Corporate Taxation Flashcards
A company will be a close company if it is under the control of what?
Five or fewer participants or any number of participators who are also directors.
What is the definition of a participator?
A participator is a person having a share or interest in capital or income of the company.
Examples -
Shareholders
Some creditors
What is the definition of control?
Control means the ability to exercise control over the company’s affairs, normally by voting rights, or the possession of or entitlement to:
Issued share capital allowing the greater part of income of the company if distributed;
Or the greater part of assets of the company on winding up.
What are the exclusions from the definition of a close company?
A company will not be a close company if:
It’s shares are quoted on a 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.
What is the definition of associate?
Associate means any close relative, ie spouse, parent, child, brother or sister.
What is the definition of nominee?
Nominee means a person owning property on behalf of another.
With loans to participators, all advances of credit are caught except for what loans?
A loan in the form of credit given by a company in respect of goods or services normally supplied by the company in the course of business where the duration of the credit does not exceed 6 months or the company’s normal limit
Or A loan made in the ordinary course of business’s a company’s business which includes money lending
Or A loan to a borrower which, together with outstanding loans made by the company to that borrower, does not exceed £15k in aggregate and the borrower works full time for the company and does not have a material interest in the close company.
What is the meaning of material interest?
Material interest means indirect control of more than 5% of the ordinary share capital of the company or an entitlement on winding up more than 5% of the assets available.
In regards to close companies, what is the tax effect for the company?
The company must pay corporation tax to HMRC on the amount of the loan, calculated at the rate of income tax payable on dividends by higher rate taxpayers. The tax must be paid within nine months and one day after the end of the accounting period in which the loan is made.
The company may claim a refund of the tax paid if the loan is repaid, satisfied, written off or waived.
In regards to close companies, what is the tax effect for the recipient participator?
If the loan is written off, or waived, the participator is deemed, for income tax purposes, to receive a dividend equal to the amount of the loan written off/waived. There is no tax effect for the participator if he pays back the loan in full.
The term distribution has an extended meaning for close companies. What does it include?
It includes living accommodation and other benefits in kind provision ( distributed) to participators (but not where such benefits are provided by reason of employment).
What is output tax?
The VAT chargeable by a business when making a supply of goods or services.
What is input tax?
The VAT paid by a person on goods or services supplied to the person.
What is input tax?
The VAT paid by a person on goods or services supplied to the person.
What is the standard rate of VAT?
20%
What is the standard rate of VAT?
20%
What is the reduced rate of VAT?
5%
What is the assumption on VAT in price of a goods or services?
A price is deemed to be VAT inclusive unless the contract of supply of goods or services says otherwise.
What is corporation tax payable on?
All income profits and chargeable gains of a body compromise that arise in its accounting period.
What is the sum of a company’s profits and gains known as?
TTP - taxable total profits chargeable to corporation tax.
What are the two financial statements prepared in respect of each accounting period?
A profit and loss account
A balance sheet
What is the principle of double entry bookkeeping?
The principle is that every money transaction that a business undertakes will have a dual effect in its accounts. Eg. Purchasing an asset there will be a reduction in the record of its cash and increase in the record of the assets.
