Section 1042K | Amount of notional tax deduction

(1)This section determines the amount of the notional tax deduction for the purposes of step 2 in section 1042I.

(2)The amount of the deduction is the amount (if any) by which the amount remaining after step 1 in section 1042I exceeds the amount produced by deducting the notional tax charge from the initial amount of the expenditure credit (that is, its amount before the application of that step).

(3)Subsections (4) and (5) apply if the trade concerned is not a ring fence trade.

(4)The notional tax charge is the amount of corporation tax that would be chargeable on the initial amount of the expenditure credit if it were an amount of profits for the accounting period on which corporation tax was chargeable at the applicable rate.

(5)The applicable rate is—

(a)the main rate, if the company has profits for the accounting period that—

(i)are chargeable to corporation tax at the main rate, and

(ii)would be so even if they did not include any amount brought into account under section 1042H;

(b)in any other case, the standard small profits rate.

(6)Subsections (7) and (8) apply if the trade concerned is a ring fence trade.

(7)The notional tax charge is the sum of—

(a)the amount of corporation tax that would be chargeable on the initial amount of the expenditure credit if it were an amount of ring fence profits for the accounting period on which corporation tax was chargeable at the applicable rate, and

(b)the amount of the supplementary charge that would be chargeable on the initial amount of the expenditure credit if it were an amount of adjusted ring fence profits for the accounting period (see Chapters 6 to 9 of Part 8 of CTA 2010).

(8)The applicable rate is—

(a)the main ring fence profits rate, if the company has profits for the accounting period that—

(i)are chargeable to corporation tax at the main ring fence profits rate, and

(ii)would be so even if they did not include any amount brought into account under section 1042H;

(b)in any other case, the small ring fence profits rate.

(9)For the purposes of this section, the initial amount of an expenditure credit is to be treated as excluding any amount added under section 1042J.

(10)In this section—

“adjusted ring fence profits” has the meaning given by section 330(2) of CTA 2010;

“main rate” means the rate referred to in section 3(1) of CTA 2010;

“main ring fence profits rate” means the rate referred to in section 279A(1) of CTA 2010;

“ring fence profits” has the meaning given by section 276 of CTA 2010;

“ring fence trade” has the meaning given by section 277 of CTA 2010;

“small ring fence profits rate” means the rate referred to in section 279A(3) of CTA 2010;

“standard small profits rate” means the rate referred to in section 18A(1) of CTA 2010.