Revision class points

Question 1

What adjustment we would need to do if we have been told that we have expenditure in relation to a lease premium

Answer 1

We want to be mindful that we will need to adjust for the capital element here which will be done in 3 stages:

1. We need to get the premium element which will be 2% x (n-1) x p
2. Then we need to deduct this from gross premium amount and this amount will be the amount of expenditure we are able to deduct over the life of the lease
3. when then can do this on a yearly basis i.e. we have incurred £200k per year and we have been told that we can deduct £1,640k for the 10 year life - this would mean that we can deduct £164k per year so the difference between the £200k would be the capital element and therefore added back

Question 2

What do we need to considered if we have been told that we have a finance lease in the accounts

Answer 2

both of the depreciation and finance costs are deductible for the purposes of the computation

Question 3

What would we need to consider if we have been told that:

1. if we have travel costs relating to the friends & family of staff member overseas
2. we have been told we have an impairment on a trade account which has been recognised in the accounts

Answer 3

1. This cost would actually be considered to be connected with staff expenses and would therefore be allowable
2. the legislation allows us to treat this as a trade loan relationship for the purpose of the impairment and therefore we can allow for this to be deducted regardless of whether it has actually be written off

Question 4

How would we calculate the UK equivalent of overseas taxes and the date we would use the FOREX for

Answer 4

We would want to use the rate for the date that the actual overseas company has paid the tax and not just the rate at the end of the accounting period

Question 5

If we have a question where we have been told that there is a double tax element - what should we do in our question

Answer 5

These are never red herrings - these are always at least 3 marks and therefore we should just adjust our computation to make sure we have a profit amount so we can have a double tax element

Question 6

1. What do we need to consider when determining what consideration is deemed to be ascertainable or not.
2. What do we need to think about if we have been told that proceeds were reinvested and what can still happen in this event

Answer 6

1. We want to focus on the figures and not the facts - i.e. if we have been told that we WILL receive £12m if an event has taken place, we are concerned with the fact that we have been explicitly been told the amount rather then the uncertainty of the event. conversely if we have been told that we will receive a percentage of profits/income/consideration when the later date is met - even though we know this event will happen, as we DONT know how much it will be, we wont consider it
2. We want to be mindful that the amount of gain that is deemed to be chargeable is the lower of the proceeds not reinvested or the original chargeable gain (i.e. if we have not reinvested enough of proceeds, we can still have amount reinvested but no amounts which can be rolled over)

Question 7

What do we want to consider about doing out indexation considerations

Answer 7

We go with the figure that includes the relevant month - so 31 March is the march figure 01 April is the april figure

Question 8

If we have a question where we need to summarise the IFA rules what would we need to state

Answer 8

Assets acquired pre April 2002 - for any assets that fall into this category, they will be treated under the capital gains regime meaning that they would be able to receive any indexation on the cost of the asset - however amortisation that was recorded on the assets would be added back for the purposes of corporation tax.

For assets that were acquired between April 2002 - July 8 2015, the regime changed to the intangible fixed assets regime, which allowed for receipts and amortisation to treated under trade income & expenditure - this was allowable on goodwill and customer related IFAs and could either be done on an accounts or 4% basis

from July 8 2015 to April 2019 - the rule changed again and prevented the amortisation from being a deductible receipt in the accounts for any customer related IFAs or goodwill - however this did not extend to things like trademarks that were still able to receive relief.

From April 2019 onwards - further changes were brought into allow companies to receive relief on goodwill and customer related IFAs again - this being limited to 6.5% in the accounts but can also be restricted further where the asset acquired is more than 6 times the cost of the qualifying IP

Question 9

If we have an intangible fixed asset question and we have been told that we have software that was 1. purchased and 2. spent internally while also being eligible for R&D credits what would be need to state

Answer 9

Purchase software:
The company has two options here and this would be to either claim this an intangible fixed asset register or make a claim under section 815 CTA2009 to allow for capital allowances to be claimed under this, the company would need to weigh up the relevant reliefs that could be made available between the claims, being mindful that if a capital allowances claim was made then we would not be able to claim any amortisation

For internal relief available for RDEC - we want to mindful that we can deduct the costs under section 87 CTA2009 and then claimed RDEC, however all amortisation on the software would be disallowable for the purposes of corporation tax

Question 10

What is an additional way that an overseas company could operate in the UK

Answer 10

They could setup and administrative office in the UK that only has the purpose to advertise and promote the company and does not have the power to conduct and conclude on contracts in the UK

