Do Companies pay Capital Gains Tax?

Suppose you own a company, and the company has recently disposed of a non-current asset at a taxable gain relative to its original cost. An example of this could be a house, shares held as an investment or some non-wasting chattels such as jewellery, antiques etc. How would the gain be computed and accounted for when filing your company’s accounts.

Let’s start by considering what tax the company will pay, corporation tax or capital gains tax (CGT) ? The answer is corporation tax. Unlike individuals who pay CGT on their disposals of long-term assets and income tax on their recurring income, companies pay corporation tax on both their long-term gains and annual profits. Their long-term gains are termed ‘chargeable gains’.

When preparing your company’s year-end accounts, there would be a separate section under the corporation tax pro-forma which includes other items such as Trading Profits, Rental Income and Qualifying Charitable Donations. But how does one compute the chargeable gain? This springs another area where the tax treatment for long-term gains differs between companies and individuals.

Whilst individuals are entitled to an annual CGT allowance of £12,300 up until the 2022/23 tax year, companies instead have what’s known as an indexation allowance. The aim of the indexation allowance is to do away with any of the gain arising purely from inflation. HMRC’s website monthly RPI values up until December 2017 following which the indexation allowance can’t be updated. Hence even if you disposed of your asset after December 2017, the most you can apply when computing the indexation allowance is the December 2017 RPI value. It also means that companies which acquired chargeable assets after December 2017 can’t benefit from the indexation allowance.  

When computing the chargeable gain, it is important to remember that the company is allowed to deduct any incidental costs of disposal such as auctioneer’s fees, estate agent’s fees from the disposal proceeds. Additionally, any incidental costs of acquisition, extensions or other capital improvements can also be added to the original purchase price of the non-current asset.

For more information on tax-related matters ranging from capital gains tax to corporation tax, contact Cheylesmore Accountants today to discuss how we can best meet your needs. By discussing your tax affairs with our accountants, we can advise you on how to best manage your tax liability whilst also raising any reliefs or tax reducers available to you depending on your circumstances.