ACCA Advanced Taxation (ATX) Practice Exam

What estimation is required to make a claim to reduce the POA?

1. The individual must estimate income tax payable for the previous year

2. The individual must estimate income tax payable for the current year

3. The individual must estimate any taxable gains for the year

4. The individual must estimate capital tax relief for the year

The correct answer is: The individual must estimate income tax payable for the current year

To make a claim to reduce the Payments on Account (POA), an individual must estimate their income tax payable for the current year. This is essential because Payments on Account are intended to help taxpayers spread their income tax liability over the year based on their anticipated income. By estimating the income tax payable for the current year, the taxpayer provides a basis for determining whether the current POA amounts are appropriate or excessive. If the estimated income tax is less than the previous year's liability, the individual can reduce their POA to avoid overpaying. This estimation is crucial to ensure that the correct amount of tax will eventually be paid, taking into consideration any changes in income or allowable deductions since the previous year. Thus, the focus is on the current year's tax obligations to appropriately adjust payment obligations. While the other options mention various estimates, such as previous year's tax, taxable gains, or capital tax relief, they do not directly address the specific requirement for estimating the current year's income tax payable in relation to POA claims. This is why estimating the income tax for the current year is the correct focus in this context.