Business and Corporate Taxation
Core framework
Business taxation begins with entity classification: sole trader, partnership, company or branch. The tax base is usually taxable profit, not accounting profit. Candidates must understand the bridge from accounting profit to taxable profit: disallowable expenses, capital allowances or depreciation adjustments, timing differences, and loss relief.
Concepts to master
- Trading versus capital expenditure; repairs versus improvements.
- Capital allowances, depreciation add-backs and disposals.
- Loss carry-forward, carry-back and group relief, including ownership and continuity tests.
- Related-party and transfer-pricing rules.
- Distributions, dividends, withholding and payroll obligations.
- Thin-capitalisation and interest-limitation rules.
Common traps
Questions frequently reverse the direction of an adjustment: accounting depreciation is added back, while tax depreciation or capital allowances are deducted. Losses may be restricted by type, by company or by period. Group relief requires both ownership and qualifying-link tests, and consortium relief is different. Do not assume a dividend is deductible; distributions generally are not.
Worked example
Accounting profit is 500,000. It includes a 40,000 accounting depreciation charge, 10,000 of non-deductible fines and 15,000 of allowable capital allowances. Taxable profit = 500,000 + 40,000 + 10,000 − 15,000 = 535,000. The trap is deducting accounting depreciation or forgetting the add-back of fines.
Rule of thumb
Start with accounting profit and ask of each item: is it taxable, deductible, and in the right period? Then apply loss relief in the permitted order.