Business Studies Multiple Choice Question – 14 August 2021

In 2016, UK corporation tax was 20%.  Initially a decrease in corporation tax will most likely lead to a/an?

Select ONE answer:

1. increased retained profit
2. decreased employee wages
3. decreased fixed costs
4. increased selling price

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – Definition of corporation tax: a tax on profits. If corporation tax is reduced from 20% on profits, companies will pay less in tax.  This means companies will be able to increase the level of their retained profits that they keep.
2. Not correct – because paying less tax could lead to more retained profit and an increase in wages.
3. Not correct – fixed costs are not affected by increase or decreases in corporation tax.
4. Not correct – companies are more likely to hold or decrease their selling price if there are tax savings to be had.

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