Taxation in the United Kingdom
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Corporation tax is a tax levied in the United Kingdom on the profits made by companies and associations that are resident for tax purposes, and on the profits of permanent establishments of non-UK resident companies and associations that trade in the UK. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income tax, with an additional profits tax levied on companies. The Finance Act 1965^[1] replaced this structure for companies and associations with a single corporate tax, which borrowed its basic structure and rules from the income tax system. Since 1997, the UK's Tax Law Rewrite project^[2] has been modernising the UK's tax legislation, starting with income tax, while the legislation imposing corporation tax has itself been amended; the rules governing income tax and corporation tax have thus diverged. Corporation tax is governed by the Income and Corporation Taxes Act 1988 (as amended).^[3][4] Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_Germany. ... Image File history File links Flag_of_Hong_Kong. ... Image File history File links Flag_of_India. ... Image File history File links Flag_of_Indonesia. ... Image File history File links Flag_of_New_Zealand. ... Image File history File links Flag_of_Ireland. ... Image File history File links Flag_of_Russia. ... Image File history File links Flag_of_Singapore. ... Image File history File links Flag_of_the_United_Kingdom. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. ... This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A tax is a financial charge or other levy imposed on... This article or section does not cite any references or sources. ... The term company may refer to a separate legal entity, as in English law, or may simply refer to a business, as is the common use in the United States. ... A voluntary association (also sometimes called an unincorporated association, or just an association) is a group of individuals who voluntarily enter into an agreement to form a body (or organization) to accomplish a purpose. ... Legal residence or domicile, is the principle that each legal person (natural or corporate) has a single location of primary residence. ... This article does not cite any references or sources. ... is the 91st day of the year (92nd in leap years) in the Gregorian calendar. ... Year 1965 (MCMLXV) was a common year starting on Friday (link will display full calendar) of the 1965 Gregorian calendar. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        Taxation in the United Kingdom may involve payments to at least two different levels of government: local government and central government (HM Revenue & Customs). ... The Finance Act 1965 was an Act of the Parliament of the United Kingdom which introduced two major new UK taxes. ... Corporate tax refers to a direct tax levied by various jurisdictions on the profits made by companies or associations. ... The tax law rewrite project of HM Revenue and Customs is a major effort to re-write the entire tax legislation of the United Kingdom in a format which is both more consistent and more understandable. ... Section 620 plans Under section 620 of this act the legislation relating to retirement annuity plans was rewritten, which relates to self-employed pensions. ...

Originally introduced as a classical tax system, in which companies were subject to tax on their profits and companies' shareholders were also liable to income tax on the dividends that they received, the first major amendment to corporation tax saw it move to an imputation system in 1973, under which an individual receiving a dividend became entitled to an income tax credit representing the corporation tax already paid by the company paying the dividend. The classical system was reintroduced in 1999, with the abolition of advance corporation tax and of repayable dividend tax credits. Another change saw the single main rate of tax split into three. Tax competition between jurisdictions has reduced the main rate to 30%, and the main rate is planned to reduce to 28% from April 2008.^[5] A shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. ... A dividend is the distribution of profits to a companys shareholders. ... Advance corporation tax (ACT) was the scheme under which companies made an advance payment of corporation tax when they distributed dividend payments to shareholders. ...

The UK government has faced problems with its corporate tax structure, including European Court of Justice judgements that aspects of it are incompatible with European Union treaties.^[6] Tax avoidance schemes marketed by the financial sector have also proven an irritant, and been countered by complicated anti-avoidance legislation. The United Kingdom is a unitary state and a democratic constitutional monarchy. ... European Court of Justice building, Luxembourg The Court of Justice of the European Communities, usually called the European Court of Justice (ECJ), is the highest court of the European Union (EU). ... This article contrasts tax evasion, tax avoidance and tax mitigation. ...

The complexity of the corporation tax system is a recognised issue. The Labour government, supported by the Opposition parties, has expressed its commitment to wide-scale reform. The tax has slowly been integrating generally accepted accounting practice, with the corporation tax system in various specific areas based directly on the accounting treatment. Corporation tax is the next area scheduled to be tackled by the Tax Law Rewrite project, with a draft Bill due. GAAP is an acronym for Generally Accepted Accounting Principles. ...

History

Jim Callaghan, the Chancellor of the Exchequer who introduced corporation tax in 1965.

The tax system in the United Kingdom holds "capital" and "revenue" as distinct forms of income and expenditure. Neither term is formally defined; capital implies financial items that will have an enduring benefit, while revenue implies an ongoing or recurrent item, relating to something likely to be used for short period. For example, expenditure by a company on acquiring a new head office, and the proceeds realised on the disposal of the old head office, are capital; expenditure on stationery, and income from the sale of trading stock, are revenue. Some items that are capital for one company may be revenue for another: expenditure on acquiring a new head office could be a revenue item for a company whose business is building new office blocks. Image File history File links James_Callaghan. ... Image File history File links James_Callaghan. ... Leonard James Callaghan, Baron Callaghan of Cardiff, KG, PC (27 March 1912 – 26 March 2005), was Labour Prime Minister of the United Kingdom from 1976 to 1979. ... The Chancellor of the Exchequer is the title held by the British Cabinet minister responsible for all economic and financial matters. ...

Before 1965, companies were subject to income tax on their profits,^[7] at the same rate as was levied on individuals. An imputation system existed, with the income tax paid by a company offsetting the income tax liability for a shareholder who received dividends from the company. With the standard rate of income tax in 1949 at 50%, a company making £1,000 in profits would pay £500 in tax.^[8] If the company then chose to pay a £100 dividend, the recipient would be treated as if they had earned £200, and paid £100 in income tax on it — the tax paid by the company fully imputed the same amount of tax due from the individual. If, however, the individual was subject to tax at a higher rate, they would be liable for any additional tax beyond the imputed amount.

In addition to income tax, companies were subject to a profits tax,^[7] introduced by Labour Chancellor Sir Stafford Cripps, which was deducted from company profits when determining income tax liability. It was a differential tax, with a higher tax on dividends (profits distributed to shareholders) than on profits retained within the company. By penalising the distribution of profits, it was hoped companies would retain profits for investment, which was thought a priority after the Second World War.^[9] The tax did not have the desired effect, and further swingeing increases^[10] were introduced in the distributed profits tax. At the time of Hugh Gaitskell's 1951 budget, the profits tax was 50% for distributed profits and 10% for undistributed profits. Rt Hon Sir Stafford Cripps Sir Richard Stafford Cripps (April 24, 1889 - April 21, 1952), British Labour politician, was born in London, the son of a Conservative member of the House of Commons who late in life, as Lord Parmoor, joined the Labour Party. ... It has been suggested that ex-dividend date be merged into this article or section. ... Mushroom cloud from the nuclear explosion over Nagasaki rising 18 km into the air. ... Hugh Todd Naylor Gaitskell (April 9, 1906 – January 18, 1963) was a British politician, leader of the Labour Party from 1955 until his death in 1963. ...

A series of reductions in the profits tax were brought in under the Conservative government from 1951 onwards, with rates falling to 22.5% on distributed profits, and 2.5% on undistributed profits by 1957, although the profits tax was no longer income tax-deductible. Derick Heathcoat-Amory's Budget of 1958 replaced the differential profits tax with a single profits tax measure. The gradual decrease, and final ending, of taxes on capital distributions reflected ideological differences between the Conservative and Labour parties: the Conservative approach was to distribute excess profits to capital holders for investment elsewhere, while Labour had strongly incentivised the retention of profits for reinvestment.^[9] Derick Heathcoat-Amory, 1st Viscount Amory (26 December 1899 - 20 January 1981) was a British Conservative politician. ...

Finance Act 1965

Under Chancellor of the Exchequer James Callaghan, the Finance Act 1965^[1] replaced the system of income tax and profits tax with a single measure, the Corporation Tax, from 1 April 1965. Corporation tax was charged at a uniform rate on all profits, although there was additional tax payable when profits were distributed as a dividend to shareholders. Profits therefore suffered double taxation. This method of corporation tax is known as the classical system and is similar to that used in the United States. The effect of the tax resembled that of the dividend distribution tax in operation from 1949 to 1959: dividend payments were subject to higher tax than profits retained within the company. The Chancellor of the Exchequer is the title held by the British Cabinet minister responsible for all economic and financial matters. ... Leonard James Callaghan, Baron Callaghan of Cardiff, KG, PC (27 March 1912 – 26 March 2005), was Labour Prime Minister of the United Kingdom from 1976 to 1979. ... is the 91st day of the year (92nd in leap years) in the Gregorian calendar. ... Year 1965 (MCMLXV) was a common year starting on Friday (link will display full calendar) of the 1965 Gregorian calendar. ... It has been suggested that ex-dividend date be merged into this article or section. ...

The Finance Act 1965^[1] also introduced capital gains tax, at a rate of 30%. This was a tax charged on the gains arising on the disposal of capital assets by individuals. While companies were exempted from capital gains tax, they were liable to corporation tax on their "chargeable gains", which were calculated in the same way as individuals' capital gains. The tax applied to company shares as well as other assets. Before 1965, capital gains were not taxed, and it was advantageous for taxpayer to argue that a receipt was non-taxable "capital" rather than taxable "revenue". A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ...

Advance Corporation Tax

The basic structure of the tax, where company profits were taxed as profits, and dividend payments were then taxed as income, remained unchanged until 1973, when a partial imputation system was introduced for dividend payments.^[7] Unlike the previous imputation system, the tax credit to the shareholder was less than the corporation tax paid (corporation tax was higher than the standard rate of income tax, but the imputation was only of standard rate tax). When companies made distributions, they also paid advance corporation tax (ACT), which could be set off against the mainstream corporation tax charge, subject to certain limits (the full amount of ACT paid would not be recovered where significantly large amount of profits were distributed).^[11] Individuals and companies who received a dividend from a UK company received a tax credit representing the ACT paid.^[12] Individuals could set off the tax credit against their income tax liability.^[13] Advance corporation tax (ACT) was the scheme under which companies made an advance payment of corporation tax when they distributed dividend payments to shareholders. ... Within the Australian, Canadian, United Kingdom, and United States tax systems, a tax credit is an item which is treated as a payment already made towards taxes owed. ...

On introduction, ACT was set at 30% of the gross dividend (the actual amount paid plus the partially imputed tax credit). If a company made a £70 dividend payment to an individual, the company would pay £30 of advance corporation tax to the Inland Revenue. The shareholder would receive the £70 cash payment, plus a tax credit of £30; thus, the individual would be deemed to have earned £100, and to have already paid tax of £30 on it. The ACT paid by the company would be deductible against its final "mainstream" corporation tax bill. To the extent that the individual's tax on the dividend was less than the tax credit - for example, if his income was too low to pay tax (below £595 in 1973–1974^[14]) - he would be able to reclaim some or all of the £30 tax credit. The imputation was partial since the company would pay 52% tax (small companies had lower rates, but still higher than the ACT rate),^[5] and thus the £70 received by the individual actually represents pre-tax profits of £145.83. Accordingly, only part of the double taxation was relieved. The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty. ...

ACT was not payable on dividends from one UK company to another (unless the payor company elected to pay it).^[15] Also, the recipient company was not charged to tax on that dividend, except for dealers in shares and life assurance companies in respect of some of their profits.^[15] As the payor company would have suffered tax on the payments it made, the company that received the dividend also received a credit that it could use to reduce the amount of ACT it itself paid, or, in certain cases, apply to have the tax credit repaid to them.^[12] It has been suggested that this article or section be merged into Life insurance. ...

Gordon Brown, the Chancellor of the Exchequer who abolished ACT and introduced the quarterly instalment régime in 1999.

The level of ACT was linked to the basic rate of income tax between 1973 and 1993. The March 1993 Budget of Norman Lamont cut the ACT rate and tax credit to 22.5% from April 1993, and 20% from April 1994.^[5] These changes were accompanied with a cut of income tax on dividends to 20%, againstwhile the basic rate of income tax remained at 25%. Persons liable for tax were lightly affected by the change, because income tax liability was still balanced by the tax credit received, although higher rate tax payers paid an additional 25% tax on the amount of the dividend actually received (net), as against 20% before the change. Download high resolution version (1128x1500, 149 KB) Wikipedia does not have an article with this exact name. ... Download high resolution version (1128x1500, 149 KB) Wikipedia does not have an article with this exact name. ... For others with the same or similar names, see Gordon Brown (disambiguation). ... Norman Stewart Hughson Lamont, Baron Lamont of Lerwick, PC (born 8 May 1942) was Conservative Member of Parliament for Kingston-upon-Thames, England from 1972 until 1997. ...

The change had bigger effects on pensions and non-taxpayers. A pension fund receiving a £1.2 m dividend income prior to the change would have been able to reclaim £400,000 in tax, giving a total income of £1.6 m. After the change, only £300,000 was reclaimable, reducing income to £1.5 m, a fall of 6.25%.

Gordon Brown's summer Budget of 1997^[16] ended the ability of pension funds and other tax-exempt companies to reclaim tax credits with immediate effect, and for individuals from April 1999.^[7] This change has been blamed for the poor state of British pension provision, with critics such as Member of Parliament Frank Field describing it as a "hammer blow",^[17] with the hypothetical £1.5 m income described above falling to £1.2 m, a fall in income of 20%, because no tax would be reclaimable. For others with the same or similar names, see Gordon Brown (disambiguation). ... A Member of Parliament, or MP, is a representative elected by the voters to a parliament. ... The Right Honourable Frank Ernest Field (born July 16, 1942, London) is a British politician, and Labour MP for Birkenhead. ...

Abolition of Advance Corporation Tax

From 6 April 1999 ACT was abolished,^[7] and the tax credit on dividends was reduced to 10%.^[5] There was a matching reduction in the basic income tax rate on dividends to 10%, while a new higher-rate of 32.5% was introduced.^[18] This meant that deemed gross incomes for basic-rate tax payers were reduced, and there was no overall change in liability for higher-rate income tax payers. However, non-taxpayers could no longer reclaim any tax credit at all. is the 96th day of the year (97th in leap years) in the Gregorian calendar. ... This article is about the year. ...

