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

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.

What is the official rate of interest used to value a beneficial (cheap) loan benefit, and what threshold exempts small loans?

The benefit is the official rate of interest (a HMRC-set rate, e.g. $2.25\%$) less interest actually paid. Loans are exempt if the total outstanding does not exceed $\pounds10{,}000$ at any point in the tax year.

What is a director's loan account (DLA) overdrawn position, and why does it matter for a close company?

An overdrawn DLA means the director owes the company (has been advanced funds). For a close company this is a 'loan to a participator' which can trigger the s.455 charge and a beneficial loan benefit in kind if it exceeds $\pounds10{,}000$.

State the s.455 CTA 2010 charge rate and when it is repaid to the company.

The company pays a temporary tax of $33.75\%$ of any loan to a participator outstanding at the year end and not repaid within 9 months and 1 day of the period end. The tax is repayable to the company 9 months and 1 day after the end of the accounting period in which the loan is repaid or written off.

What is the 'bed and breakfasting' anti-avoidance rule for s.455 loans?

If a participator repays $\geq \pounds5{,}000$ and within 30 days a new loan of similar amount is taken, the repayment is matched against the new loan so s.455 still applies. There is also a rule catching arrangements where $\geq \pounds15{,}000$ is repaid with an intention to redraw.

How is a written-off director's loan taxed in the hands of the participator?

A loan release/write-off to a participator who is also a director/employee is generally taxed as a dividend (grossed for income tax at dividend rates) under ITTOIA; it is not deductible for the company. NIC treatment can also arise. The company can reclaim the s.455 tax paid.

What are the three categories of capital allowances pools for plant and machinery, and their writing-down rates?

Main pool: $18\%$ reducing balance (WDA). Special rate pool (e.g. integral features, long-life assets, high-emission cars): $6\%$ reducing balance. Single-asset pools (e.g. short-life assets, private-use assets) tracked separately.

What is the Annual Investment Allowance (AIA) and its current limit?

The AIA gives a $100\%$ first-year deduction on qualifying plant and machinery expenditure (excluding cars) up to $\pounds1{,}000{,}000$ per year. It is shared among associated/group companies and apportioned for short or long periods.

What is 'full expensing' for companies and how does it differ from the AIA?

Full expensing gives companies a $100\%$ first-year allowance on new and unused main-rate plant and machinery with no upper limit (and $50\%$ FYA for special rate assets). Unlike AIA it applies only to companies and only to new assets, with balancing charge rules on disposal.

What is a balancing charge and when does it arise on plant and machinery?

A balancing charge is a clawback of excess allowances, taxed as trading income, arising when disposal proceeds (capped at cost) exceed the tax written-down value of a pool — typically on cessation, or where a single-asset pool's disposal value exceeds its balance.

What expenditure qualifies for the Structures and Buildings Allowance (SBA) and at what rate?

SBA gives relief on the construction cost of non-residential structures and buildings (offices, factories, warehouses) brought into qualifying use, at a flat $3\%$ per year on a straight-line basis over $33\frac{1}{3}$ years. Land cost is excluded.

How does the SBA interact with capital gains on a later sale of the building?

SBA claimed is added back: the allowances given reduce the base cost for CGT/Corporation Tax on chargeable gains, increasing the gain on disposal (so SBA is effectively a timing benefit, not permanent). The buyer continues claiming over the remaining period using an allowance statement.

List four common adjustments when computing taxable trading profit from accounting profit.

Add back: depreciation, client entertaining, non-trade/capital expenditure, general provisions, and disallowable legal/penalty costs. Deduct: capital allowances and non-trading income taxed elsewhere (e.g. rental, interest, dividends). Adjust for the 'wholly and exclusively' rule.

State the 'wholly and exclusively' test for deductibility of trading expenses.

Under ITTOIA s.34 / CTA 2009, an expense is deductible only if incurred wholly and exclusively for the purposes of the trade. Expenditure with a dual (private) purpose is disallowed unless a definite, identifiable business proportion can be separated.

What are the two current R&D relief regimes following the merger, and who can claim the SME-intensive enhancement?

From accounting periods beginning on/after 1 April 2024 a single merged R&D expenditure credit (RDEC) scheme applies (taxable credit, headline $20\%$). A separate enhanced relief for R&D-intensive loss-making SMEs (qualifying R&D $\geq 30\%$ of total expenditure) gives a higher payable credit.

How does the merged-scheme RDEC work mechanically as 'above the line'?

The credit (e.g. $20\%$ of qualifying R&D spend) is brought in as taxable income and then set against the Corporation Tax liability; any excess can become a payable cash credit (net of tax) subject to a seven-step capping process and a PAYE/NIC cap.

Name four categories of qualifying R&D expenditure.

Staffing costs (salaries, employer NIC, pension), consumable items (materials, water, fuel, power consumed in R&D), software and data/cloud costs, and a proportion of externally provided workers / qualifying subcontractor costs (subject to UK territoriality restrictions from April 2024).

