This revision document is for the core Taxation unit featured on the LPC. It is a comprehensive step-by-step guide, which allows you to tackle a Corporation Tax calculation. This revision manual strives to offer notes that are both clear and useful. Given that they summarise important subject areas...
- Charged on profits of an income and capital nature, made by a company in its chosen
accounting period.
- Company = anybody corporate or unincorporated association. Does not include
partnerships.
- Income profits = calculated using principle of income tax.
- Capital profits = charge using principles of CGT.
- When both are combined = companies taxable profit.
- We are in Financial Year 2021 which runs 1 April to 31 March. Will be taxed at 19%
rate.
STEP 1
- IDENTIFY THE TRADING INCOME PROFIT = Trading profits (less deductions) + net
income from other sources.
- Trading profits = turnover.
1. Deduct expenditure which is of an income nature from the turnover( used wholly
and exclusively for the purpose of trade).
MINUS Stock (costs of good sold) = GROSS PROFIT
Rent being paid
Utility bills
Directors/employees’ salaries (unless excessive)
Termination payments to directors/employees
Interest payments on loans etc.
Contributions to company pension scheme.
- DO NOT DEDUCT – NOT ALLOWABLE
- Dividends paid to shareholders, capital expenditure on purchase of
equipment/machinery, business entertainment.
2. Deduct capital allowance = TRADING PROFIT
Capital allowances – plants/machinery
- Applies to one off payments. E.g. plant/machinery.
- If these capital purchases are made for business purposes a capital allowance maybe
deducted.
- The allowance varies 6%-100%. Depends on the cost of the item.
- Written down value = the cost of the asset with the capital allowance deducted.
First year allowance
- enhanced capital allowances = a type of FYA. (ONLY IF IT SAYS GREEN)
some cars with low CO2 emissions
energy saving equipment on the energy technology product list e.g. certain motors
water saving equipment on the water efficient technologies product list e.g. meters,
efficient toilets and taps
plant and machinery for gas refuelling stations e.g. storage tanks, pumps
gas, biogas and hydrogen refuelling equipment
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