Taxation - F6 Fa 2020 Volume Ii (4706)

TAXATION (F6)
FA-2020 Volume II
Abu Bakar Muhammad FCCA
facebook.com/hamzahacademy WhatsApp:+923336644771
ACCA Taxation (TX-UK) FA-2020 1
Muhammad Abu Bakar, FCCA
Exam Pattern & Guideline
SECTION - A
15 objective text questions
Multiple Choice Questions

Fill in the blank with right answer
SECTION - B Can be
Total of 03 Questions tested
from any
10 marks each
part of
Each Question will be based on a scenario
Maximum up to 5 questions will be asked related to the scenario
your
syllabus
SECTION - C
Total of 02 Questions
15 marks each
Constructive Questions with Scenario
Marsk could be divided into small segments/parts

CAPITAL GAINS TAX (individuals)
CHAPTER 11
Capital gains tax (CGT) is charged on gains against “disposal” of “Chargeable Assets”
by a “Chargeable Person”.
1. Chargeable person
Anyone who is UK resident is a chargeable person and is subject to CGT. Rules of

residency check are same as described in the earlier chapters of income tax.
2. Chargeable disposals & assets
Chargeable disposals Exempt disposals

Following are chargeable disposals: Exempt disposals are:
1. Exchange of an asset/assets 1. Disposal as result of death

2. Sale or gift or whole or part of an 2. Gifts to charities
asset
3. Loss or total destruction of an
asset
4. Compensation against damage of
an asset
5. Receipts from surrender of an
asset’s rights
Exempt assets are out of scope for our exam, but examiner usually include exempt
assets in the question to check the knowledge.
Chargeable assets Exempt assets

1. Freehold land and building 1. Motor vehicles
2. Unquoted shares 2. Cash
3. Goodwill 3. Main residence
4. Quoted shares 4. Some chattels (see further
5. Some chattels (furniture, plant & chapters)
machinery or moveable assets) 5. Investment held within an ISA
6. Qualifying corporate bonds
7. Gilt-edged securities
8. NS&I certificates
9. Receivables (debtors)
10. Foreign currency for private use
11. Trading inventory
12. Prizes & betting winnings

3. How to calculate CGT?
For each disposal, follow the below steps:

£ £
Disposal proceeds X
Less: allowable selling cost (X)
___
Net disposal proceeds X
Less: allowable expenses X
Cost of acquisition X
Incidental cost of acquisition X
Capital enhancements X
__ (X)
___
Chargeable gain/ (allowable loss) X/(X)
___
Note:
1. Disposal proceeds are sale proceeds

2. Where asset was acquired as a gift, market value of the asset at the date of gift
3. Where asset was acquired lesser than the market value, it will be revalued at
the date of its purchase
4. Where an asset was transferred/disposed inherently, market value of the asset
at the time of death will be taken into account
5. Incidental costs include commission fee or agent fee or technical fee of an
expert at the time of sale
6. Cost of acquisition is purchase cost
7. Enhancement expenses are improvement expenses
8. Incidental cost of acquisition includes paperwork to transfer title deeds etc.
4. Calculation of CGT
An individual is liable to pay CGT on the TOTAL TAXABLE GAINS arising on the
disposal of all assets in a tax year.
£
Net chargeable gains of the year X
Less: annual exempt amount (2020/21) (12,300)
_______
X
Less: capital losses brought forward (see later) (X)
_______
Taxable gains X
_______
CGT payable (taxable gains x appropriate tax rate) X
_______

5. Annual exempt amount
• Every individual is entitled to an annual exempt amount for each tax year.
• For 2020/21, the AEA is £12,300.00.
• AEA is deducted from net chargeable gains for the tax year (after current
year’s capital losses but before brought froward losses).
• If an individual’s net chargeable gains are equal or less than £12,300, no tax
will arise.
• Any chargeable gains in excess of £12,300 are subject to CGT unless they are
covered by capital losses brought forward.
• Unused AEA is wasted. It cannot be carried forward.
6. Capital losses
• Capital losses arising in the current year can set off:
Against chargeable gains arising in the same year

And will set off up to maximum extent (cannot be restricted to avoid losing
AEA)
• Unrelieved losses can be carried forward to the future years’ chargeable gains
• Brought forward losses are offset against the first available bet chargeable
gain after AEA. Any remaining loss will be carried forward to future years.
7. Computation & rates of CGT
• Rate of CGT is dependent upon amount of taxpayer’s total TAXABLE

INCOME (i.e. after deduction of personal allowance £12,500) and types of
assets disposed.
• Taxable gains are taxed after taxable income however its important to
remember that we should not combine income and gains in one computation.
Because;
• When taxable gains fall under basic rate band, CGT is at 10% (where income
tax is at 20%)
• However, any gains (or part of it) exceeding the basic rate band are taxed at
20%
• Higher rates of CGT are applicable to certain types of residential properties
• Where basic rate band is extended due to pension contributions or gift aid
scheme, the same extended basic rate is used to establish the rate of CGT
• Unused personal allowance will not be used to reduce taxable gains
In an exam where both income tax and CGT are required, two separate calculation
must be made.

8. Rates of CGT
Normal rates Residential Property

£ £
Falling in basic rate band 10% 18%
In excess of basic rate band 20% 28%
However, a taxpayer’s main residential house will be exempt under the rule of
principle private residence. (see next chapter)
9. Payment of CGT
On 31 January following the tax year (31 January 2022 for 2020/21 tax year)
Payments on account are not required.
10. Planning opportunities
Tax saving:
• If AEA is already utilized, delaying a disposal of asset will allow us to use next
year’s AEA, therefore a saving of £12,300.
• Delaying a disposal may bring more utilization of basic rate band in the
coming year (a comparison of current and next year’s income), resulting a
CGT at 10% in the future year instead of 20% in the current year.
Cash flow benefits:
Gains realised on disposals until 5 April 2021 are taxable in the tax year 2020/21 and
the associated CGT is payable by 31 January 2022.
If disposals can be delayed until 6 April 2021 or later:

• the gain is realised in the tax year 2021/22, and
• and CGT is payable one year later. i.e. by 31 January 2023.
Selling in trenches/parts:
Where assets can be split and sold parts (e.g. shares), selling them in tranches in
different tax years can allow the use of more than one AEA and result in a lower total
taxable gain (overall).

Practice your knowledge
During the year 2020/21, Julie disposed the following assets:
Residential property 35,000

Antique Painting 60,000
She has taxable income of £29,500 during the year.
Calculate CGT payable for Julie during the tax year 2020/21
SOLUTION:
Total Other gains Residential Prp.

£ £ £
Residential Property 35,000 0 35,000
Antique Painting 60,000 60,000 0
_____ _______ ________
Total gains 95,000 60,000 35,000
Less: AEA (12,300) 0 (12,300)

_____ _______ ________
Chargeable gain 82,700 60,000 22,700
_____ _______ ________
£8,000 x 10% = 800 (w-1)

£52,000 x 20% = 10,400 (other gains)
£22,700 x 28% = 6,356 (residential)
W-1: basic rate band remaining limit (£37,500 – 29,500) = 8,000

CGT SPECIAL RULES (individuals)
CHAPTER 12
CGT Special rules related to
Transfers Assets
between Spouse Part Disposals Chattels & Lost/Destroyed
& Civil Partners Wasting Assets or Damaged
1. Transfers between Spouse/Civil Partners
• Assets transferred between spouses or civil partners are treated at no gain no

loss That’s why original proceeds are ignored
• Transfer is considered at the cost of acquisition
• Deemed proceeds from such disposal are treated as the deemed acquisition
cost of the transferee
Note: If the couple is separated, these rules will not be applicable
1.1. Subsequent sale by the transferee
If the same asset is sold by the transferee, the deemed acquisition cost will be the
same cost by the Other Spouse at the time of asset’s acquisition.
Jade purchased a house for £25,000 on April 05, 2002 and subsequently transferred
the same house to his wife on June 30, 2016. His wife (Nile) sold the house for
£34,000 on May 20, 2020.
Compute Nile’s chargeable gain on this disposal.
SOLUTION:
Sales/disposal proceeds 34,000

Less: acquisition cost (25,000)
______
Chargeable gain 9,000
______
1.2. Planning among couples
Married couple can transfer assets to each other at no gain no loss to:
1. Use each side of annual exempt amount
2. Use each side of basic rate band
3. Utilize relief against Capital losses

2. Part Disposal
• When the asset is partly disposed, it is important to identify how much of the
original cost of the asset relates to the part which is disposed. The following
formula is used to arrive at that value:
Cost x A/(A+B)
A = Value of the part disposed of (sales proceeds)

B = Market value of the remainder at the time of part disposal
• The allowable expenditure, calculated through the above formula, will be used
in the basic capital gains tax computation
• Incidental cost of acquisition or enhancement expenditure, relating to:
a. Solely to the part disposed is allowed to deduct in full from the chargeable
gain
b. The whole asset rather then the part disposed of is apportioned in the same
way as cost (A/A+B)
Yousuf acquired 20 acres of land in March 2004 for £7000. On 1 August 2020, he
disposed 08 acres for £9000. The value of the remaining 12 acers at this date was
£16000.
On 1 September 2020, Yousuf sold the remaining land for £19,000.
Calculate the chargeable gains arising on the disposal of land in the tax year
2020/21.
SOLUTION:
£
01 August 2020 disposal:
Sales proceeds 9,000

Less: Deemed cost of part disposed
7,000 x 9,000/ (9,000+16,000) (2,520)
______
______
01 September 2020 disposal:

Less: Deemed cost of the remaining land
(7,000 – 2,520) (4,480)
_______
Chargeable gains 14,520
_______

3. Chattels & Wasting Assets
It is important to identify Chattels and Wasting assets as there are separate rules for
them.
3.1. Chattels
Chattels are tangible moveable property (picture or furniture item). Therefore:

a. Building is not a chattel (moveability)
b. Shares of any kind are not chattels (Tangible)
3.2. Wasting assets
An asset whose predictable life is not more than 50 years.

Chattels can be both wasting or non-wasting, based on the following:
Wasting Chattels Non-Wasting Chattels

Expected life Less than 50 years More than 50 years
Examples Boat Antique Painting
Plant & Machinery Jewelry
Racehorse
3.3. Exempt disposals of Chattels
Under two categories, chattels are exempt:
Wasting Chattels Non-wasting Chattels:

(life lesser than 50 years) Which were bought and sold for (less
than or equal to) £6,000.
There is an exception for this rule. If:
• Chattels are eligible for capital allowances. i.e. plant & machinery used in
business (unless bought & sold for less than or equal to £6,000).
For example:
A plant and machinery (used for business) on which capital allowances have been
claimed, in the gains/loss computation we must take into the account the tax relief
already given for the net cost of the asset (in capital allowance computation).
Following rules will be applicable:
Sold at Gain:
• Calculate gain as normal by applying £6,000 rule (if applicable)

• Any capital given over the life of asset will be reversed back with a balancing
charge on disposal
• If purchased for less than (or equal to) £6,000 but sold for more than £6,000
than gain will be restricted to 5/3 x (gross proceeds - £6,000)

Sold at loss:
• The capital is restricted as the relief was already given through the capital
allowance.
• In the capital loss computation, the net capital allowance (disposal –
balancing charge) will be deducted from the allowable expenses.
• Therefore, a plant and machinery which was eligible for capital allowances
and disposed at a loss, will result in no gain/no loss situation for CGT
calculations.
Ali bought a machine for his business in June 2012 for £35,000. In October 2020, he
decided to replace it and sold the old machine for £20,000.
Calculate Ali’s chargeable gain arising on the disposal in October 2020.
SOLUTION:
Ali has sold the machine at loss of £15,000 (35,000 – 20,000). He will be
compensated for this loss through capital allowances system, which will be £15,000
in respect of the machine.
The capital allowance computation is therefore adjusted as follows:
£ £
Sales Proceeds 20,000
Less: Cost 35,000
Less: Net Capital allowances (15,000)
______ (20,000)
______
Allowable loss 0
______
4. Other Wasting Assets
This covers those wasting assets that are not chattels because they are either not
tangible or non-moveable (i.e. trademarks/rights etc.). allowable expenditure of such
assets is deemed to waste away over the life of asset.
Therefore:
a. Allowable expenditure is restricted account for asset’s natural fall in value

b. The natural fall in value is presumed to occur on a straight line basis over the
its useful (predictable) life
c. Allowable cost is calculated as:
Cost x (remaining life at disposal date/estimated useful life)

In June 2011, Val bought copyright of a digital product at a cost of £24,000. The
product has a useful life of 30 years. He sold the same copyright for £38,000 in
February 2021.
Calculate chargeable gain or allowable loss.
SOLUTION:

Less: allowable acquisition cost (w) (16,000)
______
______
Working:
Remaining life of asset at disposal = 20 years

Estimated life = 30 years
Allowable cost = £24,000 x 20/30 = £16,000
5. Asset lost/destroyed/damaged
When an asset is lost or destroyed or damaged, the owner receives damages (without
disposing it) and the supplier/seller receives nothing in return. The set of rules are
different and dependent on following:
a. Asset was completely destroyed/lost or merely damaged

b. Owner has replaced or restored the asset
5.1. Asset is lost/destroyed but no insurance proceeds received
a. No insurance proceeds came in

• Normal CGT computation will be made, result will be capital loss
• Which means disposal proceeds are Nil
• Deduction of allowable expenditure will create loss
5.2. Asset destroyed but Insurance proceeds received
a. Insurance proceeds received (no replacement of asset)

• Normal CGT computation will be made
• Insurance proceeds received will become disposal proceeds
• Allowable expenditures will work as usual (normal CGT)
b. Insurance proceeds received (asset replaced within 12 months)

• Taxpayer has the option to claim the destruction/loss of the asset,
treated as a no gain/no loss disposal (as transferred between
spouse/civil partner)

• If the insurance proceeds are greater than the deemed disposal
proceeds under no gain/no loss computation, the excess will be
deducted from the replacement asset’s allowable cost.
c. Insurance proceeds received (partially used to replace the asset

within 12 months)
• Immediate gain will arise against the excess proceeds that are not
invested to replace the asset
• The remaining proceeds can be deferred by electing for no gain/no loss
treatment (as mentioned in point b)
Note: Date of disposal will be the date when insurance proceeds were
received not the actual date of destruction/incident.
Ahmed purchased an asset for £16,000 on May 01, 2011, which was destroyed by
storm on July 31, 2020. The asset was not insured.
Calculate chargeable gain/loss.
SOLUTION:
Proceeds 0
Less: cost (16,000)
______
Chargeable loss (16,000)
______
John purchased a painting for £40,000 on June 1, 2000. The asset was destroyed by
fire on May 30, 2020. John received £50,oo0 from the insurance company on July
30, 2020. He did not replace the painting.
Calculate chargeable gain/loss arising for John.
SOLUTION:
Proceeds 50,000
Less: cost (40,000)
______
______
Same way if John would have received £35,000 against the destruction of painting,
there would a loss of £5,000 instead of £10,000 gain.

Gama purchased an asset for £30,000 on September 01, 1996. The asset was
destroyed by fire on 30th August 2020. He received a sum of £35,000 from the
insurance company on Jan 01, 2021. He purchased a replacement asset for £45,000
on Feb 01, 2021.
Calculate Gama’s allowable expenditure (base cost) of the replacement asset,

assuming he elected for no gain/no loss disposal.
SOLUTION:
Cost of replacement asset 45,000

Less: compensation received 35,000
Less: deemed disposal proceeds of old asset (w) (30,000)
______
(5,000)
______
Replacement asset’s deemed base cost 40,000
______
Working:
Since Gama opted/elected for no gain/no loss, the deemed disposal proceeds are the
allowable cost for new asset.
Allowable cost = deemed disposal proceeds 30,000
5.3. Asset is damaged (not fully destroyed) & insurance proceeds

were received
• As we know already that there will be no implications of CGT unless the owner
received compensation from insurance.
• When an asset is damaged (partly) and not fully destroyed, part disposal rules
of CGT will be applied.
• The allowable cost will be calculated using normal part disposal formula:
Cost x A/(A+B)
A = compensation received
B = Market value of the remaining part at the time of part disposal (value in
its current damaged condition)
However, computation will be different if:
a. Proceeds not used in restoration

• Normal part disposal computation of CGT will be applied
• Value of the part retained is the value of asset in damaged condition (B)

b. Proceeds fully used in restoration
• If the full proceeds from insurance are used to restore the asset, the
taxpayer can claim to deduct the proceeds from the cost of the asset
rather treat it as part disposal.
• The is form of a rollover relief (see next chapter)
Zainab purchased a painting on April 01, 2005 for £15,000. The painting was
damaged due to heavy rainfall on May 01, 2020 when it was worth £50,000. After
the damage, the painting was worth £30,000. On July 01, 2020 insurance company
paid Zainab a total sum of £30,000 which she did not used to restore the painting.
Calculate chargeable gain/loss for Zainab.
SOLUTION:
Insurance proceeds 30,000

Less: deemed cost
£15,000 x £30,000/(£30,000+£30,000) (7,500)
______
______
Michael purchased a painting on April 1, 2006 for £15,000. The painting was
damaged on May 01, 2020 when it was worth £50,000. After the damage, the
painting was worth £40,000. On July 01, 2020 insurance company paid Michael a
total sum of £10,000. All the proceeds from insurance were used to restore the
painting.
Assuming Michael elects for the insurance proceeds to be rolled over

against the cost of the painting, calculate the revised base coast for the
CGT purposes of the painting after it has been restored.
SOLUTION:
As Michael has elected for rollover, there will be no part disposal and revised base
cost will be:
Original cost 15,000

Add: restoration cost 10,000
Less: insurance proceeds (10,000)
_______
Revised base cost 15,000
_______

Note: when the amount spent on restoration is equal to insurance
proceeds than the revised based cost will be the same as original cost.
Taking the same example of Michael, if the restoration cost would be £10,000 and
insurance proceeds would be £8,000 than the revised base cost:
Original cost 15,000

Add: restoration cost 10,000
Less: insurance proceeds (8,000)
_______
Revised base cost 17,000
_______

CGT - SHARES & SECURITIES (individuals)
CHAPTER 13
Disposal of shares by an individual is normally dealt with normal CGT rules except
when the shares owned by an individual (in a company) are indistinguishable.
1. Government securities & qualifying corporate bonds
All shares and securities disposed by an individual are subject to CGT except those
which are defined under exempt categories:
a. Listed government securities (gilt edged securities)

b. Qualifying corporate bonds (company loan notes)
c. Shares held in an individual savings account (ISA)
2. Valuation of Quoted Shares
2.1. When sold to an unconnected party
Normal sale proceeds will be used to calculate the CGT
2.2. When sold to a connected party or Gifted
Under this case, market value of the shares will be also be determined by taking the
mid-price (average) of the price quoted in the stock exchange daily official list on the
date of disposal.
For example:
Shares of Lions & Tigers are quoted at 230p – 280p at the stock exchange. The mid-
price would be (230p+280p)/2 = 255p.
3. How to identify the rules?
It is particularly important to match the rules to identify which shares have been
disposed, because:
a. Shares and securities that are bought in a particular company of the same
class are not distinguishable from one another
b. Each time an individual buys shares in a quoted company at a price which is
different at every single time (changing at every single moment in the stock
exchange)
c. It will enable us to locate which shares have been disposed of and to arrive at
the allowable cost to use in the CGT calculation
To do that, follow the below mentioned rules in the exact order:
a. Same day as the day of disposal

b. Within following 30 days

c. The share pool (shares acquired before the date of disposal and pooled
together)
Share pool keeps the records of the number of shares acquired and sold and
their respective costs.
When shares are sold out of the pool, the respective cost on average basis is
allocated. i.e. 2000 shares out of 6,000 shares with cost of £10,000 were sold,
the allocated cost for 2000 shares would be 2000/6000 x £10,000.
Michael had the following transactions in the shares of MECH plc, a quoted
company:
1 June 2002 Purchase 4000 shares 8000

30 July 2006 Purchase 2000 shares 10,000
30 April 2011 Purchase 500 shares 4000
20 May 2016 Purchase 1000 shares 8000
15 March 2021 sold 3500 shares 36000
28 March 2021 purchase 800 shares 6500
Identify and apply the matching concept against the sale occurred on 15 March 2021.
SOLITION:
Numbers of shares
Shares sold 3,500
Rule 01:
Same day (0)
Rule 02:
Following 30 days (28 March 2021) (800)
_____
2,700
Rule 03:
Share Pool (pre March 15, 2021)
1 June 2002 4000
30 July 2006 2000
30 April 2011 500
20 May 2016 1000
_____
7500
_____
Disposal from share pool (2700)
_____
0
_____

4. Bonus shares
Bonus shares are the free shares distributed among the current shareholders of the
entity. For CGT purposes, follow the below rules:
a. Bonus shares will be added into the share pool at Nil cost
b. These shares will not be treated as separate holding of shares
5. Right shares
Right shares are issued to the existing shareholders only and usually at a lower price.
Following rules should be followed:
a. Shares will be added into the share pool

b. Cost will be allocated/added as normal share purchase transaction
Juliane had the following transactions in Riverland ltd shares:
Jan 2014 Purchased 2700 shares for £5,500

May 2015 Purchased 600 shares for £1,500
June 2016 took up 1 for 3 right issues at £2.30 per share
August 2020 sold 4000 shares for £15000
Calculate Capital gain on the disposal.
SOLUTION:

Less: cost (w) (8,664)
_____
Chargeable Gain 6,336
_____
Working:
Share pool
Jan 2014 purchase 2700 5,500

May 2015 purchase 600 1,500
____ ____
3,300 7,000
June 2016 Right issue (1:3) @ £2.3 per share 1,100 2,530
____ ____
4,400 9,530
August 2020 Sale
(4000/4,400) x £9,530 (4,000) (8,664)
____ ____
Balance c/f 400 866

6. Reorganization and takeovers
6.1. Reorganization
Reorganization involves the exchange of existing shares in another company for the
shares of another class in the same company.
a. Shares for Shares
When the consideration for the reorganization is shares, the tax treatment is:
i. No CGT will be applicable at the time of reorganization

ii. Cost of the original shares will become the cost of new shares
iii. Where the shareholder receives more than ONE TYPE OF SHARES IN
EXCHANGE, the cost of the original shares is allocated to the news
shares in respect of the market values of the various new shares.
6.2. Takeover
Takeover is when a COMPANY acquires the shares in another company either in

exchange for shares/cash or mix of both.
a. Cash & shares
When consideration involves cash element:
i. It will be considered as part disposal of original shares

ii. A gain will arise on the cash element of the consideration on the date when
cash was received
iii. Part disposal computation will be:
Cash Received/(cash received + M.V of new shares) x cost of original shares
Peter bought 10,000 shares in Ninja plc in May 2010 for £20,000. On November 6,
2020, the entire share capital of Ninja plc was acquired by Lima plc. Ninja plc
shareholders received 2 Lima plc shares and £0.50 cash for each share they held.
Lima plc shares were quoted at £1.25.
Calculate the chargeable gain as a result of the takeover in November 2020.
SOLUTION:
Consideration provided by Lima plc is:

MV Cost
Shares (10,000 x 2 x £1.25) 25,000 16,667
Cash (10,000 x 1 x £0.50) 5,000 3,333
_____ ____
30,000 20,000

Peter has received part of the consideration in cash, he is considered as making part
disposal of the original shares:
Disposal proceeds (cash) 5,000

Less: deemed cost £(5000/30,000) x 20,000 (3,333)
_____
_____
Peter’s allowable cost for the future disposal of his shares in Lima plc
will be £16,667.

CGT - RELIEFS (individuals) CHAPTER 14
Reliefs are available to mitigate an individual’s chargeable gains.
1. Principle Private Residence Relief (PPR)

Letting relief
2. Rollover relief
3. Gift relief
4. Business asset disposal relief
5. Investors’ relief
Capital gain taxable may be reduced or delayed by claiming CGT reliefs.
1. Non-Business Assets
Principle Private Residence Relief (PPR)
Applies when an individual:
• Disposes of a house (dwelling) which is up to half a hectare of adjoining land

• And the house (under his/her ownership) was his/her main or only
residence for some or complete duration of ownership
Relief works as follows:
PPR OCCUPANCY
Occupancy Relief
Throughout period of ownership Gain is Exempt
Calculate gain (normally)
For part of period of ownership
PPR relief may reduce the gain
a. Calculate the gain on disposal of property

b. Compute total period of his/her ownership
c. Calculate period of occupation (see below)
d. Calculate PPR relief as follows:
Gain x (period of occupation/total period of ownership)
e. Deduct PPR relief from the gain
Period of Occupation
This includes both:
a. Period of actual occupation

b. Period of deemed occupation
The last 09 months of ownership (always exempt)
Up to 3 years of absence (due to any reason)
Any period lived outside UK due to employment
Up to 4 years of absence due to working elsewhere in UK (employed or self-
employed)

Note:
a. For rules 02 & 04, individual must actually occupy the property followed by
the absence
b. Rules 01 & 03, there is no requirement to satisfy the condition
“in the exam, students are required to provide remarks/brief

explanatory notes on periods of deemed occupation in PPR. Such
remarks will help in gaining marks”
“where an individual has more than one property, they will have to
nominate which one to use as Principle Private Residence. This require
written notification to HMRC”
Business Use
Where a house is used wholly and exclusively for business purposes, it loses its PPR
relief and become taxable.
Because:
1. Tax benefit can not be claimed by using deemed occupation rules when
property was used in business
2. However, when part of property was used for business and same property was
also individual’s main residence at any time, last 18 months deemed
occupation rules are applicable. But
3. 18 months exemption rules are not applicable to any part of the property used
for business purposes throughout the entire period of ownership
Alen sold his property for £120,000 on 30 th June 2020, resulting a gain of £60,000.
The house had been purchased in 2006 and one of the five rooms has always been
used for business purposes.
Calculate PPR relief applicable on Alen’s gain.
SOLUTION:
Alen owned the house for 15 years (2006 to 2020) and 1/5th of the house was always
used for business. Hence, the 09 months exemption is not applicable on the business
use as it has never been used a private residence.
Chargeable gain = £60,000 x 1/5 = £12,000
Alternate approach (more recommendable)
Chargeable gain before PPR 60,000

Less: PPR relief (£60,000 x 4/5) (48,000)
______

Letting relief
Letting relief is available when an individual lets out his/her PPR for residential use.
1. The owner lets out part of the property and keep the occupancy of the
remainder
2. If owner is not living in the property, relief is not available
3. Doesn’t apply to a non-PPR
Letting relief is lowest of:
1. £40,000
2. The amount of gain exempted by the normal PPR
3. The part of the gain attributable to the letting period
2. Business Asset Disposal Relief (BAD)
When a business is disposed, the entrepreneur is eligible for relief at the rate of 10%.
Relief operates as follows:
• First £1 million of gains on “qualifying business disposal” is taxed at

10%, regardless of one’s income
• Any gains above £1 million will be taxed at normal CGT rates (depending on
individual’s income)
• Gains qualifying for relief will set against any unused basic rate band (non-
qualifying gains later)
• The 10% CGT rate is applicable after:
Allowable losses
AEA
• However, the taxpayer can set off losses (other than any loss on asset that are
part of the disposal of the business) and AEA against non-qualifying gains
first, with an aim to maximize relief
• That is why it is important to keep gains (qualifying for relief) separate from
those which do not qualify
• Relief must be claimed within 12 months of the following 31 Jan after the end
of the tax year (31 Jan 2023)
• £1 million is a lifetime limit which gets reduced every time a claim/relief is
made
2.1. Qualifying business disposal
Applies to the disposals of:
1. The whole or part of a business carried on by the individual either solely

or in partnership
2. Assets of the individual’s or partnership trading business that has now
ceased
3. Shares provided:

Are in the individual’s “personal trading company” and
The individual is an employee of the business (full or part time)
4. Definition of personal trading company includes:
Ownership of at least 5% ordinary shares
Carrying at least 5% voting rights
Notes:
1. Disposal of business (shares) of a continuing company is not qualified

2. Disposal of assets in isolation is also not qualified
3. Where disposal is of an asset(s) (not shares), relief is not available
4. No minimum working hours for an employee to qualify
2.2. Qualifying ownership period
• The business (disposed of) must be owned by the individual for at least 2
years prior to the disposal
• In case of shares where individual must be an employee of the company
and same company must be trading for at least 2 years prior to the disposal
• Where disposal is of an asset (asset which belong to the
company/partnership) of the individual’s or partnership’s trading business
that has ceased, the same business must be owned for at least 2 years prior to
the date of disposal (of the asset)
3. Investors’ relief (IR)
Where Diposal of business asset relief is available on disposal of shares

by an individual’s personal trading company (he/she holds 5% of the
shares) and they are also an officer or employee of the same company.
Investors’ relief enhanced the benefits of BAD when an individual doesn’t meet the
requirements of BAD.
IR applies on the disposal of:
• Unlisted/unquoted shares in a company

• Shares subscribed for on/after 17 March 2016 (newly issued shares)
• Shares which have been held for minimum of 3 years starting April 6, 2016
• Shares held by an individual who is not an officer of the company
• IR is subject to its own lifetime limit of £10 million against qualifying
gains, taxed at 10%

4. Rollover relief – ROR (replacement of business asset)
Rollover relief allows individual to defer the gains arising on the disposal of
qualifying asset, when the proceeds are invested back to replace the qualifying
business asset
“relief is available to both individuals and companies”
The relief (rollover relief) works as follows:
• Provided the nest sales proceeds are completely invested back to replace the
asset:
• The gain arising on the disposal of the qualifying business asset is deducted
from the acquisition cost of the new (replacement) asset
• Hence, no tax will be paid at the time of disposal
• ROR potentially increase the gain on the disposal of replacement asset,
because the deferred gain was deducted from the base cost of replacement
asset
• Gains can be rolled over for a number of times as far as the disposal proceeds
are reinvested back into the replacement qualifying asset
• At the time of crystallization of deferred gain, the CGT rates applicable will be
of that particular time, not the rate applicable at the time when it was deferred
• Relief doesn’t work automatically; it has to be claimed
• Claim must be made within 4 years of the later of the end of the tax year
in which:
Disposal is made, and
Replacement asset is acquired
i.e. a disposal in the tax year 2020/21, which is reinvested in a replacement
asset in the tax year 2020/21 requires tax payer to claim by 5 April 2025
Qualifying assets:
Main categories are (both old and new assets which are used in trade):
Goodwill
Land and buildings
Fixed plant & machinery (not moveable)
Qualifying time period:
Replacement asset must be acquired within:
• A period of “beginning one year before” and

• Ending three years after the date of sales of the old asset
Partial reinvestment:
• Full rollover relief is available only when full disposal proceeds of the old asset
are reinvested into the new replacement asset.
• Where disposal proceeds are not fully reinvested, part of the gain is
chargeable at the time of the disposal

• Gain (chargeable) will be lower of:
1. Amount which is not reinvested
2. Full gain
Asset with non-business use:
• Full ROR is available only when the old business asset which is now replaced
was fully used for business purpose only.
• Where asset is not used fully for business purpose, the ROR is apportioned to
its business use (%) only.
Depreciating asset:
ROR rules will change if the new replacement asset is a depreciating asset.
For the purpose of your exam, the following two categories are applicable:
Fixed plant & machinery

Leasehold property with remaining useful life of less than/equal to 60 years
• If the new replacement asset is a depreciating asset, the gain can not be
rolled over but can be deferred/frozen until the earliest of the
following three options:
Disposal of replacement asset
The replacement asset ceases to be used for trade
Ten years from the date of acquisition of replacement asset
• The deferred gain is not deducted from the cost of the replacement asset
(like Rollover relief)
• The deferred gain gets frozen until the earliest of the three events
(mentioned above)
• When crystalized, the frozen gain is chargeable at the appropriate CGT rates
applicable at that time
• Importantly, if before crystallization of gain, a non-depreciating asset is
bought, the original deferred gain will now be rolled over.
A depreciating asset is wasting asset with useful life of less than 50 years

Rollover Relief
Summary
ROLLOVER RELIEF Depreciating

(ROR) assets
Relief for:
Partial investment of
1. Gains on disposal of
proceeds in the replacement Asset with non-
business assets
asset business use
2. Proceeds are reinvested
into the replacement asset
Gain chargeable will be
lower of:
ROR restricted
1. capital gain (actual) to part of gain
2. proceeds not reinvested related to the
in the replacement asset business use of
the asset
Qualifying Assets
Time Period
Gain deferred until

earliest of:
Witin the period starting
1. Goodwill 1. Disposal of asset
01 year before & ending 03
2. Land & Buildings 2. Asset ceased to be used in
years after the date of
3. Fixed plant & machinery trade
disposal
3. 10 years from the date of
acquisition
Gain is frozen
1. No gain on disposal it is not dedcuted from the
2. Base cost of new asset is reduced by base cost of the replacement
ROR depreciating asset
5. Gift relief (Gift of business assets – holdover relief)
Gift of an asset is a chargeable disposal which gives rise to the capital gain tax
liability of the donor even he/she hasn’t received any proceeds against it.
Gift relief works in order to allow INDIVIDUALS to holdover the gain arising from
gift of business assets, until the asset is sold by the donee.
The relief is only available for:
• Gift of business asset

• By individuals

For Donor For Donee
• Normal CGT calculation is • Acquisition cost is equal to the
made using market value as market value at the date of gift
proceeds
• (when eventually sold) Base cost
• The gain is not chargeable on the is equal to acquisition cost less
donor as it will be deferred gain deferred by the donor
against the base cost of the asset
received by the donee • At the subsequent sale of the
asset, base cost is compared with
the sales proceeds = chargeable
gain
• Rates at the time (future) of

disposal by Donee will be used
• Both donor and donee needs to file the claim (jointly)

• For gifts in 2020/21, the claim must be by April 5, 2025. i.e. within 04 years
from the end of tax year in which gift was made
Qualifying assets (for gift relief):
Following are the main categories:
1. Assets used in trade of:

1. Donor and he/she is a sole trader
2. The assets owned by the donor and he uses those assets in his personal
company
2. Unquoted/unlisted shares & securities of any trading company
3. Quoted/listed shares & securities of his/her (donor’s) personal trading
company
“Personal company is that where the individual owns at least 5%

shareholding or voting rights” but there is no barrier on holding period.
Tax Planning:
• When the claim is made by both donor and donee:
No chargeable gain will arise on donor

A higher gain will arise on the donee on the disposal of asset (by donee) in the
future
• Tax on donee is dependent on:
If his/her (donee’s) AEA is available

If he/she is eligible for ER or IR
Level of his/her (donee’s) taxable income (to arrive at CGT rates)

• As GR is optional and if not claimed:
The gain arising on gift is assessable on donor at the time of gift

And will be taxed at appropriate rate depending on donor’s taxable income
Donor may also not to claim the GR:
To utilize his/her AEA

Claim ER or IR
So that the gain is taxed at 0% or 10% rather at higher rate
• Why donor will not claim?
May be donee will not qualify for ER or IR when he/she subsequently dispose
Donor has no other gains so his/her AEA is available
Donor is a basic rate taxpayer and donee is likely to be a higher rate taxpayer
in the future (when they dispose it)
Undervalue sales:
The Gift relief applies not just to gifts but also to the sales for less than market values
• Proceeds received which exceeds the original cost of the asset gifted are
chargeable to CGT on the donor at the date of gift
• The rest of the gain may be held over or deferred
• CGT rates will eb applicable as per the donor’s taxable income (factors
mentioned earlier)
Restriction of Gift Relief:

• Assets not used wholly in trade
The relief is restricted where either:
Asset was used partly in the trade
Asset was used in trade for only part of the donor’s period of ownership
• Assets apart from shares
Gain which is related to the part used for trade is eligible for GR
The restriction works same way as in ROR where assets have not been used in
the trade
• When asset being gifted are shares
The gain eligible for held over is restricted if:

i. Shares gifted (unquoted or quoted) are in donor’s personal
company (he/she owns 5% voting rights)
Unquoted shares = full GR is available
Quoted shares = GR is not available at all
ii. Company owns chargeable non-business assets
In this case, gain eligible for GR is:
Total gain x M.V. of the chargeable business assets (CBA)

______________________________
M.V. of chargeable assets (CA)
Consequences of (above) restrictions:
As we know now, GR is available:
• Subject to the restrictions above for CBA & CA

• Irrespective whether individual works for the company or not
Chargeable gain will surely arise at the time of the gift as not all of the gain can be
deferred
The chargeable gain will be taxed at either 0%, 10% or 20% depending:
• AEA availability of the donor

• Availability of ER or IR for donor
• Level of taxable income of donor
Key points for your exam (suggested by examining team)
• You can afford to miss to identify an exempt disposal because this mistake will
convert your answer into a very different shape and it will be waste of precious
time
• Make sure to distinguish between CGT rates and when to apply them (i.e.
residential property has higher rates)
• As a matter of fact, an unincorporated business is not treated as a separate
entity. Such disposals must be dealt with separate computation for each asset
(disposed)
• Follow your CGT proforma so you will be able apply mandatory line items like
AEA
• Most likely, when shares are disposed, the key element being tested is the
matching principles. So be watchful for dates (i.e. 30 day matching concept)
• It is very important to arrive at remaining balance of taxpayer’s basic rate
band. This mistake can land you in wrong answer
• Whenever there will be a question on CGT (individuals), it will include at least
2 reliefs as well

CORPORATION TAX CHAPTER 15
1. Basics
Levied on companies’ taxable profits arising in an accounting period.

Not necessary that accounting period are equal to period of accounts.
1.1. Period of Account
For which the company prepares its set of accounts. Can be longer, shorter or equal
to 12 months.
1.2. Accounting period
A period for which a charge to corporation tax is made. Never longer than 12 months.
• AP Start:
When company starts trade
Previous accounting period ends
• AP End:
Twelve months from the start of previous accounting period
End of company’s period of account
Date of company ceases
• Longer period of account:
Never be more than 12 months
If longer, there will be two accounting periods for tax purposes. i.e. for 18
months, a 12 months AP and another 6 months AP
2. Choice of accounting period
A company can choose any period as per its requirements but there are some benefits
in choosing the accounting date of 31 March.
• By choosing 31 March, company’s period of account will be

matching with the financial year and it will make it easier for
corporation tax purposes.
• Makes it very easier to calculate and extract the profits for the
owners.
3. Tax residency status
A company is resident if:
• Incorporated in the UK
• Incorporated elsewhere in the world but managed and controlled in the UK
If a company is not incorporated in the UK and also managed and

controlled from outside UK, it is not a UK resident company.

4. Taxable total profits
Taxable total profits for an accounting period are the total profits from all sources
including worldwide incomes (excluding dividends) and net chargeable gains.
Taxable total profits = total profits – Qualifying charitable donations (QCD)
Proforma:
Company name
Corporation tax computation for the year ended 31 March 2021
Tax adjusted trading profits X

Interest income X
Property income X
Misc. income X
Chargeable gains X
__
Total profits X
Less: qualifying charitable donations (X)
__
Taxable total profits X
__
Details of each line item will be discussed in the next chapter.
Misc. income includes patent royalties against non-trade related patents
Dividend received from UK resident and overseas companies are exempt for
corporation tax purposes therefore excluded from the taxable trading profits
calculation.
All donations made by the company excluding those allowed as trading expenses are
allowed to be deducted from total taxable profits in Corporation tax computation.
Companies pay gross donations.
5. Corporation tax (liability)
• Rate of corporation tax is fixed for each tax year.

• A financial year runs from April 01 to 31 March is identified by the
calendar year in which it begins. i.e. for the year starting from April 1 2020
and ending on March 31 2021, the financial year is 2020 (FY 2020)
“Financial years should not be confused with tax years in income tax”
Corporation tax for FY 2020 is 19%

For FY 2019 and FY 2018, it is also 19%

6. Trading Profits
The rules for companies are very similar to what we have studied already for Sole
Trader’s trading profit.
Summary of which are (all below applies the same for companies):
• Disallow all expenses which are not wholly and exclusively for trade
• Disallow capital expenses
• Adjustment for leased cars with emission rate CO2 > 110g/km
• Adjustment for gifts to customers
• Disallow depreciation
• Adjust any profit/loss on disposal of capital items
• Add back charitable donations (unless small & local)
• Adjustment for non-trading income
Differences are related to:
• There is no private use restriction for companies. Any private use

expenses by directors and employees are allowable deduction for tax adjusted
trading profits and capital allowance purposes
• Dividend payable is an appropriation of profit and not allowed as a trading
expense
• Rules for capital allowances are same as in the previous chapter. In
addition, the following points should be noted:
1.1. The maximum AIA for 12 months accounting period is £1,000,000
1.2. For short accounting period, the AIA and WDA are apportioned
accordingly
1.3. FYA is however is available in full (irrespective of short accounting
period)
• When the accounting period is longer than 12 months:
1.1. There will be two accounting periods (12 months and remaining)
1.2. Two capital allowances computations are required for each AP
1.3. For short accounting period (remainder of 12 months), rules
mentioned above for AIA, WDA and FYA should be applied
1.4. There is no capital allowances adjustment required for private use of
assets by employees and directors
• Rules for pre-trading expenses are also the same as for sole traders:
1.1. Any expenses incurred in the past seven years of commencing trade
are considered as they were incurred at the start of trade
1.2. Any capital expenses are also considered as incurred at the first day of
trade.

7. Interest income
Incomes and expenses related to the borrowing and lending money are under loan
relationship rules.
Expenses related 1. Interest related to the payment against overdrafts,

to borrowing of bank loans and other corporate loan notes
money 2. Other costs including incidental fee for loan
arrangement etc.
3. Cost of writing down an impaired debt (receivable)
from lending money (allowable expense)
Income related to 1. Interest income from bank deposits, government

lending of money stocks and loan notes
Interest receivable Interest payable
Trade Purpose N/A 1. Loan taken out to purchase

P&M for trade
Unless its company’s 2. Loan taken out to purchase
main business activity to property for trade
lend money (i.e. banks 3. Loan/overdraft for trade
which is out of scope for 4. Loan notes to fund
our syllabus) operations
All above are deductible expenses

for tax adjusted trading profits
computation
Non-trade 1. Interest received 1. Loan to purchase
purpose on bank accounts commercial property where
2. Interest receivable the income will be
against Gilts & generated as property
loan notes income
2. Loan to acquire another
company’s shares
All above should be added back to

trading profit
3. The write off of impaired

loans (non-trade debts) to
employees or clients is an
allowable deduction, should
be deducted from interest
income

Loan Relationship
Rules
Interest Interest
Receivable Payable
Non-trade Trade related

For your exam, Loans loans
assume it as non-
trade purposes
1. Add back to tax Deductible from

adjusted trading trading profits
profits
Taxed as interest
2. deduct from
income
"interest income"
i.e. bank
overdrafts, loan to
acquire P&M,
i.e. shares of factory for trade
another company
proprty for non-
trade purposes
8. Property Income
A trading company may have properties in excess of its main operational

requirements or has invested in properties.
8.1. Treatment
Income from such sources (as mentioned above) is classified as property busines
income and calculated same way as for sole traders:
• Allowable expenses are those associated directly with running of property

business (insurance, utility if not paid by tenant, repairs etc.)
• However, there are few differences when it comes to companies’
assessment: (check below mentioned points)
❖ Property income (for companies) is always assessed at accrual basis
❖ Income is assessed arising in an accounting period unlike individuals where it
is assessed for a tax year
❖ Interest payable is not allowed as allowable deduction as it comes under
loan relationship rules, deducted from interest income (see above)

❖ Profits and losses from all properties are pooled together to compute
overall profit or loss for an accounting period.
❖ Treatment of loss is as follows:
1. First set off against total profits (before QCDs) of the same
accounting period. Claim is automatic and loss must be set off in full
(partial not allowed).
2. Then carry forward to set off against the total profits (before QCDs) in
future. Claim must be made within two years of the end of the accounting
period in which loss is relieved.
3. Also available for group relief within same group (next chapter).
4. A property loss can never be carried back to previous accounting periods.
8.2. Lease premiums
Works same way as in property income for individuals:
Rules:
Premium XX
Less: premium x 2% x (n – 1) (X)
____
Assessable income X
____
N = length of lease = number of complete years (ignore part of years)
9. Qualifying charitable donations – QCDs
All donations to charity by companies are allowable for corporation tax purposes.
❖ If it is a small local donation, it is treated as trading expense

❖ All other donations (including gift aid) are deducted from total profits
❖ If QCDs paid are in excess of total profits, no relief is available unless company is
part of 75% group (under group relief)
10. Long period of account
Where a company’s period of account is longer than 12 months, it must be

divided into two parts as follows:
12 months from the start of period of account

Remainder of the period of account
i.e. for 12 months period of account:
First 12 months
Remaining 06 months
Following rules are applicable in order to allocate the taxable profits:

Profits Rules for allocation
Trading profits Adjust profit for the period of account (for corporation tax
before capital purposes) and then apportion on time basis.
allowances
i.e. 12 months and remainder
Capital allowances Separate computation of capital allowance for each
accounting period.
AIA & WDA are restricted as per months but full FYA is
available
Property income Computation for each Accounting Period is required
separately on accrual basis
Interest income
Chargeable gains Taxed in the accounting period of disposal
QCDs Deducted from the accounting period of actual
payment
“having two separate accounting periods means, two separate payments

will be made to the HMRC”

LOSSES FOR COMPANIES - CHAPTER 16
Loss relief for a single company:
1. Trading losses
Calculation of trading loss
Factors affecting choice of relief
Available relief
2. Other losses
Property Business losses
Capital losses
1.1. Computation of trading losses
Tax adjusted net profit/(loss) X/(X)

Less: plant & machinery capital allowances (X)
____
Adjusted trading loss (X)
____
If a company has made an adjusted trading loss, the tax adjusted trading
profit shown in computation (total taxable profit) is £Nil.
1.2. Relief for trading losses
Carry forward 1. Carry forward (indefinitely)

relief 2. Against available future total profits (before
QCDs)
3. Partial claim (allowed) = amount of loss can be
restricted
4. Losses can be carried forward:
After current year claim only
After current & prior year claim
If no current or carry back claims are made
5. claim must be made within 02 years of the end of
account period in which loss is relieved
Current year 1. Current period/year set off
relief 2. Against total profits (before QCDs) of the same
accounting period
3. No partial claims are allowed, has to be maximum
4. Claim can be made within 02 years of the end of
Current & prior 1. Current period/year set off (first)
year relief 2. Any trading loss remaining after current year
can be carried back
3. Carry back (12 months)
4. On LIFO basis
5. Against total profits (before QCDs)
6. Only when current year claim is made
7. Optional claim

8. Claim can be made within 02 years of the end of
Terminal loss 1. Carry back 36 months/03 years preceding the
loss-making period
2. First set off against current year/period’s
(period of loss) total profits
3. On LIFO basis
4. Against total profits (before QCDs)
5. If period is other than 12 months (during the 03
years preceding the period of loss), apportionment is
required in normal way and losses will be carried back
against the apportioned profits
1.3. Trading losses pro forma
Assume loss arises in 2019

2018 2019 2020
£ £ £
Tax adjusted trading profit X 0 X
Other income X X X
Chargeable gains X X X
__ __ __
Total profits X X X
Less:
Current year (X)
12 months carry back (X)
Carry forward (X)
__ __ __
0 0 X
Less: QCDs wasted wasted (X)
__ __ __
Total taxable profits 0 0 X
__ __ __
1.4. When loss making period is of less than 12 months
❖ Full loss is relief is given against the current period’s total profits
❖ The remaining loss can be carried back in full (normal way)
1.5. Short accounting period prior to the year of loss
❖ Trading profit of the accounting period (lesser than 12 months) must be

apportioned
❖ The loss can only be apportioned up to 12 months in total
❖ Loss is offset on LIFO basis
i.e. for a loss of £50,000 in 2020 (12 months with £6000 interest income) will be set off
against 2019 (05 months with £12,000 total profits) and 2018 (12 months with £27,500
total profits) as follows:
2020 = £6,000 in full against current year
2019 = £12,000 in full (05 months)
2018 = £16,042 (07 months = £27,500 x 7/12)

1.6. Choice of loss relief
Following factors affects the choice for loss relief:
❖ Tax saving
Tax saving is an important factor. When a loss is relieved in the prior years, it is
important to see how much tax is being saved but for this purpose its very clear
that until FY 2017 the tax rates are same (19%). So, any year prior to FY2017 will
create tax saving as the rates were higher than 19% at that time.
❖ Cash flow
When a loss is carried back, it may result in repayment or refund of tax but when
it is carried forward, it can only set off against future incomes
❖ Wastage of relief for QCDs
It also important to foresee the future QCDs for the purpose of tax. If in the
future, there will be lower QCDs it would be ideal to carry forward to maximize
the benefit of tax saving by setting off against future total profits.
Amount of current year and carry back claims cannot be restricted and that might
result in wasting QCDs.
Exam Approach to Questions:
❖ Prepare the TTP pro-forma and leave blank spaces for loss relief claims. The
proforma should be year by year/side by side.
❖ Fill in the proforma with the available information, ignoring loss relief.
❖ In the year of loss, tax adjusted trading profits should be £nil.
❖ Keep a separate working for loss memorandum (calculation)
❖ Consider your loss relief options available (or analyze as per the requirements
in question)
1. Where there is more than 01 loss, deal with the earliest loss first
2. If question emphasizes on “obtaining relief as early as possible”, go by
the below order:
Current year claim
Carry back 12 months/36 months if terminal loss relief
Carry forward any remaining
3. If question asks to identify options available along with tax saving for
each option, follow the below steps:
Carry forward
Current year claim and carry forward any excess
Current year claim, followed by carry back and then carry forward
4. Identify amount of saving in each option and other implications of QCDs and
cash flow
❖ Work out the revised TTP with allocated loss reliefs.

2.1. Property business losses
Property business losses relief follows:
❖ First, mandatory offset against current year/period total profits (before QCDs)
❖ Any excess can be carried forward and offset against future total profits (before
QCDs) of the company
❖ Claim to offset against future total profits of the company must be made within
02 years of the end of the accounting period in which loss is relieved.
❖ There is no carry back of losses
❖ Partial loss claims are also not allowed when offsetting against current period’s
total profits. But
❖ Partial loss claims are available for future carry forward
❖ If applicable, property business losses are set off before trading losses
2.2. Capital losses
A capital loss arises in an accounting period is:
❖ First set off against the current period’s chargeable gains

❖ Then, carry forward to set off against gains arising in future accounting periods
❖ Partial claims are not allowed
❖ Relief is automatic, no claim is required
❖ A capital may never be carried back to set off against prior years’ gains
❖ Can not be set off against company’s total profits, only against gains

GROUP OF COMPANIES - CHAPTER 17
Corporation tax
Group
Group relief Gains for Groups
- Assets transferred
Surrender of losses at no gain
- Transfer of
gains/losses
- Group rollover
relief
1. Group Relief
Group relief is available to the members of 75% group in which losses of one member of
the group can be surrendered to the other group companies/members, to utilize the
benefit of setting off against their total profits.
1.1. What is a 75% group?
• Two companies will be members of 75% group, if:

1. One company is the 75% subsidiary of the other, and
2. Both are 75% subsidiaries of a third company
• Companies must be resident companies in UK (for exam purposes)
1.2. Rule book
• Companies part of the 75% group can transfer losses between each other
• Surrendering company is the company who surrenders its loss
- can surrender any amount of its current period’s losses, unrelieved QCDs and
unrelieved property business losses
- brought forward of trading & property losses are up to the extent that
surrendering company is unable to use the loss
• Claimant company is the company to which loss is surrendered
- can offset group relieved losses against its taxable total profits of corresponding
accounting period (same accounting period)
- surrendering may surrender any amount of losses but claimant company can only
accept up to:
Total profits X
Less: losses brought forward (X)
Less: current period/year’s loss (X)
Less: QCD relief (X)
___
Maximum group loss relief can be accepted X

• Types of losses which can surrendered are:
Trading losses
- current period
- brought forward trading losses (those which cannot be used against surrendering
company’s own total profits)
Unrelieved QCDs
Unrelieved property business losses
- current period & brought forward
• Meaning of “unrelieved” for both QCDs and Property Business Losses is if they
exceed any other income and gains before the deduction of any losses (all current
period, brought forward or carried back)
• Unrelieved QCDs are treated before unrelieved property business losses
• Capital losses cannot be surrendered to group companies
• Claim of group relief is made by claimant company, within 2 years of the end of its
Accounting period
• And requires notice of consent from surrendering company
1.3. Corresponding Accounting Period
A corresponding accounting period is the accounting which falls (wholly or partly) within
the accounting period of the surrendering company
Where companies (surrendering & claimant) have different year ends, the available profits
and losses must be time apportioned and relevant amounts falling within the
corresponding accounting period should be computed
Following computation is applicable to find out “loss that can be surrendered”
Lower of:
i. Loss in the surrendering (loss making) company for the corresponding

accounting period
ii. Taxable trading profits in the claimant company’s corresponding accounting
period
1.4. Companies joining/leaving 75% group
i. When a company leaves or join the 75% group, the relief will be apportioned to
the time that company was part/member of 75% group
ii. Profit and losses will also be time apportioned
1.5. Payment for Group relief
1. If the claimant company pays the surrendering company for group relief:
- It is not tax allowable for claimant company’s computation
- It is not taxable income for surrendering company
1.6. Tax planning
i. A company with loss has two options, whether to claim against its own profits or
surrender against 75% group
ii. It is important to remember that against own income it can be either all offset or
nothing, but group relief is very flexible
iii. It is possible to surrender a specific amount under group relief

iv. A surrendering company may choose to surrender a small/specific amount of loss
under group relief and set off remaining against its own profits
v. If it has QCDs, it is wise to ensure that losses retained will reduce total profits
before deduction of QCDs to the amount of any QCDs paid. This will result in zero
corporation tax liability
vi. If surrendering company was profitable, it is advisable to retain/keep enough
losses in order to carry them back to prior years
2. 75% capital gains group
A capital gains group is consisted of holding company and its 75% subsidiaries along with
their 75% subsidiaries and so on. Under this relief, the assets can be transferred tax
efficiently around the group along with efficient use of losses within the group.
The definition of capital gains group is different from group relief.
“the parent company must have at least an effective interest of over 50% in all
companies”
➢ A company which is a 75% subsidiary cannot form its capital gains group and become
a parent.
➢ For this purpose, shares held by overseas companies can be taken into account, but
still non-UK resident companies cannot take advantage of these special reliefs.
X-Ray Limited --------75%------Beta-------75%--------Lima-------75%-------Dog
2.1. Implications of 75% capital gains group
➢ Assets can be transferred at no gain/no loss basis

- Described in the capital gains tax portion for companies, chargeable gains for
companies work as, proceeds (less) original cost (less) indexation allowance to the
date of disposal. Indexation allowance is calculated by applying relevant indexation
allowance to the original cost
- assets transferred are eligible for no gain/no loss (with arising gain/loss)
- the transfer is considered at a price which doesn’t give rise to gain/loss (i.e. original
cost x indexation allowance)
- transferrer deemed proceeds are also deemed cost of the acquirer
- treatment is automatic, no claim is required
- when acquirer sells the asset, a chargeable gain/loss arises, as per normal
computation
➢ Both chargeable gains and allowable losses can be transferred around the
group
- Transferring an asset to another company with capital loss, immediately before the
asset is disposed outside group at a gain, would enable group capital loss relief
- it is also possible to elect for the transfer of gain/losses of current period without
physically transfer them
-a combined election is required to do so which must be made within 2 years of the
end of accounting period in which the gain/loss arises
- must specify the company in which the gains/loss is to be treated
- Only current year/period gains/losses can be transferred, no brought forward losses
➢ Rollover relief is available as well
- ROR is available within the group, when:
One company disposed a qualified asset and make chargeable gain
And another company in the same group acquires a replacement qualified asset
Rules of ROR are same as discussed in Capital Gains Reliefs

CGT FOR COMPANIES - CHAPTER 18
Companies pay corporation tax on net chargeable gains during an accounting period. The
net chargeable is therefore added into the computation of taxable total profits.
The following steps are involved:
➢ Calculate the chargeable gain/allowable loss on the disposal of each chargeable asset
separately
➢ Calculate net chargeable gains arising in the accounting period (gains – losses)
➢ Deduct capital losses brought forward
➢ You will arrive at net chargeable gains
➢ Add the above figure in taxable total profits computation
“You must have noticed that there is no annual exempt for companies”
Proforma:
Disposal proceeds X
Less: incidental disposal cost (X)
____
Net proceeds X
Less: Allowable expenditure (same as individuals) (X)
____
Unindexed gain X
Less: indexation allowance (X)
____
Chargeable gain/allowable loss X/(X)
____
1. Indexation allowance (IA)
Indexation allowance (IA) accommodates inflation affect for the company.
The rules for IA are as follows:
➢ IA applies only to the assets purchased prior to December 2017

➢ Its calculated as = cost of asset x indexation factor
➢ Indexation factor is the movement factor in the retail price index (RPI) from the
month of purchase to the month of sale
➢ IA is always calculated separately for each item of expenditure. i.e. first for the cost
and then for all subsequent expenses on asset, because all have different effective
date
➢ IA can never increase or create a capital loss for the company
➢ Indexation factor will be provided in the exam
£
Unindexed gain XX
Less: indexation allowance
Cost (£10,000 x index factor) (X)
Enhancement expenses (£4000 x index factor) (X)
___
Chargeable gain XX
___

2. Capital losses
Following rules are applicable for capital losses:
Capital loss incurred in an accounting period can be:
Relieved against any chargeable gains arising in the same accounting period and any access
can be then carried forward to set off against future gains.
➢ Relief is automatic so no claim is required

➢ Partial claims are not allowed as well
➢ Importantly capital losses cannot be carried back
➢ Capital losses cannot be relieved against company’s total income
A restriction on capital losses that can be surrendered is introduced but only for companies
with chargeable gains in excess of £5 million, this restriction is not examinable at F6 level.

INHERITANCE TAX - CHAPTER 19
Inheritance tax as shown from the name is collected on the death of an individual’s death
estate. Most of the IHT is collected on death but that would made it very easy for people to
transfer/gift assets just before death and avoid paying IHT. Therefore, there are rules for
lifetime gifts as well as on death.
Two parties are involved in such transactions. A donor who makes the transfer and donee
who receives the property.
1. Charge of IHT
• IHT is charged on:
“Transfer of value of chargeable property by a chargeable person”
• The charge of IHT arises on:
- the death of an individual

- lifetime gifts where donor dies within 07 years of the date of gift
- on some lifetime gifts which are taxed at the date of gift
1.1. Transfer of value
If gift of any asset/property will reduce the value of donor’s estate, it will be called
transfer of value. For the purpose of IHT, the gift transaction must be in gratuitous
mode not in bad blood.
To estimate the value of transfer, following formula/principle of “loss to donor”

will be used:
Value of estate before gift XX

Less: value of estate after gift (XX)
____
Diminution in value/transfer of value X
____
Loss of the donor is normally the market value of asset gifted.
1.2. Chargeable property
✓ For the purpose of TX exam, there is no exempt property/asset for IHT.

