Income and Corporation Taxes Act 1988

424 Exclusions from section 423

(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.