1. F6 Taxation (UK)

2. Section A: The UK tax system Section B: Income tax liabilities Section C: Chargeable gains Section D: Corporation tax liabilities Section E: Inheritance tax Section F: National insurance contributions Section G: Value Added Tax Section H: The obligations of tax payers and/or their agents Taxation (UK)

3. Designed to give you the knowledge and application of: Corporation tax liabilities D1. The scope of corporation tax D2. Taxable total profits D3. The comprehensive computation of corporation tax liability

4. D2: Taxable total profits Learning Outcomes  Recognise the expenditure that is allowable in calculating the tax- adjusted trading profit. [2]  Compute capital allowances (as for income tax). [2]  Explain the treatment of interest paid and received under the loan relationship rules. [1]  Explain the treatment of gift aid donations. [2]  Compute taxable total profits. [2]

5. The expenditure that is allowable in calculating the tax-adjusted trading profit A taxable total profits is made up as follows: An important step in the calculation of trading profits for tax purposes is recognising which expenses are deductible and which are non-deductible for tax purposes. Refer to Test Yourself 8 on page 370 £ 1. Trading profitsX Less: Brought forward trading losses(X) X 2. Property incomeX 3. Profits from loan relationshipX 4. Profits from foreign securities and possessionsX 5. Chargeable gainsX Less: Allowable losses brought forward(X) X Less: Property business losses (x) Trading losses relieved under s37 CTA 2010(X) Gift aid donations(X) Taxable total profitsX Continued…

6. Adjustments are made to accounting profits for expenses towards private use by an owner. But, in the case of a company, no such adjustments are made for the private use. DIVIDENDS PAID DIVIDENDS RECEIVED COMPANY Not included in the taxable total profits. Are not deductible from chargeable profits. While calculating trading profits for tax purposes there are differences in treatment of some of the items, which are as follows: Private use adjustments Expenses for private use by a sole trader by a director / by an employee Not allowable while calculating tax adjusted trading profits Fully allowable Refer to Test Yourself 1 on page 336 Continued…

7. Compute capital allowances (as for income tax) Special points about capital allowances for company  There is no private use restriction by a director or an employee, where a company is involved.  The accounting period of a company can’t exceed 12 months, so there is no need to scale up WDAs or the AIA.  If the accounting period of a company is less than 12 months, then WDA or AIA will be scaled down proportionately. This has been discussed in Study Guide B3 (part 2) The treatment of interest paid and received under the loan relationships rules Loan relationship A company is said to have a loan relationship if the company borrows or lends money. Continued…

8. Types of loan relationship Debtor loan relationship Creditor loan relationship When company lends money / invests funds in debentures or gilts When company raises funds by borrowing money or by issuing debentures Tax Treatment of loan relationships Depends upon whether the loan relationship entered into is a trading loan relationship or a non-trading loan relationship. Continued…

9. Non-trading loan relationships  If the loan is given for purposes other than trading purposes, then any income arising out of such a relationship is assessable income from loan relationships.  Similarly if the loan is taken for purposes other than trading purposes then any expenditure (e.g. interest payable) arising out of such a relationship is treated as expense from loan relationships. Trading loan relationships Loan is taken or issued for trading purposes. Treatment of the interest paid or received on trading loan relationship.  Interest paid or payable on a loan taken for trading purposes is treated as a trading expense and hence fully deductible.  Interest received or receivable can be of a trading nature only if the company is engaged in business of lending money. Interest is treated as trading income. Refer to Test Yourself 14 on page 344 Continued…

10. The treatment of gift aid donations Gift aid donations made by a company are relieved from chargeable profits as a deduction from total income. Refer to Test Yourself 15 on page 344

11. RECAP  Recognise the expenditure that is allowable in calculating the tax- adjusted trading profit. [2]  Compute capital allowances (as for income tax). [2]  Explain the treatment of interest paid and received under the loan relationship rules. [1]  Explain the treatment of gift aid donations. [2]  Compute taxable total profits. [2]