F6 UK TX Study Text Selected Sessions

ACCA
TAXATION F6
(UNITED KINGDOM)
STUDY SYSTEM
Finance Act 2014 Edition
Applicable to Exams to 30 June 2016
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Paper
F6
Contents
Page
Introduction ...............................................................................................v
about This Study System ............................................................................v
Syllabus.....................................................................................................vi
aCCa Study Guide .......................................................................................x
Supplementary Instructions ...................................................................xviii
Tax Rates and allowances ......................................................................xviii
Examination Technique ........................................................................... xxi
Sessions
1 General Concepts and Principles ........................................... 1-1
2 Income Tax Computations .................................................... 2-1
3 Property and Investment Incomes ....................................... 3-1
4 Employment Income ............................................................. 4-1
5 Unincorporated TradersAssessment and Prots ................. 5-1
6 Capital allowances ............................................................... 6-1
7 unincorporated TradersRelief for Trading losses ............... 7-1
8 unincorporated TradersOther Matters................................ 8-1
9 Capital Gains Taxbasic Principles ....................................... 9-1
10 Capital Gains TaxChattels, land and buildings ..................10-1
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Contents
Sessions Page
11 Capital Gains TaxShares ...................................................11-1
12 Capital Gains Taxbusiness assets .....................................12-1
13 Corporation TaxThe Tax Computation ...............................13-1
14 Corporation Taxloss Reliefs ..............................................14-1
15 Corporation TaxGroups of Companies ...............................15-1
16 Inheritance Tax ...................................................................16-1
17 National Insurance, PayE and Self-assessment ...................17-1
18 Tax Compliance ...................................................................18-1
19 Value added Tax ..................................................................19-1
20 Index ..................................................................................20-1
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Introduction
abOuT ThIS STuDy SySTEM

This Study System has been specifically written for the Association of Chartered Certified
Accountants Paper F6 Taxation (UK).
It provides comprehensive coverage of the core syllabus areas and is designed to be used
both as a reference text and as an integral part of your studies to provide you with the
knowledge, skill and confidence to succeed in your ACCA studies.
How to Use This Study System

You should start by reading through the syllabus, study guide and approach to examining the
syllabus provided in this introduction to familiarise yourself with the content of this paper.
The sessions which follow include the following features:
These are the learning outcomes relevant to the session, as published in

Focus
the ACCA Study Guide.
Session Guidance Tutor advice and strategies for approaching each session.
Visual Overview A diagram of the concepts and the relationships addressed in each session.
Terms are defined as they are introduced and larger groupings of terms will
Definitions
be set forth in a Terminology section.
These are to be read as part of the text. Any solutions to numerical

Illustrations
Illustrations are provided.
These extracts of external content are presented to reinforce concepts and

Exhibits
should be read as part of the text.
These should be attempted using the pro forma solution provided

Examples
(where applicable).
Key Points Attention is drawn to fundamental rules, underlying concepts and principles.
Exam advice These tutor comments relate the content to relevance in the examination.
Commentaries These provide additional information to reinforce content.
Session Summary A summary of the main points of each session.
These quick questions are designed to test your knowledge of the technical
Session quiz
content. A reference to the answer is provided.
A link to recommended practice questions contained in the Study Question

Study question Bank. As a minimum you should work through the priority questions
bank after studying each session. For additional practice you can attempt the
remaining questions (where provided).
Example Solutions Answers to the Examples are presented at the end of each session.
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Syllabus F6 Taxation (UK)
Syllabus
ATX (P6)
TX (F6)
Aim
To develop knowledge and skills relating to the tax system as applicable to individuals,
single companies and groups of companies.
Main Capabilities
On successful completion of this paper, candidates should be able to:
A. Explain the operation and scope of the tax system and the obligations of tax payer and/
or their agents and the implications of noncompliance
B. Explain and compute the income tax liabilities of individuals and the effect of national
insurance contributions (NIC) on employees, employers and the self-employed
C. Explain and compute the chargeable gains arising on individuals
D. Explain and compute the inheritance tax liabilities of individuals
E. Explain and compute the corporation tax liabilities of individual companies and groups
of companies
F. Explain and compute the effects of value added tax on incorporated and unincorporated
businesses
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F6 Taxation (uK) Syllabus
Relational Diagram of Main Capabilities
The UK tax system and its administration (a)
Income tax and NIC Chargeable gains for Inheritance tax Corporation tax
liabilities (b) individuals (C) (D) liabilities (E)
VAT
(F)
Rationale
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 behindand the functions ofthe 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 selfemployed 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.
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Syllabus F6 Taxation (UK)
Detailed Syllabus
A. The UK Tax System and Its D. Inheritance Tax
Administration
1. The basic principles of computing
1. The overall function and purpose of transfers of value
taxation in a modern economy 2. The liabilities arising on chargeable
2. Principal sources of revenue law and lifetime transfers and on the death of an
practice individual
3. The systems for self-assessment and 3. The use of exemptions in deferring and
the making of returns minimising inheritance tax liabilities
4. The time limits for the submission of 4. Payment of inheritance tax
information, claims and payment of tax,
including payments on account E. Corporation Tax Liabilities
5. The procedures relating to compliance 1. The scope of corporation tax
checks, appeals and disputes 2. Taxable total profits
6. Penalties for non-compliance 3. Chargeable gains for companies
B. Income Tax and NIC Liabilities 4. The comprehensive computation of
corporation tax liability
1. The scope of income tax
5. The effect of a group corporate
2. Income from employment structure for corporation tax purposes
3. Income from self-employment 6. The use of exemptions and reliefs in
4. Property and investment income deferring and minimising corporation
5. The comprehensive computation of tax liabilities
taxable income and income tax liability
F. Value Added Tax
6. National insurance contributions for
employed and self-employed persons 1. The VAT registration requirements
7. The use of exemptions and reliefs in 2. The computation of VAT liabilities

deferring and minimising income tax 3. The effect of special schemes
liabilities
C. Chargeable Gains for Individuals

1. The scope of the taxation of capital
gains
2. The basic principles of computing gains
and losses
3. Gains and losses on the disposal of
movable and immovable property
4. Gains and losses on the disposal of
shares and securities
5. The computation of capital gains tax
6. The use of exemptions and reliefs in
deferring and minimising tax liabilities
arising on the disposal of capital assets
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F6 Taxation (UK) Syllabus
Approach to Examining the Syllabus

The syllabus is assessed by a three-hour paper-based examination.
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 (syllabus area B) and corporation tax
(syllabus area E).
The section A questions and the other questions in section B can cover any areas of the
syllabus.
Fifteen minutes of additional time is allowed at the beginning of the examination to allow
candidates to read the questions and to begin planning their answers before they start
writing in their answer books. This time should be used to ensure that all the information
and exam requirements are properly read and understood.
During reading and planning time candidates may only annotate their question paper.
They may not write anything in their answer booklets until told to do so by the invigilator.
Guide to Examination Assessment

Examinations falling within the financial year 1 April to 31 March will examine the Finance
Act which was passed in the previous July (i.e. exams falling in the period 1 April 2015
to 31March 2016 will examine the Finance Act 2014). Further, the Finance Act 2014 will
continue to be examined in June 2016.
ACCA Support
For examiner's reports, guidance and technical articles relevant to this paper see
www.accaglobal.com/gb/en/student/acca-qual-student-journey/qual-resource/
acca-qualification/f6.html
The ACCA's Study Guide which follows is referenced to the Sessions in this Study System.
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ACCA Study Guide F6 Taxation (UK)
ACCA Study Guide
A. The UK Tax System and Its Administration Ref.
1. The overall function and purpose of taxation in a modern economy

a) Describe the purpose (economic, social etc) of taxation in a modern economy. 1
b) Explain the difference between direct and indirect taxation. 1
c) Identify the different types of capital and revenue tax. 1
2. Principal sources of revenue law and practice
a) Describe the overall structure of the UK tax system. 1
b) State the different sources of revenue law. 1
c) Describe the organisation HM Revenue & Customs (HMRC) and its terms
1
ofreference.
d) Explain the difference between tax avoidance and tax evasion, and the purposes of
1
the General Anti-Abuse Rule (GAAR).
e) Appreciate the interaction of the UK tax system with that of other tax jurisdictions. 1
f) Appreciate the need for double taxation agreements. 1
g) Explain the need for an ethical and professional approach. 1
Excluded topics
Specific anti-avoidance legislation.
3. The systems for self-assessment and the making of returns
a) Explain and apply the features of the self-assessment system as it applies to
17
individuals.
b) Explain and apply the features of the self-assessment system as it applies to
17
companies, including the use of iXBRL.
4. The time limits for the submission of information, claims and payment of
tax, including payments on account
a) Recognise the time limits that apply to the filing of returns and the making of
17
claims.
b) Recognise the due dates for the payment of tax under the self-assessment system,
and compute payments on account and balancing payments/repayments for 17
individuals.
c) Explain how large companies are required to account for corporation tax on a
17
quarterly basis and compute the quarterly instalment payments.
d) List the information and records that taxpayers need to retain for tax purposes. 17
Excluded topics
The payment of CGT by annual instalments.
5. The procedures relating to compliance checks, appeals and disputes
a) Explain the circumstances in which HM Revenue & Customs can make a compliance
18
check into a self-assessment tax return.
b) Explain the procedures for dealing with appeals and First and Upper Tier Tribunals. 18
Excluded topics
Information powers.
Pre-return compliance checks.
Detailed procedures on the carrying out and completion of a compliance check.
6. Penalties for non-compliance
a) Calculate late payment interest and state the penalties that can be charged. 18
B. Income Tax and NIC Liabilities Ref.
1. The scope of income tax

a) Explain how the residence of an individual is determined. 1
Excluded topics
The split year treatment where a person comes to the UK or leaves the UK.
Foreign income, non-residents and double taxation relief.
Income from trusts and settlements.
(continued on next page)
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F6 Taxation (UK) ACCA Study Guide
Ref.
2. Income from employment
a) Recognise the factors that determine whether an engagement is treated as
8
employment or self-employment.
b) Recognise the basis of assessment for employment income. 4
c) Recognise the income assessable. 4
d) Recognise the allowable deductions, including travelling expenses. 4
e) Discuss the use of the statutory approved mileage allowances. 4
f) Explain the PAYE system. 17
g) Identify P11D employees. 4
h) Explain and compute the amount of benefits assessable. 4
i) Explain the purpose of a dispensation from HM Revenue & Customs. 4
Excluded topics
The calculation of a car benefit where emission figures are not available.
The exemption for zero-emission company motor cars.
The exemption where an employer pays for medical treatment.
Share and share option incentive schemes for employees.
Payments on the termination of employment, and other lump sums received
byemployees.
Real time reporting late filing penalties.
3. Income from self-employment
a) Recognise the basis of assessment for self-employment income. 2
b) Describe and apply the badges of trade. 5
c) Recognise the expenditure that is allowable in calculating the tax-adjusted
5
tradingprofit.
d) Explain and compute the assessable profits using the cash basis for small
8
businesses.
e) Recognise the relief which can be obtained for pre-trading expenditure. 5
f) Compute the assessable profits on commencement and on cessation. 5
g) Recognise the factors that will influence the choice of accounting date. 5
h) Capital allowances
i) Define plant and machinery for capital allowances purposes. 6
ii) Compute writing down allowances, first-year allowances and the annual
6
investment allowance.
iii) Compute capital allowances for motor cars. 6
iv) Compute balancing allowances and balancing charges. 6
v) Recognise the treatment of short life assets. 6
vi) Recognise the treatment of assets included in the special rate pool. 6
i) Relief for trading losses
i) Understand how trading losses can be carried forward. 7
ii) Understand how trading losses can be claimed against total income and
7
chargeable gains, and the restriction that can apply.
iii) Explain and compute the relief for trading losses in the early years of a trade. 7
iv) Explain and compute terminal loss relief. 7
v) Recognise the factors that will influence the choice of loss relief claim. 7
j) Partnerships and limited liability partnerships
i) Explain and compute how a partnership is assessed to tax. 8
ii) Explain and compute the assessable profits for each partner following a change
8
in the profit-sharing ratio.
iii) Explain and compute the assessable profits for each partner following a change
8
in the membership of the partnership.
iv) Describe the alternative loss relief claims that are available to partners. 8
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Ref.
Excluded topics
Change of accounting date.
The 100% allowance for expenditure on renovating business premises in
disadvantaged areas, flats above shops and water technologies.
Capital allowances for industrial buildings, agricultural buildings, patents, scientific
research and know-how.
CO2 emission thresholds for capital allowances for motor cars prior to 6 April 2013.
Apportionment in order to determine the amount of annual investment allowance
where a period of account spans 6 April 2014.
Enterprise zones.
Investment income of a partnership.
The allocation of notional profits and losses for a partnership.
Farmers averaging of profits.
The averaging of profits for authors and creative artists.
Loss relief following the incorporation of a business.
Loss relief for shares in unquoted trading companies.
The loss relief restriction that applies to the partners of a limited liability
partnership.
4. Property and investment income
a) Compute property business profits. 3
b) Explain the treatment of furnished holiday lettings. 3
c) Understand rent-a-room relief. 3
d) Compute the amount assessable when a premium is received for the grant of a
3
short lease.
e) Understand how relief for a property business loss is given. 3
f) Compute the tax payable on savings and dividends income. 2
g) Recognise the treatment of new individual savings accounts (NISAs) and other tax
3
exempt investments.
Excluded topics
The deduction for expenditure by landlords on energy-saving items.
Premiums for granting subleases.
The ISA investment rules and limits that applied prior to 1 July 2014.
Junior ISAs.
5. The comprehensive computation of taxable income and income tax liability
a) Prepare a basic income tax computation involving different types of income. 2
b) Calculate the amount of personal allowance available generally, and for people born
2
before 6 April 1948.
c) Compute the amount of income tax payable. 2
d) Understand the treatment of interest paid for a qualifying purpose. 2
e) Understand the treatment of gift aid donations and charitable giving. 2
f) Explain and compute the child benefit tax charge. 2
g) Understand the treatment of property owned jointly by a married couple, or by a
2
couple in a civil partnership.
Excluded topics
The blind person's allowance and the married couple's allowance.
Tax credits.
Maintenance payments.
The income of minor children.
6. National insurance contributions for employed and self-employed persons
a) Explain and compute national insurance contributions payable:
i) Class 1 and 1A NIC. 17
ii) Class 2 and 4 NIC. 17
b) Understand the annual employment allowance.
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Ref.
Excluded topics
The calculation of directors national insurance on a month-by-month basis.
Contracted out contributions.
The offset of trading losses against non-trading income.
7. The use of exemptions and reliefs in deferring and minimising income tax
liabilities
a) Explain and compute the relief given for contributions to personal pension schemes,
2
and to occupational pension schemes.
b) Understand how a married couple or a couple in a civil partnership can minimise
2
their tax liabilities.
Excluded topics
The conditions that must be met in order for a pension scheme to obtain approval
from HM Revenue & Customs.
The enterprise investment scheme and the seed enterprise investment scheme.
Venture capital trusts.
Tax reduction scheme for gifts of pre-eminent objects.
C. Chargeable Gains for Individuals Ref.
1. The scope of the taxation of capital gains

a) Describe the scope of capital gains tax. 9
b) Recognise those assets which are exempt. 9
Excluded topics
Assets situated overseas and double taxation relief.
Partnership capital gains.
2. The basic principles of computing gains and losses
a) Compute and explain the treatment of capital gains. 9
b) Compute and explain the treatment of capital losses. 9
c) Understand the treatment of transfers between a husband and wife or between a
9
couple in a civil partnership.
d) Understand the amount of allowable expenditure for a part disposal. 10
e) Recognise the treatment where an asset is damaged, lost or destroyed, and the
10
implications of receiving insurance proceeds and reinvesting such proceeds.
Excluded topics
Small part disposals of land, and small capital sums received where an asset is
damaged.
Losses in the year of death.
Relief for losses incurred on loans made to traders.
Negligible value claims.
3. Gains and losses on the disposal of movable and immovable property
a) Identify when chattels and wasting assets are exempt. 10
b) Compute the chargeable gain when a chattel or a wasting asset is disposed of. 10
c) Calculate the chargeable gain when a principal private residence is disposed of. 10
Excluded topics
The disposal of leases and the creation of sub-leases.
4. Gains and losses on the disposal of shares and securities
a) Recognise the value of quoted shares where they are disposed of by way of a gift. 11
b) Explain and apply the identification rules as they apply to individuals including the
11
same day and 30-day matching rules.
c) Explain and apply the pooling provisions. 11
d) Explain and apply the treatment of bonus issues, rights issues, takeovers and
11
reorganisations.
e) Identify the exemption available for gilt-edged securities and qualifying
9
corporatebonds.
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Ref.
Excluded topics
The exemption for employee shareholders.
The small part disposal rules applicable to rights issues, takeovers and
reorganisations.
Gilt-edged securities and qualifying corporate bonds other than the fact that they
are exempt.
5. The computation of capital gains tax
a) Compute the amount of capital gains tax payable. 9
b) Explain and apply entrepreneurs' relief. 12
Excluded topics
Entrepreneurs relief for associated disposals.
6. The use of exemptions and reliefs in deferring and minimising tax
liabilities arising on the disposal of capital assets
a) Explain and apply capital gains tax reliefs:
i) rollover relief. 12
ii) holdover relief for the gift of business assets. 12
Excluded topics
Incorporation relief.
Reinvestment relief.
D. Inheritance Tax Ref.
1. The basic principles of computing transfers of value

a) Identify the persons chargeable. 16
b) Understand and apply the meaning of transfer of value, chargeable transfer and
16
potentially exempt transfer.
c) Demonstrate the diminution in value principle. 16
d) Demonstrate the seven year accumulation principle taking into account changes in
16
the level of the nil rate band.
Excluded topics
Pre- 18 March 1986 lifetime transfers.
Transfers of value by close companies.
Domicile, deemed domicile and non-UK domiciled individuals.
Trusts.
Excluded property.
Related property.
The tax implications of the location of assets.
Gifts with reservation of benefit
Associated operations.
2. The liabilities arising on chargeable lifetime transfers and on the death of
an individual
a) Understand the tax implications of lifetime transfers and compute the relevant
16
liabilities.
b) Understand and compute the tax liability on a death estate. 16
c) Understand and apply the transfer of any unused nil rate band between spouses. 16
Excluded topics
Specific rules for the valuation of assets (values will be provided).
Business property relief.
Agricultural relief.
Relief for the fall in value of lifetime gifts.
Quick succession relief.
Double tax relief.
Variation of wills and disclaimers of legacies.
Grossing up on death.
Post mortem reliefs.
xiv DeVry/Becker Educational Development Corp. All rights reserved.

Ref.
Double charges legislation
The reduced rate of inheritance tax payable on death when a proportion of a
persons estate is bequeathed to charity.
3. The use of exemptions in deferring and minimising inheritance tax
liabilities
a) Understand and apply the following exemptions:
i) small gifts exemption 16
ii) annual exemption 16
iii) normal expenditure out of income 16
iv) gifts in consideration of marriage 16
v) gifts between spouses. 16
Excluded topics
Gifts to charities.
Gifts to political parties.
Gifts for national purposes.
4. Payment of inheritance tax
a) Identify who is responsible for the payment of inheritance tax and the due date for
16
payment of inheritance tax.
Excluded topics
Administration of inheritance tax other than listed above.
The instalment option for the payment of tax.
Interest and penalties.
E. Corporation Tax Liabilities Ref.
1. The scope of corporation tax

a) Define the terms "period of account", "accounting period" and "financial year". 13
b) Recognise when an accounting period starts and when an accounting period
13
finishes.
c) Explain how the residence of a company is determined. 1
Excluded topics
Investment companies.
Close companies.
Companies in receivership or liquidation.
Reorganisations.
The purchase by a company of its own shares.
Personal service companies.
2. Taxable total profits
a) Recognise the expenditure that is allowable in calculating the tax-adjusted
13
tradingprofit.
b) Recognise the relief which can be obtained for pre-trading expenditure. 5
c) Compute capital allowances (as for income tax). 6
d) Compute property business profits and understand how relief for a property
13, 14
business loss is given.
e) Understand how trading losses can be carried forward. 14
f) Understand how trading losses can be claimed against income of the current or
14
previous accounting periods.
g) Recognise the factors that will influence the choice of loss relief claim. 14
h) Recognise and apply the treatment of interest paid and received under the loan
13
relationship rules.
i) Recognise and apply the treatment of qualifying charitable donations. 13
j) Compute taxable total profits. 13
DeVry/Becker Educational Development Corp. All rights reserved. xv

Ref.
Excluded topics
Research and development expenditure.
Non-trading deficits on loan relationships.
Relief for intangible assets.
Patent box.
3. Chargeable gains for companies
a) Compute and explain the treatment of chargeable gains. 9
b) Explain and compute the indexation allowance available. 9
c) Explain and compute the treatment of capital losses. 9
d) Understand the treatment of disposals of shares by companies and apply the
11
identification rules including the same-day and nine-day matching rules.
e) Explain and apply the pooling provisions. 11
f) Explain and apply the treatment of bonus issues, rights issues, takeovers and
11
reorganisations.
g) Explain and apply rollover relief. 12
Excluded topics
A detailed question on the pooling provisions as they apply to limited companies.
Substantial shareholdings.
4. The comprehensive computation of corporation tax liability
a) Compute the corporation tax liability and apply marginal relief. 13
b) Recognise the implications of receiving franked investment income. 13
5. The effect of a group corporate structure for corporation tax purposes
a) Define an associated company and recognise the effect of having associated
15
companies for corporation tax purposes.
b) Define a 75% group, and recognise the reliefs that are available to members of
15
such a group.
c) Define a 75% chargeable gains group, and recognise the reliefs that are available
15
to members of such a group.
Excluded topics
Relief for trading losses incurred by an overseas subsidiary.
Consortia.
Pre-entry gains and losses.
The anti-avoidance provisions where arrangements exist for a company to leave
agroup.
The tax charge that applies where a company leaves a group within six years of
receiving an asset by way of a no gain/no loss transfer.
Overseas aspects of corporation tax.
6. The use of exemptions and reliefs in deferring and minimising corporation
14, 15, 16
tax liabilities:
The use of such exemptions and reliefs is implicit within all of the above sections
1to 5 of part E of the syllabus, concerning corporation tax.
xvi DeVry/Becker Educational Development Corp. All rights reserved.

Ref.
F. Value Added Tax Ref.
1. The VAT registration requirements

a) Recognise the circumstances in which a person must register or deregister for VAT
19
(compulsory) and when a person may register or deregister for VAT (voluntary).
b) Recognise the circumstances in which pre-registration input VAT can be recovered. 19
c) Explain the conditions that must be met for two or more companies to be treated
19
as a group for VAT purposes, and the consequences of being so treated.
2. The computation of VAT liabilities
a) Understand how VAT is accounted for and administered. 19
b) Recognise the tax point when goods or services are supplied. 19
c) List the information that must be given on a VAT invoice. 19
d) Explain and apply the principles regarding the valuation of supplies. 19
e) Recognise the principal zero rated and exempt supplies 19
f) Recognise the circumstances in which input VAT is non-deductible. 19
g) Recognise the relief that is available for impairment losses on trade debts. 19
h) Understand when the default surcharge, a penalty for an incorrect VAT return, and
19
default interest will be applied.
i) Understand the treatment of imports, exports and trade within the European Union. 19
Excluded topics
VAT periods where there is a change of VAT rate.
Partial exemption.
In respect of property and land: leases, do-it-yourself builders, and a landlord's
option to tax.
Penalties apart from those listed in the study guide.
3. The effect of special schemes
a) Understand the operation of, and when it will be advantageous to use, the VAT
special schemes:
i) cash accounting scheme 19
ii) annual accounting scheme 19
iii) flat rate scheme. 19
Excluded topics
The second-hand goods scheme.
The capital goods scheme.
The special schemes for retailers.
DeVry/Becker Educational Development Corp. All rights reserved. xvii

Tax Rates and Allowances F6 Taxation (UK)
SUPPLEMENTARY INSTRUCTIONS
The following supplementary instructions will be included in the exams to 30 June 2016:
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.
TAX RATES AND ALLOWANCES

The following tax rates and allowances are to be used in answering the questions.
Income Tax
Normal Dividend
rates rates
% %
Basic rate 131,865 20 10
Higher rate 31,866150,000 40 32.5
Additional rate 150,001 and over 45 37.5
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 10,000
Born between 6 April 1938 and 5 April 1948 10,500
Born before 6 April 1938 10,660
Income limit
Personal allowance 100,000
Personal allowance (born before 6 April 1948) 27,000
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 relevant 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%
xviii DeVry/Becker Educational Development Corp. All rights reserved.

F6 Taxation (UK) Tax Rates and Allowances
Car Fuel Benefit

The base figure for calculating the car fuel benefit is 21,700.
New Individual Savings Accounts (NISAs)

The overall limit is 15,000.
Pension Scheme Limit

Annual allowance 201415 40,000
201112 to 201314 50,000
The maximum contribution that can qualify for tax relief without any earnings is 3,600.
Authorised Mileage Allowances: Cars

Up to 10,000 miles 45p
Over 10,000 miles 25p
Capital Allowances: Rates of Allowance

%
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 allowances 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
Standard fraction 1/100 3/400 1/400
Marginal Relief
Standard fraction (UA) N/A
Value Added Tax (VAT)

Standard rate 20%
Registration limit 81,000
Deregistration limit 79,000
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Tax Rates and allowances F6 Taxation (uK)
Inheritance Tax: Tax Rates

1325,000 Nil
Excess Death rate 40%
Lifetime rate 20%
Where the nil rate bands are required for previous years these will be given in the question.
Inheritance Tax: Taper Relief

years before death Percentage
reduction
Over 3 but less than 4 years 20%
Capital Gains Tax

Rates of tax Lower rate 18%
Higher rate 28%
Annual exempt amount 11,000
Entrepreneurs' relief Lifetime limit 10,000,000
Rate of tax 10%
National Insurance Contributions

(not contracted out rates)
%
Class 1 Employee 1 to 7,956 per year Nil
7,957 to 41,865 per year 12.0
41,866 and above per year 2.0
Class 1 Employer 1 to 7,956 per year Nil
Employment allowance 2,000
Class 1A 13.8
Class 2 2.75 per week
Small earnings exemption 5,885
Class 4 1 to 7,956 per year Nil
7,957 to 41,865 9.0
Rates of Interest (assumed)

Official rate of interest 3.25%
Rate of interest on underpaid tax 3.0%
Rate of interest on overpaid tax 0.5%
xx DeVry/Becker Educational Development Corp. All rights reserved.

F6 Taxation (UK) Examination Technique
Examination Technique
Reading and Planning Time
< During the 15 minutes of reading and planning time you may write on the question
paper but not in your answer booklet.
< Try to rank the Section B questions according to their level of difficultyplan to attempt
the easiest of these questions first and the most difficult last. This should help keep
your confidence high during the exam.
< Although you may use your calculator during the reading and planning time, it would
be more effective to jot down your ideas for the written elements of the Section B
questions.
< Any calculations done in the reading and planning time should be restricted to those that
do not need to be presented in your script as a working (otherwise you will waste time
copying out workings).
< It is unlikely that you will have any remaining time but if you do it could be used to start
selecting correct answers for Section A questions that do not involve calculations.
Time Allocation
< Section A of the exam consists of 15 multiple-choice questions (MCQs) of 2 marks each
and Section B consists of four 10-mark questions and two 15-mark questions.
< The time available for the exam is 180 minutes and this has to be allocated between the
two sections.
< 54 minutes should be allocated to Section A so each MCQ should take, on average, just
3.6 minutes. Although the more theoretical MCQs may take only seconds to answer,
those requiring detailed calculations might take as long as 5 minutes.
< 126 minutes should be allocated to Section B. It is vital to give each question the
attention that is called for according to its mark allocation. Allocating 1.8 minutes per
mark means that each 15-mark question should be given 27 minutes and the 10-mark
questions should be given 18 minutes. If you aim to give them slightly less, that will
leave a few minutes at the end of the exam to review you script for completeness.
< The first marks are the easiest to gain in each longer-type question, so it is always
better to start the next question rather than overrun on the time that should be
allocated.
Multiple-Choice Questions (Section A)
< These objective questions mostly consist of:
= a "stem" (the question);
= a "key" (the correct answer); and
= 3 "distracters" (plausible but incorrect answers).
DeVry/Becker Educational Development Corp. All rights reserved. xxi

Examination Technique F6 Taxation (uK)
Illustration 1 answering an MCq
For the year ended 31 March 2015, Halo Ltd made a trading loss of 180,000.
Halo Ltd has owned 100% of the ordinary share capital of Shallow Ltd since it
began trading on 1 July 2014. For the year ended 30 June 2015, Shallow Ltd will
make a trading profit of 224,000.
Neither company has any other taxable profits or allowable losses.
What is the maximum amount of group relief which Shallow ltd can claim
from halo ltd in respect of the trading loss of 180,000 for the year
ended 31 March 2015?
a. 180,000
b. 168,000
C. 45,000
D. 135,000
Solution
Step 1
Start by reading the question in bold. This tells you what you have to do:
maximum amount of group relief
Step 2
Write down or think about anything that will help you:
lower of profit of claimant company, loss of surrendering company, in
corresponding accounting period.
You may wish to physically draw timelines in order to establish correctly the
corresponding accounting period as the nine months ended 31 March 2015.
Step 3
Solve:
Lower of (912 x 180) and (912 x 224); clearly (912 x 180), so 135,000.
Step 4
Select the appropriate box on your answer sheet:
D.
Exam Advice
Cover up the answers, A, B, C and D, when doing calculations.
< Jot down your workings on the question papernarrative and how you derived your
answer are of no relevance to the marker. You will get 2 marks for a correct response
on the answer sheet provided and 0 marks for selecting an incorrect response. (If you
select more than one response you will get 0 marks!)
It is not unusual for one of the distracters to be a number that will be calculated before
reaching the final solution. Especially under exam pressure you may think you have the
correct answer before you have completed the calculation.
If you do not (or cannot) calculate an amount that corresponds to any of the amounts
offered, do not select one that stands out as disproportionate to the others; it is more
likely to be a distracter than the key.
If you are getting close to the end of your time allocation for Section A and you still
have a few questions left to answerguess! There is no negative marking for incorrect
answers so do not leave as blank any responses to this section. If you have time at
the end of the exam you can still come back and check them. Avoid leaving questions
unanswered before you move to Section B as you will not be allowed to complete the
MCQ answer sheet when the examination supervisor instructs you to stop writing.
xxii DeVry/Becker Educational Development Corp. All rights reserved.

F6 Taxation (UK) Examination Technique
Section B
Numerical Requirements
< Before starting a computation, picture your route. Do this by noting down the steps you
are going to take and imagining the layout of your answer.
< A columnar layout is often appropriate and it helps to avoid mistakes and is easier for
the marker to follow. Write clearly and leave space.
< Include all your workings and cross-reference them to the face of your answer.
< State any assumptionsif you are not sure how to interpret something in the question
then state your assumed interpretation.
< If you later notice a mistake in your answer, it is not worthwhile spending time amending
the consequent effects of it. The marker of your script will not penalise you for errors
caused by an earlier mistake.
< If you cannot perform a particular calculation but it is needed in a later step, make a
sensible guess and continue.
Writing Requirements
Planning
< Read the requirement carefully to identify exactly what is required and how many
separate points you are being asked to address.
< The published answers to the specimen exam suggest that you should work to a general
rule of mark being awarded for each point and one point in a sentence.
< Note down relevant thoughts on your planthis may be on the question paper.
< Give your plan a structure that you can follow when you write up the answer.
Presentation
< Use a heading or subheading to give your answer structure and to make it easier
toread.
< Use a short sentence for each point that you are making.
< Use bullet points where this seems appropriate (e.g. for a list of advantages/
disadvantages). However, each bullet point must read on from an introduction to the list
or be complete in itself. You must not write in "note form".
< Write legibly using a good-quality black pen.
Style
< Long, philosophical debate does not impress markers.
< More points briefly explained tend to score higher marks than just one or two points
explained in detail.
< Appropriate comments on amounts that have been calculated incorrectly will be
givencredit.
< If you could not complete the calculations required for comment then assume an answer
to the calculations. As long as your comments are consistent with a sensible assumption
(e.g. it must not contradict information in the question) you will be awarded the marks
for the comments.
< As you write, refer back to the requirement to ensure that you are addressing it.
"Knowledge dumping" on a topic will not earn any marks if it does not address the
requirement.
Good luck!
DeVry/Becker Educational Development Corp. All rights reserved. xxiii

Session 2
Income Tax Computations
FOCUS
This session covers the following content from the ACCA Study Guide.
B. Income Tax and NIC Liabilities

3. Income from self-employment
a) Recognise the basis of assessment for self-employment income.
4. Property and investment income
f) Compute the tax payable on savings and dividend income.
5. The comprehensive computation of taxable income and income
tax liability
a) Prepare a basic income tax computation involving different types of income.
b) Calculate the amount of personal allowance available generally and for people
born before 6 April 1948.
c) Compute the amount of income tax payable.
d) Understand the treatment of interest paid for a qualifying purpose.
e) Understand the treatment of gift aid donations and charitable giving.
f) Explain and compute the child benefit tax charge.
g) Understand the treatment of property owned jointly by a married couple, or by
a couple in a civil partnership.
7. The use of exemptions and reliefs in deferring and minimising income
tax liabilities
a) Explain and compute the relief given for contributions to personal pension
schemes and to occupational pension schemes.
b) Understand how a married couple or couple in a civil partnership can minimise
their tax liabilities.
Session 2 Guidance
Pay particular attention to the pro forma computational layout and how this then incorporates the
items covered later in the session.
Know the sources of earned income (s.2.1) and unearned income (s.2.2), the basic rules for "couples"
(s.2.4) and the two bases of assessment (s.2.5).
Work through Examples 3 and 4. Personal allowances (s.3) are given in the examination. Examined
most frequently are the extension of the basic band (pension/charity donations) and using the
restriction rule (s.3.3).
F6 Taxation (UK) Becker Professional Education | ACCA Study System
F6 Taxation (UK) Session 2 Income Tax Computations
VISUAL OVERVIEW
Objective: To prepare in a suitable format the income tax computation for an individual,
taking into account the different sources of income and the availability of relevant deductible
allowances and reliefs.
INCOME TAX COMPUTATION

Introduction
Pro Forma
INCOME PERSONAL
ALLOWANCE (PA)
Earned
INCOME TAX PAYABLE Basic Rules
Unearned
Tax Rates and Persons Born After
Exempt
Taxable Income 5 April 1948
Married Couples
Special Case10% Rate Persons Born
and Civil Partners
Before 6 April 1948
Basis of
Assessment
DEDUCTIONS FROM TOTAL MARRIED COUPLES AND

INCOME FAMILY
Summary Utilising PA and Basic
Qualifying Loan Interest Rate Band
Tax-Free Investments
Gifts to Charity
High Income Child
Benefit Charge
DONATIONS TO CHARITIES PENSIONS

Payroll Gifts Types
Gift Aid Personal Schemes
Extended Basic and Higher Personal Schemes and PA
Rate Relief Occupational Schemes
Gift Aid and PA Additional Matters
Session 2 Guidance
Understand what is meant by "qualifying loan interest" (s.5.2) and attempt Example 5.
Work carefully through charitable donations (s.6) and pensions (s.7) as they are regularly
examined.
Read through tax planning for "married couples" (s.8); it may also feature as part of a question.
DeVry/Becker Educational Development Corp. All rights reserved. 2-1

Session 2 Income Tax Computations F6 Taxation (UK)
1 Income Tax Computation
1.1 Introduction Foreign taxable

incomes (i.e. amounts
< Income tax is a tax levied on individuals by reference to their arising outside UK)
taxable income for a tax year. are not examinable
< Taxable income is an individual's total income liable to income in F6.
tax (i.e. not specifically exempt) less certain deductible amounts.
< In order to calculate a tax liability, tables of rates, allowances
and other information must be used.*
Illustration 1 Tax Liability

Computation
*The tables are
For 2014/15 an individual has taxable income of 160,000. His tax included at the
liability will be computed as follows (using the income tax rates from front of this Study
the table): System and should
be referred to when
undertaking a tax
31,865 @ 20% 6,373 computation.
118,135 @ 40% 47,254
10,000 @ 45% 4,500
160,000 58,127
< The key to a successful tax computation is a standardised

computational approach which must be learned and applied.
2-2 DeVry/Becker Educational Development Corp. All rights reserved.

1.2 Pro Forma Income Tax Computation, 2014/15

Earned income
1. Profits of an unincorporated trade
x
Less: Relief for an earlier trading loss
2. Employment income x
3. Pensions x
4. Rents from furnished holiday accommodation x
x
Unearned income
1. Dividends on shares (gross) x
2. Interest
from banks and building society deposit
accounts (gross), corporate loan stocks and x
government bonds
3.
Rent from property other than furnished holiday
x
accommodation
x
Total income x
Less:(1) Qualifying interest paid (x)
(2) Loss relief set off against total income (x)
(x)
Net income x
Less:Personal allowance (x)
Taxable income x
Tax thereon at appropriate rates x
Income tax liability x
Less:Tax collected at source on income (x)
Income tax payable x

2 Income
2.1 Earned Income
Earned Income
Employment Rent from

Income (Note 1) Pensions Trading Profits furnished
holiday
accommodations
in the UK
Earnings from Pensions Adjusted trading

employment principally (both profits arising from
1. Pay received state and self-employment
(e.g. salaries) private) conducted by
unincorporated
2. Cash equivalent
businesses
values of taxable
(i.e. sole traders
benefits (e.g. use
and partnerships)
of company car)
Taxable earnings = Adjusted profits = Rent = gross

gross amounts less accounting net profit on an rent accrued
allowable expenses accruals basis as adjusted less allowable
of employment for tax purposes (Note 3) expenses
Tax generally collected at Tax collected Tax collected

source under PAYE, by self- by self-
otherwise by self-assessment (Note 2) assessment assessment
Notes:
1. See Session 4 for details of employment income.
2. See Session 17 for details of the PAYE system and of self-assessment.
3. See Session 5 for details of the process of adjustment of trading profits.

2.2 Unearned Income
Unearned Income
Rents from furnished

Dividends
and unfurnished lettings
Interest
(excluding furnished
holiday accommodation)
Arising gross on Arising net of 20% Arising net

1. National tax at source on of 10% tax
Savings & 1. Bank deposits deemed
Investments deducted at
2. Building
(NS&I) source
society interest
(see Key
2. UK
Point below)
government
gilt-edged
securities
Rent = gross rent Gross equivalent included in the tax

accrued due less computation for higher rate purposes
allowable expenses i.e. amount received 10080 or 10090
Tax at all rates collected Tax not collected at source

by self-assessment collected by self-assessment
The tax credit on dividends is a deemed tax credit because the paying
company does not actually deduct tax when paying the dividend.
Therefore, although recognised as tax already paid at source
by the shareholder it is not refundable to a shareholder who is a
non-taxpayer.

2.3 Exempt Income

< Some (but not many) types of income are exempt from
income tax.
< The main examples of exempt income are:
= Income from letting a room in the taxpayer's own home
(see Session 3);
= Certain investment incomes (see Session 3);
= Certain employment incomes and benefits (see Session 4);
= Interest on tax repayments made to individuals; and
= Betting and gaming winnings (including the National Lottery
and Premium Bonds).
2.4 Income of Married Couples and Persons

in a Civil Partnership
< Each spouse or civil partner is separately assessed for income
tax purposes on his own taxable income including appropriate
shares of income from jointly-owned assets. (That is, a
separate income tax computation is prepared for each spouse *Ways in which a
or civil partner for each tax year.) married couple can
reduce their exposure
< Income arising from jointly-owned assets will be split equally
to income tax are
(i.e. 50:50) between the spouses or civil partners unless discussed later in
the taxpayers make a joint declaration to split the income this session.
according to their actual interests in the assets.*

2.5 Basis of AssessmentActual or Current Year
Two Bases
Actual Current Year
Means income received or Means trading profits accruing for the

accrued in the current tax year whole accounting period ENDING in
is assessed in this SAME tax year. the current tax year are assessed in
For example, income arising that tax year. For example, profit for
between 6.4.145.4.15 the 12 months to 30.6.14 is assessed
is assessed in 2014/15. in 2014/15.
Applies to all income Special rules apply:

except trading profits. in the first three tax years of a trade
the "opening years" (Note 1);
in the last tax year of assessment
(Note 1);
when the accounting date is
permanently changed (Note 2).
Notes:
1. See Session 5 for details of the current year basis as it applies in the opening years and
on cessation of the trade.
2. The detailed rules applying when the accounting date is changed are no longer
examinable within the F6 syllabus.
< The current year basis (CYB) is used because UK trading

enterprises are allowed to choose their own accounting
dates rather than, as in some other countries, being obliged
to prepare accounts for the tax year itself. Applying this
convention means that unless a self-employed person liable to
income tax chooses to prepare accounts for the year ending
5 April, the use of the actual basis would mean that a single
tax year's assessment would use the profits of parts of two
adjacent accounting periods instead of only one. This is clearly
impractical and the solution was the adoption of the CYB.

Illustration 2 Accounting Dates
Three self-employed persons, A, B and C, have each adopted

different accounting dates as follows:
A: Year ended 5 April
B: Year ended 31 December
C: Year ended 30 April
The basis periods under the CYB for 2014/15 are as follows:
A: Year ended 5 April 2015. This would have been the same
under the actual basis as the accounting period = the tax year
2014/15.
B: Year ended 31 December 2014. The whole profit of this
accounting period is assessed in 2014/15 although only
nine months of the profits actually accrue in the tax year
beginning 6 April 2014. The logic of the CYB means that the
whole of the profits of the year ended 31 December 2015 will be
assessed in 2015/16.
C: Year ended 30 April 2014. The whole profit of this accounting
period is assessed in 2014/15 although only one month of the
profits actually accrue in the tax year beginning 6 April 2014.
Again, the logic of the CYB means that the whole of the profits of
the year ended 30 April 2015 will be assessed in 2015/16.
3 Personal Allowance
3.1 Basic Rules

< Personal allowance ("PA") is a specific tax amount given to
each taxpayer for each tax year with the effect of raising the
starting point of income tax.
< PA is deducted from net income. If PA exceeds net income,
the unused amount cannot be carried forward to the following
tax year or transferred to a spouse or civil partner.
3.2 Persons Born After 5 April 1948

< A person born after 5 April 1948 qualifies for the standard PA
of 10,000 for 2014/15.
< If the taxpayer's net income exceeds 100,000, the PA is
reduced to nil at the rate of 1 for every 2 that net income
exceeds 100,000.
< As a result, taxpayers with net income in excess of 120,000
will have no personal allowance.*
*The effect of this progressive reduction of the personal allowance is

that net incomes between 100,000 and 120,000 actually suffer an
effective marginal tax rate of 60%.

Example 1 Personal Allowance
Brown was born in 1980.

Required:
Calculate his taxable income assuming his net income for 2014/15 is:
(1) 60,000;
(2) 110,000;
(3) 120,000.
Solution

(1) (2) (3)
Total income = net income 60,000 110,000 120,000
(1) PA
(2) PA
Less:
(3) PA
Less:
Taxable income
3.3 Persons Born Before 6 April 1948*

< If an individual is born before 6 April 1948, he is entitled to a
higher PA:
= 10,500 if born between 6 April 1938 and 5 April 1948; or *The previous regime
= 10,660 if born before 5 April 1938.
of higher age-related
allowances has now
< However, if the taxpayer's net income is more than the been replaced, and
income limit for persons born before 6 April 1948 (27,000 as the allowances
for 2014/15) the relevant higher PA is reduced to 10,000 at for persons born
the rate of 1 for every 2 that net income exceeds 27,000. before 6 April 1948
< This rule ensures that the higher PA is only given to people are not planned to
increase year on year,
with comparatively low incomes. The minimum PA will be
the benefit to older
10,000 unless the person has net income of more than persons is effectively
100,000, when, as for people born after 5 April 1948, the being phased out.
PA can be lost altogether.
Levels of personal allowances and income limits are given in the rates
and allowances sheet.

Example 2 Persons Born Before 6 April 1948
Mr Smith was born on 1 April 1948.

Required:
Calculate his taxable income assuming his net income for 2014/15 is:
(1) 16,000;
(2) 27,500;
(3) 32,000.
Solution

(1) (2) (3)
Net income 16,000 27,500 32,000
(1) Higher PA
(2) Higher PA
Less 1 ( 27,000)
2
Minimum amount =
(3) Higher PA
Less 1 ( 27,000)
2
Minimum amount =
Taxable income

4 Calculation of Income Tax Payable
4.1 Tax Rates and the Composition

of Taxable Income
< The rates of income tax not only change with the level of
taxable income (i.e. basic and higher rates) but also according
to its composition (i.e. dividends, savings income and other
income) as follows:
Dividends Savings
% Income %* Other %
Basic rate
10 20 20
131,865
Higher rate
32.5 40 40
31,866150,000
Additional rate
37.5 45 45
150,001 or more
*Savings income is all forms of interest received (i.e. from banks

and building societies and interest on corporate loan stocks and
government bonds).
Other income is all income except dividends and savings income.
< In order to correctly tax these different components of

income, taxable income must be analysed between:
= "dividends" (deemed to be the "top slice" of taxable income);
= "savings income" (deemed to be next slice of taxable
income); and
= "other income" (deemed to be balance of taxable income).
< PA is deemed to relieve other income first, then savings
income and then dividends (i.e. it is used in the most
beneficial way).

Example 3 Income Tax Payable

(a) Robert, a single man born in 1963, has the following incomes and
outgoings for 2014/15:

Earnings of employment 30,600
Bank interest received 8,000
Dividends received 1,800
Tax of 4,232 was deducted at source from the 30,600 of employment income under
the Pay As You Earn (PAYE) scheme.
Required:
Calculate the income tax payable by Robert for 2014/15.
Solution
(a) Higher rate taxpayer
Income tax computation, 2014/15

Earned income
Unearned income
Dividends (gross)
Interest (gross)
Total income = net income
Less: Personal allowance
Taxable income
Analysis

1 = dividends (= top slice)
2 = savings income (interest)
3 = other (= balance of the taxable income)
Income tax
%
Other income
Savings income
Dividends
Dividends
Income tax liability

Less: Tax credits
Dividends
Interest
PAYE
Income tax payable

Example 3 Income Tax Payable (continued)

(b) Facts as in (a) above except Robert's employment income is 143,000 and
tax deducted at source under PAYE is 50,798.
Required:
Calculate the income tax payable by Robert for 2014/15.
Solution
(b) Additional rate taxpayer

Earned income
Employment income
Unearned income
Dividends (gross)
Interest (gross)
Taxable income
Analysis

1 = dividends (= top slice)
2 = savings income (interest)

3 = other (= balance of the taxable income)
Income tax
%
Other income
Savings income
Savings income
Dividends

Less: Tax credits
Dividends
Interest
PAYE
Income tax payable

4.2 Special Case10% Rate on Savings Income

< Where other income does not exceed 2,880 for 2014/15,
savings income is taxed at the rate of 10% until total taxable
income reaches 2,880. Thereafter, savings income is taxed
at 20%, 40% and 45% in accordance with the table of rates
given previously. The 10% rate and the
< In practice, the 10% rate or savings income will typically apply 2,880 limit are also
to the following taxpayers: given on the rates
and allowances table
= Children with substantial savings incomes but no
in the exam.
employment income (not examinable in Paper F6);
= Spouses with substantial savings income but insignificant
income from employment, self-employment or property
rentals;
= People born before 6 April 1948 whose pensions are largely
excluded from tax due to the higher personal allowance.
Example 4 Basic Rate Taxpayer

10% Rate on Savings
Jean was born in 1946. Her income for 2014/15 is as follows:

State pension (no tax deducted at source). 5,587
Private pension (117 of tax deducted at source under PAYE) 5,500
Dividends received 1,800
Building society interest received 3,600
Required:
Calculate the income tax payable by or repayable to Jean for 2014/15.

Example 4 Basic Rate Taxpayer

10% Rate on Savings (continued)
Solution

Earned income
Pensionsstate
Pensionsprivate
Unearned income
Dividends
Interest
Taxable income
Analysis

Dividends = top slice
Savings income
Other income
Income tax
%
Other income
Savings income
Dividends
Taxable income

Less: Dividends
Interest
PAYE
Income tax payable/(repayable)

5 Deductions From Total Income
5.1 Summary
< Deductions from total income, irrespective of the nature of
that income, are deducted in arriving at net income.
< They are deducted before personal allowance.
< Those relevant to Paper F6 are:
= relief for interest on qualifying loans; and
= relief for trading losses relievable against total income (see
Session 7).
< Relief for qualifying loan interest is taken before loss relief
because an unrelieved trading loss, but not unrelieved
interest, may be carried forward for relief in future tax years.
5.2 Qualifying Loan Interest

< This is interest on a fixed loan (not a bank overdraft) taken
out for a qualifying purpose.
< Qualifying purposes include:
= The purchase of an interest in a partnership by a full equity
The F6 examiner does
partner (or prospective partner). This relief is particularly not require candidates
useful to a new partner borrowing money to finance his to understand either
investment in the firm's capital. the definition of or the
= The purchase of ordinary shares in a close trading company detailed consequences
by a shareholder who has/will have 5% of the ordinary of being a close
company.
share capital of the company.
= Purchase of plant and machinery by a partner on behalf
of his firm or shareholder on behalf of his close trading
company or by an employee for use in his employment.
Relief in this case is only given for three tax years.
< Tax relief as a deduction from total income is capped at
a maximum of the greatest of 50,000 or 25% of the
individual's adjusted total income.
This cap on income

tax reliefs will only
be examined where
trading loss relief
is claimed against
total income (see
Session 7).

Example 5 Relief for Qualifying Loan Interest
Alice is single and self-employed. She had the following income for 2014/15:

Tax adjusted trading profits 48,000
Bank interest (gross) 1,000
During 2014/15, Alice paid 2,000 of interest on a loan taken out in 2010 to finance her
contribution to the capital of the firm in which she is a partner.
Required:
Calculate the income tax payable by Alice for 2014/15.
Solution

Earned income
Trading profits
Unearned income
Bank interest (gross)
Total income
Less: Qualifying loan interest
Net income
Less: PA
Taxable income
Analysis of income

Savings income
Other income
Tax
%
Other income
Savings income

Less: Tax paid at source
Income tax payable/(repayable)

6 Donations to Charities
6.1 Payroll Gifts

< Where an employer sets up an approved payroll giving
scheme, employees may treat gifts to charity that are made
out of their salaries as allowable expenses of employment for
income tax purposes.
< Although the relief is strictly given as a deduction from
employment income in the income tax computation, relief is
actually given at source under PAYE (i.e. the employer deducts
the gift(s) from the employee's salary before the salary is
taxed at source.)
< The payroll gifts deducted must be authorised by the
employee and paid to the designated charity (or charities)
through an HMRC-approved agent.
< There is no limit to the amount an employee can give in each
tax year.
6.2 Donations Under the Gift Aid Scheme

< Any taxpayer, irrespective of the composition of his total
income, can make donations to charity under the gift aid
scheme. The donations can be one-off single payments or a
series of payments over time.
< Any amount can be donated in a tax year and attract tax relief.
< Strictly speaking, gift aid donations to charity rank as
deductions from total income like qualifying loan interest (see
s.5.1). However, the UK tax system deals with the relief in
different ways as follows:
= Basic rate taxpayers20% relief is given at source when
the payment is made (i.e. taxpayer only pays the net
amount (80%) to the charity and the payment is ignored
in the income tax computation as complete relief has been
given at source).
= Higher and additional rate taxpayers20% relief given at
source (as above), but higher and additional rate relief is
given in the income tax computation by "extension" of the
higher and additional rate bands (see s.6.3).
< Charities, as non-tax payers, are entitled to the gross amount
of the donations. They reclaim direct from HMRC the basic rate
tax relief given at source to the donors.

6.3 Extended Basic and Higher Rate Relief

(EBHR)
< Where the donor taxpayer's taxable income before considering
higher rate relief for gift aid is more than 31,865the normal
higher rate threshold for 2014/15the gift aid donations
attract higher rate relief by extending the basic rate band.
< Similarly, if the donor taxpayer's taxable income before
considering additional rate relief for gift aid is more than
150,000the normal additional rate threshold for 2014/15
the gift aid donations attract additional rate relief through
extending the higher rate band.
< Extension of the basic and higher rate bands is applied by
adding the gross amount of the gift aid paymentthe actual
amount paid 10080to 31,865 and 150,000, thereby
raising the starting point for higher and additional rate tax.
Thus higher and additional rate relief for the payment is given
by taxing an equivalent amount of income at 20% or 40%
(instead of 40% or 45%).
< If the raised thresholds affect dividend income (as opposed to
savings or other incomes), the adjusted rates will be 10% or
32.5% (instead of 32.5% or 37.5%).

Example 6 Relief for Charitable Donations
Katherine and Simon are husband and wife, both aged 33 years. The following information
relates to 2014/15:
Katherine Simon
Salaries from employment 20,000 50,000
Payroll gift to charity 1,000
Gift aid donation to charity 800 1,600
The amounts paid to charity under both the payroll giving and gift aid schemes are the actual
amounts paid, where appropriate net of 20% tax relief at source.
Required:
Calculate the income tax liability of Katherine and Simon for 2014/15.
Solution
Income tax computations, 2014/15
Katherine Simon

Earned income
Employment salaries
Less: Payroll gift
Less: PA (W1)
Taxable incomes (= other income)
Tax
%
Other income
Basic rate
Extended basic rate (W2)
Higher rate
Income tax liabilities
Workings
(1) Adjusted net income for personal allowance
K S

Net income
Less: Gross gift aid
Adjusted net income
(2) Extended basic rate bandSimon

Normal higher rate threshold
Add: Gross gift aid

Revised threshold

6.4 Gift Aid and Personal Allowance

< A gift aid payment is strictly a deduction from total income
because it is deductible irrespective of the composition of the
taxpayer's total income (see s.6.2). This is not, however, how
the tax relief is normally given (see s.6.3).
< The strict treatment of gift aid is, however, applied for the
specific purpose of determining eligibility for the full amount of
PA. This matters in two circumstances:
= the donor has net income exceeding 100,000; or
= the donor, being born before 6 April 1948, is entitled to Adjusted net income
the higher PA and his net income exceeds 27,000. is net income less the
< Where gift aid payments are made, adjusted net income gross amount of gift
(instead of net income) must be used to determine whether aid paid.
the full PA entitlement is available.
Example 7 Gift Aid and Higher PA
Donald was born in 1946. His net income for 2014/15, ignoring a payment of 800 to a
charity made under gift aid scheme, is 28,900.
Required:
Calculate his taxable income for 2014/15.
Solution

Net income
Less: PA
Net income
Less: Gift aid (gross)
Adjusted net income

Less: Income limit
Taxable income

7 Pensions
7.1 Types of Pension

7.1.1 State Pension (the National Insurance Retirement Pension)
< A person's state pension is funded from national insurance
contributions payable by employees, their employers and
the self-employed. (See Session 17 for details of national
insurance).
< National insurance contributions do not normally rank as a
deductible payment for income tax purposes. However, income
(or corporation) tax relief is given, as a business expense, for
the contributions paid by employers as these represent an
additional cost of employing an individual in a business.
< The annual pension received is treated as taxable earned
income of the retired person.
7.1.2 Private Pensions

< There are two types of private pension schemes; occupational
pensions and personal pensions:
Occupational pensions (i.e. a pension Personal pensions (i.e. a pension

scheme run for the employer's own scheme funded by an individual for
staff and partly or wholly funded by his own benefit)
the employer)
Usually available to all staff, but Available to any person even

membership not obligatory if already a member of an
occupational pension scheme
Tax relief for contributions into a registered pension scheme

(i.e. a scheme approved by HMRC)
Pension received on retirement usually taken either wholly as an annuity

(taxable) or partly as a lump sum (tax exempt) and partly as an annuity
(taxable). The tax-free lump sum cannot exceed 25% of the individual's total
pension fund available at the date of retirement.

7.2 Relief for Contributions Paid Into Personal

Pension Schemes
< An individual policyholder can claim income tax relief for the
contributions he makes into a personal pension scheme (PPS)
up to 100% of the amount of his relevant earnings for the tax
year in which the contributions are paid.
< Relevant earnings of the tax year are those liable to UK tax
and include:
= employment incomespay and benefits;
= tax adjusted trading profits arising from a
self-employment; and
= net rents from the letting of furnished holiday
accommodation.
< Contributions are paid net of 20% tax relief at source, even if
the policyholder is a non-taxpayer.
< If the taxpayer is not entitled to higher or additional rate relief,
the contributions are ignored in the personal tax computation.
< If higher or additional rate relief is appropriate, this relief is
given by EBHR in the tax computation (as for gift aid).
7.3 Personal Pension Contributions

and Personal Allowance
< Strictly, personal pension contributions should be a deduction
from net relevant earnings in the income tax computation.
However, as explained (in s.7.2) this is not how the tax relief
is given.
< As already explained in relation to gift aid payments (see
s.6.4), adjusted net income must be used to determine
whether the full amount of PA is awarded. This principle
also applies where the taxpayer pays personal pension
contributions (i.e. adjusted net income is net income less the
gross equivalent of personal pension contributions paid).
If both gift aid and personal pension contributions are paid, then both
amounts (grossed up) must be deducted from net income.

Example 8 Relief for Pension Contributions
Parks is a single man born in 1975. He is not enrolled in an occupational pension scheme but
is a member of a personal pension scheme. The following figures relate to him for 2014/15:

Employment incomesalary 160,000
Personal pension contributions paid in 2014/15 38,000
Required:
Calculate Parks' income tax liability for 2014/15.
Solution
Income tax liability 2014/15

Earned income
Employment income = net income
Less: PA (W1)
Taxable income (= other income)
Tax
%
Other income basic rate
EBHR (W2)
higher rate
EBHR (W2)
Workings
(1) Personal allowance

Net income
Less: Gross personal pension contributions
Adjusted net income
(2) Extended basic/higher rate relief
Higher rate Additional rate

Normal threshold
Add: Gross personal pension contributions
Revised threshold

7.4 Relief for Contributions Paid Into

Occupational Pension Schemes
< An employee who is a member of his employer's occupational
pension scheme (OPS) can claim income tax relief on the
same basis as an individual claiming relief for personal pension
contributions (i.e. relief given for contributions up to 100% of
his relevant earnings for the particular tax year).
< However, unlike PPS relief:
= Contributions are paid gross into the scheme (i.e. no basic
rate relief is given at source); and
= Tax relief at all rates is given by deducting the contributions
from the employee's employment income.
< Additionally, employers make contributions into occupational
pension schemes. Their contributions are:*
= A tax deductible trading expense for determining the income
or corporation tax on trading profits;
= Treated as tax-free income of the employee (i.e. an exempt
benefit for income tax purposes).
*Employers can also make contributions into personal pension

schemes. In this case the tax arrangements are identical to those
just described for contributions into occupational schemes.

Example 9 Occupational Pension Contributions
Facts as for Example 8, except Parks was a member of his employer's occupational pension
scheme. The following figures relate to him for 2014/15:
Employment income
Salary 126,500
Employer's contributions into occupational pension scheme 28,500
155,000
Employee's contributions paid into occupational pension scheme 19,000
Required:
Calculate Parks' income tax liability for 2014/15.
Solution
Income tax liability 2014/15

Earned income
Employment income:
Salary
Less: Employee's pension contributions
Benefit = employer's pension contributions

Less: Exemption

Less: PA
Taxable income (= other)
%
Other income basic rate
higher rate

7.5 People With Relevant Earnings Not

Exceeding 3,600
< Individuals who contribute to a personal or occupational
pension scheme can obtain tax relief (limited to the basic rate
of 20%) at source on contributions up to 3,600 (gross) per
tax year if:
= they do not have any relevant earnings (e.g. a person who
is working abroad and whose earnings are not taxable in the
UK); or
= relevant earnings do not exceed 3,600.
7.6 Annual Allowance

< The annual allowance is the total pension input that qualifies
for income tax relief in a tax year.
Total pension inputthe sum of all the contributions paid by an

individual and his employer into personal and occupational schemes.
< The annual allowance for 2014/15 is 40,000 plus the unused
annual allowance brought forward for the three previous tax
years (2011/12, 2012/13 and 2013/14).
< The limit in these earlier years was 50,000, so the unused
allowance for an earlier tax year is 50,000 less the total
pension input for that year.
< Unused allowance cannot arise for any tax year in which the
taxpayer is not a member of a registered pension scheme.
< If the annual allowance includes unused allowance from earlier
tax years, pension contributions must be matched with the
current year's allowance and then with the unused amounts on
a FIFO basis (i.e. earliest year first).
< As unused allowance cannot be carried forward for more
than three tax years, a taxpayer with unused allowance must
make pension contributions in the current tax year of at least
40,000 plus the unused allowance of the earliest tax year if
potential tax relief is to be maximised.
7.7 Annual Allowance Charge

< If the total pension input in a tax year exceeds the annual
allowance (including any unused amounts) available for that
tax year, the excess does not attract tax relief. This excess
pension input problem is addressed by:
= initially giving relief for all contributions paid by the
individual and his employer; and
= treating the excess as additional taxable income chargeable
to income tax at the taxpayer's marginal rate of tax
(i.e. 20%, 40% or 45%).

Example 10 Unused Annual Allowance
Jack, born in 1975, is self-employed and has been a member of a registered personal pension
scheme since 2004.
He paid pension contributions prior to 6 April 2014 as follows:

2011/12 28,000
2012/13 40,000
2013/14 32,000
His income for 2014/15 is:

Tax adjusted trading profits 160,000
Bank interest received (gross) 1,000
Required:
(a) Calculate the income tax liability of Jack for 2014/15 assuming he pays sufficient
personal pension contributions in 2014/15 to utilise the maximum pension
annual allowance available to him for that year.
(b) Advise Jack as to the minimum amount of personal pension contributions
he should pay in 2014/15 if he is not to waste any of his pension annual
allowance available for 2014/15.
Solution
(a)

Earned income
Adjusted trading profits
Unearned income
Bank interest received (gross)
Less PA (W1)
Taxable income
Analysis of income: Dividends
Savings income
Other
%
Tax: (W3)
Other income:
Savings income

Example 10 Unused Annual Allowance (continued)
Workings

Net income
Less: Gross personal pension contributions (W2)
Adjusted net income
(2) Personal pension contributions

Because Jack has unused annual allowances brought forward, the maximum tax
effective pension contributions are:

Current annual allowances for 2014/15
+ unused annual allowances b/f
2011/12
2012/13
2013/14
(3) Extended basic and higher rate bands

Normal thresholds
Add: Gross personal pension contributions (W2)
Revised threshold
(b) Minimum tax effective personal pension contributions for 2014/15

Example 11 Pension Relief With Excess Pension Input
Kenneth, born in 1952, is self-employed. In 2014/15 he paid personal pension contributions (net)
of 48,000. His pension annual allowance is 40,000 and he does not have any unused annual
allowances brought forward at 6 April 2014. His only income for 2014/15 is tax-adjusted trading
profits of 220,000.
Required:
Calculate the income tax liability of Kenneth for 2014/15 taking into account the effect
of the overpayment of pension contributions for 2014/15.
Solution
Earned income
Adjusted trading profits = total = net income
Less: PA (W1)
Taxable income (= other income)

%
Tax: (W2)
Other income:
Add: Annual allowance charge

Workings

Net income

Adjusted net income


Normal thresholds
Add: Gross personal pension contributions (W1)
Revised threshold
7.8 Lifetime Allowance Charge

< When a person retires and withdraws his pension benefits,
and the value of those benefits exceeds the lifetime allowance
(1,250,000 for 2014/15), any value in excess of this Lifetime allowance
allowance limit will be additionally taxed as follows: charge will not
be examined
= Amount taken as a tax-free lump sumat 55%;
computationally.
= Amount taken as a taxed annual pensionat 25%.

8 Married Couples and Family

< For the purpose of this section, a married couple means either a
husband and wife or same-sex partners in a civil partnership.
8.1 Utilisation of Personal Allowances and Basic

Rate Bands
< As separate tax payers, each spouse is entitled to a full
or partial personal allowance (unless adjusted net income
exceeds 120,000) and the use of the basic rate tax band of
31,865 each.
< Full utilisation of these reliefs is achieved by:
1. Both spouses working. In this context, if a husband is
running his own business and his wife can only work part-
time in the business (due to parenting commitments) her
employment can produce a double tax savingonce for
the husband as an allowable trading expense (provided
that remuneration is reasonable for duties undertaken) and
again because her salary is wholly or partly sheltered from
tax by her PA.
*HMRC does not
Alternatively, where participation of both spouses in the normally question
business is significant and they are business partners or the profit-sharing
shareholder-directors of a company, exposure to higher or arrangement for a
additional rate income tax is minimised by an equal split of trading business.
remuneration.*
2. An appropriate division of ownership of income-generating
investmentsrented property, shares and bonds, bank and
building society accounts and National Savings products. If
a single asset is jointly owned, income is presumed to be
shared 50:50. A joint declaration can, however, be made
to split income according to actual ownership.
8.2 Tax-Free Investments

< Exposure to tax can be minimised by each spouse making
tax-free investments, including:
= a maximum tax-free annual investment in a New Individual
Savings Account (see Session 3);
= holding the maximum entitlement to exempt National
Savings Certificates (see Session 3);
= the maximum affordable contributions into a registered
personal or occupational pension scheme.
8.3 Gifts to Charity

< If charitable donations are being made by payroll giving or
gift aid, they should be made by the spouse/partner liable to
higher and additional rate tax.

8.4 The High Income Child Benefit Charge

< Child benefit is a payment that can be claimed by a person
responsible for a child up to the age of 16 (or older if in full-
time education or training). The benefit is payable irrespective
of the recipient's level of income, but only can be claimed by
one person (usually, but not necessarily, the child's mother).
< From January 2013, a tax charge has been introduced in an
attempt to restrict the value of this claim so that the benefit is
targeted more to lower-income households. This is called the
High Income Child Benefit Charge (or, as shown on the rates
and allowances sheet, the Child Benefit Income Tax Charge).
< The charge is made where an individual has an adjusted
net income of over 50,000 in the tax year and is in receipt
of child benefit, or is living with a partner in receipt of child
benefit. The charge is made on the partner with the higher
adjusted net income.* *Adjusted net income
< The tax charge is calculated as 1% of the chid benefit received is after loss relief,
for each 100 of adjusted net income in excess of 50,000. qualifying interest
Where adjusted net income is in excess of 60,000, all of the payments, charitable
value of the child benefit is therefore charged. gift aid payments and
pension contributions,
< Liability to the tax charge should be declared by self- and has the same
assessment in the tax return, with payment due dates and meaning as for
payments on account the same as for income tax. establishing personal
< In order to simplify matters, there is an election available for allowance restrictions.
a person eligible to receive child benefit to not have it paid.
This is usually appropriate where the potential claimant has
a certain income in excess of 60,000 and the charge would
negate the relief of any claim.
"Partner" is a much wider term than marital spouse or civil partner

and refers to people living together as if they were married.
That the charge can (and often will) be made on a person other than
the child benefit claimant.

Example 12 High Income Child Benefit Charge
John and Norma live together and have two children under 16. During the year 2014/15,
Norma received child benefit payments totalling 1,752.
Required:
Calculate the High Income Child Benefit Charge given the following income levels in
2014/15, and state who bears the charge:
John Norma

(a) 50,000 50,000
(b) 53,000 52,000
(c) 20,000 56,000
(d) 65,000 10,000
Solution
(a)
(b)
(c)
(d)

Summary
< Earned income can be derived from employment, pensions, trading profits or rent from
furnished holiday accommodation (FHA). Tax on earnings from employment and pensions is
typically collected under PAYE. Tax on other earnings is typically collected by self-assessment.
< Unearned income can be derived from rents (other than FHA) and interest and dividends
arising in the UK. Interest is received gross from investments in NS&I and UK government
gilts. Other interest is taxed at source at 20%. Dividends are deemed to have 10% tax
deducted at the source.
< Rents are gross (accrued) less allowable expenses.
< Personal allowances are set out in the tax rates and allowances provided in the examination;
only rules for restricting it at income limits need to be learned.
< Income tax rates change based on income level and type of income. Savings and other
income are taxed at the same rates except that savings are taxed at only 10% for low-
income pensioners, etc.
< Deductions from total income (i.e. before personal allowance) include reliefs for:
interest on qualifying loans (e.g. purchase of partnership interest); and
applicable trading losses. Unrelieved trading losses can be carried forward, so interest
deductions should be applied before trading losses.
< Any amount of charitable donation made under gift aid attracts tax relief. For basic rate
taxpayers, 20% relief is given at source and the income tax computation ignores the gift.
For higher and additional rate taxpayers, relief is given by extension of rate bands when
computing tax liability.
< Pensions received are taxable as earned income except a lump sum (up to 25% of fund) is
non-taxable.
< Contributions to an occupational scheme are deducted from employment income. Personal
pension contributions are paid net of 20% tax relief. Higher or additional rate relief is given
as for gift aid.
< Amounts in excess of current year annual allowance plus unused allowances (up to three
years) do not attract tax relief.
< Each spouse is a separate taxpayer. Income from jointly-owned assets is split 50:50 unless
a joint declaration is made to split it according to actual ownership.
< Charitable donations should be made by the spouse/partner subject to higher tax rate.
< A High Income Child Benefit Charge acts to claw back the benefit if one partner has relevant
earnings in excess of 50,000.

Session 2
Session 2 Quiz
Estimated time: 1.5 hours
1. Explain what is meant by "taxable income" and "income tax payable". (1.1, 1.2)
2. State the TWO principal types of employment income. (2.1)
3. Explain what is meant by "adjusted trading profit". (2.1)
4. State which forms of interest are received gross by a personal taxpayer. (2.2)
5. Define "gross equivalent" of:
= bank interest received; and
= dividends received. (2.2)
6. State how married couples are taxed in the UK. (2.4)

7. State what is meant by:
= actual basis of assessment; and
= current year basis of assessment. (2.5)
8. State what is the personal allowance and whether it is the same for all taxpayers. (3.1)
9. Define "savings income" and "other income" in determining the composition of taxable
income. (4.1)
10. State why is it necessary to separately distinguish dividends, savings income and other
income for the purpose of calculating income tax liability. (4.1)
11. Give an example of "qualifying loan interest" and state how income tax relief is given
for it. (5.1, 5.2)
12. State the TWO ways by which individuals can donate to charities and obtain tax
relief. (6.1, 6.2)
13. State the purpose of "extended basic and higher rate relief". (6.3)
14. State the TWO principal forms of private pension schemes. (7.1)
15. State THREE types of relevant earnings. (7.2)
16. State how basic rate and higher rate reliefs are given for contributions made into a personal
pension scheme. (7.2)
17. State how tax relief is given for contributions by an employee into an occupational pension
scheme. (7.4)
18. State how employer's contributions into an occupational pension scheme are treated for tax
purposes by:
= the employer; and
= the employee (7.4)
19. "HMRC does not normally question the profit-sharing arrangement for trading business."
Explain how this may be useful for a married couple planning their tax affairs. (8.1)
Study Question Bank

Estimated time: 30 minutes
Priority Estimated Time Completed

Q2 Michael 30 minutes
Additional
Q3 Long Life
Q4 The Pike Family

EXAMPLE SOLUTIONS
Solution 1Personal Allowance

(1) (2) (3)
Total income = net income 60,000 110,000 120,000
(1) PA (10,000)
(No restriction as net income < 100,000)
(2) PA 10,000
Less: 2 (110,000100,000)
1
(5,000)
5,000 (5,000)
(3) PA 10,000
Less: 2 (120,000100,000)
1
(10,000)
0 0
Taxable income 50,000 105,000 120,000
Solution 2Persons Born Before 6 April 1948

(1) (2) (3)
Net income 16,000 27,500 32,000
(1) Higher PA (10,500)
no restriction as net income < 26,100
(2) Higher PA 10,500
Less: 2 (27,50027,000)
1
(250)
10,250 (10,250)
Minimum amount = 10,000
(3) Higher PA 10,500
Less: 2 (32,00027,000)
1
(2,500)
8,000
Minimum amount = 10,000 (10,000)
Taxable income 5,500 17,250 22,000

Solution 3Income Tax Payable
(a) Higher rate taxpayer
Income Tax Computation 2014/15

Earned income
Employment income (Note 1) 30,600
Unearned income
Dividends (gross)
1,800 100
90 (Note 1) 2,000
Interest (gross)
8,000 100
80 (Note 1) 10,000
12,000
Total income = net income 42,600
Less: Personal allowance (Note 3) (10,000)
Taxable income 32,600
Analysis (Note 2)
1 = dividends (= top slice) 2,000
2 = savings income (interest) 10,000
3 = other (= balance of the taxable income) 20,600
32,600
Income Tax
%
Other income basic rate 20,600 20 4,120
Savings income basic rate 10,000 20 2,000
Dividends basic rate 1,265 10 126
31,865
Dividends higher rate 735 32.5 239
32,600
Income tax liability 6,485
Less: Tax credits
Dividends (10% 2,000) 200
Interest (20% 10,000) 2,000
PAYE 4,232
(6,432)
Income tax payable 53
Notes:
1. Incomes must be included in the tax computation inclusive of any tax
deducted at source (i.e. gross). Investment incomes taxed at source must
be "grossed up" at the appropriate rate.
2. Dividends = top slice above savings income and then other income.
3. PA and other deductions made in arriving at taxable income are deducted in
the most favourable way (i.e. against other income, savings income and then
dividends). PA is not restricted as net income is less than 100,000.

Solution 3Income Tax Payable (continued)
(b) Additional Rate Taxpayer

Earned income
Employment income 143,000
Unearned income
Dividends (gross) 1,800 90
100
2,000
Interest (gross) 8,000 80
100
10,000

Less: Personal allowance* 0
Analysis *No PA is available as

net income exceeds
100,000 + (10,000
1 = dividends (= top slice) 2,000 2) = 120,000
2 = savings income (interest) 10,000
3 = other (= balance of the taxable income) 143,000
155,000
%
Income tax
higher rate 111,135 40 44,454
143,000
Savings income higher rate 7,000 40 2,800
150,000
Savings income additional rate 3,000 45 1,350
153,000
Dividends additional rate 2,000 37.5 750
155,000
Less: Tax credits
Dividends (10% 2,000) 200
Interest (20% 10,000) 2,000
PAYE 50,798
(52,998)
Income tax payable 2,729

Solution 4Basic Rate Taxpayer10% Rate
on Savings

Earned income
Pensionsstate 5,587
Pensionsprivate 5,500
11,087
Unearned income
Dividends (gross) 1,800 10090 2,000
Interest Building Society (gross) 3,600 100
80 4,500
6,500
Less: Personal allowance (net income < 27,000) (10,500)
Analysis

Dividends = top slice 2,000
Savings income 4,500
Other income ( 2,880) 587
7,087
As other income does not exceed 2,880, savings income of 2,880 587 = 2,293
will be taxed at the lower rate of 10%.
Income tax
%
Other income basic rate 587 20 117
Savings income lower rate 2,293 10 229
2,880
basic rate 2,207 20 442
5,087
Dividends 2,000 10 200
Income tax liability 988
Less Dividends (10% 2,000) 200
Interest (20% 4,500) 900
PAYE 117
(1,217)
Income tax payable/(repayable) (229)

Solution 5Relief for Qualifying Loan Interest

Earned income
Trading profits 48,000
Unearned income
Bank interest (gross) 1,000
Total income 49,000
Less: Qualifying loan interest (2,000)
Net income 47,000
Less: PA (net income < 100,000) (10,000)
Analysis of income

Other income 36,000
37,000
Tax
%
higher rate 4,135 40 1,654
Savings income higher rate 36,000
1,000 40 400
37,000
Less: Tax paid at source on interest: (200)
20% 1,000
Income tax payable/(repayable) 8,227

Solution 6Relief for Charitable Donations
Income tax computations, 2014/15
Katherine Simon

Earned income
Employment salaries 20,000 50,000
Less: Payroll gift (1,000)
Total income = net income 20,000 49,000
Less: PA (W1) (10,000) (10,000)
Taxable incomes (= other income) 10,000 39,000
Tax
%
Other income
Basic rate 20 10,000 2,000 31,865 6,373
Extended basic rate (W2) 20 2,000 400
33,865
Higher rate 40 5,135 2,054
39,000
Income tax liabilities 2,000 8,827
Workings
(1) Adjusted net income for personal allowance
K S

Net income 20,000 49,000
Less: Gross gift aid 800 100
80 (1,000)
1,600 100
80 (2,000)
Adjusted net income 19,000 47,000
As these amounts are less than 100,000, full PA is available.
(2) Extended basic rate bandSimon
As taxable income (39,000) exceeds 31,865, the gift aid attracts

higher rate relief.
*No higher rate
relief is available for
Normal higher rate threshold 31,865 Katherine's gift aid
payment as her taxable
Add: Gross gift aid* 1,600 100
80 2,000 income before the
Revised threshold 33,865 gift aid is less than
31,865.

Solution 7Gift Aid and Higher PA

Net income (ignoring gift aid payment) 28,900
Less: PA 10,500
Net income 28,900
Less: Gift aid (gross) (1,000)
Adjusted net income 27,900
Less: Income limit (27,000)
900 = (450)
Minimum PA = 10,000 10,050 (10,050)
Solution 8Relief for Pension Contributions

Income tax liability, 2014/15

Earned income
Employment income = net income 160,000
Less: PA (W1) 10,000 (112,500100,000) (3,750)
Taxable income (= other income) 156,250
Tax
%
EBHR (W2) 47,500 20 9,500
79,365
higher rate 70,635 40 28,254
150,000
EBHR (W2) 6,250 40 2,500
156,250
Workings

Net income 160,000
38,000 80
100 (47,500)
As this is greater than 100,000 and less than 120,000, PA is restricted.
(2) Extended basic/higher rate relief
As taxable income exceeds 150,000, the personal pension contributions attract both
higher and additional tax relief

Normal threshold 31,865 150,000
Add: Gross personal pension contributions (W1) 47,500 47,500
Revised threshold 79,365 197,500

Solution 9Occupational Pension Contributions
Income tax liability, 2014/15

Earned income
Employment income:
Salary 126,500
Less: Employee's pension contributions (19,000)
107,500
Benefit = employer's pension contributions 28,500
Less: Exemption (28,500)
0
Total income = net income 107,500 *Adjusted net income
Less: PA* (10,000 (107,500100,000) (6,250) = net income as
Taxable income (= other) 101,250 contributions into
occupational pension
% schemes are paid
gross not net. As
this is greater than
higher rate 69,385 40 27,754 100,000 but less
101,250 than 120,000, PA is
restricted.

Solution 10Unused Annual Allowance
(a) Income tax computation, 2014/15

Earned income
Adjusted trading profits 160,000
Unearned income
Bank interest received (gross) 1,000
Less PA (W1) (10,000)
Analysis of income: Dividends 0
Other 150,000
151,000
%
Tax: (W3)
Other income: Basic rate 31,865 20 6,373
EBHR 65,000 20 13,000
96,865
Higher rate 53,135 40 21,254
150,000
Savings income EBHR 1,000 40 400
151,000

Solution 10Unused Annual Allowance (continued)
Workings

Net income 161,000
Less: Gross personal pension contributions (W2) (65,000)
As this is less than 100,000, a full PA is available.
(2) Personal pension contributions

Because Jack has unused annual allowances brought forward,
the maximum tax effective pension contributions are:
*In order to utilise

the available annual
Current annual allowances for 2014/15 40,000 allowance for 2014/15,
+ unused annual allowances b/f Jack must pay personal
pension contributions
2011/12 50,000(28,000 100
80) 15,000
of 52,000 (net of 20%
2012/13 50,000(40,000 100
80) 0 tax relief at source) in
2013/14 50,000(32,000 100
80) 10,000 2014/15.
65,000*

Normal thresholds 31,865 150,000
(b) Minimum tax effective personal pension contributions for 2014/15

The unused annual allowance of 2011/12 cannot be used in 2015/16, so the
minimum amount of personal pension contributions that Jack must pay in 2014/15
in order not to waste any annual allowance is 80% 55,000 = 44,000 where
the figure of 55,000 comprises the current annual allowance of 40,000 plus the
2011/12 unused annual allowance of 15,000.

Solution 11Pension Relief With Excess Pension Input

Earned income
Adjusted trading profits = total = net income 220,000
Less: PA (W1) 0
Taxable income (= other income) 220,000
%
Tax: (W2)
Other income: Basic rate 31,865 20 6,373
EBHR 60,000 20 12,000
91,865
Higher rate 58,135 40 23,254
150,000
EBHR 60,000 40 24,000
210,000
Add: Annual allowance charge
(60,00040,000) at appropriate marginal rate
Additional rate 20,000 45 9,000
230,000
Workings

Net income 220,000
48,000 100
80 (60,000)
As this exceeds 120,000, no PA is available.

Normal thresholds 31,865 150,000

Solution 12High Income Child Benefit Charge
(a) Neither partner has earnings in excess of 50,000 so no charge arises.
(b) Both partners have income in excess of 50,000, but John has the higher income and he
bears the tax charge, calculated as 1,752 1% ((53,00050,000)/100) = 526.
(c) Norma has the higher income, which is between 50,000 and 60,000, so suffers a tax
charge of 1,752 1% ((56,00050,000)/100) = 1,051 .
(d) John has the higher income, which exceeds 60,000, so bears a charge of 100% of the
child benefit received by Norma, i.e. 1,752.

Session 4
Employment Income
FOCUS
B. Income Tax and NIC Liabilities

2. Income from employment
b) Recognise the basis of assessment for employment income.
c) Recognise the income assessable.
d) Recognise the allowable deductions, including travelling expenses.
e) Discuss the use of the statutory approved mileage allowances.
g) Identify P11D employees.
h) Explain and compute the amount of benefits assessable.
i) Explain the purpose of a dispensation from HM Revenue & Customs.
Session 4 Guidance
Start this session by noting the elements that make up the pro forma calculation of net income
(s.1.2) and attempt Examples 1 and 2.
Work through the section on allowable expenses (s.2.3).
Be aware that one of the most popular topics with the examiner is the calculation of employee
benefits (s.3). It is highly likely to feature as part of the income tax question and require separate
workings. (It may also feature as a question in its own right.)

VISUAL OVERVIEW
Objective: To describe the detailed rules for assessing incomes (i.e. pay and benefits)
arising from employment.
EMPLOYMENT INCOME
Types of Income
Pro Forma Computation
EARNINGS (OR PAY) BENEFITS

Basis of Assessment Summary
Expense Allowances and Exempt Benefits
Reimbursed Expenses P11D and Non-P11D Employees
Allowable Expenses Cash Equivalent Values
of Employment
Summary of Taxable Benefits
Claiming Tax Relief
Living Accommodation
for Expenses
Job-Related Living Accommodation
Vehicles and Fuel
Loans and Loan Interest
Use of Other Assets
Transfers of Used Assets
Session 4 Guidance
Recognise the benefits that are assessable on all employees and the cash equivalent value
on which they are assessed (s.3.5). Benefits that are frequently examined are:
Living accommodation (s.3.6);
Vehicles and fuel for private purposes (s.3.8);
Loans (s.3.9); and
Use of other assets (s.3.10).
Refer back to section 3 whenever you come across a benefit in a particular practice question until
you have learnt the rules.

Session 4 Employment Income F6 Taxation (UK)
1 Employment Income
1.1 Types of Income

Employment income is divided into two main elements
for tax purposes:
1. General earnings.
2. "Specific employment income" (e.g. gains on share
incentive schemes).
General earnings consist of remuneration less allowable
expenses of employment. Remuneration may be paid in:
Specific employment
monetary form (i.e. cash); and incomes are not
non-monetary form (i.e. taxable benefits). examinable in
Paper F6.
1.2 Pro Forma Computation

Salary x
Less: Employee contributions into registered
occupational pension schemes x
Payroll gifts to charity x
(x)
x
Bonus x
Commission x
Expense allowances (or reimbursed expenses) x

Less: Attributable allowable expenses (x)
x
Taxable benefits x
Net income from employment x
Pension income is taxed in the same way as earnings

from employment.

F6 Taxation (UK) Session 4 Employment Income
2 Earnings (or Pay)
2.1 Basis of Assessment

Earnings are primarily wages and salaries, but also include
commissions, bonuses, gratuities, expense allowances and
reimbursed expenses.
These amounts are assessed on an actual receipts basis.
This is normally the earlier of:
the date payment is made; and
the date on which the taxpayer becomes entitled *These dates are
to the amount.* usually the same.
Example 1 Employment Income
Martin is an employee of Sword Ltd, which prepares accounts to

30 September annually. Details of Martin's remuneration package
are as follows:
SalaryPaid monthly on the last Friday of each month:

To 30 September 2014 3,000 per month
30 September 2015 3,500 per month
BonusIn respect of year ended 30 September 2013
and paid with the December 2013 salary 5,000
In respect of year ended 30 September 2014
and paid with the December 2014 salary 6,000
Required:
Calculate the amount assessable on Martin for 2014/15.
Solution

Salary
Bonus
A more complex version of this principle applies to company

directors. Since such people are sometimes in a position to
award earnings to themselves at times and in ways that could
avoid or delay the payment of the tax, they are assessable on
the earliest of:
date of receipt (as explained previously);
end of the company's accounting period, if voted during the
accounting period;
when voted, if voted after the end of the accounting period
to which they relate.

Example 2 Employment Income

Assessment
Eric is a director of Idle Ltd, which prepares accounts to
31 December annually. Eric was paid remuneration as follows.
(i) A salary on the last day of each month at the rate of
6,000 a month.
(ii) Director's fees of 20,000 on 30 April 2015 in respect of
the year ended 31 December 2014. The fees were voted
to Eric on 20 December 2014.
(iii) A performance-related bonus of 100,000 on 30 June 2015
in respect of the year ended 31 December 2014. This was
voted to Eric on 8 March 2015.
Required:
Calculate the amount assessable on Eric for 2014/15, clearly
stating the dates on which the remuneration is deemed to be
received.
Solution
Deemed received
Salary
Fees
Bonus
2.2 Expense Allowances and Reimbursed

Expenses
Generally these are taxable in the hands of an employee
unless the sum is applied in discharging allowable expenses
of employment.
2.3 Allowable Expenses of Employment

2.3.1 Summary
An employee may claim tax relief as a specific expense
deduction for:
his own contributions into a registered occupational pension
scheme (see Session 2);
payroll gifts to charity (see Session 2);
professional subscriptions to approved bodies;
entertaining, provided the actual entertainment costs
are treated as disallowable expenses in the hands of the
employer;
qualifying travel costs (see s.2.3.2);
use of own car for business purposes (see s.2.3.3);
working from home (see s.2.3.4);
other expenses (e.g. accommodation and subsistence),
provided wholly, exclusively and necessarily incurred in the
performance of the duties of the employment (see s.2.3.5).

