Ch 24- Family Co’s & Related Planning Scenarios

Question 1

Unincorporated business- e.g. Sole trader

Answer 1

Easier admin
Profits & gains tax (personally)

Question 2

Company e.g. Ltd

Answer 2

-Requires adherence to company law (submit CS01’s etc.)
-Corp tax 19%
-Shareholders taxed on income extracted (already been subject to Corp tax)

Question 3

Private use adjustments?

Sole trader? Y/N
Company? Y/N

Answer 3

Sole trader- Yes
Company- No

Question 4

Loss relief for: -Sole trader

Answer 4

-Available against total income of individual (Current and/or previous tax year)
-C/fwd against future trading profits of same trade
-Loss in 1st 4 tax years- can carry back 3 tax years (CO’s can’t)

Question 5

Loss relief for: -Company

Answer 5

-Available against company profits current year/ then can carry back 12 months)
-C/f against future total profits (income and chargeable gains)

Question 6

Tax implication on withdrawal of funds:

1) Unincorporated
2) Company

Answer 6

1) No tax implications as is taxed on net profits
2) Salary (PAYE). & Dividends

Question 7

VAT- Who registers?

1) Unincorporated
2) Company

Answer 7

1) Individual registers
2) Company registers

Question 8

Disposal of business (Unincorporated)

Answer 8

CGT- gains on individual chargeable gains
BADR
Business should qualify for gift holdover relief

Question 9

Disposal of business (Company)

Answer 9

CGT- Gain on shares sold
BADR
Shares in unquoted trading co qualify for gift holdover relief (if gifted)

Question 10

IHT on:
1)- Unincorporated
2)- Company

Answer 10

1) 100% BPR On whole business or share in partnership
2) 100% BPR for Unquoted shares (must be trading co)
50% BPRfor Quoted shares (must be trading co).
50% BPR for. L&B/P&M used by Co or partnership

Question 11

Payment of tax:
1) Unincorporated
2) Company

Answer 11

1) 31st Jan (31st July payment on account), (following 31st Jan balancing payment)
2) Corp tax (9m + 1 day after y.e). PAYE on emp income (monthly basis)

Question 12

Considerations- choice of business structure?

1) If profitable and don’t intend on extracting all of the profits?
2) If loss making in early years?
3) If R&D expenditure arises?

Answer 12

1) Company may be preferable as after 19% corp tax (taxes only levied if funds extracted)
2) Sole trade may be preferable due to opening year loss reliefs (not available to CO’s)
3) R&D not available to unincorporated.

Question 13

Close Companies

Answer 13

One which is under the control of:
-Any number of directors, or
-5 or fewer participators (shareholders)

CONTROL IS DEFINED AS >50%

Question 14

Associates within close co (5)

Answer 14

Spouse / Civil partner
Parents and Grandparents
Brothers and sisters
Children and Grandchildren
Business partners

Question 15

Loans to shareholders (similar to overdrawn DLA)

Answer 15

Tax treatment for:
1) Shareholder- Loan at beneficial int rate for <£10,000= Exempt benefit
2) Company- must pay 33.75% with Corp tax on loan outstanding

If loan written off:
1) Treat as dividend
2) Write off disallowable

Question 16

Loan to company by the individual

Answer 16

Int payable = Allowance deduction for the company
Int rec= Savings income- 1st £5k tax free (Savings income Nil Rate Band of £1000 BRB/£500 HRB)

Question 17

Personal Service Companies (PSCs)

Answer 17

Services provided by PSC to small client= PSC decides whether anti-avoidance
Services provided by PSC to med/large client = Client org decides whether rule apply.

To determine size- Consider turnover, profits, employee no’s, locations?

Question 18

Tax treatment= when company buys back old shares

Answer 18

Capital route= Normal gain calc (Proceeds - Cost- AEA= taxable gain æ 20%)
BADR applies if worked for company

Income route: ( 2 sections )
Gain- (Proceeds - Cost) = Capital gain/(loss)
Net distribution- (Cash rec - subscription price)= Net distribution (Dividend to tax)

Question 19

Liquidation- How are distributions taxed (before & after appointment of liquidator)

Answer 19

Before: Dividend
After: CGT payable (likely to qualify for BADR so 10% tax)