company issues

Question 1

what is transfer pricing

Answer 1

Group companies might use unfair prices to shift profits and cut tax, ignoring group relief rules.

Question 2

what has tax dept done as anti avoidance rule?

Answer 2

tax dept converts these transactions to market rate

Question 3

Anti avoidance rule for large company

Answer 3

Large company will always face transfer pricing laws

Question 4

If UK SME transacts with another UK SME

Answer 4

no anti avoidance. Over/under pricing is allowed

Question 5

qualifying territory meaning

Answer 5

means UK has a double tax treaty

Question 6

when would a medium sized entity face anti avoidance

Answer 6

if over/under pricing is done persistently

Question 7

what are the tax reliefs for research and development costs

Answer 7

100% allowed expense on capital expenditure (deduct from trading PnL in same year)

100% allowed expense for revenue expenditure + additional relief for qualifying outflows

Question 8

capital expenditure and what is not included in it?

Answer 8

Capital expenditure means expenditure on assets which have life of more than 1 year.

They are 100% allowed expense in same year.

Land and software are not classified as capital expenditure

Question 9

if capital asset (development expenditure) is sold

Answer 9

100% disposal proceed will be treated as a taxable income

Question 10

Revenue expenditure

Answer 10

-all those RnD expenses that r not capex.

-all RnD revenue expenditure will get 100% allowed expense in year of outflow

-additional relief also available if qualifying expense (additional allowed expense of 86%)

Question 11

what are qualifying outflows

Answer 11

SOS!! (to innovate) CU!! (in action)

S: Staff salaries (also includes pension contributions of ER and Class 1 NIC. No additional relief on non cash benefits)

O: Outsourced staff:65% cost

S: Software purchased

C: Consumables

U: Utility expenses

186% allowed expense.

Question 12

what are specially non qualifying outflows

Answer 12

M: Market research cost
A: Admin department cost (including rent)
R: Research outsourced (independent research)
S: Subsidized research

no additional relief on this. normal 100% allowed exp is given

Question 13

additional relief is only for

Answer 13

small and medium companies

for large entities additional relief is different but not part of ATX course

Question 14

if due to RnD, a company suffers trading loss, what relief options do they have?

Answer 14

1- normal trading loss relief (carry forward/back)

2- surrender for cash
Get 10% cash of the lower of:
-Remaining loss after all possible loss reliefs
-186% of R&D qualifying costs.

Cash option is for companies with no future income hope, as 19% is usually better.

Question 15

how is tax assessed on intangible assets

Answer 15

in individuals - all intangible assets are assessed in CGT

in companies - under trading income. yearly amortization is given as an allowed expense. (Except for goodwill)

Question 16

amortization allowed expense amount

Answer 16

will be higher of
-cost/ life (accounting amortization)
-cost*4%

Question 17

how will gain/loss be assessed when intangible asset is sold

Answer 17

gain/loss will be calculated using book value rather than cost

gain/loss = DP-Book value
book value: cost less amortization claimed

no indexation allowance as that is available for CGT only

this gain/loss will be assessed in trading PnL

Question 18

will rollover relief be available if the company reinvests proceeds in another intangible asset?

Answer 18

Full Reinvestment:

Assessable = Proceeds - Cost of Old Asset
(All proceeds reinvested = full deferral in trading P&L)

Partial Reinvestment:

Assessable = Reinvested Amount - Cost of Old Asset
(Only reinvested amount deferred; the rest is taxable)
Reinvestment Period (1-3 Rule):

Question 19

tax rules for goodwill

Answer 19

goodwill is not liked by tax department
no amortization on goodwill

gain on goodwill: trading PnL

loss on goodwill: capital loss

Question 20

if a company develops its own Patents through trading PnL, then sells them or lets them out…

Answer 20

the profit from sale or letting is taxed at 10% rather than normal rate of 19%.

Question 20

in a capital gains group, intangible assets are transferred at

Answer 20

book value

no gain no loss