Finance Act 1996

The Finance Act 1993 (c. 34) U.K.

67 In section 127 of the Finance Act 1993 (accrual of amounts where debts vary), after subsection (1) there shall be inserted the following subsections—

“(1A) For the purposes of this section if, in the case of any debt—

(a) an amount in respect of any discount or premium relating to that debt is treated, on an accruals basis of accounting, as accruing at any time for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships), or

(b) any such amount would be treated as so accruing if the authorised method of accounting used for those purposes as respects the loan relationship relating to that debt were an accruals basis of accounting, instead of a mark to market basis,

then, for the purposes of this section, there shall be deemed to be such a variation at that time of the nominal amount of the debt outstanding as is specified in subsection (1B) below.

(1B) That variation is—

(a) if the amount mentioned in paragraph (a) or (b) of subsection (1A) above relates to a discount, a variation that increases the nominal amount of the debt outstanding by the amount so mentioned; and

(b) if the amount so mentioned relates to a premium, a variation that decreases the nominal amount of the debt outstanding by the amount so mentioned.”

68 (1) In subsection (2) of section 129 of that Act (non-trading exchange gains), for the words after paragraph (b) there shall be substituted—

“and the rule in section 130(1) below shall apply.”

(2) In subsection (4) of that section (non-trading exchange losses), for the words after paragraph (b) there shall be substituted—

“and the rule in section 130(2) below shall apply.”

(3) Subsections (5) and (6) of that section (computation of net exchange gains or net exchange losses) shall cease to have effect.

(4) In subsection (7)(b) of that section (no gain or loss accruing on a right by virtue of a debt to receive income), for “(whether interest, dividend or otherwise)” there shall be substituted “ that is not interest falling to be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships) as interest accruing, or (according to the authorised method of accounting used) becoming due and payable, in an accounting period ending after 31st March 1996 ”.

69 For sections 130 to 133 of that Act (charge to tax of non-trading gains and treatment of losses), there shall be substituted the following section—

“130 Non-trading gains and losses.

“130 (1) Where a company is treated by virtue of section 129 above as receiving any amount in an accounting period, that amount shall be brought into account for that accounting period as if it were a non-trading credit falling for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships) to be brought into account in respect of a loan relationship of the company.

(2) Where a company is treated by virtue of section 129 above as incurring any loss in an accounting period, the amount of the loss shall be brought into account for that accounting period as if it were a non-trading debit falling for the purposes of Chapter II of Part IV of the Finance Act 1996 to be brought into account in respect of a loan relationship of the company.”

70 (1) For subsection (4) of section 153 of that Act (qualifying assets and liabilities) there shall be substituted the following subsection—

“(4) A right to settlement under a qualifying debt is not a qualifying asset where the company having the right holds an asset representing the debt and that asset is—

(a) an asset to which section 92 of the Finance Act 1996 applies (convertible securities); or

(b) an asset representing a loan relationship to which section 93 of that Act (relationships linked to the value of chargeable assets) applies.”

(2) Subsection (6) of that section shall cease to have effect.

71 In section 154 of that Act (definitions connected with assets), after subsection (12) there shall be inserted the following subsection—

“(12A) So much of any asset as consists in a right to receive interest as respects which any sums fall to be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships) shall be taken to be an asset to which the company became entitled at the following time (instead of the time for which subsection (12) above provides), that is to say—

(a) where the sums fall to be brought into account for the purposes of that Chapter in accordance with an authorised accruals basis of accounting, the time when the interest is taken for those purposes to have accrued, and

(b) where the sums fall to be brought into account for the purposes of that Chapter in accordance with an authorised mark to market basis of accounting, the time when the interest is taken for those purposes to have become due and payable.”

72 In section 155 of that Act (definitions connected with liabilities), after subsection (11) there shall be inserted the following subsection—

“(11A) So much of any liability consisting in a liability to pay interest as respects which debits fall to be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships) shall be taken to be a liability to which the company became subject at the following time (instead of at the time for which subsection (11) above provides), that is to say—

(a) where the debits fall to be brought into account for the purposes of that Chapter in accordance with an authorised accruals basis of accounting, the time when the interest is taken for those purposes to have accrued, and

(b) where the debits fall to be brought into account for the purposes of that Chapter in accordance with an authorised mark to market basis of accounting, the time when the interest is taken for those purposes to have become due and payable.”

73 (1) For subsections (5) to (9) of section 159 of that Act (basic valuation where accrued income scheme applies) there shall be substituted the following subsection—

“(5) Where—

(a) a company becomes entitled, on any transfer by virtue of which it becomes a party to a loan relationship, to a right of settlement under a qualifying debt on a security, and

(b) that transfer is a transfer with accrued interest,

the basic valuation of that right shall be found by taking the consideration for the company’s becoming entitled to the right and then deducting the amount of the accrued interest the right to which is transferred.”

(2) This paragraph does not apply in relation to transfers before 1st April 1996.

74 In section 167 of that Act (orders and regulations relating to exchange gains and losses), after subsection (5) there shall be inserted the following subsections—

“(5A) Without prejudice to the generality of any power of the Treasury to amend regulations made under this Chapter, every such power shall include power to make such modifications of any regulations so made as the Treasury consider appropriate in consequence of the provisions of Chapter II of Part IV of the Finance Act 1996 (loan relationships).

(5B) The power to make any such modifications as are mentioned in subsection (5A) above shall be exercisable so as to apply those modifications in relation to any accounting period of a company ending on or after 1st April 1996.”