Lecture 1 - Corporation Tax

Question 1

Who pays corporation tax?

Answer 1

UK resident companies

Question 2

What is corporation tax paid on?

Answer 2

Total taxable profits for the accounting period

Question 3

What is total taxable profits?

Answer 3

The combination of income and gains

Question 4

What’s the difference between the way a company pays tax vs an individual?

Answer 4

A company has one computation for tax (a combination of income and gains) = total taxable profits

An individual has 2 separate computations for tax (Income tax and capital gains tax)

Question 5

What is the difference between an accounting period and a period of account?

Answer 5

An accounting period is defined for tax purposes and cannot be greater than 12 months

A period of account is the period in which a company prepares it’s financial statements upon, this can be less than 12 months, equal to 12 months or more than 12 months up to a maximum of 18 months

Question 6

What is the maximum amount of months for an accounting period?

Answer 6

For tax purposes, the accounting period cannot exceed 12 months

Question 7

How do you treat a period of account which exceeds 12 months?

Answer 7

Split into 2 accounting periods
1st = first 12 months
2nd = remainder

NO other split is allowed

Question 8

What does the payment date of corporation tax depend on?

Answer 8

Augmented profits of the company

Question 9

How are augmented profits calculated?

Answer 9

Total taxable profits

Plus: Dividends received from non-group companies

Question 10

What is the threshold for augmented profits for corporation tax payment due dates?

Answer 10

£1.5 million

Question 11

What 2 elements is the augmented profits threshold impacted by?

Answer 11

Related 51% companies (divide by total number of group companies at the end of the AP)

Short AP (time apportion)

i.e. £1.5m / n x AP/12

Question 12

When it comes to 51% companies in a group, how do we determine who is included?

Answer 12

We look at the members who were there at the end of the PREVIOUS accounting period

Question 13

With a 51% group, what happens if a member leaves the group in the current accounting period?

Answer 13

We still include them in the group for the period,

as we base it off who was there at the end of the previous accounting period

Question 14

With a 51% group, what happens if a member joins the group in the current accounting period?

Answer 14

We ignore them from group reporting, as we base it off who was there at the end of the previous accounting period

Question 15

What companies are included in 51% groups?

Answer 15

Overseas companies

Question 16

What companies are excluded in 51% groups?

Answer 16

Dormant companies

Non-trading companies

Question 17

When are the installment payments for corporation tax due?

Answer 17

6 months and 14 days after the start of the accounting period, then 3 months after that (quarterly)

Question 18

If the accounting period is 1 April 2020 - 31 March 2021, when will the first installment be due?

Answer 18

6 months and 14 days after the start of the AP
14th October 2020
Then every 3 months

Question 19

Is interest charged on underpayment of instalment of corporation tax?

Answer 19

Yes, interest will be charged for underpayments in a quarterly payment

Question 20

How are short accounting periods calculated for instalment payments?

Answer 20

First instalment will be the lower of:
3/AP months x corporation tax
total corporation tax for accounting period

Question 21

Why are short accounting periods 3/AP months?

Answer 21

Because ideally we want the instalments to be split over 3 months

Question 22

What is the interest rate charged if corporation tax is paid underpaid?

Answer 22

2.75%

From the date the interest was due until the date the payment has been made

Question 23

What is the interest rate paid by HMRC if corporation tax is overpaid?

Answer 23

0.5%
From the later of: the due date, or the actual date of payment
To the date of repayment