Corporation Tax

• What does corporation tax apply to?

  All income profits and chargeable gains of a body corporate.
• What is the sum of a company’s profits and gains known as?

  TTP (taxable total profits chargeable to corporation tax).
• How are companies assessed to corporation tax?

  By reference to the financial year from 1 April to 31 March.
• What is the main rate of corporation tax for the 2024/2025 tax year for companies with TTP greater than £250,000?

  25%
• What corporation tax rate applies to a company with TTP of £50,000 or less?

  19%
• What is marginal relief in the context of corporation tax?

  It applies to companies with TTP over £50,000 and up to £250,000, tapering the tax rate.
• What is the basic proforma for calculating TTP?


  • Chargeable Gains:
  • Sale proceeds
  • [Allowable Expenditure]
  • [Indexation Allowance]
  • [Capital/Trading Losses]
  • = Chargeable Gain
  • Income Profits:
  • Income receipts
  • [Deductible Expenditure]
  • [Capital Allowances]
  • [Trading Losses]
  • = Income Profits
• Why is it necessary to identify the nature of receipts for companies?

  Because income and capital receipts are subject to different tax rules.
• What are chargeable income receipts?

  Receipts of an income nature arising from business or trading activity that are not exempt.
• What are the most common types of company income?

  Rental income, trading income, interest, and dividend income.
• Are dividends paid to UK companies subject to corporation tax?

  Yes, unless they fall within certain exemptions.
• Why is dividend income generally exempt from corporation tax?

  Because it is paid out of profits that have already been taxed.
• What must tax-deductible expenditure be incurred for?

  Wholly and exclusively for the purposes of the trade.
• What is the corporate interest restriction (CIR)?

  A restriction on interest deduction to a maximum of 30% of income receipts for companies with over £2 million net interest expense.
• How are capital allowances treated for tax purposes?

  They are treated as a deduction for income purposes in calculating income profits.
• What is the main rate of capital allowance for plant and machinery?

  18% on a reducing balance basis.
• What happens to the tax written down value (TWDV) of plant and machinery after claiming capital allowances?

  The TWDV is reduced by the amount of capital allowances claimed.
• If a company claims capital allowances of £18,000 on a TWDV of £100,000, what will the TWDV be for the next year?

  £82,000.
• What is the Annual Investment Allowance (AIA)?

  • Allows 100% deduction on new, used, and refurbished plant and machinery up to £1 million.
  • Normal capital allowance of 18% applies to any expenditure above £1 million.
• If a company spends £1,400,000 on plant and machinery, what is the total allowance claimed in Year 1?

  £1,072,000.
• What is the tax written down value (TWDV) after Year 1 for a company that spent £1,400,000 on plant and machinery?

  £328,000.
• What is the TWDV after Year 2 if the Year 1 TWDV was £328,000 and the allowance claimed was £59,040?

  £268,960.
• What is full expensing for capital allowances?

  • Allows companies to deduct 100% of the cost of new and unused plant and machinery.
  • The amount deductible is uncapped and must be claimed in the period incurred.
• What was the Super-deduction allowance introduced for?

  • Allowed companies to claim 130% first-year relief on qualifying plant and machinery.
  • Applicable from 1 April 2021 until 31 March 2023.
• What is the general effect of rollover relief?

  The gain from a disposal of a qualifying asset is rolled into the acquisition cost of a replacement asset, deferring tax.
• In what situations is rollover relief potentially available?

  When a qualifying business asset is disposed of and another qualifying asset is purchased.
• What happens to the acquisition cost of a replacement asset under rollover relief?

  It is reduced by the amount of the gain being rolled over.
• What are the key differences in chargeable gains for companies compared to individuals?

  • No annual exemption for companies.
  • Indexation allowance is frozen up to 31 December 2017.
  • Companies cannot claim Business Asset Disposal Relief or Investors’ Relief.
• How can a company use trading and capital losses?

  A company can offset profits with trading losses to reduce the corporation tax liability.
• What is the calculation for chargeable gains?

  Sale proceeds less allowable expenditure, indexation allowance, and capital/trading losses.
• What are allowable expenditures for chargeable disposals by companies?

  Initial expenditure, subsequent expenditure, and costs of disposal can be deducted.
• What is the Substantial Shareholding Exemption (SSE)?

  It can exempt from corporation tax the whole of a chargeable gain when shares in a trading company are disposed of under certain conditions.
• What is the effect of trading and capital losses on corporation tax liability?

  They can be used to offset gains to reduce the corporation tax liability.
• What is the purpose of the rollover relief mechanism?

  To defer tax that would otherwise be due on a gain from the disposal of a qualifying asset.
• Can the new asset under rollover relief be of the same type as the disposed asset?

  No, it does not have to be the same type of asset.
• What happens to tax when a replacement asset is sold under rollover relief?

  Tax is postponed until the replacement asset is sold.
• What is the term used for an asset that replaces a qualifying business asset?

  Replacement asset
• Under what conditions can a sole trader or partnership dispose of a qualifying business asset and buy another qualifying asset?

  When they sell a qualifying business asset and purchase another qualifying asset.
• Who can own a business asset and still qualify for rollover relief when selling and buying another qualifying asset?

  Individuals other than sole traders, provided the assets are used by their personal company or a partnership they are part of.
• Does the replacement asset have to be the same type as the disposed asset?

  No, the replacement asset does not have to be the same type as the disposed asset.