CHAPTER 9

CORPORATION TAX

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 Learning outcomes
1. Calculate the chargeable gains and losses on the disposal
assets, including indexation where appropriate
2. Calculate total taxable gains for both individuals and
companies
3. Identify accounting periods for a company
4. Recognise the interactions of having one or more associated
companies with corporation tax payment dates
5. Allocate given items of business expenditure as allowable or
disallowable for tax purposes and calculate the adjusted
trading profits after capital allowances on plant and machinery
6. Calculate the taxable total profits and corporation tax payable
for a company resident in the UK which has a period of
account of 12 month or less.

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 Corporation tax: Chargeable on
worldwide profits for UK resident
companies

CIT in FY23 = 25%/19% x TTP

Marginal relief where Augmented profits

between £ 50k- £ 250k
Taxable total profits:
Trading income
Chargeable accounting period: Property income
Can not exceed twelve months Non-trading loan relationships
Income not otherwise charged
Chargeable gains
Less qualifying charitable
donations (QCDs)

Computation and payment

TTP + Exempt ABGH distribution = Augmented profits (AP):
Company large if AP > limit
Corporation tax rate FY23= 25%/19%
Not large companies pay annual
Large companies/very large companies pay by instalment

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 Corporation tax: Paid by companies on
their taxable total profit for an accounting
period.

Taxable total profits:

Trading income
Chargeable accounting period: Property income
Can not exceed twelve months Non-trading loan relationships
Income not otherwise charged
Chargeable gains
Less qualifying charitable
donations

Computation and payment

TTP + Exempt ABGH distribution = Augmented profits (AP)
Company large if AP > limit
Corporation tax rate FY23 = 25%/19%
Large companies/very large companies pay by instalment

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Corporation tax: Paid by companies on UK company is formed by incorporation under the
their taxable total profit for an accounting Companies Acts
period.
A company is legal person, has a separate legal entity
from its owner *shareholders) and its manager
(directors)

UK residence: incorporated in the UK or central

management and control are exercised in the UK
Chargeable accounting period:
Can not exceed twelve months W.E
197

Accounting period: period for which the company’s taxable total profits are
charged to corporation tax.

Period of account: the period for which a company has prepared its accounts

The accounting period usually be the same as the company’s Period of

account.

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 Corporation tax: Paid by companies on
their taxable total profit for an accounting
period.

Chargeable accounting period:

Can not exceed twelve months

W.E
197
Start End: on the earliest of
Begins to trade or acquire a source of chargeable 1. 12 months from the start
income
End of previous accounting period & still within 2. Ceases to trade
the charge to corporation tax
3. The date the period of account ends
Note: if period of account exceeding 12 months => two accounting periods => giving rise to a SEPARATE
corporation tax computation. Eg. Long period of account= (1) 12 months + (2) remainder
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 Example

M Ltd has made up accounts to Solution

31 December each year. For ➢ First accounting period: 1
commercial reasons, it decides to January 2024 to 31 December
prepare its next set of accounts 2024
for the period 1 January 2024 to ➢ Second accounting period: 1
30 April 2025 January 2024 to 30 April 2025
Requirement
What are the accounting periods
for this long period of account?

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 Corporation tax: Chargeable on
worldwide profits for UK resident
companies

Taxable total profits:

Trading income
Chargeable accounting period: Property income
Can not exceed twelve months Non-trading loan relationships
Income not otherwise charged
Chargeable gains
Less qualifying charitable
donations

TTP + Exempt ABGH distribution = Augmented profits (AP)):

Company large if AP > limit
Corporation tax rate FY23 = 25%/19%
Large companies/very large companies pay by instalment

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Similar to sole trader/partnership, some # are Trading loan relationships(for trade purposes):
• No adjustment for private expenses, appropriation of Accrual basis.
profits (eg. salary paid to a director) Gross interest PAYABLE: Gross interest RECEIVABLE
• Interest paid of trading loan relationship will be Rare - a company will not usually lend
allowable expense in trading income Bank overdraft interest money for trade purposes
Interest on loans to buy plant and
• Dividends: not allowable expense machinery/buy premises for use in
• Long period of account: tax-adjusted profits should trade
be time apportioned
• Capital allowances for companies are computed for
accounting periods, NOT periods of account-> never Per accounting period
exceed 12 months £
• C.A: NEVER include private use adjustment Trading income X
Property income X
• 100% FYA available on NEW P&M use in
Non trading loan relationships (non trading interest) X
designated enterprise zone and must be incurred in Miscellaneous income X
the 8 YEARS from the date the designated Income not otherwise charged X
enterprise zone established Chargeable gains X
Qualifying donations (X)
W.E
W.E Taxable total profits X
200
199
Non trading loan relationships: Accrual basis.
Property income
Gross interest PAYABLE:
Rent income is dealt on accrual basis. (the date interest on loans to Gross interest RECEIVABLE
of receive is not relevant Purchase/improve a let Bank and building society
property accounts
Interest payable on loan taken out for the Acquire shares in another co Gilt-edged securities
purpose of buying or improving is NOT Interest on overdue Debentures and other loan
allowable expense for property income. Instead corporation tax stock
Write off of a non trading loan, Repayments of overpaid
it is under the loan relationship rules. such as a loan to a former corporation tax (repayment
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interest)
 CIT calculation
Per accounting period
£
Trading income X
Property income X
Non trading loan relationships (non trading interest) X
Miscellaneous income X
Income not otherwise charged X
Chargeable gains X
Qualifying donations (X)
Taxable total profits X

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 W.E

Trading income 213

Similar to sole trader/partnership, some # are

• No adjustment for private expenses, appropriation of profits (eg. salary paid
to a director)
• Interest paid of trading loan relationship will be allowable expense in
trading income
• Dividends: not allowable expense
• Long period of account: tax-adjusted profits should be time apportioned
• Capital allowances for companies are computed for accounting periods,
NOT periods of account-> never exceed 12 months
• C.A: NEVER include private use adjustment
• 100% FYA available on NEW P&M use in designated enterprise zone and
must be incurred in the 8 YEARS from the date the designated enterprise
zone established
• From 1/4/2024- 31/3/2026: Company can claim temporary FYA 100% for
MAIN RATE EXPENDITURE( P&M new and unused BUT car, gift, bought
to lease)
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 Example 1 (Pg.): short accounting period &
property income
A Ltd makes up accounts for the 15 months period to 30 June
2025
Tax adjusted profits for the period were 300K
TWDV of the main pool at 01/Apr/2024 was 24K. A Ltd sold
some plant in May 2025 for 3K (less than cost)
A bought and immediately rented out a shop on 01/Mar/2024.
The annual rental of 24K was paid in advance on that date.
Question: trading income and property income for each account
period?

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 Example 1 (Pg.199+200): short accounting
period & property income
01/04/23->31/03/24
TWDV bf 24,000
WDA @ 18%, 12 m - 4,320 4,320
TWDV cf 19,680

Accounting period
01/04/23->30/06/24
TWDV bf 19,680
Disposal - 3,000
16,680
WDA @ 18%, 03 m - 751 751
TWDV cf 15,929

01/04/23->31/03/24 01/04/24->30/06/24
Tax-adjusted profits =300K/15*12 240,000 60,000
Less capital allowances - 4,320 - 751
Trading income 235,680 59,249
Property income =24K/12*3 2000 6000

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 Property income
• Rent income is dealt on accrual basis. (the date of reception
is not relevant
• Interest payable on loan taken out for the purpose of buying
or improving is NOT allowable expense for property income.
Instead it is under the loan relationship rules.

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 Example - p200

H Ltd makes up its accounts Solution

to 31 July each year. Rent accrued 1 January 2025 to
On 1 January 2025, H Ltd 31 July 2025
bought and immediately rented £24,000 X 7/12 £14,000
out a shop. The annual rental of
£24,000 was payable on that
date.
Requirement
What is the amount taxable
as property income on H Ltd for
the year ended 31 July 2025?

