Chwilio Deddfwriaeth

Finance (No. 2) Act 2017

Pa Fersiwn

 Help about what version

Nodweddion Uwch

 Help about advanced features

Changes to legislation:

There are outstanding changes not yet made by the legislation.gov.uk editorial team to Finance (No. 2) Act 2017. Any changes that have already been made by the team appear in the content and are referenced with annotations. Help about Changes to Legislation

Close

Changes to Legislation

Revised legislation carried on this site may not be fully up to date. Changes and effects are recorded by our editorial team in lists which can be found in the ‘Changes to Legislation’ area. Where those effects have yet to be applied to the text of the legislation by the editorial team they are also listed alongside the legislation in the affected provisions. Use the ‘more’ link to open the changes and effects relevant to the provision you are viewing.

Changes and effects yet to be applied to :

 Help about changes and effects
Close

Changes and effects

This section lists the changes and effects yet to be applied to the specific provision you are viewing.

SCHEDULES

Section 14

SCHEDULE 1E+W+S+N.I.Social investment tax relief

PART 1 E+W+S+N.I.Amendments of Part 5B of ITA 2007

IntroductoryE+W+S+N.I.

1ITA 2007 is amended as follows.

Date by which investment must be made to qualify for SI reliefE+W+S+N.I.

2In section 257K(1)(a)(iii) (date by which investment must be made to qualify for SI relief) for “6 April 2019” substitute “ 6 April 2021 ”.

The existing investments requirementE+W+S+N.I.

3After section 257LD insert—

257LDAThe existing investments requirement

(1)If at the time immediately before the investment is made the investor holds any shares in or debentures of—

(a)the social enterprise, or

(b)a company which at that time is a qualifying subsidiary of the social enterprise,

those shares or debentures must be risk finance investments or (in the case of shares) permitted subscriber shares.

(2)A share or debenture is a “risk finance investment” for the purposes of this section if—

(a)it is a share that was issued to the investor, or a debenture of which the investor is the holder in return for advancing an amount, and

(b)at any time, a compliance statement under section 205, 257ED or 257PB is provided in respect of it or of shares or investments including it.

(3)Subscriber shares are “permitted subscriber shares” for the purposes of this section if—

(a)they were issued to the investor and have been continuously held by the investor since they were issued, or

(b)they were acquired by the investor at a time when the company which issued them—

(i)had issued no shares other than subscriber shares, and

(ii)had not begun to carry on or make preparations for carrying on any trade or business.

(4)In this section “debenture” is to be read in accordance with section 257L(6).

The no disqualifying arrangements requirementE+W+S+N.I.

4After section 257LE insert—

257LEAThe no disqualifying arrangements requirement

(1)The investment must not be made, and money raised by the social enterprise from the making of the investment must not be employed,—

(a)in consequence or anticipation of disqualifying arrangements, or

(b)otherwise in connection with disqualifying arrangements.

(2)Arrangements are “disqualifying arrangements” if—

(a)the main purpose, or one of the main purposes, of the arrangements is to secure both that an activity is or will be carried on by the social enterprise or a 90% social subsidiary of the social enterprise and that—

(i)one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of a qualifying investment which raises money for the purposes of that activity, or

(ii)shares issued by the social enterprise which raise money for the purposes of that activity may comprise part of the qualifying holdings of a VCT,

(b)that activity is the relevant qualifying activity, and

(c)one or both of conditions A and B are met.

(3)Condition A is that, as a (direct or indirect) result of the money raised by the investment being employed as required by section 257MM, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.

(4)Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying activity would have been carried on as part of another business by a relevant person or relevant persons.

(5)For the purposes of this section it is immaterial whether the social enterprise is a party to the arrangements.

(6)In this section—

  • 90% social subsidiary” is to be read in accordance with section 257MV;

  • component activities” means the carrying on of a qualifying trade or preparing to carry on such a trade, which constitutes the relevant qualifying activity;

  • a “qualifying investment” means—

    (a)

    shares in the social enterprise, or

    (b)

    a qualifying debt investment in the social enterprise (see section 257L);

  • qualifying holdings”, in relation to the social enterprise, is to be construed in accordance with section 286 (VCTs: qualifying holdings);

  • relevant person” means a person who is a party to the arrangements or a person connected with such a party;

  • relevant qualifying activity” means the qualifying trade or activity mentioned in section 257ML(1) for the purposes of which the investment raised money;

  • relevant tax relief” has the meaning given by subsection (7).

(7)“Relevant tax relief”—

(a)in relation to a qualifying debt investment, means SI relief in respect of that investment;

(b)in relation to shares, means one or more of the following—

(i)SI relief in respect of the shares;

(ii)EIS relief (within the meaning of Part 5) in respect of the shares;

(iii)SEIS relief (within the meaning of Part 5A) in respect of the shares;

(iv)relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;

(v)relief under section 150A or 150E of TCGA 1992 (EIS and SEIS) in respect of the shares;

(vi)relief under Schedule 5B to that Act (EIS: reinvestment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule);

(vii)relief under Schedule 5BB to that Act (SEIS: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).

5(1)Section 257SH (power to require information where reason to believe SI relief may not be due because of certain kinds of arrangements, etc) is amended as follows.E+W+S+N.I.

(2)In subsection (1) after “257LE,” insert “ 257LEA, ”.

(3)In subsection (4) at the appropriate place insert—

Section 257LEAThe investor, the social enterprise, any person controlling the social enterprise and any person whom an officer of Revenue and Customs has reason to believe may be a party to the arrangements in question

Limits on amounts that may be investedE+W+S+N.I.

6(1)In the italic heading before section 257M, after “enterprise” insert “ : general ”.E+W+S+N.I.

(2)Omit sections 257MA and 257MB (which are superseded by the provision inserted by sub-paragraph (3) below).

(3)After section 257MN insert—

Limits on amounts that may be investedE+W+S+N.I.
257MNAMaximum amount where investment made in first 7 years

(1)This section applies where—

(a)the investment is made before the end of the period of 7 years beginning with the relevant first commercial sale, or

(b)the investment is made after that period but—

(i)a relevant investment was made in the social enterprise before the end of that period, and

(ii)some or all of the money raised by that relevant investment was employed for the purposes of (or of part of) the qualifying activity for which the money raised by the investment is employed.

(2)Where this section applies, the total amount of relevant investments made in the social enterprise on or before the date when the investment is made must not exceed £1.5 million.

(3)The reference in subsection (2) to relevant investments “made in the social enterprise” is to be read with section 257MNB.

(4)In this section—

  • qualifying activity” means—

    (a)

    a qualifying trade within paragraph (a) of section 257ML(1) carried on by the social enterprise or a 90% social subsidiary of the social enterprise, or

    (b)

    an activity within paragraph (b) of section 257ML(1) so carried on;

  • the relevant first commercial sale” has the meaning given by section 175A(6), reading—

    (a)

    references to the issuing company as references to the social enterprise,

    (b)

    references to the issue date as references to the investment date, and

    (c)

    references to money raised by the issue of the relevant shares as references to money raised by the investment;

  • relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).

(5)Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.

(6)Where the social enterprise is an accredited social impact contractor—

(a)the reference in subsection (1)(a) to the relevant first commercial sale is to be read as a reference to the date on which the social enterprise first entered into a social impact contract;

(b)the reference in subsection (1)(b) to the qualifying activity mentioned there is to be read as a reference to the carrying out of the social impact contract for which the money raised by the investment is employed.

(7)For provision about maximum amounts where this section does not apply, see section 257MNC.

257MNBSection 257MNA: supplementary

(1)In section 257MNA(2) the reference to relevant investments “made in the social enterprise” includes—

(a)relevant investments made in a company which, at the material date, is or has been a 51% subsidiary of the social enterprise,

(b)any other relevant investment made in a company to the extent that the money raised by that relevant investment has been employed for the purposes of a trade carried on by another company (“company X”) which, at the material date, is or has been a 51% subsidiary of the social enterprise, and

(c)any other relevant investment made in a company if—

(i)the money raised by that relevant investment has been employed for the purposes of a trade carried on by that company or another person, and

(ii)after that relevant investment was made, but on or before the material date, that trade became a transferred trade (see subsection (5)).

(2)The investments within paragraph (a) of subsection (1)—

(a)include investments made in a company mentioned in that paragraph before it became a 51% subsidiary of the social enterprise, but

(b)where a company mentioned in that paragraph is not a 51% subsidiary of the social enterprise at the material date, do not include any investments made in that company after it last ceased to be such a subsidiary.

(3)For the purposes of subsection (1)(b), where company X is not a 51% subsidiary of the social enterprise at the material date, any money employed after company X last ceased to be such a subsidiary is to be ignored.

(4)Where only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a transferred trade, only the corresponding proportion of that relevant investment is to be treated as falling within subsection (1)(c).

(5)For the purposes of this section, if—

(a)on or before the material date a trade is transferred—

(i)to the social enterprise,

(ii)to a company which, at the material date, is or has been a 51% subsidiary of the social enterprise, or

(iii)to a partnership of which the social enterprise, or a company within sub-paragraph (ii), is a member, and

(b)the trade or part of it was at any time before the transfer carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ transferred trade ” when it is transferred as mentioned in paragraph (a).

(6)The cases within subsection (5)(a)—

(a)include the case where the trade is transferred to a company within subsection (5)(a)(ii), or a partnership of which such a company is a member, before the company became a 51% subsidiary of the social enterprise, but

(b)where a company within subsection (5)(a)(ii) is not a 51% subsidiary of the social enterprise at the material date, do not include the case where the trade is transferred to that company, or a partnership of which that company is a member, after that company last ceased to be such a subsidiary.

(7)In this section—

  • the material date” means the date on which the investment is made;

  • relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).

(8)Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.

(9)Section 173A(6) and (7) (meaning of “trade” etc) apply also for the purposes of this section.

257MNCMaximum amount for cases outside section 257MNA

(1)This section applies where—

(a)the investment is made at any time after the period mentioned in section 257MNA(1)(a), and

(b)it is not the case that the conditions in section 257MNA(1)(b)(i) and (ii) are met.

(2)Where this section applies—

(a)the total amount of relevant investments made in the social enterprise on or before the date when the investment is made must not exceed £1.5 million, and

(b)the amount invested must not be more than the amount mentioned in subsection (3).

(3)That amount is the amount given by the formula—

where—

T is the total of any relevant investments made in the social enterprise in the aid period,

M is the total of any de minimis aid, other than relevant investments, that is granted during the aid period—

(a)

to the social enterprise, or

(b)

to a qualifying subsidiary of the social enterprise at a time when it is such a subsidiary,

RCG is the highest rate at which capital gains tax is charged in the aid period, and

RSI is the highest SI rate in the aid period.

(4)In subsection (3) “the aid period” means the 3 years—

(a)ending with the day on which the investment is made, but

(b)in the case of that day, including only the part of the day before the investment is made.

(5)In this section “de minimis aid” means de minimis aid which fulfils the conditions laid down—

(a)in Commission Regulation (EU) No. 1407/2013 (de minimis aid) as amended from time to time, or

(b)in any EU instrument from time to time replacing the whole or any part of that Regulation.

(6)For the purposes of subsection (3), the amount of any de minimis aid is the amount of the grant or, if the aid is not in the form of a grant, the gross grant equivalent amount within the meaning of that Regulation as amended from time to time.

(7)For the purposes of subsection (3), if—

(a)the investment or any relevant investment is made, or

(b)any aid is granted,

in sterling or any other currency that is not the euro, its amount is to be converted into euros at an appropriate spot rate of exchange for the date on which the investment is made or the aid is paid.

(8)In this section “relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).

(9)Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.

(10)Section 257MNB (which expands the meaning of “relevant investments made in the social enterprise”) applies for the purposes of each of subsections (2) and (3) above as it applies for the purposes of section 257MNA(2).

257MNDLimit on investment in shorter applicable period

(1)This section applies where condition A or condition B is met.

(2)Condition A is that—

(a)a company becomes a 51% subsidiary of the social enterprise at any time during the shorter applicable period,

(b)all or part of the money raised by the investment is employed for the purposes of a qualifying activity which consists wholly or partly of a trade carried on by that company, and

(c)that trade (or part of it) was carried on by that company before it became a 51% subsidiary as mentioned in paragraph (a).

(3)Condition B is that all or part of the money raised by the investment is employed for the purposes of a qualifying activity which consists wholly or partly of a trade which, during the shorter applicable period, becomes a transferred trade (see subsection (9)).

(4)Where this section applies, at each time in the shorter applicable period (“the relevant time”) the total of the relevant investments made in the social enterprise before that time must not exceed £1.5 million.

(5)In subsection (4) the reference to relevant investments “made in the social enterprise” includes—

(a)relevant investments made in a company which at any time before the relevant time has been a 51% subsidiary of the social enterprise,

(b)any other relevant investment made in a company to the extent that the money raised by that relevant investment has been employed for the purposes of a trade carried on by another company (“company X”) which at any time before the relevant time has been a 51% subsidiary of the social enterprise, and

(c)any other relevant investment made in a company if—

(i)the money raised by that relevant investment has been employed for the purposes of a trade carried on by that company or another person, and

(ii)after that relevant investment was made, but before the relevant time, that trade (or part of it) became a transferred trade.

(6)The investments within paragraph (a) of subsection (5)—

(a)include investments made in a company mentioned in that paragraph before it became a 51% subsidiary of the social enterprise, but

(b)where a company mentioned in that paragraph is not a 51% subsidiary of the social enterprise at the relevant time, do not include any investments made in that company after it last ceased to be such a subsidiary.

(7)For the purposes of subsection (5)(b), where company X is not a 51% subsidiary of the social enterprise at the relevant time, any money employed after company X last ceased to be such a subsidiary is to be ignored.

(8)Where only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a transferred trade, only the corresponding proportion of that relevant investment is to be treated as falling within subsection (5)(c).

(9)For the purposes of this section, if—

(a)before the relevant time, a trade is transferred—

(i)to the social enterprise,

(ii)to a company which, at the relevant time, is or has been a 51% subsidiary of the social enterprise, or

(iii)to a partnership of which the social enterprise, or a company within sub-paragraph (ii), is a member, and

(b)the trade or part of it was at any time before the transfer carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ transferred trade ” when it is transferred as mentioned in paragraph (a).

(10)The cases within subsection (9)(a)—

(a)include the case where the trade is transferred to a company within subsection (9)(a)(ii), or a partnership of which such a company is a member, before the company became a 51% subsidiary of the social enterprise, but

(b)where a company within subsection (9)(a)(ii) is not a 51% subsidiary of the social enterprise at the relevant time, do not include the case where the trade is transferred to that company, or a partnership of which that company is a member, after that company last ceased to be such a subsidiary.

(11)In this section—

  • qualifying activity” has the same meaning as in section 257MNA (see subsection (4) of that section);

  • relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).

(12)Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.

(13)Section 173A(6) and (7) (meaning of “trade” etc) apply also for the purposes of this section.

257MNEPower to amend limits on amounts that may be invested

(1)The Treasury may by regulations substitute a different figure for the figure for the time being specified in section 257MNA(2), 257MNC(2) or (3) or 257MND(4).

(2)Regulations under this section may make incidental, supplemental, consequential, transitional or saving provision.

(3)Regulations under this section may not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.

(4)In section 1014 (orders and regulations), in subsection (5)(b) (orders and regulations excluded from subsection (4)) for sub-paragraph (iiia) substitute—

(iiia)section 257MNE (social investment relief: amendment of limits on investments),.

Number of employees limitE+W+S+N.I.

7In section 257MH (the number of employees requirement), in each of subsections (1) and (2) for “500” substitute “ 250 ”.

Financial health requirementE+W+S+N.I.

8After section 257MI insert—

257MIAThe financial health requirement

(1)The social enterprise must meet the financial health requirement at the beginning of the shorter applicable period.

(2)The financial health requirement is that the social enterprise is not in difficulty.

(3)The social enterprise is “in difficulty” if it is reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02).

Purposes for which money raised can be usedE+W+S+N.I.

9(1)Section 257MM (requirement to use money raised and to trade for minimum period) is amended as follows.E+W+S+N.I.

(2)After subsection (3) insert—

(3A)Employing money on the repayment of a loan does not amount to employing the money for the funded purpose.

(3)In subsection (7)(c) after “(3),” insert “ (3A), ”.

Excluded activitiesE+W+S+N.I.

10(1)Section 257MQ (meaning of “excluded activity”) is amended as set out in sub-paragraphs (2) to (4).E+W+S+N.I.

(2)In subsection (1)—

(a)in paragraph (b) omit “(but see subsection (2))”;

(b)after paragraph (b) insert—

(ba)leasing (including letting ships on charter or other assets on hire),

(bb)receiving royalties or licence fees,

(bc)operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home (see section 257MQA),

(bd)generating electricity, exporting electricity (see subsection (3)) or making electricity generating capacity available,

(be)generating heat,

(bf)generating any form of energy not within paragraph (bd) or (be),

(bg)producing gas or fuel,;

(c)omit paragraph (f) (subsidised generation or export of electricity).

(3)Omit subsection (2).

(4)After subsection (2) insert—

(3)For the purposes of subsection (1)(bd) electricity is exported if it is exported onto a distribution system or transmission system (within the meaning of section 4 of the Electricity Act 1989).

(5)After section 257MQ insert—

257MQAExcluded activities: nursing homes and residential care homes

(1)This section supplements section 257MQ(1)(bc).

(2)Nursing home” means any establishment which exists wholly or mainly for the provision of nursing care—

(a)for persons suffering from sickness, injury or infirmity, or

(b)for women who are pregnant or have given birth.

(3)Residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care because of—

(a)old age,

(b)mental or physical disability,

(c)past or present dependence on alcohol or drugs,

(d)any past illnesses, or

(e)past or present mental disorder.

(4)The activities of a person are not to be taken to fall within section 257MQ(1)(bc) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.

(6)Omit section 257MS (subsidised generation or export of electricity).

PART 2 E+W+S+N.I.Consequential amendments

11(1)ITA 2007 is amended as follows.E+W+S+N.I.

(2)In section 178A (EIS: the no disqualifying arrangements requirement), in subsection (6), in the definition of “relevant tax relief” after paragraph (b) insert—

(ba)SI relief under Part 5B in respect of the shares;.

(3)In section 257CF (SEIS: the no disqualifying arrangements requirement), in subsection (6), in the definition of “relevant tax relief” after paragraph (b) insert—

(ba)SI relief under Part 5B in respect of the shares;.

(4)In section 299A (VCTs: the no disqualifying arrangements requirement), in subsection (6), in the definition of “relevant tax relief” after paragraph (c) insert—

(ca)SI relief (within the meaning of Part 5B) in respect of the shares;.

12In Schedule 6 to FA 2015 (investment reliefs: excluded activities) omit paragraph 13 (which is superseded by paragraph 10 of this Schedule).

13In Part 2 of Schedule 24 to FA 2016 (tax advantages about which information may be obtained from certain persons), after the entry relating to relief granted to investors in a company under the enterprise investment scheme insert—

Relief granted to investors in a social enterprisePart 5B of ITA 2007The social enterprise

PART 3 E+W+S+N.I.Commencement

14(1)The amendments made by paragraphs 3 and 6 to 9 have effect in relation to investments made on or after 6 April 2017.E+W+S+N.I.

(2)Nothing in sub-paragraph (1) prevents investments made before 6 April 2017 from constituting “relevant investments” for any purpose of section 257MNA, 257MNB, 257MNC or 257MND of ITA 2007.

(3)Subject to sub-paragraph (4), the amendments made by paragraphs 4 and 5 have effect in relation to investments made on or after 6 April 2017.

(4)Arrangements which include any transaction entered into before 6 April 2017 are not “disqualifying arrangements” for the purposes of section 257LEA of ITA 2007.

15The amendments made by paragraph 10—

(a)so far as they apply for the purposes of section 257JD of ITA 2007, come into force on 6 April 2017;

(b)so far as they apply for the purposes of sections 257MJ and 257MP of ITA 2007, have effect in relation to investments made on or after 6 April 2017.

16(1)Subject to sub-paragraph (3), the amendments made by paragraph 11(2) and (3) have effect in relation to shares issued on or after 6 April 2017.E+W+S+N.I.

(2)Subject to sub-paragraph (3), the amendment made by paragraph 11(4) has effect for the purpose of determining whether shares or securities issued on or after 6 April 2017 are to be regarded as comprised in a company's qualifying holdings.

(3)The amendments made by paragraph 11 do not have effect for the purposes of determining any question whether particular arrangements which include any transaction entered into before 6 April 2017 are “disqualifying arrangements” for the purposes of section 178A, 257CF or 299A of ITA 2007.

Section 16

SCHEDULE 2E+W+S+N.I.Trades and property businesses: calculation of profits

PART 1 E+W+S+N.I.Trades etc: amendments of ITTOIA 2005

1ITTOIA 2005 is amended as follows.

2For section 33A (cash basis: capital expenditure) substitute—

33ACash basis: capital expenditure

(1)This section applies in relation to the calculation of the profits of a trade on the cash basis.

(2)No deduction is allowed for an item of a capital nature incurred on, or in connection with, the acquisition or disposal of a business or part of a business.

(3)No deduction is allowed for an item of a capital nature incurred on, or in connection with, education or training.

(4)No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of—

(a)any asset that is not a depreciating asset (see subsections (6) and (7)),

(b)any asset not acquired or created for use on a continuing basis in the trade,

(c)a car (see subsection (14)),

(d)land,

(e)a non-qualifying intangible asset (see subsections (8) to (11)), or

(f)a financial asset (see subsection (12)).

(5)But subsection (4)(d) does not prevent a deduction being made for expenditure that—

(a)is incurred on the provision of a depreciating asset which, in being provided, is installed or otherwise fixed to land so as to become, in law, part of the land, but

(b)is not incurred on, or in connection with, the provision of—

(i)a building,

(ii)a wall, floor, ceiling, door, gate, shutter or window or stairs,

(iii)a waste disposal system,

(iv)a sewerage or drainage system, or

(v)a shaft or other structure in which a lift, hoist, escalator or moving walkway may be installed.

(6)An asset is a “depreciating” asset if, on the date the item of a capital nature is incurred, it is reasonable to expect that before the end of 20 years beginning with that date—

(a)the useful life of the asset will end, or

(b)the asset will decline in value by 90% or more.

(7)The useful life of an asset ends when it could no longer be of use to any person for any purpose as an asset of a business.

(8)Intangible asset” means anything that is capable of being an intangible asset within the meaning of FRS 105 and, in particular, includes—

(a)an internally-generated intangible asset, and

(b)intellectual property.

(9)An intangible asset is “non-qualifying” unless, by virtue of having a fixed maximum duration, it must cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred.

(10)An intangible asset is “non-qualifying” if it consists of a right, whether conditional or not, to obtain an intangible asset without a fixed maximum duration by virtue of which that asset must, assuming the right is exercised at the last possible time, cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred.

(11)Where—

(a)the trader has an intangible asset, and

(b)the trader grants a licence or any other right in respect of that asset to another person,

any intangible asset that consists of a licence or other right granted to the trader in respect of the intangible asset mentioned in paragraph (a) is “non-qualifying”.

(12)A “financial asset” means any right under or in connection with—

(a)a financial instrument, or

(b)an arrangement that is capable of producing a return that is economically equivalent to a return produced under any financial instrument.

(13)A reference to acquisition, provision, alteration or disposal includes potential acquisition, provision, alteration or (as the case may be) disposal.

(14)In this section—

  • arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);

  • building” includes any fixed structure;

  • car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act);

  • financial instrument” has the same meaning as in FRS 105;

  • FRS 105” means Financial Reporting Standard 105 (the Financial Reporting Standard applicable to the Micro-entities Regime), issued by the Financial Reporting Council in July 2015;

  • intellectual property” means—

    (a)

    any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997,

    (b)

    any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a),

    (c)

    any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or

    (d)

    any licence or other right in respect of anything within paragraph (a), (b) or (c);

  • provision” includes creation, construction or acquisition;

  • the trader” means the person carrying on the trade.

3In section 95A (application of Chapter 6 of Part 2 (trade profits: receipts) to the cash basis)—

(a)the existing text becomes subsection (1),

(b)in that subsection, omit the entry relating to section 96A, and

(c)after that subsection insert—

(2)Section 96A makes provision about capital receipts in certain cases where the profits of a trade are calculated on the cash basis or have previously been calculated on the cash basis (and see also section 96B).

4(1)Section 96A (cash basis: capital receipts) is amended as follows.E+W+S+N.I.

(2)For the heading substitute “ Capital receipts under, or after leaving, cash basis ”.

(3)For subsections (1) to (3) substitute—

(1)This section applies in relation to a trade carried on by a person in two cases—

(a)Case 1 (see subsections (2) to (3A)), and

(b)Case 2 (see subsections (3B) to (3E)).

(2)Case 1 is a case in which conditions A and B are met.

(3)Condition A is that the person receives disposal proceeds or a capital refund in relation to an asset at a time when an election under section 25A (cash basis for trades) has effect in relation to the trade.

For the meaning of “disposal proceeds” and “capital refund” see subsections (3F) and (3G).

(3A)Condition B is that—

(a)an amount of capital expenditure (see subsection (3H)) relating to the asset has been brought into account in calculating the profits of the trade on the cash basis, or

(b)an amount of capital expenditure relating to the asset which—

(i)has been incurred (or treated as incurred) by the person before the tax year for which the person last entered the cash basis, and

(ii)is cash basis deductible in relation to that tax year (see section 96B(4)),

has been brought into account in calculating the profits of the trade for a tax year for which no election under section 25A had effect in relation to the trade.

(3B)Case 2 is a case in which—

(a)condition C is met, and

(b)condition D or E is met.

(3C)Condition C is that disposal proceeds or a capital refund arise to the person in relation to an asset at a time—

(a)when no election under section 25A has effect in relation to the trade, and

(b)which is after a time when such an election had had effect in relation to the trade.

(3D)Condition D is that an amount of capital expenditure relating to the asset—

(a)has been paid at a time when an election under section 25A had effect in relation to the trade,

(b)has been brought into account in calculating the profits of the trade on the cash basis, and

(c)on the assumption that an election under section 25A had not had effect at the time the expenditure was paid, would not have been qualifying expenditure.

(3E)Condition E is that an amount of capital expenditure relating to the asset has been brought into account in calculating the profits of the trade for a tax year—

(a)for which no election under section 25A had effect in relation to the trade, and

(b)which is before the tax year for which the person last entered the cash basis.

The reference in this subsection to expenditure brought into account does not include a reference to expenditure brought into account under CAA 2001 (see section 96B(5)).

(3F)Disposal proceeds” means—

(a)any proceeds arising from the disposal of an asset or any part of it,

(b)any proceeds arising from the grant of any right in respect of, or any interest in, the asset, or

(c)any amount of damages, proceeds of insurance or other compensation received in respect of the asset.

See also subsections (4) and (5) for circumstances in which a person is to be regarded as disposing of an asset.

(3G)Capital refund” means an amount that is (in substance) a refund of capital expenditure relating to an asset.

(3H)Capital expenditure” means expenditure of a capital nature incurred, or treated as incurred, on or in connection with—

(a)the provision, alteration or disposal of an asset, or

(b)the potential provision, alteration or disposal of an asset.

(3I)The disposal proceeds or capital refund mentioned in condition A or (as the case may be) condition C are to be brought into account as a receipt in calculating the profits of the trade.

(3J)In a case where only part of the total capital expenditure incurred, or treated as incurred, by the person in relation to the asset has been brought into account in calculating the profits of the trade (whether or not on the cash basis), the amount brought into account under subsection (3I) is proportionately reduced.

The reference in this subsection to expenditure brought into account includes a reference to expenditure brought into account under CAA 2001 (see section 96B(5)).

(3K)Subsection (3I) does not apply if the whole of the amount which would otherwise be brought into account under that subsection—

(a)has already been brought into account as a receipt in calculating the profits of the trade under this section,

(b)is brought into account as a receipt in calculating the profits of the trade under any other provision of this Part (except section 240D(3) (assets not fully paid for)), or

(c)is brought into account under any Part of CAA 2001 as a disposal value.

(3L)If part of the amount which would otherwise be brought into account under subsection (3I) has already been or is brought into account as mentioned in subsection (3K), subsection (3I) applies in relation to the remainder of that amount.

(4)Omit subsection (7).

5After section 96A insert—

96BSection 96A: supplementary provision

(1)This section has effect for the purposes of section 96A.

(2)Any question as to whether or to what extent expenditure is brought into account in calculating the profits of a trade is to be determined on such basis as is just and reasonable in all the circumstances.

(3)A person carrying on a trade “enters the cash basis” for a tax year if—

(a)an election under section 25A has effect in relation to the trade for the tax year, and

(b)no such election had effect in relation to the trade for the previous tax year.

(4)Expenditure is “cash basis deductible” in relation to a tax year if, on the assumption that the expenditure was paid in that tax year, a deduction would be allowed in respect of the expenditure in calculating the profits of the trade on the cash basis for that tax year.

(5)Expenditure is “brought into account under CAA 2001” in calculating the profits of a trade if and to the extent that—

(a)a capital allowance made under Part 2, 5, 6, 7 or 8 of that Act in respect of the expenditure is treated as an expense in calculating those profits (see, for example, section 247 of that Act), or

(b)qualifying expenditure (within the meaning of Part 2, 7 or 8 of CAA 2001) is allocated to a pool for the trade and is set-off against different disposal receipts.

(6)An amount of qualifying expenditure is “set-off against different disposal receipts” if—

(a)the amount would have been unrelieved qualifying expenditure carried forward in the pool for the trade, but

(b)the amount is not so carried forward because (and only because) one or more disposal values in respect of one or more assets, other than the asset in respect of which the qualifying expenditure was incurred (or treated as incurred), have at any time been brought into account in that pool.

