Section 5: Corporation Tax: Small Profits Rate and Fractions for Financial Year 2013
Summary
1.Section 5 sets the small profits rate of corporation tax (CT) for the financial year beginning 1 April 2013 at 20 per cent for all profits apart from “ring fence profits” of North Sea oil companies, where the rate is set at 19 per cent. Additionally, it sets the fraction used in calculating marginal relief from the main rate at 3/400 for all profits apart from “ring fence profits”, where the fraction is set at 11/400.
Details of the Section
2.Subsection (1) sets the small profits rate of CT for the financial year beginning 1 April 2013.
3.Subsection (2) sets the marginal relief standard and ring fence fractions.
Background
4.Companies with profits up to £300,000 pay CT at the small profits rate.
5.Companies with profits between £300,000 and £1,500,000 (the lower and upper limits) benefit from marginal relief from the main rate.
6.Marginal relief has the effect of gradually increasing the rate of tax for a company as its profits move from the lower to the upper profits limit.
7.The example below illustrates the effect of marginal relief for a company with taxable non-ring fence profits of £500,000. Its tax liability is calculated as follows:
* £1,000,000 is the difference between the upper limit and the profit. | |
| £500,000 @ 23 per cent | £115,000 |
| minus 3/400 of £1,000,000* | £7,500 |
| Tax payable: | £107,500 |
8.The example below illustrates the effect of marginal relief for a company with taxable ring fence profits of £500,000. Its tax liability is calculated as follows:
* £1,000,000 is the difference between the upper limit and the profit. | |
| £500,000 @ 30 per cent | £150,000 |
| minus 11/400 of £1,000,000* | £27,500 |
| Tax payable: | £122,500 |
9.Where two or more companies are associated with one another, the profits limits are divided by the number of associated companies.