Question 11

What would we need to consider in a question where we have been told that a company has just been setup in the UK but still being controlled in the UK - and how would this similar approach be if we didn’t set up a company but instead sent a researcher and a relationship manager

Answer 11

So in this situation we need to be mindful that for a company to be UK resident it needs to be centrally managed and controlled in the UK or incorporated in the UK - so immediately via setting up a company we will have a tax residency in the UK, but the key think to note is that it will still be for the large part, controlled overseas, now if that jurisdictions may also deem this to make the company tax residency in that country as well - if so we can touch on the OECD guidance which states that in the event of a tie breaker, they will look at the place of effective management (POEM) i.e. where the board meetings are/headquarters etc

following on from this, if we are saying that we are only sending across a researcher and relationship manager - these services will be auxiliary and prepitory in nature respectively, meaning that they wont give rise to permanent establishment including if the fixed place of business is also just for these activities

Question 12

What do we need to consider in the following:

1. we have been told that a company was acquired halfway through the year and is subsequently not allocated any AIA
2. We have told that we have made a payment late for an invoice for capital expenditure due to a vendor dispute

Answer 12

1. for the purposes of AIA, the company is deemed to be a part of the group for which it ends its accounting period with, and therefore in this case it will not be allocated any AIA
2. In the case that the we have been told that we had a delay in payment but it was not due to a general late payment of the purchase agreement, this will not give rise to a 4 month rule issue

Question 13

What do we need to be careful about when thinking about using losses in a company we have recently acquired

Answer 13

We want to remember it is only losses that have arisen before the change in ownership which is restricted, all fresh losses can be used

Question 14

(T&R) - we have been given a loss/profit on disposal in the accounts along with NBV

Answer 14

This is enough information to allow us to ascertain our disposal proceeds which will be used for our CA pools

Question 15

What points would we need to touch on if we have been told that the following payments had been made in respect of royalties:

1. To a UK resident
2. To a UK company
3. To an overseas company that is under a OECD Double Tax Agreement

Answer 15

As a basic understanding, UK companies will be required to make a basic WHT on 20% on all royalty payments which have been made, however we need to consider the following instances:

UK Individual:
- As stated above, payment made to a UK individual for royalty payments will need to be made subject to 20% WHT, the company will be required to submit a CT61 within 14 days of the quarterly deadlines of March, June, September and then December

UK Resident company:
- As this is staying in the UK tax base, it will not be subject to any WHT - the income will be taxable as non-trading income in the issuing company and will be able to be net off against any income expenditure. The respective expenditure in the paying company will be able to be treated as trade expenditure

UK Overseas company:
- If the company is in a jurisdiction which is part of a double tax treaty, then the OECD model article states that tax should only be payable in the jurisdiction in which the beneficial company is in i.e. there will be no WHT required to be held on the payment

Question 16

What 3 things would we want to mention when thinking about dividends received from overseas companies

Answer 16

1. We will want to consider that the dividends may be subject to WHT (thinking about the OECD 5% for controlled and 15% for not controlled)
2. The dividend will likely be exempt under Section 931E-I
3. but an election can be made under Section 931R for the dividend to not be exempt (this would be to benefit from WHT relief) but not very relevant - Think about prize winner marks

Question 17

What would we need to consider in the event that we have been told the following:

A company has sold property of £7.5m, of which an agreed value for the fixtures of fitting were agreed with the purchaser for £300,000. The property was original transferred from a connected company who’s trade is in building and developing commercial buildings for selling on.

Answer 17

The first thing to note and be aware of in this case is that any values which have been agree for a s.198 election do NOT need to be deducted from the gross proceeds when doing our calculation. We would be correct to identify that the company which is developing the property would have this appropriated from the companies trading stock as this is the companies trade, but in the event that this is then transferred to our company - it will then be acquired as a capital asset at the market value when transferred.

Question 18

What do we need to factor in when thinking about thin cap rules in connection with CIR rules

Answer 18

Thin cap rules is a separate TP adjustment made before any CIR calculations have been made

Question 19

When we have a question on controlled foreign companies:

1. what would be some good exam technique to think about for the exemptions.
2. How would we apportion the profits if deemed to be a CFC
3. What is the safeguard for non-trading income

Answer 19

1. When thinking about our exemptions, we should identify things like acquisition dates (if any) and operating expenditures along with PBTs for each company, as we can then lean on these for our exemption rules.
2. The CFCs will likely have operating expenditure and therefore we would need to apportion this by the amount of income which is attributable to the overall income
3. we have the 5% which effectively look to see if the income that has been derived is less than 5% of the companies relevant activities to therefore be deemed as incidental.