CIOT - ATT-CTA Paper: ATT Paper 1 Personal Taxation

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CIOT - ATT-CTA

Paper: ATT Paper 1 Personal Taxation

Part/Module: Part 1


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Answer-to-Question-_1_

Q1) £

Car:

List price 22,000Less: capital contribution(max £5,000) (5,000)revised list price 17,000

Car benefit:17,000 x 30% (w1) 5,100

(w1)30% = [(135-75)/5=12 % + 18% (registered pre April 6)

Van:

Unrestricted private use 3,490Plus fuel 666Van benefit 4,156

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Answer-to-Question-_2_Q2)

If a person is employed by a company then they would have a legal contract compared to an inidividual who is not employed.

Case law has determined that there must be four factors present before an inidivudal can be classed as an employee:

Mutality of obligationWage paid to the workerPersonal serviceControl.

In addition, the tax treatment of the individual would be different. If an inidividual was employed then they would pay tax through PAYE whereby tax is deducted at source through their employment earnings. In contrast, if an individual was self-employed then they would have to complete their own tax return which is due by 31 January following the end of the tax year if done electronically (other 31 October). This means that they would make payments on account on 31 January and 31 July each year and pay the balancing payment on 31 January the year after. Therefore, there tax would not be deducted at source.

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Q3)

Under this scheme Harry has entered into an arrangement with an HMRC approved payroll giving agency which means that £5,200 each month would be passed on to his chosen charity.

Gift aid payments are made net of 20% of basic rate tax.

As he is an additional rate taxpayer, he would have received relief by extending both his basic rate and higher rate bands.

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Q4)

Double taxation = Lower of

£ £Overseas tax paid 23,600 (w1) 1,600

Uk income tax22,500 x 20% 4,500

(w1)(8,000 x 100/20) = £1,600

Employment income 22,500Overseas bank interest 22,600 Total income 45,100Less: Personal Allowance (12,500)Taxable income 32,600

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Q5)

The chargeable gain on the ordinary shares of £25,700 is exempt from CGT. This is because Safa bought shares in a qualifying EIS company and she sold the shares after 3 years which is the relevant time period. This is also assuming the she obtained income tax relief on subscription.

The gain would have been more if she had sold them in January 2021 as some of her original income tax relief would have been clawed back as she would have sold them before the relevant period was up. Therefore, her gain would not have been exempt and she would of had to have paid CGT.

£Gain on painting:

Chargeable gain 18,500

Tax(w1) 7,500 @ 10% 75011,000 @ 20% 2,200Total CGT due 2,950

(w1)Basic rate band 37,500Less: already used (30,000)remaining band 7,500

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Q6)

£Sculpture (w1) 8,000painting (w2) 1,667Snooker table (N1) ExemptVase (w3) (3,500)Chargeable gains 6,167

(w1)Proceeds 20,000Less: cost (12,000)Gain 8,000

(w2)Proceeds 7,000Less: Cost (4,500)Gain 3,500

However, compare to 5/3rd rule

5/3 x (7,000 - 6,000) = £1,667

Therefore, lower of the two is £1,667.

(w3)

Proceeds 6,000Less: Expenses of sale (500)

5,500Less: Cost (9,000)Allowable loss (3,500)


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As cost if greater than £6,000 but sale proceeds are less than £6,000 then the loss is restricted by deeming gross proceeds to be £6k.

(N1)Snooker table is exempt as cost is <£6000 & proceeds are also <£6000.

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Q7)

Mariella:

£Five year contract= 5 years contributions (w1)

Contributions (500 x 60 months) 30,000

Option price is £5.30 per share (i.e. £5.30 x 80%) Number of shares acquired = 30,000/5.30 5,660

Jake:

Five year contract= 5 years contributions (w1)

Contributions (£5 x 60 months) 300

Option price is £5.30 per share (i.e. £5.30 x 80%) Number of shares acquired = 300/5.30 57

Kincen plc cannot set the option price at £5 per share as that means there is a greater discount than 20% given which is not allowed under the scheme conditions.


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Q8)

The annual allowance that Elizabeth can put into her ISA in a tax year is £20,000. This £20,000 is exempt from CGT.

If her husband also had an ISA this could transfer to Elizabeth. This means that her annual allowance limit would be exceed and the excess in her account would be subject to CGT at 10% or 20%.

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Q9) £

Property income (w1)(£4,000 x 8) 32,000Less: ExpensesRepairing roof (2,500) Mortgage interest NilBuildings insurance (2,200)Replacement tiles (1,000)Hedge-trimmer NilFridge- freezer NilTotal property income 26,300

Although he had to repair the roof before he could rent out the property, it would still be considered as a genuine repair to the property and therefore it would be allowable.

The loan interest is not allowable as a deduction when calculating property incoem in respect of residential properties but instead the interest is only eligible for basic rate tax relief which is given as a reduction in arriving at the individual's income tax liability. This is the lowest of the eligible interest, the property income for the year less property losses b/f & adjusted total income.

He could only claim £1000 relief as a replacement for like for like materials. He would not be able to claim the additional £750 that he gave his brother for his labour as it was a gift.

Hedge trimmer would be considered as capital as it is buying tools.

As it is the first time he is buying a fridge freezer then


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would be regarded as capital.

(w1)Property only let from August, therefore 4 months of tax year not receiving income.

As William made no election in relation to the basis of taxation of his property income he will be taxed on the cash basis.

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Q10)

Penalties for late filing:

Sanjay's return should have been filed for the 2020/21 tax year electronically by 31 January 2022. Therefore, if he filed on 16 September 2022 then this is 8 months late.

An initial penalty of £100 will apply.

As the return is more than 6 months late then an addition 5% of the tax liability of £5,000 ot £300 if greater would be due. Therefore, £5,000 x 5% = £250. So an additional £300 would be due.

His return is not more than 12 months late so there would be no further penalties.

Penalties for late payment:

The first payment on account would have been due on 31 January 2022 alogn with the balancing payment for the year before and the second payment should have been made on 31 July 2022.

Therefore, there would be interest to pay on the late payments from the normal due date to the date of payment. This will be charged at the official interest rate of 2.6%.

31 Jan payment = 8 months late

31 July payment = 2 months late


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There willd also be a penalty of %5 of the unpaid tax due and a further 5% in respect of the 31 January payment. Therefore, this would be an extra £500 penalty.

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Q11)

As Joel was only non-resident for a period of 3 years then any gains that he prior to his period of non-residency will come back into charge as he was not non-UK resident for a period of more than 5 years. Therefore, as he inherited the painting from his uncle in 2003 then he would be liable to pay the CGT on this at 10% or 20%.

However, for the shares as he bought the shares and sold the shares while he was non-UK resident then the rules do not apply to assets which were acquired by the taxpayer during the temporary period of non-residence. Therefore, he will have no UK CGT to pay on the disposal of the shares.

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Q12)

Jane would pay class 1 primary contributions on her salary of £50,000.

£(50,000- 9,500) x 12% 4,860

Tower Ltd would pay class 1 secondary contributions:

(50,000 - 8,788) x 13.8% 5,687

John would pay class 2 on his self-employed earnings.

Class 2: £

£3.05 x 52 weeks 159

If his earnings were above the upper limit of £9,500 then he would also have to pay class 4 NICs.

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CIOT - ATT-CTA

Paper: ATT Paper 1 Personal Taxation

Part/Module: Part 2


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Q13)

PART 1:

£ NSI SI D T|-----------|-----------|-----------|-----------|-----------|Private pension 62,300|-----------|-----------|-----------|-----------|-----------|State pension 8,768|-----------|-----------|-----------|-----------|-----------|Unit Trust Int 270|-----------|-----------|-----------|-----------|-----------|Bank Int 600|-----------|-----------|-----------|-----------|-----------|REIT (3,000 x 100/80) 3,750|-----------|-----------|-----------|-----------|-----------|Uk dividends 27,500|-----------|-----------|-----------|-----------|-----------|Net income 71,068 870 31,250 103,188|-----------|-----------|-----------|-----------|-----------|Less: PA (w1) (10,906)|-----------|-----------|-----------|-----------|-----------|Taxable income 60,162 870 31,250 92,282|-----------|-----------|-----------|-----------|-----------|


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Tax £

37,500 @ 20% 7,500 22,662 @ 40% 9,06960,162500 @ 0% Nil370 @ 40% 1488702,000 @ 0% Nil63,03229,250 @ 32.5% 9,506

26,223

Less: VCT relief (w1) (7,500)Less: EIS relief (w2) NilLess: PAYE (16,200)REIT (750)

Tax due 1,773

(w1) £

Personal allowance 12,500Less: 1/2 x (103,188 - 125,000) (1,594)Allowance given 10,906

Dividend received from a tax-exempt property of a UK REIT is deemed to have been received under deduction of basic rate income tax at 20%. Therefore, 20% tax credit taken off after taxable income worked out.

Interest from an ISA = exempt. Therefore, only £600 of the interest added to computation.

PAYE already paid so deducted from tax due.

(w1) VCT = Renata will receive a tax reducer of £25,000 x 30% = £7,500

(w2) EIS = As Renata has not made an investment for EIS


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relief in 2020/21 and has her full relief available, she can look to see if se can make a claim to carry it back to the 2020/21 tax year. However, as the tax reducer would be £12,000 x 30% = £3,600, this would result in a repayment position for the tax year which is not allowed. Therefore, Renata cannot obtain EIS relief in 2020/21 and will have to wait until 2021/22.

PART 2:

An ATT member should keep a proepr professional record of all dealings with clients in order that the member is able to communicate effectively, including with HMRC. In addition, the member and colleagues/successors can gain access to a complete record of the client's history. This is important to inform future client service.

The member is also able to reolves any misunderstandings/complaints, for example with regard to fees. Lastly, the member is able to defend themselves in the event of any allegation of negligence.

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Q14)

PART 1:

Cottage in Birmingham: £

Proceeds 600,000Less: legal fees(1.5% x £600,000) (9,000)Less: acquisition costsPurchase cost (98,000)Legal fees (2,160)Enhancement expenditure (3,500)

487,340

Gain 487,340Less: PPR relief (w1) (397,092)

Chargeable gain 90,248Less: AEA (12,300)Taxable gain 77,948

Tax due77,948 @ 28% 21,825(higher rate taxpayer)

(w1) Occupation m Absence m Total m

|--------------|--------------|--------------|--------------|1 Dec 2004 to31 Dec 2006(actual occupation) 251 Jan 2007 to1 Jan 2011 48


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(worked in UKmax 4 years)1 Jan 2011 to 3631 Jan 2014(any absence3 years) 31 Jan 2014 to 12 31 Jan 2015(unoccupied)31 Jan 2015 to1 December 2017 23(absence usedup all reasons)

1 Dec 2017 to1 October 20 36(actual occupation)

31 October 20to31 July 2021 9(deemed occupation)Total 154 35 189

PPR relief available:487,340 x 154/189 = £397,092

Cottage in Welshpool: £

Proceeds 600,000Less: Legal fees(600,000 x 1%) (6,000)

594,000

Less: acquisition costsPurchase cost (415,000)Enhancement expenditureSeptember 2016 (44,600)June 2017 (18,500)Gain 115,900 Less: AEA (12,300)


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Taxable gain 103,600

Tax due103,600 @ 28% 29,008

PART 2:

As her proeprty in Birmigham has been elected as her primary residence then most of the gain is exempt under PPR relief. Therefore, it would be more beneficial for Linda to sell this property as she will pay less tax. As she is a higher rate tax payer she will have to pay tax at a rate of 28%. If she had rented out her cottage as a furnished holiday letting then it would have been more beneficial to sell this property as she would have been able to claim Business Asset Disposal Relief and pay tax at 10%. However, as she has never rented the property out this is not considered as a furnished holiday letting.

PART 3:

There are 3 ways in which Linda can report her disposal to HMRC.

Using the capital gains tax on UK property online service within 30 days of selling the UK residential property.

Stratight away using the real-time capital gains tax online service

Annually as required previous to 6 April 2020 by completing a self-assessment return.

Linda must report her sale and gain to HMRC within 30 days as well as complete the self assessment return. Therefore, she may need to report the gain twice.

She must make the payment within 30 days as well of the disposal or if sooner then she must pay by 31 January following the year of disposal. For 2021/22 is the 31 January 2023.


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Only the taxable gains need to be reported on the property return. Thus, if she had made a loss then there would be no CGT payable.

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Q15)

PART 1:

As Georgina is a basic rate tax payer who's income is under her personal allowance of £12,500, then she has some of her allowance available to transfer over to her partner Gareth as marriage allowance. The amount of Georgina's allowance available to transfer is 10% of the personal allowance being £1,250. Her allowance will therefore reduce by this amount. Gareth will receive a reduction equal to 20% of the amount that Georgina has transfered.

PART 2:

Gareth:

£Employment income 42,900Less: PA (12,500)Taxable income 30,400

30,400 @ 20% 6,080Less: tax reducer (w)Marriage Allowance (1,250 x 20%) (250)Tax liability 5,830

Georgina:

Employment income 11,550Less: PA (w) (11,250)Taxable income 300

Tax


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300 @ 0% NilTax liability Nil

(w)

Gareth receives marriage allowance of £1,250 as tax reducer @ 20%

Georgina = 12,500 - 1,250 = £11,250

PART 3:

Heather's tax liability:

£ £ Child benefit received 1,820

Adjusted net income:

Net income from employment 59,500Less: Gross pension(4,225 x 100/80) (5,281)

Less: Gross gift aid(500 x 100/80) (625)

53,594

Less: Limit (50,000)Excess 3,594

Child benefit charge:1% per £100 of £3,594 = 35.94% Rounded down to 35%

Child benefit charge = £3,594 x 35% 1,258


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(1,820 - 1,258) = 562Amount withdrawn 562

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Q16)

Memorandum/report style for notes:

To: all employeesFrom: Tax adviserSubject: Training notesDate: 06/05/2021

Please be aware that I have been asked to prepare these notes for you which relate to training.

BADR:

BADR is a CGT relief available to taxpayers who sell or give away their businesses. The relief if available where there is a material disposal of business assets or a disposal which is associated with a material disposal. This relief is available to company directors and employees who dispose of shares or securities in the personal trading company that they work for. The aim of BADR is to reduce the rate of capital gains tax paid by taxpayer on qualifying disposals to 10%.

Jason is eligible to claim business asset disposal relief on his disposal of VG plc shares as he is a part time director selling shares in his personal trading company. In addition, Jason purchased the shares in July 2003 and sold them in February 2021. This means that he held onto the shares for the qualifying period which is 2 years prior to sale.

As Jason has never claimed BADR relief before then he is entitled to claim his full limit of £1million. This limit is a lifetime limit as opposed to a limit received each tax year. Therefore, once the limit is used up, all future shares will be taxed at a rate of 20%. Jason needs to claim


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BADR relief on or before the first anniversary of 31 January following the tax year of the qualifying disposal. Therefore, for the shares disposed of in Feb 2021 which falls into the 2020/21 tax year, the claim must be made no later than 31 January 2023.

Therefore, looking at the purchase he made on 14 July 2003, he bought 60,000 shares for £5.80 per share. At this time he did not work for the company. However, as he started working for the company in 2012 and did not sell the shares until February 2021, then he will qualify for BADR relief. This means that as the amount of shares he is selling is well below the £1m lifetime limit and the full £348,000 gain will be covered by BADR relief. This means that the qualifying gain will be taxed at 10% in 2020/21.

He should note for future reference that this means he has a total of £652,000 of lifetime limit that he can use in the future should he wish to take the company up on their expansion plan at a date in the future. However, as he is only selling 20,000 of these shares at a gain of £180,000 then when he comes to sell the remaining 40,000 these shares will also be covered by BADR relief and he will pay CGT at 10%.

If he wished to take the company up on this offer then he would not be able to buy the full £500,000 shares for £8 otherwise he would use up all of his lifetime limit and would be subject to pay capital gains tax at 20%.

With regards to the specific type of shares that Jason could purchase in March 2020, he should note that as these are EMI shares he only has a time limit of 10 years from date of grant in which to exercise his option to buy. Otherwise, he will not qualify for favourable tax treatment.

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CIOT - ATT-CTA Paper: ATT Paper 1 Personal Taxation

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