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Taxation FA22 > Corporation Tax > Flashcards

Corporation Tax Flashcards

1
Q

How is corporation tax assessed?

A
  • on a company’s taxable total profits arising in an accounting period
  • the accounting period is not necessarily the same period as the company’s set of accounts ( period of account)
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2
Q

What is period of account?

A
  • is any period for which a company prepares accounts. It is usually 12 months in length, but may be shorter or longer than this
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3
Q

What is accounting period?

A
  • is the period for which a charge to corporation tax is made
  • it is never longer than 12 months
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4
Q

When does an AP start? (accounting period)

A
  • when a company starts to trade ( or receives income chargeable to corporation tax), and
  • when the previous accounting period ends
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5
Q

When does an AP end? (accounting period)

A
  • twelve months after the beginning of the accounting period
  • the end of company’s period of account
  • the date the company begins or ceases to trade
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6
Q

The long period of account is divided into APs:

A
  • First AP: first 12 of long period
  • Second AP: the balance of the long period
    A corporation tax computation is prepared for each AP.
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7
Q

What are the advantages of having an accounting reference date of 31 March?

A
  • being aligned with the financial year makes it easier for a company calculate its corporation tax liability, since the same reliefs and legislation will apply throughout the accounting period
  • for owner-managed companies, alignment with the income tax year makes it easier to calculate the most tax efficient method of extracting profits form the company for the individual owners
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8
Q

Companies resident in the UK are chargeable to corporation tax on:

A
  • all profits (i.e. income and chargeable gains) wherever they arise (i.e. on worldwide income and gains)
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9
Q

A company is UK resident if it is:

A
  • incorporated in the UK, or
  • incorporated elsewhere, but is centrally managed and controlled in the UK
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10
Q

What are company’s taxable total profits for an accounting period?

A
  • total profits from all sources, less qualifying charitable donations
  • total profits are worldwide income (excluding dividends) plus net chargeable gains
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11
Q

Calculation of taxable total profits

A

Total profits - Qualifying charitable donationsL

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12
Q

Layout of a corporation tax computation

A

Tax adjusted trading profit x
Interest income x
Property income x
Miscellaneous income x
Chargeable gains x
Total profits x
Less Qualifying charitable donations (x)
Taxable total profits x

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13
Q

What assesses tax adjusted trading profit?

A
  • all trading income net of trading expenditure
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14
Q

What assesses interest income?

A
  • all interest receivable net of some interest payable
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15
Q

What assesses property income?

A
  • the profit (or loss) from letting furnished or unfurnished property is calculated on the accruals basis
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16
Q

What assesses miscellaneous income?

A
  • patent royalties receivable in respect of non-trade related patents would be included here
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17
Q

What assesses dividends?

A
  • received from UK and overseas companies are exempt from corporation tax
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18
Q

What assesses chargeable gains/losses?

A
  • charged on any chargeable gains that arise on chargeable disposals made by the company during an accounting period
  • chargeable gains not capital gains tax
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19
Q

Qualifying charitable donations

A
  • all donations to charity by a company are an allowable deduction from total profits in a corporation tax computation
  • all charitable donations by a company are paid gross
  • tax treatment of donations to charity made by a company is different from that applied to payments made by an individual
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20
Q

Financial year

A
  • is fixed by reference to financial year
  • runs from 1 April to the following 31 March and is identified by the calendar year in which it begins
  • they year commencing 1 April 2022 and ending on 31 March 2023 is the Financial Year 2022 (FY2022)
  • should not be confused with tax years for income tax, which run from 6 April to 5 April
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21
Q

What is the rate of corporation tax applicable to FY2022?

A

19%

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22
Q

The main adjustments for companies

A
  • disallow expenditure which is not wholly and exclusively for the purpose of the trade
  • disallow entertaining ( except entertaining staff)
  • disallow expenditure on capital items
  • adjust for leased high emission cars ( CO2 > 50g/km
  • adjust for gifts to customers
  • disallow depreciation
  • adjust for profits/losses on disposal of capital items
  • add back charitable donations (unless small and local)
  • adjust for non-trading income
23
Q

Key difference in private use adjustment

A

There are no private use restrictions for companies:
- any private expenses of a director or employee of a company are fully allowable, when calculating the tax adjusted trading profit
- any private use of assets by a director or employee of the company is ignored in the capital allowances calculation. There is no restriction for private usage

24
Q

Key difference in interest payable/receivable

A
  • companies have special rules which cover interest payments and interest income. These are known as the loan relationship rules
25
Q

Key difference in dividends payable

A
  • by a company are an appropriation of profit and are not allowable as a trading expense
26
Q

Maximum AIA for companies

A
  • for a 12 month accounting period is £1,000,000, the same as for a sole trader
27
Q

Enhance capital allowances, Companies purchasing new qualifying plant and machinery between 1 April 2021 and 31 March 2023 will be eligible to claim:

A
  • 130% super deduction for assets which would ordinarily go into the main pool or
  • 50% first year allowance for special rate pool assets
28
Q

The relief is not available on:

A
  • second-hand assets
  • cars
  • assets bought in the final accounting period of trading
29
Q

Short accounting period allowances

A
  • allowances are given for accounting periods by reference to acquisitions and disposals in that accounting period
  • as for sole trader, if accounting period is less than 12 months:
    ; the AIA and WDA are proportionately reduced
    ; but FYAs are always given in full
30
Q

Long accounting period; allowances

A
  • there are two accounting periods for corporation tax purposes
  • two capital allowances computations are required, one for each of these APs
  • the first AP is 12 months in length
  • the second AP is a short AP
31
Q

Are they any adjustments for private use?

