CORPORATION TAX

1
CORPORATION TAX

• REPLACES INCOME TAX AND CGT FOR COMPANIES
• TERRITORIALITY RULES
• RESIDENT-
• WORLDWIDE INCOMEGAINS
• NO REMITTANCE BASIS
• NON-RESIDENT-
• UK TRADING VIA P/E

2
CORPORATE RESIDENCE

• JUDGE-MADE LAW-CENTRAL MANAGEMENT CONTROL
• NEW STATUTORY RULES GENERALLY ALSO RESIDENT IF
  INCORPORATED IN UK (ANTI TAX HAVEN RULE)

3
CORPORATION TAX-CHARGEABLE PROFITS

• INCOME AND GAINS ARE AGGREGATED TO ARRIVE AT
  TOTAL PROFITS
• DEDUCT CHARGES GIFT AID TO FIND CHARGEABLE
  PROFITS
• NO PERSONAL ALLOWANCES/ANNUAL EXEMPTION
• CGT-INDEXATION CONTINUES BUT NO TAPERING RELIEF

4
CORPORATION TAX-DIFFERENCES FROM IT/CGT

• NO TAX YEAR TO 5 APRIL
• INCOME AND GAINS OF ACCOUNTING PERIOD ARE TAXED
• RATES OF TAX SET ACCORDING TO FINANCIAL YEAR

5
CORPORATION TAX-DIFFERENCES CONTD.

• INTEREST RECEIVED IS TAXED ON AN EARNINGS NOT A
  RECEIPTS BASIS
• BANK/BSI INTEREST IS PAID GROSS TO COMPANIES
• INTEREST ON OVERPAID TAX IS TAXABLE
• NON-TRADING INTEREST INCLUDING INTEREST ON LATE
  TAX-IS DEDUCTED FROM INTEREST RECEIVED UNDER
  LOAN RELATIONSHIP RULES

6
CORPORATION TAX-DIFFERENCES CONTD.(2)

• UK DIVIDENDS RECEIVABLE ARE EXEMPT ALTOGETHER
• DIVIDENDS PAID LIKE DRAWINGS ARE NON-DEDUCTIBLE
• SCHEDULE D CASE 1 PRINCIPLES GENERALLY APPLY
• BUT AMORTISATION OF INTANGIBLES (IPGOODWILL) IS
  DEDUCTIBLE

7
Example 10.1
Magee Ltd - year ended 31 March 2005 per
accounts

000s
Operating profit
12,100 Other Income Bank
deposit interest - accruals basis
(only 650 actually received in the period)
750 UK Dividends
600
Capital gains
700
Profit per accounts
14,150 Chargeable gain after
indexation amounted to 650,000. Capital losses
in the previous accounting period were 150,000.
The following debits were included in the
calculation of operating profit


Depreciation 6,000 6,000
Trading interest
12,000 Interest on late payment of
tax 300
8
PLANT MACHINERY

• One of main categories qualifying for Capital
  Allowances
• Normal WDA 25 p.a. on a pooled basis-subject
  to exceptions
• SMEs 50 in Year One
• SEs 100 on ICT for 3 years from 1 April 2000
• All 100 on Energy-saving technology/low
  emission cars

9
DEFINITION OF PLANT

• Any apparatusused for carrying on the business
• Examples Cars/Equipment/Furniture
• Not the premises in which the business is carried
  on
• Benson v Yard Arm Cook v Beach Caravans Jarrold
  v Good

10
DEFINITION OF PLANT II

• Fixtures (e.g. lifts central heating) OK but not
  mains services
• Soft Furnishings OK
• Note FA 1994 changes
• Assets embellishing premises are mere setting but
  see Scottish Newcastle
• Statutory Exceptions e.g. fire doors

11
INDUSTRIAL BUILDINGS

• QUALIFYING BUILDINGS- FACTORIES/SIMILAR PREMISES/
  WAREHOUSES
• 4 P.A. ON COST OF BUILDING ONLY
• EXCLUDE OFFICES, SHOWROOMS ETC. UNLESS 25 RULE
  APPLIES

12
VAT PRINCIPLES

• Applies to taxable supplies in UK in course of
  business by a taxable person
• Supplies includes all services, disposals of
  goods including fixed assets, disposals of
  intangibles, e.g goodwill
• Taxable supplies are all supplies except exempt
  supplies
• Business includes virtually all economic
  activities, including renting property

13
TAXABLE PERSON

• A Taxable Person (TP) is one making taxable
  supplies
• However, need not register for VAT if lt limit
  voluntary registration OK
• Limit 55,000 in previous 12 months/expected in
  next month
• Limits apply to trader not business
• TP must charge VAT (if due) on outputs but
  can claim VAT on most inputs

14
WHO PAYS VAT?

• A TP will pay VAT on SR inputs but he can get it
  back from CE.
• A TP will charge VAT on SR items, so that he pays
  VAT to CE on excess of SR Outputs over SR inputs
  (i.e. on value added)
• The VAT which he charges to other TPs is not a
  real cost to them so he can simply add it on to
  his price.

15
WHO PAYS VAT? II

• When A TP makes supplies to a private consumer or
  a person making exempt supllies they cannot get
  back such VAT
• The VAT is thus a real cost to them
• Legally, this end-user picks up the full VAT on
  the final value added
• Economically, the TP may have to adjust his price
  to compensate the end-user.

16
WHO PAYS VAT? III

• Zero-Rated supplies are liable at 0
• The TP may still recover his input VAT
• In this case, the end-user picks up no final tab
• Why register voluntarily?
• Note input tax blockages e.g. cars, entertaining