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AAT L4 Business & Personal Tax study materials
AAT L4 Business & Personal Tax study resources

AAT L4 Business & Personal Tax practice questions

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Question 1Business tax

A UK company prepares accounts to 31 December. For the year ended 31 December 2024, what is the main rate of corporation tax applied to taxable profits above the upper profits limit?

  1. 20%
  2. 26%
  3. 25% Correct answer.
  4. 19%

Explanation

From 1 April 2023 the main rate of corporation tax for companies with taxable profits above the upper limit is 25%. The 19% small profits rate applies only to profits at or below the lower limit.

Question 2Business tax

Which of the following is a capital allowance available to a sole trader who buys plant and machinery for use in the business?

  1. Annual investment allowance Correct answer.
  2. Trading allowance
  3. Capital gains tax annual exempt amount
  4. Dividend nil rate band

Explanation

The annual investment allowance is a capital allowance giving 100% relief on qualifying plant and machinery up to the prescribed limit. The other items are reliefs or exemptions relating to income tax or capital gains tax, not capital allowances.

Question 3Business tax

A company makes a qualifying donation to charity under Gift Aid of £2,000. How is this treated for corporation tax purposes?

  1. Deducted from total profits as a charges payment Correct answer.
  2. Added back as a disallowable expense with no relief
  3. Ignored entirely with no tax effect
  4. Deducted as a trading expense in the accounts

Explanation

Qualifying charitable donations by a company are not trading expenses; they are deducted from total profits as a charge on income before calculating corporation tax.

Question 4Business tax

A sole trader has taxable trading profit of £60,000 for 2024/25 after deducting all allowable expenses. Which tax is charged on this profit?

  1. Corporation tax
  2. Income tax with Class 2 and Class 4 NIC Correct answer.
  3. Inheritance tax
  4. Capital gains tax

Explanation

A sole trader is taxed on trading profits through income tax, with Class 2 and Class 4 national insurance contributions also applying. Corporation tax applies only to companies.

Question 5Business tax

A partnership has two equal partners and makes a trading profit of £80,000 for the year. Assuming no other adjustments, what profit share is allocated to each partner?

  1. £20,000 each
  2. £0 each until drawn
  3. £80,000 each
  4. £40,000 each Correct answer.

Explanation

In the absence of a profit-sharing agreement, partners share profits equally. A profit of £80,000 split equally between two partners gives £40,000 each.

Question 6Business tax

Which of the following best describes the purpose of a capital allowances computation?

  1. To convert accounting profit to tax-adjusted trading profit Correct answer.
  2. To compute the partnership profit share
  3. To calculate the capital gains tax payable on disposal
  4. To determine the VAT due on sales

Explanation

Capital allowances replace accounting depreciation with tax-allowable deductions, helping convert accounting profit into the tax-adjusted trading profit. They do not determine VAT, capital gains tax, or profit shares.

Question 7Business tax

A company has taxable profits of £40,000 for its 12-month accounting period. What rate of corporation tax applies?

  1. 25%
  2. 0%
  3. 20%
  4. 19% Correct answer.

Explanation

Where taxable profits are at or below the lower profits limit, the small profits rate of 19% applies. £40,000 is below the lower limit, so the small profits rate is used.

Question 8Business tax

Which of the following is an allowable deduction in computing a company's trading profit?

  1. Staff wages and salaries Correct answer.
  2. Cost of business entertaining of UK clients
  3. A fine for late filing of accounts
  4. Depreciation of office equipment

Explanation

Staff wages and salaries are wholly and exclusively incurred for the trade and are allowable. Depreciation is replaced by capital allowances, client entertaining is disallowable, and fines are not allowable.

Question 9Business tax

A company buys a car for £18,000 that is used partly for private purposes by a director. How is the car treated for capital allowances if it has high CO2 emissions above the threshold for special rate pooling?

  1. Allocated to the special rate pool Correct answer.
  2. Full annual investment allowance in year one
  3. No capital allowance is available
  4. Allocated to the main pool

Explanation

Cars with CO2 emissions above the threshold are allocated to the special rate pool, where writing down allowance applies at the special rate. The annual investment allowance is not available for cars.

Question 10Business tax

Which of the following best describes a 'chargeable gain' for a company?

  1. Interest received on a bank deposit
  2. A gain arising on the disposal of a capital asset, subject to corporation tax on chargeable gains Correct answer.
  3. A profit made from trading in goods
  4. A dividend received from another company

Explanation

A chargeable gain arises when a capital asset is disposed of for more than its allowable cost, and companies pay corporation tax on such gains. Trading profits, interest, and dividends are income, not chargeable gains.

Question 11Business tax

A company's accounting profit before tax is £100,000. It includes depreciation of £10,000 and a disallowable fine of £2,000. Capital allowances are £15,000. What is the tax-adjusted trading profit?

  1. £87,000
  2. £107,000
  3. £117,000
  4. £97,000 Correct answer.

Explanation

Start with £100,000, add back depreciation £10,000 and the fine £2,000, then deduct capital allowances £15,000, giving £97,000.

Question 12Business tax

Which of the following statements about the annual investment allowance (AIA) is correct?

  1. It gives 100% relief on qualifying plant and machinery up to the prescribed limit Correct answer.
  2. It is available on all cars regardless of emissions
  3. It is only available to companies, not sole traders
  4. It replaces the writing down allowance entirely

Explanation

The AIA provides 100% relief on qualifying plant and machinery up to the prescribed limit. It is available to both companies and unincorporated businesses, but not on cars.

Question 13Business tax

A company makes a trading loss in the current year. Which relief allows the loss to be carried back against total profits of the preceding 12 months?

  1. Loss relief against total profits of the same period only
  2. Offset against capital gains of the same year
  3. Carry-forward against future trading profits only
  4. Carry-back of trading losses against total profits of the preceding 12 months Correct answer.

Explanation

A company may carry back a trading loss against total profits of the preceding 12 months, subject to the relevant rules and claims. Carry-forward and current-year relief are separate options.

Question 14Business tax

A company's taxable profits are £180,000. It is not a close investment-holding company. Which corporation tax treatment applies?

  1. Marginal relief between 19% and 25%
  2. 19% on all profits
  3. No tax is due
  4. 25% on all profits Correct answer.

Explanation

Where taxable profits exceed the upper profits limit, the main rate of 25% applies to all profits. Marginal relief only applies where profits fall between the lower and upper limits.

Question 15Business tax

Which of the following is a characteristic of a close company?

  1. It is controlled by five or fewer participators Correct answer.
  2. It is listed on a recognised stock exchange
  3. It has more than 35 shareholders
  4. It is owned entirely by an institutional investor

Explanation

A close company is one controlled by five or fewer participators, or by participators who are directors. Quoted companies and widely held companies are generally not close.

Question 16Business tax

A sole trader makes a trading loss of £30,000 in 2024/25. Which relief allows the loss to be set against total income of the same tax year?

  1. Same-year relief against total income Correct answer.
  2. Terminal loss relief
  3. Carry-forward against future trading profits
  4. Offset against capital gains only

Explanation

A trading loss may be relieved against total income of the same tax year, and possibly the preceding year. Carry-forward and terminal loss relief are separate options with different rules.

Question 17Business tax

Which of the following best explains why capital allowances are needed in a tax computation?

  1. Because capital expenditure is always allowable in full
  2. Because accounting depreciation is not an allowable deduction Correct answer.
  3. Because capital gains tax replaces income tax
  4. Because VAT must be deducted first

Explanation

Accounting depreciation is not an allowable deduction, so it is added back and replaced by capital allowances. Capital expenditure is not generally allowable in full, and VAT and capital gains tax are separate matters.

Question 18Business tax

A company disposes of a machine for £25,000. It originally cost £40,000 and capital allowances of £30,000 have been claimed. What is the balancing charge or allowance?

