Business?

Who is liable if auditors submit incorrect accounts to companies house?

The directors are responsible

How to calculate the personal allowance on income over 100k?

net income - 100,000 / 2 = answer

12,570 - answer = personal allowance

What does the reduced VAT rate apply to?

5% rate:

• domestic supplies e.g. heat and water

• car seats

What items are 0 rated for VAT?

• food

• newspapers

• books

• childrens clothes

What items are VAT rated at 20%?

• Takeaways

• everything else

What are exempt supplies for VAT?

insurance

finance

education

health services

sale of land and buildings

What is the VAT threshold for registration?

£90,000 in a year or less

When must a trader register for VAT by if required?

trader must register for VAT within 30 days of the end of the month when they crossed the threshold.

Registration will be effective from the 1st day of the next month

E.g. cross threshold in March 2025, need to be registered by 30 April 2025, registration effective from 1 May 2025

What are the dividend income tax rates?

£500 tax free for all (uses up part of band it falls in)

• 0-37,700 = 8.75%

• 37,701 - 125,140 = 33.75%

• Over 125,140 = 39.35%

What is business asset disposal relief?

Reduces rate of CGT to 10% if selling a business or part of a business

• you must be a sole trader or business partner who has owned the business for at least two years (up to date of sale).

• If selling shares, for at least 2 years (up to date of sale)

• you must be an employee or director of the company and

• owned at least 5% of ordinary shares

• must be a trading company.

What is holdover relief?

No CGT payable.

The donee of a business asset (shares) pays the CGT when the shares are sold by the donee. The donor does not pay CGT, Both must elect to use it.

What are the rules for losses?

Capital loss = can set off against capital losses only same year and carry forward to next year - cannot be used against income

Trading loss = offset against capital and trading losses same year, then set off against previous year, then carried forward for future years

When must corporation tax be paid?

Within 9 months and 1 day of the end of the accounting period

What is the profit and loss account?

Shows income minus expenses over a passage of time

What is the balance sheet?

Snapshot in time of:

• Assets

• Liabilities

• Capital

• Income

What is the difference between fixed and current assets?

Current assets can be liquidated in under a year e.g. cash

Fixed assets are things such as property, machinery etc

What is the difference between current liabilities and non current liabilities?

Current liabilities are things due in under a year and non current are not

Who is responsible for incorrect company accounts?

All the directors but they may sue auditors for professional negligence if that is reason

What is a writ of control?

Court order that authorizes a High Court Enforcement Officer to seize and sell a debtor's goods to recover a debt, typically a judgment debt.

What is a close company?

A company that is under the control of:

• 5 or fewer participators; or

• any number of participators who are also directors

under control = owns more than 50% shares

What are the tax implications on a close company?

Company must pay corporation tax on loans to participators calculated at the higher rate of dividend income tax (33.75%)

What can the directors amend in the articles to remove the requirement for a s177 notice?

No they cannot remove requirement for a s177 notice but they can amend the articles so that a director can vote in a transaction that relates to them and can count in the quorum

Does a partner who retires remain liable?

• Remains liable for debts incurred while they were a partner

• May become liable for debts after they left if they remain an apparent member or represent themselves as a member

If a partnership has more than one business how many times will it need to be VAT registered?

Only once

What is the requirement to pay a dividend?

A dividend must be declared by an ordinary resolution of the shareholders, following a recommendation by the board.

Can the company reduce its corporation tax payable for its third accounting period by setting against it the trading loss made in its second accounting period?

A company may carry forward a trading loss and use it to reduce its total profits, including chargeable gains in future accounting periods.

It does not first have to apply losses against previous taxable profits but this is an option

What happens if a company acts outside its powers under the memorandum?

Company will be bound under any agreements entered into with third parties.

May be civil consequences for the directors who allowed the company to act outside its objects

How can a partner prevent liability under Partnership Act when they leave?

• Previous/existing customer - give actual notice

• New customers - place add in the Gazette as notice

What can a director do with 5% shareholding

• call a general meeting

• demand written resolution procedure

Can the directors refuse to register a transfer of shares?

The board has absolute discretion to refuse the registration of any transfer of shares.

A majority vote of the directors is needed to refuse to register.

When does a public company need to have submitted its annual accounts to the Registrar of Companies?

No later than six months after the end of the relevant accounting period.

What is a bushell v faith clause

Clause in the articles giving shareholder weighted voting rights to prevent them from being removed e.g. 2 votes per share held

What shareholding is required for a short notice procedure?

Private - majority in number of members owning no less than 90% of the voting shares and entitled to attend and vote at the meeting in question (can be increased to max 95 in articles)

Public - majority in number of members owning no less than 95% of the voting shares and entitled to attend and vote at the meeting in question.

How do clear days work?

Example:

14 days clear notice of GM given on 1 July

Meeting will be held on 16 July

What happens when a company elects to roll-over a gain on the sale of premises into replacement premises purchased for less than the full proceeds of sale?

If the replacement premises are purchased for less than the full proceeds of sale, the difference between the proceeds and the replacement asset price is immediately chargeable to tax.

The remaining gain can be rolled over, reducing the base cost of the replacement premises for future chargeable gains calculations.

Example: If sale proceeds are £300,000, replacement premises cost £280,000, and the gain is £50,000, £20,000 is immediately chargeable, and £30,000 is rolled over, reducing the base cost to £250,000.

What is required for an ordinary resolution to approve a directors' related transaction?

A memorandum setting out the proposed contract/transaction must be available for at least 15 days ending with the date of the meeting and also at the meeting.

Who qualifies as a "connected person" to a director?

• Family members (excluding siblings, grandparents, uncles, and aunts)

• Companies in which the director holds 20% or more shares

• Business partners of the director or those connected with them

• Trustees of a trust where the beneficiaries include the director or their connected persons

What is the rule for directors' long-term service contracts exceeding 2 years?

If no ordinary resolution (OR) is passed, the term will be void, and the contract will be deemed to contain a term entitling the company to terminate on reasonable notice.

Can a director vote or count in the quorum for their own long-term service contract approval?

No, the director cannot vote or count in the quorum. They are not required to disclose their interest but normally will under s177.

What is the threshold for a substantial property transaction?

• Exceeds 5k

• Between 5k and £100 and worth 10% or more of companys net asset value

• Over £100k

What happens if a substantial property transaction is not approved?

The transaction is voidable unless:

• Restitution is no longer possible

• The company has been indemnified

• Rights have been acquired in good faith by a third party

What approval is needed for a substantial property transaction involving a director of a holding company?

The holding company must also approve the transaction.

What are the rules for loans, quasi-loans, credit transactions, and guarantees in private companies not associated with a PLC?

Shareholder approval is only required for

1. loans to directors

2. guarantees.

What transactions require shareholder approval for public companies or private companies associated with a PLC?

• Loans to directors or connected persons

• Quasi-loans to directors or connected persons

• Credit transactions with directors or connected persons

• Guarantees or security for directors or connected persons

What exceptions exist for loans, quasi-loans, and credit transactions to directors and CPs? 6 answers

• Expenditure on company business up to £50,000

• Loans for defending proceedings or regulatory actions/investigations

• Loans or quasi-loans up to £10,000

• Credit transactions up to £15,000

• Intra-group transactions

• Loans made in the ordinary course of business by money-lending companies

What CH filings are required to amend articles?

Copy of special res and copy of amended articles

What is the GM sandwich?

• BM required to call GM

• GM required for shareholders to vote on res

• Further BM to put into effect the outcome

• May be post meeting matters e.g. filings at CH

EVEN IF WRITTEN RES USED - still need the two BMs

How do partnerships pay CGT?

Each partner will pay portion of what they own in fractional shares e.g. tom owns 20% capital contribution then he will pay 20% of the CGT

Prohibition on financial assistance

Is the target a public or private company?

1. If public - the target is prohibited and any subsidiary of the target (whether public or private)

2. If private - prohibition applies to any public company subsidiary of the target.

What provisions cannot be amended or restricted by articles?

• Ability to use written res procedure

• Threshold required to amend articles

If a shareholder has more than 25% of the voting rights should they be on the PSC register?

Yes, the register is about substantial control and includes both shares and voting rights

e.g. if someone has 20% shares but 35% voting rights they will be on PSC

What are the requirements for claiming BADR?

Reduces CGT to 10%

• owned for at least 2 years prior to disposal

• includes all or part of trading business

• assets in a business that used to trade

• shares in a trading company

• shares in a company that used to trade

What is the power to disclaim?

A liquidator can disclaim a lease terminating a company’s liability for future rent

If a lender takes a legal mortgage over shares - who has legal title?

The lender takes legal title.

If it is an equitable mortgage legal title is not transferred but on default it would be.

If there are multiple fixed charges, how are they ranked?

They are ranked by date of creation not registration.

How much debt has to be owed to issue bankruptcy proceedings?

At least £5,000 owed

A statutory demand should be served first and if no reply is received within 3 weeks they can apply to the court

What forms are needed at CH for a shelf company

NM01 - change name

AD01 - change office

Special res and amended articles for changing articles

Buyback of shares out of capital procedure

1. Directors prepare statement of solvency

2. Auditors report

3. Notify credits

4. Obtain shareholder approval

5. Special resolution to approve payment within 1 week after directors sign statement of solvency

What are the tests for insolvency for companies

• cash flow test – an inability to pay debts as they fall due

• balance sheet test – the company's liabilities are greater than its assets

• Failure to satisfy enforcement of a judgement debt

• failure to comply with a statutory demand for a debt of over £750

What is a pre insolvency moratorium for a company?

• Creditors cannot take action

• File statement at court that company is or is likely to become unable to pay debts and a statement from insolvency practitioner

• Lasts 20 business days (can be extended further 20 by consent of majority creditors and/or court order)

• No need to pay debts to creditors but do for things like wages

• Legally binding on all creditors even those who vote against it

What is a CVA?

• Creditors agree to part payment of debts or a new extended timetable for repayment.

• Need at least 75% of creditors in value to vote in favour

• More than half of the total value need to be unconnected to company

• Length of time = agreed by parties

Note it does not bind secured or preferential creditors unless they unanimously consent

What is a restructuring plan?

• Requires court approval

• 75% of each affected class of creditors and shareholders to approve

• Binds all creditors

What is an Individual voluntary arrangement?

• Used for individuals not companies

• Binds debtor and all unsecured creditors

• Can last any time - normally between 3-5 years

• Doesn’t bind unsecured creditors unless they consent

What are the formalities to set up an LLP?

• Form LL IN01

• Fee

• name of LLP

• registered address and email

• which members are to be 'designated'

Signing requirements for a deed?

• Company – signed by 2 authorised signatories (directors or company sec) if seal is used or signed by a single director in the presence of a witness

• Individual – individual signs the deed and it is witnessed

• Partnership – must be executed by all partners unless 1 or more is given a POA to execute deeds on behalf of the partnership, must also be witnessed 

What decisions in a partnership require unanimity?

• changes to the nature of the business

• introducing new partners

• varying the rights/duties of partners

• expulsion of a partner

A partner cannot also be expelled by majority vote unless all partners have previously expressly agreed that a majority can do this

What is a default non-compete under the partnership act?

Non-compete clause – if a partner carries on any business of the same nature as and competing with the firm, they must account to the firm for all profits made

VAT invoice rules

• VAT invoice - taxable businesses (standard or reduced) must supply customer with a VAT invoice within 30 days of the supply and keep a copy

VAT return rules

• VAT return - must be submitted to HMRC every 3 months - due date is usually 1 month and 7 days after end of VAT period

Businesses that earn 1.35 million or less may be permitted to submit an annual VAT return to HMRC paid by instalments with the balance paid when return is submitted.

Businesses that pay more 2.3 million VAT a year must pay VAT monthly on account and pay balance when they submit their quarterly returns

What is the flat rate scheme for VAT?

• Where a business has a taxable turnover not exceeding 150k (excluding VAT) and a total annual turnover (including VAT) not exceeding 230k the business may elect VAT to be charged at a flat rate

• 16.5% VAT rate

• Not normally any relief for input VAT

When must a company file its annual accounts?

• Private - within 9 months after end of accounting period

• Public - within 6 months after end of relevant accounting period