8 - VAT and Corporation Tax (B) Flashcards
B Corporation tax
Which type of company pays corporation tax?
Limited companies
Which 3 things do companies pay corporation tax on?
Trading profits, investment income and chargeable
gains.
How is a companies taxable profits calculated?
The sum of trading profits, investment income and chargeable
gains, minus any available deductions.
Name 2 examples of an unincorporated business
Sole traders and partnerships
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?
On a strict accounting period basis
Rates of corporation tax are set for each financial year. When does the financial year start and end?
1 April - 31 March (not the same as a tax year!)
What are the 3 rates of corporation tax for 2023/24 and when do they apply?
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.
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?
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.
If a company has 3 associated companies, how are the corporation tax thresholds calculated?
Shared among them. i.e., £50,000/4 (1 main co. plus 3 associated) and £250,000/4.
When is a company ‘associated’ with another?
If they are under the same control (a shareholding of more than 50%)
Companies have to complete a corporation tax return for each accounting period. True or false?
True
A companies accounting period cannot last longer than 12 months. True or false?
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.
How soon must a company claim their loss relief if they traded a loss?
Within 2 years or the end of the loss-making period.
How can trading loss be relieved?
- Set off against current and previous year profits
- Carry forward
What can trading losses be offset against?
Other income and chargeable gains (against taxable profits) of the same accounting period
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?
True
If trading losses are carried forward, when profits exceed £5m, what is the loss relief restricted to?
Broadly, £5m plus 50% of the profit in excess of £5m.
Are a company’s chargeable gains eligible for business asset disposal relief?
No
When was the indexation allowance frozen?
December 2017
When is corporation tax due to be paid?
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.
A small or medium sized company with an accounting period ending on 30 September 2023, must pay their corporation tax by when?
1 July 2024 (9 months and 1 day later)
Define ‘large company’ and ‘very large company’ for corporation tax liability.
Large = one with profits over £1.5m
Very large = one with profits over £20m
Quarterly payments of corporation tax must be paid by which size of company?
Large = one with profits over £1.5m
‘Large’ and ‘very large’ companies have the same payment dates for their corporation tax due. True or false?
False - very large companies usually have to pay theirs a bit earlier
How soon should a company submit its tax return?
Within 12 months of the end of the accounting period
Company tax returns must only be submitted online. True or false?
True
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?
31 December 2024 to submit (12 months)
31 December 2025 to amend (another 12 months)
What are the ‘IR35’ rules designed to do?
Prevent the avoidance of tax and national insurance contributions (NICs) through the use of personal service companies and partnerships.
What is a close company?
One controlled by 5 or fewer shareholders (participators) or by its shareholder directors, regardless of its number.
What is a participator in a close company?
One of the 5 or fewer shareholders or its shareholder director(s), for purposes of a close company
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?
Certain relatives, business partners and the trustees of family settlements.
Why are loans by a close company to a participator subject to tax?
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.
If you borrow money to buy shares in a close company, it’s an allowable deduction for income tax purposes. True or false?
True
Eligibility for interest relief on loans to buy interest in a close company must be met. What are the 2 conditions?
- must not be a close investment holding company
- both the ‘capital recovery condition’ and
either the ‘full time working condition’ or
the ‘material interest condition’ must be met.
When is a company liable to UK corporation tax if its incorporated overseas?
If central management and control is exercised in the UK
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?
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.
A large or very large sized company with an accounting period ending on 30 September 2023, must pay their corporation tax by when?
In quarterly instalments
