ACCA Advanced Taxation (ATX) Practice Exam

What is a key tax liability for employers offering tax or non-tax advantage share schemes?

1. An allowable deduction from trading profits in CT computation

2. A fixed percentage charge on employee salaries

3. A specific tax rate applied to total profits

4. A comprehensive tax filing requirement for all employees

The correct answer is: An allowable deduction from trading profits in CT computation

When employers provide tax or non-tax advantage share schemes, one of the key tax liabilities they face is the treatment of these share schemes in the context of corporation tax (CT) computations. Specifically, allowable deductions for expenses related to employee share schemes can reduce trading profits, thus impacting the overall corporation tax liability. Under certain circumstances, the costs incurred by the employer in providing these shares can be recognized as a deduction from their trading profits. This is particularly relevant in terms of share-based payments, where the fair value of the equity instruments granted to employees is generally expensed over the period in which the employees are required to perform services. Allowable deductions appropriately match expenses with revenues, which ensures that the company’s tax liability is accurately calculated based on its true economic performance. In contrast, the other options do not accurately reflect the primary tax obligation linked to share schemes. For example, a fixed percentage charge on salaries does not directly relate to the tax implications of share schemes, as the taxation is based on profits rather than fixed percentages on wages. Similarly, a specific tax rate applied to total profits is a general characteristic of corporation tax but does not specifically pertain to the tax implications of share schemes. Lastly, while employers may have filing obligations regarding their employees,