Question  |
Answer |
Incentives to issue share for individuals and for companies. 3+1 start learning
|
|
EIS relief, SEIS relief, VCT relief. | Substantial shareholding exemption. Fun facts: short term finance for business: trade credit, invoice discounting, debt factoring, hire purchase and leasing. | VAT on leasing is recoverable.
|
|
|
Sole trader vs Company - year basis of tax assessment: start learning
|
|
Current year basis. | Accounting period basis. Adjustments for private use. | No adjustment for private use.
|
|
|
Sole trader - relief against total profits availability: 2 start learning
|
|
Current | and previous tax year. FF: No tax implication for withdrawal of funds. | Salary, bonus, dividend, rent (but could affect eligibility to BADR), pension contributions.
|
|
|
Type of VAT registration for sole trader: start learning
|
|
Individual registers himself. FF: New business. Where initial losses are anticipated, order events to ensure losses can be relieved against the individuals income and then incorporate business when it becomes profitable.
|
|
|
IHT implication if unincorporated business is sold with a loss: start learning
|
|
If there is a loss in value to the estate (i.e. the gift of the business or sale at undervalue), then there will be potential IHT implications: Gift to an individual - PET. | Gift to a trust - CLT. | Gift to spouse – exempt. If sale of a business is at an arm's length price, then as there is no diminution in value of the owner’s estate there are no IHT implications.
|
|
|
SDLT implications on incorporation: start learning
|
|
SDLT payable by the company on purchase of land and buildings. CGT: Disposal of individual assets. | Incorporation relief or gift relief available.
|
|
|
Succession election essence: 3cz start learning
|
|
If the trader and new company are CONNECTED, they may claim that the assets in main pool are transferred | at their OPENING TWDV RATHER THAN THE MV at the date of incorporation | OR overtaking unincorporated business by connected person, e.g. daughter. tax written-down value | No BAs and BCs on unincorporated business.
|
|
|
Close company. Determination of benefit value of the deemed dividend for shareholder who is not an employee: A company with close proprietorial control, that is controlled by 5 of fewer shareholders or any number of directors usually a family company. start learning
|
|
The benefit which would have been assessable if they had been an employee of the company. Individual is treated as receiving a dividend, subject to tax at 7.5%, 32.5% or 38.1%. No NICs. | If shareholder is an employee - normal treatment.
|
|
|
Close company. Tax implication for individual if loan to a shareholder is written off. start learning
|
|
Individual is treated as receiving a cash dividend equivalent. If loan is granted with a beneficial rate of interest, the loan benefit is assessed as beneficial loan.
|
|
|
Close investment company (CIC) tax implications: 2+definition start learning
|
|
Tax relief is unavailable to an individual if he borrows money to invest in a CIC.| The shares will not be treated as business assets for IHT nor CGT. All close companies are close investment companies unless their main activity is trading, or letting property to unconnected persons.
|
|
|
Personal service companies (PSC) is sometimes referred as... start learning
|
|
|
|
|
Personal service companies Deemed salary pro-forma: start learning
|
|
£ received in tax year less: | 5 % deduction in respect of admin expenses. | Salary paid. | NICs paid by employer on this salary. | Employer pension contributions. | Allowable expenses.] = Gross deemed salary − Er NICs [GDS × (13.8÷113.8)] = Deemed salary £5SNEA = GDS − ErN = DS
|
|
|
Personal service companies start learning
|
|
19 April following end of tax year. Salary is deemed paid on 5 April.
|
|
|
Personal Service Company dividend implication: start learning
|
|
|
|
|
Purchase of own shares. Tax implications if capital treatment conditions are not satisfied: 2cz start learning
|
|
The sale proceeds will be treated as dividend (income distribution). | Amount received − nominal value of shares. Sales of unquoted shares to another person may be difficult to achieve as there is no ready market for unquoted shares. Alternatively it may be possible for shares to be bought by the company. | Dividend nil rate band may be utilised.
|
|
|
HMRC allows winding-up a company without a liquidator and payments to be treated as capital up to... start learning
|
|
|
|
|
Tax implications of a company liquidation: 2 start learning
|
|
Payments before liquidator appointment are treated as INCOME (income distribution). | Payments after liquidator is appointed are treated as CAPITAL (capital distribution).
|
|
|
Purchase of own shares. What relief might be used If capital conditions are satisfied? start learning
|
|
BADR if its conditions are satisfied.
|
|
|
Capital treatment of purchase of own shares conditions: # start learning
|
|
Ownership period prior to repurchase*. | Bona fide benefit - not part of a scheme to avoid tax. | Residency -the individual must be UK resident. | Unlisted trading company.| Shareholding substantially reduced after buyback**. OBRUS *5 years normally, 3 years if inherited. | **No more than 30% of the shares in the company and no more than 75% of the previous percentage holding.
|
|
|
Capital treatment of own shares purchase - shareholding level conditions: 3cz start learning
|
|
The shareholder must end up with | no more than 30% of the shares in the company | and no more than 75% of the previous percentage holding.
|
|
|
Capital treatment of own shares purchase - required ownership period: 2 start learning
|
|
5 years normally | 3 years if inherited.
|
|
|
Capital treatment of own shares purchase - examples of benefit to trade: 4 Company have to demonstrate that the repurchase is bona fide, not part of a scheme to avoid tax and for the benefit of trade. start learning
|
|
Buying out retiring directors. | Buying out dissident (disruptive) shareholders. | Venture capitalist withdrawing investment. | Shareholder has died and beneficiaries don't want shares.
|
|
|
Investment options for companies to save tax: 2 start learning
|
|
Capital expenditure. | RaD expenditure. Tax planning: optimum use of losses, group structure, maximising group C.T. reliefs.
|
|
|
Capital allowances - car benefit restriction: start learning
|
|
85% for leasing rentals of cars over 50g per km.
|
|
|
Employer pays NIC in respect of all ... benefits. start learning
|
|
of all taxable benefits, therefore exempt benefits such as free parking are not subject of NIC. Employee pays NIC on cash earnings benefits.
|
|
|
When property is transferred from one company to another, the indexation allowance must calculated separately, even if... 2cz start learning
|
|
even it was a no gain no loss transfer within a 75% group | BUT ONLY if company will leave the group.
|
|
|
When companies provide taxable benefits to their employees, they must pay NIC 1A and fill the ... form in order to inform HMRC. start learning
|
|
|
|
|
Disadvantages for unincorporated company of having year ending at 31 March. 2 start learning
|
|
Taxable profits unlikely to be known, so POAs must based on estimates. | Minimum interval between earning profits and paying the associated tax. EI
|
|
|
Order or utilisation of trading losses within a group: 3 start learning
|
|
Firstly to any company whose profits can be reduced such that instalments will no longer be required. | Then to any company such that their instalments will be reduce. | To any other company.
|
|
|
The circumstances in which the personal service company IR35 rules apply: # start learning
|
|
A company enters into a contract to provide services to a client. | The services are carried out by an individual. | The individual is regarded as an employee* of the client. | Individual has an interest of at least 5% in a company. CIE5% *when determining whether or not the individual would be regarded as an employee of the client, the rules used to distinguish between employees and the self-employed are used.
|
|
|
Company X owns 30% holding of company Y. How losses can be possibly claim? start learning
|
|
Company Y can be a consortium company. 30% of losses can be claim by each side as CONSORTIUM RELIEF (Losses can be surrendered upwards or downwards). The investing company is known as a CONSORTIUM MEMBER. | The target company is known as a CONSORTIUM COMPANY. | Losses cannot be exchanged between consortium members. | Consortium group can be created by companies only, not individuals!
