F6内部讲义

ACCA PAPER F6 – TAXATION (UK) FA 2014
INTRODUCTION to F6 UK TAXATION
有一句谚语说得好：”在这个世界上,只有死亡和纳税是
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A 英国谚语
B 美国谚语
C 本杰明  富兰克林
D 亚当  斯密
正确选项是C 本杰明  富兰克林(Benjamin Franklin, 1706-1790)
美国精神最完美的代表，著名的思想家，政治家，科学家，
文学家，外交家和实业家。《独立宣言》的主要起草人.
ACCA introduction:
Duration: 2-4 years
English level: CET-4 enough, mainly financial
and accounting English
14 courses in max
Pass mark: 50; exams hours: 3 hrs;
A The UK tax system
B Income tax liabilities
C Corporation tax liabilities
D Chargeable gains
E National insurance
F Value added tax
G Inheritance tax
Individual Income Tax
1. The calculation of various taxable income of individual

 Trading profit
 Employment income
 Property business income
 Saving income
 Dividends income
2. The calculation of Income Tax Liability and Tax Payable
3. The relief of individual trading loss
4. Tax administration for individuals

Corporate Tax
1. The calculation of profit chargeable to corporation tax

It includes:
 Trading profit
 Investment income
 Property business income
 Chargeable Gains
2. The calculation of corporation tax liability
3. Two independent topics:

 Loss relief
 Group of companies
4. Tax administration for companies
Capital Gains Tax
1. The capital gain of special disposal

Part disposal & destroyed
2. The capital gain of special assets

Chattels, exempt assets & shares
3. The various capital gain relief

Roll over, Gift relief, Entrepreneurs’ relief,
PPR exemption & Letting relief
Value Added Tax
1. The calculation of VAT payable: Output tax – Input tax
2. Tax point for output VAT
3. VAT registration requirements and effect
4. VAT deregistration requirements and effect
5. VAT default surcharge
6. VAT return and VAT payment
7. The effect of special schemes

Inheritance Tax
1. Scope of inheritance tax

2. Transfers of value
3. Exemptions
4. Types of lifetime transfers
5. Calculation of tax on lifetime transfers
6. Tax payable on death
7. Death estate
Course Introduction
Format of the Exam Mark

s
Question 1 Income tax question involving self employment 25-30
and employment. Could include VAT.
Question 2 Corporation tax question; Could include VAT. 25-30
Question 3 Chargeable gains (Individual or corporate) 15
Question 4 Will test the remainder of the syllabus 15
Question 5 Will test the remainder of the syllabus. But Groups 15
aspect of corporation tax may now be examined
separately in question 5
Total 100
Chapter 1
Section Topic Summary
1 Structure of Taxes are administered by HM Revenue and
UK tax Customs (HMRC)
system
2 Function and Taxation can be used to encourage economic,
purpose social and environmental behaviour
of tax
3 Sources of law Tax is embodied within legislation which is updated
each year by the Finance Act.
4 Tax year The tax year runs from 6 April to 5 April.
5 Tax avoidance Tax evasion is illegal.
and tax Tax avoidance is legal.
evasion
Economic factors
Used to encourage and discourage certain
types of activity
Social factors
 Redistribution of income and wealth
Environmental factors
to deal with environmental concerns such as
global warming
The Government
Treasury Revenue & Customs

Prosecutions office
HMRC
Tax Tribunal
Officers of Receivable
First tier Upper
Revenue Management
and Customs Officers tribunal tribunal
Tax Legislation Suffered by
(a) Income tax Capital Allowances Act 2001,Income Individuals Partners
Tax (Earnings &Pensions) Act 2003
Income Tax (Trading and other Income)
Act 2005 (& Finance Acts)
(b) Corporation Income and Corporation Taxes Act UK companies

tax 1988 (ICTA 1988) (& Finance Acts)
(c) Capital gains Taxation of Chargeable Gains Act 1992 Individuals Partnerships
tax (& Finance Acts) (Companies pay
corporation tax on
capital gains)
(d) Inheritance Inheritance Tax Act 1984 Individuals

tax (IHTA 1984)
(e) VAT Value Added Taxes Act 1994 (VATA Businesses
1994) (and Finance Acts) (incorporated and
unincorporated)
The tax year, or fiscal year, or year of
assessment runs from 6 April to 5 April
following.
Current : FY13/14
 Tax evasion
mislead HMRC by suppressing information or
deliberately providing false information
illegal
 Tax avoidance
using the legislation to reduce your tax burden
legal
1 Structure of Taxes are administered by HM Revenue and
UK tax Customs (HMRC)
system
2 Function and Taxation can be used to encourage economic,
purpose social and environmental behaviour
of tax
3 Sources of law Tax is embodied within legislation which is updated
each year by the Finance Act.
4 Tax year The tax year runs from 6 April to 5 April.
5 Tax avoidance Tax evasion is illegal.
and tax Tax avoidance is legal.
evasion
Chapter 2
The computation of taxable income and
income tax liability
Scope of income tax
• UK resident individuals are liable to UK income

tax on their UK and overseas income. Non-UK
resident individuals are only liable to UK income
tax on UK income only.
Scope of income tax
The following people will automatically be treated as not resident

in the UK (Automatic Tests):
 A person who is in the UK for less than 16 days during a tax

year.
 A person who is in the UK for less than 46 days during a tax
year, and who has not been resident during the three previous
tax years.
 A person who works full-time overseas, subject to them not
being in the UK for more than 90 days during a tax year.
Scope of income tax
Subject to not meeting any of the automatic non-resident tests, the

following people will automatically be treated as resident in the
UK.(Automatic Tests):
 A person who is in the UK for 183 days or more during a tax

year.
 A person whose only home is in the UK.
 A person who carries out full-time work in the UK.
Scope of income tax
Where a person’s residence status cannot be determined according
to any of the automatic tests, then his/her status will be based on
how many ties they have with the UK and how many days they stay
in the UK during a tax year. There are five UK ties as follows:
 Having close family (a spouse/civil partner or minor child) in the

UK.
 Having a house in the UK which is made use of during the tax year.
 Doing substantive work in the UK.
 Being in the UK for more than 90 days during either of the two
previous tax years.
 Spending more time in the UK than in any other country in the tax
year.
Scope of income tax
The following table will be given in the exam to help determine

whether an individual is resident or not.
Days in UK Previously resident Not previously resident

Less than 16 Automatically not resident Automatically not resident
16 to 45 Resident if 4 UK ties(or more) Automatically not resident
46 to 90 Resident if 3 UK ties(or more) Resident if 4 UK ties
91 to 120 Resident if 2 UK ties(or more) Resident if 3 UK ties(or more)
121 to 182 Resident if 1 UK ties(or more) Resident if 2 UK ties(or more)
183 or more Automatically resident Automatically resident
Calculation pro-forma
Non-savings Income Savings income Dividend Income Total
₤ ₤ ₤ ₤
Trading profit X X
Employment income X X
Property business income X X
Savings(×100/80) X X
Dividends(×100/90) X X
Total income X X X X
Less: qualifying Interest Paid (X) (X)
Net Income X X X X
Less: personal allowance (9,440) (9,440)
Taxable income X X X X
Income Tax Liability X
Less: tax suffered at
source
Dividends X
Savings X
PAYE X (X)
Income Tax Payable X
Savings income
Savings income are received net of 20% tax. So the net amount
received for interest must be grossed up by dividing 80%.
1. Bank interest
2. Building society interest
The following interests received are not grossed up:
1. Interest from government stock (gilts)
2. Interest from investment account at National Savings and
Investment Bank
Dividend income
Dividends are received net of a 10% tax credit.

So the net amount received for dividend must be
grossed up by dividing 90%.
Employment income
Salary X
Monetary
Bonus X
Earnings
Commission / tips X
Non-monetary
Earnings Add: Benefits in kind X
X
Less:Allowable deductions (X)
Employment income X
Exempt income
• Interest from Individual Savings Accounts(ISA)

• Interest from Saving Certificates issued by National
Savings and Investment Bank.
• Statutory redundancy money
• Betting and gaming winnings
• Scholarships
• Interest on damages for personal injuries
• Local authority grant
Individual Savings Account
Invest up to ₤5,760 per tax year in a cash ISA and

up to ₤11,520 per tax year in a stocks and shares
ISA. This is subject to an overall annual investment
limit of ₤11,520. Investments within an ISA are
exempt from income tax and capital gains tax.
Personal Allowance
• All persons are entitled to a PA. It is deducted from Net

Income.
• PA for 2013/14 is ₤9,440 (born on or after 6 April 1948,
i.e. ≤ 65)
• If an individual’s “adjusted net income” for 2013/14
exceeds ₤100,000, the personal allowance is reduced
by ₤1 for every ₤2 excess income. Once an individual’s
“adjusted net income” reaches ₤118,880 or over it will
be reduced to nil.
• “Adjusted net income” is after deducting trading losses,
gross gift aid and gross personal pension contributions.
Personal Allowance
• PA for those born between 6 April 1938 and 5 April 1948 (aged
65+, but ≤75) is ₤10,500 instead of ₤9,440.
• PA for those born before 6 April 1938 (aged 75+) is ₤10,660
instead of ₤9,440
• If the individual’s Adjusted Net Income exceeds ₤26,100, the
age allowance is reduced by ₤1 for each ₤2 by which Adjusted
Net Income exceeds ₤26,100. The higher personal allowance
are reduced to a minimum of the normal personal allowance of
₤9,440.
• However, there will then be a further reduction if Adjusted Net
Income exceeds ₤100,000. This means that regardless of a
person’s age, no personal allowance will be available where
their Adjusted Net Income is ₤118,880 or more.
Summary of tax rates
20% 20% 40% 45%

NSI
0 2,790 32,010 150,000
10% 20% 40% 45%

SI
0 2,790 32,010 150,000
10% 10% 32.5% 37.5%

DI
0 2,790 32,010 150,000
Gift Aid
• The gift aid donation is paid net of 20%.

• Additional tax relief is given by extending the
donor’s basic rate band and higher rate band
by the gross amount of the donation.
Child Benefit Income Tax Charge
 An income tax charge has been introduced where a person’s

adjusted net income exceeds £50,000 and they receive child
benefit. Child benefit is a tax-free payment that can be claimed
in respect of children, and the tax charge in effect removes the
benefit for those on higher incomes.
 Where adjusted net income is between £50,000 and £60,000,

the income tax charge is 1% of the amount of child benefit
received for every £100 of income over £50,000. For people
whose adjusted net income exceeds £60,000, the amount of the
income tax charge is equivalent to the amount of child benefit
received.
Child Benefit Income Tax Charge
 The following information will be given in the tax rates and

allowances section of the examination paper for the June and
December 2014 sittings:
Child benefit income tax charge

Where income is between £50,000 and £60,000, the charge is
1% of the amount of child benefit received for every £100 of
income over £50,000.
Chapter 3
Employment income
 Employment - contract of service
 Self employment - contract for services

Employment and self employment
Any of the following manners can indicate employment:

• The individual is committed to work a specified number
of hours at certain fixed time and is paid for overtime.
• The individual is entitled to the benefit normally provided
to employees such as sick pay or holiday pay.
• The individual works personally and cannot hire his own
helpers.
• The individual cannot decline the work offered.
• The individual does not provide his own equipment.
• The individual is paid by hour, week or month.
• The individual is not taking any financial risk.
• The individual cannot profit from sound management.
Salary X
Bonus X
Commission / tips X
Add: Benefits in kind X
X
Less: Allowable deductions (X)
Employment income X
When earnings are received
Earnings are treated as received at the earlier of:

The date that the amount is paid
The date when the person becomes entitled to
payment
If the employee is a director, earnings are received on the

earliest of :
1. The date that the amount is paid
2. The date that the person becomes entitled to payment
3. The date when the amount is credited in the company’s
accounts.
4. The end of the period of account if the amount relates to
that period, and has been determined before the end of
the period.
5. The date that the amount is determined if the period of
account it relates to has already ended.
William is the finance director of Glossy Ltd. The following

information is available for the tax year 2013-14.
(1) William is paid director’s remuneration of ₤2,400 per month by
Glossy Ltd.
(2) In addition to his director’s remuneration, William received two
bonus payments from Glossy Ltd during the tax year 2013-14.
The first bonus of ₤22,000 was paid on 30 June 2013 and was
in respect of the year ended 31 December 2012. William
became entitle to this bonus on 15 March 2013.
The second bonus ₤37,000 was paid on 31 March 2014 and
was in respect of the year ended 31 December 2013. William
became entitled to this second bonus on 15 March 2014.
When should William account for his bonus?

Allowable deduction
 General rule
Expenditures wholly exclusively and necessarily for the
performance of duties of employment are deductible.
Expenses giving private benefits are not deductible.

Allowable deduction
Expenditure specifically deductible by employees against

employment income includes:
• Contribution to approved occupational pension scheme is
deductible. (see Chapter 5)
• Subscription to professional bodies, if relevant to the duties of the
employment is deductible.
• If an employee incurs a liability related to his employment and he
pays for insurance against the liability, the insurance premium paid
is deductible.
• An employee required to work at home may be able to claim a
deduction for an appropriate proportion of his or her expenditure
on lighting, heating and the phone bills.
• Donations to charity under payroll deduction scheme
• Any Travel to a temporary workplace
Travel expenses
• Employee’s normal commuting costs (from home

to permanent work place) are not deductible.
• Employees who do not have a permanent workplace,
costs of journeys made from home to their temporary
work place (less than 24 months) is deductible.
• Travels between different employers is not deductible.
Home
No allowable Allowable
deduction deduction
Permanent Temporary workplace

workplace < 40% or
 24 months
Travel expenses
ND
Permanent
Home workplace
D
Home Temporary
workplace
ND
Employer A Employer B
D
Employer A1 Employer A2
Home Permanent Temporary

ND Stop D
(经停)
D Not Stop D
(不经停)
Mileage Allowance
Employees who use their own cars for business

purposes will normally be paid a Mileage Allowance
by their employer. (交通补贴)
The Allowance is 45p per mile on the first 10,000

miles with each additional mile at 25p per mile.
Example 1:
Fred has a 1500cc car and travels 11,000 business miles a year. He is
paid 35p per mile by his employer.
Required
Calculate the employment income assessment.
Authorised mileage allowance for 2013/14:
Up to 10,000 miles 45p
Over 10,000 miles 25p
Chapter 4
Taxable and exempt benefits:
The PAYE system
The PAYE system
When considering how benefits are taxed, we must first consider

the two different categories of employee. Some benefits are
assessable on all employees, but most benefits are only taxable
on P11D Employees.
To be a P11D Employee, an individual must be either:
 Earning in excess of ₤8500 per annum, including potential benefits
but before allowable deductions, or
 A director of the company
Directors are excluded if they:
 Earn less than ₤8500
 Own less than 5% of the shares of the company, and/or
 Work full-time for the company
The PAYE system
Benefits assessable on all employees

1. Vouchers and credit card
• For monetary vouchers, taxable benefit is the face value of
the voucher.
• Where vouchers are exchangeable for goods or services
(non-monetary vouchers), the taxable benefit is the cost to
the employer of providing the voucher.
• Where the benefit arises from the use of a company credit
card, the taxable benefit is the amount charged to the card,
excluding any interest or card fees.
• If employee can show the use of vouchers was wholly ,
exclusively and necessarily in the performance of the
duties of his or her employment, there is no assessable
benefit arise.
Accommodation
2. Accommodation
 Job Related Accommodation
 No taxable benefit in respect of job related accommodation.
 Definition of job related accommodation:
 Residence in the accommodation is necessary for the
proper performance of duties; or
 The accommodation is provided as part of
arrangements in force because of a special threat to the
employee’s security; or
 The employment is of a kind in which it is customary
for accommodation to be provided.
Accommodation
 Accommodation which is not job related

 General charge
Higher of - annual value
- rent paid by the employer
 Additional charge – applies if cost of the property is greater
than £75,000
This is calculated as:
(cost *- £75,000) * official interest rate
Tips:
1. If employer owned the property for the 6 years before first made available to
employee, use market value when made available, instead of cost.
2. Official interest rate will be provided in the exam.
General Charge:
annual value
Higher of
rent paid by the employer
Plus: Additional charge:

(cost - £75,000) * official interest rate
Less: Job related part
Less: Rent paid by employee
Taxable benefit on not job related Accommodation
Other Benefits
Benefits assessable on directors and P11D

employees only
1. Accommodation living expenses
2. Private use of employer’s assets
3. Provision of cars
4. Provision of vans
5. Provision of fuel
6. Provision of cheap loan
Accommodation living expenses
 Normal benefit rule applies

 Where accommodation is job-rated, then taxable benefit
cannot exceed 10% of net earnings i.e.
10%*(Monetary earnings + Other benefits – Allowable expenses)
Accommodation living expenses
Example 2:
Maggie lives in job-related accommodation, and her
salary is £7,000 p.a. Household expenses of £1,800
are paid by her employer and she has other benefits
totaling £2,000.
Required
Calculate the assessable benefit for living expenses.
Private use of employer’s assets
• Use of assets
Taxable benefit is calculated as higher of:
• 20% * MV when first provided by the employer
• Rent paid by the employer
Private use of employer’s assets
• If assets subsequently gifted to employee

 Taxable benefit is calculated as higher of:
• MV @ given less amounts paid by employee
(MV when given – the price paid by employee)
• MV when first provided by employer less any amounts

assessed as taxable benefits up to the date of gift less
amounts paid by employee
(MV when first used – benefits already assessed – the

price paid by employee)
 One mobile phone per employee is exempted

Provision of cars
 The benefit is calculated as a % of the list price of the car

 Contributions up to £5,000 will be deducted from the list price
 The benefit % is based on CO2 emissions, the maximum
percentage is 35%
TIPS: all the rates will be
 1≤X≤75 grams, 5% provided in exams.
 76≤X≤94 grams, 10%

 X=95 grams per kilometer, 11%
 X>95 grams, increase by 1% for every 5 grams increase
 3% supplement for diesel cars up to the maxi of 35%
≤35% ≤₤5,000 (n/12)
Car Benefit = Rate ×(Listing Price – Capital Contributions) ×Time Apportion
– Payment by Employee for use.
 Benefit is calculated as a % of a basic figure (£21,100 for
2013/14)
 The percentage is the same as the percentage used to
calculate the car benefit
 If the employee pays for all private fuel, there is no benefit.
If any amount of private fuel is provided (not fully reimbursed
by employee), the full charge applies.
Company vans
 Standard benefit of ₤3,000 a year for P11D employees with
private use of van.
 For company vans, there is a standard charge of £564 a
year for private fuel.
Interest-free or cheap loans
A benefit may arise when an employer lends money to

an employee (or a close relative) with interest being charged
at less than a commercial rate.
The benefit is the difference between the interest calculated
at the official rate and the interest actually paid.
There are two methods to calculate the benefits.
 Normal (Average) method
 Alternative (Strict) method
 Taxable benefit:
Interest payable @ official rate X
Less: interest actually paid (X)
Benefit X
 Average method
Interest payable @ official rate = Average loan * official rate
 Alternative strict method – if elected by HMRC or taxpayer

Interest at official rate is calculated on the actual amount
outstanding on a monthly basis
 Normal (Average) method

The average loan for the year is calculated by considering
the balance outstanding at the beginning of the year and
the balance at the end of the tax year.
• The official rate of interest, set by HMRC, is then applied to
the average amount.
• Any interest actually paid is then deducted, with the
remainder being the taxable benefit.
Alternative (Strict) method

The alternative method uses the amount of the loan
outstanding on a daily or monthly basis to calculate the
interest at the official rate.
This method can be used at the request of the taxpayer
if it gives a lower taxable benefit than the normal method.
Tips:
The benefit is exempted if the loan does not exceed £5,000 at any time in tax
year.
Lecture example
Mary works for Lane Ltd. To allow her to buy a racehorse,
the company made her a loan of ₤40,000 on 6 December
2012. The loan is to be repaid at the rate of ₤5,000 every six
months, with the first repayment due on 6 June 2013.
Mary is required to pay interest on the loan, and paid ₤240 in
2013/14. Assume an official rate of interest of 4%.
What is the taxable benefit for Mary for 2013/14?

 Gift of assets
 second hand cash value
 Other benefits
 credit card: cost of goods/service obtained
a) Canteen available to all staff.
b) Qualifying removal expenses up to £8,000.
c) Parking facilities at or near place of work.
d) Workplace nurseries (crèches), or up to £55 a
week of childcare at either an approved child
carers or paid for using childcare vouchers for
basic rate taxpayers. The weekly limit for higher
rate taxpayers is £28 per week and £25 per
week for additional rate taxpayers.
e) Contributions by an employer to an approved
pension scheme.
f) Sport and recreational facilities available generally for
the staff.
g) Outplacement counselling services to employees made
redundant who have been employed full-time for at least
two years. The services can include counselling to help
adjust to the loss of the job and to help in finding other
work.
h) Workplace parking for bicycles plus a tax free cycling
allowance of 20p per business mile.
i) Weekly tax free allowance of £4 can be paid by employer
to an employee who works from home.
 What is it?
PAYE is the system used for calculating and
collecting income tax and Class 1 NIC from
payments made to employees.
 Employer's duties
 deduct the correct tax from employee’s pay
 work out how much NIC needs deducting
 keep a record of pay and deductions
 pay tax/NIC over on the due date
 sent relevant returns to HMRC when required
 Employee tax codes
 Indicates the amount of tax free pay that an employee is entitled to
 Use the following calculation:
£ £
Allowances:
Personal allowances X
Higher rate relief X
Expense deductions X X
Less: deductions:
Benefits X
Untaxed income X
Tax under payments b/f X (X)
gross up ( *100/20 or 100/40)
Allowance to set against pay X
PAYE forms
Employers must complete forms P60, P9D, P11D and P45
as appropriate
Forms providing to each employee at the end of each tax
year
• P60- showing total taxable earnings, income tax & Class 1
NIC deducted, code number, and employer’s name and
address. Must be submitted by 31 May.
• P11D- showing benefits for directors and employees paid
₤8,500+, by 6 July.
• P9D- showing benefits for other employees, by 6 July.
• P45- showing taxable earnings, income tax and NIC
deducted, tax code up to the date of leaving. Provided
immediately following the cessation of employment.
Forms providing to HMRC at the end of each tax year
• P11D- showing benefits for directors and employees paid
₤8,500+, by 6 July.
• P9D- showing benefits for other employees, by 6 July.
1 Benefits To determine whether or not a benefit is taxable an
employee has to be allocated to either lower paid employees
or PIID employees. Specific rules apply to determine the
taxable amount of benefits but remember:
• employee contributions are always deductible
(except private fuel) and
• prorate if the benefit is only available for part of a tax year.
1 Benefits Accommodation only creates a benefit if it is not job related.
assessable on .
all employees
1 Benefits Make sure you learn these rules.
assessable on
PIID employees
1 Benefits Amount assessable is the second hand value.
assessable on
employees
earning
<£8,500
2 Exempt benefits Certain benefits are tax free. Make sure you know which ones.
3 PIID These remove the need for the employee to report business
dispensations expense payments
4 PAYE system This system imposes the collection of tax of employees onto
the employer.
Chapter 5
Pensions
Personal Pensions and NICs for Self-employed
Personal pension schemes (PPS)

Anyone can contribute to a personal pension scheme,
even if they do not have earnings.
Method of giving relief
1. All personal pension contributions are made net of
basic rate tax of 20%
2. Higher-rate taxpayers obtain the additional tax relief
by having their basic-rate tax band extended by the
gross amount of PPC.
Different situations
• An individual can contribute any amount into a personal
pension scheme, regardless of earnings. Tax relief,
however, is only available on gross contributions up to the
amount of earnings for the relevant tax year.
• Earnings here refer to trading profit, employment income

and Income from furnished holiday lettings.
• Where a person does not have any earnings for a

particular tax year, tax relief is available on gross
contributions of up to ₤3,600.
• There is an annual limit of ₤50,000.

If gross contributions exceed the annual allowance(including
any brought forward unused allowances) there will be an
annual allowance charge for the tax year in which the
contribution is paid.
This charge is subject to income tax at the individual’s

marginal rates by treating the excess contributions as an
extra amount of non-savings income received by the individual.
• Lifetime allowance currently stands at ₤1.5m.

NIC for the self-employed

The self-employed persons pay Class 2 and Class 4 NICs.
• Class 2 are paid at a flat weekly rate. Class 2 for 13/14
is ₤2.70 per week.
• Class 4 are based on the level of individual’s trading
income.
₤
1----------7,755 nil
7,756----------41,450 9.0%
41,451 and above 2.0%
Occupational Pension and NICs for Employees
Occupational pension schemes

• Employers set up OPS for their employees and contribute to OPS.
• Employee may also self contribute to OPS.
Tax relief for OPS

• Employer’s contributions are deductible under trading profit
• Employee’s contributions are deductible under employment income,

but the amount that can be deducted is limited to earnings.
• There is an annual limit of ₤50,000. Both employee and employer

contributions count towards this limit.
• Lifetime allowance currently stands at ₤1.5m. Both employee and

employer contributions count towards this limit.
Occupational Pension and NICs for Employees
NIC for employees

• Class 1 primary NIC by employee
A percentage based contribution payable by employees.
₤
1----------7,755 nil
7,756----------41,450 12%
41,451 and above 2%
• Class 1 secondary NIC by employer
A percentage based contribution payable by employers for employees.
₤
1----------7,696 nil
7,697 and above 13.8%
Class 1 secondary NIC is deductible under employer’s trading profit.
• Class 1A NIC by employer
A percentage based contribution payable by employers for P11D employees
Calculation: Taxable benefit * 13.8%
Class 1A NIC is deductible under employer’s trading profit.
Chapter 6
Property income
1 Property Income is assessed on an accruals basis. All
income incidental expenses are deductible including interest
on money borrowed to acquire property and a wear
and tear allowance if the property is furnished.
2 Furnished FHLs are seen as a business activity so attract

holiday certain advantages.
lettings
3 Lease Lease premiums on the grant of a short lease lead
premiums to an element of the premium being treated as rent
received in advance.
4 Rent a room £4,250 collected from renting a room is tax free.
 Scope of charge
 Rents receivable on lets in the UK
Rent received under any lease

agreement
 Property income
Premium received on the grant of a
short lease
 Basis of assessment
 Accrual basis, actual payment is not relevant here.
EXAMPLE 1:
Len owns a small flat in Lancing. He lets it out
unfurnished at an annual rental of £1,600 from 1
January 2013. Rent is payable quarterly in advance.
On 1 January 2014 he raised the rent to £2,000 p.a.
Required
Calculate the property income for 2013/14.
Tips:
Accrual basis or cash basis.
Basic concept in accounting.
£
1,600  9/12 1,200
2,000  3/12 500
1,700
 Expenses are allowable provided they are wholly and exclusively
for the purpose of the property business, e.g.:
1. Insurance
2. Agent’s fees & Advertising
3. Council tax paid by landlord
4. Water rates paid by landlord
5. Repairs & Redecorations (Revenue Expenditure)
6. Specific bad debts (tenants leave without payment)
7. Interest on a loan to purchase the property
8. Extra deduction on furnished properties:
wear and tear allowance= 10% x (rent accrued - council
tax - water rates paid by landlord - specific bad debts)
£
Rental income (accruals) X
Less expenses (accruals)
Advertising (X)
Agent's fees (X)
Repairs (X)
Property income profit/(loss) A
If A is a profit – taxable in the current year
If A is a loss – carry forward to deduct from property income
of the following year.
Furnished holiday letting rules
There are special rules for furnished holiday lettings(FHL). The

Letting is treated as if it were a trade. This means that, although
the income is taxed as property business income, some of the
provision which apply to actual trade may also apply to furnished
holiday lettings.
1. Capital allowances are available on furniture instead of wear
and tear allowance.
2. The income qualifies as relevant earnings for pension tax
relief purposes.
3. Capital gains tax rollover relief, entrepreneurs’ relief and gift
relief are available on any subsequent sale of the property.
It is treated as a business asset. (Chap15)
Furnished holiday letting rules
Besides, losses from FHL can only be offset against future profits
from FHL.
So, if someone has furnished holiday lettings and other lettings,

draw up two profit and loss accounts as if they had two separate
UK property businesses.
Premiums received on short term leases (≤50 years)
• A premium is a lump sum payment made by the

tenant to the landlord on the initial granting a
lease.
• Landlord company:
When a premium is received by the landlord, the
premium is treated as property business income
for the year of grant.
The amount assessable is calculated as:
P×(51-D)/50
P=total premium; D=duration
Premiums received on short term leases (≤50 years)
• Tenant company
Where a tenant company pays a premium for a short
lease, it may deduct an amount from its trading profits
in each year of the lease.
The amount deductible each year = P×(51-D)/50D
• Premium for granting subleases
The sub-premium is treated in the normal way, but a relief
is given for sub leaser.
Relief = Taxable premium for head lease ×(sublease
duration / head lease duration)
Mrs Lord grants Timothy Tenant a lease to a shop on
30/6/2013.
Annual rental £8,000 due on 1/7/2013
Term 15 years
Premium £60,000
Required
Calculate the property income assessment on Mrs Lord for
2013/14.
Mrs Lord grants Timothy Tenant a lease to a shop on
30/6/2013.
Annual rental £8,000 due on 1/7/2013
Term 15 years
Premium £60,000
Required
Show the relief available to Timothy Tenant for the
premium paid.
Head lease Sub lease
A PH DH
B C
PS DS
A: Landlord: Taxable Premium = PH×(51-DH)/50
C: Tenant: Expense deductible = PS×(51-DS)/50×1/DS

under Trading Profit
B: Sub leaser:
Landlord: PS×(51-DS)/50
Less: Relief: (PH×(51-DH)/50×DS/DH)
Taxable Premium: X
Premiums received on short term leases
(≤50 years)
Lecture example
A leases a property to B at a premium of ₤50,000 and
a duration of 20 years on 6 April 2013. B immediately
subleases the property to C at a premium of ₤30,000
and a duration of 10 years.
What are tax consequences on A, B and C for y/e 5
April 2014?
Rent a room relief
If an individual lets a room in his or her main residence, then,

a special exemption may apply.
1. If gross rents (before any expenses) is no more than ₤4,250,
the rents are exempt income and expenses are ignored.
However, the taxpayer can claim to ignore the exemption to
generate a property business loss available for relief.
2. If gross rents is more than ₤4,250, the taxpayer will be taxed

in the ordinary way, ignoring the rent a room relief.
However, the taxpayer can elect for the “alternative basis”. If
he so elects he will be taxed on (gross rents ― ₤4,250),
ignoring the expenses.
Ignore the transaction: PBI=0
Rent ≤ 4,250
Normal calculation: PBI=Rent - Expenses
Normal calculation: PBI=Rent - Expenses

Rent > 4,250
Ignore the expenses: PBI=Rent – 4,250

EXAMPLE 6:
During tax year 2013/14, Susan rented out one furnished room
of her main residence. During the year she received rent of
£6,020 and incurred the following expenses:
Gas £100
Electricity £150
Insurance £200
How much property income must Susan pay tax on?

Susan has two options:
(1) If rent a room relief claimed, £6,020- 4,250 = £1,770 as
taxable income
(2) Alternatively, based on actual profit:
£
Rental income 6,020
Less: allowable expenses (450)
Taxable income 5,570
Therefore, Susan would be advised to claim rent a room relief.

1 Property Income is assessed on an accruals basis. All
income incidental expenses are deductible including interest
on money borrowed to acquire property and a wear
and tear allowance if the property is furnished.
2 Furnished FHLs are seen as a business activity so attract

holiday certain advantages.
lettings
3 Lease Lease premiums on the grant of a short lease lead
premiums to an element of the premium being treated as rent
received in advance.
4 Rent a room £4,250 collected from renting a room is tax free.
Chapter 7
Computing trading income
Buy & sell Profit
The
Badges
How is the profit taxed? of
Trade
Apply Badges of Trade
Non-trading
Deem to be
TRADING PROFIT (potential) CAPITAL GAIN
INCOME TAX CGT (usually preferable)

 Subject matter
 Frequency of transactions
 Length of ownership
 Profit motive
 Supplementary work and marketing
 Manner in which assets were acquired
Trading Profit
Income Statement ₤
Revenue X Rev.
Less: Cost of sales (X) Exp.
Gross Profit X
Less: Operating Expenses (X) Exp.
Operating Profit X
Other Income X Rev.
Less: Other Expenses (X) Exp.
Profit Before Tax X
Adjustment (-) (+)
Tax Adjusted Trading Profit

Trading Profit
Adjustment of profits ₤
Profit Before Taxation(会计利润) X
Add back: non-deductible expenditure X
Less: income under other schedules(属于其它项目的收入) (X)
Less: Non-taxable income (免税收入) (X)
Less: capital allowances(税法上的折旧) (X)
Tax adjusted trading profit(应税利润) X
Trading Profit
Recognize the expenditure that is allowable in calculating

the tax-adjusted trading profit
Trading Profit
Deductible and non-deductible expenditure

What is non-deductible expenditure?
Expenditure which:
• Is too remote from the purpose of trading; or
• Has more than one purpose and one of them is not trading
Is non-deductible expenditure and must be added back.
1.1 Depreciation & Amortization --- non-deductible
1.2 Capital expenditure & Revenue expenditure

Revenue expenditure is deductible. Capital expenditure is non-deductible.
Distinguish Capital expenditure& Revenue expenditure:
 Capital expenditure:
Initial installation: to make the asset usable
Subsequent improvement: e.g. extension, construction of a new wall to
split one Room into two, etc
Trading Profit
 Revenue expenditure:
Subsequent repairs, decoration, redecoration
1.3 Lease charges for cars

 There is no adjustment where the CO2 emissions of a
leased motor car do not exceed 130g per kilometer.
 Where CO2 emissions are more than 130g per kilometer,
15% of the leasing costs are non-deductible.
Trading Profit
1.4 Entertaining and gifts

Entertainment expenditure for employees ----- deductible
Entertainment expenditure for customers and suppliers ------
non-deductible
Gifts to employees ----- deductible
Gifts to customers are only deductible if all of the 3 conditions are met:
1. Cost less than ￡50 each.
2. The gift is not food, drink, tobacco or vouchers exchange for
goods.
3. The gift carries a conspicuous advertisement for the company.
Trading Profit
1.5 Donations:
A donation must meet three tests to be deductible:
1. Wholly and exclusively for trading purposes
2. Local not national
3. Made to an educational, religious, cultural or benevolent
organization
Subscriptions and donations to political parties are non-deductible.
Trading Profit
1.6 Legal and professional fees

The following legal and professional fees are deductible:
1. Legal fees to collect trade debts
2. Legal fees to obtain loan finance for trading purposes
3. Legal fees of registering patents/trademarks
4. Legal fees of renewing a short lease
5. Legal fees in connection with the defense of the company’s
internet domain name
6. Legal fees in connection with court actions against suppliers/
customers for breach of contract.
7. Accountancy and audit fee
8. Patent royalties paid
Trading Profit
The followings legal and professional fees are non-deductible:

 Legal fees arising as a result of issuing new share capital
 Legal fees in connection with court actions for not complying
with certain law and legislations.
 Legal fees of the initial granting of a short lease
1.7 Bad debts

The following are deductible:
 Specific provisions
 General doubtful debt provisions
Trading Profit
1.8 Other expenses

The followings are deductible:
 Costs of sending employees to educational establishments
 Trade or professional subscriptions are normally deductible
since they will be made wholly and exclusively for the purpose of trade.
 Pre-trading expenditure can be deducted at the first year of trade
if it is incurred within 7 years of the start of trade and it is of a type that
would have been deductible had the trade already started.
(e.g. pre-trading advertising expenditure)
 Redundancy payment
 Stolen of cash by employees
Trading Profit
For sole trader:

• Salary paid to a proprietor is not deductible
• Excess salary paid to a member of the trader’s family
is not deductible
• The private portion of the motoring expenses, rent,
heat and light and telephone expenses of a proprietor
is not deductible.
• When a proprietor takes goods for his own use,
normal selling price (market value) of the goods is
added back.
Cash basis for small businesses
• If an unincorporated business has revenue below £79,000 (VAT

registration threshold) they have the option to compute trading
profit using a cash basis as opposed to the normal accruals
basis.
• A business can continue to use this basis until its revenue is
twice the VAT registration threshold – that is £158,000.
• When using the cash basis certain expenses can be computed

on a flat rate basis as follows:
1. use the approved mileage allowance to compute the

deduction for business miles. (The rate is 45p per mile for the
first 10,000 miles, with a rate of 25p per mile thereafter. The
actual running and capital costs of owning a motor car are
ignored.)
• If a business premises are used partly for private purposes, for

example, the business premises are used as a home – typically
where the business is a small hotel or guest house. The private
use adjustment for food and light and heat can be calculated on a
flat rate basis according to the number of occupants (this will be
given in an exam question).
• For example, with two occupants the private use adjustment would
be £6,000 per year (the relevant figure will be provided as part of
an examination question). The flat rate adjustment does not
include other property expenses such as rent or mortgage (loan)
interest.
• If the cash basis produces a trading loss, the only relief

available is to carry the loss forward against future trading
profits.
• In exam questions you will be told whether or not to use the

cash basis.
EXAMPLE
Winifred commenced self-employment as a surveyor on 6 April 2013.
The following information is available for the year ended 5 April 2014:
1. Revenue was £62,600, of which £3,800 was owed as receivables at 5
April 2014.
2. On 10 April 2013 a motor car with CO₂ emissions of 110 grams per
kilometre was purchased for £15,600. The motor car is used by
Winifred, and 60% of the mileage is for private journeys.
3. Motor expenses were £4,800. During the year ended 5 April 2014
Winifred drove 9,000 business miles.
4. Other expenses (all allowable) were £13,300, of which £700 was
owed as payables at 5 April 2014.
If Winifred uses the normal basis, her trading profit for the year ended 5 April
2014 will be £46,257 calculated as follows:
£ £
Revenue 62,600
Expenses
Capital allowances 1,123
(15,600×18%×40%)
Motor expenses 1,920
(4,800 x 40%)
Other expenses 13,300
(16,343)
Trading profit 46,257
Trading Profit
However, if Winifred uses the cash basis, her trading profit will be £42,150
calculated as follows:
£ £
Revenue 58,800
(62,600-3,800)
Expenses
Motor expenses 4,050
(9,000 miles at 45p)
Other expenses 12,600
(13,300 – 700)
(16,650)
Trading profit 42,150
EXAMPLE
Claude and Claire, a married couple, run a guest house. For the
year ended 5 April 2014 the trading profit is £42,000, but this is
before any private use adjustment. The total cost of food was
£31,300, and the total light and heat cost was £6,200.
Rather than calculating the actual private use for food and light and
heat, Claude and Claire can simply use the flat rate private use
adjustment of £6,000, so their trading profit is £48,000 (42,000 +
6,000).
Chapter 8
CAPITAL ALLOWANCES
Capital allowances in general
Capital allowances consist of:

 Allowance on plant and machinery
P & M are divided into 4 categories
 Main pool
 Short-life assets (less than 8 years life)
 Special rate pool
 Low emission car
(1) For motor cars:

• Motor cars with CO2 emissions of between 96 and 130g
per kilometer are included in the Main Pool.
• Motor cars with CO2 emissions of more than 130g per

kilometer are included in the Special Rate Pool.
• Motor cars with CO2 emissions of 95g per kilometer or less

is defined as Low Emission Car.
(2) Special Rate Pool includes:

• Motor cars with CO2 emissions of more than 130g per kilometer.
• Other assets with expected life of more than or equal to 25 years
 Aircraft / Crane
 Plant and machinery integral to a building, such as:
 Electrical and lighting systems
Cold water systems
Space or water heating systems
 Powered systems of ventilation, cooling, or air purification
Lifts and escalators
Allowance on plant and machinery
For P&M still in use:

Writing down allowances (WDA)
Main pool-------------------------------------18% per annum

Short-life assets-----------------------------18% per annum
Special rate pool---------------------------- 8% per annum
Low emission car---------------------------nothing to claim
* If a period of account is shorter or longer than 12 months, WDA is scaled

down or up proportionately.
For newly acquired P&M:

Annual Investment Allowance (AIA)
• AIA applies to all expenditure on plant and machinery with

the exception of cars.
• AIA provides an allowance of 100% for the first ₤250,000 of
expenditure on plant and machinery.
• If a period of account is shorter or longer than 12 months, the
₤250,000 limit is scaled down or up proportionally. For example, the
AIA would be ₤187,500 (250,000 * 9/12) for a nine-month period of
account.
• The taxpayer can decide how to allocate the AIA. It will be more tax
efficient to set it against the special rate pool expenditure
(AIA / WDA 8%) over the main pool (AIA / WDA 18%).
For newly acquired P&M:

First year Allowance (FYA)
• There is a 100% FYA for newly acquired low-emission motor

cars.
• If a period of account is less than 12 months, FYA is NOT

scaled down proportionately.
For newly acquired cars:

Writing down Allowance (WDA)
• Motor cars with CO2 emissions of between 96 and 130g per

kilometer are included in the main pool and qualify for
WDA at the rate of 18% on the full purchase price.
• Motor cars with CO2 emissions of more than 130g per kilometer
are included in the special rate pool and only qualify for WDA
at the rate of 8% on the full purchase price.
For disposed P&M:

Balancing Charge / Balancing Allowance
For the purpose of capital allowance computation, disposal value cannot

exceed the original cost of the plant.
If disposal value exceeds the original cost of the plant, the excess amount
will be charged as capital gain.
• Balancing charges occur when the disposal value deducted exceeds the
balance remaining in the pool or separate assets (Proceeds > TWDV)
• Balancing allowances occur when the disposal value deducted is less than
the balance remaining in the pool or separate assets. (Proceeds < TWDV)
* If a period of account is shorter or longer than 12 months, BC/BA is NOT

scaled down or up proportionately.
Summary
Plant & Machinery:
Newly purchased In use Disposal
Main Pool AIA ₤250,000 WDA-18% WDA 18% -
Short Life Asset AIA ₤250,000 WDA-18% WDA 18% BC/BA
Special Rate Pool AIA ₤250,000 WDA- 8% WDA 8%
Low Emission Car FYA 100% - -
* A balancing allowance can only arise on the pool on cessation of trade.

Summary
Motor car newly purchased & still in use:
From 6 April 2009

CO2 <= 95g/km, Low emission car FYA 100%
95< CO2 <= 130g/km, Main pool WDA 18%
CO2> 130g/km, Special rate pool WDA 8%
WDA, AIA: shorter or longer period of account, scaled down or up * n/12

FYA, BC/BA: shorter or longer period of account, not scale down
Disposals of non pooled assets
Lecture example
A privately used car which cost ₤14,000 with a tax written down
value at 6.4.13 of ₤4,500 was sold on 3.9.13 by a trader for :
(a) ₤16,000
(b) ₤ 8,000
(c) ₤ 3,000
Required
Calculate the balancing adjustments on sale for each of the
three situations above.
Small balance on main pool

Where the balance of unrelieved expenditure in the main pool
is less than ₤1000, then it is now possible to write-off this
unrelieved expenditure immediately.
Lecture example
Nin ltd prepares accounts to 31 March. The tax written down
value of her main pool at 1 April 2013 was ₤940. Nin’s capital
allowance claim for the year ended 31 March 2014 is as follows:
Pool Allowances
₤ ₤
TWDV brought forward 940
WDA (940) 940
TWDV carried forward - 940
Chapter 9
Assessable trading income
Basis of assessment
Commencement rules
BP1: from commencement date to the next 5 April
BP2: 3 conditions:
A: if there is an accounting date in the 2nd fiscal year
and from commencement date to that accounting date
is no more than 12 months
BP 2 is the first 12 months of trade
B: if there is an accounting date in the 2nd fiscal year
and from commencement date to that accounting date is
more than 12 months
BP 2 is the 12 months ending with that accounting date.
Basis of assessment
Commencement rules
BP2: 3 conditions:
C: if there is no accounting date in the 2nd fiscal year
BP 2 is the 2nd fiscal year itself
BP3: 12 months ending with the accounting date in the 3rd

fiscal year.
Example 1
Derek starts trading from 1 Aug 2000 and makes up the accounts at
the year end of 31 July. The first account has the period end of 31 July
2001. Show the first 3 basis periods.
POA 1 POA 2
BP2 BP3
BP1
00.8.1 01.7.31 02.7.31

00.4.5 01.4.5 02.4.5 03.4.5 04.4.5
Example 2
the year end of 31 December. The first account has the period end of 31
December 2001. Show the first 3 basis periods.
POA 1 POA 2
BP2 BP3
BP1
00.8.1 00.12.31 01.12.31 02.12.31
00.4.5 01.4.5 02.4.5 03.4.5 04.4.5
Example 3
the year end of 30 June. The first account has the period end of 30
June 2002. Show the first 3 basis periods.
POA 1
BP2 BP3
BP1
00.8.1 01.6.30 02.6.30

00.4.5 01.4.5 02.4.5 03.4.5 04.4.5
Basis of assessment
Cessation rules
See whether the last accounting period cross the
fiscal year or not.
Overlap profits
- Profits which have been taxed more than once
are called overlap profits
- Overlap profits at cessation are deducted from the
final year’s taxable profits.
Cessation rules
BP last
BP last
Cease
Cease
Chapter 10
Trading losses
Trading Loss Relief
1. Loss relief against net income

- A trading loss can set against Total Income
before personal allowance (net income) in the
loss-making year and/or preceding year
- Personal allowances may be wasted as a
result of this claim
- Unrelieved losses can be carried forward
under “Carry forward loss relief”.
Trading losses
Current Basis Period Previous Basis Period

Previous BP Current BP
Loss Relief against Previous BP
net income
Current BP
Total income before Personal Allowance

Cap On Income Tax Relief
 If loss relief is claimed against total income the

maximum that can be relieved is the higher of:
a) £50,000; or
b) 25% of a person’s total income (after deducting
gross personal pension contributions.)
 This restriction does not apply to the loss relieved

against profits of the same trade for the preceding
tax year.
Trading Loss Relief
2. Carry forward loss relief

- Trading losses can be relieved against future
trading profits
- Can be carried forward without time limits.

Trading Loss Relief
3. Trading losses relieved against capital gains

- Trading losses can set against capital gains
for the loss-making year
- The trading loss is first set against Net Income
of the year of the claim, and only any excess
of loss is set against capital gains of the year
of the claim.
Trading Loss Relief
4. Early trade loss relief

- Trading losses incurred in the first 4 tax years
of a trade can set against Total Income before
personal allowance (Net Income) of the 3 tax
years preceding the start of trade.
- Applying the loss to the earliest year first
(FIFO).
- This claim is preferred than the first claim,
because loss can be relieved much earlier.
Early trade loss relief
Employee Self- employed
1 2 3 1 2 3
-3 -2 -1 0 1 2 3 4
Start to trade
Total Income Before

Trading loss
Personal Allowance
Trading Loss Relief
Example: Wang commenced in self –employment on 1 November 2011,
preparing accounts to 31 October. Her results as adjusted for tax purposes for
the first two years of trading were as follows:
Year ended 31 October 2012 – Trading loss (25,200)
Year ended 31 October 2013 – Trading profit 4,800
Wang also has the following gross income for the tax years 2007-08 to
2013-14:
Employment income Bank interest
₤ ₤
2007-08 41,300 1,900
2008-09 39,200 1,800
2009-10 42,900 1,300
2010-11 35,100 1,600
2011-12 13,800 2,200
2012-13 - 2,400
2013-14 - 2,700
Trading Loss Relief
Required: Assuming that Wang claims loss relief as early
as possible against her total income under early trade loss
relief, calculate her net income for each of the tax years
2007-08 to 2013-14.
Trading Loss Relief
5. Terminal loss relief

- A loss on cessation (last 12 months of
trading), together with those unrelieved
overlap profits, is allowed to set against the
trading profit for the 3 preceding tax years,
later years first (LIFO).
Terminal loss relief
Terminal loss relief Cease to trade

Last 12 months Trading Loss X
Unrelieved overlap profit X
Terminal Loss X
Carry back 3 Basis Period (Tax Year)

Trading Profit
Trading Loss Relief
Lecture example
Yui Zong has been in self-employment since 2005, but ceased
trading on 30 September 2013. She has always prepared
accounts to 30 September. Her results for the final five years of
trading were as follows: ₤
Year ended 30 September 2009-Trading profit 12,400
Year ended 30 September 2013-Trading loss (80,600)
Yui has unused overlap profits brought forward of ₤2,300. She has no
other income.
Required: Assuming that Yui claims terminal loss relief, calculate her
net income for each of the tax years 2009-10 to 2013-14.
Chapter 11
Partnerships and limited liability
partnerships
• A partnership is a group of individuals who are
trading together. They will agree amongst
themselves how the business should be run and
how profits and losses should be shared. It is not
treated as a separate entity for tax purposes (in
contrast to a company).
Partnerships and limited liability partnerships
1. Profit Allocation
A partnership is treated like a pool of sole trader for the
purposes of computing its trading profits.
• Partners’ salaries and interest on capital are allocated
first
• The balance after allocating salaries and interests on
capital will be allocated in the profit sharing ratio.
• When there is a change in the profit sharing ratio, the
profit or loss will need to be time apportioned prior to
allocation.
2. Changes in partnership personnel

The partnership is always treated as continuing, but
 Outgoing partner: use cessation rules for evaluating his
share of profits
 Existing partners: continue on CYB rules
 New partner: use opening year rules to evaluate his share
of profits
Each partner has his or her own overlap profit, available for
overlap relief.
3. Partnership losses relief

 A partner joining a partnership may be entitled to claim
Early trade loss relief in addition to loss relief against net
income and carry forward loss relief.
 A partner leaving the partnership may be entitled to
claim a terminal loss relief in addition to loss relief
against net income.
 Partners continuing in the partnership will be entitled to
claim loss relief against net income and carry forward
loss relief.
Chapter 13
1 Introduction Chargeable gains arise when there is a
chargeable disposal of a chargeable asset by a
chargeable person.
2 CGT An individual is entitled to an annual exemption
payable by each tax year.
individuals CGT is calculated at a flat rate of 18%.
3 Year end Losses are offset against gains. Brought
computation forward capital losses can be restricted to
preserve any annual exemption.
4 Part disposals A/A + B is used to determine the cost when
there is a part disposal.
5 Transfers Transfers between husbands and wives or
between members of a civil partnership are made at
husband and no gain/no loss.
wife
6 Compensation A damaged asset is treated as a part
or insurance disposal.
monies When an asset is destroyed a form of
rollover relief is available if a replacement
asset is purchased within 12 months.
 Chargeable persons
 Resident in UK
 Chargeable disposal
 Sales of asset
 Gift of asset
 Loss or destruction of asset
 Exempt disposals
 Transfers of assets on death
 Gifts to charities
 Chargeable asset – all assets less exempted.

 Basis
 Taxed on gains arising from disposals in the current fiscal year
Exempt assets:
 Motor vehicles
 Premium bonds
 Gilt-edged securities (treasury stock)
 Qualifying corporate bonds
 Certain Chattels
 Stocks and other current assets
 Investments held in ISAs
 Gains are taxed at 18% if they fall into any
remaining basic rate band and 28% where they
exceed this threshold.
 Individuals receive an annual exemption of
£10,900 (2013/14).
Tips:
CGT: CAPTIAL GAIN TAX
£
Gross proceeds X
Less: incidental costs of disposal (X)
Net proceeds X
Less: cost (X)
Less: enhancement expenditure (X)
Capital gain/(capital loss) X/(X)
Mr. Riley sells an asset £
Asset purchased February 1986 15,000
Sale July 2013 43,000
Selling expenses July 2013 2,500
Enhancement August 2000 8,000
Required
What is Mr. Riley's chargeable gain?
£
Gross sales proceeds 43,000
Less: selling expenses (2,500)
Less: Cost (15,000)
Less: Enhancement (8,000)
Chargeable gain 17,500
 Current year losses
Current year losses must be offset against current
year gains. The annual exemption is then deducted
from any remaining gain.
In 2013/14, Ted makes a gain of £45,000 on an asset
and also £10,000 on another. He makes a loss of
£31,000. Ted has no losses to bring forward from
earlier years.
Required
Show Ted‟s taxable gains for 2013/14 after the annual
exemption.
£
Gains (45,000 + 10,000) 55,000

Less: Loss (31,000)
Net gain 24,000
Annual exemption (10,900)
Taxable gain 13,100
 Losses carried forward from earlier years
Where current losses exceed current gains the net
current loss is carried forward to offset against future
capital gains
Where losses are carried forward from earlier years,

they need only be used to the extent needed to bring
the gains down to the level of the annual exemption.
Tara makes a gain on a business asset in 2013/14
of £14,000. She makes no other disposals in the tax
year. Tara has losses brought forward from last year
of £12,000.
Required
Show how the gain is relieved by loss relief and the
loss to carry forward to 2014/15.
Tips: remember the
Total
Current gains procedures. X
CY capital losses (X)1
X
Capital losses b/fwd (X)2
X
Less AE (10,900)
Taxable gain X
* Use up sufficient b/fwd loss to bring total gains down to ₤10,900.

