Corporation tax - taxable trading profits

Question 1

what is a company?

Answer 1

a resident in the UK/ incorporated/ centrally managed and controlled in the UK

Question 2

How does a period of account differ when considering Corporation Tax?

Answer 2

It can only cover 12 months, therefore if the actual period of account is 12+, it is split into two

Question 3

when does an accounting period start?

Answer 3

• when the company starts to trade
• when the previous accounting period ends

Question 4

when does an accounting period end?

Answer 4

• 12 months after the beginning of the accounting period or sooner
• at the end of the company’s period of account
• when a company starts or ceases to trade

Question 5

how are longer period of account dealt with?

Answer 5

Split into two accounting periods
- the first 12 months
- the remainder of the accounting period

Question 6

true or false?
Dividends income are taken into account when calculating taxable total profits?

Answer 6

false - they are exempt

Question 7

how are capital allowances that are used for private use taken into account for companies?

Answer 7

Full capital allowances are available on all assets even if they are privately used by director or employee

Question 8

what is temporary 100% FYA?

Answer 8

• known as full expensing
• new and unused plant and machinery in the main pool (other than cars) from 1 April 2023 to 31 March 2026

Question 9

how is rental income treated for companies?

Answer 9

• Taxable on an accruals basis relating to accounting period

Question 10

how is interest payable on a loan to acquire or improve property treated

Answer 10

not an allowable expense for property income and instead goes under loan relationships

Question 11

what is the loan relationship rule?

Answer 11

• determines whether payable/receivable is treated as trading or not trading
• all interest taxed on accruals basis

Question 12

what are some examples of interest receivable and payable for trading?

Answer 12

1) Interest receivable
- only if trade is lending money e.g banks
2) Interest payable
- an overdraft
- loans to purchase plant and machinery
- loans to purchase buildings used in the trade
- loans/debentures to fund daily operation

Question 13

what are some examples of interest receivable and payable for trading?

Answer 13

1) Interest receivable (anything else eg)
- by trading companies on deposits or from investments in bonds or government stocks
- interest receivable on repayments of corporation tax (repayment interest)
2) Interest payable
- loans to buy a let property
- loans to buy other companies/investments
- overdue corporation tax

Question 14

what is corporation tax charged on?

Answer 14

• charged on any chargeable gains made by a company (but not on exempt gains)
• no annual exempt amount

Question 15

what is a qualifying charitable donation?

Answer 15

• companies receive relief for charitable donations when calculating TTP
• cash basis

Question 16

how are augmented profits calculated?

Answer 16

taxable trading profits + exempt ABGH distributions

Question 17

what are exempt ABGH distributions?

Answer 17

• dividends received from other companies. Dividens from 51% subsidiaries are not included

Question 18

what are corporation tax rate with augmented profits > 250,000

Answer 18

25%

Question 19

what are corporation tax rate with augmented profits <50,000

Answer 19

19%

Question 20

what is the marginal relief and what is the formula?

Answer 20

• when augmented profits fall between 250,000 and 50,000
• [TTP x 25%] - [(U-A) x (N/A) x SF]

Question 21

What happens to the limits if the accounting period is less than 12 months?

Answer 21

• limits must be time apportioned and reduced appropiately

Question 22

Companies are associated for tax purposes if:

Answer 22

• one of the companies is under control of the other
• if they are both under common control of another company
  -UK and overseas company are included but dormant companies are excluded

Question 23

how are associated companies treated if they are bought or sold during the accounting period?

Answer 23

• deemed to be associated for the whole of the accounting period for the purposes of determining the limits