CTM03655 - Corporation Tax: small companies: example 5

This example demonstrates the effect of changes in the number of associated companies during the accounting period.

A company has three associated companies during its accounting year ending 30 June 2002. One associated company has carried on business throughout, one commenced on 1 February 2002 and one on 1 May 2002. As there were no changes in rates, the period 1 July 2001 to 30 June 2002 will be treated as one accounting period and there will be no apportionment because the number of associates changed during the year. However, in calculating any marginal small companies' relief, regard should be had to the change to the fraction ( CTM03520) from 1 April 2002.

Assuming that both the profits and the basic profits are £350,000, the calculation of marginal small companies’ relief (on a daily basis) will be as follows below.

Upper relevant maximum amount:

£1,500,000 x 1 / (1 + 3) = £375,000.

Less marginal relief.

(M - P) x I / P x ( 1 / 40 or 11 / 400).

Where:

M = upper relevant maximum amount.
P = the chargeable profits + non-group franked investment income (see CTM03600).
I = the chargeable profits.
1 / 40 and 11 / 400 are the appropriate fractions for the financial years in question.

1 / 40 x (£375,000 - £350,000) x 274 / 365 =	£469.18
11 / 400 x (£375,000 - £350,000) x 91 / 365 =	£171.40
Total marginal small companies relief due =	£640.58