Corporation Tax
Paid by companies on income profits and capital gains
Corporation tax financial year: 1 April – 31 March
STEP 1 – Calculate income Trading profit (see previous notes)
profits Chargeable receipts - I.e. money received for the sale of goods
and services
less deductible expenses (N.B. write ‘income in nature, wholly
and exclusively for the purpose of the trade, not statute
barred’)
o Directors’/employees’ salaries or fees and benefits in
kind
PROBLEM – director is paid a salary that is
excessive as remuneration for his services (I.e.
the salary is paid for personal reasons and not
wholly and exclusively for purposes of the
trade)
A substantial salary paid to a director
who performed minimal duties should
be apportioned into two parts: part
which was reasonable for the duties
performed would be deductible and
other excessive part not deductible
Not usually a problem where director
works full-time for the company
o Contributions to an approved pension scheme for
directors/employees - fully deductible
o Payment to a director/employee on termination of
employment
Where payment is made to a
director/employee by way of compensation for
loss of office or employment - deductible
expense under the normal rules
Where payment is made in return for
director’s/employee’s undertaking not to
compete with the company’s business
following termination of his
office/employment - deductible under specific
provisions (s.225 Income Tax (Earnings and
Pensions) Act 2003)
o Interest payments on borrowing
o Dividends
Dividends paid by company are NOT deductible
in calculating company’s taxable profit, but are
treated as distributions of profit
Expense of company buying back its own
, shares from shareholders isn’t deductible, part
of price that is over and above the allotment
price may be treated in the same way as a
dividend
less Capital allowances (see notes in trading profit notes)
o Machinery and plant, annual investment allowance
= trading profit
N.B. company may be able to reduce its trading profit by
claiming relief for a loss previously suffered in the trade and
‘carried forward’
Property income
Loan Relationships
Interest received from investments
Receipts from transactions in intangible fixed assets (e.g. patents,
trade marks, registered design, copyright and design rights)
N.B. expenditure on intangible fixed assets will generally be
deductible in calculating company’s income profits (though not
when expenditure is part of incorporation of a business)
STEP 2 – Calculate Broadly the same principles as CGT, but with important modifications
chargeable gains
(i) Identify a chargeable disposal
Disposal of chargeable asset by way of sale or gift
Chargeable assets = roughly the same as for CGT: land,
buildings, shares held in other companies
o N.B. if the disposal proceeds form part of the
company’s income stream (e.g. regular sales of land as
party of property developer’s trade) they will normally
form part of the company's income profits rather than
its chargeable gains
o Plant and machinery
Capital allowances may be available in relation
to expenditure incurred on it = cannot benefit
from the usual capital gains exemption for
‘wasting assets’
But, plant and machinery is unlikely to increase
in value = chargeable capital gain will not arise
(and any decrease in value will have been
deducted from trading profits (income) under
the capital allowances regime so that no
allowable capital loss will arise either)
(ii) Calculate the gain (or loss)
Proceeds of disposal (or market value in case of gift or sale at
Paid by companies on income profits and capital gains
Corporation tax financial year: 1 April – 31 March
STEP 1 – Calculate income Trading profit (see previous notes)
profits Chargeable receipts - I.e. money received for the sale of goods
and services
less deductible expenses (N.B. write ‘income in nature, wholly
and exclusively for the purpose of the trade, not statute
barred’)
o Directors’/employees’ salaries or fees and benefits in
kind
PROBLEM – director is paid a salary that is
excessive as remuneration for his services (I.e.
the salary is paid for personal reasons and not
wholly and exclusively for purposes of the
trade)
A substantial salary paid to a director
who performed minimal duties should
be apportioned into two parts: part
which was reasonable for the duties
performed would be deductible and
other excessive part not deductible
Not usually a problem where director
works full-time for the company
o Contributions to an approved pension scheme for
directors/employees - fully deductible
o Payment to a director/employee on termination of
employment
Where payment is made to a
director/employee by way of compensation for
loss of office or employment - deductible
expense under the normal rules
Where payment is made in return for
director’s/employee’s undertaking not to
compete with the company’s business
following termination of his
office/employment - deductible under specific
provisions (s.225 Income Tax (Earnings and
Pensions) Act 2003)
o Interest payments on borrowing
o Dividends
Dividends paid by company are NOT deductible
in calculating company’s taxable profit, but are
treated as distributions of profit
Expense of company buying back its own
, shares from shareholders isn’t deductible, part
of price that is over and above the allotment
price may be treated in the same way as a
dividend
less Capital allowances (see notes in trading profit notes)
o Machinery and plant, annual investment allowance
= trading profit
N.B. company may be able to reduce its trading profit by
claiming relief for a loss previously suffered in the trade and
‘carried forward’
Property income
Loan Relationships
Interest received from investments
Receipts from transactions in intangible fixed assets (e.g. patents,
trade marks, registered design, copyright and design rights)
N.B. expenditure on intangible fixed assets will generally be
deductible in calculating company’s income profits (though not
when expenditure is part of incorporation of a business)
STEP 2 – Calculate Broadly the same principles as CGT, but with important modifications
chargeable gains
(i) Identify a chargeable disposal
Disposal of chargeable asset by way of sale or gift
Chargeable assets = roughly the same as for CGT: land,
buildings, shares held in other companies
o N.B. if the disposal proceeds form part of the
company’s income stream (e.g. regular sales of land as
party of property developer’s trade) they will normally
form part of the company's income profits rather than
its chargeable gains
o Plant and machinery
Capital allowances may be available in relation
to expenditure incurred on it = cannot benefit
from the usual capital gains exemption for
‘wasting assets’
But, plant and machinery is unlikely to increase
in value = chargeable capital gain will not arise
(and any decrease in value will have been
deducted from trading profits (income) under
the capital allowances regime so that no
allowable capital loss will arise either)
(ii) Calculate the gain (or loss)
Proceeds of disposal (or market value in case of gift or sale at