ACT that had been suffered prior to 1999 could still be set off against a company's tax liability, provided it would have been able to set it off under the old imputation system.^[19] In order to keep the stream of payments associated with advance corporation tax payment, 'large' companies (comprising the majority of corporation tax receipts) were subject to a quarterly instalments scheme for tax payment.^[20]

Rates

On introduction, corporation tax was charged at 40%, rising to 45% in the 1969 Budget. The rate then fell to 42.5% in the second Budget of 1970 and 40% in 1971. In 1973, alongside the introduction of advance corporation tax (ACT), chancellor Anthony Barber created a main rate of 52%, together with a smaller companies' rate of 42%.^[5] This apparent increase was negated by the fact that under the ACT scheme, dividends were no longer subject to income tax. Look up budget in Wiktionary, the free dictionary. ... Advance corporation tax (ACT) was the scheme under which companies made an advance payment of corporation tax when they distributed dividend payments to shareholders. ... The Right Honourable Anthony Perrinott Lysberg Barber, Baron Barber, PC (4 July 1920 - 16 December 2005), was a Conservative member of the House of Lords. ...

The 1979 Budget of Geoffrey Howe cut the small companies' rate to 40%, followed by a further cut in the 1982 Budget to 38%.^[5] The Budgets of 1983–1988 saw sharp cuts in both main and small companies' rates, falling to 35% and 25% respectively.^[5] Budgets between 1988 and 2001 brought further falls to a 30% main rate and 19% small companies' rates.^[5] From April 1983 to March 1997 the small companies' rate was pegged to the basic rate of income tax.^[7] During the 1980s there was briefly a higher rate of tax imposed for capital profits. Richard Edward Geoffrey Howe, Baron Howe of Aberavon, CH, PC, QC (born 20 December 1926), known until 1992 as Sir Geoffrey Howe, is a senior British Conservative politician. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income...

Chancellor Gordon Brown's 1999 Budget^[21] introduced a 10% starting rate for profits from £0 to £10,000, effective from April 2000.^[22][5] Marginal relief applied meaning companies with profits of between £10,000 and £50,000 paid a rate between the starting rate and the small companies' rate (19% in 2000). For others with the same or similar names, see Gordon Brown (disambiguation). ...

The 2002 Budget^[23] cut the starting rate to zero, with marginal relief applying in the same way.^[24][5] This caused a vast surge in incorporations, as businesses that had operated as self employed, paying income tax on profits from just over £5000, were attracted to the corporation tax rate of 0% on income up to £10,000.^[25] Previously self-employed individuals could now distribute profits as dividend payments rather than salaries.^[26] For companies with profits under £50,000 the corporation tax rate varied between 0% and 19%. Because dividend payments come with a basic rate tax credit, provided the recipient did not earn more than the basic rate allowance, no further tax would be paid.^[13] The number of new companies being formed in 2002–2003 reached 325,900, an increase of 45% on 2001–2002.^[27] A self-employed person works for himself/herself instead of as an employee of another person or organization, drawing income from a trade or business. ... It has been suggested that ex-dividend date be merged into this article or section. ...

The fact that individuals operating in this manner could potentially pay no tax at all was felt by the government to be unfair tax avoidance,^[26] and the 2004 Budget^[28] introduced a Non-Corporate Distribution Rate.^[29] This ensured that where a company paid below the small companies' rate (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%. For example, a company making £10,000 profit, and making a £6,000 dividend distribution to an individual and £4,000 to another company would pay 19% corporation tax on the £6000. Although this measure substantially reduced the number of small businesses incorporating, the Chancellor in the 2006 Budget^[30] said tax avoidance by small businesses through incorporation was still a major issue, and scrapped the starting rate entirely.^[31]

Taxable profits and accounting profits

The starting point for computing taxable profits is profits before tax (except for a life assurance company). The rules for calculating corporation tax generally ran in parallel with income tax until 1993, when the first statutory rule to move profit reporting into line with generally accepted accounting practice was introduced, although the courts were already moving towards requiring trading profits to be computed using general accountancy rules.^[32] It has been suggested that this article or section be merged into Life insurance. ... GAAP is an acronym for Generally Accepted Accounting Principles. ... Accountancy (profession) or accounting (methodology) is the measurement, disclosure or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies, organizations, and public agencies. ...

