W7: Corporation Tax

Question 1

Registration threshold for VAT

Answer 1

£90,000

Question 2

VAT is charged on:

Answer 2

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 3

Why is voluntary registration for VAT good/bad for a company?

Answer 3

Voluntary registration means that input VAT can be recovered (which is helpful to a business in reducing costs). However, it also means that the business will have to charge output VAT on supplies of goods and services to its customers (which may make the business less attractive to customers than its unregistered competitors).

Question 4

VAT de-registration threshold

Answer 4

£88,000

Question 5

VAT paid to HMRC equates to

Answer 5

the difference between the input tax and the output tax in each transaction

Question 6

Standard rate VAT

Answer 6

20%

Question 7

Reduced rated VAT supply is charged at

Answer 7

5%

Question 8

Why is a zero-rated supply desirable for a business?

Answer 8

allows a business to charge VAT at the rate of 0% on its outputs and it can recover any VAT suffered on its inputs

Question 9

supplies that are typically exempt from VAT

Answer 9

insurance, finance, health services and
sale of land and buildings (unless seller has opted to tax)

Question 10

How often should taxable businesses submit a VAT Return online to HMRC?

Answer 10

every 3 months

Question 11

For VAT purposes, how are supplies of domestic heating and power rated?

Answer 11

reduced rated at 5%

Question 12

An accrual

Answer 12

when an expense for the year has been incurred but not charged against profit

Question 13

A prepayment

Answer 13

made when an expense for the year has not been incurred but has been charged as an expense this year

Question 14

the Statement of Changes in Equity in company accounts

Answer 14

An addition to the balance sheet which shows profits brought forward plus current year profit (less dividends paid)

Question 15

What does the share premium account represent?

Answer 15

the difference between the nominal value of the share and the amount the shareholder paid

Question 16

What will determine the amount of corporation tax payable?

Answer 16

the TTP

Question 17

main rate of corporation tax for companies with TTP greater than £250,000

Answer 17

25%

Question 18

Corporation tax rate for a company whose TTP is £50,000 or less

Answer 18

19%

Question 19

Is dividend income received by a company subject to corporation tax?

Answer 19

No, generally exempt from corporation tax and is therefore not included in the company’s TTP

Question 20

to be tax deductible, expenditure must be

Answer 20

wholly and exclusively incurred for business purposes

Question 21

Is entertaining clients tax deductible?

Answer 21

No

Question 22

To be deductible for tax purposes, the expenditure must pass the 3 tests

Answer 22

1. be ‘…wholly and exclusively’ incurred for the purposes of the trade
2. not be prohibited by statute; and
3. be of an income nature

Question 23

corporate interest restriction (CIR)

Answer 23

where a company (or group of companies) has more than £2 million of net interest expense in the UK any year, the amount of interest a company may deduct is restricted to, broadly, a max. amount equal to 30% of its income receipts

Question 24

Interest paid on business loans will generally be a

Answer 24

deductible income expense

Question 25

Main rate capital allowance

Answer 25

Companies can deduct 18% of the value of plant and machinery (‘P&M’) from their income receipts each year on a ‘reducing balance’ basis

Question 26

How does the annual investment allowance (‘AIA’) work?

Answer 26

enables a company to deduct 100% of expenditure on new, used and refurbished P&M up to £1 million

Question 27

New capital allowance (2023-2026) allows companies to

Answer 27

deduct 100% of the cost of new and unused plant and machinery

Question 28

Requirements for Substantial Shareholding Exemption

Answer 28

disposing company must have held at least 10% of the ordinary share capital of the company whose shares are being disposed of for at least 12 consecutive months in the last six years

Question 29

What is the Substantial Shareholding Exemption (SSE)?

Answer 29

a relief that can exempt from corporation tax the whole of a chargeable gain that arises when a company disposes of shares in a trading company (or the holding company of a trading group) provided certain conditions are met.

Question 30

General effect of rollover relief

Answer 30

acquisition cost of the replacement asset is reduced by the amount of the gain made by the sale of the former asset being rolled over

Question 31

timing of sale and purchase requirement for rollover relief

Answer 31

The replacement asset must be purchased within 12 months before or three years after the sale of the old asset

Question 32

A trading loss occurs where tax deductible expenditure exceeds

Answer 32

income receipts for a specific period

Question 33

When can Rollover Relief be restricted?

Answer 33

when not all of the sale proceeds of the original asset are used to acquire the new asset

Question 34

How does group relief work?

Answer 34

Where a group relief group exists, one company with a trading loss can surrender that loss to another profitable company in the group so that the surrendered loss can reduce or eliminate that company’s profits

Question 35

What is the close company tax regime an example of?

Answer 35

anti-avoidance legislation, which prevents or discourages taxpayers from exploiting some of the tax benefits of incorporation

Question 36

Test for close companies

Answer 36

A company will be a close company if it is under the control of either: 5 or fewer participators; or any number of participators who are also directors

Question 37

A participator

Answer 37

a person who has share or interest in capital or income of the company e.g. shareholders and some creditors

Question 38

a company will not be a close company if:

Answer 38

1) its shares are quoted on a recognised stock exchange; or 2) it is controlled by one or more non-close companies, and it could only be a close company by treating a non-close company as one of the five or fewer participators having control

Question 39

"associate" for purposes of close company regime

Answer 39

any close relative, ie spouse, parent (or remoter forebear), child (or remoter issue), sibling

Question 40

Companies with TTP of £1,500,00 or less must pay their tax liability within

Answer 40

9 months and 1 day of the end of the accounting period

Question 41

For rollover relief to apply, the purchase of the replacement asset must take place within

Answer 41

12 months before or 3 years after the sale