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 r
Contents
l
Welcome to ВРР Learning Media's Passcards for ICAEW Principles of Taxation.
• They save you time. lmportant topics are summarised for you.
• They incorporate diagrams to kick start your memory.
• They follow the overall structure of the ICAEW Study Manual, but ВРР Learning Media's ICAEW
Passcards are not just а condensed book. Each card has been separately designed for clear
presentation. Topics are self-contained and сап Ье grasped visually.
• ICAEW Passcards are just the right size for pockets, briefcases and bags.
• ICAEW Passcards focus on the exams you will Ье facing.
Run through the complete set of Passcards as often as you сап during your final revision period. The day
before the exam, try to go through the Passcards again! You will then Ье well оп your way to passing your
exams.
Remember to use the information given to you in the tax taЫes . The tax taЫes availaЫe in the exam are
the same as the tax taЫes provided in the Study Manual. Ensure you are familiar with what is given to you
in the exam.
Good luck!

Page iii
 Preface
r
Page Page
Ethics 1 в National insurance contributions 51
2 lntroduction to taxation 11 9 Capital gains tax - individuals 55
3 lntroduction to income !ах 17 10 Corporation tax 59
4 Employment income 23 11 Value added !ах 67
5 Trading profits 31 12 Value added tax - further aspects 75
6 Capital allowances 37 13 Administration of tax 81
7 Trading profits - basis of assessment 45
 1: Ethics

The topics covered in this chapter аге essential knowledge

for the whole of уоиг Тaxation studies.
Fundamental principles They ensure that уоиг advice and communication is
appropriate and in keeping with ICAEW's requirements.
Frameworks
Conflicts of interest
Т ах avoidance and tax evasion
Мопеу laundering
 Frameworks Conflicts of Т ах avoidance Money
interest and tax evasion laundering

Professional
competence and due Confidentiality
саге

Objectivity lntegrity

Professional
behaviour Р Professional competence
О Objectivity
Р Professional behaviour
1 lntegrity
С Confidentiality
 1 lntegri~
Being straightforward апd honest in all
professional апd business relationships
Page 3
2 Objectivity
OЫigation поt to compromise professional ог
business judgement because of:
• Ьias;
• conflict of interest; ог
• undue influence of others.
1: Ethics
 Frameworks Conflicts of Т ах avoidance Money
interest and tax evasion laundering

з Professional competence
• Attain and maintain professional knowledge
and skill
Due care
• So а client ог employer receives competent Act diligently in accordance with applicaЫe
professional service technical and professional standards when
• Вased оп current developments in practice, providing professional services
legislation and techniques

• Appropriate training and supervision

• Make clear to clients any limitations relating to the
service being provided
4 Conf identiality
OЫigation not to use ог disclose confidential information acquired in the course of professional and business
relationships, even in а social environment, ог to use it to personal advantage ог the advantage of third
parties.

UNLESS: s Professional behaviour

• Protect reputation of the profession
• Comply with laws and regulations eg,
• You have specific and ргорег authorisation Ьу
the client/employer - Anti-money laundering regulations
- ICAEWCode
• There is а legal ог professional right to do so

Page 5 1: Ethics
 гunaamenia1 l.,()ПJIIC!S ОТ 1ах аvоюапсе мопеу

principles interest апd tax evasion laundering

Threats and safeguards framework

Self-interest threats
~ Safeguards
Se!f-review threats
~ • Educational, training and experience
• CPD
Advocacy threats _____. • Corporate govemance
/ •. Professional standards
Familiarity threats

lntimidation threats
1. Monitoring and disciplinary
procedures
External review
 Ethical conflict resolution framework
Consider:
• Relevant facts
• Relevant parties
• Ethical issues involved
• Fundamental principles related to the matter in question
• EstaЫished internal procedures
• Alternative courses of action

Seek internal advice if remains unresolved

'---------------- ••--•• aDocument
nd details
issue

Seek legal or professional advice if necessary

Last resort: withdraw from team or resign

Page 7 1: Ethics
 Fundamental Frameworks Тах avoidance Мопеу
principles and tax evasion laundering

Take reasonaЫe steps to avoid, identify and resolve conflicts of interest.

