BPT only

Question 1

Loan stock and what you would do on takeover gain on these.(3)

Answer 1

Loan stock gain will be deferred until the loan stock is charged

Qualifying corporate bond (QCB)

Say in exam need to check

List the conditions:

*A QCB is denominated in sterling, non-convertible and a normal commercial loan paying interest which is neither excessive, nor contingent on performance.

Question 2

If you get shares for shares what happens

Answer 2

Share fore share relief and the old cost would become the new cost

Question 3

What happens if get cash for shares on takeover

Answer 3

Gain on transfer now

Question 4

What do companies receive on chargeable gains instead of an annual exempt amount and when cant they get anything?(4)

Answer 4

Indexation allowance
unless acquired after Dec 2017 when would get nothing
If enhancement expense has occured need a seprate indexation for this element
Unused indexation is lost and cant create a refund

Question 5

Allocating capital losses.(2)

Answer 5

Any brought forward losses have to be used against your own as its at the next chargeable gain
Current year can allocate as you please

Question 6

How to treat a forex sale?

Answer 6

will have a gain on sale (rentranslate)
as an investment the forex gain/loss is NTLR

Question 7

If the accounting period straddles 1 April 2023 and an asset which qualifies FYA was purchased before this date what impact would this have on the FYA? Why?

Answer 7

If special rate pool (which gets 50%) then the full amount is allowable

If main pool then time apportion

From 1 April 2021 to 31 March 2023, companies (not sole traders or
partnerships) can claim first year allowances on new assets therefore if straddle need to adjust

Question 8

Superdeduction for companies- on usual expenditure.(2)

Answer 8

130% main
50% special

For companies only

Question 9

AIA cap from April 23

Answer 9

200K previously 1m so may have to apportion for hybrid if required

Question 10

Companies are associated if now, or at any point in the last 12 months. (3)

Answer 10

– one company is under control (˃ 50%) of another, or
– they are both under the control of the same person or group of persons.
– Dormant and passive holding companies are not included when identifying associated companies.

Question 11

What is marginal relief?(3)

Answer 11

Because of the increase in tax rates those between the limits ie >50k but <250k augmented profits will need to lie somewhere between the 25% and 19% limits

To do this calcualte tax at 25% then use the following formula to deduct marginal relief:
(U – A) × (N/A) × SF
Where:
U = Upper limit for corporation tax (i.e. £250,000)
A = Augmented profits
N = Taxable total profits
SF = standard fraction for marginal relief. This is set for a Financial Year and
will be 3/200 in FY2023.

Question 12

For maringal relief what is thr quick way to apply this (ie effective rate of tax and when to apply)?

Answer 12

In planning questions, an effective rate of tax of 26.5% can be used to calculate tax for companies on the profits that fall between the lower and upper threshold
(i.e. between £50,000 and £250,000). This effective rate only works when no dividends are received.

If dividends are received, a full computation including the formula must be used. Otherwise, the tax can be calculated as:
£50,000 × 19% £9,500
(TTP – £50,000) × 26.5%=£X
Total corporation tax liability £9500+£X

Question 13

R&D revenue vs capital expenditure for small companies?(2)

Answer 13

FYA allowance- at 100% is available for capital
revenue will get the extra 130% deduction so 230%

Question 14

How to treat IFAs (not goodwill) for taxes?(2)

Answer 14

Follow the accounting treatment eg if deduct amortisation or impairment in accounts can deduct for tax purposes

OR can claim straight line 4% WDA instead worth claiming if writing off more than 25 years or doesnt amortise

Expenses or costs unless invetment usually trading income (investment would be under NTLR)

Question 15

How is goodwill taxed when held by companies? by sole traders?(4)

Answer 15

Goodwills falls with CGT for ST

For purchased up to 7th July 2015 or incorp created up to 3rd Dec 2014 follow treatment as other IFAs

After this cannot amortise or impaired and these would be need added back and WDAs would also need added back, no tax relief unless sold

UNLESS purchased by unconnected company as part of number of business purhcases from 1st April 2019 can get tax deduction at 6.5% pa on qualifiying cost of goodwill (lower of cost of goodwill capped at 6x qualifying intellectual property rights eg patents, reistered designs and copywrights)-time apportioned for shorter periods

Question 16

How to treat profit on disposal of IFAs (not goodwill)?(2)

Answer 16

If accounting treatment is followed: should mirror profit in accounts-no adj needed eg 200k cost IFA, 80k amortisation selling for 170k then 170k less (200k-80k)=50k gain

If 4% WDA claimed: need to calc TWDV as cost less WDA claimed to date eg IFA purchased 2 years ago for 300k cost no amortisation (WDA beneficial), full year WDA claimed the last 2 years so 4% of the 300k is 12k*2 take that away from 300k to give 276k TWDV this is then taken from proceeds and this would give profit on dispoal for TAX purposes.

Question 17

How to treat sale of goodwill?(2)

Answer 17

On disposal of goodwill if no amortisation/impairment/writing down allowances could be claimed for tax purposes then on disposal the profit for tax purposes is calculated as sales proceeds less cost.

This is likely to be different than the profit for accounting purposes so an adjustment will be needed.

If the calculation leads to a loss, this loss is assessed as a non-trade debit, not a deduction from trading profit.

Question 18

Intangibles and ROR.(4)

Answer 18

Available on all IFAs inc goodwill, still same 1 year before 3 years after period

If recommend need to explain rpos and cons

Pros
less tax payable immediately as profit on disposal reduced

Cons

Get less tax relief on future as new base cost will be lower thus less WDA
Plus the gain upon sale of the new asset will be higher as lower base cost

Question 19

Two ways they can test ROR and IFAs.(2)

Answer 19

Direct purchase of new IFA

Purchase of shares in a company that owns an IFA-shares themselves are NOT qualifying the ROR is against the IFA held by the company the shares are in (this reinvestment is valued at lower of the shares valye or TWDV of the IFA)

Question 20

SSE vs S4S.(1)

Answer 20

SSE takes presedence

Hwoever for groups S4S would as in this instance the group transfer is not seen as an actual transaction therefore is just S4S rules

Question 21

Investment companies and amangement expenses.(2)

Answer 21

Not trading
management expenses eg brokers fees if speicifc following the element of corp tax area eg bank interest and NTLR

If general comes off the face of the corp tax comp

Question 22

How to claim losses as a company? WB if short ap in prior period?(2)

Answer 22

CY must be used-QCDs can be watsed (all or nothing)
Then can do PY (again all or nothing)
Then can cf (can keep it so dont waste QCDs)

If shorter period youre all 12 months back eg if prior was a 3 month AP you could do 9 months of the previous period (by time apportiong eg *9/12 the TTP of this period), have to use the initial 3 month period first though

Question 23

What is extension to carryback.(2)

Answer 23

extension to Py to 3 year period only after cy-only for AP that end 1 April 2020-31 March 2022

have to do in usual way for CY PY
but for the extra 2 years there is a cap (see open book) max 2m for the above march 21 and further 2m for the next year of it

Question 24

How to treat NTLR deficit.(3)

Answer 24

include nil in comp
can deduct cy off ttp
can deduct py on NTLR losses only
or cf (after april 2017 against total but if before rleief is only against profits rather than trading profits)

Question 25

How to treat property losses.(3)

Answer 25

If overall negative include nil in comp

automatically offset against total profits of same year
remaining a cf against total

NO Carry back available!

Question 26

Share loss relief.(2)

Answer 26

For investment companies if certain conditions are met these are
company selling the shares must have subscribed for newly issued shares and been an investment compnay for 6 continuous years
the company being sold must be an unquoted Uk trading company

This is cy and py (12 months)

Question 27

pros and cons of loss planning.(4)

Answer 27

pros of cy py

Repayment of cash now (cash flwo advantage)
future rates are uncertain where as a certain repayment

pros of cf

can restrict to save QCDs
tax rates are increasing so could be saving at a higher rate if no cash flow problems

Question 28

Pay by installments

Answer 28

Have to have been large in year prior
exceed the limit

Question 29

MCINOCOT.(3)

Answer 29

Stop businesses buying failing businesses, then changing to profitable and using large losses from a failing business and then not paying corp tax on the new business

Leads to restriction on loss upon change in ownership

imagine a wall losses before cant be carried past the, losses after cant be carried back (see OBT) but is in 5 years or 8 years non trade i believe

Question 30

What is the restriction on carryforward losses.(1)

Answer 30

5m+50% excess profits

therefore only applies for those with cf losses greater than 5m (could deduct cy profits from the “excess profits”

Question 31

How to determine whether a company is Uk resident?(2)

Answer 31

Centrally managed and controlled-this is usually the tie breaker and take precedence
incorporation location

Question 32

What defines a permanent establishment?(2)

Answer 32

When determining whether a PE exists in the UK, we look for things such as the existence of a UK branch, workshop or office. These sorts of things suggest a UK ‘trade’ or presence which means a liability to UK tax.

In addition, an agent with authority to do so, habitually doing business in the UK on behalf of the company is classed as a permanent establishment.

Question 33

No resident companies and UK corp tax.(3)

Answer 33

Remittance
Uk land or devleopment or substantial interest in land (>75%-When determining if the 75% test is met we don’t include any land held for the purposes of trade.)
PE profits

Question 34

Tax implications of migration of trade.(4)

Answer 34

Registered os but centrally managed and and contorlled in Uk but then this moves to os therefore the company is no longer Uk resident

We treat this as if the Uk has stopped trading and transferred to a new company which has started trade

Therefore no losses cf
end of an accounting period
group benefits cannot be claimed anymore (as no longer Uk resident)
MV vs TWDV will have balancing charges, inventory at MV so can lead to profit, IFA treat as sale at MV at this state (trading profit rather than a gain) note any UK land etc will remain as usual as still under UK corp

The new company will be under opening year rules but in Uk only on Uk chareable assets left

Question 35

Establishing an os business vs PE implications.(6)

Answer 35

PE/branch

-Branch isnt seperate so no impact on 51% related group companies
-All profits taxable under Uk and Uk CAs can be claimed, gains in os branch also taxed in Uk
-DTR or election of PE exemption but on ALL os PEs and is irrevocable (also means cant loss share-see below point)
-os loss part of calc in trading company (unless relieved in os country or exemption) (and vice versa if profitable)
-PE can benefit in gains gorup as part of the company

New os resident subsid

-Subsid will be a 51% co from start of new company so could lead to payment by installments (potential cashflow problem for SMEs)
usually oversease dividends
-interest on any loans taxed as NTLR
-group loss relief not available for os losses and vice versa for profitable os subsid
-cant benefit in gains gorup

Question 36

Incorporation and crystallisation.(4)

Answer 36

Any balancing charges have to be paid but can claim incorp relief
provided shares in the os company are given and at least 25% held, also need to transfer all assets

This incorp relief defers gains on goodwill and gains on sale eg factory

The deferral relates to the amount of shares received therefore if 60% shares consdieration can only defer this

This will then crystallise for shares when sold or part if only some shares, or wihtin 6 years for buildings (remaiing balance of net deferred gain *(gain on asset/gain on all))

Question 37

How to get extra marks in exam for DTR points

Answer 37

If doesnt say anything about treaties mention you are going to check if any treaties are currently in place to allow treaty relief to be applied
but asusme unilateral approach for the puropse of this question and proceed as normal

Question 38

What can be done with unrelieved foreign tax

Answer 38

Can be carrief back 3 years on profits relating to the os PE (PEs only ofc)

Question 39

Purchase of own shares and SD.(2)

Answer 39

if cancelled no further SDLT
If held in treasury none on holidng but person who purchases in future will have to pay on the consdieration (as no longer new shares!)

Question 40

Share for share relief and SD.(1)

Answer 40

Exemption applies as shareholder in both are the same as part of corporate resutrcutre-applies as long as no arrangements to sell shares as part of restructure

Question 41

SD on connected but not 75%.(1)

Answer 41

SD charged on higher of consideration or MV

Question 42

SDLT

Answer 42

VAT inclusive price

Question 43

SD and incorporation.What about liquidation?(2)

Answer 43

Buildings transferred? Companies have to pay SDLT on these new shares are exempt for SD which is usually the case

If liquidation/disincorp on acqn of building there is no liability as the member isnt providing consideration for payment of building, for shares the company doesnt have to pay SD as simply ceasing to exist

Question 44

higher rate of SDLT for companies.(1)

Answer 44

When a company buys an interest in a single dwelling for more than £500,000 SDLT is charged at 15% rather than the usual rates. This does not apply if the property is held for property investment or development purposes

Question 45

Option to tax.(2)

Answer 45

output tax charged on sale
input tax recoverable for related transactions

20 years irrevocable (6 month cooling off period) NON transferable on building by building basis, unless VAT group when buyer would take over the option

must now charge VAT on rent but positive is couldnt originally reclaim input VAT on initial purchase but now can

Question 46

Transfer of going concern rules (TOGC).

Answer 46

Transfer of business, sale gift incorp?

If VAT reigstered would charge in usual way unless rules are met then outside the scope of VAT, rules:

1) say rules apply
2)say outside scope of VAT so no charge
3) apply TOGC rules and explain why (whole business transferred as GC, no change/break in trade, buyer is VAT registered or becomes it)

Special rules -exempt builiing no VAT, OTT or taxable (if OTT covered bt TOGC no VAT, if no OTT not covered by TOGC and therefore VAT is charged on the building)

Question 48

Sale of a business: CGS and TOGC.(3)

Answer 48

If falls under CGS and in the 10/5 year period then an adjustment for sale will occur

If building is taxable and then buyer makes OTT then this is covered under TOGC rules, no adj made but buyer takes on the adj period left and makes adj as previous owner

IF taxbale but buyer does not it will not (even if rest o fthe business is) and as such VAT must be charged and make an adj for sale, a new CGS period starts too

Question 50

Is a loan write off allowable for the company?

Answer 50

No, unless a bank it isnt your job to give loans

Question 51

How is the individual taxed for loans?

Answer 51

Taxed as dividend and pay class 1 on it

Question 52

2 issues on loans

Answer 52

benefit (class 1A)
and if shareholder S455 which is where company pays the holding tax on payment for corp tax

Question 53

Explain how exempt/taxable supplies impact recoverability and the impact on OTT etc.(2)

Answer 53

You can only recover input on taxable supplies not exempt

eg if Tesco had shop and insurance section they could only reocver on the shop aspect as insurance is exempt

Rent is also an exempt supply therefore if tesco had shop and element it rented out then it couldnt recover this

However if an OTT is made they would make rent a taxable supply and as such would mean they could reclaim the VAT

This is only the case for buildings and of course the person who rented would be charged a higher rate and unless they made taxable supplies may not be able to reclaim this VAT

Question 54

Termination payments.

Answer 54

Expect-anything you receive is employment income (IT/NICS)

Surprise-First 30k exemption (take away stat redunancy pay), after that its taxed with NSI rates but its taxed lastv (ie after all dividends)

Exempt-stat redundancy/pension

Question 55

Profit/loss on disposal of a debt instrument (lona stock, debentures, gilts)

Answer 55

Taxable as NTLR

Question 56

claim dates shorthand

Answer 56

return + 12

9/10 times will be right for some free marks

Question 61

Value shifting

Answer 61

Rules may apply if: company disposing of shares in another company with arrangements to materially reduce the value of those shares to reduce gain with the main purpose of reducing tax

If sse applied a fair and reasonable adj wouldn’t matter as exempt anyways as no tax advantage

See illustration 6 in chapter 6 for example