PART I THE CHARGE TO TAX
Small companies’ rate
13 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.
C12
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 F6£200,000 divided by one plus the number of those associated companies, and the upper relevant maximum amount is F6£1,000,000 divided by one plus the number of those associated companies.
4
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.
7
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 other than franked investment income which the company (if a member of a group) receives from companies within the group; 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.
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.
C29
Any power which the inspector may exercise under F7paragraphs 2 to 4 of Schedule 12 to the Finance Act 1989 may be exercised by him for the purposes of this section.
F213ZA 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).
F3C313AA 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.
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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).
F4C513ABThe 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.
13AF1 Close investment-holding companies.
1
A close company is for the purposes of section 13(1) 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.