Part 2 of 4
This is the Finance Act 2016 version of this article. It is relevant for candidates sitting the P6 (UK) exam in the period 1 April 2017 to 31 March 2018. Candidates sitting P6 (UK) after 31 March 2018 should refer to the Finance Act 2017 version of this article (to be published on the ACCA website in 2018).
In Part 1 Global Figurines Ltd (GFL) was formed and began trading. In this part, GFL will acquire an additional business. Once you have read about the company’s plans, stop and think about the possible tax implications before reading on.
In February 2016 Fay identified TP Ltd (TPL) as a possible acquisition. TPL manufactures figurines of painters and poets and was a member of a large group of companies. It was agreed (for commercial reasons) that the trade and assets of TPL, rather than the shares, would be acquired.
On 1 April 2016, GFL formed a wholly owned subsidiary called Writers and Artists Ltd (WAL). On the same day, WAL acquired the trade and assets of TPL. TPL had trading losses of £65,000 and capital losses of £18,000 available to carry forward as at 31 March 2016.
The results of the two companies for the year ended 31 March 2017 were as follows.
GFL | Taxable total profits | £200,000 | |
WAL | Trading profits Chargeable gains | £80,000 £20,000 |
On 1 December 2016 GFL made a loan of £14,000 to Lamar, one of the passive investors.
The tax implications arising out of the expansion via acquisition are:
In the remaining parts of this article we will look at the implications of GFL expanding overseas.
The corporation tax issues relating to groups are considered in two further articles:
Written by a member of the P6 (UK) examining team
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 authors 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.