When selling an owner-managed business, what is the fundamental tax distinction between a share sale and an asset (trade and assets) sale?

Share sale: shareholders sell shares — one CGT charge on the gain, potentially with BADR. Asset sale: the company sells assets (gains/balancing charges taxed on the company), then shareholders extract proceeds (further income tax on dividends or CGT on liquidation) — a potential double charge. Vendors prefer share sales; buyers prefer asset sales.

What is Business Asset Disposal Relief (BADR), its rate and lifetime limit?

BADR charges qualifying gains at $10\%$ (rising to $14\%$ from April 2025 and $18\%$ from April 2026) up to a lifetime limit of $\pounds1{,}000{,}000$ of gains. It applies to disposals of a trading business, or shares in a personal trading company.

State the qualifying conditions for BADR on a disposal of shares.

For at least 2 years before disposal the individual must: hold $\geq 5\%$ of ordinary share capital and voting rights (and be entitled to $\geq 5\%$ of profits/assets or sale proceeds); the company must be a trading company (or holding company of a trading group); and the individual must be an officer or employee.

What is Investors' Relief and how does it differ from BADR?

Investors' Relief gives a $10\%$ CGT rate (lifetime limit reduced to $\pounds1{,}000{,}000$) on disposals of newly subscribed, fully paid ordinary shares in an unlisted trading company, held for at least 3 years from 6 April 2016. Unlike BADR, the investor must generally NOT be an employee or officer and there is no $5\%$ minimum.

On an asset sale by a company, what reliefs can defer the company's gains, and how is goodwill treated?

Rollover relief (TCGA s.152) can defer gains on qualifying assets reinvested in new qualifying assets. Goodwill gains are chargeable to Corporation Tax; for companies, post-2002 acquired goodwill may instead fall under the intangible fixed assets regime taxed as income.

What is a company purchase of own shares (POS) and the two possible tax treatments for the seller?

A company buys back its own shares from a shareholder. Default treatment: the excess over original subscription price is a distribution (income/dividend treatment). Alternatively, if the s.1033 CTA 2010 conditions are met, it is treated as a capital disposal (CGT, possibly with BADR).

List the main conditions for capital treatment on a company purchase of own shares (s.1033 CTA 2010).

The company must be unquoted and trading; the buyback must benefit the trade; the seller must be UK resident; have owned the shares for $\geq 5$ years; substantially reduce their interest (holding after $\leq 75\%$ of before) and generally not be connected with the company after (holding $\leq 30\%$). Advance clearance from HMRC is advisable.

What is a 'multiple completion' purchase of own shares contract used for?

It allows a company with insufficient distributable reserves to buy back shares in tranches over time while the seller is treated as disposing of all shares (and ceasing to be a member for capital treatment) at the date of the binding contract — helping meet the substantial reduction/connection tests immediately.

What is a statutory demerger under CTA 2010 and its broad purpose?

A statutory (exempt) demerger splits a company's trades/subsidiaries among shareholders without triggering income distribution charges. Two main routes: direct demerger (distribution of subsidiary shares to shareholders) and indirect demerger (transfer of trade/shares to a new company owned by shareholders), subject to anti-avoidance and trading conditions.

Why are 'reconstruction' reliefs (TCGA s.136 and s.139) important in demergers, and what is the alternative liquidation route?

They provide CGT no-gain/no-loss and share-for-share treatment so shareholders and companies are not taxed on the reorganisation. The alternative is a s.110 Insolvency Act liquidation demerger, where a liquidator distributes the trades to new companies, used when statutory/exempt routes are unavailable; clearances under s.138 and ITA s.701 are obtained.

For succession to the next generation, what IHT relief applies to qualifying business assets and at what rates?

Business Property Relief (BPR): $100\%$ relief on a business/unincorporated interest and unquoted/AIM trading company shares; $50\%$ on certain assets such as land/buildings/machinery used in the business but owned personally, or controlling holdings of quoted shares. Generally requires 2 years' ownership.

What disqualifies a company from BPR under the 'wholly or mainly investment' exclusion?

BPR is denied if the business consists wholly or mainly (more than $50\%$) of dealing in securities, stocks/shares, land or buildings, or making/holding investments. 'Excepted assets' not used in the business are also excluded from relief, so cash-rich or property-investment companies risk losing relief.

How can a lifetime gift of business assets to the next generation defer both CGT and IHT?

CGT gift holdover relief (TCGA s.165) defers the donor's gain into the donee's base cost. For IHT, the gift is a potentially exempt transfer (or covered by BPR); if the donor survives 7 years it falls out of the estate, achieving succession with no immediate tax.

Why might a trust be used in succession planning for an owner-managed business, and what is the key entry tax consideration?

A trust lets the founder pass on value while retaining control and protecting beneficiaries (minors, asset protection). Transfers into a discretionary trust are chargeable lifetime transfers; BPR can reduce IHT to nil on qualifying shares, and CGT holdover relief applies, but the trust faces 10-year anniversary and exit charges thereafter.