A

No

32
Q

Expenses related to borrowing money

A
  • interest paid on overdrafts, bank loans, corporate loan notes
  • other costs such as arrangement fees, and other incidental costs incurred in raising loan finance
33
Q

Income received from lending money

A
  • interest income
    (including interest from bank deposits loans, government stocks and corporate loan notes)
34
Q

Loan relationship - trade purpose - interest payable

A
  • on a loan taken out to purchase plant and machinery for the trade
  • on a loan taken out to purchase property used for trading purposes, e.g. office, warehouse, factory
  • on a loan or overdraft to fund daily operations (i.e. working capital)
  • on loan notes to fund trading operations
35
Q

Loan relationship - non-trade purpose - interest receivable

A
  • interest received on bank account
  • interest receivable on investments such as gilts and loan notes
36
Q

Loan relationship - non-trade purpose - interest payable

A
  • on a loan to purchase a commercially let property (where the rent would be taxable as property business income)
  • on a loan to acquire shares of another company
37
Q

Interest income regarding loan relationship

A
  • should be deducted when calculating adjusted trading profits and included in the TTP computation as interest income
  • interest received and receivable is usually credited in the company accounts on an accruals basis. As interest receivable is taxed on an accruals basis, the figure included in the accounts is the figure which is taxed as interest income
38
Q

Interest paid regarding loan relationship

A
  • interest paid and payable on borrowings for a trading purpose is deductible as a trading expense
  • interest payable on borrowings for a non-trading purpose is: - added back to trading profit, deducted from interest income in TTP computation
39
Q

The write off of impaired trade debts (i.e. trade receivables)

A
  • is an allowable deduction from trading profits and the recovery of trade debts previously written off is taxable trading income
40
Q

The write off of impaired non-trade debts (e.g. loan to a customer or a former employee)

A
  • is an allowable deduction from interest income. The write off must be added back when calculating the tax adjusted trading profit and deducted from interest income in the calculation of taxable total profits
41
Q

Assessment in taxable total profits regarding loan relationship

A
  • all interest paid by a company is deductible on the accrual basis
  • as the company accounts are also prepared on the accruals basis, the figure included in the accounts is also the figure used for tax purposes
  • if only cash payments/receipts are provided, these must be adjusted for opening and closing accruals of interest payable/receivable
  • where interest income exceeds non-trade related interest payable - the net income is assessed as interest income is taxable total profits
42
Q

Treatment for companies for property income

A
  • allowable expenses are those associated with the normal running and upkeep of the property (generally revenue expenses, like property maintenance, repairs, insurance and irrecoverable debts)
43
Q

Few differences in the way that companies are assessed on their property income

A
  • property income is always taxed on the accruals basis
  • the company is assessed on the property income arising in the accounting period (not the tax year as for individuals)
  • the treatment of interest payable
  • the treatment of property losses
44
Q

Interest on a loan to buy a property

A

Interest payable on a loan to acquire or improve an investment property, is not allowed as a deduction from property income. Instead, it is taxed under the ‘Loan Relationship’ rules and is therefore deducted from interest income

45
Q

A property loss is:

A
  • first set off against total profits ( before QCDs) of the same accounting period
  • then carried forward to be set against total profits (QCDs) in the future
  • also available for ‘group relief’
46
Q

The loss offset (property losses)

A
  • against total profits of the same accounting period is automatic, must be in full
  • losses not offset against total profits of the same accounting period can be carried forward or surrendered (group relieved) to other companies within the same group. Claim is required and the amount of the loss offset can be specified
  • a claim to carry a property loss forward and offset against total profits of a future period must be made within two years of the end of the accounting period in which the loss is relieved
  • a property loss can never be carried back to previous accounting periods
47
Q

Lease premiums

A
  • where a company receives a premium for the grant of a lease, an element of the premium is taxed as property income, in the same way as for sole traders, in the accounting period in which it is received
48
Q

All donations to charity by companies are allowable:

A
  • if a small local donation; as a trading expense
  • all other donations (whether under gift aid or not) as an allowable deduction from total profits
49
Q

How charitable donations are paid by companies?

A
  • paid gross
  • the amount paid in the accounting period is deducted from total profits
50
Q

If qualifying charitable donations paid exceed the total profits of the company:

A
  • no relief for the excess is given
    (i.e. cannot be carried forward or carried back)
  • unless the company is part of a 75% group, in which case, group relief may be available
51
Q

Qualifying charitable donations for individuals:

A
  • a small local donation; is deductible as a trading expense
  • if made under the gift aid scheme then, gift aid payments are paid net of basic rate tax and tax relief is given by extending the basic and higher rate bands by the gross amount of the gift aid paid in the tax year
52
Q

Long periods of account - allocation of taxable profits - method of allocation

A

Trading profits before capital allowances
- adjust profit for period of account for tax purposes and then apportion on a time basis
Capital allowances
- separate calculation for each accounting period AIA and WDAs are restricted if accounting period is less than 12 months
Property income
- calculate accrued amount for each AP separately
Interest income
- if the information to apply the strict accruals basis is not available; time apportion
Chargeable gains
- taxed in the accounting period in which disposal takes place
Qualifying charitable donations
- deducted from profits of the accounting period in which donations are paid

53
Q

Having allocated profits and QCDs to the two separate APs:

A
  • two separate corporation tax computations are prepared
  • with two separate payment dates

Taxation FA22 (25 decks)

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