CTM16230 - Distributions: impact on Corporation Tax: franked investment income under the ACT system abolished from 6 April 1999 - surplus - claims under ICTA88/S242 - relief for less than a complete accounting period

For accounting periods beginning before 2 July 1997, an ICTA88/S242 claim could relate to relief for trading losses.   ICTA88/S393A (1) could result in relief being given for a period that is not a complete accounting period.   In these circumstances the surplus franked investment income (FII) against which the relief is due was restricted on a time basis.

Similar rules applied to claims in respect of:

  • capital allowances, and
  • relief for losses on shares in unquoted companies.

Example

A company had excess capital allowances of £10,000 in the 9-month accounting period ended 31 December 1995. The company wanted to carry these back to set against the £10,000 surplus FII of the 12 month accounting period ended 31 March 1995, under ICTA88/S242.  However, the claim under ICTA88/S242 could not exceed nine-twelfths of the surplus FII of the year ended 31 March 1995. This is because the period in which the company incurred the excess capital allowances was only nine months long while the FII relates to a twelve-month period.   Hence the maximum claim was 9 / 12 x 10,000 = £7,500.