AAT L4 Business Tax (UK Corporation Tax) 4 — Questions and Answers
Question 1: Capital allowances on a motor car with CO2 emissions above 50g/km (but not zero emissions) are claimed using:
- 100% first year allowance
- Main pool at 18% WDA
- Special rate pool at 6% WDA (Correct answer)
- AIA at 100%
Correct answer: Special rate pool at 6% WDA
Cars with CO2 emissions of 51g/km or above are allocated to the special rate pool (6% WDA reducing balance). Zero-emission cars qualify for 100% first year allowance; cars emitting 1–50g/km go into the main pool (18%).
Question 2: The transfer pricing rules in the UK require:
- All related party transactions to be reported to HMRC
- Related party transactions to be priced as if they were between independent parties at arm's length, with adjustments if not (Correct answer)
- Only transactions over £1 million to be disclosed
- Related party transactions to be exempt from tax
Correct answer: Related party transactions to be priced as if they were between independent parties at arm's length, with adjustments if not
UK transfer pricing rules (TIOPA 2010) require transactions between connected parties to be priced on arm's length terms; if actual prices differ, HMRC can adjust profits to what they would have been on arm's length terms.
Question 3: For the purposes of the substantial shareholding exemption (SSE), gains on disposal of shares in trading subsidiaries are exempt from CT when:
- The shares have been held for any period
- The investing company has held at least 10% of the ordinary shares for at least 12 months in the 6 years before disposal (Correct answer)
- The disposal is part of a group reorganisation
- The subsidiary's profits are below £50,000
Correct answer: The investing company has held at least 10% of the ordinary shares for at least 12 months in the 6 years before disposal
SSE exempts CT on gains from selling shares in qualifying trading companies where the investor holds at least 10% of ordinary shares and has done so for at least 12 months in the 6 years before disposal.
Question 4: Under the UK research and development tax relief regime from April 2024 (merged scheme), the additional deduction for qualifying R&D expenditure is:
- 130%
- 20% (total 120% deduction) (Correct answer)
- 150%
- 100% only
Correct answer: 20% (total 120% deduction)
From April 2024, the merged R&D scheme provides a 20% additional deduction (total 120%) for most companies, replacing the separate SME and RDEC regimes. A higher rate applies for R&D-intensive SMEs.
Question 5: For corporation tax purposes, a company is 'associated' with another company when:
- They share the same bank
- One company controls the other, or both are under common control (Correct answer)
- They trade in the same industry
- Their directors meet regularly
Correct answer: One company controls the other, or both are under common control
Companies are associated for CT purposes when one controls the other or both are under the common control of the same person or persons, affecting the limits for marginal relief and instalment payment thresholds.
Question 6: For UK CT purposes, post-cessation receipts are:
- Trading income earned after the company has started trading
- Amounts received after a trade has permanently ceased that relate to that ceased trade (Correct answer)
- Capital gains on disposal of trading assets
- Payments received in advance before trading begins
Correct answer: Amounts received after a trade has permanently ceased that relate to that ceased trade
Post-cessation receipts are amounts arising after a company's trade has permanently ceased that are directly attributable to that trade — they are taxed as if the trade had not ceased.
AAT L4 Business Tax (UK Corporation Tax) 4
Capital allowances on a motor car with CO2 emissions above 50g/km (but not zero emissions) are claimed using: