Exam technique and fundamental technical issues for Advanced Taxation - United Kingdom (ATX (UK))

Part 2 of 4

This is the Finance Act 2018 version of this article. It is relevant for candidates sitting the ATX (UK) exam in the period 1 June 2019 to 31 March 2020. Candidates sitting ATX (UK) after 31 March 2020 should refer to the Finance Act 2019 version of this article (to be published on the ACCA website in 2020).

Technical issues

In the first part of this article we looked at examination technique. We are now going to look at some of the fundamental technical issues.

1. Income tax – the structure of the computation
Preparation of a comprehensive income tax computation with many different sources of income, tax rates and credits is an unlikely task in the ATX (UK) exam. However, the structure of the income tax computation is of fundamental importance.

By ‘structure’ I mean the way the income tax computation works; the calculation of taxable income, the availability of the personal allowance, the operation of the tax rates, tax reducers and the availability of tax credits. It is only by having a good understanding of this structure that you will be able to think your way through the computation and identify an efficient way of answering a question.

This knowledge will also ensure that you consider all the relevant points (for example, the personal allowance) whilst avoiding the preparation of full tax computations.

2. Income tax – individuals who are non-UK resident
Individuals who are non-UK resident are not subject to income tax on their non-UK source income. Accordingly, once non-UK residency has been determined, all that should then be said is that the individual’s overseas income will not be subject to income tax.

There is no need to consider the remittance basis as it is not relevant to non-UK residents. The remittance basis concerns the manner in which overseas income is taxed, that is to say whether it is taxed on the arising basis or on the remittance basis. But for a non-UK resident overseas income is simply not taxable and that is the end of the matter.

When thinking about the remittance basis you should think of it applying to UK residents who are not domiciled in the UK – they must be resident.

There is more detail on this in the article ‘International aspects of personal taxation for ATX (UK)’.

3. Income tax – the unincorporated trader
The tax position of the unincorporated trader in relation to both profits and losses is examined regularly. In order to perform well in respect of these questions you must know the opening and closing year rules and the rules relating to loss relief. There are two articles on this area available on the website.

4. Capital gains tax – temporary non-residents
The temporary non-resident rules need to be considered when an individual becomes non-resident for a period of less than five years. Under the rules, and depending on the circumstances, such an individual may continue to be liable to capital gains tax in respect of disposals whilst absent from the UK.

The temporary non-resident rules do not have any effect on the individual’s residence status. This makes sense because it is the fact that the individual is non-resident that has brought about the consideration of the temporary non-resident rules. It would be horribly circular if those rules then affected the individual’s residence status.

There is more detail on this area in the article ‘International aspects of personal taxation for ATX (UK)’.

5. Capital gains tax – reliefs
Capital gains tax reliefs should be considered whenever there is a capital gains tax disposal. You should have a mental checklist that enables you to think about the availability of all of the possible reliefs (entrepreneurs’ relief, investor’s relief, rollover relief, gift relief, EIS deferral relief, SEIS reinvestment relief, incorporation relief and principal private residence relief) such that you can then address those that are relevant to the question. Rollover relief is the only one of these reliefs that is available to companies.

There are conditions, particularly in relation to the property disposed of and time periods, that need to be satisfied in order for each particular relief to be available. You must learn the conditions.

This review of the fundamental technical issues continues in the next part of this article.

The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The author and the ACCA expressly disclaims all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.

Written by a member of the ATX (UK) examining team