Study Guide
A THE UK TAX SYSTEM AND ITS ADMINISTRATION
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.
b) Explain the difference between direct and indirect taxation.
c) Identify the different types of capital and revenue tax.
2. Principal sources of revenue law and practice
a) Describe the overall structure of the UK tax system.
b) State the different sources of revenue law.
c) Describe the organisation HM Revenue & Customs (HMRC) and its terms of reference.
d) Explain the difference between tax avoidance and tax evasion, and the purposes of the General Anti-Abuse Rule (GAAR).
e) Appreciate the interaction of the UK tax system with that of other tax jurisdictions.
f) Appreciate the need for double taxation agreements.
g) Explain the need for an ethical and professional approach.
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 individuals.
b) Explain and apply the features of the self- assessment system as it applies to 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 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 individuals.
c) Explain how large companies are required to account for corporation tax on a quarterly basis and compute the quarterly instalment payments.
d) List the information and records that taxpayers need to retain for tax purposes.
5. The procedures relating to compliance checks, appeals and disputes
a) Explain the circumstances in which HM Revenue & Customs can make a compliance check into a self-assessment tax return.
b) Explain the procedures for dealing with appeals and First and Upper Tier Tribunals.
6. Penalties for non-compliance
a) Calculate late payment interest and state the penalties that can be charged.
B INCOME TAX AND NIC LIABILITIES
1. The scope of income tax
a) Explain how the residence of an individual is determined.
2. Income from employment
a) Recognise the factors that determine whether an engagement is treated as employment or self-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.
f) Explain the PAYE system.
g) Identify P11D employees.
h) Explain and compute the amount of benefits assessable.
i) Explain the purpose of a dispensation from HM Revenue & Customs.
3. Income from self-employment
a) Recognise the basis of assessment for self- employment income.
b) Describe and apply the badges of trade.
c) Recognise the expenditure that is allowable in calculating the tax-adjusted trading profit.
d) Explain and compute the assessable profits using the cash basis for small businesses.
e) Recognise the relief which can be obtained for pre-trading expenditure.
f) Compute the assessable profits on commencement and on cessation.
g) Recognise the factors that will influence the choice of accounting date.
h) Capital allowances
i) Define plant and machinery for capital allowances purposes.
ii) Compute writing down allowances, first- year allowances and the annual investment allowance.
iii) Compute capital allowances for motor cars.
iv) Compute balancing allowances and balancing charges.
v) Recognise the treatment of short life assets.
vi) Recognise the treatment of assets included in the special rate pool.
i) Relief for trading losses
i) Understand how trading losses can be carried forward.
ii) Understand how trading losses can be claimed against total income and chargeable gains, and the restriction that can apply.
iii) Explain and compute the relief for trading losses in the early years of a trade.
iv) Explain and compute terminal loss relief.
v) Recognise the factors that will influence the choice of loss relief claim.
j) Partnerships and limited liability partnerships
i) Explain and compute how a partnership is assessed to tax.
ii) Explain and compute the assessable profits for each partner following a change in the profit sharing ratio.
iii) Explain and compute the assessable profits for each partner following a change in the membership of the partnership.
iv) Describe the alternative loss relief claims that are available to partners.
4. Property and investment income
a) Compute property business profits.
b) Explain the treatment of furnished holiday lettings.
c) Understand rent-a-room relief.
d) Compute the amount assessable when a premium is received for the grant of a short lease.
e) Understand how relief for a property business loss is given.
f) Compute the tax payable on savings and dividends income.
g) Recognise the treatment of new individual savings accounts (NISAs) and other tax exempt investments.
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.
6. National insurance contributions for employed and self-employed persons
a) Explain and compute national insurance contributions payable:
i) Class 1 and 1A NIC.
ii) Class 2 and 4 NIC.
b) Understand the annual employment allowance.
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 a couple in a civil partnership can minimise their tax liabilities.
C CHARGEABLE GAINS FOR INDIVIDUALS
1. The scope of the taxation of capital gains
a) Describe the scope of capital gains tax.
b) Recognise those assets which are exempt.
2. The basic principles of computing gains and losses
a) Compute and explain the treatment of capital gains.
b) Compute and explain the treatment of capital losses
c) Understand the treatment of transfers between a husband and wife or between a couple in a civil partnership.
d) Understand the amount of allowable expenditure for a part disposal.
e) Recognise the treatment where an asset is damaged, lost or destroyed, and the implications of receiving insurance proceeds and reinvesting such proceeds.
3. Gains and losses on the disposal of movable and immovable property
a) Identify when chattels and wasting assets are exempt.
b) Compute the chargeable gain when a chattel or a wasting asset is disposed of.
c) Calculate the chargeable gain when a principal private residence is disposed of.
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.
b) Explain and apply the identification rules as they apply to individuals including the same day and 30 day matching rules.
c) Explain and apply the pooling provisions.
d) Explain and apply the treatment of bonus issues, rights issues, takeovers and reorganisations.
e) Identify the exemption available for gilt-edged securities and qualifying corporate bonds.[1]
5. The computation of capital gains tax
a) Compute the amount of capital gains tax payable.
b) Explain and apply entrepreneurs' relief.
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.
(ii) holdover relief for the gift of business assets.
D INHERITANCE TAX
1. The basic principles of computing transfers of value
a) Identify the persons chargeable.
b) Understand and apply the meaning of transfer of value, chargeable transfer and potentially exempt transfer.
c) Demonstrate the diminution in value principle.
d) Demonstrate the seven year accumulation principle taking into account changes in the level of the nil rate band.
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 liabilities.
b) Understand and compute the tax liability on a death estate.
c) Understand and apply the transfer of any unused nil rate band between spouses.
3. The use of exemptions in deferring and minimising inheritance tax liabilities
a) Understand and apply the following exemptions:
i) small gifts exemption
ii) annual exemption
iii) normal expenditure out of income
iv) gifts in consideration of marriage
v) gifts between spouses.
4. Payment of inheritance tax
a) Identify who is responsible for the payment of inheritance tax and the due date for payment of inheritance tax.
E CORPORATION TAX LIABILITIES
1. The scope of corporation tax paid and received under the loan relationship rules.
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.
c) Explain how the residence of a company is determined.
2. Taxable total profits
a) Recognise the expenditure that is allowable in calculating the tax-adjusted trading profit.
b) Recognise the relief which can be obtained for pre-trading expenditure.
c) Compute capital allowances (as for income tax).
d) Compute property business profits and 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.
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.
3. Chargeable gains for companies
a) Compute and explain the treatment of chargeable gains.
b) Explain and compute the indexation allowance available.
c) Explain and compute the treatment of capital losses.
d) Understand the treatment of disposals of shares by companies and apply the identification rules including the same day and nine day matching rules.
e) Explain and apply the pooling provisions.
f) Explain and apply the treatment of bonus issues, rights issues, takeovers and reorganisations.
g) Explain and apply rollover relief.
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.
5. The effect of a group corporate structure for corporation tax purposes
a) Define an associated company and recognise the effect of having associated companies for corporation tax purposes.
b) Define a 75% group, and recognise the reliefs that are available to members of such a group.
c) Define a 75% chargeable gains group, and recognise the reliefs that are available to members of such a group.
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.
F VALUE ADDED TAX
1. The VAT registration requirements
a) Recognise the circumstances in which a person must register or deregister for VAT (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.
c) Explain the conditions that must be met for two or more companies to be treated 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.
b) Recognise the tax point when goods or services are supplied.
c) List the information that must be given on a VAT invoice.
d) Explain and apply the principles regarding the valuation of supplies.
e) Recognise the principal zero rated and exempt supplies
f) Recognise the circumstances in which input VAT is non-deductible.
g) Recognise the relief that is available for impairment losses on trade debts.
h) Understand when the default surcharge, a penalty for an incorrect VAT return, and default interest will be applied.
i) Understand the treatment of imports, exports and trade within the European Union.
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.
ii) annual accounting scheme.
iii) flat rate scheme.