Corporation Tax 

Companies that are resident in the UK are subject to CT on their profits (income plus gains) arising in an accounting period. An accounting period cannot be more than 12 months. Company accounts prepared for a period of more than 12 months are apportioned between the first 12 months and the remainder. Non-resident companies may be subject to CT where they trade in the UK through a permanent establishment.

• A company incorporated in the UK is treated as UK resident.

• A non-UK incorporated company is treated as resident in the UK if its central management and control is exercised in the UK.

Taxable profits The amounts of income and capital gains are basically determined by the tax rules that apply to individuals. Companies are subject to many special rules and qualify for some special tax reliefs.

In particular:

• Small and medium size companies can deduct 150%, and large companies 125%, of qualifying revenue expenditure on research and development. 
• The corporate venturing scheme gives companies tax relief of 20% on the cost of subscribing for shares in a qualifying unquoted company under similar conditions to the enterprise investment scheme.
• Tax relief is given on the cost of intangible assets acquired after 31 March 2002 at the rate of depreciation in the accounts or 4% a year, whichever is the greater.

Capital gains by companies

A company's capital gains are subject to CT at the normal rates with no annual exemption.

• Companies continue to receive indexation relief on gains and do not receive taper relief.
  

• Capital gains may be offset by capital losses of the same accounting period or capital losses brought forward from previous periods.

• Roll-over relief is available where business assets are replaced.

• Qualifying disposals of substantial holdings (at least 10%) are exempt. The vendor and the company being sold must satisfy a trading condition and the vendor must have owned the shares for at least 12 months.

• Companies are subject to different identification rules from individuals for disposals of shares and securities.

The rate of CT is fixed for the financial year ending each 31 March. Where an accounting period straddles this date, the profits are apportioned accordingly.

• The main rate of CT is 30%. This is charged on the whole of profits where they exceed £1,500,000, and in all cases for close investment-holding companies. 
• The small companies rate of 19% is charged on the first £300,000 of profits where profits are between £50,000 and £1,500,000. 
• Profits between the lower and upper profit thresholds (£300,000-£1,500,000), are in effect charged at a marginal rate of tax of 32.75%. 
• Until 31 March 2006, a company with taxable profits up to £50,000 was charged at 0% on the first £10,000 and an effective marginal rate of 23.75% on the next £40,000. Profits equal to dividends paid in the period to non-corporate shareholders were charged at 19%. The remaining profits are charged at the underlying rate. This is the average rate that would apply if all the profits were taxed at 0% on the first £10,000 and 23.75% on the next £40,000.
• Where a company has associated companies, all the rate thresholds are divided by the number of associated companies plus one. For example, a company with three associated companies is taxed at 19% on profits between £12,500 (£50,000 divided by four) and £75,000 (£300,000 divided by four). Associated companies are broadly companies under common control.

• Income and gains of the same accounting period.
  
• Income and gains of the previous year. 
• Trading profits from the same trade in future years. Losses of the final 12 months of a trade can be carried back three years. Losses are set against more recent periods before earlier periods.