Corporation tax is a tax charged on the worldwide profits of UK resident companies and of unincorporated bodies that are not partnerships, for example members’ clubs. The term profits includes all sources of income and capital gains. It also includes dividends
(UK and overseas), although most will not be taxable.
A company’s taxable profits are calculated for a chargeable accounting period, which normally means the period for which the company’s accounts are made up, no matter how short it is. If, however, a company makes up accounts for a period greater
than 12 months, it is split into one or more chargeable accounting periods of 12 months plus a chargeable accounting period covering the remainder of the period of account. In arriving at the split of profits for an account exceeding 12 months, the
trading profit is usually split on a time basis.
Company tax returns
Company tax returnsThis guidance note provides information in respect of the various administrative aspects of company tax returns, often referred to as a corporation tax return or a CT600. If a company or organisation is subject to corporation tax, a company tax return must be submitted for each accounting period. An accounting period for corporation tax purpose cannot exceed 12 months. A return will be required even if taxable profits have not been generated during the accounting period. For ease of reference in this guidance note, ‘company’ includes entities which are not strictly companies but are within the charge to corporation tax, eg unincorporated associations. See the Charge to corporation tax guidance note for further details on which entities are chargeable.A company tax return consists of form CT600, together with any supplementary pages and other relevant information. Completed returns, together with all relevant supporting documentation, must be filed online via the Government gateway using an HMRC online account. Paper returns are only acceptable if there is a reasonable excuse for being unable to file online or if the company files are in Welsh. In these situations, the company must submit form WT1 to explain why the paper form was used.For full details of the information that must be submitted with the tax return, see the Documents to accompany tax return guidance note.Corporation tax self assessmentIt is the responsibility of the company to calculate how much corporation tax is due for each accounting period.HMRC usually issues a Notice to deliver
Late payment penalties under self assessment
Late payment penalties under self assessmentIntroductionThe late payment of tax will invariably attract interest as outlined in the Interest on late paid tax guidance note. In addition, the late payment of tax may also attract a late payment penalty, depending on the type of tax that has been paid late. FA 2009, Sch 56 introduced a late payment penalty regime that was intended to harmonise the rules for different taxes. This has been introduced in stages and is not yet fully in force. As a result, there are a number of different regimes in place. This guidance note covers penalties on late paid income tax, capital gains tax, annual tax on enveloped dwellings (ATED), Class 2 and Class 4 NIC (other than income tax and NIC due under PAYE), which are all subject to the late payment FA 2009, Sch 56 penalty regime.The main taxes are not within the scope of the FA 2009, Sch 56 penalty regime for late payment are:•corporation tax ― see ‘Corporation tax’ below•VAT ― see the Penalties ― late payment of VAT guidance note for penalties that apply to VAT periods beginning on or after 1 January 2023•income tax and Class 1 NIC that should have been paid over through the PAYE system ― see the Late payment penalties for PAYE / NIC guidance noteSince 18 November 2015, HMRC has had the ability to instruct banks and building societies to deduct amounts to settle taxpayers' tax debts directly from their bank accounts, often referred to as the
Gifting cash and assets to charity
