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ATX UK Examiner's Report M20
ATX UK Examiner's Report M20
ATX UK Examiner's Report M20
The examining team share their observations from the marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer constructive advice for future candidates
General Comments
The exam followed the established format comprising wholly compulsory questions. The style of the
questions has remained as in previous sittings: section A consisting of the compulsory questions 1
and 2, worth 35 marks and 25 marks respectively, and section B consisting of two further compulsory
questions, 3 and 4, worth 20 marks each.
The approach of the ATX examination is to test candidates’ ability to apply UK tax legislation to the
scenarios provided in each question. Clearly, at the heart of this is a good, detailed knowledge of
the required technical content. This includes knowledge brought forward from TX, which is often
fundamental to a scenario, and is required as a foundation for the more complex and detailed areas
covered at ATX. Secondly, is the vitally important need to practise past exam questions. We can
not emphasise this enough. Candidates who do not do this are often not able to recognise the key
principles being tested in any given scenario, and do not apply their knowledge to the given situation,
instead often just producing a series of general points which may or may not be relevant.
Detailed guidance
Candidates should pay particular attention to the following in order to maximise their chances of
success in the exam in the future.
Know your stuff
• Successful candidates are able to demonstrate a good level of accurate knowledge of the
UK tax system.
• This includes knowledge brought forward from the TX syllabus. This is extremely important
and must not be underestimated.
Candidates who are preparing to resit the exam should think about the number of additional marks
they need and identify a strategy to earn them. For example:
• Identify those areas of the syllabus where you are weakest and work to improve your knowledge
in those areas. This should include any technical areas brought forward from TX where
necessary, making sure that you are aware of all technical changes since you sat TX.
• Practise past exam questions in order to familiarise yourself with the style of questions that you
will have to deal with. This is a vital part of your preparation for the exam and its importance
can not be emphasised enough.
• Ask yourself whether you could improve the way you manage your time in the exam and whether
you address all of the parts of all four questions or whether you waste time addressing issues
which have not been asked for, or providing unnecessary explanations in a questions which just
requires calculations.
• Make sure that you earn the professional skills marks and that you are prepared to address the
ethical issues that may be examined.
Those candidates finding themselves scoring in the 40’s should ensure that they read the various
non-technical articles aimed at improving performance in the ATX (UK) exam, which are on the
website.
Performance by candidates was mixed, with some candidates producing comprehensive, well-
considered and presented answers to most question parts, but many others clearly struggling with
the technical knowledge and application skills required and failing to manage their time appropriately.
In general terms, those candidates who did not perform well were weak in the following areas.
• They did not have sufficient, precise knowledge of the tax rules within the syllabus. This was
true in respect of both areas which are not part of the TX syllabus and also some of the more
fundamental rules contained in the TX syllabus. The particular technical areas which this applied
to – which, in the main, are commonly tested topics – are further discussed below.
• They did not spend sufficient time thinking before they started writing. This meant that they
produced an unstructured answer which, in the case of an explanatory or discursive answer, did
not include sufficient relevant points and/or they wasted time providing information that had not
been asked for, and in the case of a comprehensive computational answer, often led to illogical,
difficult to follow computations.
• Their time management was poor. It appeared that these candidates spent a disproportionate
amount of time on some question parts, such that they did not have sufficient time to complete
all questions. Candidates are reminded once again of the need to consider the number of marks
available for each question part, and allocate their time accordingly.
However, it was noticeable once again in this session that more candidates are trying to apply their
knowledge to the scenarios given, rather than providing a generic answer, which often tends to
contain irrelevant information. This is a welcome improvement.
Question 1
This question related to an individual who has returned to the UK after spending several years
abroad, who required advice on his residence status, the capital gains tax implications of a series of
disposals made both during his absence and on this return, the inheritance tax implications of his
mother making lifetime gifts, or leaving assets in her estate, and finally the ethical considerations for
the firm of the client having received an unexpected income tax refund.
Candidates should note that the requirements for this question were clearly set out, using a series
of subheadings, and the use of these subheadings in their answer, provides a useful structure in this
type of question, which all candidates should consider adopting.
The first part of the question, which was worth 9 marks, required an explanation of how the
individual’s UK residence status will be determined for the tax year 2019/20, following his return to
the UK.
• When considering the number of UK ties someone has, knowledge must be precise. Clearly
most candidates made use of the information in the tax tables, but didn’t fully understand it.
