FINANCE ACT 2013

This article looks at the changes made by the Finance Act 2013, and should be read by those of you who are taking Paper F6 (UK) at either the June or December 2014 sittings. The aim of the article is to summarise the changes made by the Finance Act 2013 and to look at the more important changes in greater detail. The article also includes details of legislation that was enacted prior to the Finance Act 2013, but has only come into effect from 6 April 2013. The article does not refer to any amendments to the Paper F6 (UK) syllabus coverage unless they directly relate to legislative changes and candidates should therefore consult the June and December 2014 version of the Paper F6 (UK) Syllabus and Study Guide for details of such amendments. Please note that if you are sitting Paper F6 (UK) in December 2013, you will be examined on the Finance Act 2012, which is the legislation as it relates to the tax year 201213. Therefore this article is not relevant to you, and you should instead refer to the Finance Act 2012 article published on the ACCA website (see 'Related links').

TAX SYSTEM
General anti-abuse rule Previously, tax avoidance has been targeted with specific legislation. As a further deterrent, a general anti-abuse rule has been introduced. This will counteract tax advantages (such as increasing a deduction or decreasing income) arising from tax arrangements that are abusive (those arrangements which cannot be regarded as a reasonable course of action).

INCOME TAX
Residence A statutory test of residence has been introduced to determine a persons residence status each tax year. The following people will automatically be treated as not resident in the UK:

A person who is in the UK for less than 16 days during a tax year. A person who is in the UK for less than 46 days during a tax year, and who has not been resident during the three previous tax years. A person who works full-time overseas, subject to them not being in the UK for more than 90 days during a tax year.

Subject to not meeting any of the automatic nonresident tests, the following people will automatically be treated as resident in the UK:

A person who is in the UK for 183 days or more during a tax year. A person whose only home is in the UK. A person who carries out full time work in the UK.

Where a persons residence status cannot be determined according to any of the automatic tests, then his/her status will be based on how many ties they have with the UK and how many days they stay in the UK during a tax year. There are five UK ties as follows:

Having close family (a spouse/civil partner or minor child) in the UK. Having a house in the UK which is made use of during the tax year. Doing substantive work in the UK. Being in the UK for more than 90 days during either of the two previous tax years. Spending more time in the UK than in any other country in the tax year.

How the UK ties test is applied depends on whether a person has been resident in the UK for any of the previous three tax years. A person who has been resident during any of the previous three tax years will typically be someone that is leaving the UK, and for them all five UK ties are relevant. A person who has not been resident during any of the previous three tax years will typically be someone that is arriving in the UK, and for them the final country tie is ignored. A persons residence status is found by comparing the number of days they are in the UK during a tax year against how many UK ties they have:

Days in UK

Previously resident

Not previously resident

Less than 16 Automatically not resident 16 to 45 46 to 90 91 to 120 121 to 182 183 or more

Automatically not resident

Resident if 4 UK ties (or more) Automatically not resident Resident if 3 UK ties (or more) Resident if 4 UK ties Resident if 2 UK ties (or more) Resident if 3 UK ties (or more) Resident if 1 UK tie (or more) Automatically resident Resident if 2 UK ties (or more) Automatically resident

It is therefore more difficult for a person leaving the UK to become non-resident than it is for a person arriving in the UK to remain non-resident. A day in the UK is any day in which a person is present in the UK at midnight. The table will be given in the tax rates and allowances section of the examination paper. The detailed rules are quite complex, especially those in regard to work and having a home in the UK. These more complex aspects are not examinable at Paper F6 (UK). EXAMPLE 1 James is in the UK for 40 days during the tax year 2013 14. He has not previously been resident in the UK. Kate is in the UK for 60 days during the tax year 201314. Her only home is in the UK. Maggie has always been resident in the UK, being in the UK for more than 300 days each tax year. On 6 April 2013 Maggie purchased an overseas apartment where she lived for most of the tax year 2013 14. She also has a house in the UK where her husband and children live. During the tax year 201314 Maggie visited the UK for a total of 80 days, staying in her UK house. Nigel has not previously been resident in the UK, being in the UK for less than 20 days each tax year. On 6 April 2013 he purchased a house in the UK, and during the tax year 2013 14 stayed in the UK for a total of 160 days. Nigel also has an overseas house which was where he stayed for the remainder of the tax year 201314. James For 201314 James will automatically be treated as not resident in the UK. He has not been resident during the three previous tax years, and has spent less than 46 days in the UK. Kate For 201314 Kate will automatically be treated as resident in the UK. She has spent too long in the UK to be automatically treated as non-resident, and her only home is in the UK. Maggie For 201314 Maggie has spent too long in the UK to be automatically treated as non-resident, and will not automatically be treated as resident because she does not meet the only home test. Maggie has been resident in the UK during the three previous tax years, and was in the UK between 46 and 90 days. She is therefore resident in the UK for 201314 as a result of her three UK ties:

Close family in the UK. A house in the UK which is made use of. In the UK for more than 90 days during the previous two tax years.

Nigel For 201314 Nigel has spent too long in the UK to be automatically treated as non-resident, and will not automatically be treated as resident because he does not meet the only home test. Nigel has not been resident in the UK during the three previous tax years, and was in the UK between 121 and 182 days. He is therefore not resident in the UK for 201314 as the only UK tie is the house in the UK which is made use of. Ordinary residence The concept of ordinary residence has been abolished. Therefore, a person is now liable to capital gains tax on the disposal of assets during any tax year in which they are resident in the UK.

Rates of income tax The additional rate of income tax has been reduced from 50% to 45%, with the rate for dividends reduced from 42.5% to 37.5%. The rates of income tax for the tax year 2013 14 are as follows:

Normal rates % Basic rate 1 32,010 32,011 to 150,000 150,001 and over 20

Dividend rates % 10

Higher rate

40

32.5

Additional rate

45

37.5

A starting rate of 10% applies to savings income where it falls within the first 2,790 of taxable income. If non-savings income exceeds 2,790 the starting rate of 10% for savings does not apply. In this case savings income is taxed at the basic rate of 20% if it falls below the higher rate threshold of 32,010, at the higher rate of 40% if it falls between the higher rate threshold of 32,010 and the additional rate threshold of 150,000, and at the additional rate of 45% if it exceeds the additional rate threshold of 150,000. Personal allowances The normal personal allowance for the tax year 201314 is 9,440, and this is given to people born on or after 6 April 1948. People born between 6 April 1938 and 5 April 1948 receive a higher personal allowance of 10,500, with a slightly higher allowance of 10,660 given to people born before 6 April 1938. Previously, the level of personal allowance depended on whether a person had reached the age of 65 or 75. Personal allowances for the tax year 201314 are as follows: Personal allowance

Born on or after 6 April 1948 Born between 6 April 1938 and 5 April 1948 Born before 6 April 1938

9,440

10,500 10,660

Income limit

Personal allowance Personal allowance (born before 6 April 1948)

100,000

26,100

The normal personal allowance of 9,440 is gradually reduced to nil where a persons adjusted net income exceeds 100,000. Adjusted net income is net income (total income less deductions for loss relief and interest payments) less the gross amount of personal pension contributions and gift aid donations. The personal allowance is reduced by 1 for every 2 that a pe rsons adjusted net income exceeds 100,000. Therefore, a person with adjusted net income of 118,880 or more is not entitled to any personal allowance (118,880 100,000 = 18,880/2 = 9,440). Where a person has an adjusted net income of between 100,000 and 118,880, the effective marginal rate of income tax is 60%. This is the higher rate of 40% on income plus an additional 20% as a result of the withdrawal of the personal allowance. In this situation it may be beneficial to make additional personal pension contributions or gift aid donations. The same reduction applies in respect of the higher personal allowances available to people born before 6 April 1948. Where a persons adjusted net income exceeds 26,100, the higher personal allowances are reduced t o a minimum of the normal personal allowance of 9,440. However, there will then be a further reduction if adjusted net income

exceeds 100,000. This means that regardless of a persons age, no personal allowance will be available where their adjusted net income is 118,880 or more. EXAMPLE 2 Ingrid was born on 29 May 1973. For the tax year 2013 14 she has a salary of 37,000, building society interest of 800 (net) and dividends of 9,000 (net). Her income tax liability is as follows:

Employment income Building society interest (800 x 100/80) 37,000 1,000 10,000 ______ 48,000 (9,440) ______ 38,560 ______

Dividends (9,000 x 100/90)

Personal allowance

Taxable income

Income tax: 28,560 at 20% 3,450 at 10% 6,550 at 32.5%

5,712 345 2,129 ______ 8,186 ______

Tax liability

EXAMPLE 3 June was born on 3 August 1965. For the tax year 2013 14 she has a trading profit of 184,000. Her income tax liability is as follows:

Trading profit Personal allowance 184,000 Nil ______ 184,000 ______

Taxable income

Income tax: 32,010 at 20% 117,990 at 40% 34,000 at 45%

6,402 47,196 15,300 ______ 68,898

Tax liability

______
No personal allowance is available as Junes adjusted net income of 184,000 exceeds 118,880.

EXAMPLE 4 Trevor was born on 23 January 1983. For the tax year 2013 14 he has a trading profit of 132,000, building society interest of 3,200 (net) and dividends of 34,200 (net). The income tax payable by Trevor is as follows:

Trading profit Building society interest (3,200 x 100/80) Dividends (34,200 x 100/90)

132,000

4,000 38,000 ______ 174,000 Nil ______ 174,000 ______

Personal allowance

Taxable income Income tax: 32,010 at 20% 103,990 at 40% 14,000 at 32.5% 24,000 at 37.5%

6,402 41,596 4,550 9,000 ______ 61,548

Tax liability

Tax suffered at source Dividends (38,000 at 10%) Building society interest (4,000 at 20%)

3,800 800 ______ (4,600) ______ 56,948 ______

The 10% tax credit on dividend income is available regardless of the rate of tax payable.

EXAMPLE 5 May was born on 19 December 1958. For the tax year 2013 14 she has a trading profit of 159,000. During the year May made net personal pension contributions of 40,000 and a net gift aid donation of 1,600. Her income tax liability is as follows:

Trading profit Personal allowance

159,000 (5,940) ______ 153,060 ______

Taxable income

Income tax: 84,010 at 20% 69,050 at 40%

16,802 27,620 ______ 44,422 ______

Tax liability

The gross personal pension contributions are 50,000 (40,000 x 100/80) and the gross gift aid donation is 2,000 (1,600 x 100/80). Mays adjusted net income is therefore 107,000 (159,000 50,000 2,000), so her personal allowance of 9,440 is reduced to 5,940 (9,440 3,500 (107,000 100,000 = 7,000/2)). The basic and higher rate tax bands are extended to 84,010 (32,010 + 50,000 + 2,000) and 202,000 (150,000 + 50,000 + 2,000) respectively.

EXAMPLE 6 Ali was born on 12 March 1947. For the tax year 201314 he has pensions of 11,900 and bank interest of 4,000 (net). His income tax liability is as follows:

Pensions Bank interest (4,000 x 100/80) 11,900 5,000 _______ 16,900 (10,500) _______ 6,400 _______

Personal allowance

Taxable income Income tax: 1,400 at 20% 1,390 at 10% 3,610 at 20%

280 139 722 _______ 1,141 _______

Tax liability

Ali qualifies for the higher personal allowance of 10,500 as he was born between 6 April 1938 and 5 April 1948.

Non-savings income is 1,400 (11,900 10,500), so 1,390 (2,790 1,400) of the savings income is taxed at the starting rate of 10%. The remainder of the savings income is taxed at the basic rate of 20%.

EXAMPLE 7 Lorn was born on 14 July 1932. For the tax year 201314 she has pensions of 24,000 and building society interest of 3,200 (net). Her income tax liability is as follows:

Pensions Building society interest (3,200 x 100/80) 24,000 4,000 _______ 28,000 Personal allowance (9,710) _______ 18,290 _______ 3,658 _______ 3,658 _______

Taxable income Income tax: 18,290 at 20%

Tax liability

Lorns adjusted net income exceeds 26,100, so her higher personal allowance of 10,660 is reduced to 9,710 (10,660 950 (28,000 26,100 = 1,900/2)).

EXAMPLE 8 Rich was born on 2 September 1935. For the tax year 2013 14 he has a trading profit of 92,000 and pensions of 18,000. His income tax liability is as follows:

Trading profit Pensions 92,000 18,000 ______ 110,000 (4,440) ______ 105,560 ______

Personal allowance Taxable income

Income tax: 32,010 at 20% 73,550 at 40%

6,402 29,420 ______

Tax liability

35,822 ______

Richs adjusted net income exceeds 26,100 to the extent that his higher personal allowance of 10,660 is initially reduced to the normal personal allowance of 9,440. As the adjusted net income of 110,000 exceeds 100,000, the normal personal allowance is then reduced to 4,440 (9,440 5,000 (110,000 100,000 = 10,000/2)).

Child benefit income tax charge An income tax charge has been introduced where a persons adjusted net income exceeds 50,000 and they receive child benefit. Child benefit is a tax-free payment that can be claimed in respect of children, and the tax charge in effect removes the benefit for those on higher incomes. Where adjusted net income is between 50,000 and 60,000, the income tax charge is 1% of the amount of child benefit received for every 100 of income over 50,000. For people whose adjusted net income exceeds 60,000, the amount of the income tax charge is equivalent to the amount of child benefit received. The child benefit income tax charge is collected through the self-assessment system. This means that many more people than previously will have to complete a self-assessment tax return. The following information will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings: Child benefit income tax charge Where income is between 50,000 and 60,000, the charge is 1% of the amount of child benefit received for every 100 of income over 50,000. EXAMPLE 9 For the tax year 201314 Cecil has a salary of 64,000. He received child benefit of 1,056 during the year. Cecils adjusted net income of 64,000 exceeds 60,000, so the child benefit income tax charge is 1,056, being the amount of child benefit received. EXAMPLE 10 For the tax year 201314 Mavis has a trading profit of 56,000. She received child benefit of 1,752 during the year. Mavis adjusted net income of 56,000 is between 50,000 and 60,000. The child benefit income tax charge is therefore 1,051 (1,752 x 60% ((56,000 50,000)/100)).

EMPLOYMENT INCOME
Company car benefit For the tax year 201314 the base level of CO emissions used to calculate company car benefits is reduced from 100 grams per kilometre to 95 grams per kilometre. The base percentage is unchanged at 11%. There are two lower rates for company motor cars with low CO emissions. For a motor car with a CO emission rate of 75 grams per kilometre or less the percentage is 5%. For a motor car with a CO emission rate of between 76 and 94 grams per kilometre the percentage is 10%. The percentage rates (including the lower rates of 5% and 10%) are increased by 3% for diesel cars, but not beyond the maximum percentage rate of 35%. The company car benefit information that will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings is as follows: Car benefit percentage The relevant base level of CO emissions is 95 grams per kilometre. The percentage rates applying to petrol cars with CO emissions up to this level are:

75 grams per kilometre or less

5%

76 grams to 94 grams per kilometre 95 grams per kilometre

10% 11%

EXAMPLE 11 During the tax year 201314 Fashionable plc provided the following employees with company motor cars: Amanda was provided with a new petrol powered company car throughout the tax year 2013 14. The motor car has a list price of 12,200 and an official CO emission rate of 84 grams per kilometre. Betty was provided with a new petrol powered company car throughout the tax year 2013 14. The motor car has a list price of 16,400 and an official CO emission rate of 109 grams per kilometre. Charles was provided with a new diesel powered company car on 6 August 2013. The motor car has a list price of 13,500 and an official CO emission rate of 137 grams per kilometre. Diana was provided with a new petrol powered company car throughout the tax year 2013 14. The motor car has a list price of 84,600 and an official CO emission rate of 233 grams per kilometre. Diana paid Fashionable plc 1,200 during the tax year 201314 for the use of the motor car. Amanda The CO emissions are between 76 grams and 94 grams per kilometre so the relevant percentage is 10%. The motor car was available throughout 201314, so the benefit is 1,220 (12,200 x 10%). Betty The CO emissions are above the base level figure of 95 grams per kilometre. The CO emissions figure of 109 is rounded down to 105 so that it is divisible by five. The minimum percentage of 11% is increased in 1% steps for each five grams per kilometre above the base level, so the relevant percentage is 13% (11% + 2% (105 95 = 10/5)). The motor car was available throughout 201314 so the benefit is 2,132 (16,400 x 13%). Charles The CO emissions are above the base level figure of 95 grams per kilometre. The relevant percentage is 22% (11% + 8% (135 95 = 40/5) = 19% plus a 3% charge for a diesel car). The motor car was only available for eight months of 201314, so the benefit is 1,980 (13,500 x 22% x 8/12). Diana The CO emissions are above the base level figure of 95 grams per kilometre. The relevant percentage is 38% (11% + 27% (230 95 = 135/5)), but this is restricted to the maximum of 35%. The motor car was available throughout 201314 so the benefit is 28,410 (84,600 x 35% = 29,610 1,200). The contribution by Diana towards the use of the motor car reduces the benefit. Company car fuel benefit The fuel benefit is calculated as a percentage of a base figure that is announced each year. For the tax year 2013 14 the base figure has been increased from 20,200 to 21,100. The percentage used in the calculation is exactly the same as that used for calculating the related company car benefit. EXAMPLE 12 Continuing with example 11. Amanda was provided with fuel for private use between 6 April 2013 and 5 April 2014. Betty was provided with fuel for private use between 6 April 2013 and 31 December 2013. Charles was provided with fuel for private use between 6 August 2013 and 5 April 2014. Diana was provided with fuel for private use between 6 April 2013 and 5 April 2014. She paid Fashionable plc 600 during the tax year 201314 towards the cost of private fuel, although the actual cost of this fuel was 1,000. Amanda The motor car was available throughout 201314 so the benefit is 2,110 (21,100 x 10%). Betty Fuel was only available for nine months of 201314, so the fuel benefit is 2,057 (21,100 x 13% x 9/12). Charles The motor car was only available for eight months of 2013 14, so the fuel benefit is 3,095 (21,100 x 22% x 8/12).

Diana The motor car was available throughout 201314 so the benefit is 7,385 (21,100 x 35%). There is no reduction for the contributions made since the cost of private fuel was not fully reimbursed. Company van fuel benefit The fuel benefit where private fuel is provided for a company van has been increased from 550 to 564. Childcare The exemption limit where childcare is provided by an employer has been adjusted for additional rate taxpayers. This is in line with the reduction of the additional rate of income tax from 50% to 45%. The weekly limits are now 55 per week for basic rate taxpayers, 28 per week for higher rate taxpayers, and 25 per week for additional rate taxpayers. These limits mean that all taxpayers receive exactly the same amount of tax relief from the childcare exemption. Official rate of interest The official rate of interest is used when calculating the taxable benefit arising from a beneficial loan or from the provision of living accommodation costing in excess of 75,000. For the June and December 2014 sittings the actual official rate of interest of 4.0% for the tax year 2013 14 will be used. Luncheon vouchers The exemption for the first 15p per day for luncheon vouchers has been abolished. Therefore the full cost of luncheon vouchers provided to employees is now a taxable benefit. Cycle to work days The exemption where meals or refreshments were provided to employees as part of a cycle to work day has been abolished. PAYE Real time reporting The PAYE system has been modernised by the introduction of real time reporting. The fundamentals of PAYE itself are unchanged, so employees are still issued with tax codes, and the employer is still responsible for deducting tax and national insurance contributions (NIC). The due dates for paying income tax and NIC to HM Revenue and Customs remain unchanged. However, with real time reporting, employers send income tax and NIC information to HM Revenue and Customs electronically every time employees are paid (either weekly or monthly) rather than waiting until after the end of the tax year as was previously the case. Forms P35 and P14 are no longer required, since end of year information is included with the final real time submission for the tax year. However, form P60 must still be provided to employees following the end of the tax year. Form P45 has also been retained, and this is provided to a leaving employee. Employers are charged a penalty if their final real time submission for a tax year is made late. The deadline is 19 May following the end of the tax year, and the penalty that can be imposed is 100 per month per 50 employees. For the tax year 201314 there are no penalties if submissions made during the tax year are late. Since information must be filed electronically, it is no longer possible to produce a payroll manually. Employers must either run payroll software or use the services of a payroll provider.

CAPITAL ALLOWANCES
Motor cars The motor car CO emission thresholds have been reduced: The CO emissions limit to qualify for a 100% first-year allowance has been reduced from 110 grams per kilometre to 95 grams per kilometre. The CO emissions limit to qualify for writing-down allowances at the rate of 18% has been reduced from 160 grams per kilometre to 130 grams per kilometre. This means that writing-down allowances at the rate of 18% are available where a motor cars CO emissions are between 96 and 130 grams per kilometre, and at the rate of 8% where CO emissions are over 130 grams per kilometre. These changes apply from 6 April 2013 (1 April 2013 for limited companies), and a question will not be set involving the CO emission thresholds that applied prior to this date. Annual investment allowance From 1 January 2013 the annual investment allowance (AIA) limit has been increased from 25,000 to 250,000. The AIA provides an allowance of 100% for the first 250,000 of expenditure on plant and machinery in a 12-month period. Any expenditure in excess of the 250,000 limit qualifies for writing-down allowances as normal. The AIA applies to all expenditure on plant and machinery with the exception of motor cars. The 250,000 limit is proportionally reduced or increased where a period of account is shorter or longer than 12 months. For example, the AIA would be 187,500 (250,000 x 9/12) for a nine-month period of account.

Where a period of account spans 1 January 2013, then apportionment will be necessary in order to determine the amount of AIA. A question will not be set involving apportionment as regards the amount of AIA. However, there is no reason why a question could not involve a 31 December 2013 year end. The capital allowances information that will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings is as follows: Rates of allowance

% Plant and machinery Main pool Special rate pool 18 8

Motor cars New cars with CO emissions up to 95 grams per kilometre CO emissions between 96 and 130 grams per kilometre CO emissions over 130 grams per kilometre

100

18 8

Annual investment allowance First 250,000 of expenditure (since 1 January 2013)

100

Unless there is private use, motor cars qualifying for writing down allowances at the rate of 18% are included in the main pool, whilst motor cars qualifying for writing down allowances at the rate of 8% are included in the special rate pool. Motor cars with private use (by a sole trader or partner) are not pooled, but are kept separate so that the private use adjustment can be calculated. EXAMPLE 13 Ming prepares accounts to 31 December. On 1 January 2013 the tax written down value of plant and machinery in her main pool was 16,700. The following transactions took place during the year ended 31 December 2013:

Cost/ (proceeds) 8 April 2013 14 April 2013 12 August 2013 Purchased motor car (1) Purchased motor car (2) Purchased equipment 15,600 10,100 56,400

2 September 2013 19 November 2013 12 December 2013

Purchased motor car (3) Purchased motor car (4) Sold motor car (2)

28,300 16,800 (8,300)

Motor car (1) purchased on 8 April 2013 has CO emissions of 120 grams per kilometre. This motor car is used by Ming, and 20% of the mileage is for private journeys. Motor car (2) purchased on 14 April 2013 and sold on 12 December 2013 has CO emissions of 155 grams per kilometre. Motor car (3) purchased on 2 September 2013 has CO emissions of 125 grams per kilometre. Motor car (4) purchased on 19 November 2013 has CO emissions of 90 grams per kilometre. Mings capital allowance claim for the year ended 31 December 2013 is as follows:

WDA brought forward

Main pool

Motor Special rate car (1) pool

Allowances

16,700

Addition qualifying for AIA Equipment AIA 100%

56,400 (56,400) _______

56,400

Other additions Motor car (1) Motor car (2) Motor car (3) Proceeds motor car (2)

28,300

15,600

10,100 (8,300) _______ 1,800 8,100

______ 45,000

WDA 18% WDA 18% (2,808) WDA 8% (8,100) ______ 36,900 x 80% (144)

2,246 144

Addition qualifying for FYA Motor car (4) FYA 100%

16,800 (16,800) _______

0 ______ 36,900 ______ _______ 12,792 _______ ________ 1,656 ________

16,800

Total allowances

_________ 83,690 _________

Motor car (1) is kept separately because there is private use by Ming. This motor car has CO emissions between 96 and 130 grams per kilometre, and therefore qualifies for writing down allowances at the rate of 18%. Motor car (2) has CO emissions over 130 grams per kilometre and therefore qualifies for writing down allowances at the rate of 8%. Even though it is the only asset in the special rate pool, there is no balancing allowance on the disposal of this motor car because the expenditure is included in a pool. Motor car (3) has CO emissions between 96 and 130 grams per kilometre, and therefore qualifies for writing down allowances at the rate of 18%. Motor car (4) has CO emissions of less than 95 grams per kilometre and therefore qualifies for the 100% first year allowance.

