(1)Subject to section 424, there shall, for the purposes of this Chapter, be apportioned by the inspector among the participators in a close company—
(a)the income of the company for any accounting period; and
(b)as if it were the income of the company for an accounting period, any amount—
(i)which was deducted in respect of annual payments made by the company in arriving at its distributable income for that period, and
(ii)which in the case of an individual would not have been deductible or would (apart from section 683(3)) have been treated as his income in computing his total income; and
(c)as if it were the income of the company for an accounting period, any interest paid by the company in that period.
(2)Any amount apportionable under any paragraph of subsection (1) above shall be in addition to the amount (if any) which may be apportioned under any other provision of that subsection.
(3)Any amount apportioned to a close company under this section, or by one or more sub-apportionments under this subsection, shall be further apportioned among the participators in that company.
(4)If any amount of interest apportionable by virtue of paragraph (c) of subsection (1) above is interest paid to a participator in the close company or is (apart from that paragraph) treated for the purposes of income tax as the income of such a participator, the amount so apportionable to that participator shall be reduced by the first-mentioned amount (and without requiring the reduction to be reflected in the amount apportioned to any other person).
(5)In determining for the purposes of this Chapter the person to whom any amount is to be apportionable by virtue of subsection (1)(c) above, any interest which any person possesses as a loan creditor shall be disregarded (but without prejudice to the making of an apportionment to him in any other capacity).
(6)Subject to paragraph 10 of Schedule 19, this section shall, notwithstanding the winding up of a company, or the passing of any resolution or the making of any order or anything else done for the purpose of winding up a company, continue to apply as if the company were not being wound up.
(7)Schedule 19, which makes provision for determining the relevant income and distributions of a company for an accounting period and whether there is any such excess as is mentioned in section 424(1), shall have effect for the purpose of supplementing this Chapter.
(1)Subject to the following provisions of this Chapter, an apportionment shall not be made under subsection (1)(a) of section 423 of any relevant income of a company unless—
(a)its relevant income for the accounting period exceeds its distributions for that period; and
(b)if the company is a trading company or a member of a trading group by virtue of paragraph 7(2)(a) of Schedule 19, that excess is more than £1,000;
and the amount apportioned shall be the amount of that excess.
(2)Subject to paragraphs 10(5) and 11(2) of Schedule 19, there may be apportioned under section 423(1)(a), if the inspector sees reason for it, the whole of the relevant income for an accounting period of a close company which is not a trading company whether or not there is any such excess as is mentioned in subsection (1) above.
(3)Subsection (1)(b) of section 423 does not apply to annual payments which consist of interest or are made wholly and exclusively for the purposes of the company’s trade.
(4)Subsection (1)(c) of section 423 does not apply to a company—
(a)if it is a trading company, or
(b)if it is a member of a trading group, or
(c)if more than 75 per cent. of its income is of one or more of the following descriptions, that is—
(i)estate or trading income;
(ii)interest, and dividends or other distributions, received from a 51 per cent. subsidiary of it (both companies being bodies corporate) if the subsidiary is itself within paragraph (a) or (b) above or this paragraph;
and for the purposes of paragraph (c) above no account shall be taken of any deduction from the company’s profits for charges on income, expenses of management or other amounts which can be deducted from or set off against or treated as reducing profits of more than one description.
(5)In determining for the purposes of subsection (4)(c)(ii) above whether one body corporate is a 51 per cent. subsidiary of another, that other shall be treated as not being the owner—
(a)of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom, or
(b)of any share capital which it owns indirectly and which is owned directly by a body corporate for which a profit on the sale of the shares would be a trading receipt.
(6)Subsection (1)(c) of section 423 shall not apply to interest which—
(a)would be eligible for relief under section 353 if paid by an individual; or
(b)is money wholly and exclusively laid out or expended for the purposes of a trade carried on by the company.
(1)Subject to the provisions of this section, any apportionment under section 423, including any sub-apportionment of an amount directly or indirectly apportioned to a company, shall be made according to the respective interests in the company in question of the participators.
(2)In determining for the purposes of this section the respective interests of the participators, the inspector may, if it seems proper to him to do so, attribute to each participator an interest corresponding to his interest in the assets of the company available for distribution among the participators in the event of a winding up or in any other circumstances.
(3)Where income of a company which is not a trading company is apportioned under section 423, the inspector may, if it seems proper to him to do so, treat a loan creditor as having an interest for the purposes of this section to the extent to which the income to be apportioned, or assets representing it, has or have been expended or applied, or is or are available to be expended or applied, in redemption, repayment or discharge of the loan capital or debt (including any premium thereon) in respect of which he is a loan creditor.
(1)Where a sum has been apportioned under section 423 to an individual (whether by an original apportionment or a sub-apportionment), income tax shall be assessed and charged in respect of that sum in accordance with the following provisions of this section and sections 427 and 428.
(2)Where a sum has been so apportioned to an individual—
(a)it shall be treated for the purpose of computing his total income as income received by him at the end of the accounting period to which the apportionment relates and, subject to section 833(3), shall be deemed to be the highest part of his total income;
(b)no assessment shall be made on the individual in respect of income tax at the basic rate on that sum (nor, in the case mentioned in section 427(1), in respect of income tax at any other rate) but he shall be treated as having paid income tax at the basic rate on that sum or, if his total income is reduced by any deductions, on so much of that sum as is part of his total income as so reduced;
(c)no repayment shall be made of the income tax treated by virtue of paragraph (b) above as having been paid; and
(d)the sum so apportioned shall be treated for the purposes of sections 348 and 349(1) as not brought into charge to income tax.
