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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Corporation Tax: small profits relief: example 2

This example involves considering marginal small companies’ rate relief with a short accounting period, a change in the CT main rate and associated companies.

A company provides the following information concerning its accounting period for the nine months ended 30 September 2007.

Chargeable profits £200,000.

Franked investment income received £0.

The company had one associated company from 1 July 2007 onwards.

The ICTA88/S13 (7) profits are chargeable profits (£200,000) + non-group franked investment income received (£0) = £200,000.

The accounting period straddles 1 April 2007 when the CT main rate was reduced from 30% to 28% and so the profits will need to be apportioned up to and from this date. The lower and upper relevant maximum amounts have not changed and so the period from 1 January 2007 to 30 September 2007 is treated as a single accounting period, rather than separate periods, for associated company purposes.

In considering whether the small companies’ rate will apply, the lower relevant maximum amount and the upper relevant maximum amount need to be restricted to take into account the short accounting period and any associated companies.

The lower relevant maximum amount limit will be:
 

£300,000 x 273 / 365 x 1 / 2 = £112,192.
 

The upper relevant maximum amount limit will be:
 

£1,500,000 x 273 / 365 x 1 / 2 = £560,959.

 

Therefore £200,000 will fall between the limits, CT is due at the CT main rate with marginal small companies’ rate relief due
 

Chargeable profit £200,000 x 30% x 90 / 273 = £19,780.22

Plus chargeable profit £200,000 x 28% x 183 / 273 = £37,538.46

Total £57,318.68

 
less marginal relief:
 

(R2 - P) x I / P x 11 / 400 (for the period to 31 March 2007), and

(R2 - P) x I / P x 1 / 40 (for the period from 1 April 2007).
 

Where:
 

R2 = the proportionally reduced second relevant amount.

P = the chargeable profits + non-group franked investment income (see CTM03600 or see details in ICTA88/S13 (7) & (8)).

I = the chargeable profits.

11 / 400 and 1 / 40 are the appropriate fractions for the financial years in question

 

(£560,959 - £200,000) x £200,000 / £200,000 x 11 / 400 x 90 / 273 = (£3,272.43)

(£560,959 - £200,000) x £200,000 / £200,000 x 1 / 40 x 183 / 273 = (£6,049.03)

Total (£9,321.46)

 

CT due = £47,997.22.