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Taxation (UK) · The scope of corporation tax

Accounting Periods and Chargeable Accounting Periods for Corporation Tax

Updated 11 October 2026 · Fact-checked

A company pays corporation tax for each chargeable accounting period (CAP). A CAP can never be longer than 12 months. If a company's period of account is longer than 12 months, you split it into a 12 month CAP first, then a CAP for the remainder, and time-apportion the profits.

Understand Accounting Periods and Chargeable Accounting Periods

Corporation tax is not charged by tax year. It is charged on a company's profits for each chargeable accounting period (CAP). A CAP is the period for which a corporation tax computation is done and a return is made.

A company draws up accounts for a period of account, usually 12 months. Most of the time the period of account and the CAP are the same. Problems arise only when they differ.

The key rule: a CAP cannot be longer than 12 months. If a company prepares accounts for, say, 15 months, HMRC treats it as two CAPs. The first is the first 12 months. The second is the remaining 3 months.

An accounting period starts when the company first comes within the charge to corporation tax, for example when it begins trading, or immediately after the previous accounting period ends. It ends at the earliest of: 12 months after it started, the end of the period of account, or the company ceasing to be within the charge to corporation tax (for example on starting to be wound up).

A period of account shorter than 12 months is simply one CAP. A short CAP matters later because the lower limit (£50,000) and upper limit (£250,000) used for marginal relief are time-apportioned (× months ÷ 12) for a CAP shorter than 12 months. They are also divided by (1 + the number of associated companies). The limits are compared with the company's augmented profits, which are taxable total profits plus exempt distributions received from non-group companies.

Key rules to remember

Maximum length of a CAP
CAP ≤ 12 months
A period of account longer than 12 months is split into two or more CAPs.
Splitting a long period of account
First CAP = first 12 months; second CAP = the remainder
Never split the long period into two equal halves.
Time apportionment of profit
Profit for CAP = Profit for period × months in CAP ÷ months in period
Used for trading profit before capital allowances. Apportion to the nearest month, as the exam instructions state.
Capital allowances in a long period
Compute separately for each CAP; for a CAP shorter than 12 months, WDA and AIA × months in CAP ÷ 12
Compute the capital allowances for each CAP separately. The writing down allowance and annual investment allowance are reduced only for a CAP shorter than 12 months. A 12 month CAP gets the full 18% writing down allowance on the main pool.
Other income and gains
Income: by the period it accrues in. Gains: by the date of disposal.
Property and interest income are time-apportioned or allocated on an accruals basis. Chargeable gains go into the CAP in which the disposal occurs.
Limits for marginal relief
Limit = £50,000 or £250,000 × months in CAP ÷ 12 ÷ (1 + associated companies)
Compare the limits with augmented profits. Marginal relief = (upper limit − augmented profits) × 3/200 × taxable total profits ÷ augmented profits.

How to solve Accounting Periods and Chargeable Accounting Periods questions

Use this method for any question on accounting periods or a long period of account.

  1. 1Write down the start and end dates of the period of account and count the months.
  2. 2If it is 12 months or less, it is one CAP. Stop splitting and move on to the computation.
  3. 3If it is more than 12 months, set CAP 1 as the first 12 months and CAP 2 as the remainder. Write the dates for each.
  4. 4Take the adjusted trading profit for the whole period before capital allowances. Time-apportion it by months into the two CAPs.
  5. 5Compute capital allowances separately for each CAP. For a CAP shorter than 12 months, the writing down allowance and annual investment allowance are reduced by months ÷ 12. A 12 month CAP gets the full allowance.
  6. 6Deduct capital allowances from each CAP's apportioned profit to get the trading profit for each CAP.
  7. 7Allocate other income and chargeable gains to the CAP in which they arose. Gains go by disposal date.
  8. 8Finish each CAP's computation separately, because each has its own tax rate calculation and its own due date.

Quickest way: Split first, apportion second

When to use it: Use when a question gives a period of account longer than 12 months and asks for profits per CAP.

  1. Count months and mark the 12 month cut-off date on the page.
  2. Compute the ratio, for example 12/15 and 3/15, before touching any number.
  3. Apportion only the profit before capital allowances.
  4. Do capital allowances per CAP, then subtract.
  5. Put gains and one-off items in the CAP of their date, not by ratio.
  6. Check that the two CAP profits add back to the total.

Common mistakes in Accounting Periods and Chargeable Accounting Periods

  • Treating a 15 month period of account as one CAP.

    Students follow the accounts, not the tax rule.

    Fix: Any period above 12 months must be split into a 12 month CAP and a remainder.

  • Splitting a long period into two equal parts.

    It feels fair, and students forget the rule.

    Fix: The first CAP is always exactly the first 12 months. The remainder is the second CAP.

  • Time-apportioning profit after deducting capital allowances.

    Students rush and use the net figure.

    Fix: Apportion the adjusted profit before capital allowances, then compute allowances per CAP.

  • Time-apportioning chargeable gains.

    Students apply the ratio to every item.

    Fix: A gain belongs in the CAP where the disposal date falls.

  • Using the wrong month count when the start date is mid-month.

    Students count days instead of whole months.

    Fix: The exam instructions say apportion to the nearest month. Count months and use them.

  • Using the full £50,000 and £250,000 limits for a short CAP, or ignoring associated companies.

    Students forget the limits depend on CAP length and on the number of associated companies.

    Fix: For a CAP shorter than 12 months, multiply the limits by months ÷ 12. Divide them by (1 + number of associated companies). Then compare them with augmented profits.

Worked examples

Example 1

Brook Ltd prepares accounts for the 15 months to 31 March 2026, starting trading on 1 January 2025. Its adjusted trading profit before capital allowances for the 15 months is £150,000. Capital allowances are £9,000 for the first 12 months and £1,500 for the last 3 months. A chargeable gain of £20,000 arises on 15 February 2026. Show the taxable total profits of each chargeable accounting period, before any deduction of qualifying charitable donations.

Show the solution
  1. Period of account: 1 January 2025 to 31 March 2026, which is 15 months. This is more than 12 months, so split it.
  2. CAP 1: 12 months to 31 December 2025. CAP 2: 3 months from 1 January 2026 to 31 March 2026.
  3. Apportion profit: CAP 1 = £150,000 × 12/15 = £120,000. CAP 2 = £150,000 × 3/15 = £30,000.
  4. Deduct capital allowances to get the trading profit: CAP 1 = £120,000 − £9,000 = £111,000. CAP 2 = £30,000 − £1,500 = £28,500.
  5. The gain of £20,000 was on 15 February 2026, so it falls in CAP 2. CAP 1 has no gain.
  6. Taxable total profits: CAP 1 = trading profit £111,000. CAP 2 = trading profit £28,500 + chargeable gain £20,000 = £48,500.

Answer: CAP 1 (12 months to 31 December 2025) has taxable total profits of £111,000, all trading profit. CAP 2 (3 months to 31 March 2026) has taxable total profits of £48,500, made up of trading profit £28,500 and a chargeable gain of £20,000. Both figures are before any qualifying charitable donations.

Example 2

Delta Ltd has no associated companies. It prepared accounts for the 18 months to 30 June 2026, having started trading on 1 January 2025. Adjusted trading profit before capital allowances for the 18 months is £180,000. State the CAPs and apportion the profit before capital allowances. Then state the lower and upper limits that apply to the second CAP, using the limits in the tax rates provided.

Show the solution
  1. Period of account: 1 January 2025 to 30 June 2026, which is 18 months, so it must be split.
  2. CAP 1: 12 months to 31 December 2025. CAP 2: 6 months to 30 June 2026.
  3. CAP 1 profit before allowances = £180,000 × 12/18 = £120,000.
  4. CAP 2 profit before allowances = £180,000 × 6/18 = £60,000.
  5. The limits are £50,000 and £250,000 for a full 12 month CAP. They are divided by (1 + number of associated companies). Delta has none, so the divisor is 1 and there is no reduction for that.
  6. CAP 2 is 6 months, so the limits are time-apportioned. Lower limit: £50,000 × 6/12 = £25,000.
  7. Upper limit: £250,000 × 6/12 = £125,000.
  8. These limits would be compared with Delta's augmented profits for CAP 2. If marginal relief applied, the standard fraction is 3/200.

Answer: CAP 1 is the 12 months to 31 December 2025 with £120,000 of profit before capital allowances. CAP 2 is the 6 months to 30 June 2026 with £60,000 before capital allowances. Assuming no associated companies, the limits for CAP 2 are £25,000 and £125,000.

Exam tips

  • In a Section C question, write the CAP dates first. It earns marks and stops mistakes later.
  • Show the ratio, such as 12/15, on the page. Markers award method marks even if the arithmetic slips.
  • Remember the exam instruction: calculations to the nearest £ and apportionments to the nearest month.
  • In objective test questions, look for traps: a period of account of exactly 12 months is one CAP, and a period over 12 months always produces two CAPs.
  • Put a gain in its own CAP by disposal date. This is a regular easy mark.

Practice questions from The scope of corporation tax

Accounting Periods 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.

Accounting Periods and Chargeable Accounting Periods: frequently asked questions

What is the maximum length of a chargeable accounting period?

12 months. A company can have a period of account that is longer, but for corporation tax it is split into CAPs of no more than 12 months each.

How do you split a period of account longer than 12 months?

The first CAP is the first 12 months. The second CAP is whatever is left. Then you time-apportion the profit before capital allowances using the months in each CAP.

When does a company's accounting period start?

It starts when the company first comes within the charge to corporation tax, for example when it starts trading, or when the previous accounting period ends.

Are capital allowances time-apportioned in a long period of account?

Not like profit. You do not apportion the allowances for the whole period. You compute capital allowances separately for each CAP. A 12 month CAP gets the full writing down allowance. A CAP shorter than 12 months gets the allowance reduced by months ÷ 12.