ACCA TX UK Syllabus E. Corporation Tax Liabilities - Computation of taxable total profits - Notes 14 / 14
How to calculate taxable total profits?
Taxable total profits include:
Trading income x
Other income and gains:
| Property income | x |
| Interest income | x |
| Capital gains | x |
Less:
| Loss relief claims | (x) |
| Qualifying charitable donations | (x) |
| = Taxable total profits | x |
Each of these areas are discussed in detail in their respective sections.
Remember that dividends received are not subject to corporation tax and are therefore not included in taxable total profits.
Illustration:
Lachmi Ltd. has the following income for the year:
| Trading profits | £310,000 |
| Property income | £200,000 |
| Interest income | £50,000 |
| Capital gains | £20,000 |
| Qualifying charitable donations | £50,000 |
| She has also received a dividend from a non-associated company of | £18,000. |
What are Lachmi Ltd. taxable total profits?
Solution:
| Taxable total profits for the year: | |
| Trading profits | £310,000 |
| Property income | £200,000 |
| Interest income | £50,000 |
| Capital gains | £20,000 |
Less:
| Qualifying charitable donations | (£50,000) |
| Taxable total profits | £530,000 |
Notice that dividends received are not included.
They are exempt and only used for the calculation of Augmented profits for the payment of corporation tax.
Little trick!
Interest income is taxed on an accruals basis.
This means that the interest which is taxed is the interest which is receivable during the year, not the interest which is actually received during the year.
For example, bank interest receivable of £2,000 was accrued at 31 March 2024 and and £1,000 was accrued at 31 March 2025 respectively.
This means that £2,000 should have been paid in the year ended 31 March 2024 but was not, and £1,000 should have been paid at 31 March 2025, but has not been paid yet.
The interest actually received during the year ended 31 March 2025 was £6,000.
Therefore, how do we figure out what the amount is that should have actually been received for the year ended 31 March 2025?
Amount paid - Amount due for previous year + Amount still due at this year end = Amount that should have been paid for this year.
£6,000 was paid
(£2,000 was paid towards the amount due at 31 March 2024)
Therefore, £4,000 paid was actually due for the year ended 31 March 2025
+
£1,000 is still to be paid for the year ended 31 March 2025
Therefore, £6,000-£2,000+£1,000 = £5,000 is actually due for the year ended 31 March 2025 - this amount will be used in the proforma.
Illustration
Kamal Ltd. has the following results for the year ended 31/03/2025
| £ | |
| Trading profits/loss before capital allowance | 30,000 |
| Chargeable gains | 2,000 |
| Interest income | 62,000 |
| Property income | 50,000 |
| Dividends received | 100,000 |
| Capital allowances for the year | 3,000 |
| Qualifying charitable donations | 15,000 |
Kamal Ltd. had £2,000 interest accrued at 31/03/2024 and £3,000 of interest accrued at 31/03/2025.
What will Kamal Ltd.'s taxable total profits be for the year ended 31/03/2025?
| £ | |
| Trading profits/loss before capital allowance | 30,000 |
| Less: capital allowances | (3,000) |
| Tax adjusted trading profits | 27,000 |
| Interest receivable 62,000-2,000+3,000 =63,000 | 63,000 |
| Chargeable gains | 2,000 |
| Property income | 50,000 |
| Total income | 142,000 |
| Less: | |
| Qualifying charitable donations | (15,000) |
| Taxable Total Profits | 127,000 |
| Taxable Total Profits | 127,000 |
| + | |
| Exempt dividends | 100,000 |
| Augmented Profits | 227,000 (This is below the upper limit of 1,500,000, so the company is a small company and would not have to pay its corporation tax in instalments) |