ACA Tax Compliance (UK) 4 — Questions and Answers
Question 1: A UK company is resident for corporation tax purposes if it is:
- Registered at Companies House
- Incorporated in the UK, or has its central management and control in the UK (Correct answer)
- Listed on the London Stock Exchange
- Majority-owned by UK shareholders
Correct answer: Incorporated in the UK, or has its central management and control in the UK
UK corporation tax residency is based on incorporation in the UK (statutory test) or having central management and control exercised in the UK (common law test).
Question 2: Under UK VAT rules, partial exemption arises when a business makes:
- Only standard-rated supplies
- Both taxable and exempt supplies (Correct answer)
- Only zero-rated and standard-rated supplies
- Only exempt supplies
Correct answer: Both taxable and exempt supplies
Partial exemption occurs when a business makes both taxable (standard, reduced, or zero-rated) and exempt supplies; only VAT attributable to taxable supplies can be reclaimed.
Question 3: The UK 'badges of trade' are used to determine whether:
- A transaction is subject to VAT
- A transaction is a capital gain or trading income (Correct answer)
- A company is resident in the UK
- An asset qualifies for capital allowances
Correct answer: A transaction is a capital gain or trading income
The badges of trade (subject matter, frequency, profit motive, supplementary work, etc.) are indicators used by HMRC to determine whether a transaction constitutes a trade (taxed as income) or a capital disposal.
Question 4: Research and development tax relief for SMEs in the UK allows enhanced deduction of:
- 100% of qualifying R&D expenditure
- 130% deduction (i.e., 230% total) for periods before April 2023 (Correct answer)
- 150% total deduction
- 200% total deduction
Correct answer: 130% deduction (i.e., 230% total) for periods before April 2023
Prior to April 2023, the SME R&D relief provided an enhanced deduction of 130% (total 230%) of qualifying expenditure. Post-April 2023, the merged R&D scheme applies with a 20% additional deduction.
Question 5: Under UK VAT, which of the following is zero-rated?
- Adult clothing
- Takeaway hot food
- Domestic electricity
- Children's clothing and footwear (Correct answer)
Correct answer: Children's clothing and footwear
Children's clothing and footwear are zero-rated for UK VAT purposes. Adult clothing, takeaway hot food, and domestic electricity are standard-rated or reduced-rated respectively.
Question 6: For UK inheritance tax, the nil-rate band is currently:
- £175,000
- £325,000 (Correct answer)
- £500,000
- £650,000
Correct answer: £325,000
The nil-rate band for IHT is £325,000 per individual. The residence nil-rate band (£175,000) can also apply where a main residence is passed to direct descendants, potentially sheltering up to £500,000.
ACA Tax Compliance (UK) 4
A UK company is resident for corporation tax purposes if it is: