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!
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.
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
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