PLC - Direct Taxes (Overview) Flashcards
Up to what point did the schedular system of taxing income still have effect in relation to taxing the income of companies?
Accounting periods ending before 1 April 2009.
A non-resident company that does not have a permanent establishment in the UK pays what instead of corporation tax according to sections 816-817 ITA 2007
Income tax.
CTA 2009 has effect for companies in relation to accounting periods ending on or after which date?
1 April 2009.
In order to be generally deductible for the purposes of computing the taxable profits of income from a property business, what two conditions must be satisfied?
(1) The expenditure must be of a non-capital nature and (2) the expenditure must be incurred wholly and exclusively for the purposes of the “income from property” business.
The “income from property” rules tax the annual profits arising from what?
Any business carried on for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the UK.
Is interest on a loan used to buy a property that is used in an “income from property” business, or used to fund repairs or improvement deductible in computing the relevant profits?
Yes.
A company that incurs interest charges for the purposes of its “income from property” business will be treated under the corporate loan relationship rules as having a what for the purposes of its corporation tax computation?
A non-trading debit.
In what way does a non-trading loan relationship deficit advantage companies in respect of their “income from property” businesses?
The loan relationship regime permits all income and expenditure on loans in relation to all letting to be lumped together to arrive at an overall profit or loss. Under the old rules a loss in respect of a particular letting was more restricted as to what it could be set against.
Is trading income for tax purposes the same as income shown in the accounts of a business?
No. Various adjustments may need to be made to the accounts even though accounting principles are core to the meaning of income and the time when it is taxable.
How is trading income computed (broadly) for UK tax purposes?
It is established by (1) deducting trading expenses of an income nature, incurred wholly and exclusively for the purposes of a trade, from (2) gross receipts that are attributable to the relevant tax computation period.
Is expenditure on entertainment deductible for tax purposes?
No.
Are accounting entries for depreciation deductible for tax purposes?
No.
Chargeable gains potentially arise on what for UK tax purposes?
The disposal of assets.
Do options constitute assets for UK CGT purposes?
Yes.
Do debts and incorporeal property constitute assets for the purposes of the UK CGT regime?
Yes.
Currency other than sterling constitutes what for the purposes of the UK CGT regime?
An asset.
If a person creates an asset and then disposes of it, does it constitute an asset for UK CGT purposes?
Yes.
In what case was it held that a right of action for damages is itself an asset?
Zim Properties Limited v Proctor [1985].
Receipts on disposals of stock in trade are treated as what for UK tax purposes?
Trading income and not a chargeable gain.
What does ESC D33 do?
If complied with, it allows taxpayers to avoid the strict consequences of the Zim Properties case so that payments made under a tax indemnity on a share sale do not constitute the taxable proceeds of a disposal of a chargeable asset (the asset being the right to sue under indemnity).NB this ESC was modified in 2014
Receipts and payments which are taken into account in computing taxable income are not otherwise taken into account for what purposes under the UK tax code?
CGT.
As a general rule, what are the main costs taken into account when computing a capital gain?
(1) The cost of acquiring an asset and (2) any expenditure on the improvement of the asset that is reflected in its state or nature at the time of the disposal.
Allowable capital losses not already set against chargeable gains in a previous period can be what for tax purposes?
Carried forward indefinitely and set against later gains, subject to anti-avoidance provisions.
What is “rebasing” for the purposes of tax on capital gains?
In the case of an asset acquired before 1 April 1982, actual cost is not used in the computation for chargeable gains: the market value of the asset on 31 March 1982 is used instead.
What is indexation allowance?
Where a company disposes of an asset acquired on or after 31 March 1982, it receives an indexation allowance equal to the increase in the RPI over the life of the asset. In the case of assets acquired before 31 March 1982, indexation is applied to the March 1982 rebased allowable expenditure.
When did indexation cease to apply to taxpayers within the charge to CGT as opposed to corporation tax?
It ceased to apply to expenditure after 5 April 1998; indexation on allowable expenditure incurred before that date was only available for the period up to 5 April 1998.
What replaced the indexation allowance for taxpayers within the charge to CGT and is it still in force?
Taper relief. Both indexation allowance and taper relief have been abolished for disposals occurring after 6 April 2008.
What are the two main rates of CGT currently in force?
18 per cent or 28 per cent for trustees, personal representatives and those paying income tax at the higher and additional rates.
How can a share for share exchange defer capital gains tax in the context of a corporate transaction?
Since there has been no true divestment of economic value by the vendor in return for the new shares, the seller will not suffer an immediate tax liability subject to anti-avoidance provisions for shareholders holding more than 5 per cent (TCGA 1992 ss135 and 137). The new shares are treated as the same assets as the shares sold and any gain is “rolled over” until their disposal.
How can chargeable gains be deferred when business assets are sold?
Tax on chargeable gains from the disposal of certain types of assets, notably goodwill, land & buildings, and fixed plant and machinery, can be rolled over if the proceeds are reinvested in qualifying assets (section 152 TCGA 1992).
How does business asset roll-over relief work?
The consideration received for the old assets is notionally reduced, which reduces the gain. There is then an equivalent reduction in the base cost for the new asset.
What is the time limit for business asset roll over relief to apply?
The replacement asset must generally be bought within a four year period of the disposal (from one year before selling the old asset to three years after doing so).
Is expenditure on capital assets deductible against trading income (generally speaking)?
No.
Describe the relief under the intangible assets regime which is similar to roll-over relief for chargeable gains?
Under the intangible assets regime, there is a transitional relief for goodwill or ‘acquired quotas’ which were created before 1 April 2002 (when the new regime came into force for intangible assets), pursuant to which roll-over relief can be claimed subject to certain additional conditions being met.
When a business purchases a capital asset on which capital allowances are available, how does the capital allowance apply?
The taxpayer can deduct a proportion of the cost of the asset each year as an expense in the calculation of income profits.
Why are capital allowances significant to finance leasing?
Equipment is purchased by a banking group that can use the capital allowances to reduce its tax liabilities. The asset is leased to a business that could not have used the capital allowances if it had bought the equipment itself. The benefit of the allowances is then shared between the lessor and the lessee through reduced rental payments.
Enhanced first year capital allowances of 100% are available for expenditure incurred on or after 1 April 2003 on what type of plant and machinery? And is there any restriction on the size of the enterprise that can claim them?
“Environmentally beneficial plant or machinery.”
No size of enterprise restriction.
From 2008-2009, first year capital allowances for SMEs have been replaced by what?
An annual investment allowance (AIA), the size of which has varied in the tax years since its introduction.
