Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

(FLK1) Business Law and Practice > Taxation > Flashcards

Taxation Flashcards

You may prefer our related Brainscape-certified flashcards:
MBE flashcards MPRE flashcards Civil Procedure 1L flashcards
1
Q

What is the Annual Capital Gains Exemption (“ACGE”)?

A

A Tax Allowance of £3,000 for Individuals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are Benefits in Kind (“BIKs”)?

A

Non-Cash Employement Benefits that:

  • Employers must report to HMRC (Form P11D) and Employees; and that
  • Employees must disclose in their Tax Returns, since BIKs are subject to Income Tax but exempt from PAYE.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is Business Asset Disposal Relief (“BADR”)?

A

Definition:

  • A Tax Relief for Individuals that reduces the rate of CGT to 10% on the Disposal of QBAs.
  • Individuals have a Lifetime Allowance of £1m.

Deadline for Application:

  • The First Anniversary of January 31st following the end of the relevant Tax Year.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are Capital Allowances?

A

Annual Deductions of QCEs from TTPs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are Capital Expenditures?

A

Expenses from one-off transactions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are Capital Receipts?

A

Proceeds from one-off transactions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is Capital Gains Tax (“CGT”)?

A

A Tax on:

  • Chargeable Disposals;
  • Of Chargeable Assets;
  • By Chargeable Persons;
  • That give rise to a Chargeable Gain;
  • Except if it takes place between S/CPs.

Applicable Rates:

  • Basic Rate:
    • 10% generally.
  • Higher and Additional Rate:
    • 20% generally.
  • You determine which Rates apply by adding TI to Chargeable Gains.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is an Allowable Expenditure in relation to Capital Gains Tax?

A

Disposal Expenditure:

  • Cost of Disposal.

Initial Expenditure:

  • Cost of Acquisition, including incidental costs.

Subsequent Expenditure:

  • Cost of enhancing the Asset’s value.
  • Cost of establishing, preserving, or defending the Asset’s Title.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a Chargeable Asset?

A

All Assets, except:

  • PPRs.
  • Sterling and foreign currency.
  • Motor vehicles for private use.
  • Certain investments, including:
    • Life assurance policies.
    • Government securities.
    • National savings certificates.
    • Any investment held in an Individual Savings Account.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a Chargeable Disposal?

A

A Sale or Gift during a Chargeable Person’s lifetime.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a Chargeable Person?

A

A UK Taxpayer.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the Formulae for calculating Chargeable Gain?

A

Disposals at Arm’s Length:

  • Sale Proceeds − Allowable Expenditures − ACGE.

Disposals as Gifts, at an Undervalue, or between CPs:

  • Market Value − Allowable Expenditures − ACGE.

Important Considerations:

  • Capital Losses can be offset against Capital Gains in the same Tax Year, and can be carried forward if the are insufficient Gains to offset.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a Connected Person (“CP”) in relation to Capital Gains Tax?

A

Relatives:

  • S/CPs.
  • Siblings.
  • Lineal Ascendants.
  • Lineal Descendants.
  • In-Laws, Full-Bloods, and Half-Bloods.

Commercial Connections:

  • Business Partners and their Relatives.
  • Firms wherein an Individual owns more than 50% of voting rights or Issued Share Capital.
  • Trustees of Settlements where the Individual, their S/CP, or children are Beneficiaries.

Related Companies:

  • Firms wherein an Individual owns more than 50% of voting rights or Issued Share Capital.
  • Firms under the control of the same Individual or CPs.

Broadly, Business Partners are joint owners of commercial venture with the Individual, and are not considered CPs in bona fide commercial acquisitions or disposals of partnership assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is Corporation Tax?

A

A Tax on the Taxable Total Profits (“TTPs”) of Corporations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Regarding Corporation Tax, what are the Applicable Rates?

A

Main Rate:

  • Rate: 25%.
  • Threshold: Over £250,000.

Small Profits Rate:

  • Rate: 19%.
  • Threshold: Below £50,000.

Tapered Rate (Marginal Relief):

  • Gradually increases tax as TTP increases from £50,001 up to £250,000.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the Dividend Allowance (“DivA”)?

A

An Allowance of £500 for Income earned from Dividends.

In essence, this is a Nil Rate Band.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is an Eligible Savings Product (“ESP”) for Personal Savings Allowance?

