ACCA TAX CHEATSHEET

1. Overview

UK Taxation System covers income tax, NICs, capital gains, inheritance tax, corporation tax, and VAT.
Focus on tax planning strategies to minimize liabilities through exemptions and reliefs, while ensuring
compliance with deadlines, self-assessment, and handling disputes or penalties.

2. Key Exam Tips

 Exam Structure: The syllabus is assessed by a three-hour computer-based examination.

o Section A: 15 objective test questions, 2 marks each (total 30 marks).

o Section B: 3 case style questions, each with 5 objective test questions worth 2 marks
each, based on common scenarios (total 30 marks).

o Section C: One 10-mark constructed response question and two 15-mark constructed
response questions (Income Tax and Corporation Tax).

 Time Allocation: Spend 1.8 minutes per mark, prioritizing longer questions in Section C.

 Marking Criteria: Ensure accuracy in calculations, show clear workings, demonstrate

3. Key Taxation Topics

A. Income Tax

 Personal Allowance: £12,570 (phased out for income over £100,000).

o Example: Income of £120,000, allowance reduced to £7,570.

 Basic Rate: 20% on income up to £37,700.

o Example: Tax on £30,000 = £6,000.

 Higher Rate: 40% on income from £37,701 to £125,140.

o Example: Tax on £60,000 = £8,920.

 Additional Rate: 45% on income above £125,140.

o Example: Tax on £150,000 = £11,742.

 Savings Allowance: £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, none for
additional-rate taxpayers.
 o Example: £900 in savings interest for a basic-rate taxpayer = no tax.

 Dividend Allowance: £1,000 for all rate taxpayers.

o Example: £1,200 in dividends, £200 taxed at the taxpayer’s rate.

B. Corporation Tax

 Main Rate: 25% on profits over £250,000.

o Example: Profits of £300,000 = Tax = £75,000.

 Small Profits Rate: 19% on profits up to £50,000.

o Example: Profits of £40,000 = Tax = £7,600.

 Marginal Relief: For profits between £50,001 and £250,000, tax rate is tapered between 19%
and 25%.

o Example: Profits of £100,000 = Tax approximately £22,000.

C. Capital Gains Tax

 Annual Exemption: £6,000 (reducing to £3,000 in 2024).

o Example: Gain of £10,000, taxable gain = £4,000.

 Basic Rate: 10% (18% on residential property).

o Example: Gain of £4,000 on non-residential property = £400.

 Higher Rate: 20% (28% on residential property).

o Example: Gain of £5,000 on residential property = £1,400.

D. National Insurance Contributions (NIC)

 Class 1 (Employees): 12% on earnings between £12,570 and £50,270; 2% on earnings above
£50,270.

o Example: Earnings of £40,000 = NIC = £3,303.60; Earnings of £60,000 = NIC = £193.40.

o Example: Annual profits of £15,000 = NIC = £179.40.

 Class 4 (Self-employed): 9% on profits between £12,570 and £50,270; 2% on profits over

o Example: Profits of £40,000 = NIC = £2,480.70; Profits of £60,000 = NIC = £193.40.

E. Value Added Tax (VAT)

 Standard Rate: 20%.

o Example: Sale of £1,000 (excluding VAT) = VAT = £200.

 Registration Threshold: £85,000 turnover in 12 months.

o Example: Business with £90,000 turnover must register for VAT.

 VAT Accounting Schemes: Cash Accounting, Flat-rate Scheme, Annual Accounting.

F. Inheritance Tax (IHT)

 Nil Rate Band: £325,000.

o Example: Estate worth £350,000, taxable amount = £25,000.

 Residential Nil Rate Band: £175,000.

o Example: For estates with residential property left to direct descendants, the threshold
increases by £175,000.

 Rate: 40% on amounts above thresholds (reduced to 36% if 10% of the estate is left to charity).

o Example: Estate worth £500,000, no tax due as it falls within the nil rate bands.

4. Financial Metrics and Calculations

A. Income Tax Calculation

 Total Income = Salary + Savings Income + Dividend Income

 Tax Calculation: Apply relevant income tax bands.

B. Corporation Tax Calculation

 Taxable Profit = Profit Before Tax - Allowable Expenses - Capital Allowances

 Apply Rate: Based on the level of taxable profit.

C. Capital Gains Tax (CGT) Calculation

 Chargeable Gains = Disposal Proceeds - Acquisition Cost - Allowable Expenses

 Deduct Exemption: Apply relevant CGT rates.

D. Value Added Tax (VAT) Calculation

 Output VAT = VAT on Sales

 Input VAT = VAT on Purchases

 Net VAT Payable = Output VAT - Input VAT

E. Inheritance Tax (IHT) Calculation

 Chargeable Estate = Total Estate Value - Exemptions

 Apply Rate: Amount above thresholds taxed at 40% (or 36% if 10% of the estate is left to
charity).

5. Key Allowances and Reliefs

 Marriage Allowance: Transfer up to £1,260 of unused personal allowance, saving up to £252.

 Pension Contributions: Tax-relieved contributions up to £60,000.

 Gift Aid: Charities reclaim 25p for every £1 donated; higher rate taxpayers get additional relief.
  R&D Tax Relief: SMEs can claim a 186% enhanced deduction, large companies a 20% RDEC
tax credit.

 EIS/SEIS: EIS offers 30% tax relief on investments up to £2 million; SEIS offers 50% tax relief up
to £100,000.

 Business Asset Disposal Relief: 10% CGT on qualifying business gains, up to £1 million.

 Annual Investment Allowance (AIA): 100% tax relief on qualifying business capital expenditure,
up to £1 million.

6. Tax Planning Techniques

 Deferring Income: Shift income to a later period to avoid higher tax rates.

 Maximizing Allowances: Utilize personal and capital gains tax exemptions, pension
contributions, and gift aid reliefs.

 Salary vs Dividends: Optimize the balance between salary and dividends.

 Tax-Efficient Investments: Invest in ISAs, pensions, and schemes like EIS or VCT.

 Income Splitting: Transfer income or assets to a spouse in a lower tax bracket.

 Capital Allowances: Claim allowances on business assets.

 Inheritance Tax Planning: Use annual gifting exemptions and trusts.

7. Common Pitfalls and Mistakes

 Misinterpreting Tax Rules: Failing to differentiate between allowable/disallowable expenses.

 Incorrect Relief Application: Applying reliefs in the wrong sequence.

 Calculation Errors: Arithmetic mistakes or not showing workings.

 Misreading Questions: Missing key details like dates and residency.

 Poor Time Management: Spending too long on one question.

 Outdated Knowledge: Using old tax rules.

 Incomplete Topic Coverage: Neglecting less favored topics.

A. Structured Answering

 Understand the Question: Read thoroughly, identify key figures.

 Organize your Answer: Use headings, show calculations.

 Provide Explanations: Detail steps, apply tax rules.

B. Time Management

 Prioritize High Mark Questions: Focus on questions with most marks first.

 Avoid Sticking: Set time limits, move on if stuck.

9. Key Case Studies or Examples

A. Income Tax

 Income: £50,000 (employment) + £20,000 (self-employment) + £1,000 (other) = £71,000

 Deductions: Personal Allowance £12,570

 Taxable Income: £58,430

 Income Tax: £16,232

B. Corporation Tax

 Pre-Tax Profits: £200,000

 Deductions: £35,000

 Adjusted Profit: £165,000

 Tax: £31,350

C. Capital Gains Tax

 Sale Price: £150,000

 Purchase Price: £100,000

 Gain: £50,000 - Allowable Costs £10,000 = £40,000

 Taxable Gain: £27,700

 CGT (10%): £2,770

D. Inheritance Tax

 Estate Value: £600,000

 Exemption: £325,000

 Taxable Estate: £275,000

 IHT (40%): £110,000

E. Value Added Tax

 Sales (excl. VAT): £100,000

 VAT (20%): £20,000

 Input VAT: £5,000

 Net VAT Liability: £15,000

10. Key Legislation

 Finance Acts: Review the latest Finance Acts for updates on tax rates, reliefs, and compliance
requirements. The Finance Act 2023 is crucial for exams in December 2024 and March 2025.

11. Practice Question Breakdown

A. Income Tax

 Income Streams: Salary, savings interest, dividends

 Calculate: Total income, apply personal allowance, use tax rates.

B. Corporation Tax

 Pre-Tax Profit: Start with profit

 Adjust: Subtract deductions

C. Capital Gains Tax

 Gain Calculation: Sale price - purchase price - allowable costs

 Apply Exemption: Subtract annual exemption

 Tax Rate: Apply CGT rate.

D. Inheritance Tax

 Taxable Estate: Estate value - nil rate band

 Calculate Tax: Apply IHT rate.

E. Value Added Tax

 Output VAT: Sales * VAT rate

 Net VAT Payable: Output VAT - Input VAT