Corporation_Tax_-_Full_Lecture_slides_with_notes

CorporationTax1Lecture14NickyThomas10February2012Lecture14Learningobjectives:•Understandthebasisofassessmentforincorporatedentities•Calculatetotaltaxableprofit•HowtocalculatetaxpayableforacompanyCorporationTax:BasicsTaxRateTaxPayerTaxBase•“Corporateentities”•CompaniesActdefinition–Extendstoclubsandpoliticalassociations–ExcludesPartnerships(&LLPs)•UKTaxlegislation:–IncomeandCorporationTaxesAct1998(ICTA)–CorporationTaxAct2009(CTA)–CorporationTaxAct2010•Noconsolidation-corporateentitiesareeachtaxedseparatelyTaxPayer•Basedonincometaxtradingrulesbut:–Includescapitalgains(noseparatecapitalgainstax)–Excludesdividendsfromothercompanies•Movingclosertoaccountingprofit•ForUKresidentcompanythetaxbaseis“WORLDWIDEPROFITS”•BasedonAccountingperiod(AP)TaxBase•Rateofcorporationtaxissetforfinancialyears(FY),ratherthantaxyears•AFYrunsfrom1Aprilto31MarchsoFY2011runs1April2011to31March2012•Rateapplicabledependsofsizeofcompany•WhereanAPspanstwofinancialyears,mayneedtoapportionthetaxabletotalprofitbetweenFYsEG:12monthAPended31January2012willspantwoFYs:2monthsFY2010(Feb&March)10monthsFY2011(April–Jan)TaxRateRatesofCorporationTaxStartingRateFY96FY97FY0033%31%30%Fullrate25%21%20%SmallProfitrate10%0%FY0230%19%FY0730%20%FY0630%19%FY0828%21%FY0928%21%FY1028%21%FY1126%20%FY1225%20%FY1324%20%FY1423%20%FourstepstocalculateCT1•Determineaccountingperiod(s)tobeassessed2•Adjustaccountingprofitsfortaxpurposes•Allocateincomeandallowableexpendituretocorrecttaxperiod3•CalculateTaxableTotalProfits(TTP)4•Determinerate(s)atwhichcorporationtaxwillbecharged•Similarprinciplestounincorporatedbusinesses•AnAPbeginsWhenacompanyfirstacquiresasourceofincomeWhenacompanycommencestotradeImmediatelyaftertheendofanaccountingperiod•AnAPendsontheearliestof12monthsafterbeginningofAPAccountingdateofthecompanyDatecompanystartsorceasestotradeDatecompanyceasestobeUKresidentDatecompanyceasestobeliabletocorporationtax1•Determineaccountingperiod(s)tobeassessed1•Determineaccountingperiod(s)tobeassessedALtdpreparesaccountsforthe9monthsto31December20111/4/1131/12/111/4/1131/3/121/4/1030/9/11BLtdpreparesaccountsforthe12monthsto31March2012CLtdpreparesaccountsforthe18monthsto30September2011DLtdpreparesaccountsforthe30monthsto30September2011APAPAPAP31/3/11AP31/3/10AP31/3/11AP30/9/111/4/099months12months12months6months12months12months6monthsAiredaleLtdwasincorporatedon11June2011.Itopenedaninterestbearingbuildingsocietyaccounton1August2011andcommencedtotradeon1February2012.Itmakesupitsfirstsetoffinancialaccountsto30September2012andannuallythereafter.WhatisAiredaleLtd’sfirstchargeableaccountingperiodforCT?30/9/121/2/12AP2AP1/8/11SourceofincomeFinancialAccountsbegin1FY11FY121/4/122•Adjustaccountingprofitsfortaxpurposes•AllocateincomeandallowableexpendituretocorrecttaxperiodPBTTradingProfit•TimeapportionNon-tradeloanrelationships•AccrualsbasisPropertyincome•TimeapportionChargesonincome•PaidbasisOtherincome•ActualbasisChargeablegains•Whenrealised2•Adjustaccountingprofitsfortaxpurposes•AllocateincomeandallowableexpendituretocorrecttaxperiodIncome/expenditureAllocationTradeprofitsbeforeCAsTimeapportionedCapitalAllowancesActualbasisPropertyincomeTimeapportionedNon-tradingloanrelationshipsAccrualsbasisOtherincomeActualbasisChargesonincomePaidbasisChargeablegainsPeriodrealised•TheTradingprofitforanAPisbasedonthetradingincomeforthatperiodadjustedfortaxpurposes•Tradingprofitmustbeadjustedfornon-allowableitems(inmuchthesamewayasforanindividual)Depreciation,CAs,Provisions,Entertaining,Capitalrelatedexpenditure•Whenadjustingprofitsforcorporationtaxpurposes,noadjustmentisnecessaryforprivateexpenditure•Thereisnoreductioninthewritingdownallowanceinrespectofassetsusedbyemployeesforprivatepurposes,buttheyarereducedforshortAPsTradingProfitAdd+Depreciation/lossondisposal+Legalcostsrelatingtocapital+Leasepremiumwriteoffs+Donations+Pensionaccruals+Businessentertaining+Pre-April2002amortisation+Emolumentsnotpaidwithin9monthsofendofAPLess-Loanrelationshipincome-Profitonsaleofassets-Capitalallowances-Dividends-R&DcreditsTradingProfitStartwithPROFITBEFORETAXperthefinancialaccountsand•EMOLUMENTS–Ataxdeductionisonlyavailableforwages/salaries/bonusesiftheyarepaidwithin9monthsoftheperiodofaccount(statutoryaccountingperiod).•PENSIONS–AtaxdeductionisonlyavailableforpensionswhentheyarePAID,notnecessarilywhenaccruedTradingProfit•Aloanrelationshipexistswhenthereisamoneydebtandacompanyiseitherthelenderortheborrower.Aloanrelationshipmaybe:Atradingloanrelationship,orAnon-tradingloanrelationshipEnteredintoforatradingpurposeEnteredintoforanon-tradingpurposeLoanrelationshipsNote:CompaniesreceiveinterestGROSS(noincometaxiswithheldatsource)LoanRelationshipTradingNon-tradingInterestReceivableInterestPayableInterestReceivableInterestPayableTradingProfitsIncomeTradingProfitsDeductionNTLRIncomeNTLRDeductionMoneylenderBorrowtobuyP&MorprovideworkingcapitalInvestsparecashBorrowtobuyanInvestmentNon-tradingloanrelationshipsLoanrelationshipsForcompanies,chargesonincomeinclude:ThegrossamountofchargespaidinanAParedeductedfr