2.3.2 Travel Costs

Travel expenses incurred by an employee are tax deductible
provided that they are:
necessarily incurred in the performance of the duties
of employment; or
incurred to enable an employee to travel to or from his
home to a temporary place of employment; or
incurred to enable an employee to travel between two
(or more) temporary places of employment, and the
employee works for the same employer at each location.
Home
Allowable Disallowable
Temporary place Allowable Normal place of

of employment (i.e. employment (i.e.
customer premises) employer's premises)
Allowable Allowable
Temporary place
of employment
The cost of regular commuting from the employee's home

to his permanent place of employment, even for exceptional
reasons (e.g. weekend working) and any cost incurred for
purely personal reasons (e.g. attending an out-of-hours
office party) are disallowable.
A place of temporary employment is one in which an employee
is expectedtoworkforacontinuousperiodof24months.
2.3.3 Use of Own Car for Business Purposes

Many employers reimburse their employees for the business
use of their own car rather than providing a company car.
Provided the mileage allowance is within the limit set by
applying the statutory mileage rates, no taxable benefit
in kind arises.*
*Statutory tax-free mileage rates are given on the rates and

allowances sheet. They are currently 45p per mile up to 10,000
miles and 25p per mile thereafter.

The operational effects of the scheme are:

If the actual allowance received exceeds the statutory limit,
the excess is taxable.
If no allowance is paid by the employer, an allowable
expense may be claimed = the statutory limit.
If the actual allowance received is less than the statutory
limit, the allowable expense claim is restricted to the excess
of the statutory limit over the actual allowance.
Example 3 Use of Own Car

Pam's employer does not provide company cars. Pam uses her own
car for work. During 2014/15, her travel comprised:
Miles
Home to normal place of work 5,000
Normal place of work to clients 9,000
Home to clients 3,000
Home to employer's Christmas party 200
Other personal travel 2,800
20,000
Required:
Show the assessable amount or allowable expense for
employment income purposes assuming that Pam's employer
pays her a business mileage allowance on the following bases:
(a) 50p per mile;
(b) 30p per mile;
(c) nil per mile.
Solution
(a) (b) (c)

Mileage allowance received:
Statutory amount:
Assessable amount/(allowable expense)
2.3.4 Working From Home

Employees who are required by their employers to work
from home can claim the following amounts as an allowable
expense of employment:
the cost of business telephone calls (but not rental charges)
from a private telephone;
other household costs (e.g. heating and lighting) up to 4 a
week (without evidence) and larger amounts (if justified by
evidence and calculations).
These tax reliefs may be claimed irrespective of whether the
employer has reimbursed the employee for these costs.

2.3.5 Other Expenses

"Wholly and exclusively incurred" implies that the entire
expense is related to the performance of the duties.
"Necessarily incurred" means the expense must be incurred to
perform the duties of the employment, and would be incurred
by any person carrying out those duties.
Taken as a whole, the "wholly, exclusively and necessarily"
rule means that:
Expenses tainted by duality of purpose (i.e. the reason for
incurring the cost was not solely to undertake the duties of
employment) cannot be treated as being wholly, exclusively
and necessarily incurred (e.g. lunches taken at work,
unless provided by an employer in a staff canteen, because
the main purpose is to eat rather than perform duties of
employment). However, in some cases, expenses tainted by
duality of purpose may be reasonably apportioned between
personal and business (e.g. a business trip extended to
incorporate a holiday).
Expenses incurred to put the person into a position to carry
out the duties of his employment are not allowable as they
were not incurred in the performance of the duties (e.g. the
costs of training to obtain a professional qualification where
paid by the employee himself).
2.4 Claiming Tax Relief for Expenses

The general rule for obtaining tax relief for allowable expenses
is that an employee must claim the allowable expenses when
making his annual tax return.
However, this process is simplified in practice where the expense:
Is one that is generally allowable in all employment
situations. In these cases, the employer is allowed to
deduct the amounts from salary before calculating the
tax to be deducted at source under PAYE (e.g. pension
contributions to registered occupational pension schemes
and payroll gifts to charities).
Is clearly allowable and the employer has negotiated a
dispensation with HMRC. In this case, because HMRC has
already agreed that the expense is tax deductible and so
the related expense allowance or reimbursement is not
taxable income:* *Dispensations are
particularly important
(i) the employer does not have to inform HMRC of the where employers pay
expense allowance or reimbursement paid to or on expense allowances or
behalf of the employee; and reimburse expenses
(ii) the employee does not have to make a claim in his that relate to the
tax return for the allowable expense. duties of employment
of many employees
of the business (e.g.
out-of-office travel and
subsistence costs).

3 Benefits
3.1 Summary
Three classes of benefit
Benefits assessable on Benefits assessable on P11D

Exempt benefits (see s.3.2)
all employees employees only (see s.3.3)
Only a limited selection All benefits are

of benefits are potentially taxable
potentially taxable
Assessed on cash equivalent values

(see s.3.4)
3.2 Exempt Benefits

Job-related accommodation (see s.3.7).
Subsidised canteen available to all staff.
Removal expenses up to 8,000 per move paid for by
an employer for a new employment position or when an
employee's job is relocated.
Incidental personal expenses paid by the employer while the
employee is required to stay away overnight on company
businessup to 5 per night in UK, 10 per night abroad
(e.g. telephoning home, newspapers, laundry). If the amount
received exceeds the 5 or 10 limit, the whole amount
received is then taxable.
Car parking spaces at or near place of work.
Use of a pool car (see s.3.8).
Use of van, unless private use is significant (see s.3.8).
Workplace nursery provision (or crche) on non-domestic
premises with registered providers of childcare.
Alternatively, weekly payments by an employer to enable an
employee to meet the costs of an approved childcare provider
are exempt as follows:
Basic rate taxpayers 55 per week
Higher rate taxpayers 28 per week
Additional rate taxpayers 25 per week
Contributions by employers into registered pension schemes.
Sport and recreational facilities for staff, provided that the
facilities are not available to the public generally.

Outplacement counselling services to employees after being

made redundant.
Employee liability and indemnity insurance.
Staff parties, etc provided cost per head does not exceed
150 per year.
Small loans (under 10,000 in total) from an employer
(see s.3.9).
Provision of one mobile telephone for exclusive use by the
relevant employee.
Provision of work buses, public bus fare subsidies and bicycles
and bicycle safety equipment aimed at encouraging employees
to get to work by means other than by use of their private cars.
Non-cash long-service awards provided the award is in respect
of at least 20 years' service and does not cost the employer in
excess of 50 per year of service.
Hospitality and other non-cash gifts received by virtue of
employment from a third party so long as the total value of the
gifts from any one source does not exceed 250 in the tax year
and the gifts are not made in recognition of the performance of
particular services in the course of the employment.
Travel expenses incurred where public transport is disrupted,
late-night journeys are required or a car-sharing arrangement
breaks down.
Entertainment provided for employees by third parties
(e.g. seats at sporting or cultural events).
Awards up to 5,000 under a staff suggestion scheme.
The costs of work-related training.
Air miles and the other loyalty awards acquired through
business travel, etc.
Provision of staff uniforms and protective clothing for
work purposes.
Routine health checks and screening.
Vouchers for eye tests and corrective spectacles for VDU use.
Long-service awards up to 50 per year of service, provided
service with same employer for at least 20 years.
Non-cash gifts provided by third parties (i.e. customers and
suppliers) not exceeding 250 per year.
3.3 P11D Employees

Cash earnings from employment are assessed on all
employees irrespective of the level of their remuneration.
All potentially taxable benefits are assessable only on P11D employees.

For non-P11D employees, the scope of the tax charge on

benefits is restricted to:
the use of accommodation; and
assets representing "money or money's worth"
(e.g. vouchers exchangeable for cash, goods or services).
P11D employees are:
all those that satisfy the "8,500 earnings test"; and
part-time company directors, irrespective of the level
of their earnings, possessing "material interests" in
the ordinary share capital in their companies.*
*A material interest
The 8,500 earnings test is satisfied if an employee's total
is 5% or more.
earnings (including potentially assessable benefits) before
deducting all allowable expenses (except contributions into a
registered occupational pension scheme and payroll gifts to
charity) are at the rate of 8,500 per year or more.
Example 4 Higher-Paid Status
Trevor is an employee of Mud Ltd. During 2014/15, his remuneration

comprised:

Salary 7,500
Potentially assessable benefit 1,000
Expense allowance 800
He also paid 5% of his salary into his company's registered

occupational pension scheme and had allowable hotel and travel
expenses of 700.
Required:
Show:
(i) whether Trevor is a P11D paid employee;
(ii) the amount assessable as employment income for
2014/15.
Solution
(i) Remuneration for higher paid employee status

Salary
Less: Pension contribution
Expense allowance
Potentially assessable benefit
Conclusion:
(ii) Employment income assessment

As above
Less: Other allowable expenses

3.4 Cash Equivalent Values

3.4.1 Cost to the Employer
This basis applies where the employer buys assets for or pays
expenses on behalf of an employee.
Cost to the employer (for the purpose of assessing a benefit)
is usually the full cost (including attributable VAT), although it
may be less than the amount that the employee would have
paid for the same goods or services (e.g. because an employer
obtains a bulk discount).
Where the goods or services provided are those that are
normally sold to the customers of the employing business,
thecost is only the marginal cost to the employer plus VAT
based on normal selling price (e.g. the cost of providing a
place at fee-paying school for the child of a teacher employed
at that school).
3.4.2 Annual Value

This basis applies where assets are made available for the
useof an employee with ownership retained by the employer
(e.g. company cars, accommodation, loans on beneficial
terms, etc.).
The precise value depends upon the asset being made available.
A cash equivalent value based on an annual value is restricted
on a time basis (i.e. n12) where the asset is not available for
a complete tax year.
3.4.3 Contributions by the Employee

Generally, the taxable cash equivalent value will be reduced by
contributions towards its provision made by the employee.
The main exception to this rule is the provision of fuel for the
private mileage of company cars and vans, where no reduction
is made unless the whole of the private cost is reimbursed.

3.5 Summary of Benefits Assessable

onAllEmployees
Benefit Cash equivalent value
U
se of living accommodation (excluding ancillary See s.3.6 and s.3.7
expenses).
Vouchers exchangeable for cash. Redemption value
V
ouchers for goods and services (e.g. voucher for a Cost to employer
clothing shop to buy clothes suitable for work).
Use of credit tokens (e.g. company credit card). Cost of goods and services
purchased (and cash withdrawn)
Discharge of an employee's personal liabilities by Cost to employer

the employer (e.g. payment of domestic household
costs) unless attributable to business purposes (e.g.
identifiable business calls on a domestic telephone
line; travel season tickets for commuters).
Use of cars and vans (and fuel). Annual value (see s.3.8)
Loans

When written off
Cost to employer (see s.3.9)

Interest benefit Annual value (see s.3.9)
U
se of other assets (i.e. assets excluding vehicles, 20% cost to employer
fuel, living accommodation and loans). (see s.3.10)
Purchase of assets on behalf of employees When newcost to employer

Second handdepends on type
of asset (see s.3.11)
P
urchase of services on behalf of employees Cost to employer.
(e.g. private medical insurance).

3.6 Living Accommodation
The benefit can comprise three elements:

(1) Annual chargehigher of
(i) Gross rateable value (Note 1)
(ii) Rent paid by employer (Note 2) x
(2) Additional chargewhere accommodation owned by

the employer and cost exceeds 75,000 (Note 2)
(i) If owned for six years or less before being first

made available:
Charge = (cost 75,000) official rate of interest

at 6 April
(ii) If owned for more than six years before being first
made available:
Charge = (Open market value (OMV) when first

available 75,000)
official rate of interest at 6 April x
Note: The cost of improvements made since acquisition

but before the start of the current tax year is added to
cost or OMV as appropriate. Improvements made after
the start of the current tax year are ignored.
(3) Ancillary benefits(e.g. utility expensesgas, electricity

and water; Council tax; redecoration; wages for domestic
help paid by employer). Charge = cost to employer of
providing the benefit x
Note: This element is only assessable on P11D

employees.
x
Less: Contribution by employee (x)
x
Notes:
1. Gross rateable value is the annual rental value of
property (set by government at old historic rates).
2. Rent paid by employer will only arise when the property is not
owned by the employer.
The additional charge only applies to properties owned by the

employer because the historic rateable values do not accurately
reflect the current market rentals payable on such property.
(That is, if the property is rented by the employer the rent paid
by the employer will equate to the current rateable value and
logically the additional charge is unnecessary.)
3. The official rate of interest is given on the rates and
allowances sheet.

Example 5 Accommodation Benefit I
A company purchased a house in 2010 for 150,000. Capital improvements were

made to the house in 2011, costing 10,000, and again in May 2014, costing 20,000.
Neil, the company's managing director, moved into the house in January 2012 when
the market value of the house was 205,000; its value on 6 April 2014 had fallen to
185,000.
The gross rateable or annual value of the house is 1,000 and Neil is required to pay
100 a month towards the provision of the house.
During 2014/15 the following expenses in connection with the property were paid
directly by the company:

Electricity 540
Cleaning and maintenance 1,572
Structural repairs 2,160
Council tax 1,200
Required:
Calculate the assessable benefit for 2014/15 assuming the official rate of
interest at 6 April 2014 is 3.25%.
Solution

Annual value
Additional benefit
Ancillary expenses
Less: Contributions by Neil

Example 6 Accommodation Benefit II

Facts as for Example 5 except that the house was acquired in 2004.
Required:
Calculate the assessable benefit for 2014/15.
Solution

Annual value
Additional benefit
Ancillary expenses
Less: Rent paid
3.7 Job-Related Living Accommodation

Job-related accommodation is accommodation provided
by reason of employment that is:
(a) necessary for the proper performance of the duties
of employment; or
(b) customarily provided for the better performance of
the duties of employment; or
(c) provided for special security reasons.
Examples of job-related accommodation are:
houses for church clergy;
houses for nurses and junior doctors in the grounds
of hospitals;
an apartment within an apartment block for the caretaker
of that block;
official residence of a government minister
(e.g. 10 Downing Street).
It is favourably treated for tax purposes: In view of the
"net emoluments
Both the annual and additional charges are exempt from tax;
rule", when dealing
Council tax paid by the employer is exempt from tax; with questions
The assessment of remaining ancillary expenses paid by involving job-related
the employer cannot exceed 10% of the employee's net accommodation, the
emoluments for the relevant tax year. calculation of this
benefit should always
Net emoluments are all the taxpayer's emoluments (pay and be done last.
benefits, excluding the accommodation) less allowable expenses.

Example 7 Job-Related Accommodation
Facts as for Example 5, except that the house qualified as job-related

accommodation and Neil is not required to pay 100 a month towards the
provision of the house.
Neil's other employment income for 2014/15 comprises an annual salary of
25,000 and other taxable benefits amounting to 170. He pays occupational
pension contributions of 4,950 per year.
Required:
Calculate the assessable benefit for 2014/15.
Solution

Annual value
Additional charge
Ancillary benefitslower of:
(1) Cost (per (a)) except the exempt Council tax
(2) Salary
Less: Pension contributions
Add: Other benefits
Net emoluments
10% thereof
Less: Contributions
Accommodation benefit

3.8 Vehicles and Fuel for Private Purposes

3.8.1 Company Cars
The car benefit is based on a percentage of the manufacturer's Car benefit
list price ("list price"). percentages for petrol
cars are given on the
The percentage varies according to the level of CO2 emissions
rates and allowances
as follows:
sheet.
Level of CO2 emissions

(in grams per kilometre) Percentage
Petrol cars:
Zero emissions 0%
175 grams 5%
7694 grams 11%
95 grams 12%
For every additional 5 grams Add 1% for each additional

up to 215 grams or more 5 grams over 95 grams*
until the maximum of 35%
is reached (at 210 grams)
Diesel cars: As for petrol cars + diesel

supplement of 3%, subject to
same 35% maximum limit
*For the purpose of the 1% addition, if the CO2 emissions figure

(e.g. 144) falls between two 5-gram increments (e.g. 140 and 145),
round down to the lower amount (i.e. 140).
Illustration 1 Rounding CO2 Emissions
A petrol-fuelled company car has CO2 emissions of 202 grams per kilometre.
The appropriate percentage will be:
%
95 grams 12
Additional amount:
202, rounded down to nearest 5 grams = 200
(20095)5=211% 21
33
If the car was a diesel-fuelled vehicle, the percentage becomes:

%
Petrol car percentage 33
Diesel supplement 3
36
Restricted to the maximum of 35

Manufacturer's list price:

This comprises the original manufacturer's list price plus the
cost of optional extras (if 100 or more each) fitted after
delivery.
If capital contributions are made by the employee towards
the purchase price of the car, the list price (or market value)
is reduced by the lower of:
the contribution; and
5,000.
Annual contributions made by the employee (excluding specific
payments for car insurance) reduce the taxable value.
Where an employee is provided with two company cars, each
car is separately assessed by reference to CO2 emissions and
the manufacturer's list price.
Use of a pool car is an exempt benefit (see s.3.2).
A pool car is one that is used by more than one employee;
private use is incidental to its business use and the car is
never kept overnight at or near the employee's home.
3.8.2 Fuel for Private Mileage of Company Cars

Cash equivalent = the statutory base value of 21,700 CO2
emissions % for the related company car.
The base value is
given on the rates
and allowances sheet.
No fuel charge arises if the full cost of the fuel provided for private
purposes is reimbursed.
Example 8 Car and Fuel
Joan was employed as the sales manager of Wilt from 1 January

2015. The company offered her a company car up to a maximum
list price value of 15,000, but she chose a car with a list price
of 21,000 and personally contributed the additional amount of
6,000. 500 of optional extras were fitted after delivery. The CO2
emissions were 165 grams per km. The company paid for
all running expenses, including petrol.
Required:
Calculate Joan's taxable car and fuel benefits for 2014/15.
Solution

Car benefit
Fuel benefit
Employment income assessment

3.8.3 Company Vans

As stated earlier, if private use is insignificant, any private use
benefit is an exempt benefit.
If private use is not insignificant, the cash equivalent of Be aware that the
a company owned van = 3,090 per year. CO2 emissions scale charge and fuel
are irrelevant. benefit for company
vans are not shown
3.8.4 Fuel for Private Mileage of Company Vans in the rates and
allowances sheet.
The provision of private fuel for a van attracts a cash
equivalent of 581 per year.
As for cars, no fuel benefit arises if the full cost of the fuel
used for private purposes is reimbursed.
3.9 Loans and Loan Interest Benefits

3.9.1 Loans Written Off
Where an employer makes a loan to an employee (or his
relative) by reason of employment, the loan itself is not a
benefit unless repayment is "forgiven" (i.e. waived). In this
case, the assessable amount is the amount of the loan forgiven.
3.9.2 Loan Interest Benefit

An annual loan interest benefit can arise if the loan is made at
less than the official rate of interest.
The loan interest benefit cash equivalent is calculated on one
of two alternative bases:
(1) The average outstanding loan basis (or normal) method
L1 + L2
average official rate of interest
2
L1 = The amount outstanding at beginning of tax year
L2 = The amount outstanding at end of tax year
(2) If the taxpayer elects (or HMRC requires), the day to day
(or strict) method.*
*(i) The official rate of interest is given on the rates and

allowances sheet.
(ii) Both bases must be considered if the loan has been subject to
repayment (or addition) during the tax year. Otherwise, only
apply the normal basis.

Example 9 Loan Interest
Tate, an employee earning 30,000 a year, borrowed 26,000 from his employers
in January 2014 in order to buy a yacht. The full amount of the loan (which carried
interest at a rate of 2% a year) was outstanding on 6 April 2014. Tate repaid 8,000
of the loan on 1 July 2014 and paid interest to his employers of 250 for 2014/15.
Required:
Compute Tate's assessable benefit for 2014/15 on the beneficial loan.
The official rate of interest was 3.25% throughout 2014/15.
Solution
Normal method

Interest at official rate on the average outstanding loan
Less: Interest actually paid
Assessable benefit
Alternative (strict) method (considered as repayment during the

tax year)

6 April1 July 2014
2 July 20145 April 2015
Less: Interest actually paid
Assessable benefit
No interest benefit assessment arises where the outstanding

value of a loan at any point in the tax year does not exceed
10,000 (see s.3.2). A practical example is a loan for the
purchase of an annual travel ticket for regular commuters.
Where a taxpayer has several assessable loans from the same
employer, the 10,000 exemption is applied by reference to
the sum total of all outstanding loans. If the exemption does
not apply, a taxable interest benefit arises on each loan.
Illustration 2 Interest-Free Loans
Rupert had two interest-free loans from his employer. The average
outstanding amounts on each loan for 2014/15 were:
Loan 16,000
Loan 28,000
Although each loan is less than 10,000, because the total
outstanding amount is 14,000, both loans give rise to taxable
benefits (i.e. 6,000 3.25% = 195 and 8,000 3.25% = 260).

