Part 4 of 4
This is the Finance Act 2021 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2022 to 31 March 2023. Candidates sitting ATX-UK after 31 March 2023 should refer to the Finance Act 2022 version of this article (to be published on the ACCA website in 2023).
So far in this article GF Ltd has begun trading, acquired an additional business in the UK and started a new manufacturing business overseas. In this part we consider the implications if the rate of corporation tax in Marineland was only 8%, such that the corporation tax liability in Marineland could be less than three quarters of the equivalent UK liability. It would then be necessary to consider the application of the CFC rules.
As has already been noted, a CFC is a non-UK resident company that is controlled by UK resident companies and/or individuals. The CFC regime imposes a UK corporation tax liability, a ‘CFC charge’, on the corporate owners of a CFC where UK profits have been artificially diverted from the UK.
In determining whether or not there will be a CFC charge there are two matters to consider:
Chargeable profits are those income profits (not chargeable gains) of the CFC, calculated using UK tax rules, which have been artificially diverted from the UK.
Even though a CFC may have chargeable profits, there is no CFC charge if one of the following exemptions applies.
If none of the exemptions is available, a CFC charge will be levied on UK resident companies (not individuals) entitled to at least 25% of the CFC’s profits. The charge is calculated as follows:
Creditable tax consists of:
If none of the exemptions is available, the CFC charge will be levied on the company’s chargeable profits, ie those profits which have been artificially diverted from the UK. If the chargeable profits are assumed to be £80,000, the CFC charge levied on GF Ltd will be calculated as follows.
|UK corporation tax|
(£80,000 x 19%)
|Less creditable tax|
(£80,000 x 8%)
When answering a question in the exam, any reference to CFCs (or any other technical issue for that matter) must be in accordance with the requirements and the facts of the question. Accordingly, if a question concerned the proposed investment in Marineland as set out in part 3 of this article, the consideration of CFCs should be brief as, due to the rate of corporation tax, any subsidiary in Marineland would not result in a CFC charge due to the tax exemption.
The corporation tax issues relating to groups are considered in two further articles:
Written by a member of the ATX-UK examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.