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Free Questions › ACCA › Taxation
Free ACCA Taxation Practice Questions & Answers
300 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 61
An employer's secondary Class 1 NIC is currently charged at what rate?
Select an option first.
Correct answer: B — 13.8% on employee earnings above the secondary threshold
Explanation: B is correct. Employers pay secondary Class 1 NIC at 13.8% on employee earnings above the secondary threshold. There is no upper limit for employer NIC. A is the employee rate. C and D are incorrect.
Question 62
What is the Employment Allowance?
Select an option first.
Correct answer: B — A reduction in the employer's NIC liability, available to most employers up to a set annual limit
Explanation: B is correct. The Employment Allowance reduces an employer's Class 1 secondary NIC bill each year, up to the annual limit (currently £5,000 — note this may change). Most employers are eligible unless they are a single-director company with no other employees. A, C and D are incorrect.
Question 63
For NIC purposes, what is the secondary threshold?
Select an option first.
Correct answer: A — The level of earnings above which employers start paying Class 1 NIC
Explanation: A is correct. The secondary threshold is the level of employee earnings above which the employer begins paying Class 1 secondary NIC at 13.8%. It is set each year by the government and may differ from the employee primary threshold. B describes the upper earnings limit. C and D are incorrect.
Question 64
By what date must an individual submit their online self-assessment tax return for the tax year ending 5 April 2025?
Select an option first.
Correct answer: B — 31 January 2026
Explanation: B is correct. Online self-assessment returns must be submitted by 31 January following the end of the tax year. For 2024/25 (year ending 5 April 2025), the online deadline is 31 January 2026. Paper returns must be filed by 31 October 2025 (A). C and D are incorrect.
Question 65
What are payments on account for self-assessment purposes?
Select an option first.
Correct answer: A — Payments made in advance during the year toward the current year's income tax liability
Explanation: A is correct. Payments on account are advance payments of income tax (and Class 4 NIC) made in two instalments — 31 January in the tax year and 31 July after — each equal to 50% of the previous year's liability. A, C and D are incorrect descriptions.
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Question 66
What is the fixed penalty for submitting a self-assessment tax return one day late?
Select an option first.
Correct answer: C — £100
Explanation: C is correct. A fixed £100 penalty applies immediately when a self-assessment return is filed one day late, regardless of whether tax is owed. Additional penalties accrue over time (£10 per day after 3 months, further penalties at 6 and 12 months). A, B and D are incorrect amounts.
Question 67
HMRC can open an enquiry into a self-assessment return within what time limit from the filing deadline if the return was filed on time?
Select an option first.
Correct answer: B — 12 months
Explanation: B is correct. HMRC has 12 months from the actual filing date (not the deadline) to open a routine enquiry into a return that was filed on time. Longer time limits (up to 20 years) apply in cases of fraud or deliberate error. A, C and D are incorrect for a standard on-time return.
Question 68
What is the trading allowance for self-employed individuals?
Select an option first.
Correct answer: B — A £1,000 per year exemption from income tax for individuals with small amounts of trading income
Explanation: B is correct. The trading allowance of £1,000 per year means individuals with gross trading income up to £1,000 need not declare or pay tax on it. Those with income above £1,000 can either deduct actual expenses or simply deduct the £1,000 allowance instead. A, C and D are incorrect.
Question 69
The property allowance for individuals with small amounts of property income is set at what amount?
Select an option first.
Correct answer: B — £1,000
Explanation: B is correct. The property allowance is £1,000 per year. Individuals with gross property income at or below £1,000 are exempt from income tax on that income. This is separate from the rent-a-room relief. A, C and D use incorrect amounts.
Question 70
An ISA (Individual Savings Account) provides what tax benefit?
Select an option first.
Correct answer: B — All income and gains inside an ISA are completely free of income tax and CGT
Explanation: B is correct. An ISA is a complete tax shelter. Interest, dividends and capital gains arising inside an ISA are exempt from both income tax and CGT. There is no limit on the income or gains that can arise tax-free inside the ISA, provided the subscription limits are observed. A, C and D are incorrect.
Question 71
What is the main tax advantage for a higher rate taxpayer making personal pension contributions under the relief at source method?
Select an option first.
Correct answer: B — They receive effective 40% tax relief — the pension provider claims 20% basic rate relief from HMRC, and the taxpayer claims the additional 20% via self-assessment by extending their basic rate band
Explanation: B is correct. Under relief at source, the pension provider adds 20% basic rate relief (grossing up the net contribution). A higher rate taxpayer then claims additional relief via self-assessment — their basic rate band is extended by the gross contribution, pulling more income into the 20% band instead of 40%. The effective cost of a £100 gross contribution to a 40% taxpayer is therefore £60. A, C and D are incorrect.
