CHAPTER 7 - Taxation of Business Income

Abstract

This chapter describes the taxation of business income. Taxes on company profits are a form of income taxation, and they may be more or less closely related to the structure of personal income tax. The main issues raised by the taxation of company profits are thrown into relief by the changes in methods of profits taxation in the United Kingdom. There have been three different structures for company taxation since 1965, each embodying rather different principles. Under the pre-1966 system, income tax at the standard rate together with profits tax was paid on both distributed and undistributed profits, and but on distributed profits the income tax payment was simply a device for collection at source and if the shareholder was not a standard rate income tax payer he claimed a rebate or paid surtax according to his personal circumstances. Essentially, under this system, both distributed and undistributed profits were charged to profits tax, and undistributed profits were charged to income tax at the standard rate and distributed profits paid income tax according to the personal circumstances of the shareholders.