11. TC - Additional aspects of corporation tax Flashcards
What tax relief is given to companies for pension contributions?
- E’er pensions ontributions are deductible on a paid basis only
- So disallow accrued contribution at end of acc period
When are pension contributions disallowed by HMRC?
Give some examples of specific scenarios
HMRC may disallow contributions which are considered not to eb WEN for the purposes of trade
E.g. On behalf of a controlling director at a disproportionately high level
- In connection with the sale or cessation of a trade
What are incidental costs of loan finance?
Expenses in relation to raising the loan finance
How are incidental costs of loan finance treated for companies?
Follow the treatment of the loan itself
- If loan is for non-trade purposes, then incidental costs are treated as NTLR debit
- If the loan is for trade purposes, the incidental costs are treated as trading income debit
Give an example of non-trade loan purposes
To buy shares or an investment property
Give an example of trade purpose loans
TO buy plant and machinery or a building used in trade
What are the profit or loss on the disposal of a debt instrument taxable as?
How do you work out the prof or loss on the disposal of a debt instrument?
Taxable as NTLR under the loan relationship rules, rather than as a chargeable gain or loss
Profit or loss = proceeds less cost (indexation isn’t available)
How do you work out the prof or loss?
Profit or loss = proceeds less cost (indexation isn’t available)
Give some examples of intangible fixed assets
Goodwill
Parents
Copyrights
What are Intangible fixed assets taxed under?
Taxed under trading income
Give some examples of allowable IFA (intangible fixed assets) trading expenses to include
Payment of a royalty
Loss on the sale of an IFA
Amortisation of an IFA (except goodwill)
Give some examples of taxable intangible fixed assets trading income
Receipt of a royalty payment
Profit on the sale of an IFA
Revaluing an IFA
How is allowable R&D taxed?
It is a deductible trading expense
But may also qualify for extra R&D tax relief
Give some examples of qualifying expenditure for R&D
Consumable/transformable materials
Computer software
Power, water fuel
salaries of staff directly engaged on R&D work E.g. engineers
Do all costs relating to staff working on qualifying R&D projects get deducted as an allowable trading expense?
No
Salaries of stafff directly engaged on R&D work are allowable
Staff working indirectly on an R&D project, the expenditure only qualifies if
- It is specifically identifiable as a particular part of the activity of a R&D project e.g. training
- It can be accounted for as R&D expenditure under UK GAAP or IAS
How is R&D capital expenditure taxed?
Any R&D cap expenditure except land qualifies for 100% FYA but not any additional R&D relief
If the capital assets are subsequently sold, the proceeds are taxed as a balancing charge i.e. trading receipt
What is the taxation treatment if R&D capital expenditure is sold?
If the capital assets are subsequently sold, the proceeds are taxed as a balancing charge i.e. trading receipt
What relief can small/medium enterprises claim on R&D/
If they incur qualifying R&D revenue expenditure, they may claim an additional 130% trading deduction on revenue expenditure
What can a large company incurring qualifying R&D revenue expenditure claim?
An R&D expenditure credit (RDEC) of 12% of qualifying expenditure
Often referred to as ‘above the line tax credit’
TYu3: A Ltd, an SME for R&D purposes, incurred the following exp for qualifying R&D during the year
Staff costs - lab staff £350k
Staff costs - admin & support £75k
cap expenditure £200k
Depn £50k
Consumable stores £250k
How much will A Ltd be able to claim as a deduction in its computation of TTP?
Trading income: net profit per accounts: £473,90 Less; NTI Prof on sale of land £(22k) Bank interest receivable £(12.8k) Total NTI removed £(34.8k)
Add disallowable expenditure 23,840
Trading income £462,230
No adj is required for
- Profit on sale of patent
- Royalties payable/receivable
- Loss on sale of patent (unlike profit on sale of land)
- Amortisation of a patent (unlike for goodwill)
What is RDEC?
R&D expenditure credit
Get 12% of qualifying expenditure
Often called ‘above the line tax credit’
How does RDEC work?
It is included in the calc for TTP as income
It is deducted from the corp tax liability to calc corporation tax payable
Who gets double taxation?
What do they have to pay twice?
UK resident company which has income from overseas
Have to pay
- UK corporation tax on worldwide income
- Overseas tax on overseas profit
How is double taxation dealt with?
Same profits are taxed twice, but double tax relief (DTR) is available
DTR should be calculated on a source by source basis as the lower of
- UK corp tax attributable to the overseas income
- Overseas tax suffered
How is double taxation dealt with?
Same profits are taxed twice, but double tax relief (DTR) is available
DTR should be calculated on a source by source basis as the lower of
- UK corp tax attributable to the overseas income
- Overseas tax suffered
How is DTR calculated?
Double tax relief should be calculated on a source by source basis as the lower of
- UK corp tax attributable to the overseas income
- Overseas tax suffered
What does DTR stand for?
Double tax relief
How can qualifying donations or other deductions such as losses be offset against profits suffering from double taxation?
They can be offset in the most beneficial manner as follows:
- First against the UK income
- Then against the overseas income
If there is more than one source of overseas income, the qualifying donations should be offset against the source suffering the lowest rate of overseas tax first
How can qualifying donations or other deductions such as losses be offset against profits suffering from double taxation?
They can be offset in the most beneficial manner as follows:
- First against the UK income
- Then against the overseas income
If there is more than one source of overseas income, the qualifying donations should be offset against the source suffering the lowest rate of overseas tax first
What must you assume about foreign dividends foreign by a UK company unless told otherwise?
Should assume they are exempt from corporation tax unless told otherwise
How should foreign dividends be treated if they are taxable?
DTR is available against these dividends in respect of:
- Withholding tax (WHT): the ‘border tax’ is charged on overseas income as it is remitted to the UK
- Underlying tax (UT): the overseas corporation tax paid by the overseas company on its profits before dividends are paid
Must be grossed up by WHT and the UT
What is WHT?
Withholding tax - the ‘border tax’ is charged on overseas income as it is remitted to the UK
What is UT?
Underlying tax - the overseas corporation tax paid by the overseas company on its profits before dividends are paid
When it double taxation relief available on underlying tax?
If the UK company controls at least 10% of the overseas company
When including taxable foreign dividends in calculations of TTP, what must be done?
It must be grossed up by BOTH WHT and UT
