ACCA P6 ATX UK All Technical Articles

ALL P6 (ATX-UK) TECHNICAL ARTICLES
(FA2020)
For Exams upto March 2022
(Association of Chartered Certified Accountants)
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Advanced Taxation (ATX) was previously known as P6 Advanced

Taxation. All exam resources lised as P6 can be used for sudying ATX.
Advanced Taxation United Kingdom (ATX-UK)
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Finance Act 2020
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Relevant to those sitting ATX-UK in June, September or December 2021 or March 2022
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This article summarises the changes made by the UK Finance Act 2020.
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Summary of available articles
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An overview and synopses of the lates technical articles to support you in your sudies.
Corporation tax
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This article considers the taxation of a company as it begins trading, acquires an additional
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business, and eventually invess overseas. It sets out the commercial decisions taken by the
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company and its shareholders at the diferent sages in the company’s development and
summarises the tax implications of those decisions.
Corporation tax – groups and chargeable gains

This article begins by briefy summarising the rules relating to both group relief groups and capital
gains groups. It then goes on to consider various issues relating to capital gains groups that could
be introduced in an exam quesion. It does not include comprehensive explanations of the rules but
assumes a reasonable knowledge.
Corporation tax – group relief

This article begins by briefy summarising the rules relating to both group relief groups and capital
gains groups. It then goes on to consider a number of group relief tax planning issues that could be
introduced in an exam quesion. It does not include comprehensive explanations of the rules but
assumes a reasonable knowledge.
Inheritance tax and capital gains tax

This article considers the occasions where both capital gains and inheritance taxes are relevant to a
transaction. It also features illusrations of some issues that need to be considered when giving
advice in the context of the exam.
International aspects of personal taxation

This article begins with some basic rules, an undersanding of which enables the particular areas of
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tax afected by an individual coming to, or leaving, the UK to be identifed. It then goes on to review
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those areas in some detail, and provides a clear set of quesions to ask in order to determine an
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individual’s liability to UK taxes. Finally, it deals briefy with the impact of double tax relief and
treaties.
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Taxation of the unincorporated business
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The new business
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This article looks at the issues relating to a new business including the choice of business vehicle
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and the frs years of trading.
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Taxation of the unincorporated business
The exising business
This article looks covers some of the issues relating to extraction of profts, change of accounting
date and the fnal years of a business.
Truss and tax

This article has been written because the taxation of truss and the transfers of assets to and from
trusees is a complicated area of the UK tax sysem. Accordingly, there is a need to set out the rules
that may be examined and those areas where knowledge is not required.
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Finance Act 2020
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Finance Act 2020
Relevant to Advanced Taxation – United Kingdom (ATX – UK)
This article looks at the changes made by the Finance Act 2020 (which is the legislation as it relates
to the tax year 2020/21) and should be read by those of you who are sitting the ATX-UK exam in
the period from 1 June 2021 to 31 March 2022.
All of the changes set out in the TX-UK article (see ‘Related links’) are also relevant to ATX-UK. In
addition, all of the exclusions set out in the TX-UK article apply equally to ATX-UK unless they are
referred to below.
This article:
• highlights an important change in approach introduced with efect from the June 2021 exam
with respect to dates provided in exam quesions
• summarises the changes introduced by the Finance Act 2020 which are not covered in the TX-
UK article but which have an efect on the ATX-UK syllabus;
• includes details of legislation other than the Finance Act 2020 which was enacted prior to 31
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May 2020, but has only come into efect from 6 April 2020;
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briefy summarises some of the more important changes which are relevant to both the TX-UK
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and ATX-UK exams.
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This article does not refer to any amendments to the ATX-UK syllabus coverage unless they directly
relate to legislative changes and candidates should therefore consult the ATX-UK Syllabus and
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Study Guide for the period 1 June 2021 to 31 March 2022 for details of such amendments.
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Please note that if you are sitting ATX-UK in the period 1 June 2020 to 31 March 2021, you will be
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examined on the Finance Act 2019, which is the legislation as it relates to the tax year 2019/20.
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Accordingly, this article is not relevant to you, and you should insead refer to the Finance Act 2019
article published on the ACCA website (see 'Related links').
You are reminded that none of the current or impending devolved taxes for Scotland, Wales, and
Ireland are, or will be, examinable.
Change in approach for ATX-UK with respect to dates

in exam questions
With efect from the June 2021 exam, a date assumption will be sated at the beginning of each
quesion in the ATX-UK exam.
For example:
You should assume that today’s date is 1 March 2021.
Candidates should pay careful attention to this date and the timeline of events and transactions in
relation to it within the quesion scenario.
Changes relevant to the ATX-UK exam only
Income tax and national insurance contributions
Income from employment
Lump sum termination payments and payments in lieu of notice
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The frs £30,000 of certain qualifying discretionary (ex gratia) lump sum payments is exempt from
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both income tax and national insurance contributions (NICs). Where the qualifying amount exceeds
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£30,000, this excess is subject to income tax and, from 6 April 2020, class 1A NIC. You should note
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that the charging of class 1A NIC gives rise to an NIC liability for the employer only, and not for the
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employee.
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Payments in lieu of notice (PILONs) do not normally qualify for the £30,000 exemption regardless of
whether they are contractual or non-contractual. Accordingly, mos PILONs are subject to income
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tax and class 1 national insurance contributions (NICs).
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However, PILONs which are neither contractual nor the usual cusom of the employer need to be
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thought of as having two parts:
(i) An amount equal to the pay which the employee would have received if he/she had been allowed
to work their notice period
This is subject to income tax and class 1 NIC.
(ii) Any amount remaining

This qualifes to be exempt from both income tax and NIC under the £30,000 rule.
Any part of this amount which does not fall within the £30,000 exemption is subject to both income
tax and class 1A NIC (note, NOT class 1).
Corporation tax
Taxable total profts
Research and development (R&D) expenditure

Where a large company incurs qualifying expenditure on R&D, it can claim an above the line R&D
expenditure credit. As a result of making such a claim:
• a percentage of the company’s qualifying R&D expenditure is treated as additional taxable

income, such that it increases the company’s taxable total profts, and
• an equal amount is then deducted from the company’s corporation tax liability.
The relevant percentage for these purposes has been increased from 12% to 13%.
For a company that has incurred R&D expenditure of £100,000, the overall efect of the rules is as
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Tax credit deducted from corporation tax liability (£100,000 x 13%) 13,000
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Corporation tax on additional income (£100,000 x 13% x 19%) (2,470)
Additional corporation tax saved (10.53% of the expenditure) 10,530
Carry forward of capital losses

The resriction on the ofset of trading losses brought forward agains total profts was introduced in
2017. This resricts the ofset in an accounting period to a maximum of £5 million (the deduction
allowance) plus 50% of any excess of total profts over that allowance.
Finance Act 2020 has extended these rules in order to resrict the use of capital losses brought
forward in addition to trading losses. A single £5 million deduction allowance now applies to both
trading losses and capital losses brought forward. A company mus choose how this deduction
allowance will be allocated between trading losses and capital losses brought forward.
As a result, the amount of capital losses brought forward for ofset agains chargeable gains is now
resricted to a maximum of the whole/part of the £5 million deduction allowance plus 50% of the
excess of the chargeable gains for the period over that amount.
A group of companies is only entitled to one deduction allowance of £5 million (which now has to
cover the ofset of both trading losses and capital losses brought forward) and can allocate this to
any company or companies in the group. For these purposes a group of companies means two or
more companies where one company is the ultimate parent of each of the other companies and
there is a 75% relationship between the ultimate parent and its subsidiaries.
These rules are complicated, and only apply where the potential loss ofset is signifcant. As a
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result, you need only have an awareness of these resrictions in the ATX-UK exam. You will not be
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expected to apply them to a particular scenario.
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Changes relevant to both the TX-UK exam and ATX-
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UK exam
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Almos all of the changes introduced by the Finance Act 2020 are relevant to the TX-UK exam and
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are therefore described in the TX-UK article. Accordingly, it is vital that you read the TX-UK article
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in addition to this one. Some of these changes are particularly important to the ATX-UK exam. In
view of this, certain aspects of these changes are set out below in order to enable you to appreciate
their importance and to emphasise the need for you to read the further detail in the TX-UK article.
Capital allowances
Annual invesment allowance (AIA)

The current AIA limit of £1,000,000 expires on 31 December 2020. The limit will then be reduced to
£200,000 from 1 January 2021.
However, for exams in the period 1 June 2021 to 31 March 2022, it will be assumed that the AIA
limit continues to be £1,000,000. This will be the case regardless of the trading period covered by
an exam quesion.
Structures and buildings allowances (SBAs)

This new capital allowance provides an annual tax deduction of 3% of the capital cos (excluding
land) of sructures and buildings used for the purposes of a trade or for property letting. This is a
signifcant change: prior to the introduction of these rules, such coss have been wholly disallowed
for the purposes of calculating taxable trading profts.
The SBA cannot be claimed until the building or sructure has been brought into qualifying use.
Accordingly, it will be time apportioned for the period in which the building is frs brought into use.
It should be remembered that parts of a building are likely to qualify as plant and machinery such
that part of the building’s cos will qualify for the more generous plant and machinery capital
allowances. SBAs can then be claimed in respect of the balance of the cos of the building.
Unsurprisingly, it is not possible to claim both plant and machinery capital allowances and SBAs in
respect of the same item of expenditure.
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On the sale of the building or sructure:
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• there is no balancing charge or balancing allowance
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• the allowances that have been claimed by the seller are added to their sale proceeds in order to
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determine the chargeable gain or allowable loss arising on the sale
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• the purchaser of the building simply continues to claim the 3% allowance based on the original
cos for the remainder of the 33⅓ year period.
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Capital gains tax reliefs
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Entrepreneurs’ relief is now called ‘business asset disposal relief’
There have been two signifcant changes made to entrepreneurs’ relief:
1. The relief has been renamed and is now called ‘business asset disposal relief’.
Accordingly, this is how the relief will be referred to in the exam, where necessary, so you mus
be familiar with the term.
2. The lifetime qualifying limit has been reduced from £10 million to £1 million.
Private residence relief (formerly principal private residence relief) and letting relief
The fnal period of ownership of a main private residence is always treated as a period of
ownership. This period has been reduced from 18 months to nine months.
Letting relief extends private residence relief where a property has been let out during a period
which did not otherwise qualify for relief. This relief is now only available where the property owner
is in shared occupancy with the tenant. This means that there is no longer any relief where the
whole property is let out.
VAT
The impact of the UK leaving the European Union (EU)

The UK ofcially left the EU on 31 January 2020. However, for exams in the period 1 June 2021 to
31 March 2022, it will be assumed that the EU acquisition rules continue to apply.
Group regisration
Commonly controlled entities are permitted to regiser as a single entity for the purposes of VAT.
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Once the group regisration is in place, there is no need to account for VAT on supplies between
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group members.
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Until 31 October 2019, the controller of the group of companies could not be a member of the VAT
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group unless it was also a company. This rule has been changed.
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Under the new rules, the controller of a group of companies can be a member of the VAT group if it
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is:
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a company (as before)
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• a sole trader, or
• a partnership.
The controlling entity mus carry on a trade in the UK (as before). ‘Control’ requires the ownership of
more than 50% of a company’s ordinary share capital (as before).
Further reading
The following articles will be published on the ACCA website at a later date:
• Taxation of the unincorporated business – the new business

• Taxation of the unincorporated business – the exising business
• International aspects of personal taxation

