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ThIs ARTIClE lOOks AT ThE ChANgEs MAdE by ThE FINANCE ACT 2009, ANd shOuld bE REAd by sTudENTs whO ARE TAkINg PAPERs F6 (uk) OR P6 (uk), OR CAT PAPER 9 (uk) AT EIThER ThE JuNE OR dECEMbER 2010 sITTINgs.

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RElEVANT TO ACCA QuAlIFICATION PAPER F6 (uk) ANd PAPER P6 (uk)
This article looks at the changes made by the Finance Act 2009, and should be read by students who are taking Papers F6 (UK) or P6 (UK), or CAT Paper 9 (UK) at either the June or December 2010 sittings. The aim of the article is to summarise the changes made by the Finance Act 2009 and to look at the more important changes in greater detail. The article also includes details of legislation that was enacted prior to the Finance Act 2009, but has only come into effect from 6 April 2009. Please note that if you are sitting Papers F6 (UK) or P6 (UK), or CAT Paper 9 (UK) in December 2009, you will be examined on the Finance Act 2008, which is the legislation as it relates to the tax year 2008–09. Therefore this article is not relevant to you, and you should instead refer to the Finance Act 2008 article published on the ACCA website at www.accaglobal.com/pubs/students/publications/ student_accountant/archive/sa_jj08_financeact.pdf Personal allowances Personal allowances for the tax year 2009–10 are as follows: Personal allowance Standard Personal allowance 65–74 Personal allowance 75 and over Income limit for age-related allowances £6,475 £9,490 £9,640 £22,900

Finance act
Example 1 For the tax year 2009–10 Ingrid, aged 40, has a salary of £37,000, building society interest of £800 (net) and dividends of £9,000 (net). Her income tax liability is as follows: £ Employment income 37,000 Building society interest (800 x 100/80) 1,000 Dividends (9,000 x 100/90) 10,000 10,000 48,000 Personal allowance (6,475) 10,000 Taxable income 41,525 10,000 Income tax: 31,525 at 20% 5,875 at 10% 4,125 at 32.5% Tax liability 6,305 587 1,341 10,000 8,233 10,000

PaPer F6 (UK)
INCOME TAX Rates of income tax The rates for the tax year 2009–10 are as follows: Basic rate £1 to £37,400 20% Higher rate £37,401 and above 40% A starting rate of 10% applies to savings income where it falls within the first £2,440 of taxable income. If non-savings income exceeds £2,440 the starting rate of 10% for savings does not apply. In this case savings income is taxed at the basic rate of 20% if it falls below the higher rate threshold of £37,400, and at the higher rate of 40% if it exceeds the threshold. Dividends are taxed at the lower rate of 10% if they fall below the higher rate threshold of £37,400, and at the higher rate of 32.5% where they exceed the threshold.

¤ The starting rate of 10% for savings income is not applicable because the non-savings income (37,000 - 6,475 = £30,525) exceeds £2,440.

sTudENT ACCOuNTANT 09/2009
Relevant to those students taking exams in the June or december 2010 sittings

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2009
ANd CAT PAPER 9 (uk)
PlEAsE NOTE ThAT IF yOu ARE sITTINg PAPERs F6 (uk) OR P6 (uk), OR CAT PAPER 9 (uk) IN dECEMbER 2009, yOu wIll bE EXAMINEd ON ThE FINANCE ACT 2008, whICh Is ThE lEgIslATION As IT RElATEs TO ThE TAX yEAR 2008–09.
Example 2 For the tax year 2009–10, Ali, aged 67, has pensions of £10,800 and bank interest of £4,000 (net). Her income tax liability is as follows: Pensions Bank interest (4,000 x 100/80) Personal allowance Taxable income Income tax: 1,310 at 20% 1,130 at 10% 3,870 at 20% Tax liability £ 10,800 5,000 10,000 15,800 (9,490) 10,000 6,310 10,000 262 113 774 10,000 1,149 10,000 ¤ Lorn’s total income exceeds £22,900, so her personal allowance of £9,640 is reduced to £8,090 (9,640 - 1,550 (26,000 - 22,900 = 3,100/2)). ¤ The starting rate of 10% for savings income is not available because the non-savings income (22,000 - 8,090 = £13,910) exceeds £2,440. Individual savings Accounts (IsAs) For the tax year 2009–10 individuals aged 50 and over can invest up to £5,100 in a cash ISA, and up to £10,200 in a stocks and shares ISA. This is subject to an overall investment limit of £10,200. Therefore, if £5,100 is invested in a cash ISA only £5,100 can be invested in a stocks and shares ISA. For individuals aged under 50 the investment limits for the tax year 2009–10 are unchanged. The overall investment limit is £7,200, of which £3,600 can be invested in a cash ISA. The income from ISAs is exempt from income tax, while a capital gain made within a stocks and shares ISA is exempt from capital gains tax. Employment income Company car benefit For the tax year 2009–10 the base level of CO2 emissions used to calculate company car benefits is unchanged at 135g per kilometre. The percentage used to calculate a car benefit ranges from 15% to 35%. However, a lower rate of 10% applies to motor cars with a CO2 emission rate of exactly 120g per kilometre or less. This lower rate is increased to 13% (10% + 3%) for diesel cars. Example 4 During the tax year 2009–10 Fashionable plc provided the following employees with company motor cars: Amanda was provided with a new diesel powered company car on 6 August 2009. The motor car has a list price of £13,500 and an official CO2 emission rate of 122g per kilometre.

¤ Non-savings income is £1,310 (10,800 - 9,490), so £1,130 (2,440 - 1,310) of the savings income is taxed at the starting rate of 10%. The remainder of the savings income is taxed at the basic rate of 20%. Example 3 For the tax year 2009–10 Lorn, aged 80, has pensions of £22,000 and building society interest of £3,200 (net). Her income tax liability is as follows: Pensions Building society interest (3,200 x 100/80) Personal allowance Taxable income Income tax: 17,910 at 20% Tax liability

£ 22,000 4,000 10,000 26,000 (8,090) 10,000 17,910 10,000 3,582 10,000 3,582 10,000

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ChANgEs APPly FROM 6 APRIl 2009 IN AllOwANCEs AVAIlAblE IN REsPECT OF EXPENdITuRE ON MOTOR CARs. ThERE Is NO lONgER ANy REsTRICTION TO ThE AMOuNT OF wRITINg-dOwN AllOwANCE ThAT CAN bE ClAIMEd IN REsPECT OF AN EXPENsIVE MOTOR CAR. PREVIOusly, ThERE wAs A £3,000 REsTRICTION.

Betty was provided with a new petrol-powered company car throughout the tax year 2009–10. The motor car has a list price of £16,400 and an official CO2 emission rate of 193g per kilometre. Charles was provided with a new petrol-powered company car throughout the tax year 2009–10. The motor car has a list price of £22,600 and an official CO2 emission rate of 254g per kilometre. Charles paid Fashionable plc £1,200 during the tax year 2009–10 for the use of the motor car. Diana was provided with a new petrol-powered company car throughout the tax year 2009–10. The motor car has a list price of £12,400 and an official CO2 emission rate of 118g per kilometre. Amanda The CO2 emissions are below the base level figure of 135g per kilometre, so the relevant percentage is 18% (15% plus a 3% charge for a diesel car). The motor car was only available for eight months of the tax year 2009–10, so the benefit is £1,620 (13,500 x 18% x 8/12). betty The CO2 emissions are above the base level figure of 135g per kilometre. The CO2 emissions figure of 193 is rounded down to 190 so that it is divisible by five. The minimum percentage of 15% is increased in 1% steps for each 5g per kilometre above the base level, so the relevant percentage is 26% (15% + 11% (190 - 135 = 55/5)). The motor car was available throughout the tax year 2009–10 so the benefit is £4,264 (16,400 x 26%). Charles The CO2 emissions are above the base level figure of 135g per kilometre. The relevant percentage is 38% (15% + 23% (250 - 135 = 115/5)), but this is restricted to the maximum of 35%. The motor car was available throughout the tax year 2009–10 so the benefit is £6,710 (22,600 x 35% = 7,910 1,200). The contributions by Charles towards the use of the motor car reduce the benefit.

diana The CO2 emissions are below 120g per kilometre, so the lower rate of 10% applies. The motor car was available throughout the tax year 2009–10, so the benefit is £1,240 (12,400 x 10%).

Company car fuel benefit The fuel benefit is calculated as a percentage of a base figure that is announced each year. For the tax year 2009–10 the base figure is unchanged at £16,900. The percentage used in the calculation is exactly the same as that used for calculating the related company car benefit.
Example 5 Continuing with Example 4. Amanda was provided with fuel for private use between 6 August 2009 and 5 April 2010. Betty was provided with fuel for private use between 6 April 2009 and 31 December 2009. Charles was provided with fuel for private use between 6 April 2009 and 5 April 2010. He paid Fashionable plc £600 during the tax year 2009–10 towards the cost of private fuel, although the actual cost of this fuel was £1,000. Diana was not provided with fuel for private use. Amanda The motor car was only available for eight months of the tax year 2009–10, so the fuel benefit is £2,028 (16,900 x 18% x 8/12). betty Fuel was only available for nine months of the tax year 2009–10, so the fuel benefit is £3,295 (16,900 x 26% x 9/12). Charles The motor car was available throughout the tax year 2009–10 so the benefit is £5,915 (16,900 x

sTudENT ACCOuNTANT 09/2009

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ThE RATE OF wRITINg-dOwN AllOwANCE FOR A MOTOR CAR NOw dEPENds ON ITs CO2 EMIssIONs. uNlEss ThERE Is PRIVATE usE, MOTOR CARs QuAlIFyINg FOR wRITINg-dOwN AllOwANCEs AT ThE RATE OF 20% ARE INCludEd IN ThE gENERAl POOl. MOTOR CARs QuAlIFyINg FOR A 10% AllOwANCE ARE INCludEd IN A sPECIAl RATE POOl.

35%). There is no reduction for the contributions made, since the cost of private fuel was not fully reimbursed. diana Fuel was not provided for private use so there is no fuel benefit.

Official rate of interest The official rate of interest is used when calculating the taxable benefit arising from a beneficial loan or from the provision of living accommodation costing in excess of £75,000. For the June and December 2010 sittings the actual official rate of interest of 4.75% for the tax year 2009–10 will be used.
Capital allowances First-year allowance For a period of one year only, a first-year allowance of 40% has been introduced. The new allowance will apply to expenditure during the period 6 April 2009 to 5 April 2010 (1 April 2009 to 31 March 2010 for limited companies). The annual investment allowance already provides a first-year allowance of 100% for the first £50,000 of expenditure on plant and machinery, so the first-year allowance of 40% is only relevant where expenditure exceeds £50,000. The first year allowance of 40% is not available for expenditure on motor cars or on expenditure that is included in the 10% special rate pool.

¤ Motor cars with CO2 emissions of between 111 and 160g per kilometre qualify for writing-down allowances at the rate of 20% on the full purchase price. ¤ Motor cars with CO2 emissions of more than 160g per kilometre only qualify for writing-down allowances at the rate of 10%. ¤ The 100% first-year allowance continues to be available in respect of low emission motor cars with CO2 emissions of 110g per kilometre or less. Unless there is private use, motor cars qualifying for writing-down allowances at the rate of 20% are included in the general pool, while motor cars qualifying for writing-down allowances at the rate of 10% are included in the special rate pool. Motor cars with private use (by a sole trader or partner) are not pooled, but are kept separate so that the private use adjustment can be calculated. The treatment of motor cars already owned at 6 April 2009 (1 April 2009 for limited companies) is to remain unchanged for a period of five years. Therefore no adjustment is necessary for any motor cars already included in the general pool. Motor cars costing more than £12,000 or those with private use will continue to be kept separately, and will qualify for writing-down allowances at the rate of 20% restricted to a maximum of £3,000. This is regardless of a motor car’s CO2 emissions. Although the treatment of motor cars already owned at 6 April 2009 (1 April 2009 for companies) is examinable, a question will not be set involving the purchase of a motor prior to this date. The new capital allowance rules specifically exclude motorcycles, and expenditure on these therefore qualifies for the annual investment allowance. The capital allowances information that will be given in the tax rates and allowances section of the exam paper for the June and December 2010 sittings is as follows:

Motor cars There have been a number of changes as regards the allowances available in respect of expenditure on motor cars. The changes apply from 6 April 2009 (1 April 2009 for limited companies). There is no longer any restriction to the amount of writing-down allowance that can be claimed in respect of an expensive motor car. Previously, there was a £3,000 restriction. Instead, the rate of writing-down allowance for a motor car now depends on its CO2 emissions:

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CAPITAl AllOwANCEs FOR INdusTRIAl buIldINgs ARE bEINg PhAsEd OuT. ThIs Is bEINg AChIEVEd by AN ANNuAl 25% REduCTION IN ThE AMOuNT OF AllOwANCE AVAIlAblE OVER A FOuR-yEAR PERIOd.

Rate of allowance

%

Plant and machinery General pool – first-year allowance 40 writing-down allowance 20 Special rate pool 10 (The first-year allowance of 40% applies to expenditure during the period 6 April 2009 to 5 April 2010 (1 April 2009 to 31 March 2010 for limited companies).) Motor cars CO2 emissions up to 110g per kilometre 100 CO2 emissions between 111 and 160g per kilometre 20 CO2 emissions over 160g per kilometre 10 Annual investment allowance First £50,000 of expenditure 100

Motor car (1) purchased on 8 June 2009 for £28,300 has CO2 emissions of 140g per kilometre. Motor car (2) purchased on 2 August 2009 for £11,600 has CO2 emissions of 155g per kilometre. This motor car is used by Ming, and 15% of the mileage is for private journeys. Motor car (3) purchased on 19 October 2009 for £16,800 has CO2 emissions of 105g per kilometre. Motor car (4) purchased on 4 November 2009 for £10,100 has CO2 emissions of 185g per kilometre. Table 2 on page 14 shows Ming’s capital allowance claim for the year ended 5 April 2010.

Previously, you were told when a motor car was low emission. From the June 2010 sitting onwards you will only be given a motor car’s CO2 emissions. Example 6 Ming prepares accounts to 5 April. On 6 April 2009 the tax written down values of plant and machinery were as follows: £ General pool 16,700 Expensive motor car 18,800 The following transactions took place during the year ended 5 April 2010: Cost/ (Proceeds) £ 12 May 2009 Purchased equipment 61,400 8 June 2009 Purchased motor car (1) 28,300 2 August 2009 Purchased motor car (2) 11,600 19 October 2009 Purchased motor car (3) 16,800 4 November 2009 Purchased motor car (4) 10,100 2 April 2010 Sold motor car (4) (8,300)

Industrial buildings allowances Capital allowances for industrial buildings are being phased out. This is being achieved by an annual 25% reduction in the amount of allowance available over a four-year period. For the tax year 2009–10 (the financial year 2009 for limited companies) the writing-down allowance is therefore reduced from 3% to 2% where a new industrial building is acquired or where an existing industrial building continues to be owned. Where a limited company’s chargeable period falls into two financial years then apportionment will be necessary in order to determine the rate of writing-down allowance applicable. A question will not be set involving apportionment.
Example 7 Scuba Ltd makes up its accounts to 31 March. The company purchased a new factory from a builder on 1 July 2009 for £240,000 (excluding the cost of land), and this was immediately brought into use.

sTudENT ACCOuNTANT 09/2009

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ThE ANNuAl AllOwANCE FOR ThE TAX yEAR 2009–10 hAs bEEN INCREAsEd TO £245,000. AlThOugh TAX RElIEF Is AVAIlAblE ON PENsION CONTRIbuTIONs uP TO ThE AMOuNT OF EARNINgs FOR A PARTICulAR TAX yEAR, ThE ANNuAl AllOwANCE ACTs As AN EFFECTIVE ANNuAl lIMIT.

For the year ended 31 March 2010 Scuba Ltd can claim a writing-down allowance of £4,800 (240,000 at 2%). leased motor cars There has been a change in the treatment of the cost of leasing a motor car. Previously, when calculating taxable profits a proportion of the lease cost was disallowed if the retail price of a leased motor car was more than £12,000. There is now no adjustment where the CO2 emissions of a leased motor car do not exceed 160g per kilometre, regardless of the retail price. Where CO2 emissions are more than 160g per kilometre then 15% of the leasing costs are disallowed in calculating taxable profits. Example 8 Fabio Ltd makes up its accounts to 31 March. On 1 April 2009 the company commenced the lease of two motor cars. The first motor has CO2 emissions of 145g per kilometre and was leased at a cost of £4,800 during the year ended 31 March 2010. The second motor has CO2 emissions of 180g per kilometre and was leased at a cost of £6,000 during the year ended 31 March 2010. When calculating its taxable profits for the year ended 31 March 2010 Fabio Ltd will have to disallow leasing costs of £900 (6,000 x 15%). loss relief An additional loss relief has been introduced that allows a trading loss to be set against trading profits of the three tax years prior to the tax year 2009–10. The relief is in addition to a claim (under s.64 ITA 2007) against total income of the tax year 2009–10 and/or the tax year 2008–09. Where the additional loss relief is claimed against trading profits of the tax years 2006–07 and 2007–08 then relief is restricted to a maximum of £50,000. There is no restriction where relief is claimed against trading profits of the tax year 2008–09 instead of making a claim against total profits for that year. The additional relief is claimed against the most recent years first.

A taxpayer making a trading loss in the tax year 2009–10 therefore has the following options if they want to claim relief: ¤ Make a claim against total income of the tax years 2009–10 and 2008–09, and then claim additional relief against trading profits of the tax years 2007–08 and 2006–07. ¤ Make a claim against total income of the tax year 2009–10, and then claim additional relief against trading profits of the tax years 2008–09, 2007–08 and 2006–07. ¤ Make a claim against total income of the tax year 2008–09, and then claim additional relief against trading profits of the tax years 2007–08 and 2006–07. Although additional loss relief is also available in respect of a trading loss made in the tax year 2008–09, any question involving additional tax relief will be confined to the tax year 2009–10. Example 9 Table 1 on page 13 shows Samantha’s gross income. Pension schemes Annual allowance The annual allowance for the tax year 2009–10 has been increased to £245,000. Although tax relief is available on pension contributions up to the amount of earnings for a particular tax year, the annual allowance acts as an effective annual limit. Any tax relieved contributions in excess of the annual allowance are taxed at the rate of 40%, thus cancelling out the tax relief that will have been given.

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ThE lIFETIME AllOwANCE FOR ThE TAX yEAR 2009–10 hAs bEEN INCREAsEd TO £1,750,000.ThE lIFETIME AllOwANCE APPlIEs TO ThE TOTAl FuNds ThAT CAN bE buIlT uP wIThIN A PERsON’s PENsION sChEMEs.

lifetime allowance The lifetime allowance for the tax year 2009–10 has been increased to £1,750,000. The lifetime allowance applies to the total funds that can be built up within a person’s pension schemes. Where the limit is exceeded there will be an additional tax charge when that person subsequently withdraws the funds in the form of a pension. Anti-forestalling provisions The government has announced that from 6 April 2011 tax relief for pension contributions made by high income taxpayers is to be restricted. To prevent such taxpayers making excessive pension contributions prior to the change coming into effect, anti-forestalling provisions have been introduced. For high-income taxpayers these provisions restrict tax relief where excessive pension contributions are made. The anti-forestalling provisions are not examinable, and you should therefore assume in any exam question involving pension contributions that the contributions are not excessive.
Example 10 For the tax year 2009–10 Frank had trading profits of £360,000 and made gross personal pension contributions of £260,000. Frank has earnings of £360,000 for the tax year 2009–10. All of the contributions of £260,000 therefore qualify for tax relief, and he will have paid £208,000 (260,000 less 20%) to the personal pension company. Higher rate tax relief will be given by extending Frank’s basic rate tax band for the tax year 2009–10 to £297,400 (37,400 + 260,000). However, there will be a tax charge at the rate of 40% on the excess of contributions above the annual allowance of £245,000. His income tax liability for the tax year 2009–10 is as follows:

Trading profit Personal allowance Taxable income Income tax: 297,400 at 20% 56,125 at 40% Excess contribution charge 15,000 (260,000 - 245,000) at 40% Tax liability

£ 360,000 (6,475) 353,525 353,525 353,525 59,480 22,450 353,525 81,930 6,000 353,525 87,930 353,525

CORPORATION TAX Rates of corporation tax The small company rate of corporation tax and the full rate of corporation tax for the financial year 2009 are unchanged at 21% and 28%, as are the lower and upper limits. The corporation tax rates for the financial year 2009 can therefore be summarised as follows: Level of profits Up to £300,000 £300,001 to £1,500,000 Over £1,500,000 Effective rate 21% 29.75% 28%

The corporation tax information that will be given in the tax rates and allowances section of the exam paper for the June and December 2010 sittings is as follows:

sTudENT ACCOuNTANT 09/2009

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Financial year 2007 Small companies rate 20% Full rate 30% Lower limit Upper limit Marginal relief fraction

2008 21% 28%

2009 21% 28%

ThE gOVERNMENT Is IN ThE PROCEss OF REwRITINg TAX lAw INTO PlAIN ENglIsh. ThE lATEsT sECTION OF lEgIslATION TO bE REwRITTEN COVERs ThE bAsIC PROVIsIONs OF ThE ChARgE TO CORPORATION TAX. ThIs NEw REwRITTEN lEgIslATION hAs bEEN PublIshEd As ThE CORPORATION TAX ACT 2009.

