ACCA Advanced Taxation (ATX) Practice Exam

When is the start of the accounting period (AP) for a UK R company to exempt profits from its overseas permanent establishment from UK tax effective?

1. At the end of the AP after the election

2. At the start of the AP after the election

3. At the point of election

4. At the end of the financial year

The correct answer is: At the start of the AP after the election

The start of the accounting period (AP) for a UK resident company to exempt profits from its overseas permanent establishment from UK tax is effective at the start of the AP after the election. This aligns with the provisions in UK tax legislation allowing such exemptions. The election to exempt these profits must be made ahead of the commencement of the relevant accounting period, and the exemption then takes effect for that entire period moving forward, meaning that any profits from the overseas establishment will not be subject to UK taxation starting from the first day of that accounting period. Other options suggest different timings for the effectiveness of the election. If it were to take effect at the end of the AP after the election or at the end of the financial year, it would misalign with the intended immediate benefit of the election. Furthermore, suggesting that the exemption takes effect at the point of election would overlook the clear stipulation that the effects are tied to the accounting period, highlighting that proper compliance and timing are crucial to ensure that the company benefits from the election in the intended period.