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ACCA

FINANCE ACT 2012 SEPTEMBER 2012 The personal allowance is reduced by 1 for every 2 t h a t a person's a d j u s t e d net income exceeds 1 0 0 , 0 0 0 . Therefore, a person w i t h adjusted net income of 1 1 6 , 2 1 0 or more is not entitled t o any personal allowance ( 1 1 6 , 2 1 0 - 1 0 0 , 0 0 0 = 1 6 , 2 1 0 / 2 = 8 , 1 0 5 ) . Where a person has an a d j u s t e d net income of between 1 0 0 , 0 0 0 a n d 1 1 6 , 2 1 0 , the effective m a r g i n a l rate of income tax is 6 0 % . This is the higher rate of 4 0 % on i n c o m e plus an a d d i t i o n a l 2 0 % as a result of the w i t h d r a w a l of the personal allowance. In this s i t u a t i o n it may be beneficial to make a d d i t i o n a l personal pension c o n t r i b u t i o n s or gift aid d o n a t i o n s . The same r e d u c t i o n a p p l i e s in respect of age related personal allowances. Where a person's a d j u s t e d net i n c o m e exceeds 2 5 , 4 0 0 , age related allowances are reduced t o a m i n i m u m of the s t a n d a r d personal allowance of 8 , 1 0 5 . However, there will then be a further r e d u c t i o n if a d j u s t e d net income exceeds 1 0 0 , 0 0 0 . This means t h a t regardless of a person's age, no personal allowance will be available where t h e i r adjusted net i n c o m e is 1 1 6 , 2 1 0 or m o r e . Example 1 For the tax year 2 0 1 2 - 1 3 I n g r i d , aged 4 0 , has a salary of 3 7 , 0 0 0 , b u i l d i n g society interest of 8 0 0 (net) a n d dividends of 9 , 0 0 0 (net). Her income tax liability is as follows:

RELEVANT TO ACCA QtJAUFlCATION PAPERS F6 (UK) A N D P6 (UK; A N D F O U N D A T I O N LEVEL PAPER FTX (UK) Finance Act 2 0 1 2 This article looks at the changes m a d e by the Finance Act 2 0 1 2 , and should be read by t h o s e candidates who are t a k i n g Paper F6 (UK) at either the June or December 2 0 1 3 s i t t i n g s . The a i m of the article is to s u m m a r i s e the changes made by the Finance Act 2 0 1 2 and to look at the m o r e i m p o r t a n t changes in greater d e t a i l . The a r t i c l e also includes details of legislation t h a t was enacted prior to the Finance Act 2 0 1 2 , but has only come into effect f r o m 6 A p r i l 2 0 1 2 . Please note t h a t if you are s i t t i n g Paper F6 (UK) in December 2 0 1 2 , you will be e x a m i n e d on the Finance Act 2 0 1 1 , w h i c h is the legislation as it relates to the tax year 2 0 1 1 - 1 2 . Therefore this article is not relevant to y o u , a n d you should instead refer to the Finance Act 2 0 1 1 article p u b l i s h e d on the ACCA website. INCOME TAX Rates of I n c o m e tax The rates of i n c o m e tax for the tax year 2 0 1 2 - 1 3 are as follows: Normal rates Dividend rates

Basic rate Higher rate A d d i t i o n a l rate

1-34,370 3 4 , 3 7 1 to 1 5 0 , 0 0 0 1 5 0 , 0 0 1 a n d over

20 40 50

10 32.5 42.5

Employment income Building society interest ( 8 0 0 x 1 0 0 / 8 0 ) Dividends ( 9 , 0 0 0 x 1 0 0 / 9 0 )

37,000 1,000 10,000 48,000 (8,105) 39,895

Personal allowance Taxable i n c o m e

A s t a r t i n g rate of 1 0 % applies to savings i n c o m e where it falls w i t h i n the f i r s t 2 , 7 1 0 of taxable i n c o m e . If non-savings income exceeds 2 , 7 1 0 the s t a r t i n g rate of 1 0 % for savings does not apply. In this case savings income is taxed at the basic rate of 2 0 % if it falls below the higher rate t h r e s h o l d of 3 4 , 3 7 0 , at the higher rate of 4 0 % if it falls tietween the higher rate threshold of 3 4 , 3 7 0 and the additional rate threshold of 1 5 0 , 0 0 0 , and at the additional rate of 5 0 % if it exceeds the additional rate threshold of 1 5 0 , 0 0 0 . Personal allowances Personal allowances for the tax year 2 0 1 2 - 1 3 are as follows. Personal allowance Standard 8,105 Personal allowance 6 5 - 7 4 10,500 Personal allowance 7 5 and over 10,660 I n c o m e l i m i t for age related allowances 25,400 I n c o m e l i m i t for standard personal allowance 100,000 T h e s t a n d a r d personal allowance of 8 , 1 0 5 is g r a d u a l l y reduced to nil where a p e r s o n ' s a d j u s t e d net Income exceeds 1 0 0 , 0 0 0 . A d j u s t e d net income is net income ( t o t a l i n c o m e less deductions for loss relief and interest p a y m e n t s ) less the gross a m o u n t of personal pension c o n t r i b u t i o n s a n d gift aid donations.

Income tax;

29,895 at 2 0 % 4 , 4 7 5 at 1 0 % 5 , 5 2 5 at 3 2 . 5 %

5,979 447 1,796 8,222

Tax liability

Example 2 For the tax year 2 0 1 2 - 1 3 June, aged 4 8 , has a t r a d i n g profit of 1 8 4 , 0 0 0 , Her income tax liability is as follows: T r a d i n g profit Personal allowance Taxable income 184,000 Nil 184,000

5 2012 ACCA

O 2012 ACCA

3 FINANCE ACT 2012 SEPTEMBER 2012 Income tax: 3 4 , 3 7 0 at 2 0 % 1 1 5 , 6 3 0 at 4 0 % 3 4 , 0 0 0 at 5 0 % 6,874 46,252 17.000 70,126

4 FINANCE ACT 2 0 1 2 SEPTEMBER 2012

Tax liability

T r a d i n g profit Personal allowance Taxable i n c o m e

159,000 (4,605) 154,395

No personal allowance is available as June's adjusted net income of 1 8 4 , 0 0 0 exceeds 1 1 6 , 2 1 0 .

Income tax:

8 6 , 3 7 0 at 2 0 % 6 8 , 0 2 5 at 4 0 %

17,274 27,210 44,484

Example 3 For the tax year 2 0 1 2 - 1 3 Trevor, aged 3 1 , has a t r a d i n g profit of 1 3 2 , 0 0 0 , building society interest of 3 , 2 0 0 (net) and dividends of 3 4 , 2 0 0 (net). The income tax payable by Trevor is as follows:

Tax liability

T r a d i n g profit Building society interest ( 3 , 2 0 0 x 1 0 0 / 8 0 ) Dividends ( 3 4 , 2 0 0 x 1 0 0 / 9 0 )

132,000 4,000 38,000 174,000 Nil 174,000

The gross personal pension c o n t r i b u t i o n s are 5 0 , 0 0 0 ( 4 0 , 0 0 0 x 1 0 0 / 8 0 ) and the gross gift aid donation is 2 . 0 0 0 ( 1 , 6 0 0 x 1 0 0 / 8 0 ) . May's a d j u s t e d net income is therefore 1 0 7 , 0 0 0 ( 1 5 9 , 0 0 0 - 5 0 , 0 0 0 - 2 , 0 0 0 ) , so her personal allowance of 8 , 1 0 5 is reduced to 4 , 6 0 5 ( 8 , 1 0 5 - 3 , 5 0 0 (107,000 - 100,000 = 7,000/2)). The basic and higher rate tax bands are extended to 8 6 , 3 7 0 ( 3 4 . 3 7 0 + 5 0 , 0 0 0 + 2 , 0 0 0 ) and 2 0 2 , 0 0 0 ( 1 5 0 , 0 0 0 + 5 0 , 0 0 0 + 2 , 0 0 0 ) respectively.

Personal allowance Taxable income

Example 5 For the tax year 2 0 1 2 - 1 3 AM, aged 6 7 , has pensions of 1 1 , 9 0 0 and bank interest of 4 , 0 0 0 (net). Her i n c o m e tax liability is as follows:

Income tax:

3 4 , 3 7 0 at 2 0 % 1 0 1 , 6 3 0 at 4 0 % 14,000 at 3 2 . 5 % 2 4 , 0 0 0 at 4 2 . 5 %

6,874 40,652 4,550 10,200 62,276 3,800 800

Pensions Bank interest ( 4 , 0 0 0 x 1 0 0 / 8 0 )

11,900 5,000 16,900 (10,500) 6,400

Tax liability Tax suffered at source Dividends ( 3 8 , 0 0 0 at 10%) Building society interest ( 4 , 0 0 0 at 2 0 % )

Personal allowance Taxable i n c o m e

(4,600) 57,576

Income tax:

Income tax payable

1,400 at 2 0 % 1,310 at 1 0 % 3 , 6 9 0 at 2 0 %

280 131 738 1,149

Tax liability The 1 0 % tax credit on dividend income is available regardless of the rate of tax payable. Example 4 For the tax year 2 0 1 2 - 1 3 May, aged 5 6 , has a t r a d i n g profit of 1 5 9 . 0 0 0 . She made net personal pension contributions of 4 0 , 0 0 0 and a net gift aid donation of 1 , 6 0 0 . May's income tax liability is as follows:

Non-savings i n c o m e is 1 , 4 0 0 ( 1 1 , 9 0 0 - 1 0 , 5 0 0 ) , so 1 , 3 1 0 ( 2 , 7 1 0 - 1,400) of the savings i n c o m e is taxed at the s t a r t i n g rate of 1 0 % . The remainder of the savings i n c o m e is taxed at the basic rate of 2 0 % .

2 0 1 2 ACCA

C> 2012 ACCA

5 F I N A N C E ACT 2012 SEPTEMBER 2012 Example 6 For t h e tax year 2 0 1 2 - 1 3 Lorn, a g e d 8 0 , has pensions of 2 4 , 5 0 0 a n d b u i l d i n g society interest of 3 , 2 0 0 (net). Her income tax liability is as follows: Pensions B u i l d i n g society interest ( 3 , 2 0 0 x 1 0 0 / 8 0 ) 24,500 4,000 28,500 Personal allowance Taxable i n c o m e I n c o m e tax: 1 9 , 3 9 0 at 2 0 % Tax liability (9,110) 19,390 3,878 3,878 FINANCE ACT 2 0 1 2 SEPTEMBER 2012 Child benefit i n c o m e tax charge An income tax charge has been i n t r o d u c e d w h e r e a person's income exceeds 5 0 , 0 0 0 and they receive child benefit. This child benefit i n c o m e tax charge Is not e x a m i n a b l e at the June or December 2 0 1 3 s i t t i n g s . Employment income Homeworking The weekly tax-free allowance t h a t an employer can pay to an employee w h o w o r k s f r o m home has increased f r o m 3 to 4 . The allowance covers the extra light a n d heat costs incurred due to h o m e w o r k i n g , w i t h o u t any need to provide records of t h e actual expenses i n c u r r e d . Company car benefit For the tax year 2 0 1 2 - 1 3 the base level of CO2 e m i s s i o n s used to calculate c o m p a n y car benefits is reduced f r o m 125 g r a m s per k i l o m e t r e to 100 g r a m s per k i l o m e t r e , and the base percentage is reduced f r o m 1 5 % to 1 1 % , The percentage used to calculate a car benefit therefore now ranges f r o m 1 1 % to 3 5 % . There are two lower rates for c o m p a n y m o t o r cars w i t h low CO2 e m i s s i o n s . For a m o t o r car w i t h a CO2 emission rate of 7 5 g r a m s per kilometre or less t h e percentage is 5%. For a m o t o r car with a CO2 emission rate of between 7 6 and 9 9 g r a m s per kilometre the percentage is 10%. The percentage rates ( i n c l u d i n g the lower rates of 5 % and 1 0 % ) are increased by 3 % for diesei cars, but not beyond the m a x i m u m percentage rate of 3 5 % . The c o m p a n y car benefit i n f o r m a t i o n that will be given in the tax rates a n d allowances section of the e x a m p a p e r for the June and D e c e m b e r 2 0 1 3 sittings is as follows: Car benefit percentage The relevant base level of CO2 emissions is 1 0 0 g r a m s per k i l o m e t r e . The percentage rates a p p l y i n g to petrol cars w i t h CO2 emissions u p to t h i s level are: 75 g r a m s per k i l o m e t r e or less 5% 7 6 g r a m s to 9 9 g r a m s per kilometre 10% 100 g r a m s per k i l o m e t r e 11% Example 8 During the tax year 2 0 1 2 - 1 3 Fashionable pic provided the following e m p l o y e e s w i t h c o m p a n y m o t o r cars: Amanda was provided w i t h a new petrol powered c o m p a n y car t h r o u g h o u t the tax year 2 0 1 2 - 1 3 . The m o t o r car has a list price of 1 2 , 2 0 0 a n d an official CO2 e m i s s i o n rate of 8 4 g r a m s per k i l o m e t r e . Betty was provided w i t h a new petrol powered c o m p a n y car throughout the tax year 2 0 1 2 - 1 3 . The m o t o r car has a list price of 1 6 , 4 0 0 and an official CO2 e m i s s i o n rate of 114 g r a m s per k i l o m e t r e .

Lorn's t o t a l income exceeds 2 5 , 4 0 0 , so her personal allowance of 1 0 , 6 6 0 is r e d u c e d to 9 , 1 1 0 ( 1 0 , 6 6 0 - 1,550 ( 2 8 , 5 0 0 - 2 5 , 4 0 0 = 3 . 1 0 0 / 2 ) ) .

Example 7 For t h e tax year 2 0 1 2 - 1 3 Rich, a g e d 7 8 , h a s a t r a d i n g p r o f i t of 9 2 , 0 0 0 and pensions of 1 8 , 0 0 0 . His income tax liability is as follows:

T r a d i n g profit Pensions

92,000 18,000 110,000

Personal allowance Taxable i n c o m e I n c o m e tax: 3 4 , 3 7 0 at 2 0 % 7 2 , 5 2 5 at 4 0 %

(3,105) 106,895 6,874 29,010 35,884

Tax liability

Rich's a d j u s t e d net i n c o m e exceeds 2 5 , 4 0 0 to the extent t h a t his personal allowance of 1 0 , 6 6 0 is initially reduced to the s t a n d a r d personal allowance of 8,105. As the adjusted net i n c o m e of 1 1 0 , 0 0 0 exceeds 1 0 0 , 0 0 0 , the standard personal allowance is t h e n reduced to 3 , 1 0 5 ( 8 , 1 0 5 - 5 , 0 0 0 ( 1 1 0 , 0 0 0 100,000 = 10,000/2)).

