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Free ACCA Taxation Practice Questions & Answers
299 exam-style Taxation questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 1
Which of the following best describes a progressive tax system?
Select an option first.
Correct answer: B — Higher earners pay a greater proportion of their income in tax
Explanation: B is correct. A progressive tax system means the tax rate increases as income rises, so higher earners pay a larger proportion of income. A describes a poll tax (fixed amount). C describes a proportional/flat tax. D partially describes a threshold but not the progressive nature.
Question 2
What is the tax year period used in the UK for individuals?
Select an option first.
Correct answer: C — 6 April to 5 April
Explanation: C is correct. The UK personal tax year runs from 6 April to 5 April the following year. This is sometimes called the fiscal year or assessment year. A is the calendar year used in some other countries. B is the UK government financial year. D is not a recognised UK tax period.
Question 3
Which body is responsible for collecting income tax from individuals in the UK?
Select an option first.
Correct answer: C — HM Revenue & Customs
Explanation: C is correct. HM Revenue & Customs (HMRC) is the government department responsible for collecting taxes, including income tax, in the UK. The Bank of England manages monetary policy. The FCA regulates financial services. Companies House registers companies.
Question 4
A taxpayer is described as having a 'residence' basis of taxation. What does this mean?
Select an option first.
Correct answer: B — Tax is charged on worldwide income if the person is resident in the UK
Explanation: B is correct. A UK resident is generally taxable on their worldwide income. Non-residents are only taxable on UK-source income. A describes a territorial system. C and D are incorrect descriptions of how residence-based taxation works.
Question 5
What is the purpose of the personal allowance in UK income tax?
Select an option first.
Correct answer: C — It is the amount of income an individual can receive before any income tax is due
Explanation: C is correct. The personal allowance is the threshold of income that individuals can receive tax-free before income tax starts to apply. It is not related to NIC (A), does not represent the highest rate (B), and is generally available to all individuals, not just married ones (D).
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Question 6
Which of the following is a direct tax?
Select an option first.
Correct answer: C — Income tax
Explanation: C is correct. Income tax is a direct tax — it is charged directly on a person's income and paid by that person. VAT, customs duty, and fuel duty are all indirect taxes, charged on goods and services rather than directly on a person's income.
Question 7
In the UK, who is described as a 'basic rate taxpayer' for income tax purposes?
Select an option first.
Correct answer: C — Someone whose taxable income falls within the basic rate band after deducting the personal allowance
Explanation: C is correct. A basic rate taxpayer is one whose non-savings income, after deducting the personal allowance, falls within the basic rate band and is therefore taxed at 20%. A describes a non-taxpayer. B describes a higher rate taxpayer. D is not a definition of basic rate status.
Question 8
What does the term 'taxable income' mean?
Select an option first.
Correct answer: B — Income remaining after deducting the personal allowance from total income
Explanation: B is correct. Taxable income is the amount remaining after deducting the personal allowance (and any other reliefs) from total income. It is this amount on which tax rates are applied. A describes total income before allowances. C and D are too narrow.
Question 9
Which of the following types of income is generally exempt from income tax in the UK?
Select an option first.
Correct answer: C — Winnings from a lottery
Explanation: C is correct. Lottery winnings are exempt from income tax in the UK. Bank interest (A) is taxable as savings income. Rental income (B) is taxable as property income. Dividend income (D) is taxable, though at special dividend rates.
Question 10
What is meant by the term 'higher rate taxpayer' in the UK?
Select an option first.
Correct answer: B — A taxpayer whose income subject to tax exceeds the basic rate band limit
Explanation: B is correct. A higher rate taxpayer is one whose taxable income exceeds the upper limit of the basic rate band, causing some income to be taxed at 40%. Having multiple income sources (A) or submitting self-assessment (D) does not by itself determine rate. Earning above the personal allowance (C) just means you pay tax, not necessarily at higher rate.
Question 11
Which of the following correctly describes the order of taxing different types of income?
Select an option first.
Correct answer: B — Non-savings income, then savings income, then dividends
Explanation: B is correct. In the UK, for income tax purposes, income is stacked in a specific order: non-savings income first (employment, self-employment, rental), then savings income (interest), then dividend income. This order determines which income falls in which rate band.
Question 12
What is the practical effect of the starting rate for savings?
