CTA common mistakes
CTA · Understand the traps and how to avoid them.
Computing income tax for a high earner without reducing the personal allowance once adjusted net income exceeds £100,000.
Candidates memorise the standard personal allowance figure and treat it as fixed, forgetting that it is tapered by £1 for every £2 of adjusted net income above £100,000, reaching nil at £125,140.
What to do instead
Make adjusted net income the first computation on every individual tax question, then apply the taper before allocating the allowance against the income streams.
Taxing the whole of a termination payment as employment income, ignoring the £30,000 exemption and the post-employment notice pay calculation.
Candidates read 'termination payment' and apply employment income rules to the full amount, missing the statutory split between contractual pay, PENP and the residual ex gratia element.
What to do instead
Always split the payment into contractual earnings, PENP and the balance, tax the first two in full, then apply the £30,000 threshold only to the residual balance.
Preparing a tax adjustment of profit by adding back depreciation and disallowable expenditure but never deducting capital allowances.
Candidates treat the adjustment of profit as a standalone exercise and forget that capital allowances are a separate statutory deduction that must be brought back into the taxable trading profit.
What to do instead
Use a fixed proforma: accounting profit, add back disallowables including depreciation, deduct capital allowances from a separate schedule, then check the AIA limit and car treatment.
Applying the small profits rate or marginal relief using the full £50,000 and £250,000 limits when the company has associated companies.
Candidates remember the two corporation tax rates but overlook the associated-company rules that divide the limits, and also forget to apportion for accounting periods shorter than 12 months.
What to do instead
Before computing corporation tax, count associated companies, divide both limits by that number, then time-apportion the reduced limits for any short accounting period.
Calculating inheritance tax by deducting the nil rate band first and only then applying business or agricultural relief.
Candidates follow a familiar 'estate less nil rate band' routine and do not reconstruct the statutory order of exemptions, reliefs and nil rate band.
What to do instead
Work in a fixed order: gross estate, deduct liabilities, apply exemptions, apply BPR/APR, then deduct the nil rate band and residence nil rate band, then apply the rate.
Charging inheritance tax on a relevant property trust at a flat 6% on the tenth anniversary without computing the effective rate.
Candidates memorise '6% every ten years' and skip the hypothetical transfer calculation that determines the actual effective rate, which may be lower than 6%.
What to do instead
Compute the hypothetical chargeable transfer of the trust fund immediately before the anniversary, derive the effective rate after the nil rate band and cumulation, then take 30% of that rate.
Omitting the reverse charge on services bought from an overseas supplier, so neither output tax nor corresponding input tax is recorded.
Candidates treat overseas purchases like domestic exempt supplies and do not consider the place-of-supply rules that shift the VAT accounting obligation to the UK recipient.
What to do instead
At the start of every VAT question, run a supply-by-supply check for cross-border services and apply the reverse charge, recording output tax and, where recoverable, input tax.
Giving double taxation relief for the full amount of foreign tax deducted, even where it exceeds the UK tax attributable to that income.
Candidates see foreign tax paid and deduct it pound for pound, forgetting that relief is capped by the UK tax on the same income computed on a per-source basis.
What to do instead
Compute the UK tax on each source after allowable expenses, then limit the credit to the lower of foreign tax paid and that UK tax figure, and consider treaty and unilateral relief.
Treating a late filing penalty as also covering late payment, or quoting the wrong appeal window.
Candidates collapse the administration timeline into a single 'late' category and do not separate filing penalties, payment penalties and appeal deadlines.
What to do instead
Maintain a written timeline for each question: filing date, payment date, appeal deadline (generally 30 days from the notice), and list filing and payment penalties separately.
Filing or advising on a return using client figures that the client refuses to substantiate, without documenting the concern or considering disengagement.
Candidates want to complete the computation and defer to the client's assurances, overlooking the professional obligation not to be associated with misleading information.
What to do instead
Ask for evidence, record the advice and the client's response in writing, explain the consequences of inaccurate returns, and escalate or disengage if the client will not correct the position.