Your manager has sent you an email, with two attachments, concerning the Eet Ltd group. The attachments consist of extracts from the group’s files and a schedule of information from the group finance director. The email details the work your manager requires you to do. The three documents are set out below.
Attachment 1: Eet Ltd group – extracts from the group’s files
Group structure
All seven companies are UK resident trading companies.
Fip Ltd was incorporated and began trading on 1 December 2018. There have been no other changes to the ownership of the group for many years.
Attachment 2: Schedule of information from the group finance director – dated 3 December 2018
Budgeted results for the year ending 31 March 2019 (as at 3 December 2018)
问答题
Relief for the capital loss of Han Ltd.
【正确答案】
Eet Ltd group
Relief for the capital loss of Han Ltd
The companies to which the capital loss on the sale of the Po building could be transferred
The capital loss on the sale of the Po building could be transferred to any company in the Eet Ltd capital gains group.
– The Eet Ltd capital gains group consists of Eet Ltd (the principal company) together with its 75% subsidiaries and their 75% subsidiaries.
– Eet Ltd must have an interest of more than 50% in any non-directly held subsidiary.
– Accordingly, the group consists of Eet Ltd, Fip Ltd, Han Ltd, Jek Ltd and Kid Ltd. The capital loss can therefore be transferred to Eet Ltd, Fip Ltd, Jek Ltd or Kid Ltd.
In order for the group’s cash flow position to be improved, the capital loss should not be transferred to:
– Eet Ltd, because it does not have any chargeable gains.
– Fip Ltd, because it is not required to pay corporation tax in instalments.
The capital loss should therefore be transferred to either Jek Ltd or Kid Ltd. Corporation tax payment due from Jek Ltd on 14 January 2019
【答案解析】
问答题
Loj Co.
【正确答案】
Loj Co Why Loj Co will be a controlled foreign company (CFC)
Loj Co will be a controlled foreign company (CFC) following the purchase of 60% of its shares by Eet Ltd because:
– Loj Co is not resident in the UK; and
– Eet Ltd, a UK resident person, will control Loj Co. Basis for calculating the CFC charge
– The taxable amount will be 60% (Eet Ltd’s shareholding in Loj Co) of those profits of Loj Co (calculated using UK corporation tax rules) which have been artificially diverted from the UK. Any chargeable gains of Loj Co are excluded for these purposes.
– The taxable amount is subject to tax at 19%.
– A deduction is then available for any UK taxes suffered by Loj Co and for double tax relief (DTR). The DTR is the amount which would be available if Loj Co were a UK resident company, i.e. the lower of the UK tax which would be charged on the overseas profits and the overseas tax on those same overseas profits. Availability of the exempt period exemption
The 12-month exempt period exemption is available where:
– a non-UK resident company comes under the control of UK resident persons. This will occur when Eet Ltd acquires control of Loj Co; and
– Loj Co continues to be a CFC in the next accounting period; and
– in that next accounting period Eet Ltd is not subject to a CFC charge in respect of the profits of Loj Co.
【答案解析】
问答题
Jek Ltd – value added tax (VAT) on the sale of the Mar building.
【正确答案】
Jek Ltd – value added tax (VAT) on the sale of the Mar building
Charging of VAT on the sale of the Mar building
If the group finance director does not opt to tax the Mar building, the sale will be an exempt supply. This is because the building will be more than three years old. Accordingly, VAT should not be charged
If the group finance director opts to tax the Mar building, the sale will be a standard rated supply, such that Jek Ltd will have to charge 20% VAT on the sale. Final VAT adjustment
Option to tax not made
Payment required to HM Revenue and Customs (HMRC)
(0 – 72%) x £90,000/10 x 2 years £12,960
Option to tax made
Repayment from HMRC
(100 – 72%) x £90,000/10 x 2 years £5,040
Tutorial note: Where the sale of the building is an exempt supply, there is no taxable use of the building in the remainder of the ten-year adjustment period. Where the sale of the building is a taxable supply, there is 100% taxable use of the building in the remainder of the ten-year adjustment period.
