ACCA_F6UK_December_2015_Notes.pdf - Se OpenTuition.com Free resources for accountancy students ACCA Paper F6 pt em 20 be 15 r\/D ex ec am em s be

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Unformatted text preview: Se OpenTuition.com Free resources for accountancy students ACCA Paper F6 pt em 20 be 15 r/D ex ec am em s be Taxation (UK)
 FA 2014 Please spread the word about OpenTuition, so that all ACCA students can benefit. ONLY with your support can the site exist and continue to provide free study materials! Visit opentuition.com for the latest updates watch the free lectures that accompany these notes; attempt free tests online; get free tutor support, and much more. OpenTuition Lecture Notes can be downloaded FREE from Copyright belongs to OpenTuition.com - please do not support piracy by downloading from other websites. r The best things in life are free IMPORTANT!!! PLEASE READ CAREFULLY To benefit from these notes you must watch the free lectures on the OpenTuition website in which we explain and expand on the topics covered In addition question practice is vital!! You must obtain a current edition of a Revision / Exam Kit from one of the ACCA approved content providers they contain a great number of exam standard questions (and answers) to practice on. Following various chapters you will be directed to work through the F6 technical articles written by the examining team and which contain numerous examples illustrating the technical content of the chapter. These examples must be worked and not just read! Several of the articles also contain illustrative multiple choice questions for you to practice. December 2015 Examinations Paper F6  CONTENTS Syllabus i Tax rates and allowances iii 1 The UK Tax System 1 2 Income tax computation 5 3 Property Income and Investments – Individuals 19 4 Tax Adjusted Trading Profit – Individuals 25 5 Capital Allowances 29 6 Trading Profit – Basis Periods 41 7 Tax Adjusted Trading Losses – Individuals 47 8 Partnerships 55 9 Employment Income 59 10 Pension Schemes 69 11 National Insurance Contributions (NIC) 73 12 Capital Gains Tax – Individuals 75 13 Capital Gains Tax – Individuals – Shares 85 14 Capital Gains Tax – Individuals – Reliefs 89 15 Corporation tax 101 16 Calculation of Corporation Tax Liability 105 17 Long Period of Account 109 18 Tax Adjusted Losses – Companies 111 19 Chargeable Gains – Companies 117 20 Chargeable Gains – Companies – Further Aspects 121 21 Chargeable Gains – Companies – Reliefs 125 22 Corporation Tax – Groups 129 23 Inheritance Tax 135 24 Value Added Tax – VAT 145 25 Self Assessment and Payment of Tax for Companies 157 26 Self-Assessment and Payment of Tax for Individuals 161 Answers to examples 165 Practice Questions 213 Practice Answers 227 OpenTuition Course Notes can be downloaded FREE from OpenTuition.com. Copyright belongs to OpenTuition.com - please do not support piracy by downloading from other websites. a b December 2015 Examinations Paper F6  Practice Questions and Answers index Question Page No. Answer Page No. 1 UK Tax System Tax avoidance and tax evasion 213 227 2 Kate Income tax calculation 213 227 3 Jessica Income tax calculation – restriction of personal allowances 213 228 4 Karl Income tax calculation – additional rate taxpayer 213 228 5 Mr & Mrs Elderely Personal age allowance and planning aspects 213 229 6 Michael Restriction of personal age allowances 214 230 7 Peter Property Business Profit 214 231 8 Matthew Property Business Losses 214 231 9 Charlie Rent a Room Relief 214 231 10 John Adjustment of trading profit 215 232 11 Carl Calculation of capital allowances 216 233 12  Jason Trading Income basis periods: opening years 216 234 13 Stephen Trading Income basis periods: opening and closing years 217 234 14 Grace Trading Income basis periods: opening years with capital allowances 217 235 15  David Capital allowances: plant and machinery 217 236 16 Max Trading losses – New Business 218 237 17 Elliot Trading losses – Continuing business 218 238 18 Anne and Betty Partnerships: change in partners, losses 218 238 19 Renner Employment Income 219 239 20 George Pension contributions 219 241 21 Tony National Insurance Contributions 220 241 22  Chorley Ltd Adjustment of profit, calculation of Taxable Total Profits 220 242 23   Sail Ltd Calculation of corporation tax 221 242 24 Swish Ltd Corporation tax losses 221 243 25 Trunk Limited Chargeable Gains – Disposal of shares by a company 221 243 26 Granger Limited Chargeable Gains – Part Disposal and Chattels – companies 222 244 27 Westcroft Limited Chargeable Gains – Destroyed assets 222 245 28 Mighty Ltd Rollover relief 222 245 29 Claude Capital losses – Individuals 222 246 30 Cheryl Capital Gains Tax calculation 223 246 31 Shamus Capital Gains Tax – Individuals (Damaged assets) 223 246 32 Zoe Share matching – Individuals 223 247 33 Michael Share matching with rights issue – Individuals 223 247 34 Jenny Entrepreneurs’ relief 223 248 35 Beth Rollover relief – Individuals 224 248 36 Wendy Gift relief 224 249 37 Amy Principal Private Residence and Letting relief 224 249 38 Nathan Inheritance Tax 224 250 39  VAT VAT – Registration and calculation of VAT 225 251 40  Geewizz Ltd Default surcharge, cash accounting scheme, annual accounting scheme 225 252 41 Factor Limited Overseas aspects of VAT 225 252 42 Group Relief Group relief 226 252 43 Jim Payments on Account – Individuals 226 254 44 Enquiries Self assessment – Individuals 226 254 45 Cannock Limited Self assessment – Companies 226 254 December 2015 Examinations Paper F6 SYLLABUS 1 Aim To develop knowledge and skills relating to the tax system as applicable to individuals, single companies, and groups of companies. 