ACCA Paper F6 (UK) : Notes

Chapter 6 to 10 extract from our ExPress notes for use with the current video.
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Notes ACCA Paper F6 (UK)

Taxation (UK)
For exams in 2011
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ExPress Notes

ACCA F6 Taxation UK
Contents
About ExPress Notes
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Introduction Income tax an introduction Income Tax Employment Income Income Tax Trading Income Capital Allowances Trading Income Basis Assessment Trading Losses (For Sole Traders) Trading Income - Partnerships Property Income Investment Income Pensions National Insurance Contributions Corporation Tax Chargeable Gains (For Companies) Corporate Groups and Overseas Tax Issues Capital Gains Tax (CGT) Inheritance Tax (IHT) Value Added Tax (VAT)
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7 9 12 16 19 23 25 28 30 32 34 36 38 44 46 49 54 59
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2011 The ExP Group. Individuals may reproduce this material if it is for their own private study use only. Reproduction by any means for any other purpose is prohibited. These course materials are for educational purposes only and so are necessarily simplified and summarised. Always obtain expert advice on any specific issue. Refer to our full terms and conditions of use. No liability for damage arising from use of these notes will be accepted by the ExP Group.
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ExPress Notes

ACCA F6 Taxation UK
START About ExPress Notes

We are very pleased that you have downloaded a copy of our ExPress notes for this paper. We expect that you are keen to get on with the job in hand, so we will keep the introduction brief. First, we would like to draw your attention to the terms and conditions of usage. Its a condition of printing these notes that you agree to the terms and conditions of usage. These are available to view at www.theexpgroup.com. Essentially, we want to help people get through their exams. If you are a student for the ACCA exams and you are using these notes for yourself only, you will have no problems complying with our fair use policy. You will however need to get our written permission in advance if you want to use these notes as part of a training programme that you are delivering. WARNING! These notes are not designed to cover everything in the syllabus! They are designed to help you assimilate and understand the most important areas for the exam as quickly as possible. If you study from these notes only, you will not have covered everything that is in the ACCA syllabus and study guide for this paper. Components of an effective study system On ExP classroom courses, we provide people with the following learning materials: The ExPress notes for that paper The ExP recommended course notes / essential text or the ExPedite classroom course notes where we have published our own course notes for that paper The ExP recommended exam kit for that paper. In addition, we will recommend a study text / complete text from one of the ACCA official publishers, but we do not necessarily give this as part of a classroom course, as we think that it can sometimes slow people down and reduce the time that they are able to spend practising past questions.
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Everybody in the World has free access to ACCAs own database of past exam questions, answers, syllabus, study guide and examiners commentaries on past sittings. This can be
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ExPress Notes
ACCA F6 Taxation UK
an invaluable resource. You can find links to the most useful pages of the ACCA database that are relevant to your study on ExPand at www.theexpgroup.com.
HowtogetthemostfromtheseExPressnotes
For people on a classroom course, this is how we recommend that you use the suite of learning materials that we provide. This depends where you are in terms of your exam preparation for each paper.
Your stage in study for each paper Prior to study, e.g. deciding which optional papers to take These ExPress notes ExP recommended course notes, or ExPedite notes Dont use yet ExP recommended exam kit Dont use yet ACCA online past exams
Skim through the ExPress notes to get a feel for whats in the syllabus, the size of the paper and how much it appeals to you. Work through each chapter of the ExPress notes in detail before you then work through your course notes. Dont try to feel that you have to understand everything just get an idea for what you are about to study. Dont make any annotations on the ExPress notes at this stage.
Have a quick look at the two most recent real ACCA exam papers to get a feel for examiners style. Dont use at this stage.
At the start of the learning phase
Work through in detail. Review each chapter after class at least once. Make sure that you understand each area reasonably well, but also make sure that you can recall key definitions, concepts, approaches to exam questions, mnemonics, etc.
Nobody passes an exam by what they have studied we pass exams by being efficient in being able to prove what we know. In other words, you need to have effectively input the knowledge and be effective in the output of what you know. Exam practice is key to this. Try to do at least one past exam question on the learning phase for each major chapter.
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ExPress Notes

Your stage in study for each paper Practice phase These ExPress notes ExP recommended course notes, or ExPedite notes Avoid reading through your notes again. Try to focus on doing past exam questions first and then go back to your course notes/ ExPress notes if theres something in an answer that you dont understand. ExP recommended exam kit This is your most important tool at this stage. You should aim to have worked through and understood at least two or three questions on each major area of the syllabus. You pass real exams by passing mock exams. Dont be tempted to fall into passive revision at this stage (e.g. reading notes or listening to CDs). Passive revision tends to be a waste of time. Dont touch it! ACCA online past exams ACCA F6 Taxation UK
Work through the ExPress notes again, this time annotating to explain bits that you think are easy and be brave enough to cross out the bits that you are confident youll remember without reviewing them.
Download the two most recent real exam questions and answers. Read through the technical articles written by the examiner. Read through the two most recent examiners reports in detail. Read through some other older ones. Try to see if there are any recurring criticisms he or she makes. You must avoid these! Do a final review of the two most recent examiners reports for the paper you will be taking tomorrow.
The night before the real exam
Read through the ExPress notes in full. Highlight the bits that you think are important but you think you are most likely to forget.
Unless there are specific bits that you feel you must revise, avoid looking at your course notes. Give up on any areas that you still dont understand. Its too late now. Avoid looking at them in detail, especially if the notes are very big. It will scare you.
At the door of the exam room before you go in.
Read quickly through the full set of ExPress notes, focusing on areas youve highlighted, key workings, approaches to exam questions, etc.
Leave at home.
Leave at home.
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ExPress Notes
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ACCA F6 Taxation UK
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ExPress Notes
Chapter 6
ACCA F6 Taxation UK
Trading Income Basis Assessment
START The Big Picture

