Corporation tax Flashcards
what is corporation tax chargeable on?
income and chargeable gains
when is a company resident in the uk?
if it is incorporated in the uk OR centrally managed and controlled in the uk
when are non uk resident companies liable to uk corporation tax?
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
dividends received by a company are what?
exempt
rates of corp tax from 2023 onwards
25% is the main rate on profits above 50k (would still get marginal relief), 19% is the rate on profits below 50k
what is the marginal relief fraction
3/200
what do we use to work out the rate to use
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
formula for marginal relief?
3/200 x (upper limit-augmented profits) x ttp/augmented profits. must apportion if the period is not 12 months
what do u need to think about?
periods that straddle financial years
what periods does the associated profit rules apply to?
apply from FY 23 onwards
when are companies associated?
when one company controls another company, or two companies are controlled by the same person
what does control mean?
more than 50% of voting power, share capital, entitlement to distributable profits, entitlement to assets on winding up.
what impact does associated companies have?
divide the 250k/50k thresholds by the number of associated companies
when must the thresholds be apportioned?
for short accounting periods
associated companies are associated for…
the whole accounting period even if they leave/join
what also dilutes the upper and lower limits?
foreign companies are also included in the calculation
what is excluded/ignored form associated companies?
dormant companies
when is it necessary to include companies owned by associates (spouse, cp etc) in associated companies
if there is substantial ‘commercial interdependence’ between the two companies
when can holding companies be excluded?
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
where an accounting period is more than 12 months?
needs to be split into two periods for corp tax purposes
how are non trading profits and business income split?
time apportionment basis as the accruals basis of accounting applies
how are chargeable gains and charitable donations apportioned?
based on date of disposal of asset/when charitable donation is paid
how is dividend for augmented profits split between ap’s
on the date of receipt
when is corporation tax due?
for small comapnies-due 9 months and 1 day after end of acocunting period. larger companies may have to pay POA’s
what gets submitted with the ct600?
a set of accounts and also detailed computations (e.g enhanced tax comp)
when must a company notify to chargeability?
within 3 months of the first accounting period
where a company does not receive a notificatoin to file from hmrc?
must notify hmrc within 12 months of the end of the accounting period that it is chargeable to tax
when is a ct600 due?
later of: 12 months from end of accounting period or 3 months from receiving the ct603
what is a ‘large’ company?
augmented profits for the period exceed 1.5mill but do not exceed 20 mill
what is a very large company?
augmented profits exceed 20million (remember to apportion for accounting periods <12 months)
when are instalments due for large companies?
-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
what is the amount of each instalment based on?
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
what is the final instalment?
the balance of however many months are left in the period
difference in instalments for very large accounting periods?
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)
what are the POA thresholds divided by?
number of associated companies including the company itself
what is the grace period?
if profits <10million and not large in the prior period then no instalments are necessary. NO exception for v large companies
when do large/v large companies not have to pay tax by instalments?
where the corp tax liability is <10k (apportioned for shorter accounting periods)
what is kept separate?
income from UK property and income from overseas property
what is pooled together?
all profits and losses of uk property business (like for individuals). companies cannot use the cash basis for property income
how is mortgage interest treated?
not as an allowable expense, instead under the loan relationship rules
what sort of assets are not chargeable to ct?
chattels < 6k, cars (not vans and commercial vehicles)
what relief on gains can companies claim?
indexation allowance but it is frozen at dec 17
how do you work out indexation allowance?
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
what must be indexed separaely?
enhancement expenditure (bc it would have been ‘purchased’ at a different date)
what can indexation not do?
increase or create a capital loss-gain only reduce a gain to nil
what are the options for corp tax trading losses?
-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
when can cy or c/b losses not be claimed?
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
when is carry forward relief allowed?
only can be deducted against profits from the same trade
what is the basic carried forward loss relief restriction?
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)
what would the best use of losses be from a timing perspective?
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
how can terminal losses be relieved?
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
what must a company do with it’s UK property business loss?
-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)
how may losses in an overseas property business be relieved?
can ONLY be carried forward against profits in the overseas property business
how may capital losses be relieved?
can only be c/f against capital gains
what do anti-avoidance provisions prevent?
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)
when is there a ‘change in ownership’
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%
what changes are not deemed to be MCINICOT?
changes in tech, new management techniques, efficiency of the company, rationalisation (dropping of unprofitable product lines)
when do anti-avoidance rules also apply?
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)
what is a close company?
-UK resident,
Controlled by either:
-5 or fewer participators,
-any number of directors who are also shareholders
what is a director for the purposes of a ‘close company’?
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
when determining ownership for close companies what needs to be included?
must include shares owned by associates (this means individuals immediate family, business partners, trustees of trusts, nominees)
what is excluded from being a close company?
-controlled by crown
-controlled by open companies
-quoted companies with substantial public interest
what rate is s.455 tax at?
for loans/advances made after 6 april 22-tax is calculated as 33.75% of the loan
what is the amount of loan used for s.455 purposes?
lower of the amount outstanding on:
-last day of accounting period
or the normal due date
when will the tax under s.455 be refunded?
where the loan is repaid by the participator or written off by the company
what is caught under s.455?
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
if a company writes off or releases a loan to a participator?
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.
loans not subject to s.455?
-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
close investment holding companies (see page 429) are treated how?
the small profits threshold doesnt apply- would ALL be taxed at 25%
when may a distribution from a company be treated as capital?
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)
when do the anti-pheonixing rules apply?
-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
when does the 25k cap for capital distribution apply?
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.
