Chapter 23 - Introduction to corporation tax

Question 1

In corporation tax note, what are the 3 general rules?

Answer 1

1. Total taxable profits include both its income and “chargeable gains”. The term chargeable gains is used in preference to “capital gains”
2. The main source of income for most companies is likely to be trading income. But a company may also have other sources of income. These could include bank interest, loan interest, property interest etc.
3. computed quite similarly to individual

Question 2

What is the difference between an accounting period and a period of account?

Answer 2

An accounting period is a period for which corporation tax is charged. A period of account is a period for which a company prepares its accounts

Question 3

How does the Corporation Tax Act 2010 use the terms “taxable total profits” and “chargeable profits”?

Answer 3

TTP - Refers to a company’s profits which are chargeable to corporation tax.
But the terms chargeable profits, or profits chargeable to corporation tax (PCTCT) are also some times used

Question 4

Important things to note about corporation tax

Answer 4

Company’s do not have private portions of expenses. Any private use by employees is treated simply as a cost of employing staff.
Appropriations (dividends) are disallowed

Question 5

How are Gift Aid donations treated?

Answer 5

Disallowed then computing trading income but are then treated as qualifying charitable donations and are deducted when calculating the company’s taxable profits.

Question 6

Capital allowances on energy-saving or environmentally beneficial plant and machinery

Answer 6

Environmentally beneficial plant and machinery qualify for 100% FYA and may be able to claim first year tax credit in relation to the expenditure. This credit takes the form of a cash payment from the Government and is generally equal to 19% of relevant expenditure. First year tax credits for a chargeable period ate capped at the greater of total of

1. the total of a company’s PAYE and NIC liabilities for period
2. £250,000

Question 7

Corporation income from property distinctions from individuals

Answer 7

1. interest payable on a loan taken out by a company for the purposes of buying or improving let property is dealt with under the loan relationships rules and is therefore disallowed when computing property income
2. the income tax rule restricting tax relief on interest payable and other finance costs as from tax year 17-18 does not apply to companies.

Question 8

Dividends received from other companies

Answer 8

these are paid out of profits which have already been subject to corporation tax. Therefore, to avoid double taxation, such dividends are not included in the taxable profits of the receiving company.

Question 9

What qualifies as qualifying charitable donations?3

Answer 9

1. donations made by a company under the Gift Aid scheme
2. Gifts of listed shares or securities to a charity
3. gifts of land and buildings to charity

Gift Aid donations that are deducted when computing taxable total profits for an accounting period are the donations actually paid during that period. Accruals and prepayments are ignored Company gift aid payments are not grossed up.
Charitable donations by a company for trade purposes are (not gift aid) are deductible when computing comp trading income

Question 10

Corporation gift of pre-eminent art %?

Answer 10

20%

Question 11

Loan relationships

Trading loan relationships 2

Answer 11

1. Any interest payable is treated as a trading expense
2. Any interest receivable is treated as trading income. Usually only applies if company is in the business of lending money

Question 12

Non trading loan relationships 2

Answer 12

If a company enters into one or more than one loan relationship for non-trading purposes, then all the debits and credits are aggregated. Then:

1. if total credits exceed total debits, the net credits form part of the company’s taxable total profits and are charged to corporation tax
2. If total debits exceed total credits, the net debits may be relieved in a variety of ways

Question 13

Accounting for loan relationships

Answer 13

The amount of income an expenditure brought into account for a loan relationship is calculated on an accruals basis. Any payments made net of income tax are grossed up before being included in the corporation tax computation. Income tax deducted at source from such payments must then be accounted for to HMRC.

Question 14

R & D development tax relief

Answer 14

Subject to conditions, small or medium companies SMEs which incur r n d development expenditure may claim a tax relief on 230% of the amount. Cant be capital expenditure and must be relevant to trade.

Question 15

How is r n d tax relief administered?

Answer 15

By deducting 230% of the qualifying expenditure when computing the company’s trading income. If this creates a trading loss, the company may claim a payment from HMRC equal to 14.5% of the surrender able loss at the lower of:
1. the amount of the trading loss
2. 230% if the qualifying r n d expenditure.
If such a claim is made, the surrendered loss is then ineligible for the loss reliefs that are normal available in relation to a company’s trading losses.
Cap of 7.5 mil euros per project

Question 16

What is the above the line tax rate?

Answer 16

11%