Topic 9: Corporate Taxation

Question 1

What is VAT charged on?

Answer 1

Any supply of goods or services made in the UK where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by that person.

Question 2

Define ‘Taxable supply’.

Answer 2

Any supply made in the UK which is not an exempt supply.

Question 3

Who is considered a ‘taxable person’?

Answer 3

A person who is, or is required to be, registered for VAT purposes.

Question 4

What is the VAT registration threshold?

Answer 4

£90,000.

Question 5

What is ‘output tax’?

Answer 5

The VAT chargeable by a business when making a supply of goods or services.

Question 6

What is ‘input tax’?

Answer 6

The VAT paid by a person on goods or services supplied to the person.

Question 7

What is the current standard rate of VAT?

Answer 7

20%.

Question 8

How is VAT calculated on a VAT inclusive price?

Answer 8

Multiply the price by the VAT fraction, which is currently 1/6.

Question 9

List the four types of supply for VAT purposes.

Answer 9

• Standard Rated
• Reduced Rated
• Zero Rated
• Exempt

Question 10

What is the VAT rate for reduced-rated supplies?

Answer 10

5%.

Question 11

What types of supplies are zero-rated?

Answer 11

• Food (within certain categories)
• Sewerage and water
• Books/newspapers
• Talking books for the blind
• New houses and construction of new houses
• Public transport
• Children’s clothing

Question 12

What are exempt supplies?

Answer 12

Supplies that include the provision of insurance, finance, education/health services, and the sale of land and buildings.

Question 13

What is required of businesses with turnover above the VAT registration threshold?

Answer 13

They must keep their VAT records and make their VAT return online.

Question 14

When must a VAT invoice be issued?

Answer 14

Within 30 days of the supply.

Question 15

What is the main rate of corporation tax for the 2024/2025 tax year for companies with TTP greater than £250,000?

Answer 15

25%.

Question 16

What is TTP?

Answer 16

Taxable total profits chargeable to corporation tax.

Question 17

What types of income receipts are common for companies?

Answer 17

• Rental income
• Trading income
• Interest
• Dividend income

Question 18

Are dividends received by UK companies generally subject to corporation tax?

Answer 18

No, they are generally exempt from corporation tax.

Question 19

What qualifies as tax deductible expenditure?

Answer 19

Expenditure that is ‘wholly and exclusively’ incurred for the purposes of the trade, not prohibited by statute, and of an income nature.

Question 20

What is the consequence of interest paid on business loans?

Answer 20

It is generally a deductible income expense.

Question 21

Fill in the blank: The current deregistration threshold is _______.

Answer 21

£88,000.

Question 22

True or False: A VAT registered business can recover input tax on exempt supplies.

Answer 22

False.

Question 23

What is the purpose of special schemes in VAT accounting?

Answer 23

To simplify accounting for VAT or to reduce VAT liability.

Question 24

What is the Flat Rate Scheme?

Answer 24

A scheme where VAT is charged at a flat rate on turnover rather than on every single transaction.

Question 25

What is expenditure in the context of business?

Answer 25

Money spent by a company entertaining its clients. ## Footnote This includes provisions made in accounts for doubtful debts.

Question 26

What is the corporate interest restriction (CIR)?

Answer 26

Limits interest deduction to 30% of income receipts for companies with over £2 million net interest expense. ## Footnote Aimed at reducing tax liability.

Question 27

What is the general treatment of capital expenditure for tax purposes?

Answer 27

Not usually deductible for calculating income profits. ## Footnote Depreciation is not an allowable deduction.

Question 28

What are capital allowances?

Answer 28

Deductions against income receipts for qualifying capital expenditure. ## Footnote They allow businesses to spread costs over time.

Question 29

What qualifies for capital allowances?

Answer 29

Expenditure on plant and machinery, long-life assets, research and development, and costs of construction. ## Footnote Special capital allowances apply in certain cases.

Question 30

What is the main rate capital allowance for companies?

Answer 30

18% of the value of plant and machinery on a reducing balance basis. ## Footnote Tax written down value (TWDV) is adjusted annually.

Question 31

What is the annual investment allowance (AIA)?

Answer 31

Allows 100% deduction on qualifying expenditure up to £1 million. ## Footnote Any expenditure above this limit is subject to the normal capital allowance.

Question 32

What is the tax written down value (TWDV) after Year 1 for P&M costing £1,400,000 with AIA and normal capital allowance applied?

Answer 32

£328,000. ## Footnote Total Year 1 allowance is £1,072,000.

Question 33

What is full expensing for capital allowances?

Answer 33

Allows companies to deduct 100% of the cost of new and unused plant and machinery without a cap. ## Footnote This applies from 1 April 2023 to 31 March 2026.

Question 34

What was the purpose of the super-deduction allowance?

Answer 34

Provided 130% first-year relief on qualifying P&M expenditures from 1 April 2021 to 31 March 2023. ## Footnote It did not apply to second-hand or leased assets.

Question 35

How can trading losses be utilized for corporation tax purposes?

Answer 35

Set off against current year profits, previous year profits, or carried forward to future trading profits. ## Footnote Claims must be made within specified time limits.

Question 36

What is the calculation for chargeable gains?

Answer 36

Sale proceeds minus allowable expenditure, indexation allowance, and capital/trading losses. ## Footnote No annual exemption for companies.

Question 37

What is the Substantial Shareholding Exemption (SSE)?

Answer 37

Exempts chargeable gains from corporation tax when shares in a trading company are disposed of under certain conditions. ## Footnote Requires at least 10% shareholding for 12 months.

Question 38

What is Rollover Relief?

Answer 38

A tax deferral mechanism to defer tax on gains from the disposal of qualifying assets. ## Footnote Gain is rolled into the cost of a replacement asset.

Question 39

What types of assets qualify for Rollover Relief?

Answer 39

Land and buildings, goodwill, fixed plant and machinery, ships, aircraft, and Lloyd’s syndicate capacity. ## Footnote Replacement asset does not have to be the same type.

Question 40

What is the time frame for purchasing a replacement asset under Rollover Relief?

Answer 40

Within 12 months before or three years after the sale of the old asset. ## Footnote Timing is crucial for eligibility.

Question 41

What is 'straddling' in relation to corporation tax calculations?

Answer 41

Occurs when a company's accounting year does not align with the financial year, requiring apportionment of TTP. ## Footnote Different tax rates may apply for the two periods.

Question 42

What is the Deductions Allowance for carried forward losses?

Answer 42

Allows companies to set off carried forward losses against taxable profits up to £5 million per accounting period. ## Footnote Limits exist when unrelieved profits exceed this amount.

Question 43

What is the Deductions Allowance?

Answer 43

A tax allowance that can be used to offset carried forward losses against taxable profits.

Question 44

What is 'loss restriction' in the context of carried forward losses?

Answer 44

A maximum of 50% of unrelieved profits can be relieved by carried forward losses when taxable profits exceed the Deductions Allowance.

Question 45

How does the Deductions Allowance apply within a group of companies?

Answer 45

The Deductions Allowance applies to the group as a whole rather than to individual companies.

Question 46

What is group relief?

Answer 46

A provision allowing one company with a trading loss to surrender that loss to another profitable company within the same group.

Question 47

What are the anti-avoidance rules regarding trading losses?

Answer 47

Rules that prevent trading losses from being carried forward or back if the company has been sold and the nature of its trade has changed within five years.

Question 48

What temporary measure was introduced for trading losses due to the pandemic?

Answer 48

The carry back period for trading losses was temporarily extended, allowing losses from specific accounting periods to be carried back for up to three years.

Question 49

What is the maximum amount of trading losses that can be carried back without a cap?

Answer 49

Trading losses can be carried back for one year without a cap.

Question 50

What is the deductibility of capital losses?

Answer 50

Capital losses can only be set off against capital gains and cannot generally be carried back to a previous year.

Question 51

How long can capital losses be carried forward?

Answer 51

Capital losses can be carried forward indefinitely within the company that incurred them.

Question 52

What must a company do to crystallize a capital loss?

Answer 52

A claim must be made to HMRC within four years from the end of the accounting period in which the loss arose.

Question 53

What is the procedure for companies with a TTP of £1,500,000 or less?

Answer 53

Estimate tax liability, pay HMRC within 9 months and 1 day, and file a tax return within 12 months.

Question 54

What is the tax payment procedure for companies with a TTP of more than £1,500,000?

Answer 54

Pay tax bills in four installments over the relevant accounting period and the next one.

Question 55

What defines a close company?

Answer 55

A company controlled by five or fewer participators or any number of participators who are also directors.

Question 56

What is a participator in the context of close companies?

Answer 56

A person having a share or interest in the capital or income of the company.

Question 57

What is the meaning of 'control' in relation to close companies?

Answer 57

The ability to exercise control over the company's affairs, typically through voting rights or share capital.

Question 58

What are some exclusions from the definition of a close company?

Answer 58

Shares quoted on a recognized stock exchange or controlled by one or more non-close companies.

Question 59

What loans are exempt from being classified under close company rules?

Answer 59

Loans for goods/services under six months, loans in the ordinary course of business, and loans under £15,000 to full-time employees without material interest.

Question 60

What is 'material interest'?

Answer 60

Indirect control of more than 5% of ordinary share capital or entitlement to more than 5% of assets on winding up.

Question 61

What is the tax effect for a company regarding loans to participators?

Answer 61

The company must pay corporation tax on the loan amount at the rate applicable to dividends for higher rate taxpayers.

Question 62

What is the tax implication for a participator if a loan is written off or waived?

Answer 62

The participator is deemed to receive a dividend equal to the amount of the loan written off/waived.

Question 63

What does 'distribution' mean in the context of close companies?

Answer 63

Includes living accommodation and other benefits in kind provided to participators.

Question 64

What are the inheritance tax implications for close companies?

Answer 64

Transfers of value by a close company result in the value of the gift being apportioned between its shareholders.

Question 65

What are the transactions in securities rules?

Answer 65

Rules that apply to transactions involving a close company that provide a tax advantage by converting income into capital receipts.

Question 66

When should a company apply for advance clearance from HMRC?

Answer 66

When acting on a transaction that may fall within the transactions in securities rules.