Search Legislation

Finance Act 2004

Status:

This is the original version (as it was originally enacted).

SCHEDULES

Section 4

SCHEDULE 1New 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 2ADuty stamps

Retail containers to be stamped

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 applies

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 stamps

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.

Regulations

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 containers

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 containers

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 6

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 stamps

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-labelling

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 regulations

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 stamps

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.

Interpretation

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 2Disclosure of value added tax avoidance schemes

Part 1Principal amendments of Value Added Tax Act 1994

1After section 58 of the Value Added Tax Act 1994 (c. 23) insert—

Disclosure of avoidance schemes

58ADisclosure of avoidance schemes

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

2After Schedule 11 to that Act insert—

Section 58A

SCHEDULE 11ADisclosure of avoidance Schemes

Interpretation

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 advantage

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 schemes

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 schemes

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”

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 Commissioners

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 6

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 exemption

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 scheme

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 scheme

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 penalty

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 assessments

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.

13Regulations under this Schedule—

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

(b)may include transitional provisions or savings..

Part 2Consequential 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”.

4In section 83 of that Act (appeals) after paragraph (z) insert—

(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;.

5(1)Section 84 of that Act (further provisions relating to appeals) is amended as follows.

(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..

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—

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

Section 28

SCHEDULE 3Corporation tax: the non-corporate distribution rate: supplementary provisions

Part 1General provisions

Introduction

1The provisions of this Schedule supplement section 13AB (corporation tax: the non-corporate distribution rate).

Meaning of “non-corporate distribution”

2(1)A “non-corporate distribution” means a distribution made by a company to a recipient who is not a company.

  • “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”

3(1)A company’s underlying rate of corporation tax for an accounting period is determined as follows:

  • 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—

    Formula - (CT divided by BP) multiplied by 100

(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 profits

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.

Matching: distributions exceeding basic profits

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—

Formula - (NCD divided by D) multiplied by BP

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 2Allocation of excess NCDs to other companies

Allocation of excess NCDs to other companies

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.

(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 companies

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.

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:

BP - NCD

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:

Formula - (NCD divided by D) multiplied by AP

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 allocated

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.

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: degrouping

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.

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: procedure

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.

(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 excessive

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.

(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 Kingdom

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.

(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 3Other supplementary provisions

Carry forward of excess NCDs

13(1)Any excess NCDs not allocated to another company under Part 2 shall be carried forward by the distributing company.

(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 group

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.

(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 group

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.

(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 period

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.

Holding companies treated as carrying on a business

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.

(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.

Interpretation

18In section 13AB and this Schedule—

  • “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 4Amendments relating to the rate applicable to trusts

Sums paid to settlor otherwise than as income

1(1)Section 677 of the Taxes Act 1988 (sums paid to settlor otherwise than as income) is amended as follows.

(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 cases

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”.

Commencement

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).

Section 30

SCHEDULE 5Provision not at arm’s length: related amendments

Taxes Management Act 1970

Notice of enquiry

1(1)Section 9A of the Taxes Management Act 1970 (c. 9) is amended as follows.

(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 1988

Valuation of trading stock at discontinuance of trade

2(1)Section 100 of the Taxes Act 1988 is amended as follows.

(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 income

3(1)Section 494 of the Taxes Act 1988 (charges on income) is amended as follows.

(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 pricing

4In Schedule 24 to the Taxes Act 1988, paragraph 20 shall cease to have effect.

Finance Act 1996

Loan relationships: introductory

5Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special computational provisions) is amended as follows.

Transactions not at arm’s length

6(1)Paragraph 11 is amended as follows.

(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.

7(1)Paragraph 12 is amended as follows.

(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 1988

8For paragraph 16 (imputed interest) substitute—

Amounts imputed under Schedule 28AA to the Taxes Act 1988

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 1998

Introductory

9The Finance Act 1998 (c. 36) is amended as follows.

Scope of enquiry

10(1)In Schedule 18 (company tax returns, assessments and related matters) paragraph 25 is amended as follows.

(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 2000

Introductory: tonnage tax: transactions not at arm’s length

11Schedule 22 to the Finance Act 2000 (c. 17) (tonnage tax) is amended as follows.

Transactions between tonnage tax company and another person

12(1)Paragraph 58 is amended as follows.

(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 company

13(1)Paragraph 59 is amended as follows.

(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 2002

Introductory

14The Finance Act 2002 (c. 23) is amended as follows.

Derivative contracts

15(1)Schedule 26 (derivative contracts) is amended as follows.

(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 1988

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 assets

16(1)Schedule 29 (gains and losses of a company from intangible fixed assets) is amended as follows.

(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 6Expenses of companies with investment business and insurance companies

Income and Corporation Taxes Act 1988

Levies and repayments under Financial Services and Markets Act 2000: investment companies

1(1)Section 76B of the Taxes Act 1988 is amended as follows.

(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 finance

2(1)Section 77 of the Taxes Act 1988 is amended as follows.

(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.

3(1)Section 768B of the Taxes Act 1988 is amended as follows.

(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 group

4(1)Section 768C of the Taxes Act 1988 is amended as follows.

(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 business

5(1)Section 768D of the Taxes Act 1988 is amended as follows.

(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 assets

6(1)Section 768E of the Taxes Act 1988 is amended as follows.

(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 1989

Charge of certain receipts of basic life assurance business

7(1)Section 85 of the Finance Act 1989 (c. 26) is amended as follows.

(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 expenses

8(1)Section 86 of the Finance Act 1989 (c. 26) is amended as follows.

(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 1996

Loan relationships: special provisions for insurers: treatment of deficit

9(1)In Schedule 11 to the Finance Act 1996 (c. 8) paragraph 4 is amended as follows.

(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 7Insurance companies etc

Transfers of business

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

2(1)Section 444AB of the Taxes Act 1988 (charge on transferor retaining assets) is amended as follows.

(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—

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—

(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”.

(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 gains

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”.

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

Double taxation

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—

(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”

8(1)Section 432A of the Taxes Act 1988 (apportionment of income and gains) is amended as follows.

(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—

(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 8Loan relationships: miscellaneous amendments

Introductory

1Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special computational provisions) is amended as follows.

Late interest: close companies where limited partnership is collective investment scheme etc

2(1)Paragraph 2 (late interest) is amended as follows.

(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 proceedings

3(1)Paragraph 5 (bad debts etc) is amended as follows.

(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 receivership

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

(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 etc

5(1)After paragraph 10 (imported losses etc) insert—

Deemed assignment of assets and liabilities on company ceasing to be resident in UK etc

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 etc

6(1)Paragraph 18 (discounted securities of close companies) is amended as follows.

(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 interest

7(1)Paragraph 20 (major interest) is amended as follows.

(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 9Derivative contracts: miscellaneous amendments

Introductory

1Schedule 26 to the Finance Act 2002 (c. 23) is amended as follows.

Power to amend provisions of Schedule 26

2(1)Paragraph 13 is amended as follows.

(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 etc

3(1)At the beginning of Part 6 (special computational provisions) insert—

Deemed assignment of derivative contracts on company ceasing to be resident in UK etc

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 purposes

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

(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 losses

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”.

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

Section 52

SCHEDULE 10Amendment of enactments that operate by reference to accounting practice

Part 1Loan relationships

Main computational provisions

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

(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.

(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—

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—

(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).

6(1)Section 88A of that Act (accounting method where rate of interest is reset) is amended as follows.

(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).

8After that section insert—

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).

(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).

11(1)Omit sections 93, 93A and 93B of that Act (relationships linked to the value of chargeable assets).

(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).

13After that section insert—

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”.

15In section 96 of that Act (special rules for certain other gilts), omit subsection (3).

16In section 101 of that Act (financial instruments), after subsection (1) insert—

(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.

(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 provisions

18Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special computational provisions) is amended as follows.

19In paragraph 3 (1) (options etc.) for “an authorised accruals basis of accounting” substitute “an amortised cost basis of accounting”.

20(1)Paragraph 5 (bad debts etc.) is amended as follows.

(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.

(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.

(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.

(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.

(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.

(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—

(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.

(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—

(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).

30In paragraph 11 (transactions not at arm’s length), for sub-paragraph (1) substitute—

(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)—

(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”.

33(1)Paragraph 14 (debits and credits treated as relating to capital expenditure) is amended as follows.

(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,”.

35(1)Paragraph 19 (partnerships involving companies) is amended as follows.

(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—

Adjustment on change of accounting policy

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 regulations

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.

37Schedule 10 to the Finance Act 1996 (c. 8) (loan relationships: collective investment schemes) is amended as follows.

38For paragraph 1A (investment trusts and venture capital trusts: capital reserves) substitute—

Investment trusts: capital profits, gains or losses

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)In the cases mentioned in sub-paragraph (2)(a) capital profits, gains or losses arising from a creditor relationship in an accounting period are profits, gains or losses that are carried to or sustained by a capital reserve in accordance with the Statement of Recommended Practice.

(4)For the purposes of this paragraph the Statement of Recommended Practice is, for an accounting period for which it is required or permitted to be used—

(a)the Statement of Recommended Practice relating to Investment Trust Companies, issued by the Association of Investment Trust Companies in January 2003, as from time to time modified, amended or revised, or

(b)any subsequent Statement of Recommended Practice relating to investment trusts, as from time to time modified, amended or revised.

Venture capital trusts: capital profits, gains or losses

1B(1)Capital profits, gains or losses arising to a venture capital 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 a venture capital 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 a venture capital trust that prepares accounts in accordance with international accounting standards, has the meaning given by order made by the Treasury.

(3)In the cases mentioned in sub-paragraph (2)(a) capital profits, gains or losses arising from a creditor relationship in an accounting period are profits, gains or losses that—

(a)are carried to or sustained by a capital reserve in accordance with the Statement of Recommended Practice as if the venture capital trust were an investment trust, or

(b)would be so carried to or sustained by a capital reserve if the venture capital trust were an investment trust and were using the Statement of Recommended Practice.

(4)For the purposes of this paragraph the Statement of Recommended Practice is, in relation to an accounting period for which it is required or permitted to be used—

(a)the Statement of Recommended Practice relating to Investment Trust Companies, issued by the Association of Investment Trust Companies in January 2003, as from time to time modified, amended or revised, or

(b)any subsequent Statement of Recommended Practice relating to investment trusts, as from time to time modified, amended or revised..

39(1)Paragraph 2A (authorised unit trusts) is amended as follows.

(2)In the heading at the end add “: capital profits, gains or losses”.

(3)In sub-paragraph (1) omit “, notwithstanding section 84(2)(b) of this Act”.

(4)After that sub-paragraph insert—

(1A)For the purposes of this paragraph “capital profits, gains or losses”—

(a)in the case of an authorised unit trust that prepares accounts in accordance with UK generally accepted accounting practice, has the meaning given by sub-paragraphs (2) to (4), and

(b)in the case of an authorised unit trust that prepares accounts in accordance with international accounting standards, has the meaning given by order made by the Treasury..

(5)In sub-paragraph (2) for the words “For the purposes of this paragraph” substitute “In the cases mentioned in sub-paragraph (1A)(a)”.

(6)In sub-paragraph (5) after “the definition of capital profits, gains or losses” insert “in sub-paragraphs (2) to (4)”.

40(1)Paragraph 2B (open-ended investment companies) is amended as follows.

(2)In the heading at the end add “: capital profits, gains or losses”.

(3)In sub-paragraph (1) omit “, notwithstanding section 84(2)(b) of this Act”.

(4)After that sub-paragraph insert—

(1A)For the purposes of this paragraph “capital profits, gains or losses”—

(a)in the case of a company that prepares accounts in accordance with UK generally accepted accounting practice, has the meaning given by sub-paragraphs (2) to (4), and

(b)in the case of a company that prepares accounts in accordance with international accounting standards, has the meaning given by order made by the Treasury..

(5)In sub-paragraph (2) for the words “For the purposes of this paragraph” substitute “In the cases mentioned in sub-paragraph (1A)(a)”.

(6)In sub-paragraph (5) after “the definition of capital profits, gains or losses” insert “in sub-paragraphs (2) to (4)”.

41(1)Paragraph 4 (company holdings in unit trusts and offshore funds) is amended as follows.

(2)For sub-paragraph (3) substitute—

(3)The debits and credits to be brought into account for the purposes of this Chapter as respects the company’s relevant holdings must be determined on the basis of fair value accounting..

(3)In sub-paragraph (4) for the words from the beginning to “for the purposes of this Chapter,” substitute “Sub-paragraph (3) shall not be taken, as respects any accounting period,”.

42In Schedule 11 to the Finance Act 1996 (c. 8) (loan relationships: special provision for insurers), in paragraph 1(1A) for “sections 92(1)(f), 93(1)(a) and (b) and 96(1)(b)” substitute “section 96(1)(b).

Consequential amendments

43In section 440 of the Taxes Act 1988 (insurance companies: transfers of assets etc.), in subsection (2A) (treatment of asset representing loan relationship), for the words from “any authorised accounting method” to “shall be applied” substitute “Chapter 2 of Part 4 of the Finance Act 1996 applies”.

44In section 730A of that Act (treatment of price differential on sale and repurchase of securities), in subsection (6) (treatment of loan relationships)—

(a)omit paragraph (b) (but not the word “and” following it), and

(b)in the closing words for “paragraphs (b) and (c)” substitute “paragraph (c)”.

45In Schedule 28A of that Act (change in ownership of investment company), in paragraphs 7(1)(d)(ii) and (e)(ii), 11(1)(a) and (3)(c) and 16(1)(d)(ii) and (e)(ii) for “authorised accruals” substitute “amortised cost”.

46In paragraph 7(3) of Schedule 26 to the Transport Act 2000 (c. 38) (transfers under that Act), for “an authorised accounting method” substitute “a basis of accounting”.

Part 2Derivative contracts

Method of taxation

47(1)In Schedule 26 to the Finance Act 2002 (c. 23) (derivative contracts: method of taxation), paragraph 15 (credits and debits to be brought into account) is amended as follows.

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

(3)Omit sub-paragraphs (2), (3) and (6).

(4)In sub-paragraph (9) for “paragraph 16” substitute “the following provisions of this Schedule”.

48(1)Paragraph 16 of that Schedule (exchange gains and losses arising from derivative contracts) is amended as follows.

(2)For sub-paragraph (3) substitute—

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

(a)arises in relation to a derivative contract whose underlying subject matter consists wholly or partly of currency, or

(b)results from 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)Sub-paragraph (1) above does not apply to so much of an exchange gain or loss arising to a company, in relation to a derivative contract whose underlying subject matter consists wholly or partly of currency, as falls within a description prescribed for the purpose in regulations made by the Treasury..

(3)Omit sub-paragraphs (4) to (7).

(4)In sub-paragraph (8) after “(3)” insert “or (3A)”.

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

Accounting methods

49In the heading to Part 4 of that Schedule for “ACCOUNTING METHODS” substitute “COMPUTATION OF AMOUNTS TO BE BROUGHT INTO ACCOUNT”.

50For paragraphs 17 to 20 of that Schedule (authorised accounting methods and their application) substitute—

Computation in accordance with generally accepted accounting practice

17A(1)Subject to the provisions of this Schedule, the amounts to be brought into account by a company for any period for the purposes of this Schedule 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 Schedule apply as if correct accounts had been drawn up, and

(b)the amounts referred to in this Schedule 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 Schedule 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 sub-paragraphs (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.

Amounts recognised in determining company’s profit or loss

17B(1)Any reference in this Schedule 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)Sub-paragraph (1) does not apply to an amount recognised for accounting purposes by way of correction of a fundamental error.

Power to make further provision by regulations

17C(1)The Treasury may by regulations make provision—

(a)excluding amounts of a prescribed description from paragraph 17B(1);

(b)requiring amounts of a prescribed description that do not fall within paragraph 17B (1) (by virtue of regulations under paragraph (a) above or otherwise) to be brought into account in determining a company’s profit or loss for a period in prescribed circumstances;

(c)as to the manner in which any such amounts are to be brought into account.

(2)The regulations may (in particular) make provision by reference to the fact that amounts derive from or otherwise relate to amounts brought into account in a prescribed manner in a previous period of account.

(3)The power to make regulations under this paragraph 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.

(4)Regulations under this paragraph may apply, exclude or modify any of the provisions of this Schedule in relation to cases for which provision is made by the regulations..

51In paragraph 21 (basis of accounting for contracts falling within paragraph 6, 7 or 8), for sub-paragraph (2) substitute—

(2)Where this paragraph applies the debits and credits to be brought into account for the purposes of this Schedule as respects the derivative contract must be determined on the basis of fair value accounting..

Special provision for bad debt etc.

52In the heading to Part 5 of that Schedule (special provision for bad debt etc.) for “BAD DEBT ETC” substitute “RELEASE OF LIABILITY”.

53(1)Paragraph 22 of that Schedule (bad debts etc.) is amended as follows.

(2)For the heading substitute “Release of liability under derivative contract”.

(3)Omit sub-paragraphs (1) to (4).

(4)In sub-paragraph (5), omit paragraph (b) and the word “and” preceding it.

Special computational provisions

54In paragraph 22A of that Schedule (deemed assignment of derivative contracts on company ceasing to be resident in UK etc.), omit sub-paragraph (5).

55In paragraph 23 of that Schedule (derivative contracts for unallowable purposes), in sub-paragraphs (2) and (3) omit “given by the authorised accounting method used”.

56(1)Paragraph 25 of that Schedule (debits and credits treated as relating to capital expenditure) is amended as follows.

(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..

57In paragraph 30 of that Schedule (transactions within groups: authorised mark to market basis of accounting)—

(a)in the heading for “authorised mark to market basis of accounting” substitute “fair value accounting”;

(b)in sub-paragraph (1) for “an authorised mark to market basis of accounting” substitute “fair value accounting”.

58In paragraph 31A of that Schedule (amounts imputed under Schedule 28AA to the Taxes Act 1988), in sub-paragraph (2) omit “, notwithstanding the provisions of any authorised accounting method,”.

Collective investment schemes

59(1)Paragraph 32 of that Schedule (authorised unit trusts: capital profits, gains or losses) is amended as follows.

(2)In sub-paragraph (1) omit “, notwithstanding paragraph 15”.

(3)After that sub-paragraph insert—

(1A)For the purposes of this paragraph “capital profits, gains or losses”—

(a)in the case of an authorised unit trust that prepares accounts in accordance with UK generally accepted accounting practice, has the meaning given by sub-paragraphs (2) to (4), and

(b)in the case of an authorised unit trust that prepares accounts in accordance with international accounting standards, has the meaning given by order made by the Treasury..

(4)In sub-paragraph (2) for the words “For the purposes of this paragraph” substitute “In the cases mentioned in sub-paragraph (1A)(a)”.

60(1)Paragraph 33 of that Schedule (open-ended investment companies: capital profits, gains or losses) is amended as follows.

(2)In sub-paragraph (1) omit “, notwithstanding paragraph 15”.

(3)After that sub-paragraph insert—

(1A)For the purposes of this paragraph “capital profits, gains or losses”—

(a)in the case of an open-ended investment company that prepares accounts in accordance with UK generally accepted accounting practice, has the meaning given by sub-paragraphs (2) to (4), and

(b)in the case of an open-ended investment company that prepares accounts in accordance with international accounting standards, has the meaning given by order made by the Treasury..

(4)In sub-paragraph (2) for the words “For the purposes of this paragraph” substitute “In the cases mentioned in sub-paragraph (1A)(a)”.

61In paragraph 34 of that Schedule (power to amend paragraphs 32 and 33), in sub-paragraph (1) after “the definition of capital profits, gains or losses” insert “in paragraph 32(2) to (4) or 33(2) to (4)”.

62In paragraph 36 of that Schedule (contracts relating to holdings in unit trusts, open-ended investment companies and offshore funds) for sub-paragraph (2) substitute—

(2)The Corporation Tax Acts have effect for that period (and any succeeding period in which the relevant contract is a relevant contract of the company) as if the relevant contract were a derivative contract.

(2A)The debits and credits to be brought into account for the purposes of this Schedule as respects the company’s relevant holdings must be determined on the basis of fair value accounting..

63For paragraph 38 of that Schedule (investment trusts and venture capital trusts: capital reserves) substitute—

Investment trusts: capital profits, gains or losses

38(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 Schedule.

(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)In the cases mentioned in sub-paragraph (2)(a) capital profits, gains or losses arising from a creditor relationship in an accounting period are profits, gains or losses that are carried to or sustained by a capital reserve in accordance with the Statement of Recommended Practice.

(4)For the purposes of this paragraph the Statement of Recommended Practice is, for an accounting period for which it is required or permitted to be used—

(a)the Statement of Recommended Practice relating to Investment Trust Companies, issued by the Association of Investment Trust Companies in January 2003, as from time to time modified, amended or revised, or

(b)any subsequent Statement of Recommended Practice relating to investment trusts, as from time to time modified, amended or revised.

Venture capital trusts: capital profits, gains or losses

38A(1)Capital profits, gains or losses arising to a venture capital trust from a creditor relationship must not be brought into account as credits or debits for the purposes of this Schedule.

(2)For the purposes of this paragraph “capital profits, gains or losses”—

(a)in the case of a venture capital 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 a venture capital trust that prepares accounts in accordance with international accounting standards, has the meaning given by order made by the Treasury.

(3)In the cases mentioned in sub-paragraph (2)(a) capital profits, gains or losses arising from a creditor relationship in an accounting period are profits, gains or losses that—

(a)are carried to or sustained by a capital reserve in accordance with the Statement of Recommended Practice as if the venture capital trust were an investment trust, or

(b)would be so carried to or sustained by a capital reserve if the venture capital trust were an investment trust and were using the Statement of Recommended Practice.

(4)For the purposes of this paragraph the Statement of Recommended Practice is, in relation to an accounting period for which it is required or permitted to be used—

(a)the Statement of Recommended Practice relating to Investment Trust Companies, issued by the Association of Investment Trust Companies in January 2003, as from time to time modified, amended or revised, or

(b)any subsequent Statement of Recommended Practice relating to investment trusts, as from time to time modified, amended or revised..

Miscellaneous

64In paragraph 48 of that Schedule (election to treat contract as two assets), for sub-paragraph (4) substitute—

(4)The debits and credits to be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 as respects a creditor relationship arising under sub-paragraph (2)(a) must be determined on the basis of fair value accounting..

65In paragraph 49(4) of that Schedule (partnerships involving companies: provisions for determining credits and debits for company partner), for paragraph (c) substitute—

(c)to the extent that any exchange gains or losses arising from the contract are recognised in the firm’s statement of recognised gains and losses or statement of changes in equity, the exchange gains or losses shall to that extent be treated as if they had been recognised in the corresponding statement of the company partner,.

66For paragraph 50 of that Schedule (partnerships involving companies: application of accounting methods) substitute—

Partnerships involving companies: use of fair value accounting

50(1)Where the company partner uses fair value accounting in relation to its interest in the firm, the debits and credits to be brought into account under paragraph 49 by that company must be determined on the basis of fair value accounting.

(2)In this paragraph “company partner” and “firm” have the same meaning as in paragraph 49..

67After that paragraph insert—

Adjustment on company changing to international accounting standards

50A(1)This paragraph applies where a company—

(a)prepares accounts for one period (“the earlier period”) in accordance with UK generally accepted accounting practice, and

(b)prepares accounts for the next period (“the later period”) in accordance with international accounting standards,

and the approach in each of those periods accords with the law and practice applicable in relation to that period.

(2)If there is a difference between—

(a)the accounting value of a derivative contract of the company at the end of the earlier period, and

(b)the accounting value of that contract 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 Schedule in the later period.

(3)In sub-paragraph (2) “accounting value” means the carrying value of the contract recognised for accounting purposes.

(4)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..

Interpretation

68Omit paragraph 52 of that Schedule (meaning of “statutory accounts”).

69In paragraph 54 (1) of that Schedule (interpretation)—

(a)omit the definition of “authorised accounting method”, “authorised accruals basis of accounting” and “authorised mark to market basis of accounting”;

(b)for the definition of “fair value” substitute—

“fair value”, in relation to a derivative contract 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 contract 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 contract 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 and liabilities are shown in the company’s balance sheet at their fair value;; and

(c)omit the definition of “statutory accounts”.

Consequential amendment

70In section 440 of the Taxes Act 1988 (insurance companies: transfers of assets etc.), in subsection (2B) (treatment of derivative contract), for the words from “any authorised accounting method” to “shall be applied” substitute “Schedule 26 to the Finance Act 2002 applies”.

Part 3Intangible fixed assets

Excluded assets: assets in respect of which capital allowances previously made

71In Part 10 of Schedule 29 to the Finance Act 2002 (c. 23) (excluded assets), after paragraph 73 (rights over tangible assets) insert—

Assets entirely excluded: assets in respect of which capital allowance previously made

73A(1)This Schedule does not apply to an intangible asset of a company in the following circumstances.

(2)The circumstances are that—

(a)the asset falls to be treated as an intangible asset in accounts of the company,

(b)in a previous period of account the asset fell to be treated as a tangible asset in accounts of the company, and

(c)an allowance under Part 2 of the Capital Allowances Act (plant and machinery allowances) was made to the company in respect of the asset on the latter basis..

Adjustment on change of accounting policy

72In Part 13 of that Schedule (supplementary provisions), after paragraph 116 insert—

Adjustment on change of accounting policy

116A(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 intangible fixed asset of the company at the end of the earlier period, and

(b)the accounting value of that asset at the beginning of the later period,

a corresponding debit or credit (as the case may be) shall be brought into account for tax purposes in the later period.

(4)The amount of the debit or credit to be brought into account for tax purposes is:

Formula - Accounting Difference multiplied by (Tax Value divided by Accounting Value)

where—

  • Accounting Difference is the amount of the difference specified in sub-paragraph (3);

  • Tax Value is the tax written down value of the asset at the end of the earlier period; and

  • Accounting Value is the accounting value of the asset at the end of the earlier period.

(5)This paragraph does not apply in relation to an intangible fixed asset in respect of which an election has been made under paragraph 10 (election for writing down at fixed-rate).

(6)This paragraph does not apply to a difference between the accounting value of an intangible fixed asset in different periods of account to the extent that, in respect of that difference, a credit or debit is brought into account for tax purposes under—

(a)paragraph 12 (reversal of accounting gain),

(b)paragraph 15 (gain on revaluation), or

(c)paragraph 17 (reversal of accounting loss).

(7)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..

References to amounts recognised in profit and loss account

73(1)In Part 15 of that Schedule (interpretation) paragraph 134(a) (references to amounts recognised in profit and loss account) is amended as follows.

(2)After “statement of total recognised gains and losses” insert “, statement of changes in equity”.

(3)After paragraph (b) insert—

other than an amount recognised for accounting purposes by way of correction of a fundamental error..

Consequential amendments

74In paragraph 15(4) of that Schedule (credits on revaluation of intangible fixed assets)—

(a)in the definition of “Previous Debits”, after “accounting basis)” insert “or paragraph 116A (adjustment on change of accounting policy)”;

(b)in the definition of “Previous Credits”, at the end insert “or paragraph 116A (adjustment on change of accounting policy)”.

75In paragraph 20 (1) of that Schedule (realisation of asset written down for tax purposes), after paragraph (b) insert , or

(c)under paragraph 116A (adjustment on change of accounting policy).

76In paragraph 27 (1) of that Schedule (calculation of tax written down value of asset written down on accounting basis)—

(a)in the definition of “Debits”, after “paragraph 9” insert “or paragraph 116A (adjustment on change of accounting policy)”;

(b)in the definition of “Credits”, at the end insert “or paragraph 116A (adjustment on change of accounting policy)”.

Part 4Foreign currency accounting

Main provisions

77For sections 92 to 94AB of the Finance Act 1993 (c. 34) (corporation tax: currency) substitute—

Corporation tax: currency
92The basic rule: sterling to be used

(1)For the purposes of corporation tax the profits of a company for an accounting period must be computed and expressed in sterling.

(2)The following sections contain further provision as to the application of subsection (1) to certain profits or losses falling to be computed in accordance with generally accepted accounting practice—

  • section 92A (company operating in sterling and preparing accounts in another currency);

  • section 92B (company operating in currency other than sterling and preparing accounts in another currency);

  • section 92C (company preparing accounts in currency other than sterling).

92ACompany operating in sterling and preparing accounts in another currency

(1)This section applies if, for a period of account, in accordance with generally accepted accounting practice, a company resident in the United Kingdom—

(a)prepares its accounts in a currency other than sterling, and

(b)in those accounts identifies sterling as its functional currency.

(2)Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling as if the company prepared its accounts in sterling.

92BCompany operating in currency other than sterling and preparing accounts in another currency

(1)This section applies if, for a period of account, in accordance with generally accepted accounting practice—

(a)a company resident in the United Kingdom prepares its accounts in one currency,

(b)in those accounts it identifies another currency as its functional currency, and

(c)that currency is not sterling.

(2)Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by—

(a)computing those profits or losses in the functional currency as if the company prepared its accounts in that currency, and

(b)taking the sterling equivalent of those profits or losses.

(3)Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the functional currency of the company.

92CCompany preparing accounts in currency other than sterling

(1)This section applies in relation to a company resident in the United Kingdom if, for a period of account—

(a)the company prepares its accounts in a currency other than sterling (the “accounts currency”), and

(b)neither section 92A nor section 92B applies.

(2)This section also applies in relation to a company that is not resident in the United Kingdom if, for a period of account, the company prepares its return of accounts in a currency other than sterling (the “accounts currency”).

(3)Profits or losses of the company for the period that fall to be computed in accordance with generally accepted accounting practice for corporation tax purposes must be computed in sterling by—

(a)computing those profits or losses in the accounts currency, and

(b)taking the sterling equivalent of those profits or losses.

(4)Where this section applies, it shall be assumed that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the accounts currency of the company.

92DTranslating amounts into equivalent in different currency

(1)Where, for the purposes of computing the profits or losses of a company for an accounting period, an amount is required by section 92B or 92C to be translated—

(a)into its sterling equivalent, or

(b)into its equivalent expressed in the functional currency or the accounts currency of the company,

the translation must be made by reference to the appropriate exchange rate.

(2)The “appropriate exchange rate” is—

(a)the average exchange rate for the current accounting period, or

(b)an appropriate spot rate of exchange for the transaction in question.

92EMeaning of “accounts”, “return of accounts” and “functional currency”

(1)References in sections 92A to 92C to the “accounts” of a company resident in the United Kingdom are to—

(a)the annual accounts of the company required by Part 7 of the Companies Act 1985 or Part 8 of the Companies (Northern Ireland) Order 1986; or

(b)if the company is not required to prepare such accounts, the accounts which it is required to keep under the law of the country or territory under whose laws the company is incorporated; or

(c)if the company is not so required to keep accounts, such of its accounts as most closely correspond to accounts which it would have been required to prepare if the provisions of Part 7 of the Companies Act 1985 applied to it.

(2)The reference in section 92C to the “return of accounts” of a company not resident in the United Kingdom is to a return of such accounts of its permanent establishment in the United Kingdom as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns).

(3)References in sections 92A, 92B and 92D to a company’s “functional currency” are to the currency of the primary economic environment in which the company operates..

Consequential amendments

78(1)Section 730BB of the Taxes Act 1988 (exchange gains and losses on sale and repurchase of securities) is amended as follows.

(2)In subsection (2)(c) for the words from “section 93 of the Finance Act 1993” to “sterling)” substitute “section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling)”.

(3)In subsection (3)—

(a)in paragraph (a) for “section 93 of the Finance Act 1993” substitute “section 92B or 92C of the Finance Act 1993 (company preparing accounts or operating in currency other than sterling)”;

(b)in paragraph (b) for the words from “relevant foreign currency” to “the company” substitute “relevant currency”;

(c)in paragraph (c)(i) and (ii) for “relevant foreign currency” substitute “relevant currency”.

(4)After subsection (3) insert—

(3A)In subsection (3), references to the relevant currency are—

(a)in cases in which section 92B of the Finance Act 1993 applies, to the functional currency (within the meaning of that section), and

(b)in cases in which section 92C of the Finance Act 1993 applies, to the accounts currency (within the meaning of that section).

(5)Omit subsection (12).

Section 64

SCHEDULE 11Conditions for registration for gross payment

Part 1Conditions to be satisfied by individuals

General

1(1)In the case of an application for an individual to be registered for gross payment, the following conditions must be satisfied by the individual.

(2)But where the application is for the registration of the individual as a partner in a firm, this Part of this Schedule has effect with the omission of paragraphs 2 and 3.

The business test

2The applicant must satisfy the Inland Revenue, by such evidence as may be prescribed in regulations made by the Board of Inland Revenue, that he is carrying on a business in the United Kingdom which—

(a)consists of or includes the carrying out of construction operations or the furnishing or arranging for the furnishing of labour in carrying out construction operations, and

(b)is, to a substantial extent, carried on by means of an account with a bank.

The turnover test

3(1)The applicant must satisfy the Inland Revenue, by such evidence as may be prescribed in regulations made by the Board of Inland Revenue, that the carrying on of the business mentioned in paragraph 2 is likely to involve the receipt in the year following the making of the application of an aggregate amount by way of relevant payments which is not less than the amount specified in regulations made by the Board as the minimum turnover for the purposes of this sub-paragraph.

(2)In sub-paragraph (1) “relevant payments” means payments under contracts relating to, or to the work of individuals participating in the carrying out of, any operations which—

(a)are of a description specified in subsection (2) of section 74; but

(b)are not of a description specified in subsection (3) of that section,

other than so much of the payments as represents the direct cost to the person receiving the payments of materials used or to be used in carrying out the operations in question.

(3)The Board may make regulations for the purpose of enabling a person who does not satisfy the condition in sub-paragraph (1) to be treated as satisfying that condition in such circumstances as may be prescribed.

The compliance test

4(1)The applicant must, subject to sub-paragraphs (3) and (4), have complied with—

(a)all obligations imposed on him in the qualifying period (see paragraph 14) by or under the Tax Acts or the Taxes Management Act 1970 (c. 9), and

(b)all requests made in the qualifying period to supply to the Inland Revenue accounts of, or other information about, any business of his.

(2)An applicant who at any time in the qualifying period had control of a company is to be taken not to satisfy the condition in sub-paragraph (1) unless the company has satisfied that condition in relation to the period or periods within the qualifying period during which he had control of it; and for this purpose “control” is to be construed in accordance with section 416(2) to (6) of the Taxes Act 1988.

(3)An applicant or company that has failed to comply with such an obligation or request as—

(a)is referred to in sub-paragraph (1), and

(b)is of a kind prescribed by regulations made by the Board of Inland Revenue,

is, in such circumstances as may be prescribed by the regulations, to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request.

(4)An applicant or company that has failed to comply with such an obligation or request as is referred to in sub-paragraph (1) is to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request if the Board of Inland Revenue are of the opinion that—

(a)the applicant or company had a reasonable excuse for the failure to comply, and

(b)if the excuse ceased, he or it complied with the obligation or request without unreasonable delay after the excuse had ceased.

(5)Where the applicant states, for the purpose of showing that he has complied with all obligations imposed on him as mentioned in sub-paragraph (1), that he was not subject to any of one or more obligations in respect of any period within the qualifying period—

(a)he must satisfy the Board of Inland Revenue of that fact by such evidence as may be prescribed in regulations made by the Board; and

(b)if for that purpose he states that he has been outside the United Kingdom for the whole or any part of the qualifying period, he must also satisfy them, by such evidence as may be so prescribed, that he has complied with any obligations imposed under the tax laws of any country in which he was living during that period which are comparable to the obligations mentioned in sub-paragraph (1).

(6)The applicant must, if any contribution has at any time during the qualifying period become due from him under—

(a)Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4), or

(b)Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7),

have paid the contribution when it became due.

(7)There must be reason to expect that the applicant will, in respect of periods after the qualifying period, comply with—

(a)such obligations as are referred to in sub-paragraphs (1) to (6), and

(b)such requests as are referred to in sub-paragraph (1).

(8)Subject to sub-paragraphs (3) and (4), a person is not to be taken for the purposes of this paragraph to have complied with any such obligation or request as is referred to in sub-paragraphs (1) to (5) if there has been a contravention of a requirement as to—

(a)the time at which, or

(b)the period within which,

the obligation or request was to be complied with.

Part 2Conditions to be satisfied by firms

General

5In the case of an application for an individual or a company to be registered for gross payment as a partner in a firm, the following conditions must be satisfied by the firm.

The business test

6The applicant must satisfy the Inland Revenue, by such evidence as may be prescribed in regulations made by the Board of Inland Revenue, that the firm’s business—

(a)is carried on in the United Kingdom, and

(b)satisfies the conditions mentioned in paragraph 2(a) and (b).

The turnover test

7(1)The partners must satisfy the Inland Revenue, by such evidence as may be prescribed in regulations made by the Board of Inland Revenue, that the carrying on of the firm’s business is likely to involve the receipt in the year following the making of the application of an aggregate amount by way of relevant payments which is not less than whichever is the smaller of—

(a)the multiple turnover threshold; and

(b)the amount specified for the purposes of this paragraph in regulations made by the Board;

and in this sub-paragraph “relevant payments” has the meaning given by paragraph 3(2).

(2)In sub-paragraph (1) “the multiple turnover threshold” means the sum of—

(a)the amount obtained by multiplying the number of partners in the firm who are individuals by the amount specified in regulations as the minimum turnover for the purposes of paragraph 3(1); and

(b)in respect of each partner in the firm which is a company (other than one to which paragraph 11(1)(b) would apply), the amount equal to what would have been the minimum turnover for the purposes of paragraph 11 (1) if the application had been for registration of that company for gross payment.

(3)The Board may make regulations—

(a)for determining the number of partners in the firm to be taken into account for the purposes of sub-paragraph (2) (for example, where the number of partners has fluctuated over a period);

(b)for the purpose of enabling a firm which does not satisfy the condition in sub-paragraph (1) to be treated as satisfying that condition in such circumstances as may be prescribed.

The compliance test

8(1)Subject to sub-paragraphs (2) and (3), each of the persons who are partners at the time of the application must have complied, so far as any such charge to income tax or corporation tax is concerned as falls to be computed by reference to the profits or gains of the firm’s business, with—

(a)all obligations imposed on him in the qualifying period (see paragraph 14) by or under the Tax Acts or the Taxes Management Act 1970 (c. 9); and

(b)all requests made in the qualifying period to him as such a partner to supply to the Inland Revenue accounts of, or other information about, the firm’s business or his share of the profits or gains of that business.

(2)Where a person has failed to comply with such an obligation or request as—

(a)is referred to in sub-paragraph (1), and

(b)is of a kind prescribed by regulations made by the Board of Inland Revenue,

the firm is, in such circumstances as may be prescribed by the regulations, to be treated, in relation to that partner, as satisfying the condition in that sub-paragraph as regards that obligation or request.

(3)Where a person has failed to comply with such an obligation or request as is referred to in sub-paragraph (1), the firm is to be treated, in relation to that partner, as satisfying the condition in that sub-paragraph as regards that obligation or request if the Board of Inland Revenue are of the opinion that—

(a)the person had a reasonable excuse for the failure to comply, and

(b)if the excuse ceased, he complied with the obligation or request without unreasonable delay after the excuse had ceased.

(4)There must be reason to expect that each of the persons who are from time to time partners in the firm will, in respect of periods after the qualifying period, comply with such obligations and requests as are referred to in sub-paragraph (1).

(5)Subject to sub-paragraphs (2) and (3), a person is not to be taken for the purposes of this paragraph to have complied with any such obligation or request as is referred to in sub-paragraph (1) if there has been a contravention of a requirement as to—

(a)the time at which, or

(b)the period within which,

the obligation or request was to be complied with.

Part 3Conditions to be satisfied by companies

General

9In the case of an application for a company to be registered for gross payment (whether as a partner in a firm or otherwise), the following conditions must be satisfied by the company.

The business test

10The company must satisfy the Inland Revenue, by such evidence as may be prescribed in regulations made by the Board of Inland Revenue, that—

(a)it is carrying on (whether or not in partnership) a business in the United Kingdom, and

(b)that business satisfies the conditions mentioned in paragraph 2(a) and (b).

The turnover test

11(1)The company must either—

(a)satisfy the Inland Revenue, by such evidence as may be prescribed in regulations made by the Board of Inland Revenue, that the carrying on of its business is likely to involve the receipt in the year following the making of the application of an aggregate amount by way of relevant payments which is not less than the amount which is the minimum turnover for the purposes of this sub-paragraph; or

(b)satisfy the Inland Revenue that the only persons with shares in the company are companies which are limited by shares and themselves are registered for gross payment;

and in this sub-paragraph “relevant payments” has the meaning given by paragraph 3(2).

(2)The minimum turnover for the purposes of sub-paragraph (1) is whichever is the smaller of—

(a)the amount obtained by multiplying the amount specified in regulations as the minimum turnover for the purposes of paragraph 3 (1) by the number of persons who are relevant persons in relation to the company; and

(b)the amount specified for the purposes of this paragraph in regulations made by the Board of Inland Revenue.

(3)For the purposes of sub-paragraph (2) a person is a relevant person in relation to the company—

(a)where the company is a close company, if he is a director of the company (within the meaning given by section 67 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1)) or a beneficial owner of shares in the company; and

(b)in any other case, if he is such a director of the company.

(4)The Board may make regulations—

(a)for determining the number of relevant persons to be taken into account for the purposes of sub-paragraph (2) (for example, where the number of such persons has fluctuated over a period);

(b)for the purpose of enabling a company which does not satisfy the condition in sub-paragraph (1) to be treated as satisfying that condition in such circumstances as may be prescribed.

The compliance test

12(1)The company must, subject to sub-paragraphs (2) and (3), have complied with—

(a)all obligations imposed on it in the qualifying period (see paragraph 14) by or under the Tax Acts or the Taxes Management Act 1970 (c. 9); and

(b)all requests made in the qualifying period to supply to the Inland Revenue accounts of, or other information about, its business.

(2)A company that has failed to comply with such an obligation or request as—

(a)is referred to in sub-paragraph (1), and

(b)is of a kind prescribed by regulations made by the Board of Inland Revenue,

is, in such circumstances as may be prescribed by the regulations, to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request.

(3)A company that has failed to comply with such an obligation or request as is referred to in sub-paragraph (1) is to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request if the Board of Inland Revenue are of the opinion that—

(a)the company had a reasonable excuse for the failure to comply, and

(b)if the excuse ceased, it complied with the obligation or request without unreasonable delay after the excuse had ceased.

(4)The company must, if any contribution has at any time during the qualifying period become due from the company under—

(a)Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4), or

(b)Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7),

have paid the contribution when it became due.

(5)The company must have complied with any obligations imposed on it by the following provisions of the Companies Act 1985 (c. 6) in so far as those obligations fell to be complied with within the qualifying period—

(a)sections 226, 241 and 242 (contents, laying and delivery of annual accounts);

(b)section 288(2) (return of directors and secretary and notification of changes therein);

(c)sections 363 to 365 (annual returns);

(d)section 691 (registration of constitutional documents and list of directors and secretary of oversea company);

(e)section 692 (notification of changes in constitution or directors or secretary of oversea company);

(f)section 693 (oversea company to state its name and country of incorporation);

(g)section 699 (obligations of companies incorporated in Channel Islands or Isle of Man);

(h)Chapter 2 of Part 23 (accounts of oversea company).

(6)The company must have complied with any obligations imposed on it by the following provisions of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) in so far as those obligations fell to be complied with within the qualifying period—

(a)Articles 234, 249 and 250 (contents, laying and delivery of annual accounts);

(b)Article 296(2) (return of directors and secretary and notification of changes therein);

(c)Articles 371 to 373 (annual returns);

(d)Article 641 (registration of constitutional documents and list of directors and secretary of Part XXIII company);

(e)Article 642 (notification of changes in constitution or directors or secretary of Part XXIII company);

(f)Article 643 (Part XXIII company to state its name and country of incorporation);

(g)Article 649 (accounts of Part XXIII company).

(7)There must be reason to expect that the company will, in respect of periods after the qualifying period, comply with—

(a)all such obligations as are referred to in paragraphs 10 and 11 and sub-paragraphs (1) to (6), and

(b)such requests as are referred to in sub-paragraph (1).

(8)Subject to sub-paragraphs (2) and (3), a company is not to be taken for the purposes of this paragraph to have complied with any such obligation or request as is referred to in sub-paragraphs (1) to (6) if there has been a contravention of a requirement as to—

(a)the time at which, or

(b)the period within which,

the obligation or request was to be complied with.

Part 4Supplementary provisions

Power to amend conditions for registration for gross payment

13(1)The Treasury may by order made by statutory instrument amend this Schedule by—

(a)adding,

(b)varying, or

(c)removing,

a condition for registration for gross payment.

(2)No statutory instrument containing an order under this paragraph shall be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.

“Qualifying period”

14In this Schedule “the qualifying period” means the period of 12 months ending with the date of the application in question.

Regulations under this Schedule

15Any power under this Schedule to make regulations prescribing the evidence required for establishing what is likely to happen at any time includes power to provide for such matters to be presumed (whether conclusively or unless the contrary is shown in the manner provided for in the regulations) from evidence of what has previously happened.

16Regulations under paragraph 3(1), 7 (1) or 11 (1) prescribing the evidence required for establishing the amount by way of relevant payments likely to be received by a person may make different provision according to whether—

(a)the person is applying for registration for gross payment, or

(b)the Board of Inland Revenue are considering whether to make a determination under section 66(1)(a) cancelling the person’s registration for gross payment.

Section 76

SCHEDULE 12Construction industry scheme: consequential amendments

Records to be kept for purposes of returns

1(1)Section 12B of the Taxes Management Act 1970 (c. 9) is amended as follows.

(2)In subsection (4A) (records in respect of which duty to preserve records may not be satisfied by preservation of information contained in them) for paragraph (b) substitute—

(b)any record (however described) which is required by regulations under section 70(1)(c) of the Finance Act 2004 to be given to a sub-contractor (within the meaning of section 58 of that Act) on the making of a payment to which section 61 of that Act (deductions on account of tax) applies;.

General rule as to when corporation tax is due and payable

2(1)Section 59D of the Taxes Management Act 1970 is amended as follows.

