Business Law Practice Flashcards

Question

What is a shelf-company?

Answer 1

A pre setup company usually with 2 directors and shareholders It is the barebones of a company and they are created and then 'shelved' until such time that a client needs a business set up quickly

Answer 2

A special resolution is required

Answer 3

To file at Companies House: - Form NM01 - Copy of the special resolution - Applicable fee

Answer 4

This is the date up to which the company must prepare it's annual accounts The default date is the last day of the month in which the company was incorporated Can be changed (for example to match the tax year) Must file form AA01 and fee with Companies house

Answer 5

A board resolution

Answer 6

A service contract is an employment contract for directors It outlines: - duties - responsibilities - working hours - salary - holidays - duration of the contract and any notice period

Answer 7

If a service contract is for a term of more than 2 years: Ordinary resolution is required

Answer 8

Things to consider post-incorporation: - Is a chairperson wanted? - Is a company bank account needed? - Is a company seal wanted? - Does the name need to change? - Does the accounting reference date need to change? - Is the company considered small? if not, then an auditor must be appointed - Have all tax related documents been filed? - Has the company registered with HMRC for VAT, PAYE and National Insurance? - Has the company obtained insurance? - Do the shareholders wish to enter into an agreement?

Answer 9

Under Model Article 9 (MA 9), reasonable notice is required. So, if all directors are present in an office and one walks around telling them all that a meeting will be held in an hour, this could be reasonable Notice must include time, date and location of meeting, but need not be in writing

Answer 10

A quorum is the required number of directors who must be present for the meeting to be validly held MA 11 requires at least 2 directors to be present for a meeting to be considered quorate

Answer 11

MA 14 is the article that prohibits directors from counting in the quorum or voting on a matter in which they have a personal interest If a company removes MA 14, a director is allowed to count and vote

Answer 12

s.177 requires directors to declare if they have a personal interest in a given resolution. Even if MA 14 is removed meaning a director can count and vote, they will still have to declare their interest under s.177

Answer 13

Exceptions are: - if it cannot reasonably be regarded as likely to give rise to a conflict of interest; - if, or to the extent that, the other directors are already aware of it; or - if, or to the extent that, it concerns terms of a service contract that have been or are to be considered…by a meeting of the directors.

Answer 14

Usually, voting is done by a show of hands and a board resolution passes if the majority is in favour of it passing.

Answer 15

No, under MA 8, directors can make decisions on resolutions in the form of writing or any other method which shows all eligible directors have a common view on the matter Directors must vote unanimously for this type of resolution to pass

Answer 16

This is a shareholder resolution that requires more than 50% of shareholder approval to pass

Answer 17

This is a shareholder resolution that requires 75% or more of shareholder approval to pass

Answer 18

General Meeting Written Resolution

Answer 19

Must be called by a board resolution (can be requested by shareholders) Notice of 14 clear days given to shareholders, directors and any auditor - must take into account the time of deemed serve Notice must set out - time, date and place of meeting - general nature of business for the meeting - if special resolution included, precise wording of resolution - shareholders right to appoint proxy

Answer 20

Usually, it is a show of hand (1 vote for each person). A poll vote can be requested - By the chairperson - By the directors - Two or more people who have a right to vote on the resolution, or - Person or persons with at least 10% of all shares of those with the right to vote on the resolution A poll vote changes from 1 vote per person to a vote equivalent to the number of shares owned - Therefore, those who invested more have more voting power

Answer 21

Their vote is not counted Example: 4 shareholders -> 3 vote for and 1 abstains There is 100% approval (all those votes that were cast are for the resolution)

Answer 22

Short notice allows a meeting to be called earlier than the 14 clear days Short notice is only valid if - majority of company's shareholders agree who between them hold either 90% of voting shares (ltds) or 95% (plcs)

Answer 23

This is a type of resolution that is written and circulated to all directors, shareholders and auditors Useful for when it is not practicable to hold a general meeting Written Resolutions can not be used by public companies WR will outline how to signify agreement and the lapse date - unless amended, model articles provide a lapse date of 28 days from circulation

Answer 24

WRs are similar to poll votes in that each member is given the equivalent number of votes as to their shareholding Must then meet the requirements for the resolution - More than 50% for ordinary - 75% or more for special

Answer 25

A shareholder or shareholders who have 5% or more of the voting rights in the company are entitled to require the company to circulate a written resolution Directors then have 21 days (from receipt of request) to circulate the resolution and any accompanying statement to eligible shareholders

Answer 26

Shareholders request under s.303 - Shareholder(s) must have at least 5% of voting shares to requisition meeting Directors then have 21 days to give notice of the meeting The meeting must be held no later than 28 from the notice So the latest a meeting can be held is 49 days from the request (21 days to give notice and then 28 days to hold meeting)

Answer 27

- Register of members and directors (Statutory books) - Board minutes - General meeting minutes All must be kept on file for at least 10 years (failure to do so is criminal offence + fine)

Answer 28

Directors of every company (except private companies classed as small or micro) must prepare a director's report Private companies must file their accounts and if applicable the directors report within 9 months from the end of their accounting reference date Public companies must file accounts and director's report within 6 months from end of their accounting reference date

Answer 29

If company has secretary, then must keep a register of secretaries Must file document AP03 within 14 days of appointment Must file document TM02 within 14 days of removal Must notify Companies House of any changes to particulars of the register of secretaries within 14 days (CH03 or CH04)

Answer 30

Auditor is an accountant whose responsibility it is to prepare a report on the company's annual accounts Must state whether, in the auditor’s opinion, the accounts have been prepared properly and give a true and fair view of the company

Answer 31

Directors usually appoint first auditor on incorporation Shareholders can then appoint any after that using an Ordinary Resolution

Answer 32

They can resign with written notice sent to the company's registered office - must give statement explaining reasons for leaving Shareholders can remove by way of ordinary resolution - must give special notice

Answer 33

Any changes made to PSC register must be filed at companies house within 14 days Form PSC01 -> individual entered on register for first time Form PSC02 -> legal entity (company) entered onto register for first time Form PSC04 for a change of individuals holdings Form PSC05 for change of legal entity's holdings Form PSC07 for removal from PSC

Answer 34

Articles of association If entered into, then the shareholders agreement will provide shareholders rights as well

Answer 35

Restrictions on transferring shares Bushell v Faith clause (gives more voting power to a shareholder when the resolution under consideration is a resolution to remove that shareholder from their office as director) Non-compete clauses

Answer 36

Ordinary shares - gives right to attend and vote at general meetings Preference shares - better entitlement to dividends - not usually allowed to vote at general meetings

Answer 37

Unfair prejudice claims (s.994 CA 2006) Derivative claims (ss.260-264 CA 2006)

Answer 38

- the company’s affairs have been conducted in a manner that is unfairly prejudicial - an actual or proposed act or omission of the company is or would be so prejudicial.

