a Room Relief 230 249
10 John Adjustment of trading profit 231 249
11 Carl Calculation of capital allowances 232 250
12 Jason Trading Income basis periods: opening years 232 251
13 Stephen Trading Income basis periods: opening and closing years 233 251
14 Grace Trading Income basis periods: opening years with capital allowances 233 252
15 David Capital allowances: plant and machinery, IBAs 233 253
16 Max Trading losses – New Business 234 254
17 Elliot Trading losses – Continuing business 234 255
18 Anne and Betty Partnerships: change in partners, losses 234 255
19 Renner Employment Income 235 256
20 Darren Pension contributions 235 257
21 Tony National Insurance Contributions 236 257
22 Chorley Ltd Adjustment of profit, calculation of Taxable Total Profits 236 258
23 Sail Ltd Calculation of corporation tax 237 258
24 Swish Ltd Corporation tax losses 237 259
25 Trunk Limited Chargeable Gains – Disposal of shares by a company 237 259
26 Granger Limited Chargeable Gains – Part Disposal and Chattels – companies 238 260
27 Westcroft Limited Chargeable Gains – Destroyed assets 238 261
28 Mighty Ltd Rollover relief 238 261
29 Claude Capital losses – Individuals 238 262
30 Cheryl Capital Gains Tax calculation 239 262
31 Shamus Capital Gains Tax – Individuals (Damaged assets) 239 262
32 Zoe Share matching – Individuals 239 263
33 Michael Share matching with rights issue – Individuals 239 263
34 Jenny Entrepreneurs’ relief 239 264
35 Beth Rollover relief – Individuals 240 264
36 Wendy Gift relief 240 265
37 Smithers Incorporation relief 240 265
38 Amy Principal Private Residence and Letting relief 240 265
39 Nathan Inheritance Tax 241 266
40 VAT VAT – Registration and calculation of VAT 241 268
41 Geewizz Ltd Default surcharge, cash accounting scheme, annual accounting scheme 242 268
42 Factor Limited Overseas aspects of VAT 242 269
43 Group Relief Group relief 242 269
44 Mn Plc Double tax relief 242 270
45 Jim Payments on Account – Individuals 243 271
46 Enquiries Self assessment – Individuals 243 271
47 Cannock Limited Self assessment – Companies 243 271
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June 2011 Examinations Paper F6 i
SyllabuS
1 Aim
To develop knowledge and skills relating to the tax system as applicable to individuals, single companies, and groups of companies.
2 Objectives
On successful completion of this paper candidates should be able to:
•
Explain the operation and scope of the tax system
•
Explain and compute the Income Tax liabilities of individuals
•
Explain and compute the Corporation Tax liabilities of individual companies and groups of companies
•
Explain and compute the Chargeable Gains arising on companies and individuals
•
Explain and compute the Inheritance Tax liabilities of individuals
•
Explain and compute the effect of National Insurance Contributions on employees, employers and the self employed
•
Explain and compute the effects of Value Added Tax on incorporated and unincorporated businesses
•
Identify and explain the obligations of tax payers and/or their agents and the implications of non-compliance
3 Position of the paper in the overall syllabus
The syllabus for Paper F6, Taxation, introduces candidates to the subject of taxation and provides the core knowledge of the
underlying principles and major technical areas of taxation as they affect the activities of individuals and businesses.
Candidates are introduced to the rationale behind and the functions of the tax system. The syllabus then considers the separate
taxes that an accountant would need to have a detailed knowledge of, such as income tax from self-employment, employment and
investments, the corporation tax liability of individual companies and groups of companies, the national insurance contribution
liabilities of both employed and self employed persons, the value added tax liability of businesses, the chargeable gains arising on
disposals of investments by both individuals and companies, and the inheritance tax liability of individuals.
Having covered the core areas of the basic taxes, candidates should be able to compute tax liabilities, explain the basis of their
calculations, apply tax planning techniques for individuals and companies and identify the compliance issues for each major tax
through a variety of business and personal scenarios and situations.
4 Detailed syllabus
4.1 The UK tax system
(a) The overall function and purpose of taxation in a modern economy
(b) Different types of taxes
(c) Principal sources of revenue law and practice
(d) Tax avoidance and tax evasion
4.2 Income tax liabilities
(a) The scope of income tax
(b) Income from employment
(c) Income from self-employment
(d) Property and investment income
(e) The comprehensive computation of taxable income and income tax liability
(f) The use of exemptions and reliefs in deferring and minimising income tax liabilities
4.3 Corporation tax liabilities
(a) The scope of corporation tax
(b) Taxable Total Profits
(c) The comprehensive computation of corporation tax liability
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ii June 2011 Examinations Paper F6
SyllAbUS
(d) The effect of a group corporate structure for corporation tax purposes
(e) The use of exemptions and reliefs in deferring and minimising corporation tax liabilities
4.4 Chargeable gains
(a) The scope of the taxation of capital gains
(b) The basic principles of computing gains and losses.
(c) Gains and losses on the disposal of movable and immovable property
(d) Gains and losses on the disposal of shares and securities
(e) The computation of capital gains tax payable by individuals
(f) The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets
4.5 Inheritance tax
(a) The scope of inheritance tax
(b) The basic principles of computing transfers of value
(c) The liabilities arising on chargeable lifetime transfers and on the death of an individual
(d) The use of exemptions in deferring and minimising inheritance tax liabilities
(e) Payment of inheritance tax
4.6 National insurance contributions
(a) The scope of national insurance
(b) Class 1 and Class 1A contributions for employed persons
(c) Class 2 and Class 4 contributions for self employed persons
4.7 Value added tax
(a) The scope of value added tax (VAT)
(b) The VAT registration requirements
(c) The computation of VAT liabilities
(d) The effect of special schemes
(e) The effect of a group corporate structure for VAT purposes
(f) The VAT implications of imports and exports to European Union and non-European Union countries.
