02: Taxable profits
Taxable profits consist of income from all sources (trading, letting property and investment income) plus capital gains from sales of certain fixed assets and investments. Dividends received from other UK companies are not taxable.Corporation tax is charged on the taxable profits of an accounting period. An accounting period cannot be more than 12 months. The profits in company accounts prepared for a period of more than 12 months are apportioned between the first 12 months and the remainder.
Companies qualify for some special tax reliefs in calculating profits.
- Small and medium size companies can deduct 150%, and large companies 125%, of qualifying expenditure on research and development.
- 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.
- The corporate venturing scheme gives companies tax relief of 20% on the cost of subscribing for shares in a qualifying unquoted company.
- The costs of managing investments are deductible.
- A company’s trading losses can be set against any profits of the same period or the previous year. Alternatively they can be carried forward against future profits of the same trade.
