Advanced Taxation

(ATX-UK)
March/June 2022
Examiner’s report
The examining team share their observations from the
marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer
constructive advice for those sitting the exam in the
future.

Contents
General comments .............................................................. 2
Format of exam ................................................................... 2
General Approach to the ATX-UK examination .................. 2
Question 1 – Olma (35 marks) ............................................ 5
Requirement (a) – 5 marks .............................................. 5
Requirement (b) – 4 marks .............................................. 6
Requirement (c)(i) – 8 marks ........................................... 7
Requirement (c)(ii) – 14 marks ........................................ 8
Professional skills – 4 marks ........................................... 9
Question 2 – Hogan (25 marks) ........................................ 11
Requirement (a) – 8 marks ............................................ 11
Requirement (b) – 3 marks ............................................ 12
Requirement (c) – 7 marks ............................................ 12
Requirement (d) – 7 marks ............................................ 13
Question 3 – Fox Ltd (20 marks)....................................... 14
Requirement (a)(i) – 4 marks ......................................... 14
Requirement (a)(ii) - 7 marks ......................................... 15
Requirement (b) – 9 marks ............................................ 16
Question 4 – Luis (20 marks) ............................................ 18
Requirement (a) – 5 marks ............................................ 18
Requirement (b) – 9 marks ............................................ 19
Examiner’s(c)
Requirement report – ATX............................................
– 6 marks UK March/June 2022 20 1

Conclusion ......................................................................... 21
General comments

This examiner’s report should be used in conjunction with the published March/June
2022 sample exam which can be found on the ACCA Practice Platform.
In this report, the examining team provide constructive guidance on how to answer the
questions whilst sharing their observations from the marking process, highlighting the
strengths and weaknesses of candidates who attempted these questions. Future
candidates can use this examiner’s report as part of their exam preparation, attempting
question practice on the ACCA Practice Platform and reviewing the published answers
alongside this report.

Format of exam

The ATX-UK exam followed the established format comprising wholly compulsory
questions. The style of the questions has remained as in previous sittings: Section A
consisting of the compulsory questions 1 and 2, worth 35 marks and 25 marks
respectively, and Section B consisting of two further compulsory questions, 3 and 4,
worth 20 marks each. The marking scheme included four professional skills marks in
question 1 for good presentation and communications skills, clear and easy to follow
explanations and calculations, and an organised, well-planned answer.

General Approach to the ATX-UK examination

Candidates should pay particular attention to the following in order to maximise their
chances of success in the exam in the future.
Know their stuff
• Successful candidates are able to demonstrate a good level of accurate
knowledge of the UK tax system.
• This includes knowledge brought forward from the TX-UK syllabus. This is
extremely important and must not be underestimated.
Practise questions from past exams
This should be a key part of candidates' preparation for the exam. Candidates should
note the style and presentation of the model answers, particularly where a more
effective or efficient style has been used, with the aim of adopting this style in
subsequent questions which they attempt. Where a candidate did not identify a
particular point, they should focus on how to spot the ‘clues’ or ‘triggers’ in the
question, which should have flagged this up for them. In particular, this applies to the
longer, scenario-based Section A questions, where important guidance is often
provided in the form of a communication from the manager.

Examiner’s report – ATX UK March/June 2022 2

Address the requirement

• Read the requirement carefully – in the Section A questions, the detailed tasks
which candidates are to perform will be set out in one of the documents. Marks
are awarded only for satisfying the requirements and not for other information,
even if it is technically correct.

• The requirements of each question are carefully worded in order to provide

candidates with guidance as regards the style and content of their answers. It is
very important to note the command words (calculate, explain, advise etc).

Requirements to ‘explain’ or ‘advise’ require a written element to the answer,

perhaps accompanied by supporting calculations, but calculations alone will not
suffice. However, an instruction to ‘calculate’ does not require anything more
than a clear labelling of the figures, or perhaps a brief note where, for example,
a source of income is exempt, or a relief or allowance is restricted, or not
available.

Candidates should also pay attention to any matters which the question instructs
them do not need to be covered, as inclusion of these will not gain marks.

• Pay attention to the number of marks available – this provides candidates with a
clear indication of the amount of time which should be spent on each question
part.

Don’t provide general explanations or long introductions

• If the requirement is simply to ‘calculate’, there is no need for candidates to

explain what they are going to do before doing it; the calculations alone will
suffice – explanations should only be provided when they are requested.

• Candidates should think before they write. They should then only write what is
necessary to satisfy the requirement.

• Candidates should apply their knowledge to the facts by reference to the

requirement.

Think before you start and manage your time

• The correct amount of time should be allowed for each question part.

Examiner’s report – ATX UK March/June 2022 3

 • Before starting to write, candidates should take time to think about the issues
and identify all of the points they intend to address and/or any strategy they
intend to adopt to satisfy the requirement.

Show your workings

It should be remembered that method marks are available, irrespective of whether the
final answer is correct. Calculations should not simply be performed on calculators
with only the very final number being entered in the answer. It is important that the
method used to arrive at calculations is always shown, whether working within the
word document or the spreadsheet.

Resitting

Candidates who are preparing to resit the exam should think about the number of
additional marks they need and identify a strategy to earn them. For example:

• Identify those areas of the syllabus where they are weakest and work to improve
knowledge in those areas. This should include any technical areas brought
forward from TX-UK, where necessary.

• Practise past exam questions in order to familiarise themselves with the style of
questions which they will have to deal with. This is a vital part of the preparation
for this exam and its importance cannot be over-emphasised.

• Ask themselves whether they could improve the way they manage their time in
the exam and whether they address all of the parts of all four questions, or
whether time has been spent addressing issues which have not been asked for,
or in terms of providing unnecessary explanations in a question which just
requires calculations.

• Make sure that they earn the professional skills marks and that they are prepared
to address the ethical issues which may be examined.

Those candidates finding themselves scoring in the 40s should ensure that they read
the various non-technical articles aimed at improving performance in the ATX-UK
exam; these are available on the ACCA global website.

Examiner’s report – ATX UK March/June 2022 4

Question 1 – Olma (35 marks)

Requirement (a) – 5 marks

Prepare the memorandum as requested in the email from your manager. The
following marks are available:

(a) Becoming tax advisers to Olma

There were two parts to this requirement. The first required an explanation of matters
to be considered before agreeing to replace Olma’s existing tax advisers. This was a
fairly standard ethics’ requirement which has been tested before; many candidates
were able to score well on this part of the question.

While most candidates were able to discuss the need to identify threats to fundamental
principles, the importance of implementing safeguards in order to reduce any identified
threats was not considered by many. Candidates were also expected to show an
awareness of the need to carry out money laundering checks on the prospective client.

Most candidates were aware that the previous advisers should be contacted but many
didn’t add that the client’s permission must be given before establishing such contact;
if this permission is not obtained, then consideration must be given as to whether or
not to take on the client.

The second part of this requirement asked what is meant by the term ‘Professional
Behaviour’ in the context of the fundamental principles. Many candidates correctly
identified that this related to complying with relevant laws and avoiding actions which
may discredit the profession. Weaker candidates gave long, general descriptions of
what it means to be professional such as good timekeeping or dressing appropriately;
such points were not relevant in this particular context and therefore time was wasted
without scoring marks.

Examiner’s report – ATX UK March/June 2022 5

Requirement (b) – 4 marks

(b) Sale of shares in BG Ltd

Part (b) of this question concerned the conditions which needed to be satisfied such
that a particular share sale gave rise to a chargeable gain. The context of the share
sale was very important here and candidates needed to look at the detail of the
question before commencing their answer.

The question stated that Olma had sold her shares in BG Ltd back to the company via
a company purchase of own shares. A share buy-back is a very specific tax scenario
of which candidates do need to be aware. If certain conditions are met, the ‘buy-back’
is treated as a capital gain for the individual shareholder.

Three of the necessary conditions were already provided within the requirement, and
candidates needed to outline the others.

A significant number of candidates appeared to be unaware of the relevance of the

purchase of own shares scenario in this question, choosing instead to calculate the
gain on the sale of shares and to list the conditions for business asset disposal relief;
neither of which were required. Others provided detailed descriptions of the badges of
trade, or conditions for the substantial shareholding exemption; none of which were
relevant to the facts of this particular question.