Leased motor cars The CO emission threshold for leased motor cars has been reduced from 160 grams per kilometre to 130 grams per kilometre. This means that there is no adjustment where the CO emissions of a leased motor car do not exceed 130 grams per kilometre. Where CO emissions are more than 130 grams per kilometre then 15% of the leasing costs are disallowed in calculating taxable profits. EXAMPLE 14 Fabio Ltd makes up its accounts to 31 March. On 1 April 2013 the company commenced the lease of two motor cars. The first motor car has CO emissions of 115 grams per kilometre and was leased at a cost of 4,800 during the year ended 31 March 2014. The second motor car has CO emissions of 150 grams per kilometre and was leased at a cost of 6,000 during the year ended 31 March 2014. When calculating its taxable profits for the year ended 31 March 2014 Fabio Ltd will have to disallow leasing costs of 900 (6,000 x 15%).

CAP ON INCOME TAX RELIEFS

A cap has been introduced for those reliefs that are offset against a persons total income and which are otherwise not capped. The cap is the higher of 50,000 or 25% of a persons total income. For this purpose, total income is after deducting the gross amount of personal pension contributions. As far as Paper F6 (UK) is concerned, the only aspect of the cap that will be examined is where loss relief is claimed against total income for the tax year in which the loss arose and/or the preceding year. The cap does not restrict the loss that can be claimed against profits of the same trade for the preceding tax year, and any restricted loss can still be carried forward against future profits from the same trade. EXAMPLE 15 For the year ended 5 April 2014 Gloria made a trading loss of 145,000, having made a trading profit of 30,000 for the year ended 5 April 2013. She has employment income of 125,000 in each of the tax years 2012 13 and 2013

14. If Gloria claims relief for the trading loss against her total income for both 2012 13 and 201314, her taxable income will be as follows:

201213 Trading profit 30,000 125,000 _______ 155,000 (80,000) ________ 75,000 (9,440) ________ 65,560 ________

201314 0 125,000 _______ 125,000 (50,000) _______ 75,000 (9,440) _______ 65,560 _______

Employment income

Loss relief

Personal allowance

Taxable income

Loss relief for 201314 is capped at 50,000 as this is higher than 31,250 (125,000 x 25%). For 201213, the loss relief claim against the trading profit of 30,000 is not capped. Relief against other income is again capped at 50,000, so the total loss relief claim is 80,000 (30,000 + 50,000). The balance of the loss of 15,000 (145,000 50,000 80,000) will be carried forward against future profits from the same trade. Somewhat strangely, the cap can actually be beneficial in some situations. In Glorias case, t he application of the cap has resulted in most of her loss being relieved against income otherwise taxable at the higher rate, while her personal allowances have been preserved for both tax years.

CASH BASIS FOR SMALL BUSINESSES

A voluntary simplified cash basis of calculating trading profit has been introduced for sole traders and partnerships (limited companies are excluded). This is as an alternative to the normal accruals basis, and can be used where revenue is initially below the VAT registration threshold of 79,000. A business may then continue to use the cash basis until its revenue is twice the VAT registration threshold that is 158,000. With the cash basis, receivables, payables and inventory are ignored, and tax deductible capital and revenue expenditure will be treated the same purchases of equipment are simply deducted as an expense, whilst the proceeds from any disposals are included with receipts. A business using the cash basis can use the approved mileage allowances to calculate the deduction for business mileage. The rate is 45p per mile for the first 10,000 miles, with a rate of 25p per mile thereafter. The actual running and capital costs of owning a motor car are ignored. Where the use of the cash basis results in a trading loss, the only relief available is to carry the loss forward against future trading profits. There is no relief against total income. Trading profit (or loss) under the cash basis is therefore calculated as follows:

Receipts (including sale of equipment)

xxxx

Expense payments (including the purchase of equipment)

xxxx ____ xxxx ____

Trading profit (or loss)

EXAMPLE 16 Winifred commenced self-employment as a surveyor on 6 April 2013. The following information is available for the year ended 5 April 2014: 1. Revenue was 62,600, of which 3,800 was owed as receivables at 5 April 2014. 2. On 6 April 2013 office equipment was purchased for 4,700. 3. On 10 April 2013 a motor car with CO emissions of 110 grams per kilometre was purchased for 15,600. The motor car is used by Winifred, and 60% of the mileage is for private journeys. 4. Motor expenses were 4,800. During the year ended 5 April 2014 Winifred drove 9,000 business miles. 5. Other expenses (all allowable) were 13,300, of which 700 was owed as payables at 5 April 2014. If Winifred uses the normal basis, her trading profit for the year ended 5 April 2014 will be 41,557 calculated as follows:

Revenue Expenses Motor expenses (4,800 x 40%) Other expenses

62,600

1,920 13,300

Capital allowances (4,700 + 1,123)

5,823 ______

(21,043) _______ 41,557 _______

Trading profit
1. 2.

The office equipment purchased for 4,700 qualifies for the annual investment allowance. The motor car has CO emissions between 96 and 130 grams per kilometre, and therefore qualifies for writing down allowances at the rate of 18%. The allowance for the year ended 5 April 2014 is 1,123 (15,600 x 18% = 2,808 x 40%).

However, if Winifred uses the cash basis, her trading profit will be 37,450 calculated as follows:

Revenue (62,600 3,800) Expenses Office equipment 4,700

58,800

Motor expenses (9,000 miles at 45p) 4,050 Other expenses (13,300 700) 12,600 ______ (21,350) _______ 37,450 _______

Trading profit

There is also a flat rate private use adjustment where business premises are used as a home typically where the business is a small hotel or guest house. The private use adjustment for food and light and heat can be calculated on a flat rate basis according to the number of occupants. For example, with two occupants the private use adjustment would be 6,000 per year (the relevant figure will be provided as part of an examination question). The flat rate adjustment does not include other property expenses such as rent or mortgage (loan) interest. EXAMPLE 17 Claude and Claire, a married couple, run a guest house. For the year ended 5 April 2014 the trading profit is 42,000, but this is before any private use adjustment. The total cost of food was 31,300, and the total light and heat cost was 6,200. Rather than calculating the actual private use for food and light and heat, Claude and Claire can simply use the flat rate private use adjustment of 6,000, so their trading profit is 48,000 (42,000 + 6,000). Although the use of flat rate expenses is optional, in any examination question involving the cash basis it should be assumed that where relevant, expenses are claimed on this basis. The option of claiming expenses on a flat rate basis is also available to unincorporated businesses generally, but it will only be examined within the context of the cash basis. The detailed cash basis rules are quite complex. These more complex aspects are not examinable at Paper F6 (UK). In any examination question involving an unincorporated business, it should be assumed that the cash basis is not relevantunless it is specifically mentioned.

