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HMRC internal manual

International Manual

Reliefs against Controlled Foreign Companies' tax: Method of giving relief for relevant allowances

ICTA88/SCH26/PARA1(1) and (2)

Where a United Kingdom company-

(i) is subject to an apportionment of chargeable profits

(ii) is entitled, or would on the making of a claim be entitled, in computing its Corporation Tax profits for the accounting period for which it has been assessed under Chapter IV, to a deduction in respect of any relevant allowance, and

(iii) makes a claim,

a reduction in its liability under Chapter IV may be made in respect of the relevant allowance.

The reduction in the Chapter IV liability is given in terms of tax. The amount to be deducted from the Chapter IV liability is a sum equal to Corporation Tax at the ‘appropriate rate’ on so much of the relevant allowance as is specified in the claim. The ‘appropriate rate’ is in practice the same rate as was used in accordance with INTM255860 to compute the Chapter IV liability for the accounting period for which the claim is made.


United Kingdom company A self assesses for the year to 31 December year 1, in the sum of £100,000 tax in respect of the chargeable profits for the year to 30 June year 1, of its subsidiary B. Company A claims relief in respect of relevant allowances of £60,000 available to it for the year to 31 December. Corporation Tax rates for the financial years ended 31 march, Year 1, and Year 2, are 31% and 30% respectively and the appropriate rate is 30.25% (3 months at 31%, 9 months at 30%, that is, the rate used to assess the chapter IV tax). The amount to set against the Chapter IV assessment is £18,150 (£60,000 at 30.25%).

Where any relevant allowance has been used in this way to reduce a Chapter IV liability, it is treated as having been allowed as a deduction against the company’s profits. It is no longer available for relief in any other way.