Corporation tax
The computation
Corporation tax is charged on trading profits, property income, non-trading loan relationships and chargeable gains, computed under accounting principles and then adjusted for tax (disallowables such as depreciation and business entertaining; capital allowances instead). The main rate is 25% above £250,000 of augmented profits, 19% below £50,000, with marginal relief between, giving an effective 26.5% on the slice. Thresholds are divided by the number of associated companies.
Reliefs and losses
Trading losses can be carried back 12 months, set against total profits of the current year, carried forward against future total profits (with a £5m deductions allowance before the 50% restriction bites) or surrendered as group relief. Group relief requires 75% common ownership; consortium relief requires 75% owned by a consortium. Research and development relief, the patent box and creative sector reliefs all reduce the effective rate.
Close companies
Loans to participators attract a 33.75% charge under s455, repayable when the loan is repaid, and benefits to participators follow the employment income rules. Close investment-holding companies cannot use the small profits rate.
Traps
Using the wrong profit figure for marginal relief, forgetting associated companies, and ignoring the quarterly instalment regime, which applies to large companies based on augmented profits.
Worked example
Profits of £150,000, no associated companies. Tax at 25% is £37,500, less marginal relief of (£250,000 − £150,000) × 3/200 = £1,500, giving £36,000 - the same as £50,000 × 19% plus £100,000 × 26.5%.