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ATX ACCA - Finance Act 2023 > Corporation taxes > Flashcards

Corporation taxes Flashcards

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1
Q

Main difference between corporate and individual tax return

A

no separate heads of income
same tax rate for all incomes

no bands, same % for whole taxable income

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2
Q

qualifying charitable donations for corporation

A

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

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3
Q

what is augmented profit

A

taxable income + dividend received from non group companies

this amount will determine tax rate

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4
Q

structure of corporate tax return

A

trading
property
capital
NTLR
Misc income (includes patenting income)
overseas=
total income

less qualifying donation
taxable income

add: dividend received from non group companies

augmented profit

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5
Q

dividend income

A

exempt for companies, dont add in total income

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6
Q

companies pay tax for accounting year or tax year

A

accounting year

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7
Q

tax rate for corporate income

A

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%

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8
Q

what is lower, upper, additional limit

A

lower limit=
augmented profit between 1-50,000

upper limit=
50,001-250,000

additional=
above 250,000

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9
Q

what is marginal relief and how is it calculated

A

marginal relief will be deducted from tax liability

Formula given in exam

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10
Q

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

A

when period of accounts is different from 12 months

or

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

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11
Q

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

A

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

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12
Q

types of losses

A

trading losses
capital losses
property losses
non trading loan relationship losses

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13
Q

what is trading loss

A

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

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14
Q

how can trading loss be relieved and cf till when?

A

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

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15
Q

is it allowed to claim loss partially

A

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

in carried forward, partial claim IS allowed

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16
Q

when do we need to notify tax dept about loss claim

A

-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

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17
Q

how to quantify benefit in loss question

A

USE TAX BANDS SYSTEM
taxable income lies in whichever band, that rate will be used to quantify loss

CHECK WHICH PORTION U R HITTING

WE ARE USUALLY HITTING UPER KA PORTION AKA MARGINAL RATE PORTION

after 1 april 2023 rates increased so hit that first

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18
Q

what is terminal trading loss

A

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

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19
Q

how is terminal trading loss relieved? Partial claim allowed?

A

It will hit total income

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

no partial claim allowed

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20
Q

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

A

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.

loss memo:
1st write previous yr loss, transfer it to terminal loss
2nd write composed loss (terminal loss+ borrowed loss)

1st deal with normal loss it arised before
then deal with terminal loss.

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21
Q

how to deal with terminal loss in loss memo

A

Q21- PAGE 8 + cresco question

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22
Q

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

A

-can only hit capital gains

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

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23
Q

what is property loss

A

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)

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24
Q

what is loan relation and its two types?

A

loan relation: any transaction related to loan
eg. interest exp, interest income, legal fees

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)

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25
Q

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

A

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

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26
Q

approach when there are alot of losses in question

A

put date wise in loss memo (earliest one first)

check if any yr exceeds lower limit or not

use max loss
save the QCDs

deal date wise

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27
Q

when to notify tax department about loss relief

A

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

28
Q

what are the restrictions on loss relief

A

-different trades in one company restriction
-change in ownership and major change in business restriction
-deduction allowance limit

29
Q

if a company has different trades then

A

trading loss of one trade cannot be offset against another trade income within the same company (does not apply on group relief)

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

30
Q

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

A

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.

31
Q

deduction allowance limit

A

5 Smart Cats Tread Carefully Post-April Together.

5-million: carry forward loss claim of trading loss and capital loss is restricted to 5 million per year

Smart:Single limit for the 75% group.

Cats: Combined limit for trading and capital losses

Tread- trading losses created after 6 april 2017 are included in this limit

Carefully:capital losses after 6 april 2020 come in this limit

Post April: Post 6 april 2017 and 6 april 2020 respectively

Together: Thresholds:
limit will increase if losses are above 5m. It will increase by 50% of excess.

32
Q

what is the difference between individual and companies CGT?

A

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

33
Q

what is indexation allowance concept

A

indexation allowance is adjustment of inflation from gain

DP less cost = chargeable gain

chargeable gain less indexation allowance = taxable gain

34
Q

how is indexation allowance calculated

A

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)

35
Q

indexation allowance concept applies on which dates

A

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

36
Q

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

A

separately available on each disposal

37
Q

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

A

SSE -10-12-6

S = Selling Company must be a trading company.
S = Shares sold must be of another trading company.
E = Exempt from CGT (No gain/no loss transaction).

10 = At least 10% shareholding required.
12 = Ownership for 12 consecutive months.
6 = The 12 months must fall within the last 6 years.

(toot toot kar not allowed)

38
Q

whenever a company sells shares of another company

A

ALWAYS THINK OF SSE

39
Q

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

A

yes if it was owned by the group for 12 months. (intra-group transfers don’t penalize the SSE benefit.)

40
Q

what is the structure of a capital gains group

A

it is formed when a single parent company has:

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

41
Q

Privileges for capital gains group

A

NO RISK TRANSFERS

-No Gain/No Loss Transfers of assets

-Rollover Relief Within Group

-Transfer of Capital Gains and Losses

42
Q

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

A

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

43
Q

can overseas company be part of a CGG?

A

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

44
Q

privileges of capital gain group:
#1 transfer of assets

A

-assets will be transferred at no gain/no loss
-they will be transferred at COST PLUS INDEX ALLOWANCE (this amount will be cost for the buyer company)

45
Q

In what case would this benefit of no gain no loss asset transfer get withdrawn?

A

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

then
-no gain no loss relief
will get withdrawn

and DEGROUPING charge will arise
(gain will be calculated)

Market value at transfer date less original cost = gain.
gain less index allowance= taxable gain
this taxable gain is called degrouping charge
and it will be added to taxable gain on sale of shares of company.

If eligible for SSE then total gain including degrouping charge will be exempt.

46
Q

will degrouping charge arise if shares of a company are sold but control is not sold?

A

No.

47
Q

capital gains group, privilege #2: rollover relief

A

rollover relief can be claimed on each other disposals.

-if one company sells a qualifying asset
-another one invests in a qualifying asset,

rollover relief can be claimed (holdover also)
(1-3 rule applies

this does not refer to instra group transfer as those are not chargeable

48
Q

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

A

Current Gains Transfer, No Back Loss, Partial Offsets

-Current year transfer of capital gains and losses
-No back losses (b/f balance can not be transferred)
-partial claim is allowed

-capital loss will hit capital gain only
-capital gain can hit total income

49
Q

rule for pre entry capital losses

A

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) gain after joining group but asset was owned before joining group
3) asset may be purchased after joining group but from third party for valid business use.

if pre entry loss isnt utilisied in 5 years, may surrender to group company.

50
Q

what is the 75% group

A

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

51
Q

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

A

yes

52
Q

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

A

yes

53
Q

overseas company can be in a 75% group?

A

yes but as a link only. no privileges

54
Q

what are the privileges of the 75% group?

A

75 Tigers Need Perfect Quiet Meditation.

75: 75% group

Tigers: Trading losses can be transferred.

Need: NTLR losses

Perfect: Property losses

Quiet: Qualifying Donations (QD) can be transferred.

Meditation: Management expenses are transferable.

Both Current yr and b/f losses may be transferred “75 tigers can borrow”

-Income cannot be transferred.”Tigers share their wounds, not their roars.”

losses of both current year and b/f can be transferred

55
Q

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

A

ESCAPE

E: Excess losses (exceeding own income) can be transferred (except for current year trading/NTLR losses).

S: Sufficient income needed for the receiving company.
(after adjusting own current yr and b/f losses)

C: Claims can be partial.

A: Adjustments must match corresponding periods.

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

56
Q

how should loss planning be done in the group

A

Check tax rates of companies.

-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

57
Q

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

A

COCO

C: Companies – 20 or fewer companies own a company.

O: Ownership – Combined ownership of 75% or more.

C: Company ownership – Each company’s ownership is more than 5% but less than 75%.(kato bacho)

O: Overseas – Consortium members can include overseas companies but with no privileges. The consortium company cannot be an overseas company.

58
Q

priviliges of a consortium

A

S: Surrender – Consortium company can surrender its losses to members.

M: Members – Members can surrender losses to the consortium company.

A: Alone – Members cannot surrender losses to other members.

R: Ratio – Members can only access profits or losses based on their shareholding percentage.

T: Timeframe – Only current year losses, and of corresponding periods, can be surrendered.

C: Capital – Capital losses cannot be transferred.

A: Adjusted – Losses can only be transferred if sufficient income exists after adjusting own b/f and current year losses.

P: Partial – Partial claims are allowed.

59
Q

corporation tax payment dates

A

N: Nine months after the year-end for regular companies.
A: Augmented profit exceeding the upper limit changes the payment rules.
P: Paid in installments in advance for companies with profits above the upper limit.
UP: Upper limit is £1.5 million.

-

60
Q

what is the upper limit for installments and when would it be apportioned

A

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

61
Q

what are the installments dates

A

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)

62
Q

how are installments calculated, what if tax is under or overpaid

A

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

63
Q

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

A

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

64
Q

first time installments relief

A

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

65
Q

how are installments paid in case of small accounting period?

A

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.

66
Q

loss planning regarding payment dates

A

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

ATX ACCA - Finance Act 2023 (18 decks)

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