ACCA F6 FA09 Study Text 2010

Подождите немного. Документ загружается.

Chapter 17: Profits chargeable to corporation tax

Chargeable gains

 Overview

5 Chargeable gains

5.1 Overview

A company pays corporation tax not only on its income but also on capital gains

arising from the disposal of certain capital assets (i.e. capital assets which are not

exempt).

The PCTCT statement includes the net chargeable gains of a company. These consist

of:

 chargeable gains arising in the CAP, minus

 allowable capital losses arising in the CAP, and minus

 any capital losses brought forward from an earlier CAP.

A separate chargeable gain or allowable loss computation is required for each

capital disposal. As a result, additional workings are required to obtain the net

chargeable gains assessment in a PCTCT statement.

The detailed computation of net chargeable gains is described in a later chapter.

Paper F6 (UK): Taxation FA2009

306 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Gift Aid payments

 Gift Aid payments

 Comprehensive examples

6 Gift Aid payments

6.1 Gift Aid payments

Companies can make payments to charities under the Gift Aid scheme. They are

allowed to deduct the amount paid in the CAP from total profits.

Note that the amount charged in the financial accounts in respect of Gift Aid

payments is calculated on an accruals basis (i.e. amounts paid and payable in the

CAP) but only the gross amount actually paid is an allowable deduction for tax

purposes.

6.2 Comprehensive examples

Example

O Ltd provides you with the following information in respect of the year ended 31

March 2010:

Income

Rental income from letting an empty factory in Manchester 12,000

Dividends from a French company (net of 25% overseas tax) 3,600

Profits from the trade 1,304,800

Bank deposit interest 7,800

Dividends from a UK company 32,400

Debenture interest from a UK company 151,000

Expenditure

Estate agent management fees 1,200

Repairs to factory in Manchester 17,500

Interest payable on a loan taken out to purchase shares 33,750

Gift Aid donation paid 24,000

Dividends paid to shareholders 105,500

O Ltd disposed of one capital asset which gave rise to a chargeable gain of £100,000

and another capital asset which gave rise to an allowable loss of £24,000. It has

capital losses of £10,000 brought forward from previous years.

Required

Prepare the PCTCT statement for O Ltd and calculate its corporation tax liability for

the year ended 31 March 2010.

Chapter 17: Profits chargeable to corporation tax

Answer

O Ltd: Corporation tax computation – year ended 31 March 2010

Trading income 1,304,800

Interest income (W1))

125,050

UK property income (W2) (see note below)

(6,700)

Net chargeable gains (W3)

66,000

–––––––––––––––––––––––––––––––––––

–

–––––––

–

1,489,150

Gift Aid donation

(24,000)

–––––––––––––––––––––––––––––––––––

–

–––––––

–

PCTCT 1,465,150

–––––––––––––––––––––––––––––––––––

–

–––––––

–

Note

Property income losses are first set against other income in the CAP. The inclusion

of a negative assessment will ensure relief is given in this way, and is an acceptable

method in the examination.

PCTCT

1,465,150

FII (£32,400 + £3,600) × 100/90 40,000

–––––––––––––––––––––––––––––––––––

–

–––––––

–

Profits 1,505,150

–––––––––––––––––––––––––––––––––––

–

–––––––

–

Profits exceed £1,500,000, therefore the full rate of corporation tax applies.

Corporation tax liability (= £1,465,150 × 28%)

£410,242

–––––––––––––––––––––––––––––––––––

–

–––––––

–

Workings

(W1) Interest income £

Bank interest receivable 7,800

Debenture interest receivable 151,000

–––––––––––––––––––––––––––––––

–

–––––––

–

158,800

Minus: Interest payable to purchase shares (33,750)

–––––––––––––––––––––––––––––

–

–––––––

–

Interest income 125,050

––––––––––––––––––––––––––––

–

–––––––

–

(W2) UK property income

Rents accrued in CAP 12,000

Minus Agents’ management fees (1,200)

Repairs (17,500)

––––––––––––––––––––––

–

–––

–

–––––––

–

Property income assessment (6,700)

––––––––––––––––––––

–

–––––

–

–––––––

–

(W3) Net chargeable gains

Chargeable gains in the CAP 100,000

Minus Allowable losses in the CAP (24,000)

Allowable losses brought forward (10,000)

––––––––––––––––––

–

–––––––

–

–––––––

–

Net chargeable gain 66,000

–––––––––––––––––––––––––

–

–––––––

–

Paper F6 (UK): Taxation FA2009

308 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Example

T Ltd has prepared its accounts for the year ended 30 April 2010 and has recorded a

profit before taxation of £357,600 after taking account of the following income and

expenditure:

Notes £

Income

Sales

760,000

Bank deposit interest receivable 1 38,000

Rental income from let property

25,200

Dividends received from a UK company

68,400

Profit on the disposal of a warehouse 2 80,000

Expenditure

Cost of sales

328,250

Wages and salaries

128,000

Depreciation

57,000

Motor expenses 3 16,800

Repair and maintenance 4 30,400

Donations and gifts 5 2,700

Interest on loan to purchase the property which is let

9,600

Loss on the sale of plant and machinery 2 2,500

Patent royalty paid

4,000

Non-trade debt written off

400

Legal and professional fees 6 22,800

Entertaining customers

550

Sundry allowable expenses

11,000

Notes

(1) The bank deposit interest actually received in the CAP was £30,000.

(2) The warehouse was sold for £375,000 and cost £295,000 some years ago. The

disposal gave rise to a chargeable gain of £66,150. There is no allowable loss

arising on the disposal of the plant and machinery.

(3) The motor expenses relate to company vehicles and include £4,500 in relation

to the managing director’s car which was used 70% for business purposes.

(4) Repairs and maintenance include £19,000 relating to the installation of a new

canteen kitchen and £6,000 relating to the redecoration of the sales office.

(5) Donations consist of a donation of £1,000 paid to a charity under the Gift Aid

scheme and a donation to the Labour party of £900. The gifts cost £800 and

were Christmas hampers given to 40 customers. Each hamper carried an

advert for T Ltd on the lid.

(6) The legal and professional fees consist of the following:

Audit and accountancy fees 9,120

Legal fees re-the issue of debentures in the CAP 5,320

Legal fees re-the granting of a new 10 year lease on office space 8,360

(7) The capital allowances available for the CAP total £49,400.

Chapter 17: Profits chargeable to corporation tax

Required

Calculate T Ltd’s trading income assessment and PCTCT for the year ended 30 April

2010.

Answer

T Ltd: Trading income assessment – year ended 30 April 2010

Profit before taxation

357,600

Add

Depreciation 57,000

Installation of new canteen kitchen 19,000

Gift Aid donation 1,000

Political donation 900

Interest on loan to purchase the property which is let 9,600

Loss on the sale of plant and machinery 2,500

Non-trade debt written off 400

Gifts of food 800

Legal fees relating to the new lease 8,360

Entertaining customers 550

–––––––––––––––––––––––––––––––––

–

457,710

Minus

Bank deposit interest receivable (38,000)

Rental income from let property (25,200)

Dividends received from a UK company (68,400)

Profit on the disposal of a warehouse (80,000)

–––––––––––––––––––––––––––––––––

–

Adjusted profits before capital allowances 246,110

Minus

Capital allowances (49,400)

–––––––––––––––––––––––––––––––––

–

Trading income assessment 196,710

–––––––––––––––––––––––––––––––––

–

Notes

(1) The motor expenses are allowable in full. Private use by an employee is

irrelevant for the calculation of trading income.

(2) Redecoration costs are allowable. However, it has been assumed that the

installation of the new kitchen is capital expenditure and not allowable.

(3) The donation under the Gift Aid scheme is not allowable against trading

income. It is, however, allowed as a deduction in calculating PCTCT.

(4) The interest on the loan to purchase the property which is let and the non-

trade debt written off are not allowable against trading income. They are

allowable against interest income instead.

(5) Patent royalties payable are allowable against trading income.

(6) Legal fees relating to the issue of long-term finance are specifically allowable.

(7) Fees relating to leases are capital-related and therefore not allowable, unless

they are incurred in relation to the renewal of a short lease.

Paper F6 (UK): Taxation FA2009

310 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

T Ltd: PCTCT statement – year ended 30 April 2010 £

Trading income

196,710

Interest income (W1) 28,000

UK property income

25,200

Net chargeable gains

66,150

–––––––––––––––––––––––––––––––––––

316,060

Gift Aid donation

(1,000)

–––––––––––––––––––––––––––––––––––

PCTCT 315,060

–––––––––––––––––––––––––––––––––––

Working:

Interest income £

Bank interest receivable 38,000

Minus Interest on loan to purchase the property which is let (9,600)

Non-trade debt written off (400)

–––––––––––––––––––––––––––––––––––

Interest income 28,000

–––––––––––––––––––––––––––––––––––

Chapter 17: Profits chargeable to corporation tax

Long periods of account

 The treatment of a long period of account

 The allocation of income, gains and payments between CAPs

7 Long periods of account

7.1 The treatment of a long period of account

As explained in the previous chapter, a CAP cannot exceed 12 months. Therefore if

a company draws up a long period of account it must be split into two CAPs using

the following rules:

 CAP 1: The first 12 months of the long period of account

 CAP 2: The balance period.

Example

A company prepares a 17-month set of accounts from 1 June 2008 to 31 October

2009.

Required

State how the 17-month set of accounts will be assessed to corporation tax.

Answer

For corporation tax purposes, the 17-month financial accounting period would be

split into two CAPs as follows:

 CAP 1: 12-month period ended 31 May 2009

 CAP 2: 5-month period ended 31 October 2009

For each CAP the following must then be produced:

 A separate PCTCT statement allocating the income, gains and Gift Aid payments

generated in the long period of account.

 Separate computations of profits to determine the appropriate rate of tax for

each CAP. (Note that it is possible for the company to have different rates of tax

applying in the different CAPs.)

 Separate corporation tax liability computations, as each CAP has a different due

date of payment.

Paper F6 (UK): Taxation FA2009

7.2 The allocation of income, gains and payments between CAPs

The tax legislation requires income, gains and payments in a long period of account

to be allocated to the separate CAPs as follows:

Item Allocation method

Adjusted profit

before capital

allowances

Produce one adjustment of profit computation for the long

period, ignoring capital allowances. Then time-apportion

between the two CAPs.

Capital allowances Produce a separate computation for each CAP, bringing in

the appropriate additions and disposals according to the

dates of acquisition and disposal.

Interest income Allocate on an accruals basis to each CAP.

Property income Produce one property income assessment for the long

period, then time-apportion.

Net chargeable

gains

Allocate gains and losses according to the date of disposal

of the capital asset.

Gift Aid donations Allocate between CAPs according to the dates of payment

of donations.

FII Allocate between CAPs according to the dates the dividends

are received.

Example

P Ltd prepared a 17-month set of accounts to 31 August 2009. The following

information relates to the 17-month period:

Income

Adjusted profit before capital allowances 1,530,000

Interest received on £200,000 12% debentures on 31 March 2009 24,000

Dividends received from a UK company on 31 January 2009 56,700

Rental income 51,000

Expenditure

Gift Aid donation paid on 30 June each year 16,000

Dividends paid to shareholders on 30 April 2008 96,000

P Ltd disposed of one capital asset which gave rise to an allowable loss of £34,000 on

30 September 2008 and another capital asset which gave rise to a chargeable gain of

£125,000 on 30 June 2009. It has capital losses of £18,000 brought forward from

previous years.

Capital allowances are calculated as £35,000 for the first CAP and £23,000 for the

second CAP.

Required

Calculate the corporation tax liabilities of P Ltd for the 17 months ended 31 August

2009 and state the due dates for payment.

Chapter 17: Profits chargeable to corporation tax

Answer

P Ltd: Corporation tax computations

12 months

ending

31 March 2009

5 months

ending

31 August 2009

£ £

Adjusted profit before capital allowances

(£1,530,000 × 12/17 : £1,530,000 × 5/17)

1,080,000

450,000

Capital allowances

(35,000) (23,000)

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

Trading income 1,045,000 427,000

Interest income

(£200,000 × 12% : £200,000 × 12% × 5/12)

24,000

10,000

UK property income

(£51,000 × 12/17 : £51,000 × 5/17)

36,000

15,000

Net chargeable gains

(no gain in first CAP : £125,000 - £52,000 b/f losses)

Nil

73,000

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

1,105,000 525,000

Gift Aid donation

(16,000) (16,000)

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

PCTCT 1,089,000 509,000

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

To determine the rate of corporation tax to apply

12 months

ended

31 March 2009

5 months

ended

31 August 2009

£ £

PCTCT 1,089,000 509,000

FII (£56,700 × 100/90) 63,000 Nil

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

Profits 1,152,000 509,000

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

Small companies rate

Upper limit (full limit : full limit × 5/12) 1,500,000 625,000

Lower limit (full limit : full limit × 5/12) 300,000 125,000

Decision: The rate to apply in both CAPs = full rate of tax less marginal relief

Corporation tax liabilities

£ £

£1,089,000 × 28%

304,920

£509,000 × 28%

142,520

Less Marginal relief

(1,500,000 – 1,152,000) × 1,089,000/1,152,000 × 7/400

(5,757)

(625,000 – 509,000) × 7/400

(2,030)

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

Corporation tax liability 299,163 140,490

–––––––––––––––––––––––––––––––––––––––––––––

––––––––––––––––––––––––––––––––––––––––

Due dates for payment 1 Jan 2010 1 June 2010

Note: Due date for payment is 9 months and 1 day after the end of the CAP (except

for large companies).

Paper F6 (UK): Taxation FA2009