CTM03654 - Corporation Tax: small companies: example 4
This example involves considering whether starting rate relief
is due as in
CTM03651 but includes other variants
including a short accounting period, a change in the starting rate
and associated companies.
A company provides the following information concerning its
accounting period for the nine months ended 30 September 2002.
Chargeable profits £15,000.
Franked investment income received £0.
The company had one associated company from 1 July 2002
onwards.
The ICTA88/S13 (7) profits are chargeable profits (£15,000)
+ non-group franked investment income received (£0) =
£15,000.
The accounting period straddles 1 April 2002 when the
starting rate was reduced from 10% to 0% and so the profits will
need to be apportioned up to and from this date. The lower and
upper limits have not changed and so the period from 1 January 2002
to 30 September 2002 is treated as a single accounting period,
rather than separate periods, for associated company purposes.
In considering whether the small companies' rate will apply,
the lower relevant maximum amount and the upper relevant maximum
amount need to be restricted to take into account the short
accounting period and any associated companies.
Therefore £15,000 is below the lower relevant maximum
amount of £112,192 (£300,000 restricted proportionately
to the number of days in the accounting period and the number of
associated companies i.e. £300,000 x 273 / 365 x1/2 =
£112,192).
We then need to consider whether £15,000 will fall
within the starting rate limits of £10,000 and £50,000.
However, in doing this, the second relevant amount of £50,000
and the first relevant amount of £10,000 need to be reduced
proportionately to the length of the period from 1 January 2002 to
30 September 2002 and the number of associated companies.
The lower starting limit will be:
£10,000 x 273 / 365 = £7,479.
The upper starting limit will be:
£50,000 x 273 / 365 = £37,397.
and so £15,000 will fall within the limits.
These starting rate limits are further reduced by the number of associated companies plus 1 and so the lower starting limit will become:
£7,479 / 2 = £3,740,
and the upper starting limit is:
£37,397 / 2 = £18,699.
The profit of £15,000 is between the reduced lower starting limit of £3,740 and the reduced upper starting limit of £18,699 but below the lower relevant maximum amount of £112,192 and so the chargeable profits will be charged at the small companies' rate with marginal starting rate relief due.
| Chargeable profit £15,000 x 20% x 90 / 273 | = | £989.01 |
| Plus chargeable profit £15,000 x 19% x 183 / 273 | = | £1910.43 |
| Total | £2,899.44 |
less marginal relief:
(R2 - P) x I / P x 1 / 40 (for the period to 31 March 2002), and
(R2 - P) x I / P x 19 / 400 (for the period from 1 April
2002).
Where:
R2 = the proportionally reduced second relevant amount.
P = the chargeable profits + non-group franked investment
income (see
CTM03600 or see details in
ICTA88/S13AA (7)).
I = the chargeable profits.
1 / 40 and 19 / 400 are the appropriate fractions for the
financial years in question.
| (£18,699 - £15,000) x £15,000 / £15,000 x 1 / 40 x 90 / 273 | = | (£30.49) |
| (£18,699 - £15,000) x £15,000 / £15,000 x 19 / 400 x 183 / 273 | = | (£117.78) |
| Total | (£148.27) |
CT due = £2,751.17.
