ACCA Advanced Taxation (ATX) Practice Exam

Which of the following is NOT an advantage of a tax-advantaged scheme for employees?

1. No National Insurance Contributions (NIC)

2. Possibility to increase salary significantly

3. Eligibility for Business Asset Disposal Relief (BADR)

4. No tax payable on exercise providing cash flow advantages

The correct answer is: Possibility to increase salary significantly

The correct answer is the option related to the possibility to increase salary significantly, as this is not an inherent advantage of a tax-advantaged scheme for employees. Tax-advantaged schemes, such as employee share ownership plans or certain retirement savings plans, offer various benefits primarily focused on tax relief, incentives, and cash flow advantages rather than directly increasing an employee's salary. Employees participating in such schemes typically appreciate the tax efficiencies, such as the exemption from National Insurance Contributions, which can free up more of their earnings for investment or savings. Additionally, tax-advantaged schemes may allow employees to exercise options without immediate tax consequences, thus providing a smoother cash flow benefit. Moreover, eligibility for Business Asset Disposal Relief is a significant perk for employees in specific arrangements, where gains are realized on disposal of qualifying assets. Hence, while tax-advantaged schemes provide valuable financial advantages, the direct increase in salary is not one of their characteristics; instead, these schemes focus on optimizing tax outcomes and facilitating better financial management for employees.