THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Human Capital Taxes
November 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.
• Additional marks may be awarded for presentation.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Pamlux Ltd is a manufacturer of personal care products with an annual pay bill of over £3 million.
An employee, Giles Moody, resigned on 31 May 2021 without working or being paid for his three-
month notice period. Mr Moody was 55 years of age at this time and had intended to work another
five years before retiring. He first started to work for the company in 2006 but was made redundant
in 2009 and received a tax and NIC-free redundancy payment of £12,000. He re-joined the
company in 2012 and worked for the company until he resigned. Mr Moody lives in England.
Mr Moody lodged a claim with the Employment Tribunal alleging age-related discrimination and
victimisation.
Pamlux Ltd agreed to settle out of court without any admission of liability, on the condition that Mr
Moody withdrew his claims. A payment of £924,750 will be made on 30 November 2022, which
comprises:
1) £900,000 as compensation for loss of office. This payment was calculated by reference to
Mr Moody’s alleged loss of earnings in the five years following the termination of his
employment. It has been mitigated to reflect earnings from a new employment that Mr Moody
has recently started;
2) £23,000 as compensation for injury to feelings. It is intended that this relates solely to the
alleged discriminatory acts that took place during the employee’s employment; and
3) £1,750 for accrued holiday entitlement not taken at the date of termination.
Whilst no payment will be made for any restrictive covenants, the settlement agreement restated
the post-employment restrictions contained in Mr Moody’s employment contract.
Mr Moody was paid monthly. For his final period of work, his payslip showed:
1) monthly salary of £18,333 after taking into account pension salary sacrifice of £2,000;
2) commission of £5,000;
3) private medical insurance premiums of £20 assessed via the payroll; and
4) a tax code of 1257L.
Requirement:
Explain, with calculations, the Income Tax, National Insurance and Apprenticeship Levy
treatment of each element of the settlement agreement. (15)
,2. C Guard Ltd is a UK resident company, based in Southampton. It is a private marine security
company, which provides armed guards on cargo ships travelling through unsafe waters. The
company wishes to hire two new employees, John and Pete.
John is a British national, who is due to leave the Royal Navy shortly. He has been based in
Portsmouth for the last five years.
Pete is a British national, who left the Royal Marines on 28 January 2020. He has been working in
a security role with another UK company since 1 February 2020. Since 28 January 2020, he has
spent 22 nights in the UK. The rest of the time he has been onboard various ships or onshore
overseas.
They are both UK tax resident as they own houses in Portsmouth, which are and will continue to
be their only home. They do not have any other homes elsewhere.
John and Pete have requested a take-home salary of £60,000. C Guard Ltd wishes to know what
gross salary it will have to pay to achieve this figure. The company has a non-contributory money-
purchase pension scheme into which it makes contributions of 15% of gross pay. The company
also pays international medical insurance premiums of £2,500 per annum per employee. It does
not provide any other benefits.
John and Pete will work as a team on board UK registered ships sailing between the UK and India
via South Africa and the United Arab Emirates. Their work pattern will be:
Prepare for the journey at C Guard Ltd’s premises in the UK 21 nights onshore in the UK
Board the ship One night onboard ship in UK docks
Ship sails down west coast of Africa to South Africa 25 nights sailing onboard ship
Ship unloads and reloads in South Africa Six nights onshore in South Africa
Ship sails up east coast of Africa to the United Arab Emirates 18 nights sailing onboard ship
Ship unloads and reloads in the United Arab Emirates Five nights onboard ship in the
United Arab Emirates docks
Ship sails across Arabian Sea to India 20 nights sailing onboard ship
Ship unloads and reloads in India Eight nights onboard ship in India
docks
Ship sails across Arabian Sea to the United Arab Emirates 20 nights sailing onboard ship
Ship unloads and reloads in the United Arab Emirates Five nights onboard ship in the
United Arab Emirates docks
Ship sails down east coast of Africa to South Africa 18 nights sailing onboard ship
Ship unloads and reloads in South Africa Six nights onshore in South Africa
Ship sails up west coast of Africa to the UK 25 nights sailing onboard ship
Report to C Guard Ltd’s office Two nights onshore in the UK
Take a month’s holiday in the UK 30 nights in the UK
The above pattern is then repeated.
