Corporation Tax

1. Calculating Taxable Profits

Tax is levied on all the profits made during an accounting period.

1.1 Profits can arise from several sources. They have to be calculated separately and totalled at the end.

• Trading profits - income from your company's trading activities, less allowable expenses.For example, if you run a manufacturing or service company, you will have to pay tax on the profits made from selling the goods or services, after allowing for labour, raw material costs, etc.
• Capital gains - the profits made from selling certain company assets.For example, if you make a profit from selling a factory, it will be taxable unless you reinvest the money (see 5.3).
• Income from letting out land or buildings.
• Interest on any money held on deposit.Unlike individuals, companies generally receive interest without tax having been deducted.
• Most other forms of income or capital gain. For example, any profits made on currency movements.

1.2 Companies are taxed on the profits made in an accounting period - normally their financial year.

• The end of an accounting period can also be triggered by the company going into liquidation or ceasing to trade.
• Tax rates are set for the tax year, which (for corporation tax purposes) runs from 1 April to 31 March.
• Where the company's accounting period and the tax year do not coincide, the profits must be time-apportioned to decide which rate should apply.

1.3 The geographical basis for the tax charge depends on where the company is resident for tax purposes.

• Companies resident in the UK pay corporation tax on their worldwide profits.
• Companies resident elsewhere normally pay corporation tax only on their profits from a UK branch or agency. Non-UK profits are generally taxed (often at higher rates) elsewhere.