Chapter 4 introduced the concept of the Current Year Basis (CYB) whereby the adjusted trading profit in an accounting period is assessed in the tax year in which the accounting period ends. There are a number of other rules which need to be looked at.
KEYKNOWLEDGE TradingIncomeBasisAssessment
Opening Year Rules There are special rules for when a sole trader commences business: Year 1. The profits assessed in year one are the actual basis. This is the adjusted profits from the commencement of business until the following 5 April. Year 2. If there is a 12 month period of account ending in the 2nd tax year then use the CYB. If there is not a 12 month accounting period then use one of the following:
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ExPress Notes
Period of Account a) the period of account is less than 12 months after commencement b) the period of account is more than 12 months after commencement c) there is no period of account ending in the 2nd tax year Period Assessed 1st 12 months of trading. The 12 months ended on the accounting date. The actual profits between 6th April and 5th April.
ACCA F6 Taxation UK
Year 3. Assess the 12 months ended on the accounting date in that year. This will normally be the CYB.
As a result of the above rules there is a possibility that profits for certain periods will be assessed in more than one year. These profits are known as overlap profits. These overlap profits are carried forward and usually deducted from the assessment in the year the business ceases. Ongoing business rules These rules have already been discussed and are the adjusted profits for an accounting period that end in a particular tax year. This is known as the CYB. Change of accounting date There are special rules for when a sole trader changes accounting date. Closing year rules The broad idea here is that when a business ceases there will be no periods which have not been taxed. The calculation method is as follows: 1) Identify the tax year in which the business ceases. 2) For the penultimate tax year, identify the CYB assessment. 3) Calculate the profits for the period from the date last assessed in 2) above until the date of cessation and from this figure delete any overlap profits.
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ExPress Notes
Chapter 7
ACCA F6 Taxation UK
Trading Losses (For Sole Traders)

When an individual has a tax adjusted trading amount which is negative, he has a trading loss. The trading profit figure is nil. A trading loss may be offset against certain other income in accordance with the rules discussed in this chapter. The main reliefs are: Carry forward of the trading loss against future trading profits. Offset the loss against total income in the year of the loss and / or the preceding year. If a claim against total income has been made there is an optional claim against chargeable gains in the tax year of the loss and / or the preceding tax year.
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ExPress Notes
Offset of opening year loss against total income Offset of terminal loss against previous trading profits
ACCA F6 Taxation UK
Carry forward of trading loss The trading loss is carried forward and set against the first available profit from the same trade. The amount of the loss to be set off is as much as possible. Offset of loss against total income The loss can be offset against total income in the year of the loss and / or the preceding year. As an example, a loss in an accounting period ending 31 December 2010 arises in the tax year 2010/11 (under CYB). The loss could therefore be offset against total income in either 2010/11 or 2009/10. Loss relief under this method is optional and subject to a claim by the individual. The loss relief is against total income. Total income is before the offset of Personal Allowances (PA) and therefore there is a risk that utilising a loss under this method could result in the PA being wasted. Relieving trading losses against chargeable gains If a loss remains after a claim against total income a trading loss in 2010/11 can be offset against chargeable gains in 2010/11 and / or 2009/10. Offset of opening year loss against total income A trading loss incurred in the first 4 tax years of operation can be offset against total income from the 3 years preceding the tax year of the loss. The loss is offset on a FIFO basis (i.e. against the earliest year first) Offset of terminal loss against previous trading profits Unrelieved trading losses of the last 12 months of a businesss activity can be relieved against: 1) Trading profits in the year of cessation, and 2) Carried back and offset against trading profits for the 3 preceding years on a LIFO basis.
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ExPress Notes
Chapter 8
ACCA F6 Taxation UK
Trading Income - Partnerships

