BUSF_A01.qxd

Taxation

Having considered the basis on which business profits are taxed in the UK, it will

be useful to proceed to an example.

The income statement of Amalgamated Retailers plc, for the year ended 31 March 2009,

showed a net profit of £2,640,000. In arriving at this figure, depreciation was charged as

follows:

£

Shop premises 120,000

Shop equipment 85,000

During the year the business purchased new computerised cash registers for all its

branches at a total cost of £500,000 and spent £850,000 on acquiring the freeholds of

several new shops, all of which started trading during the year. The tax written down value

of the shop equipment at 1 April 2008 was £210,000.

The business always claims all possible allowances and reliefs at the earliest opportunity.

The taxable profit would be as follows:

£

Net profit (from the income statement) 2,640,000

Add: Depreciation:

Premises 120,000

Equipment 85,000 205,000

2,845,000

Less: Capital allowances (see below) 177,500

Taxable profit 2,667,500

Capital allowances – shop equipment

£

Written down value at 1.4.08 210,000

Add: Additions 500,000

710,000

Less: Allowance @ 25% 177,500

Written down value at 31.3.09 532,500

Example 5.4

No capital allowances would be given on the acquisition of the freeholds, as they

do not fall within the definition of any of the classes of asset for which capital allow-

ances are given.

Rates of tax and dates of payment

The taxable profit is taxed at 30 per cent for businesses (trading as companies) earning

large profits, and 20 per cent where their profits are lower.

Thus the liability of Amalgamated Retailers in the above example will be

30% ×£2,667,500 =£800,250

This tax will be payable in four equal instalments.