Summary
Summary Corporation Tax calculation step-by-step guide
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- Institution
Full guide of how to do a corporation tax calculation, including the reliefs and exemptions that may be available.
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Corporation Tax & Company procedureStep 1: calculate income profits (trading income)
Chargeable receipts
Less
Deductible expenditure (IWEPT) income in nature, which is wholly and exclusively for
the purpose of trade which is not statutory barred.
Less
Deductible allowances (Plant and machinery at 18%, AIA 1 million) remaining
balance receives standard writing down allowance of 18%- times remaining by 18%
and deduct
Add in any additional income such as rental income
= Trading income
Step 2: Calculate chargeable gains
Disposal Value
Less
Incidental costs
Less
Acquisition cost
Less
Incidental cost
=Gain before indexation
Indexation factor (0.1) x to the initial costs incurred, acquisition and incidental- check facts
for indexation- applies to initial and subsequent expenditure but not purchase value
= deduct this from the gain before indexation
Apply reliefs to gains:
Roll over relief on the replacement of a qualifying business asset TCGA 152
- 159
Qualifying business assets:
- Land
-Buildings
Must be used in the company’s trade as opposed to being held as an investment
- Company shares are NOT qualifying assets
- Separate relief for goodwill
- Plant and machinery is qualifying but rare to produce a gain due to depreciation.
Time limits: the replacement either needs to be purchased one year before or within 3
years of the original disposal
The gain after indexation on the disposal will be deducted from the acquisition cost- and
the tax payable is postponed until the replacement is sold = DO NOT NEED TO PAY TAX
ON THE GAIN FOR THAT YEAR
Can keep rolling over as long as they keep reinvesting the gain.
= ROLLS OVER THE GAIN TO WHEN THE REPLACEMENT ASSET IS DISPOSED OF
( If the gain is £30,000 and replacement is £80,000 written down value is £50,000 but the
tax will be higher on the disposal).
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