Finance Act 2009

Finance Act 2009

2009 CHAPTER 10

Introduction

Section 8: Small Companies’ Rates and Fractions for Financial Year 2009

Summary

1. Section 8 sets the small companies’ rate of corporation tax for the financial year beginning 1 April 2009 at 21 per cent for all profits apart from “ring fence profits” of North Sea oil companies and 19 per cent for “ring fence profits”. Additionally, it sets the fraction used in calculating marginal small companies’ relief from the main rate at 7/400 for all profits apart from “ring fence profits” and 11/400 for “ring fence profits”.

Details of the Section

2. Subsection (1) sets the small companies’ rate of corporation tax for the financial year 2009.

3. Subsection (2) sets the fraction used to calculate marginal small companies’ relief.

4. Subsection (3) provides that where a company makes a claim for marginal small companies’ relief in respect of an accounting period, part of which falls in the financial year 2009, or any subsequent financial year and its profits for that accounting period consist of both ring fence and other profits, then its claim to marginal small companies relief under section 13(2) of the Income and Corporation Taxes Act 1988 (ICTA) is modified appropriately. The conditions for this modification are laid out in subsections (3) to (7) of Section 3 of Finance Act 2007.

Background Note

5. Companies with profits up to £300,000 pay corporation tax at the small companies’ rate.

6. Companies with profits between £300,000 and £1,500,000 (the lower and upper limits) benefit from small companies’ marginal relief from the main rate.

7. Marginal relief has the effect of gradually increasing the rate of tax for a company as its profits move from the lower to the upper profits limit.

8. The example below illustrates the effect of marginal relief for a company with taxable non-ring fence profits of £500,000. Its tax liability is calculated as follows:

* £1,000,000 is the difference between the upper limit and the profit.
£500,000 @ 28 per cent	£140,000
minus 7/400 of £1,000,000*	£17,500
Tax payable:	£122,500

9. The example below illustrates the effect of marginal relief for a company with taxable ring fence profits of £500,000. Its tax liability is calculated as follows:

* £1,000,000 is the difference between the upper limit and the profit.
£500,000 @ 30 per cent	£150,000
minus 11/400 of £1,000,000*	£27,500
Tax payable:	£122,500

10. Where two or more companies are associated with one another, the profits limits are divided by the number of associated companies.