Topic 5 - Corporation tax and the administration of corporation tax Flashcards
What does TTP stand for in the context of corporation tax?
Taxable Total Profits
Under which legislation is a company incorporated?
Companies Acts
What are the two sources of income for a company under TTP?
Income and Gains
What are the two main ways a company is considered a separate legal entity?
From shareholders, From directors
When is a company considered a UK resident for tax purposes?
If it is incorporated in the UK or managed & controlled from the UK
What is the tax implication of a UK-resident company?
Chargeable to UK Corporation Tax (CT) on worldwide profits
What is the usual relationship between an accounting period and a period of account?
They are usually the same.
What are the three events that mark the start of an accounting period?
Trade begins, Source of chargeable income acquired, Previous accounting period ends while company is still chargeable to CT
What are the three conditions that mark the end of an accounting period?
12 months from the start of the period, Date company begins or ceases trade, POA ends
How is a long period of account handled for accounting periods?
It is split into two accounting periods: first 12 months and the remainder.
What is the maximum length of an accounting period for corporation tax computation?
12 months
Which types of income contribute to taxable total profits (TTP)?
Trading income, Interest (non-trading loan relationships), UK property income, Miscellaneous income, Chargeable gains
What are two types of interest income included in TTP?
Interest income from non-trade loan expense (accruals), Loan expense (accruals)
What type of income is included under miscellaneous income?
Income not taxed elsewhere
How are qualifying donations (QCD Qualifying chargeable donation) treated in the computation of TTP?
Deducted from total profits (shown as (X) in computation)
Which type of income is explicitly not taxable under corporation tax?
Dividends received
Are dividends paid considered a deductible expense?
No, dividends paid are not deductible. Not allowable
How are tax-adjusted trade profits calculated for a long period of account?
Time apportioned between two accounting periods, with two capital allowances computations.
Which of the following is NOT included in the taxable total profits computation?
A) Trading income
B) Chargeable gains
C) Private expenses
D) UK property income
C) Private expenses - never see private use adjustment in a company
What is the key difference between corporation tax adjustments and those for sole traders/partnerships?
No adjustment needed for private expenses or appropriations of profit in corporation tax.
How often are capital allowances calculated?
For each accounting period (max 12 months)
Are adjustments needed for private use assets in capital allowances?
No, benefit adjustment is made instead.
What is the percentage of FYA available for new plant & machinery (P&M) in a designated enterprise zone?
100%
Within how many years of a designated enterprise zone being established can 100% FYA be claimed?
8 years
From 1 April 2023, which type of businesses can claim a first-year allowance (FYA) at 100%?
Companies only (not sole traders/partnerships)
What are the conditions for an asset to qualify for the 100% first-year allowance?
The asset must be new (not second-hand), and it cannot be a car or gifted/bought to lease to someone else.
What will an exam question state when full expensing FYA has been claimed on a disposal?
It will mention a 100% disposal value balancing charge.
What is the tax implication of claiming full expensing FYA on disposal?
A 100% disposal value balancing charge applies.
Which of the following is NOT a requirement for claiming 100% first-year allowance?
A) The asset must be new
B) The asset must be a car
C) The asset cannot be bought to lease to someone else
D) The asset must be used for business purposes
B) The asset must be a car
In TTP, how is ‘Non-trading loans’ defined?
All interest income less interest payments on non-trade loans. ALL INTEREST GOES HERE EXCEPT BANK AND BUILDING CORP.
What are three sources of interest income for a company?
Bank/building society accounts, Debentures/loan stock/gilts, Overpaid corporation tax. Deduct and add to NTLR.
What are three examples of interest expenses on non-trade loans?
To purchase let properties, To purchase shares in another company, Interest on overdue CT. Allowable so we add back and deduct NTLR.
What are three examples of interest payments on trade loans?
Bank overdraft, To purchase plant & machinery (P&M), To buy premises to use in trade. All allowable trading expense so we do nothing as its included.
What happens to interest income from non-trade loans in the TTP calculation?
It forms non-trade loan relationship income.
How are interest payments on trade loans treated for tax purposes?
They are allowable trading expenses.
Which of the following is NOT a source of interest income for a company?
A) Overpaid corporation tax
B) Loan stock
C) Purchases of plant & machinery
D) Bank accounts
C) Purchases of plant & machinery.
Which of the following is an example of a non-trade loan interest expense?
A) Bank overdraft
B) To purchase let properties
C) To buy premises to use in trade
D) To purchase P&M
B) To purchase let properties.
What is the key distinction between trade and non-trade loan interest payments?
Trade loan interest is an allowable trading expense, while non-trade loan interest reduces non-trade loan relationship income.
How is property income calculated for tax purposes?
Accrued rental income less accrued rental expenses.
Is interest on loans to purchase properties deductible?
Yes, it is a deductible expense from Non-trading Loan Relationships.
How are chargeable gains included in the computation of Taxable Total Profits (TTP)?
Companies pay corporation tax on their gains, so chargeable gains are included in TTP.
What are the key steps in the computation of a chargeable gain?
Disposal consideration - incidental costs of disposal = Net disposal consideration THEN - Less allowable costs = Chargeable gain.
Which costs are deducted from disposal consideration when calculating chargeable gains?
Incidental costs of disposal and allowable costs.
What is the purpose of the indexation allowance?
It provides relief for the inflation element of a gain for assets purchased prior to 1 January 2018.
Is the indexation allowance relevant for ICAEW POT exams?
No, because all assets in the exam are assumed to be purchased after 1 January 2018.
What are two key differences in gain calculations between companies and individuals?
No annual exempt amount for companies, Exempt assets for companies include goodwill.
Which of the following is an exempt asset for companies?
A) Goodwill
B) Shares
C) Land
D) Investment properties
A) Goodwill.
Do companies receive an annual exempt amount for chargeable gains?
No, companies do not get an annual exempt amount.
How must charitable donations be paid by companies to be deductible?
Paid gross by companies.
When are qualifying donations deductible from total income and gains?
When paid, not when accrued.
If we have a qualifying donations that has been deducted and accrued how do we sort this?
Add back accrued amount and deduct paid amount.
How is corporation tax computed?
Corporation tax = Taxable Total Profits (TTP) × Corporation Tax rate.
What factors determine the corporation tax rate?
Augmented profits compared with upper and lower limits.
What are three types of corporation tax rates?
Main rate, Small profits rate, Marginal relief.
How are corporation tax limits adjusted for short accounting periods?
Limits are scaled down for short accounting periods.
How are corporation tax limits adjusted for associated companies?
Limits are divided between associated companies.
Are marginal relief companies taxed?
Yes at 25% but get relief.
What is the formula for augmented profits?
Augmented profits = TTP + Exempt ABGH distributions.
What are exempt ABGH distributions?
Dividends received from UK and overseas non-51% group companies.
Which of the following is NOT a factor in determining the corporation tax rate?
A) Augmented profits
B) Length of the accounting period
C) Number of employees
D) Associated companies
C) Number of employees.
How are corporation tax rates determined?
Rates are fixed for financial years (FY).
What is the main corporation tax rate for FY2024 (1 April 2024 – 31 March 2025)?
25% x Taxable Total Profits (TTP) where augmented profits exceed £250,000.
Are different corporation tax rates from past years examinable?
No, only the current rate is examinable.
What is the small profits rate of corporation tax? IN TAX TABLES
19%.
What is the threshold for small profits rate eligibility? IN TAX TABLES
Augmented profits of £50,000 or less.
What range of augmented profits qualifies for marginal relief? IN TAX TABLES
Above £50,000 but not exceeding £250,000.
How is marginal relief calculated? NOT IN TAX TABLES
Marginal relief = (U – A) × N/A × 3/200. What does ‘U’ represent in the marginal relief formula? Upper limit (£250,000).
What does ‘A’ represent in the marginal relief formula? Augmented profits.
What does ‘N’ represent in the marginal relief formula? Taxable total profits.
What does ‘U’ represent in the marginal relief formula?
Upper limit (£250,000). Marginal relief = (U – A) × N/A × 3/200
What does ‘A’ represent in the marginal relief formula?
Augmented profits. Marginal relief = (U – A) × N/A × 3/200
What does ‘N’ represent in the marginal relief formula?
Taxable total profits. Marginal relief = (U – A) × N/A × 3/200
What is the standard fraction used for marginal relief in FY 2024?
3/200. Marginal relief = (U – A) × N/A × 3/200
How are corporation tax limits affected by short accounting periods?
Limits for augmented profits are scaled down if the accounting period is less than 12 months.
Which of the following statements about marginal relief is TRUE?
A) It applies to companies with augmented profits below £50,000
B) It reduces the main corporation tax rate of 25%
C) It applies to companies with profits over £250,000
D) It is calculated using a fraction of 5/100
B) It reduces the main corporation tax rate of 25%.
When are two companies considered associated?
If one controls the other or both are under common control by a third party.
What does ‘control’ mean in the context of associated companies?
Holding more than 50% of issued share capital, voting power, or distributable profits/assets if the company ceases to exist.
Which types of companies are included as associated companies? 4
Non-UK resident companies, Acquisitions during the period, Disposals during the period, Sub-subsidiaries.
Which type of company is ignored when determining associated companies?
Dormant companies.
If a company is associated for only part of the accounting period, how is it treated?
It is deemed to have been associated for the whole accounting period for marginal relief calculations.
What is a sub-subsidiary in the context of associated companies?
A company that is controlled by another, which in turn is controlled by another company.
How do associated companies affect corporation tax limits?
Upper and lower limits are divided equally between associated companies to determine the corporation tax rate.
Which of the following is NOT a criterion for determining associated companies?
A) Common control by a third party
B) Holding more than 50% of voting power
C) Number of employees
D) Control through distributable profits
C) Number of employees.
How does the presence of associated companies impact marginal relief calculations?
It reduces the limits for augmented profits, affecting the marginal relief available.
When is corporation tax due for most companies? IN TAX TABLES
Nine months and one day after the end of the accounting period.
How do payment dates vary based on company size? IN TAX TABLES
They differ based on whether a company is ‘large’ or ‘very large’.
How is a company classified as large or very large? IN TAX TABLES
If its ‘augmented profits’ exceed certain thresholds.
How are corporation tax limits adjusted for short accounting periods or associated companies?
Limits are scaled down accordingly.
What are the augmented profits limits? IN TAX TABLES
£1,500,000 and £20 million.
What accounting period do the augmented profits limits relate to?
A 12-month accounting period.
How are the augmented profits limits adjusted for accounting periods shorter than 12 months?
They are scaled down using the formula: Limits × n/12.
How are the augmented profits limits adjusted for associated companies?
They are shared equally among associated companies based on the last day of the previous accounting period.
When is a company classified as large for payment purposes? IN TAX TABLES
If its augmented profits exceed £1,500,000 but do not exceed £20 million (adjusted for short accounting periods and associated companies).
How do large companies pay corporation tax? IN TAX TABLES
In 4 quarterly instalments.
On which day of the month are corporation tax instalments paid for large companies? IN TAX TABLES
On the 14th of each relevant month.
What is the instalment payment formula for large companies? NOT IN TAX TABLES
Each instalment = 1/4 × estimated CURRENT YEAR liability.
In which cases do quarterly instalment payments not apply?
If tax liability is less than £10,000 OR if the company was not large in the previous 12 months and its augmented profits in this AP are £10 million or less.
Which of the following statements is TRUE about large company corporation tax payments?
A) Large companies must pay corporation tax nine months and one day after year-end
B) Large companies pay in four quarterly instalments
C) Augmented profits limits are fixed at £10 million
D) Instalments are based on previous year’s liability
B) Large companies pay in four quarterly instalments.
When is a company classified as ‘very large’ for corporation tax purposes? IN TAX TABLES
If its augmented profits exceed £20 million (adjusted for short accounting periods and associated companies).
How do very large companies pay corporation tax? IN TAX TABLES
In 4 quarterly instalments, 4 months earlier than large companies.
On which day of the month do very large companies pay their corporation tax instalments? IN TAX TABLES
On the 14th of each relevant month.
When are the quarterly instalments due for very large companies? IN TAX TABLES
Months 3, 6, 9, and 12 of the accounting period.
What is the instalment payment formula for very large companies? NOT IN TAX TABLES
Each instalment = 1/4 × estimated CURRENT YEAR liability.
When is corporation tax due for companies that are not classified as large or very large? IN TAX TABLES
Nine months and one day after the end of the accounting period.
Which of the following statements is TRUE about very large company corporation tax payments?
A) They must pay in two instalments
B) They pay four quarterly instalments earlier than large companies
C) They pay at the end of the accounting period
D) They pay tax only if profits exceed £50 million
B) They pay four quarterly instalments earlier than large companies.
When must HMRC be notified about the start of the first accounting period (AP)?
Within 3 months of the first AP beginning.
When does HMRC send out tax returns?
By 31 December.
What happens if no corporation tax return is received by HMRC?
A notification of chargeability is sent.
By when must a full corporation tax return (CT600) be submitted?
Within 12 months of the end of the period of account.
What must be included in a full corporation tax return (CT600)?
Tax calculation, Accounts for the period covered, Supporting calculations.
What is a short return (CT600 short)?
A simplified return for companies not making quarterly instalments and with straightforward tax affairs.
How must companies file their tax returns?
All companies must file and pay online with tax computations and accounts submitted in iXBRL format.
Within how many months can HMRC amend a tax return due to errors? NOT IN TAX TABLES
Within 9 months of the actual filing date.
Within how many months can a company amend a tax return for any reason? NOT IN TAX TABLES
Within 12 months of the normal submission date.
Within how many years can a company claim overpayment relief for overcharged tax? NOT IN TAX TABLES
Within 4 years of the end of the accounting period (AP).
Which of the following statements is TRUE about corporation tax returns?
A) They must be filed within 6 months of the accounting period
B) Supporting calculations are optional
C) Companies must file online in iXBRL format
D) HMRC cannot amend returns after submission
C) Companies must file online in iXBRL format.
What is the only examinable penalty related to corporation tax?
The late filing penalty for companies.
When does interest start accruing on late-paid corporation tax?
From the due date to the date the tax is actually paid.
How does HMRC interpret interest start dates for late corporation tax payments?
Interest starts from the day after the due date, so the due date itself is not counted.
Is interest on late-paid corporation tax an allowable expense?
Yes, it is an allowable loan relationship expense.
When does interest (repayment interest) on overpaid corporation tax start running?
From the later of the due date or the payment date.
How is repayment interest on overpaid corporation tax treated for tax purposes?
It is taxable as non-trading loan relationship income.
Which of the following statements about interest on corporation tax is TRUE?
A) Interest on late tax is disallowed as an expense
B) HMRC counts the due date when calculating interest
C) Repayment interest is taxable as non-trading loan income
D) Interest on overpaid tax is deductible
C) Repayment interest is taxable as non-trading loan income.
