Corporation tax: the comprehensive calculation of the corporation tax liability, including overseas aspects: formula sheet

Key formulas

Small profits rate and main rate

19% if augmented profits ≤ £50,000; 25% if augmented profits ≥ £250,000

Limits are for a 12-month period with no associated companies. Rates apply to financial years 2023, 2024 and 2025.

Marginal relief

(Upper limit − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits

Use when augmented profits fall between the lower and upper limits. Deduct from tax at 25% on taxable total profits.

Adjusted limits

Limit ÷ (1 + number of associated companies) × months ÷ 12

Applies to lower limit, upper limit and the £1,500,000 instalment threshold.

Augmented profits

Taxable total profits + exempt distributions received from non-group companies

Dividends from group companies are excluded. Use augmented profits to test the limits, in the marginal relief formula and for the instalment test.

Quarterly instalments: large company

Augmented profits > £1,500,000 (adjusted for associates and period length)

Instalments are due on the 14th day of months 7, 10, 13 and 16 from the start of a 12-month period (i.e. six, nine, twelve and fifteen months after the start of the period). Very large companies pay on the 14th day of months 3, 6, 9 and 12. The very large threshold is £20,000,000 divided by the number of associated companies plus one, adjusted for period length. The tax tables give only the £1,500,000 figure, so learn the £20,000,000 threshold and the dates from the legislation. Check the facts about the company's status in the question.

Taxable total profits

TTP = trading profit + property income + non-trading loan relationship income + chargeable gains − current-period and brought-forward loss reliefs − qualifying charitable donations

Show each source on its own line. Losses and donations are deducted from total profits, in the order the question requires.

Adjusted trading profit

Accounting profit + disallowable expenditure − non-trading income and gains credited − capital allowances (or + balancing charges)

Capital allowances are a deduction. Add back depreciation and any capital items charged in the accounts.

Augmented profits

Augmented profits = TTP + exempt dividends from non-associated companies

Used to test the corporation tax limits. Exempt dividends from 51% subsidiaries are not included.

Marginal relief

(£250,000 − augmented profits) × 3/200 × TTP ÷ augmented profits

Applies where augmented profits are between £50,000 and £250,000. Small profits rate is 19% and main rate is 25%. Limits are divided by associated companies plus one and time-apportioned for short periods.

Current period claim

Loss set against total profits of the same accounting period

Made before any carry back. Not limited to trading profits.

Carry back (non-terminal)

Loss left after current claim → total profits of the previous 12 months

Needs a current period claim first, which may be for the full amount of the available profits.

Terminal loss carry back

Loss of the last 12 months of trading → total profits of the previous 3 years, latest first

Only on cessation of trade. Check that the loss arises in the final 12 months.

Carry forward

Unrelieved loss → future profits of the company

Used automatically against later profits unless other claims apply. Limits can apply on large profits.

Group relief

Surrenderable loss = lower of surrendering company's loss and claimant's profits for the matching period

Applies between members of a 75% group. Periods must be matched, and the claimant's profits are limited to the overlap.

Marginal relief

(£250,000 − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits

Use to check the effective tax rate on profits between £50,000 and £250,000.

Unindexed gain

Disposal proceeds − incidental selling costs − allowable cost (including incidental acquisition costs and enhancement expenditure)

Use net proceeds. Deduct enhancement expenditure that is reflected in the asset when sold.

Indexation factor

(RPI for December 2017 − RPI for month of acquisition) ÷ RPI for month of acquisition

Round to three decimal places. The exam normally gives the factor or the RPI figures. For assets held at March 1982, the start point is March 1982.

Indexation allowance

Cost × indexation factor, limited to the unindexed gain

Frozen at December 2017. It cannot create or increase a loss. Expenditure after December 2017 gets no indexation.

Chargeable gain

Unindexed gain − indexation allowance

Added to the company's profits and taxed at corporation tax rates, not CGT rates.

Corporation tax rates

Small profits rate 19%; main rate 25%; lower limit £50,000; upper limit £250,000

Marginal relief = (Upper limit − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits. Limits are reduced for associated companies and short accounting periods.

SSE conditions

Holding ≥ 10% of ordinary share capital, held for 12 months continuously in the 6 years before disposal, investee a trading company or trading group member

If SSE applies the gain is exempt and losses are not allowable. Test the investee's status throughout the period and immediately after the sale.

Rollover relief: partial reinvestment

Gain immediately chargeable = lower of (gain) and (proceeds not reinvested); Deferred gain = Gain − gain immediately chargeable

Replacement window: 12 months before to 36 months after disposal. Base cost of new asset = cost of new asset − deferred gain.

Depreciating asset deferral

Held-over gain becomes chargeable on the earliest of: sale of the new asset, it ceasing to be used in the trade, or 10 years after acquisition

Applies to assets such as fixed plant and machinery with a life of 60 years or less. The gain is not deducted from the new asset's cost.

Loss relief group test

Parent holds ≥ 75% of ordinary share capital, ≥ 75% of profits available for distribution and ≥ 75% of assets on winding up

The same tests apply for sister companies through a common parent. Check indirect holdings carefully.

Group relief limit

Relief claimed ≤ lower of (surrendering company's available loss, claimant's taxable total profits) for the overlapping period

Time-apportion for non-matching accounting periods. Apportion both the loss and the profits.

Gains group test

Principal company holds ≥ 75% of ordinary share capital of subsidiary; indirect subsidiaries also need principal company's effective holding > 50%

Ordinary share capital only. No profits or assets entitlement test.

Transfer within a gains group

Transfer value = transferor's cost + indexation allowance up to December 2017 (if any) → no gain, no loss

The transferee takes the asset at that value and is taxed only on a sale outside the group. An asset bought after December 2017 has no indexation.

Stamp duty land tax (non-residential)

0% to £150,000; 2% on £150,001 to £250,000; 5% above £250,000

Marginal slices. Use only if no group relief applies.

Stamp duty on shares

0.5% of consideration

Group relief can remove it for qualifying intra-group transfers.

Consortium relief

Consortium company's loss claimed by a member ≤ lower of (loss × member's percentage holding, member's available profits). Member's loss surrendered to the consortium company ≤ lower of (member's loss, consortium company's profits × member's percentage holding)

Consortium company: at least 75% owned by companies, each holding at least 5%. Not a 75% group test. A link company can pass relief to its group.

Company residence

UK resident if incorporated in the UK, or if central management and control is in the UK

Check both tests. A foreign-incorporated company can still be UK resident.

DTR credit

Credit = lower of (overseas tax suffered) and (UK corporation tax on the overseas income)

Excess overseas tax is not refunded and is not carried forward, in the usual exam treatment.

UK tax on overseas income

UK tax on overseas income = gross overseas income × UK corporation tax rate applying to the company

Use the gross figure before withholding tax. Use 19%, 25% or the marginal rate as the facts require.

Corporation tax rates (FY2023 to FY2025)

Small profits rate 19% up to £50,000; main rate 25% above £250,000; marginal relief between

Marginal relief = (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits. Limits are shared among associated companies.

Net amount received after withholding tax

Gross income − withholding tax = cash received

The UK taxes the gross amount. Gross up cash received if only the net figure is given.

Normal payment date

Accounting period end + 9 months + 1 day

Applies to companies that are not large. Year to 31 March 2026 is due 1 January 2027.

Filing deadline

12 months after the end of the accounting period

Or three months after the notice to file if that is later. Learn this, it is not in the tax tables.

Large company threshold

£1,500,000 ÷ (1 + number of associated companies)

Profits above this level mean quarterly instalments. Time-apportion for short periods. Check the exceptions in your notes.

Interest on underpaid tax

Tax underpaid × 8.50% × days late ÷ 365

Rate given in the tax tables. Use months if the question works in months.

Interest on overpaid tax

Tax overpaid × 3.50% × period ÷ 12 months

Rate given in the tax tables. The interest received is taxable.

Standard error penalties

Careless: max 30%, min 0% unprompted, 15% prompted. Deliberate not concealed: max 70%, min 20% unprompted, 35% prompted. Deliberate and concealed: max 100%, min 30% unprompted, 50% prompted.

Applied to the potential lost revenue. All given in the tax tables.

Quick revision

• Small profits rate is 19% and main rate is 25% in the tables; limits are £50,000 and £250,000.
• Marginal relief applies when augmented profits fall between the lower and upper limits.
• Lower and upper limits are divided by the number of associated companies, and reduced for short periods.
• Taxable total profits come from trading, property, other income and chargeable gains, less reliefs and qualifying charitable donations.
• Choose between loss reliefs by comparing tax saved and timing.
• Group relief needs the right group relationship and can only be claimed within the allowed period of the loss.
• Gains groups allow tax-free transfers of assets and the option to elect which company bears a gain.
• Overseas rules depend on company residence; give relief for foreign tax as double tax relief.
• Quarterly instalments apply to large companies; the profit threshold in the tables is £1,500,000.
• Interest on underpaid tax is 8.50% and on overpaid tax 3.50% in the tables.
• Stamp duty on shares is 0.5% in the tables; check the non-residential SDLT bands there too.
• Always end with a clear recommendation and the reason for it.

Common mistakes

• Using the unadjusted £50,000 and £250,000 limits when the company has associates. Fix: Count associates before anything else and divide by the total number of companies, including the company itself.
• Using taxable total profits instead of augmented profits to test the limits. Fix: Always check whether the company received dividends from non-group companies and add them in.
• Leaving charitable donations in the trading expenses and deducting them again from total profits. Fix: Add it back in the trading adjustment. Then deduct it once as a qualifying charitable donation from total profits.
• Including interest received or rent in trading profit. Fix: Deduct them from the accounts profit and tax them under property income or loan relationship income.
• Claiming carry back without a current period claim Fix: Always show the current period claim first, then the carry back of the balance.
• Using the 12-month carry back for a terminal loss Fix: If the trade has ceased, apply the 3-year carry back, latest year first, using the loss of the last 12 months.
• Applying the CGT rates of 18% and 24% or the £3,000 annual exempt amount to a company. Fix: Write 'company = corporation tax' at the top of the answer. The gain is added to taxable total profits and taxed at 19%, 25% or with marginal relief.
• Indexing the cost up to the date of sale instead of December 2017. Fix: Always cut off indexation at December 2017. Use the factor given by the examiner. If none is given, use RPI for December 2017.
• Using the 50% or majority holding as the group test. Fix: Always write the 75% test in full and check ordinary share capital, profits and assets.
• Forgetting to time-apportion when periods do not match. Fix: Work out the overlapping months first and apportion both loss and profits.

Exam tips

• Write the adjusted limits at the top of the answer. Markers can then award marks even if later arithmetic slips.
• Always look for dividends received and for associated companies. Scenario questions hide these in the text.
• For short periods, state your time apportionment, for example 6 ÷ 12, so the marker can follow it.
• In advice questions, comment on the cash flow effect of instalments and on whether a group could manage profits across companies. Link to the client's position for professional skills marks.
• The tax tables give the rates, limits and formula. Use them, but learn the instalment dates because the tables do not give them.
• Always lay out the computation in columns by source of income. Marks are given for each correct heading and for correct treatment of each item.
• Add back donations and depreciation in the trading working. Examiners often include both and look for them.
• Where an item does not alter profit, say so briefly. A short note shows you considered it.