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Taxation (UK) · Taxable total profits

Corporation Tax Basics and Chargeable Accounting Periods

Updated 11 October 2026 · Fact-checked

Corporation tax is charged on the taxable total profits of UK-resident companies for each chargeable accounting period (CAP). A CAP never exceeds 12 months. You work out the period, build chargeable profits by source, deduct qualifying charitable donations, then apply the rate for each financial year.

Understand Corporation Tax Basics and Chargeable Accounting Periods

A company pays corporation tax, not income tax. In the TX-UK exam this means limited companies, plus unincorporated associations and clubs. A UK-resident company is taxed on its worldwide profits. Sole traders and partners are not companies, so they pay income tax.

Corporation tax is charged on taxable total profits for a chargeable accounting period (CAP). A CAP is the period for which the tax is computed. It can never be longer than 12 months.

A CAP usually matches the company's period of account (the period it prepares accounts for). If the period of account is 12 months or less, it is one CAP. If it is longer than 12 months, you split it into a first CAP of 12 months and a second CAP for the balance. A period of account of exactly 12 months is one CAP.

A CAP also starts when a company begins to trade or otherwise comes within the charge to corporation tax. It ends at the earliest of: 12 months after it began, the end of the accounting period, the company starting or ceasing to trade, or the company ceasing to be UK resident. A new CAP then follows.

The profit computation has a fixed shape. You compute each source separately: trading profit (after capital allowances), property business profit, interest income, and chargeable gains. Add them to get total profits. Deduct qualifying charitable donations to get taxable total profits. Dividends from UK companies are not taxed in the recipient company. They are excluded from taxable total profits but included later in augmented profits for the rate limits.

Key rules to remember

Maximum length of a CAP
CAP ≤ 12 months
A period of account longer than 12 months is split: first 12 months, then the remainder.
Taxable total profits
Trading profit + property business profit + interest income + chargeable gains = total profits; total profits − qualifying charitable donations = taxable total profits
Trading losses and other reliefs, where given, are also deducted. Dividends from UK companies are not included.
Corporation tax rates (financial years 2023 to 2025)
Small profits rate 19%; main rate 25%; lower limit £50,000; upper limit £250,000
Limits apply to augmented profits and are time-apportioned for short CAPs. They are divided by the number of associated companies, plus one.
Marginal relief
(Upper limit − augmented profits) × taxable total profits ÷ augmented profits × 3/200
Applies when augmented profits are between the lower and upper limits. Given in the exam.
Straddling financial years
Split the CAP by months across financial years (April to March) and apply that year's rate
Rates are the same for the years in this syllabus, so the split matters mainly for limits in later topics.

How to solve Corporation Tax Basics and Chargeable Accounting Periods questions

Use this method for any question on who pays corporation tax and on setting CAPs.

  1. 1Decide whether the entity is a company (limited company, unincorporated association or club). If it is not, corporation tax does not apply.
  2. 2Check residence. A UK-resident company is taxed on worldwide profits. Note the facts given, such as UK incorporation or central management.
  3. 3List the dates: start of trade, start and end of each period of account, and any cessation or change of residence.
  4. 4Set the CAPs. Cap each at 12 months. Split a long period of account into 12 months plus the balance. Start a new CAP when trade starts or stops.
  5. 5Allocate profits to each CAP. Time-apportion trading profit by months unless told otherwise. Allocate gains and other items to the CAP in which they arise.
  6. 6Build the computation by source: trading, property, interest, gains. Add to total profits. Deduct qualifying charitable donations.
  7. 7State taxable total profits for each CAP and, if asked, apply the rates. Show all workings.

Quickest way: Date-line then format

When to use it: Use when a question gives a long or odd accounting period and asks for taxable total profits.

  1. Draw a quick date line and mark the 12-month point from the start.
  2. Write each CAP with its number of months, such as 12 and 6.
  3. Apportion the adjusted profit by months across the CAPs.
  4. Set out a column per CAP with the standard layout and fill in each source.
  5. Total each column, deduct donations and label taxable total profits.

Common mistakes in Corporation Tax Basics and Chargeable Accounting Periods

  • Treating a period of account of 18 months as one CAP

    Students assume the accounts period is the tax period.

    Fix: A CAP cannot exceed 12 months. Split into 12 months and 6 months, and compute separately.

  • Including dividends from UK companies in taxable total profits

    Students copy income tax habits, where dividends are taxed.

    Fix: Exclude UK dividends from taxable total profits. Add them only when finding augmented profits.

  • Applying corporation tax to a sole trader or partnership

    Business profits all look alike.

    Fix: Check the legal form first. Only companies, unincorporated associations and clubs pay corporation tax.

  • Apportioning profits on days instead of months

    Students use the calendar.

    Fix: The exam instructions say apportion to the nearest month. Use months.

  • Forgetting to start a new CAP when trade begins or ceases

    Students only look at accounts year ends.

    Fix: Trade starting, trade ceasing and change of residence each end a CAP. Mark these events on your date line.

  • Deducting qualifying charitable donations from trading profit

    Donations appear in the accounts as an expense.

    Fix: Add back donations in the adjustment of profit, then deduct them once from total profits.

Worked examples

Example 1

Dune Ltd, a UK-resident company, prepares accounts for the 18 months to 30 September 2025. Its adjusted trading profit for the whole period, after capital allowances, is ₹90,000 and it has no other income. Calculate taxable total profits for each CAP. Use the period start of 1 April 2024.

Show the solution
  1. Check the length: 1 April 2024 to 30 September 2025 is 18 months, which exceeds 12.
  2. Split into CAP 1: 12 months to 31 March 2025 and CAP 2: 6 months to 30 September 2025.
  3. Apportion the profit by months: CAP 1 = ₹90,000 × 12/18 = ₹60,000.
  4. CAP 2 = ₹90,000 × 6/18 = ₹30,000.
  5. There is no other income and no donations, so total profits equal taxable total profits.

Answer: CAP 1 (12 months to 31 March 2025): taxable total profits ₹60,000. CAP 2 (6 months to 30 September 2025): taxable total profits ₹30,000.

Example 2

Orbit Ltd has a 12-month CAP with these figures: adjusted trading profit ₹2,40,000, property business profit ₹30,000, bank interest received ₹10,000, chargeable gain ₹50,000, dividends received from UK companies ₹20,000, and a qualifying charitable donation paid of ₹15,000. Calculate taxable total profits.

Show the solution
  1. Trading profit: ₹2,40,000.
  2. Property business profit: ₹30,000.
  3. Interest income: ₹10,000.
  4. Chargeable gain: ₹50,000.
  5. UK dividends of ₹20,000 are excluded from total profits.
  6. Total profits = ₹2,40,000 + ₹30,000 + ₹10,000 + ₹50,000 = ₹3,30,000.
  7. Deduct the qualifying charitable donation of ₹15,000: ₹3,30,000 − ₹15,000 = ₹3,15,000.

Answer: Taxable total profits are ₹3,15,000. The ₹20,000 of dividends is excluded, but it would count in augmented profits.

Exam tips

  • Always check the legal form and residence first. A one-line statement earns an easy mark.
  • In Section C, show a date line or a table of CAPs with their months. Marks are given for the split.
  • Time-apportion by months, to the nearest month, as the exam instructions require.
  • Set out the computation in a column per CAP with sources in rows. It is clear and quick to mark.
  • In objective questions, watch for the trap that dividends from UK companies are not in taxable total profits.

Practice questions from Taxable total profits

Corporation Tax Basics and Chargeable Accounting Periods in other exams

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

Corporation Tax Basics and Chargeable Accounting Periods: frequently asked questions

Who pays corporation tax in the UK?

Companies, unincorporated associations and clubs pay corporation tax. A UK-resident company is taxed on its worldwide profits. Sole traders and partners pay income tax instead.

What is the longest a chargeable accounting period can be?

A CAP can be at most 12 months. If a company prepares accounts for a longer period, you split it into a 12-month CAP and a second CAP for the remainder.

What events start or end a chargeable accounting period?

A CAP starts when a company comes within the charge to corporation tax, such as when it begins to trade. It ends at the earliest of 12 months after it began, the end of the accounting period, starting or ceasing to trade, or ceasing to be UK resident.

Are dividends received taxed in a company?

Dividends from UK companies are not part of taxable total profits. You include them only when computing augmented profits to test the corporation tax limits.