2 Objectives On successful completion of this paper candidates should be able to: • • • • • • 3 Explain the operation and scope of the tax system and the obligations of taxpayer and/or their agents and the implications of non-compliance Explain and compute the income tax liabilities of individuals and the effect of national insurance contributions (NIC) on employees, employers and the self-employed Explain and compute the Corporation Tax liabilities of individual companies and groups of companies Explain and compute the Chargeable Gains arising on companies and individuals Explain and compute the Inheritance Tax liabilities of individuals Explain and compute the effects of Value Added Tax on incorporated and unincorporated businesses Position of the paper in the overall syllabus The syllabus for Paper F6, Taxation, introduces candidates to the subject of taxation and provides the core knowledge of the underlying principles and major technical areas of taxation as they affect the activities of individuals and businesses. Candidates are introduced to the rationale behind and the functions of the tax system. The syllabus then considers the separate taxes that an accountant would need to have a detailed knowledge of, such as income tax from self-employment, employment and investments, the corporation tax liability of individual companies and groups of companies, the national insurance contribution liabilities of both employed and self employed persons, the value added tax liability of businesses, the chargeable gains arising on disposals of investments by both individuals and companies, and the inheritance tax liabilities arising on chargeable lifetime transfers and on death.. Having covered the core areas of the basic taxes, candidates should be able to compute tax liabilities, explain the basis of their calculations, apply tax planning techniques for individuals and companies and identify the compliance issues for each major tax through a variety of business and personal scenarios and situations. 4 Detailed syllabus 4.1 The UK tax system and its administration (a) The overall function and purpose of taxation in a modern economy (b) Principal sources of revenue law and practice (c) The systems for self assessment and the making of returns (d) The time limits for the submission of information, claims and payment of tax, including payments on account (e) The procedures relating to enquiries, appeals and disputes (f) Penalties for non-compliance 4.2 Income tax and NIC liabilities (a) The scope of income tax (b) Income from employment (c) Income from self-employment (d) Property and investment income (e) The comprehensive computation of taxable income and income tax liability (f) National Insurance contributions for employed and self employed persons (g) The use of exemptions and reliefs in deferring and minimising income tax liabilities i ii December 2015 Examinations Paper F6 Syllabus 4.3 Corporation tax liabilities (a) The scope of corporation tax (b) Taxable Total Profits (c) Chargeable gains for companies (d) The comprehensive computation of corporation tax liability (e) The effect of a group corporate structure for corporation tax purposes (f) The use of exemptions and reliefs in deferring and minimising corporation tax liabilities 4.4 Chargeable gains (a) The scope of the taxation of capital gains (b) The basic principles of computing gains and losses. (c) Gains and losses on the disposal of movable and immovable property (d) Gains and losses on the disposal of shares and securities (e) The computation of capital gains tax (f) The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets 4.5 Inheritance tax (a) The basic principles of computing transfers of value (b) The liabilities arising on chargeable lifetime transfers and on the death of an individual (c) The use of exemptions in deferring and minimising inheritance tax liabilities (d) Payment of inheritance tax 4.6 National insurance contributions (a) The scope of national insurance (b) Class 1 and Class 1A contributions for employed persons (c) Class 2 and Class 4 contributions for self­employed persons 4.7 Value added tax (a) The VAT registration requirements (b) The computation of VAT liabilities (c) The effect of special schemes 5 Approach to examining the syllabus The syllabus is assessed by a three-hour paper-based