(1).
(i) Total tax borne
QW Ltd must have taxable profits of £14,815 (£12,000 / (100% – 19%)) if it is to pay a dividend of £12,000 after the payment of corporation tax at 19%. Accordingly, it will have paid corporation tax of £2,815 (£14,815 x 19%).
Mr Voight will pay income tax of £3,250 ((£12,000 – £2,000) x 32.5%).
The total tax borne is therefore £6,065 (corporation tax of £2,815 + income tax of £3,250).
(ii) Effective rate of tax
The effective rate of tax is 40.94% (£6,065 / £14,815), i.e. the total tax divided by the profit.
(2). Camille began trading in the tax year 2018/19. She will not be required to make any payments on account as the whole of her income tax liability for the previous tax year was settled via PAYE. Accordingly, she will have to pay the whole of the tax due in respect of her business profits for 2018/19 on 31 January 2020 – ie 31 January after the end of the tax year.
(3).
Statement A is true
Entrepreneurs’ relief is not available in respect of individual assets used in a business unless the business has ceased.
Statement B is false
Business property relief is available at the rate of 50% on the gift of land and buildings used for the purposes of a business.