CTM01130 - Corporation Tax: introduction: computation of profits
CTA09/Ss2(4),35,209,299(1),752,933(1),969,972(1),974(1),977(1),979(1) (formerly ICTA88/S9 (1); ICTA88/S337A, TCGA92/S8
Income is computed in accordance with IT principles and chargeable gains are computed in accordance with CGT principles. This rule is subject to any modifications in the Taxes Acts.
For CT purposes CAA01:
- allows capital allowances as deductions in computing profits, and
- treats balancing charges as additions to profits.
ICTA88/S337A (1) prohibits certain deductions, unless the deductions are expressly authorised by any other provision of the Taxes Acts. The prohibited deductions are:
- in computing profits, dividends or other distributions (Section 337A (1)(a)),
- in computing income from any source, charges, as defined in ICTA88/S338A (Section 337A (1)(b)).
Additionally, ICTA88/S337A (2) provides that, in computing income from any source, no deduction is made:
- for accounting periods ending after 31 March 1996, in respect of interest except under the loan relationships legislation (Section 337A (2)(a)),
- in respect of losses from intangible fixed assets Section 337A (2)(b).
For accounting periods ending on or before 31 March 1996, the prohibition on charges also extended to yearly interest. But ICTA88/S337 (3) then restricted the operation of the prohibition so that yearly bank interest payable was allowed if it was payable in the UK to a bank carrying on a genuine banking business in the UK.
An investment company (see CTM08020 onwards) resident in the UK is allowed a deduction in computing its total profits for sums disbursed as management expenses.