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SCHEDULES

Section 8

SCHEDULE 1E+W+S+N.I.Remote gaming duty

Part 1 E+W+S+N.I.Imposition of duty

1The sections set out below are to be inserted in Part 2 of BGDA 1981 (gaming duties) before section 26A (which is renumbered 26N).E+W+S+N.I.

2Those sections are—E+W+S+N.I.

Remote gaming dutyE+W+S+N.I.

26AInterpretation

(1)For the purposes of remote gaming duty “remote gaming” means gaming in which persons participate by the use of—

(a)the internet,

(b)telephone,

(c)television,

(d)radio, or

(e)any other kind of electronic or other technology for facilitating communication.

(2)For the purposes of remote gaming duty the expressions listed below shall be construed (for the whole of the United Kingdom) in accordance with the Gambling Act 2005.

ExpressionDefining provision of Gambling Act 2005
Provision of facilitiesSection 5(1) to (3)
Remote gambling equipmentSection 36(4) and (5)
Remote operating licenceSection 67

(3)In relation to remote gaming duty “P” means a person who provides facilities for remote gaming.

(4)The Treasury may by order amend the definition of “remote gaming” in subsection (1) (and an order may include incidental, consequential or transitional provision).

26BThe duty

A duty of excise to be known as remote gaming duty shall be charged on the provision of facilities for remote gaming if—

(a)the facilities are provided in reliance on a remote operating licence, or

(b)at least one piece of remote gambling equipment used in the provision of the facilities is situated in the United Kingdom (whether or not the facilities are provided for use wholly or partly in the United Kingdom).

26CThe rate

(1)Remote gaming duty is chargeable at the rate of 15% of P's remote gaming profits for an accounting period.

(2)P's remote gaming profits for an accounting period are—

(a)the amount of P's remote gaming receipts for the period (calculated in accordance with section 26E), minus

(b)the amount of P's expenditure for the period on remote gaming winnings (calculated in accordance with section 26F).

26DAccounting periods

(1)The following are accounting periods for the purposes of remote gaming duty—

(a)the period of three months beginning with 1st January,

(b)the period of three months beginning with 1st April,

(c)the period of three months beginning with 1st July, and

(d)the period of three months beginning with 1st October.

(2)The Commissioners may agree with P for specified periods to be treated as accounting periods, instead of those described in subsection (1), for purposes of remote gaming duty relating to P.

(3)The Commissioners may by direction make transitional arrangements for the periods to be treated as accounting periods where—

(a)P becomes registered, or ceases to be registered, under section 26J, or

(b)an agreement under subsection (2) begins or ends.

26ERemote gaming receipts

(1)The amount of P's remote gaming receipts for an accounting period is the aggregate of—

(a)amounts falling due to P in that period in respect of entitlement to use facilities for remote gaming provided by P, and

(b)amounts staked, or falling due to be paid, in that period by a user of facilities for remote gaming provided by P, if or in so far as responsibility for paying any amount won by the user falls on P (or a person with whom P is connected or has made arrangements).

(2)Amounts in respect of VAT shall be ignored for the purposes of subsection (1).

(3)The Treasury may by order provide that where a person who uses facilities (U) relies on an offer which waives payment or permits payment of less than the amount which would have been required to be paid without the offer, U is to be treated for the purposes of this section as having paid that amount.

26FRemote gaming winnings

(1)The amount of P's expenditure on remote gaming winnings for an accounting period is the aggregate of the value of prizes provided by P in that period which have been won (at any time) by persons using facilities for remote gaming provided by P.

(2)Prizes provided by P to one user on behalf of another are not to be treated as prizes provided by P.

(3)A reference to providing a prize to a user (U) includes a reference to crediting money in respect of gaming winnings by U to an account if U is notified that—

(a)the money is being held in the account, and

(b)U is entitled to withdraw it on demand.

(4)The return of a stake is to be treated as the provision of a prize.

(5)Where P participates in arrangements under which a number of persons who provide facilities for remote gaming contribute towards a fund which is wholly used to provide prizes in connection with the use of those facilities (sometimes described as arrangements for “linked progressive jackpot games ”)—

(a)the making by P of a contribution which relates to the provision by P of facilities for remote gaming shall be treated as the provision of a prize, and

(b)the award of a prize from the fund shall not be treated as the provision of a prize by P.

(6)Where P credits the account of a user of facilities provided by P (otherwise than as described in subsection (3)), the credit shall be treated as the provision of a prize; but the Commissioners may direct that this subsection shall not apply in a specified case or class of cases.

(7)Subsections (2) to (6) of section 20 shall apply (with any necessary modifications) for the purpose of remote gaming duty as for the purpose of bingo duty.

26GLosses

Where the calculation of P's remote gaming profits for an accounting period produces a negative amount, it may be carried forward in reduction of the profits of one or more later accounting periods.

26HExemptions

(1)Remote gaming duty shall not be charged in respect of the provision of facilities for remote gaming if and in so far as—

(a)the provision is charged with another gambling tax, or

(b)the use of the facilities is charged with another gambling tax.

(2)Remote gaming duty shall not be charged in respect of the provision of facilities for remote gaming if and in so far as—

(a)the provision would be charged with another gambling tax but for an express exception, or

(b)the use of the facilities would be charged with another gambling tax but for an express exception.

(3)In this section “gambling tax” means—

(a)amusement machine licence duty,

(b)bingo duty,

(c)gaming duty,

(d)general betting duty,

(e)lottery duty, and

(f)pool betting duty.

(4)The Treasury may by order—

(a)confer an exemption from remote gaming duty, or

(b)remove or vary (whether or not by textual amendment) an exemption under this section.

(5)In calculating P's remote gaming profits for an accounting period, no account shall be taken of amounts or prizes if, or in so far as, they relate to the provision of facilities to which an exemption applies under or by virtue of this section.

26ILiability to pay

(1)P is liable for any remote gaming duty charged on P's remote gaming profits for an accounting period.

(2)If P is a body corporate, P and P's directors are jointly and severally liable for any remote gaming duty charged on P's remote gaming profits for an accounting period.

(3)The Commissioners may make regulations about payment of remote gaming duty; and the regulations may, in particular, make provision about—

(a)timing;

(b)instalments;

(c)methods of payment;

(d)when payment is to be treated as made;

(e)the process and effect of assessments by the Commissioners of amounts due.

(4)Subject to regulations under subsection (3), section 12 of the Finance Act 1994 (assessment) shall apply in relation to liability to pay remote gaming duty.

26JRegistration

(1)The Commissioners shall maintain a register of persons who provide facilities for remote gaming in respect of which remote gaming duty may be chargeable.

(2)A person may not provide facilities for remote gaming in respect of which remote gaming duty may be chargeable without being registered.

(3)The Commissioners may make regulations about registration; in particular, the regulations may include provision (which may include provision conferring a discretion on the Commissioners) about—

(a)the procedure for applying for registration;

(b)the timing of applications;

(c)the information to be provided;

(d)notification of changes;

(e)de-registration;

(f)re-registration after a person ceases to be registered.

(4)The regulations may require a registered person to give notice to the Commissioners before applying for a remote operating licence.

(5)The regulations may permit the Commissioners to make registration, or continued registration, of a foreign person conditional; and the regulations may, in particular, permit the Commissioners to require—

(a)the provision of security for payment of remote gaming duty;

(b)the appointment of a United Kingdom representative with responsibility for discharging liability to remote gaming duty.

(6)In subsection (5) “foreign person” means a person who—

(a)in the case of an individual, is not usually resident in the United Kingdom,

(b)in the case of a body corporate, does not have an established place of business in the United Kingdom, and

(c)in any other case, does not include an individual who is usually resident in the United Kingdom.

(7)The regulations may include provision for the registration of groups of persons; and may provide for the modification of the provisions of this Part about remote gaming duty in their application to groups.

(8)The regulations—

(a)may make provision which applies generally or only for specified purposes, and

(b)may make different provision for different purposes.

26KReturns

(1)The Commissioners may make regulations requiring persons who provide facilities for remote gaming in respect of which remote gaming duty may be chargeable to make returns to the Commissioners in respect of their activities.

(2)The regulations may, in particular, make provision about—

(a)liability to make a return;

(b)timing;

(c)form;

(d)content;

(e)method of making;

(f)declarations;

(g)authentication;

(h)when a return is to be treated as made.

(3)The regulations—

(a)may make provision which applies generally or only for specified purposes, and

(b)may make different provision for different purposes.

26LEnforcement

(1)Contravention of a provision made by or by virtue of sections 26I to 26K—

(a)is conduct to which section 9 of the Finance Act 1994 applies (penalties), and

(b)attracts daily penalties under that section.

(2)A person who is knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of remote gaming duty commits an offence.

(3)A person guilty of an offence under subsection (2) shall be liable on summary conviction to—

(a)a penalty of—

(i)the statutory maximum, or

(ii)if greater, three times the duty which is unpaid or the payment of which is sought to be avoided,

(b)imprisonment for a term not exceeding six months, or

(c)both.

(4)A person guilty of an offence under subsection (2) shall be liable on conviction on indictment to—

(a)a penalty of any amount,

(b)imprisonment for a term not exceeding seven years, or

(c)both.

26MReview and appeal

(1)Sections 14 to 16 of the Finance Act 1994 (review and appeal) shall apply in relation to liability to pay remote gaming duty.

(2)Sections 14 to 16 of that Act shall also apply to the decisions listed in subsection (3) below.

(3)Those decisions are—

(a)a decision to refuse a request for an agreement under section 26D(2),

(b)a decision to give a direction under section 26D(3),

(c)a decision not to give a direction under section 26D(3),

(d)a decision to direct that section 26F(6) shall not apply in a specified case,

(e)a decision under regulations by virtue of section 26J(3), and

(f)a decision about security by virtue of section 26J(5)(a).

(4)A decision of a kind specified in subsection (3) shall be treated as an ancillary matter for the purposes of sections 14 to 16 of the Finance Act 1994.

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

3In BGDA 1981, before section 26N (non-sterling amounts) (as renumbered by paragraph 1 above) insert the italic cross-heading “ General ”.E+W+S+N.I.

4In section 31 of that Act (protection of officers), after “bingo duty” insert “ , remote gaming duty ”.E+W+S+N.I.

5In section 32 of that Act (subordinate legislation), after subsection (2) insert—E+W+S+N.I.

(3)But in the case of an order under section 26H(4) which has the effect of adding to the class of activities in respect of which remote gaming duty is chargeable—

(a)subsection (2) above shall not apply, and

(b)the order may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

6In section 33(2) of that Act (no legalising effect), after “bingo duty” insert “ , remote gaming duty ”.E+W+S+N.I.

Section 23

SCHEDULE 2E+W+S+N.I.Climate change levy: reduced-rate supplies etc

IntroductoryE+W+S+N.I.

1Schedule 6 to FA 2000 (climate change levy) is amended as follows.E+W+S+N.I.

Prospective

Reduced-rate suppliesE+W+S+N.I.

2In paragraph 4(2)(b) (taxable supplies: introduction), after “paragraph 24” insert “ or 45A ”.E+W+S+N.I.

3In paragraph 5(3) (supplies of electricity), for “or 24” substitute “ , 24 or 45A ”.E+W+S+N.I.

4In paragraph 6(2A) (supplies of gas), after “24” insert “ or 45A ”.E+W+S+N.I.

5(1)Paragraph 34 (other commodities: deemed supplies) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1)(b), for “or 24” substitute “ , 24 or 45A ”.

(3)After sub-paragraph (3) insert—

(4)A supply that is deemed to be made under paragraph 45A is treated as taking place upon the later determination.

6In paragraph 39(1)(c) (regulations as to time of supply), for “or 24” substitute “ , 24 or 45A ”.E+W+S+N.I.

7For paragraph 44 substitute—E+W+S+N.I.

44(1)For the purposes of this Schedule, a taxable supply is a reduced-rate supply if—

(a)the taxable commodity is supplied to a facility specified in a certificate given by the Secretary of State to the Commissioners as a facility which is to be taken as being covered by a climate change agreement for a period specified in the certificate, and

(b)the supply is made at a time falling in that period.

(2)Sub-paragraph (1) has effect subject to paragraph 45.

(3)The Commissioners may by regulations make provision for giving effect to sub-paragraph (1).

(4)Regulations under this paragraph may, in particular, include provision for determining whether any taxable commodity is supplied to a facility.

(5)The provision that may be made by virtue of sub-paragraph (4) includes, in particular, provision for a taxable commodity of any description specified in the regulations to be taken as supplied to a facility only if the commodity is delivered to the facility.

8(1)Paragraph 45 (reduced-rate supplies: variation of notices under paragraph 44) is amended as follows.E+W+S+N.I.

(2)Omit sub-paragraphs (2) to (4).

(3)In sub-paragraph (5)—

(a)in paragraph (b), for “the variation notice is published” substitute “ the variation certificate is given ”, and

(b)for the words following that paragraph substitute “ the original certificate has effect as if the facility had never been specified in it ”.

(4)In sub-paragraph (6)—

(a)in paragraph (b), for “the variation notice is published” substitute “ the variation certificate is given ”, and

(b)for the words following that paragraph substitute “ the original certificate has effect as if the last day of the period specified for the facility in the original certificate were the day on which the variation certificate is given ”.

(5)In sub-paragraph (7), for the words from “the original notice” to the end substitute the original certificate has effect as if the last day of the period specified for the facility in the original certificate were the later of—

(a)the day on which the variation certificate is given, and

(b)the day specified in the variation certificate.

(6)The italic heading before that paragraph accordingly becomes Reduced-rate supplies: variation of certificates under paragraph 44.

9After that paragraph insert—E+W+S+N.I.

Reduced-rate supplies: deemed supplyE+W+S+N.I.

45A(1)This paragraph applies where—

(a)a taxable supply has been made to any person (“the recipient”),

(b)the supply was made on the basis that it was a reduced-rate supply, and

(c)it is later determined that the supply was not a reduced-rate supply.

(2)For the purposes of this Schedule—

(a)the recipient is deemed to make a taxable supply to itself of the taxable commodity, and

(b)the amount payable by way of levy on that deemed supply is 80 per cent. of the amount that would be payable if the supply were not a reduced-rate supply.

10In paragraph 147 (interpretation), in the definition of “reduced-rate supply”—E+W+S+N.I.

(a)for “44(3)” substitute “ 44(1) ”, and

(b)for “44(4)” substitute “ 44(2) ”.

Notifications and certificatesE+W+S+N.I.

11(1)Paragraph 11 (exemption: supply not for burning in UK) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1)—

(a)omit “has, before the supply is made, notified the supplier”, and

(b)omit “that he” (in both places).

(3)In sub-paragraph (3)—

(a)omit “has, before the supply is made, notified the supplier that”, and

(b)omit “he”.

12(1)Paragraph 101 (civil penalties: incorrect notifications etc) is amended as follows.E+W+S+N.I.

(2)Omit sub-paragraph (1).

(3)In sub-paragraph (2)—

(a)after “paragraphs” insert “ 11, ” and

(b)after “the certificate is” insert “ (or becomes) ”.

(4)In sub-paragraph (3)—

(a)for “sub-paragraph (1) or (2)” substitute “ this paragraph ”, and

(b)omit “notification or”.

(5)In sub-paragraph (4)—

(a)for “notification or certificate” substitute “ certificate (or not revoking or varying it) ”,

(b)for “the person who gave it” substitute “ the person concerned ”, and

(c)for the words from “there is” to the end substitute “ the person has a reasonable excuse ”.

(6)In sub-paragraph (5)—

(a)for “notification or certificate” substitute “ certificate (or not revoking or varying it) ”, and

(b)for “the giving of the notification or certificate” substitute “ that ”.

(7)The italic heading before paragraph 101 accordingly becomes Civil penalties: incorrect certificates.

CommencementE+W+S+N.I.

13(1)Paragraphs 2 to 10 come into force on such day as the Treasury may by order made by statutory instrument appoint.E+W+S+N.I.

(2)But any power to make regulations under any provision inserted or amended by any of those paragraphs may be exercised at any time after this Act is passed.

(3)The power to make an order under sub-paragraph (1)—

(a)may be exercised so as to bring a provision into force only in such cases as may be described in the order,

(b)may be exercised so as to make different provision for different cases or descriptions of case,

(c)includes power to make incidental, consequential, supplemental or transitional provision or savings.

Section 25

SCHEDULE 3E+W+S+N.I.Managed service companies

Part 1 E+W+S+N.I.Amendments of ITEPA 2003

1ITEPA 2003 is amended as follows.E+W+S+N.I.

2In section 7(5) (meaning of “employment income” etc), for paragraph (a) substitute—E+W+S+N.I.

(a)Chapters 7 to 9 of this Part (agency workers, workers under arrangements made by intermediaries, and workers providing services through managed service companies),.

3In section 48(2) (workers under arrangements made by intermediaries: scope of Chapter) for “or” at the end of paragraph (a) substitute—E+W+S+N.I.

(aa)applies to services provided by a managed service company (within the meaning of Chapter 9 of this Part), or.

4After section 61 insert—E+W+S+N.I.

Chapter 9E+W+S+N.I.Managed service companies

Application of this ChapterE+W+S+N.I.
61AScope of this Chapter

(1)This Chapter has effect with respect to the provision of services by a managed service company.

(2)Nothing in this Chapter—

(a)affects the operation of Chapter 7 of this Part (agency workers), or

(b)applies to payments or transfers to which section 966(3) or (4) of ITA 2007 applies (visiting performers: duty to deduct and account for sums representing income tax).

61BMeaning of “managed service company”

(1)A company is a “managed service company” if—

(a)its business consists wholly or mainly of providing (directly or indirectly) the services of an individual to other persons,

(b)payments are made (directly or indirectly) to the individual (or associates of the individual) of an amount equal to the greater part or all of the consideration for the provision of the services,

(c)the way in which those payments are made would result in the individual (or associates) receiving payments of an amount (net of tax and national insurance) exceeding that which would be received (net of tax and national insurance) if every payment in respect of the services were employment income of the individual, and

(d)a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals (“an MSC provider”) is involved with the company.

(2)An MSC provider is “involved with the company” if the MSC provider or an associate of the MSC provider—

(a)benefits financially on an ongoing basis from the provision of the services of the individual,

(b)influences or controls the provision of those services,

(c)influences or controls the way in which payments to the individual (or associates of the individual) are made,

(d)influences or controls the company's finances or any of its activities, or

(e)gives or promotes an undertaking to make good any tax loss.

(3)A person does not fall within subsection (1)(d) merely by virtue of providing legal or accountancy services in a professional capacity.

(4)A person does not fall within subsection (1)(d) merely by virtue of carrying on a business consisting only of placing individuals with persons who wish to obtain their services (including by contracting with companies which provide their services).

(5)Subsection (4) does not apply if the person or an associate of the person—

(a)does anything within subsection (2)(c) or (e), or

(b)does anything within subsection (2)(d) other than influencing the company's finances or activities by doing anything within subsection (2)(b).

61CSection 61B: supplementary

(1)The Treasury may by order provide that persons of a prescribed description do not fall within section 61B(1)(d).

(2)An order under subsection (1) may be made so as to have effect in relation to the whole of the tax year in which it is made.

(3)In section 61B and this section, “company” means a body corporate or partnership.

(4)References in section 61B to an associate of a person (“P”) include a person who, for the purpose of securing that the individual's services are provided by a company, acts in concert with P (or with P and other persons).

(5)In section 61B(2)(e), “undertaking to make good any tax loss” means an undertaking (in any terms) to make good (in whole or in part, and by any means) any cost to the individual or an associate of the individual resulting from a relevant provision, or a particular kind of relevant provision, applying in relation to payments made to the individual or associate.

(6)In subsection (5) “relevant provision” means—

(a)a provision of the Tax Acts,

(b)an enactment relating to national insurance, or

(c)a provision of subordinate legislation made under any such provision or enactment.

The deemed employment paymentE+W+S+N.I.
61DWorker treated as receiving earnings from employment

(1)This section applies if—

(a)the services of an individual (“the worker”) are provided (directly or indirectly) by a managed service company (“the MSC”),

(b)the worker, or an associate of the worker, receives (from any person) a payment or benefit which can reasonably be taken to be in respect of the services, and

(c)the payment or benefit is not earnings (within Chapter 1 of Part 3) received by the worker directly from the MSC.

(2)The MSC is treated as making to the worker, and the worker is treated as receiving, a payment which is to be treated as earnings from an employment (“the deemed employment payment”).

(3)The deemed employment payment is treated as made at the time the payment or benefit mentioned in subsection (1)(b) is received.

(4)In this Chapter—

  • the worker” has the meaning given by subsection (1),

  • the relevant services” means the services mentioned in that subsection, and

  • the client” means the person to whom the relevant services are provided.

(5)Section 61F supplements this section.

61ECalculation of deemed employment payment

(1)The amount of the deemed employment payment is the amount resulting from the following steps—

Step 1

Find (applying section 61F) the amount of the payment or benefit mentioned in section 61D(1)(b).

Step 2

Deduct (applying Chapters 1 to 5 of Part 5) the amount of any expenses met by the worker that would have been deductible from the taxable earnings from the employment if—

(a)the worker had been employed by the client to provide the relevant services, and

(b)the expenses had been met by the worker out of those earnings.

If the result at this point is nil or a negative amount, there is no deemed employment payment.

Step 3

Assume that the result of step 2 represents an amount together with employer's national insurance contributions on it, and deduct what (on that assumption) would be the amount of those contributions.

The result is the deemed employment payment.

(2)In step 2 of subsection (1), the reference to expenses met by the worker includes, where the MSC is a partnership and the worker is a member of the partnership, expenses met by the worker for and on behalf of the partnership.

(3)In step 2 of subsection (1), the expenses deductible include the amount of any mileage allowance relief which the worker would have been entitled to in respect of the use of a vehicle falling within subsection (4) if—

(a)the worker had been employed by the client to provide the relevant services, and

(b)the vehicle had not been a company vehicle (within the meaning of Chapter 2 of Part 4).

(4)A vehicle falls within this subsection if—

(a)it is provided by the MSC for the worker, or

(b)where the MSC is a partnership and the worker is a member of the partnership, it is provided by the worker for the purposes of the business of the partnership.

(5)For the purposes of subsection (1) any necessary apportionment of payments or benefits that are referable partly to the provision of the relevant services and partly to other matters is to be made on a just and reasonable basis.

61FSections 61D and 61E: application of rules relating to earnings from employment

(1)The following provisions apply for the purposes of sections 61D and 61E.

(2)A “payment or benefit” means anything that, if received by an employee for performing the duties of an employment, would be general earnings from the employment.

(3)The amount of a payment or benefit is taken to be—

(a)in the case of a payment or cash benefit, the amount received, and

(b)in the case of a non-cash benefit, the cash equivalent of the benefit.

(4)The cash equivalent of a non-cash benefit is taken to be—

(a)the amount that would be general earnings if the benefit were general earnings from an employment, or

(b)in the case of living accommodation, whichever is the greater of that amount and the cash equivalent determined in accordance with section 398(2).

(5)A payment or benefit is treated as received—

(a)in the case of a payment or cash benefit, when payment is made of or on account of the payment or benefit;

(b)in the case of a non-cash benefit, when it would have been treated as received for the purposes of Chapter 4 or 5 of this Part (see section 19 or 32) if—

(i)the worker had been an employee, and

(ii)the benefit had been provided by reason of the employment.

61GApplication of Income Tax Acts in relation to deemed employment

(1)The Income Tax Acts (in particular, the PAYE provisions) apply in relation to the deemed employment payment as follows.

(2)They apply as if—

(a)the worker were employed by the MSC to provide the relevant services, and

(b)the deemed employment payment were a payment by the MSC of earnings from that employment;

but this is subject to subsection (3).

(3)No deduction under Part 5 (deductions allowed from employment income) or section 232 (mileage allowance relief) may be made from the deemed employment payment.

(4)The worker is not chargeable to tax in respect of the deemed employment payment if, or to the extent that, by reason of any combination of the factors mentioned in subsection (5), the worker would not be chargeable to tax if—

(a)the worker were employed by the client to perform the relevant services, and

(b)the deemed employment payment were a payment by the client of earnings from that employment.

(5)The factors are—

(a)the worker being resident, ordinarily resident or domiciled outside the United Kingdom,

(b)the client being resident or ordinarily resident outside the United Kingdom, and

(c)the relevant services being provided outside the United Kingdom.

(6)Where the MSC is a partnership and the worker is a member of the partnership, the deemed employment payment is treated as received by the worker in the worker's personal capacity and not as income of the partnership.

(7)Where—

(a)the worker is resident in the United Kingdom, and

(b)the relevant services are provided in the United Kingdom,

the MSC is treated as having a place of business in the United Kingdom, whether or not it in fact does so.

Supplementary provisionsE+W+S+N.I.
61HRelief in case of distributions by managed service company

(1)A claim for relief may be made under this section where the MSC—

(a)is a body corporate,

(b)is treated as making a deemed employment payment in any tax year, and

(c)either in that tax year (whether before or after that payment is treated as made), or in a subsequent tax year, makes a distribution (a “relevant distribution”).

(2)A claim for relief under this section must be made—

(a)by the MSC by notice to an officer of Revenue and Customs, and

(b)within 5 years after 31st January following the tax year in which the distribution is made.

(3)If on a claim being made an officer of Revenue and Customs is satisfied that relief should be given in order to avoid a double charge to tax, the officer must direct the giving of such relief by way of amending any assessment, by discharge or repayment of tax, or otherwise, as appears to the officer appropriate.

(4)Relief under this section is given by setting the amount of the deemed employment payment against the relevant distribution so as to reduce the distribution.

(5)In the case of more than one relevant distribution, an officer of Revenue and Customs must exercise the power conferred by this section so as to secure that so far as practicable relief is given by setting the amount of a deemed employment payment—

(a)against relevant distributions of the same tax year before those of other years,

(b)against relevant distributions received by the worker before those received by another person, and

(c)against relevant distributions of earlier years before those of later years.

(6)Where the amount of a relevant distribution is reduced under this section, the amount of any associated tax credit is reduced accordingly.

61IMeaning of “associate”

(1)Subsections (2) to (4) apply for the purposes of this Chapter.

(2)Associate”, in relation to an individual, means—

(a)a member of the individual's family or household,

(b)a relative of the individual,

(c)a partner of the individual, or

(d)the trustee of any settlement in relation to which the individual, or a relative of the individual or member of the individual's family (living or dead), is or was a settlor.

(3)Associate”, in relation to a company, means a person connected with the company.

(4)Associate”, in relation to a partnership, means any associate of a member of the partnership.

(5)If—

(a)a managed service company (“the MSC”) is a partnership, and

(b)a person is an associate of another person by virtue only of being a member of the partnership,

the person is to be treated, for the purposes of this Chapter as it applies in relation to the MSC, as if the person were not an associate of that other person.

(6)In subsection (2), “relative” means ancestor, lineal descendant, brother or sister.

(7)For the purposes of subsection (2)—

(a)a man and woman living together as husband and wife are treated as if they were married to each other, and

(b)two persons of the same sex living together as if they were civil partners of each other are treated as if they were civil partners of each other.

61JInterpretation of Chapter

(1)In this Chapter—

  • associate” has the meaning given by section 61I,

  • business” means any trade, profession or vocation,

  • the client” has the meaning given by section 61D(4),

  • employer's national insurance contributions” means secondary Class 1 or Class 1A national insurance contributions,

  • managed service company” has the meaning given by section 61B,

  • national insurance contributions” means contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992,

  • PAYE provisions” means the provisions of Part 11 or PAYE regulations,

  • the relevant services” has the meaning given by section 61D(4), and

  • the worker” has the meaning given by section 61D(4).

(2)Nothing in section 995 of ITA 2007 (meaning of control) applies for the purposes of this Chapter.

5In section 218(1) (exclusion of lower-paid employments from parts of benefits code: calculation of earnings rate), in Step 1, at the end of paragraph (d) insert and E+W+S+N.I.

(e)in the case of an employment within section 61G(2) (deemed employment payment by managed service company), the total amount of deemed employment payments for the year.

6After section 688 insert—E+W+S+N.I.

688AManaged service companies: recovery from other persons

(1)PAYE regulations may make provision authorising the recovery from a person within subsection (2) of any amount that an officer of Revenue and Customs considers should have been deducted by a managed service company (“the MSC”) from a payment of, or on account of, PAYE income of an individual.

(2)The persons are—

(a)a director or other office-holder, or an associate, of the MSC,

(b)an MSC provider,

(c)a person who (directly or indirectly) has encouraged or been actively involved in the provision by the MSC of the services of the individual, and

(d)a director or other office-holder, or an associate, of a person (other than an individual) who is within paragraph (b) or (c).

(3)A person does not fall within subsection (2)(c) merely by virtue of—

(a)providing legal or accountancy advice in a professional capacity, or

(b)placing the individual with persons who wish to obtain the services of the individual (including by contracting with the MSC for the provision of those services).

(4)The supplementary provision that may be made by the regulations includes provision as to the liability of one person within subsection (2) to another such person.

(5)In this section—

  • associate” has the meaning given by section 61I,

  • director” has the meaning given by section 67,

  • managed service company” has the meaning given by section 61B, and

  • MSC provider” means an MSC provider who is involved with the MSC (within the meaning of section 61B).

(6)Section 61C(4) (extended meaning of “associate”) applies for the purposes of subsection (2)(d).

(7)The Treasury may by order amend this section (but not this subsection or subsection (8)).

(8)The Treasury must not make an order under subsection (7) unless a draft of it has been laid before and approved by a resolution of the House of Commons.

7In section 717(4) (orders and regulations not subject to negative procedure), insert at the end “ or section 688A(7) (PAYE regulations: managed service companies) ”.E+W+S+N.I.

8In Part 2 of Schedule 1 (index of defined expressions), insert at the appropriate places—E+W+S+N.I.

associate (in Chapter 9 of Part 2)section 61I (but see section 61C(4))
business (in Chapter 9 of Part 2)section 61J
the client (in Chapter 9 of Part 2)section 61D(4)
employer's national insurance contributions (in Chapter 9 of Part 2)section 61J
managed service company (in Chapter 9 of Part 2)section 61B
national insurance contributions (in Chapter 9 of Part 2)section 61J
PAYE provisions (in Chapter 9 of Part 2)section 61J
the relevant services (in Chapter 9 of Part 2)section 61D(4)
the worker (in Chapter 9 of Part 2)section 61D(4).

Part 2 E+W+S+N.I.Calculation of profits of MSCs: deduction for deemed employment payments

Deduction for deemed employment payments for income tax purposesE+W+S+N.I.

9In ITTOIA 2005, after section 164 insert—E+W+S+N.I.

Managed service companiesE+W+S+N.I.
164ADeduction for deemed employment payments

(1)This section applies for the purpose of calculating the profits of a trade, profession or vocation carried on by a managed service company (“the MSC”) which is treated as making a deemed employment payment in connection with the trade, profession or vocation.

(2)A deduction is allowed for—

(a)the amount of the deemed employment payment, and

(b)the amount of any employer's national insurance contributions paid by the MSC in respect of it.

(3)The deduction is allowed for the period of account in which the deemed employment payment is treated as made.

(4)The amount of the deduction allowed under subsection (2) is limited to the amount that reduces the profits of the firm for the tax year to nil.

(5)No deduction in respect of—

(a)the deemed employment payment, or

(b)any employer's national insurance contributions paid by the MSC in respect of it,

may be made except in accordance with this section.

(6)In this section “deemed employment payment”, “employer's national insurance contributions” and “managed service company” have the same meaning as in Chapter 9 of Part 2 of ITEPA 2003.

Deduction for deemed employment payments for corporation tax purposesE+W+S+N.I.

10(1)This paragraph applies for the purpose of calculating for corporation tax purposes the profits of a business carried on by a managed service company (“the MSC”) which is treated as making a deemed employment payment in connection with the business.E+W+S+N.I.

(2)A deduction is allowed for—

(a)the amount of the deemed employment payment, and

(b)the amount of any employer's national insurance contributions paid by the MSC in respect of it.

(3)The deduction is allowed for the period of account in which the deemed employment payment is treated as made.

(4)If the MSC is a partnership, the amount of the deduction allowed under sub-paragraph (2) is limited to the amount that reduces the profits of the partnership for the period of account to nil.

(5)No deduction in respect of—

(a)the deemed employment payment, or

(b)any employer's national insurance contributions paid by the MSC in respect of it,

may be made except in accordance with this paragraph.

(6)In this paragraph “business”, “deemed employment payment”, “employer's national insurance contributions” and “managed service company” have the same meanings as in Chapter 9 of Part 2 of ITEPA 2003.

Section 26

SCHEDULE 4E+W+S+N.I.Restrictions on trade loss relief for partners

Limit on amount of sideways relief and capital gains relief available in any tax yearE+W+S+N.I.

1(1)In ITA 2007, before section 104 (and the italic cross-heading before it) insert—E+W+S+N.I.

Limit on amount of sideways relief and capital gains reliefE+W+S+N.I.

103CLimit on reliefs in any tax year not to exceed cap for tax year

(1)This section applies if an individual carries on one or more trades—

(a)as a non-active partner in a firm during a tax year, or

(b)as a limited partner in a firm at a time in that tax year,

and the individual makes a loss in any of those trades (an “affected loss”) in that tax year.

(2)There is a restriction on the amount of sideways relief and capital gains relief which (after applying the restrictions under the other provisions of this Chapter) may be given to the individual for any affected loss (but see subsections (6) and (7)).

(3)The restriction is that the total amount of the sideways relief and capital gains relief given to the individual for all the affected losses must not exceed the cap for that tax year.

(4)The cap for any tax year is £25,000.

(5)The Treasury may by order amend the sum for the time being specified in subsection (4).

(6)The restriction under this section does not apply to so much of any affected loss as derives from qualifying film expenditure (see section 103D).

(7)The restriction under this section does not affect the giving of sideways relief for a loss made in a trade against the profits of that trade.

(8)In this section “trade” does not include a trade which consists of the underwriting business of a member of Lloyd's (within the meaning of section 184 of FA 1993).

(2)The amendment made by sub-paragraph (1) has effect in relation to any loss made by an individual in a trade in the tax year 2007-08 or any subsequent tax year.

(3)But, in the case of a loss made by an individual in a trade in a tax year the basis period for which begins before 2nd March 2007 (a “straddling basis period”), the amount of that loss for the purposes of section 103C of ITA 2007 is—

(a)the amount of sideways relief and capital gains relief which (after applying the restrictions under the other provisions of Chapter 3 of Part 4 of that Act) may be given to the individual for that loss, less

(b)the amount (if any) of the pre-announcement loss.

(4)“The pre-announcement loss” is determined as follows.

(5)Calculate the profits or losses of the straddling basis period, but without regard to capital allowances and qualifying film expenditure (within the meaning of section 103D of ITA 2007).

(6)If that calculation produces a loss and the individual has made a contribution of an amount as capital to the firm or LLP in question—

(a)on or before the start of the straddling basis period, or

(b)after the start of that period but before 2nd March 2007,

apportion the loss produced by that calculation to the part of the straddling basis period which begins with the relevant date and falls before 2nd March 2007 in proportion to the number of days in that part.

(7)Calculate so much of the loss of the straddling basis period as derives from relevant pre-announcement capital expenditure.

(8)The pre-announcement loss is the sum of—

(a)the amount of the loss apportioned under sub-paragraph (6) (if any), and

(b)so much of the loss of the straddling basis period (if any) as derives from relevant pre-announcement capital expenditure.

(9)In sub-paragraph (6) “the relevant date” means—

(a)in any case where a contribution was made on or before the start of the straddling basis period, the start of that period, and

(b)in any other case, the date on which the contribution was made or, if more than one contribution was made, the date on which the first contribution was made.

(10)For the purposes of this paragraph the amount of the loss of the straddling basis period that derives from relevant pre-announcement capital expenditure is determined on a just and reasonable basis.

(11)In this paragraph “relevant pre-announcement capital expenditure” means—

(a)any capital allowance in respect of expenditure paid before 2nd March 2007, and

(b)any capital allowance in respect of expenditure paid on or after that date pursuant to an unconditional obligation in a contract made before that date,

and for this purpose “an unconditional obligation” means an obligation which may not be varied or extinguished by the exercise of any right conferred on the firm or LLP in question (whether or not under the contract).

(12)For the purposes of this paragraph—

(a)an amount of money is not to be taken as contributed as capital to a firm or LLP until the money is paid to the firm or LLP, and

(b)a right or other asset is not to be taken as contributed as capital to a firm or LLP until it is transferred to the firm or LLP.

(13)Section 62 of ITA 2007 (partners: losses of a tax year etc) applies for the purposes of this paragraph as it applies for the purposes of Chapter 3 of Part 4 of that Act.

Disregard of contributions made for purpose of accessing sideways relief and capital gains reliefE+W+S+N.I.

2(1)In ITA 2007, before section 114 insert—E+W+S+N.I.

Exclusion of amounts in calculating contribution to the firm or LLPE+W+S+N.I.

113AExclusion of amounts contributed to access relief

(1)An amount which an individual contributes to a firm as capital is to be excluded in calculating the individual's contribution to the firm for the purposes of section 104 or 110 if the contribution was made for a prohibited purpose (but see subsection (4)).

(2)If—

(a)an individual carries on a trade as a member of an LLP at a time in a tax year,

(b)the individual does not devote a significant amount of time to the trade in the relevant period for that year, and

(c)the individual contributes an amount to the LLP as capital at any time in that year,

that amount is to be excluded in calculating the individual's contribution to the LLP for the purposes of section 107 if the contribution was made for a prohibited purpose (but see subsection (4)).

(3)For the purposes of this section a contribution is made for a prohibited purpose if the main purpose, or one of the main purposes, of making the contribution is the obtaining of a reduction in tax liability by means of sideways relief or capital gains relief.

(4)This section has no effect in relation to the application of any restriction under section 104, 107 or 110 to any loss that derives wholly from qualifying film expenditure.

(2)The amendment made by sub-paragraph (1) has effect in relation to any amount contributed to a firm or LLP as capital on or after 2nd March 2007 (but see sub-paragraph (4)).

(3)For this purpose—

(a)an amount of money is not to be taken as contributed as capital to a firm or LLP until the money is paid to the firm or LLP, and

(b)a right or other asset is not to be taken as contributed as capital to a firm or LLP until it is transferred to the firm or LLP.

(4)The amendment made by sub-paragraph (1) has no effect in relation to any amount contributed by an individual on or after 2nd March 2007 if—

(a)the amount is contributed pursuant to an obligation in a contract made before that date, and

(b)the obligation may not be varied or extinguished by the exercise of any right conferred on the individual (whether or not under the contract).

Provision corresponding to paragraphs 1 and 2 for tax year 2006-07E+W+S+N.I.

3(1)ICTA has effect, in relation to any loss made by an individual in a trade in the tax year 2006-07 the basis period for which ends on or after 2nd March 2007, as if provision corresponding to section 103C of ITA 2007 were included in Chapter 7 of Part 4 of ICTA.E+W+S+N.I.

(2)Sub-paragraphs (3) to (13) of paragraph 1 apply for the purposes of sub-paragraph (1) above.

(3)ICTA has effect for the tax year 2006-07 as if provision corresponding to section 113A of ITA 2007 were included in that Chapter.

(4)Sub-paragraphs (2) to (4) of paragraph 2 apply for the purposes of sub-paragraph (3) above.

(5)The provisions which are treated by this paragraph as included in Chapter 7 of Part 4 of ICTA have effect as if—

(a)any reference in section 103C of ITA 2007 to sideways relief were to relief under section 380 or 381 of ICTA,

(b)any reference in section 103C of ITA 2007 to capital gains relief in relation to a loss were to the treatment of the loss as an allowable loss by virtue of section 72 of FA 1991,

(c)any reference in section 103C or 113A of ITA 2007 to any provision of Chapter 3 of Part 4 of ITA 2007 were to the corresponding provision of Chapter 7 of Part 4 of ICTA, and

(d)any reference in section 113A of ITA 2007 to a contribution to a firm or an LLP were to a contribution to a trade carried on by the firm or LLP,

and references in paragraphs 1(3) to (13) and 2(2) to (4) to any of those expressions are to be read accordingly.

Consequential amendmentsE+W+S+N.I.

4ITA 2007 is amended as follows.E+W+S+N.I.

5In section 32 (liability not dealt with in the calculation), for “section 112(5)” substitute “ section 103B(5) ”.E+W+S+N.I.

6In section 82(a) (exploitation of films), for “sections 115 and 116” substitute “ section 115 ”.E+W+S+N.I.

7(1)Section 102 (overview of Chapter 3 of Part 4) is amended as follows.E+W+S+N.I.

(2)In subsection (1)—

(a)in paragraph (a), for “104 to 106 and section 114)” substitute “ 103A, 103C to 105, 113A and 114) ”,

(b)in paragraph (b), for “107 to 109 and section 114)” substitute “ 103C, 103D, 107 to 109, 113A and 114) ”, and

(c)in paragraph (c), for “in an early tax year (see sections 110 to 114)” substitute “ (see sections 103B to 103D and 110 to 114) ”.

(3)In subsection (2), for “sections 115 and 116” substitute “ section 115 ”.

8After section 103 insert—E+W+S+N.I.

103AMeaning of “limited partner”

(1)In this Chapter “limited partner” means an individual who carries on a trade—

(a)as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907,

(b)as a partner in a firm who in substance acts as a limited partner in relation to the trade (see subsection (2)), or

(c)while the condition mentioned in subsection (3) is met in relation to the individual.

(2)An individual in substance acts as a limited partner in relation to a trade if the individual—

(a)is not entitled to take part in the management of the trade, and

(b)is entitled to have any liabilities (or those beyond a certain limit) for debts or obligations incurred for the purposes of the trade met or reimbursed by some other person.

(3)The condition referred to in subsection (1)(c) is that—

(a)the individual carries on the trade jointly with other persons,

(b)under the law of a territory outside the United Kingdom, the individual is not entitled to take part in the management of the trade, and

(c)under that law, the individual is not liable beyond a certain limit for debts or obligations incurred for the purposes of the trade.

(4)In the case of an individual who is a limited partner as a result of subsection (1)(c), references in this Chapter to the individual's firm are to be read as references to the relationship between the individual and the other persons mentioned in subsection (3)(a).

103BMeaning of “non-active partner” etc

(1)For the purposes of this Chapter an individual carries on a trade as a non-active partner during a tax year if the individual—

(a)carries on the trade as a partner in a firm at a time during the year,

(b)does not carry on the trade as a limited partner at any time during the year, and

(c)does not devote a significant amount of time to the trade in the relevant period for the year.

(2)For the purposes of this Chapter an individual devotes a significant amount of time to a trade in the relevant period for a tax year if, in that period, the individual spends an average of at least 10 hours a week personally engaged in activities carried on for the purposes of the trade.

(3)For this purpose “the relevant period” means the basis period for the tax year (unless the basis period is shorter than 6 months).

(4)If the basis period for the tax year is shorter than 6 months, “the relevant period” means—

(a)the period of 6 months beginning with the date on which the individual first started to carry on the trade (if the basis period begins with that date), or

(b)the period of 6 months ending with the date on which the individual permanently ceased to carry on the trade (if the basis period ends with that date).

(5)If—

(a)any relief is given on the assumption that the individual devoted or will devote a significant amount of time to the trade in the relevant period for a tax year, but

(b)the individual in fact failed or fails to do so,

the relief is withdrawn by the making of an assessment to income tax under this section.

9After section 103C (as inserted by paragraph 1(1) above) insert—E+W+S+N.I.

103DMeaning of “qualifying film expenditure”

(1)For the purposes of this Chapter expenditure is qualifying film expenditure if—

(a)it is deducted under a relevant film provision for the purposes of the calculation required by section 849 of ITTOIA 2005 (calculation of firm's profits or losses), or

(b)it is incidental expenditure which (although not deducted under a relevant film provision) is incurred in connection with the production of a film, or the acquisition of the original master version of a film, in relation to which expenditure is so deducted.

(2)Expenditure is incidental if it is on management, administration or obtaining finance.

(3)The extent to which expenditure is within subsection (1)(b) is determined on a just and reasonable basis.

(4)For the purposes of this Chapter the amount of any loss that derives from qualifying film expenditure is determined on a just and reasonable basis.

(5)In this section—

  • the acquisition of the original master version of a film” has the same meaning as in Chapter 9 of Part 2 of ITTOIA 2005 (see sections 130 and 132 of that Act),

  • film” is to be read in accordance with paragraph 1 of Schedule 1 to the Films Act 1985, and

  • a relevant film provision” means any one of sections 137 to 140 of ITTOIA 2005 (relief for certified master versions of films).

10In—E+W+S+N.I.

(a)section 104(5) (restriction on reliefs for limited partners),

(b)section 107(2) (restriction on reliefs for members of LLPs),

(c)section 110(1)(a) (restriction on reliefs for non-active partners in early tax years), and

(d)section 115(1)(d) (restrictions on relief for firms exploiting films),

omit “(see section 112)”.

11In—E+W+S+N.I.

(a)section 105(11) (meaning of “contribution to the firm” for purposes of section 104),

(b)section 108(9) (meaning of “contribution to the LLP” for purposes of section 107), and

(c)section 111(12) (meaning of “contribution to the firm” for purposes of section 110),

for the words from “any regulations” to “excluded” substitute “ section 113A and any regulations made under section 114 (exclusion of amounts ”.

12Omit section 106 (meaning of “limited partner”).E+W+S+N.I.

13In section 112 (meaning of “non-active partner” and “early tax year” etc)—E+W+S+N.I.

(a)omit subsections (1) to (5), and

(b)the heading accordingly becomes “ Meaning of “early tax year” .

14Omit the italic-cross heading before section 114 (regulations: exclusion of amounts in calculating contribution to the firm or LLP) and for the heading of that section substitute “ Power to exclude other amounts ”.E+W+S+N.I.

15In section 115 (restrictions on reliefs for firms exploiting films), for subsection (4) substitute—E+W+S+N.I.

(4)The restrictions under this section do not apply to so much of the loss (if any) as derives from qualifying film expenditure.

16Omit section 116 (exclusion from restrictions under section 115: certain film expenditure).E+W+S+N.I.

17In section 792 (partners claiming excess sideways or capital gains relief)—E+W+S+N.I.

(a)in subsection (7), for “106” substitute “ 103A ”, and

(b)in subsection (8), for “106(3)(a)” substitute “ 103A(3)(a) ”.

18In section 809 (individuals in partnership claiming relief for licence-related trading losses: other definitions)—E+W+S+N.I.

(a)in subsection (1), for “112” substitute “ 103B ”, and

(b)in subsection (2), for “112(1)(b)” substitute “ 103B(1)(b) ”.

19In paragraph 148(3)(b) of Schedule 2 (transitionals and savings: tax avoidance)—E+W+S+N.I.

(a)for “106” substitute “ 103A ”, and

(b)for “112” substitute “ 103B ”.

20In Schedule 4 (index of defined expressions)—E+W+S+N.I.

(a)in the definition of “limited partner”, for “106” substitute “ 103A ”,

(b)in the definition of “non-active partner”, for “112” substitute “ 103B ”, and

(c)after the definition of “qualifying donation (in Chapter 2 of Part 8)” insert—

qualifying film expenditure (in Chapter 3 of Part 4)section 103D.

21The amendments made by paragraphs 5 to 20 are deemed always to have had effect.E+W+S+N.I.

Section 30

SCHEDULE 5E+W+S+N.I.Avoidance involving financial arrangements

Amounts not forming part of a company's incomeE+W+S+N.I.

1(1)ICTA is amended as follows.E+W+S+N.I.

(2)In section 347A(1) (annual payments: general rule), as it had effect before ITA 2007, omit paragraph (b) together with the “and” before it (payment to which section applies not income of any company for corporation tax purposes).

(3)The amendment made by sub-paragraph (2) has effect in relation to payments made on or after 6th December 2006 but before 6th April 2007.

(4)Omit section 347A (as amended by ITA 2007).

(5)The amendment made by sub-paragraph (4) has effect in relation to payments made on or after 6th April 2007.

2(1)In section 660C of ICTA, omit subsection (4) (income which is income of settlor alone for income tax purposes by virtue of section 624 or 629 of ITTOIA 2005 not income of any company for corporation tax purposes).E+W+S+N.I.

(2)The amendment made by sub-paragraph (1) has effect in relation to accounting periods ending on or after 6th March 2007.

(3)But income which arises in an accounting period beginning before that date is to be chargeable to corporation tax as a result of that amendment only if it arises on or after that date.

Structured finance arrangementsE+W+S+N.I.

3(1)Section 774B of ICTA (disregard of intended effects of arrangement involving disposals of assets) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)This section applies if an arrangement is a structured finance arrangement in relation to a person (“the borrower”).

(1A)If the arrangement would (disregarding this section) have had the relevant effect (see subsections (2) and (3)), the arrangement is not to have that effect.

(1B)If the arrangement would (disregarding this section) not have had that effect, the payments mentioned in section 774A(2)(d) are to be treated for tax purposes as income of the borrower payable in respect of the security (whether or not those payments are also the income of anyone else for tax purposes).

(3)In subsection (4)(a) (income tax relief for finance charge in respect of advance), for the words from the beginning to “is a person” substitute “ a person in relation to whom this section applies is ”.

(4)In subsection (5) (corporation tax relief for finance charge in respect of advance), for the words from the beginning to “is a company” substitute “ If a person in relation to whom this section applies is ”.

4In section 774D of ICTA (disregard of intended effects of arrangement involving change in relation to a partnership), after subsection (2) insert—E+W+S+N.I.

(2A)In determining whether the condition in subsection (1)(b) is met it is to be assumed that amounts of income equal to the payments mentioned in section 774C(2)(f) or (4)(e) were payable to the borrower partnership before the time at which the relevant change in relation to its membership involving the lender or a person connected with the lender occurs.

5In section 774E of ICTA (exceptions), in subsection (7)(a) (meaning of “relevant person” where section 774B applies), for the words from “a person” to “of that section)” substitute “ the borrower under the structured finance arrangement, a person connected with that borrower or (if that borrower is a partnership) a member of the partnership ”.E+W+S+N.I.

6(1)Section 774G of ICTA (minor definitions etc for purposes of sections 774A to 774D) is amended as follows.E+W+S+N.I.

(2)In paragraph (a) of subsection (3) (meaning of receiving asset)—

(a)for “include the person's” substitute include—

(i)the person's, and

(b)after “it” insert , and

(ii)the discharge (in whole or in part) of any liability of the person,.

(3)In paragraph (c) of that subsection (meaning of payments in respect of asset), for “include obtaining” substitute include—

(i)payments in respect of any other asset substituted for it under the arrangement, and

(ii)obtaining.

(4)After subsection (5) insert—

(5A)In determining for the purposes of sections 774A to 774D whether an amount is recorded as a financial liability in respect of the advance it is to be assumed that the period of account in which the advance is received ended immediately after the receipt of the advance.

7(1)The amendments made by paragraphs 3 to 5 and 6(2) and (3) have effect in relation to any arrangements whenever made.E+W+S+N.I.

(2)But, in relation to arrangements made before 6th March 2007, amounts are as a result of any of those amendments—

(a)to be charged to tax, or

(b)to be brought into account in calculating any income for tax purposes or deducted from any income for tax purposes,

only if the amounts arise on or after that date.

(3)In any case where, in relation to arrangements made before that date, a person is treated as a result of any of those amendments as being a party to any loan relationship—

(a)a period of account is to be treated for the purposes of Chapter 2 of Part 4 of FA 1996 as beginning on that date, and

(b)the loan relationship is to be treated for those purposes as being entered into by the person for a consideration equal to the notional carrying value of the liability representing the relationship.

(4)For this purpose the notional carrying value is the amount that would have been the carrying value of the liability in the accounts of the person if a period of account had ended immediately before that date.

(5)“Carrying value” has the same meaning here as it has for the purposes of paragraph 19A of Schedule 19 to FA 1996.

(6)The amendment made by paragraph 6(4) comes into force on the day on which this Act is passed.

8(1)Section 263E of TCGA 1992 (structured finance arrangements) is amended as follows.E+W+S+N.I.

(2)In subsection (2) (condition A: person making disposal of asset subsequently acquires it), for the words from “subsequently” to the end substitute “ (and no-one else) has the right or obligation under the arrangement to acquire the asset disposed of by that disposal at any subsequent time (whether or not the right or obligation is subject to any conditions). ”

(3)In subsection (3) (condition B: asset ceases to exist)—

(a)in paragraph (a), for “subsequently ceases” substitute “ will subsequently cease ”, and

(b)in paragraph (b), for “that asset was held” substitute “ it is intended that that asset will be held ”.

(4)After subsection (4) insert—

(4A)If, at any time after that disposal, it becomes apparent that—

(a)the person making the disposal will not subsequently acquire under the arrangement the asset disposed of by that disposal, or

(b)that asset will not be held as mentioned in subsection (3)(b),

that person is to be treated for the purposes of this Act as disposing of that asset at that time for a consideration equal to its market value at that time.

(5)In subsection (5) (disregard of subsequent acquisitions), for “Any” substitute “ Except in a case falling within subsection (4A), any ”.

(6)The amendments made by this paragraph have effect in relation to disposals made on or after 6th March 2007.

(7)The amendments made by this paragraph also have effect in relation to any disposal made by a person before that date if the person makes a claim to that effect under this sub-paragraph.

Manufactured payments under arrangements having an unallowable purposeE+W+S+N.I.

9(1)In paragraph 7A(10) of Schedule 23A to ICTA (manufactured payments under arrangements having an unallowable purpose), in the definition of “manufactured payment”, after paragraph (c) insert—E+W+S+N.I.

(d)any payment which by virtue of paragraph 7(1) constitutes a fee;.

(2)The amendment made by sub-paragraph (1) has effect in relation to payments made (or treated as made) on or after 6th December 2006.

(3)But, in the case of any payment made (or treated as made) by a company in pursuance of old arrangements, that amendment has no effect in relation to so much of the payment as (on such just and reasonable apportionments as may be necessary) represents any old taxable income or gains arising or accruing to the company as a result of those arrangements.

(4)For this purpose—

  • old arrangements” means arrangements in pursuance of which (or of any part of which) a transaction has taken place before 6th December 2006, and

  • old taxable income or gains arising or accruing” means income or gains within the charge to corporation tax arising or accruing (or treated as arising or accruing) before that date.

Options and groups of companiesE+W+S+N.I.

10(1)In section 171(2) of TCGA 1992 (exceptions to rule that disposals within the same group of companies produce neither a gain nor a loss), after paragraph (da) insert or E+W+S+N.I.

(db)a disposal by company A in fulfilment of its obligations under an option granted to company B at a time when those companies were not members of the same group;.

(2)The amendment made by sub-paragraph (1) has effect in relation to cases where the option is exercised on or after 6th March 2007 (whenever the option was granted).

Loan relationships: amounts not fully recognised for accounting purposesE+W+S+N.I.

11(1)Section 85C of FA 1996 (amounts not fully recognised for accounting purposes) is amended as follows.E+W+S+N.I.

(2)In subsection (1)—

(a)in paragraph (c), for the words from “has at any time” to “liability”)” substitute “ an amount (a “relevant capital contribution”) has at any time been contributed to the company which forms part of its capital (whether share or other capital) ”, and

(b)in paragraphs (d) and (e), for “relevant accounting liability” substitute “ relevant capital contribution ”.

(3)In subsection (2)—

(a)for “or relevant accounting liability of the company” substitute “ of the company or any relevant capital contribution made to the company ”, and

(b)for “or liability” (in both places) substitute “ or contribution ”.

(4)The amendments made by this paragraph have effect in relation to periods of account ending on or after 9th May 2007.

(5)But, in relation to periods of account beginning before that date, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those amendments only if the amounts relate to any time on or after that date.

Shares treated as loan relationshipsE+W+S+N.I.

12(1)Section 91A of FA 1996 (shares subject to outstanding third party obligations) is amended as follows.E+W+S+N.I.

(2)In subsection (4) (debits in respect of certain transactions to be ignored), for “No debits are to be brought into account” substitute “ In determining those debits and credits there are to be left out of account amounts ”.

(3)Insert at the end—

(11)In this section “share” does not include a share in a building society.

(4)The amendment made by sub-paragraph (2) has effect in relation to accounting periods ending on or after 6th March 2007.

(5)But, in relation to accounting periods beginning before that date, amounts are to be left out of account as a result of that amendment only if they relate to any time on or after that date.

(6)The amendment made by sub-paragraph (3) has effect in relation to shares held on or after 6th March 2007.

13(1)Section 91B of FA 1996 (non-qualifying shares) is amended as follows.E+W+S+N.I.

(2)In subsection (4) (debits in respect of certain transactions to be ignored), for “no debits are to be brought into account” substitute “ in determining those debits and credits there are to be left out of account amounts ”.

(3)Insert at the end—

(8)In this section “share” does not include a share in a building society.

(4)The amendment made by sub-paragraph (2) has effect in relation to accounting periods ending on or after 6th March 2007.

(5)But, in relation to accounting periods beginning before that date, amounts are to be left out of account as a result of that amendment only if they relate to any time on or after that date.

(6)The amendment made by sub-paragraph (3) has effect in relation to shares held on or after 6th March 2007.

14(1)In section 103(1) of FA 1996 (interpretation of Chapter 2 of Part 4), in the definition of “share”, before “, in relation to a company,” insert “ (except in sections 91A to 91G) ”.E+W+S+N.I.

(2)The amendment made by sub-paragraph (1) has effect in relation to shares held on or after 6th March 2007.

Exchange gains and losses where loan not on arm's length termsE+W+S+N.I.

15(1)In paragraph 11A of Schedule 9 to FA 1996 (exchange gains and losses where loan not on arm's length terms), insert at the end—E+W+S+N.I.

(7)Where—

(a)a company would be treated as having a debtor relationship in any accounting period if a claim were made under paragraph 6D(2) of Schedule 28AA to the Taxes Act 1988 in relation to that period, and

(b)for that period there is a connection between that company and the company which would have the corresponding creditor relationship,

it shall be assumed that such a claim is made for the purpose of determining the debits or credits to be brought into account for the purposes of this Chapter in respect of any exchange gains or losses arising in that period in respect of the liability representing that debtor relationship.

(8)Section 87(3) and (4) (connection between a company and another person) apply for the purposes of sub-paragraph (7)(b) above as they apply for the purposes of section 87.

(9)Where, by virtue of any claim made (or assumed by virtue of sub-paragraph (7) above to be made) under paragraph 6D(2) of Schedule 28AA to the Taxes Act 1988, more than one company is treated for any purpose as having a debtor relationship represented by the same liability—

(a)the total debtor exchange gains must not exceed the total creditor exchange losses, and

(b)the total debtor exchange losses must not exceed the total creditor exchange gains.

(10)For the purposes of sub-paragraph (9) above—

(a)any reference to the total debtor exchange gains is to the total amount of the credits brought into account for the purposes of this Chapter in respect of exchange gains from those debtor relationships,

(b)any reference to the total debtor exchange losses is to the total amount of the debits brought into account for those purposes in respect of exchange losses from those debtor relationships,

(c)any reference to the total creditor exchange gains is to the total amount of the credits brought into account for those purposes in respect of exchange gains from the corresponding creditor relationship, and

(d)any reference to the total creditor exchange losses is to the total amount of the debits brought into account for those purposes in respect of exchange losses from that relationship.

(2)The amendment made by sub-paragraph (1) has effect in relation to loan relationships of any company in accounting periods ending on or after 6th December 2006.

(3)But, in relation to an accounting period of any company beginning before that date, that amendment has no effect if the company ceases to be a party to the loan relationship before that date.

Loan relationships and collective investment schemesE+W+S+N.I.

16(1)Paragraph 4 of Schedule 10 to FA 1996 (company holdings in unit trusts and offshore funds) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2) (relevant holding treated as rights under creditor relationship), for “and (4)” substitute “ to (5) ”.

(3)After sub-paragraph (4) insert—

(5)In determining the debits and credits under sub-paragraph (3) there shall be left out of account amounts relating to any investment or liability of the scheme or fund where—

(a)the investment was made, or the liability was incurred, with the relevant avoidance intention, or

(b)any transaction (or series of transactions) was entered into in relation to the investment or liability with that intention.

(6)The relevant avoidance intention is the intention of—

(a)eliminating or reducing the credits to be brought into account for the purposes of this Chapter as respects the company's relevant holdings, or

(b)creating or increasing the debits to be so brought into account.

(4)In the case of amounts relating to investments, the amendments made by this paragraph have effect in relation to accounting periods ending on or after 6th March 2007.

(5)But in that case, in relation to accounting periods beginning before that date, amounts are to be left out of account as a result of those amendments only if they relate to any time on or after that date.

(6)In the case of amounts relating to liabilities, those amendments have effect in relation to accounting periods ending on or after 9th May 2007.

(7)But in that case, in relation to accounting periods beginning before that date, amounts are to be left out of account as a result of those amendments only if they relate to any time on or after that date.

Plant or machinery subject to a lease and finance leasebackE+W+S+N.I.

17(1)Chapter 17 of Part 2 of CAA 2001 (plant and machinery allowances: anti-avoidance) is amended as follows.E+W+S+N.I.

(2)In section 228A(2) (application of sections 228B to 228D in case of a lease and finance leaseback), for “Sections 228B to 228D” substitute “ Sections 228B and 228C ”.

(3)In section 228F (lease and finance leaseback)—

(a)in subsection (1), for “Sections 228B, 228C and 228D” substitute “ Sections 228B and 228C ”,

(b)omit subsection (4), and

(c)in subsection (8), for “sections 228B to 228D” substitute “ sections 228B and 228C ” and omit paragraph (b) (together with the “and” before it).

(4)In section 774E(5)(b) of ICTA (structured finance arrangements: exceptions), for “sections 228B to 228D” substitute “ sections 228B and 228C ”.

(5)The amendments made by this paragraph have effect in relation to post-commencement rentals that fall to be taken into account in calculating for tax purposes the income or profits for any post-commencement period of account.

(6)In this paragraph—

  • post-commencement period of account” means any period of account ending on or after 6th December 2006, and

  • post-commencement rental” means—

    (a)

    any amount receivable on or after 6th December 2006 in respect of any period beginning on or after that date, or

    (b)

    the appropriate fraction of any amount receivable on or after that date in respect of any period beginning before, and ending on or after, that date,

    but does not include any amount received before that date.

(7)For this purpose the “appropriate fraction”, in relation to any amount received in respect of any period, means the fraction—

where—

PCP” means the number of days in the part of the period falling on or after 6th December 2006, and

WP” means the number of days in the whole of the period.

(8)Sub-paragraph (9) applies if the amounts that, in accordance with section 228D of CAA 2001 as applied by section 228F of that Act, fall to be taken into account in calculating for tax purposes the income or profits for any post-commencement period of account comprise both post-commencement rentals and other amounts.

(9)For the purposes of section 228D of CAA 2001 as applied by section 228F of that Act, the amount of the gross earnings is taken to be so much of the gross earnings as, on a just and reasonable basis, relates to those other amounts.

Gross earnings” has the meaning given by section 228D(5) of CAA 2001.

Derivative contracts: contracts treated for accounting purposes as financial asset or liabilityE+W+S+N.I.

18(1)In paragraph 17A of Schedule 26 to FA 2002 (computation in accordance with generally accepted accounting practice), after sub-paragraph (1) insert—E+W+S+N.I.

(1A)But, in the case of a contract which is a derivative contract for the purposes of this Schedule by virtue of paragraph 3(1)(b) (contracts treated for accounting purposes as financial asset or liability), the amounts to be so brought into account as respects the contract must be determined on the basis of fair value accounting.

(2)The amendment made by sub-paragraph (1) has effect in relation to periods of account ending on or after 6th March 2007.

(3)But, in relation to a period of account beginning before that date, the fair value of the derivative contract at the beginning of that period is to be taken to be the carrying value of the contract recognised for accounting purposes at the beginning of that period.

(4)For this purpose “carrying value” has the same meaning as it has for the purposes of paragraph 50A of Schedule 26 to FA 2002.

Derivative contracts: transfers of value to connected companiesE+W+S+N.I.

19(1)Paragraph 26 of Schedule 26 to FA 2002 (transfers of value to connected companies) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1)(a) (transfer of value between connected companies as a result of expiry of option), for “the expiry of an option of a company which, until its expiry,” substitute “ the failure to exercise in full all the rights under an option of a company which, until that failure, ”.

(3)In sub-paragraph (2) (rules for determining whether there is a transfer of value)—

(a)in paragraph (a), for “the option would not have expired” substitute “ all the rights under the option would have been exercised in full ”, and

(b)in paragraph (b), for “it would have been exercised on the date on which it expired” substitute “ all those rights would have been exercised in full on the latest date on which they were exercisable ”.

(4)In sub-paragraph (3) (transferor to bring into account amount in respect of the option), for “the expiry of the option” substitute “ an option ”.

(5)In sub-paragraph (4) (period in which amount is to be brought into account and the amount to be brought into account)—

(a)in paragraph (a), after “the option expired” insert “ or would have expired if none of the rights under it had been exercised ”, and

(b)for paragraph (b) substitute—

(b)the appropriate amount—

(i)if the option expired, is the amount (if any) paid by the transferor to the transferee for the grant of the option by the transferee, and

(ii)if any rights under the option were exercised (in whole or in part), is the amount (if any) so paid less so much of it as is referrable, on a just and reasonable basis, to the rights which have been so exercised.

(6)The amendments made by this paragraph have effect in relation to any failure on or after 6th March 2007 to exercise in full all the rights under an option.

Section 31

SCHEDULE 6E+W+S+N.I.Companies carrying on business of leasing plant or machinery

Company reconstructions without change of ownershipE+W+S+N.I.

1(1)In section 343 of ICTA (company reconstructions without change of ownership), in subsection (2) (continuity of treatment for capital allowances), insert at the end “ ;and are subject to section 343A (company reconstructions involving business of leasing plant or machinery) ”.E+W+S+N.I.

(2)After that section insert—

343ACompany reconstructions involving business of leasing plant or machinery

(1)This section applies if the trade is or forms part of a business of leasing plant or machinery which the predecessor or the successor carries on on the day of cessation.

(2)If, on the day of cessation, both the predecessor and the successor carry on the trade otherwise than in partnership, section 343(2) does not apply unless—

(a)the principal company or companies of the predecessor immediately before the cessation are the same as the principal company or companies of the successor immediately afterwards, and

(b)if any such principal company is a consortium principal company, the relevant fraction in relation to the predecessor immediately before the cessation is the same as the relevant fraction in relation to the successor immediately afterwards (irrespective of whether the members of each consortium are the same).

(3)If, on the day of cessation, the predecessor or the successor carries on the trade in partnership, section 343(2) does not apply unless—

(a)the predecessor ceases to carry on the whole of its trade, and

(b)that trade is a business of leasing plant or machinery which the predecessor carries on in partnership on the day of cessation.

(4)In any case where section 343(2) does not apply as a result of this section, the plant or machinery belonging to the trade shall be treated for the purposes of the Corporation Tax Acts as sold by the predecessor to the successor on the day of the cessation for an amount equal to its market value as at that day.

(5)In this section—

  • “business of leasing plant or machinery”—

    (a)

    has the same meaning as in Part 2 of Schedule 10 to the Finance Act 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), and

    (b)

    has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership),

  • consortium principal company” means a company which is a principal company as a result of paragraph 12 of that Schedule,

  • market value”, in relation to plant or machinery, is to be construed in accordance with paragraph 41(8) of that Schedule,

  • plant or machinery” has the same meaning as in Part 2 of the Capital Allowances Act,

  • principal company” is to be construed in accordance with paragraph 11 or (as the case may be) 12 of Schedule 10 to the Finance Act 2006, and

  • relevant fraction” has the same meaning as in paragraph 12 of that Schedule.

(3)Subsection (2) of section 343A of ICTA (as inserted by sub-paragraph (2) above) has effect in relation to cessations occurring on or after 22nd November 2006.

(4)But, if the cessation occurs before 21st March 2007, that subsection has effect as if for paragraphs (a) and (b) there were substituted “ ;on that day each company which is a principal company of the predecessor is also a principal company of the successor ”.

(5)Subsection (3) of section 343A of ICTA has effect in relation to cessations occurring on or after that date.

Sale etc of lessor companies etcE+W+S+N.I.

2(1)Schedule 10 to FA 2006 (sale etc of lessor companies etc) is amended as follows.E+W+S+N.I.

(2)In paragraph 1(4) (contents of Schedule), for “an anti-avoidance provision” substitute “ ;anti-avoidance provisions ”.

(3)In—

(a)paragraph 7(3)(b) (provision for the purposes of condition A in paragraph 6), and

(b)paragraph 17(2)(b) (meaning of “PM” in paragraph 16),

for “it transfers” substitute “ is transferred ”.

(4)After paragraph 38 insert—

38A(1)This paragraph applies if—

(a)a question arises as to the application of this Schedule,

(b)for the purpose of determining that question regard must be had to amounts (if any) which fall (or would fall) to be shown in any balance sheet of any company in respect of plant or machinery,

(c)there would (but for this paragraph) be a reduction or increase in any such amount,

(d)the reduction or increase arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(e)the main purpose, or one of the main purposes, of the arrangements is to secure that there is a relevant tax advantage.

(2)There is a relevant tax advantage if (but for this paragraph)—

(a)any company would not be regarded for the purposes of any provision of this Schedule as carrying on a business of leasing plant or machinery (whether alone or in partnership),

(b)the amount of any income which any company is treated as receiving under any provision of this Schedule would be reduced, or

(c)the amount of any expense which any company is treated as incurring under any provision of this Schedule would be increased.

(3)For the purpose of determining any question which arises as to the application of this Schedule, the reduction or increase in the amount which falls (or would fall) to be shown in the balance sheet in respect of plant or machinery is to be ignored.

(4)For the purposes of this paragraph and paragraph 38B a question arises as to the application of this Schedule if a question arises—

(a)as to whether any company carries on a business of leasing plant or machinery (whether alone or in partnership) for the purposes of any provision of this Schedule, or

(b)as to the amount (if any) of any income or expense which any company is treated as receiving or incurring under any provision of this Schedule.

(5)In this paragraph—

  • arrangements” includes any agreement, understanding, scheme, transaction or series of transactions—

    (a)

    whether or not legally enforceable, and

    (b)

    whether or not the company for which the relevant tax advantage is intended to be secured is a party to the arrangements,

  • increase” includes an increase from nil, and

  • reduction” includes a reduction to nil.

38B(1)This paragraph applies if—

(a)a company owns any plant or machinery at any time on any day (“the relevant day”),

(b)a question arises as to the application of this Schedule,

(c)for the purpose of determining that question regard must be had to the amount (if any) which falls (or would fall) to be shown in any balance sheet of the company in respect of the plant or machinery, and

(d)condition A or B is met.

(2)Condition A is met if there would (but for this paragraph) be no amount which would fall to be shown in the balance sheet of the company in respect of the plant or machinery.

(3)Condition B is met if the amount which (but for this paragraph) would fall to be shown in the balance sheet of the company in respect of the plant or machinery is less than the amount which, on the relevant assumption, would fall to be so shown.

(4)For the purpose of determining any question which arises as to the application of this Schedule, the amount which falls (or would fall) to be shown in any balance sheet of the company in respect of the plant or machinery is to be determined on the relevant assumption (as well as on the other assumptions applicable under other provisions of this Schedule).

(5)The relevant assumption is that the company has no liabilities of any kind at any time on that day.

(6)For this purpose “liabilities” includes any share capital issued by the company which falls to be treated for accounting purposes as a liability.

(5)For the purposes of Schedule 10 to FA 2006 the amendments made by sub-paragraphs (3) and (4) have effect in relation to—

(a)any qualifying change of ownership in relation to a company which occurs on or after 22nd November 2006, and

(b)any qualifying change in a company's interest in a business which occurs on or after that date.

(6)For all other purposes those amendments have effect for the purpose of determining whether a company carries on a business of leasing plant or machinery (whether alone or in partnership) on or after that date.

Section 38

SCHEDULE 7E+W+S+N.I.Insurance business: gross roll-up business etc

Part 1 E+W+S+N.I.Amendments

Taxes Management Act 1970 (c. 9)E+W+S+N.I.

1In section 98 of TMA 1970 (special returns etc), in the Table, omit the entries relating to section 333B of ICTA.E+W+S+N.I.

Income and Corporation Taxes Act 1988 (c. 1)E+W+S+N.I.

2ICTA is amended as follows.E+W+S+N.I.

3(1)Section 76 (expenses of insurance companies) is amended as follows.E+W+S+N.I.

(2)In subsection (1), omit the second sentence.

(3)In subsection (7), in Step 5—

(a)for “sum (“amount S”) of the amounts” substitute “ amount (“amount S”) ”, and

(b)for “436 or 439B” substitute “ 436A ”.

(4)Omit subsection (14).

(5)In subsection (15), omit the definition of “capital redemption business”.

4Omit section 333B (involvement of insurance companies with plans and accounts).E+W+S+N.I.

5In section 403E (relief for overseas losses of UK resident companies), omit subsection (3).E+W+S+N.I.

6(1)Section 431 (interpretative provisions relating to insurance companies) is amended as follows.E+W+S+N.I.

(2)In subsection (2), insert at the appropriate places—

child trust fund business” has the meaning given by section 431BA;,

foreign currency assets”, in relation to an insurance company and any time during a period of account, means assets, other than assets linked to gross roll-up business, which—

(a)are at that time managed under the control of a person whose normal place of work is at a permanent establishment outside the United Kingdom at or through which the company carries on gross roll-up business; or

(b)are denominated in a foreign currency and specified in a certificate given by a director of the company no later than three months after the end of the period of account as being all of the assets of the company's long-term insurance fund which are held at that time during the period of account to enable the company to meet liabilities of its gross roll-up business which are denominated in that currency;,

gross roll-up business” has the meaning given by section 431EA;,

immediate needs annuities business” means business which consists of the effecting or carrying out of immediate needs annuities (within the meaning of section 725 of ITTOIA 2005);,

individual savings account business” has the meaning given by section 431BB;, and

PHI business” means long-term business other than life assurance business (including the reinsurance of such long-term business);.

(3)In subsection (2), omit the definitions of—

(a)“annuity business”, and

(b)“overseas life assurance fund”.

(4)In subsection (2), for the definition of “life assurance business” substitute—

life assurance business” means business which—

(a)consists of the effecting or carrying out of contracts of insurance which fall within paragraph I, II, III or VII(b) of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, or

(b)is capital redemption business,

other than immediate needs annuities business;.

(5)In subsection (2), for the definition of “reinsurance business” substitute—

reinsurance” includes retrocession;.

(6)After subsection (2ZE) insert—

(2ZF)In this Chapter “capital redemption business” means any business of a company carrying on insurance business in so far as it consists of the effecting on the basis of actuarial calculations, and the carrying out, of contracts under which, in return for one or more fixed payments, a sum or series of sums of a specified amount become payable at a future time or over a period.

7In section 431A(3)(a) (power to amend), omit “and Schedule 19AA”.E+W+S+N.I.

8After section 431B insert—E+W+S+N.I.

431BAMeaning of “child trust fund business”

(1)In this Chapter “child trust fund business” means so much of a company's life assurance business as is referable to child trust fund policies (but not including the reinsurance of such business).

(2)In this section “child trust fund policy” means a policy of life insurance which is an investment under a child trust fund (within the meaning of the Child Trust Funds Act 2004).

431BBMeaning of “individual savings account business”

(1)In this Chapter “individual savings account business” means so much of a company's life assurance business as is referable to individual savings account policies (but not including the reinsurance of such business).

(2)In this section “individual savings account policy” means a policy of life insurance which is an investment of a kind specified in regulations made by virtue of section 695(1) of ITTOIA 2005.

9(1)Section 431D (meaning of “overseas life assurance business”) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)In this Chapter “overseas life assurance business” means so much of a company's relevant life assurance business as is with a policy holder or annuitant not residing in the United Kingdom (but not including the reinsurance of such business).

(1A)In subsection (1) above “relevant life assurance business” means life assurance business other than—

(a)pension business

(b)individual savings account business,

(c)child trust fund business, and

(d)business of any description prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs.

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

(4)In subsection (4), insert at the end “ (including provision amending any enactment or any instrument made under an enactment) ”.

10After section 431E insert—E+W+S+N.I.

431EAMeaning of “gross roll-up business”

In this Chapter “gross roll-up business” means business of any of the following kinds—

(a)pension business;

(b)child trust fund business;

(c)individual savings account business;

(d)life reinsurance business; and

(e)overseas life assurance business.

11In section 431F (meaning of “basic life assurance and general annuity business”), for the words from “(including” to the end substitute “ other than gross roll-up business ”.E+W+S+N.I.

12In section 432ZA(7) (linked assets), for “long-term business other than life assurance” (in both places) substitute “ PHI ”.E+W+S+N.I.

13(1)Section 432A (apportionment of income and gains) is amended as follows.E+W+S+N.I.

(2)In subsection (1A), for “shall be” substitute “ is ”.

(3)In subsection (2), for paragraphs (a) to (f) substitute—

(a)basic life assurance and general annuity business,

(b)gross roll-up business, and

(c)PHI business.

(4)In subsection (3), for “(apart from overseas life assurance business) shall be” substitute “ is ”.

(5)Omit subsection (4).

(6)Before subsection (5) insert—

(4A)Income arising from, and gains or losses accruing on the disposal of, foreign currency assets is referable to gross roll-up business.

(7)In subsection (5)—

(a)for “shall be” substitute “ is ”, and

(b)omit “(apart from overseas life assurance business)”.

(8)For subsections (6) to (6AA) substitute—

(6)For the purposes of subsection (5) above “the relevant fraction”, in relation to basic life assurance and general annuity business, is—

where—

A is the aggregate of—

  • (a) the mean of the opening and closing liabilities of the basic life assurance and general annuity business (but taking that mean to be nil if it would otherwise be below nil), reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category of business,

  • (b) if there has been a relevant reattribution, the mean of the opening and closing amounts of the shareholders' excess assets, and

  • (c) the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts;

B is the aggregate of—

  • (a) the mean of the opening and closing liabilities of the gross roll-up business (but taking that mean to be nil if it would otherwise be below nil), reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category of business, and

  • (b) the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts; and

C is the aggregate of—

  • (a) the mean of the opening and closing liabilities of the PHI business (but taking that mean to be nil if it would otherwise be below nil), reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category of business, and

  • (b) the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts.

(6A)For the purposes of subsection (5) above “the relevant fraction”, in relation to gross roll-up business, is—

where A, B and C have the same meaning as in subsection (6) above.

(6B)For the purposes of subsection (5) above “the relevant fraction”, in relation to PHI business, is—

where A, B and C have the same meaning as in subsection (6) above.

(6C)But if the denominator found in accordance with subsection (6), (6A) or (6B) above is nil, the relevant fraction for the purposes of subsection (5) above in relation to the category of business in question is such fraction as is just and reasonable.

(9)In subsection (7)—

(a)for “and (6A)” substitute “ , (6A) and (6B) ”,

(b)in paragraph (a), for “(4)” substitute “ (4A) ”,

(c)in paragraph (b), after “(3)” insert “ or (4A) ”, and

(d)in paragraph (c), omit “438B,”.

(10)In subsection (8), for “subsections (6) and (6A)” substitute “ subsection (6) ”.

(11)In subsection (8ZA), for “subsections (6) and (6A)” substitute “ paragraph (c) of the definition of A and paragraph (b) of the definitions of B and C in subsection (6) ”.

(12)Omit subsection (9).

14(1)Section 432AA (Schedule A business or overseas property business) is amended as follows.E+W+S+N.I.

(2)Omit subsection (3).

(3)In subsection (4), for paragraphs (a) to (d) substitute—

(a)basic life assurance and general annuity business;

(b)gross roll-up business; and

(c)PHI business.

(4)In subsection (5), omit “(3) or”.

15In section 432AB (losses from Schedule A business or overseas property business), omit subsection (6).E+W+S+N.I.

16(1)Section 432B (apportionment of receipts brought into account) is amended as follows.E+W+S+N.I.

(2)In subsection (1)—

(a)for “432F” substitute “ 432G ”, and

(b)for “any category of life assurance business” substitute “ gross roll-up business ”.

(3)In subsection (2), for “432F” substitute “ 432G ”.

(4)In subsection (3)—

(a)for “Sections 432C and 432D apply” substitute “ Section 432C applies ”, and

(b)insert at the end “ (and section 432G applies in either case) ”.

(5)In subsection (4)—

(a)for “sections 432C and 432D” substitute “ section 432C ”,

(b)in paragraph (a), for “apply” substitute “ applies ”, and

(c)omit paragraph (b) and the word “and” before it.

(6)In subsection (5)—

(a)for the words from “any category” to the end of paragraph (b) substitute “ gross roll-up business ”, and

(b)omit “the relevant fraction of”.

(7)In subsection (6), for the words from “432D” to “annuity business” substitute “ 432C to gross roll-up business ”.

(8)In subsection (7), omit “the relevant fraction of” (in both places).

(9)In subsection (8A), omit “the relevant fraction of”.

(10)In subsection (8C), omit “the relevant fraction of”.

(11)In subsection (9), omit the definitions of—

(a)“the relevant fraction”, and

(b)“the section 83 net amount”.

(12)In subsection (10)—

(a)in paragraphs (a) and (b), for “paragraph (a)(ii)” substitute “ the definition of A, in paragraph (b) ”, and

(b)for paragraph (c) substitute—

(c)the substitution for the definitions of B and C of— “ B is the amount that would be given by A if A applied in relation to gross roll-up business; and C is the amount that would be given by A if A applied in relation to PHI business. ”.

17For section 432C substitute—E+W+S+N.I.

432CSection 432B apportionment: non-participating funds

(1)This section specifies the extent to which the net amount is referable to life assurance business or to gross roll-up business.

(2)In this section “the net amount” means the aggregate of the amounts brought into account—

(a)as investment income,

(b)as an increase in the value of assets, or

(c)as other income,

less the aggregate of the amounts brought into account as a decrease in the value of assets.

(3)To the extent that the net amount is attributable to—

(a)assets linked to life assurance business, or

(b)foreign currency assets,

it is referable to life assurance business.

(4)There is also referable to life assurance business the appropriate fraction of so much of the net amount as is not attributable to linked assets or foreign currency assets.

(5)For the purposes of subsection (4) above “the appropriate fraction” is—

where—

A is the mean of the opening and closing liabilities of the relevant business so far as referable to life assurance business (but taking that mean to be nil if it would otherwise be below nil), reduced (but not below nil) by the aggregate of the mean of the opening and closing net values of assets linked to the relevant business so far as so referable and foreign currency assets; and

B is the mean of the opening and closing liabilities of the relevant business so far as referable to PHI business, reduced (but not below nil) by the mean of the opening and closing net values of any assets linked to PHI business.

(6)But if the denominator found in accordance with subsection (5) above is nil, the appropriate fraction for the purposes of subsection (4) above is such fraction as is just and reasonable.

(7)To the extent that the net amount is attributable to—

(a)assets linked to gross roll-up business, or

(b)foreign currency assets,

it is referable to gross roll-up business.

(8)There is also referable to gross roll-up business the relevant fraction of so much of the net amount as is not attributable to linked assets or foreign currency assets.

(9)For the purposes of subsection (8) above “the relevant fraction” is—

where—

C is the mean of the opening and closing liabilities of the relevant business so far as referable to gross roll-up business (but taking that mean to be nil if it would otherwise be below nil), reduced (but not below nil) by the aggregate of the mean of the opening and closing net values of any assets linked to gross roll-up business and foreign currency assets; and

D is the mean of the opening and closing liabilities of the relevant business so far as referable to basic life assurance and general annuity business or PHI business (but taking that mean to be nil if it would otherwise be below nil), reduced (but not below nil) by the mean of the opening and closing net values of any assets linked to either of those categories of business.

(10)But if the denominator found in accordance with subsection (9) above is nil, the relevant fraction for the purposes of subsection (8) above is such fraction as is just and reasonable.

(11)For the purposes of this section, so much of the net amount—

(a)as is brought into account as other income in an internal linked fund of the company, and

(b)as is not attributable to assets of that fund,

is to be treated as linked to a category of business to the same extent as income attributable to an asset of the fund would, by virtue of section 432ZA, be referable to that category of business.

18Omit section 432D (section 432B apportionment: value of non-participating funds).E+W+S+N.I.

19(1)Section 432E (section 432B apportionment: participating funds) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)The part of the net amount which is referable to life assurance business or to gross roll-up business is—

(a)the amount determined in accordance with subsections (2) and (2A) below, or

(b)if greater, the amount determined in accordance with subsection (3) below.

(1A)In this section “the net amount” means the aggregate of the amounts brought into account—

(a)as investment income,

(b)as an increase in the value of assets, or

(c)as other income,

less the aggregate of the amounts brought into account as a decrease in the value of assets.

(3)In subsection (2)—

(a)in the definition of CAS, for “the category of business concerned” substitute “ life assurance business or of gross roll-up business ”, and

(b)in the definition of CS, for “business of the category concerned” substitute “ life assurance business or to gross roll-up business ”.

(4)In subsection (3)—

(a)in paragraph (a), after “that category of business” insert “ and foreign currency assets ”, and

(b)in paragraph (b)—

(i)omit “mentioned in subsection (1) above”, and

(ii)insert at the end “ and foreign currency assets ”.

(5)In subsection (4), for the words following “case,” substitute is—

where—

A is so much of the net amount as is brought into account in respect of the relevant business less such part of it as is attributable to linked assets and foreign currency assets; and

B is the mean of the opening and closing liabilities of the relevant business reduced by the mean of the opening and closing values of any assets of the relevant business which are linked assets and foreign currency assets.

(6)In subsection (4A), after “linked assets” insert “ or foreign currency assets ”.

(7)Omit subsections (5) and (6).

20In section 432F(2) (section 432B apportionment: supplementary provisions)—E+W+S+N.I.

(a)omit “For each category of business in relation to which section 432E falls to be applied”, and

(b)omit “, after making any reduction required by section 432E(5),”.

21For section 432G substitute—E+W+S+N.I.

432GSection 432B apportionment: business transfers-in

(1)There is referable to the life assurance business of the transferee the appropriate fraction of the amount brought into account as a business transfer-in and of any amount taken into account as profits under section 444ABD(1).

(2)For the purposes of subsection (1) above “the appropriate fraction” is—

where—

LABL is the amount of the liabilities transferred that are referable to the life assurance business (but is nil if it would otherwise be below nil); and

TL is the whole of the liabilities transferred.

(3)But if the amount of the liabilities transferred is nil, the appropriate fraction for the purposes of subsection (1) above is such fraction as is just and reasonable.

(4)There is referable to the gross roll-up business of the transferee the relevant fraction of the amount brought into account as a business transfer-in and of any amount taken into account as profits under section 444ABD(1).

(5)For the purposes of subsection (4) above “the relevant fraction” is—

where—

GRBL is the amount of the liabilities transferred that are referable to the gross roll-up business (but is nil if it would otherwise be below nil); and

TL has the same meaning as in subsection (2) above.

(6)But if the amount of the liabilities transferred is nil, the relevant fraction for the purposes of subsection (4) above is such fraction as is just and reasonable.

22(1)Section 434 (franked investment income etc) is amended as follows.E+W+S+N.I.

(2)For subsections (1) and (1B) substitute—

(1)Where an insurance company makes a payment representative of a distribution made by a company resident in the United Kingdom in respect of an asset of its long-term insurance fund, the payment is to be taken into account in computing its profits in accordance with the provisions applicable to Case I of Schedule D unless the amount taken into account in accordance with section 83(2)(a) of the Finance Act 1989 includes the amount of the payment.

(3)Omit subsection (6A)(b).

23(1)Section 434A (computation of losses and limitation on relief) is amended as follows.E+W+S+N.I.

(2)In subsection (2)(a)—

(a)omit “the aggregate of”, and

(b)omit sub-paragraph (iii).

(3)In subsection (2)(b), for the words following sub-paragraph (ii) substitute— “ any loss for that period under section 436A shall be reduced (but not below nil) by the total of the amounts set off as mentioned in sub-paragraphs (i) and (ii) above. ”

24Omit section 436 (pension business: separate charge on profits).E+W+S+N.I.

25Before section 437 insert—E+W+S+N.I.

436AGross roll-up business: separate charge on profits

(1)Profits arising to an insurance company from gross roll-up business—

(a)are to be treated as income within Schedule D, and

(b)are chargeable under Case VI of that Schedule.

(2)For that purpose—

(a)the gross roll-up business is to be treated separately, and

(b)the profits from it are to be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.

(3)In making that computation, sections 82 and 82B to 83AB of the Finance Act 1989 apply with the necessary modifications.

(4)If in any accounting period an insurance company incurs a loss, to be computed on the same basis as the profits, arising from its gross roll-up business—

(a)the loss must be set off against the amount of any profits chargeable under this section for any subsequent accounting period, and

(b)accordingly, the amount of the company's profits so charged in any such accounting period is to be treated as reduced by the amount of the loss or so much of that amount as cannot be relieved under this section against profits of an earlier accounting period.

(5)Section 396 does not apply to a loss incurred by an insurance company on its gross roll-up business.

(6)No loss to which section 396 applies may be set off under subsection (4) above against the amount of any profits chargeable under this section.

(7)This section does not apply in relation to an insurance company for an accounting period if the profits of its long-term business for the accounting period are charged to tax under Case I of Schedule D.

436BGains referable to gross roll-up business not to be chargeable gains

(1)Gains referable to gross roll-up business are not chargeable gains.

(2)For the purposes of this section “gains referable to gross roll-up business” means gains which—

(a)accrue to an insurance company on the disposal by it of assets of its long-term insurance fund, and

(b)are referable (in accordance with section 432A) to gross roll-up business.

26(1)Section 438 (pension business: exemption from tax) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for the words after “income” substitute “ from assets solely linked to pension business. ”

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

27Omit section 438B (income or gains arising from property investment LLP).E+W+S+N.I.

28Omit section 438C (determination of policy holders' share for purposes of s.438B).E+W+S+N.I.

29Omit section 439 (restricted government securities).E+W+S+N.I.

30Omit section 439B (life reinsurance business: separate charge on profits).E+W+S+N.I.

31(1)Section 440 (transfers of assets etc) is amended as follows.E+W+S+N.I.

(2)In subsection (3), for “(a) to (e)” substitute “ (a), (d) and (e) ”.

(3)In subsection (4), for paragraphs (a) to (c) substitute—

(a)assets which are linked solely to gross roll-up business or are foreign currency assets;,

and, in paragraph (e), for “any” substitute “ either ”.

32In section 440A(2) (securities)—E+W+S+N.I.

(a)in paragraph (a), for sub-paragraphs (i) to (iii) substitute—

(i)basic life assurance and general annuity business, or

(ii)gross roll-up business,,

(b)omit paragraph (c), and

(c)in paragraph (d)—

(i)for “any of the preceding paragraphs” substitute “ paragraph (a) ”, and

(ii)for “any of the descriptions mentioned in those paragraphs” substitute “ the description mentioned in that paragraph ”.

33In section 440B(4) (modifications where tax charged under Case I of Schedule D)—E+W+S+N.I.

(a)for “(a) to (e)” substitute “ (a), (d) and (e) ”, and

(b)for the notionally substituted paragraph (a) substitute—

(a)so many of the securities as are included in the company's long-term insurance fund shall be treated for the purposes of corporation tax as a separate holding which is an asset of that fund, and.

34Omit section 441 (overseas life assurance business).E+W+S+N.I.

35In section 444A(3) (transfers of business)—E+W+S+N.I.

(a)for “436(3)(c) or 439B(3)(c)” substitute “ 436A(4) ”,

(b)omit paragraph (b) and the word “or” before it, and

(c)for “the same category of business as that in which it arose)” substitute “ gross roll-up business) ”.

36(1)Section 444AC (transfers of business: excess of assets or liabilities) is amended as follows.E+W+S+N.I.

(2)In subsection (2B)—

(a)for “each category of its life assurance business” substitute “ its gross roll-up business ”,

(b)for “a category of the transferee's life assurance business” substitute “ the transferee's gross roll-up business ”, and

(c)for “that category” substitute “ gross roll-up business ”.

(3)In subsection (2D), for “a category of its life assurance business” substitute “ its gross roll-up business ”.

(4)In subsection (10), in the definition of “the transferor's business”, for paragraph (b) substitute—

(b)its gross roll-up business.

37(1)Section 444AF (demutualisation surplus: life assurance business) is amended as follows.E+W+S+N.I.

(2)In subsection (4)(b), for “sections 432C and 432D apply” substitute “ section 432C applies ”.

(3)In subsection (5)(b), for “the profits of any category of the company's life assurance business chargeable to tax under Case VI of Schedule D” substitute “ profits of the company chargeable under Case VI of Schedule D under section 436A (gross roll-up business) ”.

38(1)Section 444AK (mutual surplus: Case VI categories of life assurance business) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for paragraph (b) substitute—

(b)the company carries on gross roll-up business.

(3)In subsection (3), for “any category of the company's life assurance business chargeable to tax under Case VI of Schedule D” substitute “ the company's gross roll-up business ”.

(4)In subsection (5)(b), for “sections 432C and 432D apply” substitute “ section 432C applies ”.

(5)The heading accordingly becomes “ Mutual surplus: gross roll-up business ”.

39Omit sections 458 and 458A (capital redemption business).E+W+S+N.I.

40In section 460(2) (registered friendly societies: exemption from tax in respect of life or endowment business)—E+W+S+N.I.

(a)for “pension business” substitute “ gross roll-up business ”,

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

(c)omit paragraph (cb).

41In section 461 (registered friendly societies: other business), omit subsection (3A).E+W+S+N.I.

42In section 461B (incorporated friendly societies), omit subsection (2A).E+W+S+N.I.

43(1)Section 466 (interpretation of Chapter 2 of Part 12) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)In this Chapter “life or endowment business” means, subject to subsections (1A) and (1B) below—

(a)any life assurance business, and

(b)any PHI business.

(3)In subsection (2)—

(a)omit the definition of “life assurance business”, and

(b)insert the following definition at the appropriate place—

  • gross roll-up business” shall be construed in accordance with section 431;.

(4)Omit subsections (2ZA), (2A) and (2B).

44In section 502H(2)(a)(ii) and (4)(b) (insurance company as lessor), for “long-term business which is not life assurance” substitute “ PHI ”.E+W+S+N.I.

45In section 539(3) (life policies, life annuities and capital redemption policies), in the definition of “capital redemption policy”, for “as defined in section 458(3)” substitute “ , within the meaning of Chapter 1 of Part 12 ”.E+W+S+N.I.

46(1)Section 553B (overseas life assurance business: capital redemption policies) is amended as follows.E+W+S+N.I.

(2)In subsection (2), in the definition of “overseas policy”, for “431D(1)(a)” substitute “ 431D(1) ”.

(3)In subsection (3), for the words from “after” to the end substitute “ on or after 23rd March 1999. ”

47(1)Section 755A (treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business) is amended as follows.E+W+S+N.I.

(2)In subsection (4), for the words after “referable to” substitute “ gross roll-up business carried on by the UK company. ”

(3)In subsection (6)(c), for “a category of business specified in paragraphs (a) to (c) of subsection (4) above” substitute “ gross roll-up business ”.

(4)In subsection (13), for paragraphs (a) to (d) substitute—

(a)basic life assurance and general annuity business, or

(ba)gross roll-up business,.

48In section 804A(1) (life assurance companies with overseas branches etc: restriction of credit), for “any category of life assurance business” substitute “ gross roll-up business ”.E+W+S+N.I.

49(1)Section 804B (insurance companies carrying on more than one category of business: restriction of credit) is amended as follows.E+W+S+N.I.

(2)In subsection (1)(a), after “category of” insert “ long-term ”.

(3)In subsection (2), omit “or section 438B”.

(4)For subsection (3) substitute—

(3)Where the relevant income arises from an asset which is linked solely to a category of business, the whole of the foreign tax is attributable to that category of business, unless the case is one where subsection (7) below applies.

(3A)Where the relevant income arises from foreign currency assets, the whole of the foreign tax is attributable to gross roll-up business, unless the case is one where subsection (7) below applies.

(5)In subsection (4)—

(a)for “long-term business which is not life assurance” substitute “ PHI ”, and

(b)omit “or 438B”.

(6)In subsection (5), for the words following “is” substitute “ gross roll-up business. ”

(7)In subsection (6)—

(a)omit “or 432D” (in both places), and

(b)for “the category of business in question” and “that category” substitute “ gross roll-up business ”.

(8)In subsection (7), for—

(a)“the category of business in question”, and

(b)“that category”,

substitute “ gross roll-up business ”.

(9)For subsection (9) substitute—

(9)Where for the purposes of this section an amount of foreign tax is attributable to gross roll-up business, credit in respect of the foreign tax so attributable shall be allowed only against corporation tax in respect of profits chargeable under section 436A.

50In section 804C(14) (insurance companies: allocation of expenses etc in computations under Case I of Schedule D), for—E+W+S+N.I.

(a)“a category of life assurance business”, and

(b)“any category of life assurance business”,

substitute “ gross roll-up business ”.

51(1)Section 804D (interpretation of section 804C in relation to life assurance business etc) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for “a category of life assurance business” substitute “ gross roll-up business ”.

(3)In subsection (3), for “432F” substitute “ 432G ”.

52In section 804E (interpretation of section 804C in relation to other insurance business), for “any category of life assurance business” substitute “ gross roll-up business ”.E+W+S+N.I.

53In section 806L(5) (carry forward or carry back of unrelieved foreign tax), for paragraph (b) substitute—E+W+S+N.I.

(b)included in the profits of gross roll-up business chargeable under Case VI of Schedule D by virtue of section 436A.

54In section 808 (restriction on deduction of interest or dividends from trading income), for “436” substitute “ 436A ”.E+W+S+N.I.

55Omit Schedule 19AA (overseas life assurance fund).E+W+S+N.I.

56In paragraph 2(1A)(a) of Schedule 25 (cases where section 747(3) does not apply), for “436, 439B or 441” substitute “ 436A ”.E+W+S+N.I.

Finance Act 1989 (c. 26)E+W+S+N.I.

57FA 1989 is amended as follows.E+W+S+N.I.

58In section 88(3A) (corporation tax: policy holders' fraction of profits), for paragraph (b) substitute—E+W+S+N.I.

(b)profits of the company chargeable under Case VI of Schedule D under section 436A of the Taxes Act 1988 (gross roll-up business).

59In section 89(1A) (policy holders' share of profits), for paragraph (a) substitute—E+W+S+N.I.

(a)deducting from any profits of the company for the period chargeable under Case VI of Schedule D under section 436A of the Taxes Act 1988 so much of the Case I profits of the company for the period in respect of its life assurance business as does not exceed the amount of any profits of the company for the period so chargeable, and.

Taxation of Chargeable Gains Act 1992 (c. 12)E+W+S+N.I.

60TCGA 1992 is amended as follows.E+W+S+N.I.

61In section 204(10) (policies of insurance and non-deferred annuities)—E+W+S+N.I.

(a)for “as defined in section 458(3)” substitute “ within the meaning of Chapter 1 of Part 12 ”, and

(b)omit “other”.

62In section 210B—E+W+S+N.I.

(a)omit paragraph (b) of subsection (6) and the word “or” before it, and

(b)in subsection (8) (disposal and acquisition of section 440A securities), in the definition of “chargeable section 440A holding”, for “(2)(a)(iii)” substitute “ (2)(a)(i) ”.

63In section 212(2) (annual deemed disposal of holdings of certain assets), for the words from “pension business” to the end substitute “ gross roll-up business ”.E+W+S+N.I.

64In section 213(1A) (spreading of gains and losses under section 212), omit the words following “general annuity business”.E+W+S+N.I.

Finance Act 1996 (c. 8)E+W+S+N.I.

65FA 1996 is amended as follows.E+W+S+N.I.

66In paragraph 12(3) of Schedule 9 (loan relationships: special computational provisions), for “440(4)(a) to (e)” substitute “ 440(4)(a), (d) and (e) ”.E+W+S+N.I.

67(1)Schedule 11 (loan relationships: special provisions for insurers) is amended as follows.E+W+S+N.I.

(2)In paragraph 2, for sub-paragraph (1) substitute—

(1)Where an insurance company carries on basic life assurance and general annuity business, a separate computation, using only the non-trading credits and non-trading debits referable to that business, shall be made for the purposes of this Chapter in relation to that business.

(3)In paragraph 3A(5)—

(a)after “(6A)” insert “ , (6B) ”,

(b)for “subsections (6)(a) and (6A)(a)” substitute “ subsection (6) ”, and

(c)omit paragraph (c) and the word “and” before it.

(4)In paragraph 4—

(a)in sub-paragraph (1), omit paragraph (b) and the word “or” before it,

(b)in sub-paragraph (2)(a), for “the relevant category of business” substitute “ basic life assurance and general annuity business ”,

(c)in sub-paragraph (7), for “the relevant category of business” substitute “ its basic life assurance and general annuity business ”,

(d)in sub-paragraph (10), for “the relevant category of business” (in both places) substitute “ basic life assurance and general annuity business ”, and

(e)omit sub-paragraph (16).

Capital Allowances Act 2001 (c. 2)E+W+S+N.I.

68CAA 2001 is amended as follows.E+W+S+N.I.

69(1)Section 255 (apportionment of allowances and charges) is amended as follows.E+W+S+N.I.

(2)For subsections (1) and (1A) substitute—

(1)Except where subsection (3) applies, any allowance to which the company is entitled, and any charge to which it is liable, for a chargeable period in respect of a management asset must be apportioned between basic life assurance and general annuity business, gross roll-up business and PHI business in accordance with subsections (1A) and (1B).

(1A)The allowance or charge is to be apportioned to a category of business using the formula—

where—

A is the amount of the allowance or charge,

B is the mean of the opening and closing liabilities of that category of business, and

C is the mean of the opening and closing liabilities of all the categories of business mentioned in subsection (1) which are carried on by the company.

(1B)If C is nil or below nil, the allowance or charge to be apportioned to a category of business is such as is just and reasonable.

(3)Omit subsection (2).

(4)In subsection (3)—

(a)in paragraph (a), for “section 441 of ICTA in respect of its overseas life assurance business” substitute “ section 436A of ICTA (gross roll-up business) ”, and

(b)in paragraph (b), for “provided outside the United Kingdom for use for the management of that business” substitute “ held for the purposes of a permanent establishment outside the United Kingdom at or through which the company carries on gross roll-up business ”.

70(1)Section 256 (different giving effect rules for different categories of business) is amended as follows.E+W+S+N.I.

(2)In subsection (3), for paragraphs (a) to (c) substitute “ section 436A of ICTA (gross roll-up business) ”.

(3)In subsection (4)—

(a)for “profit” substitute “ profits ”,

(b)in paragraph (a), for “any particular category of business” substitute “ gross roll-up business ” and for “that category of business” substitute “ its gross roll-up business ”, and

(c)in paragraph (b), for “any particular category of business” substitute “ gross roll-up business ” and for “that category of business” substitute “ its gross roll-up business ”.

71(1)Section 545 (investment assets) is amended as follows.E+W+S+N.I.

(2)In subsection (3), in the second sentence, for “sections 432ZA to 432E, or section 438B,” substitute “ section 432A ”.

(3)In subsection (5)—

(a)for the words from “under—” to “no allowance” substitute “ under section 436A of ICTA (gross roll-up business), no allowance ”, and

(b)for “the category of life assurance business in question” substitute “ gross roll-up business ”.

Finance Act 2001 (c. 9)E+W+S+N.I.

72In paragraph 20 of Schedule 22 to FA 2001 (remediation of contaminated land), for the words from the beginning to “Schedule D,” substitute “ In computing in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D the profits for any accounting period arising to an insurance company from its life assurance business, or from its gross roll-up business, ”.E+W+S+N.I.

Finance Act 2002 (c. 23)E+W+S+N.I.

73FA 2002 is amended as follows.E+W+S+N.I.

74(1)Schedule 12 (tax relief for expenditure on research and development) is amended as follows.E+W+S+N.I.

(2)In paragraph 13, for sub-paragraph (3) substitute—

(3)Part 3 of this Schedule has effect in relation to any gross roll-up business of the company as if the references to the trade carried on by the company were references to that business (and sub-paragraph (2) does not apply in relation to that business).

(3)In paragraph 15(3)—

(a)for “(profits of life assurance business chargeable to tax under Case VI of Schedule D)” substitute “ (gross roll-up business) ”,

(b)for “a part of the life assurance business” substitute “ the gross roll-up business ”, and

(c)for “that part” substitute “ the gross roll-up business ”.

75(1)Schedule 26 (derivative contracts) is amended as follows.E+W+S+N.I.

(2)In paragraph 12(2), for “section 458” substitute “ Chapter 1 of Part 12 ”.

(3)In paragraph 29(1), for “440(4)(a) to (e)” substitute “ 440(4)(a), (d) and (e) ”.

Income Tax (Trading and Other Income) Act 2005 (c. 5)E+W+S+N.I.

76ITTOIA 2005 is amended as follows.E+W+S+N.I.

77In section 473(2) (policies and contracts to which Chapter 9 applies), in the definition of “capital redemption policy”, for “as defined in section 458(3)” substitute “ within the meaning of Chapter 1 of Part 12 ”.E+W+S+N.I.

78In section 476(3) (special rules: foreign policies), in the definition of “foreign capital redemption policy”, for “431D(1)(a)” substitute “ 431D(1) ”.E+W+S+N.I.

79In Schedule 2 (transitionals and savings etc), in paragraph 118(2), for “from “other than” onwards in the definition of “annuity business”” substitute “ following paragraph (b) in the definition of “life assurance business” .E+W+S+N.I.

Part 2 E+W+S+N.I.Transitional provisions

IntroductionE+W+S+N.I.

80(1)A loss incurred by an insurance company in a pre-commencement period may not be set off against profits of the company chargeable under section 436A of ICTA in a post-commencement period, except in accordance with this Part of this Schedule.E+W+S+N.I.

(2)In this Part of this Schedule—

  • the commencement period”, in relation to an insurance company, means the first period of account of the company to begin on or after 1st January 2007,

  • pre-commencement period”, in relation to an insurance company, means a period of account of the company beginning before 1st January 2007, and

  • post-commencement period”, in relation to an insurance company, means a period of account of the company beginning on or after 1st January 2007.

(3)Expressions which are—

(a)used in this Part of this Schedule in relation to a period of account, and

(b)used in Chapter 1 of Part 12 of ICTA,

have the same meaning in this Part of this Schedule in relation to that accounting period as they have in that Chapter (as that Chapter has effect in relation to that period of account).

Carry forward of unused pension business lossesE+W+S+N.I.

81(1)An unused pension business loss of an insurance company (see sub-paragraph (4)) is to be treated as if it were a loss incurred by the company on its gross roll-up business in the period of account immediately preceding the commencement period.E+W+S+N.I.

(2)Subsections (4) and (5) of section 436A of ICTA accordingly apply to the loss, but subject to sub-paragraph (3) (and to subsection (7) of that section).

(3)The amount by which the company's profits charged under that section in a period of account is to be treated as reduced under subsection (4)(b) of that section by virtue of this paragraph must not exceed—

where—

“CP” is the amount of the company's profits chargeable under that section in the period of account,

“PBL” is the mean of the opening and closing liabilities of the company's pension business for the period of account, and

“GRBL” is the mean of the opening and closing liabilities of the company's gross roll-up business for the period of account.

(4)In this paragraph “unused pension business loss”, in relation to an insurance company, means so much of any losses incurred by the company on its pension business in any pre-commencement period as were not set off under section 436(3)(c) of ICTA against profits in any such period.

Carry forward of unused non-pension business lossesE+W+S+N.I.

82(1)An unused non-pension business loss of an insurance company (see paragraph 83) is to be treated as if it were a loss incurred by the company on its gross roll-up business in the period of account immediately preceding the commencement period.E+W+S+N.I.

(2)Subsections (4) and (5) of section 436A of ICTA accordingly apply to the loss, but subject to sub-paragraph (3) (and to subsection (7) of that section).

(3)The amount by which an insurance company's profits charged under that section in a period of account are to be treated as reduced under subsection (4)(b) of that section is to be determined—

(a)first by giving effect to subsection (4)(b) in respect of a loss treated as incurred by the company on its gross roll-up business by virtue of paragraph 81, and

(b)then by giving effect to subsection (4)(b) in respect of a loss treated as incurred by the company on its gross roll-up business by virtue of this paragraph,

(before giving effect to subsection (4)(b) in respect of losses incurred by the company on its gross roll-up business in post-commencement periods).

83(1)In paragraph 82 “unused non-pension business loss”, in relation to an insurance company, means the aggregate of the following amounts—E+W+S+N.I.

(a)any unexhausted individual savings account business loss (see sub-paragraph (2)),

(b)any unexhausted child trust fund business loss (see sub-paragraph (3)),

(c)any unexhausted life reinsurance business loss (see sub-paragraph (4)), and

(d)any unexhausted overseas life assurance business loss (see sub-paragraph (5)).

(2)In this paragraph “unexhausted individual savings account business loss”, in relation to an insurance company, means so much of any losses incurred by the company on its individual savings account business in any pre-commencement period as were not set off by virtue of a relevant provision (see sub-paragraph (6)) against profits in any such period.

