CTM03505 - Corporation Tax: small companies: the lower rate

ICTA88/S13 contains a scheme for charging companies, which are 'small' in terms of profits to a lower rate of CT. The scheme distinguishes between:

• basic profits - defined at ICTA88/S13 (8) as the profits on which CT falls finally to be borne, and
• profits - defined at ICTA88/S13 (7) as the profits on which CT falls finally to be borne with the addition of certain franked investment income and FID prior to 6 April 1999.

More details of what is meant by profits in this context are at CTM03600.

Where the profits do not exceed the lower relevant maximum amount the basic profits are charged at a lower rate of CT, known as the small companies' rate.

Where the profits exceed the upper relevant maximum amount the basic profits are all charged at the full CT rate.

Where profits fall between the lower and upper relevant maximum amounts the basic profits are charged at the full rate of CT but the resulting tax is reduced by a sum (commonly known as marginal small companies’ relief) computed by applying a statutory appropriate fraction to an amount as calculated at CTM03540. More details of the circumstances in which the small companies' rate of tax or marginal relief applies are at CTM03530 onwards.

See CTM03520 for details of the separate starting rate of CT introduced by FA00.

Scope

The legislation applies to all companies including unincorporated associations other than:

• Close investment-holding companies
• • a company which is a close investment holding company, as defined at ICTA88/S13A ( CTM60710), at the end of the accounting period.

• Non-residents
• • companies not resident in the UK (which are nevertheless chargeable to CT if they are trading through a UK branch or agency), unless a treaty non-discrimination article applies (DT1954 gives details).

Claim

The small companies’ rate, or marginal relief, is available on a claim (see CTM03670 onwards).

For a table of rates, limits and fractions for the lower rate from FA89 onwards see CTM03510.