4): Basic Corporation Tax Calculation

Question 1

[Step 1 – Income Profits] How is a company’s income profit calculated for CT?

Answer 1

Calculate income profits from all sources

Deduct allowable expenses (e.g. directors’ salaries, wages, interest, insurance, office costs)

Question 2

[Step 1A – Capital Allowances] How are capital allowances applied in CT?

Answer 2

Deduct capital allowances (e.g. writing down allowance, annual investment allowance) from income profits

Question 3

[Step 2 – Capital Gains] How are chargeable capital gains calculated?

Answer 3

Deduct the following from the disposal value:

Acquisition price

Incidental acquisition costs

Improvement costs

Indexation allowance (only from 31 March 1982 to 31 December 2017)

Roll-over relief for qualifying business assets

Question 4

[Step 2A – Capital Losses] How are capital losses accounted for in CT?

Answer 4

Deduct any capital losses (current/prior years) from chargeable gains

Question 5

[Step 3 – Total Profits] How are total profits calculated for CT purposes?

Answer 5

Add together:

Net income profits (Step 1A)

Net chargeable gains (Step 2A)

Question 6

[Step 4 – Net Profits] How are net profits calculated?

Answer 6

Identify and deduct applicable reliefs from total profits:

Carry-across/back relief

Terminal loss relief

Carry-forward relief

Question 7

[Step 5 – Tax Due] How is CT finally calculated?

Answer 7

Apply the current tax rate to the net profits to determine the CT payable