Advanced Taxation (UK) · Corporation tax: the scope of corporation tax, including close companies and investment companies

Scope of Corporation Tax and Chargeable Accounting Periods

Updated 11 October 2026 · Fact-checked

Corporation tax is charged on the worldwide profits of UK-resident companies, and on the UK profits of non-resident companies with a UK permanent establishment. Profits are taxed by chargeable accounting period (CAP), which is never longer than 12 months. You split longer accounting periods and set the tax rates and payment dates for each CAP.

Understand Scope of Corporation Tax and Chargeable Accounting Periods

Corporation tax is paid by companies and by other bodies such as unincorporated associations and clubs. It is not paid by partnerships or sole traders. A company is a separate legal person, so it is taxed on its own profits.

The charge depends on residence. A UK-resident company is taxed on its worldwide profits: income and chargeable gains from anywhere. A non-UK-resident company is taxed only if it trades in the UK through a permanent establishment (such as a branch), and then on the profits attributable to that establishment. It is also taxed on UK property income and on gains on UK land. Do not rely on this summary for fine detail; the exam will give the facts you need.

A company is UK resident if it is incorporated in the UK. A company incorporated abroad is also resident in the UK if its central management and control is exercised in the UK. That is usually where the directors meet and take the key strategic decisions. Where a company is resident in two countries, a double tax treaty normally decides which country treats it as resident. In an exam, look at where board meetings take place and who really makes the decisions, not just at where the company is registered.

Profits are measured for a chargeable accounting period (CAP). A CAP cannot exceed 12 months. It starts when the company comes within the charge to corporation tax or when the previous CAP ends. It ends at the earliest of: 12 months after its start, the end of the company's accounting period, the company starting or ceasing to trade, or the company becoming or ceasing to be UK resident. If a company prepares accounts for a period longer than 12 months, you split it into a CAP of the first 12 months and a second CAP for the rest.

The taxable profits of the period are then charged at the rates for the financial year. The rates in the ACCA tax tables are 19% small profits rate and 25% main rate for the financial years 2023, 2024 and 2025, with marginal relief between £50,000 and £250,000. For a long period, you time apportion the profits between the two CAPs, but capital allowances and chargeable gains are treated differently, as shown below.

Key rules to remember

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.

How to solve Scope of Corporation Tax and Chargeable Accounting Periods questions

Use this order for any question on who is taxed, on what, and for which periods.

1Identify the entity. A company, club or association is within corporation tax. A partnership or sole trader is not.
2Decide the residence status. Check the place of incorporation first, then where central management and control is exercised.
3State what is taxed. A UK-resident company pays on worldwide profits. A non-resident company pays on UK permanent establishment profits, UK property income and UK land gains.
4Find the length of each period of account. If it is more than 12 months, split it into a 12-month CAP and a CAP for the remainder.
5Allocate the figures. Time apportion adjusted trading profit. Deal with capital allowances separately for each CAP. Put chargeable gains in the CAP in which the disposal occurs.
6Apply the rates for the financial years. Adjust the limits where the CAP is short or there are associated companies.
7Work out the payment date and the instalment position. Show workings and give a short conclusion.

Quickest way: Four-question scope check

When to use it: Use this when a Section A scenario gives a company's facts and asks about its liability or periods and you have little time.

Where is it incorporated, and where is it managed? Write UK resident or not.
What income and gains does it have? Mark each as taxable or outside the charge.
How many months is the accounting period? If over 12, draw a timeline and split it.
For each CAP, note the tax rates, limits and payment dates before starting any computation.

Common mistakes in Scope of Corporation Tax and Chargeable Accounting Periods

Treating a company as non-resident because it is incorporated abroad.
Students stop at the place of incorporation.
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.
Students tax a 15-month set of accounts as one period.
Fix: Split it into a 12-month CAP and a 3-month CAP.
Time apportioning capital allowances and chargeable gains.
Students apply one apportionment to every figure.
Fix: Time apportion only the adjusted trading profit. Compute allowances for each CAP and put gains in the CAP of the disposal.
Taxing a non-resident company on its worldwide profits.
Students confuse the rule for resident companies with non-resident ones.
Fix: Limit the charge to the UK permanent establishment profits, plus UK property income and gains on UK land.
Using the full rate limits for a short CAP.
Students forget that the £50,000 and £250,000 limits are reduced.
Fix: Multiply the limits by the months in the CAP ÷ 12 and, if there are associated companies, divide by 1 plus the number of associates.

Worked examples

Example 1

Alpha Ltd was incorporated in Jersey. All its directors live in Leeds and hold every board meeting there. It makes £400,000 of profit from a Spanish subsidiary's dividends and a trade in Germany. Explain whether Alpha Ltd is within UK corporation tax and on what.

Show the solution

Alpha Ltd is not incorporated in the UK, so the first test is not met.
The directors take the key decisions in Leeds, so its central management and control is exercised in the UK.
It is therefore UK resident.
A UK-resident company is chargeable on its worldwide profits, including overseas trading profit and gains.
Relief for foreign tax may be available under double tax relief rules or a treaty.

Answer: Alpha Ltd is UK resident because its central management and control is in the UK. It is chargeable to corporation tax on its worldwide profits, with possible relief for foreign tax.

Example 2

Beta Ltd began trading on 1 April 2024 and prepared its first accounts for the 15 months to 30 June 2025. Adjusted trading profit before capital allowances was £150,000. Capital allowances were £30,000 for the first 12 months and £6,000 for the last 3 months. State the CAPs and the taxable trading profit for each.

Show the solution

The period is 15 months, so it is split into a CAP of 12 months to 31 March 2025 and a CAP of 3 months to 30 June 2025.
Time apportion the profit: £150,000 × 12 ÷ 15 = £120,000 for the first CAP.
£150,000 × 3 ÷ 15 = £30,000 for the second CAP.
Deduct the capital allowances separately: £120,000 − £30,000 = £90,000.
Second CAP: £30,000 − £6,000 = £24,000.

Answer: CAP 1 (1 April 2024 to 31 March 2025): taxable trading profit £90,000. CAP 2 (1 April 2025 to 30 June 2025): taxable trading profit £24,000.

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.

Practice questions from Corporation tax: the scope of corporation tax, including close companies and investment companies

Scope of Corporation Tax 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.

ACCA Applied SkillsCorporation Tax Basics and Chargeable Accounting Periods

Scope of Corporation Tax and Chargeable Accounting Periods: frequently asked questions

How do I decide whether a company is UK resident for corporation tax?

A company incorporated in the UK is UK resident. A foreign-incorporated company is also UK resident if its central management and control is exercised in the UK, usually where the directors take the main decisions. A treaty may decide where a dual-resident company is treated as resident.

What is a chargeable accounting period?

It is the period for which corporation tax is charged, and it can never exceed 12 months. It normally matches the company's accounting period. If the accounts cover more than 12 months, you split them into a 12-month CAP and a CAP for the remainder.

Is a non-resident company ever taxed in the UK?

Yes. A non-resident company is taxed on profits attributable to a UK permanent establishment. It is also taxed on its UK property income and gains on UK land. Its other overseas profits are outside UK corporation tax.

Which rates are given in the ATX-UK tax tables?

The tables give a small profits rate of 19% and a main rate of 25%. The lower limit is £50,000 and the upper limit is £250,000, with a standard fraction of 3/200 for marginal relief. You should assume these rates continue unless the question says otherwise.