ACCA Paper P6 (UK)
Advanced Taxation
(ATX)
Class Notes
September/December 2015
© Interactive World Wide Ltd, May 2015
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior written
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Contents
PAGE
INTRODUCTION TO THE PAPER
5
CHAPTER 1:
FUNDAMENTALS OF CORPORATION TAX
15
CHAPTER 2:
OUTLINE OF INHERITANCE TAX
111
CHAPTER 3:
INHERITANCE TAX AND THE DEATH ESTATE
149
CHAPTER 4:
STAMP TAX
197
CHAPTER 5:
FUNDAMENTALS OF TAXING CAPITAL GAINS
205
CHAPTER 6:
VARIATIONS TO CAPITAL GAINS TAX
231
CHAPTER 7:
CAPITAL GAINS TAX – SHARES AND SECURITIES
245
CHAPTER 8:
CAPITAL GAINS RELIEFS AND EXEMPTIONS
265
CHAPTER 9:
ETHICS AND THE TAXATION OF TRUSTS
319
CHAPTER 10: INCOME TAX, INVESTMENT ADVICE AND OVERSEAS ASPECTS
331
CHAPTER 11: PROPERTY BUSINESS PROFITS
387
CHAPTER 12: EMPLOYMENT INCOME AND CLOSE COMPANIES
399
CHAPTER 13: NATIONAL INSURANCE AND SELF - ASSESSMENT
449
CHAPTER 14: INCOME FROM SELF EMPLOYMENT
463
CHAPTER 15: TRADING LOSSES AND PARTNERSHIPS
509
CHAPTER 16: VALUE ADDED TAX
547
CHAPTER 17: CORPORATION TAX – GROUPS AND OVERSEAS ASPECTS
589
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Introduction to the
paper
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5
IN T R O D U C T I O N T O T H E P A P E R
AIM OF THE PAPER
To develop knowledge and skills relating to the tax system as applicable to
individuals, single companies, and groups of companies.
OUTLINE OF THE SYLLABUS
1.
Taxation of individuals
2.
Income tax
3.
Capital gains tax
4.
Tax on death
5.
Tax of trusts
6.
Tax for companies
7.
Stamp duty and Stamp duty land tax
8.
Value added tax
9.
Interaction of the taxes and the mitigation of tax.
FORMAT AND BACKGROUND OF THE EXAM PAPER
Background about the P6 Exam and the P6 Examiner
Rory Fish, the P6 examiner, has now set eighteen Advanced Taxation exams
including the old syllabus 3.2 exams for the December 2006 and June 2007 exams,
the pilot paper and the P6 exams from December 2007 to December 2014
inclusive.
The only way to pass this very challenging exam is to practice as many past exam
questions set by Rory Fish as possible.
The examiner has written several articles and has stated that students should not
expect questions to be set based on any articles he has written.
Format and content of the P6 Exam
The only area of the syllabus that the examiner has stated will be tested for certain
in every P6 exam is the topic of Ethics and this will appear in all papers and will be
worth at least 5 marks.
The rest of the syllabus can be tested anywhere in section A or B. The examiner
has stated, however, that those areas of the syllabus which are new to P6 (not
tested in F6) are likely to feature more frequently in P6 exams.
Section A
Two compulsory questions, with a total of 60 marks in this section. Question 1 (35
marks) and question 2 (25 marks).
The examiner has stated that questions in this section will concentrate on
application, evaluation and explanation skills.
Questions will often require a letter, report or memorandum (2 marks will be
awarded for answering in the appropriate format).
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IN T R O D U C T I O N T O T H E P A P ER
Section B
Two questions out of a choice of three.
A total of 40 marks in this section with each question being 20 marks. The
examiner has stated that questions in this section will be more structured than the
questions in section A, with headings and more guidance.
Tax rates and allowances given in P6 to be used for the
June 2015 and December 2015 exams
SUPPLEMENTARY INSTRUCTIONS
1.
