Chapter 20 Additional aspects of corporation tax

Question 1

What tax relief do companies get on REVENUE expenditure on Research & Development?

Answer 1

SMEs - Get an additional 130% super-deduction (so 230% altogether)

Large co.s get an ‘above the line tax credit’ - the RDEC (at 13%)

Question 2

What tax relief do companies get for CAPITAL expenditure on Research & Development?

Answer 2

A 100% First Year Allowance (FYA). Even on buildings (but not land).

Question 3

Can companies have a deduction for pension contributions made?

Answer 3

Only if the pension contribution has actually been paid in the period (not accrued)

Question 4

What sort of expenditure on intangible fixed assets is allowable as a trading expense?

Answer 4

In the TC exam ALL expenditure that has gone through the accounts on IFAs is allowed as a trading expense EXCEPT the amortisation/write off of goodwill which is disallowed

Examples:

• Payment of a copyright/patent royalty
• Loss on sale of an intangible
• Amortisation of a patent/copyright

Question 5

What sort of income from intangible fixed assets is taxed as trading income?

Answer 5

In the TC exam any income in the accounts from IFAs is taxed as trading income.

Examples:

• Royalties received
• Profit on disposal of an IFA

Question 6

When a question says ‘there is no tax treaty with country X’ what does it want you to do?

Answer 6

It wants you to give DTR in the normal way i.e.
Lower of:
- The UK tax on the overseas income
- The overseas tax on the overseas income (given)

Question 7

If a company has overseas income from 2 different countries can you do 1 DTR calculation that covers both?

Answer 7

No.

DTR has to be calculated on a source by source basis i.e. separate DTR calculation for each country

Question 8

What sort of expenditure on Research & development would be revenue expenditure?

Answer 8

Staff costs (wages of staff working directly/indirectly on research)

Consumable materials (test tubes, paper etc)

Computer software

Gas/electricity/water/fuel costs

Question 9

If the staff working on a research & development project are actually subcontractors can their costs still qualify for the 130% super-deduction?

Answer 9

Yes, BUT only 65% of the cost is eligible

Question 10

What sort of expenditure on Research & development would be CAPITAL expenditure?

Answer 10

Purchase of buildings, machinery, equipment.