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Free Questions › ACCA › Advanced Taxation
Free ACCA Advanced Taxation Practice Questions & Answers
400 exam-style Advanced Taxation questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 121
A UK resident individual who owns a company operates a salary sacrifice arrangement. Under salary sacrifice:
Select an option first.
Correct answer: B — The employee gives up part of their salary in exchange for an employer benefit; income tax (and NICs) are only charged on the reduced salary and the benefit (if not exempt)
Explanation: B is correct: under a salary sacrifice arrangement, the employee contractually reduces their salary in exchange for a non-cash benefit from the employer. Income tax and NICs are calculated on the reduced (post-sacrifice) salary — and additionally on the value of the benefit if it is taxable. If the benefit is exempt (e.g. pension contributions, childcare vouchers for existing users), there can be a NIC saving. B is correct. A is wrong — tax is on the reduced salary. C is wrong — some NIC saving may arise but it depends on the benefit provided. D is wrong — the employer deducts the actual cost of the benefit.
Question 122
A director of a close company receives an interest-free loan of £80,000 from the company. The benefit in kind taxable on the director is based on:
Select an option first.
Correct answer: B — The difference between interest at the official rate and actual interest paid: £80,000 × official rate (e.g. 2.25%) = £1,800
Explanation: B is correct: the beneficial loan benefit = loan × official rate − actual interest = £80,000 × 2.25% − £0 = £1,800. This exceeds the £10,000 de minimis, so the full £1,800 is taxable as a benefit in kind. B is correct. A is wrong — tax is on the interest benefit, not the loan principal. C is wrong — the loan is not taxed at 45%; the interest benefit is taxed at the marginal rate. D is wrong — a £80,000 loan exceeds the de minimis threshold.
Question 123
For income tax, the trading allowance of £1,000 and property allowance of £1,000 interact as follows:
Select an option first.
Correct answer: B — They are separate — each applies only to its own type of income; a landlord and sole trader could claim both in respect of their respective income streams
Explanation: B is correct: the trading allowance applies to trading income and the property allowance applies to property income. They are independent — a person with both trading income and property income could potentially claim both allowances (one against each income stream). B is correct. A is wrong — they do not combine for a single £2,000 relief. C is wrong — both can be claimed simultaneously. D is wrong — both can be claimed separately.
Question 124
Adjusted income for the tapered annual allowance includes employer pension contributions. If an employer contributes £50,000 and the individual earns £230,000, adjusted income is:
Select an option first.
Correct answer: A — £280,000 (£230,000 + £50,000)
Explanation: A is correct: adjusted income for the tapered annual allowance = threshold income + all pension contributions (including employer contributions). So adjusted income = £230,000 + £50,000 = £280,000. The taper applies when adjusted income exceeds £260,000. A is correct. B is wrong — employer contributions are added for adjusted income. C is wrong — employer contributions are added, not deducted. D is wrong — not supported.
Question 125
A self-employed individual has trading profits of £120,000. The maximum pension contribution qualifying for full tax relief (assuming no carry-forward) is:
Select an option first.
Correct answer: A — £60,000 (limited to the annual allowance — not higher than profits)
Explanation: A is correct: the maximum tax-relievable contribution is the lower of (a) the annual allowance (£60,000) and (b) 100% of relevant UK earnings. Here, profits = £120,000 > £60,000, so the limit is the annual allowance of £60,000. A is correct. B is wrong — the annual allowance caps the relief at £60,000. C is wrong — 25% of profits is not the rule. D is wrong — £40,000 was the old annual allowance.
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Question 126
The income tax charge known as the 'loan charge' applies to:
Select an option first.
Correct answer: B — Disguised remuneration loans made in connection with employment/self-employment that were outstanding as of a specified date (5 April 2019 for the original charge) and have not been repaid or disclosed
Explanation: B is correct: the loan charge applies to disguised remuneration loans — where employees/contractors received loans (typically via employee benefit trusts) that were never expected to be repaid. The loan charge treats the outstanding balance as income in a single year. B is correct. A is wrong — director loans are subject to s455 CT, not the loan charge. C is wrong — the loan charge is about disguised remuneration. D is wrong — it applies to UK employment/self-employment arrangements.
Question 127
For income tax purposes, the tax treatment of venture capital trust (VCT) dividends received by an investor is:
Select an option first.
Correct answer: B — Exempt from income tax — VCT dividends are tax-free
Explanation: B is correct: dividends paid by VCTs to qualifying investors are exempt from income tax. This is in addition to the 30% income tax relief on subscription. B is correct. A is wrong — VCT dividends are exempt. C is wrong — they are exempt, not savings income. D is wrong — no withholding tax on VCT dividends.
Question 128
An employee is provided with employer-subsidised workplace nursery. The benefit is:
Select an option first.
Correct answer: B — Exempt from income tax and NICs — employer-provided workplace nurseries are a qualifying childcare benefit
Explanation: B is correct: employer-provided workplace nurseries (and employer-contracted childcare) are exempt from income tax and NICs. B is correct. A is wrong — the specific exemption applies. C and D are wrong — there is no partial tax; it is fully exempt.
Question 129
For income tax, the treatment of an individual who transfers their entire business to a limited company in exchange for shares only (incorporation) under TCGA s162 results in:
Select an option first.
Correct answer: B — Gain is rolled over into the cost of the shares — no immediate CGT
Explanation: B is correct: TCGA s162 incorporation relief defers the CGT on transfer of the entire business to a company in exchange for shares — the gain reduces the base cost of the shares. No immediate CGT arises (as long as all business assets and the whole business are transferred for shares). B is correct. A is wrong — no immediate CGT under s162. C is wrong — BADR may apply on eventual disposal of shares, not at incorporation. D is wrong — SDLT may apply to property transfers but not capital gains.
Question 130
An individual receives a golden handshake (ex gratia payment on termination) of £80,000. The income tax due is:
Select an option first.
Correct answer: A — Tax on £50,000 only (£80,000 − £30,000 exempt)
Explanation: A is correct: the first £30,000 of termination payments is exempt. The excess = £80,000 − £30,000 = £50,000 is subject to income tax (at the individual's marginal rate). A is correct. B is wrong — the £30,000 exemption applies. C is wrong — not fully exempt. D is wrong — £30,000 is the exempt amount, not the taxable amount.
Question 131
The PAYE code for a taxpayer with a salary of £60,000 and no adjustments would be approximately:
Select an option first.
Correct answer: B — 1257L (representing the £12,570 personal allowance)
Explanation: B is correct: the standard PAYE code is derived by dividing the personal allowance by 10 and adding the letter suffix. Personal allowance = £12,570 / 10 = £1,257, so the code is 1257L. B is correct. A is wrong — 5700L does not represent the personal allowance. C is wrong — 0T is used when the personal allowance is nil. D is wrong — BR means all income taxed at basic rate, used when no personal allowance is available or for multiple jobs.
Question 132
For income tax, the term 'post-cessation receipts' refers to:
Select an option first.
Correct answer: A — Income received after a trade has ceased that relates to the trade
Explanation: A is correct: post-cessation receipts are amounts received after a trade has ceased that relate to the former trade (e.g. final invoices collected after closure). They are chargeable to income tax as if the trade were still ongoing, generally assessed in the year of receipt. A is correct. B, C and D are wrong — it specifically relates to former trading income.
Question 133
For an employee with two employments, both paying above the primary threshold, NICs are:
Select an option first.
Correct answer: B — Calculated separately for each employment — the employee pays NICs on earnings from each job above the primary threshold independently, but can claim a refund if total NICs exceed the annual maximum
Explanation: B is correct: NICs are calculated separately for each employment. This can result in over-payment of NICs where total earnings from multiple jobs exceed the upper earnings limit. The employee can claim a refund of overpaid NICs. B is correct. A is wrong — each employer calculates separately. C is wrong — NICs are due on both employments. D is wrong — both jobs can attract NICs.
Question 134
Under the statutory construction of profits (generally accepted accounting practice — GAAP), which of the following adjustments is made when computing taxable trading profits?
Select an option first.
Correct answer: A — Depreciation is added back and replaced by capital allowances
Explanation: A is correct: accounting depreciation is not allowable for tax — it is added back to accounting profits and replaced by capital allowances (the tax equivalent). A is correct. B is wrong — depreciation is added back. C is wrong — dividends paid by the company are appropriations of profit, not deductible expenses. D is wrong — salaries are generally deductible.
Question 135
A property investor uses the 'relevant proportion' of their property expenses against their rental income. Under the cash basis for property (for eligible landlords):
Select an option first.
Correct answer: B — Income is recognised when received and most expenses are deducted when paid (cash basis) — replacing the accruals basis
Explanation: B is correct: from 2017/18, landlords with property income below £150,000 can opt for the cash basis for property — income when received and most expenses when paid. The cash basis does not apply to companies. B is correct. A is wrong — capital expenditure is not generally allowable under the cash basis for property (or accruals). C is wrong — eligible landlords can choose the cash basis. D is wrong — property income is self-assessed.
Question 136
The construction industry scheme (CIS) requires contractors to:
Select an option first.
Correct answer: A — Deduct 20% (standard) or 30% (unverified) from payments to subcontractors and pay the deductions to HMRC
Explanation: A is correct: under CIS, contractors must deduct 20% (for verified subcontractors) or 30% (for unverified or those with gross payment status issues) from the labour element of payments to subcontractors, paying the deductions to HMRC. Subcontractors can offset these deductions against their own tax liability. A is correct. B is wrong — only gross payment status subcontractors receive full payment. C is wrong — 20% or 30%, not 10%. D is wrong — P60s are employment documents.
Question 137
Enterprise zones (now Investment Zones) can provide enhanced capital allowances. For income tax purposes, these enhanced first year allowances (EFYAs) allow:
Select an option first.
Correct answer: A — 100% deduction in year of purchase on qualifying plant and machinery in designated zones
Explanation: A is correct: enhanced capital allowances in designated zones (including Investment Zones from 2023) provide 100% first-year allowances on qualifying plant and machinery in the zone. A is correct. B is wrong — 100% in year 1 is available. C is wrong — ECA/EFYAs are specifically available. D is wrong — 15% is not the relevant rate.
Question 138
Under the corporate interest restriction (CIR) rules that also apply to unincorporated partnerships with corporate members, the key ratio for deductibility is:
Select an option first.
Correct answer: B — 30% of tax-adjusted EBITDA (as the primary benchmark, above the £2 million de minimis)
Explanation: B is correct: the primary ratio for the corporate interest restriction is 30% of tax-adjusted EBITDA. Net finance costs above the higher of: 30% of tax-EBITDA or £2 million de minimis, are disallowed. B is correct. A is wrong — 20% is not the ratio. C is wrong — 50% is too high. D is wrong — the restriction applies precisely to limit interest deductions.
Question 139
Income tax on savings income uses the following order of priority in the income tax computation:
Select an option first.
Correct answer: B — Non-savings income first (excluding savings/dividends), then savings income, then dividend income — taxed in this order within the tax bands
Explanation: B is correct: UK income tax is computed in a specific order: (1) non-savings non-dividend income (employment, trade, property, pension); (2) savings income; (3) dividend income. This determines which income falls into which rate bands, since higher-taxed dividend income is always placed at the 'top' of the stack. B is correct. A is wrong — dividends are at the top, not savings. C and D are wrong.
Question 140
The tax relief for maintenance payments under a court order or legal agreement post-15 March 1988 is:
Select an option first.
Correct answer: C — A 10% tax reducer on the first £4,010 (2024/25)
Explanation: C is correct: for qualifying maintenance payments under agreements post-15 March 1988, the payer receives a 10% tax reducer on the lower of: the amount paid and £4,010 (2024/25). This provides modest tax relief rather than a full deduction. B is wrong for more recent agreements — there is limited relief. A is wrong — not a full deduction. D is wrong — 10% reducer, not 20%.
Question 141
Class 3 NICs are:
Select an option first.
Correct answer: B — Voluntary contributions paid to fill gaps in the NIC record to build entitlement to the state pension
Explanation: B is correct: Class 3 NICs are voluntary contributions that individuals can pay to fill gaps in their NIC record, ensuring they qualify for the full state pension. The rate for 2024/25 is £17.45 per week. A is wrong — voluntary, not compulsory. C is wrong — dividends don't attract NICs. D is wrong — they are voluntary, not automatic.
Question 142
For 2024/25, the additional rate of income tax (45%) applies to non-savings income above:
Select an option first.
Correct answer: A — £125,140
Explanation: A is correct: the additional rate of 45% applies to taxable non-savings income above £125,140 (this is where the personal allowance is fully withdrawn, leaving no personal allowance). A is correct. B is wrong — £100,000 is where PA tapering begins. C is wrong — £150,000 was the old additional rate threshold (abolished from April 2023). D is wrong.
Question 143
The income tax treatment of reimbursements of legitimate business expenses paid by an employee is:
Select an option first.
Correct answer: B — Exempt from income tax if reimbursed on an actual basis for genuine business expenses incurred wholly, exclusively and necessarily for employment
Explanation: B is correct: reimbursements of genuine business expenses (meals, travel, accommodation) that are wholly, exclusively and necessarily incurred for the performance of employment duties are exempt from income tax and NICs — they are not employment income. B is correct. A is wrong — legitimate expense reimbursements are not taxable. C is wrong — no NIC either. D is wrong.
Question 144
A UK individual receives interest from an overseas bank account. The interest is:
Select an option first.
Correct answer: B — Taxable as savings income in the UK (on the arising basis for UK residents), subject to double tax relief for any foreign tax suffered
Explanation: B is correct: UK residents are taxed on worldwide income on the arising basis — overseas bank interest is taxable as savings income in the UK. Foreign tax deducted at source may be relieved via double tax relief (typically a credit). B is correct. A is wrong — it is taxable in the UK. C is wrong — remittance basis only applies to non-doms. D is wrong — no UK withholding on received interest.
Question 145
For 2024/25, the employment allowance for employers reduces Class 1 secondary NIC by up to:
Select an option first.
Correct answer: A — £10,500 per year (increased from £5,000 in Autumn Budget 2024)
Explanation: A is correct: the employment allowance was increased from £5,000 to £10,500 from 6 April 2025. For 2024/25 it was £5,000. Note the question refers to 2024/25 so the answer is B (£5,000). However, from 2025/26 it is £10,500. Corrected: B is correct for 2024/25 (£5,000). A (£10,500) is correct from 2025/26. The employment allowance reduces employers' secondary Class 1 NIC liability.
Question 146
The rent-a-room scheme allows an individual to receive rental income from letting furnished accommodation in their own home tax-free up to:
Select an option first.
Correct answer: A — £7,500 per year gross rental income
Explanation: A is correct: the rent-a-room relief exempts the first £7,500 of gross rental income from letting furnished rooms in the individual's main home. If income exceeds £7,500, the individual can choose to deduct either actual expenses or the £7,500 allowance. A is correct. B, C and D are wrong amounts.
Question 147
Under the new foreign income and gains (FIG) regime from April 2025, an individual who qualifies for the 4-year exemption must:
Select an option first.
Correct answer: A — Claim the exemption — it does not apply automatically
Explanation: A is correct: under the new FIG regime, the 4-year exemption for non-UK income and gains is not automatic — the individual must make a claim (opting in to the FIG basis) for each tax year. If no claim is made, the individual is taxed on the arising basis. A is correct. B is wrong — a claim is required. C is wrong — no special form; the claim is made via the self-assessment return. D is wrong — pre-arrival registration is not required.
Question 148
For income tax purposes, the amount of overlap profits accumulated under the old preceding year basis rules and the deduction available in the 2023/24 transition year was:
Select an option first.
Correct answer: A — All overlap profits deductible in the transition year, or spread over 5 years by default (2023/24 to 2027/28)
Explanation: A is correct: in the 2023/24 transition year (the year in which self-employed traders moved from the old basis to the tax year basis), accumulated overlap profits were available as a deduction. By default, any unrelieved overlap profits were spread: the excess above the opening balance was spread over 5 tax years (2023/24 to 2027/28) unless an election was made to accelerate the deduction. A correctly identifies the default spreading and single-year option. B is wrong — overlap relief was historically given on cessation; the new rules brought it forward. C is wrong — they are not lost. D is wrong — no £50,000 limit.
Question 149
For 2025/26, the secondary (employer) NIC threshold (the point at which employer NICs begin) is:
Select an option first.
Correct answer: A — £5,000 per year (reduced from £9,100 in 2024/25)
Explanation: A is correct: from 6 April 2025, the secondary threshold (the level above which employer Class 1 NICs are payable) was reduced from £9,100 to £5,000 per year, as announced in the Autumn Budget 2024. A is correct. B is wrong — £9,100 was the 2024/25 threshold. C is wrong — £12,570 is the primary threshold (employee NICs). D is wrong — £6,240 is not the secondary threshold.
Question 150
A UK domiciled individual who becomes deemed non-UK domiciled (previously under the 15/20 year rule, now replaced from April 2025) was previously defined as:
Select an option first.
Correct answer: B — Having been UK resident in at least 15 of the previous 20 tax years — making all worldwide assets subject to UK IHT
Explanation: B is correct: under the old deemed domicile rules (still relevant for pre-2025 estates), an individual was treated as UK domiciled for IHT if they had been UK resident in at least 15 of the preceding 20 tax years. This brought worldwide assets within UK IHT. B is correct. A is wrong — it was UK residence, not non-residence, that counted. C is wrong — all worldwide assets came within scope. D is wrong — it is based on residence years, not nationality.
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