ATXP6 UK
Syllabus A4. Corporation Tax A4b. The scope of CT

A4bi. Companies with investment businesses

Syllabus A4bi)

Identify and calculate corporation tax for companies with investment business.

CT Implications

Companies with investment businesses

If a company makes investments and holds those investments, they are allowed to deduct certain management expenses in relation to those investments. 

The company can also carry on a trade, however, to deduct these additional management expenses, the company must also make and hold investments.

What are the management expenses?

These are deducted from total profits

  1. Director's fees and commissions

  2. Salaries of management

  3. Audit fees

  4. Office rent and rates

  5. Bank interest

  6. Capital allowances for the investment

Management expenses in excess of total profits

If management expenses are in excess of total profits, then the reliefs available are:

  1. Carry forward relief against the next year's total profits

  2. 75% group relief

Illustration

C Ltd. has the following results for the year ended 31/03/2018:

Rental income £70,000
Interest receivable £20,000
Chargeable gains £3,000

Management expenses
Related to property £35,000
Other £60,000

Capital allowances
Related to property £2,300
Other £1,600

Interest payable £2,000
Director remuneration £3,000

What amount of management expenses will be carried forward?

  • Solution

    Property income
    £70,000
    Less:
    Management expenses (£35,000)
    Capital allowances (£2,300)
    £32,700

    Interest income
    Interest receivable £20,000
    Less interest payable (£2,000)
    £18,000

    Chargeable gains
    £3,000

    Total profits
    £53,700

    Less management expenses:
    Other management expenses (£60,000)
    Other capital allowances (£1,600)
    Directors remuneration (£3,000)

    Taxable total profits £Nil

    Management expenses c/f £10,900