You should assume that the tax rates and allowances for the tax year
2014/15 and for the financial year to 31 March 2015 will continue to
apply for the foreseeable future unless you are instructed otherwise.
2.
Calculations and workings need only be made to the nearest £.
3.
All apportionments should be made to the nearest month.
4.
All workings should be shown.
Income tax
2014/15
Normal rates
Dividend rates
Basic rate
Higher rate
£1 to £31,865
£31,866 up to £150,000
%
20
40
%
10
32.5
Additional rate
£150,001 and above
45
37.5
A starting rate of 10% applies to savings income where it falls within the first
£2,880 of taxable income.
Personal allowances
£
Born on or after 6 April 1948
10,000
Born between 6 April 1938 and 5 April 1948
10,500
Born before 6 April 1938
10,660
Income limit
Personal allowance
Personal allowance (born before 6 April 1948)
100,000
27,000
Car benefit percentages
The base level of CO2 emission is 95 grams per kilometre.
The percentage rates applying to petrol cars with CO2 emissions up to this level are:
%
75 grams per kilometre or less
5
76 - 94 grams per kilometre.
11
95 grams per kilometre
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IN T R O D U C T I O N T O T H E P A P E R
Car fuel benefit
The base level figure for calculating the car fuel benefit is £21,700.
Authorised mileage allowance payments (AMAP)
First 10,000 business miles
45p per mile
Any business miles above 10,000
25p per mile.
Pension scheme limits
Annual allowance 2014/15
£40,000
2011/12 to 2013/14
£50,000
Lifetime allowance
£1,250,000
The maximum contribution that can qualify for tax relief without any earnings is
£3,600.
New individual savings accounts (NISAs)
New individual savings accounts – the investment limit
£15,000
Child benefit income tax charge
Where income is between £50,000 and £60,000, the charge is 1% of the amount of
the child benefit received for every £100 of income over £50,000.
Residence: number of ties needed to be UK resident
Days in UK
Previously UK resident
Not previously UK resident
Less than 16 days
Automatically not UK
resident
Automatically not UK resident
16 to 45
Resident if 4 UK ties
Automatically not UK resident
46 to 90
Resident if 3 UK ties
Resident if 4 UK ties
91 to 120
Resident if 2 UK ties
Resident if 3 UK ties
121 to 182
Resident if 1 UK tie
Resident if 2 UK ties
183 days
Automatically UK resident
Automatically UK resident
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IN T R O D U C T I O N T O T H E P A P ER
Capital allowances
Plant and machinery
Main Pool
18%
Special rate pool
8%
Motor cars
CO2 emission up to 95 grams per kilometre
100%
CO2 emission between 96 and 130 grams per kilometre
18%
CO2 emission over 130 grams per kilometre
8%
Annual investment allowance
First £500,000 of expenditure
100%
Enhanced capital allowances (ECA)
100%
Corporation tax
Financial year
2011
2012
2013
2014
Small profits rate
20%
20%
20%
20%
Main rate
26%
24%
23%
21%
Lower limit (£)
£300,000
£300,000
£300,000
£300,000
Upper limit (£)
£1,500,000
£1,500,000
£1,500,000
£1,500,000
3/200
1/100
3/400
1/400
Standard fraction
Marginal relief
(U – A) × N/A × Standard fraction
Patent box deduction
Net patent profit x 70% x [(MR-10%)]/MR
Where MR is the main rate of corporation tax
Value added tax
Registration limit
Deregistration limit
£81,000
£79,000
Standard rate
20%
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IN T R O D U C T I O N T O T H E P A P E R
Inheritance tax: nil rate bands and tax rates
Rate of tax on excess over nil rate band - Lifetime rate
20%
- Death rate
40%
6 April 2014 to 5 April 2015
£325,000
6 April 2013 to 5 April 2014
£325,000
6 April 2012 to 5 April 2013
£325,000
6 April 2011 to 5 April 2012
£325,000
6 April 2010 to 5 April 2011
£325,000
6 April 2009 to 5 April 2010
£325,000
6 April 2008 to 5 April 2009
£312,000
6 April 2007 to 5 April 2008
£300,000
6 April 2006 to 5 April 2007
£285,000
6 April 2005 to 5 April 2006
£275,000
6 April 2004 to 5 April 2005
£263,000
6 April 2003 to 5 April 2004
£255,000
6 April 2002 to 5 April 2003
£250,000
6 April 2001 to 5 April 2002
£242,000
6 April 2000 to 5 April 2001
£234,000
Taper relief
% Reduction
Years before death
Over 3 years up to 4 years
20
Over 4 years up to 5 years
40
Over 5 years up to 6 years
60
Over 6 years up to 7 years
80
Over 7 years
100
Rates of interest
Official rate of interest
3.25%
Rate of late payment interest
3%
Rate of repayment interest
0.5%
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IN T R O D U C T I O N T O T H E P A P ER
Stamp duty land tax
£150,000 or less (1)
Nil
£150,001 - £250,000
1%
£250,001 - £500,000
3%
£500,001 - £1,000,000
4%
£1,000,001 - £2,000,000 or more (2)
5%
£2,000,001+ (2)
7%
(1) For residential property, the nil rate is restricted to £125,000.
(2) The 5% and 7% rates only apply to residential properties only.
Stamp Duty
Shares
0.5%
Capital gains tax
£
Annual exempt amount for individuals
11,000
Annual exempt amount for a trustee
5,500
Rate of tax
Lower rate
18%
Higher rate
28%
Entrepreneurs’ relief
Lifetime limit
£10,000,000
Rate of tax
10%
National Insurance (not contracted out rates)
Class 1 Employee
£1 to £7,956 per year
£7,957 to £41,865 per year
£41,866 and above per year
Nil
12%
2%
Class 1 Employer
£1 to £7,956 per year
£7,957 and above per year
Nil
13.8%
Employment allowance
£2,000
Class 1A
13.8%
Class 2
£2.75 per week
Small earnings limit
£5,885
Class 4
£1 to £7,956 per year
£7,957 to £41,865 per year
£41,866 and above per year
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Nil
9%
2%
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IN T R O D U C T I O N T O T H E P A P E R
PASS RATES FOR THE P6 EXAM
June
2009
Dec
2009
June
2010
Dec
2010
June
2011
Dec
2011
June
2012
Dec
2012
June
2013
Dec
2013
June
2014
37%
39%
35%
44%
45%
39%
42%
44%
45%
41%
39%
THE SECRET OF SUCCESS IN PASSING THE P6 EXAM
Learning tax is like building a house. You need a strong foundation. P6 is not a
difficult exam – although it is challenging! It builds on the knowledge you acquired
at F6 and it adds new tax knowledge. And it also requires a different “mind set”
compared to the basic F6 exam since the questions in P6 are open-ended in
structure (as is to be expected in any advanced exam).
You might be saying to yourself “Help”! I’ve forgotten a lot of F6 and anyway
haven’t a lot of the rules changed since I did F6? And what is this new P6 tax
knowledge? And what is this more open-ended mind set I need to master?
Yes, you might have forgotten the basics of F6 and, yes, tax changes every year
with the new Finance Act. Fear not, these Notes will get you up to speed. And fear
not on the new knowledge and new mind-set – these Notes aided by your lecturer
are the ticket.
So the three things you need to master are:
●
Basics of F6
●
New P6 knowledge
●
New mind-set to answer P6 style questions.
Accordingly, each chapter of these notes has the following structure:
1.
Basics of F6
Most chapters of your Class notes begin by revising the fundamentals of F6. This
F6 knowledge is indicated in the class notes by the headings being in italics (these
parts are mainly self-study). So make sure you cover this part of each chapter
before attending class (whether online or otherwise).
2.
Additional knowledge which is only covered at P6
This stage then adds on the new P6 more involved extra knowledge. This is
indicated by non-italic headings in the class notes (these parts will be covered
during the P6 lectures).
3.
Practice answering P6-style questions
Each topic includes a number of small tutorial examples. Some are phrased in an
F6 style (being in italics); others are phrased in a P6 style (open-ended and less
structured than F6 style questions) (not in italics). Some of the latter examples will
be worked during the class and others will be set for homework.
Get the necessary exam technique, this is achieved by doing lots of exam standard
questions from the LSBF Revision Kit and the booklet of the last four exam papers.
It is essential that you start doing past exam questions as soon as possible. To
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Dec
2014
IN T R O D U C T I O N T O T H E P A P ER
expose you to exam questions you will be given an exam question on each major
area for you to attempt at home in your own time. It is essential that you find the
time to do this homework. Failure to do this may result in misunderstanding and
panic in the revision phase.
I started by saying P6 is a challenging exam. So it’s not a free lunch! None of the
advanced optional papers are. You absolutely have to put in the work by doing the
three steps above.
I look forward to seeing you on our course.
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Chapter 1
Fundamentals of
corporation tax
ANALYSIS OF PAST EXAM QUESTIONS
June Dec June Dec June Dec June Dec June Dec June Dec June Dec
2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014
Q1
●
●
Q2
●
●
●
●
●
●
Q3
●
●
●
●
●
●
●
●
●
●
●
Q4
Q5
●
●
●
●
●
C
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C H A P T E R 1 – F U N D A M E N T A L S O F C O R P O R A T IO N T A X
CHAPTER CONTENTS
BACKGROUND AND THE EXAM FOCUS --------------------------------- 18
COMPANIES AND CORPORATION TAX --------------------------------- 22
WAYS OF FINANCING A COMPANY ------------------------------------ 23
DEFINITIONS AND TERMS FOR CORPORATION TAX ----------------- 24
PROFORMA CORPORATION TAX COMPUTATION
25
PROFITS FROM TRADING ----------------------------------------------- 26
ADJUSTMENT OF PROFIT PROFORMA
28
ADJUSTMENT OF ACCOUNTING PROFIT TO THE TAX ADJUSTED ACCOUNTING PROFIT
28
ALLOWABLE AND DISALLOWABLE EXPENSES
29
INTANGIBLE FIXED ASSETS
30
PATENT BOX DEDUCTION
32
RESEARCH AND DEVELOPMENT EXPENDITURE
33
CAPITAL ALLOWANCES ON PLANT AND MACHINERY
38
PROPERTY BUSINESS PROFITS ---------------------------------------- 47
PROFORMA FOR PROPERTY BUSINESS PROFITS OR LOSSES
47
ALLOWABLE EXPENSES WHEN COMPUTING PROPERTY BUSINESS PROFITS AND LOSSES
48
PREMIUM RECEIVED ON THE GRANT OF A SHORT LEASE
48
PROPERTY BUSINESS LOSSES
48
INTEREST INCOME PROFORMA ---------------------------------------- 50
NON-TRADING DEFICIT
50
CHARGEABLE GAINS ---------------------------------------------------- 51
PROFORMA FOR CHARGEABLE GAINS AND CAPITAL LOSSES
51
CAPITAL GAINS ROLLOVER AND HOLDOVER RELIEF
54
CAPITAL GAINS – THE SUBSTANTIAL SHARE EXEMPTION
56
THE CORPORATION TAX LIABILITY ----------------------------------- 57
COMPUTING THE CORPORATION TAX LIABILITY -------------------- 58
SELF ASSESSMENT FOR COMPANIES ---------------------------------- 59
16
DUE DATE FOR PAYING CORPORATION TAX AND FILING THE RETURN
59
COMPLIANCE CHECKS INTO SELF-ASSESSMENT CORPORATION TAX RETURNS
63
PENALTIES FOR INCORRECT RETURNS
63
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C H A P T ER 1 – F U N D A M EN T A L S O F C O R P O R A T IO N T A X
LONG PERIOD OF ACCOUNT -------------------------------------------- 67
TRADING LOSS MADE BY COMPANIES -------------------------------- 68
OBJECTIVES WHEN DECIDING HOW TO USE THE TRADING LOSS
68
DEFINITION OF THE TRADING LOSS FOR A COMPANY
68
POSSIBLE WAYS OF RELIEVING A TRADING LOSS MADE BY A
COMPANY ----------------------------------------------------------------- 69
1.
CARRY FORWARD – S.45 CTA 2010
69
2.
CURRENT USE – S.37 CTA 2010
69
3.
CARRY BACK – S.37 CTA 2010
69
4.
CURRENT USE – GROUP RELIEF
70
PROFORMA – CORPORATION TAX LOSSES
72
PROFORMA – CORPORATION TAX TERMINAL LOSSES
73
GROUPS AND CORPORATION TAX ------------------------------------- 78
MARGINAL RATES OF CORPORATION TAX ---------------------------- 79
ANSWERS ----------------------------------------------------------------- 82
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C H A P T E R 1 – F U N D A M E N T A L S O F C O R P O R A T IO N T A X
BACKGROUND AND THE EXAM FOCUS
Questions on corporation tax are tested frequently at P6, sometimes at a very
advanced level.
Corporation tax is studied at F6 (Taxation) and the purpose of this chapter is to
revise the basic principles studied at F6. This chapter will include revising how
companies compute corporation tax and the factors which will increase or decrease
the corporation tax liability of a company. The chapter will also build on your F6
knowledge up to the level required at P6.
Questions at P6 will require explanations of the tax implications of a company’s
transactions. Questions will also include self assessment and loss relief for
individual companies and groups.
The following terminology will be used in all P6 exams.
Previous terminology
Terminology used
Income statement
Statement of profit or loss
Sales
Sales revenue
Fixed assets
Non-current assets
Stock
Inventory
Debentures
Loan notes
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C H A P T ER 1 – F U N D A M EN T A L S O F C O R P O R A T IO N T A X
Example 1 - Kestrel Ltd – Large question
Kestrel Ltd, a manufacturing company in the United Kingdom, has one associated
company. The statement of profit or loss for the six months to 31 December 2014
shows a profit before taxation of £540,620, after accounting for the following items.
Expenditure
Interest payable on loan notes
Loan interest payable
Patent royalties payable
Depreciation
Research and development expenditure
Income
Loan note interest receivable
Rent receivable
Foreign dividends received
£
12,000
8,000
10,000
11,000
45,000
6,000
37,000
8,100
Note a
Note b
Note c
Note d
Note e
Note f
Note g
Notes:
(a)
This represents interest on loan notes issued by Kestrel Ltd in 2004 to provide
funds to build a factory extension. The figure of £12,000 includes accrued
interest of £3,000.
(b)
This represents interest paid on a ten-year loan raised by Kestrel Ltd to
purchase property which is currently let to another company.
(c)
The figure for patent royalties includes an accrued amount of £2,000.
other £8,000 was paid in August 2014.
(d)
During the year ended 31 December 2014 Kestrel Ltd spent £45,000 on
staffing costs and consumables researching and developing the necessary
technology. Kestrel Ltd is a large enterprise for the purposes of enhanced
relief available for research and development expenditure. The company
wants to claim the above the line tax credit in respect of this research and
development expenditure.
(e)
The loan interest receivable is in respect of a loan made by Kestrel Ltd to a
supplier, and the figure of £6,000 includes an accrued amount of £1,500.
(f)
The rents receivable relate to the property let by Kestrel Ltd.
The
(g) Dividends are received from a foreign company and Kestrel Ltd owns 10% of
the shares in the foreign company.
Kestrel Ltd had the following balances for capital allowances purposes brought
forward at 1 July 2014.
£
Main pool
67,500
Short–life asset (computer)
12,000
On the 9 July 2014 the company sold equipment for £9,600 (incl.) which had cost
£8,500 (excl.) and it also sold the computer for £4,800 (incl.).
Purchases during the period comprised machinery costing £31,200 (incl.) in August
2014 and two motor cars with CO2 emissions of 85 grams per kilometre costing
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C H A P T E R 1 – F U N D A M E N T A L S O F C O R P O R A T IO N T A X
£9,500 (incl.) and a second with CO2 emissions of 140 grams per kilometre costing
£14,000 (incl.) both acquired in October 2014.
Kestrel Ltd had a new factory constructed at a cost of £1,171,740 that the company
brought into use on 1 November 2014. The cost is made up as follows:
£
Land
360,000
Site preparation
38,000
Canteen for employees
22,000
Office space
142,000
False ceiling
30,000
Lift
115,000
Central heating and ventilation system
65,000
Electrical lighting system
50,000
Factory
154,450
VAT
195,290
--------1,171,740
----------
Kestrel Ltd is a VAT registered business.
Required:
(a)
Compute the maximum capital allowances which may be claimed by Kestrel
Ltd for its chargeable accounting period to 31 December 2014.
(b)
Using your answer at (a), compute the adjusted trading profit stating clearly
your treatment of any interest paid or received.
(c)
Explain your tax treatment for the research and development expenditure and
identify and alternative tax treatment that Kestrel Ltd could have applied.
(d)
Compute the corporation tax liability of Kestrel Ltd in respect of the above
accounting period.
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C H A P T ER 1 – F U N D A M EN T A L S O F C O R P O R A T IO N T A X
(a)
Kestrel Ltd Capital allowances calculation for the six months to 31
December 2014
AIA
Main
Pool
£
£
TWDV b/f at 1.7.2014
AIA additions in the CAP
SRP
Lift
Central heating
Electrical lighting
Special
Rate
Pool
£
67,500
Short
Life
Asset
£
Capital
allowances
£
12,000
Less:AIA
AIA additions in the CAP
MP
Plant
VAT (1/6)
----------------Less: AIA
(
)
---------------
High CO2 car
Disposals
_____
______
______
Balancing allowance
=====
WDAs
Add: Low CO2 car
FYA @ 100%
TWDV c/f
------Total capital allowances
-------
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C H A P T E R 1 – F U N D A M E N T A L S O F C O R P O R A T IO N T A X
COMPANIES AND CORPORATION TAX
Companies which are UK resident pay corporation tax on their worldwide income
and chargeable gains. You will have studied corporation tax computations for a
single company, groups of companies and overseas aspects at F6. The main
purpose of this chapter is to revise the principal elements of single companies,
update for the changes introduced by recent Finance Acts and expand the
fundamentals of corporation tax for any additional topics which are only relevant to
P6.
This session will revise the key aspects
(a)
of financing a company business
(b)
factors that increase/decrease taxable total profits.
(c)
of calculating the company’s corporation tax liability.
(d)
of getting relief for corporation tax losses – capital losses, non-trading
deficits, property business losses and trading losses.
(e)
of self-assessment for companies.
(f)
of 75% loss groups.
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C H A P T ER 1 – F U N D A M EN T A L S O F C O R P O R A T IO N T A X
WAYS OF FINANCING A COMPANY
If a company needs to raise capital to buy plant and machinery, increase working
capital or buy an investment property it has two choices: it can either finance using
debt or equity.
The examiner is going to use international accounting standard terminology, which
means that previous terminology would refer to debt as debentures or corporate
bonds but under the international accounting standard terminology the examiner
will refer to debt as loan notes.
Debt versus equity
Description of
finance
(1) Company
issues loan notes
(DEBT)
(2) Company
issues shares
(EQUITY)
Cost of finance
The company must
pay interest on the
loan notes.
The company must
pay dividends to the
shareholders.
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Tax implications and the effect on
the company’s tax
●
The cost of issuing the loan notes
such as legal costs and advertising
costs are an allowable expense.
●
The interest payable on the loan
notes is also an allowable
expense.
●
These costs will reduce taxable
trading profits if the loan is for
trading purposes.
●
These costs will reduce interest
receivable if the loan is for nontrading.
●
The cost of issuing the shares is a
disallowable expense.
●
The dividend paid to shareholders
is also a disallowable expense (no
effect on the tax paid by the
company).
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C H A P T E R 1 – F U N D A M E N T A L S O F C O R P O R A T IO N T A X
DEFINITIONS AND TERMS FOR CORPORATION TAX
UK resident companies pay corporation tax on their taxable total profits (TTP)
for a chargeable accounting period (CAP). TTP = Income + Chargeable Gains –
Qualifying charitable donations.
What to do when a company starts to trade
The company must notify HMRC within three months of commencement that they
have started trading. This allows HMRC to set up all the necessary records. The
company must also notify HMRC of their chargeability to tax within twelve months
from the end of the first accounting period.
Failure to notify HMRC of the
company’s chargeability to corporation tax within the 12 month period may result
in the company incurring penalties. These penalties will depend on the company’s
behaviour they are set out below.
Reason for failing to notify HMRC
Penalty
Reasonable excuse
None
No excuse but non - deliberate
30%
Deliberate failure
70%
Concealment
100%
Chargeable accounting period and the period of account
(a)
The CAP is usually but not always the ‘period’ for which the company has
prepared accounts.
(i)
A period of account is any period for which a company chooses to
prepare accounts. The maximum length of the period of account is 18
months.
(ii)
A chargeable accounting period is the period for which a charge to
corporation tax is made.
(b)
A CAP can be any length up to 12 months but cannot exceed 12 months.
(c)
If a company prepares accounts for a period in excess of 12 months, the
period must be divided into two separate chargeable accounting periods as
follows.
(i)
A chargeable accounting period for the first 12 months.
(ii)
A separate chargeable accounting period for the balance of the period of
account.
Example
A company prepares accounts for the 15 month period from 1 January 2013 to 31
March 2014. List the two chargeable accounting periods.
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C H A P T ER 1 – F U N D A M EN T A L S O F C O R P O R A T IO N T A X
Proforma corporation tax computation
P Profits from trading (adjusted profits less capital allowances)
O Overseas income (gross of overseas tax suffered)
R Rental income
R Research and development credit (for a large enterprise)
Amount received from HMRC (10% x research expenditure)
C Chargeable gains (chargeable gains less capital losses)
I Interest income (from non trading)
Total profits
Less: Qualifying charitable donations
Taxable profits
Less: Patent box deduction
Net patent profit x 70% x (MR – 10%)
MR
Taxable total profits
Part 2
Corporation tax (CT) at relevant rate
Less: Marginal relief (if any)
Corporation tax
Less:
Double tax relief (DTR)
Corporation tax (CT) liability
Less: Tax credit for research and development for large enterprise
(10% x research expenditure)
Corporation tax payable/(repayable - note)
Note
The maximum amount repayable can never exceed the PAYE
and NIC payable in respect of staff used to carry on the
research and development
Due date 9 months and one day after the end of the CAP
(unless a large company which pays in quarterly
instalments)
£
X
X
X
X
X
X
__
X
(X)
-----X
(X)
___
X
---X
(X)
___
X
(X)
––––––
X/Nil
(X)
-----X/(X)
-------
File date 12 months after the end of the period of account
(a) In general a company’s income is computed in accordance with income tax
principles and its chargeable gains are computed in accordance with CGT
principles. However, this general rule is overridden by special corporation tax
provisions in several instances which are considered in this chapter.
(b)
A company cannot be an employee and so cannot have employment income.
(c)
A company is not a “person” and is not entitled to claim personal allowances.
(d)
A company does not pay UK corporation tax on UK and overseas dividends
received.
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