Corporation tax Flashcards
What is Corporation Tax payable on?
All income profits and chargeable gains of a body corporate that arise in its accounting period
How is Total Taxable Profits calculated?
Sum of profits and gains
With regard to what time frame is corporation tax assessed?
The financial year - although the company can still choose its own accounting period
What is the Corporation Tax rate for companies with profits greater than £250,000?
25%
What is the Corporation Tax rate for profits between £50,000 and £250,000?
19%
What is the basic calculation for coporation tax?
- Income profits (= income receipts - deductible debts - capital allownace - trading losses)
- Chargeable gains (no AE)
- Consider straddling or reliefs
- Total the numbers
What is the process for calculating chargeable income?
Aggregate all chargeable income receipts (rent, trading income, interest, dividend) and deduct all tax-deductible expenditure.
What qualifies as deductible expenditure for income purposes?
Expenditure must be:
- wholly and exclusively incurred for the purposes of the trade
- not prohibited by statute
- of an income nature with an element of recurrence.
What are Capital Allowances?
Deductions against income receipts for qualifying capital expenditure incurred on plant and machinery.
Deduct from income
What percentage of Plant and Machinery value can companies deduct annually?
Companies can deduct 18% of the value of Plant and Machinery from their income receipts each year.
What happens when a company claims capital allowances on P&M?
The value of the P&M is reduced by 18%, giving the Tax Written Down Value.
What is the Annual Investment Allowance?
A company can deduct 100% of expenditure up to a specified amount, currently £1 million.
What happens to expenditure above the Annual Investment Allowance limit?
Normal capital allowance of 18% can be applied to the balance of any expenditure above that amount.
What is Full Expensing?
A new capital allowance that allows companies to deduct 100% of the cost of new and unused plant and machinery.
When must a claim for Full Expensing be made?
Claim must be made in the period in which expenditure is incurred.
What are the rules for calculating chargeable gains for companies?
The same rules apply as for individuals. Initial expenditure, subsequent expenditure, and costs of disposal can be deducted.
BUT no AE!
What is the status of the indexation allowance for companies?
The indexation allowance continues to be available for companies but is frozen.
What is the Substantial Shareholding Exemption?
It exempts a company from corporation tax when it disposes of shares in a trading company, provided certain conditions are met
This is not BADR or IR (for individuals only)
What are the conditions for the Substantial Shareholding Exemption?
The disposing company must hold at least 10% of the ordinary share capital for at least 12 consecutive months in the last 6 years.
What is Rollover Relief?
It is a tax deferral mechanism when a company/sole trader/partnership disposes of one qualifying business asset but buys another qualifying asset.
Does Rollover Relief apply to individuals?
Yes, it also applies when an individual owns, sells, and buys the asset for their company.
Does the replacement asset need to be the same type as the original asset for Rollover Relief?
No, it does not have to be the same type of asset.
When is tax postponed until under Rollover Relief?
Tax is postponed until the replacement asset is sold.
What are the qualifying assets for Rollover Relief?
Qualifying assets include:
- land and buildings
- goodwill
- fixed plant and machinery
- ships and hovercraft
- aircraft
- Lloyd Syndicate Capacity.
What is the time frame for purchasing a replacement asset under Rollover Relief?
The replacement asset must be purchased within 12 months before or 3 years after the sale of the old asset.
What happens if all the sale proceedsa re not used to buy a new asset?
No rollover relief is available
What happens if the cost of the replacement asset exceeds the gain?
If the cost of the replacement asset deducted from the sale proceeds of the original asset results in a figure greater than the gain, no Rollover Relief claim can be made.
What is the general effect of dividends on corporation tax?
All dividends are generally exempt from corporation tax unless certain anti-avoidance provisions apply - ignore dividends in a calculation for corporation tax!
What is straddling in accounting?
Straddling occurs when a company’s accounting year does not coincide with a financial year.
How must the accounting period be handled in straddling?
The accounting period must be apportioned between the financial years, and relevant proportions of taxable profits must be taxed at applicable rates.
What is the time limit for claiming current year profits loss relief?
A claim must be made within two years after the end of the accounting period in which the loss arose.
Can a company carry back losses against previous year profits?
Yes, a company can carry back remaining losses against profits of the previous accounting period, provided it was in the same trade.
What is the time limit for claiming previous year profits loss relief?
Claims must be made within two years of the end of the accounting period in which the loss arose.
What happens to trading losses if a company ceases trading?
Trading losses 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.
How are future trading profits losses handled?
Losses are automatically carried forward, and the company must continue to trade the loss-making trade in the period in which the losses are used.
What is the Deductions Allowance for carried forward losses?
The company may use carried forward losses against taxable profits of up to £5 million in each accounting period, provided the allowance has not already been used.
What is the maximum relief for unrelieved taxable profits?
Carried forward losses can relieve a maximum of 50% of unrelieved profits when unrelieved taxable profits exceed the available allowance.
Does the Deductions Allowance apply to groups of companies?
Yes, the Deductions Allowance applies to a group of companies.
What is the order for setting off losses?
- Capital first - ONLY capital against capital
a. Same yr first
b. Carry forward if left over - Trading losses against income or capital
a. Same year first
b. Carry back
c. Carry forward
What is Group Relief?
One company with a trading loss can surrender that loss to another profitable company in the group.
What are the rules against carrying forward losses after a company sale?
Losses cannot be carried forward where a company has been sold to a new owner and the nature of the trade has substantially changed within three years after the sale.
How can capital losses be set off?
Capital losses can generally only be set off against capital gains and cannot be carried back to a previous year.
Can capital losses be carried forward?
Yes, capital losses can be carried forward against capital gains up to the available Deductions Allowance in the relevant accounting period.
What conditions apply when carrying forward capital losses?
Carried forward capital losses can be used provided the Deductions Allowance has not been used for setting off carried off trading losses. Excesses can relieve a maximum of 50% of the unrelieved gains.
How long can capital losses be carried forward?
Capital losses can be carried forward indefinitely within the company, but a claim must be made to HMRC within four years to crystallise the loss.