2012.ACCA

2 0 1 2 ACCA

7 FINANCE ACT 2012 SEPTEMBER 2012 Charles was provided w i t h a new diesel powered c o m p a n y car on 6 August 2 0 1 2 . The m o t o r car has a list price of 1 3 , 5 0 0 and an official CO? emission rate of 142 grams per k i l o m e t r e . Diana was provided with a new petrol powered c o m p a n y car t h r o u g h o u t the tax year 2 0 1 2 - 1 3 . The m o t o r car has a list price of 8 4 , 6 0 0 and an official CO2 emission rate of 2 3 8 g r a m s per kilometre. Diana paid Fashionable pic 1 , 2 0 0 d u r i n g the tax year 2 0 1 2 - 1 3 for the use of the m o t o r car. Amanda The CO2 emissions are between 7 6 g r a m s and 9 9 g r a m s per kilometre so the relevant percentage is 1 0 % . The motor car was available t h r o u g h o u t 2 0 1 2 - 1 3 , so the benefit is 1,220 (12,200 X 10%). Betty The CO2 emissions are above the base level figure of 100 g r a m s per kilometre. The CO2 emissions figure of 114 is rounded down to 110 so that it is divisible by five. The m i n i m u m percentage of 1 1 % is increased in 1 % steps for each five grams per kilometre above the base level, so the relevant percentage is 1 3 % ( 1 1 % + 2 % ( 1 1 0 100 = 1 0 / 5 ) ) . The m o t o r car was available t h r o u g h o u t 2 0 1 2 - 1 3 so the benefit is 2,132 (16,400 x 13%). Charles The C02 emissions are above the base level figure of 100 g r a m s per kilometre. The relevant percentage is 2 2 % ( 1 1 % + 8 % ( 1 4 0 - 100 = 4 0 / 5 ) = 1 9 % plus a 3 % charge for a diesel car). The m o t o r car was only available for eight m o n t h s of 2 0 1 2 - 1 3 , so the benefit is 1 , 9 8 0 ( 1 3 , 5 0 0 x 2 2 % x 8 / 1 2 ) . Diana The CO2 emissions are above the base level figure of 100 g r a m s per kilometre. The relevant percentage is 3 8 % ( 1 1 % + 2 7 % (235 - 100 = 1 3 5 / 5 ) ) , but this is restricted to the m a x i m u m of 3 5 % . The m o t o r car was available t h r o u g h o u t the tax year 2 0 1 2 13 so the benefit is 2 8 , 4 1 0 ( 8 4 , 6 0 0 x 3 5 % = 2 9 , 6 1 0 - 1 , 2 0 0 ) . The contributions by Diana towards the use of the m o t o r car reduce the benefit.

8 FINANCE ACT 2012 SEPTEMBER 2012 Betty was provided w i t h fuel for private use between 6 April 2 0 1 2 and 3 1 December 2012. Charles was provided w i t h fuel for private use between 6 August 2 0 1 2 and 5 April 2013. Diana was provided with fuel for private use between 6 April 2 0 1 2 and 5 April 2 0 1 3 . She paid Fashionable pic 6 0 0 d u r i n g the tax year 2 0 1 2 - 1 3 towards the cost of private fuel, although the actual cost of this fuel was 1 , 0 0 0 . Amanda The motor car was available t h r o u g h o u t 2 0 1 2 - 1 3 so the benefit is 2 , 0 2 0 ( 2 0 , 2 0 0 x 10%). Betty Fuel was only available for nine m o n t h s of 2 0 1 2 - 1 3 , so the fuel benefit is 1 , 9 6 9 (20,200 X 13% X 9/12). Charles The motor car was only available for eight m o n t h s of 2 0 1 2 - 1 3 , so the fuel benefit is 2,963 (20,200 x 2 2 % x 8 / 1 2 ) . Diana The m o t o r car was available t h r o u g h o u t 2 0 1 2 - 1 3 so the benefit is 7 , 0 7 0 ( 2 0 , 2 0 0 x 3 5 % ) . There is no reduction for the c o n t r i b u t i o n s m a d e since the cost of private fuel was not fully r e i m b u r s e d .

Official rate of i n t e r e s t The official rate of interest is used when calculating the taxable benefit arising f r o m a beneficial loan or f r o m the provision of living a c c o m m o d a t i o n c o s t i n g in excess of 75,000. For the June and December 2 0 1 3 sittings the actual official rate of interest of 4 . 0 0 % for the tax year 2 0 1 2 - 1 3 will be used.

Company car fuel benefit The fuel benefit is calculated as a percentage of a base figure that is announced each year. For the tax year 2 0 1 2 - 1 3 the base figure has been increased from 1 8 , 8 0 0 to 20,200. The percentage used in the calculation is exactly the same as that used for calculating the related c o m p a n y car benefit. Example 9 Continuing with Example 8. Amanda was provided w i t h fuel for private use between 6 April 2 0 1 2 and 5 April 2 0 1 3 .

INTERNATIONAL ACCOUNTING STANDARD TERMINOLOGY The t e r m 'income s t a t e m e n t ' has been amended to ' s t a t e m e n t of profit or loss'. This new t e r m will be used f r o m the June 2 0 1 3 s i t t i n g onwards when presenting accounting i n f o r m a t i o n contained within an exam q u e s t i o n . Capital allowances Plant and Machinery There have been a n u m b e r of changes as regards the allowances available in respect of expenditure on plant and machinery. The changes apply f r o m 6 April 2 0 1 2 ( 1 April 2 0 1 2 for limited c o m p a n i e s ) .

2 0 1 2 ACCA

2 0 1 2 ACCA

9 FINANCE ACT 2 0 1 2 SEPTEMBER 201? The rate of w r i t i n g - d o w n allowance (WDA) for the m a i n pool ( a n d for m o t o r cars with CO2 emissions between 1 1 1 a n d 1 6 0 g r a m s per k i l o m e t r e ) has been r e d u c e d f r o m 2 0 % to 1 8 % . T h e rate of w r i t i n g - d o w n allowance for the special rate pool ( a n d for m o t o r cars w i t h CO2 emissions over 1 6 0 g r a m s per k i l o m e t r e ) has been r e d u c e d f r o m 1 0 % to 8 % . The annual investment allowance (AIA) l i m i t has been reduced f r o m 1 0 0 , 0 0 0 to 2 5 , 0 0 0 . The annual investment allowance provides an allowance of 1 0 0 % for the first 2 5 , 0 0 0 of expenditure on p l a n t a n d m a c h i n e r y in a 1 2 - m o n t h p e r i o d . Any e x p e n d i t u r e in excess of the 2 5 , 0 0 0 l i m i t qualifies for w r i t i n g - d o w n allowances as n o r m a l . The annual investment allowance applies to all expenditure o n p l a n t a n d m a c h i n e r y w i t h t h e exception of m o t o r cars. The 2 5 , 0 0 0 l i m i t is p r o p o r t i o n a l l y r e d u c e d or increased where a period of account is shorter or longer than 12 m o n t h s . For e x a m p l e , t h e annual investment allowance w o u l d be 1 8 , 7 5 0 ( 2 5 , 0 0 0 x 9 / 1 2 ) for a n i n e - m o n t h period of account. Where a p e r i o d of account spans 6 April 2 0 1 2 ( 1 April 2 0 1 2 for l i m i t e d t h e n a p p o r t i o n m e n t will be necessary in order to d e t e r m i n e the rate of allowance a p p l i c a b l e , a n d t h e a m o u n t of annual investment allowance. not be s e t involving a p p o r t i o n m e n t as regards the rate of w r i t i n g - d o w n the a m o u n t of annual investment allowance. companies) writing-down A question will allowance or

10

FINANCE A C T 2 0 1 2 SEPTEMBEF-:20!2 Example 1 0 Ming prepares accounts to 5 April On 6 April 2 0 1 2 the tax w r i t t e n down values of her plant a n d m a c h i n e r y were as follows: f Main pool 16,700 Motor car ( 1 ) 15,600 The f o l l o w i n g t r a n s a c t i o n s took place d u r i n g the year ended 5 April 2 0 1 3 : Cost/ (Proceeds) 10,100 36,400 28,300 16,800 (8,300)

14 April 2 0 1 2 12 August 2 0 1 2 2 November 2 0 1 2 19 January 2 0 1 3 12 March 2 0 1 3

Purchased Purchased Purchased Purchased Sold m o t o r

m o t o r car ( 2 ) equipment m o t o r car ( 3 ) m o t o r car ( 4 ) car ( 2 )

The capital allowances i n f o r m a t i o n t h a t will be given in t h e tax rates a n d allowances section of t h e e x a m i n a t i o n paper for t h e June a n d December 2 0 1 3 sittings is as follows: Rates of a l l o w a n c e P l a n t and m a c h i n e r y M a i n pool Special rate pool M o t o r cars New cars w i t h CO2 emissions up t o 1 1 0 g r a m s per k i l o m e t r e CO2 emissions between 1 1 1 a n d 1 6 0 g r a m s per k i l o m e t r e CO2 emissions over 1 6 0 g r a m s per k i l o m e t r e Annual investment allowance First 2 5 , 0 0 0 of expenditure

Motor car ( 1 ) has CO2 emissions of 1 4 0 g r a m s per k i l o m e t r e . This m o t o r car is used by Ming, a n d 2 0 % of the mileage Is for private journeys. Motor car ( 2 ) p u r c h a s e d on 14 April 2 0 1 2 a n d sold o n 12 March 2 0 1 3 has CO2 emissions of 1 8 5 g r a m s per kilometre. Motor car ( 3 ) purchased o n 2 November 2 0 1 2 has CO2 emissions of 155 grams per k i l o m e t r e . M o t o r car ( 4 ) purchased on 19 January 2 0 1 3 has CO2 emissions of 105 g r a m s per k i l o m e t r e . Ming's capital allowance claim for the year ended 5 April 2 0 1 3 is as follows: Main pool WDV brought fonward Addition qualifying for AIA Equipment AIA-100% Other additions Motor car (2) Motor car (3) Proceeds Motor car (2) WDA-18% WDA-18% WDA-8% Addition qualifying forFYA ti 2012 ACCA 56,400 (10,152) Motor car (1) 15,600 Special rate pool Allowances

%
18 8 100 18 8

16,700

36,400 (25,000)

11,400 28,300 10,100 (8,300) 1,800 (2,808) X 80% (144)

25,000

100

Unless there is private use, motor cars q u a l i f y i n g for w r i t i n g d o w n allowances at the rate of 1 8 % a r e included in the m a i n pool, while m o t o r cars q u a l i f y i n g for w r i t i n g d o w n allowances at the rate of 8 % are included in t h e special rate pool. M o t o r cars w i t h private use (by a sole trader or p a r t n e r ) are not pooled, b u t are kept separate so t h a t the p r i v a t e use a d j u s t m e n t can be c a l c u l a t e d . F r o m t h e June 2 0 1 3 onwards questions will no longer be set involving m o t o r cars already o w n e d at 6 April 2 0 0 9 ( 1 A p r i l 2 0 0 9 for l i m i t e d c o m p a n i e s ) .

10,152 2,246 144

46,248

S 2012 A C C A

11 FINANCE ACT 2 0 1 2 SEPTEMBER 2012 Motor car (4) FYA-100% WDV carried forward Total allowances 16,800 (16,800) 16.800 FINANCE ACT 2012 SEPTEMBER 2012

0 46,248 12,792 1,656

The income f r o m ISAs is exempt f r o m income tax, while a chargeable gain m a d e within a stocks and shares ISA is exempt f r o m capital gains tax. Junior ISAs have been introduced for children under t h e age of 18. Junior ISAs a r e not examinable.

54,342

Pension s c h e m e s Annual allowance The annual allowance for the tax year 2 0 1 2 - 1 3 is unchanged at 5 0 , 0 0 0 . If the annual allowance is not fully used in any tax year then it is possible to carry forward any unused allowance for up to three years. However, carry forward is only possible if a person is a m e m b e r of a pension scheme for a particular tax year. Therefore, for any year in which a person is not a m e m b e r of a pension scheme the annual allowance is lost. Example 11 Monica and Nicola have made the following gross personal pension c o n t r i b u t i o n s d u r i n g the tax years 2 0 0 9 - 1 0 , 2 0 1 0 - 1 1 and 2 0 1 1 - 1 2 : Monica Nil 42,000 38,000 Nicola 56,000 29,000 Nil

Motor car (1) is kept separately because there is private use by Ming. This m o t o r car has CO2 emissions between 111 and 160 g r a m s per kilometre, and therefore qualifies for w r i t i n g down allowances at the rate of 1 8 % . Motor car (2) had CO2 emissions over 160 grams per kilometre and therefore qualifies for w r i t i n g down allowances at the rate of 8 % . Even though it is the only asset in the special rate pool, there is no balancing allowance on the disposal of this motor car because the expenditure is included in a pool. Motor car (3) has CO2 emissions between 111 and 1 6 0 grams per kilometre, and therefore qualifies for w r i t i n g down allowances at the rate of 1 8 % . Motor car (4) has CO2 emissions of less than 110 g r a m s per kilometre and therefore qualifies for the 1 0 0 % first year allowance.

Enterprise zones A 1 0 0 % first year allowance has been introduced for expenditure on plant and machinery in certain enterprise zones. This first year allowance is not e x a m i n a b l e . Furnished holiday lettings From 6 April 2 0 1 2 in order to qualify as a furnished holiday letting a rental property must be available for letting for 2 1 0 days in a year (previously 140 days), and actually let for 1 0 5 days (previously 70 days). The advantages of a rental property qualifying as a furnished holiday letting are: Furniture and equipment purchased for use in a furnished holiday letting qualifies for capital allowances instead of the 1 0 % wear and tear allowance. The profit f r o m a furnished holiday letting qualifies as relevant earnings for pension tax relief purposes. Capital gains tax entrepreneurs' relief, rollover relief and holdover relief are available when a furnished holiday letting is disposed of. It is now possible to make an election so that a rental property continues to qualify as a furnished holiday letting for up to two years after the 105 day test ceases to be met. This election is not examinable. I n d i v i d u a l savings accounts (ISAs) For the tax year 2 0 1 2 - 1 3 a person can invest up to 5 , 6 4 0 in a cash ISA, and up to 1 1 , 2 8 0 in a stocks and shares ISA. This is subject to an overall investment limit of 1 1 , 2 8 0 . Therefore, if 5 , 6 4 0 is invested in a cash ISA, only 5 , 6 4 0 can be invested in a stocks and shares ISA. These limits will be given in the tax rates and allowances section of the exam paper.

2 0 0 9 - 10 2 0 1 0 - 11 2 0 1 1 - 12

Monica was not a m e m b e r of a pension scheme for the tax year 2 0 0 9 - 1 0 . Nicola was a m e m b e r of a pension scheme for all three tax years. Monica Monica has unused allowances of 8 , 0 0 0 ( 5 0 , 0 0 0 - 4 2 , 0 0 0 ) f r o m 2 0 1 0 - 1 1 a n d 1 2 , 0 0 0 ( 5 0 , 0 0 0 - 3 8 , 0 0 0 ) f r o m 2 0 1 1 - 1 2 , so a total of 7 0 , 0 0 0 ( 5 0 , 0 0 0 + 8 , 0 0 0 + 1 2 , 0 0 0 ) is available for 2 0 1 2 - 1 3 . She was not a m e m b e r of a pension scheme for 2 0 0 9 - 1 0 so the annual allowance for that year is lost. Nicola Nicola has unused allowances of 2 1 , 0 0 0 ( 5 0 , 0 0 0 - 2 9 , 0 0 0 ) f r o m 2 0 1 0 - 1 1 a n d 5 0 , 0 0 0 f r o m 2 0 1 1 - 1 2 , so a total of 1 2 1 , 0 0 0 ( 5 0 , 0 0 0 + 2 1 , 0 0 0 + 5 0 , 0 0 0 ) is available for 2 0 1 2 - 1 3 . The annual allowance for 2 0 0 9 - 1 0 is fully utilised, but Nicola was a m e m b e r of a pension scheme for 2 0 1 1 - 1 2 so the annual allowance for that year is available in full. The annual allowance f o r the tax year 2 0 1 2 - 1 3 is utilised first, and then any unused allowances f r o m earlier years with those from the earliest year used first.

