ATX Revision Notes: Income Tax

ATX Revision Notes
Income tax
Income tax
The information below is provided in the exam:
• Example of a higher rate payer
For the tax year 2018/19, Jina has a salary of £48,850 and savings income of £1,800
(Gross).
Income tax on:
Non savings income 

Employment income £48,850 
Personal allowance (£11,850) 
Taxable income £37,000
£34,500 at 20% = £6,900 

£2,50 (£37,000 - £34,500) at 40% = £1,000
Savings income 
Savings income £1,800 
£500 at 0% 
£1,300 (£1,800 – £500) at 40% = £520 
 
Tax liability (6,900 + 1,000 + 520) = £8,420
Note if she was a basic rate taxpayer, then the savings nil rate band would have been
£1,000 and if she was a additional rate taxpayer, then there would be no nil rate band
available.
Dividend income
This includes dividends received from UK companies.
The first £2,000 of dividend income benefits from a 0% rate.
This £2,000 nil rate band is available to all taxpayers, (the basic, higher or additional rate).
• Example of dividend nil rate band
Mia has a salary of £56,850 and dividend income of £3,800.
Income tax on:
Non savings income 

Employment income £56,850 
Personal allowance (£11,850) 
Taxable income £45,000
34,500 at 20% = £6,900 

10,500 (45,000 – 34,500) at 40% = £4,200
Dividend income 
Dividend income £3,800 
2,000 at 0% =£Nil 
1,800 (3,800 – 2,000) at 32.5% = £585 
 
Tax liability (6,900 + 4,200 + 585) = £11,685
Personal allowance
The personal allowance is reduced to Nil if the adjusted net income is £123,700. (£123,700-
£100,000)/2 = £11,850.
Transferable Personal Allowance
20% * (£1,190) = £238 is the maximum tax credit that can be given to the spouse who
is paying tax.
Qualifying loans
REMEMBER:
Interest Payable on the Loans below is deducted from Total Income.
1. Loan to purchase plant and machinery (P&M) which is acquired for the use in the
employment of the taxpayer
Illustration:
A loan taken out to Purchase a computer to use for employment
2. Loan to purchase P&M for the use in the business of a partnership, in which the
taxpayer is a partner.
Illustration:
A partner would have taken out a personal loan to purchase a computer for use in the
partnership, here interest payable would be deducted from Total income for 3 tax
years only
3. Loan to purchase an interest in a partnership.
Illustration:
Partner A puts in £20,000 into the partnership bank account to fund the business.
If he has borrowed this £20,000 from a bank at 7% p.a., then he can deduct the £1,400
payable from his total income.
4. Loan to buy shares in a close company
This is allowable as long as the taxpayer owns at least 5% of the ordinary share capital
or works for the greater part of his time in the management of the company.
TX Revision Notes
Income tax from
Employment Income
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Income tax from Employment Income
Total employment income calculation:
Salary x
Commission or Bonus x
Benefits (See below) x

Less allowable deductions ( See below) (x)
= Total employment income x

Less PA (£11,850)
Taxable Income x
Income tax (20%/40%/45%) x
Allowable deductions:
1. Contributions to an occupational pension scheme.
Note that Payments to a personal pension scheme are NOT allowable deductions.
2. Travel, subsistence and entertaining incurred wholly, exclusively and necessarily in the
performance of duties of employment
3. Subscription to a professional body (e.g.) ACCA
Note that payments for gym memberships are NOT allowable deductions.
4. Deficit on a mileage allowance  
5. Donations to charity
Note that Donations to political parties are NOT allowable deductions.
6. Capital allowances are available for plant and machinery provided by an employee for
use in his duties
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Benefits
Employees pay Income Tax (I.T) (Taxable Benefit x I.T rates 20%/40%/45%) , NO NIC
Employers pay NIC Class 1A (13.8%)
Examples of the benefits:
• Use benefit
• Gift benefit
• Living accommodation benefit
• Motor cars benefit
• Beneficial Loan Benefit
Benefits are Time Apportioned - If a benefit is available for only few months in the tax
year e.g. 8 months, so pay the I.T. on it for only e.g. 8 months (Benefit x I.T rate x 8/12
months)
Mileage allowance
This arises when an employee uses their own car on employer’s business.
• Anything below the allowance will be deductible
• You have to pay I.T and NIC Class 1 (Employee + Employer) on Anything above the
allowance
• This is because, this is cash received by the employee, not a benefit.  
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Use benefit
If an employer lends an asset (e.g. a Computer, Motorcycle, Furniture) to an employee,

and the employee uses this asset privately.
Proforma
Assessable benefit: 20% * market value * x/12 X

Less: Rent paid to employer to use asset (X)
Use benefit X
Gift benefit
After an employer has given the employee an asset to use privately, the employer may
then decide to give this asset to the employee as a gift.
The employee will need to pay income tax (I.T.) on the money value of gift benefit.
The money value will be the higher of 2 figures:
Figure 1:
For example, if the computer cost the employee £750 2 years ago when he purchased it,
and the use benefit that the employee paid income tax on for each year was £150, then the
gift benefit will be:
Original market value £750
Year 1 (£150)
Year 2 (£150)
Gift benefit £450
Figure 2:
For example, after 2 years, if the computer had a market value of £500, the benefit would
be:
Market value at date of gift £500
Gift benefit £500 I.T. will be paid on this figure.
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Living accommodation benefit
If an employer provides an employee with a home to live in, without the home being
necessary for the employee to do his or her job, the employee will have to pay income tax
on a living accommodation benefit.
• If the employer owns the home, then the home’s Annual Value will be used.
• If the employer is renting the home, then the higher of the Annual Value and Rent Paid
by the employer will be used.
• The amount paid by the employee to the employer will be deducted to give the living
accommodation benefit.
Annual value x I.T. rate (20%/40%/45%) = I.T. on the Living accommodation benefit
Rent Paid x I.T. rate (20%/40%/45%) = I.T. on the Living accommodation benefit
Additional benefit
There is an additional benefit that can arise if the employer owns the home and it cost the
employer more than £75,000 when he purchased it.
The Additional benefit is ADDED to the Living accommodation benefit (above).
How to calculate the money value of the additional benefit?
Did the employer buy the home more than 6 years before he gave it to the employee to
use?
1. No 
(Cost - £75,000) * Official rate of interest (2.5% for 18/19) = Additional benefit
Note 
The Cost will include the actual cost of the home plus any amount spent on extending/
enhancing the home.
2. Yes
(Market value - £75,000) * Official rate of interest = Additional benefit
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Motor cars
If an employer gives an employee a motor car to use for business and private purposes
• (List price - capital contribution) * % = Car benefit
• The list price can be reduced by a maximum of £5,000 - even if the employee has contributed
more than this, it will only be reduced by £5,000.
• Deduct the employee’s Contribution towards the running costs from the benefit
• If there is no private use of the car there is no taxable benefit
> 95g/km Add an additional 1% for every complete 5g/km above 95 g/km
Maximum percentage 37%
The percentage rates are increased by 4% for diesel cars.
Illustration:
Lina was provided with a diesel powered company car. The CO2 emissions are 122g/km.
The motor car was only available for 8 months of 2018/19.
The CO2 emissions are above 95g/km, so the relevant percentage is 29% (20% + 4%(diesel car) +
5% (1% for every complete 5g/km above 95g/km ie 120-95 = 25 / 5 = 5%).
The CO2 emissions figure of 122 is rounded down to 120 so that it is divisible by five.
The motor car was only available for 8 months, so the benefit is £2,610 (13,500 × 29% × 8/12).
Fuel provided for private use
Multiply £23,400 by the percentage used for calculating the car benefit.
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Beneficial Loan Benefit
This benefit arises when an employer gives an employee a loan at an interest rate that is
cheaper than the official interest rate (2.5% for 18/19).
Carefully note – if the loan is £10,000 or less, no beneficial loan benefit will arise at all.
If the loan is above £10,000 – then the full benefit will arise
Money value of the loan benefit X
Less: Interest actually paid by employee (X)
Beneficial loan benefit X
Exempt Benefits
• Employees pay NO I.T and NO NIC
• Employers pay NO NIC
Examples:
• One mobile telephone
• Parking space at or near an employee’s work
• Spent time overseas on business - Payments for private incidental expenses (e.g.
telephone calls) are exempt up to £10 per night when spent outside the UK
• Note that the equivalent UK allowance is only £5 per night
• The use of a company gym
• The provision of meals in a staff canteen
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• Payments for home working are exempt up to £4 per week
• The provision of a place in a workplace nursery
• A non-cash long-service award (e.g. a watch) - if it is for a period of service of at least

20 years, and the cost of the award does not exceed £50 per year of service
• The payment of medical costs of up to £500 - e.g. an employee had been away from
work for 2 months due to an injury, and the recommended medical treatment was to
assist her return to work
• Relocation cost of moving house - £8,000 is exempt
Taxable Benefits
• Employees pay I.T. (Taxable Benefit x I.T rates 20%/40%/45%) and NO NIC
• Employers pay Class 1A NIC
Examples:
• Use of the second mobile telephone
• If a company provides an employee with a leased motorcycle for travelling from home
to work
Cash Reimbursement
• Employees pay I.T. (Cash Received x I.T rates 20%/40%/45%) and Class 1 Employee
NIC
• Employers pay Class 1 Employer NIC
Examples:
• If a Company reimburse an employee for the cost of driving his own car for business
purposes
• The Cash compensation in respect of sale of the house in short notice at low price
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ATX Revision Notes

National insurance
contributions (NICs)
National insurance contributions (NICs)
Bonus or Dividends or Benefits?

Employees:
Bonus - pay I.T. and NIC Class 1 Employee
Dividends - pay I.T. and NO NIC
Benefits - pay I.T, NO NCI
Employers:
Bonus - Class 1 Employer
Dividends - Nothing
Benefits - pay NIC Class 1A
ATX Revision Notes

Property Income
Income tax on property business profits
You pay Income tax on:
1. Rent received/receivable (when you let something out - Rental income)
2. Premium received on the grant of a short lease
2 ways to calculate Property business profits:
1. Cash basis (if Property income < £150,000)
All cash received/paid in the tax year
1. Accrual basis (if Property income > £150,000)
All income + expense relating to the tax year (doesn’t matter whether the cash was received
/paid or not in this tax year)
Proforma:
Rent received/receivable in the tax year x
Plus: Income element of a short lease (See below) x
Less: Allowable expenses (x)
Property business profit/loss x/(x)
Allowable expenses:
To be allowable, an expense must have been incurred wholly and exclusively in connection
with the business, for example:
1. Insurance
2. Agent’s fees
3. Other management expenses
e.g. cleaning expenses
4. Repairs - however capital expenditure to improve the property are not allowed.
e.g. Building a garage is not allowable
5. Decorating
6. Impairment losses
e.g. A tenant left owing 1 month’s rent which you were unable to recover.
7. Advertising costs
8. Cost of replacing windows, doors and boilers
9. Interest on a loan to purchase a non-non-residential property
10. Finance cost to purchase/repair a residential property (50% restriction)
11. AMAP - If a car is used and motor expenses are incurred because of the property, then
if the cash basis is used, the motor expenses are not allowable, the AMAP will be used.
Property finance cost restriction

For loans taken to purchase or repair residential properties, there is a finance cost
restriction.
1. Deduct (50%*finance cost) as an allowable expense
2. Get a tax credit of (50% x 20% x finance cost) - this is deducted from Tax liability
This table is provided in the exam:
Premiums granted for short leases (less than 50 years)
Landlords pay tax on the Income Element:
• Capital element:
Premium received * ((number of years of lease - 1) * 2%)
• Income element:
Income Element = Premium received - Capital element
Tenants (Traders) can deduct:
• Trading profit deduction
Income element (calculated above) / number of years of lease
• Rent paid
Rent a room relief

