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HMRC internal manual

Company Taxation Manual

Introduction: basic definitions

Meaning of company, profits and income

 The general definitions of ‘company’, ‘profits’ and ‘income’ in this guidance manual are set out below. However, a meaning may be different in particular circumstances. If so, the meaning should be clear from the context of the guidance, or will be spelt out in the relevant legislation.

  • ‘Company’ normally means ‘any body corporate or unincorporated association, but does not include a partnership, a local authority or a local authority association’ (CTA10/S1121(1), formerly ICTA88/S832 (1)).
  • ‘Profits’ and ‘income’ are used in their strict CT sense - see CTM01110.

Bodies corporate - an historical note {.filledcircle}

William Pitt’s original 1799 income tax Act charged ‘bodies politick or corporate, companies, fraternities or societies of persons, whether corporate or not corporate’, and distinguished them from partnerships. The phrase ‘bodies of persons’ appears in the Income Tax Act of 1952 and governed income tax charges on companies until CT was introduced by FA 1965.

Until early Victorian times, companies could only be incorporated under Private Act of Parliament (common for canal and railway concerns) or Royal Charter, for instance the South Sea Company.  In fact the ‘bubble’ Act of 1720 prevented other forms of incorporation, a prohibition not lifted until 1825; although, in an early form of rule accommodation, unincorporated ‘deed of settlement’ companies with a share capital were created using a type of debenture trust deed.

As manufacturing developed, the need for a deregulated form of incorporation came to be recognised, including by Gladstone as President of the Board of Trade.  This led to the Joint Stock Companies Act of 1844, followed by the Limited liability Act of 1855 and a consolidated Act of 1856.  A series of Acts followed, consolidated in the Companies Acts of 1862, the clear predecessor of modern Companies Acts.

In Scots law, references will be seen to ‘copartnery’, which is in fact a partnership but with the Scots law characteristic of legal personality. Adam Smith refers to these in his seminal Wealth of Nations published in 1776. He observed ‘ … in a private copartnery, each partner is bound to the whole extent of his fortune. In a joint stock company, on the contrary, each partner is bound only to the extent of his share …’. Smith was critical of the separation of ownership and management in joint stock companies which he thought might lead to inefficiencies.