Corporate Taxation Flashcards
tWhat is VAT charged on?
- any supply of goods or services made in the UK
- where it is a taxable supply
- made by a taxable person
- in the course or furtherance of any business carried on by that person
Registration threshold
£90,000
Must notify HMRC within 30 days form the end of the month in which the threshold has been exceeded for the year
Or can register voluntarily.
Cannot recover input VAT without firstly being registered.
Deregistration threshold
£88,000
Output and income tax
Output: charged on ‘output of the business’
Input tax: paid by a person on goods or services supplied to the person
VAT
20%
Standard rated supply
VAT 20%
Reduced rate supply
5%
- domestic heating and power
- installation of mobility aids
- smoking cessation products
- children’s car seats
Zero rated supplies
- food
- sewerage and water
- books/newspapers
- talking books for the blind
- new houses and construction of new houses
- public transport
- children’s clothing
Means charges 0% on its outputs but can still recover VAT on its inputs.
Exempt supplies
- insurance
- finance
- education/health
- sale of land and buildings (unless new commercial or supplier opts to tax)
Cannot recover VAT on its inputs
Corporation tax?
Payable on:
- all income profits and
- chargeable gains
- of a body corporate
- that arise it its accounting period
The sum of a company’s profits and gains is known as the TTP (total taxable profit).
- often assessed by reference to the financial year.
Rates of corporation tax
TTP greater than £250,000 = 25%
£50,000 or less = 19%
in between - marginal relief available.
Calculating TTP
Chargeable gains:
Sale proceeds
- allowable expenditure
- indexation allowance
- capital/trading losses
= chargeable gain
+
Income profits:
Income receipts
- deductible expenditure
- capital allowances
- trading losses
= income profits
Common types of company income
- rental income
- trading income
- interest (savings)
- dividend income
Note: dividends are tax exempt (but not deductible)
Deductible expenditure for income purposes
Must be:
- wholly and exclusively for purpose of trade
- not be prohibited by statute
- be of an income nature with an element of recurrence
E.g.
- rent
- interest paid
- wages
- repairs
- raw materials
If net interest expense of more than £2M, deduction is restricted to an amount equal to 30% of its income receipts.
Capital allowances
These are to offset expenditure on capital such as plant and machinery overtime.
Offset against income receipts. Known as writing down allowance.
Can deduct 18% off the value of plant and machinery each year from their income receipts on a reducing balance basis.
e.g.
year 1: 18% of 100,000 = 18,000
year 2: 18% of (100,000-18,000 = 82,000) = £14,760
Annual investment allowance
Can deduct 100% of expenditure on new, used or refurbished P&M up to £1,000,000 for any qualifying purchases each year.
Normal capital expenditure allowance can then be applied to the balance of any expenditure above that amount.
Full expensing allowance
until 31 March 2026 companies can deduct 100% of the cost of new and unused plant and machinery.
Claim must be made in first year.
Allowable expenditure
Deducted from chargeable disposals.
Note no annual exemption for companies.
Indexation allowance is still available.
Substantial shareholding exemption
Applies to whole chargeable gain when it arises from a company disposing of shares in a trading company provided:
- disposing company holds at least 10% of the ordinary share capital in the company
- held for at least 12 consecutive months in the last six years
Rollover relief
- tax deferral mechanism
- tax postponed until the replacement asset is sold and no new qualifying replacement asset is purchased
qualifying assets:
- land and buildings
- goodwill
- fixed plant and machinery
- ships and hovercraft
- aircraft
- llyods syndicate capacity
Time:
must be purchased within
- 12 months before
- 3 years after
the sale of the old asset
If the price of the replacement asset is less than the sale price original asset then the difference should be deducted from the amount which can be used to offset.
e..g
Sale: £200,000
Gain: £60,000
New Asset: 180,000
(200000-180000 = 20,000)
60,000 - 20,000 = 40,000
only 40,000 can be offset
Capital losses
Can be set off against capital gains in the current year but the cannot be carried back to a previous year.
They can be carried forward and set against capital gains in future accounting periods.
Deducting trading losses
- Current year profits
- trading losses can be set off against all other profits (income and gains) within the same year. Claim must be made within two years after the end of the accounting period. - Previous year profits
- If losses cannot be used fully in current year, can carry them back to to set off against previous years profits - Future Profits
- If any losses are unused they can be carried forward and set against future profits
- can only carry losses forward of up to £5M in each period - Can apply relief across groups of companies
Procedure for companies with TTP of £1,500,000 or less
- Must pay HMRC within 9 months and one day of the end of the accounting period
- file tax return within 12 months of the end of the accounting period to which it relates
Procedure for companies with TTP of more than £1,500,000
- Required to pay their tax bills in four instalments of the course of the relevant accounting period and the next one.
What is a close company?
Close company if it is under the control of:
- five or fewer participators; or
- any number of participators who are also directors
Participator:
Person having a share or interest in capital or income of the company
Control:
- share capital allowing more than 50% of income of the company if distributed
- the greater part of the assets of the company on winding up
Loans to participators
- company must pay corporation tax to HMRC on the amount of the loan (rate is the rate payable on dividends by higher rate taxpayer)
- if loan is written off or waived, participator is deemed to have received a dividend
