Taught Course
June 2008 Exams
Slide 2
Slide 3
Course Administration
Start and finish times Breaks Daily attendance register
The attendance register will shortly be passed round the class; please ensure that the information you give is correct. Please note if you are a company sponsored student, then your attendance / non-attendance will be reported to your employer.
Slide 4
Facilities
Toilets Canteen/common room Drinks machines Internet facilities After class study room
Switch off Mobile Phones
Slide 5
Pass Assurance
You must: Book on both a taught and revision course. Attend all classes (on time). Submit both course exam 1 by 10th April 2008 and course exam 2 by 8th May 2008, and score at least 30% on each (i.e. make a reasonable attempt). Certain sponsoring firms have their own internal submission dates which override the pass assurance dates affected students will be notified by their employer. If you fail the exam in June and qualify for Pass Assurance you can attend any taught, revision or question day course for the same paper free of charge for the next sitting
Slide 6
Syllabus
A B C D E F G
Slide 7
The UK tax system Income tax liabilities Corporation tax liabilities Chargeable gains National insurance Value added tax Obligations of tax payers
Question 2
Corporation tax question; groups and 25-30 overseas aspects will account for 1/3 of marks. Could include VAT. Chargeable gains Will test the remainder of the syllabus Will test the remainder of the syllabus 20 15 10 100
Slide 9
Home study
Home study is vital for this paper Question practice essential 2 course exams Guidance at the end of each day
HMRC
Lord Chancellor
Officers
General Commissioners
Special Commissioners
Slide 12
Slide 14
Slide 16
40%
34,600
40%
32.5%
22%
20%
10%
10%
NSI
10%
SI
10%
DI
Slide 18
Slide 19
Slide 20
Slide 21
94,775
Extended basic rate band (32,370 + 7,800 x 100/78) 223 9,321 20,070 29,614
Employment income
Employment income
Salary Bonus Commission / tips Benefits Allowable deductions Employment income
Slide 24
X X X X X (X) X
If you want to get free study material of CAT, ACCA, CIMA, CFA, CIA visit : freefor911.wordpress.com
Travel expenses
Home No allowable deduction Permanent workplace Allowable deduction Temporary workplace < 40% or 24 months
Slide 25
Slide 26
< 8,500
Slide 29
1,800
900
Slide 31
Slide 32
X (140) X X X 15% X% X
Lecture example 4 (solution 2) (b) If car were diesel Benefit = 15% + 3% + 3% = 21% 21% x16,500 = 3,465 (c) Basic benefit (above) = 6/12 Less contribution = 3,465 1,733 (1,000) 733
Slide 35
Pensions
Slide 37
Lecture example 2
Salary Less pension contribution Benefits 50,000 (5,000) 8,000 53,000 NB: Employers contribution is tax free
Slide 39
6,000 94,214
Property income
Slide 43
Property Income
000s Rental income (accruals) Less: expenses (accruals) Advertising Agents fees Repairs Property income profit / (loss)
Slide 44
X X X X (X) X / (X)
Slide 45
Landlord
Premium
Rent
Tenant
Slide 46
Slide 47
Grants 15 yr lease
Tenant
Slide 48
Badges of trade
Buy & sell Profit
INCOME TAX
Slide 50
Slide 51
Course Companion
Question practice
Slide 52
Capital allowances
vs
Total
30,000
12,000
> 12,000
max 3,000 pa
Total
9,250
7,188
2,560 960
Slide 59
Balancing adjustments
Disposal
general pool deduct proceeds (limited to cost) continue 25% WDA no bal allow unless cessation
Slide 60
expensive car deduct proceeds (limited to cost) no further WDA bal allow or bal charge
GP 15,000
SLA 4,000
Total
(25,000) (5,000)
5,400
Slide 63
Slide 64
Slide 65
Subsequent users
IBA = Residue before sale Spread over the remaining tax life (to the nearest month) Tax life
Acquisition
Slide 66
Slide 67
84,000 / 21 = 4,000
Slide 68
Solution
Tax the AP which ends in the fiscal yr
Slide 70
AP
1/4/07
31/3/08
FY
6/4/07
5/4/08
Slide 71
AP
1/5/06
30/4/07
FY
6/4/07
5/4/08
Slide 72
3 problems of CYB
May not be one 12m AP ending in the FY
COMMENCEMENT
CESSATION
CHANGE OF Y/E
Opening yr rules
Closing yr rules
Slide 73
Opening yr rules
1ST YEAR ACTUAL BASIS Is there an A.P ending in the 2nd FISCAL YEAR? YES How long is the A.P? <12m Tax FIRST 12m from commencement
Slide 74
Overlap profits
Some profits taxed twice Depends on choice of yr end:
30 April = 11 mths o/lap 31 March = 0 mths o/lap
Relief available:
on cessation change of a/c date
Slide 75
5,000
CYB (yr to 30/6/07) 1/1/06 5/4/06 1/7/06 31/12/06 CYB (yr to 30/6/08)
4,667
18,667
9,000
Closing yr rules
Penultimate F.Y - Normal CYB Final F.Y - Tax any profits missed so far - Less: o/lap relief X
X (X) X
Slide 79
2006/07 CYB (y/e 31.12.06) 2007/08 Yr to 31.12.07 3mths to 31.3.08 Less: o/lap relief
Slide 80
BA / BC
Slide 82
1/3/07 31/7/08
(42,000 10,500)
Slide 83
Fiscal yr
Basis
Working
Slide 84
Best 31 March
F 1
11m
0m
Approach to questions
Identify the yr of change (YoC)
Earliest of
1st FY A/Cs not made to old date 1st FY A/Cs are made to new date
Slide 86
Fiscal Yr
06/07 07/08 08/09 09/10
Dates
Y/e 30/9/06 Y/e 30/9/07
20,000 27,000
12 mths to 30.4.08 30,250 GAP < 12 mths 27,000) 19,000 + (5/12 x (7mths) create 12mth period
YoC
Y/e 30/4/09
32,000
Fiscal Yr
06/07
Dates
Y/e 31/12/06
42,000 07/08 Y/e 31/12/07 37,000 15 mths to 31.3.09 68,000 relief 08/09 GAP > 12 mths (15mths) tax gap & claim 3mths o/lap YoC (5,000) Less 3mth o/lap 63,000 09/10 Y/e 31/3/10 49,000
Trading losses
Step 1 - Set out the proforma Step 2 - Copy in numbers from qn. Step 3 - Slot in the losses (using the rules) Step 4 - Remember loss memo
Slide 91
Slide 92
2006/07 Trading income 20,000 Carry forward ______ 20,000 Other income 2,000 22,000 Relief vs income (22,000) _____ Nil Net Income ______
Slide 93
Carry forward
6,000
Slide 94
Slide 95
Slide 96
2006/07
Loss relief 2006/07 and/or 2005/06 Loss relief 2003/04, 2004/05 and 2005/06
Slide 97
Advice: Take early year loss relief of 30,000 in 02/03 tax repayment and earliest relief Also early year loss relief of 10,000 in 03/04.
Slide 98
cessation
Loss O/ lap
X X X
TERMINAL LOSS
Slide 99
Closing year rules proforma: 2005/06 Trading 8,000 TLR ______ ______ 2006/07 10,000 ______ ______ 2007/08 4,000 ______ ______ 2008/09 nil ______ ______
Slide 100
(9,000)
Losses on incorporation
Company Business Business TLR available Incorporation relief c/fwd vs future income from co.
Trading loss
Loss vs income available C/Fwd NOT available
Slide 103
Partnerships
Net profit of p/ship Add : disallowed expenses Less: income taxed elsewhere capital allowances Adjusted p/ship profits X X (X) (X) X
1.4.07 30.6.07 (15,000 to allocate) Balance (1:1) 7,500 _____ _____ 36,000 7,500 _____ _____ 24,000 15,000 _____ 60,000
Slide 106
J Salary Balance (3:2) Trading loss 6,000 (21,600) _____ (15,600) _____
Slide 107
(10,000)
(10,000)
(20,000)
Slide 108
9,500 1,500
Trading assessment
2,500 (7,500)
NIL
Slide 110
31.5.05
6m
31.5.06
6m
1:1
1/12/05 B joins
2:2:1
Slide 111
Assessments: M & G M 2005/06 (y/end 31/5/05) 2006/07 (y/end 31/5/06) 2007/08 (y/end 31/5/07) 16,500 22,950 28,800 G 16,500 22,950 28,800
Slide 113
Slide 114
12,300 14,400
2007/08
6/12 x 14,400
Slide 115
Course Companion
Question practice
Slide 116
10%
10%
10%
10%
Slide 119
Illustration
Chargeable gain Annual exemption Taxable gain CGT payable 6,700 x 20% 800 x 40% 7,500
Slide 120
Basic rate band left 34,600 27,900 = 6,700 1,340 320 1,660
2007/08
5/10/08 31/01/09
Gain
Inform HMRC
CGT due
Slide 121
Calculation of gain
Gross proceeds Less selling expenses Less cost Gain/(loss) X (X) (X) X/(X)
Slide 122
Taper relief
6/4/98
IA Taper relief
Depends on
complete yrs of o/ship since 6/4/98 + bonus yr for NBAs
Slide 123
Business assets
Definition of BA
Asset used in trade Shares
unquoted
5%
employee
trading co
Slide 124
Slide 125
Slide 126
19,500
Asset 2 (70%) X
Asset 3 (25%) X
Total
(X)2 X x 70% X
__ X x 25% X X (9,200) X
Slide 129
Calculation of gain
Gross proceeds Less selling expenses Less cost Less Indexation allowances to 4/98 Rise in RPI x cost Indexed Gain/(loss)
Slide 132
Slide 133
Part disposal
Set 10 warriors - value 1m - cost 20,000 Sell Keep Gain? for 100,000 worth 400,000 - Proceeds = 100,000 Cost? 20,000 x 100,000/500,000 = 4,000
Slide 137
Slide 138
3,441
Compensation
Compensation = proceeds
Asset destroyed
Asset damaged
Full disposal
Restoration = enhancement
Slide 140
= 23,077
Slide 141
95,000 (23,077) (33,000) 38,923 = 0.269 x 23,077 = 0.016 x 33,000 (6,208) (528) 32,187 19,312
Gain after taper relief 80% Base cost of new asset 36,000 - 6,000
Slide 143
3,200 = 30,000
Chattels
Tangible moveable property Wasting Life < 50yrs P+M Dogs Racehorses Non wasting Life > 50yrs Antiques Elephants
Slide 145
Chattel rules
Cost Proceeds < 6,000 > 6,000
< 6,000
EXEMPT
GP = 6,000
Restrict gain
> 6,000
5/3 (GP-6,000)
Slide 146
Slide 148
PPR
Occup. before 3 yrs - any reason Any period - working abroad 4 yrs - working elsewhere in UK
* Last 36 mths always deemed occup.
Deemed occup.
Occup. after
Slide 149
1.4.83
1.4.84
1.4.89
Occupied
30.9.07 Sale
Occupied
Overseas
12
60
180
36
294
Slide 150
Gain Less PPR 114/294 x 100,000 Less letting exemption Lower: PPR claimed =38,776 De minimus = 40,000 Gain due to letting 30/294 x 100,000 = 10,204 After TR 60%
Slide 151
100,000 (38,776)
Business reliefs
Effect on donee
Base cost of asset MV Gift relief X (X) X Taper relief clock starts again (ie lose TR accrued by donor)
Slide 154
TR % Chargeable gain
Slide 156
Slide 157
Slide 158
270+130+ 20
Slide 159
Slide 160
Slide 161
Rollover relief
Proceeds Cost IA Gain 80k (20k) (20k) 40k
36m Reinvest
100k All gain deferred Base cost 100k Less (40k) 60k
(20,000) 51,220
Base cost of new asset: Cost Gain rolled over Base cost 230,000 (51,220) 178,780
Slide 164
Depreciating assets
Asset 2 life 60 years
Lease 60 years Fixed plant & machinery
SAME APPROACH AS ROR, BUT DONT DO STEP 4 (REDUCE BASE COST) Gain held over instead
Slide 165
Depreciating assets
Held over until: earliest of
10 yrs
Slide 166
Slide 167
NB. Capital Loss not available as relief given through capital allowances
Slide 168
Incorporation
Shares cash
CO.
Buys
L+B
Gains
L+B
Incorporation Relief
Slide 169
Mixed consideration
Relief restricted if mixed consideration
Indexed gain x MV shares Total consideration
Slide 170
370,000
Slide 173
4 FA1985 pool
1 Same day
2 Next 30 days
Indexed to 4/98
NOT POOLED
Slide 175
Slide 176
Slide 178
Proceeds 3,000/12,000 58,000 = 14,500 Cost (12,000) 2,500 Note: no TR as o/ship is less than 3 yrs.
Slide 179
Slide 180
Slide 184
Hold
15,000 3,000 18,000
Slide 188
Slide 190
(171) 1,996
Slide 192
Slide 195
Course Companion
Question practice
Slide 196
Incorporated in UK
or
Loan Relationships
X (X) X (X) X
Indexed gain
Slide 201
(15,336)
(2,124) 8,540
Slide 204
Slide 205
Slide 206
Slide 207
22,500 (1,875)
Trading income 2,692,500 Property income(accruals) 12,000 Gain Less: Gift aid PCTCT
Slide 209
profits
Limits
PCTCT + FII
CT Rates Graph
% 30 30% (MR)
30%
20 20% 300k
Slide 212
1,500k
Profits
Slide 213
= 12,000
Marginal relief
Formula: fraction x (upper limit profits) x PCTCT profits fraction 1/40 upper limit 1,500,000
300k 1.5m
Slide 215
120,000
(26,585)
GCT payable
Slide 216
93,415
1,500,000
X n/12
300,000
Slide 218
Associates
B Ltd
3 Assoc 2 Assocs
Slide 222
Losses
(X)
NIL
Slide 225
Slide 226
Slide 227
If you want to get free study material of CAT, ACCA, CIMA, CFA, CIA visit : freefor911.wordpress.com
20,000
(5,000) 25,000
(5,000)
nil 5,000
(5,000)
nil 5,000
(5,000) 15,000
Slide 229
Slide 230
31/3/08
(9,000)4 (16,600)3 (12,600)2 nil (300) nil 300 (300) nil 300
nil
Groups
Slide 235
Slide 236
Slide 237
How many associated co.s? D Ltd 5 How many loss groups? 90% 2
E Ltd
Slide 238
Slide 240
Slide 241
Gordon Ltd is paying tax @ 32.5% Tony Ltd is paying tax @20%
Slide 242
Slide 244
Tax rate
Slide 245
30%
20%
32.5%
30% (20)
or
20% (20)
or
(10k x 32.5% + (10k x 20%) = 5.25K
OR could GR 10k to each of H and B saves 10k x 32.5% + 10k x 30% = 6,250
Slide 246
H Ltd Lower of
Loss (20k) x 9/12 =(15k) Profit 30K x 9/12 =22.5K Profit 30K
Slide 247
Implications
Assets transferred at no gain, no loss (NG/NL) Elect for deemed NG/NL transfers One unit for rollover relief
Slide 248
Utilise losses
A Ltd Selling asset at gain
100% B Ltd
Implications
A Ltd 32.5% 100% B Ltd 20% Reduce tax liability by NG/NL transfer Trfrs asset Selling asset at gain
Slide 251
Capital losses
Actual transfer of asset not necessary Elect to treat asset as transferred Election within 2yrs of end of AP
Slide 252
UK resident company
A Ltd Incorporated in UK Managed & controlled from UK
or
Chargeable to UK CT on WORLDWIDE profits Foreign income will be taxed overseas too = Double taxation
Slide 254
Non-resident company
A Inc Incorporated overseas Managed & controlled overseas
and
Slide 255
Overseas expansion
Profit/loss incl in As trade income
A Ltd
Slide 257
Slide 258
Slide 260
Slide 261
Slide 262
Slide 263
Slide 264
1,600,000 1,600,000
Slide 267
Foreign
o/s tax
2,028,125 1,550,000
Slide 269
Slide 270
Slide 271
Slide 272
Slide 273
If you want to get free study material of CAT, ACCA, CIMA, CFA, CIA visit : freefor911.wordpress.com
Transfer pricing
> 50 % A Ltd
Sells goods MV = 1m UK tax advantage
B Inc
Sell to B for 600k Profit now overseas
Compulsory registration
Two registration tests exist: Historic test
Previous 12 months Taxable supplies > 64k
End of each month
- e.g. exceed limit on 30 November - Notify HMCE within next 30 days (by 30th December) - Registered from start of next month (1st January)
Slide 277
Compulsory registration
Forward looking (future) test
Today 30 Days Taxable supplies > 64k
Slide 278
Slide 279
Voluntary registration
- Must be making TAXABLE supplies Advantages Disadvantages
Recover input VAT Kudos Discipline Avoid late registration penalty Administration burden Risk of penalties on errors Prices go up for non-VAT registered customers (need to look at customer status)
Slide 280
Van - in use post registration Stock - still held at date of registration 1,400 2,100
NB: VAT on accountancy fees are not recoverable as > 6 months prior to registration.
Slide 282
Tax point
Example sale on credit
Order recd Goods despatched Invoice issued Cash recd
Qtr1
Qtr2
Qtr3
Qtr4
Slide 283
Tax point
Earliest of: Goods despatched / service completed Invoice issued * Cash received * If invoice is within 14 days of despatch, or provision of the service, this will be the TP
Slide 284
Slide 285
VAT return
Output tax Scale charge Input tax VAT paid on all fuel X (X)
Slide 286
81
43.54 (44.68)
Administration
SERIOUS MISDECLARATION PENALTY
OR
Default surcharge
Q1 Q2 Q3 Q4
LATE
LATE
ON TIME
LATE
LATE
LATE
ON TIME
-
LATE
5% penalty (reset SLN)
RESULT
SLN Issued
Annual accounting
Normal filing = quarterly within 1m of end of quarter Option for small businesses = annual returns Small = Taxable supplies < 1,350,000
10% 31/7/05 10% Y/e 31/3/06 31/5/06
1 x VAT return
Slide 292
12,027
Question practice
Slide 294
Step 1 Learning
Taught course
Revision course
Question day
Slide 295