TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
SESSION: Jun’23 – Mar’24
TX (UK)
Practice to Pass
Revision Notes
FA 2022
Compiled By:
Sir Qunber Raza &
Sir Zya Rana
(Various sources have been used in compilation of these notes, including Kaplan, BPP stuff)
1 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
(F6) – Refresher Notes – Index
1.
Property Income __________________________________________________________ 5
IMPORTANT POINTS ________________________________________________________________ 5
ALLOWABLE EXPENSES ______________________________________________________________ 5
Disallowed expenses _______________________________________________________________ 5
Golden rule _______________________________________________________________________ 5
Lease Premium ____________________________________________________________________ 5
Rent A Room ______________________________________________________________________ 6
Furnished Holiday Letting ___________________________________________________________ 6
Property Loss _____________________________________________________________________ 6
2.
Employment Income _______________________________________________________ 7
Cash Earnings _____________________________________________________________________ 7
Taxable Benefits ___________________________________________________________________ 7
Deductions from Employment ________________________________________________________ 9
Exempt Benefits ___________________________________________________________________ 9
Important Dates for PAYE system for 2022/23 __________________________________________ 10
3.
Trading Income __________________________________________________________ 11
Badges of Trade __________________________________________________________________ 11
Disallowed Expenditure ____________________________________________________________ 11
Taxable trading income not included in the accounts ____________________________________ 12
Expenditure not charged in the accounts but allowable __________________________________ 12
Non Trading Income so should be Deducted when calculating Business income _______________ 12
Capital Allowances ________________________________________________________________ 13
Structured Building Allowance (SBA)__________________________________________________ 15
BASIS PERIOD ____________________________________________________________________ 16
SELF ASSESSMENT ________________________________________________________________ 17
4.
PARTNERSHIP ___________________________________________________________ 18
Capital allowances by partnership____________________________________________________ 18
Partnership changes _______________________________________________________________ 18
Changes in PSA –split period ________________________________________________________ 18
Partnership losses ________________________________________________________________ 18
5.
TRADING LOSS ___________________________________________________________ 19
Opening year’s relief ______________________________________________________________ 19
Terminal loss relief ________________________________________________________________ 19
CAP ON INCOME TAX RELIEFS _______________________________________________________ 19
CHOICE OF LOSS RELIEF ____________________________________________________________ 19
CASH BASIS FOR SMALL BUSINESSES __________________________________________________ 20
6.
Interest income __________________________________________________________ 20
Exempt Income ___________________________________________________________________ 20
Accrued Interest Scheme ___________________________________________________________ 20
7.
Dividend Income _________________________________________________________ 20
2 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
8.
FA 2022
Income Tax Calculation ____________________________________________________ 20
Qualifying Interest ________________________________________________________________ 20
Personal Allowance _______________________________________________________________ 20
Child benefit income tax charge _____________________________________________________ 21
Rates ofTax ______________________________________________________________________ 21
Transferable amount of personal allowance ___________________________________________ 21
9.
Gift Aid Donation/Private Pension contribution ________________________________ 21
Pension Maximum Contribution _____________________________________________________ 21
Annual allowance _________________________________________________________________ 22
Annual allowance charge ___________________________________________________________ 22
10. Determining Residency ____________________________________________________ 22
Automatic Non Resident Test (1st Step to Check) ________________________________________ 22
Automatic Test of RESIDENCE (2ndStep to Check) ________________________________________ 22
Sufficient Ties Test (if 1st and 2nd steps not met)_________________________________________ 22
11. Capital Gains (Individuals) _________________________________________________ 23
CHARGEABLE ASSET _______________________________________________________________ 23
CHARGEABLE DISPOSALS ___________________________________________________________ 23
Part Disposal _____________________________________________________________________ 23
Chattels _________________________________________________________________________ 23
–Wasting (expected life ≤ 50 yrs) = exempt ____________________________________________ 23
–Non-wasting (> 50 yrs) ____________________________________________________________ 23
Wasting assets – non chattels _______________________________________________________ 24
Asset Damaged ___________________________________________________________________ 24
Shares and securities ______________________________________________________________ 24
Reorganisations and takeovers ______________________________________________________ 25
Principal Private Residence (PPR) ____________________________________________________ 25
Business Asset Disposal (Entrepreneurs’) Relief _________________________________________ 26
Investors’ relief ___________________________________________________________________ 26
Rollover Relief ___________________________________________________________________ 26
Gift relief ________________________________________________________________________ 27
Payments on account for disposals of residential property: _______________________________ 27
12. COMPANY CHARGEABLE GAINS _____________________________________________ 28
Summary of Key Differences:________________________________________________________ 28
RULES FOR INDEXATION ALLOWANCE ________________________________________________ 28
Shares and securities ______________________________________________________________ 28
Rollover Relief ___________________________________________________________________ 28
13. Corporation Tax _________________________________________________________ 29
CORPORATION TAX COMPUTATION – QUICK REVIEW ____________________________________ 29
Enhanced capital allowances (for co. only) _____________________________________________ 30
LONG PERIOD OF ACCOUNT _________________________________________________________ 30
ASSOCIATED COMPANIES __________________________________________________________ 30
SELF ASSESSMENT ________________________________________________________________ 31
3 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
14. TRADING LOSS RELIEFS (Companies) _________________________________________ 32
Loss Relief –Planning ______________________________________________________________ 32
LOSS RELIEF –OTHER LOSSES ________________________________________________________ 32
15. GROUP RELIEF ___________________________________________________________ 33
•Definition ______________________________________________________________________ 33
•Relief __________________________________________________________________________ 33
16. CAPITAL GAINS GROUPS ___________________________________________________ 33
Definition _______________________________________________________________________ 33
Effects __________________________________________________________________________ 33
17. Inheritance Tax __________________________________________________________ 34
IHT Basics _______________________________________________________________________ 34
Lifetime Gifts ____________________________________________________________________ 34
Taper Relief ______________________________________________________________________ 35
Summary of Exemptions and Reliefs __________________________________________________ 35
VALUE OF GIFT ___________________________________________________________________ 35
Summary Computation at Death Time If Gift (CLT/PET) Become Taxable _____________________ 35
Residential Nil Rate Band ___________________________________________________________ 36
18. Value Added Tax _________________________________________________________ 37
VAT -TYPES OF SUPPLY _____________________________________________________________ 37
VAT –REGISTRATION ______________________________________________________________ 37
DEREGISTRATION _________________________________________________________________ 38
VAT INCLUSIVE RATES/AMOUNTS ____________________________________________________ 38
TAX POINT_______________________________________________________________________ 38
OUTPUT VAT AND INPUT VAT _______________________________________________________ 39
Goods Supplied Free Of Charge ______________________________________________________ 39
Motor Expenses __________________________________________________________________ 39
PRE REGISTRATION INPUT VAT ______________________________________________________ 40
SCHEMES FOR SMALL BUSINESSES ___________________________________________________ 40
VAT GROUPS _____________________________________________________________________ 40
Sale of business as a going concern ___________________________________________________ 40
VAT INVOICE _____________________________________________________________________ 41
ADMINISTRATION OF VAT __________________________________________________________ 41
ERRORS _________________________________________________________________________ 41
Default Surcharge for Late Payment __________________________________________________ 42
Overseas VAT ____________________________________________________________________ 42
19. Tax Planning Aspects _____________________________________________________ 43
Salary vs Dividend ________________________________________________________________ 43
Operating as an unincorporated business vs as a company ________________________________ 44
Consequences of employed vs self-employed __________________________________________ 46
Scope of capital gains tax ___________________________________________________________ 46
20. Time Limit and Election Dates ______________________________________________ 47
4 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
1. Property Income
IMPORTANT POINTS
Property income is taxed on Receipt basis - can use the accruals basis, if property income
receipts exceed £150,000 (only use when mention in question)
ALLOWABLE EXPENSES
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Repairs
Decorating
Council and water rates
Insurance premiums payable for the tax year
Irrecoverable debts (only when using accrual basis)
Advertising costs
Estate agent’s fee (for letting out of property)
Legal/professional charges
Interest payable on loan to buy or improve investment property
 If Residential property is let out by individual, no deduction from property income and
100% would give relief at basic rate (deducted from income tax liability)
 If non-residential or furnished holiday letting or let out by company, all finance cost
would be deducted from property income
 Replacement furniture relief if landlord has furnished the investment property
 No relief is given for the initial cost of providing domestic items. Relief is given if a
domestic item is replaced.
 Domestic items are defined as furniture, furnishings, household appliances and
kitchenware.
 The amount of the relief is the expenditure on the new replacement asset less any
proceeds
 If the new asset is not the same, or substantially thesame, as the old asset, only the cost
of an equivalent asset is given relief.
DISALLOWED EXPENSES
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Purchasing of property
Improvement of property (i.e. increases life/efficiency/capacity)
Provision for bad debts
Estate agent’s fee (for purchasing and selling the property)
GOLDEN RULE
Only revenue expenditures are allowed, capital expenditures are not allowed
LEASE PREMIUM
Part of the premium received is taxed as property income on the landlord in the year the lease is
granted.
Premium received
X
Less: Premium × 2% × (n – 1)
(X)
n = duration of lease
Property income
X
5 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
RENT A ROOM
This applies if an individual lets a furnished room in their main residence
The individual can receive up to £7,500 of gross rent each tax year exempt from income tax.
If the gross rent received is > £7,500, the individual can choose to be taxed on the lower of:
Method 1 – Special Method
Rent Received
Less: Rent a room relief
Rental Profit
Method 2 – Normal Method
X
(£7,500)
X/NIL
Rent Received
Less: Allowable Expenses
Rental Profit/(Loss)
X
(X)
X/(X)
FURNISHED HOLIDAY LETTING
Conditions to qualify for special treatment
F
H
L
A
A
urnished in the UK
oliday lets- this means that the property is normally let for short periods which are period
of < 31 consecutive days
et on a commercial basis
vailable for letting _> 30 weeks (210 days) in the tax year
ctually let for _> 15 (105 days) weeks on the tax year
Advantages
–
–
–
Net relevant earnings for pension contributions
Capital allowances on furniture
CGT reliefs available (Rollover & Entrepreneurs’)
Disadvantage
–
Losses can only be offset against FHL income
PROPERTY LOSS
6 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
2. Employment Income
CASH EARNINGS
Deemed to be received on the earlier of:
 the actual payment date
 the date on which the individual became entitled to the payment
TAXABLE BENEFITS
Car Benefit
Benefit = (list price of car × CO2 emissions %)
Cost of extras – should be till before start of fiscal year
The percentage rates applying to petrol-powered motor cars (and diesel-powered motor cars
meeting the RDE2 standard) with CO2 emissions up to this level are:
51 grams to 54 grams per kilometer 15%
55 grams per kilometer
16% (base level)
CO2 emission
0 g/km
1 – 50 g/km
1 – 50 g/km
1 – 50 g/km
1 – 50 g/km
1 – 50 g/km
Electric Range
N/A
130 miles or more
70 to 129 miles
40 to 69 miles
30 to 39 miles
Less than 30 miles
CO2 emission %
2%
2%
5%
8%
12%
14%
* Diesel cars meeting the RDE2 standard is considered/treated as same as petrol cars
** For diesel cars = Petrol % + 4%
*** max CO2 emission % is 37% (for both petrol and diesel vehicles)
Benefit is time apportioned
Reduced by part reimbursement or full reimbursement
Fuel benefit
£25,300 x relevant percentage
Relevant % age is the same as for cars
Benefit is time apportioned
Reduced by only full reimbursement
Partial Reimbursement not allowed
Van Benefit
Van benefit = £3,600 * x/12
Van fuel benefit = £688 * x/12
7 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
Accommodation Benefit
(if rented)
Benefit is time apportioned
Reduced by reimbursement
Expensive Accommodation
Benefit = (Cost – £75,000) × official rate of interest %× x/12
Only applies if the company owns the property.
The ‘cost’ is generally:
 the original value when the property was purchased, plus
 any subsequent capital improvements up to the start of the tax year.
 If the employer owned the property for more than six years before the employee moved in:
 use the market value at the date the employee moved in instead of cost, plus
 any subsequent capital improvements up to the start of the tax year.
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Asset Usage Benefit
Benefit is time apportioned
Reduced by reimbursement
Asset Purchase/Gift Benefit
Market value when
purchased
Less:
Amount paid by
employee
Market value when first
provided
Less:
Amount taxed to date
Less:
Amount paid by employee
Loan Benefit

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If the rate of interest charged is < official rate of interest (ORI) of 2.00%.
Benefit:
Loan amount (under average or precise method) × ORI
X
Less: Interest actually paid in the tax year
(X)
Assessable benefit
X
8 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes

FA 2022
There are two methods of calculating the loan amount:
 Average method:
 uses the average of the loan outstanding at the beginning and end of the tax year
 if the loan starts or ends during the tax year that date is used instead of the beginning
or end of the tax year, and the benefit is time apportioned.
 Accurate (or strict) method
 calculates the benefit based on the monthly balance actually outstanding.
DEDUCTIONS FROM EMPLOYMENT
EXEMPT BENEFITS
a) Small loans totaling not more than £10,000 throughout the year
b) Subscription of professional association by employer
c) Employers contribution to a registered Pension Scheme
d) Use of Free or Subsidized canteen, if available to all employees
e) Gifts from third parties, costing not more than £250 in a year from one source. If exceed,
whole amount is taxable.
f) Entertainment (seats to sporting/cultural) events provided by third parties.
g) Free car parking space near office (including reimbursements)
h) One mobile phone
i) Work buses, subsidies to public transport, bicycle and its safety equipment (aimed to
encourage employees not to use cars)
j) Employer funded training – both full time and part time, to increase employees skills. For
full time £15,000 limit. If exceeds whole is taxable
k) Festival parties, annual dinners for staff up to £150 per person. If exceed whole is
taxable.
l) First £8,000 of removal / relocation expenses.
m) Medical insurance when employee is working abroad
n) Expenses on overnight stay on company business exempt up to £5 per night in UK, and
£10 on international travel. If exceed, whole is taxable.
o) Employee liability insurance
p) Work place nurseries for children (without any limit)
q) Upto £55 per week for BRTP, upto £28 per week for HRTP and upto £25 per week of
childcare is exempt
r) Long service awards in kind (e.g. gold watches) to mark employment of 20 years or
more are exempt up to a cost of £50 for each year of service.
s) An annual £500 exemption per employee where an employer pays for medical treatment
t) Trivial benefits (cost less than £50/employee, not cash nor cash voucher)
u) Home worker‟s additional household expense - Payments towards costs of working from
home (no need of supporting documents if upto £6 per week or £26 per month)
9 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
NATIONAL INSURANCE CONTRIBUTION (NIC)
Class 1 Employee
£1 – £12,570 per year
£12,571 – £50,270 per year
£50,271 and above per year
%
Nil
13.25 %
3.25 %
Class 1 Employer
£1 – £9,100 per year
£9,100 and above per year
Employment allowance
Nil
15.05 %
£5,000
Class 1A
15.05%
Class 2
Small profit threshold
Class 4
£3.15 per week
£12,570
£1 – £12,570 per year
£12,571 – £50,270 per year
£50,271 and above per year
Nil
10.25%
3.25%
IMPORTANT DATES FOR PAYE SYSTEM FOR 2022/23
10 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
3. Trading Income
BADGES OF TRADE
DISALLOWED EXPENDITURE
1.
Expenditure not incurred wholly and exclusively for business
a. because it is too remote from purposes of business
b. It has more than one purpose, and one of it is not trading
2. Capital expenses are not allowed to be deducted
3. Subscriptions to political parties are not allowed to be deducted
4. Trade of professional association subscriptions are allowed
5. Provisions / estimates are not allowed, including depreciation
6. Write off of trade debts is allowed expense.
7. Recovery of previously written off debt is taxable
8. Small gifts up to £50 to customers are allowed, provided that they carry
conspicuous advertisement. Food hampers and cash vouchers not allowed
9. Benefits/ gifts to employees are allowed, but taxable as employment income for
them
10. Cost of entertaining customers is not allowed. Cost relating to staff is allowed if for
meals, food etc.
11. Legal and professional charges for acquiring capital assets not allowed.
12. Legal charges relating to business are allowed (to collect bad debts,
defending title to fixed assets, renewal of short lease)
13. Cost relating to issue of shares is not allowed
14. Appropriations are not allowed (salary, other allowances).
15. Owner's personal expenses are not allowed
16. Qualifying interest is deducted from total income, so added back in the accounting
profit.
17. Interest on borrowings and loans is allowed on accrual basis, if relating to business
18. Pre-trading expenditure is allowed as deduction on first day of business.
19. Leasing charge for car (rentals) is allowed as deduction
20. For lease of cars no adjustments where the CO2 emissions of a leased motor car
do not exceed 50g per kilometer, regardless of the retail price. If CO2 emissions are
more than 50g/km, then 15% of the leasing costs are disallowed
21. Cost of registering patents, trademarks, and fee to arrange bank loan is allowed
22. Educational courses (only for business) allowed as expense
23. In fines/penalties, only Parking fines of employees are allowed
11 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
24. Expansionary move, or expense relating to personal relocation of proprietor is
not allowed
25. Donation to Local charity is allowed. Donation to National Charity is not allowed.
Donation to charity under gift aid scheme is not allowed (whether local or national)
26. Lease premium paid and amortization calculated under accounting rules
TAXABLE TRADING INCOME NOT INCLUDED IN THE
ACCOUNTS
–Goods for own use
•If no adjustment made in the accounts –add back selling price
•If correct entries made in the accounts –only add back profit element
EXPENDITURE NOT CHARGED IN THE ACCOUNTS BUT
ALLOWABLE
–Capital allowances
–Structured building allowance (SBA)
–Portion of lease premium paid
=Premium Taxable on landlord
Period of lease
NON TRADING INCOME SO SHOULD BE DEDUCTED WHEN
CALCULATING BUSINESS INCOME
12 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
Capital Allowances
What includes Plant and Machinery?
Quick Recap…….!
•General pool
–Everything not in other columns
•Special rate pool
–Long life assets
–Integral features in buildings
–Thermal insulation of buildings
–High emission cars (emissions above 50 g/km)
•Single asset (not pools)
–Short life assets
–Private use assets (i.e. Used by business owner)
Annual Investment Allowance (AIA)
•First £1000,000 expenditure (12 months)
•Pro-rate if period < 12 months
•All assets except cars
•Not available in final accounting period
Advisable to allocate
–Special rate pool
–General pool
–Short life assets
–Private use assets
Writing Down Allowance (WDV)
•18% on reducing balance basis
•06% for special rate pool
13 By Sir Qunber Raza & Sir Zya Rana
FA 2022
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
•Pro-rate if period not 12 months
•Small pool WDA –can write off balance of £1,000 or less (for 12 month period)
•Restrict for private use by proprietor
First Year Allowances (FYA)
•New Motor cars with zero CO2 emission
–100% FYA available in the period of acquisition
•Never time apportion FYA
CARS
– new motor car (0% CO2 emission)
100% FYA
– 1 - 50 g/km (general pool)
18% WDA p.a.
– > 50 g/km (special rate pool)
06% WDA p.a.
•Private use
–only business proportion of allowances allowed
Short Life Asset
•Each asset has its own column
•Useful life < 8 years
•AIA available
•WDA up to disposal as normal
•Balancing adjustment on sale
•Not available on cars
•Asset not sold within 8 years from end of accounting period in which acquired:
–transferred to general pool
Private Use Assets
•Each asset has its own column
•Asset written down by full AIA, FYA, WDA (as applicable) but allowance claimed = restricted
to business use only
•Not relevant for companies
Balancing Adjustment
Exception: A balancing allowance is never given on the general pool or the special rate pool until
business ceases to trade
•Additions and disposals allocated to relevant pools
•No AIA / FYA / WDA
•Balancing adjustments given on all pools
14 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
STRUCTURED BUILDING ALLOWANCE (SBA)
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Relief is, annual straight-line allowance of 3% over a 33⅓ year period (33 years and
four months)
The SBA is only available where a building (or structure) has been constructed on or
after 29 October 2018 (the date of the 2018 (on or after 6 April 2020 for exams and 1
April 2020 for limited companies)
Offices, retail and wholesale premises, factories and warehouses can all qualify for
the SBA (as can walls, bridges and tunnels)
The value of land is excluded, as is any part of a building used as a dwelling house
Qualifying costs do not include land, legal fees or repairs and maintenance.
Expenditure which qualifies as plant and machinery cannot also qualify for the SBA.
Similarly, expenditure which qualifies for the SBA cannot also qualify for the plant
and machinery annual investment allowance
Where an unused building is purchased from a builder or developer, then the
qualifying expenditure will be the price paid less the value of the land.
The building (or structure) must be used for a qualifying activity such as a trade or
property letting.
The SBA can only be claimed from when the building (or structure) is brought into
qualifying use. (This means that the SBA will be time apportioned for the period
when first brought into use, unlike plant and machinery allowances which are always
given in full for the period of purchase)
A separate SBA is given for each building (or structure) qualifying for relief
Relief is also given for the cost of subsequent improvements, or where a building is
renovated or converted (the SBA for the renovation expenditure would have been
kept entirely separate from the SBA on the original cost)
Disposal Implications:
 Unlike plant and machinery, there is no balancing charge or balancing allowance
when a building (or structure) that has qualified for the SBA is sold
 Instead, the purchaser simply continues to claim the 3% allowance for the remainder
of the 33⅓ year period based on original cost.
 On a disposal, the allowances that have been claimed are effectively clawed back by
adding them to the sales proceeds in order to determine the chargeable gain or
allowable loss arising.
15 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
BASIS PERIOD
Opening years rules
Overlap Profits
•May be taxed on same profits twice, these are known as „overlap profits‟
•Get relief for overlap profits on cessation
Closing years rules
•Final tax year
= year in which actually cease to trade
–Assessed on any profits not previously assessed less any overlap profits from
commencement
16 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
SELF ASSESSMENT
Tax return for 2022/23
–
Due dates
– 31 October 2023 (paper)
– 31 January 2024 (electronic)
Amendments to returns
– Taxpayer within 12 months of 31 January filing date
– HMRC within 9 month of actual filing date
Penalties for late filing (cumulative)
≤ 3 months = £100
3 – 6 months = penalty £10 per day (max 90 days)
6 – 12 months = 5% of tax due (min £300)
> 12 months = 5% of tax due (min £300)
Records Keeping
–Business: retain 5 yrs from 31 January filing date
–Non-Business: retain 12 months from 31 January filing date
–Penalty ≥ £3,000 if fail to keep adequate records
Payment of tax –2022/23
Payments on account (‘POA’)
(2020/21 income tax and Class 4 NICs less tax paid at source) × 50%
– 31 January 2023
– 31 July 2023
• Balancing payment
– 31 January 2024
Capital gains tax
– 31 January 2024
– If gains pertain to disposal of residential property, have to pay POA within 30days of
disposal of property (see in CGT for more details)
Reduction of POA
If expected actual tax payable is expected to be lower than of previous year, it is possible
to reduce the payment on account and pay half of the Income Tax Liability and Class 4 NIC
PAYE
•Due date = 19thof month
–Electronic payments = 22nd of month
Late payment of tax
17 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
Standard Penalties
•Apply in two circumstances
–Inaccuracy in returns (all taxes)
–Failure to notify liability to tax (IT, CGT, CT, VAT, PAYE/NIC)
•Depends on behaviour of taxpayer
4. PARTNERSHIP
Tax each partner as if individual sole trader
Note: PSA may allocate salaries and/or interest on capital. These are taxed as trading profit and
not salary or interest income
CAPITAL ALLOWANCES BY PARTNERSHIP
–Including those on partners‟ own assets
PARTNERSHIP CHANGES
–Only partner joining/leaving is assessed on special opening/ closing year rules
CHANGES IN PSA –SPLIT PERIOD
–Allocate profits according to PSA in force
PARTNERSHIP LOSSES
–Calculated and allocated in same way as profits
–Each partner may choose loss relief claims
18 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
5. TRADING LOSS
OPENING YEAR’S RELIEF
–loss in first four tax years of business
–against total income of previous 3 yrs (FIFO)
TERMINAL LOSS RELIEF
–loss arising in final 12m of trade (+ overlap profits)
–carried back 3 yrs against trading profits
CAP ON INCOME TAX RELIEFS
The person can set off the maximum loss from Total Income is Cap on losses + Trading Income
(if any).
