Taxation and Corporate Laws: Compliance and Entity Obligations
Core concepts
Candidates must understand the building blocks of direct and indirect taxation: the residence and source principles behind chargeability, the computation of taxable income from accounting profit through adjustments, allowable and disallowable expenses, capital allowances, loss relief and the filing and payment deadlines. Know the mechanics of value added tax or equivalent, including registration thresholds, input and output tax, exempt versus zero-rated supplies, and the timing of the tax point. On the corporate side, understand incorporation, separate legal personality, share capital, directors' duties, statutory meetings and resolutions, and the consequences of insolvency.
Traps
Examiners test the difference between tax avoidance (legal) and evasion (illegal), the treatment of depreciation as disallowable while capital allowances are deductible, and the irrecoverable nature of input tax on exempt supplies. In company law, watch for confusion between ordinary and special resolutions, between a director's authority and that of the members, and the lifting of the corporate veil in fraud or agency situations.
Rule of thumb
Start every tax computation with accounting profit, add back disallowable items, deduct allowable items and capital allowances, then apply the correct rate and any reliefs.
Worked example
Accounting profit is 200,000. Add back depreciation of 30,000 and a non-deductible fine of 5,000; deduct capital allowances of 40,000. Taxable profit is 200,000 + 30,000 + 5,000 - 40,000 = 195,000. At a 25 per cent rate the liability is 48,750.