Acca F6

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ACCA F6
Taxation FA 2010

Exam paper
• 3 hours long • 15 minutes reading time • 5 compulsory questions Q1 – Income Tax Q2 – Corporation Tax Q3 – Capital Gains Tax / Chargeable gains Q4 & Q5 – Any other area of the syllabus Minimum of 10 marks on VAT

INCOME TAX COMPUTATION AND PROPERTY INCOME

Income tax overview
• Tax year 6 April – 5 April
• 2010/11 • Calculate taxable income for tax year • Calculate income tax thereon

Taxable income
Income assessable Profits from a trade, profession or vocation (other income) Basis of assessment Tax adjusted profits of the accounts ending in the current tax year

Interest received from UK sources (savings income)

Income from employment (other income)
Dividend income Property income (other income)

Income received in the tax year

Rental profits accruing in the tax year

Grossing up
Interest received × 100/80 Dividends received × 100/90

Credit given against income tax liability for tax suffered at source and 10% dividend tax credit Note: Some interest is received gross, namely interest from Government stock, Treasury stock, Exchequer stock and the National Savings and Investments (NS&I) Bank.

Exempt income
• Premium Bond prizes
• Betting/gambling winnings • Returns on NS&I Certificates • Income from ISAs

Income tax computation

Income tax computation

Tax credits on dividends

• Tax credits on dividends are never repayable
• Offset against IT liability first

– to allow other tax credits to generate a repayment

Deductions
Reliefs
• Qualifying interest
– Employees: interest on loans to purchase P&M for use in employment – Partners: interest on loans to purchase shares or invest in partnership

• Trading losses

Deductions
Personal allowances
• Standard PA = £6,475 (2010/11) • Personal age allowance (PAA) – – – – 65+ at any time in tax year restricted if ANI exceeds £22,900 restriction = 50% × (ANI − £22,900) minimum PAA = £6,475

Adjusted net income

Reduction of PA
• Reduction of PA for high earners
– – – – – regardless of age reduced if ANI exceeds £100,000 definition of ANI = same as for PAA reduction = 50% × (ANI – £100,000) If ANI exceeds £112,950: PA = £Nil

Tax rates
Different tax rates apply depending on the amount and type of income Other Basic rate band (first £37,400) Higher rate (£37,401 – £150,000) Additional rate (over £150,000) 20% 40% 50% Savings 20% (see note) 40% 50% Dividends 10% 32.5% 42.5%

Note:

If savings income falls into the first £2,440 of taxable income it is taxed at 10%

Extending basic rate band
• Gift Aid
– Paid net of basic rate tax (20%) – If a higher rate taxpayer: extend BR band by gross amount = (net × 100/80) – If additional rate taxpayer: extend AR band by gross amount

• Personal pension contributions
– As for Gift Aid payments

Property income
Accruals basis Wholly and exclusively incurred (e.g. impaired debts, repairs, insurance)

Aggregate income from all properties

Wear & tear allowance for furnished properties: 10% × (Rent – WR – CT)

Lease premiums
• Where a premium is paid on the grant of a short lease (less than 50 years) – the landlord is taxed on property business income of: £ X (X) X

Premium
Less: 2% × Premium × (n – 1) Assessed on the landlord Where n = number of years of the lease

• Alternative calculation:
– Premium × (51 – n) 50

Relief for premiums paid
• Relief for premium paid available
– If grant a sub lease out of a short lease – Relief = deducted from assessment on premium received from sublease – Amount of relief = Taxable premium for head lease × Duration of sublease Duration of head lease

Rent a room relief
• Rent a room
– – – – Gross rents ≤ £4,250 = exempt Gross rents > £4,250 = Normal calculation Unless elect for rent a room relief Rent a room relief = to be assessed on: (Rents – £4,250)

Furnished holiday lettings
• Conditions
– Available to let ≥ 140 days – Actually let ≥ 70 days – No long...
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