Corporation Tax Flashcards
(115 cards)
1
Q
Describe the circumstances under which a person must register for VAT.
A
A person must register for VAT if their taxable supplies exceed the VAT registration threshold of £90,000 in a year, or if they believe their taxable supplies will exceed this threshold within the next 30 days.
2
Q
How long does a person have to notify HMRC after exceeding the VAT registration threshold?
A
A person must notify HMRC within 30 days of the end of the month in which their taxable supplies exceeded the VAT registration threshold.
3
Q
Explain the implications of voluntary VAT registration for a business.
A
Voluntary VAT registration allows a business to recover input VAT, reducing costs, but it also requires the business to charge output VAT on supplies, which may make it less attractive to customers compared to unregistered competitors.
4
Q
What is output VAT?
A
VAT that a business charges on goods to customers. - VAT put out to the public
5
Q
What is ‘input VAT’?
A
Input VAT is the VAT that a business pays on its purchases which can be recovered - VAT company puts in to purchases alongside asking price
6
Q
When will a person be registered for VAT if they exceed the threshold?
A
A person will be registered for VAT from the beginning of the second month after their taxable supplies exceed the threshold. (Aka when 30 day declaration period is up)
7
Q
Describe the conditions under which a VAT registered person can apply for deregistration.
A
A VAT registered person may apply for deregistration if the value of their future annual taxable supplies will not exceed the VAT deregistration threshold.
8
Q
What is the current VAT deregistration threshold in the UK?
A
The current VAT deregistration threshold is £88,000.
9
Q
How is a price considered in relation to VAT unless stated otherwise?
A
A price is deemed to be VAT inclusive unless the contract for the supply of goods or services states otherwise.
10
Q
How can a seller manage input VAT incurred?
A
A seller can deduct any input VAT that it has incurred, so it only needs to pay HMRC the difference.
11
Q
Define output tax in the context of VAT.
A
Output tax is the VAT chargeable by a business when making a supply of goods or services, relating to the business’s output.
12
Q
What does a seller keep when the price is expressed as exclusive of VAT?
A
When the price is expressed as exclusive of VAT, the seller keeps the VAT-exclusive stated price.
13
Q
Describe input tax and its relevance to VAT.
A
Input tax is the VAT paid by a person on goods or services supplied to them, relating to the goods and services they have purchased.
14
Q
How is the tax rate calculated in relation to inclusive VAT?
A
The tax rate is calculated as 20 divided by (100 + tax rate), which results in 1/6 for the VAT fraction.
15
Q
How does a VAT registered business manage input and output tax?
A
A VAT registered business offsets input tax it has suffered against output tax it has charged customers, only accounting for the difference to HMRC.
16
Q
Calculate the VAT paid by Arthur when selling a tree for £200 +VAT.
A
Arthur sells the tree for £200. The VAT at 20% is £40, so the total amount paid by Boris is £240.
17
Q
Summarize the relationship between input tax and output tax.
A
Input tax is the VAT on purchases, while output tax is the VAT on sales; businesses offset input tax against output tax and report the difference.
18
Q
Describe the transactions involving Arthur and Boris.
A
Arthur charged Boris £200 + VAT.
19
Q
Define the VAT fraction used to calculate the VAT element of a VAT inclusive price.
A
The VAT fraction used to calculate the VAT element of a VAT inclusive price is currently 1/6.
20
Q
Explain what Reduced Rated supply means in VAT terms.
A
Reduced Rated supply refers to goods and services that are subject to a lower rate of VAT than the standard rate.
21
Q
What does Zero Rated supply indicate in VAT classification?
A
Zero Rated supply indicates that goods and services are taxable at a rate of 0%, meaning no VAT is charged.
22
Q
How is Exempt supply characterized in relation to VAT?
A
Exempt supply refers to goods and services that are not subject to VAT at all.
23
Q
Define the reduced rate of VAT.
A
The reduced rate of VAT is 5% and applies to a very limited number of types of supply.
24
Q
List some supplies that are charged at the reduced rate of VAT.
A
Supplies charged at the reduced rate of VAT include domestic heating and power, installation of mobility aids for the elderly, stop smoking products, and children’s car seats.
