THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Human Capital Taxes
November 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 a tax manager in Bootle, Baker & Co, a firm of Chartered Tax Advisers. You report to Rachel
Bootle, the Managing Partner in your firm. She has received a letter (EXHIBIT A) from Sara Qureshi who
is the Finance Director at your client MGB Style Ltd, a clothing retailer.
For the last three years MGB Style Ltd has paid Ordinateur Ltd to assist with the development and upkeep
of their website and app. The MGB Style Ltd board of directors has agreed that these tasks should be
brought in-house. Accordingly, negotiations have started with the owner of Ordinateur Ltd.
Sara has asked your firm to recommend whether MGB Style Ltd should acquire the shares or the trade
and assets of Ordinateur Ltd.
The following exhibits are provided to assist you:
EXHIBIT A: Letter from Sara Qureshi
EXHIBIT B: Email from George Barnes
EXHIBIT C: Extracts from the financial due diligence report on Ordinateur Ltd
EXHIBIT D: Pre-seen information
You should assume that the UK/France Double Tax Treaty follows the OECD Model Treaty.
Requirement:
Prepare a draft report to Sara Qureshi recommending how MGB Style Ltd should proceed in
relation to Ordinateur Ltd.
Continued
,Continuation
EXHIBIT A
Letter from Sara Qureshi
Rachel Bootle Sara Qureshi
Bootle, Baker & Co MGB Style Ltd
25 Uppingham Road 10 Knightthorpe Road
Leicester Loughborough
LE5 3TB LE11 4JP
29 October 2021
Dear Rachel
Re: Acquisition of Ordinateur Ltd
As we discussed briefly yesterday, we are in negotiations to purchase Ordinateur Ltd. They are an IT
consulting company located in Loughborough.
The MGB Style Ltd board of directors considers online shopping to be the key source of future growth for
the company. As a result, it is a priority for us to have a strong in-house team rather than rely on external
service providers.
We have used the Ordinateur Ltd team to develop our website and mobile shopping app for the last three
years. We are happy with their work and they have a good understanding of our company.
Ordinateur Ltd’s owner is Ordinateur SA, a large IT consultancy company listed on the Bourse de Paris
stock exchange. Their expansion into the UK market with Ordinateur Ltd has not been as successful as
they would have liked and 60% of their revenue currently comes from MGB Style Ltd.
Ordinateur SA have agreed to sell us the Ordinateur Ltd business for £1 million. We have yet to agree
whether we will structure the acquisition as a share purchase or a trade and asset purchase (we would
only acquire the tangible and intangible assets and leave the debtors, creditors and cash). Either way, the
price will remain the same.
Following the acquisition the staff of Ordinateur Ltd will continue to sell their services to other customers
as at present. We have been assured that they do not have any existing contracts with organisations who
are direct competitors to MGB Style Ltd.
Please find enclosed an email (EXHIBIT B) from our HR Director. He recently had a meeting with the
Ordinateur Ltd Managing Director to gather some information on the employees.
Please also find enclosed extracts from an independent financial due diligence report on Ordinateur Ltd
(EXHIBIT C). This also contains the latest set of accounts prepared by Ordinateur Ltd.
Please can you review all the information and let me know if there are any tax issues we should be
considering. I would be especially interested in your opinion on whether we should purchase the shares
of Ordinateur Ltd or seek to buy the trade and assets.
Yours sincerely
Sara
Continued
, Continuation
EXHIBIT B
Email from George Barnes
From:
To:
Date: 25 October 2021
Subject: Ordinateur Ltd People Matters
Hi Sara
Hope you are well. I have just got back from my meeting at Ordinateur Ltd and thought I would share my
notes. There were a few surprises!
As we discussed last week, if we buy the trade and assets of Ordinateur Ltd we would bring all the
employees across to MGB Style Ltd under the TUPE regulations. They would become our employees but
we would have to give them the same terms and conditions as they have right now.
Let me know if you would like to discuss.
Regards
George
Notes from HR due diligence meeting with Ordinateur Ltd – 25 October 2021
Employees
Managing Director and Principal Developer - Francois Du Plessis
Junior Developers - Jenny Smith, Vinesh Bhatia, Rita Brown
Office Manager - Chris River
Core remuneration items for all staff
Annual salary
Company car
Share Option Scheme – see notes below
Contractual work location
The contractual work location for all employees is the Ordinateur Ltd office in Loughborough. However, it
is not uncommon for Chris River to be the only occupant as all the developers spend time at other client
sites.
Francois Du Plessis has an unofficial working from home arrangement. His family home is in the South
of France. He flies to and from France each week at his own expense. He usually works from home in
France every Thursday and Friday. All other employees live near Loughborough.
Payroll management
Chris Rivers runs the payroll in the UK and also prepares the annual forms P11D for the company cars.
He has not had any involvement with the share option scheme administration to date and says he doubts
anything has been sent to HMRC so far.
Share Option Scheme
The share option scheme is administered by the Ordinateur SA French head office team.
It is a relatively new scheme set up under French legislation. No UK tax review has been done of the
scheme and no HMRC notifications or reporting has been undertaken.
The first options were granted on 2 June 2020 and vested on 1 June 2021. Each of the five Ordinateur
Ltd employees was granted options over 100 shares in Ordinateur SA with a discounted option price of
£1 per share. On 1 June 2021 each of the shares was worth £10. All employees exercised their options
immediately.
A further option grant took place on 2 June 2021. This is scheduled to vest on 1 June 2022, however
Ordinateur SA have agreed that they will accelerate the vesting if the transaction goes ahead to allow a
clean break with the employees.
APPLICATION AND PROFESSIONAL SKILLS
Human Capital Taxes
November 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 a tax manager in Bootle, Baker & Co, a firm of Chartered Tax Advisers. You report to Rachel
Bootle, the Managing Partner in your firm. She has received a letter (EXHIBIT A) from Sara Qureshi who
is the Finance Director at your client MGB Style Ltd, a clothing retailer.
For the last three years MGB Style Ltd has paid Ordinateur Ltd to assist with the development and upkeep
of their website and app. The MGB Style Ltd board of directors has agreed that these tasks should be
brought in-house. Accordingly, negotiations have started with the owner of Ordinateur Ltd.
Sara has asked your firm to recommend whether MGB Style Ltd should acquire the shares or the trade
and assets of Ordinateur Ltd.
The following exhibits are provided to assist you:
EXHIBIT A: Letter from Sara Qureshi
EXHIBIT B: Email from George Barnes
EXHIBIT C: Extracts from the financial due diligence report on Ordinateur Ltd
EXHIBIT D: Pre-seen information
You should assume that the UK/France Double Tax Treaty follows the OECD Model Treaty.
Requirement:
Prepare a draft report to Sara Qureshi recommending how MGB Style Ltd should proceed in
relation to Ordinateur Ltd.
Continued
,Continuation
EXHIBIT A
Letter from Sara Qureshi
Rachel Bootle Sara Qureshi
Bootle, Baker & Co MGB Style Ltd
25 Uppingham Road 10 Knightthorpe Road
Leicester Loughborough
LE5 3TB LE11 4JP
29 October 2021
Dear Rachel
Re: Acquisition of Ordinateur Ltd
As we discussed briefly yesterday, we are in negotiations to purchase Ordinateur Ltd. They are an IT
consulting company located in Loughborough.
The MGB Style Ltd board of directors considers online shopping to be the key source of future growth for
the company. As a result, it is a priority for us to have a strong in-house team rather than rely on external
service providers.
We have used the Ordinateur Ltd team to develop our website and mobile shopping app for the last three
years. We are happy with their work and they have a good understanding of our company.
Ordinateur Ltd’s owner is Ordinateur SA, a large IT consultancy company listed on the Bourse de Paris
stock exchange. Their expansion into the UK market with Ordinateur Ltd has not been as successful as
they would have liked and 60% of their revenue currently comes from MGB Style Ltd.
Ordinateur SA have agreed to sell us the Ordinateur Ltd business for £1 million. We have yet to agree
whether we will structure the acquisition as a share purchase or a trade and asset purchase (we would
only acquire the tangible and intangible assets and leave the debtors, creditors and cash). Either way, the
price will remain the same.
Following the acquisition the staff of Ordinateur Ltd will continue to sell their services to other customers
as at present. We have been assured that they do not have any existing contracts with organisations who
are direct competitors to MGB Style Ltd.
Please find enclosed an email (EXHIBIT B) from our HR Director. He recently had a meeting with the
Ordinateur Ltd Managing Director to gather some information on the employees.
Please also find enclosed extracts from an independent financial due diligence report on Ordinateur Ltd
(EXHIBIT C). This also contains the latest set of accounts prepared by Ordinateur Ltd.
Please can you review all the information and let me know if there are any tax issues we should be
considering. I would be especially interested in your opinion on whether we should purchase the shares
of Ordinateur Ltd or seek to buy the trade and assets.
Yours sincerely
Sara
Continued
, Continuation
EXHIBIT B
Email from George Barnes
From:
To:
Date: 25 October 2021
Subject: Ordinateur Ltd People Matters
Hi Sara
Hope you are well. I have just got back from my meeting at Ordinateur Ltd and thought I would share my
notes. There were a few surprises!
As we discussed last week, if we buy the trade and assets of Ordinateur Ltd we would bring all the
employees across to MGB Style Ltd under the TUPE regulations. They would become our employees but
we would have to give them the same terms and conditions as they have right now.
Let me know if you would like to discuss.
Regards
George
Notes from HR due diligence meeting with Ordinateur Ltd – 25 October 2021
Employees
Managing Director and Principal Developer - Francois Du Plessis
Junior Developers - Jenny Smith, Vinesh Bhatia, Rita Brown
Office Manager - Chris River
Core remuneration items for all staff
Annual salary
Company car
Share Option Scheme – see notes below
Contractual work location
The contractual work location for all employees is the Ordinateur Ltd office in Loughborough. However, it
is not uncommon for Chris River to be the only occupant as all the developers spend time at other client
sites.
Francois Du Plessis has an unofficial working from home arrangement. His family home is in the South
of France. He flies to and from France each week at his own expense. He usually works from home in
France every Thursday and Friday. All other employees live near Loughborough.
Payroll management
Chris Rivers runs the payroll in the UK and also prepares the annual forms P11D for the company cars.
He has not had any involvement with the share option scheme administration to date and says he doubts
anything has been sent to HMRC so far.
Share Option Scheme
The share option scheme is administered by the Ordinateur SA French head office team.
It is a relatively new scheme set up under French legislation. No UK tax review has been done of the
scheme and no HMRC notifications or reporting has been undertaken.
The first options were granted on 2 June 2020 and vested on 1 June 2021. Each of the five Ordinateur
Ltd employees was granted options over 100 shares in Ordinateur SA with a discounted option price of
£1 per share. On 1 June 2021 each of the shares was worth £10. All employees exercised their options
immediately.
A further option grant took place on 2 June 2021. This is scheduled to vest on 1 June 2022, however
Ordinateur SA have agreed that they will accelerate the vesting if the transaction goes ahead to allow a
clean break with the employees.
