CTA Part 2 common mistakes
CTA Part 2 · Understand the traps and how to avoid them.
Computes the income tax liability on a single 'total income' figure at basic/higher rates, without splitting income into non-savings, savings and dividend streams and without tapering the personal allowance once adjusted net income passes £100,000.
The rate table reads like one ladder, and rebuilding the £1-for-£2 allowance withdrawal plus the savings and dividend nil-rate bands feels slow when the clock is running, so candidates collapse everything into one multiplication.
What to do instead
Always draw a four-row schedule (non-savings, savings, dividends, total). If adjusted net income exceeds £100,000, compute the reduced personal allowance as a separate labelled line before allocating it to the income taxed at the highest marginal rate, then apply the savings and dividend allowances before the rates.
Treats a termination payment or a benefit in kind as ordinary salary for NIC purposes, charging Class 1 on the whole amount and ignoring the £30,000 income tax exemption and the separate NIC treatment of termination awards.
Income tax and NIC rules for termination payments diverge, and the exam deliberately supplies facts (garden leave, notice pay, injury) designed to test whether the candidate separates the two codes.
What to do instead
Split the computation into two columns, income tax and NIC, from the first line. For the income tax column test the £30,000 exemption and any PENP; for the NIC column identify whether the amount is a relevant termination award and whether Class 1 or Class 1A applies.
Applies the small profits rate to a company whose profits fall between the limits without first dividing the £50,000 and £250,000 thresholds by the number of associated companies, and without computing augmented profits (taxable total profits plus exempt distributions).
The thresholds are memorised as fixed figures, and the associated-company facts are usually buried in a shareholding note rather than stated in the main body of the question.
What to do instead
Before computing any corporation tax figure, state the number of associated companies on its own line and show the adjusted thresholds; then compute augmented profits and confirm which rate band actually applies, showing marginal relief as a separate calculation where relevant.
Offsets a trading loss against total profits of the same period without checking the deductions allowance cap, or carries the loss back when the facts only permit current-period relief.
Loss relief is learned as a list of options ('carry back, carry forward, set against total profits') rather than as a decision tree, so the restrictions get skipped at the point of application.
What to do instead
Build a small table with one row per available loss relief and columns for what it can be set against, the time limit, and the restrictions (deductions allowance, restricted periods, change of ownership). Tick each row against the facts before writing any computation.
Computes each disposal in isolation and either applies the annual exempt amount to every gain or omits it entirely, and sets brought-forward capital losses against gains without considering which gains they should be matched to.
Disposals are usually presented as separate paragraphs, so the candidate processes them one at a time and never assembles a single portfolio schedule where the annual exempt amount can be allocated once.
What to do instead
Use one consolidated gains schedule covering all disposals, then allocate the annual exempt amount once at the bottom. Where losses are restricted, direct them against the gains charged at the highest rate first and show the allocation.
Applies the 10% business asset disposal relief rate to a gain on shares without testing every condition against the facts - 5% ordinary share capital and voting rights, the 24-month ownership period, trading company status throughout, and the officer or employee requirement.
The relief is remembered as '10% on business gains', and in a long scenario the qualifying conditions are scattered across the narrative rather than stated together.
What to do instead
Write the conditions out as a numbered checklist and tick or cross each one against the scenario. If any fails, compute the gain at the standard rate and state explicitly in one sentence why the relief is unavailable.
Calculates the tax on a death estate using only the nil rate band, without tapering the residence nil rate band by £1 for every £2 by which the estate exceeds £2 million and without claiming the unused residence nil rate band transferred from a predeceased spouse.
The residence nil rate band is layered on top of the ordinary nil rate band, so candidates who have correctly applied the transferable nil rate band assume the job is done and stop.
What to do instead
Show the residence nil rate band as three separate labelled lines: the default allowance, the taper reduction, and the brought-forward percentage from the first death, then add the result to the ordinary nil rate bands.
Charges 20% output VAT on a supply of services to a business customer in another country, and fails to record the reverse charge on services bought in from an overseas supplier.
VAT is treated as arithmetic applied to the invoice value, rather than as a question about the nature of the supply, the status of the customer and the chain of supply.
What to do instead
For every supply run a fixed four-step sequence - place of supply, tax point, rate, recovery - and write the conclusion at each step. For reverse-charge items, show the same figure in both the output tax and input tax boxes so the net effect is visible.
Answers an administration question by quoting only the general self-assessment filing and payment dates, missing the short capital gains reporting and payment-on-account window for UK residential property disposals (30 days for disposals before 7 May 2025, 60 days thereafter) and the separate notification of chargeability deadline.
Headline dates are rehearsed repeatedly, while the shorter, newer deadlines sit in a different chapter and are rarely the first date that comes to mind.
What to do instead
Keep a one-page table of time limits sorted from shortest to longest and reproduce it at the top of any administration question before addressing the specific facts.
When a client refuses to correct a known error in a submitted return, advises the client simply to leave it and does nothing further, rather than following the professional conduct route.
Candidates focus on the client's tax outcome and treat ethics as a separate topic, so the adviser's own obligations never enter the answer.
What to do instead
Write the escalation as discrete numbered steps: advise the client of the error and the correct position in writing, ask them to disclose, and if they refuse, notify HMRC and cease to act. State the client's position and the adviser's position as two separate conclusions.