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Business Law and Practice > Corporate taxation > Flashcards

Corporate taxation Flashcards

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1
Q

When is VAT charged?

A
  • supply of goods and services made in the UK
  • taxable supply
  • taxable person
  • in course or furtherance of business
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2
Q

What is a taxable supply?

A

any supply which is not an exempt supply

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3
Q

What is a taxable person?

A

someone registered for VAT

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4
Q

Who is included in the definition of person for taxable persons?

A

individuals
partners
companies
unincorporated organisations

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5
Q

What is excluded from ‘course or furtherance of business’?

A

employee services to an employer

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6
Q

When is VAT registration required?

A
  • End of month, if taxable supplies within last year have exceeded VAT registration threshold
  • Any time when reasonable grounds to believe value of taxable supplies in next 30 days will exceed VAT threshold
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7
Q

What is the current registration threshold?

A

£85,000

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8
Q

What is the current de-registration threshold?

A

£83,000

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9
Q

what is output tax?

A

VAT chargeable when making supply of goods/services

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10
Q

what is input tax?

A

VAT paid by person on goods/services supplies to them

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11
Q

What is the current standard rate of VAT?

A

20%`

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12
Q

How can VAT be offset?

A

Offset input VAT against output VAT

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13
Q

What are the different types of supply?

A
  • Standard rated
  • Reduced rated
  • Zero rated
  • Exempt
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14
Q

What is the reduced rate of VAT?

A

5%

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15
Q

What are reduced rate supplies?

A

Domestic heating/power
elderly mobility aids
smoking cessation
children’s car seats

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16
Q

What are zero rated supplies?

A

food
sewerage and water
books/newspapers
new houses + construction
public transport
children’s clothing

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17
Q

What are exempt supplies?

A

insurance
finance
education/health
sale of land/buildings

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18
Q

Can input tax be recovered on zero rate/exempt supplies?

A

Zero rate - can be recovered
exempt - cant

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19
Q

What records are made for VAT to HMRC?

A

VAT invoice
VAT return

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20
Q

When must VAT return be submitted?

A

every 3 months

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21
Q

When will businesses have to make monthly payments on account for VAT?

A

When normally paying more than £2.3 million

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22
Q

What are the special VAT schemes?

A
  • Retail schemes
  • Cash accounting
  • Annual accounting
  • Flat rate scheme
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23
Q

When is cash/annual accounting permitted?

A

cash - annual turnover < £1,350,000 (excluding VAT) + conditions
annual - annual turnover = or < £1,350,000 (excluding VAT)

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24
Q

When is the flat rate scheme allowed?

A

taxable annual turnover =< £150,000 and annual turnover =< £230,000

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25
Q

What is the effect of flat rate scheme?

A

can get flat rate on annual turnover not every transaction

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26
Q

What is the negative effect of flat rate scheme?

A

No input tax relief

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27
Q

What is corporation tax chargeable?

A
  • All income profits and
  • Chargeable gains
  • Of a body corporate
  • That arise in its accounting period
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28
Q

How is taxabale total profits for corporation tax worked out?

A

income profits + chargeable gains

29
Q

How are chargeable gains calculated for corporation tax?

A

Sale proceeds
- Allowable expenditure
- indexation allowance
- capital/trading losses

30
Q

How are income profits calculated for corporation tax?

A

Income receipts
- deductible expenditure
- capital allowances
- trading losses

31
Q

What is the flat rate of corporation tax for companies with a TTP of more than £250,000?

A

25%

32
Q

What is the flat rate of corporation tax for companies with a TTP of less than £50,000?

A

19%

33
Q

What are the common types of company income?

A
  • Rental income
  • Trading income
  • Interest
  • Dividends
34
Q

How do you calculate taxable income profit?

A

chargeable income receipts – tax deductible expenditure

35
Q

What is deductible expenditure?

A
  • wholly and exclusively incurred for the purposes of the trade
  • Not be prohibited by statute
  • Be of an income nature (recurrence)
36
Q

What are examples of statute prohibited deductible expenditure?

A
  • business entertainment
  • doubtful debts
37
Q

Can capital expenditure be deducted for income profits?

A

Only if capital allowances

38
Q

What is an example of qualifying item of expenditure for capital allowances?

A

Plant and machinery

39
Q

What is the annual investments allowance?

A

£1 million

40
Q

How do capital allowances work?

A

18% over £1million of plant and machinery can be dudcted from income receipts

41
Q

What does the tax written down value mean?

A

Value of plant and machinery reduced by 18% for next year

42
Q

What are the allowable expenditures for corporations chargeable gains?

A
  • Initial expenditure
  • Subsequent expenditure
  • Disposal expenditure
43
Q

What is the substantial shareholding exemption?

A

Can exempt whole of chargeable gain on disposal of shares in trading company (or holding company)
- held at leasy 10% ordinary shares
- consecutive 12 months in last 6 years

44
Q

What are the requirements for rollover relief?

A
  • Company/sole trader/partnership disposes of qualifying business asset and buys another
  • Individuals where both assets used by their personal company or partnership where they are a partner
45
Q

What is the calculation for gains rolled over?

A

Chargeable gain – (acquisition cost – replacement cost)

46
Q

When will there be no rollover relief?

A

When chargeable gain = more than the difference between inital cost and replacement cost

47
Q

What is the time limit for rollover relief?

A

must be purchased within 12 months before or three years after the sale

48
Q

What is the usual rule for dividends and chargeable gains for companies?

A

not deductible expenditure

49
Q

What is the general rule for interest on business loans

A

deductible income expense

50
Q

What happens where there is straddling?

A

Taxable total profit of accounting period must be apportioned between financial years

51
Q

What is the order that trading losses can be deducted?

A
  • Current year profits
  • Previous year profits
  • Future trading profits
  • Group relief
52
Q

What are the requirements for current year profits relief for deducting trade losses?

A

Made within 2 years of end of accounting period

53
Q

What are the requirements for previous year profits relief for deducting trade losses?

A

Carrying on same trade
Claim within 2 years of end of accounting period

54
Q

How can previous year profits relief be claimed where the company is ceasing to trade?

A

losses in final 12 months can be carried back 3 years prior to start of final 12 months

55
Q

What are the requirements for future profits relief for deducting trade losses?

A

same trade
up to £5,000,000 in each accounting period
Maximum of 50% of unrelieved profits

56
Q

What is group relief for deducting trade losses?

A

one company can surrender loss to another profitable company on the group

57
Q

What can capital losses be used to offset?

A

Capital gains

58
Q

Can capital losses be used to offset previous or future years?

A

Previous - no
Future - yes

59
Q

What is the restriction on carried forward capital losses?

A

Up to 50% of unrelieved gains

60
Q

What is the mechanism for self assessment of corporation tax where the TTP is £1,500,000 or less?

A
  • Estimates tax liability and pay HMRC within 9 months and one day of end of accounting period
  • File electronically tax return within 12 months of end of accounting period together with its accounts
  • Usually finalised 12 months after filing date for tax return
  • Interest accrues on any under/over payment
61
Q

What is the mechanism for self assessment of corporation tax where the TTP is over £1,500,000?

A

pay in four instalments

62
Q

What is a close company?

A

under the control of:
* Five or fewer participators; or
* Any number of participators who are also directors

63
Q

What is a participator?

A

shareholder

64
Q

What does control mean for close companies?

A

more than 50% voting rights/share capital

65
Q

What are not considered close companies?

A
  • shares quoted on recognised stock exchange; or
  • It is controlled by one or more non-close companies, and it could only be a close company by treating a non-close company as one of the five or fewer participators having control.
66
Q

When are loans to participators not caught for close companies rules?

A
  • Credit for goods/services normally supplied in course of business where duration of credit < 6 months/company’s normal limit
  • Ordinary course of business which includes money lending
  • To borrower which, with outstanding loans made by co, doesnt exceed £15,000 and borrower works full time for business and has no material interest
67
Q

What does material interest mean?

A

more than 5% of voting rights

68
Q

What is the tax effect of loans to participators?

A

pays corporation tax at rate of income tax payable on dividends by higher rate taxpayers

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