PART I THE CHARGE TO TAX
Income tax
1 The charge to income tax.
1
M1 Income tax shall be charged in accordance with the provisions of the Income Tax Acts in respect of all property, profits or gains respectively described or comprised in the F27Schedules A, D, E and F, set out in sections 15 to 20 or which in accordance with the Income Tax Acts are to be brought into charge to tax under any of those Schedules or otherwise.
C1C22
M2 Where any Act enacts that income tax shall be charged for any year, income tax shall be charged for that year—
F28aa
in respect of so much of an individual’s total income as does not exceed £1,500, at such rate as Parliament may determine to be the starting rate for that year;
C3C4a
in respect of any income which does not fall within F17paragraph (aa) above or paragraph (b) below, at such rate as Parliament may determine to be the basic rate for that year;
F18C3C4b
in respect of so much of an individual’s total income as exceeds F19£20,700 at such higher rate as Parliament may determine
but this subsection has effect subject to any provision of the Income Tax Acts providing for income tax to be charged at a different rate in certain cases.
F292A
The amount up to which an individual’s income is by virtue of subsection (2) above chargeable for any year at the starting rate shall be known as the starting rate limit.
3
M3 The amount up to which an individual’s income is by virtue of subsection (2) above chargeable for any year at the F20F30starting rate or the basic rate shall be known as the basic rate limit,and the parts of income in excess of the basic rate limit which are specified in paragraph (b) of that subsection shall be known respectively as the first, second, third, fourth and fifth higher rate bandsF21.
C5C64
M4 If the retail prices index for the month of F22September preceding a year of assessment is higher than it was for the previous F22September, then, unless Parliament otherwise determines, subsection (2) above shall apply for that year as if for F23each of the amounts specified in that subsection as it applied for the previous year (whether by virtue of this subsection or otherwise) there were substituted an amount arrived at by increasing the amount for the previous year by the same percentage as the percentage increase in the retail prices index F31 and—
a
if the result in the case of the amount specified in subsection (2)(aa) above is not a multiple of £10, rounding it up to the nearest amount which is such a multiple, and
b
if the result in the case of the amount specified in subsection (2)(b) above is not a multiple of £100, rounding it up to the nearest amount which is such a multiple.
.
F32C85A
Subsection (4) above shall not require any change to be made in the amounts deductible or repayable under section 203 during the period beginning with 6th April and ending with 17th May in the year of assessment.
F245
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C5C76
The Treasury shall before each year of assessment make an order specifying the F25amounts which by virtue of subsection (4) above will be treated as specified for that year in subsection (2) above.
F266A
Where income tax at the basic rate has been borne on income chargeable at the F33starting rate any necessary repayment of tax shall be made on the making of a claim.
7
Part VII contains general provisions relating to the taxation of income of individuals.
F2C91A Application of lower rate to income from savings and distributions.
1
Subject to sections 469(2) F42, 686 and 720(5), so much of any person’s total income for any year of assessment as—
a
comprises income to which this section applies, and
b
in the case of an individual, is not
F46i
savings income falling within section 1(2)(aa), or
ii
income falling within section 1(2)(b),
shall, by virtue of this section, be charged for that year at the F39rate applicable in accordance with subsection (1A) below, instead of at the rate otherwise applicable to it in accordance with section 1(2)(aa) and (a).
F471AA
In subsection (1)(b)(i) above “savings income” means income to which this section applies other than—
a
income chargeable under Schedule F, or
b
equivalent foreign income falling within subsection (3)(b) below and chargeable under Case V of Schedule D.
F401A
The rate applicable in accordance with this subsection is—
a
in the case of income chargeable under Schedule F, the Schedule F ordinary rate;
b
in the case of equivalent foreign income falling within subsection (3)(b) below and chargeable under Case V of Schedule D, the Schedule F ordinary rate; and
c
in the case of any other income, the lower rate.
F441B
In relation to any year of assessment for which income tax is charged the lower rate is 20 per cent. or such other rate as Parliament may determine.
2
Subject to subsection (4) below, this section applies to the following income—
a
any income chargeable under Case III of Schedule D other than—
i
relevant annuities and other annual payments that are not interest; and
ii
amounts so chargeable by virtue of section 119 F38. . . ;
F43aa
any amount chargeable to tax under Case VI of Schedule D by virtue of section 714, 716 or 723;
b
any income chargeable under Schedule F; and
c
subject to subsection (4) below, any equivalent foreign income.
3
The income which is equivalent foreign income for the purposes of this section is any income chargeable under Case IV or V of Schedule D which—
a
is equivalent to a description of income falling within subsection (2)(a) above but arises from securities or other possessions out of the United Kingdom; or
b
consists in any such dividend or other distribution of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were resident in the United Kingdom.
4
This section does not apply to—
a
any income chargeable to tax under Case IV or V of Schedule D which is such that section 65(5)(a) or (b) provides for the tax to be computed on the full amount of sums received in the United Kingdom; or
b
any amounts deemed by virtue of section 695(4)(b) or 696(6) to be income chargeable under Case IV of Schedule D.
F415
For the purposes of subsection (1)(b) above and any other provisions of the Income Tax Acts—
a
so much of any person’s income as comprises income to which this section applies shall be treated as the highest part of his income; and
b
so much of that part as consists of—
i
income chargeable under Schedule F (if any), and
ii
equivalent foreign income falling within subsection (3)(b) above and chargeable under Case V of Schedule D (if any),
shall be treated as the highest part of that part.
6
Subsection (5) above shall have effect subject to section 833(3) but shall otherwise have effect notwithstanding any provision requiring income of any description to be treated for the purposes of the Income Tax Acts (other than section 550) as the highest part of a person’s income.
F456A
Where income tax at the basic rate has been borne on income chargeable at the lower rate any necessary repayment of tax shall be made on the making of a claim.
7
In this section “relevant annuity” means any annuity other than a purchased life annuity to which section 656 applies or to which that section would apply but for section 657(2)(a).
F31B Rates of tax applicable to Schedule F income etc.
1
In the case of so much of an individual’s income which consists of—
a
income chargeable under Schedule F (if any), and
b
equivalent foreign income falling within section 1A(3)(b) and chargeable under Case V of Schedule D (if any),
as is income falling within section 1(2)(b), income tax shall, by virtue of this subsection, be charged at the Schedule F upper rate, instead of at the rate otherwise applicable to it in accordance with section 1(2)(b).
2
In relation to any year of assessment for which income tax is charged—
a
the Schedule F ordinary rate is 10 per cent., and
b
the Schedule F upper rate is 32.5 per cent.,
or, in either case, such other rate as Parliament may determine.
2 Fractions of a pound, and yearly assessments.
1
M5 The due proportion of income tax shall be charged for every fractional part of one pound.
2
Every assessment and charge to income tax shall be made for a year commencing on the 6th April and ending on the following 5th April.
3 Certain income charged at basic rate.
M6 Where a person is required to be assessed and charged with income tax in respect of any property, profits or gains out of which he makes any payment in respect of—
a
any annuity or other annual payment (not being interest); or
b
any royalty or other sum in respect of the user of a patent; F34. . .
c
F34. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
he shall, in respect of so much of the property, profits or gains as is equal to the payment and may be deducted in computing his total income, be charged at the basic rate.
4 Construction of references in Income Tax Acts to deduction of tax.
1
M7 Any provision of the Income Tax Acts requiring, permitting or assuming the deduction of income tax from any amount (otherwise than in pursuance of section 203) or treating income tax as having been deducted from or paid on any amount, shall, subject to any provision to the contrary, be construed as referring to deduction or payment of income tax at the basic rate in force for the relevant year of assessment.
F351A
As respects deductions from, and tax treated as paid on, any such amounts as constitute or (but for the person whose income they are) would constitute income to which section 1A applies, subsection (1) above shall have effect with a reference to the lower rate in force for the relevant year of assessment substituted for the reference to the basic rate in force for that year.
F371B
To the extent that section 118E (paying and collecting agents: deduction of tax) applies in relation to foreign dividend income—
a
subsections (1) and (1A) above shall not apply, and
b
any provision of that section of the kind mentioned in subsection (1) above shall be construed as referring to deduction or payment of income tax at the Schedule F ordinary rate in force for the relevant year of assessment.
For this purpose “foreign dividend income” means any such dividend or other distribution of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were resident in the United Kingdom.
2
For the purposes of F36this section, the relevant year of assessment shall be taken to be (except where otherwise provided)—
a
if the amount is an amount payable wholly out of profits or gains brought into charge to tax, the year in which the amount becomes due;
b
in any other case, the year in which the amount is paid.
5 Date for payment.
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Corporation tax
C106 The charge to corporation tax and exclusion of income tax and capital gains tax.
C111
M8 Corporation tax shall be charged on profits of companies, and the Corporation Tax Acts shall apply, for any financial year for which Parliament so determines, and where an Act charges corporation tax for any financial year the Corporation Tax Acts apply, without any express provision, for that year accordingly.
2
The provisions of the Income Tax Acts relating to the charge of income tax shall not apply to income of a company (not arising to it in a fiduciary or representative capacity) if—
a
the company is resident in the United Kingdom, or
b
the income is, in the case of a company not so resident, within the chargeable profits of the company as defined for the purposes of corporation tax by section 11(2).
3
A company shall not be chargeable to capital gains tax in respect of gains accruing to it so that it is chargeable in respect of them to corporation tax or would be so chargeable but for an exemption from corporation tax.
4
In this section, sections 7 to 12, 114, 115 (but subject to subsection (7)), F48. . . F49. . . and 248, Part VIII, Chapter IV of Part X and Part XI, except in so far as the context otherwise requires—
a
“profits” means income and chargeable gains; and
C12b
“trade” includes “vocation”, and also includes an office or employment or the occupation of woodlands in any context in which the expression is applied to that in the Income Tax Acts.
5
Part VIII contains general provisions relating to the taxation of profits of companies.
7 Treatment of certain payments and repayment of income tax.
1
M9 No payment made by a company resident in the United Kingdom shall be treated for any purpose of the Income Tax Acts as paid out of profits or gains brought into charge to income tax; nor shall any right or obligation under the Income Tax Acts to deduct income tax from any payment be affected by the fact that the recipient is a company not chargeable to income tax in respect of the payment.
C13C142
Subject to the provisions of the Corporation Tax Acts, where a company resident in the United Kingdom receives any payment on which it bears income tax by deduction, the income tax thereon shall be set off against any corporation tax assessable on the company F50. . . for the accounting period in which that payment falls to be taken into account for corporation tax (or would fall to be taken into account but for any exemption from corporation tax); and accordingly in respect of that payment the company, unless wholly exempt from corporation tax, shall not be entitled to a repayment of income tax before the assessment for that accounting period is finally determined and it appears that a repayment is due.
3
M10 Subsection (2) above does not apply to a payment of relevant loan interest to which section 369 applies.
4
M11 References in this section to payments received by a company apply to any received by another person on behalf of or in trust for the company, but not to any received by the company on behalf of or in trust for another person.
5
F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 General scheme of corporation tax.
1
Subject to any exceptions provided for by the Corporation Tax Acts, a company shall be chargeable to corporation tax on all its profits wherever arising.
2
M12 A company shall be chargeable to corporation tax on profits accruing for its benefit under any trust, or arising under any partnership, in any case in which it would be so chargeable if the profits accrued to it directly; and a company shall be chargeable to corporation tax on profits arising in the winding up of the company, but shall not otherwise be chargeable to corporation tax on profits accruing to it in a fiduciary or representative capacity except as respects its own beneficial interest (if any) in those profits.
C153
Corporation tax for any financial year shall be charged on profits arising in that year; but assessments to corporation tax shall be made on a company by reference to accounting periods, and the amount chargeable (after making all proper deductions) of the profits arising in an accounting period shall, where necessary, be apportioned between the financial years in which the accounting period falls.
In relation to accounting periods ending after such day, not being earlier than 31st March 1992, as the Treasury may by order appoint for the purposes of this subsection, this subsection shall have effect with the substitution for “assessments to corporation tax shall be made on a company” of “corporation tax shall be computed and chargeable (and any assessments shall accordingly be made)”.
F524
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F525
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F526
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8AF4 Resolutions to reduce corporation tax.
F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 Computation of income: application of income tax principles.
1
M13 Except as otherwise provided by the Tax Acts, the amount of any income shall for purposes of corporation tax be computed in accordance with income tax principles, all questions as to the amounts which are or are not to be taken into account as income, or in computing income, or charged to tax as a person’s income, or as to the time when any such amount is to be treated as arising, being determined in accordance with income tax law and practice as if accounting periods were years of assessment.
2
For the purposes of this section “income tax law” means, in relation to any accounting period, the law applying, for the year of assessment in which the period ends, to the charge on individuals of income tax, except that it does not include such of the enactments of the Income Tax Acts as make special provision for individuals in relation to matters referred to in subsection (1) above.
3
Accordingly, for purposes of corporation tax, income shall be computed, and the assessment shall be made, under the like Schedules and Cases as apply for purposes of income tax, and in accordance with the provisions applicable to those Schedules and Cases, but (subject to the provisions of the Corporation Tax Acts) the amounts so computed for the several sources of income, if more than one, together with any amount to be included in respect of chargeable gains, shall be aggregated to arrive at the total profits.
4
Without prejudice to the generality of subsection (1) above, any provision of the Income Tax Acts which confers an exemption from income tax, or which provides for a person to be charged to income tax on any amount (whether expressed to be income or not, and whether an actual amount or not), shall, except as otherwise provided, have the like effect for purposes of corporation tax.
5
Where, by virtue of this section or otherwise, any enactment applies both to income tax and to corporation tax—
a
it shall not be affected in its operation by the fact that they are distinct taxes but, so far as is consistent with the Corporation Tax Acts, shall apply in relation to income tax and corporation tax as if they were one tax, so that, in particular, a matter which in a case involving two individuals is relevant for both of them in relation to income tax shall in a like case involving an individual and a company be relevant for him in relation to that tax and for it in relation to corporation tax; and
b
for that purpose references in any such enactment to a relief from or charge to income tax, or to a specified provision of the Income Tax Acts shall, in the absence of or subject to any express adaptation, be construed as being or including a reference to any corresponding relief from or charge to corporation tax, or to any corresponding provision of the Corporation Tax Acts.
6
The provisions of the Income Tax Acts applied by this section do not include sections 1 to 5, 60 to 69, Part VII or sections 348 to 350 of this Act; and nothing in this section shall be taken to mean that income arising in any period is to be computed by reference to any other period (except in so far as this results from apportioning to different parts of a period income of the whole period).
10 Time for payment of tax.
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11 Companies not resident in United Kingdom.
1
M14A company not resident in the United Kingdom shall not be within the charge to corporation tax unless it carries on a trade in the United Kingdom through a branch or agency but, if it does so, it shall, subject to any exceptions provided for by theCorporation Tax Acts, be chargeable to corporation tax on all its chargeable profits wherever arising.
2
For purposes of corporation tax the chargeable profits of a company not resident in the United Kingdom but carrying on a trade there through a branch or agency shall be—
C16a
any trading income arising directly or indirectly through or from the branch or agency, and any income from property or rights used by, or held by or for, the branch or agency (but so that this paragraph shall not include distributions received from companies resident in the United Kingdom); and
F53b
such chargeable gains as are, by virtue of section 10(3) of the 1992 Act, to be, or be included in, the company’s chargeable profits,
C17C183
F54. . . Where a company not resident in the United Kingdom receives any payment on which it bears income tax by deduction, and the payment forms part of, or is to be taken into account in computing, the company’s income chargeable to corporation tax, the income tax thereon shall be set off against any corporation tax assessable on that income F55. . . for the accounting period in which the payment falls to be taken into account for corporation tax; and accordingly in respect of that payment the company shall not be entitled to a repayment of income tax before the assessment for that accounting period is finally determined and it appears that a repayment is due.
4
M15Subsection (3) above does not apply to a payment of relevant loan interest to which section 369 applies.
F1011AADetermination of profits attributable to permanent establishment
1
This section provides for determining for the purposes of corporation tax the amount of the profits attributable to a permanent establishment in the United Kingdom of a company that is not resident in the United Kingdom (“the non-resident company”).
