Corporation tax Flashcards
Who pays?
Companies pay corporation tax rather than income or capital gains tax
From April 2023 onwards
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.
April 2023 rates
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
April 2023 - The Marginal Rate
Applying a tax rate of 19% to the first £50,000 of taxable profits and a rate of 26.5% to the balance.
Overall Steps to calculate corporation tax
- 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)
Step 1 - Calculate income profits - General
Calculate trading profits:
Chargeable receipts - Deductible expenditure - Capital allowances = Trading profit/loss
Step 1 - Calculate income profits - Step 1) chargeable receipts
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
Step 1 - Calculate income profits - Step 2) Deduct expenditure
Must be of an income nature and incurred wholly and exclusively for the trade e.g utility bills, employees wages, rent, stock, insurance
Step 1 - Calculate income profits - Step 3) Capital allowances
Deduct a proportion of the cost of existing plant and machinery from chargeable receipts. 18% of the value will be deducted from chargeable receipts.
Step 1 - Calculate income profits - Step 3) Capital allowances - Annual Investment Allowance
Can deduct 100% of plant and machinery purchased that year as long as it doesn’t exceed £1 mill.
Step 2 - Calculate chargeable gains - Steps
Step 1 - Identify a chargeable disposal
Step 2 - Calculate gain/loss
Step 3 - Apply reliefs
Step 4 - Aggregate remaining gains or losses
Step 2 - Calculate chargeable gains - Step 1 - Identify a chargeable disposal
Can arise on a disposal of chargeable assets by way of either sale or gift e.g land, buildings, shares held in other companies.
Step 2 - Calculate chargeable gains - Step 2 - Calculate the gain (or loss)
1) Price you’re selling it for - costs of disposal (solicitors fees, survey fees ect.) = NET PROCEEDS OF SALE
Net proceeds of sale - initial expenditure (what you bought it for, solicitor’s fees ect.) - subsequent expenditure = GAIN/LOSS
Step 2 - Calculate chargeable gains - Step 2 - Calculate the gain (or loss) - Indexation allowance
If there has been a gain you then need to work out the indexation allowance on initial expenditure (what you bought it for and solicitors fees ect.) and any subsequent expenditure. Add these figures together and minus it off the gain and that if your gain after indexation allowance
Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets
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
Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets - Qualifying assets
Land, buildings, ships, satellites, spacecraft - must be used in the trade
Step 2 - Calculate chargeable gains - Step 3 - Apply reliefs - Roll-over relief on the replacement of qualifying business assets - Time limits
Replacement asset must be acquired within one year before or 3 years after disposal of the original asset
Step 3 - Calculate total profits - Step 1
Income profit plus capital profits = company’s total profits.
Step 3 - Calculate total profits - Step 2 - Carry across relief
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
Step 3 - Calculate total profits - Step 2 - Terminal carry-back relief
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
Step 3 - Calculate total profits - Step 2 - Carry-forward relief
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.
Step 3 - Calculate total profits - Step 2 - Carry back
Carry back any losses to set off against 3 years previous
Step 4 - Calculate the tax
Apply rates
