Advanced Taxation (UK) · Taxes applicable to a given situation or course of action and their impact

How to Compare Tax Implications of Alternative Courses of Action

Updated 11 October 2026 · Fact-checked

Comparing tax implications means working out the after-tax result of each option and recommending the best one for the client's objectives. List the options, identify every tax affected, compute each outcome using the ACCA tax tables, compare cash and timing, note risks and non-tax factors, then give a clear, reasoned recommendation.

Understand Comparing Tax Implications of Alternative Courses of Action

Tax planning questions in ATX-UK give you a client with a decision to make. The client might sell shares or sell the business assets. A company might fund itself with a loan or with new shares. An individual might take a gift route or hold assets until death. You are not asked what the tax rules are. You are asked which option leaves the client better off, and why.

The skill is a like-for-like comparison. For each option, find every tax that arises, for every person involved, and when the tax is due. Selling assets from a company can mean corporation tax on the gain, then a second layer of tax when the shareholders take the cash out. Selling shares can mean one layer of capital gains tax for the shareholder, possibly at the BADR rate if the conditions are met. The buyer's position also matters. A share buyer pays stamp duty of 0.5%. An asset buyer may pay SDLT on non-residential property and may get capital allowances. These can change the price the buyer will accept.

Then put numbers on each option. Use the rates in the tax tables that ACCA provides. Compare the net cash in the client's hands, not just the tax bill. Add timing, because a later due date has a cash flow value and interest rules can apply.

Finally, remember that the lowest tax is not always the best answer. The client's objectives, commercial risk, the conditions of each relief and the risk of challenge by HMRC all count. Anti-avoidance rules and ethics also matter. A good answer states the recommendation, gives the reasons, and flags what could change it.

Key rules to remember

Capital gains tax rates (individuals): Lower rate 18%; higher rate 24%; annual exempt amount £3,000; The tax tables give these rates. Gains fall in the unused basic rate band first, then the higher rate applies.
Business asset disposal relief (BADR): Rate 14% on qualifying gains up to a lifetime limit of £1,000,000; The tax tables give the rate and limit. You must check the conditions in the scenario (for example the shareholding, the officer or employee status, and the holding period). Do not assume the relief applies.
Corporation tax marginal relief: (Upper limit − Augmented profits) × Standard fraction × Taxable total profits ÷ Augmented profits; Limits are £50,000 and £250,000 and the standard fraction is 3/200. The 25% main rate applies, less this relief. Reduce the limits for associated companies and short accounting periods.
Corporation tax rates: Small profits rate 19%; main rate 25%; The marginal band is between £50,000 and £250,000. A deductible cost gets relief at the effective marginal rate.
Stamp duty on shares: 0.5% of consideration; The buyer normally bears it. It is relevant when comparing a share sale with an asset sale.
SDLT on non-residential property: Up to £150,000: 0%; £150,001 to £250,000: 2%; over £250,000: 5%; The rates apply to slices of the price. Use them when an asset sale includes land or buildings.
Inheritance tax rates and taper: Nil rate band £325,000; lifetime rate 20%; death rate 40%; taper relief 20% (3 to 4 years), 40% (4 to 5), 60% (5 to 6), 80% (6 to 7); The taper reduces the tax on a gift that becomes chargeable on death. It does not reduce the value of the gift.
Interest rates on tax (assumed): Underpaid tax 8.50%; overpaid tax 3.50%; official rate 3.75%; Use these to value the cost of paying tax late or the benefit of deferring it.
Supplementary instructions: Round to the nearest £; apportion to the nearest month; show all workings; assume 2025/26 rates continue; Follow these every time. Workings carry marks.

How to solve Comparing Tax Implications of Alternative Courses of Action questions

Use the same structure for every comparison question. It keeps your answer organised and makes the marker's job easy.

1Read the requirement and the client's objectives. Note who the client is (individual, company, group) and whether the aim is maximum cash, deferral, or keeping control.
2List the options. Each one needs its own calculation and its own heading.
3For each option, list every tax and every person affected. Think about income tax, NIC, CGT, corporation tax, IHT, VAT and stamp taxes, for the seller, the buyer and the company.
4Check the conditions for each relief (BADR, gift relief, rollover and so on). State the condition and say whether the facts meet it. If the facts do not say, state your assumption.
5Calculate the after-tax result for each option using the tax tables. Show the workings in a clear layout, rounded to the nearest £.
6Compare the options on net cash, timing of payment and any interest or penalty exposure. Say which is better and by how much.
7Add the wider points: risks, the buyer's view, commercial and non-tax factors, anti-avoidance rules and what would change your advice.
8Finish with a clear recommendation in one or two sentences, written for the client in plain language.

Quickest way: Option grid method

When to use it: Use it when time is short, which is most of the time in Section A. It gets you the calculations and the advice in the right order.

Draw a grid in your plan with options as columns and taxes as rows. Fill in only the rows that apply.
Calculate the difference between the options, not just each total. Items that are the same in both options can often be ignored.
Write one line on each relief condition: met, not met, or assumed.
Write the recommendation first in your own mind. Then check that the numbers support it.
In the answer, give the numbers, then the comparison, then the recommendation, then two or three risks or non-tax points.
If time runs out, state the conclusion and the key reason anyway. Marks are given for reasoned advice.

