ACCA F6 - UK TAXATION: FREE ACCA LECTURE NOTES - UK RESIDENCE

ACCA F6 - UK TAXATION: FREE ACCA LECTURE NOTES - UK RESIDENCE: F6 – UK TAXATION      INTRODUCTION F6 is one of the papers ALL ACCA students have to write to become an affiliate except you have o...

FREE ACCA LECTURE NOTES - UK RESIDENCE

F6 – UK TAXATION     

INTRODUCTION

F6 is one of the papers ALL ACCA students have to write to become an affiliate except you have other professional qualifications or other qualifications that can make you claim exemption from this paper. It is one of the papers that is loaded with calculations and various principles.  In the Previous examinations, Over 80% of the examination questions  has always been calculations while the remaining percentage used to  be written. However, the examiner shifted from this in the last examination  ( December 2014 ). Many  Acca students who wrote paper F6 in December 2014, were taken aback as a result of this unexpected  change in the structure of the examination. Those who went with the mindset of more calculations became confused inside the examination hall. Henceforth, ACCA students writing this paper are strongly advised to be fully prepared for this paper. Learn to be good at calculations and theory. In my view, the examiner tried to adopt the structure of Paper P6. Please note that this is my own assumption and should not be taken as a serious statement. It could be true or false. My candid advice for anyone sitting paper F6 is that, you should  be fully prepared for this paper. BE GOOD AT CALCULATIONS AND THE WRITTEN PART ( i.e the application of principles ) must also be handled seriously.

The essence of this lecture note is to get our students and other interested students fully prepared for this paper before the examination date. By the grace of God, I will do everything at my disposal to simplify this course. I know God is the best  teacher and He is the only one who can give the best. I will also try my best to give you the best. If my Father ( God ),  gives the best, I should be able to emulate HIM. You deserve the best!

                                   SuccesswtGod

YOU ARE ADVISED TO DO THE FOLLOWING

Ø  Read with full attention

Ø  Be focused

Ø  Avoid distractions as much as possible

Ø  Follow my steps or procedures.

NOTE – You can use your own method or other methods you considered to be the best.

DON’T EXPECT :

Ø  Short cut approach from me. I hate teaching my students with short cut. Remember, this is a professional examination. You will stand before THE MDs of companies one day to give account of what you have learned and if you are a business man or woman,  there are events that will demand from you what you have learned

Ø  That I will solve detailed questions here. Detailed questions will be solved in class.

SuccesswtGod 

UK RESIDENCE

STRUCTURE OF F6

Paper F6 generally deals with two parties  -

Ø  An individual

Ø  A company

The major task in F6 is the calculation of tax that these parties will pay to  or claim from UK government. Tax is usually levied on –

·         Income ( of individuals ) known as INCOME TAX

·         Profits ( of companies ) known as CORPORATION TAX

·         Gains ( of both individuals and companies) known as CAPITAL GAINS TAX

·         Turnover ( of both individuals and companies ) known as VAT or SALES TAX ( NOT IN F6 )

·         Wealth ( passed to or inherited by an individual ) known as INHERITANCE TAX

Note – it is very important to note that, the individual  who has the right to recover tax paid on purchases is that individual who is a registered trader. A registered trader in this context, refers to sole proprietorship and  partnership.

Hmmm….

You may want to ask, what about me? I always pay tax ( VAT ) goods purchased at the supermarket near my house. Yes, you are also an individual, but you are not the individual that is being referred to here.  You only pay VAT on purchases  but you can not recover it from the government. WHY? No individual can register for VAT with his personal Name or identity. The registration requires the name of your personal business  whether as a sole trader or a partnership.

Taxes can be paid directly or indirectly.

Taxes paid on income, profits, wealth and capital gains are called direct taxes. Thus, income tax, corporation tax and capital gains tax and inheritance tax are classified as DIRECT TAXES.

Tax paid on goods purchased (which would have been included in the  sales value) is called indirect tax. Purchasers or buyers pay for this indirectly. this type of tax is to be remitted to the government by the trader after some allowable deductions ( to be discussed later ).

TAX CAN ALSO BE CLASSIFIED INTO –

1.       REVENUE TAXES – they are taxes paid or levied on income.  These include :

·         Income tax ( payable by individuals )

·         Corporation tax levied on income  profits

·         National insurance

2.       CAPITAL TAXES  - they are taxes paid on capital gains or wealth. These include :

·         Capital gains tax ( payable by individuals )

·         Corporation tax levied on capital gains

·         Inheritance tax

Every one that will be taxed in the UK must be a Resident of UK. The residence of an individual plays an important role in deciding whether or not the income that accrues to that individual inside or outside of UK will be assessable to UK tax. This means, once it is confirmed that an individual is a Resident of UK, the worldwide income of that individual will be taxed inside UK.

NOTE – THIS IS THE IMPLICATION OF BEING A UK RESIDENT.

To know whether an individual is a UK resident, some tests have to be carried out. To make this very simple, I will have to involve you. Yes, I mean you ( my reader).

Ask yourself, when will I become a UK resident?

To answer this question, you need to consider three tests.

·         Automatic overseas tests – if you meet or satisfy any of these, you are not a UK resident.

·         Automatic UK tests – if you meet or satisfy any of these tests, you are automatically a UK resident.

·         Sufficient UK ties tests – if you don’t meet or satisfy any of the automatic overseas tests  or automatic UK tests, the ‘sufficient ties’ tests must be considered.

Note this, there is an order that must be strictly followed.

The automatic overseas tests must be considered first, if none of these tests are met, the automatic UK tests are to be considered. If none of the two tests are met, then, the sufficient UK ties tests must be considered.

AUTOMATIC OVERSEAS TESTS

You are not a resident of UK if :

1.       You spend less than 16 days in the Uk in a tax year but you were  a resident of UK for one or more of the three previous tax years( this means, you are leaving the Uk);or

2.       You spend less than 46 days in the UK in a tax year and you have not been a resident of UK for any of the three previous tax years ( this means, you are just arriving in the UK ); Or

3.       You work full-time overseas ( e.g in Nigeria ) in a tax year and did not spend  more than 90 days In the UK in the same tax year.

IF YOU SATISFY ANY OF THESE, YOU ARE NOT A RESIDENT OF UK IN THAT TAX YEAR.

AUTOMATIC UK TESTS :

You are a resident of UK if :

1.       You spend 183 days or more in the UK during a tax year; or

2.       You have a Home in the UK and no home overseas ( e.g in Nigeria) ; or

3.       You work full-time in the UK during a tax year

Note – the total income earned by you in that tax year, whether within or outside of UK will be taxed in the UK. Period!

SUFFICIENT UK TIES TESTS :

This test compares the number of days spent in the UK and the number of connection factors or ‘ties’.

An individual who was not a UK resident in any of the three previous tax years ( but just arriving in the UK ) must determine whether any of the following ties apply :

v Uk resident close family e.g spouse/civil partner( i.e.  married couples of the same sex ), child under the age of 18

v  Available UK accommodation in which the individual spends at least one night during the tax year

v  Substantive UK work ( employment or self-employment )

v  More than 90 days spent in the UK in either or both of the previous two tax years

An individual who was UK resident in any of the previous three tax years ( but just leaving the UK ) must also determine whether of the ties above apply and in addition, he must dtermine  whether

v  He is present in the UK at midnight for the same or more days in that tax year than in any other country.

NOTE – AN Individual who was initially not regarded as a UK resident under AUTOMATIC OVERSEAS TESTS may be considered a UK resident if anyone or more of the ties above is( are ) met.

This table is very important

DAYS IN THE UK	PREVIOUSLY RESIDENT	NOT PREVIOUSLY RESIDENT
Less than 16	Automatically not resident	Automatically not resident
Between 16 and 45	Resident if 4 UK ties or more	Automatically not resident
Between 46 and 90	Resident if 3 UK ties or more	Resident if 4 UK ties
Between 91 and 120	Resident if 2 UK Ties or more	Resident if 3 UK ties or more
Between 121 and 182	Resident if 1 UK ties or more	Resident if 2 UK ties or more
183 or more	Automatically resident	Automatically resident

                                                                            REFERENCE – Bpp study material ( recommended )

                                                                                                       ACCA FINANCE ACT