Part 2

In the first part of this article we considered the importance of time management and the requirement. We are now going to look at a past exam question and a suggested approach to take when answering Section A questions.

Illustration – Question 1, REP Ltd, from the ATX–UK Specimen exam

• There are 50 marks equating to 98 minutes available. If we assume that it has taken ten minutes to read the question, there are 88 minutes remaining. Although there are 50 marks, only 40 of them relate to particular requirements, the other ten are professional marks. Accordingly, there are 2.2 minutes per mark available in which to plan and type up an answer.
• The detailed requirements are found in exhibit 3 ‘work to be carried out’ and you are being asked to prepare notes in advance of an internal meeting. You can now set up your answer as meeting notes and use the requirements to help structure these notes, enabling you to gain the communication mark in respect of the general format and structure of the meeting notes.
• The requirements are in four main parts, (a) – (d), with (b) being split into three further sub-parts and (d) into two further sub-parts. You should use these to start to break up the structure of your meeting notes – make note of the mark breakdowns as it will help you plan your time across each task.
• Part (a) is the expected 5 marks on ethics – in this question looking at the extent to which a client can benefit from knowledge your firm has gained from advising other clients. Many candidates are well-prepared for the ethics requirement, but it is still worth spending the 11 minutes available to think about what is being asked and type up your answer to ensure you pick up as many marks as possible. If you’re not sure of the technical content, make some sensible statements and move on. You can always come back to it later if you have time, but you need to keep moving through the tasks.
• Part (b)(i) is the largest task at 10 marks and should take 22 minutes. Due to the size and nature of this task, it would be easy to allow it to overrun the time available. It is important that this is not allowed to happen.
• Your manager has told you to take some time to identify the different possibilities which need to be addressed so it is important that you follow this advice.
  
  
  • First, you need to consider JAY Ltd being profitable; you are asked to consider the amount of corporation tax payable in BOTH the UK and Garia dependent on whether JAY Ltd is resident in the UK OR Garia. So this is essentially four options for you to discuss in your answer. Does REP Ltd’s percentage holding of 30%/20% make a difference to how the profits will be taxed?
  • Once you’ve thought about JAY Ltd being profitable you then need to consider the situation if JAY Ltd makes a trading loss. You are asked about the relief available to REP Ltd in relation to this loss. Once again, you need to consider how it works if JAY Ltd is UK resident (and to think about the potential ownership percentage) and how it would be different if JAY Ltd were resident in Garia.

There’s a lot to think about here – you need to ensure you keep your points succinct and don’t go over your allotted 22 minutes.

• Part (b)(ii) asks you to list the implications of making an election to exempt the profits of an overseas permanent establishment from UK tax. Overseas issues are commonly tested in ATX–UK and must be expected to appear. This is a standard 3 mark technical requirement so you have 7 minutes to type up the implications. A better answer here will tailor the answer to be specific to the scenario rather than just a generic text book list.
• Finally, part (b)(iii) asks you, for 3 marks, to explain the purpose of the controlled foreign company (CFC) rules and the charge which can be levied under them.
• Part (c) of the question is on value added tax (VAT) and is worth 5 marks. You are told that REP Ltd is going to suffer input VAT purchasing a commercial building which it is then going to rent out. Lamar tells you that his friend says that if REP Ltd opts to tax the building they will be able to recover the input VAT suffered and that this will have no effect on their tenant or any potential future purchaser. To do well in this question part, you need to start by explaining the basics. The lease of a building would normally be an exempt supply, meaning that REP Ltd would no be able to recover the input VAT unless it makes an election to opt to tax the building. You must then consider how opting to tax the building would change the VAT position and what impact this would have, if any, on the tenant and any future purchaser. It is important to consider the advice from Lamar’s  friend advice sceptically and explain the correct position in your answer. You have 11 minutes to think about and type up your answer here.
• In (d)(i) you are asked to calculate Freya’s liability to income tax and class 4 national insurance contributions (NICs) for her final tax year of trading. This 6-mark requirement tests you on basic TX–UK level calculations. You will need to use the spreadsheet response option to efficiently produce these calculations within your 13-minute timeframe. Be careful you don’t get bogged down in these calculations. The final task is worth 8 marks and you must ensure you have time to fully address it.
• Finally, in (d)(ii) you are asked for an inheritance tax (IHT) calculation on a lifetime gift of shares to a trust indicating the availability or otherwise of all relevant annual exemptions. You must also identify the payment date for the IHT together with a brief explanation of how is has been determined. This should be a source of some of the easier marks of this question provided you have kept to time and so can fully address this requirement.

Suggested approach to a Section A question

The following is a suggested series of steps to carry out in order to complete a Section A question in the correct amount of time, such that you will maximise the number of marks obtained. You should practise questions and adapt this approach until you find a series of steps that works for you.

1. Use the total number of marks to determine the number of minutes available and write down the time at which you must have completed your answer to the question.
2. Read the background information which will give you an idea of the content of the question, the requirement window and the ‘work to be carried out’ exhibit.
3. Copy the detailed requirements from the ‘work to be carried out’ exhibit into the word processor response option and edit these to form the basic structure of your answer.
4. Read the rest of question from the beginning. You can use the highlight function to highlight information in the exhibits or can type simple notes/ key ideas into the word processor response option as you read. This will help you find the information you need in the question when you come to type up your answer.
5. Once you have read the question, calculate how much time you have remaining. This will enable you to determine how much time to spend on each part of the question. For example, for a 50 mark A question with 98 minutes and ten minutes have elapsed so far, then you have 88 minutes to complete your answer. Because only 40 of the marks relate to particular requirements, this equates to 2.2 (88/40) minutes per mark.
6. So, if part (a) is for 11 marks, it will need to be completed in 24 minutes. Think about how you will carry out the tasks in part (a) in that time. Identify the relative size of the tasks, split the time between them and get them done in the time. Keep looking at your watch to push yourself along.
7. Repeat step 5 for the remaining parts of the question such that you finish it in the time.

In the next part of this article we will look at some particular approaches to calculations that may be useful when answering Section A questions and the importance of question practice.

Written by a member of the ATX–UK examining team