ACCA TX Flashcards – Corporation Tax

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 prior to the date of sale.

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

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 greater than 50%, therefore all companies are in the same chargeable gains group.

For group loss 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 a group which means that the AIA limit of £1m will be split between the group companies in any proportion it chooses.

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 future accounting 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 a director/employee are a fully allowable expense for the company without reference to any private use by the director/employee. The director/employee will be taxed under the employment income rules on the car benefit.

Qualifying charitable donations (QCDs) are deducted from Total Profits to arrive at Taxable Total Profits (TTP).

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 or acquires a source of taxable income.

A large company is a company whose “augmented profits” exceed £1.5M. “Augmented profits” are defined as the TTP of the company plus dividends received (excluding dividends from associated 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 associated 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 (Chargeable) Accounting Period (AP) and estimates that it 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 14th day of the 7th month from the start of the AP followed by the 14th day of the 10th month (so the first two payments are within the AP) then the 14th day of the 13th month (i.e. 14 days after the year end) and finally the 14th day of the 16th month (i.e. 3 months and 14 days after the year end).

A company must pay its Corporation Tax within 9 months and one day of the end of the (Chargeable) Accounting Period.

A Corporation Tax computation is prepared for the (Chargeable) 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 (Chargeable) 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 2025 runs from 1 April 2025 to 31 March 2026 and it is the period for which the rate(s) of Corporation Tax are 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 for UK Corporation Tax purposes if it is either, (a) Incorporated in the UK or (b) Incorporated overseas but centrally managed and controlled from the UK.