THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Human Capital Taxes
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Palm Ltd is a company with 250 employees. A benefits provider has recently approached them with
a proposal to increase the benefit offering to employees. The following benefits in kind via salary
sacrifice arrangements have been recommended:
Pension contributions
Palm Ltd currently operates a Group Personal Pension Plan, which is administered by a third party
pension administrator. Palm Ltd makes the minimum contributions under the auto-enrolment
legislation, on a qualifying earnings basis. All employees are members of the scheme. No employee
exceeds their annual or lifetime allowances.
Palm Ltd wishes to keep the same total contribution levels, but the benefits provider has suggested
that they change the contribution method of the scheme, so employee pension contributions are
made via a salary sacrifice arrangement.
Cycle to work scheme
The benefits provider is offering bicycles valued at £750 each (inclusive of VAT) to Palm Ltd to lend
to employees for 24 months. Employees would sacrifice £31.25 a month of their gross salary in
exchange for use of the bicycle. The bicycles would be returned to the benefits provider at the end
of the 24 month period. Palm Ltd would make a payment to the benefits provider each month for
£31.25 (inclusive of VAT) for each bicycle.
The majority of employees travel to work by car as the workplace is based on an industrial site,
about three miles from the nearest public transport links.
Private medical insurance
The benefits provider will offer private medical insurance to employees at an annual cost to Palm
Ltd of £750 per employee. To help fund this benefit, employees would sacrifice £500 of their annual
salary.
On-site car parking
The current annual cost to an employee to purchase a permit from Palm Ltd to use the on-site car
park is £500 per annum. The actual cost to Palm Ltd is negligible as they own the leasehold for the
car park site. To increase take up Palm Ltd would like to reduce the cost of the permit for employees
to £400. The benefits provider has suggested they do this via a salary sacrifice arrangement.
The average employee salary at Palm Ltd is £28,000. All employees are basic rate taxpayers and
undertake their employment duties in the UK. No apprentices are employed by Palm Ltd.
Palm Ltd pays Corporation Tax at the main rate of 19%. The lower level of qualifying earnings for
auto-enrolment is £6,240 per annum. Minimum pension contribution levels for auto-enrolment are
5% for the employee and 3% for the employer.
Requirement:
Explain the Income Tax, National Insurance and Apprenticeship Levy impact of the
proposals and provide recommendations to Palm Ltd on whether to implement the
suggestions.
You are NOT required to discuss National Minimum Wage considerations. (15)
,2. Minecomp Ltd is a UK resident company, based in Reading. It creates software for the mining
industry and its biggest market is in Georgia. It is owned equally by:
Adrian, the Managing Director
Henry, the Finance Director
Verity, the Sales Director
It is important for Minecomp Ltd to have an office and senior representative in Georgia. Therefore,
Kolya was recruited as a director and the Georgian office was opened on 1 November 2021. Kolya
is a Georgian national, who is tax resident and domiciled in Georgia.
The only work Kolya undertakes for Minecomp Ltd is director’s duties as follows:
1) He holds meetings with customers and government officials in the Georgian office. In the
2021/22 tax year he worked 11 half-days in respect of these duties and in 2022/23 he expects
to work eight half-days.
2) In addition, Minecomp Ltd holds four board meetings each year at its offices in Reading. The
July, October and January meetings are shorter meetings lasting a day. They discuss the
previous quarter’s results and plans for the next quarter. Kolya attends these via video-
conferencing from the Georgian office. He also spends a half day preparing for these
meetings. The April meeting is a strategic board meeting, held after the annual accounts
have been prepared. The meeting takes place over seven days, usually Monday to Friday of
the first week and Monday to Tuesday of the second week. Kolya is expected to attend in
person at Reading.
For the April 2022 meeting, Kolya arrived in the UK on the evening of Sunday 10th, together with
his wife. Kolya spent the five-hour flight preparing for the meeting. They stayed in London so that
his wife could be close to friends. He took the train to Reading each day for the board meeting.
