acca test book Advanced Taxation pot

SYLLABUS CONTENT 1 Taxation of individuals a Principles of income tax b Income tax on income from land and buildings c Income tax on income from Investment d Income tax on income from em

To ensure candidates can apply judgement

and technique in the provision of a range of

taxation services In particular to equip

candidates with the ability to resolve

problems involving the computation of tax

liabilities, basic tax and financial planning

and which draw upon the interaction of a

wide range of taxes The primary focus of

the paper will be based around taxation

issues

OBJECTIVES

On completion of this paper candidates

should be able to:

• prepare computations for and advise

clients on issues relating to the tax

liabilities of individuals arising from

income receipts, capital disposals and

transfers of value

• prepare computations for and advise

clients on issues relating to the tax

liabilities of corporations arising from

income generation and capital disposals

• provide advice on minimising or

deferring tax liabilities for individuals or

corporations by using exemptions and/or

reliefs

• evaluate a corporation's and individual's

financial position with particular regard

to the importance of taxation in decision

making and to recommend appropriate

personal financial plans

and

• demonstrate the skills expected in Part 3

Paper 3.2

Advanced Taxation

(United Kingdom)

POSITION OF THE PAPER IN THE OVERALL SYLLABUS

This is the final tax paper and builds upon the knowledge acquired in Paper 2.3 Business Taxation concerning the taxation of businesses and employees A thorough understanding of the Paper 2.3 syllabus is therefore considered requisite for Paper 3.2

Candidates also need to understand formats

of accounts used for sole traders, partnerships and companies from Paper 1.1 and also the need to have an understanding of some of the financial reporting standards from Paper 2.5 There is no substantial integration with other papers in Part 3

SYLLABUS CONTENT

1 Taxation of individuals

(a) Principles of income tax (b) Income tax on income from land and buildings

(c) Income tax on income from Investment

(d) Income tax on income from employment

(e) Income tax on income from self-employment

(f) Capital gains tax (g) Trusts

(h) Administration of income tax and CGT

(i) Inheritance tax (j) Overseas aspects of income tax, capital gains tax, inheritance tax and value added tax

(k) Value added tax (l) National insurance contributions (m) Stamp duty and stamp duty reserve tax

2 Taxation of corporate businesses

(a) Corporation tax on income and chargeable gains of single companies and groups of companies and consortia trading in the UK and overseas (b) Value added tax

(c) National insurance contributions 3.2 Advanced Taxation

2.3 Business Taxation

(d) Stamp duty and stamp duty reserve

tax

3 Financial planning

(a) Sources of Finance

(b) Personal Financial Planning

(c) Financial Services Products

(d) The Regulatory Framework

EXCLUDED TOPICS

Note that the labelling of excluded topics

relates to the relevant section of the

syllabus

1 Taxation of individuals

(c) Income tax on income from

investments

(i) detailed knowledge of

anti-avoidance procedures

(d) Income tax on income from

employment

(i) PAYE system

(ii) an employee share ownership

plan (ESOP) will not be examined

in its own right

(e) Income tax on income from

self-employment

(i) averaging of farmers profits

(ii) averaging of profits for authors

and creative artists

(iii) the allocation of notional profits

and losses for a partnership

(iv)research and development

expenditure

(v) capital allowances for agricultural

buildings, patents, flats above

shops, scientific research and

know-how

(vi)in respect of industrial buildings allowance: enterprise zones, initial allowances and the sale of

an industrial building at less than original cost following a period of non industrial use (note that sales for more than original cost are examinable)

(vii) detailed anti-avoidance legislation

(f) Capital gains tax (i) assets held at 31 March 1982 (ii) the grant of a lease or sub-lease out of either a freehold, long lease or short lease (iii) a detailed knowledge of the statements of practice on partnership capital gains (iv) retirement relief (v) relief for losses on loans made to traders

(h) Trusts (i) overseas aspects (j) Inheritance Tax (i) double grossing up on death (ii) pre 18 March 1986 lifetime transfers

(iii) woodlands relief (iv)conditional exemption for heritage property (v) relief on relevant business property and agricultural property given as exempt legacies (vi) valuation of an annuity or an interest in possession where the trust interest is subject to an annuity

(v) detailed knowledge of the double

charges legislation (vi)an accumulation and maintenance trust ceasing to qualify

(vi) double taxation relief calculation involving the formula A

x C A+B (vii) IHT aspects of discretionary trusts prior to 27 March 1974 (k) Value added tax

(i) capital goods scheme (ii) in respect of property and land leases and do it yourself builders (iii) flat rate scheme for farmers (iv) special schemes for retailers (l) National insurance contributions (i) detailed calculation of director's NIC on a month by month basis –

a knowledge of the annual earnings period rules (including where a person becomes a director part way through a tax year is, however, required) (ii) offset of trading losses against non-trading income (for Class 4 purposes)

2 Taxation of corporate businesses

(a) Corporation tax on income and chargeable gains of single companies and groups of companies and consortia trading in the UK and overseas

(i) a detailed knowledge of anti-avoidance provisions (with the exception of those detailed in the Study Guide)

Advanced Taxation (United Kingdom) (Continued)

(ii) corporation tax rates on

companies in the process of

winding up

(iii) 51% groups and group income

elections

(iv) quarterly accounting for income

tax

(v) anti-avoidance provisions where

arrangements exist for a company

to leave a group

(vi)detailed knowledge of double

taxation agreements

(vii) migration of a UK resident

company

(viii) mixer companies

(ix)expense relief in respect of

overseas tax

(x) detailed computational questions

on the carry back and carry

forward of unrelieved foreign tax

(xi)an awareness of these provisions

is required

(xii) detailed computational questions

on the 'onshore pooling' provisions

(xiii) again an awareness of these

provisions is all that is required

(b) Value added tax

(i) as for individuals

(c) National insurance contributions

(i) detailed calculations of director's

NIC on a month by month basis –

a knowledge of the annual

earnings period rules (including

where a person becomes a

director part way through a tax year is, however, required.)

3 Financial planning

(a) Sources of finance (i) the mortgage code

(c) Financial services products (i) detailed knowledge of the conditions which must be met to obtain Inland Revenue approval for

an occupational pension scheme (ii) personal pension rules applicable prior to 6 April 2001

(iii) knowledge of the different maximum benefit regimes in occupational schemes (iv) calculation of maximum or actual benefits available on early

or late retirement (v) calculation of a pension cash equivalent transfer value

KEY AREAS OF THE SYLLABUS

All areas of the syllabus may be regarded

as important The Study Guide details those areas of particular importance for the compulsory Section A questions:

APPROACH TO EXAMINING THE SYLLABUS

The examination is a three hour paper divided into two sections

Section A: Two compulsory scenario based questions worth a total of 50 marks set in the following areas:

• Non business income tax (although

including employment income)

• Capital gains tax

• Inheritance tax

• Overseas aspects of income tax, inheritance tax and capital gains tax

• Taxation of trusts

The detailed syllabus areas that will feature are those set out in italics within the Study Guide It is to be noted that these are primarily the syllabus areas new to 3.2

Section B: Four 25 mark scenario based questions from which candidates will be required to select and answer two One of these questions, at least, will focus upon business taxation One of the questions in Section B will have as its main focus personal financial planning The other question will

be set on other areas of the syllabus

The following further guidance should be noted:

Section A

• To assist in the transition from paper 2.3

to paper 3.2 the compulsory questions, whilst being set within a scenario involving some elements of planning and tax interaction, the emphasis will be on computation (as an approximate guide around 50%) A mainly discursive question is therefore unlikely in Section A

• As a general guide Section A questions will primarily focus upon (non-business) income tax, Inheritance tax and capital gains tax (both business and non-business aspects)

• Questions involving mainly financial Advanced Taxation (United Kingdom) (Continued)

Paper 3.2: Advanced Taxation (United Kingdom) (Continued)

planning will not feature in Section A

Note, however, that questions may

involve the taxation elements of, for

example, investment or pension

products (for example calculating an

individual's maximum permissible

pension contributions)

• Whilst no detailed questions will be set

involving income tax aspects of businesses

this will not preclude the inclusion within

questions of, for example, a Schedule D

Case 1 figure (or possibly even series of

figures) Candidates will, however, not

be required to calculate those figures as

part of Section A questions

• A question will not be set that exclusively

examines the taxation of trusts, stamp

duty or overseas taxation aspects although

these may feature as part of a question

Section B

• The 25 mark format adopted in Section

B will allow more developed optional

questions

• Questions can be set in any area of the

syllabus but within the broad overall

guidelines mentioned above

• The question focusing upon financial

planning is likely to be scenario based,

including some taxation elements, with

candidates required to analyse a particular

set of circumstances and make sensible

financial planning recommendations going

forward As a guide it is likely that the

pure financial planning elements of this

question will not exceed 60–70%

• As a general rule it is likely that Section

B questions will examine letter or report-writing skills to a greater extent than Section A Two marks will always

be allocated within one of the Section B questions covering these skills

In summary for the June 2003 paper onwards:

Number

of marks Section A: 2 compulsory

Section B: Choice of 2 from 4

100

Tax rates, allowances and relevant benefits will be given in the examination paper

ADDITIONAL INFORMATION

ACCA adopts a six month rule in that questions requiring an understanding of new legislation will not be set until at least six calendar months after the last day of the month in which the legislation received Royal Assent The same rule applies to the effective date of the provisions of an Act introduced by Statutory Instrument It would however be considered inappropriate

to examine legislation it is proposed to repeal or substantially alter

Knowledge of section numbers will not be needed to understand questions in this paper, nor will students be expected to use

them in their answers If students wish to refer to section numbers they may do so and will not be penalised if old, or even incorrect, section numbers are used

Names of cases or a detailed knowledge of judgements are not required but knowledge

of the principles decided in leading cases is required

The Study Guide provides more detailed guidance on the syllabus

RELEVANT TEXTS

There are a number of sources from which you can obtain a series of materials written for the ACCA examinations These are listed below:

Foulks Lynch – ACCA's official publisher

Contact number: +44 (0)20 8831 9990 Website: www.foulkslynch.com

Accountancy Tuition Centre (ATC) International

Contact number: +44 (0)141 880 6469 Website: www.ptc-global.com

BPP

Contact number: +44 (0)20 8740 2211 Website: www.bpp.com

The Financial Training Company

Contact number: +44 (0)174 785 4302 Website: www.financial-training.com

Candidates may also find the following textbooks useful:

Advanced Taxation (United Kingdom) (Continued)

(i) paper 2.3 section 2d (have scope now for both business and non business assets including shares and securities) plus (ii) exempt assets and disposals (particularly on disposals arising

at death) (iii) concept of independent taxation and transfers between spouses (iv)timing of disposal (particularly in the context of conditional contracts)

(v) losses in the year of death (vi)variations/disclaimers arising on death

(vii) connected persons (viii) payment of tax by instalments (ix)part disposals

(x) principal private residence relief (xi)matching rules for shares and securities

(xii) basic reorganisations and takeovers (particularly s135 TGGA

1992, the conditions, including for bona fide commercial purposes, and the advance clearance procedure).

(xiii) leases, chattels and wasting assets

(xiv) compensation and insurance receipts

(xv) EIS/VCT reinvestment relief (xvi) appropriations to and from trading stock

(xvii) gift relief where there is an immediate charge to IHT (s260

Paper 3.2: Advanced Taxation (United Kingdom) (Continued)

Advanced Taxation (United Kingdom) (Continued)

STUDY SESSIONS

Items in italics refer to syllabus areas that

can be examined within Section A

1 Taxation of individuals

(a) Principles of income tax

(i) paper 2.3 syllabus section 2a plus

(ii) schedular system

(iii) concept of independent taxation

and jointly held assets

(iv) personal allowances and reliefs

(v) non business charges on income

and Gift Aid

(b) Income tax on income from land and

buildings

(i) income liable

(ii) basis of assessment and computation of assessable profits and losses

(iii) reverse premiums (iv)premiums received on the grant

of a short lease (v) furnished holiday lettings and implications

(vi)rent a room relief

(c) Income tax on income from investments

(i) tax free investments (ii) schedule D case III (iii) taxation of savings income and dividends

(iv)accrued income scheme (v) schedule D case vi (vi)double taxation relief

(d) Income tax on income from employment

(i) paper 2.3 syllabus sections 3a(i), (ii) and (iv) plus

(ii) share and share option incentive schemes (approved and unapproved schemes) (iii) lump sum receipts (iv)exempt benefits (v) personal service companies

(e) Income tax on income from self-employment

(i) paper 2.3 syllabus sections 2c(i) – (vii)

(ii) losses on shares in qualifying companies (section 574 ICTA 1988)

(f) Capital gains tax

A Homer, R Burrows Tolleys Tax Guide

Tolley Publishing ISBN 1860128319

Sonia Gable The Basic Principles of Tax

Taxbriefs Limited ISBN 1902824571

This book can be purchased by registered

students at a 50% discount of £24.50

(RRP £49) This includes P&P to a UK

address, foreign P&P would be extra To

order, quote your student registration

number and phone +44 (0)20 7250 9067

or fax +44 (0)20 7251 8867 or e-mail

info@taxbriefs.co.uk

Simon Philip Kelly's Financial Planning for

the Individual Gee ISBN 1860890385

Wider reading is also desirable, especially

regular study of relevant articles in ACCA's

student accountant.