In simple terms, partnerships are collections of sole traders that are working together. Profits from a partnership need to be allocated between the partners and then each partner includes their share of the partnership profit as trading income within their own income tax computation. The profits for the partnership are firstly adjusted to obtain the tax adjusted trading profit (as per the adjustments required for a sole trader mentioned at chapter 4). The tax adjusted partnership profits are then allocated to each partner. Calculation The tax adjusted profits of the partnership are allocated to the partners in accordance with their partnership profit sharing arrangements. Partners may be entitled to a fixed element such as salary or interest on loans and these amounts are withdrawn first. Example: Andrew and Barry are in partnership sharing profits equally after allocating a salary of 10,000 to Andrew. In the year ended 31 December 2010, the adjusted trading profits of the partnership were 50,000.
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ExPress Notes
Y/E 31/12/10 Salary Balance to allocate (1:1) Trading profits Total 10,000 40,000 50,000 Andrew 10,000 20,000 30,000 Barry 20,000 20,000
ACCA F6 Taxation UK
The accounts end on 31 December 2010. Therefore under the CYB the trading profits will be assessed in 2010/11 with Andrew being assessed on 30,000 and Barry on 20,000. Loss relief in partnerships Trading losses are allocated between the partners in the same manner as trading profits are. Each partner can decide how they obtain relief. For example, partner A could carry the loss forward whilst partner B decides to offset against current year total income.
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ExPress Notes
Chapter 9
ACCA F6 Taxation UK
Property Income

Property income represents income received by an individual from property. Property business profits This represents rental income received by a landlord. The assessable property income on an individual is calculated as follows: Rental income Less: deductible expenses Assessable property income 12,000 2,500 9,500
Income and expenses are treated according to the accruals concept and if the individual has more than one property the income and expenses are combined together in the calculation. The rules concerning whether expenses are deductible broadly follow the rules found within trading income. Examples of deductible expenses include interest on a loan to acquire the property, insurance, etc.
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ExPress Notes
ACCA F6 Taxation UK
Losses on property are offset against any property income in the year of the loss. If there are any unrelieved property losses they are carried forward and offset against future property income. Furnished holiday lettings (FHL) Property lettings which qualify as FHL have a number of taxation advantages. There are various requirements for a letting to be able to qualify as FHL. Broadly speaking the property must be being let out as a commercial business and requirements such as being let furnished in the UK as holiday lettings for not less than 140 days a year must be satisfied. There are various advantages of being treated as a FHL. One of them being that the losses are treated as though they are trading losses and therefore can be offset against other income. Premiums received on the grant of a short lease A short lease is a lease for 50 years or less. Part of the premium received will be treated as though it was property income received by the landlord. The property income proportion of the premium received will be calculated as follows: The premium Less: 2% x (length of lease 1) x premium Example: Premium: 20,000; Length of lease: 15 years Premium received Less: 2% x (length of lease 1) x premium Property business income [2% x (15-1) x 20,000] 20,000 (5,600) 14,400
Rent a room relief Gross annual rent of 4,250 and below received for the rent of a room in a persons main residence is exempt. If an individual receives such rent in excess of 4,250, the individual can either: 1) Choose to pay tax on the excess of the rent over 4,250 or, 2) Be taxed in the normal way for property income (rent minus expenses).
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ExPress Notes
Chapter 10
ACCA F6 Taxation UK
Investment Income
Savings income - Bank and Building Society interest Note that for the purposes of the exam; assume that a Bank and a Building Society is the same thing. Bank interest is received net of 20% tax by individuals. In other words, individuals receive interest after tax of 20% has been withheld by the Bank and paid to HMRC on behalf of the individual. An individual must show the gross figure of any interest received in their tax computation. The gross amount is the amount including the tax withheld by the bank. Example: An individual receives bank interest of 800. The gross amount of interest shown in the income tax computation is: 800 x 100/80 = 1,000 The tax withheld by the Bank is 200 (1,000 - 800). Any tax withheld can be used by the taxpayer to offset against his tax payable. Rate of tax on savings income Savings income is normally taxed at the same rates as other income (see Chapter 2). However, a starting rate of tax of 10% will apply to the first 2,440 in certain circumstances.
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ExPress Notes
ACCA F6 Taxation UK
To ascertain whether this 10% rate applies, savings income goes on top of other income. If the savings income is within the first 2,440 of taxable income then the 10% rate applies to the savings income. Dividend income As with savings income, dividends are received net so will need to be grossed up. Dividends are deemed to be received net of a notional tax credit of 10%. Dividend income needs to be grossed up as follows: Dividends received x 100/90 The tax credit of 10% can be set against the individuals tax payable. Rate of tax on dividend income. Dividends are treated as being the top part of an individuals income and go on top of other income and savings income. Dividends are then taxed as follows: Dividend income in the basic rate band (the first 37,400): Dividend income in the higher rate band (37,401 to 150,000): Dividend income in the additional rate band (above 150,000): 10% 32.5% 42.5%
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ACCA Paper F6 (UK) : Notes

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Chapter 6 to 10 extract from our ExPress notes for use with the current video.

A full set of ExPress notes can be downloaded free of charge at www.theexpgroup.com.

Notes ACCA Paper F6 (UK)

START About ExPress Notes

At the start of the learning phase

The night before the real exam

At the door of the exam room before you go in.

START About The ExP Group

Trading Income Basis Assessment

START The Big Picture

Trading Losses (For Sole Traders)

START The Big Picture

Trading Income - Partnerships

START The Big Picture

START The Big Picture

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