2012.ACCA

2 0 1 2 ACCA

13 F I N A N C E ACT 2 0 1 2 SEPTEMBER 2012 Example 12 Perry has m a d e t h e following gross p e r s o n a l pension c o n t r i b u t i o n s : 2 0 0 9 - 10 32,000 2 0 1 0 - 11 41,000 2 0 1 1 - 12 19,000 2 0 1 2 - 13 58,000 The pension c o n t r i b u t i o n of 5 8 , 0 0 0 for 2 0 1 2 - 1 3 used all of Perry's annual allowance of 5 0 , 0 0 0 for 2 0 1 2 - 1 3 , and 8 , 0 0 0 ( 5 8 , 0 0 0 - 5 0 . 0 0 0 ) of the unused allowance of 1 8 , 0 0 0 ( 5 0 , 0 0 0 - 3 2 , 0 0 0 ) f r o m 2 0 0 9 - 1 0 . Perry, therefore, has unused allowances of 9 , 0 0 0 ( 5 0 , 0 0 0 - 4 1 , 0 0 0 ) f r o m 2 0 1 0 - 1 1 and 3 1 , 0 0 0 ( 5 0 , 0 0 0 - 1 9 , 0 0 0 ) f r o m 2 0 1 1 12 t o c a r r y f o r w a r d to 2 0 1 3 - 1 4 . The r e m a i n i n g unused allowance f r o m 2 0 0 9 - 1 0 c a n n o t be c a r r i e d forward to 2 0 1 3 - 1 4 as t h i s is m o r e t h a n three years ago. A l t h o u g h tax relief is available on p e n s i o n c o n t r i b u t i o n s up to the a m o u n t of earnings for a p a r t i c u l a r tax year, the annual allowance acts as an effective annual l i m i t . Where tax relieved c o n t r i b u t i o n s are paid in excess of the annual allowance ( i n c l u d i n g any b r o u g h t f o r w a r d unused allowances), t h e n there will be an annual allowance charge. This charge is s u b j e c t to income tax at a person's m a r g i n a l rates. E x a m p l e 13 For t h e tax year 2 0 1 2 - 1 3 Frank has a t r a d i n g profit of 2 2 0 , 0 0 0 , a n d m a d e gross personal p e n s i o n c o n t r i b u t i o n s of 7 0 , 0 0 0 . He does not have any b r o u g h t forward u n u s e d a n n u a l allowances. Frank's i n c o m e tax liability is as follows:

14

FINANCE ACT 2 0 1 2 SEPTEMBER 2012 Frank will have paid 5 6 , 0 0 0 ( 7 0 , 0 0 0 less 2 0 % ) to the personal pension company. Higher a n d a d d i t i o n a l rate tax relief is given by e x t e n d i n g the basic and higher rate tax bands to 1 0 4 , 3 7 0 ( 3 4 , 3 7 0 + 7 0 , 0 0 0 ) and 2 2 0 , 0 0 0 ( 1 5 0 , 0 0 0 + 7 0 , 0 0 0 ) respectively.

Lifetime allowance The lifetime allowance for t h e tax year 2 0 1 2 - 1 3 has been reduced f r o m 1 , 8 0 0 , 0 0 0 to 1,500,000. The lifetime allowance a p p l i e s to the total funds that can be built u p w i t h i n a p e r s o n ' s pension schemes. Where the l i m i t is exceeded there will be an additional tax c h a r g e when that person s u b s e q u e n t l y w i t h d r a w s the f u n d s in the f o r m of a pension. Gifts of p r e - e m i n e n t o b j e c t s A tax reduction s c h e m e has been i n t r o d u c e d where gifts of pre-eminent objects are made to the n a t i o n . The tax r e d u c t i o n applies to i n c o m e tax, capital gains tax a n d corporation tax. This tax r e d u c t i o n s c h e m e is not e x a m i n a b l e . CORPORATION TAX Rates of c o r p o r a t i o n tax For the financial year 2 0 1 2 the small profits rate of c o r p o r a t i o n tax is u n c h a n g e d at 2 0 % . The m a i n rate of c o r p o r a t i o n tax has been reduced f r o m 2 6 % to 2 4 % . The lower and upper l i m i t s are u n c h a n g e d . Marginal relief eases the t r a n s i t i o n f r o m the small p r o f i t s rate to the m a i n rate of c o r p o r a t i o n tax where a u g m e n t e d p r o f i t s fall between 3 0 0 , 0 0 0 and 1 , 5 0 0 , 0 0 0 . The standard f r a c t i o n used in the calculation of m a r g i n a l relief for the financial year 2 0 1 2 is 1 / 1 0 0 ' " . The effective m a r g i n a l rate of c o r p o r a t i o n tax on profits that fall t)etween the 3 0 0 . 0 0 0 and 1 , 5 0 0 . 0 0 0 l i m i t s is reduced f r o m 2 7 . 5 % to 2 5 % . The corporation tax rates for the financial year 2 0 1 2 can therefore be s u m m a r i s e d as follows: Level of p r o f i t s Up to 3 0 0 , 0 0 0 3 0 0 , 0 0 1 to 1 , 5 0 0 , 0 0 0 Over 1 , 5 0 0 , 0 0 0 Effective rate 20% 25% 24%

Trading profit A n n u a l a l l o w a n c e charge 220,000 20,000 240,000 Nil 240,000

Personal a l l o w a n c e Taxable i n c o m e

I n c o m e tax:

1 0 4 , 3 7 0 at 2 0 % 1 1 5 , 6 3 0 at 4 0 % 2 0 , 0 0 0 at 5 0 %

20,874 46,252 10,000 77,126

Tax liability

The c o r p o r a t i o n tax i n f o r m a t i o n t h a t will be given in t h e tax rates and allowances section of the e x a m p a p e r for the June and December 2 0 1 3 sittings is as follows: Financial year Small profits rate Main rate Lower l i m i t Upper l i m i t Standard f r a c t i o n 2010 21% 28% 300,000 1,500,000 7/400 2011 2012

Frank has earnings of 2 2 0 , 0 0 0 f o r 2 0 1 2 - 1 3 . All of the p e n s i o n c o n t r i b u t i o n s of 7 0 , 0 0 0 therefore qualify for tax relief. The a n n u a l allowance charge is 2 0 , 0 0 0 ( 7 0 , 0 0 0 - 5 0 , 0 0 0 ) being the excess of the pension c o n t r i b u t i o n s over the annual allowance for 2 0 1 2 - 1 3 . F r a n k ' s adjusted net income is 1 7 0 , 0 0 0 ( 2 4 0 , 0 0 0 - 7 0 , 0 0 0 ) This exceeds 1 1 6 , 2 1 0 , so no personal a l l o w a n c e is available.

