Corporation Tax Flashcards
Who pays corporation tax?
Companies
What is the corporation tax year?
1 April to 31 March
How do you calculate corporation tax?
- Calculate income profits
- Calculate chargeable gains
- Calculate total profits & apply any available reliefs against total profits
- Calculate tax at the appropriate rate(s)
1. Calculate income profits
What is the most common type of income profit & how is this calculated?
Trading profit
= Chargeable receipts less Deductible Expenditure less Capital Allowances
Nb. dividends paid to shareholders & payment to shareholders for shares bought back are not deductible expenditure
2. Calculate chargeable gains
How do you calculate chargeable gains for corporation tax?
1: Identify chargeable disposal (sale or gift of chargeable assets)
2: Calculate the gain after indexation (apply indexation allowance to initial & subsequent expenditure)
3: Consider reliefs (main one available is rollover on replacement of qualifying business assets)
4: Aggregate remaining gains or losses
2. Calculate chargeable gains
How is the gain after indexation calculated for the purposes of corporation tax?
- Calculate gain before indexation: proceeds of disposal less initial & subsequent expenditure less costs of disposal
(If sale was to a connected person, deemed to have taken place at market value)
- Apply indexation allowance to the initial & subsequent expenditure (separately)
- Calculate gain after indexation: gain before indexation less indexation allowance
2. Calculate chargeable gains
What is the main relief available for companies?
Rollover relief on replacement of qualifying business assets
Must be used in the trade of the business (eg. land, buildings, ships not shares or goodwill)
Time limit: must acquire replacement 1 year before or 3 years after disposal of original asset
3. Calculate total profits & apply any available reliefs against total profits
What are total profits?
Income profits + capital gains
3. Calculate total profits & apply any available reliefs against total profits
What are the 3 main reliefs for any losses which can be applied?
Carry-across/carry-back relief
Carry-back terminal relief
Carry-forward relief
3. Calculate total profits & apply any available reliefs against total profits
What is carry-across/carry-back relief?
Loss in any year of trading set against total profits from same tax year
If still losses remaining, can be carried back & set against total profits in the 1 year preceding the loss
3. Calculate total profits & apply any available reliefs against total profits
What is carry-back terminal relief?
Losses incurred in the final 12 months of trading are set against total profits in 3 years preceding the loss
3. Calculate total profits & apply any available reliefs against total profits
What is carry-forward relief?
Losses incurred in any year of trading are carried forward & set against subsequent profits
4. Calculate tax at the appropriate rate(s)
What are the tax rates for corporation tax?
Companies with taxable profits up to £50,000 → 19%
Companies with taxable profits between £50,000.01& £250,000 → 19% for first £50k of taxable profits; 26.5% for remaining balance
Companies with taxable profits of more than £250,000 → 25%
What is a close company?
A company controlled by
a. 5 or fewer participators or
b. Participators who are (shadow) directors
Participator = person who owns shares / right to acquire shares in company
Controlled = own more than half shares / voting power
What must a close company do if it loans money to a participator (or their associate)?
Pay HMRC money equivalent to 33.75% of loan
Exceptions
a. Loan is made in ordinary course of money-lending business or
b. Loan is:
1. No more than £15,000
2. To a borrower who works full time for the company and
3. Owns no more than 5% of shares