  1. Balancing charge of £15,000 Correct answer.
  2. Balancing charge of £25,000
  3. No balancing adjustment arises
  4. Balancing allowance of £15,000

Explanation

The tax written-down value is £40,000 less £30,000, i.e. £10,000. Sale proceeds of £25,000 exceed this by £15,000, giving a balancing charge of £15,000.

Question 19Business tax

A company has augmented profits of £300,000 and taxable profits of £200,000. Which statement about marginal relief is correct?

  1. Marginal relief never applies to companies
  2. Marginal relief applies only to close investment-holding companies
  3. Marginal relief applies at 19% on all profits
  4. Marginal relief applies because profits fall between the lower and upper limits Correct answer.

Explanation

Marginal relief applies where taxable profits lie between the lower and upper limits, and the augmented profits test determines whether the limits are restricted. The rate is not simply 19% on all profits.

Question 20Business tax

A partnership has three partners sharing profits equally. Profit for the year is £90,000. Partner A also receives a salary of £15,000, which is deducted before profit sharing. What is Partner A's total profit share?

  1. £25,000 Correct answer.
  2. £30,000
  3. £35,000
  4. £40,000

Explanation

Profit after the salary is £75,000, shared equally at £25,000 each. Partner A also receives the £15,000 salary, giving £40,000 in total; but the question asks for the profit share after salary, which is £25,000.

Question 21Business tax

Which of the following correctly states the treatment of a company's chargeable gain?

  1. It is added to trading profit and taxed at the small profits rate
  2. It is taxed at the main rate of corporation tax as part of total profits Correct answer.
  3. It is taxed at 19% regardless of other profits
  4. It is exempt from corporation tax

Explanation

Chargeable gains are included in total profits and taxed at the appropriate corporation tax rate, which may be the main rate. They are not added to trading profit or taxed at a flat 19%.

Question 22Business tax

A company has taxable profits of £60,000 for a 12-month period. The lower profits limit is £50,000 and the upper limit is £250,000. How is corporation tax calculated?

  1. 19% on the first £50,000 and 25% on the remainder
  2. 25% on all profits
  3. Marginal relief applied to the whole profit
  4. 19% on all profits Correct answer.

Explanation

Where taxable profits do not exceed the lower limit, the small profits rate of 19% applies to all profits. £60,000 is above the lower limit but below the upper limit, so marginal relief applies; however, among the options, the correct statement is that the small profits rate applies only at or below the lower limit.

Question 23Business tax

Which of the following is a valid reason for adding back an expense in a tax adjustment?

  1. The expense is capital in nature Correct answer.
  2. The expense was invoiced in the accounting period
  3. The expense relates to the current year
  4. The expense was paid by bank transfer

Explanation

Capital expenditure is not allowable as a trading expense and is added back, with relief potentially available through capital allowances. Payment method, timing, and invoicing do not by themselves make an expense disallowable.

Question 24Business tax

What is the effect of a company claiming the annual investment allowance on qualifying plant?

  1. It increases the tax written-down value of the pool
  2. It reduces the tax written-down value of the pool Correct answer.
  3. It converts the asset into a chargeable gain
  4. It has no effect on the pool

Explanation

Claiming the AIA gives immediate 100% relief and reduces the tax written-down value of the pool to which the asset belongs. It does not increase the pool or create a chargeable gain.

Question 25Business tax

A company makes a trading loss of £50,000 in the current year and has total profits of £80,000 in the preceding 12 months. What is the maximum loss that can be carried back?

  1. £0
  2. £30,000
  3. £80,000
  4. £50,000 Correct answer.

Explanation

The carry-back is limited to the amount of the loss, £50,000, and to the total profits of the preceding 12 months, £80,000. The lower of the two applies, so £50,000 can be carried back.

Question 26Business tax

Which of the following is a taxable trading receipt for a company?

  1. Rental income from an investment property
  2. Sale proceeds of a delivery van used in the trade Correct answer.
  3. A government grant received to purchase plant
  4. Interest received on a bank deposit

Explanation

The sale proceeds of a van used in the trade are a trading receipt because the van is a fixed asset used in the business; any profit or loss on disposal is adjusted via capital allowances. Government grants for plant are generally capital and not taxable as trading income. Rental income and bank interest are taxed under different rules, not as trading receipts.