25
What happens to VAT on inputs for businesses making exempt supplies?
Businesses making exempt supplies cannot recover VAT suffered on their inputs.
26
How many categories of VAT rates are mentioned in the content?
The content mentions four categories of VAT rates.
27
Describe zero rated supplies and their significance for businesses.
Zero rated supplies are certain goods and services that are taxed at a VAT rate of 0%. They include items like food, sewerage, water, books, public transport, and children's clothing. For businesses, this is favorable as they can charge no VAT on sales but can recover VAT on inputs.
28
How do zero rated supplies differ from exempt supplies in terms of VAT recovery?
Zero rated supplies allow businesses to charge VAT at 0% and recover VAT on inputs, while exempt supplies do not allow businesses to charge VAT and they cannot recover VAT on inputs, making it a cost.
29
Define exempt supplies and provide examples.
Exempt supplies are goods and services that are not subject to VAT, such as insurance, finance, education, health services, and the sale of land and buildings (unless specific conditions apply).
30
What are the implications for a business making exempt supplies?
A business making exempt supplies does not charge VAT on its sales and cannot recover any VAT on its inputs, which can increase costs.
31
Explain the public policy reasons behind zero rating certain supplies.
Zero rating certain supplies is often done for public policy reasons to make essential goods and services more affordable, such as food and education, thereby supporting social welfare.
32
How does the VAT treatment of new houses differ from that of existing buildings?
New houses are considered zero rated supplies, allowing VAT recovery on inputs, while existing buildings typically fall under exempt supplies unless specific conditions are met.
33
Describe the VAT registration threshold for businesses.
Businesses with turnover above the VAT registration threshold are required to keep their VAT records and make their VAT return online.
34
What is required from taxable businesses regarding VAT invoices?
A taxable business making a standard or reduced rate supply must provide a VAT invoice to the customer within 30 days of the supply and keep a copy.
35
How often must taxable businesses submit a VAT Return to HMRC?
Taxable businesses must submit a VAT Return online to HMRC every three months.
36
When is the due date for submitting a VAT Return?
The due date for submitting a VAT Return is usually within one month and seven days after the end of the VAT period.
37
What is the payment requirement for businesses paying more than £2.3 million a year in VAT?
Businesses that normally pay more than £2.3 million a year to HMRC in VAT must make monthly payments on account and then pay the balance when submitting the quarterly VAT return.
38
What is the significance of keeping VAT records for businesses?
Keeping VAT records is essential for compliance with tax regulations and for accurate reporting of VAT returns to HMRC.
39
Describe the Flat Rate Scheme for VAT-registered businesses.
The Flat Rate Scheme allows VAT-registered businesses with a taxable annual turnover not exceeding £150,000 (excluding VAT) and a total annual turnover not exceeding £230,000 to charge VAT at a flat rate on turnover instead of on each transaction.
40
How does the Flat Rate Scheme affect input VAT relief?
Under the Flat Rate Scheme, there is generally no relief for input VAT.
41
What are Retail Schemes in the context of VAT?
Retail Schemes are special schemes for retailers who find it difficult to issue VAT invoices for the large number of supplies made directly to the public.
42
Define Cash Accounting in VAT.
Cash Accounting allows businesses with an annual turnover of less than £1,350,000 to account for output tax when the invoice is paid rather than when it is issued.
43
How does input tax recovery work under Cash Accounting?
Under Cash Accounting, input tax can only be recovered when the business pays the supplier.
44
What is the annual turnover threshold for businesses to use the Annual Accounting scheme?
The annual turnover threshold for the Annual Accounting scheme is not exceeding £1,350,000, excluding VAT and exempt supplies.
45
Explain the payment process under the Annual Accounting scheme.
Under the Annual Accounting scheme, VAT is paid by instalments during the year based on the previous year’s VAT liability, with the balance paid when the VAT Return is submitted.
46
How does the Annual Accounting scheme benefit businesses?
The Annual Accounting scheme benefits businesses by allowing them to make an annual VAT Return and pay VAT in instalments throughout the year.
47
Define tax deductible expenditure.
Tax deductible expenditure refers to the costs incurred by a company that can be deducted from its income receipts, thereby reducing its overall tax bill.
48
How is Corporation Tax assessed for companies?
Companies are assessed to corporation tax by reference to the financial year, which runs from 1 April to 31 March.
49
What is the main rate of Corporation Tax for the 2024/2025 tax year for companies with TTP greater than £250,000?
The main rate of Corporation Tax for the 2024/2025 tax year is 25% for companies with TTP greater than £250,000.
50
What Corporation Tax rate applies to a company with TTP of £50,000 or less?
A company with TTP of £50,000 or less is subject to a Corporation Tax rate of 19%.
51
How does marginal relief affect Corporation Tax for companies with TTP between £50,000 and £250,000?
Companies with TTP over £50,000 and up to £250,000 may claim marginal relief, which has a tapering effect on the tax rate.
52
How is dividend income treated for corporation tax purposes in the UK?
Dividend income received by a company is generally exempt from corporation tax and is not included in that company’s taxable total profits (TTP) for tax purposes.
53
Explain why dividends are not tax deductible for the company paying them.
Dividends are not tax deductible for the company paying them because they are paid out of profits that have already been taxed, and the tax already paid satisfies the recipient company’s tax liability.
54
Give an example of an expenditure that would not be tax deductible.
An example of a non-deductible expenditure is business entertainment expenses, as they are often prohibited by statute.
55
What types of expenditures are generally considered deductible?
Generally deductible expenditures include costs like rent, interest paid, wages, and repairs, as they are of an income nature and recur.
56
Explain why partially gifted expenditures are not tax deductible.
Partially gifted expenditures are not tax deductible because they do not meet the requirement of being wholly and exclusively incurred for trade purposes.
57
What is the significance of the term 'wholly and exclusively' in tax deductible expenditures?
The term 'wholly and exclusively' signifies that the expenditure must be entirely for the purpose of the trade to qualify for tax deduction.
58
Describe the tax treatment of interest payments on business loans.
Interest paid on business loans is generally a deductible income expense, allowing companies to reduce their taxable profits and overall tax bill.
59
Define corporate interest restriction (CIR).
Corporate interest restriction (CIR) is a rule that limits the amount of interest a company can deduct for tax purposes when its net interest expense exceeds £2 million.
60
How does the corporate interest restriction (CIR) affect companies with high net interest expenses?
For companies with more than £2 million of net interest expense in the UK, the amount of interest they can deduct is restricted to a maximum of 30% of their income receipts.
61
Is depreciation deductible for tax purposes?.
Depreciation is not an allowable deduction for tax purposes.
62
Identify what qualifies as expenditure for capital allowances.
Qualifying expenditure includes expenditure incurred on plant and machinery.
63
Who can benefit from capital allowances?
Capital allowances are available to individuals and partnerships carrying on a trade as well as to companies.
64
Describe the process of claiming capital allowances on plant and machinery.
Companies can deduct 18% of the value of plant and machinery from their income receipts each year on a reducing balance basis, which reduces the tax written down value (TWDV) for future claims.
65
Describe the Annual Investment Allowance (AIA).
The AIA allows a company or unincorporated business to deduct 100% of expenditure on new, used, or refurbished plant and machinery (P&M) up to a specified amount, currently £1 million per year.
66
How does the AIA affect capital allowances for expenditures over £1 million?
For expenditures over £1 million, the company can deduct the AIA of £1 million plus 18% of the balance of the expenditure.
67
Explain the indexation allowance for companies.
The indexation allowance continues to be available for companies but is frozen up to 31 December 2017.
68
Define the Substantial Shareholding Exemption (SSE).
The SSE is a relief that can exempt from corporation tax the whole of a chargeable gain when a company disposes of shares in a trading company, provided certain conditions are met.
69
What is the minimum shareholding requirement for a company to qualify for the Substantial Shareholding Exemption?
The disposing company must have held at least 10% of the ordinary share capital of the company whose shares are being disposed of for at least 12 consecutive months in the last six years.
70
How does the Substantial Shareholding Exemption differ for companies and individuals?
The SSE is available for companies but not for individual sellers.
71
Can companies claim Business Asset Disposal Relief or Investors’ Relief to reduce tax on chargeable gains?
No, companies cannot reduce the tax they pay on their chargeable gains by claiming Business Asset Disposal Relief or Investors’ Relief.
72
Discuss the flexibility of the replacement asset in the tax deferral mechanism.
The replacement asset does not need to be the same type of asset as the one that was disposed of, providing flexibility in asset replacement.
73
What types of assets qualify for Rollover Relief?
Qualifying assets include land and buildings, goodwill, fixed plant and machinery, ships and hovercraft, aircraft, and Lloyd’s syndicate capacity.
74
Describe the timing requirements for purchasing a replacement asset after selling an old asset.
The replacement asset must be purchased within 12 months before or three years after the sale of the old asset.
75
Explain the relationship between the sale proceeds and the cost of the new asset in determining Rollover Relief eligibility.
The relationship is that if the sale proceeds from the original asset minus the cost of the new asset results in a figure greater than the chargeable gain, Rollover Relief cannot be claimed.
76
Define the term 'TTP' in the context of corporation tax.
TTP stands for Total Taxable Profit, which must be apportioned between financial years when the accounting period straddles different financial years.
77
What should be considered regarding leap years when calculating the days for tax purposes?
Leap years should be considered because they have 29 days in February, which can affect the total day count for tax calculations.
78
Explain the process for carrying back trading losses to previous year profits.
If trading losses cannot be used against current profits, a company can carry back any remaining losses against taxable profits of the previous accounting period, provided the same trade was carried on in both years. A claim must be made within 2 years after the end of the accounting period in which the loss arose.
79
What happens to trading losses if a company ceases trading?
If a company ceases trading, any trading loss in the final 12 months can be carried back and set against any profits made in the three years prior to the start of the final 12 months.
80
How long does a company have to make a claim for trading loss relief?
A company must make a claim for trading loss relief within two years after the end of the accounting period in which the loss arose.
81
Define the Deductions Allowance in the context of carried forward losses.
The Deductions Allowance allows a company to set off carried forward losses against taxable profits of up to £5 million in each accounting period.
82
What happens if a company has unrelieved taxable profits exceeding the Deductions Allowance?
If unrelieved taxable profits exceed the Deductions Allowance, carried forward losses may be used to relieve a maximum of 50% of the unrelieved profits, known as 'loss restriction'.
83
Describe the concept of group relief in the context of trading losses.
Group relief allows one company within a group that has a trading loss to surrender that loss to another profitable company in the same group, thereby reducing or eliminating the profitable company's taxable profits.
84
How do anti-avoidance rules affect the use of trading losses after a company sale?
Anti-avoidance rules prevent trading losses from being carried forward or back if the company has been sold to a new owner and the nature of its trade has substantially changed within five years of the sale.
85
Describe the rules for allowable expenditure related to chargeable disposals by companies.
The same rules apply as for individuals, allowing deductions for initial expenditure, subsequent expenditure (such as costs of defending title and enhancement expenditure), and costs of disposal.
86
Describe how capital losses can be utilized in relation to capital gains.
Capital losses can generally only be set off against capital gains in the current year, and they cannot usually be carried back to a previous year.
87
How can unused capital losses be managed in future accounting periods?
Unused capital losses can be carried forward and set against any capital gains in future accounting periods.
88
What is the maximum percentage of unrelieved capital gains that can be relieved by carried forward capital losses?
Carried forward capital losses may be used to relieve a maximum of 50% of the unrelieved capital gains in any accounting period.
89
Explain the time limit for claiming capital losses to HMRC.
A claim must be made to HMRC within four years from the end of the accounting period in which the capital loss arose to crystallise the loss.
90
How long can capital losses be carried forward within a company?
Capital losses can be carried forward indefinitely within the company that made them.
91
Describe the procedure for companies with a TTP of £1,500,000 or less regarding tax payment.
Companies must estimate their tax liability and pay HMRC within 9 months and one day of the end of the accounting period.
92
What is the deadline for filing a tax return for companies with a TTP of £1,500,000 or less?
The tax return must be filed electronically within 12 months of the end of the accounting period.
93
How does interest apply to tax payments for companies with a TTP of £1,500,000 or less?
Interest will accrue on any under or over-payments.
94
What is the payment procedure for companies with a TTP of more than £1,500,000?
Companies are required to pay their tax bills in four installments over the course of the relevant accounting period and the next one.
95
How does the mechanics of corporation tax self-assessment work for companies with a TTP of more than £1,500,000?
Companies must make tax payments in four installments based on their estimated tax liability over the relevant accounting periods.
96
Describe the condition under which Rollover Relief cannot be claimed.
Rollover Relief cannot be applied if the difference between the sale proceeds and the cost of the replacement asset is greater than the gain amount.
97
How is the chargeable gain calculated before Rollover Relief?
The chargeable gain before Rollover Relief is calculated by taking the sale proceeds of the qualifying asset, subtracting the acquisition cost, and then subtracting the indexation allowance.
98
How is a close company defined?
A company is defined as a close company if it is under the control of five or fewer participators, or any number of participators who are also directors.
99
Define a 'Participator' in the context of a company.
A 'Participator' is a person having a share or interest in the capital or income of the company, such as shareholders and some creditors.
100
Describe what 'Control' means in relation to a company.
'Control' refers to the ability to exercise control over the company’s affairs, typically through voting rights or by possessing or being entitled to issued share capital that allows for more than 50% of the company's income if distributed, or the greater part of the company's assets upon winding up.
101
What is the significance of having more than 50% of issued share capital in a company?
Having more than 50% of issued share capital allows a participator to control the greater part of the company's income if it is distributed.
102
List the two conditions under which a company is considered a close company.
A company is considered a close company if it is under the control of five or fewer participators, or any number of participators who are also directors.
103
Describe the exclusions from the definition of a close company.
A company will not be considered a close company if its shares are quoted on a recognized stock exchange or if it is controlled by one or more non-close companies.
104
How does being a wholly-owned subsidiary of a non-close company affect a company's status as a close company?
A wholly-owned subsidiary of a non-close company will not be subject to the close company tax regime.
105
Explain the conditions under which a loan to a borrower is exempt from being classified as an advance of credit.
A loan to a borrower is exempt if, along with other outstanding loans from the company, it does not exceed £15,000, the borrower works full-time for the company, and the borrower does not have a material interest in the company.
106
How is 'Material Interest' defined in relation to a company?
Material Interest is defined as having indirect control of more than 5% of the ordinary share capital of the company or an entitlement to more than 5% of the assets available upon winding up.
107
What is the role of 'nominees' in assessing control of a close company?
A 'nominee' is a person who owns property on behalf another, and their rights and entitlements must be considered when assessing a person's control.
108
Describe the tax obligation of a company regarding loans made to participators.
The company must pay corporation tax to HMRC on the amount of the loan, calculated at the rate of income tax payable on dividends by higher rate taxpayers. This tax must be paid within nine months and one day after the end of the accounting period in which the loan is made.
109
How can a company recover tax paid on a loan to a participator?
The company may claim a refund of the tax paid if the loan is repaid, satisfied, written off, or waived.
110
Define the tax implications for a participator if a loan is written off or waived.
If the loan is written off or waived, the participator is deemed to receive a dividend equal to the amount of the loan written off or waived for income tax purposes.
111
What is the tax effect for a participator who repays a loan in full?
There is no tax effect for the participator if he pays back the loan in full.
112
How do Transactions in Securities rules affect close companies?
These rules counteract tax advantages that arise when a close company distributes profits as capital payments instead of dividends, which are taxed as income.
113
Define the tax implications of winding up a close company.
Winding up a close company and distributing profits as capital payments may trigger the Transactions in Securities rules, which aim to prevent tax advantages.
114
How does the close company tax regime function as anti-avoidance legislation?
The close company tax regime prevents or discourages taxpayers from exploiting some of the tax benefits of incorporation.
115
Explain the purpose of the close company tax regime.
The purpose of the close company tax regime is to prevent tax avoidance by discouraging the exploitation of tax benefits associated with incorporation.
