Corporation tax: the scope of corporation tax, including close companies and investment companies: formula sheet

Key formulas

Residence of a company

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

Treaty tie-breaker rules may apply to a company that is resident in two countries.

Maximum length of a CAP

CAP ≤ 12 months

A longer period of account is split into a 12-month CAP and a CAP for the remainder.

Time apportionment of trading profit

Profit for CAP = Profit for period × months in CAP ÷ months in period

Apply this to adjusted trading profit before capital allowances. Work to the nearest month.

Capital allowances and gains

Capital allowances: computed separately for each CAP. Chargeable gains: taxed in the CAP of the disposal.

Do not time apportion these two items.

Rates and thresholds in the tax tables

Small profits rate 19% | Main rate 25% | Lower limit £50,000 | Upper limit £250,000 | Standard fraction 3/200

Marginal relief = (Upper limit − Augmented profits) × Standard fraction × Taxable total profits ÷ Augmented profits.

Quarterly instalments

Profit threshold £1,500,000

Large companies pay by instalments. The limits are reduced for short periods and for associated companies.

Adjusted trading profit

Accounting profit + disallowable expenses − non-trade income and capital profits − capital allowances (+ balancing charges)

Capital allowances are deducted last. Balancing charges are added.

Writing down allowance rates

Main pool 18%; special rate pool 6%

Applied to the pool balance after additions without first-year allowances and after disposals. Reducing balance method.

Annual investment allowance

100% on qualifying spend up to £1,000,000 per period

Not available on cars. Reduce the limit for short periods and share it between associated companies as the rules require.

Enhanced allowances for companies

Main pool first-year allowance 100% (full expensing); special rate pool first-year allowance 50%

For new qualifying plant. Cars are excluded from these. Check the asset is new and not leased out.

Cars

New zero-emission car 100%; second-hand zero-emission 18%; CO2 1 to 50 g/km 18%; over 50 g/km 6%

The allowance given is a writing down rate that places the car in a pool, except the 100% for new zero-emission cars.

Structures and buildings allowance

Annual allowance = 3% × qualifying cost (straight line)

Time-apportion for periods that are not 12 months. Land and residential property do not qualify.

Short or long accounting period

WDA = rate × months ÷ 12

Also reduce the AIA limit by months ÷ 12.

Pool balance carried forward

TWDV b/f + additions (without FYA) − disposal proceeds (capped at cost) − WDA = TWDV c/f

A negative balance after disposals gives a balancing charge.

Close company: control test

Close if UK resident and controlled by ≤ 5 participators, or by participators who are directors

Control means more than 50% of share capital, votes, income or assets on winding up. Add the rights of associates.

Exclusions from close status

Not close if controlled by a non-close company (unless it would be close through director-participators), or listed with ≥ 35% of votes held by the public and principal members holding ≤ 85% of votes

The close company rules for corporation tax apply only to UK resident companies. Both the 35% public holding and the 85% principal members limit must be met.

s455 tax on loan to participator

s455 tax = loan outstanding × 33.75%

The rate equals the higher dividend rate in the tax tables. Due 9 months and 1 day after the end of the accounting period of the loan.

Relief when loan is repaid or written off

Repayment of tax = amount repaid or written off × 33.75%

Repayable 9 months and 1 day after the end of the accounting period in which the repayment or write-off occurs.

Anti-avoidance for repayments

Repayment of £5,000 or more followed by a new loan of £5,000 or more within 30 days may be matched. Repayments over £15,000 with arrangements to re-borrow are matched whatever the gap.

The 30-day matching rule applies where the repayment and the new loan are each £5,000 or more. Separately, the 'bed and breakfasting' rule applies where repayments exceed £15,000 and there are arrangements to re-borrow, with no 30-day limit. Check the facts carefully.

Exception for small loans

No s455 charge if loan ≤ £15,000, borrower is a full-time working director or employee, and owns ≤ 5% of ordinary share capital

Loans made in the ordinary course of a money-lending business are also outside the charge.

Benefit to participator (non-employee)

Distribution = cost to company − amount made good

No deduction for the company. Taxed on the participator as dividend income.

CIC corporation tax rate

Taxable total profits × 25%

No small profits rate and no marginal relief.

Taxable total profits

Property income + non-trading loan relationship credits + chargeable gains − management expenses − loss reliefs

Dividends from UK companies are normally exempt and excluded from taxable total profits, but are included in augmented profits for the limits.

Management expenses

Deduct from total profits of the period; excess carried forward as management expenses of the next period

Only revenue expenses of an investment business. Do not double count costs already deducted in the property business computation.

UK property business loss relief

Set against total profits of the same period; unused loss carried forward against total profits of later periods

Check the exact options for the company's circumstances when answering. Carried-forward relief may be restricted by the company's loss rules for large profits.

Rates for the financial year 2025

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

These are given in the tax tables.

Marginal relief

(Upper limit − Augmented profits) × Standard fraction × Taxable total profits ÷ Augmented profits, with standard fraction 3/200

Applies where augmented profits lie between the lower and upper limits. Limits are reduced for associated companies and short periods.

Interest on underpaid corporation tax

Tax paid late × 8.50% × months (or days ÷ 365) late

Runs from the due date to the date of payment. Use the rate given in the tax tables.

Interest on overpaid corporation tax

Overpayment × 3.50% × time overpaid

HMRC pays this to the company. It is taxable income of the company.

Official rate of interest

Loan × 3.75% × time outstanding

Used to measure the benefit from a cheap or interest-free loan. It is not an HMRC interest charge on tax.

Tax charge on loans to participators

Loan outstanding nine months and one day after the period end × 33.75%

The dividend higher rate. Paid by the close company, not the participator. No charge on loans of £15,000 or less to full-time working participators with no more than 5% of the shares.

Due date for the loan charge

Accounting period end + 9 months + 1 day

Repayment before this date means no charge arises for that amount.

Refund date on repayment

End of the accounting period of repayment + 9 months + 1 day

Relief is repayment × 33.75%.

Normal corporation tax due date

Accounting period end + 9 months + 1 day

Large companies with profits above £1,500,000 pay by quarterly instalments.

Quick revision

• Companies are charged on worldwide profits if UK resident; a chargeable accounting period never exceeds 12 months.
• A period over 12 months splits into a first 12 months and the remainder.
• Rates for financial years 2023 to 2025: small profits rate 19%, main rate 25%.
• Limits: lower £50,000, upper £250,000. Reduce for short periods and divide by one plus associated companies.
• Marginal relief = (Upper limit – Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits.
• Quarterly instalments apply to large companies with profits above £1,500,000. The tables give only this threshold; the rest of this point comes from the legislation. Reduce the threshold for short periods and divide by one plus associated companies. Large companies (£1.5m to £20m, limits similarly reduced) pay in months 7, 10, 13 and 16 after the period starts. Very large companies (over £20m, similarly reduced) pay in months 3, 6, 9 and 12. In its first year a company is large if profits exceed £1.5m (reduced for associates), but is very large only if profits exceed £10m (also reduced for associates).
• Capital allowances: AIA £1,000,000 at 100%, main pool 18%, special rate pool 6%, SBA 3% straight line.
• First year allowances for companies: 100% main pool, 50% special rate pool; new zero-emission cars 100%.
• Cars: 1 to 50 g/km 18%; over 50 g/km 6%; second-hand zero-emission 18%.
• A close company is generally controlled by five or fewer participators, or by any number of participators who are directors. There is also an alternative test based on entitlement to assets on a winding up.
• Under the legislation (not shown in the tables), a close investment-holding company is not entitled to the small profits rate.
• Interest rates in the tables: 8.50% on underpaid tax, 3.50% on overpaid tax, 3.75% official rate.

Common mistakes

• Treating a company as non-resident because it is incorporated abroad. Fix: Always test central management and control. If the directors take the key decisions in the UK, the company is UK resident.
• Allowing a CAP longer than 12 months. Fix: Split it into a 12-month CAP and a 3-month CAP.
• Claiming AIA or full expensing on a car Fix: Put cars in the pool at 18% or 6% according to CO2, unless it is a new zero-emission car, which gets 100%.
• Adding back depreciation but forgetting to deduct the profit on sale of assets Fix: Scan the accounts for any gain on disposals and for interest received. Remove both from trading profit.
• Counting only the individual's own shares when testing control Fix: Always add spouse, parents, children, siblings, partners and trustees' holdings before testing the 50% limit.
• Treating aunts, cousins or in-laws as associates Fix: Remember the list: spouse or civil partner, ancestors, descendants, siblings, partners, trustees. Nobody else.
• Deducting management expenses in the property business computation. Fix: Show management expenses as a deduction from total profits only. Property business deductions are separate costs of letting.
• Including UK dividends in taxable total profits. Fix: Exclude them from taxable total profits. Add them back only when computing augmented profits for the limits.
• Using the official rate of 3.75% to calculate interest on late-paid corporation tax. Fix: Use 8.50% for underpaid tax and 3.50% for overpaid tax. Use 3.75% only to value a cheap loan benefit.
• Charging the loan charge at the corporation tax rate. Fix: The charge on loans to participators is 33.75%, the dividend higher rate. It is a separate charge on the loan, not on profits.

Exam tips

• Write the residence conclusion first and give the reason in one sentence. Marks go for applying the test to the facts.
• If the accounts are for more than 12 months, draw the timeline before doing numbers. It shows the split clearly.
• State clearly that capital allowances are computed for each CAP and not time apportioned.
• Remember that the limits of £50,000 and £250,000 are reduced for short periods. Show this adjustment in the workings.
• Add one line of professional advice where the facts allow, for example a change in the place of board meetings.
• Show the adjustment of profit as a list with a reason beside each item. Markers give marks for each correct treatment, including 'no adjustment'.
• Always check the length of the accounting period first. Short periods change both the WDA and the AIA limit.
• If the question asks which relief to claim, compare AIA, full expensing and the 50% allowance. Say which asset each applies to and why.