AAT L4 Business Tax 2 — Questions and Answers
Question 1: A company has taxable total profits of £300,000 for the year ended 31 March 2026. The main Corporation Tax rate is 25%. What is the Corporation Tax liability?
- £57,000
- £75,000 (Correct answer)
- £61,500
- £59,250
Correct answer: £75,000
Companies with taxable total profits above £250,000 pay at the main rate of 25%. Corporation Tax = £300,000 x 25% = £75,000. Marginal relief applies between £50,000 and £250,000 only.
Question 2: For 2025/26, a UK business must register for VAT when taxable turnover exceeds:
- £85,000
- £90,000 (Correct answer)
- £100,000
- £150,000
Correct answer: £90,000
The VAT registration threshold increased to £90,000 from 1 April 2024. A business must register if taxable turnover exceeds £90,000 in any rolling 12-month period.
Question 3: Which expenditure item would be added back when calculating tax-adjusted trading profits?
- Rent paid on business premises
- Trade bad debt written off
- Depreciation charged in the accounts (Correct answer)
- Insurance premiums for business property
Correct answer: Depreciation charged in the accounts
Depreciation is an accounting charge, not a tax-deductible expense. HMRC replaces depreciation with capital allowances when calculating taxable trading profits. The other items are allowable business expenses.
Question 4: A company sells a factory for £500,000. It cost £200,000 in June 2010. The indexation factor from June 2010 to December 2017 is 0.234. What is the indexed cost?
- £246,800 (Correct answer)
- £200,000
- £234,000
- £253,400
Correct answer: £246,800
Indexed cost = Original cost + (Original cost x Indexation factor) = £200,000 + (£200,000 x 0.234) = £200,000 + £46,800 = £246,800.
Question 5: How are qualifying charitable donations treated for Corporation Tax purposes?
- Disallowed when calculating trading profits
- Deducted from total profits as a qualifying charitable donation (Correct answer)
- They reduce the company's VAT liability
- They qualify for capital allowances
Correct answer: Deducted from total profits as a qualifying charitable donation
Qualifying charitable donations are deducted from total profits (after calculating trading profits) in arriving at taxable total profits. They are not an allowable trading expense but reduce the overall Corporation Tax liability.
Question 6: Under the merged R&D tax relief scheme from April 2024, what is the enhanced deduction rate for qualifying R&D expenditure?
- 100% (no enhancement)
- 130% (additional 30%) (Correct answer)
- 186% (additional 86%)
- 200% (additional 100%)
Correct answer: 130% (additional 30%)
From 1 April 2024, the merged R&D scheme provides a 130% deduction for qualifying expenditure (the normal 100% plus an additional 30% enhancement) for most companies.
AAT L4 Business Tax 2
A company has taxable total profits of £300,000 for the year ended 31 March 2026.
The main Corporation Tax rate is 25%.
What is the Corporation Tax liability?