Of those stronger candidates who did identify that this scenario related to a company
share buy-back, many then wasted time repeating the three conditions which the
question had explicitly stated had already been met. The requirement specifically
asked for the ‘other’ conditions and there were no marks available for simply repeating
the facts of the question. It is important for candidates to pick up on such signposting
within questions in order that they specifically address the requirement. Highlighting
of key words within a requirement may help to maintain focus and to ensure that
candidates do not lose sight of what it is they are being asked to do.

The ‘other’ conditions that needed to be provided here were, for example, that the buy-
back should be for the benefit of the company’s trade, that the shareholder should be
UK resident and have owned the shares for at least five years, and that the company
should be unquoted and trading.

Answers to this part of the question were generally disappointing. It would appear that
candidates needed to spend more time considering and understanding the context of
the question, before actually starting their answers. They also needed to reflect more

Examiner’s report – ATX UK March/June 2022 6

carefully on what information they had already been given, and what the requirement
was actually asking them to do.

Requirement (c)(i) – 8 marks

(c) Cafe business

(i) Voluntary registration for the purposes of value added tax (VAT)

This part of the question asked for an explanation of ‘additional’ matters regarding the
financial advantages and disadvantages of voluntarily registering for value added tax
(VAT).

A key word used here was ‘additional’. The requirement explicitly stated that the
administration aspects of VAT, including the various schemes and the penalty regime,
had already been discussed with the client, and therefore didn’t need to be addressed.
However, a disappointing number of candidates needlessly wasted time by discussing
these issues, with no marks being awarded for so doing. Here, once again, the words
used in the requirement had been carefully chosen to signpost what was required.
Candidates should pay particular attention to such wording prior to starting work on
their answers, in order to ensure that they are following the instructions that they have
been given and answering the question which has been set.

Despite being aware that voluntary VAT registration would potentially allow recovery
of input VAT, it was good to see many candidates going on to relate this to the facts
of the question and recognising that, on this occasion, the value of such recovery
would be quite limited. This was due to the fact that the principal recurring costs
incurred by the business were either zero rated (food), exempt (rents) or outside the
scope (employment costs) such that no input VAT would have been charged.

Of further relevance to the scenario was the fact that, prior to registering voluntarily for
VAT, some furniture and other assets had been purchased for use in the business.
This should have prompted candidates to discuss the recovery of pre-registration input
VAT. This is possible with goods acquired in the four years before VAT registration, if
still owned, and with respect to services purchased in the six months before VAT
registration.

Many candidates were very good at recognising the fact that voluntary VAT
registration would mean having to charge VAT on sales, which in turn would lead to
an increase in prices to the customers who, on this occasion, were members of the
general public and therefore not VAT registered.

Examiner’s report – ATX UK March/June 2022 7

Answers to this part of the question were generally strong with candidates going
beyond a mere statement of the rules and making good attempts at relating their
knowledge to the specific facts of the question

Requirement (c)(ii) – 14 marks

(ii) Loss planning

This requirement concerned a sole trader’s opening year loss and options for relieving
it; it was split into three distinct parts.

The first part of the requirement involved a calculation of the trading loss. Most
candidates were able to make a reasonable attempt at this. The correct calculation
involved a two stage process: initially working out the loss for the accounting period
(in this case the six months ending 30 June 2023), and then applying this to the correct
basis period for the tax year 2022/23 i.e. the first three months from 1 January to 5
April 2023. This is based on knowledge which is brought forward from TX-UK. Such
brought forward knowledge areas are important and candidates should ensure that
they do revisit them as part of their preparation for this exam, paying particular
attention to those where they may feel less confident.

It was encouraging to see a number of candidates including capital allowances on the

furniture and equipment within their loss calculations; thereby demonstrating an ability
to apply the facts of the scenario to the specific requirement.

The second part required an explanation, with supporting calculations, of how the
trading loss could be offset, on the assumption that the client did not wish to carry it
forward.

There were several options for loss relief in this context, including current and/or prior
year relief, extension against capital gains, and ‘opening year’ loss relief which would
permit a three year carry back on a first in first out (FIFO) basis. Many candidates
mistakenly thought that the trading loss could be used against gains without using the
loss in the related income tax computation first. A significant number did not mention
‘opening year’ loss relief at all, even though this was clearly relevant since the loss
arose in one of the first four years of trading. Some candidates discussed carrying
forward the loss despite being specifically told in the requirement that the client did not
wish to do this.

