Business & personal taxation
The choice of business vehicle drives its tax treatment, and SQE1 expects a working grasp of how income, gains and consumption are taxed for individuals, partnerships and companies. Rates change annually, so principles and the taxpayer matter more than transient figures.
What "Business & personal taxation" covers
- A sole trader and each individual partner pays income tax on trading profits and Class 2/4 National Insurance; the partnership itself is transparent and pays no tax.
- A company pays corporation tax on its income profits and chargeable gains; shareholders are then separately taxed on dividends they receive.
- Whether a receipt is income or capital turns on the badges of trade; income tax and corporation tax apply to income, capital gains tax (or corporation tax on gains) to disposals of assets.
- Capital gains tax is charged on the disposal of chargeable assets by individuals under the TCGA 1992, subject to the annual exempt amount and reliefs.
- Business Asset Disposal Relief reduces the CGT rate on qualifying disposals of business assets up to a lifetime limit (s.169H TCGA 1992).
- VAT is charged on taxable supplies by a registered business; registration is compulsory once turnover exceeds the threshold, and input tax may be recovered against output tax (VATA 1994).
- Rates, thresholds and allowances are set by the annual Finance Act, so an SQE candidate should reason from principle rather than memorise figures that change each year.
Key cases & statutes
The authorities and provisions most likely to matter for this subtopic:
How it's tested in SQE1
SQE1 uses single best answer questions: a short factual scenario, one precise question, and five options of which only one is the best answer on the law applied to the facts. For business & personal taxation, expect to be asked what the correct legal position is, what a party may or must do, or which outcome follows — with more than one option looking arguable. Reading the facts carefully and eliminating the near-misses is the skill that earns the mark.
Where candidates lose marks
- Mixing up who bears the tax — the company pays corporation tax, but the shareholder pays on dividends and the partner pays income tax on their profit share.
- Memorising specific rates and thresholds that change with each Finance Act, rather than applying the underlying principles.
- Treating every disposal as attracting Business Asset Disposal Relief without checking the qualifying conditions and lifetime limit.
Learn this subtopic in the course
A video lesson, notes and exam-style practice on business & personal taxation.
FAQ
Is business & personal taxation tested on SQE1?
Yes — business & personal taxation is part of the SQE1 Business Law and Practice syllabus (FLK1) and can appear in single best answer questions.
How is business & personal taxation examined in SQE1?
SQE1 tests it by application: you're given a realistic scenario and choose the single best answer from five options. The focus is on using the law correctly, not reciting it — knowing the leading authorities (Income Tax Act 2007, ITTOIA 2005) helps.