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Where an accounting period straddles the beginning of a financial year for which the lower or upper limits for marginal relief differ from those of the preceding financial year, the two parts of the accounting period are treated as if they were separate accounting periods.聽 The profits are apportioned between those parts on a strict聽time basis (CTA10/S1172).聽 The profits for each part are then compared with the appropriate fractions of the lower or upper limits for the financial year in which each part falls.

If the profits in either part fall between the appropriate fractions of the lower and upper limits the taxable total profits (CTM03915) are apportioned on a time basis and marginal relief is computed as if each part is a separate accounting period.聽 Authority for apportionment is given by the Finance Act for the year in which the amounts change.

The parts are also to be treated separately in restricting the limits to take account of associated companies (CTM03940 onwards). The limits for one part are not to be reduced on account of a company that is associated only during the other part.

If the fraction or rate changes, but the limits remain unchanged, apportionment of the amount deducted as marginal relief (CTM03925) is required so that the different fractions or rates can be applied. This apportionment does not mean that the two parts are to be considered separately in restricting the limits to take account of associated companies.

For accounting periods straddling 1 April 2023, the parts falling before and after 1 April 2023 are treated as separate accounting periods.聽 The total profits are apportioned聽between those periods on a time basis with the small profits rate provisions applying聽to the period from 1 April 2023.

Example

Company with AP straddling the commencement date 聽- 1/1/2023 to 31/12/2023

The company has profits of 拢175,000 and two associated companies throughout the entire accounting period.

The accounting period straddling 1 April 2023 is divided into two notional periods and the profits are apportioned to each on a strict time basis.

First notional period:

1/1/2023 to 31/3/2023 = 90 days聽 聽聽聽聽聽聽聽聽聽聽聽 Profits of the period =聽 (90/365) x 拢175,000 = 拢43,151

Second notional period:

1/4/2023 to 31/12/2023 = 275 days聽聽聽聽聽聽聽聽 Profits of the period = (275/365) x 拢175,000 = 拢131,849

The profits of the first notional period are chargeable at the main rate of 19%

拢43,151 x 19%聽 = 拢8,198.69

The profits of the second notional period must then be compared with the adjusted thresholds for the application of the small profits rate, marginal relief or the CT main rate of 25%.

The thresholds are adjusted for the short notional AP and the number of associated companies.聽 (Note that Financial Year 2023 is a leap year and, as the thresholds apply on a Financial Year-by-Financial Year basis, they聽are apportioned by reference to the number of days in the Financial Year.聽 The profits are always apportioned by length of the accounting period.)

Lower limit 拢50,000 x (275/366) = 拢37,568

Upper limit 拢250,000 x (275/366) = 拢187,841

There are three associated companies in total, so the above adjusted amounts are divided by 3 giving:

聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 Lower limit聽聽聽聽聽聽聽聽聽 拢37,568/ 3 = 拢12,522

聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 Upper limit 聽聽聽聽聽聽聽 拢187,841/ 3 = 拢62,614

The apportioned profits of 拢131,849 exceed both these limits so they are chargeable at the main rate of 25%.

拢131,849 x 25% = 拢32,962.25

Total CT liability

拢32,962.25 plus 拢8,198.69 = 拢41,160.94