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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 241
A company donates equipment (market value £20,000; cost £5,000) to a UK registered charity. For CT purposes:
Select an option first.
Correct answer: B — The market value (£20,000) is treated as proceeds — giving rise to a gain of £15,000 — BUT a deduction of £20,000 is allowed as a qualifying donation, netting to zero CT
Explanation: B is correct: where a company donates a chargeable asset to charity, the disposal is treated as made at market value (£20,000), giving a gain of £15,000. However, the full market value (£20,000) is a deductible qualifying donation. The net effect is neutral — the gain and deduction broadly offset. B is correct. A is wrong — the deduction offsets the gain. C is wrong — it is deductible. D is wrong — the gain is on MV not cost.
Question 242
The overseas branch of a UK company is:
Select an option first.
Correct answer: B — Subject to UK corporation tax on the branch profits as part of the UK company's CT computation (unless an election is made to exempt branch profits)
Explanation: B is correct: the profits of an overseas branch are included in the UK company's CT computation by default (worldwide basis). The UK company can elect to exempt overseas permanent establishment profits from UK CT (FA 2011 s18A), but then cannot claim double tax relief on branch profits. B correctly states the default position. A is wrong — it is not a separate entity. C is wrong — UK tax applies by default. D is wrong — taxable in the UK.
Question 243
For CT, the marginal relief formula is: [U − A] × N/A × 3/200, where:
Select an option first.
Correct answer: B — U = upper limit; A = augmented profits; N = total taxable profits (including gains); 3/200 is the standard fraction
Explanation: B is correct: the standard marginal relief formula is (U − A) × N/A × 3/200, where U = upper limit (£250,000 or reduced limit), A = augmented profits, N = taxable total profits. The standard fraction of 3/200 is fixed. B correctly identifies all components. A is wrong — N includes all taxable profits. C and D are wrong.
Question 244
The UK's patent box is available to:
Select an option first.
Correct answer: B — Companies that own or exclusively licence qualifying patents, elect into the patent box, and actively develop/manage the IP
Explanation: B is correct: the patent box requires the company to: hold qualifying IP (patents granted by UK or EEA patent offices); make an election into the regime; and meet the 'development condition' (have actively developed the IP or have a qualifying connection to its development). B is correct. A is wrong — specific conditions must be met. C is wrong — no turnover limit. D is wrong — UK companies are the primary beneficiaries.
Question 245
Under Making Tax Digital for VAT (already mandatory), businesses must:
Select an option first.
Correct answer: B — Maintain digital records and file VAT returns using compatible software that interfaces directly with HMRC's systems
Explanation: B is correct: MTD for VAT has been mandatory for all VAT-registered businesses since April 2022. Businesses must keep digital records and submit VAT returns via MTD-compatible software. B is correct. A is wrong — paper returns are not permitted under MTD. C is wrong — CT MTD is separate and not yet mandatory. D is wrong — VAT returns are quarterly (or monthly/annual for certain businesses).
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Question 246
A company sells an asset and immediately leases it back under a finance lease. For CT purposes:
Select an option first.
Correct answer: B — The sale and leaseback is treated as a secured borrowing — no disposal proceeds, asset remains on the CT computation
Explanation: B is correct: under the corporation tax loan relationship/leasing rules, a sale and finance leaseback is generally treated as a secured borrowing — the proceeds are not disposal proceeds; the 'lessor' is treated as having made a loan; the 'lessee' continues to own the asset for tax purposes and claims capital allowances. B is correct. A is wrong — no disposal arises. C is wrong — finance lease payments are split into capital (not deductible) and interest (deductible). D is wrong — capital allowances are based on the original cost.
Question 247
For CT group relief, which of the following is NOT a condition for group membership?
Select an option first.
Correct answer: C — The surrendering company must have a trading loss
Explanation: C is correct: the surrendering company does not have to have a trading loss specifically — group relief can include other reliefs such as non-trading deficits, excess charitable donations, management expenses. C (requiring specifically a trading loss) is NOT a condition. A is a condition. B is a condition. D is a condition (current-year losses only for standard group relief; carried-forward losses use a separate group relief mechanism).
Question 248
The 'associated companies' test for corporation tax (determining limits) defines a company as associated if it is controlled by the same person or persons. The test uses:
Select an option first.
Correct answer: A — A 50% control threshold (economic, voting or entitlement to assets/income)
Explanation: A is correct: the associated companies test uses a 50% control test. Companies are associated if the same person (or persons acting together) control both companies, where control is broadly defined to include ownership of more than 50% of ordinary share capital, voting rights or entitlement to income/assets. A is correct. B is wrong — 25% is not the threshold. C is wrong — 75% is for group relief, not associated companies. D is wrong — any shareholder is too broad.
Question 249
The UK's hybrid mismatch rules prevent tax avoidance arising from:
Select an option first.
Correct answer: B — Arrangements that exploit differences in tax treatment of financial instruments or entities between jurisdictions to produce double deductions or deductions without corresponding income inclusion
Explanation: B is correct: hybrid mismatch rules (TIOPA 2010 Part 6A) counter arrangements that use hybrid financial instruments or hybrid entities to produce double deductions (deduction in two countries) or a deduction without a corresponding taxable inclusion. B is correct. A is wrong — normal trading is not within the hybrid rules. C and D are wrong.
Question 250
A company that is 'very large' for QIP purposes (profits over £20 million after division by associated companies) must pay CT in 4 instalments, with the first instalment due:
Select an option first.
Correct answer: A — In month 3 of the accounting period (3 months and 14 days from start of AP)
Explanation: A is correct: very large companies pay CT in 4 quarterly instalments, with the first instalment due in month 3 (3 months and 13 days after the start of the AP), then months 6, 9 and 12. This is earlier than the large company QIP schedule (which starts in month 7). A is correct. B is wrong — month 7 is for large companies. C is wrong — instalments begin before AP ends. D is wrong — QIP is quarterly.
Question 251
Withholding tax on patent royalties paid from the UK to overseas companies is generally:
Select an option first.
Correct answer: B — 20% unless reduced by double tax treaty
Explanation: B is correct: the UK imposes a 20% withholding tax on patent royalties and certain other intellectual property payments made to non-UK residents, unless a double tax treaty reduces or eliminates the withholding. B is correct. A is wrong — withholding applies. C is wrong — 20% is the standard rate. D is wrong — EEA companies are not automatically at 5%.
Question 252
The 'permanent establishment' concept is important because it determines:
Select an option first.
Correct answer: B — Whether a non-resident company is liable to UK CT on its UK trading profits — if a PE exists, profits attributable to it are taxable
Explanation: B is correct: the concept of permanent establishment (PE) — defined in tax treaties and domestic law — is the trigger for a non-resident company's exposure to UK CT. If a non-resident company carries on business through a UK PE, its profits attributable to the PE are subject to UK CT. B is correct. A is wrong — PE has nothing to do with company size categorisation. C is wrong — PEs don't affect associated company count. D is wrong — VAT registration is based on taxable supply turnover.
Question 253
A company receives a non-trading loan relationship credit (e.g. bank interest received). The credit is included in:
Select an option first.
Correct answer: B — Non-trading loan relationship profits — included in taxable total profits as a separate category
Explanation: B is correct: credits from non-trading loan relationships (e.g. interest received on cash deposits) are included as non-trading loan relationship profits, which form part of taxable total profits. They are not part of trading profits. B is correct. A is wrong — they are non-trading. C is wrong — interest is not a capital gain. D is wrong — it is taxable.
Question 254
Under ATED, if a company claims relief (e.g. as a property development business), the relief must be claimed:
Select an option first.
Correct answer: B — Annually — relief must be re-claimed for each ATED chargeable period
Explanation: B is correct: ATED reliefs must be claimed annually for each chargeable period, even if the property and use have not changed. A failure to claim the relief results in the full ATED charge. B is correct. A is wrong — annual claim is required. C is wrong — must be claimed each year. D is wrong — relief applies while the company owns and uses the property.
Question 255
The VAT annual accounting scheme allows businesses to:
Select an option first.
Correct answer: A — File one VAT return per year and pay VAT in 9 monthly instalments (or 3 quarterly) plus a balancing payment
Explanation: A is correct: the annual accounting scheme allows eligible businesses (taxable turnover up to £1.35 million) to file a single annual VAT return. During the year, businesses make 9 monthly or 3 quarterly interim payments (based on last year's VAT), with a balancing payment when the annual return is filed. A is correct. B is wrong — annual accounting is one return per year. C is wrong — MTD still applies. D is wrong — VAT and income tax are always separate.
Question 256
For SDLT, the non-UK resident surcharge on residential property purchases is:
Select an option first.
Correct answer: A — 2% additional surcharge (above all other applicable rates) for non-UK residents purchasing residential property in England and Northern Ireland
Explanation: A is correct: a 2% SDLT surcharge applies to purchases of residential property by non-UK residents in England and Northern Ireland (from April 2021). This is in addition to the standard rates and the additional dwellings surcharge where applicable. A is correct. B is wrong — a surcharge applies. C is wrong — 5% is not the resident surcharge. D is wrong — 2% not 1%.
Question 257
An overseas subsidiary of a UK company pays a dividend to the UK parent. The UK parent can claim unilateral double tax relief (DTR) by:
Select an option first.
Correct answer: B — Claiming a credit for the lower of the UK CT on the dividend income and the foreign tax suffered (including underlying tax where applicable)
Explanation: B is correct: where a double tax treaty does not apply, the UK can grant unilateral DTR by allowing a tax credit equal to the lower of (a) the UK CT on the income and (b) the foreign tax suffered on that income. B is correct. A is wrong — credit, not deduction, is the relief. C is wrong — dividends are generally exempt; DTR is for other income. D is wrong — relief is the lower of UK or foreign tax.
Question 258
The substantial shareholding exemption (SSE) — which of the following is NOT a condition?
Select an option first.
Correct answer: C — The investor must be a UK company
Explanation: C is correct — the investor does NOT need to be a UK company. SSE has been extended to include non-UK resident companies with UK PE investments. The investor can be UK or non-UK. A, B and D are genuine conditions. C is NOT a condition.
Question 259
Under the corporate interest restriction (CIR), if a group's net finance costs are below £2 million, the effect is:
Select an option first.
Correct answer: B — The de minimis applies — no CIR restriction on groups with net finance costs of £2 million or less
Explanation: B is correct: the £2 million annual de minimis means that groups with net finance costs (NFC) of £2 million or less are not subject to the 30% EBITDA restriction. All finance costs are deductible where NFC ≤ £2 million. B is correct. A is wrong — the de minimis removes the EBITDA ratio requirement. C is wrong — it is allowable, not disallowed. D is wrong.
Question 260
A company incurs pre-trading expenditure before commencing trading. For CT purposes, such expenditure:
Select an option first.
Correct answer: B — Is treated as incurred on the first day of trading and is deductible (if it would have been deductible had the trade been ongoing)
Explanation: B is correct: pre-trading expenditure incurred in the 7 years before the company begins trading is treated as incurred on the first day of trading, allowing it to be deductible against trading profits. B is correct. A is wrong — it is deductible on this basis. C is wrong — it is a revenue deduction. D is wrong — it is not capitalised as goodwill.
Question 261
A company contributes to an employee pension scheme on behalf of employees. For CT purposes:
Select an option first.
Correct answer: B — Employer pension contributions are deductible in the accounting period in which they are paid (cash basis), provided they are within HMRC limits and for genuine employees
Explanation: B is correct: employer pension contributions are allowable deductions against CT trading profits in the period they are paid (not accrued). They must be for the purpose of the business (genuine employee remuneration costs) and for employees not connected to the employer in a way that makes them excessive. B is correct. A is wrong — they are deductible. C is wrong — DC and DB contributions are both deductible. D is wrong — no 10-year spreading (unless spread agreed with HMRC for large pension contributions).
Question 262
The tax treatment of provisions in the CT computation is:
Select an option first.
Correct answer: B — A provision is only deductible when it relates to a specific, existing obligation (not a general provision) — it must be wholly and exclusively for trading purposes and be accurate or capable of reliable estimate
Explanation: B is correct: specific provisions for known losses or liabilities may be deductible if the liability is sufficiently certain and specific, and the expenditure is wholly and exclusively for trade. General provisions (e.g. a general bad debt reserve) are not deductible. B is correct. A is wrong — general provisions are not deductible. C is wrong — specific provisions can be deductible when made. D is wrong — general reserves are not deductible.
Question 263
A UK company has excess management expenses in a non-trading period (investment holding company). These can be:
Select an option first.
