AAT L4 Business Tax (UK Corporation Tax) 2

Question 1

Capital allowances replace depreciation for UK corporation tax purposes because:

Accepted Answer

Accounting depreciation is disallowable; capital allowances provide standardised tax deductions for capital expenditure

Answer

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:

Accepted Answer

£1,000,000

Answer

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:

Accepted Answer

18% per annum reducing balance

Answer

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:

Accepted Answer

Customer entertainment expenditure

Answer

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:

Accepted Answer

Net tax-interest expense exceeds the greater of £2 million per annum or 30% of tax EBITDA

Answer

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.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Business Tax (UK Corporation Tax) 2