ACCA Advanced Taxation (ATX) Practice Exam

Does a split year count as a tax year for the purposes of Relevant Business Capital (RBC)?

1. No, it is not counted

2. Yes, it is considered a tax year

3. It depends on the company's financial year

4. Only if it exceeds six months

The correct answer is: Yes, it is considered a tax year

In the context of business taxation, a split year refers to a situation where a business has a financial year that does not align with the standard tax year, resulting in part of the business’s income being accounted for in one tax year and the remainder in the following tax year. For the purposes of Relevant Business Capital (RBC), it is important to recognize that a split year is indeed treated as a complete tax year. This classification allows businesses that experience a change in their accounting periods or have international operations spanning different tax jurisdictions to adequately consider all periods of their income and capital when assessing their taxation obligations. By counting a split year as a full tax year, it enables businesses to maintain consistency in reporting and ensures that all relevant income and expenses are captured for tax purposes, thus simplifying compliance and aiding in accurate financial planning. The implication is that regardless of how the financial year aligns with the tax year, the entirety of the split year is considered when evaluating capital allowances, business structures, and any relevant deductions that might come into play under taxation laws. This principle is essential for businesses to ensure they do not miss potentially available reliefs and allowances. The alternatives essentially misinterpret the nature of what constitutes a tax year in relation to RBC, misunderstanding either the significance of