Institute of Financial Accountants (IFA) Qualifications Business Taxation Syllabus

Explain the difference between an allowable and a disallowable expense when computing trading profits.

Allowable expenses are revenue expenses incurred wholly and exclusively for the trade and deducted in the tax computation. Disallowable items (e.g. depreciation, client entertaining, private expenditure) are added back to accounting profit.

How is the trading profit adjusted for capital allowances rather than depreciation?

Depreciation is disallowed (added back), and capital allowances (e.g. the Annual Investment Allowance, writing-down allowances) are deducted instead to give tax relief on qualifying capital expenditure.

What is the cash basis of accounting for small self-employed traders?

An optional basis recording income when received and expenses when paid (rather than accruals). It is available to smaller unincorporated businesses, simplifying record-keeping and aligning taxable profit with cash flows.

State the Class 1 primary (employee) NIC rates and thresholds for 2024/25.

Employees pay 8% on earnings between the primary threshold ($£12{,}570$) and the upper earnings limit ($£50{,}270$), and 2% on earnings above the upper earnings limit.

What is Class 1 secondary NIC, who pays it, and at what rate?

It is employer's NIC, paid by the employer at 13.8% on each employee's earnings above the secondary threshold ($£9{,}100$ per year), with no upper limit.

Describe Class 2 and Class 4 NIC for the self-employed (2024/25 framework).

Class 4 is profit-related: 6% on profits between the lower profits limit ($£12{,}570$) and upper profits limit ($£50{,}270$), and 2% above. Class 2 flat-rate contributions are no longer required to be paid where profits exceed the small profits threshold (contributory benefit access is retained).

What is the residence rule that determines a company's liability to UK corporation tax?

A company is UK resident — and so chargeable to corporation tax on its worldwide profits — if it is incorporated in the UK or its central management and control is exercised in the UK.

What is a chargeable accounting period (CAP) for corporation tax, and what is its maximum length?

The period for which corporation tax is charged; it cannot exceed 12 months. A long period of account (over 12 months) is split into two CAPs: the first 12 months and the remainder.

What does 'taxable total profits' (TTP) comprise for a company?

Trading income plus other income (e.g. property income, non-trade interest) plus chargeable gains, less qualifying charitable donations. TTP is the figure to which the corporation tax rate is applied.

State the UK corporation tax main rate, small profits rate, and the profit thresholds for 2024/25.

Small profits rate 19% on profits up to $£50{,}000$; main rate 25% on profits of $£250{,}000$ or more; marginal relief applies between $£50{,}000$ and $£250{,}000$.

Give the formula for corporation tax marginal relief.

$$\text{Marginal relief} = (U - A) \times \frac{N}{A} \times F$$ where $U$ is the upper limit ($£250{,}000$), $A$ is augmented profits, $N$ is taxable total profits, and $F$ is the standard marginal relief fraction ($\frac{3}{200}$).

How are chargeable gains computed and taxed for a company?

Gains = proceeds less allowable costs less the indexation allowance (frozen at December 2017). Net chargeable gains are added to taxable total profits and taxed at the corporation tax rate; companies have no annual exempt amount.

What is the indexation allowance for companies and what is its key limitation?

It increases the base cost of an asset for inflation up to December 2017 (it is frozen from then). Indexation allowance cannot create or increase a capital loss.

How can a company use a current-period trading loss?

It may be set against total profits of the same accounting period, then carried back 12 months against total profits, with any remainder carried forward against future total profits (subject to claim and the carried-forward loss reform restrictions).

What conditions must be met for two companies to form a 75% group relief group?

One company must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company — measured by ordinary share capital, distributable profits and assets on a winding-up.

What is group relief and which losses can be surrendered?

Group relief allows a company to surrender current-period losses (trading losses, excess qualifying charitable donations, excess property/management expenses) to another 75% group company to set against that company's taxable total profits.

When must a company normally pay its corporation tax, and what counts as a 'large' company for instalments?

Most companies pay 9 months and 1 day after the end of the accounting period. 'Large' companies (augmented profits over $£1.5$ million) must pay by quarterly instalments instead.

For a large company with a 12-month period, on which dates are the four corporation tax instalments due?

Months 7, 10, 13 and 16 after the start of the accounting period — i.e. the 14th day of the 7th, 10th, 13th and 16th months from the start of the period.

State the VAT registration threshold and the two tests that trigger compulsory registration.

The threshold is taxable turnover of $£90{,}000$. Historic test: taxable supplies in the previous 12 months exceed $£90{,}000$. Future test: taxable supplies in the next 30 days alone are expected to exceed $£90{,}000$.

Under the historic test, by when must a business notify HMRC and from when is it registered?

It must notify HMRC within 30 days of the end of the month in which the threshold was exceeded, and registration takes effect from the first day of the second month after exceeding the threshold.

What is the VAT deregistration threshold and when can a business deregister?

A business may deregister voluntarily if taxable turnover for the next 12 months is expected to fall below $£88{,}000$. It must notify HMRC within 30 days of ceasing to make taxable supplies (compulsory deregistration).

State the three UK VAT rates and give an example of each.

Standard rate 20% (most goods/services); reduced rate 5% (e.g. domestic fuel, children's car seats); zero rate 0% (e.g. most food, books, children's clothing).

Distinguish zero-rated supplies from exempt supplies for VAT.

Zero-rated supplies are taxable at 0%, so the supplier can recover related input VAT. Exempt supplies (e.g. insurance, most financial services) carry no output VAT and the supplier generally cannot recover related input VAT.

How is the VAT payable to HMRC for a period calculated?

$$\text{VAT payable} = \text{output VAT} - \text{recoverable input VAT}$$ Output VAT is charged on sales; input VAT is the recoverable VAT incurred on business purchases.

Name two items on which input VAT generally cannot be recovered.

VAT on business entertaining (of UK customers) and on the purchase of a car available for private use (also non-business and exempt-supply related VAT).

Describe the VAT cash accounting scheme and a key condition for using it.

VAT is accounted for on the basis of cash paid and received rather than invoice dates, giving automatic bad-debt relief. It is available where annual taxable turnover does not exceed $£1.35$ million.

Describe the VAT annual accounting scheme.

The business submits one VAT return per year and makes nine monthly (or three quarterly) instalment payments based on the prior year, with a balancing payment. Available where taxable turnover does not exceed $£1.35$ million.

How is the VAT flat rate scheme operated and what is its turnover limit?

VAT is paid as a fixed flat-rate percentage of VAT-inclusive turnover, without separately reclaiming input VAT (except on certain capital assets). Available where taxable turnover (excluding VAT) is up to $£150{,}000$.

How long must VAT records be kept, and how can a business correct a net VAT error?

VAT records must be kept for 6 years. Net errors below the greater of $£10{,}000$, or 1% of turnover up to a maximum of $£50{,}000$, may be corrected on the next VAT return; larger errors must be separately notified to HMRC.

State the basic capital gains tax (CGT) computation and the annual exempt amount for individuals (2024/25).

Gain = proceeds (or market value) less allowable costs less the annual exempt amount of $£3{,}000$. Taxable gains are charged at 10%/20% generally, or 18%/24% on residential property, depending on the individual's income level.

What is Business Asset Disposal Relief and the rate and lifetime limit that apply?

It reduces the CGT rate to 10% on qualifying business disposals (e.g. a trading business or 5%+ trading company shares held for 2 years), subject to a $£1$ million lifetime limit on gains.

How are disposals of shares matched for individual CGT purposes (the matching rules)?

Disposals are matched against acquisitions in this order: (1) shares bought on the same day, (2) shares bought in the following 30 days, then (3) the share pool (s.104 holding) of all earlier shares at average cost.

What is the CGT treatment of chattels, and what is a non-wasting chattel?

A non-wasting chattel (tangible movable property with a useful life over 50 years) is exempt if sold for gross proceeds of $£6{,}000$ or less; above that, any gain is restricted to $\frac{5}{3} \times (\text{proceeds} - £6{,}000)$. Wasting chattels are generally exempt.

What is the inheritance tax (IHT) nil rate band and the standard death rate above it?

The nil rate band is $£325{,}000$ (taxed at 0%); the excess of the death estate is generally taxed at 40% (or 36% where at least 10% of the estate is left to charity).

What is a potentially exempt transfer (PET) for IHT and when does it become chargeable?

A PET is a lifetime gift from one individual to another. It is exempt if the donor survives 7 years; if the donor dies within 7 years it becomes chargeable, with taper relief reducing the tax for gifts made 3–7 years before death.