17 - Business finance and tax planning for companies.

Incentives to issue share for individuals and for companies.

EIS relief, SEIS relief, VCT relief. | Substantial shareholding exemption.

Sole trader vs Company - year basis of tax assessment:

Current year basis. | Accounting period basis.

Sole trader - relief against total profits availability:

Current | and previous tax year.

Type of VAT registration for sole trader:

Individual registers himself.

IHT implication if unincorporated business is sold with a loss:

If there is a loss in value to the estate (i.e. the gift of the business or sale at undervalue), then there will be potential IHT implications: Gift to an individual - PET. | Gift to a trust - CLT. | Gift to spouse – exempt.

SDLT implications on incorporation:

SDLT payable by the company on purchase of land and buildings.

Succession election essence:

If the trader and new company are CONNECTED, they may claim that the assets in main pool are transferred | at their OPENING TWDV RATHER THAN THE MV at the date of incorporation | OR overtaking unincorporated business by connected person, e.g. daughter.

Close company. Determination of benefit value of the deemed dividend for shareholder who is not an employee:

The benefit which would have been assessable if they had been an employee of the company.

Close company. Tax implication for individual if loan to a shareholder is written off.

Individual is treated as receiving a cash dividend equivalent.

Close investment company (CIC) tax implications:

Tax relief is unavailable to an individual if he borrows money to invest in a CIC.| The shares will not be treated as business assets for IHT nor CGT.

Personal service companies (PSC) is sometimes referred as...

IR 35.

Personal service companies Deemed salary pro-forma:

£ received in tax year less: | 5 % deduction in respect of admin expenses. | Salary paid. | NICs paid by employer on this salary. | Employer pension contributions. | Allowable expenses.] = Gross deemed salary − Er NICs [GDS × (13.8÷113.8)] = Deemed salary

PSC tax due date:

19 April following end of tax year.

Personal Service Company dividend implication:

Dividends are tax free.

Purchase of own shares. Tax implications if capital treatment conditions are not satisfied:

The sale proceeds will be treated as dividend (income distribution). | Amount received − nominal value of shares.

HMRC allows winding-up a company without a liquidator and payments to be treated as capital up to...

£25,000.

Tax implications of a company liquidation:

Payments before liquidator appointment are treated as INCOME (income distribution). | Payments after liquidator is appointed are treated as CAPITAL (capital distribution).

Purchase of own shares. What relief might be used If capital conditions are satisfied?

BADR if its conditions are satisfied.

Capital treatment of purchase of own shares conditions:

Ownership period prior to repurchase*. | Bona fide benefit - not part of a scheme to avoid tax. | Residency -the individual must be UK resident. | Unlisted trading company.| Shareholding substantially reduced after buyback**.

Capital treatment of own shares purchase - shareholding level conditions:

The shareholder must end up with | no more than 30% of the shares in the company | and no more than 75% of the previous percentage holding.

Capital treatment of own shares purchase - required ownership period:

5 years normally | 3 years if inherited.

Capital treatment of own shares purchase - examples of benefit to trade:

Buying out retiring directors. | Buying out dissident (disruptive) shareholders. | Venture capitalist withdrawing investment. | Shareholder has died and beneficiaries don't want shares.

Investment options for companies to save tax:

Capital expenditure. | RaD expenditure.

Capital allowances - car benefit restriction:

85% for leasing rentals of cars over 50g per km.

Employer pays NIC in respect of all ... benefits.

of all taxable benefits, therefore exempt benefits such as free parking are not subject of NIC.

When property is transferred from one company to another, the indexation allowance must calculated separately, even if...

even it was a no gain no loss transfer within a 75% group | BUT ONLY if company will leave the group.

When companies provide taxable benefits to their employees, they must pay NIC 1A and fill the ... form in order to inform HMRC.

P11D.

Disadvantages for unincorporated company of having year ending at 31 March.

Taxable profits unlikely to be known, so POAs must based on estimates. | Minimum interval between earning profits and paying the associated tax.

Order or utilisation of trading losses within a group:

Firstly to any company whose profits can be reduced such that instalments will no longer be required. | Then to any company such that their instalments will be reduce. | To any other company.

The circumstances in which the personal service company IR35 rules apply:

A company enters into a contract to provide services to a client. | The services are carried out by an individual. | The individual is regarded as an employee* of the client. | Individual has an interest of at least 5% in a company.

Company X owns 30% holding of company Y. How losses can be possibly claim?

Company Y can be a consortium company. 30% of losses can be claim by each side as CONSORTIUM RELIEF (Losses can be surrendered upwards or downwards).

Company X sales 15% holding of Company Y. Explain C.T. treatment of sale depending it takes place before after 12 month and depending of profit or loss arises.

Chargeable gain or allowable loss arises. | SSE applies - profit is not taxable and loss is not allowable.

Incorporation Loss Relief is available provided:

The incorporated company continues to carry on the trade of former unincorporated business. | In exchange wholly or mainly for shares (at least 80% of consideration). | An individual retains the shares throughout the whole relevant tax year.

Under Incorporation Loss Relief losses of unincorporated business are set against...

the first available income the individual derives from the company (salary, dividends or interest). | Note that: losses cannot be offset against the future profits of the company.

Period of account has 8 months, augmenting profits are £1,200,000. What is the amount of first C.T. instalment?

£450,000 (in respect of 3 months)

New member of a group relief cannot transfer own losses but it can...

receive losses from other group member (to the extend of overlap period). [trading losses, but not capital losses!]

CFC exemption list:

Period | Profits | Territories | Tax | Margin

RaD and SMEs. If the deduction creates a loss it may be surrendered in exchange for...

a cash payment from HMRC of 14.5% of the surrendered amount.

Capital goods scheme. Company sells building on 6 of April - the whole tax year is treated as...

as if the asset had been used for the full year (The annual adjustment is made as normal in the year of disposal).

Company sold machines, does VAT must be charged on them?

Yes, unless it a TOGC.

Company was in a group with 18 member. Stipulate circumstances in which the company would be required to pay corporation tax in instalments.

It had TTP of more than £83,333 in the previous year | or its current year TPP is expected more than £555,556.

Instalment threshold is based on TTP. Give formula of TTP:

Taxable profits (excluding dividends received) + chargeable gains − QCD relief

£1,500,000 threshold is based on ... group.

related 51% group companies

The ... determine the due date, but the CT liability is always calculated on a company’s...

AUGMENTED PROFITS determine the due date, but the CT liability is always calculated on a company’s TTP.

Do unused capital losses are transferred altogether with a transfer of associated trade and assets?

No, capital losses will stay in the accounts of seller.

Company makes only zero-rated sales to members of the public. Is it beneficial to register to VAT?

Yes, because it would be able to recover its input VAT.| Company would be in a repayment position if it were to register because it only makes zero-rated supplies.| It could improve its CF position by making its VAT returns monthly rather than quarterly.

A company found a mistake in its accounts after 1 year of the filing date. What they suppose to do?

It is more than 12 months since the return filing date, and therefore too late to amend the C.T. returns. Accordingly, this information must be disclosed to HMRC. We need to determine whether or not there may be other omitted items or matters.

A company takes a 10% loan of £450,000 to acquire a goodwill and office premises for trading purposes and 70% shareholding in other company. Quantify the allowable deduction of income:

£20,500 is deductible from trading income | £24,500 is deductible from a NTLR income.

Intangible fixed asset examples:

goodwill, patents, copyrights, trademarks and franchises

Special intangible rollover relief formula:

maximum deferral = | lower of disposal proceeds | or amount reinvested | less original cost of original intangible asset

Calculate the taxable trading profit if intangibles rollover relief is claimed:

taxable trading profit: £8,000; [Amount deferred: £10,000. | Trading profit: £18,000*]

Calculate the amount of 2nd instalment.

19,300

CFC simple example:

Company resident in Poland CONTROLLED by the UK resident company.

Capital goods scheme. Calculate the final adjustment if seller decides opt to tax the building or decides to not do that.

Option to tax: £5,040 repayment from HMRC. | Without an option: £12,960 reclaimable by HMRC.

Calculate amount of losses needed to cover overseas income, and do not waste of DTR:

£1,842 need to be transferred to save DTR.

Calculate tax saving if an individual instead of taking dividends from a employer will contribute this amount into pension scheme an individual will take it up as a single lump sum:

£7,300

Alternative treatment of Intangible Asset amortisation:

4% straight line amortisation per annum. Election is irrevocable and it must be made within 2 years from the end of relevant tax year.

Agriculture Property Relief rate:

100%

Business property Relief rate:

50% or 100%.

Calculate the value per share of gift for CGT purposes:

7.90