8 - VAT and Corporation Tax (B)

Question 1

Which type of company pays corporation tax?

Answer 1

Limited companies

Question 2

Which 3 things do companies pay corporation tax on?

Answer 2

Trading profits, investment income and chargeable
gains.

Question 3

How is a companies taxable profits calculated?

Answer 3

The sum of trading profits, investment income and chargeable
gains, minus any available deductions.

Question 4

Name 2 examples of an unincorporated business

Answer 4

Sole traders and partnerships

Question 5

Corporation tax is not paid on a tax year basis (subject to transitional rules), like a sole trader or partnership; so how is it instead charged?

Answer 5

On a strict accounting period basis

Question 6

Rates of corporation tax are set for each financial year. When does the financial year start and end?

Answer 6

1 April - 31 March (not the same as a tax year!)

Question 7

What are the 3 rates of corporation tax for 2023/24 and when do they apply?

Answer 7

Profits over £250,000 = 25% main rate
Profits under £50,000 = 19% small profits rate
Profits between these figures = 19% on first £50,000, then 26.5% on rest, up to £249,999.

Question 8

If a company’s accounting period straddles 2 financial years where only one main rate of corporation tax of 19% was due in 2022/23, and 2023/24 introduced 3 rates, how are profits apportioned?

Answer 8

Charged at the rates for each tax year applicable (so they may pay only 19% for the part of the accounting period that fell within 2022/23, but 25% in 2023/24.

Question 9

If a company has 3 associated companies, how are the corporation tax thresholds calculated?

Answer 9

Shared among them. i.e., £50,000/4 (1 main co. plus 3 associated) and £250,000/4.

Question 10

When is a company ‘associated’ with another?

Answer 10

If they are under the same control (a shareholding of more than 50%)

Question 11

Companies have to complete a corporation tax return for each accounting period. True or false?

Answer 11

True

Question 12

A companies accounting period cannot last longer than 12 months. True or false?

Answer 12

False - if for example it lasts for 15 months, there would be a 12 month accounting period, followed by a 3 month accounting period but for corporation tax reasons.

Question 13

How soon must a company claim their loss relief if they traded a loss?

Answer 13

Within 2 years or the end of the loss-making period.

Question 14

How can trading loss be relieved?

Answer 14

1. Set off against current and previous year profits
2. Carry forward

Question 15

What can trading losses be offset against?

Answer 15

Other income and chargeable gains (against taxable profits) of the same accounting period

Question 16

Trading losses must be set against the total taxable profits of the same accounting period before a carry-back claim can be made. True or false?

Answer 16

True

Question 17

If trading losses are carried forward, when profits exceed £5m, what is the loss relief restricted to?

Answer 17

Broadly, £5m plus 50% of the profit in excess of £5m.

Question 18

Are a company’s chargeable gains eligible for business asset disposal relief?

Answer 18

No

Question 19

When was the indexation allowance frozen?

Answer 19

December 2017

Question 20

When is corporation tax due to be paid?

Answer 20

For most companies, corporation tax is due and payable nine months and one day after the end of the accounting period.

For example, a company with an accounting period ending on
30 June 2023 must pay its corporation tax by 1 April 2024.

Question 21

A small or medium sized company with an accounting period ending on 30 September 2023, must pay their corporation tax by when?

Answer 21

1 July 2024 (9 months and 1 day later)

Question 22

Define ‘large company’ and ‘very large company’ for corporation tax liability.

Answer 22

Large = one with profits over £1.5m
Very large = one with profits over £20m

Question 23

Quarterly payments of corporation tax must be paid by which size of company?

Answer 23

Large = one with profits over £1.5m

Question 24

‘Large’ and ‘very large’ companies have the same payment dates for their corporation tax due. True or false?

Answer 24

False - very large companies usually have to pay theirs a bit earlier

Question 25

How soon should a company submit its tax return?

Answer 25

Within 12 months of the end of the accounting period

Question 26

Company tax returns must only be submitted online. True or false?

Answer 26

True

Question 27

Torino Ltd has an accounting year end of 31 December 2023. When must it submit it’s company tax return by and how long do they have to amend it thereafter?

Answer 27

31 December 2024 to submit (12 months)
31 December 2025 to amend (another 12 months)

Question 28

What are the ‘IR35’ rules designed to do?

Answer 28

Prevent the avoidance of tax and national insurance contributions (NICs) through the use of personal service companies and partnerships.

Question 29

What is a close company?

Answer 29

One controlled by 5 or fewer shareholders (participators) or by its shareholder directors, regardless of its number.

Question 30

What is a participator in a close company?

Answer 30

One of the 5 or fewer shareholders or its shareholder director(s), for purposes of a close company

Question 31

In deciding whether a company is close, the associates of a participator are grouped together with the participator to form a ‘single person’. Broadly, who can associates be?

Answer 31

Certain relatives, business partners and the trustees of family settlements.

Question 32

Why are loans by a close company to a participator subject to tax?

Answer 32

So they don’t enjoy income, tax-free, instead of paying themselves in dividends where they would otherwise by taxed. Plus they may never feel obliged to pay the loan back if its not taxed.

Question 33

If you borrow money to buy shares in a close company, it’s an allowable deduction for income tax purposes. True or false?

Answer 33

True

Question 34

Eligibility for interest relief on loans to buy interest in a close company must be met. What are the 2 conditions?

Answer 34

1. must not be a close investment holding company
2. both the ‘capital recovery condition’ and
   either the ‘full time working condition’ or
   the ‘material interest condition’ must be met.

Question 35

When is a company liable to UK corporation tax if its incorporated overseas?

Answer 35

If central management and control is exercised in the UK

Question 36

A company incorporated in Switzerland has a board of directors who are all UK resident. The board meetings are held in the UK. Is the Swiss company treated as being resident in the UK?

Answer 36

Since the directors are UK based and hold their board meetings in the UK, this indicates that the Swiss company is managed and controlled from the UK, and therefore it is resident in the UK for corporation tax purposes.

Question 37

A large or very large sized company with an accounting period ending on 30 September 2023, must pay their corporation tax by when?

Answer 37

In quarterly instalments