Capital Gains can occur in many circumstances, for example, when the company:
- sells, gives away, exchanges or otherwise disposes of (cease to own) an asset or part of an asset
- receives money from an asset – for example compensation for a damaged asset
Sometimes it can be hard to establish the value of the gain and HMRC can carry out a post valuation check which is requested using http://www.hmrc.gov.uk/forms/cg34.pdf
|Step 1: amount received for the asset in May 2011||£200,000|
|Step 2: deduct £120,000 (the cost of the asset in November 1997)||£200,000 − £120,000 = £80,000|
|Step 3: deduct expenses on improving the asset (£10,000 spent on building an extension in June 2006)||£80,000 − £10,000 = £70,000|
|Find the inflation factor for November 1997||0.474|
|Calculate the Indexation Allowance||£120,000 × 0.474 = £56,880|
|Deduct the Indexation Allowance||£70,000 − £56,880 = £13,120|
|Step 4: look up the appropriate inflation factor and calculate the Indexation Allowance for the extension||0.185
£10,000 × 0.185 = £1,850
|Deduct the Indexation Allowance for the extension to arrive at the chargeable gain||£13,120 − £1,850 = £11,270|
You can get a full list of indexation allowances at http://www.hmrc.gov.uk/rates/cg-indexation-allowance/apr12-ct-cgains.pdf
If the losses don’t exceed the gains, put the total gains in Box 16 on your Company Tax Return and the total losses, if any, in Box 17. Deduct Box 17 from Box 16 and put the result in Box 18 – this is your ‘net chargeable gain’.
If the losses do exceed the gains, leave Box 16, Box 17 and Box 18 blank but put the amount of the net loss in Box 131. You can then ‘carry forward’ those capital losses to offset against any capital gains you make in a future Corporation Tax accounting period(s). You would include those losses in Box 17 of a future Company Tax Return. You can carry forward capital losses indefinitely.
If you intend to replace the asset you may be able to apply Business Asset Rollover Relief, this is most commonly use for Land and Buildings.