The Finance Act 1993^[33] introduced rules to make tax on exchange gains and losses mimic their treatment in a company's financial statements in most instances. The Finance Act 1994^[34] saw similar rules for financial instruments, and in the Finance Act 1996^[35] the treatment of most loan relationships was also brought into line with the accounting treatment. The Finance Act 1997^[36] saw something similar with rental premiums. A year later, the Finance Act 1998^[37] went even further, making it clear that taxable trading profits (apart from those accruing to a Lloyd's corporate name^[38] or to a life assurance company) and profits from a rental business are equal to profits calculated under generally accepted accounting practice ("GAAP") unless there is a specific statutory or case law rule to the contrary. This was followed up by the Finance Act 2004,^[39] which ruled that where a company with investment business could make deductions for management expenses, they were calculated by reference to figures in the financial statements.^[40] Historical financial statement Financial statements (or financial reports) are formal records of a business financial activities. ... It has been suggested that Council of Lloyds be merged into this article or section. ... It has been suggested that this article or section be merged into Life insurance. ... The Generally Accepted Accounting Principles in the UK, or UK GAAP, are the overall body of regulation establishing how company accounts must be prepared in the United Kingdom. ... Historical financial statement Financial statements (or financial reports) are formal records of a business financial activities. ...

International Financial Reporting Standards

From 2005, all European Union listed companies have to prepare their financial statements using the "International Financial Reporting Standards" ("IFRSs"), as modified by the EU.^[41] Other UK companies may choose to adopt IFRSs. Corporation tax law is changing so that, in the future, IFRSs accounting profits are largely respected. The exception is for certain financial instruments and certain other measures to prevent tax arbitrage between companies applying IFRSs and companies applying UK GAAP. A stock market is a market for the trading of publicly held company stock and associated financial instruments (including stock options, convertibles and stock index futures). ... International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB). ... In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. ...

Avoidance

Tax avoidance is the legitimate reduction of tax through tax planning and/or usage of legal provisions. Unlike most other countries, most UK tax professionals are accountants rather than lawyers by training. The main promoters of tax avoidance schemes are the large accountancy and law firms, and large financial services groups, who market tax-efficient investments. This article contrasts tax evasion, tax avoidance and tax mitigation. ... Accountancy (profession) or accounting (methodology) is the measurement, disclosure or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies, organizations, and public agencies. ...

There has never been a general anti-avoidance rule ("GAAR") for corporation tax. However, it inherited an anti-avoidance rule from income tax relating to transactions in securities,^[42] and since then has had various "mini-GAARs" added to it. The best known "mini-GAAR" prevents a deduction for interest when the loan to which it relates is made for an "unallowable purpose".^[43]

The Finance Act 2004^[39] introduced disclosure rules requiring promoters of certain tax avoidance schemes that are financing- or employment-related to disclose the scheme. Taxpayers who use these schemes must also disclose their use when they submit their tax returns.^[44] This is the first provision of its kind in the UK, and the Finance Act 2005^[45] has shown a number of tax avoidance schemes being blocked earlier than would have been expected prior to the disclosure rules.

Need for greater revenues

Recently, the Government has sought to raise more revenues from corporation tax. In 2002 it introduced a separate 10% supplementary charge on profits from oil and gas extraction businesses,^[46] and the Finance Act 2005^[45] contained measures to accelerate when oil and gas extraction business have to pay tax. Instead of paying their tax in four equal instalments in the seventh, tenth, thirteenth and sixteenth month after the accounting period starts, they will be required to consolidate their third and fourth payments and pay them in the thirteenth month, creating a cash flow advantage for the Government. The Finance (No.2) Act 2005^[47] continued measures specifically relating to life assurance companies. When originally announced (as the Finance (No.3) Bill 2005) Legal & General told the Stock Exchange that £300 m had been wiped off their value, and Aviva (Norwich Union) announced that the tax changes would cost its policy holders £150 m. This article does not cite any references or sources. ... It has been suggested that this article or section be merged into Life insurance. ... Legal & General Group Plc is a British based financial services company that provides life, health and other insurance, as well as pensions and investments. ...

Method of charge

Corporation tax must be passed annually by Parliament, otherwise there is no authority to collect it. The charge for the financial year (beginning 1 April each year) was imposed by the Finance Act passed in that calendar year. The Finance Act 1998^[37] changed this, imposing the charge for the 1998 and 1999 financial years, with the Finance Act 1999^[48] then imposing the charge for the 2000 financial year, and so on. The tax is charged in respect of the company's accounting period, which is normally the 12-month period for which the company prepares its accounts.^[49] Corporation tax is administered by Her Majesty's Revenue and Customs (HMRC), which was formed from a merger of the Inland Revenue (which previously administered corporation tax) and Her Majesty's Customs and Excise on 18 April 2005. Type Bicameral Houses House of Commons House of Lords Speaker of the House of Commons The Right Honourable Michael Martin MP Lord Speaker Hélène Hayman, Baroness Hayman, PC Members 1377 (646 Commons, 731 Peers) Political groups (as of May 5, 2005 elections) Labour Party Conservative Party Liberal Democrats... A fiscal year (or financial year or accounting reference date) is a 12-month period used for calculating annual (yearly) financial reports in businesses and other organizations. ... is the 91st day of the year (92nd in leap years) in the Gregorian calendar. ... Jim Callaghan was the Chancellor of the Exchequer who introduced United Kingdom corporation tax, and with it the concept of an accounting period in 1965. ... Historical financial statement Financial statements (or financial reports) are formal records of a business financial activities. ... Part of the HMRC complex in Nottingham. ... The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty. ... Her Majestys Customs and Excise (HMCE) was, until April 2005, a department of the British Government in the UK. It was responsible for the collection of Value added tax (VAT), Customs Duties, Excise Duties, and other indirect taxes such as Air Passenger Duty, Climate Change Levy, Insurance Premium Tax... is the 108th day of the year (109th in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ...

