A company may make a chargeable gain if it sells (or otherwise disposes) of a fixed asset at a greater value than it was originally acquired for. Examples include shares in other companies, securities and investments, land and property, antiques, works of art or anything else held for its investment potential plus any working assets no longer used in the business. They should be distinguished from stock or other property that was bought or made with the intention of selling it as part of the ordinary trading activities of the company. They should also be distinguished from intangible assets such as goodwill created or purchased since 31st March 2002, as sale proceeds from the disposal of such assets is treated as trading income rather than chargeable gains.
Companies compute their chargeable gains and losses in broadly the same way as individuals do for capital gains tax purposes with a few notable exceptions. For example, companies are still able to claim indexation allowance. This is basically a way of increasing the base cost of an asset to allow for the effects of inflation. Each month indexation tables are published by the Office for National Statistics showing the values for each month since March 1982. These values are based on changes in the Retail Price Index. However, it should be noted that indexation allowance cannot be used to increase a capital loss or turn a gain into a loss. Also, companies are not entitled to an annual capital gains tax allowance or able to claim entrepreneurs relief as individuals are. The other main difference is that chargeable gains for companies are taxed at the prevailing corporation tax rate, not at the flat 18% capital gains tax rate as for individuals.
Gains and losses are computed according to the accounting period of the company rather than the tax year as for individuals. However, the tax rates are based on those in force for each part of a financial year into which the accounting period falls. This is done on a pro-rata basis after all taxable profits have been calculated. There is no allocation of chargeable gains to financial years according to exactly when particular disposals were made.
It should be noted that gains or losses on the disposal of fixed assets as reported in the accounts are likely to be different from chargeable gains or losses in the Corporation Tax Return. That is because the accounts record what is known as a book gain or loss, which is basically the sale proceeds less the net book value of the asset sold (cost less accumulated depreciation). Book gains/losses should therefore be stripped out of trading profits in the corporation tax computation and replaced by chargeable gains/losses.
As with individuals calculating capital gains, all acquisition and disposal costs such as legal fees should be brought into account when calculating chargeable gains and losses. These types of cost are not deductible as trading expenses and tax relief on them can only be obtained when the asset is sold (or otherwise disposed of). They may be different from the costs you are allowed to capitalise such as delivery charges and may well have already been expensed in the accounts for previous years.
Finally, it should be noted that capital losses can only be relieved against chargeable gains, either in the same accounting period or those arising in the previous or subsequent accounting periods. They can never be relieved against the trading profits of the company. This is another difference with capital gains tax as individuals are able to make negligible value claims against income tax for assets that have become practically worthless.