Taxation of Companies and Corporate Groups
Core concepts
Companies are taxed on taxable profits = accounting profit adjusted for disallowable expenses and capital allowances, then taxed at the corporate rate (often a single rate, sometimes tiered for small companies). Candidates must handle loss relief (carry-forward, carry-back, group relief), dividend/participation exemptions, and transfer pricing within groups.
Group concepts: group relief (surrendering losses between qualifying members), capital gains group (assets transferred intra-group on a no-gain/no-loss basis), and consortium relief where ownership is shared. Understand the control and ownership thresholds (commonly 75% for group relief and capital gains groups; 51% for some definitions).
Traps to watch
- Disallowables: depreciation, entertaining, fines, and capital expenditure must be added back.
- Group relief requires matching accounting periods; losses are time-apportioned.
- Intra-group transfers defer, not eliminate, the gain; the base cost carries over.
- Thin capitalisation / interest limitation rules can restrict deductions on intra-group debt.
Rule of thumb
Start from accounting profit, add back disallowables, deduct capital allowances, then apply loss relief in the statutory order.
Worked example: Accounting profit 100,000; add back depreciation 20,000 and fines 5,000 → 125,000; deduct capital allowances 30,000 → taxable profit 95,000. Tax at 25% = 23,750.