ACC3140 – Taxation
LECTURE 10– Corporation Tax
OUTCOMES:
Describe the scope of Corporation Tax
Identify relevant accounting periods
Compute Profits Chargeable to Corporation Tax (PCTCT)
Identify financial years and compute the Corporation Tax liability of a company
Describe the obligation of a company under Corporation Tax self assessment
Explain the consequences of failure to comply
SCOPE OF CORPORATION TAX:
UK resident companies taxable on worldwide profits
Non-UK resident companies taxable on UK source profits
Chargeable profits = Income + Chargeable Gains - Qualifying charitable donations
TAX ACCOUNTING PERIODS:
CT charged for accounting periods
Not tax years or financial years
Usually the same as the period of account (period for which accounts are drawn up), but not always
Tax accounting period starts
- Day company starts to trade; or
- Day after previous period ends
TAX ACCOUNTING PERIOD ENDS:
Earlier of:
- 12 months after it starts
- End of period of account (B/S date)
- Commencement of winding up
- Ceasing to be UK resident
- Ceasing to be chargeable to UK CT
CONSEQUENCES:
Length of a TAP never more than 12 months
If accounts are for a shorter period, this is the accounting period
If accounts cover more than 12 months, first accounting period is 12 months, plus short accounting period
DIFFERENCES FROM INCOME TAX:
No Employment Income
, No personal allowances
Different rules for computing chargeable gains
- Indexation allowance
Different loss reliefs
No ‘private use’ expenditure or assets in companies
No ‘basis period’ rules!
TRADING INCOME:
Based on company’s accounting profits before tax
Similar adjustments as for sole traders
CT assessments are made by reference to accounting periods so no need for basis period rules
No opening/closing year rules or overlap relief
No private use adjustments
CAPITAL ALLOWANCES:
Computation similar to self-employed individuals
In addition, companies are entitled to a ‘super-deduction’ of 130% for some assets and a first year
allowance at 50% for some assets that would normally enter the 6% special rate pool.
No private use restriction
- Even if employees use assets for private purposes
Annual Investment Allowance limit has to be shared between members of a group
See later
SUPERDEDUCTION:
Companies which invest in new (not second-hand) plant or machinery may claim an enhanced FYA at
130%.
Only for companies, not for sole traders
Must be unused
For expenditure that would normally qualify for the main pool (18%) but cars do not qualify
No upper limit on the amount that qualifies
Applies from 1 April 2021 to 31 March 2023
FYA AT 50%:
Expenditure that would normally qualify for special rate (6%) qualifies for 50% FYA
Only for companies, not sole traders
Must be new, not second hand
Cars do not qualify
No upper limit
Applies from 1 April 2021 to 31 March 2023
INCOME FROM NON-TRADING LOAN RELATIONSHIPS:
LECTURE 10– Corporation Tax
OUTCOMES:
Describe the scope of Corporation Tax
Identify relevant accounting periods
Compute Profits Chargeable to Corporation Tax (PCTCT)
Identify financial years and compute the Corporation Tax liability of a company
Describe the obligation of a company under Corporation Tax self assessment
Explain the consequences of failure to comply
SCOPE OF CORPORATION TAX:
UK resident companies taxable on worldwide profits
Non-UK resident companies taxable on UK source profits
Chargeable profits = Income + Chargeable Gains - Qualifying charitable donations
TAX ACCOUNTING PERIODS:
CT charged for accounting periods
Not tax years or financial years
Usually the same as the period of account (period for which accounts are drawn up), but not always
Tax accounting period starts
- Day company starts to trade; or
- Day after previous period ends
TAX ACCOUNTING PERIOD ENDS:
Earlier of:
- 12 months after it starts
- End of period of account (B/S date)
- Commencement of winding up
- Ceasing to be UK resident
- Ceasing to be chargeable to UK CT
CONSEQUENCES:
Length of a TAP never more than 12 months
If accounts are for a shorter period, this is the accounting period
If accounts cover more than 12 months, first accounting period is 12 months, plus short accounting period
DIFFERENCES FROM INCOME TAX:
No Employment Income
, No personal allowances
Different rules for computing chargeable gains
- Indexation allowance
Different loss reliefs
No ‘private use’ expenditure or assets in companies
No ‘basis period’ rules!
TRADING INCOME:
Based on company’s accounting profits before tax
Similar adjustments as for sole traders
CT assessments are made by reference to accounting periods so no need for basis period rules
No opening/closing year rules or overlap relief
No private use adjustments
CAPITAL ALLOWANCES:
Computation similar to self-employed individuals
In addition, companies are entitled to a ‘super-deduction’ of 130% for some assets and a first year
allowance at 50% for some assets that would normally enter the 6% special rate pool.
No private use restriction
- Even if employees use assets for private purposes
Annual Investment Allowance limit has to be shared between members of a group
See later
SUPERDEDUCTION:
Companies which invest in new (not second-hand) plant or machinery may claim an enhanced FYA at
130%.
Only for companies, not for sole traders
Must be unused
For expenditure that would normally qualify for the main pool (18%) but cars do not qualify
No upper limit on the amount that qualifies
Applies from 1 April 2021 to 31 March 2023
FYA AT 50%:
Expenditure that would normally qualify for special rate (6%) qualifies for 50% FYA
Only for companies, not sole traders
Must be new, not second hand
Cars do not qualify
No upper limit
Applies from 1 April 2021 to 31 March 2023
INCOME FROM NON-TRADING LOAN RELATIONSHIPS:
