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A quick look at… Treatment of payments for corportion tax purposes

A company may make different payments, but are you clear as to how each is treated for corporation tax purposes?

December 2016

This is often a differentiator between candidates in exam questions, so here are five key tips:
1. Trading deductions: You will be aware of many of the disallowable expenses for trading purposes. Look at the exam question to see if some of the expenses have not yet been deducted and whether there are extra ones such as a deduction in certain circumstances with regard to a proportion of a premium paid on the grant of a short lease.

2. Specific expenses: Be clear whether an expense is a trading deduction or one that should be deducted against specific income,
e.g. property management fees and repairs for a rental property will be deductible against the rental income, not trading profits.

3. Qualifying charitable donations (QCDs): These are deductible against total profits. Be careful of the interaction with loss relief. QCDs are deducted after current year and carry back loss relief, but before group relief is offset.

4. Interest payable: Interest may be deductible as a trading expense, e.g. interest on a loan to purchase machinery used in the trade or to purchase trading premises. Alternatively, interest payable may be a debit on a non-trading loan relationship where the loan is used for non-trading purposes e.g. to purchase an investment. The interest payable will then be set against interest receivable. Do not fall into the trap of deducting interest on a loan taken out to buy a rental property as a trading expense.

5. Companies with investment business: Distinguish between expenses of management that relate to the whole business, such as general overheads, and those that should be allocated to specific sources of income.
• Cath Hall is an AIA Achieve e-tutor. The AIA Achieve team is producing a series of ‘A Quick Look at….’ articles and more can be found on the AIA website:
www.aiaworldwide.com/a-quick-look-at.

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