3.10 Use of Assets Other Than Vehicles, Fuel, Accommodation

and Loans
< The annual use benefit is 20% of the market value of the asset
when first made available to the employee, less contributions
made by the employee towards its use.
< The occasional private use of a computer provided by an
employer for work purposes will not give rise to a taxable
benefit under this rule
3.11 Transfers of Used Assets
Type of asset Cash equivalent value
All assets, except motor Higher of:

vehicles and computer (1) Original cost to employer less
equipment annual use benefits to date;
(2) Current market value.
Motor vehicles and Current market value.

computer equipment

Example 10 Provision/Use of Other Assets
Rodney, who has a salary of 40,000 a year, was provided with a new camera by his
employer on 6 October 2012, costing 2,000.
Required:
(1) Show the benefit assessable on Rodney if his employer immediately
transferred ownership to Rodney on 6 October 2012.
(2) Show the benefits arising on Rodney if he had used the camera until
5 January 2015 when ownership was transferred to him for a payment of
100, when the market value of the camera was 500.
Solution
Benefit
(1) Transfer when new
2012/13
Cost to employer
(2) Use of asset and subsequent transfer
(a) Annual use benefits:
2012/13
2013/14
2014/15
(b) Transfer benefit (W)
Less: Contribution by employee
Amounts assessed
Working
2014/15 benefit transfer of used assetgreater of
(a) Market value at date of transfer
(b) Original market value

Less: Annual use benefits assessed to date

Session 4
Summary
For exam purposes, employment income includes general earnings (e.g. salaries, bonuses,
reimbursed expenses and taxable benefits).
Amounts are normally assessed on a receipts basis (i.e. when paid or due for payment).
Reimbursed expenses are taxable unless they are applied to discharging allowable
expenses of employment.
Allowable expenses for income tax include pension contributions, payroll gifts to charity,
professional subscriptions, qualifying travel costs and entertainment expenses that are
disallowed in the employer's tax computation.
Home workers may claim relief for telephone calls and up to 4 per week for household
costs without evidence.
Mileage allowance in excess of the statutory limit is taxable.
Expenses that are generally allowable in all employment situations may be deducted from
salary before calculating an employee's income tax due under PAYE.
A variety of benefits are exempt and so not taxable. Non-P11D employees are taxed
on benefits of accommodation and assets representing money or money's worth.
P11D employees are potentially taxed on all non-exempt benefits.
Job-related living accommodation is treated favourably for tax purposes.
Company car benefits are based on list price and a percentage that depends on
CO2 emissions.
Fuel benefit for private mileage cannot be reduced by an employee's contribution unless the
full cost is reimbursed.
Loans from an employer are taxable if written off. An interest benefit (i.e. on a loan at less
than the statutory rate) is taxable. It is normally calculated on the average loan; a strict
(daily) calculation can be applied by taxpayer or tax inspector.
Session 4 Quiz
1. List the main types of allowable expenses of employment. (2.3.1)

2. Define a "place of temporary employment" for the purposes of allowable travel expenses. (2.3.2)
3. State how tax relief for allowable expenses is claimed and how this is usually simplified
in practice. (2.4)
4. Set out the elements involved in calculating the taxable benefit of living accommodation
provided to an employee. (3.6)
5. Define "job-related accommodation". (3.7)
6. State the TWO alternative methods for calculating loan interest benefit. (3.9.2)
Study Question Bank

Q6 Endicott 30 minutes
Additional
Q7 LA Raider

EXAMPLE SOLUTIONS
Solution 1Employment Income

Salary (receipts basis)
6 3,000 = 18,000
6 3,500 = 21,000
Bonus (receipts basis)
Paid December 2014 6,000
45,000
Under normal circumstances, an employee becomes entitled to the

income on the same date as it is paid by the employer. The fact that
the bonus payments are calculated by reference to the company's year
ended 30 September is irrelevant.
Solution 2Employment Income Assessment

Deemed received
Salary (12 6,000) 72,000 Last day of each month
Fees 20,000 31 December 2014 (Note 1)
Bonus 100,000 8 March 2015 (Note 2)
192,000
Notes:
(1) Because the fees were voted during accounting period.
(2) Because the bonus was voted after end of accounting period.
Solution 3Use of Own Car

Business mileage comprises normal place of work to clients (9,000 miles)
and direct from home to client (3,000 miles).
(a) (b) (c)

Mileage allowance received:
12,000 50p/30p/0p 6,000 3,600 Nil
Statutory amount:
(10,000 45p) + (2,000 25p) (5,000) (5,000) (5,000)
Assessable amount/(allowable expense) 1,000 (1,400) (5,000)
In (a), the statutory amount is exempt from tax.

In (b) and (c), the tax-free amount = Mileage allowance actually received
+ allowable expense.
In all three cases, the overall tax-free amount is the same.

Solution 4Higher-Paid Status
(i) Remuneration for higher-paid employee status

Salary 7,500
Less: Pension contribution (5%) (375)
7,125
Expense allowance 800
Potentially assessable benefit 1,000
8,925
Conclusion: Trevor is a higher-paid employee (P11D employee).

(ii) Employment income assessment

As above 8,925
Less: Other allowable expenses (700)
8,225
Solution 5Accommodation Benefit I

House purchase in 2010

Annual value 1,000
Additionalbenefit3.25%(150,000+10,00075,000)(Note 1) 2,762
Ancillary expenses
Electricity 540
Cleaning and maintenance 1,572
Council tax 1,200
3,312
7,074
Less: Contributions by Neil (12 100) (1,200)
5,874
Notes:
1. The cost of the improvements to the property made in May 2014 is ignored in
calculating the additional benefit because it was incurred on or after 6 April 2014
the start of the current tax year.
2. The structural repairs are not an assessable benefit as the cost is attributable
to the employer (as landlord).

Solution 6Accommodation Benefit II
House purchase in 2004

Annual value (as in Solution 5) 1,000
Additional benefit 3.25% (205,000 75,000) (Note) 4,225
Ancillary expenses (as in Solution 5) 3,312
8,537
Less: Rent paid 12 100 (1,200)
7,337
Note: As first occupation is more than six years after purchase, market
value when the property was first made available to Neil is used
instead of cost. This value reflects the improvements made in 2011.
The market value on 6 April 2014 is irrelevant.
Solution 7Job-Related Accommodation

Annual valueexempt 0
Additional chargeexempt 0
Ancillary benefitslower of:
(1) Cost (per Solution 5) except the exempt Council tax 2,112
(2) Salary 25,000
Less: Pension contributions (4,950)
20,050
Add: Other benefits 170
Net emoluments 20,220
10% thereof 2,022 2,022
2,022
Less: Contributions 0
Accommodation benefit 2,022

Solution 8Car and Fuel

Car benefit 16,500 (W2) 26% (W1) 312 1,072
Fuel benefit 21,700 26% 312 1,410
Total assessment 2,482
Workings
(1) CO2 percentage

%
95 grams 12
(16595)=70;705=14@1%per5grams 14
26
(2) Manufacturer's list price

List price of chosen car 21,000
Less: lower of: (i) contribution by employee 6,000
(ii) maximum 5,000 (5,000)
16,000
Add: Cost of extras (exceeding 100) 500
16,500
Solution 9Loan Interest

Normal method
The average balance outstanding during 2014/15 was 12 (26,000 + 18,000) = 22,000.

Interest at official rate on the average outstanding loan: 3.25% 22,000 715
Less: Interest actually paid (250)
Assessable benefit 465
Alternative (strict) methodapportionments to the nearest month

6 April1 July 2014 (3 months): 26,000 312 3.25% 211
2 July 20145 April 2015 (9 months): 18,000 912 3.25% 439
650
Less: Interest actually paid (250)
Assessable benefit 400
Conclusion: Tate should elect for the strict method to be used as this results in a lower
assessable benefit.

Solution 10Provision/Use of Other Assets
Benefit
(1) Transfer when new
2012/13
Cost to employer 2,000
(2) Use of asset and subsequent transfer

2012/13 2,000 20% 126
200
2013/14 2,000 20% 400
2014/15 2,000 20% 129
300
900
2014/15 Transfer benefit (W) 1,100
Less: Contribution by employee (100) 1,000
Amounts assessed 1,900

Working
Benefit on transfer of used assetgreater of

(a) Market value at date of transfer 500
(b) Original market value 2,000
Less: Annual use benefits assessed to date (200 + 400 + 300) (900)
1,100

NOTES

Session 13
Corporation Tax
The Tax Computation
FOCUS
E. Corporation Tax Liabilities

1. The scope of corporation tax
a) Define the terms "period of account", "accounting period" and
"financial year".
b) Recognise when an accounting period starts and when an accounting
period finishes.
d) Compute property business profits.
h) Recognise and apply the treatment of interest paid and received under the
loan relationship rules.
i) Recognise and apply the treatment of qualifying charitable donations.
j) Compute taxable total profits.
4. The comprehensive computation of corporation tax liability
a) Compute the corporation tax liability and apply marginal relief.
b) Recognise the implications of receiving franked investment income.
Session 13 Guidance
Understand how double taxation of distributed profits is avoided (s.2.1). Work through Illustration 1.
Recognise that the key to success in a corporation tax question is the application of the pro forma
(s.3.2) which naturally leads to a figure for total taxable profit (TTP) + franked investment income
("FII") to give profits.
Know the specifics applying to companies of adjusting profits for tax purposes (s.4.1). Attempt
Example 1.
Understand the application of marginal relief and the associated formula (s.5.1) as it features in a
question at every examination.

VISUAL OVERVIEW
Objective: In the context of a single company, to describe the rules and procedures for
calculating a company's taxable profits and the corporation tax liability thereon.
INTRODUCTION
Assessable Profits
Chargeable Accounting Period
Basis of Assessment
TAXATION OF DISTRIBUTED PROFITS

Dividends
Employee Remuneration etc
CORPORATION TAX COMPUTATION

UK and Foreign Profits
Pro Forma
TAXABLE TOTAL COMPUTATION OF PROPERTY LONG PERIODS

PROFITS(TTP) CORPORATION TAX BUSINESSPROFIT OFACCOUNT
PAYABLE
Trading Profit Introduction Computations
Basic Rules
Charitable Different Tax Allocating Profits
Donations Small Companies Treatments Tax Liabilities
Property Short Accounting
Business Profit Periods
Non-trade Associated
Interest Companies
Accounting
Periods
(Two Financial
Years)
Session 13 Guidance
Comprehend that FII is dividends received grossed up and must be included to ascertain the
correct rate of corporation tax. The thresholds will change by the number of associates (s.5.4)
(ownership > 50%) and the length of the accounting period (s.5.3). Both of these rules are
frequently examined.
Be aware that a corporation tax question usually brings together the capital allowance calculation
(Session 6) and capital gains calculation (Session 13) combined with the actual calculation of
corporation tax. Know the differences (s.6.2) in assessment of corporation property business
profits and attempt Example 7.
Revise the apportionment of capital allowances for periods of account greater than 12 months
note how other elements of TTP are apportioned between chargeable accounting periods (s.7.2).
Attempt Example 8.

Session 13 Corporation TaxThe Tax Computation F6 Taxation (UK)
1 Introduction
1.1 Assessable Profits

< UK-resident companies (see Session 1 for the definition)
pay corporation tax on their taxable total profits (TTP) for a
chargeable accounting period (CAP).
< TTP is the company's chargeable income and chargeable gains
arising in the UK and abroad, reduced by relief for qualifying
charitable donations.
1.2 Chargeable Accounting Period

< The CAP for a company (see Session 1) is the period for which
the charge to corporation tax is determined and is usually
the same as the period of account (i.e. the period for which it
prepares accounts).
< For corporation tax purposes, the CAP can be any length not
exceeding 12 months. Thus, where the period of account is
12 months or less, the CAP is automatically the same period.
< However, if a company's period of account exceeds 12 months,
the periodcalled a long period of accountmust be divided
into two separate chargeable accounting periods, the first 12
months and the second representing the balance of the period
of account.
No other combination of CAPs is acceptable.
< Additional rules apply for long periods of account (see s.7).
< A CAP must begin either:
= when a company starts trading; or
= otherwise immediately after the end of the previous CAP.
< A CAP must end either:
= 12 months after its commencement; or
= at the end of the period of account; or
= at the commencement of the winding-up of the company; or
= when the company ceases to be liable to corporation tax.
1.3 Basis of Assessment

< The basis of assessment for corporation tax is actual (i.e. the
profits arising in the current CAP are assessed for that period).
< The concept of the fiscal year or tax year (i.e. 6 April5 April)
is irrelevant for corporation tax.

F6 Taxation (UK) Session 13 Corporation TaxThe Tax Computation
2 The Taxation of Distributed Profits
2.1 Dividends Paid

2.1.1 Tax Treatment of Paying Company
< When a company distributes profits by way of dividend to its
shareholders, this amount is paid out of profits after corporation
tax (i.e. dividends paid are an appropriation of taxed profits and
not an allowable expense for tax purposes).
< These distributed profits are potentially chargeable to tax
again in the hands of the shareholderincome tax for personal
taxpayers and corporation tax for corporate shareholders.
2.1.2 Tax Treatment for Shareholders Who Are Personal

Taxpayers
< Shareholders who are personal taxpayers are subject to
income tax at source at the rate of 10%. This is achieved by
the distributing company being "deemed" to have paid income
tax equal to 19th of the dividend paid, where the cash amount
of the dividend paid is treated as the amount after income tax
has been deducted.
As already learned (in Session 2), this deemed tax credit
discharges the shareholder's basic rate (10%) income tax
liability on the gross dividend to avoid a potential double
charge to UK tax. However, a shareholder must still pay
higher rate tax (i.e. 32.5 10%) and additional rate tax
(i.e. 37.5 10%).
The 19th tax credit is a deemed tax credit because the
distributing company does not actually pay it. Instead the tax
credit is imputed (i.e. deemed) to be part of the corporation
tax liability payable on the profits out of which the dividend
has been paid. This arrangement ensures that a company
does not pay more tax when it pays a dividend than when it
*Look back to Session
retains its profits.
2 to review how these
Logically, if the shareholder is not a taxpayer he cannot rules affect the income
reclaim the 19th tax credit because the company never paid it in tax computation of the
the first place.* shareholder.
2.1.3 Tax Treatment of Corporate Shareholders

< Shareholders that are companies also receive dividends net of
the 19th tax credit. However, because dividends received have
been paid out of profits already subject to corporation tax,
they are exempt from further corporation tax in the hands of
an investing company. As the 19th tax credit was never paid
by the distributing company, it is ignored by the receiving
company.

Illustration 1 Tax Consequences of a Dividend
X Ltd has a share capital of 100,000 ordinary shares of 1 each. It pays a dividend of 9 pence per
share. Its statement of profit or loss shows:

Profits before tax 300,000
Corporation tax (60,000)
Profits after tax 240,000
Dividends paid (100,000 9p) (9,000)
Retained profits 231,000
The company has one shareholder.
(1) Tax consequences of the dividendshareholder is a personal taxpayer

For Company X:
Dividend paid 9,000
Add: Deemed tax credit ( 9 9,000)
1
1,000 (Note 1)
Gross dividend paid (or franked payment) 10,000
For the shareholder: If basic rate If higher rate If additional
tax payer tax payer rate tax payer

Dividend received 9,000 9,000 9,000
Add: Deemed tax credit 1,000 1,000 1,000
Gross income 10,000 10,000 10,000

Income tax
10% 10,000 1,000
32.5% 10,000 3,250
37.5% 10,000 3,750
Less: Tax paid at source (1,000) (1,000) (1,000)
Income tax payable (Note 2) 0 2,250 2,750
Notes:
1. The tax added to the dividend paid by the company is not actually paid by the company. It is
deemed (imputed) to be part of the company's corporation tax expense (i.e. the 60,000 in
the statement of profit or loss) for the accounting period in which the dividend was paid.
2. The shareholder only has to pay additional income tax if he is a higher rate or additional rate
taxpayer, as the 10% tax burden is deemed paid by the company at source.
3. If the shareholder is a non-taxpayer, none of the deemed tax credit can be repaid.
(2) Tax consequencesshareholder is another company
For Company X: (as in (1) above)

For the shareholder:
Dividend received 9,000
Add: Deemed tax credit 1,000
Gross dividend income (or franked investment income) 10,000
Because the dividend has been paid out of profits after corporation tax of X Ltd, the receiving
company is not liable to pay UK corporation tax on the franked investment income.

2.2 Employee Remuneration, Loan Note Interest

and Patent Royalties
< These amounts paid by companies are not distributions out of
after tax profits of the paying companies but are instead tax
allowable business expenses of those companies.
< Employee remuneration is subject to income tax in the hands
of the employees.
< Loan note interest payable and patent royalties payable are
subject to income tax in the hands of personal taxpayers and
corporation tax in the hands of corporate taxpayers.
< Any potential double charge to tax is avoided because the
employee remuneration, loan note interest and patent
royalties payable all count as allowable trading expenses of
the paying company for corporation tax purposes.
3 The Corporation Tax Computation
3.1 UK and Foreign Profits

A UK-resident company is assessed to UK corporation tax on
profits arising both in the UK and abroad.*
*The inclusion of foreign profits introduces several complications into

the corporation tax computation; however, the overseas aspects of
corporation tax are now excluded from the F6 syllabus.

3.2 Pro Forma Computation

ABC LtdCorporation tax computation for the CAP
(e.g.Year ended 31 March 2014)

Adjusted trading profit x
Property business profit x
Non-trade interest x
Chargeable gains (Note 1) x
Total profits x
Less: Qualifying charitable donations (Note 2) (x)
Taxable total profit (TTP) (= assessable amount) x
Add: Franked investment income (FII) (Note 3)
(i.e.dividends received + deemed taxcredit) x
Augmented profits (only used to determine the rate
of tax) x

Tax on TTP: x
= Calculated at rate(s) set for financial year(s)
= Rate depends upon the tax status of the company
= Tax status will be either:
Main rate company (MRC); or
Marginal small company (MSC); or
Small profits rate company (SC).
Corporation tax liability = amount payable
(Note4) x
Notes:
1.Chargeable gains represent the taxable amount of gains
(seeSession 9) for the CAP.
2.Qualifying charitable donations are deducted from total
profits (i.e. income + gains) because they are tax deductible
from the profits of any company irrespective of the types of
activities the company is engaged in.
3.As stated in section 2.1, dividends received from other UK
companies are exempt from corporation tax and must not
be included in TTP. However, the gross equivalent of the
amounts received (i.e. franked investment income) is included
in augmented profits to determine the rate of tax to be
applied to TTPsee s.5.1).
FII does not include amounts received from subsidiary
companies (called "associated companies" for tax purposes).
4.The corporation tax liability = tax payable as all corporation
tax is collected by self-assessment (i.e. there is no deduction
at source).

4 Taxable Total Profits (TTP)
4.1 Adjusted Trading Profit

< Generally, adjusted trading profits are calculated using the
principles that apply for income tax purposes (see Session 5).
< However, certain specific points should be borne in mind when
adjusting trading profits for a company.
= As already explained (see s.2.1), dividends paid are an
appropriation of taxed profit not a tax-deductible business
expense. Provided they are correctly disclosed in the
accounts as a deduction from profits after corporation tax,
no adjustment is required.
= The following items are allowable expenses not requiring
any adjustment for tax purposes:
(i) Directors remuneration, even if the director is also a
shareholder.
(ii) Interest payable on loans and overdrafts taken out
for a trading purpose (e.g. funding working capital
requirements, inventory expansion or non-current asset
purchases).
(iii) Incidental costs of raising finance (except where they
relate to share capital).
= The following are disallowable trading expenses requiring
adjustment:
(i) Qualifiying charitable donations (see s.4.2). Non-
qualifying donations (e.g. to a local charity in return for
free advertising) may however be allowable.
(ii) Interest payable on loans taken out for a non-
trading purpose (e.g. loans to finance the purchase
of investment property for letting and shares in other
companies).
(iii) Depreciation and amortisation of tangible assets
used in the trade. This is generally offset by capital
allowances (as for income tax).
In relation to capital allowances, the WDA on a car subject to private

use by an employee of the company is not restricted to reflect the
private use. This is because the private use is a potentially taxable
benefit for the employee (see Session 4).

4.2 Charitable Donations

< UK-resident companies can claim tax relief for qualifying
donations to charities which are not treated as an allowable
trading expense (s.4.1). As noted in the pro forma
computation, tax relief is instead given as a deduction from
total profits.
< Qualifying donations can be single payments or a series of
payments. However, unlike personal taxpayers making gift aid
donations, qualifying donations made by companies are paid
gross (i.e. without 20% income tax relief at source).
4.3 Property Business Profit

< The profit (or loss) from letting furnished or unfurnished
property is determined for the period of account (which
usually equals the CAP). (See s.6 for a detailed description of
property business profits of companies.)
4.4 Non-trade Interest

< Interest receivable from banks and building societies, the
government and other companies (i.e. loan note interest) is
assessed on an accruals basis for corporation tax purposes.
< The amount assessable in the CAP is reduced by non-trade
interest payable (added back to adjusted trading profit
(see s.4.1)).
< The taxation of interest income and expense is determined
for corporation tax purposes under the loan relationships
rules. Detailed knowledge of these is not required for the F6
examination; it is sufficient to know that:
= Loan relationships cover debts arising from the lending of
money or issue of securities.
= Taxable debits and credits are expense and income as fairly
calculated under UK GAAP (i.e. as per the accounts).
= As well as interest, these may include amounts for
discounts, premiums or impairment, exchange variances,
and also arrangement and legal fees directly incurred in
connection with a loan (even abortively).
= The debits and credits are aggregated and a net credit is
taxed as part of the company's taxable total profits.
The relief of a net deficit on loan relationships is specifically excluded

from the F6 (UK) syllabus.

