Corporation Tax Flashcards
What is TTP?
Total taxable profits = the amount on which the rate of corporation tax is calculated. Calculating by adding together chargeable gains and income profits.
How are income profits calculated?
Income profits less:
* Deductible income expenditure
* Capital allowances
* Trading losses
What is deductible income expenditure?
- Incurred wholly and exclusively for the purposes of business (e.g NOT entertainment or a gift or doubtful debt).
- Dividends or interest paid on a loan (restricted to 30% relief if over £2m in interest).
What are capital allowances?
Writing Down Allowance: 18% relief on value of plant and machinery year-on-year on reducing basis
Annual Investment Allowance: Up to 100% relief on plant and machinery in the year it was purchased up to value of £1 million. Can use writing down allowance for balance above this.
What are trading losses?
Can be applied against both income profits and chargeable gains.
- Can be set off against current year, previous years and future years (in that order).
Current Year: must be within 2 years from end of accounting period in which loss arose.
Previous Years: Can carry back to previous year provided still trading in same trade. If ceased to trade, losses in 12 months before ceasing can be carried back up to 3 years before start of 12 mths.
Future: up to £5million limit. If over this, can only relieve 50% of unrelieved profits.
What is group relief?
Where one company in a group has trading losses, these may be offset against income profits and chargeable gains of another company in the group.
How is chargeable gains calculated?
Sale proceeds from capital asset less
* Allowable expenditure (initial, subsequent, disposal)
* Indexation allowance
* Trading and Capital Losses
What is allowable expenditure?
What are capital losses?
Can only be carried into current year or forward indefinitely BUT to crystallise loss, claim must be made to HMRC within 4 years of end of accounting period in which loss arose. Subject to £5million losses in one accounting period and above this, only 50% of unrelieved gains can be offset.
What are the anti-avoidance rules?
1) Change of Trade: where a business is sold to a new owner and the trade has substantially changed within 5 years, cannot offset losses.
2) Close Companies:where a loan is made to a participator, company must pay corporation tax on amount of loan, calculated at rate of income tax payable on dividends by higher rate tax payers.
What is the corporation tax self assessment?
TTP £1.5m or less, estimate and submit within 9 months and 1 day of end of accounting period. Should be finalised within 12 months.
TTP over £1.5m = 4 instalments paid over accounting period and next accounting period.
What is a close company?
Company under control of 5 or less participators OR under control of any number of participators who are also directors.
“Participator” = shareholder and some creditors (has interest in capital or income of company). Includes associates (spouse, parent, grandparent etc, child, grandchild, brother or sister) and nominess.
“Control” - in possession of issued share capital allowing more than 50% of income of company if distributed or greater part of assets on winding up.
What must close companies do?
Pay corporation tax on all loans except:
a) credit given in normal course of business for 6 months or less or company’s normal limitl
b) loan made in ordinary course of business (money-lending)
c) Loan to borrower which, together with other oustanding loans to that borrower is £15k or less + borrower works full time for co and does not have more than 5% interest in it.
Company can claim tax refund if loan repaid, satisfied, written off or waived. if written off or waived, participator deemed to receive dividend of that amount for income tax purposes.
