Corporation tax

Question 1

Who pays?

Answer 1

Companies pay corporation tax rather than income or capital gains tax

Question 2

Steps to calculate corporation tax

Answer 2

• Step 1 - Calculate income profits
• Step 2 - Calculate chargeable gains
• Step 3 - Calculate total profits - apply reliefs against total profits
• Step 4 - Calculate the tax at the appropriate rate(s)

Question 3

Step 1 - Calculate income profits - Calculation

Answer 3

Trading profits + Property income (rent) + Interest = Income profits

Question 4

Step 1 - Calculate income profits - How to calculate trading profits/income

Answer 4

Chargeable receipts - Deductible expenditure - Capital allowances = Trading profit/loss

Question 5

Step 1 - Calculate income profits - How to calculate trading profits/income - Chargeable receipts

Answer 5

Money received for the sale of goods and services

Question 6

Step 1 - Calculate income profits - How to calculate trading profits/income - Deductible expenditure

Answer 6

Directors/employee’s fees, contributions to an approved pension scheme for directors/employees, payment to a director/employee and interest payment on borrowings, rent on premises, utility charges, stock, stationary/postage

Question 7

Step 1 - Calculate income profits - How to calculate trading profits/income - Capital allowances

Answer 7

A company may deduct capital allowances claimed on expenditure on machinery and plant and on other qualifying assets

Question 8

Step 1 - Calculate income profits - How to calculate trading profits/income - Capital allowances - Plant and machinery

Answer 8

18% year on year. Unless Covid19 super deduction - applies for plant and machinery bought between 1st April 2021 - 31st march 2023 - written down 130%

Question 9

Step 1 - Calculate income profits - How to calculate trading profits/income - Capital allowances - Plant and machinery - Effect

Answer 9

If profit is made from written down value, the profit becomes a chargeable receipt but if a loss is made this loss made from written down value, loss can be deducted from chargeable receipts

Question 10

Step 1 - Calculate income profits - How to calculate trading profits/income - Capital allowances - Annual investment allowance

Answer 10

Up to £200,000 for plant and machinery

Question 11

Step 2 - Calculate chargeable gains - Steps

Answer 11

• Step 1 - Identify a chargeable disposal
• Step 2 - Calculate gain/loss
• Step 3 - Apply reliefs
• Step 4 - Aggregate remaining losses

Question 12

Step 2 - Calculate chargeable gains - Step 1 - Identify a chargeable disposal

Answer 12

Can arise on a disposal of chargeable assets by way of either sale or gift e.g land, buildings, shares held in other companies. Plant and machinery - if any capital allowances are available, plant and machinery will not benefit from the usual capital gains exemption for wasting assets

Question 13

Step 2 - Calculate chargeable gains - Step 2 - Calculate the gain

Answer 13

Proceeds of disposal (or market value) - Costs of disposal = Net proceeds of disposal - Other allowable expenditure (initial/subsequent) = gain (before indexation) or loss - indexation allowance = gain (after indexation)

Question 14

Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets

Answer 14

Allows corporation tax due on the disposal of a ‘qualifying asset’ to be effectively postponed when the consideration obtained for the disposal is applied in acquiring another qualifying asset by way of replacement. Reduces the acquisition cost of the asset when it comes to selling the asset

Question 15

Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets - Qualifying assets

Answer 15

Land, buildings, ships, satellites, spacecraft - must be used in the trade

Question 16

Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets - Time limits

Answer 16

Replacement asset must be acquired within one year before or 3 years after disposal of the original asset

Question 17

Step 2 - Calculate chargeable gains - Step 4 - Aggregate gains

Answer 17

Any loss can be set against other gains but not against income profit, any unused loss can be carried over to the subsequent accounting period

Question 18

Step 3 - Calculate total profits - Step 1

Answer 18

Income profit plus capital profits

Question 19

Step 3 - Calculate total profits - Step 2

Answer 19

Apply reliefs:
- Donations to charity are deductible
- Trading losses - deductible from total profits

Question 20

Step 3 - Calculate total profits - Step 2 - Carry-across/carry-back relief

Answer 20

A company’s trading loss for an accounting period can be carried across to be set against total profits for the same accounting period. If these are insufficient to absorb or fully absorb the loss the loss can then be carried back to be set against total profits from the accounting period falling in the 12 months prior to the account period of the loss

Question 21

Step 3 - Calculate total profits - Step 2 - Terminal carry-back relief

Answer 21

As an extension to the normal carry-back rules, when a company ceases to carry on a trade, a trading loss sustained in the final 12 months of the trade can be carried back and set against the company’s total profits from any accounting period(s) falling in the 3 years previous to the start of that final 12 months, taking later periods 1st

Question 22

Step 3 - Calculate total profits - Step 2 - Carry-forward relief

Answer 22

A company’s trading loss for an accounting period can be carried forward to be set against subsequent profits. Claim for losses to be set against total profits in a later period must usually be made within 2 years of the later period. Trading losses arising in accounting periods beginning on or after 1st April 2017 can be set against the company’s total profits in the next accounting periods

Question 23

Step 4 - Calculate the tax

Answer 23

19%