26% 300,000 1,500,000 3/200

24% 300,000 1,500,000 1/100

2 0 1 2 ACCA

O 2012 ACCA

15 FINANCE ACT 2012 SEPTEMBER 2012 Example 1 4 For the year ended 3 1 March 2 0 1 3 Easy Ltd has taxable total profits of 4 0 , 0 0 0 and franked investment income (Fll) of 1 0 , 0 0 0 . For the year ended 3 1 December 2 0 1 2 Moderate Ltd has taxable total profits of 1 , 4 0 0 , 0 0 0 and Fll of 1 6 0 , 0 0 0 . For the year ended 3 1 March 2 0 1 3 Difficult Ltd has taxable total profits of 6 0 0 , 0 0 0 and Fll of 5 0 , 0 0 0 . For the year ended 3 1 December 2 0 1 2 Hard Ltd has taxable total profits of 6 0 0 , 0 0 0 and Fll of 5 0 , 0 0 0 . Easy Ltd Corporation tax is 8 , 0 0 0 ( 4 0 , 0 0 0 at 2 0 % ) as the augmented profits of 5 0 , 0 0 0 ( 4 0 , 0 0 0 + 1 0 , 0 0 0 ) are less than 3 0 0 , 0 0 0 . Moderate Ltd The augmented profits of 1 , 5 6 0 , 0 0 0 ( 1 , 4 0 0 , 0 0 0 + 1 6 0 , 0 0 0 ) are more than 1 , 5 0 0 , 0 0 0 . Because the c o m p a n y ' s a c c o u n t i n g period straddles 3 1 March the c o r p o r a t i o n tax liability is calculated as follows: Financial year 1,400,000 X Financial year 1,400,000 X Liability 2011 3 / 1 2 = 3 5 0 , 0 0 0 at 2 6 % 2012 9 / 1 2 = 1,050,000 at 2 4 %

16 FINANCE ACT 2 0 1 2 SEPTEi>^BER2012 Marginal relief 3/200 (1,500,000 - 650,000) x 600,000/650,000 x 3/12 Financial year 2 0 1 2 6 0 0 , 0 0 0 X 9 / 1 2 = 4 5 0 , 0 0 0 at 2 4 % Marginal relief 1/100 (1,500,000 - 650,000) x 600,000/650,000 x 9/12 Liability 108,000 (5,885) 138,173 (2,942)

Note that there are alternative ways of calculating the tax liability for Hard Ltd, but this approach is the most straightforward since there is no need to a p p o r t i o n any figures. Qualifying charitable donations From the June 2 0 1 3 paper onwards, the t e r m 'qualifying c h a r i t a b l e donations' will be used rather than 'gift aid d o n a t i o n s ' when referring to a c o m p a n y ' s donations to charity that qualify as a d e d u c t i o n when calculating taxable total p r o f i t s . Overseas b r a n c h e s An overseas b r a n c h of a UK c o m p a n y is effectively an extension of the UK trade, and 1 0 0 % of the b r a n c h profits are assessed to UK c o r p o r a t i o n tax. Double taxation relief is then given where an overseas branch's profits are also taxed overseas. As an alternative to this t r e a t m e n t it is now possible for a c o m p a n y to elect to s i m p l y treat the profits of all of its overseas branches as being e x e m p t f r o m UK c o r p o r a t i o n tax. The election, once m a d e , is irrevocable, and it applies to all of a c o m p a n y ' s overseas branches. The election must be m a d e before the start of an a c c o u n t i n g period to which it is to apply. An election will not be beneficial if a c o m p a n y has a loss m a k i n g overseas b r a n c h , since if an election is m a d e any t r a d i n g loss of an overseas branch will not be relievable when c a l c u l a t i n g taxable total profits. Even if a branch is currently profitable, a c o m p a n y m i g h t decide not to make an election if double taxation relief means there is little or no UK corporation tax liability in respect of the branch profits. This will mean that relief will then be available should the branch make a loss at s o m e point in the f u t u r e . From the June 2 0 1 3 s i t t i n g onwards, a question on overseas branch profits w i l l not be set regarding the set off of qualifying charitable donations and losses on the most favourable basis. The actual rules regarding the e x e m p t i o n of overseas branch profits are q u i t e c o m p l e x , especially where small c o m p a n i e s are c o n c e r n e d . These more complex aspects are not e x a m i n a b l e . In any e x a m i n a t i o n question it should therefore be assumed that the e x e m p t i o n option is available for all overseas branches. Example 15 Brown Ltd is a UK resident c o m p a n y with two overseas branches. For the year ended 3 1 March 2 0 1 3 the c o m p a n y m a d e a t r a d i n g profit of 2 1 0 , 0 0 0 . The first overseas

91,000 252,000 343,000

D i f f i c u l t Ltd Marginal relief applies as the augmented profits of 6 5 0 , 0 0 0 ( 6 0 0 , 0 0 0 + 5 0 , 0 0 0 ) are between 3 0 0 , 0 0 0 and 1 , 5 0 0 , 0 0 0 . The c o m p a n y ' s corporation tax liability is as follows:

6 0 0 , 0 0 0 at 2 4 % Marginal relief 1/100 ( 1 , 5 0 0 , 0 0 0 - 6 5 0 , 0 0 0 ) X 600,000/650,000 Liability

144,000 (7,846) 136,154

H a r d Ltd The a u g m e n t e d profits of 6 5 0 , 0 0 0 ( 6 0 0 , 0 0 0 + 5 0 , 0 0 0 ) are between 3 0 0 , 0 0 0 and 1 , 5 0 0 , 0 0 0 . Because the c o m p a n y ' s a c c o u n t i n g period straddles 3 1 March the corporation tax liability is calculated as follows:

Financial year 2 0 1 1 6 0 0 , 0 0 0 X 3 / 1 2 = 1 5 0 , 0 0 0 at 2 6 %

39,000

2012.ACCA

2 0 1 2 ACCA

13
FINANCE ACT 2 0 1 2 SEPTEMBER 2012 b r a n c h m a d e a t r a d i n g profit of 4 0 , 0 0 0 for the year ended 3 1 March 2 0 1 3 . Overseas c o r p o r a t i o n tax of 6 , 0 0 0 was paid in respect of this profit. The second overseas branch m a d e a t r a d i n g loss of 2 5 , 0 0 0 for the year ended 3 1 M a r c h 2 0 1 3 . B r o w n Ltd has not m a d e an election to e x e m p t the p r o f i t s of its overseas branches. Brown L t d ' s c o r p o r a t i o n tax liability is as follows: UK t r a d i n g profit First overseas b r a n c h Second overseas branch Taxable t o t a l p r o f i t s FINANCE ACT 2 0 1 2 SEPTEMBER 2012 Example 1 6 For the tax year 2 0 1 2 - 1 3 A d a m has a salary of 4 0 , 1 0 5 , and d u r i n g the year he m a d e net personal pension c o n t r i b u t i o n s of 4 , 4 0 0 . On 15 June 2 0 1 2 A d a m sold an a n t i q u e table and this resulted in a chargeable gain of 1 7 , 4 0 0 . For the tax year 2 0 1 2 - 1 3 Bee has a t r a d i n g profit of 5 8 , 1 0 5 . On 2 0 August 2 0 1 2 she sold an a n t i q u e vase and this resulted in a chargeable gain of 1 8 , 6 0 0 . For the tax year 2 0 1 2 - 1 3 Chester has a salary of 3 6 , 1 0 5 . On 2 5 October 2 0 1 2 he sold an a n t i q u e clock and this resulted in a chargeable gain of 2 3 , 8 0 0 . Adam A d a m ' s taxable i n c o m e is 3 2 , 0 0 0 ( 4 0 , 1 0 5 less the personal allowance of 8 , 1 0 5 ) . His basic rate tax b a n d is extended to 3 9 , 8 7 0 ( 3 4 , 3 7 0 + 5 , 5 0 0 ( 4 , 4 0 0 x 1 0 0 / 8 0 ) ) , of which 7 , 8 7 0 ( 3 9 , 8 7 0 - 3 2 , 0 0 0 ) is unused. Adam's taxable gain of 6 , 8 0 0 ( 1 7 , 4 0 0 less the annual e x e m p t a m o u n t of 1 0 , 6 0 0 ) is fully w i t h i n the unused basic rate tax b a n d , so his capital gains tax liability is therefore 1 , 2 2 4 ( 6 , 8 0 0 at 1 8 % ) . Bee Bee's taxable i n c o m e is 5 0 , 0 0 0 ( 5 8 , 1 0 5 - 8 , 1 0 5 ) , so all of her basic rate tax band has been used. The capital gains tax liability on her taxable gain of 8 , 0 0 0 ( 1 8 , 6 0 0 1 0 , 6 0 0 ) is therefore 2 , 2 4 0 ( 8 , 0 0 0 at 2 8 % ) . Chester Chester's taxable income is 2 8 , 0 0 0 ( 3 6 , 1 0 5 - 8 , 1 0 5 ) , so 6 , 3 7 0 ( 3 4 , 3 7 0 - 2 8 , 0 0 0 ) of his basic rate tax band is unused. The capital gains tax liability on Chester's taxable gain of 1 3 , 2 0 0 ( 2 3 , 8 0 0 - 1 0 , 6 0 0 ) is therefore calculated as follows;

210,000 40,000 (25,000) 225,000

C o r p o r a t i o n tax at 2 0 % Double t a x a t i o n relief

45,000 (6,000) 39,000

The f i r s t overseas branch has paid overseas c o r p o r a t i o n tax of 6 , 0 0 0 , and this is lower t h a n t h e related UK c o r p o r a t i o n tax of 8 , 0 0 0 ( 4 0 , 0 0 0 at 2 0 % ) . If B r o w n L t d had m a d e an election to e x e m p t the profits of its overseas branches p r i o r to 1 A p r i l 2 0 1 2 , then its c o r p o r a t i o n tax liability w o u l d have been as follows:

UK t r a d i n g p r o f i t Taxable t o t a l profits C o r p o r a t i o n tax at 2 0 % Therefore an election would not have been beneficial. 210,000 210,000 42,000

6,370 at 1 8 % 6,830 at 2 8 % Tax liability

1,147 1,912 3,059

C A P I T A L G A I N S TAX Annual exempt amount The a n n u a l e x e m p t a m o u n t for the tax year 2 0 1 2 - 1 3 is u n c h a n g e d at 1 0 , 6 0 0 . Rates of c a p i t a l gains tax The lower rate and the higher rate of capital gains tax for the tax year 2 0 1 2 - 1 3 are u n c h a n g e d at 1 8 % and 2 8 % . Chargeable gains are taxed at the lower rate of 1 8 % where they fall w i t h i n the basic rate tax b a n d of 3 4 , 3 7 0 , and at the higher rate of 2 8 % where they exceed this t h r e s h o l d . The basic rate band is extended if a person pays personal pension c o n t r i b u t i o n s or makes a gift aid d o n a t i o n

In each case, t h e capital gains tax liability will be due on 3 1 January 2 0 1 4 . Entrepreneurs' relief Entrepreneurs' relief can be c l a i m e d when an individual disposes of a business or a part of a business. For the tax year 2 0 1 2 - 1 3 the lifetime q u a l i f y i n g l i m i t is unchanged at10m. Gains q u a l i f y i n g for e n t r e p r e n e u r s ' relief are taxed at a rate of 1 0 % regardless of the level of a p e r s o n ' s taxable i n c o m e

2012A,C.CA

'02012 ACCA

19 FINANCE ACT 2012 SEPTEMBER 2012 Example 17 On 25 January 2 0 1 3 Michael sold a 3 0 % shareholding in Green Ltd, an u n q u o t e d t r a d i n g c o m p a n y . The disposal resulted in a chargeable gain of 8 0 0 , 0 0 0 . Michael had owned the shares since 1 March 2 0 0 6 , and was an employee of the c o m p a n y f r o m that d a t e until the date of disposal. He has taxable income of 8 , 0 0 0 for the tax year 2 0 1 2 - 1 3 . Michael's capital gains tax liability is as follows: Shareholding in Green Ltd Annual e x e m p t a m o u n t

20 FINANCE ACT 2012 SEPTEMBER 2012

Mika's capital gains tax liability is as follows: Gains q u a l i f y i n g for e n t r e p r e n e u r s ' r e l i e f Goodwill Freehold office b u i l d i n g

260,000 370,000 630,000

800,000 (10,600) 789,400

Other gains Freehold warehouse Capital losses brought forward

170,000 (28,000) 142,000 (10,600) 131,400

Capital gains tax: 7 8 9 , 4 0 0 at 1 0 %

78,940

Annual exempt a m o u n t

Although chargeable gains that qualify for entrepreneurs' relief are always taxed at a rate of 1 0 % , they must be taken into account when establishing which rate applies to other capital gains. Chargeable gains qualifying for entrepreneurs' relief therefore reduce the a m o u n t of any unused basic rate tax band. The annual exempt a m o u n t and any capital losses should be initially deducted from those chargeable gains that do not qualify for entrepreneurs' relief. This approach will save capital gains tax at either 1 8 % or 2 8 % , c o m p a r e d to just 1 0 % if used against chargeable gains that do qualify for relief. There are several ways of presenting c o m p u t a t i o n s involving such a mix of chargeable gains, but the simplest approach is to keep chargeable gains qualifying for e n t r e p r e n e u r s ' relief and other chargeable gains separate. Example 18 On 3 0 S e p t e m b e r 2 0 1 2 Mika sold a business that she had run as a sole trader since 1 January 2 0 0 6 . The sale resulted in the following chargeable gains:

Capital gains tax:

6 3 0 , 0 0 0 at 1 0 % 1 3 1 , 4 0 0 at 2 8 %

63,000 36,792 99,792

Tax liability

The capital losses and the annual exempt a m o u n t are set against the chargeable gain on the sale of the freehold warehouse as this does not qualify for entrepreneurs' relief. 3 0 , 3 7 0 ( 3 4 , 3 7 0 - 4 , 0 0 0 ) of Mika's basic rate tax band is u n u s e d , but this is set against the gains qualifying for entrepreneurs' relief of 6 3 0 , 0 0 0 even t h o u g h this has no affect on the 1 0 % tax rate.

The capital gains tax i n f o r m a t i o n that will be given in the tax rates and allowances section of the examination paper for the June and December 2 0 1 3 sittings is as follows: Capital gains tax Rates of tax - Lower rate - Higher rate Annual exempt a m o u n t Entrepreneurs' relief - Lifetime l i m i t - R a t e of tax

Goodwill Freehold office building Freehold warehouse

260,000 370,000 170,000 800,000

18% 28% 10,600 10,000,000 10%

The assets were all owned for more than one year prior to the date of disposal. The warehouse had never been used by Mika for business purposes. Mika has taxable income of 4 , 0 0 0 for the tax year 2 0 1 2 - 1 3 . She has unused capital losses of 2 8 , 0 0 0 brought forward f r o m the tax year 2 0 1 1 - 1 2 .

INHERITANCE TAX Rates of i n h e r i t a n c e tax The nil rate band for the tax year 2 0 1 2 - 1 3 is unchanged at 3 2 5 , 0 0 0 .

2012.ACCA

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21 FINANCE ACT 2 0 1 2 SEPTEMBER 2012 The inheritance tax i n f o r m a t i o n that will be given in the tax rates and allowances section of t h e e x a m i n a t i o n paper for the June and December 2 0 1 3 sittings is as follows; i n h e r i t a n c e tax: tax r a t e s 1-325,000 Excess - Death rate - L i f e t i m e rate I n h e r i t a n c e tax: taper relief Years b e f o r e d e a t h Over Over Over Over 3 4 5 6 but but but but less less less less than than than than 4 5 5 7 years years years years Percentage reduction

22 FINANCE ACT 2012 SEFTEM8ER 2012 Example 19 Simone Ltd has one e m p l o y e e w h o is paid 5 0 , 0 0 0 per year, and was provided with the following taxable benefits d u r i n g the tax year 2 0 1 2 - 1 3 ; Company m o t o r car Car fuel Living a c c o m m o d a t i o n The Class 1 and Class l A NIC liabilities are as follows; Employee Class 1 NIC 4 2 , 4 7 5 - 7 , 6 0 5 = 3 4 , 8 7 0 at 1 2 % 5 0 , 0 0 0 - 4 2 , 4 7 5 = 7 , 5 2 5 at 2 % 6,300 5,400 1,800

Nil 40% 20%

4,184 150 4,334

20 40 60 80

E m p l o y e r ' s Class 1 NIC 5 0 , 0 0 0 - 7 , 4 8 8 = 4 2 , 5 1 2 at 1 3 . 8 % E m p l o y e r ' s Class l A NIC 1 3 , 5 0 0 ( 6 , 3 0 0 + 5 , 4 0 0 + 1,800) at 1 3 . 8 %

