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  • Tax Memo - Corporation tax - General principles - Scope - When is corporation tax due? - 1000
    A company is within the scope of corporation tax if it carries out a business activity (¶2000) which produces income or chargeable gains, and it is either: - UK resident; or - non-UK resident, but carrying on a UK trade through a permanent establishment. - This section provides a broad overview of the main principles underpinning the corporation tax regime. The detailed concepts are examined in the relevant parts of -Tax Memo. - Companies might not be carrying out any activity and be considered to be dormant....
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  • Tax Memo - Corporation tax - What is a business activity? - Professions and vocations - 2035
    The term profession indicates an occupation requiring intellectual skill, for example an accountant, or a controlled manual skill, such as sculpture or surgery. A vocation is analogous to a calling (although not limited to religious calling), for example playwrights and professional singers. When considering the professions and vocations of individuals, the distinction between employment and self-employment (¶26120) must also be taken into account. An accountant working for an accountancy firm is unlikely...
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  • Tax Memo - Corporation tax - Chargeable profits - Establishing chargeable profits - 3000
    Having established that an activity is a business, the next step is to determine the chargeable profits arising. This section deals with the general rules for the adjustment of profits and applies equally to companies, sole traders and partnerships. For rules specific to companies see ¶7000 onwards and for individuals ¶21000 onwards.
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  • Tax Memo - Corporation tax - Chargeable profits - Accounting profit/loss - Calculation - 3055
    The starting point when calculating chargeable profits is the accounting profit/loss, which is generally prepared in accordance with strict accounting principles. The main requirements are compliance with Generally Accepted Accounting Principles (GAAP), and either International Accounting Standards (IFRS) (primarily listed companies) or UK Financial Reporting Standards (FRS). These principles are also regularly adopted in the preparation of accounts for sole traders and partnerships. In recent years, the courts...
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  • Tax Memo - Corporation tax - Chargeable profits - Non-trading income - 3210
    Non-trading income must be excluded from the computation of trading profits and will include, for example: - receipts from mutual trading (¶2155); - profit or loss arising on the disposal of fixed assets or investments; - income taxable under another category (e.g. investment income, property income); - income which is specifically exempted from tax (e.g. gambling); - refunds in respect of a pension scheme surplus. Instead the scheme administrator is required to deduct tax at source; and - items which represent...
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  • Tax Memo - Corporation tax - Chargeable profits - Capital expenditure - Why distinguish? - 3260
    Taxable business profits are computed solely by reference to revenue items. No deduction is allowed for capital expenditure, unless the cash basis is being used (¶21010). It is therefore essential to identify whether receipts and expenses are capital or revenue in nature. - Capital items generally fall within the chargeable gains regime, and capital allowances (¶4000) may also be available. - Abortive expenditure incurred on a capital asset will still constitute capital expenditure. For example, expenditure...
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  • Tax Memo - Corporation tax - Chargeable profits - Trading income and expenses - Trading income - 3335
    Trading income is essentially any revenue receipt from the trading activity (that has not been excluded as non-trading income or capital expenditure), and includes the following: - payments received for goods and services which derive from the trading activity; and - other receipts, including gratuitous receipts deriving from the trading activity (if they are in recognition of past, present or future services).
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  • Tax Memo - Corporation tax - Chargeable profits - Specific income and expense items - Income items - Specific items - 3420
    The following paragraphs detail the treatment of a number of certain income items. Type of income ¶¶ Compensation payments ¶3425 Exclusivity agreements ¶3450 Leased assets (other than land)1 ¶3455 Restitution interest2 ¶11610 Revenue receipts after cessation of trade ¶3465 Reverse premiums ¶3470 Note: 1. For details on income from land for companies and individuals see ¶7000 and ¶23000 respectively. See also ¶3565 for premiums on short leases. 2. This is for companies only for income arising on...
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  • Tax Memo - Corporation tax - Chargeable profits - Specific income and expense items - Expense items - Computer software - 3620
    Where computer software and hardware are acquired at the same time, then normally the whole expenditure will qualify for capital allowances (¶4000). However, where computer software is acquired separately and it is expected to have a useful life of less than 2 years, it will be treated as an allowable revenue expense. This includes not only licences for third party software but also costs of developing software in-house and outright purchases of software. Where software is acquired under licence and regular...
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  • Tax Memo - Corporation tax - Chargeable profits - Adjustments required - 3735
    Having identified any capital items and expenses which are not deductible for tax purposes, a statement should be prepared showing the adjustments required to arrive at the taxable trading profit. Any expenses included in the profit and loss account which are not deductible for tax purposes must be disallowed when calculating the adjusted profit for tax purposes. This is achieved by adding the amount back to the profit before tax shown in the accounts. Similarly, any taxable income which is not included in...
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