Business Taxation: Principles, Computation and Planning
Foundations
Tax questions reward precision about the tax base, the taxable person, the tax point and the rate structure. Distinguish direct taxes on income and gains from indirect taxes on transactions. Understand residence and source rules, because they determine which income falls within the charge, and the role of double tax treaties in relieving double taxation through exemption or credit.
Computation discipline
For income tax, follow a structured computation: accounting profit, add back disallowable expenses (fines, private expenses, capital items), deduct allowable items and capital allowances, then apply the rate and any reliefs and credits. For indirect tax, know the registration threshold logic, the difference between exempt and zero-rated supplies (input tax recovery differs), and the treatment of imports and exports.
Planning and compliance
Tax planning seeks to arrange affairs to minimise tax within the law; tax avoidance exploits loopholes (often challenged by anti-avoidance rules); tax evasion is illegal. Understand timing strategies (accelerating deductions, deferring income), entity choice, and the use of losses (carry-forward and group relief). Know filing, payment and penalty regimes.
Traps and rule of thumb
- Deducting a capital purchase as an expense instead of claiming capital allowances.
- Mixing up zero-rated (recover input tax) and exempt (no input tax recovery) supplies.
- Ignoring withholding tax obligations on cross-border payments.
Rule of thumb for capital versus revenue: if the expenditure creates or enhances an asset with enduring benefit, it is capital; if it maintains the asset in working order, it is revenue. Worked example: a machine costing 200,000 attracts a capital allowance rather than an immediate deduction; a 20,000 repair restoring it to working order is deductible.