THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Human Capital Taxes
November 2021
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.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and the
reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, 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. Insurlife Ltd, a UK company, has recently formed a subsidiary in Luxembourg, Insurlife SA which
will provide services to EU customers. They have identified an individual, Anna Jones, who is
currently an employee of Insurlife Ltd to run the subsidiary. For EU regulatory reasons, Anna must
be employed directly by the Luxembourg entity rather than seconded to it. Her contract will
commence on 1 January 2022 and is indefinite in length.
Anna is resident and domiciled in the UK and has never worked overseas. She is married with two
children who attend a school in London. Her husband and children will remain in the UK and
therefore Anna will commute to Luxembourg. She will fly there early on Monday morning and work
in Luxembourg until Thursday evening each week, when she will return to the UK. The company
will rent an apartment for her in Luxembourg and will also pay for her return flights to the UK each
week. On Fridays, she plans to work from her London home or the company’s London office. Her
annual leave will be taken either in the UK or in third countries with her family. In addition to working
in Luxembourg and the UK, she may travel to other EU countries from time to time for work.
Under Luxembourg domestic law, Anna will be tax resident in Luxembourg from
1 January 2022 and tax and social security withholding will be applied there on all earnings from
the employment. Both the flights and accommodation benefit are liable to tax in Luxembourg. The
company has agreed to settle any UK and Luxembourg taxes and social security arising on the
flights and accommodation. Anna will not be tax equalised on her salary.
Requirement:
Explain Anna’s tax and social security position in the UK. (15)
Extract from UK/Luxembourg double taxation treaty
Article 4: Fiscal domicile
1) For the purposes of this Convention, the term ‘resident of a Contracting State’ means any person
who, under the law of that State, is liable to taxation therein by reason of his domicile, residence,
place of management or any other criterion of a similar nature.
2) Where by reason of the provisions of paragraph (1) an individual is a resident of both Contracting
States, then this case shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent
home available to him. If he has a permanent home available to him in both Contracting
States, he shall be deemed to be a resident of the Contracting State with which his personal
and economic relations are closest (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or
if he has not a permanent home available to him in either Contracting State, he shall be
deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be
deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities
of the Contracting States shall settle the question by mutual agreement.
3) Whereby reason of the provisions of paragraph (1) a person other than an individual is a resident
of both Contracting States, then it shall be deemed to be a resident of the Contracting State in
which its place of effective management is situated.
Article 15 – Dependent Personal Services
1) Subject to the provisions of Articles 16, 18, 19 and 20, 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), remuneration derived by a resident of a Contracting
State in respect of an employment exercised in the other Contracting State shall be taxable only in
the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the
aggregate 183 days in the fiscal year concerned, and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other
State, and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the
employer has in the other State.
3) Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment
,2. Aengine Ltd is an engineering company with over 250 employees. Its total pay bill is in excess of
£3 million per annum. The share capital in the company is wholly owned by three directors who are
all UK resident for tax purposes.
Company vehicles have been provided for a number of years. During 2020/21 these were provided
to directors and employees as follows:
Directors
In 2018, the three directors of Aengine Ltd were given the option of receiving a car allowance of
£8,500 (payable in monthly instalments) or a company car. In relation to the company car, they
were able to upgrade to a higher specification car if they pay £3,000 per annum (deducted in
monthly instalments from their net pay). All directors selected the higher specification company car,
which had a list price of £30,000 and CO2 emissions of 115g/km. The cars were first registered
before 6 April 2020 and have petrol engines. Fuel was not provided.
Aengine Ltd reported the company cars on forms P11D with a benefit in kind value of £8,500 for
each director.
Engineers
Aengine Ltd employed a team of 100 engineers (all basic rate taxpayers) who were each provided
with a double cab pickup vehicle. The vehicles were only used for travel from home to work and
between work sites.
Half of the engineers had vehicles with an uncovered load area behind the passenger cab and a
net payload of 1,050kg. The other half of the engineers had vehicles with hard tops over the load
area, which reduced the net payload to 950kg. The list price of all the vehicles was £25,000 and
CO2 emissions were 150g/km. The vehicles were first registered before 6 April 2020 and the fuel
type was diesel. The vehicles met the Real Driving Emissions Step 2 (RDE2) standard. The
engineers were reimbursed for the cost of business fuel at HMRC Advisory Fuels rates.
Aengine Ltd did not report any benefits in respect of these vehicles on forms P11D.
Sales Team
Aengine Ltd’s sales team consisted of 15 employees (all higher rate taxpayers). The company
provided each of these employees with a company car.
The list price of each car was £20,000 and CO2 emissions were 130g/km. The cars were first
registered before 6 April 2020 and the fuel type was petrol. The engine size of the vehicles was
2100cc. Aengine Ltd reported the company cars on forms P11D with a benefit in kind value of
£6,200 for each employee.
A fuel card was provided to employees in the sales team. They had to complete a mileage log and
retain fuel receipts and were required to reimburse the company for private mileage costs. The
amount reimbursed was based on the proportion of total fuel costs represented by private mileage
to total mileage.
Following a review of payroll records, it was discovered that two employees each with total mileage
of 10,000 and private mileage of 2,000 made payments of £200 each rather than the £350 which
they should have paid. All other employees reimbursed the company in line with the policy.
Aengine Ltd did not report any benefit for any private fuel on forms P11D nor did it deduct any
PAYE or National Insurance Contributions.
You may assume an Advisory Fuel Rate for 2020/21 of 17p per mile.
Requirement:
Explain the correct Income Tax, National Insurance and Apprenticeship Levy treatment of
the various vehicles and fuel provided during 2020/21, calculating any underpayment arising
assuming this will be met by the company.
You are NOT required to consider any other years nor to consider penalties and interest
due. (20)
, 3. Geffen Smith Ltd is a financial consulting company whose operations and employees are all located
in England. It employs a large number of consultants and has a pay bill of approximately £10 million
per year.
They want to encourage talented undergraduates, who are currently enrolled in a degree course,
to join the company. They plan to do this by meeting the costs of their education either directly or
indirectly. The options they are currently considering are:
1) paying a “sign on” bonus of equivalent value to the tuition fees;
2) reimbursing tuition fees, or
3) setting up a scholarship scheme.
In the past, Geffen Smith Ltd has recruited graduates with degrees in accounting and finance,
business studies, geography and classics. They make job offers to graduates in the Autumn before
the year of graduation which are always contingent on the employee getting a minimum of a 2:1
degree. Geffen Smith Ltd has no desire to change either the timing of the recruitment process or
which degree disciplines they consider. They also want to pay no more than the equivalent of the
final year’s tuition fees plus related costs.
They are also considering starting a school leavers programme. New joiners will work for Geffen
Smith Ltd whilst at the same time studying for a recognised professional qualification that is relevant
to their jobs. Geffen Smith Ltd plans to outsource this training to a recognised training provider
rather than delivering it in-house. They are interested in exploring tax efficient ways of delivering
this training.
Requirement:
1) Explain the tax and National Insurance treatment of the three options proposed by
Geffen Smith Ltd for undergraduates. (11)
2) Discuss any tax efficient ways for Geffen Smith Ltd to meet the cost of the school
leavers training programme. (4)
Total (15)
ADVANCED TECHNICAL
Human Capital Taxes
November 2021
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.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and the
reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, 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. Insurlife Ltd, a UK company, has recently formed a subsidiary in Luxembourg, Insurlife SA which
will provide services to EU customers. They have identified an individual, Anna Jones, who is
currently an employee of Insurlife Ltd to run the subsidiary. For EU regulatory reasons, Anna must
be employed directly by the Luxembourg entity rather than seconded to it. Her contract will
commence on 1 January 2022 and is indefinite in length.
Anna is resident and domiciled in the UK and has never worked overseas. She is married with two
children who attend a school in London. Her husband and children will remain in the UK and
therefore Anna will commute to Luxembourg. She will fly there early on Monday morning and work
in Luxembourg until Thursday evening each week, when she will return to the UK. The company
will rent an apartment for her in Luxembourg and will also pay for her return flights to the UK each
week. On Fridays, she plans to work from her London home or the company’s London office. Her
annual leave will be taken either in the UK or in third countries with her family. In addition to working
in Luxembourg and the UK, she may travel to other EU countries from time to time for work.
Under Luxembourg domestic law, Anna will be tax resident in Luxembourg from
1 January 2022 and tax and social security withholding will be applied there on all earnings from
the employment. Both the flights and accommodation benefit are liable to tax in Luxembourg. The
company has agreed to settle any UK and Luxembourg taxes and social security arising on the
flights and accommodation. Anna will not be tax equalised on her salary.
Requirement:
Explain Anna’s tax and social security position in the UK. (15)
Extract from UK/Luxembourg double taxation treaty
Article 4: Fiscal domicile
1) For the purposes of this Convention, the term ‘resident of a Contracting State’ means any person
who, under the law of that State, is liable to taxation therein by reason of his domicile, residence,
place of management or any other criterion of a similar nature.
2) Where by reason of the provisions of paragraph (1) an individual is a resident of both Contracting
States, then this case shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent
home available to him. If he has a permanent home available to him in both Contracting
States, he shall be deemed to be a resident of the Contracting State with which his personal
and economic relations are closest (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or
if he has not a permanent home available to him in either Contracting State, he shall be
deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be
deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities
of the Contracting States shall settle the question by mutual agreement.
3) Whereby reason of the provisions of paragraph (1) a person other than an individual is a resident
of both Contracting States, then it shall be deemed to be a resident of the Contracting State in
which its place of effective management is situated.
Article 15 – Dependent Personal Services
1) Subject to the provisions of Articles 16, 18, 19 and 20, 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), remuneration derived by a resident of a Contracting
State in respect of an employment exercised in the other Contracting State shall be taxable only in
the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the
aggregate 183 days in the fiscal year concerned, and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other
State, and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the
employer has in the other State.
3) Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment
,2. Aengine Ltd is an engineering company with over 250 employees. Its total pay bill is in excess of
£3 million per annum. The share capital in the company is wholly owned by three directors who are
all UK resident for tax purposes.
Company vehicles have been provided for a number of years. During 2020/21 these were provided
to directors and employees as follows:
Directors
In 2018, the three directors of Aengine Ltd were given the option of receiving a car allowance of
£8,500 (payable in monthly instalments) or a company car. In relation to the company car, they
were able to upgrade to a higher specification car if they pay £3,000 per annum (deducted in
monthly instalments from their net pay). All directors selected the higher specification company car,
which had a list price of £30,000 and CO2 emissions of 115g/km. The cars were first registered
before 6 April 2020 and have petrol engines. Fuel was not provided.
Aengine Ltd reported the company cars on forms P11D with a benefit in kind value of £8,500 for
each director.
Engineers
Aengine Ltd employed a team of 100 engineers (all basic rate taxpayers) who were each provided
with a double cab pickup vehicle. The vehicles were only used for travel from home to work and
between work sites.
Half of the engineers had vehicles with an uncovered load area behind the passenger cab and a
net payload of 1,050kg. The other half of the engineers had vehicles with hard tops over the load
area, which reduced the net payload to 950kg. The list price of all the vehicles was £25,000 and
CO2 emissions were 150g/km. The vehicles were first registered before 6 April 2020 and the fuel
type was diesel. The vehicles met the Real Driving Emissions Step 2 (RDE2) standard. The
engineers were reimbursed for the cost of business fuel at HMRC Advisory Fuels rates.
Aengine Ltd did not report any benefits in respect of these vehicles on forms P11D.
Sales Team
Aengine Ltd’s sales team consisted of 15 employees (all higher rate taxpayers). The company
provided each of these employees with a company car.
The list price of each car was £20,000 and CO2 emissions were 130g/km. The cars were first
registered before 6 April 2020 and the fuel type was petrol. The engine size of the vehicles was
2100cc. Aengine Ltd reported the company cars on forms P11D with a benefit in kind value of
£6,200 for each employee.
A fuel card was provided to employees in the sales team. They had to complete a mileage log and
retain fuel receipts and were required to reimburse the company for private mileage costs. The
amount reimbursed was based on the proportion of total fuel costs represented by private mileage
to total mileage.
Following a review of payroll records, it was discovered that two employees each with total mileage
of 10,000 and private mileage of 2,000 made payments of £200 each rather than the £350 which
they should have paid. All other employees reimbursed the company in line with the policy.
Aengine Ltd did not report any benefit for any private fuel on forms P11D nor did it deduct any
PAYE or National Insurance Contributions.
You may assume an Advisory Fuel Rate for 2020/21 of 17p per mile.
Requirement:
Explain the correct Income Tax, National Insurance and Apprenticeship Levy treatment of
the various vehicles and fuel provided during 2020/21, calculating any underpayment arising
assuming this will be met by the company.
You are NOT required to consider any other years nor to consider penalties and interest
due. (20)
, 3. Geffen Smith Ltd is a financial consulting company whose operations and employees are all located
in England. It employs a large number of consultants and has a pay bill of approximately £10 million
per year.
They want to encourage talented undergraduates, who are currently enrolled in a degree course,
to join the company. They plan to do this by meeting the costs of their education either directly or
indirectly. The options they are currently considering are:
1) paying a “sign on” bonus of equivalent value to the tuition fees;
2) reimbursing tuition fees, or
3) setting up a scholarship scheme.
In the past, Geffen Smith Ltd has recruited graduates with degrees in accounting and finance,
business studies, geography and classics. They make job offers to graduates in the Autumn before
the year of graduation which are always contingent on the employee getting a minimum of a 2:1
degree. Geffen Smith Ltd has no desire to change either the timing of the recruitment process or
which degree disciplines they consider. They also want to pay no more than the equivalent of the
final year’s tuition fees plus related costs.
They are also considering starting a school leavers programme. New joiners will work for Geffen
Smith Ltd whilst at the same time studying for a recognised professional qualification that is relevant
to their jobs. Geffen Smith Ltd plans to outsource this training to a recognised training provider
rather than delivering it in-house. They are interested in exploring tax efficient ways of delivering
this training.
Requirement:
1) Explain the tax and National Insurance treatment of the three options proposed by
Geffen Smith Ltd for undergraduates. (11)
2) Discuss any tax efficient ways for Geffen Smith Ltd to meet the cost of the school
leavers training programme. (4)
Total (15)
