ATXP6 UK
Syllabus A4. Corporation Tax A4a. Taxable total profits

A4a. Computation of taxable total profits

Syllabus A4a)

E2 Taxable total profits

How to calculate taxable total profits?

Taxable total profits include:

Trading income x

Other income and gains:

Property income x
Interest income x
Capital gains x

Less:

Loss relief claims (x)
Qualifying charitable donations (x)
= Taxable total profits x

Each of these areas are discussed in detail in their respective sections.

Remember that dividends received are not subject to corporation tax and are therefore not included in taxable total profits.

Illustration:

Lachmi Ltd. has the following income for the year:

Trading profits £310,000
Property income £200,000
Interest income £50,000
Capital gains £20,000
Qualifying charitable donations £50,000
She has also received a dividend from a non-associated company of £18,000.

What are Lachmi Ltd. taxable total profits?

Solution:

Taxable total profits for the year:
Trading profits £310,000
Property income £200,000
Interest income £50,000
Capital gains £20,000

Less:

Qualifying charitable donations (£50,000)
Taxable total profits £530,000

Notice that dividends received are not included.

They are exempt and only used for the calculation of Augmented profits for the payment of corporation tax.

Little trick!

Interest income is taxed on an accruals basis. 

This means that the interest which is taxed is the interest which is receivable during the year, not the interest which is actually received during the year.

For example, bank interest receivable of £2,000 was accrued at 31 March 2018 and and £1,000 was accrued at 31 March 2019 respectively.

This means that £2,000 should have been paid in the year ended 31 March 2018 but was not, and £1,000 should have been paid at 31 March 2019, but has not been paid yet.

The interest actually received during the year ended 31 March 2019 was £6,000.

Therefore, how do we figure out what the amount is that should have actually been received for the year ended 31 March 2019?

Amount paid - Amount due for previous year + Amount still due at this year end = Amount that should have been paid for this year.

£6,000 was paid
(£2,000 was paid towards the amount due at 31 March 2018)

Therefore, £4,000 paid was actually due for the year ended 31 March 2019
+
£1,000 is still to be paid for the year ended 31 March 2019

Therefore, £6,000-£2,000+£1,000 = £5,000 is actually due for the year ended 31 March 2019 - this amount will be used in the proforma.

Illustration

Kamal Ltd. has the following results for the year ended 31/03/2019

Particular £
Trading profits/loss before capital allowance 30,000
Chargeable gains 2,000
Interest income 62,000
Property income 50,000
Dividends received 100,000
Capital allowances for the year 3,000
Qualifying charitable donations 15,000

Kamal Ltd. had £2,000 interest accrued at 31/03/2018 and £3,000 of interest accrued at 31/03/2019.

What will Kamal Ltd.'s taxable total profits be for the year ended 31/03/2019?

Particular £
Trading profits/loss before capital allowance 30,000
Less: capital allowances (3,000)
Tax adjusted trading profits 27,000
Interest receivable 62,000-2,000+3,000 =63,000 63,000
Chargeable gains 2,000
Property income 50,000
Total income 142,000
Less:
Qualifying charitable donations (15,000)
Taxable Total Profits 127,000
Taxable Total Profits 127,000
+
Exempt dividends  100,000
Augmented Profits 227,000 (This is below the upper limit, so the company is a small company and would not have to pay its corporation tax in instalments)