• Inheritance tax and capital gains tax
• Truss and tax
• Corporation tax
• Corporation tax – Group relief
• Corporation tax – Groups and chargeable gains
Written by a member of the Advanced Taxation – United Kingdom (ATX-UK) examining team
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Exam technique and guidance in respect of the exam
There are four non-technical articles that focus on the sructure of the exam and exam technique.
• ‘Examiner’s approach to Advanced Taxation - United Kingdom (ATX-UK) (P6)’, which explains
the sructure of the ATX-UK (P6) exam and the skills required of candidates.
• ‘Stepping up from Taxation - United Kingdom (TX-UK) (F6) to Advanced Taxation - United
Kingdom (ATX-UK) (P6)’, which provides guidance on the progression from TX-UK (F6) to
ATX-UK (P6) in terms of the syllabus, the syle and format of the exam, and the approach
necessary to maximise your chance of success.
• ‘Guidance on answering Section A quesions in Advanced Taxation - United Kingdom (ATX-
UK) (P6)’, which provides detailed guidance on the approach to be taken when answering
Section A quesions.
• ‘Improving your performance in Advanced Taxation - United Kingdom (ATX-UK) (P6)’, which
provides detailed guidance on various aspects of exam technique.
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Technical articles
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There are nine technical articles to support you in your sudies.
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Taxation generally
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‘Exam technique and fundamental technical issues for Advanced Taxation - United Kingdom
(ATX-UK) (P6)’
Outlines two important aspects of examination technique and a number of fundamental technical
areas that need to be masered. This article is relevant to sudents who are beginning their sudies
and also those for whom the exam is imminent.
Income tax
‘Taxation of the unincorporated business – the new business’

Covers some of the issues relating to a new business including the choice of business vehicle and
the frs years of trading. This is not an introductory article; it is relevant to sudents coming to the
end of their sudies and fnalising their preparations to sit the exam.
‘Taxation of the unincorporated business – the exising business’
Covers some of the issues relating to extraction of profts, change of accounting date and the fnal
years of a business. This is not an introductory article; it is relevant to sudents coming to the end of
their sudies and fnalising their preparations to sit the exam.
‘International aspects of personal taxation’

Begins with some basic rules, an undersanding of which enables the particular areas of tax
afected by an individual coming to, or leaving, the UK to be identifed. It then goes on to review
those areas in some detail, and provides a clear set of quesions to ask in order to determine an
individual’s liability to UK taxes. Finally, it deals briefy with the impact of double tax relief and
treaties.
Capital taxes and trusts
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‘Inheritance tax and capital gains tax’
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Relevant to sudents coming to the end of their sudies and fnalising their preparations to sit the
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exam. It examines the position where both taxes are relevant to a transaction and illusrates some
of the matters that need to be considered when giving advice in the context of the ATX-UK
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(P6) exam. It does not include comprehensive explanations of the two taxes but assumes a
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reasonable knowledge of the rules.
‘Truss and tax’
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Sets out the rules that may be examined and those areas where knowledge is not required.
Considers the various types of trus and the capital gains tax and inheritance tax implications of
transferring assets to a trus and property passing absolutely to benefciaries.
Corporation tax
‘Corporation tax’
Concerns the taxation of a company as it begins trading, acquires an additional business, and
eventually invess overseas. It sets out the commercial decisions taken by the company and its
shareholders at the diferent sages in the company’s development and summarises the tax
implications of those decisions.
‘Corporation tax – Group relief’

Principally concerned with group relief. This is not an introductory article; it is relevant to sudents
coming to the end of their sudies and fnalising their preparations to sit the exam. It begins by
briefy summarising the rules relating to both group relief groups and capital gains groups. It then
goes on to consider a number of group relief tax planning issues that could be introduced in an
exam quesion. It does not include comprehensive explanations of the rules but assumes a
reasonable knowledge.
‘Corporation tax – Groups and chargeable gains’

Principally concerned with capital gains groups. This is not an introductory article; it is relevant to
sudents coming to the end of their sudies and fnalising their preparations to sit the exam. It begins
by briefy summarising the rules relating to both group relief groups and capital gains groups. It then
goes on to consider various issues relating to capital gains groups that could be introduced in an
exam quesion. It does not include comprehensive explanations of the rules but assumes a
reasonable knowledge.
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Corporation tax for ATX-UK
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Corporation tax for ATX-UK
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Part 1 of 4
This is the Finance Act 2020 version of this article. It is relevant for candidates sitting the ATX-UK
exam in the period 1 June 2021 to 31 March 2022. Candidates sitting ATX-UK after 31 March 2022
should refer to the Finance Act 2021 version of this article (to be published on the ACCA website in
2022).
This article follows a company as it begins trading, acquires an additional business, and eventually
invess overseas. It sets out the commercial decisions taken by the company and its shareholders
at the diferent sages in the company’s development and summarises the tax implications of those
decisions. After reading about each sage in the company’s development, sop and think about the
possible tax implications before reading on.
This is not an introductory article: it is relevant to sudents coming to the end of their sudies and
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fnalising their preparations to sit the exam. It does not include comprehensive explanations of the
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rules but assumes a reasonable knowledge.
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This article is intended to be read proactively – ie satements made should be confrmed as true by
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reference to your undersanding or to a relevant sudy text. This approach will enable situations to
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be analysed from frs principles rather than by reference to a rigid set of memorised planning
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points.
Early years
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Kai Milford and his friend, Fay Dusky, formed GF Ltd on 1 April 2019. Kai and Fay each acquired
40% of the company at a cos of £100,000. Kai used a recent inheritance to acquire the shares
whereas Fay took out a bank loan for £100,000 secured on her house. The remaining 20% of the
shares is owned equally by fve unrelated individuals. Kai and Fay work full time in the management
of the company. The other shareholders are passive invesors.
GF Ltd incurred signifcant sart-up coss during the year ended 31 March 2020. As a result, its
taxable total profts, after paying salaries to Kai and Fay, were only £60,000.
The tax implications arising out of these events are:
• The interes paid by Fay on the loan to acquire the shares in GF Ltd is qualifying deductible
interes. This is because GF Ltd is a close company (it is controlled by Kai and Fay, i.e. by
fewer than fve shareholders) and Fay owns more than 5% of the company. Qualifying
deductible interes is a tax-allowable payment that is deducted in arriving at Fay’s net income.
• GF Ltd’s corporation tax liability for the year ended 31 March 2020 would have been £11,400
(£60,000 x 19%).
Conclusion
It is always important to identify whether or not a company is a close company. It is then necessary
to consider the facts of the situation in order to determine which, if any, of the implications of a
company being close are relevant.
Part 2 of this article reviews the implications of the company acquiring the business of another
company.
Note: The corporation tax issues relating to groups are considered in two further articles:
• Corporation tax – Group relief for ATX-UK
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• Corporation tax – Groups and chargeable gains for ATX-UK
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Written by a member of the ATX-UK examining team
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The comments in this article do not amount to advice on a particular matter and should not be taken
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as such. No reliance should be placed on the content of this article as the basis of any decision.
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The authors and the ACCA expressly disclaim all liability to any person in respect of any indirect,
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incidental, consequential or other damages relating to the use of this article.
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Corporation tax – Groups and
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chargeable gains for ATX-UK
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Part 1 of 4
2022).
Groups of companies are an important aspect of corporation tax within ATX-UK. Having sudied the
basics of this area at TX-UK you are now expected to progress to more advanced aspects.
However, the basic rules continue to be of vital importance as they are the foundation on which the
additional rules res. You mus have a sound knowledge of the many rules within this subject if you
are to be able to handle an exam quesion involving groups.
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fnalising their preparations to sit the exam. It begins by briefy summarising the rules relating to
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both group relief groups and capital gains groups. It then goes on to consider various issues
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relating to capital gains groups that could be introduced in an exam quesion. It does not include
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comprehensive explanations of the rules but assumes a reasonable knowledge.
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This article is intended to be read proactively, ie satements made should be confrmed as true by
reference to the reader’s undersanding of the rules or to a relevant sudy text. This approach will
memorised planning points.
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enable future situations to be analysed from frs principles rather than by reference to a rigid set of
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The basic rules
The sructure of the Q Ltd group of companies is set out in Figure 1. It should be assumed that all
of the companies are resident in the UK. The minority shareholders in the group companies are
companies with no relationship with Q Ltd.
You should be able to review the group sructure and confdently identify the members of any group
relief groups and capital gains groups; do this before you read the information in Table 1.
Figure 1: Structure of the Q Ltd group of companies
Table 1: Group relief and capital gains groups re Figure 1
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Group relief group
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Capital gains group
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There are fve separate group relief groups.
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• G Ltd and H Ltd • Q Ltd, J Ltd, K Ltd and L Ltd form a
• H Ltd and I Ltd capital gains group.
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The groups
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• Q Ltd and J Ltd • G Ltd, H Ltd and I Ltd form a
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• J Ltd and K Ltd separate capital gains group.
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• K Ltd and L Ltd.
• The efective interes of a principal

company in a non-directly held
There is no group of more than two
subsidiary needs only to be more
companies because, excluding immediate
Rationale than 50%.
subsidiaries, no company has an efective
• Q Ltd is not in a group with G Ltd
interes of at leas 75% in any other company.
because it does not have a direct
75% interes in G Ltd.
Once a capital gains group exiss:
•
Any transfers of chargeable assets between group companies take place at no gain, no loss.
This is automatic and no election is required.
• An election can be made to transfer the whole or part of a chargeable gain or allowable capital
loss of the current accounting period from one group company to another.
• All of the companies in the group are treated as a single company for the purposes of rollover
relief.
• In addition, intangible fxed assets are deemed to transfer at a value that gives rise to neither a
proft nor a loss. This is automatic and no election is required.
Companies resident overseas
Companies resident overseas are included within a capital gains group. However, the advantages
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available to such groups are resricted to companies resident in the UK or companies resident
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overseas which have a permanent esablishment in the UK. If K Ltd in the Q Ltd group were owned
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by J Co, a company resident and trading outside the UK, rather than J Ltd, the members of the Q
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Ltd capital gains group would not change. However, no gain, no loss transfers, and the other
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advantages of capital gains groups, would only be available between Q Ltd, K Ltd and L Ltd (and
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between G Ltd, H Ltd and I Ltd as before).
Conclusion
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It is vital to be able to identify the members of a group relief group and a capital gains group. It is
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then necessary to consider the planning opportunities available to the companies concerned. These
opportunities are considered in the remaining parts of this article.
Note: Corporation tax issues are considered in two further articles:
• Corporation tax for ATX-UK

