Income and Corporation Taxes Act 1988

427 Reduction of charge under section 426 in certain cases

(1) No individual shall be assessed to income tax by virtue of any apportionment unless the sum or, where there is a sub-apportionment, the aggregate sum on which he is so assessable amounts at least to—

(a) £1,000; or

(b) 5 per cent. of the amount apportioned;

whichever is the less.

(2) Where an apportionment is made by virtue of section 424(2), an individual shall not be charged to tax on a sum treated in consequence of the apportionment or any sub-apportionment as being his income except in so far as it exceeds the amount which, apart from the apportionment, falls in respect of distributions made by the company for the accounting period to be included in his total income.

(3) Where as a result of a company or companies making covenanted payments to charity a sum or sums are apportioned by virtue of section 423(1)(b) and form part of the total income of an individual for any year of assessment, then, except in so far as any such sum is referable to a payment which, if made by the individual, would be treated by virtue of section 683(1) as the income of the individual for the purposes of excess liability, his total income for that year and the total amount assessable for that year in respect of that sum or those sums shall be reduced by the amount of that sum or those sums.

In this subsection “covenanted payments to charity” has the same meaning as in section 683.

(4) Where the income of a company for any accounting period has been apportioned under section 423 of this Act or 296 of the 1970 Act and the distributions of the company for a later accounting period for which it is a close company—

(a) consist of or include a distribution of all or any of the apportioned income; and

(b) exceed the company’s relevant income for that later period,

then, if any individual who was charged to tax under section 426 or section 297 of the 1970 Act in respect of any of the apportioned income is entitled to any of that income on that subsequent distribution, there shall be deemed not to form part of his income for the purposes of excess liability an amount of the income subsequently distributed (or of the excess mentioned in paragraph (b) above if it is less) equal to such fraction as corresponds to—

(i) the fraction of the apportioned income in respect of which he was charged to tax; or

(ii) the fraction to which he is entitled of the subsequent distribution of that income,

whichever is the smaller.

(5) In this section “excess liability” means the excess of liability to income tax over what it would be if all income tax were chargeable at the basic rate to the exclusion of any higher rate.