*** P6 March 2016 Exam was.. Instant Poll and comments ***

Q1 was OK. About overseas perm establishment and overseas sub.
Vat implication for transferring assets
Cfc charges if any.

Q2 didn’t go too well. Especially the first part which was worth 17 marks. Very easily got diverted from the actual question . 4 errors, with each asking for impact on 2 people in respect of i.t cgt iht.
Missed the penalty element which was lucky only 3 marks. Ethics part was easy though.

Q3 was OK. Iht cgt qsr. After tax proceeds of cap gains on shares. Distinctly remember personal service companies.

Q5 was OK. Non trading loan relationship. Tax deductions for it.
Basis period and taxable profit for each tax yr.
And I think there may have been an iht question at the end of Q5 but can’t remember.

Overall was OK given they didn’t test group relief

This was the first exam where I did the optional questions before the mandatory ones.

Found Q3 pretty straightforward after getting my head around it.

Q5 was tricky. Not entirely certain I got my tax rules correct, but not going to think about it.

Q1 was challenging, but not the worst in the world. Not a great deal of maths involved (so I found), as the computations were more for Q2. Didn’t write a lot for part D, regarding the gains on the transfer.

Q2 took a bit of getting used to. Made a stupid mistake with Error 4 (IHT), as I got my maths
completely wrong until I realised that, with my mistake, no adjustment was necessary (thought she was UK res for 16 years instead of 26).

Overall, not as bad as I thought it could be. Quietly confident

Cfc was why was it unlikely the profits of the cfc (trento ltd 2 subs owning vara and wera) to have to apportion them for uk tax… i think

I completely agree. For example. Eg cfc psc qsr etc

@kennyb said:
Q3 or Q4 part a) was purchase of own shares.
lady held 10,000 shares
explain why the reduction in interest conditions for capital method are not met if she sells:
i) 2,700 shares

And the conditions are met if she sells;
ii) 3,200 shares.

My understanding is that they need to reduce their interest by at least 25% to meet the condition. So they are >25% in each case?

What is the answer to this?

This was Q4. What was the rest of it and how many marks was this worth?

I’ve been trying to figure this out for a LONG time, and I only JUST got it.

You are looking at the reduction based on the original total of shares (40000). You need to look at it based on the NEW total.
If she sells 2700 shares, the new total would be 37300 shares. She would retain 7300, meaning her shareholding is now 19.6%. Her original shareholding was 25%, therefore the reduction is 21.7% < 25% required reduction, therefore it would be the distribution method.

If she sells 3200 shares, the new total would be 36800 shares. She would retain 6800, meaning her shareholding is now 18.5%. Her original shareholding was 25%, therefore the reduction is 26.1% > 25% required reduction, therefore it would be the capital method.

Damn … I wish I thought of this in the exam.

@lotak said:
This was Q4. What was the rest of it and how many marks was this worth?

I’ve been trying to figure this out for a LONG time, and I only JUST got it.

You are looking at the reduction based on the original total of shares (40000). You need to look at it based on the NEW total.
If she sells 2700 shares, the new total would be 37300 shares. She would retain 7300, meaning her shareholding is now 19.6%. Her original shareholding was 25%, therefore the reduction is 21.7% < 25% required reduction, therefore it would be the distribution method.

If she sells 3200 shares, the new total would be 36800 shares. She would retain 6800, meaning her shareholding is now 18.5%. Her original shareholding was 25%, therefore the reduction is 26.1% > 25% required reduction, therefore it would be the capital method.

Damn … I wish I thought of this in the exam.

Yeah that is correct, I didn’t do that!
That was worth 4 marks

The next 4 marks were to calculate the disposal of 2700 for the distribution method and the 3200 as the capital method.

I Think the share price was £12.80

i agree branches treatment was quite straighforward and easy.
irevocable exemption – lose out on future losses. group relief
DTR implications lower of UK or overseas tax

Companies , well not clear had to make ASSUMPTIONS since they stated that subsidiaries would be wholly owned, that may raise the implication of CFC rules and risks, so i hammered towards that route. the alternative , FII exempt dividend should there not been control.

VAT implications
the marks were just too much.So i took it from the point that both companies were VAT registered and assumed that it was not a VAT group , so basing on that assumption ,i went the TOGC route.

Imports.
outside EU/ if been a local supplier chargeable at standard rate
VAT output accounted on point of entry
VAT input recovery on next VAT return.
Bonded warehouse implications.

exam was not easy

Q1 A (i) – (10 Marks)
Acq to overseas companies – Treating as Branches – Implications and calculation of C/T
1 – if profits are exempt (election is made)
2 – if election is not made

Answer
1 company was making profits – 1 was making losses

Conditions if election made
– no UK tax on profits transferred
– cannot transfer losses to UK – or get relief for them
– cannot get capital allowances

Conditions if election not made
conditions opposite of above.

Calculate C/T for both effects (i applied 20% tax using normal limits for an individual company)- i made 1 mistake – according to the conditions above it was a matter of accept all or reject all – however i included the profits of overseas branch and excluded the losses – i should have excluded the profits of overseas branch too.

Q1 A (ii) (8 marks)
Acq to overseas companies – Treating as subsidiary (Implications) + CFC (why not applicable)

Treating as subsidiary – Implications

– Profits – these are treated as dividends (already grossed) and taxed under C/T
– Losses – these cannot be transferred to the UK – as sub not resident in the UK and also FX complications
– Upper and lower limits – are still affected from group prospective as sub is an associate of the group

CFC –
said what CFC is

Conditions
Holding period exemption – this was being met – as sub purchased at start of the year – therefore no C/T this year

Net profit exemption
Net profit margin exemption
Excluded territory exemption
Overseas taxed profit levels exemption

B – VAT (Import from Outside EU and acquisition from With EU) – (5 Marks)

Sale of trade and assets at MV within the group + C/T & SDLT implications- 8 marks

Did lower of cost and TWDV – showedd taxables for all assets – there was indexation on PP&E

C/T & SDLT implications
inter group transaction so no c/t implication unless degrouping occurs
sdlt – payable by purchase on purchase price – n/a as inter group

Q2 –
A – (17 Marks)
4 errors
1 – about property income – treated of rent required on accrual basis and total up the partnership and slip 80:20

2 – some purchase of share – can’t remember to much about this – just did a simple calculation of gain arising on sale i think

3 – loss on sale of shares – not disclosed to HMRC – could have relived capital losses etc

4 – IHT on overseas property (160k) which was excluded in the IHT calculation – and remaming death estate has IHT of 68k – spoke about deemed domocile status of the person – NRB being fully used due to 68k IHT liability – and hence 160 would incure additional IHT at 40%

B – (3 marks) – penalties for errors – spoke about simple error – deliberate and deliberate and concealing with max and min penalties

c – (5 marks) ethics on whether we should accept the client

client due diligence
client reference check
agreement for provision of information from client
our own competence and time
agreement on fees and deliverables – to minimise expectation gap

Q3 –
A – CGT implications of disposals (6 marks)

(3) insurance proceeds recieved for damaged painting that was not repaired and hence part disposal + showed the calculation
(3) disposal of share – showed the disposal and a point about intial gift relief claim when shares recieved from eric’s sister

B – (6) Availability of APR BPR and QSR – if dies on 31st march 13
outlined the conditions and said avilability – APR on agriculrual value – BPR 50% due to quoted shares

c – PET cash in 2009 (3) – if dies in 2016 – implications
quite simple

D- (5 Marks) – PSC
showed the calculation in the performa – did calculation only

Q4 –
A – (4 capital method treatment) – have 10k shares – was selling either 2700 or 3200
wrote the conditions
and said how sale is >30% if 3200 sold and remaining shares <75% if 2700 sold

A (i) (4 marks) – calulation of the 2 options
i did both at capital treatment – i think the requirement was 1 of each – capital and non capital disposal

B – (5 marks) – newly acq business – wheather 1st year losses can be adjusted
spoke about the conditions for restriction of losses if new business changes trade 3 year pre or post joining
they were looking to expand overseas and hence fails condition therefore losses would be restricted

B (i) (3 marks) bought the brand and some impact on P&L
treated as intangibles — but may be patent box – got it wrong

(C) (4 marks) transfer of going concern – but should the building be vatable?

Write TOGC conditions and said how its outside the scope of vat

Buuilding needs to be treated as seperate component – depends if opt in or not.. if opt in then vatable as the seller would have been able to recover input vat on maintainnace costs.

Shares which are purchased back misk be cancel from total Shareholding of company. so you should calculate % after cancellation. Sale of 3200 was qualifying for capital treatment.

Hope for a pass, good luck everyone.