CTA Examination – Awareness – Module C – Corporation Tax
Question 1
Augmented profits:
Taxable total profits
FII Income
(10/9 x 22,500)
Total augmented profits
Total taxable profits
Tax at main rate @ 24%
Less marginal relief:
1/100 x (1.5m - 340k) x 315,000/340,000
1/100 x 1,160,000 x 0.9264
=
Corporation tax liability
315,000
25,000
340,000
315,000
75,600
(10,746)
64,854
Question 2
CT is paid on a chargeable accounting period which cannot exceed 12 months. The company will
therefore have 2 chargeable accounting periods (CAP):
First period
1 September 2011 to 31 August 2012
Second period 1 September 2012 to 31 December 2012
CT is paid 9 months and one day after the end of each CAP so by 1 June 2013 and 1 October 2013
Filing deadlines are 1 year from end of accounting period so by 31 December 2013
Question 3
Trading losses can only be set against profits of a group company within the same year. As company
overlaps, need to work out the overlap period
PC account
TU Ltd
1 April  31 March
1 January  31 December
Overlap of 9 months
= loss 310,000 x 9/12 = 232,500
TU could transfer loss to PC to max of 232,500
Question 4
Chargeable gain:
Proceeds of sale
Less acquisition cost (substituted with original cost)
Chargeable gain
610,000
210,000
400,000
Disposals between members of the same group are on a no gain no loss basis. Therefore the original
base cost of Arto would be used in the CGT computation regardless of how much Teo paid for the
warehouse.
Question 5
Only parts of the expenditure will qualify for relief:
Only 50% of the staff costs is attributable to research and development so 48,000/2 is available for relief
= £ 24,000
Computer hardware is not qualifying expenditure
Laboratory chemicals qualify and so do specialist software as both are attributable to the research
project.
Additional relief:
Staff costs
Laboratory chemicals
Specialist software
24,000
34,000
18,000
76,000
Relief at 130% x 76,000 = £ 98,800
Question 6
Capital allowances are split into 3 pools:
TWDV b/fwd
Add water heating system
Add packaging machinery
Less short life assets
General pool
30,000
Special pool
Short life
5000
30,000
10,000
(4000)
At 18%
At 8%
TWDV at close
40,000
7,200
30,000
2,400
2,400
7,200
1,000
180
180
Question 7
Interest charges are governed under the loan relationship rules. The interest on the bank overdraft can
be set against net trade profit before qualifying charitable donations as it is an expense of the trade.
Interest on the mortgage for the property is kept separate and added to the general non-trade loan
relationship pool.
Any non-trade loan relationship deficit is carried forward and can be set against non-trade loan
relationship in future years.
Question 8
Unilateral double tax relief applies to the property income. Relief is the lower of UK tax and foreign tax.
Work out foreign tax:
Foreign tax at 18% = 100/82
Total income of Betterdays:
UK income
Overseas income
= 35,000 gross
= tax (35,000 – 28,700) = 6,300
110,000
28,700
138,700
Small profits rate applies of 20%
Tax on overseas income = 20% x 28,700 = 5,740
Therefore unilateral relief of 5,740 due
Corporation tax liability =
Total income
Tax at 20%
Less unilateral relief
Corporation tax due
138,700
27,740
(5,740)
22,000
Question 9
The asset must be used in the company’s trade throughout the period of ownership. The new asset
must also be an asset being acquired for the trade. The asset must be a qualifying asset – and land and
buildings are qualifying assets. Helter must acquire the new asset between 12 months before or 3
months after the date of the sale of the old asset.
If the whole of the proceeds are not invested in the new asset, the cash returned will be immediately
chargeable gain subject to a maximum of the actual gain incurred on the original sale. Helter must
acquire a qualifying asset and it does not need to fall into the same category as the asset that has been
sold.
Question 10
To be associated for CT purposes, Hold must control the other companies. Control means Hold owns
more than 50% of the share capital. The dormant company is excluded. Therefore Hold is only
associated with Cuddle and Hug. There are 3 associated companies.
Companies associated means that any dividend income received from associated companies are
disregarded when working out a company’s augmented profits. Furthermore, the augmented profit
limits will be divided between the number of associated companies, in this case 3.
Question 11
Tax adjusted trading profits
Trading profits:
Add disallowable expenditure
Entertainment costs
Cuban cigars disallowed
Tax adjusted trading profit
805,000
1,300
700
807,000
Legal fees for updating employee contracts, and staff costs are deductible as they are costs incurred
wholly and exclusively for the business.
Question 12
Trading losses could be used against total taxable profits before qualifying charitable donations of Burn
Ltd’s current year. Alternatively Burn Ltd could carry back the loss to the previous 12 months and set the
loss against total taxable profits before qualifying charitable donations in the previous tax year. The final
option is for Burns to carry forward the loss and utilize the loss against future trade profits. It would be
more tax efficient for the loss to be utilized in current or previous year first and then carried forward the
balance to future years.