Corporation Tax Flashcards
What is a chargeable accounting period?
A chargeable accounting period (CAP) is the period for which a charge to corporation tax is made.
This cannot exceed 12 months
When does CAP start and end?
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
What is a period of account? e.g. when our accounts are prepared to?
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.
Which financial year has a different tax rate?
16/17 has 20%
What is not taken into account when calculating taxable total profits for companies in comparison to individuals?
There is no personal use adjustment because whoever is using it will get taxed on their own income tax
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?
Legal fees chasing debts
Registering patents
What is the percentage for corporate tax?
19%
What is the percentage for WDA
18%
What does as soon as possible relieving trading losses call for?
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
What are the factors that influence the choice of loss relief?
Tax saving
Cash flow
Wastage of relief for qualifying charitable donation payments
How are property losses relieved
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
How are capital losses relieved
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
When must companies notify HMRC?
Within 3 months of starting to Trade
When must returns be filed by and how?
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)
What are the penalties for late filing of corporation tax?
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
Who/what is a senior accounting officer, when does a company need one and what are their functions?
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.
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
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)
What is the time limit for HMRC to make a compliance check for companies that submit on and not on time?
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
What are group relief groups and what are they used to relief?
What are the requirements and who can claim the loss
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
How does group relief groups work?
What is group relief deducted from?
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
What are gain groups used for?
What are the requirements?
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.
How does gain groups work?
▪ 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
When must HMRC be notified by and when is the deadline for returns to be filed?
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
What are the thresholds for a requirement for senior accounting officer?
What is the non compliance penalty?
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.
What is the due date for companies that are not large?
For companies not paying main rate the due date is 9 months and one day after the accounting period.
What is the due date for companies that are large?
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.
What is the exception rule for large companies to not pay in installments?
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)
What is the relief to terminal loss?
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
What is a 51% group?
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
What are the rules for when amendments and claims for over payment relief is required
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.
What is the penalty for failing to retain required records?
Up to £3,000 per accounting period
Summaries the conditions of trading loss reliefs?
And when a company ceases to trade.
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.
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?
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
For gains group, what is the time limit to make a claim ?
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
For gains group, what are the ROR facts
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.
For long period of account, how is this treated/computed?
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
In working out the taxable total profits against which group relief can be claimed, what is assumed
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.
Maximum surrender by Lae Ltd
Trading Loss (18,100) Property (26,700) Loan 1600 Capital Loss 19,200 Less: QCD (4800)
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.
Maximum claim by Mon Ltd
Trading Loss (11,200) Property 60,900 Loan 3,300 Capital Loss 19,200 Less: QCD (3,200)
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).
What cannot be carried forward with regards to groups and losses
Qualifying charitable donations cannot be carried forward.
What are the conditions for carried forward trading losses between group companies?
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.
What must the Claim for group relief must be made by?
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
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?
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.
Lease premium given as the amount assessed on Landlord, what is your amount
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.
For a gains group, if a company joins or leaves during an accounting period, how does this work?
They will only be included in respect of the assets acquired or disposed of whilst they were member of the group
With respect to entertaining customers overseas, is this deductable or not deductable?
Non Deductible!! Only for VAT purposes it is
Why is it better to have an accounting date ending 31 March than any other
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
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?
1 June 2019 to 30 June 2019. This accords with the statutory definition of when a chargeable accounting period starts and ends.
What kind of donations are not deductible?
toys given to children’s hospice as Christmas gifts
