|Corporation tax (UK)|
This definition is merely of historical value. Refer to updated literature on the topic for changes to the corporation tax.
Introduced originally in 1965 to replace the then operative methods of taxing companies by income tax and profits tax, it served a double purpose. Not only were the profits of companies taxed, but additional amounts were payable by way of income tax on that part of profit distributed to shareholders. This 'double taxation' was discontinued after 1 April 1973 as part of the drastic tax changes in the budget of that year. Company profits are now only taxed once and there is a lower rate for small companies, with marginal relief for those companies just above the limit set for the definition of a small company.
It is not possible to summarize the whole compass of corporation tax here and the reader should seek specialist advice in particular cases. Points to be remembered as of general application are as follows. Corporation tax, unlike the old income tax, is levied on the basis of the financial year (1 April to 31 March). If the accounting period of a company straddles two finanp y allocated between the two years and the relevant rate charged on the portion aliocated to each year. Company profits are not liable to tax on a preceding year basis but on an actual basis; i.e. profits for the year ending 31 December 1978 are not taxed in income tax regulations) but are taxed in two fiscal years: 1977-8 (from 1 January to 31 March 1978) and 1978-9 (from 1 April to 31 December 1978). The rate of corporation tax is fixed in the Finance Act each year and tends to be higher than the standard rate of income tax.
Corporation tax is levied in two parts, known as advanced corporation tax, paid when any distribution of profits is made, and mainstream corporation tax on the remainder of the year's earnings. Taxable profit is arrived at after making various adjustments to the figure disclosed in the company's own accounts in order to bring the figure into line with the various regulations of the Inland Revenue as to what is an allowable expense and what income is taxable. There are particular rules regarding deductions for depreciation of assets, which are covered by capital allowances. Special regulations also apply to the part of a company's income regarded as franked investment income, i.e. generally income from investments, already taxed at source. Capital gains are also subject to corporation tax, though the rate is reduced to bring it in line with capital gains tax.
|Reference: The Penguin Business Dictionary, 3rd edt.|