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{{short description|UK tax on UK-resident companies and companies with permanent establishments in the UK}}
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{{Use British English|date=January 2013}} {{Use British English|date=January 2013}}
{{Use dmy dates|date=January 2013}} {{Use dmy dates|date=January 2022}}
: ''Throughout this article, the term "pound" and the £ symbol refer to the ].''<!-- Disclaimer is as per Misplaced Pages:Manual of Style (dates and numbers) #Currency --> : ''Throughout this article, the term "pound" and the £ symbol refer to the ].''<!-- Disclaimer is as per Misplaced Pages:Manual of Style (dates and numbers) #Currency -->
] ]
{{UKtaxation}} {{UKtaxation}}
'''Corporation tax in the United Kingdom''' is a ] levied in on the ]s made by UK-resident ] and on the profits of entities registered overseas with ]s in the UK. '''Corporation tax in the United Kingdom''' is a ] levied in on the ]s made by UK-resident ] and on the profits of entities registered overseas with ]s in the UK.


Until 1 April 1965, companies were taxed at the same ] as individual taxpayers, with an additional ] levied on companies. ]<ref name="FA 65">{{cite web | url = http://www.statutelaw.gov.uk/content.aspx?LegType=All+Legislation&title=Finance+Act+1965&searchEnacted=0&extentMatchOnly=0&confersPower=0&blanketAmendment=0&sortAlpha=0&TYPE=QS&PageNumber=1&NavFrom=0&parentActiveTextDocId=1171400&ActiveTextDocId=1171400&filesize=108865 | title = Finance Act 1965 (c. 25), from UK Statute Law Database | accessdate =9 May 2007 | publisher = UK Statutory Publications Office, ] }}</ref> replaced this structure for companies and associations with a single corporate tax, which took its basic structure and rules from the income tax system. Since 1997, the UK's ]<ref name="rewrite"> {{webarchive |url=https://web.archive.org/web/20060418073148/http://www.hmrc.gov.uk/rewrite/index.htm |date=18 April 2006 }}, ] (HMRC). Retrieved 17 April 2007</ref> has been modernising the UK's tax legislation, starting with income tax, while the legislation imposing corporation tax has itself been amended, the rules governing income tax and corporation tax have thus diverged. Corporation tax was governed by the ] (as amended) prior to the rewrite project.<ref name="ICTA 88">] (c. 1), ], responsible for the operation of Her Majesty's Stationery Office (HMSO), {{ISBN|0-10-540188-9}}</ref><ref>Most income tax rules have been rewritten in the ], ], and ].</ref> Until 1 April 1965, companies were taxed at the same ] as individual taxpayers, with an additional ] levied on companies. ]<ref name="FA 65">{{cite web | url = https://www.legislation.gov.uk/ukpga/1965/25/contents/enacted | title = Finance Act 1965 (c. 25) | access-date =10 July 2024 |publisher=] |website=] }}</ref> replaced this structure for companies and associations with a single corporate tax, which took its basic structure and rules from the income tax system. Since 1997, the UK's ]<ref name="rewrite"> {{webarchive |url=https://web.archive.org/web/20060418073148/http://www.hmrc.gov.uk/rewrite/index.htm |date=18 April 2006 }}, ] (HMRC). Retrieved 17 April 2007</ref> has been modernising the UK's tax legislation, starting with income tax, while the legislation imposing corporation tax has itself been amended, the rules governing income tax and corporation tax have thus diverged. Corporation tax was governed by the ] (as amended) prior to the rewrite project.<ref name="ICTA 88">] (c. 1), ], responsible for the operation of Her Majesty's Stationery Office (HMSO), {{ISBN|0-10-540188-9}}</ref><ref>Most income tax rules have been rewritten in the ], ], and ].</ref>


Originally introduced as a classical tax system, in which companies were subject to tax on their profits and companies' ]s were also liable to income tax on the ]s that they received, the first major amendment to corporation tax saw it move to a ] system in 1973, under which an individual receiving a dividend became entitled to an income tax credit representing the corporation tax already paid by the company paying the dividend. The classical system was reintroduced in 1999, with the abolition of ] and of repayable dividend tax credits. Another change saw the single main rate of tax split into three. ] between jurisdictions reduced the main corporate tax rate from 28% in 2008–2010 to a flat rate of 20% as of April 2015.<ref name="Rates"/><ref>{{Cite web|title = Corporation Tax rates and reliefs - GOV.UK|url = https://www.gov.uk/corporation-tax-rates/rates|website = www.gov.uk|accessdate = 2015-10-13}}</ref> Originally introduced as a classical tax system, in which companies were subject to tax on their profits and companies' ]s were also liable to income tax on the ]s that they received, the first major amendment to corporation tax saw it move to a ] system in 1973, under which an individual receiving a dividend became entitled to an income tax credit representing the corporation tax already paid by the company paying the dividend. The classical system was reintroduced in 1999, with the abolition of ] and of repayable dividend tax credits. Another change saw the single main rate of tax split into three. ] between jurisdictions reduced the main corporate tax rate from 28% in 2008–2010 to a flat rate of 19% as of April 2021.<ref name="Rates"/><ref>{{Cite web|title = Corporation Tax rates and reliefs GOV.UK|url = https://www.gov.uk/corporation-tax-rates/rates|website = gov.uk|access-date = 2015-10-13}}</ref>


The ] faced problems with its corporate tax structure, including ] judgements that aspects of it are incompatible with EU treaties.<ref name="Hoechst"/> ] schemes marketed by the financial sector have also proven an irritant, and been countered by complicated anti-avoidance legislation. The ] faced problems with its corporate tax structure, including ] judgements that aspects of it are incompatible with EU treaties.<ref name="Hoechst"/> ] schemes marketed by the financial sector have also proven an irritant, and been countered by complicated anti-avoidance legislation.
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The complexity of the corporation tax system is a recognised issue. The Labour government, supported by the Opposition parties, carried through wide-scale reform from the Tax Law Rewrite project, resulting in the ]. The tax has slowly been integrating ], with the corporation tax system in various specific areas based directly on the accounting treatment. The complexity of the corporation tax system is a recognised issue. The Labour government, supported by the Opposition parties, carried through wide-scale reform from the Tax Law Rewrite project, resulting in the ]. The tax has slowly been integrating ], with the corporation tax system in various specific areas based directly on the accounting treatment.


Total net corporation tax receipts were a record high of £56 billion in 2016–17.<ref>{{cite web|url=https://www.ft.com/content/ca3e5bd2-2a7e-11e7-9ec8-168383da43b7 |title=Riddle of UK's rising corporation tax receipts }}</ref> Total net corporation tax receipts were a record high of £56 billion in 2016–17.<ref>{{cite news|url=https://www.ft.com/content/ca3e5bd2-2a7e-11e7-9ec8-168383da43b7 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/ca3e5bd2-2a7e-11e7-9ec8-168383da43b7 |archive-date=10 December 2022 |url-access=subscription |url-status=live |title=Riddle of UK's rising corporation tax receipts |newspaper=Financial Times |date=26 April 2017 |last1=Jackson |first1=Gavin |last2=Houlder |first2=Vanessa }}</ref>


==History== ==History==
], the ] who introduced corporation tax in 1965.]] ], the ] who introduced corporation tax in 1965.]]
Until 1965, companies were subject to income tax on their profits<ref name="CT"></ref> at the same rates as was levied on individual taxpayers. A ] system existed, whereby the income tax paid by a company was offset against the income tax liability of a shareholder who received dividends from the company. The standard rate of income tax in 1949 was 50%.<ref name="Just Taxes">{{cite book | last = Daunton | first = Martin | title = Just Taxes: The Politics of Taxation in Britain, 1914–1979|year = 2002| url = http://assets.cambridge.org/97805218/14003/sample/9780521814003ws.pdf | accessdate =9 April 2007| publisher = Cambridge University Press| isbn = 0-521-81400-6 }}</ref> If the company paid a £100 dividend, the recipient would be treated as if he had earned £200 and had paid £100 in income tax on it – the tax paid by the company fully covered the tax due from the individual on the dividend paid. If, however, the individual was subject to tax at a higher rate (known as "surtax"), he (not the company) would be liable to pay the additional tax. Until 1965, companies were subject to income tax on their profits<ref name="CT"></ref> at the same rates as was levied on individual taxpayers. A ] system existed, whereby the income tax paid by a company was offset against the income tax liability of a shareholder who received dividends from the company. The standard rate of income tax in 1949 was 50%.<ref name="Just Taxes">{{cite book | last = Daunton | first = Martin | title = Just Taxes: The Politics of Taxation in Britain, 1914–1979|year = 2002| url = http://assets.cambridge.org/97805218/14003/sample/9780521814003ws.pdf | access-date =9 April 2007| publisher = Cambridge University Press| isbn = 0-521-81400-6 }}</ref> If the company paid a £100 dividend, the recipient would be treated as if he had earned £200 and had paid £100 in income tax on it – the tax paid by the company fully covered the tax due from the individual on the dividend paid. If, however, the individual was subject to tax at a higher rate (known as "surtax"), he (not the company) would be liable to pay the additional tax.{{citation needed|date=March 2021}}


In addition to income tax, companies were also subject to a profits tax,<ref name="CT"/> which was deducted from company profits when determining the income tax liability. It was a differential tax, with a higher tax rate on ]s (profits distributed to shareholders) than on profits retained within the company. By penalising the distribution of profits, it was hoped companies would retain profits for investment, which was considered a priority after the Second World War.<ref name="E&I"/> The tax did not have the desired effect, so the distributed profits tax was increased by 20%<ref name="newark adv."> In addition to income tax, companies were also subject to a profits tax,<ref name="CT"/> which was deducted from company profits when determining the income tax liability. It was a differential tax, with a higher tax rate on ]s (profits distributed to shareholders) than on profits retained within the company. By penalising the distribution of profits, it was hoped companies would retain profits for investment, which was considered a priority after the Second World War.<ref name="E&I"/> The tax did not have the desired effect, so the distributed profits tax was increased by 20%<ref name="newark adv.">
" {{Webarchive|url=https://archive.today/20150309182007/http://www.newarkadvertiser.net/newtiser/history/51apr.htm |date=9 March 2015 }} ", ''Newark Advertiser''. Retrieved 8 March 2015 " {{Webarchive|url=https://archive.today/20150309182007/http://www.newarkadvertiser.net/newtiser/history/51apr.htm |date=9 March 2015 }} ", ''Newark Advertiser''. Retrieved 8 March 2015
</ref> by the ] to encourage companies to retain more of their profits. At the time of ]'s 1951 budget, the profits tax was 50% for distributed profits and 10% for undistributed profits. </ref> by the ] to encourage companies to retain more of their profits. At the time of ]'s 1951 budget, the profits tax was 50% for distributed profits and 10% for undistributed profits.{{citation needed|date=March 2021}}


A series of reductions in the profits tax were brought in from 1951 onwards by the new Conservative government. The tax rates fell to 22.5% on distributed profits and 2.5% on undistributed profits by 1957, but the profits tax was no longer income tax-deductible. ]'s Budget of March 1958 replaced the differential profits tax with a single profits tax measure, applicable to both retained and distributed profits. This gradual decrease, and final abolition, of taxes on capital distributions reflected ideological differences between the Conservative and Labour parties: the Conservative approach was to distribute profits to capital holders for investment elsewhere, while Labour sought to force companies to retain profits for reinvestment in the company in the hope this would benefit the company's workforce.<ref name="E&I">{{cite web |url= http://www.historyandpolicy.org/archive/policy-paper-06.html |title= Equality and incentive: fiscal politics from Gladstone to Brown |author = Daunton, Martin |date=May 2002 |publisher= History & Policy |accessdate =9 May 2007 }}</ref> A series of reductions in the profits tax were brought in from 1951 onwards by the new Conservative government. The tax rates fell to 22.5% on distributed profits and 2.5% on undistributed profits by 1957, but the profits tax was no longer income tax-deductible. ]'s Budget of March 1958 replaced the differential profits tax with a single profits tax measure, applicable to both retained and distributed profits. This gradual decrease, and final abolition, of taxes on capital distributions reflected ideological differences between the Conservative and Labour parties: the Conservative approach was to distribute profits to capital holders for investment elsewhere, while Labour sought to force companies to retain profits for reinvestment in the company in the hope this would benefit the company's workforce.<ref name="E&I">{{cite web |url= http://www.historyandpolicy.org/archive/policy-paper-06.html |title= Equality and incentive: fiscal politics from Gladstone to Brown |author = Daunton, Martin |date=May 2002 |publisher= History & Policy |access-date =9 May 2007 }}</ref>


===Finance Act 1965=== ===Finance Act 1965===
Finance Act 1965<ref name="FA 65"/> replaced the system of income tax and profits tax from 1 April 1965 with the Corporation Tax, which re-introduced aspects of the old system. Corporation Tax was charged at a uniform rate on all profits, but additional tax was then payable if profits were distributed as a dividend to shareholders. In effect, dividends suffered double taxation. This method of corporation tax is known as the classical system and is similar to that used in the United States. The effect of the tax was to revert to the distribution tax in operation from 1949 to 1959: dividend payments were subject to higher tax than profits retained within the company. Finance Act 1965<ref name="FA 65"/> replaced the system of income tax and profits tax from 1 April 1965 with the Corporation Tax, which re-introduced aspects of the old system. Corporation Tax was charged at a uniform rate on all profits, but additional tax was then payable if profits were distributed as a dividend to shareholders. In effect, dividends suffered double taxation. This method of corporation tax is known as the classical system and is similar to that used in the United States. The effect of the tax was to revert to the distribution tax in operation from 1949 to 1959: dividend payments were subject to higher tax than profits retained within the company.{{citation needed|date=March 2021}} Finance Act 1965<ref name="FA 65"/> also introduced a ], at a rate of 30%, charged on the gains arising on the disposal of capital assets by individuals. While companies were exempted from capital gains tax, they were liable to corporation tax on their "chargeable gains", which were calculated in substantially the same way as capital gains for individuals. The tax applied to company shares as well as other assets. Before 1965, capital gains were not taxed, and it was advantageous for taxpayers to argue that a receipt was non-taxable "capital" rather than taxable "revenue".{{citation needed|date=March 2021}}


===Advance corporation tax===
Finance Act 1965<ref name="FA 65"/> also introduced a ], at a rate of 30%, charged on the gains arising on the disposal of capital assets by individuals. While companies were exempted from capital gains tax, they were liable to corporation tax on their "chargeable gains", which were calculated in substantially the same way as capital gains for individuals. The tax applied to company shares as well as other assets. Before 1965, capital gains were not taxed, and it was advantageous for taxpayers to argue that a receipt was non-taxable "capital" rather than taxable "revenue".

===Advance Corporation Tax===
{{main|Advance corporation tax}} {{main|Advance corporation tax}}
The basic structure of the tax, where company profits were taxed as profits, and dividend payments were then taxed as income, remained unchanged until 1973, when a partial imputation system was introduced for dividend payments.<ref name="CT"/> Unlike the previous imputation system, the tax credit to the shareholder was less than the corporation tax paid (corporation tax was higher than the standard rate of income tax, but the imputation, or set-off, was only of standard rate tax). When companies made distributions, they also paid the advance corporation tax (known as ACT), which could be set off against the main corporation tax charge, subject to certain limits (the full amount of ACT paid could not be recovered if significantly large amounts of profits were distributed).<ref name="CTM20105">, HMRC. Retrieved 13 April 2007</ref> Individuals and companies who received a dividend from a UK company received a ] representing the ACT paid.<ref name="CTM16120">, HMRC. Retrieved 12 April 2007</ref> Individuals could set off the tax credit against their income tax liability.<ref name="CTM15150">, HMRC. Retrieved 12 April 2007</ref> The basic structure of the tax, where company profits were taxed as profits, and dividend payments were then taxed as income, remained unchanged until 1973, when a partial imputation system was introduced for dividend payments.<ref name="CT"/> Unlike the previous imputation system, the tax credit to the shareholder was less than the corporation tax paid (corporation tax was higher than the standard rate of income tax, but the imputation, or set-off, was only of standard rate tax). When companies made distributions, they also paid the advance corporation tax (known as ACT), which could be set off against the main corporation tax charge, subject to certain limits (the full amount of ACT paid could not be recovered if significantly large amounts of profits were distributed).<ref name="CTM20105">, HMRC. Retrieved 13 April 2007</ref> Individuals and companies who received a dividend from a UK company received a ] representing the ACT paid.<ref name="CTM16120">, HMRC. Retrieved 12 April 2007</ref> Individuals could set off the tax credit against their income tax liability.<ref name="CTM15150">, HMRC. Retrieved 12 April 2007</ref>


On introduction, ACT was set at 30% of the gross dividend (the actual amount paid plus the tax credit). If a company made a £70 dividend payment to an individual, the company would pay £30 of advance corporation tax. The shareholder would receive the £70 cash payment, plus a tax credit of £30; thus, the individual would be deemed to have earned £100, and to have already paid tax of £30 on it. The ACT paid by the company would be deductible against its final "mainstream" corporation tax bill. To the extent that the individual's tax on the dividend was less than the tax credit – for example, if his income was too low to pay tax (below £595 in 1973–1974<ref name="Personal allowances"> {{webarchive |url=https://web.archive.org/web/20070206074009/http://www.hmrc.gov.uk/stats/tax_structure/incometax_pa-and-reliefs_1974to1990.pdf |date=6 February 2007 }}, HMRC. Retrieved 9 April 2007</ref>) – he would be able to reclaim some or all of the £30 tax paid by the company. The set-off was only partial, since the company would pay 52% tax (small companies had lower rates, but still higher than the ACT rate),<ref name="Rates"/> and thus the £70 received by the individual actually represented pre-tax profits of £145.83. Accordingly, only part of the double taxation was relieved. On introduction, ACT was set at 30% of the gross dividend (the actual amount paid plus the tax credit). If a company made a £70 dividend payment to an individual, the company would pay £30 of advance corporation tax. The shareholder would receive the £70 cash payment, plus a tax credit of £30; thus, the individual would be deemed to have earned £100, and to have already paid tax of £30 on it. The ACT paid by the company would be deductible against its final "mainstream" corporation tax bill. To the extent that the individual's tax on the dividend was less than the tax credit – for example, if his income was too low to pay tax (below £595 in 1973–1974<ref name="Personal allowances"> {{webarchive |url=https://web.archive.org/web/20070206074009/http://www.hmrc.gov.uk/stats/tax_structure/incometax_pa-and-reliefs_1974to1990.pdf |date=6 February 2007 }}, HMRC. Retrieved 9 April 2007</ref>) – he would be able to reclaim some or all of the £30 tax paid by the company. The set-off was only partial, since the company would pay 52% tax (small companies had lower rates, but still higher than the ACT rate),<ref name="Rates"/> and thus the £70 received by the individual actually represented pre-tax profits of £145.83. Accordingly, only part of the double taxation was relieved.{{citation needed|date=March 2021}}


ACT was not payable on dividends from one UK company to another (unless the payor company elected to pay it).<ref name="CTM20070">, HMRC. Retrieved 12 April 2007</ref> Also, the recipient company was not taxed on that dividend receipt, except for dealers in shares and ] companies in respect of some of their profits.<ref name="CTM20070"/> As the payor company would have suffered tax on the payments it made, the company that received the dividend also received a credit that it could use to reduce the amount of ACT it itself paid, or, in certain cases, apply to have the tax credit repaid to them.<ref name="CTM16120"/> ACT was not payable on dividends from one UK company to another (unless the payor company elected to pay it).<ref name="CTM20070">, HMRC. Retrieved 12 April 2007</ref> Also, the recipient company was not taxed on that dividend receipt, except for dealers in shares and ] companies in respect of some of their profits.<ref name="CTM20070"/> As the payor company would have suffered tax on the payments it made, the company that received the dividend also received a credit that it could use to reduce the amount of ACT it itself paid, or, in certain cases, apply to have the tax credit repaid to them.<ref name="CTM16120"/>
], the Chancellor of the Exchequer who abolished ACT and introduced the quarterly instalment regime in 1999.]] ], the Chancellor of the Exchequer who abolished ACT and introduced the quarterly instalment regime in 1999.]]


The level of ACT was linked to the basic rate of income tax between 1973 and 1993. The March 1993 Budget of ] cut the ACT rate and tax credit to 22.5% from April 1993, and 20% from April 1994.<ref name="Rates"/> These changes were accompanied with a cut of income tax on dividends to 20%, while the basic rate of income tax remained at 25%. Persons liable for tax were lightly affected by the change, because income tax liability was still balanced by the tax credit received, although higher rate tax payers paid an additional 25% tax on the amount of the dividend actually received (net), as against 20% before the change. The level of ACT was linked to the basic rate of income tax between 1973 and 1993. The March 1993 Budget of ] cut the ACT rate and tax credit to 22.5% from April 1993, and 20% from April 1994.<ref name="Rates"/> These changes were accompanied with a cut of income tax on dividends to 20%, while the basic rate of income tax remained at 25%. Persons liable for tax were lightly affected by the change, because income tax liability was still balanced by the tax credit received, although higher rate tax payers paid an additional 25% tax on the amount of the dividend actually received (net), as against 20% before the change.{{citation needed|date=March 2021}} The change had bigger effects on pensions and non-taxpayers. A pension fund receiving a £1.2&nbsp;m dividend income prior to the change would have been able to reclaim £400,000 in tax, giving a total income of £1.6&nbsp;m. After the change, only £300,000 was reclaimable, reducing income to £1.5&nbsp;m, a fall of 6.25%.{{citation needed|date=March 2021}}


]'s summer Budget of 1997<ref name="Budget 1997"> {{Webarchive|url=https://web.archive.org/web/20070320164122/http://archive.treasury.gov.uk/budget/1997/report/budget97.htm |date=20 March 2007 }} , HM Treasury. Retrieved 25 April 2007
The change had bigger effects on pensions and non-taxpayers. A pension fund receiving a £1.2&nbsp;m dividend income prior to the change would have been able to reclaim £400,000 in tax, giving a total income of £1.6&nbsp;m. After the change, only £300,000 was reclaimable, reducing income to £1.5&nbsp;m, a fall of 6.25%.
</ref> ended the ability of pension funds and other tax-exempt companies to reclaim tax credits with immediate effect, and for individuals from April 1999.<ref name="CT"/> This tax change has been blamed for the poor state of British pension provision, while usually ignoring the more significant effect of the dot-com crash of 2000 onwards when the FTSE-100 lost half its value to fall from 6930 at the beginning of 2000 to just 3490 by March 2003. Despite this, critics such as ] ] described it as a "hammer blow" and the '']'' described it as a swindle,<ref name="Pension Swindle">{{Cite news | last = Field | first = Frank | title = The great pension swindle | work = Sunday Times| date = 1 April 2007 | url = http://www.thesundaytimes.co.uk/sto/news/Features/Focus/article62480.ece | archive-url = https://web.archive.org/web/20150604061025/http://www.thesundaytimes.co.uk/sto/news/Features/Focus/article62480.ece | url-status = dead | archive-date = 4 June 2015 | access-date =9 May 2007}}{{Subscription required}}</ref> with the hypothetical £1.5&nbsp;m income described above falling to £1.2&nbsp;m, a fall in income of 20%, because no tax would be reclaimable.{{citation needed|date=March 2021}}


====Abolition of advance corporation tax====
]'s summer Budget of 1997<ref name="Budget 1997">
From 6 April 1999 ACT was abolished,<ref name="CT"/> and the tax credit on dividends was reduced to 10%.<ref name="Rates"/> There was a matching reduction in the basic income tax rate on dividends to 10%, while a new higher-rate of 32.5% was introduced which led to an overall effective 25% tax rate for higher rate taxpayers on dividends (after setting this "notional" tax credit against the tax liability).While non-taxpayers were no longer able to claim this amount from the treasury (as opposed to taxpayers who could deduct it from their tax bill), the 20% ACT (which would have previously been deducted from the dividend before payment) was no longer levied.{{citation needed|date=March 2021}}
{{Webarchive|url=https://web.archive.org/web/20070320164122/http://archive.treasury.gov.uk/budget/1997/report/budget97.htm |date=20 March 2007 }} , HM Treasury. Retrieved 25 April 2007
</ref> ended the ability of pension funds and other tax-exempt companies to reclaim tax credits with immediate effect, and for individuals from April 1999.<ref name="CT"/> This tax change has been blamed for the poor state of British pension provision, while usually ignoring the more significant effect of the dot-com crash of 2000 onwards when the FTSE-100 lost half its value to fall from 6930 at the beginning of 2000 to just 3490 by March 2003. Despite this, critics such as ] ] described it as a "hammer blow" and the '']'' described it as a swindle,<ref name="Pension Swindle">{{Cite news | last = Field | first = Frank | title = The great pension swindle | publisher = Sunday Times | date = 1 April 2007 | url = http://www.thesundaytimes.co.uk/sto/news/Features/Focus/article62480.ece | accessdate =9 May 2007}}{{Subscription required}}</ref> with the hypothetical £1.5&nbsp;m income described above falling to £1.2&nbsp;m, a fall in income of 20%, because no tax would be reclaimable.


ACT that had been incurred prior to 1999 could still be set off against a company's tax liability, provided it would have been able to set it off under the old imputation system.<ref name="CTM18250">, HMRC. Retrieved 17 April 2007</ref> In order to keep the stream of payments associated with advance corporation tax payment, 'large' companies (comprising the majority of corporation tax receipts) were subjected to a quarterly instalments scheme for tax payment.<ref name="CTM92505"/>
====Abolition of Advance Corporation Tax====
From 6 April 1999 ACT was abolished,<ref name="CT"/> and the tax credit on dividends was reduced to 10%.<ref name="Rates"/> There was a matching reduction in the basic income tax rate on dividends to 10%, while a new higher-rate of 32.5% was introduced which led to an overall effective 25% tax rate for higher rate taxpayers on dividends (after setting this "notional" tax credit against the tax liability).While non-taxpayers were no longer able to claim this amount from the treasury (as opposed to taxpayers who could deduct it from their tax bill), the 20% ACT (which would have previously been deducted from the dividend before payment) was no longer levied.


===Rates===
The abolition of ACT was actually one of the biggest tax grabs ever by a Chancellor, as pension companies could no longer recover the tax paid on dividends (along with pensioners and other reliant on the income). This now costs over £10bn a year and was one of the factors that lead to the death of the final salary pension scheme. (ref:https://www.telegraph.co.uk/finance/personalfinance/pensions/10798785/True-cost-of-Labours-pension-tax-raid-and-others-since-Seventies.html). It is one of the biggest tax grabs ever, sold as 'the abolition of a tax'.


ACT that had been incurred prior to 1999 could still be set off against a company's tax liability, provided it would have been able to set it off under the old imputation system.<ref name="CTM18250">, HMRC. Retrieved 17 April 2007</ref> In order to keep the stream of payments associated with advance corporation tax payment, 'large' companies (comprising the majority of corporation tax receipts) were subjected to a quarterly instalments scheme for tax payment.<ref name="CTM92505"/>


====Main and small companies' rates====
===Rates===
On its introduction in 1965, corporation tax was charged at 40%, rising to 45% in the 1969 ]. The rate then fell to 42.5% in the second Budget of 1970 and 40% in 1971. In 1973, alongside the introduction of ] (ACT), Conservative chancellor ] created a main rate of 52%, together with a smaller companies' rate of 42%.<ref name="Rates"> {{webarchive |url=https://web.archive.org/web/20070609150401/http://www.hmrc.gov.uk/stats/corporate_tax/rates-of-tax.pdf |date=9 June 2007 }}, HMRC. Retrieved 13 April 2007</ref> This apparent increase was negated by the fact that under the ACT scheme, dividends were no longer subject to income tax. On its introduction in 1965, corporation tax was charged at 40%, rising to 45% in the 1969 ]. The rate then fell to 42.5% in the second Budget of 1970 and 40% in 1971. In 1973, alongside the introduction of ] (ACT), Conservative chancellor ] created a main rate of 52%, together with a smaller companies' rate of 42%.<ref name="Rates"> {{webarchive |url=https://web.archive.org/web/20070609150401/http://www.hmrc.gov.uk/stats/corporate_tax/rates-of-tax.pdf |date=9 June 2007 }}, HMRC. Retrieved 13 April 2007</ref> This apparent increase was negated by the fact that under the ACT scheme, dividends were no longer subject to income tax.{{citation needed|date=March 2021}}


The 1979 Conservative Budget of ] cut the small companies' rate to 40%, followed by a further cut in the 1982 Budget to 38%.<ref name="Rates"/> The Budgets of 1983–1988 saw sharp cuts in both main and small companies' rates, falling to 35% and 25% respectively.<ref name="Rates"/> Budgets between 1988 and 2001 brought further falls to a 30% main rate and 19% small companies' rates.<ref name="Rates"/> From April 1983 to March 1997 the small companies' rate was pegged to the basic rate of ].<ref name="CT"/> During the 1980s there was briefly a higher rate of tax imposed for capital profits. The 1979 Conservative Budget of ] cut the small companies' rate to 40%, followed by a further cut in the 1982 Budget to 38%.<ref name="Rates"/> The Budgets of 1983–1988 saw sharp cuts in both main and small companies' rates, falling to 35% and 25% respectively.<ref name="Rates"/> Budgets between 1988 and 2001 brought further falls to a 30% main rate and 19% small companies' rates.<ref name="Rates"/> From April 1983 to March 1997 the small companies' rate was pegged to the basic rate of ].<ref name="CT"/> During the 1980s there was briefly a higher rate of tax imposed for capital profits.{{citation needed|date=March 2021}}

{| class="wikitable sortable mw-collapsible" style="margin: 1em auto 1em auto;" style=text-align:right
|- bgcolor=#DDDDDD align=left
!colspan="6" |Table of corporation tax rates over time
|- bgcolor=#DDDDDD align=left
! Year (from 1 April)
! Lower limit (small rate profit threshold)
! Small companies' rate
! Upper limit (standard rate threshold)
! Main rate
! Standard marginal relief fraction
|-
| style=text-align:left | 2023
| £50,000{{sfnp|Finance Act 2021|loc=Schedule 1 – Inserting section 18D(2)(a) to the ]}}
| 19%{{sfnp|Finance Act 2021|loc=Section 7(2)(a)}}
| £250,000{{sfnp|Finance Act 2021|loc=Schedule 1 – Inserting section 18D(2)(b) to the ]}}
| 25%{{sfnp|Finance Act 2021|loc=Section 6(2)(b)}}
| 3/200{{sfnp|Finance Act 2021|loc=Section 7(2)(b)}}
|-
| style=text-align:left | 2022
| N/A
| N/A
| £nil
| 19%{{sfnp|Finance Act 2021|loc=Section 6(2)(a)}}
| N/A
|-
| style=text-align:left | 2021
| N/A
| N/A
| £nil
| 19%{{sfnp|Finance Act 2020|loc=Section 6}}
| N/A
|-
| style=text-align:left | 2020
| N/A
| N/A
| £nil
| 19%{{sfnp|Finance Act 2020|loc=Section 5}}{{efn|name=FY2020|The main rate for 2020 was originally set to be 18%,{{sfnp|Finance (No. 2) Act 2015 |loc=Section 7(2)}} this was subsequently set to be reduced to 17%,{{sfnp|Finance Act 2016|loc=Section 46}} but ultimately was set at 19%.}}
| N/A
|-
| style=text-align:left | 2019
| N/A
| N/A
| £nil
| 19%{{sfnp|Finance (No. 2) Act 2015 |loc=Section 7(1)}}
| N/A
|-
| style=text-align:left | 2018
| N/A
| N/A
| £nil
| 19%{{sfnp|Finance (No. 2) Act 2015 |loc=Section 7(1)}}
| N/A
|-
| style=text-align:left | 2017
| N/A
| N/A
| £nil
| 19%{{sfnp|Finance (No. 2) Act 2015 |loc=Section 7(1)}}
| N/A
|-
| style=text-align:left | 2016
| N/A
| N/A
| £nil
| 20%{{sfnp|Finance Act 2015 |loc=Section 6(2)}}
| N/A
|-
| style=text-align:left | 2015
| N/A
| N/A
| £nil
| 20%{{sfnp|Finance Act 2013 |loc=Section 6(1)}}
| N/A
|-
| style=text-align:left | 2014
| £300,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(a)}}
| 20%{{sfnp|Finance Act 2014 |loc=Section 6(1)(a)}}
| £1,500,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(b)}}
| 21%{{sfnp|Finance Act 2013 |loc=Section 4(2)}}
| 1/400{{sfnp|Finance Act 2014 |loc=Section 6(2)(a)}}
|-
| style=text-align:left | 2013
| £300,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(a)}}
| 20%{{sfnp|Finance Act 2013 |loc=Section 5(1)(a)}}
| £1,500,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(b)}}
| 23%{{sfnp|Finance Act 2012 |loc=Section 6(2)}}
| 3/400{{sfnp|Finance Act 2013 |loc=Section 5(2)(a)}}
|-
| style=text-align:left | 2012
| £300,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(a)}}
| 20%{{sfnp|Finance Act 2012 |loc=Section 7(1)(a)}}
| £1,500,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(b)}}
| 24%{{sfnp|Finance Act 2012 |loc=Section 5(1)}}{{efn|name=FY2012|The main rate for 2012 was originally set to be 25%{{sfnp|Finance Act 2011|loc=Section 5(2)(a)}} but was subsequently reduced to 24%.}}
| 1/100{{sfnp|Finance Act 2012 |loc=Section 7(2)(a)}}
|-
| style=text-align:left | 2011
| £300,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(a)}}
| 20%{{sfnp|Finance Act 2011 |loc=Section 6(1)(a)}}
| £1,500,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(b)}}
| 26%{{sfnp|Finance Act 2011 |loc=Section 4(1)}}{{efn|name=FY2011|The main rate for 2011 was originally set to be 28%{{sfnp|Finance Act 2010|loc=Section 2(2))}} but was subsequently reduced to 27%{{sfnp|Finance (No. 2) Act 2010 |loc=Section 1}} and ultimately reduced to 26%.}}
| 3/200{{sfnp|Finance Act 2011 |loc=Section 6(2)(a)}}
|-
| style=text-align:left | 2010
| £300,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(a)}}
| 21%{{sfnp|Finance Act 2010 |loc=Section 3(1)(a)}}
| £1,500,000{{sfnp|Corporation Tax Act 2010 |loc=Section 24(2)(b)}}
| 28%{{sfnp|Finance Act 2009 |loc=Section 7(2)(a)}}
| 7/400{{sfnp|Finance Act 2010 |loc=Section 3(2)(a)}}
|-
| style=text-align:left | 2009
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009| Limits for marginal relief set from 1994 to 2009 (inclusive) by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1994{{sfnp|Finance Act 1994 |loc=Section 86}}}}
| 21%{{sfnp|Finance Act 2009 |loc=Section 8(1)(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 28%{{sfnp|Finance Act 2008 |loc=Section 6(2)(a)}}
| 7/400{{sfnp|Finance Act 2009 |loc=Section 8(2)(a)}}
|-
| style=text-align:left | 2008
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 21%{{sfnp|Finance Act 2008 |loc=Section 7(1)(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 28%{{sfnp|Finance Act 2007 |loc=Section 2(1)(a)}}
| 7/400{{sfnp|Finance Act 2008 |loc=Section 7(2)(a)}}
|-
| style=text-align:left | 2007
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 20%{{sfnp|Finance Act 2007 |loc=Section 3(1)(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 2006 |loc=Section 24}}
| 1/40{{sfnp|Finance Act 2008 |loc=Section 3(2)(a)}}
|-
| style=text-align:left | 2006
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 19%{{sfnp|Finance Act 2006 |loc=Section 25(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 2005 |loc=Section 10}}
| 11/400{{sfnp|Finance Act 2006 |loc=Section 25(b)}}
|-
| style=text-align:left | 2005
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 19%{{sfnp|Finance Act 2005 |loc=Section 11(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 2004 |loc=Section 25}}
| 11/400{{sfnp|Finance Act 2005 |loc=Section 11(b)}}
|-
| style=text-align:left | 2004
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 19%{{sfnp|Finance Act 2004 |loc=Section 26(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 2003 |loc=Section 133}}
| 11/400{{sfnp|Finance Act 2004 |loc=Section 26(b)}}
|-
| style=text-align:left | 2003
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 19%{{sfnp|Finance Act 2003 |loc=Section 134(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 2002 |loc=Section 30}}
| 11/400{{sfnp|Finance Act 2004 |loc=Section 134(b)}}
|-
| style=text-align:left | 2002
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 19%{{sfnp|Finance Act 2002 |loc=Section 31(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 2001 |loc=Section 54}}
| 11/400{{sfnp|Finance Act 2002 |loc=Section 31(b)}}
|-
| style=text-align:left | 2001
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 20%{{sfnp|Finance Act 2001 |loc=Section 55(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 2000 |loc=Section 35}}
| 1/40{{sfnp|Finance Act 2001 |loc=Section 55(b)}}
|-
| style=text-align:left | 2000
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 20%{{sfnp|Finance Act 2000 |loc=Section 36(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 1999 |loc=Section 27}}
| 1/40{{sfnp|Finance Act 2000 |loc=Section 36(b)}}
|-
| style=text-align:left | 1999
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 20%{{sfnp|Finance Act 1998|loc=Section 29(2)(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 30%{{sfnp|Finance Act 1998 |loc=Section 28(1)}}
| 1/40{{sfnp|Finance Act 1998|loc=Section 29(2)(b)}}
|-
| style=text-align:left | 1998
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 21%{{sfnp|Finance Act 1998|loc=Section 28(2)(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 31%{{sfnp|Finance Act 1998 |loc=Section 28(1)}}
| 1/40{{sfnp|Finance Act 1998|loc=Section 28(2)(b)}}
|-
| style=text-align:left | 1997
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 23%{{sfnp|Finance Act 1997|loc=Section 59(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 33%{{sfnp|Finance Act 1997 |loc=Section 58)}}
| 1/40{{sfnp|Finance Act 1997|loc=Section 59(b)}}
|-
| style=text-align:left | 1996
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 24%{{sfnp|Finance Act 1996|loc=Section 78(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 33%{{sfnp|Finance Act 1996 |loc=Section 77)}}
| 9/400{{sfnp|Finance Act 1996|loc=Section 78(b)}}
|-
| style=text-align:left | 1995
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 25%{{sfnp|Finance Act 1995|loc=Section 38(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 33%{{sfnp|Finance Act 1995 |loc=Section 37)}}
| 1/50{{sfnp|Finance Act 1995|loc=Section 38(b)}}
|-
| style=text-align:left | 1994
| £300,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 25%{{sfnp|Finance Act 1994|loc=Section 86(1)(a)}}
| £1,500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1994-2009}}
| 33%{{sfnp|Finance Act 1994 |loc=Section 85)}}
| 1/50{{sfnp|Finance Act 1994|loc=Section 86(1)(b)}}
|-
| style=text-align:left | 1993
| £250,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1991-1993| Limits for marginal relief set from 1991 to 1993 (inclusive) by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1991{{sfnp|Finance Act 1991|loc=Section 25(2)}}}}
| 25%{{sfnp|Finance Act 1993|loc=Section 54(a)}}
| £1,250,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1991-1993}}
| 33%{{sfnp|Finance Act 1993 |loc=Section 54)}}
| 1/50{{sfnp|Finance Act 1993|loc=Section 54(b)}}
|-
| style=text-align:left | 1992
| £250,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1991-1993}}
| 25%{{sfnp|Finance (No. 2) Act 1992|loc=Section 22(a)}}
| £1,250,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1991-1993}}
| 33%{{sfnp|Finance (No. 2) Act 1992 |loc=Section 21)}}
| 1/50{{sfnp|Finance (No. 2) Act 1992|loc=Section 22(b)}}
|-
| style=text-align:left | 1991
| £250,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1991-1993}}
| 25%{{sfnp|Finance Act 1991|loc=Section 25(1)(a)}}
| £1,250,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1991-1993}}
| 33%{{sfnp|Finance Act 1991 |loc=Section 24)}}
| 1/50{{sfnp|Finance Act 1991|loc=Section 25(1)(b)}}
|-
| style=text-align:left | 1990
| £200,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1990| Limit for marginal relief for 1990 set by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1990{{sfnp|Finance Act 1990|loc=Section 20(2)}}}}
| 25%{{sfnp|Finance Act 1990|loc=Section 20(1)(a)}}
| £1,000,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1990}}
| 35%{{sfnp|Finance Act 1990 |loc=Section 19)}}
| 1/40{{sfnp|Finance Act 1990|loc=Section 20(1)(b)}}
|-
| style=text-align:left | 1989
| £150,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1989| Limit for marginal relief for 1989 set by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1989{{sfnp|Finance Act 1989|loc=Section 35(2)}}}}
| 25%{{sfnp|Finance Act 1989|loc=Section 35(1)(a)}}
| £750,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as amended)}}{{efn|name=Marginal1989}}
| 35%{{sfnp|Finance Act 1989|loc=Section 34)}}
| 1/40{{sfnp|Finance Act 1989|loc=Section 35(1)(b)}}
|-
| style=text-align:left | 1988
| £100,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as enacted)}}
| 25%{{sfnp|Finance Act 1988|loc=Section 27(1)}}
| £500,000{{sfnp|Income and Corporation Taxes Act 1988 |loc=Section 13(3) (as enacted)}}
| 35%{{sfnp|Finance Act 1988|loc=Section 26)}}
| 1/40{{sfnp|Finance Act 1988|loc=Section 27(2)}}
|-
| style=text-align:left | 1987
| £100,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987| Limits for marginal relief set from 1982 to 1987 (inclusive) by changes made to the Finance Act 1972 enacted by Finance (No. 2) Act 1983{{sfnp|Finance (No. 2) Act 1983|loc=Section 2(2)}}}}
| 27%{{sfnp|Finance Act 1987|loc=Section 22(1)}}
| £500,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 35%{{sfnp|Finance Act 1987|loc=Section 21)}}
| 1/50{{sfnp|Finance Act 1987|loc=Section 22(2)}}
|-
| style=text-align:left | 1986
| £100,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 29%{{sfnp|Finance Act 1986|loc=Section 18(1)}}{{efn|name=FY1986| The small companies rate for 1986 was originally set to be 30%{{sfnp|Finance Act 1984|loc=Section 20(1)}} and marginal relief fraction at 1/80{{sfnp|Finance Act 1984|loc=Section 20(2)}} but was subsequently reduced to 29% with the fraction changing to 3/200.}}
| £500,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 35%{{sfnp|Finance Act 1984|loc=Section 18(3)}}
| 3/200{{sfnp|Finance Act 1986|loc=Section 18(1)}}{{efn|name=FY1986}}
|-
| style=text-align:left | 1985
| £100,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 30%{{sfnp|Finance Act 1984|loc=Section 20(1))}}
| £500,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 40%{{sfnp|Finance Act 1984|loc=Section 18(3)}}
| 1/40{{sfnp|Finance Act 1984|loc=Section 20(2)}}
|-
| style=text-align:left | 1984
| £100,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 30%{{sfnp|Finance Act 1984|loc=Section 20(1))}}
| £500,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 45%{{sfnp|Finance Act 1984|loc=Section 18(3)}}
| 3/80{{sfnp|Finance Act 1984|loc=Section 20(2)}}
|-
| style=text-align:left | 1983
| £100,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 30%{{sfnp|Finance Act 1984|loc=Section 20(1))}}
| £500,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 50%{{sfnp|Finance Act 1984|loc=Section 18(3)}}
| 1/20{{sfnp|Finance Act 1984|loc=Section 20(2)}}
|-
| style=text-align:left | 1982
| £100,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 38%{{sfnp|Finance Act 1983|loc=Section 13(1))}}
| £500,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1982-1987}}
| 52%{{sfnp|Finance Act 1983|loc=Section 11}}
| 7/200{{sfnp|Finance (No. 2) Act 1983|loc=Section 2(1)}}{{sfnp|Finance Act 1983|loc=Section 13}}
|-
| style=text-align:left | 1981
| £90,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1981| Limits for marginal relief set for 1981 set by changes made to the Finance Act 1972 enacted by Finance Act 1982{{sfnp|Finance Act 1982 |loc=Section 23(2)}}}}
| 40%{{sfnp|Finance Act 1982|loc=Section 23(1))}}
| £225,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1981}}
| 52%{{sfnp|Finance Act 1982|loc=Section 21}}
| 2/25{{sfnp|Finance Act 1982|loc=Section 23(1))}}
|-
| style=text-align:left | 1980
| £80,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1980| Limits for marginal relief set for 1980 set by changes made to the Finance Act 1972 enacted by Finance Act 1981{{sfnp|Finance Act 1981 |loc=Section 22(2)}}}}
| 40%{{sfnp|Finance Act 1981|loc=Section 22(1))}}
| £200,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1980}}
| 52%{{sfnp|Finance Act 1981|loc=Section 20}}
| 2/25{{sfnp|Finance Act 1981|loc=Section 22(1))}}
|-
| style=text-align:left | 1979
| £70,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1979| Limits for marginal relief set for 1979 set by changes made to the Finance Act 1972 enacted by Finance Act 1980{{sfnp|Finance Act 1980 |loc=Section 21(2)}}}}
| 40%{{sfnp|Finance Act 1980|loc=Section 21(1))}}
| £130,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1979}}
| 52%{{sfnp|Finance Act 1980|loc=Section 19}}
| 7/50{{sfnp|Finance Act 1980|loc=Section 21(1))}}
|-
| style=text-align:left | 1978
| £60,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1978| Limits for marginal relief set for 1978 set by changes made to the Finance Act 1972 enacted by Finance (No. 2) Act 1979{{sfnp|Finance (No. 2) Act 1979 |loc=Section 7(2)}}}}
| 40%{{citation needed|reason=Rates set by Finance Act 1979 (c.25) which is not available online at legislation.gov.uk|date=September 2021}}
| £100,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1978}}
| 52%{{citation needed|reason=Rates set by Finance Act 1979 (c.25) which is not available online at legislation.gov.uk|date=September 2021}}
| 3/20{{sfnp|Finance (No. 2) Act 1979|loc=Section 21(1))}}
|-
| style=text-align:left | 1977
| £50,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1977| Limits for marginal relief set for 1977 set by changes made to the Finance Act 1972 enacted by Finance Act 1978{{sfnp|Finance Act 1978 |loc=Section 17(3)}}}}
| 42%{{sfnp|Finance Act 1978|loc=Section 17(2))}}
| £85,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1977}}
| 52%{{sfnp|Finance Act 1978|loc=Section 15)}}
| 1/7{{sfnp|Finance Act 1978|loc=Section 17(2))}}
|-
| style=text-align:left | 1976
| £40,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1976| Limits for marginal relief set for 1976 set by changes made to the Finance Act 1972 enacted by Finance Act 1977{{sfnp|Finance Act 1977 |loc=Section 20(2)}}}}
| 42%{{sfnp|Finance Act 1977|loc=Section 20(1))}}
| £65,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1976}}
| 52%{{sfnp|Finance Act 1977|loc=Section 18)}}
| 4/25{{sfnp|Finance Act 1977|loc=Section 20(1))}}
|-
| style=text-align:left | 1975
| £30,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1975| Limits for marginal relief set for 1975 set by changes made to the Finance Act 1972 enacted by Finance Act 1976{{sfnp|Finance Act 1976 |loc=Section 27(3)}}}}
| 42%{{sfnp|Finance Act 1976|loc=Section 27(2))}}
| £50,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1975}}
| 52%{{sfnp|Finance Act 1976|loc=Section 25)}}
| 3/20{{sfnp|Finance Act 1976|loc=Section 27(2))}}
|-
| style=text-align:left | 1974
| £25,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1973-1974| Limits for marginal relief set for 1973 & 1974 set by changes made to the Finance Act 1972 enacted by Finance Act 1974{{sfnp|Finance Act 1974 |loc=Section 11}}}}
| 42%{{sfnp|Finance (No. 2) Act 1975|loc=Section 27(2))}}
| £40,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1973-1974}}
| 52%{{sfnp|Finance (No. 2) Act 1975|loc=Section 26)}}
| 1/6{{sfnp|Finance (No. 2) Act 1975|loc=Section 27(2))}}
|-
| style=text-align:left | 1973
| £25,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1973-1974}}
| 42%{{sfnp|Finance Act 1974|loc=Section 10(2))}}
| £40,000{{sfnp|Finance Act 1972 |loc=Section 95(3)(a) (as amended)}}{{efn|name=Marginal1973-1974}}
| 52%{{sfnp|Finance Act 1974|loc=Section 9)}}
| 1/6{{sfnp|Finance Act 1974|loc=Section 10(2))}}
|-
| style=text-align:left | 1972
| N/A
| N/A
| N/A
| 40%{{sfnp|Finance Act 1973|loc=Section 11)}}
| N/A
|-
| style=text-align:left | 1971
| N/A
| N/A
| N/A
| 40%{{sfnp|Finance Act 1972|loc=Section 64)}}
| N/A
|-
| style=text-align:left | 1970
| N/A
| N/A
| N/A
| 40%{{sfnp|Finance Act 1971|loc=Section 14)}}
| N/A
|-
| style=text-align:left | 1969
| N/A
| N/A
| N/A
| 45%{{sfnp|Finance Act 1970|loc=Section 13)}}
| N/A
|-
| style=text-align:left | 1968
| N/A
| N/A
| N/A
| 45%{{sfnp|Finance Act 1969|loc=Section 9)}}
| N/A
|-
| style=text-align:left | 1967
| N/A
| N/A
| N/A
| 42%{{sfnp|Finance Act 1968|loc=Section 13)}}
| N/A
|-
| style=text-align:left | 1966
| N/A
| N/A
| N/A
| 40%{{sfnp|Finance Act 1967|loc=Section 19)}}
| N/A
|-
| style=text-align:left | 1965
| N/A
| N/A
| N/A
| 40%{{sfnp|Finance Act 1966|loc=Section 26)}}
| N/A
|-
| style=text-align:left | 1964
| N/A
| N/A
| N/A
| 40%{{sfnp|Finance Act 1966|loc=Section 26)}}
| N/A
|}


