Tax: VAT return and corporation tax
Prepare a client’s quarterly VAT return and draft its corporation tax computation.
ACCA exams this helps with: TX Taxation (UK) See the ACCA map
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Tax trainees spend a lot of their first year preparing returns from information clients send in. A VAT return reports the VAT a business has charged and paid each quarter. A corporation tax computation turns a company’s accounting profit into taxable profit, because the tax rules treat some costs differently from the accounts.
Example. A company spends £5,000 taking clients to dinner. It is a real business cost in the accounts, but tax rules don’t allow it, so it is added back to profit before the tax is worked out.
Key words
- VAT return
- A form a VAT-registered business sends to HMRC, usually every quarter, showing the VAT it charged, the VAT it can reclaim, and the difference to pay or be repaid.Example: Box 1 VAT on sales £37,280 − Box 4 VAT reclaimed £14,900 = Box 5 £22,380 to pay.
- Zero-rated
- For VAT: a type of sale that is taxable, but at a rate of 0%. No VAT is charged, but the business can still reclaim VAT on its costs.Example: Goods exported outside the UK are zero-rated.
- Exempt
- For VAT: a type of sale that is outside VAT. No VAT is charged, and VAT on related costs usually cannot be reclaimed.Example: Insurance is exempt from VAT.
- Taxable total profits
- A company’s accounting profit after the tax adjustments (adding back disallowed costs and deducting capital allowances). Corporation tax is charged on this figure.Example: Accounting profit £412,000 + additions £44,900 − capital allowances £55,000 = taxable total profits £401,900.
- Capital allowances
- The tax rules’ version of depreciation. They decide how much of an asset’s cost can be taken off taxable profit, and when.Example: A company buys a £55,000 machine. The annual investment allowance lets it deduct all £55,000 from taxable profit in the year of purchase.
Your brief and documents
You are a trainee in a tax team. The client is Brightwater Joinery Ltd, a company that makes and fits kitchens (a fictional company). It is VAT-registered and its accounting year ends on 31 March 2026.
Hi,
Two jobs for Brightwater, please:
- Prepare the VAT return for the quarter to 30 June 2026 from the summary the client sent (Document 1).
- Draft the corporation tax computation for the year to 31 March 2026 (Document 2). Profits are well above £250,000, so use the 25% main rate.
Please send me a short note for the client once you’re done. Thanks, Priya
Document 1: Client’s VAT summary, quarter to 30 June 2026 (all figures exclude VAT)
| Item | Net £ | VAT treatment |
|---|---|---|
| Kitchen sales to UK customers | 186,400 | Standard rate (20%) |
| Kitchens exported to a customer outside the UK | 22,000 | Zero rate (0%) |
| Timber, fittings and tools bought from UK suppliers | 74,500 | Standard rate (20%) |
| Business insurance | 3,200 | Exempt (no VAT charged) |
| Entertaining UK clients at a restaurant | 1,800 | Standard rate, but input VAT can’t be reclaimed |
Document 2: Extracts from the accounts, year to 31 March 2026
| Item | £ |
|---|---|
| Profit before tax | 412,000 |
| Depreciation charged | 38,000 |
| Entertaining UK clients | 6,500 |
| Staff Christmas party (all staff invited) | 2,400 |
| Parking fine for a company van | 400 |
| New machinery bought (qualifies for the annual investment allowance) | 55,000 |
Watch it explained
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Videos from YouTube tutors
These videos are made by independent tutors on YouTube, not by Trial Balance. Some use US terms or older exam names (for example F7 for FR), but the principles are the same.
How a senior would approach it
- VAT: sort every item first. Standard-rated, zero-rated, exempt, or blocked (VAT paid that can’t be reclaimed). Zero-rated and exempt items both have no VAT, but they still go in the sales or purchases totals (boxes 6 and 7).
- The VAT return boxes you’ll use most: Box 1 VAT due on sales, Box 3 total VAT due, Box 4 VAT reclaimed on purchases, Box 5 net VAT to pay (or reclaim), Box 6 total sales excluding VAT, Box 7 total purchases excluding VAT.
- Corporation tax starts from accounting profit, then adjusts it to taxable profit. Add back costs the tax rules don’t allow (depreciation, client entertaining, fines). Deduct the tax version of depreciation instead: capital allowances.
- Staff entertaining is usually allowable, but client entertaining isn’t. This catches a lot of people out.
- Show your workings line by line, so your senior can review the computation quickly.
Your tasks
Work through the tasks in order, using the documents in your brief. Each task is checked when you press Check answer.