What is a 'significant increase' in a company's capital under section 688 of the Corporation Tax Act 2010?

Under section 688, a significant increase occurs when a company's capital after an ownership change (amount B) exceeds its capital before the change (amount A) by at least £1 million, and amount B is at least 125% of amount A. Both the absolute and percentage conditions must be satisfied simultaneously.

Why does the significant increase test in section 688 matter for tax relief?

The significant increase test forms part of condition A in section 677(2), which triggers restrictions on tax relief when a company with an investment business undergoes a change of ownership. If a significant capital increase is found, the company may face limitations on allowable tax reliefs under Chapter 3 of Part 14.

What are amount A and amount B in the context of section 688?

Amount A represents the company's capital at the relevant time before the ownership change, defined in section 689. Amount B represents the capital at the relevant time after the change, defined in section 690. The underlying concept of 'amount of capital' itself is explained in section 691. All four sections must be read together.

Can a company fail the significant increase test even if its capital has grown substantially?

Yes. Both conditions must be met simultaneously. A very large company whose capital rises from £100 million to £100.5 million would fail the absolute £1 million threshold despite having increased. Conversely, a small capital increase could meet the £1 million test but fail the 125% percentage requirement.

Corporation Tax Act 2010 section 688

Meaning of "significant increase in the amount of a company's capital"

Section 688 defines what counts as a "significant increase" in a company's capital following a change of ownership, for the purposes of the restrictions on tax relief in Chapter 3 of Part 14.

A significant increase occurs when the company's capital after ownership change (amount B) exceeds the capital before the change (amount A) by at least £1 million
In addition, amount B must be at least 125% of amount A — both conditions must be met
The definitions of amount A and amount B are set out in sections 689 and 690 respectively, with "amount of capital" defined in section 691
This test forms part of the conditions restricting tax relief where a company with an investment business undergoes a change of ownership

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