Question 72
What is the child benefit high income charge (HICBC)?
Select an option first.
Correct answer: B — A tax charge that claws back child benefit where the highest earner in the household has adjusted net income above £60,000, with full clawback at £80,000
Explanation: B is correct. The HICBC claws back child benefit at 1% of child benefit for every £200 of adjusted net income above £60,000. The charge reaches 100% (full clawback) at £80,000. It applies to the higher earner in the household. A describes a direct reduction in payment, not how it works. C and D are incorrect.
Question 73
A termination payment of £45,000 is received on redundancy. How much is subject to income tax?
Select an option first.
Correct answer: C — £15,000 (the amount above the £30,000 exemption)
Explanation: C is correct. The first £30,000 of a genuine redundancy/termination payment is exempt from income tax (and NIC). The excess above £30,000 is taxable as employment income. £45,000 − £30,000 = £15,000 is subject to income tax. Note: statutory redundancy pay counts toward the £30,000 limit.
Question 74
Class 1A NIC is paid by which party, on what, and at what rate?
Select an option first.
Correct answer: B — Employers, on taxable benefits in kind provided to employees, at 13.8%
Explanation: B is correct. Class 1A NIC is an employer-only charge paid at 13.8% on the cash equivalent value of taxable benefits in kind (as reported on P11Ds). Employees do not pay NIC on benefits in kind — they pay income tax. A describes employee Class 1 primary. C describes Class 4. D is incorrect.
Question 75
An employee's tax code is BR. What does this mean?
Select an option first.
Correct answer: A — Basic Rate — all income is taxed at 20% with no personal allowance applied through PAYE
Explanation: A is correct. The BR tax code means Basic Rate — HMRC has instructed the employer to deduct 20% tax from all earnings without applying a personal allowance. This is often used for a second job or when the personal allowance has been used elsewhere. B, C and D are not what BR means.
Question 76
What is the definition of 'earnings' for Class 1 NIC purposes?
Select an option first.
Correct answer: B — Cash pay — salary, wages, bonuses, commissions — but generally excluding non-cash benefits in kind
Explanation: B is correct. Class 1 NIC is charged on cash earnings (salary, wages, bonuses, commissions). Non-cash benefits are generally outside Class 1 and instead subject to Class 1A (employer only). A is too broad. C and D are incorrect.
Question 77
What is qualifying care relief (for foster carers)?
Select an option first.
Correct answer: B — A statutory exemption where a fixed weekly amount per carer plus a weekly amount per person cared for is exempt from income tax, with only the excess being taxable
Explanation: B is correct. The qualifying care relief exempts a fixed amount — £10,000 per household per year plus a weekly amount per individual cared for — from income tax. Income above the threshold may be taxable. A overstates the exemption. C and D are incorrect.
Question 78
When computing adjusted net income, which of the following is deducted from net income?
Select an option first.
Correct answer: B — Gross Gift Aid donations and gross personal pension contributions made under relief at source
Explanation: B is correct. Adjusted net income = Net income − Gross Gift Aid donations − Gross pension contributions (relief at source). This figure is used to determine personal allowance reduction, HICBC, and personal savings allowance eligibility. A is not deducted (it is set against total income). C is included in net income, not deducted from it. D is not part of adjusted net income.
Question 79
What does 'overlap relief' refer to in the context of self-employment basis period reform?
Select an option first.
Correct answer: B — The stock of overlap profits from the old basis period rules that can be relieved in the 2023/24 transition year or on a future change of accounting date
Explanation: B is correct. Under the old basis period rules, some profits were taxed twice (overlap profits) when a business started or changed accounting date. Following the basis period reform transitioning to the current year basis, all accumulated overlap relief was available in the 2023/24 transition year. For those who did not use it then, any remaining overlap relief is available on cessation. A, C and D are incorrect.
Question 80
What is the difference between the tax treatment of a sole trader and a limited company for the purposes of income tax and corporation tax?
Select an option first.
Correct answer: B — Sole traders pay income tax on their trading profits (via self-assessment); limited companies pay corporation tax on their profits
Explanation: B is correct. This is a fundamental distinction. Sole traders (and partnerships) are subject to income tax (via self-assessment) and NIC on their trading profits. Limited companies are subject to corporation tax on their profits. The tax rates and rules differ significantly between the two regimes. A reverses the position. C and D are incorrect.
Question 81
Under PAYE, the employer deducts income tax and NIC from employees' pay. What is the employer's obligation regarding these deductions?
Select an option first.
Correct answer: B — The employer must pay the deducted amounts to HMRC, typically by the 19th (or 22nd for electronic payment) of the month following the tax month
Explanation: B is correct. Employers must pay PAYE income tax, employee NIC, and employer NIC to HMRC by the 19th of the month following the end of each tax month (22nd for electronic payment). Small employers (less than £1,500 per month on average) can pay quarterly instead. A, C (for most employers) and D are incorrect.
Question 82
What is the purpose of the construction industry scheme (CIS) for tax purposes?
Select an option first.
Correct answer: B — A PAYE-like deduction scheme where contractors deduct tax from payments to subcontractors in the construction industry
Explanation: B is correct. Under CIS, contractors must deduct either 20% or 30% (depending on registration status) from payments to subcontractors for labour. This is paid to HMRC as an advance payment of the subcontractor's tax liability. The subcontractor then receives a net payment and can offset the deduction against their final income tax liability. A, C and D are incorrect.
Question 83
What is the effective rate of income tax for someone who earns between £100,000 and £125,140?
Select an option first.
Correct answer: C — 60%
Explanation: C is correct. Between £100,000 and £125,140, the personal allowance is being withdrawn at £1 for every £2 of excess income. This means each additional £2 of income attracts 40% tax on the £2, PLUS 40% on the £1 of allowance lost — total tax on £2 = £1.20, so the effective marginal rate is 60%. This is a well-known tax trap. A and B are the standard higher and additional rates. D is incorrect.
Question 84
Which of the following correctly identifies a 'benefit in kind' for income tax purposes?
Select an option first.
Correct answer: B — A non-cash benefit provided by an employer, such as a company car or private medical insurance
Explanation: B is correct. A benefit in kind is a non-cash benefit provided to an employee by their employer. The employer bears the cost and the employee receives the value. Cash payments (A) are simply employment income. Genuine expense reimbursements (C) are not benefits. D describes timing of pay, not benefits.
Question 85
What is the PAYE system?
Select an option first.
Correct answer: B — A system where employers deduct income tax and NIC from employees' pay before it is paid, remitting it to HMRC on behalf of the employee
Explanation: B is correct. Pay As You Earn (PAYE) requires employers to calculate and deduct income tax and Class 1 NIC from employees' gross pay each pay period, paying the net amount to employees and remitting the deductions to HMRC. A describes payments on account. C and D are incorrect.
Question 86
An employee earns £50,000 in 2025/26. Ignoring NIC, which statement about their income tax is most accurate?
Select an option first.
Correct answer: B — They pay no tax on the first £12,570, then 20% on the next £37,700, and 40% on the remaining balance
Explanation: B is correct. The personal allowance of £12,570 is tax-free. Taxable income = £37,430. The entire £37,430 falls within the basic rate band (up to £50,270 of taxable income), taxed at 20%. So the taxpayer is actually a basic rate taxpayer despite earning £50,000 gross. A ignores the personal allowance. C is wrong — £50,000 gross does not automatically make someone a higher rate payer after the personal allowance. D describes the rate correctly for taxable income below the basic rate limit.
Question 87
What is the income tax treatment of statutory sick pay (SSP)?
Select an option first.
Correct answer: B — Taxable as employment income in the same way as normal salary
Explanation: B is correct. Statutory sick pay is taxable employment income and subject to PAYE in exactly the same way as regular salary. It is not exempt. A, C and D are incorrect.
Question 88
A self-employed trader buys a laptop for £900 for use entirely in the business. Which allowance applies?
Select an option first.
Correct answer: B — Annual investment allowance — 100% deduction in the year of purchase
Explanation: B is correct. A laptop is plant and machinery qualifying for the AIA, which gives a 100% deduction in the year of purchase. Since £900 is well below the £1 million AIA limit, the full cost is deductible. WDA (A) would only apply if AIA were not available or the limit exceeded. C applies to special rate assets. D applies to buildings, not equipment.
Question 89
Partnership profits are allocated between partners and each partner pays income tax on their share. What is the basis?
Select an option first.
Correct answer: B — Each partner is taxed individually on their allocated share of trading profits as if they were a sole trader
Explanation: B is correct. A partnership is transparent for tax purposes — it does not pay corporation tax. Each partner is treated as a sole trader for their share of the profits, assessed to income tax through self-assessment. A is incorrect — partnerships are not subject to corporation tax. C and D are incorrect.
Question 90
What is the annual investment allowance (AIA) limit for expenditure on plant and machinery?
Select an option first.
Correct answer: C — £1,000,000
Explanation: C is correct. The AIA limit is £1,000,000 per year. This allows businesses to immediately deduct up to £1 million of capital expenditure on qualifying plant and machinery in the year of purchase. A, B and D use incorrect limits.
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