Search Legislation

Finance Act 2004

What Version

 Help about what version

Advanced Features

 Help about advanced features

Changes to legislation:

There are outstanding changes not yet made by the legislation.gov.uk editorial team to Finance Act 2004. 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.

Changes and effects yet to be applied to the whole Act associated Parts and Chapters:

 Help about changes and effects
Close

Changes and effects

This section lists the changes and effects yet to be applied to the whole Act, associated Parts and Chapters where applicable. This includes any insertions of whole new Parts, Chapters or provisions yet to be inserted into this Act. These effects are included in this view as they may be (but won’t necessarily be) relevant to the specific provision that you are viewing.

Whole provisions yet to be inserted into this Act (including any effects on those provisions):

Commencement Orders yet to be applied to the Finance Act 2004

 Help about changes and effects
Close

Commencement Orders

This section lists the commencement orders yet to be applied to the whole Act. These effects are included in this view as they may be (but won’t necessarily be) relevant to the specific provision that you are viewing. Where applicable the commencement orders are listed under two headings, firstly those that bring some part of the Act you are viewing into force and secondly, those that bring into force legislation that affects some part of the legislation you are viewing. If you are viewing a prospective version or there is a prospective version available there may be commencement orders listed here that are relevant to the provision you are viewing.

Commencement Orders bringing legislation that affects this Act into force:

SCHEDULES

Section 4

SCHEDULE 1E+W+S+N.I.New Schedule 2A to the Alcoholic Liquor Duties Act 1979

The Schedule inserted before Schedule 3 to the Alcoholic Liquor Duties Act 1979 (c. 4) is as follows—

Section 64A

SCHEDULE 2AE+W+S+N.I.Duty stamps

Retail containers to be stampedE+W+S+N.I.

1(1)Retail containers of alcoholic liquors to which this Schedule applies shall be stamped—

(a)in such cases and circumstances, and with a duty stamp of such a type, as may be prescribed; but

(b)subject to such exceptions as may be prescribed.

(2)In this Schedule “retail container”, in relation to an alcoholic liquor, means a container—

(a)of a capacity of 35 centilitres or more, and

(b)in which, or from which, the liquor is intended to be sold by retail.

(3)This Schedule applies to the following alcoholic liquors—

(a)spirits;

(b)wine or made-wine of a strength exceeding 22 per cent.

(4)For the purposes of this Schedule a retail container is “stamped” if—

(a)it carries a duty stamp of a type mentioned in sub-paragraph (5)(a) below which has been affixed to the container in a way that complies with the requirements of regulations under this Schedule, or

(b)it carries a label which has been so affixed to the container and the label incorporates a duty stamp of a type mentioned in sub-paragraph (5)(b) below.

(5)In this Schedule “duty stamp” means any of the following—

(a)a document (a “type A stamp”) issued by or on behalf of the Commissioners which—

(i)is designed to be affixed to a retail container of alcoholic liquor, and

(ii)indicates that the appropriate duty, or an amount representing some or all of the appropriate duty, has been (or is to be) paid;

(b)a part of a label for a retail container of alcoholic liquor (a “type B stamp”) which—

(i)is incorporated in the label under the authority of the Commissioners, and

(ii)indicates that the appropriate duty, or an amount representing some or all of the appropriate duty, has been (or is to be) paid.

(6)In sub-paragraph (5) above “the appropriate duty” means the duty chargeable on the quantity and description of alcoholic liquor contained, or to be contained, in the retail container to which the stamp, or the label incorporating the stamp, is, or is to be, affixed.

Power to alter liquors, and capacity of container, to which this Schedule appliesE+W+S+N.I.

2(1)The Treasury may by order made by statutory instrument amend paragraph (a) of paragraph 1(2) above for the purpose of varying the capacity from time to time specified in that paragraph.

(2)The Treasury may by order made by statutory instrument amend paragraph 1(3) above for the purpose of causing this Schedule—

(a)to apply to any description of alcoholic liquor to which it does not apply, or

(b)to cease to apply to any description of alcoholic liquor to which it does apply.

(3)A statutory instrument containing an order under this paragraph shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

Acquisition of and payment for duty stampsE+W+S+N.I.

3(1)The Commissioners may by regulations make provision as to the terms and conditions on which a person may obtain—

(a)a type A stamp,

(b)authority to incorporate in a label a type B stamp,

(c)authority to obtain a label incorporating a type B stamp,

(d)authority to affix such a label to a retail container of alcoholic liquor.

(2)Regulations under sub-paragraph (1) above may in particular make provision for or in connection with—

(a)requiring a person in prescribed cases or circumstances to pay, or agree to pay, the prescribed amount to the Commissioners or to a person authorised by the Commissioners for this purpose;

(b)requiring a person in prescribed cases or circumstances to provide to the Commissioners such security as they may require in respect of payment of the appropriate duty.

(3)An amount prescribed for the purposes of sub-paragraph (2)(a) above must not exceed the aggregate of—

(a)an amount representing the appropriate duty, and

(b)in the case of a type A stamp, the cost of issuing the stamp.

(4)Regulations under sub-paragraph (1) above may also in particular make provision for or in connection with requiring or enabling the Commissioners to bear, in prescribed circumstances, in the case of a type B stamp, all or part of so much of the cost of producing the label as is attributable to the incorporation in it of the stamp.

(5)The whole of an amount payable for a duty stamp shall be treated for the purposes of the Customs and Excise Acts 1979 as an amount due by way of excise duty.

(6)In this paragraph “the appropriate duty” means the duty chargeable on the quantity and description of alcoholic liquor contained, or to be contained, in the retail container to which the stamp, or the label incorporating the stamp, is to be affixed.

RegulationsE+W+S+N.I.

4(1)The Commissioners may by regulations make provision as to such matters relating to duty stamps as appear to them to be necessary or expedient.

(2)Regulations under this Schedule may in particular make provision about—

(a)the times at which a retail container must bear a duty stamp;

(b)the type of duty stamp (see paragraph 1(5)) with which a retail container is to be stamped in any particular case or circumstances;

(c)the design and appearance of a duty stamp (including the production of a label incorporating a type B stamp);

(d)the information that is to appear on a duty stamp;

(e)the cost of issuing a type A stamp for the purposes of paragraph 3(3)(b) above;

(f)the procedure for obtaining—

(i)a type A stamp,

(ii)authority to incorporate in a label a type B stamp,

(iii)authority to obtain a label incorporating a type B stamp,

(iv)authority to affix such a label to a retail container of alcoholic liquor,

(including provision setting periods of notice);

(g)where on the container a type A stamp, or a label incorporating a type B stamp, is to be affixed;

(h)repayment of, or credit for, in prescribed circumstances and subject to such conditions as may be prescribed, all or part of a payment made under or by virtue of this Schedule to the Commissioners or to a person authorised by the Commissioners;

(i)liability to forfeiture in prescribed circumstances of some or all of a payment made, or security provided, under or by virtue of this Schedule to the Commissioners or to a person authorised by the Commissioners.

(3)Regulations under this Schedule may also, in particular, make provision for or in connection with preventing a type A stamp, or a label incorporating a type B stamp, from being used by a person other than—

(a)in the case of a type A stamp, the person to or for whom the stamp was issued or a person authorised by that person to affix the stamp to a retail container of alcoholic liquor,

(b)in the case of a type B stamp, the person to or for whom authority to obtain the label incorporating the stamp, or to affix that label to a retail container of alcoholic liquor, was given by the Commissioners.

(4)Regulations under this Schedule may also, in particular, make provision—

(a)for or in connection with requiring a person who is not established, and does not have any fixed establishment, in the United Kingdom, in prescribed circumstances, to appoint another person (a “duty stamps representative”) to act on his behalf in relation to duty stamps, and

(b)as to the rights, obligations or liabilities of duty stamps representatives.

(5)The Commissioners may, with a view to the protection of the revenue, make regulations for securing and collecting duty payable in accordance with this Schedule.

(6)Regulations under this Schedule may make different provision for different cases.

Offences of possession, sale etc of unstamped containersE+W+S+N.I.

5(1)Except in such cases as may be prescribed, a person commits an offence if he—

(a)is in possession of, transports or displays, or

(b)sells, offers for sale or otherwise deals in,

unstamped retail containers containing alcoholic liquor to which this Schedule applies.

(2)It is a defence for a person charged with an offence under this paragraph to prove that the retail containers in question were not required to be stamped.

(3)A person who commits an offence under this paragraph is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

(4)A retail container in relation to which an offence under this paragraph is committed is liable to forfeiture (together with its contents).

Offence of using premises for sale of liquor in or from unstamped containersE+W+S+N.I.

6(1)A manager of premises commits an offence if—

(a)he suffers the premises to be used for the sale of liquor in an unstamped retail container, or for the sale of liquor that is from an unstamped retail container; and

(b)the liquor is alcoholic liquor to which this Schedule applies.

(2)It is a defence for a person charged with an offence under this paragraph to prove that the retail container in question was not required to be stamped.

(3)A person who commits an offence under this paragraph is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

(4)Where an offence is committed under this paragraph, all unstamped retail containers of alcoholic liquor to which this Schedule applies that are on the premises at the time of the offence are liable to forfeiture (together with their contents).

(5)For the purposes of this Schedule a person is a “manager” of premises if he—

(a)is entitled to control their use,

(b)is entrusted with their management, or

(c)is in charge of them.

Alcohol sales ban following conviction for offence under paragraph 6E+W+S+N.I.

7(1)A court by or before which a person is convicted of an offence under paragraph 6 above may make an order prohibiting the use of the premises in question for the sale of alcoholic liquors during a period specified in the order.

(2)The period specified in an order under this paragraph shall not exceed six months; and the first day of the period shall be the day specified as such in the order.

(3)If a manager of premises suffers the premises to be used in breach of an order under this paragraph, he commits an offence and is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

Penalty for altering duty stampsE+W+S+N.I.

8(1)This paragraph applies where a person—

(a)alters a type A stamp, otherwise than in accordance with regulations under this Schedule, after it has been issued, or

(b)so alters a type B stamp after the label in which it is incorporated has been produced.

(2)His conduct attracts a penalty under section 9 of the Finance Act 1994 (civil penalties).

(3)The stamp, or the label in which it is incorporated, is liable to forfeiture.

Penalty for affixing wrong, altered or forged stamps, or over-labellingE+W+S+N.I.

9(1)This paragraph applies where a person affixes to a retail container that is required to be stamped any of the items mentioned in sub-paragraphs (2) to (5) below.

(2)The first is—

(a)a type A stamp, or

(b)a label incorporating a type B stamp,

if the stamp is not a correct stamp for that container in accordance with regulations under this Schedule.

(3)The second is—

(a)a type A stamp that has been altered, otherwise than in accordance with regulations under this Schedule, after it has been issued, or

(b)a label incorporating a type B stamp if the stamp has been so altered after the label has been produced.

(4)The third is an item that purports to be, but is not,—

(a)a type A stamp, or

(b)a label incorporating a type B stamp.

(5)The fourth is any label or other item affixed in such a way as to cover up all or part of—

(a)a type A stamp affixed to the container, or

(b)a type B stamp incorporated in a label affixed to the container,

except where the label or other item is so affixed in accordance with regulations under this Schedule.

(6)The person’s conduct attracts a penalty under section 9 of the Finance Act 1994 (civil penalties).

(7)The container is liable to forfeiture (together with its contents).

Penalty for failing to comply with regulationsE+W+S+N.I.

10(1)If a person fails to comply with a requirement imposed by or under regulations under this Schedule—

(a)his conduct attracts a penalty under section 9 of the Finance Act 1994 (civil penalties);

(b)any article in respect of which he fails to comply with the requirement is liable to forfeiture (including, in the case of a container, its contents).

(2)Regulations under this Schedule may make provision as to the amount by reference to which the penalty under sub-paragraph (1)(a) above is to be calculated.

Forfeiture of forged, altered or stolen duty stampsE+W+S+N.I.

11(1)The following items are liable to forfeiture.

(2)The first is an item that purports to be, but is not,—

(a)a type A stamp, or

(b)a label incorporating a type B stamp.

(3)The second is—

(a)a type A stamp that has been altered, otherwise than in accordance with regulations under this Schedule, after it has been issued, or

(b)a label incorporating a type B stamp if the stamp has been so altered after the label has been produced.

(4)The third is—

(a)a type A stamp, or

(b)a label incorporating a type B stamp,

that is in a person’s possession unlawfully.

InterpretationE+W+S+N.I.

12In this Schedule—

  • duty stamp” has the meaning given by paragraph 1(5) above;

  • prescribed” means prescribed in regulations made by the Commissioners;

  • retail container” has the meaning given by paragraph 1(2) above;

  • “stamped” and “unstamped” are to be read in accordance with paragraph 1(4) above;

  • type A stamp” has the meaning given by paragraph 1(5)(a) above;

  • type B stamp” has the meaning given by paragraph 1(5)(b) above..

Section 19

SCHEDULE 2E+W+S+N.I.Disclosure of value added tax avoidance schemes

Part 1 E+W+S+N.I.Principal amendments of Value Added Tax Act 1994

1After section 58 of the Value Added Tax Act 1994 (c. 23) insert—E+W+S+N.I.

Disclosure of avoidance schemesE+W+S+N.I.

58ADisclosure of avoidance schemes

Schedule 11A (which imposes disclosure requirements relating to the use of schemes for avoiding VAT) shall have effect..

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I1Sch. 2 para. 1 wholly in force at 1.8.2004; Sch. 2 para. 1 in force for specified purposes at Royal Assent, see s. 19(2); Sch. 2 para. 1 in force otherwise at 1.8.2004 by S.I. 2004/1934, art. 2

2After Schedule 11 to that Act insert—E+W+S+N.I.

Section 58A

SCHEDULE 11AE+W+S+N.I.Disclosure of avoidance Schemes

InterpretationE+W+S+N.I.

1In this Schedule—

  • designated scheme” has the meaning given by paragraph 3(4);

  • notifiable scheme” has the meaning given by paragraph 5(1);

  • scheme” includes any arrangements, transaction or series of transactions;

  • tax advantage” is to be read in accordance with paragraph 2.

Obtaining a tax advantageE+W+S+N.I.

2(1)For the purposes of this Schedule, a person obtains a tax advantage if—

(a)in any prescribed accounting period, the amount by which the output tax accounted for by him exceeds the input tax deducted by him is less than it otherwise would be, or

(b)he obtains a VAT credit when he would not otherwise do so, or obtains a larger VAT credit or obtains a VAT credit earlier than would otherwise be the case.

(2)A person also obtains a tax advantage for the purposes of this Schedule if, in a case where he recovers input tax as a recipient of a supply before the supplier accounts for the output tax, the period between the time when the input tax is recovered and the time when the output tax is accounted for is greater than would otherwise be the case.

Designation by order of avoidance schemesE+W+S+N.I.

3(1)If it appears to the Treasury—

(a)that a scheme of a particular description has been, or might be, entered into for the purpose of enabling any person to obtain a tax advantage, and

(b)that it is unlikely that persons would enter into a scheme of that description unless the main purpose, or one of the main purposes, of doing so was the obtaining by any person of a tax advantage,

the Treasury may by order designate that scheme for the purposes of this paragraph.

(2)A scheme may be designated for the purposes of this paragraph even though the Treasury are of the opinion that no scheme of that description could as a matter of law result in the obtaining by any person of a tax advantage.

(3)The order must allocate a reference number to each scheme.

(4)In this Schedule “designated scheme” means a scheme of a description designated for the purposes of this paragraph.

Designation by order of provisions included in or associated with avoidance schemesE+W+S+N.I.

4(1)If it appears to the Treasury that a provision of a particular description is, or is likely to be, included in or associated with schemes that are entered into for the purpose of enabling any person to obtain a tax advantage, the Treasury may by order designate that provision for the purposes of this paragraph.

(2)A provision may be designated under this paragraph even though it also appears to the Treasury that the provision is, or is likely to be, included in or associated with schemes that are not entered into for the purpose of obtaining a tax advantage.

(3)In this paragraph “provision” includes any agreement, transaction, act or course of conduct.

Meaning of “notifiable scheme”E+W+S+N.I.

5(1)For the purposes of this Schedule, a scheme is a “notifiable scheme”if—

(a)it is a designated scheme, or

(b)although it is not a designated scheme, conditions A and B below are met in relation to it.

(2)Condition A is that the scheme includes, or is associated with, a provision of a description designated under paragraph 4.

(3)Condition B is that the scheme has as its main purpose, or one of its main purposes, the obtaining of a tax advantage by any person.

Duty to notify CommissionersE+W+S+N.I.

6(1)This paragraph applies in relation to a taxable person where—

(a)the amount of VAT shown in a return in respect of a prescribed accounting period as payable by or to him is less than or greater than it would be but for any notifiable scheme to which he is party, or

(b)he makes a claim for the repayment of output tax or an increase in credit for input tax in respect of any prescribed accounting period in respect of which he has previously delivered a return and the amount claimed is greater than it would be but for such a scheme.

(2)Where the scheme is a designated scheme, the taxable person must notify the Commissioners within the prescribed time, and in such form and manner as may be required by or under regulations, of the reference number allocated to the scheme under paragraph 3(3).

(3)Where the scheme is not a designated scheme, the taxable person must, subject to sub-paragraph (4), provide the Commissioners within the prescribed time, and in such form and manner as may be required by or under regulations, with prescribed information relating to the scheme.

(4)Sub-paragraph (3) does not apply where the scheme is one in respect of which any person has previously—

(a)provided the Commissioners with prescribed information under paragraph 9, and

(b)provided the taxable person with a reference number notified to him by the Commissioners under paragraph 9(2)(b).

(5)The taxable person is not obliged to comply with sub-paragraph (2) or (3) in relation to any scheme if he has on a previous occasion complied with that sub-paragraph in relation to that scheme.

(6)This paragraph has effect subject to paragraph 7.

Exemptions from duty to notify under paragraph 6E+W+S+N.I.

7(1)Paragraph 6 does not apply to a taxable person in relation to a scheme—

(a)where the taxable person is not a group undertaking in relation to any other undertaking and conditions A and B below, as they have effect in relation to the scheme, are met in relation to the taxable person, or

(b)where the taxable person is a group undertaking in relation to any other undertaking and conditions A and B below, as they have effect in relation to the scheme, are met in relation to the taxable person and every other group undertaking.

(2)Condition A is that the total value of the person’s taxable supplies and exempt supplies in the period of twelve months ending immediately before the beginning of the relevant period is less than the minimum turnover.

(3)Condition B is that the total value of the person’s taxable supplies and exempt supplies in the prescribed accounting period immediately preceding the relevant period is less than the appropriate proportion of the minimum turnover.

(4)In sub-paragraphs (2) and (3) “the minimum turnover” means—

(a)in relation to a designated scheme, £600,000, and

(b)in relation to any other notifiable scheme, £10,000,000.

(5)In sub-paragraph (3) “the appropriate proportion” means the proportion which the length of the prescribed accounting period bears to twelve months.

(6)The value of a supply of goods or services shall be determined for the purposes of this paragraph on the basis that no VAT is chargeable on the supply.

(7)The Treasury may by order substitute for the sum for the time being specified in sub-paragraph (4)(a) or (b) such other sum as they think fit.

(8)This paragraph has effect subject to paragraph 8.

(9)In this paragraph—

  • relevant period” means the prescribed accounting period referred to in paragraph 6(1)(a) or (b);

  • undertaking” and “group undertaking” have the same meanings as in Part 7 of the Companies Act 1985.

Power to exclude exemptionE+W+S+N.I.

8(1)The purpose of this paragraph is to prevent the maintenance or creation of any artificial separation of business activities carried on by two or more persons from resulting in an avoidance of the obligations imposed by paragraph 6.

(2)In determining for the purposes of sub-paragraph (1) whether any separation of business activities is artificial, regard shall be had to the extent to which the different persons carrying on those activities are closely bound to one another by financial, economic and organisational links.

(3)If the Commissioners make a direction under this section—

(a)the persons named in the direction shall be treated for the purposes of paragraph 7 as a single taxable person carrying on the activities of a business described in the direction with effect from the date of the direction or, if the direction so provides, from such later date as may be specified in the direction, and

(b)if paragraph 7 would not exclude the application of paragraph 6, in respect of any notifiable scheme, to that single taxable person, it shall not exclude the application of paragraph 6, in respect of that scheme, to the persons named in the direction.

(4)The Commissioners shall not make a direction under this section naming any person unless they are satisfied—

(a)that he is making or has made taxable or exempt supplies,

(b)that the activities in the course of which he makes those supplies form only part of certain activities, the other activities being carried on concurrently or previously (or both) by one or more other persons, and

(c)that, if all the taxable and exempt supplies of the business described in the direction were taken into account, conditions A and B in paragraph 7(2) and (3), as those conditions have effect in relation to designated schemes, would not be met in relation to that business.

(5)A direction under this paragraph shall be served on each of the persons named in it.

(6)A direction under this paragraph remains in force until it is revoked or replaced by a further direction.

Voluntary notification of avoidance scheme that is not designated schemeE+W+S+N.I.

9(1)Any person may, at any time, provide the Commissioners with prescribed information relating to a scheme or proposed scheme of a particular description which is (or, if implemented, would be) a notifiable scheme by virtue of paragraph 5(1)(b).

(2)On receiving the prescribed information, the Commissioners may—

(a)allocate a reference number to the scheme (if they have not previously done so under this paragraph), and

(b)notify the person who provided the information of the number allocated.

Penalty for failure to notify use of notifiable schemeE+W+S+N.I.

10(1)A person who fails to comply with paragraph 6 shall be liable, subject to sub-paragraphs (2) and (3), to a penalty of an amount determined under paragraph 11.

(2)Conduct falling within sub-paragraph (1) shall not give rise to liability to a penalty under this paragraph if the person concerned satisfies the Commissioners or, on appeal, a tribunal that there is a reasonable excuse for the failure.

(3)Where, by reason of conduct falling within sub-paragraph (1)—

(a)a person is convicted of an offence (whether under this Act or otherwise), or

(b)a person is assessed to a penalty under section 60,

that conduct shall not give rise to a penalty under this paragraph.

Amount of penaltyE+W+S+N.I.

11(1)Where the failure mentioned in paragraph 10(1) relates to a notifiable scheme that is not a designated scheme, the amount of the penalty is £5,000.

(2)Where the failure mentioned in paragraph 10(1) relates to a designated scheme, the amount of the penalty is 15 per cent. of the VAT saving (as determined under sub-paragraph (3)).

(3)For this purpose the VAT saving is—

(a)to the extent that the case falls within paragraph 6(1)(a), the aggregate of—

(i)the amount by which the amount of VAT that would, but for the scheme, have been shown in returns in respect of the relevant periods as payable by the taxable person exceeds the amount of VAT that was shown in those returns as payable by him, and

(ii)the amount by which the amount of VAT that was shown in such returns as payable to the taxable person exceeds the amount of VAT that would, but for the scheme, have been shown in those returns as payable to him, and

(b)to the extent that the case falls within paragraph 6(1)(b), the amount by which the amount claimed exceeds the amount which the taxable person would, but for the scheme, have claimed.

(4)In sub-paragraph (3)(a) “the relevant periods” means the prescribed accounting periods beginning with that in respect of which the duty to comply with paragraph 6 first arose and ending with the earlier of the following—

(a)the prescribed accounting period in which the taxable person complied with that paragraph, and

(b)the prescribed accounting period immediately preceding the notification by the Commissioners of the penalty assessment.

Penalty assessmentsE+W+S+N.I.

12(1)Where any person is liable under paragraph 10 to a penalty of an amount determined under paragraph 11, the Commissioners may, subject to sub-paragraph (3), assess the amount due by way of penalty and notify it to him accordingly.

(2)The fact that any conduct giving rise to a penalty under paragraph 10 may have ceased before an assessment is made under this paragraph shall not affect the power of the Commissioners to make such an assessment.

(3)In a case where the penalty falls to be calculated by reference to the VAT saving as determined under paragraph 11(3) and the VAT that would, but for the scheme, have been shown in returns as payable by or to the taxable person cannot be readily attributed to any one or more prescribed accounting periods, it shall be treated for the purposes of this Schedule as VAT that would, but for the scheme, have been shown as payable by or to the taxable person in returns for such period or periods as the Commissioners may determine to the best of their judgment and notify to the person liable for the penalty.

(4)No assessment to a penalty under this paragraph shall be made more than two years from the time when facts sufficient, in the opinion of the Commissioners, to indicate that there has been a failure to comply with paragraph 6 in relation to a notifiable scheme came to the Commissioners' knowledge.

(5)Where the Commissioners notify a person of a penalty in accordance with sub-paragraph (1), the notice of assessment shall specify—

(a)the amount of the penalty,

(b)the reasons for the imposition of the penalty,

(c)how the penalty has been calculated, and

(d)any reduction of the penalty in accordance with section 70.

(6)Where a person is assessed under this paragraph to an amount due by way of penalty and is also assessed under section 73(1), (2), (7), (7A) or (7B) for any of the prescribed accounting periods to which the assessment under this paragraph relates, the assessments may be combined and notified to him as one assessment, but the amount of the penalty shall be separately identified in the notice.

(7)If an amount is assessed and notified to any person under this paragraph, then unless, or except to the extent that, the assessment is withdrawn or reduced, that amount shall be recoverable as if it were VAT due from him.

(8)Subsection (10) of section 76 (notification to certain persons acting for others) applies for the purposes of this paragraph as it applies for the purposes of that section.

Penalty assessmentsE+W+S+N.I.

13Regulations under this Schedule—

(a)may make different provision for different circumstances, and

(b)may include transitional provisions or savings..

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I2Sch. 2 para. 2 wholly in force at 1.8.2004; Sch. 2 para. 2 in force for specified purposes at Royal Assent, see s. 19(2); Sch. 2 para. 2 in force otherwise at 1.8.2004 by S.I. 2004/1934, art. 2

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

3In section 70 of the Value Added Tax Act 1994 (c. 23) (mitigation of penalties), in subsection (1) after “69A” insert “ or under paragraph 10 of Schedule 11A ”.E+W+S+N.I.

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I3Sch. 2 para. 3 wholly in force at 1.8.2004; Sch. 2 para. 3 in force for specified purposes at Royal Assent, see s. 19(2); Sch. 2 para. 3 in force otherwise at 1.8.2004 by S.I. 2004/1934, art. 2

4In section 83 of that Act (appeals) after paragraph (z) insert—E+W+S+N.I.

(za)a direction under paragraph 8 of Schedule 11A,

(zb)any liability to a penalty under paragraph 10(1) of Schedule 11A, any assessment under paragraph 12(1) of that Schedule or the amount of such an assessment;.

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I4Sch. 2 para. 4 wholly in force at 1.8.2004; Sch. 2 para. 4 in force for specified purposes at Royal Assent, see s. 19(2); Sch. 2 para. 4 in force otherwise at 1.8.2004 by S.I. 2004/1934, art. 2

5(1)Section 84 of that Act (further provisions relating to appeals) is amended as follows.E+W+S+N.I.

(2)In subsection (3), for “or (ra)” substitute “ , (ra) or (zb) ”.

(3)After subsection (6) insert—

(6A)Without prejudice to section 70, nothing in section 83(zb) shall be taken to confer on a tribunal any power to vary an amount assessed by way of penalty except in so far as it is necessary to reduce it to the amount which is appropriate under paragraph 11 of Schedule 11A..

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I5Sch. 2 para. 5 wholly in force at 1.8.2004; Sch. 2 para. 5 in force for specified purposes at Royal Assent, see s. 19(2); Sch. 2 para. 5 in force otherwise at 1.8.2004 by S.I. 2004/1934, art. 2

6In section 97 of that Act (orders, rules and regulations) in subsection (4) (which lists powers exercisable subject to affirmative procedure in the House of Commons) after paragraph (f) insert—E+W+S+N.I.

(g)an order under paragraph 3 or 4 of Schedule 11A..

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I6Sch. 2 para. 6 wholly in force at 1.8.2004; Sch. 2 para. 6 in force for specified purposes at Royal Assent, see s. 19(2); Sch. 2 para. 6 in force otherwise at 1.8.2004 by S.I. 2004/1934, art. 2

Section 28

SCHEDULE 3E+W+S+N.I.Corporation tax: the non-corporate distribution rate: supplementary provisions

Part 1 E+W+S+N.I.General provisions

IntroductionE+W+S+N.I.

1The provisions of this Schedule supplement section 13AB (corporation tax: the non-corporate distribution rate).E+W+S+N.I.

Meaning of “non-corporate distribution”E+W+S+N.I.

2(1)A “non-corporate distribution” means a distribution made by a company to a recipient who is not a company.E+W+S+N.I.

  • Recipient” here means the person beneficially entitled to the distribution.

(2)A distribution made to a partnership is treated as made to the partners notwithstanding that the partnership is regarded as a legal person, or as a body corporate, under the law of the country or territory under which it is formed.

Calculation of company’s “underlying rate of corporation tax”E+W+S+N.I.

3(1)A company’s underlying rate of corporation tax for an accounting period is determined as follows:E+W+S+N.I.

Step One

Take the company’s basic profits for the accounting period (“BP”).

Step Two

Find the amount of corporation tax chargeable on those profits apart from section 13AB (“CT”).

Step Three

The company’s underlying rate of corporation tax is the percentage determined as follows—

(2)In determining CT—

(a)apply the rate of corporation tax fixed for companies generally, and

(b)if the company is entitled to and claims relief under section 13 (small companies' relief) or section 13AA (corporation tax starting rate), apply the provisions of those sections.

But take no account of any other relief that is given by reducing the amount or rate of tax payable (as opposed to the amount of the profits chargeable to tax).

Matching: distributions not exceeding basic profitsE+W+S+N.I.

4Where in an accounting period the total amount of the distributions made (or treated as made) by a company does not exceed the amount of its basic profits, the amount of the company’s basic profits matched with non-corporate distributions is equal to the total amount of the non-corporate distributions made (or treated as made) by the company in that period.E+W+S+N.I.

Matching: distributions exceeding basic profitsE+W+S+N.I.

5Where in an accounting period the total amount of the distributions made (or treated as made) by a company exceeds its basic profits, the amount of the company’s basic profits for that period matched with non-corporate distributions is—E+W+S+N.I.

where—

NCD is the total amount of the non-corporate distributions made (or treated as made) by the company in that period;

D is the total amount of all the distributions made (or treated as made) by the company in that period; and

BP is the amount of the company’s basic profits for that period.

Part 2 E+W+S+N.I.Allocation of excess NCDs to other companies

Allocation of excess NCDs to other companiesE+W+S+N.I.

6(1)This Part of this Schedule provides for the allocation to other companies of any amount by which the total amount of the non-corporate distributions made (or treated as made) by a company (the “distributing company”) in an accounting period (the “distribution period”) exceeds the amount of the company’s basic profits for that period that are matched under paragraph 5.E+W+S+N.I.

(2)That amount is referred to in this Schedule as “excess NCDs”.

(3)A company to which an amount of excess NCDs is allocated (a “recipient company”) is treated as if it had made a non-corporate distribution of that amount in the period to which it is allocated.

Allocation of excess NCDs to other group companiesE+W+S+N.I.

7(1)If at the end of the distribution period the distributing company is a member of a group, excess NCDs must be allocated, so far as possible, to the other group companies.E+W+S+N.I.

The allocation must be made in accordance with the following rules.

(2)Excess NCDs may not be allocated to a recipient company unless it has available profits for the accounting period to which they are to be allocated.

(3)The amount of a recipient company’s available profits for an accounting period is given by:

where—

BP is the amount of that company’s basic profits for that accounting period, and

NCD is the total amount of non-corporate distributions made (or treated as made) by that company in that period.

(4)The maximum amount of excess NCDs that may be allocated to an accounting period of a recipient company is:

where—

NCD is the total amount of the non-corporate distributions made (or treated as made) by the distributing company in the distribution period;

D is the total amount of all the distributions made (or treated as made) by that company in that period; and

AP is the amount of the recipient company’s available profits for that period.

(5)In determining the amount of a company’s available profits at any time account shall only be taken of excess NCDs allocated to it by virtue of an allocation made before that time that remains (or so far as it remains) effective.

Allocation of excess NCDs: period or periods to which amount to be allocatedE+W+S+N.I.

8(1)Excess NCDs falling to be allocated to another company under paragraph 7 (allocation to other group companies) may be allocated to any accounting period identified by this paragraph as a corresponding accounting period.E+W+S+N.I.

If there is more than one such period, excess NCDs must be allocated to the first to the full extent possible before any allocation is made to the second, and so on.

(2)The accounting period of a recipient company that includes the last day of the distribution period is its first corresponding accounting period.

Unless that accounting period is shorter than the distribution period, it is the recipient company’s only corresponding accounting period.

(3)If the first corresponding accounting period is shorter than the distribution period, any subsequent accounting period of the recipient company beginning before the end of the period specified in sub-paragraph (4) is a corresponding accounting period.

(4)The period referred to in sub-paragraph (3) is a period—

(a)of the same length as the distribution period, and

(b)beginning on the same day as the recipient company’s first corresponding accounting period.

Allocation of excess NCDs: degroupingE+W+S+N.I.

9(1)This paragraph applies where a company (“company A”) ceases to be a member of the same group as another company (“company B”) but the companies remain under the control of the same person or persons.E+W+S+N.I.

This is referred to below as “degrouping”.

(2)If at the end of any accounting period of company A ending on or after the degrouping but no more than two years after the degrouping—

(a)company A has excess NCDs that (apart from this paragraph) cannot be allocated to other companies,

(b)the business activities of company A and any other companies in the same group as that company are negligible, and

(c)the business activities of company B and any other companies in the same group as that company are not negligible,

the provisions of sub-paragraphs (3) to (5) below apply.

The end of the accounting period when the above conditions are met is referred to in those provisions as “the relevant time”.

(3)Company B and any other companies in the same group as that company at the relevant time (the “B group”) shall be treated for the purposes of allocating the excess NCDs as if they were members of the same group as company A.

(4)Any excess NCDs remaining after any allocation made by virtue of sub-paragraph (3) must be allocated—

(a)to company B or, if different, the company in the B group that at the relevant time has the greatest number of members who are not companies, and

(b)to the accounting period of that company that includes the relevant time.

This allocation is not subject to the restrictions in paragraph 7 on the amount that may be allocated to another company.

(5)If there is more than one company answering the description in sub-paragraph (4)(a), the excess NCDs shall be apportioned between them according to the amount of their basic profits for the accounting period to which the amount falls to be allocated.

(6)In this paragraph “control” shall be construed in accordance with section 416(2) to (6).

Allocation of excess NCDs: procedureE+W+S+N.I.

10(1)The basic rule is that the allocation of excess NCDs to another company must be made by the distributing company with the agreement of the recipient company.E+W+S+N.I.

(2)If excess NCDs are not so allocated within nine months after—

(a)in a case within paragraph 7, the end of the distribution period, or

(b)in a case within paragraph 9, the relevant time within the meaning of that paragraph,

they may be allocated at any time thereafter by an officer of the Board.

(3)An allocation under sub-paragraph (1) or (2) may be varied—

(a)by agreement between the relevant companies, or

(b)if further excess NCDs are required to be allocated and no variation is agreed within one year after its becoming apparent that a variation is required, by an officer of the Board.

Any such variation may in turn be varied as mentioned in paragraph (a) or (b).

(4)No allocation or variation of an allocation of excess NCDs may be made after the end of the period of one year after whichever of the following last occurs—

(a)the final determination of the tax affairs of the distributing company in relation to the distribution period,

(b)in a case within paragraph 7, the final determination of the tax affairs of all recipient or potential recipient companies in relation to accounting periods that are or could be corresponding accounting periods, or

(c)in a case within paragraph 9, the final determination of the tax affairs of all recipient or potential recipient companies in relation to accounting periods to which an allocation may be made under that paragraph.

(5)If circumstances arise as a result of which the tax affairs of any such company for any such period are reopened, an allocation or variation of an allocation may (and shall if necessary) be made at any time before the end of the period of one year after the tax affairs of the company are again finally determined.

(6)For the purposes of sub-paragraphs (4) and (5) the tax affairs of a company for a period are finally determined when the amounts are conclusively determined within the meaning of paragraph 88 of Schedule 18 to the Finance Act 1998 (c. 36) (company tax returns: conclusiveness of amounts stated in return).

(7)References in this paragraph to variation of an allocation include reducing the amount allocated to nil.

Allocation of excess NCDs: amounts proving to be excessiveE+W+S+N.I.

11(1)This paragraph applies where an amount of excess NCDs allocated to another company in accordance with this Part of this Schedule later proves to be excessive.E+W+S+N.I.

(2)The excess shall revert to the distributing company.

(3)If allocations to two or more companies are involved, the amounts shall revert in the opposite order to that in which the allocations were made.

(4)In the case of allocations made at the same time, the amounts reverting to the distributing company shall be in proportion to the original allocations.

Allocation of excess NCDs to companies not resident in the United KingdomE+W+S+N.I.

12(1)The provisions of this Part of this Schedule as to the allocation of excess NCDs to other companies apply, with any necessary modifications, to companies that are not resident in the United Kingdom as they apply to companies that are so resident.E+W+S+N.I.

(2)In particular, references to the company’s basic profits and accounting periods shall be read in relation to a company that is not resident in the United Kingdom as references to what would have been the case if the company had been resident in the United Kingdom at all material times.

Part 3 E+W+S+N.I.Other supplementary provisions

Carry forward of excess NCDsE+W+S+N.I.

13(1)Any excess NCDs not allocated to another company under Part 2 shall be carried forward by the distributing company.E+W+S+N.I.

(2)That company shall be treated as if it had made a non-corporate distribution of the amount carried forward (in addition to any distributions actually made by it) in its next accounting period.

(3)Where an allocation is made under paragraph 9(4) references in this paragraph to the distributing company shall be read as references to the company to which that allocation is made (which is treated by virtue of paragraph 6(3) as having made a distribution in the accounting period to which the allocation is made).

Definition of a groupE+W+S+N.I.

14(1)For the purposes of section 13AB and this Schedule a company and all its 51% subsidiaries form a group, and if any of those subsidiaries have 51% subsidiaries the group includes them and their 51% subsidiaries, and so on.E+W+S+N.I.

(2)The question whether a company is a 51% subsidiary shall be determined in accordance with section 838, subject to the following provisions.

(3)A company (“company A”) shall be treated for the purposes of this Schedule as if it were a 51% subsidiary of another company (“company B”) if company B has rights to, or in fact receives, more than 50% of the distributions made by company A.

(4)For the purposes of this paragraph a company shall be treated as not being the owner—

(a)of any share capital that it owns directly if a profit on the sale of the shares would be treated as a trading receipt of its trade, or

(b)of any share capital that it owns indirectly and that is owned directly by a body corporate for which a profit on the sale of the shares would be treated as a trading receipt of its trade.

Accounting period treated as ending if company ceases to be a member of a groupE+W+S+N.I.

15(1)Section 13AB and this Schedule apply in relation to an accounting period of a company in which it ceases to be a member of the group as if there were two accounting periods, one ending immediately before the company ceases to be a member of the group and the other consisting of the remainder of the period.E+W+S+N.I.

(2)For this purpose a company ceases to be in a group if it and another company cease to be in the same group, whether as a result it is no longer in a group, becomes a member of another group or continues to be in the same group as one or more other companies.

Treatment of distributions made otherwise than in an accounting periodE+W+S+N.I.

16For the purposes of section 13AB and this Schedule, a non-corporate distribution made by a company otherwise than in an accounting period of the company shall be treated as made in the next accounting period of the company.E+W+S+N.I.

Holding companies treated as carrying on a businessE+W+S+N.I.

17(1)For the purposes of section 13AB and this Schedule a holding company that is not otherwise carrying on a business shall be deemed to be carrying on a business and to be within the charge to corporation tax.E+W+S+N.I.

(2)For this purpose “a holding company” means a company that has one or more 51% subsidiaries from which it receives or has received one or more distributions.

InterpretationE+W+S+N.I.

18In section 13AB and this Schedule—E+W+S+N.I.

  • basic profits” means the amount of a company’s profits for an accounting period on which corporation tax finally falls to be borne;

  • corresponding accounting period”, in relation to a recipient company, has the meaning given by paragraph 8;

  • distributing company” has the meaning given by paragraph 6(1);

  • distribution” does not include an amount treated as a dividend under paragraph 2(2) of Schedule 23A (manufactured dividends and interest);

  • distribution period” has the meaning given by paragraph 6(1); and

  • excess NCDs” has the meaning given by paragraph 6(2);

  • group” has the meaning given by paragraph 14 (and references to a group company and membership of a group have a corresponding meaning);

  • non-corporate distribution” has the meaning given by paragraph 2;

  • recipient company” has the meaning given by paragraph 6(3);

  • underlying rate of corporation tax” has the meaning given by paragraph 3.

Section 29

SCHEDULE 4E+W+S+N.I.Amendments relating to the rate applicable to trusts

Sums paid to settlor otherwise than as incomeE+W+S+N.I.

1(1)Section 677 of the Taxes Act 1988 (sums paid to settlor otherwise than as income) is amended as follows.E+W+S+N.I.

(2)In subsection (2) (the amount of income available up to the end of a year) in paragraph (h) (deduction of amount equal to tax at the rate applicable to trusts on the undistributed income less the income etc referred to in certain paragraphs) for “paragraphs (c), (d), (e), (f) and (g) above” substitute “ each of paragraphs (c) to (g) above” ”.

(3)In subsection (7) (tax to be charged under Case VI of Schedule D, but with a set-off for the amount described in paragraph (a) or (b), whichever is the less) for the words from “charged,” in paragraph (b) to the end of the subsection substitute charged; or

(c)the amount of tax paid by the trustees on the grossed-up amount of so much of the amount of income available up to the end of the year, in relation to the capital sum, as is taken into account under subsection (1) above in relation to that sum in that year (see subsections (7A) to (7C) below),

whichever is the least. .

(4)After subsection (7) insert—

(7A)For the purposes of subsection (7)(c) above—

(a)any reduction falling to be made under subsection (2)(h) above shall be treated as made against income arising under the settlement in an earlier year of assessment before income arising under the settlement in a later year of assessment; and

(b)income arising under the settlement in an earlier year of assessment shall be regarded as being taken into account under subsection (1) above before income arising under the settlement in a later year of assessment.

(7B)For the purposes of subsection (7)(c) above—

(a)the grossed-up amount of any sum is such amount as, after the deduction of tax at the appropriate rate for each part of that sum, would be equal to that sum; and

(b)the amount of tax paid by the trustees on that grossed-up amount is the amount of tax falling to be deducted under paragraph (a) above.

(7C)For the purposes of subsection (7B) above—

(a)the appropriate rate for any part of a sum is 0% if—

(i)the income that falls to be regarded in accordance with subsection (7A) above as representing that part of the sum is income from a source outside the United Kingdom, and

(ii)the trustees were not resident in the United Kingdom for the relevant year of assessment;

(b)the appropriate rate for any part of a sum in relation to which paragraph (a) above does not apply is—

(i)34%, if the relevant year of assessment is the year 2003-04 or any earlier year of assessment,

(ii)40%, if the relevant year of assessment is the year 2004-05 or any subsequent year of assessment.

For the purposes of this subsection the relevant year of assessment in relation to any part of a sum is the year of assessment in which the income to be regarded in accordance with subsection (7A) above as representing that part of the sum arose under the settlement..

Trustees chargeable to income tax at 30 per cent in certain casesE+W+S+N.I.

2The side-note to section 694 of the Taxes Act 1988 becomes “Trustees chargeable to income tax in certain cases at higher rate reduced by rate applicable to trusts”.E+W+S+N.I.

CommencementE+W+S+N.I.

3The amendments made by paragraph 1 have effect for the purpose of determining the amount to be set off under section 677(7) of the Taxes Act 1988 in the year 2004-05 or any subsequent year of assessment (whenever the undistributed income arose).E+W+S+N.I.

Section 30

SCHEDULE 5E+W+S+N.I.Provision not at arm’s length: related amendments

Taxes Management Act 1970E+W+S+N.I.

Notice of enquiryE+W+S+N.I.

1(1)Section 9A of the Taxes Management Act 1970 (c. 9) is amended as follows.E+W+S+N.I.

(2)For subsection (4) (scope of inquiry) substitute—

(4)An enquiry extends to—

(a)anything contained in the return, or required to be contained in the return, including any claim or election included in the return,

(b)consideration of whether to give the taxpayer a transfer pricing notice under paragraph 5C of Schedule 28AA to the principal Act (provision not at arm’s length: medium-sized enterprise),

but this is subject to the following limitation..

Income and Corporation Taxes Act 1988E+W+S+N.I.

Valuation of trading stock at discontinuance of tradeE+W+S+N.I.

2(1)Section 100 of the Taxes Act 1988 is amended as follows.E+W+S+N.I.

(2)After subsection (1) insert—

((1ZA))This section does not apply in relation to any trading stock if paragraph 1(2) of Schedule 28AA (provision not at arm’s length) has effect in relation to any provision made or imposed in relation to that stock and having effect in connection with the discontinuance of the trade..

Petroleum extraction activities: ring fence trade: charges on incomeE+W+S+N.I.

3(1)Section 494 of the Taxes Act 1988 (charges on income) is amended as follows.E+W+S+N.I.

(2)In subsection (2) (which restricts the loan relationship debits that may be brought into account in a manner resulting in reduction of ring fence profits)—

(a)at the end of paragraph (b) insert “ and ”;

(b)omit paragraph (d) (which imposes a restriction by reference to a reasonable commercial rate of return and is superseded by the application of paragraphs 1A and 1B of Schedule 28AA to the Taxes Act 1988 by virtue of paragraph 11 of that Schedule);

(c)omit the third sentence (which defines “net debit” for the purposes of paragraph (d)).

(3)Omit subsection (2B) (which relates to the net debit within the meaning of subsection (2)(d)).

Assumptions for calculating chargeable profits etc: transfer pricingE+W+S+N.I.

4In Schedule 24 to the Taxes Act 1988, paragraph 20 shall cease to have effect.E+W+S+N.I.

Finance Act 1996E+W+S+N.I.

Loan relationships: introductoryE+W+S+N.I.

5Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special computational provisions) is amended as follows.E+W+S+N.I.

Transactions not at arm’s lengthE+W+S+N.I.

6(1)Paragraph 11 is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1) (which is expressed to be subject to sub-paragraphs (2) to (3A)) for “(2)” substitute “ (1A) ”.

(3)After sub-paragraph (1) insert—

(1A)Notwithstanding section 80(5) of this Act, sub-paragraph (1) above shall not apply to debits or credits in respect of amounts which—

(a)fall to be adjusted for tax purposes under Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length), or

(b)fall within that Schedule without falling to be so adjusted.

(1B)For the purposes of sub-paragraph (1A) above, an amount falls within Schedule 28AA to the Taxes Act 1988 without falling to be adjusted under that Schedule in a case where—

(a)the conditions in paragraph 1(1) of that Schedule are met, and

(b)the actual provision does not differ from the arm’s length provision..

Continuity of treatment: groups etc.E+W+S+N.I.

7(1)Paragraph 12 is amended as follows.E+W+S+N.I.

(2)After sub-paragraph (2) insert—

((2ZA))Where the debits or credits to be brought into account for the purposes of this Chapter in respect of any amounts fall to be determined in accordance with sub-paragraph (2) above, Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) does not apply in relation to those amounts..

Amounts imputed under Schedule 28AA to the Taxes Act 1988E+W+S+N.I.

8For paragraph 16 (imputed interest) substitute—E+W+S+N.I.

Amounts imputed under Schedule 28AA to the Taxes Act 1988E+W+S+N.I.

16(1)This paragraph applies where, in pursuance of Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length), an amount falls to be treated as any of the following—

(a)an amount of profits, gains or losses (whether or not of a capital nature) arising to a company from any of its loan relationships or related transactions;

(b)interest payable under any of a company’s loan relationships;

(c)charges or expenses incurred by a company under or for the purposes of any of its loan relationships or related transactions.

(2)That Schedule shall have effect, notwithstanding the provisions of any authorised accounting method, so as to require credits or debits relating to the amount so treated to be brought into account for the purposes of this Chapter to the same extent as they would be in the case of an actual amount of—

(a)profits, gains or losses (whether or not of a capital nature) arising to the company from the loan relationship or related transaction,

(b)interest accruing or becoming due and payable under the loan relationship, or

(c)charges or expenses incurred under or for the purposes of the loan relationship or related transaction,

as the case may be..

Finance Act 1998E+W+S+N.I.

IntroductoryE+W+S+N.I.

9The Finance Act 1998 (c. 36) is amended as follows.E+W+S+N.I.

Scope of enquiryE+W+S+N.I.

10(1)In Schedule 18 (company tax returns, assessments and related matters) paragraph 25 is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1), for the words following paragraph (b) substitute— “ and also extends to consideration of whether to give the company a transfer pricing notice under paragraph 5C of Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length: medium-sized enterprise). But this is subject to the following limitation. ”.

Finance Act 2000E+W+S+N.I.

Introductory: tonnage tax: transactions not at arm’s lengthE+W+S+N.I.

11Schedule 22 to the Finance Act 2000 (c. 17) (tonnage tax) is amended as follows.E+W+S+N.I.

Transactions between tonnage tax company and another personE+W+S+N.I.

12(1)Paragraph 58 is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1) (Schedule 28AA to the Taxes Act 1988 to apply with certain omissions) for the words following paragraph (b) substitute— “ Schedule 28AA to the Taxes Act 1988 (transactions not at arm’s length) has effect with the omission of paragraphs 6 to 7A (elimination of double counting etc). ”.

Transactions between tonnage tax trade and other activities of same companyE+W+S+N.I.

13(1)Paragraph 59 is amended as follows.E+W+S+N.I.

(2)For sub-paragraph (2) (Schedule 28AA to the Taxes Act 1988 to apply with certain omissions) substitute—

(2)As applied by sub-paragraph (1), Schedule 28AA has effect with the omission of paragraphs 6 to 7A (elimination of double counting etc)..

Finance Act 2002E+W+S+N.I.

IntroductoryE+W+S+N.I.

14The Finance Act 2002 (c. 23) is amended as follows.E+W+S+N.I.

Derivative contractsE+W+S+N.I.

15(1)Schedule 26 (derivative contracts) is amended as follows.E+W+S+N.I.

(2)In Part 6 (special computational provisions) in paragraph 28 (transactions within groups) after sub-paragraph (3) insert—

(3A)Where the debits or credits to be brought into account for the purposes of this Schedule in respect of any amounts fall to be determined in accordance with sub-paragraph (3), Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) does not apply in relation to those amounts..

(3)After paragraph 31 insert—

Amounts imputed under Schedule 28AA to the Taxes Act 1988E+W+S+N.I.

31A(1)This paragraph applies where, in pursuance of Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length), an amount falls to be treated as any of the following—

(a)an amount of profits or losses (disregarding any charges or expenses) arising to a company from any of its derivative contracts or related transactions;

(b)charges or expenses incurred by a company under or for the purposes of any of its derivative contracts or related transactions.

(2)That Schedule shall have effect, notwithstanding the provisions of any authorised accounting method, so as to require credits or debits relating to the amount so treated to be brought into account for the purposes of this Chapter to the same extent as they would be in the case of an actual amount of—

(a)profits or losses (disregarding any charges or expenses) arising to the company from the derivative contract or related transaction, or

(b)charges or expenses incurred under or for the purposes of the derivative contract or related transaction,

as the case may be..

Intangible fixed assetsE+W+S+N.I.

16(1)Schedule 29 (gains and losses of a company from intangible fixed assets) is amended as follows.E+W+S+N.I.

(2)In paragraph 55 (transfers within a group), after sub-paragraph (1) insert—

(1A)Where this paragraph applies in relation to the transfer of an asset, Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) does not apply in relation to the transfer..

(3)In paragraph 92 (transfer between company and related party treated as being at market value) in sub-paragraph (3) (cases where consideration for transfer falls within Schedule 28AA without falling to be adjusted)—

(a)at the end of paragraph (a) insert “ , but ”,

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

(c)omit paragraph (c) (which refers to paragraph 5(2) of Schedule 28AA to the Taxes Act 1988).

Section 41

SCHEDULE 6E+W+S+N.I.Expenses of companies with investment business and insurance companies

Income and Corporation Taxes Act 1988E+W+S+N.I.

Levies and repayments under Financial Services and Markets Act 2000: investment companiesE+W+S+N.I.

1(1)Section 76B of the Taxes Act 1988 is amended as follows.E+W+S+N.I.

(2)In subsection (1) (certain sums paid by an investment company to be treated as expenses of management) for “an investment company” substitute “ a company with investment business ”.

(3)In subsection (2) (repayment to investment company to be charged under Case VI of Schedule D)—

(a)at the beginning, insert “ For the purposes of corporation tax, ”, and

(b)for “an investment company” substitute “ a company with investment business ”.

Incidental costs of obtaining loan financeE+W+S+N.I.

2(1)Section 77 of the Taxes Act 1988 is amended as follows.E+W+S+N.I.

(2)In subsection (1) (which does not apply for the purposes of corporation tax but which includes provision for the costs in question to be treated as expenses of management) omit the words from “and the incidental costs” to the end of the subsection.

Change in ownership of investment company: deductions generally.E+W+S+N.I.

3(1)Section 768B of the Taxes Act 1988 is amended as follows.E+W+S+N.I.

(2)In subsection (1) (case where section applies) for “an investment company” substitute “ a company with investment business ”.

(3)In subsection (6) (treatment of expenses of management disbursed in the accounting period)—

(a)for “are disbursed or treated as disbursed as expenses of management in the accounting period” substitute “ are, or are treated as, expenses of management referable to the accounting period ”;

(b)in the words following paragraph (b), for “as disbursed in that part” substitute “ expenses of management referable to that part ”.

(4)In subsection (8) (treatment of capital allowances apportioned to either part of the accounting period) for “75(4)” substitute “ 75(7) ”.

(5)In subsection (9) (which prevents certain sums being deducted under section 75 of the Taxes Act 1988) in paragraph (a) for “sums disbursed” substitute “ expenses of management deductible ”.

(6)In subsection (14) (meaning of “investment company”) for “ “investment company”” substitute “ “company with investment business” ”.

(7)The sidenote to the section accordingly becomes “Change in ownership of company with investment business: deductions generally”.

Deductions: assets transferred within groupE+W+S+N.I.

4(1)Section 768C of the Taxes Act 1988 is amended as follows.E+W+S+N.I.

(2)In subsection (1) (case where section applies) in paragraph (a) for “an investment company” substitute “ a company with investment business ”.

(3)In subsection (7) (no deduction under section 75 from an amount of total profits equal to the amount of the relevant gain) in paragraph (a) for “sums disbursed” substitute “ expenses of management deductible ”.

(4)In subsection (12), for the definition of “investment company”substitute—

company with investment business” has the same meaning as in Part 4..

Change in ownership of company carrying on property businessE+W+S+N.I.

5(1)Section 768D of the Taxes Act 1988 is amended as follows.E+W+S+N.I.

(2)In subsection (1) (case where section applies)—

(a)in paragraph (a) (investment company) for “an investment company” substitute “ a company with investment business ”, and

(b)in paragraph (b) (company other than investment company) for “an investment company” substitute “ a company with investment business ”.

(3)In subsection (4) (apportionment of profits and losses to two periods)—

(a)in paragraph (a) (investment company) for “an investment company” substitute “ a company with investment business ”, and

(b)in paragraph (b) (company other than investment company) for “an investment company” substitute “ a company with investment business ”.

(4)In subsection (6) (restriction of profits from which certain losses may be deducted) for “an investment company”, wherever occurring, substitute “ a company with investment business ”.

(5)In subsection (8) (definitions) for paragraph (b) (investment company) substitute—

(b)company with investment business” has the same meaning as in Part 4..

Change in ownership of company with unused non-trading loss on intangible fixed assetsE+W+S+N.I.

6(1)Section 768E of the Taxes Act 1988 is amended as follows.E+W+S+N.I.

(2)In subsection (1) (change in ownership of investment company) for “an investment company” substitute “ a company with investment business ”.

(3)In subsection (7) (definition of “investment company”) for “ “investment company”” substitute “ “company with investment business” ”.

Finance Act 1989E+W+S+N.I.

Charge of certain receipts of basic life assurance businessE+W+S+N.I.

7(1)Section 85 of the Finance Act 1989 (c. 26) is amended as follows.E+W+S+N.I.

(2)In subsection (2) (receipts excluded from subsection (1) omit paragraphs (c) to (d).

(3)After subsection (2) insert—

(2A)Receipts falling within subsection (1) above are to be taken into account for the purposes of corporation tax when they are brought into account.

Subsection (6) of section 89 (meaning of “brought into account”) shall also apply for the purposes of this section.

(2B)Expenses fall to be deducted from receipts falling within subsection (1) above in accordance with the provisions of the Corporation Tax Acts applicable to Case VI of Schedule D.

(2C)For the purposes of subsection (1) above, a receipt is referable to basic life assurance and general annuity business if—

(a)in the case of a repayment or refund of acquisition expenses, the acquisition expenses fell within section 86 below,

(b)in the case of a reinsurance commission, the policy or contract reinsured under the arrangement in respect of which the commission is paid constitutes basic life assurance and general annuity business, and

(c)in any other case, it is income which, if it were income from an asset, would by virtue of section 432A of the Taxes Act 1988 (apportionment of insurance companies' income) be referable to basic life assurance and general annuity business..

Spreading of relief for acquisition expensesE+W+S+N.I.

8(1)Section 86 of the Finance Act 1989 (c. 26) is amended as follows.E+W+S+N.I.

(2)For subsections (1) to (1B) (meaning of “acquisition expenses”) substitute—

(1)For the purposes of this section, the acquisition expenses for any period of an insurance company carrying on life assurance business are such of the following as for that period fall to be included at Step 1 in section 76(7) of the Taxes Act 1988 (expenses of insurance companies)—

(a)commissions (however described), other than commissions for persons who collect premiums from house to house,

(b)any other expenses payable solely for the purpose of the acquisition of business,

(c)so much of any other expenses payable partly for the purpose of the acquisition of business and partly for other purposes as are properly attributable to the acquisition of business,

reduced by the appropriate portion of the adjusted loss deduction (if any) for the purposes of Step 5 for the period.

The appropriate portion of the adjusted loss deduction is the amount which bears to the whole of that deduction the proportion which UAE bears to S1, where—

UAE is the amount of the acquisition expenses, before making the reduction required by this subsection; and

S1 is the sum of the amounts described in paragraphs (a) and (b) in Step 4..

(3)In subsection (2) (which relates to commissions for persons who collect premiums from house to house) for “expenses of management” substitute “ expenses payable ”.

(4)Omit—

(a)subsection (5) (expenses of management attributable to basic life assurance and general annuity business), and

(b)subsection (5A) (exclusion of additional expenses of management under section 256(2)(a) of the Capital Allowances Act).

(5)For subsection (6) (only one-seventh of acquisition expenses to be treated as deductible under sections 75 and 76 of the Taxes Act 1988) substitute—

(6)Only a portion of the acquisition expenses for any accounting period (in this section referred to as “the base period”) is to be relieved under section 76 of the Taxes Act 1988 for that period.

That portion is one-seventh of the adjusted amount of the acquisition expenses for the period.

For the purposes of this section the adjusted amount of the acquisition expenses for the period is so much of those expenses as remains after—

(a)including the whole of those expenses at Step 1,

(b)making any reduction in those expenses which is required at Step 2, and

(c)deducting any amount of reinsurance commission or any repayment or refund (in whole or in part) that falls for the period to be charged to tax under section 85 above,

Effect is given to this subsection at Step 6 (which requires the deduction of six-sevenths of the adjusted amount of the acquisition expenses for the period)..

(6)Omit subsection (7) (which relates to accounting periods falling wholly or partly within the years 1990 to 1993).

(7)For subsections (8) and (9) (deduction of further one-sevenths of full amount for succeeding accounting periods) substitute—

(8)This subsection applies in any case where, in accordance with subsection (6) above, only a fraction of the adjusted amount of the acquisition expenses for the base period is to be relieved under section 76 of the Taxes Act 1988 for that period.

In any such case—

(a)a further fraction of the adjusted amount of those expenses is to be relieved under that section for each succeeding accounting period after the base period, until the whole of the adjusted amount has been relieved,

(b)the fraction is one-seventh, except that for any accounting period of less than a year the fraction is to be proportionately reduced, and

(c)the relief is given by including that fraction of the adjusted amount at paragraph (b) of Step 8,

but this is subject to subsection (9) below.

(9)For any accounting period for which—

(a)the fraction of the adjusted amount of the acquisition expenses for the base period which would otherwise fall to be relieved in accordance with subsection (8) above, exceeds

(b)the balance of that adjusted amount which has not been so relieved for earlier accounting periods,

only that balance shall be so relieved..

(8)After subsection (9) insert—

(9A)In this section “expenses payable” has the same meaning as in Step 1.

(9B)Any reference in this section to a numbered Step is a reference to the Step so numbered in section 76(7) of the Taxes Act 1988..

Finance Act 1996E+W+S+N.I.

Loan relationships: special provisions for insurers: treatment of deficitE+W+S+N.I.

9(1)In Schedule 11 to the Finance Act 1996 (c. 8) paragraph 4 is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2), in the words following paragraph (b) (which require a reduction under that sub-paragraph to be made before any deduction by virtue of section 76 of the Taxes Act 1988 for expenses of management) for “any deduction by virtue of section 76 of the Taxes Act 1988 of any expenses of management” substitute “ any expenses deduction under section 76 of the Taxes Act 1988 ”.

(3)In sub-paragraph (3) (claim to carry back whole or part of excess of deficit over net income and gains) in the opening words, omit “net”.

(4)In sub-paragraph (4) (deficit, so far as not set off, to be carried forward and included in expenses of management for following period) for “an amount to be included in the company’s expenses of management for the period following the deficit period” substitute “ expenses payable which are referable to the period following the deficit period and are to be brought into account at Step 3 in section 76(7) of the Taxes Act 1988 ”.

(5)In sub-paragraph (11) (meaning of references in sub-paragraph (10) to deductions by virtue of section 76 of the Taxes Act 1988) for “the deductions by way of management expenses” substitute “ the expenses deduction ”.

(6)In sub-paragraph (12) (treatment of section 76(5) amount attributable to a claim under sub-paragraph (3) etc)—

(a)for “section 76(5) amount”, in both places, substitute “ section 76(13) amount ”;

(b)for “section 75(3)” substitute “ section 76(13) ”.

(7)In sub-paragraph (13) (treatment of section 76(5) amount to which the sub-paragraph applies) for “section 76(5) amount” substitute “ section 76(13) amount ”.

(8)In sub-paragraph (14) (the section 76(5) amount attributable to a claim under sub-paragraph (3))—

(a)in the opening words, for “section 76(5) amount” substitute “ section 76(13) amount ”; and

(b)in paragraphs (a) and (b) for “section 75(3)” substitute “ section 76(13) ”.

(9)The amendment made by sub-paragraph (4) also has effect where the deficit period is the last accounting period of the company to begin before 1st April 2004.

Section 47

SCHEDULE 7E+W+S+N.I.Insurance companies etc

Transfers of businessE+W+S+N.I.

1In section 444A(3ZA) of the Taxes Act 1988 (losses), for “343(2), (4),” substitute “ 343(4), ”.E+W+S+N.I.

2(1)Section 444AB of the Taxes Act 1988 (charge on transferor retaining assets) is amended as follows.E+W+S+N.I.

(2)In subsection (5) (which defines, as “the previously untaxed amount”, the amount which, or a fraction of which, is chargeable to tax), for paragraph (a) substitute—

(a)if there are no retained liabilities, the fair value of the retained assets or, if there are, so much of the fair value of the retained assets as exceeds the amount of the retained liabilities, and.

(3)After subsection (6) insert—

(6A)In subsection (5) above—

(a)the retained assets” means such of the assets held by the transferor immediately after the transfer as were assets of its long-term insurance fund immediately before the transfer; and

(b)the retained liabilities” means such of the liabilities of the transferor immediately after the transfer as were included in column 1 of line 14, 17, 22, 31 or 38 of Form 14 in the periodical return of the transferor covering the period of account ending immediately before the transfer..

(4)Sub-paragraphs (1) to (3) have effect in relation to insurance business transfer schemes (within the meaning of section 444AB of the Taxes Act 1988) taking place on or after 17th March 2004.

3(1)In the Taxes Act 1988, after section 444AB insert—E+W+S+N.I.

444ABASubsequent charge in certain cases within s.444AB

(1)This section applies where—

(a)section 444AB applies in relation to a transfer in the case of which there are retained liabilities, and

(b)in any accounting period of the transferor beginning after the day of the transfer there is a reduction in the amount of the retained liabilities occasioned otherwise than by the making of a payment in or towards their discharge.

(2)The transferor shall be charged to tax under Case VI of Schedule D in respect of the taxable amount as if it had been received by the transferor in the accounting period in which the reduction occurs.

(3)If the transferor was charged to tax on the profits of its life assurance business under Case I of Schedule D for the accounting period ending with the day of the transfer, the taxable amount is the whole amount of the reduction.

(4)Otherwise the taxable amount is the non-BLAGAB fraction of the amount of the reduction.

(5)The non-BLAGAB fraction of the amount of the reduction is the fraction of which—

(a)the numerator is the amount of the liabilities transferred, apart from those which are liabilities of basic life assurance and general annuity business, and

(b)the denominator is the amount of the liabilities transferred.

(6)Where in any accounting period of the transferor beginning after the transfer there is an increase in the amount of the retained liabilities, this section applies in relation to subsequent accounting periods of the transferor as if the amount of the retained liabilities were reduced by the amount of the increase.

(7)Where an amount is shown as post-transfer reduction liabilities in the transferor’s accounts for any accounting period beginning after the transfer, this section applies as if the amount of the retained liabilities at the end of that accounting period (and the beginning of the next) were increased by the amount so shown.

(8)In subsection (7) above “post-transfer reduction liabilities” means liabilities of the transferor to make payments to relevant persons which, in accordance with the terms of the insurance business transfer scheme, have arisen in consequence of a reduction in the amount of the retained liabilities at any time after the transfer.

(9)In subsection (8) above “relevant persons” means—

(a)if the transferor’s life assurance business immediately before the transfer was mutual business, persons who were policy holders or annuitants, or members of the transferor, at that time, and

(b)in any other case, persons who were policy holders or annuitants at that time..

(2)Sub-paragraph (1) has effect where section 444AB of the Taxes Act 1988 applies by reason of an insurance business transfer scheme (within the meaning of that section) taking place on or after 17th March 2004.

4(1)In section 444AD of the Taxes Act 1988 (modification of section 83(2B) of the Finance Act 1989 (c. 26)), in subsection (4) (amount to which section 83(2B) is not to apply to be difference between value of assets of long-term insurance fund of transferee and element of line 15 figure representing transferor’s long-term insurance fund), for paragraph (a) substitute—E+W+S+N.I.

(a)the fair value of such of the assets of the long-term insurance fund of the transferee immediately after the transfer as were assets of the transferor’s long-term insurance fund immediately before the transfer, is greater than.

(2)Sub-paragraph (1) has effect in relation to insurance business transfer schemes taking place on or after 17th March 2004.

5(1)In section 82(1) of the Finance Act 1989 (c. 26) (provisions applying for purposes of computations of profits in accordance with provisions applicable to Case I of Schedule D), for “and 82B” substitute “ to 82C ”.E+W+S+N.I.

(2)In that Act, after section 82B insert—

82CRelevant financial reinsurance contracts

(1)This section applies where—

(a)an insurance company (“the company”) enters into a contract of reinsurance which is a relevant financial reinsurance contract, and

(b)either condition A or condition B is met.

(2)A contract of reinsurance is a relevant financial reinsurance contract if, under the contract—

(a)some or all of the liabilities reinsured may cease to be reinsured (without the cedant having any right of recovery against the reinsurer), or

(b)the cedant may become liable to pay premiums wholly or partly determined (directly or indirectly) by reference to any amount which the reinsurer becomes liable to pay to the cedant under the contract.

(3)Condition A is that the reduction in the company’s liabilities resulting from the reinsurance under the relevant financial reinsurance contract is not taken into account in calculating the profits of the company.

(4)Condition B is that—

(a)an insurance business transfer scheme has effect to transfer long-term business to the company,

(b)there is a deficiency of assets on the transfer,

(c)the liabilities reinsured under the relevant financial reinsurance contract are some or all of the liabilities to policy holders and annuitants transferred,

(d)the reduction of the company’s liabilities resulting from the reinsurance of those liabilities under the relevant financial reinsurance contract occurs during the period of account in which the transfer takes place, and

(e)the whole amount of the liabilities to policy holders and annuitants transferred is not taken into account as opening liabilities in calculating the profits of the company for that period of account.

(5)For the purposes of subsection (4)(b) above there is a deficiency of assets on the transfer if—

(a)the aggregate amount of the liabilities to policy holders and annuitants, and of any debts, which are transferred, exceeds

(b)the value of the assets transferred and brought into account in the long-term insurance fund of the company.

(6)The reinsurance offset amount for each period of account of the company beginning before the termination of the relevant financial reinsurance contract is to be taken into account as a receipt of the period of account.

(7)The reinsurance offset amount for a period of account is the amount of any decrease in the period of account in the difference between the full liabilities and the reduced liabilities where—

(a)“the full liabilities” is the amount which would be brought into account for the period as liabilities but for the relevant financial reinsurance contract, and

(b)“the reduced liabilities” is the amount of the liabilities actually so brought into account.

(8)But, in a case in which condition B is met, the total amount taken into account by virtue of subsection (6) above must not exceed the amount by which—

(a)the aggregate amount mentioned in paragraph (a) of subsection (5) above, exceeds

(b)the value referred to in paragraph (b) of that subsection.

(9)For the purposes of this section “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State)..

(3)Sub-paragraphs (1) and (2) have effect in relation to periods of account ending on or after 17th March 2004 (whether the insurance business transfer scheme takes place, or the relevant financial reinsurance contract is entered into, before or on or after that date).

Chargeable gainsE+W+S+N.I.

6(1)In section 210A(10) of the Taxation of Chargeable Gains Act 1992 (c. 12) (ring-fencing of losses: policy holders' share of chargeable gains or losses), in paragraph (b) (case where policy holders' share of relevant profits does not exceed BLAGAB profits), for “of the company for the accounting period bears to those relevant profits” substitute “ for the accounting period bears to those BLAGAB profits ”.E+W+S+N.I.

(2)Sub-paragraph (1) has effect in relation to accounting periods beginning on or after 17th March 2004.

Double taxationE+W+S+N.I.

7In section 804B of the Taxes Act 1988 (double taxation relief: insurance companies carrying on more than one category of business), after subsection (7) insert—E+W+S+N.I.

(7A)The Treasury may by regulations amend subsection (7) above; and the regulations may include amendments having effect in relation to accounting periods during which they are made..

Meaning of “referable”E+W+S+N.I.

8(1)Section 432A of the Taxes Act 1988 (apportionment of income and gains) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for “where in any period an insurance company carries on more than one category of business and it is necessary for the purposes of the Corporation Tax Acts to determine in relation to the period” substitute “ for determining for the purposes of any provision of the Corporation Tax Acts in relation to any period for which an insurance company carries on business ”.

(3)After that subsection insert—

(1A)If the company carries on only one category of business in the period, all of the income and gains or losses referred to in subsection (1) above shall be referable to that category of business; but if the company carries on more than one category of business in the period, the following provisions shall apply..

(4)In subsection (2), for “subsection (1)” substitute “ subsections (1) and (1A) ”.

9(1)In the following provisions of the Taxes Act 1988—E+W+S+N.I.

(a)section 438(1) (pension business), and

(b)section 439B(6) (life reinsurance business),

after “referable” insert “ (in accordance with section 432A) ”.

(2)In the following provisions of the Finance Act 1989 (c. 26) (which relate to the policy holders' share of profits)—

(a)section 88(3A)(a),

(b)the words within quotation marks in the portion of section 88(3B) preceding paragraph (a),

(c)the portion of section 89(1B) preceding paragraph (a), and

(d)section 89(2)(b),

after “referable” insert “ (in accordance with section 432A of the Taxes Act 1988) ”; and, in consequence of the amendment made by paragraph (b), in section 88(3B), for “referable to that business” substitute “ so referable ”.

(3)In the following provisions of the Taxation of Chargeable Gains Act 1992 (c. 12)—

(a)the definitions of “BLAGAB allowable losses” and “BLAGAB chargeable gains” in section 210A(13) (ring-fencing of losses),

(b)section 211ZA(10) (transfers of business: transfer of unused losses), and

(c)section 213(1A)(a) (spreading of gains and losses under section 212), after “referable” insert “ (in accordance with section 432A of the Taxes Act) ”.

Section 48

SCHEDULE 8E+W+S+N.I.Loan relationships: miscellaneous amendments

IntroductoryE+W+S+N.I.

1Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special computational provisions) is amended as follows.E+W+S+N.I.

Late interest: close companies where limited partnership is collective investment scheme etcE+W+S+N.I.

2(1)Paragraph 2 (late interest) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1B) (case where debtor is close company and creditor is participator etc)—

(a)in the opening words, after “close company” insert “ , but not a CIS-based close company, ”and

(b)in the closing words, for the words from “a limited partnership” to the end of the sub-paragraph substitute “ a CIS limited partnership ”.

(3)In sub-paragraph (6) (definitions) insert the following definitions at the appropriate place—

  • CIS-based close company” means a company that would not be a close company apart from the attribution, under section 416(6) of the Taxes Act 1988 by virtue of section 417(3)(a) of that Act, of the rights and powers of one or more partners in a CIS limited partnership to another of the partners;;

CIS limited partnership” means a limited partnership—

(a)which is a collective investment scheme, or

(b)which would be a collective investment scheme if it were not a body corporate;;

collective investment scheme” means a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000;.

(4)The amendments made by this paragraph have effect for accounting periods ending on or after 10th December 2003.

Bad debts etc: release of amount where creditor is subject to insolvency proceedingsE+W+S+N.I.

3(1)Paragraph 5 (bad debts etc) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (3) (cases where no credit is required to be brought into account by the debtor on the release of a debt) for the words following paragraph (b) substitute— “ no credit in respect of the release shall be required to be brought into account in the case of that company if any of the four conditions set out below is satisfied. ”.

(3)After sub-paragraph (3) insert—

(4)Condition 1 is that the release is part of a relevant arrangement or compromise, within the meaning given by section 74(2) of the Taxes Act 1988.

(5)Condition 2 is that the debtor relationship is one as respects which section 87 of this Act (accounting method where parties have a connection) requires the use of an authorised accruals basis of accounting.

(6)Condition 3 is that—

(a)in the case of the company releasing the amount, the circumstances are as described in any of paragraphs (a) to (d) of paragraph 6A(1) below (insolvent liquidation etc),

(b)immediately before the time at which those circumstances arose in the case of that company, the relationship was one as respects which section 87 of this Act requires the use of an authorised accruals basis of accounting, and

(c)immediately after that time, the relationship was not one as respects which section 87 of this Act requires the use of an authorised accruals basis of accounting.

In the application of paragraphs (a) to (d) of paragraph 6A(1) below for the purposes of paragraph (a) above, references in those paragraphs to the company which has the creditor relationship are to be taken as references to the company releasing the amount.

(7)Condition 4 is that—

(a)the relationship is not one as respects which section 87 of this Act requires the use of an authorised accruals basis of accounting, and

(b)in the case of the company which has the debtor relationship, the circumstances are as described in any of paragraphs (a) to (d) of paragraph 6A(1) below.

In the application of paragraphs (a) to (d) of paragraph 6A(1) below for the purposes of paragraph (b) above, references in those paragraphs to the company which has the creditor relationship are to be taken as references to the company which has the debtor relationship..

(4)The amendments made by this paragraph have effect in relation to any release made on or after 10th December 2003.

Bad debt etc: parties having connection and creditor in insolvent administrative receivershipE+W+S+N.I.

4(1)Paragraph 6A (bad debt etc: parties having connection and creditor in insolvent liquidation etc) is amended as follows.E+W+S+N.I.

(2)The amendments made to the paragraph by paragraph 29 of the Schedule to the Enterprise Act 2002 (Insolvency) Order 2003 (S.I. 2003/2096) shall be deemed never to have been made.

(3)In sub-paragraph (1) (cases where paragraph 6A applies) after paragraph (b) insert—

(bb)the company is in insolvent administrative receivership;.

(4)In sub-paragraph (2) (cases where departure from assumption of full payment allowed) after paragraph (b) insert—

(bb)in a case falling within paragraph (bb) of that sub-paragraph, at a time when the appointment of the administrative receiver is in force;.

(5)In sub-paragraph (2)(d) (which refers to a time corresponding to that described in paragraph (a), (b) or (c)) after “(b)” insert “ , (bb) ”.

(6)After sub-paragraph (4) (company in insolvent administration) insert—

(5)For the purposes of this paragraph a company is in insolvent administrative receivership if—

(a)there is in force in relation to that company an appointment of an administrative receiver, within the meaning of Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland) Order 1989, and

(b)the company was put into administrative receivership at a time when its assets were insufficient for the payment of its debts and other liabilities and the expenses of administrative receivership..

(7)The amendments made by sub-paragraphs (3) to (6) have effect in relation to accounting periods ending on or after 10th December 2003.

Deemed assignment of assets and liabilities on company ceasing to be resident in UK etcE+W+S+N.I.

5(1)After paragraph 10 (imported losses etc) insert—E+W+S+N.I.

Deemed assignment of assets and liabilities on company ceasing to be resident in UK etcE+W+S+N.I.

10A(1)This paragraph applies if at any time (“the relevant time”)—

(a)a company ceases to be resident in the United Kingdom, or

(b)in the case of a company that is not resident in the United Kingdom, an asset or liability representing a loan relationship of the company ceases to be held for the purposes of a permanent establishment of the company in the United Kingdom in any circumstances not involving a related transaction.

(2)In a case falling within sub-paragraph (1)(a) above, this Chapter shall have effect as if the company had—

(a)immediately before the relevant time, assigned the assets and liabilities that represent its loan relationships for a consideration of an amount equal to their fair value at that time, and

(b)immediately reacquired them for a consideration of the same amount.

(3)Sub-paragraph (2) above does not apply in relation to an asset or a liability to the extent that, immediately after the relevant time, it is held or owed for the purposes of a permanent establishment of the company in the United Kingdom.

(4)In a case falling within sub-paragraph (1)(b) above, this Chapter shall have effect as if the company had—

(a)immediately before the relevant time, assigned the asset or liability, so far as ceasing to be held or owed for the purposes of the permanent establishment, for a consideration of an amount equal to its fair value at that time, and

(b)immediately reacquired it for a consideration of the same amount.

(5)In this paragraph “fair value” shall be construed in accordance with section 85 of this Act..

(2)The amendment made by this paragraph has effect where the cessation in question occurs on or after 17th March 2004.

Discounted securities of close companies: limited partnership collective investment scheme etcE+W+S+N.I.

6(1)Paragraph 18 (discounted securities of close companies) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1) (application of paragraph) after paragraph (a) insert—

(aa)the issuing company is not a CIS-based close company, as defined in paragraph 2(6) above;.

(3)In paragraph (c) of that sub-paragraph (debt not owed to limited partnership which is a collective investment scheme) for the words from “a limited partnership” to the end of the sub-paragraph substitute “ a CIS limited partnership, as defined in paragraph 2(6) above ”.

(4)Omit sub-paragraph (3A) (meaning of connection between companies, an expression no longer used in the paragraph).

(5)The amendments made by this paragraph have effect for accounting periods ending on or after 10th December 2003.

Interpretation of references to major interestE+W+S+N.I.

7(1)Paragraph 20 (major interest) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1) (cases where one company has a major interest in another) omit paragraph (c) (both controllers etc to satisfy the same condition in sub-paragraph (2)).

(3)Omit sub-paragraph (2) (both controllers etc are creditors, or both are debtors, of the controlled company).

(4)The amendments made by this paragraph have effect for accounting periods beginning on or after 17th March 2004.

Section 49

SCHEDULE 9E+W+S+N.I.Derivative contracts: miscellaneous amendments

IntroductoryE+W+S+N.I.

1Schedule 26 to the Finance Act 2002 (c. 23) is amended as follows.E+W+S+N.I.

Power to amend provisions of Schedule 26E+W+S+N.I.

2(1)Paragraph 13 is amended as follows.E+W+S+N.I.

(2)For sub-paragraph (1) (power to amend paragraphs 2 to 12) substitute—

(1)The Treasury may by order amend—

(a)any of paragraphs 2 to 12, or

(b)Part 9 of this Schedule..

(3)For sub-paragraph (4) (power to make certain orders so as to have effect in relation to accounting periods ending on or after day on which order comes into force (whenever beginning)) substitute—

(4)An order under this paragraph may provide for any of its provisions to have effect in relation to accounting periods ending on or after the day on which the order comes into force (whenever beginning)..

(4)In consequence of the amendment made by sub-paragraph (2), the heading to the paragraph accordingly becomes “ Power to amend paragraphs 2 to 12 and Part 9 ”.

Deemed assignment of derivative contracts on company ceasing to be resident in UK etcE+W+S+N.I.

3(1)At the beginning of Part 6 (special computational provisions) insert—E+W+S+N.I.

Deemed assignment of derivative contracts on company ceasing to be resident in UK etcE+W+S+N.I.

22A(1)This paragraph applies if at any time (“the relevant time”)—

(a)a company ceases to be resident in the United Kingdom, or

(b)in the case of a company not resident in the United Kingdom, the rights and liabilities of the company under a derivative contract to any extent cease to be held or owed for the purposes of a permanent establishment of the company in the United Kingdom in circumstances not involving a related transaction.

(2)In a case falling within sub-paragraph (1)(a), this Schedule shall have effect as if the company had—

(a)immediately before the relevant time, assigned its rights and liabilities under its derivative contracts for a consideration of an amount equal to their fair value at that time, and

(b)immediately reacquired them for a consideration of the same amount.

(3)Sub-paragraph (2) does not apply in relation to a derivative contract to the extent that, immediately after the relevant time, the company’s rights and liabilities under the contract are held or owed for the purposes of a permanent establishment of the company in the United Kingdom.

(4)In a case falling within sub-paragraph (1)(b), this Schedule shall have effect as if the company had—

(a)immediately before the relevant time, assigned the rights and liabilities, so far as ceasing to be held or owed for the purposes of the permanent establishment, for a consideration of an amount equal to their fair value at that time, and

(b)immediately reacquired them for a consideration of the same amount.

(5)In this paragraph “fair value” shall be construed in accordance with paragraph 17..

(2)The amendment made by this paragraph has effect where the cessation in question occurs on or after 17th March 2004.

Derivative contracts for unallowable purposesE+W+S+N.I.

4(1)In paragraph 23, in sub-paragraph (7) (definition of amount of accumulated credits against which accumulated net losses may be brought into account) in paragraph (b) after “an amount equal to” insert E+W+S+N.I.

(i)so much of any debits arising, in the case of the derivative contract, for that accounting period or any earlier accounting period as is not, in accordance with sub-paragraph (3), referable to the unallowable purpose, and

(ii).

(2)The amendment made by this paragraph has effect in relation to accounting periods ending on or after 17th March 2004.

Open-ended investment companies: capital profits and lossesE+W+S+N.I.

5(1)In paragraph 33(4)(b) (which refers to a subsequent statement of recommended practice issued by Financial Services Authority) omit “issued by the Financial Services Authority”.E+W+S+N.I.

(2)This amendment has effect in relation to accounting periods beginning on or after 1st February 2004.

Section 52

SCHEDULE 10E+W+S+N.I.Amendment of enactments that operate by reference to accounting practice

Part 1 E+W+S+N.I.Loan relationships

Main computational provisionsE+W+S+N.I.

1(1)Section 84 of the Finance Act 1996 (c. 8) (debits and credits to be brought into account) is amended as follows.E+W+S+N.I.

(2)In subsection (1) omit “in accordance with an authorised accounting method and”.

(3)Omit subsections (2) and (4A).

(4)For subsection (7) substitute—

(7)Schedule 9 to this Act contains further provisions as to the debits and credits to be brought into account for the purposes of this Chapter..

2(1)Section 84A of that Act (exchange gains and losses from loan relationships) is amended as follows.E+W+S+N.I.

(2)For subsection (3) substitute—

(3)Subsection (1) does not apply to an exchange gain or loss of a company to the extent that it arises—

(a)in relation to an asset or liability representing a loan relationship of the company, or

(b)as a result of the translation from one currency to another of the profit or loss of part of the company’s business,

and is recognised in the company’s statement of recognised gains and losses or statement of changes in equity.

(3A)Subsection (1) does not apply to so much of an exchange gain or loss arising to a company in relation to an asset or liability representing a loan relationship of the company as falls within a description prescribed for the purpose in regulations made by the Treasury..

(3)Omit subsections (4) to (7).

(4)In subsection (8) after “(3)” insert “ or (3A) ”.

(5)In subsection (10) at the end add “ and power to make provision subject to an election or to other prescribed conditions ”.

3For sections 85 and 86 of that Act (authorised accounting methods and their application) substitute—E+W+S+N.I.

85AComputation in accordance with generally accepted accounting practice

(1)Subject to the provisions of this Chapter, the amounts to be brought into account by a company for any period for the purposes of this Chapter are those that, in accordance with generally accepted accounting practice, are recognised in determining the company’s profit or loss for the period.

(2)If a company does not draw up accounts in accordance with generally accepted accounting practice (“correct accounts”)—

(a)the provisions of this Chapter apply as if correct accounts had been drawn up, and

(b)the amounts referred to in this Chapter as being recognised for accounting purposes are those that would have been recognised if correct accounts had been drawn up.

(3)If a company draws up accounts that rely to any extent on amounts derived from an earlier period of account for which the company did not draw up correct accounts, the amounts referred to in this Chapter as being recognised for accounting purposes in the later period are those that would have been recognised if correct accounts had been drawn up for the earlier period.

(4)The provisions of subsections (2) and (3) apply where the company does not draw up accounts at all as well as where it draws up accounts that are not correct.

85BAmounts recognised in determining company’s profit or loss

(1)Any reference in this Chapter to an amount being recognised in determining a company’s profit or loss for a period is to an amount being recognised for accounting purposes—

(a)in the company’s profit and loss account,

(b)in the company’s statement of recognised gains and losses or statement of changes in equity, or

(c)in any other statement of items brought into account in computing the company’s profits and losses for that period.

(2)Subsection (1) does not apply to an amount recognised for accounting purposes by way of correction of a fundamental error.

(3)The Treasury may by regulations—

(a)make provision excluding from subsection (1) amounts of a prescribed description, and

(b)make provision for or in connection with bringing into account in prescribed circumstances amounts in relation to which subsection (1) does not have effect by virtue of regulations under paragraph (a) above.

(4)The regulations may provide that subsection (1) does not apply to prescribed amounts in a period of account to the extent that they derive from or otherwise relate to amounts brought into account in a prescribed manner in a previous period of account.

(5)The power to make regulations under this section includes—

(a)power to make different provision for different cases; and

(b)power to make provision subject to an election or to other prescribed conditions.

(6)The power to make regulations under this section does not apply to exchange gains or losses (but see section 84A(3A)and (8) to (10))..

4In section 87 of that Act (accounting method where parties have a connection), for subsection (2) substitute—E+W+S+N.I.

(2)Where this section applies the debits and credits to be brought into account for the purposes of this Chapter as respects the loan relationship must be determined on an amortised cost basis of accounting.

(2A)The provisions of subsections (2B) and (2C) apply where subsection (2) applies, or ceases to apply, with the result that there is a change of basis of accounting for a loan relationship as between one accounting period of a company and the next.

(2B)Where for an accounting period (“the relevant period”) a company brings into account debits or credits determined in accordance with an amortised cost basis of accounting, having used a fair value basis of accounting for the immediately previous accounting period (“the previous period”)—

(a)any amount by which the fair value of the relevant asset or liability at the end of the previous period (“A”) exceeds the cost of the asset or liability that would be given at that time on an amortised cost basis of accounting (“B”) shall be brought into account for the purposes of this Chapter as a debit (in the case of an asset) or credit (in the case of a liability) for the relevant period, and

(b)any amount by which B exceeds A shall be brought into account for the purposes of this Chapter as a credit (in the case of an asset) or debit (in the case of a liability) for that period.

(2C)Where for an accounting period (“the relevant period”) a company brings into account debits or credits determined on the basis of fair value accounting, having used an amortised cost basis of accounting for the immediately previous accounting period (“the previous period”)—

(a)any amount by which the fair value of the relevant asset or liability immediately before the relevant period (“C”) exceeds the cost of the asset or liability that would be given at that time on an amortised cost basis of accounting (“D”) shall be brought into account for the purposes of this Chapter as a credit (in the case of an asset) or debit (in the case of a liability) for the relevant period, and

(b)any amount by which D exceeds C shall be brought into account for the purposes of this Chapter as a debit (in the case of an asset) or credit (in the case of a liability) for that period..

5In section 88 of that Act (exemption from section 87 in certain cases), omit subsection (2)(b) and subsection (3)(b).E+W+S+N.I.

6(1)Section 88A of that Act (accounting method where rate of interest is reset) is amended as follows.E+W+S+N.I.

(2)In subsection (4) for the words from “the only accounting method authorised” to the end substitute “ the debits and credits to be brought into account for the purposes of this Chapter as respects the loan relationship must be determined on the basis of fair value accounting ”.

(3)Omit subsection (5).

7Omit section 90 of that Act (changes of accounting method).E+W+S+N.I.

8After that section insert—E+W+S+N.I.

90AChange of accounting basis applicable to assets or liabilities

(1)The Treasury may by regulations provide that where in accordance with generally accepted accounting practice assets or liabilities of a company that were previously dealt with for accounting purposes on an amortised cost basis of accounting are required to be dealt with for accounting purposes on the basis of fair value accounting, the debits or credits to be brought into account for the purposes of this Chapter shall continue be determined on an amortised cost basis of accounting.

(2)The power to make regulations under this section includes power—

(a)to make different provision for different cases;

(b)to make such consequential, supplementary, incidental or transitional provision, or savings, as appear to the Treasury to be necessary or expedient; and

(c)to make provision subject to an election or to other prescribed conditions..

9(1)Omit section 92 of that Act (convertible securities etc.: creditor relationships).E+W+S+N.I.

(2)Where at the relevant time a company holds an asset to which section 92 applies—

(a)section 92(7) (deemed disposal and re-acquisition) shall have effect as if the asset had ceased at that time to be an asset to which that section applied (but without ceasing to represent a creditor relationship of the company), and

(b)any amount falling to be brought into account under the Taxation of Chargeable Gains Act 1992 (c. 12) shall be brought into account in accordance with section 92(4) accordingly.

(3)The relevant time for this purpose is immediately before the end of the last period of account before that in relation to which sub-paragraph (1) has effect (see section 52(3) of this Act).

10Omit section 92A of that Act (convertible securities etc.: debtor relationships).E+W+S+N.I.

11(1)Omit sections 93, 93A and 93B of that Act (relationships linked to the value of chargeable assets).E+W+S+N.I.

(2)Where at the relevant time a company holds an asset to which section 93 applies—

(a)section 93B (deemed disposal and re-acquisition) shall have effect as if the asset had ceased at that time to be an asset to which section 93 applied (but without ceasing to represent a creditor relationship of the company), and

(b)any amount falling to be brought into account under the Taxation of Chargeable Gains Act 1992 (c. 12) shall be brought into account in accordance with section 93(4) accordingly.

(3)The relevant time for this purpose is immediately before the end of the last period of account before that in relation to which sub-paragraph (1) has effect (see section 52(3) of this Act).

12Omit section 94 of that Act (indexed gilt-edged securities).E+W+S+N.I.

13After that section insert—E+W+S+N.I.

94ALoan relationships with embedded derivatives

(1)This section applies where a company is permitted or required in accordance with generally accepted accounting practice to treat the rights and liabilities under a loan relationship to which it is party (whether as debtor or creditor) as divided between—

(a)rights and liabilities under a loan relationship (the “host contract”), and

(b)rights and liabilities under one or more derivative financial instruments or equity instruments (“embedded derivatives”).

(2)The company shall be treated—

(a)for the purposes of this Chapter as party to a loan relationship whose rights and liabilities consist only of the rights and liabilities of the host contract, and

(b)for the purposes of Schedule 26 to the Finance Act 2002 (derivative contracts) as—

(i)party to a relevant contract within the meaning of that Schedule whose rights and liabilities consist only of those of the embedded derivative, or

(ii)if there is more than one embedded derivative, party to relevant contracts within the meaning of that Schedule each of whose rights and liabilities consist only of those of one of the embedded derivatives.

(3)Each relevant contract to which the company is treated as party under subsection (2)(b) shall be treated for the purposes of that Schedule as an option, a future or a contract for differences according to whether the rights and liabilities of the embedded derivative would be of that character if contained in a separate contract..

14In section 95 of that Act (gilt strips), in subsection (1) for the words from “has effect” to “accruals basis of accounting” substitute “ applies ”.E+W+S+N.I.

15In section 96 of that Act (special rules for certain other gilts), omit subsection (3).E+W+S+N.I.

16In section 101 of that Act (financial instruments), after subsection (1) insert—E+W+S+N.I.

(1A)This section does not apply where section 94A above applies (treatment of embedded derivatives)..

17(1)Section 103 of that Act (interpretation) is amended as follows.E+W+S+N.I.

(2)In subsection (1)—

(a)omit the definition of “authorised accounting method”, “authorised accruals basis of accounting” and “authorised mark to market basis of accounting”;

(b)at the appropriate places insert—

amortised cost basis of accounting”, in relation to a loan relationship of a company, means a basis of accounting under which an asset or liability representing the loan relationship is shown in the company’s accounts at cost adjusted for cumulative amortisation and any impairment, repayment or release;;

fair value”, in relation to a loan relationship of a company, means the amount which, at the time as at which the value falls to be determined, is the amount that the company would obtain from or, as the case may be, would have to pay to an independent person for—

(a)the transfer of all the company’s rights under the relationship in respect of amounts which at that time are not yet due and payable, and

(b)the release of all the company’s liabilities under the relationship in respect of amounts which at that time are not yet due and payable;;

fair value accounting” means a basis of accounting under which assets or liabilities are shown in the company’s balance sheet at their fair value;;

impairment” includes uncollectability;; and

impairment loss” means a debit in respect of the impairment of a financial asset;;

(c)omit the definition of “statutory accounts”.

(3)Omit subsection (5).

Special computational provisionsE+W+S+N.I.

18Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special computational provisions) is amended as follows.E+W+S+N.I.

19In paragraph 3 (1) (options etc.) for “an authorised accruals basis of accounting” substitute “ an amortised cost basis of accounting ”.E+W+S+N.I.

20(1)Paragraph 5 (bad debts etc.) is amended as follows.E+W+S+N.I.

(2)For the heading substitute Release of liability under debtor relationship.

(3)Omit sub-paragraphs (1) to (2A).

(4)In sub-paragraph (3)(b) for “an authorised accruals basis of accounting” substitute “ an amortised cost basis of accounting ”.

(5)In sub-paragraphs (5), (6)(b) and (c) and (7)(a) for “requires the use of an authorised accruals basis of accounting” substitute “ applies ”.

21(1)Paragraph 5A (bad debts and consortium relief) is amended as follows.E+W+S+N.I.

(2)In the heading for “Bad debts” substitute Impairment losses.

(3)In sub-paragraph (2) for “by virtue of paragraph 5 above a debit” substitute “ an impairment loss ”.

(4)In sub-paragraphs (5)(a) and (8)(b) for “debits brought into account for that period by virtue of paragraph 5 above” substitute “ impairment losses brought into account for that period ”.

(5)In sub-paragraph (9) omit “by virtue of paragraph 5(2) above”.

(6)In sub-paragraph (14), in the closing words, for “sub-paragraph (12)” substitute “ sub-paragraph (6) ”.

(7)For sub-paragraph (15)(a) substitute—

(a)the debtor consortium company has, in accordance with an amortised cost basis of accounting, brought into account for an accounting period an amount in respect of a release of any liability under a debtor relationship, and.

(8)In the closing words of sub-paragraph (15) omit “under paragraph 5(1)”.

(9)In sub-paragraph (19), in the definition of “related debt recovery credit” for “by virtue of paragraph 5(2) above in connection with a bad debt” substitute “ in connection with a debt ”.

22(1)Paragraph 6 (bad debts etc where parties have a connection) is amended as follows.E+W+S+N.I.

(2)In the heading for “Bad debt etc” substitute Impairment losses.

(3)In sub-paragraph (1) for “requires an authorised accruals basis of accounting to be used” substitute “ (accounting method where parties have a connection) applies ”.

(4)In sub-paragraph (2) omit “in accordance with that accounting method”.

(5)For sub-paragraph (3) substitute—

(3)An impairment loss may be brought into account for the purposes of this Chapter only in accordance with—

(a)sub-paragraph (4) below,

(b)paragraph 6A, or

(c)paragraph 6B..

(6)After that sub-paragraph insert—

(3A)Where an impairment loss is excluded by sub-paragraph (3), no credit in respect of any reversal of the impairment shall be brought into account for the purposes of this Chapter..

(7)In sub-paragraph (4) for “A departure from that assumption shall be allowed” substitute “ An impairment loss is not excluded by sub-paragraph (3) ”.

23(1)Paragraph 6A (bad debts etc.: parties having connection and creditor in insolvent liquidation etc.) is amended as follows.E+W+S+N.I.

(2)In the heading for “Bad debt etc” substitute Impairment losses.

(3)In sub-paragraph (2) for the words from “a departure” to “shall be allowed” substitute “ an impairment loss is not excluded by paragraph 6(3) ”.

24(1)Paragraph 6B (bad debts etc.: companies becoming connected) is amended as follows.E+W+S+N.I.

(2)In the heading for “Bad debt etc” substitute Impairment losses.

(3)In sub-paragraph (1) for the words following paragraph (b) substitute “ an impairment loss is not excluded by paragraph 6(3) in the following two cases ”.

(4)In sub-paragraph (2)—

(a)for the opening words down to “if—” substitute “ The first case is where— ”;

(b)in paragraph (a) for “a departure has been allowed under paragraph 5 (1) above” substitute “ an impairment loss has been brought into account for the purposes of this Chapter ”.

(5)In sub-paragraph (3) for “A departure shall be allowed” substitute “ An impairment loss may be brought into account ”.

(6)For sub-paragraph (5) substitute—

(5)The second case is where the following conditions are met..

(7)In sub-paragraph (7) for “A departure shall be allowed” substitute “ An impairment loss may be brought into account ”.

25(1)Paragraph 6C (bad debts etc.: cessation of connection) is amended as follows.E+W+S+N.I.

(2)In the heading for “Bad debt etc: departure not permitted by paragraph 6:” substitute Impairment losses:.

(3)For sub-paragraph (1)(a) substitute—

(a)an impairment loss is excluded by paragraph 6(3) in any accounting period, and.

(4)In sub-paragraph (2) omit “by virtue of paragraph 5(2) above”.

26In paragraph 8 (restriction on writing off overseas sovereign debts etc.), for sub-paragraphs (1) and (2) substitute—E+W+S+N.I.

(1)This paragraph applies as respects the debits and credits to be brought into account for the purposes of this Chapter in respect of the impairment of a financial asset representing a relevant overseas debt.

This paragraph does not apply where fair value accounting is used.

(2)Where this paragraph applies the debits and credits to be so brought into account for any accounting period shall be determined on the basis that it is not permissible for the asset to be impaired by more than the relevant percentage..

27(1)Paragraph 9 (further restriction on bringing into account losses on overseas sovereign debt etc.) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1) for paragraphs (a) and (b) substitute—

(a)an impairment loss falls to be brought into account for the purposes of this Chapter in respect of a relevant overseas debt in relation to which any of the conditions in sub-paragraph (2) is met,

(b)in the accounting period in which that loss falls to be so brought into account (“the loss period”) the company ceases to be a party to the loan relationship,.

(3)In sub-paragraph (2)—

(a)for the opening words down to “if—” substitute “ The conditions referred to in sub-paragraph (1)(a) are— ”;

(b)in paragraph (b)—

(i)after “Chapter” insert “ for a period of account of the company beginning before 1st January 2005 ”, and

(ii)for “paragraph 5(1)(a) to (c) above” substitute “ paragraph 5(1)(a) to (c) of this Schedule as it had effect before its amendment by Schedule 10 to the Finance Act 2004 ”;

(c)omit the “or” at the end of paragraph (b);

(d)after that paragraph insert—

(ba)an impairment loss in respect of the debt has been brought into account for the purposes of this Chapter for a period of account of the company beginning on or after 1st January 2005; or.

28In paragraph 10 (imported losses etc.), for sub-paragraph (1) substitute—E+W+S+N.I.

(1)This paragraph applies in the case of a company (“the chargeable company”) for an accounting period (“the loss period”) where—

(a)there is a loss arising in connection with a loan relationship of the company which apart from this paragraph would fall to be brought into account for the purposes of this Chapter, and

(b)that loss is referable in whole or in part to a time when the relationship was not subject to United Kingdom taxation.

This paragraph does not apply where fair value accounting is used..

29In paragraph 10A (deemed disposal on company ceasing to be resident in UK etc.), omit sub-paragraph (5).E+W+S+N.I.

30In paragraph 11 (transactions not at arm’s length), for sub-paragraph (1) substitute—E+W+S+N.I.

(1)Where—

(a)debits or credits in respect of a loan relationship of a company fall to be brought into account for the purposes of this Chapter in respect of a related transaction, and

(b)that transaction is not a transaction at arm’s length,

the debits or credits to be brought into account shall be determined on the assumption that the transaction was entered into on the terms on which it would have been entered into between independent persons.

This is subject to the exceptions in sub-paragraphs (1A), (2), (3) and (3A)..

31In paragraph 12 (continuity of treatment: groups etc.), in sub-paragraph (2A)—E+W+S+N.I.

(a)in the opening words for “an authorised mark to market basis of accounting” substitute “ fair value accounting ”;

(b)at the end of paragraph (a) insert “ ; and ”; and

(c)omit paragraph (b) and the word “and” preceding it.

32In paragraph 13 (loan relationships for unallowable purposes), in the closing words of sub-paragraph (1) omit “given by the authorised accounting method used”.E+W+S+N.I.

33(1)Paragraph 14 (debits and credits treated as relating to capital expenditure) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1) omit “given by an authorised accounting method”.

(3)After sub-paragraph (3) add—

(4)Where a debit is brought into account by a company in accordance with sub-paragraph (1), no debit shall be brought into account in respect of—

(a)the writing down of so much of the value of the fixed capital asset or project as is attributable to that debit, or

(b)so much of any amortisation or depreciation as represents a writing off of the interest component of the asset..

34In paragraph 16 (amounts imputed under Schedule 28AA to the Taxes Act 1988), in sub-paragraph (2) omit “, notwithstanding the provisions of any authorised accounting method,”.E+W+S+N.I.

35(1)Paragraph 19 (partnerships involving companies) is amended as follows.E+W+S+N.I.

(2)Omit sub-paragraph (10).

(3)For sub-paragraph (11) substitute—

(11)Where the company partner uses fair value accounting in relation to its interest in the partnership, the debits and credits to be brought into account under this paragraph by that company must be determined on the basis of fair value accounting..

(4)In sub-paragraph (12) for the words from “carried to or sustained by a reserve” to the end substitute “ recognised in the firm’s statement of recognised gains and losses or statement of changes in equity ”.

36After paragraph 19 insert—E+W+S+N.I.

Adjustment on change of accounting policyE+W+S+N.I.

19A(1)This paragraph applies where—

(a)there is a change of accounting policy in drawing up a company’s accounts from one period of account (the “earlier period”) to the next (the “later period”), and

(b)the approach in each of those periods accorded with the law and practice applicable in relation to that period.

(2)This paragraph applies, in particular, where—

(a)the company prepares accounts for the earlier period in accordance with UK generally accepted accounting practice and for the later period in accordance with international accounting standards, or

(b)the company prepares accounts for the earlier period in accordance with international accounting standards and for the later period in accordance with UK generally accepted accounting practice.

(3)If there is a difference between—

(a)the accounting value of an asset or liability representing a loan relationship of the company at the end of the earlier period, and

(b)the accounting value of that asset or liability at the beginning of the later period,

a corresponding debit or credit (as the case may be) shall be brought into account for the purposes of this Chapter in the later period.

(4)In sub-paragraph (3) “accounting value” means the carrying value of the asset or liability recognised for accounting purposes.

(5)This paragraph does not apply if or to the extent that such a debit or credit as is mentioned in sub-paragraph (3) falls to be brought into account apart from this paragraph.

(6)Where or to the extent that an adjustment is made under this paragraph, no adjustment under Schedule 22 (computation of profits: adjustment on change of basis) shall be made.

Power to make further provision by regulationsE+W+S+N.I.

19B(1)The Treasury may by regulations make provision for cases where there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next affecting the amounts to be brought into account for accounting purposes in respect of the company’s loan relationships.

(2)The regulations may provide for any debits or credits that would otherwise be brought into account for the purposes of this Chapter—

(a)not to be brought into account,

(b)to be brought into account only to a prescribed extent, or

(c)to be brought into account over a prescribed period or in prescribed circumstances.

(3)Regulations under this paragraph may, in particular, modify the operation of paragraph 19A.

(4)The power to make regulations under this paragraph includes power—

(a)to make different provision for different cases, and

(b)to make such consequential, supplementary, incidental or transitional provision, or savings, as appear to the Treasury to be necessary or expedient..

Collective investment schemes etc.E+W+S+N.I.

37Schedule 10 to the Finance Act 1996 (c. 8) (loan relationships: collective investment schemes) is amended as follows.E+W+S+N.I.

38For paragraph 1A (investment trusts and venture capital trusts: capital reserves) substitute—E+W+S+N.I.

Investment trusts: capital profits, gains or lossesE+W+S+N.I.

1A(1)Capital profits, gains or losses arising to an investment trust from a creditor relationship must not be brought into account as credits or debits for the purposes of this Chapter.

(2)For the purposes of this paragraph “capital profits, gains or losses”—

(a)in the case of an investment trust that prepares accounts in accordance with UK generally accepted accounting practice, has the meaning given by sub-paragraphs (3) and (4), and

(b)in the case of an investment trust that prepares accounts in accordance with international accounting standards, has the meaning given by order made by the Treasury.

(3)