ACC3140 Taxation
Unit 12
Corporation tax (2)
UNIT 12 SCOPE
About half of this Unit is new.
The other half overlaps with Unit 6 – sole traders and Unit 10 - Corporation tax (1)
The objective here is to bring all aspects of adjustment of profits and computing PCTCT together
in one lecture and one set of slides.
Corporation tax self-assessment and due dates for paying CT, including instalments are in Unit
10
Long periods of account are covered in Unit 14
THE SCOPE OF CORPORATION TAX
UK resident companies taxable on world-wide profits
Non-resident companies taxable on UK-source profits
Chargeable profits = Income + Gains – Qualifying charitable donations
INFLUENCE OF ACCOUNTING PRINCIPLES ON PCTCT
Taxable profits are based on accounting profits drawn up under GAAP
- unless there is a statutory rule which requires departure from accounting treatment
TRADING PROFITS
Rules very similar to sole traders.
But there is no ‘private use’ adjustment
Consider whether salaries paid to employees and directors reasonable
No ‘drawings’
TAXABLE PROFITS
In principle, the profits shown in financial statements prepared under generally accepted
accounting principles are taken as the taxable trading profits
In other words, tax works on the ‘accruals’ basis
However, there are a number of exceptions:
Some types of expenses in the accounts are not allowed for tax purposes
Some types of expenses are allowed only on a ‘cash’ basis rather than an ‘accruals.’
Some types of income in the accounts are not taxed as trading profits
, PROPERTY PROFITS
Similar rules to individuals
No Rent-a-room relief
Interest expense does not qualify as an allowable expense – see later
DIVIDENDS
All dividends received (UK and foreign source) are exempt from CT
Subtract in computing adjusted trading profits
That’s it …. Nothing more to do!
INTEREST INCOME
Accruals basis
Subtract the amount credited to SPL
Put it back as a ‘credit on non-trading loan relationships’
CHARGEABLE GAINS
Subtract the gain recorded in the SPL
Put back the gain computed in accordance with tax principles:
Reduce gain by indexation allowance
Set off against any capital losses of the period or capital losses brought forward
No annual exemption
CAPITAL ALLOWANCES
Computation similar to self-employed individual
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
Unit 12
Corporation tax (2)
UNIT 12 SCOPE
About half of this Unit is new.
The other half overlaps with Unit 6 – sole traders and Unit 10 - Corporation tax (1)
The objective here is to bring all aspects of adjustment of profits and computing PCTCT together
in one lecture and one set of slides.
Corporation tax self-assessment and due dates for paying CT, including instalments are in Unit
10
Long periods of account are covered in Unit 14
THE SCOPE OF CORPORATION TAX
UK resident companies taxable on world-wide profits
Non-resident companies taxable on UK-source profits
Chargeable profits = Income + Gains – Qualifying charitable donations
INFLUENCE OF ACCOUNTING PRINCIPLES ON PCTCT
Taxable profits are based on accounting profits drawn up under GAAP
- unless there is a statutory rule which requires departure from accounting treatment
TRADING PROFITS
Rules very similar to sole traders.
But there is no ‘private use’ adjustment
Consider whether salaries paid to employees and directors reasonable
No ‘drawings’
TAXABLE PROFITS
In principle, the profits shown in financial statements prepared under generally accepted
accounting principles are taken as the taxable trading profits
In other words, tax works on the ‘accruals’ basis
However, there are a number of exceptions:
Some types of expenses in the accounts are not allowed for tax purposes
Some types of expenses are allowed only on a ‘cash’ basis rather than an ‘accruals.’
Some types of income in the accounts are not taxed as trading profits
, PROPERTY PROFITS
Similar rules to individuals
No Rent-a-room relief
Interest expense does not qualify as an allowable expense – see later
DIVIDENDS
All dividends received (UK and foreign source) are exempt from CT
Subtract in computing adjusted trading profits
That’s it …. Nothing more to do!
INTEREST INCOME
Accruals basis
Subtract the amount credited to SPL
Put it back as a ‘credit on non-trading loan relationships’
CHARGEABLE GAINS
Subtract the gain recorded in the SPL
Put back the gain computed in accordance with tax principles:
Reduce gain by indexation allowance
Set off against any capital losses of the period or capital losses brought forward
No annual exemption
CAPITAL ALLOWANCES
Computation similar to self-employed individual
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