300,000 300,000 300,000 1,500,000 1,500,000 1,500,000 1/40 7/400 7/400

Although the new legislation does not in any way change existing legislation, it has introduced new plain English terminology. Since this terminology is already in use for Paper F6 (UK) no changes are necessary. loss relief A trading loss can normally be carried back and set against profits of the preceding 12 months. For loss-making accounting periods ending between 24 November 2008 and 23 November 2010 this relief is extended to 36 months. The extended relief is exactly the same as that given for terminal losses, with one important difference in that the extended loss relief is restricted to a maximum of £50,000. The £50,000 limit is apportioned if a loss-making period is shorter than 12 months. For example, for a nine-month loss-making period the extended relief is restricted to a maximum of £37,500 (50,000 x 9/12). The £50,000 restriction only applies to losses carried back outside the normal 12-month carry back period. As with relief for terminal losses, where extended relief is claimed losses are carried back in order, most recent periods first. The following information will be given in the tax rates and allowances section of the exam paper for the June and December 2010 sittings: Extended loss relief Extended loss relief is capped at a maximum of £50,000. For limited companies it applies to loss-making accounting periods ending between 24 November 2008 and 23 November 2010. EXAMPlE 12 Table 3 on page 15 shows Loser Ltd’s results.

Example 11 For the year ended 31 March 2010 Easy Ltd has profits chargeable to corporation tax of £40,000 and FII of £10,000. For the year ended 31 March 2010 Difficult Ltd has profits chargeable to corporation tax of £600,000 and FII of £50,000. Easy ltd Corporation tax is £8,400 (40,000 at 21%) as the profits of £50,000 (40,000 + 10,000) are less than £300,000. difficult ltd Marginal relief applies as the profits of £650,000 (600,000 + 50,000) are between £300,000 and £1,500,000. The company’s corporation tax liability is as follows: £ 600,000 at 28% 168,000 Marginal relief 7/400 (1,500,000 - 650,000) x 600,000/ 650,000 (13,731) 353,525 Liability 154,269 353,525 Corporation Tax Act 2009 The government is in the process of rewriting tax law into plain English. The latest section of legislation to be rewritten covers the basic provisions of the charge to corporation tax. This new rewritten legislation has been published as the Corporation Tax Act 2009.

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ThERE hAs bEEN A MAJOR REFORM TO ThE TREATMENT OF OVERsEAs dIVIdENds. As FAR As PAPER F6 Is CONCERNEd All OVERsEAs dIVIdENds ARE NOw EXEMPT FROM uk CORPORATION TAX. EXEMPT OVERsEAs dIVIdENds ARE INCludEd As FRANkEd INVEsTMENT INCOME IN ThE sAME wAy As uk dIVIdENds, uNlEss ThEy ARE gROuP INCOME.

Overseas dividends There has been a major reform to the treatment of overseas dividends. As far as Paper F6 is concerned all overseas dividends are now exempt from UK corporation tax. Exempt overseas dividends are included as franked investment income in exactly the same way as UK dividends, unless they are group income. In this case they are completely ignored for tax purposes. Although this change in treatment only applies to overseas dividends received on or after 1 July 2009, a question will not be set where an overseas dividend is received between 1 April 2009 and 30 June 2009. Since overseas dividends are now exempt from UK corporation tax, double taxation relief for underlying tax is no longer examinable. However, double taxation relief could still be examined where there are profits from an overseas branch. New rules have also been introduced that restrict the amount of interest that is deductible when calculating profits chargeable to corporation tax, but these rules are not examinable. Example 13 During the year ended 31 March 2010 Various Ltd received an overseas dividend of £67,500 (net). Withholding tax was withheld from the dividend at the rate of 15%. 1 If Various Ltd owns 50% or less of the voting power of the overseas company, then the overseas dividend will be exempt from UK corporation tax but included as franked investment income. The amount of franked investment income is £75,000 (67,500 x 100/90). 2 If Various Ltd owns more than 50% of the voting power of the overseas company, then the dividend will be exempt from UK corporation tax and not included as franked investment income. This is because the overseas dividend is group income.

CAPITAl gAINs TAX Individual exemption limit The annual exemption limit for the tax year 2009–10 has been increased from £9,600 to £10,100. Rate of capital gains tax For the tax year 2009–10 the rate of capital gains tax is unchanged at 18%. This rate is used regardless of the amount of taxable gains or taxable income. However, on the first £1m of gains qualifying for entrepreneurs’ relief during a taxpayer’s lifetime the effective capital gains tax rate is 10%, since these gains are reduced by a factor of 4/9ths (18% less 4/9ths = 10%). Example 14 Michael made the following disposals during the tax year 2009–10: ¤ On 30 June 2009 Michael sold a business that he had run as a sole trader since 1 January 2003. The sale resulted in the following capital gains: Goodwill Freehold office building Freehold warehouse £ 260,000 370,000 170,000 353,525 800,000 353,525

The assets were all owned for more than one year prior to the date of disposal. The warehouse had never been used by Michael for business purposes.

sTudENT ACCOuNTANT 09/2009

10

¤ On 25 January 2010, Michael sold a 30% shareholding in Green Ltd, an unquoted trading company. The disposal resulted in a capital gain of £450,000. Michael had owned the shares since 1 March 2004, and was an employee of the company from that date until the date of disposal. During the tax year 2008–09 Michael made a disposal against which he claimed £46,000 of entrepreneurs’ relief. Michael’s capital gains tax liability for the tax year 2009–10 is as follows: Goodwill Freehold office building Entrepreneurs’ relief (630,000 x 4/9ths) Freehold warehouse Shareholding in Green Ltd Entrepreneurs’ relief (324,000 x 4/9ths) 450,000 (144,000) 353,525 306,000 353,525 826,000 (10,100) 353,525 815,900 353,525 146,862 353,525 £ 260,000 370,000 353,525 630,000 (280,000) 353,525 £

NATIONAl INsuRANCE CONTRIbuTIONs Class 1 and Class 1A National Insurance contributions For the tax year 2009–10, the rates of employee Class 1 NIC are unchanged at 11% and 1%. The rate of 11% is paid on earnings between £5,715 per year and £43,875 per year, and the rate of 1% is paid on all earnings over £43,875 per year. The rate of employer’s Class 1 NIC is unchanged at 12.8%, and is paid on all earnings over £5,715 per year. The rate of Class 1A NIC that employers pay on taxable benefits provided to employees is also unchanged at 12.8%. The Class 1 and Class 1A NIC information that will be given in the tax rates and allowances section of the exam paper for the June and December 2010 sittings is as follows: % Class 1 Employee £1–£5,715 per year Nil £5,716–£43,875 per year 11.0 £43,876 and above per year 1.0 Class 1 Employer £1–£5,715 per year Nil £5,716 and above per year 12.8 Class 1A 12.8

350,000 170,000

Annual exemption

Example 15 Simone Ltd has one employee who is paid £50,000 per year, and was provided with the following taxable benefits during the tax year 2009–10: £ Company motor car 6,400 Car fuel 5,070 Living accommodation 1,800

Capital gains tax: 815,900 at 18%

¤ Entrepreneurs’ relief of £46,000 was utilised during the tax year 2008–09, and a further £630,000 is utilised on the disposal of Michael’s sole tradership. Therefore, £324,000 (1,000,000 46,000 - 630,000) is available when the shares in Green Ltd are disposed of.

FOR ThE TAX yEAR 2009–10 ThE RATEs OF EMPlOyEE ClAss 1 NIC ARE uNChANgEd AT 11% ANd 1%. ThE RATE OF 11% Is PAId ON EARNINgs bETwEEN £5,715 PER yEAR ANd £43,875 PER yEAR, ANd ThE RATE OF 1% Is PAId ON All EARNINgs OVER £43,875 PER yEAR.

