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PLC - Direct Taxes (Overview) Flashcards

0
Q

Up to what point did the schedular system of taxing income still have effect in relation to taxing the income of companies?

A

Accounting periods ending before 1 April 2009.

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1
Q

A non-resident company that does not have a permanent establishment in the UK pays what instead of corporation tax according to sections 816-817 ITA 2007

A

Income tax.

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2
Q

CTA 2009 has effect for companies in relation to accounting periods ending on or after which date?

A

1 April 2009.

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3
Q

In order to be generally deductible for the purposes of computing the taxable profits of income from a property business, what two conditions must be satisfied?

A

(1) The expenditure must be of a non-capital nature and (2) the expenditure must be incurred wholly and exclusively for the purposes of the “income from property” business.

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4
Q

The “income from property” rules tax the annual profits arising from what?

A

Any business carried on for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the UK.

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5
Q

Is interest on a loan used to buy a property that is used in an “income from property” business, or used to fund repairs or improvement deductible in computing the relevant profits?

A

Yes.

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6
Q

A company that incurs interest charges for the purposes of its “income from property” business will be treated under the corporate loan relationship rules as having a what for the purposes of its corporation tax computation?

A

A non-trading debit.

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7
Q

In what way does a non-trading loan relationship deficit advantage companies in respect of their “income from property” businesses?

A

The loan relationship regime permits all income and expenditure on loans in relation to all letting to be lumped together to arrive at an overall profit or loss. Under the old rules a loss in respect of a particular letting was more restricted as to what it could be set against.

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8
Q

Is trading income for tax purposes the same as income shown in the accounts of a business?

A

No. Various adjustments may need to be made to the accounts even though accounting principles are core to the meaning of income and the time when it is taxable.

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9
Q

How is trading income computed (broadly) for UK tax purposes?

A

It is established by (1) deducting trading expenses of an income nature, incurred wholly and exclusively for the purposes of a trade, from (2) gross receipts that are attributable to the relevant tax computation period.

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10
Q

Is expenditure on entertainment deductible for tax purposes?

A

No.

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11
Q

Are accounting entries for depreciation deductible for tax purposes?

A

No.

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12
Q

Chargeable gains potentially arise on what for UK tax purposes?

A

The disposal of assets.

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13
Q

Do options constitute assets for UK CGT purposes?

A

Yes.

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14
Q

Do debts and incorporeal property constitute assets for the purposes of the UK CGT regime?

A

Yes.

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15
Q

Currency other than sterling constitutes what for the purposes of the UK CGT regime?

A

An asset.

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16
Q

If a person creates an asset and then disposes of it, does it constitute an asset for UK CGT purposes?

A

Yes.

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17
Q

In what case was it held that a right of action for damages is itself an asset?

A

Zim Properties Limited v Proctor [1985].

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18
Q

Receipts on disposals of stock in trade are treated as what for UK tax purposes?

A

Trading income and not a chargeable gain.

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19
Q

What does ESC D33 do?

A

If complied with, it allows taxpayers to avoid the strict consequences of the Zim Properties case so that payments made under a tax indemnity on a share sale do not constitute the taxable proceeds of a disposal of a chargeable asset (the asset being the right to sue under indemnity).NB this ESC was modified in 2014

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20
Q

Receipts and payments which are taken into account in computing taxable income are not otherwise taken into account for what purposes under the UK tax code?

A

CGT.

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21
Q

As a general rule, what are the main costs taken into account when computing a capital gain?

A

(1) The cost of acquiring an asset and (2) any expenditure on the improvement of the asset that is reflected in its state or nature at the time of the disposal.

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22
Q

Allowable capital losses not already set against chargeable gains in a previous period can be what for tax purposes?

A

Carried forward indefinitely and set against later gains, subject to anti-avoidance provisions.

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23
Q

What is “rebasing” for the purposes of tax on capital gains?

A

In the case of an asset acquired before 1 April 1982, actual cost is not used in the computation for chargeable gains: the market value of the asset on 31 March 1982 is used instead.

