Institute of Chartered Accountants in England and Wales (ICAEW) ACA Certificate Level: Law, Tax and Business Technology Flashcards

24 sample cards from the Certificate Level: Law, Tax and Business Technology deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. Distinguish wrongful trading from fraudulent trading.

   Wrongful trading: a director continues trading when they knew (or ought to have known) there was no reasonable prospect of avoiding insolvent liquidation—no dishonesty required, civil liability. Fraudulent trading: carrying on business with intent to defraud creditors—requires dishonesty and can give rise to civil and criminal liability.

2. Name the five main UK taxes covered in the ACA Certificate level and what each is charged on.

   Income tax (individuals' income), capital gains tax (gains on disposal of assets), corporation tax (company profits), value added tax (supplies of goods/services), and national insurance contributions (earnings). Inheritance tax (transfers of wealth) is also covered.

3. Distinguish direct taxes from indirect taxes with examples.

   Direct taxes are levied on income, profits or gains of the person who bears them (e.g. income tax, corporation tax, CGT). Indirect taxes are levied on spending/transactions and collected by an intermediary (e.g. VAT). HMRC administers UK taxes.

4. What is the difference between tax evasion and tax avoidance?

   Tax evasion is illegally reducing tax liability by concealing income or providing false information (a criminal offence). Tax avoidance is using lawful means to minimise tax, though 'aggressive' avoidance may be challenged under anti-avoidance rules (e.g. the GAAR).

5. State the key self-assessment filing and payment deadlines for an individual's income tax for a tax year.

   Online return: by 31 January following the end of the tax year (paper: 31 October). Payments on account: 31 January (in the year) and 31 July (after); balancing payment by 31 January following the tax year. The UK tax year runs 6 April to 5 April.

6. List the three categories of taxable income and the order in which they are taxed in an income tax computation.

   Non-savings income (e.g. employment, trading, property) first, then savings income (interest), then dividend income last (treated as the top slice). This ordering determines which rate band applies.

7. Outline the steps to compute an individual's income tax liability.

   1) Total income from all sources; 2) deduct reliefs to get net income; 3) deduct the personal allowance to get taxable income; 4) split into non-savings, savings and dividend income; 5) apply the relevant tax rates/bands; 6) sum to get tax liability; 7) deduct tax already paid (e.g. PAYE) to find tax payable.

8. State the standard personal allowance and how it is restricted (tapered) for high earners.

   The standard personal allowance is £12,570. It is reduced by £1 for every £2 of adjusted net income above £100,000, so it is fully withdrawn once income reaches £125,140. $\text{Reduction} = \frac{\text{ANI} - 100{,}000}{2}$.

9. State the UK income tax rate bands and rates for non-savings income (excluding Scotland).

   Basic rate 20% on taxable income up to £37,700; higher rate 40% from £37,701 to £125,140; additional rate 45% above £125,140. Bands apply after deducting the personal allowance.

10. Outline the basic computation of a chargeable gain for capital gains tax.

    $\text{Gain} = \text{Disposal proceeds} - \text{incidental costs of sale} - \text{allowable acquisition cost} - \text{enhancement expenditure}$. Total gains less losses, less the annual exempt amount, gives the taxable gain charged to CGT.

11. What are the main CGT rates for individuals and the annual exempt amount?

    Standard CGT rates are 10% (gains within the basic-rate band) and 20% (above it); residential property is taxed at 18%/24%. Business Asset Disposal Relief gives a 10% rate on qualifying gains. The annual exempt amount is £3,000.

12. What is the inheritance tax nil rate band, the rate on death, and the basic spouse exemption?

    The nil rate band is £325,000 (taxed at 0%); the excess on death is taxed at 40% (or 36% if 10%+ of the estate is left to charity). Transfers between UK-domiciled spouses/civil partners are wholly exempt.

13. Distinguish a Potentially Exempt Transfer (PET) from a Chargeable Lifetime Transfer (CLT) for IHT.

    A PET is a lifetime gift to an individual—exempt if the donor survives 7 years, otherwise chargeable. A CLT is a lifetime gift into a trust—immediately chargeable to IHT at the lifetime rate of 20% (on amounts above the nil band), with a further charge if death occurs within 7 years.

14. Outline how corporation tax is charged: who pays it, on what, and for what period.

    Companies (and other corporate bodies) pay corporation tax on their Taxable Total Profits (income profits plus chargeable gains) for a chargeable accounting period (max 12 months). Profits are computed and taxed at the corporation tax rate(s).

15. State the UK corporation tax main rate, small profits rate, and the thresholds.

    Main rate 25% applies to profits over £250,000; small profits rate 19% applies to profits up to £50,000. Between £50,000 and £250,000 marginal relief tapers the effective rate. The limits are reduced for associated companies and short periods.

16. How is a company's trading profit adjusted from its accounting profit for corporation tax?

    Start with accounting profit, then add back disallowable expenditure (e.g. depreciation, client entertaining, non-trade items), deduct non-trading income taxed elsewhere, and deduct capital allowances. The result is the tax-adjusted trading profit.

17. What are capital allowances and why are they given?

    Capital allowances are tax-deductible reliefs given on qualifying capital expenditure (e.g. plant and machinery) in place of accounting depreciation, which is disallowed. Examples include the Annual Investment Allowance, writing-down allowances, and full expensing.

18. Define the three categories of VAT supply: standard-rated, zero-rated, and exempt, and the key difference for input tax recovery.

    Standard-rated (20%) and reduced-rated (5%) are taxable supplies; zero-rated (0%) is also a taxable supply. A business making taxable (including zero-rated) supplies can recover input VAT. Exempt supplies carry no output VAT and do NOT allow recovery of related input VAT.

19. How is the VAT payable to HMRC for a period calculated?

    $\text{VAT payable} = \text{Output VAT (on sales)} - \text{Input VAT (on purchases)}$. If input VAT exceeds output VAT, the business receives a repayment from HMRC.

20. State the VAT compulsory registration threshold and the deregistration threshold.

    Compulsory registration is required when taxable turnover exceeds £90,000 in the previous 12 months (or is expected to in the next 30 days). A business may deregister if taxable turnover falls below £88,000.

21. Distinguish output VAT from input VAT.

    Output VAT is the VAT a registered business charges on its sales/supplies to customers. Input VAT is the VAT the business pays on its purchases/expenses. The net of the two is paid to or reclaimed from HMRC.

22. Distinguish the main classes of National Insurance Contributions: Class 1, Class 2, and Class 4.

    Class 1: paid on employees' earnings—primary by employees, secondary by employers. Class 2: flat-rate contributions for the self-employed. Class 4: profit-related contributions paid by the self-employed on trading profits.

23. How is VAT typically accounted for and what is the standard VAT period and return deadline?

    VAT is normally accounted for quarterly. The VAT return and payment are due one month and seven days after the end of the VAT period, generally filed online under Making Tax Digital.

24. What is the privity of contract rule and its main statutory exception?

    Privity means only the parties to a contract can sue or be sued on it. The main exception is the Contracts (Rights of Third Parties) Act 1999, which allows a third party to enforce a term if the contract expressly provides, or purports to confer a benefit on them.

What this deck covers

Certificate Level: Law, Tax and Business Technology flashcards FAQ