Answer 39

Claim instigated by a shareholder for a wrong done to a company which has arisen from an act or omission of a director Courts must have regard to any authorisation or ratification of the directors breach Some actions can be ratified by majority board decision, while others require shareholder ordinary resolution to ratify

Answer 40

They can pass special resolutions They can block special resolutions They can pass ordinary resolutions They can block ordinary resolutions They can demand a poll vote They can - circulate written resolution - requisition general meeting - circulate a written statement

Answer 41

They can pass ordinary resolutions They can block ordinary resolutions They can demand a poll vote They can - circulate written resolution - requisition general meeting - circulate a written statement

Answer 42

They can block ordinary resolutions They can demand a poll vote They can - circulate written resolution - requisition general meeting - circulate a written statement

Answer 43

Executive directors - appointed to the board of directors and also have an service contract with the company - can have special role like 'Finance Director' Non-Executive directors - appointed to the board but no service contract - Do not receive salaries but get fees for attending board meetings

Answer 44

Appointed by a board resolution Only extra power given to chairperson is a casting vote (MA 13) - If a meeting ends in a tie, chairperson can break deadlock with their casting vote

Answer 45

Yes, but the Model Articles do not allow this, therefore a special article will have to be included in the articles of association to allow this

Answer 46

Usually, the first director(s) appointed on incorporation Subsequent directors can be appointed by way of board resolution (quickest) or ordinary resolution Form AP01 must be filed within 14 days of an individual director being appointed Form AP02 must be filed within 14 days of a corporate director being appointed

Answer 47

A director acts without the company’s prior consent, whether express or implied, but still binds the company to the contract Important - it is the company's acts or omissions which matter, not that of the director in question

Answer 48

If the term of the contract exceeds two years it requires ordinary resolution However, if the term of the contract exceeds 2 years but includes a provision that notice of less than 2 years can be used to terminate the contract, then it is not considered a 'long-term' service contract - Does not need ordinary resolution

Answer 49

The term of the contract is void but the rest of the contract remains valid This means that the contract can be terminated with reasonable notice

Answer 50

By the director resigning - Must file TM01 (individual) or TM02 (corporate) within 14 days of resignation By dismissal of director - does not terminate service contract (can only be terminated in accordance with the service contract itself)

Answer 51

By way of ordinary resolution - Must include special notice

Answer 52

Special notice is required in some instances in the removal of directors or auditors ordinary resolution to remove the director is not effective unless notice of the intention to pass it has been given to the company at least 28 days before the general meeting If meeting is called before 28 days expires, notice is deemed as valid (shareholders give notice, directors call meeting, therefore this prevents the directors frustrating the shareholders intention)

Answer 53

Duty to act within their powers (s.171) Duty to promote success of the company (s.172) Duty to exercise independent judgement (s.173) Duty to exercise reasonable care, skill and diligence (s.174) Duty to avoid conflicts of interest (s.175) Duty not to accept benefits from third parties (s.176) Duty to declare interest in a proposed transaction or arrangement (s.177) Duty to declare an interest in an existing transaction or arrangement (s.182)

Answer 54

An account of profits Equitable compensation for the loss suffered by the company Rescission of any contract entered into as a direct or indirect result of the breach An injunction, to prevent further breaches/ a continuing breach Restoration of property transferred as a result of the breach of duty

Answer 55

This is akin to breach of negligence Remedy is common law damages assessed in the same way as damages for negligence

Answer 56

By a shareholders ordinary resolution

Answer 57

Wrongful trading claim Fraudulent trading claim Misfeasance

Answer 58

The court may order a director to contribute to the company’s assets if: - the company has gone into insolvent liquidation or insolvent administration; - before commencement of the winding up of the company, the director knew or ought to have concluded there was no reasonable prospect that the company would avoid insolvent liquidation or insolvent administration; and - that person was a director of the company at the time

Answer 59

They took every step with a view to minimising the potential loss to the company’s creditors as they ought to have taken Two part test - (objective) what a director ought to know or ascertain - (subjective) what the director did know, their skills and experience

Answer 60

claim may succeed if it appears that the company’s business has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose Burden on the administrator / liquidator to prove fraud (quite difficult)

Answer 61

Must establish that a director has breached a fiduciary or any other duty Court may order director to contribute to assets of company in compensation for the misfeasance Court may order the director to account, restore or repay any money misapplied in breach

Answer 62

An SPT is where - a director, in their personal capacity, or someone connected with a director - buys from or sells to the company - a non-cash asset - of substantial value An ordinary resolution is required to approve an SPT - (unless the transaction is with a member of the company...?)

Answer 63

A person is connected with the director if: - they are a family member - or a company in which the director or family member owns at least 20% shareholding A non-cash asset (self explanatory) Is considered substantial - The value of the transaction if over £100,000, or - The value of transaction is over £5,000 and over 10% of company's net asset value

Answer 64

The transaction is voidable

Answer 65

Yes, but an ordinary resolution is required A memorandum setting out the terms of the loan and the company’s liability must be made available for inspection at the company’s registered office for 15 days prior to the general meeting (not required if written resolution proposed)

Answer 66

Expenditure on company business (max £50,000) Minor and business transactions not exceeding £10,000 If the loan is intended for defending either - civil or criminal proceedings in relation to the company or an associated company - regulatory proceedings or defending himself or herself in an investigation by a regulatory authority

Answer 67

The loan is deemed voidable - director may be liable to account for the loan - This breach can be ratified by ordinary resolution

Answer 68

Service contracts sometimes provide for payments to be made (or legally required if unfair or wrongful dismissal) Any payments of £200 or more other than those to which the director is legally entitled can only be paid with the prior agreement of shareholders by ordinary resolution A memorandum containing particulars of the payment for loss of office must be drawn up and made available at the company’s registered office not less than 15 days prior to general meeting

Answer 69

Conviction for an indictable offence Persistent breaches of companies legislation Fraud on a winding up Summary conviction for failure to file a required notice or document Being an unfit director of an insolvent company Following an investigation and a finding of unfitness Fraudulent or wrongful trading Breach of competition law

Answer 70

Can be disqualified for 2 - 15 years depending on severity of ground for disqualification Must be granted leave of court to act as director during this time (leave rarely granted) If still involved in the management of the company while disqualified, can be held personally liable for debts of company

Answer 71

Debt financing (ie loans) Equity financing (ie shares)

Answer 72

Allotment - new shares handed out Transfer - shareholder transfers shares to other shareholder Buyback - company buys back shares from shareholder

Answer 73

Check whether the company was incorporated before or after the CA 2006 came into force. (s.550 grants authority to directors) - If after, board resolution is all that's needed - If before, an ordinary resolution to activate s.550, then board resolutionW

Answer 74

Authority derives from s.551 They may have authority to allot in their articles. If there is no authority in the company’s articles, the shareholders will need to pass an ordinary resolution to allot shares

Answer 75

These are rights of first refusal over shares which are being allotted A company must offer existing shareholders the number of shares which will enable them to preserve their percentage shareholding in the company The pre-emption offer must state the period for acceptance and the offer must not be withdrawn within that period - Period can not be less than 14 days

Answer 76

They do not apply in relation to the allotment of bonus shares (s.564) If the consideration for the allotment is wholly or partly non-cash (s.565) If the shares are to be held under, allotted or transferred pursuant to an employee share scheme (s.566)

Answer 77

Yes The Model Articles do not include pre-emption rights, but if the amended articles do, a private company can remove the article by special resolution For public companies it depends on whether they have a general authority to allot (s.550) or authorised only a specific allotment - if the latter, can still disapply by special resolution but must also contain written statement outlining reasons and justification for disapplication

Answer 78

Copies of resolutions must be sent to Companies House within 15 days - All special resolutions - Ordinary resolutions activating s.550 - Ordinary resolutions under s.551 Forms must be sent to Companies House - SH01 return of allotment and statement of capital (within 1 month) - Any of the applicable PSC forms if PSC register needs to change Entries in companies own register - Amend register of members (within 2 months) - Amend PSC register Share certificates - prepare share certificates within 2 months of allotment

Answer 79

No restrictions in CA 2006 but a company's articles may contain restrictions Nothing stopping the shareholder from transferring the shares, but MA 26 grants the company discretion when deciding whether to register them on the register of members (RoM) If not registered on the RoM, then the original transferor of shares is still the legal owner and can attend meetings but must vote in accordance with the transferees wishes

Answer 80

Transferor must give a stock transfer form and the share certificate to the transferee If sale price of shares exceeds £1000, must pay stamp duty - 0.5% rounded to nearest £5 - minimum amount is £5 - dont pay SD if shares were gift Transferee sends these docs to company, who then should - send new certificate to shareholder within 2 months - register the shareholder as a member within 2 months - Notify Companies House of change of ownership

Answer 81

Share capital is the capital obtained from shareholders in return for shares This fund can't usually be reduced as this is the capital to pay creditors Therefore dividends can't be paid out of share capital, only distributable profits Company must generally not purchase its own shares - but it can buyback its shares as long as it follows the correct procedure

Answer 82

There must be no restrictions in company's articles on buyback Shares must be fully paid Company must pay for the shares on purchase Company must usually use the distributable profits (shown in profit/loss reserve section) Shareholders must pass ordinary resolution authorising buyback A copy of the buyback contract must be available for inspection at least 15 days before general meeting + for 10 years after meeting at registered office File return of purchase and notice of cancellation of shares with 28s of completion

Answer 83

Yes but only private companies can do so and must ensure their articles do not prohibit such a buy back. Public companies cannot buy back out of capital

Answer 84

There must be no distributable profits left before buyback out of capital can occur Same conditions for buyback out of profits is required (ie OR required to authorise) Directors must make a Solvency Statement at least 1 week before general meeting with auditors report attached Special resolution to authorise buyback out of capital (in addition to OR above) Notice in the London Gazette must be made within 7 days of resolutions passing (this includes 5 week notice to creditors to stop the buyback) Directors then pass board resolution to enter contract If no objections raised, contract must be entered between 5 and 7 weeks from date of special resolution A copy of the buyback contract must be available for inspection at least 15 days before general meeting + for 10 years after meeting at registered office File return of purchase and notice of cancellation of shares with 28s of completion

Answer 85

A dividend is a payment made to shareholders based on the profits of a company MA 30 -> directors decide whether to give a dividend and how much that should be Shareholders then pass ordinary resolution to accept dividend

Answer 86

Loans - borrow money from bank debt securities - IOU given to investor in return for cash (must be repaid at fixed date)

Answer 87

There are no restrictions in the Model Articles - if amended, must check no restrictions Partnerships must check their agreement if they have one. If there are restrictions in PA, then usually need to unanimously decide to amend agreement

Answer 88

A loan is a sum of money given by a bank with contract in place governing the repayment. Loans can be secured (ie by mortgage or charge) or unsecured (usually pay higher premium for this) The three main types of loan are: Overdraft facility Term loan Revolving credit facility

Answer 89

A contract between the business and its bank which allows the business to go overdrawn on its current account Bank may demand immediate repayment at any time without notice (usually will only do so if company is in financial difficulty) Advs - flexible - few formalities required Disadvs - repayment may be demanded anytime - relatively expensive (usually unsecured loan and high interest rates)

Answer 90

Business borrows a fixed amount of money, usually from a bank, for a specified period (ie term), at the end of which it must all be repaid Advs - can take out in lump sum or instalments (which reduces interest payments) - more certain than overdraft facility - more control for borrower as bank can only demand repayment in accordance with contract Disadvs - Once repaid, money can't be reborrowed - Time and expense in agreeing to all the terms

Answer 91

Bank agrees to make available a maximum amount of money to the business throughout the agreed period of the revolving credit facility. Business can keep borrowing and repaying as long as maximum amount not exceeded Useful for businesses with uneven income distribution throughout the year Advs - Very flexible - possible to reduce the total amount of interest payable by reducing borrowings Disadvs - Time and expense in negotiation terms of contract - high fees are charged

Answer 92

Purpose is to try to ensure that the business conducts its business within agreed limits so that the lender has every chance of being repaid in full

Answer 93

Limitation of dividends Minimum capital requirements No disposal of assets/change of business No further security over the assets Provision of information about business (their accounts) (Courts may imply terms into a facility agreement)

Answer 94

Failure to pay a sum due Commencement of insolvency procedures Breach of any other term or obligation under the facility agreement

Answer 95

Not a separate type of loan agreement It is typically used to describe a loan agreement in writing between a borrower and a lender that is registered at Companies House Only Companies and LLPs can enter debentures (not sole traders or partnerships)

Answer 96

Secured creditors have priority in being repaid when company goes insolvent. Unsecured creditors rank and abate equally with any remaining funds (if any)

Answer 97

Advantages - usually do not have to repay capital to investors - tightly controlled by CA 2006 - less formalities than debt finance (possibly) Disadvantages - investor likely gains some control over company as a shareholder - shareholder interest is uncertain (they could lose everything if company finances are bad - potential restrictions on the sale of shares (ie directors have discretion as to who becomes shareholder) - Not a deductible expense for Corporation tax

Answer 98

Advantages - To creditors as they are more likely to be paid than shareholders - lender is a creditor but does not gain any control over business decisions (other than terms of agreement) - Lender can sell debenture to third party if they want capital earlier than agreement date - governed my contract law and therefore may be more flexible than equity finance - payment of debenture interest is a deductible expense for corporation tax Disadvantages - may have to repay loan quickly (must ensure sufficient profits to realise debt) - must repay loan. If no distributable profits, company may have to use capital

Answer 99

Sole traders and partnerships can only grant fixed charges. They cannot grant floating charges

Answer 100

There are no restrictions in the model articles If articles are amended, ensure no restriction If there are restrictions, a special resolution to amend articles is needed Lender will also check at Companies House for a list of charges already in place at business or insolvency matters

Answer 101

Land - (freehold and leasehold), fixtures and fittings Tangible assets - machinery, computers, stock etc Intangible assets - money in account, debts owed, IP rights etc

Answer 102

Mortgages Fixed charges Floating charges

Answer 103

Highest form of security Involves the transfer of legal ownership from the mortgagor (the company/ LLP) to the mortgagee (the lender) - rights include possession and power to sell Title will be transferred back to the borrower when money has been repaid

Answer 104

Does not transfer legal ownership from the chargor to chargee and does not give the chargee the right to immediate possession of the property May be taken over property such as machinery and shares owned (separate charge per asset) Fixed charge holder will have the right to sell the asset and be paid out of the proceeds of the sale (right of first claim over proceeds) Fixed charges typically more secure than floating charges

Answer 105

Some assets belonging to a company/ LLP, such as stock, are not suitable for a fixed charge because the company/ LLP needs to sell them as part of doing business Floating charge used for assets that are constantly changing such as stock Company retains the freedom to deal with the assets in the ordinary course of business until the charge ‘crystallises’ Floating charge will automatically crystallise over the assets charged if: - Chargor goes into receivership, liquidation, ceases to trade or any other event specified in charge document

Answer 106

Personal guarantees - individuals who give personal guarantees risk losing their personal assets if the business fails A pledge - arises where an asset is physically delivered by the debtor to the creditor to serve as security until the debtor has paid their debt A lien - gives a creditor the right to physical possession of the debtor’s goods or assets until the debt is paid Retention of title - on a sale of goods, the buyer does not get full title to the goods until they pay the full price to the seller

Answer 107

Generally a board resolution is all that is needed to authorise and grant securities over assets Must ensure that directors do not have personal interest in the security (ie they may have given personal guarantees) If enough directors have personal interests in matter, may have to call general meeting or circulate written resolution

