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BUS167 - Principles of Taxation > Seminar 9 > Flashcards

Seminar 9 Flashcards

1
Q

Is a company a separate legal person?

A

Yes

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2
Q

Who pay UK corporation tax?

A

UK resident companies

They pay corporation tax on their taxable total profits (TTP) no matter where the profits arise

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3
Q

What qualifies a company as being resident in the UK?

A
  • 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
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4
Q

In what instance do non-UK resident companies within the charge to corporation tax?

A

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

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5
Q

What is CT taxed to?

A

A company’s accounting periods

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6
Q

Are accounting periods the same as period of account?

A

No

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7
Q

How long can accounting period be?

A

Can be 12 months or less

Never longer than 12 months

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8
Q

If a period of account is longer than 12 months, what happens under CT?

A

Period of account is divided into 2 periods

The first 12 months and the remainder

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9
Q

When does an accounting period start?

A
  • When the company begins to trade or acquired a source of chargeable income
  • when the previous accounting period ends
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10
Q

When does an accounting period end?

A

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
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11
Q

How is a company’s trading income calculated?

A

Broadly the same way as that of a sole trader

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12
Q

Do businesses need to disallow private proportion of expenses?

A

No

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13
Q

Are dividende allowable as a trading expense?

A

No, dividends are disallowable

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14
Q

Are gift aid donations disallowed?

A

Yes but instead there are “qualifying charitable donations” and are deducted when calculating TTP

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15
Q

When are CT assessments raised for?

A

Accounting periods, not tax years

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16
Q

How are capital allowances applied to companies

A

The same way as applied to some traders (WDA, FYA, AIA etc)

However there are some differences

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17
Q

What are the differences between capital allowances for companies and sole traders?

A
  • 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
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18
Q

Can companies claim a super-deduction?

What is a super deduction?

A

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)

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19
Q

What assets qualify for super deductions?

A

New (not second hand) assets

Cannot be cars

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20
Q

Should I assume that companies claim the super deduction for maximal tax relief?

A

Yes

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21
Q

In general, how is a company’s “property business profit” calculated?

A

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

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22
Q

Are dividends received ignored in computing taxable total profits?

A

Yes, they’re ignored

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23
Q

Should I assume dividends received by company’s are exempt?

A

Yes

24
Q

What is a loan relationship?

A

Exists whenever a company borrows or lends money

25
Q

What is the treatment of income from a loan relationship dependent on?

A

Whether it’s a trading or non trading loan relationsgip

26
Q

How are interest receivables from banks and building societies handled?

A

Dealt with under the loan relationships regime

27
Q

What is a trading loan relationship?

A

Exists when the loan was made for trade purposes

28
Q

How is interest payable and other costs relating to a trading loan treated?

A

Treated as a trade expense and dealt with on the accruals basis

29
Q

What are examples of a trading loan relationship costs (interest payables)?

A

Bank overdraft interest, interest on loans to buy plant & machinery, interest on loans to buy premises for use in the trade

30
Q

How is interest receivable from a trading loan relationship handled?

A

Treated as trading income and dealt with on the accruals basis

31
Q

What is a non trading loan relationship?

A

Where a loan wasn’t made for trade purloses

32
Q

How is the figure for non trading loan relationships derived?

A

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

33
Q

If income exceeds costs for non trading loan relationships, what happens?

A

The profit forms part of the company’s taxable profits and is charged to corporation tax

34
Q

What are examples of non trading loan relationships (NTLR)

A

Examples include interest on loans to:
- purchase/improve property
- acquire shares in a company
- interest on overdue CT

35
Q

What are examples of NTLR interest receivable scenarios?

A

Interest on:
- bank & building society accounts
- gilt-edged securities
- repayments of overpaid corporation tax

36
Q

Are chargeable gains included in the computation of TTP?

A

Yes

37
Q

How are gains initially computed?

A

In the same way as for individuals, however there’s no annual exempt amount for companies

38
Q

What do qualifying charitable donations include?

A

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

39
Q

What is TTP?

A

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

40
Q

What is the rate of CT?

A

19%

41
Q

What are augmented profits?

A

Taxable total profits plus exempt ABGH distributions

To determine the payment date for CT, you need to calculate augmented profits (AP)

42
Q

What are exempt ABGH distributions?

A

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

43
Q

What happens to a company’s augmented profits?

A

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

44
Q

Companies A and B are related 51% companies if…?

A

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

45
Q

What makes a company a 51% subsidiary of another?

A

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

46
Q

If the company left part way through the accounting period, does it still count as a related 51% group company?

A

Yes it still counts

However a related 51% group company is ignored if it doesn’t carry on a trade

47
Q

Is the number of related 51% group companies important?

A

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

48
Q

When is payment for CT due?

A

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

49
Q

What is a large company?

A

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

50
Q

What means that a company can’t be treated as large?

A
  • 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
51
Q

If the company has related 51% companies, what happens?

A

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

52
Q

How must large companies pay CT?

A

In four equal instalments

Based on the company’s estimated liability for the accounting period

53
Q

When are CT instalments for large companies due?

A

on the 14th day of the 7th, 10th, 13th and 16th months after the start of a 12 month accounting period

54
Q

What is a very large company?

A

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

55
Q

What happens to the £20million limit for very large companies if the accounting period is shorter than 12months?

A

Adjusted downwards proportionately

56
Q

How does the computation for taxable trading profits look?

A

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

BUS167 - Principles of Taxation (16 decks)

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