Commentary

D4.806 Quantification of credit

Corporate tax
Corporate tax | Commentary

D4.806 Quantification of credit

Corporate tax | Commentary

D4.806 Quantification of credit

In addition to the rules at E6.435, the following specific provisions apply only to companies when establishing the amount of credit relief available (and assuming an election has not been made for exemption for the profits of a foreign permanent establishment (D4.801)).

General rule

Broadly, the general rule is that credit relief is given for the lower of the overseas or UK taxes payable (see E6.435). However, this general rule is modified in two circumstances:

  1.  

    •     Where the credit relates to CT on income that is trade income;

  2.  

    •     when the UK resident company has an overseas permanent establishment (PE) and the losses of the PE have been set off against profits other than those relating to the PE or of the company which has the PE.

As with income tax and capital gains tax a limit is also placed on the amount of credit allowed against corporation tax1. The limit is found by the formula R × IG where:

  1.  

    –     R is the rate of corporation tax payable by the company before allowing for any credit relief on the company's income or capital gains for the accounting period in which the income or gain accrues; and

  2.  

    –     IG is the amount of the income or gain.

The income or gain (IG in the above formula) is after allowing for general deductions, earlier year deficits on loan relationships, debits on loan relationships, current year deficits on loan relationships and debits on intangible fixed assets (although see D4.807

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