Corporation Tax: Key elements Flashcards
(24 cards)
What is Corporation Tax
Corporation Tax is a direct tax levied on chargeable profits of companies
What is the main corporation tax rate
The main corporation tax rate as of 2024/35 is 25%
What is the small profits corporation tax rate
The small corporation profits corporation tax rate is 19%
What do corporation tax rates apply based on
Corporation tax rates apply based on the level of profits and whether a company qualifies for Marginal Relief
What does the progression is CT tax rate reflect
The CT progression in rates reflects broader economic policy shifts, particularly in stimulating SME growth
What forms the tax base
Profits Chargeable to Corporation Tax (PCTCT) form the tax base
What are the steps to determine the PCTCT
Steps to determine PCTCT are:
1. Start with accounting profit before tax
2. Adjust for non-deductible expenses
3. Deduct non-taxable income
4. Add capital allowances instead of depreciation
5. Add chargeable gains, deduct allowable losses
6. Apply the correct CT rate or relief
What does the transition from accounting profit to taxable profit involve
The transition from accounting profit to taxable profit involves:
- Adding back disallowable items
- Removing non-trading income
- Ensuring only allowable expenses are deducted
What does the adjustment from accounting profit to taxable profit ensure
This adjustment ensures compliance with HMRC rules rather than company law accounting standards
What is disallowable expenses
Disallowable expenses are:
- Capital items
- Client entertainment
- Political donations
- Dividends
- General provisions for bad debts
What are allowable expenses
Allowable expenses are:
- Staff entertainment
- Business travel, salaries, repairs
- Trade bad debts
- Advertising gifts
- Interest on trade loans
- Employees’ parking fines
When are advertising gifts allowable expenses
Advertising gifts are only allowable only if ≤£50/year/recipient and bear company name
When do Trading losses arise
Trading losses arise when adjusted trading profits < 0
What are the three main reliefs under the CTA 2010
Three main reliefs under the CTA 2010
1. Current Year Relief (s.37)
2. Carry Back (s.37)
3. Carry Forward (s.45)
What is current year relief
Current Year Relief - set off against total profits at the same period
What is Carry back (s.37)
Carry Back (s.37) - 12 months prior, after current period use
What is Carry Forward (s.45)
Carry Forward (s.45) - against future profits of same trade
What is terminal loss relief
Terminal loss relief is if trade ceases, losses from the last 12 months can be offset against total profits from the pervious 3 years, starting with the most recent years
How are companies taxed on gains
Unlike individuals, companies are taxed on gains as part of Corporation Tax
How is corporation tax different to capital gains tax
Corporation tax has:
- No annual exempt amount
- No Business Asset Disposal Relief
- Indexation allowance up to Dec 2017
- Shared matches differently under share identification rules
What is the treatment for capital gains and losses in CT
Treatments for capital gains and losses in CT are:
- Gains added to PCTCT
- Losses offset against gains of the same CAP
- Unused losses carried forward only against future gains
When is Marginal Relief used
Marginal relief is used where profits fall between £50,001 and £250,000
Marginal relief =
Marginal relief = 3/200 X (U - A) X N/A
Where:
- U = Upper limit (£250,000)
- A = Augmented profits (includes UK dividends)
- N = Taxable (non-augmented) profits
What does Marginal relief reduce
Marginal Relief reduces the effective tax rate between 19% and 25%, smoothing the progression