• Corporation tax – Group relief for ATX-UK
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Corporation tax – Group relief
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Part 1 of 4
2022).
Groups of companies are an important aspect of corporation tax within the ATX-UK exam. Having
sudied the basics of this area at TX-UK you are now expected to progress to more advanced
aspects. However, the basic rules continue to be of vital importance as they are the foundation on
which the additional rules res. You mus have a sound knowledge of the many rules within this
subject if you are to be able to handle an exam quesion involving groups.
This is not an introductory article; it is relevant to sudents coming to the end of their sudies and
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fnalising their preparations to sit the exam. It begins by briefy summarising the rules relating to
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both group relief groups and chargeable gains groups. It then goes on to consider a number of
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group relief tax planning issues that could feature in an exam quesion. It does not include
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comprehensive explanations of the rules but assumes a reasonable knowledge.
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This article is intended to be read proactively – ie satements made should be confrmed as true by
reference to the reader’s undersanding of the rules, or to a relevant sudy text. This approach will
memorised planning points.
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enable future situations to be analysed from frs principles rather than by reference to a rigid set of
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The tax rates and limits for fnancial year 2020, ending on 31 March 2021, are used throughout this
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article.
The basic rules
Figure 1 shows the sructure of the H Ltd group of companies. It should be assumed that all of the
companies in the group are resident in the UK. The minority shareholders in the group companies
are companies with no relationship with H Ltd.
You should be able to review the group sructure and confdently identify the members of any group
relief groups and capital gains groups; do this before you read the information in Table 1.
Figure 1: The sructure of the H Ltd group of companies
Table 1: Group relief and capital gains group re Figure 1
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Group relief group
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Capital gains group
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The groups • H Ltd, A Ltd and C Ltd form a group. • H Ltd, A Ltd, B Ltd and C Ltd form a single
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• A Ltd and B Ltd form a separate group. group.
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Rationale • B Ltd is not in a group with H Ltd because • B Ltd is in a group with H Ltd because:
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the efective interes of H Ltd in B Ltd is less - H Ltd has a direct interes in A Ltd of at
than 75%. leas 75% and A Ltd has a direct interes in B
Ltd of at leas 75%, and
- The efective interes of H Ltd in B Ltd is
greater than 50%.
Once a group relief group exiss, the following applies:
• In broad terms, any company in the group can surrender current period and brought forward
trading losses, non-trading defcits on loan relationships, excess property business losses,
excess management expenses, and excess gift aid donations to any other company in the
group.
• A company cannot surrender losses carried forward where they could be deducted from its own
profts.
• The maximum claim by a group company is that company’s taxable total profts. For this
purpose, a claimant company’s taxable total profts is after the deduction of its own losses to
the fulles extent possible.
• A quesion will not be set involving carried forward losses which were created prior to 1 April
2017.
• There is a resriction on the amount of carried forward losses which can be ofset for companies
which have profts in excess of £5 million. The details of this resriction are not examinable at
ATX-UK.
Conclusion
x
It is vital to be able to identify the members of a group relief group and a capital gains group. It is
o
then necessary to consider the planning opportunities available to the companies concerned. These
l B
opportunities are considered in the remaining parts of this article.
b a
Note: Corporation tax issues are considered in two further articles:
• Corporation tax for ATX-UK
G lo
A
• Corporation tax – Groups and chargeable gains for ATX-UK
CC
A
The authors and ACCA expressly disclaim all liability to any person in respect of any indirect,
o x
l B
Inheritance tax and capital
b a
G
gains tax for ATX-UK lo
C A
A C
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Part 1 of 4
2022).
Inheritance tax (IHT) and capital gains tax (CGT) are tricky taxes, each with their own exemptions
and reliefs, and diferent methods of calculating the tax due. As a result, having got to grips with the
rules of each of them, it can seem like a sep too far to deal with both of them in respect of the same
transaction. However, once it is appreciated that the taxes should be addressed one at a time (and
not simultaneously), it becomes clear that all that is necessary is a clear knowledge of the rules
together with an orderly approach to the situation in the quesion.
x
o
fnalising their preparations to sit the exam. It considers the position where both taxes are relevant
B
to a transaction and illusrates some of the matters which are relevant when giving advice in the
l
context of the ATX-UK exam.
b a
lo
This article does not include comprehensive explanations of the two taxes but assumes a
reasonable knowledge of the rules. It is intended to be read proactively, i.e. satements made
A G
should be confrmed as true by reference to your undersanding of the two taxes or to a relevant
sudy text. This approach will enable situations to be analysed from frs principles rather than by
C
reference to a rigid set of memorised planning points.
A
Relevant transactionsC
It can be tempting to think that IHT is only relevant where a transaction includes an element of gift,
such that there is a fall in value of the donor’s esate, and that CGT only arises in respect of lifetime
disposals and can be ignored on death. However, it is always worth considering both taxes where
disposals of capital assets are being contemplated. Two examples of the importance of this are
given below.
1. The principal relevant tax on the sale of an asset is CGT. However, a sale can also have an
efect on the vendor’s future IHT position.
An example would be where assets qualifying for business property relief are sold and the
proceeds are retained in the form of cash or used to acquire assets that do not qualify for
business property relief. This will bring about an increase in the IHT due on the death of the
vendor in respect of the vendor’s esate due to the lack of business property relief on that part of
the individual’s wealth.
2. The principal consideration on the transfer of an asset on death is IHT.
However, it is important not to ignore CGT. CGT is sill relevant when advising on such a transfer
due to the lack of a CGT liability as compared with the situation on a lifetime gift. There is also
the fact that the legatee’s base cos in the inherited asset for CGT purposes is its probate value.
This article is confned to transactions between individuals. For situations where truss are involved,
see the article ‘Truss and tax’. For further detail regarding the relevance of residency and domicile
see the article ‘International aspects of personal taxation’.
Exam approach
o x
The main problem demonsrated by candidates in the exam is a lack of precise knowledge of the
l B
rules governing the two taxes. This is particularly evident in connection with the availability of
a
exemptions and reliefs. Accordingly, your frs task is to acquire an orderly knowledge of the rules
b
such that you do not confuse the two taxes in the exam.
G lo
The two taxes should always be addressed separately under appropriate subheadings; never try to
A
address both taxes at the same time. Strictly, it does not matter which of the taxes is addressed
frs but it is likely to be useful to consider IHT frs as the IHT implications may be useful when
CC
considering gifts holdover relief for CGT.
A
o x
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International aspects of
b a
personal taxation for ATX-UK
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Part 1 of 4
2022).
fnalising their preparations to sit the exam. It is intended to be read proactively – ie satements
made should be confrmed as true by reference to the reader’s undersanding of the rules or to a
relevant sudy text. This approach will enable situations to be analysed from frs principles rather
than by reference to a rigid set of memorised planning points.
Liability to tax in the UK depends on an individual’s residence and domicile satus, together with the
x
location of their assets and the sources of their income. It is a tricky area and can be confusing.
o
This article aims to clear up any confusion you may have.
l B
This article sarts with some basic rules, an undersanding of which will enable you to identify the
b a
particular areas of tax afected by an individual coming to, or leaving, the UK. It then goes on to
lo
review those areas in some detail, and provides a clear set of quesions to ask in order to determine
an individual’s liability to UK taxes. Finally, it deals briefy with the impact of double tax relief and
treaties.
A G
Some basic rules
CC
A
Generally, the UK tax position of an individual who has always lived and worked in the UK (ie
someone who is likely to be resident and domiciled in the UK) is as follows:
• Income tax (IT) on worldwide income.