(7)For the purposes of subsection (6), an amount of qualifying expenditure incurred (or treated as incurred) by a person is not to be regarded as not carried forward because the person enters the cash basis.

(8)In this section and in section 96A—

  • disposal value” means—

    (a)

    in section 96A(3K)(c)—

    (i)

    a disposal value for the purposes of Part 2, 4A, 5, 6, 7 8 or 10 of CAA 2001 (for example, in relation to Part 2 of that Act, see (in particular) section 61 of that Act), or

    (ii)

    proceeds from a balancing event for the purposes of Part 3 or 3A of that Act (see sections 316 and 360O of that Act), and

    (b)

    in subsection (6), a disposal value for the purposes of—

    (i)

    Part 2 of that Act (see, in particular, section 61 of that Act),

    (ii)

    Part 7 of that Act (see section 462 of that Act), or

    (iii)

    Part 8 of that Act (see sections 476 and 477 of that Act);

  • market value amount” means the amount that would be regarded as normal and reasonable—

    (a)

    in the market conditions then prevailing, and

    (b)

    between persons dealing with each other at arm's length in the open market;

  • pool” means—

    (a)

    the main pool or a class pool to which qualifying expenditure is allocated under Part 2 of CAA 2001 (see section 54 of that Act),

    (b)

    a pool to which qualifying expenditure is allocated under Part 7 of that Act (see section 456 of that Act), or

    (c)

    a pool to which qualifying expenditure is allocated under Part 8 of that Act (see section 470 of that Act);

  • provision” includes creation, construction or acquisition;

  • qualifying expenditure” means—

    (a)

    qualifying expenditure within the meaning of Part 2 of CAA 2001 (see section 11(4) of that Act for the general rule),

    (b)

    qualifying expenditure within the meaning of Part 5 of that Act (see section 395 of that Act),

    (c)

    qualifying expenditure within the meaning of Part 6 of that Act (see section 439 of that Act),

    (d)

    qualifying expenditure within the meaning of Part 7 of that Act (see section 454 of that Act), or

    (e)

    qualifying trade expenditure within the meaning of Part 8 of that Act (see section 468 of that Act);

  • unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of—

    (a)

    Part 2 of CAA 2001 (see section 59(1) and (2) of that Act),

    (b)

    Part 7 of that Act (see section 461 of that Act), or

    (c)

    Part 8 of that Act (see section 475 of that Act).

6In section 106D (capital receipts), for “(cash basis: capital receipts)” substitute “ (capital receipts under, or after leaving, cash basis) ”.

7(1)Section 240C (unrelieved qualifying expenditure) is amended as follows.E+W+S+N.I.

(2)For the heading substitute “ Unrelieved qualifying expenditure: Parts 2, 7 and 8 of CAA 2001 ”.

(3)In subsection (1)(b), after “unrelieved qualifying expenditure” insert “ relating to the trade ”.

(4)In subsection (3), for “the relevant portion of the expenditure” substitute “ any cash basis deductible amount of the expenditure ”.

(5)For subsection (4) substitute—

(4)A “cash basis deductible amount” of the expenditure means any amount of the expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the current tax year.

(6)In subsection (5), for “The relevant portion” substitute “ Any cash basis deductible amount ”.

(7)After subsection (5) insert—

(5A)For the purposes of subsection (1)(b), in determining the unrelieved qualifying expenditure the person has to carry forward, disregard sections 59(4), 461A(1) and 475A(1) of CAA 2001 (which provide that an amount is not to be carried forward as unrelieved qualifying expenditure when a person enters the cash basis).

(8)For subsection (6) substitute—

(6)In this section “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of—

(a)Part 2 of CAA 2001 (see section 59(1) and (2) of that Act),

(b)Part 7 of that Act (see section 461 of that Act), or

(c)Part 8 of that Act (see section 475 of that Act).

8After section 240C insert—

240CAUnrelieved qualifying expenditure: Part 5 of CAA 2001

(1)This section applies if a person carrying on a mineral extraction trade enters the cash basis for a tax year (“the current tax year”).

(2)But this section does not apply if section 240D applies.

(3)In calculating the profits of the trade for the current tax year, a deduction is allowed for any amount of expenditure—

(a)which would, apart from section 419A(1) of CAA 2001, have been unrelieved qualifying expenditure for the current tax year, and

(b)for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the current tax year.

(4)In this section—

  • mineral extraction trade” has the meaning given in section 394 of CAA 2001;

  • unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 5 of CAA 2001 (see section 419 of that Act).

9(1)Section 240D (assets not fully paid for) is amended as follows.E+W+S+N.I.

(2)In subsection (1)(b), for “obtained” to the end substitute “ incurred relevant expenditure, and ”.

(3)After subsection (1) insert—

(1A)Relevant expenditure” means expenditure—

(a)for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year, and

(b)in respect of which the person has obtained capital allowances under Part 2, 5, 6, 7 or 8 of CAA 2001.

(4)In subsection (4), for “The amount of any capital allowance obtained in respect of expenditure on the provision of any plant or machinery” substitute “ Any question as to whether or to what extent expenditure is relevant expenditure, or as to whether or to what extent any capital allowance obtained is in respect of relevant expenditure, ”.

(5)In subsection (5), after “given” insert “ under Part 2 of CAA 2001 ”.

(6)Omit subsection (6).

10In section 786(6) (meaning of “rent-a-room receipts”), for “(capital receipts)” substitute “ (capital receipts under, or after leaving, cash basis) ”.

11In section 805(5) (meaning of “qualifying care receipts”), for “(capital receipts)” substitute “ (capital receipts under, or after leaving, cash basis) ”.

PART 2 E+W+S+N.I.Property businesses: amendments of ITTOIA 2005

12ITTOIA 2005 is amended as follows.

13In Chapter 3 of Part 3 (profits of property businesses: basic rules), after section 271 insert—

Basis of calculation of profitsE+W+S+N.I.

271ABasis of calculation of profits: GAAP required

(1)The profits of a property business for a tax year must be calculated in accordance with GAAP if condition A, B, C, D or E is met.

(2)Condition A is that the business is carried on at any time in the tax year by—

(a)a company,

(b)a limited liability partnership,

(c)a corporate firm, or

(d)the trustees of a trust.

(3)For the purposes of subsection (2) a firm is a “corporate firm” if a partner in the firm is not an individual.

(4)Condition B is that the cash basis receipts for the tax year exceed £150,000.

(5)In subsection (4) “the cash basis receipts for the tax year” means the total of the amounts that would be brought into account as receipts in calculating the profits of the property business for the tax year on the cash basis (see section 271D).

(6)If the property business is carried on for only part of the tax year, the sum given in subsection (4) is proportionately reduced.

(7)Condition C is that—

(a)the property business is carried on by an individual (“P”),

(b)a share of joint property income is brought into account in calculating the profits of the business for the tax year,

(c)a share of that joint property income is brought into account in calculating the profits for the tax year of a property business carried on by another individual (“Q's property business”), and

(d)the profits of Q's property business for the tax year are calculated in accordance with GAAP.

(8)In subsection (7) “joint property income” means income to which P and Q are treated for income tax purposes as beneficially entitled in equal shares by virtue of section 836 of ITA 2007.

(9)Condition D is that—

(a)an allowance under Part 3A of CAA 2001 (business premises renovation allowances) is made at any time in calculating the profits of the property business, and

(b)if the profits of the business were to be calculated in accordance with GAAP for the tax year, there would be a day in the tax year on which the occurrence of a balancing event (within the meaning of that Part) would give rise to a balancing adjustment for the tax year (see section 360M of that Act).

(10)Condition E is that an election under this subsection made by the person who is or has been carrying on the property business has effect in relation to the business for the tax year.

(11)An election under subsection (10) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

(12)The Treasury may by regulations—

(a)amend subsection (2);

(b)amend subsection (4) so as to substitute another sum for the sum for the time being specified in that subsection.

(13)A statutory instrument containing regulations under subsection (12) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

(14)Subsection (13) does not apply if the regulations omit one or more paragraphs of subsection (2) and make no other provision.

271BCalculation of profits in accordance with GAAP

(1)In this Part, references to calculating the profits of a property business in accordance with GAAP are to calculating the profits in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes.

(2)A requirement under this Part to calculate profits in accordance with GAAP does not—

(a)require a person to comply with the requirements of the Companies Act 2006 or subordinate legislation made under that Act except as to the basis of calculation, or

(b)impose any requirements as to audit or disclosure.

(3)See section 272 (application of trading income rules: GAAP) which applies only where profits are calculated in accordance with GAAP.

271CBasis of calculation of profits: cash basis required

The profits of a property business for a tax year must be calculated on the cash basis if none of conditions A, B, C, D or E in section 271A is met.

271DCalculation of profits on the cash basis

(1)In this Part, references to calculating the profits of a property business on the cash basis are to calculating the profits in accordance with subsections (2) and (3).

(2)In calculating the profits, receipts of the business are brought into account at the time they are received, and expenses of the business are brought into account at the time they are paid.

(3)Subsection (2) is subject to any adjustment required or authorised by law in calculating profits for income tax purposes.

(4)For provision about the application of Chapter 4 (profits of property businesses: lease premiums etc) in relation to profits calculated on the cash basis, see section 276A.

(5)For provision about the application of Chapter 5 (rules about deductions and receipts) in relation to profits calculated on the cash basis, see section 307A.

(6)The following provisions apply only where profits are calculated on the cash basis—

(a)section 272ZA (application of trading income rules: cash basis), and

(b)Chapter 7A (cash basis: adjustments for capital allowances).

14In the italic heading before section 272, at the end insert : application of trading income rules.

15After that italic heading insert—

271EProfits of a property business: application of trading income rules

(1)The profits of a property business are calculated in the same way as the profits of a trade.

(2)But this is subject to—

(a)section 272, which limits the rule in subsection (1) in relation to a property business whose profits are calculated in accordance with GAAP, and

(b)section 272ZA, which limits that rule in relation to a property business whose profits are calculated on the cash basis.

16(1)Section 272 (profits of a property business: application of trading income rules) is amended as follows.E+W+S+N.I.

(2)For the heading substitute “ Application of trading income rules: GAAP ”.

(3)Omit subsection (1).

(4)In subsection (2), for the words before the table substitute “ In relation to a property business whose profits are calculated in accordance with GAAP, the provisions of Part 2 (trading income) which apply as a result of section 271E(1) are limited to the following— ”.

(5)In the table in subsection (2), omit the entry relating to section 25 (generally accepted accounting practice).

17After section 272 insert—

272ZAApplication of trading income rules: cash basis

(1)In relation to a property business whose profits are calculated on the cash basis, the provisions of Part 2 (trading income) which apply as a result of section 271E(1) are limited to the following—

In Chapter 3 (basic rules)—
section 26losses calculated on same basis as profits
section 28Amoney's worth
section 29interest
In Chapter 4 (rules restricting deductions)—
section 34expenses not wholly and exclusively for trade and unconnected losses
sections 38 to 42 and 44employee benefit contributions
sections 45 to 47business entertainment and gifts
section 52exclusion of double relief for interest
section 53social security contributions
section 54penalties, interest and VAT surcharges
section 55crime-related payments
section 55Aexpenditure on integral features
In Chapter 5 (rules allowing deductions)—
section 57pre-trading expenses
sections 58 and 59incidental costs of obtaining finance
section 69payments for restrictive undertakings
sections 70 and 71seconded employees
section 72payroll deduction schemes: contributions to agents' expenses
sections 73 to 75counselling and retraining expenses
sections 76 to 80redundancy payments etc
section 81personal security expenses
sections 82 to 86contributions to local enterprise organisations or urban regeneration companies
sections 86A and 86Bcontributions to flood and coastal erosion risk management projects
sections 87 and 88scientific research
sections 89 and 90expenses connected with patents, designs and trade marks
section 91payments to Export Credits Guarantee Department
In Chapter 6 (receipts)—
section 96capital receipts
section 97debts incurred and later released
section 104distribution of assets of mutual concerns
section 105(1) and (2)(b) and (c)industrial development grants
section 106sums recovered under insurance policies etc
In Chapter 6A (amounts not reflecting commercial transactions)—
section 106Camounts not reflecting commercial transactions
section 106Dcapital receipts
section 106Egifts to charities etc
In Chapter 7 (gifts to charities etc)—
section 109receipt by donor or connected person of benefit attributable to certain gifts

(2)In those provisions, the expression “this Part” is to be read as a reference to those provisions as applied by subsection (1) and to the other provisions of Part 3.

(3)In section 106D, the reference to subsection (4) or (5) of section 96A is to be read as a reference to subsection (2), (3) or (5) of section 307F (deemed capital receipts under, or after leaving, cash basis).

18After section 272ZA insert— “ Calculation of profits: other general rules ”.

19In section 272A (restricting deductions for finance costs related to residential property), after subsection (6) insert—

(7)See also section 307D (cash basis: modification of deduction for costs of loans).

20(1)Section 274 (relationship between rules prohibiting and allowing deductions) is amended as follows.E+W+S+N.I.

(2)For subsection (1)(b) substitute—

(b)is subject to—

(i)section 36 (unpaid remuneration), as applied by section 272,

(ii)section 38 (employee benefit contributions), as applied by sections 272 and 272ZA,

(iii)section 48 (car hire), as applied by section 272,

(iv)section 55 (crime-related payments), as applied by sections 272 and 272ZA,

(v)section 272A (finance costs), and

(vi)section 307D (cash basis: modification of deduction for costs of loans).

(3)In subsection (3)—

(a)after “section 272” insert “ , or sections 38 and 55 as applied by section 272ZA ”, and

(b)for “section 272A” insert “ sections 272A and 307D ”.

(4)In subsection (4), after “section 272” insert “ or 272ZA ”.

21In section 276(5) (introduction: profits of property businesses: lease premiums etc), after “292” insert “ ; but see also section 276A ”.

22After section 276 insert—

276AApplication of Chapter to property businesses using cash basis

The following provisions of this Chapter do not apply in calculating the profits of a property business on the cash basis—

(a)sections 291 to 294 (tenants under taxed leases: deductions), and

(b)sections 296 and 298 (ICTA modifications).

23In Chapter 5 of Part 3 (profits of property businesses: other rules about receipts and deductions), after the Chapter heading insert—

Cash basis: application of ChapterE+W+S+N.I.

307ACash basis: application of Chapter

(1)The following provisions of this Chapter apply only where the profits of a property business are calculated on the cash basis—

(a)section 307B (cash basis: capital expenditure),

(b)section 307C (cash basis: deduction for costs of loans), and

(c)section 307D (cash basis: modification of deduction for costs of loans).

(2)Sections 307E and 307F make provision about capital receipts in certain cases where the profits of a property business are calculated on the cash basis or have previously been calculated on the cash basis.

Property businesses using cash basisE+W+S+N.I.

307BCash basis: capital expenditure

(1)This section applies in relation to the calculation of the profits of a property business on the cash basis.

(2)No deduction is allowed for an item of a capital nature incurred on, or in connection with, the acquisition or disposal of a business or part of a business.

(3)No deduction is allowed for an item of a capital nature incurred on, or in connection with, education or training.

(4)No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of land.

(5)But subsection (4) does not prevent a deduction being made for expenditure that—

(a)is incurred on the provision of a depreciating asset which, in being provided, is installed or otherwise fixed to qualifying land (see subsection (8)) so as to become, in law, part of the land, but

(b)is not incurred on, or in connection with, the provision of—

(i)a building,

(ii)a wall, floor, ceiling, door, gate, shutter or window or stairs,

(iii)a waste disposal system,

(iv)a sewerage or drainage system, or

(v)a shaft or other structure in which a lift, hoist, escalator or moving walkway may be installed.

(6)No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of an asset for use in ordinary residential property (see subsection (8)). But see section 311A (replacement domestic items relief).

(7)If an asset is provided partly for use in ordinary residential property and partly for other purposes, such apportionment of the expenditure incurred on, or in connection with, the provision, alteration or disposal of the asset is to be made for the purposes of subsection (6) as is just and reasonable.

(8)In relation to the calculation of profits for a tax year—

(a)ordinary residential property” means a dwelling-house or part of a dwelling-house in relation to which an ordinary property business (see subsection (9)) is carried on in the tax year, and

(b)qualifying land” means land not falling within paragraph (a).

(9)Ordinary property business” means—

(a)so much of a UK property business as does not consist of the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6) in the UK, or

(b)so much of an overseas property business as does not consist of the commercial letting of furnished holiday accommodation in one or more EEA states.

(10)No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of—

(a)any asset that is not a depreciating asset (see subsections (11) and (12)),

(b)any asset not acquired or created for use on a continuing basis in the property business,

(c)a car (see subsection (20)),

(d)a non-qualifying intangible asset (see subsections (13) to (16)), or

(e)a financial asset (see subsection (17)).

(11)An asset is a “depreciating” asset if, on the date the item of a capital nature is incurred, it is reasonable to expect that before the end of 20 years beginning with that date—

(a)the useful life of the asset will end, or

(b)the asset will decline in value by 90% or more.

(12)The useful life of an asset ends when it could no longer be of use to any person for any purpose as an asset of a business.

(13)Intangible asset” means anything that is capable of being an intangible asset within the meaning of FRS 105 and, in particular, includes—

(a)an internally-generated intangible asset, and

(b)intellectual property.

(14)An intangible asset is “non-qualifying” unless, by virtue of having a fixed maximum duration, it must cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred.

(15)An intangible asset is “non-qualifying” if it consists of a right, whether conditional or not, to obtain an intangible asset without a fixed maximum duration by virtue of which that asset must, assuming the right is exercised at the last possible time, cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred.

(16)Where—

(a)the person carrying on the property business (“P”) has an intangible asset, and

(b)P grants a licence or any other right in respect of that asset to another person,

any intangible asset that consists of a licence or other right granted to P in respect of the intangible asset mentioned in paragraph (a) is “non-qualifying”.

(17)A “financial asset” means any right under or in connection with—

(a)a financial instrument, or

(b)an arrangement that is capable of producing a return that is economically equivalent to a return produced under any financial instrument.

(18)A reference to acquisition, provision, alteration or disposal includes potential acquisition, provision, alteration or (as the case may be) disposal.

(19)If there is a letting of accommodation only part of which is furnished holiday accommodation, such apportionments as are just and reasonable in all the circumstances are to be made for the purposes of this section.

(20)In this section—

  • arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);

  • building” includes any fixed structure;

  • car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act);

  • financial instrument” has the same meaning as in FRS 105;

  • FRS 105” means Financial Reporting Standard 105 (the Financial Reporting Standard applicable to the Micro-entities Regime), issued by the Financial Reporting Council in July 2015;

  • intellectual property” means—

    (a)

    any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997,

    (b)

    any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a),

    (c)

    any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or

    (d)

    any licence or other right in respect of anything within paragraph (a), (b) or (c);

  • provision” includes creation, construction or acquisition.

307CCash basis: deduction for costs of loans

(1)Section 307D applies in calculating the profits of a property business for a tax year if conditions A to D are met.

(2)Condition A is that the profits of the business are calculated on the cash basis for the tax year.

(3)Condition B is that a deduction for costs of a loan is allowed in calculating the profits of the business for the tax year or, ignoring section 272A (restricting deductions for finance costs related to residential property) and section 307D (cash basis: modification of deduction for costs of loans), would be so allowed. In this section such a loan is referred to as a “relevant loan”.

(4)Condition C is that an amount of the principal of one or more relevant loans is outstanding at the end time (and a relevant loan in respect of which such an amount is outstanding at the end time is referred to in this section as an “outstanding relevant loan”).

(5)Condition D is that—

where—

L is the total outstanding amount of relevant loans (see subsections (6) and (7)), and

V is the sum of the values of all relevant properties (see subsections (8) to (10)).

(6)The “total outstanding amount of relevant loans”—

(a)if there is only one outstanding relevant loan, is the outstanding business amount of that loan, and

(b)if there are two or more outstanding relevant loans, is found by calculating the outstanding business amount of each such loan and adding those amounts together.

(7)The “outstanding business amount” of a relevant loan is given by—

where—

A is the amount of the principal of the loan which is outstanding at the end time,

X is the amount of the deduction for costs of the loan that would be allowed, apart from sections 272A and 307D, in calculating the profits of the business for the tax year, and

Y is the amount of the deduction for costs of the loan that would be allowed, apart from the wholly and exclusively rule and sections 272A and 307D, in calculating the profits of the business for the tax year.

(8)A property is a “relevant property” if—

(a)it is involved in the property business at the end time, or

(b)although it is not involved in the business at the end time—

(i)it was last involved in the business at an earlier time in the tax year, and

(ii)the person carrying on the business holds the property throughout the period beginning with that earlier time and ending with the end time.

(9)The “value” of a relevant property is the total of—

(a)the market value of the property at the time that it is first involved in the property business, and

(b)such amount of any expenditure of a capital nature incurred by the person carrying on the business in respect of the property as is not brought into account in calculating the profits of the business for the tax year or any previous tax year.

(10)A property is “involved in the property business” if it is a property whose exploitation forms the whole or part of the business.

(11)The “end time” is—

(a)the time immediately before the end of the tax year, or

(b)if in the tax year the person carrying on the business permanently ceases to carry it on, the time immediately before the person permanently ceases to carry on the business.

(12)Costs”, in relation to a loan, means—

(a)interest on the loan,

(b)an amount in connection with the loan that, for the person receiving or entitled to the amount, is a return in relation to the loan which is economically equivalent to interest, or

(c)incidental costs of obtaining finance by means of the loan.

(13)Section 58(2) to (4) (meaning of “incidental costs of obtaining finance”) apply for the purposes of subsection (12)(c).

(14)In this section—

  • market value”, in relation to a property, means the price which the property might reasonably be expected to fetch—

    (a)

    in the market conditions then prevailing, and

    (b)

    between persons dealing with each other at arm's length in the open market;

  • property” means an estate, interest or right in or over land;

  • the wholly and exclusively rule” means the rule in section 34 (expenses not wholly and exclusively for trade and unconnected losses), as applied by section 272ZA (application of trading income rules: cash basis).

307DCash basis: modification of deduction for costs of loans

(1)Where section 307C provides that this section applies in calculating the profits of a property business for a tax year, the amount which is allowed as a deduction for costs of a loan in calculating the profits for the tax year is the non-adjusted deduction multiplied by the relevant fraction. This is subject to section 272A (restricting deductions for finance costs related to residential property).

(2)The non-adjusted deduction” means the deduction for costs of the loan that would be allowed, apart from section 272A and this section, in calculating the profits of the business for the tax year.

(3)The relevant fraction” means—

where V and L have the same meaning as in section 307C.

(4)For the meaning of “costs of a loan” see section 307C.

Property businesses that use, or have used, cash basisE+W+S+N.I.

307ECapital receipts under, or after leaving, cash basis

(1)This section applies in relation to a property business carried on by a person in two cases—

(a)Case 1 (see subsections (2) to (4)), and

(b)Case 2 (see subsections (5) to (8)).

(2)Case 1 is a case in which conditions A and B are met.

(3)Condition A is that the person receives disposal proceeds or a capital refund in relation to an asset in a tax year for which the profits of the property business are calculated on the cash basis (see section 271D).

For the meaning of “disposal proceeds” and “capital refund” see subsections (9) and (10).

(4)Condition B is that—

(a)an amount of capital expenditure (see subsection (11)) relating to the asset has been brought into account in calculating the profits of the property business on the cash basis, or

(b)an amount of relevant capital expenditure (see subsection (17)) relating to the asset has been brought into account in calculating the profits of the property business in accordance with GAAP (see section 271B)—

(i)by means of a deduction allowed under section 58 or 59 (incidental costs of obtaining finance) (as applied by section 272) or section 311A (replacement domestic items relief), or

(ii)under CAA 2001 (see subsection (20)).

(5)Case 2 is a case in which—

(a)condition C is met, and

(b)condition D or E is met.

(6)Condition C is that disposal proceeds or a capital refund arise to the person in relation to an asset in a tax year—

(a)for which the profits of the property business are calculated in accordance with GAAP, and

(b)which is after a tax year for which the profits of the business had been calculated on the cash basis.

(7)Condition D is that an amount of capital expenditure relating to the asset—

(a)has been paid in a tax year for which the profits of the property business were calculated on the cash basis,

(b)has been brought into account in calculating the profits of the business on the cash basis, and

(c)on the assumption that the profits had not been calculated on the cash basis at the time the expenditure was paid, would not have been qualifying expenditure.

(8)Condition E is that—

(a)an amount of capital expenditure relating to the asset has been brought into account in calculating the profits of the property business for a tax year in accordance with GAAP by means of a deduction allowed under section 58 or 59 (as applied by section 272) or section 311A, and

(b)that tax year is before the tax year for which the person last entered the cash basis.

(9)Disposal proceeds” means—

(a)any proceeds arising from the disposal of an asset or any part of it,

(b)any proceeds arising from the grant of any right in respect of, or any interest in, the asset, or

(c)any amount of damages, proceeds of insurance or other compensation received in respect of the asset.

See also section 307F for circumstances in which a person is to be regarded as disposing of an asset.

(10)Capital refund” means an amount that is (in substance) a refund of capital expenditure relating to an asset.

(11)Capital expenditure” means expenditure of a capital nature incurred, or treated as incurred, on or in connection with—

(a)the provision, alteration or disposal of an asset, or

(b)the potential provision, alteration or disposal of an asset.

(12)The disposal proceeds or capital refund mentioned in condition A or (as the case may be) condition C are to be brought into account as a receipt in calculating the profits of the property business.

(13)In a case where only part of the total capital expenditure incurred, or treated as incurred, by the person in relation to the asset has been brought into account in calculating the profits of the property business (whether or not on the cash basis), the amount brought into account under subsection (12) is proportionately reduced. The reference in this subsection to expenditure brought into account includes a reference to expenditure brought into account under CAA 2001 (see subsection (20)).

(14)Subsection (12) does not apply if the whole of the amount which would otherwise be brought into account under that subsection—

(a)has already been brought into account as a receipt in calculating the profits of the property business under this section,

(b)is brought into account as a receipt in calculating the profits of the business under any other provision of this Part (except section 334D(4) (assets not fully paid for)), or

(c)is brought into account under Part 2 or 3A of CAA 2001 as a disposal value.

The reference to any other provision of this Part in paragraph (b) includes a reference to any provision applied by section 272 or 272ZA.

(15)If part of the amount which would otherwise be brought into account under subsection (12) has already been or is brought into account as mentioned in subsection (14), subsection (12) applies in relation to the remainder of that amount.

(16)For the purposes of this section, any question as to whether or to what extent expenditure is brought into account in calculating the profits of a property business is to be determined on such basis as is just and reasonable in all the circumstances.

(17)In subsection (4)(b) “relevant capital expenditure” means capital expenditure which—

(a)has been incurred (or treated as incurred) by the person before the tax year for which the person last entered the cash basis, and

(b)is cash basis deductible in relation to that tax year.

(18)For the purposes of this section, a person carrying on a property business “enters the cash basis” for a tax year if the profits of the business are calculated—

(a)on the cash basis for the tax year, and

(b)in accordance with GAAP for the previous tax year.

(19)Expenditure is “cash basis deductible” in relation to a tax year if, on the assumption that the expenditure was paid in that tax year, a deduction would be allowed in respect of the expenditure in calculating the profits of the property business on the cash basis for that tax year.

(20)For the purposes of this section, expenditure is “brought into account under CAA 2001” in calculating the profits of a property business if and to the extent that—

(a)a capital allowance made under Part 2 of that Act in respect of the expenditure is treated as an expense in calculating those profits (see sections 248 to 250A of that Act), or

(b)qualifying expenditure (within the meaning of Part 2 of CAA 2001) is allocated to a pool for a relevant qualifying activity and is set-off against different disposal receipts.

(21)An amount of qualifying expenditure is “set-off against different disposal receipts” if—

(a)the amount would have been unrelieved qualifying expenditure carried forward in the pool for the relevant qualifying activity, but

(b)the amount is not so carried forward because (and only because) one or more disposal values in respect of one or more assets, other than the asset in respect of which the qualifying expenditure was incurred (or treated as incurred), have at any time been brought into account in that pool.

(22)For the purposes of subsections (20) and (21), an activity is a “relevant qualifying activity” if—

(a)it is a qualifying activity mentioned in section 15(1)(b) to (da) of CAA 2001 (property business activities), and

(b)the property business consists of or includes that qualifying activity.

(23)For the purposes of subsection (21), an amount of qualifying expenditure incurred (or treated as incurred) by a person is not to be regarded as not carried forward because the person enters the cash basis.

(24)In this section—

  • disposal value” means—

    (a)

    in subsection (14)(c)—

    (i)

    a disposal value for the purposes of Part 2 of CAA 2001 (see, in particular, section 61 of that Act), or

    (ii)

    proceeds from a balancing event for the purposes of Part 3A of that Act (see section 360O of that Act), and

    (b)

    in subsection (21), a disposal value for the purposes of Part 2 of that Act;

  • pool” means the main pool or a class pool to which qualifying expenditure is allocated under Part 2 of CAA 2001 (see section 54 of that Act);

  • provision” includes creation, construction or acquisition;

  • qualifying expenditure” means qualifying expenditure within the meaning of Part 2 of CAA 2001 (see section 11(4) of that Act for the general rule);

  • unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 2 of CAA 2001 (see section 59(1) and (2) of that Act).

307FDeemed capital receipts under, or after leaving, cash basis

(1)This section makes provision supplementary to section 307E.

(2)If—

(a)at any time a person ceases to use an asset or any part of it for the purposes of a property business (other than in the circumstances mentioned in subsection (5)), but

(b)the person does not dispose of the asset (or that part) at that time,

the person is to be regarded for the purposes of section 307E as disposing of the asset (or that part) at that time for an amount equal to the market value amount.

(3)If at any time there is a material increase in the person's non-business use of an asset or any part of it, the person is to be regarded for the purposes of section 307E as disposing of the asset (or that part) at that time for an amount equal to the relevant proportion of the market value amount.

(4)For the purposes of subsection (3)—

(a)there is an increase in a person's non-business use of an asset (or part of an asset) if—

(i)the proportion of the person's use of the asset (or that part) that is for the purposes of the property business decreases, and

(ii)the proportion of the person's use of the asset (or that part) that is for other purposes (the “non-business use”) increases;

(b)“the relevant proportion” is the difference between—

(i)the proportion of the person's use of the asset (or part of the asset) that is non-business use, and

(ii)the proportion of the person's use of the asset (or that part) that was non-business use before the increase mentioned in subsection (3).

(5)If—

(a)the property business in respect of which capital expenditure relating to an asset has been brought into account as mentioned in section 307E is an overseas property business, and

(b)there is a move overseas,

the person is to be regarded for the purposes of section 307E as disposing of the asset at the time of the move overseas for an amount equal to the market value amount.

(6)For the purposes of subsection (5) there is a “move overseas” if—

(a)the person ceases to be UK resident, or

(b)the tax year is, as respects the person, a split year, and the overseas part of the tax year is the later part.

(7)The move overseas occurs—

(a)in a case falling within subsection (6)(a), on the last day of the tax year for which the person is UK resident, or

(b)in a case falling within subsection (6)(b), on the last day of the UK part of the tax year.

(8)In this section—

  • capital expenditure” has the same meaning as in section 307E,

  • market value amount” means the amount that would be regarded as normal and reasonable—

    (a)

    in the market conditions then prevailing, and

    (b)

    between persons dealing with each other at arm's length in the open market.

24In section 311A (replacement domestic items relief), in subsection (15)—

(a)for the definition of “the capital expenditure rule” substitute—

the capital expenditure rule” means—

(a)in relation to a property business whose profits are calculated in accordance with GAAP, section 33 (capital expenditure), as applied by section 272, and

(b)in relation to a property business whose profits are calculated on the cash basis, section 307B (cash basis: capital expenditure);;

(b)in the definition of “the wholly and exclusively rule”—

(i)omit “the rule in”, and

(ii)after “section 272” insert “ or 272ZA ”.

25In section 315 (deduction for expenditure on sea walls), after subsection (6) insert—

(7)In calculating the profits of a property business on the cash basis, any reference in this section to the incurring of expenditure is to the paying of expenditure.

26In section 322 (commercial letting of furnished holiday accommodation), after paragraph (za) in subsections (2) and (2A) insert—

(zaa)section 307B (cash basis: capital expenditure),.

27After section 329 insert—

329AApplication of Chapter where cash basis used

This Chapter applies if—

(a)the profits of a property business are calculated—

(i)on the cash basis for a tax year (see section 271D), and

(ii)in accordance with GAAP (see section 271B) for the following tax year, or

(b)the profits of a property business are calculated—

(i)in accordance with GAAP for a tax year, and

(ii)on the cash basis for the following tax year.

28In section 331 (income charged)—

(a)the existing text becomes subsection (1), and

(b)after that subsection insert—

(2)This is subject to section 334A (spreading on leaving cash basis and related election).

29After section 334 insert—

Spreading of adjustment income on leaving cash basisE+W+S+N.I.

334ASpreading on leaving cash basis and related election

Sections 239A (spreading on leaving cash basis) and 239B (election to accelerate charge under section 239A) apply for the purposes of this Chapter as they apply for the purposes of Chapter 17 of Part 2, but as if—

(a)for section 239A(1) there were substituted—

(1)This section applies if the profits of a property business are calculated—

(a)on the cash basis for a tax year (see section 271D), and

(b)in accordance with GAAP (see section 271B) for the following tax year., and

(b)any reference to section 239A or 239B were to the section concerned as applied by this section.

CHAPTER 7AE+W+S+N.I.Cash basis: adjustments for capital allowances

334B“Entering the cash basis”

For the purposes of this Chapter, a person carrying on a property business enters the cash basis for a tax year if the profits of the business are calculated—

(a)on the cash basis for the tax year (see section 271D), and

(b)in accordance with GAAP (see section 271B) for the previous tax year.

334CUnrelieved qualifying expenditure

(1)This section applies if—

(a)a person carrying on a property business enters the cash basis for a tax year (“the current tax year”), and

(b)the person would, apart from section 59(4A) of CAA 2001, have unrelieved qualifying expenditure relating to a relevant property business activity to carry forward from the chargeable period which is the previous tax year.

(2)But this section does not apply if section 334D applies.

(3)In calculating the profits of the property business for the current tax year, a deduction is allowed for any cash basis deductible amount of the expenditure relating to each relevant property business activity.

(4)A “cash basis deductible amount” of the expenditure means any amount of the expenditure for which a deduction would be allowed in calculating the profits of the property business on the cash basis on the assumption that the expenditure was paid in the current tax year.

(5)Any cash basis deductible amount of the expenditure is to be determined on such basis as is just and reasonable in all the circumstances.

(6)In this section—

  • relevant property business activity” means—

    (a)

    in relation to a UK property business, an ordinary UK property business and a UK furnished holiday lettings business (within the meaning of Part 2 of CAA 2001 (see sections 16 and 17 of that Act)), and

    (b)

    in relation to an overseas property business, an ordinary overseas property business and an EEA furnished holiday lettings business (within the meaning of Part 2 of that Act (see sections 17A and 17B of that Act));

  • unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 2 of CAA 2001 (see section 59(1) and (2) of that Act).

334DAssets not fully paid for

(1)This section applies if—

(a)a person carrying on a property business enters the cash basis for a tax year (“the current tax year”),

(b)at any time before the end of the chargeable period which is the previous tax year the person has incurred relevant expenditure, and

(c)not all of the relevant expenditure has actually been paid by the person.

(2)Relevant expenditure” means expenditure on plant or machinery—

(a)for which a deduction would be allowed in calculating the profits of the property business on the cash basis on the assumption that the expenditure was paid in the current tax year, and

(b)in respect of which the person has obtained capital allowances.

(3)If the amount of the relevant expenditure that the person has actually paid exceeds the amount of capital allowances given in respect of the relevant expenditure, the difference is to be deducted in calculating the profits of the property business for the current tax year.

(4)If the amount of the relevant expenditure that the person has actually paid is less than the amount of capital allowances given in respect of the relevant expenditure, the difference is to be treated as a receipt in calculating the profits of the property business for the current tax year.

(5)Any question as to whether or to what extent expenditure is relevant expenditure, or as to whether or to what extent any capital allowance obtained is in respect of relevant expenditure, is to be determined on such basis as is just and reasonable in all the circumstances.

(6)If the amount of capital allowances given in respect of the relevant expenditure has been reduced under section 205 or 207 of CAA 2001 (reduction where asset provided or used only partly for qualifying activity), the amount of the relevant expenditure that the person has actually paid is to be proportionately reduced for the purposes of this section.

334EEffect of election where predecessor and successor are connected persons

(1)This section applies if—

(a)a person carrying on a property business enters the cash basis for a tax year,

(b)the person is the successor for the purposes of section 266 of CAA 2001, and

(c)as a result of an election under that section, relevant plant or machinery is treated as sold by the predecessor to the successor at any time during the tax year.

(2)The provisions of this Chapter have effect in relation to the successor as if everything done to or by the predecessor had been done to or by the successor.

(3)Any expenditure actually incurred by the successor on acquiring the relevant plant or machinery is to be ignored for the purposes of calculating the profits of the property business for the tax year.

(4)In this section—

  • the predecessor” has the same meaning as in section 266 of CAA 2001, and

  • relevant plant or machinery” has the same meaning as in section 267 of that Act.

30In section 351 (income charged), after subsection (2) insert—

(3)Further to subsection (2), section 254 applies for the purposes of this Chapter as if for subsection (2A) of that section there were substituted—

(2A)If the time immediately before the person permanently ceases to carry on the UK property business falls in a cash basis tax year, assume for the purposes of subsection (2) that the profits of the business are calculated on the cash basis.

(4)For the purposes of sections 254 (as so applied) and 353, a tax year is “a cash basis tax year” in relation to a property business if the profits of the business for the tax year are calculated on the cash basis (see section 271D).

31In section 353 (basic meaning of “post-cessation receipt”), after subsection (1) insert—

(1A)If the time immediately before a person permanently ceases to carry on a UK property business falls in a cash basis tax year (see section 351(4)), a sum is to be treated as a post-cessation receipt only if it would have been brought into account in calculating the profits of the business on the cash basis had it been received at that time.

32In section 356 (application to businesses within the charge to corporation tax), in subsection (1), for “section 355” substitute “ sections 353(1A) and 355, and in the modification of section 254 in section 351(3) ”.

33In section 786 (meaning of “rent-a-room receipts”), after subsection (6) insert—

(6A)Subsections (6B) and (7) apply if—

(a)the receipts would otherwise be brought into account in calculating the profits of a UK property business, and

(b)the profits are calculated on the cash basis (see section 271D).

(6B)Any amounts brought into account under section 307E (capital receipts under, or after leaving, cash basis) as a receipt in calculating the profits of the property business are to be treated as receipts within paragraph (a) of subsection (1) above.

34In section 860 (adjustment income), in subsection (5), after “Chapter 17 of Part 2” insert “ , or under section 239B as applied to property businesses by section 334A, ”.

35In section 866 (employee benefit contributions: non-trades and non-property businesses), in subsection (7)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

36In section 867 (business entertainment and gifts: non-trades and non-property businesses), in subsection (7)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

37In section 868 (social security contributions: non-trades etc), in subsection (6)(b), for “section 272” insert “ sections 272 and 272ZA ”.

38In section 869 (penalties, interest and VAT surcharges: non-trades etc), in subsection (6)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

39In section 870 (crime-related payments: non-trades and non-property businesses), in subsection (4)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

40In section 872 (losses calculated on same basis as miscellaneous income), in subsection (4)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

41In Part 2 of Schedule 4 (index of defined expressions), at the appropriate place insert—

the cash basis (in Part 3)section 271D
in accordance with GAAP (in Part 3)section 271B.

PART 3 E+W+S+N.I.Trades etc: amendments of other Acts

TMA 1970E+W+S+N.I.

42In section 42 of TMA 1970 (procedure for making claims etc), in subsection (7)(e), after “194” insert “ , 271A(10) ”.

TCGA 1992E+W+S+N.I.

43TCGA 1992 is amended as follows.

44In section 37 (consideration chargeable to tax on income), after subsection (1) insert—

(1A)There is to be excluded from the consideration for a disposal of an asset taken into account in the computation of the gain a sum equal to any amount that is taken into account by the person making the disposal as a receipt under section 96A or 307E of ITTOIA 2005 (capital receipts under, or after leaving, cash basis) as a result of the operation of any deemed disposal provision in relation to the asset.

(1B)But subsection (1A) applies only to the extent that the sum has not been excluded from the consideration for an earlier disposal of the asset.

(1C)The following are “deemed disposal provisions”—

(a)in relation to trades, professions and vocations, subsections (4) and (5) of section 96A of ITTOIA 2005 (which provide for circumstances in which a person is to be regarded as disposing of an asset for the purposes of that section), and

(b)in relation to property businesses, section 307F of ITTOIA 2005 (which provides for circumstances in which a person is to be regarded as disposing of an asset for the purposes of section 307E of that Act).

45(1)Section 41 (restriction of losses by reference to capital allowances etc) is amended as follows.E+W+S+N.I.

(2)In subsection (4), after paragraph (a) insert—

(zaa)any deduction allowable in respect of capital expenditure in calculating profits on the cash basis (see sections 33A and 307B of ITTOIA 2005),.

(3)After subsection (6) insert—

(6A)Where—

(a)capital allowances have been made or may be made in respect of expenditure, and

(b)the capital allowances include a deduction mentioned in subsection (4)(zaa),

the capital allowances to be taken into account under this section are to be regarded as equal to the total amount of expenditure which has qualified for capital allowances less any balancing charge to which the person making the disposal is liable under the Capital Allowances Act.

(4)In subsection (7), after “Capital Allowances Act,” insert “ and subsection (6A) does not apply, ”.

(5)After subsection (8) insert—

(9)In this section—

(a)in relation to a trade, profession or vocation, references to calculating profits on the cash basis are to calculating the profits of a trade, profession or vocation in relation to which an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect, and

(b)in relation to a property business, references to calculating profits on the cash basis are to be construed in accordance with section 271D of that Act (calculation of profits of property businesses on the cash basis).

(10)In this section—

  • capital expenditure” means expenditure of a capital nature incurred on, or in connection with, the creation, construction, acquisition, alteration or disposal of an asset, and

  • property business” means a UK property business or an overseas property business within the meaning of Part 3 of ITTOIA 2005 (see sections 264 and 265 of that Act).

46(1)Section 47A (exemption for disposals by persons using cash basis) is amended as follows.E+W+S+N.I.

(2)For the heading substitute “ Exemption for certain disposals under, or after leaving, cash basis ”.

(3)In subsection (1), for “A to D” substitute “ A, B and D ”.

(4)For subsection (2) substitute—

(2)Condition A is that the asset is not land.

(5)In subsection (3), for “or vocation” substitute “ , vocation or property business ”.

(6)Omit subsection (4).

(7)For subsection (5) substitute—

(5)Condition D is that relevant disposal proceeds—

(a)are brought into account as a receipt (whether or not on the cash basis) under section 96A(3I) of ITTOIA 2005 in calculating the profits of a trade, profession or vocation (capital receipts under, or after leaving, cash basis: trades, professions and vocations), or

(b)are brought into account as a receipt (whether or not on the cash basis) under section 307E(12) of that Act in calculating the profits of a property business (capital receipts under, or after leaving, cash basis: property businesses).

(5A)Relevant disposal proceeds” means disposal proceeds as mentioned in section 96A(3F) of ITTOIA 2005 or (as the case may be) section 307E(9) of that Act which arise from the disposal mentioned in subsection (1).

(8)For subsection (6) substitute—

(6)Subsection (7) applies in the case of the disposal of, or of an interest in, an asset—

(a)which, in the period of ownership of the person making the disposal—

(i)has been used partly for the purposes of the trade, profession or vocation and partly for other purposes, or

(ii)has been used for the purposes of the trade, profession or vocation for part of that period, or

(b)expenditure on which by the person has qualified in part only for capital allowances.

(9)In subsection (7)—

(a)in paragraph (a), for “was, or (as the case may be)” to the end substitute “ qualified for capital allowances ”, and

(b)in paragraph (c), at the end insert “, or to the expenditure qualifying for capital allowances.

(10)After subsection (7) insert—

(8)In this section “property business” means a UK property business or an overseas property business within the meaning of Part 3 of ITTOIA 2005 (see sections 264 and 265 of that Act).

47Section 47B (disposals made by persons after leaving cash basis) is omitted.

CAA 2001E+W+S+N.I.

48CAA 2001 is amended as follows.

49In section 1 (capital allowances), omit subsections (4) and (5).

50After section 1 insert—

1ACapital allowances and charges: cash basis

(1)This section applies in relation to a chargeable period for which the profits of a trade, profession, vocation or property business (“the relevant activity”) carried on by a person are calculated on the cash basis.

(2)The person is not entitled to any allowance or liable to any charge under this Act except as provided by subsections (4) and (7).

(3)No disposal value is to be brought into account except as provided by subsections (5) and (8).

(4)If, apart from subsection (2), the person would be entitled to an allowance in respect of expenditure incurred on the provision of a car or liable to a charge in connection with such an allowance, the person is so entitled or (as the case may be) so liable.

(5)If, apart from subsection (3), a disposal value would be brought into account in respect of a car, the disposal value is brought into account in respect of the car.

(6)Subsections (7) and (8) apply if—

(a)a person carrying on a relevant activity incurs qualifying expenditure relating to an asset at a time when the profits of that activity are not calculated on the cash basis,

(b)after incurring the expenditure, the person enters the cash basis for a tax year, and

(c)no deduction would be allowed in respect of the expenditure in calculating the profits of the relevant activity on the cash basis for that tax year, on the assumption that the expenditure was paid in that tax year.

(7)If, apart from subsection (2), the person would be liable to a charge in connection with allowances in respect of the qualifying expenditure mentioned in subsection (6), the person is so liable.

(8)If, apart from subsection (3), a disposal value would be brought into account in respect of the asset mentioned in subsection (6), the disposal value is brought into account in respect of the asset.

(9)For the purposes of this section a person carrying on a trade, profession or vocation “enters the cash basis” for a tax year if—

(a)an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade, profession or vocation for the tax year, and

(b)no such election has effect in relation to the trade, profession or vocation for the previous tax year.

(10)For the purposes of this section a person carrying on a property business “enters the cash basis” for a tax year if the profits of the business are calculated—

(a)on the cash basis for the tax year (see section 271D of ITTOIA 2005), and

(b)in accordance with GAAP (see section 271B of that Act) for the previous tax year.

(11)In this section—

(a)references to calculating the profits of a trade, profession or vocation on the cash basis are to calculating the profits of a trade, profession or vocation in relation to which an election under section 25A of ITTOIA 2005 has effect, and

(b)references to calculating the profits of a property business on the cash basis are to be construed in accordance with section 271D of that Act (calculation of profits of property businesses on the cash basis).

(12)In this section—

  • car” has the same meaning as in Part 2 (see section 268A);

  • disposal value” means—

    (a)

    a disposal value for the purposes of Part 2, 4A, 5, 6, 7, 8 or 10, or

    (b)

    proceeds from a balancing event for the purposes of Part 3 or 3A;

  • qualifying expenditure” means qualifying expenditure within the meaning of any Part of this Act.

51(1)Section 4 (capital expenditure) is amended as follows.E+W+S+N.I.

(2)In subsection (2)—

(a)omit “or” at the end of paragraph (a), and

(b)after paragraph (a) insert—

(aa)any cash basis expenditure, other than expenditure incurred on the provision of a car, or.

(3)After subsection (2) insert—

(2ZA)In subsection (2)(aa)—

  • cash basis expenditure” means any expenditure incurred—

    (a)

    in the case of a trade, profession or vocation, at a time when an election under section 25A of ITTOIA 2005 has effect in relation to the trade, profession or vocation, or

    (b)

    in the case of a property business, in a tax year for which the profits of the business are calculated on the cash basis (see section 271D of that Act); and

  • car” has the same meaning as in Part 2 (see section 268A).

52(1)Section 59 (unrelieved qualifying expenditure) is amended as follows.E+W+S+N.I.

(2)In subsection (4), for “no amount may be carried forward as unrelieved qualifying expenditure” substitute “ any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in a pool for the trade, profession or vocation ”.

(3)After subsection (4) insert—

(4A)If a person carrying on a property business enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in a pool for a relevant qualifying activity from the chargeable period which is the previous tax year.

(4)Omit subsection (5).

(5)After subsection (5) insert—

(5A)A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade, profession, vocation or property business (as the case may be) on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.

(6)In subsection (6), for “the amount of unrelieved qualifying expenditure incurred on the provision of a car” substitute “ any cash basis deductible amount ”.

(7)For subsection (7) substitute—

(7)Subsections (9), (10) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

(7A)In subsection (4A) “relevant qualifying activity” means—

(a)in relation to a UK property business, an ordinary UK property business and a UK furnished holiday lettings business, and

(b)in relation to an overseas property business, an ordinary overseas property business and an EEA furnished holiday lettings business.

53(1)Section 66A (persons leaving cash basis) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)This section applies if—

(a)a person carrying on a trade, profession, vocation or property business (“the business”) leaves the cash basis in a chargeable period,

(b)the person has incurred expenditure at a time when the profits of the business are calculated on the cash basis,

(c)some or all of the expenditure was brought into account in calculating the profits of the business on the cash basis, and

(d)the expenditure would have been qualifying expenditure if the profits of the business had not been calculated on the cash basis at the time the expenditure was incurred.

(3)In subsection (2)(a)—

(a)for “amount of that expenditure for which” substitute “ higher of the following ”,

(b)in sub-paragraphs (i) and (ii), at the beginning insert “ the amount of that expenditure for which ”, and

(c)in both places, for “or vocation” substitute “ , vocation or property business ”.

(4)After subsection (6) insert—

(7)For the purposes of this section a person carrying on a property business leaves the cash basis in a chargeable period (“tax year X”) if the profits of the business are calculated—

(a)in accordance with GAAP (see section 271B of ITTOIA 2005) for tax year X, and

(b)on the cash basis (see section 271D of that Act) for the previous tax year.

(8)Subsection (11) of section 1A (capital allowances and charges: cash basis) applies for the purposes of this section as it applies for the purposes of that section.

54After section 419 insert—

419AUnrelieved qualifying expenditure: entry to cash basis

(1)If a person carrying on a mineral extraction trade enters the cash basis for a tax year, for the purpose of determining the person's unrelieved qualifying expenditure for the chargeable period ending with the basis period for the tax year and subsequent chargeable periods (see section 419), only the non-cash basis deductible portion of qualifying expenditure incurred before the chargeable period ending with the basis period for the tax year is to be taken into account.

(2)The “non-cash basis deductible portion” of qualifying expenditure means the amount of qualifying expenditure for which no deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.

(3)Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

55After section 431C insert—

431DPersons leaving cash basis

(1)This section applies if—

(a)a person carrying on a mineral extraction trade leaves the cash basis in a chargeable period,

(b)the person has incurred expenditure at a time when an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade,

(c)some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and

(d)the expenditure would have been qualifying expenditure if an election under section 25A of that Act had not had effect at the time the expenditure was incurred.

(2)In this section—

(a)the “relieved portion” of the expenditure is the higher of the following—

(i)the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade, or

(ii)the amount of that expenditure for which a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade;

(b)the “unrelieved portion” of the expenditure is any remaining amount of the expenditure.

(3)An amount of the expenditure equal to the amount (if any) by which the unrelieved portion of the expenditure exceeds the relieved portion of the expenditure is to be regarded as qualifying expenditure incurred by the person in the chargeable period.

(4)For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if—

(a)immediately before the beginning of the chargeable period an election under section 25A of ITTOIA 2005 had effect in relation to the trade, and

(b)such an election does not have effect in relation to the trade for the chargeable period.

56After section 461 insert—

461AUnrelieved qualifying expenditure: entry to cash basis

(1)If a person carrying on a trade enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in the pool for the trade from the chargeable period ending with the basis period for the previous tax year.

(2)A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.

(3)Any cash basis deductible amount is to be determined on such basis as is just and reasonable in all the circumstances.

(4)Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

57After section 462 insert—

462APersons leaving cash basis

(1)This section applies if—

(a)a person carrying on a trade leaves the cash basis in a chargeable period,

(b)the person has incurred expenditure at a time when an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade,

(c)some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and

(d)the expenditure would have been qualifying expenditure if an election under section 25A of that Act had not had effect at the time the expenditure was incurred.

(2)In this section the “relieved portion” of the expenditure is the higher of the following—

(a)the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade, or

(b)the amount of that expenditure for which a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade.

(3)For the purposes of determining the person's available qualifying expenditure in the pool for the trade for the chargeable period (see section 456)—

(a)the whole of the expenditure must be allocated to the pool for the trade in that chargeable period, and

(b)the available qualifying expenditure in that pool is reduced by the relieved portion of that expenditure.

(4)For the purposes of determining any disposal values (see section 462), the expenditure incurred by the person is to be regarded as qualifying expenditure.

(5)For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if—

(a)immediately before the beginning of the chargeable period an election under section 25A of ITTOIA 2005 had effect in relation to the trade, and

(b)such an election does not have effect in relation to the trade for the chargeable period.

58After section 475 insert—

475AUnrelieved qualifying expenditure: entry to cash basis

(1)If a person carrying on a trade enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in the pool for the trade from the chargeable period ending with the basis period for the previous tax year.

(2)A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.

(3)Any cash basis deductible amount is to be determined on such basis as is just and reasonable in all the circumstances.

(4)Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

Prospective

59After section 477 insert—

477APersons leaving cash basis

(1)This section applies if—

(a)a person carrying on a trade leaves the cash basis in a chargeable period,

(b)the person has incurred expenditure at a time when an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade,

(c)some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and

(d)the expenditure would have been qualifying trade expenditure if an election under section 25A of that Act had not had effect at the time the expenditure was incurred.

(2)In this section the “relieved portion” of the expenditure is the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade.

(3)For the purposes of determining the person's available qualifying expenditure in the pool for the trade for the chargeable period (see section 470)—

(a)the whole of the expenditure must be allocated to the pool for the trade in that chargeable period, and

(b)the available qualifying expenditure in that pool is reduced by the relieved portion of that expenditure.

(4)For the purposes of determining any disposal receipts (see section 476), the expenditure incurred by the person is to be regarded as qualifying trade expenditure.

(5)For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if—

(a)immediately before the beginning of the chargeable period an election under section 25A of ITTOIA 2005 had effect in relation to the trade, and

(b)such an election does not have effect in relation to the trade for the chargeable period.

ITA 2007E+W+S+N.I.

60ITA 2007 is amended as follows.

61In Part 4 (loss relief), in section 59 (overview of Part), in subsection (3)(b)—

(a)for “section 272” substitute “ sections 272 and 272ZA ”, and

(b)for “applies” substitute “ apply ”.

62(1)Chapter 4 of Part 4 (losses from property businesses) is amended as follows.E+W+S+N.I.

(2)In section 120 (deduction of property losses from general income), in subsection (7), at the end insert “ and section 127BA (restriction of relief: cash basis) ”.

(3)After section 127B insert—

127BARestriction of relief: cash basis

(1)This section applies if—

(a)in a tax year a person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership), and

(b)the profits of the business are calculated on the cash basis for the tax year (see section 271D of ITTOIA 2005).

(2)No property loss relief against general income may be given to the person for the loss.

63In Chapter 1 of Part 8 (relief for interest payments), in section 384B(1) (restriction on relief for interest payments where cash basis applies), after “for the tax year” insert “or if the profits of a UK property business or overseas property business carried on by the partnership are calculated on the cash basis for the tax year (see section 271D of ITTOIA 2005).

PART 4 E+W+S+N.I.Commencement and transitional provision

64(1)The amendments made by this Schedule have effect for the tax year 2017-18 and subsequent tax years.E+W+S+N.I.

(2)If—

(a)disregarding this sub-paragraph, under section 33A of ITTOIA 2005, as inserted by paragraph 2 of Part 1, a deduction would not be allowed in calculating the profits of a trade, profession or vocation on the cash basis for the tax year 2017-18, but

(b)if the amendment made by paragraph 2 were not to have effect for that tax year, that deduction would be allowed in calculating the profits of that trade, profession or vocation on that basis for that tax year,

that deduction is to be allowed in calculating the profits of that trade, profession or vocation on that basis for that tax year.

(3)Sub-paragraph (2) is to be disregarded in determining any question as to whether or to what extent an amount of expenditure would, on the assumption that it was paid in the tax year 2017-18, be brought into account in calculating the profits of a trade, profession or vocation for the tax year 2017-18 for the purposes of—

(a)the following provisions of CAA 2001—

(i)section 1A (capital allowances and charges: cash basis),

(ii)section 59 (unrelieved qualifying expenditure),

(iii)section 419A (unrelieved qualifying expenditure: entry to cash basis),

(iv)section 461A (unrelieved qualifying expenditure: entry to cash basis), and

(v)section 475A (unrelieved qualifying expenditure: entry to cash basis); and

(b)the following provisions of ITTOIA 2005—

(i)section 96A (capital receipts under, or after leaving, cash basis),

(ii)section 240C (unrelieved qualifying expenditure: Parts 2, 7 and 8 of CAA 2001),

(iii)section 240CA (unrelieved qualifying expenditure: Part 5 of CAA 2001), and

(iv)section 240D (assets not fully paid for).

(4)But sub-paragraph (2) is not to be disregarded in determining any question as to whether or to what extent an amount of expenditure is actually brought into account in calculating the profits of a trade, profession or vocation for the tax year 2017-18 for the purposes of the provisions mentioned in paragraphs (a) and (b) of sub-paragraph (3).

Section 17

SCHEDULE 3E+W+S+N.I.Trading and property allowances

PART 1 E+W+S+N.I.Main provisions

1In ITTOIA 2005, after section 783 insert—

PART 6A E+W+S+N.I.Income charged under this Act: trading and property allowances

CHAPTER 1E+W+S+N.I.Trading allowance
IntroductionE+W+S+N.I.
783ARelief under this Chapter

(1)This Chapter gives relief to an individual on—

(a)the income of a relevant trade (see section 783AA), and

(b)miscellaneous income (see section 783AB).

(2)If the individual qualifies for full relief (see section 783AE), the individual's relevant income (see section 783AC) is not charged to income tax (see sections 783AF and 783AG).

(3)If the individual qualifies for partial relief (see section 783AH), the individual's relevant income is calculated by alternative methods (see sections 783AI to 783AK).

(4)Any provision of this Chapter which gives relief is subject to sections 783AN to 783AQ, which specify circumstances in which relief under this Chapter is not given.

Basic definitionsE+W+S+N.I.
783AA“Relevant trade” of an individual

(1)For the purposes of this Chapter, a trade carried on by an individual is a “relevant trade” of the individual for a tax year if—

(a)the individual carries on the trade otherwise than in partnership, and

(b)the trade is not a rent-a-room trade in relation to the individual for the tax year.

(2)For the purposes of subsection (1)(b) a trade is a “rent-a-room trade” in relation to an individual for a tax year if—

(a)the individual qualifies for rent-a-room relief for the tax year, and

(b)the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of the trade.

See section 783AR for definitions relevant to this subsection.

(3)In this Chapter references to a trade include references to a profession or vocation.

783AB“Miscellaneous income”

(1)For the purposes of this Chapter, an individual's “miscellaneous income” for a tax year is all the income arising to the individual in the tax year which would be chargeable to income tax under Chapter 8 of Part 5 (income not otherwise charged) for the tax year.

(2)But if—

(a)the individual qualifies for rent-a-room relief for the tax year, and

(b)the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7, be chargeable to income tax under Chapter 8 of Part 5,

the rent-a-room receipts are not miscellaneous income.

(3)The reference in subsection (1) to the amount which would be chargeable to income tax under Chapter 8 of Part 5 is to the amount which would be so chargeable—

(a)apart from this Chapter, and

(b)if no deduction were made for expenses or any other matter.

783ACThe individual's “relevant income”

(1)For the purposes of this Chapter, an individual's “relevant income” for a tax year is the sum of the following—

(a)the receipts for the tax year of the individual's relevant trades for the tax year, and

(b)the individual's miscellaneous income for the tax year.

(2)In subsection (1)(a) the reference to the receipts of a trade for a tax year is to all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the trade for the tax year.

783ADThe individual's trading allowance

(1)For the purposes of this Chapter, an individual's trading allowance for a tax year is £1,000.

(2)The Treasury may by regulations amend subsection (1) so as to substitute a higher sum for the sum for the time being specified in that subsection.

Full reliefE+W+S+N.I.
783AEFull relief: introduction

(1)An individual qualifies for full relief for a tax year if—

(a)the individual has relevant income for the tax year,

(b)the relevant income does not exceed the individual's trading allowance for the tax year, and

(c)no election by the individual under section 783AL has effect for the tax year (election for full relief not to be given).

(2)An individual also qualifies for full relief for a tax year if—

(a)the individual has relevant income for the tax year which consists of or includes receipts of one or more relevant trades,

(b)the relevant income exceeds the individual's trading allowance for the tax year,

(c)the conditions mentioned in subsection (3) are met,

(d)no election by the individual under section 783AL has effect for the tax year, and

(e)no election by the individual under section 783AM has effect for the tax year (election for partial relief).

(3)The conditions are that—

(a)no election by the individual under section 25A (cash basis for trades) has effect for the tax year,

(b)the individual's relevant income would not exceed the individual's trading allowance for the tax year if it were to be assumed that an election by the individual under section 25A had effect for the tax year,

(c)the individual is eligible to make an election under section 25A (see section 31A) for the tax year, and

(d)if any trade carried on by the individual in the tax year was carried on in the immediately preceding tax year—

(i)an election by the individual under section 25A had effect for that preceding tax year, or

(ii)the individual was eligible to make such an election for that preceding tax year.

783AFFull relief: trade profits

(1)This section applies if—

(a)an individual qualifies for full relief for a tax year, and

(b)the individual's relevant income for the tax year consists of or includes receipts of one or more relevant trades.

(2)The profits or losses of each such trade for the tax year are treated as nil.

783AGFull relief: miscellaneous income

(1)This section applies if—

(a)an individual qualifies for full relief for a tax year, and

(b)the individual's relevant income for the tax year consists of or includes miscellaneous income.

(2)The amount of—

(a)the miscellaneous income arising in the tax year, less

(b)any expenses associated with that income,

is treated as nil.

Partial reliefE+W+S+N.I.
783AHPartial relief: alternative calculation of profits: introduction

An individual qualifies for partial relief for a tax year if—

(a)the individual has relevant income for the tax year,

(b)the relevant income exceeds the individual's trading allowance for the tax year, and

(c)an election by the individual under section 783AM has effect for the tax year (election for partial relief).

783AIPartial relief: alternative calculation of trade profits

(1)This section applies if—

(a)an individual qualifies for partial relief for a tax year, and

(b)the individual's relevant income for the tax year consists of or includes receipts of one or more relevant trades.

(2)The profits or losses for the tax year of each of the individual's relevant trades are given by taking the following steps—

  • Step 1 Calculate the total of all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the trade for the tax year.

  • Step 2 Subtract the deductible amount.

  • Step 3 Subtract from the amount given by step 2 any deduction for overlap profit allowed in calculating the profits of the trade for the tax year under section 205 (deduction for overlap profit in final tax year) or section 220 (deduction for overlap profit on change of accounting date).

(3)Subject to section 783AK, the deductible amount is equal to the individual's trading allowance for the tax year.

(4)“Overlap profit” has the same meaning in this section as it has in Chapter 15 of Part 2 (see sections 204 and 204A).

783AJPartial relief: alternative calculation of chargeable miscellaneous income

(1)This section applies if—

(a)an individual qualifies for partial relief for a tax year, and

(b)the individual's relevant income for the tax year consists of or includes miscellaneous income.

(2)The amount of miscellaneous income chargeable to income tax for the tax year is—

(a)the miscellaneous income for the tax year, less

(b)the deductible amount.

(3)Subject to section 783AK, the deductible amount is equal to the individual's trading allowance for the tax year.

783AKDeductible amount: splitting of trading allowance

(1)This section applies where the individual's relevant income for the tax year includes—

(a)receipts of a relevant trade, and

(b)receipts of any other relevant trade or miscellaneous income (or both).

(2)The references in section 783AI and (where it applies) section 783AJ to the deductible amount are to amounts which, in total, equal the individual's trading allowance for the tax year.

(3)The question of how to allocate the individual's trading allowance for the tax year for the purposes of subsection (2) is to be decided by the individual, subject to subsections (4) and (5).

(4)The deductible amount in respect of a relevant trade must not be such that the amount given by step 2 of section 783AI(2) is negative.

(5)The deductible amount in respect of miscellaneous income must not be such as to result in the individual making a loss in the transactions giving rise to the miscellaneous income.

ElectionsE+W+S+N.I.
783ALElection for full relief not to be given

(1)An individual may elect not to be given full relief for a tax year (see sections 783AF and 783AG).

(2)An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

783AMElection for partial relief

(1)An individual may elect for partial relief to be given for a tax year if the individual's relevant income for the tax year exceeds the individual's trading allowance for the tax year (see sections 783AI and 783AJ).

(2)An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

Exclusions from reliefE+W+S+N.I.
783ANExclusion from relief: expenses deducted against rent-a-room receipts

(1)No relief under this Chapter is given to an individual for a tax year if—

(a)the individual qualifies for rent-a-room relief for the tax year,

(b)the individual has rent-a-room receipts mentioned in subsection (2) for the tax year, and

(c)condition A or B is met.

(2)The rent-a-room receipts mentioned in subsection (1) are—

(a)rent-a-room receipts which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of a trade, or

(b)rent-a-room receipts which would, apart from Chapter 1 of Part 7, be chargeable to income tax under Chapter 8 of Part 5 (income not otherwise charged).

(3)Condition A is that—

(a)the individual's total rent-a-room amount for the tax year does not exceed the individual's limit for the tax year (see section 783AR), and

(b)an election by the individual under section 799 has effect to disapply full rent-a-room relief for the tax year.

(4)Condition B is that—

(a)the individual's total rent-a-room amount for the tax year exceeds the individual's limit for the tax year, and

(b)no election by the individual under section 800 has effect to apply the alternative method of calculating profits for the tax year.

783AOExclusion from relief: payments by employer

No relief under this Chapter is given to an individual for a tax year if—

(a)the individual has relevant income for the tax year, and

(b)the income includes a payment made by, or on behalf of, a person at a time when the individual is—

(i)an employee of the person, or

(ii)the spouse or civil partner of an employee of the person.

783APExclusion from relief: payments by firm

No relief under this Chapter is given to an individual for a tax year if—

(a)the individual has relevant income for the tax year, and

(b)the income includes a payment made by, or on behalf of, a firm at a time when the individual is—

(i)a partner in the firm, or

(ii)connected with a partner in the firm.

783AQExclusion from relief: payments by close company

(1)No relief under this Chapter is given to an individual for a tax year if—

(a)the individual has relevant income for the tax year, and

(b)the income includes a payment made by, or on behalf of, a close company at a time when the individual is—

(i)a participator in the close company, or

(ii)an associate of a participator in the close company.

(2)In this section “associate” and “participator” have the same meanings as in Part 10 of CTA 2010 (see sections 448 and 454).

InterpretationE+W+S+N.I.
783ARInterpretation of this Chapter

In this Chapter—

(a)rent-a-room relief”, “rent-a-room receipts” and “total rent-a-room amount” have the same meanings as in Chapter 1 of Part 7 (rent-a-room relief: see sections 784, 786 and 788), and

(b)references to “the individual's limit” are to be construed in accordance with section 789 (the individual's limit for the purposes of rent-a-room relief).

CHAPTER 2E+W+S+N.I.Property allowance
IntroductionE+W+S+N.I.
783BRelief under this Chapter

(1)This Chapter gives relief to an individual on certain income of a relevant property business (see sections 783BA and 783BB).

(2)The form of relief depends on whether the individual's relevant property income exceeds the individual's property allowance (see sections 783BC and 783BD).

(3)If the individual's relevant property income does not exceed the individual's property allowance, the income is not charged to income tax (unless the individual elects otherwise) (see sections 783BE and 783BF).

(4)If the individual's relevant property income does exceed the individual's property allowance, the individual may elect for an alternative method of calculating the income (see sections 783BG to 783BI).

(5)Any provision of this Chapter which gives relief is subject to sections 783BL to 783BP, which specify circumstances in which relief under this Chapter is not given.

Basic definitionsE+W+S+N.I.
783BA“Relevant property business” of an individual

(1)Subject to subsection (3), for the purposes of this Chapter an individual's property business is a “relevant property business” for a tax year if the business is not a rent-a-room property business in relation to the individual for the tax year.

(2)For the purposes of subsection (1) a property business is a “rent-a-room property business” in relation to an individual for a tax year if—

(a)the individual qualifies for rent-a-room relief for the tax year, and

(b)all the receipts which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of the business, are rent-a-room receipts.

See section 783BQ for definitions relevant to this subsection.

(3)If an individual receives—

(a)property income distributions which are treated as profits of a UK property business by virtue of regulation 69Z18(1) or (2) of the AIF Regulations (property AIF distributions: liability to tax), or

(b)distributions which are treated as profits of a UK property business by virtue of section 548(6) of CTA 2010 (REIT distributions: liability to tax),

that separate property business (see regulation 69Z18(6) of the AIF Regulations and section 549(5) of CTA 2010) is not a relevant property business of the individual.

(4)In subsection (3) “the AIF Regulations” means the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964).

783BB“Relievable receipts” of a property business

(1)For the purposes of this Chapter, the “relievable receipts” of an individual's relevant property business for a tax year are all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the business for the tax year.

This is subject to subsections (2) and (3).

(2)If—

(a)the individual qualifies for rent-a-room relief for the tax year, and

(b)the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7, be brought into account in calculating the profits of the property business,

the rent-a-room receipts are not relievable receipts of the business.

(3)Non-relievable balancing charges in respect of the property business for the tax year are not relievable receipts of the business.

(4)In subsection (3) “non-relievable balancing charges”, in respect of a property business for a tax year, means balancing charges falling to be made for the tax year under Part 2 of CAA 2001 which do not relate to a business or transaction which is carried on, or entered into, for the purpose of generating receipts which are relievable receipts of the property business.

783BCThe individual's “relevant property income”

For the purposes of this Chapter, an individual's “relevant property income” for a tax year is the relievable receipts for the tax year of the individual's relevant property businesses for the tax year.

783BDThe individual's property allowance

(1)For the purposes of this Chapter, an individual's property allowance for a tax year is £1,000.

(2)The Treasury may by regulations amend subsection (1) so as to substitute a higher sum for the sum for the time being specified in that subsection.

Relief if relevant property income does not exceed property allowanceE+W+S+N.I.
783BEFull relief: introduction

An individual qualifies for full relief for a tax year if—

(a)the individual has relevant property income for the tax year,

(b)the relevant property income does not exceed the individual's property allowance for the tax year, and

(c)no election by the individual under section 783BJ has effect for the tax year (election for full relief not to be given).

783BFFull relief: property profits

(1)If an individual qualifies for full relief for a tax year, this section applies in relation to the calculation of the profits of the individual's relevant property business for the tax year or, where the individual's relevant property income for the tax year consists of the relievable receipts of two relevant property businesses, the profits of each property business for the tax year.

(2)The following are not brought into account—

(a)the relievable receipts of the property business for the tax year, and

(b)any expenses associated with those receipts.

Relief if relevant property income exceeds property allowanceE+W+S+N.I.
783BGPartial relief: alternative calculation of property profits: introduction

An individual qualifies for partial relief for a tax year if—

(a)the individual has relevant property income for the tax year,

(b)the relevant property income exceeds the individual's property allowance for the tax year, and

(c)an election by the individual under section 783BK has effect for the tax year (election for partial relief).

783BHPartial relief: alternative calculation of property profits

(1)If an individual qualifies for partial relief for a tax year, this section applies in relation to the calculation of the profits of the individual's relevant property business for the tax year or, where the individual's relevant property income for the tax year consists of the relievable receipts of two relevant property businesses, the profits of each property business for the tax year.

(2)The relievable receipts of the property business for the tax year are brought into account.

(3)No relevant expenses are brought into account.

(4)The deductible amount is brought into account.

(5)Subject to section 783BI, the deductible amount is equal to the individual's property allowance for the tax year.

(6)In subsection (3) “relevant expenses” means all the amounts—

(a)which would, apart from this section, be brought into account as a deduction in calculating the profits of the business for the tax year, and

(b)which are associated with the relievable receipts.

783BIDeductible amount: splitting of property allowance

(1)This section applies where the individual's relevant property income for the tax year consists of the relievable receipts of two relevant property businesses.

(2)The references in section 783BH to the deductible amount are to amounts which, in total, equal the individual's property allowance for the tax year.

(3)The question of how to allocate the individual's property allowance for the tax year for the purposes of subsection (2) is to be decided by the individual, subject to subsection (4).

(4)The deductible amount in respect of a relevant property business must not be such as to result in a loss of the business.

ElectionsE+W+S+N.I.
783BJElection for full relief not to be given

(1)An individual may elect not to be given full relief for a tax year (see section 783BF).

(2)An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

783BKElection for partial relief

(1)An individual may elect for partial relief to be given for a tax year if the individual's relevant property income for the tax year exceeds the individual's property allowance for the tax year (see section 783BH).

(2)An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

Exclusions from reliefE+W+S+N.I.
783BLExclusion from relief: tax reduction under section 274A

No relief under this Chapter is given to an individual for a tax year if, in calculating the individual's liability to income tax for the tax year, a tax reduction under section 274A (property business: relief for non-deductible costs of a dwelling-related loan) is applied at Step 6 of the calculation in section 23 of ITA 2007.

783BMExclusion from relief: expenses deducted against rent-a-room receipts

(1)No relief under this Chapter is given to an individual for a tax year if—

(a)the individual qualifies for rent-a-room relief for the tax year,

(b)the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of a property business, and

(c)condition A or B is met.

(2)Condition A is that—

(a)the individual's total rent-a-room amount for the tax year does not exceed the individual's limit for the tax year (see section 783BQ), and

(b)an election by the individual under section 799 has effect to disapply full rent-a-room relief for the tax year.

(3)Condition B is that—

(a)the individual's total rent-a-room amount for the tax year exceeds the individual's limit for the tax year, and

(b)no election by the individual under section 800 has effect to apply the alternative method of calculating profits for the tax year.

783BNExclusion from relief: payments by employer

No relief under this Chapter is given to an individual for a tax year if—

(a)the individual has relevant property income for the tax year, and

(b)the income includes a payment made by, or on behalf of, a person at a time when the individual is—

(i)an employee of the person, or

(ii)the spouse or civil partner of an employee of the person.

783BOExclusion from relief: payments by firm

No relief under this Chapter is given to an individual for a tax year if—

(a)the individual has relevant property income for the tax year, and

(b)the income includes a payment made by, or on behalf of, a firm at a time when the individual is—

(i)a partner in the firm, or

(ii)connected with a partner in the firm.

783BPExclusion from relief: payments by close company

(1)No relief under this Chapter is given to an individual for a tax year if—

(a)the individual has relevant property income for the tax year, and

(b)the income includes a payment made by, or on behalf of, a close company at a time when the individual is—

(i)a participator in the close company, or

(ii)an associate of a participator in the close company.

(2)In this section “associate” and “participator” have the same meanings as in Part 10 of CTA 2010 (see sections 448 and 454).

InterpretationE+W+S+N.I.
783BQInterpretation of this Chapter

In this Chapter—

(a)rent-a-room relief”, “rent-a-room receipts” and “total rent-a-room amount” have the same meanings as in Chapter 1 of Part 7 (rent-a-room relief: see sections 784, 786 and 788), and

(b)references to “the individual's limit” are to be construed in accordance with section 789 (the individual's limit for the purposes of rent-a-room relief).

PART 2 E+W+S+N.I.Consequential amendments

ITTOIA 2005E+W+S+N.I.

2ITTOIA 2005 is amended in accordance with paragraphs 3 to 11.

3In section 1 (overview of Act), before paragraph (a) of subsection (5) insert—

(za)provision about a trading allowance and property allowance (see Part 6A),.

4In Chapter 2 of Part 2 (trading income: income taxed as trade profits), after section 22 insert—

Trading allowanceE+W+S+N.I.
22ATrading allowance

(1)The rules for calculating the profits of a trade, profession or vocation carried on by an individual are subject to Chapter 1 of Part 6A (trading allowance).

(2)That Chapter gives relief on relevant income and, where relief is given, disallows most deductions under this Part (see, in particular, sections 783AC, 783AF and 783AI).

5In Chapter 15 of Part 2 (basis periods), after section 204 insert—

204AOverlap profit and trading allowance under Chapter 1 of Part 6A

(1)This section makes provision about the amount of profit treated as arising in an overlap period which falls within the basis period of a trade for two tax years (“tax year A” and “tax year B”) where relief is given under Chapter 1 of Part 6A (trading allowance) in respect of the trade for at least one of those tax years.

(2)The profit which arises in the overlap period is treated as nil if—

(a)the profits or losses of the trade for tax year A or tax year B (or both) are treated as nil under section 783AF (full relief: trade profits), or

(b)in relation to tax year A or tax year B (or both)—

(i)section 783AI applies in calculating the profits or losses of the trade (partial relief: alternative calculation of trade profits), and

(ii)the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is greater than or equal to the non-adjusted overlap profit.

(3)Subsection (6) applies if conditions 1 and 2 are met.

(4)Condition 1 is that, in relation to either tax year A or tax year B—

(a)section 783AI applies in calculating the profits or losses of the trade, and

(b)the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is less than the non-adjusted overlap profit.

(5)Condition 2 is that neither section 783AF nor section 783AI applies in relation to the trade—

(a)where condition 1 is met in relation to tax year A, for tax year B, or

(b)where condition 1 is met in relation to tax year B, for tax year A.

(6)The profit which arises in the overlap period is treated as equal to the non-adjusted overlap profit less the deductible amount mentioned in subsection (4)(b).

(7)Subsection (8) applies if, in relation to each of tax year A and tax year B—

(a)section 783AI applies in calculating the profits or losses of the trade, and

(b)the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is less than the non-adjusted overlap profit.

(8)The profit which arises in the overlap period is treated as equal to the non-adjusted overlap profit less the higher of the following—

(a)the deductible amount subtracted at step 2 of section 783AI(2) in calculating the profits or losses of the trade for tax year A, and

(b)the deductible amount subtracted at step 2 of section 783AI(2) in calculating the profits or losses of the trade for tax year B.

(9)In this section “non-adjusted overlap profit” means the amount of profit that would arise in the overlap period apart from—

(a)Chapter 1 of Part 6A, and

(b)this section.

6In section 227A (application of Chapter where cash basis used), after subsection (2) insert—

(3)This section is subject to section 227C (application of Chapter where section 227B applies).

7After section 227A insert—

227BCash basis treatment: full relief under Chapter 1 of Part 6A (trading allowance)

(1)Subsection (2) applies if—

(a)an individual carries on a trade in a tax year, and

(b)the profits or losses of the trade for the tax year are treated as nil under section 783AF (trade profits: full relief under Chapter 1 of Part 6A) by virtue of the fact that the conditions in section 783AE(2) are met.

(2)For the purposes of determining if this Chapter applies, an election under section 25A is to be treated as having effect in relation to the trade for the tax year.

227CApplication of Chapter where section 227B applies

(1)This section applies if, as a result of the operation of section 227B, the basis on which profits of a trade are calculated is treated as changed as mentioned in section 227A(1).

(2)This Chapter applies as if—

(a)in sections 232(1) and 233(1), for “the first period of account for which the new basis is adopted” there were substituted “ the first tax year for which the profits or losses of the trade are not treated as nil under section 783AF ”, and

(b)sections 235, 236, 237, 239A and 239B were omitted.

(3)If there is no tax year after the change of basis for which the profits or losses of the trade are not treated as nil under section 783AF, this Chapter does not apply.

8After section 307F (inserted by Schedule 2 to this Act) insert—

Property allowanceE+W+S+N.I.
307GProperty allowance

(1)The rules for calculating the profits of an individual's property business are subject to Chapter 2 of Part 6A (property allowance).

(2)That Chapter gives relief on relevant property income and, where relief is given, disallows all deductions under this Part which relate to that income (see, in particular, sections 783BC, 783BF and 783BH).

9In section 688 (income charged under Chapter 8 of Part 5), before paragraph (a) of subsection (2) insert—

(za)Chapter 1 of Part 6A (which gives relief on relevant income which may consist of or include income chargeable under this Chapter: see, in particular, sections 783AB, 783AC, 783AG and 783AJ),.

10In section 828 (overlap profit), in subsection (3), for “section 204” substitute “ sections 204 and 204A ”.

11In Part 2 of Schedule 4 (defined expressions)—

(a)at the appropriate places insert—

individual's property allowance (in Chapter 2 of Part 6A)section 783BD
individual's trading allowance (in Chapter 1 of Part 6A)section 783AD
miscellaneous income (in Chapter 1 of Part 6A)section 783AB
relevant income (in Chapter 1 of Part 6A)section 783AC
relevant property business (in Chapter 2 of Part 6A)section 783BA
relevant property income (in Chapter 2 of Part 6A)section 783BC
relevant trade (in Chapter 1 of Part 6A)section 783AA
relievable receipts (in Chapter 2 of Part 6A)section 783BB,

(b)in the entry for “overlap profit”, for “section 204” substitute “ sections 204 and 204A ”.

TIOPA 2010E+W+S+N.I.

12In TIOPA 2010—

(a)in section 22(8) (credit for foreign tax on overlap profit if credit for that tax already allowed), in the definition of “overlap profit”, for “section 204” substitute “ sections 204 and 204A ”, and

(b)in section 24(8) (claw-back of relief under section 22(2)), in the definition of “overlap profit”, for “section 204” substitute “ sections 204 and 204A ”.

PART 3 E+W+S+N.I.Commencement

13The amendments made by this Schedule have effect for the tax year 2017-18 and subsequent tax years.

Section 18

SCHEDULE 4E+W+S+N.I.Relief for carried-forward losses

PART 1 E+W+S+N.I.Amendment of general rules about carrying forward losses

Non-trading deficits from loan relationshipsE+W+S+N.I.

1Part 5 of CTA 2009 (loan relationships) is amended as follows.

2In the heading of Chapter 16 (non-trading deficits) at the end insert “ : pre-1 April 2017 deficits and charities ”.

3In section 456 (introduction to Chapter 16) in subsection (1)—

(a)after “if” insert

(a)”, and

(b)at the end insert , and

(b)either—

(i)that accounting period begins before 1 April 2017, or

(ii)at the end of that accounting period the company is a charity.

4After section 463 insert—

CHAPTER 16AE+W+S+N.I.Non-trading deficits: post 1 April 2017 deficits
463AIntroduction to Chapter

(1)This Chapter applies if—

(a)for any accounting period beginning on or after 1 April 2017 a company has a non-trading deficit from its loan relationships under section 301(6), and

(b)at the end of that accounting period the company is not a charity.

(2)In this Chapter “the deficit” and “the deficit period” mean that deficit and that period respectively.

(3)Sections 463B and 463C deal with claims to set off the deficit against profits of the deficit period or earlier periods.

(4)Sections 463D to 463F deal with the consequences of such claims.

(5)Sections 463G to 463I provide for so much of the deficit as is not—

(a)set off against profits under section 463B, or

(b)surrendered as group relief under Part 5 of CTA 2010,

to be carried forward to later accounting periods.

463BClaim to set off deficit against profits of deficit period or earlier periods

(1)The company may make a claim for the whole or part of the deficit—

(a)to be set off against any profits of the company (of whatever description) for the deficit period, or

(b)to be carried back to be set off against profits for earlier accounting periods.

(2)No claim may be made under subsection (1) in respect of so much of the deficit as is surrendered as group relief under Part 5 of CTA 2010.

(3)For time limits and other provisions applicable to claims under subsection (1), see section 463C.

(4)For what happens when a claim is made under subsection (1)(a), see section 463D.

(5)For what happens when a claim is made under subsection (1)(b), and the profits available for relief when such a claim is made, see sections 463E and 463F.

463CTime limits for claims under section 463B(1)

(1)A claim under section 463B(1) must be made within—

(a)the period of 2 years after the deficit period ends, or

(b)such further period as an officer of Revenue and Customs allows.

(2)Different claims may be made in respect of different parts of a non-trading deficit for any deficit period.

(3)But no claim may be made in respect of any part of a deficit to which another such claim relates.

463DClaim to set off deficit against profits for the deficit period

(1)This section applies if a claim is made under section 463B(1)(a) for the whole or part of the deficit to be set off against profits for the deficit period.

(2)The amount of the deficit to which the claim relates must be set off against the profits of the company for the deficit period which are identified in the claim.

(3)Those profits are reduced accordingly.

(4)Relief under this section must be given before relief is given against profits for the deficit period—

(a)under section 37 or 62(1) to (3) of CTA 2010 (deduction of losses from total profits for the same or earlier accounting periods), or

(b)as a result of a claim under section 463B(1)(b) (carry-back) in respect of a deficit for a later period.

(5)No relief may be given under this section against ring fence profits of the company within the meaning of Part 8 of CTA 2010 (oil activities) or contractor's ring fence profits of the company within the meaning of Part 8ZA of that Act (oil contractors).

463EClaim to carry back deficit to earlier periods

(1)This section applies if a claim is made under section 463B(1)(b) for the whole or part of the deficit to be carried back to be set off against profits for accounting periods before the deficit period.

(2)The claim has effect only if it relates to an amount no greater than the lesser of—

(a)so much of the deficit as is not an amount in relation to which a claim is made under section 463B(1)(a), and

(b)the total amount of the profits available for relief under this section.

(3)Section 463F explains which profits are so available.

(4)The amount to which the claim relates is set off against those profits by treating them as reduced accordingly.

(5)If those profits are profits for more than one accounting period, the relief is applied by setting off the amount to which the claim relates against profits for a later period before setting off any remainder of that amount against profits for an earlier period.

463FProfits available for relief under section 463E

(1)The profits available for relief under section 463E are the amounts which (apart from the relief) would be charged under this Part as profits for accounting periods ending within the permitted period after giving every prior relief.

(2)In this section—

  • the permitted period” means the period of 12 months immediately before the deficit period, and

  • prior relief” means a relief which subsection (5) provides must be given before relief under section 463E.

(3)If an accounting period ending within the permitted period begins before it, only a part of the amount which (apart from the relief) would be chargeable under this Part for the period, after giving every prior relief, is available for relief under section 463E.

(4)That part is so much as is proportionate to the part of the accounting period in the permitted period.

(5)The reliefs which must be given before relief under section 463E are—

(a)relief as a result of a claim under section 459(1)(a) or section 463B(1)(a) (claim for deficit to be set off against total profits for the deficit period),

(b)relief in respect of a loss or deficit incurred or treated as incurred in an accounting period before the deficit period,

(c)relief under Part 6 of CTA 2010 (charitable donations relief in respect of payments made wholly and exclusively for the purposes of a trade),

(d)relief under section 37 of CTA 2010 (losses deducted from total profits of the same or an earlier accounting period), and

(e)if the company is a company with investment business for the purposes of Part 16 (companies with investment business)—

(i)any deduction in respect of management expenses under section 1219 (expenses of management of a company's investment business),

(ii)relief under Part 6 of CTA 2010 in respect of payments made wholly and exclusively for the purposes of its business, and

(iii)any allowance under Part 2 of CAA 2001 (plant and machinery allowances).

463GCarry forward of unrelieved deficit against total profits

(1)This section applies if conditions A to D are met.

(2)Condition A is that—

(a)any amount of the deficit (“the unrelieved amount”) is not—

(i)set off against profits on a claim under section 463B(1), or

(ii)surrendered as group relief under Part 5 of CTA 2010.

(3)Condition B is that it is not the case—

(a)that the company ceased to be a company with investment business in the deficit period, or

(b)(if the company was a company with investment business immediately before the beginning of the deficit period) that its investment business became small or negligible in the deficit period.

(4)Condition C is that (if the company is a Solvency 2 insurance company) it is not the case that the whole of the deficit is a shock loss.

(5)Condition D is that (if the company is a general insurance company) the first accounting period after the deficit period is not an excluded accounting period.

(6)The unrelieved amount is carried forward to the first accounting period after the deficit period.

(7)The company may make a claim for the whole or part of the unrelieved amount to be set off against the company's total profits for the first accounting period after the deficit period.

(8)If a claim is made under subsection (7)—

(a)the unrelieved amount, or the part of it to which the claim relates, must be set off against the company's total profits for the first accounting period after the deficit period, and

(b)those profits are reduced accordingly.

(9)No claim may be made under subsection (7) in respect of so much of the unrelieved amount as is surrendered under Part 5A of CTA 2010 (group relief for carried-forward losses).

(10)A claim under subsection (7) must be made within—

(a)the period of two years after the end of the first accounting period after the deficit period, or

(b)such further period as an officer of Revenue and Customs allows.

(11)No relief may be given under this section against ring fence profits of the company within the meaning of Part 8 of CTA 2010 (oil activities) or contractor's ring fence profits of the company within the meaning of Part 8ZA of that Act (oil contractors).

(12)If —

(a)the company is a Solvency 2 insurance company, and

(b)the deficit is partly (but not wholly) a shock loss,

subsections (6) to (9) have effect as if references to the unrelieved amount were to the eligible amount (see subsection (13)).

(13)In this section “the eligible amount” means so much of the unrelieved amount as is not a shock loss; and for the purpose of determining how much of the unrelieved amount is, or is not, a shock loss, it is to be assumed that in setting off or surrendering amounts as mentioned in subsection (2)(a)(i) and (ii) the company uses shock losses before other amounts.

(14)In this Chapter—

  • company with investment business” has the same meaning as in Part 16 (see section 1218B);

  • excluded accounting period” has the meaning given by section 269ZG of CTA 2010;

  • “general insurance company” is to be interpreted in accordance with section 269ZG of CTA 2010;

  • shock loss” has the meaning given by section 269ZK of CTA 2010;

  • Solvency 2 insurance company” means an insurance company as defined in section 269ZP(2) of CTA 2010.

(15)In this Chapter references to a company's investment business are to be construed in accordance with section 1219(2).

463HCarry forward of unrelieved deficit against non-trading profits

(1)Subsections (4) to (8) apply if—

(a)section 463G would apply but for the fact that the company's investment business became small or negligible in the accounting period mentioned in subsection (3)(b) of that section,

(b)section 463G would apply but for condition D in that section (no carry-forward to an excluded accounting period of a general insurance company), or

(c)the company is a Solvency 2 insurance company and any amount of the deficit would be eligible to be carried forward under section 463G(6) were that amount not a shock loss (see section 463G(4), (12) and (13)).

(2)Subsections (4) to (8) also apply if—

(a)subsections (6) to (10) of section 463G would apply but for the fact that the company's investment business became small or negligible in the accounting period mentioned in section 463I(1)(c)(ii), or

(b)subsections (6) to (10) of section 463G would apply but for section 463I(1)(d) (no carry-forward under those subsections to an excluded accounting period of a general insurance company).

(3)In this section the “unrelieved amount”—

(a)in a case within paragraph (a) or (b) of subsection (1), is to be interpreted in accordance with section 463G(2);

(b)in a case within paragraph (c) of subsection (1), means the amount mentioned in that paragraph;

(c)in a case within subsection (2), means so much of the deficit mentioned in section 463I(1)(a) as is not set off as mentioned in section 463I(1)(b)(i) or surrendered as mentioned in section 463I(1)(b)(ii).

(4)The unrelieved amount is carried forward to the first accounting period (“period 2”) after—

(a)(in a case within subsection (1)) the deficit period, or

(b)(in a case within subsection (2)) the period mentioned in section 463I(1)(a).

(5)So much of the unrelieved amount as is not the subject of a claim under subsection (7) must be set off against the non-trading profits of the company for period 2.

(6)Those profits are reduced accordingly.

(7)The company may make a claim for relief under subsection (5) not to be given in period 2 for the unrelieved amount or so much of it as is specified in the claim.

(8)A claim under subsection (7) is effective if, and only if, it is made—

(a)within the period of two years after the end of period 2, or

(b)within such further period as an officer of Revenue and Customs may allow.

(9)Subsection (10) applies if any amount is carried forward under subsection (4) to an accounting period (“the carry forward period”) and—

(a)cannot be set off under subsection (5) against non-trading profits of that period, or

(b)is the subject of a claim under subsection (7).

(10)If the company continues to be a company with investment business throughout the carry forward period, subsections (4) to (8) have effect as if—

(a)references to the unrelieved amount were to the amount mentioned in subsection (9), and

(b)references to—

(i)the deficit period, or

(ii)the period mentioned in section 463I(1)(a),

were to the carry forward period.

(11)In this section “non-trading profits”, in relation to a company, means so much of the company's profits as does not consist of trading income for the purposes of section 37 of CTA 2010 (deduction of trading losses from total profits of the same or an earlier period).

463IRe-application of section 463G if any deficit remains after previous application

(1)This section applies if—

(a)any amount of the deficit is carried forward to an accounting period (“the later period”) of the company under section 463G(6),

(b)any of that amount is not—

(i)set off against the company's total profits for the later period on a claim under section 463G(7), or

(ii)surrendered as group relief for carried-forward losses under Part 5A of CTA 2010,

(c)it is not the case—

(i)that the company ceased to be a company with investment business in the later period, or

(ii)(if the company was a company with investment business immediately before the beginning of the later period) that its investment business became small or negligible in the later period, and

(d)it is not the case that the first accounting period after the later period is an excluded accounting period of a general insurance company.

(2)Subsections (6) to (10) of section 463G apply as if—

(a)references to the unrelieved amount were to so much of the amount of the deficit carried forward to the later period as is not set off or surrendered as mentioned in subsection (1)(b), and

(b)references to the deficit period were to the later period.

Non-trading losses on intangible fixed assetsE+W+S+N.I.

5(1)Section 753 of CTA 2009 (treatment of non-trading loss) is amended as follows.E+W+S+N.I.

(2)In subsection (3) (carry forward of non-trading loss)—

(a)in the words before paragraph (a), after “not” insert “ , in any period (“the reference period”) ”;

(b)in the words after paragraph (b) for “debit of” substitute “ loss on intangible fixed assets for ”.

(3)After subsection (3) insert—

(4)But subsection (3) does not apply if the company ceased to be a company with investment business in the reference period.

(5)In the application of subsection (3) to an amount of a loss previously carried forward under that subsection, the reference in paragraph (b) to group relief under Part 5 of CTA 2010 is to be read as a reference to group relief for carried-forward losses under Part 5A of that Act.

(6)In this section “company with investment business” has the same meaning as in Part 16 (see section 1218B).

Expenses of management of investment business etcE+W+S+N.I.

6(1)Section 1223 of CTA 2009 (carrying forward expenses of management and other amounts) is amended as follows.E+W+S+N.I.

(2)In subsection (1)(b)—

(a)for “amounts” substitute “ an amount ”, and

(b)after “(2)(c),” insert

(i)a claim relating to the whole of the amount has not been made under subsection (3B), or.

(3)After subsection (3) insert—

(3A)But subsection (3) does not apply in relation to so much of the excess as is surrendered as group relief under Part 5 of CTA 2010 or as group relief for carried-forward losses under Part 5A of that Act.

(3B)A deduction in respect of the excess may be made under section 1219 for the next accounting period only on the making by the company of a claim.

(3C)A claim may relate to the whole of the excess or to part of it only.

(3D)A claim must be made—

(a)within the period of two years after the end of the next accounting period, or

(b)within such further period as an officer of Revenue and Customs may allow.

(3E)Subsection (1A) of section 1219 does not apply in relation to a deduction in respect of the excess made for the next accounting period.

Trading lossesE+W+S+N.I.

7Chapter 2 of Part 4 of CTA 2010 (trade losses) is amended as follows.

8In section 36 (introduction to Chapter) for subsection (1) substitute—

(1)This Chapter provides relief for a loss made by a company in a trade (see sections 37 to 47).

9For the italic heading before section 37 substitute— “ Relief in loss-making period and carry back relief ”.

10(1)Section 45 (carry forward of trade loss against subsequent trade profits) is amended as follows.E+W+S+N.I.

(2)In the heading, after “of” insert “ pre-1 April 2017 ”.

(3)In subsection (1) after “accounting period” insert “ beginning before 1 April 2017 ”.

(4)In subsection (4)(b) for “cannot be” substitute “ is not ”.

(5)After subsection (4) insert—

(4A)But the company may make a claim that the profits of the trade of an accounting period specified in the claim are not to be reduced by the unrelieved loss, or are not to be reduced by the unrelieved loss by more than an amount specified in the claim.

(4B)A claim under subsection (4A) may specify an accounting period only if it begins on or after 1 April 2017.

(4C)A claim under subsection (4A) is effective if, and only if, it is made—

(a)within the period of two years after the end of the accounting period specified in the claim, or

(b)within such further period as an officer of Revenue and Customs may allow.

(6)In subsection (5) for “section” (in the second place it occurs) substitute “ , sections 45B, 45F and ”.

11After section 45 insert—

45ACarry forward of post-1 April 2017 trade loss against total profits

(1)This section applies if—

(a)in an accounting period (“the loss-making period”) beginning on or after 1 April 2017 a company carrying on a trade makes a loss in the trade,

(b)relief under section 37 or Part 5 (group relief) is not given for an amount of the loss (“the unrelieved amount”),

(c)the company continues to carry on the trade in the next accounting period (“the later period”), and

(d)the conditions in subsection (3) are met.

(2)But this section does not apply if the trade is a ring fence trade.

(3)The conditions are that—

(a)the trade did not become small or negligible in the loss-making period,

(b)relief under section 37 was not unavailable for the loss by reason of —

(i)section 37(5), 44, 48 or 52, or

(ii)section 1209, 1216DA, 1217DA, 1217MA, 1217SA or 1218ZDA of CTA 2009,

(c)relief under section 37 would not be unavailable by reason of section 44 for a loss (assuming there was one) made in the trade in the later period,

(d)if the company is a Solvency 2 insurance company the loss is not a shock loss (see subsections (9) and (10)), and

(e)the later period is not an excluded accounting period of a general insurance company.

(4)The unrelieved amount is carried forward to the later period.

(5)The company may make a claim for relief to be given in the later period for the unrelieved amount or for any part of it specified in the claim.

(6)If the company makes a claim, the relief is given by deducting the unrelieved amount, or the specified part of it, from the company's total profits of the later period.

(7)A claim under this section must be made—

(a)within the period of two years after the end of the later period, or

(b)within such further period as an officer of Revenue and Customs may allow.

(8)Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

(9)For the purposes of this section and section 45B, a loss which is partly, but not wholly, a shock loss is to be treated as if—

(a)the amount that is a shock loss, and

(b)the amount that is not,

were separate losses.

(10)In this section—

  • excluded accounting period” has the meaning given by section 269ZG;

  • “general insurance company” is to be interpreted in accordance with section 269ZG(6);

  • ring fence trade” has the same meaning as in Part 8 (see section 277);

  • Solvency 2 insurance company” means an insurance company as defined in section 269ZP(2);

  • shock loss” has the meaning given by section 269ZK.

45BCarry forward of post-1 April 2017 trade loss against trade profits

(1)This section applies if—

(a)in an accounting period (“the loss-making period”) beginning on or after 1 April 2017 a company carrying on a trade makes a loss in the trade,

(b)relief under section 37 or 42 or Part 5 (group relief) is not given for an amount of the loss (“the unrelieved amount”),

(c)the company continues to carry on the trade in the next accounting period (“the later period”), and

(d)case 1, 2 or 3 applies.

  • Case 1 is that any of the conditions in section 45A(3) are not met.

  • Case 2 is that relief for the unrelieved amount was not available under section 45A by reason of section 1210(5), 1216DB(5) or 1217DB(5) of CTA 2009.

  • Case 3 is that the trade is a ring fence trade.

(2)The unrelieved amount is carried forward to the later period.

(3)Relief for the unrelieved amount is given to the company in the later period if the company makes a profit in the trade in the later period.

(4)The relief is given by reducing the profits of the trade of the later period by the unrelieved amount.

(5)But the company may make a claim for relief not to be given in the later period for the unrelieved amount or for any part of it specified in the claim.

(6)A claim under subsection (5) is effective if, and only if, it is made—

(a)within the period of two years after the end of the later period, or

(b)within such further period as an officer of Revenue and Customs may allow.

(7)If the trade is a ring fence trade, this section has effect only in relation to so much of the loss mentioned in subsection (1)(a) as is not a non-decommissioning loss.

(8)Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

(9)In this section—

  • “non-decommissioning loss” is to be interpreted in accordance with section 303A;

  • ring fence trade” has the same meaning as in Part 8 (see section 277).

(10)See also section 45A(9) (splitting for the purposes of that section and this section of losses that are partly, but not wholly, shock losses of insurance companies).

45CRe-application of section 45A if loss remains after previous application

(1)This section applies if—

(a)an amount of a loss made in a trade is carried forward to an accounting period (“the later period”) of a company under section 45A(4),

(b)any of that amount is not deducted from the company's total profits of the later period on a claim under section 45A(5) or surrendered by way of group relief for carried forward-losses under Part 5A,

(c)the company continues to carry on the trade in the accounting period (“the further period”) after the later period, and

(d)the conditions in subsection (2) are met.

(2)The conditions are that—

(a)the trade did not become small or negligible in the later period,

(b)relief under section 37 would not be unavailable by reason of section 44 for a loss (assuming there was one) made in the trade in the further period, and

(c)the further period is not an excluded accounting period of a general insurance company.

(3)Subsections (4) to (8) of section 45A apply as if—

(a)references to the unrelieved amount were to so much of the amount carried forward to the later period as is not deducted or surrendered as mentioned in subsection (1)(b), and

(b)references to the later period were to the further period.

(4)In this section “excluded accounting period” and “general insurance company” have the same meaning as in section 45A.

45DApplication of section 45B if loss remains after application of section 45A

(1)This section applies if—

(a)an amount of a loss made in a trade is carried forward to an accounting period (“the later period”) of a company under section 45A(4),

(b)any of that amount is not deducted from the company's total profits of the later period on a claim under section 45A(5) or surrendered by way of group relief for carried forward-losses under Part 5A,

(c)the company continues to carry on the trade in the accounting period (“the further period”) after the later period, and

(d)any of the conditions in section 45C(2) is not met.

(2)Subsections (2) to (8) of section 45B apply as if—

(a)references to the unrelieved amount were to so much of the amount carried forward to the later period as is not deducted or surrendered as mentioned in subsection (1)(b), and

(b)references to the later period were to the further period.

45ERe-application of section 45B if loss remains after previous application

(1)This section applies if—

(a)an amount of a loss made in a trade is carried forward to an accounting period (“the later period”) of a company under section 45B(2),

(b)any of that amount is not used under section 45B(4) to reduce profits of the trade for the later period, and

(c)the company continues to carry on the trade in the accounting period (“the further period”) after the later period.

(2)Subsections (2) to (8) of section 45B apply as if—

(a)references to the unrelieved amount were to so much of the amount carried forward to the later period as was not used as mentioned in subsection (1)(b), and

(b)references to the later period were to the further period.

45FTerminal losses: relief unrestricted by Part 7ZA and 7A

(1)This section applies if—

(a)a company makes a loss in a trade in an accounting period (the “loss-making period”),

(b)an amount of that loss is carried forward to an accounting period of the company (“the terminal period”) under section 45, 45A or 45B,

(c)relief in the terminal period is not given under section 45, 45A or (as the case may be) 45B for that amount or for any part of it, and

(d)the company ceases to carry on the trade in the terminal period.

(2)The company may make a claim for relief to be given for the unrelieved amount under this section.

(3)If the company makes a claim the relief is given by deducting the unrelieved amount from the relevant profits of the company of—

(a)the terminal period, and

(b)previous accounting periods so far as they fall (wholly or partly) within the period of 3 years ending with the end of the terminal period.

(4)But no deduction is to be made under subsection (3) for any accounting period which is—

(a)the loss-making period,

(b)a period before the loss-making period, or

(c)a period beginning before 1 April 2017.

(5)The amount of a deduction to be made under subsection (3) for any accounting period is the amount of the unrelieved amount so far as it cannot be deducted under that subsection for a subsequent accounting period.

(6)The company's claim must be made—

(a)within the period of two years after the end of the terminal period, or

(b)within such further period as an officer of Revenue and Customs may allow.

(7)In this section—

  • the unrelieved amount” means so much of the amount mentioned in subsection (1)(b) for which relief is not given in the terminal period under section 45, 45A or (as the case may be) 45B, and

  • relevant profits”, in relation to the terminal period or any previous accounting period, means—

    (a)

    the total profits of the company of the period, in a case where the unrelieved amount was carried forward to the terminal period under section 45A,

    (b)

    the profits of the trade of the period, in a case where the unrelieved amount was carried forward to the terminal period under section 45 or 45B.

(8)Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

45GSection 45F: accounting period falling partly within 3 year period

(1)This section applies if an accounting period falls partly within the period of 3 years mentioned in section 45F(3)(b).

(2)The amount of the deduction for the unrelieved amount for the accounting period is not to exceed an amount equal to the overlapping proportion of the company's relevant profits of that period.

(3)The overlapping proportion is the same as the proportion that the part of the accounting period falling within the period of 3 years bears to the whole of the accounting period.

(4)In this section “the unrelieved amount” and “relevant profits” have the meaning given by section 45F(7).

45HSection 45F: transfers of trade to obtain relief

Section 45F does not apply by reason of a company ceasing to carry on a trade if—

(a)on the company ceasing to carry on the trade, any of the activities of the trade begin to be carried on by a person who is not (or by persons any or all of whom are not) within the charge to corporation tax, and

(b)the company's ceasing to carry on the trade is part of a scheme or arrangement the main purpose, or one of the main purposes, of which is to secure that that section applies by reason of the cessation.

UK property business lossesE+W+S+N.I.

12Chapter 4 of Part 4 of CTA 2010 (property losses) is amended as follows.

13(1)Section 62 (relief for losses made in UK property business) is amended as follows.E+W+S+N.I.

(2)In subsection (4)—

(a)in the words before paragraph (a), for “Subsection (5) applies” substitute “ Subsections (5) to (5C) apply ”, and

(b)for paragraph (a) substitute—

(a)an amount of the loss is not deducted as mentioned in subsection (3) or surrendered by way of group relief under Part 5,.

(3)In subsection (5), for the words before paragraph (a) substitute “ The amount ”.

(4)After subsection (5) insert—

(5A)But relief under subsection (2) for the amount is given to the company in the next accounting period only on the making by the company of a claim.

(5B)A claim may relate to the whole of the amount or to part of it only.

(5C)A claim must be made—

(a)within the period of two years after the end of the next accounting period, or

(b)within such further period as an officer of Revenue and Customs may allow.

(5D)In the application of this section to an amount of a loss previously carried forward under subsection (5), the reference in subsection (4)(a) to group relief under Part 5 is to be read as a reference to group relief for carried-forward losses under Part 5A.

14(1)Section 63 (company with investment business ceasing to carry on UK property business) is amended as follows.E+W+S+N.I.

(2)For subsection (2) substitute—

(2)Subsections (3) to (7) apply if an amount of loss made in carrying on the UK property business would be carried forward to the next accounting period under section 62(5) but for the company ceasing to carry on the business or to be within the charge to corporation tax in respect of it.

(3)In subsection (3)(b) for “that” substitute “ the next accounting ”.

(4)After subsection (3) insert—

(4)But a deduction in respect of the amount of loss may be made under section 1219 of CTA 2009 for the next accounting period only on the making by the company of a claim.

(5)A claim may relate to the whole of the amount of the loss or to part of it only.

(6)A claim must be made—

(a)within the period of two years after the end of the next accounting period, or

(b)within such further period as an officer of Revenue and Customs may allow.

(7)Subsection (1A) of section 1219 of CTA 2009 does not apply in relation to a deduction in respect of the amount of loss made for the next accounting period.

PART 2 E+W+S+N.I.Restriction on deductions in respect of carried-forward losses

15CTA 2010 is amended as follows.

16After section 269 insert—

PART 7ZA E+W+S+N.I.Restrictions on obtaining certain deductions

IntroductionE+W+S+N.I.
269ZAOverview of Part

This Part contains provision restricting the amount of certain deductions which a company may make in calculating its taxable total profits for an accounting period.

Restrictions on obtaining certain deductionsE+W+S+N.I.
269ZBRestriction on deductions from trading profits

(1)This section has effect for determining the taxable total profits of a company for an accounting period.

(2)The sum of any deductions made by the company for the accounting period which fall within subsection (3) may not exceed the relevant maximum.

But this is subject to subsection (10).

(3)The following deductions fall within this subsection—

(a)any deductions under section 45(4)(b) or 45B;

(b)any deduction under section 303B(4) or 303D(5), so far as it is a restricted deduction.

(4)For the purposes of this section a deduction under section 303B(4) or 303D(5) is a “restricted deduction” so far as it would not be available but for section 304(5) (reduction of income derived from related activities).

(5)In this section the “relevant maximum” means the sum of—

(a)50% of the company's relevant trading profits for the accounting period, and

(b)the company's trading profits deductions allowance for the accounting period.

(6)Section 269ZF contains provision for determining a company's relevant trading profits for an accounting period.

(7)A company's “trading profits deductions allowance” for an accounting period—

(a)is so much of the company's deductions allowance for the period as is specified in the company's tax return as its trading profits deductions allowance for the period, and

(b)accordingly, is nil if no amount of the company's deductions allowance for the period is so specified.

(8)An amount specified under subsection (7)(a) as a company's trading profits deductions allowance for an accounting period may not exceed the difference between—

(a)the amount of the company's deductions allowance for the period, and

(b)the total of any amounts specified for the period under section 269ZC(5)(a) (non-trading profits deductions allowance) and section 124D(4) of FA 2012 (BLAGAB trade profits deductions allowance).

(9)A company's “deductions allowance” for an accounting period is to be determined in accordance with section 269ZR where, at any time in that period—

(a)the company is a member of a group (see section 269ZZB), and

(b)one or more other companies within the charge to corporation tax are members of that group.

Otherwise, a company's “deductions allowance” for an accounting period is to be determined in accordance with section 269ZW.

(10)Subsection (2) does not apply in relation to a company for an accounting period where, in determining the company's relevant trading profits, the amount given by step 1 in section 269ZF(3) is not greater than nil.

269ZCRestriction on deductions from non-trading profits

(1)This section has effect for determining the taxable total profits of a company for an accounting period.

(2)The sum of any deductions made by the company for the accounting period under section 457(3) and 463H(5) of CTA 2009 (carry forward of non-trading deficits from loan relationships against subsequent non-trading profits) may not exceed the relevant maximum.

But this is subject to subsection (8).

(3)In this section the “relevant maximum” means the sum of—

(a)50% of the company's relevant non-trading profits for the accounting period, and

(b)the amount of the company's non-trading profits deductions allowance for the accounting period.

(4)Section 269ZF contains provisions for determining a company's relevant non-trading profits for an accounting period.

(5)A company's “non-trading profits deductions allowance” for an accounting period—

(a)is so much of the company's deductions allowance for the period as is specified in the company's tax return as its non-trading profits deductions allowance for the period, and

(b)accordingly, is nil if no amount of the company's deductions allowance for the period is so specified.

(6)An amount specified under subsection (5)(a) as a company's non-trading profits deductions allowance for an accounting period may not exceed the difference between—

(a)the amount of the company's deductions allowance for the period, and

(b)the total of any amounts specified for the period under section 269ZB(7)(a) (trading profits deductions allowance) and section 124D(4) of FA 2012 (BLAGAB trade profits deductions allowance).

(7)A company's “deductions allowance” for an accounting period is to be determined in accordance with section 269ZR where, at any time in that period—

(a)the company is a member of a group (see section 269ZZB), and

(b)one or more other companies within the charge to corporation tax are members of that group.

Otherwise, a company's “deductions allowance” for an accounting period is to be determined in accordance with section 269ZW.

(8)Subsection (2) does not apply in relation to a company for an accounting period where, in determining the company's relevant non-trading profits for the period, the amount given by step 1 in section 269ZF(3) is not greater than nil.

269ZDRestriction on deductions from total profits

(1)This section has effect for determining the taxable total profits of a company for an accounting period.

(2)The sum of any relevant deductions made by the company for the accounting period may not exceed the difference between—

(a)the relevant maximum, and

(b)the sum of—

(i)any deductions falling within section 269ZB(3) (carry forward of trade loss against subsequent trade profits) made by the company for the accounting period,

(ii)any deductions made by the company for the accounting period under sections 457(3) and 463H(5) of CTA 2009 (carry forward of non-trading deficits from loan relationships against subsequent non-trading profits), and

(iii)any deductions made by the company for the accounting period under sections 124(5), 124A(5) and 124C(6) of FA 2012 (carry forward of BLAGAB trade losses against BLAGAB trade profits).

But this is subject to subsection (7) and section 269ZE.

(3)The following deductions made for an accounting period are “relevant deductions” for the purposes of this section—

(a)a deduction under section 463G of CTA 2009 (carry forward of non-trading deficit against total profits);

(b)a deduction under section 753 of CTA 2009 (non-trading losses on intangible fixed assets) in respect of a loss treated by subsection (3) of that section (carry forward of losses) as if it were a loss of the accounting period;

(c)a deduction under section 1219 of CTA 2009 (expenses of management of a company's investment business) in respect of an amount treated by section 1223(3) of that Act (carrying forward of expenses of management and other amounts) as expenses of management deductible for the accounting period;

(d)a deduction under section 1219 of CTA 2009 (expenses of management of a company's investment business) in respect of a loss treated by section 63(3) (carrying forward of certain losses made by company with investment business which ceases to carry on UK property business) as an expense of management deductible for the accounting period;

(e)a deduction under section 37 (relief for trade losses against total profits) made in reliance on section 1210(3), 1216DB(3), 1217DB(3), 1217MB(2), 1217SB(2) or 1218ZDB(2) of CTA 2009;

(f)a deduction under section 45A (carry forward of trade loss against total profits);

(g)a deduction under section 62(3) (relief for losses made in UK property business) in respect of a loss treated by subsection (5)(b) of that section (carry forward of losses) as a loss made by the company in the accounting period;

(h)a deduction under section 303C (excess carried forward non-decommissioning losses of ring fence trade: relief against total profits);

(i)a deduction under Part 5 (group relief) made in respect of a loss surrendered under that Part in reliance on section 1210(3), 1216DB(3), 1217DB(3), 1217MB(2), 1217SB(2) or 1218ZDB(2) of CTA 2009;

(j)a deduction under Part 5A (group relief for carried-forward losses);

(k)a deduction under section 124B of FA 2012 (deduction from total profits of excess carried-forward BLAGAB trade losses),

(but see section 269ZJ (insurance companies: shock losses).

(4)In this section the “relevant maximum” means the sum of—

(a)50% of the company's relevant profits for the accounting period, and

(b)the amount of the company's deductions allowance for the accounting period.

(5)A company's “relevant profits” for an accounting period are the sum of—

(a)the company's relevant trading profits for the accounting period (see section 269ZF(1)),

(b)the company's relevant non-trading profits for the accounting period (see section 269ZF(2), and

(c)the company's relevant BLAGAB trade profits for the accounting period.

In this subsection “relevant BLAGAB trade profits” has the same meaning as in section 124D of FA 2012.

(6)A company's “deductions allowance” for an accounting period is to be determined in accordance with section 269ZR where, at any time in that period—

(a)the company is a member of a group (see section 269ZZB), and

(b)one or more other companies within the charge to corporation tax are members of that group.

Otherwise, the company's “deductions allowance” for the accounting period is to be determined in accordance with section 269ZW.

(7)Subsection (2) does not apply in relation to a company for an accounting period where the sum of—

(a)the amount given by paragraph (1) of step 1 in section 269ZF(3), and

(b)the company's BLAGAB trade profit for the accounting period,

is not greater than nil.

269ZERestriction on deductions from total profits: insurance companies

(1)Where the conditions in subsection (2) are met, section 269ZD has effect as if, for subsection (2) of that section there were substituted—

(2)The sum of any relevant deductions made by the company for the accounting period may not exceed the modified loss cap (as defined in section 269ZE).

But this is subject to subsection (7).

(2)The conditions are that—

(a)the company referred to in section 269ZD(1) carries on business to which the charge to corporation tax under section 68 of FA 2012 (charge to tax on I-E profit) applies and has an I-E profit for the accounting period,

(b)the policyholders' share (if any) of the I-E profit is not the whole of that profit, and

(c)the adjusted shareholders' I-E profit for the accounting period is less than the BLAGAB-related loss capacity.

(3)The “adjusted shareholders' I-E profit” is equal to—

(a)the shareholders' share of the I-E profit, less

(b)any excess capacity.

(4)The “BLAGAB-related loss capacity” is equal to A + B - C where—

  • A is 50% of the company's relevant BLAGAB trade profits for the accounting period (as defined in section 124D of FA 2012);

  • B is the company's BLAGAB trade profits deductions allowance for the period (if any) (as defined in section 124D of FA 2012);

  • C is the total of any deductions made by the company for the accounting period under sections 124(5), 124A(5) and 124C(6) of FA 2012.

(5)To determine the modified loss cap, take the following steps—

  • Step 1: find the basic loss cap.

  • Step 2: reduce that amount by the BLAGAB-related loss capacity.

  • Step 3: add to the result of step 2 the adjusted shareholders' I-E profit.

The result is the modified loss cap.

(6)In this section “the basic loss cap” means the difference referred to in the opening words of section 269ZD(2) (assuming that that section has effect without the modification set out in subsection (1) of this section) (but, if applicable, taking account of section 269ZJ).

(7)In this section “excess capacity” means the amount (if any) by which—

(a)the section 269ZF step 2 amount, is less than

(b)what the section 269ZF step 2 amount would be if in paragraph (d) of section 269ZF(4) the reference to any I-E profit were to the policyholders' share of any I-E profit.

(8)In subsection (7) the reference to the “section 269ZF step 2 amount” is to the sum given by paragraph (1) of step 2 of section 269ZF(3) in calculating the company's relevant trading profits and relevant non-trading profits for the accounting period: but for this purpose disregard paragraph (4) of step 1 of section 269ZF(3).

(9)For the purposes of this section the “shareholders' share” of an insurance company's I-E profit for an accounting period is equal to—

(a)the amount of the I-E profit, less

(b)the policyholders' share (if any) of that profit.

(10)In this section references to the policyholders' share of I-E profit are to that share as determined in accordance with section 103 of FA 2012.

Relevant profitsE+W+S+N.I.
269ZF“Relevant trading profits” and “relevant non-trading profits”

(1)A company's “relevant trading profits” for an accounting period are—

(a)the company's qualifying trading profits for the accounting period (see subsection (3)), less

(b)the company's trading profits deductions allowance for the accounting period (see section 269ZB(7)).

But if the allowance mentioned in paragraph (b) exceeds the profits mentioned in paragraph (a), the company's “relevant trading profits” for the accounting period are nil.

(2)A company's “relevant non-trading profits” for an accounting period are—

(a)the company's qualifying non-trading profits for the accounting period (see subsection (3)), less

(b)the company's non-trading profits deductions allowance for the accounting period (see section 269ZC(5)).

But if the allowance mentioned in paragraph (b) exceeds the profits mentioned in paragraph (a), the company's “relevant non-trading profits” for the accounting period are nil.

(3)To determine a company's qualifying trading profits and qualifying non-trading profits for an accounting period—

  • Step 1 - modified total profits

    (1)

    Calculate the company's total profits for the accounting period.

    (2)

    For the purposes of this subsection assume that the company's total profits for the accounting period are to be calculated with the modifications set out in subsection (4).

    (3)

    If the company's total profits for the accounting period (as modified under paragraph (2)) are not greater than nil, the company's qualifying trading profits and relevant non-trading profits for the accounting period are both nil.

    (4)

    Otherwise, proceed with steps 2 to 5.

  • Step 2 - negative amount for apportioning under step 4

    (1)

    Calculate the sum (“the step 2 amount”) of any amounts which (on the assumption set out in paragraph (2) of step 1), could be relieved against the company's total profits of the accounting period.

    (2)

    But in calculating that sum, ignore the amount of any excluded deductions for the accounting period (see subsection (5)).

    (3)

    If the company's total profits for the accounting period (as modified under step 1(2)) do not exceed the amount given by this step, the qualifying trading profits and the qualifying non-trading profits are both nil.

    (4)

    Otherwise, proceed with steps 3 to 5.

  • Step 3 - trade profits and non-trade profits Divide the company's total profits for the accounting period (as modified under step 1(2)) into—

    (a)

    profits of a trade of the company (the company's “trade profits”), and

    (b)

    profits that are not profits of a trade of the company (the company's “non-trade profits”).

  • Step 4 - apportioning the step 2 amount Take the step 2 amount and do one of the following—

    (a)

    reduce the company's trade profits by the whole of that amount,

    (b)

    reduce the company's non-trade profits by the whole of that amount, or

    (c)

    reduce the company's trade profits by part of that amount and reduce the company's non-trade profits by the remaining part of that amount.

    Apply this step in a way which ensures that neither the company's trade profits nor the company's non-trade profits are reduced below nil.

  • Step 5 - amount of qualifying trading or non-trading profits (if not determined under step 1 or 2) The amounts resulting from step 3, after any reduction under step 4, are—

    (a)

    in the case of the amount in step 3(a), the company's qualifying trading profits, and

    (b)

    in the case of the amount in step 3(b), the company's qualifying non-trading profits.

(4)For the purposes of subsection (3) the company's total profits for an accounting period are to be calculated with the following modifications—

(a)ignore any income so far as it falls within, and is dealt with under, Part 9A of CTA 2009 (company distributions);

(b)ignore any ring fence profits (as defined in section 276);

(c)ignore any contractor's ring fence profits (as defined in section 356LD);

(d)if the company is an insurance company, ignore any I-E profit (see section 141(2) of FA 2012);

(e)make no deductions under sections 45(4)(b) and 45B (carry forward of trade loss against subsequent trade profits) other than deductions that would be ignored for the purposes of section 269ZB by reason of—

(i)section 1209(3), 1210(5A) or 1211(7A) of CTA 2009 (losses of film trade),

(ii)section 1216DA(3), 1216DB(5A) or 1216DC(7A) of that Act (losses of television programme trade),

(iii)section 1217DA(3), 1217DB(5A) or 1217DC(7A) of that Act (losses of video game trade),

(iv)section 1217MA(3) or 1217MC(9) of that Act (losses of theatrical trade),

(v)section 1217SA(3) or 1217SC(9) of that Act (losses of orchestral trade),

(vi)section 1218ZDA(3) or 1218ZDC(9) of that Act (losses of museum or gallery exhibition trade),

(vii)section 65(4B) or 67A(5A) (losses of UK or EEA furnished holiday lettings business),

(viii)section 269ZJ(1) (insurance companies: shock losses),

(ix)section 304(7) (certain losses of ring fence trades), or

(x)section 356NJ(2) (pre-1 April 2017 loss arising from oil contractor activities);

(f)make no restricted deductions (as defined in section 269ZB(4)) under section 303B(4) or 303D(5)); and

(g)make no deductions under section 457(3) or 463H(5) of CTA 2009 (carry forward of non-trading deficits from loan relationships against subsequent non-trading profits), other than deductions that would be ignored for the purposes of section 269ZC by reason of section 269ZJ(2) (insurance companies: shock losses).

(5)The following are “excluded deductions” for an accounting period (“the current accounting period”)—

(a)a deduction for the current accounting period which is a relevant deduction for the purposes of section 269ZD (see subsection (3) of that section);

(b)a deduction under section 37 (relief for trade losses against total profits) in relation to a loss made in an accounting period after the current accounting period;

(c)a deduction under section 45F (terminal losses);

(d)a deduction under section 260(3) of CAA 2001 (special leasing of plant or machinery: carry back of excess allowances) in relation to capital allowances for an accounting period after the current accounting period; and

(e)a deduction under section 463E of CTA 2009 (non-trading deficit from loan relationships) in relation to a deficit for a period after the current accounting period.

Exclusion for certain general insurance companiesE+W+S+N.I.
269ZGGeneral insurance companies: excluded accounting periods

(1)Nothing in sections 269ZB to 269ZE has effect for determining the taxable total profits of a general insurance company for an excluded accounting period.

(2)An accounting period of a general insurance company is an “excluded accounting period” if conditions A and B are met.

(3)Condition A is that—

(a)the company is subject to insolvency procedures (see section 269ZH) at the end of the accounting period,

(b)immediately before it became subject to insolvency procedures the company—

(i)was unable to pay its debts as they fell due, and

(ii)met the non-viability condition, and

(c)the company's liabilities in respect of qualifying latent claims (see section 269ZI) were the main factor contributing to the company's meeting the non-viability condition at that time.

(4)Condition B is that—

(a)at the end of the accounting period the company meets the non-viability condition, and

(b)the company's liabilities in respect of qualifying latent claims are the main factor contributing to the company's meeting that condition at that time.

(5)At any time, a general insurance company meets the non-viability condition if there is no realistic prospect that it will subsequently write any new insurance business.

(6)For the purposes of this section a person who carries on the activity of effecting or carrying out contracts of general insurance is a “general insurance company” if—

(a)the person has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on that activity,

(b)the person is of the kind mentioned in paragraph 5(d) or (da) of Schedule 3 to the Financial Services and Markets Act 2000 (EEA passport rights) and carries on that activity in the United Kingdom through a permanent establishment there, or

(c)the person qualifies for authorisation under Schedule 4 to the Financial Services and Markets Act 2000 (Treaty rights) and carries on that activity in the United Kingdom through a permanent establishment there.

(7)The definition in subsection (6) is subject to the following qualifications—

(a)a friendly society within the meaning of Part 3 of FA 2012 is not a general insurance company, and

(b)an insurance special purpose vehicle (as defined in section 139 of FA 2012) is not a general insurance company.

(8)In this section—

  • contract of general insurance” means a contract of a type described in Part 1 of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544);

  • liability” includes a contingent or prospective liability.

269ZH“Insolvency procedures”

(1)For the purposes of section 269ZG a company is subject to insolvency procedures if—

(a)it is in liquidation,

(b)it is in administration,

(c)it is in receivership, or

(d)a relevant scheme has effect in relation to it.

(2)A company is “in liquidation” for the purposes of this section if—

(a)it is in liquidation within the meaning of section 247 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19), or

(b)a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(3)A company is “in administration” for the purposes of this section if—

(a)it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986 or Schedule B1 to the Insolvency (Northern Ireland) Order 1989, or

(b)there is in force in relation to it under the law of a country or territory outside the United Kingdom any appointment corresponding to the appointment of an administrator under either of those Schedules.

(4)A company is “in receivership” for the purposes of this section if there is in force in relation to it—

(a)an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland Order) 1989, or

(b)any corresponding order under the law of a country or territory outside the United Kingdom.

(5)In this section “relevant scheme” means a compromise or arrangement—

(a)under section 425 of the Companies Act 1985, Article 418 of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) or Part 26 of the Companies Act 2006, or

(b)under any corresponding provision of the law of a country or territory outside the United Kingdom.

269ZI“Qualifying latent claims”

(1)This section applies for the purposes of section 269ZG.

(2)Where a general insurance company has a liability in respect of a claim, the claim is a “qualifying latent claim” if conditions A to C are met.

(3)In this section “claim” means a claim (whether actual or potential) under an insurance policy.

(4)Condition A is that—

(a)the claim is of a type that was not reasonably foreseeable at the time when the insurance policy concerned was entered into, and

(b)it is likely that, had the company foreseen that type of claim, the price or other terms of the policy would have been significantly different.

(5)Condition B is that the latency period associated with that type of claim (see subsection (7)) is more than 10 years.

(6)Condition C is that the insurance policy, or the part of the insurance policy under which the claim is or would be made, is—

(a)an employer's liability policy, or

(b)a public or products liability policy.

(7)The “latency period” associated with a type of claim is the mean period for claims of the type between—

(a)the insured event giving rise to the claim, and

(b)notification of the claim.

(8)The mean period mentioned in subsection (7) is to be determined as at the end of the accounting period mentioned in section 269ZG(2).

(9)In this section—

  • employer's liability policy” means an insurance policy against the risks of the person insured incurring liabilities to the insured's employees for injury, illness or death arising out of their employment during the course of business;

  • “general insurance company” is to be interpreted in accordance with section 269ZG;

  • insurance policy” includes any contract of insurance;

  • liability” includes a contingent or prospective liability;

  • public or products liability policy” means an insurance policy against the risks of the person insured incurring liabilities to third parties for damage to property, injury, illness or death, arising in the course of the insured's business.

269ZJExclusion of shock losses from restrictions

(1)If a shock loss is—

(a)carried forward to an accounting period of an insurance company (see section 269ZP(2)), and

(b)deducted under section 45B (post-1 April 2017 trade losses carried forward against trade profits),

the deduction is to be treated as not falling within section 269ZB(3).

(2)If a shock loss is—

(a)carried forward to an accounting period of an insurance company, and

(b)deducted under section 463H of CTA 2009 (carry forward of unrelieved non-trading deficit from loan relationships against non-trading profits),

the company is to be treated for the purposes of sections 269ZC and 269ZD(2)(b)(ii) as not having made that deduction.

(3)If an insurance company makes a deduction of (or in respect of) a shock loss, that deduction is not a “relevant deduction” for the purposes of section 269ZD (restriction on deductions from total profits).

(4)See also section 124E of FA 2012 (exclusion from the restriction on deductions from BLAGAB trade profits).

269ZKMeaning of “shock loss”: requirement to make a claim

(1)If the conditions in subsection (3) are met, an insurance company may make a claim in respect of—

(a)a loss or other amount (the “specified loss”), and

(b)a period of 12 months (“the specified period”) which is a solvency shock period (see section 269ZM).

(2)A claim may specify more than one 12 month period under subsection (1)(b) (but periods specified by an insurance company under this section may not overlap with one another).

(3)The conditions are that—

(a)the accounting period (for corporation tax purposes) in which the specified loss arises (“the loss-making period”) begins on or after 1 April 2017,

(b)the specified loss is, or is capable of being, carried forward to a subsequent accounting period, and

(c)the loss-making period and the specified period have one or more days in common.

(4)A claim under this section must be made within—

(a)the period of two years after the end of the loss-making period, or

(b)such further period as an officer of Revenue and Customs allows.

(5)If—

(a)a claim is made under this section, and

(b)the whole of the loss-making period is, or falls within, the specified period,

the specified loss is a “shock loss”.

(6)If—

(a)a claim is made under this section, and

(b)the loss-making period falls partly, but not wholly, in the specified period,

the specified loss is a “shock loss” so far as it is attributable to the specified period.

(7)For the purposes of subsection (6) the specified loss is “attributable to” the specified period in the proportion—

Where P is the number of days of the loss-making period that fall within the specified period and N is the number of days in the loss-making period.

(8)If the method in subsection (7) would produce a result that is unjust or unreasonable, the apportionment of the specified loss for the purposes of subsection (6) is to be made on a just and reasonable basis.

269ZLFurther provision about claims under section 269ZK

(1)A claim under section 269ZK is not effective unless—

(a)the claim—

(i)states the company's solvency capital requirement at the beginning of the specified period,

(ii)states the company's shock loss threshold for that period, and sets out the calculation of that amount (as described in steps 2 to 5 of 269ZN(1)), and

(iii)states the amount of the company's solvency loss for that period (see section 269ZO), and

(b)the company submits with the claim—

(i)information (“the submitted information”) corresponding to the information specified in the template mentioned in point (i), (j) or (k) (as the case requires) of Article 4 of the technical standards implementing Regulation, and

(ii)a report provided by the appropriate person which meets the condition in subsection (2).

(2)The condition is that the report includes an opinion confirming that—

(a)the submitted information is prepared in all material respects in accordance with any relevant requirements which would apply if the submitted information were disclosed as part of the company's report on solvency and financial condition,

(b)the calculation of the company's shock loss threshold (not including step 1(a) of section 269ZN(1)) complies in all material respects with section 269ZN, and

(c)the company's solvency loss is calculated in all material respects in accordance with section 269ZO.

(3)In this section “relevant requirements” means—

(a)requirements under rules made by the Prudential Regulation Authority, and

(b)requirements under any directly applicable EU regulation made under the Solvency 2 Directive.

(4)In this section “the appropriate person” means—

(a)the company's chief actuary, or

(b)(if the company is not a PRA-authorised person) a person with equivalent functions.

(5)Subsections (1)(b)(i), (2)(a) and (3) have effect in relation to a third-country insurance undertaking as if it were an insurance undertaking.

269ZMMeaning of “solvency shock period”

A period of 12 months is a “solvency shock period” in relation to an insurance company if the company has a solvency loss for that period (see section 269ZO) which exceeds the company's shock loss threshold for that period (see section 269ZN).

269ZNDetermination of shock loss threshold

(1)A company's shock loss threshold for a 12 month period is determined as follows.

  • Step 1

    (a)

    Calculate the company's solvency capital requirement at the beginning of that period.

    (b)

    But any adjustment for the loss-absorbing capacity of deferred taxes is to be calculated, and applied, on the assumption that that period is a solvency shock period in relation to the company.

    (c)

    The resulting amount is the company's “adjusted SCR”.

  • Step 2 Calculate the deductible amount (see subsection (2)) for each relevant ring-fenced fund of the company.

  • Step 3 Deduct the total of the amounts found under step 2 from the company's adjusted SCR.

  • Step 4 Multiply the amount found under step 3 by 90%.

  • Step 5 The result is the company's shock loss threshold for the period.

(2)The deductible amount for a relevant ring-fenced fund is the lesser of A and B, where—

(a)A is the amount of basic own funds within that fund at the beginning of the period (or zero, if greater);

(b)B is the notional solvency capital requirement for that fund at the beginning of that period.

(3)But in calculating amount A for the purposes of subsection (2)—

(a)no account is to be taken of the value of future transfers attributable to shareholders;

(b)a restricted own-fund item within the fund is to be disregarded if the company's with-profits actuary provides a written opinion confirming that the condition in subsection (4) is met.

(4)The condition is that—

(a)the item is available as a restricted own-fund item pursuant to conditional support arrangements, and

(b)if at the time mentioned in subsection (2)(a) or any subsequent time (when the conditional support arrangements are in place) the value of the company's interest in the item were to be (or is in fact) greater than zero, that value would be recognised for the purposes of a balance sheet drawn up at the time in question by the company in accordance with generally accepted accounting practice.

(5)In this section “conditional support arrangements” means arrangements under which the relevant restrictions would cease to apply if specified conditions relating to the financial strength of the fund were met.

(6)In subsection (5) “the relevant restrictions” means the restrictions on transferability as a result of which the item is a restricted own-fund item.

(7)In this section “adjustment for the loss-absorbing capacity of deferred taxes” means—

(a)an adjustment pursuant to Article 103(c) of the Solvency 2 Directive, or

(b)any corresponding adjustment made pursuant to Subsection 3 of Section 4 of Chapter 6 of Title 1 of the Solvency 2 Directive (solvency capital requirement full and partial internal models).

(8)Where the company is a third-country insurance undertaking—

(a)steps 1(b) and 2 to 5 of subsection (1), and

(b)subsections (2) to (7),

have effect with any modifications that are appropriate as a result of the reference in step 1(a) of subsection (1) to the “solvency capital requirement” having effect in accordance with section 269ZP(1)(b).

269ZOCalculation of solvency loss

(1)An insurance company's solvency loss (if any) for a 12 month period is determined as follows.

(2)Calculate, in the manner set out in subsections (5) to (11)—

(a)whether the total amount of the company's basic own funds at the beginning of the period (“opening BOF”) exceeds the total amount of the company's basic own funds at the end of the period (“closing BOF”), and

(b)if so, the amount by which opening BOF exceeds closing BOF.

(3)The company has a solvency loss for the 12 month period only if an excess of opening BOF over closing BOF is found under subsection (2)(a).

(4)The amount found under subsection (2)(b) is the amount of the solvency loss.

(5)The method of calculation under subsection (2) must fairly represent the method by which the company calculates its solvency capital requirement.

But this is subject to subsections (6) to (10).

(6)Closing BOF is to be calculated on the assumption that the 12 month period mentioned in subsection (1) is a solvency shock period in relation to the company.

(7)The following adjustments are to be made in calculating the company's basic own funds at the beginning and end of the period—

1Find (with respect to each of those times) what that amount would be in the absence of this subsection.

2Find the surplus in respect of each relevant ring-fenced fund of the company (at the time in question).

3Deduct the total of the amounts found under paragraph 2 from the amount found under paragraph 1.

The result is to be taken to be the amount of the company's basic own funds at the beginning, or (as the case may be) the end, of the period.

(8)The surplus in respect of a relevant ring-fenced fund (at any time) is equal to—

(a)the amount of basic own funds attributable to policyholders, or

(b)zero, if greater.

(9)For any relevant ring-fenced fund, the amount of basic own funds attributable to policyholders (at any time) is equal to—

where—

A is the amount of basic own funds within the relevant ring-fenced fund;

B is the total of any items in the fund that fall within subsection (10).

(10)The items are—

(a)the value of future transfers attributable to shareholders;

(b)any restricted own-fund item in relation to which the company's with-profits actuary provides a written opinion confirming that the condition in subsection (4) of section 269ZN is met.

(11)In subsection (5) the reference to the “method” of a calculation is to the—

(a)taking into account, and

(b)leaving out of account,

of variations in items of basic own funds for the purposes of the calculation.

(12)If the company is a third-country insurance undertaking, subsections (1) to (11) have effect in relation to it as if it were an insurance undertaking.

269ZPInterpretation of sections 269ZJ to 269ZO

(1)In sections 269ZJ to 269ZO “solvency capital requirement”—

(a)in relation to an insurance undertaking or a reinsurance undertaking, means the solvency capital requirement pursuant to Section 4 of Chapter 6 of Title 1 of the Solvency 2 Directive;

(b)in relation to a third-country insurance undertaking, means the amount that would be the undertaking's solvency capital requirement pursuant to Section 4 of Chapter 6 of Title 1 of the Solvency 2 Directive if that undertaking were an insurance undertaking.

(2)In sections 269ZJ to 269ZO and this section—

  • actuarial function”, in relation to a PRA-authorised person, has the meaning given by the PRA Rulebook;

  • “basic own funds” is to be interpreted in accordance with Article 88 of the Solvency 2 Directive;

  • chief actuary”, in relation to a PRA-authorised person, means a person who has the function of having responsibility for the actuarial function;

  • insurance company” means a company which is an insurance undertaking, a reinsurance undertaking or a third-country insurance undertaking;

  • insurance undertaking” has the meaning given in Article 13(1) of the Solvency 2 Directive;

  • notional solvency capital requirement”, in relation to a ring-fenced fund, has the same meaning as in Commission Delegated Regulation (EU) 2015/35 supplementing the Solvency 2 Directive;

  • PRA-authorised person” has the same meaning as in the Financial Services and Markets Act 2000 (see section 2B(5) of that Act);

  • the PRA Rulebook” means the Rulebook made by the Prudential Regulation Authority under the Financial Services and Markets Act 2000 (as that Rulebook has effect from time to time);

  • reinsurance undertaking” has the meaning given in Article 13(4) of the Solvency 2 Directive;

  • relevant ring-fenced fund” means a ring-fenced fund that is a with-profits fund;

  • report on solvency and financial condition” means a report on solvency and financial condition pursuant to Article 51 of the Solvency 2 Directive;

  • “restricted own-fund item” is to be interpreted in accordance with Article 80(2) of Commission Delegated Regulation (EU) 2015/35 supplementing the Solvency 2 Directive;

  • ring-fenced fund” has the same meaning as in Commission Delegated Regulation (EU) 2015/35 supplementing the Solvency 2 Directive;

  • Solvency 2 Directive” means Directive 2009/138/EC of the European Parliament and the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II);

  • technical standards implementing Regulation” means Commission Implementing Regulation (EU) 2015/2452 of 2 December 2015 laying down implementing technical standards with regard to the procedures, formats and templates of the solvency and financial condition report in accordance with the Solvency 2 Directive;

  • third-country insurance undertaking” means an undertaking that has received authorisation under Article 162 of the Solvency 2 Directive from the Prudential Regulation Authority or the Financial Conduct Authority;

  • value of future transfers attributable to shareholders” has the same meaning as in Article 80 of Commission Delegated Regulation (EU) 2015/35 supplementing the Solvency 2 Directive;

  • with-profits fund” has the meaning given by the Glossary forming part of the PRA Rulebook;

  • with-profits actuary” has the meaning given by the Glossary forming part of the Handbook made by the Financial Conduct Authority under the Financial Services and Markets Act 2000 (as that Handbook has effect from time to time).

269ZQPower to amend

(1)The Treasury may by regulations make such amendments of the provisions mentioned in subsection (2) as they consider appropriate in consequence of—

(a)any change made to, or replacement of, the PRA Rulebook or the FCA Handbook;

(b)any regulatory requirement, or change to a regulatory requirement, imposed by EU legislation, or by or under any Act (whenever adopted, enacted or made).

(2)The provisions are—

(a)sections 269ZJ to 269ZP,

(b)sections 124A to 124E of FA 2012.

(3)Regulations under this section may include transitional provision.

(4)In this section—

  • the PRA Rulebook” means the Rulebook made by the Prudential Regulation Authority under the Financial Services and Markets Act 2000 (as that Rulebook has effect from time to time);

  • “the FCA Handbook means the Handbook made by the Financial Conduct Authority under the Financial Services and Markets Act 2000 (as that Handbook has effect from time to time).

Deductions allowanceE+W+S+N.I.
269ZRDeductions allowance for company in a group

(1)This section makes provision as to the deductions allowance of a company for an accounting period where, at any time in the period—

(a)the company is a member of a group, and

(b)one or more other companies within the charge to corporation tax are members of that group.

(2)The company's deductions allowance for the accounting period is the sum of—

(a)any amounts of group deductions allowance allocated to the company for the period in accordance with sections 269ZS to 269ZV, and

(b)the appropriate amount of non-group deductions allowance of the company for the period,

up to a limit of £5,000,000.

(3)The “appropriate amount of non-group deductions allowance” of the company, for the accounting period, is—

where—

“DNG” is the number of days in the period on which the company is not a member of a group that has another member that is a company within the charge to corporation tax, and

“DAC” is the total number of days in the period.

(4)If the accounting period is less than 12 months—

(a)the appropriate amount of non-group deductions allowance, and

(b)the limit in subsection (2),

are proportionally reduced.

269ZSGroup deductions allowance and the nominated company

(1)This section applies where—

(a)two or more members of a group are companies within the charge to corporation tax, and

(b)all the companies within the charge to corporation tax that are members of the group together nominate (“the group allowance nomination”) one of their number (“the nominated company”) for the purposes of this Part.

(2)The “group deductions allowance” for the group is £5,000,000 for each accounting period of the nominated company throughout which the group allowance nomination has effect.

(3)If the group allowance nomination takes effect, or ceases to have effect, part of the way through an accounting period of the nominated company, the “group deductions allowance” for the group for that period is—

where—

“DN” is the number of days in the accounting period on which a group allowance nomination that nominates the nominated company in relation to the group has effect, and

“DAC” is the total number of days in the accounting period.

(4)If an accounting period of the nominated company is less than 12 months, the group deductions allowance for that period is proportionally reduced.

(5)A group allowance nomination must state the date on which it is to take effect (which may be earlier than the date the nomination is made).

(6)A group allowance nomination is of no effect unless it is signed by the appropriate person on behalf of each company that is, when the nomination is made, a member of the group and within the charge to corporation tax.

(7)A group allowance nomination ceases to have effect—

(a)immediately before the date on which a new group allowance nomination in respect of the group takes effect,

(b)upon the appropriate person in relation to a company within the charge to corporation tax that is a member of the group notifying an officer of Revenue and Customs, in writing, that the group allowance nomination is revoked, or

(c)upon the nominated company ceasing to be a company within the charge to corporation tax or ceasing to be a member of the group.

(8)The Commissioners for Her Majesty's Revenue and Customs may by regulations make further provision about a group allowance nomination or any notification under this section including, in particular, provision—

(a)about the form and manner in which a nomination or notification may be made,

(b)about how a nomination may be revoked and the form and manner of such revocation,

(c)requiring a person to notify HMRC of the making or revocation of a nomination,

(d)requiring a person to give information to HMRC in connection with the making or revocation of a nomination or the giving of a notification,

(e)imposing time limits in relation to making or revoking a nomination or giving a notification, and

(f)providing that a nomination or its revocation, or a notification, is of no effect, or ceases to have effect, if time limits or other requirements under the regulations are not met.

(9)In this Part “the appropriate person”, in relation to a company, means—

(a)the proper officer of the company, or

(b)such other person as may for the time being have the express, implied or apparent authority of the company to act on its behalf for the purposes of this Part.

(10)Subsections (3) and (4) of section 108 of TMA 1970 (responsibility of company officers: meaning of “proper officer”) apply for the purposes of subsection (9) as they apply for the purposes of that section.

269ZTGroup allowance allocation statement: submission

(1)A company must submit a group allowance allocation statement to HMRC for each of its accounting periods in which it is the nominated company in relation to a group.

This is subject to subsections (2) and (3).

(2)If a company ceases to be the nominated company in relation to a group before it submits a group allowance allocation statement to HMRC for an accounting period—

(a)that company may not submit the statement, and

(b)the company that is for the time being the nominated company in relation to the group must do so.

(3)But if a new group allowance nomination in respect of the group takes effect on a date before it is made, that does not affect the validity of the submission of any group allowance allocation statement submitted before the date the new nomination is made.

(4)A group allowance allocation statement under this section must be received by HMRC before the first anniversary of the filing date for the company tax return for the accounting period to which the statement relates.

(5)A group allowance allocation statement under this section may be submitted at a later time if an officer of Revenue and Customs allows it.

(6)A group allowance allocation statement under this section must comply with the requirements of section 269ZV.

269ZUGroup allowance allocation statement: submission of revised statement

(1)This section applies if a group allowance allocation statement has been submitted under section 269ZT, or this section, in respect of an accounting period of a company that is, or was, a nominated company (“the nominee's accounting period”).

(2)A revised group allowance allocation statement in respect of the nominee's accounting period may be submitted to HMRC by the company that is for the time being the nominated company in relation to the group.

(3)But if a new group allowance nomination in respect of the group takes effect on a date before it is made, that does not affect the validity of the submission of any revised group allowance allocation statement submitted before the date the new nomination is made.

(4)A revised group allowance allocation statement may be submitted on or before whichever is the latest of the following dates—

(a)the first anniversary of the filing date for the company tax return for the nominee's accounting period,

(b)if notice of enquiry (within the meaning of Schedule 18 to FA 1998) is given into a relevant company tax return, 30 days after the enquiry is completed,

(c)if, after such an enquiry, an officer of Revenue and Customs amends the return under paragraph 34(2) of that Schedule, 30 days after the notice of amendment is issued,

(d)if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.

(5)A revised group allowance allocation statement may be submitted at a later time if an officer of Revenue and Customs allows it.

(6)In this section “relevant company tax return” means a company tax return of a company for an accounting period for which an amount of group deductions allowance was, or could have been, allocated by a previous group allowance allocation statement in respect of the nominee's accounting period.

(7)The references in subsection (4) to an enquiry into a relevant company tax return do not include an enquiry resulting from an amendment of such a return where—

(a)the scope of the enquiry is limited as mentioned in paragraph 25(2) of Schedule 18 to FA 1998 (enquiry into amendments when time limit for enquiry into return as originally submitted is passed), and

(b)the amendment relates only to the allocation of group deductions allowance for the nominee's accounting period.

(8)A group allowance allocation statement under this section must comply with the requirements of section 269ZV.

269ZVGroup allowance allocation statement: requirements and effects

(1)This section applies in relation to a group allowance allocation statement submitted under section 269ZT or 269ZU.

(2)The statement must be signed by the appropriate person in relation to the company giving the statement.

(3)The statement must—

(a)identify the group to which it relates,

(b)specify the accounting period, of the company that is or was the nominated company, to which the statement relates (“the nominee's accounting period”),

(c)specify the days in the nominee's accounting period on which that company was the nominated company in relation to the group or state that that company was the nominated company throughout the period,

(d)state the group deductions allowance the group has for the nominee's accounting period,

(e)list one or more of the companies that were members of the group and within the charge to corporation tax in the nominee's accounting period (“listed companies”),

(f)allocate amounts of the group deductions allowance to the listed companies, and

(g)for each amount of group deductions allowance allocated to a listed company, specify the accounting period of the listed company for which it is allocated.

(4)An amount of group deductions allowance allocated to a listed company must be allocated to that company for an accounting period that falls wholly or partly in the nominee's accounting period.

(5)The maximum amount of group deductions allowance that may be allocated, by the group allowance allocation statement, to a listed company for an accounting period of that company is—

where—

“DAP” is the number of days in the accounting period of the listed company that are—

(a)

days in the nominee's accounting period, and

(b)

days on which the company was a member of the group,

“DNAP” is the number of days in the nominee's accounting period, and

“GSA” is the group deductions allowance of the group for the nominee's accounting period.

(6)The sum of the amounts allocated to listed companies by the group allowance allocation statement may not exceed the group deductions allowance for the nominee's accounting period.

(7)If a group allowance allocation statement is submitted that does not comply with subsection (5) or (6), the company that is, for the time being, the nominated company in relation to the group must submit a revised group allowance allocation statement that does comply with those subsections within 30 days of the date on which the group allowance allocation statement that did not comply was submitted or within such further period as an officer of Revenue and Customs allows.

(8)If a group allowance allocation statement—

(a)complies with those subsections when it is submitted, but

(b)subsequently ceases to comply with either of them,

the company that is, for the time being, the nominated company in relation to the group must submit a revised group allowance allocation statement that does comply with those subsections within 30 days of the date on which the group allowance allocation statement ceased to comply with one of those subsections or within such further period as an officer of Revenue and Customs allows.

(9)If a company fails to comply with subsection (7) or (8), an officer of Revenue and Customs may by written notice to the company amend the group allowance allocation statement as the officer thinks fit for the purpose of making it comply with subsections (5) and (6).

(10)An officer of Revenue and Customs who issues a notice under subsection (9) to a company must, at the same time, send a copy of the notice to each of the listed companies.

(11)The time limits otherwise applicable to the amendment of a company tax return do not apply to any such amendment to the extent that it is made in consequence of a group allowance allocation statement being submitted in accordance with section 269ZT or 269ZU.

(12)The Commissioners for Her Majesty's Revenue and Customs may by regulations make further provision about a group allowance allocation statement including, in particular, provision—

(a)about the form of a statement and the manner in which it is to be submitted,

(b)requiring a person to give information to HMRC in connection with a statement,

(c)as to the circumstances in which a statement that is not received by the time specified in section 269ZU(4) is to be treated as if it were so received, and

(d)as to the circumstances in which a statement that does not comply with the requirements of this section is to be treated as if it did comply.

269ZWDeductions allowance for company not in a group

(1)This section makes provision as to the deductions allowance of a company for an accounting period where section 269ZR (deductions allowance for company in a group) does not apply.

(2)The company's deductions allowance for the accounting period is £5,000,000.

(3)If the accounting period is less than 12 months, the company's deductions allowance for the period is proportionally reduced.

269ZXIncrease of deductions allowance where provision for onerous lease reversed

(1)This section applies if—

(a)a relevant reversal credit (see section 269ZY) is brought into account in calculating a company's specified profits for an accounting period, and

(b)the amount of the company's specified profits for the accounting period is greater than nil.

(2)For the purposes of this section a company's “specified profits” for an accounting period are the sum of—

(a)the company's total profits for the accounting period, calculated with the modifications set out in section 269ZF(4), and

(b)any I-E profit of the company for the accounting period.

(3)The company's deductions allowance for the accounting period (as determined in accordance with section 269ZR or 269ZW) is to be treated (for all purposes) as increased by—

(a)the amount of the relevant reversal credit, or

(b)if lower, the amount of the specified profits.

269ZYMeaning of “relevant reversal credit”

(1)For the purposes of section 269ZX a “relevant reversal credit” is a credit, or other income, brought into account in respect of the relevant reversal (see subsections (3) and (5)) of a relevant onerous lease provision.

(2)A provision in the accounts of a company (“C”) is a “relevant onerous lease provision” if—

(a)the provision relates to a lease of land under which C is the tenant (and “L” is the landlord),

(b)the provision is required, for accountancy purposes, as a provision for an onerous lease, and

(c)the lease was entered into at arm's length.

(3)The reversal (in whole or in part) of a relevant onerous lease provision is a “relevant reversal” if—

(a)the reversal is required for accountancy purposes as a result of an arrangement (“C's arrangement”) made at arm's length under which C's obligations under the lease are varied or cancelled,

(b)subsection (4) does not apply, and

(c)at least one of conditions X, Y and Z in subsection (7) is met.

(4)This subsection applies if—

(a)C and L are connected at the time when C's arrangement is made, or

(b)the landlord who granted the lease (whether that was L or another person) and the tenant to whom it was granted (whether that was C or another person) were connected at the time when the lease was granted.

(5)The reversal (in whole or in part) of a relevant onerous lease provision is a “relevant reversal” if—

(a)the lease has been granted out of a lease (“the superior lease”),

(b)L and C are members of the same group of companies,

(c)the reversal would be a relevant reversal by virtue of subsection (3) if the condition in subsection (3)(b) (lack of connection between C and L) were met,

(d)the terms of C's arrangement substantially reflect those of an arrangement (“L's arrangement”) made at arm's length under which L's obligations under the superior lease are varied or cancelled, and

(e)subsection (6) does not apply.

(6)This subsection applies if—

(a)at the time when L's arrangement is made, the landlord under the superior lease (“S”) is connected with L or C, or

(b)the landlord who granted the superior lease (whether that is S or another person) and the tenant to whom it was granted (whether that was L or another person) were connected at the time when that lease was granted.

(7)The conditions mentioned in subsection (3)(c) are as follows.

  • Condition X is that—

    (a)

    it is reasonable to suppose that immediately before C's arrangement was made there was a material risk that at some time within the next 12 months C would be unable to pay its debts as they fell due, and

    (b)

    the sole or main purpose of C's arrangement was to avert that risk (whether directly or indirectly).

    Debts due to a person connected with C are to be regarded as not being debts for the purposes of paragraph (a).

  • Condition Y is that C is in insolvent administration.

  • Condition Z is that C's arrangement is, or is part of, a statutory insolvency arrangement.

(8)In this section “statutory insolvency arrangement” means—

(a)a voluntary arrangement that has taken effect under, or as a result of, the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/ 2405 (N.I. 19)),

(b)a compromise or arrangement that has taken effect under Part 26 of the Companies Act 2006, or

(c)an arrangement or compromise of a kind corresponding to any of those mentioned in paragraph (a) or (b) that has taken effect under, or as a result of, the law of a country or territory outside the United Kingdom,

(and for the purposes of this section an arrangement which is, or is part of, a statutory insolvency arrangement is taken to be “made” when the statutory insolvency arrangement takes effect).

(9)For the purposes of this section a company in administration is in insolvent administration if—

(a)it entered administration under Schedule B1 to the Insolvency Act 1986, or Schedule B1 to the Insolvency (Northern Ireland) Order 1989, at a time when its assets were insufficient for the payment of its debts and other liabilities and the expenses of the administration, or

(a)under the law of a country or territory outside the United Kingdom circumstances corresponding to those mentioned in paragraph (a) exist.

(10)In the application of subsection (5) to Scotland, the reference to the lease having been granted out of the superior lease is to the lease being a sublease of land subject to the superior lease.

(11)Section 152 (groups of companies) applies for the purposes of this section as it applies for the purposes of Part 5.

(12)For the purposes of this section any question whether a person is connected with another is to be determined in accordance with section 1122.

269ZZCompany tax return to specify amount of deductions allowance

(1)A company's tax return for an accounting period must specify—

(a)the amount of the company's deductions allowance for the period, and

(b)if section 269ZX (increase of deductions allowance where provision for onerous lease reversed) applies, what that amount would be without the increase provided for by subsection (3) of that section.

(2)But subsection (1) applies only if the company makes for the accounting period a deduction to which section 269ZB(2), 269ZC(2) or 269ZD(2) or section 124D(1) of FA 2012 applies.

269ZZAExcessive specifications of deductions allowance

(1)This section applies if a company's tax return for an accounting period specifies an excessive amount as—

(a)the company's deductions allowance for the period,

(b)the company's trading profits deductions allowance for the period,

(c)the company's non-trading profits deductions allowance for the period,

(d)the company's contractor's ring fence profits deductions allowance for the period, or

(e)the company's BLAGAB trade profits deductions allowance for the period.

(2)The company must, so far as it may do so, amend the company tax return so that the amount specified is not excessive.

(3)If an officer of Revenue and Customs considers that an undue amount of relief has been given as a consequence of the amount specified being excessive, the officer may make an assessment to tax in the amount which in the officer's opinion ought to be charged.

(4)If—

(a)the amount specified became excessive in consequence of an alteration being made to the amount of group deductions allowance allocated to the company for the accounting period concerned, and

(b)the company has failed, or is unable, to amend its company tax return in accordance with subsection (2),

an assessment under subsection (3) is not out of time if it is made within 12 months of the date on which the alteration took place.

(5)The power in subsection (3) is without prejudice to the power to make a discovery assessment under paragraph 41(1) of Schedule 18 to FA 1998.

269ZZBMeaning of “group”

(1)In this Part “group” means two or more companies which together meet the following condition.

(2)The condition is that one of the companies is—

(a)the ultimate parent of each of the other companies, and

(b)is not the ultimate parent of any other company.

(3)A company (“A”) is the “ultimate parent” of another company (“B”) if—

(a)A is the parent of B, and

(b)no company is the parent of both A and B.

(4)A company (“A”) is the “parent” of another company (“B”) if—

(a)B is a 75% subsidiary of A,

(b)A is beneficially entitled to at least 75% of any profits available for distribution to equity holders of B, or

(c)A would be beneficially entitled to at least 75% of any assets of B available for distribution to its equity holders on a winding up.

(5)The following apply for the purposes of subsection (4)—

(a)Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) other than sections 169 to 182, and

(b)Chapter 3 of Part 24 (subsidiaries).

This is subject to subsections (6) and (7).

(6)In applying Chapter 3 of Part 24 for the purposes of subsection (4)—

(a)share capital of a registered society is to be treated as if it were ordinary share capital, and

(b)a company (“the shareholder”) that directly owns shares in another company is to be treated as not owning those shares if a profit on their sale would be a trading receipt of the shareholder.

(7)In applying Chapter 6 of Part 5 (other than sections 169 to 182) and Chapter 3 of Part 24 for the purposes of subsection (4), they are to be read with all modifications necessary to ensure that—

(a)they apply to a company which does not have share capital, and to holders of corresponding ordinary holdings in such a company, in a way which corresponds to the way they apply to companies with ordinary share capital and holders of ordinary shares in such companies,

(b)they apply to a company which is an unincorporated association in a way which corresponds to the way they apply to companies which are bodies corporate,

(c)they apply in relation to ownership through an entity (other than a company), or any trust or other arrangement, in a way which corresponds to the way they apply to ownership through a company, and

(d)for the purposes of achieving paragraphs (a) to (c), profits or assets are attributed to holders of corresponding ordinary holdings in unincorporated associations, entities, trusts or other arrangements in a manner which corresponds to the way profits or assets are attributed to holders of ordinary shares in a company which is a body corporate.

(8)In this section “corresponding ordinary holding” in an unincorporated association, entity, trust or other arrangement means a holding or interest which provides the holder with economic rights corresponding to those provided by a holding of ordinary shares in a body corporate.

17(1)Section 269C (overview of Chapter 3 of Part 7A: restriction on banking company obtaining certain deductions) is amended as follows.E+W+S+N.I.

(2)After subsection (1) insert—

(1A)This Chapter applies in relation to a banking company in addition to Part 7ZA (which contains provision restricting the amount of certain deductions which any kind of company may make in calculating its taxable total profits for an accounting period).

(3)In subsection (2) for “269CD” substitute “ 269CC ”

18(1)Section 269CA (restriction on deductions for pre-1 April 2015 trading losses) is amended as follows.E+W+S+N.I.

(2)In subsection (2), in the second sentence—

(a)for “269CD” substitute “ 269ZF ”, and

(b)omit “step 5 in”.

(3)In subsection (3), for the words from “where” to the end substitute “ in relation to a banking company for an accounting period where, in determining the company's relevant trading profits for the period, the amount given by step 1 in section 269ZF(3) is not greater than nil ”.

19(1)Section 269CB (restriction on deductions for pre-1 April 2015 non-trading deficits from loan relationships) is amended as follows.E+W+S+N.I.

(2)In subsection (2), in the second sentence—

(a)for “269CD” substitute “ 269ZF ”, and

(b)for “step 6 in subsection (1)” substitute “ subsection (2) ”.

(3)In subsection (3), for the words from “where” to the end substitute “ in relation to a banking company for an accounting period where, in determining the company's relevant non-trading profits for the period, the amount given by step 1 in section 269ZF(3) is not greater than nil ”

20(1)Section 269CC (restriction on deductions for pre-1 April 2015 management expenses etc) is amended as follows.E+W+S+N.I.

(2)In subsection (3) for the words from “does not apply” to the end substitute “ is subject to subsection (8) ”.

(3)In subsection (7)—

(a)in the second sentence of step 1, for “269CD” substitute “ 269ZD(5) ”,

(b)in step 2 for the words from “which are” to the end substitute under—

(a)section 45 (carry forward of pre-1 April 2017 trade loss against subsequent trade profits),

(b)section 45B (carry forward of post-1 April 2017 trade loss against subsequent trade profits), or

(c)section 457 of CTA 2009 (carry forward of pre-1 April 2017 non-trading deficits from loan relationships).

(4)After subsection (7) insert—

(8)Subsection (2) does not apply in relation to a banking company for an accounting period where, in determining the company's relevant profits for the period, the amount given by step 1 in section 269ZF(3) is not greater than nil.

21Section 269CD (relevant profits) is omitted.

22(1)Section 269CN (definitions for the purposes of Part 7A) is amended as follows.E+W+S+N.I.

(2)In the definition of “relevant non-trading profits” for the words from “means” to the end substitute “ has the meaning given by section 269ZF(2) ”.

(3)In the definition of “relevant profits” for the words from “means” to the end substitute “ has the meaning given by section 269ZD(5) ”.

(4)In the definition of “relevant trading profits” for the words from “means” to the end substitute “ has the meaning given by section 269ZF(1) ”.

PART 3 E+W+S+N.I.Group relief for carried-forward losses

23After section 188 of CTA 2010 insert—

PART 5A E+W+S+N.I.Group relief for carried-forward losses

CHAPTER 1E+W+S+N.I.Introduction
188AAIntroduction to Part

(1)This Part—

(a)allows a company to surrender losses and other amounts that have been carried forward to an accounting period of the company (see Chapter 2), and

(b)enables, in certain cases involving groups or consortiums of companies, other companies to claim corporation tax relief for the losses and other amounts that are surrendered (see Chapter 3).

(2)Chapters 4 and 5 contain limitations on the amount of corporation tax relief which may be given on a claim under Chapter 3.

(3)See Chapter 5 for definitions that apply for the purposes of this Part and miscellaneous provisions.

(4)The corporation tax relief mentioned in this section is called “group relief for carried-forward losses.

CHAPTER 2E+W+S+N.I.Surrender of company's carried-forward losses etc
188BAOverview of Chapter

(1)This Chapter allows a company to surrender losses and other amounts that have been carried forward to an accounting period of the company.

(2)Section 188BB sets out the basic provisions about the surrendering of losses and other amounts.

(3)Sections 188BC to 188BJ place restrictions on the surrendering of losses and other amounts.

188BBSurrender of carried-forward losses and other amounts

(1)Subsection (2) applies if—

(a)a loss or other amount is carried forward to an accounting period of a company under any of the following provisions—

(i)section 463G(6) of CTA 2009 (carry forward of post-1 April 2017 non-trading deficit from loan relationships);

(ii)section 753(3) of that Act (carry forward of non-trading loss on intangible fixed assets);

(iii)section 1223 of that Act (carry forward of expenses of management of investment business);

(iv)section 45A(4) of this Act (carry forward of post-1 April 2017 trade loss);

(v)sections 62(5)(a) and 63(3)(a) of this Act (carry forward of loss made in UK property business); or

(b)section 303C of this Act (excess carried forward non-decommissioning losses of ring fence trade: relief against total profits) applies in relation to an amount.

(2)The company may surrender the loss or other amount under this Chapter so far as the loss or other amount is eligible for corporation tax relief (apart from this Part).

(3)Subsection (4) applies if any of a BLAGAB trade loss made by an insurance company for an accounting period is carried forward to an accounting period of the company (“the later period”) under section 124A(2) or 124C(3) of FA 2012.

(4)The company may surrender the remaining carried forward amount under this Chapter so far as that amount is eligible for corporation tax relief (apart from this Part).

(5)In subsection (4) “the remaining carried forward amount” means so much of the amount carried forward (as mentioned in subsection (3)) as cannot be deducted under section 124A(5) or 124C(6) of FA 2012 from the company's BLAGAB trade profit (if any) of the later period.

(6)Under paragraph 70(1) of Schedule 18 to FA 1998, the company surrenders losses or other amounts, so far as eligible for surrender under this Chapter, by consenting to one or more claims for group relief for carried-forward losses in relation to the amounts (see requirement 1 in section 188CB(3) and requirement 1 in section 188CC(3)).

(7)In this Part, in relation to losses or other amounts within subsection (1) or (4) that a company has carried forward to an accounting period—

  • the surrenderable amounts” means those losses and other amounts so far as eligible for surrender under this Chapter,

  • surrendering company” means the company that has the losses or other amounts,

  • the surrender period” means the accounting period to which the losses and other amounts have been carried forward.

(8)See sections 188BC to 188BJ for provisions restricting what the surrendering company may surrender under this section.

188BCRestriction on surrendering pre-1 April 2017 losses etc

(1)The surrendering company may not surrender under this Chapter—

(a)a loss carried forward to the surrender period under section 753(3) of CTA 2009 in so far as the loss is made up of an amount previously carried forward under that section from an accounting period beginning before 1 April 2017,

(b)expenses carried forward to the surrender period under section 1223 of CTA 2009 if the expenses were first deductible under section 1219 of that Act for an accounting period beginning before that date, or

(c)a loss carried forward to the surrender period under section 62(5)(a) or 63(3)(a) of this Act if the loss was made in an accounting period beginning before that date.

(2)The surrendering company may not surrender under this Chapter a qualifying charitable donation carried forward to the surrender period under section 1223 of CTA 2009.

188BDRestriction where investment business has become small or negligible

(1)The surrendering company may not surrender under this Chapter—

(a)a loss carried forward to the surrender period under section 753(3) of CTA 2009 if an investment business carried on by the surrendering company became small or negligible before the beginning of that period,

(b)expenses carried forward to the surrender period under section 1223 of CTA 2009 if the surrendering company's investment business became small or negligible before the beginning of that period, or

(c)a loss carried forward to the surrender period under section 62(5)(a) or 63(3)(a) if the surrendering company's investment business became small or negligible before the beginning of that period.

(2)In this section—

(a)company with investment business” has the same meaning as in Part 16 of CTA 2009 (see section 1218B of that Act);

(b)references to a company's investment business are to be construed in accordance with section 1219(2) of CTA 2009.

188BERestriction where surrendering company could use losses etc itself

The surrendering company may not surrender any losses or other amounts under this Chapter if—

(a)section 269ZD(2) applies in determining the taxable total profits of the surrendering company for the surrender period, and

(b)the sum of the relevant deductions (within the meaning of section 269ZD(3)) made for the surrender period is less than the maximum permitted by section 269ZD(2).

188BFRestriction where surrendering company has no income-generating assets

The surrendering company may not surrender any losses or other amounts under this Chapter if at the end of the surrender period the surrendering company has no assets capable of producing income.

188BGRestrictions for certain insurance companies

(1)If the surrendering company is a general insurance company and the surrender period is an excluded accounting period, the company may not surrender under this Chapter—

(a)a loss carried forward to the surrender period under section 753(3) of CTA 2009;

(b)expenses carried forward to the surrender period under section 1223 of CTA 2009;

(c)a loss carried forward to the surrender period under section 62(5)(a) or 63(3)(a).

(2)In subsection (1) “excluded accounting period” and “general insurance company” are to be interpreted in accordance with section 269ZG.

(3)If the surrendering company is a Solvency 2 insurance company it may not surrender under this Chapter—

(a)a loss carried forward to the surrender period under section 753(3) of CTA 2009,

(b)expenses carried forward to the surrender period under section 1223 of CTA 2009, or

(c)a loss carried forward to the surrender period under section 62(5)(a) or 63(3)(a),

so far as the loss is, or (as the case may be) the expenses are, a shock loss.

188BHRestriction on surrender of losses etc made when UK resident

(1)This section applies in relation to a loss or other amount carried forward to the surrender period if the surrendering company was UK resident during the loss-making period.

(2)The surrendering company may not surrender the loss or other amount under this Chapter so far as the loss or other amount—

(a)is attributable to a permanent establishment through which the company carried on a trade outside the United Kingdom during the loss-making period (see subsection (3)), and

(b)is, or represents, an amount within subsection (5).

(3)A loss or other amount is attributable to a permanent establishment of the surrendering company if (ignoring this section) the amount could be included in the company's surrenderable amounts for the surrender period if those amounts were determined—

(a)by reference to that establishment alone, and

(b)by applying, in relation to that establishment, principles corresponding in all material respects to those mentioned in subsection (4).

(4)The principles are those that would be applied for corporation tax purposes in determining an equivalent loss or other amount in the case of a permanent establishment through which a non-UK resident company carried on a trade in the United Kingdom.

(5)An amount is within this subsection if, for the purposes of non-UK tax chargeable under the law of the territory in which the permanent establishment was situated, the amount is or at any time has been (in any period) deductible from or otherwise allowable against non-UK profits of a person other than the surrendering company.

(6)Subsection (7) applies for the purposes of subsection (5) if, in order to determine if an amount is or at any time has been deductible or otherwise allowable for the purposes of non-UK tax chargeable under the law of a territory, it is necessary under that law to know if the amount (or a corresponding amount) is or has been deductible or otherwise allowable for tax purposes in the United Kingdom.

(7)The amount is to be treated as deductible or otherwise allowable for the purposes of the non-UK tax chargeable under the law of the territory concerned if (and only if) the surrendering company is treated as resident in that territory for the purposes of the non-UK tax.

(8)In this section and section 188BI—

  • the loss-making period”, in relation to a loss or other amount, means the accounting period in which the loss was made or the amount arose,

  • non-UK tax” has the meaning it has in Part 5 (see section 187), and

  • non-UK profits” has the meaning given by section 108.

188BIRestriction on surrender of losses made when non-UK resident

(1)This section applies in relation to a loss or other amount carried forward to the surrender period if during the loss-making period the surrendering company was a non-UK resident company—

(a)carrying on a trade of dealing in or developing UK land, or

(b)carrying on a trade in the United Kingdom through a permanent establishment.

(2)If the surrendering company was established in the EEA during the loss-making period, it may surrender the loss or other amount under this Chapter only so far as conditions A and B are met.

Subsection (8) imposes restrictions on a surrender under this subsection.

(3)In any other case, the surrendering company may surrender the loss or other amount under this Chapter only so far as conditions A, B and C are met in relation to the loss or amount.

(4)Condition A is that the loss or other amount is attributable to activities of the surrendering company in respect of which it is within the charge to corporation tax for the loss-making period.

(5)Condition B is that the loss or other amount is not attributable to activities of the surrendering company that are double taxation exempt for the loss-making period (within the meaning given by section 186).

(6)Condition C is that—

(a)the loss or other amount does not correspond to, and is not represented in, an amount with subsection (7), and

(b)no amount brought into account in calculating the loss or other amount corresponds to, or is represented in, an amount within subsection (7).

(7)An amount is within this subsection if, for the purposes of non-UK tax chargeable under the law of a territory, the amount is or at any time has been (in any period) deductible from or otherwise allowable against non-UK profits of any person.

(8)A loss or other amount may not be surrendered by virtue of subsection (2) if and to the extent that it, or any amount brought into account in calculating it, corresponds to, or is represented in, amounts within subsection (9).

(9)An amount is within this subsection if, for the purposes of non-UK tax chargeable under the law of a territory, the amount has (in any period) been deducted from or otherwise allowed against non-UK profits of any person.

(10)But an amount is not to be taken to be within subsection (7) or (9) by reason only that it is—

(a)an amount of profits brought into account for the purpose of being excluded from non-UK profits of the person, or

(b)an amount brought into account in calculating an amount of profits brought into account as mentioned in paragraph (a).

(11)Subsection (12) applies for the purposes of subsection (7) if, in order to determine if an amount is or at any time has been deductible or otherwise allowable for the purposes of non-UK tax chargeable under the law of a territory, it is necessary under that law to know if the amount (or a corresponding amount) is or at any time has been deductible or otherwise allowable for tax purposes in the United Kingdom.

(12)The amount is to be treated as deductible or otherwise allowable for the purposes of the non-UK tax chargeable under the law of the territory concerned.

(13)For the purposes of this section a company is established in the EEA if—

(a)it is constituted under the law of the United Kingdom or an EEA territory, and

(b)it has its registered office, central administration or principal place of business within the European Economic Area.

(14)In subsection (13) “EEA territory”, in relation to any time, means a territory outside the United Kingdom that is within the European Economic Area at that time.

188BJRestriction on surrender losses etc made when dual resident

The surrendering company may not surrender a loss or other amount under this Chapter if the company was not eligible to surrender the loss or other amount under Chapter 2 of Part 5 by reason of section 109 (restriction on losses etc surrenderable by dual resident).

CHAPTER 3E+W+S+N.I.Claims for group relief for carried-forward losses
IntroductionE+W+S+N.I.
188CAOverview of Chapter

This Chapter sets out how a company may claim group relief for carried-forward losses and how the relief is given.

Claiming group relief for carried-forward lossesE+W+S+N.I.
188CBClaims in relation to all the surrenderable amounts

(1)This section applies in relation to the surrendering company's surrenderable amounts for the surrender period under Chapter 2.

(2)If the requirements in subsection (3) are met, a company (“the claimant company”) may make a claim for group relief for carried-forward losses for an accounting period (“the claim period”) in relation to the surrenderable amounts.

(3)The requirements are as follows—

  • Requirement 1 The surrendering company consents to the claim.

  • Requirement 2 There is a period (“the overlapping period”) that is common to the claim period and the surrender period.

  • Requirement 3 At a time during the overlapping period—

    (a)

    the group condition is met (see section 188CE)

    (b)

    consortium condition 1 is met (see section 188CF), or

    (c)

    consortium condition 2 is met (see section 188CG).

(4)A claim under this section may relate to the whole of the surrenderable amounts or to part of them only.

(5)This section is subject to section 188CD (claim not allowed by company with unused carried-forward losses of its own).

188CCClaims in relation to the surrenderable amounts that are attributable to a specified accounting period

(1)This section applies in relation to the surrendering company's surrenderable amounts for the surrender period under Chapter 2.

(2)If the requirements in subsection (3) are met, a company (“the claimant company”) may make a claim for group relief for carried-forward losses for an accounting period (“the claim period”) in relation to the surrenderable amounts that are attributable to an accounting period of the surrendering company specified in the claim (“the specified loss-making period”).

(3)The requirements are as follows—

  • Requirement 1 The surrendering company consents to the claim.

  • Requirement 2 There is a period (“the overlapping period”) that is common to the claim period and the surrender period.

  • Requirement 3 Consortium condition 3 (see section 188CH) or consortium condition 4 (see section 188CI) is met throughout a period which—

    (a)

    begins before or during the specified loss-making period, and

    (b)

    ends during or after the overlapping period.

(4)A claim under this section may relate to the whole of the surrenderable amounts attributable to the specified loss-making period or to part of them only.

(5)This section is subject to section 188CD (claim not allowed by company with unused carried-forward losses of its own)

188CDClaim not allowed by company with unused carried-forward losses of its own

A company may not make a claim for group relief for carried-forward losses for an accounting period if—

(a)any amount carried forward to that period under any provision mentioned in section 188BB(1), or any amount which is carried forward to that period and falls within section 124B(1)(b) of FA 2012, is not deducted in full from the total profits of the company for that period at Step 2 of section 4(2),

(b)the company makes a claim under section 458(1) of CTA 2009 for any amount of a deficit to be excepted from being set off against profits of that period,

(c)the company makes a claim under section 45(4A) that the profits of a trade of that period are not to be reduced or are not to be reduced by more than a specified amount, or

(d)the company makes a claim under section 45B(5) for relief not to be given in that period for an amount of a loss or for a specified part of an amount of a loss.

188CEThe group condition

(1)The group condition is met if the surrendering company and the claimant company—

(a)are members of the same group of companies, and

(b)are both UK related.

(2)For the meaning of “UK related” in subsection (1)(b) and in sections 188CF to 188CI, see section 188CJ.

188CFConsortium condition 1

(1)Consortium condition 1 is met if—

(a)the claimant company is a trading company or a holding company,

(b)the claimant company is owned by a consortium,

(c)the surrendering company is a member of the consortium, and

(d)both companies are UK related.

(2)But consortium condition 1 is not met if a profit on a sale within subsection (3) by the surrendering company would be a trading receipt of the surrendering company.

(3)A sale is within this subsection if it is a sale of—

(a)the share capital the surrendering company owns in the claimant company, or

(b)if the claimant company is owned by the consortium as a result of section 153(3) (consortiums involving holding companies), the share capital the surrendering company owns in the holding company in question.

188CGConsortium condition 2

(1)Consortium condition 2 is met if—

(a)the claimant company is a trading company or a holding company,

(b)the claimant company is owned by a consortium,

(c)the surrendering company is not a member of the consortium,

(d)the surrendering company is a member of the same group of companies as a third company (“the link company”),

(e)the link company is a member of the consortium,

(f)the surrendering company and the claimant company are both UK related.

(2)But consortium condition 2 is not met if a profit on a sale within subsection (3) by the link company would be a trading receipt of that company.

(3)A sale is within this subsection if it is a sale of—

(a)the share capital the link company owns in the claimant company, or

(b)if the claimant company is owned by the consortium as a result of section 153(3) (consortiums involving holding companies), the share capital the link company owns in the holding company in question.

188CHConsortium condition 3

(1)Consortium condition 3 is met if—

(a)the surrendering company is a trading company or a holding company,

(b)the surrendering company is owned by a consortium,

(c)the claimant company is a member of the consortium, and

(d)both companies are UK related.

(2)But consortium condition 3 is not met if a profit on a sale within subsection (3) by the claimant company would be a trading receipt of the claimant company.

(3)A sale is within this subsection if it is a sale of—

(a)the share capital the claimant company owns in the surrendering company, or

(b)if the surrendering company is owned by the consortium as a result of section 153(3) (consortiums involving holding companies), the share capital the claimant company owns in the holding company in question.

188CIConsortium condition 4

(1)Consortium condition 4 is met if—

(a)the surrendering company is a trading company or a holding company,

(b)the surrendering company is owned by a consortium,

(c)the claimant company is not a member of the consortium,

(d)the claimant company is a member of the same group of companies as a third company (“the link company”),

(e)the link company is a member of the consortium, and

(f)the claimant company and the surrendering company are both UK related.

(2)But consortium condition 4 is not met if a profit on a sale within subsection (3) by the link company would be a trading receipt of that company.

(3)A sale is within this subsection if it is a sale of—

(a)the share capital the link company owns in the surrendering company, or

(b)if the surrendering company is owned by the consortium as a result of section 153(3) (consortiums involving holding companies), the share capital the link company owns in the holding company in question.

188CJMeaning of “UK related” company

For the purpose of sections 188CE to 188CI a company is UK related if—

(a)it is a UK resident company, or

(b)it is a non-UK resident company carrying on a trade in the United Kingdom through a permanent establishment.

Giving group relief for carried-forward lossesE+W+S+N.I.
188CKDeductions from total profits

(1)If a claimant company makes a claim under section 188CB or 188CC, the group relief for carried-forward losses is given by the making of a deduction from the claimant company's total profits of the claim period.

(2)In the case of a claim under section 188CB, the amount of the deduction under subsection (1) is—

(a)an amount equal to the surrendering company's surrenderable amounts for the surrender period, or

(b)if the claim is in relation to only part of those amounts, an amount equal to that part.

(3)Subsection (2) is subject to—

(a)subsections (6) to (9),

(b)the limitations set out in Chapter 4, and

(c)section 269ZD (restriction on deductions from total profits).

(4)In the case of a claim under section 188CC, the amount of the deduction under subsection (1) is—

(a)an amount equal to the surrendering company's surrenderable amounts for the surrender period that are attributable to the specified loss-making period, or

(b)if the claim is in relation to only part of those amounts, an amount equal to that part.

(5)Subsection (4) is subject to—

(a)subsections (6) to (9),

(b)the limitations set out in Chapter 5, and

(c)section 269ZD (restriction on deductions from total profits).

(6)A deduction under subsection (1) is to be made—

(a)before deductions for relief within subsection (7), but

(b)after all other deductions to be made at Step 2 in section 4(2) (apart from deductions for group relief for carried-forward losses on other claims).

(7)The deductions within this subsection are deductions for relief—

(a)under section 37 in relation to a loss made in an accounting period after the claim period,

(b)under section 260(3) of CAA 2001 in relation to capital allowances for an accounting period after the claim period, and

(c)under section 389 or 463B of CTA 2009 in relation to a deficit of a deficit period after the claim period.

(8)For the purposes of subsection (6)(b) it is to be assumed that the claimant company has claimed all relief available to it for the claim period under section 37 of this Act or section 260(3) of CAA 2001.

(9)Corporation tax relief is not to be given more than once for the same amount, whether—

(a)by giving group relief for carried-forward losses and by giving some other relief (for any accounting period) to the surrendering company, or

(b)by giving group relief for carried-forward losses more than once.

CHAPTER 4E+W+S+N.I.Limitations on relief: claims under section 188CB
IntroductionE+W+S+N.I.
188DAOverview

This Chapter sets out limitations on the amount of relief which may be given on a claim under section 188CB.

General limitation on amount of reliefE+W+S+N.I.
188DBLimitation on amount of relief applying to all claims under section 188CB

(1)The amount of group relief for carried-forward losses to be given on a claim under section 188CB (“the current claim”) is limited to whichever is the lesser of—

(a)the amount mentioned in subsection (2), and

(b)the amount mentioned in subsection (3).

(2)The amount referred to in subsection (1)(a) is the unused part of the surrenderable amounts (see section 188DC).

(3)The amount referred to in subsection (1)(b) is the difference between—

(a)the claimant company's relevant maximum for the overlapping period (see section 188DD), and

(b)the amount of previously claimed group relief for carried-forward losses for the overlapping period (see section 188DE).

188DCUnused part of the surrenderable amounts

(1)The unused part of the surrenderable amounts is the amount equal to—

(a)the surrenderable amount for the overlapping period (see subsection (2)), less

(b)the amount of prior surrenders for that period (see subsections (3) to (5)).

(2)To determine the surrenderable amount for the overlapping period—

(a)take the proportion of the surrender period included in the overlapping period, and

(b)apply that proportion to the surrenderable amounts for the surrender period.

The surrenderable amount for the overlapping period is the amount given as a result of paragraph (b).

(3)To determine the amount of prior surrenders for the overlapping period—

(a)identify any prior claims for the purposes of this section (see subsection (4)), and

(b)take the steps set out in subsection (5) in relation to each such claim.

The amount of prior surrenders for the overlapping period is the total of the previously used amounts given at step 3 in subsection (5) for all the prior claims.

(4)A claim is a prior claim for the purposes of this section if—

(a)it is either—

(i)a claim under section 188CB by any company which relates to the same amounts as the current claim, or

(ii)a claim under section 188CC by any company which relates to amounts included in the amounts to which the current claim relates,

(b)it is made before the current claim, and

(c)it has not been withdrawn.

(5)These are the steps referred to in subsection (3)(b) to be taken in relation to each prior claim.

  • Step 1 Identify the overlapping period for the prior claim.

  • Step 2 Identify any period that is common to the overlapping period for the current claim and the overlapping period for the prior claim. If there is a common period, go to step 3. If there is no common period, there is no previously used amount in relation to the prior claim (and ignore step 3).

  • Step 3 Determine the previously used amount of group relief for carried-forward losses in relation to the prior claim (see subsection (6)).

(6)To determine the previously used amount of group relief for carried-forward losses in relation to a prior claim—

(a)take the proportion of the overlapping period for the prior claim that is included in the common period identified at step 2 in relation to that claim, and

(b)apply that proportion to the amount of group relief for carried-forward losses given on the prior claim.

The previously used amount of group relief for carried-forward losses in relation to the prior claim is the amount given as a result of paragraph (b).

(7)For the meaning of the “overlapping period” see section 188DG.

188DDClaimant company's relevant maximum for overlapping period

(1)The claimant company's relevant maximum for the overlapping period is determined as follows—

  • Step 1 Calculate the claimant company's relevant maximum for the claim period in accordance with section 269ZD(4).

  • Step 2 Deduct from that amount the sum of—

    (a)

    any deductions made by the company for the claim period

    (i)

    under section 45(4)(b) or 45B(4), or

    (ii)

    under section 303B or 303D by virtue of section 304(5),

    (b)

    any deductions made by the company for the claim period under section 457(3) or 463H(5) of CTA 2009,

    (c)

    any deductions made by the company for the claim period under section 124(5), 124A(5) or 124C(6) of FA 2012, and

    (d)

    any deductions made by the company for the claim period which are deductions within any of paragraphs (a) to (i) and (k) of section 269ZD(3).

  • Step 3 Take the proportion of the claim period included in the overlapping period and apply that proportion to the amount arrived at under step 2.

(2)In step 2 of subsection (1)—

(a)in paragraph (a)(i), the references to deductions under section 45(4)(b) or 45B(4) do not include deductions that would be ignored for the purposes of section 269ZB by reason of—

(i)section 1209(3), 1210(5A) or 1211(7A) of CTA 2009 (losses of film trade),

(ii)section 1216DA(3), 1216DB(5A) or 1216DC(7A) of that Act (losses of television programme trade),

(iii)section 1217DA(3), 1217DB(5A) or 1217DC(7A) of that Act (losses of video game trade),

(iv)section 1217MA(3) or 1217MC(9) of that Act (losses of theatrical trade),

(v)section 1217SA(3) or 1217SC(9) of that Act (losses of orchestral trade),

(vi)section 1218ZDA(3) or 1218ZDC(9) of that Act (losses of museum or gallery exhibition trade),

(vii)section 65(4B) or 67A(5A) (losses of UK or EEA furnished holiday lettings business),

(viii)section 269ZJ(1) (insurance companies: shock losses),

(ix)section 304(7) (certain losses of ring fence trades), or

(x)section 356NJ(2) (pre-1 April 2017 loss arising from oil contractor activities);

(b)in paragraph (b) the reference to a deduction under section 463H(5) does not include the deduction of a shock loss.

(3)If the amount of the claimant company's relevant profits for the claim period (calculated in accordance with section 269ZD(5)) is less than the amount of the claimant company's deductions allowance for the claim period (determined in accordance with section 269ZD(6)), subsection (1) has effect as if step 1 was modified as follows—

Step 1 Calculate the claimant company's relevant profits for the claim period in accordance with section 269ZD(5).

(4)If section 269ZD has effect in relation to the claimant company for the claim period with the modifications set out in section 269ZE(1) (special loss cap for insurance companies in certain cases), subsection (1) has effect as if steps 1 and 2 were modified as follows—

  • Step 1 Determine, in accordance with section 269ZE(5), the modified loss cap for the claimant company and the claim period.

  • Step 2 Reduce that amount by the total of any deductions made by the claimant company for the claim period which are deductions within any of paragraphs (a) to (i) and (k) of section 269ZD(3).

(5)Subsection (2) is to be ignored if subsection (3) applies.

188DEPreviously claimed group relief for carried-forward losses

(1)To determine the amount of previously claimed group relief for carried-forward losses for the overlapping period—

(a)identify any prior claims for the purposes of this section (see subsection (2)), and

(b)take the steps set out in subsection (3) in relation to each such claim.

The amount of previously claimed group relief for carried-forward losses for the overlapping period is the total of the previously claimed amounts given at step 3 in subsection (3) for all the prior claims.

(2)A claim is a prior claim for the purposes of this section if—

(a)it is a claim under section 188CB or 188CC by the claimant company for group relief for carried-forward losses which would be given by way of a deduction from the company's total profits of the claim period,

(b)it is made before the current claim, and

(c)it has not been withdrawn.

(3)These are the steps referred to in subsection (1)(b) to be taken in relation to each prior claim.

  • Step 1 Identify the overlapping period for the prior claim.

  • Step 2 Identify any period that is common to the overlapping period for the current claim and the overlapping period for the prior claim. If there is a common period, go to step 3. If there is no common period, there is no previously claimed amount in relation to the prior claim (and ignore step 3).

  • Step 3 Determine the previously claimed amount of group relief for carried forward losses in relation to the prior claim (see subsection (4)).

(4)To determine the previously claimed amount of group relief for carried-forward losses in relation to a prior claim—

(a)take the proportion of the overlapping period for the prior claim that is included in the common period identified at step 2 in relation to that claim, and

(b)apply that proportion to the amount of group relief for carried-forward losses given on the prior claim.

The previously claimed amount of group relief for carried-forward losses in relation to the prior claim is the amount given as a result of paragraph (b).

188DFSections 188DC to 188DE: supplementary

(1)If two or more claims for group relief for carried-forward losses are made at the same time, for the purpose of section 188DC and 188DE treat the claims as made—

(a)in such order as the company making them may elect or the companies making them may jointly elect, or

(b)if no such election is made, in such order as an officer of Revenue and Customs may direct.

(2)For the purpose of step 3 in each of section 188DC(5) and 188DE(3) the amount of group relief for carried-forward losses given on a prior claim is determined on the basis that relief is given on the claim before it is given on any later claim.

(3)If the use of any proportion mentioned in subsection (4), would, in the circumstances of a particular case, produce a result that is unjust or unreasonable, the proportion is to be modified so far as necessary to produce a result that is just and reasonable.

(4)The proportions are those found in—

(a)section 188DC(2),

(b)section 188DC(6),

(c)step 3 in section 188DD(1), and

(d)section 188DE(4)

188DGSections 188DC and 188DE: meaning of “the overlapping period”

(1)In sections 188DC and 188DE “the overlapping period”, in relation to a claim for group relief for carried-forward losses, means the period that is common to the claim period and the surrender period (see Requirement 2 in section 188CB(3) and Requirement 2 in section 188CC(3)).

(2)But if during any part of the overlapping period the relief condition is not met, that part is treated as not forming part of the overlapping period but instead as forming—

(a)a part of the surrender period that is not included in the overlapping period, and

(b)a part of the claim period that is not included in the overlapping period.

(3)The relief condition is the condition on which the claim for group relief for carried forward losses is based, that is—

  • the group condition,

  • consortium condition 1,

  • consortium condition 2,

  • consortium condition 3, or

  • consortium condition 4.

Further limitations on amount of relief if claim based on consortium conditions 1 or 2E+W+S+N.I.
188DHCondition 1: ownership proportion

(1)This section applies if—

(a)the claimant company makes a claim under section 188CB for group relief for carried-forward losses, and

(b)the claim is based on consortium condition 1.

(2)The relief to be given on the claim is limited to the ownership proportion of the claimant company's relevant maximum for the overlapping period (see section 188DD to determine the claimant company's relevant maximum for the overlapping period).

(3)The ownership proportion is the same as the lowest of the following proportions prevailing during the overlapping period—

(a)the proportion of the ordinary share capital of the claimant company that is beneficially owned by the surrendering company,

(b)the proportion of any profits available for distribution to equity holders of the claimant company to which the surrendering company is beneficially entitled,

(c)the proportion of any assets of the claimant company available for distribution to such equity holders on a winding up to which the surrendering company would be beneficially entitled, and

(d)the proportion of the voting power in the claimant company that is directly possessed by the surrendering company.

(4)If any of the proportions in subsection (3) changes during the overlapping period, use the average of that proportion during that period.

(5)If the claimant company is owned by the consortium company as a result of section 153(3) (consortium company involving holding companies), references in subsection (3) to the claimant company are to be read as references to the holding company in question.

(6)In this section “the overlapping period” is to be read in accordance with section 188DG.

(7)Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies for the purposes of subsection (3)(b) and (c).

188DICondition 2: ownership proportion

(1)This section applies if—

(a)the claimant company makes a claim under section 188CB for group relief for carried-forward losses, and

(b)the claim is based on consortium condition 2.

(2)The limitation on relief in section 188DH applies in relation to the claim, but for this purpose references in section 188DH(3) to the surrendering company are to be read as reference to the link company.

188DJCondition 2: companies in link company's group

(1)Where—

(a)the claimant company makes a claim under section 188CB, and

(b)the claim is based on consortium condition 2,

the amount of relief to be given on the claim is limited by subsections (2) and (3).

(2)There is a limit on the amount of group relief for carried-forward losses that can be given, in total, to the claimant company for the claim period on consortium claims made in relation to losses and other amounts surrendered by the link company and group companies.

(3)That limit is the same as the limit that, as a result of section 188DH(2), would apply for the purposes of a consortium claim made by the claimant company for the claim period in relation to losses or other amounts surrendered by the link company, assuming that the link company was UK related.

(4)In determining the limit that would apply as a result of section 188DH(2) it is to be assumed that the accounting period of the link company is the same as the accounting period of the claimant company.

(5)In this section—

  • consortium claim” means a claim for group relief for carried-forward losses under section 188CB,

  • group company” means a company that is a member of the same group of companies as the link company (other than the link company itself), and

  • UK related”, in relation to a company, has the meaning given by section 188CJ.

188DKConditions 1 and 2: claimant company not controlled by surrendering company etc

(1)This section applies if—

(a)the claimant company makes a claim under section 188CB for group relief for carried-forward losses,

(b)the claim is based on consortium condition 1, and

(c)during any part of the overlapping period, arrangements within subsection (3) are in place which enable a person to prevent the surrendering company, either alone or together with one or more other companies that are members of the consortium, from controlling the claimant company.

(2)This section also applies if—

(a)the claimant company makes a claim under section 188CB for group relief for carried-forward losses,

(b)the claim is based on consortium condition 2, and

(c)during any part of the overlapping period, arrangements within subsection (3) are in place which enable a person to prevent the link company, either alone or together with one or more other companies that are members of the consortium, from controlling the claimant company.

(3)Arrangements are within this subsection if—

(a)the company, either alone or together with one or more other companies that are members of the consortium, would control the claimant company, but for the existence of the arrangements, and

(b)the arrangements form part of a scheme the main purpose, or one of the main purposes, of which is to enable the claimant company to obtain a tax advantage under this Chapter.

(4)The relief to be given on the claim is to be determined as if the claimant company's relevant maximum for the overlapping period was 50% of what it would be but for this section (see section 188DD to determine the claimant company's relevant maximum for the overlapping period).

(5)In this section “the overlapping period” is to be read in accordance with section 188DG

(6)Section 1139 (“tax advantage”) applies for the purposes of this section.

188DLConditions 1 and 2: claimant company in group of companies

(1)This section applies if—

(a)the claimant company makes a claim under section 188CB based on consortium condition 1 or 2, and

(b)the claimant company is a member of a group of companies.

(2)In determining the claimant company's relevant maximum for the overlapping period under section 188DD, the amount calculated at step 1 of that section is to be treated as reduced (but not below nil) by the group's potential relief.

(3)The group's potential relief is the sum of—

(a)the maximum amount of group relief for carried-forward losses that could be claimed by the claimant company for the claim period on claims under section 188CB based on the group condition, and

(b)the maximum amount of group relief under Part 5 that could be claimed by the claimant company for the claim period on claims under section 130 based on the group condition.

(4)Before determining the maximum amount of potential group relief for carried-forward losses or potential group relief under subsection (3) take account of any claim made before the claim mentioned in subsection (1) that—

(a)is a claim for group relief or group relief for carried-forward losses based on the group condition made by another member of the same group of companies as the claimant company, and

(b)is in relation to losses or other amounts surrendered.

CHAPTER 5E+W+S+N.I.Limitations on relief: claims under section 188CC
IntroductionE+W+S+N.I.
188EAOverview of Chapter

This Chapter sets out limitations on the amount of relief which may be given on a claim under section 188CC.

General limitation on amount of reliefE+W+S+N.I.
188EBLimitation on amount of relief applying to all claims under section 188CC

(1)The amount of group relief for carried-forward losses to be given on a claim under section 188CC (“the current claim”) is limited to whichever is the lesser of—

(a)the amount mentioned in subsection (2),

(b)the amount mentioned in subsection (3), and

(c)the amount mentioned in subsection (4).

(2)The amount referred to in subsection (1)(a) is the unused part of the surrenderable amounts that are attributable to the specified loss-making period (see section 188EC).

(3)The amount referred to in subsection (1)(b) is the difference between—

(a)the claimant company's relevant maximum for the overlapping period (see section 188ED), and

(b)the amount of previously claimed group relief for carried-forward losses for the overlapping period (see section 188EE).

(4)The amount referred to in subsection (1)(c) is the potential Part 5 group relief amount (see section 188EF).

188ECUnused part of surrenderable amounts attributable to specified loss-making period

(1)The unused part of the surrenderable amounts that are attributable to the specified loss-making period is the amount equal to—

(a)the surrenderable amount for the overlapping period (see subsection (2)), less

(b)the amount of prior surrenders for that period (see subsections (3) to (5)).

(2)To determine the surrenderable amount for the overlapping period—

(a)take the proportion of the surrender period included in the overlapping period, and

(b)apply that proportion to the surrenderable amounts for the surrender period that are attributable to the specified loss-making period.

The surrenderable amount for the overlapping period is the amount given as a result of paragraph (b).

(3)To determine the amount of prior surrenders for the overlapping period—

(a)identify any prior claims for the purposes of this section (see subsection (4)), and

(b)take the steps set out in subsection (5) in relation to each such claim.

The amount of prior surrenders for the overlapping period is the total of the previously used amounts given at step 3 in subsection (5) for all the prior claims.

(4)A claim is a prior claim for the purposes of this section if—

(a)it is either—

(i)a claim under section 188CB by any company which relates to the amounts to which the current claim relates (as well as any other amounts), or

(ii)a claim under section 188CC by any company which relates to the same amounts to which the current claim relates,

(b)it is made before the current claim, and

(c)it has not been withdrawn.

(5)These are the steps referred to in subsection (3)(b) to be taken in relation to each prior claim.

  • Step 1 Identify the overlapping period for the prior claim.

  • Step 2 Identify any period that is common to the overlapping period for the current claim and the overlapping period for the prior claim. If there is a common period, go to step 3. If there is no common period, there is no previously used amount in relation to the prior claim (and ignore step 3).

  • Step 3 Determine the previously used amount of group relief for carried-forward losses in relation to the prior claim (see subsections (6) to (8)).

(6)To determine the previously used amount of group relief for carried-forward losses in relation to a prior claim made under section 188CB—

  • Step 1 Take the proportion of the overlapping period for the prior claim that is included in the common period identified at step 2 in subsection (5) in relation to that claim.

  • Step 2 Apply that proportion to the amount of group relief for carried-forward losses given on the claim.

  • Step 3 Multiply the amount arrived at under step 2 by the fraction set out in subsection (7).

(7)The fraction is—

where—

A is the sum of the surrenderable amounts that are attributable to the specified loss-making period, and

B is the sum of all the surrenderable amounts.

(8)To determine the previously used amount of group relief for carried-forward losses in relation to a prior claim made under section 188CC—

(a)take the proportion of the overlapping period for the prior claim that is included in the common period identified at step 2 in subsection (5) in relation to that claim, and

(b)apply that proportion to the amount of group relief for carried-forward losses given on the prior claim.

The previously used amount of group relief for carried-forward losses in relation to the prior claim is the amount given as a result of paragraph (b).

188EDClaimant company's relevant maximum for the overlapping period

(1)The claimant company's relevant maximum for the overlapping period is determined as follows—

  • Step 1 Calculate the claimant company's relevant maximum for the claim period in accordance with section 269ZD(4).

  • Step 2 Deduct from that amount the sum of—

    (a)

    any deductions made by the company for the claim period

    (i)

    under section 45(4)(b) or 45B(4), or

    (ii)

    under section 303B or 303D by virtue of section 304(5),

    (b)

    any deduction made by the company for the claim period under section 457(3) or 463H(5) of CTA 2009,

    (c)

    any deductions made by the company for the claim period under section 124(5), 124A(5) or 124C(6) of FA 2012, and

    (d)

    any deductions made by the company for the claim period which are deductions within any of paragraphs (a) to (i) and (k) of section 269ZD(3).

  • Step 3 Take the proportion of the claim period included in the overlapping period and apply that proportion to the amount arrived at under step 2.

(2)In step 2 of subsection (1)—

(a)in paragraph (a)(i), the references to deductions under section 45(4)(b) or 45B(4) do not include deductions that would be ignored for the purposes of section 269ZB by reason of—

(i)section 1209(3), 1210(5A) or 1211(7A) of CTA 2009 (losses of film trade),

(ii)section 1216DA(3), 1216DB(5A) or 1216DC(7A) of that Act (losses of television programme trade),

(iii)section 1217DA(3), 1217DB(5A) or 1217DC(7A) of that Act (losses of video game trade),

(iv)section 1217MA(3) or 1217MC(9) of that Act (losses of theatrical trade),

(v)section 1217SA(3) or 1217SC(9) of that Act (losses of orchestral trade),

(vi)section 1218ZDA(3) or 1218ZDC(9) of that Act (losses of museum or gallery exhibition trade),

(vii)section 65(4B) or 67A(5A) (losses of UK or EEA furnished holiday lettings business),

(viii)section 269ZJ(1) (insurance companies: shock losses),

(ix)section 304(7) (certain losses of ring fence trades), or

(x)section 356NJ(2) (pre-1 April 2017 loss arising from oil contractor activities);

(b)in paragraph (b) the reference to a deduction under section 463H(5) does not include the deduction of a shock loss.

(3)If the amount of the claimant company's relevant profits for the claim period (calculated in accordance with section 269ZD(5)) is less than the amount of the claimant company's deductions allowance for the claim period (determined in accordance with section 269ZD(6)), subsection (1) has effect as if step 1 was modified as follows—

Step 1 Calculate the claimant company's relevant profits for the claim period in accordance with section 269ZD(5).

(4)If section 269ZD has effect in relation to the claimant company for the claim period with the modifications set out in section 269ZE(1) (special loss cap for insurance companies in certain cases), subsection (1) has effect as if steps 1 and 2 were modified as follows—

  • Step 1 Determine, in accordance with section 269ZE(5), the modified loss cap for the claimant company and the claim period.

  • Step 2 Reduce that amount by the total of any deductions made by the claimant company for the claim period which are deductions within any of paragraphs (a) to (i) and (k) of section 269ZD(3).

(5)Subsection (2) is to be ignored if subsection (4) applies.

188EEPreviously claimed group relief for carried-forward losses

(1)To determine the amount of previously claimed group relief for carried-forward losses for the overlapping period—

(a)identify any prior claims for the purposes of this section (see subsection (2)), and

(b)take the steps set out in subsection (3) in relation to each such claim.

The amount of previously claimed group relief for carried-forward losses for the overlapping period is the total of the previously claimed amounts given at step 3 in subsection (3) for all the prior claims.

(2)A claim is a prior claim for the purposes of this section if—

(a)it is a claim under section 188CB or 188CC by the claimant company for group relief for carried-forward losses which would be given by way of a deduction from the company's total profits of the claim period,

(b)it is made before the current claim, and

(c)it has not been withdrawn.

(3)These are the steps referred to in subsection (1)(b) to be taken in relation to each prior claim.

  • Step 1 Identify the overlapping period for the prior claim.

  • Step 2 Identify any period that is common to the overlapping period for the current claim and the overlapping period for the prior claim. If there is a common period, go to Step 3. If there is no common period, there is no previously claimed amount in relation to the prior claim (and ignore step 3).

  • Step 3 Determine the previously claimed amount of group relief for carried forward losses in relation to the prior claim (see subsection (4)).

(4)To determine the previously claimed amount of group relief for carried-forward losses in relation to a prior claim—

(a)take the proportion of the overlapping period for the prior claim that is included in the common period identified at step 2 in subsection (3) in relation to that claim, and

(b)apply that proportion to the amount of group relief for carried-forward losses given on the prior claim.

The previously claimed amount of group relief for carried-forward losses in relation to the prior claim is the amount given as a result of paragraph (b).

188EFThe potential Part 5 group relief amount

(1)The potential Part 5 group relief amount is determined as follows—

  • Step 1 Calculate the maximum amount of group relief that could have been given to the claimant company under Part 5 in relation to losses or other amounts within section 99(1) which the surrendering company had for the specified loss-making period. In applying this step, ignore any lack of profits of the claimant company from which deductions could have been made as mentioned in section 137(1).

  • Step 2 Deduct from the amount arrived at under step 1 the amount of any group relief actually given to the claimant company under Part 5 in relation to losses or other amounts within section 99(1) which the surrendering company had for the specified loss-making period.

  • Step 3 Multiply the amount arrived at following step 2 by the fraction in subsection (2).

  • Step 4 Deduct from the amount arrived at following step 3 any group relief for carried-forward losses previously given to the claimant company on claims under section 188CC which are related to the current claim.

(2)The fraction referred to in step 3 is—

where—

A is the sum of the losses or other amounts within section 99(1)(a), (c), (e), (f) and (g) which the surrendering company had for the specified loss-making period, and

B is the sum of the losses or other amounts within section 99(1) (a) to (g) which the surrendering company had for the specified loss-making period.

(3)References in subsection (2) to losses or other amounts are references to losses or other amounts only in so far as they were eligible for surrender under Chapter 2 of Part 5.

(4)A claim under section 188CC is related to the current claim if the surrendering company and the specified loss-making period are the same in relation to both claims.

188EGSections 188EC to 188EE: supplementary

(1)If two or more claims for group relief for carried-forward losses are made at the same time, for the purpose of section 188EC and 188EE treat the claims as made—

(a)in such order as the company making them may elect or the companies making them may jointly elect, or