Corporation Tax

Question 1

Pro Forma CT Comp

Answer 1

Trading income            x
Property income         x
NTLR                            x
Chargeable gains       x
Qualifying donations  (x)
                                    ----
TTP                             x

Question 2

Corporation Tax - residence

Answer 2

A company is liable to corporation tax on its worldwide profits if it is resident in the UK

It is resident if either

• it is incorporated in the UK
• it is incorporated outside the UK but its central management and control are exercised in the UK

Question 3

CT: A chargeable accounting period starts…

Answer 3

• When the company begins to trade OR acquires a source of chargeable income
• when the previous accounting period ends and the company is still within the charge to corporation tax

Question 4

Period of account vs accounting period

Answer 4

period of account is the period for which the company prepares its accounts. Accounting period is usually the same but special rules for CT.

Question 5

CT: an accounting period ends….

Answer 5

on the earliest of:

• the end of 12 months from the start of the accounting period
• the date the company begins or ceases to trade or
• the date the company ceases to be resident in the UK or
• the period of account ends

Question 6

CT: If a company has a period of account exceeding 12 months…

Answer 6

there will be two accounting periods, each giving rise to a separate computation. The first will be the first 12 months of the period, the second the remainder.

Question 7

CT: Trading income - capital allowances

Answer 7

are computed for accounting periods not periods of accounts. This means capital allowances for companies can never be computed for a period longer than 12 months.

Capital allowance computations for companies will never include private use adjustments.

A 100% FYA is available for expenditure incurred by a company on NEW plant and machinery for use in a designated enterprise zone. The expenditure must be incurred in the 8 years from the date the enterprise zone is established.

Question 8

CT: Property income

Answer 8

A company’s rental income from property situated in the UK is taxed as property income. Rent received is dealt with on an accruals basis.

Question 9

CT: Dividends received

Answer 9

Assume all dividends received by a company are exempt.

Question 10

Chargeable gains pro forma

Answer 10

Disposal consideration
Less; incidental costs of disposal
Net disposal consideration
Less: allowable costs
Unindexed gain
Less: indexation allowance if applicable
Chargeable gain

Question 11

Indexation allowance

Answer 11

RD-RI
_____
RI

(big minus little over little)

RD = RPI for December 2017 
RI = the month in which expenditure incurred

Question 12

Restriction of indexation allowance

Answer 12

It cannot make a loss

Question 13

Trading loan relationships eg

Answer 13

Bank overdraft interest
Interest on loans to buy plant and machinery
Interest on loans to buy premises used in the trade

Question 14

Non-trading loan relationships eg

Answer 14

Interest on loans to

• purchase / improve a let property
• acquire shares in another company
• interest on overdue corporation tax
• write off a non-trading loan such as a loan to a former employee

Interest receivable

• interest on bank and building society accounts
• gilt edged securities
• debentures and other loan stock
• repayments of overpaid corporation tax (repayment supplement)

Question 15

Non trading loan relationship treament

Answer 15

the debits and credits are combined. If there is a net profit this amount is taxable as a non-trading loan relationship

Question 16

Augmented profits

Answer 16

Taxable total profits plus exempt ABGH distributions

Question 17

Exempt ABGH distributions

Answer 17

Include dividends received from UK and overseas companies other than those within 51% group

Question 18

When is Corporation tax payable - augmented profit limit

Answer 18

£1.5m. The limit is adjusted for periods of less than 12 months and if there are any 51% group companies at the end of the previous accounting period.

Question 19

51% group companies

Answer 19

Company B is a related 51% group company of another company A in an accounting period if A is a 51% subsidiary of B or if B is a 51% subsidiary of A or if both A and B are 51% subsidiaries of the same company.

Ignore dormant companies
Divide the limit used for determining a company’s corporation tax payment dates by the number of 51% group companies

Question 20

Corporation Tax - large companies

Answer 20

A large company is one which has augmented profits in excess of the limit

However, a company is not treated as large if

• it has a tax liability of less than £10,000 or
• It was not a large company in the preceding 12 months and has augmented profits of less than £10m in this accounting period. (10m limit divided between 51% group companies)

Question 21

CT Payment - large companies

Answer 21

A large company is required to pay CT in four equal instalments based on estimated liability for the accounting period.

The instalments are due on the 14th day of the 7th, 10th, 13th and 16th months after the start of a 12 month accounting period.

Question 22

CT payment - other companies

Answer 22

9 months and one day after the end of the chargeable accounting period

Question 23

CT payment - short accounting periods

Answer 23

Each instalment is the lower of

• 3 x CT/n where CT is the corporation tax for the accounting period and n is the number of months in the accounting period and
• the remaining corporation tax due for the accounting period

Where the whole of the corporation tax is not paid by the first instalment, subsequent instalments are calculated i the same way until the amount paid equals the corporation tax due. Instalments must have been paid by the 14th of the fourth month following the end of the accounting period.

Question 24

Business payment support setvice

Answer 24

launched by HMRC to help businesses that because of economic conditions are having difficulty in making payments of tax. In these circumstances BPSS will agree to spread tax payments over a period to meet the needs of the business.