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CORPORATION TAX
• Corporation Tax is charged on the profits of companies resident in UK, with reference to
the Taxable Total Profit.
• A company is any limited or unlimited corporate body, or an unincorporated association.

Period of Account

• A period of account is the duration for which the company prepares it accounts.
• It is generally 12 months long, but can be longer or shorter than this
• If a period of account exceeds the 12 months limit, it will be split into two accounting
periods, the 1st one comprising the first 12 months and the second comprising of the
remaining months.

Accounting Period

• An accounting period is the period according to which a charge to corporation tax is paid.
• It is never longer than 12 months and may be shorter than 12 months mainly due to
short period of accounts, cessation of trade etc.

PERFORMA

Trading Profit XXX

Interest Income XXX
Income from foreign sources XXX
Rental Income XXX
Other Income XXX
Chargeable Gain XXX
Total Profit XXX
Less: Losses deductible from total profit XXX
Less: Gift Aid Donation (GAD/QCD) XXX
Taxable total profit (TTP) XXX

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Trading Income

• Majority of the rules are the same as individual

• There are slight specifications when adjusting the profit figures for companies.
• Pre-Trading expenditure is treated as a trading expense incurred on the first day of
trading.
• No adjustment is necessary for the private expenses.
• Any cost incurred by company in obtaining long term finance is allowable.

Capital Allowance

• Allowances are given for accounting periods by reference to acquisitions and disposals in
that accounting period.
• The private use to the asses by an employee has no impact on the calculation of
allowance.
• For a 2 years period (1.4.21 to 31.3.23) companies can benefit from enhanced capital
allowances when they purchase new plant and machinery
o For expenditure which would fall into the main pool, there is a 130% super
deduction. This means that for every 100 of expenditure, a FYA of 130 is available.
o For expenditure which would fall into the special rate pool, there is a 50% FYA.
• For expenditure falling into the main pool, 130% super deduction should be claimed
rather than 100% AIA. However, of expenditure falling into special pool, 100% AIA should
be claimed in preference to 50% FYA.
• Only new plant and machinery qualifies for enhancement Capital Allowance (not 2nd hand
assets).
• Motor cars do not qualify.
Example:
Hance Ltd has an accounting reference date of 31 March each year. On 1.4.23, TWDV of plant
and machinery in the company’s main pool and special pool is 0.
During the year ended 31.3.24 company purchased new equipment for 1,650,000 of which
350,000 is main pool and 1,300,000 is special pool item.
Super deduction (350,000 x 130%) 455,000
AIA (special pool item) 1,000,000
FYA (1,300,000-1,000,000) x 50% 150,000
Total Allowance 1,605,000
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Patent Royalties (Other Income)

• Royalties are chargeable on an accrual basis, under trading profits calculation, if patents
are held for trading purposes and are treated under the category of Other Income if held
for non-trading purposes.

Interest (Trading and Non-Trading)

• Interest received is credited in the company’s account on an accrual’s basis.

• Interest paid by one company to another is always gross (no grossing up required).
• Interest paid in relation to late payment of any tax and interest received in relation to
over paid tax of any kind are allowable expense and income under the Interest Income.

Rental Income

• The Income and Expenses relating to all the properties are aggregated on an accruals
basis, irrespective of the fact that the properties are furnished or unfurnished.
• Interest paid by company in relation to the property is dealt with as an adjustment
against interest income rather than being dealt against rental income.
• In case of companies, properties can qualify as Furnished Holiday Lettings (Business
Income) provided the following conditions are fulfilled:
o Property made available for at least 140 days
o Property actually let out for at least 70 days
o If let out for 7 months, property should not be occupied by the same person for
more than 31 days in a row.

Chargeable Gain

• Companies cannot claim any annual exemption.

• Companies do not pay chargeable gain tax separately. Gain is included in the Taxable
Total Profit and taxed accordingly.
• Share matching rules are slightly different:
o Rule 1: Same day acquisition
o Rule 2: Shares acquired in the previous nine days.
o Rule 3: Shares from the FA 1985 pool
• Companies are entitled to indexation allowance from the date of acquisition until the
date of disposal of an asset.
• The purpose of having an indexation allowanced is to remove the inflation element of a
gain from taxation.

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• Indexation is based on the movement in the retail price index (RPI) between the date of
acquisition and date of disposal.
• Indexation Factor Formula:
RPI for the month of disposal – RPI for the month of acquisition
RPI for the month of acquisition

• The calculation is expressed as a decimal and is rounded to three decimal places.

