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Planning for success
Experienced senior tutor Nitin Rabheru offers some tips on passing the AAT Level 4 Business Tax Exam
Many students find the Level 4 tax exams challenging. However, with an effective study and revision plan you can significantly increase your chances of passing. From the outset it is vital you familiarise yourself with the terminology to ensure you know what you are doing.
The key to success is being able to identify key issues, scenarios and tax problems within a question. Not knowing where to begin or how to start a question is a very common barrier to passing.
Appreciating the skills required to pass
You must be able to calculate the taxable trading profit for either a sole trader (unincorporated business) or a company, and appreciate the key differences. You are expected to apply the tax rules to scenarios given and be knowledgeable with regard to tax admin and ethical issues facing business owners.
Your revision should cover the breadth of the syllabus, as any topic can be examined and all questions are compulsory. Make sure you know the basics – the fundamental calculations, proformas, layouts and tax admin.
Deal with those difficult topics you find problematic such as partnership allocation and basis periods. When practising questions, refer back to the course book or contact your tutor for support.
You need to ask yourself, have you made a real effort to understand all areas of the syllabus including the admin? For example, do you know the key tax differences between sole traders and companies with regard to loss relief, filing tax returns and payment of tax?
Top tips on some technical areas
• Adjusting net profit: It is always helpful to make a list of all the items that either require an addback or deduction when computing the adjusted trading profit.
• Basis periods: When applying these rules always begin with the start date to
5 April in the first tax year. The second tax year is the 12 months to the accounting date or the first 12 months of trading. If there is no accounting date in the second year, tax 6 April to the following 5 April. The third tax year should be on current year basis and straightforward. It often helps to draw a time line.
• Capital allowances: Firstly, ensure you know what type of plant and machinery qualifies for the different pools. For example, energy or water saving equipment are subject to 100% first year allowances.
• Capital allowances and cars: Remember, cars do not qualify for the annual investment allowance. Cars with emissions up to 75g/km are given 100% first year allowances. Cars with emissions between 76-130g/km are subject to 18% written down allowance in the main pool. Cars with emissions in excess of 130g/km are put in a special rate pool where the 8% rate is applied.
• Capital allowances and companies: If you are computing allowances for a company, the period cannot exceed 12 months and you are not required to make any private use adjustments.
• Partnership allocation: Be comfortable dealing with profit allocation after taking into account salary, interest and partners either joining or leaving.
• Tax admin: Make a list of all the keys dates for when either a sole trader or a company is expected to file its tax return, keep records and make payments of tax.
• Revision tools: Create self-made pass cards or crib sheets. Work through calculation questions and prepare computational proformas.
It will help you to note any traps you have fallen into. The more mistakes you make during the revision phase the better. Be sure to make a note of these mistakes to avoid repeating them in the exam.
Exam rehearsal and online assessment
I would recommend completing a full assessment before the real exam. This will enable you to think about skills such as time management as well as the application.
You should also review the reference material before the final exam. Quite a lot of detail is given for free in the exam but you need to know what there is and how to use it!
Avoid making silly mistakes, read the question / requirement carefully before diving into your answer. Too many students do not read what the examiner wants and can waste valuable time.
You must familiarise yourself with the style of the online questions and the AAT software before taking the assessment. As part of your revision, log in to the AAT website and attempt their online practice assessments.
• Nitin Rabheru is an AAT tutor at BPP Professional Education
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