The Institute of Chartered Accountants in England and Wales

TAXATION
Advanced Stage

For exams in 2012

Study Guide

www.icaew.com

Contents

Introduction

Aim of the papers and specification grid

Study guide

Skills assessment guide

23

Technical knowledge

25

Getting help

33

1 Introduction
1.1

What is the Advanced Stage?

Structure and progression
The Advanced Stage of the ACA qualification is designed to ensure that candidates are able to integrate
and apply their technical, professional and ethical skills in a variety of business environments.
The diagram below shows the five modules which form the basis of the Advanced Stage. The Advanced
Stage is comprised of two technical integration modules and the Case Study. The two technical
integration modules will be examined in a business scenario context which draws together a number of
different areas of technical knowledge.

The Professional Stage consists of knowledge modules and application modules. The knowledge
modules introduce the core technical knowledge and skills required by a chartered accountant. The
application modules further develop and assess practical application of technical knowledge and skills.
The technical knowledge acquired at the Professional Stage is developed to an advanced level and
integrated in a broader range of business scenarios in the Advanced Stage technical integration
modules. The application of technical knowledge in these modules requires an appreciation of the
typical issues and problems facing businesses and their relationship to corporate reporting, assurance
and taxation. A greater depth of business and financial analysis will be required to understand the
implications and risks arising from the business issues.
New technical topics are introduced in the technical integration modules, that are not dealt with
elsewhere in the syllabus. A deeper level of technical ability is expected of candidates across the entire
ACA syllabus to reflect the greater financial and business awareness needs of trainee chartered
accountants approaching qualification. This is reflected particularly in assessing candidates proficiency
and ability to integrate knowledge and skills both within and across technical subjects in a range of
complex business scenarios.
Candidates will also be required to apply professional knowledge using more advanced skills in the
technical integration modules. These professional skills are then examined to a greater extent in the final

Study guide

ACA module: the Case Study. This module requires higher level cognitive skills, analytical and evaluative
skills and emphasises the importance of communication and articulation skills.

Assessment
The two technical integration modules will be examined using traditional paper based assessments. Each
paper based exam will be 3.5 hours in length. These exams will contain questions requiring the
integration of knowledge both within technical disciplines and across technical disciplines. Questions
integrated across all subject streams are an essential step towards the Case Study but will generally have
more structure and guidance than those at the Case Study.
The Case Study will continue in its present format of a four hour written exam with advance
information provided to candidates ahead of the exam and impact information issued in the exam,
containing the Case Study requirements.

Flexibility
There are no regulations stipulating the order in which candidates must attempt the technical
integration modules. The Case Study must be the final module attempted and can only be attempted in
the final year of a training contract.
There is no restriction on the number of attempts permitted at each advanced stage module.

Open Book Policy

Candidates may take any written or printed material into the exam hall subject to practical space
restrictions.

Taxation

2 Aim of the papers and specification grid

2.1

Module aim
The aim of the Business Reporting paper is:
To ensure that candidates can apply analysis techniques, technical knowledge and professional
skills to resolve real-life compliance issues faced by businesses.
Candidates may be put, for example, in the role of a preparer of financial statements, or other corporate
reports such as on sustainability and corporate responsibility, an advisor or in an assurance role facing
business issues where there are reporting implications. Compliance issues relating to taxation will also
feature in this module.
Candidates will be required to use professional judgement to identify and evaluate alternatives and
determine the appropriate solution(s) to compliance issues, giving due consideration to the commercial
impact of their recommendations.
The aim of the Business Change paper is:
To ensure that candidates can provide technical advice in respect of issues arising in business
transformations, mergers, acquisitions, alliances and disposals.
Candidates will be required to analyse and interpret both external and internal financial and nonfinancial data in order to plan for change and provide advice. In undertaking this analysis candidates will
be expected to evaluate the impact of stakeholder influences on the data, including the impact of
choice of reporting policies.
Taxation and practical business techniques are particularly important in this module, where business
techniques include aspects of business strategy, business finance, performance management and
costing. There will also be financial reporting, assurance, ethical and legal implications to be considered
when developing and assessing strategic and business plans.

2.2

Specification grid
This grid is a general guide as to the subject matter within this module and assessment coverage over a
period of time.

Ethics and law

Taxation
Audit and assurance
Corporate reporting
Business analysis

BR
Weighting (%)
5 10
20 30
30 40
30 40
0

BC
Weighting (%)
5 10
25 35
10 20
15 25
30 35

Study guide

3 Study guide
3.1

Help yourself study for your ACA exams

The right approach
1

Develop the right attitude

Believe in yourself

Yes, there is a lot to learn. But thousands have succeeded

before and you can too.

Remember why you're doing it

You are studying for a good reason: to advance your

career.

Focus on the exam

Read through the Syllabus in this
guide

This tells you what you are expected to know.

The right method

See the whole picture

Use your own words

Keeping in mind how all the detail you need to know fits
into the whole picture will help you understand it better.

The Practical significance and Working context to

each chapter in the study guide put the material into
context.

The Learning objectives and Section overviews in

the Study Manual show you what you need to grasp.

To absorb the information (and to practise your written

communication skills), you need to put it into your own
words.

Give yourself cues to jog your

memory

Taxation

The Study Manual uses bold to highlight key points.

Try colour coding with a highlighter pen.

Write key points on cards.

The right recap

Review, review, review

Take notes.
Answer the questions in each chapter.
Draw mindmaps.
Try 'teaching' a subject to a colleague or friend.

Regularly reviewing a topic in summary form can fix it in

your memory. The Study Manual helps you review in many
ways.

Each Chapter Summary will help you to recall that

study session.

The Self-test actively tests your grasp of the essentials.

Go through the Examples in each chapter a second or

third time.

3.2

Study cycle
The best way to approach the Study Manual is to tackle the chapters in order. We will look in detail at
how to approach each chapter below but as a general guide, taking into account your individual
learning style, you could follow this sequence for each chapter.
Key study steps
Step 1
Topic list
Step 2
Introduction

Activity
This topic list is shown in the contents for each chapter and helps you navigate
each part of the book; each numbered topic is a numbered section in the
chapter.
The practical significance and working context sections for each chapter set
out in this study guide give you the big picture in terms of the context of the
chapter. The Examination context guidance shows what the examiners are
looking for and tells you why the topics covered in the chapter need to be
studied.

Step 3
Section overviews

Section overviews give you a quick summary of the content of each of the
main chapter sections. They can also be used at the end of each chapter to
help you review each chapter quickly.

Step 4
Explanations

Proceed methodically through each chapter, particularly focusing on areas

highlighted as significant in the chapter introduction or study guide.

Step 5
Note taking

Take brief notes, if you wish. Don't copy out too much. Remember that being able
to record something yourself is a sign of being able to understand it. Your notes
can be in whatever format you find most helpful lists, diagrams, mindmaps.

Step 6
Examples

Work through the examples very carefully as they illustrate key knowledge and
techniques.

Step 7
Answers

Check yours against the suggested solutions, and make sure you understand
any discrepancies.

Step 8
Chapter summary

Review it carefully, to make sure you have grasped the significance of all the
important points in the chapter.

Step 9
Self-test
Step 10
Learning objectives

Use the Self-test to check how much you have remembered of the topics
covered.
Ensure you have ticked off the Learning objectives.

Moving on...
When you are ready to start revising, you should still refer back to the Study Manual.

