Chartered Institute of Taxation (CIOT / CTA) Owner-Managed Businesses Advisory Syllabus

Owner-Managed Businesses Advisory syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Owner-Managed Businesses Advisory in Chartered Institute of Taxation (CIOT / CTA), not a summary of it.

1. 1

   Business Structures and Incorporation

   4 topics

   • Choice of business medium
     • Sole trader, partnership and company comparison
     • Tax-efficient profit extraction by structure
   • Incorporation of an existing business
     • Incorporation relief and gift relief
     • Goodwill and intangibles on incorporation
     • Transfer of trading stock and capital allowances
   • Disincorporation and changes in structure
   • Partnerships and LLPs
     • Profit-sharing and salaried member rules
     • Mixed partnership anti-avoidance
2. 2

   Profit Extraction and Remuneration Planning

   4 topics

   • Salary versus dividend strategy
     • NIC and corporation tax interaction
     • Optimal extraction modelling
   • Pension contributions as extraction
     • Annual allowance and tapering
     • Employer contributions and corporation tax deduction
   • Benefits in kind and tax-efficient perks
   • Director loan accounts and s.455 charge
3. 3

   Capital Allowances and Trading Computations

   4 topics

   • Plant and machinery allowances
     • Annual investment allowance and full expensing
     • Special rate pool and integral features
   • Structures and buildings allowance
   • Adjustment of trading profits
     • Disallowable expenditure and add-backs
     • Capital versus revenue distinction
   • Research and development reliefs
4. 4

   Succession, Exit and Reconstructions

   4 topics

   • Sale of a business or company
     • Asset sale versus share sale comparison
     • Business Asset Disposal Relief planning
   • Company purchase of own shares
     • Capital versus income treatment conditions
     • Clearance procedures
   • Company reconstructions and demergers
     • Statutory and liquidation demergers
     • Share-for-share exchange and TCGA reliefs
   • Succession to the next generation and trusts

Owner-Managed Businesses Advisory flashcards for Chartered Institute of Taxation (CIOT / CTA)

21 of 51 cards from the Owner-Managed Businesses Advisory deck — real questions with worked answers.

1. What are the three principal business mediums an adviser compares for an owner-managed business, and what is the key liability distinction?

   Sole trader, partnership (including LLP), and limited company. Sole traders and general partners have unlimited personal liability for business debts; a limited company and LLP members have limited liability (the company is a separate legal person).

2. When comparing trading as a company versus unincorporated, what is the broad tax driver that favours incorporation?

   A company pays Corporation Tax on profits (often lower than higher/additional income tax rates), and profits can be retained or extracted tax-efficiently. Unincorporated profits are taxed in full on the owner via income tax and Class 4 NIC whether or not drawn, removing the deferral and rate-smoothing benefit.

3. What are the UK Corporation Tax main rate, small profits rate, and the marginal relief profit limits for FY2024?

   Main rate $25\%$ on profits over $\pounds250{,}000$; small profits rate $19\%$ on profits up to $\pounds50{,}000$; marginal relief applies between $\pounds50{,}000$ and $\pounds250{,}000$. Limits are divided by the number of associated companies plus the company itself.

4. State the marginal relief formula used between the lower and upper Corporation Tax limits.

   $$\text{MR} = F \times (U - A) \times \frac{N}{A}$$ where $F$ is the standard fraction ($\frac{3}{200}$ for FY2024), $U$ the upper limit, $A$ augmented profits, and $N$ taxable total profits.

5. On incorporation, what CGT relief automatically applies if the whole business (other than cash) is transferred to a company wholly or partly for shares?

   Incorporation relief under TCGA 1992 s.162. The chargeable gain is rolled into (deducted from) the base cost of the shares received, deferring the gain until the shares are sold. Relief is given automatically unless an election to disapply is made.

6. How is the gain deferred under s.162 incorporation relief restricted when consideration is taken partly in cash or other non-share form?

   The deferred gain is proportionate to the share consideration: $$\text{Gain deferred} = \text{Gain} \times \frac{\text{Value of shares received}}{\text{Total consideration}}$$ The balance attributable to non-share consideration is chargeable now.

7. What is the alternative CGT relief to s.162 on incorporation where assets are gifted to the company, and what is a drawback?

   Gift holdover relief under TCGA 1992 s.165 (gift of business assets). It allows selective transfer of assets (e.g. retaining property outside the company) but is not available on goodwill in many cases and the held-over gain reduces the company's base cost. It must be claimed jointly.

8. Why might an owner deliberately disapply s.162 incorporation relief on incorporating a business?

   To crystallise the gain now and claim Business Asset Disposal Relief (10% rate) while it is available, possibly using the annual exempt amount, rather than rolling a gain into shares that may later be taxed at a higher rate. The election must be made within the relevant time limit.

9. On incorporation, what relief prevents a double SDLT/CGT charge being amplified, and what tax charge typically arises on transferring chargeable-interest property to the company?

   SDLT is charged on the market value of land transferred to a connected company (FA 2003 s.53), regardless of actual consideration. There is no general relief, which is a key reason owners often keep property outside the company.

10. What is 'disincorporation' and which targeted relief historically facilitated it (now expired)?

    Disincorporation is transferring a company's trade and assets back to its shareholders to operate unincorporated. Disincorporation Relief (FA 2013), which deferred gains on goodwill and land transferred at a reduced value, was available only for transfers up to 31 March 2018 and has since expired.

11. For income tax, how are general partnership profits allocated and assessed on the individual partners?

    Profits are computed at partnership level then allocated per the profit-sharing ratio in force during the period. Each partner is taxed individually on their share as trading income, with Class 4 and Class 2 NIC, as if running their own business.

12. How does the tax transparency of an LLP compare with a limited company?

    An LLP is tax transparent: members are taxed as partners (self-employment income tax and NIC on their profit shares), despite limited liability. A limited company is opaque: it pays Corporation Tax and members extract profit as salary/dividends.

13. What is the 'salaried members' rule for LLPs, and what does it do?

    ITTOIA/ITEPA salaried member rules treat an LLP member as an employee (taxed under PAYE with employer NIC) if all three conditions are met: (A) at least 80% of remuneration is 'disguised salary', (B) no significant influence over affairs, and (C) capital contribution is less than 25% of disguised salary.

14. In a salary versus dividend comparison, why are dividends often more tax-efficient than equivalent salary for an owner-manager?

    Dividends carry no NIC (employee or employer) and are taxed at lower rates ($8.75\%/33.75\%/39.35\%$), but are paid from post-Corporation-Tax profit. Salary is deductible for the company and incurs income tax plus employee and employer NIC; the optimum usually mixes both.

15. What is the typical 'optimal' salary level for an owner-director with no other employment, and why that level?

    A salary around the NIC secondary/primary threshold (commonly set to use the personal allowance, e.g. near $\pounds12{,}570$) preserves a qualifying year for state pension and gives a Corporation Tax deduction, while keeping NIC minimal — especially if the Employment Allowance covers employer NIC.

16. State the UK dividend ordinary, upper and additional rates and the dividend allowance for 2024/25.

    Dividend allowance $\pounds500$ (taxed at $0\%$). Above that: ordinary rate $8.75\%$, upper rate $33.75\%$, additional rate $39.35\%$, depending on which income tax band the dividend falls in (dividends are the top slice of income).

17. Why are employer pension contributions a highly tax-efficient method of profit extraction for an owner-director?

    Employer contributions are generally a deductible trading expense for the company (if wholly and exclusively for the trade), incur no income tax or NIC for the director, and grow tax-free in the pension fund — avoiding both Corporation Tax leakage and the income tax/NIC on salary or the double charge on dividends.

18. What is the annual allowance for pension contributions, and how does tapering apply to high earners (2024/25)?

    Standard annual allowance is $\pounds60{,}000$. It tapers by $\pounds1$ for every $\pounds2$ of adjusted income over $\pounds260{,}000$, down to a minimum of $\pounds10{,}000$ (threshold income must also exceed $\pounds200{,}000$). Unused allowance from the previous three years can be carried forward.

19. How are most taxable benefits in kind valued for an employee, and what code legislates them?

    Under ITEPA 2003, benefits are generally taxed on the 'cash equivalent' — broadly the cost to the employer. Specific rules apply to cars, vans, beneficial loans and living accommodation. Employer reports via P11D (or payrolls them) and pays Class 1A NIC at 13.8%.

20. How is the taxable benefit on a company car calculated?

    $$\text{Benefit} = \text{List price} \times \text{CO}_2\%\ \text{appropriate percentage}$$ reduced for part-year and capital contributions. The appropriate percentage rises with $\text{CO}_2$ emissions; very low-emission/electric cars attract very low percentages (e.g. 2%), making them tax-efficient perks.

21. Name three genuinely tax-free or exempt employee benefits an OMB owner can use.

    Examples: employer pension contributions; a mobile phone (one per employee); trivial benefits costing $\leq \pounds50$ (capped at $\pounds300$/year for directors of close companies); workplace parking; cycle-to-work scheme; and up to $\pounds6$/week homeworking allowance.

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