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ACCA F6

Taxation(UK)

税法（英国）

ACCA Lecturer: Helen Zhang

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1 Computing taxable total profits

Chapter 19 Computing taxable total profits



1 The scope of corporation tax

2 Taxable total profits

3 Trading income

4 Property business income

5 Loan relationships (interest income)

6 Miscellaneous income

7 Qualifying charitable donations

8 Long periods of account



1 The scope of corporation tax

Companies must pay corporation tax on their taxable

total profits for each accounting period.

Company: A 'company' is

a) any corporate body (limited or unlimited) ，or

b) unincorporated association, e.g. sports club.



Accounting periods :

• Corporation tax is chargeable in respect of accounting periods.

• - A period of account is any period for which a company prepares accounts, any length is OK.

• - An accounting period is the period for which corporation tax is charged and cannot exceed 12 months.

• If a company has a period of account exceeding 12 months, it is split into two accounting periods: the first 12 months and the remainder.

• When an accounting period starts?

• When an accounting period finishes?



An accounting period starts on the earliest of:

• when a company starts to trade

• when the company otherwise becomes liable to

corporation tax (eg it opens a bank account which

pays interest)

• immediately after the previous accounting period finishes

An accounting period finishes on the earliest of:

• 12 months after its start

• the end of the company's period of account

• the company starting or ceasing to trade

• the company entering/ceasing to be in administration

• the commencement of the company's winding up

• the company's ceasing to be resident in the UK

• the company's ceasing to be liable to corporation tax



Financial year

• Corporation tax rates are set for financial years.

• Notes:

(a) Financial year runs from 1 April to the following 31

March. For example, the year ended 31 March 2014 is the

Financial Year 2013 (FY 2013).

(b) Tax year for income tax and CGT runs from 6 April to

the following 5 April.

(Tax year针对的是我们之前算个人所得税，遗产税时使用的

时间概念，特别注意，在牵涉到公司的相关税时，使用的时

间概念时financial year)



The residence of companies

Place of incorporation Corporation tax treatment

UK Treated as resident in the UK for

corporation tax purposes.

Overseas Only treated as resident in the UK if

its central management and control

are exercised in the UK



2 Taxable total profits

Taxable total profits= income + chargeable gains

– losses

– qualifying charitable donations

• A company may receive income from various sources.

All income received must be classified according to the

nature of the income as different computational rules

apply to different types of income.

• Income includes : Trading profits

Property business profits

Interest income

Miscellaneous income

• Taxable total profits does not include dividends received from other companies.



Taxable total profits computation

Trading profits X

Property business income X

Interest income from non-trading loan relationships X

Miscellaneous income X

Chargeable gains X

Total profits X

Less: losses deductible from total profits (X)

qualifying charitable donations (X)

Taxable total profits for an accounting period X



Trading income——adjustment of profits

Profit before taxation X

Add expenditure not allowed for taxation purposes X

Less: income not taxable as trading income (X)

expenditure not charged in the accounts but allowable

for the purposes of taxation (X)

capital allowances (X)

Profit adjusted for tax purposes X



• The adjustment of profits computation for companies

broadly follows that for computing business profits

subject to income tax (chapter 7).

• However, there are some minor differences. There is

no disallowance for ‘private use’ for companies.

• Qualifying charitable donations are added back in the

calculation of adjusted profit. As they are treated as a

deduction from total profits



Income not taxable as trading income

• Income taxed in another way

example:

rents taxed as property business income

capital receipts as chargeable gains

income from investment as interest income

• Income specifically exempt from corporation tax

example:

dividends received from other companies



Pre-trading expenditure

Pre-trading expenditure incurred by the company within the

7 years before trade commences is treated as

an allowable expense incurred on the first day of trading

provided it would have been allowable had the

company been trading when the expense was actually

incurred.



Capital allowances

• Capital allowances must be deducted in arriving at taxable trading income.

• Calculation of capital allowances follows income tax principles (chapter 8) with minor differences.

• - For companies, there is never any reduction of allowances relating private use of an asset.

• - Capital allowances computation must be based on each accounting period separately.

• - Company’s accounting period can never exceed 12 months.

• WDA = 18%×months/12, months here means length of relevant accounting period (≤12 months).

• The computation must be carried out for each period separately.



Property business income

• Rental income is deducted in arriving at trading income but brought in again as property business income.

• The calculation of property business income follows income tax principles (chapter 6) with certain differences.

• Interest paid by a company on a loan to buy or improve

property is not a property business expense. The loan

relationship rules apply (see below).



Loan relationships

If a company borrows or lends money, including issuing or

investing in debentures or buying gilts, it has a loan

relationship, including creditor relationship (lends) or

debtor relationship (borrows).

• Loan relationships for trading purpose

• Loan relationships for non-trading purpose



a) Loan relationships for trading purpose

debits - interest paid are allowed as a trading expense

credits – interest income are treated as trading income

b) Loan relationships for non-trading purpose

Any debits or credits must be pooled.

A net credit on the pool is chargeable as interest income

(investment income).



Miscellaneous income

• Patent royalties received relating to non-trading are

taxed as miscellaneous income.

• Patent royalties received relating to trading are taxed

as trading income.



Qualifying charitable donations

• Qualifying charitable donations are deducted from

total profits.

• Donations to local charities which are incurred wholly

and exclusively for the purposes of a trade are

deducted as a trading expense when computing the

tax adjusted trading profits.



Marlborough Ltd ’s statement of profit or loss for the year ended 31

March 2013 is as follows:

Gross profit 700,000

Other income

Loan stock interest (note 1) 14,500

Rental income (note 2) 18,000

Expenses

Salaries (76,000)

Depreciation (37,900)

Loss on sale of non-current asset (1,400)

Impairment losses (all trade) (2,800)

Professional fees (note 3) (12,900)

Repairs and renewals (note 4) (17,100)

Other expenses (note 5) (25,600)

Finance costs

Loan interest (note 6) (12,000)

Profit before taxation 546800



Notes

(1) Loan stock interest

The loan stock interest is in respect of loan stock held by

Marlborough Ltd as an investment. The amount of £14,500 is the

amount received and accrued to 31 March 2013.

(2) Rental income

The rental income is in respect of a warehouse which is held as an

investment and is let out to an unconnected company. The rental

received of £18,000 is also the amount accrued to 31 March2013.

(3) Professional fees

Professional fees are as follows:

Accountancy and audit fees 4,600

Debt collection of trade debts 5,000

Legal fees in connection with renewing a 25 year lease 1,300

Legal fees in connection with director’s motoring offences 2,000



(4) Repairs and renewals

Repairs and renewals include:

Extension to factory 7,988

Repainting exterior of company’s offices 6,000

(5) Other expenses

Other expenses include:

100 pens with an advertisement for company, given to customers 2,100

Qualifying charitable donation 5,000



(6) Loan interest

The loan interest relates to the warehouse let out (see note (2)). The

amount shown is the amount paid and accrued to 31 March 2013.

(7) Plant and machinery

On 1 April 2012 the tax written down value of the main pool was

£22,500. The following transactions took place during the year ended 31

March 2013:

10 June 2012 Purchased general plant 20,200

25 January 2013 Sold a van (original cost £17,000) (11,500)

15 March 2013 Purchased a motor car CO2 emissions 128g/km

10,600

The motor car purchased on 15 March 2013 is used by the company’s

sales manager: 30% of the mileage is for private journeys



Answer



Continue



Long periods of account

Where the period of account differs from accounting period, profits in each period of account are allocated to the relevant accounting periods:

(1) trading income before capital allowances, time basis（按时间分配）

(2) capital allowances are calculated for each accounting period

(3) property income and miscellaneous income, time basis

other income is allocated to period to which it relates.

(4) arising basis:

chargeable gain/loss when realised,

qualifying charitable donations when paid, FII



Example 2

Xenon Ltd makes up an 18 month set of accounts to 30

September 2013 with the following results.

Trading income (no capital allowances claimed) 180,000

Interest income

18 months @ £500 accruing per month 9,000

Capital gain (1 August 2013 disposal) 250,000

Less: qualifying charitable donation (50,000)

389,000

What are the taxable total profits for each of the accounting

periods based on the above accounts?



Answer

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