Answer 108

It is a voluntary registration system but provides a hierarchy of priority (huge incentive to register) To be valid - must register at Companies House within 21 days of charge creation Court has limited power to extend 21 day period If charge concerns land, should also register at Land Registry

Answer 109

This is simplified considerably: 1. A fixed charge or mortgage will take priority over a floating charge over the same asset, even if the floating charge was created before the fixed charge or mortgage 2. If there is more than one registered fixed charge or mortgage over the same asset, they have priority in order of their date of creation, not their date of registration 3. If there is more than one registered floating charge over the same asset, they have priority in order of their date of creation, not their date of registration

Answer 110

Subordination is an agreement between lenders/creditors to enter into agreement to alter the order of priority

Answer 111

A negative pledge clause prohibits the company from creating later charges with priority to the floating charge (ie fixed or mortgage) without the floating charge holder’s permission If subsequent charge created over same asset and that lender had actual knowledge of negative pledge clause, it will be subordinate to the original charge - constructive knowledge (ie Form MR01 indicates presence of pledge) is not sufficient - actual knowledge would be conducting a search at companies house which reveals presence of pledge

Answer 112

Contracts can be executed by a company using the company seal or on behalf of the company by a person acting under its authority, express or implied (s.43 CA 2006)

Answer 113

A deed can be executed by a company - affixing it's company seal - by the signatures of two authorised signatories (ex. director + secretary) or by the director in the presence of a witness (who attests to the signature) If company has Model Articles and wants to used company seal, must also be signed by 1 authorised signatory in the presence of witness who attests

Answer 114

A partnership is governed by a partnership agreement. There is a default agreement that partnerships can use but they are also typically able to agree to their own version Can't change ss.1-2, 5-18 Agreement can be written or oral (written preferred though)

Answer 115

Advantages - Do not have to adhere to extensive administrative and accounting requirements - Do no have to enter into written agreement - Tax advantages Disadvantages - No limited liability

Answer 116

Name of partnership Place and nature of business Commencement and duration Work input Roles Decision-making Financial input Shares in income, capital profits, losses Drawings and salaries Ownership of assets Expulsion Dissolution Goodwill Distribution of proceeds of sale Restraint of trade Dispute Resolution

Answer 117

Must not include 'ltd' or some variation Must not be offensive Must not be the same as existing trademark Must not contain sensitive words, expressions, or be in connection with governments without permission

Answer 118

Partnership commences when s.1 definition met (could happen when partners are unaware)

Answer 119

Sets out working hours and common to include clause that states 'partner must devote the whole of their time and attention to the business; Common to have non-compete clauses here Clause should set out holiday entitlement, sick pay, maternity and paternity leave (NO DEFAULT IN PA 1890 SO MUST INCLUDE)

Answer 120

All decisions must be taken by a majority (with three exceptions) Unanimous decisions must be made for - changing nature of business - introducing new partner - changing terms of partnership agreement

Answer 121

Agreement should set out the amount of the partners’ initial capital contributions and whether they will be obliged to contribute more capital in the future

Answer 122

Under the PA 1890, the partners share equally in the capital and profits of the business Under the PA 1890, losses are shared equally Can vary these with amended PA

Answer 123

Under PA 1890, no majority of partners may expel another partner unless the partners have expressly agreed to this (usually in a written partnership agreement) - Can't expel partner unless clause in written agreement

Answer 124

Under the PA 1890, a partnership is dissolved: - when a partner retires (although the partnership agreement can provide that the other partners carry on in business) (s.26); - on expiry of a fixed term (s.32); or - by the death or bankruptcy of any of the partners (s.33); or - if the partners give notice of dissolution to a partner who has (by order of the court) granted a charge over their share of the partnership property, for a debt owed by them alone and not the partnership as a whole (s.33) s.32 and s.33 can be disapplied by agreement Partners can also apply to court under s.35 PA 1890 to have partnership dissolved

Answer 125

Default position under PA 1890 (can be altered) First, creditors paid in full → partners pay balance if shortfall Second, partners who lent money get repaid in full (including interest) Third, partners paid share of capital to which they are entitled Last, any surplus is given to partners in accordance with the terms of their partnership agreement

Answer 126

Useful to include a provision stating that in the event of a dispute between the partners, the partners must use arbitration or another form of alternative dispute resolution rather than more formal court methods to resolve certain matters

Answer 127

Partners must: - Be completely open regarding relevant information - account to firm for any private profits made without consent and concerning partnership - not compete with firm - bear a share of loss made by business in accordance with their agreement - indemnify fellow partners who have borne more than their share of liability or expenses

Answer 128

A partnership is liable if it enters into a contract with actual authority or sometimes if they have apparent authority

Answer 129

1. transaction is one which relates to business of the kind carried on by the firm 2. transaction is one for which a partner in such a firm would usually be expected to have the authority to act 3. other party to the transaction did not know that the partner did not have authority, and 4. other party deals with a person whom they know or believe to be a partner 3 and 4 are subjective tests

Answer 130

Before leaving a partnership - Each partner is liable jointly with the other partners for debts incurred by the partnership while they were a partner After leaving a partnership - remain liable for debts incurred while they were partner - but will escape liability for any debts entered into *after* they leave as long as they comply with s.36 - The date of breach does not matter, the date of entering into the contract is what matters

Answer 131

Anyone with whom the firm has dealt before must be given actual notice of the partner in question leaving (informed directly) Anyone who hasn’t dealt with the firm before the partner left must be informed indirectly through a notice in the London Gazette Summary - if debt entered before partner leaves, still liable - if debt entered after partner leaves, not liable if s.36 complied with

Answer 132

When a creditor of a partnership has relied on a representation that a particular person was a partner in the firm (known as ‘holding out’), they may be able to hold that person liable for the firm’s debt Examples of holding out include - telling people you are a partner - allowing other partners to tell people you are a partner without doing anything about it - not objecting when the other partners fail to remove reference to her being a partner from the firms website or headed paper

Answer 133

Although partnerships are not legal persons in their own right, it can be wound up as an unregistered company or may use rescue procedures available to companies Includes voluntary arrangements with creditors or administration orders from court

Answer 134

Partners may need to pay - VAT - National Insurance - either Income tax or Corporation tax if partner is individual or company

Answer 135

If the debt is entered into before a partner leaves, they usually leave a sum of money to cover this debt (or they pay when the need arises) Partner may have a contractual right to be reimbursed by remaining partners (if included in agreement) Partner could also try to claim an indemnity

Answer 136

LLPs must have at least 2 members on incorporation and at least 2 designated for filing docs at Companies House (can be the same 2 individuals)

Answer 137

Must file form IN01 with companies house No need to file any LLP agreement If new member joins - file LL AP01 (individual) or LL AP02 (corporate) - within 14 days of appointment If member leaves - file LL TM01 or LL TM02 - within 14 days of leaving

Answer 138

An LLP agreement governs LLPs. LLP Regulations 2001 provide a set of default rules, just as the PA 1890 does for general partnerships

Answer 139

Capital and Profits - default position is share equally Losses - members only risk financially is losing their capital contributions, and, if they have loaned any money to the LLP, not being repaid

Answer 140

Members can leave the LLP by giving reasonable notice to the other members

Answer 141

There is no default provision for expulsion in the LLP agreement, therefore one must be included if members wish to be able to expel a member

Answer 142

Advantages - Limited Liability - can grant fixed and floating charges - flexible management structure - can appoint administrator Disadvantages - More admin requirements than partnerships - LLP docs must be available for public inspection - Potential clawback provisions on insolvency

