CORPORATION TAX COMPUTATION with Chargeable Gains

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CORPORATION TAX COMPUTATION(with Chargeable
Gains)
Income, chargeable to tax, say 500 K(Schedules
A, DI/III etc) Chargeable gains,
say 100 ----- PCTCT 600 CT on
chargeable gains 100,000 _at_ 32.75 32.75 K
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Capital Losses

• If a loss accrues on a disposal of assets it is
  an allowable loss, if in the same situation a
  gain had accrued and the gain would have been a
  chargeable gain.
• Allowable losses may not be set against profits,
  only against chargeable gains net allowable
  losses may be carried forward and set against
  chargeable gains of subsequent accounting periods.

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INDEXATION ALLOWANCE

• If there are items for both cost and enhancement
  expenditure the calculation must be performed
  separately for each item (indexed rise)
• The indexation allowance is the sum of the
  indexed rises

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DISPOSAL OF SUBSTANTIAL SHAREHOLDINGS
Where a trading company disposes of a substantial
shareholding in another trading company, the gain
is exempt (and loss not allowed)

• Substantial means 10 of ordinary share capital
  and this test must be satisfied throughout any
  12-month period during the two years preceding
  the disposal date
• The investee must be a trading company both
  before and after the disposal

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CGT / IBA Interaction
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Industrial Buildings Allowances
Robust Engines Ltd (Q8, pages 6263 )
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Chargeable Gain
Robust Engines Ltd (Q8, pages 6263 )
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Corporation Tax Losses

• Best order of set off is usually against
• 1. Total profits of current accounting period
• 2. Total profits of previous 12 months
• Trade profits of subsequent accountingperiods

Loss relief (against total profits) takes
priority over charges on income (but not over
Schedule D Case III deficit)
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Corporation Tax Losses
Alternatively claim under Sec 393(1)
only- 3. Trade profits of subsequent
accountingperiods
This may maximise relief by claiming loss relief
in year(s) when corporation tax rate is higher
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Corporation Tax Losses
Alternative (2) order of set off 1. Total
profits of current accounting period 3. Trade
profits of subsequent accountingperiods
But you cannot carry the loss back 12 months
without first having relieved the profits of the
current accounting period
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Losses and Charges on Income

• Loss relief takes priority over charges on income
• If a companys total profits are extinguished by
  loss relief, then
• Gift aid payments are unrelieved(the best
  example of a charge on income, post 01/04/02)
• unless the company is a member of a group, in
  which case they may be surrendered

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Corporation Tax Computation
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Change of Accounting Date(Corporation Tax)

• A chargeable accounting period (CAP) ends on the
  companys accounting date, but cannot exceed 12
  months duration
• If the accounts period is long,
• it comprises CAPs with 12 months rests and the
  residue
• adjusted profits are apportioned between CAPs on
  the basis of time
• CAs are calculated for CAPs (and not the entire
  accounts period) with the need to contract WDAs
  pro rata where the CAP is short