Requirement:
Calculate with explanations the gross pay C Guard Ltd will need to pay John and Pete to
achieve the required net take home pay and the total remuneration costs for C Guard Ltd.
(15)
, 3. AMH LLP, a firm of architects, have recently revisited their work location strategy and have decided
to allow more home working in order to promote greater flexibility and reduce their office space.
Going forward, there will be three categories of employee:
1) Home-based workers. These employees will have their homes as their contractual base
location. They are expected to perform the majority of their duties from home and from client
sites. They will only come into the office on rare occasions for training or team meetings.
2) Hybrid workers. These individuals will work from the office for either one or two days a week
(assuming a five-day working week) under the terms of a new home working policy. The
reason for being in the office is to enable greater networking and collaboration. There is no
formal distinction between the nature of the work performed in the office and that performed
at home.
3) Office-based workers. These employees will continue to have the office as their contractual
base, but they will be granted a large degree of discretion to work from home from time to
time as they feel appropriate.
AMH LLP want to understand the employment Income Tax and NIC implications of the following:
1) Equipping the home-based and hybrid workers with home office equipment such as
computers, desks and chairs.
2) Reimbursement of home broadband for all categories of workers.
3) Reimbursement of travel into the office when required for home workers and hybrid workers.
4) Reimbursement of meals for all employees when in the office.
As a result of the shift to home working and hybrid working, AMH LLP will also be able to reduce
their office space and are planning to sublet several floors of their offices as a result. AMH LLP’s
landlord was intending to make some refurbishments and as it suits both parties, it has been agreed
that AMH LLP will carry out these refurbishments for the landlord and will receive a contribution
towards the costs.
AMH LLP will spend £3.5 million in total in order to refurbish the office. Of this, £1 million relates
to space to be sublet and the remaining £2.5 million relates to space occupied by them for their
business. The landlord will pay a £2 million contribution to this cost and the project is expected to
take 12 months to complete.
Requirement:
1) Explain the Income Tax and National Insurance implications of AMH LLP’s plans for
the three categories of employee. (15)
2) Explain how the works on AMH LLP’s office space will be treated under the
Construction Industry Scheme. (5)
Total (20)
ADVANCED TECHNICAL
Human Capital Taxes
November 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.
• Additional marks may be awarded for presentation.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Pamlux Ltd is a manufacturer of personal care products with an annual pay bill of over £3 million.
An employee, Giles Moody, resigned on 31 May 2021 without working or being paid for his three-
month notice period. Mr Moody was 55 years of age at this time and had intended to work another
five years before retiring. He first started to work for the company in 2006 but was made redundant
in 2009 and received a tax and NIC-free redundancy payment of £12,000. He re-joined the
company in 2012 and worked for the company until he resigned. Mr Moody lives in England.
Mr Moody lodged a claim with the Employment Tribunal alleging age-related discrimination and
victimisation.
Pamlux Ltd agreed to settle out of court without any admission of liability, on the condition that Mr
Moody withdrew his claims. A payment of £924,750 will be made on 30 November 2022, which
comprises:
1) £900,000 as compensation for loss of office. This payment was calculated by reference to
Mr Moody’s alleged loss of earnings in the five years following the termination of his
employment. It has been mitigated to reflect earnings from a new employment that Mr Moody
has recently started;
2) £23,000 as compensation for injury to feelings. It is intended that this relates solely to the
alleged discriminatory acts that took place during the employee’s employment; and
3) £1,750 for accrued holiday entitlement not taken at the date of termination.
Whilst no payment will be made for any restrictive covenants, the settlement agreement restated
the post-employment restrictions contained in Mr Moody’s employment contract.
Mr Moody was paid monthly. For his final period of work, his payslip showed:
1) monthly salary of £18,333 after taking into account pension salary sacrifice of £2,000;
2) commission of £5,000;
3) private medical insurance premiums of £20 assessed via the payroll; and
4) a tax code of 1257L.
Requirement:
Explain, with calculations, the Income Tax, National Insurance and Apprenticeship Levy
treatment of each element of the settlement agreement. (15)
,2. C Guard Ltd is a UK resident company, based in Southampton. It is a private marine security
company, which provides armed guards on cargo ships travelling through unsafe waters. The
company wishes to hire two new employees, John and Pete.