Assessment

Corporation tax is levied on the net profits of a company.^[49] Except for certain life assurance companies,^[50] it is borne by the company as a direct tax. It has been suggested that this article or section be merged into Life insurance. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        The term direct tax has more than one meaning: a colloquial...

Up until 1999 no corporation tax was due unless HM Revenue & Customs (HMRC) raised an assessment on a company. Companies were, however, obliged to report certain details to HMRC so that the right amount could be assessed. This changed for accounting periods ending on or after 1 July 1999, when self-assessment was introduced.^[37] Self-assessment means that companies are required to assess themselves and take full responsibility for that assessment. If the self-assessment is wrong through negligence or recklessness, the company can be liable to penalties.^[51] The self-assessment tax return needs to be delivered to HMRC 12 months after the end of the period of account in which the accounting period falls^[52] (although the tax must be paid before this date). If a company fails to submit a return by then, it is liable to penalties.^[51] HMRC may then issue a determination of the tax payable,^[53] which cannot be appealed — however, in practice they wait until a further six months have elapsed. Also, the most common claims and elections that may be made by a company have to be part of its tax return, with a time limit of two years after the end of the accounting period.^[54] This means that a company submitting its return more than one year late suffers not only from the late filing penalties, but also from the inability to make these claims and elections. Her Majestys Revenue and Customs (HMRC) is a new department of the British Government created by the merger of the Inland Revenue and Her Majestys Customs and Excise which came into formal effect on 18 April 2005. ... is the 182nd day of the year (183rd in leap years) in the Gregorian calendar. ... This article is about the year. ...

From 2004 there has been a requirement for new companies to notify HM Revenue & Customs of their formation, although HMRC receives notifications of new company registrations from Companies House.^[39] Companies will then receive an annual notice CT603, approximately 1–2 months after the end of the company's financial period, notifying it to complete an annual return. This must also include the company's annual accounts, and possibly other documents, such as Auditors' reports, that are required for certain companies.^[55] This page is a candidate for speedy deletion. ... Companies House is an Executive Agency of the United Kingdom Government Department of Trade and Industry (DTI). ... Audit can refer to: Telecommunication audit Financial audit Performance audit Completion of a course of study for which no assessment is completed or grade awarded; especially audit is awarded to those who have elected not to receive a letter grade for a course in which letter grades typically awarded. ...

Schedular system

Main article: Schedular system of taxation The schedular system of taxation is the system of how the charge to United Kingdom corporation tax is applied. ...

In the United Kingdom the source rule applies. This means that something is taxed only if there is a specific provision bringing it within the charge to tax. Accordingly, profits are only charged to corporation tax if they fall within one of the following, and are not otherwise exempted by an explicit provision of the Taxes Acts:^[49]

Notes:

1. In practice companies do not get taxed under Schedule F. Most companies are exempted from Schedule F and there is a provision for those companies which are taxed on UK dividends (ie dealers in shares (stock)) that removes the charge from Schedule F to Schedule D.
2. A Controlled Foreign Company ("CFC") is a company controlled by a UK resident that is not itself UK resident and is subject to a lower rate of tax in the territory in which it is resident.^[60] Under certain circumstances, UK resident companies that control a CFC pay corporation tax on what the UK tax profits of that CFC would have been. However, because of a wide range of exemptions,^[61] very few companies suffer a CFC charge.
3. Schedules B, C and E used to, but no longer, exist.
4. Authorised unit trusts and OEICs are not liable to tax on their chargeable gains.^[62]

Schedule D is itself divided into a number of cases: This article does not cite any references or sources. ... Controlled Foreign Corporations or Companies, also known as CFCs, are a legal construction of the various tax authorities around the world. ...

