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Measure Name
Date when measure came into force
Reduction in the rate of corporation tax 2012/04/01
Reduction in the CIT rate 2013/04/01
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Generic Tax Name Corporate income tax
Tax name in the national language Corporation tax
Tax name in English Corporation tax
Member State UK-United Kingdom
Tax in force since 1988/01/01
If abolished, date on which the tax ceases to apply
Business version date 2015/01/01
Version date 2015/02/17
This file was last updated on

Type of tax
Direct taxes Personal income tax
Corporate income tax
Other

Indirect taxes VAT
Excise duty (EU harmonised)
Alcoholic beverages
Energy products and electricity
Manufactured tobacco
Other

Social security contribution Employers
Employees
Other
 
Legal base

Corporation tax (CT) is a direct tax charged on the profits made by companies, public corporations and unincorporated associations such as industrial and provident societies, clubs and trade associations. The tax is charged on the profits made in each accounting period, i.e. the period over which the company draws up its accounts. The rates of taxation are set for the financial year running from April to March; where an accounting period straddles 31 March the profits are apportioned between the two financial years on a time basis.

Taxable profits for corporation tax include

  • Capital gains – known as ‘chargeable gains’ for corporation tax purposes.
  • Profits from taxable income such as trading profits or investment profits (except dividend income which is taxed differently).

Taxable profits for corporation tax purposes often differ from the pre-tax profits in the company accounts. This is partly because the corporation tax regime has a system of capital allowances, which applies instead of depreciation charges for items such as plant and machinery. There are also other allowances, deductions and reliefs which can be applied when calculating the company’s taxable profits. Particularly significant is group relief, whereby companies belonging to a group can surrender their trading losses to offset against the profits of another group member.

Companies based in the UK have to pay corporation tax on all their taxable profits, wherever in the world those profits come from. Companies not based in the UK, but with branches operating in the UK, have to pay corporation tax on taxable profits arising from their UK activities.

 
Who sets
The tax rate is set by




The tax base is set by




The reliefs are set by




Comments
 
Beneficiary





Comments
 
Geographical Scope
 
Taxpayers
Domestic-source income of non-resident entities is Taxed
Not Taxed
Comments
 
Tax object and basis of assessment
As general rule, taxable income under corporate income tax includes also








Comments

Income considered Domestic income
Worldwide income (subject to double-tax relief)
Comments

Comments

All profits (including income and capital gains), with the exception of dividends and other distributions received from UK resident companies.

 
Deductions, Allowances, Credits, Exemptions
Valuation of inventory
System First-in first-out (FIFO)
Last-in first-out (LIFO)
Average cost
Specific identification (unit method)

Comments

Depreciation rules
 
Buildings
System Straight-line method
Declining balance
Production method
Combination of above
Other
Not-depreciable

Comments
Average depreciation period
Average depreciation rate
 
Movable (tangible) assets
System Straight-line method
Declining balance
Production method
Combination of above
Other
Not-depreciable

Comments

Expenditure on plant and machinery is pooled together (the main pool) and allowances are given at 18% on a reducing-balance basis.

Average depreciation period
Average depreciation rate 18.0 %
 
Movable fixed assets
System Straight-line method
Declining balance
Production method
Combination of above
Other
Not-depreciable

Comments

Expenditure on plant and machinery is pooled together (the main pool) and allowances are given at 18% on a reducing-balance basis. Assets with a useful life of 25 years or more (long-life assets) are depreciated at 8% on a reducing-balance basis.

Average depreciation period
Average depreciation rate 8.0 %
 
Intangible assets
System Straight-line method
Declining balance
Production method
Combination of above
Other
Not-depreciable

Comments
Average depreciation period
Average depreciation rate 4.0 %
 
Land (if any)
System Straight-line method
Declining balance
Production method
Combination of above
Other
Not-depreciable

Comments
Average depreciation period
Average depreciation rate


Comments

Are there limits to interest deductions? Yes No
If yes:
Definition of deduction limit

Comments

Is there an Allowance for Corporate Equity? Yes No
If yes:
Notional rate applied for allowance

Comments

Losses
Loss carry-forward exists? Yes No
If yes:
Time limit: Indefinite
 
Size limit:
 
Loss carry-backward exists? Yes No
If yes:
Time limit: Indefinite
3  Years  
Size limit:
 

Comments


Comments

Interest restrictions:

The United Kingdom’s transfer-pricing measures apply to the provision of finance (as well as to trading income and expenses). As a result, companies must self-assess their tax liability on financing transactions using the arm’s-Length principle. Consequently, HMRC may challenge interest deductions on the grounds that, based on all of the circumstances, the loan would not have been made at all or that the amount loaned or the interest rate would have been less, if the lender was an unrelated third party acting at arm’s length. Worldwide Debt Cap. The World wide Debt Cap (WWDC) is a cap on allowable interest deductions in addition to thin-capitalization restrictions and other anti-avoidance provisions. The WWDC provisions are de signed to restrict the UK tax deduction available for financing expenses of large groups based on the gross financing expense of the worldwide group. The WWDC legislation applies to accounting periods beginning on or after 1 January 2010. The WWDC provisions include a gateway test. If the gateway test is satisfied, the UK group falls outside of the remaining provisions. Under the gateway test, broadly, the WWDC applies only if a group’s UK net debt exceeds 75% of the worldwide gross debt. If the WWDC applies and if the tested expense amount exceeds the available amount, the excess amount is disallowed. Broadly, the tested expense amount is the aggregate net finance expense of all UK group companies that have a net finance expense above GBP500,000, and the available amount is the group’s external worldwide finance expense which is taken from the consolidated financial statements. If a disallowance arises, some interest income may be exempted from UK tax. The amount of the exempted income is limited to the lower of the aggregate net finance income of all UK group companies (above GBP500,000) and the total disallowed amount. It is possible to elect to not apply the GBP500,000 threshold mentioned above to avoid anomalies that could otherwise result.

Exemptions:

Charitable bodies are generally exempt from corporation tax on their income.

Deductions:

Non‑capital expenses incurred for the purpose of the business. Depreciation allowances are allowed on certain types of capital expenditure (e.g. plant and machinery), at a rate of either 10% or 20% writing down allowance (WDA), depending on the type of asset. This excludes business cars, for which there is a separate regime with WDA determined by limits on emissions. Special rules give 100% environmental capital allowances to a restricted set of assets. All businesses are entitled to 100% WDA on the first £100k of capital expenditure (excluding business cars).

Losses:

Trading losses may be offset against future profits from the same trade or against other profits of the same accounting period or previous year. Capital losses may be offset only against capital gains and may only be carried forward.

 
Rate(s) Structure
Nominal corporate income tax rate Rate: 21.00 %

Central government surcharge Rate: 0.00 %
Regional government surcharge Rate: 0.00 %
Local government surcharge Rate: 0.00 %
Combined rate (all-in rate) Rate: 21.00 %


Comments

Special tax rate for SMEs
Special tax rates apply to SMEs: Yes No
If yes:
Nominal corporate income tax rate Rate: 20.00 %
Central government surcharge Rate: 0.00 %
Regional government surcharge Rate: 0.00 %
Local government surcharge Rate: 0.00 %
Combined rate (all-in rate) Rate: 20.00 %


Comments

Tax rates

There is a lower rate of corporation tax for companies with small profits, known as the small profits rate (SPR), and formerly the small companies’ rate (SCR). This rate applies when the profits are below a lower limit. Between that limit and an upper limit, the company is taxed at the main rate, but most companies can claim marginal relief to give a smooth progression in the average tax rate from the lower rate to the main rate. Above the upper limit the main rate applies. The profit limits are restricted for companies associated with one or more other companies according to the number of associated companies to prevent abuse by a company fragmenting into smaller ones.

Recent changes to corporation tax

From 1 April 2008 the main rate was reduced from 30 per cent to 28 per cent, and the small companies’ rate was raised from 20 per cent to 21 per cent.

From 1 April 2011 the main rate was reduced to 26 per cent and the SPR was reduced to 20 per cent. The main rate decreased again from 1 April 2012 to 24%, to 23% from 1 April 2013 and 21% from 1 April 2014.

 
International aspects
Treaty countries Non-treaty countries
 
Repatriated profits are taxed according to the following system Exemption system Exemption system
Tax credit Tax credit
Deduction Deduction
 
Interest received is taxed Yes No Yes No
Tax rate on interest received 23.00 % 23.00 %
Outgoing dividends withholding tax 0.00 % 0.00 %
Outgoing interest payments withholding tax 0.00 % 20.00 %
 
Foreign losses can be set-off Yes No Yes No
If yes:
Minimum direct or indirect shareholding to qualify loss-offset (if applicable) 75.00 % 75.00 %
 
Loss carry-forward exists? Yes No Yes No
If yes:
Time limit: Indefinite
 
Indefinite
 
Size limit:
 
Loss carry-backward exists? Yes No Yes No
If yes:
Time limit: Indefinite
3  Years  
Indefinite
3  Years  
Size limit:
 
Controlled foreign company (CFC-)rules exist? Yes No Yes No
If yes:
Time limit: Indefinite
1  Years  
Indefinite
1  Years  
Size limit: 50,000.00  EUR/Natcur
 
Threshold for capital or voting power held directly or indirectly by resident in non-resident company 50.01 % 50.01 %
CFC-rules apply if foreign tax rate is lower than 75.00 % 75.00 %
CFC-rules apply for passive income only? Yes No Yes No

Comments   Treaty countries

Outgoing interest payments withholding tax

0.00 - 20.00 %

 

Control can also be established via other means. The definition of control is very comprehensive and includes the following:

  1. Being able to secure that the affairs of the subsidiary are conducted in accordance with the shareholders wishes by means of the holding of shares, possession of voting power or powers conferred in the companies articles of association or other document
  2. Being entitled to receive (directly or indirectly) over 50% of the proceeds of a hypothetical disposal of the subsidiary´s entire share capital
  3. Being entitled to receive (directly or indirectly) over 50% of the income of a hypothetical distribution of the subsidiary´s income
  4. Being entitled to receive (directly or indirectly) over 50% of the assets of a hypothetical winding up of the subsidiary
  5. Being the subsidiary´s “Parent Undertaking” as defined for accounting purposes (which includes holding over 50% of the entity´s voting rights and exercising a dominant influence over the subsidiary)

Furthermore, the definition of control can also be met for the purpose of the CFC provision if a UK company holds at least 40% of control. And non-UK resident company has interest, rights and powers representing at least 40% but not more than 55%


Comments   Non-treaty countries

Outgoing interest payments withholding tax

20.00 %

 
Measures against profit shifting
 
Do Thin Capitalization (TC) rules exist? Yes No
If yes:
Date of first introduction
Introduced as Explicit TC law
Part of CIT law
Test for TC Ratio
Arm's length
If ratio
Value of numerical ratio:
Definition numerator
Definition denominator
 
Debt considered for test Internal
Internal and external
TC depends on shareholding? Yes No
Substantial shareholding threshold 10.00 %
 
Type of shareholding Direct
Indirect
Automatic remedy Yes No
Remedy Non-deductibility of interest
Reclassification as dividend
 
Rules apply to All companies
Foreign companies
Non-EU companies
Transfer pricing rules exists? Yes No
If yes:
Arm’s length principle applied? Yes No
 
Remedy Fee
Tax base increase
 
Tax due date

Payment and assessment arrangements

Companies are required to assess their own corporation tax liabilities on broadly the same principles that underlie income tax self assessment. However, unlike income tax, the deadline for paying corporation tax is before the deadline for filing the company tax return. The company tax return has to be filed within 12 months after the end of the accounting period.

Small companies have to pay corporation tax within 9 months of the accounting period end date. Large companies with taxable profits of more than £1.5 million are required to pay by quarterly instalment payments (QIPs), where the first instalment becomes due in month 7 of the accounting period. Groups can set up Group Payment Arrangements whereby one nominated company makes instalment payments on behalf of the group.

From 1 April 2011, companies must submit their tax returns to HMRC online for accounting periods ending after 31 March 2010. Tax computations and (with a few exceptions) company accounts must be submitted in Inline eXtensible Business Reporting Language (iXBRL) format. Corporation tax must also be paid electronically.

 
Tax collector

There are two systems of annual self assessment. For over 90% of companies, tax continues to be payable nine months after the end of the accounting period.  But the largest companies (broadly those with profits over GBP 1.5 million) pay their tax by quarterly instalments.  The first instalment becomes due in month 7 of the accounting period with further instalments due in months 10, 13, and 16 with any balance to be paid 9 months after the end of the period.

 
Special features

The current losses of a member of a group of companies may be set against the current profits of other members.

A resident shareholder is entitled to a tax credit (representing part of the corporation tax paid by the company) in respect of the dividends he or she receives. Since 6 April this tax credit has not been payable to the shareholder if he is exempt from, or not liable to, income tax.

The UK tax code effectively puts a ring fence around profits from oil and gas production to ensure they are not reduced by non-ring fence activity. This ensures the Exchequer achieves its desired taxation from the exploitation of a national natural resource. Section 492(1) ICTA details the ring fence treatment by providing that certain oil extraction and other activities conducted as part of a trade are to be treated for the purposes of corporation tax as ‘a separate trade, distinct from all other activities carried on as part of the trade’. The usual reliefs for trading losses are available to oil and gas companies, but certain restrictions arise because of the ring fence. In essence, these ensure that non-ring fence losses are not allowed against ring fence profits.

The rate of corporation tax applicable to “upstream” activity carried on in the UK or UK continental shelf is 30%. The small companies’ rate applicable to such activity is 19%.  These tax rates were not changed when the non-ring fence corporation tax rates were changed in Finance Act 2007 and Finance Act 2008. Profits derived from upstream activities are also subject to an additional tax, the Supplementary Charge. The Supplementary Charge is currently charged at 32%, which was the rate from 2011. The Supplementary Charge was introduced in 2002 at 10% and then increased to 20% in 2006.

 
Economic function







Comments
 
Environmental taxes



Comments
 
Tax revenue
ESA95 code d51oa (d51ba)

Year
Annual tax revenue (millions)
Currency
Tax revenue as % of GDP
Tax revenue as % of total tax revenue
2012 42,735.00 GBP 2.57
2011 45,109.00 GBP 2.79
2010 43,783.00 GBP 2.81
2009 37,730.00 GBP 2.54
2008 49,221.00 GBP 3.24
2007 44,689.00 GBP 3.01
2006 49,929.00 GBP 3.55
2005 40,176.00 GBP 3.02
2004 33,083.00 GBP 2.64
2003 30,080.00 GBP 2.53
2002 29,333.00 GBP 2.62
2001 34,739.00 GBP 3.26
2000 32,162.00 GBP 3.13

Comments

Including overseas companies and North Sea companies