Candidates who attempted the loss relief calculations often mistakenly showed the
loss being offset in the income tax computation after the personal allowance. In such

Examiner’s report – ATX UK March/June 2022 8

instances, the loss must be used against total income before deduction of the personal
allowance, which may on occasions lead to wastage of the latter.

The third part of the requirement was to conclude on the most beneficial way to relieve
the loss, and to quantify the resulting tax saving. For those candidates who provided
conclusions, credit was awarded based on their own workings. Many did not however
go on to calculate the tax savings and therefore did not earn the marks for those
calculations. Where requirements are divided into more than one sub-requirement,
candidates should take time to identify all of these (possibly even by numbering each
of them) to ensure that they do address all relevant parts and earn credit for correct
steps.

It was apparent that those candidates who attempted their loss relief calculations in
the spreadsheet platform found it easier to be able to show their workings and thus
earn marks. This also appeared to make it much easier for them to work out the tax
savings from the most beneficial use of the loss. Where several linked computations
are involved, the functionality of the spreadsheet generally assists in the task of
providing an answer which is both well laid out and easy to follow through.

Professional skills – 4 marks

Professional marks will be awarded for the approach taken to problem solving,
the clarity of the explanations and calculations, the effectiveness with which the
information is communicated, and the overall presentation and style of the
memorandum

In this scenario candidates were required to prepare a memorandum for the client file
in relation to a number of different tax issues.

It is important for candidates to bear in mind two key points when addressing this type
of requirement. Firstly, explanations provided should be concise but comprehensive
enough to be understood by anyone who is using the file. Secondly, the notes should
be clearly presented in a logical, structured way, such that a user is easily able to find
the information that they need.

Candidates who scored well addressed all parts of the requirements, structured their
answer according to the matters to be discussed (which were clearly set out in the
manager’s email), wrote concisely in short, clear paragraphs, and demonstrated a
logical thought process when tackling each of the relevant issues.

Examiner’s report – ATX UK March/June 2022 9

In summary, those candidates who prepared sound answers to this question were able
to do the following:

• directly address each of the tasks within the manager’s email, providing concise
explanations, where required;

• demonstrate a good knowledge of sole trader loss relief options; and

• tailor their knowledge intelligently to the scenario by using the facts of the
question.

Examiner’s report – ATX UK March/June 2022 10

Question 2 – Hogan (25 marks)

Requirement (a) – 8 marks

Carry out the work required as requested in the email from your manager. The
following marks are available:
(a) Hogan’s income tax liability for the tax year 2022/23

The first part of this question required a calculation of the client’s income tax liability
and an explanation of the amount of overseas property income which would be subject
to UK income tax.

Many candidates produced the calculations but ignored the explanatory element. It is
important that candidates do try to highlight the key command words in a question i.e.
“calculate and explain”, in order to ensure that they earn credit for dealing with all of
these in their answers.

The quality of the income tax computations produced was generally good, with many
correctly including a double tax relief working. Many candidates recognised that the
personal allowance would be fully abated by virtue of the level of income on this
occasion.

Few candidates were however able to adequately explain why an amount of overseas
property income would be subject to UK income tax in the year. The question had
stated that the ‘split-year basis’ would apply to the client for the tax year. Under this
basis, the client would be treated as being UK resident from the earlier of the
commencement of UK work and the acquisition of a UK home; both of these dates
were provided in the question to enable the comparison to be made. Once the date
from which residence would apply had been determined, it was necessary to explain
that the overseas property income would become taxable in the UK from that point
onwards.

Examiner’s report – ATX UK March/June 2022 11

Requirement (b) – 3 marks

Award of free shares from VPR plc’s share incentive plan (SIP)

This part involved an award of free shares from a share incentive plan (SIP);
candidates needed to state the conditions required in the future for there to be no
income tax payable on both the shares awarded and the dividends paid in respect of
them.

