Chapter 16 Flashcards
How do we deal with non trade interest income/expenditure?
If income we deduct from TATP and if expeddutre we add to to TATP. We take these amounts and put in a P&L account and net off. If total credit = goes on pro forma under the non trade income row. If debit this is relief and and gains with the normal single co losses in a row.
What is the speacial treatment of research and development expenditure?
If a small/medium company is carrying out R&D to enhance science/technology they can gain extra relief for certain aspects of their REVENUE expenditure.
If capital expenditure of R&D to enhance science/tech = get full 100% allowance (put in AIA basically) in yea of purchase.
What expendiutre is allowed for the speecial treatment of research and development?
Staff costs directly involved (not admin staff)
Software
Overheads
Contract work (only 65% of this expendiute can get exrtra 86%
We can deduct 86% of the above
Are depreciation and amortisation allowable for TATP?
Depreciation = not allowable, amortisation of intangible assets is allowable! Deduct the pro rata amount. If less that 4% used in the books can use HMRC 4% rate
How do we deal with goodwill amoritisation?
Amortisation of goodwill is dissallowable! All other intangible asset amoritsation is allowable however.
We have disposed off goodwill and made a gain where is it going?
A gain of goodwill goes to TATP as trading income
We have disposed off goodwill and made a loss where is it going?
Goes in the pro forma as loss relief current year and b/f only! Can be part fo group relief too!
We have disposed of a patent and made a gain where is it going?
A gain of a normal intangible asset (not goodwill) is trading income in TATP
We have disposed of a patent and made a LOSS where is it going?
a loss of a normal intangible asset (not goodwill) is an allowable deduction in TATP
Is ROR for intangible assets the same as ROR for chargebale gains?
Not quite, as intangible assets being disposed off do not go in chargebale gains section they are alll done in TATP. So the deferral of gain here means we delay putting the gain in the TATP as income therefore we have less TATP to pay tax on. Same calc as the ROR in that the retained amount is taxable (in this case in TATP not CG) but all we do differnetly is put the amoritsed amount in the TATP and this is reduced from the deferral amount.
What is transfer pricing?
Transfer pricing is where related companies charge more favourable/less prices for transfers between them. This means if A sells to B ( a related compnay) stock for 10,000 but 13,000 to others it is receiving less income. This is Ok for A as they will pay less tax (on 10k instead of 13k) and as B is selling this to the public and making a greater profit on the lower 10k A will probably receive greater dividends because of this greater margin! So to combat this HMRC make sure to set it back to normal so in this case A will +3,000 to their TATP income and B will have -3000 less for expenditure.
What is thin capitalisation?
This is low level of capital so more debt. Works by looking at compnaies that are related and offering loans to eachother. A goes to bank to get loan and they will only give A 750,000 but it wants 1,000,000. A gets loan from related co B for 1,000,000 at 7% rate per annum. Thin Capitalisation means that as A is benefiting from extra 250,000 they will have extra NTI income (in t account on credit side) of 250,000 x 0.07
What is the order we look at share disposals for companies comparred to inviduals?
Companys = 1) match same day 2) match 9 days prior to sale 3) share pool
For individuals it is the same but 2) is 30 days after sale
What is indexation?
Indexation is applied to the cost of the assets sold to keep the asset inline with inflation. If this was not applied the cost would remain the same for lots of years and a larger gain would arise on disposal. Indexation helps keep the gain smaller basically = its beenficail. It stoppped on Dec 17 though.
What is the SSE?
Sustanisal sharholding exemption is there to as a releif for companies to avoid having chargeable gains. If a company has held over 10% of the company’s shares for the last 6 years before disposal date tehn the gain is exempt. For the 10% it is not about the % held at disposal ALWAYS LOOK BACK 6 YEARS AND MKE SURE IN THOSE 6 YEARS THEY HELD OVER 10% FOR ATLEAST 12 MONTHS!