As a source of reference (you should find the index particularly helpful for this).

As a way to review (the Section Overviews, Examination Context, Chapter Summaries and Self-test
questions help you here).

Remember to keep careful hold of the Study Manual you will find it invaluable in your work.

Study guide

Study
Period

Practical significance

Working context

Approach

Syllabus links and essential points

Corporation tax is calculated on an

individual company basis. The profit
shown in the accounts is the starting
point, but the taxable total profit is
often a very different figure.
The effective rate of tax paid by
companies has become very important
in recent years as boards of directors are
judged on their tax performance as well
as their trading profits. A tax rate which
is too high may indicate that the
company may be missing tax reliefs and
credit opportunities; too low and it may
be accused of shirking its corporate
responsibility to pay its fair share.
Companies with investment business
earn their profits from different types of
activity to trading companies, but the
tax is calculated using the same basic
principles as for a trading company.
The SSE has been one of the most
popular reliefs introduced in the past
few years. It allows for significant
shareholdings to be disposed of
without attracting a charge to
corporation tax on the gains arising.

Most UK companies have taxable

total profits and must pay UK
corporation tax as a result. Most
companies would probably prefer to
pay as little tax as possible but do not
necessarily always understand the
complexities of the UK taxation
system. Instead, they rely on accurate
and up-to-date technical knowledge
from professional advisers.

Read through chapter one of the

study manual quickly as it is mostly
revision from Professional Stage but
note the important changes
introduced to the treatment of
dividends received by companies, the
capital allowances regime,
particularly in relation to cars and the
loss relief provisions, particularly the
worked example on terminal loss
relief.

This chapter is largely revision

from Professional Stage and
provides the basis for the next
six chapters of this study
manual.

Stop and think

Are all companies engaged in some kind
of R&D expenditure aware of the
potential benefit from the associated tax
relief? Is it possible for a company to
pay tax at too low a rate?

Taxation

Many day to day business decisions

will have an impact on the UK tax
position and it is essential that
professional advisers are involved in
these so that the tax implications can
be taken into account.

Finally work through the self-test

questions carefully to ensure that you
have grasped the main points in the
chapter. Any areas which are unclear
should be addressed now as the next
six chapters relate to corporation tax
and take the fundamental knowledge
in this chapter further.

Essential points
Tax treatment of dividends
received from both UK and
overseas companies
Enhanced definition of
associates
R&D and R&D tax credits
Tax treatment of intangible
fixed assets
REITs, AIFs and use of expenses
of management
Loss relief especially terminal
loss relief and use of losses
with a change in ownership
SSE highly examinable but
easily missed
CT admin you last studied
this at Knowledge level of
Professional Stage. You should
be able to discuss tax payment
dates and penalties eg in loss
questions. Refer back to the
final worked example in section
5.1 to understand how this
knowledge could be brought
into TI

Due
Date

Study
Period

Practical significance

Working context

Approach

Syllabus links and essential points

A company has a number of options

available to raise funds. Most of the
factors to be considered in deciding
which best suits the circumstances of a
business have nothing to do with tax.
However, the tax consequences of
choosing debt will be very different
from issuing new equity shares.

There have been many attempts to

set up complex avoidance schemes
which make use for example of debt
finance and interest, but the
government has acted swiftly to
legislate and has now successfully
stopped many of these schemes.

Read section one. Could you apply

the loan relationship rules to different
types of interest income and expense.

Debt financing interacts with

thin capitalisation which is
explained in chapter six,
corporate anti-avoidance.
Considering how to finance a
business will also be critical to
any restructuring or
transformation of an
organisation, this is explained
in chapter sixteen.

The EIS and VCT are both schemes

which can attract individual investors
to invest in companies seeking money
for development and expansion. These
have proved very successful. Proposed
legislation to take effect from 2012 will
increase the amounts which companies
can raise using these schemes and will
extend relief to larger companies.
External finance has previously been
used by some companies to reduce
their tax bills under somewhat artificial
tax avoidance schemes. The disclosure
regime for tax avoidance has however
significantly reduced the scope for this.

Stop and think

What is the optimum source of
finance? Are shareholders less
powerful than lenders? Should taxation
alone determine which is the better
source of finance?

One of the most important tasks for

the accountant is to ensure that the
tax consequences of raising loan
finance are considered in advance of
rather than after the event.
If you are advising a potential
investor who is hoping to claim EIS
relief, it is important to check that the
company itself will qualify and has
not exceeded the limits. It is also
important to check that it will not be
using the money to expand its
business too much overseas as it
must be wholly or mainly (in practice
50%) in the UK.

Review the implications of financing

via debt or equity in section two.
Note the interaction with thin
capitalisation and the world-wide
debt cap provisions in chapter six.
Section three explains the schemes
which encourage venture capital
investments by providing tax relief to
investors. You should ensure you can
apply the knowledge in the interactive
questions.
Read section four and ensure you can
correctly allocate foreign exchange
gains and losses to trading profits or
non-trading loan relationships.
Section five explains the taxation
implications of leasing to finance the
purchase of plant and machinery.
The area is topical as it interacts with
corporate reporting. Learn the
definition of a long funding lease.
Finally, attempt the self test questions
at the end of the chapter. This chapter
contains topics which are likely to be
examined in an open-ended way
requiring you to think about possible
areas of the syllabus which could
apply to the question. At this stage the
self-test questions may seem hard.

Due
Date

Essential points
Allocation of interest items to
trading income or non-trading
loan relationships
Use of a deficit on non-trading
loan relationships
Priority of loss relief claims
EIS and VCT rules
EIS reinvestment relief
Claw back of EIS or VCT
Treatment of foreign exchange
gains and losses
Definition and treatment of a
long funding lease and a nonlong funding lease

Study guide

Study
Period

Practical significance

Working context

Approach

Syllabus links and essential points

It is usual for large organisations to

operate within a corporate structure. If
there are different types of activity
within a business or it is operated in
different geographical areas, a number
of companies will be set up to manage
the different functions.

Many companies, particularly in

those groups which do not have an
in-house tax department, rely on
their external advisers to help them
make best use of losses.

You must understand the difference

between the definition of associates
(chapter 1), a loss relief group
(chapter 3), and a chargeable gains
group (chapter 4).

There are many factors to be

considered, such as the timing of
relief and the marginal rates of
corporation tax being paid by the
different group members. The
number of companies within a group
is critical to establishing the
applicable rate of tax, so identifying
acquisitions and disposals around the
world is also very important.

Learn what may be surrendered within a

loss relief group and which losses can
only be surrendered if excess. Review
the implications of a foreign group
member.

Group loss relief often interacts

with chargeable gains groups
(chapter 4) although not all
companies will be members of
both types of group.
Corporate transformations
(chapter 16) and liquidations
(chapter 7) also have an
impact on group relationships
and the surrender of losses.

Attempt interactive question one.

Essential points

Review the tax rates and tax planning

aspects of group loss relief by
completing interactive question two.

A form of group loss relief is also

available to members of a
consortium. The rules are similar, but
not the same and it is important to
identify precisely what the corporate
relationships are before making any
plans. Note that a group relief claim
made by a consortium is colloquially
known as consortium relief. Claims
for consortium relief can be made for
the same types of losses as claims for
any other form of group relief.

Could you spot a consortium?

