OBJECTIVES On completion of this paper candidates should be able to: • explain the operation of the UK tax system • prepare computations of the corporation tax liability for individual c
Trang 1To develop knowledge and understanding
in the core areas of tax related to
businesses and their employees
OBJECTIVES
On completion of this paper candidates
should be able to:
• explain the operation of the UK tax
system
• prepare computations of the corporation
tax liability for individual companies
and groups of companies
• prepare computations of the income tax
liability for employees, sole traders and
partnerships
• prepare computations of the chargeable
gains arising on incorporated and
unincorporated businesses
• explain and apply the principles and
scope of Value Added Tax
• explain the impact of National
Insurance Contributions on employees,
employers and the self-employed
• explain the use of exemptions and
reliefs in deferring or minimising tax
liabilities
• demonstrate the skills expected at Part 2
POSITION OF THE PAPER IN THE
OVERALL SYLLABUS
An understanding of the formats of
accounts used for sole traders, partnerships
and companies from Paper 1.1 Preparing
Financial Statements is assumed There is
no substantial integration with other papers
in Part 2
Paper 2.3
Business Taxation
(United Kingdom)
The coverage in Paper 2.3 will provide the grounding for the study of the optional Paper 3.2 Advanced Taxation
Paper 3.2 develops the topics by applying the tax knowledge to problems encountered
in practice, by giving more emphasis to planning to minimise or defer tax and by examining the interaction of taxes
SYLLABUS CONTENT
1 Corporate businesses
(a) Scope of corporation tax
(b) Residence
(c) Profits chargeable to corporation tax (i) schedule D case I
(ii) capital allowances (iii) relief for trading losses (iv) schedule A
(v) schedule D case III (vi)Charges on income
(d) Chargeable gains (i) principles and scope (ii) the basis of calculation
(iii) the identification and application
of relevant exemptions and reliefs (e) Calculation of the corporation tax liability (f) Overseas aspects
(i) trading overseas via a subsidiary
or a branch (ii) double taxation relief (iii) transfer pricing
(g) Groups of companies
(h) Self assessment system
(i) Value Added Tax
2 Unincorporated businesses
(a) Basic income tax computation (b) Self assessment system
(c) Schedule D case I/II (i) badges of trade (ii) computation of assessable profit (iii) basis of assessment
(iv)change of accounting date (v) capital allowances (vi)relief for trading losses (vii) partnerships and limited liability partnerships
3.2 Advanced Taxation
2.3 Business Taxation
Trang 2Paper 2.3: Business Taxation (United Kingdom) (Continued)
(viii) personal pensions
(d) Capital gains tax
(i) principles and scope (restricted to
business assets)
(ii) the basis of calculation
(iii) the identification and application
of relevant exemptions and reliefs
(e) Value Added Tax
(f) Class 2 and Class 4 NIC
3 Employees
(a) Employment Income
(i) basis of assessment
(ii) allowable deductions
(iii) PAYE system
(iv)benefits
(b) Occupational pension schemes
(c) Class 1 and Class 1A NIC
4 Tax planning
(a) Employment v self-employment
(b) Remuneration packages
(c) Choice of business medium
(d) Incorporation of a business
(e) Disposal of a business
(f) Directors and shareholders
EXCLUDED TOPICS
The following topics are specifically
excluded from Paper 2.3:
1 Corporate businesses
(a) Scope of corporation tax
(i) investment companies
(ii) close companies
(iii) companies in receivership and
liquidation
(iv) anti-avoidance legislation (v) reorganisations
(vi) purchase by a company of its own shares
(vii) personal service companies
(c) Profits chargeable to corporation tax (i) research and development expenditure
(ii) the 100% first-year allowance for flats above shops
(iii) the 100% first-year allowance for water technologies (iv)capital allowances for agricultural buildings, patents, scientific research and know how (v) 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)
(vi)furnished holiday lettings (vii) non-trading deficits on loan relationships
(viii) trade charges on income (ix)relief for intangible assets (x) the corporate venturing scheme
(d) Chargeable gains (i) assets held at 31 March 1982 (ii) part disposals
(iii) negligible value claims (iv)leases, chattels and wasting assets
(v) a detailed question on the pooling provisions for shares
(vi) the same day and nine day matching rules for shares and securities applicable to corporate businesses
(vii) substantial shareholdings (f) Overseas aspects
(i) controlled foreign companies (ii) foreign companies trading in the UK
(iii) expense relief in respect of overseas tax
(iv)the restriction of double taxation relief for underlying tax to the full rate of corporation tax
(v) the carry back and carry forward
of unrelieved foreign tax (g) Groups of companies (i) consortia (ii) 51% groups and group income elections
(iii) pre-entry gains and losses (iv) the anti-avoidance provisions where arrangements exist for a company to leave a group (v) the tax charge that applies where
a company leaves a group within six years of receiving an asset by way of a no gain/no loss transfer (h) Self assessment system
(i) form CT61 and quarterly accounting for income tax (i) Value Added Tax
(i) group registration (ii) imports, exports and trading within the European Community (iii) partial exemption
(iv)second-hand goods scheme
Business Taxation (United Kingdom)
Trang 3Paper 2.3: Business Taxation (United Kingdom) (Continued)
(v) the capital goods scheme
(vi)in respect of property and land:
leases, do-it-yourself builders,
and the landlord's option to tax
(vii) penalties apart from the default
surcharge, serious
misdeclarations (but not repeated
misdeclarations) and default
interest
(viii) special schemes for retailers
2 Unincorporated businesses
(a) Basic income tax computation
(i) personal allowances other than
the personal allowance for people
aged under 65
(ii) tax credits
(iii) non-trade charges on income
(iv)joint property of husbands and
wives, maintenance payments
and minor children
(v) schedule A
(vi)schedules D cases III and VI
(vii) individual savings accounts
(viii) the enterprise investment
scheme and venture capital trusts
(ix)foreign income, non-residents
and double taxation relief
(x) income from trusts and
settlements
(xi)anti-avoidance legislation
(c) Schedule D case I/II
(i) as for corporate businesses
(ii) farmers averaging of profits
(iii) the averaging of profits for
authors and creative artists
(iv) loss relief for shares in unquoted trading companies
(v) investment income and charges
of a partnership (vi)the allocation of notional profits and losses for a partnership
(d) Capital gains tax (i) as for corporate businesses (ii) calculation of the indexation allowance
(iii) reinvestment relief (iv)principal private residence (v) partnership capital gains (vi) overseas aspects (vii) losses in the year of death (viii) the transfer of assets between a husband and wife
(ix)the exemption of gilt edged securities and qualifying corporate bonds (x) the payment of CGT by annual instalments
(xi)capital sums received in respect
of the loss, destruction or damage of an asset
(xii) relief for losses incurred on loans made to traders
(e) Value Added Tax (i) as for corporate businesses
(f) Class 2 and Class 4 NIC (i) the offset of trading losses against non-trading income (for Class 4 NIC)
3 Employees
(a) Employment Income (i) the calculation of a car benefit where emission figures are not available
(ii) share and share option incentive schemes for employees (iii) payments on the termination of employment, and other lump sums received by employees (b) Occupational pension schemes (i) a detailed knowledge of the conditions that must be met to obtain Inland Revenue approval for an occupation pension scheme
(ii) the option for certain occupational pension schemes to apply to be subject to the personal pension scheme rules (c) Class 1 and Class 1A NIC (i) the calculation of directors’ NIC
on a month by month basis
KEY AREAS OF THE SYLLABUS
The key topic areas, taken directly from the syllabus content list, are as follows:
1 Corporate businesses
(a) Scope of corporation tax
(b) Profits chargeable to corporation tax (c) Calculation of the corporation tax liability
(d) Self assessment system
Business Taxation (United Kingdom)
Trang 42 Unincorporated businesses
(a) Basic income tax computation
(b) Self assessment system
(c) Schedule D case I/II
3 Employees
(a) Employment Income
APPROACH TO EXAMINING THE
SYLLABUS
The examination is a three hour paper
divided into two sections
Only core topics will be examined in
Section A A non-core topic may form part
of a question (such as a chargeable gain in
a corporation tax computation), but this
will account for a maximum of ten marks
At least 40 of the 55 available marks in
Section A will be of a computational nature
• Question 1 will be on a corporate
business (for approximately 30 marks)
• Question 2 will be on an unincorporated
business and/or employees (for
approximately 25 marks)
The questions in Section B will be a mix of
computational and written, and include the
minimisation or deferral of tax liabilities by
the identification and application of
relevant exemptions and reliefs
• Question 3 will be on VAT (either for an
incorporated business or an
unincorporated business)
• Question 4 will be on capital gains
(either for an incorporated business or
an unincorporated business)
• Question 5 will be on either groups of companies or overseas aspects
• Question 6 will be on one of the six listed tax planning topics
• Question 7 will be on any area of the syllabus, but will typically deal with a core topic that has not been covered in Section A
Number
of Marks Section A: 2 compulsory questions 55 Section B: Choice of 3 from 5
questions (15 marks each) 45
100 Tax rates, allowances and benefits will be given in the examination paper
ADDITIONAL INFORMATION
The ACCA applies 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 in their answers they may
