WS7: VAT, Corporation Tax, Close Companies Flashcards
(42 cards)
When will expenditure be deductible from income receipts?
Wholly and exclusively incurred for the purposes of the trade – e.g. expenditure partially by way of gift is not deductible
Not prohibited by statute
Be of an income nature with an element of recurrence – e.g. rent, interest paid, wages, repairs
When do you need to consider capital expenditure?
Only in the accounting period in which you sell that asset
What are the rates of corporation tax?
- Main rate if 25% for companies with TTP greater than £250,000
- If TTP is £50,000 or less - rate is 19%
- Over £50,000, but less than £250,000 - company can claim a marginal relief which tapers tax
How do you calculate the total taxable profits of a company?
1) Calculate chargeable gain =
Sale proceeds LESS allowable expenditure LESS indexation allowance LESS capital / trading losses
2) Calculate income profits = income receipts LESS deductible expenditure LESS capital allowances LESS trading losses
Chargeable gain + income profits = TTP
When adding up income receipts, what are the most common types of company income?
rent
trading
interest
What is exempt from a company’s TTP
Generally dividends are excluded
Is interest paid on business loans generally a deductible expense?
Yes - company can deduct the amount of the interest it has paid from its profits
What is indexation allowance?
Proportion of the gain on capital which is attributable to inflation
Who can claim a capital allowance deduction from income receipts?
individuals, partnerships, companies
must be on plant and machinery
What is the value of the main rate capital allowance?
Companies can deduct 18% of the value of plant and machinery from their income receipts each year on a reducing balance basis - this is where you get the Tax Written Down Value - can do this each year, so deducting 18% each year
How much is the annual investment allowance?
1 million - can be deducted from value of asset
above 1 million - normal capital allowance of 18% can be applied
When is a company a close company?
Company is a close company if it is under the control of:
* Five or fewer participators OR
* Any number of participators who are also directors
What does a ‘participator’ mean for the purpose of close companies?
A person having a share or interest in capital or income of the company e.g. shareholders and some creditors – essentially shareholders
What does ‘control’ mean for the definition of close company?
Over 50% - therefore, the ability to exercise control over the company
When is a company not a close company?
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 – e.g. wholly owned subsidiary of a non-close company
Its shares are quoted on a recognised stock exchange
What is allowable expenditure for companies?
Indexation allowance - has been frozen since 31 December 2017
Trading and capital losses can be applied to reduce corporation tax liability
What is rollover relief for business assets?
A tax deferral mechanism where a company disposes of a qualifying business asset, and purchases another qualifying business asset
Rollover relief - does the new asset have to be the same type as the old one?
No - but should be in the same general trade of business
What is the effect of rollover relief?
Gain of selling the old asset is rolled into the cost of a qualifying replacement asset - tax can be postponed until asset sold and no new replacement asset purchased
Within what time frame must a replacement asset be purchased for rollover relief?
Within 12 months before, or three years after the sale of the previous asset
When can no rollover relief be made?
If when the cost of the replacement asset is deducted from the sale proceeds of the original asset, the resulting figure is greater than the amount of the gain
What accounting practice should be applied when a company’s accounting year does not coincide with a financial year
Straddling: the TTP of the accounting period must be apportioned between Financial Years and the relevant proportions of TTP taxed at the applicable rates for each financial year
How often do companies with a TTP of under £1,500,000 pay corporation tax?
Within 9 months and 1 day of the end of the accounting period
File a tax return within 12 months of the end of the accounting period to which it relates, together with its accounts
Regarded as finalised 12 months after the filing date for the tax return
Interest on any under or over payments
When do companies with a TTP of over £1,500,000 have to pay their tax bills?
Quarterly