Many candidates demonstrated awareness of the knowledge that the shares would
need to be held for a minimum of five years. However, very few discussed the
conditions relating to the dividends paid in respect of the shares, namely the fact that
they needed to be reinvested in plan shares which then had to be held within the plan
for a minimum of three further years.

As part of their overall preparation for this exam, candidates should be aware of the
extent to which such detailed knowledge of rules contained within the ATX-UK syllabus
can be tested.

Requirement (c) – 7 marks

Sale of Sea Breeze Cottage

This multi-part requirement involved the sale of an overseas property under two
different scenarios; assuming that the vendor was, or was not, UK resident.

The first part required a calculation of post-tax proceeds if the client were to sell the
property for £670,000 when non-UK resident. This was generally well answered by
candidates, who correctly recognised that there would be no UK tax payable and only
overseas tax payable at the rate of 4%. The most common mistake was in the
calculation of post-tax proceeds with some candidates deducting the tax from the
wrong amount. This is an error which frequently occurs; if a calculation of post-tax
proceeds is required then any tax liability should always be deducted from the
proceeds, not the gain on which the tax liability is itself based.

The next part of the requirement asked for an explanation, with supporting
calculations, of the post-tax proceeds if the client were to sell the property for £800,000
at a time when UK resident. Many reasonable calculations were performed but some
candidates failed to provide sufficient, or indeed any, explanatory comment.

Such explanation should have included discussion of the fact that, because it was a
residential property and the seller was a higher rate taxpayer, the UK capital gains tax

Examiner’s report – ATX UK March/June 2022 12

would have been at the rate of 28%. Further comment should have also been provided
around the availability of double tax relief, this being the lower of UK and overseas tax.
On many occasions candidates overly focus on the numerical rather than the written
aspects of questions, and marks are consequently not earned if they fail to provide
explanations when these are specifically requested.

Finally, within this part, candidates needed to consider the matters to be drawn to the
client’s attention if the property were to be sold for reduced proceeds i.e. for less than
£800,000, at a time when he was UK resident. This involved consideration of the fact
that post-tax proceeds would fall as proceeds fell and that there would come a point
where a sale for £670,000, when non-UK resident and with only a 4% overseas tax
rate, would be preferable to selling for a higher amount when UK tax resident and
thereby suffering UK tax at the rate of 28%.

Requirement (d) – 7 marks

Gift of £380,000 to a discretionary trust on 1 July 2023

This part required candidates to analyse the tax consequences of making a gift of cash
to a discretionary trust. The requirement was broken down into two parts; the first
asking for an explanation, by reference to the client’s domicile, of why the gift would
give rise to UK inheritance tax (IHT) and the second, a calculation of the amount of
IHT payable.

Unsurprisingly, candidates fared better on the calculative element, demonstrating

good recollection of their TX-UK knowledge and being confident in the application of
annual exemptions, the nil rate band, and the correct 25% tax rate.

Many of the explanations provided were however vague with the concept of deemed
domicile not being sufficiently clearly understood. A number of candidates confused
domicile and residence rules.

In this scenario there would be IHT on the gift if the client was either domiciled or
deemed domiciled in the UK. On this occasion the conditions for deemed domicile
were satisfied. This was because the client was born in the UK with a UK domicile of
origin, was UK resident in the year of the gift, and had been UK resident in one of the
two years prior to the year of the gift.

When an explanation is requested, there are marks available for providing this. Many
candidates could improve upon their exam technique, and thus their overall marks, by
focussing on, and addressing, explanatory requirements, rather than just calculative
ones.

Examiner’s report – ATX UK March/June 2022 13

Question 3 – Fox Ltd (20 marks)

Requirement (a)(i) – 4 marks

Calculate the chargeable gain arising on the assignment of the lease on 1

October 2021 and explain the tax treatment of the deferred gain in respect of the
sale of the office building.

Notes:
(1) The following lease percentages should be used where necessary:
26 years 82.496
40 years 95.457

(2) You should ignore indexation allowance and any potential claim for rollover
relief in respect of the disposal of the lease.

This requirement involved the calculation of a chargeable gain arising on the

assignment of a lease and an explanation of the tax treatment of a deferred gain.

The lease in the question had 26 years left to run (i.e. a short lease) which meant that
candidates needed to consider two things in relation to its disposal:

1) The fact that it was a wasting asset. Lease percentages were provided to
enable candidates to restrict the cost figure in the computation of the gain.

2) The fact that it was a depreciating asset (life of less than 60 years) for the
purposes of rollover relief (ROR). This meant that, as the gain on the disposal
of a previous asset had been deferred by virtue of investing in the lease, the
deferred gain would not have been deducted from the base cost of the lease,
but would crystallise on the earliest of three dates: the date of disposal of the
lease, the date when the lease ceased to be used in the company’s trade, or

Examiner’s report – ATX UK March/June 2022 14

 10 years after its acquisition. In this scenario the gain would have already
crystallised as the leasehold premises had been owned for more than 10 years.

Most candidates prepared a computation of the gain, but mistakes were frequently
made. Candidates generally realised that they needed to use the lease percentages
provided, but in many cases applied them incorrectly, or applied them to the gain,
rather than the cost.

Failure to recognise that the lease was a depreciating asset meant that many
candidates provided no explanation whatsoever, or only a very brief incorrect one, with
regard to the treatment of the deferred gain. Candidates need to remember that, as
was the case here, a deferred gain can sometimes become independently chargeable,
rather than being deducted from the base cost of another asset. It is important for
candidates to pay attention in their studies to situations where the relief operates in
this manner.

Requirement (a)(ii) - 7 marks

In relation to the chargeable gain calculated in (a)(i), explain, with supporting

calculations:

- the extent to which rollover relief will currently be available within the Fox
Ltd group; and

- the minimum amount which Fox Ltd will need to spend on the new
freehold factory, such that the full amount of the eligible gain in (a)(i) can
be deferred using rollover relief.

There were two requirements within part (a)(ii). Candidates were required to provide
an explanation, with supporting calculations of:

1. The ROR currently available within the Fox Ltd group in respect of the gain on
the lease calculated in (a)(i); and then

2. The minimum amount to be spent on a proposed new qualifying asset such that
the full amount of the eligible gain could be rolled over.

Picking up on the reference to the ‘group’ in the first part, many candidates
commenced with an explanation of which companies were members of Fox Ltd’s gains
group. This was a good place to start. It was encouraging to see that candidates
generally appeared to have learnt the definitions of both gains groups and group relief
groups, and were able to apply their knowledge to a given scenario. The ability to do

Examiner’s report – ATX UK March/June 2022 15

this is fundamental at this level. It was then necessary to explain, and calculate, the
amount of ROR currently available. A methodical approach was useful here:

1. What were the requirements for ROR, and were they satisfied in this scenario?

Yes, Fox Ltd sold a qualifying asset, and Corro Ltd acquired a qualifying asset,
within the required time period of four years commencing one year before the
date of disposal.

2. To what extent was the gain eligible for relief?

The full gain was eligible as the leasehold premises were wholly used in Fox
Ltd’s trade throughout its ownership of the property.

3. To what extent were the proceeds on disposal invested in a qualifying asset(s)?

Corro Ltd had acquired a warehouse, which was a qualifying asset, but was
going to use it only 70% for trading purposes. The qualifying expenditure
therefore had to be restricted to 70%. The amount of the proceeds retained
constituted the gain which would be immediately chargeable, and the remainder
of the gain was the amount which was eligible for ROR.

Very few candidates adopted such a methodical approach. A majority spotted that the
warehouse acquired by Corro Ltd would be a qualifying asset but didn’t say why. Also,
many picked up on the 70% trade use, but then applied this to the gain on the lease,
rather than the cost of the replacement. Very few went on to consider the retained
proceeds, and consequently the amount of ROR available, which was what they were
specifically asked to do.

As a result of not completing the workings for the first part, many candidates were not
then able to go on and get the mark for part (ii) by identifying the balance of the
proceeds to be spent on the proposed new factory building. For those who did, the
most common mistake was to deduct the amount spent by Corro Ltd from the gain,
rather than the proceeds.

Requirement (b) – 9 marks

Explain the group relief claims available to the Fox Ltd Group in respect of Salas
Ltd’s trading loss of the year ending 30 June 2022

This requirement related to a trading loss incurred by a new group member, Salas Ltd,
in the accounting period in which it joined the group. Again, many candidates started,
quite sensibly, by identifying the qualifying group for group relief purposes. Once
again, this reinforces the necessity to learn these rules, and to be able to explain them
and correctly apply them to a specific scenario.

Examiner’s report – ATX UK March/June 2022 16

The next step was to recognise that, as the company had joined the group part way
through its accounting period, the loss had to be time apportioned into the pre-
acquisition and post-acquisition elements, and then each part of the loss discussed
separately. This step was key, however, many candidates missed it, suggesting that
they had not taken enough time to read the question carefully. Dates are frequently
provided in questions, and it is critical that candidates take the time to appreciate their
relevance and any wider implications.

In respect of the pre-acquisition loss, group relief would potentially be available, but
only after five years had elapsed, and then only to the extent that Salas Ltd had been
unable to relieve this loss itself.

As for the post-acquisition loss, group relief was available in the corresponding
accounting period for the other group companies, but only to the extent of their taxable
total profits for this period. Any remaining loss could then be carried forward for group
relief in the future.

Candidates need to be more accurate when discussing loss reliefs. Imprecise

comments such as ‘companies can take relief against their current profits’ are not
sufficient; candidates are expected to refer to ‘taxable total profits’ of the
‘corresponding accounting period’.

Additionally, candidates should read the requirements very carefully to ensure that
their answer is directed at what is specifically being asked. In this case, some
candidates discussed the criteria for optimum relief within a group (surrendering the
loss to a company which pays its corporation tax in instalments), or mentioned the
possibility of consortium relief; neither of these points were relevant here. This wasted
time and scored no marks.

Examiner’s report – ATX UK March/June 2022 17

Question 4 – Luis (20 marks)

Requirement (a) – 5 marks

Explain the circumstances under which the maximum liability to inheritance tax
(IHT) will arise in respect of Luis’ planned gift of Ivy Cottage to Silvia and
calculate the amount which would be payable by Silvia in this situation.

This requirement asked for an explanation of the circumstances under which the
maximum liability to inheritance tax (IHT) would arise in respect of a lifetime gift, and
a calculation of the amount of IHT payable in this case.

The technical content of this part was quite straightforward, and overall candidates
scored well. Most were able to cite the basic rules that IHT would be chargeable if Luis
died within 7 years of making the gift, and that no taper relief would be available unless
he survived for at least 3 years. However, fewer stated that additionally he would need
to die within 7 years of making the earlier gift, such that this would use up part of his
nil rate band. This gift was frequently included in the subsequent calculation of the IHT
liability, but candidates omitted to include it as part of their explanation of the
circumstances under which the maximum liability would arise.

The calculative aspects of this part were generally handled well, with the main issue
being the omission of annual exemptions in respect of each of the gifts.

It is however important that candidates are not only able to produce good, accurate
basic IHT computations, but are also able to provide written explanations where
required to address the specific slant of the requirement.

Examiner’s report – ATX UK March/June 2022 18

Requirement (b) – 9 marks

(b)(i) Explain the immediate income tax and capital gains tax implications of
Luis’ sale of his Flores Ltd shares; and

(b)(ii) State the relief(s) available for the capital loss arising on this sale,
including the rate of tax saved in respect of each relief, and advise Luis of the
most tax-advantageous relief available to him.

There were two requirements within part (b). The first part asked for the income tax
and capital gains tax (CGT) implications of the sale of qualifying enterprise investment
scheme (EIS) shares. The sale gave rise to a loss, so the second part then went on to
deal with the relief available in respect of this capital loss.

The command word in the first part of the requirement was ‘Explain’, so although some
brief calculations were useful here, the emphasis needed to be on the written
explanations. The majority of candidates knew that the immediate income tax
implication was that the EIS relief given previously would be withdrawn as the shares
had been held for less than three years. However very few were able to go on and
explain that, since the sale had resulted in a loss, the relief withdrawn would, on this
occasion, be based on 30% of the sale proceeds (as opposed to 30% of the original
qualifying cost).

