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SQE1 > Business Law and Practice > Flashcards

Business Law and Practice Flashcards

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1
Q

How are LLPs taxed?

A

LLP not liable for corporation tax like a company. Members are taxed for income tax.

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2
Q

Which act contains provisions that deal with the management of the partnerhsip, such as partners’ power to bind the firm and the partners’ liability.

A

Partnership Act 1890

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3
Q

How many directors are required in a private and public company?

A

Private: at least one
Public: at least two

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4
Q

Which act contains provisions for director duties and articles of association (company constitution)

A

Companies Act 2006

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5
Q

Which type of business structures can create a floating charge?

A

Companies and LLPs

Sole proprietors and partnerships may not grant floating charges

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6
Q

Which business structures need not file records or accounts at Companies House?

A

Sole trader and General partnership

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7
Q

Which type of business structure(s) pay corporation tax?

A

Limited company

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8
Q

Which type of business structure has a general and limited partner?

A

Limited partnership

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9
Q

Which type of business structure(s) require formalities at formation?

A

Limited partnership, LLP and limited company

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10
Q

How does the Partnership Act 1890 define a partnership?

A

The relation which subsists between persons carrying on a business in common with a view of profit

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11
Q

What are the 3 elements of a partnership?

A
  • Two or more people
  • Carrying on business
  • Intention to make profit
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12
Q

What is the definition of actual authority to bind the firm?

A

Any act done in a way showing an intention to bind the firm, by any person actually authorised by the firm to undertake the act

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13
Q

What kind of authority is it when partners have allowed a partner without express actual authority to regularly do an act?

A

Implied actual authority

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14
Q

The Partnership Act 1890 provides the act of a partner carrying on in the usual way business of the kind carried on by the firm will bind the firm and the other partners unless…

A
  • The partner had no authority to act; and
  • The person the partner was dealing with either
    1) knew partner had no authority to act; or
    2) did not know or believe they were dealing with a partner
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15
Q

What is the objective test in determining whether an act is carrying on in the usual way of business in the firm?

ii

A

Would a reasonable third party think a business of this kind would usually do this act?
What authority would a reasonable third party expect a partner in such a firm to have?

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16
Q

Who must consent to the addition of a partner?

A

All existing partners

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17
Q

What is a hold harmless agreement?

A

Agreement that indemnifies outgoing partner for firm liabilities (still liable to third parties)

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18
Q

How does an outgoing partner discharge himself from liability from debts of the firm?

A

Give notice of their retirement to existing creditors and by way of advertisement in the London Gazette (for new customers)

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19
Q

When is a partner’s property used by the firm considered partnership property?

A
  • Property has been given to the firm by the partner, considered capital contribution
  • Expressly or impliedly agreed between partners
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20
Q

When can a partner use partnership property for their own purposes?

A

Only if the partners agree

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21
Q

How are profits shared between partners in a general partnership?

A

Equally unless agreed otherwise, regardless of uneven contributions

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22
Q

What rights can a partner assign in a general partnership?

A
  • Partner’s right to a share of the profits is assignable

(Partner’s right to participate in firm management or liability to firm obligations not assignable unless assignee approved as partner by all other partners)

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23
Q

In what proportion are losses paid by partners in a general partnership?

A

Same proportion as profits. Equally if no agreement, or proportionate to contributions if agreed

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24
Q

What general partnership decisions require a unanimous vote of all existing partners?

A
  • Admission of a new partner
  • A change in the nature of the business
  • An alternation to the partnership agreement
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25
Q

Term for a common law duty of trust and confidence, which requires partners to act in good faith and benefit the partnership

A

Fiduciary duty

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26
Q

What is the effect of partnership dissolution on partner authority?

A

Partners’ authority to bind the firm, rights, and obligations will continue in order to wind up partnership and complete unfinished transactions

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27
Q

What happens if a general partnership is being dissolved and assets are insufficient to pay creditors?

A

Partners are personally liable for any shortfall

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28
Q

What is the order of payments to partners if a solvent general partnership is being dissolved?

After payment of any debts or loans

A
  • Repay advances/loans a partner has made to the partnership
  • Return parters’ contributions
  • Remainder divided between partners in same proportion as profits (equally unless partnership agreement provides otherwise)
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29
Q

Which act governs LLPs?

A

Limited Liability Partnerships Act 2000

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30
Q

Minimum designated members in an LLP

A

Two

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31
Q

How does an LLP change its name (post-agreement) and when is the change effective?

A
  • Delivering notice of change to the Registrar of Companies
  • Effective when Registrar issues certificate of the name change
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32
Q

What happens if an LLP is down to one member for over six months?

A

The member who carried on the business will be jointly and severally liable with the LLP for debts incurred by the LLP after the six months and while the LLP has one member

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33
Q

What is the role of a designated member in an LLP?

A

Perform administrative and filing duties of the LLP

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34
Q

What happens if the LLP has not chosen a designated member?

A

The law treats all members as designated members

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35
Q

When must an LLP notify the Registrar of Companies of changes in membership or identity of designated members by?

A

Within 14 days of the change.
Failure to comply is an offence

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36
Q

What is being described:
- Directly or indirectly holds rights over more than 25% of the surplus assets on a winding up
- Holds more than 25% of LLP voting rights
- Holds right to appoint or remove the majority of those entitled to take part in management; or
- Has right to exercise significant influence or control over a trust

A

Person with Significant Control (PSC)

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37
Q

When are LLP members held personally liable for LLP debts?

A

In the event of insolvency if a member has acted wrongfully or fraudulently

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38
Q

What can a court rule if an LLP member withdraws any property within two years before the LLP goes into insolvent liquidation and it is proved he knew or had reasonable grounds of believing the withdrawal would make the company unable to pay its debts?

A

The court may order the member to contribute to the assets of the LLP

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39
Q

How is an LLP voluntarily struck off and dissolved?

A

Majority of members apply to the Registrar of Companies for the LLP to be struck off the register and dissolved.

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40
Q

When would the Registrar of Companies unilaterally strike off and dissolve an LLP?
What notice is given and where?

A

If it has reason to believe it is not carrying on business.
Registrar will publish three month notice of dissolution in London Gazette

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41
Q

Three cases where LLP cannot be voluntarily struck off by members

A
  • LLP has carried on business in the last three months
  • LLP has changed its name in the last three months
  • LLP is the subject of any insolvency proceedings
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42
Q

What are the two most common types of limited company?

Limited how?

A
  • Company limited by shares
  • Company limited by guarantee
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43
Q

What are the shareholder and member requirements in a company limited by guarantee?

How many?

A
  • No shareholders
  • At least one member (or guarantor)
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44
Q

What type of business model is usually limited by guarantee?

A

Not-for-profit organisations

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45
Q

What are members of a company limited by shares liable for towards the company?

A

Value of their shares only

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46
Q

What is the rule on a private limited company selling shares?

A

Cannot issue shares to public, can only be sold by private agreement

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47
Q

What is required of a PLC to publicly trade?

A
  • Additional registration and filing requirements
  • Minimum nominal share capital of £50,000
  • Trading certificate
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48
Q

Which two documents must be filed with the Registrar of Companies by the promoters to incorporate a company?

A
  • Memorandum of Association
  • Application for registration
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49
Q

Term for good faith duty owed by partner/directors/members/promoters to partnership/company

A

Fiduciary duty

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50
Q

Who is held liable in a pre-incorporation contract between a not-yet-formed company and a third party?

A

Promoter

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51
Q

What is a novation agreement?

A

Contract between the promoter, the company, and the outside contracting party - under which the parties agree to substitute the company with the promoter, releasing the promoter from liability on the pre-incorporation contract

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52
Q

What must limited company members do to change company name? (4)

Procedure

A
  • Pass a special resolution
  • Forward copy of resolution to Registrar
  • Give Registrar notice of the change
  • Pay a fee
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53
Q

Which document usually covers:
- Directors’ meetings and decision making
- Appointment and removal of directors
- Share capital
- Shareholder meetings

A

Articles of Association

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54
Q

What are the potential consequences of directors going against restricted objects in the Articles of Association?

A

1) Injuntion preventing action if not already carried out
2) Equitable action by company for any damage caused

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55
Q

What does the Companies Act 2006 provide regarding the procedure for changing the Articles of Association (constitution)?

A

Shareholders must agree the change by special resolution

NOT DIRECTORS

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56
Q

What are the ordinary and special resolution voting percentage thresholds?

A
  • Ordinary resolutions: 50%
  • Special resolutions: 75%
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57
Q

What is meant by entrenched terms of provisions of the Article of Association?

A

Provisions that require a more onerous process to alter than special resolution

Optional entrenched provisions - can be unanimous

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58
Q

How is a provision for entrenchment incorporated into a company’s Articles?

A

On formation or by special resolution

Must notify Registrar

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59
Q

Who can challenge an Articles alteration and how will the court decide?

A
  • Shareholder who did not vote for the alteration
  • Court can set alteration aside if it deems no reasonable person would deem the alteration to benefit the company
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60
Q

On which document would you find the names of the first directors of a company?

A

In the registration documents on incorporation

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61
Q

When must the Registrar of Companies be notified of new director appointments and of changes to details of existing directors?

A

Within 14 days of appointment or change

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62
Q

Term for formally appointed and registered director

A

De jure director

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63
Q

Term for someone not formally appointed and registered with Registrar but carries out duties of and behaves as a director?

A

De facto director

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64
Q

Term for someone who influences/controls acts of company directors

A

Shadow director

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65
Q

Term for director who is a consultant and takes a supervisory role over other directors

A

Non-executive director

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66
Q

Term for someone appointed by director to attend and vote at board meetings when director unable to attend

A

Alternate director

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67
Q

Term for de jure director appointed to represent interests of a particular stakeholder (must still act in company’s best interests)

A

Nominee director

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68
Q

How can shareholders, under the model articles, direct the directors to take, or refrain from taking, specified action?

A

Special resolution (75%+)

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69
Q

What employment decision made by company directors requires shareholder approval?

A

Offering a director employment contract for longer than two years

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70
Q

Which type of article provisions protecting a company director are automatically void?

A

Provisions that protect the director from liability for breach of duty, negligence, or breach of trust related to the company are void

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71
Q

Whose interests must company directors promote when the company is solvent and insolvent?

A
  • Solvent: Success of the company as a whole (inc. employees, reputation, community, and environment) for the benefit of members
  • Insolvent: Interests of the creditors (displacing duty to shareholders)
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72
Q

How to judge a director’s duty to exercise reasonable care, skill, and diligence?

A

The general knowledge, skill, and experience reasonably expected (objective test) or that the director actually has (subjective test)
Whichever standard is higher

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73
Q

How must a director declare their interest in a company transaction?
How is the board decision made differently?

A
  • Notice of the interest and details of the extent of interest must be given to the other directors
  • The interested director cannot form the quorum on that decision
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74
Q

Who has the casting vote in the event of a deadlock in a board meeting decision?

A

Chairman of the Board

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75
Q

According to the model articles, what is the minimum quorum for a board decision?

A

Two
(Interested directors cannot be included)

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76
Q

How can a director be removed?

A

By ordinary resolution of the shareholders

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77
Q

What is a written resolution?

A

A resolution that can be passed without a meeting, but is then only considered approved by unanimous decision rather than majority

Only available to private companies

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78
Q

What is a Bushell v Faith clause?

A

Clause that gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove him

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79
Q

What notice is required of a shareholder calling a general shareholders’ meeting to remove a director?
What representation rights does said director have?

A
  • At least 28 days’ notice before meeting
  • Director has right to written representation (must be shared with all shareholders) and to speak at the meeting
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80
Q

A company director’s general misconduct can include company related offence, fraud, conviction, or persistent breach of legislation.
What are the consequences for a director?

A

May not be company director or take part in promotion, formation, or management of a company

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81
Q

How long can a company director be disqualified for unfitness for?

A

2-15 years

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82
Q

What can a director do to accept disqualification without going to court?

A

Give a voluntary disqualification undertaking

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83
Q

Four ways a company shareholder can be a Person with Significant Control

A
  • Directly or indirectly hold more than 25% of the company shares
  • Directly or indirectly hold more than 25% of the company voting rights
  • Directly or indirectly hold the right to remove/appoint majority of board directors; or
  • Have right to exercise significant influence over the company
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84
Q

Two rules imposed by the Companies Act 2006 on dividend payments

A
  • Can only be paid from profits available for the purpose
  • Payment of a dividend must not make the company insolvent
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85
Q

Three advantages of preference shares?

A
  • Paid a dividend ahead of ordinary shares
  • Carry the right to a cumulative fixed percentage dividend (if unpaid rolls over to next year)
  • In case of insolvency, receive return of capital in priority
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86
Q

What are the voting rights of ordinary v preference shares?

A
  • Ordinary: full voting rights
  • Preference: usually none
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87
Q

What is the procedure for dividend payment?

A
  • Directors decide to recommend dividend payment
  • Shareholders approve by ordinary resolution (can stop or decrease, but not increase payment)
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88
Q

What is the structure of a derivative action permission process?

A

Initial stage: Court reviews application to determine if there is a prima facie case for breach of duty

Second stage: Hearing to determine
1) If shareholder acting in good faith
2) If reasonable director would continue claim
3) Likelihood the wrong would be ratified

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89
Q

When can a derivative claim be brought?

A

If a shareholder believes a director has or is about to breach a duty owed to the company and the board will not act

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90
Q

How can the company respond to a shareholder’s request to inspect the service contracts of directors (which must be kept at registered address for at least 1 year after director leaves) and register of members

A

Company must comply with request within 5 working days or apply to court claiming the purpose is improper

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91
Q

Minimum statutory frequency of general shareholders’ meetings in public and private companies

A

Public: Annual
Private: No obligation

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92
Q

Who can require the directors to call shareholder meetings?

A
  • Shareholders
  • Resigning auditor
  • Court
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93
Q

What is the procedure for shareholders requiring directors to call shareholders’ meeting?

A
  • Shareholder must hold at least 5% of paid up voting capital
  • Directors must call meeting within 21 days of request
  • Meeting must be held within 28 days of request
  • If director fails to call meeting, shareholder can call it (can be reimbursed for reasonable expenses)
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94
Q

Required notice before shareholder meeting is held

A

14 clear days
(Count 15 days for hand delivery and 17 days for posted delivery)

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95
Q

What is the notice period for an annual general meeting and other general meetings of a public limited company?

A
  • Annual: 21 clear days
  • Other: 14 clear days
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96
Q

When are special resolutions generally required?
Common factor

A

For actions of the company that may detrimentally affect shareholders

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97
Q

What is poll voting in shareholder meetings?

A

One vote per share

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98
Q

Who can demand shareholder meeting voting change from a show of hands to a poll?

A
  • Five shareholders or more
  • Shareholders with at least 10% of the voting rights
  • Shareholders with at least 10% of the paid-up capital of the company
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99
Q

Which type of company can approve resolutions by written resolution?

A

Private companies only

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100
Q

What can a written resolution not be used to do?

A

Dismiss a director or auditor

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101
Q

Directors usually decide whether to circulate a written resolution. What are the shareholder requirements to demand the directors do so?

A

If the shareholder holds at least 5% of the total voting rights

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102
Q

What does approval of the below require?
- Appointment or re-appointment of directors and auditors
- Declaration of dividends
- Approval of substantial property transactions involving directors with a personal interest
- Entering a 2+ year service contract with a director
- Giving director a loan or payment for loss of office

A

Shareholder approval by ordinary resolution

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103
Q

How is a substantial property transaction determined?

3

A
  • If value over £100,000
  • Director buys/sells property to/from company more than £5,000
  • Between these figures, SPT if exceeds 10% of net assets
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104
Q

What does approval of the below require?
- Buying back company shares
- Changes to company’s articles of association
- Changes to the company’s name

A

Shareholder approval by special resolution

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105
Q

How are additional shares allotted for companies incorporated before and after 2009?

A

Before: directors can allot additional shares provided the company has only one class of shares
After: directors must seek permission from existing shareholders through ordinary resolution

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106
Q

Term for any amount received beyond the nominal value of a share

A

Premium

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107
Q

Define preemption right

A

Right of existing shareholders to be offered additional allotted shares based on their proportional ownership 14 days before they are offered to others/market

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108
Q

What power do private company directors have regarding transfer of shares (model articles)

A

Absolute power to refuse to allow transfer of shares

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109
Q

Form required when transfer of shares takes place

A

Stock Transfer Form

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110
Q

Type of loan where debtor agrees creditor can take collateral to satisfy loan if debtor defaults

A

Secured loan

111
Q

What happens if a charge on a company (mortgage, fixed, floating) is not registered at Companies House?

A

Charge rendered void

112
Q

How is priority of secured debts determined
- between fixed charges
- between floating charges
- between fixed charges and floating charges

A
  • In date order
  • In date order
  • Fixed take priority over floating
113
Q

Which act requires private companies to keep records of the following registers:
- Members
- Directors
- Secretaries
- Charges against company assets
- PSC

A

Companies Act 2006

114
Q

How long must a company’s general shareholder meeting minutes be available for?
What are the inspection rules?

A

10 years
Shareholders can inspect minutes free of charge

115
Q

How long must director’s service contracts be available for member inspection beyond their service

A

At least 1 year

116
Q

What is the consequence of failure to file confirmation statement within 14 days of the end of the company’s review period?

A

Criminal offence

117
Q

When must charges against a company’s assets be filed at Companies House?

A

Within 21 days of creation

118
Q

What does an annual confirmation statement (formerly annual return) confirm to Companies House every year?

A

That company information held by Companies House is up to date.
If there has been a change since last confirmation statement, new confirmation statement required.
Otherwise, a ‘no change’ confirmation statement required

119
Q

When does a company’s review period - covered by the first confirmation statement - begin and end?

A

Begins on date of incorporation and ends 12 months later

120
Q

Who must approve accounts in small and non-small companies?

A

Small: Directors
Non-small: Directors and independent auditor

121
Q

When must private companies submit their accounts at Companies House?

A

No later than 9 months after the relevant accounting reference period

122
Q

When is a company no longer a small company?

A

When employees exceed 50 or turnover exceeds ~£10 million

123
Q

What reports must medium and large companies file at Companies House?

A
  • Accounts
  • Directors’ Report
  • Strategic Report
124
Q

When must Companies House be notified of the following changes?
- Appointment or termination of director/officer
- Ordinary resolution giving directors power to allot new shares
- Special resolutions approved
- Issuance of new shares
- Change of company’s registeres office

A

Within 14 days of change

125
Q

What is an Individual Voluntary Agreement?

A

Negotiated agreement between debtor (represented by insolvency practitioner) and all creditors whereby creditors agree to accept less payment than is owed

126
Q

What is the benefit of preparing a statement of affairs and applying to a bankruptcy court for an interim order during insolvency?

A
  • No bankruptcy petition may be presented or proceeded with unless allowed by court
  • No other proceedings or execustions can be commenced against the debtor
127
Q

What happens if creditors holding at least 75% of debt value agree to IVA?

A

Every ordinary unsecured creditor is bound

128
Q

Which creditors are not bound by an IVA?

A
  • Preferential creditors (employees owed holiday pay or last 4 months wages)
  • Secured creditors (taken collateral on debt)
  • Unsecured creditors who had no notice of IVA
129
Q

Three ways a bankruptcy order can be made

A
  • Debtor applies for bankruptcy online. Application heard by adjudicator
  • Unsecured creditor(s) owed at least £5,000 present a petition for bankruptcy order to the bankruptcy court
  • IVA supervisor (insolvency practitioner) petitions for debtor’s bankruptcy if debtor has breached IVA terms, hidden assets, or given preference to creditor
130
Q

The bankrupt is entitled to retain his salary subject to the trustee applying for an income payments order if salary exceeds reasonable living needs.
How long can the payments order last for?

A

Maximum of 3 years

131
Q

Which 4 activities is the bankrupt prohibited from during bankruptcy proceedings?

A
  • Applying for credit over a prescribed amount
  • Acting as company director
  • Being a partner
  • Trading under another name without disclosure
132
Q

What is the order of priority for distribution to creditors in BANKRUPTCY?

A

1) Costs of the bankruptcy
2) Preferential debts (employee holiday pay and wages, employee tax)
3) Ordinary unsecured loans
4) Postponed creditors (spouse/civil partner)

133
Q

When will bankruptcy be discharged if the bankrupt complies with restrictions and has not caused the bankruptcy by their negligence, dishonesty, or recklessness?

A

Automatically discharged after 1 year

134
Q

Term for someone who causes bankruptcy by their own negligence, dishonesty, or recklessness.
Maximum bankruptcy order length

A

Culpable
15 years

135
Q

Term for insolvency practitioner for:
- Individual
- Company

A
  • Trustee in bankruptcy
  • Liquidator
136
Q

Six insolvency options for companies and LLPs

A
  • Fixed Asset Receivership
  • Restructuring plan
  • Moratorium
  • Administration
  • CVA (Company Voluntary Arrangement)
  • Compulsory Liquidation
137
Q

To approve a restructuring plan, creditors owed what percentage of company/LLP unsecured debt must approve?

A

At least 75%

138
Q

When is a moratorium not available to an insolvent company?

A

If it has been subject to an insolvency procedure within the last 12 months

139
Q

In whose interests do the following act?
- Administrator
- Receiver

A
  • Creditors as a whole
  • One secured creditor
140
Q

In a Members’ Voluntary Liquidation, members and directors control the whole process.
When is this an option?

A

When the company is solvent but directors/members want to wind it up

141
Q

What is the potential consequence for directors who continue trading after being advised the company insolvent?

A

They could be personally liable for wrongful or fraudulent trading

142
Q

What is the order of priority for distribution to creditors in LIQUIDATION?

A

1) Expenses of winding up
2) Preferencial debts (employee-related)
3) Debts secured by floating charges in order of priority (subject to ringfencing)
4) Unsecured debts
5) Shareholders

143
Q

Time limits on events constituting a preference prior to insolvency

A

Usually 6 months before onset of insolvency
If made to a connected person of the bankrupt, 2 years

144
Q

Time limit on events constituting transaction at an undervalue prior to insolvency

Company and individual

A
  • Part of bankruptcy estate gifted or sold cheaply within 2 years of company insolvency
  • 5 years of an individual’s insolvency
145
Q

What are the consequences of claw back of assets (preferences or transactions at an undervalue prior to insolvency)

Court procedures

A

Transaction will be voidable at court’s discretion.
Court can order property/sale proceeds returned or security discharged

146
Q

Fraudulent trading is a criminal offence that may result in the director being personally liable.
Why is fraudulent trading difficult to establish?

A

It is necessary to prove intent to defraud creditors

147
Q

How does a director’s duty shift once a director knows or ought to know insolvency is unavoidable?

A

Shifts from best interests of shareholders to best interests of creditors

148
Q

When can a floating charge created prior to insolvency be set aside?

A

If created for no consideration 12 months prior to insolvency, or 2 years prior to insolvency if connected person

Also if created at a time the company was insolvent

149
Q

Maximum ring fenced amount?

A

£800,000

150
Q

How is Companies House notified of a change in shareholders?

A

In the Annual Confirmation Statement

151
Q

What can the following result in?
- Conviction of indictable offence in connection with promotion, management, or liquidation of a company
- Persistent breaches of company filing legislation
- Fraud

A

Director disqualification under Directors Disqualification Act 1986

152
Q

Weekly employee earnings requirement for National Insurance contributions

A

£242 per week

153
Q

Name of report employer must send to HMRC on or before each employee payday

A

Full Payment Submission
(report of money deducted from wages)

154
Q

What day of the month must the Full Payment Submission (FPS) report and PAYE+NI payment be received by HMRC?

A

22nd

155
Q

When must tax returns be filed by?

A

31 January after tax year

156
Q

Taxpayers who self-assess must make two payments on account towards income tax for the year. When are the payments due?

A

First payment: 31 January in tax tear
Second payment: 31 July after tax year
Any balancing payment: 31 January after tax year

157
Q

Taxpayers who self-assess must make two payments on account towards income tax for the year.
How much do they pay?

A

Each payment on account is 50% of the previous tax year’s liability

158
Q

Three categories of income

A
  • Non-savings income
  • Savings income
  • Dividend income
159
Q

A person pays tax in the UK for UK and foreign income if they are a UK resident.
When is someone a UK resident for tax purposes?

A

If they spent 183 days or more in the UK during the tax year

160
Q

What are these sources of income examples of
- Interest from National Savings Certificates
- Interest or dividends from Individual Savings Account (ISA)
- Winnings on Premium Bonds or lotteries
- Social security benefits
- Child tax credit and working tax credit

A

Sources of income exempt from income tax

161
Q

When must a sole trader or partner register at HMRC after becoming self-employed/starting their business?

A

Within 3 months

162
Q

Which purchases cannot be included in the Annual Investment Allowance?

A
  • Cars
  • Land
  • Buildings
163
Q

What is the Annual Investment Allowance?

A

£1 million

164
Q

What can be used for tax deduction if AIA is exhausted?

A

Writing down allowance

165
Q

How are writing down allowance tax deductions calculated?

A

Deduction of fixed percentage of asset cost
Main/standard pool: 18% for most assets
Special rate pool: 6% for long-life assets
Value of asset reduced by amount of allowance taken, allowing for tax deduction over time.
Purchases exempt from AIA can be written down.

166
Q

If three partners decide to keep all partnership profits in the business, how much will they be taxed on?

What about how it is distributed?

A

Taxed on the entirety of their share regardless of whether it is distributed

167
Q

A partnership is not taxed. What tax return obligations does it have?

A

A nominated partner must file a Partnership Tax Return with HMRC which declares: partnership income, each partner’s share, expenses, and deductions.

168
Q

A business may change its accounting/basis period. In the first tax year following the change some profits will be taxed twice. What is the term for profits taxed twice?

A

Overlap profits

169
Q

When will a business get relief from overlap profits?

A

When business ceases or basis period is changed to original tax year

170
Q

How is net income calculated?

Within income tax formula

A

Gross income – qualifying loan interest = net income

171
Q

What loans qualify for qualifying loan interest?

A

Loans used to fund:
- Capital contributions (or loans) to a partnership
- Investments in a close trading company
- Payments of inheritance tax for personal representatives

172
Q

How is taxable income calculated?

A

Net income – allowances and other reliefs = taxable income

173
Q

How is the annual personal allowance tapered?

A

It is reduced by £1 for every £2 of income above £100,000

174
Q

Marriage allowance enables the transfer of part of Personal Allowance to one’s spouse.
What 3 conditions must be met?

A
  • Couple must be married or in a civil partnership
  • The transferring spouse’s income must be less than the Personal Allowance; and
  • The recipient spouse must be a basic rate taxpayer (20%)
175
Q

If a couple is eligible for marriage allowance, what is the maximum Personal Allowance amount a spouse can transfer (as of 2023/24)?

A

£1,260

176
Q

What percentage of the Marriage Allowance transferred can the recipient spouse reduce their tax liability by?

A

20%

e.g. if the maximum £1,260 is transferred, the recipient spouse would reduce their tax liability by £252

177
Q

What are the three bands of non-savings income?
+ Tax rates?
+ Taxable income?

A

Basic rate band: 20%
£1 - £37,700
Higher rate band: 40%
£37,701 - £125,140
Additional rate band: 45%
over £125,140

178
Q

What Personal Savings Allowance is available to each taxpayer rate?

A

Basic rate: PSA of £1,000
Higher rate: PSA of £500
Additional rate: no PSA

179
Q

What is the Personal Savings Allowance tax position?

A

Zero-rated
(i.e. still counts towards tax rate)

180
Q

What dividend allowance is available to all taxpayers?
How is it taxed?

A

£500
0%

Was £1,000 in 23/24

181
Q

What is the double reasonableness test HMRC must prove to set aside tax arrangements under GAAR?

A

Must prove the arrangement cannot reasonably be regarded as a reasonable course of action

182
Q

Name for rule to deter taxpayers from entering into schemes that abuse the tax system and promoters of such schemes

A

General Anti-Abuse Rule
(GAAR)

183
Q

Who must approve HMRC’s decision that a tax arrangement is abusive under GAAR?

A

An independent advisory panel

184
Q

What is a wasting chattel?

A

Moveable property with a life of less than 50 years
(e.g. farm animals, cars, boats, watches)

185
Q

No CGT is payable on non-wasting assets worth up to…

Annual CGT exemption

A

£6,000

186
Q

Term for market value of property transferred by will or intestacy at the date of death

A

Probate value

187
Q

At what cost is it deemed a transfer of assets between spouses is made?

A

Same cost as the donor spouse obtained it (i.e. no CGT is payable)

188
Q

For disposals of UK residential property, when is CGT due?

A

Within 60 days of completion

189
Q

How is capital gain calculated?

A

Proceeds of sale (or market value) - costs of acquisition = capital gain

190
Q

When calculating capital gain, if an asset is disposed of by gift or sold to a connected person, how is the asset value determined?

A

Market value
(not price paid)

191
Q

How is Private Residence Relief exemption calculated?

A

Gain x (period of occupancy / period of ownership)

192
Q

Under PRR, what period of ownership is always treated as deemed occupation?

A

Last 9 months of ownership
(As long as taxpayer occupied the property at some point)

193
Q

What are the 3 periods of absence that can qualify for deemed occupation under PRR?
(Periods can apply cumulatively)

A
  • Any period of absence whatsoever up to 3 years
  • Maximum of 4 years if owner absent due to working elsewhere
  • Unlimited period of absence if owner is working abroad
194
Q

What is the amount of CGT relief available for Business Asset Disposal Relief?

A

10% on qualifying gains.
Lifetime limit of £1 million

195
Q

In which cases is Business Asset Disposal Relief available?

A
  • Sale of all or part of a trading business
  • Sale of shares in personal company
  • Sale of assets owned by personal trading company
196
Q

Incorporation relief allows CGT to be deferred when an individual transfers their business/partnership interests to a company. When is any gain taxed?

A

When the transferor disposes of the shares obtained in exchange for the business interest transferred

197
Q

When can Enterprise Investment Scheme Relief be used to defer CGT on chargeable gains?

A

Either:
- Up to 1 year prior to gain being made; or
- Within 3 years after gain is made

198
Q

What is the annual exemption amount for CGT available to everyone for 2023/24?

A

£6,000

199
Q

What are the CGT rates?

A
  • 10% if in income tax basic rate band
  • 20% otherwise
200
Q

What are the CGT rates on gains arising from the disposal of residential property?

A
  • 18% if in income tax basic rate band
  • 28% otherwise
201
Q

When calculating CGT, what can be carried onto the following year and what cannot?

A

Loss can be carried.
Annual exemption amount cannot be carried (it is wasted)

202
Q

When must a company pay its corporation tax by?

A

9 months and 1 day after the end of its financial accounting period

203
Q

Companies with large profits (over £1.5 million) must pay corporation tax earlier.
How often must they pay?

A

In quarterly instalments

204
Q

What is the corporation tax rates for profits:
- Below £50,000 (small profit rate)
- Above £250,000 (main tax rate)

A
  • 19%
  • 25%

Won’t be asked about in between

205
Q

What is the formula for calculating corporation tax?

A

(Trade profit + Other income + Chargeable gains - Charitable donations) x Applicable corporation tax %

206
Q

Are dividends taxable when paid to:
- Company
- Individual

A
  • No (company paying dividends already paid corporation tax on profits)
  • Yes (dividend tax)
207
Q

What annual tax exemptions are companies entitled to?

A

None

208
Q

Two factors that make a company a close company

A
  • Five or fewer shareholders
  • Any number of directors who are also shareholders
209
Q

What does ‘control’ of a company mean?

A

Ownership of more than 50% of shares or share capital of the company

210
Q

When must a loan from a company to a shareholder who is an employee or director be reported to HMRC?

A

When the loan exceeds £10,000

211
Q

A close company makes a loan to a participator (shareholder).
What is the procedure with HMRC?

A

Company must pay HMRC an amount equal to 33.75% of the loan (upper rate taxpayer dividend rate) within 9 months and 1 day after end of accounting period.
Payment refunded if loan repaid or written off.
To the extent it is written off, it is taxed as a dividend distribution to participator.

212
Q

What is the position of notional tax payments to company expenses?

A

Not deductible as a company expense

213
Q

What applies to the supply of:
- Land
- Insurance
- Financial services
- Education
- Health services
- Postal services

A

Exempt from VAT

214
Q

What applies to the supply of:
- Food (non-catering)
- Books and newspapers
- Water and sewerage services
- Transport
- Residential construction

A

Zero-rated VAT

215
Q

What applies to the supply of:
- Domestic fuel
- Installation of energy-saving materials
- Child car seats

A

Reduced rate VAT of 5%

216
Q

What is the VAT registration threshold?

A

Turnover over £85,000

217
Q

What 2 tests determine if VAT registration is required?

A
  • Historic test: If cumulative taxable sales in the last 12 months exceed registration threshold. Must notify HMRC within next 30 days
  • Future test: If registration threshold is expected to be exceeded in the following 30 days alone. HMRC must be informed before end of those 30 days
218
Q

When can a business deregister for VAT?

A
  • If its taxable turnover falls below £83,000 for a 12 month period
  • Must deregister if stops trading or supplying VATaxable good/services within 30 days
219
Q

What normally exempt transaction can be opted to be taxed for VAT

A

Sale or lease of commercial land or buildings

220
Q

Term for time of supply of tax?

A

Tax point

221
Q

What will HMRC do if a business’ input tax exceeds its output tax?

A

Issue a rebate

222
Q

On which activities can VAT not be reclaimed?

A
  • Car purchase
  • Business entertaining
  • Any non-business activity
223
Q

How to calculate the VAT element from a VAT-inclusive figure if
- standard rate
- reduced rate

A
  • 1/6 if standard rate
  • 1/21 if reduced rate
224
Q

Maximum surcharge penalty for consistent late VAT payments

A

15%

225
Q

Maximum penalty for dishonest evasion of tax

A

Unlimited fine and imprisonment for up to 7 years

226
Q

The articles of association form a contract between the company and the members.
Which of these rights do the articles protect?
- Membership rights
- Employment rights

A

Membership rights only

227
Q

How much must an employee be earning for an employer to retain tax via PAYE?

A

£242 per week

228
Q

How much is the CGT annual exemption amount?

A

£6,000

229
Q

When calculating CGT, what exemption/relief is applied last?

A

Annual exemption

230
Q

The admission of new members to LLPs and partnerships requires which type of decision by the existing members?

A

Unanimous decision

231
Q

What percentage of floating charges of an insolvent company must the liquidator ringfence for:
- the first £10,000
- amounts above

A
  • 50%
  • 20%
232
Q

Which concept ensures directors take into account the interests of the company’s employees, the community, and the environment when making decisions?

A

Enlightened shareholder value

233
Q

In which circumstances can a minority shareholder petition the court for a remedy?

A
  • If they feel there is unfair prejudice
  • To wind-up the company
234
Q

Who are a company’s subscribers?

A

Persons who have signed the company’s memorandum of association and agreed to purchase a certain number of shares

235
Q

Who decides to allot new shares if the company has only one class of shares?

A

The board of directors

If more than one class or there is a restriction in the amended articles, directors must seek permission form shareholders via ordinary resolution

236
Q

In which two situations do statutory preemption rights not apply?

A
  • When shares are issued for consideration other than cash
  • Disapplied - in the company’s articles or by special resolution
237
Q

What are the 3 types of creditor applications to have the debtor decared bankrupt?

A
  • Statutory demand for a liquidated claim of £5,000 or more is made and debtor does not pay or apply to set aside within 3 weeks
  • Creditor serves statutory demand for proof of ability to pay a future liability of more than £5,000 and debtor does not pay or apply to set aside
  • Debtor owes judgment debt of over £5,000 and creditor’s attempt to execute judgment fails
238
Q

What is being described?
A receiver takes an asset in which the creditor has a security interest after the debtor has defaulted in payment. Since these are usually assets that are important to the business, and without which the business cannot usually operate, it usually leads to bankruptcy.

A

Fixed asset receivership

239
Q

Who do the following act for the benefit of?
- Administrator
- Receiver

A
  • Creditors as a whole
  • A particular creditor
240
Q

What does an administrator attempt to do?

In order of priority

A
  • Rescue the company as a going concern
  • Achieve a better result for the company’s creditors than if the company were to be wound up
  • Realise property to distribute to one or more secure creditors
241
Q

What is imposed when an administrator is appointed?

A

Moratorium

242
Q

What are the 2 ways a company can enter administration?

A
  • Court hearing
  • The company (members), directors, or floating charge holders file certain documents to court
243
Q

How is an administrator appointed?

A

Directors and the company appoint an administrator

Must notify floating charge holders who can either agree or appoint alternative administrator

244
Q

What liquidation procedure is used by a solvent company?

A

Members’ voluntary liquidation

245
Q

What liquidation procedure is used by an insolvent company, commenced by the directors, and then taken over by the creditors?

A

Creditors’ Voluntary Liquidation

246
Q

What liquidation procedure is used by a insolvent company and commenced by creditors?

A

Compulsory liquidation

247
Q

What is the calculation for donee’s gain with Hold Over (Gift) Relief?

A

Donor’s Gain = Market Value − Donor’s Acquisition Cost
Donee’s Gain = Proceeds of Sale − Base Cost (market value at time of donee’s acquisition - holdover gift relief)

248
Q

Which CGT relief is available for companies?

A

Replacement of Business Assets (Rollover) Relief

249
Q

What are the 6 CGT reliefs?

A
  • Private Residence Relief (PRR)
  • Business Asset Disposal Relief (BADR)
  • Hold Over (Gift) Relief
  • Replacement of Business Assets (Rollover) Relief (ROBA)
  • Incorporation Relief
  • Enterprise Investment Scheme Relief (EIS)
250
Q

What is the order of asset distribution if a partnership is dissolved?

A
  • Repay debts owed to outside creditors
  • Repay loans made by partners
  • Return partners’ contributions
  • Remaning distributed to partners
251
Q

What is the minimum number of members for partnerships and LLPs?

A

2

252
Q

How long can an LLP carry on without at least 2 members before the person carrying on the business becomes jointly and severally liable for LLP debts incurred after that point?

A

6 months

The single member will be liable for debts incurred after the 6 months

253
Q

In which 2 cases can the veil of incorporation be pierced to reach members’ assets?

A
  • Company is being used for fraud
  • Company being used to avoid existing obligations (e.g. owner transfers personal assets to company to avoid creditors)
254
Q

Minimum age of company director

A

16

255
Q

Companies may execute documents either by affixing their seal or by signature. What are the 3 ways of execution by signature?

A
  • 2 directors
  • Director and secretary
  • Director signs in presence of witness who attests signature
256
Q

What is the status of any provision in the articles that purports to exempt a director for liability for breach of duty, negligence, or breach of trust in relation to the company?

A

Void

257
Q

What type of resolution is required for shareholders to remove a director?

A

Ordinary resolution

258
Q

Which type of company must have a secretary?

A

Public company

259
Q

Who must prepare a large company’s accounts?

A

Independent auditor

260
Q

How do you calculate the latest time notice can be given in advance of a general shareholders’ meeting if:
- notice hand delievered
- notice posted

A
  • Meeting date minus 15 days
  • Meeting date minus 17 days

Notice period is 14 clear days. 2 days for deemed delivery added if not hand delievered

261
Q

What is the percentage of shares that must be held by the majority of shareholders calling for meeting to be held on shorter notice?

A

90%

95% for non-traded public companies

262
Q

What type of resolution is required to exclude pre-emption rights?

A

Special resolution

263
Q

Most of the debtor’s property will automatically vest in the trustee. What is the bankrupt entitled to keep?

A
  • Things needed for day-to-day living
  • Tools required for their job
  • Their salary
264
Q

What step is required for a company to start a Creditors’ Voluntary Liquidation?

A

Members pass a special resolution to start the liquidation

265
Q

When is the onset of insolvency for a company compulsory liquidation?

A

The date of presentation of the petition

266
Q

Who can petition for a company to be wound up via company compulsory liquidation?

A

A creditor who can show the company is unable to pay its debts

267
Q

When is the onset of insolvency for a company voluntary liquidation (CVL)?

A

The date the company enters liquidation

268
Q

When is the onset of insolvency for administration?

A

The date the company files a Notice of Intention to Appoint an Administrator or the date it enters administration, whichever is earliest

269
Q

When is the onset of insolvency for an individual?

A

The date of presentation of the bankruptcy petition

270
Q

What is the calculation to determine how much profit is available to be paid as a dividend?

A

Subtract accumulated realised losses from accumulated realised profits

271
Q

When does a preference arise?

A

When a debtor does something that puts a creditor in a better position on liquidation or administration than they would have been had the event not occurred

272
Q

What right does a partner automatically have?

A

Right to participate in management of the partnership

273
Q

What is being described?
Giving an unsecured creditor a security within six months of the onset of insolvency (or two years if the security is given to a connected person) when no new consideration was given for the security

A

A preference

274
Q

When must a company file its corporation tax return?
When must a company pay its corporation tax return?

After end of accounting period

A
  • 12 months after end of accounting period
  • 9 months and 1 day after end of accounting period

SQE1 (15 decks)

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