Ch.2 - Corporation tax for a single entity Flashcards
What R&D expenditure is available for a company?
SME - extra 130% deduction against trading income.
Large company - tax credit of 12% of qualifying expenditure
What are the special rules for externally provided workers and subcontracted expenditure?
Unconnected - only 65% of expenditure is eligible for 130% deduction (e.g. payment £1m, deduction £1m65%130%)
Connected - payment eligible for extra 130% deduction is capped at the providers own relevant expenditure (e.g. payment £1m, subcontractors cost £750k, deduction £1m+(£750k*130%)
How is additional deduction for R&D for SME calculated when there is a trading loss?
- calculate surrendable loss as lower of:
- trading loss - CY claim (whether made or not) - other loss relief (actual claim) - group consortium relief (actual claim)
- 130% of R%D expenses - calculate tax credit at 14.5% of surrendable loss
How is R&D tax credit calculated for large companies?
- tax credit @ 12% is given above the line so treated as taxable income
- credit is used to reduce CY tax liability
- if there is remaining credit, it is capped at:
- CY credit less notional CT liability (i.e. 81% * CY credit)
- amount of PAYE and NIC paid by the company in respect of workers engaged at R&D
What is the treatment of intangible assets for CT purposes?
Pre 1 April 2002
- amortisation/impairment not allowable expense
- gain on disposal arises
Post 1 April 2002
- trading income deduction for amortisation/impairment (or WDA @ 4% is election is made)
- trading profit or loss on disposal
What is the treatment of goodwill for CT purposes?
Pre 3 Dec 2014:
- amortisation allowable
- trading profit/loss on disposal
Post 3 Dec 2014 - 8 July 2015
1) on incorporation:
- no amortisation expense
- trading profit/NTLR deficit on disposal
2) on acquisition:
- amortisation allowable
- trading profit or loss on disposal
Post 8 July 2015:
- no amortisation expense
- trading profit/NTLR decifit on disposal
What is the treatment of ROR for intangible assets?
Pre 1 April 2002:
- normal/partial ROR available
Post 1 April 2002:
- special rules as deduction has already been claimed for amortisation/WDA which cannot be rolled over
- ROR is therefore difference between proceeds/reinvestment cost and original cost of the asset (not its carrying amount)
What is treatment of Patent Box?
Election for profits relating to patents to be taxed at a lower rate of CT. Company must carry on qualifying expenditure.
- profit of each patent sub-stream are multiplied by Nexus fraction that reflects the proportion of R&D that is subcontracted rathen than carried in-house.
- total of each substream is taxed at reduced rate of 10%
- small claims treatment available if qualifying profit < £3m (reduces admin burden)
What are special rules for determining the patent related income?
- determine profit relating to patents
- deduct notional return of 10% of costs (to reflect element of normal profit)
- make further deductions
- notional marketing royalty (usually given), or
- if profits after 10% deduction are less than £3m, elect to make set deduction @ 25%
How to calculate Nexus fraction?
Lower of 1 and
(D+S1)*1.3/(D+S1+A+S2)
D = in-house direct expenditure on R&D
S1 = expenditure on R&D subcontracted to 3rd parties
A = expenditure on purchase of intellectual property
S2 = expenditure on R&D subcontractd to related parties
What is the treatment of management expenses in investment business?
Mgmt expenses are deducted from:
- property income if related to property management
- NLTR income if related to interest income
- on the face of CT comp (before Gift Aid) if general mgmt expenses
Excess general mgmt expenses are cf and offset against future income and gains.
Pre 1 April 2017 - automatic cf
Post 1 April 2017 - by election
What is the exception to SSE when investee company is not a trading company?
Full or partial exemption could still be possible where an investee company is not a trading company if the selling company is at least 25% owned by QIIs (qualifying insitutional investors), e.g. charities.
- full exemption - 80+% owned by QIIs
- partial exemption - 25-80% owned by QIIs
