LECTURE 9: Corporate Tax

Question 1

Proforma for corporation tax computation

Answer 1

Trading profit x
Income from non-trading loan relationship x
Property Income x
Chargeable gains (less losses b/f x
X
Less charges on income (x)
TAXABLE TOTAL PROFITS x
Corp. Tax at % X

Question 2

How is property income tax calculated for companies?

Answer 2

Calculations are as those for income tax. Profits for companies must be calculated on the accruals basis. There is no cash basis.

Question 3

How is trading income calculated for companies?

Answer 3

Adjusting the accounting profit is the same as calculating the taxable trading profit for Income Tax, except:

• The starting point in CT is profit before taxation
• there are no adjustments for private use of e.g. telephone, motor expenses
• there is no private use adjustment in the capital allowances calculation
• there are no rules for commencement, cessation, change of accounting date.

Question 4

INCOME FROM NON-TRADING LOAN RELATIONSHIPS

Answer 4

Limited companies receive all interest gross and it is taxed on an accruals basis.

• Bank and building society interest
• Debenture intereset
• Loan stock interest

Question 5

Loan relationship rules

Answer 5

Apply to income and payments arising from, for example:

• Bank borrowings or deposits
• Debentures, loans and load stock, government securities

1. If the loan is for trading purposes, income is trading income and payments are allowable trading deductions. e.g. loan interest paid where the loan is to provide funds for a factory extension. It would be unusual to have income from a loan relationship in this category (unless the co. was a bank r other co. in the habit of making loans. NO ADJUSTMENT)

If the loan is for non-trading purposes, interest should be treated as income or a deduction from non-trading loan relationship. Most interest received will be non-trading loan relationship income.
Non-trading interest paid = interest on a bank loan raised to acquire a subsidiary, interest on a loan to purchase property for letting or investment, interest on underpaid corporation tax.

Question 6

Tax on dividends for UK companies

Answer 6

Not taxable.

Question 7

How are gift aid donations to charity dealt with for companies?

Answer 7

Deducted as a charge on income. Deduct amount paid in year.

Question 8

What is corporation tax charged on?

Answer 8

Charged on the taxable total profits arising in each chargeable accounting period (CAP) of companies residing in the UK.

Question 9

CHARGEABLE ACCOUNTING PERIOD

Answer 9

Usually a period for which a company prepares a/cs (period of account)

Cannot be > 12 months

If a/c sare prepared for a period > 12 months, split:

1st 12 months
Remainder

E.g. Accounts prepared for the 15 month period 1 January 2017 – 31 March 2018

CAPs

1 January 2017 – 31 December 2017

1 January 2018 – 31 March 2018

Question 10

CORPORATION TAX RATES

Answer 10

Set for a financial year (1 April - 31 March). A financial year is identified by the year in which it begins.
e.g.

FY 17 1.4.17 - 31.3.18

The rate of corporation tax for FY 2016 is 20% and for FY 17 i s 19%.

Example
For the year ended 31 March 2018 Mars Ltd has taxable total profits of £93,000. Mars Ltd received dividends of £900 from UK companies during the year.

Corporation Tax payable is:-

£93,000 x 19%                17,670

Question 11

What happens for accounting period straddling two financial years?

Answer 11

If a chargeable accounting period straddles two financial years, and tax rates change between them, then tax payable has to be calculated separately for each financial year.

Example
X Ltd has taxable total profits of £2,400,000 for the year to 31 December 2017.

Tax payable is:-

FY 16 £2,400,000 x 20% x 3/12 120,000
FY17 £2,400,000 x 19% x 9/12 342,000
462,000

Question 12

When is payment of corporation tax due (not large companies)?

Answer 12

9 months (+1 day) after the end of the accounting period (except large companies).
Example
Accounts for 15 months to 31 March 2018

CAP 12 months to 31 December 2017 CT due 1.10.18
CAP 3 months to 31 March 2018 CT due 1.1.19

Question 13

When is payment of corporation tax due for large companies?

Answer 13

Profits over £1,500,000
Quarterly instalment payments.

Profits = taxable total profits + dividends received

Limit of £1,500,000 applies to a financial year, if accounting period is less than 12 months reduce limit proportionately.

Dates of payment
4 quarterly instalments will be paid on the 14th of months 7 (always), 10 and 13 (if possible) after the start of an accounting period, and month 4 of the next a/c period (always).

Question 14

What is done when a company has related companies?

Answer 14

Limit of £1,500,000 becomes:
Limit / (1+no. related companies)

Example
Findus Ltd, which has one related company, has taxable total profits of £300,000 for the 6 months from 1 October 2017 to 31 March 2018 and receives dividends of £80,000.

						£ Corp Tax £300,000 @ 19%                    £57,000

Taxable total profits 300,000
Dividends 80,000
Profits 380,000
Limit

£1,500,000 x 6 = £375,000
2 12
Therefore instalments required. (14 April 18, 14 July 18

Question 15

RELATED COMAPNIES

Answer 15

One company has control of the other or both are under common control.

Control = owning more than 50% of the ordinary share capital.

Non-UK resident related companies included.