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Business Law > Corporation Tax And VAT > Flashcards

Corporation Tax And VAT Flashcards

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1
Q

What is VAT charged on?

A

VAT is charged on any supply of goods or services made in the UK where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by that person.

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2
Q

What is a taxable supply?

A

A taxable supply is any supply made in the UK which is not an exempt supply.

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3
Q

Who is considered a taxable person?

A

A taxable person is someone who is, or is required to be, registered for VAT purposes, including individuals, partners, companies, and unincorporated organisations.

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4
Q

What does ‘in the course or furtherance of any business’ mean?

A

‘Business’ refers to any economic activity carried on regularly, excluding an employee’s services to an employer.

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5
Q

What is the current VAT registration threshold?

A

The current VAT registration threshold is £90,000.

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6
Q

When must a person register for VAT?

A

A person must register if their taxable supplies exceed the VAT registration threshold within a year or if they believe their taxable supplies will exceed the threshold in the next 30 days.

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7
Q

What is the current VAT deregistration threshold?

A

The current VAT deregistration threshold is £88,000.

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8
Q

What is the standard rate of VAT?

A

The standard rate of VAT is currently 20%.

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9
Q

How is VAT calculated on a VAT inclusive price?

A

To calculate the VAT element of a VAT inclusive price, multiply the price by the VAT fraction, which is currently 1/6.

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10
Q

What are the four types of supply under VAT?

A

The four types of supply are Standard Rated, Reduced Rated, Zero Rated, and Exempt.

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11
Q

What is a standard rated supply?

A

A standard rated supply is generally charged at 20% VAT unless it falls within one of the other categories.

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12
Q

What is a reduced rated supply?

A

A reduced rated supply is charged at 5% VAT and includes limited types of supplies such as domestic heating and power.

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13
Q

What is a zero rated supply?

A

Zero rated supplies are charged at 0% VAT and include items like food, water, and children’s clothing.

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14
Q

What is an exempt supply?

A

Exempt supplies include insurance, finance, education, health services, and the sale of land and buildings.

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15
Q

What must businesses with turnover above the VAT threshold do?

A

They are required to keep VAT records and make their VAT return online.

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16
Q

What is a VAT invoice?

A

A VAT invoice must be supplied to customers within 30 days of a standard or reduced rate supply.

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17
Q

How often must taxable businesses submit a VAT Return?

A

Taxable businesses must submit a VAT Return online to HMRC every three months.

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18
Q

What are special schemes for VAT?

A

Special schemes include Retail Schemes, Cash Accounting, Annual Accounting, and Flat Rate Scheme to simplify VAT accounting.

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19
Q

What is the Flat Rate Scheme?

A

The Flat Rate Scheme allows businesses with a taxable annual turnover not exceeding £150,000 to charge VAT at a flat rate on turnover.

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20
Q

What is the summary of VAT?

A

VAT is charged on taxable supplies made in the UK, with registration required above certain thresholds. Businesses charge output tax and pay input tax, with rates depending on the type of supply.

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21
Q

What is Corporation Tax payable on?

A

Corporation Tax is payable on all income profits and chargeable gains of a body corporate that arise in its accounting period.

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22
Q

What does TTP stand for?

A

TTP stands for taxable total profits chargeable to corporation tax.

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23
Q

How are companies assessed to corporation tax?

A

Companies are assessed to corporation tax by reference to the financial year (1 April - 31 March).

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24
Q

What determines the amount of corporation tax payable?

A

The amount of TTP will determine the amount of corporation tax payable.

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25
Q

What is the main rate of corporation tax for the 2024/2025 tax year?

A

The main rate of corporation tax for the 2024/2025 tax year is 25% for companies with TTP greater than £250,000.

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26
Q

What is the corporation tax rate if a company’s TTP is £50,000 or less?

A

If a company’s TTP is £50,000 or less, the corporation tax rate is 19%.

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27
Q

What is marginal relief in corporation tax?

A

If a company’s TTP is over £50,000 and up to £250,000, a company may claim marginal relief which has a tapering effect on the tax rate.

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28
Q

What constitutes a company’s income?

A

Chargeable income receipts are receipts of an income nature which arise from the business or trading activity.

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29
Q

What are the most common types of company income?

A

The most common types of company income are rental income, trading income, interest, and dividend income.

30
Q

Are dividends paid to UK companies subject to corporation tax?

A

Dividends paid to UK companies are subject to corporation tax unless they fall within one of several exemptions.

31
Q

What is tax deductible expenditure?

A

Tax deductible expenditure is expenditure that a company is permitted to deduct from its income receipts, thereby reducing its overall tax bill.

32
Q

What are the conditions for expenditure to be deductible for tax purposes?

A

Expenditure must be ‘wholly and exclusively’ incurred for trade purposes, not prohibited by statute, and of an income nature with an element of recurrence.

33
Q

Is interest paid on business loans deductible?

A

Interest paid on business loans is generally a deductible income expense.

34
Q

What is the corporate interest restriction (CIR)?

A

Where a company has more than £2 million of net interest expense in the UK, the amount of interest it may deduct is restricted to 30% of its income receipts.

35
Q

What are capital allowances?

A

Capital allowances are the tax equivalent of depreciation and allow businesses to spread the cost of certain capital assets over time.

36
Q

What is the main rate capital allowance for companies?

A

Companies can deduct 18% of the value of plant and machinery from their income receipts each year on a reducing balance basis.

37
Q

What is the Annual Investment Allowance (AIA)?

A

The AIA allows a company to deduct 100% of expenditure on new, used, or refurbished plant and machinery up to £1 million.

38
Q

What is full expensing in capital allowances?

A

From 1 April 2023 until 31 March 2026, companies can deduct 100% of the cost of new and unused plant and machinery.

39
Q

What is the calculation for chargeable gains?

A

Chargeable gains are calculated as sale proceeds less allowable expenditure, indexation allowance, and capital/trading losses.

40
Q

What is Rollover Relief?

A

Rollover Relief allows tax to be deferred when a qualifying business asset is disposed of and a new qualifying asset is purchased.

41
Q

What types of assets qualify for Rollover Relief?

A

Qualifying assets include land and buildings, goodwill, fixed plant and machinery, ships, aircraft, and Lloyd’s syndicate capacity.

42
Q

What is meant by ‘straddling’ in corporation tax?

A

‘Straddling’ occurs when a company’s accounting year does not coincide with the financial year, complicating tax calculations.

43
Q

How can trading losses be offset?

A

Trading losses can be set off against current year profits, previous year profits, future trading profits, or surrendered for group relief.

44
Q

What are the anti-avoidance rules regarding trading losses?

A

Anti-avoidance rules prevent trading losses from being carried forward or back if the company has been sold and the nature of the trade has substantially changed.

45
Q

How can capital losses be utilized?

A

Capital losses can be set off against capital gains in the current year and carried forward to future accounting periods.

46
Q

What can capital losses be set off against?

A

Capital losses can generally only be set off against capital gains.

47
Q

Can capital losses be carried back to a previous year?

A

No, capital losses cannot generally be carried back to a previous year.

48
Q

What happens to unused capital losses in the current year?

A

Unused capital losses can be carried forward and set against any capital gains in future accounting periods.

49
Q

What is the maximum percentage of unrelieved gains that can be relieved by carried forward capital losses?

A

Carried forward capital losses may be used to relieve a maximum of 50% of the unrelieved gains.

50
Q

How long can capital losses be carried forward?

A

Capital losses can be carried forward indefinitely within the company that made them.

51
Q

What must a company do to crystallise a capital loss?

A

A claim must be made to HMRC within four years from the end of the accounting period in which the loss arose.

52
Q

What is the procedure for companies with TTP of £1,500,000 or less?

A

The company estimates its tax liability and pays HMRC within 9 months and one day of the end of the accounting period.

53
Q

What must a company file within 12 months of the end of the accounting period?

A

The company must file a tax return electronically, along with its accounts.

54
Q

When is a company’s tax computation usually regarded as finalised?

A

The tax computation is usually regarded as finalised 12 months after the filing date for the tax return.

55
Q

What is the procedure for companies with TTP of more than £1,500,000?

A

Companies are required to pay their tax bills in four installments over the relevant accounting period and the next one.

56
Q

What does ‘profits’ mean in the context of corporation tax?

A

‘Profits’ means income profits and chargeable gains.

57
Q

What can deductible expenditure do?

A

Deductible expenditure can reduce income profits if incurred wholly and exclusively for trade purposes.

58
Q

What is rollover relief?

A

Rollover relief defers any tax due on the disposal of a qualifying asset by rolling the gain into the replacement asset.

59
Q

Are dividends received by companies subject to corporation tax?

A

No, dividends received by companies are exempt from corporation tax.

60
Q

How can trading losses be applied to reduce tax liability?

A

Trading losses can be carried across to the current accounting period, carried back one year, or carried forward indefinitely.

61
Q

What defines a close company?

A

A close company is under the control of five or fewer participators or any number of participators who are also directors.

62
Q

What is a ‘Participator’?

A

A ‘Participator’ is a person having a share or interest in the capital or income of the company.

63
Q

What does ‘control’ mean in the context of close companies?

A

‘Control’ means the ability to exercise control over the company’s affairs, normally by voting rights.

64
Q

What are the exclusions from the definition of a close company?

A

A company is not a close company if its shares are quoted on a recognized stock exchange or controlled by non-close companies.

65
Q

What are the tax implications of loans to participators in close companies?

A

The company must pay corporation tax on the amount of the loan, calculated at the rate of income tax payable on dividends.

66
Q

What happens if a loan to a participator is written off or waived?

A

The participator is deemed to receive a dividend equal to the amount of the loan written off/waived.

67
Q

What does the term ‘distribution’ include for close companies?

A

The term ‘distribution’ includes living accommodation and other benefits in kind provided to participators.

68
Q

What are the inheritance tax implications for close companies?

A

A transfer of value by a close company results in the value of the gift being apportioned between its shareholders.

69
Q

What are the transactions in securities rules?

A

These rules apply to transactions involving a close company that give a tax advantage by changing income into capital receipts.

70
Q

What should be done when a transaction may fall within the transactions in securities rules?

A

It may be advisable to apply to HMRC for advance clearance.

71
Q

What is the close company tax regime?

A

The close company tax regime is an example of anti-avoidance legislation that prevents taxpayers from exploiting tax benefits of incorporation.

Business Law (7 decks)

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