The Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999

Explanatory Note

(This note is not part of the Regulations)

These Regulations provide for the treatment of unrelieved surplus advance corporation tax arising as a result of the abolition (by virtue of section 31 of the Finance Act 1998) of advance corporation tax (“ACT”) in respect of distributions made by a company on or after 6th April 1999. In computing the amount of unrelieved surplus ACT that may be set off against a company’s liability to corporation tax for an accounting period beginning on or after 6th April 1999 so as to discharge a corresponding amount of that liability, the Regulations provide for notional amounts of ACT (“shadow ACT”) to be treated as paid by the company in respect of distributions made on or after that date, and for those notional amounts to be set off against the company’s liability to corporation tax before amounts of unrelieved surplus ACT may be set off so as to reduce that liability.

Regulation 1 provides for citation and commencement, and regulation 2 summarises the provisions made by the Regulations.

Regulation 3 provides for interpretation.

Regulations 4 and 5 define “final accounting period” for the purposes of the Regulations.

Regulation 6 defines “group” for the purposes of the Regulations.

Regulations 7 to 10 provide that certain distributions received by companies shall not be regarded as franked investment income for the purpose of computing the amount of shadow ACT treated as paid by a company in an accounting period.

Regulation 11 provides for the computation of shadow ACT in respect of distributions made by a company.

Regulation 12 provides for the setting off of amounts of shadow ACT against a company’s liability to corporation tax for an accounting period.

Regulation 13 provides for the allocation of a company’s surplus shadow ACT to other companies in the same group.

Regulation 14 provides for the setting off of unrelieved surplus ACT against a company’s liability to corporation tax for an accounting period.

Regulation 15 makes special provision for the setting off of unrelieved surplus ACT against a subsidiary company’s liability to corporation tax.

Regulations 16 to 18 make special provision for the setting off of unrelieved surplus ACT where there is a change of ownership of a company.

Regulation 19 provides for the making of assessments in circumstances where unrelieved surplus ACT has been wrongly set off against a company’s liability to corporation tax.

Regulation 20 makes special provision for the setting off of unrelieved surplus ACT against a company’s liability to corporation tax on profits of a controlled foreign company that are apportioned to the company.

Regulation 21 makes consequential provision for the recovery of corporation tax where an amount of unrelieved surplus ACT set against a company’s liability to corporation tax for an accounting period under regulation 14 is subsequently displaced by an amount of surplus shadow ACT attributed to that period under regulation 12 or 13.

Regulation 22 provides that the policy holders' share of franked investment income from investments held in connection with a company’s life assurance business shall not be used for the purpose of computing the amount of shadow ACT treated as paid by the company in an accounting period under regulation 11 or in determining whether that company has a surplus of franked investment income as mentioned in that regulation.

Regulation 23 adds to paragraph A of section 704 of the Income and Corporation Taxes Act 1988 (c. 1) (cancellation of a tax advantage obtained in certain circumstances in consequence of a transaction in securities) the circumstance of the application of franked investment income for the purposes of these Regulations.