(3)Where a sum is so apportioned to the personal representatives of a deceased person it shall be treated, in ascertaining the aggregate income of the estate for the purposes of Part XVI, as having been received as mentioned in paragraph (a) of subsection (2) above, and paragraphs (b) to (d) of that subsection shall apply accordingly with the necessary modifications.
(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.
(1)For the purposes of sections 426 and 427—
(a)the sum apportioned to any person;
(b)the amount mentioned in section 427(1)(b); and
(c)the amount to be excluded from a person’s income in accordance with section 427(4),
shall respectively be taken to consist of the aggregate of that sum or amount and such proportion of it as corresponds to the appropriate rate of advance corporation tax; but paragraphs (a) and (b) above shall not apply in the case of any apportionment so far as made by virtue of section 423(1)(b) or (c).
(2)For the purposes of paragraphs (a) and (b) of subsection (1) above, the appropriate rate of advance corporation tax is the rate applicable to a distribution made at the end of the accounting period to which the apportionment relates, and for the purposes of paragraph (c) of that subsection the appropriate rate of advance corporation tax is the rate applicable to the distribution mentioned in section 427(4)(a).
(1)Any income tax chargeable under section 426 in respect of a sum apportioned to a participator shall be assessed on the participator and, subject to the provisions of this section, all the provisions of the Income Tax Acts relating to assessment and the collection and recovery of tax shall with any necessary modifications apply to tax chargeable under that section.
(2)If the whole or any part of the tax assessed on the participator is not paid within 30 days from the date on which the assessment became final and conclusive or by 1st December in the year next following the year of assessment, whichever is the later, a notice of liability to tax under this section may be served on the company and the tax or the part remaining unpaid, as the case may be, shall be payable by the company upon service of the notice.
(3)Where a notice of liability is served under subsection (2) above, any interest due on the tax assessed on the participator and not paid by him, and any interest accruing due on that tax after the date of service, shall be payable by the company.
(4)Where a notice of liability is served on the company and the relevant tax and any interest payable by the company under subsection (3) above is not paid by the company before the expiry of three months from the date of service, that tax and interest may, without prejudice to the right of recovery from the company, be recovered from the participator.
(5)Where, in consequence of a sub-apportionment, subsections (1) to (4) above apply in relation to a participator in a company other than the company in relation to which the original apportionment was made, references in those subsections to the company shall be taken as references to the company in relation to which the original apportionment was made.
(1)This section has effect where the income of a company is apportioned under section 423(1)(a); and in this section “the apportioned amount” means the aggregate of the amount of that income which is so apportioned (subject to subsection (2) below) and such proportion of the amount as corresponds to the rate of advance corporation tax applicable to a distribution made at the end of the accounting period to which the apportionment relates (“the relevant period”).
(2)Where a company issues to a close company any share capital to which section 249 applies, the amount of the company’s income apportioned under section 423(1)(a) shall, for the purposes of the definition of “apportioned amount” in subsection (1) above, be treated as reduced by an amount equal to the appropriate amount in cash (within the meaning of section 251(2)).
(3)If in the relevant period the company has a surplus of franked investment income, the surplus (so far as not already reduced in consequence of a claim under section 242 or 243 or of being used to frank distributions made by the company in a subsequent accounting period) shall be treated for all purposes as reduced by a sum equal to the apportioned amount or, if that is greater, as extinguished.
(4)If in the relevant period the company has no such surplus (so far as not already reduced as mentioned in subsection (3) above) or the apportioned amount exceeds that surplus (so far as not already so reduced), subsections (5) to (7) below shall have effect in relation to a sum equal to the advance corporation tax comprised in a franked payment made at the end of the relevant period of an amount equal to the apportioned amount or to that excess, as the case may be.
(5)If, apart from this section, surplus advance corporation tax of a later accounting period could by virtue of subsection (3) of section 239 be set against the company’s liability to corporation tax for the relevant period, that advance corporation tax shall not be so set except to such extent, if any, as would be possible if the sum mentioned in subsection (4) above had been advance corporation tax available to be so set against that liability for the relevant period and had, so far as permitted by that section, already been set against that liability.
(6)If the sum mentioned in subsection (4) above exceeds the amount that could, if it were advance corporation tax available for the purpose, be set as mentioned in subsection (5) above against the company’s liability for the relevant period—
(a)there shall be deducted from the excess an amount equal to the advance corporation tax, if any, that could by virtue of subsection (3) of section 239 be set against the company’s liability to corporation tax for earlier accounting periods after taking into account advance corporation tax so set in consequence of a claim already made under that subsection; and
(b)if no such claim has already been made, advance corporation tax shall not by virtue of any such claim be set against the company’s liability to corporation tax for any such earlier accounting periods except to such extent, if any, as would be possible if an amount equal to any deduction under paragraph (a) above had been advance corporation tax available to be so set and had, so far as permitted by section 239, already been set against that liability.
(7)Any excess of the sum mentioned in subsection (4) above remaining after the deduction mentioned in subsection (6)(a) above—
(a)shall be assessed on and recoverable from the company as if it were advance corporation tax payable by the company in respect of a distribution made by it at the end of the relevant period; and
(b)shall carry interest as if it were advance corporation tax so payable; and
(c)shall be treated as surplus advance corporation tax of the relevant period falling to be dealt with in accordance with section 239(4).
(8)Tax assessed by virtue of subsection (7)(a) above shall, subject to any appeal against the assessment, be due within 14 days after the issue of the notice of assessment.
(9)Subsection (7)(c) above shall not be construed as authorising any sum to be carried forward to a later accounting period in any case in which section 245 would prevent the carry-forward of advance corporation tax.
(10)Section 238 shall apply for the interpretation of this section as it applies for the interpretation of Chapter V of Part VI.