OT62020 - Transferable tax history - Effect of a TTH election on the seller - Additional profits

If additional tax becomes due in an accounting period of the seller from which profits were transferred under a TTH election, for example, if profits of the AP are increased as a result of an HMRC enquiry, the additional tax is due and payable by the seller.

In calculating the additional tax due, additional profits should only be charged at the small profits rate if they would have been charged at that rate even if there had been no TTH election. Equally, no marginal relief is due, unless it would have been due even if there had been no TTH election.

Example

Seller Company (S) made ring fence profits of £10m in AP 1. Tax was due at the main rate of 30% as the profits were above the upper limit of £1.5m. S made a TTH election and transferred the full £10 million profit to Purchaser Company (P). For the purposes of loss relief, S is treated as not having made the £10m profit or paid the £3m tax due.

An HMRC enquiry into AP 1 subsequently concludes that S’s ring fence profits should have been £11m, rather than £10m. The additional £1m should be charged at 30%, with no marginal relief given, as no marginal relief would have been due had the TTH election never been made, even though as a result of the TTH election, S’s profits are being treated as nil.