Certificate In Mortgage Advice And Practice (CeMAP) 1 Practice Exam

Which type of tax does a limited company pay on their profits?

Capital Gains Tax Corporation tax Internal tax VAT

Correct Answer:

Corporation tax

Explanation:

When a limited company earns profit, it’s treated as a separate taxpayer, so the tax sits at the company level rather than on the individuals who own it. The tax charged on the company’s profits is corporation tax, which applies to both trading profits and gains on assets (charged as part of profits). Capital Gains Tax, by contrast, applies to individuals (and some trusts), not to companies, so a company’s gains are not taxed under CGT. VAT is a tax on turnover—value added to goods and services—collected by the business, not a levy on its profits. An “internal tax” isn’t a standard term used for company taxation. So the profits of a limited company are taxed through corporation tax.

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