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uNTIl 31 dECEMbER 2009 ThE sTANdARd RATE OF VAT hAs bEEN TEMPORARIly REduCEd FROM 17.5% TO 15%. FROM 1 JANuARy 2010 ThE sTANdARd RATE wIll REVERT bACk TO 17.5%.

The Class 1 and Class 1A NIC liabilities are as follows: £ Employee Class 1 NIC 43,875 - 5,715 = 38,160 at 11% 4,198 50,000 - 43,875 = 6,125 at 1% 61 4,198 4,259 4,198 Employer’s Class 1 NIC 50,000 - 5,715 = 44,285 at 12.8% 5,668 4,198 Employer’s Class 1A NIC 13,270 (6,400 + 5,070 + 1,800) at 12.8% 1,699 4,198 Class 2 and Class 4 National Insurance contributions For the tax year 2009–10 the rate of Class 2 NIC has been increased to £2.40 per week. The rates of Class 4 NIC are unchanged at 8% and 1%. The rate of 8% is paid on profits between £5,715 and £43,875, and the rate of 1% is paid on all profits over £43,875. The Class 4 NIC information that will be given in the tax rates and allowances section of the exam paper for the June and December 2010 sittings is as follows: % Class 4 £1–£5,715 per year Nil £5,716–£43,875 per year 8.0 £43,876 and above per year 1.0 Example 16 Jimmy is a self-employed builder and Jenny is a self-employed consultant. Their trading profits for the tax year 2009–10 are respectively £25,000 and £50,000. Class 4 NIC liabilities for the tax year 2009–10 are as follows: £ Jimmy 25,000 - 5,715 = 19,285 at 8% 1,543 4,198 Jenny 43,875 - 5,715 = 38,160 at 8% 50,000 - 43,875 = 6,125 at 1% 3,053 61 4,198 3,114 4,198

VAluE AddEd TAX Registration and deregistration limits The limit of annual turnover above which VAT registration is compulsory has been increased from £67,000 to £68,000, and the deregistration limit has been increased from £65,000 to £66,000. standard rate of VAT Until 31 December 2009 the standard rate of VAT has been temporarily reduced from 17.5% to 15%. From 1 January 2010 the standard rate will revert back to 17.5%. Because of this change the following additional information will be given under the VAT heading in the tax rates and allowances section of the exam paper for the June and December 2010 sittings: Standard rate – up to 31 December 2009 15.0% – from 1 January 2010 onwards 17.5% A question will not be set involving a VAT period that spans 31 December 2009. Example 17 Gwen is in the process of completing her VAT return for the quarter ended 30 November 2009; the following information is available: ¤ Sales invoices totaling £128,000 were issued in respect of standard rated sales. ¤ Standard rated purchases of materials amounted to £32,400. ¤ Standard rated expenses amounted to £24,800. ¤ On 15 November 2009 Gwen purchased machinery at a cost of £24,150. This figure is inclusive of VAT. Unless stated otherwise all of the above figures are exclusive of VAT.

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Input VAT Materials (32,400 x 15%) Expenses (24,800 x 15%) Machinery (24,150 x 15/115) VAT payable

4,860 3,720 3,150 4,198

(11,730) 4,198 7,470 4,198

TAX MANAgEMENT self-assessment payments on account The de minimis limit for self-assessment payments on account has been raised to £1,000. Therefore for the tax year 2009–10, payments on account are not required if the tax liability for the tax year 2008–09 was less than £1,000 or if more than 80% of the tax liability for that year was deducted at source. Penalties for failure to notify a new taxable activity The single penalty regime that has been introduced for incorrect returns has been extended to where a taxpayer fails to notify HM Revenue & Customs of a new taxable activity, or where the taxpayer is late in doing so. The amount of penalty is based on the tax due but unpaid as a result of the failure to notify, but the actual penalty payable is linked to the taxpayer’s behaviour: ¤ There will be no penalty where a taxpayer has a reasonable excuse for the failure to notify. ¤ There will be a penalty of 30% of the tax unpaid where there is non-deliberate failure to notify. ¤ There will be a penalty of 70% of the tax unpaid where there is deliberate failure to notify, and this is increased to 100% where there is also concealment. However, a penalty will be substantially reduced where a taxpayer makes disclosure, especially when this is unprompted by HM Revenue & Customs.

The new tribunal system consists of a first-tier tribunal and an upper tribunal. The first-tier tribunal will deal with all but the most complex of cases. The upper tribunal will deal with the more complex cases, and also hear appeals against the decisions of the first-tier tribunal. Information and inspection powers A new single regime of HM Revenue & Customs’ information and inspection powers has been introduced. This new regime covers income tax, capital gains tax, corporation tax, VAT and PAYE.

ThE sINglE PENAlTy REgIME ThAT hAs bEEN INTROduCEd FOR INCORRECT RETuRNs hAs bEEN EXTENdEd TO whERE A TAXPAyER FAIls TO NOTIFy hM REVENuE & CusTOMs OF A NEw TAXAblE ACTIVITy, OR whERE ThE TAXPAyER Is lATE IN dOINg sO.

VAT return – quarter ended 30 November 2009 £ £ Output VAT Sales (128,000 x 15%) 19,200

Appeals procedure Previously, tax appeals by taxpayers were heard by either the General Commissioners or the Special Commissioners, and VAT appeals were heard by VAT tribunals. This system has been replaced by a new tribunal system. One new feature is that before an appeal is heard by a tribunal there is now the option for a taxpayer to request a review of a decision by a HM Revenue & Customs review officer. If an appeal does go to a tribunal then a case will be allocated to one of four tracks depending on the issues and tax at stake: ¤ The ‘paper’ track will hear the simplest appeals, such as an appeal against a fixed penalty, and the case will normally be decided by the tribunal without a hearing. ¤ The ‘basic’ track will involve a hearing but the exchange of documents beforehand will be kept to a minimum. ¤ The ‘standard’ track will involve cases that are subject to more detailed case management and formality. ¤ The ‘complex’ track will be for long or complex cases, or those that involve an important principle or a large financial sum.

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HM Revenue & Customs can request information from taxpayers by making a written information notice. Requests to third parties for information must normally either be agreed by the taxpayer or approved by the first-tier tribunal. HM Revenue & Customs also has new powers to enter and inspect a taxpayer’s business premises in order to look at business records and assets. Assessments The time limits by which HM Revenue & Customs can make an assessment of income tax, capital gains tax or corporation tax have been aligned. The normal time limit is now four years, but this is increased to six years where tax is lost due to careless behaviour, and to 20 years where tax is lost due to deliberate behaviour. Although the new time limits for making assessments only apply from 1 April 2010, the old time limits are not examinable from the June 2010 sitting onwards. Claims The general time limit for making claims under income tax, capital gains tax and corporation tax has been aligned at four years. An income tax claim for the tax year 2009–10 must therefore be made by 5 April 2014. Although the new time limit for making claims only applies from 1 April 2010, the old time limits are not examinable from the June 2010 sitting onwards. Interest on underpaid and overpaid tax The assumed rates of interest on underpaid and overpaid income tax, Class 4 NIC, capital gains tax and corporation tax are based on the actual rates in force (for income tax purposes) at 6 April 2009. For the June and December 2010 sittings the assumed rate of interest on underpaid tax will therefore be 2.5%. There is no longer any interest paid in respect of overpaid tax. David Harrowven is examiner for Paper F6 (UK)

TAblE 1: sAMANThA’s gROss INCOME (EXAMPlE 9) 2006–07 £ Trading profit/ (loss) Property business profit 23,100 3,600 2007–08 £ 31,600 7,100 2008–09 £ 24,200 3,800 2009–10 £ (84,000) 5,800

