BPP ACCA p6 advanced taxation FAs 2015 2017

3 Topic list Syllabus reference 2 Various types of income A1aB4,B5,B7 4 Allowances deductible from net income A1aB5 5 Computing tax liability A1aB5, A1gi,ii Principles of income tax In

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Advanced Taxation (UK) FAs 2015

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Paper P6 Advanced Taxation (UK) FAs 2015

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Part A Income tax and national insurance contributions

Part B Capital gains tax

Part C Tax administration for individuals

Part D Inheritance tax

Part E Stamp taxes

Part F Corporation tax

Part G Value added tax

Part H Impact of taxes and tax planning

Introduction v

Helping you to pass

BPP Learning Media – ACCA Approved Content Provider

As ACCA’s Approved Content Provider, BPP Learning Media gives you the opportunity to use study

materials reviewed by the ACCA examination team By incorporating the examination team’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study

Text provides excellent, ACCA-approved support for your studies

The PER alert

Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you

might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature You will find this feature throughout the Study Text to remind you that what you

are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement

Your achievement of the PER should now be recorded in your on-line My Experience record

Tackling studying

Studying can be a daunting prospect, particularly when you have lots of other commitments The

different features of the Study Text, the purposes of which are explained fully on the Chapter features

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Developing exam awareness

Our Study Texts are completely focused on helping you pass your exam

Our advice on Studying P6 outlines the content of the paper and the necessary skills you are expected to

be able to demonstrate and any brought forward knowledge you are expected to have

Exam focus points are included within the chapters to highlight when and how specific topics were

examined, or how they might be examined in the future

Using the Syllabus and Study Guide

You can find the syllabus and study guide on page xii of this Study Text

Testing what you can do

Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt

We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content

vi Introduction

Chapter features

Each chapter contains a number of helpful features to guide you through each topic

Topic list

Topic list Syllabus reference Tells you what you will be studying in this chapter and the

relevant section numbers, together with ACCA syllabus references

Introduction Puts the chapter content in the context of the syllabus as a whole.Study Guide Links the chapter content with ACCA guidance

Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined.

Knowledge brought forward from earlier studies What you are assumed to know from previous

studies/exams

Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques

Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points Tell you when and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt

This gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER)

providing an easy source of review

chapter

easy navigation

FAST FORWARD

Introduction vii

Studying P6

As the name suggests, this paper examines Advanced Taxation It builds on the foundations of Paper F6 in two ways First, it introduces more advanced taxation topics in relation to inheritance tax and specialised personal and corporate tax Second, it requires the ability to communicate clearly with clients,

HM Revenue & Customs and other professionals in a clear and professional manner It is an options paper which will be chosen by those who work in a tax environment

Members of the P6 examination team have written several articles in Student Accountant which are also

available on the ACCA website There are four non-technical articles that focus on the structure of the

exam and exam technique These are Stepping up from Paper F6(UK) to Paper P6(UK), Examiner's

approach to Paper P6 (UK), Guidance on answering questions in Section A of Paper P6 (UK) and

Improving your performance in Paper P6 (UK) There are also technical articles covering the following

topics: Exam technique and fundamental technical issues for Paper P6 (UK), Taxation of the

unincorporated business – the new business, Taxation of the unincorporated business – the existing

business, International aspects of personal taxation, Inheritance tax and capital gains tax for P6, Trusts

and tax for P6, Corporation tax for P6, Corporation tax– group relief for P6, Corporation tax– groups and chargeable gains for P6, and Finance Acts 2015 Make sure you read these articles to gain further insight

into what the examination team is looking for

1 What P6 is about

The P6 syllabus builds on the basic knowledge of core taxes gained from F6 and introduces candidates to additional capital taxes in the form of stamp duty, stamp duty reserve tax and stamp duty land tax It also extends knowledge of income tax, inheritance tax, corporation tax and capital gains taxes, including

overseas aspects, taxation of trusts and additional exemptions and reliefs

The emphasis of the paper is on the candidate’s skills of analysis and interpretation of information

provided and communication of recommendations in a manner appropriate to the intended audience eg

clients Computations will normally only be required in support of explanations or advice and not in

isolation

2 What skills are required?

 Be able to calculate tax charges in support of explanations or advice

 Be able to explain the tax charges in a particular scenario: what taxes are applicable and why

 Be able to analyse a set of facts to ascertain when tax charges arise and any options that may be

available to the taxpayer to mitigate such charges

 Be able to evaluate your results and recommend a course of action, justifying your

recommendations and setting out any other factors which the taxpayer should take into account

when reaching his decision

3 How to improve your chances of passing

Study the entire syllabus – 60 marks of the marks available to you are contained in the compulsory

Section A questions Section B questions allow you to show more specialised knowledge and allow the

examination team to test a wide range of topics

Practice as many questions as you can under timed conditions – this is the best way of developing good

exam technique Make use of the Practice Question Bank at the back of this Text BPP's Practice and

Revision Kit contains numerous exam standard questions (many of them taken from past exam papers)

as well as three mock exams for you to try

Answer selectively – the examination team will expect you to consider carefully what is relevant and

significant enough to include in your answer Don't include unnecessary information

viii Introduction

Present your answers in a professional manner – use subheadings and leave spaces between paragraphs,

make sure that your numerical workings are clearly set out

Answer all parts of the question – leaving out a five mark part may be the difference between a pass and a

fail

4 Brought forward knowledge

The P6 syllabus covers almost every topic that was included in F6, with a few minor exceptions Since tax law changes every year, this text includes all the topics covered at F6 again, updated to the latest Finance Act(s) At the start of each chapter, we highlight topics which have changed between the latest Finance Act(s) and the previous Finance Act We also highlight new topics which you have not studied at F6

5 Gaining professional marks

As P6 is a Professional level paper, four professional marks will be awarded in Question 1 Professional

marks will usually be awarded for overall presentation of the required letter or memorandum, the provision of relevant advice and the effectiveness with which the information is communicated

Whatever the form of communication requested, you will not gain professional marks if you fail to follow

the basics of good communication Keep an eye on your spelling and grammar Also think carefully, am I

saying things that are appropriate in a business communication?

Introduction ix

The exam paper

The time allowed for the paper is 3 hours 15 minutes

The paper consists of two sections:

Section A consists of two compulsory questions Question 1 will have 35 marks, including four

professional marks, and question 2 will have 25 marks Professional marks are awarded for aspects such

as adopting a logical approach to problem solving, clarity of calculations, the effectiveness with which

information is communicated and the overall presentation of the required memorandum, notes or letter There are no set topics for Section A questions, but you should expect to see coverage of technical

taxation topics new at P6, such as international aspects, and tax planning and interaction of taxes

Section B consists of three questions, two of which must be answered Each question will have 20 marks

Again, there are no set topics, but you might expect to find more specialist questions concentrating on

such areas as advanced corporation tax (for example, dealing with close companies or advising on the tax effects of purchase of own shares by a company), advanced personal tax (for example, advising on tax

advantaged share schemes) or advanced capital taxes (for example, dealing with trusts)

All questions are scenario based and will normally involve consideration of more than one tax, together

with some elements of planning and the interaction of taxes Computations will normally only be required

in support of explanations or advice and not in isolation For example, you might be asked to advise on

how to extract money from a company in a tax efficient manner such as by a bonus payment, dividend or loan You would be expected to produce computations to support your advice

Tax rates, allowances and information on certain reliefs will be given in the exam paper These will be the same as shown in the Tax Tables at the end of this Text You should familiarise yourself with the

information provided so that you know how to find it quickly in the exam

x Introduction

Analysis of past papers

The table below provides details of when each element of the syllabus has been examined in the ten most recent sittings and the question number and section in which each element was examined

Covered

in Text chapter

3(b), 5(a)

1(b) 1(a), 4(a), 5(c) 5(a) 3(a) 2(a) 4(c) 2(a) 1(a)

2 Pensions and other tax efficient investment products

5(a), 5(b)

2(a) 3(b), 3(c)

3(b) 1(a), 2(a)

5 Employment income:

additional aspects

5(b) 3(b), 3(c)

5(b) 5(b) 1(a),

2(a) 4(a) 3(a)

6 Trade profits 1(a) 5(b) 4(a) 1(a) 2(a) 3(b),

4(b)

2(a) 3(a)

7 Capital allowances 3(a) 2(a) 1(a),

5(b) 1(b) 4(b) 1(a) 5(c)

8 Trading losses 1(a) 1(b) 1(b) 5(a) 2(a) 2(a) 3(b)

9 Partnerships and limited liability partnerships

4(b) 3(b)

10 Overseas aspects of income tax

CAPITAL GAINS TAX

11 Chargeable gains: an outline

4(a) 1(a), 3(d)

1(a) 1(b), 3(b), 5(a) 2(b) 4(a) 1(a) 2(a) 1(a)

13 Chargeable gains: reliefs 2(b) 1(c),

4(b)

3(c) 1(a), 5(b)

1(b), 3(b), 5(a)

2(b) 2(b), 4(a) 1(a) 2(a) 1(a)

14 Chargeable gains:

additional aspects

1(c), 3(a), 4(b), 5(c) 3(d) 4(b) 2(a) 4(a) 2(a), (b)

TAX ADMINISTRATION FOR INDIVIDUALS

15 Self assessment for individuals and partnerships

5(a), 5(b) 1(b)

INHERITANCE TAX

16 An introduction to inheritance tax

5(b) 4(b) 1(a),

3(a)

1(b) 1(b), 3(a)

2(b) 2(b), 5(c)

3(c) 4(c) 1(b),

3(c)

5(c) 1(a) 2(b), 4(a),

4(b) 1(b)

2(b) 2(a), 2(b)

2(a), 2(b)

1(a) 2(b), 5(c)

21 Chargeable gains for

companies

2(b), 3(b)

2(a) 2(a), 2(c)

2(b) 2(a) 4(a) 1(a) 2(b),

2(c)

2(b), 5(c)

22 Computing corporation

tax payable

2(a) 5(a) 2(a) 1(a) 2(d),

3(b), 5(a), 5(b)

2(a), 2(c)

2(a) 2(a) 2(a) 1(a) 1(a) 2(a),

5(c) 1(a), 5(a)

27 Overseas aspects of

corporate tax

(b)

VALUE ADDED TAX

28 Value added tax 1 2(b),

1(a), 1(c), 1(d), 3(a)

1(b) 1(b), 3(a)

1(b) 2(b)

xii Introduction

Syllabus and Study Guide

The P6 Syllabus and Study Guide can be found below

Introduction xiii

xiv Introduction

Introduction xv

xvi Introduction

Introduction xvii

xviii Introduction

Introduction xix

xx Introduction

Introduction xxi

xxii Introduction

Introduction xxiii

xxiv Introduction

1

Income tax and national

insurance contributions

P A R T A

2

3

Topic list Syllabus reference

2 Various types of income A1(a)B4,B5,B7

4 Allowances deductible from net income A1(a)B5

5 Computing tax liability A1(a)B5, A1(g)(i),(ii)

Principles of

income tax

Introduction

We start our study of taxation with a look at income tax, which is a tax on what

individuals make from their jobs, their businesses and their savings We see

how to collect together all of an individual's income in a personal tax

computation, and then work out the tax on that income

We also look at the family aspects of income tax, how joint income of

spouses/civil partners is taxed and the anti-avoidance provisions for minor

children

In later chapters, we look at particular types of income in more detail

4 1: Principles of income tax  Part A Income tax and national insurance contributions

Study Guide

Intellectual level

A1 Income and income tax liabilities in situations involving further overseas

aspects and in relation to trusts, and the application of exemptions and reliefs

(a) The contents of the Paper F6 study guide for income tax and national

insurance, under headings:

2

 B4 Property and investment income

 B5 The comprehensive computation of taxable income and the income tax

liability

 B7 The use of exemptions and reliefs in deferring and minimising income

tax liabilities

(ii) Advise on the tax implications of jointly held assets (f) The comprehensive computation of taxable income and the income tax

liability:

3 (i) Advise on the income tax position of the income of minor children

(g) The use of exemptions and reliefs in deferring and minimising income tax

liabilities:

3

(i) Understand and apply the rules relating to investments in the seed

enterprise investment scheme and the enterprise investment scheme (ii) Understand and apply the rules relating to investments in venture capital

trusts

Exam guide

Although you are unlikely to have to perform a complete income tax computation in the exam, you need to understand how the computation is put together as, for example, you may be asked to calculate the after tax income that would be derived from a particular new source Do not overlook the effect of an increase

in income on the amount of the personal allowance

The chapter also introduces tax planning concepts Note the treatment of joint income of spouses/civil partners and the anti-avoidance rules that apply if a parent gives funds to a minor child

Knowledge brought forward from earlier studies

This chapter revises the basic income tax computation that you will already have met in Paper F6 The examination team has identified essential underpinning knowledge from the F6 syllabus which is particularly important that you revise as part of your P6 studies In this chapter, the relevant topics are:

Intellectual level

B5 The comprehensive computation of taxable income and income tax

liability

(b) Calculate the amount of personal allowance available 2

The main changes in 2015/16 from 2014/15 in the material you have previously studied at F6 level are as follows New Individual Savings Accounts (NISAs) are now referred to simply as Individual Savings Accounts (ISAs) The higher personal allowance is no longer examinable The savings income starting rate

Part A Income tax and national insurance contributions  1: Principles of income tax 5

limit has been increased to £5,000 and the rate of tax is now 0% The personal allowance and the limit for the basic rate have changed but the basic rate, higher rate and additional rate percentages have not changed

Topics that will be new to you in this chapter are tax reducers and the taxation of families

As a general rule, income tax is charged on receipts which might be expected to recur (such as weekly wages or profits from running a business) An individual's income from all sources is brought together (aggregated) in a personal tax computation for the tax year

The tax year, or fiscal year, or year of assessment runs from 6 April to 5 April For example, the tax year

2015/16 runs from 6 April 2015 to 5 April 2016

Here is an example All items are explained later in this Text

RICHARD: INCOME TAX COMPUTATION 2015/16

Non-

£ £ £ £

National savings & investments account interest 360

FAST FORWARD

Key terms

6 1: Principles of income tax  Part A Income tax and national insurance contributions

£ £ Less tax suffered

(6,500)

Total income is all income subject to income tax Each of the amounts which make up total income is

called a component. Net income is total income less deductible interest and trade losses Taxable income

is net income less the personal allowance The tax liability is the amount charged on the individual's

income Tax payable is the balance of the liability still to be settled in cash

Income tax is charged on taxable income Non-savings income is dealt with first, then savings income

and then dividend income

For non-savings income, income up to £31,785 (the basic rate limit) is taxed at the basic rate (20%), income between £31,785 and £150,000 (the higher rate limit) at the higher rate (40%) and any remaining income at the additional rate (45%) We will look at the taxation of the other types of income later in this chapter

The remainder of this chapter gives more details of the income tax computation

Don’t forget to gross up dividends by 100/90 and taxed interest by 100/80

2.1 Classification of income

All income received must be classified according to the nature of the income This is because different

computational rules apply to different types of income The main types of income are:

 Income from employment, pensions and some social security benefits

 Profits of trades, professions and vocations

 Profits of property businesses

 Savings and investment income, including interest and dividends

2.2.1 What is savings income?

Savings income is interest Interest is paid on bank and building society accounts, on Government

securities, such as Treasury Stock, and on company loan stock

Interest may be paid net of 20% tax or it may be paid gross

2.2.2 Savings income received gross The following savings income is received gross

(a) National Savings & Investments interest including interest from Direct Saver Accounts, Investment Accounts, and Income Bonds

(b) Interest from company loan stock which is listed on a recognised stock exchange (c) Interest on Government securities (these are also called 'gilts')

FAST FORWARD

Key terms

Part A Income tax and national insurance contributions  1: Principles of income tax 7

2.2.3 Savings income received net of 20% tax The following savings income is received net of 20% tax This is called income taxed at source

(a) Bank and building society interest paid to individuals (b) Interest paid to individuals by companies on company loan stock which is not listed on a recognised stock exchange and other loans made by individuals to companies

(c) Savings income from non discretionary trusts (dealt with later in this Text)

The amount received is grossed up by multiplying by 100/80 and is included gross in the income tax computation The tax deducted at source is deducted in computing tax payable and may be repaid

In examinations you may be given either the net or the gross amount of such income: read the question carefully If you are given the net amount (the amount received or credited), you should gross up the figure at the rate of 20% For example, net building society interest of £160 is equivalent to gross income

of £160  100/80 = £200 on which tax of £40 (20% of £200) has been suffered

Although bank and building society interest paid to individuals is generally paid net of 20% tax, if a recipient is not liable to tax, they can recover the tax suffered, or they can certify in advance that they are a non-taxpayer and receive the interest gross

2.3 Dividends on UK shares

Dividends on UK shares are received net of a 10% tax credit This means a dividend of £90 has a £10

tax credit, giving gross income of £100 to include in the income tax computation The tax credit can be deducted in computing tax payable but it cannot be repaid

2.4 Exempt income

One of the competencies you require to fulfil Performance Objective 17 Tax planning and advice of the PER is to mitigate and/or defer tax liabilities through the use of standard reliefs, exemptions and incentives You can apply the knowledge you obtain from this section of the text to help to demonstrate this competence

Some income is exempt from income tax Several of these exemptions are mentioned at places in this

Text where the types of income are described in detail, but you should note the following types of exempt income now

(a) Scholarships (exempt as income of the scholar If paid by a parent's employer, a scholarship may

be taxable income of the parent) (b) Betting and gaming winnings, including premium bond prizes

(c) Interest or terminal bonus on National Savings & Investments Certificates

(d) Certain social security benefits, including child benefit (but this may be recovered through the

child benefit income tax charge discussed later in this chapter) (e) Income on investments made through Individual Savings Accounts (ISAs)

Exam focus

point

8 1: Principles of income tax  Part A Income tax and national insurance contributions

(a) Loan to buy plant or machinery for partnership use Interest is allowed for three years from the

end of the tax year in which the loan was taken out If the plant is used partly for private use, the allowable interest is apportioned

(b) Loan to buy plant or machinery for employment use Interest is allowed for three years from the

end of the tax year in which the loan was taken out If the plant is used partly for private use, the allowable interest is apportioned

(c) Loan to acquire any part of the ordinary share capital of a close company (other than a close investment-holding company) or to lend money to such a company which is used wholly and exclusively for the purpose of its business or that of an associated close company A close

company is a company controlled by its shareholder-directors or by five or fewer shareholders (see later in this Text) For a company to be a close company, it must be resident in the UK However, for the purposes of relief for interest payments, this definition is extended to include companies which are resident in an European Economic Area (EEA) state other than the UK which would be a close company if it was UK resident