Select an option first.
Correct answer: A — It allows savings income to be taxed at 0% if non-savings income is low enough
Explanation: A is correct. The starting rate for savings (0%) applies to up to £5,000 of savings income if the taxpayer's non-savings income is low (within the starting rate band). It is not a general reduction in savings tax rates (B), not related to retirement (C), and savings income is still included in the tax computation (D).
Question 13
What is the personal savings allowance?
Select an option first.
Correct answer: A — An amount of interest income that can be received tax-free, depending on the taxpayer's income tax rate
Explanation: A is correct. The personal savings allowance lets basic rate taxpayers receive up to £1,000 of interest tax-free, and higher rate taxpayers up to £500. Additional rate taxpayers receive no allowance. B and C are incorrect descriptions. D describes gilts, not the allowance.
Question 14
Which of the following correctly describes the dividend allowance?
Select an option first.
Correct answer: B — A fixed amount of dividend income is taxed at 0%, after which the remainder is taxed at dividend rates
Explanation: B is correct. The dividend allowance means the first slice of dividend income each year is taxed at 0% (effectively tax-free). Any dividend income above this amount is taxed at the applicable dividend rate. A is incorrect because dividends above the allowance are taxable. C and D are incorrect.
Question 15
A taxpayer's personal allowance is reduced by £1 for every £2 that adjusted net income exceeds a certain threshold. This is known as what?
Select an option first.
Correct answer: A — The income-related reduction of the personal allowance
Explanation: A is correct. For taxpayers with high adjusted net income, the personal allowance tapers away at a rate of £1 reduction for every £2 above the income limit. B, C and D are not the recognised terms — the standard description used in UK tax is the income-related reduction of the personal allowance.
Question 16
Which of the following describes 'non-savings income'?
Select an option first.
Correct answer: C — Salary from employment and profits from self-employment
Explanation: C is correct. Non-savings income includes employment income, self-employment profits, pension income, and property income. Bank interest (A) is savings income. Dividends (B) are dividend income. Property let abroad (D) is still property income, a form of non-savings income, but C gives the clearest examples of the category.
Question 17
When calculating income tax, which income is placed in the tax computation first, before other types?
Select an option first.
Correct answer: C — Non-savings income
Explanation: C is correct. Non-savings income is always placed first in the income tax computation, forming the base against which the personal allowance is first set off. Savings income sits above non-savings in the stack, with dividends at the top. Capital gains are assessed separately under CGT, not income tax.
Question 18
A person earns £18,500 in employment income in 2025/26. The personal allowance is £12,570. What is their taxable income?
Select an option first.
Correct answer: C — £5,930
Explanation: C is correct. Taxable income = Total income − Personal allowance = £18,500 − £12,570 = £5,930. The personal allowance is deducted from total income to arrive at taxable income. This is the amount on which income tax rates are applied.
Question 19
What does the tax code '1257L' generally represent for an employee?
Select an option first.
Correct answer: B — The employee is entitled to a personal allowance of £12,570 with no adjustments
Explanation: B is correct. The tax code 1257L means the employee is entitled to the standard personal allowance of £12,570 (the number multiplied by 10), with no adjustments for benefits or other income. The 'L' denotes the standard personal allowance. A, C and D misinterpret the code.
Question 20
Gift Aid donations to charity affect a taxpayer's income tax. Which of the following is correct?
Select an option first.
Correct answer: B — The basic rate tax paid by the donor is reclaimed by the charity, and higher rate taxpayers can claim additional relief
Explanation: B is correct. When a Gift Aid declaration is made, HMRC pays 20% basic rate tax to the charity (treating the donation as having been made net of basic rate tax). Higher and additional rate taxpayers can then claim the additional rate relief. A is incorrect — personal allowance is not affected. C is wrong — higher rate taxpayers also benefit. D is incorrect — the mechanism works through rate band extension, not direct deduction.
Question 21
What is the effect of a Gift Aid donation on a higher rate taxpayer's income tax bands?
Select an option first.
Correct answer: A — The basic rate band is extended by the grossed-up donation amount
Explanation: A is correct. For higher rate taxpayers, the basic rate and higher rate band limits are extended by the gross donation (net donation × 100/80). This means more income is taxed at 20% rather than 40%, effectively giving the additional rate relief. B, C and D are incorrect mechanisms.
Question 22
Which of the following pension contribution types is made after income tax has been deducted?
Select an option first.
Correct answer: B — Personal pension contribution under the relief at source method
Explanation: B is correct. Under the relief at source method, the employee makes contributions from after-tax pay, and the pension provider claims basic rate relief from HMRC. Under net pay arrangements (D), contributions are deducted before PAYE is applied. Employer contributions (A) and salary sacrifice (C) also reduce the pre-tax pay.
Question 23
What does it mean when a pension contribution is described as 'grossed up' for tax relief purposes?
Select an option first.
Correct answer: B — The gross contribution is the net amount paid by the individual plus the basic rate tax relief added by HMRC
Explanation: B is correct. Under relief at source, the individual pays the net contribution (e.g., £800) and HMRC adds basic rate tax relief (£200) to make the gross contribution (£1,000). The pension scheme has £1,000 invested. Higher rate relief is then claimed separately. A, C and D are incorrect descriptions.
Question 24
What is the annual pension contribution limit for income tax relief purposes (the annual allowance)?
Select an option first.
Correct answer: A — The lower of £60,000 or 100% of relevant UK earnings
Explanation: A is correct. The annual allowance for pension contributions is the lower of £60,000 or 100% of the individual's relevant UK earnings in the tax year. Those without earnings can still contribute up to £3,600 gross per year (D is partially correct but only for non-earners). B ignores the earnings cap. C uses incorrect figures.
Question 25
Property income is the rental income received from letting property. Which of the following deductions is allowable against rental income?
Select an option first.
Correct answer: C — Mortgage interest — for non-corporate landlords, restricted to basic rate relief only
Explanation: C is correct. For individual (non-corporate) landlords, mortgage interest is not fully deducted from rental income. Instead, relief is given as a basic rate tax credit equal to 20% of the finance costs. The purchase cost (A) is a capital cost. Depreciation (B) is not allowable — capital allowances apply to certain assets but not residential property. Private use expenses (D) must be excluded.
Question 26
What is the rent-a-room relief?
Select an option first.
Correct answer: B — An exemption of up to £7,500 of rental income from letting furnished accommodation in an individual's own home
Explanation: B is correct. Rent-a-room relief allows an individual to receive up to £7,500 of gross rental income tax-free from letting furnished rooms in their main residence. It is not a general landlord relief (A). It does not affect employment income (C). It applies to the individual's own main home, not commercial premises (D).
Question 27
Savings income received by a basic rate taxpayer includes £900 of bank interest. The personal savings allowance for a basic rate taxpayer is £1,000. How much of the £900 interest is taxable?
Select an option first.
Correct answer: B — £0
Explanation: B is correct. The personal savings allowance for a basic rate taxpayer is £1,000. Since the interest of £900 is below this amount, the entire £900 is covered by the allowance and taxed at 0% — effectively no tax liability arises on the interest. A assumes no allowance. C and D use incorrect calculations.
Question 28
How are dividends above the dividend allowance taxed for a basic rate taxpayer?
Select an option first.
Correct answer: C — At 8.75%
Explanation: C is correct. From April 2023, dividends above the dividend allowance received by basic rate taxpayers are taxed at 8.75%. The old rate of 7.5% (B) was replaced. The rate of 20% (A) applies to non-savings income, not dividends. The 33.75% rate (D) applies to higher rate taxpayers on dividends.
Question 29
What is the additional rate of income tax on non-savings income in 2025/26?
Select an option first.
Correct answer: B — 45%
Explanation: B is correct. The additional rate of income tax on non-savings and savings income is 45%, applying to taxable income above the additional rate threshold. The 40% rate (A) is the higher rate. The 50% rate (C) no longer applies. The 39.35% rate (D) applies to dividends for additional rate taxpayers.
Question 30
A taxpayer has taxable non-savings income of £55,000 in 2025/26. Assuming the basic rate band upper limit is £50,270, how much of their income falls in the higher rate band?
Select an option first.
Correct answer: C — £4,730
Explanation: C is correct. Income up to £50,270 of taxable income (basic rate band) is taxed at 20%. Income above that up to £55,000 = £55,000 − £50,270 = £4,730 is taxed at 40% (higher rate). Note: taxable income already deducts the personal allowance.
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