ACA Tax Compliance 2 — Questions and Answers
Question 1: A UK taxpayer receives gross dividends of £20,000 in 2025/26. After the £1,000 dividend allowance, how is the remaining £19,000 taxed if the taxpayer is a higher rate (40%) taxpayer?
- At 33.75% (Correct answer)
- At 40%
- At 32.5%
- At 20%
Correct answer: At 33.75%
For the 2025/26 tax year, dividends received by higher rate taxpayers above the £1,000 dividend allowance are taxed at 33.75%. Basic rate taxpayers pay 8.75% and additional rate taxpayers pay 39.35% on dividend income above the allowance.
Question 2: Under the UK CGT rules for 2025/26, what is the annual exempt amount for individuals?
- £6,000
- £3,000 (Correct answer)
- £12,300
- £12,570
Correct answer: £3,000
The CGT annual exempt amount for individuals was reduced to £3,000 for 2024/25 onwards (from £6,000 in 2023/24 and £12,300 in 2022/23). This is the amount of capital gains an individual can realise each year before CGT becomes payable.
Question 3: A UK employer provides an employee with a company car with a list price of £30,000 and a CO2 emission rate that gives a benefit percentage of 28%. What is the annual car benefit charge?
- £8,400 (Correct answer)
- £6,000
- £9,000
- £7,500
Correct answer: £8,400
The car benefit charge = List price × Appropriate percentage = £30,000 × 28% = £8,400. This amount is added to the employee's taxable income. The employee then pays income tax on this benefit at their marginal rate.
Question 4: Under Making Tax Digital (MTD) for Income Tax, which taxpayers are required to maintain digital records and submit quarterly updates to HMRC?
- All taxpayers regardless of income
- Self-employed individuals and landlords with qualifying income above the threshold (Correct answer)
- Only limited companies
- Only VAT-registered businesses
Correct answer: Self-employed individuals and landlords with qualifying income above the threshold
MTD for Income Tax applies to self-employed individuals and landlords with qualifying income above the threshold (initially £50,000, then extending to lower thresholds). They must use compatible software to maintain digital records and submit quarterly updates to HMRC.
Question 5: A chargeable gain of £50,000 arises on the sale of a qualifying business asset. What rate of CGT applies if Business Asset Disposal Relief (formerly Entrepreneurs' Relief) is claimed?
- 10% (Correct answer)
- 14%
- 18%
- 20%
Correct answer: 10%
Business Asset Disposal Relief (BADR) applies a CGT rate of 10% on qualifying gains up to the lifetime limit of £1 million. This relief is available for disposals of all or part of a business, shares in a personal trading company, or assets used in a partnership business, subject to qualifying conditions.
Question 6: For VAT purposes, what is the current standard rate of VAT in the UK?
- 15%
- 17.5%
- 20% (Correct answer)
- 25%
Correct answer: 20%
The UK standard rate of VAT is 20%, which has been in effect since 4 January 2011. The reduced rate is 5% (applying to items such as domestic fuel and power), and certain supplies such as food and children's clothing are zero-rated at 0%.
ACA Tax Compliance 2
A UK taxpayer receives gross dividends of £20,000 in 2025/26.
After the £1,000 dividend allowance, how is the remaining £19,000 taxed if the taxpayer is a higher rate (40%) taxpayer?