CALCULATING CORPORATION TAX Corporation Tax Act 2009 1 Calculate income profits a.

Trading income (part 3 CTA 2009) i. Chargeable receipts MINUS deductable expenditure MINUS capital allowance = trading profit. ii. Deductable expenditures Any expenditure which is of an: 1. income in nature; and 2. incurred wholly and exclusively, 3. not prohibited by statute (Part 3, Ch 4, CTA 2009) E.g. 1. salaries if excessive, excessive part not deductable. 2. Contributions to an approved pension scheme for directors/employees fully deductable. 3. Payment to director/employee on termination of employment and non compete. 4. Interest payments on borrowings 5. Overheads 6. Marketing/pr 7. Car running costs NOT: 1. Interest free loan from the employer to the employee 2. Provision of a company car by the employer for private use by the employee 3. Benefit of private medical insurance policy for which the employer pays the annual premiums. iii. Capital allowance Plant and machinery: 1. Yarmouth v France 1887, plant includes whatever apparatus is used by the business man for carrying on the business. 2. Plant also includes all goods and chattels kept for permanent use in the business - office equipment, computers, tools, manufacturing equipment. 3. Does not include stock in trade. 4. CAA 2001 ss55 Pooling 5. If a plant/machinery is sold, the sale proceeds are taken away from the pool 6. Minus 18% each year CAA 2001, ss52-59 7. Annual investment allowance - 25,000 expenditure on new plant and machinery in the same year CAA ss SIA-SIN If bought new plant and machinery for 6k, 25k allowance, so take 6k away from the trading profit amount. EXAMPLE: X amount for pool and Y amount for new plant/machinery. Y minus 25k, then add (Y-25k) to X. then (X+(Y-25K)) x 18% = Z. Z = capital allowance and take this away from chargeable receipts as above in (i). EXAMPLE FOR 2 YEARS: X amount for newly bought, take away 25k then times 18% ((X-25K)x18%) = capital allowance. So ((X-25K)-capital allowance) written down pool. NEXT YEAR Y amount for new plant and machinery so Y minus 25k, then add (Y-25k) to the written down pool and times that by 18% = capital allowance for that year. Energy saving assets 100% deductable in first year - ss45A 52 Cars dependant on CO2 emissions Finance Act 2009

Short life assets kept in their own pool working life less than eight years ss83-89 CAA 2001 Long-life assets and integral features working life at least 25 years less written down 8% - ss33A and ss90-104E CAA 2001. 1. E.g. AC b. Trading loss brought forward CTA 2010 s45 c. Any other income: i. Property income ii. Interest from investments 2 Calculate chargeable gains a. Identify chargeable disposals i. Sale or gift ii. Land/buildings/shares in other companies iii. If regular, form part of the companies income stream, then becomes part of the companies income profits CTCGA 1992 s37 b. Calculate the gain i. Proceeds of disposal MINUS costs of disposal = net proceeds of disposal. ii. Net proceeds of disposal MINUS other allowable expenditures = Gain (before indexation). Allowable expenditures 1. Costs incurred for disposal of asset 2. Initial expenditure 3. Subsequent expenditure Any money spent enhancing the value of the asset NOT if income in nature e.g. redecoration iii. Gain MINUS indexation allowance Indexation allowance 1. To remove inflationary gains from capital gains. 2. Applied to initial and subsequent expenditure but not costs of disposal. 3. Owned on 31 March 1982 special rules, excluded before that date. 4. Can be used to go down to zero but not negative 5. Cant be used if there is an overall deflation iv. If company sells at an undervalue gift element = market value used. Connected person test TCGA 1992 s286(5) person controls the company OR company connected to company controlled by the same person. v. Capital loss can be deducted from other chargeable profits BUT NOT INCOME PROFITS. c. Apply any reliefs i. Roll-over relief on replacement of qualifying business assets (TCGA1992 ss152 159) Designed to encourage business to expand and grow by postponing CGT. Conditions 1. CANNOT be used in the trade of developing land s156 (will be taxed as trading income) 2. Land, buildings and goodwill qualifying assets, s155; 3. Assets must be used in trade of business; s152(1) (both old and new assets) 4. Assets do not have to be in the same business; 5. Fixed plant and machinery are restricted if wasting assets s154; Not fixed if moveable/intended to enable changes to layout of workplace. 6. Can be owned by sole trader but must be used in his trade; 7. Can be owned by individual partner but must be used in partnership trade; 8. Can be owned by partnership but must be used in partnership trade; 9. Can be owned by individual shareholder (min. 5% ownership) but must be used in trade of the company;

10. Time limit must be reinvested within 1 year before or 3 years after of the time of the disposal of the asset; s152 (3) and 11. Company shares are NOT qualifying assets for relief (partnership shares do apply). Application 1. Cannot use annual exemption. 2. Roll over until asset is disposed of. 3. Tax deferred 4. Gain is deducted from acquisition cost of replacement asset 5. Company must declare in its tax return that it will be reinvesting in qualifying assets (s153A(1)). ii. Exemption of disposal of substantial shareholdings (TCGA 1992 Sch 7AC) Disposal of shares from another company Both companies must be trading companies Disposing company must own at least 10% for at least 12 months. 3 Calculate total profits, apply reliefs available against total profits a. Income profits and capital gains added b. Reliefs: i. Qualifying donations to charity CTA 2010 ss189-217 Donations to charity meeting part 6 of CTA 2010 deductable. ii. Trading loss relief against total profits the 3 below can be used in combination: Carry back of terminal trading losses s39 CTA 2010 1. When company ceases to carry on trade 2. Loss must occur in the final 12 months of trading. 3. Set against the previous profits of the same trade for past 3 years, taking later profits first. 4. Must be within made within 2 years of the end of accounting period where loss was incurred. Carry across/back s37-38 CTA 2010 1. Carry across and set against profits and capital gains from same accounting period. 2. Carry back and set against profits from 12 months prior. 3. Can do in any order 4. Must be made within 2 years of the loss 5. Cash flow benefit Carry forward s45 CTA 2010 1. Must start to use within 4 years of loss 2. Can be used indefinitely 3. ONLY against profit 4. No cash flow benefit but remaining amount may be taxed at a lower rate. Good will and intellectual property 1. intangible fixed assets capital in nature, taxed as part of company income profit/loss 2. Expenditure deductable from income profits 3. Profit of disposal is rolled over Dividends 1. When paid by a company, not deductable s1305 CTA 2009 4 Calculate the tax CTA 2009 part 2 and CTA 2010 part 2 and 3 a. Small profit rate - 0 300,000 20% b. Marginal rate above 300,000 under 1,500,000 25% c. Main rate 0 above 1,500,000 ALL is charged at 24%

Notification to HMRC and payment a. S55 of Finance Act 2004 company to inform HMRC via writing about beginning of first accounting period. b. S59D TMA 1970 tax due by self assessment by 9 months and 1 day from end of accounting period. c. S59E TMA 1970 large companys pay in 4 instalments (profit of 1.5 mil) st i. 1 6 months and 13 days after the START of the accounting period. ii. 3 months after. iii. 3 months after. iv. 3 months and 14 days after END of accounting period.