(2)In subsection (4)(d) (amounts taken into account in determining whether repayment is due under subsection (2)) for “by virtue of regulations under section 559A of the principal Act” substitute “by virtue of regulations under section 62 of the Finance Act 2004”.

Claim for repayment in advance of liability being established

3(1)Section 59DA of the Taxes Management Act 1970 is amended as follows.

(2)In subsection (7) (deductions under section 559 of the Taxes Act 1988 to be disregarded in considering whether amount paid by company exceeds its probable tax liability, where claim made before return delivered) for “section 559 of the principal Act” substitute “section 61 of the Finance Act 2004”.

Priority of claim for tax

4(1)Section 62 of the Taxes Management Act 1970 is amended as follows.

(2)In subsection (1A)(b) (goods or chattels of person in default not to be taken in execution etc unless person seeking execution pays to collector sums due from person in default in respect of deductions under section 559 of the Taxes Act 1988) for “section 559 of the principal Act” substitute “section 61 of the Finance Act 2004”.

Recovery of tax in Scotland

5(1)Section 63 of the Taxes Management Act 1970 (c. 9) is amended as follows.

(2)In subsection (3)(b) (application for summary warrant relating to sums due in respect of deductions required to be made under section 559 of the Taxes Act 1988: no requirement to state that 14 days have elapsed since demand) for “section 559 of the principal Act” substitute “section 61 of the Finance Act 2004”.

Priority of claim for tax in Scotland

6(1)Section 64 of the Taxes Management Act 1970 is amended as follows.

(2)In subsection (1A)(b) (moveable goods and effects of person in default not to be taken by diligence etc unless person proceeding to take goods and effects pays to collector sums due from person in default in respect of deductions under section 559 of the Taxes Act 1988) for “section 559 of the principal Act” substitute “section 61 of the Finance Act 2004”.

Special returns etc

7(1)Section 98 of the Taxes Management Act 1970 is amended as follows.

(2)In the first column of the Table, omit the entry relating to section 561(8) of the Taxes Act 1988.

(3)In the second column of the Table, omit the entry relating to regulations under section 566(1), (2) or (2A) of that Act.

(4)In the first column of the Table, insert at the appropriate place—

Regulations under section 70(3) of the Finance Act 2004..

(5)In the second column of the Table, insert at the appropriate place—

Regulations under section 65(2), 69(1), 70(1)(a) or (c) or 71 of the Finance Act 2004..

Special penalties in the case of certain returns

8(1)Section 98A of the Taxes Management Act 1970 is amended as follows.

(2)In subsection (1) (regulations which may provide for section 98A to apply) for “section 566 (1) (sub-contractors) of the principal Act” substitute “section 70(1)(a) or 71 of the Finance Act 2004 (sub-contractors)”.

(3)In subsection (2)(b) (penalty for failure to make return continuing beyond 12 months)—

(a)after “not exceeding” insert—

(i)in the case of a provision of PAYE regulations,, and

(b)at the end insert , or

(ii)in the case of a provision of regulations under section 70(1)(a) or 71 of the Finance Act 2004, £3,000..

(4)In subsection (4)(a) (penalty for fraudulently or negligently making incorrect return) after “year of assessment” insert “(in the case of a provision of PAYE regulations) or period (in the case of a provision of regulations under section 70(1)(a) or 71 of the Finance Act 2004)”.

Sub-contractors in the construction industry

9(1)The Taxes Act 1988 is amended as follows.

(2)In Part 13, omit Chapter 4.

Designated international organisations: miscellaneous exemptions

10(1)Section 582A of the Taxes Act 1988 is amended as follows.

(2)In subsection (6) (organisation designated for purposes of this subsection not to be person to whom section 560(2) applies) for “section 560(2)” substitute “section 59 of the Finance Act 2004”.

Application of Income Tax Acts to public departments etc

11(1)Section 829 of the Taxes Act 1988 is amended as follows.

(2)In subsection (2A) (subsections (1) and (2) to have effect in relation to Chapter 4 of Part 13 of the Taxes Act 1988 as if whole deduction under section 559 were deduction of income tax)—

(a)for “Chapter 4 of Part 13 of this Act” substitute “Chapter 3 of Part 3 of the Finance Act 2004”, and

(b)for “section 559” substitute “section 61 of that Act”.

Provisions for securing payment by company of outstanding tax

12(1)Section 130 of the Finance Act 1988 (c. 39) is amended as follows.

(2)In subsection (7)(d) (references to tax payable by company to include amounts it is liable to pay under section 559(4) of the Taxes Act 1988) for “section 559(4) of that Act” substitute “section 61 of the Finance Act 2004”.

Supplementary provisions relating to contributions: Great Britain

13(1)Schedule 1 to the Social Security Contributions and Benefits Act 1992 (c. 4) is amended as follows.

(2)In paragraph 7 (special penalties in case of certain returns) in sub-paragraph (1) (paragraph 7 to apply to certain returns made at the same time as a return made under regulations under section 566 (1) of the Taxes Act 1988 etc) in paragraph (a) for “section 566 (1) (sub-contractors) of the Income and Corporation Taxes Act 1988” substitute “section 70(1)(a) or 71 (sub-contractors) of the Finance Act 2004”.

Supplementary provisions relating to contributions: Northern Ireland

14(1)Schedule 1 to the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) is amended as follows.

(2)In paragraph 7 (special penalties in case of certain returns) in sub-paragraph (1) (paragraph 7 to apply to certain returns made at the same time as a return made under regulations under section 566 (1) of the Taxes Act 1988 etc) in paragraph (a) for “section 566 (1) (sub-contractors) of the Income and Corporation Taxes Act 1988” substitute “section 70(1)(a) or 71 (sub-contractors) of the Finance Act 2004”.

Transitional provisions concerning construction workers supplied by agencies

15(1)Section 56 of the Finance Act 1998 (c. 36) is amended as follows.

(2)In subsection (8) (meaning of “construction trade”) for “Chapter 4 of Part 13 of the Taxes Act 1988” substitute “section 74 of the Finance Act 2004”.

Company tax returns, assessments and related matters

16(1)Schedule 18 to the Finance Act 1998 is amended as follows.

(2)In paragraph 22 (preservation of information instead of original records) in sub-paragraph (3) (records in respect of which duty to preserve records may not be satisfied by preservation of information contained in them) for paragraph (b) substitute—

(b)any record (however described) which is required by regulations under section 70(1)(c) of the Finance Act 2004 to be given to a sub-contractor (within the meaning of section 58 of that Act) on the making of a payment to which section 61 of that Act (deductions on account of tax) applies;.

Calculation of deemed employment payment

17(1)Section 54 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) is amended as follows.

(2)In subsection (2) (intermediary to be treated, in calculating the deemed employment payment, as if amounts received subject to deduction under section 559 of the Taxes Act 1988 had been received without deduction) for “section 559 of ICTA” substitute “section 61 of the Finance Act 2004”.

Section 78

SCHEDULE 13Childcare and childcare vouchers

Childcare

1In Chapter 11 of Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (miscellaneous exemptions), for section 318 (care for children) substitute—

318Childcare: exemption for employer-provided care

(1)No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision for an employee of care for a child if conditions A to D are met.

For the meaning of “care” and “child”, see section 318B.

(2)If those conditions are met only as respects part of the provision, no such liability arises in respect of that part.

(3)Condition A is that the child—

(a)is a child or stepchild of the employee and is maintained (wholly or partly) at the employee’s expense,

(b)is resident with the employee, or

(c)is a person in respect of whom the employee has parental responsibility.

For the meaning of “parental responsibility”, see section 318B.

(4)Condition B is that—

(a)the premises on which the care is provided are not used wholly or mainly as a private dwelling, and

(b)any applicable registration requirement is met.

(5)The registration requirements are—

(a)in England and Wales, that under Part 10A of the Children Act 1989;

(b)in Scotland, that under Part 1 or 2 of the Regulation of Care (Scotland) Act 2001;

(c)in Northern Ireland, that under Part XI of the Children (Northern Ireland) Order 1995.

(6)Condition C is that—

(a)the premises on which the care is provided are made available by the scheme employer alone, or

(b)the partnership requirements are met.

In this section “scheme employer” means the employer operating the scheme under which the care is provided (who need not be the employer of the employee).

(7)The partnership requirements are—

(a)that the care is provided under arrangements made by persons who include the scheme employer,

(b)that the premises on which it is provided are made available by one or more of those persons, and

(c)that under the arrangements the scheme employer is wholly or partly responsible for financing and managing the provision of the care.

(8)Condition D is that the care is provided under a scheme that is open—

(a)to the scheme employer’s employees generally, or

(b)generally to those of the scheme employer’s employees at a particular location,

and that the employee to whom it is provided is either an employee of the scheme employer or is an employee working at the same location as employees of the scheme employer to whom the scheme is open.

318AChildcare: limited exemption for other care

(1)If conditions A to C are met in relation to the provision for an employee of care for a child, liability to income tax by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) arises only in respect of so much of the cash equivalent of the benefit as exceeds the exempt amount.

For the meaning of “care” and “child”, see section 318B.

(2)If those conditions are met only as respects part of the provision, subsection (1) applies in respect of that part.

(3)Condition A is that the child—

(a)is a child or stepchild of the employee and is maintained (wholly or partly) at the employee’s expense, or

(b)is resident with the employee and is a person in respect of whom the employee has parental responsibility.

For the meaning of “parental responsibility”, see section 318B.

(4)Condition B is that the care is qualifying child care.

For the meaning of “qualifying child care”, see section 318C.

(5)Condition C is that the care is provided under a scheme that is open—

(a)to the employer’s employees generally, or

(b)generally to those at a particular location.

(6)For the purposes of this section the “exempt amount”, in any tax year, is £50 for each qualifying week in that year.

(7)A “qualifying week” means a tax week in which care is provided for a child in circumstances in which conditions A to C are met.

A “tax week” means one of the successive periods in a tax year beginning with the first day of that year and every seventh day after that (so that the last day of a tax year or, in the case of a tax year ending in a leap year, the last two days is treated as a separate week).

(8)An employee is only entitled to one exempt amount even if care is provided for more than one child.

But it does not matter that another person may also be entitled to an exempt amount in respect of the same child.

(9)An employee is not entitled to an exempt amount under this section and under section 270A (limited exemption for childcare vouchers) in respect of the same tax week.

318BChildcare: meaning of “care”, “child” and “parental responsibility”

(1)For the purposes of sections 318 and 318A (exemptions for employer-provided or employer-contracted childcare) “care” means any form of care or supervised activity that is not provided in the course of the child’s compulsory education.

(2)For the purposes of those sections a person is a “child” until the last day of the week in which falls the 1st September following the child’s fifteenth birthday (or sixteenth birthday if the child is disabled).

(3)For the purposes of subsection (2) a child is disabled if—

(a)a disability living allowance is payable in respect of him, or has ceased to be payable solely because he is a patient,

(b)he—

(i)is registered as blind in a register compiled by a local authority under section 29 of the National Assistance Act 1948 (welfare services),

(ii)has been certified as blind in Scotland and in consequence is registered as blind in a register maintained by or on behalf of a local authority in Scotland, or

(iii)has been certified as blind in Northern Ireland and in consequence is registered as blind in a register maintained by or on behalf of a Health and Social Services Board, or

(c)he ceased to be so registered as blind within the previous 28 weeks.

(4)In subsection (3)(a) “patient” means a person (other than a person who is serving a sentence imposed by a court in a prison or youth custody institution or, in Scotland, a young offenders' institution) who is regarded as receiving free in-patient treatment within the meaning of the Social Security (Hospital In-Patients) Regulations 1975 or the Social Security (Hospital In-Patients) Regulations (Northern Ireland) 1975.

(5)For the purposes of sections 318 and 318A “parental responsibility” means all the rights, duties, powers, responsibilities and authority which by law a parent of a child has in relation to the child and the child’s property.

(6)In this section and section 318C “local authority” means—

(a)in relation to England, the council of a county or district, a metropolitan district, a London Borough, the Common Council of the City of London or the Council of the Isles of Scilly;

(b)in relation to Wales, the council of a county or county borough;

(c)in relation to Scotland, a council constituted under section 2 of the Local Government etc. (Scotland) Act 1994.

318CChildcare: meaning of “qualifying child care”

(1)For the purposes of section 318A “qualifying child care” means registered or approved care within any of subsections (2) to (6) below that is not excluded by subsection (7) below.

(2)Care provided for a child in England is registered or approved care if it is provided—

(a)by a person registered under Part 10A of the Children Act 1989,

(b)by a school or establishment that does not need to be registered under that Part to provide the care because of an exemption under paragraph 1 or 2 of Schedule 9A to that Act,

(c)in the case of care provided for a child out of school hours between the child’s 8th birthday and the last day on which he is treated as being a child, by a school on school premises or by a local authority, or

(d)by a child care provider approved by an organisation accredited under the Tax Credit (New Category of Child Care Provider) Regulations 1999,

(e)wholly or mainly in the child’s home by a child care provider approved in accordance with the Tax Credits (Approval of Home Child Care Providers) Scheme 2003, or

(f)by a domiciliary care worker under the Domiciliary Care Agencies Regulations 2002.

(3)Care provided for a child in Wales is registered or approved care if it is provided—

(a)by a person registered under Part 10A of the Children Act 1989,

(b)by a school or establishment that does not need to be registered under that Part to provide the care because of an exemption under paragraph 1 or 2 of Schedule 9A to that Act,

(c)in the case of care provided for a child out of school hours between the child’s 8th birthday and the last day on which he is treated as being a child, by a school on school premises or by a local authority, or

(d)by a child care provider approved by an organisation accredited under the Tax Credit (New Category of Child Care Provider) Regulations 1999.

(4)Care provided for a child in Scotland is registered or approved care if it is provided—

(a)by a person in circumstances where the care service provided by him—

(i)consists of child minding or of day care of children within the meaning of section 2 of the Regulation of Care (Scotland) Act 2001, and

(ii)is registered under Part 1 of that Act, or

(b)by a local authority in circumstances where the care service provided by the local authority—

(i)consists of child minding or of day care of children within the meaning of section 2 of the Regulation of Care (Scotland) Act 2001, and

(ii)is registered under Part 2 of that Act.

(5)Care provided for a child in Northern Ireland is registered or approved care if it is provided—

(a)by a person registered under Part XI of the Children (Northern Ireland) Order 1995, or

(b)by an institution or establishment that does not need to be registered under that Part to provide the care because of an exemption under Article 121 of that Order, or

(c)in the case of care provided for a child out of school hours between the child’s 12th birthday and the last day on which he is treated as being a child, by a school on school premises or by an education and library board or an HSS trust.

(6)Care provided for a child outside the United Kingdom is registered or approved child care if it is provided by a child care provider approved by an organisation accredited under the Tax Credit (New Category of Child Care Provider) Regulations 2002.

(7)Child care is excluded from section 318A—

(a)if it is provided by the partner of the employee in question, or

(b)if it is provided by a relative of the child wholly or mainly in the child’s home or (if different) the home of a person having parental responsibility for the child.

(8)In subsection (7)—

  • “partner” means one of a married or unmarried couple; and

  • “relative” means parent, grandparent, aunt, uncle, brother or sister, whether by blood, half blood or marriage.

318DChildcare: power to vary exempt amount and qualifying conditions

(1)The Treasury may by order amend section 318A(6) (employer-contracted care: the exempt amount) so as to substitute a different sum of money for that for the time being specified.

(2)The Treasury may by regulations make such amendments of the provisions of sections 318 to 318C relating to the qualifying conditions for the exemptions conferred by sections 318 and 318A as appear to them appropriate having regard to the corresponding provisions of regulations under section 12 of the Tax Credits Act 2002 relating to entitlement to the child care element of working tax credit..

Childcare vouchers

2(1)Chapter 4 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (taxable benefits: vouchers and credit-tokens) is amended as follows.

(2)In section 84 (meaning of “non-cash voucher”)—

(a)in subsection (1), after paragraph (a) insert—

(ab)a childcare voucher,, and

(b)after subsection (2) insert—

(2A)In this Chapter “childcare voucher” means a voucher, stamp or similar document or token intended to enable a person to obtain the provision of care for a child (whether or not in exchange for it)..

(3)In section 87 (benefit of non-cash voucher treated as earnings), after subsection (3) insert—

(3A)In the case of a childcare voucher, the reference in subsection (3)(b) to the services for which the voucher is capable of being exchanged is to the provision of care for a child which may be obtained by using it..

(4)In section 95 (disregard for money, goods or services obtained), after subsection (3) insert—

(3A)In the case of a childcare voucher, the reference in subsection (2)(a) to the services obtained in exchange for the voucher is to the provision of care for a child obtained by using it..

3In Chapter 6 of Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (exemptions: non-cash vouchers and credit-tokens), after section 270 insert—

270ALimited exemption for qualifying childcare vouchers

(1)If qualifying childcare vouchers are provided for an employee, liability to income tax by virtue of Chapter 4 of Part 3 (taxable benefits: vouchers and credit tokens) arises only in respect of so much of the cash equivalent of the benefit as exceeds the exempt amount.

(2)A “qualifying childcare voucher” means a non-cash voucher in relation to which Conditions A to C are met.

(3)Condition A is that the voucher is provided to enable an employee to obtain care for a child who—

(a)is a child or stepchild of the employee and is maintained (wholly or partly) at the employee’s expense, or

(b)is resident with the employee and is a person in respect of whom the employee has parental responsibility.

(4)Condition B is that the voucher can only be used to obtain qualifying child care.

(5)Condition C is that the vouchers are provided under a scheme that is open—

(a)to the employer’s employees generally, or

(b)generally to those at a particular location.

(6)For the purposes of this section the “exempt amount”, in any tax year, is £50 for each qualifying week in that year.

(7)A “qualifying week” means a tax week in respect of which a qualifying childcare voucher is received.

A “tax week” means one of the successive periods in a tax year beginning with the first day of that year and every seventh day after that (so that the last day of a tax year or, in the case of a tax year ending in a leap year, the last two days is treated as a separate week).

(8)An employee is only entitled to one exempt amount even if care is provided for more than one child.

But it does not matter that another person may also be entitled to an exempt amount in respect of the same child.

(9)An employee is not entitled to an exempt amount under this section and under section 318A (limited exemption for employer-contracted childcare) in respect of the same tax week.

(10)In this section “care”, “child”, “parental responsibility” and “qualifying child care” have the same meaning as in section 318A (see sections 318B and 318C).

(11)The powers conferred by section 318D (childcare: power to vary exempt amount and qualifying conditions) are exercisable—

(a)in relation to the exempt amount specified in subsection (6) above as in relation to the exempt amount specified in section 318A(6), and

(b)in relation to the qualifying conditions for the exemption conferred by this section as in relation to the qualifying conditions for the exemption conferred by section 318A..

Section 80

SCHEDULE 14Vans

1The Income Tax (Earnings and Pensions) Act 2003 (c. 1) is amended as follows.

2(1)Section 114 (cars, vans and related benefits) is amended as follows.

(2)In subsection (2), in paragraph (c), for “166” substitute “159” and after that paragraph insert ; and

(d)sections 160 to 164 provide for the cash equivalent of the benefit of any fuel provided for the van to be treated as earnings in certain circumstances.

(3)After subsection (3) insert—

(3A)This Chapter does not apply to a van in relation to a tax year if the private use of the van during the tax year by the employee or member of the employee’s family or household is insignificant.

(4)In subsection (4), insert at the end—

section 169A (van available to more than one member of family or household employed by same employer).

3In section 116(2) (when car is first made available and last day on which car is available), after “car”, in each place, insert “or van”.

4In section 119 (where alternative to benefit of car offered), after “car”, in each place (including the heading), insert “or van”.

5For sections 155 to 166 substitute—

155Cash equivalent of the benefit of a van

(1)What is the cash equivalent of the benefit of a van for a tax year depends on whether or not the restricted private use condition is met in relation to the van for the year.

(2)The cash equivalent of the benefit of the van for the year is—

(a)nil if that condition is met in relation to the van for the tax year, and

(b)the amount given by subsection (3) if it is not.

(3)That amount is—

(a)where the tax year is the tax year 2005-06 or 2006-07—

(i)£500 if the age of the van is less than 4 years at the end of the tax year, and

(ii)£350 in any other case, and

(b)where the tax year is a later tax year, £3,000.

(4)The restricted private use condition is met in relation to a van for a tax year if—

(a)the commuter use requirement is satisfied throughout the year (or the part of the year on which it is available to the employee) or the extent to which it is not satisfied during that period is insignificant, and

(b)the business travel requirement is satisfied throughout the year (or the part of the year on which it is available to the employee).

(5)The commuter use requirement is satisfied at any time if—

(a)the terms on which the van is available to the employee at the time prohibit its private use otherwise than for the purposes of ordinary commuting or travel between two places that is for practical purposes substantially ordinary commuting, and

(b)neither the employee nor a member of the employee’s family or household makes private use of the van at the time otherwise than for those purposes.

(6)In subsection (5) “ordinary commuting” has the same meaning as in section 338 (travel for necessary attendance) (see subsection (3) of that section).

(7)The business travel requirement is satisfied at a time if the van is available to the employee at the time mainly for use for the purposes of the employee’s business travel (see section 171(1)).

(8)The cash equivalent of the van may be reduced—

(a)under section 156 for any periods when the van is unavailable,

(b)under section 157 where the van is shared, and

(c)under section 158 in respect of payments by the employee for the private use of the van.

Vans: reductions of cash equivalent

156Reduction for periods when van unavailable

(1)The cash equivalent of the benefit of a van for a tax year under section 155(2)(a) or (b) is to be reduced if the van has been unavailable on any day during the year.

(2)For the purposes of this section a van is unavailable on any day if the day—

(a)falls before the first day on which the van is available to the employee,

(b)falls after the last day on which the van is available to the employee, or

(c)falls within a period of 30 days or more throughout which the van is not available to the employee.

(3)The amount of the reduction is given by the formula—

Formula - U divided by Y multipled by CE

where—

  • U is the number of days in the year on which the van is unavailable,

  • Y is the number of days in the year, and

  • CE is the amount of the cash equivalent before any reduction.

157Reduction of cash equivalent where van is shared

(1)This section applies if in a tax year a van—

(a)is available to more than one employee concurrently,

(b)is so made available by the same employer, and

(c)is available concurrently for each employee’s private use.

(2)The cash equivalent of the benefit of the van to each of those employees for that year—

(a)is to be calculated separately under sections 155 and 156, and

(b)is then to be reduced on a just and reasonable basis.

(3)If —

(a)any of the employees mentioned in subsection (1)(a) (“E”) is a member of the family or household of another of them (“M”), and

(b)E’s employment is an excluded employment,

the availability of the van to E is to be disregarded when applying subsection (2)(b) in respect of M.

(4)In this section the reference to the van being available for each employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.

158Reduction for payments for private use

(1)The cash equivalent of the benefit of a van for a tax year under section 155(2)(a) or (b) (after any reduction under sections 156 and 157) is to be reduced if, as a condition of the van being available for the employee’s private use, the employee—

(a)is required in that year to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and

(b)makes such payment.

(2)If the amount paid by the employee in respect of that year is equal to or exceeds that cash equivalent, it is reduced to nil.

(3)In any other case that cash equivalent is reduced by the amount paid by the employee.

(4)In this section the reference to the van being available for the employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.

159Modification of provisions where van temporarily replaced

(1)This section applies if—

(a)the van normally available to an employee (“the normal van”) is not available to the employee for a period of less than 30 days,

(b)another van (“the replacement van”) is made available to the employee in order to replace the normal van for the whole or part of that period, and

(c)the employee is chargeable to tax in respect of both the normal van and the replacement van by virtue of section 154.

(2)If this section applies—

(a)section 156 applies so that the replacement van is to be treated as unavailable on the days during the period on which it replaces the normal van, and

(b)sections 155, 157 and 158 apply as if the replacement van were the normal van.

Van fuel: benefit treated as earnings

160Benefit of van fuel treated as earnings

(1)If in a tax year—

(a)fuel is provided for a van by reason of an employee’s employment,

(b)that person is chargeable to tax in respect of the van by virtue of section 154, and

(c)the cash equivalent of the van for that year is that under section 155(2)(b),

the cash equivalent of the benefit of the fuel is to be treated as earnings from the employment for that year.

(2)The cash equivalent of the benefit of the fuel is calculated in accordance with sections 161 to 164.

(3)Fuel is to be treated as provided for a van, in addition to any other way in which it may be provided, if—

(a)any liability in respect of the provision of fuel for the van is discharged,

(b)a non-cash voucher or a credit-token is used to obtain fuel for the van,

(c)a non-cash voucher or a credit-token is used to obtain money which is spent on fuel for the van, or

(d)any sum is paid in respect of expenses incurred in providing fuel for the van.

(4)References in this section to fuel do not include any facility or means for supplying electrical energy for an electrically propelled vehicle.

161Van fuel: the cash equivalent

The cash equivalent of the benefit of the fuel is—

(a)where the tax year is the tax year 2005-06 or 2006-07, nil, and

(b)where the tax year is a later tax year, £500.

162Van fuel: nil cash equivalent

(1)The cash equivalent of the benefit of the fuel is nil if condition A or B is met.

(2)Condition A is met if in the tax year in question—

(a)the employee is required to make good to the person providing the fuel the whole of the expense incurred by that person in connection with the provision of the fuel for the employee’s private use, and

(b)the employee does make good that expense.

(3)Condition B is met if in the tax year in question the fuel is made available only for business travel (see section 171(1)).

163Van fuel: proportionate reduction of cash equivalent

(1)The cash equivalent of the benefit of the fuel is to be proportionately reduced if for any part of the tax year in question the van for which the fuel is provided is unavailable (within the meaning of section 156 (reduction for periods when van unavailable)).

(2)But if section 159 (van temporarily replaced) applies—

(a)section 160 applies as if the replacement van were the normal van, and

(b)for the purposes of subsection (1) the replacement van is to be treated as unavailable on the days during the period on which it replaces the normal van.

(3)The cash equivalent of the benefit of the fuel is also to be proportionately reduced if for any part of the tax year in question—

(a)the facility for the provision of fuel as mentioned in section 160 (1) is not available,

(b)the fuel is made available only for business travel (see section 171(1)), or

(c)the employee is required to make good to the person providing the fuel the whole of the expense incurred by that person in connection with the provision of the fuel for the employee’s private use and the employee does make good that expense.

(4)The fact that any of the conditions specified in subsection (3) is met for part of a tax year is to be disregarded if there is a time later in that year when none of those conditions is met.

(5)Where the cash equivalent is to be proportionately reduced under subsection (1) or (3) (or under both those subsections), the reduced amount is given by the formula—

Formula - CE multiplied by (Y minus D) divided by Y

where—

  • CE is the amount of the cash equivalent before any reduction,

  • Y is the number of days in the tax year in question, and

  • D is the total number of days in the tax year on which either the van is unavailable or one or more of the conditions in subsection (3) is met.

164Van fuel: reduction of cash equivalent

If a reduction of the cash equivalent of the benefit of the van for which the fuel is provided is made under section 157 (reduction of cash equivalent where van is shared), a corresponding reduction is to be made in relation to the cash equivalent of the benefit of the fuel.

6After section 169 insert—

169AVan available to more than one member of family or household employed by same employer

(1)This section applies where—

(a)an employee (“E”) and a member of the employee’s family or household (“M”) are employed by the same employer, and

(b)as a result of a van being made available to M in a tax year, E would (apart from this section) be chargeable to tax in respect of the van in that year by virtue of section 154.

(2)The cash equivalent of the benefit of the van and of any fuel provided for the van by reason of E’s employment is not to be treated as E’s earnings for that year if—

(a)M is chargeable to tax in respect of the van in that year by virtue of section 154, or

(b)where M’s employment is an excluded employment, M had the benefit of the van in M’s own right as an employee and condition A or B is met.

(3)Condition A is met if equivalent vans are made available on the same terms to employees who—

(a)are in similar employment to M with the same employer, and

(b)are not members of the family or household of employees of that employer who are employed in employment which is not an excluded employment.

(4)Condition B is met if the making available of an equivalent van is in accordance with the normal commercial practice for an employment of the kind held by M.

7(1)Section 170 (orders etc.) is amended as follows.

(2)After subsection (1) insert—

(1A)The Treasury may by order substitute a different amount for that for the time being specified in—

(a)section 155(2)(a) (cash equivalent where van subject only to restricted private use by employee), and

(b)section 155(3)(b) (cash equivalent in other cases).

(3)In subsection (2), after “(1)” insert “or (1A)”.

(4)In subsection (5), insert at the end “or section 161(b) (van fuel: cash equivalent)”.

8In section 237 (exemption from Chapter 10 of Part 3 in respect of provision of workplace parking), in subsection (3)(a) (car parking space to be “workplace parking”), for “car parking space” substitute “parking space for a car or van”.

Section 84

SCHEDULE 15Charge to income tax on benefits received by former owner of property

Introductory

1In this Schedule—

  • IHTA 1984” means the Inheritance Tax Act 1984 (c. 51);

  • “the 1986 Act” means the Finance Act 1986 (c. 41);

  • “chattel” means any tangible movable property (or, in Scotland, corporeal movable property) other than money;

  • “excluded transaction” has the meaning given by paragraph 10;

  • “intangible property” means any property other than chattels or interests in land;

  • “interest in land” has the same meaning as in Chapter 4 of Part 6 of IHTA 1984;

  • “land” has the same meaning as in IHTA 1984;

  • “prescribed” means prescribed by regulations;

  • “property” has the same meaning as in IHTA 1984;

  • “regulations” means regulations made by the Treasury under this Schedule;

  • “settlement” and “settled property” have the same meanings as in IHTA 1984.

2Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this Schedule, but as if in that section “relative” included uncle, aunt, nephew and niece and “settlement”, “settlor” and “trustee” had the same meanings as in IHTA 1984.

Land

3(1)This paragraph applies where—

(a)an individual (“the chargeable person”) occupies any land (“the relevant land”), whether alone or together with other persons, and

(b)the disposal condition or the contribution condition is met as respects the land.

(2)The disposal condition is that—

(a)at any time after 17th March 1986 the chargeable person owned an interest—

(i)in the relevant land, or

(ii)in other property the proceeds of the disposal of which were (directly or indirectly) applied by another person towards the acquisition of an interest in the relevant land, and

(b)the chargeable person has disposed of all, or part of, his interest in the relevant land or the other property, otherwise than by an excluded transaction.

(3)The contribution condition is that at any time after 17th March 1986 the chargeable person has directly or indirectly provided, otherwise than by an excluded transaction, any of the consideration given by another person for the acquisition of—

(a)an interest in the relevant land, or

(b)an interest in any other property the proceeds of the disposal of which were (directly or indirectly) applied by another person towards the acquisition of an interest in the relevant land.

(4)For the purposes of this paragraph a disposition which creates a new interest in land out of an existing interest in land is to be taken to be a disposal of part of the existing interest.

(5)Where this paragraph applies to a person in respect of the whole or part of a year of assessment, an amount equal to the chargeable amount determined under paragraph 4 is to be treated as income of his chargeable to income tax.

4(1)For any taxable period the chargeable amount in relation to the relevant land is the appropriate rental value (as determined under sub-paragraph (2)), less the amount of any payments which, in pursuance of any legal obligation, are made by the chargeable person during the period to the owner of the relevant land in respect of the occupation of the land by the chargeable person.

(2)The appropriate rental value is—

Formula - R multiplied by (DV divided by V)

where—

  • R is the rental value of the relevant land for the taxable period,

  • DV is—

    (a)

    in a case falling within paragraph 3(2)(a)(i), the value as at the valuation date of the interest in the relevant land that was disposed of as mentioned in paragraph 3(2)(b) by the chargeable person or, where the disposal was a non-exempt sale, the appropriate proportion of that value,

    (b)

    in a case falling within paragraph 3(2)(a)(ii), such part of the value of the relevant land at the valuation date as can reasonably be attributed to the property originally disposed of by the chargeable person or, where the original disposal was a non-exempt sale, to the appropriate proportion of that property, and

    (c)

    in a case falling within paragraph 3(3), such part of the value of the relevant land at the valuation date as can reasonably be attributed to the consideration provided by the chargeable person, and

  • V is the value of the relevant land at the valuation date.

(3)The “rental value” of the land for the taxable period is the rent which would have been payable for the period if the property had been let to the chargeable person at an annual rent equal to the annual value.

(4)The disposal by the chargeable person of an interest in land is a “non-exempt sale” if (although not an excluded transaction) it was a sale of his whole interest in the property for a consideration paid in money in sterling or any other currency; and, in relation to a non-exempt sale, “the appropriate proportion” is—

Formula - (MV minus P) divided by MV

where—

  • MV is the value of the interest in land at the time of the sale;

  • P is the amount paid.

(5)Regulations may—

(a)in relation to any valuation date, provide for a valuation of the relevant land or any interest in the relevant land by reference to an earlier valuation date to apply subject to any prescribed adjustments, and

(b)in relation to any year of assessment, provide for a determination of the rental value of the land by reference to any earlier year of assessment to apply subject to any prescribed adjustments.

(6)In this paragraph—

  • “the taxable period” means the year of assessment, or part of a year of assessment, during which paragraph 3 applies to the chargeable person;

  • “the valuation date”, in relation to a taxable period, means such date as may be prescribed.

5(1)For the purposes of paragraph 4 the annual value of the relevant land is the rent which might reasonably be expected to be obtained on a letting from year to year if—

(a)the tenant undertook to pay all taxes, rates and charges usually paid by a tenant, and

(b)the landlord undertook to bear the costs of the repairs and insurance and the other expenses (if any) necessary for maintaining the property in a state to command that rent.

(2)For the purposes of sub-paragraph (1) that rent—

(a)is to be taken to be the amount that might reasonably be expected to be so obtained in respect of a letting of the land, and

(b)is to be calculated on the basis that the only amounts that may be deducted in respect of services provided by the landlord are amounts in respect of the cost to the landlord of providing any relevant services.

(3)In this paragraph “relevant service” means a service other than the repair, insurance or maintenance of the premises.

Chattels

6(1)This paragraph applies where—

(a)an individual (“the chargeable person”) is in possession of, or has the use of, a chattel, whether alone or together with other persons, and

(b)the disposal condition or the contribution condition is met as respects the chattel.

(2)The disposal condition is that—

(a)at any time after 17th March 1986 the chargeable person had (whether alone or jointly with others) owned—

(i)the chattel, or

(ii)any other property the proceeds of the disposal of which were (directly or indirectly) applied by another person towards the acquisition of the chattel, and

(b)the chargeable person disposed of all or part of his interest in the chattel or other property otherwise than by an excluded transaction.

(3)The contribution condition is that at any time after 17th March 1986 the chargeable person had directly or indirectly provided, otherwise than by an excluded transaction, any of the consideration given by another person for the acquisition of—

(a)the chattel, or

(b)any other property the proceeds of the disposal of which were (directly or indirectly) applied by another person towards the acquisition of the chattel.

(4)For the purposes of this paragraph, a disposition which creates a new interest in a chattel out of an existing interest in a chattel is to be taken to be a disposal of part of the existing interest.

(5)Where this paragraph applies to a person in respect of the whole or part of a year of assessment, an amount equal to the chargeable amount determined under paragraph 7 is to be treated as income of his chargeable to income tax.

7(1)For any taxable period the chargeable amount in relation to any chattel is the appropriate amount (as determined under sub-paragraph (2)), less the amount of any payments which, in pursuance of any legal obligation, are made by the chargeable person during the period to the owner of the chattel in respect of the possession or use of the chattel by the chargeable person.

(2)The appropriate amount is—

Formula - N multiplied by (DV divided by V)

where—

  • N is the amount of the interest that would be payable for the taxable period if interest were payable at the prescribed rate on an amount equal to the value of the chattel as the valuation date,

  • DV is—

    (a)

    in a case falling within paragraph 6(2)(a)(i), the value as at the valuation date of the interest in the chattel that was disposed of as mentioned in paragraph 6(2)(b) by the chargeable person or, where the disposal was a non-exempt sale, the appropriate proportion of that value,

    (b)

    in a case falling within paragraph 6(2)(a)(ii), such part of the value of the chattel at the valuation date as can reasonably be attributed to the property originally disposed of by the chargeable person or, where the original disposal was a non-exempt sale, to the appropriate proportion of that property, and

    (c)

    in a case falling within paragraph 6(3), such part of the value of the chattel at the valuation date as can reasonably be attributed to the consideration provided by the chargeable person, and

  • V is the value of the chattel at the valuation date.

(3)The disposal by the chargeable person of an interest in a chattel is a “non-exempt sale” if (although not an excluded transaction) it was a sale of his whole interest in the chattel for a consideration paid in money in sterling or any other currency; and, in relation to a non-exempt sale, “the appropriate proportion” is—

Formula - (MV minus P) divided by MV

where—

  • MV is the value of the interest in the chattel at the time of the sale;

  • P is the amount paid.

(4)Regulations may, in relation to any valuation date, provide for a valuation of the chattel or any interest in the chattel by reference to an earlier valuation date to apply subject to any prescribed adjustments.

(5)In this paragraph—

  • “the taxable period” means the year of assessment, or part of a year of assessment, during which paragraph 6 applies to the chargeable person;

  • “the valuation date”, in relation to a taxable period, means such date as may be prescribed.

Intangible property comprised in settlement where settlor retains an interest

8(1)This paragraph applies where—

(a)the terms of a settlement, as they affect any property comprised in the settlement, are such that any income arising from the property would be treated by virtue of section 660A of the Taxes Act 1988 (income arising under settlement where settlor retains an interest) as income of a person (“the chargeable person”) who is for the purposes of Part 15 of that Act the settlor,

(b)any such income would be so treated even if subsection (2) of that section did not include any reference to the spouse of the settlor, and

(c)that property includes any property as respects which the condition in sub-paragraph (2) is met (“the relevant property”).

(2)The condition mentioned in sub-paragraph (1)(c) is that the property is intangible property which is or represents property which the chargeable person settled, or added to the settlement, after 17th March 1986.

(3)Where this paragraph applies in respect of the whole or part of a year of assessment, an amount equal to the chargeable amount determined under paragraph 9 is to be treated as income of the chargeable person chargeable to income tax.

9(1)For any taxable period the chargeable amount in relation to the relevant property is N minus T where—

  • N is the amount of the interest that would be payable for the taxable period if interest were payable at the prescribed rate on an amount equal to the value of the relevant property at the valuation date, and

  • T is the amount of any income tax or capital gains tax payable by the chargeable person in respect of the taxable period by virtue of any of the following provisions—

    (a)

    section 547 of the Taxes Act 1988,

    (b)

    section 660A of that Act,

    (c)

    section 739 of that Act,

    (d)

    section 77 of the Taxation of Chargeable Gains Act 1992 (c. 12), and

    (e)

    section 86 of that Act,

  • so far as the tax is attributable to the relevant property.

(2)Regulations may, in relation to any valuation date, provide for a valuation of the relevant property by reference to an earlier valuation date to apply subject to any prescribed adjustments.

(3)In this paragraph—

  • “the taxable period” means the year of assessment, or part of a year of assessment, during which paragraph 8 applies to the chargeable person;

  • “the valuation date”, in relation to a year of assessment, means such date as may be prescribed.

Excluded transactions

10(1)For the purposes of paragraphs 3(2) and 6(2) (the disposal condition), the disposal of any property is an “excluded transaction” in relation to any person (“the chargeable person”) if—

(a)it was a disposal of his whole interest in the property, except for any right expressly reserved by him over the property, either—

(i)by a transaction made at arm’s length with a person not connected with him, or

(ii)by a transaction such as might be expected to be made at arm’s length between persons not connected with each other,

(b)the property was transferred to his spouse (or where the transfer has been ordered by a court, to his former spouse),

(c)it was a disposal by way of gift (or, where the transfer is for the benefit of his former spouse, in accordance with a court order), by virtue of which the property became settled property in which his spouse or former spouse is beneficially entitled to an interest in possession,

(d)the disposal was a disposition falling within section 11 of IHTA 1984 (dispositions for maintenance of family), or

(e)the disposal is an outright gift to an individual and is for the purposes of IHTA 1984 a transfer of value that is wholly exempt by virtue of section 19 (annual exemption) or section 20 (small gifts).

(2)For the purposes of paragraphs 3(3) and 6(3) (the contribution condition) the provision by a person (“the chargeable person”) of consideration for another’s acquisition of any property is an “excluded transaction” in relation to the chargeable person if—

(a)the other person was his spouse (or, where the transfer has been ordered by the court, his former spouse),

(b)on its acquisition the property became settled property in which his spouse or former spouse is beneficially entitled to an interest in possession,

(c)the provision of the consideration constituted an outright gift of money (in sterling or any other currency) by the chargeable person to the other person and was made at least seven years before the earliest date on which the chargeable person met the condition in paragraph 3(1)(a) or, as the case may be, 6(1)(a),

(d)the provision of the consideration is a disposition falling within section 11 of IHTA 1984 (dispositions for maintenance of family), or

(e)the provision of the consideration is an outright gift to an individual and is for the purposes of IHTA 1984 a transfer of value that is wholly exempt by virtue of section 19 (annual exemption) or section 20 (small gifts).

(3)A disposal is not an excluded transaction by virtue of sub-paragraph (1)(c) or (2)(b), if the interest in possession of the spouse or former spouse has come to an end otherwise than on the death of the spouse or former spouse.

Exemptions from charge

11(1)Paragraph 3 (land), paragraph 6 (chattels) and paragraph 8 (intangible property) do not apply to a person at a time when his estate for the purposes of IHTA 1984 includes—

(a)the relevant property, or

(b)other property—

(i)which derives its value from the relevant property, and

(ii)whose value, so far as attributable to the relevant property, is not substantially less than the value of the relevant property.

(2)Where the estate for the purposes of IHTA 1984 of a person to whom paragraph 3, 6 or 8 applies includes property—

(a)which derives its value from the relevant property, and

(b)whose value, so far as attributable to the relevant property, is substantially less than the value of the relevant property,

the appropriate rental value in paragraph 4, the appropriate amount in paragraph 7 or the chargeable amount in paragraph 9 (as the case may be) is to be reduced by such proportion as is reasonable to take account of the inclusion of the property in his estate.

(3)Paragraphs 3, 6 and 8 do not apply to a person at a time when—

(a)the relevant property, or

(b)any other property—

(i)which derives its value from the relevant property, and

(ii)whose value, so far as attributable to the relevant property, is not substantially less than the value of the relevant property,

falls within sub-paragraph (5) in relation to him.

(4)Where any property which falls within sub-paragraph (5) in relation to a person includes property—

(a)which derives its value from the relevant property, and

(b)whose value, so far as attributable to the relevant property, is substantially less than the value of the relevant property,

the appropriate rental value in paragraph 4, the appropriate amount in paragraph 7 or the chargeable amount in paragraph 9 (as the case may be) is to be reduced by such proportion as is reasonable to take account of that fact.

(5)Property falls within this sub-paragraph in relation to a person at a time when it—

(a)would fall to be treated by virtue of any provision of Part 5 of the 1986 Act (inheritance tax) as property which in relation to him is property subject to a reservation,

(b)would fall to be so treated but for any of paragraphs (d) to (i) of subsection (5) of section 102 of the 1986 Act (certain cases where disposal by way of gift is an exempt transfer for purposes of inheritance tax),

(c)would fall to be so treated but for subsection (4) of section 102B of the 1986 Act (gifts with reservation: share of interest in land), or would have fallen to be so treated but for that subsection if the disposal by way of gift of an undivided share of an interest in land had been made on or after 9th March 1999, or

(d)would fall to be so treated but for section 102C(3) of, and paragraph 6 of Schedule 20 to, the 1986 Act (exclusion of benefit).

(6)Where at any time the value of a person’s estate for the purposes of IHTA 1984 is reduced by an excluded liability affecting any property, that property is not to be treated for the purposes of sub-paragraph (1) or (2) as comprised in his estate except to the extent that the value of the property exceeds the amount of the excluded liability.

(7)For the purposes of sub-paragraph (6) a liability is an excluded liability if—

(a)the creation of the liability, and

(b)any transaction by virtue of which the person’s estate came to include the relevant property or property which derives its value from the relevant property or by virtue of which the value of property in his estate came to be derived from the relevant property,

were associated operations, as defined by section 268 of IHTA 1984.

(8)In determining whether any property falls within sub-paragraph (5)(b), (c) or (d) in a case where the contribution condition in paragraph 3(3) or 6(3) is met, paragraph 2(2)(b) of Schedule 20 (exclusion of gifts of money) is to be disregarded.

(9)In sub-paragraphs (1) to (8) “the relevant property” means—

(a)in relation to paragraphs 3 and 6—

(i)where the disposal condition in paragraph 3(2) or 6(2) is met, the property disposed of,

(ii)where the contribution condition in paragraph 3(3) or 6(3) is met, the property representing the consideration directly or indirectly provided,

(b)in relation to paragraph 8, the relevant property within the meaning of that paragraph.

(10)Property is not to be treated as falling within sub-paragraph (5)(b) at any time in a case falling within section 102(5)(h) of the 1986 Act unless the property remains subject to trusts which comply with the requirements of paragraph 3 (1) of Schedule 4 to IHTA 1984.

Chargeable person resident or domiciled outside the United Kingdom

12(1)This Schedule does not apply in relation to any person for any year of assessment during which he is not resident in the United Kingdom.

(2)Where in any year of assessment a person is resident in the United Kingdom but is domiciled outside the United Kingdom, this Schedule does not apply to him unless the property falling within paragraph 3(1)(a), 6(1)(a) or 8(1)(c) is situated in the United Kingdom.

(3)In the application of this Schedule to a person who was at any time domiciled outside the United Kingdom, no regard is to be had to any property which is for the purposes of IHTA 1984 excluded property in relation to him by virtue of section 48(3)(a) of that Act.

(4)For the purposes of this paragraph, a person is to be treated as domiciled in the United Kingdom at any time only if he would be so treated for the purposes of IHTA 1984.

Exemption in cases where aggregate notional annual values do not exceed £5,000

13(1)This paragraph applies where, in relation to any person who would (apart from this paragraph) be chargeable under this Schedule for any year of assessment, the aggregate of the amounts specified in sub-paragraph (2) in respect of that year does not exceed £5,000.

(2)Those amounts are—

(a)in relation to any land to which paragraph 3 applies in respect of him, the appropriate rental value as determined under paragraph 4(2),

(b)in relation to any chattel to which paragraph 6 applies in respect of him, the appropriate amount as determined under paragraph 7(2), and

(c)in relation to any intangible property to which paragraph 8 applies in respect of him, the chargeable amount determined under paragraph 9.

(3)Where this paragraph applies, the person is not chargeable for that year of assessment under any of the following provisions—

(a)paragraph 3(5) (land),

(b)paragraph 6(5) (chattels), or

(c)paragraph 8(3) (intangible property).

Power of Treasury to confer further exemptions by regulations

14Regulations may confer further exemptions from the charges to income tax imposed by paragraphs 3, 6 and 8.

Valuation

15Except as otherwise provided by this Schedule, the value of any property shall for the purposes of this Schedule be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.

Changes in distribution of deceased’s estate

16Any disposition made by a person (“the chargeable person”) in relation to an interest in the estate of a deceased person is to be disregarded for the purposes of this Schedule if by virtue of section 17 of IHTA 1984 (changes in distribution of deceased’s estate, etc.) the disposition is not treated for the purposes of inheritance tax as a transfer of value by the chargeable person.

Guarantees

17Where a person (“A”) acts as guarantor in respect of a loan made to another person (“B”) by a third party in connection with B’s acquisition of any property, the mere giving of the guarantee is not to be regarded as the provision by A of consideration for B’s acquisition of the property.

Persons chargeable under different provisions by reference to same property

18(1)Where, in any year of assessment, a person (“the chargeable person”) is (apart from this paragraph) chargeable to income tax both—

(a)under paragraph 3 (land) or paragraph 6 (chattels) by reason of his occupation of any land or his possession or use of any chattel, and

(b)under paragraph 8 (intangible property) by reference to any intangible property which derives its value (whether in whole or part) from the land or the chattel,

he is to be charged to income tax under whichever provision produces the higher chargeable amount in relation to him.

(2)Where sub-paragraph (1) applies, only the amount under the paragraph under which he is chargeable is to be taken into account in relation to the chargeable person for the purposes of paragraph 13(2).

Relationship with Part 3 of Income Tax (Earnings and Pensions) Act 2003

19Where, in any year of assessment, a person is (apart from this paragraph) chargeable, in respect of his occupation of any land or his possession or use of any chattel, to income tax both—

(a)under this Schedule, and

(b)under Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1),

the provisions of that Part shall have priority and he shall not be chargeable to income tax under this Schedule, except to the extent that the amount chargeable under this Schedule exceeds the amount to be treated as earnings under that Part.

Regulations

20(1)Regulations under this Schedule may—

(a)make different provision for different cases, and

(b)include transitional provisions and savings.

(2)Any power conferred by this Schedule to prescribe a rate of interest includes power—

(a)to prescribe different rates in relation to property of different descriptions, and

(b)to prescribe a rate by reference to a rate specified in the regulations.

Election for application of inheritance tax provisions

21(1)This paragraph applies where—

(a)a person (“the chargeable person”) would (apart from this paragraph) be chargeable under paragraph 3 (land) or paragraph 6 (chattels) for any year of assessment (“the initial year”) by reference to his enjoyment of any property (“the relevant property”), and

(b)he has not been chargeable under the paragraph in question in respect of any previous year of assessment by reference to his enjoyment of the relevant property, or of any other property for which the relevant property has been substituted.

(2)The chargeable person may elect in accordance with paragraph 23 that—

(a)the preceding provisions of this Schedule shall not apply to him during the initial year and subsequent years of assessment by reference to his enjoyment of the relevant property or of any property which may be substituted for the relevant property, but

(b)so long as the chargeable person continues to enjoy the relevant property or any property which is substituted for the relevant property—

(i)the chargeable proportion of the property is to be treated for the purposes of Part 5 of the 1986 Act (in relation to the chargeable person) as property subject to a reservation, and

(ii)section 102(3) and (4) of that Act shall apply.

(3)In this paragraph, “the chargeable proportion”, in relation to any property, means—

Formula - DV divided by V

where DV and V are to be read in accordance with paragraph 4(2) or 7(2), as the case requires, but as if—

(a)

any reference in paragraph 4(2) or 7(2) to the valuation date were a reference—

(i)

in the case of property falling within subsection (3) of section 102 of the Finance Act 1986, to the date of the death of the chargeable person, and

(ii)

in the case of property falling within subsection (4) of that section, to the date on which the property ceases to be treated as property subject to a reservation, and

(b)

the transactions to be taken into account in calculating DV included transactions after the time when the election takes effect as well as transactions before that time.

(4)For the purposes of this paragraph a person “enjoys” property if—

(a)in the case of an interest in land, he occupies the land, and

(b)in the case of an interest in a chattel, he is in possession of, or has the use of, the chattel.

22(1)This paragraph applies where—

(a)a person (“the chargeable person”) would (apart from this paragraph) be chargeable under paragraph 8 (intangible property) for any year of assessment (“the initial year”) by reference to any property (“the relevant property”), and

(b)he has not been chargeable under that paragraph in respect of any previous year of assessment by reference to the relevant property or any property which the relevant property represents or is derived from.

(2)The chargeable person may elect in accordance with paragraph 23 that—

(a)the preceding provisions of this Schedule shall not apply to him during the initial year and subsequent years of assessment by reference to the relevant property or any property which represents or is derived from the relevant property, but

(b)so long as the conditions in sub-paragraph (3) are satisfied—

(i)the relevant property and any property which represents or is derived from the relevant property shall be treated for the purposes of Part 5 of the 1986 Act (in relation to the chargeable person) as property subject to a reservation, and

(ii)section 102(3) and (4) of the 1986 Act shall apply.

(3)The conditions referred to in sub-paragraph (2)(b) are—

(a)that the relevant property or the property which represents or is derived from the relevant property remains comprised in the settlement, and

(b)that any income arising under the settlement would be treated by virtue of section 660A of the Taxes Act 1988 as income of the chargeable person.

23(1)In this paragraph—

  • “election” means an election under paragraph 21 or 22;

  • “the relevant filing date” means 31st January in the year of assessment that immediately follows the initial year within the meaning of paragraph 21 or (as the case requires) paragraph 22.

(2)The election must be made in the prescribed manner.

(3)The election must be made on or before the relevant filing date, unless the chargeable person can show a reasonable excuse for the failure to make the election by that date.

(4)Where the chargeable person can show reasonable excuse for the failure to make the election on or before the relevant filing date, the election must be made on or before such later date as may be prescribed.

(5)The election may be withdrawn or amended, during the life of the chargeable person, at any time on or before the relevant filing date.

(6)Subject to sub-paragraph (5), the election takes effect for the purposes of inheritance tax from the beginning of the initial year within the meaning of paragraph 21 or (as the case requires) paragraph 22 or, if later, the date on which the chargeable person would (but for the election) have first become chargeable under this Schedule by reference to the property to which the election relates.

Section 85

SCHEDULE 16Relief where national insurance contributions met by employee

Income tax relief: restricted securities

1(1)Chapter 2 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (employment income: restricted securities) is amended as follows.

(2)In section 426 (charge on occurrence of chargeable event), for subsections (1) to (4) substitute—

(1)If a chargeable event occurs in relation to the employment-related securities, the taxable amount counts as employment income of the employee for the relevant tax year.

(2)For this purpose—

(a)“chargeable event” has the meaning given by section 427,

(b)“the taxable amount” is the amount determined under section 428, and

(c)“the relevant tax year” is the tax year in which the chargeable event occurs.

(3)Relief may be available under section 428A (relief for secondary Class 1 contributions met by employee) against an amount counting as employment income under this section..

(3)After section 428 insert—

428ARelief for secondary Class 1 contributions met by employee

(1)Relief is available under this section against an amount counting as employment income under section 426 (“the employment income amount”) if—

(a)an agreement having effect under paragraph 3A of Schedule 1 to the Contributions and Benefits Act has been entered into allowing the secondary contributor to recover from the employee the whole or part of any secondary Class 1 contribution in respect of that amount, or

(b)an election having effect under paragraph 3B of that Schedule is in force which has the effect of transferring to the employee the whole or part of the liability to pay secondary Class 1 contributions in respect of that amount.

(2)The amount of the relief is the total of—

(a)any amount that under the agreement referred to in subsection (1)(a) is recovered in respect of the employment income amount by the secondary contributor before 5th June in the tax year following that in which the chargeable event occurs, and

(b)the amount of any liability in respect of the employment income amount that, by virtue of the election referred to in subsection (1)(b), has become the employee’s liability.

(3)If notice of withdrawal of approval of the election is given, the amount of the liability referred to in subsection (2)(b) is limited to the amount met before 5th June in the tax year following that in which the chargeable event occurs.

(4)Relief under this section is given by way of deduction from the amount otherwise counting as employment income.

(5)Relief under this section does not affect the amount to be taken into account—

(a)as employment income in determining contributions payable under the Contributions and Benefits Act, or

(b)as relevant employment income for the purposes of paragraph 3A or 3B of Schedule 1 to that Act.

(6)In this section—

  • “approval”, in relation to an election, means approval by the Inland Revenue under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, and

  • “secondary contributor” has the same meaning as in that Act (see section 7)..

Income tax relief: convertible securities

2(1)Chapter 3 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (employment income: convertible securities) is amended as follows.

(2)In section 438 (charge on occurrence of chargeable event), for subsections (1) to (4) substitute—

(1)If a chargeable event occurs in relation to the employment-related securities, the taxable amount counts as employment income of the employee for the relevant tax year.

(2)For this purpose—

(a)“chargeable event” has the meaning given by section 439,

(b)“the taxable amount” is the amount determined under section 440, and

(c)“the relevant tax year” is the tax year in which the chargeable event occurs.

(3)Relief may be available under section 442A (relief for secondary Class 1 contributions met by employee) against an amount counting as employment income under this section..

(3)After section 442 insert—

442ARelief for secondary Class 1 contributions met by employee

(1)Relief is available under this section against an amount counting as employment income under section 438 (“the employment income amount”) if—

(a)an agreement having effect under paragraph 3A of Schedule 1 to the Contributions and Benefits Act has been entered into allowing the secondary contributor to recover from the employee the whole or part of any secondary Class 1 contribution in respect of that amount, or

(b)an election having effect under paragraph 3B of that Schedule is in force which has the effect of transferring to the employee the whole or part of the liability to pay secondary Class 1 contributions in respect of that amount.

(2)The amount of the relief is the total of—

(a)any amount that under the agreement referred to in subsection (1)(a) is recovered in respect of the employment income amount by the secondary contributor before 5th June in the tax year following that in which the chargeable event occurs, and

(b)the amount of any liability in respect of the employment income amount that, by virtue of the election referred to in subsection (1)(b), has become the employee’s liability.

(3)If notice of withdrawal of approval of the election is given, the amount of the liability referred to in subsection (2)(b) is limited to the amount met before 5th June in the tax year following that in which the gain is realised.

(4)Relief under this section is given by way of deduction from the amount otherwise counting as employment income.

(5)Relief under this section does not affect the amount to be taken into account—

(a)as employment income in determining contributions payable under the Contributions and Benefits Act, or

(b)as relevant employment income for the purposes of paragraph 3A or 3B of Schedule 1 to that Act.

(6)In this section—

  • “approval”, in relation to an election, means approval by the Inland Revenue under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, and

  • “secondary contributor” has the same meaning as in that Act (see section 7)..

Income tax relief: securities options

3(1)Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (employment income: securities options) is amended as follows.

(2)In section 476 (charge on occurrence of chargeable event), for subsections (1) to (4) substitute—

(1)If a chargeable event occurs in relation to an employment-related securities option, the taxable amount counts as employment income of the employee for the relevant tax year.

(2)For this purpose—

(a)“chargeable event” has the meaning given by section 477,

(b)“the taxable amount” is the amount determined under section 478, and

(c)“the relevant tax year” is the tax year in which the chargeable event occurs.

(3)Relief under section 481 or 482 (relief for secondary Class 1 contributions or special contribution met by employee) may be available against an amount counting as employment income under this section..

(3)In section 480 (deductible amounts), omit subsection (7).

(4)In section 481 (deductible amount in respect of secondary Class 1 contributions met by employee)—

(a)in the heading for “Deductible amount in respect of” substitute “Relief for”;

(b)in subsection (1) for the opening words down to “if” substitute “Relief is available under this section against an amount counting as employment income under section 476 if”;

(c)in subsection (2) for the opening words down to “of” substitute “The amount of the relief is the total of”;

(d)after subsection (4) insert—

(4A)Relief under this section is given by way of deduction from the amount otherwise counting as employment income.

(4B)Relief under this section does not affect the amount to be taken into account—

(a)as employment income in determining contributions payable under the Contributions and Benefits Act, or

(b)as relevant employment income for the purposes of paragraph 3A or 3B of Schedule 1 to that Act..

(5)In section 482 (deductible amount in respect of special contribution met by employee)—

(a)in the heading for “Deductible amount in respect of” substitute “Relief for”;

(b)in subsection (1) for the opening words down to “if” substitute “Relief is available under this section against an amount counting as employment income under section 476 if”;

(c)after subsection (5) add—

(6)The amount of the relief is the amount of the liability referred to in subsection (4).

“7)Relief under this section is given by way of deduction from the amount otherwise counting as employment income..

Consequential amendments: PAYE

4(1)Part 11 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (Pay As You Earn) is amended as follows.

(2)In section 698 (PAYE: special charges on employment-related securities), after subsection (2) insert—

(2A)For the purposes of this section the amount likely to count as employment income under section 426 or 438 means the amount after deducting the amount of any relief likely to be available under section 428A or 442A (relief for secondary Class 1 contributions met by employee)..

(3)In section 700 (PAYE: gains from securities options), after subsection (4) insert—

(4A)For the purposes of this section the amount likely to count as employment income under section 476 means the amount after deducting the amount of any relief likely to be available under section 481 or 482 (relief for secondary Class 1 contributions or special contribution met by employee)..

Consequential amendments: corporation tax relief

5(1)Schedule 23 of the Finance Act 2003 (c. 14) (corporation tax relief for employee share acquisition) is amended as follows.

(2)In paragraph 21(4) (amount of relief on acquisition of restricted shares)—

(a)omit the words “increased by any amounts deducted under sections 481 and 482 of that Act”, and

(b)at the end add—

No account shall be taken for this purpose of any relief under section 481 or 482 of that Act (relief for secondary Class 1 contributions or special contribution met by employee)..

(3)In paragraph 21(6) (amount of relief on chargeable event in relation to restricted shares), at the end add—

No account shall be taken for this purpose of any relief under section 428A of that Act (relief for secondary Class 1 contributions met by employee)..

(4)In paragraph 22C(4) (amount of relief on acquisition of convertible shares)—

(a)omit the words “increased by any amounts deducted under sections 481 and 482 of that Act”, and

(b)at the end add—

No account shall be taken for this purpose of any relief under section 481 or 482 of that Act (relief for secondary Class 1 contributions or special contribution met by employee)..

(5)In paragraph 22C(6) (amount of relief on chargeable event in relation to convertible shares), at the end add—

No account shall be taken for this purpose of any relief under section 442A of that Act (relief for secondary Class 1 contributions met by employee)..

(6)Nothing in this paragraph affects the operation of paragraph 21(4) or 22C(4) of Schedule 23 to the Finance Act 2003 in relation to amounts deducted under section 481 or 482 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) before the amendment of those paragraphs by this Schedule.

Consequential amendments: capital gains tax

6(1)Section 119A of the Taxation of Chargeable Gains Act 1992 (c. 12) (increase in expenditure by reference to tax charged in relation to employment-related securities) is amended as follows.

(2)For subsection (5) (determination of relevant amount) substitute—

(5)In determining for the purposes of subsection (4) the amount counting as employment income—

(a)in the case of an amount counting as employment income under section 476 of ITEPA 2003 any amounts deducted under section 480(5)(a) or (b) of that Act shall be added back, and

(b)no account shall be taken of any relief under section 428A, 442A, 481 or 482 of that Act (relief for secondary Class 1 contributions or special contribution met by employee)..

(3)Omit subsection (8).

(4)Nothing in this paragraph affects the operation of section 119A(5) of the Taxation of Chargeable Gains Act 1992 (c. 12), as inserted by paragraph 50 (1) of Schedule 22 to the Finance Act 2003 (c. 14), in relation to amounts deducted under section 481 or 482 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) before the amendment of those sections by this Schedule.

Other consequential amendments

7(1)In section 484(7) of the Income Tax (Earnings and Pensions) Act 2003 (definitions for Chapter 5 of Part 7), omit the definition of “the Contributions and Benefits Act” and the word “and” preceding it.

(2)In section 721 (1) of that Act (general definitions), at the appropriate place insert—

  • “the Contributions and Benefits Act” means SSCBA 1992 or SSCB(NI)A 1992;.

(3)In Part 2 of Schedule 1 to that Act (index of defined expressions), for the entry relating to “the Contributions and Benefits Act” substitute—

the Contributions and Benefits Actsection 721(1)

Section 92

SCHEDULE 17Minor amendments of or connected with the Income Tax (Earnings and Pensions) Act 2003

Free or subsidised meals

1(1)In Chapter 11 of Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: miscellaneous exemptions), in section 317 (free or subsidised meals), for subsection (1) substitute—

(1)No liability to income tax arises in respect of the provision for an employee by the employer of free or subsidised meals if they are provided—

(a)in a canteen, or

(b)on the employer’s business premises,

and conditions A to C are met..

(2)This amendment has effect for the year 2004-05 and subsequent tax years.

Payments to non-approved pension schemes: exception for employment where earnings not within main charging provisions

2(1)In Chapter 1 of Part 6 of the Income Tax (Earnings and Pensions) Act 2003 (payments to non-approved pension schemes), for section 389 (exception: employments where earnings charged on remittance) substitute—

389Exception: employment where earnings not within main charging provisions

Section 386 does not apply if in the tax year in which the sum is paid the earnings from the employment are not (or would not have been if there were any) general earnings to which any of the following provisions applies—

(a)section 15 (employee resident, ordinarily resident and domiciled in UK),

(b)section 21 (employee resident and ordinarily resident, but not domiciled in UK),

(c)section 25 (employee resident but not ordinarily resident in UK),

(d)section 27 (UK-based earnings for year when employee not resident in UK)..

(2)This amendment has effect for the year 2003-04 and subsequent tax years.

Time limit for assessment: income received after year for which it is assessable

3(1)In Part 4 of the Taxes Management Act 1970 (c. 9) (assessments and claims), for section 35 (time limit for assessment: emoluments received after year for which they are assessable) substitute—

35Time limit: income received after year for which it is assessable

(1)Where income to which this section applies is received in a year of assessment subsequent to that for which it is assessable, an assessment to income tax as respects that income may be made at any time within six years after the year of assessment in which it was received.

(2)This section applies to—

(a)employment income,

(b)pension income, and

(c)social security income..

(2)This amendment has effect in relation to income assessable for the year 2004-05 and subsequent years of assessment.

Computation of profits or gains under Schedule D: delayed payment of remuneration

4(1)In section 43 of the Finance Act 1989 (c. 26) (Schedule D: computation)—

(a)in subsection (1) for “profits or gains of a trade to be charged under Schedule D” substitute “profits or gains to be charged under Schedule D”, and

(b)in subsection (5) omit “of the trade”.

(2)This amendment (which corrects an error in the amendment made by paragraph 157 of Schedule 6 to the Income Tax (Pensions and Earnings) Act 2003 (c. 1)) has effect—

(a)for the purposes of income tax, for the year 2004-05 and subsequent years of assessment;

(b)for the purposes of corporation tax, for accounting periods ending after 5th April 2004.

Donations to charity by individuals: application to Crown employment

5(1)In section 25(2) of the Finance Act 1990 (c. 29) (donations to charity by individuals: qualifying conditions), in paragraph (i)(i) for the words from “or performs duties” to “performed in the United Kingdom” substitute “or is in Crown employment as defined in section 28(2) of the Income Tax (Earnings and Pensions) Act 2003”.

(2)This amendment (which supersedes the amendment made by paragraph 166(3) of Schedule 6 to the Income Tax (Earnings and Pensions) Act 2003) has effect for the year 2003-04 and subsequent years of assessment.

Payments on account of income tax

6(1)Section 108 of the Finance Act 1995 (c. 4) shall be deemed not to have been repealed by Part 1 of Schedule 8 to the Income Tax (Earnings and Pensions) Act 2003 and the inclusion of that section among the enactments so repealed shall be deemed not to have affected the amendments made by that section in section 59A of the Taxes Management Act 1970 (c. 9) (payments on account of income tax).

(2)Nothing in this paragraph affects anything done—

(a)on or after 6th April 2003 (when the Income Tax (Earnings and Pensions) Act 2003 came into force), and

(b)before the passing of this Act,

in reliance on the view that the amendments referred to in sub-paragraph (1) had ceased to have effect.

Tax relief for expenditure on R&D or remediation of contaminated land: staff costs

7(1)In Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for expenditure on research and development), in paragraph 5 (staffing costs)—

(a)in sub-paragraph (1), for paragraph (a) substitute—

(a)the emoluments paid by the company to directors or employees of the company, including all salaries, wages, perquisites and profits whatsoever other than benefits in kind;; and

(b)omit sub-paragraph (1ZA).

(2)In Schedule 22 to the Finance Act 2001 (c. 9) (remediation of contaminated land), in paragraph 5 (employee costs)—

(a)in sub-paragraph (1), for paragraph (a) substitute—

(a)the emoluments paid by the company to directors or employees of the company, including all salaries, wages, perquisites and profits whatsoever other than benefits in kind;; and

(b)omit sub-paragraph (1A).

(3)These amendments have effect in relation to expenditure incurred on or after 1st April 2004.

Gains and losses of a company from intangible fixed assets: delayed payment of remuneration

8(1)In Schedule 29 to the Finance Act 2002 (c. 23) (gains and losses of a company from intangible fixed assets), paragraph 113 (delayed payments of emolument) is amended as follows.

(2)In the heading, for “emoluments” substitute “employees' remuneration”.

(3)In sub-paragraph (1)—

(a)in paragraph (a), for “emoluments” substitute “employees' remuneration”,

(b)in paragraph (b), for “emoluments are” substitute “remuneration is”, and

(c)for “emoluments shall” substitute “remuneration shall”.

(4)For sub-paragraph (2) substitute—

(2)Sub-paragraph (1) applies whether the amount is in respect of particular employments or in respect of employments generally..

(5)For sub-paragraph (3) substitute—

(3)This paragraph applies to potential employees' remuneration as it applies to employees' remuneration.

For this purpose—

(a)potential employees' remuneration is an amount reserved in the accounts of an employer, with a view to it becoming employees' remuneration, and

(b)potential employees' remuneration is regarded as paid when it becomes employees' remuneration that is paid..

(6)In sub-paragraph (5)—

(a)for “emoluments have not” substitute “employees' remuneration has not”,

(b)in paragraph (a), for “they” substitute “it”, and

(c)in paragraph (b), for “emoluments are” substitute “remuneration is”.

(7)After that sub-paragraph insert—

(6)For the purposes of this section remuneration is paid when it—

(a)is treated as received by an employee for the purposes of the Income Tax (Earnings and Pensions) Act 2003 by section 18, 19, 31 or 32 of that Act (receipt of money and non-money earnings), or

(b)would be so treated if it were not exempt income.

(7)In this paragraph—

  • “employee” includes an office-holder and “employment” correspondingly includes an office, and

  • “remuneration” means an amount which is or is treated as earnings for the purposes of the Income Tax (Earnings and Pensions) Act 2003..

(8)These amendments have effect for accounting periods ending after 5th April 2003.

Minor corrections of the Income Tax (Earnings and Pensions) Act 2003

9(1)The Income Tax (Earnings and Pensions) Act 2003 (c. 1) is amended as follows.

(2)In section 286 (power to amend sections 279 to 285), in the heading and in subsection (1), for “279” substitute “277”.

(3)In Chapter 11 of Part 7 (supplementary provisions about employee benefit trusts), in section 554(1)(a) (attribution of further interest in company), for “employment” substitute “employee”.

(4)In section 577 (United Kingdom social security pensions)—

(a)in subsection (2), in paragraph (b) of the definition of “state pension”, for “48” substitute “48A”, and

(b)omit subsection (3).

(5)In section 677 (UK social security benefits wholly exempt from income tax), in Part 2 of Table B (benefits payable under regulations), omit the entry relating to compensation payments where child support reduced because of a change in legislation.

Other minor corrections

10(1)In section 59A(8)(b) of the Taxes Management Act 1970 (c. 9) (payments on account of income tax), for “that Act” substitute “the principal Act”.

(2)In section 336 of the Taxes Act 1988 (temporary residents in the United Kingdom) for “Cases I, II and III of Schedule E” substitute “determining taxable earnings from an employment under Chapters 4 and 5 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: charge to tax)”.

(3)In section 38(9) of the Finance Act 1988 (c. 39) (maintenance payments under existing obligations: 1989-90 onwards)—

(a)for “68(1)(b) or 192(3)” substitute “or 68(1)(b)”, and

(b)after “Taxes Act 1988” insert “or section 355 of the Income Tax (Earnings and Pensions) Act 2003”.

(4)In section 76 of the Finance Act 1989 (c. 26) (non-approved retirement benefits schemes)—

(a)in subsection (3)(b) and (6)(b), for the words from “is treated” to the end substitute “counts as employment income of a person by virtue of section 386 (1) of the Income Tax (Earnings and Pensions) Act 2003 (charge on payments to non-approved retirement benefit schemes)”, and

(b)in subsection (6D)(a) for “employer” substitute “employee”.

Section 93

SCHEDULE 18Enterprise investment scheme

Part 1Income tax relief

1(1)Section 289 of the Taxes Act 1988 (eligibility for income tax relief) is amended as follows.

(2)In subsection (1)—

(a)in paragraph (a), omit “wholly in cash”,

(b)after that paragraph insert—

(aza)he subscribed for the shares (other than any of them which are bonus shares) wholly in cash,,

(c)in paragraph (aa), for the words from “are fully” to “future date)” substitute “(other than any of them which are bonus shares) are fully paid up”,

(d)in paragraph (b), for “and all other shares comprised in the same issue” substitute “(other than any of them which are bonus shares)”,

(e)for paragraph (c) substitute—

(c)at least 80 per cent. of the money raised by the issue of—

(i)the shares, and

(ii)all other eligible shares (if any) in the company of the same class which are issued on the same day,

is employed wholly for the purpose of the activity mentioned in paragraph (b) above not later than the time mentioned in subsection (3) below, and.

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

(1A)The requirements of this subsection are satisfied in relation to the qualifying company if at no time in the relevant period is any of the following, namely—

(a)the relevant qualifying trade,

(b)relevant preparation work (if any), and

(c)relevant research and development (if any),

being carried on by a person other than the qualifying company or a qualifying 90% subsidiary of that company.

(1B)In a case where relevant preparation work is carried on by the qualifying company or a qualifying 90% subsidiary of that company, there is to be disregarded, for the purpose of determining whether the requirements of subsection (1A) above are satisfied in relation to the qualifying company, the carrying on of the relevant qualifying trade by a company other than—

(a)the qualifying company, or

(b)a subsidiary of that company,

at any time in the relevant period before the qualifying company or any qualifying 90% subsidiary of that company carries on that trade.

(1C)The requirements of subsection (1A) above are not to be regarded as failing to be satisfied in relation to the qualifying company if—

(a)by reason only of anything done as a consequence of the qualifying company or any other company being in administration or receivership, or

(b)by reason only of the qualifying company or any other company being wound up or dissolved without winding up,

the relevant qualifying trade ceases to be carried on in the relevant period by the qualifying company or any qualifying 90% subsidiary of that company and is subsequently carried on in that period by a person who is not at any time in the period of restriction connected with the qualifying company.

(1D)Subsection (1C) above applies only if (as the case may be)—

(a)the entry into administration or receivership and everything done as a consequence of the company concerned being in administration or receivership, or

(b)the winding up or dissolution,

is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which or one of the main purposes of which is the avoidance of tax.

(1E)In this section—

  • “relevant preparation work” means preparations falling within subsection (2)(a)(ii) below which are the subject of the qualifying business activity mentioned in subsection (1) above,

  • “the relevant qualifying trade” means the qualifying trade which is the subject of that qualifying business activity,

  • “relevant research and development” means—

    (a)

    research and development falling within subsection (2)(b) below which is the subject of that qualifying business activity, and

    (b)

    any other preparations for the carrying on of the qualifying trade which is the subject of that activity..

(4)In subsection (2)—

(a)in paragraph (a), for “subsidiary” substitute “qualifying 90% subsidiary of that company”,

(b)in paragraph (a)(i), for “it” substitute “the company or any such subsidiary”,

(c)in paragraph (a)(ii)—

(i)for “preparing to carry on” substitute “preparing to carry on, or carrying on,”,

(ii)for “it intends to carry” substitute “is intended to be carried”,

(iii)for “and which it begins to carry on” substitute “by the company or any such subsidiary and which is begun to be carried on by the company or any such subsidiary”,

(d)in the full-out words at the end of paragraph (a), for “trade is” substitute “trade is so”,

(e)in paragraph (b)—

(i)for “subsidiary”, in the first place, substitute “qualifying 90% subsidiary of that company”,

(ii)in sub-paragraph (i), for “it is carrying on or which it” substitute “the company or any such subsidiary is carrying on or which the company or any such subsidiary”,

(iii)in sub-paragraph (ii), for “subsidiary” substitute “such subsidiary”.

(5)In subsection (3)(b), for “subsidiary concerned” substitute “a qualifying 90% subsidiary of that company”.

(6)After subsection (3) insert—

(3A)In determining—

(a)for the purposes of subsection (2)(a)(ii) or (3)(b) above when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company, or

(b)for the purposes of subsection (2)(b)(i) above when research and development is begun to be carried on by such a subsidiary of a company,

there shall be disregarded any carrying on of the trade or, as the case may be, the research and development by it before it became such a subsidiary of the company..

(7)After subsection (8) insert—

(8A)Shares are not fully paid up for the purposes of subsection (1)(aa) above if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares..

(8)For subsection (9) substitute—

(9)For the purposes of this Chapter, a company (“the relevant subsidiary”) is a qualifying 90% subsidiary of another company (“the holding company”) if the following conditions are met—

(a)the holding company possesses not less than 90% of the issued share capital of, and not less than 90% of the voting power in, the relevant subsidiary;

(b)the holding company would—

(i)in the event of a winding up of the relevant subsidiary, or

(ii)in any other circumstances,

be beneficially entitled to receive not less than 90% of the assets of the relevant subsidiary which would then be available for distribution to the equity holders of the subsidiary;

(c)the holding company is beneficially entitled to not less than 90% of any profits of the relevant subsidiary which are available for distribution to the equity holders of the subsidiary;

(d)no person other than the holding company has control of the relevant subsidiary within the meaning of section 840; and

(e)no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) above would cease to be met.

(10)Subsections (3), (3A) and (4) of section 308 apply in relation to the conditions in subsection (9) above as they apply in relation to the conditions in subsection (2) of that section, but with the following modifications.

(11)Those modifications are—

(a)that references in subsections (3), (3A) and (4) of that section to the subsidiary are to be read as references to the relevant subsidiary, and

(b)that subsection (4) of that section is to be read as if the words “the holding company” were substituted for the words “the qualifying company or (as the case may be) by another subsidiary”.

(12)For the purposes of subsection (9) above—

(a)the persons who are equity holders of the relevant subsidiary, and

(b)the percentage of the assets of the relevant subsidiary to which an equity holder would be entitled,

are to be determined in accordance with paragraphs 1 and 3 of Schedule 18.

(13)But in making that determination—

(a)references in paragraph 3 of Schedule 18 to the first company are to be read as references to an equity holder, and

(b)references in that paragraph to a winding up are to be read as including references to any other circumstances in which assets of the relevant subsidiary are available for distribution to its equity holders..

2(1)Section 289A of the Taxes Act 1988 (form of relief) is amended as follows.

(2)In subsection (6), for the words from “A claim” to “below is complied with” substitute “A claim for relief in respect of eligible shares issued by a company shall not be allowed unless subsection (7) below is complied with in relation to the issue of shares in question”.

(3)In subsection (7)—

(a)in paragraph (a)—

(i)for “the case of shares issued” substitute “a case where the money raised by an issue of eligible shares is raised wholly”,

(ii)for “company or subsidiary concerned has carried on the trade for four months” substitute “trade concerned has been carried on for four months by no person other than the qualifying company or a qualifying 90% subsidiary of that company”,

(b)in paragraph (b)—

(i)for “the case of shares issued” substitute “a case where the money raised by an issue of eligible shares is raised wholly or partly”,

(ii)for the words from “or within” to the end substitute “the research and development concerned has been carried on for four months by no person other than the qualifying company or a qualifying 90% subsidiary of that company”.

(4)In subsection (8)—

(a)for paragraph (a) substitute—

(a)by reason only of the qualifying company or any other company being wound up or dissolved without winding up—

(i)the trade concerned is carried on as mentioned in subsection (7)(a) above, or

(ii)the research and development concerned is carried on as mentioned in subsection (7)(b) above,

for a period shorter than four months, and,

(b)in paragraph (b)—

(i)omit “it is shown that”,

(ii)for “was for” substitute “is for”,

(iii)for “not as” substitute “is not”,

(iv)for “which was” substitute “which is”,

(c)in the full-out words at the end, after “(7)(a)” insert “or, as the case may be, (7)(b)”.

(5)In subsection (8A)—

(a)for the words from “Where” to “shorter period.” substitute—

Where, by reason only of anything done as a consequence of the qualifying company or any other company being in administration or receivership—

(a)the trade concerned is carried on as mentioned in subsection (7)(a) above for a period shorter than four months, or

(b)the research and development concerned is carried on as mentioned in subsection (7)(b) above for a period shorter than four months,

subsection (7)(a) or, as the case may be, (7)(b) above shall have effect as if it referred to that shorter period.,

(b)in paragraph (b), after “company” insert “concerned”.

3In section 289B of the Taxes Act 1988 (attribution of relief to shares) in subsection (4), for “same day” substitute “same day, but this subsection does not apply in relation to section 289A(6) and (7)”.

4(1)In section 290(2) of the Taxes Act 1988 (maximum subscriptions) for “£150,000” substitute “£200,000”.

(2)The amendment made by this paragraph has effect for the year 2004-2005 and subsequent years of assessment.

5(1)Section 293 of the Taxes Act 1988 (qualifying companies) is amended as follows.

(2)In subsection (4A)—

(a)omit “which is in administration or receivership”,

(b)after “by reason” insert “only”,

(c)for “its” substitute “the company, or any of its subsidiaries,”.

(3)In subsection (4B)(b), after “company” insert “concerned”.

(4)In subsection (5)—

(a)after “winding up of the company” insert “or any of its subsidiaries”,

(b)after “or the company” insert “or any of its subsidiaries”.

(5)In subsection (6)—

(a)for “by reason of” substitute “by reason only of the company or any of its subsidiaries”,

(b)in paragraph (a), for “and not” substitute “and is not”.

(6)After subsection (6) insert—

(6ZA)The company must not at any time in the relevant period have a property managing subsidiary which is not a qualifying 90% subsidiary of the company.

(6ZB)“Property managing subsidiary” means a subsidiary of the company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(6ZC)In subsection (6ZB) above, “land” and “property deriving its value from land” have the same meaning as in section 776..

6(1)In section 300 of the Taxes Act 1988 (value received from company) for subsection (2)(b) substitute—

(b)repays, in pursuance of any arrangements for or in connection with the acquisition of the shares in respect of which the relief is claimed, any debt owed to the individual other than a debt which was incurred by the company—

(a)on or after the date of issue of those shares; and

(b)otherwise than in consideration of the extinguishment of a debt incurred before that date;.

(2)Subject to sub-paragraph (3), the amendment made by this paragraph has effect in relation to shares issued on or after 17th March 2004.

(3)The amendment made by this paragraph does not have effect in relation to the repayment of a debt incurred before 17th March 2004 if—

(a)the shares were subscribed for before that date, and

(b)the debt was incurred on or after the date on which the shares were subscribed for.

7(1)In section 303 of the Taxes Act 1988 (value received by persons other than claimants) in subsection (9A), for “section 303AA” substitute “sections 303AA and 303A”.

(2)The amendment made by this paragraph has effect in relation to any repayment (within the meaning of section 303A of the Taxes Act 1988) made on or after 17th March 2004.

8(1)In section 303A of the Taxes Act 1988 (restriction on withdrawal of relief under section 303) in subsection (6), omit paragraph (a).

(2)The amendment made by this paragraph has effect in relation to any repayment (within the meaning of section 303A of the Taxes Act 1988) made on or after 17th March 2004.

9In section 308 of the Taxes Act 1988 (application to subsidiaries)—

(a)in subsection (1)(a), omit the words from “and, except” to “relevant period”,

(b)in subsection (2)—

(i)omit paragraphs (a) to (c),

(ii)before paragraph (d) insert—

(ca)that more than 50 per cent. of the ordinary share capital of the subsidiary is owned directly or indirectly by the qualifying company;,

(iii)in paragraph (e), for “the conditions in paragraphs (a) to” substitute “either of the conditions in paragraphs (ca) and”, and for “could” substitute “would”,

(c)in the opening words of subsection (3), for “the qualifying company” substitute “any other company”,

(d)in subsection (3)(a)—

(i)omit “it is shown that”,

(ii)for “and not” substitute “and is not”,

(e)omit subsection (3)(b) and the word “and” immediately preceding it,

(f)after subsection (3) insert—

(3A)The conditions shall not be regarded as ceasing to be satisfied by reason only of anything done as a consequence of the subsidiary or any other company being in administration or receivership if—

(a)the entry into administration or receivership, and

(b)everything done as a consequence of the company concerned being in administration or receivership,

is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which or one of the main purposes of which is the avoidance of tax.,

(g)in subsection (4)—

(i)after “only of” insert “arrangements being in existence for”,

(ii)omit “within the relevant period”,

(iii)omit “it is shown that”,

(iv)after “disposal is” insert “to be”,

(v)for “and not” substitute “and is not to be”,

(h)omit subsection (5),

(i)after subsection (5A) insert—

(5B)Subsections (2) to (10) of section 838 apply for the purposes of subsection (2)(ca) above as they apply for the purposes of subsection (1) of that section..

10(1)In section 310 of the Taxes Act 1988 (information)—

(a)in subsection (5)—

(i)for “289(6),” substitute “289(1D), (6) or (9)(e), 289A(8)(b) or (8A),”,

(ii)for “293(8),” substitute “293(4B), (6) or (8),”,

(iii)for “or 308(2)(e)” substitute “or 308(2)(e), (3), (3A) or (4)”,

(b)in subsection (6)—

(i)in paragraph (a), after “289(6)” insert “or 293(4B) or (6)”,

(ii)after paragraph (a) insert—

(aa)in relation to section 289(1D), 289A(8)(b) or (8A) or 308(3), (3A) or (4), the claimant, the company, any other company in question and any person controlling the company or any other company in question;,

(iii)in paragraph (c), after “section” insert “289(9)(e),”,

(c)after subsection (6) insert—

(6A)The references in subsections (5) and (6) above to subsections (3), (3A) and (4) of section 308 are to be read as including those provisions as applied by section 289(10) and (11)..

(2)The amendments made by this paragraph have effect in relation to any notice given after the passing of this Act in respect of shares issued on or after 17th March 2004.

11(1)Section 312 of the Taxes Act 1988 (interpretation) is amended as follows.

(2)In subsection (1)—

(a)before the definition of “control” insert—

“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise);,

(b)in the definition of “control” after “sections” insert “289(9),”,

(c)after the definition of “research and development” insert—

“qualifying 90% subsidiary”, in relation to any company, is to be construed in accordance with section 289(9) to (13);,

(d)in the definition of “termination date”—

(i)in paragraph (a), for “the shares were issued wholly or mainly in order to raise money” substitute “the money raised by the issue was raised wholly or mainly”,

(ii)in paragraph (a), for “subsidiary” substitute “qualifying 90% subsidiary of the company”,

(iii)in paragraph (b), for “the company or subsidiary concerned had not” substitute “neither the company nor any of its qualifying 90% subsidiaries had”,

(iv)in the full-out words at the end, for “it” substitute “the company or any qualifying 90% subsidiary of the company”.

(3)After subsection (1A) insert—

(1ZA)In determining, for the purposes of the definition of “termination date” in subsection (1) above, when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company there shall be disregarded any carrying on of the trade by it before it became such a subsidiary of the company..

Part 2Deferral relief

12Schedule 5B to the Taxation of Chargeable Gains Act 1992 (c. 12) (enterprise investment scheme: re-investment) is amended as follows.

13(1)In paragraph 1(2) (definition of qualifying investment)—

(a)in paragraph (a), omit “wholly in cash”,

(b)after that paragraph insert—

(aza)he subscribed for the shares (other than any of them which are bonus shares) wholly in cash,,

(c)in paragraph (c), for the words from “are fully” to “future date)” substitute “(other than any of them which are bonus shares) are fully paid up”,

(d)in paragraph (e), after “Act” insert “(read with section 289(1B) to (1E) of that Act)”,

(e)in paragraph (f), for “all the shares comprised in the issue” substitute “the shares (other than any of them which are bonus shares)”,

(f)for paragraph (g) substitute—

(g)at least 80 per cent. of the money raised by the issue of—

(i)the shares, and

(ii)all other eligible shares (if any) in the company of the same class which are issued on the same day,

is employed wholly for the purpose of that activity not later than the time mentioned in section 289(3) of the Taxes Act, and.

(2)After paragraph 1(4) of that paragraph insert—

(5)Shares are not fully paid up for the purposes of sub-paragraph (2)(c) above if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares..

14In paragraph 1A (failure of conditions of application)—

(a)in sub-paragraph (1), after “the shares” insert “mentioned in sub-paragraph (2)(a) of that paragraph”,

(b)in sub-paragraph (2), after “the shares” insert “mentioned in sub-paragraph (2)(a) of that paragraph”,

(c)in sub-paragraph (3), for “an issue of eligible shares,” substitute “the shares mentioned in sub-paragraph (2)(a) of that paragraph,”,

(d)in sub-paragraph (4), for “an issue of eligible shares, the shares” substitute “the issue of eligible shares, the shares mentioned in sub-paragraph (2)(a) of that paragraph”,

(e)in sub-paragraph (5)(b), after “the shares” insert “mentioned in paragraph 1(2)(a) above”.

15(1)In paragraph 10 (re-investment in same company, etc)—

(a)in sub-paragraph (1), for “other securities” substitute “securities”,

(b)after sub-paragraph (3) insert—

(4)In this paragraph “group of companies” means a company which has one or more 51 per cent. subsidiaries, together with those subsidiaries..

(2)The amendments made by this paragraph have effect, for the purposes of paragraph 10 (1) of Schedule 5B to the Taxation of Chargeable Gains Act 1992 (c. 12), in relation to holdings of shares or securities disposed of on or after 17th March 2004.

(3)The amendment made by sub-paragraph (1)(b) has effect, for the purposes of paragraph 10(2) of that Schedule, in relation to eligible shares in a relevant company issued on or after 17th March 2004.

16(1)In paragraph 13 (value received by investor) in sub-paragraph (2)(b)(i), for “on which he subscribed for the shares” substitute “of issue of the shares”.

(2)Subject to sub-paragraph (3), the amendment made by this paragraph has effect in relation to shares issued on or after 17th March 2004.

(3)The amendment made by this paragraph does not have effect in relation to the repayment of a debt incurred before 17th March 2004 if—

(a)the shares were subscribed for before that date, and

(b)the debt was incurred on or after the date on which the shares were subscribed for.

17(1)In paragraph 14 (value received by other persons) in sub-paragraph (7), for “paragraph 14AA” substitute “paragraphs 14AA and 14A”.

(2)The amendment made by this paragraph has effect in relation to any repayment (within the meaning of paragraph 14A of Schedule 5B to the Taxation of Chargeable Gains Act 1992 (c. 12)) made on or after 17th March 2004.

18(1)In paragraph 14A (certain receipts to be disregarded for the purposes of paragraph 14) in sub-paragraph (6), omit paragraph (a).

(2)The amendment made by this paragraph has effect in relation to any repayment (within the meaning of paragraph 14A of Schedule 5B to the Taxation of Chargeable Gains Act 1992) made on or after 17th March 2004.

19(1)In paragraph 16 (information)—

(a)in sub-paragraph (6), for “293(8) or 308(2)(e)” substitute “289(1D) or (9)(e), 289A(8)(b) or (8A), 293(4B), (6) or (8) or 308(2)(e), (3), (3A) or (4)”,

(b)in sub-paragraph (7)—

(i)in paragraph (a), after “above” insert “or section 293(4B) or (6) of the Taxes Act”,

(ii)after paragraph (a) insert—

(aa)in relation to section 289(1D), 289A(8)(b) or (8A) or 308(3), (3A) or (4) of the Taxes Act, the claimant, the company, any other company in question and any person controlling the company or any other company in question;,

(iii)in paragraph (c), after “section” insert “289(9)(e),”,

(iv)in the full-out words at the end, for “(a)” substitute “(a), (aa)”,

(c)after sub-paragraph (7) insert—

(7A)The references in sub-paragraphs (6) and (7) above to subsections (3), (3A) and (4) of section 308 of the Taxes Act are to be read as including those provisions as applied by section 289(10) and (11) of that Act..

(2)The amendments made by this paragraph have effect in relation to any notice given after the passing of this Act in respect of shares issued on or after 17th March 2004.

20(1)In paragraph 19 (1) (interpretation)—

(a)before the definition of “arrangements” insert—

“51 per cent. subsidiary” has the meaning given by section 838 of the Taxes Act;,

(b)after the definition of “associate” insert—

“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise);.

(2)The amendment made by sub-paragraph (1)(a) has effect in relation to shares issued on or after 17th March 2004, except that, for the purposes of the amendment made by sub-paragraph (1)(b) of paragraph 15 of this Schedule, it has effect in accordance with sub-paragraphs (2) and (3) of that paragraph.

Part 3Commencement

21Except where otherwise provided, the amendments made by this Schedule have effect in relation to shares issued on or after 17th March 2004.

Section 94

SCHEDULE 19Venture capital trusts

Part 1Increase in relief on investments and distributions

1In paragraph 1(3) of Schedule 15B to the Taxes Act 1988 (maximum amount in respect of which claim for income tax relief may be made) for “£100,000” substitute “£200,000”.

2In paragraph 8 (1) of that Schedule (meaning of “permitted maximum”) for “£100,000” substitute “£200,000”.

3The amendments made by this Part have effect for the year 2004-05 and subsequent years of assessment.

Part 2Abolition of deferral relief

Main amendments

4Section 151A(3) of the Taxation of Chargeable Gains Act 1992 (c. 12) (which introduces Schedule 5C) shall cease to have effect.

5Schedule 5C to that Act (venture capital trusts: deferred charge on re-investment) shall cease to have effect.

Consequential amendment

6(1)The Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)In paragraph 2(4) of Schedule 5B (enterprise investment scheme: re-investment) omit “or Schedule 5C”.

Commencement

7(1)The amendments made by this Part have effect in relation to shares issued on or after 6th April 2004 which are shares by reference to which an individual is given relief under Part 1 of Schedule 15B to the Taxes Act 1988.

(2)But nothing in this Act affects the continuing operation of Schedule 5C to the Taxation of Chargeable Gains Act 1992 (c. 12) for the purposes of section 151B(8)(b)(ii) of that Act.

Part 3Miscellaneous

8Schedule 28B to the Taxes Act 1988 (venture capital trusts: meaning of “qualifying holdings”) is amended as follows.

9In paragraph 3 (requirement as to company’s business)—

(a)in sub-paragraph (3)—

(i)for the words from “the relevant company” to “all times since,” substitute “when the relevant holding was issued and at all times since, a qualifying company (whether or not the same such company at every such time) must”,

(ii)in paragraph (b)—

(a)for “it intended to carry” substitute “was intended to be carried”,

(b)after “Kingdom” insert “by a qualifying company”,

(iii)omit the words from “and for the purposes” to the end,

(b)in sub-paragraph (4)—

(i)in paragraph (a), for the words from “the relevant company” to “intended trade” substitute “the intended trade was begun to be carried on by a qualifying company”,

(ii)in paragraph (b), for the words from “that company” to “that period,” substitute “at all times since the end of that period, a qualifying company (whether or not the same such company at every such time) has”,

(c)after sub-paragraph (5) insert—

(5A)In sub-paragraphs (3) and (4) above, “qualifying company” means the relevant company or any relevant qualifying subsidiary of that company.

(5B)In determining for the purposes of sub-paragraph (4)(a) above when the intended trade was begun to be carried on by a qualifying company which is a relevant qualifying subsidiary of the relevant company there shall be disregarded any carrying on of the trade by it before it became such a subsidiary of the relevant company..

10After paragraph 5 insert—

Meaning of “relevant qualifying subsidiary”

5A(1)For the purposes of this Schedule, a company (“the subsidiary”) is a relevant qualifying subsidiary of the relevant company at any time when it falls within sub-paragraph (2) below.

(2)The subsidiary falls within this sub-paragraph if—

(a)the relevant company possesses not less than 90 per cent. of the issued share capital of, and not less than 90 per cent. of the voting power in, the subsidiary;

(b)the relevant company would—

(i)in the event of a winding up of the subsidiary, or

(ii)in any other circumstances,

be beneficially entitled to receive not less than 90 per cent. of the assets of the subsidiary which would then be available for distribution to the equity holders of the subsidiary;

(c)the relevant company is beneficially entitled to not less than 90 per cent. of any profits of the subsidiary which are available for distribution to the equity holders of the subsidiary;

(d)no person other than the relevant company has control of the subsidiary within the meaning of section 840; and

(e)no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) above would cease to be met.

(3)Sub-paragraphs (4) to (4C) and (5) of paragraph 10 below apply in relation to sub-paragraph (2) of this paragraph as they apply in relation to sub-paragraph (3) of that paragraph, but with the following modification.

(4)That modification is that sub-paragraph (5) of that paragraph is to be read as if the words “or (as the case may be) by another subsidiary of that company” were omitted.

(5)For the purposes of this paragraph—

(a)the persons who are equity holders of the subsidiary, and

(b)the percentage of the assets of the subsidiary to which an equity holder would be entitled,

shall be determined in accordance with paragraphs 1 and 3 of Schedule 18.

(6)But in making that determination—

(a)references in paragraph 3 of that Schedule to the first company are to be read as references to an equity holder, and

(b)references in that paragraph to a winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders..

11In paragraph 6 (requirements as to the money raised by the investment in question)—

(a)in sub-paragraph (1)(a)(ii), for the words from “the relevant company” to “employ” substitute “is intended to be employed”,

(b)in sub-paragraph (2AA)(b), for the words from “the relevant company” to the end substitute “the condition in paragraph 3(4)(a) above was satisfied”,

(c)for sub-paragraphs (2A) to (2C) substitute—

(2AB)The requirements of this paragraph are not satisfied if either of the following, namely—

(a)the trade by reference to which the requirements of paragraph 3(3) above are satisfied, and

(b)any preparations for that trade falling within paragraph 3(3)(b) above,

are carried on, at any time after the issue of the relevant holding, by a person other than the relevant company or a relevant qualifying subsidiary of that company.

(2AC)Sub-paragraph (2AD) below applies where preparations mentioned in sub-paragraph (2AB)(b) above are carried on by the relevant company or a relevant qualifying subsidiary of that company at any time after the issue of the relevant holding.

(2AD)Where this sub-paragraph applies, the requirements of this paragraph are not to be regarded, by virtue of sub-paragraph (2AB) above, as failing to be satisfied by reason only of the carrying on of the trade mentioned in sub-paragraph (2AB)(a) above by a person other than—

(a)the relevant company, or

(b)a qualifying subsidiary of that company,

at any time after the issue of the relevant holding but before the relevant company or any relevant qualifying subsidiary of that company carries on that trade.

(2AE)The requirements of this paragraph are not to be regarded, by virtue of sub-paragraph (2AB) above, as failing to be satisfied by reason only of the carrying on of the trade mentioned in sub-paragraph (2AB)(a) above—

(a)by the partners in a partnership of which the relevant company, or a relevant qualifying subsidiary of that company, is a member, or

(b)by the parties to a joint venture to which the relevant company, or a relevant qualifying subsidiary of that company, is a party.

(2AF)The requirements of this paragraph are not to be regarded, by virtue of sub-paragraph (2AB) above, as failing to be satisfied if—

(a)by reason only of anything done as a consequence of the relevant company or any other company being in administration or receivership, or

(b)by reason only of the relevant company or any other company being wound up or dissolved without winding up,

the trade mentioned in sub-paragraph (2AB)(a) above ceases to be carried on by the relevant company or a relevant qualifying subsidiary of that company and is subsequently carried on by a person who has not been connected, at any time after the date which is one year before the issue of the relevant holding, with the relevant company.

(2AG)Sub-paragraph (2AF) above applies only if (as the case may be)—

(a)the entry into administration or receivership and everything done as a consequence of the company concerned being in administration or receivership, or

(b)the winding up or dissolution,

is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which or one of the main purposes of which is the avoidance of tax.

(2AH)Sub-paragraph (2) of paragraph 11A below applies for the purposes of sub-paragraphs (2AF) and (2AG) above as it applies for the purpose of that paragraph.,

(d)omit sub-paragraph (5).

12In paragraph 10 (meaning of “qualifying subsidiary”)—

(a)omit sub-paragraph (3)(a) to (c),

(b)before sub-paragraph (3)(d) insert—

(ca)the subsidiary is a 51 per cent. subsidiary of the relevant company;,

(c)in sub-paragraph (3)(e), for “the relevant company could cease to fall within this sub-paragraph” substitute “either of the conditions in paragraphs (ca) and (d) above would cease to be met”,

(d)in sub-paragraph (4)—

(i)after “time when it” insert “or any other company”,

(ii)omit “it is shown”,

(iii)omit the first “that” in paragraph (a),

(iv)omit “that” in paragraph (b),

(v)for “and not” substitute “and is not”,

(e)after sub-paragraph (4) insert—

(4A)Sub-paragraph (4B) below applies at a time when the subsidiary or any other company is in administration or receivership.

(4B)The subsidiary shall not be regarded, by reason only of anything done as a consequence of the company concerned being in administration or receivership, as having ceased to be a company falling within sub-paragraph (3) above if—

(a)the entry into administration or receivership, and

(b)everything done as a consequence of the company concerned being in administration or receivership,

is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which or one of the main purposes of which is the avoidance of tax.

(4C)Sub-paragraph (2) of paragraph 11A below applies for the purposes of sub-paragraphs (4A) and (4B) above as it applies for the purpose of that paragraph.,

(f)in sub-paragraph (5)—

(i)omit the words “it is shown that”,

(ii)for “and not” substitute “and is not to be”,

(g)omit sub-paragraph (6).

13After paragraph 10 insert—

Requirement as to property managing subsidiaries

10ZA(1)The requirement of this paragraph is that the relevant company must not have a property managing subsidiary which is not a relevant qualifying subsidiary of the relevant company.

(2)“Property managing subsidiary” means a qualifying subsidiary of the relevant company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(3)In sub-paragraph (2) above, “land” and “property deriving its value from land” have the same meaning as in section 776..

14In paragraph 11 (winding up of the relevant company)—

(a)omit “it is shown”,

(b)omit the first “that” in paragraph (a),

(c)omit “that” in paragraph (b),

(d)in paragraph (b), for “and not” substitute “and is not”.

15In paragraph 11A (company in administration or receivership) in sub-paragraph (1), after “by reason” insert “only”.

16The amendments made by this Part have effect for the purpose of determining whether shares or securities issued on or after 17th March 2004 are, for the purposes of section 842AA of the Taxes Act 1988, to be regarded as comprised in a company’s qualifying holdings.

Section 95

SCHEDULE 20Corporate venturing scheme

1Schedule 15 to the Finance Act 2000 (c. 17) (the corporate venturing scheme) is amended as follows.

2In paragraph 3 (meaning of “the qualification period”)—

(a)in sub-paragraph (1)(b)(ii), and

(b)in sub-paragraph (2)(a) and (b),

for “qualifying subsidiaries” substitute “qualifying 90% subsidiaries”.

3In paragraph 15 (introduction) after paragraph (e) insert—

(ea)property managing subsidiaries (see paragraph 21A);.

4In paragraph 20 (the qualifying subsidiaries requirement) for sub-paragraph (2) substitute—

(2)In this paragraph “subsidiary” means any company which the company controls, either on its own or together with any person connected with it.

(3)For the purpose of sub-paragraph (2), the question whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988..

5(1)Paragraph 21 (meaning of “qualifying subsidiary”) is amended as follows.

(2)In sub-paragraph (2)—

(a)omit paragraphs (a) to (c),

(b)before paragraph (d) insert—

(ca)the subsidiary is a 51% subsidiary of the relevant company;,

(c)in paragraph (e) for “the conditions in paragraphs (a) to” substitute “either of the conditions in paragraphs (ca) and”.

(3)In sub-paragraph (4)(a)(ii), after “company” insert “concerned”.

(4)In sub-paragraph (5)—

(a)after “qualifying subsidiary” insert “of the relevant company”,

(b)for “and not part” substitute “and is not to be part”.

6After paragraph 21 insert—

The property managing subsidiaries requirement

21A(1)The issuing company is not a qualifying issuing company in relation to the relevant shares if, at any time during the qualification period relating to those shares, it has a property managing subsidiary which is not a qualifying 90% subsidiary of the issuing company (see paragraph 23(10) and (11)).

(2)“Property managing subsidiary” means a qualifying subsidiary of the issuing company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(3)In sub-paragraph (2), “land” and “property deriving its value from land” have the same meaning as in section 776 of the Taxes Act 1988..

7In paragraph 23 (the trading activities requirement)—

(a)in sub-paragraph (3)(b), for “at least one group company” substitute “the issuing company or a qualifying 90% subsidiary of the issuing company”,

(b)in sub-paragraph (5)—

(i)for “a subsidiary” substitute “a qualifying 90% subsidiary of the issuing company”,

(ii)for “or subsidiary” substitute “or a qualifying 90% subsidiary of the issuing company”,

(c)in sub-paragraph (6), for “the company”, in the first place, substitute “a company”,

(d)after sub-paragraph (9) insert—

(10)For the purposes of this Schedule, a company (“the subsidiary”) is a qualifying 90% subsidiary of the issuing company if the following conditions are met—

(a)the issuing company possesses not less than 90% of the issued share capital of, and not less than 90% of the voting power in, the subsidiary;

(b)the issuing company would—

(i)in the event of a winding up of the subsidiary, or

(ii)in any other circumstances,

be beneficially entitled to receive not less than 90% of the assets of the subsidiary which would then be available for distribution to the shareholders of the subsidiary;

(c)the issuing company is beneficially entitled to not less than 90% of any profits of the subsidiary which are available for distribution to the shareholders of the subsidiary;

(d)no person other than the issuing company has control of the subsidiary within the meaning of section 840 of the Taxes Act 1988; and

(e)no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) would cease to be met.

(11)For the purposes of sub-paragraph (10)—

(a)sub-paragraphs (3) and (4) of paragraph 21 apply in relation to the conditions in sub-paragraph (10) as they apply in relation to the conditions in paragraph 21(2), and

(b)the subsidiary shall not be regarded, at any time when arrangements are in existence for the disposal by the issuing company of all its interest in the subsidiary, as having ceased on that account to be a qualifying 90% subsidiary of the issuing company if the disposal is to be for commercial reasons and is not to be part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax..

8In paragraph 24 (ceasing to meet trading requirements by reason of administration, receivership etc)—

(a)in sub-paragraph (1)—

(i)omit “which is in administration or receivership”,

(ii)after “by reason” insert “only”,

(b)in sub-paragraph (2)(b), after “company” insert “concerned”,

(c)in sub-paragraph (4)—

(i)in paragraph (a), for “of the company or any of its subsidiaries” substitute “only of the company or any of its qualifying subsidiaries”,

(ii)in paragraph (b), for “and not” substitute “and is not”.

9In paragraph 25 (meaning of “qualifying trade”) in sub-paragraph (3)(b), for “any other group company” substitute “the issuing company or any of its qualifying 90% subsidiaries”.

10In paragraph 35 (requirement as to the shares) in sub-paragraph (2), for “the issuing company at a future date” substitute “any person at a future date in respect of the acquisition of the shares”.

11In paragraph 36 (requirement as to money raised)—

(a)in sub-paragraph (1B)(b)—

(i)for “relevant trade was not being carried on” substitute “issuing company or a qualifying 90% subsidiary of that company had not begun to carry on the relevant trade”,

(ii)for “subsidiary” substitute “qualifying 90% subsidiary of that company”,

(b)in sub-paragraphs (4)(b)(ii) and (5)(b), for “qualifying subsidiary” substitute “qualifying 90% subsidiary”.

12In paragraph 40 (entitlement to claim)—

(a)in sub-paragraph (2), for paragraph (a) substitute—

(a)the funded trade has been carried on for four months by no person other than the issuing company or a qualifying 90% subsidiary of that company, disregarding—

(i)any time spent preparing to carry on that trade, and

(ii)any person required to be disregarded in accordance with sub-paragraph (2A) or (2B), and,

(b)after sub-paragraph (2) insert—

(2A)At any time when the funded trade is carried on by the partners in a partnership of which the issuing company, or a qualifying 90% subsidiary of that company, is a member, there shall be disregarded for the purposes of sub-paragraph (2)(a) any other members of the partnership at that time.

(2B)At any time when the funded trade is carried on by the parties to a joint venture to which the issuing company, or a qualifying 90% subsidiary of that company, is a party, there shall be disregarded for the purposes of sub-paragraph (2)(a) any other parties to the joint venture at that time.,

(c)for sub-paragraph (5)(a) substitute—

(a)by reason only of the issuing company or any other company being wound up or dissolved without winding up, the funded trade is carried on as mentioned in sub-paragraph (2)(a) for a period shorter than four months, and,

(d)in sub-paragraph (5)(b), for “was”, in each place, substitute “is”,

(e)for sub-paragraph (6)(a) substitute—

(a)by reason only of anything done as a consequence of the issuing company or any other company being in administration or receivership, the funded trade is carried on as mentioned in sub-paragraph (2)(a) for a period shorter than four months, and,

(f)in sub-paragraph (6)(b), after “company” insert “concerned”.

13In paragraph 102 (minor definitions etc) after sub-paragraph (7) insert—

(8)In determining for the purposes of paragraph 3(2), 23(5) or 36(1B) when a trade is begun to be carried on by a qualifying 90% subsidiary of the issuing company there shall be disregarded any carrying on of the trade by it before it became such a subsidiary..

14In paragraph 103 (index of defined expressions), after the entry for “qualifying subsidiary” insert—

qualifying 90% subsidiaryparagraph 23(10) and (11).

15The amendments made by this Schedule have effect in relation to shares issued on or after 17th March 2004.

Section 116

SCHEDULE 21Chargeable gains: restriction of gifts relief etc

Penalties for failure to furnish particulars etc

1(1)Section 98 of the Taxes Management Act 1970 (c. 9) is amended as follows.

(2)In the first column of the Table, insert at the appropriate place—

Section 169G(2) of the 1992 Act..

Charge on settlor with interest in settlement etc: supplementary provisions

2(1)Section 79 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2)After subsection (5) insert—

(5A)In subsection (5) above “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable..

(3)In subsection (6) (power of inspector to require information for purposes of sections 77, 78 and 79) for “inspector” substitute “officer of the Board”.

Relief for gifts of business assets

3(1)Section 165 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)In subsection (1) (circumstances in which subsection (4) applies, subject to certain provisions) for “and 169” substitute “, 169, 169B and 169C”.

(3)In subsection (3) (relief not to apply to disposal in certain cases) after paragraph (b) insert—

(ba)in the case of a disposal of shares or securities, the transferee is a company,.

(4)In subsection (8) (definitions) for paragraph (aa) substitute—

(aa)“holding company” has the meaning given by paragraph 22(1), “trading company” has the meaning given by paragraph 22A, and “trading group” has the meaning given by paragraph 22B, of Schedule A1; and.

(5)In subsection (10) (deduction to be allowed in computing chargeable gain on subsequent disposal by transferee, where disposal by transferor is chargeable transfer for inheritance tax purposes) for “after 13th March 1989, in respect of which a claim is made under this section,” substitute “in relation to which subsection (4) above applies”.

Gifts relief not to be available on certain transfers to settlor-interested settlements etc

4After section 169A of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—

Gifts to settlor-interested settlements etc

169BGifts to settlor-interested settlements etc

(1)Neither section 165(4) nor section 260(3) shall apply in relation to a disposal (“the relevant disposal”)—

(a)made by a person (“the transferor”) to the trustees of a settlement, and

(b)in respect of which Condition 1 or Condition 2 below is satisfied.

(2)Condition 1 is that, immediately after the making of the relevant disposal,—

(a)there is a settlor (see section 169E) who has an interest in the settlement (see section 169F), or

(b)an arrangement (see section 169G) subsists under which such an interest will or may be acquired by a settlor.

(3)Condition 2 is that—

(a)a chargeable gain would (assuming that neither section 165(4) nor section 260(3) applied in relation to the relevant disposal) accrue to the transferor on that disposal,

(b)in computing the gain, the allowable expenditure would to any extent fall to be reduced in consequence, directly or indirectly, of a claim under section 165 or 260 in respect of an earlier disposal made by an individual (whether or not to the transferor), and

(c)immediately after the making of the relevant disposal,—

(i)that individual has an interest in the settlement, or

(ii)an arrangement subsists under which such an interest will or may be acquired by him.

(4)This section is subject to section 169D (exception for maintenance funds for historic buildings and certain settlements for disabled persons).

169CClawback of relief if settlement becomes settlor-interested etc

(1)This section applies in relation to a disposal (“the relevant disposal”)—

(a)made by a person (“the transferor”) to the trustees of a settlement,

(b)in relation to which section 165(4) or 260(3) applies, or would apart from this section apply, and

(c)in respect of which Condition 1 or Condition 2 below is satisfied.

(2)Condition 1 is that, at any time during the clawback period,—

(a)there is a settlor who has an interest in the settlement, or

(b)an arrangement subsists under which such an interest will or may be acquired by a settlor.

(3)Condition 2 is that—

(a)in computing the chargeable gain which would (assuming that neither section 165(4) nor section 260(3) applied in relation to the relevant disposal) accrue to the transferor on that disposal, the allowable expenditure would fall to be reduced,

(b)that reduction would to any extent fall to be made in consequence, directly or indirectly, of a claim under section 165 or 260 in respect of an earlier disposal made by an individual (whether or not to the transferor), and

(c)at any time during the clawback period,—

(i)that individual has an interest in the settlement, or

(ii)an arrangement subsists under which such an interest will or may be acquired by him.

(4)If no claim for relief under section 165 or 260 in respect of the relevant disposal is made before the material time, neither section 165(4) nor section 260(3) shall apply in relation to that disposal.

(5)Subsections (7) to (9) below apply if a claim for relief under section 165 or 260 in respect of the relevant disposal is made before the material time.

(6)But those subsections do not apply if—

(a)the transferor is an individual, and

(b)he dies before the material time.

(7)A chargeable gain, of an amount equal to the amount of the held-over gain (within the meaning of section 165 or 260) on the relevant disposal, shall be treated for the purposes of tax in respect of chargeable gains as accruing to the transferor at the material time.

(8)For any chargeable period ending after the making of the relevant disposal, the chargeable gains and allowable losses of—

(a)the trustees of the settlement, or

(b)any person whose title to any property to any extent derives, directly or indirectly, from them,

shall be determined on the assumption that neither section 165(4)(b) nor section 260(3)(b) ever applied in relation to that disposal.

(9)All such adjustments shall be made, whether by discharge or repayment of tax, the making of assessments or otherwise, as are required to give effect to subsection (8) above (notwithstanding any limitation on the time within which any adjustment may be made).

(10)If a claim for relief under section 165 or 260 in respect of the relevant disposal is revoked, this section shall apply as if the claim had never been made.

(11)In this section “the clawback period” means the period—

(a)beginning immediately after the making of the relevant disposal, and

(b)ending six years after the end of the year of assessment in which that disposal was made.

(12)In this section “the material time” means the time at which subsection (1)(c) above first becomes satisfied.

(13)This section is subject to section 169D.

169DExceptions to sections 169B and 169C

(1)Sections 169B and 169C shall not apply in relation to a disposal to the trustees of a settlement in a year of assessment if the trustees have elected that section 691(2) of the Taxes Act (certain income of maintenance funds for historic buildings not to be income of settlor etc) shall have effect in the case of—

(a)the settlement, or

(b)any part of the settlement,

in relation to that year of assessment.

(2)Sections 169B and 169C shall not apply in relation to a disposal to the trustees of a settlement if the following conditions are satisfied.

(3)The first condition is that, immediately after the making of the disposal,—

(a)the settled property is held on trusts which secure that, during the lifetime of a disabled person, not less than half of the property which is applied is applied for the benefit of that person, and

(b)the settled property is held on trusts—

(i)which secure that, during his lifetime, he is entitled to not less than half of the income arising from the property,

(ii)which secure that, during his lifetime, no such income may be applied for the benefit of any other person, or

(iii)under which, during his lifetime, no interest in possession in the settled property subsists.

(4)The second condition is that if, immediately after the making of the disposal, one or more settlors is an interested settlor, each such settlor must at that time be a disabled beneficiary.

(5)For the purposes of subsection (4) above a settlor is an “interested settlor” in relation to a settlement if—

(a)he has an interest in the settlement, or

(b)an arrangement subsists under which such an interest will or may be acquired by him;

and for this purpose, the references to an individual’s spouse in section 169F(2) and (3) shall be disregarded.

(6)In subsection (4) above “disabled beneficiary”, in relation to a settlement, means a disabled person who—

(a)is a beneficiary under the settlement, or

(b)would be such a beneficiary if he had the interest in the settlement by virtue of which subsection (5)(b) above applies in relation to him.

(7)In this section “disabled person” means—

(a)a person who by reason of mental disorder within the meaning of the Mental Health Act 1983 is incapable of administering his property or managing his affairs; or

(b)a person in receipt of attendance allowance or of a disability living allowance by virtue of entitlement to the care component at the highest or middle rate.

(8)In this section “attendance allowance” means an allowance under—

(a)section 64 of the Social Security Contributions and Benefits Act 1992, or

(b)section 64 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

(9)In this section “disability living allowance” means a disability living allowance under—

(a)section 71 of the Social Security Contributions and Benefits Act 1992, or

(b)section 71 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

(10)The trusts on which settled property is held shall not be treated as falling outside subsection (3) above by reason only of the powers conferred on the trustees by—

(a)section 32 of the Trustee Act 1925, or

(b)section 33 of the Trustee Act (Northern Ireland) 1958 (powers of advancement).

(11)The references in subsection (3) above to the lifetime of a person shall, where the income from the settled property is held for his benefit on trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts), be construed as references to the period during which the income is held on trust for him.

169EMeaning of “settlor” in sections 169B to 169D and 169G

(1)For the purposes of this section, sections 169B to 169D and section 169G, a person is a settlor in relation to a settlement if—

(a)he is an individual, and

(b)the settled property consists of, or includes, property originating from him.

(2)In subsection (1) above, the reference to property originating from a settlor is a reference to—

(a)property which that settlor has provided directly or indirectly for the purposes of the settlement, and

(b)property which wholly or partly represents that property or any part of it.

(3)In subsection (2) above, the references to property which a settlor has provided directly or indirectly—

(a)include references to property which has been provided directly or indirectly by another person in pursuance of reciprocal arrangements with that settlor, but

(b)do not include references to property which that settlor has provided directly or indirectly in pursuance of reciprocal arrangements with another person.

(4)In subsection (2) above, the reference to property which represents other property includes a reference to property which represents accumulated income from that other property.

169FMeaning of “interest in a settlement” in sections 169B to 169D

(1)For the purposes of this section and sections 169B to 169D, an individual is to be regarded as having an interest in a settlement if subsection (2) or (3) below applies.

(2)This subsection applies if—

(a)any property which may at any time be comprised in the settlement, or

(b)any derived property,

is, or will or may become, payable to or applicable for the benefit of the individual or his spouse in any circumstances whatsoever.

(3)This subsection applies if the individual or his spouse enjoys a benefit deriving directly or indirectly from—

(a)any property which is comprised in the settlement, or

(b)any derived property.

(4)The references in subsections (2) and (3) above to the spouse of the individual do not include—

(a)a spouse from whom the individual is separated—

(i)under an order of a court,

(ii)under a separation agreement, or

(iii)in such circumstances that the separation is likely to be permanent, or

(b)the widow or widower of the individual.

(5)An individual is not to be regarded as having an interest in a settlement by virtue of subsection (2) above if and so long as none of the property which may at any time be comprised in the settlement, and no derived property, can become payable or applicable as mentioned in that provision except in the event of—

(a)in the case of a marriage settlement, the death of both parties to the marriage and of all or any of the children of the marriage, or

(b)the death of a child of the individual where the child had become beneficially entitled to the property or any derived property at an age not exceeding 25.

(6)In this section “derived property”, in relation to any property, means—

(a)income from that property,

(b)property directly or indirectly representing—

(i)proceeds of that property, or

(ii)proceeds of income from that property, or

(c)income from property which is derived property by virtue of paragraph (b) above.

169GMeaning of “arrangement” in sections 169B to 169E and information power

(1)In sections 169B to 169E “arrangement” or “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

(2)An officer of the Board may by notice require any person to whom subsection (3) or (4) below applies to give him within such time as he may direct, not being less than 28 days, such particulars as he thinks necessary for the purposes of sections 169B to 169F.

(3)This subsection applies to a person who is or has been—

(a)a trustee of a settlement,

(b)a beneficiary under a settlement, or

(c)a settlor in relation to a settlement.

(4)This subsection applies to a person who—

(a)is the spouse of a settlor in relation to a settlement, or

(b)has at any time on or after the making of the relevant disposal been the spouse of such a settlor.

(5)In subsection (4) above “relevant disposal” means the disposal—

(a)to which section 169B(1), 169C (1) or 169D (1) or (2) applies or may apply, and

(b)in connection with which the notice is given..

Gifts on which inheritance tax is chargeable etc

5(1)Section 260 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2)In subsection (1) (circumstances in which subsection (3) applies, subject to certain provisions) after “169” insert “, 169B, 169C”.

(3)Omit subsection (6A) (unnecessary provision for preventing reduction in case of disposal which is chargeable event for purposes of Schedule 5B).

(4)Omit subsection (6B) (unnecessary provision for preventing reduction in case of disposal which is chargeable event for purposes of Schedule 5C).

(5)In subsection (7) (deduction to be allowed in computing chargeable gain on subsequent disposal by transferee, where disposal by transferor is chargeable transfer for inheritance tax purposes) after “subsection (2)(a) above” insert “(whether or not subsection (3) above applies in relation to it)”.

Payment by instalments of tax on gifts

6(1)Section 281 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)In subsection (2) (option to pay capital gains tax by instalments by giving notice to inspector) for “the inspector” substitute “an officer of the Board”.

(3)After subsection (7) insert—

(8)Subsection (2) above applies in relation to a chargeable gain accruing to a transferor under section 169C(7) (clawback of relief under section 165 or 260 if settlement becomes settlor-interested etc) as it applies in relation to a gain accruing to a person on a disposal if—

(a)the relevant disposal (within the meaning of section 169C) in question was a disposal of the whole or any part of any assets to which this section applies, and

(b)at the material time (within the meaning of that section), no part of the subject-matter of that relevant disposal has been disposed of for valuable consideration under a subsequent disposal (whether made by the trustees to whom that relevant disposal was made or by some other person).

(9)Where subsection (2) above so applies, subsections (4) to (7) above apply accordingly but as if for paragraphs (a) and (b) of subsection (7) there were substituted “any part of the subject-matter of the relevant disposal in question is disposed of for valuable consideration under a subsequent disposal (whether made by the trustees to whom that relevant disposal was made or by some other person)..

Recovery of tax from donee

7(1)Section 282 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2)After subsection (4) insert—

(5)This section applies in relation to a chargeable gain accruing to a transferor under section 169C(7) (clawback of relief under section 165 or 260 if settlement becomes settlor-interested etc) as it applies in relation to a chargeable gain accruing to a person on the disposal of an asset by way of gift.

(6)For the purposes of this section as applied by subsection (5) above—

(a)the transferor shall be taken to be the donor, and

(b)the trustees to whom the relevant disposal (within the meaning of section 169C) in question was made shall be taken to be the donee..

Application of taper relief

8(1)Schedule A1 to the Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)In paragraph 16 (special rules for postponed gains) in sub-paragraph (2) (list of enactments involving postponed gains) after paragraph (d) insert—

(da)section 169C(7),.

Relief for gifts of business assets

9(1)Schedule 7 to the Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)In paragraph 2 (1) (circumstances in which section 165(4) applies, subject to certain provisions, in relation to disposals by trustees of settlement) for “and 169” substitute “, 169, 169B and 169C”.

Commencement

10(1)The amendment in paragraph 1(2) of this Schedule has effect in relation to any notice given—

(a)after the passing of this Act, and

(b)in respect of the year 2003-04 or any subsequent year of assessment.

(2)The amendment in paragraph 2(2) of this Schedule has effect in relation to the provision of property on or after 10th December 2003.

(3)The amendments in paragraphs 2(3) and 6(2) of this Schedule have effect in relation to any notice given in respect of the year 2004-05 or any subsequent year of assessment.

(4)The amendments in paragraphs 3(2), 4, 5(2), 6(3), 7(2), 8(2) and 9(2) of this Schedule have effect in relation to disposals on or after 10th December 2003 (whenever any earlier disposal as mentioned in section 169B(3)(b) or 169C(3)(b) was made).

(5)The amendment in paragraph 3(3) of this Schedule has effect in relation to disposals on or after 21st October 2003.

(6)The amendment in paragraph 3(4) of this Schedule has effect in relation to the year 2004-05 and subsequent years of assessment.

(7)The amendment in paragraph 3(5) of this Schedule has effect in relation to disposals on or after 10th December 2003.

(8)The amendments in paragraph 5(3) and (4) of this Schedule have effect in relation to gains accruing on or after 6th April 2004.

(9)The amendment in paragraph 5(5) of this Schedule has effect in relation to disposals on or after 6th April 2004.

Section 117

SCHEDULE 22Chargeable gains: private residence relief

Relief on disposal of private residence

1(1)Section 222 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2)In subsection (5)(a) (notice to inspector to determine which of two or more residences is individual’s main residence) for “the inspector” (on both occasions) substitute “an officer of the Board”.

Amount of relief

2(1)Section 223 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)In subsection (4) (dwelling-house let as residential accommodation) in paragraph (a), omit the unnecessary words “or those provisions as applied by section 225”.

(3)After subsection (7) insert—

(8)This section is subject to—

(a)section 224 (amount of relief: further provisions), and

(b)section 226A (private residence relief: cases where relief obtained under section 260)..

Amount of relief: further provisions

3(1)Section 224 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2)In subsection (1) (gain accruing from disposal of dwelling-house part of which is used exclusively for purposes of trade etc: relief to apply only to portion of gain) for “accrues from” substitute “accrues on”.

Private residence occupied under terms of settlement

4(1)Section 225 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)In the opening words—

(a)for “a trustee” substitute “the trustees of a settlement”, and

(b)for “the trustee” substitute “the trustees”.

(3)In paragraph (a), for “the trustee” substitute “the trustees”.

(4)In paragraph (b)—

(a)for “the inspector” substitute “an officer of the Board”, and

(b)for “the trustee” substitute “the trustees”.

(5)At the end of that paragraph insert ;

but section 223 (as so applied) shall apply only on the making of a claim by the trustees..

Private residence held by personal representatives

5After section 225 of the Taxation of Chargeable Gains Act 1992 insert—

225APrivate residence held by personal representatives

(1)Sections 222 to 224 shall also apply in relation to a gain accruing to the personal representatives of a deceased person on a disposal of an asset within section 222 (1) if the following conditions are satisfied.

(2)The first condition is that, immediately before and immediately after the death of the deceased person, the dwelling-house or part of the dwelling-house mentioned in section 222 (1) was the only or main residence of one or more individuals.

(3)The second condition is that—

(a)that individual or one of those individuals has a relevant entitlement, or two or more of those individuals have relevant entitlements, and

(b)the relevant entitlement accounts for, or the relevant entitlements together account for, 75% or more of the net proceeds of disposal;

and for this purpose “relevant entitlement” means an entitlement as legatee of the deceased person to, or to an interest in possession in, the whole or any part of the net proceeds of disposal.

(4)In subsection (3) above “net proceeds of disposal” means—

(a)the proceeds of the disposal of the asset realised by the personal representatives, less

(b)any incidental costs allowable as a deduction in accordance with section 38(1)(c) in computing the gain accruing to the personal representatives on that disposal,

but on the assumption that none of the proceeds is required to meet the liabilities of the deceased person’s estate (including any liability to inheritance tax).

(5)In sections 222 to 224 as applied by this section—

(a)references to the individual shall be taken as references to the personal representatives except in relation to the occupation of the dwelling-house or part of the dwelling-house, and

(b)the notice which may be given to an officer of the Board under section 222(5)(a) shall be a joint notice by the personal representatives and the individual or individuals entitled to occupy the dwelling-house or part of the dwelling-house.

(6)But section 223 (as so applied) shall apply only on the making of a claim by the personal representatives..

Private residence relief: cases where relief obtained under section 260

6After section 226 of the Taxation of Chargeable Gains Act 1992 insert—

226APrivate residence relief: cases where relief obtained under section 260

(1)This section applies where—

(a)section 223 applies, or would apart from this section apply, in relation to a gain or part of a gain accruing to an individual or the trustees of a settlement (“the transferor”) on a disposal (the “later disposal”),

(b)in computing the chargeable gain which would, apart from section 223, accrue to the transferor on the later disposal, the allowable expenditure would fall to be reduced, and

(c)that reduction would to any extent fall to be made in consequence, directly or indirectly, of a claim or claims under section 260 in respect of one or more earlier disposals (whether or not made to the transferor).

(2)If a claim for relief under section 260 in respect of—

(a)the earlier disposal, or

(b)if there were two or more such disposals, any of them,

is made on or before the making of the later disposal, section 223 shall not apply in relation to the gain or part of a gain accruing on the later disposal.

(3)If a claim for relief under section 260 in respect of—

(a)the earlier disposal, or

(b)if there were two or more such disposals, any of them,

is made after the making of the later disposal and subsection (2) above does not apply, it is to be assumed for the purposes of capital gains tax that section 223 never applied in relation to the gain or part of a gain accruing on the later disposal.

(4)All such adjustments shall be made, whether by discharge or repayment of tax, the making of assessments or otherwise, as are required to give effect to subsection (3) above (notwithstanding any limitation on the time within which any adjustment may be made).

(5)Where the later disposal is made by the trustees of a settlement, the references in subsections (2) and (3) above to the making of the later disposal shall be read as references to the making of a claim for relief under section 223 in respect of the gain or part of a gain accruing on that disposal.

(6)If a claim for relief under section 260 in respect of an earlier disposal is revoked, this section shall apply as if the claim had never been made.

(7)This section is subject to section 226B (exception for maintenance funds for historic buildings).

226BException to section 226A

(1)Section 226A shall not apply in relation to a later disposal made by the trustees of a settlement if the trustees have elected that section 691(2) of the Taxes Act (certain income of maintenance funds for historic buildings not to be income of settlor etc) shall have effect in the case of—

(a)the settlement, or

(b)any part of the settlement,

in relation to each year of assessment in which a relevant earlier disposal is made.

(2)In this section “relevant earlier disposal”, in relation to a later disposal, means an earlier disposal in respect of which a claim mentioned in section 226A(1)(c) is made.

(3)This section is to be construed as one with section 226A..

Commencement

7(1)The amendments in paragraphs 1(2) and 4(4)(a) of this Schedule have effect in relation to any notice given on or after 10th December 2003.

(2)The amendments in paragraphs 2(2), 3(2), 4(2), (3), (4)(b) and (5) and 5 of this Schedule have effect in relation to disposals made on or after 10th December 2003.

(3)Subject to paragraph 8 of this Schedule, the amendments in paragraphs 2(3) and 6 of this Schedule have effect in relation to gains or parts of gains accruing on later disposals (within the meaning of the section 226A inserted by paragraph 6 of this Schedule) made on or after 10th December 2003 (whenever any relevant earlier disposal was made).

(4)In sub-paragraph (3) above “relevant earlier disposal”, in relation to a later disposal (within the meaning of the section 226A inserted by paragraph 6 of this Schedule), means an earlier disposal in respect of which a claim mentioned in subsection (1)(c) of that section is made.

Transitional provision

8(1)This paragraph has effect where section 226A of the Taxation of Chargeable Gains Act 1992 (c. 12) (as inserted by paragraph 6 of this Schedule) (“section 226A”) applies in circumstances in which—

(a)the relevant earlier disposal, or

(b)if there were two or more such disposals, each of them,

was made before 10th December 2003.

(2)Section 226A shall have effect subject to the following modifications.

(3)In subsection (2), omit “not” and at the end insert “subject to the modifications set out in subsections (2A) to (2C) below”.

(4)After subsection (2) insert—

(2A)Section 223 (1) shall not apply.

(2B)For the purposes of section 223(2)(a) and (3)—

(a)the dwelling-house or the part of the dwelling-house in question is to be taken not to have been the individual’s only or main residence during the post-commencement period or any part of that period, and

(b)the words “but inclusive of the last 36 months of the period of ownership in any event” shall not have effect in respect of so much of that period of 36 months as falls within the post-commencement period.

(2C)In subsection (2B) above “post-commencement period” means the period beginning on 10th December 2003 and ending on the date of the later disposal..

(5)In subsection (3), omit “never” and at the end insert “subject to the modifications set out in subsections (2A) to (2C) above”.

(6)In this paragraph “relevant earlier disposal”, in relation to a later disposal, means an earlier disposal in respect of which a claim mentioned in subsection (1)(c) of section 226A is made.

(7)This paragraph is to be construed as one with section 226A.

(8)Subsections (5) and (6) of section 223 of the Taxation of Chargeable Gains Act 1992 apply in relation to the subsection (2B)(b) treated as inserted by sub-paragraph (4) above as they apply in relation to subsections (1) and (2)(a) of that section.

Section 134

SCHEDULE 23Finance leasebacks: transitional provision

Introduction

1(1)Sections 228B to 228E of the Capital Allowances Act 2001 (c. 2) (as inserted by section 134) are subject to paragraphs 2 to 9 of this Schedule in their application in relation to existing leasebacks.

(2)Paragraph 10 of this Schedule makes provision in relation to the taxation of chargeable gains where an existing leaseback terminates.

Section 228B

2(1)This paragraph applies if the pre-commencement rentals are greater than the total of the actual rental deductions for periods of account up to, but excluding, the transitional period of account.

(2)Section 228B shall not apply in relation to—

(a)the transitional period of account if the lessee’s excess rentals are greater than the notional rental deduction for that period, or

(b)a subsequent period of account if the unrelieved portion of the lessee’s excess rentals is greater than the notional rental deduction for that period.

(3)Section 228B is subject to sub-paragraph (4) in its application to—

(a)the transitional period of account if the lessee’s excess rentals are not greater than the notional rental deduction for that period, or

(b)a subsequent period of account if the unrelieved portion of the lessee’s excess rentals is not greater than the notional rental deduction for that period.

(4)The permitted maximum for that period of account is the total of—

(a)the lessee’s excess rentals (in the case of the transitional period of account) or the unrelieved portion of the lessee’s excess rentals (in the case of a subsequent period of account), and

(b)the amount given by this calculation—

Formula - Basic Amount multiplied by (Notional Rental Deduction minus Deductible Excess) divided by Notional Rental Deduction

where—

  • “Basic Amount” means the amount calculated in accordance with section 228B(2),

  • “Notional Rental Deduction” means the notional rental deduction for the period of account in question, and

  • “Deductible Excess” means the amount included in the permitted maximum by virtue of sub-paragraph (4)(a).

(5)But where, in relation to the transitional period of account, the amount given by sub-paragraph (4) is less than the appropriate fraction of the notional rental deduction for that period, the permitted maximum shall be that fraction of that deduction.

(6)In this paragraph—

(a)“the lessee’s excess rentals” means—

(i)the pre-commencement rentals, minus

(ii)the total of the actual rental deductions referred to in sub-paragraph (1), and

(b)“the unrelieved portion of the lessee’s excess rentals”, in relation to a period of account, means—

(i)the lessee’s excess rentals, minus

(ii)the total of the actual rental deductions for periods of account from and including the transitional period up to, but excluding, the period in question.

(7)In this paragraph—

  • “actual rental deduction”, in relation to a period of account, means the amount that may be deducted in respect of amounts payable under the existing leaseback in calculating the lessee’s income or profits for that period of account for the purpose of income tax or corporation tax;

  • “notional rental deduction”, in relation to a period of account, means the amount that could, if section 228B did not apply, be deducted in respect of amounts payable under the existing leaseback in calculating the lessee’s income or profits for that period of account for the purpose of income tax or corporation tax.

(8)Nothing in sub-paragraphs (3) to (5) prevents the inclusion of an amount in the permitted maximum by virtue of section 228B(3) and (4).

(9)This paragraph does not apply in relation to any period of account later than a period of account for which the permitted maximum has been determined in accordance with sub-paragraph (3) to (5).

3(1)This paragraph applies where—

(a)the existing leaseback terminates, and

(b)in the period of account immediately following that in which it terminates, paragraph 2(2)(b) or 2(3)(b) would apply were it not for the termination.

(2)The permitted maximum for the period of account in which the leaseback terminates shall also include an amount equal to the amount that the unrelieved portion of the lessee’s excess rentals would have been in the period of account immediately following.

Section 228C

4Section 228C shall not apply where the existing leaseback terminates before 17 March 2004.

5(1)Section 228C applies subject to this paragraph where—

(a)the existing leaseback terminates otherwise than by expiry of its term, and

(b)the amount calculated in accordance with section 228C(3) exceeds the relevant cap.

(2)In determining the amount by which income or profits are to be increased under section 228C(2), the amount calculated in accordance with section 228C(3) shall be disregarded to the extent that it exceeds the relevant cap.

(3)The relevant cap is—

Formula - (Original Consideration minus Relevant Rentals) multiplied by (Net Consideration divided by Original Consideration)

where—

  • “Original Consideration” has the same meaning as in section 228B;

  • “Relevant Rentals” means—

    (a)

    the pre-commencement rentals, minus

    (b)

    the total of—

    (i)

    finance charges shown in the accounts for periods that end before 17 March 2004, and

    (ii)

    the appropriate proportion of finance charges shown in the accounts for the transitional period of account;

  • “Net Consideration” has the same meaning as in section 228C.

6(1)This paragraph applies if—

(a)the existing leaseback terminates otherwise than by expiry of its term,

(b)upon the termination of the leaseback, or during the period of one month beginning with the date of termination, the lessee becomes the owner of the plant of machinery by acquiring it—

(i)from the lessor, or

(ii)where no person other than the lessor or a person connected with the lessee has owned the plant or machinery at any time since the termination of the leaseback, from a person connected with the lessee,

(c)the person who first acquires the plant or machinery from the lessor does so as a result of incurring capital expenditure equal (at least) to the market value of the plant or machinery at the termination of the leaseback, and

(d)the amount of the lessee acquisition expenditure that counts as qualifying expenditure is restricted under section 226.

(2)If the section 226 restriction is greater than the amount calculated in accordance with section 228C(3)—

(a)section 228C(2) to (4) shall not apply, but

(b)if there is a taxable disposal, section 228C(2) to (4) shall apply subject to sub-paragraph (5).

(3)If the section 226 restriction is not greater than the amount calculated in accordance with section 228C(3)—

(a)the amount by which profits or income are increased in accordance with section 228C(2) shall be reduced by the section 226 restriction, and