week 11: corperate taxes Flashcards
(20 cards)
Why do governments levy a corporate income tax?
Companies are legal entities that earn income
Administrative convenience — easier to tax profits at source
Benefit principle: companies benefit from infrastructure & limited liability
They have taxable capacity (can afford to pay)
Acts as a withholding tax on overseas investors (reduces evasion)
How does residence affect a company’s chargeability to UK Corporation Tax?
UK-resident companies: taxed on worldwide profits
Non-UK residents: taxed on UK branch/agency profits only
Unincorporated bodies (e.g. clubs, political orgs): chargeable, but not partnerships
Capital gains are included in CT — not a separate tax
whata re some Key facts about UK company accounting periods and tax rules?
Normal period: 12 months
Over 12 months? → Split: 12 + remainder
Tax year: 1 April – 31 March
Not ending 31 March? → Apportion profits by time
FY2024: 1 Apr 2024 – 31 Mar 2025
No personal allowance
No annual CGT exemption
How and when is UK corporation tax paid for different company sizes?
Large companies (PCTCT > £1.5M, tax > £10k):
Pay in 4 equal instalments → 6, 9, 12, 15 months after period start
Small & medium companies:
Pay 9 months + 1 day after year-end
How is UK corporate tax liability calculated?
Set the accounting period
Adjust profits for tax (match income & expenses to period)
Work out Taxable Total Profits (TTP)
Apply correct statutory tax rate
📌 Formula: TTP × Tax Rate
📌 TTP = trading income + gains
📌 Rate = set per financial year
How do you adjust accounting profit to get trading profit for tax purposes?
Start with: Accounting profit
Add:
Disallowed expenditures
Capital expenditures
Less:
Capital allowances
Non-trading taxable income (e.g. bank interest)
Tax-free (exempt) income (e.g. franked investments)
➡️ Result = Trading Profit
How do you calculate Taxable Total Profits (PCTCT)?
Start with Trading Profits
Add:
Loan interest
Income from property
Chargeable gains
Other non-trading taxable income
➡️ Total = Taxable Total Profits (TTP)
What are key rules for trading and property income in UK corporation tax?
Trading income: Actual for the period, adjusted from accounting profit; no special start/stop rules.
Property income: On accruals basis (as in accounts).
💡 Loan interest for buying/improving property is under loan relationships, not property income.
What are the rules for franked income, chargeable gains, and charges on income for UK corporation tax?
Franked income: Dividends from UK companies (already taxed) → not taxable again, excluded from computation
Chargeable gains: Gains in period → indexation applies
Charges on income: Depends if net/gross → deduct gross amount (e.g., gift aid donations)
What is franked investment income in UK corporation tax?
Dividends from UK companies
Already taxed under corporation tax at source
Not taxed again by the receiving company
Excluded from the tax computation
🟰 Think of it like a “pre-stamped” income — already dealt with.
What is a loan relationship for UK corporation tax?
Exists when a company is a debtor or creditor to a loan
If loan is for trade purposes, then:
➤ Interest & related costs are allowable
➤ Deducted against trading income
➤ On an accruals basis
What counts as a non-trading loan relationship for UK corporation tax?
Includes:
Bank & Building Society interest
Loans written off
Surplus on sale of corporate bonds
All profits/gains from non-trading loans
💰 Interest is gross & on an accruals basis (same as accounts)
How are intangible assets treated for UK corporation tax?
💡 Introduced in 2002
Includes: Patents, copyrights, trademarks, goodwill
Amortisation is tax-deductible (per accounts or 4%, using UK GAAP/IFRS)
Royalties follow accounts treatment
Gains/losses on post-1 Apr 2002 intangibles = trading income, not CGT
↪️ Rollover relief available
What R&D tax reliefs are available to UK companies?
✅ SMEs: Deduct 230% of R&D costs
🏢 Large companies: Deduct 130%
Covers: Staff, consumables, software development
SMEs with losses → Can claim £11 cash per £100 R&D instead of deduction
💯 100% capital allowances for R&D capex (e.g. machinery/buildings)
How is UK Corporation Tax (CT) computed and what rates apply?
💰 CT = TTP × applicable CT rate
Rate depends on profits = TTP + unrelated dividends
> £250k = 25% (large)
< £50k = 19% (small)
Between = sliding scale
➤ FY2023 tapering fraction: 3/200 × (upper limit − profits)
What is Marginal Relief in UK Corporation Tax and how is it calculated?
Applies when profits are between £50k and £250k
Formula:
Marginal Relief = (Upper Threshold − Profits) × Marginal Relief Fraction
Upper Threshold = £250,000
Fraction = 3/200 (HMRC)
Effective marginal rate = 26.5% on extra £1 profit in this range
How are chargeable gains treated for UK corporation tax?
Similar to capital gains for individuals, but:
❌ No annual allowance
✅ Gains are indexed for inflation
Taxed at corporation tax rates
📌 Companies get indexation allowance up to Dec 2017 or date of sale
What is the indexation allowance for UK companies and how is it calculated?
Used to adjust gains for inflation (pre-Dec 2017):
📌 Formula:
IndexationFactor
=𝑅𝐷 −𝑅𝐴/ 𝑅𝐴
RD = RPI at date of disposal
RA = RPI at date of acquisition
📝 Special rules:
Acquisitions before March 1982 not covered
RPI data is provided in exams/questions
How do UK companies handle income tax and interest income?
🧾 Self-assessment: Company estimates Corporation Tax for the year
💷 Pays tax to HMRC the following quarter via the quarterly system
💡 Interest from UK companies, banks, and building societies is received gross (no tax deducted)
How can companies claim corporation tax loss relief?
Offset losses against:
✅ Their own future trading profits
✅ (If conditions met) Profits of other group companies
