Finance Bill Tracking Service 2010 | Budget 2010

BN04 CORPORATION TAX SMALL PROFITS RATE

Who is likely to be affected?

1. Companies with profits chargeable to corporation tax (CT) below the lower limit (currently £300,000), companies with CT profits between the lower limit and the upper limit (currently £1.5 million), and companies with profits from oil extraction and oil rights in the UK and the UK Continental Shelf ("ring fence profits").

General description of the measure

2. Legislation will be introduced in Finance Bill 2010 to keep the small profits rate for all profits, apart from ring fence profits, at 21 per cent from 1 April 2010 and keep the fraction used in smoothing the difference between the main rate of CT and the small profits rate ("marginal relief") at 7/400.

3. The small profits rate for ring fence profits will remain at 19 per cent from 1 April 2010 and the marginal relief fraction for ring fence profits will remain at 11/400.

Operative date

4. The measure will have effect on and after 1 April 2010.

Current law and proposed revisions

5. The rates of CT are legislated annually in the Finance Act (FA). The current provisions for the rates of CT can be found at sections 7 and 8 of FA 2009.

6. The current rules at section 18 of the Corporation Tax Act 2010 (CTA) provide that where a company is not a close investment-holding company and its CT profits (other than ring fence profits) do not exceed the lower limit (currently £300,000), those profits are taxed at the lower rate of CT, known as the "small profits rate" (currently 21 per cent).

7. Legislation will be introduced in Finance Bill 2010 to maintain the small profits rate at 21 per cent for non-ring fence profits. The small profits rate for ring fence profits will also remain at 19 per cent for the financial year 2010-11.

8. Section 19(2) of CTA entitles companies with a profit of between £300, 000 and £1.5 million to marginal relief from tax computed at the main rate. The marginal relief fraction used in calculating this relief is currently 7/400 for non-ring fence profits and 11/400 for ring fence profits.

9. As there is no change to the small profits rate, the marginal relief fraction for non-ring fence profits will remain at 7/400 and for ring fence profits the fraction will also remain at 11/400.

10. The upper and lower limits for the small profits rate are set at section 24 of CTA. These will remain unchanged.

Further advice

11. If you have any questions about this change, please contact Simon Moulden on 020 7147 2629 (email: simon.moulden@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk