ACCA Advanced Taxation (ATX) Practice Exam

What is a key difference between the remittance basis and the arising basis of taxation?

1. Under the remittance basis all income is taxed in the UK

2. Under the arising basis, only UK income is taxed

3. Under the remittance basis, only overseas income brought to the UK is taxed

4. There is no difference between the two bases

The correct answer is: Under the remittance basis, only overseas income brought to the UK is taxed

The remittance basis and the arising basis of taxation are two different approaches to assessing individual tax liabilities, particularly for individuals who are resident but not domiciled in the UK. When it comes to the remittance basis, this method allows individuals to be taxed only on their UK income as well as on any overseas income that they bring into the UK. This means that any foreign income that remains outside the UK is not subject to UK taxation. In contrast, the arising basis means that an individual is taxed on all worldwide income, regardless of whether it is brought into the UK or not. Therefore, under this model, both UK and non-UK income are taxed, with no distinction made for the source of that income. This fundamental difference is why the assertion about the remittance basis taxing only overseas income brought to the UK is accurate. It emphasizes the selective approach of the remittance basis in contrast to the comprehensive nature of the arising basis.