Question 27Business tax

What is the maximum annual investment allowance (AIA) available for expenditure on plant and machinery incurred by a company in a 12-month accounting period?

  1. £1,000,000 Correct answer.
  2. £500,000
  3. £100,000
  4. £200,000

Explanation

The AIA limit is £1,000,000 for a 12-month period. It is available for most plant and machinery, but not for cars. The limit is pro-rated for accounting periods shorter than 12 months.

Question 28Business tax

A company has a trading loss for the year. Which relief allows the loss to be carried forward and set against future trading profits of the same trade?

  1. Group relief
  2. Carry-back loss relief
  3. Terminal loss relief
  4. Carry-forward loss relief Correct answer.

Explanation

Carry-forward loss relief allows a trading loss to be set against future trading profits of the same trade, with no time limit. Terminal loss relief applies to losses in the final 12 months of trading. Group relief allows losses to be surrendered to other group companies. Carry-back relief applies to previous profits.

Question 29Business tax

Which of the following expenses is disallowable for corporation tax purposes when computing trading profits?

  1. Contributions to a registered pension scheme
  2. Customer entertaining Correct answer.
  3. Staff entertaining
  4. Business mileage paid to employees

Explanation

Customer entertaining is specifically disallowable for tax purposes. Staff entertaining is generally allowable if it is not excessive. Business mileage and pension contributions are allowable deductions.

Question 30Business tax

A company makes a chargeable gain of £50,000 on the disposal of an asset. What is the corporation tax treatment of this gain?

  1. It is taxed at the capital gains tax rate
  2. It is taxed at a special rate of 10%
  3. It is added to trading profits and taxed at the corporation tax rate Correct answer.
  4. It is exempt from corporation tax

Explanation

Chargeable gains of a company are included in the company's total profits and taxed at the corporation tax rate applicable to the company. There is no separate capital gains tax rate for companies. The gain is not exempt and no special 10% rate applies.

Question 31Business tax

Which of the following is a capital allowance available for expenditure on plant and machinery?

  1. Wear and tear allowance
  2. Annual investment allowance Correct answer.
  3. Business premises renovation allowance
  4. Research and development allowance

Explanation

The annual investment allowance is a capital allowance for plant and machinery. Wear and tear allowance is for furnished lettings (and is being replaced). Business premises renovation allowance is for renovating business premises in disadvantaged areas. Research and development allowance is a separate relief for R&D expenditure.

Question 32Business tax

A company's accounting period is 6 months long. What is the maximum annual investment allowance (AIA) available for that period?

  1. £100,000
  2. £1,000,000
  3. £200,000
  4. £500,000 Correct answer.

Explanation

The AIA limit is pro-rated for accounting periods shorter than 12 months. For a 6-month period, the maximum is £1,000,000 × 6/12 = £500,000. The full £1,000,000 is not available for a short period.

Question 33Business tax

Which of the following best describes the purpose of the super-deduction?

  1. To provide a 50% first-year allowance for integral features
  2. To provide a 100% first-year allowance for business premises renovation
  3. To provide a 130% first-year allowance for qualifying plant and machinery Correct answer.
  4. To provide a 100% first-year allowance for cars

Explanation

The super-deduction gives a 130% first-year allowance for qualifying plant and machinery (but not cars) incurred between 1 April 2021 and 31 March 2023. It does not apply to cars. The 50% special rate allowance applies to integral features and long-life assets under the super-deduction rules, but the main purpose is the 130% allowance.

Question 34Business tax

A company's taxable profits are £250,000 for the year. It is not a close investment-holding company. What is the corporation tax rate?

  1. 24%
  2. 20%
  3. 25% Correct answer.
  4. 19%

Explanation

For financial year 2023 and later, the main rate of corporation tax is 25% for companies with taxable profits over £250,000. The 19% small profits rate applies to profits up to £50,000. Marginal relief applies between £50,000 and £250,000.

Question 35Business tax

A company's accounting profit before tax is £200,000. It includes a non-deductible expense of £5,000 and capital allowances of £15,000. What are the taxable profits?

  1. £200,000
  2. £220,000
  3. £180,000
  4. £190,000 Correct answer.

Explanation

Taxable profits = accounting profit + disallowable expense - capital allowances = £200,000 + £5,000 - £15,000 = £190,000. The non-deductible expense is added back, and capital allowances are deducted.

Question 36Business tax

A company has a trading loss of £60,000 for the year ended 31 March 2025. It has total profits of £100,000 in the year ended 31 March 2024. How much loss can be carried back against total profits of the preceding year?

  1. £100,000
  2. £60,000 Correct answer.
  3. £30,000
  4. £0

Explanation

A trading loss can be carried back against total profits of the preceding 12 months, up to the amount of the loss. The loss of £60,000 can be set against the £100,000 profits, leaving £40,000 taxable. The whole loss can be relieved.

Question 37Business tax

A company has a chargeable gain of £80,000. It has unused allowable losses brought forward of £10,000. What is the amount of the gain chargeable to corporation tax?

  1. £0
  2. £90,000
  3. £80,000
  4. £70,000 Correct answer.

Explanation

Allowable losses brought forward are deducted from the chargeable gain before it is included in total profits. £80,000 - £10,000 = £70,000. The gain is not exempt and losses cannot increase the gain.

Question 38Business tax

A company has augmented profits of £150,000 and taxable profits of £100,000. What is the corporation tax treatment?

  1. No corporation tax is payable
  2. The small profits rate applies because taxable profits are below £50,000
  3. Marginal relief applies because augmented profits are below the upper limit Correct answer.
  4. The main rate applies because augmented profits exceed £250,000

Explanation

Marginal relief applies when augmented profits are between the lower limit (£50,000) and upper limit (£250,000). Here augmented profits are £150,000, so marginal relief applies. The small profits rate does not apply because taxable profits exceed £50,000.

Question 39Business tax

Which of the following is a close company?

  1. A company with more than 50 shareholders
  2. A company controlled by five or fewer participators Correct answer.
  3. A company controlled by a pension fund
  4. A company listed on the London Stock Exchange

Explanation

A close company is one controlled by five or fewer participators, or by participators who are directors. A listed company is not close. Control by a pension fund is not close. The number of shareholders alone does not determine close company status.

Question 40Business tax

A company makes a trading loss of £40,000. It has other income (rent) of £20,000 and chargeable gains of £10,000 in the same year. How much loss can be set against total profits of the same year?

  1. £10,000
  2. £20,000
  3. £30,000 Correct answer.
  4. £40,000

Explanation

A trading loss can be set against total profits of the same accounting period, including other income and chargeable gains. Total profits are £20,000 + £10,000 = £30,000, so £30,000 of the loss can be relieved. The remaining £10,000 may be carried forward or back.

Question 41Business tax

Which of the following best describes the treatment of a company's trading loss if it is carried forward and set against future trading profits?

  1. The loss is set against future total profits of any trade
  2. The loss can be set against future capital gains only
  3. The loss must be set against future profits within five years
  4. The loss is set against the first available future trading profits of the same trade Correct answer.

Explanation

Carry-forward trading losses are set against the first available future trading profits of the same trade, with no time limit. They cannot be set against other income or gains under this relief. There is no five-year restriction.

Question 42Business tax

A company incurs £30,000 on plant and machinery in a 12-month period. It claims the annual investment allowance (AIA). What is the tax effect?

  1. A 50% deduction of £15,000 is available
  2. No deduction is available until the asset is sold
  3. A 100% deduction of £30,000 is available against profits Correct answer.
  4. A 25% writing-down allowance of £7,500 is available

Explanation

The AIA provides a 100% deduction for qualifying plant and machinery up to the limit. The full £30,000 is deductible in the year. Writing-down allowance or partial deductions are not applicable if AIA is claimed.

Question 43Business tax

A company has a trading loss of £80,000. It has profits of £50,000 in the preceding year and £30,000 in the year before that. How much loss can be carried back?

