Paper 9 (GBR) Preparing Taxation Computations

To develop the ability to prepare computations of tax liability for both individuals and businesses resident in the UK for the purposes of income tax, corporation tax, capital gains tax and value added tax. In addition, to develop knowledge and understanding of the manner in which dealings must be conducted with the Inland Revenue and Customs & Excise, including knowledge of the statutory timescales for the submission of claims and returns and the due dates for the payment of tax liabilities.

On completion of this paper, candidates should be able to:

• prepare adjusted profit / loss computations for trades and professions
• calculate an individual’s income from employment
• prepare computations of property and investment income
• prepare income tax computations
• prepare computations of the chargeable gains arising on disposals by both individuals and companies
• prepare corporation tax computations
• complete and submit value added tax calculations using data from the appropriate recording systems
• identify the due dates for submission of returns and the payment of tax liabilities
• conduct dealings with the Inland Revenue, Customs & Excise and with clients in an appropriate manner.

An understanding of the format of accounts used for sole traders, partnerships and companies is assumed from Paper 3, Maintaining Financial Records and Paper 6, Drafting Financial Statements, but no prior knowledge of taxation is required.

(a) Adjustment of trading profits / losses for tax purposes

(b) Capital allowances

(i) definition of plant

(ii) allowances on plant and machinery

(iii) private use assets

(iv) short life assets

(v) hire purchase and leasing

(vi) industrial buildings

(c) Assessments

(i) basis of assessment

(ii) sole traders and partnerships

(d) Relief for losses

(a) Class 2 and Class 4 National Insurance Contributions for the self employed

(b) Class 1 and 1A National Insurance Contributions for employees and employers

(a) Computing taxable emoluments from employment

(i) basis of assessment

(ii) employment or self-employment

(b) Allowable deductions

(c) Benefits in kind

(d) (i) contributions to occupational pension schemes

(ii) charitable giving through the payroll

(a) Profits / losses from property income

(i) computation of property income profits / losses

(ii) furnished holiday lettings

(iii) rent a room scheme

(iv) relief for property income losses

(b) Other investments

(i) bank, building society and other interest

(ii) dividends

(iii) tax exempt investments

(a) Computing taxable income

(i) the aggregation of income

(ii) charges on income

(iii) the personal allowance

(b) Computing income tax payable

(i) allocation of tax rates / bands to savings income, non-savings income and dividend income

(ii) relief for:

– charitable donations

– personal pension contributions

(a) Chargeable persons, disposals and assets

(b) Computing gains and losses

(i) the basic computation

(ii) valuing assets

(iii) indexation allowance

(iv) part disposals

(v) taper relief for individuals

(c) Share and securities

(i) matching rules for individuals

(ii) matching rules for companies

(iii) FA 1985 pool

(iv) bonus and rights issues

(v) gilts and qualifying corporate bonds

(d) Other areas of capital gains tax (including reliefs)

(i) gift relief

(ii) rollover relief

(iii) principal private residence relief

(iv) chattels

(v) relief for losses

(vi) compensation and insurance proceeds

(e) Computing capital gains tax payable

(a) Self-assessment system

(b) Payment of income tax (including payments on account) and capital gains tax

(c) Enquiries

(d) Dealing with the Inland Revenue and client confidentiality

(a) Company profits chargeable to corporation tax

(b) Accounting periods

(c) Computing corporation tax

(d) Relief for losses (trade and non-trade)

(a) Corporation tax self-assessment

(b) The payment of corporation tax (including quarterly payments on account)

(c) Dealing with the Inland Revenue and client confidentiality

(a) Scope of VAT

(b) Basic principles of VAT

(i) types of supply

(ii) computing VAT due

(iii) accounting for VAT

(iv) the time of supply

(c) VAT invoices and records

(d) Registration

(e) Administration of VAT

The following topics are specifically excluded from Paper 9:

• Adjusted profit computations for trades and professions:
• badges of trade
• successions
• change of accounting date
• long life assets
• capital allowances on agricultural buildings, hotels and intangible assets
• in respect of industrial buildings allowances: enterprise zones, initial allowances and the sale of industrial buildings following a period of non-industrial use
• notional profits / losses for partnerships
• limited liability partnerships
• personal service companies
• the special rules for losses in the opening years of a trade (s. 381 ICTA 1988)
•  the special rules for losses in the closing years of a trade (terminal losses under s. 388 ICTA 1988)
• the special rules for the use of trade losses against capital gains (s. 72 FA 1991).

Income from employment:

• detailed operation of the PAYE system (including calculations of code numbers)
• share incentive schemes
• termination payments.

Property and investment income:

• the enterprise investment scheme and venture capital trusts
• trust income.

Income tax computations:

• personal allowances other than the personal allowance for people aged under 65
• tax reducers foreign income and double tax relief.

Chargeable gains:

• calculation of the indexation allowance for individuals
• reinvestment relief
• assets held at 31 March 1982
• negligible value claims
• substantial shareholdings
• wasting assets (other than chattels) and leases
• connected persons and transfers between spouses
• incorporation relief
• damaged assets.

Corporation tax:

• close companies
• non-trading deficits on loan relationships
• relief for intangible assets
• the corporate venturing scheme
• groups and consortia
• foreign income and double tax relief
• investment companies and companies in receivership / liquidation
• completion of forms CT61.

Value added tax:

• group registration
• secondhand goods scheme
• partial exemption
• special schemes for retailers
• the capital goods scheme
• serious misdeclaration penalty
• default interest.

National insurance contributions:

• for Class 4: the offset of trading losses against non-trading income
• contracted out contributions.

The key topic areas are as follows:

• computation of adjusted profits / losses for trades and professions
• calculating an individual’s income from employment
• assessment of profits / losses from trades or professions
• basic income tax computations
• basic chargeable gains computations
• computing profits chargeable to corporation tax
• computing corporation tax payable
• income tax and corporation tax self assessment
• basic value added tax computations.

Paper 9 is a three-hour written paper.

The examination will be predominantly computational and will comprise four compulsory questions, which will add up to a total of 100 marks.

Question 1 will always relate to income tax for a minimum of 30 and no more than 35 marks.

Questions 2 and 3 will relate to corporation tax and capital gains tax respectively.

Question 4 may include topics from any area of the syllabus not examined elsewhere in the paper.

Value added tax (VAT) will not be examined as a full question but will be examined as part of any of the questions involving a business, either linked to the business scenario contained in the remainder of the question or as a distinct and separate scenario.

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 substantially alter.

The cut off date for the June examination is 30 November preceding the June examination. The cut off date for the December examination is 31 May preceding the December examination.

Tax rates and allowance tables will be provided at the front of the examination paper.

Calculations should be made to the nearest month and the nearest £.

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.

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

Candidates may also find the following text useful:

Melville, A. Taxation (Prentice Hall) ISBN 0273673130

Wider reading is also desirable, especially regular study of relevant articles in ACCA’s student accountant magazine.

(a) Identify the main sources of UK tax legislation

(b) Identify the key reference sources for UK tax legislation

(c) Describe the organisation of the Inland Revenue and its terms of reference including the appeals system

(d) Describe the appeals process – special and general commissioners

(e) Explain the schedular system of income tax and its background (how the legislation does not define income but defines taxable sources)

(a) Identify the fiscal year

(b) Outline the scope of income tax: chargeable persons, chargeable income

(c) Distinguish between income and capital profits/losses

(d) Outline the key elements of a personal income tax computation

(i) earned income

(ii) non-savings income

(iii) savings income

(iv) dividend income

(v) statutory total income

(vi) taxable income

(a) Identify income assessable under Schedule D case III and explain the basis of assessment

(b) Identify investments taxed at source

(c) Identify tax-free investments

(d) Identify the source documents used to complete the tax return

(e) Prepare schedules of savings income to accompany the tax return

(a) Explain the entitlement to and the amount of the personal allowance

(b) Identify and explain the use of charges on income

(i) eligible interest

(ii) patent and copyright royalties

(c) Illustrate the allocation of tax bands and tax rates against statutory total income (STI)

(i) non-savings

(ii) savings

(iii) dividends

(d) Explain and illustrate the difference between tax liability and tax payable for:

(i) deduction of tax credits from savings and dividend income

(ii) deduction of PAYE

(e) Explain and illustrate charitable payments

(i) payroll giving

(ii) extension of basic rate band

(f) Prepare examples of income tax computations

(i) standard layout

(ii) statutory total income (STI)

(iii) use of rates and bands

(iv) basic rate band extension

(v) tax liability and tax payable

(a) Explain the difference between employment and self-employment

(b) Identify assessable income under Schedule E

(i) salaries

(ii) commissions

(iii) bonuses

(iv) benefits in kind

(c) Define and illustrate the basis of assessment for:

(i) directors

(ii) others

(d) Identify the principal categories of deductions and illustrate their scope (no detail on pension contributions at this point)

(i) payroll giving

(ii) subscriptions

(iii) travelling expenses

(iv) expenses incurred wholly, exclusively and necessarily in the performance of duties

(a) Define and distinguish between higher and lower paid employees

(b) Identify the information required on a P11D and a P9D

(c) Identify and calculate benefits in kind

(i) assessable on all employees

(ii) assessable on the lower paid

(iii) assessable on the higher paid

(d) Identify the circumstances when a general business expenses dispensation may be available, how it works

and its implications on the employer and employee

(a) Compute aggregate Schedule E income

(i) all income

(ii) benefits in kind

(iii) expenses

(b) Identify source documents required to complete tax returns

(i) interest statements

(ii) receipts for expenses

(iii) P11D or P9D

(iv) P60

(c) Compute basic Class 1 National Insurance Contributions

(i) employees

(ii) employers (including class 1A)

(a) Explain the principles of deductible and non-deductible expenditure

(b) Prepare adjusted profit computations (pre capital allowances)

(a) Explain the basis of assessment for a continuing sole trader’s business

(b) Explain and demonstrate the calculations of the basis of assessment for commencement and cessation of businesses

(c) Calculate overlap relief, explain and demonstrate how it can be used on cessation

(a) Explain the principles relating to capital allowances on plant and machinery

(i) definition of plant

(ii) cars

(iii) private use assets

(iv) short life assets

(v) hire purchase and leasing

(b) Prepare capital allowance computations for plant and machinery

(i) writing down allowance

(ii) first year allowance

(iii) restrictions

(a) Explain the principles relating to capital allowances on industrial buildings

(i) qualifying trades

(ii) qualifying expenditure

(iii) qualifying industrial use

(b) Explain non–industrial use and notional allowances

(c) Prepare capital allowance calculations for industrial buildings

(i) new buildings

(ii) second-hand buildings

(iii) disposals

(a) Prepare adjusted profit calculations (including capital allowances)

(b) Illustrate the use of capital allowances at the commencement and cession of businesses

(c) Calculate National Insurance Contributions for the self-employed and contrast with employees

(i) class 2

(ii) class 4

(a) Explain the alternative loss reliefs available to a sole trader

(i) s.380 current and prior years

(ii) s.385 carried forward

(b) Demonstrate the best use of a loss relief claim

(i) save the highest amount of tax

(ii) timing

(iii) protection of personal allowances

(a) Explain how the Schedule D Case I rules are adapted for partnerships

(b) Explain and show the effect of capital allowances on partnerships

(c) Demonstrate the effect of changes in partnerships

(i) change in profit sharing ratios

(ii) new partners

(iii) departing partners

(d) Illustrate the loss relief claims available to individual partners

(a) Identify income assessable under Schedule A

(i) furnished and unfurnished property

(ii) premiums from short leases

(b) Outline the deductions allowable

(i) revenue expenses

(ii) capital allowances

(iii) wear and tear allowance

(iv) repairs and renewals

(v) restriction for private use

(c) Rent a room relief

(d) Furnished holiday lettings

(e) Use of losses

(a) Identify the schemes available

(i) occupational pension schemes

(ii) private pension plans

(b) Define net relevant earnings

(c) Explain the maximum contributions allowed for tax relief

(i) occupational schemes

(ii) personal pension plans

(iii) stakeholder plans

(iv) employee, employer and self employed

(d) Show how the relief is given

(i) deductions from salary

(ii) basic rate tax withheld at source

(iii) higher rate tax relief given via basic rate band extension

(e) Explain the principles of relating back private pension plan premiums to the previous year

(f) Show the tax effects of employer contributions

(i) on the employer

(ii) on the employee

(a) Self assessment forms

(i) requirement

(ii) completion dates

(b) Pay As You Earn (PAYE) forms and deadlines for submission

(i) P11D

(ii) P9D

(iii) P14

(iv) P60

(v) P35

(vi) P45

(c) Payment dates

(i) employees

(ii) self employed

(a) Define chargeable persons, chargeable disposals and chargeable assets

(i) individuals and companies

(ii) exempt disposals

(iii) exempt assets

(b) Outline the administrative framework for capital gains tax

(i) individuals

(ii) companies

(iii) payment

(c) Outline the use of tax bands and rates in conjunction with income tax

(d) Outline the basic calculation including the deduction of expenses of purchase and sale

(e) Explain the entitlement to the annual exemption

(a) Explain the circumstances when market value may be used for the transfer value

(i) bargains not at arms length

(ii) gifts

(b) Demonstrate the calculation of market value for quoted shares and securities

(c) Explain the indexation allowance for individuals as applied in the period March 1982 to April 1998

(Note: Calculation of this will not be required in the examination as the indexed value at April 1998 will be given)

(d) Explain and calculate taper relief for individuals

(i) business assets

(ii) non-business assets

(e) Explain the differences for companies

(i) calculate indexation allowance up to the date of sale

(ii) no taper relief

(f) Calculate disposals of post 31 March 1982 assets

(i) include enhancement expenditure

(ii) purchases pre and post April 1998

(g) Explain the use of capital losses

(i) current year

(ii) brought forward

(a) Outline the matching rules for individuals

(i ) same day

(ii) next 30 days

(iii) since April 1998

(iv) FA 1985 Pool (indexed value at April 1998 will be given)

(b) Compute gains and losses on disposals by individuals

(c) Outline the matching rules for companies

(i ) same day

(ii) last 9 days

(iii) FA 1985 pool (construction of a basic pool, including the calculation of indexation allowance up to the date of sale will be required)

(d) Compute gains and losses on disposals by companies

(a) Illustrate the impact of bonus and rights issues on shareholdings

(b) Sale of rights – awareness of basic treatment (partial vs.small disposal) only

(c) Identify exempt disposals

(i) gilts

(ii) qualifying corporate bonds (individuals only)

(a) Define chattels

(i) non-wasting

(ii) wasting

(b) Explain and demonstrate the calculation of gains on chattel disposals

(i) exemptions

(ii) marginal relief

(iii) deemed proceeds for losses

(iv) awareness of the interaction with capital allowances

(c) Calculate gains on part disposals

(d) Compensation and insurance proceeds

(a) Outline the rules governing principal private residence (PPR)

(i) exemption

(ii) relief for absences

(b) Gift Relief

(i) outline availability

(ii) explain and calculate the relief

(iii) calculate the restriction as a result of a sale at undervalue

(c) Roll-over relief

(i) outline availability

(ii) explain and calculate the relief

(iii) calculate the relief available on the partial reinvestment of sale proceeds and/or partial business use of an asset

(iv) explain the consequences of reinvestment in depreciating or non-depreciating assets

(a) Identify the scope of corporation tax

(i) chargeable entities

(ii) chargeable income

(b) Identify chargeable accounting periods

(c) Identify the basis of assessment for all sources of income

(i ) Schedule D Case I

(ii) Schedule D Case III

(iii) Schedule A

(iv) capital gains

(d) Compute profits chargeable to corporation tax (PCTCT)

(a) Identify the financial year(s) relevant to a chargeable accounting period

(b) Identify the rates of corporation tax to be applied

(i) starting rate

(ii) lower marginal rate

(iii) small companies rate

(iv) higher marginal rate

(v) full rate

(c) Calculate the corporation tax liability

(d) Calculate and offset any income tax on payments and receipt

(e) Identify associates and show their effect on tax calculations

(a) Calculate the corporation tax payable for periods longer and shorter than 12 months

(b) Explain the loss reliefs available for both trade and non trade losses

(c) Illustrate the use of the loss reliefs in a basic calculation

(i) trade losses

– s393A (1) current period

– s393A (1) carry back (including cessation)

– s395 carry forward

(ii) non trade losses

– Schedule A loss relief for companies

– capital losses

– explain the impact of cessation on trade of trade and non trade losses

(d) Compute corporation tax repayable following a loss relief claim

(a) Outline the corporation tax self assessment rules

(i) return and filing date

(ii) amendments and enquiries

(b) Illustrate and calculate methods of payment of tax

(i) small and medium size companies

(ii) large companies

(a) Explain the scope of VAT

(b) Illustrate the need for registration

(i) compulsory

(ii) voluntary

(iii) exemption

(iv) deregistration

(c) Explain and contrast the types of supply

(i) standard

(ii) zero rated

(iii) exempt

(d) Compute VAT liability

(i) input tax

(ii) output tax

(iii) bad debts

(iv) discounts

(v) irrecoverable VAT

(e) Account for VAT

(i) return periods

(ii) tax point

(iii) VAT return

(f) Explain the detail required on VAT invoices

(g) Detail the basic VAT administration requirements

(i) records

(h) Explain the treatment of imports and exports

(i) Describe the following schemes

(i) annual accounting scheme

(ii) cash accounting scheme

(iii) flat rate scheme