Business Report On Brownleas Plc & Retro Ltd - Computation Of Taxable Profits

Added on -2020-02-14

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Business andPersonaltaxation 1
TABLE OF CONTENTSIntroduction......................................................................................................................................3Part 1 Tax situation for the two companies for the year ended 31 March 2015..............................3Identification of capital gains arising on the transfer of the chargeable asset from Brownleasplc to Retro Ltd............................................................................................................................3Explanation of consideration of two companies as a group for the purpose of group relief.......4Available option of tax relief to the Retro Ltd regarding tax adjustment of tax losses...............5Capital allowance treatment for the purchase of each asset........................................................5Part 2 Evaluation of tax considerations in respect of the proposed methods...................................7Selection of suitable business structure ......................................................................................7Conclusion.....................................................................................................................................10Appendices.....................................................................................................................................11Calculations of capital allowances.............................................................................................11Tax adjusted trading profits.......................................................................................................12Gross value of the foreign income of Brownleas plc................................................................12Total taxable profits ..................................................................................................................12Total taxable profits ..................................................................................................................13References......................................................................................................................................142
INTRODUCTIONCompanies operating in UK are required to pay taxation charges on the chargeable profitsin accordance with the described provisions by the HMRC. Companies are entitled for makingclaim of the taxation benefits in order to make reduction in their tax obligations. For this aspect,management of companies are required to do suitable tax planning (Becker and Fuest, 2011).Present business report is focused on the computation of taxable profits and tax planning ofBrownleas plc and Retro Ltd by considering their financial figures of 31st March 2015. For thisaspect, description of tax benefits will be provided available to the company by considering thesituational facts. This description will be supported by the tax provisions that are stated by theHMRC. PART 1 TAX SITUATION FOR THE TWO COMPANIES FOR THE YEARENDED 31 MARCH 20151. Identification of capital gains arising on the transfer of the chargeable asset from Brownleas plc to Retro LtdCapital gain tax can be defined as a profit that is made by a person on the transfer ofproperty, shares or other investment (Citron, 2001). Provisions for capital gain tax is charged inthe following situations:Give away the chargeable assetTransfer of chargeable asset by one person to anotherAcceptance of something in against of chargeable assetReceipt of compensation for the destruction or loss of an asset such as receipt of amountof insurance claim. Transfer of chargeable assets from Brownleas plc to Retro Ltd is covered in secondoption. By considering the provided information, it can be noticed that Brownleas plc holds 85%interest in Retro SA. Due to this aspect, provisions of capital group, company will be applied inthis case. Description of this provision is as follows:Rules of group relief In accordance with the provisions of UK taxation, transfer of chargeable assets betweencapital group companies will not be considered for the purpose of any gain or loss. In addition to3
this, such transfer must not be considered for the purpose of tax planning opportunity (Dowell,2013). Reason of this provision is that there is no requirement of transfer of asset for the purposeof the realization of allowable loss or chargeable gain on an external sale in a particular groupcompany. In addition to this, profit or loss such transaction will be recorded in the particulargroup at the time of final elimination (Garrett and Mitchell, 2001). Provision of group relief isapplied in situation where there is transfer of chargeable assets between the management of agroup of companies for the purpose of accomplishment of commercial transactions. For example,a particular asset or an entire trade is transferred by one company to another without raising anyprovisions of chargeable gain.By considering this aspect, it can be said that no capital gain tax will be charged on thetransaction of transferring chargeable assets from Brownleas plc to Retro Ltd. 2. Explanation of consideration of two companies as a group for the purpose of group reliefThe two companies are considered as a group for the purpose of transferring chargeableassets in order to make claim of relief in the taxation. With this relief they are able to makereduction in their overall tax as loss of one company is compensated with the profit of anothercompany. In accordance with the provisions of UK taxation, a UK resident company is inposition to make claim of group relief in order to take benefit of set off of trading losses of a nonUK subsidiary however but resident of European Economic Area (EEA).Tax consolidation is permitted by the UK in situation where companies in a group are notconsidered as a single entity for the purpose of tax computation. Major benefit of this provisionis that tax loss of one company will be considered relievable for the tax profits of anothercompany (Henrekson and Sanandaji, 2011). By considering this aspect, company is in positionto surrender their losses in situation where losses of the accounting period (other than capitalgains) are higher than the taxable profits to a group member who have sufficient taxable profitsin the similar accounting period (Miller and Oats, 2012). Member Company can use these lossesto make reduction in their tax profits. Full group relief is permitted in situation where companieshave interest more than equal to the 75%. Loss relief is usually available for the trading losses incurred by an overseas branch.Provision stated in UK Paper F6 shows that no UK relief will be available for the trading lossesincurred by the overseas subsidiary company (Finney, 2010). In addition to this, UK capital4

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