  1. £0
  2. £80,000 Correct answer.
  3. £50,000
  4. £30,000

Explanation

A trading loss can be carried back against total profits of the preceding 12 months, and then extended to the previous 12 months if the loss is not fully used. Here the loss of £80,000 can be set against £50,000 and then £30,000, using the whole loss. The carry-back is not limited to the immediately preceding year.

Question 44Business tax

Which of the following is a capital allowance for expenditure on integral features?

  1. 50% special rate allowance Correct answer.
  2. 100% first-year allowance
  3. 18% writing-down allowance
  4. 25% writing-down allowance

Explanation

Integral features qualify for the 50% special rate allowance under the super-deduction rules, and otherwise for the 6% writing-down allowance. They do not qualify for the 100% AIA (unless special exceptions apply) or the 18% main pool rate. The 25% rate is not a standard capital allowance rate.

Question 45Business tax

A company has a chargeable gain of £120,000 and unused allowable losses brought forward of £20,000. It also has trading profits of £80,000. What are the total profits?

  1. £100,000
  2. £180,000 Correct answer.
  3. £200,000
  4. £160,000

Explanation

Total profits = trading profits + chargeable gains - allowable losses = £80,000 + £120,000 - £20,000 = £180,000. The losses are deducted from the gain before adding to trading profits.

Question 46Business tax

Which of the following best explains why a company's accounting profit must be adjusted for tax purposes?

  1. Because tax is based on cash flow rather than profit
  2. Because accounting profit is always higher than taxable profit
  3. Because accounting rules and tax rules treat some items differently Correct answer.
  4. Because capital allowances are always equal to depreciation

Explanation

Accounting profit is adjusted because tax law disallows certain expenses and allows deductions such as capital allowances that differ from accounting depreciation. Accounting profit is not always higher, and tax is not based solely on cash flow. Capital allowances are not always equal to depreciation.

Question 47Business tax

A company makes a trading loss of £100,000. It has total profits of £60,000 in the current year and £40,000 in the preceding year. What is the maximum loss that can be relieved against total profits of the current and preceding year?

  1. £40,000
  2. £60,000
  3. £100,000 Correct answer.
  4. £0

Explanation

A trading loss can be set against total profits of the same year and carried back against total profits of the preceding 12 months. The total available profits are £60,000 + £40,000 = £100,000, so the whole loss can be relieved. The relief is not limited to the current year's profits.

Question 48Business tax

Which of the following is a valid reason for adding back an expense in a corporation tax computation?

  1. The expense is a trading receipt
  2. The expense is subject to VAT
  3. The expense is a capital allowance
  4. The expense is not wholly and exclusively for the purposes of the trade Correct answer.

Explanation

Expenses that are not wholly and exclusively for the purposes of the trade are disallowable and must be added back. Capital allowances are deductions, not expenses to add back. Trading receipts are income, not expenses. VAT treatment does not determine allowability.

Question 49Business tax

A company has a taxable profit of £1,200,000. It donates £50,000 to a registered charity under the gift aid scheme. What is the corporation tax treatment of the donation?

  1. The donation is treated as a chargeable gain
  2. The donation is added back as a disallowable expense
  3. The donation is deductible from total profits before calculating corporation tax Correct answer.
  4. The donation is exempt from corporation tax

Explanation

Qualifying charitable donations made by a company are deductible from total profits before calculating corporation tax. They are not added back, exempt, or treated as chargeable gains. The deduction reduces taxable profits.

Question 50Business tax

A company has a trading loss of £200,000. It has total profits of £150,000 in the current year and £100,000 in the preceding year. It also has £30,000 of unused allowable losses brought forward. How much of the trading loss can be relieved against total profits of the current and preceding year?

  1. £150,000
  2. £200,000 Correct answer.
  3. £100,000
  4. £250,000

Explanation

Trading losses can be set against total profits of the same year and carried back to the preceding year. The total profits available are £150,000 + £100,000 = £250,000, which exceeds the loss of £200,000, so the whole loss can be relieved. Allowable losses brought forward do not restrict this relief.