PART VI U.K. COMPANY DISTRIBUTIONS, TAX CREDITS ETC

CHAPTER V U.K. ADVANCE CORPORATION TAX AND FRANKED INVESTMENT INCOME

242 Set-off of losses etc. against surplus of franked investment income. U.K.

(1) M1 Where a company has a surplus of franked investment income for any accounting period—

(a) the company may, on making a claim for the purpose, require that the amount of the surplus shall for all or any of the purposes mentioned in subsection (2) below be treated as if it were a like amount of profits chargeable to corporation tax; and

(b) subject to subsection (4) below, the provisions mentioned in subsection (2) below shall apply in accordance with this section to reduce the amount of the surplus for purposes of section 241(3); and

(c) the company shall be entitled to have paid to it the amount of the tax credit comprised in the amount of franked investment income by which the surplus is so reduced.

(2) M2 The purposes for which a claim may be made under subsection (1) above are those of—

(a) the setting of trading losses against total profits under section [F1 393A(1)];

(b) the deduction of charges on income under section 338 or paragraph 5 of Schedule 4;

(c) the deduction of expenses of management under section 75 or 76;

(d) the setting of certain capital allowances against total profits under [F2 section 145(3) of the 1990 Act];

(e) the setting of losses against income under section 573(2).

(3) M3 Where a company makes a claim under this section for any accounting period, the reduction falling to be made in profits of that accounting period shall be made, as far as may be, in profits chargeable to corporation tax rather than in the amount treated as profits so chargeable under this section.

(4) M4 Where a claim under this section relates to section [F3 393A(1)]or 573(2) of this Act or to [F2 section 145(3) of the 1990 Act] and an accounting period of the company falls partly before and partly within the time mentioned in that subsection, then—

(a) the restriction imposed by section [F4 393A(2)] or 573(3) of this Act or by [F2 section 145(4) of the 1990 Act] on the amount of the relief shall be applied only to any relief to be given apart from this section, and shall be applied without regard to any amount treated as profits of the accounting period under this section; but

(b) relief under this section shall be given only against a part of the amount so treated proportionate to the part of the accounting period falling within that time.

(5) M5 Where—

(a) on a claim made under this section for any accounting period relief is given in respect of the whole or part of any loss incurred in a trade, or of any amount which could be treated as a loss under section 393(9); and

(b) in a later accounting period the franked payments made by the company exceed its franked investment income;

then (unless the company has ceased to carry on the trade or to be within the charge to corporation tax in respect of it) the company shall, for the purposes of section 393(1), be treated as having, in the accounting period ending immediately before the beginning of the later accounting period mentioned in paragraph (b) above, incurred a loss equal to whichever is the lesser of—

(i) the excess referred to in paragraph (b) above; and

(ii) the amount in respect of which relief was given as mentioned in paragraph (a) above or so much of that amount as remains after deduction of any part of it dealt with under this subsection in relation to an earlier accounting period.

(6) M6 Subject to subsection (7) below, subsection (5) above shall apply, with the necessary adaptations—

(a) in relation to relief given in respect of management expenses; and

(b) in relation to relief given in respect of capital allowances; and

(c) in relation to relief given in respect of losses under section 573(2);

as it applies in relation to relief given in respect of a loss (the reference to the company ceasing to be within the charge to corporation tax in respect of the trade being construed as a reference to its ceasing to be within that charge at all, and as respects the relief mentioned in paragraph (c) above, the reference to the purposes of section 393(1) being construed as a reference to the purposes of corporation tax on chargeable gains).

(7) Any amount which may be dealt with under subsection (5) above as a loss shall be so dealt with rather than under subsection (6) above, except in so far as the company concerned otherwise elects.

(8) M7 The time limits for claims under this section shall be as follows—

(a) if and so far as the purpose for which the claim is made is the setting of trading losses against total profits under [F5 subsection (1) of section 393A, the time limit that would, by virtue of subsection (10) or (11) of that section, be applicable in the case of a claim under that section in respect of those losses];

(b) if and so far as the purpose for which the claim is made is the deduction of charges on income under section 338 or paragraph 5 of Schedule 4 or of expenses of management under section 75 or 76, six years from the end of the accounting period in which the charges were paid or the expenses of management were incurred;

(c) if and so far as the purpose for which the claim is made is the setting of capital allowances against total profits under [F6 section 145(3) of the 1990 Act], two years from the end of the accounting period for which the capital allowances fall to be made;

(d) if and so far as the purpose for which the claim is made is the setting of a loss against income under section 573(2), two years from the end of the accounting period in which the loss was incurred.

(9) M8 For the purposes of a claim under this section for any accounting period, the surplus of franked investment income for that accounting period shall be calculated without regard to the part, if any, carried forward from an earlier accounting period; and for the purposes of subsection (5) above franked investment income which by virtue of section 241(5) cannot be used to frank distributions of a company shall be left out of account.

Textual Amendments

F1 Words in s. 242(2)(a) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)(4)(5), Sch. 15 para. 5(1)

F2 1990(C) s.164 and Sch.1 para.8(11).Previously

“section 74(3) of the 1968 Act”

in subss.(2)(d)and (4)and

“section 74(4) of the 1968 Act”

in subs.(4)(a).

F3 Words in s. 242(4) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)(4)(5), Sch. 15 para. 5(2)(a)

F4 Words in s. 242(4)(a) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)(4)(5), Sch. 15 para. 5(2)(b)

F5 Words in s. 242(8)(a) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)(4)(5), Sch. 15 para. 5(3)

F6 1990 s.164and Sch.1 para.8(11).Previously

“section 74(3) of the 1968 Act”.

Marginal Citations

M1 Source—1970 s.254(1); 1972 Sch.15 Pt.I

M2 Source—1970 s.254(2); 1981 s.37(2); 1984 Sch.9 13

M3 Source—1970 s.254(3)

M4 Source—1970 s.254(4); 1981 s.37(3)

M5 Source—1970 s.254(5)

M6 Source—1970 s.254(6); 1981 s.37(4)

M7 Source-1970 s.254(7); 1981 s.37(5); 1984 Sch.9 13

M8 Source—1970 s.254(8)