Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Companies with small profits
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(5)
References in this Chapter to the tax calculation currency of a company in an
accounting period are to the currency in which profits or losses of the company
arising in that period that fall to be calculated in accordance with generally
accepted accounting practice for corporation tax purposes are required to be
calculated by virtue of section 5(1), section 6(2), Step 1 of section 7(2), Step 1 of
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section 8(2) or Step 1 of section 9(2).
Part 3
Companies with small profits
The small profits rate
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Profits charged at the small profits rate
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Corporation tax is charged at the small profits rate on a company’s taxable total
profits of an accounting period if—
(a)
the company is UK resident in the accounting period,
(b)
it is not a close investment-holding company in the period, and
(c)
its augmented profits of the accounting period do not exceed the lower
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limit.
Marginal relief
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Marginal relief
(1)
This section applies if—
(a)
a company is UK resident in an accounting period,
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(b)
it is not a close investment-holding company in the period,
(c)
its augmented profits of the accounting period—
(i)
exceed the lower limit, but
(ii)
do not exceed the upper limit, and
(d)
its augmented profits of the period do not include any ring fence
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profits.
(2)
The corporation tax charged on the company’s taxable total profits of the
accounting period is reduced by an amount equal to


where—
F is the standard fraction,
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U is the upper limit,
A is the amount of the augmented profits, and
N is the amount of the taxable total profits.
(3)
In this Part “the standard fraction” means the fraction set by Parliament as the
standard fraction for the purposes of this Part.
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Corporation Tax Bill
Part 3 — Companies with small profits
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Company with only ring fence profits
(1)
This section applies if—
(a)
a company is UK resident in an accounting period,
(b)
it is not a close investment-holding company in the period,
(c)
its augmented profits of the accounting period—
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(i)
exceed the lower limit, but
(ii)
do not exceed the upper limit, and
(d)
its augmented profits of the period consist exclusively of ring fence
profits.
(2)
The corporation tax charged on the company’s taxable total profits of the
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accounting period is reduced by an amount equal to


where—
R is the ring fence fraction,
U is the upper limit,
A is the amount of the augmented profits, and
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N is the amount of the taxable total profits.
(3)
In this Part “the ring fence fraction” means the fraction set by Parliament as the
ring fence fraction for the purposes of this Part.
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Company with ring fence profits and other profits
(1)
This section applies if—
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(a)
a company is UK resident in an accounting period,
(b)
it is not a close investment-holding company in the period,
(c)
its augmented profits of the accounting period—
(i)
exceed the lower limit, but
(ii)
do not exceed the upper limit, and
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(d)
its augmented profits of that period consist of both ring fence profits
and other profits.
(2)
The corporation tax charged on the company’s taxable total profits of the
accounting period is reduced by the total of—
(a)
the sum equal to the ring fence fraction of the ring fence amount, and
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(b)
the sum equal to the standard fraction of the remaining amount.
(3)
In this Part “ring fence profits” has the same meaning as in Part 8 (see section
276).

Corporation Tax Bill
Part 3 — Companies with small profits
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The ring fence amount
(1)
In section 21 “the ring fence amount” means the amount given by the
formula—

(2)
For the purposes of this section—
UR is the amount given by multiplying the upper limit by—

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AR is the total amount of any ring fence profits that form part of the
augmented profits of the accounting period,
NR is the total amount of any ring fence profits that form part of the
taxable total profits of the accounting period, and
A is the amount of the augmented profits of the accounting period.
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The remaining amount
(1)
In section 21 “the remaining amount” means the amount given by the
formula—

(2)
For the purposes of this section—
UZ is the amount given by multiplying the upper limit by—

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AZ is the total amount of any profits other than ring fence profits that
form part of the augmented profits of the accounting period,
NZ is the total amount of any profits other than ring fence profits that
form part of the taxable total profits of the accounting period, and
A is the amount of the augmented profits of the accounting period.
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Corporation Tax Bill
Part 3 — Companies with small profits
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The lower limit and the upper limit
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The lower limit and the upper limit
(1)
This section gives the meaning in this Part of “the lower limit” and “the upper
limit” in relation to an accounting period of a company.
(2)
If the company has no associated company in the accounting period—
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(a)
the lower limit is £300,000, and
(b)
the upper limit is £1,500,000.
(3)
If the company has one or more associated companies in the accounting
period—
(a)
the lower limit is—

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and
(b)
the upper limit is—


where N is the number of those associated companies.
(4)
For an accounting period of less than 12 months the lower limit and the upper
limit are proportionately reduced.
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Associated companies
(1)
For the purposes of section 24, a company is another company’s associated
company in an accounting period if it is an associated company (see subsection
(4)) for any part of the accounting period.
(2)
The rule in subsection (1) applies to each of two or more associated companies
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even if they are associated companies for different parts of the accounting
period.
(3)
But an associated company is ignored for the purposes of section 24 if—
(a)
it has not carried on a trade or business at any time in the accounting
period, or
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(b)
it was an associated company for part only of the accounting period
and has not carried on a trade or business at any time in that part of the
accounting period.
(4)
For the purposes of this Part, a company is an associated company of another
at any time when—
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(a)
one of the two has control of the other, or
(b)
both are under the control of the same person or persons.

Corporation Tax Bill
Part 3 — Companies with small profits
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(5)
In subsection (4) “control” has the same meaning as in Part 10 (see sections 450
and 451).
(6)
In this section—
(a)
subsection (3) is subject to section 26, and
(b)
subsections (4) and (5) are subject to sections 27, 28, 29 and 30.
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Section 25(3): treatment of certain non-trading companies
(1)
Subsection (2) applies if a company carries on a business of making
investments in an accounting period and throughout the period the
company—
(a)
carries on no trade,
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(b)
has one or more 51% subsidiaries, and
(c)
is a passive company.
(2)
The company is treated for the purposes of section 25(3) as not carrying on a
business at any time in the accounting period.
(3)
A company is a passive company throughout an accounting period only if the
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following requirements are met—
(a)
it has no assets in that period, other than shares in companies which are
its 51% subsidiaries,
(b)
no income arises to it in that period other than dividends,
(c)
if income arises to it in that period in the form of dividends—
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(i)
the redistribution condition is met (see subsection (4)), and
(ii)
the dividends are franked investment income received by it,
(d)
no chargeable gains accrue to it in that period,
(e)
no expenses of management of the business mentioned in subsection
(1) are referable to that period, and
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(f)
no qualifying charitable donations are deductible from the company’s
total profits of that period.
(4)
The redistribution condition is that—
(a)
the company pays dividends to one or more of its shareholders in the
accounting period, and
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(b)
the total amount paid in the form of those dividends is at least equal to
the amount of the income arising to the company in the form of
dividends in that period.
(5)
If income arises to a company in an accounting period in the form of a dividend
and the requirement in subsection (3)(c) is met in respect of the income—
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(a)
neither the dividend nor any asset representing it is treated as an asset
of the company in that accounting period for the purposes of subsection
(3)(a), and
(b)
no right of the company to receive the dividend is treated as an asset of
the company for the purposes of subsection (3)(a) in that period or any
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earlier accounting period.
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Attribution to persons of rights and powers of their partners
(1)
This section applies if it is necessary to determine in accordance with section
25(4) and (5) whether a company is an associated company of another
company (“the taxpayer company”).
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Corporation Tax Bill
Part 3 — Companies with small profits
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(2)
In the application of section 451 (meaning of “control”: rights to be attributed)
for the purposes of the determination, the references in section 451(4) and (5)
to an associate of a person (“P”) include a partner of the person only if the
condition in subsection (3) below is met.
(3)
The condition is that tax planning arrangements which—
5
(a)
involve P and the partner, and
(b)
secure a relevant tax advantage,

have at any time had effect in relation to the taxpayer company.
(4)
In subsection (3) “relevant tax advantage” means a reduction in the taxpayer
company’s liability to corporation tax as a result of an increase in relief under
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this Part.
(5)
The reference in subsection (3) to arrangements which have had effect in
relation to the taxpayer company includes arrangements which have had effect
in connection with the formation of the company.
(6)
In this section “arrangements”—
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(a)
does not include any guarantee, security or charge given to or taken by
a bank, but
(b)
otherwise includes any agreement, understanding, scheme, transaction
or series of transactions (whether or not legally enforceable).
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Associated companies: fixed-rate preference shares
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(1)
In determining for the purposes of section 25(4) whether a company is under
the control of another, fixed-rate preference shares held by a company are
ignored if the company holding them—
(a)
is not a close company,
(b)
takes no part in the management or conduct of the company which
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issued the shares, or in the management or conduct of its business, and
(c)
subscribed for the shares in the ordinary course of a business which
includes the provision of finance.
(2)
In this section “fixed-rate preference shares” means shares which—
(a)
were issued wholly for new consideration,
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(b)
do not carry any right either to conversion into shares or securities of
any other description or to the acquisition of any additional shares or
securities, and
(c)
do not carry any right to dividends other than dividends which—
(i)
are of a fixed amount or at a fixed rate per cent of the nominal
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value of the shares, and
(ii)
together with any sum paid on redemption, represent no more
than a reasonable commercial return on the consideration for
which the shares were issued.
(3)
In subsection (2)(a) “new consideration” has the meaning given by section
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1115.
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Association through a loan creditor
(1)
A company (“A”) is not under the control of another company (“B”) for the
purposes of section 25(4) if—

Corporation Tax Bill
Part 3 — Companies with small profits
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(a)
B is a loan creditor of A,
(b)
there is no other connection between A and B, and
(c)
either—
(i)
B is not a close company, or
(ii)
B’s relationship to A as a loan creditor arose in the ordinary
5
course of a business which B carries on.
(2)
Subsection (3) applies if—
(a)
two companies (“A” and “B”) are controlled by the same person who is
a loan creditor of each of them,
(b)
there is no other connection between A and B, and
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(c)
either—
(i)
the loan creditor is a company which is not a close company, or
(ii)
the loan creditor’s relationship to each of A and B as a loan
creditor arose in the ordinary course of a business which the
loan creditor carries on.
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(3)
In determining for the purposes of this Part whether A and B are associated
with each other, rights which the loan creditor has as a loan creditor of A, or as
a loan creditor of B, are ignored.
(4)
In subsection (2)(a) “control” has the same meaning as in section 25(4).
(5)
In this section—
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(a)
“connection” includes a connection in the past as well as a connection
in the present, and
(b)
references to a connection between two companies include any
dealings between them.
(6)
In this section references to a loan creditor of a company are to be read in
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accordance with section 453.
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Association through a trustee
(1)
Subsection (2) applies if—
(a)
two companies (“A” and “B”) are controlled by the same person by
virtue of rights or powers (or both) held in trust by that person, and
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(b)
there is no other connection between A and B.
(2)
In determining for the purposes of this Part whether A and B are associated
with each other, the rights and powers mentioned in subsection (1)(a) are
ignored.
(3)
In subsection (1)—
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(a)
“control” has the same meaning as in section 25(4),
(b)
“connection” includes a connection in the past as well as a connection
in the present, and
(c)
the reference to a connection between A and B includes any dealings
between them.
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