Chapter 1 - Introduction to CT Flashcards
1.2 Residence
A company is resident in the UK if it is incorporated in the UK or centrally managed and controlled in the UK. Companies resident in the UK are liable to tax on their worldwide income and gains. There is still a liability to UK corporation tax by non-resident companies, through their UK income and chargeable gains and from 6 April 2019 there gains from disposals of interests in UK land and buildings.
1.3 Accounting periods
Companies are liable to CT for each accounting period, this is normally the period for which the company prepares a set of accounts. An accounting period can never exceed 12 months. An AP begins on the earliest of:
• The commencement of trading by the company
• The acquisition of a source of income
• The company becoming resident in the UK
• Immediately after the end of the previous AP
An AP ends on the earliest of:
• The cessation or commencement of trading
• The company becoming dormant
• The end of the company’s period of account
• 12 months after the AP began
• The company beginning or ceasing to be resident in the UK
1.5 Corporation tax computation
Trading income – profits arising from company’s trading activities. You need to add back disallowable expenditure, deduct income not taxed as trading income and then deduct capital allowances to get the trade profit.
Dividends paid by a company are not an allowable trading expense and dividends received by a company are normally exempt.
Non trading profits (loan relationships) – taxes profits from UK and overseas non-trading loan relationships. Normally calculated on the accrual’s basis
Other income – includes non-trading gains (IFAs), miscellaneous income and UK and overseas property business income.
Net chargeable gains – companies pay corporation tax on this. For assets acquired before 1 Jan 2018 companies get indexation allowance on gains. Net gains are including in taxable total profits.
Qualifying charitable donations – consists of cash donations to charity, gift of shares quoted on stock exchange and gifts of UK land and buildings. Companies can deduct donations to local charities from trading profits, all other donations are dealt with under the qualifying charitable donations rules. For shares and land the market value of the asset at the date of the gift is used.
1.6 Further provisions relating to companies
AIA – available to all businesses, a group of companies is treated as one business for the AIA. A group in this case is 51% subsidiaries. Groups under common control are also treated as one business for AIA purposes. This means the companies are controlled by the same person and the companies are related to each other (carried on in the same premises or more than 50% of the turnover of each business is derived from the same economic activities).
Long Life Assets – useful life of 25 years or more, they are used in the special rate pool for capital allowances. However items not exceeding £100,000 expenditure are not taken to the special rate pool. This limit is adjusted for short accounting periods and also adjusted for the number of related 51% group companies.
1.7 Structures and building allowance
New buildings and structures as well as renovation/conversion of an existing building where construction takes place on/after 29 October 2018 and the building is for non residential purpose will qualify.
Qualifying expenditure x 3% per annum is how this is calculated. Qualifying expenditure includes construction costs, land preparation costs and demolition costs but not the cost of the land (including legal fees and stamp duty) nor the cost of planning permission. It is time apportioned in the AP of construction/purchase, sale and where the AP is less than 12 months.
