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HMRC internal manual

Company Taxation Manual

Close companies: close investment holding companies: introduction

The close investment-holding company (CIC) legislation in CTA2010/S34 (formerly ICTA88/S13A) replaced the close company ‘apportionment’ provisions for accounting periods beginning on or after 1 April 1989.

The ‘apportionment’ provisions were labyrinthine and were abolished by FA89/S103. The purpose of the provisions had been, broadly speaking, to counter the avoidance of tax by members of closely controlled companies who could arrange for the income of the company to be retained rather than distributed. As a minimum safeguard, on the abolition of ‘apportionment’, to discourage people from putting their investments into a company to avoid the higher rates of IT, CTA2010/S34 was introduced.

It provides a simpler regime that does not take account of a company’s distribution policy or the requirements of its business and so on. The main effects of the provisions are:

  • a CIC is not entitled to the starting or lower rate of CT or to claim marginal small companies relief (see CTM03500 onwards),
  • where a person received a distribution from a CIC, made before 6 April 1999, the payment of tax credit in respect of that distribution was restricted in certain circumstances (see CTM60790).

A CIC is, therefore, chargeable to CT at the full rate irrespective of the level of its profits or the number of associated companies. The total profits are calculated in the normal way. There are no special restrictions for CICs, for example, on the deduction of interest payments, annual payments or (if it is also an ‘investment company’ as defined in CTA2009/S1218 (formerly ICTA88/S130)) management expenses under CTA2009/S1219 (formerly ICTA88/S75).

Detailed guidance in respect of the ‘apportionment’ provisions can be obtained from CTIAA (Technical) if necessary.