Corporation Tax Flashcards
Name the rows in the corporation tax pro forma.
Trading Income Property income NTLR Chargeable gains Miscellaneous income \+RDEC 13%
Qualifying charitable donations
TTP
CT @19%
-RDEC @13%
CT liability
Less: DTR
CT payable
How do you deal with long accounting periods?
- First 12m
- Remainder of period
How do you deal with a long accounting period for trading income (before CA)?
Calculate tax adjusted profits before capital allowances for long accounting period, then time apportion.
How do you deal with long a accounting period for capital allowances?
2 computations:
- First 12m.
- Remaining months.
How do you deal with a long accounting period for property income?
Time apportion.
How do you deal with a long accounting period for NLTR?
Accruals basis.
How do you deal with a long accounting period for chargeable gains?
Date of disposal.
How do you deal with a long accounting period for a qualifying donation?
Date paid.
How do large/very large companies pay corporation tax?
In instalments.
What makes a company “large”?
If augmented profits exceed £1.5m in a 12 month accounting period.
What makes a company “very large”
If augmented profits exceed £20m in a 12 month accounting period.
How do you calculate augmented profits?
TTP+Dividends from non-related companies that are exempt
How must the upper limit be scaled for groups/accounting period length?
- Scale if the POA < 12 months.
- Divide by the number of related 51% group companies.
Three points to consider when calculating no. of 51% related group companies.
- Both UK resident and overseas companies are included.
- Dormant companies are excluded.
- Only include companies that were related 51% group companies at the end of the previous accounting period i.e. include leavers but not joiners.
When should you submit a return for corporation tax?
12 months after end of accounting period.
What are 3 examples of IFA trading income?
- Receipt of a royalty payment.
- Profit on the sale of an IFA.
- Revaluing an IFA.
What are 3 examples of IFA trading expenses?
- Payment of a royalty.
- Loss on the sale of an IFA.
- Amortisation of an IFA (except goodwill).
What are the 3 items that make up NTLR?
- Non-trade interest income.
- Non-trade interest expense.
- W/off of employee loans.
How is a QCD paid and deducted?
Gross and deducted from total profits.
What are the two options for corporation tax losses?
- Current year/carry back (s37)
- Carry forward (s45A)
3 features of “Current year/carry back (s37)” (Set against…, how much?, when?”
- Set against total profits.
- As much as possible.
- CY claim must be done before 12 month carry back.
3 features of “Carry forward (s45A)” (Set against…, When?, How much?)
- Set against total profits.
- A claim must be made within 2 years.
- A partial claim may be made to preserve QCDs.
How are property losses dealt with?
They go against total profits in the current year and are then rolled forward against future total profits. This is automatic and happens before any claims for trading losses but after NTLR deficits.
What is a downside to property losses?
They must be offset in full in the current year and may waste QCDs. However property losses c/fwd can be restricted to preserve QCDs.
How do NTLR deficits work?
- Partial claims can be made.
- Set off against total profits in cy/NTLR income in py/carried forward against future total profits.
How do capital losses work?
- Set off against gains in the current year.
- Balance carried forward against first available gains.
What is the deductions allowance?
Relief available from b/f income and capital losses is subject to a deductions allowance of £5m plus 50% of the excess profit over this amount.
If a company puts money in an interest bearing account Jan 20, then starts trading 1st April 20, and prepares accounts up to 31 March 21 what are the accounting periods?
Jan-31st March-(date first acquires a source of chargeable income to date of trade commencement)
1st April-31st March 21 (Trade commencement until end of first POA)
How should you adjust trading profit when dealing with an SMEs R&D expenditure?
Set up a working, calculate the permitted additional deduction (130%) the cost of “laboratory” for FYA (100%). Finally deduct the total in main working.
Indexation formula=
(big-small)/small=factor
What happens if staff costs are unpaid 9 months after the end of the previous accounting period?
They are disallowed for the PY and allowable for CY if paid.
What is RDEC?
For large businesses that don’t qualify for SME R&D allowances. 13% credit of R&D expenditure.
What do you do with the RDEC? (3 steps)
Leave the expenses in when calculating trading income. Add the 13% when calculating TTP. Minus the 13% from the corporation tax charge.
For a SME what allowances do you get on the following items-
- Loan interest to fund R&D project.
- Staff costs for R&D.
- Software for R&D.
- Machinery for R&D.
- Consumables for R&D.
- Loan interest to fund R&D project-Normal through P&L.
- Staff costs for R&D-Extra 130%
- Software for R&D-Extra 130%
- Machinery for R&D-100% FYA
- Software for R&D-Extra 130%
If you dispose of machinery for 2k that cost 8k, what is the impact on the MP?
-2k.
When a corporation buys a car which has part private use which pool does it go in?
SRP. (PU pool isn’t for corps)
Do you include or remove VAT when adding machinery to the WDA calculation?
Remove.
Do you include or remove VAT when adding a vehicle to the WDA calculation?
Include.
Do you proportion the wda for business use only?
No. Just charge 6%.
How do you deal with dividends from foreign countries?
Ignore them.
What are the 6 lines in an indexation calculation?
Proceeds Selling Costs Original Cost IA on cost (Rollover Relief) Taxable Gain
If you sell a patent that has been used in trade does the gain stay in trading income or move to the chargeable gain line?
Stay in trading income.
Parent A has 80% of shares in B and B has 75% of shares in C. What would be the loss relief group and chargeable gains group?
Loss group-A and B
Chargeable gains group-A, B and C
How do you calculate rollover relief?
Sale proceeds-total reinvestment=proceeds not reinvested. Rollover relief (Balancing figure)=gain-proceeds not reinvested.
A company just sold an asset and wants rollover relief. It purchased a replacement building (100k), another factory for trade (120k) and a retail unit for investment purposes (70k). What is the “total reinvested”?
220k
Can you include purchases from members of a chargeable gains group for rollover relief?
Yes.
How do you calculate the deduction for agency R&D workers at a SME?
Minus Cost
then
Minus cost0.65130%
What do you do with R&D machinery for a SME?
Add it to the MP and then deduct 100% with FYA.
If you bought loan stock for 50k in 2019 and sold it for 75k in 2020 how do you calculate the gain and where does it go?
25K and NTLR with all the interest etc.
What is the substantial share holder exemption?
If a company owns more than 10% of the shares in another TRADING company for at least 12 months in the last 6 years the gain on the disposal of shares is exempt.
Do you pay a de-grouping charge/gain on an exempt substantial shareholding?
No.
How do you calculate the de-grouping gain?
MV at transfer-cost-indexation allowance
What should you always remember to do with WDA?
Time apportion if needed.
What asset do you not round the indexation multiple?
Shares.
What assets qualify for rollover relief? (4)
Land and buildings (for trade)
P&M
Ships, aircraft and hovercraft
Goodwill (sole traders and partners only)
How does indexation work when there’s a share purchase then a rights issue followed by a sale.
Index the whole pool each time there’s an action.
What’s a 2 for 1 rights issue?
Can buy 2 shares for every 1 owned.
What’s a 1 for 2 rights issue?
Can buy 1 share for every 2 owned.
What 3 dates is the rollover gain deferred until the earliest of?
- The disposal of the replacement asset(s).
- 10 years after acquisition of the replacement asset(s);.
- The date the replacement asset(s) cease to be used in the business.
When must a rollover relief claim be made by?
Within four years of the end of the accounting period.
How do you calculate the installment payment dates when the accounting period is less than 12 months long?
- First installment is due by the 14th day of the 7th month following the start of the accounting period.
- Subsequent installments are due every 3 months after.
- The last installment (balancing payment) is due by the 14th day of the 4th month after the end of the accounting period.
How do you calculate the installment payments when the accounting period is less than 12 months long?
3 x CT/n
Where CT=corporation tax for the period and n=number of months in accounting period.
When calculating SBA on a newly constructed building what cost should you use?
Only the construction costs. (Not land, planning, SDLT etc)
