Corporate Taxation Flashcards
What is VAT charged on?
- Supply of goods and services
- In the UK
- By a taxable person (registered for VAT)
- In the course of business
When is a person required to be registered for VAT?
- At the end of any month if the value of their taxable supplies in period of one year or less has exceed VAT registration threshold
- notify HMRC within 30 days of end of that month –> will be registered from beginning of second month after going over threshold - At any time if there are reasonable grounds for believing that the value of their taxable supplies in period of 30 days then beginning will exceed VAT
- notify HMRC within 30 days - Register voluntarily
What is the current threshold for VAT registration?
£90,000
What is the de-registration threshold?
£88,000
A person can de-register where the value of their future annual taxable supplies will not exceed VAT deregistration threshold
What is input and output tax?
Output: VAT chargeable by business
Input: VAT paid by a person on goods or services supplied to the person
- VAT registered business offsets input tax it has suffered against output tax it has charged
What is the standard rate VAT?
20%
What is reduced rated supply?
5%
- domestic hearing and power
- installation of mobility aids
- smoking cessation products
What is zero rated supply?
- 0%
- certain food, sewerage and water, books/newspapers, new houses, public transport
What is an exempt supply?
- provision of insurance, finance, health services and sale of land/buildings
- does not charge VAT and cannot recover VAT suffered
How do business pay and account VAT to HMRC?
VAT invoice
- supply customer/client with VAT invoice within 30 days of supply
VAT return
- submit online to HMRC every 3 months
- usually due within 1 month and 7 days after end of VAT period
When can businesses use cash accounting/annual accounting schemes?
If their annual turnover is less than £1,350,000 (excluding VAT and exempt supplies)
What is a flat rate scheme?
- VAT charged at flat rate on turnover rather than every single transaction
- Must have taxable annual turnover not exceeding £150,000 and a total annual turnover not exceeding £230,000
What is an annual accounting scheme?
Business makes an annual VAT Return. The VAT paid by instalments during the year with the balance being paid when VAT Return is submitted
What are the corporation tax rates for 24/45?
- TTP greater than £250,000: 25%
- TTP £50,000 or less: 19%
- TTP £50,000 - £250,000 - marginal relief tapering effect
What are taxable total profits chargeable to corporation tax?
Sum of chargeable gains and income profits
TTP = chargeable gains + income profits
What are chargeable income receipts?
Income profits = income receipts (less deductible expenditure - capital allowances - trading losses)
Chargeable income receipts are receipts of an income nature which arise from the business or trading activity
- dividends are post tax = not deductible
What are common income receipts?
Chargeable income receipts:
- rental income
- trading income
- interest
What are the conditions for tax deductible expenditure?
- Wholly/exclusively incurred for purposes of trade
- Not prohibited by statute
- Income nature
What are examples of tax deductible expenditure (for purposes of calculating income profits)
Includes:
- wages and salaries
- heating costs
- trade expenses
- advertising costs
- interests of loan
Does not include:
- non-routine improvement of asset
- one-off purchase
- net interim dividend
What is the corporate interest restriction?
Where a company has more than £2million net interest expense in UK any year, the amount of interest a company may deduct is restricted to maximum amount equal to 30% its income receipts
What are capital allowances for plant & machinery?
- Deductions against income receipts which allow businesses to spread the cost of assets over a period of time
- Companies can deduct 18% of value of plant and machinery from income receipts each year on reducing balance basis
- Tax written down value - carried forward to following chargeable period and is the figure on which allowances for following year (18%) are calculated
What is the annual investment allowance?
- Can deduct 100% of expenditure on new, used or refurbished P&M - up to £1million each year
- Normal capital allowance of 18% is applied to expenditure above that amount
What is the full expensing allowance?
- From 1st April 2023 - 31 March 2026 - companies can deduct 100% of cost of new and unused P&M
- Amount deductible is uncapped
- First-year allowance so a claim must be made in period in which expenditure is incurred
- Companies only
What is a chargeable gain for corporation tax purposes?
Sale proceeds LESS allowable expenditure, indexation allowance, capital/trading losses
What is the substantial shareholding exemption?
- Can exempt the whole of a chargeable gain that arises when a company disposes of shares in a trading group
- Disposing company must have held at least 10% of ordinary share capital of company whose shares are being disposed of for at least 12 consecutive months in last 6 years
What is indexation allowance?
- Tax allowance for indexation available to companies in calculating their chargeable gains
- Takes into account inflation based on RPI so a company is not taxed on chargeable gains arising solely because of inflation
- Cannot be claimed for any period commencing on or after 1 Jan 2018
To claim rollover relief, when must a company replace the business asset?
Must be purchased within 12 months before or 3 years after sale of old asset
What is straddling?
Where a company’s accounting year does not coincide with a financial year, TTP of the accounting period must be apportioned between FYs and the relevant proportions of TTP must be taxed at applicable rates for FYs
How can trading losses be deducted against profits?
Trading losses occurs where tax deductible expenditure exceeds income receipts
Trading losses can be set off against other taxable profits (income/chargeable gains):
1. Current year profits - claim must be made within 2 years after end of accounting period in which loss arose
2. Previous year profits - can carry back losses
3. Future trading profits - unused trading losses are automatically carried forward
4. Group relief
How can trading losses be deducted against previous year profits?
Can carry back any losses which cannot be used against current profits against taxable profits of previous accounting period
- Must have been carrying on the same trade
- Claim must be made within 2 years
- If company ceases trading, any trading loss in final 12 months can be carried back and set against any profits made in three years prior to start of final 12 months
What is the deductions allowance for setting losses against future trading profits?
Future trading profits - any unused trading profits are automatically carried forward and set against all taxable total profits in the future
- £5million
What is the anti-avoidance rule which prevents a buyer acquiring loss-making companies purely to make use of their losses?
Anti-avoidance rules prevent trading losses being carried forward or back where the company has been sold to a new owner and the nature of the trade of the company has substantially changed within 5 years of sale
What loss relief is available in respect of capital losses?
- Can only be offset against capital gains
- Can be offset against current year and carried forward
- Cannot be carried back to a previous year
To crystallise the loss, a claim must be made to HMRC within 4 years from end of accounting period in which the loss arose
What is corporation tax procedure for companies with TTP £1,500,000 or less?
- Estimate tax liability and pay HMRC within 9 months and one day of end of accounting period
- File tax return within 12 months of end of accounting period
What is corporation tax procedure for companies with TTP of more than £1,500,000?
Required to pay their tax bills in four instalments over the course of relevant accounting period and next one
What is a close company?
Company under control of:
- Either 5 or fewer participants or
- Any number of participators who are also directors
Participator = person having a share or interest in capital (shareholders)
Control = ability to exercise control of company’s affairs - more than 50% of income of the company or assets on winding up
- control is held by shareholders/participators TOGETHER
What is the taxation effect of a loan to a participator?
- Company must pay corporation tax on amount of the loan, calculated at the rate of income tax payable on dividends by higher rate taxpayers
- Company may claim a refund of tax paid if loan is repaid, satisfied, written off or waived
What is taxation effect for recipient participator if loan is written off or waived?
The participator is deemed for income tax purposes, to receive a dividend equal to amount of loan written off/waived
What can capital losses not be set off against?
Cannot be set off against trading profits in current accounting period and cannot be set off against chargeable gains in previous accounting period
- It can only be set off against off against chargeable gains in the same or subsequent accounting periods
What is the position for a private company considering declaring a dividend?
Dividends may be declared by the board of directors if the company has made a profit one it has paid its corporation tax liability to HMRC
- A company must first satisfy its obligations to HMRC before it can issue dividends
What is the qualifying period for Business Property Relief?
Transferor must have owned the business assets for at least 2 years immediately prior to transfer
- available for lifetime transfers and death estate
Business property includes:
- a business or interest in business (sole trader or partnership)
- shares in unquoted company - 100% relief
- shares in quoted company - 50% relief
- land or buildings, machinery or plant used for business purposes
What are VAT requirements for sole traders?
A person must register for VAT if at any month end taxable supplies made by them exceed £90,000, irrespective of the number of business
- Therefore, if a sole trader has two businesses, which whilst separately do not make taxable supplies above £90,000 threshold, but do collectively (e.g., one is £65,000 and one is £50,000)
- The sole trader must register for VAT and will have a single VAT registration
Threshold assessed on total end taxable supplies
How many VAT registrations can one person have?
Only ONE VAT registration, irrespective of the number of businesses
- sole trader must register for VAT if they meet £90,000 threshold (for total, irrespective of number of businesses) and will have a single VAT registration
When will a business with estimated VAT taxable turnover of more than £1.35million be expected to pay VAT?
Within a month of each three-month period for which it submits a VAT return
A business with an estimated VAT taxable turnover of more than £1,350,000 must make (unless it agrees monthly or annual returns with HMRC) a VAT return every three months.
- VAT must be paid within a month from the end of the three-month period to which it relates.
How do you calculate the VAT element of a fee paid?
A VAT-inclusive figure combines the price for the supply and the VAT payable on that price.
To calculate the VAT element of a figure, the VAT fraction can be used. The current VAT fraction, based on the standard rate of 20%, is 1/6. Therefore, 1/6 × £8,130 = £1,355.
What is the VAT fraction for a VAT inclusive price for standard rated supplies?
1/6 on the VAT-exclusive price
