ATX Revision Notes

Gains and Losses - Companies


 Residency of a company

A company is resident in the UK if:

1. It has been incorporated in the UK, for example. K Ltd. or B plc.

2. It is centrally managed and controlled in the UK for example, M. Inc. which was
incorporated overseas has majority of its board meetings held in the UK, and most
of its directors are resident in the UK.

Property business profits and relief for property losses

The calculation of property business profits is exactly the same as that for individuals
with 3 exceptions:

1. Interest payable on a loan to buy an investment property is deducted from “Interest

income”

2. There is no rent a room relief for companies as a company will not have a main
residence.

3. Property losses are relieved against Total Income of the current year before any
qualifying charitable donations can be deducted.

Property losses can be c/f against Total Income in the next year

Relief for trading losses

Trading losses can be:

1. Relieved against Current year total income plus capital gains

2. Carried back 12 months of Total income plus capital gains

3. Carried forward against the Total income of future years

For Individuals - You can carry back 12 months without using the current year

But for the companies - you have to use the current year’s profit before you carry

the loss back.

If we are using the total income of the current and previous year, then the loss must be

deducted before any Qualifying charitable donations.

However, if we are using the total income of future years, we can restrict the amount of loss

and save our Qualifying charitable donations.

Terminal Loss
If a trading loss occurs in the final 12 months of trading, then this trading loss can be
carried back for 36 months against the Total income of the company, on a LIFO (last in first
out) basis.

The loss cannot be restricted to save qualifying charitable donations.

Factors that influence choice of loss relief claim

1. Relief as soon as possible

Therefore, the current year total income and and carry back 12 months’ total income
claim are much more likely to be used before the carry forward claim against trading
profits

2. Making a large company a small company for corporation tax purposes

If a loss relief claim can reduce the size of the company, then this will avoid the
company having to make quarterly instalments of corporation tax.

 Qualifying charitable donations

You can deduct charitable donations from the taxable total profits.

How to calculate taxable total profits?

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 (TTP) x
C.T = TTP x 19%

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

 Capital gains computation

Capital gains and losses are netted off for each tax year

Corporation tax is paid upon this net gain.

For a company’s capital gain, the following computation can be used:

Disposal proceeds X

Less: Incidental cost of disposal (X)

Net proceeds X

Less: Acquisition Costs (X)

Less: Indexation allowance until December 2017 (X)

Capital gain/Capital loss X / (X)

After all individual gains and losses have been computed, then they must be
aggregated and the following computation can be used. 

Capital Gains in tax year X

Less: Capital losses in tax year (X)

Net Capital Gains in tax year X

Less: Capital losses brought forward

Taxable Gains X

 Indexation allowance
- is given to companies, instead of the annual exemption.

- Is an allowance given to companies to reduce the chargeable gain

- It is only given until December 2017.

- It Can not create a Capital Loss or increase a capital loss

- It can only reduce a capital gain to Nil

Illustrated here:

Sale Proceeds X

Less: Cost (X)

Unindexed Gain X

Less: Indexation Allowance (IA) (X)

Gain (IA can only reduce a capital gain to Nil) 0

You will be given this indexation factor in the exam. You will not need to
calculate it.

Capital losses

When a company has a capital loss:

1. It is first set off against any Capital gains arising in the same accounting period.

2. Any remaining capital loss is then carried forward and set off against future Capital
gains.

Rollover relief for companies

Rollover relief for companies is the same as rollover relief for individuals.

The only difference between the two is that the indexed gain is rolled over for companies,
whereas individuals do not index the gain.

Conditions:

1. The disposal must have been of a qualifying business asset and the reinvestment
must be in a qualifying business asset.

2. The reinvestment must be made 12 months prior to the sale or 36 months post the
sale.

3. All of the sale proceeds received on the sale must be reinvested for qualification of
full roll over relief. If only some of the sale proceeds are reinvested, then:

Total sale proceeds received-sale proceeds reinvested = indexed capital gain

realised NOW.

Total indexed capital gain-indexed capital gain realised now = indexed capital gain
to be rolled over.