Taxation in the United Kingdom/Legislation/Section 13 of the Income and Corporation Taxes Act 1988

Small companies' rate
Where a company, which is not a close investment-holding company has basic profits (ie profits chargeable to corporation tax) below £300,000 divided by one plus the number of its associates it may claim to be taxed at the small companies' rate.

Marginal relief
Where such a company has basic profits between £300,000 divided by one plus the number of its associates and £1,500,000 divided by one plus the number of its associates, it may reduce its profits by such fraction as Parliament may from time to time decide multiplied by:


 * $$(M-P)xI/P$$

Where:


 * M is £1,500,000 divided by one plus the number of associates
 * P is the amount of profits (see definition below)
 * I is the amount of basic profits, ie profits chargeable to corporation tax

The figures of £1,500,000 and £300,000 referred to above are proportionately reduced when applied to an accounting period shorter than 12 months.

Associated companies
An associated company which has no trade or business during the accounting period (or part whereof that it is associated) is ignored in the above calculation. Companies are associated if at a given time one has control of the other, or both are under common control. Control is construed here in accordance with Section 416 of ICTA.

A company is treated as associated with another for the whole accounting period, even if it is associated for only part of an accounting period.

Profits
Profits for the purposes of this section (except for basic profits) is taken as having a special meaning. It is:


 * Profits chargeable to corporation tax; plus


 * franked investment income ("FII") (ie dividends from UK companies multiplied by 10/9), except for FII received from a UK-resident company which is:


 * a 51% subsidiary of the receiving company, or a 51% subsidiary og a company of which the receiving company is a 51% subsidiary; or


 * a trading or holding company not taken out of this definition (see below) and which is owned by a consortium the members of which include the receiving company.

Section 13ZA of ICTA has further interpretative provisions in respect of this.

The bit taken out of this definition referred to above applies where the company distributing the FII is a 75% subsidiary of another company or when arrangements are in place whereby the paying company could become a 75% subsidiary.

FII received in trust, etc
Subsection (8AB) provides that FII received by a company includes FII received by another person on behalf of or on trust for the company, but not to any FII received by the company on behalf of or on trust for another person.