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View the related Tax Guidance about Fixed asset

First time adoption of IFRS 15 ― revenue from contracts with customers

First time adoption of IFRS 15 ― revenue from contracts with customersIntroductionThe adoption of new accounting standards commonly results in transitional tax adjustments for corporation tax purposes. This happens because the cumulative amount of income or expense recognised on the new basis as at the start of the year of adoption usually differs from the old basis.In addition, there are usually deferred tax implications at the point of transition as a consequence of ‘catch-up’ adjustments taken to reserves on adoption of the new standard. Where the income of the comparative period is altered, then a deferred tax adjustment to that period is usually required although corporation tax for that year will remain undisturbed assuming the financial statements were prepared in accordance with the valid generally accepted accounting principles (GAAP) of that previous period. If the tax rules going forward mirror the accounting entries, then there will be no deferred tax balances at the end of the year of adoption of the new standard.This guidance note explores these issues in the context of IFRS 15.The introduction of IFRS 15, which was mandatory for accounting periods beginning from 1 January 2018, provides a comprehensive source of guidance on revenue recognition for all IFRS users. Previous guidance was limited to a fairly narrow range of situations and allowed users to interpret GAAP with varying degrees of conservatism, resulting in a range of different accounting outcomes. IFRS 15 should narrow this historic diversity by providing a combination of clear principles and detailed guidance

Restriction on non-trading losses on change in ownership

Restriction on non-trading losses on change in ownershipThis guidance note provides details of the potential restriction that may arise in respect of certain losses on a change in ownership of a company with investment business. The restrictions are very similar to those which apply in respect of trading losses. See the Trading losses and anti-avoidance guidance note for more information.There are various conditions relating to the change in ownership of an investment company which, if met, will result in potential restrictions to the excess management expenses, qualifying charitable donations and non-trading losses that have arisen prior to the change. The purpose of this legislation is to ensure that companies are not ‘traded’ just so a tax advantage can be obtained, such as accessing a company’s tax losses. Please refer to the following guidance notes for general details about the utilisation of these types of losses:•Excess management expenses•Non-trading deficits on loan relationships•Losses on non-trade intangibles•Property business losses for companiesThe conditions which lead to the potential restrictions under the rules in CTA 2010, Pt 14, Ch 3 (CTA 2010, ss 677–691) are that there is a change in ownership (see below) of a company with an investment business and one of the following applies:A)after the change in ownership there is a significant increase in the amount of the company’s capital (discussed in more detail below)B)within the eight-year period beginning three years before the change in ownership there is a major change in the nature or

Calculation of corporate capital gains

Calculation of corporate capital gainsThis guidance note sets out the details of the calculation of a corporate chargeable gain, allowable capital losses and the restrictions on their use. It also covers disposals involving foreign currency, the interaction with capital allowances and wasting assets. A number of helpful practical points are also set out at the end of the note. For a general overview of corporate capital gains, including the scope of the charge, see the Corporate capital gains ― overview guidance note.Calculation of gainsA separate computation will be required for each asset that is disposed of during a company’s accounting period.For a proforma for calculating gains and losses, see Proforma ― corporate capital gains computation.To calculate the gain, it will be necessary to determine the following:•date of disposal•disposal proceeds•acquisition costs•allowable expenditure•if the asset was acquired before 1 January 2018, indexation allowance up to 31 December 2017Each of these elements is explained in detail below.The other guidance notes in this section provide further details with regard to specific issues as they apply to companies.Disposal dateGenerally, the date of disposal will be the date of the contract or, if it is a conditional contract, the date that the condition is satisfied. It should be noted that the rule under TCGA 1992, s 28 (which fixes the date of disposal for an unconditional contract as the date of the contract) only applies if the contract is completed (ie if the disposal actually takes place) and so it

Summary of reliefs for company losses

Summary of reliefs for company lossesA company may incur any of the following losses:•trading losses•non-trading loan relationship losses•non-trading losses on intangible fixed assets•property lossesThese losses are generally able to be offset against certain profits either in the year the loss was incurred, previous or future years. The rules governing such offset are similar for each loss source but there are nuances and claim requirements that differ depending upon the source of the loss.From 1 April 2017, the loss carry forward rules were relaxed to allow carried forward losses to be offset against future total profits of a company. Prior to 1 April 2017, many losses brought forward had to be streamed in that if they were trading losses, they could only be set against future trading profits, etc. The reforms have resulted in two sets of rules that govern the use of carried forward losses ― one for losses arising prior to 1 April 2017 and one for losses arising on or

Corporate debt ― overview

Corporate debt ― overviewThis guidance note provides an introduction to the provisions governing the taxation of debt for UK companies and also provides links to more detailed guidance notes dealing with those provisions.The taxation of corporate debt in the UK is complex. There are several different sets of rules governing the amount and timing of tax deductions available for interest and other amounts relating to corporate debt. These include:•the loan relationships regime•the corporate interest restriction (CIR) rules•transfer pricing and thin capitalisation requirements•a range of associated anti-avoidance measures ― it should be noted that there are regime anti-avoidance rules (RAARs) in CTA 2009, ss 455B–455D and related sections for loan relationships and in TIOPA 2010, s 461 applicable to the CIRIt should also be remembered that payments of interest by a UK company on all liabilities capable of remaining outstanding for more than one year are subject to withholding tax, unless they are expressly exempt or qualify for relief.Loan relationshipsIn most instances, a company’s financing costs and income are taxed or relieved under the loan relationships regime. Relief is only available where the cost attaches to the company’s own loan relationships or a balance which is deemed to be a loan relationship for tax purposes. See the What is a loan relationship? guidance note.A loan relationship exists where a company stands in the position of debtor or creditor in respect of a money debt that arises from a transaction for the lending of money. Although, it

Group relief for carried-forward losses

Group relief for carried-forward lossesThis guidance note examines in detail the relief available to groups for carried-forward losses. The scope excludes the treatment of specialist businesses such as banks, insurance companies and oil and gas companies.From 1 April 2017, companies can surrender certain types of carried-forward losses to another company in the same group relief group. The rules are subject to several conditions and numerous anti-avoidance provisions, which are discussed below.Prior to 1 April 2017, it was not possible to surrender brought forward losses of any description against profits of any other companies within the group relief group. This meant that certain types of losses could be ‘trapped’ within individual legal entities with little or no prospect of relief, particularly in cases where the company was not expected to make profits in the future against which the losses could be relieved.Development of the UK legislationThe legislation was introduced by F(No 2)A 2017, Sch 4, para 23 and applies generally from 1 April 2017. For the anti-avoidance rules, see below.Draft guidance on the loss relief commencement provisions was issued by HMRC on 7 December 2017.More detailed HMRC guidance on group relief for carried forward losses can be found at CTM82000 onwards.Accounting periods straddling 1 April 2017Where a company’s accounting period straddles 1 April 2017, the periods before and after 1 April 2017 are treated as two separate accounting periods. Profits / losses are time apportioned or, where that would produce an unreasonable result, apportioned on a just and reasonable basis.

Property investment or trading?

Property investment or trading?Outline of property investment vs tradingThis guidance note applies to both individuals and companies.The distinction between income and capital profits is crucial to many areas of tax law and is a common issue for property transactions. Often it will be quite clear cut as to whether the activity is trading or investing in land. A person buying property to let out long term will be making a property investment, whereas someone buying a property to refurbish and sell (’flipping’) will most likely be trading as a property dealer or property developer. However, where is the line to be drawn between activity regarded as dealing and activity regarded as investment?First, it is important to realise that the tests for whether one is dealing in property or making a property investment are the same as for any other trade. Therefore, a good place to start is to look at the ‘badges of trade’ and considerations will include:•profit seeking motive•frequency and number of similar transactions•modification of the asset in order to make it more saleable•nature of the asset•connection with an existing trade•financing arrangements•length of ownership•the existence of a sales organisation•the reason for the acquisition or saleThe badges of trade are not a statutory concept but are a recognised set of criteria developed by the courts to identify when a person is undertaking a trading activity. They can be applied to property transactions just as they can to a variety of

How does SSE interact with other legislation?

