ATT Test 1 (Principles of Taxation)
Study Guide – 2025/2026 Syllabus
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This guide covers the key principles for Income Tax, National Insurance Contributions
(NICs), Capital Gains Tax (CGT), and Corporation Tax, which form the foundation of ATT
Test 1.
A: Income Tax – Employment Income
1. What is the primary legislation governing the taxation of employment income?
ANSWER ✓ The primary legislation is found in the Income Tax (Earnings and Pensions)
Act 2003 (ITEPA 2003).
2. How is an employee defined for tax purposes?
ANSWER ✓ An employee is defined under the general law and includes anyone who
works under a contract of service. The key indicators are control, personal service, and
mutuality of obligation.
3. What is the key difference between a contract of service (employment) and a
contract for services (self-employment)?
, ANSWER ✓ A contract of service implies an employer-employee relationship with
control, subordination, and entitlement to benefits. A contract for services implies a
client-independent contractor relationship where the worker controls how the work is
done.
4. What is the significance of the "deemed employment" rules?
ANSWER ✓ The deemed employment rules (IR35/off-payroll working) can treat an
individual who works through an intermediary (like a personal service company) as an
employee for tax purposes, even if they are legally a contractor, to counter tax
avoidance.
5. What is the general rule for the timing of taxation of employment income?
ANSWER ✓ Employment income is taxable on a receipts basis. It is taxed in the tax year
(6 April to 5 April) in which it is received, not necessarily when it is earned.
6. What is the difference between a taxable earnings and a non-taxable
reimbursement?
ANSWER ✓ A reimbursement is a precise repayment of a specific expense incurred by
the employee in performing their duties and is usually non-taxable. Taxable earnings are
a reward for service.
7. Are all benefits-in-kind (BiKs) taxable?
ANSWER ✓ No, not all BiKs are taxable. Certain benefits are specifically exempted by
statute, such as approved workplace parking, certain mobile phones, and trivial benefits
under £50.
8. How is the cash equivalent of a beneficial loan calculated?
ANSWER ✓ The cash equivalent is calculated as: (Average loan balance x Official Rate of
Interest) - Any interest actually paid by the employee.
9. What is the tax treatment of a company car?
ANSWER ✓ The taxable benefit is calculated as: List Price of car x Appropriate
Percentage (based on CO2 emissions). Diesel supplements may apply, and deductions
are available for capital contributions and periods of unavailability.
10. Is employer-provided fuel for private use in a company car a taxable benefit?
, ANSWER ✓ Yes, it is a separate taxable benefit. The figure is calculated by applying the
same appropriate percentage used for the car to a fixed fuel multiplier set by HMRC
(£27,800 for 2025/26).
11. What is the tax treatment of employer contributions to a registered pension
scheme?
ANSWER ✓ Employer contributions are not treated as a benefit-in-kind for the
employee. They are generally tax-free and are an allowable business expense for the
employer.
12. What is the Approved Mileage Allowance Payment (AMAP) scheme?
ANSWER ✓ The AMAP scheme allows employers to pay tax-free mileage allowances up
to a prescribed rate (e.g., 45p per mile for the first 10,000 miles) for business travel in an
employee's own car. Payments above this rate are taxable.
13. What is the trivial benefits exemption?
ANSWER ✓ A benefit costing £50 or less (including VAT) is exempt from tax and NICs if
it is not cash or a cash voucher, not provided in recognition of services, and not part of a
salary sacrifice arrangement.
14. How are termination payments taxed?
ANSWER ✓ The first £30,000 of a termination payment is tax-free if it is a genuine
compensation for loss of employment and not already taxable as earnings. Any amount
over £30,000 is taxed at the recipient's marginal rate. All contractual payments (e.g., in
lieu of notice) are fully taxable.
15. What is the tax treatment of a payment made under a restrictive covenant?
ANSWER ✓ Any payment for agreeing to a restrictive covenant (e.g., not to compete) is
treated as earnings and is fully taxable, provided the covenant is effective.
B: Income Tax – Trading Income
16. What is the primary legislation for taxing trading income?
Study Guide – 2025/2026 Syllabus
Objective Assessment Complete
frequently TESTED Exam Questions
with Definitive Correct Answers A+
Graded!!100% Guaranteed
Pass!!<<Latest Version>>
This guide covers the key principles for Income Tax, National Insurance Contributions
(NICs), Capital Gains Tax (CGT), and Corporation Tax, which form the foundation of ATT
Test 1.
A: Income Tax – Employment Income
1. What is the primary legislation governing the taxation of employment income?
ANSWER ✓ The primary legislation is found in the Income Tax (Earnings and Pensions)
Act 2003 (ITEPA 2003).
2. How is an employee defined for tax purposes?
ANSWER ✓ An employee is defined under the general law and includes anyone who
works under a contract of service. The key indicators are control, personal service, and
mutuality of obligation.
3. What is the key difference between a contract of service (employment) and a
contract for services (self-employment)?
, ANSWER ✓ A contract of service implies an employer-employee relationship with
control, subordination, and entitlement to benefits. A contract for services implies a
client-independent contractor relationship where the worker controls how the work is
done.
4. What is the significance of the "deemed employment" rules?
ANSWER ✓ The deemed employment rules (IR35/off-payroll working) can treat an
individual who works through an intermediary (like a personal service company) as an
employee for tax purposes, even if they are legally a contractor, to counter tax
avoidance.
5. What is the general rule for the timing of taxation of employment income?
ANSWER ✓ Employment income is taxable on a receipts basis. It is taxed in the tax year
(6 April to 5 April) in which it is received, not necessarily when it is earned.
6. What is the difference between a taxable earnings and a non-taxable
reimbursement?
ANSWER ✓ A reimbursement is a precise repayment of a specific expense incurred by
the employee in performing their duties and is usually non-taxable. Taxable earnings are
a reward for service.
7. Are all benefits-in-kind (BiKs) taxable?
ANSWER ✓ No, not all BiKs are taxable. Certain benefits are specifically exempted by
statute, such as approved workplace parking, certain mobile phones, and trivial benefits
under £50.
8. How is the cash equivalent of a beneficial loan calculated?
ANSWER ✓ The cash equivalent is calculated as: (Average loan balance x Official Rate of
Interest) - Any interest actually paid by the employee.
9. What is the tax treatment of a company car?
ANSWER ✓ The taxable benefit is calculated as: List Price of car x Appropriate
Percentage (based on CO2 emissions). Diesel supplements may apply, and deductions
are available for capital contributions and periods of unavailability.
10. Is employer-provided fuel for private use in a company car a taxable benefit?
, ANSWER ✓ Yes, it is a separate taxable benefit. The figure is calculated by applying the
same appropriate percentage used for the car to a fixed fuel multiplier set by HMRC
(£27,800 for 2025/26).
11. What is the tax treatment of employer contributions to a registered pension
scheme?
ANSWER ✓ Employer contributions are not treated as a benefit-in-kind for the
employee. They are generally tax-free and are an allowable business expense for the
employer.
12. What is the Approved Mileage Allowance Payment (AMAP) scheme?
ANSWER ✓ The AMAP scheme allows employers to pay tax-free mileage allowances up
to a prescribed rate (e.g., 45p per mile for the first 10,000 miles) for business travel in an
employee's own car. Payments above this rate are taxable.
13. What is the trivial benefits exemption?
ANSWER ✓ A benefit costing £50 or less (including VAT) is exempt from tax and NICs if
it is not cash or a cash voucher, not provided in recognition of services, and not part of a
salary sacrifice arrangement.
14. How are termination payments taxed?
ANSWER ✓ The first £30,000 of a termination payment is tax-free if it is a genuine
compensation for loss of employment and not already taxable as earnings. Any amount
over £30,000 is taxed at the recipient's marginal rate. All contractual payments (e.g., in
lieu of notice) are fully taxable.
15. What is the tax treatment of a payment made under a restrictive covenant?
ANSWER ✓ Any payment for agreeing to a restrictive covenant (e.g., not to compete) is
treated as earnings and is fully taxable, provided the covenant is effective.
B: Income Tax – Trading Income
16. What is the primary legislation for taxing trading income?