(3)In this paragraph “unexhausted child trust fund business loss”, in relation to an insurance company, means so much of any losses incurred by the company on its child trust fund business in any pre-commencement period as were not set off by virtue of a relevant provision against profits in any such period.

(4)In this paragraph “unexhausted life reinsurance business loss”, in relation to an insurance company, means so much of any losses incurred by the company on its life reinsurance business in any pre-commencement period as were not set off under section 439B(3)(c) of ICTA against profits in any such period.

(5)In this paragraph “unexhausted overseas life assurance business loss”, in relation to an insurance company, means so much of any losses incurred by the company on its overseas life assurance business in any pre-commencement period as were not set off under section 441(4)(b) of ICTA against profits in any such period.

(6)In this paragraph “relevant provision” means—

(a)regulation 13 of the Individual Savings Account (Insurance Companies) Regulations 1998 (S.I. 1998/1871), or

(b)regulation 11 of the Child Trust Funds (Insurance Companies) Regulations 2004 (S.I. 2004/2680).

“Section 432F(2) excesses” E+W+S+N.I.

84Where there is a subsection (2) excess (within the meaning of section 432F of ICTA) for any category of business of an insurance company in the period of account immediately preceding the commencement period it shall be taken to be, or form part of, the subsection (2) excess falling to be carried forward under subsection (3) of that section (as amended by this Schedule) and used in a post-commencement period.E+W+S+N.I.

Section 39

SCHEDULE 8E+W+S+N.I.Insurance companies: basis of taxation etc

Part 1 E+W+S+N.I.Amendments

Income and Corporation Taxes Act 1988 (c. 1)E+W+S+N.I.

1ICTA is amended as follows.E+W+S+N.I.

2(1)Section 76 (expenses of insurance companies) is amended as follows.E+W+S+N.I.

(2)In subsection (1)(b), for “not charged to tax in respect of that business under Case I of Schedule D” substitute “ charged to tax in respect of that business under the I minus E basis ”.

(3)In subsection (7)—

(a)in Step 8, for “basic” substitute “ expenses ”, and

(b)omit Steps 9 and 10.

(4)Omit subsections (10) and (11).

(5)In subsection (12)—

(a)for “Step 10” substitute “ Step 8 ”, and

(b)after “next accounting period” insert “ for which the company is charged to tax in respect of its life assurance business under the I minus E basis ”.

(6)For subsection (13) substitute—

(13)Where for any accounting period excess adjusted Case I profits are charged to tax under section 85A of the Finance Act 1989, an amount equal to the profits is to be carried forward to the next accounting period for which the company is charged to tax in respect of its life assurance business under the I minus E basis and brought into account for that period in accordance with Step 7.

3In section 431(2) (interpretative provisions relating to insurance companies), insert at the appropriate place—E+W+S+N.I.

the I minus E basis” means the basis under which a company carrying on life assurance business is charged to tax on the relevant profits (within the meaning of section 88(3) of the Finance Act 1989) of that business otherwise than under Case I of Schedule D;.

4For section 432 (and the italic cross-heading before it) substitute—E+W+S+N.I.

Basis of taxation etcE+W+S+N.I.
431GCompany carrying on life assurance business

(1)This section applies in relation to an insurance company which carries on life assurance business (whether or not it also carries on insurance business of any other kind).

(2)Subject as follows, the profits of the life assurance business for any accounting period shall be charged to tax under the I minus E basis.

(3)Where in the case of an insurance company for an accounting period either—

(a)all of its life assurance business is reinsurance business and none of that business is of a type excluded from this subsection by regulations made by the Board, or

(b)all, or substantially all, of its life assurance business is gross roll-up business,

the profits of that business for the accounting period shall be charged to tax in accordance with Case I of Schedule D and not otherwise.

(4)Where—

(a)the profits of the life assurance business of an insurance company for any accounting period are charged to tax under the I minus E basis, and

(b)had those profits been charged to tax in accordance with Case I of Schedule D, a loss would have arisen to the company from that business for the period,

the loss (after being reduced in accordance with section 434A(2)(a)) may be set-off under section 393A or section 403(1).

(5)The application, in relation to the life assurance business of an insurance company, of any provision of Case I of Schedule D is not to be taken—

(a)to prevent the application of the I minus E basis in relation to that business of the company for any accounting period, or

(b)to affect the operation of the I minus E basis in relation to the that business of the company for any accounting period except as specifically provided by the Corporation Tax Acts.

431HCompany carrying on life assurance business and other insurance business

(1)This section applies in relation to an insurance company which carries on life assurance business and insurance business of any other kind.

(2)For the purposes of the Corporation Tax Acts—

(a)the life assurance business, and

(b)the other insurance business,

are to be treated as separate businesses.

(3)The profits of the other insurance business shall be charged to tax under Case I of Schedule D as the profits of a separate trade.

(4)But subsection (3) above does not apply where that business is mutual business.

(5)As to the profits of the life assurance business, see section 431G.

5In section 432A(7)(c)(ii) (apportionment of income and gains), for “85(2C)(c)” substitute “ 85(2C) or 85A ”.E+W+S+N.I.

6In section 437(1A) (annuities), for “, otherwise than in accordance with the provisions applicable to Case I of Schedule D,” substitute “ under the I minus E basis ”.E+W+S+N.I.

7Omit section 439A (taxation of pure reinsurance business).E+W+S+N.I.

8(1)Section 440B (modifications where tax charged under Case I of Schedule D) is amended as follows.E+W+S+N.I.

(2)In subsection (1), insert at the end “ in accordance with section 431G(3) ”.

(3)In subsection (3), for “Section 440(1) and (2) apply” substitute “ Subsection (1) of section 440 applies ”.

(4)After subsection (4) insert—

(4A)Section 440(2) does not apply if either the transferor or the company by which the asset is acquired is a company whose profits are charged to tax in accordance with Case I of Schedule D (or if they both are).

(4B)Section 211 of the 1992 Act does not apply if the transferor is a company whose profits are charged to tax in accordance with Case I of Schedule D.

(5)Omit subsection (5).

9After that section insert—E+W+S+N.I.

440CModifications for change of tax basis

(1)Subsection (2) makes provision for a case where—

(a)subsection (4) of section 431G applies in relation to the profits of the life assurance business of an insurance company for any accounting period, but

(b)the profits of that business for a succeeding accounting period fall to be charged to tax in accordance with Case I of Schedule D by virtue of subsection (3) of that section.

(2)The loss referred to in section 431G(4)(b) (less any loss for the same accounting period set off under section 436A for any intervening accounting period and any amount deducted for any such period in respect of the loss by virtue of section 85A(3)(b) of the Finance Act 1989) may be set off under section 393 against profits of that succeeding accounting period (without being reduced in accordance with section 434A(2)(a)).

(3)In determining whether any loss has been set off under section 436A for any intervening accounting period, or whether any amount has been deducted for any such period in respect of the loss by virtue of section 85A(3)(b) of the Finance Act 1989, losses of earlier accounting periods are to be assumed to be set off before those of later accounting periods.

(4)Subsection (5) makes provision for a case where—

(a)a loss arises to an insurance company for an accounting period for which the profits of its life assurance business fall to be charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3)(b),

(b)the profits of that business for a subsequent accounting period are charged to tax under the I minus E basis, and

(c)had those profits (instead) been charged to tax in accordance with Case I of Schedule D, any of that loss would have been available to be set off against them under section 393.

(5)The loss is to be treated for the purposes of the operation of section 436A in relation to the subsequent accounting period as if it were a loss arising from its gross roll-up business in the accounting period in which it arose.

(6)Subsections (7) and (8) make provision for a case where—

(a)the profits of the life assurance business of an insurance company for an accounting period are charged to tax under the I minus E basis,

(b)the profits of that business for its next accounting period fall to be charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3), and

(c)that prevents the giving of relief in accordance with section 86(8) of the Finance Act 1989 (acquisition expenses relieved in fractions under section 76).

(7)Any relief which would have been so given in—

(a)the next accounting period, or

(b)any subsequent accounting period for which the profits of the company's life assurance business continue to be charged to tax in accordance with Case I of Schedule D,

may be given by set-off against any gains treated as accruing under section 213(1) of the 1992 Act at the end of the accounting period.

(8)But if the profits of the company's life assurance business for a subsequent accounting period are charged to tax under the I minus E basis, any relief not previously given under subsection (7) is to be treated for the purposes of the operation of section 76 in relation to the first subsequent accounting period for which profits are so charged as if it were an amount which is to be relieved under that section by virtue of section 86(8) and (9) of the Finance Act 1989.

10In section 755A(2) and (6)(a) (controlled foreign companies: apportionments to companies carrying on life assurance business), for “not charged to tax under Case I of Schedule D in respect of its profits from” substitute “ charged to tax under the I minus E basis in respect of ”.E+W+S+N.I.

Finance Act 1989 (c. 26)E+W+S+N.I.

11FA 1989 is amended as follows.E+W+S+N.I.

12In section 83(6)(c) (receipts to be taken into account), for the words from “the reinsurer” to the end substitute “ section 431G(3)(a) of the Taxes Act 1988 (pure reinsurance) applies to the reinsurer under the contract for the accounting period of the reinsurer during which the transfer of business occurs ”.E+W+S+N.I.

13In subsection (1) of section 85 (charge of certain receipts of BLAGAB)—E+W+S+N.I.

(a)for “the profits of an insurance company in respect of its life assurance business are not charged under Case I of Schedule D” substitute “ an insurance company is charged to tax under the I minus E basis in respect of its life assurance business ”, and

(b)for “those profits” substitute “ the profits of the life assurance business ”.

14After that section insert—E+W+S+N.I.

85AExcess adjusted Case I profits

(1)Where for any accounting period an insurance company is charged to tax under the I minus E basis in respect of its life assurance business, the company shall be chargeable on any excess adjusted Case I profits under Case VI of that Schedule.

(2)Excess adjusted Case I profits” means any amount by which—

(a)the adjusted Case I profits (see subsection (3)), exceeds

(b)the relevant amount (see subsection (5)).

(3)The adjusted Case I profits” means the amount that would be the profits of the company's life assurance business for the accounting period if—

(a)computed in accordance with the provisions applicable to Case I of Schedule D, and

(b)adjusted in respect of losses (see subsection (4)).

(4)The adjustment in respect of losses is a deduction of the amount which, disregarding section 434A(2)(a) of the Taxes Act 1988, would fall to be set off under section 393 of that Act against the company's income for the accounting period if the company had always been charged to tax under Case I of Schedule D.

(5)The relevant amount (which may be a negative amount) is found by—

(a)taking the relevant income (see subsection (6)), and

(b)deducting from it the relevant aggregate (see subsection (8)).

(6)The relevant income” means—

(a)any income (including distributions received from companies resident in the United Kingdom) referable (in accordance with section 432A of the Taxes Act 1988) to the company's basic life assurance and general annuity business for the accounting period,

(b)any chargeable gains referable (in accordance with section 432A of that Act) to the company's basic life assurance and general annuity business for the accounting period (see subsection (7)), and

(c)any profits of the company chargeable for the accounting period under Case VI of Schedule D under section 436A of that Act.

(7)Chargeable gains referable (in accordance with section 432A of the Taxes Act 1988) to the company's basic life assurance and general annuity business” has the same meaning as in subsection (3A)(a) of section 88 below (see subsection (3B) of that section).

(8)The relevant aggregate” means the sum of—

(a)the expenses deduction (see Step 8 in section 76(7) of the Taxes Act 1988) in the case of the company for the accounting period,

(b)any non-trading deficit on the company's loan relationships which is produced for the accounting period in relation to the company's basic life assurance and general annuity business by a separate computation under paragraph 2(1) of Schedule 11 to the Finance Act 1996, and

(c)any amount which in pursuance of a claim under paragraph 4(3) of that Schedule is carried back to the accounting period and (in accordance with paragraph 4(5) of that Schedule) applied in reducing profits of the company for the accounting period.

(9)The Treasury may by regulations provide—

(a)that, in circumstances prescribed by the regulations, the charge imposed by this section for an accounting period may be reduced or eliminated, and

(b)that the amount by which the charge is reduced, or (where the charge is eliminated) the amount of the charge, is instead imposed for a subsequent accounting period (or part of the amount is instead imposed for more than one subsequent accounting period).

(10)Regulations under subsection (9) may include provision having effect in relation to times before they are made.

15(1)Section 88 (policy holders' fraction of profits) is amended as follows.E+W+S+N.I.

(2)Omit subsection (2).

(3)In subsection (3)(a), for “basic” substitute “ expenses ”.

16(1)Section 89 (policy holders' share of profits) is amended as follows.E+W+S+N.I.

(2)In subsection (1B)(b), for “basic” substitute “ expenses ”.

(3)In subsection (7), for the words after “Schedule D” substitute “ ; but for the purposes of subsections (1), (1A) and (2) they are to be adjusted in respect of losses in accordance with section 85A(4). ”

Finance Act 1991 (c. 31)E+W+S+N.I.

17In paragraph 16(1) of Schedule 7 to FA 1991 (transitional relief for old general annuity contracts), for “, otherwise than in accordance with the provisions applicable to Case I of Schedule D,” substitute “ under the I minus E basis ”.E+W+S+N.I.

Taxation of Chargeable Gains Act 1992 (c. 12)E+W+S+N.I.

18In section 212 of TCGA 1992 (annual deemed disposal of holdings of unit trusts etc), omit subsection (7A) (which applies section 440B(5) of ICTA).E+W+S+N.I.

Finance (No. 2) Act 1992 (c. 48)E+W+S+N.I.

19In F(No.2)A 1992, omit section 65 (life assurance business: I minus E basis).E+W+S+N.I.

Finance Act 1996 (c. 8)E+W+S+N.I.

20In paragraph 4 of Schedule 11 to FA 1996 (loan relationships: special provisions for insurers: treatment of deficit), omit sub-paragraphs (12) to (14).E+W+S+N.I.

Finance Act 1998 (c. 36)E+W+S+N.I.

21In paragraph 84 of Schedule 18 to FA 1998 (company tax returns, assessments and related matters), for sub-paragraphs (1) to (3) substitute—E+W+S+N.I.

(1)This paragraph applies where amounts may be brought into charge to tax either—

(a)in computing profits chargeable to tax under Case I of Schedule D, or

(b)as amounts within Case III or V of that Schedule.; and the italic heading before that paragraph accordingly becomes Choice between Case I and Case III or V of Schedule D.

Capital Allowances Act 2001 (c. 2)E+W+S+N.I.

22CAA 2001 is amended as follows.E+W+S+N.I.

23In section 256(1) (different giving effect rules for different categories of business), for paragraph (b) substitute—E+W+S+N.I.

(b)is charged to tax under the I minus E basis in respect of its life assurance business.

24In section 257(2) (life assurance: supplementary), for paragraphs (a) and (b) substitute—E+W+S+N.I.

(a)section 85A(3) of the Finance Act 1989 (excess adjusted Case I profits), or

(b)section 89 of that Act (policy holders' share of profits).

Finance Act 2002 (c. 23)E+W+S+N.I.

25FA 2002 is amended as follows.E+W+S+N.I.

26In paragraph 13(1) of Schedule 12 (tax relief on R&D: special provisions for insurance companies), for “the profits arising to a company from its life assurance business are not charged to corporation tax under Case I of Schedule D” substitute “ an insurance company is charged to tax under the I minus E basis in respect of its life assurance business ”.E+W+S+N.I.

27In Schedule 29 (gains and losses of a company from intangible fixed assets), omit paragraph 36(6) (meaning of I minus E basis).E+W+S+N.I.

Part 2 E+W+S+N.I.Transitional provisions

Unused pre-commencement section 76(12) etc excessesE+W+S+N.I.

28Step 7 in subsection (7) of section 76 of ICTA applies in relation to an insurance company for the first accounting period beginning on or after 1st January 2007 for which the profits of the life assurance business are charged to tax under the I minus E basis as if the amounts carried forward to the accounting period under subsection (12) of that section included—E+W+S+N.I.

(a)any excess such as is mentioned in that subsection relating to the company for an accounting period beginning on or after 1st April 2004 but not later than 1st January 2007 which was not brought into account for the next accounting period in accordance with Step 7 in subsection (7) of that section, and

(b)any excess such as was mentioned in subsection (3) of section 75 of ICTA relating to the company for an accounting period beginning before 1st April 2004 which was not deducted for the succeeding accounting period in accordance with that section (as applied by section 76 of that Act).

Shifts in basis of taxation at first post-commencement accounting periodE+W+S+N.I.

29(1)This paragraph applies where—E+W+S+N.I.

(a)the profits of the life assurance business of an insurance company for the first accounting period of the company beginning on or after 1st January 2007 (“the first accounting period”) are charged to tax in accordance with Case I of Schedule D by virtue of subsection (3)(b) of section 431G of ICTA, but

(b)the profits of the life assurance business of the company for the preceding accounting period were charged to tax under the I minus E basis.

(2)The amount of the losses available to be set off under section 393 of ICTA against the profits of the first accounting period is the amount of any loss under section 436, 439B or 441 of ICTA carried forward to that period by virtue of Part 2 of Schedule 7 to this Act.

Section 40

SCHEDULE 9E+W+S+N.I.Insurance companies: transfers etc

Definition of “insurance business transfer scheme”E+W+S+N.I.

1(1)In section 431(2) of ICTA (interpretative provisions for purposes of Corporation Tax Acts), for the definition of “insurance business transfer scheme” substitute—E+W+S+N.I.

insurance business transfer scheme” means—

(a)a scheme falling within section 105 of the Financial Services and Markets Act 2000, including an excluded scheme falling within Case 2, 3 or 4 of subsection (3) of that section, or

(b)a scheme which would fall within that section but for subsection (1)(b) of that section;.

(2)In consequence of sub-paragraph (1), omit—

(a)the definition of “insurance business transfer scheme” in section 12(7B) of ICTA,

(b)section 444AB(11) of that Act (as originally enacted),

(c)in section 444AC(11) of that Act (as originally enacted), the definition of “insurance business transfer scheme”,

(d)section 460(10B) of that Act,

(e)the definition of “insurance business transfer scheme” in paragraph 12(9) of Schedule 9 to FA 1996,

(f)section 560(5)(b) of CAA 2001,

(g)paragraph 28(5) of Schedule 26 to FA 2002, and

(h)the definition of “insurance business transfer scheme” in paragraph 89(3) of Schedule 29 to that Act.

(3)In section 431 of ICTA, insert at the end—

(2ZG)The Treasury may by order amend the definition of “insurance business transfer scheme” given by subsection (2) above where it is expedient to do so in consequence of any amendment of section 105 of the Financial Services and Markets Act 2000.

(2ZH)The power conferred by subsection (2ZG) above includes power to make incidental, supplementary, consequential or transitional provisions and savings (including provision amending any provision of the Corporation Tax Acts relating to insurance companies).

(4)In section 66 of FA 2002 (election to continue postponement of mark to market)—

(a)in subsection (4)(a), for “a transfer” substitute “ an insurance business transfer ”,

(b)in subsection (5), omit the definition of “transfer scheme”, and

(c)omit subsections (6) and (7).

(5)In paragraph 10 of Schedule 22 to that Act—

(a)in sub-paragraph (1)(a), for “a transfer” substitute “ an insurance business transfer ”,

(b)in sub-paragraph (4), omit the definition of “transfer scheme”, and

(c)omit sub-paragraphs (5) and (6).

Transfer schemes: expenses, losses etcE+W+S+N.I.

2(1)Section 444A of ICTA (transfers of business: expenses, losses and section 432F(2) excesses) is amended as follows.E+W+S+N.I.

(2)In subsection (1), omit “Subject to subsection (7) below,”.

(3)Omit—

(a)subsection (7) (section not to apply if transfer is not for bona fide commercial reasons or forms part of avoidance scheme), and

(b)subsection (8) (clearance procedure as to non-application of subsection (7)).

Transfer schemes: deemed periodical returnsE+W+S+N.I.

3(1)In ICTA, for section 444AA substitute—E+W+S+N.I.

444AATransfers of business: deemed periodical return

(1)This section applies where the whole, or substantially the whole, of the long-term business of a person (“the transferor”) is transferred from that person—

(a)by one insurance business transfer scheme, or

(b)by two or more insurance business transfer schemes which are associated.

(2)For the purposes of subsection (1) above two or more insurance business transfer schemes are associated if they form part of an arrangement for the transfer of the whole, or substantially the whole, of the transferor's long-term business.

(3)Where (apart from this subsection) there would not be a periodical return of the transferor covering a period ending immediately before a relevant transfer date, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the period—

(a)beginning immediately after the last period ending before the relevant transfer date which is covered by a periodical return of the transferor, and

(b)ending immediately before the relevant transfer date,

containing such entries as would be included in an actual periodical return of the transferor covering that period (and so making that period a period of account of the transferor).

(4)There is to be deemed for the purposes of corporation tax to be a periodical return of the transferor—

(a)covering a relevant transfer date, and

(b)containing such entries as would be included in an actual periodical return covering the relevant transfer date,

(and so making the relevant transfer date a period of account of the transferor).

(5)Any actual periodical return covering a period which includes a relevant transfer date is to be ignored for the purposes of corporation tax.

(6)Where the transferor continues to carry on long-term business after a relevant transfer date, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the immediate post-RTD period containing such entries as would be included in an actual periodical return covering that period (and so making that period a period of account of the transferor).

(7)In this section “relevant transfer date” means—

(a)in relation to a case within paragraph (a) of subsection (1) above, the date that is the transfer date in relation to the insurance business transfer scheme, and

(b)in relation to a case within paragraph (b) of that subsection—

(i)the earliest date that is the transfer date in relation to any of the insurance business transfer schemes, other than one that is a preliminary non-EEA transfer scheme, and

(ii)(where there are two or more insurance business transfer schemes that are not preliminary non-EEA transfer schemes) the latest date that is the transfer date in relation to any of them.

(8)In subsection (6) above “the immediate post-RTD period” means the period beginning immediately after the relevant transfer date mentioned in that subsection and (subject to subsection (9) below) ending with—

(a)the end of the period covered by the periodical return covering a period which includes a relevant transfer date (if there is one), or

(b)(if there is not) the period covered by the accounts of the company prepared in accordance with generally accepted accounting practice which includes the relevant transfer date.

(9)If the case is within subsection (1)(b) above and two or more of the insurance business transfer schemes are not preliminary non-EEA transfer schemes, the period ends with the latest date that is the transfer date in relation to any of them if that is before the end of the period mentioned in paragraph (a) or (b) of subsection (8) above.

(10)In this section and sections 444AB to 444AEC “the transfer date”, in relation to an insurance business transfer scheme, means the date on which it takes effect.

(11)For the purposes of this section an insurance business transfer scheme is a preliminary non-EEA transfer scheme if—

(a)it is an insurance business transfer scheme by virtue of paragraph (b) of the definition of “insurance business transfer scheme” in section 431(2), and

(b)the transfer date in relation to it is earlier than the transfer date in relation to an associated insurance business transfer scheme which is an insurance business transfer scheme by virtue of paragraph (a) of that definition.

(2)In section 12 of ICTA (accounting periods), for subsection (7C) substitute—

(7C)Where section 444AA applies, an accounting period of the transferor (within the meaning of that section) shall end for the purposes of corporation tax with the end of any period covered by a periodical return deemed by that section.

(3)In—

(a)section 432YA(2A) of ICTA, and

(b)section 82D(2A) of FA 1989,

for “444AA(3)” substitute “ 444AA(4) ”.

(4)In section 213(10) of TCGA 1992, for “before the transfer” substitute “ before the relevant transfer date (within the meaning of that section) ”.

Transfer schemes: taxing the transferorE+W+S+N.I.

4(1)In ICTA, for sections 444AB and 444ABA substitute—E+W+S+N.I.

444ABTransfer schemes transferring whole of business: transferor

(1)This section applies where an insurance business transfer scheme has effect to transfer the whole, or substantially the whole, of the long-term business of a person (“the transferor”) to another person (“the transferee”) and either or both of conditions A and B are met.

(2)Condition A is met if any of the assets of the transferor's long-term insurance fund which are transferred from the transferor to the transferee by the insurance business transfer scheme are not, immediately after their transfer—

(a)if the transferee is an insurance company, assets of the transferee's long-term insurance fund, or

(b)if the transferee is not an insurance company, assets of a with-profits fund of the transferee,

(“relevant non-transferred assets”).

(3)Condition B is met if, immediately after the transfer date, the transferor—

(a)does not carry on long-term business, but

(b)holds any assets which, immediately before the transfer date, were assets of its long-term insurance fund (“retained assets”).

(4)If there are relevant non-transferred assets or retained assets (or both) the relevant amount in relation to them (see subsection (5) below) is to be taken into account under section 83(2) of the Finance Act 1989 as an increase in value of the assets of the long-term insurance fund of the transferor for the relevant period of account (see subsection (6) below).

(5)Section 444ABA makes provision for the calculation of the relevant amount in relation to relevant non-transferred assets; and section 444ABB makes provision for its calculation in relation to retained assets.

(6)In this section and sections 444ABA to 444AC “the relevant period of account” means the period of account of the transferor ending (or treated by section 444AA as ending) immediately before the transfer date.

(7)See section 444AA for the meaning of “the transfer date” in this section.

444ABARelevant non-transferred assets

(1)For the purposes of section 444AB the relevant amount in relation to assets that are relevant non-transferred assets is—

where—

FVA is the fair value of the assets on the transfer date, and

RVA is the recognised value of the assets.

(2)For the purposes of this section and section 444ABB—

(a)the recognised value of any assets which, immediately before the transfer date, are held by the transferor in a non-profit fund which is not a Form 14 line 51 fund is the relevant Form 13 value of those assets, and

(b)the recognised value of any other assets is the appropriate fraction of the relevant Form 13 value of those assets.

(3)For the purposes of subsection (2) above a non-profit fund is a Form 14 line 51 fund if an amount in respect of the fund is shown (or treated as shown) in line 51 of Form 14 in the periodical return of the transferor covering the relevant period of account.

(4)For the purposes of subsection (2) above the relevant Form 13 value of any assets is the value which is shown (or treated as shown) in respect of the assets in Form 13 in the periodical return of the transferor covering the relevant period of account (ignoring lines 91 to 99 of that Form).

(5)For the purposes of subsection (2)(b) above the appropriate fraction is—

where—

A is the amount shown (or treated as shown) in line 51 of Form 14 in the periodical return of the transferor covering the relevant period of account in respect of the fund in which, immediately before the transfer date, the assets are held by the transferor, increased or reduced as mentioned in subsection (6) below, and

B is the amount shown (or treated as shown) in line 89 of Form 13 in that periodical return in respect of that fund.

(6)The increase or reduction referred to in the definition of A in subsection (5) above is any increase or decrease deemed to be brought into account by section 83YA(3) or (4) of the Finance Act 1989 in respect of the fund for the relevant period of account.

(7)See section 444AA for the meaning of “the transfer date”, and section 444AB for the meaning of “the relevant period of account”, in this section.

444ABBRetained assets

(1)For the purposes of section 444AB the relevant amount in relation to assets that are retained assets is the lesser of FVA and UTA, where—

(a)FVA is the fair value of the assets on the transfer date, and

(b)UTA is the amount by which the fair value of the assets of the long-term insurance fund of the transferor immediately before the transfer date exceeds the amount shown (or treated as shown) in line 32 of Form 40 in the periodical return of the transferor covering the transfer date.

