Introduction to Corporation Tax Flashcards
What is Corporation Tax payable on?
- All income profits and
- Chargeable gains
- Of a body corporate
- That arise in its accounting period
What is TTP?
Taxable Total Profits – sum of company’s profits and gains
What is the Company Financial Year?
1 April – 31 March
What is the corporation tax rate?
TTP greater than £250,000 – 25%
TTP less than £50,000 – 19%
What is relevant to corporation tax if TTP is between £50,000 and £250,000?
Company can claim marginal relief which has a tapering effect on tax rate
How is TTP calculated?
Chargeable gains + Income profits
How is chargeable gains calculated?
- Sale proceeds
- Minus allowable expenditure
- Minus indexation allowance
- Minus capital/trading losses
What are sale proceeds for chargeable gains?
Where company sells capital asset, i.e. land or machinery
How are income profits calculated?
- Income receipts
- Minus deductible expenditure
- Minus capital allowances
- Minus trading losses
What constitutes a company’s income?
- Rental income
- Trading income
- Interest
- Dividend income
Are dividends exempt from corporation tax?
Yes, unless anti-avoidance provisions apply
Is dividend tax deductible?
No
What constitutes tax deductible expenditure?
Wholly and exclusively incurred for purposes of trade, and be of an income nature with an element of recurrence (e.g. rent, wages, repairs)
Are interest payments on business loans deductible from income expense?
Yes, unless more than £2 million of net interest, restricted to 30% of income receipts
Are capital expenditure deductible from capital receipts or income profits?
Generally, capital receipts – unless relief applies
When is capital expenditure deductible from income profits?
Expenditure on plant and machinery
What is main rate capital allowance in relation to plant and machinery?
Companies can deduct 18% of value of plant and machinery from income receipts each year on a reducing balance basis
What is Annual Investment Allowance?
Enables company to deduct 100% of expenditure on new, used or refurbished P&M up to a specified amount (£1 million each year)
So how does AIA work?
If I spend £1,000,000 on machinery, I can deduct this plus 18% of main rate capital allowance from income profits
Where is indexation allowance frozen up to?
31 December 2017
Is there an annual exemption for companies on chargeable gains?
No
What is a rollover relief?
Companies can defer tax
When is rollover relief available?
1) Company / Sole Trader / Partnership disposes of qualifying business asset, and it buys another one
2) Individual owns a business asset, sells that, buys another qualifying asset, and both are used by either a company or partnership which they are a part of
What is the general effect of rollover relief?
Rolled into the acquisition of qualifying replacement asset – tax is postponed until replacement asset is sold and no new qualifying replacement is purchased
What are qualifying assets for rollover relief?
- Land and buildings
- Goodwill
- Fixed plant and machinery
- Ships and hovercraft
- Aircraft
- Lloyd’s syndicate capacity
When must replacement asset be purchased for rollover relief?
Within 12 months before or 3 years after sale of old asset
What if not all of the sale proceeds of original asset are used to acquire new asset for rollover relief?
Will be restricted – gain to be rolled over is reduced by £1 for every £1 of the sale proceeds not invested
When can rollover relief no be claimed?
If replacement asset deducted from sale proceeds of original, and resulting figure is greater than the amount of gain
What is a trading loss?
Where tax deductible expenditure exceeds income receipts for specific period
Can trading losses bet set off against other taxable profits?
Yes
In which ways can trading losses be set off against other taxable profits?
1) Current year profits
2) Previous year profits
3) Future trading profits
4) Group relief
How can trading losses be set off against current year profits?
Against other profits, i.e. income profits, chargeable gains of same accounting year
How can trading losses be set off against previous year profits?
A company can carry back any remaining losses against taxable profits of the previous accounting period
How can trading losses be set off against future year profits?
Can have relief for future trading profits (after £5,000,000, will be 50% relief)
What is group relief?
One company with trading loss can surrender loss to another profitable company in the group
When must trading loss application be made?
Within 2 years after end of accounting period
Can capital losses be brought forward or set back?
Yes
When must capital loss deductibility application be made?
within 4 years from end of accounting period of the loss
