AAT L4 Business Tax (UK Corporation Tax) 3 — Questions and Answers
Question 1: Under the loan relationship rules, loan relationship credits (interest income received by a company) are:
- Exempt from corporation tax
- Taxable as income in the period in which they accrue (Correct answer)
- Subject to capital gains tax
- Only taxable when received in cash
Correct answer: Taxable as income in the period in which they accrue
Loan relationship credits (interest and other returns on money lent) are taxed as income under CTA 2009 on an accruals basis — recognised as they accrue regardless of when cash is received.
Question 2: Group relief in UK corporation tax allows:
- Companies to use each other's capital losses
- A company to surrender trading losses to a fellow 75% group member to reduce that member's CT liability (Correct answer)
- All group members to file a single CT return
- Companies to pool their assets for capital allowance purposes
Correct answer: A company to surrender trading losses to a fellow 75% group member to reduce that member's CT liability
Group relief allows a company with a current year trading loss to surrender that loss to another company in the same 75% group, which can use it to reduce its own CT liability in the current year.
Question 3: A company incurred a trading loss of £60,000. The options for relieving this loss include:
- Carry forward against future trading profits only
- Current year offset against total profits, carry back one year to the previous 12 months, or carry forward against future trading profits (Correct answer)
- Write off immediately without any tax relief
- Offset against capital gains only
Correct answer: Current year offset against total profits, carry back one year to the previous 12 months, or carry forward against future trading profits
Under CTA 2010, trading losses can be: offset against total profits of the current period; carried back 12 months to the prior CT period; or carried forward against future trading profits.
Question 4: Which of the following transactions is subject to UK corporation tax on chargeable gains?
- Day-to-day trading income
- The disposal of a capital asset (e.g., an investment property) by a company (Correct answer)
- Dividends received from UK companies
- Intragroup asset transfers between 75% group members at no gain/no loss
Correct answer: The disposal of a capital asset (e.g., an investment property) by a company
Companies pay corporation tax on chargeable gains arising from the disposal of capital assets. The gain is calculated using the same indexation and base cost principles as pre-2017 rules, though indexation allowance is frozen from January 2018.
Question 5: For a company, the indexation allowance used in calculating a chargeable gain:
- Is still available and updated monthly after January 2018
- Was frozen from January 2018 — only indexation to that date can be deducted (Correct answer)
- Has been permanently abolished
- Applies only to shares, not to property
Correct answer: Was frozen from January 2018 — only indexation to that date can be deducted
Indexation allowance, which reduces the chargeable gain by adjusting the base cost for inflation, was frozen for disposals on or after 1 January 2018. The allowance calculated up to January 2018 is still available.
Question 6: The corporation tax self-assessment (CTSA) return for a company must be filed within:
- 9 months of the accounting period end
- 12 months of the accounting period end (Correct answer)
- 3 months of the accounting period end
- 6 months of the accounting period end
Correct answer: 12 months of the accounting period end
Under CTSA, companies must file their CT600 return within 12 months of the end of the accounting period. Tax payment (for non-large companies) is due 9 months and 1 day after the period end.
AAT L4 Business Tax (UK Corporation Tax) 3
Under the loan relationship rules, loan relationship credits (interest income received by a company) are: