1.5 Corporation Tax Computation iclu..TTP, Trading Inc, NTLR, Other inc, QCD Flashcards
Write down the adjustment of profit computation (see illustration)
When a company has 2 AP’s what happens to the adjustment of profits calculation?
The adjustment of profits before CAs is calculated for the period of account as a whole.
Illustration not available
What is the most important source of income for most companies?
Trade profit
What expenditure can be added back to calculate the trade profits for a company? x12
- Depreciation of fixed assets (unless finance lease)
- Unallowable amortisation (most goodwill and pre-2002 IFAs)
- Capital expenditure (including legal fees on purchase or sale of capital items)
- Losses on the disposal of fixed assets.
- Entertaining (unless staff entertaining).
- Gifts (unless cost ≤£50 is not food/drink/tobacco and carries a conspicuous advertisement for the trader).
- 15% of hire cost of cars with CO2 emissions > 50g/km (>110g/km for leases entered into before 1 April 2021)
- Fines and penalties
- Bribes
- Donations to national charities
- Non-trading interest payable
- COST OF ACQUIRING A SUBSIDIARY
Re: 15% restriction, if there are maintenance costs related to the leasing of cars. What do you do with that cost when calculating the Tax Adjusted Profits?
The maintenance cost associated with the leasing of cars is DEDUCTED from the leasing cost.
(SEE: BOOK PAGE 175 LONG QUESTION 26)
What are the allowable expenses where no adjustments are made in calculating the Tax Adjusted Trade Profit? x4 re: companies
- Legals fees re: renewal of a short lease i.e. <50 years.
- Maximum of 4 statutory redundancy payments on the cessation of trade.
- Pension contributions paid in the period.
- Wages & salaries accrued provided paid ≤9 months from period end.
If requirements for the allowable expenses are met, what needs to happen?
Nothing needs to happen
If requirements for the allowable expenses are not met, what needs to happen?
The expenses need to be added back.
What is the allowable income not taxed as trade income that is deducted to calculate the Tax Adjusted Trade profit? x5
- Rental income/interest income, dividend income (usually exempt).
- Profit on disposal of fixed assets.
- Capital Allowances (no private adjustments)
Explain if there is tax relief for Dividends Paid or Dividends Received?
No tax relief received for Dividends Paid.
But Dividends Received are classed as non-trading income.
What is the treatment for legal fees associated with share issue and legal fees for the acquisition of capital assets?
Legal fees associated with share issue and the acquisition of capital assets are not trade related therefore needs to be added back.
If a capital addition is not included in the P&L what happens to the item when calculating the Tax Adjusted Trade Profits?
Capital additions in P&L are added back. If not in P&L do not add back. Relief is given via Capital Allowances.
What will arise when a company ceases to trade? And where in the CA comp?
Balancing adjustments will arise in each of the separate pools.
What types of balancing adjustment are there?
A balancing adjustment is either:
- balancing allowance; or
- balancing charge.
When does a balancing allowance arise?
A Balancing Allowance arises if proceeds< TWDV
(ie proceeds are less than the TWDV)
i.e.
Proceeds £12,000
TWDV £50,000
When does a balancing charge arise?
A Balancing Charge arises if the proceeds >TWDV
(ie proceeds exceed the TWDV)
i.e.
Proceeds £25,000
TWDV £10,000
Which type of balancing adjustment will arise only on cessation of trade and which will arise while trade is continuing?
And in which pools?
- Balancing allowance will only ever arise on the GP and SRP on cessation of trade.
- Balancing charge can arise in the GP or SRP while trade is continuing.
If a balancing charge arises while trade is continuing, when is this likely to happen?
If plant is sold in the year and disposal proceeds exceed the tax written down value of the pool.
When can you get a balancing allowance in a single asset pool?
You can get a balancing allowance in a single asset pool when you sell or dispose of the asset that is in it.
When doing the adjustment of profits calc, how are balancing charges and balancing allowances treated?
- You add balancing charges to your taxable profits.
- You take balancing allowances off your taxable profits.
What may the Temporary FYA at 130% (super deduction) or at 50% (SR allowance) be available for?
When must the expenditure have been incurred?
May be available on the purchase of new unused plant and machinery.
Between 1 April 2021 and 31 March 2023.
What does NTLR tax?
On what basis are non-trading profits normally calculated for companies?
Taxes all non-trading interest receivable by companies, less interest payable on non-trading loans.
Normally calculated on an ‘accruals’ basis.
What are the main differences for CT when computing the TTP, compared to individuals? x8
- No private use adjustments.
- Interest payable on trading loans is allowed as a deduction from trade profits.
- Interest payable on non-trading loans (e.g. interest on a loan to buy an investment property or shares) is added back for trade profits but is deducted from non-trade profit (loan relationships).
- interest receivable will be treated as non-trade profits (loan relationship) in most cases
- Donations to charity are paid gross by companies and are deductible in arriving at the TTP as a qualifying charitable donation (QCD).
- Companies do not normally pay tax on dividends received, nor do they receive tax relief for dividends paid.
- Companies pay CT on their net chargeable gains (chargeable gains less capital losses) of the period.
- Indexation allowance is deducted in arriving at the chargeable gain.
Re: Disallowable expenditure, what do you need to remember re: the 15% hire cost of cars?
15% of hire cost of cars is disallowable if the car has:
- CO2 emissions > 50g/km;
- > 110g/km for leases entered into before 1 April 2021
