SQE 2 - BLP - Corporation Tax

What are deductible business expenses?

Expenses that can be deducted from trading profits provided they are wholly and exclusively for business purposes

What are examples of deductible business expenses?

Wages, rent, office supplies, marketing, interest on business loans and bad debts

What are the two capital allowances?

Annual investment allowance and writing down allowance

What is the annual investment allowance?

100% tax relief on qualifying capital expenditure of up to £1m a year

What can AIA be claimed on?

Plant and machinery, office equipment and commercial vehicles

What is writing down allowance?

For the costs of capital assets not included in the AIA which enables a company to deduct a 18% of the cost of an asset

What are the three loss reliefs a business can claim?

Carry forward relief, carry back relief and terminal carry back relief

What is carry forward relief?

Trading losses can be carried forward and set against future profits in the next accounting period

What is carry back relief?

Trading losses can be carried back and set against trading profits in the previous 3 years

What is terminal carry back relief?

A company who has ceased to trade can carry back trading losses and offset them against trading profit from the previous 3 years

What is the criteria for terminal carry back relief to apply?

1. The company has ceased trading

2. It incurred trading losses in its final 12 months of trading

3. It had taxable profits in the last 3 years

How can a company claim terminal carry back relief?

It must submit a claim to HMRC within 2 years from the end of the accounting period in which the loss was made

How are dividends treated by a company?

A company does not pay corporation tax on dividends paid but the shareholder will pay dividend tax

How are distributions on winding up treated by shareholders?

As capital receipts and shareholders will pay CGT on them

What is Business Asset Disposal Relief?

When a shareholder sells their shares they will only pay 10% CGT on up to £1m in gains

What is the criteria for Business Asset Disposal Relief to apply?

1. The shareholder must have owned the shares for at least two years

2. The shareholder must have had 5% of the shares or voting rights in the company

3. The company must have been a trading company

What are disguised distributions?

Where companies return value to shareholders without declaring dividends

What are examples of disguised distributions?

1. Selling assets to shareholders below market value

2. Excessive director salaries

3. Giving interest free director loans

What happens if HMRC concludes a company has made a disguised distribution?

It can order a company to re-class them as dividends

What is the General Anti-Avoidance Rule?

The GAAR aims to counteract artificial and abusive tax-avoidance schemes which serve no genuine commercial purpose

When do the thin capitalisation rules apply?

Where a company is heavily funded by debt not equity it can reduce taxable profits through high interest payments on its loans

What are the key thin capitalisation rules?

1. Interest levels must reflect a commercial level of debt

2. Interest deductions are capped at 30% of taxable profits

3. If HMRC deems interest payments excessive they can disallow deductions