LA BLP Flashcards
1
Q
What is a sole trader?
A
A sole trader is a business owned and operated by one person.
2
Q
What are the costs associated with a sole trader?
A
The cost of setting up and running a business as a sole trader are low.
3
Q
What is the risk for a sole trader?
A
A sole trader is personally liable, without limit, for all the debts and liabilities of the business.
4
Q
How is a sole trader taxed?
A
A sole trader pays tax on the income and gains of the business.
5
Q
What is the structure of a sole trader?
A
A sole trader is not a separate legal personality. It cannot own assets, nor grant security. It cannot enter contracts or sue/be sued in relation to those contracts.
6
Q
How is decision making handled in a sole trader business?
A
There is no separation between the management and ownership of a sole trader business.
7
Q
What are the formalities for setting up a sole trader?
A
There are no formalities for setting up or running a sole trader business.
8
Q
What is the privacy requirement for a sole trader?
A
A sole trader is not required to file accounts or other documents with CH.
9
Q
How can a sole trader finance their business?
A
A sole trader can invest in the business themselves or receive money from friends or family.
10
Q
What is a partnership?
A
A partnership is the relationship which exists between two or more persons carrying on a business in common with a view to a profit.
11
Q
What are the costs associated with a partnership?
A
The cost of setting up and running a business as a partnership are low, but legal fees may be incurred seeking advice on the terms of a partnership agreement.
12
Q
What is the risk for partners in a partnership?
A
Partners are jointly liable, without limit, for all the debts and liabilities of the business.
13
Q
How are partners taxed?
A
Each partner pays tax on their share of the income and gains of the business.
14
Q
What is the structure of a partnership?
A
A partnership is not a separate legal personality. It cannot own assets, nor grant security.
15
Q
How is decision making handled in a partnership?
A
There is generally no separation between the management and ownership of a partnership.
16
Q
What are the formalities for setting up a partnership?
A
There are no formalities for setting up or running a partnership, but a partnership agreement is advised.
17
Q
What is the privacy requirement for a partnership?
A
A partnership is not required to file accounts or other documents with CH.
18
Q
How can partners finance their business?
A
Partners can invest in the business themselves or receive money from friends or family.
19
Q
What is a Limited Liability Partnership (LLP)?
A
An LLP is a business that combines many of the benefits of a limited company with the organisational flexibility of a partnership.
20
Q
What are the costs associated with an LLP?
A
The cost of setting up and running a business as an LLP are higher than a partnership due to incorporation fees.
21
Q
What is the risk for members of an LLP?
A
An LLP is responsible for its own debts. The liability of members is limited to the extent of their capital investment.
22
Q
How are members of an LLP taxed?
A
Each member pays tax on their share of the income and gains of the business.
23
Q
What is the structure of an LLP?
A
An LLP is a separate legal personality. It can own assets and grant security.
24
Q
How is decision making handled in an LLP?
A
There is generally no separation between the management and ownership of an LLP.
25
What are the formalities for setting up an LLP?
A specified statutory procedure must be followed to incorporate an LLP.
26
What is the privacy requirement for an LLP?
LLPs are required to file accounts and other documents with CH.
27
How can an LLP finance its business?
An LLP can borrow in its own name.
28
What is a private company?
A private company is a privately owned business which exists in its own right.
29
What are the costs associated with a private company?
The cost of setting up and running a private company is relatively high due to incorporation fees.
30
What is the risk for shareholders in a private company?
A company is responsible for its own debts. The liability of shareholders is limited to the amount unpaid on their shares.
31
How is a private company taxed?
Companies pay corporation tax on the income and gains of the business. Shareholders pay income tax on dividends.
32
What is the structure of a private company?
A company is a separate legal personality. It can own assets and grant security.
33
How is decision making handled in a private company?
There is separation between the management and ownership of a company.
34
What are the formalities for setting up a private company?
A specified statutory procedure must be followed to incorporate a company.
35
What is the privacy requirement for a private company?
Companies are required to file accounts and other documents with CH.
36
How can a private company finance its business?
Companies can raise debt and equity finance and offer various forms of security.
37
What is the formation of a partnership?
Partnerships do not need to be incorporated. They exist as soon as two persons carry on a business in common with a view to a profit.
38
What are the constitutional documents for a partnership?
Partnerships do not need to adopt constitutional documents, but a formal partnership agreement is advised.
39
What are the CH filing requirements for a partnership?
Partnerships do not need to be registered at CH.
40
What is the formation of an LLP?
Two persons can incorporate an LLP by delivering certain documents to CH.
41
What are the constitutional documents for an LLP?
LLPs do not need to adopt constitutional documents, but a formal LLP agreement is advised.
42
What are the CH filing requirements for an LLP?
Form LL IN01 and an incorporation fee must be sent to CH.
43
What is the formation of a company?
A company is formed by converting a shelf company or incorporating a new company from scratch by delivering certain documents to CH.
44
What are the constitutional documents for a company?
All companies must have articles of association which take effect as a contract between the company and its members.
45
What are the CH filing requirements for a company?
Form IN01 and an incorporation fee must be sent to CH, along with a copy of the company’s articles.
46
What is a shelf company?
A shelf company is a company which has already been incorporated and is ready to be used to trade.
47
What is a shareholders’ agreement?
A shareholders’ agreement is a private agreement between the shareholders which is enforceable as a contract.
48
What is equity finance?
Equity finance involves increasing share capital through the allotment of shares.
49
What is the procedure for declaring dividends?
Companies with MAs require an OR to declare dividends. The amount must not exceed the recommendation of the directors.
50
What are the accounting records requirements for companies?
All companies must keep accounting records that adequately show and explain the company’s transactions.
51
What are the directors' duties under CA 2006?
Directors must act within powers, promote the success of the company, exercise independent judgement, and avoid conflicts of interest.
52
What are the rights of shareholders?
Rights of members include the right to receive dividends, notice of GMs, a vote at GMs, and surplus capital on winding up.
53
What is the procedure for passing board resolutions?
BRs are normally passed at BMs. Written BR procedure can only be used if directors are unanimous.
54
Are company decisions enforceable without a shareholder agreement?
No, they are not enforceable unless protected by a separate shareholder agreement.
55
How are Board Resolutions (BRs) typically passed?
BRs are normally passed at Board Meetings (BMs). The written BR procedure can only be used if directors are unanimous.
56
What is required for notice of a Board Meeting?
Reasonable notice must be given, stating the date, time, and place of the meeting.
57
What is the voting method at Board Meetings?
Voting is on a show of hands, with one vote per director.
58
What is the voting threshold for passing Board Resolutions?
BRs are passed by a simple majority (more than 50%).
59
What is the quorum requirement at Board Meetings?
A minimum of two directors must normally be present.
60
How can Shareholders' Ordinary (OR) and Special (SR) Resolutions be passed?
They can be passed at a general meeting (GM) or in writing.
61
What is the notice period for General Meetings?
14 clear days’ notice must be given, plus 48 hours if posted or emailed.
62
What must the notice of a General Meeting include?
It must describe the nature of the business to be dealt with and include the exact wording of any SRs.
63
What is required for a General Meeting on short notice?
A GM on short notice may be agreed by a majority of shareholders holding at least 90% of the company’s voting shares.
64
How is voting conducted at General Meetings?
Voting is by show of hands, with one vote per shareholder unless a poll vote is requested.
65
Who can request a poll vote at a General Meeting?
The chairperson, directors, two or more persons with voting rights, or those representing at least 10% of total voting rights.
66
What is the voting threshold for passing Ordinary Resolutions?
ORs are passed by a simple majority (more than 50%).
67
What is the voting threshold for passing Special Resolutions?
SRs are passed by a majority of 75% or more.
68
What is the quorum requirement at General Meetings?
A minimum of two shareholders must normally be present.
69
How is a Written Resolution (WR) passed?
A WR is passed as soon as the requisite majority is obtained.
70
What happens if sufficient responses are not received for a Written Resolution?
The WR will lapse if not enough responses are received within 28 days of circulation.
71
What decisions cannot be taken by Written Resolution?
The WR procedure cannot be used to pass a resolution to remove a director.
72
What transactions require shareholder approval?
Transactions between the company and its directors require member approval.
73
Who is considered 'connected to' a director?
Their spouse, children, parents, a body corporate where they own at least 20% of shares, or their business partner.
74
What is the wholly owned subsidiary exception?
None of the specified transactions require members’ approval if the company is a wholly owned subsidiary of another body corporate.
75
What is required for directors' long-term service contracts?
Contracts for a guaranteed term of two years or more must be approved by Ordinary Resolution (OR).
76
What must be made available for inspection regarding directors' service contracts?
A memorandum setting out the terms must be available 15 days before the GM or at the time of the WR.
77
What happens if the prohibition on long-term service contracts is contravened?
The guaranteed-term element will be void, and the contract will allow termination with reasonable notice.
78
What is the prohibition regarding substantial property transactions?
Transactions involving substantial non-cash assets worth more than £100,000 must be approved by OR.
79
What are the consequences of contravening the prohibition on substantial property transactions?
The transaction is voidable, and directors must account for profits and indemnify the company for losses.
80
What is required for loans to directors in private companies?
Loans and security must be approved by OR.
81
What is required for loans to directors in public companies?
Loans, quasi-loans, and credit transactions must be approved by OR.
82
What is required for compensation for loss of office?
Payments of up to £200 for loss of office must be approved by OR.
83
What must be notified to Companies House?
Changes to company name, articles, registered office, appointment/removal of directors, resolutions, share capital, and charges.
84
What registers must a company keep?
A register of directors, members, and PSCs at its registered office.
85
How long must minutes of Board Meetings be kept?
Minutes must be kept for 10 years from the date of the meeting.
86
What happens if charges are not registered at Companies House?
Charges not registered within 21 days are void against liquidators, administrators, and creditors.
87
Where are a company’s records normally kept?
At its registered office, and they must be made available for inspection within 10 working days.
88
What must all companies disclose publicly?
The address of their registered office, details of directors and PSCs, accounts, and charges.
89
How can a director be appointed or removed?
A director can be appointed by either an OR or a BR; an OR is required to remove a director.
90
What is required for shareholders to propose a resolution to remove a director?
Shareholders must give special notice 28 clear days before the GM.
91
What happens if the board does not place the removal resolution on the agenda?
The resolution will not be considered, and shareholders may need to force a GM.
92
What is the shareholders' power to call a GM?
Shareholders holding at least 5% of the paid-up voting share capital can request the board to call a GM.
93
What must directors do upon receiving a s 303 request?
They must call a GM within 21 days, to be held not more than 28 days after the notice.
94
What happens if directors fail to call a GM after a s 303 request?
Shareholders who submitted the request or 50% of them can call a GM themselves.
95
What rights does a director have upon proposed removal?
The director must be informed and given the opportunity to make representations.
96
What are Bushell v Faith clauses?
Clauses that protect a director who is also a shareholder from removal by giving them weighted voting rights.
97
Can a shareholders' agreement protect a director from removal?
No, a contrary provision in a shareholders’ agreement will not protect a director from removal under s 168.
98
What is required to vary a shareholders' agreement?
Unanimous consent is required to vary a shareholders’ agreement.
99
What is a statutory derivative claim (SDC)?
An SDC can be brought by a member in their own name on behalf of the company for negligence or breach of duty by a director.
100
What is an unfair prejudice action (UPA)?
A UPA can be brought by a member on their own behalf for unfair prejudice, often leading to a court order for share purchase.
101
What is the purpose of a partnership agreement?
To vary the default terms of the Partnership Act 1890 to reflect modern business needs.
102
When does a partnership start under the Partnership Act 1890?
A partnership starts as soon as two people carry on a business in common with a view to profit.
103
Who owns partnership property under the Partnership Act 1890?
Each partner is deemed to own a share in partnership property.
104
How are profits and losses shared in a partnership?
All partners share equally unless otherwise agreed.
105
Are partners entitled to a salary under the Partnership Act 1890?
No, partners are not entitled to a salary unless agreed otherwise.
106
How are partnership decisions made?
Decisions must be decided by a majority, but unanimous consent is required for significant changes.
107
Can partners be expelled by majority vote?
No, partners cannot be expelled unless a provision has been agreed unanimously in advance.
108
What happens if a partner leaves the partnership?
The partnership is automatically dissolved unless otherwise agreed.
109
What is the non-compete clause in a partnership?
Current partners cannot compete with the firm, and this restriction often applies to outgoing partners.
110
What is the cash flow test for insolvency?
A company is insolvent if it cannot pay its debts as they fall due.
111
What is the balance sheet test for insolvency?
A company is insolvent if its liabilities exceed its assets.
112
What is a Part A1 moratorium?
A period during which creditors cannot enforce pre-moratorium debts.
113
What happens during a moratorium?
The company remains under the control of its directors, reviewed by a monitor/IP.
114
How is a moratorium commenced?
By filing prescribed documents at court or applying for a court order.
115
How long does a moratorium last?
Initially for 20 business days, extendable for another 20 days without creditor consent.
116
What happens if a company goes into liquidation during a moratorium?
The moratorium terminates automatically.
117
What is a Company Voluntary Arrangement (CVA)?
A formal compromise between a company and its creditors binding all unsecured creditors.
118
What happens in a CVA?
Creditors agree to part payment and/or an extended deadline for repayment.
119
How is a CVA commenced?
Proposed by the company's directors or liquidator, requiring 75% approval from unsecured creditors.
120
How long does a CVA last?
Typically 3-5 years, until all scheduled payments are made.
121
What is a restructuring plan?
A formal compromise between a company and its creditors binding all creditors, including secured creditors.
122
How is a restructuring plan commenced?
Directors, shareholders, or creditors apply for court hearings for voting on the plan.
123
What is a cross-class cram down?
The court can approve a restructuring plan without requisite approval if it is just and equitable.
124
When does a restructuring plan end?
Like a CVA, it lasts until all scheduled payments are made, but may take longer due to court sanction.
125
What is a CVA?
A restructuring plan that lasts as long as it takes to make all scheduled payments to creditors.
126
Does a restructuring plan grant a right to a moratorium?
There is no automatic right to a moratorium. However, if a moratorium is in place 12 weeks before a restructuring plan is proposed, then creditors of moratorium debts need not participate in the plan.
127
How does a restructuring plan relate to other insolvency proceedings?
It is possible to combine a restructuring plan with administration.
128
What is administration?
A procedure which allows for the reorganisation of a company or the realisation of its assets under the protection of a statutory moratorium.
129
What happens in administration?
The directors remain in office but an administrator/IP takes over control of the company’s affairs with a view to rescuing the company as a going concern or achieving a better result for creditors than would be likely if the company were wound up.
130
How is administration commenced?
The directors, shareholders, creditors, CVA supervisor or liquidator can apply for a court order or the directors, shareholder, or qualifying floating charge holder (QFCH) can file certain documents at CH.
131
What is a qualifying floating charge?
A charge which relates to the whole or substantially the whole of the company’s property. The document that creates the charge must state that the IA applies to it or that the holder has the power to appoint an administrator or an administrative receiver.
132
When does administration end?
Unless extended, an administrator’s appointment ceases automatically 12 months from the date of entry into administration. The administrator can apply for a court order to end the administration earlier if its purpose has been, or cannot be sufficiently achieved.
133
Does administration grant the right to a moratorium?
The company has the benefit of an interim moratorium from the start of the administration process and a full moratorium from the date of appointment of the administrators.
134
How does administration relate to other insolvency proceedings?
An administrator may end administration by handing the company back to its directors or restructuring the rights of creditors through a CVA or a restructuring plan. Alternatively, the company can enter liquidation.
135
What is a fixed asset receivership?
An enforcement procedure conducted in the interests of a secured creditor.
136
What happens in a fixed asset receivership?
The company remains under the control of its directors, but the receiver (not necessarily an IP) takes control of the secured assets to protect their appointor’s interest.
137
How is a fixed asset receivership commenced?
A fixed charge holder can appoint a receiver pursuant to the terms of the fixed charge contained in the security document.
138
When does a fixed asset receivership end?
A receiver’s role ceases when the liabilities due to their appointer have been discharged.
139
Does a fixed asset receivership grant a right to a moratorium?
There is no automatic right to a moratorium.
140
How does a fixed asset receivership relate to other insolvency proceedings?
A fixed charge receiver cannot be appointed while a Part A1 moratorium subsists or the company is in administration. A receiver can be appointed after the company has gone into liquidation.
141
What happens in liquidation?
A liquidator/IP takes over control of the company’s affairs with a view to collecting and realising the company’s assets, distributing the proceeds to its creditors and members, and dissolving the company.
142
When does liquidation end?
Once all the assets have been realised and the proceeds distributed, the liquidator will give notice to CH that the winding up of the company has concluded and the company will be dissolved 3 months later.
143
Does liquidation grant a right to a moratorium?
There is no automatic right to a moratorium, however there is an automatic stay on commencing or continuing proceedings against the company.
144
What is MVL?
One of the two forms of voluntary liquidation used when the company is solvent and will be able to pay its creditors in full.
145
How is MVL commenced?
The members must pass an SR for the winding up of the company within 5 weeks of the directors swearing a statutory declaration of solvency.
146
What is a statutory declaration of solvency?
A statement by directors that the company will be able to pay its debts in full, with interest, within a period not exceeding 12 months from the commencement of the liquidation.
147
How does MVL relate to other insolvency proceedings?
If, during an MVL, the liquidator forms the opinion that the company will be unable to pay its debts, the winding up will be converted to a CVL. This is done by the nomination of a creditor to be liquidator.
148
What is CVL?
One of the two forms of voluntary liquidation used when the company is insolvent and will not be able to pay its creditors in full.
149
How is CVL commenced?
The members must pass a SR for the winding up of the company.
150
How does CVL relate to other insolvency proceedings?
If a company suddenly finds it is able to become solvent, the CVL process can be halted if the company’s assets have not yet been liquidated.
151
What is compulsory liquidation?
A court-supervised liquidation procedure for insolvent companies.
152
How is compulsory liquidation commenced?
The directors, shareholders, creditors, CVA supervisor, or administrator can present a winding up petition to the court on the grounds that the company is unable to pay its debts, it is just and equitable for the company to be wound up, or the company has passed a SR for winding up.
153
How does compulsory liquidation relate to other insolvency proceedings?
Compulsory liquidation is seen as a last resort because it is expensive and leaves stakeholders with the least control.
154
What is an IVA?
A formal compromise between a debtor and their unsecured creditors which binds all unsecured creditors, but cannot bind secured or preferential creditors without their consent.
155
What happens in an IVA?
The creditors agree to part payment and/or an extended deadline for repayment. The debtor’s actions are reviewed by a supervisor/IP who ensures the IVA is implemented according to its terms.
156
How is an IVA commenced?
The debtor may propose an IVA which must be approved by 75% (debt value) of unsecured creditors voting on the proposal and not opposed by 50% (total value) of unconnected creditors.
157
When does an IVA end?
An IVA lasts as long as it takes to make all the scheduled payments to creditors, typically 5 years.
158
Does an IVA grant a right to a moratorium?
There is no automatic right to a moratorium. However, a debtor can apply for an interim order lasting 14 days.
159
How does an IVA relate to other insolvency proceedings?
If the debtor fails to comply with the terms of the IVA, their supervisor/IP can petition for the debtor’s bankruptcy.
160
What is bankruptcy?
A court-based procedure used where an individual is insolvent and will not be able to pay creditors in full.
161
What happens in bankruptcy?
A trustee/IP takes over control of the debtor’s estate with a view to collecting and realising their assets and distributing the proceeds to creditors.
162
How is bankruptcy commenced?
The bankruptcy process begins by a bankruptcy petition being presented by a debtor, creditor or IVA supervisor.
163
What are the grounds for a debtor’s petition for bankruptcy?
A debtor can petition on the grounds that they are unable to pay their debts. They must provide a statement of assets/liabilities.
164
What are the grounds for a creditor’s petition for bankruptcy?
A creditor can petition on the grounds that the debtor appears unable to pay or had no reasonable prospect of paying their debts, and the amount owed is an unsecured liquidated sum exceeding £5000.
165
What are the grounds for an IVA supervisor’s petition?
An IVA supervisor can petition on the grounds that the debtor has broken the terms of an IVA.
166
When does bankruptcy end?
A debtor is automatically discharged from the bankruptcy order and debts after 1 year provided they have complied with their duties to the trustee.
167
Does bankruptcy grant a right to a moratorium?
There is no automatic right to a moratorium.
168
How does bankruptcy relate to other insolvency proceedings?
Bankruptcy is seen as a last resort because it is expensive and leaves debtors with no control. The bankruptcy order is made public and the debtor is prohibited from being involved in certain professions. All the debtor’s assets are ceased and it becomes much harder for them to get a loan.
169
What is the principle of clawback?
Liquidators and administrators have the power to challenge certain antecedent transactions and apply to the court for an order to set them aside.
170
What are recoveries in the context of clawback?
Sums recovered are for the benefit of the unsecured creditors generally and not the defrauded creditor.
171
Who are considered connected persons and associates?
'Connected persons' are directors, associates of directors and associates of the company. 'Associates' include spouses, business partners, employees and other relatives including brothers, uncles etc.
172
What is a preference?
A transaction influenced by a desire to put a creditor in a better position than it would have otherwise been.
173
What is the relevant time for a preference?
Within six months ending with the commencement of administration or liquidation.
174
What is the insolvency requirement for a preference?
The company must be insolvent (on either a cash flow or balance sheet basis) at the time of the transaction or become so as a result of it.
175
What defences may be available for a preference?
The company was not influenced by a desire to prefer the creditor (subjective).
176
What if the preference is to a connected person/associate?
The relevant time is extended to two years and there is a presumption that the company was influenced by a desire to prefer the creditor.
177
What is the sanction for a preference?
The court may make any order it thinks fit for restoring the position to what it would have been if the company had not given the preference.
178
What is a transaction at an undervalue (TUV)?
A transaction for significantly less consideration than was provided by the company.
179
What is the relevant time for a TUV?
Within two years ending with the commencement of administration or liquidation.
180
What is the insolvency requirement for a TUV?
The company must be insolvent (on either a cash flow or balance sheet basis) at the time of the transaction or become so as a result of it.
181
What if the TUV is to a connected person/associate?
There is a presumption that the company was influenced by a desire to prefer the creditor.
182
What defences may be available for a TUV?
The company entered into the transaction in good faith and for the purpose of carrying on its business, and at the time there were reasonable grounds for believing that the transaction would benefit the company.
183
What is the sanction for a TUV?
The court may make any order it thinks fit for restoring the position to what it would have been if the company had not given the TUV.
184
What is a transaction defrauding creditors (TDC)?
A TUV intended to put assets beyond the reach of creditors of the company or otherwise prejudice their interests.
185
What is the relevant time for a TDC?
There is no relevant time.
186
What is the insolvency requirement for a TDC?
The company need not be insolvent. The application can be brought by a liquidator or administrator; CVA supervisor; or the victim of the transaction in question.
187
What is avoidance of floating charges?
Certain floating charges will be void except to the extent fresh consideration was granted.
188
Why isn’t a claim necessary to set aside a floating charge?
Certain floating charges are immediately void, so there is no need for the liquidator or administrator to bring a claim.
189
What is the relevant time for setting aside a floating charge?
Within one year ending with the commencement of administration or liquidation.
190
What is the insolvency requirement for setting aside a floating charge?
The company must be insolvent (on either a cash flow or balance sheet basis) at the time of the creation of the floating charge or become so as a result of it.
191
What if the floating charge is to a connected person/associate?
The relevant time is extended to two years.
192
What defences may be available for setting aside a floating charge?
New consideration was provided to the company in return for the grant of the floating charge.
193
What is the sanction for setting aside a floating charge?
The floating charge is void (the security, not the debt).
194
What is wrongful trading?
Continuing to trade when a director knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent administration or liquidation (reasonably diligent person test).
195
What is the insolvency requirement for wrongful trading?
The company must be insolvent on a balance sheet basis at the time of the wrongful trading or become so as a result of it.
196
What defences may be available for wrongful trading?
The directors took every step with a view to minimising the potential loss to the company’s creditors.
197
What is the sanction for wrongful trading?
The court can order that the director makes such a contribution to the assets of the company as the court thinks fit.
198
What is fraudulent trading?
Continuing to trade with intention to defraud creditors or for any fraudulent purpose.
199
What is the insolvency requirement for fraudulent trading?
The company must be insolvent on a balance sheet basis at the time of the fraudulent trading or become so as a result of it.
200
What defences may be available for fraudulent trading?
Given their knowledge or belief as to the facts, the director’s conduct was not dishonest by the standards of ordinary and decent people.
201
What is the sanction for fraudulent trading?
The court can order that the director makes such a contribution to the assets of the company as the court thinks fit. Criminal sanctions can also be imposed.
202
What is the order of priority for distribution to creditors?
1 – liquidator’s fees and expenses relating to fixed charges. 2 – fixed charges. 3 – liquidator’s other fees and expenses. 4 – preferential creditors. 5 – creation of the prescribed part fund. 6 – floating charges. 7 – unsecured creditors. 8 – shareholders.
203
Who are chargeable persons/entities for income tax?
Employees, sole traders, partners, and shareholders are liable to pay tax on their income. They must complete a self-assessment tax return after the end of the tax year it applies to.
204
What is the basis of charge for income tax?
Income tax is deductible from qualifying loans to buy an interest in a partnership or contribute capital.
205
Who is liable to pay income tax?
Employees, sole traders, partners, and shareholders are liable to pay tax on their income.
206
What must chargeable persons/entities complete after the end of the tax year?
They must complete a self-assessment tax return.
207
What types of income can be deducted from qualifying loans?
Interest paid on qualifying loans can be deducted for buying an interest in a partnership, contributing capital or making a loan to a partnership, buying shares in or making a loan to a ‘close’ company, or buying shares in an employee-controlled company.
208
Are pension scheme contributions deductible for income tax purposes?
Yes, contributions made by taxpayers to their pensions are deductible for income tax purposes.
209
What is the Personal Savings Allowance (PSA) for basic rate taxpayers?
The first £1,000 of interest income received by a basic rate taxpayer is taxed at 0%.
210
What is the Dividend Allowance (DA) for taxpayers?
The first £1,000 of dividend income received by all taxpayers is taxed at 0%.
211
What is the Personal Allowance (PA) for taxpayers with a net income below £100,000?
A PA of £12,570 is available.
212
How is taxable income calculated?
Taxable income is calculated by deducting the Personal Allowance from the net income.
213
What are the steps to calculate income tax?
1. Total income: Add up gross income from all sources. 2. Net income: Deduct IOQL and pension contributions. 3. Taxable income: Deduct PA. 4. Categorise taxable income. 5. Determine PSA/DA. 6. Apply rates. 7. Total liability.
214
Who is liable to pay Capital Gains Tax (CGT)?
Sole traders, partners, and shareholders are liable to pay CGT on their capital income.
215
What is loss relief in CGT?
Capital losses can be deducted from capital gains made in the same tax year and carried forward to future tax years until used up.
216
What does Business Asset Disposal Relief (BADR) do?
BADR reduces the rate of CGT to 10% on qualifying disposals.
217
What is the Spouses rule in CGT?
No CGT is payable when one spouse disposes of an asset to the other.
218
What is the Annual Exemption (AE) for CGT?
Every taxpayer is entitled to a £6,000 AE.
219
What is a company's Total Taxable Profits (TTP)?
A company’s TTP is the sum of its income profits and chargeable gains.
220
What are chargeable income receipts?
Chargeable income receipts are receipts of an income nature which arise from the company’s business.
221
What is the Annual Investment Allowance?
A company can deduct 100% of expenditure on plant and machinery up to £1 million annually.
222
What is the rate of corporation tax for TTP below £50,000?
The rate of corporation tax is 19%.
223
What is the liability to VAT?
Taxable businesses are liable to pay VAT on taxable supplies.
224
What is the threshold for compulsory VAT registration?
Registration for VAT is compulsory if the business has a VAT taxable turnover of more than £85,000.
225
What are standard rated supplies?
Standard rated supplies are those that are not reduced rated, zero rated, or exempt.
226
What is the VAT return frequency for most businesses?
VAT returns must normally be completed online every 3 months.