do so and will not be penalised if old, or even incorrect, section numbers are used
Business Taxation (United Kingdom)
Names of cases or a detailed knowledge of the judgement 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-company.com Candidates may also find the following texts useful:
A Homer and R Burrows Tolley’s Tax
Guide Tolley Publishing ISBN 1860128319
A Melville Taxation Prentice Hall
ISBN 0 273 655522–1
Trang 5STUDY SESSIONS
1 Corporate businesses
(a) Scope of corporation tax
(i) Define the terms ‘period of
account’, ‘accounting period’, and
‘financial year’
(ii) Explain when an accounting
period starts and finishes
(b) Residence
(i) Explain how the residence of a
company is determined
(c) Profits chargeable to corporation tax
(i) Schedule D case I
– State the expenditure that is
allowable in calculating the
tax-adjusted profit
– Explain how relief can be
obtained for pre-trading
expenditure
(ii) Capital allowances
– Define plant and machinery for
capital allowances purposes
– Calculate writing down
allowances and first year
allowances
– Explain the treatment of motor cars
– Compute balancing
allowances and charges
– Explain the treatment of short
life assets and long life assets
– Define an industrial building
for industrial buildings
allowance purposes – Calculate industrial buildings allowance for new and second-hand buildings – Compute the balancing adjustment on the disposal of
an industrial building (iii) Relief for trading losses – Explain how trading losses can be carried forward – Explain how trading losses can be claimed against income of the current or previous accounting periods – State the factors that will influence the choice of loss relief claim
(iv)Schedule A – Compute the Schedule A profit
– Explain the treatment of a premium received for the grant of a short lease – Explain how relief for a Schedule A loss is given (v) Schedule D case III – Explain how profits from loan relationships and interest received are assessed under Schedule D case III (vi)Charges on income – Explain the treatment of charges on income (d) Chargeable gains (i) Principles and scope – Prepare a basic capital gains computation
– State the allowable deductions – Calculate the indexation allowance
(ii) The basis of calculation – Explain the treatment of capital losses
– Explain the identification rules for disposals of shares and securities
– Apply the pooling provisions for shares and securities – Explain the treatment following a bonus issue, rights issue or takeover (as a result
of the chargeable gain part disposal rules not being examinable, any question on the takeover of shares or securities will involve a paper for paper transaction Reorganisations are not mentioned in the Study Guide This is because all the relevant rules can be examined
by way of a takeover (for example, where shareholders receive two different classes
of share in exchange for their existing shareholding)) (iii) The identification and application of relevant exemptions and reliefs – Explain and apply rollover relief
Business Taxation (United Kingdom)
Wider reading is also available especially
regular study of the relevant articles in
ACCA's student accountant.
Trang 6(e) Calculation of the corporation tax
liability
(i) Prepare a basic corporation tax
computation
(ii) Explain the implications of
receiving franked investment
income
(iii) Calculate the corporation tax
liability at the starting rate, small
company rate and full rate, and
apply tapering relief
(f) Overseas aspects
(i) Trading overseas via a subsidiary
or a branch
– Compare the UK tax
treatment of an overseas
branch to an overseas
subsidiary
(ii) Double taxation relief
– Calculate double taxation
relief for withholding tax and
underlying tax
(iii) Transfer pricing
– Explain and apply the transfer
pricing rules
(g) Groups of companies
(i) Define an associated company
(ii) Define a 75% group
(iii) Explain and apply the reliefs
available to members of a 75%
group
(iv)Define a 75% capital gains group
(v) Explain and apply the reliefs
available to members of a 75%
capital gains group
(h) Self assessment system (i) Describe the features of self-assessment
(ii) Explain how the Inland Revenue can enquire into a self-assessment return (iii) Calculate interest on overdue tax (iv) Explain how large companies are required to account for
corporation tax on a quarterly basis
(i) Value Added Tax (i) Describe the scope of VAT (ii) State the circumstances in which
a person must register for VAT, and explain the advantages of voluntary VAT registration (iii) State the circumstances in which pre-registration input VAT can be recovered
(iv) Explain how a person can deregister for VAT (v) Explain how VAT is accounted for and administered
(vi) Explain how the tax point is determined
(vii) List the information that must
be given on a VAT invoice (viii) Describe the principles that apply to the valuation of supplies (ix)State the circumstances in which input VAT is non-deductible (x) Describe the relief that is available for bad debts (xi) List the principal zero-rated and exempt supplies
