Monday 10 February 2025
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: Emma is looking to purchase a second-hand commercial oven for her bakery. She visits a catering equipment supplier, BakeTech Ltd., where the salesperson tells her that the oven is “in perfect working condition” and “has only been lightly used.” Based on these assurances, Emma purchases the oven for £8,000. After installing the oven, Emma discovers that it frequently overheats and shuts down. A technician later informs her that the oven is five years old, had been previously used in an industrial kitchen, and had significant pre-existing mechanical faults. Emma is frustrated and wants to take legal action against BakeTech Ltd.
Under English contract law, which of the following best describes the legal nature of the salesperson’s statements, and what remedy is available to Emma?
1. Fraudulent misrepresentation – Emma can claim damages and rescind the contract because BakeTech Ltd. knowingly made false statements to induce her into the purchase.
2. Negligent misrepresentation – Emma can claim damages under the Misrepresentation Act 1967 if BakeTech Ltd. failed to take reasonable care in verifying the oven’s history before making the statement.
3. Innocent misrepresentation – Emma can rescind the contract but cannot claim damages, as the salesperson believed the statement was true.
4. Breach of contract – Emma can only sue for breach of contract because the salesperson’s statements were part of the contractual terms.
5. No legal remedy – The statements were mere “sales puff” and do not form the basis for a misrepresentation claim.
Resource: Learn more about the doctrine of misrepresentation by watching this video.
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Answer and feedback to last week’s 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 eneargy-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?
1. 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.
2. EcoTech Ltd. is only required to pay corporation tax on its distributed profits (dividends paid to shareholders), rather than on total taxable profits.
3. EcoTech Ltd. can avoid paying corporation tax by reinvesting all of its profits back into the business instead of distributing them to shareholders.
4. 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.
5. EcoTech Ltd. is only liable for corporation tax if it has overseas income, as UK companies are not taxed on domestic profits.
Correct Answer: 1. 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. Feedback: Under UK corporation tax law, companies pay corporation tax on their taxable profits, which include trading profits, investment income, and capital gains. The corporation tax rate depends on the company’s total profits and is subject to the main rate set by the UK government (which can change over time). 1. Taxable Profits: These are calculated after deducting allowable business expenses, such as salaries, rent, and operating costs; 2. Capital Allowances: Companies can reduce their tax liability by claiming capital allowances on qualifying assets, such as energy-efficient machinery, under the Annual Investment Allowance (AIA) or other relief schemes; 3. Corporation Tax on Profits, Not Distributions: Unlike personal taxation, corporation tax applies to total taxable profits before any dividends are distributed to shareholders.
Why the Other Options Are Incorrect: Option 2 is incorrect because UK companies pay corporation tax on total taxable profits, not just on distributed profits. Dividends are taxed separately when received by shareholders. Option 3 is incorrect because reinvesting profits does not eliminate a company’s corporation tax liability—profits are taxable regardless of how they are used. Option 4 is incorrect because corporate profits are taxed separately from personal income tax rates. Directors and shareholders pay tax on dividends separately from the company’s corporation tax obligations. Option 5 is incorrect because UK companies are taxed on both domestic and worldwide income (subject to double taxation relief). Domestic profits are not exempt from corporation tax. Thus, EcoTech Ltd. will pay corporation tax on its taxable profits but can reduce its tax liability by claiming capital allowances on qualifying business assets.
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Dr Ioannis Glinavos
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