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Awareness for APS > Corporation tax > Flashcards

Corporation tax Flashcards

1
Q

what is corporation tax chargeable on?

A

income and chargeable gains

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2
Q

when is a company resident in the uk?

A

if it is incorporated in the uk OR centrally managed and controlled in the uk

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3
Q

when are non uk resident companies liable to uk corporation tax?

A

if they have a UK PE OR if they dispose of interests in uk lands or buildings (from april 19), trade in uk land e.g property development etc

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4
Q

dividends received by a company are what?

A

exempt

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5
Q

rates of corp tax from 2023 onwards

A

25% is the main rate on profits above 50k (would still get marginal relief), 19% is the rate on profits below 50k

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6
Q

what is the marginal relief fraction

A

3/200

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7
Q

what do we use to work out the rate to use

A

augmented profits (total taxable profts plus divis received-excluding those received from 51% subs or companies that they are a 51% sub of). NOTE it is the ttp which is taxed not the augmented profits tho

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8
Q

formula for marginal relief?

A

3/200 x (upper limit-augmented profits) x ttp/augmented profits. must apportion if the period is not 12 months

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9
Q

what do u need to think about?

A

periods that straddle financial years

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10
Q

what periods does the associated profit rules apply to?

A

apply from FY 23 onwards

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11
Q

when are companies associated?

A

when one company controls another company, or two companies are controlled by the same person

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12
Q

what does control mean?

A

more than 50% of voting power, share capital, entitlement to distributable profits, entitlement to assets on winding up.

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13
Q

what impact does associated companies have?

A

divide the 250k/50k thresholds by the number of associated companies

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14
Q

when must the thresholds be apportioned?

A

for short accounting periods

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15
Q

associated companies are associated for…

A

the whole accounting period even if they leave/join

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16
Q

what also dilutes the upper and lower limits?

A

foreign companies are also included in the calculation

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17
Q

what is excluded/ignored form associated companies?

A

dormant companies

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18
Q

when is it necessary to include companies owned by associates (spouse, cp etc) in associated companies

A

if there is substantial ‘commercial interdependence’ between the two companies

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19
Q

when can holding companies be excluded?

A

if they are essentially dormant-only assets are their shareholdings, no income other than dividends being distributed to its members and not entitled to any deductions for qualifying charitable donations

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20
Q

where an accounting period is more than 12 months?

A

needs to be split into two periods for corp tax purposes

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21
Q

how are non trading profits and business income split?

A

time apportionment basis as the accruals basis of accounting applies

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22
Q

how are chargeable gains and charitable donations apportioned?

A

based on date of disposal of asset/when charitable donation is paid

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23
Q

how is dividend for augmented profits split between ap’s

A

on the date of receipt

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24
Q

when is corporation tax due?

A

for small comapnies-due 9 months and 1 day after end of acocunting period. larger companies may have to pay POA’s

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25
Q

what gets submitted with the ct600?

A

a set of accounts and also detailed computations (e.g enhanced tax comp)

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26
Q

when must a company notify to chargeability?

A

within 3 months of the first accounting period

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27
Q

where a company does not receive a notificatoin to file from hmrc?

A

must notify hmrc within 12 months of the end of the accounting period that it is chargeable to tax

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28
Q

when is a ct600 due?

A

later of: 12 months from end of accounting period or 3 months from receiving the ct603

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29
Q

what is a ‘large’ company?

A

augmented profits for the period exceed 1.5mill but do not exceed 20 mill

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30
Q

what is a very large company?

A

augmented profits exceed 20million (remember to apportion for accounting periods <12 months)

31
Q

when are instalments due for large companies?

A

-first payment due on the 14th day of month 7, subeqeuent payments are each due 3 months after the previous instalment, final payment due 3 months and 14 days from the end of the accounting period

32
Q

what is the amount of each instalment based on?

A

the tax liability of the current accounting period. the forumal is 3/n x estimated corp tax liability. n=number of months in accounting period

33
Q

what is the final instalment?

A

the balance of however many months are left in the period

34
Q

difference in instalments for very large accounting periods?

A

final payment is due of the 14th day of the final month of the accounting period and the the first instalments due 4 months earlier (month 3 rather than month 7)

35
Q

what are the POA thresholds divided by?

A

number of associated companies including the company itself

36
Q

what is the grace period?

A

if profits <10million and not large in the prior period then no instalments are necessary. NO exception for v large companies

37
Q

when do large/v large companies not have to pay tax by instalments?

A

where the corp tax liability is <10k (apportioned for shorter accounting periods)

38
Q

what is kept separate?

A

income from UK property and income from overseas property

39
Q

what is pooled together?

A

all profits and losses of uk property business (like for individuals). companies cannot use the cash basis for property income

40
Q
A
41
Q

how is mortgage interest treated?

A

not as an allowable expense, instead under the loan relationship rules

42
Q

what sort of assets are not chargeable to ct?

A

chattels < 6k, cars (not vans and commercial vehicles)

43
Q

what relief on gains can companies claim?

A

indexation allowance but it is frozen at dec 17

44
Q

how do you work out indexation allowance?

A

RPI at sale or 31.12.17-RPI at acqn/RPI at acqn then round this up to 3 decimal places and multiply cost by it

45
Q

what must be indexed separaely?

A

enhancement expenditure (bc it would have been ‘purchased’ at a different date)

46
Q

what can indexation not do?

A

increase or create a capital loss-gain only reduce a gain to nil

47
Q

what are the options for corp tax trading losses?

A

-set against current yr total profs,
-carry back against prior year total profs (must claim current yr before carry back),
(the two above claims must be made within 2 yrs of the end of the loss making accounting period

48
Q

when can cy or c/b losses not be claimed?

A

if the trade is wholly outside the uk, if trade wasnt conducted on a commercial basis/not with a view to a profit, CFC rules apply

49
Q

when is carry forward relief allowed?

A

only can be deducted against profits from the same trade

50
Q

what is the basic carried forward loss relief restriction?

A

cannot be used to reduce 50% of the profits against which it can be set BUT the deductions allowance of 5million enables a company to obtain greater use of carried forward losses-the 50% restriction only applies to losses above the deductions allowance (amount of deductions allowance must be specified on its corp tax return)

51
Q

what would the best use of losses be from a timing perspective?

A

current yr and then carry back,
carry forward.
BUT need to consider that might be better to c/f if the rate of tax is higher

52
Q

how can terminal losses be relieved?

A

can be carried back to earlier accounting periods that fall ‘wholly or partly’ within the 36 month period ending immediately before the start of the terminal loss accounting period

53
Q

what must a company do with it’s UK property business loss?

A

-deduct from total profits of the accounting period (before cy relief for a trading loss is given),
-this type of loss CANNOT be carried back,
-can be carried forward (subject to the deductions allowance etc rules)

54
Q

how may losses in an overseas property business be relieved?

A

can ONLY be carried forward against profits in the overseas property business

55
Q

how may capital losses be relieved?

A

can only be c/f against capital gains

56
Q

what do anti-avoidance provisions prevent?

A

carry forward of trading losses when there has been a change in ownership and MCINOCT (period under review is 5 yr period beginning no more than 3 yrs before the change in ownership of the company)

57
Q

when is there a ‘change in ownership’

A

if within a period of 3 years a single person acquires more than 50% of the sc or 2 or more persons acquire at least 5% each and taken together this exceeds 50%

58
Q

what changes are not deemed to be MCINICOT?

A

changes in tech, new management techniques, efficiency of the company, rationalisation (dropping of unprofitable product lines)

59
Q

when do anti-avoidance rules also apply?

A

losses cant be c/f where a trade is small/negligible- i.e where it makes NO sense for someone to have bought a company other than to use the losses (this is NOT confined to 5 years)

60
Q

what is a close company?

A

-UK resident,
Controlled by either:
-5 or fewer participators,
-any number of directors who are also shareholders

61
Q

what is a director for the purposes of a ‘close company’?

A

anyone who acts as a director (e.g chairman). and include any manager of the company who, with their associates, owns 20% or more of the voting shares of the company

62
Q

when determining ownership for close companies what needs to be included?

A

must include shares owned by associates (this means individuals immediate family, business partners, trustees of trusts, nominees)

63
Q

what is excluded from being a close company?

A

-controlled by crown
-controlled by open companies
-quoted companies with substantial public interest

64
Q

what rate is s.455 tax at?

A

for loans/advances made after 6 april 22-tax is calculated as 33.75% of the loan

65
Q

what is the amount of loan used for s.455 purposes?

A

lower of the amount outstanding on:
-last day of accounting period
or the normal due date

66
Q

when will the tax under s.455 be refunded?

A

where the loan is repaid by the participator or written off by the company

67
Q

what is caught under s.455?

A

bed and breakfasting- e.g repaying a loan and then paying the exact amount out again (within 30 days). repayments are treated as a repayment of the subsequent loan not the original loan

68
Q

if a company writes off or releases a loan to a participator?

A

the company will receive a repayment of the s.455 tax and the participator will be treated as receiving a dividend equal to the amount of loan written off or released (even if the participator is also an ee-subject to class 1 nic in this case). any nic’s paid are deductible BUT the write off itself is not.

69
Q

loans not subject to s.455?

A

-loans made in ordinary course of business,
-debts incurred in the supply of goods or services in the ordinary course of trade,
-loans made to a full-time director or ee who does not have a material interest in the company

70
Q

close investment holding companies (see page 429) are treated how?

A

the small profits threshold doesnt apply- would ALL be taxed at 25%

71
Q

when may a distribution from a company be treated as capital?

A

when a company makes a distribution following application to be struck off. BUT only if the company has collected all debts and paid all liabilities due. cap on total distributions of 25k (amount above this=taxed as income)

could ALSO be obtained by liquidating the company (but this is unnecessarily expensive)

72
Q

when do the anti-pheonixing rules apply?

A

-company is close
-individual has 5% or more of shares
-if within 2 yrs of the distribution the individual carries on a similar trade,
-it is reasonable to assume that the main purpose/one of main purposes of winding up is o avoid income tax.

pheonixism is essentially where someone winds up a company to extract profits as capital rather than income

73
Q

when does the 25k cap for capital distribution apply?

A

from the point that a company intends to make an application for striking off. e.g cant pay a dividend to reduce the amount of distributable capital and then pay out the 25k.

Awareness for APS (8 decks)

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