Chapter 22 Corporation tax: computations and administration Flashcards
Corporation tax computation
U.K. resident companies are assessed to corporation tax on their taxable total profits (TTP) arising in a chargeable accounting period (CAP).
TTP = Income (excluding dividends) plus net chargeable gains less qualifying charitable donations (QCDs).
Payment of tax
Payment of tax depends on size of the company.
Small companies (augmented profits < £1.5m). Due date: 9 months and 1 day after the end of the CAP.
Large companies (augmented profits > £1.5m). Due date: quarterly instalment payments starting during the accounting period.
All companies must pay electronically.
Dividends received
- The amount of cash dividends received are added to TTP in order to arrive at the augmented profits figure.
- Dividends received from an overseas company are included but may have been subject to tax in the overseas country. Overseas tax is ignored.
- Dividends received from related 51% group companies are ignored.
The £1.5m threshold
Augmented profits determine the due date but corporation tax liability is always calculated on a company’s TTP.
The £1.5m threshold may need to be adjusted as follows:
- Short CAP - time apportion.
- Related 51% group companies - divide by total number of group companies.
Related 51% group companies
Two companies are related 51% group companies if:
- One is a 51% subsidiary of the other
- Both are 51% subsidiaries of a third company.
Companies that join the 51% group during the accounting period are deemed to be part of the group from the beginning of the following accounting period.
Companies that leave the 51% group during the accounting period are deemed to still be part of the group until the end of the current accounting period.
Quarterly instalments
For a 12 month accounting period, 4 quarterly instalments are due:
- By on the 14th day.
- In months 7, 10, 13, 16 following the start of the accounting period.
Exception to instalments
Large companies which do not have to pay by instalments are as follows:
- Companies whose liability for the year is below £10000 (or a pro rata amount if the CAP is less than 12 months long).
- Companies that have become large during the CAP provided:
- they were not large for the previous CAP.
- their augmented profits for the CAP do not exceed £10m (reduced if there are related 51% companies or a short CAP).
Self assessment for companies
Self assessment applies for corporate taxpayers
- Calculate their own corporation tax liability for each CAP.
- Submit a self assessment corporation tax return within 12 months after the end of the period of account.
- Pay any corporation tax due within nine months and one day after the end of the CAP or under the quarterly instalment system.
Self assessment tax return
The self assessment tax return must be submitted by the later of:
- 12 months after the end of the accounting period or
- 3 months after the issue of the notice to file a return.
Records
Companies are required to keep and preserve records necessary to make a correct and complete return.
- All receipts and expenses
- All goods purchased and sold
- All supporting documents relating to the transactions of the business.
Records must be retained until the later of:
- 6 years after the end of he accounting period to which they relate
- The date on which a compliance check is completed
- The date on which it becomes impossible for a compliance check to be started.
Penalties
Late filing of corporation tax return:
- Within 3 months of filing date - £100
- More than 3 months after filing date - £200
- 6-12 months after filing date - additional 10% of tax outstanding 6 months after filing date.
- More than 12 months after filing date - additional penalty increased to 20%
Failure to keep accounting records - up to £3000 per accounting period.