* Unused annual exemptions cannot be carried forward.
Part disposals
 When only part of an asset is sold, the original cost of the whole
asset needs to be split up.
 The gain on the part disposed of is calculated as follows:
£
Proceeds of part disposal A
Less: selling costs (X)
Net proceeds X
Less: Original cost of whole asset
× A
A+B (C)
Chargeable gain X
A= MV of the part disposed of (i.e. gross proceeds)
B= MV of the remainder of the asset (you will be given)
 Transfers of assets between spouses are on a no
gain/no loss basis.
 Recipient spouse is treated as if they bought the
asset at the transfer date for a price equal to cost.
 The above rules apply to civil partners as well.
Compensation = proceeds
Asset destroyed Asset damaged
Full disposal Part disposal

A A: compensation received
A + B B: unrestored value of asset
R/O(roll over relief)

if replaced Restoration =
< 12m enhancement
 If an asset is completely destroyed, there is a „full‟
disposal and compensation monies are wholly charged
to CGT.
 If the compensation receipts are reinvested in a
replacement asset within 12 months, a form of „roll over‟
relief is available.
 If only part of the proceeds are used, the gain
immediately chargeable can be limited to the amount
not used.
 The „replacement‟ asset need not be the same as the
original. It can be any asset provided it is within the
charge to CGT.
1 Introduction Chargeable gains arise when there is a
chargeable disposal of a chargeable asset by a
chargeable person.
2 CGT An individual is entitled to an annual exemption
payable by each tax year.
individuals CGT is calculated at a flat rate of 18%.
3 Year end Losses are offset against gains. Brought
computation forward capital losses can be restricted to
preserve any annual exemption.
4 Part disposals A/A + B is used to determine the cost when
there is a part disposal.
5 Transfers Transfers between husbands and wives or
between members of a civil partnership are made at
husband and no gain/no loss.
wife
6 Compensation A damaged asset is treated as a part
or insurance disposal.
monies When an asset is destroyed a form of
rollover relief is available if a replacement
asset is purchased within 12 months.
Chapter 14
1 Chattels Chattels fall into two categories
• wasting – exempt
• non-wasting – special rules/restrictions apply
2 Principal Selling your principal private residence

private exempts any gain providing you have been in
residence full occupation. Periods of non-occupation or
relief business use may cause some of this
exemption to be withdrawn.
Chattels
Tangible moveable property
Wasting chattels （Waste: 消耗性的）
Expected life on disposal ≤ 50 years
Non wasting chattels
Cost
Proceeds < 6,000 > 6,000
Allowable loss but gross

< 6,000 EXEMPT proceeds are deemed to be:
GP = £6,000
Restrict gain NORMAL CGT

> 6,000 5/3 (GP-6,000) RULES
 A waste asset is one which has an estimated
remaining useful life ≤50 years and whose
original value will depreciate
intangible assets
 When calculate the gain the cost is written

down on a straight line basis
 Gain arising on individual‟s only or main private
residence is exempt from CGT if the owner has
occupied the whole of the residence throughout
his period of ownership.
 PPR relief is calculated as:
Period of occupation
Full gain x
Period of ownership
Occup. Deemed Occup.
before occup. after
Deemed occupation
 Any reason up to 3 yrs, preceded & followed by actual
occupation
 Live abroad due to employment, preceded & followed by
actual occupation
 Live elsewhere in UK due to employment up to 4 years,
preceded & followed by actual occupation
 Last 36 mths of ownership always deemed occup. (no need
to before and after)
If any part of the residence is not occupied
by the owner for residence purposes, PPR
relief will be proportionately withdrawn.
Mr. Small purchased a property for £35,000 on 31
May 2003 and began operating a dental practice
from that date in one quarter of the house. He closed
the dental practice on 31 December 2013. Selling
the house on that date for £130,000
Calculate the chargeable gain

£
Proceeds 130,000
Less: cost (35,000)
Gain before PPR relief 95,000
Less: PPR relief 0.75*95,000 (71,250)
Chargeable gain 23,750
 If part of the main residence is let out, a gain may
arise on the part let out.
 For residential lets this gain may be covered by
letting relief which is the lowest of:
(i) The gain arising in the letting period not covered
by PPR relief.
(ii) £40,000.
(iii) The PPR relief already given.
1 Chattels Chattels fall into two categories
• wasting – exempt
• non-wasting – special rules/restrictions apply
2 Principal Selling your principal private residence

private exempts any gain providing you have been in
residence full occupation. Periods of non-occupation or
relief business use may cause some of this
exemption to be withdrawn.
Chapter 15
Business reliefs
Gift relief
 Donor no gains no loss

 Conditions for gift relief:
1.Disposal is made to an individual who is UK resident or
ordinarily resident
2.The asset needs only be qualifying business asset in
the hands of the donor.
Qualifying Business Assets
• Assets used for trading purposes by a sole trader
• Shares in a personal company (where the individual has
at least a 5% shareholding)
• Shares in unquoted trading companies
Gift relief
A Gift of asset B
(A is deemed to
dispose asset at Market Value)
A: Disposal proceeds MV
Less: Cost (X)
Capital Gain X‟
Less: Gift Relief (X‟)
Chargeable Gain (Donor No gain/No loss) 0
B: Base cost of asset = MV – Gift Relief
(Rest of the gain is rolled over into the base cost for a subsequent
disposal of the asset)
Gift relief for sale at under value
Sale at under value: the disposal involves actual

consideration rather than being a pure gift but is
still not a bargain made at arm‟s length.
Any excess of actual consideration over original costs
is chargeable immediately and only the balance of the
gain qualifies for gift relief.
Gift relief for sale at under value
A Gift of asset B
(A is deemed to Cost < Consideration < MV
dispose asset at
Market Value)
A: Disposal proceeds MV
Less: Cost (X)
Capital Gain X1 Then,
calculate B.F.
Less: Gift Relief for sale at under value (Balancing Figure)
Chargeable Gain X2
(First Calculate X2=Actual consideration - cost)
B: Base cost of asset = MV – Gift Relief for sale at under value

(Rest of the gain is rolled over into the base cost for a subsequent disposal
of the asset)
15.2 – GIFT RELIEF (HOLDOVER RELIEF)
15.2.1 – INTRODUCTION
Interaction with entrepreneurs relief

 Gift relief is given before entrepreneurs relief
 Entrepreneurs relief applies to any gain
remaining chargeable
15.2 – GIFT RELIEF (HOLDOVER RELIEF)
15.2.3 – GIFT OF QUALIFYING SHARES
 Gain on gift of shares may not all be eligible for relief.

 Where personal company has investments in its net
assets, the gift relief is restricted.
 Gain eligible for relief will be:
 Total gain × MV of CBA / MV of CA
 CBA = chargeable business asset (chargeable
assets except investments)
CA = chargeable asset (assets not exempt from
CGT)
Rollover relief
Overview of Rollover Relief

• Rollover relief allows a capital gain to be deferred where
the disposal proceeds of the old assets are reinvested
in a new asset. The deferral is achieved by deducting
the capital gain of the old asset from the cost of the new
asset.
• The old and new asset must both be qualifying assets
and be used for business purposes.
Qualifying assets
• Land and buildings (e.g. factory)
• Fixed plant and machinery
• Goodwill
Rollover relief
Time requirements:
• The new asset must be purchased during a period of 1
year before the sale of the old asset and 3 years after
the sale.
• The new asset must be brought in to business use at
the time that it is acquired.
Rollover relief
Special notes on Rollover Relief

• Partial reinvestment of proceeds
Where the disposal proceeds are not fully reinvested, the surplus
retained cannot be rolled over.
• Reinvestment in depreciating assets
 Any asset with a predictable life of not more than 60 years is a
depreciating asset
 The only types of depreciating asset that you need to be aware of
are fixed plant and machinery and short leaseholds.
 Capital gain is not chargeable until the earliest of:
1. disposal of the new asset
2.The new asset ceases to be used for trading purposes
3.10 years since the new asset was acquired
Rollover relief
E.g. C Ltd.
1) Dispose Asset A: Proceeds 300
CG = 200
Cost 100
Fully
reinvested
Purchase Asset B: Cost 500
Qualify for rollover relief:
CG= 200 CG= 200- 200=0

rollover
Cost of B= 500 Cost of B= 500-200=300
Special Notes on Rollover relief
2) Partial reinvestment: E.g. C Ltd.

Dispose Asset A: Proceeds 300
CG = 200
Partial
Cost 100
reinvestment
Surplus=300-250=50 (chargeable immediately)

CG= 200 CG= 200- 150=50

rollover (bal.fig.)
Cost of B= 250 Cost of B= 250-150=100
3) Depreciating assets: E.g. C Ltd.

Dispose Asset A: Proceeds 300
CG = 200
Fully Cost 100
reinvested
(New asset B is a depreciating asset: ≤60 yrs; Fixed plant & machinery,
short leaseholds)
CG= 200 rollover CG= 200- 200=0
Cost of B= 500 Cost of B= 500-0=500

Where does the “₤200 deferred capital gain” go?
₤200 is not taxable until the earliest of:

1) Dispose of B
2) B ceases business use
3) 10 years after purchase of B
Entrepreneurs' Relief
Entrepreneurs’ relief is available for the followings:

1. A disposal of a business or part of a business by a sole
trader. And relief is only available in respect of gains on
business asset (no relief on gains arising from investments).
2. A disposal of shares in a company where the individual has
at least 5% shareholding and is also an employee of the
company.
3. The assets must have been owned for one year prior to the
date of disposal.
4. Entrepreneurs‟ relief covers the first ₤10m of qualifying
gains that a person makes during their lifetime.
Tax rate applied: Gains on assets qualifying for Entrepreneurs‟ relief

are taxed at 10%.
Claims must be made by first anniversary of 31 January following the

tax year of disposal.
Individuals need to work out their total taxable income before working
out which Capital Gains Tax rate to use.
 First work out your taxable income.
 Next see how much of your basic rate band is already being
used against your taxable income. The maximum basic rate
band for 2013-14 is £32,010.
 Allocate any remaining basic rate band first against gains that
qualify for Entrepreneurs' Relief - these are charged at 10 per
cent.
 Next allocate any remaining basic rate band against your other
gains, these are charged at 18 per cent.
 Any remaining gains above the basic rate band are charged at
28 per cent.
 Losses and annual exemption should initially be deducted from
gains that do not qualify for entrepreneurs‟ relief.
Chapter 16
SHARES AND SECURITIES

CHAPTER 16 - SHARES AND SECURITIES

1 Valuing Shares are valued at lower of:
quoted • ¼ up
shares • average of highest and lowest marked
bargain
2 Matching There are special rules for matching shares
rules for sold with shares purchased. These rules
individuals enable the cost to be determined when quoted
shares and securities are sold.

3&4 Bonus and Bonus and rights issues are attached to the
rights holdings to which they relate.
issues
5 Takeovers On a takeover the new shares and securities
are
deemed to be acquired on the same day and
for the same amount as the original holding.
6 Gifts and Gilts and QCBs are exempt for individuals.
QCBs
16.1 – VALUING QUOTED SHARES
Quoted shares and securities are valued at the lower of:
 ¼ up: Lower quoted prices + ¼ ×(higher quoted price

–lower quoted price)
 Average of highest and lowest marked bargains

16.1.1 – EXAMPLE 1
20,000 shares in X plc quoted at 165p – 170p with marked

bargains at 164p, 169p and 171p.
Required
What would the market value for CGT purposes be?

16.1.1 – ANSWERS TO EXAMPLE 1
Lower of:
(1)¼ up 165 + ¼ (170 – 165) = 166.25
(2)Average of highest and lowest marked 167.5

bargains 164  171 =
2
 166.25  20,000 = £33,250

16.2 – SHARE MATCHING FOR INDIVIDUALS
Disposal
3 1 2
Share Pool Same Next
day 30
days
(FIFO)
16.3– BONUS ISSUES
 A bonus issue simply increases the number of

shares held by the taxpayer with no corresponding
increase in cost. The bonus shares are treated as
if acquired on the same date as the original
shares to which they relate.
16.4– RIGHTS ISSUES
 This is an issue for cash to existing shareholders

given in proportion to their existing shareholdings.
The right shares must be allocated to the pool in
the same way as bonus shares but there will be
an adjustment to original cost.
16.5– TAKEOVERS – SHARE FOR SHARE EXCHANGE
5. Takeovers
• A chargeable gain does not arise on a “paper for paper” takeover.
• The cost of the original holding is passed on to the new holding.
• If there is a cash element then this represents a disposal for CGT

purposes and original cost needs to be apportioned between the
cash and new shares received.
• Cash element treated as proceeds of a part disposal and A/A+B rule

applied to cost where:
A = cash element
B = MV of new shares acquired at date of takeover.
16.6– GILTS AND QUALIFYING CORPORATE BONDS
• Exempt from CGT for individuals.


1 Valuing Shares are valued at lower of:
quoted • ¼ up
shares • average of highest and lowest marked
bargain
2 Matching There are special rules for matching shares
rules for sold with shares purchased. These rules
individuals enable the cost to be determined when quoted
shares and securities are sold.

3&4 Bonus and Bonus and rights issues are attached to the
rights holdings to which they relate.
issues
5 Takeovers On a takeover the new shares and securities
are
deemed to be acquired on the same day and
for the same amount as the original holding.
6 Gifts and Gilts and QCBs are exempt for individuals.
QCBs
Chapter 17
Self assessment and payment of tax
by individuals
Self assessment and payment of tax by
individuals
1. Income Tax returns
1.1 Time limits for submission of tax returns
• If a taxpayer wants to complete and file a traditional paper tax return,
the filing date will normally be 31 October following the tax year.
So for 2013-14, the deadline for paper tax returns will be 31 October
2014.
Taxpayers submitting a paper tax return by the 31 October following
the tax year will have the option of HMRC preparing a self-assessment
on their behalf.
• If a taxpayer wants to complete and file the tax return online using
HMRC‟s website the filing date will be 31 January following the tax
year.
So for 2013-14, the deadline for tax returns filed online will be 31
January 2015.
For tax returns filed online, a self-assessment is automatically
provided as part of the filing process.
A single tax return is used to report income and capital gains for the tax year.
individuals
1.2 Penalties for late submission of tax returns

≤3 months ₤100
3-6 months ₤100+ ₤10 per day (for a maximum of 90 days)
6-12 months 5% of tax due (minimum of ₤300)
2. Income Tax payment

Income tax: 2 payments on account and 1 final balancing payment. All
Capital Gains Tax is due on 31 January following the end of the tax year.
2.1 Payments on account and final payment
• 31 January in the tax year – 1st payment on account
• 31 July following the tax year – 2nd payment on account
• 31 January following the tax year – balancing payment
Please refer to illustration on Page
(* Two POA are based on last year‟s tax payable & Class 4 NIC)
individuals
For the tax year 2013-14, POA are not required if the tax paid by assessment
for the tax year 2012-13 was less than ₤1,000 or if more than 80% of the tax
liability for 2012-13 was deducted at source.
2.2 Penalty on late Balancing payment
Delay Surcharge
<5 mths after penalty date Tax payable * 5%
5-11mths after penalty date Tax payable * 10%
>11 mths after penalty date Tax payable * 15%
 Penalty date is 30 days after the due date for tax
 Penalty does not apply to POA
 Interest is chargeable on late payment of both POA and BP
 In both cases interest runs from the due date until the actual date of payment.
individuals
3. Other penalties
3.1 Penalty for failure to notify a new taxable activity
No penalty Reasonable excuse
30% of unpaid tax Non-deliberate
70% of unpaid tax Deliberate
100% of unpaid tax Concealment
3.1 Penalty for incorrect return
No penalty Simply
30% of understated tax Careless
70% of understated tax Deliberate
100% of understated tax Concealment
Penalty will be reduced where a taxpayer makes disclosure especially
if unprompted by HMRC.
individuals
4. Keeping records (2013-14)
• Business records: 5 years after 31 Jan. following the tax year.
(e.g. 2020.1.31)
• Other records: 1 year after 31 Jan. following the tax year.
(e.g. 2016.1.31)
Chapter 19
Computing taxable total profits

1 General UK resident companies pay corporation tax on
worldwide profits. CT assessments are
normally based on company's accounting
period.
2 Proforma CT Make sure you can produce this.
computation .
3 Loan If loan is for trading purposes interest is part of
relationships trading income.
If loan is for non-trading purposes interest is
part of investment income.

4 Property As for individuals except better loss relief and
income interest payable on loans is relieved under
investment income.
5 Long period A chargeable accounting period cannot exceed
of account 12 months in length so a long period of account
must be split into two accounting periods.
• Company residence
UK-resident companies are chargeable to UK corporation
tax on its worldwide profits. So the correct determination
of a company‟s residence is important.
Determination of company residence
Place of incorporation Treatment

UK Treated as UK-resident
Overseas If its central management and
control is exercised in UK, treated
as UK-resident
Example: determination of company residence
1. X Ltd is incorporated in the UK; The directors hold
board meetings both in the UK and overseas.
2. Y Ltd is incorporated overseas, but the executive
directors are based in the UK and the directors hold
frequent board meetings in the UK.
3. Z Ltd is incorporated overseas, the directors hold
weekly meetings overseas, but have quarterly
meetings in the UK because this is where the non-
executive directors are based.
 Company resident in the UK pay corporation tax (CT) on their world-
wide profits.
 Taxable total profits (TTP) is based on a company‟s accounting

period
 Corporation tax is calculated with reference to financial years.

Financial years runs from 1st April to the next 31st March, determine
the tax rate applied. (e.g. FY 2013: 01.04.13-31.03.14)
Pro forma of corporation tax computation
₤
Trading Profits (accruals) X
Investment Income (accruals) X
Property Business Income (accruals) X
Net chargeable gains (receipts) X
Less: Qualifying charitable Donations(payments) (X)
Taxable total profits X
PLUS: Franked Investment Income (FII) X
Augmented Profits (for tax rate only) X
Corporation Tax
Types of Income
 Investment Income --- bank or loan interests received gross
 Property Business Income--- rent or other received due to lease

of property.
 Chargeable Gains--- capital gains arising from disposal of asset

which is not exempt.
 Franked Investment Income--- dividends received from

unconnected companies. Use gross amounts: net amount
received / 90%
 Qualifying charitable donations are paid gross by companies

Corporation Tax
1. Investment income
1.1 Loan relationship rules (borrowing & lending)
 All interests paid or received by a company are dealt with under
the loan relationship rules.
 If the loan relationship is entered into for trading purpose,

 the interest received (income) is taxable under Trading Profits
 the interest paid (expense) is deductible under Trading Profits
 If the loan relationship is entered into for non-trading purposes,

 the interest received (income) is taxable under Investment Income
 the interest paid (expense) is deductible under Investment Income
Corporation Tax
1. Investment income
1.2 Calculation of Investment income
Interest income(actual cash amount received gross by
companies)
Less: Interest payable for underpaid / overdue tax
Less: Property loan interest
Corporation Tax
2 Property Business Income

2.1 Property Business Income includes:
Rents received under any lease agreement
Premium received on the grant of a short lease
Corporation Tax
Premiums received on short term leases (<= 50 years)
 A premium is a lump sum payment made by the tenant to the landlord on the
initial granting a lease.
 Landlord company:
When a premium is received by the landlord, the premium is treated as property
business income for the year of grant.
The amount assessable is calculated as: P x (51- D) / 50
P=total premium; D=duration
 Tenant company:
Where a tenant company pays a premium for a short lease, it may deduct an
amount from its trading profits in each year of the lease.
The amount deductible each year = P x (51- D) / 50D
 Premium for granting subleases

The sub-premium is treated in the normal way, but a relief is given for sub
leaser.
Relief = Taxable premium for head lease x (sublease duration / head lease
duration)
 The calculation of property income follows income tax
principles, however there are some differences for companies.
(a) Property losses are relieved by setting against total profits
of the current period and carrying forward any excess against
total profits of future periods.
(b) Relief for interest payable on a loan to acquire or improve

property is not given as a deduction from property income.
Instead the interest is relieved under the loan relationship
rules.
Summary
 Included all figures gross in TTP

 Bank deposit interest (BDI) and Building society interest (BSI)
are received gross by companies and are assessed as
„investment income‟
 Investment income is the interest receivable less interest
payable on loans for non-trading purposes
 Dividends paid and dividends received are NEVER included in
TTP
 No CGT for companies. Company pay corporation tax on
chargeable gains
 Qualifying charitable donations are paid gross by companies
Terms of reference
Period of Account – is any period for which a company prepares account,

12 months, shorter or longer
Accounting period – corporation tax is charged in respect of accounting

Periods. An accounting period can‟t be longer than 12 months.
An accounting period starts if either:
 The company starts to trade
 Previous accounting period is ended.
An accounting period finishes on the earliest of following:

 12 months after the beginning of the accounting period
 The end of the company‟s period of account (POA)
 The date that the company ceases to trade
a) If a company has a „period of account‟ longer than 12 months,
must split into 2 CAPs.
- the first 12 months
- the remaining months
b) Having created two CT computations covering the period, two
tax computations would be required.
c) Both tax returns must be submitted to HMRC by 12 months

after the balance sheet date.
d) Tax for the period would be payable on two separate dates.

Delta plc has a 16-month period of account to 31.12.14. The company has
provided you with the following information for the 16-month period:
£
Adjusted trading profit before capital allowances 3,600,000
Rental income – cash received 24,000
(equal amounts received 31 December each year)
Capital gain 40,000
(sale of asset on 13 October 2014)
Gift Aid 20,000
(paid annually on 31 July)
The tax written down value of plant and machinery qualifying for capital
allowances at 1.9.13 was £30,000. The only capital transaction during
the 16-month period was the purchase of a new van for £8,000 on 15
November 2014.
Required
Calculate TTP.
1 General UK resident companies pay corporation tax on
worldwide profits. CT assessments are
normally based on company's accounting
period.
2 Proforma CT Make sure you can produce this.
computation .
3 Loan If loan is for trading purposes interest is part of
relationships trading income.
If loan is for non-trading purposes interest is
part of investment income.
4 Property As for individuals except better loss relief and
income interest payable on loans is relieved under
investment income.
5 Long period A chargeable accounting period cannot exceed
of account 12 months in length so a long period of account
must be split into two accounting periods.
Chapter 20
Computing the corporation tax liability

1 Basic 'Profits' is PCTCT plus franked investment
calculation income (FII).
Companies may be taxed at full rate, small
companies„ rate or marginal relief depending
on their 'profits'.
2 Short The upper and lower limits which are used to
chargeable determine tax rates are prorated if an
accounting accounting period is less than 12 months.
period
3 Associated Upper and lower limits are divided by the
companies number of associated companies.
Computing the corporation tax liability
1. Basic Calculation
1.1 Corporation tax payable is calculated as:
TTP× CT rate for the financial year
1.2 The rate of corporation tax depends on the level of “augmented profits”
Augmented profits (AP) = TTP + Franked Investment Income (FII)
(FII = Gross dividends from non-associated companies)
1.3 Corporation tax rates

For FY2013 (1/4/13 – 31/3/14), the rates can be shown diagrammatically
as follows:
FY2013 (1.4.13 -31.3.14)
%
23
23%
20 23%
20% (Less: MR)
0 300k 1,500k ‘Augmented

Profits’
CT computation for year ended 31.3.14:
(a) (b)
£ £
Trading income 2,100,000 Trading income 80,000
Gain 50,000 Qualifying charitable (20,000)
donations
Qualifying (30,000)
charitable donations
TTP 2,120,000 TTP 60,000
(b) Dividend income = £10,000

(gross).
Required
Calculate the CT payable.
Marginal relief
For FY13
CT liability is calculated: £
TTP × MAIN RATE X
Less: 3/400 ×(Upper limit - AP) ×TTP/AP (X)
CT liability X
CT computation for the year ended 31.3.14
£
Trading income 350,000
Gain 60,000
Qualifying charitable donations (10,000)
TTP 400,000
Dividends received 9,000
Required
Straddling financial years
If a company‟s accounting period straddles two financial years

e.g. y/e 31.12.13=3 months FY12, 9 months FY13, the
accounting period needs to be time apportioned and the
relevant rate applied to each part.
a) The upper and lower limits apply for a 12-month
period.
b) If the accounting period is less than 12 months
the limits need to be reduced by multiplying by
n/12, where n is the number of months in the
CAP.
Required
How much corporation tax is payable by B plc given the
results for the 4 months ended 31 March 2014 which are as
follows?
£
TTP 50,000
Dividends received 9,000
Corporation Tax
Associated companies definition

Companies are associated with each other if either:
 one company controls the other
 Both companies are under common control by another
company
What is control?
 Holding over 50% of share capital
 Holding over 50% of voting rights
 Being entitled to over 50% of distributable profits or net asset
on winding up.
Corporation Tax

Note:
 Both UK and overseas are included.
 Dormant companies are excluded
 Companies associated with each other for part of the accounting
period are treated as associated for the whole accounting period.
Effect of associated companies:

If a company has any associated companies, the limits should be
divided by the number of companies associated with each other.
CT Computation for 9 months ending 31.3.14. The company
has three subsidiaries.
TTP = £230,000 and gross dividends received from non
group companies = £30,000.
Required
FY2012 (1.4.12 -31.3.13)
%
24
24%
20 24%
20% (Less: MR)
0 300k 1,500k „AP‟

1 Basic ‘Augmented Profits' is TTP plus franked
calculation investment income (FII).
Companies may be taxed at full rate, small
companies„ rate or marginal relief depending
on their „Augmented profits'.
2 Short The upper and lower limits which are used to
chargeable determine tax rates are prorated if an
accounting accounting period is less than 12 months.
period
3 Associated Upper and lower limits are divided by the
companies number of associated companies.
Chapter 21
1 Corporation Companies pay corporation tax on their gains.
tax on They do not get an annual exemption.
chargeable
gains
2 Indexation This is deducted from the gain calculation to
allowance remove the inflationary effect. It runs from date
of purchase to date of sale.
3 Capital These can be offset against current or future
losses capital gains.
4 Share For companies these are:
matching – same day
rules – previous 9 days
– FA85 pool
Proceeds X
Less cost (X)
Unindexed gain X
Less: Indexation allowance (IA)
% increase in RPI to 3 d.p. x cost (X)
Indexed gain X
Indexation allowance
• The indexation allowance aims to eliminate
inflation factors, ensure that capital gains are taxed
on the increase in the real term of an asset‟s value.
• Indexation allowance = allowable expenditure
×indexation factor
• Fraction used to calculate indexation factor
(RPI=Retail Price Index)
RPI in month of sale - RPI in month of purchase
RPI in month of purchase
 A relief for inflation

 IA cannot create or increase an allowable capital
loss
 If IA is a negative figure, treat it as nil
Capital Loss
 A company‟s net chargeable gains (gain less

losses) for an accounting period are included
within the computation of profits chargeable to
corporation tax.
 Any allowable capital loss is carried forward to
set against the first chargeable gains in future
accounting periods
Note: Capital losses can NOT be set against income

Share matching rules for companies
 Shares sold should be matched in the following order:

a) Acquisition on the same day
b) Acquisition in 9 days prior to sale
c) FA 1985 pool
 incl. purchases from 01.04.82 to 10 days prior to sale
 do not round the indexation factor in the FA85 pool
 We must keep track of:
a) The number of shares
b) The cost of the shares
c) The indexed cost of the shares
Share matching rules for companies
Bonus issues & Rights issues
Bonus issues
 Number of share increases, no change to the cost
 No indexation allowance needs to be calculated
Rights issues
 Number of shares increases
 Costs changes and therefore, indexation allowance
needs to be calculated from the date of issue to the next
operative event
Takeovers
 The rules apply in a similar way for company
shareholders as they do for individuals (see chap 16)
Companies can get replacement of business
asset relief (same as for individual – see chap 15)
1 Corporation Companies pay corporation tax on their gains.
tax on They do not get an annual exemption.
chargeable
gains
2 Indexation This is deducted from the gain calculation to
allowance remove the inflationary effect. It runs from date
of purchase to date of sale.
3 Capital These can be offset against current or future
losses capital gains.
4 Share For companies these are:
matching – same day
rules – previous 9 days
– FA85 pool
Chapter 22
1 Trading Relief is given against current period profits
income and against profits of the previous 12 months.
losses Trading losses carried forward can only be set
against future trading income from the same
trade
2 Trading Trading losses for companies are calculated in
losses exactly the same way as trading income.
3 Loss relief Make sure you know this as it identifies against
proforma which item of income the loss is offset. Also
use a loss memorandum when answering
questions.
4 Ceased Trading losses in the last 12 months of trading
trading can be carried back 36 months (LIFO).
£‟000s
Net profit / loss in accounts X / (X)
Add: expenditure not deductible for tax X

Less: items not taxed as trading income
- income assessable elsewhere (X)
- non-taxable income (X)
Less: Capital allowances
- Plant and machinery (X)
Adjusted Trading Loss (X)

NIL
• Current year relief
 The loss may be deducted from total profits before
qualifying charitable donations for the period
• Carryback of losses
 Trading loss can be carried back against total profits
before qualifying charitable donations of the preceding
12 months
 Current year relief must be claimed first
• Carry forward loss relief

 Trading losses can be relieved against future trading
profits
2012 2013 2014
Trading income X nil X
C/fd relief (X)3
Other inc/gains X X X
CYR (X)1
CBR (X)2
Less: Qualifying
charitable donations (X) (X) (X)
TTP X X X
 Unrelieved qualifying charitable donations
Any unrelieved qualifying charitable donations can be
rendered to group companies (see chap 22)
 Terminal trading loss relief

Loss incurred in the last 12 months of trading can be carried
back for 36 months against total profits before qualifying
charitable donations prior to the start of cessation period.
(LIFO basis)
Capital losses
First against current year capital gains
The remaining losses are set against gains in
the future accounting periods.
Property losses
Against total profits of the current year
Carried forward against future total profits
1 Trading Relief is given against current period profits
income and against profits of the previous 12 months.
losses Trading losses carried forward can only be set
against future trading income from the same
trade
2 Trading Trading losses for companies are calculated in
losses exactly the same way as trading income.
3 Loss relief Make sure you know this as it identifies against
proforma which item of income the loss is offset. Also
use a loss memorandum when answering
questions.
4 Ceased Trading losses in the last 12 months of trading
trading can be carried back 36 months (LIFO).
Chapter 23
1 Introduction There are 3 types of group relationships
that exist:
– associated companies
– 75% group
– capital gains group
2 Associated Associated companies affect the limits for
companies corporation tax which are divided by the
number of associated companies.
3 Group relief Within a 75% group current period trading losses,
excess property business losses and excess charges on
income can be surrendered between UK companies.
A surrendering company can surrender any amount of its
loss. The claimant company can only offset against current
period PCTCT.
The objective is to save tax at the highest marginal rate.
4 Capital gains Capital gains groups allow assets to be transferred within the
groups group at no gain/no loss or an election can be made to
allocate a gain/loss to another group member. They are also
treated as a single unit for rollover purposes.
Corporation Tax

Companies are associated with each other if either:
 one company controls the other
 Both companies are under common control by another
company
What is control?
 Holding over 50% of share capital
 Holding over 50% of voting rights
 Being entitled to over 50% of distributable profits or net asset
on winding up.
Corporation Tax

Note:
 Both UK and overseas are included.
 Dormant companies are excluded
 Companies associated with each other for part of the accounting
period are treated as associated for the whole accounting period.
Effect of associated companies:

If a company has any associated companies, the limits should be
divided by the number of companies associated with each other.
Butter Ltd for its year ended 31 December 2013, holds the following investments
in other companies:
100% of the share capital of Spread Ltd, a UK resident company (acquired 31
March 2013).
60% of the share capital of Margarine Ltd, a UK resident company that has been
dormant for many years (acquired 1997).
60% of the share capital of Flora Inc, a company resident in the US (acquired
1987).
40% of the share capital of Ghee Ltd, a UK resident company.
Until 31 October 2013 Butter held 80% of the shares of Dairylea Ltd, a UK
resident company.
Required
Which companies, if any, are associated with Butter Ltd?
What are the upper and lower limits which Butter will use in establishing its rate
of tax?
A
Butter Ltd
100% 40%
60% 60% 80%
Spread Ltd. Ghee Ltd
Margarine Ltd
acq‟d 31/3/13 dormant
Flora Inc Dairylea Ltd
A
A sold 31/10/13
A
Upper limit = £1,500,000/4 = £375,000
Lower limit = £300,000/4 = £75,000
Groups
1. Groups for loss relief
1.1 Requirement of groups for loss relief
 Each level more than or equal to 75%
 Effective holding more than or equal to 75%
1.2 Tax Effect of groups for loss relief
 Group relief enables companies within the group to
set against losses to other companies‟ TTP within
the group.
 The losses that can be group relieved are:
1. Trading losses
2. Excess property business losses
3. Excess qualifying charitable donations
* Only current period losses are available for group relief
Tax Effect of groups for loss relief
A B
Loss TTP
Group Relief
1. Trading losses
2. Excess property business losses
3. Excess wasted qualifying charitable donations
*Only current period losses are available for group relief

A Ltd
90% 80%
B Ltd D Ltd
100% 90%
C Ltd E Ltd
Required
a) How many associated companies are there ?
b) How many loss groups are there?
A Ltd
90% 80%
B Ltd How many associated co.s? D Ltd

5
100% How many loss groups? 90%
2
C Ltd E Ltd
• Marginal rate of tax
– The marginal rate of tax is: 23% above the UL;
*23.75% between the UL and LL, and 20% below the LL
– The UL and LL need to be divided by the number of

associates in the group
Effective marginal rate (23.75%) applies when:
1) TTP=AP
2) TTP is between the upper limit and lower limit.
e.g. If TTP=AP=350,000, then Corporation Tax Liability =
300,000×20% + 50,000×23.75%=71,875
The result is effectively the same as follow:
TTP×23% - Marginal Relief

= 350,000×23% - 3/400×(1,500,000-350,000)×350,000/350,000
=71,875
a) Identify companies for group relief.
b) Identify associates and adjust limits.
c) Set out TTP for each company.
d) Relieve loss, saving tax at highest
marginal rate.
Groups
1. Groups for loss relief

1.3 Order of claim
Losses should be claimed in the order which makes
best use of the relevant tax rate:
a) First to effective marginal rate (23.75%) to bring
the profits down to small profits rate (20%)
b) Second to main rate (23%) to bring the profits
down to small profits rate (20%)
c) Then remaining losses to small profits rate (20%)
Corresponding accounting period
If the accounting periods of the two companies do not match,

the profits and losses must be time apportioned. So that only
the results of the corresponding period may be offset.
Loss (20k)
Y/e 31/12/13
H Ltd Loss (20k) x 9/12
=(15k)
Lower of
Profit 30K x 9/12
=22.5K S Ltd Y/e 31/3/14
Profit 30K
Note: The remaining £5,000 loss could be surrendered to S Ltd
in its y/e 31.03.13
• Where a company joins a group, post-
acquisition losses may be set only against
post-acquisition profits.
• Where a company leaves a group, pre-sale

losses may be set only against pre-sale
profits.
• A claim for group relief is made by claimant
company.
• The claim should be made within 2 years of the
end of the claimant company‟s profit making
period unless position not yet final and conclusive
Groups for capital gains
2. Groups for capital gains

2.1 Requirement of groups for capital gains
 Each level more than or equal to 75%
 Effective holding more than 50%
 Holding company is a must
2.2 Tax Effect of groups for capital gains
Three provisions that members of a group for capital gains
can take advantage of:
 The actual transfer of assets within a group
 The notional transfer of assets within a group
 Rollover relief
Groups
2.3 The actual transfer of assets within a group

 When a group company transfers an asset to another group
company, there is a transferor no gain/ no loss basis (Exempt
Disposal).
2.4 Notional transfer of assets within a group
 Two companies can elect that an actual sale of the asset outside
the group made by one company is deemed to be made by another
company.
 The election has to be made within 2 years of the accounting period
in which the asset is sold outside the group.
2.5 Rollover relief
A capital gain on a disposal by one group member company can
be rolled over against a qualifying reinvestment made by another
group member company.
Tax Effect of group for Capital Gain
Actual Transfer
A B
Transfer: Exempt Disposal CG=0

Notional Transfer (名义上转移资产所有权，实际上并未转移)
A B
E.g. A Ltd. disposes Asset X, Capital Gain = 60,000

B Ltd. disposes Asset Y, Capital Loss = (50,000)
A & B can elect (made within 2 years):
A disposes X & Y, Capital Gain = 60,000 – 50,000 = 10,000
(Y 所有权名义上从B转给A)
1
B do nothing Capital Gain = 0
A do nothing Capital Gain = 0

2
B disposes X & Y, Capital Gain = 60,000 – 50,000 = 10,000
(把X 所有权在名义上从A转给了B)
Rollover Relief
A B
Dispose old asset X Purchase new asset Y

CG Cost of Y
Rollover Relief
1. Capital assets are transferred between group
members at no gain/no loss price.
ie. Sale proceeds = cost + IA
Automatic (no election)
2. To transfer gain or loss on disposal of an asset

to another group members.
Election must be made within 2 years of end
of accounting period.
3. Rollover relief
Group members are treated as one unit. Both
companies must make the claim.
a) Can make use of group‟s capital losses
b) Get gains taxed at lowest marginal rate in group
c) More chance of roll-over relief being available.
Chapter 24
Self assessment and payment of
tax by companies
companies
1. Corporation Tax Return
1.1 The due date of a return, which is the filling date, is 12 months after
the end of the accounting period.
1.2 Penalty- if company did not submit the return on time:

Delay 0-3 month 3-6 month 6-12 month >12 month
1st & 2nd ₤ 100 ₤ 200 ₤200+10% unpaid tax ₤200+20% unpaid tax
3rd or more ₤ 500 ₤ 1000 ₤1000+10% unpaid tax ₤1000+20% unpaid tax
2. Corporation Tax Payment

2.1 Payment dates
• Small and medium sized companies: Corporation tax is due for
payment 9 months and a day after the end of the accounting period.
• Large companies: pay corporation tax by installments
companies
Large company definition:

– The company pays corporation tax at the main rate (23%)
– The company was also a large company for the previous
accounting period.
• If an accounting period is 12 months, installments are due on the 14th

day of the month, starting from the 7th month, followed by 10th month,
13th month and 16th month.
• If an accounting period is less than 12 months, the final installment is

due on the 14th day in the 4th month of the next accounting period.
companies
3. Other penalties
3.1 Penalty for failure to notify a new taxable activity
No penalty Reasonable excuse
30% of unpaid tax Non-deliberate
70% of unpaid tax Deliberate
100% of unpaid tax Concealment
3.1 Penalty for incorrect return
No penalty Simply
30% of understated tax Careless
70% of understated tax Deliberate
100% of understated tax Concealment
Penalty will be reduced where a taxpayer makes disclosure especially if

unprompted by HMRC.
companies
Keeping records (2013-14)

6 years from end of accounting period to 31 March 2020.
Chapter 25
An introduction to value added tax

• The Scope of VAT

VAT is chargeable on taxable supplies made in the UK
by taxable persons. Taxable supplies may be of goods
or services.
• Taxable and Exempt Supplies
 Standard rate supply: VAT at 20%
 Zero rate supply: VAT at 0%, obtain VAT repayment
 Exempt supply: input VAT recognized as cost, no output VAT
to recover input VAT.
VAT Registration
1. Compulsory registration
 Historical test
 Future test
2. Voluntary registration
Compulsory registration
Historical test
 A business becomes liable to register for VAT if the value of its
cumulative taxable supplies during the previous 12 months
exceeds ₤79,000.
 The notification to HMRC must be made within 30 days of the

end of the month in which the ₤79,000 is exceeded.
 The registration effect will start from the next month following
the notification, or an earlier date if HMRC and the trader agree.
Compulsory registration
Future test
 A business becomes liable to register for VAT if there are
reasonable grounds to believe that its taxable supplies in the
following 30 days will exceed ₤79,000
 The notification to HMRC must be made by the end of the

30 day period.
 The registration effect will start from the beginning of that

30 day period.
VAT Deregistration
1. Compulsory deregistration
The business ceases to make taxable supplies.
(Notification to HMRC should be made within 30 days and
the business will then be deregistered from the date of
Cessation, or from an agreed later date. )
• Voluntary Deregistration
If in the next year VAT exclusive taxable supplies will
be below ₤77,000.
(HRMC will cancel a person’s registration from the date
of request is made or an agreed later date. )
 Implications of registration
 Pre-registration expenses
 VAT periods
Value Added Tax
Implications of registration
(1)Traders making standard or zero rated supplies must charge

VAT on all taxable supplies using tax invoices.
(2)These traders can recover related input tax suffered.
(3)However input tax is not recoverable on:

 Input VAT cannot be claimed in respect of goods or services that

are not used for business purposes.
Any apportionment is made where goods or services are used
partly for business and partly for private purposes
 Input VAT cannot be recovered in respect of UK customer business

entertainment.
 Input VAT cannot be recovered in respect of the purchase of a

motor vehicle, unless the vehicle is used entirely for business
purposes.
 Repairs to a car – As long as there is some business use, input

VAT can be fully recovered in respect of repairs to a car. No
apportionment is necessary.
Value Added Tax
Pre-registration expenses: recovery of input VAT

VAT incurred before registration can be treated as input tax and
recovered from HMRC subject to certain conditions.
Fixed assets: bought 4 years prior to registration but still in use post
registration
1. Trading purpose
Goods: 2. Sold after registration
3. Purchased prior to registration
service 1. Trading purpose

2. Supplied within the 6 months prior to registration
Value Added Tax
VAT administration
(1)VAT period: one quarter (e.g. q/e 31 Mar. 2014 )
(2)VAT return & payment: VAT registered businesses have to file

their VAT returns online and pay the VAT which is due
electronically.
(3)The deadline for doing this is one month and seven days
after the end of each quarter. For example, for the quarter
ended 31 Mar. 2014 a business will have until 7 May 2014 to
file its VAT return and pay any VAT which is due.
The Tax Point
The tax point is the deemed date of supply. It

determines the VAT period in which a VAT should
be accounted for.
The Tax Point
The basic tax point

• The date on which the goods are made available to the
customer
• The date on which services are completed
The actual tax point
• If a VAT invoice is issued or payment is received before
the basic tax point, the earlier of these dates becomes
the actual tax point.
• If the VAT invoice is issued within 14 days after the basic
tax point, the invoice date becomes the actual tax point.
Value Added Tax
VAT administration
(3) Tax point
Goods are delivered to customer
Basic tax pint
Service is completed
Invoice or payment before basic tax point

Actual tax point
Invoice within 14 days after basic tax point
therefore, the order is:

Basic tax point Actual tax point VAT VAT period
Lecture example
Julia sells a sculpture to the value of ₤1000
net of VAT. She receives a payment on account of
₤250 plus VAT on 25 March 2014. The sculpture is
delivered on 28 April 2014. Her VAT returns are
made up to calendar quarters. She issues an
invoice on 4 May 2014.
Outline the tax points and amounts due.
 Calculation of VAT payable

– Non-business purchases
– UK customer entertaining
– Cars (if used privately)
– Bad debts
– Discounts
– VAT on private fuel
Value Added Tax
Input VAT
(1)Good purchased for private use: no input VAT
(2)Business entertaining to UK customer: no input VAT
(3)Motor car, if a private use, no input VAT
(4)Repairs to motor car, if a business use, full input VAT.
(5)Bad debt expense (Bad debt relief): 2 conditions to be met
≥ 6months
Due date Written off
Value Added Tax
Output VAT
(1)Discount: VAT is calculated on the invoice price less all
potential discounts (trade & settlement). No adjustment is
made if discount subsequently does not apply.
Input VAT
(2)Fuel Business use: input VAT is fully deductible and there is no
need to account for output VAT.
Private use: input VAT is fully deductible, but the business

must account for output VAT using scale charges (the scale
charge will be given in the exam.)
If employee is charged for the full cost of the fuel then all
input VAT can still be reclaimed with output VAT calculated
on the charge to the employee.
Chapter 26
Further aspects of VAT

Tax Invoice
S N A T
(Supply) (Number) (Address) (VAT)
VAT rate for
Quantity and description Issuer’s name &
Registration Number each supply
of supply address
VAT exclusive Invoice Number VAT payable
Amount amount for each Customer’s
for each supply
supply name & address
The total
Total VAT exclusive amount of VAT
amount
Default surcharge
A default occurs when a trader either submits his VAT

return late, or submits the return on time but pays the
VAT late.
A surcharge liability notice will be issued by HMRC.
The surcharge period is one year from the date of the
notice.
If a further default occurs during the specified surcharge
period, the original surcharge period will be extended to
the anniversary of the new default. And surcharge penalty
will be charged.
The default surcharge is the greater of:
(i) ₤30
(ii) a percentage of the tax paid
Default in the surcharge period Surcharge penalty as a percentage of
the VAT outstanding at the due date
First 2%
Second 5%
Third 10%
Fourth or more 15%
* If the surcharge penalty is less than ₤400, no payment has to be made for
the first and second default
Errors in a VAT return
If a VAT-registered business makes an error in a VAT return that results
in the underpayment of VAT, it can be subject to a misdeclaration
penalty and penalty interest. Errors are handled in one of three ways:
Misdeclaration penalty Penalty interest
10,000
1.Error ≤ higher of
(If voluntarily disclosed) 1% turnover No No Next VAT return
10,000
2.Error > higher of
(If voluntarily disclosed) 1% turnover No Yes Separate VAT
return
3.Any error discovered by a control visit: Yes Yes

The cash accounting scheme
• This scheme enables businesses to account

for VAT on a cash basis.
• Input VAT is accounted when payment is
made to suppliers.
• Output VAT is accounted when cash is
received from customers.
Conditions to be met:
• It is available for traders whose annual
taxable turnover (exclusive VAT) does not
exceed ₤1,350,000
• If the expected value of a trader’s taxable
supplies exceeds ₤1,600,000, notice must be
given to the HMRC and he may be required
to leave the scheme.
Comment on cash accounting scheme

Advantage: automatic bad debt relief
Disadvantage: Input VAT will only be recovered
on a cash basis.
The annual accounting scheme
• An annual VAT return is submitted to HMRC

within two months of the end of the year instead
of quarterly.
• The tax payer must pay 90% of the previous
year’ VAT liability during the year by means of 9
monthly payments starting from the end of the
fourth month.
• Any balancing payment is due within two months
of the end of the year with the annual VAT return.
The annual accounting scheme
• It is available for traders whose annual taxable
turnover (exclusive VAT) does not exceed
₤1,350,000
Comment on annual accounting scheme
Only one VAT return each year, default surcharges
are avoided.
Lecture Example
Newt Ltd has joined the annual accounting scheme.
For the year 2012/01/01 to 2012/12/31, Newt Ltd has
VAT payable of ₤3,600. For the year 2013/01/01 to
2013/12/31, Newt Ltd has VAT payable of ₤3,821.
How did Newt Ltd pay VAT and submit VAT return for
the year ended 2013/12/31?
The flat rate scheme
The flat rate scheme enables businesses to calculate

VAT due simply by applying a flat rate percentage to
their VAT-inclusive turnover.
VAT payable = Sales (inclusive VAT)× flat rate
• Annual taxable turnover (exclusive of VAT) no more
than ₤150,000
• Annual total turnover (exclusive of VAT) no more
than ₤230,000.
The flat rate scheme
Comment on flat rate scheme

The main advantage of the scheme is the simplified
VAT administration. Especially for those whose
customers are not VAT registered, there will be no
need to issue VAT invoices.
Chapter 18
Inheritance tax: scope and
transfers of value
Inheritance tax: scope and transfers of value
1. Scope of inheritance tax

 When does a charge to IHT arise?
 Who is liable to IHT?
 Domicile
2. Transfers of value
 Diminution in value/loss to donor
3. Exemptions
a) Exempt gifts
b) Exemptions applying to lifetime transfers only
 Gifts in consideration of marriage
 Small gifts exemption
 Normal expenditure out of income
 Annual exemption
4. Types of lifetime transfers

 Potentially exempt transfers (PET)
PET is a gift between individuals.
PETs are exempt from IHT when the gift is made.
They may become chargeable however if the donor dies with
seven years of making the gift.
 Chargeable lifetime transfers (CLT)
Any other lifetime transfers are chargeable lifetime transfers
(e.g. gift to trust).
CLTs are chargeable during lifetime
Additional tax may become payable on death if donor dies within
seven years of making CLT.
.
Lifetime transfer Death tax

PET 0% Becomes available if the donor
dies within 7 years of making the gift
CLT Tax available during lifetime Tax available if the donor also dies
(exceeds the nil band remaining) within 7 years of making the gift
E.g. 某人于07年12月时有 “transfer of value” (life time transfer), 若是gift
between individuals,则是 PET. Life time transfer tax为0.
若该人于10年6月过世, 则是“within 7 years”, 有Death Tax需考虑

若该人于17年6月过世, 则是“not within 7 years”, 没有Death Tax
因此, “Seven years”是一个很重要的判断标准. 从税收政策悟出政府鼓励富人

越早捐赠越好.
5. Calculation of tax on lifetime transfers

Lifetime tax: proforma
LIFETIME TAX:
Gift X
Less: AE (X)
Less: AE b/f (X)
Net gift after exemptions X
Less: Nil band remaining:

Nil band at date of gift X*
less: CLTs in last 7 years before gift (X)
(X)
X
Tax@20% (or 20/80) X
* Nil band for 2013/14 is 325,000

IHT tax paid by Donor or Donee:
1) If Donor pays the IHT tax,

Gross Chargeable Transfer=Net gift after exemptions + Tax paid by donor
(i.e. IHT计税基础: Loss to donor; Deduction in Donor’s value).
E.g. Donor除了捐赠款（假定100万）外，若还要交税，则Loss to Donor就超过

100万了。
2) If Donee pays the IHT tax,

Gross Chargeable Transfer=Net gift after exemptions
E.g. Donee拿到了100万,由Donee负责去交税,则Loss to Donor就只是这100万了。
所以, Donor或Donee负责交税, 即使是同一笔赠款IHT计税基础也是有差异的

*Gross Chargeable Transfer is generally used to calculate
Death Tax (e.g. Nil Band Remaining for Death Tax)
6. Tax payable on death

 IHT is charged on PETs and CLTs made within seven years of
death (ie where donor dies < 7 years).
 Death tax is calculated at 40% and is payable by the donee of the
gift.
 Taper relief
• If gifts were made between three and seven years of death only
a percentage of the IHT calculated will be collected.
period % reduction
(years) in death tax
0-3 Nil
3-4 20%
4-5 40%
5-6 60%
6-7 80%
>7 100%
Proforma: death tax payable on lifetime gifts

DEATH TAX:
₤ ₤
Gross CLT/PET X
Less: nil band remaining: Nil band on death 325,000
Less: GCTs in 7 years before gift (X)
Nil band remaining (X)
X
Tax @ 40% IHT
Less: taper relief
% × IHT (X)
X
Less: lifetime tax (on CLT) (X)
Death tax due X
* Nil band for 2013/14 is 325,000

7. Death estate
Tax on the estate
 Tax on the death estate is computed using death rates at
the date of death. (ie 40%), on the chargeable estate less
nil band.
 Transfers in the seven years prior to death are cumulated
to work out the remaining nil band.
Proforma: death tax payable on death estate

DEATH ESTATE:
₤ ₤
CHARGEABLE ESTATE X
Less: nil band remaining: Nil band on death 325,000
Less: GCTs in 7 years before death (X)
Nil band remaining
(X)
X
Tax @ 40% IHT
8. Spouses and civil partners – transferable nil-rate bands

9. Payment of IHT
 Lifetime transfers
 Death tax

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ACCA PAPER F6 – TAXATION (UK) FA 2014

1. The calculation of various taxable income of individual

2. The calculation of Income Tax Liability and Tax Payable

3. The relief of individual trading loss

4. Tax administration for individuals

1. The calculation of profit chargeable to corporation tax

2. The calculation of corporation tax liability

3. Two independent topics:

1. The capital gain of special disposal

2. The capital gain of special assets

3. The various capital gain relief

2. Tax point for output VAT

3. VAT registration requirements and effect

4. VAT deregistration requirements and effect

5. VAT default surcharge

6. VAT return and VAT payment

7. The effect of special schemes

1. Scope of inheritance tax

Format of the Exam Mark

Treasury Revenue & Customs

(b) Corporation Income and Corporation Taxes Act UK companies

(d) Inheritance Inheritance Tax Act 1984 Individuals

• UK resident individuals are liable to UK income

The following people will automatically be treated as not resident

 A person who is in the UK for less than 16 days during a tax

Subject to not meeting any of the automatic non-resident tests, the

 A person who is in the UK for 183 days or more during a tax

 Having close family (a spouse/civil partner or minor child) in the

The following table will be given in the exam to help determine

Days in UK Previously resident Not previously resident

Dividends are received net of a 10% tax credit.

• Interest from Individual Savings Accounts(ISA)

Invest up to ₤5,760 per tax year in a cash ISA and

• All persons are entitled to a PA. It is deducted from Net

20% 20% 40% 45%

10% 20% 40% 45%

10% 10% 32.5% 37.5%

• The gift aid donation is paid net of 20%.

 An income tax charge has been introduced where a person’s

 Where adjusted net income is between £50,000 and £60,000,

 The following information will be given in the tax rates and

Child benefit income tax charge

 Self employment - contract for services

Any of the following manners can indicate employment:

Earnings are treated as received at the earlier of:

If the employee is a director, earnings are received on the

William is the finance director of Glossy Ltd. The following

When should William account for his bonus?

Expenses giving private benefits are not deductible.

Expenditure specifically deductible by employees against

• Employee’s normal commuting costs (from home

Permanent Temporary workplace

Home Permanent Temporary

Employees who use their own cars for business

The Allowance is 45p per mile on the first 10,000

When considering how benefits are taxed, we must first consider

Benefits assessable on all employees

 Accommodation which is not job related

Plus: Additional charge:

Benefits assessable on directors and P11D

 Normal benefit rule applies

• If assets subsequently gifted to employee

(MV when given – the price paid by employee)