|
|
|
Company X sales 15% holding of Company Y. Explain C.T. treatment of sale depending it takes place before after 12 month and depending of profit or loss arises. 2cz+2cz start learning
|
|
Chargeable gain or allowable loss arises. | SSE applies - profit is not taxable and loss is not allowable.
|
|
|
Incorporation Loss Relief is available provided: 3 start learning
|
|
The incorporated company continues to carry on the trade of former unincorporated business. | In exchange wholly or mainly for shares (at least 80% of consideration). | An individual retains the shares throughout the whole relevant tax year. Where the unincorporated business is ceasing due to incorporation, unrelieved trading losses can be relieved against future income derived from the company (for the sole trader himself, not in company accounts).
|
|
|
Under Incorporation Loss Relief losses of unincorporated business are set against... start learning
|
|
the first available income the individual derives from the company (salary, dividends or interest). | Note that: losses cannot be offset against the future profits of the company. Individual can take any order to achieve most beneficial way, that is offset against employment income first, then saving income and dividend income. | Losses can be carried forward indefinitely.
|
|
|
Period of account has 8 months, augmenting profits are £1,200,000. What is the amount of first C.T. instalment? start learning
|
|
£450,000 (in respect of 3 months)
|
|
|
New member of a group relief cannot transfer own losses but it can... start learning
|
|
receive losses from other group member (to the extend of overlap period). [trading losses, but not capital losses!]
|
|
|
|
# start learning
|
|
Period | Profits | Territories | Tax | Margin PPTTM
|
|
|
RaD and SMEs. If the deduction creates a loss it may be surrendered in exchange for... 1+2 start learning
|
|
a cash payment from HMRC of 14.5% of the surrendered amount. It is possible to use both relief. So it is saving of only 33.35% (230% × 14.5%) of the cost incurred in respect of RaD - CFs are improved. | Standard relieving the loss against taxable profits equates to a saving of 43.7% (230% × 19%) of the cost incurred in RaD.
|
|
|
Capital goods scheme. Company sells building on 6 of April - the whole tax year is treated as... start learning
|
|
as if the asset had been used for the full year (The annual adjustment is made as normal in the year of disposal). *e.g. option to tax exists or the building is less than three years old A further adjustment for remaining intervals. If the disposal was taxable*, we assume 100% taxable use for the remainder of the adjustment period. | If the disposal was exempt, we assume 0% taxable use for the remainder of the adjustment period.
|
|
|
Company sold machines, does VAT must be charged on them? start learning
|
|
TOGC - transfer of a going concern
|
|
|
Company was in a group with 18 member. Stipulate circumstances in which the company would be required to pay corporation tax in instalments. start learning
|
|
It had TTP of more than £83,333 in the previous year | or its current year TPP is expected more than £555,556. TTP = Taxable profits (excluding dividends received) + chargeable gains − QCD relief
|
|
|
Instalment threshold is based on TTP. Give formula of TTP: start learning
|
|
Taxable profits (excluding dividends received) + chargeable gains − QCD relief TP (exc. div) + G − QCD
|
|
|
£1,500,000 threshold is based on ... group. start learning
|
|
related 51% group companies
|
|
|
The ... determine the due date, but the CT liability is always calculated on a company’s... key point start learning
|
|
AUGMENTED PROFITS determine the due date, but the CT liability is always calculated on a company’s TTP. Augmented profits = TTP + dividend received from non-group companies.
|
|
|
Do unused capital losses are transferred altogether with a transfer of associated trade and assets? start learning
|
|
No, capital losses will stay in the accounts of seller.
|
|
|
Company makes only zero-rated sales to members of the public. Is it beneficial to register to VAT? 3 start learning
|
|
Yes, because it would be able to recover its input VAT.| Company would be in a repayment position if it were to register because it only makes zero-rated supplies.| It could improve its CF position by making its VAT returns monthly rather than quarterly. Note: If the company exceeds the registration threshold, it may apply to be exempt from registration because it only makes zero-rated supply.
|
|
|
A company found a mistake in its accounts after 1 year of the filing date. What they suppose to do? start learning
|
|
It is more than 12 months since the return filing date, and therefore too late to amend the C.T. returns. Accordingly, this information must be disclosed to HMRC. We need to determine whether or not there may be other omitted items or matters.
|
|
|
A company takes a 10% loan of £450,000 to acquire a goodwill and office premises for trading purposes and 70% shareholding in other company. Quantify the allowable deduction of income: goodwill - 68,000 | office premises - 137,000 | shareholding - 245,000 start learning
|
|
£20,500 is deductible from trading income | £24,500 is deductible from a NTLR income. NTLR - non-trade loan relationship deficit
|
|
|
Intangible fixed asset examples: start learning
|
|
goodwill, patents, copyrights, trademarks and franchises It can be offset against ORIGINAL cost of patent or other intangible (not the current depreciated value) due to special intangible rollover relief - 1 year before or 3 year afer rule applies.
|
|
|
Special intangible rollover relief formula: Special intangible rollover relief is available for goodwill as well as other types of intangible asset. start learning
|
|
maximum deferral = | lower of disposal proceeds | or amount reinvested | less original cost of original intangible asset MD = lower of | DP | or AR | less OCOIA Part of the taxable profit may be deferred if a profit is made on disposal of any intangible asset and a new intangible asset is acquired within 12 months before or up to 36 months after disposal.
|
|
|
Calculate the taxable trading profit if intangibles rollover relief is claimed: Old asset sold for 30,000. | Old asset original cost: 20,000. | TWDV of old asset: 12,000. | Cost of new asset*: 35,000 *New asset bought within qualified period - 1 year before to 3 years after. start learning
|
|
taxable trading profit: £8,000; [Amount deferred: £10,000. | Trading profit: £18,000*] *Trading profit = sales profits − TWDV
|
|
|
Calculate the amount of 2nd instalment. CT taxable profit: 540,000 | Paid so far: 32,000. start learning
|
|
102,600 × 2/4 = 51,300 | 51,300 − 32,000 = 19,300
|
|
|
|
start learning
|
|
Company resident in Poland CONTROLLED by the UK resident company.
|
|
|
Capital goods scheme. Calculate the final adjustment if seller decides opt to tax the building or decides to not do that. Total VAT paid: 90,000. | Taxable use for 8 years: 72%. start learning
|
|
Option to tax: £5,040 repayment from HMRC. | Without an option: £12,960 reclaimable by HMRC.
|
|
|
Calculate amount of losses needed to cover overseas income, and do not waste of DTR: Overseas taxable profit: 7,000 | Overseas tax: 14%. start learning
|
|
£1,842 need to be transferred to save DTR. 7,000 × 14% = 980 | 5,158 × 19% = 980 [980÷.19] | 7,000 − 5,158 = 1,842 |
|
|
|
Calculate tax saving if an individual instead of taking dividends from a employer will contribute this amount into pension scheme an individual will take it up as a single lump sum: £20,000 | higher rate taxpayer when taking dividends | basic rate taxpayer when withdraw the lump sum start learning
|
|
6500 + 800 20,000 × 32.5% saved | 20,000 paid into pension scheme is 20,000 × 19% = 3000 C.T. saved; Tax of further lump sum 25% × 0% | 75% × 20% = 2000
|
|
|
Alternative treatment of Intangible Asset amortisation: start learning
|
|
4% straight line amortisation per annum. Election is irrevocable and it must be made within 2 years from the end of relevant tax year. Any impairment losses would then be disallowed.
|
|
|
Agriculture Property Relief rate: start learning
|
|
|
|
|
Business property Relief rate: start learning
|
|
|
|
|
Calculate the value per share of gift for CGT purposes: Donor has 40% shareholding | Gift is 20%. | Price of share if control 40%: 9.2 | Price of share if control 20%: 7.90. start learning
|
|
For CGT purposes, the deemed proceeds is the market value of the asset gifted.
|
|
|
