BL - 10 - Corporation Tax

Question 1

What is corporation tax chargeable on?

Answer 1

A company’s income profits and capital gains

Question 2

What is the corporation tax financial year?

Answer 2

It is the period from 1 April in one year to 31 March in the next year.

Question 3

What is the corporation tax rate?

Answer 3

19%

Question 4

How are income profits calculated?

Answer 4

Chargeable receipts
- deductible expenses
- capital allowances

Question 5

Are dividends deductible expenses for corporation tax purposes?

Answer 5

no

Question 6

Is the payment for the buyback of shares a deductible expense for corporation tax purposes?

Answer 6

no

Question 7

How are chargeable gains calculated?

Answer 7

Gain from disposal of a chargeable asset and applying any reliefs

Question 8

For corporation tax purposes, people who control a company (either alone or with connected persons) are treated as…

Answer 8

connected

Question 9

Capital losses may be deducted from chargeable gains in the same … or carried forward to …

Answer 9

accounting period | later accounting periods

Question 10

What is an indexation allowance?

Answer 10

It is an adjustment to account for any increase in value as a result of inflation

Question 11

What is roll-over relief on replacement of qualifying business assets?

Answer 11

It is a relief for a company’s chargeable gains.

Question 12

What are the key reliefs to a company?

Answer 12

• carry-across / carry-back relief for trading losses
• terminal carry-back relief for trading losses
• carry-forward relief for trading losses

Question 13

What is a carry-across / carry-back relief for trading losses?

Answer 13

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

Question 14

What is the time limit to claim a carry-across / carry-back relief for trading losses?

Answer 14

Two years from the end of the loss-making accounting period

Question 15

What is a terminal carry-back relief for trading losses?

Answer 15

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.

Question 16

What is the time limit to claim a terminal carry-back relief for trading losses?

Answer 16

Within two years from the end of the loss-making accounting period

Question 17

What is a carry-forward relief for trading losses?

Answer 17

Loss is set against subsequent total profits in the next accounting period and subsequent accounting periods, until the loss is absorbed.

Question 18

What is the time limit to claim a carry-forward relief for trading losses?

Answer 18

Within two years from the end of the loss-making accounting period

Question 19

What is the cap for carry-forward relief for trading losses?

Answer 19

5M, plus 50% of remaining total profits after deduction of the allowance

Question 20

How many main ways may a company deal with its profits in?

Answer 20

Five

Question 21

How can a company deal with its profits?

Answer 21

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)

Question 22

What is the most tax-efficient way of distributing profits from the company’s point of view?

Answer 22

payment of directors’ fees and/or debenture interest. These are deductible for corporation tax purposes

Question 23

What is a close company?

Answer 23

It is a company controlled by five or fewer participators or any number of participators, who are also directors

Question 24

Who are participators?

Answer 24

Shareholders and debenture holders

Question 25

What does "control" (as in controlling a company) mean?

Answer 25

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

Question 26

If a close company makes a loan to a participator or his associate, the company must generally pay a levy to HMRC equivalent to ...

Answer 26

32.5%

Question 27

If participator or his associate repays a loan to a close company ...

Answer 27

the 32.5% levy previously imposed will be refunded

Question 28

If a close company writes off a loan to a participator or his associate ...

Answer 28

the 32.5% levy previously imposed will be refunded

Question 29

Are there any exceptions to the 32.5% levy imposed on loans to participators or their associates by close companies?

Answer 29

(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

Question 30

What is a group company?

Answer 30

A group company owns 75% or more of another company's ordinary shares