This month, the CII gives tips on preparing for AF2 Business Financial Planning .
The AF2 examination paper comprises two sections, both of which must be attempted.
Section A consists of one compulsory question. After analysing a case study, candidates must carry out certain tasks such as making recommendations to a client, which may involve an extended calculation such as a corporation tax computation or a Sipp or SSAS funding question. (Alternatively, calculations may be required in Section B instead.)
Section B consists of two compulsory structured questions requiring candidates to carry out a variety of tasks.
The paper is worth a total of 160 marks with the two sections weighted equally. The questions within each section clearly show the maximum marks available.
Candidates are allowed three hours to complete the paper, which is based on the published syllabus. It is assumed that anyone sitting AF2 already has knowledge of J03 tax and legal aspects of business and J04 pension funding. In October 2013 the J04 unit will be withdrawn and all pensions knowledge will be derived from the J03 syllabus.
The syllabus covers the following main areas:
l The basic forms of business structure, sole trader, partnership and incorporated entities where the main focus is on private limited companies. Knowledge of limited liability partnerships is required to a lesser extent
l The main taxes on income and capital that may be charged on businesses and business owners, the self-assessment system and how tax liabilities are computed, both during lifetime and on death
l National Insurance and VAT
l Basic business accounting and the interpretation of accounts for purposes of business planning, management and budgeting
l Options for raising finance for businesses from various sources, qualifying loans
l Bankruptcy and insolvency, disqualification of directors, administration and individual and corporate voluntary arrangements
l Some basic aspects of employment law such as contracts of employment, redundancy obligations, maternity benefits and TUPE
l Business protection measures such as key-person cover and partnership and shareholder protection arrangements, use of life and critical-illness policies and the use of trusts. Importance of avoiding IHT bear traps.
l Pension aspects of business as relevant to provision for employees and directors, pensions as a means of profit extraction and for helping finance business and business asset acquisition.
Candidates need to be able to carry out calculations based on all the main taxes, capital allowances, investment decision-making and pension funding.
Calculations will usually be worth between one-quarter and one-third of the total marks available so remember to bring a non-programmable calculator because you will not be allowed to use your smartphone.
It is possible to annotate calculations with comments on the processes behind them.
Within each question, there will usually be a key word or phrase that gives a clue as to what is being assessed, such as “explain”, “calculate”, “compare” or “describe in detail”.
Candidates who ignore these clues will lose out on many of the points needed to obtain high marks.
Common errors when tackling the exam include:
l Not relating the answer to the information given in the case study. A question dealing with company corporation tax needs to be answered in relation to any time periods stipulated within the case study, not as a generic answer
l Not reading the question carefully before forging ahead with an answer. For example, a question asking about action that can be taken against a director for wrongful trading does not need an explanation of what comprises wrongful or fraudulent trading unless it is specifically asked for
l Not making use of the tax tables provided as part of the examination paper. History has shown candidates often confuse corporation tax rates and capital allowances despite their provision in the tables, as well as hints on how the taxes are applied, so be sure to make full use of the tax tables
l Being unaware of the impact of changes in legislation or HMRC practice. Such changes are not examined until three months after they take effect. If this is part-way through an examination year, an update is usually issued on the CII website giving the date from which the change will be examined
l Writing long answers for part of a question that is only worth five or six marks. Using bullet points for non-calculation answers usually makes it easier to match the detail of the answer to the number of marks on offer.
However much knowledge a candidate may have acquired during their career, there are likely to be some parts of the syllabus for which they do not have first-hand experience or may encounter rarely.
Candidates undertaking the AF2 examination should take advantage of relevant study material provided by the CII or other quality training providers to ensure they thoroughly understand and can answer questions in each syllabus area.
Reading examiners’ comments on past papers and tackling practice questions are important preparatory activities while attending a training course or revision day is also worth considering.