Answer 143

Income Profit - recurring in nature such as rent or trading profit Capital Profit - one off items like office building increasing in value

Answer 144

Sole Traders and Partnerships - Income tax Companies - Corporation tax

Answer 145

Chargeable receipts LESS deductible expenditure LESS capital allowances = trading profit or loss

Answer 146

Money received for the sale of goods and services Must derive from business's trade and be income (ie recurring)

Answer 147

Deductible expenditure must be of an income nature, and incurred ‘wholly and exclusively’ for the trade Expenditure on items to help the business to trade, for example, the office building, will be capital in nature and therefore not deductible

Answer 148

salaries (as long as not excessive) rent on commercial premises utility bills stock contributions to an approved pension scheme for directors / employees interest payments on borrowings

Answer 149

Capital items, such as plant and machinery, cannot in principle be deducted from chargeable receipts when calculating trading profits, because they are not income in nature This can lead to cash flow problems so businesses are allowed to deduct a proportion of the cost of most capital items from chargeable receipts

Answer 150

Plant and machinery depreciates over time, therefore each financial year, the business is entitled to a writing down allowance (‘WDA’) This is 18% of the value of plant and machinery at start of each financial year Plant and machinery are pooled, and the WDA is calculated on the basis of the value of the whole pool

Answer 151

Allows businesses to deduct the whole cost of plant and machinery purchased in that particular accounting period (not just the 18% of WDA) Currently £1,000,000 Can be applied to new, second-hand and refurbished assets

Answer 152

allows companies to deduct 100% of the cost of plant and machinery purchased in that particular accounting period from chargeable receipts at an uncapped amount Only Companies can use Full Expensing and it can only be used on brand-new assets

Answer 153

Available when the taxpayer suffers a loss in any of the first four tax years of the new business Can carry back and set against total income in the three tax years immediately prior to tax year of loss (useful if had another business before new one) Must be set against earlier years before later years. Must be made on or before first anniversary of 31st January following end of tax year in which loss is assessed Subject to a cap of the greater of £50,000 or 25% of taxpayers income in tax year relief is claimed

Answer 154

Four options for this relief. Losses may be: 1. set against total income from the same tax year 2. set against total income from the tax year preceding the tax year of the loss 3. set against total income from the same tax year until that income is reduced to zero, with the balance of the loss being set against total income from the tax year preceding the tax year of the loss or 4. set against total income from the tax year preceding the tax year of the loss until that income is reduced to zero, with the balance of the loss being set against total income from the tax year of the loss. Must be set against total income - means you likely lose the personal allowance Must be made on or before the first anniversary of 31 January following the end of the tax year Subject to a cap of the greater of £50,000 or 25% of taxpayers income in tax year relief is claimed

Answer 155

Set trading losses against chargeable gains in the same tax year, and applies when a taxpayer has claimed carry-across relief but not all of the loss has been absorbed Must be made on or before the first anniversary of 31 January following the end of the tax year

Answer 156

May carry forward their trading loss for a tax year and set it against subsequent profits which the trade produces in subsequent years, taking earlier years first Can be carried forward indefinitely (but must notify HMRC of intention to claim relief no more than 4 years after end of tax year in which loss was incurred

Answer 157

Any loss incurred by a taxpayer in the final 12 months of trading can be carried across and set against trading profits in the final tax year, and then carried back and set against trading profit in the three years preceding the year of the loss Start with later years and work back until loss absorbed or 3 year limited reached Must be made no more than four years after the end of the tax year to which the claim relates.

Answer 158

If a taxpayer incorporates their business by transferring it to a company; Any trading losses which have not been relieved can be carried forward and set against any income they receive from the company, such as their salary or dividends No cap on amount that can be relieved Whilst indefinite, the taxpayer must notify HMRC of its intention to claim the relief no more than four years after the end of the tax year in which the loss was incurred.

Answer 159

Value Added Tax is charged almost every time a business supplies goods and services Current VAT rate is 20% Procedure 1. Business charges the customer VAT (output tax) 2. Business then deducts the output VAT from any VAT it has paid for goods and services received (Input tax) 3. Business then pays the difference between the two to HMRC

Answer 160

Supplies of residential land Postal services Education Health services

Answer 161

A person who makes or intends to make taxable supplies and who is or is required to be registered under the Value Added Tax Act 1994 A person must be registered if their taxable supplies in the preceding 12 months exceeds £90,000 If making less than £90,000 can still register but not required to (must assess if it is worth)

Answer 162

Anyone registered with VAT must submit a return to HMRC and pay the VAT it owes within one month from the end of each quarter If input tax exceeds output tax, the person will receive a rebate

Answer 163

The inability of a company to pay its debts (corporate insolvency) or the inability of an individual to pay their debts (personal insolvency)

Answer 164

1. A creditor has served a statutory demand for an outstanding sum of £750 or more, and the company does not pay or come to an arrangement with the creditor within 21 days of service of the statutory demand; 2. a creditor has obtained judgment against the company, and has tried to enforce that judgment, but the debt still has not been paid in full or at all; 3. it can be proved to the court that the company is unable to pay its debts as they fall due (the ‘cash flow test’); or 4. it can be proved to the court that the company’s liabilities exceed its assets (the ‘balance sheet test’)

Answer 165

Company may go into liquidation, administration or enter a company voluntary arrangement (CVA) Creditors may force or encourage the company to enter into any of these processes

Answer 166

A process whereby the business stops trading, its assets are sold and the company ceases to exist - Begins when liquidator is appointed - directors’ powers cease - liquidator runs the company Liquidator will distribute the assets of the company to the creditors in an order set down by statute

Answer 167

Compulsory liquidation - third party commences insolvency proceedings Creditor's voluntary liquidation (CVL) - commenced by the company itself when it is insolvent, usually in response to pressure from creditors Members' voluntary liquidation (MVL) - commenced by a solvent company, because it wishes to cease trading or because it is dormant and it wishes to bring its affairs to an end in an orderly manner - must be solvent

Answer 168

Commenced by a third party (in nearly all cases a creditor) presenting a winding up petition at court Must establish that company is unable to pay its debts (using the 4 grounds) Creditors usually prove a debtor’s insolvency by issuing a statutory demand and, if the statutory demand remains unpaid after three weeks, issuing a winding up petition against the company Company can argue that there is a genuine and substantial dispute in relation to money owed so court has ultimate discretion

Answer 169

Process initiated by company through agreement between directors and shareholders Creditors then take over at an early stage Although voluntary, commercial pressure usually involved - directors will be conscious of risk of facing personal claims

Answer 170

Only available if the company is solvent, and if, during an MVL, the liquidator realises that the company is insolvent, they must convert the MVL to a CVL When entering an MVL, directors must first swear a statutory declaration that the company is solvent

Answer 171

The directors lose their powers and, in a compulsory liquidation, their appointments are terminated Liquidator takes over running the company Liquidator's powers include: - carrying on the company’s business; - commencing and defending litigation on the company’s behalf; - investigating the company’s past transactions; - investigating the directors’ conduct; - collecting and distributing the company’s assets; - doing all that is necessary to facilitate the winding up of the company Liquidator released when all work completed. Registrar of companies dissolves company three months later

Answer 172

Avoidance of certain floating charges Preferences Transactions at an undervalue Transactions defrauding creditors Extortionate credit transactions

Answer 173

A charge is automatically void where, at the ‘relevant time’ before the onset of the company’s insolvency, a charge was granted without the company receiving fresh consideration Relevant time = during the 2 years ending with the onset of insolvency if given to connected person Relevant time = during the 12 months prior to the onset of insolvency if given to unconnected person If unconnected - company must have been insolvent at the time the floating charge was given If connected - do not need to prove company was insolvent at that time

