Budget 2004 - Tax Treatment Of Small Companies - Examples
Q&A 7
Example: A
Assume that PCTCT for an accounting period are £8,000. These profits are distributed by way of a dividend to individuals. The tax computation would be:
PCTCT |
£8,000 @ 0% = |
£0.00 |
Corporation Tax due |
= |
£0.00 |
the underlying rate: |
0.00/8,000 x 100 = |
0% |
Non corporate distribution |
£8,000 @ 19% = |
£1,520.00 |
Remaining PCTCT |
NIL | |
| Total CT due | £1,520.00 |
Example: B
Assume that PCTCT are £40,000. The distributions made in the accounting period totalled £35,000 of which £10,000 were made to a company. The tax computation would be:
| PCTCT £40,000 @ 19% | = | £7,600.00 |
| Less : Marginal Relief (£50,000 – 40,000 x 19/400) | = | £ 475.00 |
| Corporation Tax due on basic profits | = | £7,125.00 |
| the underlying rate is 7125.00/40000 x 100 | = | 17.81% |
| Non corporate distribution £25,000 @ 19% | = | £4,750.00 |
| Remaining PCTCT £15,000 @ 17.81% | = | £2,671.50 |
| Total CT due | £7,421.50 |
|
Q&A 13
Example:
| Company has AP for the year to 30 June 2004 | ||
| PCTCT for AP £40000 | ||
| Distributions: £15000 on 1 November 20031 | ||
| £20000 on 1 May 2004 of which 20% (£4000) to a company 2 | ||
| 80% (16000) to individuals 3 | ||
| Time apportion PCTCT to pre and post 1 April 'APs' | ||
| £40000 x 275/366 = £30,055 pre 1/4/2004 | ||
| £40000 x 91/366 = £9,945 post 1/4/20044 | ||
| Distributions (£20,000) exceed basic PCTCT of the relevant part of the AP (£9,945) | ||
| Proportion of PCTCT which can be matched is £9,945 x 80% (NCDs as a percentage of total relevant distributions) = £7,956 | ||
| Underlying rate of CT for the AP is 17.81% (see working 1) | ||
Working 1
| £40000 @ 19% | = | 7,600 |
||
| Less - Marginal relief 50000-40000 x 19/400 | = | 475 |
||
| CT on profits | = | 7,125 |
||
| Underlying Rate: | = | 7,125/40,000 x 100 |
= | 17.81% |
| The total tax for the AP is therefore: | ||||
non-corporate distributions (NDR) applies to £7,956 @ 19% |
= | 1,511.64 |
| remaining PCTCT at underlying rate £32,044 @ 17.81 % | = | 5,707.04 |
| Total CT Due | = | 7,218.68 |
Excess NCDs to be carried forward to next AP is £16,000 - £7,956 (matched this AP) = £8,044
1 does not come into the calculation of the NDR as before 1 April 2004
2 NDR rate will not apply to that part
4 Only post 1/4/2004 profits fall to be considered for NDR.
Q&A 19
Example:
Company A
Company A is 75% owned by an individual Mr X and 25% owned by another company.
It has no income other than the distribution received from company B (£12,000 x 80% = £9,600).
Company A makes a distribution of £9,600 of which (£9,600 x 75%) £7,200 is an NCD.
Company A has no PCTCT so no CT liability.
Company A’s excess NCD is therefore £7,200 to be allocated as
far as is possible within the group
Company B
The recipient company B is 20% owned by an individual Mrs Y, the remaining shares held by holding company A.
It has profits of £10,000 and makes a distribution of £12,000
| Amount of NCD’s matched in company B | ||
| total NCD £12,000 x20% | = | £2,400 |
| less matched in this accounting period £10,000 x 20% | = | £2,000 |
| own NCDs carried forward | = | £400 |
| Remaining unmatched profits in company B are £10,000 - £2,400 | = | £7,600 |
The maximum capacity to absorb unmatched excess NCD’s from company A are £7,600 x 75% = £5,700.
Company A therefore allocates £5,700 to Company B and carries forward £1,500 (£7,200 - £5,700) excess NCD’s.
| Limits for Marginal relief: | £50,000/2 | = | £25,000 |
|
| £10,000/2 | = | £5,000 |
||
| PCTCT £10000 @ 19 % | = | 1,900.00 |
||
| Marginal relief (£25000 - £10000) x 19/400 | = | 712.50 |
||
| Tax | = | 1,187.50 |
||
| Underlying rate therefore | 1,187.50 |
x 100 | = | 11.87% |
10,000 |
||||
| Corporation Tax chargeable: | ||||
| NCD rate on 2000 @ 19% | = | £380.00 |
||
| NCD rate on 5,700 allocated from Company A @ 19% | = | £1,083.00 |
||
| remaining PCTCT (10,000 - {2,000 +5,700}) x 11.87 % | = | £ 273.01 |
||
| Total CT Due | = | £1,736.01 |
||