- is available if you let furnished rooms out in your main residence
The relief must be claimed 22 months after the end of the tax year
Choose the lower one of:
Method 1:
Gross rent x
Less: Rent a room relief (£7,500)
Property income x
Method 2:
Gross rent x
Less: Allowable expenses (x)
Property income x
Furnished holiday lettings (FHL)

1. The accommodation must be available for letting for at least 210 days in the tax year.
2. The accommodation must actually be let for 105 days in the tax year.
3. The accommodation must be let on a commercial basis.
4. There must be no more than 155 days of longer term occupation in the tax year.
5. Longer term occupation occurs where there is a continuous period of occupation by the
same person for more than 31 days.
Relief for property losses

Relief is only given against future Property Income
FHL Loss can be used against FHL Profit only
You can’t mix FHL with UFHL Profit or loss
Property business losses cannot be carried back to previous accounting periods.
ISA
This information is given in the exam:
Example:
Peter received dividends of £3,000, of which £500 were from shares (ISA).
What amount of dividends will tax be paid on?
£3,000 - £500 = £2,500 Dividend income
However, there is a NRB available for a Dividend income of £2,000, so No I.T. will be paid.
ATX Revision Notes

Residency & Domicile
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UK Residency
Ties
1. Close family in the UK (Wife, child).
2. House in UK which is used during the tax year. (at least 1 night during the tax year)
3. In the UK for more time than any other country.
4. In UK for more than 90 days in either of the previous 2 tax years.
5. Doing substantive work in the UK. (40 days or more)
UK Residency and Domicile
• If an individual is UK resident and UK domiciled, he is subject to UK income tax on his

worldwide income.
• If an individual is not UK resident, then he is only subject to UK income tax on his UK

income.
• If an individual is UK resident but not UK domiciled, he is subject to UK income tax on

his worldwide income BUT there are 2 options: Remittance or Arising basis
Arising basis
• The whole Overseas income will be taxed in the UK
• Personal Allowance (PA) will be deducted
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Remittance basis
• Only Income remitted back (sent back) to the UK will be taxed
• NO PA will be deducted
• Pay the Remittance Basis Charge (RBC)
RBC
£0 if UK resident for <7 of previous 9 tax years
£30,000 if UK resident for >=7 of previous 9 tax years
If unremitted overseas income (Income that stays abroad) is <=£2,000 - the remittance
basis will apply automatically, there will be no RBC
If unremitted overseas income >£2,000 - there are two options - Remittance or Arising
basis (Explained above)
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ATX Revision Notes

Pensions
Pensions
Exam STYLE
1) Check how much you are allowed to contribute to Pension Scheme
You can contribute the amount which is within Relevant Earnings:
Relevant Earnings are the greater of
• £3,600
and
100% of:
• Trading income (e.g. profits from a business)
• Employment income (e.g. salary)
• Income from furnished holiday lettings (e.g.) rental income from a FHLA (Remember
NOT Unfurnished properties)
2) Check how much your Annual Net Income is
• if ANI (Annual Net Income) is more than £150,000
For example if the taxpayer has ANI of £160,000 - then he will be entitled to (£160,000
- £150,000 = £10,000/2 = £5,000, A.A. £40,000 - £5,000 = £35,000 - annual allowance
available.
Therefore, a person with ANI of £210,000 or more, will only be entitled to an annual
allowance of £10,000
A.N.I. = Total income - gross personal pension contributions - gross gift aid
donations
3) Check how much Annual allowances are available (in the last 3 years)
3) Is there any Annual Allowance Charge?
If you want to contribute more than Annual Allowances are available, then you will have to
pay I.T on the difference.
Eg. You want to contribute £80,000 and your Annual Allowance is £50,000, you will have to
pay I.T on £30,000
4) Extend your bands
Remember that you can Extend your bands by the contribution (£80,000) - so £34,500 +
£80,000 = £114,500 band will be taxed by 20%
ATX Revision Notes

Stamp Taxes  
Stamp Taxes
Stamp Duty
Stamp duty is charged on the transfer of shares and securities.
It only applies to transfers made using a stock transfer form (i.e. paper transactions).
Stamp duty is paid by the purchaser at the rate of 0.5% of the consideration.
The duty is rounded up to the nearest £5.
Stamp Duty Land Tax
SDLT is payable by purchaser on transactions of UK property.
The value on which SDLT is charged includes any VAT payable on the transaction.
SDLT is payable with the return which should be submitted within 30 days of completion
date (date when contract become legally enforceable).
Exemptions
1) Gifts
If the transfer is a gift, there is no consideration and hence no stamp duty is payable.
2) Transfers within groups:
Transfers of assets between 75% group companies are exempt
However, stamp duty becomes payable if the transferee company does leave the group
within 3 years of the transfer whilst still holding the asset.
3) Miscellaneous: The following transfers are also exempt from stamp duty:
– Assets transferred as part of divorce arrangements
– Property passing to a beneficiary under a will or intestacy
– Variation of a will within two years of the date of death
– Reorganisation and takeover
– Unit trust and Changes in trustees.
– Government stock
– Securities traded on AIM (Alternative Investment Market)
– Most company loan notes except convertible loan notes
ATX Revision Notes

Income from Self-
employment
Assessable profits on commencement
Step 1: The first tax year (TY1)
From the date the trade starts to the next 5 April.
Step 2: The second tax year (TY2)
Does the accounting date fall in Tax Y2?
• YES
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How long is this accounting period?
o < 12 months long
Calculate profits for the first 12 months (Start date + 12 months)
o ≥ 12 months long
Calculate profits for the 12 months until the Y/E in Y2 (Y/E date - 12 months)
• NO
o Assess the actual profits in tax year 2
i.e 6 April to 5 April
Step 3: The third tax year (TY3)
• Use a current 12 months accounting period
Opening years’ relief

If a loss is made within the first 4 tax years of trading, then the loss can be relieved against
total income of the individual for the previous 36 months on a FIFO basis.
Assessable profits on cessation

Calculate a Balancing Charge or a Balancing Allowance
The Balancing charge is ADDED to the Profit
The Balancing Allowance is DEDUCTED
e.g. TWDV = 0 TWDV = 100
Market price is £100 Market price is £50
Balancing charge = £100 Balancing allowance =100 - 50 = £50
Step by step:
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1) Calculate the profit:
Profit + Balancing charge (or - Balancing allowance) - Overlap profit
2) Deduct the PA 11,850
3) Calculate the Income tax - Check whether you should use 20% or 40% income tax
rates
4) Calculate the NIC - sole trader Class 4 + 2 (watch out how many months you use for the
calculation)
Trading Loss on cessation

You get the relief on the Terminal Loss (NOT the Trading Loss = Final loss in the final
period + Overlap profit)
Terminal loss = the final 12 months of trading
06/04 – date of cessation x
12 months before date of cessation - 05/04 before date of cessation (If this is a profit,
x
ignore it.)
Plus: any overlap profits x
Terminal loss that relief can be claimed for x
Example: Terminal loss (e.g. date of cessation is 30/9/2018)
06/04/2018 – 30/09/2018 x
1/10/2017 - 05/04/2018 (take only the Loss, ignore any Profit) x
Plus: any overlap profits x
Terminal loss that relief can be claimed for x
Terminal Loss can be offset against your Current Trading profit and the 3 previous tax
years on a LIFO basis.
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Trading Loss relief
Trading losses can be:
1. Used against Current year total income PLUS Capital gains
2. Carried back 12 months and used against Total income PLUS Capital gains
3. Carried forward against Trading income of future years
Note:
• You can choose whether you will use the Trading loss against your Total income
• But if you do so, you have to use the loss in FULL. So therefore, you might waste your
PA (£11,850)
• After you use Total Income of the year, then you can go to the Capital Gain of the year
(But you don’t need to) - if the Net Capital gain is less than £11,700 (annual exemption)
then don’t use the loss against your Capital gain to save the Annual exemption
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Other Income restriction
Other income (is any other income than a Trading income) such as:
• Property income
• Interest income
• Employment income
Example:
Trading Loss of £100,000
Employment Income £60,000
How much of the loss can you reveal against the Employment income?
It is the Higher of £50,000 or 25% of income:
25% x £60,000 = £15,000 < £50,000
Therefore, use £50,000 of the Employment income and deduct it from the Loss £100,000
Opening years’ relief

If a loss is made within the first 4 tax years of trading, then the loss can be relieved against
total income of the individual for the previous 36 months on a FIFO basis.
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Capital allowances
Special Rate Pool

1. Integral features of a building
For example, electrical, thermal, cooling systems.
2. Long life assets
- assets, when new, with an expected economic working life of 25 years or more when
total expenditure based on a 12-month accounting period exceeds £100,000
Annual investment allowance (AIA)

The annual investment allowance for the tax year is £200,000.
This is given to an individual for a 12 month period and is time apportioned if the period is
below 12 months. (in the exam … CA x X/12, where X is a number of months)
The A.I.A cannot be given to motor cars purchased in the tax year.
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First year allowances (FYA)

These are given for motor cars which have a CO2 emission of less than or equal to 50g
per km.
This is a 100% allowance on the cost of the car and it is given in the period of acquisition.
The F.Y.A. is not time apportioned.
Capital allowances for motor cars
• If a CO2 emission < = 50g/km, then the FYA is given
• For cars with a CO2 emission of between 51 - 110, an 18% W.D.A. (main pool assets).
• For cars with a CO2 emission of > 110g, an 8% W.D.A. (special rate pool assets).
Assets with private use
A company
Companies do not have assets used privately.
Therefore, the capital allowances given are not reduced by the % of private usage by an
employee of a company.
A Sole trader
If an asset is used privately by the owner of the business, the capital allowance given must
be reduced by the % of private usage.
If an asset is used privately by an employee of the business, the capital allowance given is
not reduced by the % of private usage.
Final year of trading

- In the final year of trading, the A.I.A., W.D.A., F.Y.A. are not given.
Instead, balancing allowances and balancing charges are computed on each pool.
Short life assets

- are main pool assets that have an expected life of 8 years or less.
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Disposal of the assets
Use LOWER OF
1. Proceeds
2. Original cost
When an item of P&M is sold - the lower of the sale proceeds received or the original cost
of the asset is deducted from the written down value of the relevant pool.
Example
Written down value = 100
Sale proceeds received = 120
Original cost of the asset = 80
Then 80 will be deducted from the pool to give a balancing allowance of 20.
Partnerships and limited liability partnerships
Profit to be shared = Tax adjusted profit - Capital Allowances (only business use %) -
Salary - Interest on capital
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ATX Revision Notes

Taxable Total Profits 
R&D Expenditure For SME
Research and development expenditure is 100% deductible from trading profits, if the
expenditure relates to the trade.
There is enhanced relief for this expenditure if the company is small or medium.
Enhanced Relief:
If any expenses qualify for “enhanced relief” then an extra 130% of these expenses will be
allowed to be deducted from trading profits.
Expenses which will qualify for enhanced relief are as follow:
a) All direct costs; material, fuel, power, water & staff cost including employee NIC of that
staff (but excluding cost of benefits in kind)
b) Software either purchased or developed to be used for R&D only
c) 65% of the payment made to subcontractors if any (i.e. 130% of 65%)
R&D Expenditure - Large Companies

Where a large company incurs qualifying expenditure on R&D, it can claim a tax credit equal
to 12% of the R&D expenditure.
This has two effects:
a) 12% of R&D expenditure is included as taxable income and taxed at 19% (the C.T. rate).
b) 12% of R&D expenditure is deducted from corporation tax liability.
Enhanced Capital Allowance

Expenditure by businesses on environmentally friendly P&M qualifies for enhanced capital
allowances (ECA) of 100%.
These allowances are given in full if an accounting period is shorter than 12 months, they
are not pro-rated.
This is very similar to the F.Y.A. for low emission cars.
What Is A Non Trading Deficit?

