PSI2.1.2 – Taxation Background: General - Company Taxation

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

Companies, other corporate bodies and unincorporated associations (excluding partnerships) have been charged to corporation tax on their profits since 1965. Most of the retirement benefits schemes submitted to PSO for approval are set up by employers of this type. Assessments to corporation tax are made for each accounting period by reference to the actual profits of that period (section 6(1)-(4) ICTA 88). In general, profits are computed on income tax principles (section 9 ICTA 88) which means that contributions to pension schemes are allowable deductions under the Schedule D rules (see PSI2.1.6). Capital gains also have to be added to trading profits for corporation tax purposes (section 345 ICTA 88), and the tax is then charged at a uniform rate on the net profits. Dividends paid by companies were charged to income tax up to 5 April 1973. But since the 1972 Finance Act, a company makes an advance payment of corporation tax when it pays a dividend, and the dividend is treated as having already borne income tax (a tax credit) in the hands of the recipient.