Corp Tax - Chapter 17 Flashcards
Unconnected Companies - Tax Consequences for seller
Cessation of trade
Disposal of chargeable assets = capital gains/losses. (L&B Chargeable)
SBA are time apportioned
Goodwill before April 2002 is chargeable
Any gains on chargeable assets can be rolled over if A Ltd acquires new qualifying assets within one year before or three years after the transfer
Disposal of IFA = income gains/losses.
P&M = Bal Adjustments, lower of proceeds and original cost.
Stock @ reasonable amount
If A Ltd has any trade or capital losses they can be offset against the above profits and gains, and terminal loss relief may be available for any trade losses made in the final 12 months of trade. This would allow A Ltd to carry the losses back 36 months against total profits. Any unutilised losses remain in A Ltd and may therefore be wasted.
Unconnected Companies - Tax Consequences for buyer
New accounting period & notify HMRC.
L&B at price paid.
Goodwill will be an IFA
Tax relief will be available for the amortisation or impairment of IFAs other than goodwill and customer-related intangibles in B Ltd’s accounts, or alternatively B Ltd may claim a straight line deduction of 4% on cost.
Tax relief for goodwill (acq after 1 April 2019) = 6.5%
CAs on P+M
No FYA, AIA Allowed.
B Ltd will be able to claim SBA on any eligible buildings acquired from A Ltd. The SBA is calculated on the original qualifying expenditure of the first user and is time apportioned in the accounting period of purchase.
Stock = just and reasonable.
Buying a clean business with no history, previous customers cannot make a claim.
50% Connected Companies - Tax Consequences for seller
Sales proceeds = MV
P+M = lower of the actual sales proceeds received and original cost. However, a joint election by A Ltd and B Ltd can be made to transfer the plant and machinery at tax written down value to avoid these balancing adjustments. The election must be made within two years of the
transfer.
Stock @ MV - Joint election to transfer at higher of price paid and cost.
Losses remain with seller.
50% Connected Companies - Tax Consequences for Buyer
Land and Buildings @ Transfer price
The cost of the goodwill for B Ltd will be the open market
value at the date of the transfer.
The cost of any other IFAs in B Ltd will be the open market value at the date of the transfer
If election made to transfer P+M @ TWDV, continue claiming WDA. If not then CAs claimed @ price paid.
Stock = MV, if joint election made cost of stock is higher of price paid by buyer and cost to seller.
75% Connected Companies - Known as…
Succession Relief
When is succession relief automatic?
a. The transfer condition: One company ceases to carry on a trade and another company begins to carry it on.
b. The tax condition: Both companies are within the charge to corporation tax in respect of the trade. This means that both the predecessor and successor companies must be UK resident or, where they are not UK resident, the transferred trade is charged to UK corporation tax, eg because it is carried on by a UK permanent establishment of the non-UK resident company.
c. The ownership condition: The transferred trade is owned at least 75% by the same persons both at some point in the period of one year before its transfer and at some point in the period of two years immediately after its transfer.
If succession applies
CA’s are time apportioned
No balancing adjustments
Trading losses transfer, no terminal loss relief available.
Limitation of losses transfer
If liabilities > assets
Liabilities exc. share capital, share premium, reserves and loan stock.
If loan stock is on an assets remaining in previous co. reduce asset by loan stock.
Assets @ MV not transferred plus consideration.
