The CII AF2 October 2018 Exam in Review

It’s the turn of AF2 the Business Financial Planning module and the scrutiny of the October exam paper. This is useful reading for those studying for their CII AF2 exam.

If you haven’t seen it yet, here is the link.

Question 1

Question 1 is the big 80-mark question and this time involved John and his sister Amelia, who had recently set up a business.  The exam started nicely with a relatively straightforward question on the reasons why the recommended structure of a limited company would be suitable for them.  It continued gently too with questions on when they would have to pay corporation tax and when the self-assessment tax return would be due.

The exam continued with questions on the pros and cons of their drawing profits as salary and dividends (for 6 marks each) and calculations on how much Amelia would receive after tax if her share of the profits were paid as a dividend and as a bonus, with the latter two questions worth 7 marks each.

Part (e) had 3 parts to it, all around a SSAS: firstly the rules governing a SSAS loan to the business, a calculation to work out the pension contribution needed to buy a property with maximum borrowing and finally the tax treatment of the required pension contribution. This question was worth over 30% of the 80 marks on offer (25 in total) but has been tested quite a lot in the past, so anyone using old exam papers should have had the necessary knowledge to do well here.

The paper finished with questions on the auto-enrolment obligations of employers and the advantages of invoice factoring for the business.

Question 2

Question 2 concerned two shareholding directors, and it didn’t take too long to realise that this question would cover the business protection element of the syllabus.  Candidates had to identify relevant key person protection areas, information needed to calculate the level of key person cover using the proportion of profits formula and the drawbacks of using this method.  It continued with the tax treatment of premiums and finished with questions around shareholder agreements and shareholder protection, including why only a business trust should be used.

Question 3

Question 3 also involved a limited company, and the questions varied from entrepreneurs’ relief and other CGT considerations, the main conditions for a business to qualify as an EIS investment and the tax treatment, finishing with a question on buying the assets of a business as opposed to the shares and the advantages and implications of this course of action.

All in all this seemed to us like a very fair AF2 paper.

Comparing with April 2018’s AF2 Exam Paper

Let’s compare this with last April’s paper.

This paper covered the following topics:

• Advantages and limitations of financial ratios
• Valuing a business for a management buy-out
• Methods of raising finance
• Shareholder and key person protection
• Utilising a loss if a company ceases trading
• Members’ voluntary wind up
• Statutory redundancy pay
• Drawbacks of being a sole trader
• Disadvantages of trading as a limited company
• Income tax and NI calculation
• IR35
• SDLT calculation
• Funding the purchase of property via a SSAS and the income tax and NI implications assuming the business pays a full market rent/the CGT implication upon eventual sale
• Advantages of the SSAS buying the property TPR action where a business fails to put in place an auto enrolment scheme

There doesn’t appear to be too much overlap with these papers so it’s always useful to go back further when looking at old exam guides.  What we do know is that business protection will always appear so it’s crucial all aspects of this topic are covered in a study plan.  Remember with AF papers it’s all about the application of technical knowledge not just a repetition of facts, and answers should, where possible, be related to the case study.

Grab the resources you need!

If you’re studying for your CII AF2 exam, and you’re wanting to feel prepared on exam day, you’ll need to practise applying the knowledge. Grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF2 calculation workbook taster now!