What does section 422 of the Corporation Tax Act 2010 do?

Section 422 provides that where the formula in section 421(3) for calculating the basic amount of a company's income produces a negative result, that amount is automatically treated as nil. This prevents a negative income figure from flowing into the wider calculation under section 417, ensuring the basic amount can never fall below zero.

Why does section 422 set a nil floor for the basic amount?

The nil floor is a common safeguard in United Kingdom tax legislation designed to prevent a negative income figure from distorting other calculations or creating unintended relief. By replacing any negative result with nil, section 422 ensures the basic amount ranges from zero upwards and never produces a minus figure in subsequent computations.

How should a company apply section 422 in practice?

When computing the basic amount of income using the formula in section 421(3), if the result is negative, the company should replace that negative figure with nil in its workings. This nil figure is then carried forward into the income calculation under section 417. The company cannot use or benefit from the negative amount.

Can you give an example of section 422 applying to a negative basic amount?

If a company calculates the basic amount of its income under the section 421(3) formula and the result is negative £5,000, section 422 requires the company to treat the basic amount as nil (£0) instead. This nil figure is then used for the purposes of the income calculation under section 417.

Corporation Tax Act 2010 section 422

Amount to be nil if basic amount negative

Section 422 ensures that where the formula for calculating the basic amount of a company's income produces a negative result, that amount is treated as nil rather than a negative figure.

The basic amount of income is calculated using the formula set out in section 421(3).
If that formula produces a negative figure, the basic amount is automatically treated as nil (zero).
This prevents a negative income amount from being carried into the wider calculation under section 417.
In practice, this means a company's income for these purposes can be zero but can never be less than zero.

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