Gifting cash and assets to charityThere are a number of tax reliefs available for gifts to charities. This note sets out the UK tax treatment of gifts to organisations established in part of the UK with purposes regarded as charitable under the law of England and Wales. See the Foreign charitable trusts and other foreign charities guidance note for information on gifts to other entities of a charitable nature.Gift aidGift aid is a way for charities or community amateur sports clubs to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate of tax paid by the donor.See the Gifts of cash guidance note in the Personal Tax module for details of the conditions for a qualifying donation and the tax relief available to the individual.Record keepingA charity must maintain evidence to satisfy HMRC that a payment has been made and by whom. For full details of the records to be kept by a charity and the format in which the records may be stored, see the HMRC website.Planning issues for charities Charities should encourage all donors to make use of gift aid. If a charity receives a simple cash gift it should consider contacting the donor to ask whether it would be appropriate to send him a gift aid declaration. The charity can bank the donation in the meantime.Payroll givingPayroll giving (often called 'give as you earn') is a way for employees to make regular payments to charity directly from their salary. People who
First time adoption of IFRS 15 ― revenue from contracts with customers
First time adoption of IFRS 15 ― revenue from contracts with customersIntroductionThe adoption of new accounting standards commonly results in transitional tax adjustments for corporation tax purposes. This happens because the cumulative amount of income or expense recognised on the new basis as at the start of the year of adoption usually differs from the old basis.In addition, there are usually deferred tax implications at the point of transition as a consequence of ‘catch-up’ adjustments taken to reserves on adoption of the new standard. Where the income of the comparative period is altered, then a deferred tax adjustment to that period is usually required although corporation tax for that year will remain undisturbed assuming the financial statements were prepared in accordance with the valid generally accepted accounting principles (GAAP) of that previous period. If the tax rules going forward mirror the accounting entries, then there will be no deferred tax balances at the end of the year of adoption of the new standard.This guidance note explores these issues in the context of IFRS 15.The introduction of IFRS 15, which was mandatory for accounting periods beginning from 1 January 2018, provides a comprehensive source of guidance on revenue recognition for all IFRS users. Previous guidance was limited to a fairly narrow range of situations and allowed users to interpret GAAP with varying degrees of conservatism, resulting in a range of different accounting outcomes. IFRS 15 should narrow this historic diversity by providing a combination of clear principles and detailed guidance
Employment-related securities ― PAYE
Employment-related securities ― PAYEIntroductionAwards of securities, exercise (or vesting) of securities options and certain other events relating to employment related securities (ERS) may be liable to income tax as earnings under ITEPA 2003 s 62, or the special ERS rules under ITEPA 2003 ss 417 – 554 (Part 7).The tax charges may be personal tax charges for the employee via self-assessment, or employers may be obliged to withhold income tax and NIC under PAYE.This note aims to set out which ERS related tax charges, and in what circumstances, employers must operate PAYE and NIC, and the practical implications of doing so.Share awardsAn outright award of ERS represents ‘money’s worth’ and is taxable under ITEPA 2003, s 62. The taxable amount is the market value of the securities less any payment made by the employee. Market value is de-fined at TCGA 1992 ss 272 - 273The ‘money’s worth’ taxable amount may be a personal tax liability of the employee, payable via their self-assessment tax return, or there may be a liability to withhold income tax and NIC under PAYE for the employer. This depends on whether the securities are considered to be ‘readily convertible assets’ (RCAs). Where the ERS are RCAs, income tax and NIC will be due via PAYE. Where the ERS are not RCAs, income tax will be due via the employee’s self-assessment tax return with no NIC due.What are Readily Convertible Assets?RCAs are defined in ITEPA 2003 s 702. The intention of the category of RCAs is
Employee trusts ― implications of disguised remuneration and where are we now?
Employee trusts ― implications of disguised remuneration and where are we now?Employee benefit trusts (EBTs) are commonly used to support employees’ share schemes and to provide other benefits to employees. For example, EBTs were used to provide additional benefits where the previous reduction of the pension lifetime allowance resulted in employees having significantly less tax efficient pension provision than was intended. Many employers established employer financed retirement benefit schemes although the trusts were in fact an EBT that permitted the provision of retirement benefits. EBTs were also used to provide what was believed to be ‘tax efficient’ bonuses ― contributions to an EBT would be held for an employee’s (or a class of employees’) benefit. The EBT would either invest for the benefit of the employees, or more widely, the EBT would provide a loan to the employee. The employee would have the benefit of the loan and not suffer the tax liability of a payment made outright to the employee.The use of EBTs has been significantly affected by the introduction of the disguised remuneration rules. For further information, please see the Disguised remuneration ― overview guidance note. There are statutory exclusions from those rules to cover many of the share scheme-related activities of EBTs. However, providing loans or opportunities for wealth creation through long-term investment schemes, has declined due to the tax and NIC treatment as a result of the disguised remuneration legislation.Legislation introduced in Finance Act 2014 promoted employee ownership of companies. Employee owners who dispose of
Introduction to setting up overseas ― companies
Introduction to setting up overseas ― companiesA UK company expanding overseas may do so in a variety of ways, including:•distance trading from the UK, with no local presence•a branch, which can be formed with just one employee working from home•a fully established local subsidiaryThe decision to trade in another jurisdiction involves a number of considerations, both commercial and tax-related. Some of the key tax issues include whether the activities constitute a permanent establishment and how the overseas activities should be structured. It is important, at the outset, that advice is taken by the company, not only in relation to tax, but on the wider business implications.The tax position of the UK company overseas will depend on the extent to which the company does business in the jurisdiction and the choice of overseas entity from which to carry on the business. In most cases, establishing the overseas operation will involve a choice between running the business as a branch or via a local subsidiary. There are a number of commercial and tax considerations which need to be considered in arriving at the most appropriate choice. For further discussion on the choice of overseas entity, see the Setting up overseas ― branch or subsidiary guidance note.A useful review of the tax impact of a business expanding overseas is given in ‘Practice guide ― Lifecycle of a business: international expansion’ by Helen Cox and Gemma Grunewald in Tax Journal, Issue 1472, 11 (24 January 2020).For a factsheet which summarises
Exemption ― sport and physical recreation ― commercial influence
Exemption ― sport and physical recreation ― commercial influenceThe following steps will assist the organisation with determining whether a supply of sport or physical recreation services is the subject of commercial influence for VAT purposes.Step 1 ― relevant periodWhat is the relevant period? This must be determined every time the organisation charges for an initial or renewed playing subscription, or provides other sport of physical recreation services.A relevant period is defined as follows:•if the sports supply was made from 1 January 2003 onwards, the relevant period runs for the three years leading up to the period of the sports supply•if the sports supply was made between 1 January 2000 and 31 December 2002, the relevant period runs from 14 January 1999 to the time of the sports supplyStep 2 ― relevant supplyDid the organisation receive a ‘relevant supply’ during the ‘relevant period’?A relevant supply is as defined as follows:•a grant of either:◦any interest in, right over land, or licence to occupy any land which at any time during the relevant period was, or was expected to become, sports land, or◦the use of sports land, where rent is paid, under leases granted, varied or renewed after 31 March 1996•the supply of any services in managing or administering the sports facilities•the supply of any goods or services for more than the normal open market
Restricted securities
Restricted securitiesIntroductionThe application of the restricted securities legislation is complex. This guidance note summarises the key tax implications and looks at some of the practical issues for employers in analysing and handling the potential risks associated with the acquisition of restricted securities by employees and directors in private and unlisted public companies.The definition of securities is found within ITEPA 2003, s 420. It includes, amongst other things, shares (the most common type of security issued in a private company and the focus of this guidance note), loan stock, warrants and units in a collective investment scheme. Key considerationsWhen might the restricted securities regime apply?The restricted securities regime is most likely to be relevant where a director or employee acquires shares at less than market value (disregarding any restrictions on the shares) that are subject to compulsory transfer arrangements. For example, the director / employee is required to sell the shares on leaving the employment for less than the market value at that time.Restrictions are not limited to those contained in the company’s Articles of Association. They can also include restrictions contained in any ‘contract, agreement, arrangement or condition’. For example, restrictions contained in shareholders agreements would be caught under the legislation. Restrictions of any nature are covered if their effect is to decrease the market value of the shares. They include:•good and bad leaver clauses that determine the price an employee receives on termination of employment•forfeiture of shares if performance conditions are not met•requiring the consent
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