Corporation Tax Quiz
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Questions and Answers

What is the taxable chargeable gain calculated after?

  • Adding carried forward losses to total chargeable gain
  • Multiplying total chargeable gain by annual exemption
  • Subtracting annual exemption from total chargeable gain (correct)
  • Subtracting initial and subsequent expenditures from net sale proceeds

Which of the following statements is correct regarding corporation tax rates?

  • Only companies with profits under £50,000 pay 19% corporation tax
  • Corporation tax is assessed only on chargeable gains of the company
  • Companies with profits between £50,000 and £250,000 pay a marginal tax rate between 19% and 25% (correct)
  • Corporation tax is always charged at 25% regardless of profits

What components are included in the calculation of taxable total profits (TTP)?

  • Only income profits and their capital allowances
  • Only chargeable gains and income receipts
  • Chargeable gains, profits from investments, and initial expenditures
  • Chargeable gains, income profits, and allowable deductions (correct)

Which expenditure is not subtracted when calculating the chargeable gain from the sale of an asset?

<p>Capital allowances (C)</p> Signup and view all the answers

How are companies assessed for corporation tax?

<p>By reference to their accounting period (C)</p> Signup and view all the answers

What must be done if a debt is secured by a floating charge?

<p>It should be registered within 21 days from its creation. (B)</p> Signup and view all the answers

Which statement about the loan repayment priority is accurate?

<p>Fixed charges take precedence over floating charges, regardless of registration. (D)</p> Signup and view all the answers

What action does the Board take after deciding to register a new member?

<p>They issue a new share certificate to the transferee. (B)</p> Signup and view all the answers

Which type of security allows the creditor to retain possession of an asset until the debt is repaid?

<p>Lien (A)</p> Signup and view all the answers

If a fixed charge is created after a floating charge, what is true regarding their priority?

<p>The fixed charge has priority over the floating charge, regardless of registration. (A)</p> Signup and view all the answers

What steps are involved in transferring shares to a new member?

<p>The Board must consider if it has the power to refuse registration. (B)</p> Signup and view all the answers

Which statement is true regarding directors borrowing money for the company?

<p>Directors can borrow money under the Model Articles on behalf of the company. (A)</p> Signup and view all the answers

What is true about the registration of charges at Companies House?

<p>Charges registered after 21 days may be void against creditors. (B)</p> Signup and view all the answers

What is the primary calculation to determine taxable income?

<p>Total income minus exemptions (A)</p> Signup and view all the answers

How should income be treated if it crosses more than one tax bracket?

<p>Apply the appropriate tax rate to each portion in its respective bracket (A)</p> Signup and view all the answers

Which of the following assets is NOT considered a chargeable asset for Capital Gains Tax?

<p>A principal private residence (A)</p> Signup and view all the answers

What determines the chargeable gain in a disposal transaction?

<p>Consideration received minus allowable expenditures (D)</p> Signup and view all the answers

In which scenario is a disposal treated as no gain/no loss?

<p>Disposing of an asset to a charity (A)</p> Signup and view all the answers

Which of the following deductions can be classified as allowable expenditure when calculating gains?

<p>Incidental costs of acquisition (C)</p> Signup and view all the answers

What action constitutes a chargeable disposal under Capital Gains Tax provisions?

<p>Selling an asset (D)</p> Signup and view all the answers

How is savings income taxed if it qualifies for the Personal Savings Allowance (PSA)?

<p>At the nil rate up to a certain threshold (C)</p> Signup and view all the answers

What is the consequence of making gifts of income-producing items to children?

<p>The income is treated as remaining with the original taxpayer (A)</p> Signup and view all the answers

Which of the following best describes the 'cake' method in assessing tax rates?

<p>Applying specific rates to portions of income at different tiers (B)</p> Signup and view all the answers

What is NOT a requirement for statutory accounts of a company?

<p>A statement of shareholder voting power (D)</p> Signup and view all the answers

Which type of director is specifically known for influencing the actions of formally appointed directors without being registered?

<p>Shadow director (B)</p> Signup and view all the answers

What must shareholders do to ensure they can inspect the register of members?

<p>Submit a written request with personal details (D)</p> Signup and view all the answers

What is the primary purpose of the Duomatic Principle in shareholder resolutions?

<p>To allow all unanimous decisions of shareholders to be binding (D)</p> Signup and view all the answers

Which of the following is NOT a duty of company directors?

<p>Promoting the success of other companies (A)</p> Signup and view all the answers

What can directors NOT do when they have an interest in a proposed transaction?

<p>Count towards the quorum (A), Vote on the transaction (D)</p> Signup and view all the answers

Which of the following is a requirement for a PLC regarding meetings?

<p>Call a meeting if requested by 5% of shareholders (B)</p> Signup and view all the answers

What type of account shows a company’s sales, running costs, and profit or loss for a financial year?

<p>Profit and loss account (A)</p> Signup and view all the answers

Which of the following is true regarding the dividends for preference shares?

<p>They are paid before ordinary shares (C), They are cumulative only if specified (D)</p> Signup and view all the answers

What happens if a company pays an unlawful dividend?

<p>Both directors and shareholders are liable for repayment (C)</p> Signup and view all the answers

What is NOT a responsibility of a private company regarding directors?

<p>Publicly disclose directors' service contracts (C)</p> Signup and view all the answers

Under what condition can shareholders block an ordinary resolution?

<p>If they hold at least 50% of shares (D)</p> Signup and view all the answers

Which of the following about director's service contracts that have a guaranteed term of more than two years is correct?

<p>Requires shareholder approval by ordinary resolution (A)</p> Signup and view all the answers

What happens if a partnership is formed without an express intention to do so but meets other requirements?

<p>It is presumed to be a partnership. (B)</p> Signup and view all the answers

What is a primary consequence of partners sharing profits without an agreement to share losses?

<p>It does not establish a partnership by itself. (C)</p> Signup and view all the answers

Which statement regarding partnership liability is correct?

<p>Creditors may pursue any combination of partners for debts. (B)</p> Signup and view all the answers

Which of the following is NOT a valid reason for terminating a partnership?

<p>A partner's continued financial success. (A)</p> Signup and view all the answers

How does limited liability in a limited liability partnership (LLP) differ from a traditional partnership?

<p>LLP members are not liable for company debts. (C)</p> Signup and view all the answers

Which condition must exist for an LLP to be dissolved?

<p>Reduction in membership below two. (A)</p> Signup and view all the answers

What must an LLP file at Companies House to initiate trading?

<p>An application for incorporation. (A)</p> Signup and view all the answers

Which of the following statements best describes the nature of shares in a company formed after 2009?

<p>Directors have automatic power to allot shares. (B)</p> Signup and view all the answers

What triggers the requirement for companies to submit a strategic report?

<p>Being classified as a medium or large company. (D)</p> Signup and view all the answers

In a company, what is required for a valid alteration to the Articles of Association?

<p>75% approval of members via a special resolution. (C)</p> Signup and view all the answers

What is the principal duty of promoters when forming a company?

<p>To ensure good faith in dealings with the company. (C)</p> Signup and view all the answers

In which scenario can a partner be held liable for debts incurred before they joined the partnership?

<p>Partners are never liable for prior debts. (C)</p> Signup and view all the answers

Under which circumstance can a company change its name?

<p>If a special resolution is adopted. (B)</p> Signup and view all the answers

What can lead to a member being personally liable during an LLP's insolvency?

<p>Acting fraudulently or wrongfully. (C)</p> Signup and view all the answers

What is the tax payment requirement for companies with total tax profits (TTP) over £1,500,000?

<p>Pay tax bills in four instalments over two accounting periods (A)</p> Signup and view all the answers

Dividends paid to UK companies are generally exempt from which type of tax?

<p>Corporation tax (C)</p> Signup and view all the answers

What is the VAT registration threshold currently set at?

<p>£85,000 (A)</p> Signup and view all the answers

Which of the following supplies would be considered zero-rated for VAT purposes?

<p>Children's clothing (A)</p> Signup and view all the answers

Which condition is true for a company to claim Business Property Relief?

