Chapter 60 – Corporation Tax Computation (1): General Rules
60.5 Rates. The main rate of corporation tax for the financial years 2024 and 2025 is
25%. A small profits rate of 19% applies for companies on profits up to £50,000 with
effect from 1 April 2023. An effective marginal rate of 26.5% applies on profits
between £50,000 and £250,000.
60.9 Non-resident Companies. HMRC has published new guidance with examples in
INTM264435 on employees of overseas entities working temporarily in the UK and
considering whether the permanence condition of the fixed place of business
permanent establishment test might be met in those scenarios.
Chapter 61 – Distributions
61.2.2 Other Distribution out of Assets but in Respect of Shares. In S Clipperton
and another v HMRC [2024] EWCA Civ 180, the Court of Appeal held that a
‘distribution … in respect of shares’ is, on a purposive construction of the statute,
wide enough to include a distribution by a company which is designed to reach, and
does reach, the company’s shareholders even if it does so as a result of a series of
steps.
61.2.6 Other Interest Payments. In Shinelock Ltd v HMRC [2023] UKUT 107
(TCC), the Upper Tribunal held that a payment to a shareholder that was calculated by
reference to the capital gain arising on a property disposal constituted a distribution in
respect of a ‘special security’ in CTA 2010 s 1000 para F because it was results
dependent. The taxpayer thus was precluded from claiming a loan relationship debit
in respect of the payment.
61.3 Taxation of Shareholders—ITTOIA 2005, Part 5, Chapter 3. The tax-free
dividend allowance is £500 for 2024-25 and subsequent tax years. Some recent cases
on the taxation of dividends are also noteworthy. An interim dividend is taxable when
actually paid rather than declared: see Gould v HMRC [2022] UKFTT 431 (TC). A
part of a dividend declared but not actually paid is not taxable: see Jays and another v
HMRC [2022] UKFTT 420 (TC).
Chapter 62 – Computation (1): General Rule
62.2.4 Enhanced Expenditure. FA 2023 made some changes to the R&D
expenditure credits, reducing the SME R&D tax credit additional tax deductions from
130% to 86% and the SME R&D cash claims from 14.5% to 10%. R&D expenditure
credits increased from 13% to 20%.
FA 2024 introduced a new merged scheme for R&D, for accounting periods beginning
on or after 1 April 2024. The merged scheme replaces the R&D tax relief for SMEs
and the R&D Expenditure Credit (RDEC), mainly claimed by larger companies.
However, the FA 2024 provisions also provide additional relief for lossmaking R&D
intensive SMEs through a higher rate of payable tax credit from April 2023, as a
feature of the existing SME Scheme that will continue to apply rather than the new
merged scheme.
In addition, from 1 January 2024, the film, television and video game development
reliefs are being phased out in favour of audio-visual expenditure and video games
expenditure credits. The existing reliefs will come to an end from 1 April 2027.
62.3.3 Substantial Shareholding Exemption. In M Group Holdings Ltd v HMRC
[2023] UKUT 213 (TCC), the Upper Tribunal held that the TCGA 1992 Sch 7AC para
15A extension to the 12-month holding period condition in allowing divisionalised
businesses to sell trading divisions using a hive-down and sale structure did not apply
unless a group had existed throughout that period.
62.5.1.3 Set-off Against General Profits of the Same Accounting Period and
the Preceding Year (Three Years for Terminal Losses). In Civic Environmental
Systems Ltd v HMRC [2023] EWCA Civ 722, the taxpayer company had made a
claim to carry back corporation tax losses to a previous accounting period.
The losses claimed in the carry back claim exceeded the profits available, with the
excess to be carried forward. The profits for that previous year were subsequently
adjusted upwards, and the taxpayer sought to reclaim a higher amount of loss
carryback. However, the Court of Appeal concluded that there was no provision for a
freestanding claim for carried-back losses to be reopened.
Chapter 63 – Computation (2): Accounting-based Rules for Specific Transactions
63.2.7 Anti-avoidance. In BlackRock Holdco 5 LLC v Revenue and Customs Comrs
[2024] EWCA Civ 330, the company’s non-trading loan relationship debits in respect
of interest payments on intra-group loans put in place as part of the funding structure
for a commercial acquisition were not restricted under the transfer pricing rules, but
the debits were disallowed under the loan relationships unallowable purpose rule. See
also Kwik-Fit Group Ltd v Revenue and Customs Comrs [2024] EWCA Civ 434,
upholding the First-tier Tribunal and Upper Tribunal decisions, that debits on certain
intra group loans forming part of a reorganisation which was intended to accelerate
the use of tax assets had unallowable purpose. In JTI Acquisition Company (2011) Ltd
v Revenue and Customs Comrs [2021] UKFTT 446 (TC), upheld in [2023] UKUT
194 (TCC), debits in respect of interest on loan notes issued by a company under a
series of transactions in connection with the acquisition of a US company by a
multinational group were disallowed for unallowable purpose.
