Additional Aspexts Of Corporation Tax Flashcards
Trading loan relationships
Loan relationships (accruals basis)
Interest :
Income - eg company is a bank (int is trading income)
Expense - interest payable on loan to P and M
Overdraft interest
Income = trading income Expense = trading expense
Non trading loan relationships
Interest income always NTLR (unless bank etc)
Income = bank interest receivable
Loan relationship income
Expense = interest payable on loan to buy an investment :
- int on loan for shares
- int on loan to buy investment property
- int on late corp tax
Loan relationship expense
Pool both LRI and LRE together and if net credit - loan relationship credit in CT comp
Net debit = relief available
Incidental cost of loan financing - debits under loan relationship rules
All profits or losses arising from loan relationships must be treated as credits or debits- whether they are of an con Im of capital nature
Intangible fixed assets
Acquired after April 2002 Eg Goodwill Patents Copy rights Trademarks
In exam always held for trade purposes
Trading Income :
Profit on sale of IFA
Royalty receivable
Revaluation of IFA
Trading expense :
Loss on sale of IFA
Royalty payable
Amortisation of IFA (except goodwill)
All of these are in P+L and no adjustment needed
The only one not allowed is amortisation on goodwill - so add back if deducted
Property income
Generally the same as individuals however
1)property losses made by a company must first be set off against total profits of the same accounting period
Any remaining loss C/F to next period as if it were a loss of that period, a claim can be made to offset all or part of the loss against total profits or can be surrendered to other group companies subject to loss restriction rules
2) interest paid to buy or improve property is dealt with under the loan relationships rules and is therefore NOT a property expense but a loan relationships expense
3) Property income is always calculated on the accruals basis (the property allowance and cash basis aren’t available )
Special types of deductions :
Pension contributions
Contributions to a registered pension scheme on behalf of employees are deductible trading expenses in the accounting period THEY ARE MADE IN
HMRC may disallow if it considers the contribution not to be a revenue expense - eg disproportionately high contribution made on behalf of a controlling director or contribution made in connection with a sale of cessation of trade
Research and development
Qualifying expenditure :
- Staff directly involved in R&D expenditure
- external staff provider
- consumables - raw materials
- computer software
- power, water and fuel
Qualifying amount
Large company - R&D expenditure credits
Small/medium sized - additional trading deduction of 130% (100% allowable plus extra 130% = 230%)
R&D capital expenditure
R&D capital expenditure is eligible for 100% FYA (both large and SMEs)
SMEs : for externally provided workers and subcontracted expenditure:
65% of payments made are qualifying expenditure if the workers are supplied by an unconnected company - R&D (£) x 65 x extra 130%
Small medium
Characteristics
SMEs
Employees <500
Annual turnover < 100 million euros
Annual balance sheet total < 86 million euros
Large company relief
Elect to use R&D credits (RDEC)
Can also apply to SMEs where qualifying R&D work is subcontracted to them by large companies.
The credit is 13% of the qualifying revenue expenditure (12% for expenditure prior to 1 April 2020)
The credit is used twice in the calculation of the corporation tax liability
1) to increase the TTP :(
2) reduce the CT liability ;)
Overseas aspect : residence
Uk resident company is liable to corporation tax on worldwide profits
A company is a UK resident if either :
It is incorporated in the UK; or
It is incorporated outside of the UK but it’s central control and management are exercised in the UK
A non UK resident company is only liable to corporation tax on the taxable total profits if any permanent establishments operating in the UK and on the gains on disposal of UK property
Overseas income
Dividends and taxing foreign income
Not too examinable
In exam assume foreign dividends are exempt unless told so
Exempt foreign dividends received (other than 51% suns) are included in exempt AGBH distributions - taken into account when considering whether comp pays instalments
Taxing overseas income :
Foreign income which is received net of foreign taxes must be grossed up for any overseas tax suffered
Foreign taxes classified as either :
1) withholding tax - always potentially recoverable
Or
2) underlying tax (UT) (rare in exam)-
Double taxation relief
Where no double tax treaty exists, unilateral double taxation relief will be given if foreign taxes suffered on other types of income (such as interest income and rental profits)
A) establish GROSS amount of income (net amount x 100/(100-tax rate)
B) calculate corporation tax on all sources of income
C) calculate DTR on each source of income separately
I) Lower of - foreign taxes paid
- uk foreign income
II) when calculating UK tax on foreign income allocate any QCDs to UK income first in order to maximise DTR claim. Any remaining QCDs are deducted against overseas income suffering the lowest rate of overseas tax
