Corp Tax 1... · • Tax adjusted trading profits are calculated by taking the pre-tax profit per the accounts and making adjustments for tax purposes. • The adjustments for corporation

Professional, Practical, Proven

Introduction to Corporation Tax

15 - Corporation Tax 1

Schedule

2

Week Monday Chapter Ref. Topic Areas23rd Dec – 12th Jan 2020 Christmas Break

Wk/Lecture 13 13th Jan 8 Capital Allowances

Wk/Lecture 14 20th Jan 9 Basis Periods

Wk/Lecture 15 27th Jan 10 Corporation Tax – Introduction

Wk/Lecture 16 3rd Feb 10 Corporation Tax – Capital Allowances

Wk/Lecture 17 10th Feb 10 Losses

Wk/Lecture 18 17th Feb 11 Chargeable Gains

Wk/Lecture 19 24th Feb 11 Close companies and Self-Assessment2nd Mar – 8th Mar Reading Week 2

Wk/Lecture 20 9th Mar 12 VAT - Introduction

Wk/Lecture 21 16th Mar 13 VAT – Detailed computation

Wk/Lecture 22 23rd Mar 14 CIS & NIC

Wk/Lecture 23 30th Mar 6 Revision - CGT

Wk/Lecture 24 6th Apr N/A Revision - Income tax

Wk/Lecture 25 13th Apr N/A Revision - Corporation tax

Wk/Lecture 26 20th Apr N/A Revision – Admin and VAT

Week 27 27th Apr

Week 28 4th May

11th May Examinations

Schedule

3

4

• Introduction & scope• Chargeable Accounting Periods• Profits Chargeable to Corporation Tax (PCTCT)• Tax Adjusted Trading Profits• Pre-trading expenditure

Corporation tax

5

• Corporation tax is the tax that companies pay on their profits.• Legislation is contained in:

• Corporation Tax Act 2009• Corporation Tax Act 2010• Taxation of Chargeable Gains Act 1992as amended by subsequent Finance Acts.

Introduction

6

• UK resident companies are liable to corporation tax on their worldwide “taxable total profits”.

• Companies which are not UK resident but which trade in the UK through a permanent establishment are liable to corporation tax on the income and gains of that establishment.

• A company is resident in the UK if it is either incorporated or centrally managed and controlled in the UK. To determine where a company is managed and controlled, you must consider a variety of factors including, where board meetings are held and where the majority of contracts are signed.

• A corporation tax financial year runs from 1 April to 31 March and is identified by the year in which it begins. E.g. FY 2019 runs from 1 April 2019 to 31 March 2020.

Scope of Corporation Tax

7

• A company’s taxable total profits include both its income and its chargeable gains.

• The main source of income is likely to be trading profits but there can be other sources of income, e.g. interest received, rental income etc.

• A company’s income is computed in a similar way to that of an individual. There are differences which will be covered in the following weeks.

Scope of Corporation Tax

8

• A company is taken to mean any corporate body or unincorporated association, excluding partnerships, local authorities and local authority associations.

• This definition includes limited companies, and clubs and societies which are liable to corporation tax on their income from non-members.

• Organisations that are generally exempt from corporation tax (that are subject to various conditions and limits) include registered charities and registered pension schemes.

Corporate bodies

9

• Corporation tax is charged in respect of “accounting periods”, or “chargeable accounting period”.

• Need to distinguish between:• A chargeable accounting period• Periods of account

• Chargeable Accounting Period (CAP)• Period for which corporation tax is charged

• Period of account• Period for which a company prepares a set of accounts

• These are not always the same, e.g. a company could have an 18 month period of account, which would end up being two chargeable accounting periods.

Chargeable Accounting Periods (CAP)

10

• Chargeable Accounting Period (CAP)• Period of account• A chargeable accounting period cannot exceed 12 months.• If the CAP straddles two financial years, the chargeable profits for

the period are time apportioned between the two financial years and taxed at the rate applicable in that financial year.

Chargeable Accounting Periods (CAP)

11

A chargeable accounting period begins when:a) The company comes within the charge to corporation tax, orb) When the previous accounting period ends, so long as the

company remains within the charge to corporation tax

Chargeable Accounting Periods

12

A chargeable accounting period ends on the earliest occurrence of any number of events:

a) The expiration of 12 months from the beginning of the accounting period

b) The end of a period of accountc) The company ceasing to traded) The company ceasing to be within the charge to corporation

taxe) The company ceasing to be UK residentf) The company entering administration or ceasing to be in

administrationIf the chargeable accounting period straddles two financial years, the chargeable profits for the period are time apportioned between the two financial years and taxed at the rate applicable in each FY.

