ACCA Advanced Taxation (ATX) Practice Exam

When can an individual not be required to make a payment on account (POA) for a tax year?

1. The relevant amount for the previous year is less than or equal to £1,000

2. More than 80% of the assessed tax was collected at source

3. The individual owes no tax for the previous year

4. They have never submitted a tax return before

The correct answer is: The relevant amount for the previous year is less than or equal to £1,000

An individual is not required to make a payment on account (POA) for a tax year if the relevant amount for the previous year is less than or equal to £1,000. The POA system is designed to help taxpayers manage their tax liabilities by spreading payments over the year for the current year's income tax liability based on the previous year's performance. If the tax liability in the previous year is minimal, specifically capped at £1,000, this indicates a lower potential liability for the current year, thereby exempting the individual from making advance payments. In addition to that, when assessing whether a taxpayer needs to make POAs, the system looks for significant income sources that would generally suggest a higher tax. If the prior year’s tax amount was low, it generally signifies a lower tax burden anticipated in the current year as well. As a result, the design of the POA rules means they do not need to initiate a payment if their previous year’s tax did not exceed that specified threshold. Other scenarios, like having no tax due for the previous year or having a situation where most tax is collected at source, do provide valid grounds for payment exemptions, but the most direct indicator established to determine if a POA is required is tied to the