ACCA Advanced Taxation (ATX) Practice Exam

When can an individual elect to disapply incorporation relief?

1. Anytime within the first year of incorporation

2. Within 24 months from 31 January following the end of the tax year of incorporation

3. After 3 years of incorporation

4. Within the next tax year after the incorporation

The correct answer is: Within 24 months from 31 January following the end of the tax year of incorporation

The option that states an individual can elect to disapply incorporation relief within 24 months from 31 January following the end of the tax year of incorporation is correct because it aligns with the provisions outlined in UK tax legislation regarding incorporation relief. Incorporation relief allows individuals to transfer their business into a company without immediate tax implications on the gains. However, there may be circumstances where the individual prefers not to take advantage of this relief. The legislation specifies that individuals have until the end of the 24-month window, which begins on 31 January of the year following the year in which the company was incorporated, to make this election. This timing accommodates taxpayers to make informed decisions after they have seen the financial situation of the company post-incorporation. Other choices do not reflect the correct time frame or conditions for disapplying incorporation relief. For instance, suggesting an election can be made anytime within the first year of incorporation doesn't provide the structured timeline required under tax regulations. Similarly, making an election after three years or within the next tax year post-incorporation fails to adhere to the specific 24-month period given for such elections. Understanding this time frame is crucial for individuals considering their tax strategies in light of business incorporation.