✓ Therefore, all properties to which the person is entitled (beneficially) are part
of his/her estate and gift of any asset will be considered as transfer of value
1.3. Chargeable persons
✓ All UK domiciled individuals are liable to IHT (against their worldwide

property)
✓ If not UK domiciled, liable only for UK based property
✓ For TX exam, all individuals in the question of IHT will be considered as UK
domiciled

2. When IHT is chargeable?
Usually main charge of IHT arises on death of an individual and charged on the
following:
- value of all of the net assets in his/her estate at the date of death
- lifetime gifts made during the 07 years prior to his/her death (unless gifts were
exempt
- certain assets on which IHT is chargeable at the date of gift
3. Lifetime gifts
There are three categories of lifetime gifts. Treatment is as follows:
Exempt gifts No IHT

Potentially During lifetime not chargeable
Exempt
transfers (PET) But become chargeable only if the donor dies within 7 years
of the date of gift
A gift by an
individual to If donor lives 7 years, no charge
another individual
Chargeable Immediately taxed and chargeable again if:
lifetime
transfers (CLT) Donor dies within 7 years of the date of gift
Gift which is not But if donor lives 7 years, no further charge (except when it
exempt nor a PET. was initially taxed)
A gift to a trust
For exam purposes, all gifts to trusts are CLTs
4. Exemptions and reliefs (IHT)
Exemptions for “lifetime gits”

1. Small gifts only
Gift of no more than £250 per person/recipient per year

No exemption if gifts are more than £250 (even through multiple
transaction to one person in one year)
Gift can be made to any number of years (as far as each gift is under the
limit, to claim the exemption)
2. Marriage exemption
In consideration of marriage or registration of civil partnerships,

following transfers/gifts are exempt (subject to taking place of marriage):
£5000 by a parent
£2500 by a grandparent or a remote ancestor
£2500 by bride to groom or vice versa
£1,000 by anyone

3. Normal expense out of income
As IHT is levied on transfer of capital wealth, except:
The transfer was made out of person’s normal income

Without affecting his/her (donor’s) standard of living
i.e. habitual or regular pattern of transfers/payments
4. Annual exemption (against lifetime transfers)
➢ First £3,000 of lifetime transfers in any “one tax year”

➢ Applied chronologically, starting from 1st gift in the year and if any
leftover AE is available, then apply to the second available transfer/gift.
Even if the first gift is PET and never become chargeable
➢ Any un-used AE will be carried forward to next year but for 01 year
only and only after current year’s AE
➢ If other exemptions are available, AE will come after them
5. Exemptions for lifetime transfers and death estate
5.1. Inter Spouse exemption
Transfers between spouses and civil partners (registered) are exempt, regardless of
the value of transfer and whether they are made during the lifetime or on death.
6. IHT on Chargeable lifetime transfers (CLTs)
Lifetime IHT is applicable/chargeable/payable when an individual makes a gift into

a trust. (check other rules mentioned above, section 3)
How to calculate?
➢ There will be separate calculation on each lifetime gift (both PET and
CLT), in chronological order.
➢ Even PETs are not covered by lifetime tax, but it is important to calculate their
chargeable value as well because they consume annual exemption.
➢ Calculation will be (for each PET & CLT):
Value of estate before transfer XX

Less: value of estate after transfer (XX)
____
Transfer of value X
Less: wholly exempt transfers (i.e. spouse) (X)
Specific lifetime exemptions
- marriage exemption (X)
- annual exemption (applied last) (X)
____
Chargeable amount for IHT X
____

➢ For a CLT (transfer into a trust), they only exemption is likely to be annual
exemption
➢ For CLTs only, you may calculate the available nil rate band (NRB) after
deducting gross chargeable transfers in the previous 7 years
- Nil rate band of £325,000 is available for all individuals
- Individuals are taxed on the chargeable values of CLT in excess of NRB at different
rates depending “who has agreed to pay the lifetime tax”.
➢ Calculate the appropriate tax at either 20% or 25% depending on who has
agreed to pay the tax, donor or donee
- tax rates are dependent on who has agreed to pay the tax
- if donee (trustees of the trust) pays the tax
- gift will be referred as a gross gift
- tax rate is 20%
- if donor agrees to pay the tax
- gift is referred to as a net gift
- tax rate is 25% (20/80)
- as donor will be paying the tax as well, donor’s estate will be reduced by:
- value of gift, and
- tax associated (payable by donor)
➢ Calculate the gross amount of gift to carry forward for future computations
➢ If required, state the due date of payment of IHT
➢ Tax due on CLT is primarily donor’s responsibility
- when it is not mentioned in the exam (who will be paying the tax), assume
the donor will pay
- and tax rates will also be 25% with gift as a “net gift”
➢ Date of IHT payment for lifetime gifts are:
- Date of CLT (6 April to 30 September) = 30th April in the following year
- Date of CLT (01 Oct to 5 April) = 06 months after the end of month of CLT
6.1. 07 years period
“Each time a CLT is made, to calculate the correct IHT liability, it is

necessary to look back 07 years and calculate how much NRB is available
to set against that particular gift”
➢ Look back 07 years and account all other CLTs “gross amounts”
➢ These CLTs have utilized NRB over the past 7 years
➢ Any NRB available will then be used to set against current CLT transferred
➢ You may not forget PETs while accumulating past 7 years gifts made by the
donor, for the calculation of available NRB
Here is the summary:
➢ Lifetime tax only applicable on CLTs

➢ Compute IHT position of each CLT separately, in chronological order
➢ Calculate available NRB (including PETs and CLTs for the past 7 years)
➢ Tax due will be 20% (gross gift) if donee pays and 25% (net gift) of donor pays

7. Death tax (IHT payable on lifetime gifts due to death)
An IHT charge on lifetime gifts can arise if the individual dies within 7 years
of the date of gift was made.
IHT CHARGE DUE TO DEATH (of donor) WITHIN 7 YEARS

Become chargeable for the 1st time
PETs (as there is no lifetime tax on them)
Donee will pay this tax

Additional tax may arise
CLTs
Trustees will pay this tax
Rule Book:
Follow the below steps.
• Death tax will be calculated separately on all gifts, in chronological order

• Identify all the gifts (made) within 7 years of donor’s death
• Calculate the gross chargeable amount of each gift and any lifetime tax
paid
- gross chargeable amount is taxed on death for each gift
- for CLTs, gross chargeable amount must already be calculated for lifetime
IHT calculation
- don’t forget to gross up the value of any CLT where CLT’s tax is paid by
donor
- chargeable amount for PET is calculated using the values at the time of gift
and PETs must have used some AE (annual exempt) amount as well (even
they will become chargeable only when donor dies in 7 years)
• Compute the available Nil Rate Band (NRB) after taking into the account of 7
years gifts
- use NRB for the tax year of DEATH (not tax year of gift)
- include PETs for NRB computation BUT ONLY THOSE WHICH HAVE
BECOME CHARGEABLE (ignore those which were exempt)
- include all gross amounts of all gifts made during 7 years (not just CLTs)
- therefore, lock back 7 years from date of each gift and include:
- all CLTs
- PETs which become chargeable due to death
- therefore, CLTs made more than 7 years ago may still effect NRB for
the death tax calculation
• Calculate the death tax on the excess at the rate of 40%
• Deduct any taper relief applicable (see below)
• Deduct lifetime tax paid on CLTs
• If required, state who and when the tax will be paid

7.1. Taper relief
When IHT is chargeable due to the death of the donor, the IHT payable is reduced by
taper relief. Rules are as follows:
• Relief is available on PET and CLT

• Where more than 3 years have elapsed, since the death of the donor
• By percentage reduction according to the length of time between
- date of the gift
- date of the donor’s death
• Rates of the taper relief are:
Over 0 and less than 3 years 0%

7.2. Deduction of lifetime IHT paid
• For CLTs, any IHT paid already will be deducted from the liability created at
death.
• No refunds will be made so the liability can maximum go up to £Nil.
7.3. Date of payment
Normal date of payment for IHT at death is 6 months after the end of the month of
death.
Lee had made the following lifetime transfers:
31 July 2011 - £80,000 to his son

31 Jan 2014 - £110,000 to his daughter
30 April 2014 – £235,000 to his son
Lee died on 31 December 2020.
The nil rate bands for Lee’s earlier years are:
2011/12 £325,000
2013/14 £325,000
2014/15 £325,000
Calculate the IHT arising as a result of Lee’s death on 31 December 2020.

SOLUTION:
PET – July 31, 2011
• PET made on July 31, 2011 to his son is more than 07 years old
• Therefore, no IHT will be paid during lifetime and no IHT will be paid as
result of Lee’s death. PET is completely exempt
• Gift will not be considered for any future calculations
PETs from Jan 31, 2014 to April 30, 2014
• The two gifts made on the above dates are PETs so no lifetime IHT is payable.
However, as Lee died within 7 years from date of gifts were made, IHT on his
death will arise:
Step 01: calculate chargeable amount of each PET & CLT which falls in the 7 years
period prior to Lee’s death
PET 31-7-2011 PET 31-1-2014 PET 30-4-2014

Transfer of 80,000 110,000 235,000
value
Less:
Annual
exemption
Current year 2011/12 – (3,000) 2013/14 – (3,000) 2014/15 – (3,000)
previous year 2010/11 – (3,000) 2012/13 – (3,000) 2013/14 – (0)
______ ______ ______
Chargeable 74,000 104,000 232,000
amount ______ ______ ______
IHT payable (all 0 0 0

PETs)
Gross 74,000 104,000 232,000

chargeable
amount (c/f)
There is no need for us to calculate the NRB as its only applied when the gift is of
CLT.
IHT Payable on death:
Step 02: Date of death is 31 December 2020

Step 03: 07 years before = 31 December 2013
PETs which were made more than 7 years before death will not be chargeable.

Step 04: Calculate IHT payable on death
PET PET
31.1.2014 30.4.2014
£ £ £ £
Gross chargeable amount b/f 104,000 232,000
NRB available @ death (31/1/20) 325,000 325,000
Less:
GCTs < 7 years before gift

(31.1.2014 to 31.1.2007) 0
Ignore PET at 30.4.2011 as
it is exempt
GCTs < 7 years before gift

(30.4.2014 to 30.4.2007) (104,000)
______ _______
NRB available (325,000) (221,000)
_______ _______
Taxable amount 0 11,000
_______ _______
IHT payable @ 40% 0 4,400
Less:
Taper relief
6 to 7 years before death 80% (3,520)
Less:
IHT paid during lifetime 0

_______ _______
IHT payable on death 0 880
_______ _______
IHT will be paid by Son (always donee) and the due date will be six months after the end
of the month donor’s death) i.e. 30.6.2021
8. IHT payable on the death estate
• Up on death of an individual, the inheritance tax charge arises on the value of

his/her estate at the date of death.
• Death estate includes all assets at the date of death.
• The value of death estate is usually the open market value at the date of death,
called as probate value.
• Probate values will be provided in the exam question.

Death estate computation proforma:
£ £
Freehold property X
Less: Mortgage (note) (X)
___
X
Business owned by sole trader/partnership X
Stocks & shares (including ISA) X
Government securities X
Insurance policy proceeds (note) X
Leasehold property X
Motor cars X
Personal chattels X
Debts due to the deceased X
Cash at bank and on deposit (including ISA) X
___
Less:
Debts due by the deceased X
Outstanding taxes (IT & CGT due) X
Funeral expenses X
___ (X)
___
Estate value X
Less: exempt legacies to spouse or civil partner (X)
___
Gross chargeable estate XX
___
Notes:
• Repayment and interest only mortgages are deductible. Endowment mortgages are
automatically repaid on owner’s death
• Proceeds of life insurance policy (of the deceased) will be included in the computation,
rather than its market value
• Funeral expenses are allowed as far as they are reasonable
• Debts are deductible as far as they were outstanding at the date of death and are legally
enforceable debts
• Taxes including Income tax, CGT and NIC will be deductible except IHT which will be borne
by the donee
Workflow to calculate IHT on death estate:
• First, deal with IHT on gifts made within 7 years from the date of death, before starting
death estate computation
• Compute gross chargeable estate value
• Compute available Residence Nil Rate Band (RNRB) – Note 1
• Compute the amount of Nil Rate Band available after deducting GCTs in the past 7 years
(i.e. CLTs & PETs) – Note 2
• Calculate tax at 40% (on the excess)
• State the dates for payment, if required
Notes:

i. The Nil rate band available to a person on death is £325,000, which is first used
by all the gifts made during lifetime, then the leftover will be used for death estate
ii. Residence Nil Rate Band is available only when a house (dwelling) is inherited by the
direct descendants, which was deceased’s main residence
- up to £175,000 nil rate is available for 2020/21
- applies when:
- calculating the tax on death estate
- date of the death is on or after April 6, 2017
- if death estate includes a property which was deceased’s main residence and same is
inherited by the direct descendants
- direct descendants includes either children or grandchildren
- RNRB is not available when calculating additional tax due on lifetime gift
- RNRB is lower of:
- £175,000, and
- the value of main residence (value – repayment & interest only mortgage)
iii. The seven locking back principles will be used as usual:
- take into account all chargeable gifts made within previous 7 years (from the date of
death)
- all CLTs
- All PETs (chargeable within 7 years from the date of death)
IHT on death should be paid earlier of:
i. 6 months after the end of the month of death. Or

ii. On delivery of the account of the estate assets to HMRC
Payment of IHT on death estate:
IHT on death is paid by the executors (personal representatives)

Tax is paid from the estate (he/she left)
Effectively borne by the person who inherits it (known as residual legatee)
Summary of the payment of tax is as follows:
Recipient/asset Paid by Suffered by
Spouse N/A (exempt) None or N/A

Specific UK assets Executors Residual legatee
Residue of estate Executors Residual legatee
9. Married couple/Civil partners
9.1. Transfer of unused nil rate band (NRB)
At the death of an individual, any unused nil rate band can be transferred to his/her spouse or civil
partner. So anyone who is leaving his/her death estate to his/her partner/spouse will leave the
following benefits:
i. No adverse consequences on IHT

ii. The recipient will first his/her NRB, and
iii. The unused NRB of his/her (deceased) spouse/partner as well
• The amount of NRB that can be claimed is based on the proportion that was unused by the
FIRST SPOUSE
• The unused proportion is than applied to the NRB available on the death of SECOND
SPOUSE
• The executors of the surviving spouse or Civil partner must claim the transferred NRB by:
2 years of the second death
3 months of the executors starting to act

