ACCA F6 FA09 Study Text 2010
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Paper F6 (UK)
Taxation FA2009
t
Tax rates and
allowances
Contents
1 Tax rates and allowances
2 Retail price indices
3 Abbreviations
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1 Tax rates and allowances
1.1 Tax rates and allowances given in the examination paper
Income tax
%
Basic rate £0 – £37,400 20
Higher rate £37,401 and above 40
A 10% rate applies where savings income falls within the first £2,440 of taxable
income.
Personal allowance
£
Personal allowance 6,475
65 – 74 9,490
75 and over 9,640
Income limit for age related allowances 22,900
Car benefit percentage
The base level of CO
2
emissions is 135 grams per kilometre. A lower rate of 10%
applies to petrol cars with CO
2
emissions of 120 grams per kilometre or less.
Car fuel benefit
The base figure for calculating the car fuel benefit is £16,900.
Personal pension contribution limits
Annual allowance £245,000
The maximum contribution that can be made without any earnings is £3,600.
Authorised mileage allowances: cars
Up to 10,000 miles 40p
Over 10,000 miles 25p
Tax rates and allowances
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Capital allowances
%
Plant and machinery
General pool
– Firstyearallowance
– Writing-down allowance
40
20
Special rate pool
10
Motor cars
CO
2
emissions up to 110 grams per kilometre 100
CO
2
emissions between 111 and 160 grams per kilometre 20
CO
2
emissions over 160 grams per kilometre 10
Annual investment allowance
First £50,000 of expenditure 100
Industrial buildings
Writing-down allowance
2
Corporation tax
Financial year 2007
2008
2009
Small companies rate 20%
21%
21%
Full rate 30%
28%
28%
Lower limit 300,000
300,000
300,000
Upper limit 1,500,000
1,500,000
1,500,000
Marginal relief fraction 1/40
7/400
7/400
Marginal relief
(M – P) x I/P x Marginal relief fraction
Extended loss relief
Extended loss relief is capped at a maximum of £50,000. For limited companies it
applies to loss-making accounting periods ending between 24 November 2008 and
23 November 2010.
Value Added Tax
Standard rate
‐ Upto31December2009
15.0%
‐ From1January2010onwards
17.5%
£
Registration limit 68,000
Deregistration limit 66,000
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Capital gains tax
Rate of tax
18%
Annual exemption
£10,100
Entrepreneurs’ relief
‐ Lifetime limit
£1,000,000
‐ Relief factor
4/9ths
National Insurance contributions (not contracted out rates)
%
Class 1 Employee £1 – £5,715 per year Nil
£5,716 – £43,875 per year 11.0
£43,876 and above per year 1.0
Class 1 Employer £1 – £5,715 per year Nil
£5,716 and above per year 12.8
Class 1A
12.8
Class 2
£2.40 per week
Class 4 £1 – £5,715 per year Nil
£5,716 – £43,875 per year 8.0
£43,876 and above per year 1.0
Rates of interest
Official rate of interest: 4.75%
Rate of interest on underpaid tax: 2.5% (assumed)
Rate of interest on overpaid tax: Nil (assumed)
Tax rates and allowances
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2 Retail price indices
2.1 RPIs used for examples and questions in this text
1982 1983 1984
1985
1986
1987
1988
1989 1990 1991
January – 82.61 86.84
91.20
96.25
100.0
103.3
111.0 119.5 130.2
February – 82.97 87.20
91.94
96.60
100.4
103.7
111.8 120.2 130.9
March 79.44 83.12 87.48
92.80
96.73
100.6
104.1
112.3 121.4 131.4
April 81.04 84.28 88.64
94.78
97.67
101.8
105.8
114.3 125.1 133.1
May 81.62 84.64 88.97
95.21
97.85
101.9
106.2
115.0 126.2 133.5
June 81.85 84.84 89.20
95.41
97.79
101.9
106.6
115.4 126.7 134.1
July 81.88 85.30 89.10
95.23
97.52
101.8
106.7
115.5 126.8 133.8
August 81.90 85.68 89.94
95.49
97.82
102.1
107.9
115.8 128.1 134.1
September 81.85 86.06 90.11
95.44
98.30
102.4
108.4
116.6 129.3 134.6
October 82.26 86.36 90.67
95.59
98.45
102.9
109.5
117.5 130.3 135.1
November 82.66 86.67 90.95
95.92
99.29
103.4
110.0
118.5 130.0 135.6
December 82.51 86.89 90.87
96.05
99.62
103.3
110.3
118.8 129.9 135.7
1992 1993 1994
1995
1996
1997
1998
1999 2000 2001
January 135.6 137.9 141.3
146.0
150.2
154.4
159.5
163.4 166.6 171.1
February 136.3 138.8 142.1
146.9
150.9
155.0
160.3
163.7 167.5 172.0
March 136.7 139.3 142.5
147.5
151.5
155.4
160.8
164.1 168.4 172.2
April 138.8 140.6 144.2
149.0
152.6
156.3
162.6
165.2 170.1 173.1
May 139.3 141.1 144.7
149.6
152.9
156.9
163.5
165.6 170.7 174.2
June 139.3 141.0 144.7
149.8
153.0
157.5
163.4
165.6 171.1 174.4
July 138.8 140.7 144.0
149.1
152.4
157.5
163.0
165.1 170.5 173.3
August 138.9 141.3 144.7
149.9
153.1
158.5
163.7
165.5 170.5 174.0
September 139.4 141.9 145.0
150.6
153.8
159.3
164.4
166.2 171.7 174.6
October 139.9 141.8 145.2
149.8
153.8
159.5
164.5
166.5 171.6 174.3
November 139.7 141.6 145.3
149.8
153.9
159.6
164.4
166.7 172.1 173.6
December 139.2 141.9 146.0
150.7
154.4
160.0
164.4
167.3 172.2 173.4
2002 2003 2004
2005
2006
2007
2008
2009 2010
January 173.3 178.4 183.1
188.9
193.4
201.6
209.8
210.1
215.6
February 173.8 179.3 183.8
189.6
194.2
203.1
211.4
211.4
216.0
March 174.5 179.9 184.6
190.5
195.0
204.4
212.1
211.3
216.3
April 175.7 181.2 185.7
191.6
196.5
205.4
214.0
211.5
216.8
May 176.2 181.5 186.5
192.0
197.7
206.2
215.1
212.8
June 176.2 181.3 186.8
192.2
198.5
207.3
216.8
213.4
July 175.9 181.3
186.8
192.2
198.5 206.1 216.5 213.4
August 176.4 181.6
187.4
192.6
199.2 207.3 217.2 214.4
September 177.6 182.5
188.1
193.1
200.1 208.0 218.4 214.6
October 177.9 182.6
188.6
193.3
200.4 208.9 217.7 214.8
November 178.2 182.7
189.0
193.6
200.1 209.7 216.0 215.0
December 178.5 183.5
189.9
194.1
202.7 210.9 212.9 215.2
Note: The figures in italics are estimated
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3 Abbreviations
AIA Annual investment allowance
AMA Approved mileage allowances
ATPD Actual tax point date
AVCs Additional voluntary contributions
BA Balancing allowance
BC Balancing charge
BTPD Basic tax point date
CAP Chargeable accounting period
CGT Capital gains tax
CYB Current year basis
DTR Double taxation relief
FA Finance Act
FIFO First in, first out
FII Franked investment income
FY Financial year
FYA First year allowance
HMRC Her Majesty’s Revenue and Customs
IA Indexation allowance
IBA Industrial buildings allowance
ICTA 1988 Income and Corporation Taxes Act 1988
ITA 2007 Income Tax Act 2007
LIFO Last in, first out
LPE Lower-paid employee
MR Marginal relief
NIC National Insurance contributions
NRE Net relevant earnings
PA Personal allowance
PAYE
Pay as you earn
PCTCT Profits chargeable to corporation tax
POA Payment on
account
PPP Personal pension plan
QBA Qualifying business asset
TCGA 1992 Taxation of Chargeable Gains Act 1992
TPD Tax point date
TWDV Tax written down value
WDA Writing down allowance
WHT Withholding tax
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Paper F6 (UK)
Taxation FA2009
CHAPTER
1
The UK tax system
Contents
1 The overall function and purpose of taxation in a
modern economy
2 The different types of taxes
3 Principal sources of revenue law and practice
4 Tax avoidance and tax evasion
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The overall function and purpose of taxation in a modern economy
The economic function of taxation
The social justice purpose of taxation
1 The overall function and purpose of taxation in a
modern economy
1.1 The economic function of taxation
The UK government raises billions of pounds in taxation every year and the system
of taxation and spending by government impacts on the whole economy of a
country.
Taxation policies have been used to influence many economic factors such as
inflation, employment levels, imports/exports, etc.
Taxation policies can also influence the behaviour of individuals and businesses,
which will then have an effect on the economy of the country.
Examples of this influence may be:
Using interest rate changes to encourage either spending or saving.
Encouraging individuals to save and invest, by offering tax incentives such as
Individual Savings Accounts (ISAs) or Venture Capital Trusts (VCTs), etc.
Encouraging charitable giving by offering tax relief on donations and gifts.
Increasing car tax on large cars, to try to cut down CO2 emissions.
Discouraging smoking and drinking alcohol by increasing tax on these goods.
1.2 The social justice purpose of taxation
The type of taxation structure imposed has a direct impact on the redistribution of
the wealth of a country. The main ways of structuring the tax system are listed
below.
Proportional taxation
As income rises, the proportion of tax remains constant. For example, a proportional
tax is one that takes 20% of all earnings regardless of their level.
Progressive taxation
As income rises, the amount of tax also rises by proportion. An example of this
would be 10% on £100,000 of income, rising to 40% on £400,000 of income. The UK’s
system of income tax is an example of a progressive tax system.
Chapter 1: The UK tax system
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Regressive taxation
As income rises, the proportion of taxation paid falls. An example of this would be a
tax on fuel that must be paid by both lower and higher earners. It would be
described as regressive, because the amount of tax represents a greater proportion
of the lower earner’s income.
Ad valorem principle
This is the percentage of tax added to the value of goods. An example of this would
be 15% VAT on most goods sold in the UK. VAT is said to be a regressive tax as a
low earner will spend more of their income than a high earner.
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The different types of taxes
Income tax
National insurance contributions
Corporation tax
Capital gains tax
Inheritance tax
Value added tax
Stamp duty
Direct and indirect taxation
2 The different types of taxes
2.1 Income tax
Income tax is payable by individuals on their earned income, such as employment
income, self-employment income and pensions.
It is collected from employees using the Pay As You Earn (PAYE) system, and from
self-employed individuals using the self assessment system.
Income tax is also payable by individuals on their other income, such as bank
interest, dividends and rental income.
2.2 National insurance contributions (NICs)
NICs are payable by most individuals who are either employed or self-employed.
NICs are also payable by businesses in respect of their employees.
2.3 Corporation tax
Corporation tax is payable by companies on all their income and gains.
2.4 Capital gains tax
Capital gains tax is payable by individuals on the disposal of chargeable assets, such
as land, buildings and shares.
2.5 Inheritance tax
Inheritance tax is a tax on capital rather than income. It is charged when an
individual’s wealth or estate is given away. IHT can be charged during an
individual’s lifetime, for example on gifts of money or assets. It is also charged
when an individual dies, on their death estate.