Conflict situations
For example, where а firm acts for both:
• А husband and wife in а divorce settlement
• А company and ап employee being made redundant
Test:
Would а reasonaЫe and informed observer perceive that
objectivity is likely to Ье impaired?
Threats
• Evaluate threats: Business interests
or relationships with client or third party
that could give rise to threats?
• Apply safeguards: eg, notify all
known relevant parties of the conflict

Alert! Оо not act 1f one of the f1ve fundamental

princ1ples is unacceptaЫy threatened.
 Fundamental Frameworks Confticts о! Money
principles interest laundering

Т ах avoidance Тах evasion

• Legal method of reducing taxpayer's liaЬility
• Сап include exploiting legal 'loopholes'
• However, steps taken to minimise tax may not
ассерtаЫе to HMRC
• lllegal
• Deliberately misleading HMRC eg,
Ье
1 Suppressing information
2 Providing false information
• Serious cases сап lead to criminal prosecution
• Мау have money laundering implications

• Disclosure of tax avoidance schemes

• Courts сап strike down planning schemes with
transactions that have по commercial purpose
• HMRC сап challenge abusive tax avoidance
arrangements using the GAAR

Page9 1: Ethics
 Fundamental Frameworks Conflicts о! Тах avoidance
principles interest and tax evasion

Penalties:

Money laundering main offences· J • Unlimited fines

• Up to 14 years' imprisonment

• Conceal, disguise, convert, transfer ог remove (from UK) criminal property

• Enter into/involved in an arrangement which know/suspect facilitates the use/control of criminal property
• Acquire, use ог have possession of criminal property (including the proceeds of tax evasion)

Repo~s Penalties:

1 lntemal report to Money Laundering

Reporting Officer (MLRO)
MLRO may submit а suspicious
Related offences J • Unlimited fines
• Up to five years' imprisonment

2 1 Failure to submit а SAR

activity report (SAR) to National
Crime Agency (NCA) 2 Tipping off а client
 2: lntroduction to taxation

This chapter contains essential background knowledge

that underpins the who/e of your later studies of taxation.

Objectives of taxation
Liabllity to tax
Т ах administration
Sources of tax law and practice
 Liabllity to tax Sources of tax
administration law and practice

Economic factors Relevant influences

Taxation represents а withdrawal from the UK economy. • EU, esp VAT must conform with EU rules.
Тах policies can Ье used to encourage and discourage • Bank Levy.
certain types of activity. • OECD model tax treaty
• Scottish and Welsh taxes

0 Saving
0 CharitaЫe donations ~ Smoking
0 lnvestment in business ~ Alcohol
0 Entrepreneurs ~ Motoring

Social factors Environmental factors

Тах policies сап Ье used to redistribute wealth Taxes may Ье levied for environmental reasons
• Direct taxes - tax only those who have these resources • Climate change levy
• lndirect taxes - discourage spending • Landfill tax
• Progressive taxes - target those who сап afford to рау • Motor vehicle taxes based on СО 2 emissions
 Objectives о! Тах Sources о! tax
taxation administration law and practice

lncome tax • lndividuals

• Partnerships

Corporation tax • Companies

Capital gains tax • lndividuals Alert! The tax year (1nd1v1duals)

• Partnerships runs from 6 Apr1I to 5 Арп! and the
financial year (compan1es) runs
from 1 Арпl to 31 March
National insurance • Employers
• Employees
• Self-employed

Va\ue added tax • Businesses (Ьoth incorporated and unincorporated)

• Final consumers

Page 13 2: lntroduction to taxation

 uь1ect1ves ot L1aь111ty to tax ~ources ot tax
taxation law and practice

Structure of the UK tax system

Commissioners of

• Collect and administer taxes

-· -~[ HMRC
Officers of Revenue
and Customs
• Рау and administer tax cred~s and child benefit
• Collect student loan repayments
• Ensure minimum wage rules аге met
• Protect society from tax fraud
 Гoь;ctives of LiaЬility to !ах ~( Тах
taxation administration

Sources of tax law and practice

• Statute • HMRC manuals

• Statutory instruments • Statements of practice
• Case law • Extra-statutory concessions
• Press releases and explanatory notes
• Leaflets

Page 15 2: lntroduction to taxation

 3: lntroduction to income tax

The calculation of income tax is key in the Principles of

ChargeaЫe and exempt income
Computation of tахаЫе income
Computing tax рауаЫе
Taxation ехат.
This chapter first helps уои to identify chargeaЬ/e and
exempt income.
lt then deals with the income tax computation, which
draws together а// of the taxpayer's income.

