Fact pattern

Harton Limited is a small manufacturing company. You are asked to assess and calculate its liability to corporation tax (“CT”) for its last 12 months trading.

Harton’s profits, being the aggregate of income and capital gains, will be assessed to corporation tax. The profits in question will be those of an accounting period. The latter is a period for which Harton will prepare accounts and will be determined by the company’s accounting reference date.

Harton’s accounting reference date is 31 July. You are asked to calculate its CT liability for its accounting period ending 31 July 2019. During this period its income profits are £410,000 and it has made a net gain of £70,000 in respect of the sale of a piece of land.

Tax rates are set for each financial year, which runs from 1 April to 31 March. Where a company’s accounting period straddles two financial years, then corporation tax will be payable at the rate or rates in force during those years.

Harton’s accounting period in question (1 August 2018 – 31 July 2019) straddles the financial years 2019 and 2020 which run from 1 April 2018 to 31 March 2019, and 1 April 2019 to 31 March 2020 respectively.

Where different rates apply because a company’s accounting period straddles two financial years, the profits are apportioned on a time basis.

A company’s profits chargeable to CT are calculated by adding the amount chargeable to CT on income plus any amount in respect of chargeable gains, in each case after any applicable reliefs.