ACCA Applied Skills · Taxation (UK)

Chargeable gains for companies: formula sheet

Full chapter guide

Key formulas

Chargeable gain: Unindexed gain = Disposal proceeds − Incidental costs of disposal − Allowable cost − Enhancement expenditure; Allowable cost includes incidental costs of acquisition. This is the gain before indexation allowance. If it is negative, it is a capital loss and no indexation is deducted.
Indexation allowance: Indexation allowance = Indexed expenditure × Indexation factor (to 3 decimal places); The factor runs from the date of the expenditure to the earlier of disposal and December 2017. Chargeable gain = Unindexed gain − Indexation allowance, but the allowance cannot turn a gain into a loss or increase a loss.
Net chargeable gains for the period: Net chargeable gains = Total gains − Current period allowable losses − Losses brought forward; Capital losses of a company are set only against chargeable gains, never against trading profits.
Corporation tax on gains: Gains are added to total profits and taxed at the corporation tax rates; Small profits rate 19%, main rate 25%, with marginal relief between £50,000 and £250,000 of augmented profits, assuming one company with no associates and a 12-month period.
Company vs individual: Company: no annual exempt amount, no 18%/24% CGT rates; The £3,000 annual exempt amount and the CGT rates apply to individuals only.
Indexation factor: (RPI in month of disposal or December 2017, if earlier − RPI in month of acquisition) ÷ RPI in month of acquisition; Round to three decimal places. In the exam the factor is usually given. The end date is the earlier of the disposal month and December 2017.
Indexation allowance: Indexation allowance = allowable cost × indexation factor; If there is enhancement expenditure, index each item of expenditure from the month it was incurred.
Company chargeable gain: Proceeds − incidental costs of disposal − cost − enhancement expenditure = unindexed gain; then unindexed gain − indexation allowance, but not below nil; Indexation allowance is limited to the unindexed gain.
Loss rule: Indexation allowance cannot create or increase an allowable loss; If the unindexed figure is a loss, no indexation is given and the loss stands.
Freeze: No indexation after December 2017; Assets acquired after December 2017 get no indexation allowance.
Part disposal cost: Allowable cost = Total cost × A ÷ (A + B); A = proceeds of the part sold. B = market value of the part retained at the date of sale. Use gross proceeds for A.
Chattel gain exemption: Proceeds ≤ £6,000: gain is exempt; Applies to non-wasting chattels. The cost does not affect the gain exemption. A loss is still allowable, subject to the deemed proceeds rule below.
Chattel marginal relief: Maximum gain = 5/3 × (Proceeds − £6,000); Where proceeds exceed £6,000 and there is a gain, the gain is the lower of this and the normal gain.
Chattel loss restriction: Where proceeds < £6,000 and cost > £6,000, use deemed proceeds = £6,000; The allowable loss is cost less £6,000, after any selling costs.
Wasting chattel: Expected life ≤ 50 years: exempt; Not exempt if the asset qualifies for capital allowances.
Cost carried forward: Cost of part retained = Total cost − cost used in the part disposal; Use this when the retained part is sold later.
Matching order for companies: Same day → previous 9 days (earliest first) → share pool; Use this order for every disposal of shares in the same class of the same company.
Gain on shares: Gain = Proceeds − Allowable cost (− indexation allowance, where it applies); Indexation allowance is available only up to December 2017, and the factors are given in the question. A gain cannot be turned into a loss by indexation.
Cost from the share pool: Cost = Total pool cost × Shares sold ÷ Shares in pool; Do this on the pool balance immediately before the sale. Carry forward the remaining shares and cost.
Bonus issue: Add new shares to the pool at nil cost; Total cost is unchanged. Cost per share falls.
Rights issue: Add new shares and the amount paid to the pool; Not a disposal. Do not treat it as a bonus issue.
Substantial shareholding exemption: Holding ≥ 10% of ordinary share capital for 12 months in the previous 6 years, plus the investee is a trading company or trading group holding company; If it applies, the gain is exempt and a loss is not allowable.
Net gains in the period: Net chargeable gain = Chargeable gains − Allowable losses of the same period; Do this first. Only a positive result is included in profits.
Net loss in the period: Net allowable loss for the period → carried forward; If losses exceed gains, no gain is taxed and the excess is carried forward.
Use of brought-forward losses: Gain taxable = Net gains of the period − Capital losses brought forward; Brought-forward losses are set against net gains of the period in full, down to nil. They cannot go below nil.
Restriction on set-off: Capital losses can be set only against chargeable gains, not income; Never deduct them from trading profit, property income or interest.
Taxable total profits: Taxable total profits = Trading profits + other income + net chargeable gains − qualifying charitable donations; Net chargeable gains join profits and are taxed at the corporation tax rate, with no separate rate.
Immediate gain with partial reinvestment: Gain taxable now = the lower of (a) the full gain and (b) proceeds not reinvested (proceeds – amount reinvested); The rest of the gain, which is the gain less the amount taxed now, can be rolled over.
Gain rolled over: Gain rolled over = total gain – gain taxable now; Only the part of the gain the company claims to roll over is deducted from cost.
Base cost of non-depreciating replacement asset: Base cost = actual cost of new asset – gain rolled over; The gain is deducted from the cost, so a later disposal produces a bigger gain.
Time limit for reinvestment: Acquire new asset from 1 year before to 3 years after the date of disposal of the old asset; Count the window from the disposal date. The company must make a claim.
Depreciating asset holdover: Held-over gain taxed on the earliest of: disposal of the depreciating asset; it ceasing to be used in the trade; 10 years after acquiring it; The cost of the depreciating asset is not reduced. The gain is deferred and not deducted from cost.
Qualifying classes: Land and buildings; fixed plant and machinery; goodwill; used in the trade; Old and new assets need not be in the same class.
75% group test: Group = principal company + its 75% subsidiaries (direct or indirect), with an effective interest of more than 50% in each; Check the ordinary share capital held at each level of the chain before assuming a company is in the group. Each link in a chain must be a 75% subsidiary.
No gain/no loss transfer: Transfer value = original cost of the transferor (plus any enhancement expenditure); Applies automatically between group members. The transferee inherits the original cost and base date.
Degrouping charge: Gain = market value at the date the company acquired the asset (the intra-group transfer date) − group cost; added to the share sale proceeds of the company selling the shares in the company that leaves; Arises when the company leaves the group within six years of the intra-group transfer while still owning the asset. If the substantial shareholding exemption applies to the share sale, it can exempt the combined gain.
Joint election to transfer a gain or loss: Joint election between two group companies; made within two years of the end of the accounting period of the disposal; The gain or loss is treated as realised by the other company. Both companies must sign the election. It lets you match gains with losses or use unused capital losses. Rates differ only through marginal relief.
Group rollover relief: Gain immediately chargeable = lower of the gain and the proceeds not reinvested (proceeds − cost of replacement); gain rolled over = gain − the proceeds not reinvested; Replacement within one year before to three years after the disposal. Assets must be qualifying business assets in the group's trades.
Corporation tax rates for gains (FY2025): Small profits rate 19%; main rate 25%; limits £50,000 and £250,000; Gains form part of taxable total profits, so marginal relief may apply to the profits.
Plant and machinery disposal: Pool proceeds deducted = lower of sale proceeds and original cost; A balancing charge or allowance is a trading profit item, not a gain. After a balancing charge the pool is nil, so there is no writing down allowance.
Gain on plant sold above cost: Chargeable gain = Proceeds − Cost (less any incidental costs and enhancement allowed under normal rules), then apply the chattels rules; Only arises where proceeds exceed cost. A chattel sold for £6,000 or less is exempt. Above £6,000 the gain is capped at 5/3 × (proceeds − £6,000). A wasting chattel is normally exempt, but not plant used in the trade that qualified for capital allowances.
Capital allowance rates: Main pool 18%; special rate pool 6%; AIA 100% up to £1,000,000; Rates are given in the exam. Know which pool an asset belongs to.
Enhanced allowances for companies: Main pool FYA 100%; special rate pool FYA 50%; Available to companies on qualifying new expenditure. The special rate FYA leaves the remaining balance in the special rate pool.
Structures and buildings allowance: SBA = 3% × qualifying cost, each year (straight line); The seller has no balancing adjustment. The buyer continues the allowances over the remaining period on the original qualifying cost. SBA claimed reduces the seller's allowable cost, which increases the gain.
Balancing adjustment: Pool tax written down value − proceeds (limited to cost): positive = balancing allowance (main and special rate pools only if the trade ceases), negative = balancing charge; A negative result is a balancing charge whether or not the trade continues, and leaves the pool nil with no writing down allowance. A positive balance in the main or special rate pool is a balancing allowance only when the trade ceases. Otherwise it is carried forward and receives writing down allowance. Single-asset pools, such as a short life asset, are an exception.

Quick revision

Companies pay corporation tax on chargeable gains; there is no annual exempt amount and no CGT rate.
Gain layout: proceeds, less cost, less indexation allowance, equals chargeable gain.
Indexation factor is rounded to three decimals and runs only to December 2017.
Indexation cannot create a loss or increase a loss.
Part disposal cost = total cost × A ÷ (A + B).
Chattel sold for £6,000 or less: any gain is exempt. If proceeds are over £6,000, the gain is capped at 5/3 × (proceeds − £6,000).
Chattel sold for under £6,000 at a loss (cost over £6,000): proceeds are deemed to be £6,000, which restricts the loss. Wasting chattels (life of 50 years or less) are exempt.
Share matching order for companies: same day, previous nine days, then the pool.
Capital losses are set against gains only, never against income, and are carried forward if unused.
Rollover relief defers the gain by reducing the cost of the replacement asset; any proceeds not reinvested are taxed now.
Rollover relief needs the replacement bought within one year before and three years after the disposal.
Transfers between companies in a gains group are on a no gain no loss basis.
Plant sold above cost gives a gain on the excess over cost; capital allowances take proceeds capped at cost.
Corporation tax rates provided: small profits 19%, main 25%, with limits £50,000 and £250,000.

Common mistakes

Deducting the £3,000 annual exempt amount from a company's gain Fix: Ask yourself who the taxpayer is. A company has no annual exempt amount.
Charging the gain at 18% or 24% Fix: Add the gain to total profits and use corporation tax rates: 19% small profits, 25% main, or marginal relief.
Indexing right up to the date of sale when the sale is after December 2017 Fix: Stop the indexation period at December 2017 for any disposal after that date. Use the factor given.
Using indexation to turn a gain into a loss Fix: Cap the allowance at the unindexed gain. The chargeable gain cannot be below nil.
Using the market value of the part sold as B, or the total value as B Fix: A is what you sold. B is what you kept. The denominator A + B is the value of the whole asset before sale.
Deducting the whole cost on a part disposal Fix: Always apportion. Only the part of the cost matching the part sold is deducted. The rest carries forward.
Using the individual's 30-day rule or the 10-day wording for a company. Fix: For a company, match the same day, then the previous nine days, then the pool.
Treating a rights issue as a bonus issue and adding no cost. Fix: A bonus issue is free. A rights issue is paid for, so add the amount paid to pool cost.
Setting a capital loss against trading profit Fix: Remember that a capital loss only reduces chargeable gains. Check the word capital before you deduct.
Carrying a current-period loss back to an earlier period Fix: A capital loss is only used against gains of the same period or carried forward.

Exam tips

Read the first line to confirm the taxpayer is a company. Then drop the annual exempt amount and CGT rates at once.
Set out the computation in the order proceeds, costs, enhancement, indexation. Each line earns a mark in a written answer.
In objective tests, watch for distractors that include £3,000 or 24% as wrong options.
Always include the gain in profits before checking the £50,000 and £250,000 limits. A gain can push the company into marginal relief or the main rate.
Deduct indexation allowance for a company, using the factor given. Stop it at the date of December 2017, and never let it create or increase a loss.
Read the purchase date first. If it is after December 2017, there is no indexation allowance.
The question normally gives the indexation factor. Use it as given and do not recalculate it.
Show the unindexed gain as a separate line. Markers look for it before the loss rule is applied.