When the interest is paid, the borrower must either hold some shares in the close company and

work the greater part of their time in the actual management or conduct of the company (or of an

associated company) or have a material interest in the close company (ie hold more than 5% of the

shares) Also, the individual usually must not have recovered any capital from the company Relief is not available if Enterprise Investment Scheme (EIS) relief (see later in this Text) is claimed

on the shares

(d) Loan to buy interest in employee-controlled company The company must be an unquoted

trading company resident in the UK or another EEA state and not resident outside the EEA, with at least 50% of the voting shares held by employees

(e) Loan to invest in partnership The investment may be a share in the partnership or a contribution

to the partnership of capital or a loan to the partnership The individual must be a partner (other than a limited partner) and relief ceases when they cease to be a partner

(f) Loan to invest in a co-operative The investment may be shares or a loan The individual must

spend the greater part of their time working for the co-operative

Tax relief is given by deducting the interest from total income to calculate net income for the tax year

in which the interest is paid It is deducted from non-savings income first, then from savings income and lastly from dividend income

There is a limit on the amount of deductions from total income, including deductible interest, which an

individual taxpayer can make in a tax year This limit is discussed in the chapter on trading losses later in this Text

Part A Income tax and national insurance contributions  1: Principles of income tax 9

Frederick's net income is:

Once income from all sources has been aggregated and any deductible interest deducted, the remainder is the taxpayer's net income An allowance, the personal allowance, is deducted from net income Like

deductible interest, it reduces non savings income first, then savings income and lastly dividend income

All individuals born after 5 April 1938 (including children) are entitled to the personal allowance of

£10,600

There is a higher personal allowance for individuals born before 6 April 1938 but this is not examinable in

P6(UK) You should therefore assume in questions that all individuals are born after 5 April 1938

However, if the individual’s adjusted net income exceeds £100,000, the personal allowance is reduced

by £1 for each £2 by which adjusted net income exceeds £100,000 until the personal allowance is nil (which is when adjusted net income is £121,200 or more)

Adjusted net income is net income less the gross amounts of personal pension contributions (and gift

aid donations – not in your syllabus)

We will look at personal pension contributions later in this Text and revisit this topic again then At the moment, we will look at the situation where net income and adjusted net income are the same amounts

In 2015/16, Clare receives employment income of £97,000, bank interest of £6,400 and dividends of

£6,750

Calculate Clare’s taxable income for 2015/16

Answer

10 1: Principles of income tax  Part A Income tax and national insurance contributions

higher rate on income) plus 40% of half (ie 20%) of the excess adjusted net income over £100,000 used

to restrict the personal allowance The individual should consider making personal pension contributions

to reduce adjusted net income to below £100,000

5 Computing tax liability 12/12, 6/13, 12/13, 6/14, 9/15

Income tax is worked out on taxable income First tax non-savings income, then savings income and then dividend income

One of the competencies you require to fulfil Performance Objective 15 Tax computations and assessments of the PER is to prepare or contribute to the computation or assessment of tax computations for individuals You can apply the knowledge you obtain from this section of the text to help to

demonstrate this competence

5.1 Tax rates

Income tax payable is computed on an individual's taxable income, which comprises net income less

the personal allowance The tax rates are applied to taxable income on non-savings income first, then to savings income and finally to dividend income

5.1.1 Savings income starting rate There is a tax rate of 0% for savings income up to £5,000 (the savings income starting rate limit) This

rate is called the savings income starting rate

The savings income starting rate only applies where the savings income falls wholly or partly below the starting rate limit Remember that income tax is charged first on non-savings income So, in most

cases, an individual’s non-savings income will exceed the starting rate limit and the savings income starting rate will not be available on savings income

In 2015/16, Joe earns a salary of £11,750 from a part-time job and receives bank interest of £4,800 Calculate Joe’s tax liability for 2015/16

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Part A Income tax and national insurance contributions  1: Principles of income tax 11

Answer

Non-savings income

The basic rate of tax is 20% for 2015/16 for both non-savings income and savings income

The basic rate of tax is 10% for 2015/16 for dividend income

The basic rate limit for 2015/16 is £31,785

5.1.3 Higher rate

The higher rate of tax is 40% for 2015/16 for non-savings and saving income

The higher rate of tax is 32.5% for 2015/16 for dividend income

The higher rate limit for 2015/16 is £150,000

In 2015/16, Margery has employment income of £37,835, receives building society interest of £1,200 and dividends of £9,000

Calculate Margery’s tax liability for 2015/16

Answer

Non-savings income

Savings income

12 1: Principles of income tax  Part A Income tax and national insurance contributions

The additional rate of tax is 37.5% for 2015/16 for dividend income

The additional rate of tax applies to taxable income in excess of £150,000

In 2015/16, Julian has employment income of £148,000, receives bank interest of £5,000 and dividends of

£18,000

Calculate Julian’s tax liability for 2015/16

Answer

Non-savings income

Savings income

5.2 Child benefit income tax charge

There is an income tax charge to recover child benefit if the recipient or their partner has adjusted net income over £50,000 in a tax year

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Part A Income tax and national insurance contributions  1: Principles of income tax 13

An income tax charge applies if a taxpayer receives child benefit (or their partner receives child benefit)

and the taxpayer has adjusted net income over £50,000 in a tax year Adjusted net income is defined in the same way as for the restriction of the personal allowance described earlier in this chapter

A ‘partner’ is a spouse, a civil partner, or an unmarried partner where the couple are living together as though they were married or were civil partners Civil partners are members of a same sex couple which

has registered as a civil partnership under the Civil Partnerships Act 2004 Since 2014, in England, Wales and Scotland (but not Northern Ireland) a same sex couple may also marry

If the taxpayer has adjusted net income over £60,000, the charge is equal to the full amount of child

benefit received

If the taxpayer has adjusted net income between £50,000 and £60,000, the charge is 1% of the child

benefit amount for each £100 of adjusted net income in excess of £50,000 The calculation, at all

stages, is rounded down to the nearest whole number

If both partners have adjusted net income in excess of £50,000, the partner with the higher adjusted

net income is liable for the charge

The child benefit income tax charge is collected through the self-assessment system (dealt with later in

this Text) This includes the need for taxpayers to submit tax returns, which can be time consuming and

costly To avoid this, taxpayers can opt not to receive child benefit at all so that the child benefit income

tax charge does not apply

Robert and Roslyn are not married but live together as though they were married They have a five year

old son

Robert has net income of £52,000 (all non-savings income) in 2015/16 His adjusted net income is also

£52,000 since he made no personal pension contributions in 2015/16 Roslyn has no income She

receives child benefit of £1,076 in 2015/16

Calculate Robert’s tax liability for 2015/16

Answer

Robert will be liable to the child benefit income tax charge in 2015/16 since his partner receives child

benefit during that year and he has adjusted net income over £50,000

14 1: Principles of income tax  Part A Income tax and national insurance contributions

Samantha is divorced and has two children aged ten and six She has net income of £56,000 (all savings income) in 2015/16 Samantha made personal pension contributions of £4,500 (gross) during 2015/16 She receives child benefit of £1,788 in 2015/16

non-Calculate Samantha’s income tax liability for 2015/16

Less personal pension contributions (gross) (4,500)

Child benefit income tax charge: 1% × £1,788 × 15 268

At all stages of the calculation, round down to the nearest whole number

Tutorial note

If Samantha had made an extra gross personal pension contribution of £1,500 during 2015/16, her adjusted net income would not have exceeded £50,000 and she would not have been subject to the child benefit income tax charge

5.3 Tax reducers

Tax reducers reduce tax on income at a set rate of relief

5.3.1 Introduction

Tax reducers do not affect income; they reduce tax on income The tax reducers are:

(a) Investments in venture capital trusts (VCTs)

(b) Investments under the enterprise investment scheme (EIS)

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