examination. There will be 15 minutes reading and planning time given at the start of the exam. Assessment: Taxation (GBR) The paper will be predominantly computational and all questions are compulsory Section A of the exam comprises 15 multiple choice questions of 2 marks each Section B of the exam comprises four 10 mark questions and two 15 mark questions The two 15 mark questions will focus on income tax and corporation tax The section A questions and the other questions in section B can cover any area of the syllabus. December 2015 Examinations Paper F6 Paper F6 TAX RATES AND ALLOWANCES The following tax rates and allowances will be reproduced in the examination paper for Paper F6. In addition, other specific information necessary for candidates to answer individual questions will be given as part of the question. For example, in the case of corporate chargeable gains the relevant retail prices index for particular dates will be given. Income Tax Basic rate Higher rate Additional rate Normal rates Dividend rates 20% 10% 40% 32.5% 45% 37.5% £1 – £31,865 £31,866 – £150,000 £150,001 and over A starting rate of 10% applies to savings income where it falls within the first £2,880 of taxable income Personal Allowance Personal Allowance Born on or after 6 April 1948 Born between 6 April 1938 and 5 April 1948 Born before 6 April 1938 Income limit Personal Allowance (born before 6 April 1948) Personal Allowance £ 10,000 10,500 10,660 27,000 100,000 Residence status Days in UK Previously resident Not previously resident Less than 16 Automatically not resident Automatically not resident 16 to 45 Resident if 4 UK ties (or more) Automatically not resident 46 to 90 Resident if 3 UK ties (or more) Resident if 4 UK ties 91 to 120 Resident if 2 UK ties (or more) Resident if 3 UK ties (or more) 121 to 182 Resident if 1 UK tie (or more) Resident if 2 UK ties (or more) 183 or more Automatically resident Automatically resident Child benefit income tax charge Where income is between £50,000 and £60,000, the charge is 1% of the amount of child benefit received for every £100 of income over £50,000. Car Benefit Percentage The base level of CO2 emissions is 95 grams per kilometre. The percentage rates applying to petrol cars with CO2 emissions up to this level are: 75 grams per kilometre or less 5% 76 grams to 94 grams per kilometre 11% 95 grams per kilometre 12% Car Fuel The base figure for calculating the car fuel benefit is £21,700 iii iv December 2015 Examinations Paper F6 Tax rates and allowances New individual savings accounts (NISAs) The overall investment limit is £15,000. Pension Contribution Limits The maximum contribution that can be made without evidence of earnings is £3,600. Annual allowance – 2014–15 £40,000 – 2011–12 to 2013–14 £50,000 The maximum contribution that can qualify for tax relief without any earnings is £3,600. Authorised mileage allowances All cars up to 10,000 miles 45p over 10,000 miles 25p Capital Allowances Plant and machinery Main pool 18% Special rate pool 8% Motor cars New cars with CO2 emissions up to 95 grams per kilometre 100% CO2 emissions between 96 and 130 grams per kilometre 18% CO2 emissions over 130 grams per kilometre 8% Annual investment allowance Rate of allowance 100% Expenditure limit £500,000 Cap on income tax reliefs Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income. Corporation Tax Financial year 2012 2013 2014 Small profits rate 20% 20% 20% Main rate 24% 23% 21% Lower limit £300,000 £300,000 £300,000 Upper limit £1,500,000 £1,500,000 £1,500,000 1/100 3/400 1/400 Standard fraction Marginal Relief Standard Fraction × (U – A) × N/A December 2015 Examinations Paper F6 Tax rates and allowances Value Added Tax Standard rate Registration limit Deregistration limit 20% £81,000 £79,000 Inheritance Tax: Tax Rate: £1 – £325,000 Excess – Death rate – Lifetime rate Nil 40% 20% Inheritance Tax: Taper relief Percentage reduction 20% 40% 60% 80% Years before death Over 3 but less than 4 years Over 4 but less than 5 years Over 5 but less than 6 years Over 6 but less than 7 years Rates of Interest Official rate of interest: Rate of interest on underpaid tax: Rate of interest on overpaid tax: 3.25% 3.0% 0.5% Capital Gains Tax - Individuals Annual Exemption Rate of tax Entrepreneurs’ relief £11,000 18% 28% £10,000,000 10% – lower rate – higer rate – lifetime limit – Rate of tax National Insurance (not contracted out rates) Class 1 Employee Class 1 Employer Annual ≤ £7,956 [£7,7957 – £41,865] £41,866 and above ≤ £7,956 £7,957 and above Employment allowance @ @ @ 0% 12% 2% @ @ 0% 13.8% £2,000 Class 1A Class 2 Class 4 13.8% £2.75 per week Small earnings exemption limit ≤ £7,956 per year [£7,957 – £41,865] per year £41,866 and above per year 1. Calculations and workings need only be made to the nearest £. 2. All apportionments should be made to the nearest month. 