Finance Act, 1941

Provisions in respect of deductions for the remuneration of directors.

43.—The following provisions shall apply and have effect in relation to the ascertainment, for the purpose of a charge to excess corporation profits tax, of the amount of the profits of a company the directors whereof have a controlling interest therein, that is to say:—

(a) in the case of a company the standard profits of which are computed otherwise than by reference to the substituted standard, no deduction shall be allowed in respect of remuneration paid to a director in excess of whichever of the following amounts is the greater, that is to say:—

(i) an amount calculated at the rate of one thousand pounds per annum, or

(ii) the amount of the remuneration paid by the company to such director in respect of the trade year by reference to the profits in which the standard profits of the company are computed or would be computed if the said profits of the company were not less than two thousand five hundred pounds;

(b) in the case of a company the standard profits of which are computed by reference to the substituted standard, no deduction shall be allowed in respect of remuneration paid to a director in excess of an amount calculated in accordance with whichever of the following provisions is applicable, that is to say:—

(i) if there have been, in respect of the company, three or more consecutive trade years the last of which ended in the year ended on the 31st day of August, 1939, the average amount of the remuneration paid to such director by the company in respect of the three last of the said trade years or an amount calculated at the rate of one thousand pounds per annum, whichever is the greater, or

(ii) if there have been, in respect of the company, two and only two consecutive trade years the later of which ended in the year ended on the 31st day of August, 1939, an amount equal to half the total remuneration paid to such director by the company in respect of those two trade years or an amount calculated at the rate of one thousand pounds per annum, whichever is the greater, or

(iii) if there has been, in respect of the company, one and only one trade year and that trade year ended in the year ended on the 31st day of August, 1939, the amount of the remuneration paid to such director by the company in respect of that trade year or an amount calculated at the rate of one thousand pounds per annum, whichever is the greater, or

(iv) if there has been, in respect of the company, no trade year ending in the year ended on the 31st day of August, 1939, an amount calculated at the rate of one thousand pounds per annum;

(c) in any case, no deduction shall be allowed in respect of remuneration paid to a director appointed after the end of the trade year which ended in the year ended on the 31st day of August, 1939,—

(i) if such director was so appointed to fill the place of another director, in excess of the maximum amount which would be allowed to be deducted under the foregoing provisions of this section in respect of the remuneration of such other director if he had continued in office, and for that purpose, where such other director was himself appointed during the three consecutive trade years the last of which ended in the year ended on the 31st day of August, 1939, to fill the place of a predecessor or successive predecessors, the remuneration paid to such predecessor or successive predecessors respectively shall be deemed to be remuneration of such former director, or

(ii) in any other case, in excess of an amount calculated at the rate of one thousand pounds per annum;

(d) in the application of the provisions of the foregoing paragraphs of this section to the assessment of excess corporation profits tax in respect of an accounting period or part of an accounting period which is less than twelve months, the maximum amount which may be allowed to be deducted under those provisions in respect of the remuneration of a director shall be reduced to a sum which bears to the maximum amount specified in whichever of those provisions is applicable the same proportion as the said accounting period or part of an accounting period bears to twelve months;

(e) in the case of a company which did not begin to carry on trade or business until on or after the 1st day of September, 1939, no deduction shall be allowed in respect of the remuneration of a director in excess of an amount calculated at the rate of one thousand pounds per annum;

(f) none of the foregoing provisions of this section shall apply or have effect in relation to the remuneration of a director who is required to devote substantially the whole of his time to the service of the company in a managerial or technical capacity and is not the beneficial owner of or able (directly or through the medium of other companies or by any other indirect means) to control more than five per cent. of the ordinary stock or shares of the company.