Tax 5: Corporation Tax & VAT

Question 1

When is corporation tax due? When are accounts due.

Answer 1

Must be paid 9 months and 1 day after the end of the companies financial accounting period.

Corporation tax returns must be submitted 12 months after the end of the companies accounting period.

Exception
- companies/groups with profits over £1.5m have to pay tax in quarterly instalments

Question 2

How much is corporation tax?

Answer 2

19%

Question 3

How is corporation tax calculated?

Answer 3

(Trade Profit + other income + chargeable gains (cap gains) - charitable donations) X 19%

Question 4

How is corporation tax calculated if the company has a long accounting period (over 12 months)?

Answer 4

Two separate calculations
- 1 for first 12 months
- 2nd for remaining months
- will have two separate pay dates but one submission date (12 months from end of longer accounting period)

Question 5

How do you calculate Trade Profit of a company?

Answer 5

Trade Income (minus) cost of sales (minus) capital allowance (which is depreciation)

Allowable deductions
- salary and bonuses paid to directors and employees

Not Deductions
- dividends paid by company are not deductible expenses

NOTE
- no AIA
- just depreciation (18% or 6% on capital)

Question 6

Can a company receive dividends? How is this taxed?

Answer 6

dividends received by companies are not taxable and need not be added to taxable income

Question 7

How are a companies chargeable gains calculated?

Answer 7

Basically capital gains

Chargeable gains (minus) current period capital losses (minus) unused capital losses brought forward

NO annual exemption

Question 8

What relief do companies have for chargeable gains?

Answer 8

Replacement of business assets relief (roll over relief)
- when whole of gain of disposal of qualifying asset is reinvested into another qualifying asset
- within 4 year period staring 1 year before disposal
- has effect of reducing acquisition cost of new asset by amount of gain

Qualifying business assets including:
- land
- buildings
- plant and machinery

Question 9

What is trading loss relief for companies?

Answer 9

When a companies income is less than its expenses:
- must first set it against total profits (before charitable donations) in current accounting period

If some loss remains
- carry it back to set it against total profits (before charitable donations) in the preceding 12 months ; or
- carry it forward to set it against total profits (before charitable donations) in next accounting period.

Question 10

What is a close company?

Answer 10

Company resident in the UK and controlled by either:
- 5 or fewer shareholders; or
- any number of directors who are also shareholders.

Control means ownership of more than 50% of shares or voting shares.

Shares and rights of associates (spouses, parents, siblings and children) included.

Question 11

What happens if close company makes loan to participator at low/no interest?

Answer 11

If to participator/shareholder who is also employee/director

Participant
- if loan exceeds £10k participant must report benefit to HMRC and taxed as earnings
- will have to pay different between interest they are charged by company and official interest rate on the loan as tax

Company
- must pay HMRC 32.5% (higher rated dividend) of loan
- payable within 9 months and one day after end of accounting period

Question 12

What happens if loan made by close company to participator is repaid or written off?

Answer 12

Repaid
- company can reclaim the 32.5% tax paid on the portion repaid

Written Off
- company can reclaim the 32.5% tax paid on the portion written off
- participator then treated as having received dividend equal to written off amount as pays income tax on this