(2)See section 444AA for the meaning of “the transfer date” in this section.

444ABCTransfer scheme transferring part of business: transferor

(1)This section applies where an insurance business transfer scheme has effect to transfer part (but not the whole or substantially the whole) of the long-term business of a person (“the transferor”) to another person (“the transferee”) and the condition in subsection (2) below is met.

(2)That condition is that any of the assets of the transferor's long-term insurance fund which are transferred from the transferor to the transferee by the insurance business transfer scheme are not, immediately after their transfer—

(a)if the transferee is an insurance company, assets of the transferee's long-term insurance fund, or

(b)if the transferee is not an insurance company, assets of a with-profits fund of the transferee,

(“relevant non-transferred assets”).

(3)The relevant amount in relation to the relevant non-transferred assets (see subsection (4) below) is to be taken into account under section 83(2) of the Finance Act 1989 as an increase in value of the assets of the long-term insurance fund of the transferor for the period of account covering the transfer date.

(4)The relevant amount in relation to the relevant non-transferred assets is—

where

FVA is the fair value of the assets on the transfer date, and

BTO is any amount brought into account in respect of the assets as a business transfer-out.

(5)See section 444AA for the meaning of “the transfer date” in this section.

(2)In section 432E(2A) of ICTA (apportionments: participating funds)—

(a)before “444AF(2)” insert “ 444AB, 444ABC, ”, and

(b)after paragraph (a) insert—

(aa)section 444AB or 444ABC of this Act;.

Transferor's period of account including transferE+W+S+N.I.

5In ICTA, after section 444ABC (inserted by paragraph 4) insert—E+W+S+N.I.

444ABDTransferor's period of account including transfer

(1)Any profits representing the amount by which—

(a)the value of the liabilities transferred by an insurance business transfer scheme, exceeds

(b)the value of the assets transferred by the insurance business transfer scheme shown (or treated as shown) in line 32 of the periodical return of the transferor for the period of account of the transferor including the transfer date,

are to be taken into account as profits of that period of account.

(2)See section 444AA for the meaning of “the transfer date” in this section.

Transfer schemes: taxing the transfereeE+W+S+N.I.

6(1)In ICTA, for section 444AC substitute—E+W+S+N.I.

444ACTransfer schemes transferring whole of business: reduction in income of transferee

(1)This section applies where an insurance business transfer scheme has effect to transfer the whole, or substantially the whole, of the long-term business of a person (“the transferor”) to another person (“the transferee”) and conditions A and B are met.

(2)Condition A is that the transferor did not carry on life assurance business that is mutual business during the relevant period of account.

(3)Condition B is that an amount is shown (or treated as shown) in line 13 of Form 14 in the periodical return of the transferor covering the relevant period of account.

(4)The amount which (apart from this section) would be regarded as other income of the transferee for the purposes of section 83(2)(e) of the Finance Act 1989 for the period of account of the transferee which includes the transfer date is to be reduced by an amount equal to the transferred surplus.

(5)In subsection (4) above “the transferred surplus” means the amount shown (or treated as shown) in line 13 of Form 14 in the periodical return of the transferor covering the relevant period of account.

(6)See section 444AA for the meaning of “the transfer date”, and section 444AB for the meaning of “the relevant period of account”, in this section.

444ACZATransfer schemes transferring part of business: reduction in income of transferee

(1)This section applies where an insurance business transfer scheme has effect to transfer part (but not the whole or substantially the whole) of the long-term business of a person (“the transferor”) to another person (“the transferee”) and the condition in subsection (2) below is met.

(2)The condition is that the transferor did not carry on life assurance business that is mutual business during the period of account of the transferor covering the transfer date.

(3)The amount which (apart from this section) would be regarded as other income of the transferee for the purposes of section 83(2)(e) of the Finance Act 1989 for the period of account of the transferee which includes the transfer date is to be reduced by an amount equal to the transferred surplus.

(4)In subsection (4) above “the transferred surplus” means such part of the amount shown (or treated as shown) in line 13 of Form 14 in the periodical return of the transferor covering the last period of account of the transferor ending before the transfer date as it is just and reasonable to regard as being attributable to the transfer.

(5)See section 444AA for the meaning of “the transfer date” in this section.

(2)In section 83(2A) of FA 1989 (receipts not to be taken into account), omit paragraph (b).

Repeal of section 444ADE+W+S+N.I.

7(1)In ICTA, omit section 444AD (transfers of business: modification of section 83(2B) of FA 1989).E+W+S+N.I.

(2)In section 83YA(7) of FA 1989 (changes in value of assets brought into account: transfer-in amount), for the words after “if” substitute a transfer takes place in the following period of account; and the amount of the transfer-in amount for the previous period of account is any amount by which—

(a)the fair value of such of the assets of the long-term insurance fund of the company immediately after the transfer as were assets of the transferor's long-term insurance fund immediately before the transfer, exceeds

(b)the amount of any business transfer-in brought into account in accordance with section 83(2)(e) in relation to the transfer.

Transfer schemes: anti-avoidanceE+W+S+N.I.

8(1)In ICTA, before section 444AF (and the italic cross-heading before it) insert—E+W+S+N.I.

444AEATransfer schemes: anti-avoidance rule

(1)This section applies where—

(a)as a result of the whole or any part of transfer scheme arrangements involving the transfer of long-term business from one person (“the transferor”) to another (“the transferee”) a Case I advantage is obtained by the transferor or the transferee (or by both), and

(b)the sole or main purpose, or one of the main purposes, of the whole or any part of the transfer scheme arrangements is the obtaining of that Case I advantage.

(2)In subsection (1) above “transfer scheme arrangements” means an insurance business transfer scheme (“the relevant transfer scheme”) together with any relevant associated operations.

(3)If a Case I advantage is obtained by the transferor (see subsection (1) of section 444AEB), the amount of the transferor's Case I advantage (see subsection (2) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferor for the period of account of the transferor covering the transfer date.

(4)If a Case I advantage is obtained by the transferee (see subsection (1) of section 444AEC), the amount of the transferee's Case I advantage (see subsection (2) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferee for the first period of account of the transferee ending after the transfer date.

(5)In this section and sections 444AEB and 444AEC “relevant associated operations”, in relation to the relevant transfer scheme, means—

(a)any other insurance business transfer scheme,

(b)any contract of reinsurance,

(c)any reconstruction or amalgamation involving the transferor, a dependant of the transferor which is an insurance undertaking or the transferee, or

(d)any surplus-increasing transfer of assets,

which is effected in connection with the relevant transfer scheme.

(6)In subsection (5) above—

  • dependant” and “insurance undertaking” have the same meaning as in the Insurance Prudential Sourcebook, and

  • surplus-increasing transfer of assets” means a transfer of assets of the transferor's long-term insurance fund to the transferee which is not brought into account for any period of account of the transferee but increases the amount of total surplus shown in line 39 of Form 58 in any periodical return of the transferee.

(7)See section 444AA for the meaning of “the transfer date” in this section.

444AEBCase I advantage: transferor

(1)A Case I advantage is obtained by the transferor if—

(a)Case I profits of its life assurance business for a period of account to which this section applies are less than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements, or

(b)Case I losses of its life assurance business for such a period of account are greater than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements.

(2)If a Case I advantage is obtained by the transferor, the amount of the Case I advantage is the aggregate of—

(a)the amounts (if any) by which Case I profits for each period of account to which this section applies are less than they would be but for the transfer scheme arrangements or part, and

(b)the amounts (if any) by which Case I losses for each such period of account are greater than they would be but for the transfer scheme arrangements or part.

(3)This section applies to a period of account if it is—

(a)the period of account of the transferor covering the transfer date,

(b)any earlier period of account of the transferor, or

(c)where any relevant associated operations are effected in any later period of account, that period of account.

(4)In this section and section 444AEC “Case I profits” and “Case I losses” means profits and losses computed in accordance with the provisions of Case I of Schedule D.

(5)See section 444AA for the meaning of “the transfer date”, and section 444AEA for the meaning of “relevant associated operations”, in this section.

444AECCase I advantage: transferee

(1)A Case I advantage is obtained by the transferee if—

(a)Case I profits of its life assurance business for a period of account to which this section applies are less than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements, or

(b)Case I losses of its life assurance business for such a period of account are greater than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements.

(2)If a Case I advantage is obtained by the transferee, the amount of the Case I advantage is—

(a)the amount by which Case I profits for each period of account to which this section applies are less than they would be but for the transfer scheme arrangements or part, or

(b)the amount by which Case I losses for each such period of account are greater than they would be but for the transfer scheme arrangements or part.

(3)This section applies to a period of account if it is—

(a)the first period of account of the transferee ending after the transfer date or after the effecting of the first of any relevant associated operations (if that occurs before the transfer date),

(b)the second period of account of the transferee ending after the transfer date or after the effecting of the last of any relevant associated operations (if that occurs after the transfer date), or

(c)any intervening period of account.

(4)See section 444AA for the meaning of “the transfer date”, section 444AEA for the meaning of “relevant associated operations” and section 444AEB for the meaning of “Case I profits” and “Case I losses”, in this section.

444AEDClearance: no avoidance or group advantage

(1)Section 444AEA does not apply in relation to the transferor or the transferee if, on an application under this section, the Commissioners for Her Majesty's Revenue and Customs (“the HMRC Commissioners”) have given a notice under subsection (2) below.

(2)A notice under this subsection is a notice stating that the HMRC Commissioners are satisfied—

(a)that the obtaining of a Case I advantage by the applicant is not the sole or main purpose of the whole or any part of the transfer scheme arrangements, or

(b)that the transferor and the transferee are members of the same group of companies and that there is no advantage to the group arising from any Case I advantage obtained by the transferor or by the transferee.

(3)For the purposes of this section there is no advantage to a group arising from any Case I advantage obtained by the transferor or by the transferee if—

(a)as a result of transfer scheme arrangements, there is an increase in the liability to corporation tax of one or more companies which are members of the group of companies, and

(b)the amount (or aggregate amount) of that increase is not less than the reduction in the liability to corporation tax of the transferor or the transferee (or both) arising from the obtaining of the Case I advantage.

(4)An application under this section must be in writing and contain particulars of the transfer scheme arrangements.

(5)The HMRC Commissioners may by notice require the applicant to provide further particulars in order to enable them to determine the application.

(6)A requirement may be imposed under subsection (5) above within 30 days of the receipt of the application or of any further particulars required under that subsection.

(7)If a notice under subsection (5) above is not complied with within 30 days or such longer period as the HMRC Commissioners may allow, they need not proceed further on the application.

(8)The HMRC Commissioners must give notice of their decision on an application under this section to the applicant within 30 days of receiving the application or, if they give a notice under subsection (5) above, within 30 days of that notice being complied with.

(9)If the HMRC Commissioners—

(a)give notice to the applicant under subsection (8) above that they are not satisfied as mentioned in subsection (2) above, or

(b)do not comply with subsection (8) above,

the applicant may require them to transmit the application to the Special Commissioners.

(10)A requirement under subsection (9) above must be imposed within 30 days of the giving of the notice or the failure to comply and must be accompanied by any notice given under subsection (5) above and further particulars provided pursuant to any such notice.

(11)Any notice given by the Special Commissioners has effect for the purposes of subsection (1) above as if it were given by the HMRC Commissioners.

(12)If any particulars provided under this section do not fully and accurately disclose all facts and considerations material for the decision of the HMRC Commissioners or the Special Commissioners, any resulting notice that they are satisfied as mentioned in subsection (2) above is void.

(13)For the purposes of this section two companies are members of the same group of companies if they are for the purposes of Chapter 4 of Part 10.

(2)In section 432E(2A) of ICTA (as amended by paragraph 4(2)), after “444ABC,” insert “ 444AEA, ” and after paragraph (aa) insert—

(ab)section 444AEA of this Act;.

Repeal of FA s.82CE+W+S+N.I.

9In FA 1989, omit section 82C (relevant financial reinsurance contracts).E+W+S+N.I.

Transfers: receipts to be taken into accountE+W+S+N.I.

10(1)Section 83 of FA 1989 (receipts to be taken into account) is amended as follows.E+W+S+N.I.

(2)In the first sentence of subsection (2B), for the words from “but the transfer” to “the time of the transfer” substitute “ the fair value of the assets at the time of the transfer, reduced by any amount brought into account in respect of them (for the period of account in which the transfer takes place or any earlier period of account) as part of total expenditure or as a business transfer-out, ”.

(3)In that sentence (as amended by sub-paragraph (2))—

(a)for “as a business transfer out” substitute “ by being netted off against incomings in lines 11 to 15 of a revenue account ”, and

(b)for the words after “value of the assets of that fund” substitute “ except to the extent that any of the exclusions in subsections (2C) to (2E) below apply. ”

(4)Omit the second sentence of subsection (2B).

(5)For subsection (2E) substitute—

(2E)Assets transferred by an insurance business transfer scheme are excluded from subsection (2B) above.

Transfers and demutualisations: losses where assets added to long-term insurance fundE+W+S+N.I.

11(1)FA 1989 is amended as follows.E+W+S+N.I.

(2)Omit—

(a)in section 83, subsections (3) to (7) and, in subsection (8), the definitions of “add”, “demutualisation” and “total reinsurance” (which relate to losses where assets added to long-term insurance fund),

(b)section 83AA (amounts added to long-term insurance fund in excess of loss), and

(c)section 83AB (treatment of surplus where there is subsequent transfer from company etc).

(3)In section 83B(3) (changes in recognised accounts: attribution of amounts carried forward), for “83AB” substitute “ 83ZA ”.

12In section 436A(3) of ICTA (gross roll-up business), for “83AB” substitute “ 83ZA ”.E+W+S+N.I.

Transfer schemes: old annuity contractsE+W+S+N.I.

13(1)Paragraph 16 of Schedule 7 to FA 1991 (transitional relief for old general annuity contracts) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (7), in the definition of “old annuity contract”, insert at the end “ (including one forming part of the business transferred to another insurance company by an insurance business transfer scheme) ”.

(3)After that sub-paragraph insert—

(8)Where—

(a)business is transferred to an insurance company by an insurance business transfer scheme during an accounting period of the company, and

(b)the business transferred consists of or includes old annuity contracts (“the transferred contracts”),

the reference in the definition of R1 in sub-paragraph (2) above to the company's opening liabilities for the accounting period is, in relation to the transferred contracts, a reference to the company's liabilities in respect of the transferred contracts immediately after the transfer.

Transfer schemes: no gain/no lossE+W+S+N.I.

14(1)TCGA 1992 is amended as follows.E+W+S+N.I.

(2)In section 211 (application of section 139), for subsections (2) and (2A) substitute—

(2)Where this section applies the transferor and the transferee are treated for the purposes of corporation tax on chargeable gains as if any assets included in the transfer which—

(a)immediately before they are acquired by the transferee, were assets of the transferor's long-term insurance fund, and

(b)immediately after they are so acquired are assets of the transferee's long-term insurance fund,

were acquired for a consideration of such amount as would secure that neither a gain nor a loss would accrue to the transferor on the disposal.

(3)Subsection (2) above is subject to section 212.

(3)In section 35(3)(d) (re-basing: exceptions), after “171,” insert “ 211, ”.

Transfer schemes: old reinsurance businessE+W+S+N.I.

15In paragraph 57 of Schedule 8 to FA 1995 (application of provisions made by that Schedule), after sub-paragraph (2) (which disapplies section 442A of ICTA in relation to the reinsurance of policies and contracts made and reinsured before 29th November 1994) insert—E+W+S+N.I.

(3)Where business consisting of or including an arrangement for the reinsurance of a policy or contract made before 29th November 1994 which was effected before that date has been transferred by an insurance business transfer scheme sub-paragraph (2) has effect in relation to the transferee.

Power to amend transfer provisionsE+W+S+N.I.

16(1)The Treasury may by order make provision in relation to insurance business transfer schemes.E+W+S+N.I.

(2)The power conferred by sub-paragraph (1) includes power to amend or repeal any provision of the Corporation Tax Acts relating to insurance business transfer schemes and otherwise to amend the Corporation Tax Acts.

(3)The power conferred by sub-paragraph (1) includes power to make—

(a)different provision for different cases or otherwise for different purposes, and

(b)incidental, supplementary, consequential or transitional provisions and savings.

(4)Provision made by an order under this paragraph may be made so as to have effect in relation to periods of account current when it is made.

(5)No order may be made under this paragraph unless a draft of the statutory instrument containing it has been laid before the House of Commons before 1st April 2008 and has been approved by a resolution of that House.

CommencementE+W+S+N.I.

17(1)The amendments made by paragraphs 1 to 3 and 13 to 15 have effect in relation to periods of account beginning on or after 1st January 2007.E+W+S+N.I.

(2)The amendments made by paragraphs 4, 6 to 9, 10(3) to (5), 11 and 12 have effect in accordance with provision made by an order made by the Treasury.

(3)But the amendments made by paragraphs 11 and 12 also have effect in relation to periods of account beginning on or after 1st January 2007 where the transfer of business or demutualisation concerned took place before 21st March 2007.

(4)The amendment made by paragraph 5 has effect in relation to transfers of business with a transfer date after 21st March 2007.

(5)The amendment made by paragraph 10(2) has effect in relation to transfers taking place on or after 6th December 2006.

Section 41

SCHEDULE 10E+W+S+N.I.Insurance companies: miscellaneous

Contingent loansE+W+S+N.I.

1In section 83ZA(4) of FA 1989 (contingent loans), for “the end of the” substitute “ any time during a ”.E+W+S+N.I.

“Structural” assetsE+W+S+N.I.

2(1)In FA 1989, after section 83 insert—E+W+S+N.I.

83XAStructural assets

(1)Section 83(2) does not require to be taken into account as receipts or expenses of a period of account income from, or an increase or a decrease in the value of, structural assets held by an insurance company in a non-profit fund.

(2)For the purposes of subsection (1) above—

(a)an increase in the value of structural assets includes any amount by which their fair value when they cease to be structural assets, or come to be held otherwise than in any of the company's non-profit funds, exceeds their admissible value at the end of the preceding period of account, and

(b)a decrease in the value of structural assets includes any amount by which the admissible value of the assets at the end of the period of account in which they become structural assets, or come to be held in any of the company's non-profit funds, is less than their historic cost.

(3)In this section “structural assets” means—

(a)shares, debts and loans the value of which is required to be entered in lines 21 to 24 of Form 13 in the periodical return (UK insurance dependants and other insurance dependants), and

(b)assets of such other descriptions as are specified by regulations made by the Treasury.

(4)Where a structural asset held by an insurance company in a non-profit fund ceases to be a structural asset or comes to be held otherwise than in any of the company's non-profit funds and, immediately before it came to be a structural asset held in any of the company's non-profit funds it (or any part of it) was an asset of the company's long-term insurance fund, the relevant value difference is to be taken into account under section 83(2)—

(a)as a receipt (if it is a positive amount), or

(b)as an expense (if it is a negative amount),

of the relevant period of account.

(5)For the purposes of subsection (4) above “the relevant value difference”, in relation to an asset, is—

where—

HC is its historic cost, and

AV is its admissible value at the relevant time.

(6)In subsection (4) above “the relevant period of account” means—

(a)in a case within paragraph (a) of that subsection, the period of account in which the asset ceases to be a structural asset or comes to be held otherwise than in any of the company's non-profit funds, and

(b)in a case within paragraph (b) of that subsection, the period of account in which the asset first comes to be held otherwise than by the company or (where the company is a member of a group) otherwise than by a company which is a member of the group;

and section 170 of the Taxation of Chargeable Gains Act 1992 (meaning of “group” etc) has effect for the interpretation of this subsection.

(7)In subsection (5) above “the relevant time” means—

(a)in a case where assets become structural assets held in any of the company's non-profit funds by virtue of the commencement of this section, the end of the last period of account of the company beginning before 1st January 2007, and

(b)otherwise, the time when the assets become structural assets held in any of the company's non-profit funds.

(8)In this section “historic cost”, in relation to an asset which is or has been held in any of the company's non-profit funds, means—

(a)where the asset came to be held in any of the company's non-profit funds on acquisition from another person, the consideration given by the company for the acquisition of the asset, and

(b)otherwise, its fair value when it came to be held in any of the company's non-profit funds.

(9)In this section “admissible value”, in relation to an asset and a time, means the value of the asset as shown in column 1 of Form 13 of the periodical return for the period ending with that time (or as would be so shown if there were a periodical return covering a period ending with that time).

(10)Regulations made by the Treasury may make provision for computing for the purposes of the Taxation of Chargeable Gains Act 1992 any gain or loss arising on a disposal by an insurance company of a structural asset held in a non-profit fund in any case where the condition in subsection (11) is met.

(11)The condition in this subsection is met if, in any period of account of the company in which the asset was held by it—

(a)income arising from the asset was (or, had there been any, would have been) referable to any category of long-term business the profits of which fell for that period of account to be computed in accordance with the provisions applicable to Case I of Schedule D, or

(b)the company was charged to tax on the profits of its life assurance business under Case I of Schedule D.

(12)Structural assets held by an insurance company in a non-profit fund are to be treated as being within paragraph (f) of subsection (4) of section 440 of the Taxes Act 1988; but no disposal or re-acquisition is to be deemed to occur by virtue of an asset ceasing to be within any other paragraph of that subsection and coming within that paragraph on becoming such a structural asset.

(13)Structural assets held by an insurance company in a non-profit fund are to be treated as being “remaining” securities within section 440A(2)(e) of the Taxes Act 1988.

(14)Section 432A of the Taxes Act 1988 does not have effect in relation to income arising from, or gains and losses accruing on the disposal of, structural assets held by an insurance company in a non-profit fund.

(15)Regulations under subsection (3) or (10) above may be made so as to have effect in relation to periods of account current when they are made (as well as periods of account beginning later).

(2)In ICTA, omit section 444ACA (transfers of business).

(3)In section 432E(2A) of that Act, omit “444ACA(2),” and paragraph (b).

(4)In section 211 of TCGA 1992 (transfers of business: application of section 139 of that Act), as amended by paragraph 14 of Schedule 9 to this Act, after subsection (2) insert—

(2A)The reference in subsection (2) above to assets included in the transfer does not include structural assets within the meaning of section 83XA of the Finance Act 1989.

(5)In paragraph 17 of Schedule 7AC to TCGA 1992 (substantial shareholdings exemption: special rules for assets of insurance company's long-term insurance fund), after sub-paragraph (4) insert—

(4A)The reference in sub-paragraph (2) to an asset of the investing company's long-term insurance fund, and the references in sub-paragraphs (3) and (4) to shares or an interest in shares held as assets of its long-term insurance fund, do not include a structural asset, or structural assets, within the meaning of section 83XA of the Finance Act 1989.

Losses on disposal of authorised investment fund assets to connected managerE+W+S+N.I.

3In TCGA 1992, after section 210B insert—E+W+S+N.I.

210CLosses on disposal of authorised investment fund assets to connected manager

(1)Section 18(3) does not apply in relation to a loss accruing on the disposal by an insurance company of authorised investment fund assets to the manager of the authorised investment fund.

(2)In this section—

  • authorised investment fund assets” means assets of the company's long-term insurance fund consisting of rights under an authorised unit trust or shares in an open-ended investment company,

  • the manager of the authorised investment fund” means—

    (a)

    in the case of an authorised unit trust, the person who is the manager of the unit trust scheme for the purposes of Chapter 3 of Part 17 of the Financial Services and Markets Act 2000, and

    (b)

    in the case of an open-ended investment company, a director or other person having responsibility for the management of its scheme property, and

  • open-ended investment company” means a company incorporated in the United Kingdom to which section 236 of the Financial Services and Markets Act 2000 applies.

Priority of section 83(2) of FA 1989 etcE+W+S+N.I.

4(1)Section 83 of FA 1989 (receipts to be taken into account) is amended as follows.E+W+S+N.I.

(2)After subsection (2) insert—

(2ZA)Amounts brought into account as mentioned in subsection (2) above are not to be taken into account in any other way; and this subsection applies in spite of—

(a)section 80(5) of the Finance Act 1996 (taxation of loan relationships),

(b)paragraph 1(2) of Schedule 26 to the Finance Act 2002 (taxation of profits from derivative contracts), and

(c)paragraph 1(3) of Schedule 29 to that Act (gains and losses in respect of intangible fixed assets).

(3)In subsection (2A), after paragraph (aa) insert—

(ab)comprises a business transfer-in that is not brought into account in a revenue account prepared for the purposes of Chapter 9 of the Prudential Sourcebook (Insurers) in respect of the whole of the company's long-term business,.

(4)Omit—

(a)in section 502H of ICTA, in subsection (2), paragraph (b) and the word “and” before it and subsections (8) to (10),

(b)paragraph 2(2) and (3) to (5) of Schedule 11 to FA 1996,

(c)paragraph 19(1) to (3) of Schedule 12 to FA 1997, and

(d)paragraph 36(4) and (5) of Schedule 29 to FA 2002.

Tidying up of TCGA 1992E+W+S+N.I.

5(1)TCGA 1992 is amended as follows.E+W+S+N.I.

(2)In section 210B(6)(a) (disposal and acquisition of section 440A securities), for the words after “are” substitute “ assets within section 212(1). ”

(3)Omit—

(a)section 212(2A) (disapplication of section 212(1) to assets treated as representing rights under a creditor relationship),

(b)section 214 (rights under authorised unit trusts etc: transitional provisions), and

(c)section 214A (further transitional provisions).

Tidying up of Chapter 2 of Part 4 of FA 1996E+W+S+N.I.

6(1)Chapter 2 of Part 4 of FA 1996 (loan relationships) is amended as follows.E+W+S+N.I.

(2)In section 103(3) (loan relationships: interpretation), omit “or” at the end of paragraph (a) and after paragraph (b) insert or

(c)any basic life assurance and general annuity business,.

(3)In sub-paragraph (1) of paragraph 1A of Schedule 9 (life assurance policies), for the words after “relating to” substitute “ liabilities of an insurance company within paragraph (a) of the definition of “liabilities” in section 431(2) of the Taxes Act 1988. ”; and the italic heading before that paragraph accordingly becomes Insurance company liabilities.

(4)In Schedule 11, omit paragraph 1(1A) to (1C).

Correction of erroneous repealE+W+S+N.I.

7The repeals made by Schedule 3 to ITA 2007 in paragraph 11 of Schedule 6 to FA 1990 are deemed never to have had effect; but Schedule 3 to ITA 2007 is deemed to have included the repeal of the words before the paragraphs in sub-paragraph (1) of that paragraph.E+W+S+N.I.

Non-profit companies, non-profit funds and with-profits fundsE+W+S+N.I.

8(1)In section 431(2) of ICTA (interpretative provisions relating to insurance companies) insert at the appropriate place—E+W+S+N.I.

non-profit company”, in relation to a period of account, means a company carrying on long-term business where, at the end of the period—

(a)none of the liabilities of that business, or

(b)none but an insignificant proportion of those liabilities,

are with-profits liabilities;,

non-profit fund” means a fund that is not a with-profits fund;, and

with-profits fund” has the meaning given by the Prudential Sourcebook (Insurers);.

(2)Omit—

(a)in section 432YA(5) of ICTA, the definitions of “non-profit company” and “non-profit fund”,

(b)section 82D(5) of FA 1989,

(c)in section 83YA of that Act, subsection (8) and, in subsection (11), the definition of “with-profits fund”, and

(d)in section 83A of that Act, in subsections (2)(b) and (3D)(b) “(see subsection (6))” and subsection (6).

Internal linked funds and net valueE+W+S+N.I.

9(1)In section 431(2) of ICTA (interpretative provisions relating to insurance companies) insert at the appropriate place—E+W+S+N.I.

internal linked fund”, in relation to an insurance company, means an account—

(a)to which linked assets are appropriated by the company, and

(b)which may be divided into units the value of which is determined by the company by reference to the value of those assets;, and

net value”, in relation to any assets, means the excess of the value of the assets over the value of money debts (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996) attributable to an internal linked fund which are not owed in respect of liabilities;.

(2)Omit—

(a)in section 432ZA(6) of ICTA, the definition of “internal linked fund”,

(b)section 432A(9A) of that Act,

(c)the definition of “internal linked fund” in section 210B(8) of TCGA 1992, and

(d)paragraph 3A(6) of Schedule 11 to FA 1996.

Fair valueE+W+S+N.I.

10(1)In section 431(2) of ICTA (interpretative provisions relating to insurance companies) insert at the appropriate place—E+W+S+N.I.

fair value”, in relation to assets, means the amount which would be obtained from an independent person purchasing them or, if the assets are money, its amount;.

(2)In section 440 of ICTA (transfer of assets etc)—

(a)in subsections (1) and (2), for “market” substitute “ fair ”, and

(b)omit subsection (5).

(3)Omit—

(a)section 444AB(6) of ICTA (as originally enacted),

(b)in section 444AC(11) of that Act (as originally enacted), the words from the beginning to the end of the definition of “fair value”,

(c)section 444AD(5) of that Act,

(d)in section 83(8) of FA 1989, in the definition of “fair value”, paragraph (a), and

(e)section 83YB(5) of that Act.

Generalisation of definitionsE+W+S+N.I.

11(1)Section 431 of ICTA (interpretative provisions relating to insurance companies) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)This section has effect for the interpretation of the life assurance provisions of the Corporation Tax Acts.

(3)In subsection (2), insert at the appropriate place—

the life assurance provisions of the Corporation Tax Acts” means—

(a)the provisions of this Chapter so far as relating to life assurance business, companies carrying on such business and friendly societies, and

(b)any other provisions of the Corporation Tax Acts making separate provision by reference to whether or not the business of a company is or includes life assurance business or any category of business that includes life assurance business;.

12(1)Section 431A (power to amend) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for “insurance company taxation provision” substitute “ of the life assurance provisions of the Corporation Tax Acts ”.

(3)Omit subsection (7).

13In section 83A(1) of FA 1989 (“brought into account”)—E+W+S+N.I.

(a)omit “In sections 82A to 83B”, and

(b)for “those sections” substitute “ sections 82A to 83ZA ”.

14(1)Omit the following provisions.E+W+S+N.I.

(2)In ICTA—

(a)in section 12(7B), the words from the beginning to the end of the definition of “contracts of long-term insurance”,

(b)in section 76(15), “and other expressions have the same meaning as in Chapter 1 of Part 12”,

(c)in section 587B(9), “ “life assurance business” and related expressions have the same meaning as Chapter 1 of Part 12;”,

(d)in section 755A(12), the definition of “long-term insurance fund”,

(e)section 804F, and

(f)in paragraph 14(1) of Schedule 28AA, the definition of “insurance company”.

(3)In FA 1989—

(a)in section 85(2A), the second sentence,

(b)in section 89(6), the words from the beginning to “; and”, and

(c)section 90A.

(4)In paragraph 16(7) of Schedule 7 to FA 1991, the words from “and, subject to that,” to the end.

(5)In TCGA 1992—

(a)section 214BA, and

(b)paragraph 17(5) of Schedule 7AC.

(6)In FA 1996—

(a)in section 87A(2), “, within the meaning of Chapter 1 of Part 12 of the Taxes Act 1988,” and “(see section 431(2) of that Act)”,

(b)section 88(7),

(c)in paragraph 12(9) of Schedule 9, the definitions of “contracts of long-term insurance” and “overseas life insurance company”,

(d)in paragraph 20(3)(b) of that Schedule, “, within the meaning of Chapter 1 of Part 12 of the Taxes Act 1988,” and “(see section 431(2) of that Act)”, and

(e)in Schedule 11, paragraph 6.

(7)In paragraph 13(3) of Schedule 18 to FA 1998, the words after “1988”.

(8)In CAA 2001—

(a)section 257(3),

(b)section 544(5), and

(c)section 560(5)(a) and (c).

(9)In paragraph 31(1) of Schedule 22 to FA 2001, the definitions of “insurance company” and “life assurance business”.

(10)In FA 2002—

(a)in section 66(5), the words from the beginning to the end of the definition of “long-term insurance fund”,

(b)in paragraph 19(1) of Schedule 12, the definition of “life assurance business”,

(c)in paragraph 10(4) of Schedule 22, the words before the definition of “transfer scheme”,

(d)in Schedule 26—

(i)in sub-paragraph (1) of paragraph 12, the references to the expressions “Integrated Prudential Sourcebook” and “long-term insurance fund”,

(ii)sub-paragraphs (15) and (16) of that paragraph, and

(iii)in paragraph 54(1), the definitions of “insurance company”, “life assurance business”, “long-term insurance business” and “contract of long-term insurance”, and

(e)in Schedule 29, in paragraph 89(3), the definition of “contracts of long-term insurance” and paragraph 138(1).

(11)In Schedule 23 to FA 2003—

(a)in paragraph 30, the definitions of “insurance company” and “life assurance business”, and

(b)in paragraph 31, the entries relating to those definitions.

(12)Section 134(4)(c) of FA 2006.

Minor changesE+W+S+N.I.

15(1)In section 432ZA(5) of ICTA (linked assets), for “432F” substitute “ 432E ”.E+W+S+N.I.

(2)In section 434A(2A) of that Act (computation of losses and limitation on relief), for “paragraph 2” substitute “ paragraph 2(1) ”.

(3)In the heading of section 88 of FA 1989, for “fraction” substitute “ share ”.

(4)In paragraph 17 of Schedule 7 to FA 1991 (transitional provisions for chargeable gains and unrelieved general annuity business)—

(a)in sub-paragraph (4), for the words after “in an accounting period” substitute “ is so much of the chargeable gains arising to the company in the accounting period as are referable to its basic life assurance and general annuity business. ”, and

(b)omit sub-paragraphs (4A) and (5).

Obsolete etc provisionsE+W+S+N.I.

16(1)Omit the following provisions (which are obsolete or of limited value).E+W+S+N.I.

(2)In the Table in section 98 of TMA 1970, the words “or 441A(3)” in both columns.

(3)In ICTA—

(a)in section 76(7), in Step 3, the entries relating to section 587B(8)(b)(i) of ICTA and paragraph 23(2) of Schedule 13 to FA 2002,

(b)section 440(2A) and (2B) (transfer of assets: loan relationships and derivative contracts),

(c)section 442(4) (special rule for insurance companies ceasing to be resident in United Kingdom),

(d)section 443 (life policies carrying rights not in money),

(e)section 444 (life policies issued before 5th August 1965),

(f)section 587B(8) (gifts to charities etc: modifications for insurance companies), and

(g)in section 807A (disposals and acquisitions of company loan relationships with or without interest), subsections (4) and (5)(b) and, in subsection (6)(a), “or an insurance credit”.

(4)In FA 1989—

(a)section 84(2), (3), (5) and (6) (transitional provisions etc),

(b)in section 85(3) (commencement of provisions for charge of certain BLAGAB receipts), “(including the 1990 component period)”,

(c)in section 86 (spreading of relief for acquisition expenses), subsections (3) and (3A) and, in subsection (10), “(including the 1990 component period)”, and

(d)section 87 (management expenses).

(5)In FA 1996—

(a)paragraph 1(1) and (2) of Schedule 11 (loan relationships: I minus E basis),

(b)paragraph 4(6) of that Schedule (non-trading deficits: transitional provision),

(c)paragraph 5 of that Schedule (elections for accrual basis), and

(d)paragraph 1(3) of Schedule 15 (apportionment of loan relationship credits and debits: transitional provision).

(6)Paragraph 18 of Schedule 12 to FA 1997 (leasing arrangements: meaning of “accounting purposes” for insurance companies).

(7)Paragraph 86 of Schedule 18 to FA 1998 (non-annual actuarial investigations).

(8)Paragraph 4 of Schedule 6 to FA 1999 (reverse premiums etc).

(9)Section 87(3) and (4) of FA 2001 (tax credits etc).

(10)In Schedule 13 to FA 2002 (vaccine research), paragraphs 22, 23 and 25(3), and, in paragraph 27, the definition of “life assurance business”.

CommencementE+W+S+N.I.

17(1)The amendment made by paragraph 1 has effect on and after 10th May 2007.E+W+S+N.I.

(2)The amendments made by paragraphs 2, 4(2) and (4), 5, 6 and 8 to 15 have effect in relation to periods of account beginning on or after 1st January 2007.

(3)But the amendment made by paragraph 2(4) does not apply where the transfer of business concerned took place before 10th May 2007.

(4)The amendment made by paragraph 3 has effect in relation to losses accruing in a period of account beginning on or after 1st January 2007.

(5)The amendment made by paragraph 4(3) has effect in relation to periods of account beginning on or after 1st January 2005.

Section 42

SCHEDULE 11E+W+S+N.I.Technical provisions made by general insurers

Restriction on amount of technical provisions made by general insurersE+W+S+N.I.

1(1)This paragraph applies if a general insurer makes any technical provisions for a period of account.E+W+S+N.I.

(2)The amount of the technical provisions stated in the accounts for that period is to be taken into account in the calculation for tax purposes of the profits of the general insurer's trade for that period unless an officer of Revenue and Customs considers that that amount exceeds the appropriate amount.

(3)In that case—

(a)the excess is not to be taken into account in that calculation, and

(b)the profits of the general insurer's trade for the next period of account are to be adjusted accordingly for tax purposes.

(4)The appropriate amount” means such amount as is determined in accordance with regulations made by the Commissioners for Her Majesty's Revenue and Customs to be the appropriate amount to be taken into account in that calculation.

(5)Any such determination must be made by reference to the time at which the technical provisions are made.

EnforcementE+W+S+N.I.

2(1)This paragraph applies if an officer of Revenue and Customs gives a notice of enquiry under paragraph 24(1) of Schedule 18 to FA 1998 to a general insurer.E+W+S+N.I.

(2)The officer may by notice require the general insurer (at the general insurer's own expense) to provide the officer with a report as to whether (and, if so, the extent to which) the amount of any technical provisions stated in the accounts for any period covered by the company tax return into which the enquiry is made exceeds the appropriate amount.

(3)The report must cover such matters, and be in such form, as the officer may reasonably require for the purposes of the enquiry.

(4)The report must be made by a person who is appointed by the general insurer unless the officer requires the report to be made instead by another person.

(5)As soon as the general insurer appoints a person to make the report, the general insurer must give a notice to the officer specifying that person.

(6)A notice under sub-paragraph (2) must specify the time (which must not be less than 30 days) within which the general insurer is to comply with it.

(7)The following provisions of Schedule 18 to FA 1998—

(a)paragraph 28 (appeal against requirements imposed by notice under paragraph 27), and

(b)paragraph 29 (penalty for failure to comply with such a notice),

apply in relation to any notice under sub-paragraph (2) as they apply in relation to a notice under paragraph 27 of that Schedule.

(8)But the references in paragraph 28 of that Schedule to the provision of information are to be construed as references to the provision of a report under this paragraph.

SupplementaryE+W+S+N.I.

3(1)In paragraph 1 “general insurer” means—E+W+S+N.I.

(a)a company within the charge to corporation tax which carries on general business,

(b)a controlled foreign company (within the meaning of Chapter 4 of Part 17 of ICTA) which carries on general business, or

(c)members of a Lloyd's syndicate who carry on general business.

(2)In paragraph 2 “general insurer” means—

(a)a company within the charge to corporation tax which carries on general business, or

(b)a company which for the purposes of Chapter 4 of Part 17 of ICTA has an interest in a controlled foreign company (within the meaning of that Chapter) which carries on general business.

(3)For the purposes of sub-paragraphs (1) and (2) “general business” means business which consists of the effecting or carrying out of contracts that fall within Part 1 of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544).

(4)In the case of members of a Lloyd's syndicate, references in paragraph 1 to any accounts for a period are to the return of the syndicate's profits or loss for that period under regulation 4 of the Lloyd's Underwriters (Tax) Regulations 2005 (S.I. 2005/3338).

(5)In paragraph 1 “period of account”—

(a)except in the case of members of a Lloyd's syndicate, means a period of account for which an account is made up, and

(b)in the case of members of a Lloyd's syndicate, means an underwriting year in which profits or losses are declared for an earlier underwriting year.

(6)In paragraphs 1 and 2 “technical provisions”, except in the case of members of a Lloyd's syndicate, means any of the following—

(a)provisions for claims outstanding,

(b)provisions for unearned premiums, and

(c)provisions for unexpired risks.

(7)In paragraphs 1 and 2 “technical provisions”, in the case of members of a Lloyd's syndicate (“the syndicate”), means—

(a)so much of the reinsurance to close amounts of the members, and

(b)so much of the provisions made by an open Lloyd's syndicate of which any member of the syndicate is a member for claims outstanding, unearned premiums and unexpired risks,

as may be determined by or under regulations made by the Commissioners for Her Majesty's Revenue and Customs.

(8)For this purpose—

(a)the reference to reinsurance to close amounts of any member of a Lloyd's syndicate is to any consideration which, in accordance with the rules or practice of Lloyd's, is given (or any amount which, in accordance with those rules or practice, is treated as consideration given) by the member in respect of the liabilities arising from the member's underwriting business in an underwriting year for the purpose of closing the accounts of the business for that year, and

(b)a Lloyd's syndicate is an “open” Lloyd's syndicate at any time after the end of its closing year if, at that time, the accounts of its business for the underwriting year for which it was formed have not been closed,

and in paragraph (b) “closing year” has the same meaning as in Chapter 3 of Part 2 of FA 1993 or Chapter 5 of Part 4 of FA 1994.

(9)In this paragraph—

  • Lloyd's syndicate” means a syndicate of underwriting members of Lloyd's formed for an underwriting year, and

  • underwriting year” means the calendar year.

(10)In this paragraph references to provisions for claims outstanding, unearned premiums and unexpired risks have the same meaning as in Schedule 9A to the Companies Act 1985 (c. 6).

(11)The Commissioners for Her Majesty's Revenue and Customs may by regulations—

(a)provide in prescribed circumstances for paragraph 1 not to apply in relation to any member of a Lloyd's syndicate, or

(b)provide in prescribed circumstances for a reduction in relation to any member of a Lloyd's syndicate of the amount which (as a result of that paragraph) is not to be taken into account in the calculation mentioned in sub-paragraph (2) of that paragraph.

(12)The Treasury may by regulations amend sub-paragraphs (1) to (3) (definition of “general insurer”).

(13)In the event of any changes in the rules or practice of Lloyd's, the Commissioners for Her Majesty's Revenue and Customs may by regulations make such amendments of paragraph 1 and this paragraph as appear to the Commissioners to be expedient having regard to those changes.

(14)Regulations under section 182(1)(a) of FA 1993 or section 229(1)(a) of FA 1994 (assessment and collection of tax charged in case of Lloyd's underwriters) may, in particular, include provision applying paragraph 2 with modifications in the case of members of a Lloyd's syndicate.

(15)Regulations under paragraph 1 or this paragraph may—

(a)make different provision for different purposes, and

(b)make supplementary, incidental, consequential and transitional provision.

Repeal of section 107 of FA 2000E+W+S+N.I.

4In FA 2000, omit section 107 (general insurance reserves).E+W+S+N.I.

CommencementE+W+S+N.I.

5(1)Paragraphs 1 to 3 have effect in relation to periods of account ending on or after the day on which this Act is passed.E+W+S+N.I.

(2)The repeal of section 107 of FA 2000 made by paragraph 4 has effect as follows.

(3)The repeal of—

(a)subsections (1) to (3) of that section (technical provisions made by a general insurer proving to be excessive or insufficient),

(b)subsections (5) to (8) and (10) of that section so far as relating to those subsections, and

(c)subsections (9) and (12)(a) of that section (which relate to those subsections),

has effect in relation to any amount that would otherwise have been treated as a receipt or an expense of a trade in computing for tax purposes the profits of the trade for any period of account ending on or after the day on which this Act is passed.

(4)The repeal of—

(a)subsection (4) of that section (election for any part of technical provisions not to be taken into account in a period of account),

(b)subsections (5) to (8) and (10) of that section so far as relating to that subsection, and

(c)subsection (12)(b) of that section (which relates to that subsection),

has effect so that no election may be made under that subsection in respect of technical provisions made by a general insurer for any period of account which begins on or after that day.

(5)There is a restriction in relation to any election made by a general insurer under that subsection in respect of technical provisions made by the general insurer for the final election period.

(6)The restriction is that the amount of the part of those provisions which the general insurer elects not to be taken into account in computing for tax purposes the profits of the general insurer's trade for that period must not exceed 10% of the total amount of those provisions.

(7)In sub-paragraph (5) “the final election period”, in relation to any general insurer, means the general insurer's first period of account ending on or after the day on which this Act is passed.

Section 44

SCHEDULE 12E+W+S+N.I.Friendly societies: transfers to insurance companies etc

Exempt life or endowment businessE+W+S+N.I.

1(1)Section 460 of ICTA (exemption from tax in respect of life or endowment business) is amended as follows.E+W+S+N.I.

(2)In subsection (10A), after “the transfer” insert “ , other than any to which subsection (11) or (12) below applied immediately before the transfer had effect, ”.

(3)In subsection (11), for “thereafter continue to be tax exempt life or endowment business for the purposes of this Chapter.” substitute “ continue to be exempt from corporation tax (whether on income or chargeable gains) on profits arising from it. ”

(4)For subsection (12) substitute—

(12)Where at any time an insurance company acquires by way of transfer of engagements from a friendly society any life or endowment business consisting of business which—

(a)relates to contracts made before that time; and

(b)immediately before that time was tax exempt life or endowment business,

that business shall continue to be exempt from corporation tax (whether on income or chargeable gains) on profits arising from it.

(13)But if any contracts constituting or forming part of the business of a company covered by subsection (11) or (12) above are varied during an accounting period of the company so as to increase the premiums payable under them, the business relating to those contracts is not exempt from corporation tax for that or any subsequent accounting period.

(14)For the purposes of the Corporation Tax Acts any part of a company's business which is exempt from corporation tax by virtue of subsection (11) or (12) above shall be treated as a separate business from any other business carried on by the company.

(5)Insert at the end—

(15)The Treasury may by regulations provide that, where any part of the business of a company is exempt from corporation tax by virtue of subsection (11) or (12) above, the Corporation Tax Acts have effect subject to such modifications (or exceptions) as the Treasury consider appropriate.

(16)Regulations under subsection (15) above—

(a)may make different provision for different cases,

(b)may include any incidental, supplementary, consequential or transitional provisions which the Treasury consider appropriate, and

(c)may include retrospective provision.

2(1)Section 464 of ICTA (maximum benefits payable to members) is amended as follows.E+W+S+N.I.

(2)For the first sentence of subsection (1) substitute—

(1)Subject to subsections (2) and (3) below, a person is not entitled to have at any time outstanding contracts with any one or more friendly societies, registered branches or insurance companies which (taking them all together) are for the assurance of—

(a)more than £750 by way of gross sum under business which is afforded exemption from corporation tax by section 460, or

(b)more than £156 by way of annuity under such business.

(3)In subsection (3), for the words preceding the paragraphs substitute “ With respect to contracts for the assurance of gross sums under business which is afforded exemption from corporation tax by section 460, a person is not entitled to have outstanding at any time with any one or more friendly societies, registered branches or insurance companies— ”.

(4)In subsection (4A), for “tax exempt life or endowment business” substitute “ business which is afforded exemption from corporation tax by section 460 if they are ”.

(5)In subsection (6), for “member has outstanding with one or more society or branch” substitute “ person has outstanding with one or more societies, branches or companies ”.

(6)In subsection (7)—

(a)for “or registered branch” substitute “ , registered branch or insurance company ”,

(b)for “member” (in both places) substitute “ person ”, and

(c)for “or registered branches (taking together all such societies or branches throughout the United Kingdom)” substitute “ , registered branches or insurance companies (taken together) ”.

3In section 466(2) of ICTA, in the definition of “tax exempt life or endowment business”, for “(11)” substitute “ (10A) ”.E+W+S+N.I.

Other exempt businessE+W+S+N.I.

4(1)Section 461 of ICTA (exemption of registered friendly societies from tax in respect of business which is not life or endowment business) is amended as follows.E+W+S+N.I.

(2)After subsection (4) insert—

(4A)Where—

(a)at any time an insurance company acquires by way of transfer of engagements from a registered friendly society any business other than life or endowment business, and

(b)immediately before that time the society was exempt from corporation tax on profits arising from that business,

the insurance company shall be exempt from corporation tax on its profits arising from any part of that business which relates to contracts made before that time.

(4B)But if during an accounting period of the insurance company there is an increase in the scale of benefits which it undertakes to provide in the course of carrying on any such part of that business, the company shall not be exempt from corporation tax by virtue of subsection (4A) above for that or any subsequent accounting period.

(3)In subsection (5), after “(4)” insert “ or (4A) ”.

(4)Insert at the end—

(12)The Treasury may by regulations provide that, where any part of the business of a company is exempt from corporation tax by virtue of subsection (4) or (4A) above, the Corporation Tax Acts have effect subject to such modifications (or exceptions) as the Treasury consider appropriate.

(13)Regulations under subsection (12) above—

(a)may make different provision for different cases,

(b)may include any incidental, supplementary, consequential or transitional provisions which the Treasury consider appropriate, and

(c)may include retrospective provision.

5(1)Section 461B of ICTA (exemption of incorporated friendly societies from tax in respect of business which is not life or endowment business) is amended as follows.E+W+S+N.I.

(2)For subsection (6) substitute—

(6)But if during an accounting period of the company there is an increase in the scale of benefits which it undertakes to provide in the course of carrying on any such part of its business, the company shall not be exempt from corporation tax by virtue of subsection (5) above for that or any subsequent accounting period.

(6A)Where—

(a)at any time an insurance company acquires by way of transfer of engagements from a qualifying society any business other than life or endowment business, and

(b)immediately before that time the society was exempt from corporation tax on profits arising from that business,

the insurance company shall be exempt from corporation tax on its profits arising from any part of that business which relates to contracts made before that time.

(6B)But if during an accounting period of the insurance company there is an increase in the scale of benefits which it undertakes to provide in the course of carrying on any such part of that business, the company shall not be exempt from corporation tax by virtue of subsection (6A) above for that or any subsequent accounting period.

(3)In subsection (7), after “(5)” insert “ or (6A) ”.

(4)Insert at the end—

(8)The Treasury may by regulations provide that, where any part of the business of a company is exempt from corporation tax by virtue of subsection (5) or (6A) above, the Corporation Tax Acts have effect subject to such modifications (or exceptions) as the Treasury consider appropriate.

(9)Regulations under subsection (8) above—

(a)may make different provision for different cases,

(b)may include any incidental, supplementary, consequential or transitional provisions which the Treasury consider appropriate, and

(c)may include retrospective provision.

CommencementE+W+S+N.I.

6(1)The amendment made by sub-paragraph (2) of paragraph 1, so far as relating to section 460(11) of ICTA, and the amendments made by sub-paragraph (3) of that paragraph and paragraph 3 are deemed always to have had effect.E+W+S+N.I.

(2)The amendments made by paragraph 2 have effect in relation to contracts made after the passing of this Act.

(3)The amendment made by sub-paragraph (2) of paragraph 1, so far as relating to section 460(12) of ICTA, and the amendments made by sub-paragraph (4) of that paragraph and paragraphs 4(2) and (3) and 5(2) and (3) have effect in relation to transfers of engagements and conversions taking place on or after the day on which this Act is passed.

Prospective

Section 47

SCHEDULE 13E+W+S+N.I.Sale and repurchase of securities

Purpose of ScheduleE+W+S+N.I.

1(1)The purpose of this Schedule is to secure that in the case of an arrangement—E+W+S+N.I.

(a)which involves the sale of securities and the subsequent purchase of securities, and

(b)which equates, in substance, to a transaction for the lending of money at interest from or to a company (with the securities which were sold as collateral for the loan),

the charge to corporation tax in that case reflects the fact that the arrangement equates, in substance, to such a transaction.

(2)But this is not to be read as preventing the rules in this Schedule about corporation tax in respect of chargeable gains from having no effect in relation to debtor quasi-repos and creditor quasi-repos.

Meaning of debtor repoE+W+S+N.I.

2(1)For the purposes of this Schedule a company (“the borrower”) has a debtor repo if conditions A to E are met.E+W+S+N.I.

(2)Condition A is that under an arrangement the borrower receives from another person (“the lender”) any money or other asset (“the advance”).

(3)Condition B is that, in accordance with generally accepted accounting practice, the accounts of the borrower for the period in which the advance is received record a financial liability in respect of the advance.

(4)Condition C is that under the arrangement the borrower sells any securities at any time to the lender.

(5)Condition D is that the arrangement makes provision conferring a right or imposing an obligation on the borrower to buy those or similar securities at any subsequent time.

(6)Condition E is that, in accordance with generally accepted accounting practice, the subsequent buying of those or similar securities would extinguish the financial liability in respect of the advance recorded in the accounts of the borrower.

(7)For the purposes of conditions A to E references to the borrower include a partnership of which the borrower is a member.

Meaning of debtor quasi-repoE+W+S+N.I.

3(1)For the purposes of this Schedule a company (“the borrower”) has a debtor quasi-repo in any case if—E+W+S+N.I.

(a)the borrower does not have a debtor repo in that case, and

(b)conditions A to E are met in that case.

(2)Condition A is that under an arrangement the borrower receives any money or other asset (“the advance”).

(3)Condition B is that, in accordance with generally accepted accounting practice, the accounts of the borrower for the period in which the advance is received record a financial liability in respect of the advance.

(4)Condition C is that under that or any other arrangement the borrower or any other person sells any securities at any time.

(5)Condition D is that the arrangement or other arrangement—

(a)makes provision conferring a right or imposing an obligation on the borrower to buy the securities or any other securities at any subsequent time, or

(b)makes provision conferring such a right or imposing such an obligation on any other person and makes other relevant provision.

(6)For this purpose any arrangement makes “other relevant provision” if it makes provision—

(a)for the receipt of any money or other asset from the borrower under that arrangement for the purpose of enabling the other person to make that subsequent purchase, or

(b)for the discharge of any liability to the borrower under that arrangement for that purpose (whether by way of set off or otherwise).

(7)Condition E is that, in accordance with generally accepted accounting practice—

(a)the subsequent buying of the securities or the other securities by the borrower, or

(b)the receipt of the asset from the borrower, or the discharge of the liability to the borrower, under the arrangement or other arrangement,

would extinguish the financial liability in respect of the advance recorded in the accounts of the borrower.

(8)For the purposes of conditions A to E references to the borrower include a partnership of which the borrower is a member.

Ignoring effect on borrower of sale of securities: debtor repos, debtor quasi-repos and other arrangementsE+W+S+N.I.

4(1)This paragraph applies if a company (“the borrower”)—E+W+S+N.I.

(a)has a debtor repo or a debtor quasi-repo, or

(b)has a liability which is discharged under a relevant arrangement.

(2)A relevant arrangement is one in relation to which conditions C and D in paragraph 3 are met and the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage.

(3)For the purposes of the charge to corporation tax in respect of income of the borrower arising while the arrangement is in force, the Corporation Tax Acts have effect as if—

(a)the borrower held the securities that are initially sold for any period for which the arrangement is in force, and

(b)the borrower did not receive in that period amounts representative of income payable in respect of those securities.

(4)But—

(a)no amount is to be charged to corporation tax as a result of sub-paragraph (3)(a) unless it is, in accordance with generally accepted accounting practice, recognised in determining the borrower's profit or loss for that or any other period or taken into account in calculating the amounts which are so recognised, and

(b)there is the following exception to sub-paragraph (3) if the securities that are initially sold are overseas securities.

(5)In the case of any overseas dividend payable in respect of those securities, the entitlement of the borrower to double taxation relief in respect of that dividend is determined as if—

(a)sub-paragraph (3) were omitted,

(b)the borrower received a payment of an amount which is representative of that dividend,

(c)the payment were made under a requirement of the arrangement, and

(d)the payment were made on the date on which that dividend is payable.

(6)For the purposes of this paragraph “double taxation relief” means any relief given under or as a result of Part 18 of ICTA.

Relief for borrower for finance charges in respect of the advance: debtor repos and debtor quasi-reposE+W+S+N.I.

5(1)This paragraph applies if a company (“the borrower”) has a debtor repo or a debtor quasi-repo.E+W+S+N.I.

(2)The advance under the debtor repo or debtor quasi-repo is, in the case of the borrower, to be treated for the purposes of the loan relationship rules as a money debt which—

(a)is owed by the borrower or, if the borrower is a member of a partnership which receives the advance, by the partnership, and

(b)is owed to the person to whom the securities are initially sold.

(3)The arrangement is, in the case of the borrower, to be treated for the purposes of those rules as a transaction for the lending of money from which that debt is treated as arising for those purposes.

(4)Any amount which, in accordance with generally accepted accounting practice, is recorded in—

(a)the accounts of the borrower, or

(b)if the borrower is a member of a partnership which receives the advance, the accounts of the partnership,

as a finance charge in respect of the advance is to be treated for the purposes of the loan relationship rules and Part 15 of ITA 2007 (deduction of income tax at source) as interest payable under that debt.

(5)That interest is to be treated for those purposes as paid at the earlier of—

(a)the time when the relevant repurchase takes place, and

(b)the time when it becomes apparent that that repurchase will not take place.

(6)For this purpose “the relevant repurchase” means—

(a)if the borrower has a debtor repo, the subsequent buying of the securities or similar securities, and

(b)if the borrower has a debtor quasi-repo, the subsequent buying of the securities or other securities by the borrower, the receipt of the asset from the borrower or (as the case may be) the discharge of the liability to the borrower.

Ignoring sale and subsequent purchase for purposes of chargeable gains: debtor reposE+W+S+N.I.

6(1)This paragraph applies if—E+W+S+N.I.

(a)a company (“the borrower”) has a debtor repo, and

(b)the borrower (having sold the securities under the arrangement to the lender) is the only person with the right or obligation under the arrangement to buy those or similar securities at any subsequent time.

(2)The sale of the securities, and the subsequent purchase of those or similar securities, by the borrower under the arrangement are to be ignored for the purposes of corporation tax in respect of chargeable gains (but see sub-paragraph (5)).

(3)If at any time after the initial sale of the securities—

(a)it becomes apparent that the borrower will not subsequently buy those or similar securities under the arrangement, or

(b)the accounting condition ceases to be met,

the borrower is to be treated for the purposes of corporation tax in respect of chargeable gains as disposing of the securities at that time for a consideration equal to their market value at that time.

(4)The accounting condition ceases to be met if, in accordance with generally accepted accounting practice, the accounts of the borrower for any period after the one in which the advance is received do not record a financial liability in respect of the advance (except as a result of the subsequent purchase of the securities or similar securities).

(5)If sub-paragraph (3) applies because the accounting condition ceases to be met, any subsequent purchase of those or similar securities by the borrower under the arrangement is not to be ignored for the purposes of corporation tax in respect of chargeable gains as a result of this paragraph.

(6)For the purposes of this paragraph references to the borrower include a partnership of which the borrower is a member.

Meaning of creditor repoE+W+S+N.I.

7(1)For the purposes of this Schedule a company (“the lender”) has a creditor repo if conditions A to E are met.E+W+S+N.I.

(2)Condition A is that under an arrangement another person (“the borrower”) receives from the lender any money or other asset (“the advance”).

(3)Condition B is that, in accordance with generally accepted accounting practice, the accounts of the lender for the period in which the advance is made record a financial asset in respect of the advance.

(4)Condition C is that under the arrangement the borrower sells any securities at any time to the lender.

(5)Condition D is that the arrangement makes provision conferring a right or imposing an obligation on the lender to sell those or similar securities at any subsequent time.

(6)Condition E is that, in accordance with generally accepted accounting practice, the subsequent sale of those or similar securities would extinguish the financial asset in respect of the advance recorded in the accounts of the lender.

(7)For the purposes of conditions A to E references to the lender include a partnership of which the lender is a member.

Meaning of creditor quasi-repoE+W+S+N.I.

8(1)For the purposes of this Schedule a company (“the lender”) has a creditor quasi-repo in any case if—E+W+S+N.I.

(a)the lender does not have a creditor repo in that case, and

(b)conditions A to E are met in that case.

(2)Condition A is that under an arrangement another person receives from the lender any money or other asset (“the advance”).

(3)Condition B is that, in accordance with generally accepted accounting practice, the accounts of the lender for the period in which the advance is made record a financial asset in respect of the advance.

(4)Condition C is that under that or any other arrangement a person sells any securities at any time to the lender or any other person.

(5)Condition D is that the arrangement or other arrangement—

(a)makes provision conferring a right or imposing an obligation on the lender to sell the securities or any other securities at any subsequent time, or

(b)makes provision conferring such a right or imposing such an obligation on any other person and makes other relevant provision.

(6)For this purpose any arrangement makes “other relevant provision” if it makes provision—

(a)for the receipt of any money, securities or other asset from the lender under that arrangement for the purpose of enabling the other person to make that subsequent sale, or

(b)for the discharge of any liability to the lender under that arrangement for that purpose (whether by way of set off or otherwise).

(7)Condition E is that, in accordance with generally accepted accounting practice—

(a)the subsequent sale of the securities or the other securities by the lender, or

(b)the receipt of the asset from the lender, or the discharge of the liability to the lender, under the arrangement or other arrangement,

would extinguish the financial asset in respect of the advance recorded in the accounts of the lender.

(8)For the purposes of conditions A to E references to the lender include a partnership of which the lender is a member.

Ignoring effect on lender of sale of securities: creditor repos and creditor quasi-reposE+W+S+N.I.

9(1)This paragraph applies if a company (“the lender”) has a creditor repo or a creditor quasi-repo.E+W+S+N.I.

(2)For the purposes of the charge to corporation tax in respect of income of the lender arising while the arrangement is in force, the Corporation Tax Acts have effect as if—

(a)the lender did not hold the securities that are initially sold for any period for which the arrangement is in force, and

(b)the lender did not make in that period any payment representative of income payable in respect of those securities.

(3)But—

(a)an amount is not to be ignored for the purposes of that charge as a result of sub-paragraph (2)(a) if it is, in accordance with generally accepted accounting practice, recognised in determining the lender's profit or loss for that or any other period or taken into account in calculating the amounts which are so recognised, and

(b)a payment is not to be ignored for those purposes as a result of sub-paragraph (2)(b) if the payment is, in accordance with that practice, so recognised.

(4)Nothing in sub-paragraph (3)(b) affects the question whether (apart from that provision) the payment (or any part of it) may be deducted in calculating any income for corporation tax purposes or against total profits.

Charge on lender for finance return in respect of the advance: creditor repos and creditor quasi-reposE+W+S+N.I.

10(1)This paragraph applies if a company (“the lender”) has a creditor repo or a creditor quasi-repo.E+W+S+N.I.

(2)The advance under the creditor repo or creditor quasi-repo is, in the case of the lender, to be treated for the purposes of the loan relationship rules as a money debt which—

(a)is owed to the lender or, if the lender is a member of a partnership which makes the advance, to the partnership, and

(b)is owed by the person who initially sold the securities.

(3)The arrangement is, in the case of the lender, to be treated for the purposes of those rules as a transaction for the lending of money from which that debt is treated as arising for those purposes.

(4)Any amount which, in accordance with generally accepted accounting practice, is recorded in—

(a)the accounts of the lender, or

(b)if the lender is a member of a partnership which makes the advance, the accounts of the partnership,

as a finance return in respect of the advance is to be treated for those purposes as interest receivable under that debt.

(5)That interest is to be treated for those purposes as received at the earlier of—

(a)the time when the relevant repurchase takes place, and

(b)the time when it becomes apparent that that repurchase will not take place.

(6)For this purpose “the relevant repurchase” means—

(a)if the lender has a creditor repo, the subsequent sale of the securities or similar securities, and

(b)if the lender has a creditor quasi-repo, the subsequent sale of the securities or other securities by the lender, the receipt of the asset from the lender or (as the case may be) the discharge of the liability to the lender.

Ignoring purchase and subsequent sale for purposes of chargeable gains: creditor reposE+W+S+N.I.

11(1)This paragraph applies if—E+W+S+N.I.

(a)a company (“the lender”) has a creditor repo, and

(b)the lender (having bought the securities under the arrangement from the borrower) is the only person with the right or obligation under the arrangement to sell those or similar securities at any subsequent time.

(2)The purchase of the securities, and the subsequent sale of those or similar securities, by the lender under the arrangement are to be ignored for the purposes of corporation tax in respect of chargeable gains (but see sub-paragraph (5)).

(3)If at any time after the initial purchase of the securities—

(a)it becomes apparent that the lender will not subsequently sell those or similar securities under the arrangement, or

(b)the accounting condition ceases to be met,

the lender is to be treated for the purposes of corporation tax in respect of chargeable gains as acquiring the securities at that time for a consideration equal to their market value at that time.

(4)The accounting condition ceases to be met if, in accordance with generally accepted accounting practice, the accounts of the lender for any period after the one in which the advance is made do not record a financial asset in respect of the advance (except as a result of the subsequent sale of the securities or similar securities).

(5)If sub-paragraph (3) applies because the accounting condition ceases to be met, any subsequent sale of those or similar securities by the lender under the arrangement is not to be ignored for the purposes of corporation tax in respect of chargeable gains as a result of this paragraph.

(6)For the purposes of this paragraph references to the lender include a partnership of which the lender is a member.

Repo under arrangement designed to produce quasi-interest: anti-avoidanceE+W+S+N.I.

12(1)This paragraph applies if—E+W+S+N.I.

(a)under an arrangement a person receives any money or other asset (“the advance”) from a company (or a partnership of which the company is a member),

(b)the company does not have a creditor repo or creditor quasi-repo by reference to the arrangement but would have one on the applicable accounting assumption (reading condition E in paragraphs 7 and 8 in the light of that assumption),

(c)the arrangement is designed to produce a return (“the quasi- interest”) to the company (or partnership of which it is a member) which equates, in substance, to the return on an investment of money at interest, and

(d)the main purpose, or one of the main purposes, of the arrangement is the obtaining of a tax advantage.

(2)Paragraph 10 is to have effect as if—

(a)the company had a creditor repo by reference to the arrangement, and

(b)the quasi-interest were an amount recorded as mentioned in sub-paragraph (4) of that paragraph.

(3)In this paragraph “the applicable accounting assumption” is the assumption that, in accordance with generally accepted accounting practice, the accounts of the company (or the partnership of which it is a member) for the period in which the advance is made record a financial asset in respect of the advance.

Requirements to deduct tax from manufactured payments: creditor repos and debtor reposE+W+S+N.I.

13(1)If a company has a creditor repo, Chapter 9 of Part 15 of ITA 2007 (deduction of income tax at source: manufactured payments) has effect in relation to the lender while the arrangement is in force as if—E+W+S+N.I.

(a)the lender paid the borrower amounts which are representative of the income payable on the securities that are initially sold,

(b)the payments were made under requirements of the arrangement, and

(c)the payments were made on the dates on which the income is payable.

(2)If a company has a debtor repo, the reverse charge provisions of Chapter 9 of Part 15 of ITA 2007 have effect in relation to the borrower while the arrangement is in force as if—

(a)the lender paid the borrower amounts which are representative of the income payable on the securities that are initially sold,

(b)the payments were made under requirements of the arrangements, and

(c)the payments were made on the dates on which the income is payable.

(3)If sub-paragraph (1) or (2) applies, any payment actually made under an arrangement which is representative of any income payable on any securities is to be treated for the purposes of Chapter 9 of Part 15 of ITA 2007 as if it had not been made.

(4)In this paragraph “the reverse charge provisions of Chapter 9 of Part 15 of ITA 2007” means—

(a)regulations under section 918(4) of ITA 2007 (manufactured dividends on UK shares (Real Estate Investment Trusts): the reverse charge),

(b)section 920 of that Act (foreign payers of manufactured interest: the reverse charge), and

(c)section 923 of that Act (foreign payers of manufactured overseas dividends: the reverse charge).

Interpretation etcE+W+S+N.I.

14(1)In this Schedule—E+W+S+N.I.

  • arrangement” includes any agreement or understanding (whether or not legally enforceable),

  • creditor quasi-repo” has the meaning given by paragraph 8,

  • creditor repo” has the meaning given by paragraph 7,

  • debtor quasi-repo” has the meaning given by paragraph 3,

  • debtor repo” has the meaning given by paragraph 2,

  • discharge”, in relation to a liability, means the discharge of the liability in whole or in part (and “discharged” is to be read accordingly),

  • the loan relationship rules” means the provisions of Chapter 2 of Part 4 of FA 1996,

  • market value” has the same meaning as in TCGA 1992,

  • overseas dividend”, in relation to overseas securities, means any interest, dividend or other annual payment payable in respect of the securities,

  • overseas securities” means shares, stock or other securities issued by—

    (a)

    a government or public or local authority of a territory outside the United Kingdom, or

    (b)

    any other body of persons not resident in the United Kingdom,

  • “securities” (except in the definition of “overseas securities”) means shares, stock or other securities issued by—

    (a)

    the government of the United Kingdom,

    (b)

    any public or local authority in the United Kingdom, or

    (c)

    any company or other body resident in the United Kingdom,

    or overseas securities, and

  • tax advantage” has the meaning given by section 840ZA of ICTA.

(2)For the purposes of this Schedule references to a person's receiving any asset include the person's obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it.

(3)For the purposes of this Schedule—

(a)in any case where a person buys securities (or has a right or obligation to buy securities) but the securities are (or are to be) held for another person's benefit, that other person is treated as buying (or having the right or obligation to buy) the securities, and

(b)in any case where a person sells securities but the proceeds of the sale are held for another person's benefit, that other person is treated as selling the securities.

(4)For the purposes of this Schedule securities are similar if they entitle their holders to—

(a)the same rights against the same persons as to capital, interest and dividends, and

(b)the same remedies for the enforcement of those rights,

in spite of any difference in the total nominal amounts of the respective securities or in the form in which they are held or the manner in which they can be transferred.

(5)For the purposes of this Schedule it does not matter whether or not provision of any arrangement conferring a right or imposing an obligation on any person to buy any securities is subject to any conditions.

(6)For the purposes of this Schedule an arrangement is in force from the time when the securities are initially sold until the earlier of—

(a)the time when the relevant repurchase takes place, and

(b)the time when it becomes apparent that that repurchase will not take place.

(7)For this purpose “the relevant repurchase” means—

(a)in the case of a debtor repo, the subsequent buying of the securities or similar securities,

(b)in the case of a debtor quasi-repo, the subsequent buying of the securities or other securities by the borrower, the receipt of the asset from the borrower or (as the case may be) the discharge of the liability to the borrower,

(c)in the case of a creditor repo, the subsequent sale of the securities or similar securities, and

(d)in the case of a creditor quasi-repo, the subsequent sale of the securities or other securities by the lender, the receipt of the asset from the lender or (as the case may be) the discharge of the liability to the lender.

(8)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 or income statement,

(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 calculating the company's profits and losses for that period.

(9)In determining for the purposes of this Schedule whether an amount is recorded as a financial asset or liability in respect of the advance it is to be assumed that the period of account in which the advance is received or made ended immediately after the receipt or making of the advance.

(10)For the purposes of paragraphs 6(4) and 11(4)—

(a)any period of account in which the advance is received or made is treated as if it ended immediately after the receipt or making of the advance, and

(b)a new period of account is treated as beginning immediately after the end of that period.

(11)If any person does not draw up accounts in accordance with generally accepted accounting practice, this Schedule applies as if the accounts had been drawn up by the person in accordance with that practice.

Power to modify ScheduleE+W+S+N.I.

15(1)The Treasury may by regulations provide for all or any of the provisions of this Schedule to apply with modifications in relation to either or both of the following cases—E+W+S+N.I.

(a)non-standard repo cases (see sub-paragraphs (2) to (5)), and

(b)cases involving redemption arrangements (see sub-paragraph (6)).

(2)A case is a non-standard repo case if—

(a)a company has a repo,

(b)there has been a sale of the securities under the arrangement or arrangements by reference to which the company has the repo, and

(c)any of conditions A to C are met in relation to the repo.

(3)Condition A is that those securities, or similar or other securities, are not subsequently bought under the arrangement or arrangements.

(4)Condition B is that provision is made by or under an arrangement for different or additional securities to be treated as, or as included with, securities which, for the purposes of the subsequent purchase, are to represent those initially sold.

(5)Condition C is that provision is made by or under an arrangement for securities to be treated as not so included.

(6)A case involves redemption arrangements if—

(a)arrangements, corresponding to those made in cases where a company has a repo, are made in relation to securities that are to be redeemed in the period after their sale, and

(b)the arrangements are such that a person (instead of having the right or obligation to buy those securities, or similar or other securities, at any subsequent time) has a right or obligation in respect of the benefits that will result from the redemption.

(7)The regulations may—

(a)make different provision for different cases, and

(b)contain incidental, supplemental, consequential and transitional provision and savings.

(8)Regulations about paragraph 6 or 11 may, in particular, include modifications of TCGA 1992 in relation to cases where, as a result of the regulations, any acquisition or disposal is excluded from those which are to be ignored for the purposes of corporation tax in respect of chargeable gains.

(9)In this paragraph—

  • “modifications” include exceptions and omissions, and

  • repo” means—

    (a)

    a debtor repo or debtor quasi-repo, or

    (b)

    a creditor repo or creditor quasi-repo (including anything treated, as a result of paragraph 12, as a creditor repo for the purposes of paragraph 10).

Section 47

SCHEDULE 14E+W+S+N.I.Sale and repurchase of securities: minor and consequential amendments

Income and Corporation Taxes Act 1988 (c. 1)E+W+S+N.I.

1ICTA is amended as follows.E+W+S+N.I.

2(1)Section 231AA (no tax credit for borrower under stock lending arrangement or interim holder under repurchase agreement) is amended as follows.E+W+S+N.I.

(2)In subsection (1)—

(a)for “the interim holder under a repurchase agreement” substitute “ the lender under a creditor repo or creditor quasi-repo ”, and

(b)for “or agreement” (in both places) substitute “ or repo in question ”.

(3)For subsection (3) substitute—

(3)In this section creditor repo and “creditor quasi-repo” have the meaning given by Schedule 13 to the Finance Act 2007.

(4)In subsection (4), omit “or 737A(5)”.

(5)After that subsection insert—

(5)For the purposes of this section a person is taken to have paid a manufactured dividend representative of a distribution in respect of securities to which a creditor repo relates if (as a result of paragraph 13(1) of Schedule 13 to the Finance Act 2007) the person is treated for the purposes of Chapter 9 of Part 15 of ITA 2007 as making a payment which is representative of the income payable on the securities.

3(1)Section 231AB (no tax credit for original owner under repurchase agreement in respect of certain manufactured dividends) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for paragraphs (a) to (c) substitute—

(a)the person is the borrower under a debtor repo or debtor quasi-repo;

(b)the qualifying distribution is a manufactured dividend paid to the borrower in consequence of that repo; and

(c)the arrangement or arrangements in relation to that repo are not such that the actual dividend which the manufactured dividend represents is receivable otherwise than by the borrower under that repo.

(3)For subsection (2) substitute—

(2)In this section “debtor repo” and “debtor quasi-repo” have the meaning given by Schedule 13 to the Finance Act 2007.

4Omit sections 730A and 730B (treatment of price differential on sale and repurchase of securities).E+W+S+N.I.

5Omit section 730BB (exchange gains and losses on sale and repurchase of securities).E+W+S+N.I.

6(1)Section 731 (purchase and sale of securities: application and interpretation of sections 732 to 734) is amended as follows.E+W+S+N.I.

(2)In subsection (2A)—

(a)omit “section 737A(5) below or”, and

(b)after “2007” insert “ or paragraph 13(1) of Schedule 13 to the Finance Act 2007 ”.

(3)For subsection (2F) substitute—

(2F)For the purposes of subsections (2B) to (2E) above—

(a)agreements are related if they are entered into in pursuance of the same arrangement (regardless of the date on which either agreement is entered into); and

(b)references to buying back securities include buying similar securities even if the securities bought have not previously been held by the purchaser (and references in those subsections to repurchase are to be construed accordingly).

(2G)For the purposes of subsection (2F) above securities are similar if they entitle their holders to—

(a)the same rights against the same persons as to capital, interest and dividends, and

(b)the same remedies for the enforcement of those rights,

in spite of any difference in the total nominal amounts of the respective securities or in the form in which they are held or the manner in which they can be transferred.

7Omit sections 737A to 737C (sale and repurchase of securities: deemed manufactured payments).E+W+S+N.I.

8Omit section 737E (power to modify sections 730A, 730BB and 737A to 737C).E+W+S+N.I.

9In section 774E(4) (exceptions to sections 774B and 774D), for paragraph (b) (together with the “or” at the end of it) substitute—E+W+S+N.I.

(b)Schedule 13 to the Finance Act 2007 (sale and repurchase of securities) applies, or.

10In section 807A (disposals and acquisitions of company loan relationships with or without interest), for subsection (6A) substitute—E+W+S+N.I.

(6A)In this section “repo or stock-lending arrangements” means—

(a)a debtor repo within the meaning of paragraph 2 of Schedule 13 to the Finance Act 2007, or

(b)a stock lending arrangement within the meaning of section 263B of the 1992 Act.

(6B)In any case where a debtor repo within the meaning of that paragraph constitutes the repo or stock-lending arrangements—

(a)a reference in this section, in relation to those arrangements, to the initial transfer is to the sale mentioned in condition C of that paragraph; and

(b)a reference in this section, in relation to those arrangements, to the period for which they have effect is to the period from the making of the initial transfer until the earlier of the time when the subsequent purchase mentioned in condition D of that paragraph takes place and the time when it becomes apparent that that subsequent purchase will not take place.

(6C)In any case where a stock lending arrangement within the meaning of section 263B of the 1992 Act constitutes the repo or stock-lending arrangements—

(a)a reference in this section, in relation to those arrangements, to the initial transfer is to the transfer mentioned in subsection (1)(a) of that section; and

(b)a reference in this section, in relation to those arrangements, to the period for which they have effect is to the period from the making of the initial transfer until the earlier of the time when the transfer mentioned in subsection (1)(b) of that section takes place and the time when it becomes apparent that that transfer will not take place.

Taxation of Chargeable Gains Act 1992 (c. 12)E+W+S+N.I.

11TCGA 1992 is amended as follows.E+W+S+N.I.

12(1)Section 263A (agreements for sale and repurchase of securities) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for the words from the beginning to “were different” substitute “ Subject to subsections (3) and (4) below, in any case falling within section 607(1) of ITA 2007 (treatment of price differences under repos) ”.

(3)After that subsection insert—

(1A)If, at any time after the acquisition mentioned in subsection (1)(a) above, it becomes apparent that the interim holder will not dispose of the securities to the repurchaser, the interim holder shall be treated for the purposes of capital gains tax as acquiring them at that time for a consideration equal to their market value at that time.

(1B)If, at any time after the disposal mentioned in subsection (1)(b) above, it becomes apparent that the original owner will not acquire the securities as the repurchaser, the original owner shall be treated for the purposes of capital gains tax as disposing of them at that time for a consideration equal to their market value at that time.

(4)Omit subsection (2).

(5)For subsections (5) and (6) substitute—

(5)Expressions used in this section and section 607 of ITA 2007 have the same meaning in this section as in that section.

(6)This section does not apply for the purposes of corporation tax in respect of chargeable gains.

(6)The heading accordingly becomes Agreements for sale and repurchase of securities: capital gains tax.

13(1)For paragraph 12 of Schedule 7AC substitute—E+W+S+N.I.

12(1)This paragraph applies where—

(a)a company (“the borrower”) which holds shares in another company sells the shares under an arrangement by reference to which the borrower has a debtor repo, and

(b)by virtue of paragraph 6 of Schedule 13 to the Finance Act 2007 (sale and repurchase of securities) the sale is ignored for the purposes of corporation tax in respect of chargeable gains.

(2)For the period for which the arrangement is in force—

(a)the borrower shall be treated for the purposes of this Part as continuing to hold the shares and accordingly as retaining its entitlement to any rights attaching to them, and

(b)the lender shall be treated for those purposes as not holding the shares and as not becoming entitled to any such rights.

This is subject to the following qualification.

(3)If at any time before the end of that period the borrower, or another member of the same group as the borrower, becomes the holder—

(a)of any of the shares, or

(b)of any shares directly or indirectly representing any of them,

sub-paragraph (2) does not apply after that time in relation to those shares or, as the case may be, the shares represented by them.

(4)Expressions used in this paragraph and in Schedule 13 to the Finance Act 2007 have the same meaning in this paragraph as in that Schedule.

Finance Act 1996 (c. 8)E+W+S+N.I.

14Chapter 2 of Part 4 of FA 1996 (loan relationships) is amended as follows.E+W+S+N.I.

15In section 91C(3) (shares treated as loan relationships: condition 1 for section 91B(6)(b)), for paragraph (f) substitute—E+W+S+N.I.

(f)rights under a creditor repo within the meaning of paragraph 7 of Schedule 13 to the Finance Act 2007;.

16(1)Section 97 (manufactured interest) is amended as follows.E+W+S+N.I.

(2)In subsection (4), for “sections 736B(2) and 737A(5) of the Taxes Act 1988 for cases” substitute “ section 736B(2) of the Taxes Act 1988 for a case ”.

(3)After subsection (4A) insert—

(4B)This section is subject to Schedule 13 to the Finance Act 2007 (sale and repurchase of securities).

17In section 100 (money debts etc not arising from the lending of money), omit subsection (2A).E+W+S+N.I.

18For paragraph 15 of Schedule 9 (and the italic cross-heading before it) substitute—E+W+S+N.I.

Repo and stock-lending transactions and other transactions where a company ceases to be party to a loan relationshipE+W+S+N.I.

15(1)This paragraph applies if—

(a)a company ceases to be a party to a loan relationship in any period (whether as a result of the disposal of the rights or liabilities under the relationship under a repo or stock lending arrangement or otherwise), but

(b)amounts in respect of the relationship are, in accordance with generally accepted accounting practice, nonetheless recognised in determining the company's profit or loss for that period or any subsequent period.

(2)Despite ceasing to be a party to the relationship—

(a)the company is to bring into account amounts in respect of the relationship for those periods for the purposes of this Chapter, and

(b)