HC Deb 10 July 1973 vol 859 cc1474-9

5.—(1) The provisions of this paragraph shall apply if—

  1. (a) franked investment income (within the meaning of section 240 of the Taxes Act) forms part of the distributable profits of a close company for an accounting period 1475 which ends on or after 6th October 1971 and before 6th April 1973 (in this paragraph referred to as "the relevant accounting period");
  2. (b) the total of the distributions of the company for the relevant accounting period determined as at the beginning of 6th April 1973 falls short of the required standard, as determined under section 290 of the Taxes Act; and
  3. (c) on or after 6th April 1973 a dividend is paid which falls to be included in the distributions of the company for the relevant accounting period.

(2) Subject to sub-paragraph (4) below, for the purpose of determining in a case where this paragraph applies whether there is a shortfall in the company's distributions for the relevant accounting period, the company's distributable investment income for that period, as determined under section 291(3) of the Taxes Act, shall be reduced by a sum equal to whichever is the less of—

  1. (a) 30 per cent. of the amount by which the franked investment income included in that distributable investment income exceeds the total of the company's distributions referred to in sub-paragraph (1)(b) above; and
  2. (b) three-sevenths of the total of all dividends paid on or after 6th April 1973 which fall within sub-paragraph (1)(c) above.

(3) For the purpose of sub-paragraph (2) above, the franked investment income included in a company's distributable investment income for the relevant accounting period means the amount of the franked investment income which, by virtue of subsection (2)(a) of section 291 of the Taxes Act, is included in the company's distributable profits for that period, less—

  1. (a) the amount which, by virtue of paragraph (a) or paragraph (b) of subsection (3) of that section, is deducted from the distributable income of the company for the relevant accounting period in determining its distributable investment income, and
  2. (b) any amount of that franked investment income which, by virtue only of subsection (2) of section 25 of the Finance Act 1971 (companies carrying on insurance, banking, money lending and investment businesses etc.), is treated as estate or trading income in arriving at the required standard as mentioned in that subsection.

(4) If, in a case where this paragraph applies, the close company concerned is neither a trading company nor a member of a trading group and the required standard for the relevant accounting period, as determined under section 290 of the Taxes Act, is equal to so much of the company's distributable income for the relevant accounting period as is not attributable to estate or trading income, subparagraphs (2) and (3) above shall have effect as if—

  1. (a) for any reference to the company's distributable investment income there were 1476 substituted a reference to the required standard;
  2. (b) for the reference in sub-paragraph (2) to section 291(3) of the Taxes Act there were substituted a reference to section 290 of that Act; and
  3. (c) in sub-paragraph (3) the word "less" and paragraphs (a) and (b) were omitted.

(5) In any case where, for the purpose specified in sub-paragraph (2) above, a company's distributable investment income or the required standard itself is reduced by virtue of subparagraphs (2) to (4) above, the reduction shall have effect also for the purposes of the other provisions of Chapter III of Part XI of the Taxes Act relating to shortfalls in the distributions of a close company other than section 298(2) of that Act (power of Board, if they see fit, to make a surtax apportionment of the whole of a non-trading company's income up to the amount of the required standard).

(6) Expressions used in this paragraph have the same meanings as in the provisions of Chapter III of Part XI of the Taxes Act relating to shortfalls in the distributions of a close company.

6.—(1) In any case where franked investment income received by a close company before 6th April 1973 forms part of the distributable profits of the company for an accounting period which begins before 6th April 1973 and ends after 5th April 1973 (in this paragraph referred to as a "straddling period") the provisions of this paragraph shall apply, subject to paragraph 7 below, in determining the company's relevant income for the straddling period.

(2) If the whole of the company's relevant income for the straddling period falls to be apportioned by virtue of paragraph 2 of Schedule 16 to the Finance Act 1972, then for the purpose of that apportionment, but not otherwise, the company's distributable investment income for that period, as determined under Part II of that Schedule, shall be reduced by a sum equal to 30 per cent. of the amount of the franked investment income included in that distributable investment income.

(3) If the franked investment income falling within sub-paragraph (1) above exceeds the total of the company's distributions for the straddling period which are paid or made in such part of that period as falls before 6th April 1973, then except, in a case where subparagraph (2) above applies, for the purpose of the apportionment referred to in that subparagraph, the company's distributable investment income for that period, as determined under Part II of the said Schedule 16, shall be reduced by a sum equal to 30 per cent. of the amount by which the franked investment income included in that distributable investment income exceeds the total of those of the company's distributions for that period which are so paid or made.

(4) For the purposes of this paragraph the franked investment income included in a company's distributable investment income for the straddling period means the amount of the franked investment income falling within sub-paragraph (1) above which, by virtue of paragraph 10 of the said Schedule 16, forms part of the company's distributable profits for that period less—

  1. (a) the amount which, by virtue of paragraph (a) or paragraph (b) of sub-paragraph (3) of the said paragraph 10, is deducted from the distributable income of the company for that period in determining its distributable investment income, and
  2. (b) any amount of that franked investment income which, by virtue only of subparagraph (5) of the said paragraph 10 (companies carrying on insurance, banking, money lending and investment businesses etc.), is treated as estate or trading income in arriving at the company's relevant income as mentioned in that sub-paragraph.