Chargeable Accounting Periods

Long periods of account

14

The consequences of these rules are:a) The length of a chargeable accounting period can never exceed 12

monthsb) If a set of accounts covers a period of 12 months or less, the period of

account forms a single accounting period and a corporation tax assessment is raised for this period.

c) If a set of accounts covers a period of more than 12 months, the period covered by the accounts is broken down into two or more chargeable accounting periods, each giving rise to a separate corporation tax assessment. The first chargeable accounting period consists of the first 12 months period of account. The second chargeable accounting period consists of the next 12 months and so on. If the period covered by the accounts is not an exact multiple of 12 months, the final accounting period will be less than 12 months.

Accounting periods

15

a. Company A prepares accounts for the year to 31 December 2019.b. Company B prepares accounts for the six months to 31 October

2019.c. Company C prepares accounts for the sixteen months to 31

December 2019.d. Company D prepares accounts for the thirty months to 31 March

2020.Required:What are the chargeable accounting periods for each company?

Example

16

a. Company A prepares accounts for the year to 31 December 2019.The year to 31 December 2019 is a single accounting period.b. Company B prepares accounts for the six months to 31 October

2019.The six months to 31 October 2019 is a single accounting period.c. Company C prepares accounts for the sixteen months to 31

December 2019.The sixteen months to 31 December 2019 is divided into two chargeable accounting periods – the 12 months to 31 August 2019 and the four months to 31 December 2019.

Solution

17

d. Company D prepares accounts for the thirty months to 31 March 2020.

The thirty months to 31 March 2020 is divided into three accounting periods:

12 months to 30 September 201812 months to 30 September 20196 months to 31 March 2020.

Solution

18

• A period of account exceeding 12 months in length must be divided into two or more accounting periods, each of which will give rise to a separate corporation tax assessment (computation).

• This will give two (or more) separate dates for payment of the corporation tax liability.


19

• A company’s income and gains for a long period of account are allocated between accounting periods as follows:


Type of income Allocation basis

Trading profits (before capital allowances)

Tax adjusted trading profits are calculated for the long period of account and are time apportioned. Capital allowances computations are prepared for each CAP. AIA and WDA are restricted if the CAP is less than 12 months.

Miscellaneous income Allocated to the accounting period in which it is accrued.

Property income Allocated to the accounting period in which it is accrued.

Interest income Allocated to the accounting period in which it is accrued.

20

• A company’s income and gains for a long period of account are allocated between accounting periods as follows:


Type of income Allocation basis

Dividends received Investment income

Allocated to the accounting period in which it is received. Although these do not form part of the chargeable profits, the allocation is important when determining the size of the company for quarterly instalment purposes.

Chargeable gains Allocated to the accounting period in which the disposal takes place

Qualifying charitable donations

Allocated to the accounting period in which they are paid.

21

ExampleA company makes up accounts for the 21 months to 30 September 2020. The company’s results for this period of account are:


£Adjusted trading profits (before capital allowances) 630,000Non-trade loan interest receivable

Received 31 October 2019 600Received 30 April 2020 600Accrued to 30 September 2020 500

Chargeable gainsDisposal on 25 May 2019 2,300Disposal on 12 December 2019 700Disposal on 15 February 2020 10,500

Gift Aid donationsPaid 31 December 2019 4,000Accrued to 30 September 2020 3,000

Template

Proforma Computation££

Tax Adjusted Trading IncomeX

Less: Trading Losses b/f (Pre 1 April 2017)X

X

Interest IncomeX

Income from Foreign PossessionsX

Miscellaneous IncomeX

Rental IncomeX

X

Chargeable GainsX

Less: Allowable Capital Losses b/f(X)

X

Less:

Rental losses(X)

Current year trading losses(X)

Post April 2017 losses b/f

Losses carried back(X)

Deficits on non-trading loans(X)

Qualifying Charitable Donations(X)

(X)

Profits Chargeable to Corporation Tax (PCTCT)X


Net Profit per accountsX

Addback:

Expenditure not allowable for tax purposesX

X

Less:

Income not taxed as trading income(X)

Allowable expenditure not charged in the acccounts(X)

Capital Allowances(X)

(X)

Tax Adjusted Trading Profits

Melville Template

££

Trading incomexx

Less: Trading losses brought forwardxxxx

Income from propertyxx

Income from non-trading loan relationshipsxx

Non-trading income from intangible fixed assetsxx

Chargeable gainsxx

Less: Allowable capital lossesxxxx

xx

Less: Property business lossesxx

Deficits on non-trading loan relationshipsxx

Trading losses relieved against total profitsxx

Relief for qualifying charitable donationsxxxx

Total taxable profits (TTP)xx

Chargeable gain calculation:

Disposal proceeds£X

Less incidental costs of disposal(£X)

Net proceeds£X

Less Allowable Expenditure

Acquisition cost(£X)

Incidental costs of acquisition(£X)

Ehancement expenditure(£X)(£X)

Chargeable Gain(£X)

CGT Liability

Gain on disposal of business12,500,000ER max10,000,000

Less: Annual exemption(11,100)Used900,000

Taxable gains12,488,900Left9,100,000

9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780

Total CGT liability1,587,780

Eg 2

Trading profitsHalloumi Ltd

Melville Page 342 example 2

Included in Advanced Tax NI Revision June 2019

££

Turnover1,640,430

Cost of sales(827,390)

Gross profit813,040

Other income24,000

837,040

Distribution costs(187,770)

Administrative expenses(341,920)(529,690)

Profit before tax307,350

Notes

1The other income of 24,000 consists of rents receivable.24,000

2Distribution costs are as follows:£

Depreciation of distribution vans18,530

Loss on disposal of distribution van990

General distribution costs (all allowable)168,250

187,770

3Administrative expenses are as follows:£

Depreciation of office equipment12,680

Profit on disposal of office equipment(3,710)

Loss on disposal of investments27,000

Trade debts written off10,600

Increase in general allowance for doubtful debts8,400

Customer entertaining2,760

Staff entertaining5,550

Gift Aid donations10,000

Legal fees re acquisition of new freehold offices4,500

Motor exps (½ private motoring by employees)59,060

Patent royalties payable for trade purposes20,000

Embezzlement by director50,000

General administrative exps (all allowable)135,080

341,920

Solution

££

Profit per accounts307,350

LessNon-trading income

Income from property(24,000)

Profit on disposal of office equipment(3,710)(27,710)

279,640

AddDisallowable expenses









Embezzlement by director50,000134,860

Trading income (before capital allowances)414,500

Long

17/18 version19/20 version

Long periods of accountLong periods of accountLong periods of account

Melville Page 352 example 3Melville Page 352 example 3Included in lecture12/31/199/30/20Melville Page 352 example 3Included in Advanced Tax NI Revision June 201912/31/189/30/19

19201819

£££

Adjusted trading profits (before capital allowances)630,000Adjusted trading profits (before capital allowances)630,000Adjusted trading profits (before capital allowances)630,000

Non-trade loan interest receivableNon-trade loan interest receivableNon-trade loan interest receivable

Received 31 October 2015600Received 31 October 2019600Received 31 October 2018600

Received 30 April 2016600Received 30 April 2020600Received 30 April 2019600

Accrued to 30 September 2016500Accrued to 30 September 2020500Accrued to 30 September 2019500

Chargeable gainsChargeable gainsChargeable gains

Disposal on 25 May 20152,300Disposal on 25 May 20192,300Disposal on 25 May 20182,300

Disposal on 12 December 2015700Disposal on 12 December 2019700Disposal on 12 December 2018700

Disposal on 15 February 201610,500Disposal on 15 February 202010,500Disposal on 15 February 201910,500

Gift Aid donationsGift Aid donationsGift Aid donations

Paid 31 December 20154,000Paid 31 December 20194,000Paid 31 December 20184,000

Accrued to 30 September 20163,000Accrued to 30 September 20203,000Accrued to 30 September 20193,000

The loan interest receivable relates to a £12,000 loan made on812000The loan interest receivable relates to a £12,000 loan made on812000The loan interest receivable relates to a £12,000 loan made on812000

on 1 May 2015 at 10%10%on 1 May 2019 at 10%10%on 1 May 2018 at 10%10%

The company makes a £4,000 Gift Aid donation on 31 DecemberThe company makes a £4,000 Gift Aid donation on 31 DecemberThe company makes a £4,000 Gift Aid donation on 31 December

every year.every year.every year.

Show how the period of account will be divided into accounting periodsShow how the period of account will be divided into accounting periodsShow how the period of account will be divided into accounting periods

and compute the company's taxable total profits for each accounting and compute the company's taxable total profits for each accounting and compute the company's taxable total profits for each accounting

period (ignore capital allowances).period (ignore capital allowances).period (ignore capital allowances).

129129129

SolutionSolutionSolution

12 months to 31/12/159 months to 30/9/1612 months to 31/12/199 months to 30/09/2012 months to 31/12/189 months to 30/09/19

££££££

Trading income (12:9)360,000270,000Trading income (12:9)360,000270,000Trading income (12:9)360,000270,000

Income from non-trading relationship800900Income from non-trading relationship800900Income from non-trading relationship800900

Chargeable gains3,00010,500Chargeable gains3,00010,500Chargeable gains3,00010,500

363,800281,400363,800281,400363,800281,400

Less:Qualifying charitable donations(4,000)nilLess:Qualifying charitable donations(4,000)nilLess:Qualifying charitable donations(4,000)nil

Taxable total profits (TTP)359,800281,400Taxable total profits (TTP)359,800281,400Taxable total profits (TTP)359,800281,400

Q 23.5

This was used in VC5 - Corp Tax 1.pptx on 13 Dec 2016.18/19 Version - going to ram it into lecture 1.

Trading profitsTrading profits1819

Melville Page 357 Exercise 23.5PositionMelville Page 357 Exercise 23.5

A company has the following results for the year to 31 March 2017:1.5cmA company has the following results for the year to 31 March 2019:

££6cm££

Trading profits, after capital allowances1,561,400120%Trading profits, after capital allowances1,561,400

Bank deposit interest (account opened 1 April 2016)Bank deposit interest (account opened 1 April 2018)

Received 30 June 20161,820 Received 30 June 20181,820

Received 31 December 20163,670 Received 31 December 20183,670

Accrued to 31 March 20171,980 Accrued to 31 March 20191,980

Chargeable gain on sale of factory531,000Chargeable gain on sale of factory531,000

Dividends received from UK companies132,000Dividends received from UK companies132,000

Deed of covenant payable annually to a charity:Deed of covenant payable annually to a charity:

Paid 1 October 2016, for the year to 30 Sept 20179,000 Paid 1 October 2018, for the year to 30 Sept 20199,000

Less: Prepayment4,5004,500 Less: Prepayment4,5004,500

The charitable covenant began on 1 October 2016 and falls within the GiftThe charitable covenant began on 1 October 2018 and falls within the Gift

Aid scheme.Aid scheme.

Required:Required:

Compute the taxable profits for the year.Compute the taxable profits for the year to 31 March 2019.

SolutionP575SolutionP575

The taxable total profits for the year to 31 March 2017 are as follows:The taxable total profits for the year to 31 March 2019 are as follows:

££

Trading income1,561,400Trading income1,561,400

Income from non-trading loan relationshipsIncome from non-trading loan relationships

(£1,820 + £3,670 + £1,980)7,470 (£1,820 + £3,670 + £1,980)7,470

Chargeable gains531,000Chargeable gains531,000

2,099,8702,099,870

Less: Qualifying charitable donations9,000Less: Qualifying charitable donations9,000

Taxable Total Profits2,090,870Taxable Total Profits2,090,870

Notes:Notes:

a)Interest receivable is taxed on the accruals basis.a)Interest receivable is taxed on the accruals basis.

b)Dividends received do not form part of a company's taxable totalb)Dividends received do not form part of a company's taxable total

profits.profits.

c)Gift Aid donations are relieved on the payments basis.c)Gift Aid donations are relieved on the payments basis.

22

Notes:


6 months 1 May - 31 Oct(£12,000 x 10% ÷ 2)

The loan interest receivable relates to a £12,000 loan made onon 1 May 2019 at 10%The company makes a £4,000 Gift Aid donation on 31 Decemberevery year.Show how the period of account will be divided into accounting periodsand compute the company's taxable total profits for each accounting period (ignore capital allowances).

Non-trade loan interest receivableReceived 31 October 2019 600Received 30 April 2020 600Accrued to 30 September 2020 500

Template




X

Interest IncomeX



Rental IncomeX

X

Chargeable GainsX


X

Less:

Rental losses(X)






(X)




Addback:


X

Less:




(X)


Melville Template

££

Trading incomexx





Chargeable gainsxx


xx









Net proceeds£X






CGT Liability




9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780


Eg 2




££

Turnover1,640,430


Gross profit813,040

Other income24,000

837,040




Notes






187,770















341,920

Solution

££





279,640












Long




19201819

£££




















129129129



££££££




363,800281,400363,800281,400363,800281,400



Q 23.5





££6cm££













Required:Required:




££



(£1,820 + £3,670 + £1,980)7,470 (£1,820 + £3,670 + £1,980)7,470


2,099,8702,099,870



Notes:Notes:



profits.profits.


Template




X

Interest IncomeX



Rental IncomeX

X

Chargeable GainsX


X

Less:

Rental losses(X)






(X)




Addback:


X

Less:




(X)


Melville Template

££

Trading incomexx





Chargeable gainsxx


xx









Net proceeds£X






CGT Liability




9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780


Eg 2




££

Turnover1,640,430


Gross profit813,040

Other income24,000

837,040




Notes






187,770















341,920

Solution

££





279,640












Long




19201819

£££




















129129129



££££££




363,800281,400363,800281,400363,800281,400



Q 23.5





££6cm££













Required:Required:




££



(£1,820 + £3,670 + £1,980)7,470 (£1,820 + £3,670 + £1,980)7,470


2,099,8702,099,870



Notes:Notes:



profits.profits.


23

There are two chargeable accounting periods – the year to 31 December 2019 and the nine months to 30 September 2020. The taxable profits for each chargeable accounting period are as follows:

Solution

25 May 2019 £2,30012 Dec 2019 £ 700

£ 3,000

1 May - 31 Dec(£12,000 x 10% ÷ 8)

12 months to 31/12/19

9 months to 30/09/20

£ £Trading income (12:9) 360,000 270,000Income from non-trading relationship 800 900Chargeable gains 3,000 10,500

363,800 281,400Less: Qualifying charitable donations (4,000) nil

Taxable total profits (TTP) 359,800 281,400

Template




X

Interest IncomeX



Rental IncomeX

X

Chargeable GainsX


X

Less:

Rental losses(X)






(X)




Addback:


X

Less:




(X)


Melville Template

££

Trading incomexx





Chargeable gainsxx


xx









Net proceeds£X






CGT Liability




9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780


Eg 2




££

Turnover1,640,430


Gross profit813,040

Other income24,000

837,040




Notes






187,770















341,920

Solution

££





279,640












Long




19201819

£££




















129129129



££££££




363,800281,400363,800281,400363,800281,400



Q 23.5





££6cm££













Required:Required:




££



(£1,820 + £3,670 + £1,980)7,470 (£1,820 + £3,670 + £1,980)7,470


2,099,8702,099,870



Notes:Notes:



profits.profits.


24

• The loan interest is allocated on the accruals basis. Interest on the loan accrues at £100 per month, so 8 months (1 May – 31 Dec 2109) in the first accounting period and 9 months (1 Jan – 30 Sept 2020) in the second accounting period.

• The chargeable gains are allocated according to the date of disposal and the Gift Aid donations are allocated according to the date of payment. The accrued donations are not deductible until the accounting period in which they are paid.

Solution

Adjusted trading profits

26

• Tax adjusted trading profits are calculated by taking the pre-tax profit per the accounts and making adjustments for tax purposes.

• The adjustments for corporation tax are very similar to those made to a sole trader’s trading income for income tax purposes (Capital expenditure and the 16 examples in IT lecture 7 (lecture 12).

• Common adjustments:• Depreciation• Expenditure not incurred wholly and exclusively for the

purposes of the trade• Entertaining, other than staff• Gifts containing food, alcohol and tobacco, no logo• 15% addback of lease payments on cars with high emissions

Taxable adjusted trading profits

27

There are some differences to income tax:1. Private expenses/Private use – no adjustment required in income

statement or capital allowances computation. Where there is private use this could lead to a BIK.

2. Dividends payable – this is an appropriation of profit3. Gift Aid donations – added back in calculation of PCTCT but then

included as a “Qualifying Charitable Donation” (QCD) in the computation. No grossing up as corporate payments are made gross. The QCD cannot create a loss and therefore may go unrelieved if there are not sufficient profits.

4. Interest Payable/Receivable – non-trading interest expense is added back. Interest received is deducted from trading profits.


28

There are some differences to income tax:5. Director’s Dishonesty – losses incurred by a director’s dishonesty

are disallowed


29

There are some differences to income tax:6. Intangible fixed assets:

The cost of an intangible fixed asset is amortised in the accounts or if not amortised, relief is given at a fixed rate of a tax allowance of 4%.If an intangible fixed asset is held for trade purposes, the relevant income and expenditure is treated as trading income/expenditure. If it is not held for trade purposes, the income and expenditure is aggregated to give an overall gain/loss and taxed as a chargeable gain.If an intangible asset (held for trade purposes) is sold at a loss, the loss is allowable as a deduction and if it is sold at a profit, the profit is taxable income.Examples of intangible assets are goodwill, patents, copyrights etc. Note that amortisation cannot be claimed for goodwill.


30

Note:• A company cannot be an employee and so cannot have

employment income• There is no corporation tax equivalent of the personal allowance• CTA 2010 uses the term “taxable total profits” but the terms

“chargeable profits” and “profits chargeable to corporation tax” (PCTCT) mean the same thing.

• Most of the time I hope to use “profits chargeable to corporation tax” (PCTCT).

Taxable total profits

31

• A company’s trading income for an accounting period consists of its trading profit for the period, as adjusted for tax purposes.

• The starting point is the pre-tax profit for the relevant period of account.

• This is then adjusted by excluding non-trading income and adding back disallowed expenses.

• Long periods of account are time apportioned.• Capital allowances for each accounting period are then deducted.

Trading income

32

Tax adjusted trading incomeProforma Computation £ £Net Profit per accounts XAddback:Expenditure not allowable for tax purposes X

XLess:Income not taxed as trading income (X)Allowable expenditure not charged in the acccounts (X)Capital Allowances (X)

(X)Tax Adjusted Trading Profits

Template



Less: Trading Losses b/fX

X

Interest IncomeX



Rental IncomeX

Chargeable GainsX


X

Less:

Rental losses(X)





(X)

Profits Chargeable to Corporation Tax (PCTCT)



Addback:


X

Less:




(X)


Melville Template

££

Trading incomexx





Chargeable gainsxx


xx









Net proceeds£X






CGT Liability




9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780


Eg 2

Trading profits


££

Turnover1,640,430


Gross profit813,040

Other income24,000

837,040

Distribtion costs(187,770)



Notes






187,770















341,920

Solution

££





279,640












Eg 7



£

Adjusted trading profits (before capital allowances)630,000

Non-trade loan interest receivable

Received 31 October 2015600

Received 30 April 2016600

Accrued to 30 September 2016500

Chargeable gains

Disposal on 25 May 20152,300

Disposal on 12 December 2015700

Disposal on 15 February 201610,500

Gift Aid donations

Paid 31 December 20154,000

Accrued to 30 September 20163,000

The loan interest receivable relates to a £12,000 loan made on81200010%

on 1 May 2015 at 10%

The company makes a £4,000 Gift Aid donation on 31 December

every year.

Show how the period of account will be divided into accounting periods

and compute the company's taxable total profits for each accounting

period (ignore capital allowances).

129

Solution

12 months to 31/12/159 months to 30/9/16

££

Trading income (12:9)360,000270,000

Income from non-trading relationship800900

Chargeable gains3,00010,500

363,800281,400

Less:Qualifying charitable donations(4,000)nil

Taxable total profits (TTP)359,800281,400

Q 23.5





££6cm££








Deed of covenant paybable annually to a charity:Deed of covenant paybable annually to a charity:








££



(£1,820 + £3,670 + £1,980)7,470 (£1,820 + £3,670 + £1,980)7,470


2,099,8702,099,870



Notes:Notes:



profits.profits.


33

ExampleA company’s income statement is as follows:

Trading income

£ £Turnover 1,640,430Cost of sales (827,390)Gross profit 813,040Other income 24,000

837,040Distribution costs (187,770)Administrative expenses (341,920) (529,690)

Profit before tax 307,350

Template

££

Trading incomexx





Chargeable gainsxx


xx









Net proceeds£X






CGT Liability




9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780


Eg 2

Trading profits


££

Turnover1,640,430


Gross profit813,040

Other income24,000

837,040




Notes

1The other income of £24,000 consists of rents receivable.





187,770

Alan

PPR Partial exemption


a)AllanRound upRound down

MonthsMonths

1 April 1985Bought house29,000

31 October 2014Changed PPR355355

31 January 2017Sold145,00027

Compute the chargeable gain.

31 July 2015last 18 months1818

29 years348

length of period of residenceXwhole gainTotal382AMJJASO7

length of period of ownership355

Occupation1 April 1985-31 October 201430 years all but 5 months355

To Oct 1624

NDJ3

27

Step 1 - periods of actual/deemed occupation and periods of absence

Occupation Exempt (months)Absence Chargeable (months)Total (months)

1 Apr 1985 - 31 Oct 20143550355

31 Oct 2014 - 31 Jul 2015099

31 Jul 2015 - 31 Jan 201718018

3739382

Step 2 - calculate the gain

Proceeds145,000

Less: cost(29,000)

Gain116,000

Less PPR

116,000373

382(113,267)

Remaining gain2,733

My variation

a)JaneRound upRound down

MonthsMonths

1 May 1986Bought house40,000

30 April 2014Changed PPR336336

31 October 2016Sold145,00030


30 April 2015last 18 months1818

29 years348



Occupation1 May 1986-30 April 201430 years all but 5 months355

To Oct 1624

NDJ3

27



1 May 1986 - 30 Apr 20143360336

30 Apr 2014 - 30 Apr 201501212

30 Apr 2015 - 31 Oct 201618018

35412366


Proceeds145,000

Less: cost(40,000)

Gain105,000

Less PPR

105,000354

366(101,557)

Remaining gain3,443

Them to do

Darius

Dave & Angela

Combined Question

Kaplan F6 Kit page 94 (160), solution on p 405 (451)

Brad

CGT Liability 2016/17

£

Motor car - exemptnil

House (W1)31,439

Shares in ABC Ltdnil

Total chargeable gains31,439

Less: Annual exemption(11,100)

Taxable gain20,339

CGT @ 18%3,661

Ange


£


House (W1)31,439

Shares in ABC Ltd26,400



Taxable gain46,739

CGT

£770 @ 18%139

£45,969 @ 28%12,871

£46,73913,010

Round upRound down

1 October 1996Bought house86,000MonthsMonths

1 April 2000Moved for work4242

1 January 2004Returned home4545

1 January 2011Moved out8484

1 October 2016Sold381,9006969

240



29 years348



Ownership1 October 1996-1 October 201630 years all but 5 months355

To June 16264

JJASONDJ8

272

W1Step 1 - periods of actual/deemed occupation and periods of absence


1 Oct 1996 - 1 Apr 200042042Actual residence

1 Apr 2000 - 1 Jan 200445045Working in UK< 4 yearsReturned

1 Jan 2004 - 1 Jan 20118484Actual residence

1 Jan 2011 - 1 Apr 20155151Unoccupied

1 Apr 2015 - 1 Oct 201618018Last 18 months

18951240


Proceeds381,900

Less: cost(86,000)

Gain295,900

Less PPR

295,900189

240(233,021)

Remaining gain62,879

My variation

a)John

Round upRound down

1 January 1992Bought house40,000MonthsMonths

1 January 1996Moved for work4848


1 July 2000Went to USA3030


1 July 2014Moved out138138

1 January 2017Sold200,0003030

300



29 years348



Ownership1 January 1992-1 January 201730 years all but 5 months355

To June 16264

JJASONDJ8

272




1 Jan 1996 - 1 Jan 199824024Working in UK< 4 yearsReturned

1 Jan 1998 - 1 Jul 200030030Actual residence

1 Jul 2000 - 1 Jan 200330030Working abroad


1 Jul 2014 - 1 Jul 201501212Living in new PPR

1 Jul 2015 - 1 Jan 201718018Last 18 months

28812300


Proceeds200,000

Less: cost(40,000)

Gain160,000

Less PPR

160,000288

300(153,600)

Remaining gain6,400

Shares

Proceeds62,400

Less: cost(36,000)

Gain26,400

Remaining basic rate band

Basic rate band 2015/1632,00031785

Less: taxable income(31,230)

770

Them to do

Darius

Alistair

PPR letting relief


a)Alice

FACTS AS BEFORE EXCEPT THIS TIME SHE RENTED ALL THE TIME SHE WAS AWAY

Solution

The only chargeable period was a period of 14 months during which a gain of

arose and during which the property was let.

Letting relief is available as the lowest of:

Step 3 - additional letting exemption

Lowest of:

1. The gain exempt under PPR rules233,021

2. The gain attributable to the letting period

and not qualifying for PPR62,879

3. The maximum amount40,000

Lowest =40,000

Chargeable gain:


Less Letting Exemption(40,000)

Chargeable gain22,879

My variation

John


Lowest of:





Lowest =6,400

Chargeable gain:

Remaining gain6,400


Chargeable gainnil

My variation

a)John

Round upRound down







1 January 2017Sold200,0003030

300



29 years348




To June 16264

JJASONDJ8

272










28812300


Proceeds200,000

Less: cost(40,000)

Gain160,000

Less PPR

160,000288

300(153,600)

Remaining gain6,400

Them to do

Darius

34

Notes:

Trading income

Template

££

Trading incomexx





Chargeable gainsxx


xx









Net proceeds£X






CGT Liability




9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780


Eg 2

Trading profits


££

Turnover1,640,430


Gross profit813,040

Other income24,000

837,040




Notes






187,770

Alan




MonthsMonths



31 January 2017Sold145,00027



29 years348




To Oct 1624

NDJ3

27



1 Apr 1985 - 31 Oct 20143550355

31 Oct 2014 - 31 Jul 2015099

31 Jul 2015 - 31 Jan 201718018

3739382


Proceeds145,000

Less: cost(29,000)

Gain116,000

Less PPR

116,000373

382(113,267)

Remaining gain2,733

My variation


MonthsMonths



31 October 2016Sold145,00030



29 years348




To Oct 1624

NDJ3

27



1 May 1986 - 30 Apr 20143360336

30 Apr 2014 - 30 Apr 201501212

30 Apr 2015 - 31 Oct 201618018

35412366


Proceeds145,000

Less: cost(40,000)

Gain105,000

Less PPR

105,000354

366(101,557)

Remaining gain3,443

Them to do

Darius

Dave & Angela

Combined Question


Brad


£


House (W1)31,439




Taxable gain20,339

CGT @ 18%3,661

Ange


£


House (W1)31,439




Taxable gain46,739

CGT

£770 @ 18%139

£45,969 @ 28%12,871

£46,73913,010

Round upRound down





1 October 2016Sold381,9006969

240



29 years348




To June 16264

JJASONDJ8

272




1 Apr 2000 - 1 Jan 200445045Working in UK< 4 yearsReturned


1 Jan 2011 - 1 Apr 20155151Unoccupied

1 Apr 2015 - 1 Oct 201618018Last 18 months

18951240


Proceeds381,900

Less: cost(86,000)

Gain295,900

Less PPR

295,900189

240(233,021)


My variation

a)John

Round upRound down







1 January 2017Sold200,0003030

300



29 years348




To June 16264

JJASONDJ8

272










28812300


Proceeds200,000

Less: cost(40,000)

Gain160,000

Less PPR

160,000288

300(153,600)

Remaining gain6,400

Shares

Proceeds62,400

Less: cost(36,000)

Gain26,400

Remaining basic rate band

Basic rate band 2015/1632,00031785

Less: taxable income(31,230)

770

Them to do

Darius

Alistair

PPR letting relief


a)Alice

FACTS AS BEFORE EXCEPT THIS TIME SHE RENTED ALL THE TIME SHE WAS AWAY

Solution

The only chargeable period was a period of 14 months during which a gain of

arose and during which the property was let.

Letting relief is available as the lowest of:


Lowest of:





Lowest =40,000

Chargeable gain:



Chargeable gain22,879

My variation

John


Lowest of:





Lowest =6,400

Chargeable gain:

Remaining gain6,400


Chargeable gainnil

My variation

a)John

Round upRound down







1 January 2017Sold200,0003030

300



29 years348




To June 16264

JJASONDJ8

272










28812300


Proceeds200,000

Less: cost(40,000)

Gain160,000

Less PPR

160,000288

300(153,600)

Remaining gain6,400

Them to do

Darius

35

Notes:

Trading income

Template

££

Trading incomexx





Chargeable gainsxx


xx









Net proceeds£X






CGT Liability




9,100,000 @ 10% (10,000,000 - 900,000)910,0003,388,900

3,388,900 @ 20% (12,488,900 - 9,100,000)677,780


Eg 2

Trading profits


££

Turnover1,640,430


Gross profit813,040

Other income24,000

837,040




Notes






187,770















341,920

Alan




MonthsMonths



31 January 2017Sold145,00027



29 years348




To Oct 1624

NDJ3

27



1 Apr 1985 - 31 Oct 20143550355

31 Oct 2014 - 31 Jul 2015099

31 Jul 2015 - 31 Jan 201718018

3739382


Proceeds145,000

Less: cost(29,000)

Gain116,000

Less PPR

116,000373

382(113,267)

Remaining gain2,733

My variation


MonthsMonths



31 October 2016Sold145,00030



29 years348




To Oct 1624

NDJ3

27



1 May 1986 - 30 Apr 20143360336

30 Apr 2014 - 30 Apr 201501212

30 Apr 2015 - 31 Oct 201618018

35412366


Proceeds145,000

Less: cost(40,000)

Gain105,000

Less PPR

105,000354

366(101,557)

Remaining gain3,443

Them to do

Darius

Dave & Angela

Combined Question


Brad


£


House (W1)31,439




Taxable gain20,339

CGT @ 18%3,661

Ange


£


House (W1)31,439




Taxable gain46,739

CGT

£770 @ 18%139

£45,969 @ 28%12,871

£46,73913,010

Round upRound down





1 October 2016Sold381,9006969

240



29 years348




To June 16264

JJASONDJ8

272




1 Apr 2000 -

Documents

Corp Tax 1... · • Tax adjusted trading profits are calculated by taking the pre-tax profit per the accounts and making adjustments for tax purposes. • The adjustments for corporation