Corporation taxes

Question 1

Main difference between corporate and individual tax return

Answer 1

no separate heads of income
same tax rate for all incomes

no bands, same % for whole taxable income

Question 2

qualifying charitable donations for corporation

Answer 2

will be deducted from total income
no grossing up
then we will arrive at taxable income

Question 3

what is augmented profit

Answer 3

taxable income + dividend received from non group companies

this amount will determine tax rate

Question 4

structure of corporate tax return

Answer 4

all incomes

less qualifying donation
taxable income
add: dividend received from non group companies
augmented profit

Question 5

dividend income

Answer 5

exempt for companies, dont add in total income

Question 6

companies pay tax for accounting year or tax year

Answer 6

accounting year

Question 7

tax rate for corporate income

Answer 7

income earned before 1 april 2023- 19%
income earned after 1 april 2023:
lower limit= 19% (small rate)
upper limit= 25% (main rate) and marginal relief is available
additional= 25%

Question 8

what is lower, upper, additional limit

Answer 8

lower limit=
augmented profit between 1-50,000

upper limit=
50,001-250,000

additional=
above 250,000

Question 9

what is marginal relief and how is it calculated

Answer 9

marginal relief will be deducted from tax liability

Formula
(upper limit - augmented profit)* standard fraction* (taxable income/augmented profits)

this formula will be given in exam

Question 10

standard fraction

Answer 10

3/200 (also given in exam)

Question 11

upper limit and lower limit will be apportioned in which cases?

Answer 11

when period of accounts is different from 12 months

or

if there are a number of companies in group (50% relation)

Question 12

if in exam question there is no dividend from non group companies (no augmented profit)

Answer 12

then use these tax bands:

below lower limit of 50,000= 19%
50,000-250,000= 26.5%
>250,000= 25%

these are BANDS not limits
can ONLY be used when no augmented profit

Question 13

types of losses

Answer 13

trading losses
capital losses
property losses
non trading loan relationship losses

Question 14

what is trading loss

Answer 14

trading loss except year of ceasation
loss in normal business or trading activity

Question 15

how can trading loss be relieved and cf till when?

Answer 15

Trading loss will hit total income

in either of the following ways:
1) carry forward directly
2) current year then c/f
3) current year, carry back last 12 months, and then c/f

Cf indefinitely

Question 16

is it allowed to claim loss partially

Answer 16

in current year and carry back, partial claim not allowed (usually this will waste qualifying donation)

in carried forward, partial claim IS allowed

Question 17

when do we need to notify tax dept about loss claim

Answer 17

-carry forward loss claim: submit within 2 years in which loss will be relieved
-current year and carry back loss: file within 2 years in which loss INCURRED

Question 18

how to quantify benefit in loss question

Answer 18

USE TAX BANDS SYSTEM

Question 19

what is terminal trading loss

Answer 19

trading loss in last 12 months of business. it is the loss in year of ceasation.

Question 20

how is terminal trading loss relieved?

Answer 20

It will hit total income

In the following way:
-current year
-then last 36 months on LIFO basis

no partial claim allowed

Question 21

if last accounting period is less than 12 months what to do for terminal loss?

Answer 21

terminal loss needs to be composed, as Terminal loss is of 12 months

we will borrow loss from previous accounting period

if loss exists then we will borrow, otherwise we wont borrow.

Question 22

what is capital loss, relief, partial gain, carry forward till when?

Answer 22

-can only hit capital gains

-current year then future gains
-carryback not allowed
-no partial claims allowed (gaya tou gaya)

Question 23

what is property loss

Answer 23

Relief:
Property loss will hit total income

-current year then future
-no carry back
-no partial claim in current year
-partial claim is permitted in c/f (business needs ongoing support)

Question 24

what is loan relation and its two types?

Answer 24

loan relation: any income and expense arising due to loan
eg. interest exp, interest income, bad debt, legal fees, mortgage fees, gain/loss on sale of loan notes

if loan relation is on trading loan, then it will be adjusted in trading pNL. (loan taken for assets or working capital for business)

if loan is taken for non trading purpose (loan for investment in shares, loan to purchase property for rentals) , its shown separately on corp tax return under head of non trading loan relation]

NTLR value can be positive (in case if interest income) and negative (int expense)

Question 25

how can non trading loan relation deficit (loss) be relieved?

Answer 25

options:
1- offset against current yr total income
2- offset against last 12 months NTLR only
3- offset against future total incomes

Partial claim is allowed in all options

carry forward indefinitely

Question 26

when to notify tax department about loss relief

Answer 26

for ALL types of losses, current year and carry back claims need to be submitted within 2 years of loss occurring

for carry forward reliefs, claim needs to be submitted within 2 years of the year in which loss is reliefed

Question 27

if a company has multiple businesses, what is the loss restriction

Answer 27

trading loss of one trade cannot be offset against another trade income within the same company

if total income includes other trade income, we will remove them from total income then claim loss

Question 28

loss restriction if there is change in ownership of the company or change in activity

Answer 28

if there is change in ownership (>50% shares sold) AND within 3 years before OR 5 years after (8 yr period) there is major change in business activity (change in primary business, target customer, revival of trade),

loss will be restricted on change in ownership date. loss will not be able to carry back or get carried forward beyond that date.

Question 29

what is the maximum limit for b/f loss claims for companies

Answer 29

5 million per year

this is called deduction allowance limit

this limit is combined for b/f trading loss and b/f capital losses

-if a company has trading income and capital gain of more than 5 million pounds, then this limit is increased by 50% of income above 5 million

Question 30

max limit concept applies after which date?

Answer 30

trading losses occurring after 6 april 2017 and capital losses after 6 april 2020.

Question 31

deduction allowance limit for 75% group

Answer 31

deduction allowance limit of 5 million is one single limit for whole 75% group

Question 32

what is the difference between individual and companies CGT?

Answer 32

-no annual exemption for companies
-companies get indexation allowance
-no BADR for companies
-Companies get substantial shareholding exemption

Question 33

what is indexation allowance concept

Answer 33

indexation allowance is adjustment of inflation from gain

DP less cost = chargeable gain

chargeable gain less indexation allowance = taxable gain

Question 34

how is indexation allowance calculated

Answer 34

cost x index factor

index factor = will be calculated using retail price index (RPI)

index factor=
RPI on disposal date - RPI on purchase date / RPI on purchase date

(new - old /old)

Question 35

indexation allowance concept applies on which dates

Answer 35

it is frozen till 31 december 2017.
all gains uptil this date are allowed, after that frozen.

Question 36

annual exemption is available once on all disposals during the year, however index allowance is…

Answer 36

separately available on each disposal

Question 37

what is Substantial shareholding exemption (SSE) relief and its conditions

Answer 37

if a trading company sells shares of another trading company, then that transaction will be no gain no loss (NO CGT)

ownership must be atleast 10% shareholding for 12 consecutive months out of last 6 years

Question 38

whenever a company sells shares of another company

Answer 38

ALWAYS THINK OF SSE

Question 39

if 12 months ownership condition is not satisfied, will SSE be available?

Answer 39

yes if assets owned by the company (investee) were owned by the group for more than 12 months

Question 40

what is a capital gains group

Answer 40

it is formed when a single parent company has:

-75% direct ownership AND
-50% indirect ownership (effective ownership) in ALL companies

Question 41

can a company be in more than 1 capital gain group at a time?

Answer 41

no, only 1 at a time. preferably with parent co.

Question 42

can overseas company be part of a CGG?

Answer 42

yes, but it will not get any privileges. it will just be there as a link

Question 43

privileges of capital gain group:
#1 transfer of assets

Answer 43

-assets within CGG will be transferred at no gain/no loss
-they will be transferred at cost plus indexation allowance (this amount will be cost for the buyer company)

Question 44

if company that received intra group asset is sold within 6 yr of transfer, and it still owned that intra group asset at date of disposal

Answer 44

-no gain no loss relief
will get withdrawn
-gain/loss will be calculated according to MV on intra group transfer date. (market value at transfer date less original cost of asset) less Index allowance.
-this is called de grouping charge
-the de grouping charge will be added/deducted in the gain/loss on disposal of shares of the receiving company
-however if SEIS exists, then the sale of shares transaction + degrouping charge may become exempt

Question 45

capital gains group, privilege #2: rollover relief

Answer 45

within CGG, rollover relief can be claimed on each other disposals.

this means if one group co. disposes a qualifying asset, and another one invests in a qualifying asset, then it can claim rollover relief on disposal by its group company
this also applies on holdover relief

Question 46

capital gains group, privilege #3:
transfer of capital gains and losses

Answer 46

-Current year capital gains and capital losses can be transferred.
-b/f balance can not be transferred
-partial claim is allowed
-capital loss transferred can be set off against capital gains of receiving company
-capital gain transferred can be set off against any type of loss (and QD) of receiving company. it will be added in total income.

Question 47

rule for pre entry capital losses

Answer 47

pre entry capital losses (ones that arised before joining group) can not be surrenderred to a group company

these losses must be set off against the company’s own capital gains which may be:
1) gain arised before joining group
2) asset was owned before joining group
3) asset may be purchased after joining group but from third party for valid business use.

if a company has not been able to use its pre entry loss for 5 years, it may surrender to group after 5 yrs of joining group

Question 48

what is the 75% group

Answer 48

formed when companies have a common parent which owns atleast
-75% direct ownership
-75% indirect ownership

Question 49

can a company be in a capital gains group and 75% group at the same time?

Answer 49

yes

Question 50

can a company be in more than 1 75% group at a time

Answer 50

yes

Question 51

overseas company can be in a 75% group?

Answer 51

yes but as a link only. no privileges

Question 52

what are the privileges of the 75% group?

Answer 52

-losses of both current year and b/f can be transferred if they are either (trading, NTLR, property, QD, Management expenses)

only losses can be transferred, income can not be transferred

Question 53

under what condition can losses be transferred in a 75% group

Answer 53

-if it exceeds a company’s own total income. only excess loss can be transferred. (however this does not apply on CURRENT year trading and NTLR loss, those can be transferred directly without setting off own income)

-receiving company must have sufficient total income of its own after adjusting its own current year and b/f losses

-partial claim is allowed

-corresponding period set offs only

-pre entry losses must be used by own self. however can be surrendered after 5 years

Question 54

how should loss planning be done in the group

Answer 54

-give losses first to companies paying marginal tax rate (26.5%)
-then give loss to those taxed at main rate (25%)
-then give loss to small rate companies (19%)

capital gain should be transferred to company having capital loss, and then to company paying tax at small rate

Question 55

what is a consortium and can overseas companies be included in it

Answer 55

when 20 or fewer companies own a company such that:
-their combined ownership is 75% or more
-each individual company’s ownership is more than 5%
-but less than 75% (kato bacho)

the owner companies are called consortium members
owned company is called consortium company

-consortium members can include overseas company but no privileges
-consortium company can not be an overseas company

Question 56

priviliges of a consortium

Answer 56

-consortium company can surrender it’s loss to members
-members can surrender loss to consortium company
-members cannot surrender loss to other members
members can only access consortium profit or loss according to shareholding %
-only current year losses can be surrendered, and of corresponding period only
-all losses except capital loss can be transferred
-loss can only be transferred if sufficient income exists after adjusted own b/f and current yr losses
-partial claim is allowed

Question 57

corporation tax payment dates

Answer 57

-companies pay tax 9 months after year end
-however, if augmented profit exceeds upper limit of 1.5m then tax will be paid in installments in advance

Question 58

what is the upper limit for installments

Answer 58

1.5 million pounds

it may be reduced due to 2 reasons:
-accounting period less than 12 months
-number of companies in 51% group at PREVIOUS year end

upper limit can be different for different companies within group

Question 59

what are the installments dates

Answer 59

1) 14th of 7th month during the year
2) 14th of 10th month during the year
3) 14th of 13th month of the year
4) 14th of 16th month of the year (last installment)

Question 60

how are installments calculated

Answer 60

first 3 installments are based on budgeted tax
last one is based on actual tax

first 3 installments
each installment= budgeted tax/4

budget can be revised on each installment
if tax was underpaid then interest payable at 6.5%/yr
if tax was overpaid then interest receivable at 3%/yr

last installment:
-tax liability for the year as per actual return
-less: tax already paid in installments
= final payment

Question 61

is it possible that augmented profit exceeds upper limit but company may still not have to pay tax in installments?

Answer 61

yes if expected tax liability is less than 10,000
in this case normal 9 month rule may be followed

this can happen when augmented profit is high due to high dividends and taxable income is low

Question 62

first time installments relief

Answer 62

for first time installment situation, a company may get a waiver from installments if tax is below limit of10 million

this 10 million limit will get reduced if there are more companies in a 51% group

Question 63

how are installments paid in case of small accounting period?

Answer 63

installments will be calculated in the following way:

budgeted tax for the period/ number of months in period * 3

tax payment date for each installment will be same as normal. (7th,10th,13th) however, last installment will be paid 4 months after period end.

eg. if 9 months period:
last installment: 9+4= 13th month
other two installments= 7th and 10th month. 3rd and 4th installment will be paid together.

Question 64

loss planning regarding payment dates

Answer 64

loss should be surrendered to companies whose augmented profit exceeds upper limit
by doing this profit will be reduced below limit and installments can be avoided