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 £
Disposal consideration X
Less incidental costs of disposal (X)
Net disposal consideration X
Less allowable costs (X)
Unindexed gain X
Less indexation allowance (X) =(RD-RI)/RI [rounded to three decimal places] It has been frozen at Dec 2017 WE
203,
Chargable gain X RD: RPI @ disposal 204
RI: RPI @ Investment
Minimum: nil (no negative), can't create/increase unindexed loss

Exempt assets for companies are as for Per accounting period

individuals. £
Trading income X
In addition: Property income X
Non trading loan relationships (non trading interest) X
- Good will created or acquired on & after Miscellaneous income X
Income not otherwise charged X
01/Apr/2002 (before: not examined) Chargeable gains X
Qualifying donations (X)
Exclude:
Taxable total profits X
- Gilt-edged securities

Qualifying donations
IQ -
204
Amount paid in the accounting period => qualifying donation

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 Chargeable gain
£
Disposal consideration X
Less incidental costs of disposal(X)
Net disposal consideration X
Less allowable costs (X)

Chargeable gain X

Exempt assets for companies are as for

individuals.

In addition:

- Good will created or acquired on & after

01/Apr/2002 (before: not examined)

Exclude:

- Gilt-edged securities

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 Example 2( W.e- 203): Chargeable gains

Lana Ltd bought an asset on 3 March 2021 for £100,000. In

addition, there were legal expenses of £5,000 on the purchase.

The company sold the asset on 15 September 2024 for £140,000,

and paid legal costs of £6,000 on sale.

Requirement: What is Lanat Ltd's chargeable gain on sale?

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 Example 2: Chargeable gains

£ £

Gross proceeds 140,000

Less legal fees (6,000)
Net disposal consideration 134,000
Less:
acquisition cost 100,000
legal fees 5,000 (105,000)
Chargeable gain 29,000

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Trading loan relationships(for Non trading loan relationships:
trade purposes): Accrual basis. Accrual basis.
Gross interest
PAYABLE: interest Gross interest
Gross interest PAYABLE: Gross interest RECEIVABLE on loans to RECEIVABLE
Rare - a company will not Purchase/improve Bank and building
a let property society accounts
usually lend money for Acquire shares in Gilt-edged
Bank overdraft interest trade purposes another co securities
Interest on
Interest on loans to buy overdue Debentures and
plant and machinery/buy corporation tax other loan stock
premises for use in trade Repayments of
Write off of a non overpaid
trading loan, such corporation tax
as a loan to a (repayment
former employee interest)

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 Example – P205

K Ltd makes up its accounts to 31 December each year.

In the year to 31 December 2025, K Ltd had the following accrued income
received and interest paid:
Building society interest receivable £5,000
Bank interest receivable £2,000
Repayment interest on overpaid corporation tax £50
Payable on loan taken out to acquire let property £3,250
Payable on loan to acquire plant and machinery £650
Requirement
What is the amount taxable as a non-trading loan relationship?

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 Example 3: taxable total profits & loan
relationship ( W.e )
C Ltd. Makes up its account for the 12 - month period to 31/12/2025
Tax-adjusted trading profits before capital allowances £120K
Capital allowances £10K
Rental income after expenses £5K
Interest received from bank £1K
Chargeable gain £2K
Qualifying donation paid £3K
Building society interest receivable £5K
Bank interest receivable £2K
Repayment interest on overpaid corporation tax £50
Payable on loan taken out to acquire let property £3.25K
Payable on loan taken out to acquire P&M £650

Questions: total taxable profits?

