Chapter 10 - Corporation tax Flashcards
What does CT stand for?
Corporation Tax
Do you need to know how CT is calculated for SQE ?
Yes
What else needs to be know or SQE?
Tax consequnces
Rules applications
Advice on payment and collection
Liability under anti-avoidance provisions
On what do Companies pay corporation tax?
On their income profits and capital gains
How are income profits calculated?
According to the income tax principles IT
How are capital gains calculated?
According to the capital gains tax CGT principles
What are the key charging statutes?
Corporation Tax At 2009
Corporation Tax Act 2010 (CTA)
When are companies assessed for CT ?
During the corporation tax financial year
What does CTFY stand for?
Corporation Tax Financial Year
When is the CTFY?
From 1st April in one year to 31st March in the next
When did CTFY start?
In April 2021
What happens if the company accounting period differs from the CTFY?
The rate changes and the company’s profits need to be apportioned
What is the corporation’s tax rate?
19%
How is the CT tax rate calculated?
By applying the appropriate rate to the profits made in each of the company’s accounting period
How to calculate CT in practice?
You add up the income profits and capital gains. The result will be X by 19%. The result is how much CT the company will have to pay
How often is CT renewed?
Annually. Make sure to check the rate every year
How many steps are to calculate CT?
5 steps
What is step 1 of calculating CT?
Calculate income profits
What is step two of calculating CT?
Calculate chargeable gains
What is step 3 of calculating CT?
Add together the income profit and the chargeable gain to give total profits
What is step 4 for calculating CT?
Apply reliefs
What is step 5 to calculate CT?
Calculate the tax
How is income profits calculated?
According to the usual principles of chargeable receipts, less deductible expenses, and capital allowance
What are copyrights, patents and trademarks?
Assets
How is the gains treated from asssets?
They are treated as income rather than capital gain
How is expenditure treated on assets?
As a deductible expense
How is CT treat individuals who control a company?
They are treated as connected as if they are owning it with other people
From where are capital loses deducted?
From chargeable gains
When can the indexation allowance be applied?
Once the basic gain has been calculated
What is indexation allowance?
Adjustments to account for any increase in value that is a result of inflation
What are the dates when indexation allowance was introduced?
31 March 1982
When was the indexation allowance stopped?
31 December 2017
What cost do apply to indexation allowance?
aquisition costs
incidental costs of aquisition
subsequent expenditure
What is subsequent expenditure?
Is how much they spent on a property to double the size of the property
What is incidental costs of disposal?
Cost paid to lawyers and accountants
How to calculate the gain of the company after indexation?
You take the sale price of the company and minus the aquisition costs and the incidental cost of aquisition min us the incidental costs of disposal minus the subsequent expenditure
How to calculate the gain after indexation?
Use the numbers in the given text to multiply the acquisition costs and incidental costs, and do the same with subsequent expenditure
What does RORRQBA stand for?
Roll over relief on replacement of qualifying business assets
What is RORRQBA?
The mani relief for a company chargeable gains
How does RORRQBA relief work?
Same as the CGT relief for individuals
What is different between RORRQBA relief and CGT relief?
There are different rules for goodwill and intellectual property
How are the receipts from goodwill and intelectual property assets treated in RORRQBA relief?
They are treated as income
When are the roll-over reliefs available?
If these assets are sold and replaced with other goodwill or intellectual property
How to calculate total profit?
Add together the income profit and chargeable gains
Can the company decide which relief works best for them?
Yes
Can the same loss claimed twice?
No
What are the key reliefs for CT?
carry accros/carry back relief for trading loss
terminal carry-back relief for trading losses
carry forward relief for trading losses
What are the reliefs for?
For trading losses
How can a company deal with its profits?
Retain them for business
Pay them as dividends to its shareholders
Use them to pay loan/debenture interest
Pay director’s fees
Making loans to directors/shareholders
Can dividends be deducted?
No
What can increase the company CT liability
Paying dividends
What means a close Company?
Is controlled by 5 or fewer participators or any number of participators who are directors
Who are the participators?
Shareholders and debenture holders
Who are considered the participators’s associates?
Spouse, parents, children,siblings, and business partners
What happens if a close company makes a loan to a participator or a participator’s associate?
The Company must pay a levy to HMRC equivalent to 32.5% of the loan
What happens if the loan is repayed?
The levy will be refunded and there are no tax consequences
What happens if the loan is written off?
The levy is refunded to the company, but in the hands of the recipient, it is taxed the same way as dividend
What are the two exemptions that apply for the loan?
Where the company is in business for money lending and the loan is made as part of that business
Where the loan together with any outstanding balance, does not exceed 15K
The borrower works full time for the company
Owns 5% or less of the company’s shares. All 3 conditions must be satisfied
how are group companies taxed? and why?
separately because they have a separate legal personality
What can be applied to or income losses and expenses and chargeable gains to group companies?
Group relief
What is a group Company?
Is one that owns 75% or more of the other’s ordinary shares or both companies own 75% or more of the ordinary shares in another company
What does group relief for income profits and expenses allow?
Allows certain income losses and expenses to be transferred from one group company to another to reduce the transferee’s income profits, in an accounting year which overlaps between the two companies
What does group relief for chargeable gain allow?
Allows group companies to transfer chargeable assets between them without a loss or gain occuring
What else can be used for group relief for chargeable gains?
Roll-over relief can be used to roll over a gain made from selling property into the aquisition of assets by another company in the same group
What is CT?
CT is a self-assessment tax
How far in advance does HMRC needs to be notified for tax?
Within 3 months of the start of the business period
When is CT payable?
9 months and 1 day from the end of the accounting period
When does the tax return should be done?
Must be made by 12 months from the end of the accounting period
How do bug companies with a taxable profit of 1.5 million make instalments?
They pay CT in 4 instalments and the dates are set by HMRC
How about companies that make £20m profit, how doe they pay CT and when?
There are different dates
Does the general anti-avoidance rule GAAR applies to CT?
Yes
What is HMRC requiring of the anti-avoidance rule?
May require adjustments to be made
