Business Law

Question 1

Substantial Property Transaction

Answer 1

When a director (holding more than 20% of the power) buys something from, or sells something to, the company that they are director of.
- Substantial - Between 5k and 100k (10% of net assets), if over 100k (always substantial)

Question 2

Short Notice of Shareholders Meeting

Answer 2

90% of voting shares

Question 2

Person with Significant Control Register

Answer 2

If over 25% percent

Question 3

Require the directors to call a general meeting

Answer 3

5% of paid-up capital of the company.

Question 4

Service Contracts

Answer 4

Of more than two years, must be approved by shareholders (Ordinary Resolution)

Question 5

Loans to Directors

Answer 5

• Under £10,000 is allowed.
• Over £10,000 (or £50,000 if related to company business) requires an ordinary resolution.

Question 6

Duty to Avoid Conflicts of Interest

Answer 6

Section 175 CA 2006

Question 7

Duty to Declare Interest in a proposed transaction or arrangement

Answer 7

Section 177 CA 2006 - Can not be disapplied

Question 8

Duty to Declare an Interest in an Existing Transaction

Answer 8

Section 182 CA 2006

Question 9

Allotment of Shares

Answer 9

1. Are there any constitutional restrictions?
2. Do the directors have authority to allot shares?
3. Are there any pre-emption rights?

Question 10

Tax on Money Loaned

Answer 10

WHEN a close company loans money to a participator/their associate, the company must pay an amount equal to 32.5% of the total value of the loan to HMRC. This will be reimbursed once the loan is repaid or written off.

Question 11

Start up loss relief

Answer 11

When the taxpayer suffers a loss in any of the first four tax years of the new business. The loss can be carried back and set against the taxpayers total income.

Question 12

Carry Across Relief

Answer 12

A loss can be set against total income for the same tax year or the preceding tax year of the loss.

Question 13

Carry Forward Relief

Answer 13

May carry forward their trading loss for a tax year and set it against subsequent profits (business, not on dividends and savings.

Question 14

Insolvency

Answer 14

1. A creditor has served a statutory demand for £750+ and there is no agreement within 21 days.
2. A creditor has obtained judgement against the company.
3. It can be proved to the court that the company is unable to pay it’s debts.
4. It can be proved to the court that the company’s liabilities exceed it’s assets.

Question 15

Compulsory Liquidation

Answer 15

Where a third party commences insolvency proceedings against an insolvent company. This may be done by establishing one or more of the grounds set out in the Insolvency Act.

Question 16

Creditors Voluntary Liquidation (‘CVL’)

Answer 16

Where the Company declares itself insolvent, usually in response to pressure from creditors.

Question 17

Members Voluntary Liquidation (‘MVL’)

Answer 17

Where a solvent company ceases trading, or becomes dormant, and wishes to bring it’s affairs to an end.

Question 18

Preference

Answer 18

“Transaction that puts creditor, surety or guarantor in a better position on insolvency and company desired this” - Time-frame beign 6 months (or 24 months if connected)

Question 19

Transaction at an undervalue

Answer 19

Company transfers assets for no consideration, or less than a value asset. Timeframe is 2 years

Question 20

Compulsory Voluntary Arrangement (‘CVA’)

Answer 20

A written agreement which binds all of the parties to it. These are usually used when the company’s business is potentially fundamentally sound, but it is undergoing a temporary cash flow difficulty. It’s aim is to prevent liquidation.
- Agreed if 75% of debt value agree to it.

Question 21

Individual Insolvency

Answer 21

a. By serving a statutory demand on the debtor for a liquidated sum of £5,000 or more (and await three weeks).
b. By serving a statutory demand on the debtor in respect of a future liability to pay a debt of £5,000+ (and wait three weeks).
c. Obtain a court judgement for a debt of £5,000 or more.

Question 22

Bankruptcy

Answer 22

• A creditor is entitled to present a bankruptcy petition at court if they are owed £5,000 or more. The creditor must also show that the debtor is unable to pay their debt, or has little prospect of being able to pay their debt.
• A debtor may take the matter into their own hands and apply for bankruptcy online. The Insolvency Service will decide whether to allow the bankruptcy order, including whether there is grounds for the application.

Question 23

Income Tax

Answer 23

NSNDI - £12,570 of allowance
Basic Rate – 20% (£0-37,700)
Higher Rate – 40% (£37,701-£125,140)
Additional Rate – 45% £125,140+

Savings - Sliding Scale of Allowances (£1,000 for basic, £500 for higher, £0 for additional)
Standard Rate - 0% (£0-£5,000)
Basic Rate – 20% (£5,000 - £37,700)
Higher Rate – 40% (£37,701 - £125,140)
Additional Rate – 45% (£125,140+)

Dividends - £1,000 free allowance
Ordinary Rate – 8.75% (£0-37,700)
Dividend Upper Rate - 33.75% (£37,701-£125,140)
Additional Rate – 39.35% (£125,140+)

Question 24

CGT

Answer 24

• £6,000 annual exemption
• 10% if basic rate taxpayer and 20% if higher rate taxpayer
• 8% surcharge if residential property
• Some assets qualify for business asset disposal relief which is all taxed at 10%
• Spouses are able to transfer between them, without paying CGT

Question 25

Inheritance Tax and Business Property Relief

Answer 25

A reduction of 100% is allowed where:
- A business or an interest in a business
- Company shares that are not listed on a recognised stock exchange.

A reduction of 50% is allowed where:
- The company shares are listed on a registered stock exchange.
- Land, buildings, machinery or plant owned by the transferor personally but used for business purposes.

Question 26

Corporation Tax

Answer 26

• Companies with taxable profits of up to £50,000 are subject to a standard rate of 19%
• Between £50,000 and £250,000 are subject to the marginal rate, which is tapered. The tax payable can be calculated by applying a tax rate of 19% on the first £50,000 and a rate of 26.5% to the balance.
• Companies with taxable profits of more than £250,000 are subject to 25%

Question 27

Relief for a Trading Loss (Corp Tax)

Answer 27

• Carry-Across/Carry Back Relief for Trading Losses – Carry across their loss and set it against total profits for the same accounting period, then you can carry back and knock down total profits.
• Terminal carry-back relief for trading losses – When it ceases to trade, it can carry back any losses and set them against the company’s total profits falling in the three years before the start of that final 12 months.
• Carry-forward Relief for Trading Losses – Carry forward it’s trading loss for an accounting period to offset subsequent profits.

Question 28

When is Tax Due?

Answer 28

• The deadline for filing the self-assessment return with HMRC is 12 months from the end of the relevant accounting period.
• Those with profits over £20 million have to pay the tax in four instalments. The first payment is due two months and 13 days after the start of the accounting period.