Taxation of the unincorporated business for ATX-UK - part 2: self-test answers

Test your understanding: answers

(1).         

(i) Total tax borne
QW Ltd must have taxable profits of £16,000 (£12,000 / (100% – 25%)) if it is to pay a dividend of £12,000 after the payment of corporation tax at 25%. Accordingly, it will have paid corporation tax of £4,000 (£16,000 x 25%).

Mr Voight will pay income tax of £3,713 ((£12,000 – £1,000) x 33.75%).

The total tax borne is therefore £7,713 (corporation tax of £4,000 + income tax of £3,713).

(ii) Effective rate of tax
The effective rate of tax, i.e. the total tax divided by the profit, is 48.2% (£7,713 / £16,000).

(2). Camille began trading in the tax year 2023/24. She will not be required to make any payments on account in respect of that tax year 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 2023/24 on 31 January 2025, i.e. 31 January after the end of the tax year.

(3). Statement A is true
Business asset disposal relief is not available in respect of individual assets used in a business unless the business has ceased.

Statement B is true
Business property relief is available at the rate of 50% on the gift of land and buildings used in a business carried on by a partnership in which the donor is a partner.

(4).   

(i) Business is unincorporated
The annual investment allowance will be increased to £1,250,000 (£1,000,000 x 15/12). Accordingly, the capital allowances for the 15-month period will be 100% of the cost incurred of £310,000.

(ii) Business is a company
For a company, the 15-month period of account ending on 30 September 2024 must be split into two accounting periods: one for the first 12 months ending on 30 June 2024 and the other for the remaining three months ending on 30 September 2024. The machinery purchased on 1 September 2024 falls into the second accounting period.