Corporation tax

Question 1

What is TTP?

Answer 1

Taxable total profits.

Calculated: income profits + Chargeable gains

Question 2

How do you calculate income profits?

Answer 2

Income receipts - (deductible expenses + capital allowances + trading losses)

Question 3

What constitutes a company’s income?

Answer 3

rental income
trading income
interest
dividend income

Question 4

What is tax deductible expenditure?

Answer 4

Wholly and exclusively incurred for purposes of trade
Not prohibited by statute
Of an income nature

Question 5

What is capital allowance?

Answer 5

These are statutory allowances which allow companies to spread the cost of certain capital assets over a period of time.

Question 6

What types of capital allowance are there?

Answer 6

• Plant and machinery (only important one)
• Energy saving investments
• Water technologies

Question 7

Describe the capital allowance for plant and machinery.

Answer 7

Companies can deduct the value of plant and machinery from their income profits each year on a reducing balance. (this is recorded as a written down balance)
This means that 18% of the cost of P + M will be deducted, and then the next year the reduced balance will then be used to calculate the next deductible capital allowance on P + M.

Question 8

What other capital allowance is deductible from P + M?

Answer 8

Annual investment allowance

Question 9

Describe annual investment allowance.

Answer 9

This is a capital allowance of up to 100% of expenditure on P + M up to £250,000
The normal P + M capital allowance of 18% can be taken away for any expenditure above this level.

Question 10

There is an annual exemption for companies’ capital gains. True or false.

Answer 10

False. Only personal CGT has an annual exemption.

Question 11

How do you calculate a company’s chargeable gains?

Answer 11

Sale proceeds - (Allowance expenditure + Indexation + capital/trading losses) = chargeable gains

Question 12

What is a substantial shareholding exemption?

Answer 12

A complete tax relief for the value of shares disposed of. Shares must be at least 10% of company, and must have been held for at least 12 months.

Question 13

What is replacement of business assets relief (roll over relief)?

Answer 13

This is a deferral mechanism which is used by individuals or companies to defer tax arising from the disposal of an asset.

Question 14

How does roll over relief work?

Answer 14

Where a company/individual/partnership disposes of a business asset, and buys a replacement asset (within 12 months before or 3 years after sale), the taxable gain for the disposal is applied to the new asset and reduces the replacement asset by the gain rolled over.
If the cost of the new asset is less than the old then the difference can be rolled over.
The relief cannot be used if the new asset is less than the chargeable gain from the old asset

Question 15

What assets qualify for roll over relief?

Answer 15

land and buildings
goodwill (intangibles)
Fixed plant and machinery
Ships
Aircraft
etc.

Question 16

What kind of assets are IP and Goodwill?

Answer 16

Income

Question 17

How is P calculated?

Answer 17

TTP + gross dividend received

Question 18

How does P affect corporation tax payable?

Answer 18

• If dividend pushes p into the marginal rate band (or further into marginal band) then the comapny can claim marginal relief.
• If dividend pushes p into the upper rate then the SSF (special statutory formula relief) dos not apply.

Question 19

How to calculate the gross dividend:

Answer 19

dividend received x 100/90 = gross dividend

Question 20

Corporation tax payable is calculated by the TTP figure. True or false.

Answer 20

True. The corporation is calculated on the TTP, and then if the effect of P would be to push the rate into thr marginal rate then the SSF is applied

Question 21

What does straddling mean?

Answer 21

To calculate how much tax a company must pay if their accounting period straddles 2 different tax years calculate the number of months tax paid in each then multiply that by the relevant tax able ammount then apply the appropriate tax rate. Do for each tax year their accounting period starddles,

5/12 x 2,000,000 x 24%
7/12 x 2,000,000 x 23%

Question 22

What can trading losses be set off against?

Answer 22

1. Current year profits
2. Previous year profits (of the same trade, must be made within 2 years)
3. Terminal losses - If a company ceases trading then loss can be carried back for 3 years of profits prior to start of 12 month period
4. Future trading profits - Trading losses can be carried forward and set against income profits (same trade)
5. Group relief can also apply
   * *Trading losses can be used to offset both income profit and chargeable gains

Question 23

How can capital losses be used?

Answer 23

Set against current profits or future profits within 4 years

Question 24

Describe the procedure for paying corporation tax for taxable profits of 1,500,00 or less.

Answer 24

Company estimates tax liability and pays within 9 months and 1 day of end of accounting period.
Company must file tax return within 12 months of the accounting period
Tax return finalised after 12 months of date of tax return
Interest will accrue on any under or over-payments

Question 25

Procedure for paying tax on 1,500,00+

Answer 25

Paid in 4 equal instalments

Question 26

When does the financial year end for companies?

Answer 26

31st March

Question 27

How do calculate the effective rate of tax?

Answer 27

Tax due/TTP x 100