AAT L4 Business Tax — Questions and Answers
Question 1: For Corporation Tax purposes, a UK limited company's accounting period can be a maximum of:
- 6 months
- 12 months (Correct answer)
- 18 months
- 24 months
Correct answer: 12 months
A Corporation Tax accounting period cannot exceed 12 months. If a company prepares accounts for a longer period, HMRC splits it into the first 12 months and the remainder.
Question 2: Which of the following is an allowable deduction when calculating tax-adjusted trading profits for Corporation Tax?
- Entertaining UK customers
- Depreciation of plant and machinery
- Staff salary costs and employer's National Insurance contributions (Correct answer)
- Political donations
Correct answer: Staff salary costs and employer's National Insurance contributions
Staff costs including salaries, wages, and employer's NIC are allowable business expenses. Entertaining UK customers, depreciation (replaced by capital allowances), and political donations are all disallowable.
Question 3: A company purchases a machine for £120,000. It qualifies for the Annual Investment Allowance. If the AIA limit is £1,000,000, what capital allowance can be claimed?
- £18,000
- £120,000 (Correct answer)
- £1,000,000
- £24,000
Correct answer: £120,000
The AIA gives a 100% first-year deduction for qualifying plant and machinery expenditure up to the limit. Since £120,000 is within the £1,000,000 limit, the full cost is deductible in the year of purchase.
Question 4: A company has a trading loss of £80,000 in the year ended 31 March 2026. Which loss relief options are available?
- Carry forward against future total profits only
- Set against total profits of the current period, carry back against total profits of the previous 12 months, or carry forward against future trading profits (Correct answer)
- Carry back up to 5 years
- Claim a VAT repayment equal to the loss
Correct answer: Set against total profits of the current period, carry back against total profits of the previous 12 months, or carry forward against future trading profits
UK trading losses can be: (1) set against total profits of the current period, (2) carried back against total profits of the preceding 12 months, or (3) carried forward against future trading profits of the same trade.
Question 5: For capital gains purposes, indexation allowance for companies:
- Increases the gain by adjusting for inflation
- Reduces the gain by adjusting the cost for inflation up to December 2017 (Correct answer)
- Is available to both companies and individuals
- Has no frozen date
Correct answer: Reduces the gain by adjusting the cost for inflation up to December 2017
Indexation allowance adjusts the base cost of an asset for inflation using the RPI, reducing the chargeable gain. For companies, indexation was frozen at December 2017. Individuals do not receive indexation allowance.
Question 6: Which of the following is exempt from Corporation Tax on chargeable gains?
- Sale of an investment property
- Sale of goodwill
- Disposal of a motor vehicle used in the trade
- Sale of shares qualifying for Substantial Shareholding Exemption (Correct answer)
Correct answer: Sale of shares qualifying for Substantial Shareholding Exemption
The Substantial Shareholding Exemption exempts gains on disposal of shares in trading companies where the investing company held at least 10% for a continuous 12-month period in the preceding 6 years.
AAT L4 Business Tax
For Corporation Tax purposes, a UK limited company's accounting period can be a maximum of: