5. Corporation Tax Flashcards
(35 cards)
Within what time after the end of its financial accounting period must a company (1) pay any corporation tax which is owing, and (2) submit its tax return?
Tax due: Nine months and one day
Return due: Twelve months
What is the difference between the tax-status of dividends paid by a company and to a company?
Dividends paid out: not tax deductible
Dividends received: usually exempt from tax so not added to taxable income
How is the base cost for an asset where roll-over replacement asset relief is claimed by calculated?
calculate the difference between cost of new asset and that of original asset, and then deduct relevant amount from cost of new asset.
When might CGT still be due where applying roll-over replacement asset relief?
where proceeds of original sale exceed the cost of new asset.
* Equal the amount by which the proceeds of the original asset’s exceed costs the replacement asset.
What are the three ways in which a company can treat its trading losses?
- Set off against total profits (before donations) in the current accounting period
- Carry back to set off against total profits (before donations) in the preceding accounting periods
- Carry forward to set off against total profits (after donations) of a future accounting period
What is a close company?
Company resident in UK and controlled by either:
- Five or fewer shareholders, or
- Any number of directors who are also shareholders
What happens if a close company makes a loan to a shareholder who is also a director/employee and charges no interest on this? What is triggered if the loan is over £10,000?
A taxable benefit arises valued at the current official interest rate. If the loan is over £10,000, the benefit must be reported and taxed as earnings
If a close company makes a loan to a shareholder, even if interest is charged, what is the amount of the notional tax payment which must be deposited with HMRC and within what time limit should this payment be made?
The company must pay to HMRC 32.5% of the loan within nine months and one day after the end of the accounting period in which the loan was made
Is the payment refunded when the loan is repaid or written off?
Yes
Is the notional payment paid to HMRC deductible by the company as an expense?
No
What are the various C.T rates, and when are they applicable?
- Profits above £250,000 - 25% (main rate) applied as a flat rate.
- Profits £50,000 or less - 19% (small profits rate)
- Profits between two bands - marginal relief rate of 26.5% on amount exceeding £50k.
What is the general rule for offsetting capital losses against trading profits?
Capital losses may not be set off against trading profits of any accounting periods.
- Only offset against chargeable gains of the same or later accounting periods.
- cannot look back
When is CT payable to the HMRC, and what is an exemption to this?
CT is payable **9 months and 1 day ** after the end of the company’s accounting period
- Tax return = filed within 12 months of end of accounting period.
Exception - companies with TTP of £1.5 million or more must pay HMRC in 4 installments over 2 accounting periods.
When carrying back trading losses, what can they not be offset against?
chargeable gains
When carrying forward trading losses, what can they be offset against?
Can carry forward the trading loss and use it to reduce its total profits, including chargeable gains, for the third accounting period
What purpose do the special taxation rules for close-companies serve?
Anti-avoidance regime, aimed at preventing individuals from receiving loans which are untaxed (cf. salary or dividend), especially if the loan is not repaid by setting up corporate entities.
What are two exceptions to the ‘close-company’ rule, where even if the conditions are satisfied, the company will not fall within its scope?
1) Listed on recognized stock exchange
2) Controlled by one or more non-close companies.
How is a ‘close-company’ taxed on loans to its shareholders and their associates?
company must pay a levy to HMRC equivalent to the amount if an individual in a high-band rate for income was taxed for receipt of dividend (33.5%).
- Pay HMRC within 9 months + 1 day after the accounting period where the loan was made has ended.
Can a company reclaim the tax-levied on a loan to participators?
1) If loan is repaid - HMRC reimburses tax paid.
- no tax liability for the borrower as an individual either.
2) If loan is written off by company - HMRC reimburses tax paid, but
- borrower is taxed as if ‘written-off’ amount was receipt of
dividends (and thus taxable at its appropriate rate).
What are three exceptions where loan to shareholders will not fall within the ‘close-company’ tax avoidance regime?
- Credit in respect of goods/services normally supplied by company in the course of its business, which lasts no longer than 6 months or company’s
usual limit; - Loan made in course of the company’s business, which includes money lending;
- Loan that (1) together with any prior loans does not exceed £15,000; (2)
borrower works full-time for the company; and (3) owns 5% or less of the company’s shares.
- All three conditions must be satisfied.
What is the percentage applicable when calculating the written-down allowance for P&M bought to carry-on business?
18% per year on the total value of all P&M used to help carry on business.
- deduct 18% from OG price, and important to ensure that in the following year you re-calculate relief using written down value (assets’ value once WDA applied).
Can the capital allowance for P&M be claimed if it is also used outside of the business?
Yes, but must reduce the amount of capital allowances claimed by the amount asset is used outside business.
What are the five steps to calculating corporate tax?
1) Work out income profits
2) Work out the chargeable gains
3) Add the chargeable gains and income profits together
4) If applicable, deduct trading losses from total profits.
5) Apply CT tax rate
When can Annual Investment Allowance be applied?
capital allowance
- Deduct 100% on the entire cost of newly purchased P&M for up to £1 million (new, used, refurbished, leased).
◆ If over £1million- can calculate leftover using WDA(18%).
