Study Deck Flashcards
How do we calculate the maximum loss a company can receive when the subsidiaries have two difference account periods
1 - the first thing we need to consider is that the loss you can receive is smaller of the loss for the period or the profits for the period.
2 - we then need to realise that you can only claim for relief that relates to that same accounting period
*if one company has losses with an AP ending 31 March 2024 and a sub of the company with profits has an AP ending 31 Dec 2023. then the company of the sub can only apply for losses on a time apportioned basis in which it falls into that companies AP (01April-31Dec) 9 months of losses
3 - we also need to make sure that we include the total profits for the year and deduct any trading losses brought forward from the company with profits first
what are the things we need to consider if we are selling shares, explaining the relevant capital gains position
1 - the first thing we need to consider is are there any matching rules that occur in the period of disposal, the matching rules means that any shares that have been sold on the same day as acquisition or 9 days after acquisition need to be selected first as the shares that have been sold, there is no indexation relief available for matching shares
2 - any shares that do not fall into this category are then selected for the s104 pool which allows us to pool together all of the shares and include any indexation relief
3 - when calculating the proceeds we need to remember that any shares that were matched with the disposals is not include in these proceeds - i.e. if 50% of the shares sold were matched then you only calculate 50% of the proceeds when using the s104 calculation
what is substantial shareholding exemption
this arises when a company disposes of shares in a trading company that had a substantial shareholding, this relief means that any gains arising are exempt and any losses made are not allowable
in order to qualify for substantial shareholding relief you must have the following
- you must hold 10% of the share capital throughout a 12 month period and this must not have begun more than six years prior to the disposal
- you also are to be considered to have held a 10% shareholding if you sell any further shares up to 5 years after you last held a 10% holding - meaning any shares sold after this even if you are below 10% will still be considered for SSE
what is the Goodwill relief available for companies
first thing we need to consider is; has the goodwill been purchased after the 1st April 2019, if so then tax relief is available when the asset has acquired part of a business in which it also acquires intellectual property,
qualifying intellectual property includes:
- Patents
- Registered Designs and
- Copyright or design rights
this relief is given as a 6.5% deduction of cost per annum (note - this is restricted for periods less than 12 months)
the maximum costs on which the deduction is bases is six times the value of the qualifying intellectual property
what are the two situations in which a company will be classed as a UK resident for tax purposes
1 - there main trade must be carried out in the uk
2 - if they are incorporated outside of the uk then there main basis of control and management must be in the uk
we also need to note that a company that is resident in the UK is liable to UK corporation tax on its worldwide profits
what do we need to calculating an R&D Tax credit
1 - Firs thing we need to do is to calculate the amount of potential relief available, companies can apply for a 186% claim on expenditure that qualifies as R&D expenditure.
2 - the surrendered loss relief given for receiving credit is lower of the trading loss available or the R&D 186% claim.
3 - the tax credit is again the lower of the surrendered losses available x 10% or the PAYE cap - shown below
4 - now that we have this amount, we need to calculate the maximum amount of tax credit that the company can receive and we do this by starting off with £20,000 and adding to this the amount of PAYE and NIC liability and multiple this by 3 - (20,000 + (3 x PAYE+NIC))
When should you notify HMRC of registering for VAT
the minimum amount that your company can receive before you need to notify HMRC is £85,000 (91,000 at the end of July 24), you should notify HMRC within 30 days of when you are expecting to breach this amount and should be charging VAT on sales after the 30 days
what are the conditions that must be met in order to qualify for capital treatment - for the disposal of shares
1 - The Vendor must be a resident in the UK
2 - The vendor must have owned the shares for at least 5 years (or 3 years if acquired as a result of a death)
3 - there must be a substantial reduction in the vendors shareholding (ie they must not hold more than 75% of their prior interest after the buy back)
4 - the vendor must not be connected with the company - (not owning more than 30% of the shares)
what are the factors that need to be considered if someone is self employed
the first element we should consider is that there needs to be an obligation to carry out the work, if you are self employed there is no obligation to take on any of the work that is put forth to you.
How are Non-trading deficits (LR) utilised and what’s the restrictions around them
1 - NTLR deficits can only be used against NTLR profits when carried back to the previous 12 month period
2 - they can be fully utilised against all types of income in the current period
3 - carried forward losses can be utilised against all types of income
Notes - we need to state that any losses to be used in the current period and carried back must be made within 2 years of the period in which the deficit occurred / any losses to be utilised going forward must be utilised by 2 years from the end of the following period in which they follow from the original deficit
How to we calculate for capital allowances with two accounting periods (I.e. first AP is 12 months and the second is 4 months)
1 - the first thing we need to do is to apportion the profit between the two periods. Following this we can calculate the capital allowances
2 - first thing we need to consider if there is any AIA available to any of the companies, if there is AIA available then we can time apportion the available AIA (for a 4 month period this would be 4/12 x 1,000,000) - Note - if no AIA is available we would then refer to FYAs
3 - now we can go on to do the pool allocations, regardless of whether this is main pool or special pool we treat both the same. the first 12 month period is calculated as normal, but then we need to make sure we use the carry forward balance for the second AP.
4 - we take the wdv that we just calculated and this is our balance b/f we then calculate the pool allocations making sure to apportion the percentage to the numbers of months in the AP (I.E. 4/12 x 18%)
What needs to be considered if we have a rental property - in regards to calculating TTP
the first thing we will need do is to consider the ledger account has increased or decreased, if it has decreased it would indicate that we have received more income in the year, if it has increased it means that the amount we are due at the end of the year has increased which indicates a decrease in income.
after this we can find out the expenditure, this would comprise of any bad debts, repairs, letting fees etc - note that we can note include anything that would be considered capital in nature or an upgrade as such
after this we can deduct any loan relationships that arose as a result of the mortgage - this would go in the accounts as a loan relationship deficit.
finally once this has been all calculated we will have our property income for the period
what are the requirements for a company to be a part of a capital gains group & a group relief group
In order for a company to be a part of a capital gains group, they must have at least a 75% direct relationship to a member in a group and at least a 50% indirect relation to a member in the group
in order to be part of a group relief group, they need to have a 75% direct and indirect relationship within the group.
we should also note that relief can only take effect when the member is actually part of the group, so we need to state in the answer if there is a specific time that the group relief will be applicable to a member joining the group
Note - A company does not need to be in the UK to be part of the group
how do we go about calculating a capital gains computation
the first thing we need to consider is the AP 12 months or longer/shorter, if so we will need time apportion any of the relief that is given.
now we can start with carried forward balances, this will either be for main pool at 18% or special rate pools at 6%. after this we can include any additions, paying extra attention to if it is main pool, special pool AIA or FYA.
for any FYA this must be new and unused but we can have second hand assets qualify for AIA, if the asset has been purchased before the 31st March 2023 then we can apply for super deduction FYA, however, if the AP end is after the 31st march 2023 then we must time apportion the extra 30% potential relief to the number of months in the period that fall before the 31st March 2023.
Now that we have done this we can add in all of the relevant additions and disposals under the relevant tabs, keep in mind that for capital allowances purposes we do not need to factor in any gains or losses on disposals and just go with the NBV. we also need to show the closing balances at the end
what are the requirements for a group transfer to give rise to a no gain no loss and what needs to happen in order for a degrouping charge to arise
in order for a transfer of a capital asset to not give rise to gain or loss on disposals is when they are transferred between company’s that are in the same capital gains group - in order to be a part of the same capital gains group you must have a 75% direct relationship and at least a 50% indirect relationship.
if they are a member of this group then it can give rise to a no gain no loss transfer, the deemed proceeds of this transfer will be the cost of the asset and any additional indexation costs
if a member leaves the group then this can give rise to a degrouping charge - if the company leaves the group within six years of the transfer and they are still owning the asset then this will give rise to a gain or loss on sale, this is calculated against the company that is selling the shares.
if we have a question that states one member transferred assets to another member then we must state this no gain no loss
What is a cash accounting VAT scheme and what is required to join a cash accounting VAT scheme and what should be considered when leaving the scheme
This scheme allows us to pay VAT supplies as and when they are received in cash, this means that it essentially works as an automatic bad debt relief. if the customer does not end up paying for the goods then we do not need to try and reclaim the VAT on the purchase as this amount wont have been received in cash and therefore wont have gone to HMRC
in order to be enrolled to a HMRC scheme we first need to think about when you need to register for VAT - this needs to happen within 30days of when you are expected to breach the £85,000 limit
in order to be enrolled to the cash accounting scheme you must meet the following conditions:
- there must be reasonable grounds to expect that you will not breach a threshold of £1,350,000 within the next 12 months
- all of your VAT returns must be up to date and have no outstanding VAT supplies to Pay
- you must not have penalties for late VAT returns/submissions within the last 12 months
- you must not have any fines in relation to dishonest conduct in relation to VAT returns
you are required to leave the cash accounting scheme if your taxable supplies is expected to exceed £1.6 million
how do we go about answering a question that asks about a employees cost to the company
the first thing we need to do is to calculate the persons total taxable income, this would be a salary, car benefit, bonuses, interest free loans etc.
we can then add all of this up and we need to make sure that we include the pension contribution of the employer as this is an expenses to the company
after this we need to calculate any class 1 NICs which occurs when the cost of the employee exceeds £9,100 - This threshold can be deducted from the total salary and is chargeable at 13.8%
then we need to calculate any Class 1a Nics which arise on any taxable benefits received by the employee - this is also charged at 13.8%
after this we can then total up all of the expenditure to the company and then deduct 25% as this will be the tax relief to the company - following this we will have the ‘net’ expenditure of the employee to the company
what is rollover relief and how can it be used
rollover relief is available when a company choose to reduce the base cost of a second asset that was purchased through the gain of the disposed asset.
rollover relief can be utilised on any assets for the purchase of the trade and must be on a qualifying asset - Land & buildings or FIXED plant and machinery (where fixed means bolted to the floor
rollover relief can be claimed on any assets that are purchased up to 1 year before the disposal of the relevant asset or 2 years afterwards, the election must be made within 4 years of the end of the AP in which the asset was disposed.
if all of the proceeds of the disposal of the first asset has been used in regards to the purchase of the new asset then the company can utilise rollover relief under section TCGA 1992 section 152.
if the company has not used all of the proceeds in regards to the purchase of the new asset then the balance of this difference is immediately chargeable for corporation tax purposes.
when this is considered in a capital gains computation the balance between the amount immediately chargeable for corporation tax and the amount of gain on the asset is relieved as rollover relief under TCGA 1992 Section 153
what are the rules and the relevant legislation when we consider the use of losses for company on its own
carry back relief - this is a section 37 relief in which it allows a company to carry back any losses to accounting periods which fall wholly or partly within the previous 12 months, in order to make this a company must use all available losses in the current period before it can consider carrying back all of the losses. this also means that a company will not be able to benefit from having any qualifying charitable donations.
Carrying forward losses - this is known as a section 45 claim and can only be carried forward if the company is to be continuing its trade moving forward. A company can specify how much relief they would like to use carrying forward which means that can utilise any qualifying charitable donations. A claim for these types of losses must be done within 2 years of the end of the subsequent AP in which the relief is given
Finally we need to think about the restriction of carrying forward losses, all companies are allowed to carry forward £5mil of losses unrestrictied, after this you are only able to claim relief of 50% of the unrelieved profits - this amount applies to all companies if they’re in an associated companies
what are terminal losses and how do they work?
Terminal losses arise when a company is loss making in its final period, these losses can be carried back to up to 36 months from the end of the start of the final period - as always these amounts need to be claimed with two years of the end of the AP in which the loss relates to
How are UK property losses utilised
the first thing we need to consider is how we calculate the losses, all of the property income and losses are pooled together into either a total profit or a total loss
Current year relief - the amount which is offset is either the total property losses or the amount which will set the profits to nil, this is a mandatory and automatic relief and must be done before trading loss relief are utilised - however, if we have other forms of income we can offset these against any type of income in the year (typically we would want to use these up first as we cannot make a carry back claim and all carry forward claims are streamed)
Carry back - you can not make a carry back claim for property losses
Carry forward losses - these can only be utilised against UK property losses in subsequent periods - the company can choose how much relief to use and the claim must be made within 2 years of the end of the AP in which the losses were made (carry forward losses are always restricted to the 5m + 50% rule)
How are overseas Property Losses utilised
all of the overseas property’s are grouped together to form a total profit or loss
Carry back - no carry back relief is available
Current year - no current year relief is available
Carry forward - these are known as streamed losses which means that they can only be utilise against overseas property income in subsequent periods - these losses are not subject to the carry forward restrictions
How are Capital Losses utilised
A capital losses arises on the disposal of a chargeable asset. However, it must be noted that any indexation costs can not be used to generate a loss - only to reduce the profit
Current year relief - these losses can be offset against any of the companies income for the period
Carry back - you can not carry back any chargeable gains in the period
Carry forward - any capital gains losses to be carried forward must only be done so in a streamed manner, i.e it must only be utilised against capital gains, these losses need to allocate the amount as a chargeable gains deductions allowance (these are also subject to the 5m + 50% rule)
