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ACCA Strategic Professional · Advanced Taxation (UK)

Corporation Tax: Chargeable Gains for Companies in ATX-UK

Company chargeable gains are gains on disposing of capital assets, taxed within corporation tax. You compute proceeds less allowable cost, then deduct indexation allowance (frozen at December 2017) to reach the chargeable gain. Indexation cannot create or increase a loss. You then apply reliefs such as substantial shareholding exemption, rollover relief and group rules. Net gains are added to profits and taxed at corporation tax rates.

What this chapter covers

This chapter covers how a company is taxed when it sells or otherwise disposes of capital assets such as land, buildings, goodwill and shares. Unlike individuals, a company does not pay capital gains tax. Its chargeable gains are added to its other profits and taxed as part of its taxable total profits at the corporation tax rates in the tax tables.

The chapter starts with the basic computation, including indexation allowance, which is frozen at December 2017. It then moves to reliefs and special rules: the substantial shareholding exemption, share pooling and matching, rollover relief, and the treatment of capital losses. The final topics deal with groups: transfers at no gain, no loss, group relief for gains and losses, degrouping charges, and reorganisations and share-for-share exchanges.

This chapter links to the rest of ATX-UK. Gains feed into the corporation tax computation, the marginal relief calculation through augmented profits, and quarterly instalment thresholds. It also links to the sale of a business, where you compare a share sale by the owners with an asset sale by the company. Expect gains to appear in Section A cases alongside ethics, VAT, and owner-manager planning.

Company gains are a frequent feature of ATX-UK cases because they support planning questions: should the company sell assets or shares, can a relief defer or remove the gain, and how should a group arrange its disposals? These questions carry technical marks and professional skills marks for advice and judgement. The computations are mechanical, so careful students can score well. The marks are lost by missing conditions, such as the time limits for rollover relief or the conditions for substantial shareholding exemption, and by failing to apply the rules to the facts given.

Corporation tax: chargeable gains for companies: topics in the order to study them

  1. 1Computing Company Chargeable Gains and IndexationEverything else builds on the basic proceeds, cost and indexation computation, so learn it first.
  2. 2Substantial Shareholding ExemptionIt is a key exemption for share disposals and often decides whether a gain arises at all.
  3. 3Share Pooling and Matching Rules for CompaniesYou need the correct cost of shares before you can compute gains on part-disposals.
  4. 4Rollover Relief for CompaniesThis is the main deferral relief for business assets, and it uses the gain computed earlier.
  5. 5Capital Losses and Chargeable Gains Group ReliefOnce you can compute gains and losses, you learn how they are set off and moved around a group.
  6. 6Chargeable Gains Groups and Degrouping ChargesGroup transfers and the charge when a company leaves build on group relief and loss rules.
  7. 7Reorganisations, Reconstructions and Share-for-Share ExchangesThis is the most conceptual area, so study it last when pooling and group rules are secure.

How to prepare Corporation tax: chargeable gains for companies

Treat this chapter as a set of linked computations plus conditions. Practise written answers, because ATX-UK rewards explanation and advice as well as numbers.

  1. Learn the basic layout for a company gain and practise it until it is automatic, including how indexation is limited to the period up to December 2017.
  2. Make a one-page checklist of conditions for each relief: substantial shareholding exemption, rollover relief and group treatment. Test yourself by writing them from memory.
  3. Work share pooling questions with several purchases and part-disposals, and show the pool workings clearly.
  4. Practise rollover relief questions with partial reinvestment, depreciating assets and time limits, and state each condition you are applying.
  5. Do group questions by drawing a simple diagram of the companies and percentage holdings before you start, then identify who can transfer what.
  6. Attempt past Section A style cases under time conditions, and write short advice paragraphs on the tax-efficient route for the client.
  7. Use the tax tables supplied in the exam so you know where the corporation tax rates, marginal relief formula and thresholds are, rather than memorising them.

Common mistakes in Corporation tax: chargeable gains for companies

  • Applying capital gains tax rates or the annual exempt amount to a company.

    Fix: Remember that gains are included in taxable total profits and taxed at corporation tax rates. The annual exempt amount is not available to companies.

  • Claiming substantial shareholding exemption without checking all the conditions.

    Fix: Write out the conditions for the investing company, the shareholding, the holding period and the investee company, and test each one against the facts.

  • Errors in the share pool, such as missing acquisitions or part-disposals.

    Fix: Use a clear pool layout with number of shares and cost columns, and update it after each transaction.

  • Treating rollover relief as automatic and ignoring time limits and partial reinvestment.

    Fix: Check the asset types, the reinvestment window and whether all proceeds were reinvested before you compute the deferred gain.

  • Ignoring degrouping charges when a company leaves a group.

    Fix: Whenever a company leaves a group, check for assets it received within the group and consider whether a charge arises.

  • Giving numbers without advice.

    Fix: Answer the requirement, apply it to the scenario and finish with a reasoned recommendation to earn professional skills marks.

Last-day revision: Corporation tax: chargeable gains for companies

  • A company pays corporation tax on its chargeable gains, not capital gains tax.
  • Gains are added to other profits to give taxable total profits.
  • Corporation tax rates in the tables: small profits rate 19%, main rate 25%, with marginal relief between £50,000 and £250,000.
  • Marginal relief = (upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
  • Indexation allowance is frozen at December 2017.
  • Check substantial shareholding exemption conditions before computing any share gain.
  • Share pools are built from acquisitions; match disposals using the company rules, then compute the gain.
  • Rollover relief defers the gain by reducing the cost of the replacement asset, subject to its conditions and time limits.
  • Capital losses are set against gains, not against income profits.
  • Group transfers of assets are normally at no gain, no loss, but a degrouping charge can arise when a company leaves.
  • Always show workings and state the rule you are applying.
  • Finish advice with a clear recommendation tied to the client's facts.

Corporation tax: chargeable gains for companies practice questions

Corporation tax: 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.

Corporation tax: chargeable gains for companies: frequently asked questions

Do companies pay capital gains tax in ATX-UK?

No. A company's chargeable gains are included in its taxable total profits and taxed under corporation tax. The corporation tax rates and marginal relief formula are in the tax tables.

Is indexation allowance still available to companies?

Yes, but it is frozen at December 2017. It is calculated up to that date for assets held then, and no indexation accrues after it.

How should I study the group topics?

Start with a diagram of the companies and their holdings. Then identify which transfers are at no gain, no loss, who can share gains or losses, and whether anyone leaves the group.

Are the corporation tax rates given in the exam?

Yes, the tax tables show the small profits rate, main rate, limits, marginal relief formula and the instalment profit threshold. Learn where they are and how to use them.