5,867

Where nil rate b a n d s are required for previous y e a r s then these will be given to you within the question. Reduced r a t e f o r c h a r i t a b l e gifts F r o m 6 A p r i l 2 0 1 2 a reduced rate of inheritance tax applies on death where a person leaves a p r o p o r t i o n of their estate to charity. This reduced rate of inheritance tax is not e x a m i n a b l e . NATIONAL INSURANCE CONTRIBUTIONS Class 1 a n d Class l A N a t i o n a l Insurance c o n t r i b u t i o n s For the tax year 2 0 1 2 - 1 3 the rates of employee Class 1 NIC are u n c h a n g e d at 1 2 % a n d 2 % . The rate of 1 2 % is paid on earnings between 7 , 6 0 6 per year a n d 4 2 , 4 7 5 per year, a n d the rate of 2 % is paid on all earnings over 4 2 , 4 7 5 per year. The rate of e m p l o y e r ' s Class 1 NIC is unchanged a t 1 3 . 8 % , a n d is paid on all earnings over 7 , 4 8 8 per year. The rate of Class l A NIC that employers pay on taxable benefits provided to employees is also u n c h a n g e d at 1 3 . 8 % . The Class 1 a n d Class l A NIC Information t h a t will be given in the tax rates a n d allowances section of the exam paper for the June and December 2 0 1 3 s i t t i n g s is as follows; Class 1 E m p l o y e e

1,863

Class 2 a n d Class 4 N a t i o n a l I n s u r a n c e c o n t r i b u t i o n s For the tax year 2 0 1 2 - 1 3 the rate of Class 2 NIC has been increased to 2 . 6 5 per week. The rates of Class 4 NIC are unchanged at 9 % and 2 % . The rate of 9 % is p a i d on profits between 7 , 6 0 6 a n d 4 2 , 4 7 5 , and the rate of 2 % is paid on all p r o f i t s over 4 2 , 4 7 5 . The Class 4 NIC i n f o r m a t i o n that will be given in the tax rates and allowances section of the e x a m i n a t i o n paper for the June and December 2 0 1 3 sittings is as follows: Class 4 1 - 7 , 6 0 5 per year 7 , 6 0 6 - 4 2 , 4 7 5 per year 4 2 , 4 7 6 and above per year Nil 9.0 2,0

Example 2 0 J i m m y is a self-employed builder and Jenny is a self-employed c o n s u l t a n t . Their trading profits for the tax year 2 0 1 2 - 1 3 are respectively 2 5 , 0 0 0 and 5 0 , 0 0 0 . The Class 4 NIC liabilities are as follows:

1 - 7 , 6 0 5 per year 7 , 6 0 6 - 4 2 , 4 7 5 per year 4 2 , 4 7 6 and above per year 1 - 7 , 4 8 8 per year 7 , 4 8 9 a n d above per year

Nil 12.0 2.0 Nil 13.8 13.8

Jimmy Jenny 2 5 , 0 0 0 - 7 , 6 0 5 = 1 7 , 3 9 5 at 9 % 4 2 , 4 7 5 - 7 , 6 0 5 = 3 4 , 8 7 0 at 9 % 5 0 , 0 0 0 - 4 2 , 4 7 5 = 7 , 5 2 5 at 2 % 1,566 3,138 150 3,288

Class 1 E m p l o y e r Class l A

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23 FINANCE ACT 2012 SEPTEMBER 2012 VALUE ADDED TAX (VAT) R e g i s t r a t i o n and d e r e g i s t r a t i o n l i m i t s The l i m i t of annual turnover above which VAT registration is c o m p u l s o r y has been increased f r o m 7 3 , 0 0 0 to 7 7 , 0 0 0 , and the deregistration limit has been increased f r o m 7 1 , 0 0 0 to 7 5 , 0 0 0 . Standard rate of VAT The s t a n d a r d rate of VAT is unchanged at 2 0 % Example 2 1 Gwen is in the process of c o m p l e t i n g her VAT r e t u r n for t h e q u a r t e r ended 3 1 March 2 0 1 3 . The f o l l o w i n g i n f o r m a t i o n is available: Sales invoices totaling 1 2 8 , 0 0 0 were issued in respect of standard rated sales. Standard rated materials a m o u n t e d to 3 2 , 4 0 0 . Standard rated expenses a m o u n t e d to 2 4 , 8 0 0 . On 15 February 2 0 1 3 Gwen purchased machinery at a cost of 2 4 , 1 5 0 . This figure is inclusive of VAT. Unless stated otherwise all of the above figures are exclusive of VAT. VAT r e t u r n - Quarter ended 3 1 M a r c h 2 0 1 3 Output VAT Sales ( 1 2 8 , 0 0 0 X 2 0 % ) Input VAT Materials ( 3 2 , 4 0 0 X 2 0 % ) Expenses ( 2 4 , 8 0 0 x 2 0 % ) Machinery ( 2 4 . 1 5 0 x 2 0 / 1 2 0 ) VAT payable

24 FINANCE ACT 2012 SEPTEMBER 2012 2 0 1 2 a business will have until 7 November 2 0 1 2 to file its VAT return online and pay any VAT that is due. TAX MANAGEMENT Penalties for late f i l i n g of VAT r e t u r n s and late p a y m e n t of VAT New penalties for the late f i l i n g of returns and for late p a y m e n t of tax are being introduced over a n u m b e r of years. Although legislation has been i n t r o d u c e d regarding the late filing of VAT returns and the late payment of VAT, HM Revenue & Customs have yet to i n t r o d u c e the changes. Therefore, for the June and December 2 0 1 3 sittings the changes will not be examined. Data g a t h e r i n g powers A new single regime of HM Revenue & C u s t o m s ' i n f o r m a t i o n and inspection powers was introduced by the Finance Act 2 0 0 9 . Under this regime HM Revenue & Customs can request i n f o r m a t i o n f r o m taxpayers by m a k i n g a w r i t t e n i n f o r m a t i o n notice. Requests to t h i r d parties for i n f o r m a t i o n must n o r m a l l y either be agreed by the taxpayer or approved by the first-tier t r i b u n a l . These powers have now been extended to t h i r d party bulk data gatherers such as banks and s t o c k b r o k e r s . Late payment i n t e r e s t and r e p a y m e n t interest The assumed rates of late p a y m e n t interest and repayment interest on u n d e r p a i d a n d overpaid income tax, Class 4 NIC. capital gains tax and c o r p o r a t i o n tax are based on the actual rates in force (for i n c o m e tax purposes) at 6 April 2 0 1 2 . For the June and December 2 0 1 3 sittings the a s s u m e d rate of late p a y m e n t interest will therefore be 3.0%, and the assumed rate of r e p a y m e n t interest will be 0 . 5 % . David Harrowven is e x a m i n e r for Paper F6 (UK) (15.465) 10,135

25,600

6,480 4,950 4,025

Fuel p r o v i d e d for private mileage Where fuel is provided for private mileage, o u t p u t VAT is normally calculated a c c o r d i n g to a scale charge based on the m o t o r car's level of CO2 emissions. In order to b r i n g UK legislation fully in line w i t h European Union legislation, the basis of c h a r g i n g o u t p u t VAT is to be a m e n d e d . Although HMRC have introduced a t e m p o r a r y change, legislation has not yet been i n t r o d u c e d . Therefore, for the June and December 2 0 1 3 sittings the change will not be e x a m i n e d . Online f i l i n g From 1 April 2 0 1 2 the requirement to file VAT online and pay any VAT that is due electronically is extended to all businesses. The deadline for online filing and electronic payment is one m o n t h and seven days after the end of the VAT quarter. For example, for the quarter ended 3 0 September

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