Corporation tax

Question 1

Who pays?

Answer 1

Companies pay corporation tax rather than income or capital gains tax

Question 2

From April 2023 onwards

Answer 2

Before April 2023 the corporation tax rate was at a flat rate of 19%, however since April 2023 CT depends on the company’s taxable profits.

Question 3

April 2023 rates

Answer 3

1)Companies with taxable profits of up to £50,000 are subject to the standard small profits rate of 19%.
2) Companies with taxable profits of more than £250,000 are subject to the main rate of 25%
3) Companies with taxable profits above £50,000 but not exceeding £250,000 are subject to the marginal rate

Question 4

April 2023 - The Marginal Rate

Answer 4

Applying a tax rate of 19% to the first £50,000 of taxable profits and a rate of 26.5% to the balance.

Question 5

Overall Steps to calculate corporation tax

Answer 5

• Step 1 - Calculate income profits
• Step 2 - Calculate chargeable gains
• Step 3 - Calculate total profits - apply reliefs against total profits
• Step 4 - Calculate the tax at the appropriate rate(s)

Question 6

Step 1 - Calculate income profits - General

Answer 6

Calculate trading profits:
Chargeable receipts - Deductible expenditure - Capital allowances = Trading profit/loss

Question 7

Step 1 - Calculate income profits - Step 1) chargeable receipts

Answer 7

Money received for the sale of goods and services must derive from the business’s trade and be income (recurring) in nature rather than a one off

Question 8

Step 1 - Calculate income profits - Step 2) Deduct expenditure

Answer 8

Must be of an income nature and incurred wholly and exclusively for the trade e.g utility bills, employees wages, rent

Question 9

Step 1 - Calculate income profits - Step 3) Capital allowances

Answer 9

Deduct a proportion of the cost of most plant and machinery from chargeable receipts

Question 10

Step 1 - Calculate income profits - Step 3) Capital allowances - Plant and Machinery

Answer 10

Plant = apparatus to carry on their business. Each year the plant and machinery will be valued and 18% of the value will be deducted from chargeable receipts. Additionally, first £1 mill will be wholly deductible

Question 11

Step 2 - Calculate chargeable gains - Steps

Answer 11

Step 1 - Identify a chargeable disposal
Step 2 - Calculate gain/loss
Step 3 - Apply reliefs
Step 4 - Aggregate remaining gains or losses
Must identify any disposal of chargeable assets (can be by sale or gift)

Question 12

Step 2 - Calculate chargeable gains - Step 1 - Identify a chargeable disposal

Answer 12

Can arise on a disposal of chargeable assets by way of either sale or gift e.g land, buildings, shares held in other companies.

Question 13

Step 2 - Calculate chargeable gains - Step 2 - Calculate the gain (or loss)

Answer 13

Proceeds of disposal (or market value) - Costs of disposal = Net proceeds of disposal - Other allowable expenditure (initial/subsequent expenditure) = gain (before indexation) or loss - indexation allowance = gain (after indexation)

Question 14

Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets

Answer 14

Allows corporation tax due on the disposal of a ‘qualifying asset’ to be effectively postponed when the consideration obtained for the disposal is applied in acquiring another qualifying asset by way of replacement. Reduces the acquisition cost of the asset when it comes to selling the asset

Question 15

Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets - Qualifying assets

Answer 15

Land, buildings, ships, satellites, spacecraft - must be used in the trade

Question 16

Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets - Time limits

Answer 16

Replacement asset must be acquired within one year before or 3 years after disposal of the original asset

Question 17

Step 3 - Calculate total profits - Step 1

Answer 17

Income profit plus capital profits = company’s total profits.

Question 18

Step 3 - Calculate total profits - Step 2 - Carry across relief

Answer 18

Apply reliefs. A company’s trading loss for an accounting period can be carried across to be set against total profits for the same accounting period. If these are insufficient to absorb or fully absorb the loss the loss can then be carried back to be set against total profits from the accounting period falling in the 12 months prior to the account period of the loss

Question 19

Step 3 - Calculate total profits - Step 2 - Terminal carry-back relief

Answer 19

As an extension to the normal carry-back rules, when a company ceases to carry on a trade, a trading loss sustained in the final 12 months of the trade can be carried back and set against the company’s total profits from any accounting period(s) falling in the 3 years previous to the start of that final 12 months, taking later periods 1st

Question 20

Step 3 - Calculate total profits - Step 2 - Carry-forward relief

Answer 20

A company’s trading loss for an accounting period can be carried forward to be set against subsequent profits. Claim for losses to be set against total profits in a later period must usually be made within 2 years of the later period. Trading losses arising in accounting periods beginning on or after 1st April 2017 can be set against the company’s total profits in the next accounting periods

Question 21

Step 4 - Calculate the tax

Answer 21

Apply rates