Allowances for married couples

 Lomputauon ot LOmpuung tax AIIOwances tor
tахаЫе income рауаЫе married couples

Types of income
The main types of income for individuals are:
• lncome from employment
• lnterest on NS&I certificates
• Profits of trades • lncome arising on ISAs and Junior ISAs
• Property income • Betting and lottery winnings
• Premium Bond winnings
• Savings and investment income, including interest • Social security benefits (eg, housing benefit)
and dividends • Scholarships
• Other miscellaneous income • lncome tax repayment interest

Leave exempt income out о!

personal tax computation
 ChargeaЫe and Computing tax Allowances for
exempt income рауаЫе married couples

lncome taxed at source . - - - - • • given gross

1
• amount in exam
Employment income - tax deducted under РАУЕ system ie, before tax deducted

lncome received gross

Received with no tax deducted at source:
• Trading
• Ргорегtу
• lnterest eg, bank interest, NS&I accounts, govemment securities, loans between friends
• Dividends

Personal allowance is
restricted if net income
Personal allowance
Completely withdrawn if _>_Е_о_о_
1
,оо_о_.- - - - - i - -.. Everybody can deduct the personal allowance
> Е123,700 Additional rate of f:11,850 (2018/19) in computing their tахаЫе
taxpayers have по income.
personal allowance.

Page 19 3: lntroduction to income tax

 Computation of Allowances for
tахаЫе income married couples

Computing income tax

1 Total non-savings, savings and dividend income separately.
Broadly interest
2 Deduct the personal allowance from non-savings income first, then
savings income then dividend income.
Both use Only ,t NS tахаЫе Е2 ,ООО for ]
Тах rates Uses up

~
u~p the BRB income < ES,000 ] the BRB all taxpayers

[
1 BRB :20% Starting rate band : ES,000 @ 0% 1 Dividend nil rate band : 0%
2 HRB : 40% Savings nII rate Ьand : @ 0%

r
2 BRB : 7.5%
З AdditJonal : 45% 3 Savings BRB : 20% 3 HRB : 32.5%
4 Savings HRB : 40% 4 Additional : 38.1%
5 Savings additional rate : 45%
The basic rate band must Ье E1 ,000-BR
extended Ьу the gross amount Е500- HR
of any Gift Aid donation. EO-AR
Alert!
Reduce liabllity Ьу tax deducted at source from employment income via РАУЕ.
 ChargeaЫe and Ccmputation of Ccmputing tax
exempt income tахаЫе inccme рауаЫе

Married couple's allowance

Allowance for older married couples and civil partners
10% х allowance
which reduces the income tax liabllity (rather than the
income itself) as а tax reduction z
>84 years at 5 April 2019 ЕВ,695
Restriction

f
Net income х

Reduction of allowance = ~ х allowance Less: limit (28,900)

у
12
for each complete tax month pre marriage/registration
-;-2 z
Reduce МСА Ьу Z (to minimum ЕЗ,360)
Marriage allowance
Вasic rate ТР (or non-TP) сап transfer i:1 ,190 of
РА to basic rate spouse/civil partner with relief
given as 20% tax reduction

Page 21 3: lntroduction to income tax

 4: Employment income

Уои need to know when and how employment income is

assessed.
Benefits frequently арреаг in the ехат so it is vital that
AssessaЫe employment income уои аге аЬ/е to calculate the tахаЬ/е value of benefits
Т ахаЫе benefits provided to employees. Уои also need to Ье аЬ/е to
identify those tax efficient benefits that сап Ье provided
Exempt benefits free of tax.
Рау As You Еагп (РАУЕ) Employment income is administered through the РА УЕ
system. Уои must know this агеа in detai/.
 Т ахаЫе benefits Exempt benefits Рау As You Eam
( РАУЕ)

Employment income
Employees/directors are taxed оп income from
their employment:
• Cash eamings
• Benefits

Date of receipt is the ea~ier of:

Eamings are taxed in the tax year in which they • the time payment is made
are received • the time entitlement to payment arises
 AssessaЫe Exempt benefits Рау As You Earn
employment income (РАУЕ)

Specific rules for certain beneffls ...----• lf specific rule doesn1 apply use cost to employer
• • Deduct amounts paid Ьу the employee (except for fuel)

Living accommodation Vouchers

Annual value of accommodation is а taxaЬle beneffl • Cash vouchers
опall employees, unless joЬ-related. • Credit token (eg, credit cards)
Additional yearly Ьenefrt if costs more than Е75,ООО. • Non-cash vouchers
Cost of providing Ьenefit is tахаЫе.

