PA - SGS 9
Terms
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- What is a company effective selling in the context of a business sale?
- A collection of assets including the goodwill attached to the business.
- What will be treated as income profits?
- Profits arising on the sale of trading stock, goodwill and IP will be treated as income profits.
- What will be treated as chargeable gains?
-
Gains arising on the sale of capital assets such as:
Land;
Plant;
Machinery;
Other goodwill; and
IP. - What can a seller use to reduce its tax liability?
- Any available losses.
- What are the three types of available losses?
-
1. Trading losses;
2. Capital losses; and
3. Group losses. - What can a company do with trading losses?
- A company incurring a trading loss in the year it sells a business can set the loss off against profits of any description arising from the sale.
- What can a company do with capital losses?
- Capital losses in the year of disposal OR ANY PREVIOUS YEARS can be set off against any chargeable gains made on disposal.
- What can a company do with Group losses?
- Losses incurred elsewhere in the group might be able to be be set off.
- What will a buyer be hoping to achieve when structuring the deal from a tax perspective?
- To minimising the stamp taxes and VAT to be paid on the transaction.
- How should you structure answers to tax questions?
-
1. Share sale or business sale?
2. Who is receiving the consideration?
3. What taxes will be payable?
4. How is it/are they calculated?
5. Exceptions/reliefs?
6. Apply any tests re reliefs to facts.
7. Conclude - If a company that has sold assets declares a dividend, how will cash received by the shareholders be treated?
- As a income receipt.
- If a company that has sold assets is liquidated, how will cash received by the shareholders be treated?
- Capital receipt
- What will be the tax implications of declaring a pre-liquidation dividend to a corporate shareholder?
- Tax-free because corporate shareholders generally do not pay corporation tax on dividends.
- What will individuals shareholders be subject to if company that has sold assets is liquidated?
-
Capital Gains Tax
Usual exemptions apply, ER for example. - For the purpose of a buyer, what can be deducted when calculating the buyer's income profits?
- The price allocated to trading stock, work in process, goodwill and IP.
- Where can you find the buyer's base cost for a particular capital asset?
- The price will be allocated in the business sale agreement to each of the capital assets.
- For the purpose of calculating tax implications when a seller purchases a capital asset, what do you need to calculate?
- The tax written down value, followed by any applicable balancing charge or allowance.
- What is the general rule re VAT?
-
1. Taxable person
2. Making taxable supplies of goods and services
3. must charge VAT to the recipient
4. and account for this to HMRC - Is the sale of a business as a going concern outside the scope of VAT?
- Yes, because of the Transfer Of a Going Concern exemption to the general rule on VAT.
- What will be the position if in the context that VAT is payable, the AA does not specify that the consideration to be paid is exclusive of VAT?
- The consideration will be deemed to be inclusive of VAT.
- What will a seller usually require of the buyer in the context of a VAT clause in an AA?
-
1. obligate buyer to pay any VAT due (on the basis that it should be exempt);
2. state that the purchase price is exclusive of VAT; and
3. have buyer confirm that it will comply with the terms of the Art. 5 TOGC exemption. - On what is SDLT payable?
- Land only.
- What must a buyer do if it has purchased an interest in land?
- Deliver a land transaction return to HMRC and pay any SDLT within 30 days of completion.
- In the context of groups for the surrender of trading losses, how do you describe the company that has made the trading losses?
- The surrendering company
- In the context of groups for the surrender of trading losses, how do you describe the company that wants to use the trading losses?
- The claimant company
- What should you note in relation to the surrender of trading losses in a group that has various accounting reference dates?
- Losses are apportioned where there are differences in the accounting reference dates.
- By when must claims for relief be made?
- In prescribed form within one year of the date on which the claimant company's tax return for the tax year to which the claim relates must be filed.
- For the purpose of a chargeable gains group, how should you describe the 'effective 51% subsidiary' test?
- [Hold Co.] is indirectly entitled to more than 50% of [Sub's] profits available for distribution and assets available to shareholders on a winding up ([Insert calculations, e.g. 75% x 75% x 75%)]
- Do transfers of capital assets between companies within a chargeable gains group give rise to a gain or loss?
- Not at the time of the intra-group transfer. The tax liability is deferred until the asset is sold out of the group or the company owning the asset leaves the Group.
- What losses can be carried forward indefinitely?
- Capital losses
- What is an exit / de-grouping charge?
- Anti-avoidance measure designed to prevent groups of companies transferring chargeable assets around the group and then selling the company out of the group while still retaining the asset.
- What is Stamp Duty charged on?
- The transfer of shares
- What is Stamp Duty Land Tax charged on?
- The transfer of land
- What does a company need to do to obtain relief from stamp duty on intra-group transfers?
-
1. Has to be claimed from HMRC;
2. Submit letter stating that the conditions for the relief have been met; and
3. that certain anti-avoidance provisions do not apply. - What does a company need to do to obtain relief from Stamp Duty Land Tax on intra-group transfers?
-
1. Claimed in land transactions return;
2. Must be submitted to HMRC within 30 days of the intra group transfer. - Can a company divide its operations to keep all subsidiaries operating below the small profits, total taxable profits (TTP) rate?
- No - Associated Companies - anti-avoidance provisions (s. 25 CTA)
- What is the test for determining if two companies are 'associated' for the purpose of the associated companies, anti-avoidance provisions?
- If one has control over the other or both are under the control of the same person(s).
- How should you describe what a parent company might wish to do with a cash shell?
- Liquidate the company
- In the context of the need to carry out tax due diligence, what should you be mindful of in a business sale?
- Purchaser may be obtaining the shares in a subsidiary (and therefore the sub's liabilities). As such full tax due diligence is required to obtain tax warranties and a tax covenant.
- How should you describe transfers of assets that take place intra group?
- 'on a no gain/no loss basis'
- For the purpose of an exit charge, how do you calculate the deemed gain?
-
Market value at law intra G transfer
Minus
Base value when brought into the G
=
Deemed gain - What will happen to a calculated deemed gain on exit?
- Added to the consideration due in respect of the shares in the entity to whom the asset was transferred (could be land).
- Who is responsible for payment of a deemed gain which has been added to the consideration due? What eventually happens?
-
The seller is responsible for payment of the exit charge (so this won't be of concern to the buyer).
Provided the seller can benefit from SSE, no tax liability should arise. - Are de-grouping charges separate from SDLT clawback?
- Yes
- If the conditions of Article 5 of the VAT (Special Provisions) Order 1995 are not satisfied, who will be expected to account for any VAT that's payable?
- The seller - consideration will be presumed to include VAT.
- Why would a buyer want as much value as possible to be apportioned to a new asset?
- It will receive the benefit of a new set of capital allowances on the asset.
- Definition of ordinary share capital?
- Auth s. 1119 CTA
- What is a company's OSC as defined?
-
All issued share capital except:
shares that only have a right to a dividend at a fixed rate and that have no other right to share in the company's profits.