Remember to always apply the
consortium members percentage to the
consortium companys result when
calculating both loss claims and
surrenders.

Learn the definition of a loss

relief group and compare to a
chargeable gains group in
chapter 4

Group payment arrangements can

provide a useful way of improving a
groups cash flow position. They can
also be used to minimise the interest
burden suffered for any late paid tax
by the group as a whole.

Ensure you understand how group

payment arrangements work.

Where one company within a group

suffers a loss, the group as a whole
may be able to make use of the loss by
setting it against one or more of the
other companies profits.
There are many different definitions of
a group for tax purposes. Different tax
reliefs require different structures
before they can be used, and these are
not the same definitions as those used
for financial reporting.
Group relief provisions now extend
relief for certain overseas companies
within a group. This has made the relief
much more flexible and valuable in
practice, and means accountants have
to have an international perspective.

Stop and think

How should a group make use of its
losses? Is cash-flow an issue or should
group taxation overall be minimised?
Are minority interests prepared to pay
for the benefit of group losses?

Taxation

Review group/consortium companies

and link companies by applying the
rules as to which companies can
surrender or claim losses to your own
structures. Work through the final
worked example in section three.

Finally, work through the self-test

questions at the end of the chapter.

Types of losses and which

must be excess to be
surrendered
Corresponding accounting
periods
Identifying a consortium
Calculating the maximum
amount of consortium relief
possible
Attempt final worked example
in section three
Group payment arrangements

Due
Date

Study
Period

Due
Date

Practical significance

Working context

Approach

Syllabus links and essential points

Companies pay corporation tax on

their capital gains. All companies
within a 75% group structure, UK
resident or otherwise, are part of a
capital gains group.

Many groups have large portfolios of

property and share investments. Add
to this other chargeable assets such
as goodwill (if pre 1 April 2002
goodwill), and in practice this can
lead to complex calculations.

Read quickly through section one of

chapter four. It is critical to your
understanding.
Section two should also be mainly
revision. Note that following Finance
Act 2009 capital gains and losses may
now be transferred around a gains
group. De-grouping charges are
highly examinable at this level. There
have been changes to the rules in
FA2011. Work through these carefully
as they will be relevant in any
corporate transformation question
(see later in chapter 16). Pre-entry
capital losses are also highly
examinable. Again there have been
changes in the rules in FA2011. Use
interactive question one to test your
understanding.
Quickly review the transfer of other
assets in section three.
Review group rollover relief. The final
section on succession to trade is also
highly examinable at this level and
will be revisited in chapter 16. Ensure
you can recognise when a succession
occurs and its implications. Quickly
review the implications for losses
transferred.
The self-test questions at the end of
the chapter cover the most important
points learnt so finish the chapter by
working through them.

Group gains generally interact

with group losses (chapter 3)
and group transformations
(chapter 16). Note that, the
liquidation of a company has
no impact on chargeable gains
groups (chapter 7).

Assets are transferred around a group

at nil gain/nil loss. There is now the
equivalent of group loss relief for
capital gains and losses. The relief
however is only available to UK
resident companies and to those assets
owned by non-residents which are
chargeable to UK tax. A group must
plan carefully for its capital disposals to
ensure that it minimises the tax paid by
the group as a whole
Selling a company or sub-group of
companies outside the main group
structure can be expensive where there
have been intra group transfers of
assets within the past six years as any
gains will crystallise on the sale as a degrouping charge.

Stop and think

How best can the capital gain and
losses on the disposal of assets be
matched to ensure that group gains
overall can be minimised?
How should acquisitions and disposals
be timed to maximise the opportunity
for group-wide rollover relief?

There have been many attempts to

set up complex avoidance schemes
to make use for example of pre-entry
capital losses, or to convert income
into capital, but the government has
has now successfully legislated to
stop many of these schemes.
One of the most important tasks for
the accountant is to ensure that the
tax consequences of a planned
restructuring are considered in
advance of rather than after the
event.

Essential points

Learn the definition of a

chargeable gains group and
compare to a loss relief group
in chapter 3
Implications of nil gain/nil loss
transfers of assets and transfer
of gains and losses around the
group.
De-grouping charges
Pre-entry capital losses
Group rollover relief
Successions

Study guide

Study
Period

Practical significance

Working context

Approach

Syllabus links and essential points

Business is increasingly global in nature.

Advances in technology, and especially
the use of trading through the internet
have created real challenges for the tax
authorities both in the UK and elsewhere.
A companys residency dictates which
country may collect tax on its profits.
However, determining where a
company is resident is not as simple as
determining where its head office is
located.
Where a company operates both in the
UK and overseas, it may suffer both UK
tax and foreign tax. It will claim relief via
a double tax treaty, or via unilateral
relief in the absence of a treaty.
Double tax treaties are conventions
between two countries and aim to
eliminate the double taxation of income
or gains arising in one territory and paid
to residents of another territory. They
work by dividing the tax rights over the
same income and gains, claimed by
each of the countries.

Company residence is no longer just

a concern for large international
conglomerates. The existence of a
permanent establishment (PE) will
usually determine where profits are
taxed and you will need to look out
for signs of inward and outward
migration in all businesses.

Read quickly through section one of

chapter five. E-commerce is
increasingly important so ensure you
could answer a discursive question
explaining a companys residency
status.

E-commerce also has

considerable implications for
VAT (chapter 8) as well as
residency. The use of losses
(chapter 1) is also critical in
the decision as to the choice of
business structure when first
expanding overseas.

Stop and think

What should determine where a
company is located? How should a new
overseas business be structured? How
important should taxation be in making
such decisions? Can double taxation be
avoided by simply trading in countries
with which the UK has agreed a double
taxation treaty?

10

Taxation

You will also need to be aware of

how a business uses the internet to
expand sales and to understand how
this may create an international
dimension to its tax affairs.
In the absence of a treaty, unilateral
relief must be used, either by
allowing a credit for the foreign tax
suffered, or by deducting the foreign
tax as an expense. You will need to
consider whether a treaty applies and
then, if not, to use a form of
unilateral relief.
This is a specialist area and in cases
which are not straightforward, you
are likely to seek advice from
someone who deals regularly with
international tax matters.
For up-to-date information, the
ICAEW library has a useful reference
section (found at
http://www.icaew.com/index.cfm/ro
ute/154793/icaew_ga/en/Library/Lin
ks/Tax/International_tax/International
_Tax

Briefly review section two.

Section three is difficult. Ensure you
understand the basic concepts. You
should work through all of the
worked examples very carefully.
Section four is highly examinable.
Ensure you fully understand the
implications of choice of overseas
trading structure. Ensure you
understand the basic implications of
incorporating an overseas PE. Work
through interactive question one.
Read section five and learn the three
methods of obtaining DTR. Ensure
you understand how foreign income
is taxed and in particular the tax
treatment of overseas dividends. You
should note the wide ranging
exemptions available and appreciate
that almost all dividends are now
exempt from corporation tax.
Make sure you can calculate DTR
available when income is taxed both
overseas and in the UK.
Finish the chapter by attempting all
of the self-test questions.