====Starting rate and non-corporate distribution rate====
Chancellor ]'s 1999 Budget<ref name="Budget 1999"> Chancellor ]'s 1999 Budget<ref name="Budget 1999">
{{Webarchive|url=https://web.archive.org/web/20070606203629/http://www.hm-treasury.gov.uk/budget/budget_99/bud_bud99_index.cfm |date=6 June 2007 }} , HM Treasury. Retrieved 19 April 2007 {{Webarchive|url=https://web.archive.org/web/20070606203629/http://www.hm-treasury.gov.uk/budget/budget_99/bud_bud99_index.cfm |date=6 June 2007 }} , HM Treasury. Retrieved 19 April 2007
</ref> introduced a 10% starting rate for profits from £0 to £10,000, effective from April 2000.<ref name="Rates"/><ref name="IR19"> </ref> introduced a 10% starting rate for profits from £0 to £10,000, effective from April 2000.<ref name="Rates"/><ref name="IR19">
{{Webarchive|url=https://web.archive.org/web/20070928040658/http://archive.treasury.gov.uk/budget/1999/nr/ir19.txt |date=28 September 2007 }} , HM Treasury. Retrieved 9 April 2007 {{Webarchive|url=https://web.archive.org/web/20070928040658/http://archive.treasury.gov.uk/budget/1999/nr/ir19.txt |date=28 September 2007 }} , HM Treasury. Retrieved 9 April 2007
</ref> Marginal relief applied meaning companies with profits of between £10,000 and £50,000 paid a rate between the starting rate and the small companies' rate (19% in 2000). </ref> Marginal relief applied meaning companies with profits of between £10,000 and £50,000 paid a rate between the starting rate and the small companies' rate (19% in 2000).{{citation needed|date=March 2021}}


The 2002 Budget<ref name="Budget 2002"> The 2002 Budget<ref name="Budget 2002">
Line 71: Line 501:
</ref> cut the starting rate to zero, with marginal relief applying in the same way.<ref name="Rates"/><ref name="Budget 2002 s1.20"> </ref> cut the starting rate to zero, with marginal relief applying in the same way.<ref name="Rates"/><ref name="Budget 2002 s1.20">
{{Webarchive|url=https://web.archive.org/web/20070611042446/http://www.hm-treasury.gov.uk/media/96F/30/Budget_2002.pdf |date=11 June 2007 }} s1.20, The Stationery Office. Retrieved 9 April 2007 {{Webarchive|url=https://web.archive.org/web/20070611042446/http://www.hm-treasury.gov.uk/media/96F/30/Budget_2002.pdf |date=11 June 2007 }} s1.20, The Stationery Office. Retrieved 9 April 2007
</ref> This caused a significant increase in the number of companies being incorporated, as businesses that had operated as ], paying income tax on profits from just over £5,000, were attracted to the corporation tax rate of 0% on income up to £10,000.<ref name="loophole">{{cite web | last = Toyne | first = Sarah | title = Stuck in the Chancellor's loophole |publisher = BBC | date = 16 March 2004| url = http://news.bbc.co.uk/1/hi/business/3535749.stm | accessdate =9 May 2007}}</ref> Previously self-employed individuals could now distribute profits as ] payments rather than salaries.<ref name="timebomb">{{cite web | last = Lewis | first = Paul | title = Tax 'time bomb' for self-employed | publisher = BBC | date = 13 December 2003| url = http://news.bbc.co.uk/1/hi/programmes/moneybox/3316381.stm | accessdate =9 May 2007}}</ref> For companies with profits under £50,000 the corporation tax rate varied between 0% and 19%. Because dividend payments come with a ] credit, provided the recipient did not earn more than the basic rate allowance, no further tax would be paid.<ref name="CTM15150"/> The number of new companies being formed in 2002–2003 reached 325,900, an increase of 45% on 2001–2002.<ref name="Company stats"> (Table B1), Department of Trade and Industry, July 2003, {{ISBN|978-0-11-515505-5}}. Retrieved on 9 May 2007</ref> </ref> This caused a significant increase in the number of companies being incorporated, as businesses that had operated as ], paying income tax on profits from just over £5,000, were attracted to the corporation tax rate of 0% on income up to £10,000.<ref name="loophole">{{cite web | last = Toyne | first = Sarah | title = Stuck in the Chancellor's loophole |publisher = BBC | date = 16 March 2004| url = http://news.bbc.co.uk/1/hi/business/3535749.stm | access-date =9 May 2007}}</ref> Previously self-employed individuals could now distribute profits as ] payments rather than salaries.<ref name="timebomb">{{cite web | last = Lewis | first = Paul | title = Tax 'time bomb' for self-employed | publisher = BBC | date = 13 December 2003| url = http://news.bbc.co.uk/1/hi/programmes/moneybox/3316381.stm | access-date =9 May 2007}}</ref> For companies with profits under £50,000 the corporation tax rate varied between 0% and 19%. Because dividend payments come with a ] credit, provided the recipient did not earn more than the basic rate allowance, no further tax would be paid.<ref name="CTM15150"/> The number of new companies being formed in 2002–2003 reached 325,900, an increase of 45% on 2001–2002.<ref name="Company stats"> (Table B1), Department of Trade and Industry, July 2003, {{ISBN|978-0-11-515505-5}}. Retrieved 9 May 2007</ref>


The fact that individuals operating in this manner could potentially pay no tax at all was felt by the government to be unfair tax avoidance,<ref name="timebomb"/> and the 2004 Budget<ref name="Budget 2004"> The fact that individuals operating in this manner could potentially pay no tax at all was felt by the government to be unfair tax avoidance,<ref name="timebomb"/> and the 2004 Budget<ref name="Budget 2004">
{{Webarchive|url=https://web.archive.org/web/20070312002300/http://www.hm-treasury.gov.uk/budget/budget_04/bud_bud04_index.cfm |date=12 March 2007 }} , HM Treasury. Retrieved 19 April 2007 {{Webarchive|url=https://web.archive.org/web/20070312002300/http://www.hm-treasury.gov.uk/budget/budget_04/bud_bud04_index.cfm |date=12 March 2007 }} , HM Treasury. Retrieved 19 April 2007
</ref> introduced a Non-Corporate Distribution Rate.<ref name="CTM14105"> {{webarchive |url=https://web.archive.org/web/20070207010438/http://www.hmrc.gov.uk/manuals/ctmanual/CTM14105.htm |date=7 February 2007 }}, HMRC. Retrieved 18 April 2007</ref> This ensured that where a company paid below the small companies' rate (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%. For example, a company making £10,000 profit, and making a £6,000 dividend distribution to an individual and £4,000 to another company would pay 19% corporation tax on the £6,000. Although this measure substantially reduced the number of small businesses incorporating, the Chancellor in the 2006 Budget<ref name="Budget 2006"> </ref> introduced a Non-Corporate Distribution Rate.<ref name="CTM14105"> {{webarchive |url=https://web.archive.org/web/20070207010438/http://www.hmrc.gov.uk/manuals/ctmanual/CTM14105.htm |date=7 February 2007 }}, HMRC. Retrieved 18 April 2007</ref> This ensured that where a company paid below the small companies' rate (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%. For example, a company making £10,000 profit, and making a £6,000 dividend distribution to an individual and £4,000 to another company would pay 19% corporation tax on the £6,000. Although this measure substantially reduced the number of small businesses incorporating, the Chancellor in the 2006 Budget<ref name="Budget 2006">
{{Webarchive|url=https://web.archive.org/web/20070424235010/http://www.hm-treasury.gov.uk/budget/budget_06/bud_bud06_index.cfm |date=24 April 2007 }} , HM Treasury. Retrieved 19 April 2007 {{Webarchive|url=https://web.archive.org/web/20070424235010/http://www.hm-treasury.gov.uk/budget/budget_06/bud_bud06_index.cfm |date=24 April 2007 }} , HM Treasury. Retrieved 19 April 2007
</ref> said tax avoidance by small businesses through incorporation was still a major issue, and scrapped the starting rate entirely.<ref> {{webarchive |url=https://web.archive.org/web/20070415222021/http://www.hmrc.gov.uk/budget2006/bn01.htm |date=15 April 2007 }}, HMRC. Retrieved 9 April 2007</ref> </ref> said tax avoidance by small businesses through incorporation was still a major issue, and scrapped the starting rate entirely.<ref> {{webarchive |url=https://web.archive.org/web/20070415222021/http://www.hmrc.gov.uk/budget2006/bn01.htm |date=15 April 2007 }}, HMRC. Retrieved 9 April 2007</ref>


===Historic tax revenues=== ===Historic tax revenues===
The following graph shows UK corporation tax revenue from 1999 to 2017:<ref>{{cite web|title=There is a longer Excel version of this table also available on our website with historical monthly data back to April 2008. Historical annual data goes back to 1999-00. HM Revenue and Customs receipts Amounts: £ million Amounts: £ million|url=https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/609972/Mar17_Receipts_NS_Bulletin_Final.pdf#page=11|website=]|accessdate=2 October 2017}}</ref> The following graph shows UK corporation tax revenue from 1999 to 2017:<ref>{{cite web|title=There is a longer Excel version of this table also available on our website with historical monthly data back to April 2008. Historical annual data goes back to 1999-00. HM Revenue and Customs receipts Amounts: £ million Amounts: £ million|url=https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/609972/Mar17_Receipts_NS_Bulletin_Final.pdf#page=11|website=]|access-date=2 October 2017}}</ref>


{{Graph:Chart | type = rect | width = 400 {{Graph:Chart | type = rect | width = 400
Line 92: Line 522:


===Taxable profits and accounting profits=== ===Taxable profits and accounting profits===
The starting point for computing taxable profits is profits before tax (except for a ] company). The rules for calculating corporation tax generally ran in parallel with income tax until 1993, when the first statutory rule to move profit reporting into line with ] was introduced, although the courts were already moving towards requiring trading profits to be computed using general ] rules.<ref name="CTM01130">, HMRC. Retrieved 13 April 2007</ref> The starting point for computing taxable profits is profits before tax (except for a ] company). The rules for calculating corporation tax generally ran in parallel with income tax until 1993, when the first statutory rule to move profit reporting into line with ] was introduced, although the courts were already moving towards requiring trading profits to be computed using general ] rules.<ref name="CTM01130">, HMRC. Retrieved 13 April 2007</ref>


The ]<ref name="FA 93">{{dead link|date=September 2017 |bot=InternetArchiveBot |fix-attempted=yes }}, HMSO, {{ISBN|0-10-543493-0}} Retrieved on 9 May 2007</ref> introduced rules to make tax on exchange gains and losses mimic their treatment in a company's ] in most instances. The ]<ref name="FA 94">, HMSO, {{ISBN|0-10-540994-4}} Retrieved on 9 May 2007</ref> saw similar rules for financial instruments, and in the ]<ref name="FA 96">, HMSO, {{ISBN|0-10-540896-4}} Retrieved on 9 May 2007</ref> the treatment of most loan relationships was also brought into line with the accounting treatment. The ]<ref name="FA 97">, HMSO, {{ISBN|0-10-541697-5}} Retrieved on 9 May 2007</ref> saw something similar with rental premiums. A year later, the ]<ref name="FA 98">, HMSO, {{ISBN|0-10-543698-4}} Retrieved on 9 May 2007</ref> went even further, making it clear that taxable trading profits (apart from those accruing to a ] corporate name<ref name="CTM40750">, HMRC. Retrieved 13 April 2007</ref> or to a ] company) and profits from a rental business are equal to profits calculated under ] ("GAAP") unless there is a specific statutory or case law rule to the contrary. This was followed up by the ],<ref name="FA 2004">, HMSO, {{ISBN|0-10-541204-X}} Retrieved on 9 May 2007</ref> which provided that where a company with investment business could make deductions for management expenses, they were calculated by reference to figures in the ].<ref name="CTM08005">, HMRC. Retrieved 13 April 2007</ref> The ]<ref name="FA 93">{{dead link|date=September 2017 |bot=InternetArchiveBot |fix-attempted=yes }}, HMSO, {{ISBN|0-10-543493-0}} Retrieved 9 May 2007</ref> introduced rules to make tax on exchange gains and losses mimic their treatment in a company's ] in most instances. The ]<ref name="FA 94">, HMSO, {{ISBN|0-10-540994-4}} Retrieved 9 May 2007</ref> saw similar rules for financial instruments, and in the ]<ref name="FA 96">, HMSO, {{ISBN|0-10-540896-4}} Retrieved 9 May 2007</ref> the treatment of most loan relationships was also brought into line with the accounting treatment. The ]<ref name="FA 97">, HMSO, {{ISBN|0-10-541697-5}} Retrieved 9 May 2007</ref> saw something similar with rental premiums. A year later, the ]<ref name="FA 98">, HMSO, {{ISBN|0-10-543698-4}} Retrieved 9 May 2007</ref> went even further, making it clear that taxable trading profits (apart from those accruing to a ] corporate name<ref name="CTM40750">, HMRC. Retrieved 13 April 2007</ref> or to a ] company) and profits from a rental business are equal to profits calculated under ] ("GAAP") unless there is a specific statutory or case law rule to the contrary. This was followed up by the ],<ref name="FA 2004">, HMSO, {{ISBN|0-10-541204-X}} Retrieved 9 May 2007</ref> which provided that where a company with investment business could make deductions for management expenses, they were calculated by reference to figures in the ].<ref name="CTM08005">, HMRC. Retrieved 13 April 2007</ref>


====International Financial Reporting Standards==== ====International Financial Reporting Standards====
From 2005, all ] ] have to prepare their financial statements using the "]" ("IFRS"), as modified by the EU.<ref name="IAS">, www.europa.eu. Retrieved 13 April 2007</ref> Other UK companies may choose to adopt IFRS. Corporation tax law is changing so that, in the future, IFRS accounting profits are largely respected. The exception is for certain financial instruments and certain other measures to prevent tax ] between companies applying IFRS and companies applying UK GAAP. From 2005, all ] ] have to prepare their financial statements using the "]" ("IFRS"), as modified by the EU.<ref name="IAS">, www.europa.eu. Retrieved 13 April 2007</ref> Other UK companies may choose to adopt IFRS. Corporation tax law is changing so that, in the future, IFRS accounting profits are largely respected. The exception is for certain financial instruments and certain other measures to prevent tax ] between companies applying IFRS and companies applying UK GAAP.{{citation needed|date=March 2021}}


===Avoidance=== ===Avoidance===
] is defined by the UK government as "bending the rules of the tax system to gain a tax advantage that Parliament never intended".<ref>{{Cite web|url=https://www.gov.uk/guidance/tax-avoidance-an-introduction|title=Tax avoidance: an introduction|website=GOV.UK|language=en|access-date=2019-10-22}}</ref> Unlike most other countries, most UK tax professionals are accountants rather than lawyers by training. ] is defined by the UK government as "bending the rules of the tax system to gain a tax advantage that Parliament never intended".<ref>{{Cite web|url=https://www.gov.uk/guidance/tax-avoidance-an-introduction|title=Tax avoidance: an introduction|website=GOV.UK|language=en|access-date=2019-10-22}}</ref> Unlike most other countries, most UK tax professionals are accountants rather than lawyers by training.{{citation needed|date=March 2021}}


Until 2013, the UK had no ] ("GAAR") for corporation tax. However, it inherited an anti-avoidance rule from income tax relating to transactions in securities,<ref name="CTM36805">, HMRC. Retrieved 19 April 2007</ref> and since then has had various "mini-GAARs" added to it. The best known "mini-GAAR" prevents a deduction for interest paid when the loan to which it relates is made for an "unallowable purpose".<ref name="CTM56705"> {{webarchive |url=https://web.archive.org/web/20070111113054/http://www.hmrc.gov.uk/manuals/ctmanual/CTM56705.htm |date=11 January 2007 }}, HMRC. Retrieved 19 April 2007</ref> In 2013, the government introduced a General Anti-Avoidance Rule to manage the risk of tax avoidance.<ref>{{cite web|url=https://www.gov.uk/government/publications/tax-avoidance-general-anti-abuse-rules |title=Tax avoidance: General Anti-Abuse Rule}}</ref> Until 2013, the UK had no ] ("GAAR") for corporation tax. However, it inherited an anti-avoidance rule from income tax relating to transactions in securities,<ref name="CTM36805">, HMRC. Retrieved 19 April 2007</ref> and since then has had various "mini-GAARs" added to it. The best known "mini-GAAR" prevents a deduction for interest paid when the loan to which it relates is made for an "unallowable purpose".<ref name="CTM56705"> {{webarchive |url=https://web.archive.org/web/20070111113054/http://www.hmrc.gov.uk/manuals/ctmanual/CTM56705.htm |date=11 January 2007 }}, HMRC. Retrieved 19 April 2007</ref> In 2013, the government introduced a General Anti-Avoidance Rule to manage the risk of tax avoidance.<ref>{{cite web|url=https://www.gov.uk/government/publications/tax-avoidance-general-anti-abuse-rules |title=Tax avoidance: General Anti-Abuse Rule|date=16 July 2021 }}</ref>


Finance Act 2004<ref name="FA 2004"/> introduced disclosure rules requiring promoters of certain tax avoidance schemes that are financing- or employment-related to disclose the scheme. Taxpayers who use these schemes must also disclose their use when they submit their tax returns.<ref name="Tax Avoid">, HMRC. Retrieved 13 April 2007</ref> This is the first provision of its kind in the UK, and Finance Act 2005<ref name="FA 2005">{{dead link|date=July 2016 |bot=InternetArchiveBot |fix-attempted=yes }}, HMSO, {{ISBN|0-10-540805-0}} Retrieved on 9 May 2007</ref> has shown a number of tax avoidance schemes being blocked earlier than would have been expected prior to the disclosure rules. Finance Act 2004<ref name="FA 2004"/> introduced disclosure rules requiring promoters of certain tax avoidance schemes that are financing- or employment-related to disclose the scheme. Taxpayers who use these schemes must also disclose their use when they submit their tax returns.<ref name="Tax Avoid">, HMRC. Retrieved 13 April 2007</ref> This is the first provision of its kind in the UK, and Finance Act 2005<ref name="FA 2005">{{dead link|date=July 2016 |bot=InternetArchiveBot |fix-attempted=yes }}, HMSO, {{ISBN|0-10-540805-0}} Retrieved 9 May 2007</ref> has shown a number of tax avoidance schemes being blocked earlier than would have been expected prior to the disclosure rules.{{citation needed|date=March 2021}}


===Need for greater revenues=== ===Need for greater revenues===
In the early twenty-first century the government sought to raise more revenues from corporation tax. In 2002 it introduced a separate 10% supplementary charge on profits from oil and gas extraction businesses,<ref name="OT00190"/> and Finance Act 2005<ref name="FA 2005"/> contained measures to accelerate when oil and gas extraction business have to pay tax. Instead of paying their tax in four equal instalments in the seventh, tenth, thirteenth and sixteenth month after the accounting period starts, they will be required to consolidate their third and fourth payments and pay them in the thirteenth month, creating a ] advantage for the government. Finance (No. 2) Act 2005<ref name="FA (No2) 2005">, HMSO, {{ISBN|0-10-542205-3}} Retrieved on 9 May 2007</ref> continued measures specifically relating to ] companies. When originally announced (as Finance (No.3) Bill 2005) ] told the Stock Exchange that £300&nbsp;m had been wiped off its value, and Aviva (Norwich Union) announced that the tax changes would cost its policy holders £150&nbsp;m. In the early twenty-first century the government sought to raise more revenues from corporation tax. In 2002 it introduced a separate 10% supplementary charge on profits from oil and gas extraction businesses,<ref name="OT00190"/> and Finance Act 2005<ref name="FA 2005"/> contained measures to accelerate when oil and gas extraction business have to pay tax. Instead of paying their tax in four equal instalments in the seventh, tenth, thirteenth and sixteenth month after the accounting period starts, they will be required to consolidate their third and fourth payments and pay them in the thirteenth month, creating a ] advantage for the government. Finance (No. 2) Act 2005<ref name="FA (No2) 2005">, HMSO, {{ISBN|0-10-542205-3}} Retrieved 9 May 2007</ref> continued measures specifically relating to ] companies. When originally announced (as Finance (No.3) Bill 2005) ] told the Stock Exchange that £300&nbsp;m had been wiped off its value, and Aviva (Norwich Union) announced that the tax changes would cost its policy holders £150&nbsp;m.{{citation needed|date=March 2021}}


==Method of charge== ==Method of charge==
Powers to collect corporation tax must be passed annually by ], otherwise there is no authority to collect it. The charge for the ] (beginning 1 April each year) is imposed by successive finance acts. The tax is charged in respect of the company's ], which is normally the 12-month period for which the company prepares its ].<ref name="CTM01105">, HMRC. Retrieved 14 April 2007</ref> Corporation tax is administered by ] (HMRC). Powers to collect corporation tax must be passed annually by ], otherwise there is no authority to collect it. The charge for the ] (beginning 1 April each year) is imposed by successive finance acts. The tax is charged in respect of the company's ], which is normally the 12-month period for which the company prepares its ].<ref name="CTM01105">, HMRC. Retrieved 14 April 2007</ref> Corporation tax is administered by ] (HMRC).{{citation needed|date=March 2021}}


===Assessment=== ===Assessment===
Corporation tax is levied on the net profits of a company.<ref name="CTM01105"/> Except for certain ] companies,<ref name="CTM40325">, HMRC. Retrieved 14 April 2007</ref> it is borne by the company as a ]. Corporation tax is levied on the net profits of a company.<ref name="CTM01105"/> Except for certain ] companies,<ref name="CTM40325">, HMRC. Retrieved 14 April 2007</ref> it is borne by the company as a ].{{citation needed|date=March 2021}}


Up until 1999 no corporation tax was due unless HMRC raised an assessment on a company. Companies were, however, obliged to report certain details to HMRC so that the right amount could be assessed. This changed for accounting periods ending on or after 1 July 1999, when self-assessment was introduced.<ref name="FA 98"/> Self-assessment means that companies are required to assess themselves ''and take full responsibility for that assessment''. If the self-assessment is wrong through negligence or recklessness, the company can be liable to penalties.<ref name="CTM93260">, HMRC. Retrieved 14 April 2007</ref> Up until 1999 no corporation tax was due unless HMRC raised an assessment on a company. Companies were, however, obliged to report certain details to HMRC so that the right amount could be assessed. This changed for accounting periods ending on or after 1 July 1999, when self-assessment was introduced.<ref name="FA 98"/> Self-assessment means that companies are required to assess themselves ''and take full responsibility for that assessment''. If the self-assessment is wrong through negligence or recklessness, the company can be liable to penalties.<ref name="CTM93260">, HMRC. Retrieved 14 April 2007</ref>
The self-assessment tax return needs to be delivered to HMRC 12 months after the end of the period of account in which the accounting period falls<ref name="CTM93030">, HMRC. Retrieved 14 April 2007</ref> (although the tax must be paid before this date). If a company fails to submit a return by then, it is liable to penalties.<ref name="CTM93260"/> HMRC may then issue a determination of the tax payable,<ref name="CTM95305">, HMRC. Retrieved 15 April 2007</ref> which cannot be appealed – however, in practice they wait until a further six months have elapsed. Also, the most common claims and elections that may be made by a company have to be part of its tax return, with a time limit of two years after the end of the accounting period.<ref name="CTM90602">, HMRC. Retrieved 15 April 2007</ref> This means that a company submitting its return more than one year late suffers not only from the late filing penalties, but also from the inability to make these claims and elections. The self-assessment tax return needs to be delivered to HMRC 12 months after the end of the period of account in which the accounting period falls<ref name="CTM93030">, HMRC. Retrieved 14 April 2007</ref> (although the tax must be paid before this date). If a company fails to submit a return by then, it is liable to penalties.<ref name="CTM93260"/> HMRC may then issue a determination of the tax payable,<ref name="CTM95305">, HMRC. Retrieved 15 April 2007</ref> which cannot be appealed – however, in practice they wait until a further six months have elapsed. Also, the most common claims and elections that may be made by a company have to be part of its tax return, with a time limit of two years after the end of the accounting period.<ref name="CTM90602">, HMRC. Retrieved 15 April 2007</ref> This means that a company submitting its return more than one year late suffers not only from the late filing penalties, but also from the inability to make these claims and elections.{{citation needed|date=March 2021}}


From 2004 there has been a requirement for new companies to notify HM Revenue & Customs of their ], although HMRC receives notifications of new company registrations from ].<ref name="FA 2004"/> Companies will then receive an annual notice CT603, approximately 1–2 months after the end of the company's financial period, notifying it to complete an annual return. This must also include the company's annual accounts, and possibly other documents, such as ]s' reports, that are required for certain companies.<ref name="CTM93090">, HMRC. Retrieved 15 April 2007</ref> From 2004 there has been a requirement for new companies to notify HM Revenue & Customs of their ], although HMRC receives notifications of new company registrations from ].<ref name="FA 2004"/> Companies will then receive an annual notice CT603, approximately 1–2 months after the end of the company's financial period, notifying it to complete an annual return. This must also include the company's annual accounts, and possibly other documents, such as ]s' reports, that are required for certain companies.<ref name="CTM93090">, HMRC. Retrieved 15 April 2007</ref>


===Schedular system=== ===Schedular system===
Line 125: Line 555:
In the United Kingdom the ''source rule'' applies. This means that something is taxed only if there is a specific provision bringing it within the charge to tax. Accordingly, profits are only charged to corporation tax if they fall within one of the following, and are not otherwise exempted by an explicit provision of the Taxes Acts:<ref name="CTM01105"/> In the United Kingdom the ''source rule'' applies. This means that something is taxed only if there is a specific provision bringing it within the charge to tax. Accordingly, profits are only charged to corporation tax if they fall within one of the following, and are not otherwise exempted by an explicit provision of the Taxes Acts:<ref name="CTM01105"/>


{| border="1" cellpadding="2" cellspacing="0" class="wikitable" {| class="wikitable"
|- bgcolor="#efefef"
! !
! Scope ! Scope
|- |-
||'''Schedule A'''||Income from UK land<ref name="PIM1001">, HMRC. Retrieved 15 April 2007</ref> ||'''Schedule A'''||Income from UK land<ref name="PIM1001">, HMRC. Retrieved 15 April 2007</ref>
|- |-
||'''Schedule D'''||Taxable income not falling within another Schedule<ref name="BIM14010">, HMRC. Retrieved 15 April 2007</ref> ||'''Schedule D'''||Taxable income not falling within another Schedule<ref name="BIM14010">, HMRC. Retrieved 15 April 2007</ref>
|- |-
||'''Schedule F'''||Income from UK dividends<ref name="CTM17005">, HMRC. Retrieved 19 April 2007</ref> ||'''Schedule F'''||Income from UK dividends<ref name="CTM17005">, HMRC. Retrieved 19 April 2007</ref>
|- |-
||'''Chargeable gains'''||Gains as defined by legislation that are not taxed as income<ref name="CTM02250">, HMRC. Retrieved 16 April 2007</ref> ||'''Chargeable gains'''||Gains as defined by legislation that are not taxed as income<ref name="CTM02250">, HMRC. Retrieved 16 April 2007</ref>
|- |-
||'''CFC charge'''||Profits made by controlled foreign companies where no exemption applies<ref name="INTM201020"> {{webarchive |url=https://web.archive.org/web/20070206235219/http://www.hmrc.gov.uk/manuals/intmanual/intm201020.htm |date=6 February 2007 }}, HMRC. Retrieved 16 April 2007</ref> ||'''CFC charge'''||Profits made by controlled foreign companies where no exemption applies<ref name="INTM201020"> {{webarchive |url=https://web.archive.org/web/20070206235219/http://www.hmrc.gov.uk/manuals/intmanual/intm201020.htm |date=6 February 2007 }}, HMRC. Retrieved 16 April 2007</ref>
|} |}


Notes: Notes:


#In practice companies do not get taxed under Schedule F. Most companies are exempted from Schedule F and there is a provision for those companies which are taxed on UK dividends (i.e. dealers in shares (])) that removes the charge from Schedule F to Schedule D. #In practice companies do not get taxed under Schedule F. Most companies are exempted from Schedule F and there is a provision for those companies which are taxed on UK dividends (i.e. dealers in shares (])) that removes the charge from Schedule F to Schedule D.{{citation needed|date=March 2021}}
#A ] ("CFC") is a company controlled by a UK resident that is not itself UK resident and is subject to a lower rate of tax in the territory in which it is resident.<ref name="INTM201020"/> Under certain circumstances, UK resident companies that control a CFC pay corporation tax on what the UK tax profits of that CFC would have been. However, because of a wide range of exemptions,<ref name="INTM201070"> {{webarchive |url=https://web.archive.org/web/20070206235223/http://www.hmrc.gov.uk/manuals/intmanual/INTM201070.htm |date=6 February 2007 }}, HMRC. Retrieved 16 April 2007</ref> very few companies suffer a CFC charge. #A ] ("CFC") is a company controlled by a UK resident that is not itself UK resident and is subject to a lower rate of tax in the territory in which it is resident.<ref name="INTM201020"/> Under certain circumstances, UK resident companies that control a CFC pay corporation tax on what the UK tax profits of that CFC would have been. However, because of a wide range of exemptions,<ref name="INTM201070"> {{webarchive |url=https://web.archive.org/web/20070206235223/http://www.hmrc.gov.uk/manuals/intmanual/INTM201070.htm |date=6 February 2007 }}, HMRC. Retrieved 16 April 2007</ref> very few companies suffer a CFC charge.{{citation needed|date=March 2021}}
#Schedules B, C and E used to, but no longer, exist. #Schedules B, C and E used to, but no longer, exist.{{citation needed|date=March 2021}}
#Authorised unit trusts and OEICs are not liable to tax on their chargeable gains.<ref name="CTM48215">, HMRC. Retrieved 16 April 2007</ref> #Authorised unit trusts and OEICs are not liable to tax on their chargeable gains.<ref name="CTM48215">, HMRC. Retrieved 16 April 2007</ref>
Schedule D is itself divided into a number of cases: Schedule D is itself divided into a number of cases:


{| border="1" cellpadding="2" cellspacing="0" class="wikitable" {| class="wikitable"
|- bgcolor="#efefef"
! !
! Scope ! Scope
|- |-
|'''Case I'''||Profits from a UK trade<ref name="BIM14080"> {{webarchive |url=https://web.archive.org/web/20070206062233/http://www.hmrc.gov.uk/manuals/bimmanual/bim14080.htm |date=6 February 2007 }}, HMRC. Retrieved 15 April 2007</ref> |'''Case I'''||Profits from a UK trade<ref name="BIM14080"> {{webarchive |url=https://web.archive.org/web/20070206062233/http://www.hmrc.gov.uk/manuals/bimmanual/bim14080.htm |date=6 February 2007 }}, HMRC. Retrieved 15 April 2007</ref>
|- |-
|'''Case III'''||Interest-type income and gains/losses on loans, derivatives, financial instruments and intangibles<ref name="CTM50310"> {{webarchive |url=https://web.archive.org/web/20070207004126/http://www.hmrc.gov.uk/manuals/ctmanual/CTM50310.htm |date=7 February 2007 }}, HMRC. Retrieved 15 April 2007</ref> |'''Case III'''||Interest-type income and gains/losses on loans, derivatives, financial instruments and intangibles<ref name="CTM50310"> {{webarchive |url=https://web.archive.org/web/20070207004126/http://www.hmrc.gov.uk/manuals/ctmanual/CTM50310.htm |date=7 February 2007 }}, HMRC. Retrieved 15 April 2007</ref>
|- |-
|'''Case V'''||Overseas income<ref name="CTM02130">, HMRC. Retrieved 15 April 2007</ref> |'''Case V'''||Overseas income<ref name="CTM02130">, HMRC. Retrieved 15 April 2007</ref>
|- |-
|'''Case VI'''||Annual income not falling within Cases I, III and V, and other income/gains specifically taxed under Case VI<ref name="BIM80101"> {{webarchive |url=https://web.archive.org/web/20070207001345/http://www.hmrc.gov.uk/manuals/bimmanual/BIM80101.htm |date=7 February 2007 }}, HMRC. Retrieved 15 April 2007</ref> |'''Case VI'''||Annual income not falling within Cases I, III and V, and other income/gains specifically taxed under Case VI<ref name="BIM80101"> {{webarchive |url=https://web.archive.org/web/20070207001345/http://www.hmrc.gov.uk/manuals/bimmanual/BIM80101.htm |date=7 February 2007 }}, HMRC. Retrieved 15 April 2007</ref>
|} |}


Line 166: Line 594:
#Cases II and IV only apply to income tax and not corporation tax. #Cases II and IV only apply to income tax and not corporation tax.


Strictly speaking, Corporation Tax Act 2010 replaces the historic terminology "Schedule A", "Schedule D Case I" etc. with more descriptive terms but this does not affect the substantive application of the schedular system so that, for example, different rules apply for utilising tax losses depending upon the nature of the income under which the losses arises. Strictly speaking, Corporation Tax Act 2010 replaces the historic terminology "Schedule A", "Schedule D Case I" etc. with more descriptive terms but this does not affect the substantive application of the schedular system so that, for example, different rules apply for utilising tax losses depending upon the nature of the income under which the losses arises.{{citation needed|date=March 2021}}


====Relief for expenses==== ====Relief for expenses====
Most direct expenses are deductible when calculating taxable income and chargeable gains. Notable exceptions include any costs of entertaining clients. Companies with investment business may deduct certain indirect expenses known as "expenses of management" when calculating their taxable profits. A similar relief is available for expenses of a ] company taxed on the ] which relate to the company's ].<ref name="CTM08005"/> Donations made to charities are also normally deducted in calculating taxable income if made under ].<ref name="CTM09060">, HMRC. Retrieved 16 April 2007</ref> Most direct expenses are deductible when calculating taxable income and chargeable gains. Notable exceptions include any costs of entertaining clients. Companies with investment business may deduct certain indirect expenses known as "expenses of management" when calculating their taxable profits. A similar relief is available for expenses of a ] company taxed on the ] which relate to the company's ].<ref name="CTM08005"/> Donations made to charities are also normally deducted in calculating taxable income if made under ].<ref name="CTM09060">, HMRC. Retrieved 16 April 2007</ref>


===Rates and payment=== ===Rates and payment===
Line 178: Line 606:
</ref> </ref>


The rate of corporation tax is determined by the financial year,<ref name="CTM010405">, HMRC. Retrieved 16 April 2007</ref> which runs from 1 April to the following 31 March. Financial year FY17 started on 1 April 2017 and ends on 31 March 2018. Where a company's ] straddles a financial year in which the corporation tax rate has changed, the company's profits for that period are split.<ref name="CTM010405"/> For example, a company paying small companies' rate with its accounting period running from 1 January to 31 December, and making £100,000 of profit in 2007, would be deemed to have made 90/365*£100,000 = £24,657.53 in FY06 (there are 90 days between 1 January and 31 March), and 275/365*£100,000=£75,34.47 in FY07, and would pay 19% on the FY06 portion, and 20% on the FY07 portion. The rate of corporation tax is determined by the financial year,<ref name="CTM010405">, HMRC. Retrieved 16 April 2007</ref> which runs from 1 April to the following 31 March. Financial year FY17 started on 1 April 2017 and ends on 31 March 2018. Where a company's ] straddles a financial year in which the corporation tax rate has changed, the company's profits for that period are split.<ref name="CTM010405"/> For example, a company paying small companies' rate with its accounting period running from 1 January to 31 December, and making £100,000 of profit in 2007, would be deemed to have made 90/365*£100,000 = £24,657.53 in FY06 (there are 90 days between 1 January and 31 March), and 275/365*£100,000=£75,34.47 in FY07, and would pay 19% on the FY06 portion, and 20% on the FY07 portion.{{citation needed|date=March 2021}}


From 1 April 2010 HM Revenue & Customs updated their terminology and the former Small Companies' Rate is now called Small Profits Rate.<ref name="rates2" /> From 1 April 2010 HM Revenue & Customs updated their terminology and the former Small Companies' Rate is now called Small Profits Rate.<ref name="rates2" />


{| border="1" cellpadding="2" cellspacing="0" class="wikitable" {| class="wikitable"
|+ Corporate tax rates for financial years 2008–2014<ref name="rates2">{{cite web |url=http://www.hmrc.gov.uk/rates/corp.htm |access-date=25 August 2010 |publisher=HM Revenue&Customs |title=Corporation Tax rates}}</ref><ref name="Budget2011">, Telegraph. Retrieved 24 March 2011</ref>
|- bgcolor="#efefef"
|-
! colspan=6 style="border-right:0px;"; | Corporate Tax rates for Financial Years 2008–2014<ref name="rates2">{{cite web |url=http://www.hmrc.gov.uk/rates/corp.htm |date= |accessdate=25 August 2010 |publisher=HM Revenue&Customs |title=Corporation Tax rates}}</ref><ref name="Budget2011">, Telegraph. Retrieved 24 March 2011</ref>
|- bgcolor="#efefef" cellpadding="2"
! !
! colspan=1 |2008–2010 ! 2008–2010
! |2011 ! 2011
! |2012 ! 2012
! |2013 ! 2013
! |2014 ! 2014
|- |-
||Small profits rate ||21% ||20%||20%||20%||20% |Small profits rate ||21% ||20%||20%||20%||20%
|- |-
||Small profits upper limit ||£300,000 ||£300,000||£300,000||£300,000||£300,000 |Small profits upper limit ||£300,000 ||£300,000||£300,000||£300,000||£300,000
|- |-
||Marginal relief limits ||£300,001 – £1,500,000 ||£300,001 – £1,500,000||£300,001 – £1,500,000||£300,001 – £1,500,000||£300,001 – £1,500,000 |Marginal relief limits ||£300,001 – £1,500,000 ||£300,001 – £1,500,000||£300,001 – £1,500,000||£300,001 – £1,500,000||£300,001 – £1,500,000
|- |-
||Main rate ||28% ||26%||24%||23%||21% |Main rate ||28% ||26%||24%||23%||21%
|} |}


Notes: Notes:
#The bands shown on the right hand side are divided by one plus the number of associates (usually the only associates a company has are fellow group companies, but the term is more widely defined)<ref name="CTM03560">, HMRC. Retrieved 16 April 2007</ref> #The bands shown on the right hand side are divided by one plus the number of associates (usually the only associates a company has are fellow group companies, but the term is more widely defined)<ref name="CTM03560">, HMRC. Retrieved 16 April 2007</ref>
#The reduced rates do not apply to close investment holding companies (companies controlled by fewer than 5 people (plus associates) or by their directors/managers, whose main activity is the holding of investments).<ref name="CTM03505">, HMRC. Retrieved 16 April 2007</ref> Nor do they apply to companies in liquidation after the first 12 months. #The reduced rates do not apply to close investment holding companies (companies controlled by fewer than 5 people (plus associates) or by their directors/managers, whose main activity is the holding of investments).<ref name="CTM03505">, HMRC. Retrieved 16 April 2007</ref> Nor do they apply to companies in liquidation after the first 12 months.
#Authorised ]s and ] are taxed at the basic rate of ] which is 20% as of 2010<ref name="rates2" /> #Authorised ]s and ] are taxed at the basic rate of ] which is 20% as of 2010<ref name="rates2" />
#] companies are taxed using the above rates on shareholder profits and 20% on policy holder profits<ref name="LAM"> {{webarchive |url=https://web.archive.org/web/20070606235842/http://www.hmrc.gov.uk/life-assurance/manual.htm |date=6 June 2007 }}, HMRC. Retrieved 16 April 2007</ref> #] companies are taxed using the above rates on shareholder profits and 20% on policy holder profits<ref name="LAM"> {{webarchive |url=https://web.archive.org/web/20070606235842/http://www.hmrc.gov.uk/life-assurance/manual.htm |date=6 June 2007 }}, HMRC. Retrieved 16 April 2007</ref>
#Companies active in the oil and gas extraction industry in the UK or on the ] are subject to an additional 10% charge on their profits from those activities<ref name="OT00190">, HMRC. Retrieved 16 April 2007</ref> #Companies active in the oil and gas extraction industry in the UK or on the ] are subject to an additional 10% charge on their profits from those activities<ref name="OT00190">, HMRC. Retrieved 16 April 2007</ref>


Most companies are required to pay tax nine months and a day after the end of an accounting period.<ref name="CTM92010">, HMRC. Retrieved 16 April 2007</ref> Larger companies are required to pay quarterly instalments, in the seventh, tenth, thirteenth and sixteenth months after a full accounting period starts.<ref name="CTM92505">, HMRC. Retrieved 16 April 2007</ref> These times are modified where an accounting period lasts for less than twelve months.<ref name="CTM92580">, HMRC. Retrieved 19 April 2007</ref> From 2005 onwards, for tax payable on oil and gas extraction profits, the third and fourth quarterly instalments are merged, including the supplementary 10% charge.<ref name="FA 2005"/> Most companies are required to pay tax nine months and a day after the end of an accounting period.<ref name="CTM92010">, HMRC. Retrieved 16 April 2007</ref> Larger companies are required to pay quarterly instalments, in the seventh, tenth, thirteenth and sixteenth months after a full accounting period starts.<ref name="CTM92505">, HMRC. Retrieved 16 April 2007</ref> These times are modified where an accounting period lasts for less than twelve months.<ref name="CTM92580">, HMRC. Retrieved 19 April 2007</ref> From 2005 onwards, for tax payable on oil and gas extraction profits, the third and fourth quarterly instalments are merged, including the supplementary 10% charge.<ref name="FA 2005"/>


In the financial year 2004–2005, approximately 39,000 companies paid corporation tax at the main rate. These 4.7% of active companies are responsible for 75% of all corporation tax receipts. Around 224,000 companies paid the small companies rate, with 34,000 benefiting from marginal relief. 264,000 were in the starting rate, with 269,000 benefiting from the lower band of marginal relief.<ref name="Stats - detailed"> {{webarchive |url=https://web.archive.org/web/20070609150742/http://www.hmrc.gov.uk/stats/corporate_tax/11-3-corporation-tax.pdf |date=9 June 2007 }}, HMRC. Retrieved 19 April 2007</ref> The total revenue was £41.9bn<ref name="Stats - HMRC receipts"> {{webarchive |url=https://web.archive.org/web/20070609224119/http://www.hmrc.gov.uk/stats/tax_receipts/table1-2.pdf |date=9 June 2007 }}, HMRC. Retrieved 19 April 2007</ref> from 831,885 companies.<ref name="Stats - detailed"/> Only 23480 companies had a liability in excess of £100,000.<ref name="Stats - CT payable"> {{webarchive |url=https://web.archive.org/web/20070205153923/http://www.hmrc.gov.uk/stats/corporate_tax/11-6-corporation-tax.pdf |date=5 February 2007 }}, HMRC. Retrieved 19 April 2007</ref> In the financial year 2004–2005, approximately 39,000 companies paid corporation tax at the main rate. These 4.7% of active companies are responsible for 75% of all corporation tax receipts. Around 224,000 companies paid the small companies rate, with 34,000 benefiting from marginal relief. 264,000 were in the starting rate, with 269,000 benefiting from the lower band of marginal relief.<ref name="Stats detailed"> {{webarchive |url=https://web.archive.org/web/20070609150742/http://www.hmrc.gov.uk/stats/corporate_tax/11-3-corporation-tax.pdf |date=9 June 2007 }}, HMRC. Retrieved 19 April 2007</ref> The total revenue was £41.9bn<ref name="Stats HMRC receipts"> {{webarchive |url=https://web.archive.org/web/20070609224119/http://www.hmrc.gov.uk/stats/tax_receipts/table1-2.pdf |date=9 June 2007 }}, HMRC. Retrieved 19 April 2007</ref> from 831,885 companies.<ref name="Stats detailed"/> Only 23480 companies had a liability in excess of £100,000.<ref name="Stats CT payable"> {{webarchive |url=https://web.archive.org/web/20070205153923/http://www.hmrc.gov.uk/stats/corporate_tax/11-6-corporation-tax.pdf |date=5 February 2007 }}, HMRC. Retrieved 19 April 2007</ref>


===HM Revenue and Customs powers of enquiry=== ===HM Revenue and Customs powers of enquiry===
HMRC has one year from the normal filing date, which is itself one year after the end of the ], to open an enquiry into the return. This period is extended if the return is filed late. The enquiry continues until all issues that HMRC wish to enquire about a return are dealt with. However, a company can appeal to the Commissioners of Income Tax to close an enquiry if they feel there is undue delay.<ref name="CTM90150">, HMRC. Retrieved 15 April 2007</ref> HMRC has one year from the normal filing date, which is itself one year after the end of the ], to open an enquiry into the return. This period is extended if the return is filed late. The enquiry continues until all issues that HMRC wish to enquire about a return are dealt with. However, a company can appeal to the Commissioners of Income Tax to close an enquiry if they feel there is undue delay.<ref name="CTM90150">, HMRC. Retrieved 15 April 2007</ref>


If either side disputes the amount of tax that is payable, they may appeal to either the General or Special Commissioners of Income Tax.<ref name="CTM95130"> which is now known as the First Tier Tax Tribunal, HMRC. Retrieved 15 April 2007</ref> Appeals on points of law may be made to the ] (] in ]), then the ], and finally, with leave, to the ]. However, decisions of fact are binding and can only be appealed if no reasonable Commissioner could have made that decision.<ref name="Tax Appeals"> {{webarchive |url=https://web.archive.org/web/20070310003135/http://www.hmrc.gov.uk/leaflets/tax-appeals.pdf |date=10 March 2007 }}, Department for Constitutional Affairs. Retrieved 15 April 2007</ref> If either side disputes the amount of tax that is payable, they may appeal to either the General or Special Commissioners of Income Tax.<ref name="CTM95130"> which is now known as the First Tier Tax Tribunal, HMRC. Retrieved 15 April 2007</ref> Appeals on points of law may be made to the ] (] in ]), then the ], and finally, with leave, to the ]. However, decisions of fact are binding and can only be appealed if no reasonable Commissioner could have made that decision.<ref name="Tax Appeals"> {{webarchive |url=https://web.archive.org/web/20070310003135/http://www.hmrc.gov.uk/leaflets/tax-appeals.pdf |date=10 March 2007 }}, Department for Constitutional Affairs. Retrieved 15 April 2007</ref>


Once an enquiry is closed, or the time for opening an enquiry has passed, HMRC can only re-open a prior year if they become aware of an issue which they could not reasonably have known about at the time, or in instances of fraud or negligence. In fraud or negligence cases, they can re-open cases from up to 20 years ago.<ref name="CTM95100">, HMRC. Retrieved 15 April 2007</ref> Once an enquiry is closed, or the time for opening an enquiry has passed, HMRC can only re-open a prior year if they become aware of an issue which they could not reasonably have known about at the time, or in instances of fraud or negligence. In fraud or negligence cases, they can re-open cases from up to 20 years ago.<ref name="CTM95100">, HMRC. Retrieved 15 April 2007</ref> After an HMRC enquiry closes, or after final determination of an issue by the courts, the taxpayer has 30 days to amend their return, and make additional claims and elections, if appropriate, before the assessment becomes final and conclusive. If there is no enquiry, the assessment becomes final and conclusive once the period in which the Revenue may open an enquiry passes.{{citation needed|date=March 2021}}

After an HMRC enquiry closes, or after final determination of an issue by the courts, the taxpayer has 30 days to amend their return, and make additional claims and elections, if appropriate, before the assessment becomes final and conclusive. If there is no enquiry, the assessment becomes final and conclusive once the period in which the Revenue may open an enquiry passes.


==Relief from double taxation== ==Relief from double taxation==
There is a risk of ] whenever a company receives income that has already been taxed. This could be ] income, which will have been paid out of the post-tax ]s of another company and which may have suffered ]. Or it could be because the company itself has suffered foreign tax, perhaps because it conducts part of its trade through an overseas ], or because it receives other types of foreign income. There is a risk of ] whenever a company receives income that has already been taxed. This could be ] income, which will have been paid out of the post-tax ]s of another company and which may have suffered ]. Or it could be because the company itself has suffered foreign tax, perhaps because it conducts part of its trade through an overseas ], or because it receives other types of foreign income.{{citation needed|date=March 2021}}


Double taxation is avoided for UK dividends by exempting them from tax for most companies: only dealers in shares suffer tax on them.<ref name="CTM02060">, HMRC. Retrieved 16 April 2007</ref> Where double taxation arises because of overseas tax suffered, relief is available either in the form of expense or credit relief.<ref name="IM151040">, HMRC. Retrieved 16 April 2006</ref> Expense relief allows the overseas tax to be treated as a deductible expense in the tax computation. Credit relief is given as a deduction from the UK tax liability, but is restricted to the amount of UK tax suffered on the foreign income. There is a system of onshore pooling, so that overseas tax suffered in high tax territories may be set off against taxable income arising from low tax territories. From 1 July 2009, new rules were introduced to exempt most non-UK dividends from corporation tax so these double taxation rules in respect of non-UK dividends will be of less common application in practice after that date. Double taxation is avoided for UK dividends by exempting them from tax for most companies: only dealers in shares suffer tax on them.<ref name="CTM02060">, HMRC. Retrieved 16 April 2007</ref> Where double taxation arises because of overseas tax suffered, relief is available either in the form of expense or credit relief.<ref name="IM151040">, HMRC. Retrieved 16 April 2006</ref> Expense relief allows the overseas tax to be treated as a deductible expense in the tax computation. Credit relief is given as a deduction from the UK tax liability, but is restricted to the amount of UK tax suffered on the foreign income. There is a system of onshore pooling, so that overseas tax suffered in high tax territories may be set off against taxable income arising from low tax territories. From 1 July 2009, new rules were introduced to exempt most non-UK dividends from corporation tax so these double taxation rules in respect of non-UK dividends will be of less common application in practice after that date.{{citation needed|date=March 2021}}


==Loss relief== ==Loss relief==
Detailed and separate rules apply to how all the different types of losses may be set off within the computations of a company.<ref name="CTM04050"> {{webarchive |url=https://web.archive.org/web/20070207005612/http://www.hmrc.gov.uk/manuals/ctmanual/CTM04050.htm |date=7 February 2007 }}, HMRC. Retrieved 16 April 2007</ref> A detailed explanation of these can be found in: '']''. Detailed and separate rules apply to how all the different types of losses may be set off within the computations of a company.<ref name="CTM04050"> {{webarchive |url=https://web.archive.org/web/20070207005612/http://www.hmrc.gov.uk/manuals/ctmanual/CTM04050.htm |date=7 February 2007 }}, HMRC. Retrieved 16 April 2007</ref> A detailed explanation of these can be found in: '']''.{{citation needed|date=March 2021}}


===Group relief=== ===Group relief===
The UK does not permit ], where companies in a group are treated as though they are a single entity for tax purposes. One of the main benefits of tax consolidation is that tax losses in one entity in a group are automatically relievable against the tax profits of another. Instead, the UK permits a form of loss relief called "group relief".<ref name="CTM80105">, HMRC. Retrieved 16 April 2007</ref> The UK does not permit ], where companies in a group are treated as though they are a single entity for tax purposes. One of the main benefits of tax consolidation is that tax losses in one entity in a group are automatically relievable against the tax profits of another. Instead, the UK permits a form of loss relief called "group relief".<ref name="CTM80105">, HMRC. Retrieved 16 April 2007</ref>


Where a company has losses arising in an accounting period (other than capital losses, or losses arising under Case V or VI of Schedule D) in excess of its other taxable profits for the period, it may surrender these losses to a group member with sufficient taxable profits in the same accounting period.<ref name="CTM80110">, HMRC. Retrieved 16 April 2007</ref> Where a company has losses arising in an accounting period (other than capital losses, or losses arising under Case V or VI of Schedule D) in excess of its other taxable profits for the period, it may surrender these losses to a group member with sufficient taxable profits in the same accounting period.<ref name="CTM80110">, HMRC. Retrieved 16 April 2007</ref>
The company receiving the losses may offset them against their own taxable profits. Exceptions include that a company in the oil and gas extraction industry may not accept group relief against the profits arising on its ],<ref name="OT00190"/> and a life assurance company may only accept group relief against its profits chargeable to tax at the standard shareholder rate applicable to that company.<ref name="LAM"/> Separate rules apply for dual resident companies. The company receiving the losses may offset them against their own taxable profits. Exceptions include that a company in the oil and gas extraction industry may not accept group relief against the profits arising on its ],<ref name="OT00190"/> and a life assurance company may only accept group relief against its profits chargeable to tax at the standard shareholder rate applicable to that company.<ref name="LAM"/> Separate rules apply for dual resident companies.{{citation needed|date=March 2021}}


Full group relief is permitted between companies subject to UK corporation tax that are in the same 75% group, where companies have a common ultimate parent, and at least 75% of the shares in each company (other than the ultimate parent) are owned by other companies in the group. The companies making up a 75% group do not all need to be UK-resident or subject to UK corporation tax relief. An ] cannot form part of a group.<ref name="CTM80155">. Retrieved 16 April 2007</ref> Full group relief is permitted between companies subject to UK corporation tax that are in the same 75% group, where companies have a common ultimate parent, and at least 75% of the shares in each company (other than the ultimate parent) are owned by other companies in the group. The companies making up a 75% group do not all need to be UK-resident or subject to UK corporation tax relief. An ] cannot form part of a group.<ref name="CTM80155">. Retrieved 16 April 2007</ref>


Consortium relief is permitted where a company subject to UK corporation tax is owned by a ] of companies that each own at least 5% of the shares and together own at least 75% of the shares. A consortium company can only surrender or accept losses in proportion to how much of that company is owned by each consortium group.<ref name="CTM80530">, HMRC. Retrieved 16 April 2007</ref> Consortium relief is permitted where a company subject to UK corporation tax is owned by a ] of companies that each own at least 5% of the shares and together own at least 75% of the shares. A consortium company can only surrender or accept losses in proportion to how much of that company is owned by each consortium group.<ref name="CTM80530">, HMRC. Retrieved 16 April 2007</ref>

==Example computation==
This is an example computation involving a company that has one associate from which it receives £50,000 group relief.
{| border=1 cellpadding=2 cellspacing=0 class="wikitable"
|- bgcolor=#efefef
! colspan=3 align=center | Example Company Ltd
|- bgcolor=#efefef
!width=300| &nbsp;||width=60|£||width=60|£
|-
|Schedule A (UK land)|| &nbsp;||align=right|100,000
|-
| Schedule D|| &nbsp;|| &nbsp;
|-
|&nbsp;&nbsp;&nbsp;— Case I (UK trade)||align=right|200,000||&nbsp;
|-
|&nbsp;&nbsp;&nbsp;— Case I losses brought forward <sup>1</sup>||align=right|(100,000)||align=right|100,000
|-
|&nbsp;&nbsp;&nbsp;— Case III (loan relationships, derivatives, financial instruments)|| &nbsp; ||align=right| 100,000
|-
|&nbsp;&nbsp;&nbsp;— Case V (overseas)|| &nbsp; ||align=right|300,000
|-
|&nbsp;&nbsp;&nbsp;— Case VI (other annual profits)|| &nbsp;||align=right|10,000
|-
|| Chargeable gains (capital gains)||align=right|150,000|| &nbsp;
|-
|| Allowable (capital) losses brought forward||align=right|(50,000)||align=right|100,000
|-
||&nbsp;&nbsp;&nbsp; Less: Non-trading debits brought forward ²||&nbsp; ||align=right|(50,000)
|-
||&nbsp;&nbsp;&nbsp; Less: Management expense deduction ³|| &nbsp; ||align=right|(20,000)
|-
||&nbsp;&nbsp;&nbsp; Less: Charges (donations to UK charities)|| &nbsp; ||align=right|(10,000)
|-
||&nbsp;&nbsp;&nbsp; Less: Group relief accepted || &nbsp; ||align=right|(50,000)
|-
|| ''']''' || &nbsp; ||align=right| '''580,000'''
|-
|| '''Tax @ 30%''' || &nbsp; ||align=right| '''174,000'''
|-
||&nbsp;&nbsp;&nbsp; Less: Marginal relief <sup>4</sup> || &nbsp; ||align=right| (46,750)
|-
||&nbsp;&nbsp;&nbsp; Less: Double tax relief <sup>5</sup> || &nbsp; ||align=right| (30,000)
|-
|| '''Tax liability for the period''' || &nbsp; ||align=right| '''97,250'''
|}

Notes:
* <sup>1</sup> UK trading losses brought forward from previous accounting periods must be relieved as fully as possible against any trading profits in the current accounting period. They cannot be relieved against non-trading profits.
* ² Brought forward ]s can be utilised against non-trading profits; they cannot reduce the trading profits
* ³ The management expense deduction is in relation to expenses incurred on managing the company's investments.
* <sup>4</sup> The marginal relief computation is as follows:
:Marginal relief fraction × (Upper limit ÷ (Number of associates + 1) – Profit)
:= 1/40 × (1,500,000 ÷ (1+1) – 580,000)
* <sup>5</sup> The £30,000 overseas tax has been included in the taxable Schedule D Case V figure. Double tax relief is available on the lower of overseas tax suffered and UK corporation tax suffered on the overseas income.


==Interaction with European law== ==Interaction with European law==
Although there are no ] ] dealing with direct taxes, UK laws must comply with European legislation. In particular, legislation should not be discriminatory under the EC treaty. Although there are no ] ] dealing with direct taxes, UK laws must comply with European legislation. In particular, legislation should not be discriminatory under the EC treaty.{{citation needed|date=March 2021}} A number of cases where UK tax laws are believed to be discriminatory have been brought to the ], usually with respect to freedom of establishment and freedom of movement of capital.{{citation needed|date=March 2021}} Key cases which have been decided include:

A number of cases where UK tax laws are believed to be discriminatory have been brought to the ], usually with respect to freedom of establishment and freedom of movement of capital. Key cases which have been decided include:


*''Hoechst''<ref name="Hoechst"> ECJ Cases C-397/98 and 410/98 (Joined cases), European Court of Justice, 2001. Retrieved 9 May 2007</ref> where the Court found that the way the partial imputation system operated prior to its abolition in 1999 was discriminatory; *''Hoechst''<ref name="Hoechst"> ECJ Cases C-397/98 and 410/98 (Joined cases), European Court of Justice, 2001. Retrieved 9 May 2007</ref> where the Court found that the way the partial imputation system operated prior to its abolition in 1999 was discriminatory;
*''Lankhorst-Hohorst''<ref name="L-H"> EJC case C-324/00, European Court of Justice, 2002. Retrieved 9 May 2007</ref> a German case which implied that the UK's transfer pricing and thin capitalisation legislation may have been contrary to EU legislation (the 2004 Finance Act made changes to counter this threat); *''Lankhorst-Hohorst''<ref name="L-H"> EJC case C-324/00, European Court of Justice, 2002. Retrieved 9 May 2007</ref> a German case which implied that the UK's transfer pricing and thin capitalisation legislation may have been contrary to EU legislation (the 2004 Finance Act made changes to counter this threat);
*''Marks and Spencer''<ref name="M&S"> EUECJ C-446/03, European Court of Justice. Retrieved 9 May 2007</ref> where it was claimed that UK parents should be able to relieve the losses of overseas subsidiaries against the tax profits of their UK subgroup (On 7 April 2005, the Advocate-General gave an opinion supporting the claim of a UK parent to offset losses of its EU subsidiaries, where no effective loss relief was available in the EU Member States the subsidiaries were resident in). However, in the final judgment, a compromise agreement was reached in which the national interest to prevent excessive loss of tax was held to outweigh in most circumstances the restriction on the freedom of movement of capital. Accordingly, although no specific new legislation has been introduced, relief for overseas losses will only be available where they may not be utilised in the overseas jurisdiction; *''Marks and Spencer''<ref name="M&S"> EUECJ C-446/03, European Court of Justice. Retrieved 9 May 2007</ref> where it was claimed that UK parents should be able to relieve the losses of overseas subsidiaries against the tax profits of their UK subgroup (On 7 April 2005, the Advocate-General gave an opinion supporting the claim of a UK parent to offset losses of its EU subsidiaries, where no effective loss relief was available in the EU Member States the subsidiaries were resident in). However, in the final judgment, a compromise agreement was reached in which the national interest to prevent excessive loss of tax was held to outweigh in most circumstances the restriction on the freedom of movement of capital. Accordingly, although no specific new legislation has been introduced, relief for overseas losses will only be available where they may not be utilised in the overseas jurisdiction;
*''Cadbury Schweppes''<ref name="Cadbury"> EJC Case C-196/04, European Court of Justice. Retrieved 9 May 2007</ref> where it was ruled that CFC rules are only acceptable if they relate to wholly artificial arrangements intended to escape the UK tax normally payable. *''Cadbury Schweppes''<ref name="Cadbury"> EJC Case C-196/04, European Court of Justice. Retrieved 9 May 2007</ref> where it was ruled that CFC rules are only acceptable if they relate to wholly artificial arrangements intended to escape the UK tax normally payable.{{citation needed|date=March 2021}}


Also, the case of ''ICI v Colmer''<ref name="ICI">''ICI v Colmer'' BTC 440</ref> led to the UK amending its definition of a group, for group relief purposes. Previously, the definition required that all companies and intermediate parent companies in a group to be UK resident. Also, the case of ''ICI v Colmer''<ref name="ICI">''ICI v Colmer'' BTC 440</ref> led to the UK amending its definition of a group, for group relief purposes. Previously, the definition required that all companies and intermediate parent companies in a group to be UK resident.{{citation needed|date=March 2021}}


There are also a number of other cases making their way, slowly, up to the European Court. In particular: There are also a number of other cases making their way, slowly, up to the European Court.{{citation needed|date=March 2021}} In particular:


*A ] arguing that dividends received from overseas companies should be exempt from tax in the same way as dividends received from UK companies are exempted from tax;<ref name="GLO">, HMRC. Retrieved 16 April 2007</ref> * A ] arguing that dividends received from overseas companies should be exempt from tax in the same way as dividends received from UK companies are exempted from tax;<ref name="GLO">, HMRC. Retrieved 16 April 2007</ref>{{Update inline|date=January 2024}}
*Claims that the UK CFC legislation is contrary to EU law (notably Vodafone). * Claims that the UK CFC legislation is contrary to EU law (notably Vodafone).{{citation needed|date=March 2021}}


==Recent developments== ==Recent developments==


===Corporation tax reform=== ===Corporation tax reform===
There have been a number of proposals for corporation tax reform, although only a few have been enacted. In March 2001, the government published a technical note ''A Review of Small Business Taxation'', which considered simplification of corporation tax for small companies through the closer alignment of their profits for tax purposes with those reported in their accounts.<ref name="Review SBT"> {{webarchive |url=https://web.archive.org/web/20070609214908/http://www.hmrc.gov.uk/consult_new/sbtn.pdf |date=9 June 2007 }}, HMRC. Retrieved 17 April 2007</ref> In July of that year, the government also published a consultation document, ''Large Business Taxation: the Government's strategy and corporate tax reforms''. It set out the strategy for modernising corporate taxes and proposals for relief for ]s on substantial shareholdings held by companies. There have been a number of proposals for corporation tax reform, although only a few have been enacted. In March 2001, the government published a technical note ''A Review of Small Business Taxation'', which considered simplification of corporation tax for small companies through the closer alignment of their profits for tax purposes with those reported in their accounts.<ref name="Review SBT"> {{webarchive |url=https://web.archive.org/web/20070609214908/http://www.hmrc.gov.uk/consult_new/sbtn.pdf |date=9 June 2007 }}, HMRC. Retrieved 17 April 2007</ref> In July of that year, the government also published a consultation document, ''Large Business Taxation: the Government's strategy and corporate tax reforms''. It set out the strategy for modernising corporate taxes and proposals for relief for ]s on substantial shareholdings held by companies.{{citation needed|date=March 2021}}


In August 2002, ''Reform of corporation tax – A consultation document'' was published, outlining initial proposals for the abolition of the Schedular system.<ref name="Refrom CT"> {{webarchive |url=https://web.archive.org/web/20070206123957/http://www.hmrc.gov.uk/consult_new/taxreform_final.pdf |date=6 February 2007 }}, HMRC, 2002. Retrieved 17 April 2007</ref> This was followed up in August 2003 by ''Corporation tax reform – A consultation document'', which further discussed the possible abolition of the Schedular system, and also whether the capital allowances (tax depreciation) system should be abolished.<ref name="CT reform"> {{webarchive |url=https://web.archive.org/web/20070412163948/http://www.hmrc.gov.uk/consult_new/corp-tax-reform.pdf |date=12 April 2007 }}, HMRC, 2003. Retrieved 17 April 2007</ref> It also made proposals that were ultimately enacted in Finance Act 2004.<ref name="FA 2004"/> (The first two of these listed below were in response to threats to the UK tax base arising from recent ] judgments.) The changes were to: In August 2002, ''Reform of corporation tax – A consultation document'' was published, outlining initial proposals for the abolition of the Schedular system.<ref name="Refrom CT"> {{webarchive |url=https://web.archive.org/web/20070206123957/http://www.hmrc.gov.uk/consult_new/taxreform_final.pdf |date=6 February 2007 }}, HMRC, 2002. Retrieved 17 April 2007</ref> This was followed up in August 2003 by ''Corporation tax reform – A consultation document'', which further discussed the possible abolition of the Schedular system, and also whether the capital allowances (tax depreciation) system should be abolished.<ref name="CT reform"> {{webarchive |url=https://web.archive.org/web/20070412163948/http://www.hmrc.gov.uk/consult_new/corp-tax-reform.pdf |date=12 April 2007 }}, HMRC, 2003. Retrieved 17 April 2007</ref> It also made proposals that were ultimately enacted in Finance Act 2004.<ref name="FA 2004"/> (The first two of these listed below were in response to threats to the UK tax base arising from recent ] judgments.){{citation needed|date=March 2021}} The changes were to:
*Introduction of transfer pricing rules for UK-to-UK transactions. Transfer pricing rules require certain transactions to be deemed to have taken place at arm's length prices for tax purposes where they did not in fact take place as such. *Introduction of transfer pricing rules for UK-to-UK transactions. Transfer pricing rules require certain transactions to be deemed to have taken place at arm's length prices for tax purposes where they did not in fact take place as such.{{citation needed|date=March 2021}}
*Merging thin capitalisation rules with the ] rules. ] rules limit the amount a company can claim as a tax deduction on interest when it receives loans at non-commercial rates (from connected parties, for example). *Merging thin capitalisation rules with the ] rules. ] rules limit the amount a company can claim as a tax deduction on interest when it receives loans at non-commercial rates (from connected parties, for example).{{citation needed|date=March 2021}}
*Extension of the deduction for management expenses to all companies with an investment business. Previously a company had to be wholly or mainly engaged in an investment business to qualify. *Extension of the deduction for management expenses to all companies with an investment business. Previously a company had to be wholly or mainly engaged in an investment business to qualify.{{citation needed|date=March 2021}}


In December 2004, ''Corporation tax reform – a technical note'' was published. It outlined the government's decision to abolish the schedular system, replacing the numerous schedules and cases with two pools: a trading and letting pool; and an "everything else" pool. The Government had decided that capital allowances would remain, though there would be some reforms, mostly affecting the leasing industry.<ref name="CT reform tech"> {{webarchive |url=https://web.archive.org/web/20070221175440/http://www.hmrc.gov.uk/pbr2004/sup_ct-reform-tech-note.pdf |date=21 February 2007 }}, HMRC, 2004. Retrieved 17 April 2007</ref> In December 2004, ''Corporation tax reform – a technical note'' was published. It outlined the government's decision to abolish the schedular system, replacing the numerous schedules and cases with two pools: a trading and letting pool; and an "everything else" pool. The Government had decided that capital allowances would remain, though there would be some reforms, mostly affecting the leasing industry.<ref name="CT reform tech"> {{webarchive |url=https://web.archive.org/web/20070221175440/http://www.hmrc.gov.uk/pbr2004/sup_ct-reform-tech-note.pdf |date=21 February 2007 }}, HMRC, 2004. Retrieved 17 April 2007</ref>


===Other enactments=== ===Other enactments===
Line 337: Line 706:


== References == == References ==
{{Reflist|30em}} {{notelist}}

{{Reflist}}
{{Refbegin}} {{Refbegin}}
*{{cite web|url=http://www.hmrc.gov.uk/manuals/ctmanual/index.htm |title=Company Taxation Manual |accessdate=17 May 2007 |publisher=] }} *{{cite web|url=http://www.hmrc.gov.uk/manuals/ctmanual/index.htm |title=Company Taxation Manual |access-date=17 May 2007 |publisher=] }}
*{{cite web|url=http://www.legislation.hmso.gov.uk/acts/acts1988/Ukpga_19880001_en_1.htm |title=Income and Corporation Taxes Act 1988 |accessdate=17 May 2007 |year=1988 |publisher=] }} *{{cite web|url=http://www.legislation.hmso.gov.uk/acts/acts1988/Ukpga_19880001_en_1.htm |title=Income and Corporation Taxes Act 1988 |access-date=17 May 2007 |year=1988 |publisher=] }}
*{{cite web|url=http://www.legislation.hmso.gov.uk/acts/acts1992/Ukpga_19920012_en_1.htm |title= Taxation of Chargeable Gains Act 1992 |accessdate=17 May 2007 |year=1992 |publisher=] }} *{{cite web|url=http://www.legislation.hmso.gov.uk/acts/acts1992/Ukpga_19920012_en_1.htm |title= Taxation of Chargeable Gains Act 1992 |access-date=17 May 2007 |year=1992 |publisher=] }}
*{{cite web|url=http://www.legislation.hmso.gov.uk/acts/acts2001/20010002.htm |title=Capital Allowances Act 2001 |accessdate=17 May 2007 |year=2001 |publisher=] }} *{{cite web|url=http://www.legislation.hmso.gov.uk/acts/acts2001/20010002.htm |title=Capital Allowances Act 2001 |access-date=17 May 2007 |year=2001 |publisher=] }}
*Finance Acts (1965–), ]. From 1998 onwards, consolidation took place, into the Income and Corporation Taxes Act 1988, the Taxation of Chargeable Gains Act and the Capital Allowances Act 2001. *Finance Acts (1965–), ]. From 1998 onwards, consolidation took place, into the Income and Corporation Taxes Act 1988, the Taxation of Chargeable Gains Act and the Capital Allowances Act 2001.
*{{cite web|url=http://www.hmrc.gov.uk/consult_new/taxreform_final.pdf |title=Reform of corporation tax – A consultation document |accessdate=17 May 2007 |date=August 2002 |publisher=Inland Revenue (now ]), and ] |url-status=dead |archiveurl=https://web.archive.org/web/20070206123957/http://www.hmrc.gov.uk/consult_new/taxreform_final.pdf |archivedate=6 February 2007 }} *{{cite web|url=http://www.hmrc.gov.uk/consult_new/taxreform_final.pdf |title=Reform of corporation tax – A consultation document |access-date=17 May 2007 |date=August 2002 |publisher=Inland Revenue (now ]), and ] |url-status=dead |archive-url=https://web.archive.org/web/20070206123957/http://www.hmrc.gov.uk/consult_new/taxreform_final.pdf |archive-date=6 February 2007 }}
*{{cite web|url=http://www.hmrc.gov.uk/consult_new/corp-tax-reform.pdf |title=Corporation tax reform – A consultation document |accessdate=17 May 2007 |date=August 2003 |publisher=Inland Revenue (now ]), and ] |url-status=dead |archiveurl=https://web.archive.org/web/20070412163948/http://www.hmrc.gov.uk/consult_new/corp-tax-reform.pdf |archivedate=12 April 2007 }} *{{cite web|url=http://www.hmrc.gov.uk/consult_new/corp-tax-reform.pdf |title=Corporation tax reform – A consultation document |access-date=17 May 2007 |date=August 2003 |publisher=Inland Revenue (now ]), and ] |url-status=dead |archive-url=https://web.archive.org/web/20070412163948/http://www.hmrc.gov.uk/consult_new/corp-tax-reform.pdf |archive-date=12 April 2007 }}
*{{cite web|url=http://www.hmrc.gov.uk/pbr2004/sup_ct-reform-tech-note.pdf |title=Corporation tax reform – Technical note |accessdate=17 May 2007 |date=December 2004 |publisher=Inland Revenue (now ]) |url-status=dead |archiveurl=https://web.archive.org/web/20070221175440/http://www.hmrc.gov.uk/pbr2004/sup_ct-reform-tech-note.pdf |archivedate=21 February 2007 }} *{{cite web|url=http://www.hmrc.gov.uk/pbr2004/sup_ct-reform-tech-note.pdf |title=Corporation tax reform – Technical note |access-date=17 May 2007 |date=December 2004 |publisher=Inland Revenue (now ]) |url-status=dead |archive-url=https://web.archive.org/web/20070221175440/http://www.hmrc.gov.uk/pbr2004/sup_ct-reform-tech-note.pdf |archive-date=21 February 2007 }}
*{{cite web|url=http://www.bized.co.uk/dataserv/chron/kf5579.htm |title=Key economic events 1955–1979 |accessdate=17 May 2007 |publisher=biz/ed }} *{{cite web|url=http://www.bized.co.uk/dataserv/chron/kf5579.htm |title=Key economic events 1955–1979 |access-date=17 May 2007 |publisher=biz/ed }}
*{{cite web|url=http://www.hmrc.gov.uk/stats/corporate_tax/rates-of-tax.pdf |title=Rates of Corporation Tax |accessdate=17 May 2007 |date=March 2007 |publisher=] |url-status=dead |archiveurl=https://web.archive.org/web/20070609150401/http://www.hmrc.gov.uk/stats/corporate_tax/rates-of-tax.pdf |archivedate=9 June 2007 }} *{{cite web|url=http://www.hmrc.gov.uk/stats/corporate_tax/rates-of-tax.pdf |title=Rates of Corporation Tax |access-date=17 May 2007 |date=March 2007 |publisher=] |url-status=dead |archive-url=https://web.archive.org/web/20070609150401/http://www.hmrc.gov.uk/stats/corporate_tax/rates-of-tax.pdf |archive-date=9 June 2007 }}
*{{cite web|url=http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&newform=newform&alljur=alljur&jurcdj=jurcdj&jurtpi=jurtpi&jurtfp=jurtfp&alldocrec=alldocrec&docj=docj&docor=docor&docop=docop&docav=docav&docsom=docsom&docinf=docinf&alldocnorec=alldocnorec&docnoj=docnoj&docnoor=docnoor&typeord=ALLTYP&allcommjo=allcommjo&affint=affint&affclose=affclose&numaff=&ddatefs=&mdatefs=&ydatefs=&ddatefe=&mdatefe=&ydatefe=&nomusuel=Metallgesellschaft&domaine=&mots=&resmax=100&Submit=Submit |title=''Metallgesellschaft Ltd and Others, Hoechst AG, Hoechst UK Ltd and Commissioners of Inland Revenue, H.M. Attorney General'' ECJ Cases C-397/98 and 410/98 (Joined cases) |accessdate=17 May 2007 |date=8 March 2001 |publisher=] }} *{{cite web|url=http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&newform=newform&alljur=alljur&jurcdj=jurcdj&jurtpi=jurtpi&jurtfp=jurtfp&alldocrec=alldocrec&docj=docj&docor=docor&docop=docop&docav=docav&docsom=docsom&docinf=docinf&alldocnorec=alldocnorec&docnoj=docnoj&docnoor=docnoor&typeord=ALLTYP&allcommjo=allcommjo&affint=affint&affclose=affclose&numaff=&ddatefs=&mdatefs=&ydatefs=&ddatefe=&mdatefe=&ydatefe=&nomusuel=Metallgesellschaft&domaine=&mots=&resmax=100&Submit=Submit |title=''Metallgesellschaft Ltd and Others, Hoechst AG, Hoechst UK Ltd and Commissioners of Inland Revenue, H.M. Attorney General'' ECJ Cases C-397/98 and 410/98 (Joined cases) |access-date=17 May 2007 |date=8 March 2001 |publisher=] }}
*{{cite web|url=http://curia.europa.eu/jurisp/cgi-bin/gettext.pl?lang=en&num=79978787C19000324&doc=T&ouvert=T&seance=ARRET&where=() |title=''Lankhorst-Hohorst and Finanzamt Steinfurt'' EJC case C-324/00 |accessdate=18 May 2007 |date=12 December 2002 |publisher=] }} *{{cite web|url=http://curia.europa.eu/jurisp/cgi-bin/gettext.pl?lang=en&num=79978787C19000324&doc=T&ouvert=T&seance=ARRET&where=() |title=''Lankhorst-Hohorst and Finanzamt Steinfurt'' EJC case C-324/00 |access-date=18 May 2007 |date=12 December 2002 |publisher=] }}
*{{cite web|url=http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&newform=newform&alljur=alljur&jurcdj=jurcdj&jurtpi=jurtpi&jurtfp=jurtfp&alldocrec=alldocrec&docj=docj&docor=docor&docop=docop&docav=docav&docsom=docsom&docinf=docinf&alldocnorec=alldocnorec&docnoj=docnoj&docnoor=docnoor&typeord=ALLTYP&allcommjo=allcommjo&affint=affint&affclose=affclose&numaff=C-446%2F03&ddatefs=&mdatefs=&ydatefs=&ddatefe=&mdatefe=&ydatefe=&nomusuel=&domaine=&mots=&resmax=100&Submit=Submit |title=''Marks and Spencer plc v David Halsey (Her Majesty's Inspector of Taxes)'' EUECJ C-446/03 |accessdate =18 May 2007 |date=13 December 2005 |publisher=] }} *{{cite web|url=http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&newform=newform&alljur=alljur&jurcdj=jurcdj&jurtpi=jurtpi&jurtfp=jurtfp&alldocrec=alldocrec&docj=docj&docor=docor&docop=docop&docav=docav&docsom=docsom&docinf=docinf&alldocnorec=alldocnorec&docnoj=docnoj&docnoor=docnoor&typeord=ALLTYP&allcommjo=allcommjo&affint=affint&affclose=affclose&numaff=C-446%2F03&ddatefs=&mdatefs=&ydatefs=&ddatefe=&mdatefe=&ydatefe=&nomusuel=&domaine=&mots=&resmax=100&Submit=Submit |title=''Marks and Spencer plc v David Halsey (Her Majesty's Inspector of Taxes)'' EUECJ C-446/03 |access-date =18 May 2007 |date=13 December 2005 |publisher=] }}
{{Refend}} {{Refend}}

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==External links== ==External links==

{{featured article}}
{{wikiquote|Taxation}} {{wikiquote|Taxation}}
*{{cite web|url=http://www.legislation.gov.uk/ukpga |title=Acts of the UK Parliament and Explanatory Notes |publisher=] }} *{{cite web|url=http://www.legislation.gov.uk/ukpga |title=Acts of the UK Parliament and Explanatory Notes |publisher=] }}

Latest revision as of 14:20, 3 August 2024

UK tax on UK-resident companies and companies with permanent establishments in the UK

Throughout this article, the term "pound" and the £ symbol refer to the Pound sterling.
UK Corporation Tax Receipts from 1999–2016, both in absolute terms and as % of GDP: includes Bank Levy and Bank Surcharge.
Taxation in the United Kingdom
UK Government Departments
UK Government
Scottish Government
Welsh Government
Local Government

Corporation tax in the United Kingdom is a corporate tax levied in on the profits made by UK-resident companies and on the profits of entities registered overseas with permanent establishments in the UK.

Until 1 April 1965, companies were taxed at the same income tax rates as individual taxpayers, with an additional profits tax levied on companies. Finance Act 1965 replaced this structure for companies and associations with a single corporate tax, which took its basic structure and rules from the income tax system. Since 1997, the UK's Tax Law Rewrite Project has been modernising the UK's tax legislation, starting with income tax, while the legislation imposing corporation tax has itself been amended, the rules governing income tax and corporation tax have thus diverged. Corporation tax was governed by the Income and Corporation Taxes Act 1988 (as amended) prior to the rewrite project.

Originally introduced as a classical tax system, in which companies were subject to tax on their profits and companies' shareholders were also liable to income tax on the dividends that they received, the first major amendment to corporation tax saw it move to a dividend imputation system in 1973, under which an individual receiving a dividend became entitled to an income tax credit representing the corporation tax already paid by the company paying the dividend. The classical system was reintroduced in 1999, with the abolition of advance corporation tax and of repayable dividend tax credits. Another change saw the single main rate of tax split into three. Tax competition between jurisdictions reduced the main corporate tax rate from 28% in 2008–2010 to a flat rate of 19% as of April 2021.

The UK government faced problems with its corporate tax structure, including European Court of Justice judgements that aspects of it are incompatible with EU treaties. Tax avoidance schemes marketed by the financial sector have also proven an irritant, and been countered by complicated anti-avoidance legislation.

The complexity of the corporation tax system is a recognised issue. The Labour government, supported by the Opposition parties, carried through wide-scale reform from the Tax Law Rewrite project, resulting in the Corporation Tax Act 2010. The tax has slowly been integrating generally accepted accounting practice, with the corporation tax system in various specific areas based directly on the accounting treatment.

Total net corporation tax receipts were a record high of £56 billion in 2016–17.

History

Jim Callaghan, the Chancellor of the Exchequer who introduced corporation tax in 1965.

Until 1965, companies were subject to income tax on their profits at the same rates as was levied on individual taxpayers. A dividend imputation system existed, whereby the income tax paid by a company was offset against the income tax liability of a shareholder who received dividends from the company. The standard rate of income tax in 1949 was 50%. If the company paid a £100 dividend, the recipient would be treated as if he had earned £200 and had paid £100 in income tax on it – the tax paid by the company fully covered the tax due from the individual on the dividend paid. If, however, the individual was subject to tax at a higher rate (known as "surtax"), he (not the company) would be liable to pay the additional tax.

In addition to income tax, companies were also subject to a profits tax, which was deducted from company profits when determining the income tax liability. It was a differential tax, with a higher tax rate on dividends (profits distributed to shareholders) than on profits retained within the company. By penalising the distribution of profits, it was hoped companies would retain profits for investment, which was considered a priority after the Second World War. The tax did not have the desired effect, so the distributed profits tax was increased by 20% by the post-war Labour government to encourage companies to retain more of their profits. At the time of Hugh Gaitskell's 1951 budget, the profits tax was 50% for distributed profits and 10% for undistributed profits.

A series of reductions in the profits tax were brought in from 1951 onwards by the new Conservative government. The tax rates fell to 22.5% on distributed profits and 2.5% on undistributed profits by 1957, but the profits tax was no longer income tax-deductible. Derick Heathcoat-Amory's Budget of March 1958 replaced the differential profits tax with a single profits tax measure, applicable to both retained and distributed profits. This gradual decrease, and final abolition, of taxes on capital distributions reflected ideological differences between the Conservative and Labour parties: the Conservative approach was to distribute profits to capital holders for investment elsewhere, while Labour sought to force companies to retain profits for reinvestment in the company in the hope this would benefit the company's workforce.

Finance Act 1965

Finance Act 1965 replaced the system of income tax and profits tax from 1 April 1965 with the Corporation Tax, which re-introduced aspects of the old system. Corporation Tax was charged at a uniform rate on all profits, but additional tax was then payable if profits were distributed as a dividend to shareholders. In effect, dividends suffered double taxation. This method of corporation tax is known as the classical system and is similar to that used in the United States. The effect of the tax was to revert to the distribution tax in operation from 1949 to 1959: dividend payments were subject to higher tax than profits retained within the company. Finance Act 1965 also introduced a capital gains tax, at a rate of 30%, charged on the gains arising on the disposal of capital assets by individuals. While companies were exempted from capital gains tax, they were liable to corporation tax on their "chargeable gains", which were calculated in substantially the same way as capital gains for individuals. The tax applied to company shares as well as other assets. Before 1965, capital gains were not taxed, and it was advantageous for taxpayers to argue that a receipt was non-taxable "capital" rather than taxable "revenue".

Advance corporation tax

Main article: Advance corporation tax

The basic structure of the tax, where company profits were taxed as profits, and dividend payments were then taxed as income, remained unchanged until 1973, when a partial imputation system was introduced for dividend payments. Unlike the previous imputation system, the tax credit to the shareholder was less than the corporation tax paid (corporation tax was higher than the standard rate of income tax, but the imputation, or set-off, was only of standard rate tax). When companies made distributions, they also paid the advance corporation tax (known as ACT), which could be set off against the main corporation tax charge, subject to certain limits (the full amount of ACT paid could not be recovered if significantly large amounts of profits were distributed). Individuals and companies who received a dividend from a UK company received a tax credit representing the ACT paid. Individuals could set off the tax credit against their income tax liability.

On introduction, ACT was set at 30% of the gross dividend (the actual amount paid plus the tax credit). If a company made a £70 dividend payment to an individual, the company would pay £30 of advance corporation tax. The shareholder would receive the £70 cash payment, plus a tax credit of £30; thus, the individual would be deemed to have earned £100, and to have already paid tax of £30 on it. The ACT paid by the company would be deductible against its final "mainstream" corporation tax bill. To the extent that the individual's tax on the dividend was less than the tax credit – for example, if his income was too low to pay tax (below £595 in 1973–1974) – he would be able to reclaim some or all of the £30 tax paid by the company. The set-off was only partial, since the company would pay 52% tax (small companies had lower rates, but still higher than the ACT rate), and thus the £70 received by the individual actually represented pre-tax profits of £145.83. Accordingly, only part of the double taxation was relieved.

ACT was not payable on dividends from one UK company to another (unless the payor company elected to pay it). Also, the recipient company was not taxed on that dividend receipt, except for dealers in shares and life assurance companies in respect of some of their profits. As the payor company would have suffered tax on the payments it made, the company that received the dividend also received a credit that it could use to reduce the amount of ACT it itself paid, or, in certain cases, apply to have the tax credit repaid to them.

Gordon Brown, the Chancellor of the Exchequer who abolished ACT and introduced the quarterly instalment regime in 1999.

The level of ACT was linked to the basic rate of income tax between 1973 and 1993. The March 1993 Budget of Norman Lamont cut the ACT rate and tax credit to 22.5% from April 1993, and 20% from April 1994. These changes were accompanied with a cut of income tax on dividends to 20%, while the basic rate of income tax remained at 25%. Persons liable for tax were lightly affected by the change, because income tax liability was still balanced by the tax credit received, although higher rate tax payers paid an additional 25% tax on the amount of the dividend actually received (net), as against 20% before the change. The change had bigger effects on pensions and non-taxpayers. A pension fund receiving a £1.2 m dividend income prior to the change would have been able to reclaim £400,000 in tax, giving a total income of £1.6 m. After the change, only £300,000 was reclaimable, reducing income to £1.5 m, a fall of 6.25%.

Gordon Brown's summer Budget of 1997 ended the ability of pension funds and other tax-exempt companies to reclaim tax credits with immediate effect, and for individuals from April 1999. This tax change has been blamed for the poor state of British pension provision, while usually ignoring the more significant effect of the dot-com crash of 2000 onwards when the FTSE-100 lost half its value to fall from 6930 at the beginning of 2000 to just 3490 by March 2003. Despite this, critics such as Member of Parliament Frank Field described it as a "hammer blow" and the Sunday Times described it as a swindle, with the hypothetical £1.5 m income described above falling to £1.2 m, a fall in income of 20%, because no tax would be reclaimable.

Abolition of advance corporation tax

From 6 April 1999 ACT was abolished, and the tax credit on dividends was reduced to 10%. There was a matching reduction in the basic income tax rate on dividends to 10%, while a new higher-rate of 32.5% was introduced which led to an overall effective 25% tax rate for higher rate taxpayers on dividends (after setting this "notional" tax credit against the tax liability).While non-taxpayers were no longer able to claim this amount from the treasury (as opposed to taxpayers who could deduct it from their tax bill), the 20% ACT (which would have previously been deducted from the dividend before payment) was no longer levied.

ACT that had been incurred prior to 1999 could still be set off against a company's tax liability, provided it would have been able to set it off under the old imputation system. In order to keep the stream of payments associated with advance corporation tax payment, 'large' companies (comprising the majority of corporation tax receipts) were subjected to a quarterly instalments scheme for tax payment.

Rates

Main and small companies' rates

On its introduction in 1965, corporation tax was charged at 40%, rising to 45% in the 1969 Budget. The rate then fell to 42.5% in the second Budget of 1970 and 40% in 1971. In 1973, alongside the introduction of advance corporation tax (ACT), Conservative chancellor Anthony Barber created a main rate of 52%, together with a smaller companies' rate of 42%. This apparent increase was negated by the fact that under the ACT scheme, dividends were no longer subject to income tax.

The 1979 Conservative Budget of Geoffrey Howe cut the small companies' rate to 40%, followed by a further cut in the 1982 Budget to 38%. The Budgets of 1983–1988 saw sharp cuts in both main and small companies' rates, falling to 35% and 25% respectively. Budgets between 1988 and 2001 brought further falls to a 30% main rate and 19% small companies' rates. From April 1983 to March 1997 the small companies' rate was pegged to the basic rate of income tax. During the 1980s there was briefly a higher rate of tax imposed for capital profits.

Table of corporation tax rates over time
Year (from 1 April) Lower limit (small rate profit threshold) Small companies' rate Upper limit (standard rate threshold) Main rate Standard marginal relief fraction
2023 £50,000 19% £250,000 25% 3/200
2022 N/A N/A £nil 19% N/A
2021 N/A N/A £nil 19% N/A
2020 N/A N/A £nil 19% N/A
2019 N/A N/A £nil 19% N/A
2018 N/A N/A £nil 19% N/A
2017 N/A N/A £nil 19% N/A
2016 N/A N/A £nil 20% N/A
2015 N/A N/A £nil 20% N/A
2014 £300,000 20% £1,500,000 21% 1/400
2013 £300,000 20% £1,500,000 23% 3/400
2012 £300,000 20% £1,500,000 24% 1/100
2011 £300,000 20% £1,500,000 26% 3/200
2010 £300,000 21% £1,500,000 28% 7/400
2009 £300,000 21% £1,500,000 28% 7/400
2008 £300,000 21% £1,500,000 28% 7/400
2007 £300,000 20% £1,500,000 30% 1/40
2006 £300,000 19% £1,500,000 30% 11/400
2005 £300,000 19% £1,500,000 30% 11/400
2004 £300,000 19% £1,500,000 30% 11/400
2003 £300,000 19% £1,500,000 30% 11/400
2002 £300,000 19% £1,500,000 30% 11/400
2001 £300,000 20% £1,500,000 30% 1/40
2000 £300,000 20% £1,500,000 30% 1/40
1999 £300,000 20% £1,500,000 30% 1/40
1998 £300,000 21% £1,500,000 31% 1/40
1997 £300,000 23% £1,500,000 33% 1/40
1996 £300,000 24% £1,500,000 33% 9/400
1995 £300,000 25% £1,500,000 33% 1/50
1994 £300,000 25% £1,500,000 33% 1/50
1993 £250,000 25% £1,250,000 33% 1/50
1992 £250,000 25% £1,250,000 33% 1/50
1991 £250,000 25% £1,250,000 33% 1/50
1990 £200,000 25% £1,000,000 35% 1/40
1989 £150,000 25% £750,000 35% 1/40
1988 £100,000 25% £500,000 35% 1/40
1987 £100,000 27% £500,000 35% 1/50
1986 £100,000 29% £500,000 35% 3/200
1985 £100,000 30% £500,000 40% 1/40
1984 £100,000 30% £500,000 45% 3/80
1983 £100,000 30% £500,000 50% 1/20
1982 £100,000 38% £500,000 52% 7/200
1981 £90,000 40% £225,000 52% 2/25
1980 £80,000 40% £200,000 52% 2/25
1979 £70,000 40% £130,000 52% 7/50
1978 £60,000 40% £100,000 52% 3/20
1977 £50,000 42% £85,000 52% 1/7
1976 £40,000 42% £65,000 52% 4/25
1975 £30,000 42% £50,000 52% 3/20
1974 £25,000 42% £40,000 52% 1/6
1973 £25,000 42% £40,000 52% 1/6
1972 N/A N/A N/A 40% N/A
1971 N/A N/A N/A 40% N/A
1970 N/A N/A N/A 40% N/A
1969 N/A N/A N/A 45% N/A
1968 N/A N/A N/A 45% N/A
1967 N/A N/A N/A 42% N/A
1966 N/A N/A N/A 40% N/A
1965 N/A N/A N/A 40% N/A
1964 N/A N/A N/A 40% N/A

Starting rate and non-corporate distribution rate

Chancellor Gordon Brown's 1999 Budget introduced a 10% starting rate for profits from £0 to £10,000, effective from April 2000. Marginal relief applied meaning companies with profits of between £10,000 and £50,000 paid a rate between the starting rate and the small companies' rate (19% in 2000).

The 2002 Budget cut the starting rate to zero, with marginal relief applying in the same way. This caused a significant increase in the number of companies being incorporated, as businesses that had operated as self-employed, paying income tax on profits from just over £5,000, were attracted to the corporation tax rate of 0% on income up to £10,000. Previously self-employed individuals could now distribute profits as dividend payments rather than salaries. For companies with profits under £50,000 the corporation tax rate varied between 0% and 19%. Because dividend payments come with a basic rate tax credit, provided the recipient did not earn more than the basic rate allowance, no further tax would be paid. The number of new companies being formed in 2002–2003 reached 325,900, an increase of 45% on 2001–2002.

The fact that individuals operating in this manner could potentially pay no tax at all was felt by the government to be unfair tax avoidance, and the 2004 Budget introduced a Non-Corporate Distribution Rate. This ensured that where a company paid below the small companies' rate (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%. For example, a company making £10,000 profit, and making a £6,000 dividend distribution to an individual and £4,000 to another company would pay 19% corporation tax on the £6,000. Although this measure substantially reduced the number of small businesses incorporating, the Chancellor in the 2006 Budget said tax avoidance by small businesses through incorporation was still a major issue, and scrapped the starting rate entirely.

Historic tax revenues

The following graph shows UK corporation tax revenue from 1999 to 2017:

Graphs are unavailable due to technical issues. Updates on reimplementing the Graph extension, which will be known as the Chart extension, can be found on Phabricator and on MediaWiki.org.

Taxable profits and accounting profits

The starting point for computing taxable profits is profits before tax (except for a life assurance company). The rules for calculating corporation tax generally ran in parallel with income tax until 1993, when the first statutory rule to move profit reporting into line with generally accepted accounting practice was introduced, although the courts were already moving towards requiring trading profits to be computed using general accountancy rules.

The Finance Act 1993 introduced rules to make tax on exchange gains and losses mimic their treatment in a company's financial statements in most instances. The Finance Act 1994 saw similar rules for financial instruments, and in the Finance Act 1996 the treatment of most loan relationships was also brought into line with the accounting treatment. The Finance Act 1997 saw something similar with rental premiums. A year later, the Finance Act 1998 went even further, making it clear that taxable trading profits (apart from those accruing to a Lloyd's corporate name or to a life assurance company) and profits from a rental business are equal to profits calculated under generally accepted accounting practice ("GAAP") unless there is a specific statutory or case law rule to the contrary. This was followed up by the Finance Act 2004, which provided that where a company with investment business could make deductions for management expenses, they were calculated by reference to figures in the financial statements.

International Financial Reporting Standards

From 2005, all European Union listed companies have to prepare their financial statements using the "International Financial Reporting Standards" ("IFRS"), as modified by the EU. Other UK companies may choose to adopt IFRS. Corporation tax law is changing so that, in the future, IFRS accounting profits are largely respected. The exception is for certain financial instruments and certain other measures to prevent tax arbitrage between companies applying IFRS and companies applying UK GAAP.

Avoidance

Tax avoidance is defined by the UK government as "bending the rules of the tax system to gain a tax advantage that Parliament never intended". Unlike most other countries, most UK tax professionals are accountants rather than lawyers by training.

Until 2013, the UK had no general anti-avoidance rule ("GAAR") for corporation tax. However, it inherited an anti-avoidance rule from income tax relating to transactions in securities, and since then has had various "mini-GAARs" added to it. The best known "mini-GAAR" prevents a deduction for interest paid when the loan to which it relates is made for an "unallowable purpose". In 2013, the government introduced a General Anti-Avoidance Rule to manage the risk of tax avoidance.

Finance Act 2004 introduced disclosure rules requiring promoters of certain tax avoidance schemes that are financing- or employment-related to disclose the scheme. Taxpayers who use these schemes must also disclose their use when they submit their tax returns. This is the first provision of its kind in the UK, and Finance Act 2005 has shown a number of tax avoidance schemes being blocked earlier than would have been expected prior to the disclosure rules.

Need for greater revenues

In the early twenty-first century the government sought to raise more revenues from corporation tax. In 2002 it introduced a separate 10% supplementary charge on profits from oil and gas extraction businesses, and Finance Act 2005 contained measures to accelerate when oil and gas extraction business have to pay tax. Instead of paying their tax in four equal instalments in the seventh, tenth, thirteenth and sixteenth month after the accounting period starts, they will be required to consolidate their third and fourth payments and pay them in the thirteenth month, creating a cash flow advantage for the government. Finance (No. 2) Act 2005 continued measures specifically relating to life assurance companies. When originally announced (as Finance (No.3) Bill 2005) Legal & General told the Stock Exchange that £300 m had been wiped off its value, and Aviva (Norwich Union) announced that the tax changes would cost its policy holders £150 m.

Method of charge

Powers to collect corporation tax must be passed annually by parliament, otherwise there is no authority to collect it. The charge for the financial year (beginning 1 April each year) is imposed by successive finance acts. The tax is charged in respect of the company's accounting period, which is normally the 12-month period for which the company prepares its accounts. Corporation tax is administered by HM Revenue & Customs (HMRC).

Assessment

Corporation tax is levied on the net profits of a company. Except for certain life assurance companies, it is borne by the company as a direct tax.

Up until 1999 no corporation tax was due unless HMRC raised an assessment on a company. Companies were, however, obliged to report certain details to HMRC so that the right amount could be assessed. This changed for accounting periods ending on or after 1 July 1999, when self-assessment was introduced. Self-assessment means that companies are required to assess themselves and take full responsibility for that assessment. If the self-assessment is wrong through negligence or recklessness, the company can be liable to penalties. The self-assessment tax return needs to be delivered to HMRC 12 months after the end of the period of account in which the accounting period falls (although the tax must be paid before this date). If a company fails to submit a return by then, it is liable to penalties. HMRC may then issue a determination of the tax payable, which cannot be appealed – however, in practice they wait until a further six months have elapsed. Also, the most common claims and elections that may be made by a company have to be part of its tax return, with a time limit of two years after the end of the accounting period. This means that a company submitting its return more than one year late suffers not only from the late filing penalties, but also from the inability to make these claims and elections.

From 2004 there has been a requirement for new companies to notify HM Revenue & Customs of their formation, although HMRC receives notifications of new company registrations from Companies House. Companies will then receive an annual notice CT603, approximately 1–2 months after the end of the company's financial period, notifying it to complete an annual return. This must also include the company's annual accounts, and possibly other documents, such as auditors' reports, that are required for certain companies.

Schedular system

Main article: Schedular system of taxation

In the United Kingdom the source rule applies. This means that something is taxed only if there is a specific provision bringing it within the charge to tax. Accordingly, profits are only charged to corporation tax if they fall within one of the following, and are not otherwise exempted by an explicit provision of the Taxes Acts:

Scope
Schedule A Income from UK land
Schedule D Taxable income not falling within another Schedule
Schedule F Income from UK dividends
Chargeable gains Gains as defined by legislation that are not taxed as income
CFC charge Profits made by controlled foreign companies where no exemption applies

Notes:

  1. In practice companies do not get taxed under Schedule F. Most companies are exempted from Schedule F and there is a provision for those companies which are taxed on UK dividends (i.e. dealers in shares (stock)) that removes the charge from Schedule F to Schedule D.
  2. A Controlled Foreign Company ("CFC") is a company controlled by a UK resident that is not itself UK resident and is subject to a lower rate of tax in the territory in which it is resident. Under certain circumstances, UK resident companies that control a CFC pay corporation tax on what the UK tax profits of that CFC would have been. However, because of a wide range of exemptions, very few companies suffer a CFC charge.
  3. Schedules B, C and E used to, but no longer, exist.
  4. Authorised unit trusts and OEICs are not liable to tax on their chargeable gains.

Schedule D is itself divided into a number of cases:

Scope
Case I Profits from a UK trade
Case III Interest-type income and gains/losses on loans, derivatives, financial instruments and intangibles
Case V Overseas income
Case VI Annual income not falling within Cases I, III and V, and other income/gains specifically taxed under Case VI

Notes:

  1. Cases II and IV only apply to income tax and not corporation tax.

Strictly speaking, Corporation Tax Act 2010 replaces the historic terminology "Schedule A", "Schedule D Case I" etc. with more descriptive terms but this does not affect the substantive application of the schedular system so that, for example, different rules apply for utilising tax losses depending upon the nature of the income under which the losses arises.

Relief for expenses

Most direct expenses are deductible when calculating taxable income and chargeable gains. Notable exceptions include any costs of entertaining clients. Companies with investment business may deduct certain indirect expenses known as "expenses of management" when calculating their taxable profits. A similar relief is available for expenses of a life assurance company taxed on the I minus E basis which relate to the company's basic life assurance and general annuity business. Donations made to charities are also normally deducted in calculating taxable income if made under Gift Aid.

Rates and payment

The 2007 Budget announced a main rate cut from 30% to 28%, effective from April 2008. At the same time, the small companies' rate was increased from 19% to 20% from April 2007, 21% in April 2008, to stop "individuals artificially incorporating as small companies to avoid paying their due share of tax, a practice if left unaddressed would cost the rest of the taxpaying population billions of pounds".

The rate of corporation tax is determined by the financial year, which runs from 1 April to the following 31 March. Financial year FY17 started on 1 April 2017 and ends on 31 March 2018. Where a company's accounting period straddles a financial year in which the corporation tax rate has changed, the company's profits for that period are split. For example, a company paying small companies' rate with its accounting period running from 1 January to 31 December, and making £100,000 of profit in 2007, would be deemed to have made 90/365*£100,000 = £24,657.53 in FY06 (there are 90 days between 1 January and 31 March), and 275/365*£100,000=£75,34.47 in FY07, and would pay 19% on the FY06 portion, and 20% on the FY07 portion.

From 1 April 2010 HM Revenue & Customs updated their terminology and the former Small Companies' Rate is now called Small Profits Rate.

Corporate tax rates for financial years 2008–2014
2008–2010 2011 2012 2013 2014
Small profits rate 21% 20% 20% 20% 20%
Small profits upper limit £300,000 £300,000 £300,000 £300,000 £300,000
Marginal relief limits £300,001 – £1,500,000 £300,001 – £1,500,000 £300,001 – £1,500,000 £300,001 – £1,500,000 £300,001 – £1,500,000
Main rate 28% 26% 24% 23% 21%

Notes:

  1. The bands shown on the right hand side are divided by one plus the number of associates (usually the only associates a company has are fellow group companies, but the term is more widely defined)
  2. The reduced rates do not apply to close investment holding companies (companies controlled by fewer than 5 people (plus associates) or by their directors/managers, whose main activity is the holding of investments). Nor do they apply to companies in liquidation after the first 12 months.
  3. Authorised unit trusts and open-ended investment companies are taxed at the basic rate of income tax which is 20% as of 2010
  4. Life assurance companies are taxed using the above rates on shareholder profits and 20% on policy holder profits
  5. Companies active in the oil and gas extraction industry in the UK or on the UK Continental Shelf are subject to an additional 10% charge on their profits from those activities

Most companies are required to pay tax nine months and a day after the end of an accounting period. Larger companies are required to pay quarterly instalments, in the seventh, tenth, thirteenth and sixteenth months after a full accounting period starts. These times are modified where an accounting period lasts for less than twelve months. From 2005 onwards, for tax payable on oil and gas extraction profits, the third and fourth quarterly instalments are merged, including the supplementary 10% charge.

In the financial year 2004–2005, approximately 39,000 companies paid corporation tax at the main rate. These 4.7% of active companies are responsible for 75% of all corporation tax receipts. Around 224,000 companies paid the small companies rate, with 34,000 benefiting from marginal relief. 264,000 were in the starting rate, with 269,000 benefiting from the lower band of marginal relief. The total revenue was £41.9bn from 831,885 companies. Only 23480 companies had a liability in excess of £100,000.

HM Revenue and Customs powers of enquiry

HMRC has one year from the normal filing date, which is itself one year after the end of the period of account, to open an enquiry into the return. This period is extended if the return is filed late. The enquiry continues until all issues that HMRC wish to enquire about a return are dealt with. However, a company can appeal to the Commissioners of Income Tax to close an enquiry if they feel there is undue delay.

If either side disputes the amount of tax that is payable, they may appeal to either the General or Special Commissioners of Income Tax. Appeals on points of law may be made to the High Court (Court of Session in Scotland), then the Court of Appeal, and finally, with leave, to the House of Lords. However, decisions of fact are binding and can only be appealed if no reasonable Commissioner could have made that decision.

Once an enquiry is closed, or the time for opening an enquiry has passed, HMRC can only re-open a prior year if they become aware of an issue which they could not reasonably have known about at the time, or in instances of fraud or negligence. In fraud or negligence cases, they can re-open cases from up to 20 years ago. After an HMRC enquiry closes, or after final determination of an issue by the courts, the taxpayer has 30 days to amend their return, and make additional claims and elections, if appropriate, before the assessment becomes final and conclusive. If there is no enquiry, the assessment becomes final and conclusive once the period in which the Revenue may open an enquiry passes.

Relief from double taxation

There is a risk of double taxation whenever a company receives income that has already been taxed. This could be dividend income, which will have been paid out of the post-tax profits of another company and which may have suffered withholding tax. Or it could be because the company itself has suffered foreign tax, perhaps because it conducts part of its trade through an overseas permanent establishment, or because it receives other types of foreign income.

Double taxation is avoided for UK dividends by exempting them from tax for most companies: only dealers in shares suffer tax on them. Where double taxation arises because of overseas tax suffered, relief is available either in the form of expense or credit relief. Expense relief allows the overseas tax to be treated as a deductible expense in the tax computation. Credit relief is given as a deduction from the UK tax liability, but is restricted to the amount of UK tax suffered on the foreign income. There is a system of onshore pooling, so that overseas tax suffered in high tax territories may be set off against taxable income arising from low tax territories. From 1 July 2009, new rules were introduced to exempt most non-UK dividends from corporation tax so these double taxation rules in respect of non-UK dividends will be of less common application in practice after that date.

Loss relief

Detailed and separate rules apply to how all the different types of losses may be set off within the computations of a company. A detailed explanation of these can be found in: United Kingdom corporation tax loss relief.

Group relief

The UK does not permit tax consolidation, where companies in a group are treated as though they are a single entity for tax purposes. One of the main benefits of tax consolidation is that tax losses in one entity in a group are automatically relievable against the tax profits of another. Instead, the UK permits a form of loss relief called "group relief".

Where a company has losses arising in an accounting period (other than capital losses, or losses arising under Case V or VI of Schedule D) in excess of its other taxable profits for the period, it may surrender these losses to a group member with sufficient taxable profits in the same accounting period. The company receiving the losses may offset them against their own taxable profits. Exceptions include that a company in the oil and gas extraction industry may not accept group relief against the profits arising on its oil and gas extraction business, and a life assurance company may only accept group relief against its profits chargeable to tax at the standard shareholder rate applicable to that company. Separate rules apply for dual resident companies.

Full group relief is permitted between companies subject to UK corporation tax that are in the same 75% group, where companies have a common ultimate parent, and at least 75% of the shares in each company (other than the ultimate parent) are owned by other companies in the group. The companies making up a 75% group do not all need to be UK-resident or subject to UK corporation tax relief. An open-ended investment company cannot form part of a group.

Consortium relief is permitted where a company subject to UK corporation tax is owned by a consortium of companies that each own at least 5% of the shares and together own at least 75% of the shares. A consortium company can only surrender or accept losses in proportion to how much of that company is owned by each consortium group.

Interaction with European law

Although there are no European Union directives dealing with direct taxes, UK laws must comply with European legislation. In particular, legislation should not be discriminatory under the EC treaty. A number of cases where UK tax laws are believed to be discriminatory have been brought to the European Court of Justice, usually with respect to freedom of establishment and freedom of movement of capital. Key cases which have been decided include:

  • Hoechst – where the Court found that the way the partial imputation system operated prior to its abolition in 1999 was discriminatory;
  • Lankhorst-Hohorst – a German case which implied that the UK's transfer pricing and thin capitalisation legislation may have been contrary to EU legislation (the 2004 Finance Act made changes to counter this threat);
  • Marks and Spencer – where it was claimed that UK parents should be able to relieve the losses of overseas subsidiaries against the tax profits of their UK subgroup (On 7 April 2005, the Advocate-General gave an opinion supporting the claim of a UK parent to offset losses of its EU subsidiaries, where no effective loss relief was available in the EU Member States the subsidiaries were resident in). However, in the final judgment, a compromise agreement was reached in which the national interest to prevent excessive loss of tax was held to outweigh in most circumstances the restriction on the freedom of movement of capital. Accordingly, although no specific new legislation has been introduced, relief for overseas losses will only be available where they may not be utilised in the overseas jurisdiction;
  • Cadbury Schweppes – where it was ruled that CFC rules are only acceptable if they relate to wholly artificial arrangements intended to escape the UK tax normally payable.

Also, the case of ICI v Colmer led to the UK amending its definition of a group, for group relief purposes. Previously, the definition required that all companies and intermediate parent companies in a group to be UK resident.

There are also a number of other cases making their way, slowly, up to the European Court. In particular:

  • A group litigation order arguing that dividends received from overseas companies should be exempt from tax in the same way as dividends received from UK companies are exempted from tax;
  • Claims that the UK CFC legislation is contrary to EU law (notably Vodafone).

Recent developments

Corporation tax reform

There have been a number of proposals for corporation tax reform, although only a few have been enacted. In March 2001, the government published a technical note A Review of Small Business Taxation, which considered simplification of corporation tax for small companies through the closer alignment of their profits for tax purposes with those reported in their accounts. In July of that year, the government also published a consultation document, Large Business Taxation: the Government's strategy and corporate tax reforms. It set out the strategy for modernising corporate taxes and proposals for relief for capital gains on substantial shareholdings held by companies.

In August 2002, Reform of corporation tax – A consultation document was published, outlining initial proposals for the abolition of the Schedular system. This was followed up in August 2003 by Corporation tax reform – A consultation document, which further discussed the possible abolition of the Schedular system, and also whether the capital allowances (tax depreciation) system should be abolished. It also made proposals that were ultimately enacted in Finance Act 2004. (The first two of these listed below were in response to threats to the UK tax base arising from recent European Court of Justice judgments.) The changes were to:

  • Introduction of transfer pricing rules for UK-to-UK transactions. Transfer pricing rules require certain transactions to be deemed to have taken place at arm's length prices for tax purposes where they did not in fact take place as such.
  • Merging thin capitalisation rules with the transfer pricing rules. Thin capitalisation rules limit the amount a company can claim as a tax deduction on interest when it receives loans at non-commercial rates (from connected parties, for example).
  • Extension of the deduction for management expenses to all companies with an investment business. Previously a company had to be wholly or mainly engaged in an investment business to qualify.

In December 2004, Corporation tax reform – a technical note was published. It outlined the government's decision to abolish the schedular system, replacing the numerous schedules and cases with two pools: a trading and letting pool; and an "everything else" pool. The Government had decided that capital allowances would remain, though there would be some reforms, mostly affecting the leasing industry.

Other enactments

Other main reforms enacted, include:

  • Relief from tax on chargeable gains on disposals of substantial shareholdings in trading companies and groups (enacted by Finance Act 2002).
  • Introduction of UK to UK transfer pricing rules, coupled with the merging of the thin capitalisation rules with the transfer pricing rules (enacted by Finance Act 2004).
  • Extension of management expenses rules so that companies do not need to be investment companies to receive them, coupled with a specific rule preventing capital items being deductible as management expenses (enacted by Finance Act 2004).

See also

References

  1. The main rate for 2020 was originally set to be 18%, this was subsequently set to be reduced to 17%, but ultimately was set at 19%.
  2. The main rate for 2012 was originally set to be 25% but was subsequently reduced to 24%.
  3. The main rate for 2011 was originally set to be 28% but was subsequently reduced to 27% and ultimately reduced to 26%.
  4. ^ Limits for marginal relief set from 1994 to 2009 (inclusive) by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1994
  5. ^ Limits for marginal relief set from 1991 to 1993 (inclusive) by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1991
  6. ^ Limit for marginal relief for 1990 set by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1990
  7. ^ Limit for marginal relief for 1989 set by changes made to the Income and Corporation Taxes Act 1988 enacted by Finance Act 1989
  8. ^ Limits for marginal relief set from 1982 to 1987 (inclusive) by changes made to the Finance Act 1972 enacted by Finance (No. 2) Act 1983
  9. ^ The small companies rate for 1986 was originally set to be 30% and marginal relief fraction at 1/80 but was subsequently reduced to 29% with the fraction changing to 3/200.
  10. ^ Limits for marginal relief set for 1981 set by changes made to the Finance Act 1972 enacted by Finance Act 1982
  11. ^ Limits for marginal relief set for 1980 set by changes made to the Finance Act 1972 enacted by Finance Act 1981
  12. ^ Limits for marginal relief set for 1979 set by changes made to the Finance Act 1972 enacted by Finance Act 1980
  13. ^ Limits for marginal relief set for 1978 set by changes made to the Finance Act 1972 enacted by Finance (No. 2) Act 1979
  14. ^ Limits for marginal relief set for 1977 set by changes made to the Finance Act 1972 enacted by Finance Act 1978
  15. ^ Limits for marginal relief set for 1976 set by changes made to the Finance Act 1972 enacted by Finance Act 1977
  16. ^ Limits for marginal relief set for 1975 set by changes made to the Finance Act 1972 enacted by Finance Act 1976
  17. ^ Limits for marginal relief set for 1973 & 1974 set by changes made to the Finance Act 1972 enacted by Finance Act 1974
  1. "HMRC Corporation Tax Statistics 2017" (PDF). Archived from the original (PDF) on 6 October 2017. Retrieved 6 October 2017.
  2. "Gross Domestic Product at market prices: Current price: Seasonally adjusted £m".
  3. ^ "Finance Act 1965 (c. 25)". legislation.gov.uk. The National Archives. Retrieved 10 July 2024.
  4. Tax Law Rewrite Archived 18 April 2006 at the Wayback Machine, Her Majesty's Revenue and Customs (HMRC). Retrieved 17 April 2007
  5. Income and Corporation Taxes Act 1988 (c. 1), Office of Public Sector Information, responsible for the operation of Her Majesty's Stationery Office (HMSO), ISBN 0-10-540188-9
  6. Most income tax rules have been rewritten in the Income Tax (Earnings and Pensions) Act 2003, Income Tax (Trading and Other Income) Act 2005, and Income Tax Act 2007.
  7. ^ Rates of Corporation Tax (PDF) Archived 9 June 2007 at the Wayback Machine, HMRC. Retrieved 13 April 2007
  8. "Corporation Tax rates and reliefs – GOV.UK". gov.uk. Retrieved 13 October 2015.
  9. ^ Metallgesellschaft Ltd and Others, Hoechst AG, Hoechst UK Ltd and Commissioners of Inland Revenue, H.M. Attorney General ECJ Cases C-397/98 and 410/98 (Joined cases), European Court of Justice, 2001. Retrieved 9 May 2007
  10. Jackson, Gavin; Houlder, Vanessa (26 April 2017). "Riddle of UK's rising corporation tax receipts". Financial Times. Archived from the original on 10 December 2022.
  11. ^ Corporate Tax (PDF)
  12. Daunton, Martin (2002). Just Taxes: The Politics of Taxation in Britain, 1914–1979 (PDF). Cambridge University Press. ISBN 0-521-81400-6. Retrieved 9 April 2007.
  13. ^ Daunton, Martin (May 2002). "Equality and incentive: fiscal politics from Gladstone to Brown". History & Policy. Retrieved 9 May 2007.
  14. "50 years ago Archived 9 March 2015 at archive.today ", Newark Advertiser. Retrieved 8 March 2015
  15. Company Taxation Manual CTM20105 – ACT: set-off against CT on profits: introduction, HMRC. Retrieved 13 April 2007
  16. ^ Company Taxation Manual CTM16120 – Distributions: impact on CT: franked investment income: general, HMRC. Retrieved 12 April 2007
  17. ^ Company Taxation Manual CTM15150 – Distributions: general: tax consequences, HMRC. Retrieved 12 April 2007
  18. Income Tax Personal Allowances and Reliefs 1973–74 to 1989–90 (PDF) Archived 6 February 2007 at the Wayback Machine, HMRC. Retrieved 9 April 2007
  19. ^ Company Taxation Manual CTM20070 – ACT: general: qualifying and non-qualifying distributions, HMRC. Retrieved 12 April 2007
  20. Budget 1997 Archived 20 March 2007 at the Wayback Machine , HM Treasury. Retrieved 25 April 2007
  21. Field, Frank (1 April 2007). "The great pension swindle". Sunday Times. Archived from the original on 4 June 2015. Retrieved 9 May 2007.(subscription required)
  22. Company Taxation Manual CTM18250 – Shadow ACT: outline of the scheme, HMRC. Retrieved 17 April 2007
  23. ^ Company Taxation Manual CTM92505 – CTSA: quarterly instalments: legislation, HMRC. Retrieved 16 April 2007
  24. Finance Act 2021, Schedule 1 – Inserting section 18D(2)(a) to the Corporation Tax Act 2010.
  25. Finance Act 2021, Section 7(2)(a).
  26. Finance Act 2021, Schedule 1 – Inserting section 18D(2)(b) to the Corporation Tax Act 2010.
  27. Finance Act 2021, Section 6(2)(b).
  28. Finance Act 2021, Section 7(2)(b).
  29. Finance Act 2021, Section 6(2)(a).
  30. Finance Act 2020, Section 6.
  31. Finance Act 2020, Section 5.
  32. Finance (No. 2) Act 2015, Section 7(2).
  33. Finance Act 2016, Section 46.
  34. ^ Finance (No. 2) Act 2015, Section 7(1).
  35. Finance Act 2015, Section 6(2).
  36. Finance Act 2013, Section 6(1).
  37. ^ Corporation Tax Act 2010, Section 24(2)(a).
  38. Finance Act 2014, Section 6(1)(a).
  39. ^ Corporation Tax Act 2010, Section 24(2)(b).
  40. Finance Act 2013, Section 4(2).
  41. Finance Act 2014, Section 6(2)(a).
  42. Finance Act 2013, Section 5(1)(a).
  43. Finance Act 2012, Section 6(2).
  44. Finance Act 2013, Section 5(2)(a).
  45. Finance Act 2012, Section 7(1)(a).
  46. Finance Act 2012, Section 5(1).
  47. Finance Act 2011, Section 5(2)(a).
  48. Finance Act 2012, Section 7(2)(a).
  49. Finance Act 2011, Section 6(1)(a).
  50. Finance Act 2011, Section 4(1).
  51. Finance Act 2010, Section 2(2)).
  52. Finance (No. 2) Act 2010, Section 1.
  53. Finance Act 2011, Section 6(2)(a).
  54. Finance Act 2010, Section 3(1)(a).
  55. Finance Act 2009, Section 7(2)(a).
  56. Finance Act 2010, Section 3(2)(a).
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