The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
Companies are liable to corporation tax on their TTPs. Companies usually do not pay capital gains tax or income tax; however, many of the principles which apply to the computation of trading income and chargeable gains are similar for companies and individuals.
The definition of ‘profits’ includes the following most common items, which are covered in more detail below:
TTP is reduced by any qualifying charitable donations.
The adjustment of trading profits for companies is dealt with in the Adjustment of profits ― overview guidance note.
Interest expense, to the extent that it has been incurred on a non-trading loan, must also be added back. Instead, relief is given for this interest expense as a non-trading loan relationship debit. An example of a non-trading loan is a loan used to buy an investment such as a rental property or shares in another company. This is covered in detail in the Taxation of loan relationships guidance note.
Dividends paid by a company are appropriation of profits to the shareholders and are not an allowable trading expense. Under FRS 102, s 22 (previously FRS 25) / IAS 32, most preference shares will be treated as liabilities (or debt finance) and the dividends payable on such shares will be included as part of the company’s financing charges on the accounts. The tax treatment, however, remains unaffected and the dividends payable on such shares will continue to be treated as non-tax deductible distributions. Care should be taken to identify any amounts paid in respect of preference shares, which may not be immediately obvious in the P&L, and add them back in the profit adjustment computation.
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