BPT only Flashcards
Loan stock and what you would do on takeover gain on these.(3)
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.
If you get shares for shares what happens
Share fore share relief and the old cost would become the new cost
What happens if get cash for shares on takeover
Gain on transfer now
What do companies receive on chargeable gains instead of an annual exempt amount and when cant they get anything?(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
Allocating capital losses.(2)
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
How to treat a forex sale?
will have a gain on sale (rentranslate)
as an investment the forex gain/loss is NTLR
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?
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
Superdeduction for companies- on usual expenditure.(2)
130% main
50% special
For companies only
AIA cap from April 23
200K previously 1m so may have to apportion for hybrid if required
Companies are associated if now, or at any point in the last 12 months. (3)
– 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.
What is marginal relief?(3)
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.
For maringal relief what is thr quick way to apply this (ie effective rate of tax and when to apply)?
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
R&D revenue vs capital expenditure for small companies?(2)
FYA allowance- at 100% is available for capital
revenue will get the extra 130% deduction so 230%
How to treat IFAs (not goodwill) for taxes?(2)
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)
How is goodwill taxed when held by companies? by sole traders?(4)
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
How to treat profit on disposal of IFAs (not goodwill)?(2)
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.
How to treat sale of goodwill?(2)
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.
Intangibles and ROR.(4)
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
Two ways they can test ROR and IFAs.(2)
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)
SSE vs S4S.(1)
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
Investment companies and amangement expenses.(2)
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
How to claim losses as a company? WB if short ap in prior period?(2)
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
What is extension to carryback.(2)
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
How to treat NTLR deficit.(3)
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)
How to treat property losses.(3)
If overall negative include nil in comp
automatically offset against total profits of same year
remaining a cf against total
NO Carry back available!
Share loss relief.(2)
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)
pros and cons of loss planning.(4)
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
Pay by installments
Have to have been large in year prior
exceed the limit
MCINOCOT.(3)
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
What is the restriction on carryforward losses.(1)
5m+50% excess profits
therefore only applies for those with cf losses greater than 5m (could deduct cy profits from the “excess profits”
How to determine whether a company is Uk resident?(2)
Centrally managed and controlled-this is usually the tie breaker and take precedence
incorporation location
What defines a permanent establishment?(2)
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.
No resident companies and UK corp tax.(3)
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
Tax implications of migration of trade.(4)
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
Establishing an os business vs PE implications.(6)
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
Incorporation and crystallisation.(4)
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))
How to get extra marks in exam for DTR points
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
What can be done with unrelieved foreign tax
Can be carrief back 3 years on profits relating to the os PE (PEs only ofc)
Purchase of own shares and SD.(2)
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!)
Share for share relief and SD.(1)
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
SD on connected but not 75%.(1)
SD charged on higher of consideration or MV
SDLT
VAT inclusive price
SD and incorporation.What about liquidation?(2)
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
higher rate of SDLT for companies.(1)
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
Option to tax.(2)
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
Transfer of going concern rules (TOGC).
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)
Sale of a business: CGS and TOGC.(3)
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
Is a loan write off allowable for the company?
No, unless a bank it isnt your job to give loans
How is the individual taxed for loans?
Taxed as dividend and pay class 1 on it
2 issues on loans
benefit (class 1A)
and if shareholder S455 which is where company pays the holding tax on payment for corp tax
Explain how exempt/taxable supplies impact recoverability and the impact on OTT etc.(2)
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
Termination payments.
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
Profit/loss on disposal of a debt instrument (lona stock, debentures, gilts)
Taxable as NTLR
claim dates shorthand
return + 12
9/10 times will be right for some free marks
Value shifting
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