• Indexation is also available on enhancement expenditure from the month in which such
expenditure becomes due and payable.
• Indexation allowance is not available on the costs of disposal.
Exercise :1
An asset is acquired by a company on 15 February 2005 (RPI=179.3) at a cost of £5,000.
Enhancement expenditure of £2,000 is incurred on 10 April 2006 (RPI=185.7). The asset is sold
for £15,500 on 20 December 2017 (RPI=254.4). Incidental costs of sale are £500.
Calculate the chargeable gain arising.

Gift Aid Donation

• Gift Aid Donations are deductible in computing Taxable Total Profit.

• This is always paid in gross.

Long Period of Account Performa

1st 12 months last n months

Adjusted profit (time apportioned) X X
Less: Capital Allowance (2 computations) (X) (X)
Taxable trading profits X X
Property business income (time apportioned) X X
Interest Income (accruals basis) X X
Chargeable gains (receipts basis) X X
Less: qualifying charitable donation (paid basis) (X) (X)
Taxable Total Profits (TTP) X X

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Calculation of Tax Liability

• The corporation tax liability is calculated with the reference of financial years.
• A financial year runs from 1st April to 31st March of next year.
• The year ended 31 March 2024 is the financial year 2023 (FY 2023).
• A company pays tax on its taxable total profit depending on augmented profits.
• Augmented profit means company’s taxable total profit plus dividends received.
However, dividends from 51% group companies are excluded.
• From FY2017 to FY2022, CT was charged at 19% of the taxable total profit.
• For FY2023, the rates of CT are:
o 25% (main rate): where augmented profit is greater than or equal to the upper
limit (250,000)
o 19% (small profits rate): where augmented profits do not exceed the lower limit
(50,000)
o 25% less marginal relief: where the level of augmented profit is between the
limits.
Marginal Relief:
(Upper limit – Augmented profit) x standard fraction x TTP/Augmented profit

Standard faction for FY2023 is 3/200

Losses in Corporation

Followings are the different type of loss relief for a company.

Capital Losses

• Capital loss can be set off against current year capital gain or in future accounting period.
• A capital loss can never be carried back nor can it be set off against any other source of
income.

Property Business Loss

• Loss can be set off against current year non rental income and gains (Total Profit)
• Any excess is carried forward.
• Any excess loss can also be surrendered in a group.

Trading Loss

• Company’s trading loss can be carried forward against future total profit for indefinite
period.
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• Carried forward loss must be set off against the first available total profit.
• A company may set off the loss against total profits of current period and then excess
loss can be adjusted against profit of previous 12 months.
o For loss making accounting periods ending between 1.4.2020 and 31.3.2022, the
relief is extended to 36 months.
• Trading losses in the last 12 months of trad can be carried back and set against profits of
the previous 36 months on LIFO basis.

GROUP OF COMPANIES

There are three types of groups for taxation purposes

• Associated companies
• 75% subsidiaries (loss relief group)
• Capital gain group

Associated Companies

• For tax purposes a company is associated with another company if either controls the
other or if both are under the control of the same person.
• Whether such a company is UK resident or not is irrelevant.
• A dormant company do not count as associated company.
• The upper and lower limits which are used to determine tax rates are divided by the total
number of associated companies.

75% subsidiaries (Loss relief group)

• Two companies are members of a 75% group where one is a 75% subsidiary of the other,
or both are 75% subsidiaries of a third company.
• A company may surrender its loss to any company in the loss relief group. Thus,
o A parent company may surrender its loss to its subsidiary
o A subsidiary company may surrender its loss to its parent
o A subsidiary company may surrender its loss to its fellow subsidiary
• There is a no limit to set off the loss first against own profit and company may surrender
as much of the loss as it wants to.
• The losses which may be surrendered are
o Trading losses
o Excess gift aid donations
o Excess property business losses
• Only current period losses are available for group relief.

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• Relief for the surrendering loss is against the total profit of the claimant company.

Capital gain group:

Companies are in a capital gain group if

• At each level, there is a 75% holding and

• The top company has an effective interest of over 50% in the group companies.
• Companies in a capital gain group make intra group transfers of chargeable assets
without a chargeable gain or an allowable loss arising.
• Two members of a capital gain group can elect to transfer a chargeable gain or allowable
loss or any part of a gain or loss between them.
• Gain and losses can be matched within a group (completely or partly transfer).
• Rollover relief is available in a capital gain group.

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