AAT L4 Business Tax (UK Corporation Tax) 2 — Questions and Answers
Question 1: Capital allowances replace depreciation for UK corporation tax purposes because:
- Depreciation is too complicated to calculate for HMRC
- Accounting depreciation is disallowable; capital allowances provide standardised tax deductions for capital expenditure (Correct answer)
- HMRC uses the same depreciation rates as the accounts
- Capital allowances give a lower deduction than depreciation
Correct answer: Accounting depreciation is disallowable; capital allowances provide standardised tax deductions for capital expenditure
Depreciation is added back in the CT computation because it is a disallowable accounting charge; capital allowances under the Capital Allowances Act 2001 provide the equivalent statutory deduction for qualifying capital expenditure.
Question 2: The Annual Investment Allowance (AIA) for 2024/25 is set at:
- £200,000
- £500,000
- £1,000,000 (Correct answer)
- £2,000,000
Correct answer: £1,000,000
The AIA provides a 100% first-year deduction on qualifying plant and machinery expenditure, permanently set at £1,000,000 per year from April 2023, incentivising business investment.
Question 3: The writing down allowance (WDA) on the main pool of plant and machinery is:
- 10% per annum straight-line
- 18% per annum reducing balance (Correct answer)
- 25% per annum reducing balance
- 100% in year one
Correct answer: 18% per annum reducing balance
The main pool WDA is 18% per annum on a reducing balance basis. The special rate pool (integral features and long-life assets) has a 6% WDA.
Question 4: Disallowable expenditure for UK corporation tax purposes includes:
- Staff training costs
- Travelling costs for business purposes
- Customer entertainment expenditure (Correct answer)
- Professional fees for tax advice
Correct answer: Customer entertainment expenditure
Customer entertainment is specifically disallowed for corporation tax purposes (and for VAT input tax) under ICTA 1988 / CTA 2009. Business travel, staff training, and legitimate professional fees are generally deductible.
Question 5: Under the corporate interest restriction (CIR) rules, tax deductions for interest are limited when:
- A company pays interest to an unconnected lender
- Net tax-interest expense exceeds the greater of £2 million per annum or 30% of tax EBITDA (Correct answer)
- Interest payments exceed the company's annual turnover
- A company has no UK-sourced income
Correct answer: Net tax-interest expense exceeds the greater of £2 million per annum or 30% of tax EBITDA
The CIR rules (BEPS Action 4) restrict CT deductions for net interest expense to the greater of: (a) a fixed ratio of 30% of tax EBITDA, or (b) a group ratio (net interest / group EBITDA), subject to a £2m de minimis.
Question 6: For CT purposes, which of the following is a 'balancing charge'?
- An additional capital allowance claimable in the year of disposal
- A corporation tax surcharge on large companies
- An amount added back to taxable profits when a disposal proceeds exceed the pool balance (Correct answer)
- A reduction in capital allowances for private use assets
Correct answer: An amount added back to taxable profits when a disposal proceeds exceed the pool balance
A balancing charge arises when the disposal proceeds exceed the pool value; it represents a clawback of excessive capital allowances previously claimed and is added to taxable profits.
AAT L4 Business Tax (UK Corporation Tax) 2
Capital allowances replace depreciation for UK corporation tax purposes because: