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Close company surcharges.
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91.—(1) Section 434 of the Principal Act is amended—
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(a) in subsection (1)—
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(i) by the substitution of the following for the definition of “distributable income”:
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“‘distributable income’ means the aggregate of the amounts of the distributable trading income and distributable estate and investment income;”,
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(ii) by the insertion after the definition of “estate income” of the following:
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“‘franked investment income’ excludes—
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(a) a distribution made out of exempt profits within the meaning of section 140,
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(b) a distribution made out of disregarded income within the meaning of section 141 and to which subsection (3)(a) of that section applies, and
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(c) a distribution made out of exempted income within the meaning of section 142;
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‘income’ of a company for an accounting period means the income as computed in accordance with subsection (4);”,
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and
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(iii) by the insertion of the following after the definition of “investment income”:
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“‘relevant charges’, in relation to an accounting period of a company, means charges on income paid in the accounting period by the company and which are allowed as deductions under section 243, other than so much of those charges as is paid for the purposes of an excepted trade within the meaning of section 21A;”,
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(b) in subsection (4)—
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(i) by the substitution of “The income” for “For the purposes of subsection (1), the income”, and
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(ii) by the substitution of the following for paragraphs (g) and (h):
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“(g) any amount which is an allowable deduction against relevant trading income by virtue of section 243A.”,
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and
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(c) by the substitution of the following for subsection (5):
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“(5) (a) The estate and investment income of a company for an accounting period shall be the amount by which the sum of—
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(i) the amount of franked investment income for the accounting period, and
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(ii) an amount determined by applying to the amount of the income of the company for
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the accounting period the fraction
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A
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where—
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B
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A is the aggregate of the amounts of estate income and investment income taken into account in computing the income of the company for the accounting period, and
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B is the total amount of income so taken into account,
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exceeds the aggregate of—
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(I) the amount of relevant charges, and
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(II) the amount which is an allowable deduction in computing the total profits for the accounting period in respect of expenses of management by virtue of section 83(2).
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(b) The trading income of a company for an accounting period shall be the income of the company for the accounting period after deducting—
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(i) the estate and investment income of the company for the accounting period as computed in accordance with paragraph (a),
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(ii) where the aggregate of the amounts specified in clauses (I) and (II) of paragraph (a) exceeds the sum of the amounts specified in subparagraphs (i) and (ii) of that paragraph, the amount of the excess, and
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(iii) charges on income paid for the purposes of an excepted trade within the meaning of section 21A.
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(5A) (a) For the purposes of sections 440 and 441, but subject to paragraph (b)—
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‘distributable estate and investment income’ of a company for an accounting period means the estate and investment income of the company for the accounting period after deducting the amount of corporation tax which would be payable by the company for the accounting period if the tax were computed on the basis of that income;
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‘distributable trading income’ of a company for an accounting period means the trading income of the company for the accounting period after deducting the amount of corporation tax which, apart from sections 22A(2) and 448(2), would be payable by the company for the accounting period if the tax were computed on the basis of that income.
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(b) In the case of a trading company, the distributable estate and investment income for an accounting period shall be the amount determined in accordance with paragraph (a) reduced by 7.5 per cent.”.
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(2) Section 440 of the Principal Act is amended—
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(a) in subsection (1)(a) by the substitution of “distributable estate and investment income” for “aggregate of the distributable investment income and distributable estate income”,
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(b) by the insertion after subsection (2) of the following:
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“(2A) For the purposes of subsection (2)(a), the accumulated undistributed income of a company at the end of an accounting period shall be the aggregate of the undistributed income of the company for accounting periods ending on or before the end of that period computed—
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(a) in the case of any such accounting period which ended before 14 March 2001, in accordance with section 434 before amendment by the Finance Act, 2001, and
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(b) in the case of any such accounting periods ending on or after 14 March 2001, in accordance with section 434 as amended by the Finance Act, 2001.”.
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(3) Section 441 of the Principal Act is amended—
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(a) in subsection (4)—
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(i) in paragraph (a) by the substitution of the following for subparagraphs (i) and (ii)—
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“(i) the distributable estate and investment income, and
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(ii) 50 per cent of the distributable trading income,”,
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and
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(ii) in paragraph (b)(iii) by the substitution of “distributable estate and investment income” for “aggregate of distributable investment income and the distributable estate income”,
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and
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(b) in subsection (6)(b)(ii) by the substitution of “‘distributable estate and investment income’ and ‘distributable trading income’” for “‘distributable income’, ‘distributable investment income’ and ‘distributable estate income’”.
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(4) This section applies as respects an accounting period ending on or after 14 March 2001.
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