CTM03915 - Small profits rate: financial year 2023 onwards: definition of augmented profits

CTA10/18L

For the purpose of identifying whether or not a company is chargeable at the standard small profits rate in CTA10/PART3A, the augmented profits of a company for any accounting period are defined by CTA10/S18L as:

  • The company’s taxable total profits of that period, as defined in CTA10/S4 (2) and (3), plus
  • any exempt distributions of a qualifying kind received by the company that are not excluded.

Exempt distributions of a qualifying kind include:

  • dividends
  • distributions of assets
  • amounts treated as a distribution on the transfer of assets or liabilities
  • bonus issues followoing a repayment of share capital

For this purpose, exempt distributions of a qualifying kind are not excluded if the income is from companies that are not in the same group.

An excluded distribution is a distribution that the recipient receives from a company if that company is:

  • a 51% subsidiary of the recipient
  • a company of which the recipient is a 51% subsidiary, or
  • a trading company or relevant holding company that is a quasi-subsidiary of the recipient.

CTA10/18M provides further definitions of 51% subsidiary for the purposes of CTA10/18L.

In addition to the requirements at CTA10/S1154 (2) (Meaning of “51% subsidiary”) the relationship will only qualify at any time if the parent would be beneficially entitled to more than 50% of:

  • profits available for distribution to equity holders of the 51% subsidiary; and
  • assets of the 51% subsidiary available for distribution to equity holders on a winding up.

Indirect ownership and ownership on trading account is ignored. A trading company has the usual meaning of one whose business consists of carrying on one or more trades.

A relevant holding company means a company whose business consists of holding shares in or securities of its 90% trading subsidiaries.

A company is a quasi-subsidiary of the recipient company if:

  • it is owned by a consortium of which the recipient is a member,
  • it is not a 75% subsidiary of any company, and
  • no arrangements of any kind (whether in writing or not) exist as a result of which it could become a 75% subsidiary of any company.

A company is owned by a consortium if at least 75% of its ordinary share capital is beneficially owned by two or more companies each of which has at least 5% of the ordinary share capital and has at least a 5% beneficial entitlement to profits and assets available to equity holders as above.

The group relief provisions set out in CTA10/PART5/CHAPTER6 apply for the purpose of identifying equity holders and profits and assets available for distribution.