• Capital gains tax (CGT) on worldwide assets.
• Inheritance tax (IHT) on worldwide assets.
Similarly, the UK tax position of an individual with no links to the UK (i.e. someone who is not
resident and not domiciled in the UK) is as follows:
• IT on UK source income only.

• No CGT (in mos circumsances – but see Part 4 for exceptions).
• IHT on UK assets only.
Read the above points carefully, think about them, and recognise that they result in the following:
• UK source income is always subject to UK IT, regardless of the satus of the individual.
• There is no UK CGT, even on (mos) UK assets, where the individual is based outside of the
UK (but see Part 4 for exceptions).
• UK assets are always subject to UK IHT, regardless of the satus of the individual.
UK source income consiss of: income in respect of UK assets, employment income in respect of
duties performed in the UK, and trading income in respect of trades carried on in the UK.
UK assets include land, buildings and chattels in the UK, cash in UK bank accounts, and UK
regisered securities.
o x
B
Completing the picture
a l
b
The rules set out above raise three fundamental quesions:
G lo
1. Overseas income: In what circumsances does overseas income become subject to UK IT?
A
2. Liability to UK CGT: In what circumsances are gains on UK and overseas assets subject to UK
C
CGT?
C
3. Liability to UK IHT on overseas assets: In what circumsances do overseas assets become
A
subject to UK IHT?
This article identifes the order in which the key factors of residence and domicile should be
considered when answering these quesions. Overviews of the rules used to determine an
individual’s residence and domicile satus are set out below.
Residence
The rules governing residence are very detailed and depend on the time spent in the UK and the
circumsances of the individual concerned.
Figure 1 – Determination of residence satus
The table indicating the number of required UK ties by reference to the number of days in the UK is
x
provided in the exam.
B o
l
The split year treatment
b a
lo
Normally an individual is resident or not resident for the whole of a tax year. However, in certain
circumsances, the tax year of arrival and departure can be split. Under the split year treatment, the
A G
year is split into a UK part and an overseas part. The individual is taxed as a UK resident for the UK
part and as a non-UK resident for the overseas part. This applies to both income tax and capital
C
gains tax.
Domicile A C
An individual’s domicile satus is relevant for IT, CGT and IHT. Individuals who are not UK domiciled
may be deemed domiciled in the UK for tax purposes.
Coming to the UK
A non-UK domiciled individual who comes to the UK will become UK domiciled:
• if all links with the former country of domicile are cut, and
• the individual intends to remain in the UK permanently.
Leaving the UK
An individual who has left the UK will cease to be UK domiciled:
• if all links with the UK have been cut, and

• the individual intends to remain in the new country permanently.
Deemed domicile
There are two forms of deemed domicile satus: one applies to IT and CGT and the other applies to
IHT.

Figure 2 – Determination of domicile satus
o x
l B
b a
G lo
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A C
Click to enlarge
Conclusion
In order to be able to handle quesions on international matters in the exam you will need to have
done some methodical learning. In particular, you should be confdent in your knowledge of the
basic rules set out above, in respect of residence and domicile.
o x
l B
b a
G lo
C A
A C
o x
l B
Taxation of the unincorporated
b a
G
business for ATX (UK) lo
C A
A C
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The new business

Part 1 of 4
2022).
This is the frs of two articles on the taxation of unincorporated traders. It covers issues relating to a
new business including the choice of business vehicle and the frs years of trading. The second
article (‘the exising business’) looks at issues relating to a change of accounting date and the fnal
years of a business. These articles only cover a selection of issues: there are other matters that,
while not featuring in these articles, may sill be the subject of a quesion in the exam.
x
The taxation of unincorporated traders is an important part of the ATX-UK syllabus and is examined
o
regularly. Almos all of the relevant technical rules relating to income tax and National Insurance
B
contributions are covered in the TX-UK syllabus, so there is little that is new at ATX-UK. However,
l
these rules continue to be of vital importance – a sound knowledge of these rules will enable
b a
candidates sitting the advanced taxation paper to identify the relevant issues and taxes from the
lo
information provided, and to consider the implications of alternative courses of action.
A G
fnalising their preparations to sit the exam. It is intended to be read proactively – ie satements
C
C
relevant sudy text. This approach will enable situations to be analysed from frs principles rather
A
than by reference to a rigid set of memorised planning points.
What is required at ATX-UK?
Quesions in the exam are likely to be based around the commercial decisions of the taxpayer.
They will require candidates to have a srong knowledge of the technical rules and an ability to
apply those rules briskly and accurately. Candidates may be required to identify options that are
obviously advantageous, disadvantageous or irrelevant, without preparing detailed calculations –
for example, by recognising that a particular srategy relating to the use of losses would simply
result in a wase of the personal allowance.
Some fundamentals
The basis of assessment

The taxable profts of an unincorporated business are determined in two sages:
1. The profts per the accounts are adjused for tax purposes.
For a partnership, the tax-adjused profts are then divided between the partners in accordance
with the proft-sharing arrangements of the trading period.
2. The basis of assessment rules are then applied to the sole trader or partner’s tax adjused profts
of the trading periods.
Trading losses
Where there is a tax adjused trading loss in a basis period, the trader’s taxable trading income for
the related tax year will be zero. There will also be a loss available for ofset agains income and/or
chargeable gains. There are two main issues that candidates need to be sure of in order to be able
to calculate the potential tax saving from the ofset of the losses:
o x
1. The precise income and/or chargeable gains that the losses can be ofset agains, and
2. The periods in which the ofset can occur.
l B
b a
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Candidates mus then take care to consider all of the relevant possibilities in the detail necessary to
provide the advice requesed.
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C
Choice of business vehicle
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Unincorporated trader or company?
A new business can be operated as an unincorporated entity (sole trader or partnership) or as a
company. The choice will be made by reference to commercial and legal issues in addition to taking
into account the tax implications of the alternative business sructures. Commercial issues include
the efect of the chosen business vehicle on the ability of the business to raise fnance, and the
possible belief that a company may be regarded as larger or more fnancially sound than an
unincorporated business. Legal issues include the possibility of dividing the ownership of the
business between a number of diferent owners and the exisence of limited liability.
Employ or form partnership?

