ACCA TX-UK common mistakes
ACCA TX-UK · Understand the traps and how to avoid them.
Applying the personal allowance in full to a client whose adjusted net income exceeds £100,000, instead of tapering it by £1 for every £2 of excess.
Candidates learn the £12,570 figure early and treat it as a fixed constant, forgetting the high-income taper and the interaction with the personal savings allowance.
What to do instead
Before computing any income tax liability, calculate adjusted net income and explicitly state whether the allowance is full, tapered, or nil; show the £12,570 minus (ANI − 100,000)/2 working in the answer.
Treating all savings and dividend income as taxed at the same rates as non-savings income, ignoring the £500 savings starting rate band and the dividend nil-rate band.
The default basic/higher/additional rate bands are memorised first, and the special-order ordering rules (non-savings, then savings, then dividends) are easy to collapse under time pressure.
What to do instead
Always lay out a three-column tax computation (non-savings / savings / dividends) and allocate the bands in that order, applying the 0% bands before the relevant rate.
Calculating Class 1 primary NIC on gross salary without applying the primary threshold, or confusing Class 2 and Class 4 for the self-employed.
Employed and self-employed NIC structures look similar and candidates mix the annual Class 2 small profits threshold with the Class 4 lower profits limit and Class 1 primary threshold.
What to do instead
Write the NIC class and threshold next to each figure before computing; for employees use (salary − primary threshold) × 8%/2%, for self-employed apply Class 4 on profits between the lower and upper limits plus Class 2 if above the small profits threshold.
Failing to apply the annual exemption before the annual exempt amount for chargeable gains, or applying it to the wrong person in a spouse transfer.
Candidates conflate the CGT annual exempt amount with the income tax personal allowance and forget that transfers between spouses are at no gain/no loss.
What to do instead
State the annual exempt amount explicitly and deduct it once per individual; for spouse transfers, record the no gain/no loss transfer at original cost plus indexation and apply the exemption only on the eventual disposal.
Computing inheritance tax on the entire estate without deducting the nil-rate band, the residence nil-rate band, and available transfers, or applying the wrong rate to the chargeable lifetime transfer.
The interaction between the nil-rate band, the residence nil-rate band taper above £2m, and the 20% lifetime / 40% death rates is layered, and candidates rush to multiply the estate by 40%.
What to do instead
Build the IHT computation in stages: gross estate, less liabilities and reliefs, less available nil-rate band and residence nil-rate band, then apply 40% (or 20% for lifetime chargeable transfers) and show any taper reduction separately.
Ignoring the 10% and 20% IHT rate reductions for charitable giving when the estate leaves at least 10% to charity.
Candidates focus on the arithmetic of the estate and overlook the condition that changes the rate, especially where the 10% is measured against the baseline amount.
What to do instead
After computing the chargeable estate, test whether charitable legacies reach 10% of the baseline amount; if so, apply 36% (or 24% for lifetime transfers) and state the test explicitly.
Applying the small profits rate or marginal relief incorrectly for a company with augmented profits above the lower limit, or ignoring the associated companies rule.
The £50,000 and £250,000 limits must be divided by the number of associated companies, and candidates apply the full limits regardless of group structure.
What to do instead
Count associated companies first, divide the limits accordingly, then compute augmented profits (taxable total profits plus exempt distributions) to decide between the small profits rate, marginal relief, or the main rate.
Treating group relief and group capital gains as if they follow the same ownership test, allowing a loss to be surrendered where only the 75% capital gains group test is met.
The 75% subsidiary test for group relief and the 75% effective interest test for capital gains groups sound identical but have different consequences, and candidates merge them.
What to do instead
State both tests separately: group relief requires 75% ordinary share capital ownership, while capital gains group membership requires a 75% effective interest; apply the correct rule to the correct relief.
Charging VAT on zero-rated or exempt supplies, or failing to distinguish reduced-rate supplies from standard-rated ones.
Zero-rated and exempt supplies both produce no output VAT, so candidates treat them as interchangeable and miss that only zero-rated supplies allow input tax recovery.
What to do instead
For each supply, classify it as standard, reduced, zero-rated, or exempt, and state whether input tax is recoverable; where a business makes exempt supplies, compute the partial exemption position.
Missing the VAT registration threshold or the deregistration threshold when advising on a business's obligations, or applying the wrong date for registration.
The thresholds and the forward/backward look tests are easy to confuse, and candidates forget that registration is effective from the end of the month following the threshold breach.
What to do instead
State the current registration and deregistration thresholds, identify whether the forward look (expected turnover) or backward look (past 12 months) applies, and give the effective registration date rather than the breach date.