TRW & Co’s UK branch is based at Holborn Gate, 330 High Holborn, London, WC1V 7QH, England.

Scope: which companies are taxed and on what

In England and Wales the starting point for corporate tax is the taxpayer’s connection to the UK. Broadly speaking, a company that is tax resident in the UK is subject to UK corporation tax on its worldwide profits. A non‑resident company will generally be subject to UK tax only on profits arising from UK activities, assets or a UK permanent establishment. The distinction between residence and non‑residence therefore determines the outer boundaries of taxable total income.

Accrual and timing — when income is brought into tax

Corporation tax is concerned with profits as they arise in the accounting period, with statutory rules adapting accounting results to tax principles. Whether a particular item is treated as accruing to the company, as received, or as constructively received, can affect timing and taxability. Key practical issues include:

• the accounting period used for tax computation and how tax adjustments reconcile accounting profit to taxable profit;
• distinguishing trading receipts (typically revenue) from capital receipts (which may be taxed under different provisions);
• manual adjustments where accounting recognition differs from tax recognition (for example, deferred income or prepayments); and
• the effect of anti‑avoidance and timing rules which may accelerate or defer recognition for tax purposes.

Source and nexus — bringing foreign and domestic activities into the scope

Source rules determine whether income is attributable to UK activities or assets. Common categories include:

• trading profits attributable to UK operations (including profits attributable to a permanent establishment);
• income from UK land and property; and
• royalties or service fees where the economic use or performance occurs in the UK.

For companies operating across borders, allocation of profit to the UK frequently relies on concepts such as permanent establishment, transfer pricing and the commercial substance of activities. Double taxation treaties and domestic anti‑avoidance rules can modify or limit source‑based claims to tax.

Practical checklist for in‑house tax teams and advisers

1. Confirm corporate residence for each legal entity (review incorporation, central management and control, and statutory records).
2. Map activities, assets and revenue streams to identify UK‑sourced income and any UK permanent establishments.
3. Reconcile accounting profits to taxable profits: note timing differences, capital/revenue classification and disallowable items.
4. Review intercompany arrangements and transfer pricing documentation to support profit allocations to the UK.
5. Check applicability of double tax treaties and reliefs, and identify withholding tax exposures on cross‑border payments.
6. Document factual and legal bases for positions and maintain contemporaneous records in case of enquiry.

Jurisdiction and sources

Primary sources and guidance include:

• HM Revenue & Customs (HMRC) guidance and manuals;
• Corporation Tax Act 2010 and subsequent Finance Acts (legislation.gov.uk);
• HM Treasury material on treaties and international tax policy;
• OECD Model Tax Convention and BEPS publications for international allocation principles.

General information only; not legal advice and not a substitute for advice on a particular matter.