Income and Corporation Taxes Act 1988

494 Charges on income. U.K.

(1) Section 338 [F1 of this Act and Chapter II of Part IV of the Finance Act 1996 (loan relationships)] shall have effect subject to the following provisions of this section.

[F2 (2) Debits shall not be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 in respect of any loan relationship of a company in any manner that results in a reduction of what would otherwise be the company’s ring fence profits except—

(a) to the extent that the loan relationship is in respect of money borrowed by the company which has been—

(i) used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person; or

(ii) appropriated to meeting expenditure to be so incurred by the company;

(b) in the case of debits falling to be brought into account by virtue of subsection (4) of section 84 of that Act in respect of a loan relationship that has not been entered into, to the extent that the relationship would have been one entered into for the purpose of borrowing money to be used or appropriated as mentioned in paragraph (a) above;

(c) in the case of debits in respect of [F3 a relationship to which section 100 of that Act applies,] to the extent that—

[F4 (i)] the payment of interest under that relationship is expenditure incurred as mentioned in sub-paragraph (i) of paragraph (a) above;[F5 or

(ii) the exchange loss arising from that relationship is in respect of a money debt on which the interest payable (if any) is, or would be, such expenditure;

as the case may be;] and

(d) [F6 in the case of a net debit for an accounting period] in respect of a debtor relationship of the company which is a creditor relationship of a company associated with the company, to the extent that (subject always to paragraph (a) above) [F7 the net debit] does not exceed what, having regard to—

(i) all the terms on which the money was borrowed, and

(ii) the standing of the borrower,

would be [F7 the net debit] representing a reasonable commercial rate of return on the money borrowed.

• In this subsection “debtor relationship” and “creditor relationship” have the same meanings as in Chapter II of Part IV of the Finance Act 1996, and references to a loan relationship, in relation to the borrowing of money, do not include references to [F8 any relationship to which section 100 of that Act applies].]

• Section 839 shall apply for the purposes of this subsection.

• [F9 For the purposes of paragraph (d) above, the net debit for an accounting period in respect of a debtor relationship of a company is the amount if any by which—

  (i)

  the aggregate of the debits for the period in respect of the relationship, exceeds

  (ii)

  the credits in respect of exchange gains arising from the relationship for the period.]

[F10 (2ZA) Credits in respect of exchange gains from a company’s loan relationships shall not be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 in respect of any loan relationship of a company in any manner that results in an increase of what would otherwise be the company’s ring fence profits, except to the extent that, if the credit had been a debit in respect of an exchange loss from the relationship, it would have been brought into account by virtue of any of paragraphs (a) to (c) of subsection (2) above.]

[F11 (2A) Where any debit [F12 or credit]—

(a) falls to be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 in respect of any loan relationship of a company, but

(b) in accordance with subsection (2) [F13 or (2ZA)] above cannot be brought into account in a manner that results in any reduction [F14 or, as the case may be, increase] of what would otherwise be the company’s ring fence profits,

then (notwithstanding anything in section 82(2) of that Act) that debit [F15 or credit] shall be brought into account for those purposes as a non-trading debit [F16 or, as the case may be, non-trading credit].]

[F17 (2B) Where, in accordance with subsection (2) above, any proportion (including the whole) of a net debit, within the meaning of paragraph (d) of that subsection, cannot be brought into account in a manner that results in any reduction of what would otherwise be the company’s ring fence profits, subsection (2A) above shall apply—

(a) separately in relation to that proportion of each of the debits and each of the credits brought into account in determining the amount of the net debit, and

(b) on the assumption that that proportion of each of those debits and credits falls within paragraph (b) of that subsection.]

(3) Where a company pays to a company associated with it a charge on income F18 . . . , the charge shall not be allowable to any extent under section 338 against the first-mentioned company’s ring fence profits.

[F19 (4) F20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) F20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F1 Words in s. 494(1) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 32(1) (with Sch. 15)

F2 Words in s. 494(2) substituted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 32(2) (with Sch. 15)

F3 Words in s. 494(2)(c) substituted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(3)(a) (with s. 81(4)(5))

F4 Words in s. 494(2)(c) renumbered as s. 494(2)(c)(i) (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by virtue of Finance Act 2002 (c. 23), Sch. 23 para. 17(3)(b) (with s. 81(4)(5))

F5 S. 494(2)(c)(ii) and words inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(3)(c) (with s. 81(4)(5))

F6 Words in s. 494(2)(d) substituted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(4)(a) (with s. 81(4)(5))

F7 Words in s. 494(2)(d) substituted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(4)(b) (with s. 81(4)(5))

F8 Words in s. 494(2) substituted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(5) (with s. 81(4)(5))

F9 Words in s. 494(2) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(6) (with s. 81(4)(5))

F10 S. 494(2ZA) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(7) (with s. 81(4)(5))

F11 S. 494(2A) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 32(3) (with Sch. 15)

F12 Words in s. 494(2A) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(8)(a) (with s. 81(4)(5))

F13 Words in s. 494(2A)(b) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(8)(b)(i) (with s. 81(4)(5))

F14 Words in s. 494(2A)(b) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(8)(b)(ii) (with s. 81(4)(5))

F15 Words in s. 494(2A) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(8)(c)(i) (with s. 81(4)(5))

F16 Words in s. 494(2A) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(8)(c)(ii) (with s. 81(4)(5))

F17 S. 494(2B) inserted (with effect in accordance with s. 79(3), Sch. 23 para. 25 of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 17(9) (with s. 81(4)(5))

F18 Words in s. 494(3) repealed (with effect in accordance with s. 105(1) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. 5(3), Note (with Sch. 15)

F19 S. 494(4)(5) substituted for s. 494(4) (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch 14 para. 32(4) (with Sch. 15)

F20 S. 494(4)(5) repealed (with effect in accordance with s. 38(2)(3) of the repealing Act) by Finance Act 1998 (c. 36), Sch. 27 Pt. 3(4), Note