Assuming that the personal allowance for 2009–10 applies throughout, Samantha’s taxable income will be as follows: 2006–07 £ 23,100 (18,400) (18,400) 4,700 3,600 (18,400) 8,300 2007–08 £ 31,600 (31,600) (18,400) – 7,100 (18,400) 7,100 – (18,400) 7,100 (6,475) (18,400) 625 (18,400) 2008–09 £ 24,200 – (18,400) 24,200 3,800 (18,400) 28,000 (28,000) (18,400) – – (18,400) – (18,400) 2009–10 £ – – (18,400) – 5,800 (18,400) 5,800 – (18,400) 5,800 (5,800) (18,400) – (18,400)

Trading income Additional loss relief Property business profit Loss relief (s.64 ITA 2007)

– 18,400) 8,300 Personal allowance (6,475) 18,400) Taxable income 1,825 18,400)

TAblE 1 NOTEs ¤ A loss relief claim against total income (under s.64 ITA 2007) for 2009–10 would waste Samantha’s personal allowance for that year. ¤ The additional loss relief claims for 2006–07 and 2007–08 are restricted to a total of £50,000 (31,600 + 18,400). ¤ The balance of the trading loss of £6,000 (84,000 - 28,000 - 31,600 - 18,400) is carried forward against future trading profits (under s.83 ITA 2007).

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MOTOR CAR (2) hAs CO2 EMIssIONs bETwEEN 111 ANd 160g PER kIlOMETRE, ANd ThEREFORE QuAlIFIEs FOR wRITINg-dOwN AllOwANCEs AT ThE RATE OF 20%. ThIs MOTOR CAR Is NOT INCludEd IN ThE gENERAl POOl bECAusE ThERE Is PRIVATE usE by MINg.

TAblE 2: MINg’s CAPITAl AllOwANCE ClAIM FOR yEAR ENdEd 5 APRIl 2010 (EXAMPlE 6) Motor car £ £ £ 16,700 18,800 28,300 11,600 4,198 45,000 (9,000) (3,000) (2,320) 4,198 36,000 61,400 (50,000) 11,400 (4,560) 6,840 Addition qualifying for FYA Motor car (3) FYA – 100% WDV carried forward Total allowances 16,800 (16,800) – 4,198 4,198 42,840 15,800 4,198 9,280 4,198 1,620 16,800 85,512 85,512 x 85% (180) 10,100 (8,300) 1,800 9,000 3,000 1,972 180 Pool Motor car £ Special rate pool £ Allowances £

WDV brought forward Additions Motor car (1) Motor car (2) Motor car (4) Proceeds – Motor car (4) WDA WDA WDA WDA – – – – 20% restricted 20% 10%

Addition qualifying for AIA and FYA Equipment AIA – 100% FYA – 40%

50,000 4,560

TAblE 2 NOTEs ¤ Motor car (1) has CO2 emissions between 111 and 160g per kilometre, and therefore qualifies for writing-down allowances at the rate of 20%. ¤ Motor car (2) has CO2 emissions between 111 and 160g per kilometre, and therefore qualifies for writing-down allowances at the rate of 20%. This motor car is not included in the general pool because there is private use by Ming. ¤ Motor car (3) has CO2 emissions up to 110g per kilometre and therefore qualifies for the 100% first year allowance. ¤ Motor car (4) has CO2 emissions over 160g per kilometre and therefore qualifies for writing-down allowances at the rate of 10%. There is no balancing allowance on the disposal of this motor car because the expenditure is included in a pool.

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EXTENdEd lOss RElIEF Is CAPPEd AT A MAXIMuM OF £50,000. FOR lIMITEd COMPANIEs IT APPlIEs TO lOss-MAkINg ACCOuNTINg PERIOds ENdINg bETwEEN 24 NOVEMbER 2008 ANd 23 NOVEMbER 2010.

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TAblE 3: lOsER lTd’s REsulTs (EXAMPlE 12) Year ended 31 December 2005 £ Trading profit/(loss) 84,000 Property business profit 5,000 Gift Aid donations (800) Period ended 30 September 2006 £ 13,800 4,600 (1,000) Year ended Year ended 30 September 30 September 2007 2008 £ £ 15,200 78,700 4,000 (1,200) – – Year ended 30 September 2009 £ (146,800) – –

Assuming that Loser Ltd claims relief for its trading loss as early as possible, its profits chargeable to corporation tax will be as follows: Year ended 31 December 2005 £ 84,000 5,000 89,000 (12,400) 76,600 (800) 75,800 Period ended 30 September 2006 £ 13,800 4,600 18,400 (18,400) – – – Year ended Year ended 30 September 30 September 2007 2008 £ £ 15,200 78,700 4,000 19,200 (19,200) – – – – 78,700 (78,700) – – –

Trading profit Property business profit Loss relief (s393A) Gift Aid donations Profits chargeable to corporation tax

TAblE 3 NOTEs ¤ The amount of unrelieved trading loss for the year ended 30 September 2009 is £18,100 (146,800 78,700 - 19,200 - 18,400 - 12,400), and this will be carried forward (under s.393(1) ICTA 1988) against future trading profits. ¤ There is no restriction to the amount of loss relief for the year ended 30 September 2008 as this is within the normal 12-month carry back period. ¤ For the year ended 31 December 2005 loss relief is limited to £12,400 (50,000 - 19,200 - 18,400), being the balance of the £50,000 limit. This is less than the maximum possible relief of £22,250 (89,000 x 3/12). ¤ Without the extended relief it would have only been possible to claim loss relief of £78,700 for the year ended 30 September 2008. ¤ If Loser Ltd had ceased trading on 30 September 2009 then relief for the terminal loss of £146,800 would have been given in exactly the same way except that the relief for the year ended 31 December 2005 would have been £22,250 instead of £12,400, since the £50,000 limit would not then apply.

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ThIs shOuld bE REAd by ThOsE sTudENTs whO ARE TAkINg PAPER P6 (uk) AT EIThER ThE JuNE OR dECEMbER 2010 sITTINgs. All OF ThE ChANgEs RElATINg TO PAPER F6 (uk) sET OuT ARE RElEVANT TO PAPER P6 (uk). ThIs suMMARIsEs ThE AddITIONAl ChANgEs MAdE by ThE FINANCE ACT 2009 whICh hAVE AN EFFECT ON ThE PAPER P6 (uk) syllAbus.

PaPer P6 (UK)

This should be read by those of you who are taking Paper P6 (UK) at either the June or December 2010 sittings. All of the changes relating to Paper F6 (UK) set out earlier in this article are relevant to Paper P6 (UK). This article summarises the additional changes made by the Finance Act 2009 that have an effect on the Paper P6 (UK) syllabus. All of the exclusions set out in the Paper F6 (UK) article apply equally to Paper P6 (UK) unless they are referred to below. Please note that if you are sitting Paper P6 (UK) in December 2009, you will be examined on the Finance Act 2008, which is the legislation as it relates to the tax year 2008–09. Accordingly, this article is not relevant to you, and you should instead refer to the Finance Act 2008 article published on the ACCA website. INCOME TAX Foreign dividends The Finance Act 2008 introduced a 10% tax credit for UK resident individuals holding less than 10% of the shares of non-UK resident companies. The tax credit operates in the same way as it does in relation to dividends from UK resident companies; the foreign dividend income is grossed up at 100/90, the gross income is taxed at 10%/32.5% and there is a 10% tax credit. The tax credit is not repayable in cash. The Finance Act 2009 has extended the availability of this tax credit to UK residents who own 10% or more of the shares in non-UK resident companies provided the company is resident in a qualifying territory. A qualifying territory is one which has a double taxation treaty with the UK that includes a non-discrimination clause.

The remittance basis The remittance basis is available in respect of: ¤ overseas income where the taxpayer is UK resident and either non-ordinarily resident or non domiciled ¤ chargeable gains realised on assets situated overseas where the taxpayer is UK resident or ordinarily resident, but not UK domiciled. The Finance Act 2008 introduced the requirement to pay £30,000 in certain circumstances in order to claim the remittance basis subject to it applying automatically where an individual has unremitted income and gains of less than £2,000. The remittance basis also applies automatically where the individual: ¤ is resident in the UK for no more than six of the nine tax years prior to the year in question or is under the age of 18 throughout the year; and ¤ has no UK income/gains (other than taxed investment income of no more than £100) (prior to the Finance Act 2009, there was a requirement for the individual to have no UK income/gains); and ¤ has not remitted any income or gains during the tax year. Furnished holiday lettings The letting of furnished holiday accommodation is treated as if it were a trade. Accordingly, any losses arising can be relieved as if they are trading losses, pension contributions can be made in respect of the income, and certain capital gains reliefs are available. This beneficial treatment will no longer be available from 2010–11. However, for the tax year 2009–10, the rules have been extended to include properties in the European Economic Area and not just those in the UK.

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ThE dETAIls OF TAX dEFAulTERs whOsE dElIbERATE ACTIONs REsulT IN POTENTIAl lOsT REVENuE TO hMRC OF MORE ThAN £25,000 wIll bE MAdE PublIC. ThIs APPlIEs TO bOTh INdIVIduAls ANd COMPANIEs.

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Enterprise investment scheme (EIs) An individual who has subscribed for EIS shares is able to claim to have the whole or part of the subscription treated as if made in the previous tax year. There is no longer a need for the shares to be acquired in the first six months of the tax year for this claim to be available. In addition, there is no longer a limit on the amount subscribed that can be treated in this way provided the EIS limit for the previous year is not exceeded. There has been a simplification of the requirements relating to the EIS company’s use of the funds acquired. The company must now use the whole of the funds in its qualifying trade in the two years following the share issue. Venture capital trusts (VCT) The change to the requirement in respect of the use of invested funds by an EIS company also applies to companies invested in by a VCT. Accordingly, the money invested by the VCT must be used by the investee company in its qualifying trade within the two years following the share issue. Capital allowances The changes made to plant and machinery capital allowances and industrial buildings allowances set out in the Paper F6 (UK) article above, together with the related exclusions, also apply to Paper P6 (UK). deliberate tax defaulters The details of tax defaulters whose deliberate actions result in potential lost revenue to HMRC of more than £25,000 will be made public. This applies to both individuals and companies. The details will not be published if the taxpayer makes a full disclosure (prompted or unprompted) of the actions resulting in the potential lost revenue. Defaulters who have incurred a penalty for the deliberate understatement of tax of at least £5,000 will be required to submit more detailed information of their tax affairs for the following five years.

CORPORATION TAX dividend income The Finance Act 2009 has made changes to the taxation of dividend income received by companies. Under the new rules, most dividends received, from both UK resident and non-resident companies are not subject to corporation tax but are taken into account when calculating franked investment income and the rate of corporation tax payable. There are exceptions to these rules but the exceptions are not in the syllabus. It should therefore be assumed in the exam that all dividends received from both UK and non-UK resident companies are exempt from corporation tax. Controlled foreign companies (CFCs) A CFC is a non-UK resident company that is controlled by UK resident persons and pays less than three quarters of the tax that it would have to pay if it were UK resident. The profits of a CFC may be apportioned to a UK company such that they are then subject to UK corporation tax. No apportionment is necessary where the CFC satisfies one of the exceptions, for example, where its accounting profits do not exceed £50,000. The exception for companies that exhibit an acceptable distribution policy has been repealed by the Finance Act 2009. Corporate venturing scheme (CVs) The change to the requirement in respect of the use of invested funds by an EIS company also applies to CVS investments. Accordingly, the money invested must be used by the CVS company in its qualifying trade within the two years following the share issue.

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ElECTRONIC FIlINg OF VAT RETuRNs Is TO bE MAdE COMPulsORy FROM 1 APRIl 2010 FOR All VAT REgIsTEREd busINEssEs wITh AN ANNuAl VAT EXClusIVE TuRNOVER OF £100,000 OR MORE ANd All NEwly VAT REgIsTEREd busINEssEs REgARdlEss OF ThEIR TuRNOVER.

duties of senior accounting officers Rules have been introduced that oblige the senior accounting officer of a large company or group of companies to: ¤ ensure that the company establishes and maintains tax accounting arrangements that enable its tax liabilities to be calculated accurately ¤ provide an annual certificate to HMRC to the effect that appropriate accounting arrangements were in existence together with an explanation, where necessary, of any inadequacies. A large company is defined as one with a turnover of more than £200m or a balance sheet total of more than £2bn. VAluE AddEd TAX (VAT) Electronic filing of VAT returns Electronic filing of VAT returns is to be made compulsory from 1 April 2010 for: ¤ all VAT registered businesses with an annual VAT exclusive turnover of £100,000 or more; and ¤ all newly VAT registered businesses regardless of their turnover. Partial exemption The recovery of non-directly attributable input tax by a partially exempt business is by reference to the vatable proportion of its turnover, subject to the de minimis limits. An annual adjustment is made in order to ensure that the total VAT recovered is in accordance with the figures for the year as a whole.

You need to be aware of two changes to partial exemption introduced by the Finance Act 2009. When calculating the amount of recoverable input tax for a quarter, the trader can now choose to use the percentage for the previous year rather than the partial exemption percentage for that particular quarter. The trader must use the same method for the whole of the year. The method used will not make any difference to the total amount of VAT recovered as the annual adjustment will ensure that the final amount recovered is in accordance with the figures for the whole year. However, a business may find it easier from an administration point of view to use the partial exemption percentage for the previous year as opposed to calculating the actual percentage for each quarter. The second change is that the trader can now choose to enter the annual adjustment on the return for the final period of the year rather than the first period following the end of the year. Place of supply of services Prior to 1 January 2010 the basic rule is that the place of supply of services is the place where the supplier has established his business. There are then various exceptions to this basic rule. For example, the place of supply of various professional services is the place where the customer belongs if the customer is outside the EU or is a business customer within the EU. Under these rules, a VAT registered customer in the UK was required to account for output tax on such services and then reclaim it as input tax in the normal way; this is known as the reverse charge procedure. On or after 1 January 2010 the basic rule is that the place of supply of services to a business is where the customer has established that business. Accordingly, where a business customer in the UK purchases services from overseas, it must use the reverse charge procedure just as it would have done for professional services under the old rules. The place of supply to non-business customers continues to be the place where the supplier has established his business.

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ThE RATEs ANd lIMITs OF sTAMP duTy ANd sTAMP duTy lANd TAX FOR 2009–10 ARE ThE sAME As ThOsE IN 2008–09. ThERE ARE NO EXAMINAblE ChANgEs TO ThEsE TAXEs IN REsPECT OF ThE EXAMs IN 2010.