Common mistakes in Comparing Tax Implications of Alternative Courses of Action

Calculating one option in full and only describing the other.
Students run short of time and treat the second option as obvious.
Fix: Give both options a numerical calculation, even if it is brief. The comparison is what earns the marks.
Assuming BADR applies without checking its conditions.
The 14% rate looks attractive and students apply it by habit.
Fix: Write down each condition and test it against the facts. If a condition fails, compute the gain at the normal CGT rates.
Ignoring the second layer of tax when a company sells assets.
Students stop once the corporation tax on the gain is calculated.
Fix: Ask how the cash reaches the shareholders. Then include the tax on liquidation or on dividend extraction, as the scenario allows.
Comparing tax bills instead of net cash, and ignoring timing.
The focus is on tax, not the client's overall position.
Fix: Show net proceeds after tax and note payment dates and the interest rates given in the tax tables.
Using the wrong tax rate for a deductible cost, such as taking 25% relief when the company is in the marginal band.
Students use the headline rate without looking at where profits fall.
Fix: Compute the corporation tax with and without the cost. The difference is the true saving.
Giving the recommendation without risks or non-tax factors.
Students think only the calculation matters.
Fix: Add a short paragraph on buyer reaction, commercial risk, anti-avoidance and what would change your advice. These earn professional skills marks.

Worked examples

Example 1

Ravi owns 100% of the shares in a UK trading company and is a director. He plans to sell them and expects a chargeable gain of £400,000. He has no other gains and his income is well above the basic rate limit. He may resign as a director before the sale, which would mean the BADR conditions are not met. Calculate and compare his CGT in each case.

Show the solution

Option 1: BADR available. Gain £400,000 less annual exempt amount £3,000 = £397,000.
The gain is within the £1,000,000 lifetime limit, so the 14% rate applies: £397,000 × 14% = £55,580.
Option 2: BADR not available. Gain after the annual exempt amount is again £397,000.
His income is above the basic rate limit, so there is no unused basic rate band. All of the gain is taxed at the higher rate of 24%: £397,000 × 24% = £95,280.
Compare. £95,280 − £55,580 = £39,700 extra tax if BADR is lost.
Net proceeds are higher in Option 1 by the same £39,700, as the sale price is the same.

Answer: CGT is £55,580 with BADR and £95,280 without it. Ravi is £39,700 better off if he meets the BADR conditions, so he should not resign as a director before the sale. He should confirm that all conditions are met at the date of sale.

Example 2

Zed Ltd, with no associated companies, has a 12-month accounting period in which profits before any financing cost are £270,000. It has no dividends received. It needs funds and is considering (A) a bank loan with annual interest of £40,000, which is a deductible trading expense, or (B) issuing new shares, which has no tax-deductible cost. Compare the corporation tax in each case.

Show the solution

Option A: taxable total profits = £270,000 − £40,000 = £230,000. With no dividends, augmented profits are also £230,000.
Profits are between the £50,000 and £250,000 limits, so the 25% main rate is reduced by marginal relief.
Tax at 25%: £230,000 × 25% = £57,500.
Marginal relief: (£250,000 − £230,000) × 3/200 × (£230,000 ÷ £230,000) = £20,000 × 3/200 = £300.
Corporation tax = £57,500 − £300 = £57,200.
Option B: taxable total profits = £270,000, which is above the £250,000 upper limit. The main rate applies in full with no marginal relief.
Corporation tax = £270,000 × 25% = £67,500.
Saving from the loan = £67,500 − £57,200 = £10,300.
Check: £20,000 of profit is removed from the marginal band, where the effective rate is 26.5% (£5,300). The other £20,000 comes off the part above £250,000 at 25% (£5,000). £5,300 + £5,000 = £10,300, which matches.
The saving is £10,300 on interest of £40,000, so the net cost of the loan after tax is £29,700.

Answer: Corporation tax is £57,200 with the loan and £67,500 with the share issue, so the loan saves £10,300 in tax. The interest relief is worth more than 25% because the profits fall in the marginal band. The company should also consider the cash cost of repayments, loan covenants and the effect on the shareholders. Tax is only one factor in the choice.

Exam tips

Look for the words 'compare', 'advise' or 'recommend' in the requirement. They mean you need numbers for each option and a conclusion.
Use a separate heading for each option and each tax. Markers can then find the marks quickly.
State your assumptions clearly, such as holding periods, BADR conditions or no associated companies. Marks are given for reasonable assumptions that are stated.
Use the tax tables that are provided in the exam. Do not rely on memory for rates, and follow the supplementary instructions on rounding and working.
Keep the last two minutes for a one or two sentence recommendation and one risk. It earns professional skills marks and gives the client a clear answer.

Practice questions from Taxes applicable to a given situation or course of action and their impact

Comparing Tax Implications of Alternative Courses of Action: frequently asked questions

How do I decide between a share sale and an asset sale in ATX-UK?

Calculate the after-tax cash to the owner in both cases. For an asset sale through a company, include corporation tax on gains and the tax on getting the cash to the shareholders. For a share sale, include CGT, with BADR if the conditions are met. Then consider the buyer's costs, such as stamp duty on shares or SDLT, because they affect the price.

How should I lay out tax advice in the ATX exam?

Work option by option. For each, give the relevant tax, a short calculation and the key condition. Then compare the net result, add risks and non-tax points, and give a clear recommendation. Use short paragraphs and headings so the marker can follow it.

Do I need to know the tax rates by heart?

No. ACCA provides tax rates and allowances in the exam. You still need to know how to use them, including when the lower or higher CGT rate applies and how marginal relief works. Practise with the tables so you can find items quickly.

Are professional skills marks given for these questions?

Yes. All ATX exams carry professional skills marks, so your analysis, structure and communication count. A balanced comparison with a clear recommendation, written in a form the client could use, gives you the best chance of earning them.