INDIVIDUAL SAVINGS ACCOUNTS (ISAS)

For the tax year 2013-14 a person can invest up to 5,760 in a cash ISA, and up to 11,520 in a stocks and shares ISA. This is subject to an overall investment limit of 11,520. Therefore if 5,760 is invested in a cash ISA only 5,760 can be invested in a stocks and shares ISA. These limits will be given in the tax rates and allowances section of the examination paper. The income from ISAs is exempt from income tax, whilst a chargeable gain made within a stocks and shares ISA is exempt from capital gains tax.

PENSION SCHEMES
Annual allowance The annual allowance for the tax year 201314 is unchanged at 50,000. If the annual allowance is not fully used in any tax year then it is possible to carry forward any unused allowance for up to three years. However, carry forward is only possible if a person is a member of a pension scheme for a particular tax year. Therefore for any year in which a person is not a member of a pension scheme the annual allowance is lost. EXAMPLE 18 Monica and Nicola have made the following gross personal pension contributions during the tax years 2010 11, 201112 and 201213:

Monica 201011 Nil

Nicola 56,000

201112 201213

42,000 38,000

29,000 Nil

Monica was not a member of a pension scheme for the tax year 2010 11. Nicola was a member of a pension scheme for all three tax years. Monica Monica has unused allowances of 8,000 (50,000 42,000) from 201112 and 12,000 (50,000 38,000) from 201213, so a total of 70,000 (50,000 + 8,000 + 12,000) is available for 2013 14. She was not a member of a pension scheme for 201011 so the annual allowance for that year is lost. Nicola Nicola has unused allowances of 21,000 (50,000 29,000) from 201112 and 50,000 from 201213, so a total of 121,000 (50,000 + 21,000 + 50,000) is available for 2013 14. The annual allowance for 201011 is fully utilised, but Nicola was a member of a pension scheme for 201213 so the annual allowance for that year is available in full. The annual allowance for the tax year 201314 is utilised first, and then any unused allowances from earlier years with those from the earliest year used first. EXAMPLE 19 Perry has made the following gross personal pension contributions:

201011 201112 201213 201314 32,000 41,000 19,000 58,000

The pension contribution of 58,000 for 201314 has used all of Perrys annual allowance of 50,000 for 201314, and 8,000 (58,000 50,000) of the unused allowance of 18,000 (50,000 32,000) from 201011. Perry therefore has unused allowances of 9,000 (50,000 41,000) from 201112 and 31,000 (50,000 19,000) from 201213 to carry forward to 201415. The remaining unused allowance from 2010 11 cannot be carried forward to 201415 as this is more than three years ago. Although tax relief is available on pension contributions up to the amount of earnings for a particular tax year, the annual allowance acts as an effective annual limit. Where tax relieved contributions are paid in excess of the annual allowance (including any brought forward unused allowances), then there will be an annual allowance charge. This charge is subject to income tax at a persons marginal rates. EXAMPLE 20 For the tax year 201314 Frank has a trading profit of 220,000, and made gross personal pension contributions of 70,000. He does not have any brought forward unused annual allowances. Franks i ncome tax liability is as follows:

Trading profit 220,000 20,000 _______ 240,000

Annual allowance charge

Personal allowance Taxable income

Nil ______ 240,000 ______

Income tax: 102,010 at 20% 117,990 at 40% 20,000 at 45%

20,402 47,196 9,000 ______ 76,598 ______

Tax liability

Frank has earnings of 220,000 for 201314. All of the pension contributions of 70,000 therefore qualify for tax relief. The annual allowance charge is 20,000 (70,000 50,000) being the excess of the pension contributions over the annual allowance for 201314. Franks adjusted net income clearly exceeds 118,880, so no personal allowance is available. Frank will have paid 56,000 (70,000 less 20%) to the personal pension company. Higher and additional rate tax relief is given by extending the basic and higher rate tax bands to 102,010 (32,010 + 70,000) and 220,000 (150,000 + 70,000) respectively.

Lifetime allowance The lifetime allowance for the tax year 201314 is unchanged at 1,500,000. The lifetime allowance applies to the total funds that can be built up within a persons pension schemes. Where the limit is exceeded there will be an additional tax charge when that person subsequently withdraws the funds in the form of a pension.

CORPORATION TAX
Rates of corporation tax For the financial year 2013 the small profits rate of corporation tax is unchanged at 20%. The main rate of corporation tax has been reduced from 24% to 23%. The lower and upper limits are unchanged. Marginal relief eases the transition from the small profits rate to the main rate of corporation tax where augmented profits fall between 300,000 and 1,500,000. The standard fraction used in the calculation of marginal relief for the financial year 2013 is 3/400th. The effective marginal rate of corporation tax on profits that fall between the 300,000 and 1,500,000 limits is reduced from 25% to 23.75%. The corporation tax rates for the financial year 2013 can therefore be summarised as follows:

Level of profits Up to 300,000 300,001 to 1,500,000 Over 1,500,000

Effective rate 20% 23.75% 23%

The corporation tax information that will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings is as follows:

Financial year

2011

2012

2013

Small profits rate Main rate

20% 26%

20% 24%

20% 23%

Lower limit Upper limit

300,000 1,500,000

300,000 1,500,000

300,000 1,500,000

Standard fraction

3/200

1/100

3/400

EXAMPLE 21 For the year ended 31 March 2014 Easy Ltd has taxable total profits of 40,000 and franked investment income (FII) of 10,000. For the year ended 31 December 2013 Moderate Ltd has taxable total profits of 1,400,000 and FII of 160,000. For the year ended 31 March 2014 Difficult Ltd has taxable total profits of 600,000 and FII of 50,000. For the year ended 31 December 2013 Hard Ltd has taxable total profits of 600,000 and FII of 50,000. Easy Ltd Corporation tax is 8,000 (40,000 at 20%) as the augmented profits of 50,000 (40,000 + 10,000) are less than 300,000. Moderate Ltd The augmented profits of 1,560,000 (1,400,000 + 160,000) are more than 1,500,000. Because the companys accounting period straddles 31 March the corporation tax liability is calculated as follows:

Financial year 2012 1,400,000 x 3/12 = 350,000 at 24%

84,000

Financial year 2013 1,400,000 x 9/12 = 1,050,000 at 23%

241,500 _______ 325,500 _______

Liability

Difficult Ltd Marginal relief applies as the augmented profits of 650,000 (600,000 + 50,000) are between 300,000 and 1,500,000. The companys corporation tax liability is as follows:

 600,000 at 23% 138,000

Marginal relief 3/400 (1,500,000 - 650,000) x 600,000/650,000

(5,885) _______ 132,115 _______

Liability

Hard Ltd The augmented profits of 650,000 (600,000 + 50,000) are between 300,000 and 1,500,000. Because the companys accounting period straddles 31 March the corporation tax liability is calculated as follows:

Financial year 2012 600,000 x 3/12 = 150,000 at 24% Marginal relief 1/100 (1,500,000 650,000) x 600,000/650,000 x 3/12

36,000

(1,962)

Financial year 2013 600,000 x 9/12 = 450,000 at 23%

103,500

Marginal relief 3/400 (1,500,000 650,000) x 600,000/650,000 x 9/12

(4,413) _______ 133,125 _______

Liability

Note that there are alternative ways of calculating the tax liability for Hard Ltd, but this approach is the most straightforward since there is no need to apportion any figures.