Answer 174

Challenge a transaction where the company, at the relevant time, has given a preference to someone else - preference is where the company puts the other person in a better position Relevant time = 2 years if given to connected person Relevant time = 6 months if given to unconnected person Company must have been insolvent at the time of the preference There must also be a desire to prefer the other party, rather than just an intention to prefer them - if given to connected person, this is presumed Ex. where one creditor is paid before one of the other creditors, or where an unsecured creditor is given security

Answer 175

Challenge any transaction which the company has entered into at an undervalue at the relevant time Must be receive consideration which is considerably lower than value Relevant time = 2 years before onset of insolvency Company must have been insolvent at the time of the transaction - presumed if connected person (can be rebutted) DEFENCE - transaction was entered into in good faith, for the purpose of carrying on the business, and where, when the transaction was entered into, there were reasonable grounds for believing that it would benefit the company (ie couldn't find a buyer in time)

Answer 176

Challenge an extortionate credit transaction made in the three years ending with the day on which the company went into administration or liquidation require grossly exorbitant payments to be made, or must otherwise grossly contravene ordinary principles of fair dealing Claims are rare

Answer 177

This is a transaction at an undervalue which the company entered into in order to put assets beyond the reach of someone making a claim Brought at the discretion of the court No time limit for bringing claim but often very difficult to show intention to put assets beyond someone’s reach or to prejudice their interests

Answer 178

Fixed charge holders are paid Expenses of winding up (fees for liquidator and advisors) Preferential debts which rank and abate equally Floating charge holders (in order of priority - date of creation) Unsecured creditors, who rank and abate equally Remaining money (if any) goes to shareholders

Answer 179

Preferential debtors are paid before all other unsecured creditors in insolvent liquidation A common preferential debt is wages/ salaries of employees for work carried out in the 4 months immediately preceding the date of the winding up order up to a max of £800 per employee HMRC became a secondary preferential creditor but only for VAT and PAYE, not corporation tax

Answer 180

A statutory procedure whereby company sets aside money for floating charge holders for the benefit of unsecured creditors - 50% of the first £10,000 of money received from the property which is subject to floating charges; and - 20% of the remaining money - up to a limit of £800,000 (£600,000 if charges created before 6th April 2020)

Answer 181

Administration Company voluntary arrangements Schemes of Arrangement Restructuring plans Free-standing moratorium Informal agreements with creditors

Answer 182

Liquidation aims to wind up a company by selling its assets to repay creditors, while administration seeks to rescue a struggling business, potentially through restructuring or sale as a going concern

Answer 183

The court route - By court order The out of court route - Company, its directors, the holder of a qualifying floating charge, or even an unsecured creditor files certain documents at court

Answer 184

Step 1 - must serve notice of intention of administration on the court, any qualifying floating charge holder, and any lender who is entitled to appoint an administrative receiver Step 2 - Directors must file at court a statutory declaration that company is unable to pay its debts and is not in liquidation

Answer 185

A qualifying floating charge is a floating charge where the charge document states that paragraph 14 of schedule B1 to the IA 1986 applies to it and empowers the holder to appoint either an administrator or receiver

Answer 186

The floating charge must be enforceable, ie the holder must be entitled to enforce the security under their loan agreement Lender must file the notice of appointment at court, along with certain documents

Answer 187

Administrator - focus on securing best outcome for company with interests of all creditors in mind Receiver - focus on ensuring the creditor that appointed them gets paid in full as much as possible

Answer 188

Once administration has started, a moratorium comes into effect (no legal proceedings can be brought or continued against the company without administrators consent) Administrator then gives a proposal - approved if majority in value of creditors who are present and voting vote for as long as those who vote against do not constitute more than 50% in value of creditors unconnected to the company

Answer 189

They include: - removing and appointing directors; - paying creditors, but only with the court’s permission if the payment is to an unsecured creditor; - calling a meeting of creditors or shareholders; - dealing with property that is subject to a floating charge; - dealing with property that is subject to a fixed charge (with the permission of the court); - investigating and applying to have the company’s past transactions set aside or challenged; and - commencing fraudulent or wrongful trading proceedings against directors Order of distribution of assets is very similar to liquidation

Answer 190

The default timeframe is 1 year from the date administration took effect This can be extended and also shortened (if objectives achieved, cannot possibly be achieved, or by application to court by a creditor)

Answer 191

It is an alternative to liquidation, administration, receivership It is a written agreement which binds all parties to it Creditors usually agree to wait longer to receive what they are owed, or accept payment of only part of the debt, or both CVAs are typically used when company is fundamentally sound but may be experiencing cash flow difficulties Aim of CVA is to prevent liquidation (doesn't always succeed though)

Answer 192

Advantage to creditors as they will likely secure a better position through CVA than through liquidation Disadvantage is that a CVA can fall through and a company enters liquidation anyway (not guaranteed but possible)

Answer 193

Proposals put forward for payment of creditors must be approved by: 75% or more in value of the company’s creditors, and 50% or more of non-connected creditors Secured creditors not allowed to vote (unless part of their debt unsecured) Once proposal approved, binding on all unsecured creditors in relation to past debts, but not future debts

Answer 194

It is court-supervised and is an ‘arrangement’ or ‘compromise’ between the company and all of its secured and unsecured creditors and shareholders Directors usually prepare a restructuring plan and apply to court for approval to call meetings of the company’s creditors and shareholders - involves two court hearings (representations by creditors in first, court discretion exercised in second) Creditors and shareholders are divided into classes, and each class will be deemed to have approved the plan if 75% by value of that class vote in favour

Answer 195

LPA receiver - used to describe a receiver appointed by a fixed charge holder - LPA receivers do not have to be licensed insolvency practitioners Administrative receivers - Administrative receivers are appointed by floating charge holders, when the floating charge is over the company’s whole undertaking - only used for floating charges created before 15 September 2003 (post 2003, follow administration route instead)

Answer 196

A debt is payable now but the debtor does not currently have enough money to pay; or A debt is payable in the future and there is no reasonable prospect that the individual will be able to pay

Answer 197

By serving a statutory demand on the debtor for a liquidated sum of £5,000 or more, and waiting 3 weeks to see whether the debtor pays or applies to court to set aside the statutory demand. By serving a statutory demand on the debtor in respect of a future liability to pay a debt of £5,000 or more, and waiting 3 weeks to see whether the debtor either: 1. shows a reasonable prospect of being able to pay the sum when it falls due; or 2. applies to court to set aside the statutory demand By obtaining a court judgment for a debt of £5,000 or more, and attempting execution of the judgment without success

Answer 198

Where a company is deemed insolvent, typically an individual is deemed bankrupt Bankruptcy is the process whereby the debtor’s assets pass to a trustee in bankruptcy, whose job it is to pay as many of the debts as possible to the debtor’s creditors After 1 year (sometimes longer) the bankrupt is discharged and free from almost all their debts (even if not paid in full) - Student loans must always be paid in full

Answer 199

A creditor is entitled to present a bankruptcy petition at court if they are owed £5,000 or more (must be a fixed sum) Creditor must show that the debtor is unable to pay their debt or has little prospect of being able to pay their debt (can be presumed if creditor relies on one of the 3 methods of proving insolvency) Creditors can join together if individually owed less than £5,000 but must, together, be over more than £5,000

