Ch19: Computing Taxable Trading Profits and Corporation Tax Liability

Question 1

Proforma for TTP

Answer 1

TRADING INCOME:
Adjusted Profits
LESS Capital Allowances
EQUALS Trading Profits

OTHER INCOME:
Interest from Non-Trade Loan Relationships (NTLR)
Property Business Income
Misc Income
EQUALS Net Chargeable Gains

EQUALS Total Profits
LESS QCD
EQUALS TTP

Question 2

Are dividends received from other companies EXEMPT when calculating TTP?

Answer 2

Yes.

Question 3

Deductible or Non-Deductible -
Dividends Paid

Answer 3

Not Deductible = Add Back = Disallowable

Question 4

Is there any DISALLOWANCE for Private use when calculating TTP?

Answer 4

No - which means that is is allowable = deductible = do not add back.

Question 5

Do you ADD BACK QCDs that are NOT SMALL DONATIONS TO LOCAL CHARITIES?

Answer 5

Yes.

Question 6

Examples of what Trading Loan Relationships (TLR) relates to?

Answer 6

1. Purchasing Plant & Machinery
2. Providing working capital
3. Acquiring property for trade - e.g. Offices, Warehouses.

Question 7

Examples of what Non-Trading Loan Relationships (NTLR) relates to?

Answer 7

1. Loans for purchasing property to rent out.
2. Loans for acquiring shares in another company.
3. Interest from investments or deposits.

Question 8

Would you use the CASH Basis or ACCRUAL Basis when calculating Property Business Income?

Answer 8

ACCRUAL BASIS
[ Rent Accrued - Allowable Deductions ]

Question 9

Formula for Augmented Profits (AP).

Answer 9

AP = TTP + Dividends Received

Dividends from 51% group companies are EXCLUDED.

Question 10

CT Rates for the MAIN RATE?

Answer 10

25% = Main Rate

AP > £250,000 (Upper Limit)

Question 11

CT Rates for the SMALL POOL RATE?

Answer 11

19% = Small Pool Rate

AP < £50,000 (Lower Limit)

Question 12

CT Rates for the MARGINAL RELIEF RATE?

What is the formula?

Answer 12

25% - MARGINAL RELIEF =

AP is BETWEEN £50,000 - £250,000

[ MARGINAL RELIEF =
(UPPER LIMIT - LOWER LIMIT) * ( 3 / 200) * (TTP / AP) ]

(TTP / AP) –> Only USE if there has been DIVIDENDS RECEIVED.

Question 13

What would the effective marginal rate of tax be if there is NO DIVIDENDS?

Answer 13

26.5%

Question 14

Define Associated Companies.

Answer 14

Company associated with another company if
(1) either control the other, or
(2) if they both have the same 50% share capital ownership.

Question 15

How are profits divided by for Associated Companies?

Answer 15

Number of Associated Companies + 1