ATX Summary Notes Tax Year 2022 23

ATX SUMMARY NOTES FOR TAX YEAR 2022/23 (RELEVANT FOR EXAMS JUNE 2023 TO MARCH 2024)
OWAIS MIRCHAWALA
Advanced Taxation
Summary Notes
By Sir Owais Mirchawala
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INCOME TAX COMPUTATION
Non-Saving Saving Dividend

Employment Income xxx - -
Trading Income xxx - -
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Property Income xxx - -

Pension Income xxx - -
REIT Income xxx - -
Trust Income xxx - xxx
Interest Income - xxx -
Dividend Income - - xxx
Total Income xxx xxx xxx
Qualifying Loan Interest (xxx) (xxx) (xxx)
Net Income xxx xxx xxx
Personal Allow (xxx) (xxx) (xxx)
Taxable Income xxx xxx xxx
Personal allowance is 12,570 and it is preferably used against Non-saving then Saving and then
Dividend. But if saving income is entirely covered through 0% band then planning can be done and
personal allowance can be used against dividend income directly. Partial claim of Personal allowance
is allowed.
Dividend Income is taxed at 0% up-till first £2,000.
Saving Income is taxed at 0% on first £1,000 if tax payer is basic rate tax payer. If tax payer is Higher
rate tax payer then first £500 will be taxed at 0%. No 0% tax band for additional rate tax payer.
Additionally £5,000 tax band of 0% will be available if saving income lies in first £5,000 of Taxable
Income.
Real Estate Investment Trust (REIT):
• Mutual Fund which invest in Property Business

• Taxed as Non-saving income for beneficiary
• WHT is 20%
Trust Income
• A separate legal entity in which assets are donated by Donor, managed by trustees for the
benefit of beneficiary.
• Trust is created due to following reasons
o To give income to those who cannot manage themselves
o To give income in a systematic manner
o To give income & assets to separate parties
o To save IHT
o To save Income Tax
• How trust is created
o During life – Through trust deed / constitution
o At Death – Through will
• Two types of trust
o Discretionary Trust: Operates on will of trustees. They have full power. Taxation for
Beneficiary as Non-saving income. 45% WHT and receipt basis assessment.
o Interest in Possession Trust: Operates according to instruction of Donor. Taxation for
Beneficiary on accrual Basis. If trust earns from Non-saving source OR saving source
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then it will be taxed as Non-saving income with 20% WHT on beneficiary and If trust
earns from than Dividend sources then income will be taxed as Dividend income with
8.75% WHT on beneficiary
Dividend Income
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• Received gross
• 0% tax on first £2,000. Irrespective of bands. This 2,000 will consume band.
Interest Income
• Received gross
• 0% tax on
o 1,000 if basic rate tax payer
o 500 if higher rate tax payer
o 0 if additional rate tax payer
• If interest income lies in first £5,000 of taxable income then additional 0% bond available. If
Non-saving income exist then it may use this first 5,000 band.
• These all 0% bands consume normal bands
• Interest from un-listed company will be received net off 20% WHT
• Interest income from National Saving Certificate & Individual Saving A/c is exempt. Exemption
limit for Individual Saving account is interest income on investment uptill 20,000.
Qualifying Loan Interest Expense
• Allowed Expense from total income. Available if loan taken:

o To Purchase Plant & Machinery for employment & Sole Trader
o To invest in Co-operatives
o To pay IHT
o To invest in close company
Personal Allowance
• Personal allowance is £12,570. However, If Adjusted net income exceeds £100,000 than PA
will diminish by £1 for every £2 excess.
Net Income xxx
Gross Qualifying Donation (xxx)
Gross Personal Pension contribution (xxx)
Adjusted Net Income xxx
Limit 100,000
Excess xxx__
Personal Allowance 12,570

Diminish (xxx)
Remaining Personal Allowance xxx
Qualifying Donations
• Donation to Charity. Reliefs

o 20% Contributed by HMRC
o Basic rate band will extend by gross amount
o ANI will reduce by gross amount
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Pensions
Funds kept by a person for his old age
• State managed Pension Plan – for everyone and managed by Govt. Contribution through NIC
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• Self-Managed Pension Plan – These are private Pension Plans of an individual. Two types of
self-managed plans:
Occupational Pension Plan
• Maintained by Employer
• Contribution by Employee will be allowed expense from employment P&L
• Contribution by Employer will be exempt benefit for employee and allowed expense for
employer from trading P&L
Personal Pension Plan
• Maintained by Private fund managers

• Relief for Personal pension plan are:
o 20% Cont. by HMRC
o BRB extension by gross amount
o ANI reduction by gross amount
• Contribution by Employer will be exempt benefit for employee and allowed expense for
employer from trading P&L
• Amount wise same relief in occupational & Personal Pension Plan.
UK Relevant Earning: Contribution can only be made in Pension plan through UK Relevant Earning.
Where UK Relevant Earning is Trading Income, Employment Income & Furnished Holiday Letting. If UK
Relevant Earning less than £3,600 then assume it equal to £3,600. If any other income used for
contribution then no relief on that amount.
Annual Allowance: It restricts total contribution made in pension plans in any form. If any contribution
above annual allowance amount then no pension relief on that amount. Annual allowance is:
• 22/23 = 40,000
• 21/22 = 40,000
• 20/21 = 40,000
• 19/20 = 40,000
Un-used AA can carry forward up till 3 years.
AA is only available if a person is part of Registered Plan.
If Excess contribution then tax it as NON SAVING income
• If Adjusted Income exceeds £240,000 then AA will diminish by £1 for every £2 excess.
Minimum AA is £4,000.
• AA will not diminish if thresh-hold income is less than 200,000
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Net Income XXX

Employee contribution in occupational pension plan XXX
Employer contribution in occupational OR personal pension plan XXX
Adjusted Income XXX
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Limit 240,000
Excess XXX
Net Income XXX

Contribution in Personal Pension Plan (gross) (XXX)
Thresh-hold Income XXX
Limit 200,000
Extraction from Plan
• Allowed after age of 55 years

• If Income is extracted then tax it as Non-saving income
• If Capital Extraction then
▪ Up till £1,073,100 – no tax. Extraction must be in following ratio
o 25% lump Sum
o 75% reinvested to generate taxable income
▪ Above £1,073,100 – tax is charged at
o 55% tax on lump sum
o 25% tax on Annuity
Registration of a Plan
Pension plan can get registered if satisfy following two conditions
• Early Extraction will not be allowed

• Fund must not invest in Residential Property & Personal chattels
Tax reliefs are only available if fund is registered.
Employment Income
On Employment Income following taxes and NICs are payable:
1. Income tax is payable as Non-saving Income

2. Class 1 Employee NIC is payable by Employee on cash benefit
3. Class 1 Employer NIC is payable by Employer on cash benefits. Employer Allowance of 5,000
is deductible against total Class 1 Employer NIC payable by organization for all employees.
Employer Allowance is not available if Company has only one employee who is director OR if
Employer Class 1 employer NIC exceeded 100,000 in previous tax year
4. Class 1 (A) Employer NIC is payable by Employer on non-cash benefits
Termination Payment
This amount is given to employee at the time of termination of job.
• Statutory Payments – Wholly Exempt

• Contractual Payments – Wholly Chargeable
• Ex-gratia Payments – Exempt up till £30,000. This £30,000 limit is reduced by statutory amount
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Chargeable amount of termination payment is subject to Class 1 A Employer NIC
Share based remuneration
Share based remunerations are divided in two heads

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• Share Incentive: In share incentives, shares are given immediately. Taxation will be in
following manner
MV of Shares xxx
Amount paid (xxx)
Employment Benefit xxx
On this employment benefit:
o Income tax will be charged as it is employment benefit
o NIC will also be charged. NIC will be of
▪ Cash benefit – if quoted shares
▪ Non cash benefit – if unquoted shares
• Share options: In share options, shares will be given to employee in future. Share options are
divided in two heads
o Approved share option plan: These plans are according to HMRC rules. Taxation will
be
▪ Grant Date – No tax
▪ Exercise date – No tax
▪ Disposal date – CGT will be charged on difference of DP and cost
o Un-approved share option plan: These plans are not according to HMRC rules.
Taxation will be
▪ Grant date – No tax
▪ Exercise date – Employment benefit will be charged on difference of MV on
exercise date and cost. Income tax and NIC will be payable
▪ Disposal date – CGT will be charged on difference of DP and MV on Exercise
date
Approved share option plan
• Save as you earn (SAYE): This plan holds following characteristics:

o Plan must be open to all full time employees and directors. Employer can keep
employment condition uptill 5 years for joining scheme.
o Monthly Contribution in plan is between £5 to £500
o Exercise period of 3 OR 5 years
o Exercise price must be 80% to 100% of MV at grant date
o On Maturity, shares OR cash can be taken
o Any expense incurred by employer will be allowed expense from his trading P&L
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• Company share option plan (CSOP): This plan holds following characteristics:
o Employer can include selected employees in this plan. Those employees must be full
time employees who hold less than 30% shares
o Max value of plan is £30,000
o Maturity period of plan 3 years to 10 years.
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o Exercise price must be equal to MV at grant date. If any difference between MV on
grant date & Exercise price then that difference will be charged as employment
benefit on exercise date.
o Any expense incurred by employer will be allowed expense from his trading P&L
• Enterprise Management Incentive plan (EMI): This plan is same as CSOP except following
differences:
o Same as CSOP. (EMI)
o Max value of plan is £250,000. If a person holds CSOP also then this limit is reduced
by amount of CSOP he holds
o Maturity period of plan 0 years to 10 years.
o Same as CSOP
o Same as CSOP
o EMI holds following additional conditions:
i. Company has less than 250 employees
ii. Company’s gross assets are less than £30m
iii. Company must not be a 51% subsidiary of other company.
o In case of EMI shares Entrepreneur relief condition of 5% holding is waived on disposal
of shares. This means that ER will be available if shares are held for at least 1 year
• Share Incentive Plan (SIP): Following are the characteristics of this plan
o Plan must be open to all full time employees who have completed 18 months on
employment
o SIP plan operates in 3 stages:
i. Free shares are given to employee of maximum £3,600 when he achieves
target 1 which was agreed with employer
ii. When employee achieves target 2 (which was agreed with employer),
employer gives him right to purchase partnership shares in company at lower
of:
1. £ 1,800
2. 10% of employment income
Cost to purchase Partnership shares is an allowed expense from employment
P&L
iii. Finally, when employee achieves last target also then employer gives him free
matching shares at ratio of two free shares per one partnership share.
Any dividend received on these shares will be exempt income if used to purchase further shares
SIP shares must be kept for at least 5 years.
• If sold within 3 years then employment benefit will be charged at Disposal Proceed
• If sold after 3 years but before 5 years then employment benefit will be charged at lower of:
o Disposal Proceed
o MV on grant date
• If sold after 5 years then no tax i.e. neither employment benefit nor CGT
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Basic Employment Income
Salary xxx
Bonus xxx
Cash Allowances xxx
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Non Cash Benefits xxx

Allowed Expense (xxx)
Employment Income xxx
Non-Cash benefits
• Car Benefit
o List price of car X CO2%
o Calculated if car provided to employee for private use
o List price is one which employee would have paid. Benefit is not charged at cost to
employer
o Accessories added in current year will be assessed from next year
o Maximum capital contribution is £5,000.
o CO2 percentage: Always round down to nearest five. Percentages will be given in
exam. For diesel car increase percentage by three. Maximum % is 37% for all cars. If
diesel car is RDE 2 approved then it is treated as petrol car.
o New rates have been introduced for Hybridcars (they will be provided in tax rate
sheet).
o For Diesel car increase percentage by 4%.
o If Electric car provided by employer then car benefit percentage is 2%.
o If employer has taken a car on rent and then provided to employee then car benefit
will be the value of rent of that car.
o Child car seat and disability accessories are exempt
• Fuel Benefit
o 25,300 X CO2% (computed in car benefit)
o Calculated if fuel provided to employee for private use
• Van Benefit: If van weight is less than 3,500 kilograms then van benefit is calculated.
o Benefit of 3,600
o If private fuel also then add 688
• Usage Benefit: If any asset other than car, fuel, accommodation, Van OR Exempt benefit is
provided then usage benefit will be calculated at Actual rent paid by Employer OR Cost X 20%
• Loan Benefit: If loan is provided to employee at less than official rate, i.e. 2% then loan benefit
will be charged.
o If loan balance changes during the year then benefit amount will be higher of strict
monthly basis and average basis.
o If loan balance remains less than 10,000 then no loan benefit.
• Gift Benefit: If employer gifts an asset to employee then gift benefit will be charged at higher
of:
Market value of Asset XXX

Cost paid by Employee (XXX)
Gift Benefit XXX
Cost of Asset XXX
Usage benefit provided to employee (XXX)
Book value XXX
Amount paid by employee (XXX)
Gift Benefit XXX
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• Accommodation Benefit: It is charged in 3 components:

o Basic Charge. It is charged at higher of
i. Actual rent paid by employer
ii. Annual value i.e. market rent
o Additional charge will be charged at [(Cost + Improvements) – 75,000] X 2%
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i. Additional charge will only be charged if house is owned by employer
ii. In additional charge improvement done in current year will be considered
from next year
iii. Consider market value when house was provided to employee instead of cost
if gap between purchase date and provision date to employee is of 6 years OR
more. If market value is used then only consider subsequent improvements.
o Ancillary charge. Support benefits of accommodation. Full amount is chargeable.
Job related accommodation is one which is due to any of the following reasons:
• It is necessary for job

• It is for better performance of job
• It is for security reason of employee
Job related accommodation is treated in following ways
• No Basic Charge
• No Additional Charge
• Ancillary Benefit uptill 10% of employment Income.
Allowed Expense: Following expenses are allowed from employment P&L:
• Employee Contribution in Occupation plan

• Cost to purchase partnership shares
• Subscriptions paid
• Any expense incurred for job
• Mileage allowance: This deduction is available if employee uses his personal vehicle for office
use. Official travelling do not include travelling from home to permanent workplace (where
work is expected to be of 24 months or more). Allowed expense is of 45 pence for first 10,000
miles and then 25 pence per mile.
Exempt Benefits
• One Mobile phone per employee

• Home worker allowance up to 6 per week
• Office expense Reimbursements
• Loan less than £10,000
• Relocation uptill £8,000. Excess is chargeable
• Childcare benefit. Exemption is unlimited if body owned by employer. If employer is giving
vouchers then:
o 55 per week for basic rate tax payer
o 28 per week for higher rate tax payer
o 25 per week for additional rate tax payer
• Office Canteen
• Office travel reimbursement
• Parking facility
• Educational subscription paid by employer
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• Pension contributions
If a benefit is exempt then no income tax, no employee NIC and no employer NIC.
Trading Income
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On trading Income following taxes are payable:
- Income tax is payable as Non saving Income

- Class 2 NIC is payable
- Class 4 NIC is payable
Badges of Trade: Following are the factors which are used to determine that whether an activity is
trade OR Investment. If trade then Income tax & NIC otherwise CGT will be charged
- Subject Matter: Some subject matter indicate investment nature, whereas some subject
matters are usually used for trading. However it is not necessary that a person cannot trade
in investment subject matters. Usually gold, shares, property indicate investment subject
matters
- Frequency of transaction: If frequency of transaction is greater than it shows trading
characteristics, whereas one off transactions show investment characteristics
- Length of ownership: Long length of ownership usually shows investment characteristic,
whereas short length of ownership shows trading activity
- Planned OR unplanned transaction: Usually trading is a planned transaction, whereas
investment is not a planned transaction
- Complimentary workdone: If complimentary work is done then it shows trading activity,
whereas lack of such work shows investment.
Basis Period Assessment: This calculation is done to align accounting year and fiscal year. It is done
in:
- Opening year:
o First tax period till nearest 31 March
o If all months of first accounting period are not covered then create second tax period by
going back 12 months.
o If going back 12 months is not possible then create tax period by going forward 12
months.
o If whole fiscal year lies in first accounting period then tax it separately.
Fiscal year is always identified through end date of period
Profits may get overlapped i.e. taxed twice but losses will never get overlapped.
First accounting period end date if kept as 31 march then no overlapping will arise as accounting
date is aligned with fiscal year. However if end date of first accounting year is kept as 30 April then
overlapping will be maximum as due to one month of April whole new tax period of 12 months
will be created. If first period profits are low then overlapping is beneficial as same profits will be
taxed again and as a result high profits of second period will be taxed with delay. However if first
period profits are high then overlapping is not preferred as it will lead to too much double taxation.
Further it also improves budgeting as known profits are being taxed again.
- Ongoing Year: Accounting year and tax year will be considered as same. Fiscal year will be
identified through end date of accounting period
- Closing year: It is assessed in following manner
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o If last and 2nd last Accounting period ends in same fiscal year then merge them and file
single assessment
o If last and 2nd last Accounting period ends in different fiscal year then tax them
separately.
- Change in Accounting year end: If accounting year end date is changed then it will be assessed
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in following way:
o Change period is less than 12 months but ends in same fiscal year then merge it with
previous period and file single assessment
o Change period is less than 12 months but ends in different fiscal year then create a new
tax period by going back 12 months from end date
o Change period is greater than 12 months then apply ongoing rule and tax it as it is.
o Change period is greater than 12 months and whole fiscal year lies in it then create two
tax periods by going back 12 months twice
If any period is of more than 12 months then old overlapping profits can be adjusted.
If profits are rising then yearend date should be changed in such a way that change period is
created by going back 12 months so that old profits are taxed again.
o Conditions for change in accounting year end date are:

▪ Change must be made at least after 5 years
▪ HMRC must be notified on nearest 31 January after end of change period
▪ Change period must not be of greater than 18 months
Property Income
Property Income includes rental Income.
The cash basis is now the default basis for calculating property income for individuals and
partnerships. However, it is still possible to opt to use the accruals basis, and the accruals basis must
be used if property income receipts exceed £150,000. Limited companies continue to use the accruals
basis.
Following expenses are allowed expenses if they relate to letting or available for letting period:
• Water tax
• Council tax
• Local tax
• Insurance
• Bad Debt
• Interest on loan
• Repair expense on unfurnished portion
• Replacement outflows of furniture
Finance costs
Tax relief for finance costs in respect of residential property, such as mortgage interest, is to be
restricted to the basic rate.
It makes no difference whether the finance was used to purchase the property or was used to pay for
repairs.
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The restriction does not apply where finance costs relate to a furnished holiday letting or to non-
residential property such as an office or warehouse. The restriction only applies to individuals and not
to limited companies.
The restriction has no impact on basic rate taxpayers.

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Rent a room relief: If a person let room / rooms of his principal residence which are furnished then he
can claim rent a room relief according to which allowed expense will be higher of actual allowed
expenses OR £7,500.
Lease Premiums: If a person pays premium for acquiring a property then that premium will be
assessed in CGT if lease is of more than 50 years. If lease is of less than 50 years then premium is
divided in CGT and Income tax portions
Premium Received xxx
2% X (n-1) X Premium Received (xxx)
Premium assessable in Income tax xxx
Premium assessable in income tax will be an allowed expense for tenant and income for landlord.
Tenant can claim allowed expense from
- Trading P&L if trading use of property
- Property P&L if property is sublet
- No allowed expense if property is kept vacant or residential use.
Tax Reducers / Tax efficient investments

Any investment which attract tax relief is classified as tax efficient investment. Tax efficient
investments include:
i. Pensions
ii. Seed Enterprise Investment scheme
iii. Enterprise Investment scheme
iv. Venture capital trust
EIS & SEIS: Two tax reliefs are available in relation to EIS & SEIS
1. Capital Gains Tax Reinvestment relief: Proceed from disposal of any asset can get deferred &
exempted if proceeds invested in EIS OR SEIS
2. Income Tax Relief: In the year of investment income tax liability will reduce. This relief can be
carried back up-till one year.
On disposal gain will be chargeable only if sold within 3 years. Loss relief is always available. In case of
Loss relief income tax relief is adjusted.
SEIS EIS
Income Tax Relief Lower of: Lower of:
- 50% of investment - 30% of investment
- Income tax liability - Income tax liability
CGT Reinvestment relief Lower of will get exempted: Lower of will get deferred:
- 50% of gain - Gain
- 50% of - reinvestment
reinvestment
Maximum number of employees 25 250
Max value of assets £200,000 before scheme £15 million before start of
scheme and £16m after launch
of scheme
Maximum value of scheme £150,000 £5 million
Maximum investment £100,000 £1 million
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Minimum Investment tenure 3 years 3 years

otherwise withdrawal at lower of
- Original relief
- DP X effective rate of
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relief
VENTURE CAPITAL TRUST: These are listed companies which invest 85% of their funds raised in SEIS
& EIS. In VCT only income tax relief is available at lower of:
o Income tax liability
o 30% of investment
- Dividend from VCT is exempt.
- Max investment is £200,000/ year.
- CGT is exempt irrespective of disposal date.
- Holding relief period is 5 years.
Inheritance Tax
• IHT is assessed on gifts which can be made during life OR at death.

• For life time gifts following rules are applicable
o Annual Exemption of £3,000/year is available. Un-used A/E can carry forward uptill 1
year.
o If gift is made to individual then it is known as PET. No life time tax on PET
o If gift is made to trust then it is known as CLT. Life time tax is payable at 20% after
adjusting NRB. If donor is paying tax then rate will increase to 25% and CLT value will
gross up
o NRB is reduced by chargeable transfers in last 7 years. Chargeable transfer is any
transaction on which IHT is calculated
o Death tax is payable on lifetime grifts (PET and CLT) if donor dies within 7 years of gift.
Death tax is 40% after adjusting NRB.
o Taper Relief may be available on death tax
• For gifts on death a death estate is made
Death Estate
Assets XXX - Assets are valued at Market Value
- Shares are valued at lower of:
o Quarter up Rule
o Average Bargain
Liabilities (XXX) - All legal debts are deductible
Funeral Expenses (XXX) - Reasonable Funeral Expenses
Total Death Estate XXX
Exempt Parties (XXX) - Spouse, charity, Political parties & National
institutions
Chargeable Death Estate XXX - IHT chargeable at 40% after adjusting NRB
Reduced Rate of IHT
- IHT rate on death estate is reduced to 36% if at-least 10% of net chargeable death estate is
given to charity.
- If less than 10% is given then planning can be done to save IHT
- Net chargeable death estate is calculate by deducting available NRB from chargeable death
estate after reversing charity amount
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Variation of will
- Will of dead person can be varied to save IHT.

o To qualify for reduced rate
o To create generation gap
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- For variation following conditions need to be satisfied

o Variation must be done within 2 years
o All beneficiaries must sign it
o It must state that it is valid for CGT & IHT
o Person making variation deed must not charged any amount for it
Benefits of Lifetime gift
• Annual exemption of £3,000 per year is available

• Small gift exemption of £250 per donee is available
• Routine gift exemption is available. Routine gift is one which has a past practice OR culture &
it does not affect wealth materially
• No Death tax if 7 years have passed to gift
• Tape Relief may be available on death tax if less than 7 years have passed
• In case of life time gift value of gift gets locked i.e. if value of asset increases after life time gift
then no IHT on increased value
• If value of asset falls then fall in value relief will be available for death tax purpose. Due to fall
in value relief IHT on death will be payable at reduced value rather than original value. NRB
will be used by original amount.
• Marriage exempt will be available if gift made on marriage:
o £5,000 for Parents
o £2,500 for Grand Parent
o £2,500 for Bride to groom & vice versa
o £1,000 for other relatives
Gift with reservation
Considering benefits of lifetime gifts, people used to make lifetime gift but continue using that asset.
HMRC regards such transactions as GWR and IHT is charged through death estate rather than lifetime
gift rules. However if donor stops using that asset OR starts to pay market rent for it then GWR rules
will not apply and then that gift will be treated as lifetime gift from that date. Use of asset in case of
emergency such as illness is not covered under these rules.
Transfer of NRB:
If any of the spouse dies without utilizing Full NRB then un-used % of NRB can be transferred to other
spouse for Death tax purpose.
Residency rate of NRB
If Parents give main residence to their direct decedents (children and grandchildren) then an
additional 175,000 NRB is available. This Additional Residence NRB will not be reduced by gifts in last
7 years. If value of residence is less than 175,000 then this additional residence NRB will reduce. If one
of the spouse has not used its residence NRB then it can be transferred to other spouse. This means
that if one spouse gave residence to surviving spouse then transfer will be exempt and first spouse
residence NRB will be unused. Now later on death of second spouse transfers residence to direct
decedent i.e. children then it will get two residence NRBs i.e. total of 350,000. If value of death estate
is more than 2 million then residence NRB will reduce by 1 for every 2 excess above 2,000,000.
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Interaction of CGT & IHT:
• On disposals only CGT is payable as no IHT on sale

• On gifts at death only IHT is payable as no CGT on death
• On gifts during life both CGT & IHT is assessed
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o In IHT head it may be PET OR CLT
o In CGT head it may be
▪ Exempt asset
▪ Eligible for Gift relief (1 of the 5 transactions)
▪ Chargeable for CGT
Trust – CGT & IHT rules
• If an asset is gifted to trust then it is treated as CLT for IHT purpose.

• If an asset is extracted from trust then a 6% exit charge is payable on it for IHT purpose
• After every 10 years of trust a 6% principal charge is payable on all assets in trust for IHT
purpose
• For CGT purpose gift to trust and extraction from trust, both are eligible for gift relief as
transaction is immediately chargeable for IHT in form of CLT and Exit charge
Pre-Owned Assets:
• If a person contributes an amount in purchase of asset but keeps it on name of other party
then tax department gives two options to that person:
o Treat contribution as Lifetime gift & cease use of that asset without rent. If used
without market rent then income tax will be payable on accommodation benefit as
HMRC will treat free access of house as other income
o Accept share of ownership as a result death tax will be assessed on his share of
ownership when he dies.
Associated Operations:
If an asset is gifted in pieces within a period of 2 years to same person so that IHT can be saved because
value of pieces is less than total value of asset, then HRMC will charge IHT on total value of asset rather
than value of pieces.
Gift in pieces include
• To give asset in small portions i.e. in multiple transactions

• To give rights of asset initially and then possession of asset
Quick Succession relief:
If multiple gifts are made of an asset within 5 years then QSR will be available for IHT purpose. QSR is
calculated in following manner
IHT paid on asset

QSR = X (Value of asset − IHT paid) X QSR %
Value of asset
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QSR percentages are:
• 0 to 1 year – 100%
• 1 to 2 years – 80%
• 2 to 3 years – 60%
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• 3 to 4 years – 40%
• 4 to 5 years – 20%
• 5 and above years – 0%
Diminution in Value Concept:
• IHT is charged on decrease in wealth of donor rather than value received by donee
• Decrease in wealth is calculated by taking difference of donor’s wealth before gift and donor’s
wealth after gift.
• If related party i.e. exempt parties also hold same asset then donor’s wealth will be valued
after taking impact of related party holding.
Business property relief
If Business is gifted then BPR can be claimed at
• 100% if unincorporated Business

• 100% if unquoted shares
• 50% if quoted shares & Donor has control
• 50% if personal asset used in Business
For BPR holding period requirement is 2 years. However this requirement is waived for subsequent
donors if one donor satisfies this condition. This relief is called successive transfer
• BPR is available on worldwide Business.

• Husband and wife are considered as single entity for IHT conditions
• Donee must not sell business before death of donor otherwise BPR will be withdrawn. If
sold then proceeds should be reinvested before in other business before death of donor.
• No BPR on non-business assets of Organization
• If changing Business scenario then BPR will be available on value which has completed 2
years out of last 5 years in business
Agriculture Property relief
• It is available on Agricultural value of property.

• 100% Relief is available if ownership is 2 years. If property is let out then this period is
increased to 7 years
• Only available on agricultural property in UK
• Rules of withdrawal & successive transfer are same in APR and BPR
Overseas IHT
• If a person is UK Domiciled then he has to pay UK IHT on worldwide assets

• If a person is non UK domiciled then UK IHT on UK assets only
• On overseas assets two reliefs are available for IHT purpose:
o Transaction cost is deductible from value of asset at lower of
▪ Actual cost
▪ 5% of value of asset
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oDouble tax relief is deductible from IHT at lower of

▪ UK tax on that asset
▪ Overseas tax
• Domicile is of two types
o Actual domicile
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o Deemed domicile. A person becomes deemed domicile
▪ For 3 years after leaving actual domicile of UK
▪ If he is UK resident for 15 years out of last 20 years such that
• Resident in any one fiscal year out of pervious four fiscal years
▪ People who are formerly domiciled residents
• Individuals who are born in UK
• Have a domicile of origin / birth
• Are UK resident in current tax year
• Have been resident in any one tax year out of previous two tax
years which are immediately preceding current tax year
• Assets are assessed in IHT in following manner
o Land & Building – physical location
o Chattels – physical location
o Shares – registration place of company
o Debtors – Location of Debtor
o Bank Account – location of Branch
Capital Gains Tax
Gain on disposal is calculated by:
Disposal Proceed XXX

Cost (XXX)
Chargeable gain XXX
Annual Exemption (12,300)
Taxable gain XXX
- Cost to sell is adjusted in Disposal Proceed
- Cost to purchase and upgradation cost is included in cost of asset
Part Disposal
If part of an asset is sold then gain is calculated on that particular part:
Disposal Proceed XXX

Cost of disposed part (XXX)
Chargeable gain XXX
Cost of Disposed Part = Total Cost X (Disposal Proceed / Total Market value of asset)
Small Part Disposal: If following conditions are satisfied then gain on part disposal can be deferred by
deducting Proceed of Part disposal from cost of asset.
- Asset must be Land & Building

- Proceed of this land & building should be less than 20,000
- Proceeds of all land and building disposed during the year should be less than 20,000
- Proceed of this part disposal should be less than 20% of total value of asset
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Decision to defer gain is done after evaluating following factors
- Wastage of annual exemption due to deferral

- Future tax rates announced in finance act
- Future expected incomes
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- Availability of brought forward losses

- Expectation of future losses
Destruction of Asset / Asset Lost
It is treated as disposal of asset with insurance proceed & scrap value being shown as Disposal
Proceed.
If full proceeds are reinvested then whole gain will be deferred. If partial reinvestment then lower of
will be chargeable now and rest will be deferred:
- Gain
- Cash in hand
Damage of Asset
It is treated as part disposal.
Whole Gain on damage of asset can be deferred if 95% OR more proceeds are reinvested in repair,
otherwise gain on damage of asset will be chargeable.
Rollover Relief
If proceed from disposal of following assets is reinvested within 3 years after OR 1 year before disposal
date then gain can be deferred. Qualifying assets include:
1. Land & Building

2. Plant & Machinery
3. Goodwill
If full proceed is reinvested then whole gain will be deferred.
If partial reinvestment then lower will be chargeable now and rest will be deferred:
- Gain
- Cash in hand
If asset is used for non-business use then Rollover relief will only will be available on business use
portion.
Holdover Relief
In case of capital allowance assets rollover relief is not claimed rather holdover relief is claimed. In
holdover relief, Gain is frozen rather being adjusted against cost of new asset. This is done to preserve
cost of asset so that capital allowances are saved.
Frozen gain will be chargeable on earlier of:
- New business is sold.

- Business use of asset is ceased
- 10 years
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Rollover Relief can be claimed multiple times on one gain whereas holdover relief can claimed once.
Holdover relief is only available on fixed plant and machinery. No rollover OR holdover relief on
moveable plant and machinery.
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Shares & Securities
If shares are sold then issue arises in determining their cost as shares may be purchased in multiple
transaction. Cost of shares is determined using Share pool (average cost). According to matching order
rules cost of disposed shares is determined in following order:
- Same day purchase

- Following 30 days purchase
- Share from pool
In case of bonus issue only number of shares are updated.
If rights of right issue are sold then it is treated as part disposal i.e. gain on that part will be charged.
However if proceeds from disposal of rights is less than 3,000 OR 5% of total value of shares then gain
on Rights disposal can be deferred. Deferral is done by deducting proceed from cost of shares.
Business Asset Disposal Relief
CGT rate is reduced to 10%, if transaction is any of the following:
• Sale of going concern Business

• Sale of ceased Business assets within 3 years
• Sale of shares such that person is
o Employee
o Holds 5% shares and
o Company is trading Co
For Business Asset Disposal; Relief at least holding requirement is 2 year. Maximum gains on which ER
is available is £1 million gain for life time.
Always use A/E & losses against gains not eligible for ER.
BADE is not applied according to band system, however, it consume band, as a result gains not eligible
for BADR are taxed at higher rate
On EMI shares 5% holding condition is waived off for Entrepreneur relief
BADR is not available on disposal of goodwill a business, if that goodwill is being sold to close company.
BADR is not available on sale of individual business assets. It is available when a complete business is
sold. On disposal of assets ER is only available if it is case of selling ceased business assets.
Investor Relief
Investors’ relief effectively extends entrepreneurs’ relief to external investors in trading companies
which are not listed (unquoted) on a stock exchange. However, investors’ relief has its own separate
£10 million lifetime limit. Qualifying gains are taxed at a rate of 10%. To qualify for investors’ relief,
shares must be:
- newly issued shares acquired by subscription.
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- owned for at least three years after 6 April 2016.
With certain exceptions (such as being an unremunerated director) the investor must not be an
employee or a director of the company whilst owning the shares.
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Paper to Paper Takeover
If a Company takeover another Company then:
- No gain if consideration is in form of shares. New shares will be acquired at cost of old shares.
Later when new shares will be sold total gain will get chargeable. When charging gain of new
shares BADR will be available if combined holding of old and new shares exceed 1 year.
- If cash consideration then gain will be chargeable on that portion
- If QCBs then gain on that portion will be calculated but will be frozen until disposal of QCBs.
Do remember that QCBs itself are exempt asset therefore only this frozen gain will be
chargeable on their disposal
- Gain on Cash portion can also be deferred if Cash proceed is less than 3,000 OR 5% of total
value received.
- If Paper to Paper relief is withdrawn then gain on old shares will be charged immediately.
Conditions for Paper to Paper relief include:
- Takeover must be for commercial reasons and not for tax avoidance
- At-least 25% shares must be purchased OR public offer should be made
Gift Relief
If an asset is gifted then it is treated as disposed at MV.
• If 100% gift then whole gain can be deferred. If partial gift then GR available on gift portion
only. Gift portion is calculated by deducting amount paid by donee from market value
• Partial claim of GR not available, however, by charging some consideration Gift Relief can be
reduced to partial. Partial claim is done so that donor can use his annual exemption and losses
• Gift Relief is only available on Chargeable Business Assets. If any asset used in business of a
company is gifted then also gift relief will be available.
• Gift Relief can be disapplied if Donor tax rate is low.
• Gift Relief is only available if:
o Donor & Donee are UK resident. If done gets non resident within 6 years of gift then
gift relief will be withdrawn
o Transaction is one of the following:
▪ Quoted shares in which donor has 5% holding
▪ Unquoted shares
▪ Unincorporated Business i.e. sole trader and partnership business
▪ Transaction immediately chargeable to IHT
▪ Transaction qualifying for APR
Following assets are exempt from CGT
1. Vehicles
2. QCBs
3. Inventory
4. Debtors
5. VCT shares
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6. Cash
7. Prize bonds
Capital Loss
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• Capital loss is used against current year gain automatically with no partial claim.
• Remaining capital loss will carry forward against future gains. In carry forward claim partial
claim is allowed.
• In year of death capital loss can carry back uptill 3 years. Partial claim is allowed.
CGT Assets
From CGT perspective assets are divided in following heads
• Wasting Assets (Asset having life less than 60 years)

o Wasting Chattels – Chattels are assets which are tangible & movable.
E.g. Car, stock, vehicle, animals, plant and machinery
- Wasting chattels are exempt from CGT except if it is eligible for Capital
allowance. In case of capital allowance assets special rules apply (study later)
o Wasting non-chattel – Intangible OR immovable but life less than 60 years
E.g. patent rights, lease rights, copyrights
- Gain is calculated by deducting Net book value from Disposal proceed.
- NBV = Cost / Total Life X Remaining life
• Non-Wasting Assets (Assets having life more than 60 years)
o Non-Wasting chattels – Tangible, movable and life more than 60 years
E.g. jewelry, painting, antiques
- If DP and cost below 6,000 then exempt
- If DP and cost above 6,000 then chargeable
o Non-wasting non-chattels – Intangible OR immovable and life more than 60 years

E.g. Land, Shares, goodwill
- Normal CGT is assessed
Incorporation Relief
If a person incorporates his business then gain on sale of assets to company can be deferred through
Incorporation Relief if:
• Business is transferred as going concern

• Consideration is in form of shares. If cash consideration is involved then IR will be reduced
proportionately
• All assets except cash are transferred to company
IR cannot be claimed partial, however by taking some cash consideration it can be reduced to partial.
Partial claim is made so that losses and annual exemption can be used
Incorporation Relief can be disapplied if old business qualified for Entrepreneur relief but shares are
not qualifying.
Associated Disposal
If any asset is sold along with sale of shares then ER will be available on that asset along with shares if
• Asset was used by Company
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• No Rent was charged. If some rent is charged ER will reduce according to percentage of rent
charged according to market value
• Asset was in personal ownership
• Shares Qualify for ER.
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Principal Private Residence
If a person sells his Principal Residence then gain relating to period of occupation will be exempt.
Principal Residence is the house in which a person lives.
Period of occupation is the period in which a person lives in that property. Period of occupation is of
two types:
1. Actual period of occupation

2. Deemed period of occupation i.e. assumed period. It include:
i. Last 9 months before disposal
ii. Following periods if supported by APO before & after.
• 36 months due to any reason
• Any period abroad employment
• 4 years due to employment OR self-employment
APO support after deemed period is waved if employment issues.
If a person lets property such that he was sharing occupancy then during chargeable months then
letting relief will be available at lower of:
• £ 40,000
• Gain relating to chargeable letting months
• PPR
No Letting relief if whole property is let out
PPR is not available on business use portion. Last 9 months exemption is available on business use
portion if APO of at least 1 month on that business use portion during entire ownership period
If a Residential Property do not qualify for PPR then tax will be charged at 18% OR 28%.
Overseas Income Tax & CGT
• If a person is UK Resident then worldwide income will be charged in UK

• Whereas if a person is Non UK Resident then only UK income will be charged for UK tax
• Overseas income can be assessed on following two Basis
o Arising Basis: Income will be taxed in UK when it is generated
o Remittance Basis: Income will be taxed in UK when it is remitted to UK
• Remittance means
o To bring cash
o Asset purchased from overseas income brought to UK
o UK Loan paid from overseas income
• However following are excluded from remittance
o Asset brought for personal use
o Asset brought for repairs OR exhibition
o Asset worth less than £1,000.
• Remittance basis is available in two cases:
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o Auto Remittance basis: In this case a person gets remittance basis without any tax
penalties. It is available in following 2 cases
▪ Un-remitted amount is less than £2,000
▪ Overseas laws have restricted remittance.
o Remittance basis opting: In this case a person opts remittance basis despite the
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fact that it is not available automatically. In this case following tax penalties will
apply
▪ Annual Exemption will be withdrawn
▪ Personal allowances will be withdrawn
▪ No relief for overseas travelling and subsistence
▪ Remittance base charge may apply if
• Age is 18 years OR more
• Resident for 7 years out of last 9 years – 30,000
• Resident for 12 years out of last 14 years – 60,000
▪ IF RBC will apply then CGT rate will become higher
• Remittance basis can be opted if a person is Resident but non-UK domiciled
• Domicile can be obtained through actual domicile process and through deemed domicile
process. In income tax and CGT deemed domicile concept is different from IHT. In income
tax and CGT a person is deemed domicile if any of the two cases will apply
o A person is long term resident i.e. meets following conditions
▪ Have been resident in UK for atleast 15 years out of 20 years
▪ Such that has been resident in any of the tax year starting from 6 April
2017
o A person has been formerly resident
▪ Individuals who are born in UK
▪ Holds domicile of birth OR origin
▪ Have been UK resident in the current tax year
• Basis of Assessment are on yearly basis.
Temporary Absence Period:
• If a person has been UK Resident for 4 OR more years in last 7 years & then he leaves UK
residency for less than 5 years then he is regarded as temporarily absent.
• Normally no CGT is assessed in non-residency period but in case of temporary absence
following rules are relevant
o Asset purchased in Residency period but sold during non-residency period
(temporary absence) – UK tax will be payable when person returns to UK
o Asset purchased and sold in non-residency period – No UK tax
o Asset purchased in non-residency but sold after becoming resident – UK tax will
be chargeable in year of disposal
Double Taxation Relief
• It is available at lower of
o UK tax on overseas income
o Overseas tax
• Always tax overseas income at last in UK so that its UK tax can increase as a result DTR will
increase
• Never use personal Allowance & losses against overseas Income at priority, it will affect
DTR
• If Double treaty exist then only one country will charge tax and other will waive it
• Double tax relief is given when no tax treaty exist and individual is UK resident
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UK CGT for Non-Residency
• Nonresident have to pay UK CGT on UK assets normally after 1st April 2015. Earlier there
was an exemption of UK tax on non-business assets for nonresidents. After 1st April 2015
all assets are chargeable in normal way if they are in UK.
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• If an asset was purchased before 1st April 2015 then its gain will be calculated after
deducting Market value on 1st April 2015 rather than original cost.
Determination of Residency:
• A person is automatically non UK Residency if he lives

o Less than 91 days such that he has overseas job
o Less than 46 days such that he has no overseas job
o Less than 16 days such that he has been Resident in UK in any of the last 3 years
• A person is automatically UK Res if
o He lives 183 days in UK in 1 fiscal year
o He lives 365 days in UK over 2 fiscal years
o He lives 30 days in UK such that his only home is in UK.
• If a person is not automatically Non UK Residency nor he is automatically UK Resident then
following ties are considered & compared with his days In UK.
o Close Family (spouse OR child under age of 18 years) member Resident in UK
o Accommodation available in UK (not necessarily owned) for at least consecutive 91
days in which individual spends at least one night in whole fiscal year. It is not
necessary that an accommodation should be purchased. It can also be a rented
accommodation OR accommodation of some relative. If it is accommodation is of
relative then a person should atleast actually live in it for 16 days in that fiscal year.
o 40 Days work in UK
o Lived 90 days atleast in UK in any of the previous 2 fiscal year
o Comparative days in UK are greater than any other country
• In case of all above rules a person is either UK resident for whole year OR non UK resident for
whole year. In case of Split year rules a person may become resident OR non-resident for part
of the year. Split year rules apply when
o A person acquires a home in UK
o Starts permanent job in UK
o Leaves overseas permanent job and returns to UK.
Value Added Tax:
• It is Indirect tax and rate is 20%

• VAT is payable by everyone but VAT registered person can recover it
• Consumer can never get registered for VAT
• Vat Registered person has to charge VAT on sale
Three types of Supplies
- From VAT perspective transactions are divided in three heads:

o Standard Rated transactions: VAT can be recovered on raw material and VAT is
charged on sale. All transactions which are neither Zero rated nor exempt are
classified as Standard rated
o Zero Rated transactions: VAT can be recovered on raw material but no VAT is charged
on sale. Medicines, Education, cloths, footwear and residential & charitable land &
building are classified as Zero rated transactions
o Exempt transactions: Neither VAT can be recovered on raw material nor VAT is
charged on sale. Postal and accountancy services are classified as exempt
transactions.
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Land & Building
- VAT issues arise on Land & Building in relation to

o Recover of VAT on purchase, maintenance expenditure & construction cost
o Charging of VAT on sale and on rental income
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- Residential & Charitable Land & Building is classified as zero rated.
- Commercial Land & Building is Standard rated during construction & uptill 3 years after
construction.
o After this period it converts to exempt category.
o However through an election it can be reverted back to standard rated. This election
is called “opt to tax” & it can be reversed one time within 6 months of election. After
6 month reversal of election can be made after 20 years.
o Decision to make election of standard rated depends on a fact that whether
customers are registered for VAT.
Partial Exemption Rule:
- VAT paid by a Registered Organization can be recovered if it relates to taxable supplies.

- VAT relating to exempt supplies cannot be recovered.
- VAT which is not attributable to any specific activity is allocated according to percentage of
taxable supplies (always round up)
- If Deminimis test is passed then total VAT can be recovered.
o Test 1
▪ Total input VAT is less than 625 per month
▪ Exempt supplies are less than 50% of total supplies
o Test 2
▪ Total input VAT less VAT directly attributable to taxable supplies is less than
625 per month
▪ Exempt supplies are less than 50% of total supplies
o Test 3
▪ Exempt VAT is less than 625 / month
▪ Exempt VAT is less than 50% of total VAT.
- Percentage of taxable supplies used for allocation of attributable VAT can be calculated
quarterly OR annually.
- If annual adj. Deminimis test is passed then total input VAT of current year will be recovered.
Further total input VAT of next year quarters will also be recovered if expected input tax of
next year is less than £1 million
Capital Goods Scheme
VAT on purchase of assets can be recovered in year of purchase according to taxable use in year of
purchase. Subsequently if taxable use changes then HMRC will monitor if asset is
- Land & Building worth more than £250,000 – HMRC will monitor for 10 years
- Computes & Equipment worth more than £50,000 – HMRC will monitor for 5 years
- In other assets change in taxable use is ignored.
- Adjustments made through following formula
o Input VAT X (Original % - Revised %)
5 / 10 years
- If assets is sold before completion of Adjustment period then a sale adjustment will be made
at lower of:
o Input VAT X remaining years X (Original % - 100% / 0%)
5 / 10 years
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▪ if VAT on sale is charged then 100% is used otherwise 0%

o VAT on sale
- VAT on sale is charged as output VAT from customer
Overseas VAT transactions

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- VAT on overseas transactions is determined separately for goods & services

o For Goods
• Exports – Zero rated transaction
• Imports – VAT is payable by purchaser. He can recover later if
registered for VAT
o For Services
• Customer and Supplier both are registered for VAT – VAT will be
assessed in Customer country so that he can recover VAT
• Customer is not registered for VAT – VAT will be assessed in Supplier
country
Group VAT
- According to this concept Companies having 51% OR more relation can apply for Group VAT.
Under this concept,Companies, which have formed Group for VAT purposes, will be required
to file only one return on behalf of entire group. Advantages of Group VAT are
o Intra Group transactions will not be charged for VAT
o No need to maintain separate tax departments
- Disadvantage of VAT group is that Error by anyone Group Company may result in penalty to
entire group.
- It is possible in VAT group that some companies are excluded from group registration because
they are leading to failure of deminimis test OR they are making errors.
- If group VAT filing is used then VAT accounting schemes cannot be joined
- VAT group can be formed in case of both individual and company ownership
Divisional VAT
In Group VAT companies applied to make one return on behalf of entire group, whereas in Divisional
VAT a Company makes application to HMRC in to get permission for making separate returns for each
of its division. This is done by Companies, which are very much diversified. Conditions for divisional
VAT are:
1. HMRC must be proved a fact that making a single VAT return is difficult
2. Each divisions must be a separate Business entity
3. Returns for all divisions must be submitted together
4. All rules of VAT apply on Company as a whole and not on each division separately. For e.g. Partial
exemption rules will apply on company as whole and not on separate divisions, Registration /
De-registration of VAT issues also apply on Company as a whole and not on separate divisions.
5. Intra divisions sales will be ignored for VAT
Registration for VAT
- If a business is registered for VAT then it can recover VAT paid.

- Registered business is also required to charge VAT on its sales.
- A business gets registered for VAT through following ways:
o Compulsory Registration
o Volunteer Registration
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Compulsory Registration
According to it a business MUST get itself registered for VAT otherwise it will be deemed to be
registered for VAT. A business is compulsorily required to register for VAT if either of following test is
satisfied:
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1. Historic Test: If Taxable supplies of last 12 months exceed 85,000, then business must get itself
registered for VAT within 30 days
2. Future Test: If aggregate taxable supplies of last 11 months and expected taxable supplies of
next 30 days exceed 85,000 then business must get itself registered for VAT on the day it knows
the fact
Voluntary Registration
According to it a business gets itself registered for VAT without any compulsion.
Advantages of Volunteer Registration
1. Business will be able to recover its input tax

2. Registration may be required due to business model for e.g. business which wants to export
any-thing must get itself registered for VAT
Disadvantages of Volunteer Registration
1. Commodity becomes expensive for consumer

2. Admin burden is increased
3. Risk of penalty
Exemption from Registration
If a Business is involved in zero rated supplies then that business will be exempted from compulsory
registration for VAT. It is to note that a person can get himself voluntarily registered. Compulsory
Registration is exempted because if he will get registered then he will only file recovery for VAT as he
is involved in zero rated goods only.
Disaggregation
If a business disaggregates itself so as to avoid registration limits since by disaggregating business sales
from each unit will fall below registration limit, then in that case HMRC may order re-aggregation i.e.
to merge the activities so that registration limit is met. HMRC considers following factors before
ordering re-aggregation:
1. Strategic Dependency of businesses on each other

2. Operations are managed centrally
3. Finance is provided by same owner
Pre-Registration Input Tax
Input tax after date of Registration will be recovered in normal course of business.
Input tax paid before date of registration can also be recovered in following cases:
1. For goods
a. If purchased for Business use
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b. Were purchased within 4 years prior to registration

c. Are present on registration date
2. For Services
a. If purchased for business
b. Were purchased within 6 months of registration date
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Deregistration from VAT
If a Business gets itself deregistered from VAT then all items held are treated as sold at Market value
and business is required to pay VAT on all standard rated items. If VAT payable is less than 1,000, then
no VAT will be payable. Business may get deregistered through following ways
1. Compulsory Deregistration: When business has ceased to make taxable supplies

2. Volunteer Deregistration: A business can get itself voluntarily deregistered from VAT if it’s
expected taxable supplies of next 12 months are less than 83,000.
Sale of Business
- If a business is sold the following VAT issues will apply

o Business sold as going concern – then no VAT on sale of business if
▪ Purchaser is registered for VAT
▪ Has intention to run business as going concern without major changes
o Business is sold after cessation then deregistration rules will apply as ceased business
has to get itself deregistered
VAT Accounting Schemes

In a normal scenario:
1. VAT is paid quarterly
2. VAT is assessed on accrual basis
3. VAT rate is 20%
Cash Accounting Scheme
According to this scheme, VAT will be assessed according to actual Cash payments / receipts.
Advantage of this scheme
1. Cash flow position is improved
2. Issues for recovery of VAT relating to Bad debt is resolved.
Conditions
1. Taxable supplies before entering scheme must be less than 1,350,000
2. If taxable supplies exceed 1,600,000 then scheme must be left immediately
3. Business has not made default in past
Annual Accounting Scheme
If this scheme is applied then one VAT return will be filed in a year. VAT payment will be based on last
year. VAT payment dates will be
1. 4th month - 1st instalment
2. 5th Month
3. 6th month
4. 7th month
5. 8th month
6. 9th month
7. 10th month
8. 11th month
9. 12th month
10. 14th month - last instalment
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- Another option for instalment is to pay 4 Quarterly instalments starting from 4th month and
ending on 14th months.
- All instalments are based on last year except last instalment which is actualized on the basis
of actual return.
- Advantage of annual accounting scheme is that admin burden of making Vat return quarterly
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is saved
- Disadvantage of scheme is that tax payment dates are very odd
- Conditions for annual accounting scheme are same as for Cash Accounting scheme
Flat Rate Scheme
- In this scheme, business is not required to pay any Output tax nor to recover any Input tax,
rather a Flat rate is applied on total revenue of business to determine VAT payable. This flat
rate is discounted by 1% in first year of scheme.
- Flat rate of VAT will be provided in examination. Practically flat rate of VAT ranges from 4% to
14.5% depending on the industry data
- For Organization, which make small amount of purchases, are required to follow a flat rate of
16.5%. In examination, it will be specified that which rate of VAT should be used.
Conditions:
• Total revenue of the business is less than 150,000
• If revenue hits 230,000 then scheme must be immediately left
• There should be no default in past.
Petty issue of VAT
• VAT on Entertainment expenses cannot be recovered except if it is for Employees OR overseas
clients
• VAT on Purchase of Cars can only be recovered if Business use is 100%. If any Private use then
VAT paid cannot be recovered.
• VAT on motoring Expenses i.e. Repairs & Maintenance Expense can be recovered even if some
private use is involved.
• VAT on gifts cannot be recovered except:
o Gift is made as a sample OR
o Gift is made to foreign customer OR
o Gift worth less than 50
• Normal Bad Debt scenario: When sale is made, Business is required to submit VAT irrespective
of actual cash payments. If in case a customer goes bad debt then the VAT refund can be
claimed if
o Debt is written off accounts
o At-least 6 months have passed after due date
o Claim must be made within 4 years
Fuel Issues of VAT

If an Employer Purchases Fuel for Business use then he can recover VAT paid on purchases of Fuel.
However following issues may be relevant:
- If Fuel purchased by Employer is sold to Employee then VAT cannot be recovered
- If Fuel purchased by Employer is provided to Employees for private use then VAT recovered
needs to be returned according to scale charge. Scale charge is multiplied by VAT Rate and
this scale charge depends on CO2 emission rate of vehicle (it will be given in Exam).
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CORPORATION TAX
Trading Income xxx

Property Income xxx
Capital Gain xxx
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Non-Trade loan relation xxx

Overseas Income xxx
Miscellaneous Income xxx
Total Income xxx
Qualifying Donation (xxx)
Taxable Income xxx
Corporation Tax @ 19% xxx
• For companies dividends is an exempt income.
• Qualified donation will not be grossed up.
• Miscellaneous income includes patenting income.
• Rate of tax
- Financial year 2022 19%
• Profit threshold for corporation tax payments is
Loan Relation:
• It includes any transaction relating to loan i.e. Interest Income, Interest expense, Legal fee
• Trading loan relation will be adjusted in trading P&L.
• Non-trading loan relation is shown separately.
Losses:
Trading Loss: Set off against
o Carry forward total income. OR

o Current year total Income and then carry forward total Income OR
o Current year total Income; Last 12 months total income then C/F total Income.
Current year and carry back reliefs cannot be done partially. However carry forward relief can be
claimed partially.
Terminal loss: This means loss of last 12 months of business (Cessation year). It will set off against:
o Current year total income.

o Carry back last 36 months total income on LIFO Basis.
If last accounting period is of less than 12 months then terminal period will be composed:
Loss of last A/c year xxx

Borrow from prev. 12 months xxx – Borrowing will only be done if loss
Terminal loss xxx
Property Loss: It will set off against
o Current year total income and then future total income.

o No Partial Claim is allowed in current year or carry forward
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Capital Loss
o Current year Capital Gains and then Future Capital Gains.

o No Partial Claims are allowed in current year
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Non-Trading Loan Relation Loss
o Current year total income

o Carry back last 12 months Non trading loan relation profits
o Carry forward Non-trading profits
o Partial claim is allowed
Loss Relief Restriction
o Losses of two different trade cannot set off against each other. This restriction do not
apply on group relief
o If there is major change in activity of a company within 5 years of major change in
ownership then loss relief will get restricted. This 5 years period of major change in activity
is monitored uptill 3 years prior to change in ownership. This means that activity of a
business cannot be changed within 3 years prior to change in ownership and uptill 5 years
after change in ownership.
Carry forward of capital losses
- The restriction on the offset of trading losses brought forward against total profits was
introduced in 2017. This restricts the offset in an accounting period to a maximum of £5
million (the deduction allowance) plus 50% of any excess of total profits over that allowance.
- Finance Act 2020 has extended these rules in order to restrict the use of capital losses
brought forward in addition to trading losses. A single £5 million deduction allowance now
applies to both trading losses and capital losses brought forward. A company must choose
how this deduction allowance will be allocated between trading losses and capital losses
brought forward.
- As a result, the amount of capital losses brought forward for offset against chargeable gains
is now restricted to a maximum of the whole/part of the £5 million deduction allowance plus
50% of the excess of the chargeable gains for the period over that amount.
- A group of companies is only entitled to one deduction allowance of £5 million (which now
has to cover the offset of both trading losses and capital losses brought forward) and can
allocate this to any company or companies in the group. For these purposes a group of
companies means two or more companies where one company is the ultimate parent of
each of the other companies and there is a 75% relationship between the ultimate parent
and its subsidiaries.
- These rules are complicated, and only apply where the potential loss offset is significant. As
a result, you need only have an awareness of these restrictions in the ATX-UK exam. You will
not be expected to apply them to a particular scenario.
Company CGT issues: Rules for company and individual CGT are same except for the following:
• Indexation Allowance is available instead of A/E.

• Indexation Allowance is available on every disposal whereas Annual exemption is one for a
year. However, the indexation allowance has been frozen at December 2017.
This means that:
- When an asset is purchased prior to December 2017 and subsequently sold, then
the indexation allowance will be given from the month of acquisition up to
December 2017
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- When an asset is purchased from January 2018 onwards and subsequently sold,
then no indexation allowance will be available.
• In companies all reliefs are claimed after Indexation Allowance because there is no need to
save Indexation allowance
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• If Company sells shares of another company then Substantial shareholding exemption will be
available i.e. no gain / no loss on shares. Requirement is that company must own 10% OR
more shares in last 12 months out of six years.
o This condition can be considered on assets also if not satisfied on shares i.e. assets
belong to group for 12 months.
o It is possible that immediate holding before disposal is less than 10% limit but
condition may get satisfied for 12 months in last six years.
Group Reliefs
Capital Gains Group
Formation: Direct holding required is 75% & indirect holding requirement is 50%. Overseas Companies
can be part of group but they cannot claim any privilege. Privileges of capital gains group are
• Current year gain and current year loss can be transferred.

o Capital loss can only offset with capital gain.
o Capital gain can get transferred and added in total income of receiving company.
Company receiving capital gain can off-set it with trading loss, property loss, non-
trading loan relation loss and qualifying donations, as all these amounts off-set total
income.
• Assets can be transferred within group at no gain / no loss. (Transfer at Cost + Indexation
Allowance)
• Rollover Relief can be claimed on each other disposal.
o De-grouping charge will arise if company receiving asset is sold within 6 years of
intragroup transfer. De-grouping charge simply makes no gain / no loss transfer
chargeable i.e. old gain becomes chargeable on disposal date of company. This De-
grouping charge is added in gain on disposal of shares. If SSE is available then whole
amount will he exempt
o Pre entry losses cannot be surrendered to group for period of five years. They must be
used by Company itself against its Pre Entry gains OR its post entry gains generated by
disposal of old asset OR if asset is new then it must be purchased from 3rd party
o B/F losses cannot be surrendered in-group. However they can be set off against current
year gains received from other company
o Through capital gains group trading losses and other losses cannot be received, however
current year gains can be transferred which will be set off by receiving company against
its losses.
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75% Group
Formation: Direct & Indirect holding requirement is 75%. Overseas Company can be part of Group but
they cannot claim any Privilege. Privileges of 75% group is for current year and carry forwards losses
of following heads
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• Trading Loss
• Non-trading loan relation
• Property loss
• Qualifying Donations
• For all losses it is necessary that surrendering company has excess loss i.e. after offset against its
own total income, it should have excess loss. In case of current year trading loss and Non trading
loan relation loss, this restriction do not apply.
• Receiving company must have total income after offset of its own current year and brought
forward losses.
• Pre entry losses cannot be surrendered to group for five years. This means that for five years a
company must try to setoff against own profits first before surrendering. After 5 years they can
be surrendered to group.
• Partial claim is allowed
• Loss relief is only available for corresponding period.
• If companies within group sell trade to each other, such that ultimate parent remains same person
who owns 75% OR more of that trade then company receiving that trade will face a loss restriction.
Loss restriction is
o Losses which arose in that trade before transfer of trade from one company to another
company
o Can only be used against profits of that trade only for period of five years
o This means that loss which arose before entering new company cannot be set off against
total income of that company for period of five years and they must be set off against
trading income of that trade only.
o This restriction applies if trade was owned by the same ultimate parent for one year
before the transfer and two years after the transfer of business to new company.
Consortium
• In consortium 20 or fewer companies own a Consortium Company in such way that their combined
holding is 75% or more & individual holding is 5% or more but less than 75%.
• If any company will hold 75% alone then it will form its own group.
• Through consortium relief current year and carry forward losses can be surrendered by
consortium members to consortium Company and vice versa.
• Consortium Member can claim relief according to their holding %.
• In all group reliefs including Consortium Partial claim is allowed.
• Losses can only be set off against corresponding period.
Parent issue for Groups
- For all group reliefs it is necessary that Parent must be a Company, except for VAT group in
which Parent can be an Individual also.
- If Parent is individual then group loss relieves will not be available
- In case of Parent being company, corporation tax payment limit will get divided
- In case of Parent being company SSE may be available. In case of Individual as Parent
Entrepreneur relief will be available.
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Individual Losses
Property Loss
• Current year property income and then Carry forward future property income. No partial Claim is
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allowed
Capital Loss
• It will automatically set off with current year gains. No partial claim is allowed. Annual exemption
may waste.
• Remaining loss will carry forward against future gain. Partial claim is allowed
• In year of death capital Loss can be carried back up till 3 years. Partial claim is allowed
Trading Loss
• Normal Trading Loss:

o Current year total income
o Carry back 12 months total income.
o Carry forward trading income
• Sequence is not necessary i.e. carry back can be done directly
• Whenever total income is set off maximum set off can be
o trading Income + £50,000
o This £50,000 limit increases to 25% of total income if total income exceeds £200,000.
• Whenever, relief is claimed against total income. Capital Gains of that year can also be set off
through trading loss.
• If an individual operates an unincorporated business and then converts it in to a company,
then losses of his unincorporated business can be offsent against profits of company if he
holds 80% or more shares in that company.
• Opening Year Trading Loss:
o Trading loss in first 4 years of trade can be carry-back up till 3 years on FIFO basis against total
Income
o Loss relief cap of £50,000 cap will apply. Capital gain option is not available
• Terminal Loss:
o Loss of last 12 months of business is called terminal loss
o Current year trading income & then last 36 month trading income on LIFO basis.
o Terminal loss can also be treated as normal loss in order to set off total income and capital
gains but in that case carry back will be only 12 months.
Composition of Terminal Loss
• If last accounting period is of less than 12 months then terminal loss will be composed. Terminal
loss is composed in following way
o Loss in last fiscal year
o Borrow loss from previous fiscal year. If loss then borrow.
o Add overlapping profits in terminal loss
• Do note that in individual terminal loss considers fiscal year whereas in companies it considered
accounting year.
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Overseas Company issues
• If a company is UK resident then it has to pay UK tax on worldwide profits

• But if it is non UK resident then it has to pay UK tax only on UK profit.
• If profits are taxed twice then double tax relief will be available at lower of:
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o UK tax
o Overseas tax.
Determination of Residency
• Registration place of company.

• Place of major operation.
• Place of major customer.
• Place of head office.
• Residency of director.
Operating Overseas Business: Two options are available:
• Overseas Branch / Permanent Establishment
Same as UK entity. No separate existence. It will be taxed as it is a UK entity i.e. tax on profits, relief
on losses and capital allowances will be available.
However an election is available through which overseas branch will get exempted i.e. no tax and no
reliefs. But this election is irrevocable and applies to all overseas branches.
• Overseas Subsidiary
• It will operate as a separate legal entity with no connection with UK.
• No UK tax on overseas subsidiary. Further no tax on dividend for company
• Losses can be transferred if it is in European Union & its losses have no use in overseas.
Advise: It is better to operate as overseas branch in start of overseas operations and then to convert
to subsidiaries once in profits. In starting usually there are losses so branch is favorable so that relief
can be claimed. Further capital allowances are also very high in starting. Once in profits subsidiary is
favorable so that UK tax can be saved.
Controlled Foreign Company
• It is an overseas Co whose 50% plus shares are owed by UK Residents

• Operating as a CFC is not an issue if a company has justifiable reason of operating overseas
• If no reason to operate overseas then it is considered as tax avoidance and a CFC charge
will arise.
• CFC charge only applies on shareholder having 25% OR more shares and that shareholder
must be a company. No CFC charge on individuals as they will pay tax when dividend will
be received.
• CFC charge = Share of UK profit X 19%. DTR may be available.
• No CFC charge if any of the following exception applies
o Overseas tax exceeds 75% or more of UK tax i.e. UK tax is 19% and its 75% is
14.25% therefore if overseas tax rate 14.25% or more then no CFC charge
o Country has double tax treaty with UK
o CFC charges is imposed on company in first year.
o CFC has profit margin less than 10%
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o CFC has total income of less than £500,000 such that trading income is less than
£50,000.
Close Company / Friends & Family Company

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• It is controlled by 5 OR less shareholder OR by directors.

• If close company provides any benefit to its shareholder then it will be taxed as
employment benefit if shareholder is also an employee. If shareholder is not an employee
then it will be taxed as dividend income.
• If close company gives loan given to Shareholder then 33.75% of outstanding loan is
payable to HMRC by Company. This deposit is refunded when loan is repaid or written off.
If loan is written off then it will be taxed as dividend income on shareholder. For NIC
purpose loan written off will be subject to Class 1 Employee and Class 1 Employer NIC if
shareholder is also an employee
• If loan is interest free then loan benefit will also arise.
• Charge of 33.75% will not be payable if
o Shareholder is an employee
o Holds less than 5% shares and
o Loan is of less than £15,000
• If a shareholder takes loan and uses that loan amount to invest in close company or to
give loan to close then interest expense on the loan which a shareholder is paying
becomes Qualifying loan interest expense if Shareholder owns 5% or more shares in
company OR is an employee of the company.
Close Investment Company
• If a close company deals in shares OR letting of property then it is called close investment
company
• CIC shares do not qualify for any business relief nor qualifying loan interest relief is
available
Extraction of Profit
Extraction of profit from company can be done through salary OR Dividend. Factors to consider include
• Income tax
• Class 1 employee NIC
• Class 1 employer NIC
• Allowed expense for company
• Relevant earning for pension contribution
Extraction of Investment
Investment can be extracted from company in following ways:
• Sale of shares – Normal CGT will be charged

• Liquidation of company – Taxation will be
o Dividend Income – If distribution before appointment of liquidator
o Capital gains tax – if distribution after appointment of liquidator
• Repurchase of shares – Taxation will be as dividend income OR CGT. If dividend treatment will
apply then par value will be deducted from repurchase price. If CGT treatment will apply then
cost will be deducted. Entrepreneur relief may be available on CGT treatment.
CGT treatment will be available if following conditions are satisfied
o Company should be unquoted.
o Shareholder must be UK Resident
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o Holding period must be at least 5 years. This requirement will reduce to 3 years if
shares are inherited. In case of inheritance donor and donee period is combined.
o Holding should reduce to 30% or less after repurchase.
o Holding should reduce by 25% or more due to repurchase
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Personal Service Company / IR-35
In order to save tax employee may form a company and take his salary as trading income from former
employer. Later he will distribute this fund in form of dividend income between its family members.
This will save following taxes
• Employer NIC as no salary

• Employee NIC as no salary
• Income tax as he will distribute funds in form of dividend income between its family such that
no one gets taxable income (12,570 personal allowance + 2,000 dividend income 0% band)
According to HMRC this new company is not a real company rather it is just a tax avoidance tool. For
a company to be real it must have existence independent from any customer OR employee. In other
words it should be self-employed. Its contracts must show independence by:
• having right to change employee

• have right to send helpers
• haves its own management
• bears risk by having variable receipts
• have its own timing and uniform
• have its own tools and premises
Anti-avoidance: Due to anti-avoidance HMRC calculates a deemed salary through following method
and then charges income tax, employee and employer NIC on it.
Income Revived by Company XXX

Less: Actual salary paid to employee (XXX)
Less: Employer NIC on actual salary (XXX)
Less: Expenses done on employee (XXX)
Less: Pension contribution for employee (XXX)
Less: Statutory deduction of 5% X Income received (XXX)
Deemed salary including employer NIC XXX
Employer NIC: XXX / 115.05% X 15.05% (XXX)
Deemed salary XXX
• On Deemed salary employee has to pay income tax and class 1 employee NIC
• Statutory deduction of 5% enable company to deduct its expenses
• No tax on dividends as HMRC has converted whole amount to salary
Research and Development
These outflows are divided in two heads
• Capital Expenditure: Any outflow having life of more than 1 year. Allowed expense is available
100% immediately from trading P&L. On disposal of asset 100% amount is charged. Land and
software are not classified as capital expenditure.
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• Revenue Expenditure: Any outflow which is not a capital expenditure is shown as revenue
expenditure. Allowed expense of 100% is available in year of outflow from trading P&L.
Additional relief may be available on revenue expenditure if it is a qualifying expense i.e. one
of the following:
o Consumables such as material
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o Staff cost (65% of staff cost will only qualify for additional relief, if outsourced staff)
o Agency staff cost
o Utility expenses
o Software
• No additional relief if outflow is on admin cost, market research OR if research is outsourced
OR subsidized
• Additional relief is of 130% if a company is SME. If SME is in loss then it claim refund of 14.5%
of loss. But loss eligible for refund cannot be more than 230% of Research and development
outflows.
• Large company can claim 13% refund on qualifying outflows irrespective of loss. This refund
is however taxed for corporation tax i.e. refund will be taxed at 19% corporation tax.
Transfer Pricing
If over / under pricing is done by group companies in order to transfer their profit and losses to each
other so that tax can be saved then HMRC may apply transfer pricing laws to restrict them. According
to transfer pricing rules transaction will be converted to market rate in order to restrict transfer of
profit or losses.
Large companies will always face transfer pricing laws.
SMEs may do over / under pricing. Anti-avoidance will apply on SMEs also if they are trading with
overseas company in non-qualifying territory (country with whom UK has no double tax treaty).
Patent Box
Profit earned from patenting activities i.e. royalty incomes are shown in patent box. Profit from Patent
activities are subject to 10% tax. Normal corporation tax of 19% will not apply
Capital Allowances
Capital allowance is tax depreciation on plant and machinery which is movable and have life less than
50 years. Assets are divided in pools for allowance purpose.
• Main / General Pool: All assets which are not shown in any other pool are classified in main
pool. Allowance rate is 18% per year in main pool
• Special rate pool: Rate of allowance in SRP is 6% per year. Following assets are shown in SRP
o Cars having CO2 rate above 110 grams
o Lifts
o Escalators
o Thermal Insulation
o Heating, Cooling and lightning systems
o Long life assets i.e. life greater than 25 years
- Each year Annual investment allowance is available of 1,000,000 per year. It can be used
against any asset other than cars. AIA is preferably used against SRP as its rate is less. For
related business and group companies only one AIA is available
- If balance in any pool falls below 1,000 then immediate allowance is available
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- Repair outflows which exceed 50% of value of asset over period of two years are relieved
through pool rather than shown as revenue expenditure.
- If asset is disposed then it is removed from pool at lower of Cost OR DP
- Assets purchased within 6 years prior to start if business are shown as purchase in first year
of business.
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- Cars having CO2 rate of 0 grams per km are eligible for 100% allowance. Between 1 grams to
50 grams Main pool is used. Above 50 grams SRP will be used.
- If accounting period is of more than 12 months then rates will get prorated.
- If private use of asset then it is de-pooled and allowance available is only of business use
portion.
- If Short life asset election is made then asset will be de-pooled for 8 allowances. Benefit for
SLA election is that Balancing adjustments will be available immediately
- If capital allowance asset is sold then CGT and capital allowance adjustment both will be
considered. In CGT only gain will be assessed; no loss relief. In capital allowance asset will be
removed from pool therefore balancing allowance needs to be considered.
- If rented car has CO2 emission above 130 grams then 15% of the expense will not be allowed
expense.
- Green assets qualify for 100% allowance
o A company can claim tax credit for enhanced capital allowance if it is in loss
o Tax credit can be claimed of 12.67% of loss amount which a company wants to
surrender
o Maximum refund will be restricted to higher of 250,000 and amount of PAYE and NIC
paid on behalf of employees
- For Companies a concept of Super allowance is introduced for NEW plant and machinery
purchased after 1 April 2021. Super allowance is 130% for main pool assets and 50% for SRP
assets. This do not applies on Car.
Structures and buildings allowance
A new type of capital allowance has been introduced, known as the structures and buildings
allowance (SBA). Relief is given as an annual straight-line allowance of 3% over a 33⅓ year period (33
years and four months).
The SBA is only available where a building (or structure) has been constructed on or after 29 October
2018 (the date of the 2018 Budget). However, a question will only be set where construction is on or
after 6 April 2020 (1 April 2020 for limited companies).
• Offices, retail and wholesale premises, factories and warehouses can all qualify for the SBA
(as can walls, bridges and tunnels).
• The value of land is excluded, as is any part of a building used as a dwelling house.
• Expenditure which qualifies as plant and machinery cannot also qualify for the SBA. Similarly,
expenditure which qualifies for the SBA cannot also qualify for the plant and machinery
annual investment allowance.
• Where an unused building is purchased from a builder or developer, then the qualifying
expenditure will be the price paid less the value of the land.
• The building (or structure) must be used for a qualifying activity such as a trade or property
letting.
• The SBA can only be claimed from when the building (or structure) is brought into qualifying
use. This means that the SBA will be time apportioned for the period when first brought into
use, unlike plant and machinery allowances which are always given in full for the period of
purchase.
• A separate SBA is given for each building (or structure) qualifying for relief.
• Relief is also given for the cost of subsequent improvements, or where a building is
renovated or converted. Unlike plant and machinery, there is no balancing charge or
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balancing allowance when a building (or structure) that has qualified for the SBA is sold.
Instead, the purchaser simply continues to claim the 3% allowance for the remainder of the
33⅓ year period based on original cost.
• However, on a disposal, the allowances that have been claimed are effectively clawed back
by adding them to the sales proceeds in order to determine the chargeable gain or allowable
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loss arising.
• You should assume that for any question involving the purchase (as opposed to a new
construction) of a building, the SBA is not available unless stated otherwise.
Small Business Scheme
Sole traders and partnerships can use a simplified cash basis to calculate their trading profit. The
revenue limit for using the scheme is £150,000. The scheme can then be used until revenue is
£300,000. If this is available then tax will be assessed on cash basis i.e.
- Tax on cash sales

- Relief on cash expenses
- 100% allowed expense on purchase of asset
Only carry forward loss relief will be available in cash scheme.
It reduces burden of an organization of making return. As now return can be made from cash book
In case of purchase of cars no relief is available. HMRC only allows an allowed expense from trading
P&L for a business miles according to mileage allowance rates defined in employment income.
Furnished Holiday Letting
If a property is let in such a way that
- it is available for letting for 210 days;

- actually let for 105 days and
- long letting i.e. letting of 31 days or more to single person is not of more than 155 days
Then that property will qualify for FHL according to which letting of property will be treated as trading
activity rather than property activity. Capital allowances, Gift relief, BPR and ER will be available on
that property.
Intangible Asset
If intangible asset is used by a company for trading purpose then its amortization will be deductible
from trading P&L at higher of:
- Accounting amortization
- Cost X 4%
When intangible asset will be sold, it will be assessed in Trading P&L in following manner
- Amount chargeable in trading P&L = gain – Rollover relief

- Gain = Disposal Proceed – Book value of intangible
- Book value of Intangible = Cost – Amortization claimed
- Rollover relief = DP – Cost
- If partial reinvestment then = Reinvestment – Cost
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Goodwill is not allowed for tax purposes. This means that no amortization is available on amount of
goodwill. On disposal of goodwill if there is gain then it will be assessed as trading income. If loss
arises on disposal then it will be assessed as non-trading loss.
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These rules only apply on companies. For individuals all intangible assets are assessed in CGT.
Child care Allowances
Parents having children of less than 18 years age can claim a child care allowance from government.
This child care allowance amount depends on needs of that family. This allowance needs to be
refunded if any of the parent earns more than £50,000. Refund is in ratio of 1% of allowance for every
£100 excess above £50,000.
Trading income – Car issue
If car has CO2 emission rate of more than 50 grams per kilometer then 15% of the rent will not be
allowed expense from trading P&L.
Stamp Duty
It is charged on sale of shares OR Land & Building. Stamp duty rates will be provided in tax rate sheet.
It is payable by purchaser.
Rate of stamp duty on residential property increases by 3% if residential property is second property
owned by single person OR if it is purchased by company.
Stamp duty is payable within 30 days of transaction otherwise penalty of
- £100 if up-till 3months late

