AAT Level 4 - Professional Diploma in Accounting Business Tax Computations Questions and Answers — Questions and Answers
Question 1: A UK limited company purchases a new, unused electric car for £45,000 and a new petrol delivery van for £35,000 during its accounting period. The company has a main pool written down value brought forward of £20,000. The Annual Investment Allowance (AIA) limit is £1,000,000. What is the maximum amount of capital allowances the company can claim in this period?
- £80,000
- £83,600 (Correct answer)
- £100,000
- £48,600
Correct answer: £83,600
The maximum capital allowances are calculated as follows: A 100% First Year Allowance (FYA) can be claimed on the new electric car (£45,000). The delivery van qualifies for the Annual Investment Allowance (AIA), so 100% of its cost can be claimed (£35,000). A Writing Down Allowance (WDA) of 18% can be claimed on the main pool balance (£20,000 * 18% = £3,600). The total maximum claim is £45,000 (FYA) + £35,000 (AIA) + £3,600 (WDA) = £83,600.
Question 2: Which one of the following is a disallowable expense when computing the trading profits of a UK company for corporation tax purposes?
- Staff salaries and wages
- Rent paid for the business premises
- Depreciation of office equipment (Correct answer)
- Interest paid on a business loan
Correct answer: Depreciation of office equipment
Depreciation is an accounting concept and is not an allowable deduction for tax purposes. Instead, businesses claim capital allowances on qualifying assets, which provides tax relief for the cost of the asset over time. Staff salaries, rent, and loan interest are generally allowable as they are incurred 'wholly and exclusively' for the purposes of the trade.
Question 3: A business has a rolling 12-month taxable turnover that has just exceeded £90,000 for the first time at the end of May. According to HMRC rules, by when must the business register for VAT?
- Immediately on the day the threshold was exceeded.
- By the 30th of June, with registration effective from the 1st of July. (Correct answer)
- Within 14 days of the end of May.
- The business can wait until its year-end to register.
Correct answer: By the 30th of June, with registration effective from the 1st of July.
When the VAT registration threshold is exceeded based on the historic test (turnover in the last 12 months), the business has 30 days from the end of the month in which the threshold was exceeded to register with HMRC. The effective date of registration will be the first day of the second month after the threshold was exceeded. In this case, exceeding the threshold at the end of May means registration is required by 30th June, and the effective date is 1st July.
Question 4: A UK limited company has taxable total profits of £300,000 for its financial year. The main rate of corporation tax is 25% and the small profits rate is 19%. What is the company's corporation tax liability?
- £57,000
- £79,500
- £75,000 (Correct answer)
- £62,500
Correct answer: £75,000
The main rate of corporation tax of 25% applies to companies with profits over £250,000. Since this company's profits are £300,000, its liability is calculated simply as £300,000 x 25% = £75,000. The small profits rate and marginal relief do not apply as profits exceed the upper limit.
Question 5: Which of the following is LEAST likely to be considered one of HMRC's 'badges of trade' when determining whether a business activity constitutes a trade?
- The length of the period of ownership of an asset.
- The personal wealth of the person conducting the activity. (Correct answer)
- The frequency and number of similar transactions.
- The existence of a profit-seeking motive.
Correct answer: The personal wealth of the person conducting the activity.
HMRC uses a set of indicators, known as the 'badges of trade', to form an overall impression of whether an activity is a trade. These include the length of ownership, frequency of transactions, and the motive. The personal wealth or financial status of the individual is not one of these established badges; the focus is on the nature of the activity itself.
Question 6: A UK company incurs a trading loss of £40,000 in its current accounting period. In the immediately preceding 12-month period, it had taxable total profits of £60,000. What is the primary option available to the company for the relief of this loss?
- Carry the loss forward to set against future trading profits only.
- The loss can only be set against current year chargeable gains.
- Carry the loss back against the total profits of the preceding 12 months. (Correct answer)
- Carry the loss back for a maximum of 36 months against total profits.
Correct answer: Carry the loss back against the total profits of the preceding 12 months.
A primary rule for trading loss relief is that a company can make a claim to carry back the loss and set it against the total profits of the preceding 12-month accounting period. In this case, the full £40,000 loss can be carried back to reduce the £60,000 profit from the prior year, generating a tax refund. The 36-month carry-back is a special rule for terminal losses when a trade ceases.
AAT Level 4 - Professional Diploma in Accounting Business Tax Computations Questions and Answers
A UK limited company purchases a new, unused electric car for £45,000 and a new petrol delivery van for £35,000 during its accounting period.
The company has a main pool written down value brought forward of £20,000.
The Annual Investment Allowance (AIA) limit is £1,000,000.
What is the maximum amount of capital allowances the company can claim in this period?