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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 241
What is disincorporation relief?
Select an option first.
Correct answer: B — A relief allowing a company to transfer qualifying business assets to shareholders without a corporation tax charge on the transfer, facilitating a return to unincorporated status
Explanation: B is correct. Disincorporation relief allows a company to transfer qualifying assets (goodwill and/or land) to shareholders at no gain/no loss for corporation tax purposes when the business converts back to an unincorporated structure. This avoids triggering a corporation tax charge on embedded gains. A, C and D are incorrect.
Question 242
What is transfer pricing for corporation tax purposes?
Select an option first.
Correct answer: B — Rules requiring transactions between connected parties to be priced at arm's length market values, preventing artificial profit shifting to lower-tax jurisdictions
Explanation: B is correct. Transfer pricing rules (based on the OECD guidelines) require transactions between connected persons/entities to be on arm's length terms. If a company charges an artificially low price to a group company in a low-tax country, HMRC can substitute an arm's length price, increasing UK taxable profits. A, C and D are incorrect.
Question 243
What is the controlled foreign company (CFC) charge?
Select an option first.
Correct answer: B — A charge on a UK company in respect of profits of a low-taxed overseas subsidiary, where those profits have been artificially diverted from the UK
Explanation: B is correct. CFC rules attribute profits of a low-taxed overseas subsidiary back to the UK parent company where the profits have been artificially diverted. Not all overseas profits are caught — only those that meet the CFC charging provisions. Exempt periods and exemptions (e.g., low profit margin exemption) protect genuine commercial structures. A, C and D are incorrect.
Question 244
What is a group payment arrangement (GPA) for corporation tax?
Select an option first.
Correct answer: B — An arrangement allowing a nominated company to make corporation tax payments on behalf of other group members, centralising cash management
Explanation: B is correct. A GPA enables the pooling of corporation tax payments across a group, with a nominated paying company making instalment payments on behalf of multiple group companies. This reduces the number of transactions with HMRC and simplifies treasury management. A, C and D describe different concepts.
Question 245
What is the minimum holding period for the substantial shareholding exemption (SSE) to apply?
Select an option first.
Correct answer: B — 12 months continuously in the 6 years before disposal
Explanation: B is correct. For the SSE, the investing company must have held at least 10% of the ordinary shares for a continuous period of at least 12 months during the 6 years immediately preceding the disposal. A, C and D use incorrect periods or conditions.
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Question 246
When does a company pay corporation tax by quarterly instalments?
Select an option first.
Correct answer: B — When its augmented profits exceed £1.5 million (divided by associated companies plus one)
Explanation: B is correct. Large companies — those with augmented profits exceeding £1.5 million (pro-rated for associated companies) — must pay corporation tax in quarterly instalments during the accounting period rather than as a single payment 9 months after year end. Very large companies (profits over £20 million) pay even earlier. A, C and D are incorrect triggers.
Question 247
What is the UK Diverted Profits Tax rate from April 2023?
Select an option first.
Correct answer: C — 31%
Explanation: C is correct. The DPT rate increased to 31% from April 2023 (previously 25%). This is higher than the main corporation tax rate of 25%, making it penal and encouraging companies to restructure arrangements before DPT applies. A is the main CT rate. B and D are incorrect.
Question 248
What is the VAT treatment of land and property as a general rule, and what is the exception?
Select an option first.
Correct answer: B — Land and property is generally exempt from VAT; the exception is that the seller/landlord can opt to charge standard rate VAT by exercising the option to tax
Explanation: B is correct. The default VAT position for most land and property supplies is exempt. However, a business can opt to charge standard rate VAT (the option to tax / waiver of exemption) on commercial land and buildings to enable input VAT recovery on related costs. Residential property cannot be opted to tax. A is wrong. C reverses the general rule. D is incorrect — only certain new-build supplies are zero-rated (e.g., new dwellings by developers).
Question 249
What is meant by the 'basic tax point' for VAT on a supply of goods?
Select an option first.
Correct answer: C — The date the goods are made available to the customer (removed or made available)
Explanation: C is correct. For goods, the basic tax point is when the goods are removed or made available to the customer. For services, it is when the service is performed. The actual tax point may differ if an invoice is raised or payment received within 14 days before or after the basic tax point (creating an earlier or later actual tax point). A, B and D are not the definition of the basic tax point.
Question 250
What is the VAT flat rate percentage for a business compared to the standard method?
Select an option first.
Correct answer: B — The flat rate percentage is a HMRC-set rate specific to the trade sector, applied to VAT-inclusive turnover, replacing separate output/input VAT calculations
Explanation: B is correct. Under the flat rate scheme, the business applies a sector-specific percentage (e.g., 12% for some sectors, 14% for others) to its gross VAT-inclusive turnover and pays that amount to HMRC. It does not separately account for input VAT. The percentage varies by sector — it is not a fixed amount for all businesses. A, C and D are incorrect.
