Finance Act 1972

10 (1) For the purposes of this Schedule the distributions of a company for an accounting period shall be taken to consist of—

(a) any dividends which are declared in respect of the period and are paid during the period or within a reasonable time thereafter, and

(b) all distributions made in the period except dividends which, in relation to any previous period, would fall under paragraph (a) above or section 291(1)(a) of the Taxes Act:

Provided that, where a period of account is not an accounting period, dividends which, if it were an accounting period, would be treated under paragraph (a) above as distributions for that accounting period shall be apportioned to any accounting period or part of an accounting period falling within the period of account in proportion to the distributable income of each such period or part.

(2) For the purposes of this Schedule, the " distributable income " of a company for an accounting period shall be the amount of its distributable profits for the period exclusive of the part attributable to chargeable gains, and, for the purposes of this sub-paragraph—

(a) the " distributable profits " of a company for an accounting period shall be the aggregate of the following amounts, that is to say—

(i) the amount of any profits on which corporation tax falls finally to be borne, less the amount of that tax,

(ii) an amount equal to the qualifying distributions comprised in any franked investment income, other than franked investment income against which relief is given under section 254 or 255 of the Taxes Act, and

(iii) an amount equal to any group income,

(b) the part of a company's distributable profits attributable to chargeable gains shall be taken to be the amount of the chargeable gains on which corporation tax is finally borne less the amount of that tax, and

(c) the amount on which corporation tax falls finally to be borne (but not the amount of that tax) shall be computed as if section 254 of the Taxes Act did not include subsection (5) or subsection (6) of that section (and as if section 255 of that Act did not apply the said subsection (5)).

(3) For the purposes of this Schedule the " distributable investment income " of a company for an accounting period shall be the amount of the distributable income, exclusive of the part attributable to estate or trading income, and less whichever is the smaller of—

(a) 10 per cent. of the estate or trading income, and

(b) £500 or, if the accounting period is of less than twelve months, a proportionately reduced amount.

(4) Subject to sub-paragraph (5) below, for the purposes of this Schedule, the " estate or trading income " of a company means—

(a) income which is not investment income for the purposes of paragraph 11(1) below, and

(b) income which is chargeable to tax under Schedule A or Schedule B, and income (other than yearly or other interest) which is chargeable to tax under Schedule D, and which arises from the ownership or occupation of land (including any interest in or right over land) or from the letting furnished of any building or part of a building.

(5) Where the following conditions are satisfied with respect to a close company, that is to say—

(a) that its activities consist wholly or mainly of the carrying on of a trade ; and

(b) that that trade consists wholly or mainly of one or more of the following, that is to say, life assurance business (within the meaning of section 323(2) of the Taxes Act), insurance business of any other class, banking, money lending, financing of hire-purchase or similar transactions, or dealing in securities,

its income incidental to that trade shall (so far as not otherwise falling within the definition of estate or trading income in sub-paragraph (4) above) be treated as estate or trading income in arriving, under paragraph 8 above, at the relevant income for the purposes of paragraph 1 above.

(6) For the purposes of sub-paragraph (5) above income of a company is incidental to its trade if, and only if—

(a) it is derived from investments (other than investments in a 51 per cent. subsidiary) or is interest on a debt; and

(b) any profit on the sale of the investments would be a trading receipt, and the debt, if proved to be a bad debt, would be allowed as a deduction, in computing the company's trading income for the purposes of corporation tax.

(7) The amount for part of an accounting period of any description of income referred to in sub-paragraphs (2) to (5) above shall be a proportionate part of the amount for the whole period.

(8) In determining the amount for any period of any description of income referred to in sub-paragraphs (2) to (5) above, any deduction from the company's profits for charges on income, expenses of management or other amounts which can be deducted from or set against or treated as reducing profits of more than one description shall be treated as made—

(a) first from the company's income charged to corporation tax other than estate or trading income ;

(b) secondly, so far as it cannot be made under (a) above, from the company's estate or trading income so charged; and

(c) thirdly, so far as it cannot be made under (a) or (b) above, from the amount included in the company's profits in respect of chargeable gains.