OT21221 - Corporation Tax Ring Fence and Supplementary Charge

Supplementary Charge: Transitional Provisions: Profits of the Straddling Period: FA02/s93(1)

The rules for the supplementary charge treat an accounting period that includes 17 April 2002, called the “straddling period”, as if it were two separate accounting periods. One period ends on 16 April 2002, and the other begins on 17 April 2002 and runs to the date on which the company’s accounting period ends. The supplementary charge applies only to the second of these two deemed accounting periods.

It will normally be necessary to make an apportionment to determine the adjusted profits of the deemed accounting period on which the supplementary charge is levied. FA02/s93(1)(b) provides that all necessary apportionments between the two separate deemed accounting periods shall be made on a time basis by reference to days. OT21223 contains guidance on the treatment of capital allowances.

It is possible some companies may seek to use an apportionment basis other than time, e.g. on the grounds that a disproportionate amount of their profits arise in the first few months of the calendar year. Any requests not to use the time basis should be referred to an Assistant Director.

Although the time basis is undoubtedly the simplest and most convenient, the use of other bases is permissible because

• the legislation refers to necessary apportionments rather than all apportionments,
• the CT manual ( CTM01405) admits the possibility of apportioning by reference to transactions rather than time where this would give a fairer result ( Marshall Hus & Partners Ltd v Bolton, 55TC539),
• there have been a number of public statements to the effect that there is no intention to subject pre-17 April 2002 profits to the supplementary charge.

One reasonable general approach to deal with the allocation of income and expenditure might be to try to put such a company in the same position as it would be if it had actually drawn up two separate sets of statutory accounts.