BUSINESS LAW AND PRACTICE (SKILLS)

Workshop 9
Task 2 - Exemplar

Corporation Tax Calculation: HSMS

STEP 1: Calculate income profits

Trading Profit

Chargeable Receipts (sales) 12,245,000

Less

Deductible Expenditure
(Income in nature; wholly and exclusively for the purpose of the
trade; not statute barred):

Wages 1,786,000
Overheads 1,222,000
Rent 250,000
Electricity 678,000
Stock 3,771,000
(7,707,000)
4,538,000

Less Capital Allowances

Existing pool receives the standard

writing down allowance of 18%
600,000 x 18% = 108,000

The AIA against the first £1,000,000 of the

new expenditure
Balance of new expenditure receives the
standard writing down allowance of 18%

AIA = 1,000,000
650,000 x 18% = 117,000

(1,225,000)
Trading Profit 3,313,000

STEP 2: Calculate chargeable gains

Stage1: Identify the chargeable disposal - sale of premises

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Stage 2: Calculate gain or loss

Proceeds of disposal 850,000

Less
Costs of disposal (17,000)
Net proceeds of disposal 833,000
Less
Initial expenditure
Acquisition cost (320,000)
Costs of acquisition (1,500)
Less
Subsequent expenditure (0)
Gain (before indexation) 511,500

Less

Indexation allowance
320,000 x 0.79 252,800
1,500 x 0.79 1,185
(253,985)

Gain (after indexation) 257,515

Stage 3: Apply reliefs

The company can claim roll-over relief on replacement of qualifying assets.

The company has disposed of a qualifying asset (land/buildings) – city centre

premises.

The company has acquired a new qualifying asset (land/buildings) – the factory.

Both assets are used in the trade. The factory was acquired in January 2021, i.e.
within 3 years of the disposal of the city centre premises.

The gain (after indexation) on the disposal of the city centre premises will be
deducted from the acquisition cost of the factory for corporation tax purposes and the
tax payable is therefore postponed until the factory is sold.

STEP 3: Calculate total profits

Apply reliefs available against total profits:

On the basis that the company does claim roll-over relief on its chargeable gain, its
income profits alone of £3,313,000 will form its total profits.

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STEP 4: Calculate the tax at the appropriate rate(s)

The company’s total profits are all taxed at 19%.

If roll-over relief is claimed: total profits £3,313,000 x 19% = £629,470 tax.

The profits exceed £1,500,000.The company is a ‘large’ company and so will have to
pay tax in four instalments:

(1) 6 months and 13 days after the start of the accounting period (14 October
2020)
(2) 3 months from the first instalment (14 January 2021)
(3) 3 months from the second instalment (14 April 2021)
(4) 3 months and 14 days after the end of the accounting period (14 July
2021).

Workings: roll-over relief

Purchase of new property

Disposal of old property £
Original acquisition cost of new asset 1,500,000
Less: rolled-over gain (i.e. gain after indexation) _257,515
Adjusted acquisition cost 1,242,485

This adjusted acquisition cost will be used if the company disposes of the new
premises in the future.

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