Computation of Corporation Tax liability notes PDF

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Notes on Computation of Corporation Tax liability...

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Computation of Corporation Tax liability Calculated separately for each accounting period using appropriate rates The rates of corporation tax – fixed for financial year - Financial year runs from 1 April to following 31 March - Identified by calendar year in which it begins Eg Financial year 2017 runs from 1 April 2017 to 31 March 2018  

1. Year ended 31/3/18 – concedes exactly with FY2017 2. 9 months ended 31/1/18 ie 1/5/17 – 31/1/18 – all within FY2017 3. Year ended 30/11/17ie 1/12/16 – 30/11/17 Rates of Corporation tax For FY2105,FY2016 and FY2017, one rate of corporation tax Main Rate FY 2015 20% FY 2016 20% FY 2017 19% FY 2018 19% Accounting period straddling 31 March  If accounting period straddles 31 March, two FY’s are involved  Corporation tax liability must be calculated in two parts Produces - Calculate taxable total profits (TTP) for accounting period as normal - Time apportion taxable total profits as whole in months between two FY’s involved - Apply appropriate rate to relevant taxable total profits Short accounting periods  If entire accounting period within FY2017 then does not make any difference  If accounting period straddles 31 March - Two FY’s are involved - As before, corporation tax liability must be calculated in two parts Long periods of account Produces  Split into accounting periods  Calculate TTP for each accounting period as before  Having calculated TTP for each accounting period, then need to compute corporation tax liability separately for each accounting period Ie calculate separate corporation tax liability for 12 month accounting period and for short accounting period

Payment of Corporation tax Due Date  For most companies, nine months and one day after the end of the accounting period Note – if accounting period straddles 2 financial years still only one payment date Long periods of account When company prepares accounts for a period exceeding 12 months, this is split into 2 accounting periods – separate payment date for each accounting period

Quarterly instalment payments  Large companies normally have to pay corporation tax due in quarterly instalments  Broadly, large company is one whose augmented profits (taxable total profits plus dividends received) exceed £1.5 million  Four quarterly inslments are made in months 7, 10, 13 and 16 following start of accounting period  Instalments are due on 14th of relevant month See example 4 – Melville p289 Self-assessment for companies  Similar to income tax self-assessment  Companies work out own corporation tax liability and make payments by due date  Interest runs from due date on any tax paid late. Similarly, any repayment of tax attracts interest from original payment date  Interest on tax paid late/interest received on overpaid corporation tax treated as nontrade loan relationship  HMRC issue official notice requiring company to make self-assessment tax return  Making tax digital – online digital tax accounting from April 2020 - Replace corporation tax return - Generally companies will make quarterly updates  Companies normally required to submit its tax return within 12 months after end of accounting period - Online filing compulsory - Must also submit accounts and computation of corporation tax liability for AP  Penalties for late submission Accounting for income tax deducted at source  Certain payments made by companies made net of basic rate income tax  Payments mainly patent royalties paid to individual and loan interest paid to individuals  Company must account for these on quarterly basis using form CT61 and make payment to HMRC of tax deducted at source  Tax relief then given for gross amount of payments under appropriate heading  Rarely a company may receive income net of basic rate of tax eg patent royalties received from individual. Tax suffered reclaimed by company...