Starting with the 2023 financial year, from 1 April 2023 the main rate of corporation tax will rise from 19% to 25% (an increase of 6% for some companies).\n\n\n\nFor trading profits, the guidance seems quite straight forward although arguably quite unfair.\n\n\n\nCorporation Tax Act 2009 \u2013 Section 8 states\n\n\n\nHow tax is charged and assessed\n\n\n\nCorporation tax for a financial year is charged on profits arising in the year. Corporation tax is calculated and chargeable, and assessments to corporation tax are made with reference to accounting periods. Corporation tax, which is assessed and charged for an accounting period of a company, is assessed and charged on the full amount of profits arising in the accounting period. Subsection (3) is subject to any contrary provision in the Corporation Tax Acts. If a company's accounting period falls within more than one financial year, the amount of the profits arising in the accounting period that is chargeable to corporation tax must be apportioned between the financial years in which the accounting period falls. \n\n\n\nCompanies are therefore likely to suffer higher tax rates due to the profits being split evenly across the period, which for companies with seasonal variations this could mean paying up to 25% corporation tax on profits generated during the period where the rate was actually 19%.\n\n\n\nWe have already seen several advice line calls from accountants where they have made plans to shorten or lengthen the year end with Companies House, in order to ensure their clients profits are taxed at the lower rate of 19% in the period they were generated.\n\n\n\nThis inevitably increases the burden on Companies House and the accounting profession, as the majority of companies will now have a 31 March year end, meaning their accounts are due to be filed by 31 December.\n\n\n\nPractically, this creates an increased impact on the profession with larger workloads on top of the already demanding 31 January self-assessment deadline.\n\n\n\nHow will the changes influence the tax due on capital gains in companies?\n\n\n\nLuckily, capital gains are different, they are taxed in the financial year they relate to. So if the company sells a property before 31 March 2023, then the gain is only taxed at a rate of 19%.\n\n\n\nThe commencement rules for the change in CT rates on 1 April 2023 provide that where an accounting period straddles 1 April 2023 start date it is split into two separate accounting periods (FA 2021, Sch 1, para 34).\n\n\n\nThe other amendments made by this schedule have effect for the financial year 2023 and subsequent financial years.In the case of an accounting period (a "straddling period") beginning before 1 April 2023 and ending on or after date, those other amendments have effect as if the different parts of the straddling period falling in the different financial years were separate accounting periods.For this purpose, all necessary apportionments are to be made between the two separate accounting periods.\n\n\n\nThe amount of chargeable gains to be included in a "company's total profits for an accounting period is the total amount of chargeable gains accruing to the company in the period after deducting any allowable losses accruing to the company in the period\u2026" (under TCGA 1992, s 2A).\n\n\n\n2ACompany's total profits to include chargeable gains\n\n\n\n1. The amount of chargeable gains to be included in a company's total profits for an accounting period is the total amount of chargeable gains accruing to the company in the period after deducting\u2014\n\n\n\nany allowable losses accruing to the company in the period, and so far as not previously deducted under this subsection, any allowable losses previously accruing to the company while it was within the charge to corporation tax. \n\n\n\n2. For the purposes of corporation tax on gains "allowable loss" does not include a loss accruing to a company if, had a gain accrued, the company would not have been chargeable to corporation tax on the gain.\n\n\n\n3. Subsection (4) applies if\u2014\n\n\n\na company has two or more accounting periods that fall wholly within the same financial year, the company is chargeable to corporation tax for each of those accounting periods only because of a chargeable gain accruing to the company on the disposal of asset, and in the period (if any) between each of those accounting periods, the company is not within the charge to corporation tax. \n\n\n\nIn conclusion\n\n\n\nIn conclusion, based on our interpretation of the standards above:\n\n\n\nThe accounting period being split into two separate financial years, under the corporation tax rate change commencement rules. \u2018\u2019The chargeable gain is allocated to the accounting period in which it accrues (based on the date of disposal) and not time apportioned\u2019\u2019.\n\n\n\nThis conclusion is further backed up by CTM01405 which states:\n\n\n\nFor accounting profits - This apportionment is made on a time basis (by reference to days).\n\n\n\nHowever, in some cases which believe refers to periods of more than 12 months or periods that include capital gains.\n\n\n\nFor this purpose apportionment is also usually on a time basis, but here the profits of accounting periods may be computed by reference to the transactions that took place in that accounting period where this gives a more accurate result - CTA10\/S1172 (2) permits exceptional treatment.