CGTA 1992)

(g) Trusts

(i) define a trust

(ii) distinguish between interest in

possession trusts and

discretionary trusts

(iii) explain how income tax applies

to:

– interest in possession trusts

– discretionary trusts

(iv)explain how inheritance tax

applies to

– transfers of property into trusts

– transfers of property out of an

interest in possession trust

upon the termination of the

life tenant's interest

– discretionary trusts – ten year

charges and exit charge

(v) define accumulation and

maintenance trusts and explain

their advantages

(vi)explain how capital gains tax

applies to:

– transfers of property into trust

– disposals made by trustees of

settled property within trusts

to third properties

– disposals made by trustees of

settled property within trusts

to beneficiaries

(vii) explain how trusts can be used

in tax and financial planning.

(h) Administration of income tax and

capital gains tax

(i) paper 2.3 syllabus Section 2b

(i) Inheritance tax

(i) basic principles – explain the terms transfer of value, chargeable transfer, potentially exempt transfer, excluded property and persons chargeable – loss of donor principle (ii) principle chargeable occasions for IHT

– chargeable lifetime transfers – potentially exempt transfers becoming chargeable – death

(iii)seven year cumulation principle (iv)concept of grossing up (v) how IHT is calculated on chargeable lifetime transfers, potentially exempt transfers becoming chargeable and upon death

(vi)exemptions available covering lifetime gifts

(vii)concept of independent taxation particularly in the context of transfers between spouses (viii) other exempt transfers (gifts to charities, political parties, for national purposes and to housing associations)

(ix)tax treatment of transfers of value by close companies (x) principles of valuation:

– general open market valuation rule – specific rules – related party rules

Advanced Taxation (United Kingdom) (Continued)

(xi)business property and agricultural property relief and the relevant conditions applying (xii) quick succession relief (xiii) tapering relief (xiv) determine the value of an individual's estate at death including the liabilities and other deductions that may be taken into account

(xv) relief available for the fall in value of assets the subject

of a chargeable lifetime transfer (xvi) adjustments to the value of the death state in respect of the sale

of assets following death and the effect of reinvestment

(xvii) allocation of the estate at death where:

– the entire estate is chargeable and specific gifts of UK property are made

– there are exempt specific gifts with a chargeable residue and vice versa (xviii) explain how wills can be varied after death and the conditions applying (xix) explain the rules governing gifts with reservation of benefit

(xx) explain the rules relating to associated operations (xxi) administration of inheritance tax

– who is responsible for

– instalment option –

property

– due dates

(j) Overseas aspects of income tax,

capital gains tax, inheritance tax and

value added tax

(i) explain the concepts of residence,

ordinary residence and domicile

(ii) application of the rules at (i)

above to income tax

(iii) detailed rules in circumstances

where an individual comes to the

UK or leaves the UK

(iv)schedule D case iv and v – basis

of assessment arising or

remittance

(v) overseas trades travelling

expenses

(vi)employment income - overseas

aspects

(vii) employees travelling and

subsistence expenses

(viii) double taxation relief

(ix)application of the rules at (i)

above to CGT

(x) temporary absence rules

(xi)overseas aspects of inheritance

tax:

– extended definition of domicile

for inheritance tax purposes

– rules governing location of

assets

– calculate double taxation relief

(xii) explain how VAT is applied to

imports and exports and to

acquisitions within the EU

(k) Value added tax (i) paper 2.3 syllabus section 1j and 2e plus

(ii) explain the application of the disaggregation rules (iii) group registration and divisional registration

(iv)second hand goods (v) explain the consequences for being partially exempt and calculate the input tax recovery for a partially exempt trader (vi)explain in broad terms the principle rules governing the supply of land and buildings in the UK

(l) National insurance contributions

(i) paper 2.3 syllabus section 2f and 3c

(m) Stamp duty and stamp duty reserve tax

(i) basic principles – concept of tax

on documents (ii) chargeable occasions – shares and securities – other assets – leases (iii) exemptions – gifts – goodwill – group transactions (basic transactions involving transfers between associated companies and share transfers where there is no real change of ownership) (iv)fixed duty.

2 Taxation of Corporate Businesses

(a) Corporation tax on income and chargeable gains of single companies and groups of companies and consortia trading in the UK and overseas

(i) paper 2.3 syllabus sections 2.3 1a – i plus

(ii) determination of accounting periods when a company is being wound up

(iii) explain the treatment of returns

of capital to shareholders after a company has commenced winding up

(iv)treatment of a company's non trading deficits on loan relationships

(v) restrictions on the use of trading loss reliefs (particularly upon a change in ownership of an entity) (vi)corporate venturing scheme (vii) Rules governing the transfer of a company's trade and assets within a group situation (viii) exemption for disposal

of substantial shareholdings (ix)explain how intangible assets and goodwill are treated within a corporation tax environment including the reinvestment relief introduced by FA2002 (x) explain the rules governing the (xi)explain the terms consortium owned company and consortium member; operation of consortium relief

Advanced Taxation (United Kingdom) (Continued)

(xii) explain the concept of

permanent establishment

(xiii) explain how profits chargeable

to corporation tax are determined

for an investment company

(xiv) explain the consequences of

being a close company and close

investment holding company

(xv) explain the taxation

consequences from a company

purchasing its own shares and

the conditions applying to satisfy

treatment as a capital distribution

(b) Value added tax

(i) as for individuals

(c) National insurance contributions

(i) paper 2.3 syllabus section 3c

(d) Stamp duty and stamp duty reserve

tax

(i) as for individuals

3 Financial Planning

(a) Sources of Finance

(i) describe the sources of finance

available to:

– individuals

– companies

(ii) distinguish between the tax

implications of raising equity

finance and of raising loan finance

(iii) explain the tax implications

involved in the decision whether

to lease, use hire purchase or to

purchase outright

(iv)evaluation of the impact of

taxation on a business' cash flows

(v) describe the mortgage products available to individuals involved

in purchasing their own home (vi)identify circumstances in which it

is appropriate to repay/replace borrowings

(b) Personal Financial Planning (i) evaluating an individual's financial position – calculating an individual's net worth having regard to future capital taxation liabilities

– calculating an individual's net

of tax disposable income

– identify potential disaster scenarios for both individuals and businesses

– determining sensible strategies to protect wealth and income levels (c) Financial Services Products (i) protection products awareness of the basic structure, types, risk that is being covered, the form in which proceeds are paid upon a valid claim being made and the tax treatment of the premiums and proceeds of the following classes of product:

– life assurance – health insurance – provision for long-term care – redundancy insurance (ii) investment products awareness of the basic structure,

types and tax treatment of the

following investments

– deposit based investments (including cash mini ISAs) – fixed interest securities – packaged investments – collective investments (including ISAs) – equities – enterprise investment scheme – venture capital trusts – property

Note for section A purposes only the tax treatment of the above is examinable

(iii) constructing investment portfolios having regard to such factors as risk, accessibility, liquidity, marketability, flexibility and volatility

(iv)pension products awareness of the main features

and tax treatment of premiums

payable (where applicable – by both individuals and employers) and eventual benefits in making provision for retirement through the following:

– occupational pension schemes

– explain the difference between defined benefits and defined contribution schemes

– explain the difference between approved and unapproved schemes – explain the operation of self-administered occupational schemes Advanced Taxation (United Kingdom) (Continued)

– describe the options upon

changing employment

– personal pension

(including stakeholder)

schemes

– explain the operation of

self-invested personal

pensions

– describe the options

available on reaching

retirement

– state pension schemes

Note for Section A only the tax

treatment of the items in italics

is examinable

(v) explain the options available as

regards pension rights on divorce

(d) The Regulatory Framework

(i) describe the regulatory

framework in place

(ii) explain the meaning of

investment and investment

business

(iii) explain the regulations and 'best

practice' affecting investment

advice laid down by the FSA and

ACCA

(iv)explain the compensation and

redress available

Advanced Taxation (United Kingdom) (Continued)