I
Excess х official rate of interest а!
the start of the tax year.
Living expenses
Living expenses connected with accommodation
(eg, gas Ьills) are tахаЫе.

Page 25 4: Employment income

 AssessaЫe Exempt benefits Рау As You Eam
employment income (РАУЕ)

Private use of asset

I where an asset is made availaЫe for

private use, 20% of the market value when
the asset was first provided is ta,aьte.

Use this rule if fumiture is

provided in accommodation
Cars ··------· There is по tax charge for use о! а pool саг. Vans
Annual tахаЫе benefit for private use о! а саг is: • f:3,350 for unrestricted
(list price of the car + optional accessories) х % private use unless zero
• % depends on car's СО 2 emissions emissions when tахаЫе
• Og/km to 50g/km: 13% benefit of f:1 ,340.
• 51g/km to 75g/km: 16% • f:633 fuel benefit.
• 76g/km to 94g/km: 19%
• 95g/km: 20%- increases Ьу 1% for each 5g/km up to max о! 37%
• lncreased Ьу 4% for diesel cars if not RDE2 compliant (max still 37%)
• Scale down benefit on time basis if not availaЫe for whole !ах year
• Then reduce benefit Ьу any contribution Ьу employee for private use

Fuel for private use:

- Same % as саг benefit х base figure (f:23,400 for 2018/19)
- No reduction for partial contribution Ьу employee

Page 27 4: Employment income

 ТахаЫе benefits

_ _ _ _.. Non-cash/voucher < Е50 provided for

Exempt benef its non-work reason. Director's сар = ЕЗОО ра.

Closed to new applicants from October 2018

Employer contributions to registered pension (workplace nurseries unaffected)
Тrivial Ьenefits
For employees in а scheme at 5 April 2011
Workplace nurseries Е55 per week
Approved childcare provided Ьу employer _______.__ For employees joining the scheme trom 6 April 2011
One moblle phone рег employee Вasic rate tax payer Е55 per week
Canteen meals availaЫe to all staff Higher rate tax payer Е28 per week
Additional rate tax рауег Е25 рег week
Staff parties •
Entertainment and gifts provided Ьу а third party ~ l _ Provided the cost регstaff member
Parking places at ог near work (+ guest) per year is Е150 or less
Gifts up to 1::250 рег tax уеаг рег donor
Staff suggestion scheme awards - - - - - - - - - - - - Up 10 Е5,ООО
Work related training courses
Sports faciШies for staff only
Additional household costs for homeworkers •
..._____ Up to Е4 pw may Ье made wilhout
Personal incidental expenses whilst working away ovemight 1
• supporting evidence
Works buses
Bicycles provided for cycling to work
Removal expenses of up to f8,000
Long service awards of up to f50 рег уеаг of service ••-----.1 Тhе award must ье а non-cash award and
Еуе tests and glasses for VDU users L-. lhe employee must have worked at least
20
Health screening and medical check ups • years
Retum to work medical treatment (up to f500) L Мах о! one о! each per tax year

Page 29 4: Employment income

 AssessaЫe Т ахаЫе benefits Exempt benefits
employment income

l.----------illl• lncludes tax оп certain benefits if employer chooses

The РАУЕ system collects !ах from employees each- Real Time lnformation (RTI) reporting system
рау day, so that over а tax year the correct total of !ах
should Ье collected. Payment High risk employers may have
г to provide а security

Quarter1y payment is allowed if the average
monthly total of tax and NICs is less than f:1 ,500
РАУЕ code numbers
L: Code if receives basic personal allowance
М: Code if receives part of spouse's РА
N: Code if transfers part of РА !о spouse
К: Code if deductions exceed allowance
_ _ Тhе employer must рау over the tax deducted up !о
the 5th of each month Ьу the 19th of the month.
I
22nd of the month if paid electronically
Employee receiving basic personal allowance of
f:11,850 in 2018/19 will have а РАУЕ code of:
1185L