A
  • Corporate Bonds.
  • Government Bonds.
  • Savings Accounts with:
    • Banks.
    • Credit Unions.
    • Friendly Societies.
    • Building Societies.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is Holdover Relief (“HR”)?

A
  • A Tax Relief that allows a Donor and Donee to roll over Chargeable Gains from;
  • A Gift or Undervalued Disposal of:
    • Goodwill;
    • Off-Market Shares; or
    • Assets used in the course of business;
  • Into the Acqusition Cost, thereby reducing it.
  • Once the Donee later sells the Asset, they pay tax on the Chargeable Gain.

HR is not automatic. The Donor cannot use the ACGE to reduce it.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are Income Expenditures?

A

Expenses from regular, recurring transactions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are Income Receipts?

A

Proceeds from regular, recurring transactions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is Investors’ Relief (“IR”)?

A
  • A Tax Relief for Individuals that reduces the rate of CGT to 10% on the Disposal of Qualifying Shares in Unlisted Firms.
  • Individuals have a Lifetime Allowance of £10m.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the Qualifying Conditions for Investors’ Relief?

A

Off-Market at Issuance:

  • The Shares must have been Off-Market at Issuance.

Continuity of Shareholding:

  • The Shares must have been continuously held for at least 3 Years from 06/04/2016.

Investor’s Status at the Relevant Time:

  • The Individual (or any CPs) must not have been Employees at any time from Issuance.

Type of Share:

  • The Shares must be Fully Paid-Up Ordinary Shares Issued for cash on or after 03/17/2016.

Continuity of Trading:

  • The Firm (or Trading Group HoldCo) must have been a Trading Firm for at least two years before Disposal.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is Income Tax?

A

A Tax on the TI of Individuals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the Income Tax Bands (after Personal Allowance)?

A

Basic Rate:

  • £0 to £37,700.

Higher Rate:

  • £37,701 to £125,140.

Additional Rate:

  • Over £125,140.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How is Income Tax calculated?

A

1 — Calculate Gross Income.

2 — Calcualte Net Income:

  • Deduct QLR and Pension Scheme Contributions.
  • This gives you NI.

3 — Calculate Taxable Income:

  • Deduct the PA from NI.
  • This gives you TI.

4 — Calculate the Income Split:

  • Subtract Savings Income and Dividend Income from TI.
  • This gives you the Income Split of Non-Savings, Savings, and Dividend Income.

5 — Apply the Appropriate Income Tax Rate:

  • Apply the Tax Rate on Non-Savings Income:
    • Basic Rate: 20%.
    • Higher Rate: 40%.
    • Additional Rate: 45%.
  • Apply the PSA, then apply the Tax Rate on Savings Income:
    • Basic Rate: 20%.
    • Higher Rate: 40%.
    • Additional Rate: 45%.
  • Apply the DivA, then apply the Tax Rate on Dividend Income:
    • Basic Rate: 8.75%.
    • Higher Rate: 33.75%.
    • Additional Rate: 39.35%.
  • This gives you Total Tax Liability (“TTL”).

You apply the Tax Rate for each Band to the corresponding portion of Total Income. The SA and DivA consume Bandwidth. Consider the following:

  • Jim has a TI of £100,000, split as follows:
    • Non-Savings Income — £50,000.
    • Savings Income — £25,000.
    • Dividend Income — £25,000.
  • The Basic Rate will be applied to the first £37,700 of his Non-Savings Income, and the Higher Rate will be applied to the rest thereof, his Savings Income, and his Dividend Income.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is Net Income (“NI”)?

A

An Individual’s Gross Income after Reliefs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is Non-Savings Income (“NSI”)?

A

Income not sourced from Savings or Dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is the Personal Allowance (“PA”)?

A
  • £12,570, reduced by £1 for every £2 of Income above £100,000.
  • At £125,140 or above, it disapplies.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is the Personal Savings Allowance (“PSA”)?

A
  • An Allowance for Interest earned from Eligible Savings Products (“ESPs”).
  • The Allowance varies based on your Bracket:
    • Basic Rate: £1,000.
    • Higher Rate: £500.
    • Additional Rate: £0.

In essence, this is a Nil Rate Band.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is a Principal Private Residence (“PPR”)?

A
  • A Property occupied by an Individual as their Main Residence for the entire period of Ownership.
    • This includes a Grace Period of 9 Months of vacant possession prior to Disposal.
  • S/CPs can only designate one Residence between them, unless they are separated (formally or informally) and living apart.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is a Qualifying Business Asset (“QBA”)?

A

Trading Partnerships and Sole Traders:

  • The Partnership or Sole Tradership must have been owned for at least 2 Years before Disposal.

Assets in a Business that Used to Trade:

  • The Firm must have been owned for at least 2 Years before cessation of trading.
  • The Assets must have been used in the course of business while the Firm traded.
  • The Assets must be Disposed of within 3 Years of cessation of trading.

Shares in a Trading Firm:

  • The Firm (or HoldCo of a Trading Group) must have been a Trading Firm for at least 2 Years before Disposal.
  • The Shares must have been held for at least 2 Years before Disposal.
  • The Applicant must have been an Employee or Officer during the 2-Year period.
  • The Applicant must:
    • Hold at least 5% of the Ordinary Voting Shares; and
    • Be entitled to at least 5% of Distributable Profits and Assets on Winding Up.

Shares in a Firm that Used to Trade:

  • The Shares must have been held for at least 2 Years before cessation of trading.
  • The Applicant must have been an Employee during the 2-Year period.
  • The Applicant must:
    • Hold at least 5% of the Ordinary Voting Shares; and
    • Be entitled to at least 5% of Distributable Profits and Assets on Winding Up.
  • The Shares must be Disposed of within 3 Years of cessation of trading.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is a Qualifying Capital Expenditure (“QCE”)?

A
  • Enduring Benefit: Asset provides value for at least 1 Year.
  • Business Use: Asset is used within the business, not held as an investment.
  • Business Purpose: Asset is used solely for business income, not personal use.
  • Qualifying Types: Asset must be of a Qualifying Type, e.g. Plant, Machinery, R&D, etc.
  • Capital Nature: Expenditure must be used to acquire or enhance long-term Assets, not maintenance.
33
Q

What is Qualifying Loan Relief (“QLR”)?

A

Relief on the Interest paid under Qualifying Loans, which include Loans to:

  • Buy an interest in a Partnership.
  • Buy Shares in or lend to a Close Company.
  • Contribute capital or lend to a Partnership.
  • Buy Shares in an Employee-Controlled Firm or invest in a Co-Operative.
34
Q

What is Rollover Relief (“RR”)?

A
  • A Tax Relief that allows Entities to roll over Chargeable Gains on the Disposal of:
    • Land.
    • Aircrafts.
    • Goodwill.
    • Buildings.
    • Ships and Hovercraft.
    • Fixed Plant and Machinery.
    • Lloyd’s Syndicate Capacity.
  • Into the Acquisition Costs of new QBAs, thereby reducing them;
  • But only if the Purchase is made within One year before or three years after the Disposal; and
  • The proceeds of Disposal are used as funding.
    • Rollover is reduced by £1 for every £1 not reinvested.

RR is not automatic. ACGE cannot be used to reduce the Chargeable Gain rolled over.

35
Q

What is Taxable Income (“TI”)?

A

An Individual’s Gross Income after Reliefs and Allowances.

36
Q

What is Taxation at the Source?

A

Deduction of Tax from the transaction before the Payee receives funds.

The converse is Taxation by Self-Assessment.

Pay As You Earn (“PAYE”), where Employers pay Employees’ Income Tax and National Insurance Contributions to HMRC from their wages, is one such example.

37
Q

What is Gross Income (“GI”)

A

The sum of an Individual’s Income before Reliefs, Allowances, Deductions, or Exemptions.

38
Q

What are Total Taxable Profits (“TTPs”)?

A

The sum of a Firm’s Income Profits and Chargeable Gains.

39
Q

How is Corporation Tax calculated?

A
  • Calculate TTPs.
  • Apply the appropriate Rate.
40
Q

Regarding TTPs, how are Chargeable Gains calculated?

A
  • Calculate the Sale Proceeds.
  • Deduct Allowable Expenditures.
  • Apply Substantial Shareholding Exemption.
  • Deduct Indexation Allowance.
  • Deduct Capital Losses.
  • Deduct Trading Losses.
  • Apply Rollover Relief.
41
Q

Regarding TTPs and Chargeable Gains, what is the Substantial Shareholding Exemption?

A

An Exemption for Gains made on the Disposal of Shares in a Trading Firm or the HoldCo of a Trading Group.

This only applies to Firms, not Individuals.

42
Q

Regarding TTPs and Chargeable Gains, what are the Conditions of the Substantial Shareholding Exemption?

A

The Disposer must have:

  • Owned at least 10% of the Firm’s Ordindary Shares; and
  • Held them for at least 12 consecutive months in the last six years before Disposal.

Firms cannot claim BADR or IR on the same Gain.

43
Q

Regarding TTPs and Chargeable Gains, what is the Indexation Allowance?

A
  • A Tax Relief that allows Firms to inflation-adjust Initial and Subsequent Allowable Expenditures using an Indexation Factor.
  • It does not apply past 31/12/2017.
44
Q

Regarding TTPs and Chargeable Gains, how are Capital Losses Deducted?

A

From Current-Year Gains:

  • Deduct from Chargeable Gains within the same Tax Year.

Carried Forward Four Years:

  • If Losses cannot be fully deducted against Current-Year Gains or Prior-Year Gains, they are carried over automatically.
  • Up to £5m in each subsequent Tax Year may be deducted (the “Deduction Allowance” or “DedA”).
    • This Allowance is shared with Trading Losses.
  • If Gains exceed the DedA, Capital Losses may be deducted from 50% of the excess.
  • Claims must be submitted within four years of the end of Losses’ Tax Year.

Carried Forward Indefinitely:

  • Such Losses can only be used by the Firm that initially incurred them.
  • Claims must be submitted within four years of the end of Losses’ Tax Year.
45
Q

Regarding TTPs, how are Income Profits calculated?

A
  • Calculate Income Reciepts.
  • Deduct Expenditures.
  • Deduct Capital Allowances.
  • Deduct Trading Losses.
46
Q

Regarding TTPs and Income Profits, how is Dividend Income treated?

A
  • Dividend Income is generally exempt from Corporation Tax.
  • Dividends are a Non-Deductible Expenditure, as they are paid from Post-Tax Profits.
47
Q

Regarding TTPs and Income Profits, when is an Expenditure Tax-Deductible?

A

The Expenditure is:

  • Not prohibited by Statute;
  • Wholly and exclusively for business purposes; and
  • Of a revenue, not capital, nature.
    • This includes Interest on Business Debt.
    • If Interest exceeds £2m p/a, deductions are capped at 30% of Income Receipts.
48
Q

Regarding TTPs and Income Profits, what are the applicable Capital Allowances?

A
  • Main-Rate Capital Allowance.
  • Annual Investment Allowance.
  • Full-Expense Capital Allowance.
  • Super-Deduction Capital Allowance.

These are the equivalent of Depreciation.

49
Q

Regarding TTPs and Income Profits, what is the Main-Rate Capital Allowance?

A

An 18% p/a, reduced-balance-basis Deduction of the value of P&M.

When a Firm claims this Deduction, the asset’s Tax Written Down Value (“TWDV”) is reduced by 18%, and in the subsequent year, the 18% will be deducted from TWDV as it then stands.

50
Q

Regarding TTPs and Income Profits, what is the Annual Investment Allowance?

A

An Allowance of £1m for Expenditures on new, used, or refurbished P&M.

51
Q

Regarding TTPs and Income Profits, what is the Full-Expense Capital Allowance?

A
  • A complete Deduction of the value of new and unused P&M.
  • The Firm must claim within the same Tax Year as the purchase.

Active from 01/04/2023 until 31/03/2026.

52
Q

Regarding TTPs and Income Profits, what is the Super-Deduction Capital Allowance?

A
  • A 130% Deduction of the value of new and unused P&M.
  • The Firm must have claimed within the same Tax Year as the purchase.

Currently Inactive. Was Active from 01/04/2021 until 31/03/2023.

53
Q

Regarding TTPs, what are Trading Losses?

A

Losses incurred due Trading Expenses exceeding Trading Income.

54
Q

Regarding TTPs, how are Trading Losses Deducted?

A

From Current-Year Profits:

  • Deduct from TTPs within the same Tax Year.
  • Claims must be submitted within two years of the end of Losses’ Tax Year.

Carried Back to Prior-Year Profits:

  • If Losses cannot be fully deducted against Current-Year Profits, deduct them from TTPs within the last Tax Year.
  • The Firm’s course of business giving rise to the Losses between the two years must have been identical.
  • Claims must be submitted within two years of the end of Losses’ Tax Year.

Carried Forward:

  • If Losses cannot be fully deducted against Current-Year Profits or Prior-Year Profits, they are carried over automatically.
  • Up to £5m in each subsequent Tax Year as per the Deducation Allowance.
  • If TTPs exceed the DedA, Trading Losses may be deducted from 50% of the excess.
  • The Firm’s course of business must remain identical in subsequent years.

Group Relief:

  • Transfer Losses between other Firms in the Group.

Trading Losses incurred between 01/04/2020 and 31/03/2022 (“Pandemic Trading Losses”) may be Carried Back as follows:

  • As per usual; and
  • Up to two more years, with the most recent year first subject to a £2m cap on Losses for each Pandemic Year.
55
Q

Regarding Corporation Tax, what is the Payment Procedure?

A

TTP Below £1,500,001:

  • Pay within 9 months and one day of the Tax Year’s end.
  • File a Tax Return within 12 months of the Tax Year’s end.
  • Interest accrues on overpayments and underpayments.

TTP Over £1,500,000:

  • Pay in four installments over the current and subsequent Tax Year.
56
Q

What is a Trading Firm?

A

A Firm that generates revenue by providing goods and services, as opposed to merely holding investments.

57
Q

What is Value Added Tax (“VAT”)?

A

A Consumption Tax charged on the value of certain transactions.

58
Q

What are Conditions for VAT?

A
  • There is an exchange of Goods or Services for Consideration in the UK.
  • The Goods or Services constitute a Taxable Supply.
  • The Transaction involves a Taxable Person.
  • The Transaction is executed in the ordinary course of business.
59
Q

Regarding VAT, what is a Taxable Supply?

A
  • Any Good or Service that is not explicitly exempt from VAT.
  • This is inclusive of a Firm’s entire scope of business activities.

This excludes employment services.

60
Q

Regarding VAT, what is a Taxable Person?

A

Any Person registered, or that must be registered, for VAT.

61
Q

Regarding VAT, when is Registration necessary?

A

Compulsory Registration — Historic Test:

  • If Taxable Supply exceeds £90,000 p/a in Month 1;
  • The Firm must register within 30 days of Month 1’s end; whereafter
  • Registration takes effect from the start of Month 2.

Compulsory Registration — Future Test:

  • If Taxable Supply is projected to exceed ££90,000 p/a within a 30-day period;
  • The Firm must register within 30 days of the Awareness Date; whereafter
  • Registration will be backdated to the Awareness Date.

Voluntary Registration:

  • Any Firm may choose to volunatrily register for VAT.

Deregistration:

  • The Firm may Deregister if its Taxable Supply falls to £88,000 p/a, or is expected to.
  • Supporting evidence must be submitteed.
62
Q

Regarding VAT, what are the Two Types of VAT?

A

Output Tax:

  • Tax charged by the Firm on the sale of its Taxable Supply.
  • Applies based on the Transaction Value and given Rate.

Input Tax:

  • Tax paid by the Firm on the purchase of Taxable Supply for business purposes .
  • Offset against Output Tax to determine Net VAT Liability.

Net VAT Liability:

  • If Output Tax exceeds Input Tax, the Firm pays HMRC the difference.
  • If Input Tax exceeds Output Tax, HMRC pays the Firm the difference.
63
Q

Regarding VAT, what are the Applicable Rates?

A

Exempt Supplies:

  • Output VAT cannot be charged, but Input VAT cannot be reclaimed. Accordingly, Netting is not possible.
  • Applies to the Health, Insurance, Education, and Financial Services Sectors, among others.

Zero-Rated Supplies:

  • Output VAT is charged at 0%, and Input VAT is payable. Accordingly, Netting is possible.
  • Applies to essential Goods and Servies, like Public Transport.

Reduced Rate Supplies:

  • Output VAT is charged at 5%, and Input VAT is payable.
  • Applies to limited Goods and Servies, like fuel and power.

Standard Rate Supplies:

  • Output VAT is charged at 20%, and Input VAT is payable.
  • This is the default rate.
64
Q

Regarding VAT, when must Invoices and Returns be Filed?

A

Invoices:

  • Within 30 days of the Transaction, specifying that VAT is charged.

