INTM256200 - Reliefs against Controlled Foreign Companies' tax: Examples
Example 1
A company has surplus shadow ACT of £5,000 and unrelieved surplus ACT of £50,000 which it wishes to set off against its Chapter IV liability. An apportionment is due in respect of chargeable profits of £100,000 and creditable tax of £3,000. There are no relevant allowances to set against the chargeable profits. CT is chargeable at 30% for the year.
The relevant maximum (C - D) is £17,000. This is arrived at as follows:
| - | £ |
|---|---|
| Shadow ACT on relevant distribution (C) £100,000 x 20% | 20,000 |
| Less: Creditable tax (D) | 3,000 |
| - | 17,000 |
Surplus shadow ACT of £5,000 is then set against this to give a ‘relevant amount’ of £12,000.
| - | £ |
|---|---|
| Chargeable profits | 100,000 |
| Tax @ 30% | 30,000 |
| Less: Creditable tax | 3,000 |
| - | 27,000 |
| Less: Unrelieved surplus ACT (limited to relevant amount) | 12,000 |
| Net tax payable | 15,000 |
The company now has unrelieved surplus ACT of £38,000 (£50,000 - £12,000) to carry forward.
Example 2
The facts are as in example 1 except that the company has trading losses of £10,000 in respect of which it makes a claim under ICTA88/SCH26/PARA1.
The relevant maximum is now £15,000 calculated as follows:
The chargeable profits after set off of relevant allowances (formula E - F) are £90,000.
| - | £ |
|---|---|
| Shadow ACT on a relevant distribution (C) : £90,000 x 20% | 18,000 |
| Less: Creditable tax (D) | 3,000 |
| - | 15,000 |
Surplus shadow ACT of £5,000 is then deducted from this to give a ‘relevant amount’ of £10,000.
| - | £ |
|---|---|
| Chargeable profits | 100,000 |
| Tax on chargeable profits @ 30% | 30,000 |
| Relief for relevant allowances in terms of tax £10,000 @ 30% | 3,000 |
| - | 27,000 |
| Less: Creditable tax | 3,000 |
| - | 24,000 |
| Less: Unrelieved surplus ACT (limited to relevant amount) | 10,000 |
| Net tax payable | 14,000 |
The company now has unrelieved surplus ACT of £40,000 (50,000 - £10,000) to carry forward.
Example 3
The facts are as in example 2, except that X makes no claim under paragraph 1 of ICTA88/SCH26 in respect of a trading loss of £10,000 which is not used elsewhere. The relevant amount remains at £10,000 because the relevant maximum is calculated as if the maximum reliefs under paragraph 1 of ICTA88/SCH26 were set against the chargeable profits.
| - | £ |
|---|---|
| Tax on chargeable profits @ 30% | 30,000 |
| Less: Creditable tax | 3,000 |
| - | 27,000 |
| Less: Unrelieved surplus ACT | 10,000 |
| Net tax payable | 17,000 |
The company still has unrelieved surplus ACT of £40,000 (£50,000 - £10,000) to carry forward.