Corporation tax -- business Flashcards by Stella Friedrich

What is corporation tax payable on?

All income profits

Chargeable gains

Body corporate

Arising in its accounting period

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What is a TTP?

Sum of a company’s income profits and chargeable gains

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Which year (financial or tax) is corporation tax calculated by

Financial (1 April - 31 March)

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What is ‘24 corporate tax for companies with TTP of more than 250k?

25%

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What is ‘24 corporate tax for companies with TTP of less than 50k?

19%

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What is ‘24 corporate tax for companies with TTP of between 50k and 250k?

Marginal, tapering relief

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What constitutes the CGT portion that makes up the TTP?

The same calculation for CGT as individuals

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What type of income is not including in the calculation to find the amount of income included in the TTP?

Dividend

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What criteria must expenditure meet to be deductible for income TTP purposes?

Wholly and exclusively spent for trade

Not prohibited by statute

Be of an income nature

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What common types of expenditure cannot be deducted from income for TTP?

Client entertainment

Provisions in bad/doubtful debts

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What does it mean to be of an ‘income nature’ in order to be deductible for TTP?

There is an element of recurrence

rent, utility, energy, interest paid, wages, repair

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Is interest paid on business loans a deductible expense?

Yes

But if total expense is more than 2mil it will be capped to 30% of its income receipts

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What is a capital allowance?

When you can deduct the value that an asset is depreciating by from your income receipts

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What common sorts of assets qualify for capital allowance deductions?

Plant and machinery

Long life assets

R&D

Costs of construction and renovation of commercial buildings

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What is the main rate capital allowance?

18%

E.G., each year, the machine becomes worth 18% less

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What is the annual investment allowance?

Business can deduct 100% of expenditure on new, used, and refurbished plant and machinery up to 1 million per year (for 2024)

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Given the annual allowance provision, when is capital allowance needed?

Usually for plant and machinery worth more than 1 million (e.g., everything that is in excess)

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What sale and purchase deadlines are there for replacement assets in roll-over relief?

Must be purchased within 12mo BEFORE sale of asset or within 3 years after the sale of the asset

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What assets qualify for roll-over relief?

Land/buildings

Goodwill

Fixed plant/machine

Ships and hovercraft

Aircraft

Lyods syndicate capacity

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What happens in roll-over relief if not all the sale proceeds are used to acquire the new asset?

The relief is reduced by 1 pound for every 1 pound of sale proceeds (before deductions) not invested

If the sale proceeds exceed the cost of the new asset by more than the gain, roll-over is not available

How do you calculate chargeable gains for companies?

Sale proceeds - allowable expenditure - indexation allowance - capital/trading losses

What is indexation allowance?

Ensures a company won’t be charged for gains arising solely due to inflation

Can’t be claimed for any period commencing after 1 Jan 2018

What can trading losses be off-set against?

Current year profits (same year as the loss)

Previous year profits (losses from the accounting year previous)

What is the deadline to claim trading losses against profits?

Within 2 years after the end of the accounting period where the trading loss arose

What special trading losses can a company claim if it ceases trading?

Any trading loss in the final 12mo of trading can be carried back and set off against any profits made in the 3 years prior to the start of the final 12mo

What is the future trading profits set-off?

If after claiming annual loss deductions from the current and previous year, losses remain outstanding They will automatically be applied to future profits OF ANY TRADE that company operates as long as you are still operating the loss making trade

What is the future trading profits cap?

There is a 5 million pound cap, renewing every year Essentially, you can't deduct more than 5 million in losses against profits each year If your company is a group of companies, it is shared across all companies in that group

What is corporate group relief?

If one company in a group makes a loss, it can gift its loss to a profitable company and erase that company's income tax liability

Can capital losses be carried forward, backwards or both?

Forwards only

What can capital losses be set off against?

Capital gains **except for capital allowances for plant and machinery

What can trading losses be set off against?

Trading profits

What happens when you exceed the future trading profits cap?

After 5 million, you can only relieve a maximum of 50% of the remaining unrelieved gains

How long can capital losses be carried forward for?

Indefinitely

What is a close company?

A company under the control of: 5 or fewer participators Any number of participators when all of them are also directors

What is a participator?

A person with a share or interest in capital or income of the company

What is the definition of 'control' for close companies?

Power over company affairs OR Issued share capital of more than 50% income distribution Greater part of assets of the company on winding up

What companies are excluded from close companies?

Shares are on stock exchange Is a wholly owned subsidiary of a non-close company

How are loans to participators in close companies treated?

They are taxed except for: Giving credit or loans to participators, when the nature of the trade of that company is already financing and loans and credit is paid back within 6mo Loans under 15k aggregate to full-time employees who don't have more than 5% ordinary share capital and aren't entitled on winding up to more than 5% of assets available

Why are there special taxation rules for close companies?

They are trying to prevent loans being used instead of dividends to extract profits and evade tax

What tax rate is applied to close companies on the amount of the loan?

The higher rate for income tax payable on dividends

What is the deadline for a close company to pay loan tax?

9mo and 1 day after the end of the accounting period when the loan was made

Can the close company claim a refund on the tax paid if the loan is repaid, satisfied, written off or waived?

Yes

What happens to the recipient if the loan is written off or waived?

Deemed to receive a dividend equal to the amount that the loan was written off No effect if paid back in full

What is included in the the definition of distributions for close companies?

Dividends AND ALSO Living accommodation (not for bettering of job) Benefits

What IHT loophole does the close companies procedures aim to close?

Giving gifts through a company because companies aren't subject to IHT

How does the close companies laws close the IHT loophole?

For every gift given, the value is apportioned between its shareholders and it as if they each made a gift for their own IHT purposes

What loophole is the close companies legislation around transactions in securities trying to close?

Anything where income which is normally taxable is turned into a capital whereby other rules out of scope wind up in there being less tax

What do close company participants have to do if they have a transaction changing income into capital?

Apply to HMRC for advance clearance