ACCA P6 Advanced Taxation (UK)

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ACCA P6 Exam Tips – December 2013

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 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 establishing a trading profit / loss the treatment of R&D expenditure may be tested.

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.

Major 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, the application of the CFC legislation and in particular 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. Incorporation may test Income Tax, CGT, Corporation Tax, VAT and Stamp Duty as the assets and trade of the individual are transferred to a company.

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.

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.

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