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24
What is indexation allowance?
Where a company disposes of an asset acquired on or after 31 March 1982, it receives an indexation allowance equal to the increase in the RPI over the life of the asset. In the case of assets acquired before 31 March 1982, indexation is applied to the March 1982 rebased allowable expenditure.
25
When did indexation cease to apply to taxpayers within the charge to CGT as opposed to corporation tax?
It ceased to apply to expenditure after 5 April 1998; indexation on allowable expenditure incurred before that date was only available for the period up to 5 April 1998.
26
What replaced the indexation allowance for taxpayers within the charge to CGT and is it still in force?
Taper relief. Both indexation allowance and taper relief have been abolished for disposals occurring after 6 April 2008.
27
What are the two main rates of CGT currently in force?
18 per cent or 28 per cent for trustees, personal representatives and those paying income tax at the higher and additional rates.
28
How can a share for share exchange defer capital gains tax in the context of a corporate transaction?
Since there has been no true divestment of economic value by the vendor in return for the new shares, the seller will not suffer an immediate tax liability subject to anti-avoidance provisions for shareholders holding more than 5 per cent (TCGA 1992 ss135 and 137). The new shares are treated as the same assets as the shares sold and any gain is "rolled over" until their disposal.
29
How can chargeable gains be deferred when business assets are sold?
Tax on chargeable gains from the disposal of certain types of assets, notably goodwill, land & buildings, and fixed plant and machinery, can be rolled over if the proceeds are reinvested in qualifying assets (section 152 TCGA 1992).
30
How does business asset roll-over relief work?
The consideration received for the old assets is notionally reduced, which reduces the gain. There is then an equivalent reduction in the base cost for the new asset.
31
What is the time limit for business asset roll over relief to apply?
The replacement asset must generally be bought within a four year period of the disposal (from one year before selling the old asset to three years after doing so).
32
Is expenditure on capital assets deductible against trading income (generally speaking)?
No.
33
Describe the relief under the intangible assets regime which is similar to roll-over relief for chargeable gains?
Under the intangible assets regime, there is a transitional relief for goodwill or 'acquired quotas' which were created before 1 April 2002 (when the new regime came into force for intangible assets), pursuant to which roll-over relief can be claimed subject to certain additional conditions being met.
34
When a business purchases a capital asset on which capital allowances are available, how does the capital allowance apply?
The taxpayer can deduct a proportion of the cost of the asset each year as an expense in the calculation of income profits.
35
Why are capital allowances significant to finance leasing?
Equipment is purchased by a banking group that can use the capital allowances to reduce its tax liabilities. The asset is leased to a business that could not have used the capital allowances if it had bought the equipment itself. The benefit of the allowances is then shared between the lessor and the lessee through reduced rental payments.
36
Enhanced first year capital allowances of 100% are available for expenditure incurred on or after 1 April 2003 on what type of plant and machinery? And is there any restriction on the size of the enterprise that can claim them?
"Environmentally beneficial plant or machinery." No size of enterprise restriction.
37
From 2008-2009, first year capital allowances for SMEs have been replaced by what?
An annual investment allowance (AIA), the size of which has varied in the tax years since its introduction.
38
A payable tax credit is available in respect of what where the expenditure was incurred on or after 1 April 2008 but before 31 March 2018?
Losses resulting from capital expenditure on certain designated "green technologies".
39
With effect from 2008-2009, the rate of ordinary writing-down allowances for plant and machinery in the general 'pool' of expenditure has been reduced from 25% to what for 2012-13?
18%
40
What is the de minimis level of unrelieved general pool expenditure which can be claimed in one go by a taxpayer in order to accelerate relief and reduce the need to compute pool balances on very small amounts?
1000 GBP.
41
What is the pool system for capital allowances?
Proceeds of disposal are credited to a pool of expenditure on all plant and machinery and future allowances are given by reference to the remaining balance. There are however separate pools for certain specific types of assets, and a separate system for short-life assets.
42
If the sale proceeds of an asset qualifying for capital allowances exceed cost, how is the excess over cost dealt with?
Under the chargeable gains rules.
43
What is a "Business Premises Renovation Allowance"?
