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Advanced Tax > Topic 18: Corporation Tax > Flashcards

Topic 18: Corporation Tax Flashcards

1
Q

What is an accounting period (AP)?

A

Period for which a charge to corporation tax is made

It cannot exceed 12 months

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2
Q

What is a period of account?

A

Any period which a company prepares its accounts.

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3
Q

What is the proforma to arrive at the TTP?

A 
Tax adjusted trading profit
Non trade interest income
Property Business profit
Misc. income
Net Chargeable gains
R&D Taxable credit (large)

Total Profts
Less QCD’s

= TTP

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4
Q

When is the CT paid?

A

9 months and 1 days after the account period

Unless Large:
The Payment in quarterly installments on the 14th days of months
7; 10; 13; and 16

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5
Q

Define a 51% group

A

Where one company controls the other with over 50% OSC either direct or indirectly.

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6
Q

What are the tax implications of a 51% group?

A

Dividends for 51% group companies are not included when calculated augmented profits.

Group payment arrangements are available

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7
Q

What are the differences in disallowable expenditure against trading profit vs unincorporated?

A

Entertaining employees is allowable for CT
Income/Tax NIC of owner is disallowable for ST
Drawings disallowable for ST

NO adjustment for Private use in CT. Full amount is allowable.

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8
Q

What are the super deduction and special rate pool allowances?

A

Companies are entitled to:

  • Super deduction of 130% - main pool expenditure
  • SRP FYA of 50%

Applies to new expenditure between 1 Apr 21 - 31 Mar 23
Must be on NEW unused P&M

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9
Q

How is the AIA effected by related companies?

A

Related companies are only entitled to one AIA between them

Group companies are related for this purpose

Companies owned by same individual are related where they are either:

  • Engaged in the same activity
  • Share the same premises
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10
Q

What are the differences in capital allowances?

A
  • Max period of computation is 12 months
  • No Private use adjustment
  • Super deductions and special rate pool first year allowances are available.
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11
Q

What is the definition of trade and non trade interest received?

A

Trade interest received is part of the trading profit and no adjustment is required., eg interest on the late payment from a sale.

Non trade income therefore needs to be deducted from trading profits and reallocated as interest income.

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12
Q

What is the definition of trade and non trade interest paid?

A

Trade interest paid is an allowable deduction in arriving at trading profit and therefore if included, no adj. required.

Non trading interest is not an allowable deduction in arriving at trading profit but allowable when calculating interest income.

ADD back and deduct from interest income.

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13
Q

How do we calculate property income?

A 
Rent accrued:
Less:
insurance
Agent fees/mngmt expenses
Repairs/replace/ renew/redecorate
Irrecoverable debts
Pre letting exp (7 yrs)

Assessable property profits

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14
Q

On what basis are property profits assessed?

A

Accruals basis

Aggregate all property profits/losses together

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15
Q

What’s the proforma for calculating chargeable gain?

A 
Disposal proceeds X
Less incidental disposal costs (X)
Net proceeds X
Less: Allowable expenditure (X)
Unindexed gain X
Less indexation allowance (X)
Chargeable gain/(allowable loss)
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16
Q

What are the loss relief options?

A

Capital losses are offset against chargeable gains arising in the same AP.

Any loss remaining is CF against chargeable gains of future accounting periods as soon as they arrive.

17
Q

How would we calculate the TTP if we had a long accounting period?

Trade profit
CA
Non trade interest
Property income
Chargeable gains
QCD
A

Split into two periods:

  1. 1st 12 months of period
  2. Balance of long period.

Trading profit. - Time apportion
CA - Separate calc for each period
Non trade interest - Accruals basis other time app.
Property income - as NTI
Chargeable gains - add to AP in which Disposal date falls
QCD - Deduct from AP in which payment date falls

18
Q

When would Substantial shareholding exemption be triggered?

A

When a company owns > 10% for > 12 months during the last six years before disposal.

Must be a trading company (being disposed of)

Gains exempt
Losses not allowable.

19
Q

What are the tax implications for RD for small companies?

A

Can deduct an addition 130% of expenditure ( total of 230%)

If the relief creates a loss, company can surrender losses arrtibutable to R&D for immediate cash repayment of 14.5% x the lower of:
trading loss
230% qualifying R&D

20
Q

Extra relief for R&D is available on qualifying revenue expenditure. What is qualifyin?

A 
Staff cost  - directly involved including:
- class 1 NIC and 1A NIC
- pension costs
- not benefits
Software and consumables
Agency staff
Payments to contractors (65%)
21
Q

What are the tax implications for RD for Large companies?

A
  • 13% credit on qualifying R&D Expenditure included in TTP, and a charge to CT then the same amount deducted from the CT liability.
  • Excess can be paid to the company upto a maximum of the company’s PAYE/NIC liability in respect of those employees involved in R&D activities for the relevant AP.
  • Remaining excess can be carried forward and offset against first future liability or group relieved
  • Can claim payments to other entities for research (unlike SME’s)
22
Q

What is the tax treatment of intangibles other than goodwill?

(including cost, the election and disposal)

A
  1. Follow A/C treatment (if GAAP) - no adj to profit required.
  2. Cost = allowable deduction

Election:

  1. Can elect to write off cost a 4% per annum
  2. Irrevocable
  3. Made within 2 years of end of AP in which asset is acquired/created

Disposals:
Sales proceeds - TWDV = Profit

23
Q

What is the tax treatment of Goodwill?

A

Amortisation or impairment losses relating to goodwill are not allowable for tax purposes.

Disposals:
Proceeds of sales vs cost to give profit or loss
Profit = trading profit

Losses = non trading debit and can be:

  • Offset against total profit of current period
  • Group relieved
  • Carried forward and offset against total profit of future periods.
24
Q

How does Rollover relief work for intangible assets?

A

Part of the profit deferred if new intangible acquired within 12 months before and 36 months after.

Max relief of:
LOWER OF:
- Disposal proceeds
-Amount reinvested

Less original cost

25
Q

What is the purpose of transfer pricing?

A

To prevent manipulation of profits between connect companies in order to reduce CT payable as a result of transactions which take place at a price below MV.

26
Q

What adjustments are made of transfer pricing?

A

Increase the profits of advantaged company to the amount that they would have been had they transaction happened at arms length.

If other company is UK - a corresponding adjustment is made.

27
Q

An arrangement regarding transfer pricing can be agreed in advance with HMRC. What is this called?

A

Advanced pricing arrangement.

28
Q

When should we consider transfer pricing rules?

A

a) One company directly or indirectly participates in the management, control or capital of the other or;
b) A third party directly or indirectly participates in the management, control or capital of both.

29
Q

What are the transfer pricing rules for a large company?

A

Trading with any company - transfer pricing rules apply.

30
Q

What are the transfer pricing rules for a SME company?

A

Trading with overseas company resident in non-qualifying territory - Transfer pricing rules apply

Trading with UK SME or overseas company resident in a qualifying territory - Transfer pricing rules do not apply.

31
Q

What is a non qualifying territory?

A
  • Not in the UK
  • No DTR agreement
  • If there is a DTR agreement, is does not have a no discrimination clause (ie it’s not a fair one)
32
Q

How would you deal with a company with an investment business?

A

Deduct management expenses after total profit and before QCD’s.

Management expenses are:

  • Directors expenses
  • Salaries of management
  • Capital allowances
  • Expenses and overheads (unallocated)
33
Q

What happens to excess management expenses in an investment business?

A

Carried forward

Can be group relieved.

Advanced Tax (23 decks)

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