IFM40355 - Becoming a QAHC: tax treatment of ring fence business

FA22/SCH2/PARA20

Treatment of ring fence business for corporation tax purposes

In order to separate ring fence business activities from other activities of the QAHC, PARA 20(2) provides that the ring fence business of a QAHC is to be treated, for corporation tax purposes, as separate and distinct from all other activities of the QAHC, including any activities carried on before the company became a QAHC, and any activities carried on after a company ceases to be a QAHC.

In order to ensure that the corporation tax liability in relation to ring fence activity is calculated separately from the corporation tax liability in relation to non-ring fence activity, PARA 20(3) provides that for the purposes of calculating the amount of corporation tax payable, the QAHC ring fence business is treated as a separate company.

However, the separate company treatment is purely for the purposes of computing the overall corporation tax liability of the QAHC. PARA 20(5) makes it clear that a QAHC should provide a single company tax return for each accounting period, covering all of its activities both inside and outside the ring fence.

As a result of the fact that the ring fence activity is treated as a separate company for computational purposes, no losses, deficits, expenses, charges or allowances that arise outside the ring fence business can be set off against any profits which arise within the ring fence business. This restriction includes any amounts which arose before the company became a QAHC.

Similarly, no loss, deficit, expense, charge or allowance that arises within the ring fence business can be offset against any profits which arise outside the ring fence business. This restriction also applies to any profits which arise before a company became a QAHC, or after it has ceased to be a QAHC.