PRINCIPLES OF TAXATION

QUESTION B A N K 2 0 2 4

CERTIFICATE LEVEL

ICAEW icaew.com
 ICAEW

The Institute of Chartered Accountants in England and Wales

Principles of Taxation
QUESTION BANK

For exams in 2024

icaew.com
Principles of Taxation
The Institute of Chartered Accountants in England and Wales
ISBN: 9781 0355 0936 2
Previous ISBN: 9781 0355 01 74 8
e-ISBN: 9781 0355 0921 8
First edition 2007
Eighteenth edition 2023
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or
by any means, graphic, electronic or mechanical including photocopying, recording, scanning or otherwise, without the prior
written permission of the publisher.
The content of this publication is intended to prepare students for the ICAEW examinations, and should not be used as
professional advice.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Contains public sector information licensed under the Open Government Licence v3.0
© ICAEW 2023
Contents
The following questions are exam-standard. Unless told otherwise, these questions are the style, content and format that you
can expect in your exam.

Title Question Answer

Ethics

2 Introduction to taxation

3 Introduction to income tax

4 Employment income

5 Trading profits

6 Capital allowances

7 Trading profits - basis of assessment

8 National insurance contributions

9 Capital gains tax- individuals

10 Corporation tax

11 Value added tax

12 Value added tax -further aspects

13 Administration of tax

1 4 Scenario-based questions: income tax

15 Scenario-based questions: corporation tax

Appendix: Mock Exam guidance notes

Exam

The Principles of Taxation module exam is 1 .5 hours long.

(a) 20% of the marks are allocated to two scenario-based questions. These will each cover a single syllabus area: income tax
a n d NIC, and corporation tax.
(b) The remaining 80% of the marks are from 40 multiple choice, multi-part multiple choice, multiple response o r numeric
entry questions. These questions will cover the remaining areas of the syllabus.
The objective test questions are of the following types:
■ Multiple-choice - select 1 from 4 o r 5 options A to D o r A to E(see Chapter 1 Q 1 )
• Multi-part multiple choice - two or more multiple-choice questions, each requiring selection from 2 or 3 options (see
Chapter 1 Q 2 )
• Multiple-response - select 2 o r more responses from 4 or more options (see Chapter 1 Q 3 )
• Numeric entry - enter a figure in a data entry field (see Chapter 3 Q1 )
In this Question Bank you will select only one option per question unless told otherwise.
O u r website has the latest information, guidance and exclusive resources to help you prepare for this exam. Find everything
you need, from exam webinars, sample exams, errata sheets and the syllabus to examiner- a n d tutor-written articles at
icaew.com/examresources if you are studying the A C A a n d icaew.com/cfabstudents if you are studying ICAEW CFAB.

Professional skills

Professional skills are essential to accountancy. They are e m b e d d e d throughout the ACA qualification, and reflected in this
Question Bank.
The level of competency required to pass each module exam will increase as you progress through the ACA qualification.
You will need to demonstrate each of the four professional skills within your answers. You can find the full ACA professional
skills developments grids at icaew.com/examresources.
Questions in the Principles of Taxation module vary significantly in content a n d style, as they testa broad syllabus i n both
narrative a n d discursive ways. You will b e required to apply your knowledge of the various taxes to different scenarios and
switch between taxes for each different question. Below are the key skills required in the Principles of Taxation exam that you
will need to master.

Professional skills focus: Assimilating and using information

The Principles of Taxation exam requires you to attempt 40 objective test questions and two scenario-based questions in 90
minutes. You must b e able to correctly identify which area of the syllabus is being tested and draw out the key facts from the
scenario to the correctly answer each question. Being disciplined, reading both the scenario and the requirement carefully
and keeping track of time will mean that you work effectively within time constraints which should offer you the best chance
of passing.

Each scenario will be different, so you need to practise a wide variety of questions in order to be able to identify and apply
relevant technical knowledge and skills to analyse a specific problem. You need to ensure that you can complete
computational objective test questions quickly and efficiently, so make sure you learn the relevant pro-forma computations,
for example for capital allowances and each of the taxable benefits.

You should get used to analysing your performance in the questions you attempt in order to ensure you understand why the
correct answer is indeed correct. This will help you to identify relevant information from the scenario the next time you
attempt questions from the same area so that you are prepared for the exam.

This skill is not examinable in the Principles of Taxation exam apart from communicating i n a format prescribed by the
examiner in the scenario-based questions. At this stage of your taxation studies you will not b e required to make
recommendations to taxpayers.
1 Ethics

1 Which of the following is not a fundamental principle of the ICAEW Code of Ethics?
A Professional behaviour
B Professional intellect
C Integrity
D Objectivity
E Confidentiality
LO1g

2 Professional accountants must b e straightforward and honest in all professional and business relationships.
Select which of the following options correctly identifies this fundamental principle of the ICAEW Code of Ethics.
A Professional behaviour
B Integrity
A professional accountant must comply with relevant laws and regulations and avoid any action that discredits the
profession.
Select which of the following options correctly identifies this fundamental principle of the ICAEW Code of Ethics.
C Professional behaviour
D Integrity
E Professional competence and due care
LO1g

3 Sandra, a chartered accountant, is completing the corporation tax computation for a client company. She realises that the
client company's sales director. Heather, is a close family friend. Heather asks Sandra whether she has seen any
information from the Financial Director about any planned bonuses.

Requirement
Which two of the fundamental principles of the ICAEW Code of Ethics may be under threat here?
A Objectivity
B Integrity
C Professional behaviour
D Confidentiality
LO1g

4 Richard, a chartered accountant who works as a sole trader, is aware that he must adhere to the fundamental principle of
confidentiality of the ICAEW Code of Ethics in respect of information h e acquires in the course of his work.
Requirement
Which of the following describes a situation where Richard does not have to keep such information confidential?
A When he suspects a client of money laundering
B When his firm n o longer acts for the client
C When his firm has not yet been engaged by a prospective client
D When talking to a close friend in a social environment
LO1g
5 Roger is a chartered accountant a n d is married to Jennifer, who is also his client. Jennifer runs several businesses o n
behalf of her father. Roger knows that Jennifer comes from a wealthy family with criminal connections. However, Roger has
never queried the funding of Jennifer's businesses as h e trusts her implicitly.

Requirement
Which two of the following options are threats Roger is experiencing according to the ICAEW Code of Ethics?
A Self- interest threat
B Self-review threat
C Advocacy threat
D Familiarity threat
E Intimidation threat
LO1g

6 Florence, a chartered accountant, knows that a client, Freddy, has financed his business using the proceeds of his criminal
activities for a number of years. Florence has not reported this and has instead accepted substantial payments from
Freddy which are 10 times her normal fee for comparable work.

Requirement
Which two of the following statements are correct?
A Freddy is laundering money through his business and as Florence is aware of this she is required to disclose it to the
proper authorities.
B Florence should discuss her decision to g o to the authorities with Freddy.
C Florence may be guilty of money-laundering offences as she has assisted Freddy in concealing the proceeds of crime.
D Florence was justified in increasing her fee for such risky work.
LO 1 h

7 Iqmal is a chartered accountant who has just become suspicious that a client is engaged i n money laundering.
Iqmal should report this to the firm's Money Laundering Reporting Officer:
A Once there is sufficient proof of money laundering
B Now
Any Suspicious Activity Report would be made by:
C Iqmal
D The firm's Money Laundering Reporting Officer
LO 1 h

8 Which of the following is not one of the factors for consideration given in the framework for ethical conflict resolution i n
the ICAEW Code of Ethics?
A Ethical issues involved
B Alternative courses of action
C Timescale involved
D Relevant parties
LO1g
 9 Identify in the following scenarios whether the professional accountant is committing an offence under the anti-money
laundering legislation.
Requirements
Stephanie accepts payment from a client in relation to work performed in preparing his personal tax return. The fee is a
percentage of the reduction in the tax payable based o n the previous year. Stephanie strongly suspects that the client has
failed to disclose all sources of income. She later discovers this to be the case.
A Offence committed by Stephanie
B N o offence committed b y Stephanie
Trevor suspected that a client of his has been receiving income through the operation of a criminal cartel. He reported this
to his firm's Money Laundering Reporting Officer (MLRO), but has not heard anything else from the MLRO. Trevor later
approaches the client to advise him of his suspicions and that the firm may have to report this to the authorities.
C Offence committed by Trevor
D N o offence committed b y Trevor
LO 1 h

1 0 A threat to the fundamental principles may occur when a professional accountant promotes a particular opinion,
compromising subsequent objectivity.
Requirement
This category of threat is known as:
A Self- interest threat
B Self-review threat
C Advocacy threat
D Familiarity threat
LO1g

11 A threat to fundamental principles may occur when a professional accountant has to re-evaluate a previous judgement
that they made.

Requirement
This category of threat is known as::
A Self- interest threat
B Self-review threat
C Advocacy threat
D Familiarity threat
LO1g

12 Which of the following statements is correct?

A Tax evasion is illegal a n d tax avoidance is legal.
B Both tax evasion and tax avoidance are legal.
C Tax evasion is legal and tax avoidance is illegal.
D Both tax avoidance and tax evasion are illegal.
LO 1 h