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ACCA paper p6 advanced taxation ATX class notes

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,
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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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3


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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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IN T R O D U C T I O N T O T H E P A P E R

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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.

24

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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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25


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