Where two people are to work together in an unincorporated business, it may be appropriate to
consider operating as a partnership as opposed to one of them employing the other. As always,
there are legal and commercial implications as well as tax issues to consider here. In particular, it
should be recognised that entering into a partnership is a signifcant transaction due to the ability of
one partner to enter into a contract that binds the other partner.
From a tax point of view, the decision requires a comparison of the tax position of an employee with
that of a self-employed person. In addition, where the business is loss-making, there is also the
issue that the coss of employing someone will create tax and National Insurance liabilities (despite
the business not being proftable). These employment coss will, of course, increase the loss
available for relief, but there is likely to be a timing diference between obtaining relief for the loss
and paying the employee taxes.
Conclusion
The rules governing the basis of assessment and the ofset of losses are of fundamental
importance in the exam. You mus ensure that you can apply the rules efciently and accurately.
x
Note: The unincorporated trader is considered further in:
B o
Taxation of the unincorporated business – the exising business for ATX-UK
a l
b
Written by a member of the ATX (UK) examining team
G lo
A
C
A C
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l B
Taxation of the unincorporated
b a
G
business for ATX (UK) lo
C A
A C
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The exising business

Part 1 of 4
2022).
This is the second article on the taxation of unincorporated traders. It covers some of the issues
relating to extraction of profts, change of accounting date and the fnal years of a business. The frs
article (‘The new business’) covers some of the issues relating to a new business including the
choice of business vehicle and the frs years of trading. These articles only cover a selection of
issues: there are other matters that, while not featuring in either of these articles, may sill be the
subject of a quesion in the exam.
The taxation of unincorporated traders is an important part of the ATX-UK syllabus and is examined
x
regularly. Almos all of the relevant technical rules relating to income tax and national insurance
o
contributions are covered in the TX-UK syllabus such that there is little that is new at ATX-UK.
B
However, these rules continue to be of vital importance to the ATX-UK exam – a sound knowledge
a l
of these rules will enable candidates sitting the advanced taxation paper to identify the relevant
b
issues and taxes from the information provided, and to consider the implications of alternative
lo
courses of action.
A G
This is not an introductory article; it is relevant to sudents coming to the end of their sudies and
fnalising their preparations to sit the exam. It is intended to be read proactively – i.e. satements
C
A C
relevant sudy text. This approach will enable future situations to be analysed from frs principles
rather than by reference to a rigid set of memorised planning points.
What is required at ATX-UK?
Quesions in the exam are likely to be based around the commercial decisions of the taxpayer.
They will require candidates to have a srong knowledge of the technical rules and an ability to
apply those rules briskly and accurately. Candidates may be required to identify options that are
obviously advantageous, disadvantageous or irrelevant, without preparing detailed calculations –
for example by recognising that a particular srategy relating to the use of losses would simply result
in a wase of the personal allowance.
Some fundamentals
The basis of assessment
The taxable profts of an unincorporated business are determined in two sages:
1. The profts per the accounts are adjused for tax purposes – for a partnership, the tax adjused
profts are then divided between the partners in accordance with the proft sharing arrangements
of the trading period.
2. The basis of assessment rules are then applied to the sole trader or partner’s tax adjused profts
of the trading periods – unrelieved overlap profts are deducted from the taxable profts of the
fnal tax year.
Trading losses
Where there is a tax adjused trading loss in a basis period, the trader’s taxable income for the
related tax year will be zero. There will also be a loss available for ofset agains income and/or
x
chargeable gains. There are two main issues that candidates need to be sure of in order to be able
o
to calculate the potential tax saving from the ofset of the losses.
l B
a
1. The precise income and/or chargeable gains that the losses can be ofset agains; and
b
2. The periods in which the ofset can occur.
G lo
Candidates mus then take care to consider all of the relevant possibilities in the detail necessary to
A
provide the advice requesed.
CC
A
Conclusion
The rules governing the basis of assessment and the ofset of losses are of fundamental
importance in the exam. You mus ensure that you can apply the rules efciently and accurately.
Note: The unincorporated trader is also considered in:
• Taxation of the unincorporated business– the new business for ATX (UK)
Written by a member of the ATX (UK) examining team
o x
l B
b a
Trusts and tax for ATX-UK
G lo
C A
A C
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Part 1 of 3
2022).
This article has been written because the taxation of truss and the transfers of assets to and from
trusees is a complicated area of the UK tax sysem. Accordingly, there is a need to set out the
rules that may be examined and those areas where knowledge is not required. However, truss
represent only a small part of the ATX-UK syllabus and the exisence of this article should not be
seen as an indication that the taxation of truss is of particular importance to the ATX-UK exam.
The requirements of the ATX-UK syllabus in respect of truss include:
x
• the ability to explain how income tax, capital gains tax, and inheritance tax apply to transactions
o
involving truss
B
knowledge of the tax implications of creating a trus – now or in the future – including what will
l
•
a
happen when trus property passes to the benefciary
b
the ability to disinguish between interes in possession truss and discretionary truss
lo
•
knowledge of the inheritance tax implications of a settlor dying after creating a trus
G
•
the ability to explain how truss can be used in tax and fnancial planning.
A
•
CC
The only truss which are examinable are 'relevant property truss. Accordingly, truss with an
A
immediate pos-death interes are not examinable. Throughout this article, the term ‘trus’ refers to
relevant property truss only.
The following aspects of the taxation of truss are excluded from the syllabus:
• the calculation of income tax, capital gains tax, and inheritance tax payable by the trusees of a
trus
• knowledge of situations where property is transferred between truss or where the terms or
nature of the trus is altered.
This article only covers truss created on or after 22 March 2006. Truss created prior to this date
are not examinable.
Why use a trust?
Truss enable the benefts arising out of owning property/assets, for example, the receipt of rental
income in respect of a commercial invesment property, to be enjoyed by someone other than the
legal owner of the property. The law of truss recognises that there can be a benefcial owner of
property, known as the ‘trus benefciary’, who is not the same as the legal owner (whose name is
on the title deeds to the property), known as the trusee.
This split of legal and benefcial ownership gives rise to various possibilities including:
• the benefts of owning property can be transferred to minors whils leaving control over the
assets, together with the responsibilities of managing and maintaining them, with the trusees
• the income generated by assets can be made available to one individual or group of individuals
whils the capital is preserved and protected for another individual or group
• provision can be made in a will for assets, or the income generated by them, to be directed
x
towards those in fnancial need in the years following the death of the tesator (the person who
o
made the will)
B
the creator of the trus can retain control over the assets.
l
•
b a
In addition, a number of tax planning opportunities arise, including:
G lo
assets may be transferred into trus such that they are removed from the settlor’s esate (the
settlor is the person who esablishes the trus)
•
C A
assets may be transferred into trus such that they will increase in value outside of both the
C
settlor’s and the benefciaries’ esates
A
• trusees of a discretionary trus can direct income towards benefciaries who are non-taxpayers
such that there will be a repayment of the income tax paid by the trus
• property can be transferred into trus by a settlor whils they are alive or via their will. In
addition, following an individual’s death, a trus can be created via a deed of variation.
Types of trust
A trus is created when a settlor transfers the legal ownership of property/assets to the trusees who
hold the property/assets for the beneft of the benefciaries. The property/assets within the trus is
known as “relevant property”.
Interes in possession trus
• Where a benefciary is entitled under the trus deed to the income from the property or to use
the property, the trus is an ‘interes in possession trus’ and the benefciary is known as the ‘life
tenant’. The person who receives the trus property on the death of the life tenant is known as
the ‘remainderman’ and their interes is known as a ‘reversionary interes’.
• This form of trus may be used to provide the income generated by the trus assets to a person
(the life tenant) for their lifetime with the assets then being transferred to the remaindermen on
the death of the life tenant. The life tenant does not have access to the assets themselves,
such that they are protected and will, eventually, be transferred to the remaindermen.
Discretionary trus
• Where the trusees have discretion as to the accumulation and disribution of trus income and
assets such that a particular benefciary only has the possibility (as opposed to a legal right) of
receiving a beneft under the trus, the trus is known as a ‘discretionary trus’.
o x
This form of trus enables a settlor to make general provision for the future needs of the
B
benefciaries in a fexible manner. The trusees will decide how to meet the precise needs of the
benefciaries as and when they arise in the future.
a l
lo b
A G
C
C
A

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ACCA P6 ATX UK All Technical Articles

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ALL P6 (ATX-UK) TECHNICAL ARTICLES

(Association of Chartered Certified Accountants)

Advanced Taxation (ATX) was previously known as P6 Advanced

Advanced Taxation United Kingdom (ATX-UK)

Corporation tax – groups and chargeable gains

Corporation tax – group relief

Inheritance tax and capital gains tax

International aspects of personal taxation

Truss and tax

Relevant to Advanced Taxation – United Kingdom (ATX – UK)

Change in approach for ATX-UK with respect to dates

Changes relevant to the ATX-UK exam only

Income tax and national insurance contributions

Income from employment

Lump sum termination payments and payments in lieu of notice

This is subject to income tax and class 1 NIC.

(ii) Any amount remaining

Taxable total profts

Research and development (R&D) expenditure

• a percentage of the company’s qualifying R&D expenditure is treated as additional taxable

Additional corporation tax saved (10.53% of the expenditure) 10,530

Carry forward of capital losses

Annual invesment allowance (AIA)

Structures and buildings allowances (SBAs)

The impact of the UK leaving the European Union (EU)

• Taxation of the unincorporated business – the new business

• International aspects of personal taxation

Written by a member of the Advanced Taxation – United Kingdom (ATX-UK) examining team

Exam technique and guidance in respect of the exam

‘Taxation of the unincorporated business – the new business’

‘International aspects of personal taxation’

Capital taxes and trusts

‘Truss and tax’

‘Corporation tax – Group relief’

‘Corporation tax – Groups and chargeable gains’

The tax implications arising out of these events are:

• Corporation tax – Group relief for ATX-UK

memorised planning points.

Figure 1: Structure of the Q Ltd group of companies

Table 1: Group relief and capital gains groups re Figure 1

• The efective interes of a principal

Once a capital gains group exiss:

Companies resident overseas

Note: Corporation tax issues are considered in two further articles:

• Corporation tax for ATX-UK

Written by a member of the ATX-UK examining team

memorised planning points.

The basic rules

Figure 1: The sructure of the H Ltd group of companies

Table 1: Group relief and capital gains group re Figure 1

Once a group relief group exiss, the following applies:

• Corporation tax for ATX-UK

2. The principal consideration on the transfer of an asset on death is IHT.

• Income tax (IT) on worldwide income.

• IT on UK source income only.

Figure 1 – Determination of residence satus

A non-UK domiciled individual who comes to the UK will become UK domiciled:

An individual who has left the UK will cease to be UK domiciled:

• if all links with the UK have been cut, and

Figure 2 – Determination of domicile satus

Written by a member of the ATX-UK examining team

The new business

What is required at ATX-UK?