Corporation Tax

Question 1

What is corporation tax?

Answer 1

This is what companies have to pay, instead of income tax and capital gains tax.

Question 2

What are the dates for the corporation tax financial year?

Answer 2

1 April to 31st March. “Financial Year 20XX”

Question 3

What is the corporation tax rate?

Answer 3

From 1 April 2023, the corporation tax rate depends on the taxable profits:

Companies with a taxable profit of up to 50,000 are subject to 19%

Companies with a taxable profit of more than 250,000, are subject to the Main rate of 25%

Companies with taxable profits above 50,000, but not exceeding 250,000 are somewhere in between

Question 4

What are the 4 steps for corporation tax?

Answer 4

Calculate income profits
Calculate chargeable gains
Calculate total profits and apply any reliefs
Calculate tax at appropriate levels

Question 5

How do you calculate gain/loss for corporation tax? CGT

Answer 5

Proceeds of disposal - cost of disposal - initial ad subsequent expenditure - indexation allowance

Question 6

How do you caluclate indexation allowance?

Answer 6

Initial and subsequent expenditure (NOT COSTS OF DISPOSAL), to the percentage increase of indexation, and MINUS that from the figure.

Question 7

What are the reliefs for corporation tax

Answer 7

Rollover relief on replacement of qualifying busienss asset

Carry-across/carry-back relief

Terminal carry-back relief

Carry-forward relief

Question 8

When can one use carry-across/carry-back relief?

Answer 8

Where there is a trading loss

Question 9

What is carry-across/carryback relief?

Answer 9

When companies can carry across their trading loss for an accounting period, and set it against total profit for the same accounting period. (Carry-across)

If there are still some losses remaining, the remaining loses can then be carried BACK and set against total profits from the account period 12 months before (carry-back)

Question 10

What is terminal carry-back relief for trading losses?

Answer 10

When a company ceases to trade, it can carry back any trading losses and set them against the company’s total profits for any accounting periods falling nt he 3 years before the state of that final 12 months.

LATER period first.

Question 11

When must carry-back/carry-across and terminal carry-back be applied to?

Answer 11

Must be made within 2 years from the end of the accounting period in wchih the loss was incurred

Question 12

What is carry-forward relief?

Answer 12

When a. Company can carry forward its trading loss for an accounting period, and set it against subsequent profits in the next accounting period.

Company must continue to trade, and other conditions must be met.

Question 13

What are the conditions for carry-forward relief ?

Answer 13

Must be made within 2 years of the loss
Max amount under this s £5 million, plus 50% of remaining total profits after dedication of the allowance

Question 14

Is there corporation tax on goodwill and IP?

Answer 14

They ar intangible assets, but they are capital in nature, therefore they are treated as income receipts for the purpose of corporation tax.

Expenditure on intangible fixed assets is GENERALLY deductible when calculating companys income profits. This means that it is deferred

Question 15

What are close companies?

Answer 15

A close company is a company either:

Controlled by 5 or fewer participators, or,

Controlled by participators, who are directors or shadow directors.

Question 16

What is a participator?

Answer 16

Person who owns shares in the company, or has the right to acquire shares in teh company.

If they own more than half the shares in teh company/ha voting rights : they are in control.

Question 17

When is tax not payable in closed companies?

Answer 17

When a close company loans money to a participator of their associate, the company must pay to HMRC an amount of money equivalent to 33.74 of the loan.

Payment is akin to a deposit, payment will be refunded to the company.

No tax is payable if the loan is made In the ordinary course of business, or if the loan is no more than 15,000 AND the borrower works full time in the company and owns more than 5% of the ordinary shares.

Question 18

What is a group of companies?

Answer 18

Organising a business by separating it into different companies. Minimises risk.

Question 19

What is group of companies relief?

Answer 19

This relief allows companies to transfer certain losses and expenses to another company within the same qualifying group.
The transferee will then use the loss to reduce its taxable profit.

Question 20

What is a group of companies, for the purpose of group relief?

Answer 20

One company must be 75% subsidiary of hte other, or both companies must be 75% subsidiaries of a third company.

Question 21

How does group relief work?

Answer 21

Once established that 2 companies are in the same group, one company can surrender certain items to the other company.

Ther are some restrictions on this when the transferee has losses of their own or the transferor has profit of their own

Question 22

What is a group for the purposes of CHARGEABLE GAINS?

Answer 22

Direct 75% subsidiaries and the direct 75% subsidiaries from those subsidiaries, and so on

Al subsidiary in teh group must be 51% subsidiaries of the PRINCIPAL company.

Question 23

When is corporation tax paid?

Answer 23

12 months from end of relevant accounting period.

For most, corporation tax is payable within 9 months ad one day from teh end of the relevant accounting period.

Question 24

How must large companies pay corporation tax?

Answer 24

They have to pay tax in 4 instalments on teh following dates:

6 months and 13 days after the start of the accounting period
3 months from first instalment
3 months from second instalment
3 months and 14 days after end of accounting period

Question 25

What counts as a large company?

Answer 25

1,500,000 taxable profits

Question 26

What counts as very large companies?

Answer 26

20,000,000