SQE1 Business Law and Practice — Study Notes
2025/26. Covers law examinable for July 2026 and January 2027 sittings.
Free to use, share, copy, edit. No rights claimed. No warranty — verify
against the current SRA spec and legislation before relying on any rule.
Contents
Part I — Business Accounts
Chapter 1 — What accounts are for
Chapter 2 — The three financial statements
Chapter 3 — Adjustments to the accounts
Chapter 4 — Reading accounts: ratios
Chapter 5 — Distributable profits
Chapter 6 — The s123 IA insolvency tests applied to a balance sheet
Chapter 7 — Filing, audit and accounting reference dates
Chapter 8 — Practice questions
Part II — Partnership
Chapter 1 — Picking a business vehicle
Chapter 2 — The sole trader
Chapter 3 — The general partnership: formation and PA 1890 default
rules
Chapter 4 — Authority of partners
Chapter 5 — Rights and duties between partners
Chapter 6 — Liability to third parties
Chapter 7 — The partnership agreement
Chapter 8 — Dissolution and winding up
Chapter 9 — Limited Liability Partnerships
Chapter 10 — Limited Partnerships
Chapter 11 — Partnership taxation
Chapter 12 — Practice questions
Part III — Tax
Chapter 1 — Introduction to UK business taxation
Chapter 2 — Income Tax
Chapter 3 — National Insurance Contributions
Chapter 4 — Trading income for unincorporated businesses
Chapter 5 — Capital Gains Tax
Chapter 6 — Corporation Tax
Chapter 7 — Value Added Tax
, Chapter 8 — Stamp Duty and SDRT on share transfers
Chapter 9 — Inheritance Tax: Business Property Relief
Chapter 10 — Practice questions
Part IV — Insolvency
Chapter 1 — When is a company insolvent?
Chapter 2 — Sources of insolvency law post-2016
Chapter 3 — The standalone moratorium (CIGA 2020)
Chapter 4 — The restructuring plan (Part 26A CA 2006)
Chapter 5 — CVA, schemes of arrangement, informal workouts
Chapter 6 — Administration (Schedule B1 IA 1986)
Chapter 7 — Receivership: LPA receiver and (briefly) administrative
receiver
Chapter 8 — Liquidation: MVL, CVL, compulsory
Chapter 9 — Order of priority for distribution
Chapter 10 — Setting aside transactions: claw-back
Chapter 11 — Wrongful trading, misfeasance, fraudulent trading, the
creditor-regarding duty, and disqualification
Chapter 12 — Personal bankruptcy
Chapter 13 — Alternatives to bankruptcy: IVA, DRO, Breathing Space,
and informal arrangements
Chapter 14 — Practice questions
Part V — Company
Chapter 1 — Separate legal personality and limited liability
Chapter 2 — The company constitution
Chapter 3 — Persons with Significant Control (PSC)
Chapter 4 — Incorporation
Chapter 5 — Re-registering as a public company
Chapter 6 — Companies House filings
Chapter 7 — Directors: appointment, role, identity verification
Chapter 8 — Directors’ general duties (ss.171–177; s182)
Chapter 9 — Removal of directors
Chapter 10 — Board meetings
Chapter 11 — General meetings
Chapter 12 — Written resolutions
Chapter 13 — Procedure plans
Chapter 14 — Equity finance
Chapter 15 — Maintenance of share capital and financial assistance
Chapter 16 — Distributions and dividends
Chapter 17 — Debt finance
, Chapter 18 — Security
Chapter 19 — Members’ rights and statutory remedies
Chapter 20 — SRA Standards in a corporate context
Chapter 21 — Striking off and restoration
Chapter 22 — The corporate distress arc — integrated chronology
Chapter 23 — Practice questions
Part I — Business Accounts
Chapter 1 — What accounts are for
SRA spec point — Finance: financial records, information and
accounting requirements.
1.1 The three statements
Every “going concern” company produces three statements annually:
Profit and loss account (a.k.a. income statement / statement of
comprehensive income) — performance during the year. Revenue at
top, costs deducted, profit or loss at bottom.
Balance sheet (a.k.a. statement of financial position) — assets and
liabilities on a single day (last day of the accounting period). Cross-
year items (long-term loans, fixed assets) sit here.
Cash-flow statement — change in cash position during the year, split
across operating / investing / financing.
The balance sheet is the workhorse of SQE accounts MCQs; the cash-flow
statement is essential for the s123(1)(e) IA 1986 cash-flow test (Chapter
6).
1.2 Who produces what
Role Function Statutory anchor
Directors Keep adequate s386 CA 2006
accounting records; (records); s393 CA
prepare accounts 2006 (true and fair);
giving a “true and fair s414 CA 2006
view”; approve and (approve/sign)
sign. Duty is theirs
even if bookkeeping is
delegated.
Accountant External professional —
preparing accounts to a
statute-compliant
standard. Not legally
, Role Function Statutory anchor
required for small
companies.
Auditor Independent of s495 CA 2006
directors and
accountant. Opines on
whether accounts give
a true and fair view.
Most small companies are exempt from audit (Chapter 7).
1.3 Underlying accounting concepts
Five concepts run through everything that follows. Not directly examinable in
isolation:
Going concern — accounts assume continued trading. If the
assumption fails, figures may need restating at break-up value
(normally lower).
Accruals (matching) — income and expenditure recognised when
earned or incurred, not when cash moves. A sale on 30-day credit goes
on this year’s P&L; the unpaid balance becomes a debtor at year-end.
Prudence — recognise losses when foreseeable; recognise gains only
when realised.
Consistency — apply the same policies year-on-year. A switch
(e.g. straight-line to reducing-balance depreciation) must be disclosed.
Substance over form — record economic reality, not legal label. A
“lease” that’s really a financed purchase is accounted for as a
purchase.
Exam tip — going concern is the concept most likely to come up.
Typical stem: a company in obvious cash-flow trouble, asking
whether the directors can still sign on a going-concern basis.
Cross-reference — see Part V Chapter 6 §6.3 (filing accounts at
Companies House); Part V Chapter 16 §16.2 (distributable profits in
dividend procedure). See Part IV Chapter 1 §1.2 (the s123 IA tests).
See Part III Chapter 6 §6.10 (Corporation Tax payment dates aligned
with the accounting period).
1.4 Chapter MCQs
MCQ1.1 — A small private company’s directors are about to approve the
accounts for the year ended 31 March 2026. They are aware that one of their
two main customers has gone into administration since the year-end and
that this is likely to cause severe cash-flow problems in the coming six
months. The directors hope to refinance the bank loan but no offer has yet
been received.
2025/26. Covers law examinable for July 2026 and January 2027 sittings.
Free to use, share, copy, edit. No rights claimed. No warranty — verify
against the current SRA spec and legislation before relying on any rule.
Contents
Part I — Business Accounts
Chapter 1 — What accounts are for
Chapter 2 — The three financial statements
Chapter 3 — Adjustments to the accounts
Chapter 4 — Reading accounts: ratios
Chapter 5 — Distributable profits
Chapter 6 — The s123 IA insolvency tests applied to a balance sheet
Chapter 7 — Filing, audit and accounting reference dates
Chapter 8 — Practice questions
Part II — Partnership
Chapter 1 — Picking a business vehicle
Chapter 2 — The sole trader
Chapter 3 — The general partnership: formation and PA 1890 default
rules
Chapter 4 — Authority of partners
Chapter 5 — Rights and duties between partners
Chapter 6 — Liability to third parties
Chapter 7 — The partnership agreement
Chapter 8 — Dissolution and winding up
Chapter 9 — Limited Liability Partnerships
Chapter 10 — Limited Partnerships
Chapter 11 — Partnership taxation
Chapter 12 — Practice questions
Part III — Tax
Chapter 1 — Introduction to UK business taxation
Chapter 2 — Income Tax
Chapter 3 — National Insurance Contributions
Chapter 4 — Trading income for unincorporated businesses
Chapter 5 — Capital Gains Tax
Chapter 6 — Corporation Tax
Chapter 7 — Value Added Tax
, Chapter 8 — Stamp Duty and SDRT on share transfers
Chapter 9 — Inheritance Tax: Business Property Relief
Chapter 10 — Practice questions
Part IV — Insolvency
Chapter 1 — When is a company insolvent?
Chapter 2 — Sources of insolvency law post-2016
Chapter 3 — The standalone moratorium (CIGA 2020)
Chapter 4 — The restructuring plan (Part 26A CA 2006)
Chapter 5 — CVA, schemes of arrangement, informal workouts
Chapter 6 — Administration (Schedule B1 IA 1986)
Chapter 7 — Receivership: LPA receiver and (briefly) administrative
receiver
Chapter 8 — Liquidation: MVL, CVL, compulsory
Chapter 9 — Order of priority for distribution
Chapter 10 — Setting aside transactions: claw-back
Chapter 11 — Wrongful trading, misfeasance, fraudulent trading, the
creditor-regarding duty, and disqualification
Chapter 12 — Personal bankruptcy
Chapter 13 — Alternatives to bankruptcy: IVA, DRO, Breathing Space,
and informal arrangements
Chapter 14 — Practice questions
Part V — Company
Chapter 1 — Separate legal personality and limited liability
Chapter 2 — The company constitution
Chapter 3 — Persons with Significant Control (PSC)
Chapter 4 — Incorporation
Chapter 5 — Re-registering as a public company
Chapter 6 — Companies House filings
Chapter 7 — Directors: appointment, role, identity verification
Chapter 8 — Directors’ general duties (ss.171–177; s182)
Chapter 9 — Removal of directors
Chapter 10 — Board meetings
Chapter 11 — General meetings
Chapter 12 — Written resolutions
Chapter 13 — Procedure plans
Chapter 14 — Equity finance
Chapter 15 — Maintenance of share capital and financial assistance
Chapter 16 — Distributions and dividends
Chapter 17 — Debt finance
, Chapter 18 — Security
Chapter 19 — Members’ rights and statutory remedies
Chapter 20 — SRA Standards in a corporate context
Chapter 21 — Striking off and restoration
Chapter 22 — The corporate distress arc — integrated chronology
Chapter 23 — Practice questions
Part I — Business Accounts
Chapter 1 — What accounts are for
SRA spec point — Finance: financial records, information and
accounting requirements.
1.1 The three statements
Every “going concern” company produces three statements annually:
Profit and loss account (a.k.a. income statement / statement of
comprehensive income) — performance during the year. Revenue at
top, costs deducted, profit or loss at bottom.
Balance sheet (a.k.a. statement of financial position) — assets and
liabilities on a single day (last day of the accounting period). Cross-
year items (long-term loans, fixed assets) sit here.
Cash-flow statement — change in cash position during the year, split
across operating / investing / financing.
The balance sheet is the workhorse of SQE accounts MCQs; the cash-flow
statement is essential for the s123(1)(e) IA 1986 cash-flow test (Chapter
6).
1.2 Who produces what
Role Function Statutory anchor
Directors Keep adequate s386 CA 2006
accounting records; (records); s393 CA
prepare accounts 2006 (true and fair);
giving a “true and fair s414 CA 2006
view”; approve and (approve/sign)
sign. Duty is theirs
even if bookkeeping is
delegated.
Accountant External professional —
preparing accounts to a
statute-compliant
standard. Not legally
, Role Function Statutory anchor
required for small
companies.
Auditor Independent of s495 CA 2006
directors and
accountant. Opines on
whether accounts give
a true and fair view.
Most small companies are exempt from audit (Chapter 7).
1.3 Underlying accounting concepts
Five concepts run through everything that follows. Not directly examinable in
isolation:
Going concern — accounts assume continued trading. If the
assumption fails, figures may need restating at break-up value
(normally lower).
Accruals (matching) — income and expenditure recognised when
earned or incurred, not when cash moves. A sale on 30-day credit goes
on this year’s P&L; the unpaid balance becomes a debtor at year-end.
Prudence — recognise losses when foreseeable; recognise gains only
when realised.
Consistency — apply the same policies year-on-year. A switch
(e.g. straight-line to reducing-balance depreciation) must be disclosed.
Substance over form — record economic reality, not legal label. A
“lease” that’s really a financed purchase is accounted for as a
purchase.
Exam tip — going concern is the concept most likely to come up.
Typical stem: a company in obvious cash-flow trouble, asking
whether the directors can still sign on a going-concern basis.
Cross-reference — see Part V Chapter 6 §6.3 (filing accounts at
Companies House); Part V Chapter 16 §16.2 (distributable profits in
dividend procedure). See Part IV Chapter 1 §1.2 (the s123 IA tests).
See Part III Chapter 6 §6.10 (Corporation Tax payment dates aligned
with the accounting period).
1.4 Chapter MCQs
MCQ1.1 — A small private company’s directors are about to approve the
accounts for the year ended 31 March 2026. They are aware that one of their
two main customers has gone into administration since the year-end and
that this is likely to cause severe cash-flow problems in the coming six
months. The directors hope to refinance the bank loan but no offer has yet
been received.
