Chapter 8 - Value Added Tax And Corperation Tax Flashcards
Dolomite Ltd made trading profits of £120,000 and a chargeable capital gain of £60,000 from the sale of a machine. What tax or taxes are paid by the company in the 2023/24 tax year?
a. Corporation tax of £43,950 in total on both the profit and the chargeable gain.
b. Corporation tax of £22,800 on the profit, and capital gains tax of £12,000 on the chargeable gain.
c. Corporation tax of £45,000 in total on both the profit and the chargeable gain.
d. Income tax of £30,000 on the profit, and corporation tax of £ 15,900 on the chargeable gain.
a. Corporation tax of £43,950 in total on both the profit and the chargeable gain.
Companies pay corporation tax on their trading profits, investment income and chargeable gains.
For financial years 2023 and 2024, the main rate of corporation tax is 25%. Businesses with profits of £250,000 and over pay corporation tax at the main rate on the whole of their profits.
Businesses with profits of £50,000 or less pay corporation tax at the small profits rate of 19%. A marginal taper applies to businesses that have profits between £50,000 and £250,000. The effect of the taper is that businesses in this position pay corporation tax at 19% on the first £50,000 of profits and 26.5% on the remainder.
So (£50,000 x 0.19) + ((£180,000 - £50,000) x 0.265) = £9,500 + £34,450 = £43,950
smart Ltd expects to make a profit of £2m during its current accounting period which ends 31 March 2024. What will be its corporation tax liability in 2023/24?
а. £500,000
b. £400,000
c. £380,000
d. £420,000.
а. £500,000
For financial years 2023 and 2024, the main rate of corporation tax is 25%. Businesses with profits of £250,000 and over pay corporation tax at the main rate on the whole of their profits.
How much VAT will be applied to £1,000 of children’s clothes, a £1,000 insurance premium and a £1,000 laptop?
a Insurance premium and children’s clothes are zero-rated, and £200 VAT on the price of a laptop b.
Children’s clothes and the laptop are zero-rated; the insurance premium is VAT exempt.
c. Children’s clothes are zero-rated, £200 VAT each on the price of a laptop and on the insurance premium.
d. Children’s clothes are zero-rated, the insurance premium is VAT exempt and £200 VAT on the price of a laptop
d. Children’s clothes are zero-rated, the insurance premium is VAT exempt and £200 VAT on the price of a laptop
All supplies are taxable supplies apart from those that are specifically exempt. Taxable supplies include standard- and zero-rated as well as reduced rate supplies. If a reaistered business makes standard-rated supplies, it must charge its customer VAT at the standard rate of 20% on those supplies.
If a business makes zero-rated supplies, these supplies are still taxable supplies but the rate of tax on them is 0%.
Zero-rated supplies include:
•most food and drink
•the installation of energy-saving materials
•domestic supplies of water and sewerage
• books
• sales of new residential buildings,
• many other common sense things public transport drugs etc
Reduced rate supplies charged at the 5% reduced rate of VAT.
•fuel for domestic use or non-business use by a charity;
•mobility aids for the elderly;
•smoking cessation products;
•children’s car seats;
Exempt supplies Certain supplies are exempt from VAT. Output VAT is not charged on such supplies and in principle, input VAT attributable to such supplies cannot be reclaimed including insurance finance an health services and sales of comer coal land
Tradeworth Ltd has been advised that it can elect to complete an annual VAT return. This means that:
a. its taxable supplies are greater than £1.35m in a year.
b. it will pay the VAT due in twelve monthly instalments
c. it will pay the VAT due at the end of the year
d. its taxable supplies are £1.35m a year or less.
d. its taxable supplies are £1.35m a year or less.
Traders who make taxable supplies of £1.35m a year or less can elect to complete an annual return. They make nine monthly or three quarterly VAT payments on account, with a final adjustment on the year-end return.
Registered traders will typically submit VAT returns and pay any VAT due every
a. month
b. Six months
c. three months
d. year
c. three months
Registered traders usually have to submit VAT returns and pay any VAT due every three months, i.e. every quarter. However, traders who regularly reclaim VAT from HMRC may apply to submit monthly returns. Some large companies have to pay VAT on a monthly basis.
To qualify for the flat rate scheme for calculating VAT, a business must have an annual taxable turnover of no more than what amount. EXCLUDING VAT?
a. £150,000
b. £175,000
c. £100,000
d £200,000.
a. £150,000
Flat rate scheme allows small businesses to account for VAT as a percentage of their taxable turnover, rather than on the difference between input VAT and output VAT.
This rate is set according to the average percentage of gross sales paid as VAT to HMRC for the trade sector. Limited cost businesses must use a flat rate of 16.5%.
To qualify for the flat rate scheme, a business must have annual taxable turnover of no more than £150,000 (excluding VAT). it can stay in the scheme until the total business income is over £230,000.
Sian runs her own limited company and has decided to voluntarily register for VAT. The most likely reason for this IS that she can:
a. use VAT to reduce her corporation tax liability
b. claim input tax on her purchases.
c. use VAT to reduce her income tax liability.
d. claim output tax on her purchases
b. claim input tax on her purchases.
Once a trader has registered for VAT, that trader can reclaim VAT on business-related purchases, which may result in a refund of VAT if the majority of sales are zero-rated.
If a company makes a chargeable gain having bought and sold a property in the current tax year, how are these profits taxed?
a. An indexation allowance may be applied on the full gain and is then subject to corporation tax.
b. They are subject to corporation tax.
c. They qualify for business asset disposal relief and any unrelieved amount is then subject to corporation tax
d. An annual exemption is applied and any gains over this are then subiect to corporation tax.
b. They are subject to corporation tax.
A company’s chargeable gains are added to the company’s income to arrive at the total Profits subiect to corporation tax. Chargeable gains are calculated according to the CGT rules with some modifications.
Capital losses cannot be set off against trading profits or investment income, but can be:
• set against chargeable gains of the same accounting period; or
• carried forward and set against future chargeable gains.
Donna provides management consultancy services and is registered for VAT If her fees are £6,750, how much would she invoice including VAT?
a. £7,762.50
b. £7,931
c. £8,100.
d. £8,268.75
c. £8,100
The main VAT rates in the UK are zero and the standard rate of 20%,
Small businesses may be able to reclaim some or all of their input VAT even if their supplies are exempt, provided the input VAT attributable to the exempt supplies averages not more than how much per month?
a. £625.
b. £450
c. £825.
d. £900.
a. £625.
If a business makes both exempt and taxable supplies, it is known as a partially exempt business.
A partially exempt business will generally not be able to recover input tax that relates to its exempt supplies.
However, a partially exempt business may be able to reclaim all its input VAT, even that relating to its exempt supplies, if the total value of its exempt input VAT is not more than:
• £625 a month on average; or
• half of its total input VAT in the relevant period.
A limited company with a turnover of £500,000 has a trading year which ends on 30 June.
According to HM Revenue & Customs, by which date should the company normally pay any Corporation Tax due?
A. 1 October the same year.
B. 1 February the following year.
C. 1 April the following year.
D. 5 April the following year.
D. 5 April the following year.
Companies pay corporation tax on their trading profits, investment income and chargeable gains. The combined figure, less any available deductions, is the company’s taxable total profits
The rates of tax are set for a financial year. The financial year 2023 begins on 1 April 2023 and ends on 31 March 2024.
For financial years 2023 and 2024, the main rate of corporation tax is 25%. Businesses with profits of £250,000 and over pay corporation tax at the main rate on the whole of their profits. Small profits tax of 19% on under £50k then 26.5% up to £250k
- What is the MOST likely reason for a business to voluntarily register to pay VAT?
A They would be able to claim output tax on their purchases
B They would be able to claim input tax on their purchases
C They would be able to offset the VAT paid against their corporation tax bill
D They would then be able to reduce the price paid by customers for their products
B They would be able to claim input tax on their purchases
The value of input VAT (the VAT the trader pays on purchased goods and services) can be offset against output VAT the VAT the trader must pay over to HMRC on sold goods and services).
• The trader must complete a VAT return, usually quarterly, giving figures of output and input VAT as well as certain other information, and pay HMRC the excess of output VAT over input VAT.
• If there is an excess of input VAT over output VAT, VAT is reclaimed from HMRC through the VAT return.
XYZ pic has made up its accounts for the 16-month period ending 31 January 2024. On what accounting periods, will CT be charged?
There will be a twelve-month accounting period to 30 September 2022, and a four-month accounting period to 31 January 2023.
Where a company makes up a single set of accounts for a period of 16 months, there will be an initial 12-month accounting period (in this instance to 30 September 2023) followed by a 4-month accounting period (to 31 January 2024).
The same principle applies to other accounting periods of more than 12 months. - Chapter 8, Section B1B, Learning Outcome 1.8
A company pays a basic-rate taxpaying director a dividend. What is the tax liability for both the company and the director?
C. There is no tax implication for the company, the director receives the income gross and is liable to tax at 8.75% if it is in excess of their dividend allowance.
While there are no tax implications for the company, the director will need to pay tax at the basic rate of 8.75% once the dividends exceed the dividend allowance of £1,000. - Chapter 8, Section B5, Learning Outcome 2.1
Sam is self-employed and in his VAT return has reported output VAT of £ 10,000 and input VAT of £6,000. How much VAT will Sam either owe HMRC or be able to re-claim?
He will owe £800
The value of input tax (the VAT paid by Sam on goods and services bought by him) can be offset against output tax (the VAT charged by Sam on goods and services sold by him) with any excess of output over input VAT paid to HMRC.
Sam has an excess of output VAT paid on goods worth £4,000 (£10,000 - £6,000). VAT is charged at 20%. He therefore owes HMRC €4,000 x 20% = £800. If input VAT is greater than output VAT, HMRC will pay the difference back to Sam. - Chapter 8, Section A1A, Learning Outcome 1.8
