Seminar 9 Flashcards
Is a company a separate legal person?
Yes
Who pay UK corporation tax?
UK resident companies
They pay corporation tax on their taxable total profits (TTP) no matter where the profits arise
What qualifies a company as being resident in the UK?
- if it’s incorporated in the UK
OR
- it’s incorporated outside the UK, but it’s central management & control are exercised in the UK
In what instance do non-UK resident companies within the charge to corporation tax?
If they trade in the UK through a permanent establishment
OR
They carry on a UK property business / dealing with UK land, or have gains on disposal of UK land
What is CT taxed to?
A company’s accounting periods
Are accounting periods the same as period of account?
No
How long can accounting period be?
Can be 12 months or less
Never longer than 12 months
If a period of account is longer than 12 months, what happens under CT?
Period of account is divided into 2 periods
The first 12 months and the remainder
When does an accounting period start?
- When the company begins to trade or acquired a source of chargeable income
- when the previous accounting period ends
When does an accounting period end?
The earliest of:
- the end of 12 months from the start of the accounting period
- the date the company begins or ceases to trade
- the date the period of account ends
How is a company’s trading income calculated?
Broadly the same way as that of a sole trader
Do businesses need to disallow private proportion of expenses?
No
Are dividende allowable as a trading expense?
No, dividends are disallowable
Are gift aid donations disallowed?
Yes but instead there are “qualifying charitable donations” and are deducted when calculating TTP
When are CT assessments raised for?
Accounting periods, not tax years
How are capital allowances applied to companies
The same way as applied to some traders (WDA, FYA, AIA etc)
However there are some differences
What are the differences between capital allowances for companies and sole traders?
- capital allowances for companies are computed for accounting periods, not periods of account
- capital allowances for companies can never be computed for a period longer than 12 months, 2 separate computations must be made
- capital allowance computations must never include private use adjustments
- a 100% FYA is available for expenditure on NEW (not second hand) plant & machinery
Can companies claim a super-deduction?
What is a super deduction?
Yes
A super deduction can be claimed at 130% for plant & machinery in the main pool
(e.g., £100,000 of expenditure receives £130,000 of tax relief)
What assets qualify for super deductions?
New (not second hand) assets
Cannot be cars
Should I assume that companies claim the super deduction for maximal tax relief?
Yes
In general, how is a company’s “property business profit” calculated?
The same way as that of an individual
However it’s calculated in accrual basis
This means only rent relating to the accounting period is taken into account - date of receipt is irrelevant
Interest on a loan taken out to purchase property is ignored when computing property income
Are dividends received ignored in computing taxable total profits?
Yes, they’re ignored
Should I assume dividends received by company’s are exempt?
Yes
What is a loan relationship?
Exists whenever a company borrows or lends money
What is the treatment of income from a loan relationship dependent on?
Whether it’s a trading or non trading loan relationsgip
How are interest receivables from banks and building societies handled?
Dealt with under the loan relationships regime
What is a trading loan relationship?
Exists when the loan was made for trade purposes
How is interest payable and other costs relating to a trading loan treated?
Treated as a trade expense and dealt with on the accruals basis
What are examples of a trading loan relationship costs (interest payables)?
Bank overdraft interest, interest on loans to buy plant & machinery, interest on loans to buy premises for use in the trade
How is interest receivable from a trading loan relationship handled?
Treated as trading income and dealt with on the accruals basis
What is a non trading loan relationship?
Where a loan wasn’t made for trade purloses
How is the figure for non trading loan relationships derived?
The costs and income relating to non trading loan relationships are aggregated on the accruals basis to give a single figure for the accounting period
If income exceeds costs for non trading loan relationships, what happens?
The profit forms part of the company’s taxable profits and is charged to corporation tax
What are examples of non trading loan relationships (NTLR)
Examples include interest on loans to:
- purchase/improve property
- acquire shares in a company
- interest on overdue CT
What are examples of NTLR interest receivable scenarios?
Interest on:
- bank & building society accounts
- gilt-edged securities
- repayments of overpaid corporation tax
Are chargeable gains included in the computation of TTP?
Yes
How are gains initially computed?
In the same way as for individuals, however there’s no annual exempt amount for companies
What do qualifying charitable donations include?
Donations made under gift aid
Gifts of shares/securities to charity
Gifts of land/buildings to charity
These donations aren’t allowable when computing trading income, but deducted in calculation of taxable total profits
What is TTP?
The sum of a company’s income & gains less it’s qualifying donations for an accounting period
A company’s corporation tax liability is calculated by applying CT tax rate to the company’s TTP
What is the rate of CT?
19%
What are augmented profits?
Taxable total profits plus exempt ABGH distributions
To determine the payment date for CT, you need to calculate augmented profits (AP)
What are exempt ABGH distributions?
Exempt dividends received from UK & overseas companies
Exempt ABGH distributions, other than those received from companies which are 51% subsidiaries of the receiving company are added to TTP to give AP
What happens to a company’s augmented profits?
Compared with the £1.5million limit to determine the payment date
The limit applies for a 12 month accounting period, for a company with no related 51% group companies
The limit is scaled down for shorter accounting periods proportionately
The limit is also scaled down if the company has related 51% group companies at the end of the previous accounting period
Companies A and B are related 51% companies if…?
If A is 51% subsidiary of B or
B is 51% subsidiary of A or
Both A and B are 51% subsidiaries of the same company
What makes a company a 51% subsidiary of another?
If more than 50% of its ordinary stock is owned directly/indirectly by another company
B is a 51% subsidiary of A if more than 50% of B’s ordinary share capital is owned by A
If the company left part way through the accounting period, does it still count as a related 51% group company?
Yes it still counts
However a related 51% group company is ignored if it doesn’t carry on a trade
Is the number of related 51% group companies important?
Yes as the limit for determining a company’s corporation tax payment is divided by the number of related 51% group companies including the company itself
The relavent number is the number at the end of the previous period
When is payment for CT due?
Payable by companies nine months and 1 day after the end of the accounting period
Unless the company is large or very large in the accounting period
What is a large company?
One with augmented profits greater than the £1.5million limit but not exceeding £20million
Both limits are adjusted if accounting period is shorter than 12 months and for the number of related 51% companies
What means that a company can’t be treated as large?
- it has a tax liability of £10,000 or less
OR - it was not a large company in the preceding 12 months and it has augmented profits of £10 million or less in this accounting period
If the company has related 51% companies, what happens?
The £10million limit is divided between the company and its related 51% group companies
For the 1.5million limit, the related 51% companies are only taken into account if they were there at the end of the previous accounting period
How must large companies pay CT?
In four equal instalments
Based on the company’s estimated liability for the accounting period
When are CT instalments for large companies due?
on the 14th day of the 7th, 10th, 13th and 16th months after the start of a 12 month accounting period
What is a very large company?
Companies with AP exceeding £20 million
They must also pay their CT in quarterly instalments
Instalments are due on the 14th day of the 3rd, 6th, 9th and 12th month of the accounting period
What happens to the £20million limit for very large companies if the accounting period is shorter than 12months?
Adjusted downwards proportionately
How does the computation for taxable trading profits look?
Trading income
- trading losses b/f (before 01/04)
+ Income from property
+ income from NTLR
+ non-trading income from intangible fixed assets
+ chargeable gains
- allowable capital losses
- property business losses
- deficits on NTLR
- trading losses b/f (after 01/04)
- relief for qualifying charitable donations
= TTP