Example 1 TTP and Augmented Profits
Charles Ltd makes up its accounts to 31 March each year. For the year ended 31 March 2015,
the accounts disclosed a profit before tax of 2,000,000.
The profit before tax is arrived at after charging and crediting the following amounts:
Charging Crediting
000 000
Debenture interest payable 900
Qualifying charitable donations 12
Entertaining 5
Depreciation 30
Dividends received 9
Bank interest receivable 40
Patent royalties receivable 70
Capital profit on sale of an office block 350
The capital profit gives rise to a chargeable gain (after indexation allowance) of 230,000.
The company has claimed capital allowances of 40,000.
The company paid dividends of 140,000 during the year.
Required:
Calculate for the year ended 31 March 2015:
(i) the taxable total profits of Charles Ltd; and
(ii) the augmented profits of Charles Ltd.
Solution
Corporation tax computation for the year ended 31 March 2015
000
Adjusted trading profits (W)
Bank interest
Chargeable gain
Total profits
Less: Qualifying charitable donations
TTP
Add: FII
Augmented profits
Working
000 000
Adjusted trading profit +
Profit before tax
Adjusted trading profit

5 Computation of Corporation Tax Payable
5.1 Basic Rules

< The tax liability on TTP depends on the rate of corporation tax
applied to them, which in turn depends upon the tax status of
the company.
< The rates of tax are set for a financial year (FY), which runs
from 1 April to 31 March. Each year is identified by the
calendar year in which it begins (e.g. FY 2014 starts on 1 April
2014 and ends on 31 March 2015). The rates of tax are given
on the rates and allowances sheet.
< Tax status is determined by comparing "augmented profits"
with the "small profits rate limits" (also given on the rates and
allowances sheet) set for the financial year as follows:
Augmented profits are:

Small profits Between the small Small profits rate lower
rate upper limit profits rate limits limit (300,000) orless
(1,500,000) or more (300,000 and
1,500,000)
Tax status MRC MSC SC
(seeNote)
Rate of tax on TTP Main rate Main rate less Small profits rate
(FY 12: 24%) marginal relief
(FY 13: 23%) (FY 12FY 14: 20%)
(FY 14: 21%)
Note: Abbreviations
MRC = Main rate company
MSC = Marginal small company
SC = Small profits rate company

For simplicity, small profits rate companies are sometimes

referred to as "small companies" (but not in the exam).
< Marginal (or tapering) relief for marginal small companies is
calculated using the following formula:
(UA) x N/A x standard fraction
Where U = Upper limit
A = Augmented profits
N = TTP The formula and
standard fractions are
The standard fractions are: given on the rates
FY 12: 1100; FY 13: 3400; FY 14: 1400 and allowances sheet.
Example 2 Main Rate Company
Facts as in Example 1.
Required:
Calculate the corporation tax liability for the year ended
31 March 2015.
Solution
Tax on TTP (FY 14)
Tax status:
Corporation tax liability:

5.2 Small Profits Rate Companies
Example 3 Small Profits Rate Companies
Han Ltd has the following amount of TTP for the year ended 31 March 2015:

Adjusted trading profits 350,000
Property business profits 10,000
360,000
Qualifying charitable donations (80,000)
TTP 280,000
Han Ltd received a dividend of 9,000 from another company on 1 December 2014.
Required:
(a) Calculate Han Ltd's corporation tax liability for the chargeable accounting period.
(b) Calculate Han Ltd's corporation tax liability for the chargeable accounting period
assuming that the company's TTP is 650,000 and all other information is the
same.
Solution
(a) Corporation tax computationyear ended 31 March 2015

TTP 280,000
FII
Augmented profits
Tax on TTP
Tax status:
Tax (FY 14):

Corporation tax liability
(b) Corporation tax computationyear ended 31 March 2015

TTP
FII
Augmented profits
Tax on TTP
Tax status:
FY 14:

Tax:
Less: marginal (or tapering) relief

Corporation tax liability:

5.3 Short Accounting Periods

< If the CAP ending in a single FY is less than 12 months (e.g.
nine months to 31 March 2015) the tax status is determined
by comparing proportionately reduced upper and lower limits
(i.e. in this case 912) with augmented profits.
Example 4 Short Accounting

Periods
Facts as in Example 3(a), except that the chargeable accounting
period of Han Ltd was 10 months to 31 January 2015.
Required:
Calculate the corporation tax liability for the 10 months
ending 31 January 2015.
Solution
Corporation tax computation10 months ended
31 January 2015
TTP 280,000
FII 9,000 x 100

90 10,000
Augmented profits 290,000
Tax on TTP
Tax status: (W)

Tax (FY 14):
Less: marginal relief
Corporation tax payable
Working
Limits
Upper:
Lower:
Status

5.4 Associated Companies

< If a company has an associated company the limits for
small profits rate companies are divided by the number
of associated companies (e.g. company + one associated
company, limits 2; company + two associated companies,
limits 3 etc).
A company is associated with another company if one is under the
control of the other, or if both are under the control of the same
person or persons. (See also Session 15, s.2.)
Example 5 Associated Companies
Facts as in Example 4, except that Han Ltd also had an associated

company.
Required:
Calculate the corporation tax liability for the 10 months ending
31 January 2015.
Solution
Corporation tax computation10 months ended
31 January 2015
TTP 280,000
FII 9,000 x 90
100
10,000
Tax on TTP
Tax status: (W)

Tax:
Working
Limits
Upper
Lower
Status

5.5 Accounting Periods Falling Into

TwoFinancial Years
< If a CAP falls into two financial yearsi.e. the CAP of 12
months (or less) does not end on 31 Marchand the tax
rates or limits are different in adjacent financial years, then
the tax liability for the CAP is determined using the following
procedure:
(1) Time apportion the limits and augmented profits to
each FY;
(2) Compare the appropriate amounts of augmented profits
and limits to determine the tax status for each part of
theCAP;
(3) Time apportion the TTP of the CAP to each FY;
(4) Apply the appropriate tax rate for each FY to the
attributable TTP;
(5) Add together the tax liability of each FY to give the liability
for the whole CAP.

Example 6 Two Financial Years
Ingham Ltd, which has no associated companies, has the following results for the year ended
31 December 2014.

Adjusted trading profit 633,000
Non-trade interest 1,000
Chargeable gain 5,000
639,000
Less: Qualifying charitable donations (12,000)
TTP 627,000
UK dividend received 1 March 2014 56,700
Required:
Calculate Ingham Ltd's corporation tax liability for the year ended
31 December 2014.
Solution
Corporation tax computationyear ended 31 December 2014

TTP
FII
Augmented profits
Tax on TTP
Tax status: (W)

Tax (FY 13 and 14):

FY 13: (3 months 1 January31 March)
FY 14 (9 months 1 April31 December)
Working
Tax status
Year ended 31 December 2014 FY 13 FY 14
3 months 9 months
(1 January31 March) (1 April31 December)

Augmented profits
Limits (same for FY 13 & 14)
Upper
Lower
Status:

6 Property Business Profit
6.1 Introduction
< The rules for assessing property business profits to income
tax generally apply for corporation tax, but there are some
important differences.
< The amount assessable is the same as for income tax
(see Session 3), that is:

Rent accrued due x
Income element of a short lease premium received x
x
Less: Allowable expenses (accrued) (x)
x
6.2 Differences Between the Corporation Tax

and Income Tax Treatments
< The profit (or loss) for corporation tax purposes arising
from the letting of furnished and unfurnished property is
determined for the period of account (usually the same as the
CAP) as opposed to the tax year.
< The profit arising from furnished holiday lettings does not need
to be separated for corporation tax purposes.
< Allowable expenses are the same as for income tax (see
Session 3) except for the treatment of loan interest payable.
Loan interest payable on loans taken out by a landlord
company in relation to let property is not treated as a property
income expense for corporation tax purposes. Instead,
because it is non-trade interest payable, it is deducted from
non-trade interest receivable by the company.
< Losses arise when expenses exceed income (including the
assessable element of a lease premium).*
*Arrangements for loss relief of property business losses are dealt

with in Session 14.

Example 7 Property Business Profit
Sewell Ltd is a company preparing accounts to 31 March each year. Its profits for
the year ended 31 March 2015 comprise the following:

Trading profits adjusted for all items 500,000
except interest payable on a loan taken
out to purchase property B (see below)
Bank interest receivable 9,000
Property income See below
The property income arises from the letting of two commercial properties (A and B)
let as offices:
Property A: Has been let throughout the year ended 31 March 2015 at a rent of
2,000 per month. Expenses incurred (all allowable) were 5,500.
Property B: Was purchased on 1 January 2014 and let from 1 March 2015 at a rent
of 3,500 per month. A lease premium of 100,000 was received on 1 March 2015
for the grant of a 15-year lease. The property was purchased with the aid of a
250,000 loan, interest on which was 1,700 per month beginning in January 2015.
Other expenses incurred (all allowable) were 12,000.
Sewell Ltd has no associated companies.
Required:
Calculate the corporation tax liability for the year ended 31 March 2015.

Example 7 Property Business Profit (continued)
Solution
Corporation tax computationyear ended 31 March 2015

Trading profit
Add: Non-trade interest payable
Bank interest receivable
Less: Non-trade interest payable
Property business profit (W)
TTP = augmented profits
Tax on TTP (FY 14)
Tax status:
Working
Property business profityear ended 31 March 2015
A B Total
Rent receivable:
A:
B:
Lease premium received
Less: Capital element
Less: Allowable expenses

7 Long Periods of Account
7.1 Two Computations

< If the period of account is greater than 12 months, this period
must be split into two CAPs: one for the first 12 months, the
other for the balance of the CAP.
For example:
Accounts made up for the

18 months to 30 September 2014
Year ended Six months ended

31 March 2014 30 September 2014
7.2 Rules for Allocating Profits

< TTP and FII are allocated between the two CAPs as follows:
= Adjusted trading profit Time-apportion (to the nearest
before capital allowances month)
= Capital allowances Separate computations for *Where the CAP is
each CAP* less than 12 months,
the WDA and AIA (but
= Property business profit Time apportion (to the nearest
not FYA) are reduced
month) accordingly.
= Non-trade interest When receivable
= Chargeable gains Date of disposal
= Charitable donations Date paid
= Dividends Date of receipt
7.3 Calculating the Tax Liabilities

< Once TTP and augmented profits have been calculated
separately for each CAP, the determination of tax status and
the calculation of the corporation tax liability is then the same
as for any other chargeable accounting period.

Example 8 Long Period of Account
Z Ltd has the following results for the 18 months to 30 September 2014.

Adjusted trading profit before capital allowances 315,000
Tax WDV on main pool of plant and machinery 1 April 2013 80,000
There were no disposals of plant or machinery during the 18 months, but

machinery costing 30,000 and a motor car (CO2 emissions of 90 grams/km)
costing 20,000 were purchased on 1 August 2014.
Property business profit for the 18 months ended

30 September 2014 27,000
Bank interest received and accrued to 31 March 2014 11,000
Capital gain made on 30 June 2014 106,500
UK dividend received 1 August 2013 36,000
Qualifying charitable donations paid 20 December 2013 8,000
24 July 2014 6,000
Required:
Calculate the corporation tax payable for the two chargeable accounting
periods.
Solution
Corporation tax computations
Year ended Six months to
31 March 30 September

Adjusted profit
Less: Capital allowances (W1)
Property business profit
Non-trade interest
Chargeable gain
TTP
Add: FII

Augmented profits
Tax on TTP
12-month accounting period ended 31 March 2014

FY 13: Corporation tax liability
6-month accounting period ended 30 September 2014

FY 14: Corporation tax liability
Corporation tax payable

Example 8 Long Period of Account (continued)
Working
(1) Capital allowances
18% pool Claim
12 months to 31 March 2014
Addition
Less: AIA
WDA
Additionwith FYA:
Cost of car
Less: 100% FYA
(2) Tax status

Augmented profits
Limits: FY 13 Upper limit
Lower limit
FY 14 Upper limit
Lower limit
Augmented profits
Status

Session 13
Summary
< A company pays corporation tax on its taxable total profits for a chargeable accounting
period, usually the period for which it prepares accounts. A long period of account must be
separated into two chargeable accounting periods.
< Dividends are paid out of profits after tax.
< Individual shareholders receive dividends net of 10% income tax that is deemed to have
been withheld at the source. They may be liable to additional and higher rates of income
tax. A shareholder which is a company has no additional liability for tax on dividends
received. The calculation of taxable total profits requires adjustments for non-trade interest
payable, depreciation and capital allowances, and includes property business profit and
chargeable gains. Relief for qualifying charitable donations is given as a deduction from
total profit.
< The tax status of a company depends on the level of its augmented profits (i.e. including
franked investment income) as compared with the small profits rates limits. Tax status
determines the applicable corporation tax rate.
< Small profits rates limits are:
prorated for short accounting periods; and
divided by the number of associated companies.
< Property business profits are determined for the period of account. Loan interest payable is
treated as non-trade interest.

Session 13 Quiz
1. Define "taxable total profits" (TTP). (1.1)
2. Distinguish between "period of account" and "chargeable accounting period" (CAP). (1.2)
3. State the maximum length of a CAP for corporation tax purposes. (1.2)
4. State the basis of assessment for corporation tax. (1.3)
5. When a company pays a dividend to its shareholders there is a deemed tax credit
attaching to the amount paid. True or false: This amount is an additional tax liability of the
company. (2.1)
6. State the corporation tax treatment of a dividend received by one company from another
company. (2.1)
7. List the principal sources of taxable profits which may be found in the tax computation of a
trading company. (3.2)
8. State how corporation tax relief is given for donations to charities. (4.2)
9. State the difference between TTP and augmented profits for tax rate purposes. (3.2)
10. Define "financial year" for corporation tax purposes. (5.1)
11. State how the "tax status" of a company is determined. (5.1)
12. State the THREE statuses of a company for the purpose of calculating its tax liability. (5.1)
13. Explain the purpose of marginal relief. (5.1)
14. State the TWO circumstances in which the small profits limits are proportionately
reduced. (5.3, 5.4)
15. State how property business profits are calculated. (6.1)
16. State the rules for allocating the components of TTP between chargeable accounting periods
where there is a long period of account. (7.2)
Study Question Bank

Q28 Springvale Ltd 40 minutes

Additional
Q29 Nuts and Bolts Ltd
Q30 Chinny Ltd
Q31 Ring Ltd

EXAMPLE SOLUTIONS
Solution 1TTP and Augmented Profits

Corporation tax computation for the year ended 31 March 2015
000
Adjusted trading profits (W) 1,608
Bank interest 40
Chargeable gain 230
Total profits 1,878
Less: Qualifying charitable donations (12)
TTP 1,866
Add: FII 9,000 100
90 (Note 1) 10
Working
000 000
Adjusted trading profit +
Profit before tax 2,000
Charitable donation 12
Entertaining 5
Depreciation 30
Dividends received 9
Bank interest 40
Capital profit 350
Capital allowances 40
439 2,047
(439)
Adjusted trading profit 1,608
Notes:
1. FII is not assessable to corporation tax. It must never be included in
TTP. It is only relevant for determining the tax rate.
2. The dividend paid is an appropriation of taxed profits and is ignored in
the tax computation.
3. In examinations, interest payable should be assumed to be incurred
for a trading purpose (unless told otherwise) and not added back in
the profit adjustment.
4. In examinations, assume depreciation relates to tangible assets
(unless told otherwise) and add back in the profit adjustment.

Solution 2Main Rate Company

TTP (per Example 1) 1,866,000
FII (per Example 1) 10,000
Augmented profits (per Example 1) 1,876,000
Tax on TTP (FY 14)
Tax status: Augmented profits > 1,500,000 therefore
company is main rate company

Corporation tax liability: (1,866,000 21%) 391,860
Solution 3Small Profits Rate Companies

(a) Corporation tax computationyear ended 31 March 2015

TTP 280,000
FII 9,000 90
100
10,000
Tax on TTP
Tax status: As augmented profits fall below the
lower limit of 300,000 for FY 14 the company is a
small profits rate company.
Tax (FY 14):

Corporation tax liability 280,000 20% 56,000
(b) Corporation tax computationyear ended 31 March 2015

TTP 650,000
FII 10,000
Tax on TTP
Tax status: As augmented profits fall between the
limits of 300,000 and 1,500,000 the company is
a marginal small company.
FY 14:

Tax: 650,000 21% 136,500
Less: Marginal (or tapering) relief
650, 000 1
(1,500,000660,000)
660, 000 400 (2,068)
Corporation tax liability: 134,432

Solution 4Short Accounting Periods
Corporation tax computation10 months ended 31 January 2015

TTP 280,000
FII 9,000 x 100
90 10,000
Tax on TTP
Tax status: (W) Marginal small company
Tax (FY 14):
21% 280,000 58,800
Less: marginal relief:
280,000 1
(1,250,000 290,000)
290,000 400 (2,317)
Corporation tax payable 56,483
Working

Limits (FY 14)
Upper: 10 1,500,000
12 1,250,000
Lower: 10 300,000
12 250,000
Status (augmented profits between limits) MSC

Solution 5Associated Companies
Corporation tax computation10 months ended 31 January 2015

TTP 280,000
FII 9,000 90
100
10,000
Tax on TTP
Tax (FY 14):

280,000 21% 58,800
280,000 1
Less: (625,000290,000)
290,000 400 (809)
CT liability 57,991
Working*

Limits (FY 14)
Upper 10 1 1,500,000
12 2 625,000
Lower 10 1 300,000
12 2 125,000
Status (augmented profits between limits) MSC
*As Han has an associated company, the small profits rate limits are
divided by 2. This is in addition to the restriction of 1012 caused by
the 10-month accounting period.

Solution 6Two Financial Years
Corporation tax computationyear ended 31 December 2014

TTP 627,000
FII 56,700 x 100
90 63,000
Tax on TTP
Tax (FY 13 and 14):

FY 13: (3 months 1 January31 March)
(627,000 x 312 23%) = 156,750 23% 36,052
156,750 3
Less: (375,000172,500)
172,500 400 (1,380)
34,672
FY 14 (9 months 1 April31 December)
(627,000 x 912 21%) = 470,250 21% 98,752
470,250 1
Less: (1,125,000517,500)
517,500 400 (1,380)
97,372
CT liability 132,044
Working
Tax status
Year ended 31 December 2014 FY 13 FY 14
3 months 9 months
(1 January31 March) (1 April31 December)

Augmented profits 690,000 (3:9) 172,500 517,500
Limits (same for FY 13 & 14)
Upper 1,500,000 (3:9) 375,000 1,125,000
Lower 300,000 (3:9) 75,000 225,000
Status: (augmented profits between limits) MSC MSC

Solution 7Property Business Profit

Trading profit 500,000
Add: Non-trade interest payable (1,700 3) 5,100
505,100
Bank interest receivable 9,000
Less: Non-trade interest payable (5,100)
3,900
Property business profit (W) 82,000
TTP = augmented profits 591,000
Tax on TTP: (FY 14)
Tax status: Augmented profits > 300,000 < 1,500,000, so an MSC.
21% 591,000 124,110
591,000 1
Less: (1,500,000 591,000)
591,000 400 (2,273)
Corporation tax liability 121,837
Working
Property business profityear ended 31 March 2015
A B Total

Rent receivable:
A: 2,000 12 24,000
B: 3,500 1 3,500
Lease premium received 100,000

Less: Capital element
2% 100,000 (15 1) (28,000)
72,000 72,000
75,500
Less: Allowable expenses (5,500) (12,000)
18,500 63,500 82,000

Solution 8Long Period of Account

Adjusted profit (12:6) 210,000 105,000
Less: Capital allowances (W1) (14,400) (55,904)
195,600 49,096
Property business profit (12:6) 18,000 9,000
Non-trade interest (when receivable) 11,000
Chargeable gain (date of disposal) 106,500
224,600 164,596
Less: Qualifying charitable donations (when paid) (8,000) (6,000)
TTP 216,600 158,596
Add: FII (when received) 36,000 x 100
90 40,000
Augmented profits 256,600 158,596
Tax on TTP
12-month accounting period ended 31 March 2014

FY 13: Corporation tax liability: 20% 216,600 43,320
6-month accounting period ended 30 September 2014

FY 14: Corporation tax liability: 21% 158,596 33,305
158,596
Less: Marginal relief (750,000158,596) x 1400
158,596 (1,479)
Corporation tax payable 31,826

Solution 8Long Period of Account (continued)
Workings*
*The AIA and WDA (but not FYA) are time apportioned to the length
of CAP.
(1) Capital allowances

18% pool Claim

12 months to 31 December 2014
WDV b/f 80,000
WDA 18% (14,400) 14,400
c/f 65,600

Addition 30,000
Less: AIA (max would be 12 500,000)
6
(30,000) 30,000
0 0
65,600
WDA 18% 12 6
(5,904) 5,904
Additionwith FYA:
Cost of car 20,000
Less: 100% FYA (20,000) 20,000
0 0
WDV c/f 59,696
Allowances 55,904
(2) Tax status

Limits: FY 13 (full) Upper limit 1,500,000

Lower limit 300,000
FY 14 (612) Upper limit 612 750,000
Lower limit 12
6
150,000
Augmented profits 256,600 158,596
Status SC MSC

NOTES

Session 14
Corporation Tax
Loss Reliefs
FOCUS
E. Corporation Tax Liabilities

d) Understand how relief for a property business loss is given.
e) Understand how trading losses can be carried forward.
f) Understand how trading losses can be claimed against income of the
current or previous accounting periods.
g) Recognise the factors that will influence the choice of loss relief claim.
6. The use of exemptions and reliefs in deferring and minimising
corporation tax liabilities:
The use of such exemptions and reliefs is implicit within all of the above
sections 1 to 5 of part E of the syllabus, concerning corporation tax.
Session 14 Guidance
Recognise that the loss reliefs available to a company incurring a trading loss are similar to those
available to individuals (Session 7).
Learn the rules for loss relief, including application against current, past and future profits, on
continuing trades (s.1) and upon cessation of trade (s.2).
Remember the following order on the examination as this shows understanding of the whole process
and can be applied in most examination questions:
(i) use the loss this year;
(ii) carry back to previous 12 months;
(iii) carry residual balance forward against trade income only.

VISUAL OVERVIEW
Objective: To describe relief for trading and other losses in a single company.
LOSS RELIEFS
OTHER LOSSES
Property Business Losses
TRADING LOSSES Capital Losses
Interaction
Choosing Reliefs
CONTINUING TRADES CESSATION OF TRADE

Trading Loss Terminal Loss Relief
Loss Reliefs On Normal Accounting Date
Pro Forma Not on Normal Accounting
Effects of Loss Relief Date
Computational Technique
Session 14 Guidance
Know that terminal loss relief (s.2.1) applies the same principle as for individuals, whereby loss
relief can be taken back three years.
Recognise the special application of capital losses and other losses (s.3). Capital losses can
only be offset against capital gains. If losses are greater than gains they can be carried forward
indefinitely until they can be used against future gains.

Session 14 Corporation TaxLoss Reliefs F6 Taxation (UK)
1 Continuing Trades
1.1 Trading Loss

A trading loss for corporation tax purposes is the adjusted
trading loss of the chargeable accounting period (CAP).
Illustration 1 Adjusted Trading Loss

+
Loss before taxation 400,000
Depreciation 50,000
Entertaining 5,000
Non-trade interest receivable 6,000
Capital allowances 70,000
476,000 55,000
(55,000)
Adjusted trading loss 421,000
The process of adjustment is the same as for a profit, with capital

allowances automatically forming part of the loss.
The trading income assessment for the CAP of the loss

is NIL.
1.2 Loss Reliefs

A corporate trading loss may be relieved in the following ways: The section numbers
(s.37, s.45) do not
Under s.37 CTA 2010:
have to be quoted in
Relief is against total profits of: exam answers.
(a) the same CAP; and
(b) the preceding 12 months (normally one CAP).
A claim can be limited to part (a) only.
A claim cannot be limited to part (b) only unless there are
nil profits available for relief in the current CAP.
Under s.45 CTA 2010against first available future trading
profits only of the same trade.
This relief can be claimed without a s.37 claim being made
first, but is usually made after such a claim to relieve any
remaining loss.
If the loss-making CAP is preceded by a CAP of less than 12
months, then the previous 12 months' relief is given in two
CAPs on a LIFO basis. Relief in the earliest CAP is against a
proportion of the total profits.