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 Corporation tax: Chargeable on
worldwide profits for UK resident
companies

Taxable total profits:

Trading income
Chargeable accounting period: Property income
Can not exceed twelve months Non-trading loan relationships
Income not otherwise charged
Chargeable gains
Less qualifying charitable
donations

Computation and payment

TTP + Exempt ABHG distribution = Augmented profits (AP):
Company large if AP > limit
Corporation tax rate FY23 = 25%/19%
Large companies/very large companies pay by instalment

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 Computation and payment of corporation tax
- Corporation tax liability is computed by
applying the corporation tax rate to the Exempt ABGH distributions
company’s taxable total profits
Exempt dividends, tax credits received from UK
- FY 2024: from 01/Apr/2024 -> 31/Mar/2025 and overseas companies
- The rate for FY24: 25%/19% Not from 51% subsidiaries of the receiving
- Not required to calculate the CT for a company
company with an accounting period which
begins BEFORE 01/Apr/2024

Related 51% group companies Taxable total profits X

51% : both direct & indirect holding: Add Exempt ABGH distributions
WE any dividends received from UK and
eg. :A -- 80%-->B -- 80% -->C: group 210
overseas companies X
51%: A, B, C Augmented profits X
If B -- 60% --> C: group 51%: A & B only
- Still valid if only for part of accounting Augmented profits (AP)
period Determine the payment date for corporation tax.
- Ignore if NOT carry on a AP then compared with 1.5 million GBP limit and this limit affected
trade/passive/dormant by:
- Non – UK resident companies may - Length of accounting period (shorter 12m)
be included
- No of related 51% subsidiaries (at the end of the previous
- No of companies must include the accounting period)
parent company itself
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 CIT payable

❖ Main rate: 25% ( AP>250,000)

❖ Small profit rate: 19% ( AP<50,000)
❖ Marginal relief: 50k<AP<250k

Marginal relief =( U-A)XN/A x 3/200

➢ U: Upper limit ( 250k)
➢ A: Augmented profit
➢ N: TTP

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 Related 51% group companies
Companies A and B are related 51% group companies if
▪ A is a 51% subsidiary of B, or
▪ B is a 51% subsidiary of A, or
▪ both A and B are 51% subsidiaries of the same company.
B is a 51% subsidiary of A if more than 50% of B's ordinary
share capital is owned directly or indirectly by A.
- Still valid if only for part of the accounting period
- Ignore if NOT carry on a trade/passive/dormant
- Non – UK resident companies may be included
- Number of companies must include the parent company itself

Dormant: one which is not carrying on a trade or

business.

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 Associate companies

Related 51% group companies

51% : both direct & indirect holding:
eg. :A -- 80%-->B -- 80% -->C: group 51%: A, B, C
If B -- 60% --> C: group 51%: A & B only
- Still valid if only for part of accounting period
- Ignore if NOT carry on a trade/passive/dormant
-Non – UK resident companies may be included
-No of companies must include the parent company itself

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 Example - p200

X Ltd owns 80% of Y Ltd

which in turn owns 80% of z Ltd.
Requirement
How many related 51 %
group companies are there?

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 Solution
Example - p200 X Ltd
80%
X Ltd owns 80% of Y Ltd Y Ltd
which in turn owns 80% of z Ltd. 80%
Requirement Z Ltd
How many related 51 % X Ltd is a 51% subsidiary of X Ltd
group companies are there? as X Ltd owns more than 50%. X Ltd
also indirectly owns more than 50% of
z Ltd ie, 64% (80% X 80%) through its
shareholding in Y Ltd and so z Ltd is
also a 51 % subsidiary of X Ltd.
Therefore, there are three related
51 % group companies in total, X Ltd,
Y Ltd and Z Ltd.

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 Payment date:
Very large/Large & Non-large companies
Non large companies: if AP < 1.5 mio Large companies ( 1.5 mio < Ap< 20 mio)
- Tax liability < £10K - If AP higher than the limit (2 exceptions as beside)
- Not a large co in the preceding 12m and augmented profits of < - Adjustments for 1.5 mio only applicable for no of 51% subsi
£10 mio in this accounting period (only applicable for the first year at the end of the previous accounting period
of being large, if last year has AP higher than limit-> treat as large).
And this 10 mio limit will be divided by no of 51% subsidiaries in this
accounting period.
-Payment: 9 months and one day after the end of accounting period. -Payment: 14th DAY of 7th, 10th, 13th & 16th MONTH after
START of the 12 month accounting period

Large Company
AP less than £1.5 mio £1.5mio £20 mio Very Large Company
(2 exception)

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 Payment date:
Very large/Large & Non-large companies
Very Large companies ( AP >20 mio)
- If AP higher than the limit
- Adjustments for 1.5 mio only applicable for no of 51% subsidiaries
at the end of the previous accounting period
-Payment: 14th DAY of 3th, 6th, 9th & 12th MONTH after the START
of the 12 month accounting period

Example -
page 210

Large Company
AP less than £1.5 mio £1.5mio £20 mio Very Large Company
(2 exception)

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 Example 4: CT liability & augmented – W.e

D Ltd. Makes up his account for 31.03 each year

In the ye 31/Mar/2024, the company has taxable total profits of
500K
Also D receives exempt dividends from an unrelated UK
company of 10K and exempt dividends of 7K from its wholly-
owned subsidiary
Question: CT liability of D?
Answer:

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 Example 5: effect of 51% group companies &
short account period on 1.5 mio limit
E has owned 60% of F and 60% of G for a number of years
In YE 31/Mar/2024, E has taxable total profits of 450K and no Exempt ABHG
Question:
(a) What is the limit for E for the nine months ended 31/Mar/2024?
(b) What if F owned 60% of G.
(a) (b)

60%

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 Example 5: effect of 51% group companies &
short account period on 1.5 mio limit
E has owned 60% of F and 60% of G for a number of years
In YE 31/Mar/2024, E has taxable total profits of 250K and no Exempt ABHG
Question:
(a) What is the limit for E for the nine months ended 31/Mar/2024?
(b) What if F owned 60% of G.
(a) (b)
E E
60% 60% 60%
F
F G
60%
G

(1.5 mio / 12m * 9 m) / 3 = 0.375 mio (1.5 mio / 12m * 9 m) / 3= 0.375 mio

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 Example 6: payment – large companies & other
H Ltd makes up its accounts to 30 Nov each year. It has no
related 51% group companies.
In the first 3 years of H’s trading:
y/e 30/11/2023: £800K ST 42, 45,
63, 64, 71,
y/e 30/11/2024: £1,650K 72

y/e 30/11/2025: £2,100K

Question: how will H pay its corporation tax for the years to
30/Nov/2023 and 30/Nov/2024/; 30/11/2025?

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 Example 7: payment – very large companies

V Ltd. Has augmented profits of 26.3 million in the tax year

ended 31 March 2024.
Question: When will V Ltd be required to pay instalments of CIT
for the tax year end 31 March 2024?
Answer:
➢Accounting period starts 1 April 2025
➢Instalments due 14 June 2025, 14 September 2025,
14 December 2025 and 14 March 2024.

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 Example 6: payment – large companies & other

H Ltd makes up its accounts to 30 Nov each year. It has no

related 51% group companies.
In the first 3 years of H’s trading:
y/e 30/11/2023: £800K ST 42, 45,
63, 64, 71,
72
y/e 30/11/2024: £1,650K
y/e 30/11/2025: £2,100K
Question: how will H pay its corporation tax for the years to
30/Nov/2023 and 30/Nov/2024?
Answer:
y/e 30/11/2023: first time being a large company-> 9 months & 1
day from the start of accounting period: 01/Sep/2023
y/e 30/11/2024: also a large company hence pay tax in instalments
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 Example 7: payment – very large companies

V Ltd. Has augmented profits of 16.3 million in the tax year

ended 31 March 2024.
Question: When will V Ltd be required to pay instalments of CIT
for the tax year end 31 March 2024?
Answer:

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 Homework

All in the Question Bank, just!

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