Income and Corporation Taxes Act 1988

13 Small companies’ relief. U.K.

(1) M1 Where in any accounting period the profits of [F1 a company which—

(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.

(2) 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) where the company has no associated company in the accounting period, those amounts are [F2 £300,000] and [F3 £1,500,000] respectively;

(b) where the company has one or more associated companies in the accounting period, the lower relevant maximum amount is [F2 £300,000] divided by one plus the number of those associated companies, and the upper relevant maximum amount is [F3 £1,500,000] 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[F4 except that, in the application of subsection (6) of that section in relation to the company (“the taxpayer company”) and another company or companies for the purposes of this section, the references to an associate of a person (“P”) include a partner of the person only if the condition in subsection (4A) below is met.]

[F5 (4A) The condition referred to in subsection (4) above is that relevant tax planning arrangements have at any time had effect in relation to the taxpayer company (whether in connection with its formation or otherwise).

(4B) In subsection (4A) above “relevant tax planning arrangements” means arrangements which—

(a) involve P and the partner, and

(b) secure a relevant tax advantage.

(4C) In subsection (4B) above—

• “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), other than any guarantee, security or charge given to or taken by a bank, and

• “relevant tax advantage” means a reduction of the taxpayer company's liability to corporation tax by virtue of an increase in relief under this section.]

(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 [F6 other than franked investment income (if any) which the company (“the receiving company") receives from a company F7 . . . which is—

(a) a 51 per cent. subsidiary of the receiving company or of a company F8 . . . of which the receiving company is a 51 per cent. subsidiary; or

(b) a trading or holding company which does not fall within [F9 subsection (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 [F10 F11 . . . ] ; 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.

[F12 (7A) 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.

[F13 [F14 (8AA) 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.]

[F15 (8A) F16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(9) F17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 1989 s.105(1)in relation to accounting periods beginning after 31March 1989.Previously

“a company resident in the United Kingdom”.

F2 Words in s. 13(3) substituted (with effect in accordance with s. 86(3) of the amending Act) by Finance Act 1994 (c. 9), s. 86(2)(a)

F3 Words in s. 13(3) substituted (with effect in accordance with s. 86(3) of the amending Act) by Finance Act 1994 (c. 9), s. 86(2)(b)

F4 Words in s. 13(4) inserted (1.4.2008) by Finance Act 2008 (c. 9), s. 35(2)(4)

F5 S. 13(4A)-(4C) inserted (1.4.2008) by Finance Act 2008 (c. 9), s. 35(3)(4)

F6 Words in s. 13(7) substituted (with effect in accordance with Sch. 3 para. 7(4) of the amending Act) by Finance Act 1998 (c. 36), s. 31, Sch. 3 para. 7(2)

F7 Words in s. 13(7) omitted (with effect in accordance with Sch. 14 para. 31 of the repealing Act) by virtue of Finance Act 2009 (c. 10), Sch. 14 para. 3

F8 Words in s. 13(7)(a) repealed (with application in accordance with s. 86(6) and Sch. 33 Pt. 2(11) Note of the amending Act) by Finance Act 2001 (c. 9), s. 86(2)(a), Sch. 33 Pt. 2(11)

F9 Words in s. 13(7)(b) substituted (with application in accordance with s. 86(6) of the amending Act) by Finance Act 2001 (c. 9), s. 86(2)(b)

F10 Words in s. 13(7) inserted (3.5.1994) by Finance Act 1994 (c. 9), s. 138, Sch. 16 para. 11(2)

F11 Words in s. 13 (7) repealed (with effect in accordance with Sch. 6 para. 1(4) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), ss. 36, 52, Sch. 6. para. 1(2), Sch. 8 Pt. 2(11) Note

F12 S. 13(7A) inserted (with application in accordance with s. 86(6) of the amending Act) by Finance Act 2001 (c. 9), s. 86(3)

F13 S. 13(8AA)(8AB) inserted (with effect in accordance with Sch. 3 para. 7(4) of the amending Act) by Finance Act 1998 (c. 36), s. 31, Sch. 3 para. 7(3)

F14 S. 13(8AA) substituted (with application in accordance with s. 86(6) of the amending Act) by Finance Act 2001 (c. 9), s. 86(4)

F15 S. 13(8A) inserted (3.5.1994) by Finance Act 1994 (c. 9), s. 138, Sch. 16 para. 11(3)

F16 S. 13(8A) repealed (with effect in accordance with Sch. 6 para. 1(4) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), ss. 36, 52, Sch. 6. para. 1(3), Sch. 8 Pt. 2(11) Note

F17 S. 13(9) repealed (with effect in accordance with Sch. 20 Pt. 3(2) Note of the repealing Act) by Finance Act 1999 (c. 16), s. 139, Sch. 20 Pt. 3(2)

Modifications etc. (not altering text)

C1 S. 13 modified (for the financial year 1991 and subsequent financial years) by Finance Act 1991 (c. 31, SIF 63:1), s. 25(3)

S. 13 modified (for the financial year 1994 and subsequent financial years) by Finance Act 1994 (c. 9), s. 86(3)

C2 S. 13 applied (27.7.1999) by Finance Act 1999 (c. 16), s. 28(7)(b)

C3 S. 13 applied (19.7.2006) by Finance Act 2006 (c. 25), s. 26(10)

C4 For rates and fractions see Table K Vol.1.

C5 S. 13(2) amended (for the financial year 1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 23(2)

C6 S. 13(2) amended (for the financial year 1991) by Finance Act 1991 (c. 31, SIF 63:1), s. 25(1)(b)

S. 13(2) amended (for the financial year 1992) by Finance (No. 2) Act 1992 (c. 48), s. 22(b).

S. 13(2) modified (for the financial year 1993) by Finance Act 1993 (c. 34), s. 54(b)

S. 13(2) modified (for the financial year 1994) by Finance Act 1994 (c. 9), s. 86(1)(b)

S. 13(2) modified (for the financial year 1995) by Finance Act 1995 (c. 4,) {s. 38(b)}

S. 13(2) modified (for the financial year 1996) by Finance Act 1996 (c. 8), s. 78(b)

S. 13(2) modified (for the financial year 1997) by Finance Act 1997 (c. 16), s. 59(b)

S. 13(2) modified (for the financial year 1998) by Finance Act 1998 (c. 36), s. 28(2)(b)

S. 13(2) modified (for the financial year 1999) by Finance Act 1998 (c. 36), s. 29(2)(b)

S. 13(2) modified (for the financial year 2000) by Finance Act 2000 (c. 17), s. 36(b)

S. 13(2) modified (for the financial year 2001) by Finance Act 2001 (c. 9), s. 55(b)

S. 13(2) modified (for the financial year 2002) by Finance Act 2002 (c. 23), s. 31(b)

C7 S. 13(4)(5) applied (with effect in accordance with s. 579 of the affecting Act) by Capital Allowances Act 2001 (c. 2), s. 99(5) (with Sch. 3 paras. 54, 55)

S. 13(4)(5) applied (with effect in accordance with Sch. 14 para. 10 of the 1997 affecting Act) by Capital Allowances Act 1990 (c. 1), s. 38D(6) (as inserted by Finance Act 1997 (c. 16), s. 84, Sch. 14 para. 2)

C8 S. 13(7) amended (27.7.1993 with application as mentioned in s. 78(11) of the Amending Act) by 1993 c. 34, s. 78(6)(11)

Marginal Citations

M1 SOURCE-1972 s. 95; 1973 Sch. 14 2, 4; 1983 (No. 2) s. 2(2); 1987 (No. 2) s. 74(4)