Continuing Bespoke Training Solutions’ series of exam-based articles for Professional Paraplanner, director Jeff Scholes answers the question: ‘The R03 Personal Taxation paper is really wordy, where do I start?’
Just so you know, I love R03 Personal Taxation.
Now, that may be an unusual way to start an article, but it does at least beg the question ‘Why?’
The simple answer is that passing R03 is a combination of learning most of the basic rules, having a series of well-rehearsed processes to follow, and then applying logic based on what usually happens in most circumstances.
The way not to pass R03 is to stress about learning every nuance of every tax law (just Google ‘application of IR35’ to see highly-qualified accountants offering contrasting views on how HMRC are likely to view specific scenarios), and then have only a vague idea of how to handle the various tax calculations.
Also, I do like a wordy R03 question. This again may sound strange, as one of the aspects of R03 that we often hear candidates worry about is the length of the questions. Sometimes they just seem to have so many words. To that point I’d say ‘Bring on the words please.’
Let’s look at a made-up and pretty extreme example of an infamously wordy R03 question:
Howard is single and aged 53, He works for StoneVault; a large data storage company, as one of their senior managers, with a basic salary of £97,000, plus he will receive a £12,000 sales-related bonus this tax year. Howard pays 5% to an occupational pension scheme which his employer matches. In addition to his salary, StoneVault provide Howard with a company car with a taxable value of £8,000, private medical insurance with premiums of £95 per month paid by the company, and death in service benefit of three times Howard’s basic salary. As pension planning is a priority, Howard also pays £700 each month towards his own personal pension. Last month he made a personal gift to charity, the only such gift this tax year, of £2,000 net of gift aid. Based on just this information, calculate the income tax that Howard will have to pay in 2021-22.
Ok, where do we start?
Well, the first thing to say is that we should thank the question-writer for making the effort to tell us all we need to know. Almost every one of the many words in this question is there for a reason. It will tell us quite explicitly what to include and what to exclude from the calculation. So, step one is to re-frame any old-held views that wordy questions are horrible, and change them to a sigh of relief that everything that we need to know is there.
Then, take each statement one at a time and work out why it is there and what it tells us. I won’t go through every sentence, but here are a few examples:
- Howard is single and age 53… so I don’t need to worry about Married Couple’s Allowance or Married Tax Allowance
- He works for StoneVault… so he’s employed
- Basic salary of £97,000, £12,000 bonus, £8,000 company car Benefit in kind (BIK), Private medical insurance will have a BIK value… tells me he is a high rate tax payer who may have adjusted net earnings of over £100,000, so I may have to reduce his £12,570 personal allowance
- 5% occupational pension scheme and £700 per month personal pension… may reduce his adjusted net earnings
- £700 per month personal pension and £2,000 charity donation using gift aid… so there will need to be some basic rate band expansion to do before we get the calculator out
We could do the same with every sentence in the question, but I hope that the bullets have made their point!
Each sentence in the question is not there to trip you up, it’s providing guidance towards the correct answer.
So, maybe a big part of R03 success is about re-framing how you view wordy questions. If you can view each sentence as providing a step along the way towards the right answer, then you may start to view long wordy questions as a gift from the examiner and start to love R03 like I do.
Be sure to use study materials that help you to develop your question answering processes and exam technique in your study plan; there’s more to this exam than technical knowledge.
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