14. Introduction to corporation tax Flashcards
When is company deemed UK resident?
- incorporated in the UK or
- centrally managed and controlled in the UK
Accounting periods cannot exceed 12 months, it therefore ends on the earliest of (3)
- 12 months after the beginning of the AP
- the end of the companies period of account (statement of financial position date)
- when the company begins or ceases to trade
What is the proforma for a corporation tax computation to work out taxable total profits
Company name
Corporation tax comp for year ended ………..
Tax adjusted trading profits X Interest income X Property income X Miscellaneous income X Chargeable gains X
= Total profits X
QCDS (X)
= Taxable total profits X
How do you calculate the tax adjusted trading profit?
Net profit per accounts X Disallowed expenditure X Allowed expenditure 0 Capital allowances (X) Other income (X)
= Trading income
What are the main differences for calculating company adjustments rather than sole trader? (4)
- Private use adjustment: no private use restrictions. Fully allowable as workers taxed on benefit not company.
- Capital allowances: full capital allowances even if private use. Again taxed on individual not company.
- Dividends: not an allowable expense as appropriation of profit. Dividend income also exempt.
- Interest payable/receivable: Interest payable on trading purposes is allowable. Not allowable for non-trading activities
What basis is interest taxed on?
When are staff costs on an accruals basis?
An accruals basis
When paid in year or following 9 months.
What are the loan relationship rules for interest income? (3)
Interest receivable: assume non-trade for exam. Tax as interest income (deduct from trading, add back to interest)
Trading interest payable: deduct from trading profits, add back to interest TREAT AS TRADING INCOME
Non-trading interest payable: add back to trading income, deduct from interest income TREAT AS INTEREST INCOME
What is the general rule for working out interest income?
What you deduct from trading, add to interest.
What you add to trading, deduct from interest
Property income is done on what basis?
What is the proforma?
Accruals basis
Rent accrued X
Assessable amount of lease premium* X
Allowable deductions (X)
Property income X
- done on same basis as individual
How do you charge interest on loans to buy a rental property?
Not allowed as a property income expense.
Treated under loan relationship rules for investment income.
How do you deal with a loss in property income?
Deducted from total profits (before QCDs) and any remaining loss can be offset against future periods
For a long period of account for CT, how do you separate income? (5)
Trading profits: both years time apportion
Capital allowances: first year normal second year time apportion AIA and WDA
Interest and property income: accruals basis for both. time apportion if no accruals info.
Chargeable gains: based on date of disposal
QCDs: based on date paid
When preparing two separate tax comps. for a long period, what do you need to remember in terms of admin/filing? (2)
- Two separate pay days (9 months and one day after end of each AP)
- One filing date (12 months after AP end)
What are some examples of trading interest payable? (4)
What are some examples of non-trading interest payable? (2)
Trading:
- interest on loan to purchase plant and machinery
- interest on loan taken out to purchase trading property
- interest on loan or overdraft to fund daily operations
- on loan noted to fund trading operations
Non-trading:
- on a loan to purchase a commercially let property (classed as property income)
- loan to acquire shares of a new company
