Business Tax
This section deals with UK corporation tax and VAT for unincorporated and incorporated businesses. For companies, know how taxable trading profit is computed: accounting profit adjusted for disallowable expenses (entertaining, depreciation, capital items) and deductions (capital allowances, tax-allowable items). Understand the annual investment allowance, writing-down allowances, and the main and small profits rates plus marginal relief.
VAT: registration thresholds, outputs minus inputs, standard, reduced, zero and exempt supplies. Distinguish zero-rated (taxable, recoverable input tax) from exempt (no output tax, restricted input recovery). Learn VAT return boxes and the cash versus invoice accounting schemes.
Traps: adding back depreciation but claiming capital allowances instead; disallowing client entertaining but allowing staff entertaining; forgetting that exempt supplies can restrict input tax recovery; applying the wrong rate; confusing the tax point with invoice date.
Rule of thumb: taxable profit = accounting profit + disallowables − capital allowances. Worked example: accounting profit £200,000 includes £5,000 client entertaining and £20,000 depreciation. Add back £25,000, deduct capital allowances £30,000, giving taxable profit £195,000. Apply the relevant rate and marginal relief if profits fall in the marginal band.