Calculation - Corporation tax-FS

Question 1

What is corporation tax charged in relation to?

Answer 1

It is charged on a company’s taxable profits according to the company’s accounting period.

Question 2

How are a company’s taxable profits expressed?

Answer 2

Taxable profits = income profits + chargeable gains.

Question 3

What is the next step after calculating taxable profits?

Answer 3

Apply the relevant rate of corporation tax set for the financial year.

Question 4

What is meant by a ‘loss’ for a company in this context?

Answer 4

A loss arises when deductible expenditure exceeds income receipts over a given period.

Question 5

What does a loss indicate about a company’s receipts and expenditure?

Answer 5

The company has spent more money (deductible expenditure) than it has received (income receipts).

Question 6

From which activities can a company’s losses arise?

Answer 6

From trading, from the sale or disposal of capital assets, or from property income.

Question 7

What is the purpose of ‘loss relief’ in corporation tax?

Answer 7

It allows a company to use its losses to reduce its corporation tax liability.

Question 8

Against what can a trading loss be set in the same period?

Answer 8

Against all profits of that period, i.e. both income profits and chargeable gains.

Question 9

How can a trading loss be used against profits of the previous period?

Answer 9

By carrying the loss backwards to set it off against profits made in the earlier 12‑month period.

Question 10

How can a trading loss be used against future profits?

Answer 10

By carrying the trading loss forward to set off against future profits of the same trade, provided the company continues that trade.

Question 11

What is the effect of setting a trading loss against profits of the same period?

Answer 11

It reduces the profit figure for that period, thereby reducing the corporation tax base.

Question 12

What is the maximum trading losses that can be carried forward?

Answer 12

A maximum of £5 million of trading losses per accounting period can be carried forward.

Question 13

What is an alternative to carrying a loss forward?

Answer 13

It can claim for the loss to be offset against profits of the earlier 12‑month period.

Question 14

What continuity requirement applies to a carry‑back claim?

Answer 14

The company must have been carrying on the same trade at some point in the accounting period or periods that fall in the earlier 12‑month period.

Question 15

What is the key window for identifying profits for carry-back?

Answer 15

The 12‑month period ending immediately before the accounting period in which the trading loss was incurred.

Question 16

What is the deadline for making a carry-back claim?

Answer 16

Within two years after the end of the accounting period in which the loss was made.

Question 17

In what form is a trading loss relief claim normally made?

Answer 17

As part of the company’s corporation tax return.

Question 18

When can a trading loss be set off against an earlier chargeable gain?

Answer 18

If the chargeable gain occurred within the 12‑month period ending immediately before the accounting period in which the trading loss was incurred.

Question 19

Is it necessary that an earlier loss occurred to carry a loss back?

Answer 19

No, there is no requirement for an earlier loss to have occurred in order to carry a later trading loss back.

Question 20

Is a trading loss limited to earlier trading profits only?

Answer 20

No, it can also be set against chargeable gains within the relevant 12‑month period.

Question 21

Is a trading loss limited to being carried forward only?

Answer 21

No, a trading loss can be set in the current period, carried back, or carried forward, subject to the rules.

Question 22

Is continuous business for the full prior period required?

Answer 22

No, it is only required that the company was carrying on the same trade at some point in the relevant earlier period.