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ACCA Applied Skills · Taxation (UK)

Chargeable Gains for Companies: How to Compute Them

Chargeable gains for companies are profits on disposing of capital assets, such as land or shares. You compute proceeds less cost, less indexation allowance (frozen at December 2017), then add the gain to taxable total profits. Companies pay corporation tax, not capital gains tax, and have no annual exempt amount.

What this chapter covers

This chapter shows how a company is taxed when it sells or otherwise disposes of a capital asset. The core layout is simple: proceeds, less allowable cost, less indexation allowance, equals the chargeable gain. The gain is then included in the company's taxable total profits and taxed at corporation tax rates. The rates and limits ACCA provides are 19% small profits rate, 25% main rate, with limits of £50,000 and £250,000 and marginal relief in between.

On top of the core layout sit the special rules. Part disposals and chattels change how cost and proceeds are treated. Shares use matching rules and a pool. Losses can only be set against gains. Rollover relief defers a gain when you reinvest in qualifying business assets. Group rules let companies move assets and gains around. Finally, you must see how capital allowances and gains interact on plant and machinery.

This chapter links directly to corporation tax. The gain is one component of taxable total profits, so it feeds the corporation tax computation, marginal relief and group questions elsewhere in the paper. It also contrasts with the individual chapters: individuals use capital gains tax rates of 18% and 24%, an annual exempt amount of £3,000 and business asset disposal relief at 14%. Companies use none of these. Keeping the two regimes apart is a key skill.

Chargeable gains appear in objective test questions, in OT cases and in the long corporation tax question in Section C, where a gain is often one line in a larger computation. The calculations are mechanical, so careful students can score reliably. Because objective questions are marked all or nothing, small slips such as using an individual's exemption or forgetting indexation cost the full mark. Learn the layout and the rules well and this becomes one of the safer chapters.

Chargeable gains for companies: topics in the order to study them

  1. 1Chargeable Gains for Companies: Basic ComputationEverything else builds on the proceeds, cost, indexation and gain layout, and on the fact that gains are taxed at corporation tax rates.
  2. 2Indexation Allowance for CompaniesIt is part of every company computation, so you need the factor, the December 2017 cut-off and the rule that it cannot create or increase a loss.
  3. 3Chargeable Gains: Part Disposals and ChattelsThese are variations on the basic computation and need only the cost apportionment and chattel limits.
  4. 4Chargeable Gains: Shares and SecuritiesMatching rules and the pool are the longest computations, so tackle them once the basics and indexation are secure.
  5. 5Chargeable Gains: Capital Losses and ReliefsOnce you can compute gains, you can learn how losses are used and which reliefs reduce or remove a gain.
  6. 6Rollover Relief for Replacement of Business AssetsIt needs a firm grasp of gains and proceeds, and it often interacts with partial reinvestment.
  7. 7Gains Within a Group of CompaniesGroup rules combine the earlier topics: no gain no loss transfers, elections and group rollover relief.
  8. 8Capital Allowances Interaction with Company DisposalsIt joins this chapter to plant and machinery, so it is best learned last as a check across both areas.

How to prepare Chargeable gains for companies

Work in layers. Master the basic layout first, then add one special rule at a time, and practise each in objective-test style and as part of a longer corporation tax answer.

  1. Learn the basic layout from memory: proceeds, less cost, less indexation allowance, equals chargeable gain. Practise until you never reach for the annual exempt amount or the CGT rates.
  2. Practise indexation: the factor is rounded to three decimals, it runs only up to December 2017 for assets held then, and it cannot turn a gain into a loss or increase a loss.
  3. Drill part disposals with the cost fraction A ÷ (A + B), where A is proceeds and B is the market value of the part kept. Then learn the chattel rules: - A gain on a chattel sold for £6,000 or less is exempt. - Where proceeds are over £6,000, the gain is capped at 5/3 × (proceeds − £6,000). - Where a chattel is sold for less than £6,000 and cost was more than £6,000, the loss is restricted by treating proceeds as £6,000. - A wasting chattel, one with an expected life of 50 years or less, is exempt.
  4. Do share pool questions in a table. Apply the order: same day, then the previous nine days, then the pool. Keep indexed cost in a separate column.
  5. Practise rollover relief with full and partial reinvestment. Check that the replacement asset is a qualifying business asset and that it is bought within one year before or three years after the disposal. Then do loss questions: a loss is set against gains of the same period, then carried forward against later gains.
  6. Work group questions by asking first whether companies are in a gains group. Then decide whether the transfer is no gain no loss, or whether an election or group rollover relief applies.
  7. Finish with mixed corporation tax questions that include a gain and plant disposals. Check that capital allowances and chargeable gains are not double counted, and time yourself.

Common mistakes in Chargeable gains for companies

  • Applying the annual exempt amount or the 18% and 24% CGT rates to a company gain.

    Fix: Write 'company: corporation tax, no exempt amount' at the top of every company answer, and add the gain to taxable total profits.

  • Letting indexation allowance create or increase a loss.

    Fix: Compute the gain before indexation first. Indexation can only reduce it to nil.

  • Using the wrong matching order or mixing indexed and unindexed figures in the share pool.

    Fix: Check same-day and nine-day matches first, then build the pool in a table with columns for shares, cost and indexed cost.

  • Setting a capital loss against trading profits or carrying it back.

    Fix: Remember that capital losses relieve gains only, in the same period and then carried forward.

  • Claiming rollover relief without checking the asset type, the timing or the reinvestment amount.

    Fix: Check the asset is a qualifying business asset and that it was bought within one year before or three years after the disposal. If not all proceeds are reinvested, tax the shortfall now, up to the gain.

  • Double counting plant disposals as both a capital allowance adjustment and a chargeable gain.

    Fix: Split the proceeds. Proceeds up to cost go to the capital allowances computation, and only any excess over cost can give a chargeable gain.

Last-day revision: Chargeable gains for companies

  • 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.

Chargeable gains for companies practice questions

Chargeable gains for companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Chargeable gains for companies: frequently asked questions

Do companies pay capital gains tax?

No. A company includes its chargeable gains in taxable total profits and pays corporation tax. It does not get the annual exempt amount that individuals have.

Is indexation allowance still available for companies?

Yes, but it is frozen. For companies it runs only up to December 2017. It can reduce a gain to nil but cannot create or increase a loss.

How do I deal with part disposals in the exam?

Apportion the original cost using A ÷ (A + B), where A is the proceeds and B is the market value of what you keep. Then compute the gain on the part sold using that part of the cost.

Can a company's capital loss be set against trading profits?

No. A capital loss can only be set against chargeable gains, first in the same accounting period and then carried forward. Unused losses cannot be carried back.

Which tax rates should I use for a company gain in TX-UK?

Use the corporation tax rates ACCA provides: 19% small profits rate and 25% main rate, with limits of £50,000 and £250,000 and marginal relief between them. The gain is part of taxable total profits, and the limits are compared with augmented profits, which include exempt distributions. The limits are divided by 1 plus the number of associated companies, and time-apportioned for an accounting period shorter than 12 months.