AIMS
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.
OBJECTIVES
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.
POSITION
OF THE PAPER IN THE OVERALL SYLLABUS
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.
SYLLABUS
CONTENT
1
Adjusted profit / loss computations for trades
and professions
(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
2
National insurance contributions
(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
3
Income from employment
(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
4
Property and investment income
(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
5
Income tax computations
(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
6
Chargeable gain computations (individuals and
companies)
(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
7
Administration of income tax and capital gains
tax
(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
8
Corporation tax computations
(a)
Company profits chargeable to corporation tax
(b)
Accounting periods
(c)
Computing corporation tax
(d)
Relief for losses (trade and non-trade)
9
Administration of corporation tax
(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
10
Value added tax (VAT)
(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
EXCLUDED
TOPICS
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.
KEY
AREAS OF THE SYLLABUS
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.
APPROACH
TO EXAMINING THE SYLLABUS
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.
ADDITIONAL
INFORMATION
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.
RELEVANT
TEXTS
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.
STUDY
SESSIONS
1
Introduction to the UK tax system
(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)
2
Introduction to personal taxation
(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
3
Income from savings and investments
(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
4
Income tax – assessments
(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
5
Income tax – emoluments from employment I
(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
6
Income tax – emoluments from employment II
(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
7
Income tax – emoluments from employment III
(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)
8
Income tax – income from trade and professions
I
(a)
Explain the principles of deductible and non-deductible
expenditure
(b)
Prepare adjusted profit computations (pre capital
allowances)
9
Income tax – income from trade and professions
II
(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
10
Capital allowances I
(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
11
Capital allowances II
(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
12
Income from trade and professions III
(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
13
Income from trade and professions IV
(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
14
Partnerships
(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
15
Income from property – individuals
(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
16
Pension contributions
(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
17
Income tax administration
(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
18
Capital gains tax – basic principles
(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
19
Capital gains tax – basic computations
(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
20
Capital gains tax – shares and securities I
(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
21
Capital gains tax – shares and securities II
(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)
22
Capital gains tax – chattels, part disposals,
compensation and insurance
(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
23
Capital gains tax – further reliefs
(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
24
Corporation tax – compute the profits liable to
corporation tax
(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)
25
Corporation tax – computation of tax liability
(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
26
Corporation tax – other aspects
(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
27
Corporation tax – administration
(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
28
Value Added Tax (VAT)
(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
29
Revision of income tax
30
Revision of capital gains tax
31
Revision of corporation tax
32
Revision of VAT |