“Same way, any unused RNRB (residence nil rate band) can also be transferred to the
Spouse/civil partner. There is no restriction, so the 100% unused band will be
transferred”

SELF ASSESSMENT INDIVIDUAL -
CHAPTER 20
1. Notification of Liability (income tax & CGT)
Under self-assessment, the responsibility is on the taxpayer to provide the information and calculate
their tax liability. Taxpayer will receive a notice to complete a self-assessment tax return which must
be filed through either paper or electronic/online.
A. Self-assessment
i. Tax returns covers income tax, CGT and class 2 & class NIC liabilities
ii. Payment must be made 31 January following the end of respective tax year
iii. Interim payments are usually required at 31 Jan in the tax year and 31 July following the
tax year in some cases
B. Filing deadlines
Paper return 31 October 2021

Electronic/Online return 31 January 2022
Notice from HMRC 3 months after issuance of notice from HMRC
31 January following the tax year is considered as filing date, regardless it was filed
online or in paper form.
C. Calculation ox tax
Paper return HMRC will calculate the tax liability on behalf of the taxpayer,
provided the return was submitted on or before October 31.
Electronic/Online return Calculation of tax automatic, as part of online process
D. Payment of tax
For income tax, Class 2 NIC, Class 4 NIC & CGT, HMRC require taxpayers to settle taxes by 31
Jan following the end of tax year. i.e. for 2020/21 = 31 Jan 2022
Payment on account (POA)
If the tax liability is more than the tax deducted at source, POA is required. Exceptions to this:
- Total liability after PAYE is less than £1000

- If more than 80% of the previous tax year tax liability is paid through PAYE
First POA 31 Jan 2021

Second POA 31 July 2021
Any remaining liability Settle on 31 Jan 2022 due date
Calculation of POA
POAs are calculated using previous tax year’s “relevant amount”. Relevant amount is calculated as:
Total tax liability for the year (income tax & Class NIC) XX
Less: PAYE (X)
__
Relevant amount XX
__

Peter required to make payments on account of his tax liability for the tax year 2020/21. His income
tax liability for the tax year 2019/20 was £6,000 out of which £1500 was collected via PAYE.
Calculate Peter’s POAs for the tax year 2020/21.
Solution:
Relevant amount for previous (2019/20) tax year is £4,500 (6000-1500)
This amount exceeds £1000 and 20% of the total tax liability. Amount of POAs will be in equal
division of the relevant amount (4500/2) = £2250 due on 31 Jan 2021 and 31 July 2021.
Balancing Payments
Due on 31 Jan following the tax year. For 2020/21 it is 31 Jan 2022.
Total liability for the tax year Income tax, CGT & class 4 NIC) X
Less: PAYE (X)
Less: POAs (X)
__
Balancing payment X
__
“It is possible that balance repayment will be due and HMRC will repay the amount to
the taxpayer”
3. Compliance checks
➢ HMRC has the right to enquire about the correctness and accuracy of the self-assessment tax
return
➢ A written notice will be supplied to the taxpayer
➢ Written notice must be issued within 12 months from the date of return filed.
➢ Information requested must be relevant to the respective return
➢ Taxpayer can be made against the request
Discovery assessment
To prevent the loss of tax to HMRC, a discovery assessment can be raised even after 12 months. In this
case HMRC will only accept full disclosures on the information requested. Time limit to issue
discovery assessment is:
From the end of tax year For 2020/21

Basic time limit Four years 5 April 2025
Careless error Six year 5 April 2027
Deliberate error 20 years 5 April 2041
An appeal can be made by the taxpayer within 30 days from the disputed decision. Appeal works as
follows:
First Appeal Matter normally closed by mutual discussion

between taxpayer and HMRC
If taxpayer is not satisfied Another officer of the HMRC will review
If still not resolved Refer to independent Tax Tribunal
First-tier Tribunal
Upper Tribunal

4. Penalties
Penalty for failure to submit a return
There are two types of offences:
- Failure to notify liability to tax

- Submission of incorrect returns
Dependent on taxpayer’s behavior, penalties are calculated as potential loss of revenue (to the
HMRC)
Taxpayer’s behavior Maximum penalty (% of lost revenue)

Genuine mistake (for incorrect returns only) No penalty
Careless/failure to take reasonable care 30%
Deliberate but no concealment 70%
Deliberate with concealment 100%
Penalties for late filing
Date (when) return is filed Penalty (£)

After due date £100 (fixed)
3 months late £100 fixed penalty & £10 per day for maximum up to 90 days
6 months late £100
£10 per day (maximum up to 90 days)
5% of the tax due (minimum £300)
More than 12 months late Above penalties and:
(where information withheld
was)
➢ No deliberate ➢ Additional 5% tax due (minimum £300)
➢ Deliberate but no
concealment ➢ 70% of the tax due (minimum £300)
➢ Deliberate with
concealment ➢ 100% of the tax due (minimum £300)
Penalties for late payments
Tax Paid Penalty (% of tax due)

More than 1 month late 5% of tax due
More than 6 months late Additional 5%
More than 12 months late Additional 5%
Other penalties
Offence Penalty
Fraud or negligence on claiming reduced POAs POA should have paid X
Less: POA paid (X)
___
X
___
Failure to keep records Up to £3000 per tax year

5. Interest
Late payment interest
Charged automatically if tax is not paid

In respect of:
Payment on account At 2.75% p.a.
Balancing payment
Any tax payable following an amendment to
self-assessment
Any tax payable following a discovery
assessment
Repayment interest
Payable by HMRC on overpayment

At 0.5% p.a.
Later of:
Date when tax was due, or
Date HMRC actually received the tax
6. Records
Taxpayer with business Must keep until 5 years after the 31 Jan filing
date. i.e. for 2020/21, retain until 31 Jan 2027
All receipts & expenses
All goods purchased & sold
All supporting docs relating to business
transactions (contracts, books, vouchers etc.)
Until later of:
12 months after 31 Jan filing date (31 Jan 2023

for 2020/21)
Other taxpayers Date on which the compliance check into the
return is completed
Date on which compliance check becomes
impossible to perform
Penalties for not keeping records or destroying the records are covered above.
7. PAYE System
Deductions related to employment related employment income must be notified to HMRC and
matched with the coding notice issued by HMRC. Coding system enables to track different amounts
deducted from different employees as per their personal circumstances.
From the information supplied to HRMC, each employee is sent a coding notice that explains the total
reliefs and allowances available to him/her for the year. Last digits are removed to arrive at the code
so for allowances of 15,000, code is 1500.
Payments:
➢ Income tax and NIC deducted by employer are due to be paid not later than 14 days after the
tax month ends. Tax month runs from 6th of the month to the following month’s 5th.
➢ Employers with more than 250 employees must make their PAYE payment on 22nd of each
month
➢ Employers with monthly PAYE & NIC deduction of less than £1500 can make quarterly
payments. Quarter ends 5 July, 5 October, 5 Jan and 5 April.

Real Time Information
Information related to PAYE and NIC needs to be furnished to HMRC on time. Any delay will cause
penalties to the taxpayer.
Number of employees Monthly penalty

Any First late will not raise any penalty
1 to 9 £100
10 to 49 £200
50 to 249 £300
250 or more £400
Key PAYE forms
Form Purpose Timing

P45 Provided to employee when Ongoing
they leave
P60 Year end summary By 31 May following tax year
P11 D Summary of benefits By 6 July following tax year

TAX ADMIN. COMPANIES - CHAPTER 21
Tax Admin. For a

Company
Returns Self-assessment Payment
Time Compliance Penalties Non-Large Large

Limit checks companies companies
Interest
Self-assessment system:
- Calculate its own corporation tax liability for each accounting period
- Submit a self-assessment corporation tax return within 12 months after the end of the
period of account
- Pay any corporation tax liability within 9 months & 01 day after the end of accounting
period
Tax return:
- Self-assessment tax return must be submitted later of:

12 months after the end of accounting period
03 months after the issue of notice to file a return
- Must contain information to calculate company’s corporation tax liability
- Amount of tax to be paid
- Must be online
- Commercial software of iXBRL is used to produce accounts and computations
Tax returns amendments:
- HMRC may correct obvious mistakes on its own, within 9 months of the date of filing of
return of return
- Company can also amend a return within 12 months of filing date
- If error was discovered later, company can file for claim against overpayment. Such claims
must be made within 4 years from the end of accounting period, in which error occurred.
Notification of chargeability
- A company coming within the scope fo corporation tax must notify HMRC within 3 months
of the start of its accounting period
- If no notice is received is received from HMRC, company should inform HMRC

Records:
- All receipts and documents must be kept including contracts, invoices and books.
- Must be kept, later of:
06 years after the end of accounting period
The date when compliance check into filed returns is complete
Date when it becomes impossible to run a compliance check
Payments Due Date
- For large company, quarterly settlements

- For non-large companies, due date is 9 months and 01 day after the end of accounting
period
Large company:
- A company having augmented profits for an accounting period are more than £1.5 million
- £1.5 million threshold will be apportioned for short accounting period
- Respectively, shareholding will also be effective for group companies
- Augmented profits are calculated as:
Taxable total profits – dividend received from non-group companies = Augmented profits
- Companies that become large in an accounting period doesn’t have to make installment
payments as far as their augmented profits in an accounting period do not exceed £10
million and they were not a large companies in previous accounting period
Group of companies:
- Two companies are related if (except dormant companies)

One is a 51% subsidiary of another, and
Both are 51% subsidiary of another company
- Both £1.5 million and £10 million thresholds will be reduced if company has any related
51% group companies
- Thresholds are divided by the number of related 51% group companies
- A company either enter or leave the 51% group will still be considered part of the group for
that accounting period
Installment (Quarterly) dates:
- By 14th days
- In months 7, 10, 13 and 16 following the start of accounting period (as shown, first 2
installments are paid during the AP)
Basis of payment:
- Corporation tax liability is based on expected profits

- So it is important to estimate correctly
- Refund can be claimed against overpayments in the past

A group has following companies in their structure:
A ltd
B ltd C ltd D ltd E ltd
P ltd G ltd
E limited is dormant since start of accounting period. G limited was purchased on Jan 1, 2021. D
limited is incorporated in Fiji.
Explain which companies are part of 51% group and calculate augmented profit
threshold to determine whether the payment for CT should be made in installments or
not.
SOLUTION:
A limited has three related companies in 51% group. B limited, C limited and D limited.
Augmented profit threshold will be divided by 4 = £1,500,000/4 = £375,000
If augmented profits exceed £375,000, it will be considered as large company for year ended March
31, 2021.
Short Accounting period
- 1st installment is due by 14th day of the 7th month after the start of accounting period
- Subsequent installments are due at 3 months intervals until last installment
- Last installment due by 14th day of 4th month after the end of accounting period
- If accounting period of 3 months, full tax due for accounting period on 14th day of the 4th
month after ending the accounting period
- The amount for each installment is calculated = (estimated CT liability for AP) x (n/AP length)
Where n = 3 months for quarter but it will be 2 or 1 for later installments
Interest
- Late payment interest = 2.75% p.a.

- Repayment interest = 0.5% p.a.

Penalties
Offence Penalty
Late filing of CT return:
- Within 3 months of filing date - Fixed £ 100

- More than 3 months after filing date - Fixed penalty increased to £200
Can be increased to £500 & £1000 if late filing

is consistent. Last two returns were late as well
Additional penalties:
- 6 – 12 months after filing date - Additional 10% of tax outstanding

- More than 12 months after filing date - Additional penalty increased to 20%
Failure to keep records Up to £3000 per accounting period
Compliance Checks
➢ May be result of:
- Suspicion from HMRC about income

- Other information in HMRC’s possession
- Part of random checks
➢ A written notice will be served to the taxpayer:
- Within 12 months of
Actual delivery/submission of tax return
31 Jan, 30 April, 31 July or 31 October next following actual date of delivery of the return
➢ A written notice will be supplied to the taxpayer

➢ Written notice must be issued within 12 months from the date of return filed.
➢ Information requested must be relevant to the respective return
➢ Taxpayer can be made against the request
Discovery assessment
To prevent the loss of tax to HMRC, a discovery assessment can be raised even after 12 months. In
this case HMRC will only accept full disclosures on the information requested. Time limit to issue
discovery assessment is:
From the end of tax year

Basic time limit Four years
Careless error Six year
Deliberate error 20 years
An appeal can be made by the taxpayer within 30 days from the disputed decision.