Double taxation relief for

companies interacts with the
corporation tax computation
(chapter 1).
Essential points
Residence
Residence and e-commerce
Definition of a PE and how it is
taxed in the UK
Company migration
Choice of overseas business
structure
Incorporating an overseas PE
Taxation of foreign income
and DTR

Due
Date

Study
Period

Practical significance

Working context

Approach

Syllabus links and essential points

Although the main UK rate of

corporation tax might seem low, many
other countries already have much
lower rates which makes overseas
operations very attractive. Profits of a
non-UK resident subsidiary would
normally be outside the scope of UK
corporation tax, and so to avoid UK
companies manipulating their group
affairs to take advantage of this rule,
anti-avoidance legislation exists.

Many small family businesses operate

as a company. With family owned
companies always consider whether
the close company rules apply.
These exist to stop the owners using
loans from the company, or using
other company assets without paying
tax on them as taxable benefits or
paying out dividends. You should look
out for overdrawn directors current
accounts, where the balance will count
as a loan and on which s. 455 CTA
2010 tax may be payable.
Intra group sales or other business
arrangements can affect where profits
arise. The transfer pricing rules, ensure
that arms length prices have been
used, documentary evidence must be
maintained. Failure to establish this will
result in the profits of both the
companies involved being adjusted to
reflect the arms length value of the
transaction, on which they will then be
taxed accordingly.
FA 2009 introduced major changes to
the taxation of foreign profits. Notably
the exemption from tax of most
overseas dividends and the world-wide
cap debt provisions which potentially
restrict the deductibility of interest costs
in the UK. The review of the CFC
legislation is ongoing although a few
changes have been made in FA 2011.

Read quickly through section one of

chapter six as it is revision of
Professional Stage. Remember that
most family run companies will be
close. Note section 1.4 on qualifying
interest. In section 1.6 consider the
interaction of being close with
ceasing to trade or liquidating (see
chapter 7).

Corporate anti-avoidance
legislation stems from the
utilisation of taxation law for
unintended purposes.
Close company legislation
prevents abuse of the
corporate structure. CFC
legislation prevents abuse of
residency rules. Transfer
pricing legislation prevents
abuse of corporate residency.
Thin capitalisation and the
world-wide debt legislation
prevent abuse of interest as a
deductible expense.
Essential points
Recognition of close
companies and implications
Qualifying interest
Recognise CIHC
Recognise a CFC and
understand how and when to
apportion profits
Recognise when transfer
pricing adjustments required
Recognise thin capitalisation
and its implications
Recognise when world-wide
debt cap restrictions may
apply and adjustments
required

CFC rules tax a UK parent company on

the undistributed profits of any non-UK
subsidiaries operating in low tax
countries. Credit is given for any tax
paid by the non-UK subsidiary.
Various exceptions exist eg activities
test. There is also a separate motive
test. Following the ECJ judgement in
the Cadbury Schweppes case, it is this
motive test which the UK is now
required to reconsider to determine
whether it is designed to catch only
wholly artificial arrangements.

Stop and think

Did you realise at Professional Stage
that close company rules were a form
of anti-avoidance legislation? Would it
be better to amend the source of the
attempted anti-avoidance or continue
to produce anti-avoidance legislation?

Read through section two on CFCs.

Note that this interacts with corporate
reporting. Ensure you understand the
technical aspects of both modules.
Read through sections three and four
on transfer pricing and the provision
of loan finance. At this level this is
highly topical. It interacts with group
relationships, foreign aspects of tax
and debt financing.
Finish the chapter by attempting the
self-test questions.

Study guide

Due
Date

11

Study
Period

Practical significance

Working context

Approach

Syllabus links and essential points

Many thousands of new companies are

set up each month. However, many are
also wound up or simply cease trading.

As the UK economy has entered a

recession, more companies have and
are likely to continue to fail. Those
which are forced into liquidation
through adverse trading conditions
will have a number of tax planning
options open to them. Loss relief, the
timing of cessation and what can be
salvaged from the operations, either
as individual assets or perhaps even
as a viable section of the business, are
all important considerations for the
adviser.

Section one of chapter seven provides

the technical knowledge for the final
two sections. Ensure you understand
section one before proceeding to the
rest of the chapter.

Some owner managers choose

to liquidate their company in
order to revert to an
unincorporated status.
Colloquially this is known as a
disincorporation and is
considered further in chapter
15. Other liquidations may
also arise as a result of
corporate transformations or
reorganisations (chapter 16).

In practice, not all companies in this

position will have been suffering losses.
Sometimes, the owners of a family
company just want to retire but there
is no one willing and able to buy the
business from them as a going
concern. This has been something
which concerns governments
throughout Europe and there has been
much academic research into how the
problem of successful business
successions can be resolved.
The ability of a company to buy back
its own shares from shareholders can
be very useful. It has many practical
uses: buying shares from a dissident
shareholder, buying shares from a
retiring shareholder, paying back
surplus cash held by the company, or
as part of a major restructuring
exercise.

Stop and think

Why would a company choose to
repurchase its own shares?
Is it possible to benefit from tax
planning during a liquidation?

12

Taxation

Those companies which are forced

into liquidation by a third party, an
involuntary liquidation, have less
scope for tax planning. Although this
is a specialist area, it is useful to
understand the options available and
help the client find the best solution
to fit their own circumstances

Repurchase of shares owned by a

company interacts with the SSE (see
chapter 1).
Ensure you fully understand the
implications of entering both
administration and liquidation. The
tax planning points are the most
important aspect at this level.
Remember there is little scope for tax
planning in a forced liquidation.
Finally complete the self-test
questions at the end of the chapter.

Essential points
Repurchase of shares owned
by a company
Repurchase of shares owned
by an individual when capital
distribution route applies and
when income distribution
route applies
Administration
Liquidation
Group relationships in a
liquidation see diagram,
section 3.3

Due
Date

Study
Period

Due
Date

Practical significance

Working context

Approach

Syllabus links and essential points

The government collects a huge

proportion of its annual revenue in the
form of VAT which makes the tax
extremely important in practice.

The level of the VAT threshold means

that many businesses which are large
enough to use a professional adviser
will need to register for VAT.

Read through section one of chapter

eight quickly as it should all be
revision of Professional Stage.

There are special rules for certain types

of transactions, especially sales of
property, where mistakes can be very
costly. The sale of new (less than three
years old) commercial property is
standard rated, whereas it is exempt if
it is older. In this case, exercising the
option to tax, or not, will be an
important decision.

VAT registration brings with it extra

administrative requirements and also
means that the prices charged to the
general public will be higher. It may
be beneficial to register for VAT
voluntarily.

VAT on property interacts with

Stamp Duty Land Tax (chapter
9). VAT within a corporate
transformation will be critical
as VAT on property, or the sale
of a trade within the scope of
VAT will be considerable.

Many businesses change hands each

year and remain going concerns.
Provided that the conditions are all
met, this will not give rise to a VAT
charge. If any of the conditions fail
however, the result could be costly.
Other countries within the EU have their
own VAT equivalent taxes and there are
strict rules governing how each
Member State can operate the tax.

Stop and think

Is the payment of tax on a property
transaction worth say 10m at 20%
significant enough for you to give it
due consideration?

It is important to understand VAT

accounting. VAT is dealt with during
a business accounting period, ie it is
a real time tax. If a client is unsure
about how to account for a particular
transaction, the problem will need to
be resolved within a matter of weeks.
It is not always clear from legislation
whether goods are chargeable to
VAT, nor what rate should be used.
In practice you may need to advise a
client on the VAT consequences of a
larger transaction, for example the
sale of a business as a going concern,
where special relief is available.

Ensure you understand VAT on

property and VAT in a TOGC as these
interact with the capital goods
scheme in section two. The most
important points are covered in
interactive question one so work
through it carefully.

Essential points
VAT groups

Review the interaction of VAT and

SDLT in section 1.4.4.

VAT on property

The interaction of the different

aspects of VAT is particularly
important at this level. Attempt the
worked example at the end of section
two.

TOGC

Read the overseas implications of

VAT.
Finally complete the self-test
questions at the end of the chapter.

Option to tax (OTT)

Capital goods scheme
VAT on property, OTT,
property within a TOGC and
the capital goods scheme
VAT and e-commerce
VAT and SDLT

If a trader is selling both taxable and

exempt supplies, then partial
exemption will apply and your advice
can help a business maximise its
recoverable VAT. A business trading
abroad will also need specialist VAT
advice.

Study guide

13

Study
Period

Practical significance

Working context

Approach

Syllabus links and essential points

Stamp duty, stamp duty reserve tax

and stamp duty land tax are
transaction based taxes. The name
stamp is historical since most
transactions these days are conducted
electronically. It usually helps to think
of the first two in relation to the
purchase of shares and the latter to
purchases of property.

You are unlikely to have to do much

more than recognise where these
taxes are relevant. Be aware that
there are different rates of stamp
duty land tax for residential and nonresidential property. Stamp duty land
tax is payable when a lease is granted
on both the premium and the net
present value of rent payable to the
landlord.

The whole of this chapter is new

technical knowledge.

Both stamp duty/stamp duty

reserve tax and stamp duty
land tax are likely to be
relevant in any corporate
transformation. The impact of
stamp duty land tax on
incorporation can be
significant. Stamp duty land
tax also interacts with the
calculation of VAT due.

Stamp duty reserve tax is payable on

the electronic transfer of shares and
securities.
These taxes between them raise a large
sum for the Treasury each year and can
be very expensive for a business. There
are exemptions available for
transactions such as those involving
gifts or divorce, and for certain intra
group transfers of shares.

Stop and think

Stamp duty land tax is payable on the
purchase of all land including on
incorporation.

14

Taxation

As usual, interest and penalties apply

if the tax is paid late.
In practice much of the work
involving this area will be undertaken
with the assistance of a specialist.

Make sure you understand when

SD/SDRT and SDLT apply. The rules
for group relief are very examinable
and are highly likely to be tested in
any groups question. Note that
group relief is withdrawn in certain
circumstances.
Quickly review section four which
simply highlights the SD and SDLT
implications of incorporation and
liquidation.
Finally complete the self-test
questions at the end of the chapter.

Essential points
SD
SDRT
SDLT
Group relief and withdrawal of
group relief

Due
Date

Study
Period

10

Practical significance

Working context

Approach

Syllabus links and essential points

When an individual or company sells

an interest in a lease, there will almost
always be a disposal giving rise to a
possible capital gain.

Takeovers and reconstructions,

mergers and acquisitions, will usually
have tax specialists as key members
of the advising professional team.
You will need to keep in mind the
basic principles of the calculations for
share and asset disposals whilst also
bringing in some special rules in
situations where the proceeds are
contingent on future events, such as
the business continuing to be
profitable.

Entrepreneurs relief is important so

you should study section one
carefully. Note how the F(No. 2)A
2010 and FA2011 changes to capital
gains tax have changed how
entrepreneurs relief operates.

Most of this chapter will be of

critical importance in any
question on corporate
transformations.

Next work through the section on

leases in relation to property. This is
particularly long and has numerous
examples to help you learn. You need
to understand what is happening in
any disposal in order to be able to
understand why it is treated in a
particular way eg that an assignment
is always a complete disposal whereas
a grant is always a part disposal as
the vendor retains some interest in
the property; or that a short lease is
treated as a wasting asset and must
therefore use an adjusted cost.

Entrepreneurs relief
availability and conditions

It is very important to revert to tax

speak rather than just normal English
to work out exactly what has
happened when dealing with leases.
Has a new lease been granted, or has
an existing interest in the property
been sold (assigned) in its entirety?
Hopefully the seller will have taken
advice about this in advance because
the tax charge will be calculated very
differently.

Stop and think

Has the vendor of a lease retained an
interest in the property or sold it in its
entirety?
Has a disposal occurred on a takeover
or has one interest simply been
swapped for another?

Preparation of a mind-map will

probably be particularly useful for
leases.
Review section three quickly and
attempt interactive question two.

Due
Date

Essential points

Leases prepare a mind-map if

necessary
Complete self-test question 8
to illustrate how different
topics studied so far can
interact to form an exam
standard question involving
sale and leaseback of property
Dividend stripping
Earn-outs
Share for share rules
Definition of a QCB
Interaction of SSE with the
share for share rules for a
corporate shareholder

Section four details the technical

knowledge which is essential to
chapter sixteen and is highly
examinable at this level.
Finally, complete the self-test
questions at the end of the chapter.

Study guide

15

Study
Period

11

Practical significance

Working context

Approach

Syllabus links and essential points

How to use losses and basic tax

calculations for income tax and
national insurance are key areas of
great practical significance for personal
tax work.

Given the length of the

Comprehensive Tax Calculation
Guide published by HMRC, it is
hardly surprising then that most
accountants use some form of
software to calculate their clients tax
liabilities. However, the underlying
principles of the calculations are an
essential tool in your knowledge
bank.

Chapter eleven moves on to personal

tax. This chapter should be pure
revision of Professional Stage topics.
Read through the chapter quickly
and attempt all the worked examples
and interactive questions.

The extraction of wealth from

a business has considerable
influence on the choice of
business structure (chapter
14). The use of trading losses
may also be important in the
transformation of an
unincorporated business
(chapter 15).

Even if you do not choose to specialise

in tax, it will help you to give rounded
professional advice in other areas if you
can understand your clients personal
tax position.

Stop and think

Is the overall taxation of a sole trader
less than an employee?
How important are national insurance
contributions?

The same applies to using losses from

trading activities. The options
available are limited and you should
be able to list them, but more
important is the way in which they
are tailored to each clients
circumstances. This is where an
accountant adds significant value.

Note how the additional rate

taxpayer has an impact on extension
of the basic rate band for personal
pension contributions and Gift Aid
donations. There are two top rates of
tax: 50% on non-savings and savings
income and 42.5% on dividends.
This gives an effective dividend rate
for an additional rate taxpayer of
36.1% compared to 25% for a higher
rate taxpayer.
Use of trading losses will interact with
chapters fourteen and fifteen. NIC is
particularly important when
considering how to extract profits
from a company (see chapter 14).
At this level, the interaction of IHT
and CGT is particularly important.
Attempt the self-test questions at the
end of the chapter.

16

Taxation

Essential points
Income tax computation
Loss relief
NIC
IHT
Interaction of IHT and CGT

Due
Date

Study
Period

12

Due
Date

Practical significance

Working context

Approach

Syllabus links and essential points

Employers recognise that one of the

largest costs of running a business will
be the cost of the payroll, so it is
important to get it right.

Whilst there are some basic rules for

what is taxable, a persons take home
pay can be altered dramatically by
the make up and timing of his
remuneration.

Read through section one of chapter

twelve quickly as it merely revises
Professional Stage.

Taxable benefits interact with

national insurance
contributions (chapter 11) and
extraction of wealth from a
company (chapter 14). Share
schemes and pension schemes
may also be important in a
corporate transformation
question.

The way a remuneration package is

structured affects net pay.
Whilst we have some basic rules which
identify what is taxable and when, the
government also uses the tax system to
influence what employment benefits
people prefer. For example, damage
caused by CO2 emissions is a major
concern and therefore tax legislation is
aimed at encouraging use of less
polluting cars.
Remuneration packages often involve
share schemes and pensions since
these are tax efficient. The government
encourages employee share ownership
because it benefits the economy and
the looming pension crisis makes it
vital that employees are encouraged to
save for their retirement...

An accountant will be expected to

understand how an individuals
employment income will be taxed
and give advice on how this could be
minimised. The rules in this area
change constantly and when giving
advice, it is important to keep the
position under constant review.
Understanding your client means
looking beyond his business needs
and it will be common to advise not
only a company, but also to prepare
tax returns and give advice to the
directors on their personal tax as well.

Ensure you understand how share

schemes are taxed according to the
table in section 2.1.2 and that you
are familiar with the rules in the table
in section 2.2.4. This could be tested
in an extraction of wealth from a
company question or a corporate
reorganisation question.
Read through section three as again
it is mostly revision of Professional
Stage but also note the new rules in
FA 2011 which reduce the annual
allowance and introduced a three
year carry forward of unused annual
allowance. Review your knowledge
by attempting interactive question
three.

Essential points
Approved and unapproved
share schemes
CSOP, EMI, SAYE, SIP
summary table
Pension rules
SIPP / SSAS

Remember to attempt the self-test

questions at the end of the chapter.

Stop and think

Why do higher rate taxpayers receive
more tax relief for pension savings than
basic rate taxpayers? Why dont
employees pay NIC on taxable
benefits?

Study guide

17

Study
Period

13

Practical significance

Working context

Approach

Syllabus links and essential points

The residence, ordinary residence and

domicile status of an individual
determine which sources and how
much of the persons worldwide
income/gains are chargeable to UK tax.

This is another area where giving tax

advice to a company may also affect
the tax advice given to its key
shareholders and employees. It is
more important than ever to have all
the facts available before setting out
the options for the client.

Ensure you understand the definitions

of residence, ordinary residence and
domicile. Test your understanding of
the implications of arriving in the UK
or leaving the UK by attempting
interactive question one. ESC A11 is
particularly important in providing
relief for individuals sent overseas to
work.

Personal residence, ordinary

residence and domicile status
carry significant tax planning
opportunities for high net
worth individuals. For
example, a person who has
significant gains on the
disposal of a business may
choose to emigrate prior to
disposal to minimise the UK
tax paid.

The tax advantage of being non-UK

domiciled has been subject to political
scrutiny in recent years as many
wealthy individuals have moved to the
UK. The overseas earnings of these
people are not generally taxable in the
UK. There are clear economic
arguments for wishing to retain their
businesses here but recent rules have
lead to well-publicised debate about
the tax treatment of these individuals.
Meanwhile, there are also rules which
allow certain earnings of UK resident
employees who are based abroad for
long periods, to be treated more
favourably for tax purposes.
Residence and domicile also impact on
an individual's liability to capital gains
tax and inheritance tax.

Stop and think

Why should residence, ordinary
residence and domicile affect the
amount of UK taxation paid? Why isnt
leaving the UK permanently sufficient
to immediately end a persons liability
to UK inheritance tax?

18

Taxation

Because domicile will have an impact

on estate planning for inheritance
tax, you will often be planning for
the long term and a regular review of
the clients affairs is needed.
Recent case law and changes to
HMRC guidance has cast doubt on
some areas of long standing HMRC
practice in this area and clients who
are based abroad but who travel back
to the UK regularly are advised to
keep careful note of where their time
is spent.

Section two is also important. You

must understand how employment
income and other income will be
taxed for different individuals.
Complete the worked example on
the remittance basis. You must be
able to calculate DTR for an
individual with more than one source
of income. Work through the worked
example and interactive question at
the end of section two.

Essential points
Definition of residence,
ordinary residence, and
domicile
Implications of arriving in or
departing from the UK
ESC A11

Quickly review section three on CGT.

You must know who is liable to UK
CGT and who is exempt so section
3.2 is particularly important.

Arising or remittance basis for

income tax

Quickly review section four on IHT.

You must know who is liable to UK
IHT and who is exempt, ensure you
understand the extended definition
of domicile for IHT purposes. Learn
the location of asset rules.

Income tax DTR with multiple

sources of foreign income

Remember to attempt the self-test

questions at the end of the chapter.

IHT location of assets rules

Remittance basis users

Liability to UK CGT
Liability to UK IHT
Deemed domicile for IHT

Due
Date

Study
Period

14

Due
Date

Practical significance

Working context

Approach

Syllabus links and essential points

It is very important that a business

chooses the most suitable form for its
own commercial needs without being
driven by the tax considerations. That
said, the opportunity to save tax has
led to many smaller businesses in
particular, incorporating just for this
reason. The accountants job will be to
ensure that the advice given is both
practical and relevant.

The choice of trading medium is one

where the accountant can give
particularly valuable advice. There is
an opportunity here to save the client
money very easily, although be
warned, because there are also traps.

Read through section one of chapter

fourteen and ensure you understand
the implications of trading as a
company or an unincorporated
business and how to extract profits
from a company.

One such problem area is the use of

intermediary companies by service
businesses which are trying to avoid
paying employee levels of tax and
national insurance. Sometimes the
client company will only use a worker
if he has set himself up within a
company. This is particularly
common in the information
technology business.

Read through section two. Ensure

you could recognise when to apply
personal service company (PSC) rules
and that you could calculate the
deemed employment income
payment.

The use of intermediaries

continues to be topical with
the introduction of Managed
Service Company legislation. It
interacts with employment
income in chapter 12 and the
choice of business structure
and extraction of wealth.

The government has encouraged

incorporation through the tax regime
on more than one occasion. A small
company can pay its employees who
are also shareholders using dividends
rather than salaries and will make a
saving on tax and national insurance.
Also, certain reliefs are only available to
companies, for example the R&D tax
credit.

Stop and think

Is it better to trade as a company or an
unincorporated trader? How best can
profits be extracted from a company?
Why is there such a need for antiavoidance legislation for service
businesses which exploit differences in
the taxation of employees and the
profits of an owner managed business?

There are special rules which may

apply here. Unfortunately, much of
the detail on this area has been left to
HMRC guidance rather than
legislation. This makes it far more
difficult for the adviser to be certain
of his advice and will inevitably lead
to more case law in future.

Review the difference between a PSC

and a Managed Service Company
(MSC) and the implications of being
a MSC.
Quickly review the different available
corporate structures.

Essential points
Company versus
unincorporated business
Extracting profits from a
company
PSC & IR35
MSC
Corporate structures

Remember to attempt the self-test

questions at the end of the chapter.

Study guide

19

Study
Period

15

Practical significance

Working context

Approach

Syllabus links and essential points

Historically, the trend has been to

encourage businesses to incorporate.
This is because a company is a more
visible unit economically on which it is
much easier to focus reliefs or tax
charges.

Much will depend on the size and

future prospects of the business. The
standard list of reliefs for
incorporation will quickly become
familiar to the professional working in
this area, as will the lack of them for
disincorporation.

