Association of Chartered Certified Accountants (ACCA) Taxation (TX - UK) and Audit and Assurance (AA) Syllabus

Taxation (TX - UK) and Audit and Assurance (AA) syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Taxation (TX - UK) and Audit and Assurance (AA) in Association of Chartered Certified Accountants (ACCA), not a summary of it.

1. 1

   Income Tax and National Insurance

   4 topics

   • Income tax computation
     • Personal allowance and tax bands
     • Savings and dividend income
   • Employment income and benefits
     • Taxable and exempt benefits
     • PAYE system
   • Trading income for the self-employed
     • Adjustment of profits
     • Capital allowances
     • Basis periods
   • National Insurance contributions
     • Classes 1, 1A, 2 and 4
2. 2

   Corporation Tax, Capital Gains and VAT

   4 topics

   • Corporation tax computation
     • Taxable total profits
     • Loss relief and groups
   • Capital gains tax
     • Chargeable assets and disposals
     • Reliefs including business asset disposal relief
   • Value added tax
     • Registration and deregistration
     • Output and input VAT, special schemes
   • Inheritance tax and tax administration
     • Lifetime and death transfers
     • Self-assessment, deadlines and penalties
3. 3

   Audit Framework and Regulation

   4 topics

   • Concept and purpose of assurance
     • Levels of assurance
     • Expectation gap
   • Statutory audit and regulation
     • Appointment, removal and rights of auditors
     • International Standards on Auditing
   • Professional ethics and independence
     • Fundamental principles
     • Threats and safeguards
   • Corporate governance and internal audit
     • Audit committees
     • Internal vs external audit
4. 4

   Planning and Risk Assessment

   4 topics

   • Understanding the entity
     • Risk assessment procedures
   • Audit risk model
     • Inherent, control and detection risk
   • Materiality and audit strategy
     • Performance materiality
     • Audit planning documentation
   • Fraud, laws and regulations
     • Auditor responsibilities for fraud
5. 5

   Internal Control and Audit Evidence

   4 topics

   • Evaluating internal control systems
     • Tests of controls
     • Deficiencies and management letters
   • Audit evidence and procedures
     • Sufficient appropriate evidence
     • Substantive procedures and sampling
   • Audit of specific balances
     • Receivables and inventory
     • Non-current assets and payables
   • Computer-assisted audit techniques
     • Test data and audit software
6. 6

   Review and Reporting

   3 topics

   • Subsequent events and going concern
     • Adjusting and non-adjusting events
   • Written representations and review
     • Overall review of financial statements
   • The auditor's report
     • Unmodified and modified opinions
     • Key audit matters and emphasis of matter

Taxation (TX - UK) and Audit and Assurance (AA) flashcards for Association of Chartered Certified Accountants (ACCA)

22 of 56 cards from the Taxation (TX - UK) and Audit and Assurance (AA) deck — real questions with worked answers.

1. What is the basic structure (the ordering of bands) for taxing an individual's taxable income in the UK?

   Taxable income is split and taxed in strict order: (1) non-savings income, (2) savings income, (3) dividend income. Each layer is taxed at the basic, higher and additional rates as the layers stack on top of one another within the bands.

2. How is an individual's UK personal allowance reduced for high earners, and at what point is it fully lost?

   The personal allowance is reduced by $\pounds 1$ for every $\pounds 2$ of adjusted net income above $\pounds 100{,}000$. With a $\pounds 12{,}570$ allowance it is fully withdrawn once adjusted net income reaches $\pounds 125{,}140$.

3. In an income tax computation, what are the two main ways gross personal pension contributions and Gift Aid donations give relief to a higher-rate taxpayer?

   They are paid net of basic-rate tax (giving 20% relief at source), and the basic-rate and higher-rate band thresholds are extended by the gross amount, giving the extra 20% (or 25%) relief to higher/additional-rate taxpayers.

4. What is the general rule for determining the assessable amount of employment income in a tax year?

   Employment income is taxed on the receipts basis: earnings are assessed in the tax year they are received, which for cash earnings is the earlier of the date of actual payment or the date the employee became entitled to payment.

5. How is the taxable benefit of a company car calculated?

   Taxable benefit $=$ list price $\times$ a CO$_2$-based percentage (capped at 37%), then time-apportioned for part-year availability and reduced by any capital contribution by the employee (max $\pounds 5{,}000$) and any contributions made by the employee for private use.

6. How is the taxable benefit on a beneficial (cheap or interest-free) loan from an employer normally calculated, and when is no benefit charged?

   Benefit $=$ (loan $\times$ HMRC official rate of interest) $-$ interest actually paid, usually using the average method. No taxable benefit arises if the total of all such loans does not exceed $\pounds 10{,}000$ at any point in the tax year.

7. For the self-employed, how is the tax-adjusted trading profit derived from the accounting net profit?

   Start with net profit, add back disallowable expenditure (e.g. depreciation, client entertaining, private/non-trade items), deduct income taxable elsewhere or non-taxable, deduct capital allowances, to arrive at the tax-adjusted trading profit.

8. State the general rule (the 'wholly and exclusively' test) for deductibility of an expense against trading income.

   An expense is deductible only if it is incurred wholly and exclusively for the purposes of the trade. Expenditure with a duality of purpose (private and business) is disallowed unless a specific business element can be separately identified.

9. What is the annual investment allowance (AIA) and which assets fall into the special rate pool?

   The AIA gives 100% relief on qualifying plant and machinery up to an annual limit. The special rate pool (written down at 6%) includes integral features, long-life assets, thermal insulation and cars with higher CO$_2$ emissions.

10. What are the current classes of National Insurance contributions and who pays each?

    Class 1 (primary, paid by employees; secondary, paid by employers on earnings), Class 1A (employers on most taxable benefits), Class 2 (flat-rate, self-employed) and Class 4 (self-employed, on profits).

11. How are Class 4 National Insurance contributions for the self-employed calculated?

    Class 4 is charged on tax-adjusted trading profits: a main percentage rate between the lower and upper profits limits, plus a lower additional percentage on profits above the upper profits limit. Profits below the lower limit are exempt.

12. What period is used to assess a UK company's corporation tax, and what happens if the accounting period is longer than 12 months?

    Corporation tax is assessed on a chargeable accounting period, which cannot exceed 12 months. A long period of account is split into the first 12 months and the remainder, with profits allocated to each.

13. What are the main components of a company's Taxable Total Profits (TTP)?

    TTP $=$ tax-adjusted trading profits $+$ property income $+$ non-trading interest/loan relationship income $+$ chargeable gains $-$ qualifying charitable donations (and less any allowable losses).

14. How does the corporation tax marginal relief / small profits rate system work conceptually?

    Companies with augmented profits below the lower limit pay the small profits rate; those above the upper limit pay the main rate; those in between pay the main rate reduced by marginal relief, giving a tapered effective rate between the two.

15. State the basic formula for a chargeable gain on the disposal of a UK asset.

    $$\text{Gain} = \text{Proceeds} - \text{Incidental costs of disposal} - \text{Allowable cost} - \text{Enhancement expenditure}$$ The annual exempt amount is then deducted from total net gains for the year (individuals only).

16. What is Business Asset Disposal Relief (BADR) and what is its key feature?

    BADR applies to qualifying disposals of all or part of a trading business, or of shares in a personal trading company (usually $\geq 5\%$ held for $\geq 2$ years). Qualifying gains, up to a lifetime limit, are taxed at a reduced 10% CGT rate.

17. How is a chargeable gain computed when only part of an asset (or some shares from a holding) is disposed of, using the part-disposal formula?

    Allowable cost of the part sold $= \text{Cost} \times \dfrac{A}{A+B}$, where $A$ is the value/proceeds of the part disposed of and $B$ is the market value of the part retained. For shares, the section 104 pooled cost is apportioned pro rata.

18. What is the difference between standard-rated, zero-rated and exempt supplies for UK VAT?

    Standard-rated: output VAT at 20%, input VAT recoverable. Zero-rated: 0% output VAT but input VAT recoverable (a taxable supply). Exempt: no output VAT and input VAT generally not recoverable.

19. When must a UK trader compulsorily register for VAT under the historic turnover test?

    When taxable turnover in any rolling 12-month period exceeds the registration threshold. Registration must be notified within 30 days of the month end in which the threshold was exceeded, effective from the first day of the following month.

20. What is the tax point (time of supply) for VAT, including the basic and actual tax point rules?

    The basic tax point is the date goods are removed/made available or services performed. An earlier actual tax point arises if payment is received or an invoice issued before then; if an invoice is issued within 14 days after the basic tax point, that invoice date becomes the tax point.

21. Explain the VAT default surcharge / penalty principle for late returns and late payment.

    Late submission and late payment attract escalating penalties. Under the points-based regime a penalty point is given for each late return, with a fixed penalty once a threshold of points is reached; late paid VAT also attracts interest and percentage-based late-payment penalties.

22. What is the nil rate band for inheritance tax and how can the residence nil rate band (RNRB) add to it?

    Each individual has a nil rate band taxed at 0%; the RNRB is an additional band available when a main residence is left to direct descendants. Unused nil rate bands (and RNRB) can be transferred to a surviving spouse/civil partner.

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