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CTA Part 2 study materials
CTA Part 2 study resources

CTA Part 2 practice questions

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Question 1Income Tax and National Insurance contributions

For 2024/25, at what level of adjusted net income is an individual's personal allowance reduced to nil?

  1. £125,140 Correct answer.
  2. £120,000
  3. £150,000
  4. £100,000

Explanation

The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000. The full allowance of £12,570 is therefore exhausted once income reaches £125,140.

Question 2Income Tax and National Insurance contributions

What is the basic rate band of taxable income for an individual resident in England for 2024/25?

  1. £37,700 Correct answer.
  2. £12,570
  3. £40,000
  4. £50,270

Explanation

For 2024/25 the basic rate band runs from £0 to £37,700 of taxable income, after deduction of the personal allowance, and is charged at 20%.

Question 3Income Tax and National Insurance contributions

How much of the personal allowance does a transferor give up under the marriage allowance for 2024/25?

  1. £2,520
  2. £12,570
  3. £1,000
  4. £1,260 Correct answer.

Explanation

The marriage allowance lets a spouse or civil partner transfer 10% of the personal allowance, which is £1,260 for 2024/25. The recipient receives a tax reducer equal to 20% of that amount, £252.

Question 4Income Tax and National Insurance contributions

What personal savings allowance is available to an additional rate taxpayer for 2024/25?

  1. £200
  2. £500
  3. £1,000
  4. £0 Correct answer.

Explanation

The personal savings allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers are not entitled to any personal savings allowance.

Question 5Income Tax and National Insurance contributions

At what rate are Class 4 National Insurance contributions charged on the self-employed profits falling between the lower and upper profits limits for 2024/25?

  1. 2%
  2. 9%
  3. 8%
  4. 6% Correct answer.

Explanation

Class 4 contributions are charged at 6% on profits between £12,570 and £50,270 for 2024/25. Profits above the upper profits limit bear Class 4 at 2%.

Question 6Income Tax and National Insurance contributions

What is the maximum trading allowance available to an individual with trading income for 2024/25?

  1. £7,500
  2. £1,000 Correct answer.
  3. £2,000
  4. £12,570

Explanation

The trading allowance exempts the first £1,000 of gross trading income from tax. It is claimed as an alternative to deducting actual allowable expenses.

Question 7Income Tax and National Insurance contributions

What is the maximum gross rent that qualifies for rent-a-room relief for 2024/25?

  1. £5,000
  2. £4,250
  3. £1,000
  4. £7,500 Correct answer.

Explanation

Rent-a-room relief exempts gross receipts of up to £7,500 a year where a furnished room in the individual's main home is let. The limit is reduced to £3,750 where the relief is shared.

Question 8Income Tax and National Insurance contributions

In which order are the three categories of income set against the personal allowance and rate bands when computing income tax?

  1. Savings, non-savings, dividends
  2. Non-savings, savings, dividends Correct answer.
  3. Non-savings, dividends, savings
  4. Dividends, savings, non-savings

Explanation

Non-savings income is taxed first, then savings income, and dividend income is the top slice. The personal allowance is set against income in that same order.

Question 9Income Tax and National Insurance contributions

A higher rate taxpayer has employment income of £60,000 and receives £1,400 of bank interest in 2024/25. What is the income tax payable on the interest?

  1. £360 Correct answer.
  2. £0
  3. £560
  4. £180

Explanation

A higher rate taxpayer has a personal savings allowance of £500, so £500 of the interest is taxed at 0%. The remaining £900 is taxed at 40%, giving £360.

Question 10Income Tax and National Insurance contributions

An individual has adjusted net income of £110,000 in 2024/25. What personal allowance is available?

  1. £7,570 Correct answer.
  2. £5,000
  3. £10,000
  4. £12,570

Explanation

Income exceeds £100,000 by £10,000, so the allowance is reduced by £5,000 (£1 for each £2). The allowance is therefore £12,570 less £5,000, which is £7,570.

Question 11Income Tax and National Insurance contributions

A higher rate taxpayer pays £4,000 (net) into a personal pension under relief at source in 2024/25. By how much does the payment extend the basic rate band?

  1. £0
  2. £5,000 Correct answer.
  3. £4,000
  4. £1,000

Explanation

The scheme administrator claims basic rate relief and adds £1,000, so the gross contribution is £5,000. The basic and higher rate limits are extended by the gross amount.

Question 12Income Tax and National Insurance contributions

A higher rate taxpayer makes a Gift Aid donation of £800 in cash during 2024/25. By how much is the higher rate limit extended?

  1. £800
  2. £0
  3. £160
  4. £1,000 Correct answer.

Explanation

The donation is treated as made net of basic rate tax, so £800 represents 80% of a gross gift of £1,000. The basic and higher rate bands are each extended by £1,000.

Question 13Income Tax and National Insurance contributions

For 2024/25, an individual with adjusted net income of £66,000 receives child benefit for one child. What percentage of the child benefit is recovered through the high income child benefit charge?

  1. 100%
  2. 30%
  3. 20% Correct answer.
  4. 50%

Explanation

The charge is 1% of the child benefit for each £200 of adjusted net income above £60,000. Income exceeds the threshold by £6,000, which is 30 steps of £200, so 30% is charged.

Question 14Income Tax and National Insurance contributions

An individual has pension income of £16,000 and savings interest of £3,000 in 2024/25. What amount of the savings income is eligible for the 0% starting rate for savings?

  1. £1,570 Correct answer.
  2. £3,000
  3. £0
  4. £5,000

Explanation

The £5,000 starting rate band is reduced by non-savings taxable income. Pension income exceeds the personal allowance by £3,430, leaving £1,570 of the band available for savings.

Question 15Income Tax and National Insurance contributions

Which circumstance removes the requirement to make payments on account for a tax year?

  1. Liability is under £5,000
  2. 80% or more was collected at source Correct answer.
  3. The taxpayer is self-employed
  4. A paper return is filed

Explanation

Payments on account are not required where the income tax due is £1,000 or less, or where at least 80% of the income tax liability was collected at source. The method of filing and the level of self-employment do not affect the rule.

Question 16Income Tax and National Insurance contributions

An employee earning £60,000 in 2024/25 is paid monthly and has no other income. What are the employee's Class 1 National Insurance contributions for the year?

  1. £4,800.00
  2. £3,016.00
  3. £3,210.60 Correct answer.
  4. £1,200.00

Explanation

Primary Class 1 contributions are 8% on earnings between £12,570 and £50,270 and 2% above that. This gives 8% × £37,700 = £3,016 plus 2% × £9,730 = £194.60, a total of £3,210.60.

Question 17Income Tax and National Insurance contributions

An employer pays an employee £40,000 in 2024/25 and cannot claim the employment allowance. What is the employer's Class 1 liability for the year?

  1. £4,002.00
  2. £4,264.20 Correct answer.
  3. £4,800.00
  4. £5,520.00

Explanation

Secondary Class 1 contributions are 13.8% on earnings above the £9,100 secondary threshold. The charge is therefore 13.8% × £30,900 = £4,264.20.

Question 18Income Tax and National Insurance contributions

Which employer is entitled to claim the employment allowance for 2024/25?

  1. A householder employing only a nanny
  2. A company with no employees
  3. A company with two employees, one of whom is a director Correct answer.
  4. A company whose only employee is its sole director

Explanation

The employment allowance of up to £5,000 is denied to companies where the only person paid is a single director. An employer with genuine additional staff can claim, although personal, domestic and household employment is excluded.

Question 19Income Tax and National Insurance contributions

At what rate is dividend income above the nil rate band taxed for a higher rate taxpayer in 2024/25?

  1. 8.75%
  2. 33.75% Correct answer.
  3. 20%
  4. 39.35%

Explanation

Dividends are taxed at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers, after the £500 dividend nil rate band.

Question 20Income Tax and National Insurance contributions

An employee receives a £45,000 ex gratia termination payment in 2024/25, having received no other termination payment in the year and suffering no injury. What amount is taxable?

  1. £30,000
  2. £0
  3. £15,000 Correct answer.
  4. £45,000

Explanation

The first £30,000 of a qualifying termination payment is exempt, and only the excess is charged to income tax. The taxable amount is therefore £45,000 less £30,000, which is £15,000.

Question 21Income Tax and National Insurance contributions

For 2024/25, what is the effective marginal rate of income tax on additional earnings of an individual whose income lies between £100,000 and £125,140?

  1. 45%
  2. 60% Correct answer.
  3. 40%
  4. 50%

Explanation

Each extra £2 of income above £100,000 removes £1 of personal allowance, so £1 of income is taxed at 40% while also pushing another £1 into tax at 40%. The combined effect is an effective marginal rate of 60% until the allowance is exhausted.

Question 22Income Tax and National Insurance contributions

An additional rate taxpayer with other income of £200,000 receives £2,000 of dividends in 2024/25. What is the income tax on the dividends?

  1. £787.00
  2. £675.00
  3. £590.25 Correct answer.
  4. £500.00

Explanation

The £500 dividend nil rate band applies at every rate of tax, so £500 is taxed at 0%. The remaining £1,500 is taxed at 39.35%, giving £590.25.

Question 23Income Tax and National Insurance contributions

A sole trader with no employees has taxable trading profits of £60,000 in 2024/25. What is the total of Class 2 and Class 4 National Insurance contributions for the year?

  1. £2,276.80
  2. £2,456.60
  3. £2,636.00 Correct answer.
  4. £2,730.00

Explanation

Class 4 is 6% × £37,700 = £2,262 plus 2% × £9,730 = £194.60, a total of £2,456.60. Class 2 is £3.45 × 52 = £179.40, so the combined liability is £2,636.00.

Question 24Income Tax and National Insurance contributions

A company provides an employee with a company car giving a taxable benefit of £6,000 in 2024/25; this is the only benefit provided. What is the Class 1A liability and when is it payable?

  1. £828, payable by 19 April following the tax year
  2. £690, payable by 6 July following the tax year
  3. £828, payable by 22 July following the tax year Correct answer.
  4. £828, payable by 31 January following the tax year

Explanation

Class 1A is charged on most taxable benefits at 13.8%, so 13.8% × £6,000 = £828. Where paid electronically, the liability is due by 22 July following the end of the tax year.

Question 25Income Tax and National Insurance contributions

A Scottish taxpayer for 2024/25 has employment income and building society interest. Which statement correctly describes how the interest is taxed?

  1. All income at the Scottish rates and bands
  2. Savings at Scottish rates; non-savings at UK rates
  3. Non-savings income at Scottish rates; savings at UK rates Correct answer.
  4. All income at the UK rates and bands

Explanation

The Scottish rates and bands apply only to non-savings, non-dividend income. Savings income and dividends of a Scottish taxpayer remain taxed at the UK rates and bands.

Question 26Income Tax and National Insurance contributions

For 2024/25, what personal savings allowance is available to an individual whose total income is £200,000, all of which is employment income and bank interest?

  1. £0 Correct answer.
  2. £1,000
  3. £500
  4. £5,000

Explanation

The personal savings allowance is set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. An individual with total income of £200,000 is an additional rate taxpayer, and additional rate taxpayers are entitled to no personal savings allowance, so all savings income is taxed at 45%.

Question 27Income Tax and National Insurance contributions

An employer provides employees with taxable benefits in kind worth £8,000 in total during 2024/25. What Class 1A National Insurance contribution is payable by the employer on those benefits?

  1. £1,200
  2. £1,104 Correct answer.
  3. £1,600
  4. £640

Explanation

Class 1A is charged on the total taxable amount of benefits in kind at 13.8% for 2024/25, giving £8,000 × 13.8% = £1,104. Class 1A is payable by the employer only and is due by 19 July following the end of the tax year (22 July if paid electronically).

