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November 11th 2013 / BY: Wisteria

Corporation Tax – Chargeable Gains for Companies

Just like with individuals, if a company purchases an asset and then sells/disposes of it, then any gain from the disposal may be liable to tax. Instead of capital gains tax (which is the case for individuals), for companies, this comes in the form of corporation tax (the details of the sale will need to be included in the company’s corporation tax return). This article will highlight how to calculate chargeable gains for companies.co_sec

Firstly, what is a chargeable gain? When a company or organisation sells an asset for more than it initially paid, this is what is known as a ‘chargeable gain’ or ‘capital gain’. It will be this gain that is liable to corporation tax. The most common assets that companies dispose of are:

–          business premises

–          land

–          shares

–          other securities such as loan stock

If your company is resident in the UK, incorporated in the UK, is a non-resident company but trading through a ‘permanent establishment’ within the UK then any chargeable gain that your company makes will be liable to corporation tax.

In order to calculate the chargeable gain as a result of the disposal or sale of an asset, you will need to know the following information:

–          sale proceeds for the asset

–          cost of the asset

–          other costs/expenses associated with the buying/selling of the asset

–          indexation allowance

Sale Proceeds – this is the sum of money that the company receives when the asset was sold/disposed of.

Cost – the amount that was initially paid for the asset.

Other expenses – this includes the extra money spent on buying, selling or improving the asset. Examples of this could be legal and professional fees or estate agents fees.

Indexation Allowance (IA) – this takes into account the effects of inflation when calculating the gains made on the disposal of assets. It can be applied to both the cost of the asset itself as well as any allowable costs associated with the acquisition of the asset. (HMRC’s site contains all the indexation allowances that you will need).

Note: The IA will reduce the size of your chargeable gain but it cannot be used to turn a gain into a loss, or increase a loss.

Now that you have all of the necessary information, it is important you know how to calculate your chargeable gains. This is done by:

1)      Taking your total amount received.

2)      From this amount, deduct the cost of the asset.

3)      Then deduct any additional expenses.

4)      Calculate the IA.

5)      Finally you will need to deduct the IA from (3) to leave you with the chargeable gain.

Another thing to note is that whereas individuals who make chargeable gains have an annual exemption, companies do not have an annual exemption. This means that all gains are liable to corporation tax for companies.

If you would like more information about chargeable gains for companies, or what reliefs you could be entitled to, then please do contact Wisteria on 020 8952 0140 or email info@wisteria.co.uk where one of our tax specialists will be more than happy to assist you.