Monday 3 February 2025
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
I hope you had a great weekend! Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
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Question: EcoTech Ltd. is a UK-based company specializing in sustainable energy solutions. In the last financial year, the company made a taxable profit of £500,000. EcoTech Ltd. has incurred business expenses, including salaries, office rent, and research costs, which have already been deducted before arriving at the taxable profit figure. Additionally, the company has invested in new energy-efficient machinery that qualifies for capital allowances. The finance director is trying to determine the amount of corporation tax the company must pay and whether any deductions or reliefs are available.
Which of the following statements correctly describes how EcoTech Ltd.’s corporation tax liability will be determined under UK tax law?
- EcoTech Ltd. will pay corporation tax at the main rate on its taxable profits, but may reduce its liability by claiming capital allowances on qualifying assets.
- EcoTech Ltd. is only required to pay corporation tax on its distributed profits (dividends paid to shareholders), rather than on total taxable profits.
- EcoTech Ltd. can avoid paying corporation tax by reinvesting all of its profits back into the business instead of distributing them to shareholders.
- EcoTech Ltd.’s corporation tax rate depends on the personal tax rates of its directors and shareholders, as corporate profits are taxed as individual income.
- EcoTech Ltd. is only liable for corporation tax if it has overseas income, as UK companies are not taxed on domestic profits.
Resource: Learn more about corporate taxation by watching this video.
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Answer and feedback to last week’s question: Daniel, the owner of a luxury car rental business, entered into a contract with Speedy Repairs Ltd. to service and maintain his fleet of high-end vehicles. Under the contract, Speedy Repairs Ltd. was required to complete all maintenance work within five business days. However, due to staff shortages, Speedy Repairs Ltd. took three weeks to complete the work, causing Daniel to lose several lucrative rental contracts with corporate clients. Daniel estimates his lost profit at £50,000 and claims this amount from Speedy Repairs Ltd. as damages for breach of contract. Speedy Repairs Ltd. argues that they were unaware of the specific contracts Daniel had with his clients and that they should only be liable for direct losses, such as the cost of hiring alternative repair services. Daniel insists that he communicated the urgency of the repairs during initial contract negotiations.
Which of the following principles will the court consider when assessing Daniel’s claim for damages under English contract law?
- Remoteness of damage – The court will assess whether Daniel’s losses were a foreseeable consequence of the breach and within the reasonable contemplation of both parties at the time of contracting.
- Mitigation of loss – The court will only award damages if Daniel took reasonable steps to minimize his losses by seeking alternative repair services.
- Liquidated damages – The court will award Daniel the full £50,000 claimed, as financial loss was clearly anticipated and quantifiable in the contract.
- Specific performance – The court will order Speedy Repairs Ltd. to complete future repairs within the agreed timeline to avoid further losses.
- Causation – The court will consider whether Daniel’s losses were directly caused by Speedy Repairs Ltd.’s delay, without any intervening factors.
Correct Answer: 1. Remoteness of damage – The court will assess whether Daniel’s losses were a foreseeable consequence of the breach and within the reasonable contemplation of both parties at the time of contracting. Feedback: Under the principles established in Hadley v Baxendale (1854), the court will consider whether the loss claimed by Daniel was:
- Naturally arising from the breach (direct losses) – Losses that arise in the usual course of events and are foreseeable.
- Within the reasonable contemplation of both parties (indirect or consequential losses) – If Daniel had informed Speedy Repairs Ltd. of the urgency and potential financial impact of delay, the losses might be recoverable.
If Speedy Repairs Ltd. was not aware of the importance of timely repairs to Daniel’s business, the losses may be considered too remote and not recoverable. Option 2 is incorrect because while mitigation of loss is a relevant principle, it does not directly determine whether the damages claimed are recoverable in the first place. Option 3 is incorrect because liquidated damages must be specifically agreed upon in the contract, which is not mentioned in this scenario. Option 4 is incorrect because specific performance is an equitable remedy and is not typically granted in cases of financial loss where damages are an adequate remedy. Option 5 is partially correct, as causation is essential to proving liability, but the key issue in this scenario is whether the losses were foreseeable under the test of remoteness.
Therefore, the court will focus on the principle of remoteness of damage, determining whether the financial loss Daniel suffered was within the reasonable contemplation of the parties at the time of contracting.
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Dr Ioannis Glinavos
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