Notes:

1. Cases II and IV only apply to income tax and not corporation tax.

Relief for expenses

Most direct expenses are deductible when calculating taxable income and chargeable gains. Notable exceptions include any costs of entertaining clients. Companies with investment business may deduct certain indirect expenses known as "expenses of management" when calculating their taxable profits. A similar relief is available for expenses of a life assurance company taxed on the I minus E basis which relate to the company's basic life assurance and general annuity business.^[40] Donations made to charities are also normally deducted in calculating taxable income.^[67] It has been suggested that this article or section be merged into Life insurance. ... For corporation tax purposes in the United Kingdom, long-term insurance business is divided into different categories. ...

Rates and payment

The 2007 Budget^[68] announced a main rate cut from 30% to 28%, effective from April 2008.^[5] At the same time, the small companies' rate was increased from 19% to 20% from April 2007, 21% in April 2008, and 22% in April 2009,^[5] to stop "individuals artificially incorporating as small companies to avoid paying their due share of tax, a practise if left unaddressed would cost the rest of the taxpaying population billions of pounds".^[69]

The rate of corporation tax is determined by the financial year,^[70] which runs from 1 April to the following 31 March. Financial year FY05 started on 1 April 2005 and will end on 31 March 2006. Where a company's accounting period straddles a financial year in which the corporation tax rate has changed, the company's profits for that period are split.^[70] For example, a company paying small companies' rate with its accounting period running from 1 January to 31 December, and making £100,000 of profit in 2007, would be deemed to have made 90/365*£100,000 = £24,657.53 in FY06 (there are 90 days between January 1 and March 31), and 275*365*£100,000=£75,34.47 in FY07, and would pay 19% on the FY06 portion, and 20% on the FY07 portion. is the 91st day of the year (92nd in leap years) in the Gregorian calendar. ... March 31 is the 90th day of the year in the Gregorian calendar (91st in leap years), with 275 days remaining. ... is the 91st day of the year (92nd in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... March 31 is the 90th day of the year in the Gregorian calendar (91st in leap years), with 275 days remaining. ... Year 2006 (MMVI) was a common year starting on Sunday of the Gregorian calendar. ... Jim Callaghan was the Chancellor of the Exchequer who introduced United Kingdom corporation tax, and with it the concept of an accounting period in 1965. ... is the 1st day of the year in the Gregorian calendar. ... is the 365th day of the year (366th in leap years) in the Gregorian calendar. ... is the 1st day of the year in the Gregorian calendar. ... March 31 is the 90th day of the year in the Gregorian calendar (91st in leap years), with 275 days remaining. ...

Notes:

1. The bands shown on the right hand side are divided by one plus the number of associates (usually the only associates a company has are fellow group companies, but the term is more widely defined)^[71]
2. The reduced rates do not apply to close investment holding companies (companies controlled by fewer than 5 people (plus associates) or by their directors/managers, whose main activity is the holding of investments).^[72] Nor do they apply to companies in liquidation after the first 12 months.
3. Authorised unit trusts and open-ended investment companies are taxed at the basic rate of income tax^[73]
4. Life assurance companies are taxed using the above rates on shareholder profits and 20% on policy holder profits^[74]
5. Companies active in the oil and gas extraction industry in the UK or on the UK continental shelf are subject to an additional 10% charge on their profits from those activities^[46]

Most companies are required to pay tax nine months and a day after the end of an accounting period.^[75] Larger companies are required to pay quarterly instalments, in the seventh, tenth, thirteenth and sixteenth months after a full accounting period starts.^[20] These times are modified where an accounting period lasts for less than twelve months.^[76] From 2005 onwards, for tax payable on oil and gas extraction profits, the third and fourth quarterly instalments are merged, including the supplementary 10% charge.^[45] An ICVC or Investment Company with Variable Capital is a type of open ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations. ... It has been suggested that this article or section be merged into Life insurance. ...

In the financial year 2004–2005, approximately 39,000 companies paid corporation tax at the main rate. These 4.7% of active companies are responsible for 75% of all corporation tax receipts. Around 224,000 companies paid the small companies rate, with 34,000 benefiting from marginal relief. 264,000 were in the starting rate, with 269,000 benefiting from the lower band of marginal relief.^[77] The total revenue was £41.9bn^[78] from 831,885 companies.^[77] Only 23480 companies had a liability in excess of £100,000.^[79]

HM Revenue and Customs audit

HM Revenue and Customs (HMRC) has one year from the normal filing date, which is itself one year after the end of the period of account, to open an enquiry into the return. This period is extended if the return is filed late. The enquiry continues until all issues that HMRC wish to enquire about a return are dealt with. However, a company can appeal to the Commissioners of Income Tax to close an enquiry if they feel there is undue delay.^[80]

