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Relief against a sum charged on a chargeable company

CFC accounting periods beginning on or after 8 July 2015

In respect of CFC鈥檚 that have an accounting period beginning on or after 8 July 2015, it is not possible for the chargeable company to make a claim under TIOPA10/S371UD(2) for relief in respect of relevant allowances to be set against the sum charged at step 5 in TIOPA10/S371BC(1).

The purpose of this amendment in F(No 2)A15/S36 is to ensure that UK tax is actually paid on profits that have been diverted from the UK to a CFC and that relevant allowances do not reduce or eliminate this amount.

The changes made repeal TIOPA10/S371UD(2) removing the ability of UK companies to reduce or eliminate a CFC charge by effectively offsetting UK losses and surplus expenses against a CFC鈥檚 chargeable profits that arise on or after 8 July 2015.

Straddling periods (CFC accounting periods beginning before but ending on or after 8 July 2015)

For CFC accounting periods which start before but end after 8 July 2015, the sum charged on a company at step 5 in TIOPA10/S371BC(1) is apportioned between two notional accounting periods of the CFC on a just and reasonable basis. This ensures that sums charged on a company at step 5 in TIOPA10/S371BC(1) based on a CFC鈥檚 chargeable profits which arise before 8 July 2015 can still be reduced by relief for relevant allowances under TIOPA10/S371UD(2) in the manner set out below.

Relief previously available (CFC accounting periods ending before 8 July 2015)

The manner in which certain reliefs may be set against a CFC charge is set out at TIOPA10/S371UD.

If a chargeable company in relation to a CFC鈥檚 accounting period is entitled, or on the making of a claim, would be entitled to a deduction in respect of a 鈥渞elevant allowance鈥� for the 鈥渞elevant corporation tax accounting period鈥�, a claim may be made under TIOPA10/S371UD(2) for relief in respect of the 鈥渞elevant allowance鈥�.

For the purposes of TIOPA10/S371UD 鈥渢he relevant corporation tax accounting period鈥� has the meaning given by TIOP10/S371BC(3) and 鈥渞elevant allowance鈥� means:

• any loss to which section 37 or section 62(1) to (3) of CTA 2010 applies,
• any qualifying charitable donation,
• any expense of management to which section 1219(1) of CTA 2009 applies,
• any adjusted basic life assurance and general annuity business (鈥淏LAGAB鈥�) management expenses for the purposes of section 73 of FA 2012,
• any excess to which section 260(3) of CAA 2001 applies,
• any amount available to the company by way of group relief, or
• any non-trading deficit on the company鈥檚 loan relationships.

If a claim is made, the relief is given by setting off the 鈥渞elevant sum鈥� against the sum charged on the company at step 5 in TIOPA10/S371BC(1). The 鈥渞elevant sum鈥� is a sum equal to corporation tax at the 鈥渁ppropriate rate鈥� on the amount of the relevant allowance claimed. The 鈥渁ppropriate rate鈥� has the meaning given by TIOPA10/S371BC(3).

However for sums charged on a company by virtue of TIOPA10/S371BH(2) (i.e. a chargeable company carrying on BLAGAB , 鈥渢he appropriate rate鈥� means the rate given by TIOPA10/S371BH(3)(a) and 鈥渞elevant allowance鈥� means any adjusted BLAGAB management expenses for the purposes of section 73 of FA 2012.

The amount of the relevant allowance specified in the claim is taken, for the purposes of the Taxes Acts, as having been allowed as a deduction. No other relief is available to be given against the sum charged on a company at step 5 in TIOPA10/S371BC(1).