Question 28Income Tax and National Insurance contributions

For 2024/25, what is the maximum rate per mile at which an employer can reimburse business mileage in the employee's own car free of income tax for the first 10,000 business miles in the tax year?

  1. 50p per mile
  2. 40p per mile
  3. 25p per mile
  4. 45p per mile Correct answer.

Explanation

Approved mileage allowance payments are tax free up to 45p per mile for the first 10,000 business miles in the tax year and 25p per mile thereafter. Any excess paid above those rates is taxable employment income, and any shortfall can be claimed as a deduction.

Question 29Income Tax and National Insurance contributions

In 2024/25 an individual has non-savings income of £10,000, savings income of £8,000 and no other income. The personal allowance is fully available at £12,570. What amount of the savings income falls within the 0% starting rate for savings band?

  1. £0
  2. £2,570
  3. £3,000
  4. £5,000 Correct answer.

Explanation

The starting rate for savings band is £5,000, reduced by any taxable non-savings income. Here the non-savings income of £10,000 is entirely covered by the personal allowance, so there is no taxable non-savings income and the full £5,000 band remains available to the savings income.

Question 30Income Tax and National Insurance contributions

An individual has threshold income of £220,000 and adjusted income of £300,000 in 2024/25. What is the individual's annual allowance for pension contributions?

  1. £60,000
  2. £10,000
  3. £50,000
  4. £40,000 Correct answer.

Explanation

Where threshold income exceeds £200,000 and adjusted income exceeds £260,000, the annual allowance is tapered by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000. Adjusted income of £300,000 exceeds the limit by £40,000, so the allowance is reduced by £20,000 to £40,000.

Question 31Income Tax and National Insurance contributions

A sole trader with a 31 March year end buys plant and machinery costing £1,200,000 in 2024/25, all of which qualifies for the annual investment allowance. She claims the maximum annual investment allowance and writes off the balance in the general pool at 18%. What is her total capital allowances for the year?

  1. £1,036,000 Correct answer.
  2. £1,200,000
  3. £1,018,000
  4. £1,000,000

Explanation

The annual investment allowance for 2024/25 is £1,000,000, which is claimed first in full. The remaining £200,000 is added to the main pool and attracts a full year's writing down allowance of 18%, or £36,000, giving total capital allowances of £1,036,000.

Question 32Income Tax and National Insurance contributions

For the 2024/25 tax year, when are a self assessment taxpayer's two payments on account normally due?

  1. 31 January 2025 and 31 January 2026
  2. 6 April 2025 and 6 October 2025
  3. 31 January 2025 and 31 July 2025 Correct answer.
  4. 31 January 2026 and 31 July 2026

Explanation

Each payment on account is one half of the previous year's relevant tax liability. The first is due on 31 January within the tax year and the second on 31 July following the end of the tax year, so for 2024/25 the dates are 31 January 2025 and 31 July 2025.

Question 33Income Tax and National Insurance contributions

A higher rate taxpayer lets a residential property and pays mortgage interest of £12,000 in 2024/25. The interest is not deducted in computing the property profit. What tax reducer is available to her?

  1. £12,000
  2. £6,000
  3. £2,400 Correct answer.
  4. £4,800

Explanation

Relief for finance costs on residential lettings is given as a tax reducer at the basic rate of 20% on the lower of the finance costs, the property profits and adjusted total income. Applying 20% to the £12,000 of interest gives a tax reduction of £2,400.

Question 34Income Tax and National Insurance contributions

A sole trader has always prepared accounts to 31 December. Under the rules applying for 2024/25, which profits form the basis of assessment for that tax year?

  1. The profits of the period 6 April 2024 to 31 December 2024
  2. The profits of the 12 months ending 31 December 2025
  3. The profits of the 12 months ending 5 April 2025 Correct answer.
  4. The profits of the 12 months ending 31 December 2024

Explanation

From 2024/25 trading profits are assessed on a tax year basis, so the profits of the tax year itself (6 April 2024 to 5 April 2025) are taxed, with the accounts result apportioned across tax years. The old current year basis using the accounts year ending in the tax year no longer applies.

Question 35Corporation Tax

For the financial year 2024, what fraction is used in the marginal relief calculation for a company whose augmented profits fall between the lower and upper limits?

  1. 3/400
  2. 1/200
  3. 3/200 Correct answer.
  4. 1/100

Explanation

For the financial year 2024 the main rate is 25% and the small profits rate is 19%. A company with augmented profits between £50,000 and £250,000 pays 25% on its profits less marginal relief, computed using the marginal relief fraction of 3/200, which moves the effective rate gradually from 19% up to 25%.

Question 36Corporation Tax

For the financial year 2024, a company with no associated companies pays corporation tax at the small profits rate on its augmented profits up to what amount?

  1. £50,000 Correct answer.
  2. £250,000
  3. £1,500,000
  4. £300,000

Explanation

The small profits rate of 19% applies where augmented profits are £50,000 or less. Between £50,000 and £250,000 the main rate of 25% applies subject to marginal relief, and above £250,000 the main rate applies in full.

Question 37Corporation Tax

A company has an accounting period ending on 31 December 2024. By what date must its company tax return (CT600) be delivered to HMRC?

  1. 31 December 2025 Correct answer.
  2. 31 December 2026
  3. 31 March 2025
  4. 1 October 2025

Explanation

A company tax return must be delivered within 12 months of the end of the accounting period. As the period ends on 31 December 2024, the filing deadline is 31 December 2025.

Question 38Corporation Tax

A company with augmented profits of £400,000 for its 12-month accounting period ended 30 September 2024 is not liable to pay corporation tax by quarterly instalments. By what date must it pay its corporation tax?

  1. 1 October 2025
  2. 30 September 2025
  3. 1 January 2025
  4. 1 July 2025 Correct answer.

Explanation

Corporation tax that is not payable by instalments falls due nine months and one day after the end of the accounting period. Nine months after 30 September 2024 is 30 June 2025, so payment is due on 1 July 2025.

Question 39Corporation Tax

What is the maximum annual investment allowance available to a company for expenditure on plant and machinery in a 12-month accounting period?

  1. £1,500,000
  2. £250,000
  3. £200,000
  4. £1,000,000 Correct answer.

Explanation

The annual investment allowance is £1,000,000 for a 12-month period and is shared between companies under common control. Where the accounting period is shorter than 12 months the limit is proportionately reduced.

Question 40Corporation Tax

How does a company obtain corporation tax relief for a qualifying charitable donation made to a registered charity?

  1. It is relieved by a tax credit at 20%
  2. It is deducted from trading income
  3. It is deducted from total profits Correct answer.
  4. It is deducted from chargeable gains

Explanation

Qualifying charitable donations are paid gross and are deducted from total profits for the accounting period after other reliefs, so relief is obtained at the company's marginal rate. They are not business expenses and no tax credit is attached to them.

Question 41Corporation Tax

A company must pay its corporation tax by quarterly instalments if its augmented profits for the accounting period exceed which amount, before any adjustment for associated companies?

  1. £1,500,000 Correct answer.
  2. £250,000
  3. £20,000,000
  4. £50,000

Explanation

Quarterly instalments are required where augmented profits exceed £1,500,000, divided by the number of associated companies. The higher £20,000,000 figure applies only to very large companies that were also large in the preceding period.

Question 42Corporation Tax

What is the maximum length of a corporation tax accounting period?

  1. Twenty-four months
  2. Six months
  3. Twelve months Correct answer.
  4. Eighteen months

Explanation

A corporation tax accounting period cannot exceed 12 months. Where a company prepares a longer period of account, it is split into two accounting periods, the first being the first 12 months.

Question 43Corporation Tax

A company has augmented profits of £100,000 for the year ended 31 March 2025 and had two associated companies throughout the period. What are its lower and upper limits for marginal relief?

  1. £25,000 and £125,000
  2. £16,667 and £83,333 Correct answer.
  3. £33,333 and £166,667
  4. £50,000 and £250,000

Explanation

The £50,000 and £250,000 limits are divided by the number of associated companies plus one, so with two associates the limits become £50,000/3 and £250,000/3. Augmented profits of £100,000 exceed the upper limit of £83,333, so corporation tax is charged at 25% with no marginal relief.

Question 44Corporation Tax

A company prepares its first accounts for the 15-month period ended 31 March 2025. How is that period treated for corporation tax purposes?

  1. It is split into two periods of 7.5 months
  2. It is treated as one 15-month accounting period
  3. It is split into three periods of 5 months
  4. It is split into a 12-month period and a 3-month period Correct answer.

Explanation

An accounting period cannot exceed 12 months, so a 15-month period of account is divided into two accounting periods: the first 12 months and the remaining 3 months. Profits are apportioned between the two periods on a time basis unless a just and reasonable apportionment is required.

Question 45Corporation Tax

A company makes a trading loss of £200,000 in the year ended 31 March 2025 and has no other income. What is the effect of a claim to carry the loss forward under the trading loss provisions?

  1. The loss is set against total profits of the loss-making period
  2. The loss is set against subsequent profits of the same trade Correct answer.
  3. The loss is set against capital gains only
  4. The loss is set against the previous three years' profits

Explanation

A trading loss carried forward is relieved against profits of the same trade in later accounting periods. A company may instead claim to set the loss against total profits of the same and later periods, but only where the trade is carried on on a commercial basis with a view to profit.

Question 46Corporation Tax

Two UK-resident companies wish to make a group relief claim. What ownership condition must be satisfied between them?

  1. One must hold at least 100% of the other's ordinary share capital
  2. One must hold at least 51% of the other's ordinary share capital
  3. One must hold at least 75% of the other's ordinary share capital Correct answer.
  4. One must hold at least 10% of the other's ordinary share capital

Explanation

Group relief requires a 75% group relationship, measured both by ordinary share capital and by beneficial entitlement to profits available for distribution and to assets on a winding up. Both companies must also be within the charge to UK corporation tax.

Question 47Corporation Tax

To qualify for the substantial shareholding exemption, the investing company must have held at least what proportion of the ordinary share capital of the subsidiary throughout a 12-month period falling within the two years before the disposal?

  1. 51%
  2. 10% Correct answer.
  3. 20%
  4. 75%

Explanation

The substantial shareholding exemption requires a holding of at least 10% of the ordinary share capital, held continuously for a 12-month period beginning not more than two years before the disposal. The investing company must also be a trading company or a member of a trading group.

Question 48Corporation Tax

A close company makes a loan of £40,000 to an individual participator on 1 July 2024. What rate of tax is charged on the company under the loans to participators rules?

  1. 8.75%
  2. 20%
  3. 33.75% Correct answer.
  4. 25%

Explanation

A close company that makes a loan to a participator must pay a charge equal to 33.75% of the amount of the loan, mirroring the dividend upper rate. The charge falls due nine months and one day after the end of the accounting period in which the loan is made and is repaid to the company when the loan is repaid.

Question 49Corporation Tax

A large company incurs qualifying research and development expenditure of £500,000 on or after 1 April 2023 and claims the research and development expenditure credit. What rate of credit applies?

  1. 13%
  2. 86%
  3. 20% Correct answer.
  4. 25%

Explanation

For expenditure incurred on or after 1 April 2023 the expenditure credit rate is 20% of qualifying expenditure, giving a credit of £100,000 before the net benefit calculation. The credit is taxable as a receipt of the trade.

Question 50Corporation Tax

What effective rate of corporation tax does the patent box produce on qualifying patent profits?

  1. 19%
  2. 12.5%
  3. 10% Correct answer.
  4. 25%

Explanation

The patent box relieves qualifying profits from qualifying patented inventions at an effective corporation tax rate of 10%. This is achieved by an extra deduction calculated so that the effective rate on those profits is 10% whatever the main rate happens to be.