Introduction to Corporation Tax

Question 1

What is Corporation Tax payable on?

Answer 1

• All income profits and
• Chargeable gains
• Of a body corporate
• That arise in its accounting period

Question 2

What is TTP?

Answer 2

Taxable Total Profits – sum of company’s profits and gains

Question 3

What is the Company Financial Year?

Answer 3

1 April – 31 March

Question 4

What is the corporation tax rate?

Answer 4

TTP greater than £250,000 – 25%
TTP less than £50,000 – 19%

Question 5

What is relevant to corporation tax if TTP is between £50,000 and £250,000?

Answer 5

Company can claim marginal relief which has a tapering effect on tax rate

Question 6

How is TTP calculated?

Answer 6

Chargeable gains + Income profits

Question 7

How is chargeable gains calculated?

Answer 7

• Sale proceeds
• Minus allowable expenditure
• Minus indexation allowance
• Minus capital/trading losses

Question 8

What are sale proceeds for chargeable gains?

Answer 8

Where company sells capital asset, i.e. land or machinery

Question 9

How are income profits calculated?

Answer 9

• Income receipts
• Minus deductible expenditure
• Minus capital allowances
• Minus trading losses

Question 10

What constitutes a company’s income?

Answer 10

• Rental income
• Trading income
• Interest
• Dividend income

Question 11

Are dividends exempt from corporation tax?

Answer 11

Yes, unless anti-avoidance provisions apply

Question 12

Is dividend tax deductible?

Answer 12

No

Question 13

What constitutes tax deductible expenditure?

Answer 13

Wholly and exclusively incurred for purposes of trade, and be of an income nature with an element of recurrence (e.g. rent, wages, repairs)

Question 14

Are interest payments on business loans deductible from income expense?

Answer 14

Yes, unless more than £2 million of net interest, restricted to 30% of income receipts

Question 15

Are capital expenditure deductible from capital receipts or income profits?

Answer 15

Generally, capital receipts – unless relief applies

Question 16

What type of capital expenditure deductible from income profits?

Answer 16

Expenditure on plant and machinery

Question 17

What is main rate capital allowance in relation to plant and machinery?

Answer 17

Companies can deduct 18% of value of plant and machinery from income receipts each year on a reducing balance basis

Question 18

What is Annual Investment Allowance?

Answer 18

Enables company to deduct 100% of expenditure on new, used or refurbished P&M up to a specified amount (£1 million each year)

Question 19

So how does AIA work?

Answer 19

If I spend £1,000,000 on machinery, I can deduct this plus 18% of main rate capital allowance from income profits

Question 20

Where is indexation allowance frozen up to?

Answer 20

31 December 2017

Question 21

Is there an annual exemption for companies on chargeable gains?

Answer 21

No

Question 22

What is a rollover relief?

Answer 22

Companies can defer tax

Question 23

When is rollover relief available?

Answer 23

When individual or company or partnership disposes for business asset and buys another one, using it for same business

Question 24

What is the general effect of rollover relief?

Answer 24

Rolled into the acquisition of qualifying replacement asset – tax is postponed until replacement asset is sold and no new qualifying replacement is purchased

Question 25

What are qualifying assets for rollover relief?

Answer 25

- Land and buildings - Goodwill - Fixed plant and machinery - Ships and hovercraft - Aircraft - Lloyd’s syndicate capacity

Question 26

When must replacement asset be purchased for rollover relief?

Answer 26

Within 12 months before or 3 years after sale of old asset

Question 27

What if not all of the sale proceeds of original asset are used to acquire new asset for rollover relief?

Answer 27

Only amount used for new asset is rolled over as relief

Question 28

When can rollover relief not be claimed?

Answer 28

If you don't spend more on the new asset than the profit

Question 29

What is a trading loss?

Answer 29

Where tax deductible expenditure exceeds income receipts for specific period

Question 30

Can trading losses bet set off against other taxable profits?

Answer 30

Yes

Question 31

In which ways can trading losses be set off against other taxable profits?

Answer 31

1) Current year profits 2) Previous year profits 3) Future trading profits 4) Group relief

Question 32

How can trading losses be set off against current year profits?

Answer 32

Against other profits, i.e. income profits, chargeable gains of same accounting year

Question 33

How can trading losses be set off against previous year profits?

Answer 33

A company can carry back any remaining losses against taxable profits of the previous accounting period

Question 34

How can trading losses be set off against future year profits?

Answer 34

Can have relief for future trading profits (after £5,000,000, will be 50% relief)

Question 35

What is group relief?

Answer 35

One company with trading loss can surrender loss to another profitable company in the group

Question 36

When must trading loss application be made?

Answer 36

Within 2 years after end of accounting period

Question 37

Can capital losses be brought forward or set back?

Answer 37

Yes

Question 38

When must capital loss deductibility application be made?

Answer 38

within 4 years from end of accounting period of the loss