They left the UK on the morning of Wednesday 20th. Minecomp Ltd paid the following expenses
during Kolya’s visit:
£
First class return flights for Kolya and his wife 3,780 each
10-night stay in London hotel including breakfast 10,400
Evening meal for Kolya and his wife for 10 nights 2,600
First class weekly return train ticket to Reading 230
Two days first class return train ticket to Reading 195
Taxi to and from London station 70
Taxi to and from Reading station 90
Minecomp Ltd is due to pay Kolya the following sums in respect of his directorship, direct to his
bank account offshore:
1) £25,000 for the period 1 November 2021 to 31 March 2022, payable on 30 May 2022.
2) £65,000 being his annual fee for the year to 31 March 2023. Kolya has asked for this sum to
also be paid on 30 May 2022.
The company has agreed to protect Kolya from any UK tax and National Insurance costs on his
annual fee to the extent they exceed the Georgian rates of 20% and 0% respectively. They will also
pay any UK tax and National Insurance on all expenses.
Kolya is not expected to become UK tax resident.
Requirement:
Explain the PAYE and National Insurance implications for Minecomp Ltd in respect of Kolya,
including possible changes to the timing of Kolya’s fee for the year to 31 March 2023. (15)
Extracts from the UK-Georgia Double Tax Treaty 2004
Article 14
Income from employment
1. Subject to the provisions of Articles 15, 17, 19 and 20 of this Convention, salaries, wages
and other similar remuneration derived by a resident of a Contracting State in respect of an
employment shall be taxable only in that State unless the employment is exercised in the
other Contracting State. If the employment is so exercised, such remuneration as is derived
therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph (1) of this Article, remuneration derived by a
, 3. TH Cuisine Ltd operates three restaurants in London, Edinburgh and Manchester and employs 90
employees as waiting staff in the restaurants. The waiting staff are paid weekly depending on the
hours worked. Pay for the waiting staff working in the restaurant includes basic pay equal to the
National Minimum Wage / National Living Wage for their age, and overtime payable at 1.5 times
their normal hourly rate.
Under their employment contract, £5 per week is deducted from the waiting staff’s net pay to cover
the cost of uniforms and locker space provided in the restaurants. Some of the waiting staff
undertake training at a local college for NVQ level qualifications in food hygiene and other
employment related courses. The employees are contractually obliged to attend the courses and
are paid their normal hourly rate for this time. In the event an employee refuses to attend, this is
considered misconduct and TH Cuisine Ltd can issue penalties to the employee, which are
recovered as a weekly net pay deduction.
Some waiting staff at the restaurant are entitled to receive tips or service charges from customers,
which form an important part of their remuneration.
Payment of the tips and service charge varies across each restaurant as follows:
1) At the London restaurant, no service charges are included on bills and no tips are collected
by card payment. Customers pay cash tips directly to waiting staff at their discretion. TH
Cuisine Ltd has no record of the amount of cash tips received by each waiter.
2) At the Manchester restaurant, no service charges are included on bills and no tips are
collected by card payment. Instead, all cash tips are collected by the restaurant manager
who then transfers 20% of them to TH Cuisine Ltd. TH Cuisine Ltd then distributes this
amount equally to the team of chefs at the restaurant. The restaurant manager distributes
the remaining 80% of the tips to the waiting staff at her discretion.
3) At the Edinburgh restaurant, a mandatory 10% service charge is included on all bills for
parties of more than six people. TH Cuisine Ltd collects this and pays an equal amount to
each of the waiting staff working in the restaurant on that day.
Customers at the Edinburgh restaurant can also pay tips. These are either made by cash
direct to the employee who has served the customer or via card payment. Where tips are
made by card payment, TH Cuisine Ltd deducts 5% to cover card charges. It then transfers
the balance to the restaurant manager who then allocates this at their discretion to those
employees who have passed their probationary period.
