THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Human Capital Taxes
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 AZA LLP, a firm of Chartered Tax Advisers. Your manager, Jasmin Patil, has
received an email (EXHIBIT A) from Claire Swan, Head of Tax, at your client RDJ Pharmaceuticals UK
Ltd.
RDJ Pharmaceuticals UK Ltd specialises in the research and development of vaccines for rare diseases.
It is a wholly owned subsidiary of RDJ Pharmaceuticals Inc, a US company.
Claire Swan has received a standard letter from HMRC enquiring about the implementation of the
off-payroll working rules. Claire would like to know what impact it may have for the company, how she
should respond to it and has requested recommendations on how to proceed going forward.
Jasmin has asked you to prepare a draft report to RDJ Pharmaceuticals UK Ltd.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Claire Swan
EXHIBIT B: Email from Peter Wong
EXHIBIT C: Output from HMRC’s Check of Employment Status Tool (CEST) for Peter Wong
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to Claire Swan, for review by Jasmin Patil recommending any actions RDJ
Pharmaceuticals UK Ltd should take following receipt of the letter from HMRC.
,Continuation
EXHIBIT A
Email from Claire Swan
From:
To:
Date: 29 October 2022
Subject: HMRC review into off-payroll working
Dear Jasmin
We have just received what seems to be a standard letter from HMRC saying that if we have contractors
we should have been applying the off-payroll working rules since April 2021. HMRC has asked us to
provide the information about out contractors including any ‘status determination statements’ by
15 January 2023.
We use a number of contractors / self-employed individuals who provide services to us from time to time,
but we have not previously considered the off-payroll working rules as we thought the rules did not apply
to us. Having looked at the information leaflet HMRC provided, we are particularly worried about one of
our consultants Peter Wong. In fact, as suggested, we used HMRC’s Check of Employment Status tool
(EXHIBIT C) which provided us with the outcome that Peter’s employment status for tax purposes is
undetermined. We have attached the inputs we used, perhaps you could review. Please let us know any
key areas of concern, how we should respond and identify any potential exposure in the worst case
scenario.
Peter initially commenced work with us as a part-time consultant from 1 May 2019 under an engagement
between his company (Peter Wong Services Ltd) and us. He has great connections with leading research
institutions and this is incredibly useful for prioritising and accelerating our pipeline. We understand Peter’s
company was providing services to other organisations at that time. However, we have ramped up our
activities on our own pipeline over the last 18 months and Peter started to increase his time commitment
to us from early April 2021 under the same terms but at an increased daily rate.
He works from home most of the time, but the nature of his work does mean he needs to come into the
lab from time to time as well as attend meetings with research institutions and regulatory bodies. He has
the use of a company laptop and email; this is purely for security and confidentiality in accordance with
our policies.
Recently our Head of Research and Development, Jane Brown, has been taken ill and could be off work
for an extended period. We have been in discussions with RDJ Pharmaceuticals Inc about seconding
someone from the US to cover Jane’s duties but this may be impractical in the near term due to the time
it will take to get a work permit. We need to see if Peter can cover some of her duties including managerial
responsibilities and reporting directly to the board. This change would take effect from November 2022. If
Peter was to take on these extra responsibilities we would see this as a permanent change as we are
expanding and would still need extra resource at this level when Jane returns.
Does this change anything for us and, if so what are our options and your recommendations going
forwards?
One consideration is that we would like to award share options to Peter personally under the proposed
new share plan.
Peter’s company has been invoicing us £12,500 per month (net of VAT), since January 2022. Prior to this
in the 2021/22 tax year, he invoiced us the following amounts (net of VAT):
£
April 2021 4,500
May 2021 5,000
June 2021 7,500
July 2021 8,000
August 2021 8,500
September 2021 10,000
October 2021 10,000
November 2021 11,000
December 2021 12,000
I have informed Peter and he has provided us with some more detail (attached) about tax payments he
and his company have made (EXHIBIT B).
I look forward to hearing from you.
, Continuation
EXHIBIT B
Email from Peter Wong
From:
To:
Date: 3 November 2022
Subject: HMRC letter
Dear Claire
Thank you for your note and I am so sorry to hear about Jane.
First of all, I am quite surprised that you are writing to me about tax changes that came into force over
18 months ago and hope HMRC will be reasonable. I trust this will not impact my or my company’s
cash-flow. My company initially entered into a consultancy arrangement to provide services with the
expectation for me to commit a couple of days a week and I have always invoiced at the agreed daily
rate.
I will happily cover for Jane and it would be good to discuss these arrangements. I really like working with
the team and I think I can help support them with their development going forward. My commitment to
RDJ Pharmaceuticals UK Ltd has increased over the last year or so and I have declined a number of
opportunities with other clients in that time. If I do take on the extra duties RDJ Pharmaceuticals UK Ltd
will be my only client and I will not be able to take on other work outside the organisation.
As requested, below are some details about my company. They are quite simple. I wholly own my
consulting company, Peter Wong Services Ltd. My company has paid me a salary of £2,000 per month
since May 2019 and dividends of £17,500 per quarter since April 2021. This is the only income I reported
on my tax return for 2021/22. My accountant files my company’s PAYE, Corporation Tax, VAT and
personal tax returns and has provided the following:
Year Ended 30 April 2021 Year Ended 30 April 2022
£ £
Turnover 90,000 135,000
Expenses:
Director’s Remuneration 26,098 26,092
including Employer NICs
Costs of travel to RDJ 750 1,200
Pharmaceuticals UK Ltd (no
travel to other clients)
Insurance 1,000 1,000
Stationary, printing costs and 2,800 2,800
telephone costs (exclusively
for RDJ work)
Profit before Corporation Tax 59,352 103,908
Corporation Tax 11,277 19,743
Dividends paid 44,000 70,000
Retained profits 4,075 14,165
I recently filed my company’s accounts and Company Tax Return for the year to 30 April 2022 and my
Self-Assessment Return for 2021/22 so I am up to date with all my tax returns. My accountant tells me I
need to make a payment of around £17,000 on 31 January 2023 which consists of my remaining liability
for 2021/22 and first payment on account for 2022/23. I have also made payments on account of £7,150
for 2021/22. My company needs to pay the Corporation Tax for the year to 30 April 2022 by 31 January
2023. Please let me know what you conclude from your review and what this means for my company and
myself.
As you know, I like the flexibility of working through my own company but I am open to a discussion on
reviewing any arrangements. I am also in the process of reviewing my company’s insurance and if I take
on the amended role from this month this will no longer be needed. I would also stop advertising for
additional work and stop maintaining my own specialised equipment. I am hoping my costs will reduce
going forward.
Lastly, thank the team for the invite to the Christmas party, I will of course be there. It will be great to be
able to finally attend one of these events as I have heard a lot about previous years’ functions.
Best wishes
Peter
APPLICATION AND PROFESSIONAL SKILLS
Human Capital Taxes
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 AZA LLP, a firm of Chartered Tax Advisers. Your manager, Jasmin Patil, has
received an email (EXHIBIT A) from Claire Swan, Head of Tax, at your client RDJ Pharmaceuticals UK
Ltd.
RDJ Pharmaceuticals UK Ltd specialises in the research and development of vaccines for rare diseases.
It is a wholly owned subsidiary of RDJ Pharmaceuticals Inc, a US company.
Claire Swan has received a standard letter from HMRC enquiring about the implementation of the
off-payroll working rules. Claire would like to know what impact it may have for the company, how she
should respond to it and has requested recommendations on how to proceed going forward.
Jasmin has asked you to prepare a draft report to RDJ Pharmaceuticals UK Ltd.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Claire Swan
EXHIBIT B: Email from Peter Wong
EXHIBIT C: Output from HMRC’s Check of Employment Status Tool (CEST) for Peter Wong
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to Claire Swan, for review by Jasmin Patil recommending any actions RDJ
Pharmaceuticals UK Ltd should take following receipt of the letter from HMRC.
,Continuation
EXHIBIT A
Email from Claire Swan
From:
To:
Date: 29 October 2022
Subject: HMRC review into off-payroll working
Dear Jasmin
We have just received what seems to be a standard letter from HMRC saying that if we have contractors
we should have been applying the off-payroll working rules since April 2021. HMRC has asked us to
provide the information about out contractors including any ‘status determination statements’ by
15 January 2023.
We use a number of contractors / self-employed individuals who provide services to us from time to time,
but we have not previously considered the off-payroll working rules as we thought the rules did not apply
to us. Having looked at the information leaflet HMRC provided, we are particularly worried about one of
our consultants Peter Wong. In fact, as suggested, we used HMRC’s Check of Employment Status tool
(EXHIBIT C) which provided us with the outcome that Peter’s employment status for tax purposes is
undetermined. We have attached the inputs we used, perhaps you could review. Please let us know any
key areas of concern, how we should respond and identify any potential exposure in the worst case
scenario.
Peter initially commenced work with us as a part-time consultant from 1 May 2019 under an engagement
between his company (Peter Wong Services Ltd) and us. He has great connections with leading research
institutions and this is incredibly useful for prioritising and accelerating our pipeline. We understand Peter’s
company was providing services to other organisations at that time. However, we have ramped up our
activities on our own pipeline over the last 18 months and Peter started to increase his time commitment
to us from early April 2021 under the same terms but at an increased daily rate.
He works from home most of the time, but the nature of his work does mean he needs to come into the
lab from time to time as well as attend meetings with research institutions and regulatory bodies. He has
the use of a company laptop and email; this is purely for security and confidentiality in accordance with
our policies.
Recently our Head of Research and Development, Jane Brown, has been taken ill and could be off work
for an extended period. We have been in discussions with RDJ Pharmaceuticals Inc about seconding
someone from the US to cover Jane’s duties but this may be impractical in the near term due to the time
it will take to get a work permit. We need to see if Peter can cover some of her duties including managerial
responsibilities and reporting directly to the board. This change would take effect from November 2022. If
Peter was to take on these extra responsibilities we would see this as a permanent change as we are
expanding and would still need extra resource at this level when Jane returns.
Does this change anything for us and, if so what are our options and your recommendations going
forwards?
One consideration is that we would like to award share options to Peter personally under the proposed
new share plan.
Peter’s company has been invoicing us £12,500 per month (net of VAT), since January 2022. Prior to this
in the 2021/22 tax year, he invoiced us the following amounts (net of VAT):
£
April 2021 4,500
May 2021 5,000
June 2021 7,500
July 2021 8,000
August 2021 8,500
September 2021 10,000
October 2021 10,000
November 2021 11,000
December 2021 12,000
I have informed Peter and he has provided us with some more detail (attached) about tax payments he
and his company have made (EXHIBIT B).
I look forward to hearing from you.
, Continuation
EXHIBIT B
Email from Peter Wong
From:
To:
Date: 3 November 2022
Subject: HMRC letter
Dear Claire
Thank you for your note and I am so sorry to hear about Jane.
First of all, I am quite surprised that you are writing to me about tax changes that came into force over
18 months ago and hope HMRC will be reasonable. I trust this will not impact my or my company’s
cash-flow. My company initially entered into a consultancy arrangement to provide services with the
expectation for me to commit a couple of days a week and I have always invoiced at the agreed daily
rate.
I will happily cover for Jane and it would be good to discuss these arrangements. I really like working with
the team and I think I can help support them with their development going forward. My commitment to
RDJ Pharmaceuticals UK Ltd has increased over the last year or so and I have declined a number of
opportunities with other clients in that time. If I do take on the extra duties RDJ Pharmaceuticals UK Ltd
will be my only client and I will not be able to take on other work outside the organisation.
As requested, below are some details about my company. They are quite simple. I wholly own my
consulting company, Peter Wong Services Ltd. My company has paid me a salary of £2,000 per month
since May 2019 and dividends of £17,500 per quarter since April 2021. This is the only income I reported
on my tax return for 2021/22. My accountant files my company’s PAYE, Corporation Tax, VAT and
personal tax returns and has provided the following:
Year Ended 30 April 2021 Year Ended 30 April 2022
£ £
Turnover 90,000 135,000
Expenses:
Director’s Remuneration 26,098 26,092
including Employer NICs
Costs of travel to RDJ 750 1,200
Pharmaceuticals UK Ltd (no
travel to other clients)
Insurance 1,000 1,000
Stationary, printing costs and 2,800 2,800
telephone costs (exclusively
for RDJ work)
Profit before Corporation Tax 59,352 103,908
Corporation Tax 11,277 19,743
Dividends paid 44,000 70,000
Retained profits 4,075 14,165
I recently filed my company’s accounts and Company Tax Return for the year to 30 April 2022 and my
Self-Assessment Return for 2021/22 so I am up to date with all my tax returns. My accountant tells me I
need to make a payment of around £17,000 on 31 January 2023 which consists of my remaining liability
for 2021/22 and first payment on account for 2022/23. I have also made payments on account of £7,150
for 2021/22. My company needs to pay the Corporation Tax for the year to 30 April 2022 by 31 January
2023. Please let me know what you conclude from your review and what this means for my company and
myself.
As you know, I like the flexibility of working through my own company but I am open to a discussion on
reviewing any arrangements. I am also in the process of reviewing my company’s insurance and if I take
on the amended role from this month this will no longer be needed. I would also stop advertising for
additional work and stop maintaining my own specialised equipment. I am hoping my costs will reduce
going forward.
Lastly, thank the team for the invite to the Christmas party, I will of course be there. It will be great to be
able to finally attend one of these events as I have heard a lot about previous years’ functions.
Best wishes
Peter