A 100% allowance for the capital costs of renovating or converting unused business premises in disadvantaged areas.
44
How are profits usually defined for the purposes of UK corporation tax?
Income and chargeable gains.
45
What was the major advantage that SMEs enjoy in terms of an R&D tax credit compared to large companies?
SMEs could obtain a cash payment from HMRC if they lacked taxable profits to set the credits against. The regime has now been replaced by an 'above the line credit' as of 1 April 2016.
46
In what circumstances is a company permitted to use IAS to prepare its accounts rather than UK GAAP?
If it is for an accounting period beginning on or after 1 January 2005 and the company's shares are listed on a stock exchange within the EU.
47
How are income profits usually computed for tax purposes?
Income profits = [trading income - capital allowances - trading losses carried forward] + other income.
48
Can carried forward trading losses be set off against other income or chargeable gains for corporation tax purposes?
No.
49
How are chargeable gains computed for corporation tax purposes?
Gain/ Loss = disposal value - [acquisition price + relevant expenditure + any indexation].
50
How are capital allowances factored into a capital gains computation?
The allowances are deducted from the acquisition value as part of the capital gains calculation but only to the extent that to do so does not create a gain.
51
What are the restrictions on the use of capital losses by a company?
It can use the capital losses against chargeable gains in the same or future accounting periods. The losses cannot be surrendered to reduce the chargeable gains of another company in the same group or consortium.
52
What, in terms of a company's own profits, can a trading loss be set against in the current accounting period of that company?
All profits, including chargeable gains, and not just the profits arising from the trade in which the loss was incurred.
53
What is group or consortium relief?
The surrender of a trading loss to another group or consortium company in order to reduce the taxable profits of that second company.
54
What can a current year trading loss for a company be carried back and set against?
The loss can be set against total profits (income or capital), normally for the twelve months preceding the relevant accounting period.
55
For how long can a trading loss be carried forward and set against profits from the same trade?
Indefinitely.
56
Corporate debt is taxed in the UK under what regime?
The loan relationships regime set out in Parts 5 and 6 of CTA 2009 (formerly contained in the Finance Act 1996).
57
What are the two accounting methods by which a company may be taxed on its loan relationships?
The amortised cost basis and the fair value basis.
58
What is the amortised cost basis for the purposes of taxing a loan relationship?
The company is taxed on the progressive increase in the value of the loan as it accrues from the price at which it is issued to the price at which it matures.
59
What is the fair value basis of accounting for a loan relationship?
The taxpayer company is taxed by reference to the market value of the loan at each relevant balance sheet date.
60
How is a loan relationship defined for the purposes of the UK loan relationships regime?
A loan relationship arises where a company is a debtor or a creditor in respect of a money debt that arose as a result of a transaction for the lending of money. It also arises where an instrument is issued for the purposes of representing security for, or the rights of a creditor or in respect of, a debt.
61
Deductible expenses for the purposes of the loan relationships include which four broad classes of costs?
Costs of bringing the loan relationship into existence, the costs of making a payment under that relationship, and the costs of ensuring that payments are received and expenses in relation to a related transaction
62
What is a 'related transaction' for the purposes of the UK loan relationships regime?
Any disposal or acquisition of rights under a loan relationship.
63
What is the main anti-avoidance rule under the UK loan relationships regime?
To the extent the loan has an 'unallowable purpose', this prevents a deduction (see sections 441 and 442 CTA 2009).
64
What is an 'unallowable purpose' under the UK loan relationships regime?
A purpose that is not among the business or other commercial purposes of the company. A tax avoidance purpose is not a business purpose if it is the main or one of the main purposes of the transaction.
65
How are corporate foreign exchange gains and losses generally taxed for accounting periods beginning on or after 1 October 2002?
Under the loan relationships regime.
66
What are the three main classes of derivatives for the purposes of the UK tax code on such products?
A future, an option (including a warrant), and a contract for differences.
67
How are non-trading debits and credits taxed in respect of derivatives?
Under the loan relationships regime.
68
When is all corporation tax generally payable by?
Within nine months of the end of the company's relevant accounting period.
69
If a company pays its tax in instalments, when must the instalments be paid by?
In the 7th and 10th months of the current accounting period and the 1st and 4th months after the end of the accounting period.
70
What is a large company for the purposes of the CTSA payment by instalments regime?
A company whose profits for tax purposes are at least 1.5m GBP.
71
How are the CTSA rules mitigated where a company unexpectedly makes a large profit?
Where a company has profits of 10m GBP or less and in the previous accounting period was an SME, it is not required to pay any instalments in the current period.
72
What adjustment is made to the 10m GBP threshold for the CTSA instalments regime where there are associated companies?
The threshold is reduced proportionately.
73
How is an individual's total income tax generally computed?
The taxpayer's income from all sources over the year of assessment (6 April to 5 April) is aggregated, having deducted any allowable expenses from each source.
74
What is the broad effect of the legislation capping income tax reliefs?
As from 6 April 2013, and where the cap applies, relief is capped at 50,000 GBP or 25% of income, whichever is greater.
75
As from 6 April 2013, small companies with a turnover of less than 77,000 GBP are able to opt to be taxed on what basis?
A cash basis - until their turnover reaches 154,000 GBP.
76
At what level of income does the personal allowance for individuals become subject to adjustment downwards?
100,000 GBP.
77
What is the basic rate of income tax?
20%
78
What is the 'starting rate for savings' of tax on UK savings income?
10 per cent for more than the first £5000 of such income as from 2015/16.
79
What is the higher rate of income tax?
40%
80
What is the additional rate of income tax?
45%
81
What is the rate of withholding tax on UK interest or deposits?
20%
82
If a higher rate or additional rate income taxpayer receives interest on which tax is deducted at source, how is the additional tax liability relating to the interest collected?
By the taxpayer through their tax return.
83
What is the tax credit on a UK company's dividend?
One ninth (so a dividend of 90 carries a tax credit of 10), and the shareholder is treated as receiving income equal to the sum of the dividend and the tax credit. If the taxpayer is only taxed at the basic rate, the rate of tax on the dividend is 10%, and no further tax is required to be paid in respect of that dividend.
84
If dividend income is taxed at the higher or additional rates, what are the relevant rates of tax?
32.5% and 37.5%
85
What, ordinarily, are the residence requirements for a UK CGT charge to arise?
The individual, personal representative or trustee must be resident or, before 13 April 2013, ordinarily resident in the UK in the relevant tax year.
86
What are the two basic rates of CGT for individuals etc.?
28% for trustees, personal representatives and individuals paying income tax at the higher and additional rates and 18% for other income taxpayers.
87
Under section 28 TCGA 1992, what is the time of a disposal for CGT purposes?
The date of a disposal is the date of the exchange of contracts. The timing of a disposal under a contingent contract is when the contingency is satisfied.
88
Are fines and penalties tax-deductible?
No.
89
In what circumstances will a company be resident in the UK for tax purposes?
If it is managed and controlled in the UK or (subject to certain exceptions), if it is incorporated in the UK.
90
How is double tax relief usually given in the UK?
The recipient of the income or chargeable gains gets credit for the overseas country's tax, which can be set against the UK tax.
91
What is a close company?
A close company is, broadly, a UK resident company under the control of five or fewer 'participators', or any number of participators who are also directors.
92
What is a 'participator' for the purposes of the UK's close companies regime?
A participator is a person who owns, or who has the right to acquire, shares in the company. The definition also extends to a participator's 'associate' - ie close relatives or partners.
93
What happens when a close company makes a loan to a participator or their associate?
The company must pay HMRC a sum equal to 25% of the loan. The tax paid is refunded to the company if and when the loan is repaid (completely or partially) to the company provided the company claims the relief.
94
Are loan proceeds from a close company to a participator or their associate taxable?
Not unless they are either (1) taxable as a chargeable benefit under ITEPA 2003 where the participator or associate is a director/ employee or (2) written off by the company, in which circumstances they are taxed as a dividend.
95
If a close company writes off a loan to a participator or their associate, is the company entitled to relief from the tax previously paid?
Yes, if it claims the relief.
96
What is the current rate of corporation tax and what is it scheduled to drop to?
The rate is 20 per cent for 2015/16, 19 per cent as from 1 April 2017 and 17 per cent from 1 April 2020.

Tax - Direct Tax (10 decks)

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