Chapter fifteen is the first of the

scenario based chapters. There is no
new technical knowledge, it reviews
your knowledge from earlier chapters
and Professional Stage knowledge.

Incorporation has potential

interaction with stamp duty
land tax, VAT and chargeable
gains. Disincorporation
interacts with the same taxes
but less favourably.

Normally larger businesses are more

permanent. The practical significance
of incorporation reliefs are important
for the continuity of a business.
Unfortunately, there is still virtually no
tax relief for disincorporation. In fact,
this is not even a recognised tax term
in tax legislation. Nevertheless, the
consequences of ceasing to operate
through a company can be significant.

Stop and think

Why is the government so keen to
promote incorporation? Why are
business tax reliefs not available to
unincorporated businesses?
Is the amount of tax saved by
incorporation sufficient to offset the
increased administrative burden? When
is it beneficial to incorporate? When is
it beneficial to disincorporate? What
impact will gift relief and incorporation
relief have on future gains and any
future decision to disincorporate?

20

Taxation

Often one of the more important

decisions will be about property;
whether that should be owned
directly by an individual or held
within a company, particularly
bearing in mind that the rules for
calculating capital gains are very
different for companies and that the
tax rates will also be different.
However, remember that there is a
commercial side to the decision and
the trader may decide that a business
needs the protection of limited
liability.

Read through section one quickly as

it is pure revision of Professional
Stage. Ensure you understand how
gift relief and incorporation relief
work.
Section two considers the
implications of disincorporation,
simply a solvent liquidation (see
chapter 7) and a reversion to
unincorporated status.
Section three reviews the implications
of bankruptcy and interacts with the
use of trading losses (see chapter 11).
Remember to attempt the self-test
questions at the end of the chapter.

Essential points
Incorporation
Disapplying incorporation
relief
Gift relief v incorporation relief
Entrepreneurs relief
Disincorporation
Bankruptcy and TLR

Due
Date

Study
Period

16

Practical significance

Working context

Approach

Syllabus links and essential points

The tax implications of a corporate

reorganisation usually play a significant
role in the decision making process.

Whatever the size of the client or deal

you are working on, remember that
the principles are largely the same.

Sometimes a groups total tax bill can

be reduced by restructuring, but
usually a reorganisation is triggered for
business reasons.

Look out for hidden tax charges

which crystallise on a company
leaving a group following earlier
transfers of assets. Beware also of the
possible loss of brought forward
losses following a change in
ownership.

Chapter sixteen is a long chapter but

contains no new technical
knowledge. Mind-maps might help
you to see what is actually happening
in each section rather than simply
focussing on the technical
knowledge.

The use of losses; the effect on

loss relief groups and
chargeable gains groups; and
the possible application of
stamp taxes and VAT all need
to be considered in a
corporate reorganisation.
Successions may also be
important (chapter 4).

A company which operates under a

single corporate umbrella through
separate divisions will have a single tax
computation. A group which uses a
separate corporate vehicle for each of
its business segments will have a tax
computation for each company.
A business may be sold by selling the
companys shares, or just part of the
trade and some of the assets could be
sold, either as a parcel of assets, or
within a new corporate wrapper.
It is important to consider the timing of
the sale: all in one go; or piecemeal
over a longer period. This may have an
effect on the reliefs and exemptions
available and it all needs careful
planning to minimise the tax payable.

Stop and think

What is the difference between a
disposal of shares and a disposal of
trade and assets? What difference does
it make if the vendor is a company or a
private individual?

Most important of all, it can be easy

to become carried away with tax
computations without considering
the vendor/purchasers desired
objectives, so always keep these in
mind.

Read through section two on sale of

shares. Consider the implications for
a sale by an individual or by a
company. There are also implications
for the company being sold.
Read through section three on the
sale of trade and assets.
Sections four and five are linked. In
section four ensure you understand
the implications of a transfer of trade
and assets within a 75% group from
one subsidiary to another (S1 to S2).
Consider the implications from the
perspective of all three companies. In
section five you then need to
appreciate the implications of then
selling S2 outside of the group.
Finally, quickly review management
buy outs (MBO).

Due
Date

The substantial shareholding

exemption (chapter 1) may
apply to a sale by a corporate
vendor. Share for share relief
may apply to the
reorganisation of shares
owned by a private individual
(chapter 10).
Essential points
Sale of shares
Sale of trade and assets
Transfers within a 75% group
Hive down
MBO

Remember to attempt the self-test

questions at the end of the chapter.

Study guide

21

Study
Period

17

Practical significance

Working context

Approach

Syllabus links and essential points

Belonging to a professional body

requires adherence to a code of ethics.
This is part of what differentiates a
Chartered Accountant from unqualified
accountants. Clients, members of the
public, and the government recognise
that we are required to adhere to
exacting standards and so expect a
certain standard of behaviour from us.

Ethical considerations underpin all of

your studies as well as your work
experience.

The best approach is to read the

chapter in several short sittings
making notes on the essential points
as you go along.

In your previous studies, you

have learnt about ethical issues
in relation to tax work. This
specifically included elements
of the IFAC Code of Ethics for
Professional Accountants and
the ICAEW Code of Ethics.

Money laundering has been a major

problem in the past and as part of new
laws designed to combat this,
professionals are required to participate
in its prevention by reporting certain
activities which may relate to the
proceeds of crime.
In order to tackle the loss of tax
revenues through tax avoidance
schemes, laws have been introduced
requiring disclosure of certain schemes
to HMRC.

Stop and think

Not all clients have the same ethical
standards as you have. You should
always ensure that you ask relevant
questions of clients to obtain the full
understanding of their business.

22

Taxation

You will often make ethical decisions

without even realising it, but
sometimes you may find yourself in a
quandary and be unsure how to act.
This is when the Code of Ethics will
be of assistance.
You need to know what to look out
for and how to act. You should
always take particular care in relation
to client confidentiality.

Ethics is a fundamental part of your

training to become a Chartered
Accountant and will feature in the
assessment.
Finish the chapter by attempting the
self-test questions at the end of the
chapter.

In this chapter we review this

knowledge and then extend it
by giving greater
consideration to practical
scenarios.
Essential points
The five fundamental
principles
Threats
Disclosure of information
Conflicts of interest
Principles of taxation work
HMRC errors
Money laundering
Tax evasion v tax avoidance

Due
Date

4 Skills assessment guide

4.1

Introduction
As a Chartered Accountant in the business world, you will require the knowledge and skills to interpret
financial and other numerical and business data, and communicate the underlying issues to your clients.
In a similar way to the required knowledge, the ACA syllabus has been designed to develop your
professional skills in a progressive manner. These skills are broadly categorised as:

4.2

Assimilating and using information

Structuring problems and solutions
Applying judgement
Drawing conclusions and making recommendations

Assessing your professional skills

Set out below is a pictorial representation of the different mix of knowledge and skills that will be
assessed in the examinations that comprise the ACA qualification.

To be successful in the Taxation examination, you will need a strong core of subject knowledge and a
good understanding of how this knowledge should be applied in simple situations. You will be
expected to apply your judgement to determine the relevance and importance of the different
information provided and to recommend suitable courses of action.

4.3

Assessment grids
The following pages set out the learning outcomes for Taxation that are addressed under each of the
four skills areas. In addition, for each skills area, there is a description of:

The specific skills that are assessed

How these skills are assessed

Using these grids will enable you to determine how the examination paper will be structured and to
consider whether your knowledge of Taxation is sufficiently strong to enable you to apply it in the
required manner.

