Income and Corporation Taxes Act 1988

Requirements of a company’s business

8 (1) For the purposes of paragraph 1(2) above there shall be regarded as income available for distribution and not as having been applied, or as being applicable, to the current requirements of a company’s business, or to such other requirements as may be necessary or advisable for the maintenance and development of that business—

(a) any sum expended or applied, or intended to be expended or applied, out of the income of the company—

(i) in or towards payment for the business, undertaking or property which the company was formed to acquire or which was the first business, undertaking or property of a substantial character in fact acquired by the company, or

(ii) in redemption or repayment of any share or loan capital or debt (including any premium thereon) issued or incurred in or towards payment for any such business, undertaking or property, or issued or incurred for the purpose of raising money applied or to be applied in or towards payment therefor, or

(iii) in meeting any obligations of the company in respect of the acquisition of any such business, undertaking or property, or

(iv) in redemption or repayment of any share or loan capital or debt (including any premium thereon) issued or incurred otherwise than for adequate consideration; and

(b) any sum expended or applied, or intended to be expended or applied, in pursuance or in consequence of any fictitious or artificial transactions; and

(c) in the case of a company which is neither a trading company nor a member of a trading group, any sum expended or applied, or available to be expended or applied, out of the income of the company in or towards the redemption, repayment or discharge of any loan capital or debt (including any premium thereon) in respect of which any person is a loan creditor of the company; and

(d) in the case of a company which is neither a trading company nor a member of a trading group, any sum expended or applied, or available to be expended or applied, out of the income of the company in or towards the acquisition of an estate or interest in land or the construction or extension of a building, not being a construction or extension which constitutes an improvement or development of farm land or market garden land.

Sub-paragraph (d) above does not apply where the acquisition, construction or extension concerned was made in pursuance of a contract entered into before 24th March 1973.

(2) For the purposes of sub-paragraph (1)(a)(iv) above, share or loan capital or debt shall be deemed to be issued or incurred otherwise than for adequate consideration if—

(a) it is issued or incurred for consideration the value of which to the company is substantially less than the amount of the capital or debt (including any premium thereon); or

(b) it is issued or incurred in or towards, or for the purpose of raising money applied or to be applied in or towards, the redemption or repayment of any share or loan capital or debt which itself was issued or incurred for such consideration as is mentioned in paragraph (a) above or which represents, directly or indirectly, any share or loan capital or debt which itself was issued or incurred for such consideration.

(3) In relation to any loan capital or debt mentioned in sub-paragraph (1)(c) above which was issued or incurred by the company for money borrowed by it for the purpose of financing expenditure on any acquisition, construction or extension falling within sub-paragraph (1)(d) above, the expression “loan creditor” in sub-paragraph (1)(c) above shall be construed as if, in the definition of that expression in subsections (7) to (9) of section 417, subsection (9) were omitted.

(4) References in sub-paragraphs (1)(a) and (2)(b) above to the redemption or repayment of a company’s share capital shall be construed as including references to the purchase by the company of its own shares.

(5) References in sub-paragraphs (1) to (4) above to money applied or to be applied for any purpose shall be deemed to include references to money applied or to be applied in or towards the replacement of that money.

9 (1) Paragraph 1(3) above shall not apply to—

(a) the acquisition of a trade, or of an asset to be used in a trade, or of an interest in any such asset, which at the date of the acquisition or at any time within one year previously was owned by an associated company of the acquiring company; or

(b) the intended acquisition of a trade, or of such an asset or interest as is referred to in paragraph (a) above, which, at the end of the accounting period for which the acquiring company’s relevant income is to be ascertained, is owned by a company which is then an associated company of the acquiring company;

and, where the trade, asset or interest was, or is, in part owned as mentioned above, paragraph 1(3) above shall not apply with respect to that part.

(2) Paragraph 1(3) above shall not apply to—

(a) the acquisition of shares which at the date of the acquisition or at any time within one year previously were owned by an associated company of the acquiring company or by a person who then had control of the acquiring company; or

(b) the intended acquisition of shares which at the end of the accounting period for which the acquiring company’s relevant income is to be ascertained are owned by a company which is then an associated company of the acquiring company or by a person who has control of the acquiring company;

and where shares were, or are, in part owned as mentioned above, paragraph 1(3) above shall not apply with respect to that part.

(3) Paragraph 1(3) above shall not apply to—

(a) the acquisition of shares in a company which immediately before the acquisition or at any time within one year previously was an associated company of the acquiring company; or

(b) the intended acquisition of shares in a company which, at the end of the accounting period for which the acquiring company’s relevant income is to be ascertained, is an associated company of the acquiring company.

(4) Section 416(1)—

(a) shall not apply for the purposes of paragraph (a) of sub-paragraphs (1), (2) and (3) above; and

(b) shall apply for the purposes of paragraph (b) of each of those sub-paragraphs with the omission of the words “or at any time within one year previously”.

(5) For the purposes of paragraph (a) of sub-paragraphs (1), (2) and (3) above, another company is an associated company of the acquiring company if—

(a) the acquiring company controlled that other company or that other company controlled the acquiring company either at the date of the acquisition of the trade, asset or interest or at any time within one year previously; or

(b) a person who had control of the acquiring company at that date also controlled that other company either at that date or at any time within one year previously.

(6) In ascertaining for the purposes of sub-paragraphs (2) and (5) above or for the purposes of section 416(1) as it applies for the purposes of paragraph (b) of sub-paragraphs (1), (2) and (3) above, whether any person has control of a company—

(a) there shall be left out of account for the purposes of section 416(2)(c) the rights of another company as loan creditor in respect of a debt incurred or redeemable loan capital issued in connection with the acquisition from that company of any trade, any asset to be used in a trade, or any interest in any such asset;

(b) section 417(3)(a) shall have effect as if the reference to a partner of a participator were omitted;

(c) section 417(3)(a) and (b) shall have effect as if the expression “relative” did not have the meaning assigned to it by section 417(4) but meant husband or wife or, in the case of a director of the company, husband or wife or any child or remoter issue who is an infant; and

(d) section 417(3)(c) shall have effect as if the reference to any other person interested were a reference (and a reference only) to the trustees or to the personal representatives as defined in section 701.

(7) For the purposes of this paragraph the time of acquisition of a trade, asset or interest, or shares, acquired under a contract shall be—

(a) the time at which the contract is made, or

(b) if it is conditional (and in particular if it is conditional on the exercise of an option), the time at which the condition is satisfied,

and not, if different, the time at which the trade, asset, interest or shares is or are conveyed or transferred.

(8) For the purposes of paragraph 1(3) above there shall be regarded as income available for distribution and not as having been applied, or as being applicable, to such requirements of a company’s business as may be necessary or advisable for such an acquisition as is mentioned in paragraph 1(3) above any sum expended or applied, or intended to be expended or applied, as mentioned in paragraph 8(1)(a)(iv) or (b) above; and paragraph 8(2) and (5) above shall apply for the purposes of this sub-paragraph as they apply for the purposes of paragraph 8.