John is a British national, who is due to leave the Royal Navy shortly. He has been based in
Portsmouth for the last five years.
Pete is a British national, who left the Royal Marines on 28 January 2020. He has been working in
a security role with another UK company since 1 February 2020. Since 28 January 2020, he has
spent 22 nights in the UK. The rest of the time he has been onboard various ships or onshore
overseas.
They are both UK tax resident as they own houses in Portsmouth, which are and will continue to
be their only home. They do not have any other homes elsewhere.
John and Pete have requested a take-home salary of £60,000. C Guard Ltd wishes to know what
gross salary it will have to pay to achieve this figure. The company has a non-contributory money-
purchase pension scheme into which it makes contributions of 15% of gross pay. The company
also pays international medical insurance premiums of £2,500 per annum per employee. It does
not provide any other benefits.
John and Pete will work as a team on board UK registered ships sailing between the UK and India
via South Africa and the United Arab Emirates. Their work pattern will be:
Prepare for the journey at C Guard Ltd’s premises in the UK 21 nights onshore in the UK
Board the ship One night onboard ship in UK docks
Ship sails down west coast of Africa to South Africa 25 nights sailing onboard ship
Ship unloads and reloads in South Africa Six nights onshore in South Africa
Ship sails up east coast of Africa to the United Arab Emirates 18 nights sailing onboard ship
Ship unloads and reloads in the United Arab Emirates Five nights onboard ship in the
United Arab Emirates docks
Ship sails across Arabian Sea to India 20 nights sailing onboard ship
Ship unloads and reloads in India Eight nights onboard ship in India
docks
Ship sails across Arabian Sea to the United Arab Emirates 20 nights sailing onboard ship
Ship unloads and reloads in the United Arab Emirates Five nights onboard ship in the
United Arab Emirates docks
Ship sails down east coast of Africa to South Africa 18 nights sailing onboard ship
Ship unloads and reloads in South Africa Six nights onshore in South Africa
Ship sails up west coast of Africa to the UK 25 nights sailing onboard ship
Report to C Guard Ltd’s office Two nights onshore in the UK
Take a month’s holiday in the UK 30 nights in the UK
The above pattern is then repeated.
Requirement:
Calculate with explanations the gross pay C Guard Ltd will need to pay John and Pete to
achieve the required net take home pay and the total remuneration costs for C Guard Ltd.
(15)
, 3. AMH LLP, a firm of architects, have recently revisited their work location strategy and have decided
to allow more home working in order to promote greater flexibility and reduce their office space.
Going forward, there will be three categories of employee:
1) Home-based workers. These employees will have their homes as their contractual base
location. They are expected to perform the majority of their duties from home and from client
sites. They will only come into the office on rare occasions for training or team meetings.
2) Hybrid workers. These individuals will work from the office for either one or two days a week
(assuming a five-day working week) under the terms of a new home working policy. The
reason for being in the office is to enable greater networking and collaboration. There is no
formal distinction between the nature of the work performed in the office and that performed
at home.
3) Office-based workers. These employees will continue to have the office as their contractual
base, but they will be granted a large degree of discretion to work from home from time to
time as they feel appropriate.
AMH LLP want to understand the employment Income Tax and NIC implications of the following:
1) Equipping the home-based and hybrid workers with home office equipment such as
computers, desks and chairs.
2) Reimbursement of home broadband for all categories of workers.
3) Reimbursement of travel into the office when required for home workers and hybrid workers.
4) Reimbursement of meals for all employees when in the office.
As a result of the shift to home working and hybrid working, AMH LLP will also be able to reduce
their office space and are planning to sublet several floors of their offices as a result. AMH LLP’s
landlord was intending to make some refurbishments and as it suits both parties, it has been agreed
that AMH LLP will carry out these refurbishments for the landlord and will receive a contribution
towards the costs.
AMH LLP will spend £3.5 million in total in order to refurbish the office. Of this, £1 million relates
to space to be sublet and the remaining £2.5 million relates to space occupied by them for their
business. The landlord will pay a £2 million contribution to this cost and the project is expected to
take 12 months to complete.
Requirement:
1) Explain the Income Tax and National Insurance implications of AMH LLP’s plans for
the three categories of employee. (15)
2) Explain how the works on AMH LLP’s office space will be treated under the
Construction Industry Scheme. (5)
Total (20)