How does SSE interact with other legislation?The substantial shareholdings exemption (SSE) is often just one factor to consider in the context of a transaction to sell the shares in a company. As part of the tax structuring for this type of transaction, a number of other tax-related provisions must be analysed to ensure the most tax efficient result is achieved, balanced with any commercial factors. For more in-depth commentary on SSE, see Simon’s Taxes D1.1045, D1.1061. See also the Tax implications of share sale guidance note. For a flowchart showing when SSE is available or when other legislative provisions take priority in particular transactions, see Flowchart ― SSE ― When does SSE apply with share reorganisations and intra-group asset transfers?.SSE and the degrouping chargeSSE available to exempt de-grouping chargesThe investing company and the target company may have been members of the same group for capital gains purposes, but if the investing company sells its shares in the target company, the group relationship will be broken. Assets may have been transferred between the group companies prior to the group relationship being broken on a no gain / no loss basis. However, if a company leaves the group within six years of an intra-group transfer, whilst still owning the transferred asset, a ‘degrouping’ or ‘exit’ charge would normally arise (see the Degrouping charges guidance note). Similar degrouping rules apply for assets within the intangible regime which are transferred intra-group on a tax neutral basis (see the Degrouping charges and elections ―

Transfers of goodwill and other IP

Transfers of goodwill and other IPSales or acquisitions of businesses are likely to include the transfer of intangible fixed assets (IFAs) such as goodwill and / or other intellectual property (IP).This guidance considers some of the relevant tax issues arising on a transaction structured either as a transfer of trade and assets, or as the sale of shares in a company which owns goodwill or other IFAs. For a discussion of the tax implications generally of a share sale or an asset sale, see the Tax implications of share sale and the Tax implications of trade and asset sale guidance notes respectively.For details of the intangibles regime generally, see the Corporate intangibles tax regime - overview guidance note.What is goodwill?The accounting definition of IFAs (other than goodwill) is set out in FRS 102, s 18.2 and is ‘an identifiable non-monetary asset without physical substance’. IFAs have a continuing use in the company’s trade.Goodwill is covered by FRS 102, s 19.22. It is measured at cost and is defined as the excess of the cost of the business over the acquirer’s interest in the net amount of identifiable assets, liabilities and contingent liabilities, measured in accordance with the rules within that section.Goodwill may be personal, connected with the premises (for example a hotel), or associated with the brand or trade name. There are many other types of intellectual property such as patents, know-how, designs, processes and customer lists.See the What is an intangible fixed asset? guidance note.IFAs in trade and

Comparison of share sale and trade and asset sale

Comparison of share sale and trade and asset saleStructuring the sale of a businessA purchasing company can acquire a business in one of two ways, either by purchasing the trade and assets or by purchasing the shares in the company operating the business.Commercially, purchasers may prefer to buy the trade and assets. This is because they have the ability to negotiate exactly which assets are acquired, and which liabilities are left behind.Conversely, if the shares in the company are acquired, the company’s entire history is transferred to the new owner, including its liabilities. The due diligence process, which is carried out prior to completion of the acquisition, aims to identify potential liabilities and obligations, and make recommendations to the purchaser as to how to deal with them or mitigate them. This might be by way of price adjustment, underpinned by structure change, or detailed warranty and indemnity provisions in the purchase agreement. A due diligence exercise will not only look at potential tax liabilities, but also covers legal, commercial and financial matters.On the other hand, the preferred option for vendors is often a share sale. Attractive reliefs may be available, depending upon the circumstances of the individual or company making the disposal.For example, business asset disposal relief (previously known as entrepreneurs’ relief) may be available to an individual selling their shares in the company, resulting in up to £1m of capital gain being taxed at an effective rate of 10%. See the Conditions for business asset disposal relief