OT21104 - Corporation Tax Ring Fence and Supplementary Charge

Treatment of ACT: Carry Back

ICTA88/s240 allows the surrender of surplus ACT to a 51% subsidiary. Surrendered ACT cannot be carried back and allowed against CT for earlier years. It can only be allowed against current and future years' CT. Because of ICTA88/s497 an oil company which is a subsidiary of a UK parent cannot set its own ACT on inter group dividends against CT on its own ring fence profits. Consequently, it is likely to pay its dividends gross, i.e. without accounting for ACT and accept surrendered ACT from its UK parent. There is a drawback in this, in that it can only set that ACT against its current year's CT (on both ring fence or non- ring fence profits) or carry any balance forward. As surrendered ACT, any balance cannot be carried back. This deprives an oil company of the carry back often available to other companies. This disadvantage is mitigated, under ICTA88/s498, by allowing the carry back of surrendered ACT to the previous six years, against CT on ring fence profits, subject to certain conditions and a monetary limit.