SQE 2 Company Taxation Bare Basics

Question 1

Corporation Tax Calculation and Exemptions

Answer 1

(Trade Profit + other income + chargeable gains - charitable donations) X 19%

Capital Gains Exemptions
1. Losses
- carried forwards against future capital gains

2. Gains
   - Replacement of business assets available (1 before - 3 after)

Trading Losses
1. Offset against TOTAL profits BEFORE charitable donation

2. Offset against TOTAL profit in past year before charitable donation (only if did 1 before)
3. Carry forward against future total profit after charitable donation

Question 2

Rules of Loans in Close Companies

Answer 2

1. Loan over £10k made to shareholder/employee at under market value
2. Notional Tax at higher dividend rate (recovered if repaid or written off)
3. Recipient pays income tax on different in interest rate
4. If written off then (that part) tax as dividend

Question 3

When must corporation tax be paid?

Answer 3

Profits under £1.5m
- 9 months and 1 day after accounting period
- returns 12 months after

Profits over £1.5m
- pay in quarterly instalments

Question 4

What is the overall process for income tax (whole general)?

Answer 4

1. Calculate Trading Profit
   - rev - expenses - AIA - write down
2. Calculate Net
   - total inc. - qualifying loans
3. Calculate Taxable
   - Net - PA - Marriage All.
   - this determines your band
4. Calc Non-Saving
   - PA, at each band
5. Calc Savings
   - Exemption if basic or higher
   - same bands as non-savings
6. Calc Dividend
   - 2k exempt amount
   - at bands

Question 5

Partners Income Tax Considerations

Answer 5

1. Only get share of profit/loss
2. May receive salary or interest payments for loans
3. Calculating share
   - first subtract any income or interest that is given to any partner
   - divide remaining profit according to PA

Question 6

Trading loss options for sole proprietors?

Answer 6

1. current / prior year loss relief
   - use to offset total income same year (before PA); then
   - either against current year CG or past year total income (before PA)
2. carry forward the loss
   - use to offset trade profit from same business in future
3. Carry forward relief on incorporation
   - if shares in return then offset against future salary/dividends
   - only whilst you have the shares
4. terminal loss relief
   - if wind up business
   - carry back against trading profit of same and past 3 years

Question 7

Capital Gains Considerations reliefs for individuals?

Answer 7

2. Business Asset Disposal Relief
   - taxed at 10% up to £1m
   - 2 year ownership requirement
3. Hold Over Relief
   - defers
4. Roll Over Relief
5. Incorporation Relief
   - defers
6. Enterprise Investment Relief
   - defers
   - 4 year period (1pre - 3 post)