3. All workings should be shown in Section B. £5,885 @ @ @ 0% 9% 2% v FREE ACCA Course Notes FREE ACCA Lectures Ask ACCA Tutor FREE ACCA Tests Find ACCA Study Buddy OpenTuition.com December 2015 Examinations Paper F6 Chapter 1 THE UK TAX SYSTEM 1 The overall function and purpose of taxation in a modern society 1.1 Economic factors Spending by the government and the system of taxation impacts on the economy of a country. Taxation policies have been used to influence economic factors such as employment levels, inflation and imports/exports Taxation policies are also used to direct economic behaviours of individuals and businesses. For example they encourage individual saving habits (Individual Savings Accounts), and giving to charity (Gift Aid Scheme). Further they may discourage motoring (fuel duties), smoking & alcohol (duties and taxes) and environmental pollution (landfill tax). As government objectives change, taxation policies may be altered accordingly. 1.2 Social justice The taxation system accumulates and redistributes wealth within a country. Different taxes have different social effects. 2 (a) Progressive taxation: As income rises the proportion of taxation raised also rises, for example UK income tax (b) Regressive taxation As income rises the proportion of taxation paid falls, for example, tax on cigarettes is the same regardless of the level of income of the purchaser, so as income rises it represents a lower proportion of income. (c) Proportional taxation As income rises the proportion of tax remains constant, for example Latvian/Lithuanian income tax (d) Ad Valorem principle A tax calculated as a percentage of the value of the item, for example Value Added Tax Types of taxes Income Tax Payable by individuals on most income National Insurance Contributions Payable by individuals who are employed or self employed and businesses in relation to their employees Capital Gains Tax Payable by individuals on the disposal of capital assets Inheritance Tax Payable by individuals on lifetime and death transfers of assets. Corporation Tax Payable by companies on income and chargeable gains Value Added Tax (VAT) Payable by the final consumer on purchases of most goods and services 1 2 December 2015 Examinations Paper F6 The UK Tax System Chapter 1 3 Direct and indirect taxation 3.1 Direct taxation Taxes are paid directly to the Government, based on income and profit. Examples are: • • • • 3.2 Income tax Corporation tax Capital gains tax Inheritance tax Indirect taxation Taxes are collected via an intermediary who passes them on to the government for example: • VAT where the consumer pays VAT to a supplier, who then pays to the government 4 Structure of the UK tax system 4.1 HM Revenue and Customs (HMRC) The treasury formally imposes and collects taxation. The management of the treasury is the responsibility of the Chancellor of the Exchequer. The administration function for the collection of tax is undertaken by HMRC 4.2 Commissioners At the head of HMRC are the commissioners whose duties are: (a) to implement statue law (b) oversee the process of UK tax administration The main body of HMRC is divided into District offices and accounting and payment offices 4.3 District Offices The Commissioner appoints Officers of HMRC to implement the day to day work of HMRC 4.4 Accounts and payment offices These concentrate on the collection and payment of tax. 5 Sources of tax law 5.1 Tax legislation / statutes Adherence is mandatory. It is updated every year by the annual Finance Act. The Government may issue Statutory Instruments which are detailed notes on an area of tax legislation. 5.2 Case law This refers to decisions made in tax cases. The rulings in the courts are binding and so provide guidance on the interpretation of tax legislation. 5.3 HMRC guidance This is issued due to the complexity of the legislation (a) (b) Statements of practice Extra statutory concessions (c) (d) Internal guidance manuals Press releases (e) Pamphlets – sets out how HMRC intend to apply the law – sets out circumstances in which HMRC will not apply the strict letter of the law where it would be unfair. – HMRC’s own manuals which are available to the public – provide details of a specific tax issue, for example, used to communicate the information stated in the annual budget – provide explanations of various tax issues in non technical language December 2015 Examinations The UK Tax System Paper F6 Chapter 1 6 The interaction of the UK tax system and overseas tax systems 6.1 Other countries The UK has entered into Double Tax Treaties with various countries. These contain rules which prevent income and gains being taxed twice, but may include a non-discrimination provision preventing a non-resident individual from being treated less favourably than a resident individual. Where there is no double tax treaty the UK system will allow relief for double tax. 6.2 The European Union The aim of the EU is to remove barriers and distortions due to different economic and political policies imposed in different member states. Although EU members do not have to align their tax systems, membe...
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