Corp. Tax Basics

Question 1

When must corporation tax be paid?

Answer 1

Profits under £1.5m
- 9 months and 1 day after accounting period
- returns 12 months after

Profits over £1.5m
- pay in quarterly instalments

Question 2

How to calculate corp. tax (general)?

Answer 2

(Trade Profit + other income + chargeable gains - charitable donations) X 19%

Question 3

How to calculate trade profit for corporations?

Answer 3

Gross income - revenue related expenses - AIA to extent used - write down of capital assets

Question 4

How are dividends distributed by company or received by company taxed?

Answer 4

Distributed
- NOT a revenue related expense
- just ignore

Received
- companies not taxed on these

Question 5

How are chargeable gains calculated for companies?

Answer 5

Current accounting period cap gains - current year cap losses - (potentially any cap losses carried forward)

Question 6

Corp Tax: How are chargeable losses remaining after offsetting in same year treated?

Answer 6

Can be carried foreward against future capital gains indefinatly

CANNOT be carried back

Question 7

Corp Tax: What are the trading loss relief options for companies?

Answer 7

1. set trading loss against total profits before charitable donations in same year
   - (chargeable assets + other income - trading loss)
2. carry it back to past 12 months
   - BEFORE charitable donation (only after using against same year)
3. Carry it forward against future total profits
   - AFTER charitable donation

Question 8

What is replacement of business assets relief for corporations?

Answer 8

Defer capital gain (chargeable gain) for sale of qualifying asset by reinvesting proceeds into another qualifying asset
- 1 year before disposal; or
- up to 3 years after disposal

Question 9

What is a close company?

Answer 9

More than 50% of shares held by either:
- up to 5 shareholders; or
- all directors are shareholders

INCLUDING
- shares held by spouses, partner, siblings and children

Question 10

What are the rules on loans for close companies?

Answer 10

If loan exceeding £10k is made to shareholder who is also employee/director at 0% or below market interest then:

Person Income Tax
- must pay difference in interest of loan as tax; and
- must report benefit to HMRC

Company Notional Tax
- must pay 32.5% of value of loan (higher dividend tax rate)

Question 11

What happens if loan made to shareholder/employee of close company is 1. repaid or 2. written off?

Answer 11

Repaid
- company reclaims notional tax paid
- if only part of loan is repaid then notional tax for that part

Written Off
- company reclaims notional tax paid
- amount written off is treated and taxed as dividend on the person who received it