Correct answer: B — Set against total profits of the period, or carried forward to future periods
Explanation: B is correct: investment companies' excess management expenses (costs of managing the investment business) can be set against total profits of the period. Any unrelieved balance is carried forward and set against future total profits. B is correct. A is wrong — management expenses are set against total profits, not just trading profits. C is wrong — they are not lost. D is wrong — they can also be used within the company.
Question 264
VAT on fuel for private use by employees — an employer that reclaims input VAT on all fuel must account for:
Select an option first.
Correct answer: B — Output VAT on the private fuel element (using HMRC's road fuel scale charges to value the private use)
Explanation: B is correct: where an employer reclaims all input VAT on fuel (including private element), they must account for output VAT on the private fuel, calculated using HMRC's road fuel scale charges (fixed quarterly amounts by engine size/fuel type). B is correct. A is wrong — output VAT on private use must be accounted for. C is wrong — private use is not business use. D is wrong — this is a VAT point, not a benefit in kind issue.
Question 265
The construction industry scheme (CIS) deduction rates applied to subcontractor payments are:
Select an option first.
Correct answer: A — 20% for verified subcontractors; 30% for unverified; 0% for those with gross payment status
Explanation: A is correct: CIS deduction rates are: 20% for subcontractors registered and verified with HMRC; 30% for unverified subcontractors (or those with disqualifying history); 0% for those with gross payment status. A is correct. B, C and D are wrong rates.
Question 266
For corporation tax purposes, the capital gains indexation allowance is frozen at which date for assets held before that date?
Select an option first.
Correct answer: A — 31 December 2017
Explanation: A is correct: for companies, the indexation allowance on assets held at 31 December 2017 is calculated using the RPI index up to December 2017, after which no further indexation is available (it was frozen by Finance Act 2018). A is correct. B, C and D are wrong dates.
Question 267
The UK's global minimum tax (Income Inclusion Rule — IIR) charge applies to:
Select an option first.
Correct answer: B — The ultimate parent entity of a large MNE group (revenue ≥ €750m) — charges top-up tax on subsidiaries that have an effective tax rate below 15%
Explanation: B is correct: the Income Inclusion Rule (UK's implementation of OECD Pillar Two) requires the ultimate parent entity of large MNE groups (consolidated revenue ≥ €750m) to pay top-up tax if any subsidiary pays tax at below 15% effective rate. B is correct. A is wrong — only large MNEs are within scope. C is wrong — not all overseas subsidiary holders. D is wrong — small companies are not within scope.
Question 268
For VAT purposes, the reduced rate of 5% applies to which of the following?
Select an option first.
Correct answer: B — Domestic fuel and power (gas, electricity) supplied to households and charities
Explanation: B is correct: the 5% reduced rate applies to domestic fuel and power (including gas, electricity, solid fuels) supplied to qualifying households and charities (not commercial customers). B is correct. A is wrong — clothing is standard-rated (unless children's clothing which is zero-rated). C is wrong — business entertainment is standard-rated. D is wrong — children's clothing is zero-rated (0%), not 5%.
Question 269
The HMRC interest rate on late-paid corporation tax (non-QIP) for 2024/25 is approximately:
Select an option first.
Correct answer: A — 7.5% per annum (Bank of England base rate + 2.5%)
Explanation: A is correct: HMRC charges interest on late-paid tax (including CT) at the rate of Bank of England base rate plus 2.5%. With the base rate at approximately 5% in 2024/25, the late payment interest rate is approximately 7.5% per annum. A is correct. B is wrong — 2.5% is the HMRC repayment supplement rate (base rate minus 1%, but HMRC currently pays repayment interest at a lower rate). C is wrong — 20% is far too high. D is wrong — interest is charged.
Question 270
Under the UK's diverted profits tax (DPT), a 'preliminary notice' is issued by HMRC:
Select an option first.
Correct answer: B — As a warning that HMRC intends to issue a charging notice — giving the company 30 days to respond before the DPT is formally charged
Explanation: B is correct: the DPT process requires HMRC to issue a preliminary notice to the company, setting out the proposed DPT charge. The company has 30 days to respond. HMRC then issues a charging notice. The DPT is payable within 30 days of the charging notice (not pending dispute resolution). B is correct. A is wrong — no court order is required initially. C is wrong — the preliminary notice precedes payment. D is wrong — it is specific to DPT situations.
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