THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Owner-Managed Businesses
November 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• 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.
,You are a tax manager in SPD Accountants LLP, a firm of accountants and Chartered Tax Advisers.
Your clients are Pinnacle Architects and its two partners, Teresa Ryan and Rohat Saj.
Your tax partner, Andy Jayze, has received an email from Teresa (EXHIBIT A).
The following exhibits are provided to assist you:
EXHIBIT A: Email from Teresa Ryan to Andy Jayze
EXHIBIT B: Extract from valuation report
EXHIBIT C: Budget projections for three years to 31 March 2025
EXHIBIT D: Pre-seen information
Requirement:
Prepare a report to Teresa and Rohat, for review by Andy Jayze, providing advice and
recommendations regarding the issues raised in Teresa’s email.
Continued
Page 2 of 7 APS OMB
,Continuation
EXHIBIT A
Email from Teresa Ryan to Andy Jayze
From:
To:
Date: 24 October 2022
Hi Andy
As you know our practice has grown significantly over the last three years. In recent months we have
been asked to quote for a number of substantial and high-profile commissions. Rohat and I have become
increasingly concerned over our personal risk exposure in the event that one of these projects were to fail
and could not be covered by our professional indemnity insurance. We should therefore like to know what
actions we can take to mitigate this exposure.
As you know we have recently changed banks and as part of the re-financing we were required to
undertake a valuation of the business and premises. I have attached an extract from the valuation report
we have received (EXHIBIT B).
Neither Rohat nor I have any wish to sell the business, not least as we will both need to continue
withdrawing the full annual profits of the business to maintain our current and anticipated lifestyles. This
is likely to be the case for at least the next 10 years even if the profit levels do increase.
We believe that our current business premises could be sold to a third party for conversion into a
residential development in the next three to five years and this will result in a substantial uplift in value. It
is likely that we will sell the property if a suitable offer were made for the premises at that time.
We continue to be concerned about the high marginal tax rates that we are paying and this is likely to get
worse if profits continue to increase as anticipated. I have attached our three-year budget forecasts
covering the period to 31 March 2025 (EXHIBIT C).
We would therefore like your advice regarding our options for protecting ourselves against personal risk
and also whether this can be achieved in a tax efficient manner?
Yours sincerely
Teresa Ryan
Partner, Pinnacle Architects
Continued
Page 3 of 7 APS OMB
, Continuation
EXHIBIT B
Extract from Valuation report
“……based on the above assumptions and the information that you have provided we propose the
following current market valuations for the goodwill, freehold premises and other net assets:
£
Goodwill 900,000
Freehold premises 400,000
Other net assets 50,000
The above valuations are given on the assumption of a disposal of the business and premises as a going
concern. We believe that the freehold property would command a rental income of £28,000 per annum if
let”.
EXHIBIT C
Budget projections years ended 31 March 2023 to 31 March 2025
31 March 2023 31 March 2024 31 March 2025
£ % £ % £ %
Fees 740,000 796,000 860,000
Cost of sale (138,000) (141,000) (148,000)
Gross profit 602,000 81.4 655,000 82.3 712,000 82.8
Administration costs (302,000) (307,000) (328,000)
Net profit 300,000 40.5 348,000 43.7 384,000 44.7
Tax adjusted profit 247,000 300,000 331,000
Continued
Page 4 of 7 APS OMB
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Owner-Managed Businesses
November 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• 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.
,You are a tax manager in SPD Accountants LLP, a firm of accountants and Chartered Tax Advisers.
Your clients are Pinnacle Architects and its two partners, Teresa Ryan and Rohat Saj.
Your tax partner, Andy Jayze, has received an email from Teresa (EXHIBIT A).
The following exhibits are provided to assist you:
EXHIBIT A: Email from Teresa Ryan to Andy Jayze
EXHIBIT B: Extract from valuation report
EXHIBIT C: Budget projections for three years to 31 March 2025
EXHIBIT D: Pre-seen information
Requirement:
Prepare a report to Teresa and Rohat, for review by Andy Jayze, providing advice and
recommendations regarding the issues raised in Teresa’s email.
Continued
Page 2 of 7 APS OMB
,Continuation
EXHIBIT A
Email from Teresa Ryan to Andy Jayze
From:
To:
Date: 24 October 2022
Hi Andy
As you know our practice has grown significantly over the last three years. In recent months we have
been asked to quote for a number of substantial and high-profile commissions. Rohat and I have become
increasingly concerned over our personal risk exposure in the event that one of these projects were to fail
and could not be covered by our professional indemnity insurance. We should therefore like to know what
actions we can take to mitigate this exposure.
As you know we have recently changed banks and as part of the re-financing we were required to
undertake a valuation of the business and premises. I have attached an extract from the valuation report
we have received (EXHIBIT B).
Neither Rohat nor I have any wish to sell the business, not least as we will both need to continue
withdrawing the full annual profits of the business to maintain our current and anticipated lifestyles. This
is likely to be the case for at least the next 10 years even if the profit levels do increase.
We believe that our current business premises could be sold to a third party for conversion into a
residential development in the next three to five years and this will result in a substantial uplift in value. It
is likely that we will sell the property if a suitable offer were made for the premises at that time.
We continue to be concerned about the high marginal tax rates that we are paying and this is likely to get
worse if profits continue to increase as anticipated. I have attached our three-year budget forecasts
covering the period to 31 March 2025 (EXHIBIT C).
We would therefore like your advice regarding our options for protecting ourselves against personal risk
and also whether this can be achieved in a tax efficient manner?
Yours sincerely
Teresa Ryan
Partner, Pinnacle Architects
Continued
Page 3 of 7 APS OMB
, Continuation
EXHIBIT B
Extract from Valuation report
“……based on the above assumptions and the information that you have provided we propose the
following current market valuations for the goodwill, freehold premises and other net assets:
£
Goodwill 900,000
Freehold premises 400,000
Other net assets 50,000
The above valuations are given on the assumption of a disposal of the business and premises as a going
concern. We believe that the freehold property would command a rental income of £28,000 per annum if
let”.
EXHIBIT C
Budget projections years ended 31 March 2023 to 31 March 2025
31 March 2023 31 March 2024 31 March 2025
£ % £ % £ %
Fees 740,000 796,000 860,000
Cost of sale (138,000) (141,000) (148,000)
Gross profit 602,000 81.4 655,000 82.3 712,000 82.8
Administration costs (302,000) (307,000) (328,000)
Net profit 300,000 40.5 348,000 43.7 384,000 44.7
Tax adjusted profit 247,000 300,000 331,000
Continued
Page 4 of 7 APS OMB
