Part 4 of 4
This is the Finance Act 2024 version of this article. It is relevant for candidates sitting the Advanced Taxation– UK (ATX–UK) exam in the period 1 June 2025 to 31 March 2026.
In this final part of this article we will complete our review of the fundamental technical issues.
(9). Coporation tax – distinguishing a company from its trade/business
A company is a legal entity that is owned by its shareholders and managed by its directors. It will use its resources to trade and/or carry out investment activities. The trade/business carried on by a company is separate from the company.
When a company sells its business (often described as its trade and assets) there may be chargeable gains in the company on each of the assets sold. The sales proceeds will be in the company and rollover relief may be available. The company can then acquire a new business or use the proceeds of sale to acquire investments.
When a company is sold, ie its shareholders have made a disposal of shares in the company, there may be a chargeable gain or capital loss. The company’s activities carry on as normal and a corporation tax computation will be required by reference to its accounting period as set out above.
Before you begin answering a question, make sure you are clear as to the transactions that have taken place, or are to take place in the future, such that you address the appropriate implications.
(10). Corporation tax – group of companies
The definitions of a group for the purposes of group relief and chargeable gains are not the same. The capital gains group definition tends to be the most problematic as it refers to both 75% and 50%. The direct ownership must be at least 75%. In addition, the principal company (that is the company at the top of the group) must have an effective ownership of more than 50% in each of the companies in the group.
W Ltd owns less than 75% of R Ltd and so the two companies are not in a capital gains group. R Ltd is the principal company of a capital gains group consisting of R Ltd, S Ltd and T Ltd. R Ltd owns at least 75% of S Ltd which, in turn, owns at least 75% of T Ltd. R Ltd’s interest in T Ltd is 60% (80% x 75%) which is more than 50%.
There are examples of both types of group in the two articles on corporation tax groups:
(11). Valued added tax (VAT) – zero rated and exempt supplies
The terms zero rated and exempt are not interchangeable; the correct terminology must be used in the exam in order to earn marks.
Zero rated supplies are taxable supplies for the purposes of the need to register and partial exemption. However, the rate of tax is 0%. Input tax in respect of inputs relating to zero rated outputs is recoverable. Where the vast majority of the supplies of a business are zero rated the business may request exemption from the requirement to register.
Exempt supplies are not taxable supplies. They are not relevant when considering the need to register and it is not possible to recover input tax in respect of inputs relating to exempt outputs unless the de minimis rules are satisfied. A business that makes only exempt supplies is not permitted to register for VAT.
Stop and think in the exam (always a good idea!) – make sure you are using the appropriate term for the circumstances.
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The author and ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.
Written by a member of the ATX–UK examining team