CAPITAL GAINS TAX

Annual exempt amount The annual exempt amount for the tax year 201314 has been increased from 10,600 to 10,900. Rates of capital gains tax The lower rate and the higher rate of capital gains tax for the tax year 2013 14 are unchanged at 18% and 28%. Chargeable gains are taxed at the lower rate of 18% where they fall within the basic rate tax band of 32,010, and at the higher rate of 28% where they exceed this threshold. The basic rate band is extended if a person pays personal pension contributions or makes a gift aid donation. EXAMPLE 22 For the tax year 201314 Adam has a salary of 39,440, and during the year he made net personal pension contributions of 4,400. On 15 June 2013 Adam sold an antique table and this resulted in a chargeable gain of 17,400.

For the tax year 201314 Bee has a trading profit of 59,440. On 20 August 2013 she sold an antique vase and this resulted in a chargeable gain of 18,900. For the tax year 201314 Chester has a salary of 35,440. On 25 October 2013 he sold an antique clock and this resulted in a chargeable gain of 23,800. Adam Adams taxable income is 30,000 (39,440 less the personal allowance of 9,440). His basic rate tax band is extended to 37,510 (32,010 + 5,500 (4,400 x 100/80)), of which 7,510 (37,510 30,000) is unused. Adams taxable gain of 6,500 (17,400 less the annual exempt amount of 10,900) is fully within the unused basic rate tax band, so his capital gains tax liability is therefore 1,170 (6,500 at 18%). Bee Bees taxable income is 50,000 (59,440 9,440), so all of her basic rate tax band has been used. The capital gains tax liability on her taxable gain of 8,000 (18,900 10,900) is therefore 2,240 (8,000 at 28%). Chester Chesters taxable income is 26,000 (35,440 9,440), so 6,010 (32,010 26,000) of his basic rate tax band is unused. The capital gains tax liability on Chesters taxable gain of 12,900 (23,800 10,900) is therefore calculated as follows:

6,010 at 18% 1,082 1,929 _____ 3,011 _____

6,890 at 28%

Tax liability
In each case, the capital gains tax liability will be due on 31 January 2015.

Entrepreneurs relief Entrepreneurs relief can be claimed when an individual disposes of a business or a part of a business. For the tax year 201314 the lifetime qualifying limit is unchanged at 10 million. Gains qualifying for entrepreneurs relief are taxed at a rate of 10% regardless of the level of a persons taxable income. EXAMPLE 23 On 25 January 2014 Michael sold a 30% shareholding in Green Ltd, an unquoted trading company. The disposal resulted in a chargeable gain of 800,000. Michael had owned the shares since 1 March 2007, and was an employee of the company from that date until the date of disposal. He has taxable income of 28,000 for the tax year 2013 14. Michaels capital gains tax liability is as follows:

Shareholding in Green Ltd 800,000 (10,900) _______ 789,100

Annual exempt amount

_______ 78,910 _______

Capital gains tax: 789,100 at 10%

Although chargeable gains that qualify for entrepreneurs relief are always taxed at a rate of 10%, they must be taken into account when establishing the rate that applies to other capital gains. Chargeable gains qualifying for entrepreneurs relief therefore reduce the amount of any unused basic rate tax band. The annual exempt amount and any capital losses should be initially deducted from those chargeable gains that do not qualify for entrepreneurs relief. This approach will save capital gains tax at either 18% or 28%, compared to just 10% if used against chargeable gains that do qualify for relief. There are several ways of presenting computations involving such a mix of chargeable gains, but the simplest approach is to keep chargeable gains qualifying for entrepreneurs relief and other chargeable gains separate. EXAMPLE 24 On 30 September 2013 Mika sold a business that she had run as a sole trader since 1 January 2007. The sale resulted in the following chargeable gains:

Goodwill Freehold office building 260,000 370,000 170,000 _______ 800,000 _______
The assets were all owned for more than one year prior to the date of disposal. The warehouse had never been used by Mika for business purposes. Mika has taxable income of 4,000 for the tax year 2013 14. She has unused capital losses of 28,000 brought forward from the tax year 201213. Mikas capital gains tax liability is as follows:

Freehold warehouse

Gains qualifying for entrepreneurs relief Goodwill 260,000 370,000 _______ 630,000 _______ Other gains Freehold warehouse 170,000

Freehold office building

Capital losses brought forward

(28,000) _______ 142,000 (10,900) _______ 131,100 _______

Annual exempt amount

Capital gains tax: 630,000 at 10% 131,100 at 28%

63,000 36,708 _______ 99,708 _______

Tax liability

The capital losses and the annual exempt amount are set against the chargeable gain on the sale of the freehold warehouse as this does not qualify for entrepreneurs relief. 28,010 (32,010 4,000) of Mikas basic rate tax band is unused, but this is set against the gains q ualifying for entrepreneurs relief of 630,000 even though this has no affect on the 10% tax rate.

The capital gains tax information that will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings is as follows:

Capital gains tax Rates of tax Lower rate Higher rate Annual exempt amount Entrepreneurs' relief Lifetime limit Rate of tax

18% 28% 10,900

10,000,000 10%

Employee shareholders Employee shareholder is a new type of employment status. Such employees receive shares in their employer company, with the shares being exempt from capital gains tax. This exemption is not examinable in Paper F6 (UK).

INHERITANCE TAX
Rates of inheritance tax The nil rate band for the tax year 201314 is unchanged at 325,000. The inheritance tax information that will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings is as follows:

Inheritance tax: tax rates 1 325,000 Nil

Excess Death rate Lifetime rate

40% 20% Inheritance tax: taper relief

Years before death Over 3 but less than 4 years Over 4 but less than 5 years Over 5 but less than 6 years Over 6 but less than 7 years

Percentage reduction % 20 40 60 80

Where nil rate bands are required for previous years then these will be given to you within the question.

NATIONAL INSURANCE CONTRIBUTIONS

Class 1 and class 1A national insurance contributions For the tax year 201314 the rates of employee class 1 NIC are unchanged at 12% and 2%. The rate of 12% is paid on earnings between 7,756 per year and 41,450 per year, and the rate of 2% is paid on all earnings over 41,450 per year. The rate of employers class 1 NIC is unchanged at 13.8%, and is paid on all ear nings over 7,696 per year. The rate of class 1A NIC that employers pay on taxable benefits provided to employees is also unchanged at 13.8%. The class 1 and class 1A NIC information that will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings is as follows:

% Class 1 employee 1 7,755 per year 7,756 41,450 per year 41,451 and above per year Class 1 employer 1 7,696 per year 7,697 and above per year Class 1A Nil 12.0 2.0 Nil 13.8 13.8

EXAMPLE 25 Simone Ltd has one employee who is paid 50,000 per year, and was provided with the following taxable benefits during the tax year 201314:

Company motor car Car fuel Living accommodation

The class 1 and class 1A NIC liabilities are as follows:

6,300 5,220 1,800

Employee class 1 NIC 41,450 7,755 = 33,695 at 12% 4,043 171 _____ 4,214 _____ Employers class 1 NIC 5,838 _____

50,000 41,450 = 8,550 at 2%

50,000 7,696 = 42,304 at 13.8% Employers class 1A NIC

13,320 (6,300 + 5,220 + 1,800) at 13.8%

1,838 _____

Class 2 and class 4 national insurance contributions For the tax year 2013-14 the rate of class 2 NIC has been increased to 2.70 per week. The rates of class 4 NIC are unchanged at 9% and 2%. The rate of 9% is paid on profits between 7,756 and 41,450, and the rate of 2% is paid on all profits over 41,450. The class 4 NIC information that will be given in the tax rates and allowances section of the examination paper for the June and December 2014 sittings is as follows:

% Class 4 1 7,755 per year 7,756 41,450 per year 41,451 and above per year Nil 9.0 2.0

EXAMPLE 26 Jimmy is a self-employed builder and Jenny is a self-employed consultant. Their trading profits for the tax year 2013 14 are respectively 25,000 and 50,000. Their class 4 NIC liabilities are as follows:

 Jimmy 25,000 7,755 = 17,245 at 9% 1,552 _____ 3,033 171 _____ 3,204 _____

Jenny

41,450 7,755 = 33,695 at 9% 50,000 41,450 = 8,550 at 2%

VALUE ADDED TAX (VAT)

Registration and deregistration limits The limit of annual turnover above which VAT registration is compulsory has been increased from 77,000 to 79,000, and the deregistration limit has been increased from 75,000 to 77,000. Standard rate of VAT The standard rate of VAT is unchanged at 20%. EXAMPLE 27 Gwen is in the process of completing her VAT return for the quarter ended 31 March 2014 The following information is available: Sales invoices totaling 128,000 were issued in respect of standard rated sales. Standard rated materials amounted to 32,400. Standard rated expenses amounted to 24,800. On 15 February 2014 Gwen purchased machinery at a cost of 24,150. This figure is inclusive of VAT. Unless stated otherwise all of the above figures are exclusive of VAT. VAT Return Quarter ended 31 March 2014

Output VAT Sales (128,000 x 20%)

25,600

Input VAT Materials (32,400 x 20%) Expenses (24,800 x 20%) 6,480 4,960

Machinery (24,150 x 20/120)

4,025 ______

(15,465) _______ 10,135 _______

VAT payable

Fuel provided for private mileage Where fuel is provided for private mileage, output VAT is normally calculated according to a scale charge based on the motor cars level of CO emissions. UK legislation has now been brought in line with European Union legislation, but as far as Paper F6 (UK) is concerned there is effectively no change to the previous treatment. This means that a business has the following options when providing fuel for private mileage: Claim all of the input VAT with output VAT calculated according to a scale charge. Charging the employee for the full cost of the fuel provided. All of the input VAT can then be claimed, with output VAT calculated on the charge to the employee. EXAMPLE 28 Ivy Ltd provides one of its directors with a company motor car which is used for both business and private mileage. The company pays for all of the running costs of the motor car, including petrol. The total cost of petrol each quarter is 720, of which 30% is for private mileage. The relevant quarterly scale charge is 506. Both figures are inclusive of VAT. If the director is not charged for the private fuel, then Ivy Ltd will claim input VAT of 120 (720 x 20/120) and will have to account for output VAT of 84 (506 x 20/120) based on the scale charge. If the director is charged 216 (720 x 30%) for the private fuel, then Ivy Ltd will claim input VAT of 120 and will have to account for output VAT of 36 (216 x 20/120) based on the charge to the director. Simplified VAT invoices A simplified (or less detailed) VAT invoice can be issued where the VAT inclusive total of the invoice is less than 250. Previously, only retailers could issue simplified VAT invoices, but they can now be issued by any VAT registered business.

TAX MANAGEMENT
Penalties for late filing of VAT returns and late payment of VAT New penalties for the late filing of returns and for late payment of tax are being introduced over a number of years. Although legislation has been introduced regarding the late filing of VAT returns and the late payment of VAT, HM Revenue and Customs have yet to introduce the changes. Therefore, for the June and December 2014 sittings the changes will not be examined. Dishonest conduct by tax agents A single penalty regime has been introduced for dishonest conduct by tax agents. HM Revenue and Customs can investigate dishonest conduct, and apply a penalty of up to 50,000 where there has been dishonest conduct and the tax agent fails to supply the information or documents that HM Revenue and Customs has requested. Alternative dispute resolution HM Revenue and Customs has introduced an alternative dispute resolution scheme for people involved in tax disputes. This scheme is not examinable. Late payment interest and repayment interest The assumed rates of late payment interest and repayment interest on underpaid and overpaid income tax, class 4 NIC, capital gains tax and corporation tax are based on the actual rates in force (for income tax purposes) at 6 April 2013. For the June and December 2014 sittings the assumed rate of late payment interest will therefore be 3.0%, and the assumed rate of repayment interest will be 0.5%. Written by a member of the Paper F6 (UK) examining team