CORPORATION TAX

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CORPORATION TAX
Theory and practice of taxation BModule
codeC33TB2 Lecture 10

• ADVANCE CORPORATION TAX
• (Abolished w.e.f. 6 April 1999)

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ADVANCE CORPORATION TAX

• For all companies the normal Corporation Tax
  payment date used to be 9 months (and 1 day)
  after the end of the relevant CAP (now for small
  and medium sized companies).
• Up to 5 April 1999 Companies were required to pay
  part of their CT liability before the normal due
  date if they made a Qualifying Distribution
  (The most common example is a dividend)
• This payment was called Advance Corporation Tax
  (ACT)
• This did not affect the total amount of tax
  payable only the timing of payment.

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ADVANCE CORPORATION TAX

• Example
  PCTCT
  
  100,000Total Corporation Tax Payable
  15,000
• Less Advance Corporation Tax paid in CAP
  5,000 ( dividends paid in CAP
  20,000 x 20/80 5,000) 20/80 is the ACT
  fraction
• Mainstream Corporation Tax liability
  10,000
• (payable 9 months after the end of the CAP) The
  total liability remained 15,000 but it was
  payable in two amounts

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ADVANCE CORPORATION TAX

• Maximum ACT set-off
• The ACT is set-off against the total CT. This
  was subject to a maximum
• Max ACT 20 of PCTCT
• If ACT paid exceeded the maximum the amount of
  set-off was restricted resulting in an excess
  called surplus ACT

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ADVANCE CORPORATION TAXSurplus ACT

• Example
  PCTCT
  
  100,000Total Corporation Tax Payable
  30,000
• ACT paid
  25,000Max ACT 20 100,000
  20,000 20,000 Surplus ACT
  5,000
• MCT
  10,000
• Surplus ACT could be carried back for 6 years or
  forward indefinitely and offset against future CT
  liabilitiesThus the deduction of ACT would
  consist of the amount paid this year, plus
  surplus ACT from the previous year(s). The total
  would be subject to the max of 20 PCTCT

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ABOLITION OF ADVANCE CORPORATION TAX

• ACT is not payable on distributions after 5/4/99
• Balance of surplus ACT at 5/4/99 is available
  for relief under the Shadow ACT regulations

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RELIEF FOR SURPLUS ACT

• Maximum off-set remains 20 PCTCT
• To ascertain the actual amount of ACT that can be
  deducted from the total CT this maximum must
  first be reduced by Shadow ACT
• Shadow ACT is the ACT that would have been paid
  in the current period if ACT had not been
  abolished

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RELIEF FOR SURPLUS ACT

• Example
• Y Ltd has brought forward surplus ACT of 40,000
  from before 6/4/99In year ending 31/3/07PCTCT
  100,000Total
  CT liability
  20,000Dividends paid
  36,000Calculate relief for surplus ACT

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RELIEF FOR SURPLUS ACT

• Y Ltd solution
  Maximum
  off-set 20 PCTCT 100,000 20,000LessShadow
  ACT 20/80 x dividend 36,000
  9,000 Surplus ACT that can be
  off-set 11,000CT liability
  
  20,000Less Surplus ACT
  11,000CT payable
  
  9,000Surplus ACT brought forward
  40,000less utilised 2007
  11,000Surplus ACT
  carried forward 29,000