The CGT implications were not dealt with as well. In many cases candidates simply
compared cost and sale proceeds to establish the amount of the capital loss. It was
apparent that many candidates were struggling with the calculation of a capital loss in
this situation, and also with the consequences of having made a claim for EIS
reinvestment relief to defer a gain arising on the disposal of a previous asset. CGT
reliefs can be quite tricky areas of the syllabus, but one or more are examined in almost
every session, so candidates would be well advised to ensure that they do take the
time to study all of them in some detail. The consequence of disposing of shares in
respect of which reinvestment relief has been claimed, is that the deferred gain will
crystallise and become chargeable to CGT in the tax year of the share disposal.

Answers to part (ii) were, in the main, rather imprecise. Candidates referred to relief
against ‘income’ and ‘gains’ but needed to be more specific in terms of their
explanations. The relief was available against general income of the tax years 2021/22
and/or 2020/21, and against chargeable gains of the tax year 2021/22 only.

Candidates are strongly encouraged to practise past exam questions which include
explanations of loss reliefs in order to familiarise themselves with the level of specific
detail that the examining team is typically looking for. Very few candidates stated that
the relief was available against general income because the shares had qualified for
EIS relief. It is not a relief that is otherwise ordinarily available for capital losses.

Examiner’s report – ATX UK March/June 2022 19

Many candidates did not address the final two parts of this requirement. This involved
a discussion of the rate of tax savings in respect of each relief. The question stated
that Luis was an additional rate taxpayer in 2020/21, and a higher rate taxpayer in
2021/22, so those who attempted this were able to deduce that the income tax saving
in 2020/21 would be at the rate of 45%, and in 2021/22 at the rate of 40%. The gain
on the residential property would be taxed at 28%. Those who did consider rates of
tax were generally then able to go on and provide sensible advice to Luis regarding
the most tax-advantageous relief. The command word here was “advise” which meant
that candidates had to consider and summarise the different options, and then go on
to reach a conclusion. In situations such as this, there will always be credit available
for a sensible conclusion/advice, based on the information the candidate has provided
in their answer – it is therefore always advisable to attempt such parts, rather than
leave them out completely.

Requirement (c) – 6 marks

(c)(i) Explain the income tax treatment for Luis of the receipt of the bank interest
and payment of the mortgage loan interest, and

(c)(ii) Calculate the after-tax net interest saving for a full tax year if he decides
to repay the mortgage loan.

This was also a two-part question. In the first part candidates were required to explain
the tax treatment of both interest received on an investment, and interest payable on
a residential mortgage. Most candidates had no problem with the interest received,
identifying the availability of the £500 savings nil rate band, as Luis was a higher rate
taxpayer in 2021/22. However, a fair number were not aware of the rules in relation to
tax relief on mortgage interest, and said it was an allowable expense against income,
rather than a tax reducer at the rate of 20%. The command word here was ‘Explain’.
It was therefore insufficient just to provide calculations, without any attempt at written
explanation.

In the second part, many candidates were able to produce some form of computation,
but unfortunately this did not always take into account the specific figure that was
needed in order to address the requirement. The question asked for a calculation of
the after-tax net interest saving from repayment of the mortgage. Candidates had to
include four relevant figures here in order to derive this: the interest paid on the
mortgage, which would be saved; the tax relief on the mortgage interest which would
be foregone; the interest received on the investment, which would also be foregone;
and the tax payable in respect of the interest received, which would be saved.

Examiner’s report – ATX UK March/June 2022 20

Although the requirement here was simply to ‘calculate’, candidates should still ensure
that they do clearly label their figures. Otherwise, it is not always clear to markers what
the various figures represent, particularly if there are no accompanying workings. For
any figure that does have to be calculated, workings should always be provided, either
on the face of the answer or embedded in the relevant cell, so that markers are able
to see what has been done, and award credit accordingly.

Conclusion

Performance in the above questions was mixed, with some candidates producing
comprehensive, well-considered and well-presented answers to most question parts,
but with others clearly struggling with aspects of the technical knowledge, application
skills or time management skills.

In broad terms, candidates who are successful at ATX-UK are generally able to
demonstrate competence and proficiency in the following four key areas:

• They have sufficient, precise knowledge of the tax rules within the ATX-UK tax
syllabus and brought forward from TX-UK.

• They are able to apply this knowledge to the specific circumstances of the
scenario.

• They carefully read and address each of the specific requirements within a
question.

• They take the time to think and plan their answers, and manage their overall
time well.

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