Answer 200

They must apply online An adjudicator, who is an employee of the Insolvency, will decide whether to make a bankruptcy order. Ground for the application is that the debtor is unable to pay their debts Debtor will pay application fees and Official Receivers admin fees Adjudicator has 28 days from application to grant or refuse order (can extend to 42 days if more info needed)

Answer 201

Bankrupt is permitted to keep some assets which are needed for day-to-day living, such as items they need for work (the ‘tools of their trade’) and everyday household items such as clothing and furniture If bankrupt has high valued items, trustee can sell and obtain cheaper alternatives Bankrupts entitled to be paid their salaries - if salary is more than sufficient, can enter Income Payment Agreement (IPA) whereby some salary is paid to trustee - If cant agree on amount under IPA, can apply to court for an Income Payment Order (IPO) IPA and IPO normally last for a maximum of three years from the date the arrangement or order Bankrupts home - bankrupt cannot be evicted straight away and the trustee needs a court order to sell the house - court will weigh up all of the relevant circumstances, including the interests of the creditors, the conduct and needs of a current or former spouse or civil partner and the needs of any children - after 1 year of bankruptcy, creditor's interest outweighs anyone elses unless 'exceptional' circumstances 3 years after bankruptcy order, ownership of home transfers back to bankrupt unless property was sold or agreement with trustee

Answer 202

Disclaim onerous property Set aside transactions at an undervalue Set aside preferences Set aside transactions defrauding creditors Avoid extortionate credit transactions

Answer 203

Trustee can investigate transactions during the 5 years prior to the presentation of the bankruptcy petition If transaction was more than 2 years prior to bankruptcy petition, must prove bankrupt was insolvent at the time. If transaction was given to an associate (connected person) then even if transaction occurred more than 2 years prior, there is a rebuttable presumption of insolvency

Answer 204

Trustee can challenge any potential preferences within the 6 months prior to the presentation of the bankruptcy petition, or within the 2 years prior to presentation of the petition if the preference is in favour of an associate Bankrupt must have been insolvent at the time of the preference, or must have become insolvent as a result of it

Answer 205

The same requirements needed for personal insolvency as needed for corporate insolvency No time limit for bringing claim but often very difficult to show intention to put assets beyond someone’s reach or to prejudice their interests May be ordered to return any property which was the subject of the transaction to the company, or discharge any security that was given by the company

Answer 206

If the bankrupt has obtained any credit in the three years prior to the bankruptcy order, and the terms of the credit are ‘extortionate’, the trustee can apply to set aside or vary the terms of the credit

Answer 207

Secured creditors can sell their charged assets. Pay surplus to trustee or join unsecured creditors if shortfall Costs of bankruptcy. Trustee's professional charges Preferential debts Ordinary unsecured creditors Postponed creditors (bankrupts spouse / civil partner

Answer 208

Cannot act as a director of a company Cannot be involved in management or promotion of company unless court grants permission Cannot trade under a different name from the name used on the bankruptcy order Cannot continue in partnership unless partnership agreement varies this position Criminal offence for a bankrupt to obtain credit of more than £500 without disclosing their bankruptcy to the lender

Answer 209

Undischarged bankrupts cannot obtain credit of more than £500 without informing the lender that they are an undischarged bankrupt Can't practice as a solicitor without the leave of the SRA

Answer 210

BRO - designed to protect the public from those bankrupts who are considered to be ‘culpable’ and to have caused their own bankruptcy by being dishonest, negligent or reckless (made by court and can last between 2-15 years) BRU - an out of court undertaking that has same effect as the above

Answer 211

IVA - individual voluntary arrangement Negotiation with creditors Debt relief order (if debtor has minimal assets and income)

Answer 212

Similar to a CVA - binding agreement between unsecured creditors, setting out how much each creditor will receive in settlement Debtor needs professional help (usually called a nominee) Debtor prepares statement of affairs for nominee Then apply to court for 14 day moratorium Proposal accepted if - 75% or more of the creditors in value agree - of which at least 50% in value are not associates of the debtor

Answer 213

Debt relief orders are only for debtors whose assets and liabilities are low in value. Not eligible if - has total unsecured liabilities exceeding £50,000 (used to £30,000 pre 28 June 2024); - has total gross assets exceeding £2,000; - has a car worth £4,000 or more, unless it has been adapted because the debtor has a disability (used to be £2,000 pre 28 June 2024); - has disposable income in excess of £75 per month, after deducting normal household expenditure; - has been subject to a DRO in the preceding 6 years; or - is subject to another, formal insolvency procedure DRO will usually last 12 months During the time that the debtor is subject to the DRO, the same restrictions apply to them as to a bankrupt

Answer 214

No real definition but generally regarded as money received which has an element of recurrence IE rental income

Answer 215

Individuals Partners Personal Representatives Trustees

Answer 216

Charities (generally) Companies (pay corporation tax)

Answer 217

Tax year runs from 6th April to 5th April the following year Pay tax on all income during that time

Answer 218

Non-savings, non-dividend income (NSNDI) - all income that isnt savings or dividend Savings income - basically interest Dividend income

Answer 219

1. Calculate total income 2. Deduct any allowable reliefs (gives net income) 3. Deduct any personal allowances (gives taxable income) 4. Separate NSNDI, Savings and dividend income - calculate tax on each 5. Add tax amounts together for overall tax liability

Answer 220

A deduction at source is a form of income in which the income tax is already paid and you are given the remainder. An example of this is salaries, where employers pay the income tax from your paycheck before giving it to you. Therefore there is no need to include income that is deducted at source in income tax calculations

Answer 221

Most interest payments, for example, bank overdrafts and credit card interest, must be paid out of taxed income. But in certain cases, tax relief may be available for interest paid on money which the taxpayer has borrowed. To qualify, interest must be payable on a 'qualifying loan' - Loan to buy a share in partnership or contribute capital - Loan to invest in a close trading company - Loan to personal reps to pay inheritance tax

Answer 222

Personal allowance - £12,570 Marriage allowance - can transfer £1,260 of personal allowance to spouse (not available to higher or additional rate tax payers) Blind person's allowance - £3,070 Property and trading allowances - property income that is less than £1,000 will not be subject to income tax - if more than £1,000, can choose to deduct this from gross income or deduct expenses Personal savings allowance (nil rate) - £1,000 tax free (basic rate payer), £500 tax free (higher rate payer), No allowance (additional rate payer) Dividend allowance (nil rate) - £500 for everyone

Answer 223

Everybody is allowed to earn a certain amount of income each year before they start paying income tax £12,570 Can set against any type of income but must be in order - NSNDI - If surplus, savings - any remaining, dividend income If income exceeds £100,000 then reduction of £1 for every £2 over (therefore no personal allowance for individuals with income exceeding £125,140)

Answer 224

Basic rate 20% - (£0 - £37,700) Higher rate 40% - (£37,700 - £125,140) Additional rate 45% - (over £125,140)

Answer 225

NSNDI = £200,000 - £30,000 = £170,000 £37,700 taxed at 20% £125,140 - £37,700 = £87,440 taxed at 40% £170,000 - £125,140 = £44,860 taxed at 45% Total tax liability = £7,540 + £34,976 + £20,187 = £62,703

Answer 226

The PSA of £1000 (basic rate) and £500 (higher rate) should not have been deducted yet. Once you establish what tax bracket the individual is in, add their PSA to their taxable NSNDI. Deduct the allowance from savings income and then tax that amount based on the rate from PSA + Taxable NSNDI Savings Starting rate 0% - (£0 - £5,000) Savings Basic rate 20% - (£5,001– £37,700) Savings Higher rate 40% - (£37,701– £125,140) Savings additional rate 45% (over £125,140)

Answer 227

Deduct the dividend allowance from the dividend income figure Check the tax bracket by adding dividend allowance (£500) to the taxable NSNDI and Savings income (including PSA) Ordinary rate 8.75% - (£0 - £37,700) Upper rate 33.75% - (£37,700 - £125,140) Additional rate 39.5% - (over £125,140)

Answer 228

Yes, shareholders pay income tax on their dividends If a loan is given to a shareholder and the company then writes it off, that loan may be taxed If a shareholder sells their shares back to the company there may be tax implications. Sometimes they pay CGT instead. (profit is difference between sale price and issue price)

Answer 229

On paper, must notify HMRC within 6 months from the end of the relevant tax year Online, must notify HMRC within 9 months from end of relevant tax year

Answer 230

Three main dates for payment 1. by 31 January in the tax year in question 2. by 31 July after the end of the tax year 3. any remaining payment by 31st January

Answer 231

Companies - they pay corporation tax Charities

Answer 232

1. Identify whether a chargeable asset has been disposed of 2. Calculate gain (consideration received less cost of asset) 3. Consider reliefs 4. Aggregate gains/losses, deduct annual exemption (£3,000) 5. Apply correct rate of tax

Answer 233

10% - if capital gain + taxable income is less than £37,700 20% - on any amount that exceeds £37,700 Residential property 18% - basic rate 24% - on any amount above basic rate (higher rate)

Answer 234

Gains made by trustees and PRs are all taxed at 20%, or, for residential property, 24%

Answer 235

Initial expenditure is the cost price of the asset, as well as any incidental costs of acquisition - conveyancing fees, legal fees, valuation fees and stamp duty etc

Answer 236

Expenditure wholly and exclusively incurred in establishing, preserving or defending title to the asset (legal fees for resolving disputes etc) Expenditure incurred to enhance the value of the asset, which is reflected in the value of the asset at the time of disposal (cost of building an extension to a house, for example) Maintenance, repairs and insurance DO NOT COUNT

Answer 237

Enables sole traders and partners to sell certain assets (‘qualifying business assets’) without paying CGT, provided the proceeds of sale are invested in other qualifying business assets (must be purchased either 1 year before or 3 years after disposal) Will pay tax eventually, but it is postponed until seller disposes of new assets

Answer 238

Typically land, buildings and goodwill - asset must be used in trade of business and not just an investment - company shares do not qualify - Fixed plant and machinery qualify but usually result in losses

Answer 239

Taxpayer must claim the relief within 4 years from the end of the tax year in which they acquire the replacement asset taxpayer loses the benefit of the annual exemption

Answer 240

Similar to rollover relief on replacement of business assets but subject to conditions Applies when an individual sells their interest in an unincorporated business (ie a sole trader or partner) to a company Conditions - business must be transferred as a going concern - consideration must all be in shares issued by the company. If only part of the consideration was shares, for example, 25% of it, then only that percentage of the gain could be rolled over - business must be transferred with all of its assets, ignoring cash Taxpayer loses the benefit of the annual exemption

Answer 241

Allows an individual to make a gift of certain types of business asset, or sell them at an undervalue, without paying CGT

Answer 242

Only available on gifts Only the part of the gain relating to chargeable business assets qualify for the relief If the donee is a company, the relief does not apply to a gift of shares Both the donor and the donee must elect to apply for the relief (within 4 years from end of tax year of the disposal)

Answer 243

Any gains which qualify for business asset disposal relief are taxed at 10% (regardless of income) Qualifying Business assets include: - if a sole trader or partnership sell their business or part of it as a going concern or following the cessation of business) - must be owned for the 2 years prior to disposal - company shares, if: - company is a trading company - taxpayer owns at least 5% of shareholding - is entitled to 5% of profits available on winding up or 5% of share capital if it were disposed of - the taxpayer is an employee or officer of the company - Above two conditions must be satisfied throughout 2 years prior to disposal

Answer 244

Any gains made by individuals who dispose of a dwelling house are exempt from CGT under private residence relief, provided that they have occupied the dwelling house as their only or main residence through their period of ownership (last 9 months of ownership ignored)

Answer 245

Damages for personal injury are exempt from CGT Other damages could constitute a disposal but personal injury does not

Answer 246

When spouses or civil partners are living together, and one makes a disposal of an asset to the other, there is deemed to be no gain or loss when the recipient of the asset disposes of it, they will pay CGT both on any gain they have made and on any gain their spouse or civil partner made during their period of ownership

Answer 247

Partners pay CGT, not the partnership itself When a firm disposes of a chargeable asset, this is treated for CGT purposes as if each partner is making a separate disposal of part of the asset Therefore each partner pays a proportion of the CGT based on their percentage ownership of the partnership’s assets

Answer 248

It will be treated for most purposes in the same way as an ordinary partnership as far as CGT is concerned If ceasing trade it may be considered as a body corporate rather than a partnership

Answer 249

Shareholder will pay CGT if following conditions are met: 1. buyer must be a trading company and its shares must not be listed on a recognised stock exchange 2. purpose of the buyback must either be to raise cash to pay inheritance tax or be for the benefit of the company’s trade 3. seller must have owned the shares they are selling back to the company for at least 5 years 4. seller must either be selling all of their shares or substantially reducing their percentage shareholding (by at least 25%) to a maximum of 30% of the issued share capital of the company

Answer 250

The Corporation tax year runs from 1 April to 31 March

Answer 251

19% - companies with taxable profits up to £50,000 25% - Companies with taxable profits exceeding £250,000 If taxable profits are in between £50,000 and £250,000, then use marginal tax rate (between 19% and 25%)

Answer 252

1. Calculate income profits 2. Calculate chargeable gains 3. Calculate total profits and apply reliefs 4. calculate tax at appropriate rates

Answer 253

There are fewer reliefs available to companies than to individuals Rollover relief on replacement of qualifying business assets - same conditions as for CGT really

Answer 254

Carry-across/ carry-back relief Terminal carry-back relief Carry-forward relief

Answer 255

Companies may carry across their trading loss for an accounting period and set it against total profits for the same accounting period - if some losses remain, can carry back for period of 12 months claim for relief must be made within two years from the end of the accounting period in which the loss was incurred

Answer 256

When a company ceases to trade, it can carry back any trading losses and set them against the company’s total profits from any accounting period(s) falling in the three years before the start of that final 12 months, taking later periods first claim for relief must be made within two years from the end of the accounting period in which the loss was incurred

Answer 257

Company may carry forward its trading loss for an accounting period and set it against subsequent profits in the next accounting period - can carry forward is losses remain Maximum amount that can be claimed under this allowance is £5 million, plus 50% of remaining total profits after deduction of the allowance Claim must usually be made within two years of the end of the accounting period in which the company will apply the losses to reduce total profits

Answer 258

Company must inform HMRC in writing of the beginning of its first accounting period, and must do so within 3 months of the start of that accounting period

Answer 259

Deadline is 12 months from the end of the relevant accounting period

Answer 260

For most companies, corporation tax is payable within nine months and one day from the end of the relevant accounting period If a company's taxable profits are between £1.5m and £20m, then usually pay tax in four instalments on the following dates: - 6 months and 13 days after the start of the accounting period; - 3 months from the first instalment due date; - 3 months from the second instalment due date; and - 3 months and 14 days after the end of the accounting period If a company's taxable profits exceed £20m, then pay tax in four instalments on the following dates: - 2 months and 13 days after the start of the accounting period; - 3 months from the first instalment due date; - 3 months from the second instalment due date; and - 3 months from the third instalment due date.