AAT L4 Personal Tax (UK Income Tax) 5 — Questions and Answers
Question 1: National Insurance Class 4 contributions are paid by self-employed individuals on trading profits. For 2024/25, the main rate on profits between the lower and upper profits limits is:
- 9%
- 8%
- 6% (Correct answer)
- 12%
Correct answer: 6%
Class 4 NIC main rate was reduced to 8% from April 2024 and further reduced to 6% in later changes. Note rates are subject to change — check the applicable year. For 2024/25 the rate is 6%.
Question 2: Which of the following is exempt from UK income tax?
- Bank interest
- Rental income from a UK property
- Winnings from the National Lottery (Correct answer)
- Overtime pay
Correct answer: Winnings from the National Lottery
Lottery and gambling winnings are exempt from UK income tax. Bank interest, rental income, and employment income (including overtime) are all taxable sources of income.
Question 3: An employee's P60 is used to:
- Report benefits in kind to HMRC
- Provide a year-end summary of total pay and tax deducted under PAYE, required by the employee for self-assessment (Correct answer)
- Register a new employee with HMRC
- Report the employee's leaving details to HMRC
Correct answer: Provide a year-end summary of total pay and tax deducted under PAYE, required by the employee for self-assessment
The P60 is an annual summary provided by the employer to each employee, showing total earnings and PAYE income tax and NIC deducted in the tax year — used by employees to complete self-assessment returns and to check PAYE deductions.
Question 4: Which of the following savings income is exempt from UK income tax?
- Building society interest
- Bank deposit interest
- Interest from a cash ISA (Correct answer)
- Fixed rate bond interest
Correct answer: Interest from a cash ISA
Interest earned within an Individual Savings Account (ISA) is exempt from UK income tax regardless of the amount or the individual's tax rate. All other forms of savings interest are taxable (though the personal savings allowance may cover some).
Question 5: For income tax, the additional rate (45%) applies to taxable income above:
- £50,270
- £100,000
- £125,140 (Correct answer)
- £150,000
Correct answer: £125,140
The additional rate of 45% applies to non-savings taxable income above £125,140 (from 2023/24 onwards, reduced from £150,000). At £125,140, the personal allowance is also fully withdrawn.
Question 6: Under the accruals basis for property income, rental income is assessed:
- When the rent is received in cash
- In the tax year to which the rent relates — i.e., when it is due and receivable (Correct answer)
- Only when the tenancy agreement is signed
- Only when the property is occupied
Correct answer: In the tax year to which the rent relates — i.e., when it is due and receivable
Under the accruals basis (default for property income with turnover above the cash basis threshold), rent is assessed in the tax year in which it accrues — when it is due and receivable, not necessarily when paid.
AAT L4 Personal Tax (UK Income Tax) 5
National Insurance Class 4 contributions are paid by self-employed individuals on trading profits.
For 2024/25, the main rate on profits between the lower and upper profits limits is: