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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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Reliefs against Controlled Foreign Companies' tax: Examples

Example 1

A company has surplus shadow ACT of £5,000 and unrelieved surplus ACT of £50,000 which it wishes to set off against its Chapter IV liability. An apportionment is due in respect of chargeable profits of £100,000 and creditable tax of £3,000. There are no relevant allowances to set against the chargeable profits. CT is chargeable at 30% for the year.

The relevant maximum (C - D) is £17,000. This is arrived at as follows:

  £
   
Shadow ACT on relevant distribution (C) £100,000 x 20% 20,000
Less: Creditable tax (D) 3,000
  17,000

Surplus shadow ACT of £5,000 is then set against this to give a ‘relevant amount’ of £12,000.

  £
   
Chargeable profits 100,000
Tax @ 30% 30,000
Less: Creditable tax 3,000
  27,000
Less: Unrelieved surplus ACT (limited to relevant amount) 12,000
Net tax payable 15,000

The company now has unrelieved surplus ACT of £38,000 (£50,000 - £12,000) to carry forward.

Example 2

The facts are as in example 1 except that the company has trading losses of £10,000 in respect of which it makes a claim under ICTA88/SCH26/PARA1.

The relevant maximum is now £15,000 calculated as follows:

The chargeable profits after set off of relevant allowances (formula E - F) are £90,000.

  £
   
Shadow ACT on a relevant distribution (C) : £90,000 x 20% 18,000
Less: Creditable tax (D) 3,000
  15,000

Surplus shadow ACT of £5,000 is then deducted from this to give a ‘relevant amount’ of £10,000.

  £
   
Chargeable profits 100,000
Tax on chargeable profits @ 30% 30,000
Relief for relevant allowances in terms of tax £10,000 @ 30% 3,000
  27,000
Less: Creditable tax 3,000
  24,000
Less: Unrelieved surplus ACT (limited to relevant amount) 10,000
Net tax payable 14,000

The company now has unrelieved surplus ACT of £40,000 (50,000 - £10,000) to carry forward.

Example 3

The facts are as in example 2, except that X makes no claim under paragraph 1 of ICTA88/SCH26 in respect of a trading loss of £10,000 which is not used elsewhere. The relevant amount remains at £10,000 because the relevant maximum is calculated as if the maximum reliefs under paragraph 1 of ICTA88/SCH26 were set against the chargeable profits.

  £
   
Tax on chargeable profits @ 30% 30,000
Less: Creditable tax 3,000
    27,000
Less: Unrelieved surplus ACT 10,000
Net tax payable 17,000

The company still has unrelieved surplus ACT of £40,000 (£50,000 - £10,000) to carry forward.