CHAPTER TWO
CORPORATION TAX COMPUTATIONS - A PRIMER
Executive Summary
A The taxable profits of a trading company are based on its accounts profits, with adjustments made for various factors.
B Some of the adjustments increase or decrease the effective rate of corporation tax and are known as absolute adjustments; other adjustments merely move taxable profits between different accounting periods. These are known as timing adjustments. C Corporation tax is based on financial years, which are years ended 31 March. Therefore the profits shown by the accounts which straddle this date have to be apportioned between the periods before and after 31 March. D A company is subject to tax on chargeable gains. Assets can be moved about within a 75% group on the basis of no gain and no loss. However this broad principle does not apply if an asset is moved into a company which then leaves the group within the following 6 years. In such a circumstance, the receiving company is subject to tax on the chargeable gain at the point that it leaves the group. This is one of the reasons why exchange and completion of the share transaction is included in the definition of an Event for which the Seller is potentially liable. E There are rules relating to the disallowance of tax losses carried forward if there is a major change in the nature or conduct of a trade within 3 years of a change of ownership. This is a matter concerning which both Buyer and Seller seek protection. F Corporation tax is normally payable 9 months and one day following the year end. However, for large companies there are instalment payments commencing just over 6 months after the start of the year with the tax liability fully payable by just over three months after the end of the year.
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