Table of Contents Introduction " 12 13 1“ 16 16 17 18 19 20 a Corporation Tax Raising Finance Group Relief and Consortium Relief Chargeable Gains Groups International Expansion Corporate Anti-Avoidance Companies ~ Special Situations VAT and Stamp Duties Chargeable Gains ~ Further Aspects. Personal Tax Revision Employee Remuneration Personal Tax — International Aspects. Choice of Business Structure Transformation of Owner Managed Businesses Corporate Reorganisations Ethies Taxation of Trusts Income Tax and NICs Unincorporated Businesses Capital Gains Tax and Reliefs. Inheritance Tax ©ACA Simplified 2015. No copying or reproduction permitted. 10 40 51 61 75 7 131 145 172 184 201 213, 233 246 255 268 286 302 325 333 369Chapter 1 Corporation Tax a What rate of tax does a close investment holding company pay? A Always pays the main rate. a How are the following allocated for a company with an investment business and other trades? 1. Management expenses 2. Property expenses 3. NTLR debits A 1. Deducted from total profits and gains before qualifying charitable donations or losses 2. Deducted from property income 3. Deducted from NTLR credits a What happens to excess expenses of management? A Carry forward indefinitely and set off against future income and gains as if ‘expenses of management of that later period. r group relieve. a How are CY NTLR net deficits relieved? 23 ©ACA Simplified 2015. No copying or reproduction permitted.Chapter 1 Corporation Tax A Set off wholly or partly against CY profits (partial set off is unusual for losses but is allowed in the case of NTLR) After bif trading loss Before CY or cfb claim for trading losses CY property loss set off Q Can corporation tax trading losses be set off against the prior year? A Yes, but a current year claim is required first Qa How are NTLR net deficits carried back? A ‘Set off against NTLR profits in previous 12 months after other reliefs Carry back lower of 1. deficits after CY and group relief claims and 2, credits of earior period as reduced by CY or bif debits, qualifying charitable donations, trading losses and expenses etc a State the 2 different ways in which MCINOCOT could aris. 24 ©ACA Simplified 2015. No copying or reproduction permitted.Chapter 14 Transformation of Owner Managed Businesses Chapter 14 ‘Transformation of Owner Managed Businesses a There are many implications caused when a sole trader or partnership incorporates to become a company. Give examples. [25] 19. 20. 2 22 23. 24. 2s Closing year rules apply to the unincorporated business Overlap profits deducted from final assessment of the unincorporated business Choice of incorporation date may affect marginal rates of tax Losses can be carried back under TLR or offset against total income of the tax year andior preceding tax year (check for any losses which cannot be used under TLR due to profits in the slice of a year before the final Period as these can be used against total income instead) (Or carry forward losses for use against income from the company under $86 Need to start using PAYE on salary after incorporation Personal service company or managed service company legislation may apply Newco commences to trade for corporation tax purposes Newco may be a close company Balancing adjustments on assets subject to deemed disposal by the unincorporated business However, these adjustments can be avoided by succession election, transferring assets at TWOV Amertsation on post-April 2002 IFAs will now be allowable as_company Deemed disposal of stock — consider elections to transfer as efficiently as possible (reat capital as trading, for example) Disposal of assets leads to CGT charge for individual However, incorporation relief will automaticaly apply against these — Consider disapplying in some cases ‘Manipulate cash consideration to leave a gain covered by the capital oss (oF annual exempt amount Consider using Gift Relief if not al assets transferred Consider retaining appreciating property to prevent double tax charge (Corporation tax on gain and then tax on extraction) SDLT is due on deemed transfer of land at MY, even if no consideration: therefore retain property to save SDLT Replacement shares in company may qualify for replacement BPR at 100% BPR at 50% on property used but not owned by the company if owner hhas control over the company (otherwise no BPR) Apply TOGC to prevent 2 supply of goods and therefore prevent VAT {As long as goodwill is transferred, a TOGC can stil occur even if some assets are retained Company can take over VAT registration number of unincorporated business (but might prefer a clean start) Consider impact of Capital Goods Scheme (CGS) issues. 247 ©ACA Simplified 2015. No copying or reproduction permitted.Chapter 14 Transformation of Owner Managed Businesses a When should incorporation relief be disapplied? A If the individual would have qualified for Entrepreneur's Relief on the old holding but does not on the new (e.g. not an employee of the new ‘company, new company is a public company or individual wants to sell within 12 months). a When does an application to disapply incorporation relief have to be made? A 34 months from the end of the tax year of incorporation — i.e. it gives time to decide on the best strategy Qa What is the main advantage of Gift Relief over incorporation ré What secondary advantages does this lead to? A Allows trader to pick and choose which assets are transferred to the ‘company ~ incorporation relief requires all assets to be transferred. Gift Relief would then: 1. avoid payment of SDLT on incorporation 2. avoid the double charge to tax on the eventual sale of what is generally an appreciating asset 3, tax-efficient extraction in the form of rent (although this may restrict the availabilty of Entrepreneur's Relief on an associated disposal, with the restriction being higher the nearer the rent is to market value) 248 ©ACA Simplified 2015. No copying or reproduction permitted.Chapter 17 Taxation of Trusts a What is the “tax poo!” funded? in respect of a discretionary trust? How is it A The tax pool is the amount used to pay the 45% tax credit given to the individual (see previous questions). ‘The 45% tax credit given, which may result in a repayment to the taxpayer as in the example of Bob above, is funded by: + Tax at the basic rate paid by the trust on trust income within the basic rate band + Tax at the 45% paid by the trust on other trust income ‘+ Tax funded from the special dividend trust rate of 37.5% (the trust only receives a credit of 10% so there is net taxation of 27.5% here) If the above 3 sources are not sufficient, then the trust must make up the difference. Equally, ifthe trust has paid more into the tax pool than is required to cover tax credits, the balance is carried forward to the next tax year. Q A discretionary trust has no tax pool brought forward. Calculate the tax pool carried forward based on the following Taxabl Taxabl income (non-dividend) 17,000 income (dividends) 3,200 A The fist 1,000 of non-dividend taxable income pays tax at 20% 200 The next 16,000 pays tax at 45% 7,200 The dividend income of 3,200 pays tax at 27.5%" 880 Tax pool 8,220 "37.5% dividend rate always applicable to trust income less the 10% tax credit 297 ©ACA Simplified 2015. No copying or reproduction permitted.Chapter 17 Taxation of Trusts a What Annual Exempt Amount is available in respect of capital disposals by a trust other than a bare trust? A ‘One half of that available to individuals so £5,500 for 2014/2015 However, if an individual sets up several trusts, divide the exempt amount of £5,500 equally between the trusts subject to a minimum exemption of fone tenth of the full individual exemption (£1,100 for 2014/2015), Q What rate of CGT applies to disposals by trusts other than bare trusts? A 28% in all cases Q What rate of CGT appl 6 to disposals by bare trusts? A Either 18% or 28% depending on the situation of the beneficiaries — a disposal by a bare trust is treated like a disposal by the individual a What Annual Exempt Amount applies to disposals by bare trusts? A AAs the disposal is treated as a disposal by the individual the full Annual Exempt Amount is available, Q State the tax implications of setting up a bare trust. 298 ©ACA Simplified 2015. No copying or reproduction permitted.