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For the purpose of the small profits relief in CTA10/PART3 the augmented profits of a company for any accounting period were defined by CTA10/S32 (before repeal) as:

• the taxable total profits of that period, as defined in CTA10/S4 (2) and (3), plus
• any franked investment income received by the company in that period other than franked investment income which the company (if a member of a group) received from companies within the group.

For this purpose, franked investment income was treated as received from within the group only if the dividends were

• paid by a 51 per cent subsidiary of the recipient or of a company of which the receiving company was a 51 per cent subsidiary, or
• paid by a trading company or relevant holding company that was a ‘quasi-subsidiaryâ€� of the receiving company: a quasi subsidiary company meant one owned by a consortium of which the receiving company was a member, which was not a 75 per cent subsidiary of any company, and no arrangements existed for it to become so.

CTA10/S33 provided additional interpretation:

• as regards the 51 per cent subsidiary relationship, in addition to the requirements at CTA10/S1154 (2) the relationship would only have qualified at any time if the parent would have been entitled to more than 50 per cent of
  • profits available for distribution to equity holders and
  • assets available to equity holders on a winding up,

ignoring indirect ownership and ownership on trading account.

CTA10/S33 further provided that:

• trading company had the usual meaning of one whose business consisted of carrying on a trade or trades,
• relevant holding company meant a company whose business consisted of holding shares in or securities of 90 per cent trading subsidiaries, and
• a company was owned by a consortium if at least 75 per cent of its ordinary share capital was beneficially owned by two or more companies each of which had at least a 5 per cent beneficial entitlement to profits and assets available to equity holders as above.

The group relief provisions set out in CTA10/PART5/CHAPTER6 applied for the purpose of identifying equity holders and profits and assets available for distribution.

Similar rules applied to calculate small companies� relief in relation to ‘basic profits� - profits on which CT falls finally to be borne - with the addition of franked investment income.  Prior to 6 April 1999 franked investment income was treated as received from within the group only if the dividends were or might be ‘group income�.  Foreign income dividends were included.

If the franked investment income arose in 1993-94, see CTM20550.