4.8 The obligations of taxpayers and/or their agents
(a) The systems for self-assessment and the making of returns
(b) The time limits for the submission of information, claims and payment of tax, including payments on account
(c) The procedures relating to enquiries, appeals and disputes
(d) Penalties for non-compliance
5 Approach to examining the syllabus
The syllabus is assessed by a three-hour paper-based examination. There will be 15 minutes reading and planning time given at
the start of the exam.
Assessment: Taxation (GBR)
The paper will be predominantly computational and will have five questions, all of which will be compulsory.
•
Question one will focus on income tax and question two will focus on corporation tax. The two questions will be for a total
of 55 marks, with one of the questions being for 30 marks and the other being for 25 marks.
•
Question three will focus on chargeable gains (either personal or corporate) and will be for 15 marks.
•
Questions four and five will be on any area of the syllabus, can cover more than one topic and will respectively be for 15
marks.
There will always be at a minimum of 10 marks on value added tax. These marks will normally be included within question one or
question two, although there might be a separate question on value added tax.
National Insurance Contributions will not be examined as a separate question, but may be examined in any question involving
income tax or corporation tax.
Groups and overseas aspects of corporation tax will be examined in question two or question five.
Questions one or two might include a small element of chargeable gains.
Any of the five questions might include the consideration of issues relating to the minimisation or deferral of tax liabilities.
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June 2011 Examinations Paper F6 iii
Paper F6
Tax raTes and allowances
The following tax rates and allowances will be reproduced in the examination paper for Paper F6. In addition, other specific
information necessary for candidates to answer individual questions will be given as part of the question. For example, in the case
of corporate chargeable gains the relevant retail prices index for particular dates will be given.
Income Tax
Normal rates Dividend rates
% %
Basic rate £1 – £37,400 20 10
Higher rate £37,401 – £150,000 40 32.5
Additional rate £150,001 and over 50 42.5
A starting rate of 10% applies to savings income where it falls within the first £2,440 of taxable income
Personal allowance
£
Personal allowance standard 6,475
Personal allowance aged 65–74 9,490
Personal allowance aged 75 and over 9,640
Income limit for age–related allowances 22,900
Income limit for standard allowances 100,000
car Benefit Percentage
The base level of CO emissions is 130 grams per kilometre.
2
A lower rate of 5% applies to cars with CO emissions of 75 grams per kilometre or less and a rate of 10% applies to cars with CO
2 2
emissions of 76-120 grams per kilometre..
car Fuel
The base figure for calculating the car fuel benefit is £18,000
Personal Pension contribution limits
The maximum contribution that can be made without evidence of earnings is £3,600.
Annual allowance £255,000
authorised mileage allowances
All cars
up to 10,000 miles 40p
over 10,000 miles 25p
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iv June 2011 Examinations Paper F6
TAx RATES AND ALLOWANCES
capital allowances
%
Plant and machinery
Annual Investment Allowance
For the first £100,000 of expenditure per annum 100
General rate Pool
Writing-down allowance 20
Special rate Pool
Writing-down allowance 10
Motor cars
CO emissions up to 110 grams per kilometre 100
2
CO emissions between 111 – 160 grams per kilometre 20
2
CO emissions over 160 grams per kilometre 10
2
Industrial buildings allowance
Writing-down allowance 1
corporation Tax
Financial year 2008 2009 2010
Small profits rate 21% 21% 21%
Main rate 28% 28% 28%
Lower limit £300,000 £300,000 £300,000
Upper limit £1,500,000 £1,500,000 £1,500,000
Standard fraction 7/400 7/400 7/400
Value added Tax
Standard rate
– Up to 3 January 2011 17.5%
– From 4 January 2011 onwards 20.0%
Registration limit £70,000
Deregistration limit £68,000
rates of Interest
Official rate of interest: 4.0%
Rate of interest on underpaid tax: 3.0% (assumed)
Rate of interest on overpaid tax: 0.5% (assumed)
capital Gains Tax
Individuals
Annual Exemption £10,100
Rate of tax – lower rate 18%
– higer rate 28%
Entrepreneurs’ relief – lifetime limit £5,000,000
– Rate of tax 10%
Inheritance Tax
%
Tax Rate:
£1 – £325,000 Nil
Excess – Death rate 40
– Lifetime rate 20
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June 2011 Examinations Paper F6 v
TAx RATES AND ALLOWANCES
Taper relief:
Percentage
Years before death reduction
%
Over 3 but less than 4 years 20
Over 4 but less than 5 years 40
Over 5 but less than 6 years 60
Over 6 but less than 7 years 80
national Insurance (not contracted out rates)
Annual
Class 1 ≤ £5,715 @ 0%
Employee [£5,716 – £43,875] @ 11%
£43,876 and above @ 1%
Class 1
Employer ≤ £5,715 @ 0%
£5,716 and above @ 12.8%
Class 1A
Employer 12.8% × value of benefits
Class 2 £2.40 per week
Annual
Class 4 ≤ £5,715 @ 0%
[£5,716 – £43,875] @ 8%
£43,876 and above @ 1%
Calculations and workings need only be made to the nearest £.
All apportionments may be made to the nearest month.
All workings should be shown.
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