M11: Corporation Tax Flashcards
What is a company for UK tax purposes and when is it subject to corporation tax?
A company from a tax point of view is any corporate body or unincorporated association other than a partnership or local authority.
A UK resident company will start being chargeable to corporation tax on the earliest of:
1. The commencement of trading, or
2. The acquisition of a source of income
What period does a company pay corporation tax for?
Its Chargeable Accounting period (CAP).
CAP begins when it starts trading or acquires a source of income. The period before this the company is classed as dormant and thus not subject to Corporation tax.
What is the pro-forma to work out Taxable Total Profits (TTP)?
Trading income X
Property income X
Non-trade loan relationship income* X
Miscellaneous income X
Chargeable gains X
= Total profits X
- Less non-trade loan relationship deficits* (X)
- Less qualifying charitable donations (QCDs) (X)
= Taxable total profits (TTP) X
Explain Chargeable accounting period and when it begins and ends
Chargeable accounting period is a tax concept. It is the period for which a corporation tax computation, and therefore a corporation tax charge, is made.
A CAP begins when a company first comes within the charge to corporation tax or immediately after the end of the previous CAP.
A CAP most commonly ends either:
- 12 months after the start of the CAP, or
- The end of the company’s period of account, or
- When it ceases to trade
How are Adjusted trading profit and Capital allowances in the computation allocated to the correct chargeable period?
- The figure for adjusted trading profit before capital allowances is calculated for the period of account as a whole, using the figures in the accounts for that period and then is time-apportioned across the two CAPs.
- There is a separate capital allowances calculation for each CAP (remembering that writing down allowances (WDAs) are reduced by n/12 for the short period of ‘n’ months) and the allowances for each CAP are deducted from the share of adjusted profits before capital allowances.
How are chargeable gains, Qualifying Charitable donations, Property income in the computation allocated to the correct chargeable period?
Actual date:
- Chargeable gains
- Qualifying Charitable Donations
Accrual:
- Property income
What is included in a corporation tax computation?
- Trading income – This is the accounting profit before tax with any adjustments taken into account. As for income tax, the adjustment process is done largely on the same principles and the result is shown as £nil if it is a loss.
- Other income – This will include property income, some interest and chargeable gains.
- Deductions – This will include qualifying charitable donations, some interest and trading losses.
How are trading income and capital allowances calculations different for a company?
Trading income:
- CT calculation starts with accounting profit and loss before tax and not net profit like an unincorporated business
- Add back dividends paid
- Adjust any salary payments not paid within 9 months of end out of the amount
- Adjust provisions for bad debt into it
- Deduct out any expenses related to pre-trading expenditure for the CAP.
- Remove any dividends received from other companies
- Adjust for any QCD out of profit
- Adjust for Property income. NTL relationships, chargeable gains in or out.
- Items of capital nature adjusted out.
- Capital allowances related to private car use are not in separate pools now and put in together.
Capital allowances:
- Everything is the same except the addition of a 100% FYA Main pool and 50% FYA Special rate pool full expensing column.
The other 50% of the special rate gates transferred to special rate and then treated at 6% WDA in the next CAP periods.
What other items are included in a corporation tax computation?
- Loan relationships, (Either a NTL income or deficit based on interest received/paid on non-trade loans)
- Property income, (Add the accrued amount for the Cap into)
- Qualifying charitable donations, (Actual amount deducted)
- Chargeable gains.
How do the rules for chargeable gains apply for a company?
- Net chargeable gains are included in the taxable total profits and charged to corporation tax.
- Companies are not eligible to receive an annual exempt amount but, instead, can claim indexation allowance.
What is the indexation allowance?
Indexation allowance is when relief for inflation over the period of ownership of the asset by granting an additional deduction in the computation of gains.
- Based on the movement in the Retail Prices Index (RPI).
Used instead of the 6k AEA that individuals get.
Detail the chargeable gain pro-forma when there is an indexation allowance to give relief for inflation over life of an asset
Disposal value (gross proceeds) or market value X
Less: incidental costs of disposal (X)
= Net sale proceeds (NSP) X
Less: cost
- Acquisition cost X
- Incidental costs of acquisition X
- Enhancement expenditure X
Cost total (X)
= Unindexed gain X
Less: indexation allowance (X)
= Chargeable gain USED IN CT CALCULATION X
If the Indexation amount is more than the unindexed gain what happens and what happens when there is an unindexed loss?
When indexation amount > unindexed gain we restrict it so the chargeable becomes Nil.
When there’s an unindexed loss we cannot use indexation to further that loss. i.e. NSP is < Cost we can’t add again on to make it more.
How does the calculation for indexation gain change if we only part sell an asset?
We use the Original cost x A/A+B method and apply indexation to that number
Where:A = sold price
B = Remaining part price
How do we calculate the corporation tax liability for a company?
TTP x the corporation tax rate (Either 25%, or 19%)
