The government have tabled an amendment to the Finance Bill which, if passed, will enable a company to elect to use a “just and reasonable” basis to apportion profits for Supplementary Charge purposes between 2011 “straddling” periods where use of a time apportionment basis would result in an “unjust or unreasonable” result for the company.
The Finance Bill has the effect of increasing the SCT rate from 20% to 32% with effect from 24 March 2011. For periods that straddle this date the Bill as originally published provided that an average rate should be used, such that, a company with a 12 month period ended 31 December 2011 would apply an effective SCT rate of 29.3% for the period. It has been pointed out to government that this has the effect of retrospectively applying the increased rate to profits which had already accrued as at Budget Day, for example in situations where asset sales had been completed before that date.
Comment: This change is very welcome. Companies may not be in a position to determine whether the election is beneficial until later in the year but it will be worth all companies which are expected to be tax paying in 2011 to carefully review the position. Based on our experience at the time of the introduction of SCT, where companies were faced with a similar choice it may be possible to generate a significant tax saving using a “just and reasonable” basis as compared to a simple daily average.
3rd May 2011