R03 PAYE, avoidance and evasion: free practice questions

1. Question 1 of 5

   What does the PAYE code 1257L mean for an employee paid monthly?

   Option A: The employee has a K code adjustment for benefits each monthOption B: About £12,570 of pay a year is tax-free, spread across the monthsOption C: The employee pays tax at a flat 12.57% on all payOption D: £1,257 a month is deducted as tax

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   The answer is B: About £12,570 of pay a year is tax-free, spread across the months

   The number is the tax-free amount with the last digit removed (treated as 9 when applied), and the letter shows the type of allowance. 1257L applies the £12,570 personal allowance cumulatively through the year.

   Why the other options are wrong

   A

   K codes start with the letter K.

   C

   The code isn't a tax rate.

   D

   The number shows tax-free pay, not tax deducted.

2. Question 2 of 5

   Under real time information, when must an employer send a full payment submission to HMRC?

   Option A: Once a year, by 31 May, with the P60sOption B: By the 22nd of the following tax monthOption C: On or before each payday, for every employeeOption D: Only when an employee joins or leaves

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   The answer is C: On or before each payday, for every employee

   Employers report pay and deductions in real time, normally before or at the time of paying employees, including employees paid below the lower earnings limit.

   Why the other options are wrong

   A

   RTI reports are made every time employees are paid.

   B

   That's the payment deadline, not the reporting deadline.

   D

   Every payment must be reported.

3. Question 3 of 5

   A board votes a director a bonus on 14 December 2026. It's paid on 8 January 2027 and ratified at the AGM in February 2027. When must PAYE be operated?

   Option A: 8 January 2027Option B: 14 December 2026Option C: 5 April 2027Option D: The date of the AGM in February 2027

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   The answer is B: 14 December 2026

   For directors, PAYE applies at the earliest of payment, entitlement, crediting in the company's books, and the date the pay is fixed or agreed. Here that's the board decision on 14 December 2026.

   Why the other options are wrong

   A

   For directors, the earliest of several dates applies.

   C

   PAYE isn't deferred to the end of the year.

   D

   The board decision fixed the amount earlier.

4. Question 4 of 5

   Undeclared income arises in a country that doesn't exchange information with the UK. How does the penalty compare with a domestic failure?

   Option A: It is capped at £5,000Option B: It is 50% higher than normalOption C: It is the same as normalOption D: It can be double the normal penalty

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   The answer is D: It can be double the normal penalty

   Offshore penalties are normal where the country exchanges savings information automatically, 50% higher where it exchanges on request, and double where it doesn't exchange at all. An extra aggravated penalty of up to 50% can apply for moving assets to more secretive places.

   Why the other options are wrong

   A

   Offshore penalties aren't capped like this.

   B

   50% higher applies where information is exchanged, but not automatically.

   C

   That applies only where information is exchanged automatically.

5. Question 5 of 5

   Which statement about the general anti-abuse rule (GAAR) is correct?

   Option A: It doesn't apply to VAT, and carries a penalty of up to 60%Option B: Its advisory panel usually finds against HMRCOption C: It applies to every UK tax, including VATOption D: It only applies to schemes registered under DOTAS

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   The answer is A: It doesn't apply to VAT, and carries a penalty of up to 60%

   The GAAR counteracts abusive arrangements under the 'double reasonableness' test for the main taxes except VAT. An independent advisory panel gives opinions, and a penalty of up to 60% of the counteracted tax can apply.

   Why the other options are wrong

   B

   To date, all published opinions have favoured HMRC.

   C

   It excludes VAT and targets abusive arrangements only.

   D

   It isn't limited to DOTAS schemes.

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