Question

Dill (September/December 2017) (amended) 27 mins

Up to and including the tax year 2020/21, Dill was always resident in the United Kingdom (UK),
being in the UK for more than 300 days each tax year. She was also resident in the UK for the tax
year 2022/23. However, during the tax year 2021/22, Dill was overseas for 305 days, spending
just 60 days in the UK. Dill has a house in the UK and stayed there on the 60 days which she
spent in the UK. She also has a house overseas. For the tax year 2021/22, Dill did not have any
close family in the UK, did not do any work in the UK and was not treated as working full-time
overseas.
On 6 April 2022, Dill returned to the UK and commenced employment with Herb plc as the IT
manager. She also set up a small technology business which she ran on a self-employed basis,
but this business failed and Dill ceased self-employment on 5 April 2023. The following
information is available for the tax year 2022/23:
Employment
(1) During the tax year 2022/23, Dill was paid a gross annual salary of £430,000.
(2) In addition to her salary, Dill has been paid the following bonuses by Herb plc:

In respect of the
Amount Date of payment Date of entitlement four-month period
£
16,200 31 December 2022 1 November 2022 31 July 2022
29,100 30 April 2023 1 March 2023 30 November 2022

(3) Throughout the tax year 2022/23, Dill had the use of Herb plc’s company gym which is
only open to employees of the company. The cost to Herb plc of providing this benefit
was £780.
(4) Throughout the tax year 2022/23, Herb plc provided Dill with a home entertainment
system for her personal use. The home entertainment system cost Herb plc £5,900 on
6 April 2022.
(5) During the tax year 2022/23, Dill’s three-year-old son was provided with a place at Herb
plc’s workplace nursery. The total cost to the company of providing this nursery place
was £7,200 (240 days at £30 per day).
(6) On 1 June 2022, Herb plc provided Dill with an interest-free loan of £96,000 which she
used to renovate her main residence. No loan repayments were made before 5 April
2023.
(7) On 25 January 2023, Herb plc paid a health club membership fee of £990 for the benefit
of Dill.
(8) During the tax year 2022/23, Dill used her private car for both private and business
journeys. The total mileage driven by Dill throughout the tax year was 16,000 miles, with
all of this mileage reimbursed by Herb plc at the rate of 25p per mile. However, only
14,500 miles were in the performance of Dill’s duties for Herb plc.
(9) During the tax year 2022/23, Dill paid an annual professional subscription of £560 which
is relevant to her employment with Herb plc. She also paid an annual membership fee of
£1,620 to a golf club which she uses to entertain Herb plc’s suppliers. Herb plc did not
reimburse Dill for either of these costs.
(10) During the tax year 2022/23, Dill contributed the maximum possible tax relievable
amount into Herb plc’s occupational pension scheme. The company did not make any
contributions on her behalf. Dill has never previously been a member of a pension
scheme.

HB2023
Question 1

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 Self-employment
For the tax year 2022/23, Dill’s self-employed business made a tax adjusted trading loss of
£58,000. Dill will claim relief for this loss against her total income for the tax year 2022/23.
Other information
(1) On 1 November 2022, Dill received a premium bond prize of £1,000.
(2) On 28 February 2023, Dill received interest of £1,840 on the maturity of savings certificates
from NS&I (National Savings and Investments).
Required
(a) Explain why Dill was treated as not resident in the United Kingdom for the tax year
2021/22. (3 marks)
(b) Calculate Dill’s taxable income for the tax year 2022/23.
Note. You should indicate by the use of zero (0) any items which are not taxable or
deductible. (12 marks)

(Total = 15 marks)

HB2023
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 Answer
Dill
Workbook references. Residence, exempt income and the restriction of the personal allowance
are covered in Chapter 2. Employment income is the subject of Chapters 3 and 4.
Pensions are dealt with in Chapter 5. Trading losses are covered in Chapter 10.
Top tips. In part (a), keep your points brief and relevant to the facts given in the question.
Easy marks. In part (b) there were some easy marks for calculating taxable benefits and
identifying exempt benefits.
Examining team's comments. Part (a) for 3 marks required candidates to explain why Dill was
treated as not resident in the UK for the tax year 2021/22. Although reasonably well answered,
very few candidates managed to pick up all the available marks for this section.
For example, most candidates simply stated that Dill had been in the UK for 60 days, rather than
indicating that this fell in the 46- to 90-day band from the tax tables. A number of candidates
wasted time by explaining the automatically resident and not resident tests, when it was obvious
that these were not relevant. Then, when discussing UK ties, some candidates focused on those
ties which were not met, rather than those which were. The three marks available should have
been a clear indication that a long, detailed, explanation was not required.
Part (b) for 12 marks required candidates to calculate Dill’s taxable income for the tax year
2022/23. This section was generally answered very well, with many candidates achieving high
marks.
Common problems included:
 Not appreciating that the benefit of a workplace nursery is an exempt benefit.
 Treating subscriptions as benefits rather than as deductions.
 Omitting the personal allowance. Even when shown, it was obvious (given the level of Dill’s
income) that the personal allowance was not available, so all that was needed was a zero
entry. There was no need for an explanation or a calculation of the reduction to nil.
 If a question requires just a calculation of taxable income, then that is where candidates
should stop. Calculating the income tax liability just wastes valuable time.
 As stated in the requirements, candidates should always clearly indicate (by the use of a
zero) any items which are not taxable or deductible – such as exempt benefits, non-
deductible expenses and exempt income.
 Where a computation contains additions and deductions, candidates should be very
careful to indicate which is which. A single column approach with deductions shown in
brackets avoids any confusion.
 Candidates should think carefully about which workings can be included as one-line
calculations within the main taxable income computation, and which need their own
separate working. The only aspects which warranted a separate working here was the
mileage allowance.
 The use of abbreviated numbers such as 45.5k instead of 45,500 for the bonuses should be
avoided.

HB2023
Answer 3

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 Marking scheme

Marks
(a) Sufficient ties test relevant ½
Number of sufficient ties needed ½
Identification of UK ties 1½
Conclusion ½
3
(b) Salary ½
Bonuses 1
Gym ½
Home entertainment system 1
Workplace nursery ½
Beneficial loan 1½
Health club membership ½
Mileage allowance 1½
Professional subscription ½
Golf club membership ½
Occupational pension contribution 1
Premium bond prize ½
Interest from savings certificate ½
Loss 1½
Personal allowance ½
12
Total 15

(a) Dill – residence status in the tax year 2021/22

The sufficient ties test is relevant since Dill does not meet either of the automatic tests.
As Dill spends between 46 and 90 days in the UK in the tax year 2021/22 and was
previously UK resident in at least one of the previous three tax years, she will be UK resident
in that tax year if she has three or more UK ties.
Dill has two UK ties:
 Available UK accommodation in which she spent at least one night during the tax
year; and
 More than 90 days spent in the UK in either or both of the previous two tax years.
On this basis, Dill is not UK resident in the tax 2021/22 as she has less than three UK ties.
Tutorial notes
1 Dill is not automatically non-UK resident in the tax year 2021/22 since she spends at
least 16 days in the UK in that tax year and was resident in the UK for one or more of
the three previous tax years, and does not work full-time overseas.
2 Dill is not automatically UK resident in the tax year 2021/22 since she does not spend
at least 183 days in the UK in that tax year, has an overseas home as well as a UK
home, and does not work full-time in the UK.
3 Dill might have a third UK tie which is that she was present in the UK at midnight for
the same or more days in that tax year than in any other country. However, there is
insufficient information to conclude on this point.

HB2023
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 (b) Dill – Taxable income 2022/23
£

Employment income
Salary 430,000
Bonuses £(16,200 + 29,100) 45,300
Company gym 0
Home entertainment system £5,900  20% 1,180
Workplace nursery 0
Beneficial loan £96,000  2.0%  10/12 1,600
Health club membership 990
Less: Mileage allowance (W) (1,625)
Professional subscription (560)
Golf club membership (0)
Occupational pension scheme contribution (4,000)
472,885
Premium bond prize 0
Interest from savings certificates 0
Total income 472,885
Less loss relief against total income (58,000)
Net income 414,885
Less personal allowance (0)
Taxable income 414,885

Working
£

10,000 miles @ 45p 4,500

4,500 miles @ 25p 1,125

5,625

Less mileage allowance paid 16,000 @ 25p (4,000)

Allowable deduction 1,625

Tutorial notes
1 The bonuses are treated as received on the earlier of the time when payment is made
and the time when Dill became entitled to the bonuses. These are 1 November 2022
for the first bonus and 1 March 2023 for the second bonus. Therefore, both bonuses
are taxable in the tax year 2022/23.
2 The use of the company gym is an exempt benefit as provision of sporting or
recreational facilities available to employees generally and not to the general public.
3 The golf club membership is not deductible as it is not incurred wholly, necessarily
and exclusively for the purposes of Dill’s employment.

HB2023
Answer 5

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 4 The maximum occupational pension scheme contribution that Dill can make without
triggering an annual allowance charge is £4,000 since she has adjusted income of at
least £312,000.
5 The loss relief cap is the greater of £50,000 and 25% of Dill’s adjusted total income
of £472,885 which is £118,221. Therefore, Dill can relieve the whole of her trading loss
of £58,000.

HB2023
6

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