VALUE ADDED TAX (VAT) - CHAPTER 22
VAT
Taxable Person Taxable supplies
Who is or should be registered Everything which is either not

for VAT purposes out of AVT scope or exempt
Registration De-registration Output VAT Input VAT
How VAT works?
charges charges charges

£500 + VAT £600 + VAT £800 + VAT
Manufacturer Wholesaler Retailer

Individual End
Consumer (us)
£ £ £
Price 500 Price 600 Price 800
Output VAT 100 Output VAT 120 Output VAT 160
550 720 960
Input VAT 0 Input VAT 100 Input VAT 120

Output VAT 100 Output VAT 120 Output VAT 160
To HMRC 100 To HMRC 20 To HMRC 40 Final consumer
pays £960 (£800 +
160)
Companies pays to HMRC £160
(£100 + £20 + £40)
Types of Supply
Taxable Supplies
Zero rated: tax rate is £nil

Reduced rate: mainly for domestic and charitable use are charged as lower rate (not important
for exam)
Standard rate: 20% rate on all supplies which are not exempt, zero rated or falls under reduced
rate category.
Exempt Supplies
Land, postal service, financial service, education & insurance

Outside Scope of VAT
Children’s clothing, non-luxury food, books, medicine, transport & export outside EU
Exempt & Zero-rated supplies
Supplies by trader Exempt Supplies Zero rated supplies

Can charge VAT? No Yes but 0%
Can reclaim input VAT No Yes
Can register for VAT No Yes

VAT Registration
Threshold:
If taxable supplies (excluding sales of capital assets) exceed the registration threshold of £85,000, the
registration of VAT is compulsory.
There are two tests for this purpose:
Historic turnover test
Look back 12 months at the end of each month, if the taxable supplies in the last 12 months exceed the
threshold of £85,000, he/she must register for VAT. There is no need for the compulsory registration
of the trader is expecting his/her taxable supplies to be lesser than £83,000 (deregistration threshold)
in the upcoming 12 months
Trader must notify HMRC within 30 days of the end of month in which registration threshold
exceeded. For this purpose, VAT1 form is used or via online services of HMRC.
Registration will be effective from 1st day of the second month in which registration threshold
exceeded
Future prospects test
When taxable supplies (in isolation) are expected to exceed £85,000.
HMRC must be notified before the end of the 30 days period. VAT01 or online services of HMRC can
be used for this purpose.
Registration will be effective from beginning of the 30 days period.
Once registered, output VAT must be charged on all taxable supplies, record must be maintained, VAT
registration number must be shown on all invoices and VAT returns must be filed on time.
Voluntary registration
Even a person is not meeting the minimum threshold criteria designed by HMRC, he/she can still
register for VAT. Its beneficial for those who makes majority zero rated supplies and want to claim
input VAT.
Advantages Disadvantages
Avoid penalties for late registration Burden of compliance with tax laws
Can recover input VAT on purchases Must charge VAT which makes their goods more
expensive
Can hide the small size of the business
VAT Group
Companies under common control can opt for VAT Group. Goods and services in between the
members are disregarded for the purpose of VAT. One member can become representative member of
the entire Group and can handle all accounting and filing/representation requirement for VAT
purposes.
The main benefit is the submission of single VAT return compare to separate for each company. The
main disadvantage is that all members are collectively liable and responsible.

Recovery of input VAT from preregistration time
VAT from pre-registration time cannot be recovered unless the following conditions are satisfied
Tangible Goods Services

Goods which were purchased for business Services must be supplied for business purposes
purposes and are still not sold or consumed.
Services must not have been provided for more
Goods were acquired within 4 years prior from than six months prior to the registration date
the registration date
Includes both inventory and noncurrent assets

for VAT purposes
Deregistration
Compulsory Voluntary
When a person ceases his/her trade If a person suspects (with evidence) that his/her
taxable supplies will not exceed £83,000 in the
Must notify HMRC within 30 days of ceasing to coming 12 months
make taxable supplies
VAT registration will be cancelled from the date
VAT registration will be cancelled from the date of request
of cessation
HMRC may require evidence, which falls on
taxpayer to provide
“Output VAT will be accounted for on the inventory and value of ono-current assets, on
which the input VAT has already been claimed”
This liability will be waived if it is equal to or less than £1000
Sale of Business
Sale of Business
Normal taxable supply Transfer of going concern
If conditions are not satisfied Conditions (all of them) are satisfied
Business is transferred as going concern

No significant break in the trading
Same trade will be carried on after sale/transfer
New owner (acquirer) is also liable to register
for VAT, immediately
Charge VAT on assets transferred Not treated as VATABLE supply
Normally it is compulsory to deregister but the registration for VAT can also be
transferred to the acquirer if both parties make joint election
Time of Supply
It is important to identify in which month/quarter the supply is falling.
Basic Tax Point
Goods Services
When customer collects them, or goods are Performed
transferred/delivered (risks and rewards)

Actual Tax Point
Actual Tax Point
Step 1
Identify Basic Tax Point
Step 2
On or prior to Basic Tax Point, whether:
- Tax invoice has been issued? Or

- A payment has been received by the seller
YES NO
Actual Tax Point Whether tax invoice was issued within 14 days
of the Basic Tax Point?
- Earlier date
- Compulsory ruling
NO YES
Then ATP = BTP ATP = Actual invoice

date
Special rules:
Goods on “sale” or return
Time of supply is earlier of:
- Date when goods are received by the customer

- 12 months after dispatch
Continuous supplies
Like utility bills, time of supply is earlier of:
- Issuance date of tax invoice

- Payment receipt date
Sales under Hire Purchase contract
- Goods are taxed as normally (Zero or standard rate)

- Interest charged is exempt for VAT
- Time of supply is judged normally

Value of Supplies
Basic Rule:
Normally the value of supplies is the amount on which the VAT is charged.
If a standard supply is made at a price of £5000 + VAT. The VAT would be £1000 and value
inclusive of VAT would be £6,000.
Discounts:
VAT will be calculated at the discounted price, the amount which customer will pay. Whether it’s a
trade discount or prompt payment discount.
If discount after generating invoice for full amount, a tax credit note will be issued and VAT with
same rate will get effected and gets automatically adjusted.
Gifts:
Gifts of inventory or non-current assets are treated as taxable supplies at replacement cost, except
the following:
- Goods worth £50 or less in a year to same person

- Business samples, regardless of number of samples given
- Gifts of services to employees or customers are also not taxable
Goods for own use:
If trader withdraw goods which were purchased for business purposes, are considered taxable
supplies at replacement cost
If goods were purchased for personal purposes, no Input VAT can be claimed
Recovery of Input VAT
➢ Input VAT is recoverable as far as the purchases were made for business purposes
➢ Both revenue and capital expenses are entitled for recovery
➢ Input VAT which is not recoverable are:
- Business entertaining expenses (within UK). Overseas entertaining expenses are allowed
- Motor cars, unless:
- used 100% for business purpose
- if it has private use, only 50% is recoverable
When goods or services are not used completely for business purposes, an apportionment is required
to allocate the recoverable input VAT. Exception for cars still applies.
Where company pays fuel and other related costs to the employee, related to motor vehicles.
Business pays for fuel costs, can recover full input VAT
If there is any private use of the car
Driver reimburse full cost of fuel (for private Driver does not reimburse any cost to the
use) to the employer employer
Output VAT is applicable on the amount Output VAT is applicable on a scale

reimbursed charge
Scale charge depends on CO2 emission of the car which will be provided in the exam.

NPM plc provides a company car to Irfan with CO2 emission rate of 205gm/km for his personal
private use. The company pays for all running costs including fuel, with zero reimbursement by Irfan.
The relevant VAT fuel scale charge is £460.
SOLUTION:
Output VAT charge is £460 x 1/6 = £77
Relief for impairment
When a customer does not pay, seller doesn’t have any choice but to remove the debtors from his
books. Because output VAT was already paid by seller, so the negative effect of output VAT will be
given in the tax credit note.
Conditions are:
- At least 6 months old

- Debt must be written off in seller VAT account
- Claims must be made within 4 years and 6 months of the payment being due

From ACCA Examining Team:
The impact of the UK leaving the European Union (EU)
Although the UK officially left the EU on 31 January 2020, the VAT treatment of acquisitions from the
EU will remain unchanged throughout the Brexit transition period which is due to come to an end on
31 December 2020.
Once the Brexit transition period comes to end, goods acquired from the EU will be treated the same
for VAT purposes as goods which are currently imported from outside the EU.
However, for exams in the period 1 June 2021 to 31 March 2022, it will be assumed that the EU
acquisition rules continue to apply.
Coronavirus (Covid-19) tax deferrals
Because of the Coronavirus crisis, the government has introduced temporary measures allowing
taxpayers to defer certain self-assessment and VAT payments. Deferral is possible in respect of the
following payments:
• The second self-assessment payment on account for the tax year 2019-20 due on 31 July
2020.
• VAT payments due between 30 March and 30 June 2020.
For any question involving such payments, you should assume that the taxpayer has not deferred
them.
The reduction to the rate of VAT applicable to businesses in the hospitality sector for the period 15
July 2020 to 13 January 2021 will also not be examined.


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TAXATION (F6)

Abu Bakar Muhammad FCCA

Multiple Choice Questions

ACCA Taxation (TX-UK) FA-2020 2

Anyone who is UK resident is a chargeable person and is subject to CGT. Rules of

2. Chargeable disposals & assets

Chargeable disposals Exempt disposals

1. Exchange of an asset/assets 1. Disposal as result of death

Chargeable assets Exempt assets

ACCA Taxation (TX-UK) FA-2020 3

For each disposal, follow the below steps:

1. Disposal proceeds are sale proceeds

ACCA Taxation (TX-UK) FA-2020 4

• For 2020/21, the AEA is £12,300.00.

• Unused AEA is wasted. It cannot be carried forward.

• Capital losses arising in the current year can set off:

Against chargeable gains arising in the same year

7. Computation & rates of CGT

• Rate of CGT is dependent upon amount of taxpayer’s total TAXABLE

ACCA Taxation (TX-UK) FA-2020 5

Normal rates Residential Property

10. Planning opportunities

Cash flow benefits:

If disposals can be delayed until 6 April 2021 or later:

ACCA Taxation (TX-UK) FA-2020 6

During the year 2020/21, Julie disposed the following assets:

Residential property 35,000

She has taxable income of £29,500 during the year.

Total Other gains Residential Prp.

Less: AEA (12,300) 0 (12,300)

£8,000 x 10% = 800 (w-1)

W-1: basic rate band remaining limit (£37,500 – 29,500) = 8,000

ACCA Taxation (TX-UK) FA-2020 7

CGT Special rules related to

1. Transfers between Spouse/Civil Partners

• Assets transferred between spouses or civil partners are treated at no gain no

Note: If the couple is separated, these rules will not be applicable

1.1. Subsequent sale by the transferee

Practice your knowledge

Compute Nile’s chargeable gain on this disposal.

Sales/disposal proceeds 34,000

ACCA Taxation (TX-UK) FA-2020 8

A = Value of the part disposed of (sales proceeds)

Practice your knowledge

On 1 September 2020, Yousuf sold the remaining land for £19,000.

Sales proceeds 9,000

01 September 2020 disposal:

Sales proceeds 19,000

ACCA Taxation (TX-UK) FA-2020 9

Chattels are tangible moveable property (picture or furniture item). Therefore:

3.2. Wasting assets

An asset whose predictable life is not more than 50 years.

Wasting Chattels Non-Wasting Chattels

3.3. Exempt disposals of Chattels

Under two categories, chattels are exempt:

Wasting Chattels Non-wasting Chattels:

There is an exception for this rule. If:

• Calculate gain as normal by applying £6,000 rule (if applicable)

ACCA Taxation (TX-UK) FA-2020 10

Practice your knowledge

Calculate Ali’s chargeable gain arising on the disposal in October 2020.

The capital allowance computation is therefore adjusted as follows: