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FLK1 > business law and practice (week 6-10) > Flashcards

business law and practice (week 6-10) Flashcards

1
Q

what is classed as an allowable expenditure for capital gains tax purposes?

A

things that enhance the value of the asset or relate to the acquisition or disposal of the assets (eg, legal fees)

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2
Q

for a higher rate tax payer what is the personal savings allowance for savings interest taxed at 0%?

A

allows first £500 of savings interest to be taxed at the savings nil rate of 0%

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3
Q

what is an income receipt?

A

money that is received on a regular basis

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4
Q

what is a capital receipt?

A

from a transaction which is not part of a regular activity, it is part of a ‘one-off’ transaction

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5
Q

what is income expenditure?

A

money spent as part of the day-to-day trading

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6
Q

what is capital expenditure?

A

purchase a capital asset as part of the infrastructure of the business or an enduring benefit of the business. payment is typically a one-off transaction

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7
Q

what is the calculation for trading profits?

A

income receipts - income expenditure

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8
Q

what is the tax year for individuals?

A

6th April to 5th April following year

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9
Q

when is the company financial year?

A

1st April - 31st march following year

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10
Q

what are the 7 steps of calculating income tax?

A
  1. add up income (total income)
  2. deduct available tax relief (net income)
  3. deduct personal allowance (12,570) (taxable income)
  4. split taxable income into non-savings, savings and dividends
  5. calculate personal savings allowance
  6. apply the relevant rates
  7. add together the amounts of tax at step 6 to get your total tax liability
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11
Q

if you dispose of an asset to a spouse - do you pay CGT?

A

no, you do not

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12
Q

what is the annual exemption of tax free? (the amount of money)

A

£3,000

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13
Q

what is the rule if there is a disposal between connected persons?

A

HMRC deems seller to have received at market rate irrespective of the actual sale proceeds (connected person: relative, spouse of their relative), company (if under common control) and business partners

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14
Q

what is the rate that sale is deemed to have gone for if the disposal is at an undervalue?

A

if transaction is between connected person and at an undervalue then the sale is deemed to have been at market rate at date of disposal

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15
Q

what is the effect of business asset disposal relief and investors relief?

A

reduces higher rate CHT from 20% to 10%

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16
Q

what is the criteria for a person to use business asset disposal relief?

A
  • held the shares for at least two years
  • the company has existed for at least two years
  • the person disposing of the shares must have been an officer or employee of the company who had held at least 5% of the ordinary voting shares and was entitled to at least 5% of the profits available for distribution and 5% of the net assets on a winding up for at least two years before
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17
Q

what is qualifying under business asset disposal relief?

A

Qualifying disposal:
o all or part of a trading business
o assets in a business that used to trade
o shares in a trading company
o shares in a company that used to trade

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18
Q

what is the criteria for investors relief? (what must the person do)

A

Held their shares for at least 3 years
Individual not an officer or employee of the company

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19
Q

what is qualifying under investors relief?

A
  • fully paid ordinary shares and were issued to the individual for cash consideration on or after the 17th of March 2016
  • company is a trading company or the holding company of a trading company
  • at the time of Issuing the shares; shares were not on the Stock Exchange (private company)
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20
Q

can capital losses be set off against trading profits?

A

no they cannot - can only set capital losses against capital gains

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21
Q

what do you need for full rollover relief when selling a qualifying asset and replacing with a new one (eg, machinery)?

A

for full rollover relief, all the sale proceeds from the original asset must be reinvested in the new qualifying asset.

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22
Q

what is the annual investment allowance (figure)?

A

£1,000,000

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23
Q

if a manufacturer spends £1,200,000 on new machinery = what is the maximum possible deduction under annual investment allowance (AIA) and other capital allowances for the tax year?

A

1,000,000 = AIA
the remainder £200,000 can be used by claiming 18% as a writing down allowance = £36,000/ therefore, total deduction is £1,000,000 + £36,000 = £1,036,000

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24
Q

how do you calculate TTP? (companies)

A

1) add up all income profits (eg, trading income and interest income)
2) deduct taxable deductible expenses
3) deduct capital allowances
4) add chargeable gains

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25
Q

what is the standard rate (%) of VAT?

A

20%

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26
Q

How much TTP is chargeable on companies with a profit that exceeds £250,000? [%]

A

25%

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27
Q

Howmuch TTP is chargeable on companies where profits do not exceed £50,000? [%]

A

19%

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28
Q

what is the criteria for what is a close company?

A

if it is under the control of:
- 5 or fewer participators; or (she or interest in the capital or income of the company eg, shareholders and some creditors)
- any number of participators who are also directors

29
Q

what is the tax consequence if a close company makes a loan to a participator who is also a director of the company?

A

company must pay corporation tax at a rate of income tax payable in dividends by a higher rate taxpayer

30
Q

what is a fixed asset?

A

any asset, tangible or intangible that is owned by the business which must be held by the company for over 1 year and provides some long-lasting benefit to the company (non-current asset)

31
Q

what is a current asset?

A

includes cash and items owned by business which can be quickly turned into cash eg, stock, debtors, cash

32
Q

if a company obtains a long term loan to fund purchase of new equipment - how is this shown on the balance sheet?

A

fixed asset = company uses loan to purchase new equipment (this increases by amount of the loan)
long-term liabilities = loan represents a long-term liability

33
Q

how should a long-term loan be presented on a company’s balance sheet?

A

loan should be classified as a non-current liability = loan is a liability that is due to be paid over period of 1 year.

34
Q

what approval is needed (directors or shareholders) to make an interim dividend?

A

interim dividends can be declared and paid based solely on the decision of the board of directors

35
Q

what approval is needed (directors or shareholders) to make a final dividend?

A

must be proposed by the board but they require approval by the shareholders at the AGM before they can be paid

36
Q

if a company sells an asset which the bank has a fixed charge over it - what legal action can the bank take?

A

bank can prevent the sale or claim proceeds from the sale, as the company cannot dispose a fixed charge asset without the bank’s consent.

37
Q

if a charge is not registered within the 21 day period - what is the legal consequence?

A

the charge is void against the administrator and the liquidator - effetely meaning security is unenforceable in insolvency situations

37
Q

what is the effect of crystallisation of a floating charge?

A

crystallisation means the charge stops ‘floating’ and attaches to the specific asset of the company at the time of the default, covering into a fixed charge.

38
Q

what is gearing?

A

ratio of debt to equity (an important indicator of the financial health of the company). Higher the ratio of debt to equity = more geared a company is. Therefore, more debt they have, therefore, arguably financially unstable

39
Q

what is the calculation for gearing?

A

long term debt (non current liability) divided by equity (total equity) x 100%

40
Q

how does equity (issuing shares) effect the top and bottom of the balance sheet?

A

money paid into company by shareholders for shares comes in as cash (current asset), shares issued will increase (represented in shareholder funds as equity) in bottom half of balance sheet

41
Q

how does debt (company taking out loan) effect the top and bottom of the balance sheet?

A

top (more cash = are current asset) and also in liability.

no change in net asset position of the company as the negative loan (liability) will cancel out the positive cash

42
Q

what are the 4 tests for insolvency?

A

1) cash flow test = inability to pay debts as they fall due
2) balance sheet test = company’s liabilities are greater than its assets
3) failure to comply with statutory demand for debt over £750
4) failure to satisfy enforcement of a judgment debt

43
Q

who can initiate a CVA?

A

directors, liquidators or administrators

44
Q

what approval is needed for a CVA?

A

at least 75% in value of unsecured creditors but without more than 50% of unconnected creditors voting against
over 50% of shareholders

45
Q

who does a CVA bind?

A

binds all unsecured creditors

46
Q

who can initiate a restructuring plan?

A

company, creditor, member, liquidator or administrator

47
Q

what approval is needed for restructuring plan?

A

sanctioned by the court
at least 75% in value of each affected class of creditors / shareholders

48
Q

who does a restructuring plan bind?

A

binds all creditors and shareholders

49
Q

what are the key aims of administration?

A

rescuing the company as a going concern
achieving a better result for the company’s creditors than would be likely if the company were wound up
realising property to make a distribution to secured or preferential creditors

50
Q

what is the procedure if directors of a company wish to appoint an administrator out of court?

A

directors must file a notice of intention to appoint (NOI) at court and send the NOI to any holder of a qualifying floating charge (QFC). QFC holder then has 5 business days to appoint their own choice of administrator. if QFC holder doesnt take action within this period then directors can proceed with their appointment

51
Q

does a members voluntary liquidation apply to solvent or insolvent companies?

A

applies only to solvent companies where the directors swear a statutory declaration of solvency

52
Q

what is the statutory order of priority (insolvency)?

A
  1. liquidators fees and expenses
  2. amount due to fixed charge creditor (out of the fixed charge)
  3. other costs and expenses of liquidator
  4. preferential creditors [1st tier: employees: salary, pension contributions, holiday pay, 2nd tier: HMRC, PAYE, employee NI, VAT]
  5. creation of prescribed part fund for unsecured creditors
  6. amount due to floating charges
  7. unsecured / trade creditors
  8. interest owed to unsecured creditors
  9. shareholders
53
Q

if a charge is created on 1st October and then another charge is created on 5th October but is registered before the earlier charge - which one ranks priority?

A

the charge that was created on 1st October as security ranks in order of creation and NOT date of registration at companies house, provided the charges are registered within the required period

54
Q

what is the petition grounds that a creditor can make to make a person bankrupt?

A

-Debtor appears unable to pay or has no reasonable prospect of paying
- debt owed to creditor is for an unsecured liquidated sum exceeding £5,000
- debtor must be domiciled or present in England or Wales

55
Q

what does an interim order in IVA do? (individual voluntary arrangement)

A

interim order prevents creditors from initiating or continuing any legal proceedings against D without court’s permission as it freezes existing or proposed legal actions by creditors against debtor

56
Q

if an official receiver files notice stating man’s bankruptcy doesnt require further investigation - when is his bankruptcy discharged?

A

discharged immediately upon filing the notice

57
Q

when can a transaction be challenged as preference (what is the time frame)? (connected and unconnected person)

A

if made within 2 years before onset of insolvency to connected person and company was influenced by desire to prefer creditor

6 months if unconnected person

58
Q

when is a transaction classed as ‘preference’?

A

when it puts a creditor in a better position than the other creditors, and it was made when the company was insolvent.

59
Q

do you need new consideration for a floating charge?

A

yes - floating charge created within 12 months (unconnected person) of the company entering administration is void unless it secures new consideration.

60
Q

when does the purchase of replacement asset need to occur for rollover relief?

A

purchase of replacement asset can be 12 months before or 3 years after the sale

61
Q

what is the time frame of when a company calculates their tax liability and pay HMRC?

A

company calculates their tax liability at the end of the accounting period and pay HMRC within 9 months and one day at the end of the accounting period

62
Q

if a transaction takes place with a connected person - is insolvency presumed?

A

yes it is, therefore, do not need to prove insolvency

63
Q

if there is a transaction at an undervalue - who is the claim against?

A

the claim is made against the person who received the asset/item at an undervalue

64
Q

what is the effect of issuing a pre-insolvency moratorium?

A

the moratorium results in the proceedings being stayed. no winding up procedure or administration can be commenced during the moratorium. it is designed to give the company breathing space to sort out its finances

65
Q

what is an accrual?

A

accounting for payment which is yet to be made (eg, waiting for the bill to come)

66
Q

what most accurately sets out the effect of the failure to register the floating charge?​ is the debt immediately payable

A

floating charge is void against liquidator, administrator and any creditor of the company. the debt due form the company to the bank is immediately payable

67
Q

does a loan agreement and guarantee need to be registered at companies house?

A

no they do not need to be registered

68
Q

if a charge (eg, floating charge) has not been registered at companies house = what is the effect of this?

A

the charge becomes void agains the administrator and the other creditors NOT against the debtor

FLK1 (11 decks)

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