ACCA Taxation (F6) Practice Exam

Which contribution is used first when carrying forward unused annual allowance?

1. Oldest allowance brought forward

2. Current year allowance

3. Only the newest allowance

4. Any contribution made within the last three years

The correct answer is: Current year allowance

The correct response is grounded in the principle of utilizing annual allowances when calculating tax relief for capital allowances. When it comes to carrying forward unused annual allowances, tax regulations typically stipulate that the current year's allowance is utilized first before applying any previously unused allowances from earlier years. This practice ensures that taxpayers benefit from the most recent deductions, which can be particularly advantageous as tax regulations and rates may change over time. By using the current year’s allowance first, taxpayers can maximize their tax relief in the present before going back to older contributions that may not be as beneficial due to prior year rates or allowances. The incorrect options reflect misunderstandings of the hierarchy of applying allowances. Relying on the oldest allowance first or solely on the newest would not align with the effective utilization of relief available under tax regulations. Moreover, referencing contributions made within the last three years is not aligned with standard practice, as tax rules specify a clearer approach to prioritizing the current year's allowance ahead of any carried forward amounts.