A further rule applying to surrendered ACT is that the subsidiary company cannot make any claim, in respect of any ACT surrendered to it, to carry that ACT back under ICTA88/S239 (3). In determining whether, and to what extent, there exists surplus ACT for the purposes of Section 239 (3), the following order of set-off is applied. Where for any accounting period a subsidiary has available for set-off:
the surrendered amount is regarded as having been set-off
against the subsidiary's CT liability in priority to the ACT paid
on its own distributions.
A similar order of set-off applies in determining whether any
amount of surplus ACT brought forward to an accounting period
includes an amount of ACT surrendered to the company. ACT
surrendered to the company is again regarded as having been set-off
against its liability to CT in priority to ACT paid by the company
in respect of its own distributions. The point will be relevant if
a company wants to carry back from an accounting period ACT brought
forward to that period.
Under ICTA88/S240 (5), a subsidiary which receives surrendered
ACT cannot set that ACT against its CT liability for any accounting
period (beginning before 6 April 1999) in which, or in any part of
which, it is not a 51% subsidiary of the surrendering company. The
effect of this is that any unused ACT is lost.
But the rule above does not apply for accounting periods
ending on or after 14 March 1989 where there is a group
reorganisation, and both the surrendering and receiving companies
remain 51% subsidiaries of a third company. This intra-group saving
provision was enacted to assist commercially desirable
reorganisations.
However the protection it provides is lost if ICTA88/S245A
applies. ICTA88/S245A restricts the set-off of surrendered ACT in
certain circumstances, and there is guidance on this at
CTM81225.
The circumstances in which Section 245A operates are
where:
This order of set-off is also important where a company has carried back ACT from a later period and subsequently receives surrendered ACT. (Remember, a surrender claim can be made up to six years after the end of an accounting period but the carry back claim must be made within two.) In that case, the surrendered ACT displaces the ACT previously carried back. That displaced ACT reverts to being surplus ACT for the year in which it arose (see CTM20170).
Company L is a subsidiary company and prepares accounts for the years ended 31 October 1991 and 31 October 1992. Its CT is as follows:
For the year ended 31 October 1992 it pays ACT of £5,000, and receives the benefit of £11,000 ACT surrendered by its parent company. Company L wants to set off all the ACT to reduce the CT for both years to nil. The order of set-off for the year ended 31 October 1992 is:
| CT | £12,000 | |
| Less ACT surrendered to company | (£11,000) | |
| Less ACT paid by company | (£1,000) | |
| CT payable | Nil | |
| ACT paid | £5,000 | |
| Less set-off 1992 | £1,000 | |
| ACT to carry back to 1991 | £4,000 |
(If the ACT paid were set off in priority, then there would be surplus ACT surrendered to the company of £4,000. Company L could not carry that ACT back to 1991, and so it would not be able to reduce the CT for both 1991 and 1992 to nil.)