(xii) Describe the cash accounting, the annual accounting and flat rate schemes
(xiii) State the circumstances in which the default surcharge, a serious misdeclaration penalty, and default interest will be applied
2 Unincorporated businesses
(a) Basic income tax computation (i) Prepare a basic income tax computation
(ii) Explain the treatment of savings income and dividends
(iii) Explain the treatment of trade charges on income
(b) Self assessment system (i) Describe the features of self-assessment
(ii) Calculate payments on account and balancing payments/ repayments
(iii) Calculate interest on overdue tax and state the penalties that can
be charged (iv) Explain how the Inland Revenue can enquire into a
self-assessment return (c) Schedule D case I/II (i) Badges of trade – Describe and apply the badges of trade (ii) Computation of assessable profit – As for corporate businesses
Business Taxation (United Kingdom)
Trang 7(iii) Basis of assessment
– Explain the basis of
assessment
– Compute the assessable
profits on commencement and
cessation
(iv)Change of accounting date
– State the factors that will
influence the choice of
accounting date
– State the conditions that must
be met for a change of
accounting date to be valid
– Compute the assessable
profits on a change of
accounting date
(v) Capital allowances
– As for corporate businesses
(vi)Relief for trading losses
– Explain how trading losses
can be carried forward
(although only trade charges
are examinable, the impact of
non-trade charges where
trade charges are carried
forward is examinable In any
examination question on this
area, a figure for non-trade
charges will simply be given
The carry forward of losses on
incorporation is examinable)
– Explain how trading losses
can be claimed against total
income and chargeable gains
– Explain the relief for trading
losses in the early years of a
trade
– Explain terminal loss relief (vii) Partnerships and limited liability partnerships
– Explain how a partnership is assessed to tax
– Allocate assessable profits between the partners following
a change in the profit sharing ratio or a change in the members of the partnership – Describe the alternative loss relief claims that are available
to partners – Explain the loss relief restriction that applies to the partners of a limited liability partnership
(viii) Personal pensions – Explain the relief given for contributions to a personal pension scheme
(d) Capital gains tax (i) Principles and scope (restricted to business assets)
– As for corporate businesses – Define a business asset for the purposes of taper relief
– Compute taper relief (including non-business assets)
(ii) The basis of calculation – As for corporate businesses (quoted shares and securities (including the valuation rules) are examinable since certain quoted shareholdings will qualify for business asset
Business Taxation (United Kingdom)
taper relief The indexation allowance is not examinable for individual taxpayers Therefore, any question involving shares and securities will simply give a figure for the value of the 1985 pool as
at 5 April 1998) (iii) The identification and application of relevant exemptions and reliefs – As for corporate businesses – Explain and apply holdover relief for the gift of business assets
– Explain and apply the relief available when a business is transferred to a limited company
(e) Value Added Tax (i) As for corporate businesses (f) Class 2 and Class 4 NIC (i) Calculate class 2 NIC (ii) Calculate class 4 NIC
3 Employees
(a) Employment Income (i) Basis of assessment – State the factors that determine whether an engagement is treated as employment or self-employment
– Explain the basis of assessment – Describe the income assessable (ii) Allowable deductions
– List the allowable deductions, including travelling expenses
Trang 8Business Taxation (United Kingdom)
– Explain the use of the
statutory approved mileage
allowances
(iii) PAYE system
– Explain the PAYE system
(iv)Benefits
– Identify P11D employees
– Explain how benefits are
assessed
(b) Occupational pension schemes
(i) State the main features of an
occupational pension scheme
(ii) Explain the significance of an
occupational pension scheme
being approved by the Inland
Revenue
(c) Class 1 and Class 1A NIC
(i) Calculate class 1 NIC
(ii) Calculate class 1A NIC
4 Tax planning
(a) Employment v self-employment
(i) Compare the tax implications of
employment as compared to
self-employment
(b) Remuneration packages
(i) Compare alternative
remuneration packages
(c) Choice of business medium
(i) Compare the tax position of a
director/shareholder with that of
a sole trader
(d) Incorporation of a business
(i) Explain the factors that must be
considered when incorporating a
business
(e) Disposal of a business (i) Explain the tax implications arising on the disposal of a business
(f) Directors and shareholders (i) Compute whether remuneration
or a dividend is the most tax efficient way to extract profit from
a company