Question 251
What is the VAT treatment of a business gift of goods worth more than £50?
Select an option first.
Correct answer: B — A deemed supply — output VAT is due on the cost of the goods
Explanation: B is correct. Business gifts of goods where the cost to the business is more than £50 per recipient per year are treated as a deemed supply for VAT purposes — output VAT is due on the cost price. If the total cost is £50 or less per recipient per year, no output VAT is due. A and D are incorrect — gifts of goods above the threshold trigger a VAT charge. C is incorrect.
Question 252
What is the 30-day rule for VAT, relating to new buildings?
Select an option first.
Correct answer: B — If an invoice for a supply of construction services is raised within 14 days of the supply being made, the invoice date becomes the actual tax point (not a 30-day rule)
Explanation: B is correct. The standard 14-day rule means that if an invoice is issued within 14 days after the basic tax point (e.g., completion of construction services), the invoice date becomes the actual tax point. This is the most widely applicable rule — not 30 days. A, C and D are incorrect.
Question 253
What is the VAT registration threshold in 2025/26?
Select an option first.
Correct answer: C — £90,000
Explanation: C is correct. The VAT registration threshold is £90,000 for 2024/25 onwards. A business must register when taxable turnover exceeds this in any rolling 12-month period, or if expected to exceed it in the next 30 days. A and B are previous thresholds. D is the deregistration threshold (£88,000).
Question 254
What is the deregistration threshold for VAT?
Select an option first.
Correct answer: C — £88,000
Explanation: C is correct. The deregistration threshold (£88,000) is slightly lower than the registration threshold (£90,000). A business can apply to deregister if it expects its taxable turnover to fall below £88,000 in the next 12 months. A is the registration threshold. B and D are incorrect.
Question 255
What is Making Tax Digital (MTD) for VAT?
Select an option first.
Correct answer: B — A legal requirement for all VAT-registered businesses to maintain digital VAT records and submit VAT returns using MTD-compatible software
Explanation: B is correct. MTD for VAT is mandatory for all VAT-registered businesses (since April 2022). Businesses must keep their VAT records in a digital format and use compatible software to file their returns. HMRC no longer accepts manual entry on the Government Gateway for standard VAT returns. A, C and D are incorrect.
Question 256
When can a VAT-registered business reclaim pre-registration input VAT on goods?
Select an option first.
Correct answer: B — On goods purchased up to 4 years before registration, provided they are still on hand at the date of registration
Explanation: B is correct. Pre-registration input VAT can be claimed on goods still held at the date of registration, if those goods were purchased within 4 years before registration. For services, the limit is 6 months before registration (with no requirement to still be in use). A is wrong — pre-registration VAT is recoverable in these limited circumstances. C and D use incorrect timeframes.
Question 257
The VAT cash accounting scheme has a specific entry and exit turnover threshold. What is the entry limit?
Select an option first.
Correct answer: B — £1.35 million taxable turnover
Explanation: B is correct. Businesses with taxable turnover not exceeding £1.35 million can join the cash accounting scheme. They must leave when turnover exceeds £1.6 million. The annual accounting scheme has the same entry limit of £1.35 million. A, C and D use incorrect thresholds.
Question 258
What is the VAT position on a business that makes only exempt supplies?
Select an option first.
Correct answer: B — It cannot register for VAT (unless voluntary) and cannot recover any input VAT
Explanation: B is correct. A business making only exempt supplies cannot compulsorily register for VAT (because it makes no taxable supplies). It also cannot voluntarily register. Since it is not registered, it cannot recover input VAT on its purchases — this is the key disadvantage of exempt status compared to zero-rating. A and C are incorrect. D is too absolute — if the business later makes taxable supplies, registration becomes possible.
Question 259
What is the penalty for failure to notify HMRC of liability to register for VAT?
Select an option first.
Correct answer: B — A percentage-based penalty calculated on the VAT unpaid from the date registration was required, varying from 0% to 100% depending on behaviour
Explanation: B is correct. The failure to notify penalty is a percentage of the unpaid VAT from the date registration was required. The percentage depends on the taxpayer's behaviour: prompted disclosure with unprompted error = lower penalty; deliberate and concealed = up to 100%. A uses an incorrect fixed amount. C and D are incorrect consequences.
Question 260
What is the VAT position of a supply made between members of the same VAT group?
Select an option first.
Correct answer: B — Supplies between VAT group members are disregarded for VAT purposes — no VAT is charged
Explanation: B is correct. One of the key benefits of VAT grouping is that supplies between group members are outside the scope of VAT. Only supplies to and from parties outside the VAT group are subject to VAT. This eliminates the need to raise VAT invoices for intercompany transactions. A, C and D are incorrect.
Question 261
What is the VAT treatment of a sale of a new freehold commercial building?
Select an option first.
Correct answer: C — Standard-rated — the first grant of a freehold of a new commercial building within 3 years of completion is compulsorily standard-rated
Explanation: C is correct. The sale of a new commercial freehold building (within 3 years of completion) is automatically standard-rated — there is no choice to exempt it. This differs from older commercial property (which is exempt subject to option to tax). A is wrong for new commercial buildings. B and D are incorrect.
Question 262
How are losses in a consortium company relieved between the consortium company and members?
Select an option first.
Correct answer: B — Each member can claim (or surrender) a proportion of the loss matching their ownership percentage in the consortium
Explanation: B is correct. Consortium relief operates proportionately — each consortium member can receive (or surrender) a share of the loss equal to their ownership percentage. So a member owning 30% can claim 30% of the consortium company's loss. A, C and D are incorrect — the relief is strictly pro-rated.
Question 263
A company has taxable total profits of £180,000 and is not associated with any other company. What rate of corporation tax applies?
Select an option first.
Correct answer: C — Marginal relief applies — between 19% and 25%
Explanation: C is correct. With profits of £180,000, the company is between the small profits lower limit (£50,000) and the main rate upper limit (£250,000). Marginal relief applies, tapering the effective rate between 19% and 25%. A applies only up to £50,000. B would apply above £250,000. D is incorrect — there is no flat 20% rate between the thresholds.
Question 264
A company has augmented profits (including dividends from non-51% group companies) of £400,000 and is associated with one other company. What is the adjusted main rate threshold?
Select an option first.
Correct answer: B — £125,000
Explanation: B is correct. The thresholds for marginal relief are divided by the number of associated companies plus one. With one associated company, the divisor is 2. Main rate threshold = £250,000 ÷ 2 = £125,000. Small profits threshold = £50,000 ÷ 2 = £25,000. A is the unadjusted threshold. C and D use incorrect divisors.
Question 265
What is an 'augmented profit' for corporation tax purposes?
Select an option first.
Correct answer: A — Taxable total profits plus any dividends received from non-group companies
Explanation: A is correct. Augmented profits = Taxable total profits + dividends from non-51% group company investments. Dividends from 51% group companies are excluded. Augmented profits are used to determine which corporation tax rate or marginal relief applies. B, C and D are incorrect.
Question 266
How is the marginal relief fraction calculated for corporation tax?
Select an option first.
Correct answer: B — 3/200 × (Upper limit − Augmented profits) × (Taxable total profits / Augmented profits)
Explanation: B is correct. The marginal relief calculation is: CT at main rate (25% of TTP) minus the marginal relief fraction. The fraction = 3/200 × (£250,000 − Augmented profits) × (TTP / Augmented profits). This gives the deduction from the 25% charge to arrive at the effective rate between 19% and 25%. A, C and D are incorrect formulas.
Question 267
What is a 'qualifying charitable donation' for corporation tax?
Select an option first.
Correct answer: B — A cash donation by the company to a qualifying charity, deducted from total profits after computing trading and other profits
Explanation: B is correct. Qualifying charitable donations (cash to qualifying charities) are not deducted in computing trading profits — they are deducted from total profits to give taxable total profits. A gets the mechanics wrong. C — donated assets are treated differently. D — sponsorship is typically a trading expense if commercial, not a qualifying charitable donation.
Question 268
A company has a 15-month accounting period. How is this treated for corporation tax?
Select an option first.
Correct answer: B — It is split into two accounting periods: the first 12 months and the remaining 3 months, each with a separate corporation tax computation
Explanation: B is correct. A corporation tax accounting period cannot exceed 12 months. A 15-month set of accounts is therefore split into two periods: the first 12 months and the remaining 3 months. Separate CT600s are filed for each period. A, C and D are incorrect.
Question 269
What is the time limit for a company to file its corporation tax return (CT600)?
Select an option first.
Correct answer: C — 12 months after the end of the accounting period
Explanation: C is correct. A company must file its CT600 within 12 months of the end of the accounting period. This is later than the payment due date (9 months + 1 day for non-large companies). A is the payment deadline, not the filing deadline. B and D are incorrect.
Question 270
What are the main conditions for group relief to apply?
Select an option first.
Correct answer: B — One company must be a 75% subsidiary of the other (or both must be 75% subsidiaries of a common parent), and both must be UK resident
Explanation: B is correct. Group relief requires a 75% relationship and both companies must be UK resident (or meet certain non-UK resident conditions). The definition of 75% subsidiary requires 75% ordinary share ownership both directly/indirectly and in terms of distributable profits and assets on winding up. A, C and D are incorrect conditions.
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