Requirement:
1) Explain the Income Tax and National Insurance Contribution implications of the tips
and service charges. (10)
2) Explain any National Minimum Wage / National Living Wage implications which may
arise. (5)
Total (15)
ADVANCED TECHNICAL
Human Capital Taxes
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Palm Ltd is a company with 250 employees. A benefits provider has recently approached them with
a proposal to increase the benefit offering to employees. The following benefits in kind via salary
sacrifice arrangements have been recommended:
Pension contributions
Palm Ltd currently operates a Group Personal Pension Plan, which is administered by a third party
pension administrator. Palm Ltd makes the minimum contributions under the auto-enrolment
legislation, on a qualifying earnings basis. All employees are members of the scheme. No employee
exceeds their annual or lifetime allowances.
Palm Ltd wishes to keep the same total contribution levels, but the benefits provider has suggested
that they change the contribution method of the scheme, so employee pension contributions are
made via a salary sacrifice arrangement.
Cycle to work scheme
The benefits provider is offering bicycles valued at £750 each (inclusive of VAT) to Palm Ltd to lend
to employees for 24 months. Employees would sacrifice £31.25 a month of their gross salary in
exchange for use of the bicycle. The bicycles would be returned to the benefits provider at the end
of the 24 month period. Palm Ltd would make a payment to the benefits provider each month for
£31.25 (inclusive of VAT) for each bicycle.
The majority of employees travel to work by car as the workplace is based on an industrial site,
about three miles from the nearest public transport links.
Private medical insurance
The benefits provider will offer private medical insurance to employees at an annual cost to Palm
Ltd of £750 per employee. To help fund this benefit, employees would sacrifice £500 of their annual
salary.
On-site car parking
The current annual cost to an employee to purchase a permit from Palm Ltd to use the on-site car
park is £500 per annum. The actual cost to Palm Ltd is negligible as they own the leasehold for the
car park site. To increase take up Palm Ltd would like to reduce the cost of the permit for employees
to £400. The benefits provider has suggested they do this via a salary sacrifice arrangement.
The average employee salary at Palm Ltd is £28,000. All employees are basic rate taxpayers and
undertake their employment duties in the UK. No apprentices are employed by Palm Ltd.
Palm Ltd pays Corporation Tax at the main rate of 19%. The lower level of qualifying earnings for
auto-enrolment is £6,240 per annum. Minimum pension contribution levels for auto-enrolment are
5% for the employee and 3% for the employer.
Requirement:
Explain the Income Tax, National Insurance and Apprenticeship Levy impact of the
proposals and provide recommendations to Palm Ltd on whether to implement the
suggestions.
You are NOT required to discuss National Minimum Wage considerations. (15)
,2. Minecomp Ltd is a UK resident company, based in Reading. It creates software for the mining
industry and its biggest market is in Georgia. It is owned equally by:
Adrian, the Managing Director
Henry, the Finance Director
Verity, the Sales Director
It is important for Minecomp Ltd to have an office and senior representative in Georgia. Therefore,
Kolya was recruited as a director and the Georgian office was opened on 1 November 2021. Kolya
is a Georgian national, who is tax resident and domiciled in Georgia.
The only work Kolya undertakes for Minecomp Ltd is director’s duties as follows:
1) He holds meetings with customers and government officials in the Georgian office. In the
2021/22 tax year he worked 11 half-days in respect of these duties and in 2022/23 he expects
to work eight half-days.
2) In addition, Minecomp Ltd holds four board meetings each year at its offices in Reading. The
July, October and January meetings are shorter meetings lasting a day. They discuss the
previous quarter’s results and plans for the next quarter. Kolya attends these via video-
conferencing from the Georgian office. He also spends a half day preparing for these
meetings. The April meeting is a strategic board meeting, held after the annual accounts
have been prepared. The meeting takes place over seven days, usually Monday to Friday of
the first week and Monday to Tuesday of the second week. Kolya is expected to attend in
person at Reading.
For the April 2022 meeting, Kolya arrived in the UK on the evening of Sunday 10th, together with
his wife. Kolya spent the five-hour flight preparing for the meeting. They stayed in London so that
his wife could be close to friends. He took the train to Reading each day for the board meeting.
They left the UK on the morning of Wednesday 20th. Minecomp Ltd paid the following expenses
during Kolya’s visit:
£
First class return flights for Kolya and his wife 3,780 each
10-night stay in London hotel including breakfast 10,400
Evening meal for Kolya and his wife for 10 nights 2,600
First class weekly return train ticket to Reading 230
Two days first class return train ticket to Reading 195
Taxi to and from London station 70
Taxi to and from Reading station 90
Minecomp Ltd is due to pay Kolya the following sums in respect of his directorship, direct to his
bank account offshore:
1) £25,000 for the period 1 November 2021 to 31 March 2022, payable on 30 May 2022.
2) £65,000 being his annual fee for the year to 31 March 2023. Kolya has asked for this sum to
also be paid on 30 May 2022.
The company has agreed to protect Kolya from any UK tax and National Insurance costs on his
annual fee to the extent they exceed the Georgian rates of 20% and 0% respectively. They will also
pay any UK tax and National Insurance on all expenses.
Kolya is not expected to become UK tax resident.
Requirement:
Explain the PAYE and National Insurance implications for Minecomp Ltd in respect of Kolya,
including possible changes to the timing of Kolya’s fee for the year to 31 March 2023. (15)
Extracts from the UK-Georgia Double Tax Treaty 2004
Article 14
Income from employment
1. Subject to the provisions of Articles 15, 17, 19 and 20 of this Convention, salaries, wages
and other similar remuneration derived by a resident of a Contracting State in respect of an
employment shall be taxable only in that State unless the employment is exercised in the
other Contracting State. If the employment is so exercised, such remuneration as is derived
therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph (1) of this Article, remuneration derived by a
, 3. TH Cuisine Ltd operates three restaurants in London, Edinburgh and Manchester and employs 90
employees as waiting staff in the restaurants. The waiting staff are paid weekly depending on the
hours worked. Pay for the waiting staff working in the restaurant includes basic pay equal to the
National Minimum Wage / National Living Wage for their age, and overtime payable at 1.5 times
their normal hourly rate.
Under their employment contract, £5 per week is deducted from the waiting staff’s net pay to cover
the cost of uniforms and locker space provided in the restaurants. Some of the waiting staff
undertake training at a local college for NVQ level qualifications in food hygiene and other
employment related courses. The employees are contractually obliged to attend the courses and
are paid their normal hourly rate for this time. In the event an employee refuses to attend, this is
considered misconduct and TH Cuisine Ltd can issue penalties to the employee, which are
recovered as a weekly net pay deduction.
Some waiting staff at the restaurant are entitled to receive tips or service charges from customers,
which form an important part of their remuneration.
Payment of the tips and service charge varies across each restaurant as follows:
1) At the London restaurant, no service charges are included on bills and no tips are collected
by card payment. Customers pay cash tips directly to waiting staff at their discretion. TH
Cuisine Ltd has no record of the amount of cash tips received by each waiter.
2) At the Manchester restaurant, no service charges are included on bills and no tips are
collected by card payment. Instead, all cash tips are collected by the restaurant manager
who then transfers 20% of them to TH Cuisine Ltd. TH Cuisine Ltd then distributes this
amount equally to the team of chefs at the restaurant. The restaurant manager distributes
the remaining 80% of the tips to the waiting staff at her discretion.
3) At the Edinburgh restaurant, a mandatory 10% service charge is included on all bills for
parties of more than six people. TH Cuisine Ltd collects this and pays an equal amount to
each of the waiting staff working in the restaurant on that day.
Customers at the Edinburgh restaurant can also pay tips. These are either made by cash
direct to the employee who has served the customer or via card payment. Where tips are
made by card payment, TH Cuisine Ltd deducts 5% to cover card charges. It then transfers
the balance to the restaurant manager who then allocates this at their discretion to those
employees who have passed their probationary period.
Requirement:
1) Explain the Income Tax and National Insurance Contribution implications of the tips
and service charges. (10)
2) Explain any National Minimum Wage / National Living Wage implications which may
arise. (5)
Total (15)
