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HMRC internal manual

Company Taxation Manual

Corporation Tax: small profits relief: accounting period straddling financial year - differing relevant amounts or limits

Where an accounting period straddles the beginning of a financial year for which the lower or upper limits for marginal relief differ from those of the preceding financial year, the two parts of the accounting period are treated as if they were separate accounting periods. The profits are apportioned between those parts on a time basis (CTA10/S1172). The profits for each part are then compared with the appropriate fractions of the lower or upper limits for the financial year in which each part falls.

If the profits in either part fall between the appropriate fractions of the lower and upper limits the taxable total (or basic) profits (CTM03505) are apportioned on a time basis and marginal relief is computed as if each part is a separate accounting period. Authority for apportionment is given by the Finance Act for the year in which the amounts change.

The parts are also to be treated separately in restricting the limits to take account of associated companies (CTM03570 and CTM03580). The limits for one part are not to be reduced on account of a company that is associated only during the other part.

If the fraction or rate changes, but the limits remain unchanged, apportionment of the amount deducted as marginal relief (CTM03540) is required so that the different fractions or rates can be applied (see CTM03653). This apportionment does not mean that the two parts are to be considered separately in restricting the limits to take account of associated companies.

For accounting periods straddling 31 March 2015 after which the small profits provisions were repealed, the parts falling before and after 31 March 2015 are treated as separate accounting periods, and the provisions applied only to that part ending on 31 March 2015.