- £200 after 3 months
No stamp duty on newly issued shares, gift and government securities. Further no stamp duty on
transfers within 75% group. However if receiving company leaves group within 3 years then stamp
duty will be assessed.
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Administration
General Points
• Return shows computation of tax and filing of election

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• Records of data used in making return must be retained up till 6 years otherwise penalty of
£3000 / year.
• If a person fails to file return then determination assessment can be issued up till 4 years of
filling date.
• Determination assessment is computation of tax by HMRC. Determination assessment cannot
be challenged; however it can be replaced by new return.
• If error in return then tax department can issue discovery assessment up till 12 months if
complete data was disclosed; 6 years if careless error; & 12 years if deliberate error. These
time limit apply after filing date.
• Discovery Assessment is issued after enquiry in which tax department give 30 days to
challenge OR pay the tax.
• During Enquiry data and questionnaires may be required.
• If tax payer is not satisfied from Discovery Assessment then he can appeal in first trial tribunal
• Decision of first trial can also be challenged in upper-tribunal.
Corporation Administration – Specific Points
• If accounting period greater than 12 months then two tax periods will be made. One of first
12 months and other of remaining months.
• Return needs to be filed within 12 months of year end.
• If errors are discovered then senior A/c officers may get liable too, along with Co. if Company
has revenue of more than £200m & Balance Sheet of more than £2 billion.
• Corporation tax is payable within 9 months of year end for small Co. and in installments if
Company has Augmented Profit of more than £1.5m.
• Augmented profit is taxable profits + dividends from companies other than in 51% group
• 51% group includes all companies which have direct holding relation of 51% or more. This
group is evaluated by considering companies at previous year end.
• Limit of £1.5 million for installments is reduced if;
o Accounting period is shorter than 12 months period
o Companies within 51% group exists
• Installment is payable on 14th of 7th, 10th, 13th and 16th month. First 3 installments are based
on budgets whereas last is actualized
• Loss should be relieved to a group company which is qualifying for installments so that its
profits can be reduced below installment limit
• If tax liability changes due to change in budget then 0.5% interest on overpayment and 3% on
under payment.
• Interest paid OR received is shown as Non Trading loan relation i.e. corporation tax will be
assessed
• A company is not required to follow installments if its expected liability is less than £ 10,000.
• If installments are not followed then tax will be paid after 9 months of year end.
• If it’s the first year of company becoming eligible for installments and its augmented profit is
less than £10 Million then installments will not be followed.
• For all group relief it is mandatory that parent must be a company. Except for VAT.
• It is possible that companies within a group hold different limits of installment due to short
accounting periods
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Individual Administration – Specific points
• Return needs to be filled by 31 October if manual & 31 January if electronic filing.

• Income tax and class 4 NIC is payable through payment on account (POA) i.e. installment
except, if 80% tax is paid at source OR tax payable is less than £1,000. If no POA then Income
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tax and NICs will be paid on 31 January.
• POA covers income tax and class 4 NIC and installment are:
o 31 Jan during fiscal year
o 31 July after fiscal year
o 31 Jan after fiscal year
• Class 2 NIC & CGT are payable on 31 January after fiscal year i.e. along with last installment
• First two installments are 50% each of last year tax liability. Last installment is actualized.
• If first year of trade OR major change in profile then budget can be used
• In individual there is no concept of interest on over / under payment
CGT Administration issues
• Normally CGT is paid on 31 January after end of fiscal year.

• CGT can be paid in installment if proceeds are received in installments, such that installment
period is more than 18 months but less than 8 years.
• Installment of 10 years are also available if transaction is gift & gift relief is not available and
asset is
o Land and building OR
o Shares
• All deferral relief can be claimed up till 4 years e.g. Rollover relief, Holdover relief,
incorporation Relief, Gift relief and paper to paper takeover relief
IHT Administration
• Death taxes are payable within 6 months after the month of death.
• Life time taxes are payable by 31 April if gift is made in first 6 months of fiscal year (April to
September)
• Life time taxes are payable within 6 months of gift if gift is made in last 6 months of fiscal year
(October to March)
• IHT can be paid in 10 installments if asset is land & building OR shares (in which donor has
control).
• No installments option available if donor is paying IHT.
VAT Administration – Specific points
• VAT return & payment needs to be done within 1 month and 7 days after each quarter.
• If failure to file return OR pay tax then default surcharge notice is issued on first time delay.
• If within 12 month of surcharge notice another error is done then;
o First time 2% of unpaid tax is payable
o Second time 5% of unpaid tax is payable
o Third time 10% of unpaid tax is payable
o Fourth time 15% of unpaid tax is payable
• On each error default surcharge notice extends by 12 months
• If tax is paid and only failure to file return is done then no penalty just default surcharge notice
will be received.
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CONTACT NO : 00923458099831
• Error identified by tax payer himself in his previous return it can be changed in next return if
error is of less than £10,000 OR 1% of turnover (Max 50,000). For greater amount errors
separate return is filed on which interest will apply.
• If error discovered by HMRC then penalties will apply
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PENALTIES (VAT + INDIVIDUAL + CORPORATION)
• If records not maintained then £3,000 / year penalty is payable. It is in addition to other
penalties
• If penalty exceeds £5,000 HMRC monitor tax payer in next year also.
• If penalty exceeds £25,000 then HMRC may publish names in newspaper and other media.
• If tax is understated i.e. Falsification is done then
o Genuine mistake = 0% of unpaid tax
o Careless Error = Max 30% and Min 0% OR 15%.
o Deliberate Error and concealment = 70% to 100%
o Deliberate but no concealment = 20% OR 50% OR 70%
• Amount of penalty depends on fact that whether disclosure was made prompted OR not.
• If tax is paid late– Income tax, Corporation tax, CGT and IHT
o First 30 days no penalty.
o 5% of unpaid tax if tax paid after 30 days to 5 months;
o Additional 5% of unpaid tax if paid after 6 months to 11 months;
o Additional 5% of unpaid tax if paid after 11 months
• If return is filed late then following penalties for Companies
o Up-till 3 months = £100
o 3 months – 18 months = £200
o 18 months – 24 months = £500 + 10% of unpaid tax.
o 24 months OR more = £1000 + 20% of unpaid tax.
o If return is failed late for two preceding years also then penalty may increase to £500
and £1,000
• All penalties are additional to previous penalty
• If return is filed late then following penalties for Individuals
o Up-till 3 months late – 100
o 3 months – 6 months = Additional £10 per day.
o 6 months – 12 months = Higher of £300 OR 5% of tax liability
o 12 months OR more =
▪ Carelessness = Higher of: 300 OR 5% of tax
▪ Deliberately & Concealment = Higher of 300 OR 100% of tax
▪ Deliberately But no Concealment: Higher of 300 OR 70% of tax
Payments on account for disposals of residential property
- A payment on account must now be made within 30 days where capital gains tax is payable in
respect of a disposal of residential property. A return must be submitted to HMRC at the same
time.
- The calculation of the payment on account takes into account the annual exempt amount, any
capital losses incurred in the same tax year prior to the disposal of the residential property,
plus any brought forward capital losses. Any other chargeable gains and capital losses incurred
subsequent to the disposal of the residential property are ignored.
- It is necessary to make an estimate as to how much of the taxpayer’s basic rate tax band will
be available for the tax year.
- The residential property gain is still included in the taxpayer’s self-assessment capital gains
tax computation following the end of the tax year, with the payment on account being
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CONTACT NO : 00923458099831
deducted from the total capital gains tax liability. Any additional tax is payable on 31 January
following the tax year. If a repayment is due, then this will be claimed when the self-
assessment tax return for the tax year is submitted.
- A payment on account of capital gains tax has nothing to do with the normal self-assessment
payments on account due on 31 January in the tax year, and 31 July following the tax year.
OWAIS MIRCHAWALA
OWAIS MIRCHAWALA 45
CONTACT NO : 00923458099831

ATX Summary Notes Tax Year 2022 23

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ATX Summary Notes Tax Year 2022 23

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ATX SUMMARY NOTES FOR TAX YEAR 2022/23 (RELEVANT FOR EXAMS JUNE 2023 TO MARCH 2024)

INCOME TAX COMPUTATION

Non-Saving Saving Dividend

Property Income xxx - -

Dividend Income is taxed at 0% up-till first £2,000.

Real Estate Investment Trust (REIT):

• Mutual Fund which invest in Property Business

Qualifying Loan Interest Expense

• Allowed Expense from total income. Available if loan taken:

Personal Allowance 12,570

• Donation to Charity. Reliefs

Funds kept by a person for his old age

Occupational Pension Plan

Personal Pension Plan

• Maintained by Private fund managers

Un-used AA can carry forward up till 3 years.

AA is only available if a person is part of Registered Plan.

If Excess contribution then tax it as NON SAVING income

Net Income XXX

Net Income XXX

• Allowed after age of 55 years

Pension plan can get registered if satisfy following two conditions

• Early Extraction will not be allowed

Tax reliefs are only available if fund is registered.

On Employment Income following taxes and NICs are payable:

1. Income tax is payable as Non-saving Income

This amount is given to employee at the time of termination of job.

• Statutory Payments – Wholly Exempt

Chargeable amount of termination payment is subject to Class 1 A Employer NIC

Share based remuneration

Share based remunerations are divided in two heads

Approved share option plan

• Save as you earn (SAYE): This plan holds following characteristics:

SIP shares must be kept for at least 5 years.

Basic Employment Income

Non Cash Benefits xxx

Market value of Asset XXX

• Accommodation Benefit: It is charged in 3 components:

• It is necessary for job

Job related accommodation is treated in following ways

Allowed Expense: Following expenses are allowed from employment P&L:

• Employee Contribution in Occupation plan

• One Mobile phone per employee

On trading Income following taxes are payable:

- Income tax is payable as Non saving Income

Fiscal year is always identified through end date of period

o Conditions for change in accounting year end date are:

Property Income includes rental Income.

The restriction has no impact on basic rate taxpayers.

Tax Reducers / Tax efficient investments

Minimum Investment tenure 3 years 3 years

• IHT is assessed on gifts which can be made during life OR at death.

- Will of dead person can be varied to save IHT.

- For variation following conditions need to be satisfied

Benefits of Lifetime gift

• Annual exemption of £3,000 per year is available

Gift with reservation

Residency rate of NRB

Interaction of CGT & IHT:

• On disposals only CGT is payable as no IHT on sale

Trust – CGT & IHT rules

• If an asset is gifted to trust then it is treated as CLT for IHT purpose.