CTM03600 | Corporation Tax: small profits relief: definition of augmented profits

For the purpose of the small profits relief in CTA10/PART3 the augmented profits of a company for any accounting period were defined by CTA10/S32 (before repeal) as:

• the taxable total profits of that period, as defined in CTA10/S4 (2) and (3), plus

• any franked investment income received by the company in that period other than franked investment income which the company (if a member of a group) received from companies within the group.

For this purpose, franked investment income was treated as received from within the group only if the dividends were

• paid by a 51 per cent subsidiary of the recipient or of a company of which the receiving company was a 51 per cent subsidiary, or

• paid by a trading company or relevant holding company that was a ‘quasi-subsidiary’ of the receiving company: a quasi subsidiary company meant one owned by a consortium of which the receiving company was a member, which was not a 75 per cent subsidiary of any company, and no arrangements existed for it to become so.

CTA10/S33 provided additional interpretation:

• as regards the 51 per cent subsidiary relationship, in addition to the requirements at CTA10/S1154 (2) the relationship would only have qualified at any time if the parent would have been entitled to more than 50 per cent of

  • profits available for distribution to equity holders and

  • assets available to equity holders on a winding up,

ignoring indirect ownership and ownership on trading account.

CTA10/S33 further provided that:

• trading company had the usual meaning of one whose business consisted of carrying on a trade or trades,

• relevant holding company meant a company whose business consisted of holding shares in or securities of 90 per cent trading subsidiaries, and

• a company was owned by a consortium if at least 75 per cent of its ordinary share capital was beneficially owned by two or more companies each of which had at least a 5 per cent beneficial entitlement to profits and assets available to equity holders as above.

The group relief provisions set out in CTA10/PART5/CHAPTER6 applied for the purpose of identifying equity holders and profits and assets available for distribution.

Similar rules applied to calculate small companies’ relief in relation to ‘basic profits’ - profits on which CT falls finally to be borne - with the addition of franked investment income. Prior to 6 April 1999 franked investment income was treated as received from within the group only if the dividends were or might be ‘group income’. Foreign income dividends were included.

If the franked investment income arose in 1993-94, see CTM20550.