BL - 10 - Corporation Tax Flashcards
What is corporation tax chargeable on?
A company’s income profits and capital gains
What is the corporation tax financial year?
It is the period from 1 April in one year to 31 March in the next year.
What is the corporation tax rate?
19%
How are income profits calculated?
Chargeable receipts
- deductible expenses
- capital allowances
Are dividends deductible expenses for corporation tax purposes?
no
Is the payment for the buyback of shares a deductible expense for corporation tax purposes?
no
How are chargeable gains calculated?
Gain from disposal of a chargeable asset and applying any reliefs
For corporation tax purposes, people who control a company (either alone or with connected persons) are treated as…
connected
Capital losses may be deducted from chargeable gains in the same … or carried forward to …
accounting period | later accounting periods
What is an indexation allowance?
It is an adjustment to account for any increase in value as a result of inflation
What is roll-over relief on replacement of qualifying business assets?
It is a relief for a company’s chargeable gains.
What are the key reliefs to a company?
- carry-across / carry-back relief for trading losses
- terminal carry-back relief for trading losses
- carry-forward relief for trading losses
What is a carry-across / carry-back relief for trading losses?
Carry-across: a trading loss can be set against total profits for the same accounting period
Carry-back: if the full loss is not absorbed with carry-across, it can be set against total profits of the same trade during the previous 12 months
What is the time limit to claim a carry-across / carry-back relief for trading losses?
Two years from the end of the loss-making accounting period
What is a terminal carry-back relief for trading losses?
It is for losses in the final year of trade.
It applies to loss-making accounting period and the previous three accounting periods before the start of the final 12 months of trade.
What is the time limit to claim a terminal carry-back relief for trading losses?
Within two years from the end of the loss-making accounting period
What is a carry-forward relief for trading losses?
Loss is set against subsequent total profits in the next accounting period and subsequent accounting periods, until the loss is absorbed.
What is the time limit to claim a carry-forward relief for trading losses?
Within two years from the end of the loss-making accounting period
What is the cap for carry-forward relief for trading losses?
5M, plus 50% of remaining total profits after deduction of the allowance
How many main ways may a company deal with its profits in?
Five
How can a company deal with its profits?
There are five main ways:
(i) retain them in business
(ii) pay them as dividends to shareholders (NOT deductible expenses for corporation tax purposes)
(iii) use them to pay loan/debenture interest (ONLY debenture interest is deductible expense)
(iv) pay director’s fees (deductible expense)
(v) make loans to directors/shareholders (not deductible expense)
What is the most tax-efficient way of distributing profits from the company’s point of view?
payment of directors’ fees and/or debenture interest. These are deductible for corporation tax purposes
What is a close company?
It is a company controlled by five or fewer participators or any number of participators, who are also directors
Who are participators?
Shareholders and debenture holders
What does “control” (as in controlling a company) mean?
Participators control a company if they own, or have the right to acquire, a majority of the voting shares, or have the majority of voting power.
Associates are taken into account
If a close company makes a loan to a participator or his associate, the company must generally pay a levy to HMRC equivalent to …
32.5%
If participator or his associate repays a loan to a close company …
the 32.5% levy previously imposed will be refunded
If a close company writes off a loan to a participator or his associate …
the 32.5% levy previously imposed will be refunded
Are there any exceptions to the 32.5% levy imposed on loans to participators or their associates by close companies?
(a) company is in the business of money lending and this is part of business
(b.1) loan (together with other loans) does not exceed 15k;
(b.2) borrower works full-time for the company; AND
(b.3) borrower owns 5% or less of company’s shares
What is a group company?
A group company owns 75% or more of another company’s ordinary shares