(5) References in this paragraph to franked investment income (being references to such income received before 6th April 1973) shall be construed in accordance with section 240 of the Taxes Act, and other expressions used in this paragraph have the same meanings as in Schedule 16 to the Finance Act 1972.

7.—(1) If, in a case where paragraph 6 above applies—

  1. (a) the close company concerned is neither a trading company nor a member of a trading group, and
  2. (b) the company's relevant income for the straddling period, as determined under paragraph 8 of Schedule 16 to the Finance Act 1972, is equal to so much of the company's distributable income for that period as is not attributable to estate or trading income,

paragraph 6 above shall have effect subject to the following provisions of this paragraph.

(2) Subject to sub-paragraph (3) below, where sub-paragraph (1) above applies,—

  1. (a) for any reference in paragraph 6 above to the company's distributable investment income there shall be substituted a reference to its relevant income; and
  2. (b) in sub-paragraph (4) of that paragraph, the word "less" and paragraphs (a) and (b) shall be omitted.
  3. (3) If, in relation to a close company, paragraph (b) of paragraph 2(2) of Schedule 23 to the Finance Act 1972 (restriction on advance corporation tax available for set-off in transitional period) has effect as set out in paragraph 5(1) of that Schedule (modifications in relation to close companies in certain cases) then, notwithstanding that paragraph 6 above applies in relation to that company subject to the modifications in sub-paragraph (2) above, in determining for the purposes of the said paragraph (b) (but not for any other purpose) the amount which is to be taken, in accordance with paragraph 9 of Schedule 16 to that Act, as the company's relevant income for the straddling period or any part of that period, sub-paragraph (2) above shall not apply.

(4) In this paragraph "straddling period" has the same meaning as in paragraph 6 above and sub-paragraph (5) of that para- graph shall apply in relation to this paragraph as it applies in relation to that.

8. If, in a case where sub-paragraph (6) of paragraph 5 of Schedule 16 to the Finance Act 1972 applies (subsequent distribution to an individual of income of a close company which has been previously apportioned to him to be deemed not to form part of his total income),—

  1. (a) the later accounting period referred to in that sub-paragraph is an accounting period which begins before 6th April 1973 and ends after 5th April 1973, and
  2. (b) the distribution of apportioned income referred to in that sub-paragraph is made before 6th April 1973,

the amendments of the said paragraph 5 effected by sub-paragraphs (2) and (3) of paragraph 1 above shall not have effect but the said sub-paragraph (6) shall have effect as if for the words "total income" there were substituted the words "income for the purposes of surtax".

9.—(1) In any case where—

  1. (a) the amount of advance corporation tax actually paid by a close company in respect of distributions made in that part of a straddling period following 5th April 1973 exceeds the amount of advance corporation tax which, by virtue of paragraph 1 of Schedule 23 to the Finance Act 1972, the company is treated as having paid for the purposes of section 85 of that Act, and
  2. (b) the company makes a claim in that behalf,

then, for the purpose of determining the distributable income of the company for the straddling period, the amount of any profits on which corporation tax for that period falls finally to be borne (which, under paragraph 10(2) of Schedule 16 to that Act is one of the amounts comprised in the company's distributable profits) shall be treated as reduced by an amount equal to the excess referred to in paragraph (a) above.

(2) If, in a case where paragraph 7 of Schedule 23 to the Finance Act 1972 applies in relation to a close company instead of subparagraphs (2) and (3) of paragraph 1 of that Schedule,—

  1. (a) the amount of advance corporation tax actually paid by the company in respect of distributions made in an accounting period which includes the whole or any fraction of the second part of the notional straddling period exceeds the amount of advance corporation tax which, by virtue of the said paragraph 7, the company is treated for the purposes of section 85 of that Act as having paid in respect of distributions in that accounting period, and
  2. (b) the company makes a claim in that behalf,

then, for the purpose of determining the distributable income of the company for any accounting period falling within paragraph (a) above, the amount of any profits on which corporation tax for that period falls finally to be borne (which, under paragraph 10(2) of Schedule 16 to that Act, is one of the amounts comprised in the company's distributable profits) shall be treated as reduced by an amount equal to the excess referred to in paragraph (a) above.

(3) In this paragraph "distributable income" and "distributable profits" have the meanings assigned to them by paragraph 10(2) of Schedule 16 to the Finance Act 1972; in sub-paragraph (1) above "straddling period" has the same meaning as in paragraph 6 above; and in sub-paragraph (2) above "the second part of the notional straddling period" has the same meaning as in paragraph 7 of Schedule 23 to the Finance Act 1972'.—[Mr. Patrick Jenkin.]

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