CheckLists.Tax (beta)
G3: Company income
INCOME TAX: COMPANY
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Residence
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- Exclusions from income tax charge for non-resident company on non-UK income
Trading income - ITTOIA 2005, s.6
Property income - ITTOIA 2005, s.269
Savings and investment income - ITTOIA 2005, s.368
Miscellaneous income - ITTOIA 2005, s.577
Employment income - ITEPA 2003, s.15
Pension income - ITEPA 2003, s.575​
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​- Relief for non-resident company on UK income
- Income tax liability of non-resident company is limited to tax deducted at source plus tax on income that is not disregarded company income.
- Property income is not disregarded income.
Legislation: ITA 2007, s.815
HMRC manuals:
Commentary: Kessler, Chapter 50;
See further: ​
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- Requirement for economic substance in certain jurisdictions
- E.g. Jersey
- High-risk IP companies presumed to fail substance test unless prove otherwise.
- Does not automatically lead to UK residence, but leads to exchange of information, penalties and potential striking off
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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INCOME TAX: OTHERS (MIXED MEMBER LLPs)
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Mixed member partnerships/LLPs
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- Mixed partnership reallocation to individual partner
- Profits can be reallocated even if they might be said to relate to a period when the individual was not a partner (Walewski, §31);
Legislation: ITTOIA s.850C to 850E.
Cases: Walewski v. HMRC [2021] UKUT 133 (TCC);
HMRC manuals:
Commentary:
See also:
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INCOME TAX: OTHERS (SETTLEMENTS CODE)
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Settlements legislation: attribution of income to settlor
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- Application to company income where company owned by a trust
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General position
- If company is owned by trust, it is generally considered that the income arising "under a settlement" is the income of the trust (e.g. dividends), not the company, because the trust is the bounteous arrangement.
- E.g. if trust bought shares in a listed company, nobody would suggest the income of that company arose under the settlement. The company is an investment of the bounteous arrangement.
- "Further, it seems to me that, while the word “settlement” is defined in the widest terms, the more crucial point is likely to be the determination of what the “property comprised in the settlement” consists of in the particular case. The present case affords, in my opinion, a good illustration of this point, and the question may be thus stated. Did the property comprised in the settlement consist of the whole assets of Staffa, or is the property comprised in the settlement to be found separately comprised in each of the 5 deeds of settlement, the formation of Staffa being part of the arrangement conceived by the appellant, whereby a convenient and profitable investment was made available for the moneys respectively settled under the 5 deeds of settlement? My Lords, I am of opinion that the latter alternative provides the correct view of the arrangement made by the appellant with a view to making provision for his children." (Chamberlain at 329)
- Sometimes HMRC argue that a company underlying a trust is part of the settlement (Mattu).
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Creation of company had no independent logic from settlement
- In some cases, steps prior to the contribution to the trust may be preparatory and not part of the settlement whereas in others they will be part of the settlement.
- If the prior step has an economic logic that is freestanding and severable from the trust, that is a strong indication that it is not part of the settlement (Dunsby Ut, §96).
- e.g. where the company is long standing or was set up to carry on a specific trade.
- In Chamberlain, the creation of a company had its own economic logic independent of the steps taken to give cash to trustees to allow them to buy shares in the company (Dunsby UT §97).
- In Dunsby the creation of a new class of shares for a third party followed by the settlement of those shares into trust by the third party had no independent economic logic (Dunsby UT, §98).
​UK resident company
- If company is UK resident or within charge to CT, CTA 2009, s.3(1) disapplies the "provisions of the Income Tax Acts relating to the charge to income tax" to the income of the company.
- HMRC do not appear to accept this point in relation to TOAA, however.
Non-resident company
- For non-resident companies, consider the TOAA rules instead.
Legislation: ITTOIA s.624; CTA 2009, s.3;
Cases:
Mattu v. HMRC [2021] UKUT 245 (TCC)
Dunsby v. HMRC [2021] UKUT 289 (TCC), Bacon J and Judge Herrington;
HMRC manuals:
Commentary: Kessler, Chapter 47; Chamberlain §11.25;
See also:
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- Working for a company for a fraction of true value may be a settlement of the income generated/dividends
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General rule
- A person may provide funds to a 'settlement' by entering into a service contract whereby funds that would ordinarily be received by them are diverted to a company.
- If the company is owned wholly by the individual, there may be no bounteous intent. But if it is owned by a trust/others there may be bounteous intent.
- Query whether the company income or the dividends are the income arising under the settlement (or both).
- Consider the three settlements charges (Settlor/spouse retains an interest; income paid to minor children of settlor; capital sum to settlor/spouse).
- See further
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Examples
- Crossland v. Hawkins - T was a director, but not a shareholder of a company which a trust for the benefit his children purchased 98% of the shares in using funds contributed by their grandfather. T agreed to serve the company for a modest salary whereas the company received large fees for T's services as an actor. Held: there was a settlement. "when eventually there is a fund of profit derived from Hawkins' services and a distribution of part of it to the trustees, again I see no difficulty in holding that the result of all that has gone before is that he has provided funds indirectly for the purposes of this settlement."
- IRC v. Mills - T, a promising actress, entered into a contract with a company owned by a trust of which she was the beneficiary. T expected a contract worth £30,000 per year, but the company paid her a salary of £400. The company entered into the contract with the third party. Dividends were paid to the trustees. Held: T was a settlor and the dividends were income arising under the settlement.
- "the source of the dividends was money paid for Miss Mills's work and money which but for the arrangement would have been received by her."