F6 Taxation (UK) Session 14 Corporation TaxLoss Reliefs
Illustration 2 Allocation of Relief

to Multiple CAPs
A company prepares accounts to 31 March until 2013 when it changes
its accounting date to 31 December. If it makes a trading loss in the
year ended 31 December 2014, relief will be obtained as follows:
(i) against total profits of year ended 31 December 2014
(ii) against total profits of 9 months to 31 December 2013
(iii) against 3/12ths of total profits of year ended 31 March 2013
(iv) against future trading profits of years ended
31 December 2015, 2016, etc.
If a company has an unrelieved trading loss b/f, s.45 relief for

this loss takes precedence over later losses (for which s.37
relief is available).
s.37 relief is only available if the company makes a specific
claim within two years of the end of the CAP of loss.
1.3 Pro Forma Corporation Tax Computation

(With Trading Loss Reliefs)

Trading profit x
Less: s.45 relief (x)
x
Property business profit x
Non-trade interest x
Gains x
Total profits x
Less: s.37 relief (x)
x
Less: Qualifying charitable donations (x)
TTP x
Note that the s.37 relief is applied before deducting qualifying

charitable donations.
1.4 Effects of Loss Relief

Loss reliefs reduce/eliminate TTP from charge to tax.
Where relief is given in earlier CAP(s), refunds of tax will arise.

1.5 Computational Technique

1.5.1 Introduction
The key to successfully relieving a trading loss is
computational technique.
Exam questions will require either the amounts of TTP or the
corporation tax payable for several CAPs to be determined,
taking into account the relief for a trading loss(es).
This is best achieved by splitting the computations into
twostages:
the calculation of TTP, incorporating the relief of the loss;
the computation of the tax payable (repayable), if required.
1.5.2 Computation of TTP Incorporating Loss Relief

Step 1set up a series of corporation tax computations
in columnar format (use the pro forma layout shown in
s.1.3above).
Step 2insert the known figures of taxable profits and
charitable donations. Show the trading loss as nil.
Step 3open up a working headed "loss relief memorandum".
This working will record how the amounts of loss relief in each
relevant CAP are calculated.
Step 4enter the amounts of loss relief just determined in
the relevant places in the corporation tax computations and
calculate TTP.
1.5.3 Computations of Tax Payable/(Repayable)

The second stage computation requires the calculation of tax
payable after loss relief for each relevant CAP.
Where relief arises in an earlier CAP, the refund of tax will be
ascertained by comparing the original tax liability with that
arising after loss relief.

Example 1(a) Trading Loss Relief
GS Ltd started trading 1 January 2011 preparing accounts to 31 December annually:
2011 2012
12 months to 31 December
Trading profit/(loss) (40,000) 52,000
Property business profit 3,000 3,500
Bank interest receivable 800 850
Qualifying payment to charity made annually in June (1,000) (1,000)
Required:
Calculate taxable total profits for both chargeable accounting periods after giving
effect to the loss relief.
Solution
Corporation tax computations 2011 2012

Trading profits/(losses)
Less: s.45 relief (W)
Other profits: Property business profit
Non-trade interest receivable
Gain
Total profits
TTP
Working
Loss relief memorandum Trading loss

Year ended December 2011
Trading loss
Other profits:
Year ended December 2012
Trading profit
Less: s.45 relief

Example 1(b) Trading Loss Relief
GS Ltd (as per Example 1(a)) changed its accounting date to 30 September in 2013.
Further results were:
9 months 12 months
30.9.13 30.9.14

Trading profit/(loss) 62,000 (90,000)
Property business profit 3,200 3,800
Bank interest receivable 1,000 600
Qualifying charitable donation (annually each June) (1,000) (1,000)
Required: Calculate taxable total profits for all relevant chargeable accounting periods
after giving effect to loss reliefs.
Solution
Corporation tax computations 12 months to 9 months to 12 months to
31.12.12 30.9.13 30.9.14

Trading profit/(loss) 52,000
Less: s.45 relief (W) (33,700)
18,300
Property business profit 3,500
Non-trade interest 850
Gain
Total profits 22,650
TTP
Working
Year ended 30 September 2014
Trading loss
Other profits
12 months to 9 months to
31.12.12 30.9.13

Total profits (Note)
Less: s.37 LIFO
Lower of
(1) Loss
(2) Profits
(1) Loss
(2) Profits
Unrelieved loss c/f

Example 1(c) Tax Refunds Due to Loss Relief
GS Ltd paid the following amounts of corporation tax before taking into account the relief of the
trading losses dealt with in parts (a) and (b) above:

Year ended 31 December 2011 nil
Year ended 31 December 2012 11,208
Nine months ended 30 September 2013 13,040
Required:
Calculate the amount of corporation tax repayable for all relevant chargeable accounting
periods. The small profits rate for the financial year 2011 is 20%.
Solution
Corporation tax liabilities 12 months 12 months 9 months
to 31.12.11 to 31.12.12 to 30.9.13

Tax on TTP after loss relief
Tax paid (before loss relief)
Year end 31 December 2011
Year end 31 December 2012
Repayable
2 Cessation of Trade
2.1 Terminal Loss Relief

Where a company ceases trading, relief is applied as follows:
the loss of the last CAP is relievable against total profits of
the same period under s.37 rules; and
the terminal loss is relieved against total profits of the 36
months preceding the last accounting period, on a LIFO
basis under s.39 CTA 2010.
The terminal loss for corporation tax purposes is the trading
loss of the last 12 months of trading.
Terminal loss relief should be claimed within four years of the
cessation of trade.
Again, it is not
necessary to quote
2.2 Cessation Coinciding With the Normal section references in
Accounting Date exam answers.
In this case, the last 12 months of trading is the last CAP.

Example 2 Terminal Loss Relief
Harris Ltd ceased trading on 31 December 2014, having prepared annual accounts to
31 December. Recent results were:
Year ended 31 December

2011 2012 2013 2014

Adjusted trading profit/(loss) 500,000 250,000 100,000 (300,000)
Other profits 10,000 5,000
Qualifying charitable donations (20,000) (20,000) (20,000) (20,000)
Required:
Calculate the profits chargeable to corporation tax for all accounting periods after
taking into account the relief for the trading loss of the year ended 31 December 2014.
Solution
Year ended 31 December
2011 2012 2013 2014

Trading profit/(loss)
Other profits
Total profits
Less: s.37/39 relief (W)
TTP
Working

Year ended 31 December 2014
(= Last CAP)
Trading loss
Other profits
Less: Current accounting period relief
TTP
2011 2012 2013

Total profits
Less: Terminal loss relief (LIFO)

2.3 Cessation Not Coinciding With the Normal

Accounting Date
2.3.1 Introduction
In these cases, the last CAP will be less than 12 months and the
terminal loss will comprise the trading losses of the last CAP and
part of the preceding CAP.
2.3.2 Losses Arising in Each of the Last Two CAPs
Illustration 3 Terminal Loss,

Two CAPs
Assuming a normal accounting date of 31 March and a cessation of
trade on 31 December 2014, the terminal loss will be calculated as
follows:
31.3.13 12 months 31.3.14 9 months 31.12.14
Last 12 months of trading
B A
A = Trading loss of the last accounting period

(after relief against total profits of that period).
B = Trading loss of the previous accounting period 312

(or, if lower, the full amount of any unrelieved loss
of this period).
Note: The proportion of the loss incurred in the penultimate

accounting period falling outside the last 12 months (1.4.13
31.12.13) can only be carried back 12 months (under s.37 rules).
2.3.3 Loss Only in the Last CAP

Where a trading profit arises in the penultimate accounting
period, the proportion of this period's profit relating to the
last 12 months is treated as a nil loss (i.e. B in the Illustration
above is nil).
2.3.4 Computational Technique

In these more complex situations, the computational technique
is especially important. In particular, if two losses comprise the
last 12 months, the losses must be dealt with in chronological
order.
Most F6 exam questions concerning terminal loss relief are fairly

straightforward. Example 3 (see next page) is more involved than
would be set in an exam, but is a useful comprehensive exercise
which draws together the aspects to be covered.

Example 3 Two Losses
Sowerby Ltd ceased trading on 31 December 2014, having previously prepared accounts to 31
March annually.
Results for relevant accounting periods preceding the cessation of trade were:
y/e y/e y/e y/e 9 months

31.3.11 31.3.12 31.3.13 31.3.14 31.12.14

Adjusted trading profits/

220,000 150,000 100,000 (180,000) (80,000)
(losses)
Bank interest receivable 12,000 10,000 8,000 6,000 3,000
Qualifying charitable
(4,000) (4,000) (2,000)
donations
Required:
(a) Calculate the taxable total profits for each accounting period after taking into
account relief for the trading losses.
(b) State any amounts for which no tax relief will be given.
Solution
(a) Corporation tax computations
y/e y/e y/e y/e 9 months to
31.3.11 31.3.12 31.3.13 31.3.14 31.12.14

Trading profits/(losses)
Non-trade interest
Total profits
Less: s.37/39 reliefs
(1) y/e 31.3.14 loss (W1)

(2) 9 months to 31.12.14
loss (W2)
(3) s.39 last 12 months'
loss relief (W3)
Less: Qualifying charitable

donations
TTP
(b) Unrelieved amounts:

Example 3 Two Losses (continued)
Workings
Loss relief memorandum
(1) Loss of year ending 31 March 2014 Trading loss
Current accounting period relief:
Trading loss
Other profits:
Less: s.37 relief
Preceding 12 months' relief:

Total profits
Less: s.37 relief
Unrelieved loss
(2) Loss of the 9 months to 31 December 2014

Trading loss
Other profits
Less: s.37 relief (current period)
Unrelieved losses at date of cessation

(3) Terminal loss for final 12 months ending 31 December 2014

(a) Last CAP
Trading loss of the same period (after s.37 relief)
(b) Proportion of penultimate CAP
Lower of:
(i) Trading loss

(ii) Unrelieved loss
Terminal loss
(4) Relief in preceding 36 months (LIFO)
Year ended 31 March 2012 2013 2014

Total profits
S.39 relieflower of:
(1) Loss
(2) Profits
Unrelieved loss

3 Other Losses
3.1 Property Business Losses

A property business loss arising from an excess of allowable
expenses over property income can be relieved against:
(i) total profits of the same CAP; and
(ii) total profits of future CAPs, provided the property
business continues.
Property business losses cannot be carried back.
3.2 Capital Losses

As already explained (Session 9), capital losses are set off
against current and then future chargeable gains. They can
never be carried back to earlier periods nor set off against
income.
3.3 Interaction With Trading Loss Relief

Where trading losses, capital losses and property business
losses arise in the same question, losses should be relieved
in the following order:
1. trading losses b/f;
2. current capital loss;
3. current property business loss;
4. current and later trading losses.
This order gives priority to relief for earlier losses before
later losses and to losses where the rules of loss relief are
more restrictive (i.e. the loss reliefs are applied in the most
favourable way).
3.4 Factors Influencing Choice of Loss Relief

Generally the choice of relief for a loss is influenced by
two factors:
Cash flowgetting loss relief sooner rather than later
and, if possible, generating a repayment of tax already
paid. Generally, a company that is making losses will be
experiencing poor cash flow.
Obtaining relief at the highest marginal rate of tax (i.e. the
rate of tax on each 1 of profit that ceases to be taxable
due to loss relief). This means setting a loss against profits
before loss relief taxed at:
21.25%, if profits fall between the lower and upper limits
for small companies (see Session 15 for an explanation of
this rate);
21%, if profits are above the upper limit; and
20%, if profits are below the lower limit.
Maximising tax savings may be contrary to best cash flow
(e.g. carrying forward a trading loss saves more tax than
current or earlier relief which will be best for cash flow).

Session 14
Summary
A trading loss can be relieved against:
total profits of the same CAP and the preceding 12 months; and
the rst available future trading prots of the same trade.
Relief for unrelieved trading losses brought forward takes precedence over later losses.
A terminal loss is relieved against total profits of the 36 months preceding the last
accounting period on a LIFO basis.
Property business losses can be relieved against total profits of the same CAP and future
CAP. They cannot be carried back.
Capital losses are set off against current and then future chargeable gains. They cannot be
carried back nor set off against income.
Where trading, capital and property business losses arise together, they should usually be
relieved in the order: (1) trading losses b/f; (2) current capital loss; (3) current property
business loss; and (4) current and future trading losses.
Loss relief will generally be structured to get loss relief sooner rather than later and
generate tax repayments and to obtain relief against the highest marginal tax rate.
Maximising tax savings may not provide the best cash flow.
Session 14 Quiz
1. Describe how corporate trading losses can be relieved under s.37

and s.45. (1.2)
2. State the time period within which a s.37 claim may be made. (1.2)
3. Explain how s.37 relief is extended by s.39 on cessation of trade. (2.1)
4. State how capital losses may be utilised by a company. (3.2)
Study Question Bank

Q32 Jorrocks Ltd 30 minutes

Additional
Q33 Flounder Ltd

EXAMPLE SOLUTIONS
Solution 1(a)Trading Loss Relief
Corporation tax computations 31 December 31 December
2011 2012

Trading profits/(losses) 0 52,000
18,300
Other profits: Property business profit 3,000 3,500
Non-trade interest receivable 800 850
Gain 2,500
Total profits 6,300 22,650
0 22,650
Less: Qualifying charitable donations* (1,000) (1,000)
TTP 0 21,650
*The unrelieved qualifying charitable donations in 2011, created by

loss relief taking precedence over the relief of charitable donations,
cannot be relieved in the next accounting period.
Working

Trading loss 0 (40,000)
Other profits: 6,300
6,300
Less: s.37 relief (W) (6,300) 6,300
0 (33,700)
No carry back relief as this is the first period of trading.
Trading profit 52,000
Less: s.45 relief (33,700) 33,700
18,300 0

Solution 1(b)Trading Loss Relief
Corporation tax computations*

Because of the short CAP (9 months to 30 September 2013), the loss of the next
accounting period (year ended 30 September 2014) will also get relief in the year
ended 31 December 2012.
y/e 9 months to y/e
31.12.12 30.9.13 30.9.14

Trading profit/(loss) 52,000 62,000 0
18,300 62,000 0
Property business profit 3,500 3,200 3,800
Non-trade interest 850 1,000 600
Gain 3,500
Total profits 22,650 66,200 7,900
Less: s.37 relief (W) (5,663) (62,200) (7,900)
16,987 0 0
Less: Qualifying charitable donations* (1,000) (1,000) (1,000)
TTP 15,987 0 0
Working

y/e 30.9.14
Other profits 7,900
7,900
Less: s.37 relief (W) (7,900) 7,900
0 (82,100)
y/e 9 months
31.12.12 30.9.13
Total profits (Note) 22,650 66,200
Less: s.37 LIFO
Lower of
(1) Loss 82,100
(2) Profits 66,200 (66,200) 66,200
(15,900)
(1) Loss 15,900
(2) Profits 312 22,650 5,663 (5,663) 5,663
Unrelieved loss c/f (10,237)
Note: Total profits of 22,650 for the year ended 31 December 2011 is after relief for the
earlier trading loss b/f.

Solution 1(c)Tax Refunds Due to Loss Relief
Corporation tax liabilities 12 months 12 months 9 months

to 31.12.11 to 31.12.12 to 30.9.13

Tax on TTP after loss relief
0 3,197 0
FY 11 and 12: 15,987 (20% 312 + 20% 912)
Tax paid (before loss relief)
Y/e 31 December 2011 0
Y/e 31 December 2012 (11,208)
9 months to 30 September 2013 (13,040)
Repayable 0 (8,011) (13,040)
Solution 2Terminal Loss Relief

Year ended 31 December 2011 2012 2013 2014

Trading profit/(loss) 500,000 250,000 100,000 0
Less s.45 relief (W)
500,000 250,000 100,000 0
Other profits 10,000 5,000
Total profits 500,000 250,000 110,000 5,000
Less: s.37/s.39 relief (W) (185,000) (110,000) (5,000)
500,000 65,000 0 0

(20,000) (20,000) (20,000) (20,000)
donations*
TTP 480,000 45,000 0 0
*The charitable donations of the last two accounting periods will

remain unrelieved.

Solution 2Terminal Loss Relief (continued)
Working

Y/e 31 December 2014 (= Last CAP)
Other profits 5,000
5,000
Less: Current accounting period relief (5,000) 5,000
TTP 0 (295,000)
Since this is the last CAP, s.39 terminal loss relief is available
instead of the normal 12 months carry back.
2011 2012 2013

Total profits 500,000 250,000 110,000
Less: Terminal loss relief (LIFO) (185,000) (110,000) 295,000
500,000 65,000 0
Solution 3Two Losses
(a) Corporation tax computations
Y/e Y/e Y/e Y/e 9 months to

31.3.11 31.3.12 31.3.13 31.3.14 31.12.14

Trading profits/(losses) 220,000 150,000 100,000 0 0
Non-trade interest 12,000 10,000 8,000 6,000 3,000
232,000 160,000 108,000 6,000 3,000
Less: s.37/s.39 reliefs
(1) 12 months to 31.3.14

(108,000) (6,000)
loss (W1)
(2) 9 months to 31.12.14
3,000
loss (W2)
(3) s.39 last 12 months
(122,000)
loss relief (W3)
232,000 38,000 0 0 0

(4,000) (4,000) (2,000)
donations
TTP 228,000 34,000 0 0 0
(b) Unrelieved amounts:

The charitable donations of y/e 31.3.14 will never be relieved. 21,000 of trading losses for
y/e 31.3.14 will never be relieved (i.e. 66,00045,000).

Solution 3Two Losses (continued)
Working
Loss relief memorandum

Relief is given for the losses in chronological order:
(1) Loss of year ending 31 March 2014 Trading loss
Current accounting period relief:

Other profits: 6,000
6,000
Less: s.37 relief (6,000) 6,000
0 (174,000)
Preceding 12 months relief:

Total Profits 108,000
Less: s.37 relief (108,000) 108,000
0
Unrelieved loss (66,000)
(2) Loss of the 9 months to 31 December 2014 (= Last CAP)

Other profits 3,000
3,000
Less: s.37 relief (current period) (3,000) 3,000
0
Unrelieved losses at date of cessation (77,000)
(3) Terminal loss for final 12 months ending 31 December 2014

(a) Last CAP (9 months to 31.12.14)
(77,000)
Trading loss of the same period (after s.37 relief)
(b) Proportion of penultimate CAP (3 months to 31.3.14)
Lower of:
(i) Trading loss (312 180,000) 45,000 (45,000)
(ii) Unrelieved loss 66,000
Terminal loss (122,000)
(4) Relief in preceding 36 months (LIFO)
Year ended 31 March 2012 2013 2014

Total profits (after relief for
160,000 0 0
earlier loss)
S.39 relieflower of:
(1) Loss 122,000 (122,000) 122,000
(2) Profits 160,000
38,000
Unrelieved loss 0

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ACCA

Copyright 2015 DeVry/Becker Educational Development Corp. All rights reserved.

Exclusion of Damages: UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY, TORT,

about This Study System ............................................................................v

aCCa Study Guide .......................................................................................x

Supplementary Instructions ...................................................................xviii

Tax Rates and allowances ......................................................................xviii

Examination Technique ........................................................................... xxi

1 General Concepts and Principles ........................................... 1-1

2 Income Tax Computations .................................................... 2-1

3 Property and Investment Incomes ....................................... 3-1

4 Employment Income ............................................................. 4-1

5 Unincorporated TradersAssessment and Prots ................. 5-1

6 Capital allowances ............................................................... 6-1

7 unincorporated TradersRelief for Trading losses ............... 7-1

8 unincorporated TradersOther Matters................................ 8-1

9 Capital Gains Taxbasic Principles ....................................... 9-1

10 Capital Gains TaxChattels, land and buildings ..................10-1

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11 Capital Gains TaxShares ...................................................11-1

12 Capital Gains Taxbusiness assets .....................................12-1

13 Corporation TaxThe Tax Computation ...............................13-1

14 Corporation Taxloss Reliefs ..............................................14-1

15 Corporation TaxGroups of Companies ...............................15-1

16 Inheritance Tax ...................................................................16-1

17 National Insurance, PayE and Self-assessment ...................17-1

18 Tax Compliance ...................................................................18-1

19 Value added Tax ..................................................................19-1

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abOuT ThIS STuDy SySTEM

How to Use This Study System

These are the learning outcomes relevant to the session, as published in

These are to be read as part of the text. Any solutions to numerical

These extracts of external content are presented to reinforce concepts and

These should be attempted using the pro forma solution provided

Commentaries These provide additional information to reinforce content.

Session Summary A summary of the main points of each session.

A link to recommended practice questions contained in the Study Question

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vi DeVry/Becker Educational Development Corp. All rights reserved.

Relational Diagram of Main Capabilities

The UK tax system and its administration (a)

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7. The use of exemptions and reliefs in 2. The computation of VAT liabilities

C. Chargeable Gains for Individuals

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Approach to Examining the Syllabus

Guide to Examination Assessment

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ACCA Study Guide

A. The UK Tax System and Its Administration Ref.

1. The overall function and purpose of taxation in a modern economy

B. Income Tax and NIC Liabilities Ref.

1. The scope of income tax

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DeVry/Becker Educational Development Corp. All rights reserved. xi

xii DeVry/Becker Educational Development Corp. All rights reserved.

C. Chargeable Gains for Individuals Ref.

1. The scope of the taxation of capital gains

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D. Inheritance Tax Ref.

1. The basic principles of computing transfers of value

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E. Corporation Tax Liabilities Ref.