The tables say that someone who is in the UK for 91-120 days, who has been previously
resident, needs only two ties to be UK resident in the current tax year. However, this omits
the information that it relates only to the previous three tax years, when, in this case the
individual has been non-resident.
• When discussing the number of ties an individual satisfies, a good approach is to consider
each in turn, and state whether or not it applies. This will ensure you maximise your mark in
this type of question.
• The requirement asked for a conclusion. This is usually worth one mark, and just requires
the candidate to conclude sensibly from what they have written, but a minority of candidates
did not do this.
• Again, in the final part of this requirement many candidates did not score full marks due to
lack of precision. Asked how becoming UK resident would affect the individual’s liability to
income tax, just stating ‘he would be liable to UK income tax’ is not enough. Candidates
must make it clear this applies to overseas income, as well as UK income.
The second part of this question, which was worth 11 marks, required explanations and calculations
in respect of a number of disposals which the individual had made, both in the tax year prior to his
return to live in the UK, and the following year.
It was disappointing to see how few candidates recognised that he would have been regarded as
temporarily non-UK resident for capital gains tax (CGT) purposes during his absence from the UK.
This topic is frequently tested, and is often not flagged, leaving it as a test of candidates’ knowledge
and skill to be able to identify when it applies. The key here is question practice.
One of the disposals concerned a takeover of a company in exchange for shares in another company
plus cash. It appeared that a large number of candidates were not prepared for this question, as
answers were generally poorer than on recent occasions when this has been examined, with the
majority of candidates not apportioning the cost, or calculating a gain on the cash element. The
disposal of the shares and recognition of the chargeability of the overseas house in the current tax
year were handled better, but, surprisingly, relatively few candidates applied different rates of CGT
to the house and shares, and some even appeared to be using income tax rates. These are
fundamental points and should have been relatively easier marks to get. Again, the importance of
knowledge of the basics of each tax cannot be overemphasised.
The third part of the question related to an often-tested IHT decision - whether to make lifetime gifts
or leave assets in the estate on death. The assets in question this time were two paintings, one of
which was expected to increase in value, and one of which was expected to fall in value. Most
candidates scored quite well on this question part, with the main problem often being a vagueness
The final part of this question concerned the ethics of a client receiving an unexpected refund from
HM Revenue and Customs (HMRC). As expected, most candidates produced very good answers to
this part, with a significant number scoring full marks.
• directly addressed the each of the tasks within the manager’s email.
• had good knowledge of the UK residence status rules, including those relating to temporary non-
residence for CGT.
• applied their knowledge well to the scenario.
• produced clearly labelled, and laid out computations, and concise explanations, where required.
Question 2
This question concerned an individual’s sale of shares in a recently incorporated company, various
corporation tax issues in relation to a newly set up joint venture company, and the acquisition of a
new subsidiary company which trades wholly through an overseas permanent establishment.
Overall, this question was not done well, which was surprising.
The first part of the question required candidates to calculate the CGT payable on the sale of shares
in a newly incorporated company, in respect of which incorporation relief had been claimed. Despite
the requirement being only to calculate the liability, a significant number of candidates also included
explanations, which did not score marks. This was particularly noticeable among those candidates
who sat computer-based exams (CBE). Many included calculations in the spreadsheet, then
explained the calculations in the word processing document, which was totally unnecessary, and
just wasted time. The majority of candidates omitted to deal with the previously claimed incorporation
relief, despite it being clearly flagged up in the question. It was also disappointing that many
candidates did not include gift relief, or entrepreneurs’ relief, both of which were relevant here. The
different reliefs available to reduce, eliminate or defer capital gains are very frequently examined at
ATX, and are regarded by the examining team as an extremely important part of the syllabus. It is
Going forward, candidates would be well advised to ensure that they practise a wide variety of
questions involving capital gains tax reliefs, to improve their knowledge and application of these.
The second part of the question was worth 15 marks and comprised five tasks. In the first two tasks
relating to the explanation of the tax treatment of research and development expenditure incurred
by a small enterprise, and the acquisition of an intangible asset, many candidates displayed a
surprising lack of technical knowledge, despite both being frequently tested areas. Fortunately, many
were able to gain follow through marks in their calculation of the effect of these on the company’s
budgeted trading loss for the period. It was good to see that a majority of candidates recognised that
the lossmaking company would be a consortium company such that proportionate loss relief would
be available to the parent company. Finally, in this part, the fifth task, relating to application of the
reverse charge principle in respect of services received by a UK company from an overseas
company again demonstrated a lack of knowledge, or of understanding of this process by very many
candidates.
The final part of the question was essentially a classic textbook question requiring discussion of the
advantages and disadvantages of making an election to exempt the profits of an overseas PE from
UK corporation tax. Most candidates were able to list two or three of these, but very few got all four.
However, the first part of this requirement, requiring candidates to state why the company in question
was liable to corporation tax in the UK (all its profits were generated in the PE overseas), elicited
some intriguing answers. The company was clearly stated as being UK resident, and the overseas
PE as being just that i.e. not a subsidiary, yet a significant minority of candidates thought the
company was a controlled foreign company (CFC), which was clearly incorrect, and then went on to
waste time talking about the exemptions. A good number of others thought that the company would
be liable to UK tax because its parent company was UK resident. Clearly there appeared to be
significant misunderstanding of these overseas issues. Questions have been frequently set on
corporate overseas issues in the past, and candidates would be well advised to practise a broad
range of these.
Question 3
This question concerned the taxation of profits, determination of basis periods, and voluntary
registration for VAT for a new unincorporated business, and the sale of shares in respect of which
enterprise investment scheme (EIS) relief had been claimed.
The first part of the question required candidates to explain the difference in the total amount of tax
payable by the taxpayer due to his profits now being taxed as trading income rather than as
chargeable gains. When specific taxes are not mentioned in the question, candidates need to think
broadly. Although the majority of candidates correctly identified the income tax implications, very few
considered that there would also be national insurance (NIC) implications as well. In relation to the
CGT implications, only a minority recognised that the items being sold constituted chattels under
£6,000, and so were exempt. So, the majority of candidates were only able to score two out of a
possible five marks. The question did ask for supporting calculations, but many candidates produced
detailed, comprehensive income tax and CGT computations, in addition to explaining the
implications. Calculations were only needed to support the explanation, and so needed to only be
The second part of this question related to the basis period for the second tax year of the taxpayer’s
business if he adopted firstly a 31 March, and secondly a 30 April year end. Very few candidates
were able to correctly identify both, which was surprising. A thorough knowledge of the opening and
closing year basis period rules for unincorporated businesses is essentially brought forward
knowledge from TX. Both of these are frequently tested in scenarios at ATX, and candidates should
ensure that they have a sound knowledge of these rules. The requirement to explain the advantages
of a 30 April year-end date was done better, with the majority of candidates being able to state one
or two advantages in general terms, but relatively few went on the relate these to the specific
circumstances of the taxpayer’s business.
The third part of the question required candidates to explain two matters the taxpayer should
consider in deciding whether it would be financially beneficial to register voluntarily for VAT. On
the whole this was done well, although some candidates wasted time explaining more than two,
and/or producing lengthy answers including what appeared to be all they knew about voluntary
registration, without considering whether these would, in fact, have a financial impact. Candidates
are encouraged to take time to read and understand the question fully before starting to write. A little
more time spent reading the specific requirements here might have saved quite a bit of wasted effort
in some cases.
The final part of the question tested the rules relating to the sale of shares, which qualified under the
EIS scheme, being sold within three years of their acquisition. Many candidates were aware of the
main principles relating to the taxation of the gain and the withdrawal of the EIS relief previously
given but very few managed to get the calculation of the CGT right, particularly in relation to the
treatment of the previously deferred gain, which was, admittedly quite a tricky aspect.
Question 4
This question concerned the IHT implications of a gift with reservation, a furnished holiday letting,
and a calculation of the impact on an individual’s income tax liability of them making a substantial
contribution to their personal pension scheme.
The first part of the question required candidates to advise the client of the IHT implications of having
received a lifetime gift following the death of the donor. Most candidates recognised that the lifetime
gift was a potentially exempt transfer (PET) and also a gift with reservation. Significantly fewer knew
the consequences of this as a result of the death of the donor, which was disappointing.
The second part of this question related to the holiday cottage referred to in the first part, requiring
candidates to explain why this cottage would qualify as a furnished holiday letting. The majority of
candidates demonstrated good knowledge of these rules and applied them correctly to the
information given in the question. As a result, a good number were able to score at least four of the
five available marks.
The third part of this question was worth ten marks and involved a detailed income tax computation
including both occupational and personal pension scheme contributions. There were few very good