ACCA P6 Advanced Taxation (UK)

ACCA P6 Exam Tips – DECEMBER 2014

Questions 1 and 2 on the paper will be based around real life practical
scenarios.
Question 1 will be for 35 marks and contain 4 professional marks awarded for
structuring the answer in the proper format and dealing professionally with the
issues raised. In either of these first 2 questions (question 2 will carry 25
marks), we are also likely to find 5 marks dealing with ethical issues such as
confidentiality,conflict of interest or non disclosure.
Here are 9 marks therefore that are little to do with technical competence in
taxation in which candidates at this level should and must score highly!
A favourite area of the examining team deals with groups of companies, often
where losses, both trading and capital have been experienced along with other
chargeable gains arising and these need to be managed efficiently. This may
involve group relief and/or consortium relief and the use of the matching
election within a gains group.
In preparing the Corporation Tax computation for a company the new areas
of applying the R&D tax credit for large companies and the lower rate of tax
applicable to profits within the patent box are issues that could be tested or
be discussion issues on the tax incentives for companies to invest
in innovation and new products.
A number of areas where the candidate is asked to advise on both actual and
planned transactions would also be involved. A major issue here is dealing with
changes in group structures such as a proposed acquisition of a target business
where either the client company may purchase the shares in the target company or
the assets and trade of the target company.
Tax issues here for a buyer are access to the pre acquisition trading and
capital losses of the target company through a share purchase or the tax write
offs available on the purchase of intangibles within an asset and trade
purchase. This may also test Stamp Duty and Stamp Duty Land Tax issues for
buyers as well as VAT issues such as the capital goods scheme and the transfer
of a business as a going concern.
A question may instead ask for advice to a vendor group as to whether the parent
company should sell its shares in a subsidiary or allow the subsidiary to
dispose of its own assets and trade.
The decision will be based on which exit route achieves the highest net cash
receipt on sale.
The sale of the shares would test knowledge of the substantial shareholding
exemption and degrouping charges, while the sale of assets and trade would
involve computing chargeable gains or trading profits arising on the sale of
each asset.
The question may also have an international aspect to it with advice being
required on whether to set up an overseas business as a subsidiary or branch.
If investing in a country with a lower tax rate than in the UK then
the application of the CFC legislation would be relevant and in whether to make the
exemption election in respect of overseas branches.
Important points in the owner managed business life cycle lend themselves well
to practical real life scenarios involving multiple taxes. Advice on a start up of a new business
may involve the use of losses and the new rule of capping loss reliefs set against
total income.
A tax efficient exit strategy for the owner manager is also where the client
would need well structured professional advice. Should the client sell his
shares in his company possibly accepting shares and loan stock from the buyer as
well as cash, or should the company sell its assets and trade and then
distribute the net cash to the owner as either a capital or income distribution.
Another favoured area of the examining team has been the overseas aspects of
personal tax where we may have to advise on the implications for all the
personal taxes of say a UK resident accepting a contract of employment overseas
and determining whether their overseas income would be chargeable to UK tax and
if so the application of DTR. The new statutory residence test may be examined here.
With many candidates now coming through to P6 having passed F6 with IHT in that
syllabus we may see a move away from standard computational exercises on the
death of the taxpayer. Advice may be needed on when planned gifts should be
made, in lifetime or on death and therefore in relation to lifetime gifts the
taxpayer’s CGT position will need to be considered. This brings into play the
CGT and IHT reliefs which are consistently examined as students consistently get
them wrong! Candidates must know the conditions for reliefs to apply and must
not confuse CGT and IHT reliefs – note particularly gift relief and
entrepreneurs’ relief in CGT and BPR in IHT.
If a death estate is required it is likely that there would be significant
bequests to charity bringing in the new 36% reduced rate. Planning after death
may then involve the use of a deed of variation by the beneficiaries to increase
the charitable legacy to meet the 10% required level, as the resultant saving of
IHT on the death estate is greater than the increased gift to charity.
In terms of advising on tax efficient investments then, though high risk, the
savings under the EIS or the new Seed EIS are high and may be tested.