If either side disputes the amount of tax that is payable, they may appeal to either the General or Special Commissioners of Income Tax.^[81] Appeals on points of law may be made to the High Court (Court of Session in Scotland), then the Court of Appeal, and finally, with leave, to the House of Lords. However, decisions of fact are binding and can only be appealed if no reasonable Commissioner could have made that decision.^[82] Her Majestys High Court of Justice (known more simply as the High Court) is, together with the Crown Court and the Court of Appeal, part of the Supreme Court of England and Wales in England and Wales: see Courts of England and Wales. ... The Court of Session is the supreme civil court in Scotland. ... This article is about the country. ... Court of Appeals is the title of certain appellate courts in various jurisdictions. ... The House of Lords is the upper house of the Parliament of the United Kingdom and is also commonly referred to as the Lords. The Sovereign, the House of Commons (which is the lower house of Parliament and referred to as the Commons), and the Lords together comprise the Parliament. ...

Once an enquiry is closed, or the time for opening an enquiry has passed, HMRC can only re-open a prior year if they become aware of an issue which they could not reasonably have known about at the time, or in instances of fraud or negligence. In fraud or negligence cases, they can re-open cases from up to 20 years ago.^[83]

After a HMRC enquiry closes, or after final determination of an issue by the courts, the taxpayer has 30 days to amend their return, and make additional claims and elections, if appropriate, before the assessment becomes final and conclusive. If there is no enquiry, the assessment becomes final and conclusive once the period in which the Revenue may open an enquiry passes.

Relief from double taxation

There is a risk of double taxation whenever a company receives income that has already been taxed. This could be dividend income, which will have been paid out of the post-tax profits of another company and which may have suffered withholding tax. Or it could be because the company itself has suffered foreign tax, perhaps because it conducts part of its trade through an overseas permanent establishment, or because it receives other types of foreign income. Double taxation is a situation in which two or more taxes may need to be paid for the same asset, financial transaction and/or income and arises due to overlap between different countries tax laws and jurisdictions. ... It has been suggested that ex-dividend date be merged into this article or section. ... This article or section does not cite any references or sources. ... The principle of a withholding tax is that it is withheld (retained) by the payer and given directly to the taxation authorities. ... This article does not cite any references or sources. ...

Double taxation is avoided for UK dividends by exempting them from tax for most companies: only dealers in shares suffer tax on them.^[84] Where double taxation arises because of overseas tax suffered, relief is available either in the form of expense or credit relief.^[85] Expense relief allows the overseas tax to be treated as a deductible expense in the tax computation. Credit relief is given as a deduction from the UK tax liability, but is restricted to the amount of UK tax suffered on the foreign income. There is a system of onshore pooling, so that overseas tax suffered in high tax territories may be set off against taxable income arising from low tax territories.

Loss relief

Detailed and separate rules apply to how all the different types of losses may be set off within a company.^[86] A detailed explanation of these can be found in: United Kingdom corporation tax loss relief. United Kingdom corporation tax loss relief rules are complex. ...

Group relief

The UK does not permit tax consolidation, where companies in a group are treated as though they are a single entity for tax purposes. One of the main benefits of tax consolidation is that tax losses in one entity in a group are automatically relievable against the tax profits of another. Instead, the UK permits a form of loss relief called "group relief".^[87] Tax consolidation is a regime adopted in the tax or revenue legislation of a number of countries which treats a group of wholly-owned or majority-owned companies and other entities (such as trusts and partnerships) as a single entity for tax purposes. ...

Where a company has losses arising in an accounting period (other than capital losses, or losses arising under Case V or VI of Schedule D) in excess of its other taxable profits for the period, it may surrender these losses to a group member with sufficient taxable profits in the same accounting period.^[88] The company receiving the losses may offset them against their own taxable profits. Exceptions include that a company in the oil and gas extraction industry may not accept group relief against the profits arising on its oil and gas extraction business,^[46] and a life assurance company may only accept group relief against its profits chargeable to tax at the standard shareholder rate applicable to that company.^[74] Separate rules apply for dual resident companies.

Full group relief is permitted between companies subject to UK corporation tax that are in the same 75% group, where companies have a common ultimate parent, and at least 75% of the shares in each company (other than the ultimate parent) are owned by other companies in the group. The companies making up a 75% group do not all need to be UK-resident or subject to UK corporation tax relief. An open-ended investment company cannot form part of a group.^[89] An ICVC or Investment Company with Variable Capital is a type of open ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations. ...

Consortium relief is permitted where a company subject to UK corporation tax is owned by a consortium of companies that each own at least 5% of the shares and together own at least 75% of the shares. A consortium company can only surrender or accept losses in proportion to how much of that company is owned by each consortium group.^[90] A consortium is an association of two or more individuals, companies, organisations or governments (or any combination of these entities) with the objective of participating in a common activity or pooling their resources for achieving a common goal. ...

Example computation

This is an example computation involving a company that has one associate from which it receives £50,000 group relief.