ACCA APPROVED Paper P6 Advanced Taxation (UK) FAs 2015 This ACCA Study Text for Paper P6 Advanced Taxation (UK) FAs 2015 has been comprehensively reviewed by the ACCA examining team This review guarantees appropriate depth and breadth of content and comprehensive syllabus coverage For exams in September 2016, December 2016 and March 2017 BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • A user-friendly format for easy navigation • Exam focus points describing what the examining team will want you to • Regular Fast Forward summaries emphasising the key points in each chapter • Questions and quick quizzes to test your understanding • A practice question bank containing exam- standard questions with answers • A full index • All you need in one book Study Text Contact us In addition to ACCA examining team reviewed material you get: Advanced Taxation (UK) FAs 2015 BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success ACCA P6 ACCA approved content provider A-PDF Text Replace DEMO: Purchase from www.A-PDF.com to remove the watermark CONTENT PROVIDER ACCA Approved Study Text Paper P6 Advanced Taxation (UK) FAs 2015 Free access to our Exam Success site Look inside For exams in September 2016, December 2016 and March 2017 February 2016 £32.00 http://accountingpdf.com/ ACP6ST16 (RICOH).indd 1-3 05/02/2016 10:59 ACCA APPROVED CONTENT PROVIDER As the first accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for exams on demand) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F5 Study Text) for your access code Once you have received your code, please follow the instructions below: To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one Make sure you reply to the confirmation email n Log in using your registered username and password Select the paper you wish to access n Enter the code you received when prompted You will only have to this once for each paper you are studying http://accountingpdf.com/ S T U D Y PAPER P6 ADVANCED TAXATION FAs 2015 BPP Learning Media is an ACCA Approved Content Provider This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this, ACCA examination-team reviewed Study Text we:  Discuss the best strategies for studying for ACCA exams  Highlight the most important elements in the syllabus and the key skills you will need  Signpost how each chapter links to the syllabus and the study guide  Provide lots of exam focus points demonstrating what is expected of you in the exam  Emphasise key points in regular fast forward summaries  Test your knowledge of what you've studied in quick quizzes  Examine your understanding in our practice question bank  Reference all the important topics in our full index BPP's Practice & Revision Kit also supports this paper FOR EXAMS IN SEPTEMBER 2016, DECEMBER 2016 AND MARCH 2017 http://accountingpdf.com/ T E X T First edition 2007 Ninth edition February 2016 A note about copyright Dear Customer ISBN 9781 4727 4432 (Previous ISBN 9781 4727 2240 9) eISBN 9781 4727 4674 What does the little © mean and why does it matter? British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by Your market-leading BPP books, course materials and elearning materials not write and update themselves People write them on their own behalf or as employees of an organisation that invests in this activity Copyright law protects their livelihoods It does so by creating rights over the use of the content Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics BPP Learning Media Ltd BPP House, Aldine Place 142-144 Uxbridge Road London W12 8AA With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: www.bpp.com/learningmedia Printed in the United Kingdom by RICOH UK Limited Unit Wells Place Merstham RH1 3LG Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd  Photocopying our materials is a breach of copyright  Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or e-mailing them to your friends is a breach of copyright You can, of course, sell your books, in the form in which you have bought them – once you have finished with them (Is this fair to your fellow students? We update for a reason.) Please note the e-products are sold on a single user licence basis: we not supply 'unlock' codes to people who have bought them secondhand And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, unless otherwise stated © BPP Learning Media Ltd 2016 ii http://accountingpdf.com/ Contents Page Introduction Helping you to pass Studying P6 The exam paper Syllabus and study guide v vii ix xii Part A Income tax and national insurance contributions 10 Principles of income tax Pensions and other tax efficient investment products Property and other investment income Employment income Employment income: additional aspects Trade profits Capital allowances Trading losses Partnerships and limited liability partnerships Overseas aspects of income tax 25 45 57 89 107 135 155 171 181 Part B Capital gains tax 11 12 13 14 Chargeable gains: an outline Shares and securities Chargeable gains: reliefs Chargeable gains: additional aspects 205 219 231 259 Part C Tax administration for individuals 15 Self assessment for individuals and partnerships 283 Part D Inheritance tax 16 17 18 An introduction to inheritance tax Inheritance tax: valuation, reliefs and the death estate Inheritance tax: additional aspects 307 325 347 Part E Stamp taxes 19 Stamp taxes 365 Part F Corporation tax 20 21 22 23 24 25 26 27 Computing taxable total profits Chargeable gains for companies Computing corporation tax payable Administration, winding up, purchase of own shares Losses and deficits on non-trading loan relationships Close companies and investment companies Groups and consortia Overseas aspects of corporate tax 377 397 413 427 437 451 459 475 Part G Value added tax 28 29 Value added tax Value added tax 495 513 Part H Impact of taxes and tax planning 30 Impact of taxes and tax planning 535 Contents http://accountingpdf.com/ iii Practice question and answer bank Tax tables Index Review form iv Contents http://accountingpdf.com/ 581 673 679 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 page, will help you whilst studying and improve your chances of exam success 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 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 Introduction http://accountingpdf.com/ v 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 FAST FORWARD 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) Give you essential practice of techniques covered in the chapter Question vi Chapter Roundup A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation Introduction http://accountingpdf.com/ 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 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 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 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 Introduction http://accountingpdf.com/ vii 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 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 Gaining professional marks As P6 is a Professional level paper, four professional marks will be awarded in Question 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? viii Introduction http://accountingpdf.com/ National insurance, 78, 131 Negligible value claims, 270 Net income, Net pay arrangements, 30 Non-deductible input tax, 517 Non-savings income, Non-trading deficits, 439 Non-UK resident companies, 476, 488 Normal expenditure out of income, 313 Notification of liability to income tax and CGT, 285 Occupational pension schemes, 27 OECD Model Agreement, 197, 478, 488 Official rate, 69 Offshore matter, 299 Option to tax, 516 Options, 262 Ordinary shares, 545 Output tax, 497 Overlap profits, 124 Overseas pensions, 196 Overseas subsidiary, 485 Overseas trades, 197 Q ualifying corporate bond (QCB), 227 Qualifying loans, 70 Quick succession relief (QSR), 342 Readily convertible assets, 91, 92 P11D dispensation, 63 Parent undertaking, 461 Part disposals, 214 Partial exemption, 519 annual adjustment, 523 annual test, 521 de minimis tests, 521 Partnerships, 172 chargeable gains, 214 limited liability, 172 Patent box, 387 Payment of corporation tax, 419 Payment of income tax and capital gains tax, 288 Payments in lieu of notice, 102 Payments on account, 289 Payroll deduction scheme, 75 Penalties, 295, 417 Pension schemes, 27 Period of account, 379 Permanent establishment, 477, 485, 488 Permanent establishment, 477 Personal allowance, Personal finance, 539 Personal incidental expenses, 63 Personal pension schemes, 27 Personal pension, 27 Personal service companies, 81, 552 Personal tax computation, 682 PET, 310 Plant and machinery, 137 Post-cessation receipts, 121 Potentially exempt transfers (PETs), 310 Preference shares, 545 Premiums on leases, 48 Pre-registration input tax, 502 Pre-trading expenditure, 114 Principal charge, 356 Principal private residence letting relief, 268 relief, 264 Private medical insurance premiums, 74 Private use assets, 147 Profit extraction, 556 Property business income companies, 381 individuals, 46 Prospective clients, 567 Purchase by a company of its own shares, 431 Real Estate Investment Trusts (REITs), 49 Records, 287, 417 Recovery of overpaid tax, 288 Reduced rate of VAT, 516 Redundancy, 115 Registration for VAT, 498 Related 51% group companies, 420 Related property, 328 Relief given at source, 28 Remittance basis, 193 Removal expenses, 73 Remuneration packages, 546 Renewals, 115 Rent a room relief, 50 Reorganisations involving QCBs, 227, 228 Reorganisations, 224 Repayment supplement, 292 Replacement of business assets, 241 Research and development, 390 ATL tax credit, 392 Residence of companies, 379 Residence, 183, 476 Residual charge, 72 Returns, 416 Rights issues, 224 Rollover relief, 241, 405 Rounding, 118 Index http://accountingpdf.com/ SAYE share option schemes, 95 Scholarships, 71 Seed enterprise investment scheme (SEIS), 15, 39, 543 SEIS reinvestment relief, 254 Self-assessment, 287 Senior accounting officer personal accountability, 418 Share Incentive Plans (SIPs), 99 Share options, 91 Share pool, 221 Share schemes tax advantaged, 94 Shares, 90, 220 Short life asset, 150 Small gifts exemptions, 312 Sources of finance businesses, 544 individuals, 539 Special rate pool, 146 Specific employment income, 59 Split year treatment, 186 Spouses, 20 Staff parties, 74 Staff suggestion schemes, 73 Stamp duty land tax (SDLT), 367 Stamp duty reserve tax, 366 Stamp duty, 366 Statutory approved mileage allowances, 68 Statutory redundancy pay, 102 Subscriptions to professional bodies, 75 Subscriptions, 117 Substantial shareholding, 404 Substantial traders, 504 Succession to trade, 152, 472 hive down, 472 Supplies of goods, 498 Supplies of services, 498 Takeovers, 225 Tax avoidance schemes, 571 Tax avoidance, 568 Tax evasion, 568 Tax irregularities, 569 Tax liability, 6, 10 Tax offenders, 300 Tax payable, 6, 17 Tax planning using trusts, 357, 358 Tax planning, 546 Tax reducers, 15 Tax returns, 285 Tax Tribunal, 285 Tax year, 5, 540 Taxable benefits, 62 Taxable income, Taxable persons, 498 Taxable supply, 497 Taxable total profits, 379 Temporary workplace, 77 Termination payments, 102 Thermal insulation, 139 Total income, Trade, 109 Trading income, 380 Trading losses, 439 Trading stock on cessation, 121 Transfer of a business to a company, 247 Transfer of a going concern (TOGC), 554 Transfer of value, 310 Transfer pricing, 389 Transferable personal allowance, 15 Travel expenses, 75 employment overseas, 194 overseas trades, 197 Treaty relief, 478 Trust income, 52 Trusts, 354 Unilateral credit relief, 478 Unpaid remuneration, 113 Value added tax (VAT), 497 administration, 507 electronic filing, 504 penalties, 508 records, 505 Vans, 67 VAT on car fuel, 518 VAT period, 503 VAT return, 503 Venture capital trusts (VCTs), 15, 41, 543 Vouchers, 63 Wasting asset, 261 Wholly and exclusively for the purposes of the trade, 112 Winding up, 428 Withholding tax, 478 Work related training, 74 Writing down allowance (WDA), 142 Year of assessment, Zero rated supplies, 515 Index http://accountingpdf.com/ 683 684 Index http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ http://accountingpdf.com/ Review Form – Paper P6 (Advanced Taxation) Finance Acts 2015 (2/16) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Name: Address: During the past six months you recall seeing/receiving any of the following? (Tick as many boxes as are relevant) How have you used this Study Text? (Tick one box only) On its own (book only) On a BPP in-centre course Our advertisement in ACCA Student Accountant On a BPP online course Our advertisement in Pass On a course with another college Our advertisement in PQ Other Our brochure with a letter through the post Our website www.bpp.com Why did you decide to purchase this Study Text? (Tick one box only) Which (if any) aspects of our advertising you find useful? (Tick as many boxes as are relevant) Have used BPP Study Texts in the past Recommendation by friend/colleague Prices and publication dates of new editions Recommendation by a lecturer at college Information on Study Text content Saw information on BPP website Facility to order books off-the-page Saw advertising None of the above Other Which BPP products have you used? Study Text Passcards Other Kit Your ratings, comments and suggestions would be appreciated on the following areas Very useful Useful Not useful Good Adeqate Poor Yes No Introductory section Chapter introductions Key terms Quality of explanations Case studies and other examples Exam focus points Questions and answers in each chapter Fast forwards and chapter roundups Quick quizzes Question Bank Answer Bank Index Overall opinion of this Study Text Excellent Do you intend to continue using BPP products? On the reverse of this page is space for you to write your comments about our Study Text We welcome your feedback The author of this edition can be emailed at: accaqueries@bpp.com Please return this form to: Head of ACCA & FIA Programmes, BPP Learning Media Ltd, FREEPOST, London, W12 8AA http://accountingpdf.com/ TELL US WHAT YOU THINK Please note any further comments and suggestions/errors below For example, was the text accurate, readable, concise, user-friendly and comprehensive? http://accountingpdf.com/ ... http://accountingpdf.com/ S T U D Y PAPER P6 ADVANCED TAXATION FAs 2015 BPP Learning Media is an ACCA Approved Content Provider This means we work closely with ACCA to ensure this Study Text contains... 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... http://accountingpdf.com/ 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