Corporation Tax Flashcards
Reasons for justifying taxing corporate profits (4)
Exists already so why change
Raises revenue
If no corporation tax you introduce retained earnings shield
Equity - unincorporated businesses pay tax on retained earnings and distributed profits so should incorporated businesses
Current corporation tax rate
19%
Future corporation tax rate and when does it change
What is marginal relief
What happens for group companies
From April 23
0-50,000 is 19%
Tapers up to 25% at 250,000 so marginal rate of 26.5%
Different to income tax in that companies with augmented profits - total profits plus dividends received at or below £50k taxed at 19% total taxable profits. Augmented profits above £250K taxed 25% total taxable profits.
Between you get marginal relief so tax at 25% and get marginal relief
F*(U-A) * N/A
Where F is marg relief fraction for ‘23 is 3/200
U is upper limit
A is augmented profits
N is taxable total profits
Limit is divided where company controls another company
Who is liable for corporation tax
A company for CT purposes is a corporation or unincorporated association NOT sole traders or partnerships
UK resident company liable to CT on worldwide income
Dividends received from other companies NOT liable to CT
Companies with total profits up to £1,500,000 when is CT due
9 months and 1 day after accounting period
Companies with taxable profits more than £1,500,000
Quarterly payments of 25% due on 14th day of 7th month of AP 14th day of 10th month of AP 14th day of 1st month after end of AP 14th day of the 4th month after the end of AP
Not expected to pay instalments in first year that is is large profits unless profits exceed 10 mil
When do corporations with taxable total profits of over 20 mil pay CT
For AP commencing on or after 1st April 2019 - quarterly instalments 14th day of 3rd month of AP 14th day of 6th month of AP 14th day of 9th month of AP 14th day of 12 month of AP
How to calculate tax adjusted trading profits
Net profit/loss per accounts ADD: disallowable items eg Depreciation Loss on disposal PPE Disallowable legal fees Donation to political party Disallowable entertaining Increase in general bad debt provision ATL R&D tax credit
LESS: income taxed elsewhere eg
Profit on disposal of PPE
Interest receivable
Property income
Less dividends received
Less capital allowances
GIVES tax adjusted trading profits
How to calculate taxable total profits
Tax adjusted trading profits
Net non trade loan relationship status (interest receivable minus interest expense)
Income from UK land and buildings
Chargeable gains, net of allowable capital losses
Gives: total profits
Less: deductions and reliefs from total profits:
(Trading losses set against total profits)
Gives profit before QCDs and group relief
(Qualifying charitable donations paid)
(Group relief claimed)
Gives: TAXABLE TOTAL PROFITS
How to calculate corporation tax contribution required
Taxable total profits * 19%
(ATL R&D tax credit)
(Double taxation relief)
Gives :mainstream CT liability
What projects can claim research and development tax credits
What does is apply to
Companies with project looking to ‘achieve an advance in overall knowledge and capability in a field of science or technology through the resolution of scientific or technological uncertainty’
Non capital R&D only(Employee costs, materials, payments to clinical trial volunteers, utilities, R&D capital allowances,)

What is the research and development expenditure credit scheme
For large company
For small company
What is a small company
Large company scheme
Tax relief at 13% using the ATL method. This is a taxable credit so show as a component of income within tax adjusted trading profits and take it off the tax bill so effectively becomes 10.53%
SMEs scheme
Choice of using ATL method at a rate of 14.5% or a super deduction of 230% of qualifying R&D expenditure as an allowable expense when calculating taxable trading profits (so minus R&D* 130% because 100% already accounted for from profit per accounts)
SME is
Fewer than 500 employees and either:
. Annual turnover less than 84 mil
. Total assets less than 72 mil
How did raising corporation tax rate distort investment
How did govt resolve this
Before the tax rate a company spending on plant and machinery within its AIA would save 19% if it wait until April 2023 it would save 25% so better to delay investment and could dampen economic activity
FOR COMPANIES ONLY
If plant and machinery would’ve gone into the main pool a super deduction capital allowance is given at a rate of 130% until 31st of March 2023 instead of going into a pool. When asset disposed a balancing charge arises at 130% of proceeds limited to original costs, any excess treated as chargeable gain
If it would have gone into special pool, calculate capital allowances on other special pool items, then add additions to special rate pool with a 50% FYA
100% enhanced capital allowance available for the purchase of unused plant and machinery for use in a free;port tax site
What are Freeport’s
Criticisms of freeport
Aim to regenerate deprived areas
Goods arriving to freeport will be tariff free unless moved elsewhere in UK
100% FYA expenditure on new plant and machinery to be used for trading purposes on or before 30th sept ‘26
10% SBA
Criticisms:
Questionable efficacy - need to attract skills too
Shifts deprivation rather than dealing with underlying causes
What is capital gains for companies called
Indexation allowance
Chargeable gains
Indexation allowance increases the base cost of the asset to allow for INCREASED inflation
Rpi at disposal limited to 31st December 2017 - 278.1
Calculate to 3 d.p.
