THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Owner-Managed Businesses
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 work for Christina Powley, the founder of Powley Taxation, a firm of Chartered Tax
Advisers.
Christina has recently received a letter from Adrian Charl a new client. Adrian owns Charl
Communications, which installs telephone systems and operates on a sole trader basis.
Adrian currently lives abroad in Morova but wants to return to the UK in the near future. He
requires advice regarding the expansion of his business once he has returned and how this
should be funded. Christina has spoken with Adrian and agreed that she will draft a report to
him advising on the issues contained in his letter (EXHIBIT A).
It was agreed that for the purposes of drafting the report that the following assumptions will be
used:
1) Adrian Charl resumes UK tax residence on 1 August 2021; and
2) Any illustrative figures used to compare options are based upon a full year’s tax adjusted
trading profits of £100,000 and eventual sale proceeds for the business of £500,000.
The following exhibits are provided to assist you:
EXHIBIT A: Letter from Adrian Charl to Christina Powley
EXHIBIT B: Schedule of business and other significant disposable assets owned by Adrian
Charl
EXHIBIT C: Capital allowances Information
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report, for review by Christina, advising Adrian on the issues contained
in his letter.
Continued
Page 2 of 8 APS OMB
,Continuation
EXHIBIT A
Letter from Adrian Charl to Christina Powley
Christina Powley Adrian Charl
1 New Street 2 Old Viam
Newton Oldtone
England Morova
AB1 2CD
15 April 2021
Dear Christina
Return to UK and Reinvigoration of Charl Communications
As you will know, I lost interest in Charl Communications when I divorced from Mary in 2017. I
needed a complete change of scenery and therefore decided to move to the country of Morova
on 1 November 2017 where Mary and I used to take regular holidays. My former accountants
confirmed that HMRC agreed that I became non-UK resident on 1 November 2017 having
always been UK resident to that point. If relevant, they also confirmed that there is no double
tax treaty between the UK and Morova and that Morova does not charge Capital Gains Tax on
any asset disposals.
Thankfully, I did decide to keep Charl Communications, albeit very much on a ‘backburner’
basis. The business has been ticking along making useful, albeit unexciting, profits of around
£20,000 per year. I haven’t returned to the UK much since leaving but I do have regular on-line
meetings with my manager, Bill Davies, who’s been managing the business on a day-to-day
basis.
After spending November 2017 in rented accommodation, I bought a small house in Morova,
where I currently live, using part of my divorce settlement from Mary.
Due to a mistake, one of the larger clients of Charl Communication has recently been
threatening legal action. This situation is resolving quickly but has worried me into thinking that
perhaps a more direct hands-on approach is now required. There are also growth opportunities
appearing in the near future which could see the business profits quickly rise to approximately
£100,000 per year.
To fully exploit these opportunities, I will need to return to the UK where I will remain at least
until the business is sold in a few years. I will therefore return on 1 August 2021 and from that
date will start living in my UK house. Mary and I bought this property in 2010 and it passed to
me absolutely as part of our divorce settlement. The expansion of the business will start shortly
after I return to the UK.
The planned business expansion will require the purchase of equipment costing £25,000. We
also need better premises to service more prestigious clients. I have therefore located some
ideal premises which I intend to purchase for £200,000. If it is of interest to you, my solicitors
have confirmed that these premises were built in 2010; no VAT will be payable when they are
bought; and the vendor will only agree to allocating a disposal value of £1 to fixtures. If possible,
I would like to personally own these premises. I do not, however, wish to take on any borrowings
so I will need to sell something to provide the necessary funding. I do not wish to sell my UK
home. Please provide some guidance from a tax perspective as to which other asset(s) I should
sell for this purpose.
Continued
Page 3 of 8 APS OMB
, Continuation
In view of the recent threat of legal action I also need advice on how my personal risk exposure
could be reduced going forwards, together with any associated tax implications or tax benefits
from changing the structure of the business. However, the business is developed, I will remain
its sole owner so I do not want to consider partnerships as an option. I do not require any
detailed legal advice from yourselves regarding this as, once any final decisions are taken, I
will fully consult with my solicitors.
I will run the business for a further five years after which I will be looking to sell it, hopefully for
around £500,000, when I retire. I will work for the business on a full-time basis until then.
I very much look forward to hearing from you further in the near future.
Yours sincerely
Kind regards
Adrian Charl
Continued
Page 4 of 8 APS OMB
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Owner-Managed Businesses
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 work for Christina Powley, the founder of Powley Taxation, a firm of Chartered Tax
Advisers.
Christina has recently received a letter from Adrian Charl a new client. Adrian owns Charl
Communications, which installs telephone systems and operates on a sole trader basis.
Adrian currently lives abroad in Morova but wants to return to the UK in the near future. He
requires advice regarding the expansion of his business once he has returned and how this
should be funded. Christina has spoken with Adrian and agreed that she will draft a report to
him advising on the issues contained in his letter (EXHIBIT A).
It was agreed that for the purposes of drafting the report that the following assumptions will be
used:
1) Adrian Charl resumes UK tax residence on 1 August 2021; and
2) Any illustrative figures used to compare options are based upon a full year’s tax adjusted
trading profits of £100,000 and eventual sale proceeds for the business of £500,000.
The following exhibits are provided to assist you:
EXHIBIT A: Letter from Adrian Charl to Christina Powley
EXHIBIT B: Schedule of business and other significant disposable assets owned by Adrian
Charl
EXHIBIT C: Capital allowances Information
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report, for review by Christina, advising Adrian on the issues contained
in his letter.
Continued
Page 2 of 8 APS OMB
,Continuation
EXHIBIT A
Letter from Adrian Charl to Christina Powley
Christina Powley Adrian Charl
1 New Street 2 Old Viam
Newton Oldtone
England Morova
AB1 2CD
15 April 2021
Dear Christina
Return to UK and Reinvigoration of Charl Communications
As you will know, I lost interest in Charl Communications when I divorced from Mary in 2017. I
needed a complete change of scenery and therefore decided to move to the country of Morova
on 1 November 2017 where Mary and I used to take regular holidays. My former accountants
confirmed that HMRC agreed that I became non-UK resident on 1 November 2017 having
always been UK resident to that point. If relevant, they also confirmed that there is no double
tax treaty between the UK and Morova and that Morova does not charge Capital Gains Tax on
any asset disposals.
Thankfully, I did decide to keep Charl Communications, albeit very much on a ‘backburner’
basis. The business has been ticking along making useful, albeit unexciting, profits of around
£20,000 per year. I haven’t returned to the UK much since leaving but I do have regular on-line
meetings with my manager, Bill Davies, who’s been managing the business on a day-to-day
basis.
After spending November 2017 in rented accommodation, I bought a small house in Morova,
where I currently live, using part of my divorce settlement from Mary.
Due to a mistake, one of the larger clients of Charl Communication has recently been
threatening legal action. This situation is resolving quickly but has worried me into thinking that
perhaps a more direct hands-on approach is now required. There are also growth opportunities
appearing in the near future which could see the business profits quickly rise to approximately
£100,000 per year.
To fully exploit these opportunities, I will need to return to the UK where I will remain at least
until the business is sold in a few years. I will therefore return on 1 August 2021 and from that
date will start living in my UK house. Mary and I bought this property in 2010 and it passed to
me absolutely as part of our divorce settlement. The expansion of the business will start shortly
after I return to the UK.
The planned business expansion will require the purchase of equipment costing £25,000. We
also need better premises to service more prestigious clients. I have therefore located some
ideal premises which I intend to purchase for £200,000. If it is of interest to you, my solicitors
have confirmed that these premises were built in 2010; no VAT will be payable when they are
bought; and the vendor will only agree to allocating a disposal value of £1 to fixtures. If possible,
I would like to personally own these premises. I do not, however, wish to take on any borrowings
so I will need to sell something to provide the necessary funding. I do not wish to sell my UK
home. Please provide some guidance from a tax perspective as to which other asset(s) I should
sell for this purpose.
Continued
Page 3 of 8 APS OMB
, Continuation
In view of the recent threat of legal action I also need advice on how my personal risk exposure
could be reduced going forwards, together with any associated tax implications or tax benefits
from changing the structure of the business. However, the business is developed, I will remain
its sole owner so I do not want to consider partnerships as an option. I do not require any
detailed legal advice from yourselves regarding this as, once any final decisions are taken, I
will fully consult with my solicitors.
I will run the business for a further five years after which I will be looking to sell it, hopefully for
around £500,000, when I retire. I will work for the business on a full-time basis until then.
I very much look forward to hearing from you further in the near future.
Yours sincerely
Kind regards
Adrian Charl
Continued
Page 4 of 8 APS OMB
