Ch 18 & 19: Corporation Tax + additional aspects

Question 1

How do you calculate augmented profits?

Answer 1

TTP x
Dividends received x
(UK + foreign <50%)
= Augmented profits x (this decides how the tax is paid)

Question 2

What is the augmented profit limit?

Answer 2

£1.5m

Question 3

What is the default date to pay corp tax?

Answer 3

9 months 1 day after accounting period end

Question 4

What is the criteria for SSE?

Answer 4

1. At least 10% shares owned
2. Owned for 12 months of the last 6 years
3. Must be in a trading company

Question 5

What happens if SSE applies?

Answer 5

Any gain on disposal is exempt and any loss is allowable

*SSE is automatic and can’t be dis-applied

Question 6

When is the filing date for corp tax?

Answer 6

12 months after the accounting period

Question 7

What revenue expenditure qualifies for the super SME deduction?

Answer 7

staff costs
materials
utilities
65% of payments to subcontractors

Question 8

What is the super deduction % for SMEs?

Answer 8

An additional 130%

Question 9

What is the % of repayment to a loss making SME?

Answer 9

14.5% of the surrenderable loss

Question 10

What is the surrenderable loss equal to?

Answer 10

The lower of:

• the trading loss
• 230% of the R&D expenditure

Question 11

When do the pension provisions apply?

Answer 11

Where:

• the amount of the employer pension contribution in the current period exceeds 210% of the previous
• the amount exceeding 110% of that paid previously is > £500k = the excess

Question 12

What is a close company?

Answer 12

• A UK resident company
• controlled (>50%) by
• 5 or fewer shareholders (participants) or any number of directors
• participants = direct relatives and business partners

Question 13

What are the payment dates for installments?

Answer 13

Pay in quarterly installments -

starting in mths 7 of the accounting period then mths 10,13,16 on the 14th day

Question 14

What % repayment do loss making companies get for energy saving P&M?

Answer 14

12.67% tax credit

Question 15

How are chargeable gains calculated for companies?

Answer 15

Same as individuals EXCEPT:

• companies get an indexation allowance
• they DO NOT receive an annual allowance
• they pay CT on their CGT
• rollover relief is available if the criteria is met and is applied to the gain after IA

Question 16

How do you calculate the indexation allowance?

Answer 16

allowable cost x indexation factor (to Dec 2017)

* indexation can’t cause a loss

Question 17

What is the R&D relief available for large companies?

Answer 17

They may claim a tax credit of 12% of costs
- this is taxed as taxable income, but also
reduces the CT liability
*can be reduced to a max of 0

Question 18

Close companies - What is the impact on the COMPANY of loans to participators/shareholders?

Answer 18

• the company must pay penalty tax of 32.5% of the loan to HMRC
• the tax will be repaid when the loan is repaid/written off
• IGNORE loans of < £15,000 to full time directors/ employees owning < 5% of the company

Question 19

Close companies - What is the impact on the PARTICIPATOR of loans to participators/shareholders?

Answer 19

Calculate ‘cheap loan’ taxable benefit

• for employee participator, tax as employment income (20/40/25%)
• for non-employee participator, tax as a dividend (1st £2k 0%, 7.5/32.5/38.1%)

Treat any amount written off as dividend income

Question 20

What are the conditions for the DIVIDEND (distribution) treatment of a Share buy-back situation?

Answer 20

Individuals - automatic dividend treatment if capital treatment doesn’t apply

Corporate shareholders - only capital treatment can ever apply

Question 21

What are the conditions for the CAPITAL treatment of a Share buy-back situation (6 things)?

Answer 21

Automatic if corporate shareholder, OR

1. unquoted trading co
2. repurchase for benefit of trade
3. shareholder resident in the UK
4. shares held >5yrs (3yrs if inherited)
5. shareholders holding reduced by 25%
6. shareholder left with < 30% of co

Question 22

What treatment is applied to distributions pre-winding up of a company?

Answer 22

Dividend treatment = value returned to shareholder, companies tax exempt, individuals normal rates of DI tax applies

Question 23

What treatment is applied to distributions post-winding up of a company?

Answer 23

Capital treatment i.e. sale of shares - company exempt if SSE applies, individual entrepreneurs relief if applicable

Question 24

How do you calculate whether the shareholders holding reduced by 25%?

Answer 24

Before: shares held/original share capital
After: shares left/ reduced share capital of company