2
There shall be attributed to the permanent establishment the profits it would have made if it were a distinct and separate enterprise, engaged in the same or similar activities under the same or similar conditions, dealing wholly independently with the non-resident company.
3
In applying subsection (2)—
a
it shall be assumed that the permanent establishment has the same credit rating as the non-resident company, and
b
it shall also be assumed that the permanent establishment has such equity and loan capital as it could reasonably be expected to have in the circumstances specified in that subsection.
No deduction may be made in respect of costs in excess of those that would have been incurred on those assumptions.
4
There shall be allowed as deductions any allowable expenses incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the United Kingdom or elsewhere.
“Allowable expenses” means expenses of a kind in respect of which a deduction would be allowed for corporation tax purposes if incurred by a company resident in the United Kingdom.
5
The Board may by regulations make provision as to the application of subsection (2) in relation to insurance companies.
The regulations may, in particular, make provision in place of subsection (3)(b) as to the basis on which, in the case of insurance companies, capital is to be attributed to a permanent establishment in the United Kingdom. In this subsection “insurance company” has the meaning given by section 431(2).
6
Schedule A1 to this Act contains provisions supplementing the provisions of this section.
12 Basis of, and periods for, assessment.
C201
M16 Except as otherwise provided by the Corporation Tax Acts, corporation tax shall be assessed and charged for any accounting period of a company on the full amount of the profits arising in the period (whether or not received in or transmitted to the United Kingdom) without any other deduction than is authorised by those Acts.
C202
An accounting period of a company shall begin for purposes of corporation tax whenever—
a
the company, not then being within the charge to corporation tax, comes within it, whether by the company becoming resident in the United Kingdom or acquiring a source of income, or otherwise; or
b
an accounting period of the company ends without the company then ceasing to be within the charge to corporation tax.
C203
An accounting period of a company shall end for purposes of corporation tax on the first occurrence of any of the following—
a
the expiration of 12 months from the beginning of the accounting period;
b
an accounting date of the company or, if there is a period for which the company does not make up accounts, the end of that period;
c
the company beginning or ceasing to trade or to be, in respect of the trade or (if more than one) of all the trades carried on by it, within the charge to corporation tax;
d
the company beginning or ceasing to be resident in the United Kingdom;
e
the company ceasing to be within the charge to corporation tax.
C204
For the purposes of this section a company resident in the United Kingdom, if not otherwise within the charge to corporation tax, shall be treated as coming within the charge to corporation tax at the time when it commences to carry on business.
C205
F56Subject to subsection (5A) below if a company carrying on more than one trade makes up accounts of any of them to different dates, and does not make up general accounts for the whole of the company’s activities, subsection (3)(b) above shall apply with reference to the accounting date of such one of the trades F57as the company may determine.
F7C205A
If the Board is of the opinion, on reasonable grounds, that a date determined by a company for the purposes of subsection (5) above is inappropriate, they may by notice direct that the accounting date of such other of the trades referred to in that subsection as appears to them to be appropriate shall be used instead.
C206
If a chargeable gain or allowable loss accrues to a company at a time not otherwise within an accounting period of the company, an accounting period of the company shall then begin for the purposes of corporation tax, and the gain or loss shall accrue in that accounting period.
C207
Notwithstanding anything in subsections (1) to (6) above, where a company is wound up, an accounting period shall end and a new one begin with the commencement of the winding up, and thereafter, subject to section 342(6), an accounting period shall not end otherwise than by the expiration of 12 months from its beginning or by the completion of the winding up.
For this purpose a winding up is to be taken to commence on the passing by the company of a resolution for the winding up of the company, or on the presentation of a winding up petition if no such resolution has previously been passed and a winding up order is made on the petition, or on the doing of any other act for a like purpose in the case of a winding up otherwise than under the M17Insolvency Act 1986.
F8C19C21C227A
Notwithstanding anything in subsections (1) to (7) above, where F58an insurance business transfer scheme has effect to transfer from a company to another person business which consists of the effecting or carrying out of contracts of long-term insurance, an accounting period of the company from which the business is transferred shall end with the day of the transfer.
F97B
In subsection (7A) above—
“contracts of long-term insurance” means contracts which fall within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001; and
“insurance business transfer scheme” means a scheme falling within section 105 of the Financial Services and Markets Act 2000 and—
- a
includes an excluded scheme falling within Case 2, 3 or 4 of subsection (3) of that section, but
- b
does not include a scheme for the transfer of business carried on by one or members or former underwriting members of Lloyd’s.
- a
8
Where it appears to the inspector that the beginning or end of any accounting period of a company is uncertain, he may make an assessment on the company for such period, not exceeding 12 months, as appears to him appropriate, and that period shall be treated for all purposes as an accounting period of the company unless either—
a
the inspector on further facts coming to his knowledge sees fit to revise it; or
b
on an appeal against the assessment in respect of some other matter the company shows the true accounting periods;
and if on an appeal against an assessment made by virtue of this subsection the company shows the true accounting periods, the assessment appealed against shall, as regards the period to which it relates, have effect as an assessment or assessments for the true accounting periods, and there may be made such other assessments for any such periods or any of them as might have been made at the time when the assessment appealed against was made.
Small companies’ rate
C23C29C3013 Small companies’ relief.
1
a
is resident in the United Kingdom, and
b
is not a close investment-holding company (as defined in section 13A) at the end of that period.
do not exceed the lower relevant maximum amount, the company may claim that the corporation tax charged on its basic profits for that period shall be calculated as if the rate of corporation tax (instead of being the rate fixed for companies generally) were such lower rate (to be known as the “small companies’ rate”) as Parliament may from time to time determine.
C24C25C262
Where in any accounting period the profits of any such company exceed the lower relevant maximum amount but do not exceed the upper relevant maximum amount, the company may claim that the corporation tax charged on its basic profits for that period shall be reduced by a sum equal to such fraction as Parliament may from time to time determine of the following amount—
where—
M is the upper relevant maximum amount;
P is the amount of the profits; and
I is the amount of the basic profits.
3
The lower and upper relevant maximum amounts mentioned above shall be determined as follows—
a
b
where the company has one or more associated companies in the accounting period, the lower relevant maximum amount is F60£300,000 divided by one plus the number of those associated companies, and the upper relevant maximum amount is F61£1,500,000 divided by one plus the number of those associated companies.
C284
In applying subsection (3) above to any accounting period of a company, an associated company which has not carried on any trade or business at any time in that accounting period (or, if an associated company during part only of that accounting period, at any time in that part of that accounting period) shall be disregarded and for the purposes of this section a company is to be treated as an “associated company” of another at a given time if at that time one of the two has control of the other or both are under the control of the same person or persons.
In this subsection “control” shall be construed in accordance with section 416.
5
In determining how many associated companies a company has got in an accounting period or whether a company has an associated company in an accounting period, an associated company shall be counted even if it was an associated company for part only of the accounting period, and two or more associated companies shall be counted even if they were associated companies for different parts of the accounting period.
6
For an accounting period of less than 12 months the relevant maximum amounts determined in accordance with subsection (3) above shall be proportionately reduced.
C277
For the purposes of this section the profits (but not the basic profits) of a company for an accounting period shall be taken to be the amount of its profits for that period on which corporation tax falls finally to be borne, with the addition of franked investment income F66 other than franked investment income (if any) which the company (“the receiving company") receives from a company resident in the United Kingdom which is—
a
a 51 per cent. subsidiary of the receiving company or of a company F69. . . of which the receiving company is a 51 per cent. subsidiary; or
b
a trading or holding company which does not fall within F70subsection (7A) below and which is owned by a consortium the members of which include the receiving company.
which the company (if a member of a group) receives from companies within the group F62F64. . . ; and for this purpose distributions received by the company from another are to be treated as coming from within the company’s group if, but only if, dividends so received are group income or would be group income if the companies so elected.
F717A
A company falls within this subsection if—
a
it is a 75 per cent subsidiary of any other company, or
b
arrangements of any kind (whether in writing or not) are in existence by virtue of which it could become such a subsidiary.
8
For the purposes of this section the basic profits of a company for an accounting period shall be taken to be the amount of its profits for that period on which corporation tax falls finally to be borne.
F67F728AA
Section 13ZA applies for the interpretation of subsection (7) above.
8AB
The reference in subsection (7) above to franked investment income received by a company applies to any such income received by another person on behalf of or in trust for the company, but not to any such income received by the company on behalf of or in trust for another person.
F638A
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9
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F1213ZA Interpretation of section 13(7)
1
In determining for the purposes of section 13(7) whether one body corporate is a 51 per cent subsidiary of another, that other shall be treated as not being the owner of any share capital—
a
which it owns indirectly, and
b
which is owned directly by a body corporate for which a profit on the sale of the shares would be a trading receipt.
2
Notwithstanding that at any time a company (“the subsidiary company”) is a 51 per cent subsidiary of another company (“the parent company”) it shall not be treated at that time as such a subsidiary for the purposes of section 13(7) unless, additionally, at that time—
a
the parent company would be beneficially entitled to more than 50 per cent of any profits available for distribution to equity holders of the subsidiary company, and
b
the parent company would be beneficially entitled to more than 50 per cent of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.
3
For the purposes of section 13(7) and this section—
a
“trading or holding company” means a trading company or a company the business of which consists wholly or mainly in the holding of shares or securities of trading companies that are its 90 per cent subsidiaries;
b
“trading company” means a company whose business consists wholly or mainly of the carrying on of a trade or trades;
c
a company is owned by a consortium if 75 per cent or more of the ordinary share capital of the company is beneficially owned between them by companies of which none—
i
beneficially owns less than 5 per cent of that capital,
ii
would be beneficially entitled to less than 5 per cent of any profits available for distribution to equity holders of the company, or
iii
would be beneficially entitled to less than 5 per cent of any assets of the company available for distribution to its equity holders on a winding up,
and those companies are called the members of the consortium.
4
Schedule 18 (equity holders and assets etc. available for distribution) applies for the purposes of subsections (2) and (3)(c) above as it applies for the purposes of section 413(7).
F13C3113AA Corporation tax starting rate.
1
Where in any accounting period the profits of a qualifying company do not exceed the first relevant amount, the company may, instead of making a claim under section 13(1), claim that the corporation tax charged on its basic profits for that period shall be calculated as if the rate of corporation tax were such rate (to be known as the “corporation tax starting rate”), lower than the small companies’ rate, as Parliament may from time to time determine.
2
Where in any accounting period the profits of a qualifying company exceed the first relevant amount but do not exceed the second relevant amount, the company may, instead of making a claim under section 13(1), claim that the corporation tax charged on its basic profits for that period shall be—
a
calculated as if the rate of corporation tax were the small companies’ rate; and
b
then reduced by the sum specified in subsection (3) below.
C323
That sum is the sum equal to such fraction as Parliament may from time to time determine of the following amount—
where—
R2 is the second relevant amount;
P is the amount of the profits; and
I is the amount of the basic profits.
4
The first and second relevant amounts mentioned above shall be determined as follows—
a
where the company has no associated company in the accounting period, those amounts are £10,000 and £50,000 respectively;
b
where the company has one or more associated companies in the accounting period—
i
the first relevant amount is £10,000 divided by one plus the number of those associated companies, and
ii
the second relevant amount is £50,000 divided by one plus the number of those associated companies.
5
Subsections (4) and (5) of section 13 shall apply for the purposes of subsection (4) above as they apply for the purposes of subsection (3) of that section.
6
For an accounting period of less than 12 months the relevant amounts determined in accordance with subsection (4) above shall be proportionately reduced.
7
The profits and the basic profits of a company for an accounting period shall be determined for the purposes of this section as they are for the purposes of section 13.
8
In this section “qualifying company”, in relation to an accounting period, means a company which—
a
is resident in the United Kingdom;
b
is not a close investment-holding company (as defined in section 13A) at the end of that period; and
c
is not an investment trust which for that period has any eligible rental income (within the meaning of section 508A).
F14C3313ABThe non-corporate distribution rate
1
This section applies where in any accounting period—
a
a company makes (or is treated as making) one or more non-corporate distributions, and
b
the company’s underlying rate of corporation tax is less than the non-corporate distribution rate.
2
The rate of tax to be applied in calculating the corporation tax chargeable on the company’s basic profits for the accounting period is—
a
in relation to so much of the company’s basic profits as is matched with a non-corporate distribution, the non-corporate distribution rate, and
b
in relation to the remainder of the company’s basic profits, the company’s underlying rate of corporation tax.
3
The “non-corporate distribution rate” is such rate as Parliament may from time to time determine.
4
Schedule A2 to this Act makes provision supplementing this section, in particular—
a
defining “non-corporate distribution” and a company’s “underlying rate of corporation tax”,
b
as to the matching of a company’s profits and non-corporate distributions, and
c
providing for non-corporate distributions to be allocated to other companies in certain circumstances.
13AF11 Close investment-holding companies.
1
A close company is for the purposes of section 13(1) F73or 13AA(8) a “close investment-holding company” unless it complies with subsection (2) below.
2
A company (“the relevant company”) complies with this subsection in any accounting period if throughout that period it exists wholly or mainly for any one or more of the following purposes—
a
the purpose of carrying on a trade or trades on a commercial basis,
b
the purpose of making investments in land or estates or interests in land in cases where the land is, or is intended to be, let to persons other than—
i
any person connected with the relevant company, or
ii
any person who is the wife or husband of an individual connected with the relevant company, or is a relative, or the wife or husband of a relative, of such an individual or of the husband or wife of such an individual,
c
the purpose of holding shares in and securities of, or making loans to, one or more companies each of which is a qualifying company or a company which—
i
is under the control of the relevant company or of a company which has control of the relevant company, and
ii
itself exists wholly or mainly for the purpose of holding shares in or securities of, or making loans to, one or more qualifying companies,
d
the purpose of co-ordinating the administration of two or more qualifying companies,
e
the purpose of a trade or trades carried on on a commercial basis by one or more qualifying companies or by a company which has control of the relevant company, and
f
the purpose of the making, by one or more qualifying companies or by a company which has control of the relevant company, of investments as mentioned in paragraph (b) above.
3
For the purposes of subsection (2) above, a company is a “qualifying company”, in relation to the relevant company, if it—
a
is under the control of the relevant company or of a company which has control of the relevant company, and
b
exists wholly or mainly for either or both of the purposes mentioned in subsection (2)(a) or (b) above.
4
Where a company is wound up, it shall not be treated as failing to comply with subsection (2) above in the accounting period that (by virtue of subsection (7) of section 12) begins with the time which is for the purposes of that subsection the commencement of the winding up, if it complied with subsection (2) above in the accounting period that ends with that time.
5
In this section—
“control” shall be construed in accordance with section 416, and
“relative” has the meaning given by section 839(8).
6
Section 839 shall apply for the purposes of this section.
Advance corporation tax
14 Advance corporation tax and qualifying distributions.
1
F74. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
M19In this Act “qualifying distribution” means any distribution other than—
a
a distribution which, in relation to the company making it, is a distribution by virtue only of section 209(2)(c); or
b
a distribution consisting of any share capital or security which the company making the distribution has directly or indirectly received from the company by which the share capital or security was issued and which, in relation to the latter company, is a distribution by virtue only of section 209(2)(c).
C343
F74. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
F74. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C355
F74. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The six Schedules
M20C37C3615 Schedule A.
1
The Schedule referred to as Schedule A is as follows:—
F76SCHEDULE A
1
1
Tax is charged under this Schedule on the annual profits arising from a business carried on for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the United Kingdom.
2
To the extent that any transaction is entered into for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the United Kingdom, it is taken to be entered into in the course of such a business.
3
All businesses and transactions carried on or entered into by a particular person or partnership, so far as they are businesses or transactions the profits of which are chargeable to tax under this Schedule, are treated for the purposes of this Schedule as, or as entered into in the course of carrying on, a single business.
There are qualifications to this rule in the case of—
a
companies not resident in the United Kingdom (see subsection (1A) below); and
b
insurance companies (see sections 432AA and 441B(2A)).
4
The receipts referred to in the expression “as a source of rents or other receipts” include—
a
payments in respect of a licence to occupy or otherwise to use land or the exercise of any other right over land, and
b
rentcharges, ground annuals and feu duties and other annual payments reserved in respect of, or charged on or issuing out of, the land.
2
1
This Schedule does not apply to profits arising from the occupation of land.
2
This Schedule does not apply to—
a
profits charged to tax under Case I of Schedule D under—
section 53(1) (farming and market gardening), or
section 55 (mines, quarries and other concerns);
b
receipts or expenses taken into account as trading receipts or expenses under section 98 (tied premises);
c
rent charged to tax under Schedule D under—
section 119 (rent, etc. payable in connection with mines, quarries and other concerns), or
section 120(1) (certain rent, etc. payable in respect of electric line wayleaves).
3
The profits of a Schedule A business carried on by a company shall be computed without regard to items giving rise to—
credits or debits within Chapter II of Part IV of the Finance Act 1996 (loan relationships), or
exchange gains or losses within Chapter II of Part II of the Finance Act 1993 (foreign exchange gains and losses), or
qualifying payments within Chapter II of Part IV of the Finance Act 1994 (interest rate and currency contracts).
This Schedule does not affect the operation of those provisions.
3
1
For the purposes of this Schedule a right to use a caravan or houseboat, where the use to which the caravan or houseboat may be put in pursuance of the right is confined to use at a single location in the United Kingdom, is treated as a right deriving from an estate or interest in land in the United Kingdom.
2
In sub-paragraph (1)—
“caravan” has the meaning given by section 29(1) of the Caravan Sites and Control of Development Act 1960; and
“houseboat” means a boat or similar structure designed or adapted for use as a place of human habitation.
4
1
In the case of a furnished letting, any sum payable for the use of furniture shall be taken into account in computing the profits chargeable to tax under this Schedule in the same way as rent.
Expenses in connection with the provision of furniture shall similarly be taken into account in the same way as expenses in connection with the premises.
2
A furnished letting means where—
a
a sum is payable in respect of the use of premises, and
b
the tenant or other person entitled to the use of the premises is also entitled, in connection with that use, to the use of furniture.
3
This paragraph does not apply if the receipts and expenses are taken into account in computing the profits of a trade consisting in, or involving, making furniture available for use in premises.
4
In this paragraph—
a
any reference to a sum includes the value of consideration other than money, and references to a sum being payable shall be construed accordingly; and
b
“premises” includes a caravan or houseboat within the meaning of paragraph 3.
F771A
In the case of a company which is not resident in the United Kingdom—
a
businesses carried on and transactions entered into by it the profits of which are within the charge to corporation tax under Schedule A, and
b
businesses carried on and transactions entered into by it the profits of which are within the charge to income tax under Schedule A,
are treated as separate Schedule A businesses.
2
F78. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
F75. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Part II contains further provisions relating to the charge to tax under Schedule A.
F1516 Schedule B.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1617 Schedule C.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18 Schedule D.
1
M21The Schedule referred to as Schedule D is as follows:—
SCHEDULE D C38
C47Tax under this Schedule shall be charged in respect of—
- a
the annual profits or gains arising or accruing—
- i
to any person residing in the United Kingdom from any kind of property whatever, whether situated in the United Kingdom or elsewhere, and
- ii
to any person residing in the United Kingdom from any trade, profession or vocation, whether carried on in the United Kingdom or elsewhere, and
- iii
C39to any person, whether a Commonwealth citizen or not, although not resident in the United Kingdom from any property whatever in the United Kingdom or from any trade, profession or vocation exercised within the United Kingdom, and
- i
- b
all interest of money, annuities and other annual profits or gains F80not charged under Schedule A or E, and not specially exempted from tax.
- a
2
M22Tax under Schedule D shall be charged under the Cases set out in subsection (3) below, and subject to and in accordance with the provisions of the Tax Acts applicable to those Cases respectively.
C40C41C42C433
The Cases are—
C44Case I: | tax in respect of any trade carried on in the United Kingdom or elsewhere F79but not contained in Schedule A; |
C45Case II: | tax in respect of any profession or vocation not contained in any other Schedule; |
tax in respect of— | |
(a) any interest of money, whether yearly or otherwise, or any annuity or other annual payment, whether such payment is payable within or out of the United Kingdom, either as a charge on any property of the person paying the same by virtue of any deed or will or otherwise, or as a reservation out of it, or as a personal debt or obligation by virtue of any contract, or whether the same is received and payable half-yearly or at any shorter or more distant periods, but not including any payment chargeable under Schedule A, and | |
(b) all discounts, and | |
(c) income F81from securities which is payable out of the public revenue of the United Kingdom or Northern Ireland; | |
C45Case IV: | tax in respect of income arising from securities out of the United Kingdom F82. . . ; |
tax in respect of income arising from possessions out of the United Kingdom not being income consisting of emoluments of any office or employment; | |
tax in respect of any annual profits or gains not falling under any other Case of Schedule D and not charged by virtue of F83Schedule A or E. |
F843A
For the purposes of corporation tax subsection (3) above shall have effect as if the following Case were substituted for Cases III and IV, that is to say—
Case III: | tax in respect of— (a) profits and gains which, as profits and gains arising from loan relationships, are to be treated as chargeable under this Case by virtue of Chapter II of Part IV of the Finance Act 1996; (b) any annuity or other annual payment which— (i) is payable (whether inside or outside the United Kingdom and whether annually or at shorter or longer intervals) in respect of anything other than a loan relationship; and (ii) is not a payment chargeable under Schedule A; (c) any discount arising otherwise than in respect of a loan relationship; |
and as if Case V did not include tax in respect of any income falling within paragraph (a) of the substituted Case III.
F853B
The references in Case IV of Schedule D to income arising from securities out of the United Kingdom, and in Case V of Schedule D to income arising from possessions out of the United Kingdom, shall be taken, in the case of relevant foreign holdings, to include references to the following—
a
any proceeds of such a sale or other realisation of coupons for foreign dividends as is effected by a bank in the United Kingdom which pays the proceeds over or carries them into an account;
b
any proceeds of a sale of such coupons to a dealer in coupons in the United Kingdom by a person who is not a bank or another dealer in coupons.
3C
In this section “relevant foreign holdings” means—
a
any securities issued by or on behalf of a government or a public or local authority in a country outside the United Kingdom; or
b
any shares or securities issued by or on behalf of a body of persons not resident in the United Kingdom;
and “securities” here includes loan stock and similar securities.
3D
In this section “foreign dividends” means—
a
in relation to relevant foreign holdings falling within subsection (3C)(a) above, interest or annual payments payable out of the revenue of the government or authority in question; and
b
in relation to relevant foreign holdings falling within subsection (3C)(b) above, any dividends, interest or annual payments payable in respect of the holdings in question.
3E
In this section—
a
“bank” has the meaning given by section 840A; and
b
references to coupons include, in relation to any foreign dividends, warrants for and bills of exchange purporting to be drawn or made in payment of those dividends.
4
M23The provisions of Schedule D and of subsection (2) above are without prejudice to any other provision of the Tax Acts directing tax to be charged under Schedule D or under one or other of the Cases set out in subsection (3) above, and tax directed to be so charged shall be charged accordingly.
5
F86Parts III and IV contain further provisions relating to the charge to tax under Schedule D.
19 Schedule E.
1
1
Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under one or more than one of the following Cases—
F87Case I: | any emoluments for any year of assessment in which the person holding the office or employment is resident and ordinarily resident in the United Kingdom, subject however to section 192 if the emoluments are foreign emoluments (within the meaning of that section )F90. . . ; |
Case II: | any emoluments, in respect of duties performed in the United Kingdom, for any year of assessment in which the person holding the office or employment is not resident (or, if resident, not ordinarily resident) in the United Kingdom, subject however to section 192 if the emoluments are foreign emoluments (within the meaning of that section); |
Case III: | any emoluments for any year of assessment in which the person holding the office or employment is resident in the United Kingdom (whether or not ordinarily resident there) so far as the emoluments are received in the United Kingdom; |
and tax shall not be chargeable in respect of emoluments of an office or employment under any other paragraph of this Schedule.
2
Tax under this Schedule shall be charged in respect of every annuity, pension or stipend payable by the Crown or out of the public revenue of the United Kingdom or of Northern Ireland, other than annuities charged F89under paragraph (c) of Case III of Schedule D.
3
Tax under this Schedule shall also be charged in respect of any pension which is paid otherwise than by or on behalf of a person outside the United Kingdom.
4
Where—
a
any pension or annuity is payable in the United Kingdom by or through any public department, officer or agent of a government of a territory to which this paragraph applies (but otherwise than out of the public revenue of the United Kingdom or of Northern Ireland) to a person who has been employed in relevant service outside the United Kingdom in respect of that service, or
b
any pension or annuity is so payable to the widow, child, relative or dependant of any such person as is mentioned above,
and the person in receipt of the pension or annuity is chargeable to tax as a person resident in the United Kingdom, the pension or annuity shall be chargeable to tax under this Schedule.
The territories to which this paragraph applies are—
- i
any country forming part of Her Majesty’s dominions,
- ii
any other country for the time being mentioned in Schedule 3 to the M25British Nationality Act 1981, and
- iii
any territory under Her Majesty’s protection;
and in this paragraph “relevant service” means the service of the Crown or service under the government of a territory to which this paragraph applies.
F884A
Where (apart from this paragraph) emoluments from an office or employment would be for a year of assessment in which a person does not hold the office or employment, the following rules shall apply for the purposes of the Cases set out in paragraph 1 above—
a
if in the year concerned the office or employment has never been held, the emoluments shall be treated as emoluments for the first year of assessment in which the office or employment is held;
b
if in the year concerned the office or employment is no longer held, the emoluments shall be treated as emoluments for the last year of assessment in which the office or employment was held.
5
The preceding provisions of this Schedule are without prejudice to any other provision of the Tax Acts directing tax to be charged under this Schedule and tax so directed to be charged shall be charged accordingly.
C512
References in the Tax Acts to Cases I, II and III of Schedule E shall be taken as referring to the Cases under which tax is chargeable under paragraph 1 of that Schedule.
3
Part V contains further provisions relating to the charge to tax under Schedule E.
20 Schedule F.
1
1
Subject to F9495(1A)(a), income tax under this Schedule shall be chargeable for any year of assessment in respect of all dividends and other distributions in that year of a company resident in the United Kingdom which are not specially excluded from income tax, and for the purposes of income tax all such distributions shall be regarded as income however they fall to be dealt with in the hands of the recipient.
2
For the purposes of this Schedule and all other purposes of the Tax Acts F95(other than section 95(1) F96of this Act and section 219(4A) of the Finance Act 1994) any such distribution in respect of which a person is entitled to a tax credit shall be treated as representing income equal to the aggregate of the amount or value of that distribution and the amount of that credit, and income tax under this Schedule shall accordingly be charged on that aggregate.
F912
3
Part VI contains further provisions relating to company distributions and tax credits.