Corporation Tax

Question 1

What is a chargeable accounting period?

Answer 1

A chargeable accounting period (CAP) is the period for which a charge to corporation tax is made.
This cannot exceed 12 months

Question 2

When does CAP start and end?

Answer 2

Start

✓ A company starts to trade (or receives income chargeable to corporation tax)
✓ The acquisition of a source of income.(interest bearing bank account)
✓ The previous accounting period ends

End
✓ Twelve months after the beginning of the accounting period
✓ The end of the company’s period of account
✓ The end of the company BEGINS or ceases to trade

Question 3

What is a period of account? e.g. when our accounts are prepared to?

Answer 3

A period of account is any period for which a company prepares accounts.
Most companies will have a 12 month period (year-end). However there may be short or long accounting periods.

Question 4

Which financial year has a different tax rate?

Answer 4

16/17 has 20%

Question 5

What is not taken into account when calculating taxable total profits for companies in comparison to individuals?

Answer 5

There is no personal use adjustment because whoever is using it will get taxed on their own income tax

Question 6

If the fees are related to capital (a long term expense) or non-trading items, including fees created from partnership agreements, or obtaining new capital assets, for example, these are not allowed.

What is an exception to this?

Answer 6

Legal fees chasing debts

Registering patents

Question 7

What is the percentage for corporate tax?

Answer 7

19%

Question 8

What is the percentage for WDA

Answer 8

18%

Question 9

What does as soon as possible relieving trading losses call for?

Answer 9

Current year, Carry Back and Carry Forward (in the final one you want to preserve any donations you have made

Only carry forward has partial claim allowed

Question 10

What are the factors that influence the choice of loss relief?

Answer 10

Tax saving
Cash flow
Wastage of relief for qualifying charitable donation payments

Question 11

How are property losses relieved

Answer 11

Property 1 x
Property 1 x
Property 1 (-x)
Total loss= -x

Property losses are offset before trading losses

▪ Current relief period is MANDATORY: Offset against total profits (before qualifying charitable donations) for the current period. Partial claim not allowed CY

▪ Any excess is carried forward (ONLY if property business is still carrying on)and off-set against the first available future total profits of the company.

▪ Claim can be made for CF relief and partial relief is allowed if CF claim is made. This is not possible possible where the loss is relieved in the current year.

▪ CANNOT BE CARRIE DBACK

Question 12

How are capital losses relieved

Answer 12

A capital loss incurred in an accounting period is:

▪ Automatically relieved against chargeable GAINS arising in the same accounting period.
▪ Any excess losses are then carried forward for relief against gains arising in future accounting periods.
▪ No carry back is possible

Question 13

When must companies notify HMRC?

Answer 13

Within 3 months of starting to Trade

Question 14

When must returns be filed by and how?

Answer 14

Filled within 12 months of the end of the accounting period and Filled electronically (and for Ltd companies have to file a copy of their accounts)

Question 15

What are the penalties for late filing of corporation tax?

Answer 15

From the filing date:

Within 3m-> £100, for failure to submit return

More than 3m-> £200 if the delay exceeds 3 months

6 to 12months->Additional 10% of the outstanding tax 6 months after the filing date

More than 12months-> Additional penalty increased to 20% of the unpaid tax if after 12 months

Fixed penalties rise to £500 and £1000 if persistently filed late i.e. return for two preceding periods also late

Question 16

Who/what is a senior accounting officer, when does a company need one and what are their functions?

Answer 16

The senior accounting officer of a large company has personal accountability for ensuring that it has appropriate financial systems in place to ensure that the company accurately reports taxable profits and gains.

Qualifying company
✓ Relevant turnover of £200 million
and / or
✓ Balance sheet of more than £2 billion

Functions:
Making reasonable steps to establish and monitor accounting systems, to ensure they are adequate for accurate recording purposes.
For non-compliance penalty that could be incurred is likely to be £5,000.

Question 17

Companies who are above £1.5m threshold, When accounting period is less than 12months, when are the installments due?

Imagine 8 month period ending 31 Dec 2019- give dates for these

Answer 17

installments are due three monthly intervals, but the final payment being due in the fourth month of the next accounting period.

Where an accounting period is less than 12 months, the first installment is due by the 14th day of the 7th month after the start of the AP. Subsequent installments are due at 3 month intervals thereafter until the date of the final installment is reached. E.g. 8 month period ending 31 December 2019=

• > 14th November 2019,
• > 14th Feb 2020 ( 3 Months later)
• > the final installment on 14th April 2020 (14th day of the 4th month after the end of the accounting period I.e. 3months after the end of the AP)

Question 18

What is the time limit for HMRC to make a compliance check for companies that submit on and not on time?

Answer 18

When a return is submitted on time;
✓ 12 Months after the actual submission date

When a return is not submitted on time
✓ Notice must be given 12 months after 31 Jan, 30th April, 31 July or 31 October following the actual filing date of return.

In other words, within 12months of the next quarter day

Question 19

What are group relief groups and what are they used to relief?
What are the requirements and who can claim the loss

Answer 19

Group loss relief is available to the UK members of a 75% group and is used to relief trading losses

▪ ≥ 75% direct/ indirect holdings
▪ Parent must have ≥ 75% effective interest

Loss relief can only be claimed by companies that are resident in the UK

Question 20

How does group relief groups work?

What is group relief deducted from?

Answer 20

On a matching period basis. (Months matching x The amount of loss)

▪ Surrendering company (company who has loss)

• > Trading loss for the CY or any brought forward (to the extent that they cannot be used against their own total profits
• > Unrelieved QCD
• > Unrelieved property business losses- CY and brought forward
• QCD and Property losses are ‘unrelieved’ if they exceed any other income and gains before the deduction of any losses

▪ Claimant company:

• > Can only accept losses that it can utilise in the current period
• > Group relief is deducted from the TTP so this is the maximum loss you can claim until TTP is reduced down to NIL

Question 21

What are gain groups used for?

What are the requirements?

Answer 21

Capital gains group

▪ ≥ 75% direct/ indirect holding of the ORDINARY share capital at each level in the company structure
▪ Parent must have > 50%effective holding

Even if they are over seas, they are part of the group according to the definition- it’s just that they cannot take advantage of the provisions.

Question 22

How does gain groups work?

Answer 22

▪ Assets transferred at nil gain/nil loss between group companies. (Transferee company takes over the asset at cost + indexation to date of transfer)
▪ Group roll-over relief
▪ Companies can elect for chargeable gains and allowable capital losses to be transferred from one company to another

Question 23

When must HMRC be notified by and when is the deadline for returns to be filed?

Answer 23

Notification: A company must notify HMRC within 3 months of starting to trade

Returns: Filled within 12 months of the end of the accounting period
Filled electronically (and for Ltd companies have to file a copy of their accounts)

31 March 2021

Question 24

What are the thresholds for a requirement for senior accounting officer?

What is the non compliance penalty?

Answer 24

Qualifying company
✓ Relevant turnover of £200 million
and / or
✓ Balance sheet of more than £2 billion

For non-compliance penalty that could be incurred is likely to be £5,000.

Question 25

What is the due date for companies that are not large?

Answer 25

For companies not paying main rate the due date is 9 months and one day after the accounting period.

Question 26

What is the due date for companies that are large?

Answer 26

For companies paying main rate they pay in quarterly installments
They are due
14th day of the 7th month (Estimate)
14th day of the 10th month (Estimate)
14th day of the 13th month (Estimate)
14th day of the 16th month (Balance)

In an accounting period which is less than 12 months installments are due three monthly intervals, but the final payment being due in the fourth month of the next accounting period.

Question 27

What is the exception rule for large companies to not pay in installments?

Answer 27

A company is not required to pay installments if the following has occurred

✓ The company CT liability is less than £10,000
✓ Company was notlarge in previous AP and augmented profits are <10m (divided by number of 51% group companies)

Question 28

What is the relief to terminal loss?

Answer 28

Current period against total profits before charitable donations

▪ Carry back 36 months- (CY Doesn’t count!!)
▪ Against total profits before charitable donations
▪ LIFO basis
▪ Partial claim NOT allowed

Question 29

What is a 51% group?

Answer 29

Two companies are 51% group if

• One is a 51% subsidiary of the other
• Both are 51% subsidiaries of a third company

A 51% subsidiary is one where more that 50% of share capital is directly or indirectly owned. Company can only be linked by a corporate parent- not an individual

It doesn’t matter where a company is resident so overseas companies are included in the definition

Question 30

What are the rules for when amendments and claims for over payment relief is required

Answer 30

A company may amend it’s return within 12 months from the filing date.

HMRC may amend a return within 9 months from the date the return is filed

A company may make a claim for over payment relief within four years from the end of the relevant accounting period.

Question 31

What is the penalty for failing to retain required records?

Answer 31

Up to £3,000 per accounting period

Question 32

Summaries the conditions of trading loss reliefs?

And when a company ceases to trade.

Answer 32

All of them are offset against total profits (income and gains) and before QCD relief

You can choose the order you would like.

CF: Partial claim is possible and indefinite carry forward

CY & CB: Must offset the maximum amount possible. Carry back is only 12months in LIFO. The year of ceasing to trade this will be against profits preceding 36months in total.

Question 33

For group relief, what is the due date for the claim and the payment for the relief?

And what must you consider also for tax loss planning?

Answer 33

Due date: 12months after the end of the claimant company’s filing date for the AP covered by the claim i.e. usually 2 years after the end of the AP

Payment: The claimant company may pay the surrendering company for the loss. Any payment for the relief is ignored in both companies’ corporation tax computations

Tax planning: Consider whether to surrender and the order of surrender. Group relief are more flexible than rules for using own loss i.e. can specify the amount to be surrendered.

amount of group relief to retain sufficient loss to preserve WCD relief or to carry back to generate a repayment of tax and possibly save tax at a higher rate

Question 34

For gains group, what is the time limit to make a claim ?

Answer 34

Provided both were members of the gains group at the time of the gain or loss arose, a jjoint election can be made such that chargeable gain or allowable capital loss can be transferred from one group company to another

The time limit for making the claim is 2 years from the end of the accounting period in which the gain or loss occurs

Question 35

For gains group, what are the ROR facts

Answer 35

For ROR purposes, all the companies within a capital gains group are treated as carrying on a single trade.

Therefore a qualifying asset can be sold by one company and the gain can be rolled over into an asset acquired by another company in the group making a qualifying reinvestment within the relevant time period.

Question 36

For long period of account, how is this treated/computed?

Answer 36

This will be split into two accounting period

1) first 12m
2) Remainder

For each accounting period HMRC will require a separate corporate tax computation required and a separate corporate tax return.

There will be

• > Two separate pay days i.e. 9 months after end of accounting period
• > Buy only one file date for the returns i.e. 12 months after end of long period of account

Question 37

In working out the taxable total profits against which group relief can be claimed, what is assumed

Answer 37

In working out the taxable total profits against which group relief can be claimed, the claimant company is assumed to use any current year or brought forward losses which it has, even if such a loss relief claim is not actually made.

AND the group relief claim is calculated after deducting qualifying charitable donations, and on the assumption that a claim is made for the current year trading loss.

Question 38

Maximum surrender by Lae Ltd

Trading Loss (18,100)
Property (26,700)
Loan 1600
Capital Loss 19,200
Less: QCD (4800)

Answer 38

The property business loss and the qualifying charitable donations can be surrendered to the extent that they are unrelieved, so £29,900 of these can be surrendered (26,700 + QCD Balance[4,800 – 1,600]).

It is not possible to surrender capital losses as part of a group relief claim.

The maximum potential surrender by Lae Ltd is £48,000 (18,100 + 29,900).

The maximum group relief claim is therefore £48,000.

Question 39

Maximum claim by Mon Ltd

Trading Loss (11,200)
Property 60,900
Loan 3,300
Capital Loss 19,200
Less: QCD (3,200)

Answer 39

The group relief claim by Mon Ltd is calculated after deducting qualifying charitable donations, and on the assumption that a claim is made for the current year trading loss.

The maximum amount of group relief which can be claimed by Mon Ltd is therefore £49,800 (60,900 + 3,300 – 3,200 – 11,200).

Question 40

What cannot be carried forward with regards to groups and losses

Answer 40

Qualifying charitable donations cannot be carried forward.

Question 41

What are the conditions for carried forward trading losses between group companies?

Answer 41

Carried forward trading losses and property business losses can be surrendered as group relief to the extent that they cannot be set off against the surrendering company’s own total profits for the period in question.

Question 42

What must the Claim for group relief must be made by?

Answer 42

Claim for relief must be made by the claimant company on it’s corporation tax return within 2 years of the end of the accounting period. So if it was disposed during YE 31 March 2020, claim by 31 March 2022

Question 43

Why would it be beneficial for all of the eligible companies in a chargeable gains group to transfer assets to one company prior to them being disposed of outside of the group?

Answer 43

The transfers will not give rise to any chargeable gain or capital loss.

Arranging that wherever possible, chargeable gains and capital losses arise in the same company will result in the optimum use being made of capital losses.

These can either be offset against chargeable gains of the same period, or carried forward against future chargeable gains.

Question 44

Lease premium given as the amount assessed on Landlord, what is your amount

Answer 44

For lease premium if you are given the amount that that was assessed on the landlord as income then the calculation has already been done. You simply need to divide the amount by the number of years.

Question 45

For a gains group, if a company joins or leaves during an accounting period, how does this work?

Answer 45

They will only be included in respect of the assets acquired or disposed of whilst they were member of the group

Question 46

With respect to entertaining customers overseas, is this deductable or not deductable?

Answer 46

Non Deductible!! Only for VAT purposes it is

Question 47

Why is it better to have an accounting date ending 31 March than any other

Answer 47

Being aligned with the financial year will make it easier for a company to calculate it’s CT liability since the same rates, reliefs and legislation willl apply throughout the accounting period.

For owner managed companies, alignment with the income tax year (the odd five days can be ignored) will make it easier as regards calculating the most tax efficient method of extracting profits for the company

Question 48

Brooke Ltd was incorporated on 1 May 2019. The directors opened an interest bearing bank account on 1 June 2019.

On 1 July 2019 the company started to trade. It prepared its first set of accounts to 30 April 2020.

What is Brooke Ltd’s first chargeable accounting period for corporation tax purposes?

Answer 48

1 June 2019 to 30 June 2019. This accords with the statutory definition of when a chargeable accounting period starts and ends.

Question 49

What kind of donations are not deductible?

Answer 49

toys given to children’s hospice as Christmas gifts