Corporate taxation Flashcards
When is VAT charged?
- supply of goods and services made in the UK
- taxable supply
- taxable person
- in course or furtherance of business
What is a taxable supply?
any supply which is not an exempt supply
What is a taxable person?
someone registered for VAT
Who is included in the definition of person for taxable persons?
individuals
partners
companies
unincorporated organisations
What is excluded from ‘course or furtherance of business’?
employee services to an employer
When is VAT registration required?
- 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
What is the current registration threshold?
£85,000
What is the current de-registration threshold?
£83,000
what is output tax?
VAT chargeable when making supply of goods/services
what is input tax?
VAT paid by person on goods/services supplies to them
What is the current standard rate of VAT?
20%`
How can VAT be offset?
Offset input VAT against output VAT
What are the different types of supply?
- Standard rated
- Reduced rated
- Zero rated
- Exempt
What is the reduced rate of VAT?
5%
What are reduced rate supplies?
Domestic heating/power
elderly mobility aids
smoking cessation
children’s car seats
What are zero rated supplies?
food
sewerage and water
books/newspapers
new houses + construction
public transport
children’s clothing
What are exempt supplies?
insurance
finance
education/health
sale of land/buildings
Can input tax be recovered on zero rate/exempt supplies?
Zero rate - can be recovered
exempt - cant
What records are made for VAT to HMRC?
VAT invoice
VAT return
When must VAT return be submitted?
every 3 months
When will businesses have to make monthly payments on account for VAT?
When normally paying more than £2.3 million
What are the special VAT schemes?
- Retail schemes
- Cash accounting
- Annual accounting
- Flat rate scheme
When is cash/annual accounting permitted?
cash - annual turnover < £1,350,000 (excluding VAT) + conditions
annual - annual turnover = or < £1,350,000 (excluding VAT)
When is the flat rate scheme allowed?
taxable annual turnover =< £150,000 and annual turnover =< £230,000
What is the effect of flat rate scheme?
can get flat rate on annual turnover not every transaction
What is the negative effect of flat rate scheme?
No input tax relief
What is corporation tax chargeable?
- All income profits and
- Chargeable gains
- Of a body corporate
- That arise in its accounting period
How is taxabale total profits for corporation tax worked out?
income profits + chargeable gains
How are chargeable gains calculated for corporation tax?
Sale proceeds
- Allowable expenditure
- indexation allowance
- capital/trading losses
How are income profits calculated for corporation tax?
Income receipts
- deductible expenditure
- capital allowances
- trading losses
What is the flat rate of corporation tax for companies with a TTP of more than £250,000?
25%
What is the flat rate of corporation tax for companies with a TTP of less than £50,000?
19%
What are the common types of company income?
- Rental income
- Trading income
- Interest
- Dividends
How do you calculate taxable income profit?
chargeable income receipts – tax deductible expenditure
What is deductible expenditure?
- wholly and exclusively incurred for the purposes of the trade
- Not be prohibited by statute
- Be of an income nature (recurrence)
What are examples of statute prohibited deductible expenditure?
- business entertainment
- doubtful debts
Can capital expenditure be deducted for income profits?
Only if capital allowances
What is an example of qualifying item of expenditure for capital allowances?
Plant and machinery
What is the annual investments allowance?
£1 million
How do capital allowances work?
18% over £1million of plant and machinery can be dudcted from income receipts
What does the tax written down value mean?
Value of plant and machinery reduced by 18% for next year
What are the allowable expenditures for corporations chargeable gains?
- Initial expenditure
- Subsequent expenditure
- Disposal expenditure
What is the substantial shareholding exemption?
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
What are the requirements for rollover relief?
- 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
What is the calculation for gains rolled over?
Chargeable gain – (acquisition cost – replacement cost)
When will there be no rollover relief?
When chargeable gain = more than the difference between inital cost and replacement cost
What is the time limit for rollover relief?
must be purchased within 12 months before or three years after the sale
What is the usual rule for dividends and chargeable gains for companies?
not deductible expenditure
What is the general rule for interest on business loans
deductible income expense
What happens where there is straddling?
Taxable total profit of accounting period must be apportioned between financial years
What is the order that trading losses can be deducted?
- Current year profits
- Previous year profits
- Future trading profits
- Group relief
What are the requirements for current year profits relief for deducting trade losses?
Made within 2 years of end of accounting period
What are the requirements for previous year profits relief for deducting trade losses?
Carrying on same trade
Claim within 2 years of end of accounting period
How can previous year profits relief be claimed where the company is ceasing to trade?
losses in final 12 months can be carried back 3 years prior to start of final 12 months
What are the requirements for future profits relief for deducting trade losses?
same trade
up to £5,000,000 in each accounting period
Maximum of 50% of unrelieved profits
What is group relief for deducting trade losses?
one company can surrender loss to another profitable company on the group
What can capital losses be used to offset?
Capital gains
Can capital losses be used to offset previous or future years?
Previous - no
Future - yes
What is the restriction on carried forward capital losses?
Up to 50% of unrelieved gains
What is the mechanism for self assessment of corporation tax where the TTP is £1,500,000 or less?
- 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
What is the mechanism for self assessment of corporation tax where the TTP is over £1,500,000?
pay in four instalments
What is a close company?
under the control of:
* Five or fewer participators; or
* Any number of participators who are also directors
What is a participator?
shareholder
What does control mean for close companies?
more than 50% voting rights/share capital
What are not considered close companies?
- 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.
When are loans to participators not caught for close companies rules?
- 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
What does material interest mean?
more than 5% of voting rights
What is the tax effect of loans to participators?
pays corporation tax at rate of income tax payable on dividends by higher rate taxpayers