- "...funds, which ordinarily would have been received by Mr. Hawkins and by Miss Mills for their acting, were diverted to companies which were channels for their transmission to trustees. It is not the provision of services but of funds which comes within the section."
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Legislation:
Cases:
Crossland v. Hawkins 39 TC 493;
IRC v. Mills [1974] STC 130, HoL;
HMRC manuals:
Commentary:
See also:
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- Services and loans/guaranteeing loans to company owned by children as a settlement
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- Butler v. Wildin: T's children acquired shares for a 'trifling sum' in a company set up to carry out a development project. T made loans to the company and guaranteed bank loans. Held that this arrangement was a settlement.
- "The risk that the development would not prove profitable and might result in loss was taken by the taxpayers."
- "the arrangement made by the taxpayers was clearly a reciprocal arrangement under which each contributed, whether by the provision of skill and services or by making temporary loans, to the common purpose of providing the shareholders of the company and so indirectly and to the extent of their shareholding the four older children with an income-producing asset free of risk and cost."
- Shares transferred later by an uncle were disregarded as not being part of the arrangement.
- Shares transferred later by father were their own settlement.
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Legislation:
Cases:
Butler v. Wildin [1989] STC 22;
HMRC manuals:
Commentary:
See also:
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INCOME TAX: OTHERS (TRANSFER OF ASSETS ABROAD)
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Transfer of assets abroad: general
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- Acquisition of existing non-resident company not, of itself, a relevant transfer
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- If T purchases an existing, non-resident company:
(1) No income arises to the non-resident company as a result of the purchase of its shares.
(2) Insofar as paying the purchase price is a relevant transfer, the purchaser will, generally, not have any power to enjoy the vendors income.
- Accordingly, TOAA should not apply to the income of the company by virtue of the acquisition alone.​
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Legislation:
Cases:
HMRC manuals:
Commentary: Chamberlain §12.34;
See also:
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- Whether income within the scope of corporation tax can be subject to TOAA deeming
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General position
- "The provisions of the Income Tax Acts relating to the charge to income tax do not apply to income of a company if— ... (b) the company is not UK resident and it is chargeable to corporation tax in respect of the income, or would be so chargeable but for an exemption." (CTA 2009, s.3(1)).
- The TOAA rules are "provisions...relating to the charge to income tax".
- Logically, therefore, those provisions are disapplied in relation to 'income of a company' etc.
- HMRC disagree. Whilst company income may be a component in the calculation, the end result and what is charged is 'deemed income'.
- Seems artificial given that the explicit quantum of charge refers to the company income: "The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad." (ITA s.721(3B)).
- That must be a "provision relating to the charge to income tax" on any view, and it 'does not apply to income of a company...".
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Legislation: CTA 2009, s.3;
Cases:
HMRC manuals:
Commentary: Kessler, Ch 51; Chamberlain §12.14.
See also: HMRC Helpsheet HS262;
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- Credit for UK tax paid by the person abroad
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Corporation tax
- See HS262;
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Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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- Controlled foreign company income adjustment
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Exclusion from transferor power to enjoy charge
- Where:
(1) the person broad is a controlled foreign company;
(2) the CFC charge is charged in relation to that CFC's accounting period;
(3) income is treated as arising to an individual under the transferor charge
(4) the income that the individual has power to enjoy includes part of the CFC's chargeable profits for the accounting period;
Then: the income of the person abroad is reduced to reflect the proportion of the CFC's chargeable profits that are apportioned under the CFC code (s.725).
- There is a further adjustment where the transferor is only chargeable on the quantum of the benefit by virtue of s.724 (s.725(2A)).
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Exclusion from transferor capital sum charge
- The same reduction applies to the capital sum charge (s.728(2)).
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Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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Transfer of assets abroad: transferor charge
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- Attribution of company income to transferor with power to enjoy​
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Multiple transferors
- Just and reasonable apportionment.
- HMRC say to look at who actually made, procured or was associated with the transfer (INTM602480).
- Normally apportion in proportion to the value of assets contributed by each individual.
- If the real income is generated by services provided by an individual, it may be just and reasonable to attribute the income to that individual rather than whoever subscribed for shares.
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Transfer made by close company
- Just and reasonable apportionment in proportion with the individuals' qualifying interest in the company (INTM602480).
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Legislation:
Cases:
HMRC manuals: INTM602480;
Commentary:
See also:
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Transfer of assets abroad: benefits charge
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- Matching to benefits​
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XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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- Motive defence and loss of defence​
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- See i3. Trust income.
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Legislation:
Cases:
HMRC manuals:
Commentary:
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EMPLOYMENT TAXATION
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Services provided through intermediaries (IR35)
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- XX
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XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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CORPORATION TAX
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XX
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Tonnage tax regime for maritime fleet companies
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- Alternative basis of taxation
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"[21]...shipping companies which elect into the tonnage tax regime pay corporation tax on their tonnage tax profits in place of corporation tax on the relevant shipping profits. In essence, under the regime, corporation tax is payable applying the normal rate of corporation tax on a deemed daily profit calculated by reference to the net tonnage of vessels operated by the shipping company. Tonnage tax is payable irrespective of the profitability of the trade associated with the operation of the vessels concerned and, in the case of otherwise profitable activity, tax payable under the regime will usually be significantly lower than tax payable on the profits of the trade." (Unicorn)
Legislation:
Cases: HMRC v. Unicorn Tankships (428) Limited [2021] UKUT 109 (TCC);
HMRC manuals:
Commentary:
See also:
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