<p>The transferor must hold the business assets for at least 2 years prior to transfer. (C)</p> Signup and view all the answers

What is the deadline for submitting a VAT return for taxable businesses?

<p>Within 1 month and 7 calendar days after the VAT period end (B)</p> Signup and view all the answers

Which of the following statements about input tax is true?

<p>Input tax can offset against output tax on chargeable supplies. (B)</p> Signup and view all the answers

What constitutes a deemed distribution to shareholders in a UK company?

<p>A dividend paid out of profits that have already been taxed (C)</p> Signup and view all the answers

Which supplies are categorized as exempt from VAT?

<p>Insurance services (A)</p> Signup and view all the answers

What types of income are not included in a company's taxable profits (TTP)?

<p>Dividend income received from other companies (A)</p> Signup and view all the answers

What is the rate of VAT for reduced-rated supplies?

<p>5% (A)</p> Signup and view all the answers

Under anti-avoidance legislation, which situation disallows the carrying forward of trading losses?

<p>The company has been sold and the nature of trade has substantially changed. (C)</p> Signup and view all the answers

Which type of relief is available only for shares in a quoted company if the shareholder has control?

<p>50% relief (C)</p> Signup and view all the answers

Flashcards

Share Transfer

The process of transferring shares from one person to another. It involves the existing shareholder providing a share certificate and a completed Stock Transfer Form to the transferee, who then sends these documents to the company.

Debt Finance

A type of financing where a company borrows money from an investor. The investor does not become an owner of the company, but is entitled to repayment of the loan plus interest.

Security

A legal document that gives a lender the right to seize an asset if a borrower defaults on a loan. This makes the loan less risky for the lender and can result in a lower interest rate.

Pledge

A type of security where the lender holds possession of the asset until the debt is repaid. This gives the lender direct control over the asset.

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Lien

A type of security where the lender only retains possession of the asset until the debt is repaid. The borrower can still use the asset as long as they make payments.

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Mortgage

A type of security where the borrower gives ownership of the asset to the lender, but retains the right to get it back when they repay the debt.

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Charge

A type of security where the lender has a legal right to the asset, but the borrower keeps possession. This gives the lender contractual rights over the asset.

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Fixed Charge

A type of charge where the lender has complete control over the asset. The borrower can still use the asset as long as they make payments, but they cannot sell it or use it as collateral for another loan.

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What is a partnership?

A partnership exists when two or more people come together to share profits with the intention of making a profit. Even if there is no profit, but there is intent to make a profit, there is still a partnership.

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Is a partnership agreement required?

A partnership agreement is not required but is highly recommended to ensure clarity on how the partnership will operate.

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What is the liability of partners?

Partners are jointly liable for partnership debts, meaning creditors can pursue any combination of the partners. However, they are not severally liable, meaning creditors cannot sue individual partners separately.

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How does joining or leaving a partnership affect liability?

Incoming partners are not liable for debts incurred before they joined the partnership. Existing partners remain liable for the debts even after leaving the partnership.

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What causes automatic dissolution of a partnership?

When a partner dies or goes bankrupt, the partnership is automatically dissolved.

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When can a partner apply to dissolve a partnership?

A partner can apply to a court to dissolve a partnership if there is a breach of the partnership agreement, misconduct, or the partnership is operating at a loss.

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What happens to the business after a partnership is dissolved?

Partners can continue to operate and wind up the partnership business after dissolution to complete unfinished transactions.

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What is a limited liability partnership (LLP)?

A limited liability partnership (LLP) is a separate legal entity from its members, offering limited liability for members and allowing the LLP to own property and contract independently.

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When is an LLP not bound by a member's action?

LLPs are not bound by a member's action if they act without authority and the person dealing with the member knows they have no authority.

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What is the liability of LLP members?

Members of an LLP are not liable for the LLP's debts owed to creditors and are only liable to the extent of their capital contribution.

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What is a company?

A company is a separate legal entity from its members, allowing for limited liability. It can own property, contract, and be taxed separately from its members.

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When do directors have automatic power to allot additional shares?

Directors can allot additional shares if there is only one class of shares and no restrictions in the Articles.

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What are pre-emption rights?

A company must offer shares to existing shareholders before offering them to the public (pre-emption rights).

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What is an annual confirmation statement?

Companies must file an annual confirmation statement that includes details of the company's business, officers, registered office address, and other relevant information.

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What are annual accounts?

Companies must file annual accounts within 9 months (or 6 months for PLCs) after the accounting reference date. Certain small companies may be exempt.

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Taxable Total Profits (TTP)

The total profits and gains of a company that are subject to corporation tax. It includes both chargeable gains and income profits.

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Chargeable Gains

Profits arising from the sale of assets, calculated by subtracting allowable expenditure from the sale proceeds.

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Income Profits

Profits from the company's normal operations. These are calculated by subtracting deductible expenses from income receipts.

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Corporation Tax Rate for Large Companies

The annual tax rate for companies whose profits are over £250,000. This rate is currently 25%.

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Corporation Tax Rate for Small Companies

The annual tax rate for companies with profits under £50,000. This rate is currently 19%.

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Total Income (Gross Income)

The total amount of money earned from all sources before any deductions.

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Net Income

The total amount of money earned after deducting exemptions.

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Taxable Income

The amount of income subject to income tax after deducting personal allowance.

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Income Tax Calculation

The process of applying the appropriate tax rate to different income types.

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Cake Method

A method used to determine tax rates when income spans across multiple tax brackets.

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Anti-Avoidance Provisions

A legal restriction preventing taxpayers from reducing their income tax liability by gifting income-producing assets to children.

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Capital Gains Tax (CGT)

A tax charged on gains realized from the disposal of assets.

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Chargeable Disposal

A taxable event where a chargeable asset is sold or given away.

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Chargeable Person

The individual, sole trader, partnership, or shareholder who owns a chargeable asset.

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Consideration Received

The value received for a chargeable asset, including market value for gifts or transactions between connected persons.

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Balance Sheet

A legal document that shows the value of everything the company owns, owes and is owed on the last day of the financial year. It represents the company's financial position at a specific point in time.

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Profit and Loss Account

A document that shows the company's sales, running costs and the profit or loss made during the financial year. It reflects the company's financial performance over a period of time.

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General Meeting (GM)

A formal meeting where shareholders gather to discuss and vote on important company matters.

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Board Resolution

A formal resolution passed by a company's board of directors authorizing a specific action.

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Special Resolution

A type of resolution that requires a 75% majority vote of shareholders present and voting.

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Ordinary Resolution

A type of resolution that requires a 50% majority vote of shareholders present and voting.

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Duomatic Principle

A principle that allows informal decisions made by shareholders to be binding if all shareholders entitled to vote agree.

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Alternate Director

A director who holds the power to appoint an alternative director to attend meetings in their place.

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Non-executive Director

A director who acts as a consultant and provides advice to the company's board.

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De Jure Director

A director who is formally appointed and registered with the company.

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De Facto Director

A director who acts as a director without being formally appointed or registered.

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Shadow Director

A director who influences the decisions and actions of other directors but doesn't hold an official position.

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Nominee Director

A director who is appointed to represent the interests of a specific stakeholder.

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Interested Director

A director who holds a personal interest in a transaction or arrangement that the company is considering.

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Annual Confirmation Statement

A legal requirement for companies to file confirmation statements within 14 days of the review period.

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Taxable Profits (TP)

The total profits of a company before deducting corporation tax.

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Taxable Profits (TP) after Corporation Tax

The total profits of a company after deducting corporation tax.

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Accounting Period

The annual accounting period for a company, typically a year.

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Corporation Tax Payment Deadline

Companies are required to pay corporation tax within 9 months and 1 day after the end of their accounting period.

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Large Company

A company with Total Profits (TP) greater than £1,500,000.

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Large Company Tax Payment Schedule

Large companies are required to pay their corporation tax in four installments throughout the accounting period.

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Dividend Received by a Company

Dividends paid to UK companies are generally not subject to corporation tax. This exemption applies unless special anti-avoidance provisions apply.

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Value Added Tax (VAT)

A tax that is charged on the supply of goods or services in the UK.

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Output Tax (VAT)

The amount of VAT a business charges when it sells goods or services.

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Input Tax (VAT)

The amount of VAT a business pays when it buys goods or services.

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VAT Registration Threshold

Taxable businesses must register for VAT if their taxable turnover exceeds £85,000 per year.

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Business Property Relief

A discount on inheritance tax for qualifying business assets.

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Qualifying Business Asset

Includes a business, interest in a business, shares in an unquoted company, or land/buildings used for business purposes.

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Business Property Relief Eligibility

The owner must have owned the business assets for at least two years before transferring them to benefit from Business Property Relief.

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Excluded Business for Business Property Relief

A business that mainly involves making or holding investments does not qualify for Business Property Relief.

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Study Notes

Business and Organisational Characteristics

  • Partnerships involve two or more persons carrying on a business in common with the intention to make a profit. Individuals or companies can be involved.
  • Absence of profit intent negates partnership.
  • A written agreement isn't compulsory, but recommended.
  • No filing requirements are necessary at Companies' House.

Partnership Liability

  • Partners are jointly liable for partnership debts and torts.
  • Creditors can pursue any combination of partners.
  • Incoming partners aren't liable for actions preceding their joining.
  • Outgoing partners remain liable for pre-departure debts/obligations.

Partnership Property

  • Partnership property constitutes partnership assets.
  • Property contributed by partners becomes part of the partnership.
  • Partners can monitor their contributions, profits and losses.
  • Creditors pursuing an individual partner cannot directly seize partnership assets for that separate debt, but the court can order a charge on the partner's interest in the firm.

Partnership Management

  • Partners have equal managerial rights in absence of an agreement.
  • Crucial decisions, like new partner admittance or business alterations, often require unanimous consent.
  • Partners owe fiduciary duties to each other.
  • Full disclosure of information affecting the partnership and profits made outside the partnership must be discussed by partners.

Termination of a Partnership

  • Partnership termination occurs if the agreement dictates it, upon partner death/bankruptcy, or by partner notification.
  • A court may dissolve a partnership if: it's unlawful to continue, a partner is incapable, a partner breaches the agreement, or if dissolution is just and equitable.

Limited Liability Partnership (LLP)

  • LLPs have a separate legal personality distinct from its members.
  • LLPs can contract and own property independently.
  • Perpetual succession is possible.
  • Admitting new partners requires unanimous consent (without an agreement in place) and must comply with legal requirements, which is usually notified to Companies House within 14 days.
  • Members can withdraw with proper notice to other members.
  • Creditors are not able to pursue individual members.

Company Formation

  • Private and public companies have different requirements.

Private Company

  • Minimum of 1 director is required.
  • No need for a secretary.
  • Shares can be sold privately.

Public Company

  • Minimum of 2 directors is required.
  • A company secretary is required.
  • Shares can be sold publicly.

Company Trading

  • Promoters owe a good faith duty for pre-incorporation contracts.

Companies House Filing Requirements

  • LLPs must file annual accounts.
  • LLPs require an annual confirmation statement.
  • Companies are required to file annual accounts and reports with details of director changes, registered office or name changes.

Funding Options and Debt Finance

  • Companies can raise capital through debt, such as loans (fixed and floating charges).
  • Debt holders have no ownership in a company.

Management Power and Duties

  • Management decisions can be by majority consent, or unanimity.
  • Directors and officers have specific duties, like acting within their powers, promoting the company's success, avoiding conflicts of interest, exercising reasonable care, and diligence.
  • Directors have fiduciary duties to the company and its stakeholders.
  • Actions can be delegated to directors by vote.

Tax Treatment of Partnerships and Companies

  • LLPs don't pay corporation tax; members are taxed individually.
  • Companies are taxed on their profits, with different rates based on profit level.
  • Partnerships don't pay corporation tax.
  • Individual profits are taxed differently.

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Test your knowledge on corporation tax concepts, including taxable chargeable gains, taxation rates, and the components of taxable total profits (TTP). This quiz will challenge you on the nuances of corporation tax and how companies are assessed. Perfect for students and professionals looking to refresh their understanding of tax regulations.

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