If interest payable on a non trading loan is more than the interest receivable on non trading
loans then a non trading deficit will be created.
This can be used to reduce:
1) Total profits of the current chargeable accounting period
2) Interest income of the previous 12 months
3) Future non trading income (overseas or property income, capital gains, interest income).
Intangible Fixed Assets

An intangible fixed asset is an asset that cannot be touched.
Normally, amortisation is an allowable expense for the intangible fixed asset from trading
profits, however as the IFAs normally have very long lives, there is an alternative treatment
available.
Alternative treatment
1) Elect to not apply the normal accounting deduction of amortisation.
2) Deduct 4% p.a. on a straight line basis.
The election for the alternative choice of treatment is irrevocable and should be made
within 2 years from year of acquisition of asset.
On disposal of an intangible fixed asset, a company will calculate a profit of loss on the
sale.
This will be the sale proceeds less the net book value (purchase price – amortisation until
date). A profit will increase taxable total profits and a loss will decrease taxable total profits.
Transfer Pricing
Transfer pricing legislation is applicable upon transactions between connected companies.
Companies are connected if:
– One company directly or indirectly participates in the management, control or capital

of the other company, or
– A third party directly or indirectly participates in the management, control or capital of

both companies.
If transfer pricing rules apply then the transaction between related parties are
recorded at an arm’s length price.
Transfer pricing rules:
1) If a large company transacts with any other company, then the transfer pricing rules
apply.
2) If a small/medium company transacts with an overseas company resident in non-

qualifying territory (a company which is not in the UK and has no DTR agreement with the
UK), then the transfer pricing rule apply.
3) If a small/medium company transacts with a UK small/medium company or an overseas

company resident in qualifying territory, then the transfer pricing rules do not apply.
ATX Revision Notes

The Scope Of CT 
Close Companies
= It is a company controlled (> 50%) by 5 or less than 5 shareholders.
- UK resident
Example:
An individual owns 100% of the ordinary capital of A Ltd.
Benefits (e.g. a laptop) provided to a person who is:
1) a Shareholder and also an Employee of a Close company:
The individual
- You have to Calculate the Taxable benefit and then
- pay the I.T (20%/40%/45% rates) on the Taxable benefit
The company - pays the value of the benefit and the Class 1A NIC (will be deductible
expenses from trading profits)
2) a Shareholder ONLY (you are NOT an employee) of a Close company:
The individual
- the benefit will be treated as a dividend income
- So, you have to pay I.T. (7.5%/32.5%/38.1% rates) and NO NIC!
The company - it will be assumed that they have paid a Dividend Income equal to the
value of the benefit, and this is NOT a deductible expense from trading profits.
An Illustration:
Option 1: A company will buy a new computer (£1,000) and give it to the shareholder.
Solution:
It will cost the Company £1,000. There is no NIC or CA.
Option 2: A company will gift an existing computer (MV £100) to the shareholder and buy a
replacement one (£1,000) for use in the company. The TWDV is NIL.
Solution:
It will cost the Company £,1000.
BUT They will get CA and AIA 100% on the new computer.
So, the corporation tax relief is £1,000 x 19% = £190
There will be a balancing charge TWDV 0 - MV £100 = £100
and the company has to pay the CT on it.
So £100 x 19% = £19
CT Savings:
£1,000 Cost of the new computer + Tax on BC £19 - Saving on AIA £190 = £829
So the Option 2 is cheaper : £829 < £1,000
Loan from a close company to a Shareholder + Employee
- Calculate the Taxable benefit (Value of the loan x 2.5% official rate)
- The company pays Class 1A NIC (Taxable benefit (loan) x 13.8% NIC Class 1A)
- The company has to pay a Penalty @ 32.5% on the amount of loan (Value of the loan)
- Due date to pay the penalty is 9 months & 1 day or quarterly basis
Penalty can be avoided if (all of these must be satisfied):
a) Amount of loan is ≤ £15,000.
b) Individual is full time employee of the company.
c) Individual owns ≤5% shares in the company.
d) The loan is repaid within 9 months & 1 day
But once the penalty is paid, it cannot be repaid.
Loan from a close company to a shareholder ONLY
It is treated as a Dividend Income
The Penalty is also payable here
BUT The Penalty is repaid when loan is repaid/written off.
Accounting periods on winding up
Date of commencement of winding up = the day when a liquidator is appointed
Date of Completion of winding up = the day when the winding up is finished
You have to prepare 2 Corporation tax computations (CTC) for:
1) Normal accounting period (AP) - End of AP - Date of commencement of winding up
2) Final CTC - Date of commencement of winding up - Date of Completion
Example:
Y/E 30/6
A liquidator was appointed on 1/1/2019
The winding up was finished on 31/3/2019
Solution:
AP: 30/6/2018 - 31/12/2018
Final CTC: 1/1/2019 - 31/3/2019
Distributions On Winding Up
If a shareholder receives payments from winding up:
A. Before appointment of liquidator
- it is treated as a Dividend Received
- e.g. the distribution of the available profit
- he has to pay the income tax on it
B. After appointment of liquidator
- it is treated as a Capital receipt
- he has to pay the CGT on the gain
If a company receives payments from winding up:
- it is treated as a Dividend Received
- there is no CT on Dividends Received by a Company
Example:
A Ltd. is owned by Peter (30% and B Ltd. (70%). Y/E 30/6
A liquidator was appointed on 1/1/2019
The winding up was finished on 31/3/2019
A Ltd. will distribute the available profits to its shareholders (= a Dividend Received) on
31/12/2018 or on 31/3/2019
Peter is eligible for E.R., he is an additional rate taxpayer.
Required:
What are the Tax implication if the distribution is made on 31/12/2018 or on 31/3/2019?
B Ltd. - there is no CT on the Dividend Received by a Company
Peter - if it is on 31/12/2018 - the Dividend Received will be taxed @ 38.1% (I.T)
- if it is on 31/3/2019 - the Dividend Received will be taxed @ 10% (CGT - E.R)
Company Purchasing Its Own Shares

If a company purchases its own shares, the amount of money received by the shareholder
may be treated as:
• Dividend income - pay I.T.
• Capital income - pay CGT
To be treated as Capital Income, all of the conditions must be satisfied:
a) Company must be an unquoted trading company and the buy back of shares by the
company must be for the benefit of their trade.
b) Shares must have been owned for at least 5 years by the individual.
c) The shareholder must be UK Resident.
d) Either all of the shareholding of individual must be bought back or at least 75% of his/
her shareholding must be bought back.
e) After buy back individual must NOT be able to exercise more than 30% control of the
company.
Calculation of capital receipt:
Disposal proceeds - purchase price = capital gain/capital loss.
If any of the above conditions are not satisfied, then the receipt will be treated as a
Dividend income.
Calculation of dividend income:
No. Shares x (MV - Initial Share price) = Dividend income
- Check how much Employment income do you have, so that you know which tax rate you
should use for the Dividend Income (7.5%/32.5%/38.1%)
- Don’t forget to use the Dividend NRB £2,000
- Check whether there are any Dividends received from another company
- So, if the Dividend Income is £9,000, then the I.T. is £9,000 - £2,000 NRB = £7,000 x 7.5%
= £525
Double Tax Relief

If a UK Resident company owns another company that operates from a permanent
establishment overseas, an election can be made the exempt the overseas profits from
UK corporation tax (CT).
If this exemption is not made, then profits of the company overseas will be taxed in the UK
as well as the other country.
This means that the profits are being taxed twice and there is double tax relief for this.
Calculation of DTR:
DTR is lower of:
(i) Overseas tax on overseas income.
(ii) UK corporation tax on overseas income.
Controlled Foreign Companies

= an overseas resident company
Conditions:
a) must be controlled by UK resident companies and/or individuals, and
b) has been incorporated or acquired to artificially divert profits from the UK (this can
happen if the overseas country has low rates of tax, therefore profits will be created in the
overseas company and taxed at a lower rate)
CFC Charge:
- UK resident company who owns at least 25% of foreign company has to pay a CFC
charge (additional corporation tax) to HMRC.
Calculation of the CFC Charge:
Remember: Do NOT include Chargeable Gains in the Chargeable Profits below
[% of ownership the UK company x Chargeable profits (Trading profit) of the CFC x C.T.
Rate] – Foreign tax paid in the Foreign Country
- The CFC charge will be added to CT liability
When can the CFC charge be avoided?
1) If the foreign company did not have any chargeable profits (income profits but not
chargeable gains, which have been artificially diverted out of the UK), or
2) If the foreign company satisfies ONE of the exceptions listed below applies.
Exceptions:
1) Low profits exception
- the foreign company’s Trading profits do NOT exceed £500,000 and its non-trading
income (Chargeable gains) does not exceed £50,000.
2) Low profit margin exception
- if the foreign company’s accounting profits are less than 10% of its allowable expenditure
3) Excluded territory exception
- if the foreign company is resident in a country which is specifically listed as an excluded

territory.
4) Tax rate is sufficiently high exception
- if the foreign company pays corporation tax overseas which is at least 75% of the amount
of tax that would have been paid if the company had been UK resident.
5) Exempt period exception
- There is an initial 12 month exemption from the CFC rules. This exemption will initially
apply but will not apply in the future.
ATX Revision Notes

Consortium & De-grouping charge 
Consortium
Conditions:
- 2 or more companies (UK or overseas)
- they mutually own ≥75% shareholding in another company
- each company owns 5% - 74% of the company
REMEMBER:
A Company can NOT own more than 75% of another company because then it would
make a 75% Loss Group
A consortium company (CC) and consortium member (CM) can transfer losses to each
other
Losses cannot be transferred between consortium members.
CM A — 60% — CC X and CM B — 20% — CC X
CM A can transfer the loss to CC X (back and forth)
AND
CM B can transfer the loss to CC X (back and forth)
BUT
CM A can NOT transfer the loss to CM B
Amount of loss that can be surrendered

LOWER OF:
% of ownership x CC’s Profit/Loss
or
CM’s Profit/Loss
Remember that loss relief must be for Co-terminous periods (The same period), so if the
two companies have separate accounting periods, the loss needs to be apportioned.
An overseas company can become part of a consortium arrangement but it cannot take
advantage of the reliefs.
De-grouping charge
The De-Grouping Charge arises:
If a member of a 75% Gains Group leaves the group (sell the company) within 6 years of
an asset being transferred @ No Gain / NO Loss
It is calculated as:
M.V at date of original intra-group transfer
Less: original cost plus indexation allowance
= De-grouping Charge
De-grouping charge is added to the Sale Proceed (When you sell the company)
Then Deduct the Cost
and Pay CT on it:
(Sale Proceeds + De-grouping charge - Cost - Indexation Allowance) x 19%
SSE will apply here, if you sell the company and owned it for at least 12 months
SSE = “If a Trading company sells its shareholding to another Trading Company, then NO
Capital Gain will arise”
So The De-grouping charge will be exempt if the substantial shareholding exemption (SSE)
applies.
SDLT
SDLT is exempt on transfer between 75% gain group companies
BUT the exemption will be withdrawn if recipient company leaves the group within 3 years
from date of intra-group transfer.
ATX Revision Notes

75% Loss/Gains Group & SSE 
75% loss group
A Ltd. —75%— B Ltd.
A Ltd. —95%— B Ltd. —80%— C Ltd.
A Ltd. (Parent) must have 75% effective interest in C Ltd. (Subsidiary) … in this case 95% x
80% = A.Ltd has 76% effective interest in C Ltd.
The effect of 75% loss groups:

- UK members of a 75% group can surrender losses to other UK members
- We want to make a Large company Small, so we give our losses to a company with
large profits
- The large company pays Corporation Tax (CT) in 4 instalments during the year, whereas
the small company pays CT just once a year (9 months + 1 day after Chargeable
Accounting Period (CAP))
- trading losses - you don’t need to deduct the losses from your Income before you give it
your Group member to deduct
- property losses and qualifying charitable donation - you have to deduct them from
your own income and then you can give them to your Group members.
- You can surrender trading losses/property losses carried forward - but you must use them
against your own income first and the member company taking the losses must deduct
their own brought forward losses first.
Surrendering for Co-terminus periods:
- You have to use exactly the same number of months when you want to surrender your
losses
- If you want to give your losses to another Group member: Compare your losses with
the profits of another group member for the exactly the same period and choose the
LOWER one
Example:
A Ltd. Loss (£400,000) Y/E 31/3/2018
B Ltd. Profit £800,000. Joined the group on 1/1/2018
Step by step Exam approach:

1. Make a Large Company Small
• We want to make a Large company Small, so we give our losses to a company with big
profits
2. Calculate the Threshold for A Large Company:
• £1,500,000 / number of members of the Group company
• £1,500,000 / 2 = £750,000
3. Check for the Co-Terminus Period
• the period must be the same
• so, if a member of the group joined the group during the tax year, then you have to take
only those relevant months
• the Y/E is @31/3/2018 and B Ltd. Joined the group on 1/1/2018, so there are only 3
months the same
4. Reveal the losses against the profits
• compare the amount of profit and loss and choose the lower one and then release that
amount
• Loss: £400,000 x 3/12 months = £100,000 < Profit: £800,000 x 3/12 = £200,000
• So, take £100,000 of the loss and reveal it against the B Ltd.’s profit
• £800,000 - £100,000 = £700,000, here we managed to make the Large company Small,
because the Profit of each company is less than £750,000
Example - Surrendering carried forward trading loss
A Ltd results for 31/3/19 - Total income £100,000
c/f Trading loss (£150,000)
B Ltd results for 31/3/19 - Total income £200,000
b/f Trading loss (£10,000)
Solution:
A Ltd must use it’s own income entirely first, bringing it’s income to Nil (£100,000 -
£100,000) and then surrender the remaining £50,000 of carried forward loss to B Ltd.
B Ltd must deduct it’s own brought forward loss first £200,000 - £10,000 = £190,000 and
can then accept A Ltd’s carried forward loss of £50,000, bringing it’s total income to:
£190,000 - £50,000 = £140,000 for the year ended 31/3/19.  
75% Gains Group

A Ltd. —75%— B Ltd.
A Ltd. —75%— B Ltd. —75%— C Ltd.
A Ltd. (Parent) must more than 50% effective interest in C Ltd. (Subsidiary), however the
DIRECT interest must be at least 75%
Only UK Resident members!
Advantages of 75% Gains Groups:

1. Transfer assets at NO gain or NO loss
The asset will be transferred between group members at its indexed cost (cost +
indexation until date).
This is similar to husband/wife or civil partner transfers for individuals.
2. Obtain group rollover relief
Therefore one member of a group can sell a qualifying asset, and if another member
purchases a qualifying asset within the time limit, the chargeable on the first asset
can be rolled over against the second purchase of the other group member.
Capital losses of a member of the group can be deducted here too
(Rollover relief conditions must still be satisfied
- The new and old assets must be used for business purpose.
- You have to replace the asset 12 months prior to the sale or 36 months post the
sale.).
3. Chargeable gains or capital losses can be given to group members freely, to

reduce their taxable total profits as necessary.
An asset does not have to be physically moved and sold by another group member
for a chargeable gain or capital loss to arise on them, the gain or loss can simply be
transferred.
Substantial Share Exemption

If a Trading company sells its shareholding (part or whole) to another Trading Company,
then NO Capital Gain will arise
Conditions:
A substantial shareholding is one where the investing company holds:
• 10% or more of the ordinary share capital; and
• 10% of the profits available for distribution to equity holders; and
• 10% of the assets available for distribution to equity holders upon a winding up.
The conditions must be met for a continuous 12 month in the last 6 years.
Note carefully, the sale must be out of a 10% or more holding, it does not need to be of a
10% holding for the SSE to apply.
ATX Revision Notes

Gains and Losses - Companies 
Residency of a company
A company is resident in the UK if:
1. It has been incorporated in the UK, for example. K Ltd. or B plc.
2. It is centrally managed and controlled in the UK for example, M. Inc. which was
incorporated overseas has majority of its board meetings held in the UK, and most
of its directors are resident in the UK.
Property business profits and relief for property losses
The calculation of property business profits is exactly the same as that for individuals
with 3 exceptions:
1. Interest payable on a loan to buy an investment property is deducted from “Interest

income”
2. There is no rent a room relief for companies as a company will not have a main
residence.
3. Property losses are relieved against Total Income of the current year before any
qualifying charitable donations can be deducted.
Property losses can be c/f against Total Income in the next year
Relief for trading losses
Trading losses can be:
1. Relieved against Current year total income plus capital gains
2. Carried back 12 months of Total income plus capital gains
3. Carried forward against the Total income of future years
For Individuals - You can carry back 12 months without using the current year
But for the companies - you have to use the current year’s profit before you carry
the loss back.
If we are using the total income of the current and previous year, then the loss must be
deducted before any Qualifying charitable donations.
However, if we are using the total income of future years, we can restrict the amount of loss
and save our Qualifying charitable donations.
Terminal Loss
If a trading loss occurs in the final 12 months of trading, then this trading loss can be
carried back for 36 months against the Total income of the company, on a LIFO (last in first
out) basis.
The loss cannot be restricted to save qualifying charitable donations.
Factors that influence choice of loss relief claim

1. Relief as soon as possible
Therefore, the current year total income and and carry back 12 months’ total income
claim are much more likely to be used before the carry forward claim against trading
profits
2. Making a large company a small company for corporation tax purposes
If a loss relief claim can reduce the size of the company, then this will avoid the
company having to make quarterly instalments of corporation tax.
Qualifying charitable donations
You can deduct charitable donations from the taxable total profits.
How to calculate taxable total profits?

Trading income x
Other income and gains:
Property income x
Interest income x
Capital gains x
Less:
Loss relief claims (x)

Qualifying charitable donations (x)
= Taxable Total profits (TTP) x
C.T = TTP x 19%
Remember that dividends received are not subject to corporation tax and are therefore not
included in taxable total profits.
Capital gains computation
Capital gains and losses are netted off for each tax year
Corporation tax is paid upon this net gain.
For a company’s capital gain, the following computation can be used:
Disposal proceeds X
Less: Incidental cost of disposal (X)
Net proceeds X
Less: Acquisition Costs (X)
Less: Indexation allowance until December 2017 (X)
Capital gain/Capital loss X / (X)
After all individual gains and losses have been computed, then they must be
aggregated and the following computation can be used.
Capital Gains in tax year X
Less: Capital losses in tax year (X)
Net Capital Gains in tax year X
Less: Capital losses brought forward
Taxable Gains X
Indexation allowance
- is given to companies, instead of the annual exemption.
- Is an allowance given to companies to reduce the chargeable gain
- It is only given until December 2017.
- It Can not create a Capital Loss or increase a capital loss
- It can only reduce a capital gain to Nil
Illustrated here:
Sale Proceeds X
Less: Cost (X)
Unindexed Gain X
Less: Indexation Allowance (IA) (X)
Gain (IA can only reduce a capital gain to Nil) 0
You will be given this indexation factor in the exam. You will not need to
calculate it.
Capital losses
When a company has a capital loss:
1. It is first set off against any Capital gains arising in the same accounting period.
2. Any remaining capital loss is then carried forward and set off against future Capital
gains.
Rollover relief for companies
Rollover relief for companies is the same as rollover relief for individuals.
The only difference between the two is that the indexed gain is rolled over for companies,
whereas individuals do not index the gain.
Conditions:
1. The disposal must have been of a qualifying business asset and the reinvestment
must be in a qualifying business asset.
2. The reinvestment must be made 12 months prior to the sale or 36 months post the
sale.
3. All of the sale proceeds received on the sale must be reinvested for qualification of
full roll over relief. If only some of the sale proceeds are reinvested, then:
Total sale proceeds received-sale proceeds reinvested = indexed capital gain

realised NOW.
Total indexed capital gain-indexed capital gain realised now = indexed capital gain
to be rolled over.
ATX Revision Notes

Deed Of Variation & Charitable legacy 
Reduced IHT Rate (36%) on death estate
- available only on death!
- is applied instead of 40% if the charitable legacy (Registered UK Charity, gift to charity)
exceeds 10% of death estate before deduction of the charitable legacy but after
deduction of the available NRB
E.g. Charitable legacy > 10 % of (Chargeable estate - NRB)
If it is, then (Chargeable estate - Charitable legacy - NRB) x 36%
Deed of Variation
 
The will of a person could be changed even after death of that person by entering into
deed of variation.
Following conditions must be fulfilled:

- Deed must be in writing
- Must be signed by all beneficiaries
- Should be submitted within 2 years of death
- It should state that change was for tax efficiency
Why to do it?
- To increase the Charitable legacy to get the reduced rate of 36%
- To give gifts to grandchildren instead (To avoid one generation of IHT)
ATX Revision Notes

Disposal Of Assets 
Chargeable Gains For Individuals
• Rate 10%
After considering a person's taxable income, any remaining amount falling within the
basic rate band is charged at 10%
• Rate 20%
Once the entire basic rate band has been used, then a rate of 20% is applied.
• For a residential property only
The same treatment applies as explained above, except that the 10% rate is replaced
with 18% and the 20% rate is replaced with 28%.
• Rate 10%
This rate is used for capital gains that qualify for entrepreneur's relief (£10,000,000 of
chargeable gains)
Connected Persons - CGT

= relatives, business partners, other than a spouse/civil partner
- the transfer is @ Market Value
- capital loss on disposal - only set off against capital gains from disposal to the same
connected person 
CGT Paid In Instalments

Normally, CGT should be paid on 31 January following the Tax Year of a Disposal
CGT can be paid in instalments if:
1. The Sales Proceeds received are in instalments themselves and
2. They are received over a period of 18 months
Then pay the CGT in instalments:
Over the shorter of
• 8 years
• Period over which the Sales Proceeds are received
Capital Loss Relief

The unrelieved capital losses may be carried forward against their Chargeable gains in the
next year
- For current year losses first deduct the loss and then the Annual exemption £11,700
- For capital losses brought forward, deduct the Annual exemption of £11,700 first
and then deduct the brought forward losses
Dont pay CGT if:
You transfer the assets to your husband or wive or civil partner.
Capital Loss Relief (For Sale Of Unquoted Trading Shares)

Capital losses may be set off against TOTAL INCOME in current and previous year
Capital losses in tax year of death

Capital losses may be carried back and set off against the chargeable gains of
the previous 3 years on a LIFO basis.
A part disposal (land)
Cost = Original purchase cost * [A / (A+B)]
Where:
A – Disposal proceeds received (Independent expert valuation) 

B – Market value of the remainder of the asset
Calculation:
Proceeds at market value - Costs from above = Chargeable gains
Chargeable gains - Annual exempt amount (£11,700) = Taxable gain
Taxable gain x CGT rate (10%/20%) = Capital Gains Tax (CGT)
Insurance proceed for fully damaged assets
Insurance Proceeds - Original full cost = Chargeable gains
Insurance proceed for partly damaged assets
1) Cost = Original Full cost * [A / (A+B)]
Where:
A – Insurance proceeds received  

B – Market value of the asset after the damage
2) Insurance Proceeds - Costs from above = Chargeable gains
3) Chargeable gains - Annual exempt amount (£11,700) = Taxable gain
4) Taxable gain x CGT rate (10%/20%) = Capital Gains Tax (CGT)
Example:
Insurance proceeds £10,000
Painting valued originally £50,000
Painting’s value after the damage £42,000
Calculation:
Cost = 50,000 x [ 10,000 / (10,000 + 42,000)]
Cost = £9,615
Chargeable gains = £10,000 - £9,615 = £385
Taxable gain = £385 - A/E £385 = £0
Capital Gains Tax (CGT) = £0 x 10% = £0
Negligible Value Claims (No value)

Treat as a Disposal so you realise a Capital Loss and C/F against future Capital Gains
Example:
House cost £10,000.
Fire - House destroyed - NO Value
Calculation:
Sales Proceeds £0 - Cost (£10,000) = Capital Loss £10,000
ATX Revision Notes

The Scope Of The Taxation Of Capital Gains 
Transfers between husband and wife or civil
partners
- the transfer is @ NO Gain, NO Loss
Example:
Husband transferred an investment property (£50,000 cost) to his wife.
The Market value is £100,000.
So the transfer is for £50,000
If the wife wants to sell it:
Selling price £100,000
Cost (£50,000)
A/E (£11,700)
Taxable gain £38,300
Pay CGT: 34,500 x 10% = £3,450
5,200 (38,300 - 34,500) x 20% = £760
UK Residency and Domicile - CGT
This is the same as per Income Tax
• If an individual is UK resident and UK domiciled, he is subject to UK CGT on his

worldwide assets.
• If an individual is not UK resident, then he is only subject to UK CGT on his UK Located

Residential Property.
• If an individual is UK resident but not UK domiciled, he is subject to UK CGT on his

worldwide assets BUT there are 2 options: Remittance or Arising basis
Arising basis
• The Overseas gains will be taxed in the UK
• Annual Exemption (A/E £11,700) and DTR will be deducted
Remittance basis
• Only Gains remitted back (sent back) to the UK will be taxed
• NO A/E will be deducted
• Pay the Remittance Basis Charge (RBC)
RBC
£0 if UK resident for <7 of previous 9 tax years
If unremitted overseas Gains (Gains that stay abroad) is <=£2,000 - the remittance basis
will apply automatically, there will be no RBC
If unremitted overseas income >£2,000 - there are two options - Remittance or Arising
basis
Non UK residents selling UK residential

property
Gain arising after 5/4/2015 is taxable
Tax Lower of:
1) Normal (Default)
Proceeds - (MV @ 5/4/2015)
2) Straight line method
(Proceeds - Original Cost) x No. of months owned after 5/4/2015 / Total Period of
ownership
Double Tax Relief

- Calculate both taxes (UK and overseas) and then deduct the lower one
Individuals coming to and leaving the UK
Pay UK CGT if:
- the individual leaves the UK for a period of less than 5 years and also
- were UK resident for at least 4 out of the previous 7 tax years
ATX Revision Notes

Reliefs 
Entrepreneur's relief (CGT 10%)
This rate is used for capital gains for the first £10,000,000 of chargeable gains
Conditions to get the relief:

1. The asset must have been owned for at least 1 year prior to the disposal.
2. The election for the relief must be made by 31/01 following the tax year of the disposal.
Therefore, if the tax year of disposal is 18/19, then the election must be made by
31/01/21.
3. It must be a disposal of a qualifying asset.
Qualifying assets include:

1. The disposal of a whole business run by a sole trader or by partners in a
partnership.
The assets must have been used for business purposes
Also, the entire business must be disposed of, if a single trading asset is disposed
of it, it will not qualify for the relief.
E.g. ER applies for (10%):
• Goodwill (but see below the exception)
• Freehold office, Business Premises
• Warehouse (but must be used for business purposes)
Exempt (do NOT pay tax on those):
• Inventory stock
• Debtors or Cash
ER does NOT apply for:
• Investment property - is just held for investment, not used in the trade
• If you transfer a business to a Close company (< 5 shareholders) and if the individual
is a shareholder in that company, then E.R is NOT available for Goodwill
2. Individual business assets of the individual’s or partnership’s trading business that

has now ceased.
Note the disposal of assets must take place within 3 years of cessation of trade.
The difference here is that the entire business is not being sold, it is being shut
down.
3. The disposal of shares in a trading company, where the individual has 5%

shareholding and is also an employee of the company, for 12 months prior to the
disposal.
e.g. A shareholder disposed of a 20% shareholding in a company
He had been an employee and owned the shares for more than 12 months
Things to note:
• a) Gains that qualify for entrepreneur’s relief will take priority in using up the basic
rate band limit first.
Therefore, it is likely that other capital gains will normally fall into the higher band
and pay CGT at 20%.
• b) The annual exemption and relief for losses is NOT automatically given to the
gains which qualify for entrepreneur’s relief.
Therefore 2 separate calculations should be made and gains which do not qualify
should be given the annual exemption and losses carried forward first, in order to
save CGT at a higher rate.
Principal private residence relief (Living in Your house)
Simply, don't pay any tax if you sell your house.
BUT you will have to if:
1. You didn't live there all the time
2. Used it for business purposes.
Where part of a residence is used exclusively for business purposes throughout the period
of ownership, the gain in relation to that part is NOT covered by relief.
Calculate the Gain:
Capital gain * Period of occupation (Deemed occupation) / Period of ownership
Deemed occupation:
1. Last 18 months - if the property was the individuals main residence at some point
2. Employment Abroad - Any periods during which the individual was required by his
employment to live abroad.
The person must come back to live in the house after this period and must live in the
house before this period to be considered to be deemed occupation.
3. Employment Elsewhere in the UK - Any period up to 4 years during which the

individual is required to live elsewhere in the UK due to employment.
The person must live in the house before and after this period
4. Up to 3 years for any reason
The person must live in the house before and after this period
Letting relief (Letting your house)

- If an individual lives in a property as their main residence and lets all or part of the
residence for residential purposes.
- On the disposal of this property, in addition to claiming PPR relief, the Letting relief is
also available to reduce the capital gain.
This relief is the lower of:

• PPR relief given
• £40,000
• Gain attributable to letting
Rollover relief (The replacement of business assets)

- If you sell your warehouse and buy a new one, you can decrease the Capital gain by
deducting the new warehouse's purchase costs.
- 75% Gains Group is a Single entity and can apply for a Group Rollover Relief
Conditions:
1. The new and old assets must be used for business purpose.
2. You have to replace the asset 12 months prior to the sale or 36 months post the sale.
3. No Rollover relief is available if the amount NOT reinvested exceeds the chargeable
gain.
Qualifying assets:
• Land and buildings
• Fixed plant and Fixed machinery (NOT movable)
Assets that NOT Qualify:
• Movable machinery
• Intangible assets (Patent, Trade marks)
Step by step approach
1. Step 1 - Calculate the Chargeable gain
Disposal proceed X 

The Original Purchase costs (X) 
Legal fees (X) 
Chargeable gain X
2. Step 2 - Calculate how much is NOT reinvested
Disposal proceeds - Purchase costs of the NEW asset
How much you get for the OLD asset X 

How much you pay for the NEW asset (X) 
Amount NOT reinvested X
3. Step 3 - Check whether the amount NOT reinvested (Step 3) exceeds the
Chargeable gain (Step 2)
No Rollover relief is available if the amount NOT reinvested > the chargeable gain.
4. Step 4 - Calculate the new Chargeable gain
Disposal proceed X 

The Original Purchase costs (X) 
Chargeable gain X 
Rollover relief (Balancing figure) (X) 
The new Chargeable gain (Step 3) X
5. Step 5 - Calculate Base cost
Basically, the Purchase costs of the NEW asset - the Rollover relief
This base cost will be used as the cost against the disposal of the new office.
Non Business Use
If an asset is NOT used 100% for Business purposes, then the Gain can NOT fully
be rolled over
What you have to do is: Multiply the Gain by the % of the business use or
Multiply the Gain by the years of the business purposes / total years of the
ownership (e.g. Gain x 3/5years) 
Holdover relief
If the new asset purchased is a depreciating asset (an asset with an expected life of 60
years or less)
Examples:
• Leasehold land and buildings
• Fixed plant and machinery
The gain arising on the disposal of the old asset is NOT rolled over and cannot be
deducted from the cost of the new asset.
Instead, the gain is to be temporarily frozen or “held over” until it becomes chargeable
on the earliest of the 3 following dates:
1. Date on which the new asset is disposed of.
2. Date on which the new asset ceases to be used in the trade.
3. 10th anniversary of acquisition of the new asset.
Enterprise investment scheme (EIS) - (Income tax)

If an qualifying individual invests in qualifying unquoted EIS/SEIS company shares, the
amount invested can be used to reduce the individual's income tax liability.
Conditions to be a qualifying investor
1. Individual at least 18 years and must subscribe for newly issued shares.
2. Must not own shares before the investment.
3. Must own less than 30% of the shares.
4. Must not be an employee of the company before making the investment, but can
become a paid director of the company after making the investment.
Conditions to be a qualifying EIS company
1. Maximum capital raised can be £5m in the last 12 months.
2. Unquoted trading company or company quoted on AIM.
3. Sound financial health and trading from permanent establishment in UK.
4. Assets gross before share issue ≤£15m and after ≤£16m.
5. Funds raised must be used to grow the business.
6. Funds must be raised during first 7 years of trading.
7. Employees max 250.
Income tax implications
• In the tax year in which investor subscribes for the shares he can claim EIS relief at 30%.  
• This means that he can reduce his income tax liability by: (Amount invested x 30%). 
• The maximum relief that can be given is £300,000, therefore if more than £1,000,000 is
invested, only £300,000 EIS relief can be claimed.
• Dividends received by investors from the EIS company are subject to income tax at 7.5%,
32.5% and 38.1%.
• This relief can be claimed in the current or previous tax year.
• If the EIS shares are sold within 3 years of ownership, the relief given will need to be paid
back to HMRC.
Enterprise investment scheme (EIS) - CGT

If you dispose of any chargeable asset and reinvest in unquoted shares in a qualifying EIS,
then you can defer some (or all) of the gain.
Chargeable gain = Capital gain - Amount Reinvested into EIS
Conditions to be a qualifying investor
1. The individual must be UK resident
2. The reinvestment must occur between 12 months before and up to 36 months after the
gain arises
3. The reinvestment must be wholly for cash, in new shares in an unquoted trading
company, trading in the UK.
When EIS Share are sold
Any gain deferred will become chargeable eg. We bought them for £10,000, therefore the
Capital Gain Deferred was £10,000, so now we will have to pay CGT on £10,000.
If they are sold within 3 years - Capital gain is chargeable (Will have to pay the CGT) BUT
Capital Loss is allowable (will get the loss relief)
If they are sold after 3 years - Capital gain is EXEMPT and Capital Loss is allowable (will
get the loss relief)
Seed enterprise investment scheme (SEIS)
An SEIS is similar to the EIS but is intended to promote investment in smaller early stage
trading companies.
Conditions for investors in SEIS Companies
1. Individual at least 18 years and must subscribe for newly issued shares.
2. Must not own shares before the investment.
3. Must own less than 30% of the shares.
4. Must not be an employee of the SEIS company before making the investment but can
become a paid director of the company after making the investment.
Conditions to be a qualifying SEIS company
1. Maximum capital raised £150,000 in the last 3 years
2. Unquoted trading company.
3. Sound financial health.
4. Start-up company.
5. Employees no more than 25 full-time.
6. Trading from a permanent establishment in UK.
7. Assets before issue ≤£200,000.
Income tax implications for SEIS investment
• In the tax year in which investor subscribes for the shares he can claim SEIS relief at 50%
(tax reducer).
• Dividends received by investors from the SEIS company are subject to income tax at
7.5%, 32.5% and 38.1%.
• If investor sells the shares within three years he must repay 50% of the proceeds for the
shares.
• The upper limit on SEIS relief is £50,000 (50% x 100,000) each tax year.
• This relief can be claimed in the current or previous tax year.
Incorporation Relief
Normally if an individual sells his business:
- he will have Chargeable gains on the individual assets (Business Premises, Goodwill)
- will have to pay the CGT on them
- however, because he sells all of his business and owned the business for more than 1
year, then he can get the Entrepreneur Relief @ 10%
However, there is a way to DEFER this CGT
If an individual sells his business (sole trader business/partnership) to a company, then

the Chargeable gain that will arise can be deferred
Conditions for the relief
All of the following conditions must be satisfied.
1. The business must be transferred as a going concern
2. All of the assets (except cash) are transferred to a company
3. The consideration received for the transfer must be received in the form of shares in the
company.
How to calculate incorporation relief?
If the consideration is fully in shares, then the whole capital gain is deferred
If the consideration is only partly in shares, then the following formula is used:
Deferred gain = Total capital gain * (M.V. of the shares received / M.V of the total
consideration (shares + cash))
This deferred gain is deducted from the cost of the shares, to produce a lower base
cost, which will be used to calculate the capital gain when the shares are disposed of.
10
ATX Revision Notes

The Scope Of IHT and
Valuation 
Inheritance Tax
A gift made during a person’s lifetime may be either:
1. Potentially exempt transfer (PET)
2. Chargeable lifetime transfers (CLT)
1) Potentially exempt transfers - do NOT pay IHT straight away
Any transfer that is made to another individual is a potentially exempt transfer (PET).
If the donor survives for 7 years then NO tax is paid
If the donor dies within 7 years - pay the IHT 40%, the value of a PET is fixed at the time
that the gift is made.
2) Chargeable lifetime transfers - pay IHT straight away
If Donee (Trustee) pays - 20%
If Donor pays - needs grossing up (Calculate the Value of the gift + IHT paid) - pays 25%
For example, parents may not want to make an outright gift of assets to their young
children.
Instead, assets can be put into a trust with the trust being controlled by trustees until the
children are older.
- If the donor dies within 7 years of making the gift - An additional tax liability may arise
- The value of a CLT is fixed at the time that the gift is made, but the additional tax (40%)
liability is calculated using the rates and allowances applicable to the tax year in which
the donor dies.
Payment of inheritance tax and the due date

During Life - CLT:
The due date is the later of:
• 30 April following the end of the tax year in which the gift is made.
• 6 months from the end of the month in which the gift is made.
PET and CLT additional IHT:
The donee is responsible for any additional IHT that becomes payable as a result of the
death of the donor within 7 years.
The due date is 6 months after the end of the month in which the donor died.
On death:
The personal representatives of the deceased’s estate are responsible for any IHT that is
payable.
The due date is 6 months after the end of the month in which death occurred.
IHT paid in Instalments (10 yearly instalments)
- Land & Buildings,
- Unquoted shares ( Holding must be valued @ > £20,000 and you must own more than
10%)
- Controlled Company Shares ( You must own > 50% share capital)
- Sole trader or partnership
7year accumulation principle
Every individual receives a nil rate band (NRB), if their total chargeable transfers exceed this
NRB, only then is inheritance tax payable.
The NRB must be applied in chronological order - it is given to the gift made earliest.
For example: if an individual dies in January 2017 having made a CLT in June 2006 of
£255,000, this CLT will not be taxable on the death as he survived for more than 7 years.
If he had also made a PET in August 2013 of £200,000 this will be taxable.
In computing the NRB available to go against the PET, however, the £325,000 will be
reduced by the amount of the June 2006 CLT.
Therefore, the NRB available to the PET would be (£325,000 - £255,000) = £70,000
IHT payable on the PET 

Value of PET £200,000 
Less NRB (£70,000)
£130,000 *40% = £52,000
Residence Nil Rate Band

In addition to the nil rate band already given, there is another residence NRB of
£125,000.
Conditions to get residence NRB:
1. The death estate must consist of a main residence
2. It must be given to direct descendants (children/grandchildren)
3. It is only available if an individual dies on/after 06/04/2017
4. Unused residence NRB can be passed between spouses as normal, even if the first
death was before 06/04/2017
Taper Relief
- reduces the amount of tax payable where a donor lives for more than 3 years, but less
than 7 years, after making a gift.
Diminution in value principle (Unquoted shares)

Use Diminution in value principle when you gift:
• Ordinary shares in unquoted company
• Land
Calculation:
Value before (not the independent expert) MINUS Value after
Then deduct A/E 3,000 or Taper relief if available
Gift of Shares - Wife + husband own them together
e.g. If a husband owns 75% and his wife 25% of a company and you are gifting the shares
to someone, the Gifting % will be based on both husband’s and wife’s holdings, so take the
share price reflecting 100% ownership when you give some shares to someone.
Valuation rule for shares
If shares are disposed of by way of a gift, no proceeds will actually be received, therefore
you will calculate the disposal proceeds to calculate the capital gain in this way:
Unquoted shares:
Market value will be given in exam.
Quoted shares:
1/2 method: Lower recorded bargain + (1/2)(Highest recorded bargain - lowest recorded
bargain)
1/2 up method (Quoted shares)

- you have to pay CGT and IHT on the sale/gift of Quoted shares
Step by step approach:
• Step 1 - Value the shares using:
- 1/2 up method 
Method 1: 1/2 up method
This method is used when a range of quoted prices is provided.
For example £3.00-£3.09.
• The value of one share will be:
• Lower range value + 1/2 (higher range value - lower range value)
• = £3.00 + 1/2 (£3.09-£3.00) = £3.05
• Step 2 CGT - Calculated Disposal proceeds  

= Number of shares given * value per share (step 1)
• Step 2 IHT - Calculated Value of the Gift 

= Number of shares given * value per share (step 1)
• Step 3 CGT - Calculated CGT @ 10%/20%
Deduct the A/E £11,700
• Step 3 IHT - Calculated IHT @ 40%
Deduct the A/E £3,000 and NRB £325,000 + Use the NRB of your spouse if it’s available
Also check for the Taper relief available
Exemptions
Disposals of gilt edged securities and qualifying corporate bonds are exempt from capital
gains tax.
IHT liability on the death estate (when you die)

A person’s estate includes the value of everything that they own at the date of death such
as property, shares, motor vehicles, cash and other investments.
A person’s estate also includes the proceeds from life assurance policies even though the
proceeds will not be received until after the date of death.
The actual market value of a life assurance policy at the date of death is irrelevant.
The following deductions are permitted:
• Funeral expenses
• Debts due if they can be legally enforced
• Gambling debts cannot be deducted, nor can debts that are unenforceable
because there is no written evidence
• Mortgages on property
• Endowment mortgages cannot be deducted, because these are repaid upon death
by the life assurance element of the mortgage
• Repayment mortgages and interest-only mortgages are deductible
Transfer of unused NRB between spouses
Any unused nil rate band on a person’s death can be transferred to their surviving spouse
(or registered civil partner).
Illustration:
Nun died on 29 March 2016.
None of her husband’s nil rate band was used when he died on 5 May 2005.
When calculating the IHT on Nun’s estate a nil rate band of £650,000 (325,000 + 325,000)
can be used because a claim can be made to transfer 100% of her husband’s nil rate band.
Exemptions
Transfers to spouses
Gifts to spouses (and registered civil partners) are exempt from IHT. This exemption applies
both to lifetime gifts and on death.
Small gifts exemption
Gifts up to £250 per person in any one tax year are exempt.
Annual exemption (Use only during the life NEVER on Death!)
Each tax year a person has an annual exemption of £3,000.
If the whole of the annual exemption is not used in any tax year, then the balance is carried
forward to the following tax year.
Therefore, the maximum amount of annual exemptions available in any tax year is £6,000
(£3,000 x 2).
Normal expenditure out of income
Regular annual gifts of £2,500 made by a person with an annual income of £100,000 would
probably be exempt.
A one-off gift of £70,000 made by the same person would probably not be, and would
instead be a PET or a CLT.
Gifts in consideration of marriage
The amount of exemption depends on the relationship of the donor to the donee (who must
be one of the two persons getting married):
• £5,000 if the gift if made by a parent.
• £2,500 if the gift is made by a grandparent or by one of the couple getting married
to the other.
• £1,000 if the gift is made by anyone else.
Domicile - IHT
An individual who is UK domiciled or (Deemed Domicile) is charged to UK IHT on his
worldwide assets.
An individual who is not UK domiciled is charged to UK IHT only on assets situated in the
UK.
Types of domicile for IHT:
Domicile of choice – an individual can change their domicile from one country to another if
they don’t retain a property or move burial arrangements or change nationality/citizenship
from one country to the other.
 
For example, if you were UK domiciled since birth but you emigrated to France (you sold
all property in London and you changed your nationality), then you will be French domiciled.
However, you will still retain UK domiciled for 3 years after you change your domicile.
Deemed domicile – for an individual to be deemed domicile in the UK for IHT purposes at
the relevant time (ie at the time of a transfer of value) they must satisfy any one of the
following two conditions:
1. Long term resident 

– this applies to an individual who was never UK domiciled but has been resident in the UK
for at least 15 years out of the previous 20 tax years immediately preceding the relevant tax
year, and for at least 1 of the 4 tax years ending with the relevant tax year.
For example, if you have been UK resident since 1998, but never UK domiciled, and you
made a gift of a home in France in 2018, this gift will be chargeable to UK IHT, because you
are deemed domicile, as you have been resident in the UK for the last 20 tax years.
2. Formerly UK domiciled individual.  

This is an individual who: 
- was born in the UK; and 
- has a UK domicile of origin; and 
- is UK resident in the relevant tax year; and 
- was UK resident in at least 1 of the 2 tax years immediately before the relevant tax year.
For example, Tom was born in the UK in 1975 and his father was UK domiciled. In 2001 he
moved to Australia. He returned to the UK in August 2018. He will be deemed UK domicile in
2018/19.

If you are UK domiciled and have a foreign asset, you will pay UK IHT and overseas
IHT, in your UK IHT computation:
Take the Foreign asset value and deduct 5% of the house or the legal fees (take the
lower value)
Then deduct the Double tax Relief = Lower of the UK or Foreign IHT
If you are not UK Domiciled:
e.g. You have an asset in the UK - selling it and give the proceed to your sister
If the sale proceeds will go to the bank account located in the UK - you pay the UK IHT
If the sale proceeds will go to the bank account located OUTSIDE the UK - you DON’T pay
the UK IHT
Gifts with reservation

If you give somebody an asset (a house) and keep using it.
If you are not paying rent at the market value rate, then:
You should calculate the gift as a PET and a Death gift and HMRC will choose the higher
value.
PET - A/E - Taper relief
On Death - No A/E and No Taper relief
So HMRC will always choose the value as a Death gift
10
ATX Revision Notes

IHT Reliefs 
Business Property Relief (BPR)
= reduces the value of lifetime gifts and the value of an individual’s death estate
Investment property is NOT eligible for BPR
Conditions:
- An asset must be owned for 2 years prior to the transfer
- If the asset has been transferred from a spouse the periods owned by each spouse can
be added together
- For example, if a husband owned relevant property for 1 year and transferred it to his
wife, then the wife owned it for another year and transferred it to their son, BPR will be
available on the transfer to the son because the total time of ownership for husband and
wife can be added up.
Eligible Assets:
1) Land, building, machinery (50% relief)
- must be owned personally and used in the business controlled (>50% share) by the
individually
E.g. If you gift a farm - 2 years ownership, have to work on it
2) Quoted shares and securities (50% relief)
- Individual must have a controlling interest (>50%) in the company
3) Unquoted shares and securities (100% relief)
- Where the asset was a lifetime gift, the asset must either still be owned by the donee or
have been replaced with other relevant asset at the date of the donor’s death in order to
get BPR on the additional tax payable by the donee.
- For example, if a father gifted his son an unquoted shares holding during his lifetime, this
will be a P.E.T. and IHT will only be payable if the father dies within 7 years of making the
gift. If the son sells the shares, he must replace them with relevant property for BPR in
order to get the relief when the father dies.
- Where an asset was inherited and was eligible for BPR at the time of transfer one, there is
no minimum ownership period for BPR on transfer two.  
This is called the successive transfers rule.
- For example, if a father gifted his son unquoted trading shares on his death which he had
owned for 4 years and were eligible for BPR, if the son dies within 1 year of the gift and
gives them to his brother on death, this second transfer will automatically be eligible for
BPR because the first transfer was eligible for BPR.
4) Sole-trader/ partnership businesses (100% relief)
Withdraw of BPR if:
- The Asset is not used for business purposes at the date of death of donor.
- The Asset has been sold by donee before the date of death of donor and NO
replacement was purchased. 
Agricultural Property Relief (100%)

- available for Agricultural value of an Agricultural Property situated in the UK, EEA
- The Relief is available for: Land, Farmhouse, Barn, Shelter Belts
- Not available for: Plants & Machinery and Inventory
- It is available on both lifetime & death transfer but deducted before any other Exemptions
and reliefs
- It is available upon agricultural value of agricultural property if it is held for minimum
period of ownership.  
Conditions:
- If a farm is owned by the individual and he is farming himself there, then he needs to have
owned it for 2 years prior to the transfer
- If the individual has let the farm to someone else to farm, then it has to have been
tenanted for 7 years prior to the transfer
If donor has inherited the Property on the death of spouse the combined period of
ownership of both spouses should be greater than minimum ownership period.  
If the existing agricultural property has replaced the previous agricultural property
then APR will be available if period of ownership of both the properties is at least 2 years
out of last 5 year if property is owner managed and 7 years out of 10 years if property is
under tenant ship.  
Withdraw of APR if:
- Agricultural property is not used for agricultural purposes anymore
- Agricultural property has been sold by donee by the date of death of donor and has not
purchased any replacement agricultural property
Quick Succession Relief:

It arises when two death IHT arise within 5 years and available to 2nd deceased person.
It is deducted from IHT liability and calculated as follows:
QSR = IHT paid on first death X Appropriate %
 
IHT paid on first death = (Total IHT paid on 1st death / Gross chargeable estate on 1st
death) X value of gift
Appropriate %:
Years between 2 deaths %
<1 100
1-2 80
2-3 60
3-4 40
4-5 20
Exempt transfers
These are transfers that will not result in IHT payable:
• spouse - after the marriage date
• civil partner
• charity
• political party 
Relief for a Fall in value

The chargeable amount of a lifetime gift (CLT and PET) is calculated and fixed at the time of
gift.
If the gift becomes chargeable on death (donor dies within 7 years of making the gift):
1) An increase in value of the gift will be ignored
2) A decrease in value of the gift will get relief for the fall in value
Condition for the fall in value claim

The asset must still be owned by the donee at the date of death, or if it has been sold, it
must have been sold in an arms length transaction.
Example:
PET for £300,000.
When the person dies, the value is £200,000.
So, calculate the IHT on £200,000
ATX Revision Notes

Change an accounting date & AIA & ECA
Change an accounting date
Conditions
1. The change of accounting date must be notified to HMRC by the 31/01 following the tax
year in which the change was made.
2. The first accounts to the new accounting date must not exceed 18 months in length.
3. A change of accounting date must not have occurred within the previous 5 years.
Calculation:
Profit - Overlap profit (for the number of months that will make the taxable accounting
period 12 months)
For example, if the new period is 13 months, then you can deduct 1 month of overlap
profit.
Annual investment allowance

The AIA must be split between related companies.
Companies owned by the same individual will be regarded as related where they are:
a) Engaged in the same activities or
b) Share the same premises
This could be the case if an individual runs two companies from home, the AIA will be split
between the two companies.
Enhanced capital allowances (100% allowance)

- available for a purchase of environmentally friendly plant and machinery
- are given in full, if an accounting period is shorter than 12 months, they are not pro-rated
For example, if a company purchase an environmentally machine for £100,000, the

enhanced allowance available for the machinery would be 100%*£100,000 = £100,000
ECA.
ATX Revision Notes

Share Scheme & Redundancy package
Share incentive plans - (Employers give shares to employees)
Income tax - when you receive them
Pay No income tax or NIC, (If you hold the shares for more than 5 years) 
Capital gains tax (CGT) - when you sell them
- when you take the shares out (if you sell them immediately), there is no CGT because, the
cost = market value.
- The cost for the person withdrawing becomes the market value on the date when they
withdrew, so if they sell on that date, then they’ll get market value - so no gain
- if you sell them at a later date, then there will be CGT because the market value would
increase.
For example:
Today I withdraw at a market value of 50 - this is also my base cost, If I sell today I will only
get 50 (market value) - so no gain
- if I sell in 1 year, I will get 60, so capital gain is 60-50=10 and there will be CGT
Conditions:
• Shares must be offered to all employees who have been working in the company for >=
18 months (It can NOT be selective)
• Maximum value of shares that the employer can give to the employee each tax year
cannot exceed £3,600.
• Shares must be held for 5 years.
Share options
A share option is an offer to an employee of a right to purchase shares at a future date at a
pre-determined fixed price which is set at the time the offer is made.
Types:
1. Company share option plan (CSOP)
2. Enterprise management incentive share option scheme (EMIs)
3. Save As You Earn (SAYE)
Income tax Implications:

On Grant:
Pay NO income tax or NIC 
On Exercise:
Pay IT and NIC If: Market value @ Grant date > Exercise price, then the difference will be a
taxable benefit.
When you sell the shares
Pay CGT: (Market value @ sale date - Market value @ grant date) x CGT tax rate
REMEMBER: When you sell shares, the Entrepreneur relief is available (Tax @10%) if:
1. the individual has 5% shareholding
2. the individual is also an employee of the company for 12 months prior to the disposal
This Does NOT apply to EMI, there are different conditions (see below)
1) Company share option plan (CSOP)

This scheme can be available to some employees only (can be selective)
Max. £30,000 options in issue per employee in a tax year
2) Enterprise management incentive scheme

This scheme can be available to some employees only (can be selective)
When you sell the share, the Entrepreneur relief is available (Tax @10%) if:
- the option was granted at least 1 year before the date of disposal
- the individual has worked for the company for at least 1 year prior to the date of disposal
Conditions that the company needs to satisfy:
1. Gross assets must be <= £30 million
2. Must have <= 250 employees
3. Maximum value of share options issued must not exceed £3,000,000
Conditions that the employee needs to satisfy
4. Employees must work for at least 25 hours per week
1. Employee must own less than 30% of the shares in the company
5. Maximum value of share options per employee £250,000
3) SAYE scheme
• Each employee pays a minimum of £5 per month and a maximum of £500 per month into
a SAYE scheme, for a period of 3 or 5 years.
• Interest on the scheme is exempt from income tax.
• At the end of the scheme the money can be used to exercise the share options or the
employee may just withdraw the money on their own.
Conditions
1) The amount saved must be > £5 per month but < £500 per month
2) The savings contract must last for 3 or 5 years.
3) The scheme must be available to all employees who have worked for a specified
qualifying period (which cannot exceed five years).
4) The exercise price must be >80% of the shares’ market value @ grant date
Lump sum receipts (Redundancy package)

Exemption: £30,000 - statutory redundancy - NO I.T or NIC
If you receive > £30,000 e.g.:
- ex gratia - pay I.T (@ higher rate) and NO NIC
- payment in Liev of notice - Pay I.T (as normal) and NIC
- benefits (e.g. leased car) - Pay I.T., no NIC
The Corporation Tax deductions in Respect of the Redundancy package:
- statutory redundancy
- ex gratia payments
- any payments that the company makes in respect of the employee are deductible
- any NIC also paid by the company in respect of these payments (Class 1 & Class 1a)
- leased car - if CO2 emissions are > 110g then only 85% of expense will be deductible
Overseas traveling and Exempt benefit

NO I.T. and NO NIC
- Travelling costs to or from the UK at the beginning and end of employment
- Travel costs both within the UK and outside the UK, for a spouse and children to visit the
employee working abroad are allowable provided: 
a) The employer bears the cost 
b) The employee has worked overseas for at least 60 continuous days 
Up to two return trips are allowable each year.
- An employee working outside of the UK can make any number of return trips to the UK
without incurring a taxable benefit when the cost is borne by the employer.  
The trips to the UK must be wholly and exclusively for employment purposes, if they are
not, then this will be a taxable benefit.
- Up to £10 per night is allowable where an employer reimburses an employee for

personal incidental expenses when they are on a business trip abroad, for example, for
telephone calls and laundry expenses.
Personal Service Companies

- an employee forms a limited company (a personal service company) and then hires out his
or her services in the name of the company.
This would allow the individual to get the tax and national insurance advantages that are
available to a company but not a individual.
Conditions:
1. The company provides services to the client
2. The services are carried out by the individual
3. The individual must own >=5% of the share capital in the intermediary company
Calculation of the deemed salary:
Income in respect of relevant engagements £A
Less:
Statutory deduction (5% × £A) (X)
NICs paid by employer (Class 1 Secondary) (X)
Pension contributions (X)
Salary paid (X)
Deemed salary including employer’s NICs £B
Less: Employer’s NICs (£B × 13.8/113.8)
Deemed salary £C
Ignore:
- Any dividends paid by personal service company
- Costs of administering the company
ATX Revision Notes

VAT Registration & Export/Import VAT 
VAT Registration - Compulsory and Voluntary
When is it compulsory to register for VAT?
When your sales (excluding VAT) go over the registration limit (£85,000).
There are 2 separate tests for compulsory registration:
1. Historic Turnover
2. Future Prospects
When you satisfy both tests HMRC will use the test that gives the earlier registration date.
Historic Turnover test
At the end of every month check to see if the last 12 month sales were over £85,000.
If so, you have 30 days to tell HMRC (30 days of the end of the month in which the limit is
exceeded)
You are then registered for VAT from the end of the next month (or earlier if agreed)
• So let’s say the limit was exceeded in April
• You must notify HMRC by 30th May (within 30 days of the end of the month - April)
• You will be registered for VAT from 1st June
Future Prospects test
If you think the limit (£85,000) will be reached over the next 30 days
• then you have 30 days to tell HMRC and
• registration starts at the beginning of the 30 days you expect to reach the limit
• For example:
On 1 July, the company signed a contract valued at £100,000 for completion during
July.
The company will register for VAT from 1 July and have to notify HMRC by 30 July.
De-registration
• A trader stops being liable to VAT registration when it ceases to make taxable
supplies.
The trader must notify HMRC within 30 days and will be deregistered from the date
of cessation or from an earlier agreed date.
• A trader may also deregister for VAT when its expected taxable turnover in the next
12 months is expected to fall below £83,000.
The trader may deregister for VAT if they consider this beneficial.
VAT implications on selling a business (deregistering permanently)
• When a business is sold, it will cease to be registered for VAT
• you have to pay the Output VAT (e.g. on plant, equipment and trading inventory)
If you satisfy these conditions, then no output VAT will be charged:
1. The business is transferred as a going concern
2. No significant break in trading
3. The same type of trade is pursued by the transferee
4. The transferee is or will become VAT registered
Voluntary registration for VAT

Even if someone is not required to register for VAT, once they are making taxable supplies,
they are allowed to.
Advantages of voluntary registration:
1. Disguises a small company to look big. (Investors may be apprehensive to invest in

a small company).
2. If a company makes zero rated supplies and standard rated purchases, then the
company will be eligible for repayments from HMRC.
For example, a VAT registered trader sells baby clothes for £240. He pays for his
advertising expenses, which cost him £120.
The trader makes zero rated supplies but standard rated purchases, and can therefore
claim the input VAT paid on his advertising expense of £20. (£120 * 1/6)
VAT Group
Conditions:
1. 2 or more companies must be associated with each other.
That is one company must own 51% or more of the share capital in another
company, or 2 companies must be under common control.
2. All companies must be UK resident or trading from a permanent establishment in

the UK.
Consequences of Group Registration:
1. The VAT Group is treated for VAT purposes as a single company registered for VAT
on its own.
2. There will be 1 VAT registration number for the whole group.
3. One VAT return will need to be filed on behalf of the whole group.
4. The group must have a representative who fills in the VAT return.
This member will have to gather all of the output and input VAT of the individual
members and fill it in on one return.
This representative is also responsible for paying VAT on behalf of the group.
Advantages of a VAT Group:
1. There is no VAT on intra-group supplies
2. Only one return must be filed, therefore administration costs will be saved.
Disadvantages of a VAT Group:
1. All members remain jointly and severally liable
2. There are special VAT schemes for businesses such as the cash, annual and flat rate
schemes.
To enter into these schemes, a business must have a turnover under a certain limit.
For example, there is a VAT group with 4 companies (A Ltd., B Ltd., C Ltd., and D Ltd.).
The annual turnover of the entire group is £5,400,000, and each individual company’s
annual turnover is £1,350,000.
VAT return accounting
Quarterly accounting for VAT and electronic filing
1. On registration, the trader must charge VAT on all taxable supplies (output VAT).
2. The trader can also reclaim VAT on all taxable supplies purchased (input VAT).
3. At the end of a 3-month period, the trader accounts to HMRC for all the output tax
less the input tax on their VAT return.
4. VAT is accounted for quarterly, on 31/03, 30/06, 30/09 and 31/12.
5. VAT registered businesses must file their returns and make payments online.
6. The deadline for doing submitted the VAT return and making payments electronically
is 1 month and 7 days after the period has ended.
Therefore, for the period ending 31/03/2019, the return with payment can be
submitted electronically on 07/05/2019.
Treatment of imports, exports and trade within

the EU
Selling to E.U. who are VAT registered
• Goods/services are treated as zero rated.
• No output VAT will be added to them.
Illustration
A UK VAT registered trader supplies computers costing £10,000 (VAT exclusive) to a

company in the E.U. that is VAT registered.
The supply will be treated as zero rated and therefore no output VAT will be charged.
Selling to E.U. who are not VAT registered
• Goods/services are treated as standard rated.
• Output VAT will be added to selling price.
Illustration

company in the E.U. that is not VAT registered.
The supply will be treated as standard rated and therefore 20% output tax of £2,000
(10,000 * 20%) will be charged.
Exporting outside of the E.U.
• The supply of goods is zero rated
• The supply of services is outside of the scope of VAT
Illustration

company outside the E.U.
The supply will be treated as zero rated and therefore no output VAT will be charged.
Whether the company outside of the E.U. is VAT registered or not does not matter, the
supply will be treated as though it is zero rated.
Coming into the UK:
Acquiring from E.U. who are VAT registered/not VAT registered
• The VAT charge is declared on the return as output VAT but can be reclaimed as
input VAT on the same VAT return.
The net effect on VAT payable is therefore nil.
• The entries contra each other, therefore there is no actual VAT cost.
Illustration
A UK company purchased computers costing £10,000 (VAT exclusive) from a company in

the E.U.
The VAT of £2,000 will be accounted for but not paid.
On receipt, the UK company will account for the £2,000 on it’s VAT return and can claim the
£2,000 input VAT on the same VAT return.
Importing from outside of the E.U.
It is necessary to provide a bank guarantee but VAT is then accounted for on a monthly
basis.
• UK VAT registered business must pay VAT at the time of importation.
• This VAT can be reclaimed as input VAT on the VAT return during the period in which
goods are imported.
• Therefore, the VAT is paid at the time of importation and then reclaimed as input
VAT, so there is no overall cost.
• Regular importers can defer the payments of VAT on importation by setting up an

account with HMRC.
Illustration
A UK company purchased computers costing £ 10,000 (VAT exclusive) from a company

outside of the E.U.
The VAT of £2,000 will be paid at the time of importation and then claimed as input VAT on
the VAT return during the period in which the goods are imported.
ATX Revision Notes

VAT Special Schemes  
Flat rate scheme
This scheme is available to small businesses.
Under this scheme VAT liability is calculated by simply applying a flat rate percentage to
total turnover including zero rate & exempt supplies. (16.5% will be given in exam).
No input VAT is recoverable with the exception of non-current assets having cost more than
£2,000.
VAT payable = Sale (VAT inclusive) X Flat rate %
Conditions to join the scheme:
1) Taxable turnover (exclusive of VAT) not exceeding £150,000 per annum.
2) VAT returns must be up-to-date and no convictions for VAT offences or penalties in
past.
3) If the taxable turnover exceeds £230,000 the trader will have to exit the scheme.
Cash Accounting Scheme

VAT is accounted for on the basis of cash receipts and payments, rather than on the basis
of invoices issued and received (therefore automatic relief for bad debts).
Conditions to be satisfied to join the scheme:
1) Taxable turnover (exclusive of VAT) not exceeding £1,350,000 per annum.
2) VAT returns must be up-to-date and no convictions for VAT offences or penalties in past.
3) If taxable turnover exceeds £1,600,000 trader will have to exit the scheme.
Annual Accounting Scheme

A single VAT return for a 12 month period (Normally accounting period of the business) is
filed within 2 months from end of the period.
VAT is paid in 9 equal instalments each will be 10% of previous year’s VAT liability and
one balancing payment.
Conditions to join the scheme are same as cash accounting scheme.
ATX Revision Notes

VAT - Additional Material  
VAT - Additional Material
Land and Buildings
Type of supply:
1) Sale of new commercial building is standard rated. ('New' means < 3 years old)
2) Sale of residential or charitable property is zero-rated.
3) All other supplies of land and building are exempt, unless opted to tax.
Opting to tax:
A VAT registered seller can opt to waive exemption and elect to opt for VAT.
Conditions:
An election must be made within 30 days from date of contract. However it could be
withdrawn within 1st 6 months or after 20 years otherwise it is irrevocable. A separate
election should be made for each building (election can’t be made for part of building).
Tax implication:
1) Supply of Land & Building will become taxable for VAT.
2) Rent received from that building (if rented) will become liable to VAT @ standard rate
(20%).
3) Landlord can recover any input tax on the purchase and running costs of the building
4) The new owner (purchaser) has once again has both options exempt and option to tax.
Partially exempt businesses

Businesses which are engaged in both taxable and exempt supplies are called partially
exempt business.
1) Input VAT for making taxable supplies is fully recoverable.
2) Input VAT for making exempt supplies is not recoverable.
3) Input VAT, Non-attributable or related to overheads is Recoverable in “proportion of

taxable supplies”
Recoverable VAT = Non-attributed input VAT * (Taxable supplies/ Total Supplies)
Taxable & total supplies will be excluding VAT. Supplies of capital goods are excluded when
calculating this proportion.
De minimis limits
Whole irrecoverable input VAT will become recoverable if business is below the following De
Minimis limits:
1) Total input VAT ≤ £625 month and exempt supplies are less than 50% of total supplies.
2) Total input VAT less input VAT directly related to taxable supplies is ≤ £625 month and
exempt supplies are less than 50% of total supplies.
3) Input VAT related to exempt supplies ≤ £625 month and input VAT relating to exempt
supplies is ≤50% of total input VAT.
Capital goods scheme

This scheme is available to partially exempt businesses only and applicable upon:
1) Purchase of land and building having value £250,000 or more. The related adjustment
period is 10 years however it will be 5 years if the land and building is acquired under lease
agreement.
2) Purchase of computers equipment’s having value £50,000 or more and the related
adjustment period is 5 years. If the scheme applies, the initial deduction of input VAT is
made in ordinary way and then reviewed over the adjustment period. Adjustments are made
over the adjustment period if proportion of the exempt supplies changes and is calculated
as follows:
Annual adjustment = (Total input vat/Adjustment period) * (% of taxable supplies now

– % of taxable supplies in year of purchase)
Adjustments for sale:
On the disposal of an asset under the capital goods scheme during the adjustment period:
1) The annual adjustment is made as normal in the year of disposal (as if the asset had
been used for the full year).
2) If the disposal was taxable (e.g. option to tax exists):
Adjustment for sale = (Total input vat/Adjustment period) * (100% – % of taxable

supplies in year of purchase) * Remaining Adjustment period
3) If the disposal was exempt:
Adjustment for sale = (Total input vat/Adjustment period) * (0% – % of taxable

supplies in year of purchase) * Remaining Adjustment period
Divisional Registration
Sometimes a large company operates not as a group of companies but as a single
company with a number of divisions.
If the divisions are largely independent units dealing in different products and having
separate accounting systems, it may be difficult to produce one VAT return for the whole
company.
In these circumstances the company can apply to be registered in the name of its separate
divisions.

ATX Revision Notes: Income Tax

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ATX Revision Notes: Income Tax

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ATX Revision Notes

• Example of a higher rate payer

Income tax on:

Non savings income

£34,500 at 20% = £6,900

This includes dividends received from UK companies.

The first £2,000 of dividend income benefits from a 0% rate.

• Example of dividend nil rate band

Mia has a salary of £56,850 and dividend income of £3,800.

Income tax on:

Non savings income

34,500 at 20% = £6,900

The information below is provided in the exam:

Transferable Personal Allowance

Interest Payable on the Loans below is deducted from Total Income.

A loan taken out to Purchase a computer to use for employment

3. Loan to purchase an interest in a partnership.

4. Loan to buy shares in a close company

Benefits (See below) x

= Total employment income x

Income tax (20%/40%/45%) x

1. Contributions to an occupational pension scheme.

3. Subscription to a professional body (e.g.) ACCA

4. Deficit on a mileage allowance

Note that Donations to political parties are NOT allowable deductions.

Employers pay NIC Class 1A (13.8%)

Examples of the benefits:

• Living accommodation benefit

• Motor cars benefit

• Beneficial Loan Benefit

The information below is provided in the exam:

• Anything below the allowance will be deductible

• This is because, this is cash received by the employee, not a benefit.

If an employer lends an asset (e.g. a Computer, Motorcycle, Furniture) to an employee,

Assessable benefit: 20% * market value * x/12 X

The money value will be the higher of 2 figures:

Original market value £750

Gift benefit £450

Market value at date of gift £500

Gift benefit £500 I.T. will be paid on this figure.

Living accommodation benefit

The Additional benefit is ADDED to the Living accommodation benefit (above).

How to calculate the money value of the additional benefit?

(Market value - £75,000) * Oﬃcial rate of interest = Additional benefit

• (List price - capital contribution) * % = Car benefit

• If there is no private use of the car there is no taxable benefit

The information below is provided in the exam:

The percentage rates are increased by 4% for diesel cars.

The motor car was only available for 8 months of 2018/19.

Fuel provided for private use

The information below is provided in the exam:

Beneficial Loan Benefit

Money value of the loan benefit X

Less: Interest actually paid by employee (X)

Beneficial loan benefit X

The information below is provided in the exam:

• Employees pay NO I.T and NO NIC

• Employers pay NO NIC

• One mobile telephone

• Parking space at or near an employee’s work

• Note that the equivalent UK allowance is only £5 per night

• The use of a company gym

• The provision of meals in a staﬀ canteen

Non savings income 

£34,500 at 20% = £6,900 

Non savings income 

34,500 at 20% = £6,900 

4. Deficit on a mileage allowance  

• This is because, this is cash received by the employee, not a benefit.  