ACCA F3 flashcards – set 2

Shares acquired through a rights issue incur a cost whereas no cost is incurred by a company when shares are acquired via a bonus issue. Therefore on a rights issue there must be a reindexation of the share pool before adding in the new shares acquired. 

There is no reindexation of the share pool when shares are acquired via a bonus issue as no additional share cost is incurred.

The shares sold are deemed disposed of in the following order:

 • shares acquired on same day

 • shares acquired in previous 9 days 

• shares contained within the share pool which is made up of any shares acquired more than 9 days previous.

A net capital loss sustained by a single company may only be carried forward to set off against future net gains

Companies get a deduction for indexation allowance in computing a chargeable gain if the asset was purchased before December 2017, but the allowance is only available to December 2017

For chargeable gains group membership each direct holding must be at least 75% but the effective holding to an indirect subsidiary need only be 51%, therefore all companies are in the same chargeable gains group.

For group relief purposes an effective 75% holding must exist between a parent company and both a direct and indirect subsidiary company, therefore company A can group relieve with company V and company FC can group relieve with company V, but company A and company FC cannot claim group relief between them as 80% of 80% does not give the required effective 75% holding.

The parent company is only in a chargeable gains group with its 75% owned subsidiaries, hence here only with its wholly owned subsidiary. A claim may therefore be made to deem any part of the loss made by the parent company to have been made by the wholly owned subsidiary, or deem that any part of the gain made by that subsidiary has been made by the parent company, thus allowing for the gains and losses of the 2 companies to be set off.

Group relief of losses is only available in a 75% group so relief will only be available within the parent company for the loss sustained by the wholly owned subsidiary company. The loss made by the 60% owned subsidiary will only be usable in the normal way against the profits of that company.

For capital allowance purposes all 3 companies are in the group which means that the AIA limit of £1m will be split between the group companies in any proportion it chooses. The parent company may decide therefore where to use the available AIA if such qualifying expenditure should exceed the £1m limit, so it may choose here to use £600,000 of the available AIA limit in the parent company to claim a full 100% allowance on the qualifying capital expenditure incurred.

Capital losses cannot be set off against income, so any net capital loss of an accounting period may only be carried forward to set off against future net gains of a period

A loss sustained in the last 12 months of trading will benefit from terminal loss relief, which allows such a loss to be carried back for a period of 36 months from the beginning of the accounting period of loss. This relief is again deducted from Total Profits and is applied against the preceding periods on a LIFO basis.

No partial claims may be made against Total Profits in either a current period or carry back claim. Partial claims will however be available in respect of any carry forward claims.

The company must firstly claim relief against the Total Profits of the current period (the period of loss) and only then is it able to make a carry back claim against the Total Profits of the preceding 12 months of trading. Any remaining loss will be carried forward to set off against the future Total Profits of the company.

If a company has a period of account of 15 months it will be required to prepare 2 corporation tax computations for the 2 accounting periods that arise, the first for a 12 month period and the second for the remaining 3 month period.

A company will only be able to claim Structures and Buildings Allowance (SBA) on the cost of buying a new building which will be at the rate of 3% per annum.

The company will claim capital allowances on the cost of the car, the amount of which will be determined by the level of CO2 emissions of the car. The capital allowances will then be available in full to the company as there are no private use adjustments in corporation tax in either capital allowances or the adjustment of trading profit.

A loan taken out by a company to purchase shares in another company is a non trading loan. The interest payable will therefore be disallowed in deriving the adjusted trading profit of the company, but will instead be a fully allowable deduction against the interest income of the company.

Motor expenses incurred by a company in respect of a car made available for both business and private use of an employee are a fully allowable expense for the company without reference to any private use by the employee.

Qualifying charitable donations are deducted from Total Profits to derive Taxable Total Profits

A company must include its worldwide income and gains. The main sources of income will be trading income, property income and interest income (remember that dividend income received by a company is exempt from corporation tax).

An AP will normally end twelve months after the beginning of the period or at the end of a company’s period of account. An AP will also end when a company ceases to trade.

An AP will normally start immediately after the end of the preceding AP. An AP will also start when a company commences to trade.

A large company is a company whose “profits” exceed £1.5M. “Profits” are defined as the TTP of the company plus dividends received (excluding dividends from related 51% group companies).  

The limit of £1.5M is used for a single company with a 12 month AP. It is therefore divided by the number of related 51% group companies at the end of the immediately preceding accounting period and must also be time apportioned for an AP of less than 12 months.

If a company was large in the previous Accounting Period (AP) and estimates that its “profits” will be large for the current period, then it is required to make quarterly instalment payments based on the estimated corporation tax liability of the period, the first such quarterly payment being made by the 14^th day of the 7th month from the start of the AP

A company must pay its corporation tax within 9 months and one day of the end of the Accounting Period

A corporation tax computation is prepared for the Accounting Period of the company – this usually the same as the period of account but it cannot exceed 12 months, hence a long period of account (more than 12 months) must be split into two Accounting Periods, with corporation tax computations being prepared for firstly a 12 month period and then a second computation for the remaining period. Hence a 16 month period of account will require 2 corporation tax computations to be prepared, firstly for a 12 month period, followed by a separate computation for a 4 month period.

A Financial Year (FY) runs from 1 April to 31 March and is denoted by reference to the year in which it starts, hence FY 2020 runs from 1 April 2020 to 31 March 2021 and for which period the rate of corporation tax is set.

The period for which the company prepares its financial statements. This is normally a period of 12 months but may be either shorter or longer than 12 months

A UK resident company is chargeable to UK corporation tax on its worldwide income and gains

A company is UK resident if it is either,
(a) Incorporated in UK or
(b) Centrally managed and controlled from UK