Study guide

23

24

Taxation

5 Technical knowledge
The tables contained in this section show the technical knowledge covered in the ACA taxation syllabus.
For each individual topic the level of knowledge required in the relevant Professional Stage module and
the Advanced Stage content is shown.
The knowledge levels are defined as follows:
Level C
A general knowledge with a basic understanding of the subject matter and training in its application
sufficient to identify significant issues and evaluate their potential implications or impact.
Level B
A working knowledge with a broad understanding of the subject matter and a level of experience in the
application thereof sufficient to apply the subject matter in straightforward circumstances.
Level A
A thorough knowledge with a solid understanding of the subject matter and experience in the
application thereof sufficient to exercise reasonable professional judgement in the application of the
subject matter in those circumstances generally encountered by Chartered Accountants.
Key to other symbols:

the knowledge level reached is assumed to be continued

Study guide

25

Taxation

Principles of
Taxation

Taxation

Advanced Stage

Professional
Stage

Objectives of taxation

Ethics

HM Revenue & Customs

Tax evasion and avoidance

Administration

Appeals

Payments

Penalties and interest

Self assessment

Chargeable assets

Chargeable disposals

Chargeable persons

Chattels: wasting and non wasting

Costs of acquisition and disposal

Indexation

Title

Business Tax
Administration

Chargeable gains

Leases

Nil gain/nil loss transfers

Part disposals

Pre 31 March 1982 assets

Qualifying corporate bonds

Relief for capital losses

A
B

Reorganisations and reconstructions

Entrepreneurs relief

Gift relief

Incorporation relief

Shares and securities (including bonus and rights issues)

Chargeable gains reliefs

26

Taxation

Advanced Stage

Roll-over relief

Substantial shareholding exemption

Title

Principles of
Taxation

Taxation

Professional
Stage

Trading profits
Adjustments to profits

Badges of trade

Capital allowances

Foreign currency transactions

A
A

Pension contributions

Royalty payments

Royalty receipts

Long periods of account

Unincorporated businesses
Basis of assessment current year basis

Change of accounting date

Commencement and cessation of trade

Overlap profits and treatment of opening year losses

Partnerships

Trading losses
Companies Taxable total profits
Property income (including lease premiums)
Trading profits

Loan relationships including worldwide debt cap

Intangible assets

Research and development expenditure

Research and development tax credits

Miscellaneous income

Chargeable gains

Indexation

Trading losses

Use of deficit on non-trading loan relationships

Study guide

27

Taxation

Advanced Stage

Title

Principles of
Taxation

Professional
Stage

Corporation tax computation

Chargeable accounting periods
Close companies
Corporation tax liability

Distributions
Double tax relief (including underlying tax and withholding tax)

Liquidation

Provision of services through a company

Rates of tax

Residence

Groups
Associated companies
Capital gains groups
Changes in group structure
Change in ownership

A
B

Consortium relief

Controlled foreign companies

Degrouping charges

Group loss relief

Group relationships

Non-coterminous accounting periods

Overseas companies and branches

Pre-acquisition gains and losses

Roll-over relief

Transfer of assets

Transfer pricing

Stamp Duty and Stamp Duty Land Tax

28

Basic principles

Chargeable occasions

Exemptions

Taxation

Principles of
Taxation

Taxation

Advanced Stage

Professional
Stage

Administration

Appeals

Title
VAT

Capital goods scheme

Group aspects

Input VAT

Output VAT

Overseas aspects

Partial exemption

Payments

Penalties and interest

Property transactions
Registration and deregistration

Small business reliefs

Taxable person

Taxable supplies

Administration

Appeals

PAYE

Payments

Penalties and interest

Self assessment

Transfer of a business as a going concern

VAT records and accounts

Personal tax
Administration

Employees
Allowable deductions against employment income
Employment income

Share schemes

Statutory Mileage Rates Scheme

Taxable and exempt benefits
Termination payments

Study guide

29

Taxation

Advanced Stage

Title

Principles of
Taxation

Professional
Stage

Other income
Dividends from UK companies
Enterprise Investment Scheme

Investment income

ISAs

Property income

Lease premiums
Savings income

Venture Capital Trusts

Income tax computation

Exempt income

Gift aid

Income tax liable and payable

Independent taxation and jointly owned assets

Married couples allowance

Pension contributions

Provisions for retirement

Tax reliefs

Personal age allowance

Personal allowance

Rates of tax

Taxable persons

Annual exempt amount

Chargeable assets

Chargeable disposals

Chargeable persons

Chattels: wasting and non wasting

Connected persons

Converted trading losses

Capital gains tax

Costs of acquisition and disposal

Leases

30

Taxation

Advanced Stage

Nil gain/nil loss transfers

Part disposals

Pre 31 March 1982 assets

Title

Principles of
Taxation

Taxation

Professional
Stage

Qualifying corporate bonds

Rates of tax

Relief for capital losses

Reorganisations and reconstructions

Letting relief

Principal private residence relief

Shares and securities (including bonus and rights issues)

Capital gains tax reliefs

Reinvestment relief under EIS

National insurance contributions

Administration

Classes of NIC

Directors

Maximum contributions

Taxable benefits

Chargeable persons

Chargeable property

Excluded property

Inter-spouse transfers

Rates of tax

Related property

Seven year accumulation period

Discretionary trusts

Potentially exempt transfers

Death estate

Deeds of variation

Basic principles of inheritance tax

Inheritance tax on lifetime transfers

Inheritance tax on death

Study guide

31

Advanced Stage

Agricultural property relief

Annual exemption

Business property relief

Gifts to charities and political parties

Gifts with reservation of benefit

Marriage exemption

Normal expenditure out of income

Quick succession relief

Small gifts exemption

Taper relief

Title
Lifetime transfers

Principles of
Taxation

Taxation

Professional
Stage

Reliefs & exemptions from inheritance tax

Overseas aspects of personal taxation

32

Arising basis

Deemed domicile for IHT

Domicile

Foreign assets, income and gains

Double tax relief

Ordinary residence

Remittance basis

Residence

Temporary absence

UK taxation of non-domiciled individuals

Taxation

Ethics Codes and Standards

Ethics Codes and Standards

Level

IFAC Code of Ethics for Professional Accountants

(parts A, B and C and Definitions)

Professional Stage modules

Assurance
Business and Finance
Law

ICAEW Code of Ethics

Principles of Taxation
Audit and Assurance
Business Strategy
Financial Reporting
Taxation

APB Ethical Standards 1-5 (revised)

Provisions Available to Small Entities (revised)

Assurance
Audit and Assurance

6 Getting help
Firstly, if you are receiving structured tuition, make sure you know how and when you can contact your
tutors for extra help.
Identify a work colleague who is qualified, or has at least passed the paper you are studying for, who is
willing to help if you have questions.
Form a group with a small number of other students. You can help each other and study together,
providing informal support. You can meet and share ideas and study tips with other ACA students online
visit www.icaew.com/studentcommunity
Go to www.icaew.com/students and look under student societies, to find your local society and find out
what additional support they offer.
Call +44 (0) 1908 248040 or email studentsupport@icaew.com with non-technical queries.
Watch the ICAEW website for future support initiatives.

Study guide

33

34

Taxation