THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Human Capital Taxes
May 2021
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.
• 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.
,You are Tem Finlanda an assistant manager in a firm of Chartered Tax Advisers.
Your client is Rance Grey Ltd, a privately owned business providing marketing campaigns and
social media services to a range of businesses in the UK, US and Australia. It has a UK
subsidiary, Rance Grey Motor Media Ltd, which has historically run media campaigns for the
motor sport industry and which has been loss making for several years.
You and your firm’s tax partner, Cody McAmella, recently met with Jinny Barbayas the HR
Director of Rance Grey Ltd. Jinny explained that Rance Grey Motor Media Ltd will cease trading
and be dissolved. Some employees will be transferred to Rance Grey Ltd and five employees
will be made redundant. Additional information on the plans (EXHIBIT A) has been provided by
Jinny. Cody has also had a telephone conversation with Freya Archibald, the Group Finance
Director, (EXHIBIT C) regarding the redundancy plans and the finances of both businesses.
Cody has asked for you to prepare a draft report on the redundancy plans for her review.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Jinny Barbayas to Cody McAmella
EXHIBIT B: Proposed Termination Arrangements
EXHIBIT C: Notes of telephone conversation between Cody McAmella and Freya
Archibald
EXHIBIT D: Email from Freya Archibald to Cody McAmella
EXHIBIT E: Pre-seen information
Requirement:
Prepare a draft report to Jinny and Freya, for Cody’s review, discussing and making
recommendations in relation to the redundancy plans.
Continued
Page 2 of 9 APS HCT
,Continuation
EXHIBIT A
Email from Jinny Barbayas to Cody McAmella
To: Cody McAmella
From: Jinny Barbayas
Date: 3 May 2021
Subject: Redundancies
Dear Cody
It was good to see you and Tem on Friday.
As discussed, sadly we’re having to make redundant our five most senior and long-serving
employees.
Another five employees have already left the business as they have found employment
elsewhere. The remaining 10 will be employed by Rance Grey Ltd from 1 September 2021.
Attached are our plans for the redundancy arrangements in Rance Grey Motor Media Ltd
(EXHIBIT B). My initial plans are to pay the various items separately (option 1) but as the total
payment is £50,000 I’m wondering whether it would be simpler to pay a bonus (option 2). I’ve
added what I think is the tax and NIC treatment for each of the options.
We’ve been lucky that we haven’t needed to make anyone redundant at Rance Grey Ltd since
the business started in 1994. I last looked at redundancies 12 years ago whilst at my former
employer so I would appreciate your review of the summary please.
Thanks for your help and I look forward to hearing from you.
Best wishes
Jinny Barbayas
HR Director
Continued
Page 3 of 9 APS HCT
, Continuation
EXHIBIT B
Proposed Termination Arrangements
Working papers prepared by Jinny Barbayas – May 2021
Current Package
The five employees being made redundant are all on annual salaries of £65,000 and are
monthly paid. These salaries are after a 5% salary sacrifice each employee makes in return for
employer contributions to our defined contribution pension plan. The employees being made
redundant are:
Employees Start Date Age
Bill 1 January 2004 57
Harry 15 February 2004 56
Oliver 10 January 2004 52
Rebecca 13 March 2004 55
Eleanor 27 February 2004 51
Their contracts provide for three months’ notice and do not include a right to make a payment
in lieu of notice. Contracts do not include any entitlement to a payment on termination.
Whilst we have not formally carried out a selection process we have involved all employees in
discussions about the plans for the business closure.
Option 1 splits out the component items whereas option 2 is a lump sum.
Timetable
Actions Expected Timetable
Formal notice to be given to employees (three months) 1 December 2021
Employees expected to finish client facing activity By 19 December 2021
Employees on annual holiday over Christmas period 20 December 2021 to 4 January 2022
Finish administration and close office 4 to 14 January 2022
Payroll cut-off date for data to payroll team 15 January 2022
Garden leave 15 to 31 January 2022
Date of redundancy 31 January 2022
Payment to be made in payroll 31 January 2022
Proposed Termination Packages
Option 1
Item Amount Tax & NIC
Notes
£
February salary paid in lieu of notice for 5,416 Tax and NIC free
February 2022 (non-contractual). £65,000/12
Enhanced Redundancy Pay (non- 20,000 Included in £30,000 1
contractual) exemption, Tax and NIC free
Additional termination payment 24,084 Tax and NIC due 2
Restrictive Covenant 500 Tax and NIC free 3
Total 50,000
Continued
Page 4 of 9 APS HCT
APPLICATION AND PROFESSIONAL SKILLS
Human Capital Taxes
May 2021
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.
• 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.
,You are Tem Finlanda an assistant manager in a firm of Chartered Tax Advisers.
Your client is Rance Grey Ltd, a privately owned business providing marketing campaigns and
social media services to a range of businesses in the UK, US and Australia. It has a UK
subsidiary, Rance Grey Motor Media Ltd, which has historically run media campaigns for the
motor sport industry and which has been loss making for several years.
You and your firm’s tax partner, Cody McAmella, recently met with Jinny Barbayas the HR
Director of Rance Grey Ltd. Jinny explained that Rance Grey Motor Media Ltd will cease trading
and be dissolved. Some employees will be transferred to Rance Grey Ltd and five employees
will be made redundant. Additional information on the plans (EXHIBIT A) has been provided by
Jinny. Cody has also had a telephone conversation with Freya Archibald, the Group Finance
Director, (EXHIBIT C) regarding the redundancy plans and the finances of both businesses.
Cody has asked for you to prepare a draft report on the redundancy plans for her review.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Jinny Barbayas to Cody McAmella
EXHIBIT B: Proposed Termination Arrangements
EXHIBIT C: Notes of telephone conversation between Cody McAmella and Freya
Archibald
EXHIBIT D: Email from Freya Archibald to Cody McAmella
EXHIBIT E: Pre-seen information
Requirement:
Prepare a draft report to Jinny and Freya, for Cody’s review, discussing and making
recommendations in relation to the redundancy plans.
Continued
Page 2 of 9 APS HCT
,Continuation
EXHIBIT A
Email from Jinny Barbayas to Cody McAmella
To: Cody McAmella
From: Jinny Barbayas
Date: 3 May 2021
Subject: Redundancies
Dear Cody
It was good to see you and Tem on Friday.
As discussed, sadly we’re having to make redundant our five most senior and long-serving
employees.
Another five employees have already left the business as they have found employment
elsewhere. The remaining 10 will be employed by Rance Grey Ltd from 1 September 2021.
Attached are our plans for the redundancy arrangements in Rance Grey Motor Media Ltd
(EXHIBIT B). My initial plans are to pay the various items separately (option 1) but as the total
payment is £50,000 I’m wondering whether it would be simpler to pay a bonus (option 2). I’ve
added what I think is the tax and NIC treatment for each of the options.
We’ve been lucky that we haven’t needed to make anyone redundant at Rance Grey Ltd since
the business started in 1994. I last looked at redundancies 12 years ago whilst at my former
employer so I would appreciate your review of the summary please.
Thanks for your help and I look forward to hearing from you.
Best wishes
Jinny Barbayas
HR Director
Continued
Page 3 of 9 APS HCT
, Continuation
EXHIBIT B
Proposed Termination Arrangements
Working papers prepared by Jinny Barbayas – May 2021
Current Package
The five employees being made redundant are all on annual salaries of £65,000 and are
monthly paid. These salaries are after a 5% salary sacrifice each employee makes in return for
employer contributions to our defined contribution pension plan. The employees being made
redundant are:
Employees Start Date Age
Bill 1 January 2004 57
Harry 15 February 2004 56
Oliver 10 January 2004 52
Rebecca 13 March 2004 55
Eleanor 27 February 2004 51
Their contracts provide for three months’ notice and do not include a right to make a payment
in lieu of notice. Contracts do not include any entitlement to a payment on termination.
Whilst we have not formally carried out a selection process we have involved all employees in
discussions about the plans for the business closure.
Option 1 splits out the component items whereas option 2 is a lump sum.
Timetable
Actions Expected Timetable
Formal notice to be given to employees (three months) 1 December 2021
Employees expected to finish client facing activity By 19 December 2021
Employees on annual holiday over Christmas period 20 December 2021 to 4 January 2022
Finish administration and close office 4 to 14 January 2022
Payroll cut-off date for data to payroll team 15 January 2022
Garden leave 15 to 31 January 2022
Date of redundancy 31 January 2022
Payment to be made in payroll 31 January 2022
Proposed Termination Packages
Option 1
Item Amount Tax & NIC
Notes
£
February salary paid in lieu of notice for 5,416 Tax and NIC free
February 2022 (non-contractual). £65,000/12
Enhanced Redundancy Pay (non- 20,000 Included in £30,000 1
contractual) exemption, Tax and NIC free
Additional termination payment 24,084 Tax and NIC due 2
Restrictive Covenant 500 Tax and NIC free 3
Total 50,000
Continued
Page 4 of 9 APS HCT
