The income of a company is its income as calculated for
corporation tax purposes for the 12 month period ending on the
relevant day. This is the income figure used to calculate the
corporation tax profit.
Because the relevant day may not coincide with the end of a
12 month period of account the paragraph contains rules to enable
the income of more than one accounting period to be apportioned to
give the income over the preceding 12 month period. The paragraph
requires apportionment on a time basis but allows the company to
adopt a different method if this gives a more sensible result.
Example - apportionment of income
A Ltd draws up its accounts to 31 December. On 30 September
2009 A Ltd is sold by its parent. Computations for the year ending
31 December 2008 show income from:
| Investments in shares | 80,000 |
| Loans to associated companies | 100,000 |
Computations for the year ending 31 December 2009 show income
from:
| Investments in shares | 50,000 |
| Loans to associated companies | 120,000 |
| Lease of an oilrig | 2,000,000 |
The company appears to be carrying on a business of leasing
plant or machinery in the year ended 31 December 2009.
A straight time basis apportionment would give 3/12 of the 31
December 2008 figures and 9/12 of the 31 December 2009 figures:
| Investments in shares | 57,500 |
| Loans to associated companies | 115,000 |
| Lease of an oilrig | 1,500,000 |
| Total income | 1,672500 |
Of the total income 1,500,000 is leasing income. On the basis
of this calculation the company is a leasing company.
However, further enquiries reveal that the company bought the
oilrig in December 2009. It would be unreasonable to include any
part of the oilrig leasing income in the calculation of the income
figure for the year ended 30 September 2009.
A balance sheet drawn up at the start of the relevant day, 30
September 2009 would similarly exclude the oilrig and the company
would similarly not meet Condition A. The company does not meet
either of the tests and is not carrying on a business of leasing
plant or machinery on the relevant day.
