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Surcharge on undistributed income of service companies.
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162.—(1) Subject to subsection (2), in this section “service company” means—
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(a) a close company whose business consists of or includes the carrying on of a profession or the provision of professional services,
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(b) a close company having or exercising an office or employment, or
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(c) a close company whose business consists of or includes the provision of services or facilities of whatsoever nature to or for—
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(i) a company within either of the categories referred to in paragraphs (a) and (b),
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(ii) an individual who carries on a profession,
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(iii) a partnership which carries on a profession,
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(iv) a person who has or exercises an office or employment, or
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(v) a person or partnership connected with any person or partnership referred to in subparagraphs (i) to (iv):
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Provided that the provision by a close company of services or facilities to or for a person or partnership not connected with the company shall be disregarded for the purposes of this paragraph.
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(2) Where the principal part of a company's income which is chargeable to corporation tax under Cases I and II of Schedule D and Schedule E is not derived from—
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(a) carrying on a profession,
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(b) providing professional services,
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(c) having or exercising an office or employment,
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(d) providing services or facilities (other than services or facilities referred to in the proviso to subsection (1) (c)) to or for any person or partnership referred to in subsection (1) (c) (i) to (v), or
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(e) any two or more of the activities specified in paragraphs (a) to (d),
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the company shall be deemed not to be a service company.
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(3) For the purposes of this section—
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(a) a partnership shall be treated as connected with a company or individual (and a company or individual shall be treated as connected with a partnership) if any one of the partners in the partnership is connected with the company or individual,
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(b) a partnership shall be treated as connected with another partnership if any one of the partners in the partnership is connected with any one of the partners in the other partnership.
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(4) Where for an accounting period of a service company, the aggregate of—
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(a) four-fifths of the distributable income, and
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(b) one-fifth of the aggregate of the distributable investment income and the distributable estate income
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exceeds the distributions of the company for the accounting period, there shall be charged on the company for the accounting period an additional duty of corporation tax (in this section referred to as a surcharge) amounting to 20 per cent. of the excess:
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Provided that—
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(i) a surcharge shall not be made on the company where the excess is equal to or less than the smaller of the following amounts—
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(I) £500, or, if the accounting period is less than twelve months, £500 proportionately reduced, and
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(II) where the company has one or more associated companies, £500 divided by one plus the number of those associated companies, or, if the accounting period is less than twelve months, £500 proportionately reduced divided by one plus the number of those associated companies;
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(ii) where the excess is greater than the smaller amount on which by virtue of paragraph (i) a surcharge would not be made, the amount of the surcharge shall not be greater than a sum equal to four-fifths of the amount by which the excess is greater than that smaller amount.
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(5) The provisions of section 101 (1) shall not apply in relation to a service company but the provisions of section 101 (2) (3) (4) (5) (6) shall apply in relation to a surcharge made under this section as they apply in relation to a surcharge made under the said section 101 with the substitution in section 101 (2) of a reference to subsection (4) of this section for the reference to subsection (1) of that section.
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(6) (a) The provisions of section 100 (1) (2) (6) (7) (meaning of distributable income, etc.) shall apply for the purposes of this section as they apply for the purposes of the said section 100 or section 101 as the case may be.
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(b) For the purposes of this section—
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(i) the income of a company for an accounting period is its income computed for that period as defined in section 100 (3);
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(ii) distributable income, distributable investment income and distributable estate income of a company for an accounting period have the meanings assigned to them by section 100 (4) (5) with the substitution for the reference to a trading company in each place where it occurs in section 100 (5) of a reference to a service company.
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(7) The provisions of section 157 shall apply for the purposes of this section.
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