UPI AND CT Exam Prep

Question 1

Define Property Business

Answer 1

Exploits an interest in land or property and receives rent or other receipts.

That person is then treated as carrying on a property business.

Question 2

Who can carry on a property business?

Answer 2

an individual
a partnership
a trustee of a trust
a personal representative
a company.

Question 3

What is not property income?

Answer 3

-farming
-mining
-commercial fishing
-Profits made from sales of land or property are excluded. (Capital gains)

Question 4

Is a Premium Lease Property income?

Answer 4

> 50 years are chargeable to CGT,
< 50 years charged as property income.

Question 5

What happens to receipts and expenditure for property businesses and overseas?

Answer 5

Receipts (income) and expenditure (expenses) are pooled for UK property income

Similarly, if one property in a property business makes a loss, and another property in the same property business makes a profit in the same year, the loss is pooled with the profit.

Question 6

When does a property business start?

Answer 6

When entered into the first transaction, which exploits their interest and will generate receipts of some sort.

Once a property business has started, all activities are treated as carried out in the course of one property business.

Question 7

When does a property business cease?

Answer 7

• when ast of the properties they are renting is disposed of.
• Or used for non-business purpose

Question 8

Explain the cash basis and when it can be used

Answer 8

Cash basis:
run by individuals or partnerships
with property income of £150,000 or less for the tax year

Question 9

Explain when the cash basis can’t be used (5)

Answer 9

1. The property business is run by a Company/LLP/trustees
2. Income exceeds £150,000 in a year (proportionately if trading < year)
3. If jointly ran and GAAP used. Can’t mix
4. Business premises renovation allowance has been claimed, and a balancing event in the tax year gives rise to a balancing adjustment, or
5. Election to use accruals

Question 10

Cash basis: when are income and expenses recognised?

Answer 10

• income when it is received, and
• expenditure when it is paid.

Question 11

GAAP/Accruals: when are income and expenses recognised?

Answer 11

• receipts are recognised when the income is earned, regardless of whether it has been received, and
• expenditure is recognised when it is incurred, regardless of whether it has been paid.

Question 12

Cash basis: expenditure on mortgages?

Answer 12

property businesses can claim a deduction for the cost of finance (eg mortgage interest) used wholly and exclusively for the business and any relevant costings (Advertising/fees etc)

Question 13

Gurjit owns a commercial property. Which of the follow items of expenditure can Gurjit claim as a deduction under the cash basis? Explain the basis of your answer.

1. Lease premium £30,000
2. Carpeting £3,500
3. Window blinds £10,000
4. External security door shutters £4,500
5. Fire doors £9,000

Answer 13

1. Lease premium £30,000 is not a deduction.
   Legislation specifically excludes a deduction for lease premiums.
2. Carpeting £3,500 is a deduction.
   This is a depreciating asset with an expected life of less than 20 years so Gurjit can claim a cash basis deduction.
3. Window blinds £10,000 are a deduction.
   This is a depreciating asset with an expected life of less than 20 years so Gurjit can claim a cash basis deduction.
4. External security door shutters £4,500 are not a deduction.
   Legislation specifically excludes a deduction for shutters.
5. Fire doors £9,000 are not a deduction.
   Legislation specifically excludes a deduction for doors.

Question 14

Property business in the UK. Where is tax payed?

Answer 14

If the property is in the UK, it does not matter whether the landlord lives in the UK or abroad, as they have a UK property business.

Question 15

Company Property business not UK resident.

Where is tax paid for UK property and Overseas property?

Answer 15

UK property: Chargeable to IT (unless premises of trade in UK, then CT)

Overseas = Nothing to do with us”

Question 16

Company Property business resident in the UK. Where is tax paid for UK property and overseas

Answer 16

UK property = CT in UK
Overseas = CT in UK

Question 17

Examples of property income

Answer 17

• a residential property to tenants, either furnished or unfurnished
• a warehouse for storage
• an office block to a business
• a field to individuals or organisations to use as a venue for sporting events
• a stretch of river to a fishing club.”

Question 18

Cash basis and capital expenditure. How does this work? Allowed/Disallowed?

Answer 18

“From 2017/18, most property businesses can no longer claim capital allowances. Any capital expenditure incurred is generally allowed as a deduction when using the cash basis (through a scheme usually)

Allowed:
a. On depreciating assets of lifespan of < 20 years (or will be of negligible value aftret this time)
b. Examples Furniture, beds, sofas, computer equipment

Not allowed:
c. Assets used in connection with land, alteration or disporal (eg extensions/lifts )
d. Cars - can claim running costs”

Question 19

Difference between starting business and starting a trade

Answer 19

Starting a business is wider than trade. Eg property income is starting a business

Question 20

AP Question

What if a business gets a business bank account, then starts trade a few days later?

Answer 20

This is a start of an AP (S9 -source of income - bank account), followed by a S10 (start or cease of trade= end of AP). First AP will be short.

Question 21

AP Question

What is COTAX’s assumption of first AP length?

Answer 21

Will be 1 year from incorporation

Question 22

What if a CT603 is sent covering several AP’s but the last AP to be covered hasn’t ended?

Answer 22

Company to submit returns for AP’s completed

Question 23

What happens to APE if first source of income is banking on 01 April 2019 and on 01 May 2019 starts their trade?

Answer 23

FIRST AP: 01 April 2019
Second AP: 01 May 2019

Question 24

What are Chargeable Gains?

Answer 24

Companies are not chargeable to CGT.

Chargeable gains of companies are computed using CGT rules

Question 25

Obligation to deliver CT return?

Answer 25

Has to receive CT603, but if a company hasn’t received one they have to tell HMRC within 12 months of their obligation to notify chargeability. Otherwise FTN penalty to be considered.

Question 26

What is a Dormant company?

Answer 26

Not trading and don’t need to submit CT returns (unless CT603 notice to file sent)

Question 27

Loan Relationship - what is it? Examples?

Answer 27

Borrowing money and creating a debt as part of businesses trade

Question 28

What needs to happen to the accounts to find PCTCT?

Answer 28

1) Net Profits (GAAP)
Addbacks and Deductions that are dealt with differently for Tax
2)Trading profit
Addback all other income streams (eg. NTLR, property income, chargeable gains)
3) PCTCT
Tax it! 19%/25%/MRR

Question 29

Pre-Trading expense: Criteria for Pre-trading NTLR to TLR

Answer 29

1) The election must be made within 2 years after the end of the accounting period in which the non-trading loan relationship debit arose.
2) The company must start trading with seven years of the accounting period in which the non-trading expenses was incurred. and
3) Must have been trading loan relationship debit had if it had been incurred in the first period of trading.

Question 30

Pre-Trading Expenditure - NTLR or TLR: Why do I care? (2)

Answer 30

• Some reliefs are allowed only against certain profits.
• pre 2017, relief may have been more limited, because NTLR deficit brought forward could not be set against trading profits.

TLR is treated as expenses of business. NTLR is pooled with other NTLRs.

Question 31

CT tax rates (3)

Answer 31

• 19% for taxable profits below £50,000 - the small profit rate
• 25% for taxable profits above £250,000 - the main rate.
• In between these, marginal rate relief (April 2023 onwards

Question 32

How can losses be claimed?

Answer 32

• on a return
• on an amended return
• on a written claim (2 years from loss APE)

Question 33

What’s a Loan Relationship?

Answer 33

• Borrowing of money and creating a debt.
• Either trade related (TLR) and treated as an expense, or
• Non-trade related (NTLR) and pooled with other NTLRS

Question 34

Property relief examples (3)

Answer 34

• Domestic Items Relief
• Property Allowance
• Rent a room scheme

Question 35

What are Management Expenses
Examples? (2)

Answer 35

Company with investment business. Expenses of “management” allowable deduction

Examples:
- Staff expenses
- fees fpr property evaluations

Question 36

Reliefs for Trade Loss (and in order)

Answer 36

1. Sideways (37(3)a
2. Group Relief (75% subsidiary test)
3. Carry Back - 37(3)b (has to go sideways first) and have to be same trade
4. Carry Back Terminal loss S39 - 3 years from loss making
5. Carry forward S45 (don’t need a claim for anything else)

Question 37

Define: Subsidiary for Group relief

Answer 37

Not less than 75% of ordinary share capital is owned directly or indirectly

Doesn’t have to be UK companies

Question 38

Reliefs for property loss (UK)
- What can’t they do?

Answer 38

• Carried sideways first
• Group Relief
• Carried Forward
• NOT BACKWARDS

Question 39

Relief on NTLR deficits:

Answer 39

Relief on NTLR deficits:
- Carried sideways
- Group Relief
- Carried forward
- Carried back 12 months (only on NTLR profts)

Question 40

Relief on Overseas Property Interest?

Answer 40

• Only carry forward against overseas

Question 41

How to charge CT for dividends on other companies?

Answer 41

You don’t. They’re exempt from CT (already paid CT)

Question 42

When can’t you deduct remunerations from expenses?

Answer 42

• remuneration unpaid nine months after the end of the AP

Question 43

Deductions which are specifically forbidden by provisions in the Corporation Tax Act 2009.

Answer 43

• items of a capital nature
• expenses not wholly and exclusively for the purposes of the trade
• remuneration unpaid nine months after the end of the AP
• expenditure on business entertainment and gifts.

Question 44

Define: Remuneration

Can it be deducted from CT computations?

Answer 44

Payments made to Directors outside dividends and wages.
Must operate PAYE to deduct income tax and national insurance contributions (NICs).

Yes, it’s an expense of the business

Question 45

Define: Dividend

Answer 45

A payment voted to a shareholder.

Shows on DLA as Credit when not paid, and debit when paid

Dividends are after profits, so is not deducted as an expense when calculating its profits chargeable to tax.

Question 46

Can you deduct dividends halfway through the AP

Answer 46

Yes as “interim dividends”.

Question 47

Reliefs for CT?

Answer 47

indexation allowance (frozen)
MArginal Rate Relief
Loss Relief
Group loss relief

Question 48

What happens when loans are written off?

Answer 48

Treated instead as dividend income
8.75%/ 33.75%

dividend income is to be charged as the highest part of a person’s income (i.e. upper tax bracket)

Question 49

Associate of particpator. What are they?

Answer 49

Associates of participators

• Relatives (not include step family,

Relatives do not include step-family, in-laws, common-law spouses, or remoter blood-relatives such as aunts, uncles, and cousins.
Associates also include business partners and trustees of certain settlements in which the participator is the settlor.

Question 50

Who needs to pay CT?

Answer 50

• Incorporated companies
• Unincorporated charities, clubs and societies

Question 51

What are ordinary shares

Answer 51

• They provide for a dividend but only the company makes a profit.
• Preferred ordinary shares – take precedence when dividends are paid

Question 52

What’s a Participator

Answer 52

Any person with share or interest in the capital or income of the company