Module 15: Corporation Tax

Question 1

CAP can’t be longer than

Answer 1

12 months

Question 2

Non-trade loan relationships

Answer 2

Accruals basis

Question 3

Property income

Answer 3

Accruals basis

Question 4

Chargeable gains

Answer 4

Date of disposal

Question 5

Miscellaneous income

Answer 5

Date of receipt

Question 6

Qualifying charitable donations

Answer 6

Date of payment

Question 7

Dividends

Answer 7

Date of receipt

Question 8

Company is not a close company if

Answer 8

It is quoted and 35% of the voting power is in the hands of the public

Question 9

Benefits to participators - employee

Answer 9

Normal employment income benefits

Question 10

Benefits to participators - not employees

Answer 10

Calculate benefits as normal = dividend

Question 11

Benefits to participators - not employees: individual

Answer 11

Dividend taxed at normal rates

Question 12

Benefits to participators - not employees: company

Answer 12

Costs relating to benefit are not tax deductible

Question 13

Advantages of dividends (3)

Answer 13

• no employee or employer NICs
• no PAYE
• tax % lower

Question 14

Disadvantages of dividends (2)

Answer 14

• not tax deductible

- not UK earnings for pension purposes

Question 15

If company makes pension contributions of behalf of directors (2)

Answer 15

• company received a corporation tax deduction for the contributions
• contributions themselves are tax free benefit for the directors

Question 16

Purchase of own shares - income treatment

Answer 16

Sale proceeds treated as a dividend

Question 17

Income treatment computation

Answer 17

Amount received for shares (actual proceeds) X
Original subscription price (X)
Taxable dividend X

Deemed sale proceeds (original subscription price) X
Actual cost (X)
Capital loss X

Question 18

Purchase of own shares - capital treatment

Answer 18

Treated as a normal capital gains computation

Question 19

Connected with the company shareholding

Answer 19

30%

Question 20

If company is not buying all of an individuals shares

Answer 20

Unlikely that the trade benefit test will be met

Question 21

Accruals basis means

Answer 21

Pro rate across whole period of account

Question 22

Management expenses

Answer 22

Deducted from the total profits of the company

Question 23

Excess management expenses

Answer 23

Carried forward and treated as management expenses of next period

Question 24

Substantial reduction test

Answer 24

25% in individual’s shareholding before and after buy back

Remember that number of shares in issue will have decreased after buy back as shares will be cancelled by company