2.3 Taxation - Corporate Tax

Question 1

How is corporate tax charged?

Answer 1

Company > Profits

• Financial/Fiscal year (1 April to 31 March)
• Corp tax (19%)
• NOT trading profits/investment profits
• NOT individuals (6 April to 5 April)

Question 2

How is corporate tax calculated?

Answer 2

1) Profits
- Taxable income + chargeable capital gains
- Add depreciation charges from Co’s accounts
- NOT deduct losses (carry forward/backward)

2) Deductions
- Capital allowances (plant and machinery, NOT profit appropriation (dividends/transfers to reserves)
- Charity payments
- ‘Hold over’ relief (business property sold)
- Trading losses brought forward
- Tax credits (R&D tax, SME credits)
- NOT expenses ‘wholly and exclusively’ incurred during business (employee wages, business income, accounting costs)

3) Payment
- Pay by 9 months + 1 day after end of accounting period
- File by 12 months after end of accounting period
- If profit at annual rate (+£1.5m) > Must pay quarterly instalments

Question 3

How are company distributions to SHs treated?

Answer 3

Limited Co pays tax > Limited Co’s profits

Ds pay tax > Ds’ remuneration

Partners pay tax > P’ship’s profits

Question 4

How are company deemed distributions to SHs treated?

Answer 4

Dividends

Gratuitous

• Gifts/Charitable donations
• Transactions at undervalue
• Tax losses

NOT distribution

• Bonus from shares
• Share capital reduction
• Redemption/Purchase of Co’s shares out of capital/unrealised profits
• Transfer assets to SH on WU

Question 5

What deductions are available?

Answer 5

Trading loss relief

• Offset loss vs other profits in same accounting period
• Carry forward vs future trading profits (Max. offset amount is £5m OR 50% profits in excess)
• Carry backward to 12-month accounting period beforehand + continue such trade for profit

Capital loss relief

• Offset vs chargeable gains in same accounting period
• Carry forward vs future chargeable gains (Max. offset amount is £5m OR 50% profits in excess)

Roll-over relief

1) Trader buys property
2) 1 year before/3 years after previous sale > Trader sells property

Group relief

1) Surrendering Co > Surrenders corp tax loss > Claimant Co
2) Within same ‘tax loss relief group’
- Co owns +75% capital in other Co
- TP is beneficial owner (+75% capital) in other Cos
3) Max. relief > Lower of;
- Surrendering Co’s loss
- Claimant Co’s profit
- Claimant Co claims group relief on tax return > Surrendering Co consents to losses surrendered (writing to HMRC)