Details of changes for 2008
Changes of rates and fractions
The changes to the small companies' rates and the fractions used in calculating marginal small companies' relief (MSCR) for financial year (FY) 2008 affect many companies.
For most companies (all except those that have ring fence profits) the calculation behind a claim is straightforward. The legislation in Section 13 ICTA 1988 applies to claims for small companies’ rates or MSCR.
Companies with accounting periods (AP) straddling 1 April 2008 need to apportion profits between FYs so they can apply the different rates for claims to charge tax at small companies' rate for each FY. For claims to and the calculation of MSCR for such straddling periods they also need to apportion profits to arrive at MSCR by taking account of the different fractions for each FY.
For FY 2008 which began on 1 April 2008 small companies' rate (non-ring fence profits) is 21 per cent, and the relevant MSCR fraction is now 7/400 (the standard fraction).
For companies with ring fence profits (broadly income and gains from oil extraction or oil rights in the UK or UK Continental Shelf) the separate ring fence small companies' rate and fraction are the same as for FY 2007 at 19 per cent and 11/400.
If a company’s profits consist of both ring fence and other profits and it claims either small companies’ rates or MSCR it must make separate calculations for ring fence and any remaining profits. For instance if the company makes a claim under Section 13(2) of ICTA 1988 for MSCR for an AP ending on or after 1 April 2007 the corporation tax charged on profits is reduced by a figure equal to the ring fence fraction of the ring fence amount and a figure equal to the standard fraction of the remaining amount. The legal formulas are shown below for convenience.
The 'ring fence amount' is found by taking MR – PR x IR/PR where:
MR is the sum equal to the 'appropriate fraction' of the upper relevant
maximum amount,
PR is so much of the profits for the AP as consist of ring fence profits
and
IR is so much of the basic profits for the period as consist of ring fence
profits.
The 'appropriate fraction' in the context of 'ring fence amount' is the fraction of the profits for the AP that consists of ring fence profits.
The 'remaining amount' (non-ring fence profits) is found by taking MNR
– PR x INR/PNR where:
MNR is the sum equal to the 'appropriate fraction' of the upper relevant
maximum amount,
PNR is so much of the profits for the AP as do not consist of ring fence
profits, and
INR is so much of the basic profits for that AP as do not consist of ring
fence profits
The 'appropriate fraction' in the context of the 'remaining amount' is the fraction of the profits for the AP that does not consist of ring fence profits.
Capital allowances
The changes announced at Budget 2008 operate for expenditure incurred after 31 March 2008. The changes are all listed in the CT600 Budget Insert and there are further details on the Budget 2008 pages of our website.
Some of these items affect forms CT600:
- Replacement of the 40 per cent or 50 per cent first-year allowances for small and medium-sized businesses by an annual investment allowance (AIA) of 100 per cent for the first £50,000 of expenditure on plant and machinery (excluding cars) in the main pool. We have added two new whole £ boxes numbered 172 and 173 at the head of the capital allowances columns for both trade and non-trade allowances on page 6 of the 8-page form and page 3 of the 4-page form. The description for both is ‘Annual investment allowance’.
- The reduction of writing-down allowances (WDAs) for plant and machinery in the main pool from 25 per cent to 20 per cent. We have changed the description of boxes 107 and 108 on both forms to read ‘Machinery and plant – main pool’.
- The increase of WDAs on long-life assets and the inclusion of certain thermal insulation and fixtures integral to buildings in the special rate pool with WDAs at 10 per cent. We have changed the descriptions of boxes 105 and 106 to read ‘Machinery and plant – special rate pool’.
- Changed requirements for capital allowances on ‘expensive’ cars outside any expenditure included in the main pool or on low carbon emission vehicles on which first year allowances can be claimed. We have changed the description for boxes 109 and 110 to read ‘Cars’ and amended notes in the Guide as necessary to refer to our website.
- We have changed the heading ‘Expenditure’ which appears
both on page 6 of the 8-page form and on page 3 of the 4-page form so
it now reads ‘Qualifying expenditure’. Under that heading
the description for box 118 remains, but others have changed or been
removed and replaced.
Box 119 has been removed and replaced by a new whole £ box 174 with the description ‘Designated environmentally friendly machinery and plant’.
The description of box 120 is now ‘Machinery and plant on long-life assets and integral features’.
The description of box 121 is now ‘Other machinery and plant’. - The introduction of a payable tax credit for losses resulting from
qualifying expenditure on designated energy-saving, or environmentally
beneficial, plant or machinery. We have added three new £ and
p boxes to the 8-page form only.
The first two are on page 5 under the ‘Tax reconciliation’ heading. The first is numbered 170 and appears after existing box 88 and before existing box 89, and has the description ‘Capital allowances first-year tax credit’. The second is numbered 171 and appears immediately after existing box 90 and before existing box 91, and has the description ‘Capital allowances first-year tax credit payable’.The introduction of these two new boxes causes changes to the rubric over existing boxes 92 and 93 as well as new rules for box 171.
Box 92 is now the figure in box 86 less the total of boxes 87, 88, 170 and 91.
Box 93 is now the total of boxes 87, 88, 170 and 91 less the figure in box 86.
New box 171 is the total of boxes 87, 88 and 170 minus the total of boxes 86, 89 and 90.
The final new £ and p box is on page 7 of the 8-page form under the ‘Repayments for the period covered by this return’ heading immediately after existing box 144. Unlike all the other new boxes this one does not have solid filling surrounding the number attached to the box but is like box 144. The description for this new box is ‘Payable capital allowances first-year tax credit’.
Time limit for taking up enquiries
This change was announced in 2007 but is mentioned here as it now affects most returns made for APs ending after 31 March 2008.
For such returns the rules in Paragraph 24 of Schedule 18 FA 1998 govern the time limit within which HM Revenue & Customs (HMRC) can open an enquiry into a company tax return. Paragraph 24(2) has been re-written and new sub-paragraphs 6 and 7 added.
For most companies this means that for a return for an AP ending after 31 March 2008 delivered before or on the filing date HMRC have 12 months from the day on which the return was delivered in which to open any such enquiry. This gives earlier certainty for most companies.
For returns delivered before or on the filing date there is one exception to this rule and that concerns companies that are members of groups that are not small groups. For them the 12 month time limit starts not from the day on which the return was delivered but from the filing date. In this context the words 'group' and 'small group' have the same meaning as in Sections 383(2) and 474(1) of the Companies Act 2006. 'Group' means a parent company and its subsidiary undertakings.
There is a box on page 1 of both forms CT600 after the ‘estimated figures’ and before the disclosure of tax avoidance schemes boxes so that any company which is part of a group that is not small can tell us.
There are no changes to the existing rules governing the time limits for taking up enquiries into returns that are late, and into amended returns, contained in Paragraph 24(3) and (4) of Schedule 18 FA 1998 and which apply to all companies.