The cap on losses is the higher of:
 £50,000, or
 25% of a person’s total income.
Here Total Income is, total income (except trading income, if any) after deducting the gross
amount of personal pension contributions.
CHOICE OF LOSS RELIEF
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
Relief as early as possible
As much tax saving as possible
Avoid wasting personal allowance / annual exemption, if possible
19 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
CASH BASIS FOR SMALL BUSINESSES
A voluntary simplified cash basis of calculating trading profit has been introduced for sole
traders and partnerships (limited companies are excluded). This is as an alternative to the normal
accruals basis, and can be used where revenue is initially below £150,000. A business may then
continue to use the cash basis until its revenue is twice the registration threshold – that is
£300,000.
With the cash basis, receivables, payables and inventory are ignored, and tax deductible capital
and revenue expenditure will be treated the same – purchases of equipment are simply deducted
as an expense, whilst the proceeds from any disposals are included with receipts.
A business using the cash basis can use the approved mileage allowances to calculate the
deduction for business mileage. The rate is 45p per mile for the first 10,000 miles, with a rate of
25p per mile thereafter. The actual running and capital costs of owning a motor car are ignored.
Where the use of the cash basis results in a trading loss, the only relief available is to carry the
loss forward against future trading profits. There is no relief against total income.
6. Interest income
Taxed on receipt Basis
EXEMPT INCOME
 Premium Bond prizes
 Betting/gambling winnings
 Returns on NSC and NS&I Certificates
 Income from ISAs
ACCRUED INTEREST SCHEME
In certain situations, interest is taxed on accrual basis. It applies, when:
 It appliesif the total nominal value of securities (gilts) held by an individual exceeds £5,000
 The purchase price (or disposal price) of the security is apportioned between the income
element and the capital element. The income element is assessed as interest income.
 The scheme does not apply if the securities are transferred on death.
7. Dividend Income
Taxed on receipt Basis
8. Income Tax Calculation
QUALIFYING INTEREST
Interest paid on certain loans is deducted from a taxpayer’s total income. This interest is
generally paid gross. The main types of eligible loans are:
 Loan to buy plant or machinery for partnership use.
 Loan to buy plant or machinery for employment use
 Loan to invest in a partnership
 Loan taken out to pay inheritance tax
PERSONAL ALLOWANCE
Personal allowance
Income limit for standard personal allowance
20 By Sir Qunber Raza & Sir Zya Rana
£12,570
£100,000
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FA 2022
CHILD BENEFIT INCOME TAX CHARGE
Where income is between £50,000 and £60,000, the charge is 1% of the amount of child benefit
received for every £100 of income over £50,000.
RATES OFTAX
Basic rate
Higher rate
Additional rate
£1 – £37,700
£37,701 to £150,000
£150,001 and over
Savings income Nil Rate Band
– BRTP
– HRTP
Normal
Rates
%
20
40
45
Dividend
Rates
%
8.75
33.75
39.35
£1,000
£500
Dividend Income Nil Rate Band
£2,000
A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable
income.
TRANSFERABLE AMOUNT OF PERSONAL ALLOWANCE
• If both spouses are basic rate tax payer then they can transfer personal allowance 1,250 to each
other called marriage allowance.
• The spouse/civil partner receiving the transfer do not have an increased personal allowance.
Instead, they are entitled to a tax reducer of £1,260 × 20% = £252. If income tax liability is less
than £252 than it cannot create repayment.
9. Gift Aid Donation/Private Pension contribution
PENSION MAXIMUM CONTRIBUTION
Relevant Earnings is the SUM of:
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ANNUAL ALLOWANCE
The annual allowance for each tax year:
Minimum allowance
Income limit


£ 40,000
£4,000
£240,000
AA can be c/forward and added to the current year AA to calculate the ‘available AA’ for a
tax year (provided the individual is a member of a registered pension scheme in those years)
AA b/fwds is used on a FIFO basis , after the current year AA has been used
ANNUAL ALLOWANCE CHARGE



If total gross pension contributions from all sources > the available AA:
 an AA charge arises = an income tax charge on the individual
 effectively removes the relief given on excess contributions
Excess contributions are
 taxed as if extra income was received
 taxed after dividends at the non-savings rates, and
 this AA charge is added to the individual’s income tax liability.
Note that the AA charge is:
 not added into the taxable income computation, and
 does not affect the calculation of ANI (e.g. for the purposes of restricting PA).
10. Determining Residency
AUTOMATIC NON RESIDENT TEST (1ST STEP TO CHECK)
•
•
•
Spends less than 16 days in UK
Spends less than 46 days and who was not resident for the past 3 tax years
Works full time Overseas in that tax year and spend no more than 90 days in UK in tax year
AUTOMATIC TEST OF RESIDENCE (2NDSTEP TO CHECK)
•
•
•
Spend more than 183 days in a fiscal year
Has only home in UK no home overseas
Works full time in UK
SUFFICIENT TIES TEST (IF 1ST AND 2ND STEPS NOT MET)
If neither automatic resident nor not resident test met, than RESIDENCY is determined via the
TIES TEST.