Returns and Payment:

  • Within one month and seven days of Quarter’s end.
  • Returns must detail the Net VAT Liability.
65
Q

Regarding VAT, what are the available Accounting Schemes?

A

Retail Scheme:

  • Allows Retailers to estimate VAT Payable based on total daily sales.

Cash Accounting Scheme:

  • Firms with Turnover below £1.35m can account for VAT on cash received and paid.

Annual Accounting Scheme:

  • Firms with Turnover below £1.35m can submit an Annual VAT Return and pay instalments quartery.

Flat Rate Scheme:

  • Firms with Annual Taxable Turnover below £150K have VAT charged as a fixed percentage of Turnover, with rates varying by Industry.
    • Limited-cost Traders must account at 16.5%.
  • Input VAT generally cannot be reclaimed, except on specific purchases.
66
Q

What is the Difference between Direct and Indirect Taxes?

A

Direct Taxes:

  • Levied on persons based on their finances.

Indirect Taxes:

  • Levied on transactions.
67
Q

What are the Boundaries of the Tax Year?

A

Individuals:

  • April 6th through to April 5th.

Companies:

  • April 1st through to March 31st.

This is what the term Current Year Basis (“CYB”) refers to.

68
Q

What happens if a Firm’s Accounting Periods do not perfectly overlap with the Financial Year?

A

TTP is apportioned according to the periods within each Financial Year, with the respective rates payable.

69
Q

What is a Close Company?

A

A Firm that is controlled by:

  • Five or fewer Participators; or
  • Any number of Participators if they are all Directors.

This is unless:

  • It is Public; or
  • It is controlled by a Non-Close Company.
70
Q

Regarding Close Companies, what is a Participator?

A

Someone with a share or interest in the Firm’s capital or income.

This includes Shareholders and Creditors with appropriate Security.

71
Q

Regarding Close Companies, what constitutes Control?

A

The ability to exercise control over the Firm’s affairs. Established if the Person or an Associate or Nominee:

  • Holds more than 50% of votes.
  • Is entitled to more than 50% of Distributions.
  • Is entitled to more than 50% of Capital on Liquidiation.
72
Q

Regarding Close Companies, what constitutes an Associate or Nominee?

A

Associate:

  • S/CPs.
  • Issues.
  • Siblings.
  • Forebears.

Nominee:

  • Someone that holds Rights or Property on another’s behalf, to whom they are attributed.
73
Q

Regarding Close Companies, what are the Tax Implications of a Loan to a Participator?

A

For the Firm:

  • It must pay Corporation Tax on the Loan at the Higher Rate Band for Dividends (33.75%).
  • It must pay within 9 months and one day of the Tax Year’s end.
  • If the Loan is repaid, written off, or waived, the Firm can reclaim the Tax.

For the Participator:

  • It must pay Income Tax on the Loan as a Distribution.
74
Q

Regarding Close Companies, when will a Loan to a Participator not trigger Tax?

A

Trade Credit:

  • Credit given for Goods or Services supplied in the ordinary course of business.
  • The Duration must be per the Firm’s normal terms, elsewise no more than six months.

Money-Lending Businesses:

  • Loans made in the ordinary course of a money-lending business.

Small Loans to Employees:

  • Loans not exceeding £15,000 to a Borrower; that
  • Works full-time at the Firm; and that
  • Lacks a material interest in the Firm, meaning:
    • Direct or Indirect control of over 5% of Ordinary Shares.
    • Entitlement to over 5% of Assets on Liquidation.
75
Q

Regarding Close Companies, what is a Distribution?

A

Benefits provided to Participators other than by reason of employment.

76
Q

Regarding Close Companies, what are the Tax Implications of a Distribution to a Participator?

A

For the Firm:

  • The Distribution is not Tax-Deductible.

For the Participator:

  • It must pay Income Tax on the value of the Distribution.
77
Q

Regarding Close Companies, what is a Transfer of Value?

A

A Transaction that:

  • Reduces the Firm’s value; and
  • Increases a Shareholder’s Estate.

Accordingly, it may be subject to Inheritence Tax.

78
Q

Regarding Close Companies, what are the Transactions in Securities Rules?

A
  • Rules governing Tax advantages gained by reclassifying Income Receipts as Capital Receipts.
  • If they bite, they nullify the reclassification.
  • Where this is ambiguity, Firms should request advance clearance from HMRC.

(FLK1) Business Law and Practice (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions