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 £3,881 ((£12,000 – £500) x 33.75%).

The total tax borne is therefore £7,881 (corporation tax of £4,000 + income tax of £3,881).

(ii) Effective rate of tax
The effective rate of tax, ie the total tax divided by the profit, is 49.3% (£7,881 / £16,000).

(2). Camille began trading in the tax year 2024/25. 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 the tax year 2024/25 on 31 January 2026, ie 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.