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FA 2022
11. Capital Gains (Individuals)
CHARGEABLE ASSET
CHARGEABLE DISPOSALS
All assets are Chargeable Except,
•Rate of CGT depends on amount of tax payer’s total taxable income
–If total taxable income and gains are less than upper limit of BRB = CGT at 10% (18% if
residential property)
–To extent any gains (or any part of gains) exceed BRB = taxed at 20% (28% if residential
property)
•BRB extended for gross Gift Aid and Personal pension contributions
PART DISPOSAL
CHATTELS
–WASTING (EXPECTED LIFE ≤ 50 YRS) = EXEMPT
–NON-WASTING (> 50 YRS)
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TX –F6(UK) – Practice to Pass – Revision Notes
WASTING ASSETS – NON CHATTELS
ASSET DAMAGED
SHARES AND SECURITIES
•Value of quoted shares = Average of ask and bid price
•Matching rules
–Same day
–Next 30 days
–Share pool (amalgamated cost of shares)
•Bonus and rights issues
–Bonus –increase number of shares at nil cost
–Rights –increase number and cost in pool
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FA 2022
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FA 2022
REORGANISATIONS AND TAKEOVERS
PRINCIPAL PRIVATE RESIDENCE (PPR)
Deemed occupation
(a)
(b)
(c)
(d)
Up to 3 years -any reason
Any period working abroad
Up to 4 years working in the UK
Last 9 months of ownership (always)
Conditional for (a) to (c)
•Must be actual occupation before and after
•Condition relaxed if reoccupation prevented by terms of employment
Letting relief (only available where a property is let out and the property owner is in shared
occupancy with the tenant)
•Available for periods of letting
•Calculate PPR first
•Letting exemption is lowest of:
–£40,000
–PPR relief
–Gain (after PPR) that is due to letting
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FA 2022
BUSINESS ASSET DISPOSAL (ENTREPRENEURS’) RELIEF
•Qualifying business disposals
–Unincorporated business (complete if going concern, or when business cease
(within 3 yrs of cessation), or
–Personal trading company shares (≥5%) provided also an employee
•Qualifying ownership period
–24 months
•Relief is given on first £1 million
•Qualifying gains taxed at 10%
•Can use losses & AE against other gains first
•Qualifying gains treated as using BRB before other gains
•For 2022/23 disposals claim by 31 January 2025
INVESTORS’ RELIEF
Applies on the disposal of:
 unlisted ordinary shares in trading company
 subscribed for (i.e, newly issued shares) on or after 17 March 2016
 have been held for a minimum of period of three years
 by an individual, not an employee of the company
IR is subject to separate lifetime limit of £10 million – taxed at 10%, with same prerequisites as Entrepreneur Relief
ROLLOVER RELIEF

Claim within 4 years from the end of the tax year
•Partial reinvestment
–A gain arises on the disposal of the original asset, being the lower of:
•the proceeds not reinvested
•the chargeable gain
•Depreciating assets (life < 60yrs)
–Gain held over until earliest of:
•replacement asset sold
•cease to use replacement asset in the trade
•10 years from date replacement asset acquired
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FA 2022
GIFT RELIEF
•Individuals only
•Qualifying business assets
•Assets used in trade of unincorporated business or individual‟s personal trading
company (≥ 5% shares)
•Unquoted trading company shares
•Quoted trading company shares if own ≥ 5% interest
•Donee‟s base cost reduced by gain deferred
•Joint election = by 4 years from end of tax year of gift
Sale at undervaluation:
If actual consideration > donor‟s cost:
Excess = immediately chargeable
Balance = deferred
Non business use:
Gain deferred = restricted to business use proportion only
Shares (≥ 5% interest)
PAYMENTS ON ACCOUNT FOR DISPOSALS OF
RESIDENTIAL PROPERTY:
A payment on account must now be made within 30 days where capital gains tax is
payable in respect of a disposal of residential property. A return must be submitted to
HMRC at the same time.
The calculation of the payment on account takes into account the annual exempt
amount, any capital losses incurred in the same tax year prior to the disposal of the
residential property, plus any brought forward capital losses. Any other chargeable
gains and capital losses incurred subsequent to the disposal of the residential property
are ignored.
It is necessary to make an estimate as to how much of the taxpayer‟s basic rate tax
band will be available for the tax year.
The residential property gain is still included in the taxpayer‟s self-assessment capital
gains tax computation following the end of the tax year, with the payment on account
being deducted from the total capital gains tax liability. Any additional tax is payable on
31January following the tax year. If a repayment is due, then this will be claimed when
the self-assessment tax return for the tax year is submitted.
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FA 2022
12. COMPANY CHARGEABLE GAINS
SUMMARY OF KEY DIFFERENCES:
Company
Individual
Tax paid
Corporation tax
Capital gains tax
Annual exemption
Indexation allowance
N/A
Available for full period of
ownership
Offset in full
2022/23 = £12,300
Not available
Capital losses b/f
Shares and
securities
Reliefs
Indexed cost column needed
Different matching rules
Rollover relief only
Goodwill is not a QBA
Restrict so net gains
= annual exemption
No indexation allowance
Many reliefs available
RULES FOR INDEXATION ALLOWANCE
•Allowance based on increase in RPI over period of ownership
•Indexation factor applied to cost / enhancement costs
•Calculation rounded to 3 decimal places (except shares):
RPI (m/o Earlier of Disposal / 31 December 2017) - RPI (m/o Expenditure)
RPI (m/o Expenditure)
•If there is a fall in value in the RPI, the indexation allowance is £Nil
SHARES AND SECURITIES
•Matching rules
–Same day
–Previous 9 days
–Share pool
•Bonus issue
–Not an operative event
–Just increase number of shares
•Rights issue
–Operative event
–Increase number of shares & cost
•Reorganizations and takeovers
–As for individuals
ROLLOVER RELIEF
•Same as individuals except:
–Goodwill is not a qualifying asset
–Claim within 4 years from the end of the AP in which asset is sold
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13. Corporation Tax
CORPORATION TAX COMPUTATION – QUICK REVIEW
•Trading income
–No private use adjustments / assets
–Include trading interest payable
•Property business profit
–Calculated on accrual basis
–Losses set against total income
•Loan relationship rules
–Non-trading interest receivable less non-trading interest payable
Non trade loans
•Deducted from interest income
•E.g. Loan to purchase investment property or shares in another company
Trade loans
•Deducted from trading profits
•E.g. Bank overdraft interest, loan to acquire plant, machinery or factory
–All interest is received gross
•Dividends (UK / overseas)
–Exempt
„Augmented Profits‟
•FII = Grossed up UK and overseas dividends received (non-associated)
•“Augmented profits” determines whether company has to pay tax in installments or
not….!!!
Corporation Tax @ 19%
Profit threshold £1,500,000
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FA 2022
ENHANCED CAPITAL ALLOWANCES (FOR CO. ONLY)
Only Companies can benefit from enhanced capital allowances when they
purchase new plant and machinery:
• For expenditure which would fall into the main pool, there is a 130% super
deduction. This means, for every £100 of expenditure, a first year allowance of
£130 is available
• For expenditure which would fall into the special rate pool, there is 50% first year
allowance
For expenditure falling into the main pool, the 130% super deduction should be claimed
rather than the 100% annual investment allowance. However, for expenditure falling into
the special rate pool, the 100% annual investment allowance should be claimed in
preference to the 50% first year allowance
Enhanced capital allowances are not available to sole traders or partnerships. Only
expenditure on new plant and machinery qualifies, not expenditure on second-hand
assets. Motor cars do not qualify.
LONG PERIOD OF ACCOUNT
Where a company‟s period of account exceeds12 months:
•Split into 2 CAPs (first 12 months, then balance period)
•Perform 2 separate CT computations and 2 CT liability computations
•Pay on 2 different pay days Profits are allocated to the 2 CAPs as follows:
ASSOCIATED COMPANIES
•Definition
–One company controls (> 50%) the other, or
–Both companies are under control of the same person or persons
–Include overseas companies
–Companies left the group during the period would be counted as an associate during
the period and Companies joined the Group during the period would be counted as an
associate in next period. i.e, associated status would be determined by number of
associates exist in previous CAP
–Exclude dormant companies
•Effect
–profit threshold prorated
–Dividends not FII
–Share Annual Investment Allowance if in a group or is a related business
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FA 2022
SELF ASSESSMENT
Due dates
•Filing of returns
–12 months after end of period of account, or
–3 months after date notice to file is issued
•Payment dates
–Small/marginal companies
•9 months and one day after end of CAP
–Large companies (companies having augmented profit > profit threshold)
•Installments on 14thof months 7, 10, 13 and 16 following start of
accounting period
•Based on estimate of corporation tax liability
Late filing penalties
Corporation tax returns
•Penalties for incorrect returns and late notification of new taxable activity
–Subject to standard penalty regime as for IT
•Amendments, errors and mistakes
–Taxpayer can amend within 12 months of filing date
–HMRC correct by 9 months from date return filed
–Company can make error or mistake claim within 4 years of end of AP
HMRC powers
•Enquiries
–HMRC issue written notice within 12 months of filing
–Company can appeal within 30 days
•Discovery assessments
–HMRC can raise if discover inaccuracy in return
•Information and inspection powers
–HMRC has the same powers in respect of companies as for individuals
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FA 2022
14. TRADING LOSS RELIEFS (Companies)
LOSS RELIEF –PLANNING
•try to keep augmented profits below profit threshold to avoid installments.
•Cash flow advantage of earlier relief
•Gift Aid may be wasted
LOSS RELIEF –OTHER LOSSES
•Property business losses
–Against total income before Gift Aid of current period
–Excess losses carried forward against total income before Gift Aid – upto any amount
•Capital losses
–Automatically set against current year gains
–Excess losses carried forward against first available future gains
–Can only be relieved against gains
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TX –F6(UK) – Practice to Pass – Revision Notes
•DEFINITION
FA 2022
15. GROUP RELIEF
–75% direct or indirect
–Overseas companies –included in definition of group, but can‟t claim losses
•RELIEF
–Surrender current year trading losses, excess gift aid and excess property losses and
excess brought forward trading losses, with UK Cos only, against total income, up to an
amount
– Claimant company only claim for corresponding accounting periods
– Losses can only be adjusted for the period for which company is part of Group
–Tax planning − try to avoid the status of large co, so that installments can be avoided
− Timing
16. CAPITAL GAINS GROUPS
DEFINITION
–75% direct and > 50% indirect
–Overseas companies –included in definition of group, but can't take advantage of
reliefs
EFFECTS
–NGNL transfers (automatic) –transferee takes over asset at cost plus indexation
–Can elect that gains and losses be transferred from one group company to another
–Group rollover relief
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TX –F6(UK) – Practice to Pass – Revision Notes
17. Inheritance Tax
IHT BASICS
LIFETIME GIFTS
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FA 2022
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FA 2022
TAPER RELIEF
Gifts in 3 –7 years pre death get taper relief on death tax:
Any lifetime tax paid on CLTs falling in 7 years pre death can be credited against death tax but
cannot lead to repayment.
SUMMARY OF EXEMPTIONS AND RELIEFS
VALUE OF GIFT
SUMMARY COMPUTATION AT
(CLT/PET) BECOME TAXABLE
DEATH
35 By Sir Qunber Raza & Sir Zya Rana
TIME
IF
GIFT
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FA 2022
RESIDENTIAL NIL RATE BAND
 Where Main Residence is inherited on death to direct descendants (children)
 The Residential Nil Rate Band is not applicable on CLTs/PETs becoming taxable
due to death within 7 years.
 Any property which is let out or used for investment purpose, does not qualify for
Residential Nil Rate Band
 The value of property is after deducting any mortgage payable, secured on this
property
 If value of property (after deducting mortgage payable), is less than 175,000, then
value of Residential Nil Rate Band also reduces to the value of RNRB
 Like Transfer of NRB between spouses, the same way of RNRB will also transfers
between spouses
PAYMENT OF IHT
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FA 2022
18. Value Added Tax
•Output tax –charged on sales
•Input tax –incurred on purchases and expenses
VAT -TYPES OF SUPPLY
VAT –REGISTRATION
Compulsory
•Required when value of taxable supplies exceeds the registration threshold (i.e.
£85,000)
•Taxable supplies includes zero rated and standard rated but not exempt supplies
Voluntary
•Traders making taxable supplies (standard rated or zero-rated) can register at any time
•Allows recovery of input tax
Advantages
Disadvantages
•Input tax recoverable
•If making zero-rated supplies VAT returns
will show VAT repayable –can register for
monthly returns to aid cash flow
•Avoids penalties for late registration
•May give the impression of a more
substantial business
•Output VAT charged on sales
–if make standard rated supplies to
customers who are not VAT
registered will be an additional cost
to them
–may affect competitiveness
•VAT administration
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TX –F6(UK) – Practice to Pass – Revision Notes
DEREGISTRATION
Compulsory Deregistration
•When cease to make taxable supplies
•Inform HMRC within 30 days of ceasing to make taxable supplies
•Deregistered from:
–Date of cessation
–Agreed earlier date
Voluntary deregistration
•Expect value of taxable supplies in next 12 months to be ≤ £83,000
•Inform HMRC at any time
•Deregistered from:
–Date of request
–Agreed earlier date
VAT INCLUSIVE RATES/AMOUNTS
–VAT = gross amount ×20/120
TAX POINT
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FA 2022
OUTPUT VAT AND INPUT VAT
There are several important points regarding output VAT and input VAT that should be
remembered:
 For VAT purposes there is no distinction between revenue and capital items as there
is for income tax and corporation tax.
 Output VAT is charged on the actual amount received if a discount is offered for
prompt payment
 Relief for an impairment loss is only available if the claim is made more than six
months from the time that payment was due, and the debt has been written off in the
business‟s books.
 Input VAT cannot be recovered in respect of business entertainment (except of non
UK customers) or the purchase of a motor car (unless the car is used 100% for
business purposes).
 Input VAT cannot be claimed in respect of goods or services that are not used for
business purposes.
 An apportionment is made where goods or services are used partly for business
purposes and partly for private purposes.
 Supply of samples to customer was not treated as supply of goods.
GOODS SUPPLIED FREE OF CHARGE
When goods are supplied free of charge then output VAT must normally be accounted
for. However, there is generally no output VAT on services supplied free of charge,
regardless of whether they are supplied to an employee or a customer.
There is now no limit to the number of business samples that can be given to the same
customer. Previously, only the first sample to each customer was not treated as a
supply of goods subject to output VAT.
MOTOR EXPENSES
Input VAT can be recovered where fuel is used for private mileage (either by a sole
trader or an employee), but output VAT must then be accounted for. Output VAT is
normally calculated according to a scale charge (normally inclusive of VAT) based on a
car‟s engine size. The scale charge will be provided in the exam.
A business has the following options when providing fuel for private mileage:
 Claim all of the input VAT with output VAT calculated according to a scale charge.
 Charging the employee for the full cost of the fuel provided. All of the input VAT can
then be claimed, with output VAT calculated on the charge to the employee.
Provided there is some business use, input VAT can be fully recovered in respect of
repairs to a motor car. No apportionment is necessary.
Where a leased motor car is only available for business use (no private use), complete
lease rental is allowed expense. If leased motor car is available for private use, then
50% of input VAT on leasing costs is non-deductible
39 By Sir Qunber Raza & Sir Zya Rana
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
PRE REGISTRATION INPUT VAT
Conditions to reclaim input VAT:
SCHEMES FOR SMALL BUSINESSES
•Cash Accounting
–Account for VAT on cash receipts/payments
–Automatic relief for impaired debts
–Join if turnover ≤ £1,350,000 and VAT up to date
–Must leave if taxable turnover exceeds £1,600,000 (excluding VAT)
•Annual Accounting
–One VAT return p.a. –submit 2 months after y/e
–POA in Months 4 to12, balance with return
–Join if turnover ≤ £1,350,000 and VAT up to date
–Must leave if taxable turnover exceeds £1,600,000 (excluding VAT)
•Flat Rate Scheme
–Join if taxable turnover for next 12 months ≤ £150,000 (excluding VAT)
–Must leave if taxable turnover exceeds £230,000 (including VAT)
–Pay VAT as % of VAT inclusive turnover (% based on industry)
VAT GROUPS
•Common control
•Effects
–One VAT return
–Representative member responsible
–All members liable
–No VAT on supplies between group members
SALE OF BUSINESS AS A GOING CONCERN
 If the purchaser is already registered for VAT then Business VAT registration will
be cancelled.
 If the purchaser is not registered for VAT then it can take over Business VAT
registration, though from a commercial point of view this may be inadvisable.
 A sale of a business as a going concern is outside the scope of VAT, and
therefore output VAT is not due.
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VAT INVOICE
ADMINISTRATION OF VAT
ERRORS
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FA 2022
TX –F6(UK) – Practice to Pass – Revision Notes
DEFAULT SURCHARGE FOR LATE PAYMENT
OVERSEAS VAT
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FA 2022
TX –F6(UK) – Practice to Pass – Revision Notes
19. Tax Planning Aspects
SALARY VS DIVIDEND
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FA 2022
TX –F6(UK) – Practice to Pass – Revision Notes
FA 2022
OPERATING AS AN UNINCORPORATED BUSINESS VS AS A
COMPANY
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TX –F6(UK) – Practice to Pass – Revision Notes
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FA 2022
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FA 2022
CONSEQUENCES OF EMPLOYED VS SELF-EMPLOYED
SCOPE OF CAPITAL GAINS TAX
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FA 2022
20. Time Limit and Election Dates
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FA 2022
TX –F6(UK) – Practice to Pass – Revision Notes
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FA 2022
TX –F6(UK) – Practice to Pass – Revision Notes
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FA 2022