Chapter 2 - Corporate IT and Capital tax calcs

Question 1

What is group loss relief?

Answer 1

Tax consolidation allows trading losses to be surrendered between different entities

Question 2

Can capital losses be surrendered between group entities?

Answer 2

No

Question 3

What may group relief be used for?

Answer 3

• Save tax
• Enable relief to be gained earlier

Question 4

Why is it beneficial for group entities to transfer funds in the form of loans over dividends?

Answer 4

Because dividends are not tax deductible whilst interest is

Question 5

How are disallowable expenses handled for CT?

Answer 5

Added back

Question 6

How is depreciation handled?

Answer 6

Added back

Question 7

How are capital allowances handled?

Answer 7

Deducted

Question 8

Are FYA still included in total accounting depreciation calcs?

Answer 8

Yes

Depreciated at normal rate

Question 9

Are FYA still included in capital allowance calcs?

Answer 9

Yes and at 100%

Question 10

How is TTP arrived to?

Answer 10

AP - exempt income + disallowable expenses + Depreciation - CA

Question 11

How is the accounting P/L on disposal calculated?

Answer 11

Proceeds - Carrying amount

Question 12

How are balancing charges/allowances calculated?

Answer 12

Proceeds - TWDR

Question 13

What is the standard pro-forma for CGT?

Answer 13

Proceeds
(Costs to sell)

Net proceeds
(Cost of original asset)
(Costs to purchase asset)
(Enhancement costs)
(Indexation allowance)

Chargeable gain

Question 14

What costs can be deducted from proceeds?

Answer 14

• Original cost
• Cost to buy (legal fees)
• Costs to sell (legal fees)
• Enhancements
• Indexation allowance (claimed on cost)

Question 15

What are the 4 main systems that deal with the issue of appropriations of profits?

Answer 15

• Classical system
• Imputation system
• Partial imputation system
• Split rate system

Question 16

What is the classical system?

Answer 16

• Shareholder treated as independent from entity
• Dividend taxed twice, first entity’s taxable earnings then shareholder’s personal income

Question 17

What is the imputation system?

Answer 17

• Shareholder receives tax credit equal to underlying corporate income tax paid by entity
• Entity taxed on taxable earnings used to pay dividend
• Shareholder pays no tax on dividend income

Question 18

What is the partial imputation system?

Answer 18

Tax credit offered to shareholder for part of underlying corporate income tax paid

Question 19

What is the split rate system?

Answer 19

Distinguishes between distributed and retained profits and charges lower rate on distributed profits

Question 20

How is non-taxable income handled?

Answer 20

Deducted

Question 21

How is tax depreciation handled?

Answer 21

Deducted