Capital Gains / Corporation Tax

[Trainee/Returns]

Hello

I have a friend who is a Director in a small Ltd company. The Ltd company was between 4 directors who bought a property together many a years ago. They have been renting this property out through the Ltd company. They bought this as an asset for £70,000 and has been in there accounts since.

However this year they have sold the property. They recieved in excess of £110,000. Minus legal fees etc they made a gain of £40,000.
There accountant then completed there accounts and Corporation tax return to show a capital gain of £40,000. At 18% tax this resulted in an amount payable of £7,200ish.

This was sent to HMRC and they replied saying £7,200 was due for payment. A month or so later they changed the amount due to £8,400ish. There reason for doing this was that it should have been charged at 21% tax.

The accountant then appealed this and recived a reply back stating that companies pay Corporation tax, not capital gains tax.

I was confused. As an AAT training accountant, i was under the impression that companies who made a gain through the sale of an asset would pay CGT, the same as an individual would.

Could someone please clear this up and explain why HMRC have done this.


Thanks

[Nilesh Mandvia]

This was sent to HMRC and they replied saying £7,200 was due for payment. A month or so later they changed the amount due to £8,400ish. There reason for doing this was that it should have been charged at 21% tax.

The accountant then appealed this and recived a reply back stating that companies pay Corporation tax, not capital gains tax.

I was confused. As an AAT training accountant, i was under the impression that companies who made a gain through the sale of an asset would pay CGT, the same as an individual would.

Could someone please clear this up and explain why HMRC have done this.


Thanks

It is still called capital gains for the company, however, company pays the prevailing corporation tax i.e. 21% for the company in question. Not the same as individual cgt rate!

If the accountant got this tax rate wrong, just wondering what else would have been incorrect!

Generally I do not say this but I think it is time for a change or get someone to review your accounts and tax comp as there is new penalty regime in place. The penalty is payble upto 100% of loss of tax.

HTH

Nilesh Mandvia
FCCA

[James Smith]

Quite agree with Milesh. This is an absolute howler.

To me its not the initial error, but the fact they appealed which is of concern . That is to say anyone can have a daft mix up (although this is off the scale daft), but to appeal suggests they really didn't know the difference. That's real basic stuff and suggests and underlying lack of tax knowledge.

Sounds like a cowboy to me. You sure this was a proper bone fide practising accountant? And not just someone who I know know, picking widely out of the air, is just training as an AAT (which for other readers is a bookkeeping qualification - a very good one at that, but no closer to being an accountant than a nurse is to being a doctor).

Just a thought. if so, I imagine they wont be doing it again.