Additional aspects of Corporation tax Flashcards
CT: Pension Contributions
All contributions made by an employer are made gross. The employer will usually obtain tax relief for the contribution by deducting it an an expense in calculating trading profits for the period of account in which the payment is made NOT ACCRUED.
No limit on the amount of tax deductible contributions an employer can make.
However, HMRC may seek to disallow a contribution which it considers is not a revenue expense or is not made wholly and exclusively for the purposes of trade. Circumstances that may lead to questions:
- where a contribution is made on behalf of a controlling director at a disproportionately high level or
- where contributions are made in connection with the sale or cessation of a trade.
CT: Capital profits and losses on disposal
a capital profit arising on disposal of a debenture, loan stock or gilt edged security is taxable as a loan relationship. Similarly a capital loss arising on such a disposal is allowable as a loan relationship debit.
Examiner likely to try to trick you into thinking it is a capital disposal.
CT: incidental costs of loan finance
Incidental costs of loan finance are debits under the loan relationship rules (either trading or non trading as for the loan itself)
CT: Intangible fixed assets
The basic rule is that the tax treatment follows the accounts. When there is an expense in the accounts, a deductible expense arises for tax purposes and vice versa for income.
IF a company’s accounts have been prepared in accordance with normal accounting practice, there will be no need to make any adjustment to the accounting profit or loss
CT: R&D - what qualifies?
REVENUE expenditure on:
- staff directly engaged on R&D (or indirectly if allowable under UK GAAP)
- staff provider who provides staff to be directly engaged on R&D
- Consumable or transformable materials
- computer software
- power, water and fuel
- expenditure of the same nature subcontracted by a SME
CT: R&D CAPITAL expenditure
is eligible for a 100% first year allowance
CT: SME definition
- fewer than 500 employees and either
- annual turnover not exceeding 100 million Euros or
- an annual balance sheet total not exceeding 86 million euros
otherwise a large company (in exam you will be told if SME)
CT: R&D for SMEs
An SME may take an ADDITIONAL 130% deduction against trading income
CT: R&D expenditure credits (RDEC) for large companies
This is an election. RDEC is 12% of the R&D expenditure.
So basically you:
- take taxable profits (after deducting R&D expenditure)
- add RDEC (to increase your taxable profits)
- Then you tax it and deduct RDEC from the tax
CT: Property income
In general the rules are the same as property income for individuals, but there are a few diffences:
- losses: property losses made by a company are set off against other income and gains of the company, not just against future property income. A claim can be made to offset all or part of the loss against total profits of the company or it can be surrendered to other group companies
- interest paid to buy or improve property - interest paid is a non trading debit. Therefore such interest is not an allowable expense against property income.
CT: Double taxation relief - methods
Three methods
- treaty relief - formal double tax treaties will be applied first
- Unilateral relief - DTR is allowed as a credit against UK tax (lower of overseas &UK)
- Expense relief - small amounts of foreign tax can be allowed as an expense (ie the net sum is included in the computation)
CT: Classification of DTR
Double taxation may arise on
- foreign dividend income
- overseas non trading loan relationship
- overseas property income
CT: Calculating DTR
DTR is calculated on a source by source basis. It is usually a tax credit equal to the lower of
- the UK tax on the overseas income
- the overseas tax on the overseas income
Qualifying charitable donations can be deducted from UK/overseas income in the most beneficial manner. So always deduct from UK income first then the overseas income which has suffered the lowest rate of overseas tax.
CT: Unrelieved foreign tax
Where the overseas tax exceeds the amount of UK tax on the foreign income, unrelieved foreign tax is created. UFT on most foreign sources is lost.
CT: Foreign dividends
The majority of foreign dividends received by UK companies are exempt from tax in the UK - however a minority are taxable (you will be told)
Exempt foreign dividends received (other than from 51% subsidiaries) are included in exempt ABGH distributions and are therefore taken into account when determining whether a company must pay corporation tax by instalments. Any overseas tax in respect of the dividend is ignored.