The rules in force prior to 1 January 2010 will not be tested from the June 2010 sitting onwards such that candidates need only know the new rules. Time of supply of services to which the reverse charge applies The time of supply, or tax point, of a single supply to which the reverse charge procedure applies is the earlier of the time the service is completed and the time the service is paid for. Where supplies are continuous, the time of the supply will be the end of each billing or payment period. Where there are no billing or payment periods, the time of supply will be the earlier of 31 December each year and the date on which any payment is received. The flat rate scheme The flat rate scheme simplifies administration by enabling a trader to calculate the amount of VAT due to HMRC by reference to a percentage of VAT inclusive turnover rather than by calculating output tax less input tax. In order to join the scheme, the annual vatable turnover of the business (exclusive of VAT) must not exceed £150,000. The requirement for the total annual turnover of the business (exclusive of VAT) including exempt supplies to not exceed £187,500 has been removed by the Finance Act 2009. CAPITAl gAINs TAX gift relief Gift relief is available on the gift or sale for less than market value of certain categories of assets including agricultural property that would qualify for inheritance tax agricultural property relief. The definition of agricultural property for the purposes of inheritance tax has been extended to include property in the European Economic Area and not just property in the UK, Channel Islands and the Isle of Man. Accordingly, agricultural property situated in the European Economic Area now qualifies for gift relief.

INhERITANCE TAX The nil rate band The nil rate band for 2009–10 is £325,000 (2008–09 £312,000). Agricultural property relief Agricultural property relief is available in respect of the agricultural value of agricultural property and reduces the value transferred by either 50% or 100%. The definition of agricultural property has been extended to include property in the European Economic Area and not just property in the UK, Channel Islands and the Isle of Man. sTAMP duTy ANd sTAMP duTy lANd TAX The rates and limits for 2009–10 are the same as those in 2008–09. There are no examinable changes to these taxes in respect of the exams in 2010. FuRThER REAdINg The changes introduced by the Finance Act 2009 will be incorporated into the following articles published on the ACCA website: ¤ Corporation tax ¤ Corporation tax and groups – parts 1 and 2 ¤ Capital taxes ¤ International aspects ¤ Trusts and tax Rory Fish is examiner for Paper P6 (UK)

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ThIs APPENdIX OuTlINEs ThE EFFECTs OF ThE ChANgEs MAdE IN ThE FINANCE ACT 2009 ON CAT PAPER 9 (uk). ThE sub hEAdINgs REFER TO ThE hEAdINgs IN ThE MAIN ARTIClE ON PAPER F6 (uk), wRITTEN by dAVId hARROwVEN.

cat PaPer 9

This appendix outlines the effects of the changes made in the Finance Act 2009 on Paper 9 (UK). The sub headings refer to the headings in the main article on Paper F6 (UK), written by David Harrowven. INCOME TAX Rates of income tax The revised thresholds and the rates of tax shown will also be used in CAT Paper 9 (UK). The use of the 10% rate for savings income is examinable. Personal allowance Only the personal allowance for taxpayers under 65 is examinable in CAT paper 9 (UK) – information on the higher allowances and the restriction limit will not be given in the CAT Paper 9 rates and allowances sheet. Individual savings Accounts (IsAs) Detailed knowledge of these remain outside the syllabus but knowledge of income from ISAs being non-taxable is examinable. Company car and fuel benefits Calculation of the appropriate percentage for car benefits (including low emission and diesel cars) and its use in the final car benefit calculation is examinable – as is the car fuel benefit. Official rate of interest The revised rate of 4.75% will also be used in CAT Paper 9 (UK). Capital allowances The new rules for capital allowances for cars will be examinable with rates being given in the rates and allowances sheet. A car’s CO2 emission rate will always be given in the exam. Both the temporary re-introduction of FYA and the transitional rules for expensive cars will be required knowledge in CAT Paper 9 (UK).

Industrial buildings allowance (IbA) CAT Paper 9 (UK) will follow the same treatment for IBA as Paper F6 and therefore the writing-down allowance for both exams in 2010 will be 2%. leased motor cars These will be treated in the same way as Paper F6 with 15% of leasing costs being disallowed for cars with a CO2 emission rate in excess of 160g per kilometre.

ThE CONTENT OF TAX ARTIClEs dOEs NOT AMOuNT TO AdVICE ON A PARTICulAR MATTER ANd shOuld NOT bE TAkEN As suCh. NO RElIANCE shOuld bE PlACEd ON ThE CONTENT OF AN ARTIClE As ThE bAsIs OF ANy dECIsION. ThE AuThORs ANd ACCA EXPREssly dIsClAIM All lIAbIlITy TO ANy PERsON IN REsPECT OF ANy INdIRECT, INCIdENTAl, CONsEQuENTIAl OR OThER dAMAgEs RElATINg TO ThE usE OF TAX ARTIClEs PublIshEd IN sTudENT ACCOuNTANT MAgAzINE.

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ThE lOss RElIEF TRANsITIONAl RulE FOR lOssEs OCCuRRINg IN PERIOds ENdINg bETwEEN 24 NOVEMbER 2008 ANd 23 NOVEMbER 2010 wIll NOT bE EXAMINAblE. ThE EXAMINER wIll NOT sET QuEsTIONs INVOlVINg ThIs RulE – QuEsTIONs INVOlVINg CARRy FORwARd lOssEs ANd NORMAl TERMINAl lOss RulEs MAy bE sET.

loss relief The transitional rules of loss relief will not be examined – the examiner will not set any questions involving loss relief in either of the two exams in 2010. Pension schemes The new annual allowance and lifetime allowances will be given in the exam and knowledge of both the excess charge and the additional charge when pensions are taken is expected. CORPORATION TAX Rates of Corporation Tax The rates of tax and the upper and lower limits will be given in the rates and allowances sheet in the same way as Paper F6 and will remain examinable. loss relief The transitional rule for losses occurring in periods ending between 24 November 2008 and 23 November 2010 will not be examinable. The examiner will not set questions involving this rule – questions involving carry forward losses and normal terminal loss rules may be set. Overseas dividends. These remain outside of the CAT Paper 9 (UK) syllabus. CAPITAl gAINs TAX Individual exemption limit The new limit of £10,100 for 2009–10 will also be used in CAT Paper 9 (UK). RATE OF CAPITAl gAINs TAX Both the 18% rate and the effective rate of 10% for assets qualifying for Entrepreneurs’ relief will apply to CAT Paper 9 (UK).

NATIONAl INsuRANCE CONTRIbuTIONs (NIC) Class 1 and Class 1A NIC The new rates and thresholds will also be used in both 2010 exams for CAT Paper 9 (UK). Where NIC is required to be calculated on a weekly or monthly basis the new thresholds should be divided by 52 or 12 respectively. Class 2 and Class 4 NIC The same detail will be used in both exam sessions in 2010 in CAT Paper 9 (UK). VAluE AddEd TAX Registration and deregistration limits The new registration and deregistration limits will also be used in the CAT Paper 9 (UK) June and December 2010 exams. standard rate of VAT The same detail will be used in CAT Paper 9 (UK) as is illustrated for Paper F6. TAX MANAgEMENT All the detail included under this heading in the Paper F6 article is also examinable in the CAT Paper 9 (UK) exam. The calculation of interest however remains outside the syllabus. Keith Molson is examiner for CAT Paper 9 (UK) TAX ARTIClEs The content of tax articles does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of an article as the basis of any decision. The authors and ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of tax articles published in Student Accountant magazine.

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