5. Corporation Tax

Question 1

Within what time after the end of its financial accounting period must a company (1) pay any corporation tax which is owing, and (2) submit its tax return?

Answer 1

Tax due: Nine months and one day
Return due: Twelve months

Question 2

What is the current corporation tax rate?

Answer 2

25%

Question 3

What is the difference between the tax-status of dividends paid by a company and to a company?

Answer 3

Dividends paid out: not tax deductible
Dividends received: usually exempt from tax so not added to taxable income

Question 4

What are the two ways in which a company can treat its trading losses?

Answer 4

1. Set off all of loss against profits (before donations) from current or preceding accounting period
2. If no profits, carry loss forward to offset against future profits (after donations) in a future accounting period

Question 5

What is a close company?

Answer 5

Company resident in UK and controlled by either:

1. Five or fewer shareholders, or
2. Any number of directors who are also shareholders

Question 6

What happens if a close company makes a loan to a shareholder who is also a director/employee and charges no interest on this? What is triggered if the loan is over £10,000?

Answer 6

A taxable benefit arises valued at the current official interest rate. If the loan is over £10,000, the benefit must be reported and taxed as earnings

Question 7

If a close company makes a loan to a shareholder, even if interest is charged, what is the amount of the notional tax payment which must be deposited with HMRC and within what time limit should this payment be made?

Answer 7

The company must pay to HMRC 32.5% of the loan within nine months and one day after the end of the accounting period in which the loan was made

Question 8

Is the payment refunded when the loan is repaid or written off?

Answer 8

Yes

Question 9

Is the notional payment paid to HMRC deductible by the company as an expense?

Answer 9

No