E+W+S+N.I.

Corporation Tax Act 2009

2009 CHAPTER 4

An Act to restate, with minor changes, certain enactments relating to corporation tax; and for connected purposes.

[26th March 2009]

Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

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

[F1A1Overview of the Corporation Tax ActsE+W+S+N.I.

(1)The main Acts relating to corporation tax are—

(a)this Act (which covers the ground described in section 1),

(b)CTA 2010 (which covers the ground described in section 1 of that Act), and

(c)TCGA 1992 (so far as relating to chargeable gains accruing to a company in respect of which the company is chargeable to corporation tax).

(2)Enactments relating to corporation tax are also contained in other Acts: see in particular—

F2(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F3(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)Schedule 18 to FA 1998 (company tax returns, assessments and related matters),

(d)Schedule 22 to FA 2000 (tonnage tax),

(e)CAA 2001 (allowances for capital expenditure),

(f)Part 2 of TIOPA 2010 (double taxation relief),

(g)Parts 4 and 5 of that Act (transfer pricing and advance pricing agreements),

(h)Part 6 of that Act (tax arbitrage),

(i)Part 7 of that Act (tax treatment of financing costs and income), F4...

(j)Part 8 of that Act (offshore funds).

[F5(ja)Part 9A of that Act (controlled foreign companies),]

[F6(k)Part 2 of FA 2012 (insurance companies carrying on long-term business),][F7, and

(l)Part 3 of that Act (friendly societies carrying on long-term business).]

(3)Schedule 1 to the Interpretation Act 1978 defines “the Corporation Tax Acts” as the enactments relating to the taxation of the income and chargeable gains of companies and of company distributions (including provisions relating to income tax).]

1Overview of ActE+W+S+N.I.

(1)Part 2 of this Act contains basic provisions about the charge to corporation tax including—

(a)the imposition of the charge to corporation tax on the income and chargeable gains of companies (referred to collectively as “profits”), (see section 2),

(b)the exclusion of income and chargeable gains subject to corporation tax from income tax and capital gains tax (see sections 3 and 4),

(c)provision about the territorial scope of the charge to corporation tax (see section 5 and [F8Chapters 3A and 4]),

(d)provision about how corporation tax is charged and assessed, in particular its charging and assessment by reference to accounting periods (see section 8),

(e)provision about accounting periods (see Chapter 2), and

(f)rules for determining the residence of companies (see Chapter 3).

(2)Under section 2(4) the charge to corporation tax on income has effect in accordance with the provisions of the Corporation Tax Acts that deal with its application, the main provisions of this Act that do so being—

(a)Part 3 (trading income),

(b)Part 4 (property income),

(c)Parts 5 and 6 (profits arising from loan relationships),

(d)Part 7 (profits arising from derivative contracts),

(e)Part 8 (gains in respect of intangible fixed assets),

(f)Part 9 (profits arising from disposals of know-how and sales of patent rights),

[F9(fa)Part 9A (company distributions),] and

(g)Part 10 (miscellaneous income).

(3)Part 7 also applies the charge to corporation tax on chargeable gains to certain profits arising from derivative contracts.

(4)Parts 5 to 8 also deal with how deficits or losses arising from, or in respect of, the matters to which they relate are brought into account for corporation tax purposes.

(5)The following Parts provide relief for particular types of expenditure—

(a)Part 11 (relief for particular employee share acquisition schemes),

(b)Part 12 (other relief for employee share acquisitions),

(c)Part 13 (additional relief for expenditure on research and development),

(d)Part 14 (remediation of contaminated land), and

(e)Part 15 (film production).

(6)The following Parts contain special rules for particular cases—

(a)Part 15 (film production),

(b)Part 16 (companies with investment business),

(c)Part 17 (partnerships), and

(d)Part 18 (unremittable income).

(7)The following Parts contain provisions of general application—

(a)Part 19 (general exemptions),

(b)Part 20 (general calculation rules), and

(c)Part 21 (other general provisions, including definitions for the purposes of the Act).

(8)For abbreviations and defined expressions used in this Act, see section 1312 and Schedule 4.

Annotations:

Amendments (Textual)

F8Words in s. 1(1)(c) substituted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 2, 31

F9S. 1(2)(fa) inserted (with effect in accordance with Sch. 14 para. 31 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 14 para. 21

Part 2E+W+S+N.I.Charge to corporation tax: basic provisions

Chapter 1E+W+S+N.I.The charge to corporation tax

Charge to tax on profitsE+W+S+N.I.

2Charge to corporation taxE+W+S+N.I.

(1)Corporation tax is charged on profits of companies for any financial year for which an Act so provides.

(2)In this Part “profits” means income and chargeable gains, except in so far as the context otherwise requires.

(3)In this Act “the charge to corporation tax on income” means the charge under subsection (1) so far as relating to income.

(4)The charge to corporation tax on income has effect in accordance with the provisions of the Corporation Tax Acts that deal with its application.

3Exclusion of charge to income taxE+W+S+N.I.

(1)The provisions of the Income Tax Acts relating to the charge to income tax do not apply to income of a company if—

(a)the company is UK resident, or

(b)the company is not UK resident and the income is within its chargeable profits as defined by section 19.

(2)Subsection (1) does not apply to income accruing to a company in a fiduciary or representative capacity.

4Exclusion of charge to capital gains taxE+W+S+N.I.

Capital gains tax is not charged on gains accruing to a company in respect of which the company is chargeable to corporation tax, or would be so chargeable but for an exemption.

General scheme of corporation taxE+W+S+N.I.

5Territorial scope of chargeE+W+S+N.I.

(1)A UK resident company is chargeable to corporation tax on all its profits wherever arising [F10(but see Chapter 3A for an exemption from charge in respect of profits of foreign permanent establishments)].

(2)A non-UK resident company is within the charge to corporation tax only if it carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom.

(3)A non-UK resident company which carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom is chargeable to corporation tax on all its profits wherever arising that are chargeable profits as defined in section 19 (profits attributable to its permanent establishment in the United Kingdom).

(4)Subsections (1) and (3) are subject to any exceptions provided for by the Corporation Tax Acts.

6Profits accruing in fiduciary or representative capacityE+W+S+N.I.

(1)A company is not chargeable to corporation tax on profits which accrue to it in a fiduciary or representative capacity except as respects its own beneficial interest (if any) in the profits.

(2)The exception under subsection (1) from chargeability does not apply to profits arising in the winding up of the company.

7Profits accruing under trustsE+W+S+N.I.

Profits that accrue for the benefit of a company under a trust are treated for the purposes of the charge to corporation tax under section 2(1) as accruing directly to the company.

8How tax is charged and assessedE+W+S+N.I.

(1)Corporation tax for a financial year is charged on profits arising in the year.

(2)Corporation tax is calculated and chargeable, and assessments to corporation tax are made, by reference to accounting periods.

(3)Corporation tax which is assessed and charged for an accounting period of a company is assessed and charged on the full amount of profits arising in the accounting period.

(4)Subsection (3) is subject to any contrary provision in the Corporation Tax Acts.

(5)If a company's accounting period falls within more than one financial year, the amount of the profits arising in the accounting period that is chargeable to corporation tax must be apportioned between the financial years in which the accounting period falls.

Chapter 2E+W+S+N.I.Accounting periods

9Beginning of accounting periodE+W+S+N.I.

(1)An accounting period of a company begins—

(a)when the company comes within the charge to corporation tax, or

(b)immediately after the end of the previous accounting period of the company, if the company is still within the charge to corporation tax.

(2)For the purposes of this section a UK resident company is treated as coming within the charge to corporation tax when it starts to carry on business, if it would not otherwise be within the charge to corporation tax.

(3)If a chargeable gain or allowable loss accrues to a company at a time which is not (ignoring this subsection) within an accounting period of the company—

(a)an accounting period of the company begins at that time, and

(b)the gain or loss accrues in that accounting period.

(4)This section does not apply if section 12 (companies being wound up) applies.

(5)This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to begin at a different time.

10End of accounting periodE+W+S+N.I.

(1)An accounting period of a company comes to an end on the first occurrence of any of the following—

(a)the ending of 12 months from the beginning of the accounting period,

(b)an accounting date of the company,

(c)if there is a period for which the company does not make up accounts, the end of that period,

(d)the company starting or ceasing to trade,

(e)if the company carries on only one trade, coming, or ceasing to be, within the charge to corporation tax in respect of that trade,

(f)if the company carries on more than one trade, coming, or ceasing to be, within the charge to corporation tax in respect of all the trades it carries on,

(g)the company becoming, or ceasing to be, UK resident,

(h)the company ceasing to be within the charge to corporation tax,

(i)the company entering administration, and

(j)the company ceasing to be in administration.

(2)If subsection (1)(i) applies, the accounting period is treated as having ended immediately before the day on which the company enters administration.

(3)For the purposes of this section a company enters administration—

(a)when it enters administration under Schedule B1 to the Insolvency Act 1986 (c. 45), or

(b)when it is subject to a corresponding procedure, other than one under that Act.

(4)For the purposes of this section a company ceases to be in administration—

(a)when it ceases to be in administration under Schedule B1 to the Insolvency Act 1986, or

(b)when a corresponding event occurs, other than under that Act.

(5)This section does not apply if section 12 (companies being wound up) applies.

(6)This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to end at a different time.

Annotations:

Modifications etc. (not altering text)

C5S. 10 modified (17.7.2012) by Finance Act 2012 (c. 14), s. 179(2) (with Sch. 19)

C6S. 10(1) applied (with modifications) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 631, 1184(1) (with Sch. 2)

C7S. 10(1)(a)-(d) applied by 2010 c. 8, s. 371VB(4) (as inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1)

C8S. 10(1)(i) applied by 2010 c. 8, s. 371VB(4) (as inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1)

C9S. 10(1)(j) applied by 2010 c. 8, s. 371VB(4) (as inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1)

C10S. 10(3) applied (17.7.2012) by Finance Act 2012 (c. 14), Sch. 13 para. 22(3)

C11S. 10(3) applied by 2004 c. 12, s. 196H(5) (as inserted (with effect in accordance with Sch. 13 para. 3 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 1 (with Sch. 13 Pt. 2))

C12S. 10(3) applied by 2004 c. 12, s. 196J(3) (as insered) (with effect in accordance with Sch. 13 para. 17 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 15 (with Sch. 13 Pt. 4)

C13S. 10(3) applied (with effect in accordance with Sch. 13 para. 3 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 8(3) (with Sch. 13 Pt. 2)

C14S. 10(5) applied by 2010 c. 8, s. 371VB(4) (as inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1)

11Companies with more than one accounting dateE+W+S+N.I.

(1)This section applies if a company carrying on more than one trade—

(a)does not have the same accounting date for each of the trades, and

(b)does not make up general accounts for the whole of the company's activities.

(2)The company may choose which of the accounting dates for the trades is to be used for the purpose of section 10(1)(b).

(3)But if an officer of Revenue and Customs thinks, on reasonable grounds, that the date chosen by the company is inappropriate, the officer may give notice to the company directing one of the other accounting dates to be used for that purpose instead.

12Companies being wound upE+W+S+N.I.

(1)This section applies if a company is being wound up.

(2)An accounting period of the company ends immediately before the winding up starts.

(3)An accounting period of the company begins when the winding up starts.

(4)After the winding up starts, an accounting period of the company ends—

(a)at the end of the period of 12 months beginning on the first day of the accounting period, or

(b)if earlier, when the winding up is completed.

(5)After the winding up starts, an accounting period of the company begins immediately after the end of the previous accounting period of the company, if the winding up has not been completed.

(6)This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to begin or end at a different time.

(7)For the purposes of this section a winding up of a company starts—

(a)when the company passes a resolution for the winding up of the company,

(b)when a petition for the winding up of the company is presented, if the company has not already passed such a resolution and a winding up order is made on the petition, or

(c)when an act is done in relation to the company for a similar purpose, if the winding up is not under the Insolvency Act 1986 (c. 45).

Annotations:

Modifications etc. (not altering text)

C18S. 12 applied by 2010 c. 8, s. 371VB(4) (as inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1)

C19S. 12(7) applied by 2003 c. 1, s. 554I(7)(d) (as inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 2 para. 1)

C20S. 12(7) applied by 2004 c. 12, s. 196J(3) (as inserted (with effect in accordance with Sch. 13 para. 17 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 15 (with Sch. 13 Pt. 4))

C21S. 12(7) applied (17.7.2012) by Finance Act 2012 (c. 14), Sch. 13 para. 22(3)

C22S. 12(7) applied by 2004 c. 12, s. 196H(5) (as inserted (with effect in accordance with Sch. 13 para. 3 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 1 (with Sch. 13 Pt. 2))

C23S. 12(7) applied (with effect in accordance with Sch. 13 para. 3 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 8(3) (with Sch. 13 Pt. 2)

Chapter 3E+W+S+N.I.Company residence

Annotations:

Modifications etc. (not altering text)

C25Pt. 2 Ch. 3 applied by 1992 c. 12, s. 286A (as inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 384 (with Sch. 2 Pts. 1, 2))

C26Pt. 2 Ch. 3 applied by 2007 c. 3, s. 835A (as inserted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 706 (with Sch. 2 Pts. 1, 2))

13Overview of ChapterE+W+S+N.I.

(1)This Chapter contains rules for determining the residence of companies.

(2)Section 14 gives the main rule for companies incorporated in the United Kingdom (including SEs and SCEs incorporated in the United Kingdom).

(3)Section 15 deals with companies which have been UK resident under the rules of common law and provides for their continued residence when certain circumstances arise.

(4)Sections 16 and 17 deal with SEs and SCEs which transfer their registered office to the United Kingdom.

(5)Section 18 contains a special rule for companies treated as non-UK resident under double taxation arrangements.

14Companies incorporated in the United KingdomE+W+S+N.I.

(1)A company which is incorporated in the United Kingdom is UK resident for the purposes of the Corporation Tax Acts.

(2)Accordingly, even if a different place of residence is given by a rule of law, the company is not resident in that place for the purposes of the Corporation Tax Acts.

15Continuation of residence established under common lawE+W+S+N.I.

(1)This section applies to a company which is neither—

(a)incorporated in the United Kingdom, nor

(b)resident in the United Kingdom by virtue of section 16 or 17.

(2)If the company—

(a)is no longer carrying on a business, and

(b)was UK resident for the purposes of the Corporation Tax Acts immediately before it ceased to carry on business,

the company continues to be UK resident for the purposes of the Corporation Tax Acts.

(3)If the company—

(a)is being wound up outside the United Kingdom, and

(b)was UK resident for the purposes of the Corporation Tax Acts immediately before any of its activities came under the control of a foreign liquidator,

the company continues to be UK resident for the purposes of the Corporation Tax Acts.

(4)In subsection (3) “foreign liquidator” means a person exercising functions which, in the United Kingdom, would be exercisable by a liquidator.

16SEs which transfer registered office to the United KingdomE+W+S+N.I.

(1)This section applies to an SE which transfers its registered office to the United Kingdom in accordance with Article 8 of Council Regulation (EC) No 2157/2001 on the Statute for a European company (Societas Europaea).

(2)The SE is UK resident for the purposes of the Corporation Tax Acts from the time of its registration in the United Kingdom.

(3)Accordingly, even if a different place of residence is given by a rule of law, the SE is not resident in that place for the purposes of the Corporation Tax Acts.

(4)The SE does not cease to be UK resident merely because it later transfers its registered office from the United Kingdom.

17SCEs which transfer registered office to the United KingdomE+W+S+N.I.

(1)This section applies to an SCE which transfers its registered office to the United Kingdom in accordance with Article 7 of Council Regulation (EC) No 1435/2003 on the Statute for a European Cooperative Society (SCE).

(2)The SCE is UK resident for the purposes of the Corporation Tax Acts from the time of its registration in the United Kingdom.

(3)Accordingly, even if a different place of residence is given by a rule of law, the SCE is not resident in that place for the purposes of the Corporation Tax Acts.

(4)The SCE does not cease to be UK resident merely because it later transfers its registered office from the United Kingdom.

18Companies treated as non-UK resident under double taxation arrangementsE+W+S+N.I.

(1)This section applies to a company which is treated as—

(a)resident in a territory outside the United Kingdom, and

(b)non-UK resident,

for the purposes of any double taxation arrangements.

(2)For the purposes of the Corporation Tax Acts the company is—

(a)resident outside the United Kingdom, and

(b)non-UK resident.

(3)Subsection (2) applies even if the company would otherwise be UK resident for the purposes of the Corporation Tax Acts by virtue of section 14, 15, 16 or 17 or another rule of law.

(4)To decide whether a company is treated as mentioned in subsection (1)(a) and (b) for the purposes of any double taxation arrangements, assume that—

(a)the company has made a claim for relief under the arrangements, and

(b)in consequence of the claim it falls to be decided whether the company is to be treated as mentioned in subsection (1)(a) and (b) for the purposes of the arrangements.

[F11CHAPTER 3AE+W+S+N.I. UK RESIDENT COMPANIES: PROFITS OF FOREIGN PERMANENT ESTABLISHMENTS

Annotations:

Amendments (Textual)

F11Pt. 2 Ch. 3A inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 4, 31

ExemptionE+W+S+N.I.

18AExemption for profits or losses of foreign permanent establishmentsE+W+S+N.I.

(1)If a UK resident company makes an election under this section, exemption adjustments are to be made at the appropriate stages in calculating the taxable total profits of the company for each relevant accounting period.

(2)For that purpose “exemption adjustments” means any such adjustments as are appropriate to secure that there are left out of account any profits and losses taken into account in arriving at the foreign permanent establishments amount in relation to any relevant accounting period.

(3)In this Chapter “relevant accounting period”, in relation to a company by which an election is made under this section, means an accounting period of the company to which the election applies (as to which see section 18F).

(4)For the purposes of this Chapter the “foreign permanent establishments amount”, in relation to an accounting period of a company, is—

(a)the aggregate of the relevant profits amount in the case of each relevant foreign territory in relation to which there is a relevant profits amount for the accounting period, less

(b)the aggregate of the relevant losses amount in the case of each relevant foreign territory in relation to which there is a relevant losses amount for the accounting period.

(5)In this Chapter “relevant foreign territory”, in relation to a company, means a territory outside the United Kingdom in which the company carries on, or has carried on, business through a permanent establishment.

(6)For the purposes of this Chapter “relevant profits amount”, in relation to a relevant foreign territory and an accounting period of a company, means—

(a)in the case of a full treaty territory, profits which would be taken to be attributable to the permanent establishment of the company in the territory for the purpose of ascertaining the amount of any credit to be allowed under TIOPA 2010 (in respect of tax paid under the law of the relevant foreign territory) against corporation tax if the company were to be liable to corporation tax for the accounting period (apart from this Chapter), or

(b)in the case of any other territory, profits which would be taken to be so attributable for that purpose if the territory were a full treaty territory and the double taxation arrangements having effect in relation to the territory were in the terms of the OECD model.

(7)For the purposes of this Chapter “relevant losses amount”, in relation to a relevant foreign territory and an accounting period of a company, means—

(a)in the case of a full treaty territory, any losses which would be taken to be attributable to the permanent establishment of the company in the territory on the application of the same rules and principles as fall to be applied under subsection (6)(a), and

(b)in the case of any other territory, any losses which would be taken to be so attributable on that basis if it were a full treaty territory and the double taxation arrangements having effect in relation to the relevant foreign territory were in the terms of the OECD model.

(8)Subsection (9) applies if the amount of any credit to be allowed under TIOPA 2010 in relation to a company in the case of a full treaty territory does not depend on the profits taken to be attributable to the permanent establishment of the company in the territory because tax under the law of the territory is charged, pursuant to the double taxation arrangements having effect in relation to the territory, otherwise than by reference to such profits (as an alternative to a charge by reference to such profits).

(9)The reference in subsection (6)(a) to profits which would be taken to be attributable to the permanent establishment of the company in the territory is to the profits that would be so taken if tax under the law of the territory were charged by reference to such profits; and subsection (7)(a) is to be construed accordingly.

(10)For the purposes of subsections (6) and (7) if double taxation arrangements having effect in relation to a relevant foreign territory do not include provision for the credit to be allowed against tax to be computed by reference to the same profits as those by reference to which the tax was computed under the law of the relevant foreign territory, they are to be assumed to do so.

(11)This section is subject to the following provisions of this Chapter.

18BChargeable gains etcE+W+S+N.I.

(1)The exemption adjustments required to be made by section 18A(1) include, in the case of any gains or losses on the disposal or realisation of assets which are relevant in the calculation of the taxable total profits of a company for a relevant accounting period, adjustments to remove the effect of any gains or losses relating to the assets taken into account in computing the foreign permanent establishments amount in relation to any relevant accounting period (so that, in appropriate cases, a gain may be increased to reflect a loss so taken into account or a loss increased to reflect a gain so taken into account).

(2)The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any gains in respect of immoveable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

(3)The references in section 18A(6) to profits which would be taken, in the case of a company in relation to which an election under section 18A has effect, to be attributable to the permanent establishment of the company in a territory (including as extended by subsection (2)) do not include any gains which would be taken to be so attributable for the purposes of ascertaining credit to be allowed in respect of tax payable under the law of the territory before the election has effect; and the references to losses in section 18A(7) are to be construed accordingly.

18CCapital allowances etcE+W+S+N.I.

(1)Any allowance under Part 2 of CAA 2001 which, but for section 18A and for section 15(2A)(b) of CAA 2001, could be claimed under section 3(1) of that Act in respect of assets provided for the purposes of a permanent establishment in a territory outside the United Kingdom through which business is or has been carried on by a company in relation to which an election under section 18A has effect (and any charge in connection with any such allowance) is to be made automatically and reflected in any calculation for any relevant accounting period of the company of the profits or losses attributable to business carried on by the company through such a permanent establishment.

(2)In the application of section 13 of CAA 2001 by virtue of subsection (1) on the taking effect of the election under section 18A, references to “market value” have effect as references to “transition value” within the meaning of section 62A of that Act in relation to any plant or machinery in the case of which that is the disposal value under section 61 of that Act.

(3)In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account any profits or losses arising from a plant or machinery lease under which the company is a lessor if an allowance under CAA 2001 has been made to the company or a connected company in respect of expenditure on the provision of any plant or machinery subject to the lease (otherwise than in accordance with this section).

(4)Section 70K of that Act (meaning of “plant or machinery lease” and “lessor”) applies for the purposes of subsection (3).

(5)In determining for the purposes of section 18A the amount of any credit to be allowed under TIOPA 2010 in respect of tax under the law of a relevant foreign territory in the case of a company, it is to be assumed that the company made any claim or election (other than a claim for allowances under Part 2 of CAA 2001) which would reduce any relevant profits amount, or increase the relevant losses amount, by any means, and within any time limit, applicable to it.

[F1218CAIncome arising from immovable propertyE+W+S+N.I.

The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any income arising from immovable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

Annotations:

Amendments (Textual)

F12Ss. 18CA, 18CB inserted (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 4

18CBProfits and losses from investment businessE+W+S+N.I.

(1)In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company, there are to be left out of account any profits or losses of any part of the company's business which consists of the making of investments.

(2)Subsection (1) does not apply to profits or losses arising from assets so far as the assets are effectively connected with any part of the permanent establishment through which a trade or overseas property business of the company is carried on in the territory.

(3)In subsection (2) “effectively connected” is to be given the same meaning as it would be given for the purposes of the OECD model were subsection (2) contained in the OECD model.]

Annotations:

Amendments (Textual)

F12Ss. 18CA, 18CB inserted (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 4

18DPayments subject to deductionE+W+S+N.I.

(1)In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account profits or losses referable to any transaction between a person who is UK resident and a permanent establishment in a territory outside the United Kingdom through which the company carries on, or has carried on, business (“the foreign territory in question”) if the condition in subsection (2) is met.

(2)That condition is that the UK resident would be obliged under Part 15 of ITA 2007 to deduct income tax that is not repayable from payments in respect of the transaction if the payments were made to a company resident in the foreign territory in question (taking account of any double taxation arrangements having effect in relation to the foreign territory in question).

(3)But subsection (1) does not apply if the company is a bank unless the transaction forms part of arrangements the main purpose, or one of the main purposes, of which is the avoidance of an obligation under Part 15 of ITA 2007 to deduct income tax from any payments.

(4)Section 1120 of CTA 2010 (meaning of “bank”) applies for the purposes of subsection (3).

18EEmployee share acquisitionsE+W+S+N.I.

(1)Any relief which would be given under Chapter 2 or 3 of Part 12 is to be taken into account in determining any relevant profits amount or relevant losses amount in the case of a company under section 18A(6) or (7) in relation to a relevant foreign territory in so far as it is linked to the business carried on by the company through a permanent establishment in the territory.

(2)The extent to which any such relief is so linked is to be determined on a just and reasonable basis having regard to the extent to which the work of the employees concerned contributes to the purposes of the business so carried on.

18FEffect of electionE+W+S+N.I.

(1)An election made by a company under section 18A—

(a)(subject to subsection (6)) is irrevocable, and

(b)applies to all accounting periods of the company beginning on or after the relevant day.

(2)“The relevant day” is the day on which, at the time of the election, the accounting period following that in which the election is made is expected to begin.

(3)Subsection (4) applies if an accounting period of the company (“the straddling period”) begins before, and ends on or after, the relevant day.

(4)It is to be assumed, for the purposes of the Corporation Tax Acts, that the straddling period consists of two separate accounting periods—

(a)the first beginning with the straddling period and ending immediately before the relevant day, and

(b)the second beginning with that day and ending with the straddling period.

(5)Where for those purposes it is necessary to apportion the profits and losses for the straddling period to different parts of the period, that apportionment is to be made on a just and reasonable basis.

(6)The election can be revoked at any time before the relevant day.

Anti-diversion ruleE+W+S+N.I.

[F1318GAnti-diversion ruleE+W+S+N.I.

(1)This section applies for the purposes of this Chapter for any relevant accounting period (“period X”) of a company (“company X”) in relation to a territory outside the United Kingdom (“territory X”) if—

(a)there is an adjusted relevant profits amount in relation to territory X for period X,

(b)the adjusted relevant profits amount includes diverted profits (see section 18H), and

(c)none of the exemptions mentioned in section 18I applies for period X.

(2)The diverted profits are to be left out of the adjusted relevant profits amount.

(3)For the purposes of this Chapter “adjusted”, in relation to a relevant profits amount, is what the relevant profits amount would be if it were determined without reference to gains or losses which are chargeable gains or allowable losses for corporation tax purposes.

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18HWhat are “diverted profits”?E+W+S+N.I.

(1)In section 18G(1)(b) “diverted profits” means so much of company X's total profits of period X as pass through the diverted profits gateway.

(2)To determine the extent to which company X's total profits of period X pass through the diverted profits gateway, apply—

(a)section 371BB of TIOPA 2010 (controlled foreign companies: the CFC charge gateway), and

(b)except Chapter 8 of Part 9A of that Act, the other provisions referred to in that section,

as if references to the CFC charge gateway were references to the diverted profits gateway.

(3)In applying section 371BB of TIOPA 2010 and the other provisions referred to in it assume—

(a)that company X is a CFC resident in territory X,

(b)that period X is the CFC's accounting period, and

(c)that company X's total profits of period X are the CFC's assumed total profits for the accounting period.

(4)Subsection (3)(a) does not require it to be assumed that there is any change in the place or places at which company X carries on its activities.

(5)Section 371BB of TIOPA 2010 and the other provisions referred to in it are also to be applied subject to sections 18HA to 18HE below.

(6)In this section—

(a)references to company X's total profits of period X are to those profits ignoring this Chapter and step 2 in section 4(3) of CTA 2010, and

(b)references to section 371BB of TIOPA 2010 are to that section omitting subsection (2)(b).

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18HAModification of Chapter 3 of Part 9A of TIOPA 2010E+W+S+N.I.

Chapter 3 of Part 9A of TIOPA 2010 (the CFC charge gateway: determining which of Chapters 4 to 8 applies) applies for the purposes of section 18H(2) with the omission of—

(a)section 371CA(10)(a),

(b)in section 371CB(2), the words “or Chapter 8 (solo consolidation)”,

(c)section 371CC(1)(b), (3)(b) and (c), (4) to (7), (9) and (10),

(d)section 371CD,

(e)section 371CE(2) to (9), and

(f)section 371CG.

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18HBModification of Chapter 4 of Part 9A of TIOPA 2010E+W+S+N.I.

(1)Chapter 4 of Part 9A of TIOPA 2010 (the CFC charge gateway: profits attributable to UK activities) applies for the purposes of section 18H(2) with the following modifications.

(2)The modifications are—

(a)section 371DA(3)(g)(i) is to be omitted, and

(b)in section 371DH(4), after “the accounting period”, in the second place it occurs, there is to be inserted “ or the United Kingdom ”.

(3)Section 371VF(3) of TIOPA 2010 (definition of “related” person) is to be applied as relevant with the omission of paragraphs (b) and (c).

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18HCModification of Chapter 5 of Part 9A of TIOPA 2010E+W+S+N.I.

Chapter 5 of Part 9A of TIOPA 2010 (the CFC charge gateway: non-trading finance profits) applies for the purposes of section 18H(2) with the omission of—

(a)in section 371EA(1), the words from “so far as” to the end, and

(b)sections 371EB to 371EE.

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18HDModification of Chapter 7 of Part 9A of TIOPA 2010E+W+S+N.I.

Chapter 7 of Part 9A of TIOPA 2010 (the CFC charge gateway: captive insurance business) applies for the purposes of section 18H(2) with the omission of section 371GA(6)(b).

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18HEModification of Chapter 9 of Part 9A of TIOPA 2010E+W+S+N.I.

(1)Chapter 9 of Part 9A of TIOPA 2010 (exemptions for profits from qualifying loan relationships) applies for the purposes of section 18H(2) with the following modifications.

(2)In section 371IA(2) and (11) the reference to a chargeable company is to be read as a reference to company X (as is the reference in section 371CB(8)); and references elsewhere in Chapter 9 to company C are to be read as references to company X.

(3)For section 371IA(5) there is to be substituted—

(5)75% of the profits of each qualifying loan relationship are “exempt” under this Chapter.

(4)In section 371IA(9)(a) the words “or Chapter 8 (solo consolidation)” are to be omitted.

(5)Sections 371IB to 371IE are to be omitted.

(6)Section 371IH(11)(a) is to be read ignoring the modification in section 18HC(b) above.

(7)In section 371IJ references to the relevant corporation tax accounting period are to be read as references to period X and subsection (6) is to be omitted.

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18IExemptions from anti-diversion ruleE+W+S+N.I.

(1)The exemptions referred to in section 18G(1)(c) are the exemptions set out in Chapters 11 to 14 of Part 9A of TIOPA 2010 (controlled foreign companies: exemptions from the CFC charge).

(2)In applying those Chapters for the purposes of section 18G(1)(c)—

(a)references to section 371BA(2)(b) of TIOPA 2010 are to be read as references to section 18G(1)(c),

(b)the assumptions set out in subsection (3) are to be made, and

(c)section 371VF(3) of TIOPA 2010 (definition of “related” person) is to be read with the omission of paragraphs (b) and (c).

(3)For the purposes of subsection (2)(b), assume—

(a)that the permanent establishment which company X has in territory X is a separate company from company X,

(b)that the separate company is a CFC resident in territory X,

(c)that period X and company X's other accounting periods for corporation tax purposes are accounting periods of the CFC for the purposes of Part 9A of TIOPA 2010,

(d)that the CFC's assumed total profits for period X are the adjusted relevant profits amount,

(e)that the CFC's assumed taxable total profits for period X are the same as the CFC's assumed total profits for period X,

(f)that the CFC is connected with company X and is also connected or associated with any person with whom company X is connected or associated, and

(g)that any person who has an interest in company X also has an interest in the CFC.

(4)Chapters 11 to 14 of Part 9A of TIOPA 2010 are also to be applied subject to sections 18IA to 18ID below.

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18IAThe excluded territories exemptionE+W+S+N.I.

(1)Chapter 11 of Part 9A of TIOPA 2010 (controlled foreign companies: the excluded territories exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

(2)Sections 371KB(1)(b)(iii) and 371KH are to be omitted.

(3)Section 371KC is to be omitted and the assumption set out in section 18I(3)(b) above in relation to the CFC's residence is to be applied instead; and references to “the CFC's territory” are to be read accordingly.

(4)Section 371KD(3) is to be omitted and references to a CFC's accounting profits for an accounting period are to be read as references to the adjusted relevant profits amount.

(5)Section 371KE(2)(b) is to be omitted.

(6)Section 371KF is to be omitted.

(7)In section 371KG(3) the reference to the CFC's equity or debt is to be read as a reference to company X's equity or debt (ignoring the assumption in section 18I(3)(a) above).

(8)Section 371KI(2) and (3) is to be omitted.

(9)In section 371KJ—

(a)in subsection (2)(a), the reference to intellectual property held by the CFC is to be read as a reference to intellectual property held by company X (ignoring the assumption in section 18I(3)(a) above), and

(b)in subsections (2)(b) and (c) and (4), references to the CFC are to be read as references to company X (ignoring that assumption).

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18IBThe low profits exemptionE+W+S+N.I.

Chapter 12 of Part 9A of TIOPA 2010 (controlled foreign companies: the low profits exemption) applies for the purposes of section 18G(1)(c) with the omission of section 371LB(2) and (4) and section 371LC(5) and (6).

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18ICThe low profit margin exemptionE+W+S+N.I.

(1)Chapter 13 of Part 9A of TIOPA 2010 (controlled foreign companies: the low profit margin exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

(2)In section 371MB—

(a)subsection (2) is to be omitted, and

(b)references to the CFC's accounting profits for an accounting period are to be read as references to the adjusted relevant profits amount determined before any deduction for interest.

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

18IDThe tax exemptionE+W+S+N.I.

(1)Chapter 14 of Part 9A of TIOPA 2010 (controlled foreign companies: the tax exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

(2)At step 1 in section 371NB(1)—

(a)in the first paragraph, the reference to section 371TB of TIOPA 2010 is to be read as a reference to the assumption in section 18I(3)(b) above relating to the CFC's residence, and

(b)the second paragraph is to be omitted.

(3)References to the CFC's local chargeable profits arising in the accounting period are to be read as references to the adjusted relevant profits amount and, accordingly, sections 371NB(4) and 371NC(2) to (4) are to be omitted.

(4)For the purposes of step 3 in section 371NB(1) the amount of the corresponding UK tax for the accounting period is to be determined in accordance with subsection (5) below; and section 371NE is to be omitted accordingly.

(5)“The corresponding UK tax” is the amount of corporation tax which would be payable in respect of the adjusted relevant profits amount if it were subject in full to corporation tax, ignoring any credit which would be allowed against it under section 18(3) of TIOPA 2010 and assuming, where there is more than one rate of corporation tax applicable to period X, that it were chargeable at the average rate over period X.]

Annotations:

Amendments (Textual)

F13 Ss. 18G-18ID substituted for ss. 18G-18I (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6

Companies with total opening negative amountE+W+S+N.I.

18JCompanies with total opening negative amountE+W+S+N.I.

(1)The following sections make provision about a company in relation to which an election under section 18A has effect if there is a total opening negative amount in the case of the company at the beginning of the company's first relevant accounting period.

(2)To determine for the purposes of this Chapter whether there is a total opening negative amount at the beginning of the company's first relevant accounting period, take the following steps.

  • Step 1 Take the adjusted foreign permanent establishments amount in relation to the earliest affected prior accounting period in relation to which that amount is negative.

  • Step 2 Add to the amount arrived at under step 1 the adjusted foreign permanent establishments amount in relation to the next affected prior accounting period (but not so as to cause the result to exceed nil).

  • Step 3 Add to the amount arrived at under step 2 the adjusted foreign permanent establishments amount in relation to each remaining affected prior accounting period, starting with the earliest (but not so as to cause the result to exceed nil). If after the application of the preceding steps there is a negative amount for the last affected prior accounting period there is a total opening negative amount at the beginning of the company's first relevant accounting period of an amount equal to that negative amount.

(3)In subsection (2) “affected prior accounting period” means—

(a)the accounting period of the company in which the election under section 18A is made, and

(b)any earlier accounting period of the company ending less than 6 years before the end of that accounting period.

(4)For the purposes of subsection (2) the “adjusted” foreign permanent establishments amount is what the foreign permanent establishments amount would be if it were determined without reference to gains or losses which are chargeable gains or allowable losses for the purposes of corporation tax.

18KTotal opening negative amount: “matching”E+W+S+N.I.

(1)At the end of each relevant accounting period of the company (starting with the first) the total opening negative amount is to be reduced (or further reduced) by the amount of any aggregate relevant profits amount of the company for the accounting period (but not to below nil).

(2)In any relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) does not apply in relation to the aggregate relevant profits amount of the company for the accounting period.

(3)But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) is disapplied by subsection (2) only in relation to so much of the aggregate relevant profits amount of the company for the accounting period as is equal to the total opening negative amount of the company at the beginning of the accounting period.

(4)The company may, in its company tax return for that relevant accounting period, specify to which part of the aggregate relevant profits amount of the company for the accounting period section 18A(1) is to apply by virtue of subsection (3).

(5)In this Chapter “aggregate relevant profits amount”, in relation to an accounting period, means the aggregate of the relevant profits amount in the case of each relevant foreign territory in relation to which there is a relevant profits amount for the accounting period.

(6)This section is subject to section 18L.

18LStreamingE+W+S+N.I.

(1)If a streaming election has effect in relation to the company sections 18M and 18N apply (instead of section 18K).

(2)For the purposes of this section “streaming election” means an election, made at the same time as the company's election under section 18A, which—

(a)states that sections 18M and 18N are to have effect in relation to the company (instead of section 18K), and

(b)specifies which of the territories that are relevant foreign territories in relation to the company are to be streamed territories for the purposes of the operation of sections 18M and 18N in relation to the company.

(3)Subject to subsection (4), a streaming election is irrevocable.

(4)A streaming election can be revoked at any time before the first relevant accounting period of the company.

(5)A streaming election does not have effect unless the company, in the company tax return for the first relevant accounting period of the company, specifies how much of the amount eligible to be streamed to each streamed territory is to constitute for the purposes of sections 18M and 18N the streamed opening negative amount at the beginning of that relevant accounting period.

(6)For the purposes of subsection (5) the amount eligible to be streamed to a territory by the company is the amount that would be the total opening negative amount of the company at the beginning of the first relevant accounting period of the company if at all material times the territory were the only relevant foreign territory in relation to the company.

18MStreamed opening negative amounts: “matching”E+W+S+N.I.

(1)At the end of each relevant accounting period of the company (starting with the first) the streamed opening negative amount in relation to a territory is to be reduced (or further reduced) by the amount of any relevant profits amount of the company for the territory for the accounting period (but not to below nil).

(2)In any relevant accounting period of the company for which there is a reduction under subsection (1) in relation to a territory, section 18A(1) does not apply in relation to the relevant profits amount of the company for the territory for the accounting period.

(3)But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1) in relation to a territory, section 18A(1) is disapplied by subsection (2) only in relation to so much of the relevant profits amount of the company for the territory for the accounting period as is equal to the streamed opening negative amount in relation to the territory at the beginning of the accounting period.

(4)The company may, in its company tax return for that relevant accounting period, specify to which part of the relevant profits amount of the company for the territory for the accounting period section 18A(1) is to apply by virtue of subsection (3).

18NResidual opening negative amount: “matching”E+W+S+N.I.

(1)At the end of each relevant accounting period of the company (starting with the first) the residual opening negative amount is to be reduced (or further reduced) by the amount of any residual aggregate relevant profits amount of the company for the accounting period (but not to below nil).

(2)For the purposes of this section the “residual opening negative amount”, at the beginning of the company's first relevant accounting period, is—

(a)the total opening negative amount of the company at that time, less

(b)the aggregate of the streamed opening negative amounts of the company at that time.

(3)For the purposes of this section the “residual aggregate relevant profits amount”, in relation to an accounting period, means the amount (if any) by which—

(a)the aggregate relevant profits amount of the company for the accounting period, exceeds

(b)the aggregate of so much of any relevant profits amounts of the company for the accounting period as has effect to bring about a reduction under section 18M(1) for the accounting period.

(4)In any relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) does not apply in relation to the residual aggregate relevant profits amount of the company for the accounting period.

(5)But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) is disapplied by subsection (4) only in relation to so much of the residual aggregate relevant profits amount of the company for the accounting period as is equal to the residual opening negative amount of the company at the beginning of the accounting period.

(6)The company may, in its company tax return for that relevant accounting period, specify to which of the amounts forming part of the residual aggregate relevant profits amount of the company for the accounting period section 18A(1) is to apply by virtue of subsection (4).

18OTransfers of foreign permanent establishment businessE+W+S+N.I.

(1)This section applies if—

(a)business carried on by a company (“the transferor”) through a permanent establishment in a territory outside the United Kingdom is transferred to a connected company that is (or later becomes) a UK resident company (“the transferee”), and

(b)there is a transferred total opening negative amount in relation to the business transferred.

(2)In a case where the transferor had not made an election under section 18A before the transfer took place, or such an election had not had effect before that time, the “transferred total opening negative amount” is the amount that would have been the total opening negative amount in the case of the transferor at the beginning of the transferor's first relevant accounting period if—

(a)the only business carried on by the transferor was the business transferred,

(b)the transfer had not taken place,

(c)the transferor's first relevant accounting period had begun on the day after the transfer day, and

(d)any reference in section 18J(3) to the accounting period in which the election is made were a reference to the period beginning with the accounting period in which the transfer took place and ending with the transfer day.

(3)In a case where an election made by the transferor under section 18A had effect before the transfer took place, the “transferred total opening negative amount” is—

(a)the amount that would have been the total opening negative amount in the case of the transferor on the transfer day if the accounting period in which the transfer took place had ended on that day (the “remaining total opening negative amount”), less

(b)the amount that would have been the remaining total opening negative amount if the transferor had never carried on the business transferred.

But the transferred total opening negative amount cannot be below nil.

(4)In a case where—

(a)an election made by the transferee under section 18A first has effect after the transfer takes place, and

(b)the accounting period of the transferee in which the transfer took place is an affected prior accounting period for the purposes of section 18J(2),

there is to be added to the adjusted foreign permanent establishments amount in relation to that accounting period a negative amount equal to so much (if any) of the transferred total opening negative amount as is attributable to profits or losses arising after the beginning of the earliest affected prior accounting period of the transferee.

(5)In a case where an election made by the transferee under section 18A had effect before the transfer took place, sections 18K to 18N have effect in relation to the transferee and the transferred total opening negative amount as if—

(a)any reference to the total opening negative amount were a reference to the transferred total opening negative amount,

(b)any reference to the first relevant accounting period were a reference to the period beginning with the day after the transfer day and ending immediately before the start of the next accounting period of the transferee, and

(c)the requirement in section 18L(2) that a streaming election be made at the same time as the company's election under section 18A did not apply.

(6)Where for the purposes of this section it is necessary to apportion the profits and losses for any accounting period to different parts of that period, that apportionment is to be made on a just and reasonable basis.

(7)Any amount included in a transferred total opening negative amount is to be disregarded in the application of sections 18J to 18N in the case of the transferor after the transfer day.

(8)In this section “the transfer day” means the day on which the transfer of the business takes place.

Special casesE+W+S+N.I.

18PExclusionsE+W+S+N.I.

(1)If a company is a small company at any time during a relevant accounting period, there is for that relevant accounting period no relevant profits amount or relevant losses amount for the purposes of this Chapter in relation to any relevant foreign territory that is not a full treaty territory.

(2)If a company is a close company at any time during a relevant accounting period, so much of the profits of the company for the relevant accounting period as derives from gains which are chargeable gains for the purposes of corporation tax is not to be regarded as forming part of a relevant profits amount or relevant losses amount of the company for the purposes of this Chapter.

[F14(3)Subsection (2) does not apply in relation to—

(a)a chargeable gain accruing on the disposal of an asset used, and used only, for the purposes of a trade so far as carried on by the company in the relevant foreign territory through the company's permanent establishment there, or

(b)a chargeable gain accruing on the disposal of currency or of a debt within section 252(1) of TCGA 1992 where the currency or debt is or represents money in use for the purposes of a trade so far as carried on by the company in the relevant foreign territory through the company's permanent establishment there.]

Annotations:

Amendments (Textual)

F14S. 18P(3) inserted (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 7

18QInsurance companiesE+W+S+N.I.

(1)So much of the profits or losses of a company as consists of profits or losses arising from basic life assurance and general annuity business F15... is not to be regarded as forming part of a relevant profits amount or relevant losses amount of the company for the purposes of this Chapter.

F16(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F16(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)Any election under section 107(4) of FA 2000 (general insurance: adjustment for technical provision) is to be ignored for the purposes of this Chapter.

InterpretationE+W+S+N.I.

18RMeaning of “full treaty territory”E+W+S+N.I.

(1)For the purposes of this Chapter a territory is a “full treaty territory” if—

(a)double taxation arrangements have been made in relation to the territory, and

(b)the arrangements contain a relevant non-discrimination provision.

(2)Relevant non-discrimination provision” means a provision to the effect that the taxation on a permanent establishment of an enterprise of a state which is party to the arrangements (a “contracting state”) is not to be less favourably levied in any other contracting state than the taxation levied on enterprises of that other contracting state carrying on the same activities.

18SOther interpretationE+W+S+N.I.

In this Chapter—

  • company tax return” has the same meaning as in Schedule 18 to FA 1998 (see paragraph 3(1));

  • double taxation arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010;

  • the OECD model” means the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development in July 2010 (“the OECD”) or such other document published by the OECD in place of it as is designated from time to time by order made by the Treasury;

  • small company” means a micro or small enterprise, as defined in the Annex to Commission Recommendation 2003/361/EC of 6 May 2003.]

Chapter 4E+W+S+N.I.Non-UK resident companies: chargeable profits

Chargeable profitsE+W+S+N.I.

19Chargeable profitsE+W+S+N.I.

(1)This section applies if a non-UK resident company carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom.

(2)The company's chargeable profits are its profits that are—

(a)of a type mentioned in subsection (3), and

(b)attributable to the permanent establishment in accordance with sections 20 to 32.

(3)The types of profits referred to in subsection (2)(a) are—

(a)trading income arising directly or indirectly through or from the establishment,

(b)income from property or rights used by, or held by or for, the establishment, and

(c)chargeable gains falling within section 10B of TCGA 1992 (non-resident company with United Kingdom permanent establishment)—

(i)as a result of assets being used in or for the purposes of the trade carried on by the company through the establishment, or

(ii)as a result of assets being used or held for the purposes of the establishment or being acquired for use by or for the purposes of the establishment.

20Profits attributable to permanent establishment: introductionE+W+S+N.I.

(1)Sections 21 to 32 apply for the purpose of determining the amount of profits of a non-UK resident company that are attributable to a permanent establishment of the company in the United Kingdom.

(2)Sections 21 to 28 contain provision about the separate enterprise principle.

(3)See also [F17section 1152 of CTA 2010 (investment managers: disregard of certain chargeable profits)] , which provides for profits of certain investment transactions to be disregarded in determining the amount of profits attributable to a permanent establishment.

Annotations:

Amendments (Textual)

F17Words in s. 20(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 590 (with Sch. 2)

The separate enterprise principleE+W+S+N.I.

21The separate enterprise principleE+W+S+N.I.

(1)The profits of the non-UK resident company that are attributable to the permanent establishment are those that the establishment would have made if it were a distinct and separate enterprise which—

(a)engaged in the same or similar activities under the same or similar conditions, and

(b)dealt wholly independently with the non-UK resident company.

(2)In applying subsection (1) assume that—

(a)the permanent establishment has the same credit rating as the non-UK resident company, and

(b)the permanent establishment has such equity and loan capital as it could reasonably be expected to have in the circumstances specified in that subsection.

(3)In sections 22 to 28 the principle in subsection (1) (read with subsection (2)) is called “the separate enterprise principle”.

22Transactions treated as being on arm's length termsE+W+S+N.I.

In accordance with the separate enterprise principle, transactions between the permanent establishment and any other part of the non-UK resident company are treated as taking place on such terms as would have been agreed between parties dealing at arm's length.

23Provision of goods or services for permanent establishmentE+W+S+N.I.

(1)This section applies if the non-UK resident company provides the permanent establishment with goods or services.

(2)If the goods or services are of a kind that the company supplies, in the ordinary course of its business, to third parties dealing with it at arm's length, the matter is dealt with as a transaction to which the separate enterprise principle applies.

(3)If not, the matter is dealt with as an expense incurred by the non-UK resident company for the purposes of the permanent establishment (see section 29).

[F1824Application to insurance companiesE+W+S+N.I.

(1)This section makes provision in a case where the non-UK resident company mentioned in subsection (1) of section 21 is an insurance company.

(2)In accordance with the principle in that subsection, the permanent establishment is treated as holding—

(a)the same or a similar quantity of assets, and

(b)assets of the same or similar description,

as would have been held by a distinct and separate enterprise acting as mentioned in paragraphs (a) and (b) of that subsection.

(3)The assets which the permanent establishment is treated as holding in accordance with the principle in that subsection may include a proportion of assets held by the company.

(4)Nothing in subsection (2) or (3) is to be read as preventing the application of similar principles to those provided for by that subsection in a case where the non-UK resident company mentioned in section 21(1) is not an insurance company.

(5)The Commissioners for Her Majesty's Revenue and Customs may by regulations make other provision about the application of section 21(1) in a case where the non-UK resident company mentioned there is an insurance company.

(6)The regulations may, in particular, make provision in place of section 21(2)(b) as to the basis on which, in the case of an insurance company, capital is to be attributed to a permanent establishment in the United Kingdom.]

Annotations:

Amendments (Textual)

F18S. 24 substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 138

Modifications etc. (not altering text)

C27Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

The separate enterprise principle: application to non-UK resident banksE+W+S+N.I.

25Non-UK resident banks: introductionE+W+S+N.I.

(1)Sections 26 to 28 contain provision in relation to the application of the separate enterprise principle if the non-UK resident company is a bank.

(2)Nothing in sections 26 to 28 is to be read as preventing similar principles to those provided for in those sections from applying when the separate enterprise principle is applied to a non-UK resident company that is not a bank.

(3)In this section and those sections “bank” has the meaning given by [F19section 1120 of CTA 2010] .

Annotations:

Amendments (Textual)

F19Words in s. 25(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 591 (with Sch. 2)

Modifications etc. (not altering text)

C27Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

26Transfer of financial assetsE+W+S+N.I.

(1)This section applies if—

(a)the non-UK resident company is a bank, and

(b)there is a transfer of a loan or other financial asset between the permanent establishment and any other part of the company.

(2)In accordance with the separate enterprise principle, the transfer is recognised only if it would have taken place between independent enterprises.

(3)The transfer is not recognised if it cannot reasonably be considered that it is carried out for valid commercial reasons.

(4)For this purpose the obtaining of a tax advantage is not a valid commercial reason.

27Loans: attribution of financial assets and profits arisingE+W+S+N.I.

(1)This section applies if the non-UK resident company—

(a)is a bank, and

(b)makes a loan or has another financial asset.

(2)In accordance with the separate enterprise principle, the loan or other financial asset, and profits arising from it, are attributed to the permanent establishment so far as they can reasonably be regarded as having been generated by the activities of the permanent establishment.

(3)For the purposes of subsection (2), particular account is to be taken of the extent to which the permanent establishment is responsible for—

(a)obtaining the offer of new business,

(b)establishing the potential borrower's credit rating and the risk involved in providing credit,

(c)negotiating the terms of the loan with the borrower, and

(d)deciding whether, and if so on what conditions, to make or extend the loan.

(4)For those purposes, account may also be taken of the extent to which the permanent establishment is responsible for—

(a)concluding the loan agreement and disbursing the proceeds of the loan, and

(b)administering the loan (including handling and monitoring the service of it) and holding and controlling any securities pledged.

(5)References in this section to a financial asset include any financial risk in relation to a loan, or potential loan, if—

(a)the financial risk is capable of giving rise to fees or other receipts, and

(b)the holding of capital is required for the financial risk (or would be required if the transaction were between parties at arm's length).

28Borrowing: permanent establishment acting as agent or intermediaryE+W+S+N.I.

(1)This section applies if—

(a)the non-UK resident company is a bank, and

(b)the permanent establishment borrows funds for the purposes of another part of the company and (in relation to that borrowing) acts only as an agent or intermediary.

(2)In accordance with the separate enterprise principle—

(a)the profits attributable to the permanent establishment, and

(b)the capital attributable to the permanent establishment under section 21(2)(b),

are to be those appropriate in the case of an agent acting at arm's length, taking into account the risks and costs borne by the establishment.

Rules about deductionsE+W+S+N.I.

29Allowable deductionsE+W+S+N.I.

(1)A deduction is allowed for any allowable expenses incurred for the purposes of the permanent establishment.

(2)Expenses incurred for the purposes of the permanent establishment include executive and general administrative expenses so incurred, whether in the United Kingdom or elsewhere.

(3)It does not matter whether the expenses are incurred by, or reimbursed by, the permanent establishment.

(4)The amount of expenses to be taken into account under subsection (1) is the actual cost to the non-UK resident company.

(5)Allowable expenses” means expenses of a kind in respect of which a deduction would be allowed for corporation tax purposes if incurred by a UK resident company.

30Restriction on deductions: costsE+W+S+N.I.

No deduction is allowed for costs in excess of those which would have been incurred on the assumptions in section 21(2).

31Restriction on deductions: payments in respect of intangible assetsE+W+S+N.I.

(1)No deduction is allowed for royalties paid, or other similar payments made, by the permanent establishment to any other part of the non-UK resident company in respect of the use of intangible assets held by the company.

(2)This does not prevent a deduction for any contribution by the permanent establishment to the costs of creation of an intangible asset.

(3)In this section “intangible asset” has the meaning it has for accounting purposes, and includes any intellectual property (as defined in section 712(3)).

32Restriction on deductions: interest or other financing costsE+W+S+N.I.

(1)No deduction is allowed for payments of interest or other financing costs by the permanent establishment to any other part of the non-UK resident company.

(2)But the restriction in subsection (1) does not apply to interest or other financing costs that are payable in respect of borrowing by the permanent establishment in the ordinary course of a financial business carried on by it.

(3)In subsection (2) “financial business” means any of the following—

(a)banking, deposit-taking, money-lending or debt-factoring, or a business similar to any of those, and

(b)dealing in commodity or financial futures.

Chapter 5E+W+S+N.I.Supplementary

33Trade includes officeE+W+S+N.I.

In this Part, except in so far as the context otherwise requires—

(a)references to a trade include an office, and

(b)references to carrying on a trade include holding an office.

Part 3E+W+S+N.I.Trading income

Chapter 1E+W+S+N.I.Introduction

34Overview of PartE+W+S+N.I.

(1)This Part applies the charge to corporation tax on income to—

(a)the profits of a trade (see Chapter 2), and

(b)post-cessation receipts arising from a trade (see Chapter 15).

(2)Chapters 3 to 14 contain rules relevant to tax under this Part.

(3)Chapter 16 contains rules that give priority to provisions outside this Part in relation to certain matters that fall within it.

(4)This Part needs to be read with Parts 19 (general exemptions) and 20 (general calculation rules).

Chapter 2E+W+S+N.I.Income taxed as trade profits

Charge to tax on trade profitsE+W+S+N.I.

35Charge to tax on trade profitsE+W+S+N.I.

The charge to corporation tax on income applies to the profits of a trade.

Annotations:

Modifications etc. (not altering text)

C29S. 35 applied (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 71(1) (with s. 147, Sch. 17)

C30S. 35 excluded (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 69(a) (with s. 147, Sch. 17)

Trades and trade profitsE+W+S+N.I.

36Farming and market gardeningE+W+S+N.I.

(1)Farming or market gardening in the United Kingdom is treated for corporation tax purposes as the carrying on of a trade or part of a trade (whether or not the land is managed on a commercial basis and with a view to the realisation of profits).

(2)All farming in the United Kingdom carried on by a company, other than farming carried on as part of another trade, is treated for corporation tax purposes as one trade.

(3)This section does not apply to farming or market gardening by an insurance company on land which is an asset [F20held by the company for the purposes of its long-term business].

(4)In the case of farming carried on by a company as a member of a firm, this rule is explained by section 1270(1).

37Commercial occupation of woodlandsE+W+S+N.I.

(1)The commercial occupation of woodlands in the United Kingdom is not a trade or part of a trade for any corporation tax purpose.

(2)For this purpose the occupation of woodlands is commercial if the woodlands are managed—

(a)on a commercial basis, and

(b)with a view to the realisation of profits.

(3)See also sections 208 and 980 (which, when read with this section, secure that profits or losses from the commercial occupation of woodlands in the United Kingdom are ignored for corporation tax purposes).

38Commercial occupation of land other than woodlandsE+W+S+N.I.

(1)The commercial occupation of land in the United Kingdom is treated for corporation tax purposes as the carrying on of a trade or part of a trade.

(2)For this purpose the occupation of land is commercial if the land is managed—

(a)on a commercial basis, and

(b)with a view to the realisation of profits.

(3)This section does not apply—

(a)to farming or market gardening (which is dealt with by section 36),

(b)if the land is being prepared for forestry purposes,

(c)if the land comprises woodlands (which is dealt with by section 37), or

(d)to the occupation by an insurance company of land which is an asset [F21held by the company for the purposes of its long-term business].

Annotations:

Amendments (Textual)

F21Words in s. 38(3)(d) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 140

39Profits of mines, quarries and other concernsE+W+S+N.I.

(1)Profits or losses arising out of land in the case of a concern to which this section applies are calculated as if the concern were a trade.

(2)Any profits arising out of the land are treated for the purposes of [F22section] 35 as profits of a trade.

(3)Any losses arising out of the land are treated for the purposes of [F23Chapter 2 of Part 4 of CTA 2010 (trade loss relief), and Part 5 of that Act (group relief),] as losses of a trade carried on in the United Kingdom.

(4)The concerns to which this section applies are—

(a)mines and quarries (including gravel pits, sand pits and brickfields),

(b)ironworks, gasworks, salt springs or works, alum mines or works, waterworks and streams of water,

(c)canals, inland navigation, docks and drains or levels,

(d)rights of fishing,

(e)rights of markets and fairs, tolls, bridges and ferries,

(f)railways and other kinds of way, and

(g)a concern of the same kind as one specified in paragraph (b), (c), (d) or (e).

(5)But this section does not apply to a concern—

(a)if it is carried on by an insurance company on land which is an asset [F24held by the company for the purposes of its long-term business], or

(b)if section 38 (commercial occupation of land other than woodlands) applies to the occupation of the land out of which the profits or losses arise.

Annotations:

Amendments (Textual)

F22Word in s. 39(2) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 310 (with Sch. 9 paras. 1-9, 22)

F23Words in s. 39(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 592 (with Sch. 2)

F24Words in s. 39(5)(a) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 141

40Credit unionsE+W+S+N.I.

(1)If a credit union—

(a)makes loans to its members, or

(b)invests its surplus funds (by placing them on deposit or otherwise),

that is not treated, in calculating the credit union's income, as the carrying on of a trade or part of a trade.

(2)In this section “surplus funds” means funds not immediately required for the credit union's purposes.

Starting and ceasing to tradeE+W+S+N.I.

41Effect of company starting or ceasing to be within charge to corporation taxE+W+S+N.I.

(1)This section applies if a company starts or ceases to be within the charge to corporation tax in respect of a trade.

(2)The company is treated for the purposes of this Part—

(a)as starting to carry on the trade when it starts to be within the charge, or

(b)as ceasing to carry on the trade when it ceases to be within the charge.

Trading income and property incomeE+W+S+N.I.

42Tied premisesE+W+S+N.I.

(1)This section applies if —

(a)in the course of carrying on a trade a company (“the trader”) supplies, or is concerned in the supply of, goods sold or used on premises occupied by another person,

(b)the trader has an estate or interest in the premises,

(c)the estate or interest is dealt with as property employed for the purposes of the trade, and

(d)receipts and expenses in connection with the premises would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)Both the receipts and the expenses are instead brought into account in calculating the profits of the trade.

(3)Any apportionment of receipts or expenses that is necessary because—

(a)the receipts or expenses do not relate only to the premises, or

(b)the above conditions are met only in relation to part of the premises,

is to be made on a just and reasonable basis.

43Caravan sites where trade carried onE+W+S+N.I.

(1)This section applies if—

(a)a company (“the trader”) carries on material activities connected with the operation of a caravan site,

(b)the activities are, or are part of, a trade, and

(c)receipts from, and expenses of, lettings of caravans or pitches for caravans on the site would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)The trader may instead bring both the receipts and the expenses into account in calculating the profits of the trade.

(3)But if the conditions in subsection (1)(a) and (b) are met for only part of an accounting period of the trader, subsection (2) applies only to the receipts and expenses that would otherwise be brought into account in calculating the profits of the property business for that part of the accounting period.

(4)In this section—

  • caravan site” means—

    (a)

    land on which a caravan is stationed for the purposes of human habitation, and

    (b)

    land which is used in conjunction with land on which a caravan is so stationed, and

  • letting” includes a licence to occupy.

44Surplus business accommodationE+W+S+N.I.

(1)This section applies if—

(a)a company (“the trader”) carrying on a trade obtains receipts from a letting of business accommodation that is temporarily surplus to requirements (see subsections (3) and (4)),

(b)the accommodation is not held as trading stock,

(c)the receipts are in respect of part of a building of which another part is used to carry on the trade,

(d)the receipts are relatively small, and

(e)the receipts, and the expenses of the letting, would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)The trader may instead bring both the receipts and the expenses into account in calculating the profits of the trade.

(3)Accommodation is temporarily surplus to requirements only if—

(a)it has been used within the last 3 years to carry on the trade or acquired within the last 3 years,

(b)the trader intends to use it to carry on the trade at a later date, and

(c)the letting is for a term of not more than 3 years.

(4)If accommodation is temporarily surplus to requirements at the beginning of an accounting period, it continues to be temporarily surplus to requirements until the end of that period.

(5)If under this section any of the receipts from and expenses of a letting are brought into account in calculating the profits of the trade, all subsequent receipts from and expenses of the letting must be dealt with in the same way (but only so long as this section continues to apply).

(6)In this section “letting” includes a licence to occupy.

45Payments for wayleavesE+W+S+N.I.

(1)This section applies if—

(a)a company (“the trader”) carries on a trade on some or all of the land to which a wayleave relates,

(b)rent is receivable, or expenses are incurred, by the trader in respect of the wayleave, and

(c)apart from any rent or expenses in respect of a wayleave, no other receipts or expenses in respect of any of the land are brought into account in calculating the profits of any property business of the trader.

(2)If—

(a)the trader would otherwise be liable to tax under Chapter 8 of Part 4 in respect of the rent for the wayleave (rent receivable for UK electric-line wayleaves), or

(b)expenses incurred by the trader in respect of the wayleave would otherwise be brought into account in calculating profits charged under that Chapter,

the trader may instead bring both the rent and the expenses into account in calculating the profits of the trade.

(3)If—

(a)rent for the wayleave would otherwise be brought into account in calculating the profits of a property business of the trader, or

(b)expenses incurred by the trader in respect of the wayleave would otherwise be so brought into account,

the trader may instead bring both the rent and the expenses into account in calculating the profits of the trade.

(4)In this section “rent” includes—

(a)a receipt mentioned in section 207(3), and

(b)any other receipt in the nature of rent.

(5)In this section “wayleave” means an easement, servitude or right in or over land which is enjoyed in connection with—

(a)an electric, telegraph or telephone wire or cable,

(b)a pipe for the conveyance of any thing, or

(c)any apparatus used in connection with such a pipe.

(6)The reference to the enjoyment of an easement, servitude or right in connection with an electric, telegraph or telephone wire or cable includes (in particular) its enjoyment in connection with—

(a)a pole or pylon supporting such a wire or cable, or

(b)apparatus used in connection with such a wire or cable.

Chapter 3E+W+S+N.I.Trade profits: basic rules

46Generally accepted accounting practiceE+W+S+N.I.

(1)The profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for corporation tax purposes.

(2)This does not—

(a)require a company to comply with the requirements of the Companies Act 2006 (c. 46) or subordinate legislation made under that Act except as to the basis of calculation, or

(b)impose any requirements as to audit or disclosure.

(3)This section does not affect any provisions of the Corporation Tax Acts—

(a)relating to the calculation of the profits of—

(i)Lloyd's underwriters, F25...

F25(ii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)otherwise laying down special rules for the calculation of the profits of a particular description of business.

Annotations:

Amendments (Textual)

F25S. 46(3)(a)(ii) and the word immediately preceding it omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 142

47Losses calculated on same basis as profitsE+W+S+N.I.

(1)The same rules apply for corporation tax purposes in calculating losses of a trade as apply in calculating profits.

(2)This is subject to any express provision to the contrary.

48Receipts and expensesE+W+S+N.I.

(1)In the Corporation Tax Acts, in the context of the calculation of the profits of a trade, references to receipts and expenses are to any items brought into account as credits or debits in calculating the profits.

(2)It follows that references in that context to receipts or expenses do not imply that an amount has actually been received or paid.

(3)This section is subject to any express provision to the contrary.

49Items treated as receipts and expensesE+W+S+N.I.

The rules for calculating the profits of a trade need to be read with—

(a)the provisions of CAA 2001 which treat allowances as expenses of a trade,

(b)the provisions of CAA 2001 which treat charges as receipts of a trade,

(c)section 297 (credits and debits in respect of a loan relationship to which a company is a party for the purposes of a trade it carries on treated as receipts and expenses of the trade),

(d)section 573 (credits and debits in respect of a derivative contract to which a company is a party for the purposes of a trade it carries on treated as receipts and expenses of the trade),

(e)section 747 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a trade it carries on treated as receipts and expenses of the trade), and

(f)section 749 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a section 39(4) concern which it carries on treated as receipts and expenses of the concern).

50Animals kept for trade purposesE+W+S+N.I.

(1)Animals or other living creatures kept for the purposes of a trade are treated as trading stock if they are not kept wholly or mainly—

(a)for the work they do in connection with the carrying on of the trade,

(b)for public exhibition, or

(c)for racing or other competitive purposes.

(2)But they are not treated as trading stock if they are part of a herd in relation to which a herd basis election has effect (see Chapter 8).

(3)This section applies to shares in animals or other living creatures as it applies to the creatures themselves.

51Relationship between rules prohibiting and allowing deductionsE+W+S+N.I.

(1)Any relevant permissive rule in this Part—

(a)has priority over any relevant prohibitive rule, but

(b)is subject to—

(i)section 56 (car F26... hire),

(ii)section 1288 (unpaid remuneration),

(iii)section 1290 (employee benefit contributions),

(iv)section 1304 (crime-related payments).

(2)In this section “any relevant permissive rule in this Part” means any provision of—

(a)Chapter 5 (trade profits: rules allowing deductions), apart from sections 62 to 67,

(b)Chapter 7 (trade profits: gifts to charities etc),

(c)Chapter 9 (trade profits: other specific trades), or

(d)Chapter 12 (deductions from profits: unremittable amounts),

which allows a deduction in calculating the profits of a trade.

(3)In this section “any relevant prohibitive rule”, in relation to any deduction, means any provision of this Part or Chapter 1 of Part 20 (apart from those mentioned in subsection (1)(b)) which might otherwise be read as—

(a)prohibiting or deferring the deduction, or

(b)restricting the amount of the deduction.

Annotations:

Amendments (Textual)

F26Words in s. 51(1)(b)(i) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 46

52Apportionment etc of profits and losses to accounting periodE+W+S+N.I.

(1)This section applies if a period of account of a trade does not coincide with an accounting period.

(2)Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the accounting period—

(a)apportioning the profits or losses of a period of account to the parts of that period falling in different accounting periods, and

(b)adding the profits or losses of a period of account (or part of a period) to profits or losses of other periods of account (or parts).

(3)The steps must be taken by reference to the number of days in the periods concerned.

Chapter 4E+W+S+N.I.Trade profits: rules restricting deductions

53Capital expenditureE+W+S+N.I.

(1)In calculating the profits of a trade, no deduction is allowed for items of a capital nature.

(2)Subsection (1) is subject to provision to the contrary in the Corporation Tax Acts.

54Expenses not wholly and exclusively for trade and unconnected lossesE+W+S+N.I.

(1)In calculating the profits of a trade, no deduction is allowed for—

(a)expenses not incurred wholly and exclusively for the purposes of the trade, or

(b)losses not connected with or arising out of the trade.

(2)If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

55Bad debtsE+W+S+N.I.

(1)This section applies to non-money debts to which neither Part 7 (derivative contracts) nor Part 8 (intangible fixed assets) applies.

(2)In calculating the profits of a company's trade, no deduction is allowed in respect of a non-money debt owed to the company, except—

(a)by way of impairment loss, or

(b)so far as the debt is released wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.

(3)In this section “non-money debt” means a debt which is not a money debt for the purposes of Part 5 (loan relationships).

56Car F27... hireE+W+S+N.I.

(1)Subsection (2) applies if, in calculating the profits of a trade, a deduction is allowed for expenses incurred on the hiring of a car [F28which is not——

(a)a car that is first registered before 1 March 2001,

(b) a car that has low CO 2 emissions,

(c)a car that is electrically propelled, or

(d)a qualifying hire car.]

(2)The amount of the deduction which would otherwise be allowable is reduced by [F2915%].

(3)Subsection (4) applies if a deduction is reduced as a result of subsection (2), or a corresponding provision, and subsequently—

(a)there is a rebate (however described) of the hire charges, or

(b)a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency arrangement.

(4)The amount that, as a result of the rebate or release—

(a)is brought into account as a receipt of the trade, or

(b)is treated as a post-cessation receipt under section 193 (debts released after cessation),

is reduced by [F3015%].

(5)In this section “corresponding provision” means—

(a)section 1251(2) (car F31... hire: expenses of management), [F32including as applied by section 82(4) of FA 2012, or]

(b)section 48(2) of ITTOIA 2005 (car F33... hire: trade profits and property income), F34...

F34(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F35(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations:

Amendments (Textual)

F27Words in s. 56 heading omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) ) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(7)

F28Words in s. 56(1) substituted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 47(2)

F29Word in s. 56(2) substituted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 47(3)

F30Word in s. 56(4) substituted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 47(4)

F31Words in s. 56(5)(a) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(5)

F32Words in s. 56(5)(a) inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 143(a)

F33Words in s. 56(5)(b) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(5)

F34S. 56(5)(c) and the word immediately preceding it omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 143(b)

F35S. 56(6) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(6)

57Car F36... hire: supplementaryE+W+S+N.I.

(1)In section 56 “car F37...” means a mechanically propelled road vehicle other than F38...—

[F39(za)a motor cycle (within the meaning of section 185(1) of the Road Traffic Act 1988),]

(a)[F40a vehicle] of a construction primarily suited for the conveyance of goods or burden of any description, or

(b)[F41a vehicle] of a type not commonly used as a private vehicle and unsuitable for such use.

[F42(1A)In section 56—

  • a car that has low CO2 emissions ” has the same meaning as in section 104AA of CAA 2001 (special rate expenditure: main rate car);

  • electrically propelled ” has the meaning given in section 268B of that Act. ]

(2)In section 56 “a qualifying hire car F43...” means a car F43... which—

(a)is hired under a hire-purchase agreement F44... under which there is no option to purchase,

(b)is hired under a hire-purchase agreement under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1% of the retail price of the car F43... when new, or

F45(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F46(d) is leased under a long-funding lease (within the meaning of section 70G of CAA 2001). ]

[F47(3)For this purpose “hire-purchase agreement” has the meaning given by section 1129 of CTA 2010.]

(6)In this section F48... “new” means unused and not second-hand.

Annotations:

Amendments (Textual)

F36Words in s. 57 omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(6)

F37Words in s. 57(1) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(a)

F38Word in s. 57(1) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(b)

F39S. 57(1)(za) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(c)

F40Words in s. 57(1)(a) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(d)

F41Words in s. 57(1)(b) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(d)

F42S. 57(1A) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(3)

F43Words in s. 57(2) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(4)(a)

F44Words in s. 57(2)(a) repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

F45S. 57(2)(c) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(4)(b)

F46S. 57(2)(d) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(4)(c)

F47S. 57(3) substituted for s. 57(3)-(5) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 593(b) (with Sch. 2)

F48Words in s. 57(6) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(5)

F4958Hiring cars (but not motor cycles) with low CO2 emissions before 1 April 2013E+W+S+N.I.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations:

Amendments (Textual)

F49S. 58 omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 49

[F5058AShort-term hiring in and long-term hiring outE+W+S+N.I.

(1)Section 56 does not apply to expenses incurred by a company (“the taxpayer”) on the hiring of a car if condition A or B is met.

(2)Condition A is that—

(a)the expenses are incurred in respect of the making available of the car to the taxpayer for a period (“the hire period”) of not more than 45 consecutive days, and

(b)if the car is made available to the taxpayer (whether by the same person or different persons) for one or more periods linked to the hire period, the hire period and the linked period or periods, taken together, consist of not more than 45 days.

(3) Condition B is that the expenses are incurred in respect of a period (“the sub-hire period”) throughout which the taxpayer makes the car available to another person (“ the customer ”) and—

(a)the sub-hire period consists of more than 45 consecutive days, or

(b)if the taxpayer makes the car available to the customer throughout one or more periods linked to the sub-hire period, the sub-hire period and the linked period or periods, taken together, consist of more than 45 days,

but see subsection (4).

(4)Condition B is not met if—

(a)the customer is an employee or officer of the taxpayer or of a person connected with the taxpayer, or

(b)during all or part of the sub-hire period (or any period linked to the sub-hire period), the customer makes any car available to an employee or officer of the taxpayer under arrangements with the taxpayer or with a person connected with the taxpayer.

(5)Neither condition A nor condition B is met if the car is hired under arrangements the purpose, or one of the main purposes, of which is—

(a)to disapply or reduce the effect of section 56, or

(b)other avoidance of tax.

(6)For the purposes of condition B the expenses incurred by the taxpayer on the hiring of the car must be apportioned between—

(a)the sub-hire period, and

(b)the remainder of the period during which the car is made available to the taxpayer,

according to the respective lengths of those periods.

(7)A period of consecutive days (“the main period”) is linked to—

(a)a period of consecutive days that ends not more than 14 days before the main period begins,

(b)a period of consecutive days that begins not more than 14 days after the main period ends, and

(c)a period of consecutive days linked to a period in paragraph (a) or (b).

(8)For the purposes of this section, where arrangements for the hiring of a car include arrangements for the provision of a replacement car in the event that the first car is not available, the first car and any replacement car are to be treated as if they were the same car.

(9) In this section (and section 58B) “ arrangements ” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions. ]

Annotations:

Amendments (Textual)

F50Ss. 58A, 58B inserted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 50

[F5058BConnected persons: application of section 56E+W+S+N.I.

(1)This section applies where connected persons incur expenses on the hiring of the same car for the same period and—

(a)section 56 would (but for this section) apply to the expenses of two or more of those persons, or

(b) section 56 and section 48 of ITTOIA 2005 would (but for this section and section 50B of that Act) each apply to the expenses of at least one of those persons.

(2)This section only applies where one or more of the persons mentioned in subsection (1)(a) or (b) incurs the expenses under commercial arrangements (and such a person is referred to below as a “commercial lessee”).

(3)In relation to the expenses mentioned in subsection (1) to which section 56 would (but for this section) apply, section 56 only applies to the following—

(a)where there is one commercial lessee, any such expenses incurred by that lessee, and

(b)where there is more than one, any such expenses incurred by the first commercial lessee in the chain of arrangements for the hiring of the car for the period.

(4)In this section—

(a)references to expenses incurred by a commercial lessee include expenses incurred in that or any other capacity, and

(b)commercial arrangements ” means arrangements the terms of which are such as would reasonably have been expected if the parties to the arrangements had been dealing at arm's length. ]

Annotations:

Amendments (Textual)

F50Ss. 58A, 58B inserted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 50

59Patent royaltiesE+W+S+N.I.

In calculating the profits of a trade, no deduction is allowed for royalties or other sums paid for the use of patents.

60Expenditure on integral featuresE+W+S+N.I.

Section 33A(3) of CAA 2001 provides that no deduction is allowed in respect of certain expenditure on an integral feature of a building or structure (within the meaning of that section).

[F5160ARental rebatesE+W+S+N.I.

(1)Where plant or machinery (“the asset”) is leased and a rental rebate is payable by the lessor, the amount of the deduction allowable in respect of the rebate is limited to—

(a)the amount of the lessor's income from the lease, or

(b)in the case of a finance lease, that amount excluding the finance charge.

(2)Rental rebate” means any sum payable to the lessee that is calculated by reference to the termination value of the asset.

(3)For this purpose—

(a)the termination value of an asset is the value of the asset at or about the time when the lease terminates,

(b)calculation by reference to the termination value includes calculation by reference to any one or more of—

(i)the proceeds of sale, if the asset is sold,

(ii)any insurance proceeds, compensation or similar sums in respect of the asset, and

(iii)an estimate of the market value of the asset, and

(c)calculation by reference to the termination value also includes—

(i)determination in a way which, or by reference to factors or criteria which, might reasonably be expected to produce a broadly similar result to calculation by reference to the termination value, or

(ii)any other form of calculation indirectly by reference to the termination value.

(4)For the purposes of this section—

(a)the income of the lessor from the lease is the total of all the amounts receivable in connection with the lease that have been brought into account in calculating the lessor's income for corporation tax purposes, excluding—

(i)disposal receipts brought into account under Part 2 of CAA 2001 (see section 60(1) of that Act), and

(ii)so much of any amount as represents charges for services or qualifying UK or foreign tax (within the meaning of section 70YE of that Act) to be paid by the lessor, and

(b)the finance charge, in relation to a finance lease, is—

(i)if the lease is one that, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, so much of the rentals under the lease as fall (or would fall) to be treated as interest, or

(ii)in any other case, the amount that, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment.

(5)Where the asset is acquired by the lessor in a transaction—

(a)to which section 948 of CTA 2010 applies (modified application of CAA 2001 in case of transfer of trade without change of ownership), or

(b)in relation to which an election is made under section 266 of CAA 2001 (election where predecessor and successor are connected persons),

this section applies as if the successor had been the lessor at all material times and everything done to or by the predecessor had been done to or by the successor.

(6)Where the whole or part of a rental rebate is disallowed under this section as a deduction in computing profits—

(a)the amount disallowed, or

(b)if less, the amount by which the rental rebate exceeds the amount of capital expenditure incurred by the lessor,

may be treated for the purposes of corporation tax in respect of chargeable gains as an allowable loss accruing to the lessor on the termination of the lease.

That allowable loss is deductible only from chargeable gains accruing to the lessor on the disposal of the asset.

(7)This section does not apply to a long funding finance lease (see section 362 of CTA 2010).]

Annotations:

Amendments (Textual)

F51S. 60A inserted (with effect in accordance with Sch. 5 para. 2(3) of the amending Act) by Finance Act 2010 (c. 13), Sch. 5 para. 2(2)

Chapter 5E+W+S+N.I.Trade profits: rules allowing deductions

Pre-trading expensesE+W+S+N.I.

61Pre-trading expensesE+W+S+N.I.

(1)This section applies if a company incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the company starts to carry on the trade (“the start date”).

(2)If, in calculating the profits of the trade—

(a)no deduction would otherwise be allowed for the expenses, but

(b)a deduction would be allowed for them if they were incurred on the start date,

the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).

(3)This section does not apply to any expenses in relation to which—

(a)any debit falls, or

(b)any debit would fall but for section 330 (loan relationships: debits in respect of pre-trading expenditure),

to be brought into account for the purposes of Part 5 (loan relationships).

Tenants under taxed leasesE+W+S+N.I.

62Tenants under taxed leases: introductionE+W+S+N.I.

(1)Sections 63 to 67 apply if land used in connection with a trade is subject to a taxed lease.

(2)Section 63 (tenants occupying land for purposes of trade treated as incurring expenses) applies in calculating the profits of a trade carried on by the tenant under the taxed lease for the purpose of making deductions for the expenses of the trade.

(3)But any deduction for an expense under section 63 is subject to the application of any provision of Chapter 4 of this Part.

(4)In this section and sections 63 to 67 the following expressions have the same meaning as in Chapter 4 of Part 4 (profits of property businesses: lease premiums etc)—

  • “receipt period” (see section 228(6)),

  • “taxed lease” (see section 227(4)),

  • “taxed receipt” (see section 227(4)), and

  • “unreduced amount” (see section 230(2)).

(5)Section 230(3) and (4) (unreduced amount of taxed receipt under section 217 as a result of section 218) applies for the purposes of sections 63 to 67.

(6)In the application of sections 66 and 67 to Scotland—

(a)references to a lease being granted out of a taxed lease are to the grant of a sublease of land subject to the taxed lease, and

(b)references to the lease so granted are to be read as references to the sublease.

63Tenants occupying land for purposes of trade treated as incurring expensesE+W+S+N.I.

(1)The tenant under the taxed lease is treated as incurring an expense of a revenue nature in respect of the land subject to the taxed lease for each qualifying day.

(2)If there is more than one taxed receipt, this section applies separately in relation to each of them.

(3)A day is a “qualifying day”, in relation to a taxed receipt, if it is a day—

(a)that falls within the receipt period of the taxed receipt, and

(b)on which the tenant occupies the whole or part of the land subject to the taxed lease for the purposes of carrying on a trade.

(4)If on the qualifying day the tenant occupies the whole of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

(5)If on the qualifying day the tenant occupies part of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

(6)This section is subject to section 64 (limit on deductions if tenant entitled to mineral extraction allowance).

64Limit on deductions if tenant entitled to mineral extraction allowanceE+W+S+N.I.

(1)This section applies if the tenant under the taxed lease has become entitled, in respect of expenditure on the acquisition of an interest in the land subject to the taxed lease, to an allowance for an accounting period under Part 5 of CAA 2001 (mineral extraction allowances) in respect of expenditure falling within section 403 of that Act (qualifying expenditure on acquiring a mineral asset).

(2)If the allowance is in respect of the whole of the expenditure, no deduction is allowed for expenses under section 63 for a qualifying day falling within that or a later accounting period.

(3)If the allowance is in respect of only part of the expenditure (“the allowable part”) the amount of the deduction for expenses under section 63 for a qualifying day falling within that or a later accounting period is calculated by multiplying the amount that, apart from this section, would be the amount of the deduction for the qualifying day by—

65Tenants dealing with land as property employed for purposes of tradeE+W+S+N.I.

(1)This section applies if the tenant under the taxed lease—

(a)does not occupy the land subject to the taxed lease, or a part of it, but

(b)deals with its interest in the land, or the part of it, as property employed for the purposes of carrying on a trade.

(2)Section 63 applies as if the land or the part of it were occupied by the tenant for the purposes of the trade.

(3)But the tenant is not treated as incurring an expense in respect of the land for a qualifying day as a result of this section so far as the tenant is treated as incurring an expense under section 232 (tenants under taxed leases treated as incurring expenses) in respect of the land for the day in calculating the profits of the tenant's property business.

(4)This section is subject to sections 66 and 67 (restrictions on section 63 expenses where the additional calculation rule is relevant).

66Restrictions on section 63 expenses: lease premium receiptsE+W+S+N.I.

(1)This section applies if a lease has been granted out of the taxed lease and—

(a)in calculating the amount of a receipt of a property business under Chapter 4 of Part 4 (profits of property businesses: lease premiums etc) in respect of the lease, there is a reduction under section 228 (the additional calculation rule) by reference to the taxed receipt, or

(b)in calculating the amount of a receipt of a property business under Chapter 4 of Part 3 of ITTOIA 2005 (profits of property businesses: lease premiums etc) in respect of the lease, there is a reduction under section 288 of that Act (the additional calculation rule) by reference to the taxed receipt.

In this section and section 67 the receipt that is so reduced is referred to as a “lease premium receipt”.

(2)Subsections (3) to (5) provide for the application of section 63 as a result of section 65 for a qualifying day that falls within the receipt period of the lease premium receipt.

(3)The tenant under the taxed lease is treated as incurring an expense under section 63 as a result of section 65 for the qualifying day by reference to the taxed receipt only if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt.

(4)If the condition in subsection (3) is met, the amount of that expense for the qualifying day by reference to the taxed receipt is equal to that excess.

(5)If the qualifying day falls within the receipt period of more than one lease premium receipt, the reference in subsection (3) to the daily reduction of the lease premium receipt is to be read as a reference to the total of the daily reductions of each of the lease premium receipts whose receipt period includes the qualifying day.

(6)In this section—

(7)In this section references to a reduction under section 228 below or section 288 of ITTOIA 2005 by reference to a taxed receipt have the same meaning as in Chapter 4 of Part 4 (see section 230(6)).

(8)Section 67 explains how this section operates if the lease does not extend to the whole of the premises subject to the taxed lease.

67Restrictions on section 63 expenses: lease of part of premisesE+W+S+N.I.

(1)This section applies if—

(a)section 66 applies, and

(b)the lease granted out of the taxed lease does not extend to the whole of the premises subject to the taxed lease.

(2)Subsections (3) to (5) apply for a qualifying day that falls within the receipt period of the lease premium receipt.

(3)Sections 63, 65 and 66 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.

(4)If—

(a)more than one lease that does not extend to the whole of the premises subject to the taxed lease has been granted out of the taxed lease, and

(b)the qualifying day falls within the receipt period of two or more lease premium receipts that relate to different leases,

sections 63, 65 and 66 apply separately in relation to each part of the premises subject to a lease to which such a lease premium receipt relates and to the remainder of the premises.

(5)Where sections 63, 65 and 66 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.

(6)This fraction is calculated on a just and reasonable basis.

RenewalsE+W+S+N.I.

68Replacement and alteration of trade toolsE+W+S+N.I.

(1)This section applies if—

(a)expenses are incurred on replacing or altering any tool used for the purposes of a trade, and

(b)a deduction for the expenses would not otherwise be allowable in calculating the profits of the trade because (and only because) they are items of a capital nature.

(2)In calculating the profits of the trade, a deduction is allowed for the expenses.

(3)In this section “tool” means any implement, utensil or article.

Payments for restrictive undertakingsE+W+S+N.I.

69Payments for restrictive undertakingsE+W+S+N.I.

(1)In calculating the profits of a trade, a deduction is allowed for a payment—

(a)which is treated as earnings of an employee by virtue of section 225 of ITEPA 2003 (payments for restrictive undertakings), and

(b)which is made, or treated as made for the purposes of section 226 of that Act (valuable consideration given for restrictive undertakings), by the company carrying on the trade.

(2)The deduction is allowed for the accounting period in which the payment—

(a)is made, or

(b)is treated as made for the purposes of section 226 of ITEPA 2003.

Seconded employeesE+W+S+N.I.

70Employees seconded to charities and educational establishmentsE+W+S+N.I.

(1)This section applies if a company carrying on a trade (“the employer”) makes the services of a person employed for the purposes of the trade available to—

(a)a charity, or

(b)an educational establishment,

on a basis that is stated and intended to be temporary.

(2)In calculating the profits of the trade, a deduction is allowed for expenses of the employer that are attributable to the employee's employment during the period of the secondment.

(3)In this section—

  • educational establishment” means—

    (a)

    in England and Wales, any of the bodies mentioned in section 71(1),

    (b)

    in Scotland, any of the bodies mentioned in section 71(2),

    (c)

    in Northern Ireland, any of the bodies mentioned in section 71(3), and

    (d)

    any other educational body which is for the time being approved for the purposes of this section by the Secretary of State or, in Northern Ireland, the Department of Education, and

  • the period of the secondment” means the period for which the employee's services are made available to the charity or educational establishment.

71Educational establishmentsE+W+S+N.I.

(1)A body in England and Wales is an educational establishment for the purposes of section 70 if it is—

[F52(a)a local authority (but only to the extent that the services of the employee are made available to the authority for the purposes of, or in connection with, the education functions of the authority),]

(b)an educational institution maintained or otherwise supported [F53, in the exercise of their education functions, by a local authority],

(c)an independent school within the meaning of the Education Act 1996 (c. 56) registered under section 161 of the Education Act 2002 (c. 32), F54...

[F55(ca)an alternative provision Academy that is not an independent school within the meaning of the Education Act 1996,]

(d)an institution within the further education sector, or the higher education sector, within the meaning of the Further and Higher Education Act 1992 (c. 13) [F56, or

(e)a 16 to 19 Academy.]

(2)A body in Scotland is an educational establishment for the purposes of section 70 if it is—

(a)an education authority within the meaning of the Education (Scotland) Act 1980 (c. 44),

(b)an educational establishment within the meaning of the Education (Scotland) Act 1980 managed by an education authority within the meaning of that Act,

(c)a public or grant-aided school within the meaning of the Education (Scotland) Act 1980,

(d)an independent school within the meaning of the Education (Scotland) Act 1980,

(e)a central institution within the meaning of the Education (Scotland) Act 1980 (c. 44),

(f)an institution within the higher education sector within the meaning of section 56(2) of the Further and Higher Education (Scotland) Act 1992 (c. 37), or

(g)a college of further education within the meaning of section 36(1) of the Further and Higher Education (Scotland) Act 1992.

(3)A body in Northern Ireland is an educational establishment for the purposes of section 70 if it is—

(a)an education and library board within the meaning of the Education and Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)),

(b)a college of education, a grant-aided school or an independent school within the meaning of the Education and Libraries (Northern Ireland) Order 1986, or

(c)an institution of further education within the meaning of the Further Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)).

[F57(4)In subsection (1) “local authority” and “education functions” have the same meaning as in the Education Act 1996 (see section 579(1) of that Act).]

Contributions to agents' expensesE+W+S+N.I.

72Payroll deduction schemes: contributions to agents' expensesE+W+S+N.I.

(1)This section applies if—

(a)a company carrying on a trade (“the employer”) is liable to make payments to an individual,

(b)income tax falls to be deducted from those payments as a result of PAYE regulations, and

(c)the employer withholds sums from those payments in accordance with an approved scheme and pays the sums to an approved agent.

(2)In calculating the profits of the employer's trade, a deduction is allowed for expenses incurred by the employer in making a payment to the agent for expenses which—

(a)have been incurred, or

(b)are to be incurred,

by the agent in connection with the agent's functions under the scheme.

(3)In this section “approved agent” and “approved scheme” have the same meaning as in section 714 of ITEPA 2003.

Counselling and retraining expensesE+W+S+N.I.

73Counselling and other outplacement servicesE+W+S+N.I.

(1)In calculating the profits of a trade, a deduction is allowed for counselling expenses if—

(a)the company carrying on the trade (“the employer”) incurs the expenses,

(b)the expenses are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and

(c)the relevant conditions are met.

(2)In this section “counselling expenses” means expenses incurred—

(a)in the provision of services to the employee in connection with the cessation of the office or employment,

(b)in the payment or reimbursement of fees for such provision, or

(c)in the payment or reimbursement of travelling expenses in connection with such provision.

(3)In this section “the relevant conditions” means—

(a)conditions A to D for the purposes of section 310 of ITEPA 2003 (employment income exemptions: counselling and other outplacement services), and

(b)in the case of travel expenses, condition E for those purposes.

74Retraining coursesE+W+S+N.I.

(1)In calculating the profits of a trade, a deduction is allowed for retraining course expenses if—

(a)the company carrying on the trade (“the employer”) incurs the expenses,

(b)they are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and

(c)the relevant conditions are met.

(2)In this section—

  • retraining course expenses” means expenses incurred in the payment or reimbursement of retraining course expenses within the meaning given by section 311(2) of ITEPA 2003, and

  • the relevant conditions” means—

    (a)

    the conditions in subsections (3) and (4) of section 311 of ITEPA 2003 (employment income exemptions: retraining courses), and

    (b)

    in the case of travel expenses, the conditions in subsection (5) of that section.

75Retraining courses: recovery of taxE+W+S+N.I.

(1)This section applies if—

(a)an employer's liability to corporation tax for an accounting period is determined on the assumption that a deduction for expenditure is allowed under section 74, and

(b)the deduction would not otherwise have been allowed.

(2)If, subsequently—

(a)the condition in section 311(4)(a) of ITEPA 2003 is not met because of the employee's failure to begin the course within the period of one year after ceasing to be employed, or

(b)the condition in section 311(4)(b) of ITEPA 2003 is not met because of the employee's continued employment or re-employment,

an assessment of an amount or further amount of corporation tax due as a result of the condition not being met may be made under paragraph 41 of Schedule 18 to FA 1998.

(3)Such an assessment must be made before the end of the period of 6 years immediately following the end of the accounting period in which the failure to meet the condition occurred.

(4)If subsection (2) applies, the employer must give an officer of Revenue and Customs a notice containing particulars of—

(a)the employee's failure to begin the course,

(b)the employee's continued employment, or

(c)the employee's re-employment,

within 60 days of coming to know of it.

F58(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F58(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations:

Amendments (Textual)

Modifications etc. (not altering text)

C33S. 75(2)-(4) applied (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 81(4) (with s. 147, Sch. 17)

Redundancy payments etcE+W+S+N.I.

76Redundancy payments and approved contractual paymentsE+W+S+N.I.

(1)Sections 77 to 79 apply if—

(a)a company (“the employer”) makes a redundancy payment or an approved contractual payment to another person (“the employee”), and

(b)the payment is in respect of the employee's employment wholly in the employer's trade or partly in the employer's trade and partly in one or more other capacities.

(2)For the purposes of this section and sections 77 to 81 “redundancy payment” means a redundancy payment payable under—

(a)Part 11 of the Employment Rights Act 1996 (c. 18), or

(b)Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).

(3)For the purposes of this section and those sections—

  • contractual payment” means a payment which, under an agreement, an employer is liable to make to an employee on the termination of the employee's contract of employment, and

  • a contractual payment is “approved” if, in respect of that agreement, an order is in force under—

    (a)

    section 157 of the Employment Rights Act 1996, or

    (b)

    Article 192 of the Employment Rights (Northern Ireland) Order 1996.

77Payments in respect of employment wholly in employer's tradeE+W+S+N.I.

(1)This section applies if—

(a)the payment is in respect of the employee's employment wholly in the employer's trade, and

(b)no deduction would otherwise be allowable for the payment.

(2)In calculating the profits of the trade, a deduction is allowed under this section for the payment.

(3)The deduction under this section for an approved contractual payment must not exceed the amount which would have been due to the employee if a redundancy payment had been payable.

(4)If the payment is made after the employer has permanently ceased to carry on the trade, it is treated as made on the last day on which the employer carried on the trade.

(5)If there is a partnership change, subsection (4) does not apply so long as a company carrying on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

(6)The reference in subsection (5) to a partnership change is to a change in the persons carrying on the trade in circumstances where the trade is carried on by persons in partnership immediately before or immediately after the change (or at both those times).

(7)The deduction under this section is allowed for the accounting period in which the payment is made (or treated under subsection (4) as made).

78Payments in respect of employment in more than one capacityE+W+S+N.I.

(1)This section applies if the payment is in respect of the employee's employment with the employer—

(a)partly in the employer's trade, and

(b)partly in one or more other capacities.

(2)The amount of the redundancy payment, or the amount which would have been due if a redundancy payment had been payable, is to be apportioned on a just and reasonable basis between—

(a)the employment in the trade, and

(b)the employment in the other capacities.

(3)The part of the payment apportioned to the employment in the trade is treated as a payment in respect of the employee's employment wholly in the trade for the purposes of section 77.

79Additional paymentsE+W+S+N.I.

(1)This section applies if the employer permanently ceases to carry on a trade or part of a trade and makes a payment to the employee in addition to—

(a)the redundancy payment, or

(b)if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

(2)If, in calculating the profits of the trade—

(a)no deduction would otherwise be allowable for the additional payment, but

(b)a deduction would be allowable for it if the employer had not permanently ceased to carry on the trade or the part of the trade,

a deduction is allowed under this section for the additional payment.

(3)The deduction under this section is limited to 3 times the amount of—

(a)the redundancy payment, or

(b)if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

(4)If the payment is made after the employer has permanently ceased to carry on the trade or the part of the trade, it is treated as made on the last day on which the employer carried on the trade or the part of the trade.

(5)The deduction under this section is allowed for the accounting period in which the payment is made (or treated under subsection (4) as made).

80Application of section 79 in cases involving partnershipsE+W+S+N.I.

(1)This section deals with the application of section 79 in circumstances where—

(a)there is a change in the persons carrying on a trade, and

(b)the trade is carried on by persons in partnership before or after the change (or at both those times).

(2)The employer is treated for the purposes of section 79 as permanently ceasing to carry on the trade unless a company carrying on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

81Payments made by the GovernmentE+W+S+N.I.

(1)This section applies if, in respect of a redundancy payment or an approved contractual payment payable by an employer—

(a)the Secretary of State makes a payment under section 167 of the Employment Rights Act 1996 (c. 18), or

(b)the Department for Employment and Learning makes a payment under Article 202 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).

(2)So far as the employer reimburses the Secretary of State or Department for the payment, sections 77 to 80 apply as if the payment were—

(a)a redundancy payment, or

(b)an approved contractual payment,

made by the employer.

Contributions to local enterprise organisations or urban regeneration companiesE+W+S+N.I.

82Contributions to local enterprise organisations or urban regeneration companiesE+W+S+N.I.

(1)This section applies if a company carrying on a trade (“the contributor”) incurs expenses in making a contribution (whether in cash or in kind)—

(a)to a local enterprise organisation (see section 83), or

(b)to an urban regeneration company (see section 86),

and a deduction would not otherwise be allowable for the expenses in calculating the profits of the trade.

(2)In calculating the profits of the trade, a deduction is allowed under this section for the expenses.

(3)But if, in connection with the making of the contribution, the contributor or a connected person—

(a)receives a disqualifying benefit of any kind, or

(b)is entitled to receive such a benefit,

the amount of the deduction is restricted to the amount of the expenses less the value of the benefit.

(4)For this purpose it does not matter whether a person receives, or is entitled to receive, the benefit—

(a)from the local enterprise organisation or urban regeneration company concerned, or

(b)from anyone else.

(5)Subsection (6) applies if—

(a)a deduction has been made under this section, and

(b)the contributor or a connected person receives a disqualifying benefit that is in any way attributable to the contribution.

(6)An amount equal to the value of the benefit (so far as not brought into account in determining the amount of the deduction)—

(a)is brought into account in calculating the profits of the trade, as a receipt arising in the accounting period in which the benefit is received, or

(b)if the contributor has permanently ceased to carry on the trade before the benefit is received, is treated as a post-cessation receipt (see Chapter 15).

(7)In this section “disqualifying benefit” means a benefit the expenses of obtaining which, if incurred by the contributor directly in a transaction at arm's length, would not be allowable as a deduction in calculating the profits of the trade.

83Meaning of “local enterprise organisation”E+W+S+N.I.

(1)For the purposes of section 82 “local enterprise organisation” means—

(a)a local enterprise agency,

(b)a training and enterprise council,

(c)a Scottish local enterprise company, or

(d)a business link organisation.

(2)Local enterprise agency” means a body for the time being approved as a local enterprise agency for the purposes of section 82 by the relevant national authority, that is to say by—

(a)the Secretary of State (in relation to England or Northern Ireland),

(b)the Scottish Ministers (in relation to Scotland), or

(c)the Welsh Ministers (in relation to Wales).

For further provision about approvals by the relevant national authority, see sections 84 and 85.

(3)Training and enterprise council” means a body with which the Secretary of State has an agreement under which the body is to carry out the functions of a training and enterprise council.

(4)Scottish local enterprise company” means a company with which—

(a)Scottish Enterprise, or

(b)Highlands and Islands Enterprise,

has an agreement under which the company is to carry out the functions of a local enterprise company.

(5)Business link organisation” means a person authorised by or on behalf of the Secretary of State to use a trade mark designated by the Secretary of State for the purposes of this subsection.

84Approval of local enterprise agenciesE+W+S+N.I.

(1)The relevant national authority may approve a body as a local enterprise agency for the purposes of section 82 only if conditions A and B are met.

(2)But if those conditions are met, the body may be approved—

(a)whatever its status or structure, and

(b)even if it is not described as a local enterprise agency.

(3)Condition A is that the relevant national authority is satisfied—

(a)that the body's sole aim is the promotion or encouragement of local enterprise, or

(b)that one of the body's main aims is the promotion or encouragement of local enterprise and that it has or is about to have a separate fund for the sole purpose of pursuing that aim.

(4)For this purpose “local enterprise” means industrial and commercial activity or enterprise in a particular area in the United Kingdom, with particular reference to encouraging the formation and development of small businesses.

(5)Condition B is that the body is precluded from paying or transferring any of its income or profit directly or indirectly—

(a)to any of its members, or

(b)to any person charged with the control and direction of its affairs.

(6)The payment of—

(a)reasonable remuneration for goods, labour or power supplied or for services provided,

(b)reasonable interest on money lent, or

(c)reasonable rent for premises,

does not count as a payment or transfer of income or profit for the purposes of subsection (5).

85Supplementary provisions with respect to approvalsE+W+S+N.I.

(1)This section applies for the purposes of section 84.

(2)The relevant national authority may give a body approval that is conditional on its compliance with such requirements as to—

(a)accounts,

(b)provision of information, and

(c)other matters,

as the relevant national authority considers appropriate.

(3)If the relevant national authority approves a body on the basis that it has or is about to have a separate fund (see section 84(3)(b))—

(a)the approval must specify the fund, and

(b)section 82 applies only to a contribution to the body made wholly to or for the purposes of the fund.

(4)The relevant national authority must withdraw the approval of a body as a local enterprise agency if—

(a)condition A or B in section 84 is no longer met, or

(b)the body is failing to comply with a requirement imposed as a condition of its approval.

(5)The relevant national authority must give notice of withdrawal to the body concerned, specifying the date from which the withdrawal takes effect (which may be earlier than the date on which the notice is given).

86Meaning of “urban regeneration company”E+W+S+N.I.

(1)For the purposes of section 82 “urban regeneration company” means any body of persons which the Treasury by order designates as an urban regeneration company for the purposes of that section.

(2)A body may be so designated only if—

(a)its sole or main function is to co-ordinate the regeneration of a specific urban area in the United Kingdom,

(b)it is expected to seek to perform that function by creating a plan for the development of that area and trying to secure that the plan is carried into effect, and

(c)in co-ordinating the regeneration of that area, it is expected to work together with some or all local or other public authorities which exercise functions in relation to the whole or part of that area.

(3)An order under this section may be framed so as to take effect on a date earlier than the making of the order, but not earlier than 3 months before the date on which the order is made.

Scientific researchE+W+S+N.I.

87Expenses of research and developmentE+W+S+N.I.

(1)If a company carrying on a trade incurs expenses of a revenue nature on research and development—

(a)related to the trade, and

(b)directly undertaken by or on behalf of the company,

a deduction is allowed for the expenses in calculating the profits of the trade.

(2)For this purpose expenses incurred on research and development—

(a)do not include expenses incurred in the acquisition of rights in, or arising out of, research and development, but

(b)subject to that, include all expenses incurred in carrying out, or providing facilities for carrying out, research and development.

(3)The reference in this section to research and development related to a trade includes—

(a)research and development which may lead to or facilitate an extension of the trade, and

(b)research and development of a medical nature which has a special relation to the welfare of workers employed in the trade.

(4)The same expenses may not be brought into account under this section in relation to more than one trade.

(5)In this section “research and development” has the meaning given by [F59section 1138 of CTA 2010] and includes oil and gas exploration and appraisal.

Annotations:

Amendments (Textual)

F59Words in s. 87(5) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 594 (with Sch. 2)

88Payments to research associations, universities etcE+W+S+N.I.

(1)If a company carrying on a trade—

(a)pays any sum to [F60a body] in the case of which exemption may be claimed [F61as a result of section 491 of CTA 2010 (scientific research associations)] and which has as its object the undertaking of research and development which may lead to or facilitate an extension of the appropriate class of trade, or

(b)pays to an approved university, college, research institute or other similar institution any sum to be used for scientific research related to the appropriate class of trade,

a deduction is allowed for the sum in calculating the profits of the trade.

(2)The deduction is allowed for the accounting period in which the payment is made.

(3)In this section—

(a)the appropriate class of trade” means the class of trade to which the trade carried on by the company belongs, and

(b)scientific research” means any activities in the fields of natural or applied science for the extension of knowledge.

(4)For the purposes of this section a university, college research institute or other similar institution is approved if it is for the time being approved for the purposes of this section by the Secretary of State.

(5)The reference in subsection (1)(b) to scientific research related to the appropriate class of trade includes—

(a)scientific research which may lead to or facilitate an extension of trades of the appropriate class, and

(b)scientific research of a medical nature which has a special relation to the welfare of workers employed in trades of the appropriate class.

(6)If a question arises as to—

(a)whether, or

(b)to what extent,

any activities constitute or constituted scientific research, an officer of Revenue and Customs must refer the question for decision to the Secretary of State, whose decision is final.

(7)The same expenses may not be brought into account under this section in relation to more than one trade.

Annotations:

Amendments (Textual)

F60Words in s. 88(1)(a) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 595(a) (with Sch. 2)

F61Words in s. 88(1)(a) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 595(b) (with Sch. 2)

Expenses connected with patents, designs and trade marksE+W+S+N.I.

89Expenses connected with patentsE+W+S+N.I.

In calculating the profits of a trade, a deduction is allowed for expenses incurred—

(a)in obtaining for the purposes of the trade the grant of a patent or the extension of a patent's term, or

(b)in connection with a rejected or abandoned application for a patent made for the purposes of the trade.

90Expenses connected with designs or trade marksE+W+S+N.I.

In calculating the profits of a trade, a deduction is allowed for expenses incurred in obtaining for the purposes of the trade—

(a)the registration of a design or trade mark,

(b)the extension of a period for which the right in a registered design subsists, or

(c)the renewal of registration of a trade mark.

Export Credits Guarantee DepartmentE+W+S+N.I.

91Payments to Export Credits Guarantee DepartmentE+W+S+N.I.

In calculating the profits of a trade, a deduction is allowed for a sum payable by the company carrying on the trade to the Export Credits Guarantee Department—

(a)under an agreement entered into as a result of arrangements made under section 2 of the Export and Investment Guarantees Act 1991 (c. 67) (insurance in connection with overseas investment), or

(b)with a view to entering into such an agreement.

Levies under FISMA 2000E+W+S+N.I.

92Levies etc under FISMA 2000E+W+S+N.I.

(1)In calculating the profits of a trade carried on by a company, a deduction is allowed for any sum—

(a)spent by the company in paying a levy, or

(b)paid by the company as a result of an award of costs under costs rules,

so far as it is not otherwise allowable.

(2)For the purposes of this section “costs rules” means—

(a)rules made under section 230 of FISMA 2000, or

(b)provision relating to costs contained in the standard terms fixed under paragraph 18 of Schedule 17 to FISMA 2000.

(3)For the purposes of this section “levy” means—

(a)a payment required under rules made under section 136(2) of FISMA 2000,

(b)a levy imposed under the Financial Services Compensation Scheme,

(c)a payment required under rules made under section 234 of FISMA 2000,

(d)a payment required under the rules referred to in paragraph 14(1) of Schedule 17 to FISMA 2000 in accordance with paragraph 15(1) of that Schedule, or

(e)a payment required in accordance with the standard terms fixed under paragraph 18 of that Schedule (other than a sum paid as a result of an award of costs under costs rules).

Chapter 6E+W+S+N.I.Trade profits: receipts

Capital receiptsE+W+S+N.I.

93Capital receiptsE+W+S+N.I.

(1)Items of a capital nature must not be brought into account as receipts in calculating the profits of a trade.

(2)But this does not apply to items which, as a result of any provision of the Corporation Tax Acts, are brought into account as receipts in calculating the profits of the trade.

Debts releasedE+W+S+N.I.

94Debts incurred and later releasedE+W+S+N.I.

(1)This section applies if—

(a)in calculating the profits of a trade, a deduction is allowed for the expense giving rise to a debt owed by the company carrying on the trade,

(b)all or part of the debt is released, and

(c)the release is not part of a statutory insolvency arrangement.

(2)The amount released—

(a)is brought into account as a receipt in calculating the profits of the trade, and

(b)is treated as arising in the accounting period in which the release is effected.

Amounts received following earlier cessationE+W+S+N.I.

95Acquisition of trade: receipts from transferor's tradeE+W+S+N.I.

(1)This section applies if —

(a)a person (“the transferor”) permanently ceased to carry on a trade at any time,

(b)at that time the transferor transferred to another person (“the transferee”) the right to receive sums arising from the carrying on of the trade, and

(c)the transferee subsequently carries on the transferor's trade.

(2)Sums—

(a)which the transferee receives as a result of the transfer, and

(b)which are not brought into account in calculating the profits of the transferor's trade for corporation or income tax purposes of any period before the cessation,

are brought into account in calculating the profits of the transferee's trade in the accounting period in which they are received.

(3)Any sums mentioned in subsection (1)(b) which are received after the transferor has permanently ceased to carry on the trade are not post-cessation receipts (see Chapter 15).

Reverse premiumsE+W+S+N.I.

96Reverse premiumsE+W+S+N.I.

(1)For the purposes of sections 98 and 99 a payment or other benefit is a reverse premium if—

(a)conditions A, B and C are met, and

(b)it is not excluded by section 97.

(2)Condition A is that a company (“the recipient”) receives the payment or other benefit by way of inducement in connection with a transaction being entered into by—

(a)the recipient, or

(b)a person connected with the recipient.

(3)Condition B is that the transaction (the “property transaction”) is one under which—

(a)the recipient, or

(b)the person connected with the recipient,

becomes entitled to an estate, interest or right in or over land.

(4)Condition C is that the payment or other benefit is paid or provided by—

(a)the person (“the grantor”) by whom the estate, interest or right is granted or was granted at an earlier time,

(b)a person connected with the grantor, or

(c)a nominee of, or a person acting on the directions of, the grantor or a person connected with the grantor.

97Excluded casesE+W+S+N.I.

(1)A payment or other benefit is not a reverse premium so far as it is brought into account under section 532 of CAA 2001 (the general rule excluding contributions) to reduce the recipient's expenditure qualifying for capital allowances.

(2)A payment or other benefit received in connection with a property transaction is not a reverse premium if—

(a)the person entering into the transaction is an individual, and

(b)the transaction relates to premises occupied or to be occupied by the individual as the individual's only or main residence.

(3)A payment or other benefit is not a reverse premium so far as it is consideration for the transfer of an estate or interest in land which constitutes the sale in a sale and leaseback arrangement.

(4)A “sale and leaseback arrangement” means any such arrangement as is described in [F62section 681AA(1) or (2) or 681AB(1) or (2) of ITA 2007 or] [F63section 835(1) or (2), 836(1) or (2) or 850 of CTA 2010].

Annotations:

Amendments (Textual)

F62Words in s. 97(4) inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 263 (with Sch. 9 paras. 1-9, 22)

F63Words in s. 97(4) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 596 (with Sch. 2)

98Tax treatment of reverse premiumsE+W+S+N.I.

(1)A reverse premium is treated for corporation tax purposes as a receipt of a revenue nature.

(2)If the recipient enters into the property transaction for the purposes of a trade carried on (or to be carried on) by the recipient, the reverse premium is brought into account in calculating the profits of the trade.

(3)If subsection (2) does not apply, the reverse premium is charged to corporation tax in accordance with section 250 (reverse premium taxed as property business receipt).

99Arrangements not at arm's lengthE+W+S+N.I.

(1)This section applies if—

(a)two or more of the parties to the property arrangements are connected persons, and

(b)the terms of those arrangements are not such as would reasonably have been expected if those persons had been dealing at arm's length.

(2)The terms of the property arrangements meet the condition in subsection (1)(b) if they differ to a significant extent from the terms which, at the time the arrangements were entered into, would be regarded as normal and reasonable—

(a)in the market conditions then prevailing, and

(b)between persons dealing with each other at arm's length in the open market.

(3)The whole amount or value of the reverse premium brought into account under section 98 is brought into account in the first relevant period of account.

(4)The first relevant period of account” means the period of account in which the property transaction is entered into.

(5)However if the recipient enters into the property transaction for the purposes of a trade—

(a)which is not then carried on by the recipient, but

(b)which the recipient subsequently starts to carry on,

the first relevant period of account” means the first period of account in which the recipient carries on the trade.

100Connected persons and property arrangementsE+W+S+N.I.

For the purposes of this section and sections 96 to 99—

(a)persons are treated as connected with each other if they are connected at any time during the period when the property arrangements are entered into, and

(b)the property arrangements” means the property transaction and any arrangements entered into in connection with it (whether before it, at the same time as it or after it).

Other receiptsE+W+S+N.I.

101Distribution of assets of mutual concernsE+W+S+N.I.

(1)This section applies if—

(a)a deduction has been made in calculating the profits of a trade for a payment to a mutual concern for the purposes of its mutual business,

(b)the concern is being or has been wound up or dissolved,

(c)a company (“the recipient”) which is carrying on the trade, or was doing so at the time of the payment, receives money or money's worth representing the concern's assets, and

(d)the assets in question represent profits of the mutual business conducted by the concern.

(2)If the recipient is carrying on the trade at the time the money or money's worth is received, the amount or value of the money or money's worth is brought into account as a receipt in calculating the profits of the trade.

(3)If the recipient—

(a)is not carrying on the trade at the time the money or money's worth is received, but

(b)was doing so at the time of the payment to the mutual concern,

the amount or value of the money or money's worth is treated as a post-cessation receipt (see Chapter 15).

(4)For the purposes of this section money or money's worth represents assets of a mutual concern if it—

(a)forms part of the assets of the concern,

(b)forms part of the consideration for the transfer of the assets of the concern as part of a scheme of amalgamation or reconstruction which involves its winding up, or

(c)consists of the consideration for a transfer or surrender of a right to receive anything falling within paragraph (a) or (b) and does not give rise to a charge to corporation tax on the company receiving it otherwise than as a result of this section.

(5)If a transfer or surrender of a right to receive anything which—

(a)forms part of the assets of a mutual concern, or

(b)forms part of the consideration for the transfer of the assets of a mutual concern,

is not at arm's length, the company making the transfer or surrender is treated as receiving consideration equal to the value of the right.

(6)In this section references to a mutual concern are to a body corporate which has at any time carried on a trade which consists of or includes the conduct of mutual business (whether or not confined to the members of the body corporate).

(7)For the purposes of this section a trade does not consist of or include the conduct of mutual business if all the profits of the trade are chargeable to corporation or income tax.

102Industrial development grantsE+W+S+N.I.

(1)This section applies if a company carrying on a trade receives a payment by way of a grant under—

(a)section 7 or 8 of the Industrial Development Act 1982 (c. 52), or

(b)Article 7, 9 or 30 of the Industrial Development (Northern Ireland) Order 1982 (S.I. 1982/1083 (N.I. 15)).

(2)The payment is brought into account as a receipt in calculating the profits of the trade unless—

(a)the grant is designated as made towards the cost of specified capital expenditure,

(b)the grant is designated as compensation for the loss of capital assets, or

(c)the grant is for all or part of a corporation tax liability (including one that has already been met).

103Sums recovered under insurance policies etcE+W+S+N.I.

(1)This section applies if—

(a)a deduction has been made for a loss or expense in calculating the profits of a trade,

(b)a company carrying on the trade recovers a sum under an insurance policy or a contract of indemnity in respect of the loss or expense, and

(c)the sum is not of a revenue nature.

(2)The sum is brought into account as a receipt in calculating the profits of the trade (but only up to the amount of the deduction).

104Repayments under FISMA 2000E+W+S+N.I.

(1)This section applies if—

(a)a company carries on a trade, and

(b)a payment is made to the company as a result of a repayment provision.

(2)The payment is brought into account as a receipt in calculating the profits of the trade.

(3)For the purposes of this section “repayment provision” means—

(a)any provision made by virtue of section 136(7) or 214(1)(e) of FISMA 2000, or

(b)any provision made by scheme rules for fees to be refunded in specified circumstances.

(4)In this section “scheme rules” means the rules referred to in paragraph 14(1) of Schedule 17 to FISMA 2000.

Chapter 7E+W+S+N.I.Trade profits: gifts to charities etc

Relief for certain giftsE+W+S+N.I.

105Gifts of trading stock to charities etcE+W+S+N.I.

(1)This section applies if a company carrying on a trade (“the donor”) gives an article for the purposes of—

(a)a charity, a registered club or a body listed in subsection (4), or

(b)a designated educational establishment (see section 106),

and the article is one manufactured, or of a class or description sold, by the donor in the course of the trade.

(2)In calculating the profits of the trade, no amount is required to be brought into account as a receipt in consequence of the disposal of the article.

(3)In this section “registered club” has the meaning given by [F64section 658(6) of CTA 2010] (relief for community amateur sports clubs).

(4)The bodies referred to in subsection (1)(a) are—

(a)the Trustees of the National Heritage Memorial Fund, [F65and]

(b)the Historic Buildings and Monuments Commission for England, F66...

F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)This section needs to be read with section 108 (receipt of benefits by donor or connected person).

[F67(6)This section is subject to section 203 of CTA 2010 (certain disposals of investments to charity) [F68 and section 939F of that Act (removal of corporation tax relief in respect of tainted charity donations] .]

Annotations:

Amendments (Textual)

F64Words in s. 105(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 597(2) (with Sch. 2)

F67S. 105(6) inserted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 597(3) (with Sch. 2)

F68Words in s. 105(6) inserted (19.7.2011) (with effect in accordance with Sch. 3 para. 27 of the amending Act) by Finance Act 2011 (c. 11), Sch. 3 para. 17

106Meaning of “designated educational establishment”E+W+S+N.I.

(1)For the purposes of section 105 “designated educational establishment” means an educational establishment designated, or within a category designated, in regulations made—

(a)for England and Scotland, by the Secretary of State,

(b)for Wales, by the Welsh Ministers, and

(c)for Northern Ireland, by the Department of Education.

(2)The regulations may make different provision for different areas.

(3)If any question arises as to whether an educational establishment is within a category designated in the regulations, an officer of Revenue and Customs must refer the question for decision—

(a)in the case of an establishment in England or Scotland, to the Secretary of State,

(b)in the case of an establishment in Wales, to the Welsh Ministers, and

(c)in the case of an establishment in Northern Ireland, to the Department of Education.

(4)The power of the Secretary of State or the Welsh Ministers to make regulations under this section is exercisable by statutory instrument.

(5)A statutory instrument containing any regulations made by the Secretary of State under this section is subject to annulment in pursuance of a resolution of the House of Commons.

(6)A statutory instrument containing any regulations made by the Welsh Ministers under this section is subject to annulment in pursuance of a resolution of the National Assembly for Wales.

(7)Regulations made under this section by the Department of Education—

(a)are a statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)), and

(b)are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).

107Gifts of medical supplies and equipmentE+W+S+N.I.

(1)This section applies if—

(a)a company carrying on a trade makes a gift from trading stock of medical supplies or medical equipment,

(b)it makes the gift for humanitarian purposes, and

(c)the supplies or equipment are for human use.

(2)In calculating the profits of the trade, no amount is required to be brought into account as a receipt in consequence of the gift.

(3)In calculating the profits of the trade, a deduction is allowed for any costs of transportation, delivery or distribution incurred by the company in making the gift.

(4)The deduction is allowed for the accounting period in which the costs are incurred.

(5)The Treasury may by order provide that this section is not to have effect in relation to medical supplies or medical equipment of any description specified in the order.

(6)This section needs to be read with section 108 (receipt of benefits by donor or connected person).

Benefits associated with giftsE+W+S+N.I.

108Receipt of benefits by donor or connected personE+W+S+N.I.

(1)This section applies if a company carrying on a trade makes a gift in relation to which relief is given under—

(a)section 105,

(b)section 107(2), or

(c)section 63(2) of CAA 2001 (gifts to charities etc of plant or machinery used in the trade),

and the company, or a person connected with the company, receives a benefit which is in any way attributable to the making of the gift.

(2)This section also applies if—

(a)relief is given under section 107(3) for costs of transportation, delivery or distribution incurred by a company carrying on a trade, and

(b)the company, or a person connected with the company, receives a benefit which is in any way attributable to the company's incurring of those costs.

(3)An amount equal to the value of the benefit—

(a)is brought into account in calculating the profits of the trade, as a receipt of the trade arising in the accounting period in which the benefit is received, or

(b)if the company has permanently ceased to carry on the trade before the benefit is received, is treated as a post-cessation receipt (see Chapter 15).

Chapter 8E+W+S+N.I.Trade profits: herd basis rules

IntroductionE+W+S+N.I.

109Election for application of herd basis rulesE+W+S+N.I.

(1)A company, or a firm of which a company is a member, which keeps or has kept a production herd for the purposes of a trade may make an election under this Chapter (a “herd basis election”).

(2)In calculating the profits of the trade, animals which are part of a production herd in relation to which a herd basis election has effect—

(a)are not treated as trading stock (see section 50), but

(b)are treated instead in accordance with sections 112 to 121 (“the herd basis rules”).

(3)This Chapter is expressed in terms of farmers but applies to any company, or firm of which a company is a member, which keeps or has kept a production herd for the purposes of a trade, whether or not the trade is farming.

(4)References in this Chapter to keeping a production herd are to keeping it for the purposes of the trade.

110Meaning of “animal”, “herd”, “production herd” etcE+W+S+N.I.

(1)In this Chapter—

(a)animal” means any animal or other living creature,

(b)herd” includes a flock and any other collection of animals (however named), and

(c)production herd” means, in relation to a farmer, a herd of animals of the same species (irrespective of breed) kept by the farmer wholly or mainly for the products obtainable from the living animal which the animals produce for the farmer to sell.

(2)For this purpose “the products obtainable from the living animal” means—

(a)the young of the animal, or

(b)any other product obtainable from the animal without slaughtering it.

(3)For the purposes of this Chapter the general rule is that immature animals kept in a production herd are not part of the herd.

(4)There is an exception to this rule if—

(a)the nature of the land on which the herd is kept means that animals which die or cease to be part of the herd can be replaced only by animals bred and reared on the land,

(b)the immature animals in question are bred in the herd and are maintained in the herd for the purpose of replacing other animals, and

(c)it is necessary to maintain the immature animals for that purpose.

(5)In that case the immature animals are part of the herd for the purposes of this Chapter, but only so far as they are required to prevent a fall in the numbers of the herd.

(6)References in this Chapter to an animal being added to a herd include references to an immature animal that is not part of the herd reaching maturity.

(7)This Chapter applies—

(a)in relation to animals kept singly as it applies in relation to herds, and

(b)in relation to shares in animals as it applies in relation to animals themselves.

111Other interpretative provisionsE+W+S+N.I.

(1)This section applies for the purposes of this Chapter.

(2)A production herd kept by a farmer is of the same class as another production herd only if—

(a)the animals kept in both herds are of the same species (irrespective of breed), and

(b)the products produced for the farmer to sell (for which the herds are wholly or mainly kept) are of the same kinds in both herds.

(3)References to the sale of an animal include references to its death or destruction.

(4)References to the sale proceeds of an animal include references to—

(a)money received from an insurer because of the animal's death or destruction,

(b)compensation money received because of the animal's death or destruction, and

(c)the sale proceeds of the animal's carcass or any part of its carcass.

(5)Female animals become mature—

(a)in the case of laying birds, when they first lay, and

(b)in any other case, when they produce their first young.

(6)20% or more of a herd is a substantial part of the herd, but a lesser percentage than 20% is capable of being a substantial part of the herd depending on the circumstances of the case concerned.

The herd basis rulesE+W+S+N.I.

112Initial cost of herd and value of herdE+W+S+N.I.

(1)In calculating the profits of the trade, no deduction is allowed for the initial cost of the herd.

(2)In calculating the profits of the trade, the value of the herd is not brought into account.

113Addition of animals to herdE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of the trade if an animal is added to the herd, unless it replaces another animal in the herd.

(2)No deduction is allowed for the cost of the animal.

(3)If, immediately before it was added to the herd, the animal was part of the farmer's trading stock, the balancing amount is brought into account as a receipt.

(4)The balancing amount” means—

(a)in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b)in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

114Replacement of animals in herdE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of the trade if—

(a)an animal (“the old animal”) is sold from the herd or otherwise ceases to be part of the herd, and

(b)it is replaced in the herd by another animal (“the new animal”).

(2)The sale proceeds (if any) of the old animal are brought into account as a receipt.

(3)But this needs to be read with—

(a)section 115 (amount of receipt if old animal slaughtered under disease control order),

(b)section 118 (acquisition of new herd begun within 5 years of sale), and

(c)section 120 (replacement of part sold begun within 5 years of sale).

(4)Except so far as otherwise allowable, a deduction is allowed under this section for the cost of the new animal.

(5)But if the new animal is of better quality than the old animal, the amount of the deduction must not exceed the amount that it would have been necessary to spend to replace the old animal with an animal of the same quality.

115Amount of receipt if old animal slaughtered under disease control orderE+W+S+N.I.

(1)This section applies for the purposes of section 114.

(2)If—

(a)the old animal was slaughtered under a disease control order, and

(b)the new animal is of worse quality than the old animal,

the amount brought into account as a receipt under section 114 must not exceed the equivalent amount for the new animal.

(3)For this purpose “a disease control order” means an order made under the law relating to the diseases of animals by—

(a)central government,

(b)a devolved authority,

(c)a local authority, or

(d)another public authority.

(4)If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—

(a)in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b)in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

(5)Otherwise “the equivalent amount for the new animal” means the cost of the new animal.

116Sale of animals from herdE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of the trade if an animal is sold from the herd unless—

(a)it is replaced in the herd by another animal (see section 114), or

(b)it is sold as part of the sale of the whole or a substantial part of the herd that takes place all at once or over a period not longer than 12 months (see section 117).

(2)A profit arising from the sale is brought into account as a receipt.

(3)A deduction is allowed for a loss arising from the sale.

(4)The amount of the profit or loss is the difference between the sale proceeds of the animal and the deductible amount for the animal.

(5)The deductible amount for the animal” means—

(a)in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity,

(b)in the case of an animal acquired by the farmer for valuable consideration, the sum of the initial cost to the farmer of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity, and

(c)in the case of an animal acquired by the farmer but not for valuable consideration, the sum of the market value of the animal when acquired and the cost (if any) incurred by the farmer in rearing the animal to maturity.

117Sale of whole or substantial part of herdE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of the trade if, either all at once or over a period not longer than 12 months, the herd or a substantial part of the herd is sold unless—

(a)section 118 applies (acquisition of new herd begun within 5 years of sale), or

(b)section 120 applies (replacement of part sold begun within 5 years of sale),

but paragraph (a) is subject to subsection (5) of section 118 (so far as that section provides for a case in which this section is to apply).

(2)A profit arising from the sale is not brought into account as a receipt.

(3)No deduction is allowed for a loss arising from the sale.

118Acquisition of new herd begun within 5 years of saleE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of the trade if—

(a)either all at once or over a period not longer than 12 months, the herd (“the old herd”) is sold, and

(b)the farmer acquires or starts to acquire another production herd of the same class (“the new herd”) within 5 years of the sale.

(2)Section 114 (replacement of animals in herd) applies as if a number of animals equal to—

(a)the number of animals in the old herd, or

(b)if smaller, the number of animals in the new herd,

had been sold from the old herd and replaced in that herd (but see section 119 (sale for reasons outside farmer's control)).

(3)For the purposes of section 114, the sale proceeds of an animal that is treated as a result of subsection (2) above as if it had been—

(a)sold from the old herd, and

(b)replaced in that herd by another animal (“the new animal”),

are not brought into account as a receipt until the new animal is acquired.

(4)If—

(a)the number of animals in the new herd is smaller than the number of animals in the old herd, and

(b)the difference is not substantial,

section 116 (sale of animals from herd) applies as if a number of animals equal to the difference had been sold from the old herd.

(5)If the number of animals in the new herd is smaller than the number of animals in the old herd and the difference is substantial—

(a)section 117 (sale of whole or substantial part of herd where replacement not begun within 5 years), or

(b)section 120 (sale of substantial part of herd where replacement begun within 5 years),

applies as if a number of animals equal to the difference had been sold from the old herd.

(6)If the number of animals in the new herd is larger than the number of animals in the old herd, section 113 (addition of animals to herd) applies as if a number of animals equal to the difference had been added to the old herd.

(7)For the purposes of this section—

(a)if the difference between the number of animals in the new herd and the number of animals in the old herd is equal to 20% or more of the number of animals in the old herd, the difference is substantial, but

(b)a lesser percentage than 20% is capable of being a substantial difference depending on the circumstances of the case concerned.

119Section 118: sale for reasons outside farmer's controlE+W+S+N.I.

(1)This section applies for the purposes of section 114, as applied by section 118(2).

(2)If—

(a)the farmer was compelled to sell the old herd for reasons wholly outside the farmer's control, and

(b)an animal (“the new animal”) that is treated as a result of section 118(2) as if it replaced an animal sold (“the old animal”) is of worse quality than the old animal,

the amount brought into account as a receipt under section 114 must not exceed the equivalent amount for the new animal.

(3)If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—

(a)in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b)in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

(4)Otherwise “the equivalent amount for the new animal” means the cost of the new animal.

120Replacement of part sold begun within 5 years of saleE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of the trade if—

(a)either all at once or over a period not longer than 12 months, a substantial part of the herd is sold, and

(b)the farmer acquires or starts to acquire animals to replace the part sold within 5 years of the sale.

(2)Section 114 (replacement of animals in herd) applies so far as the animals included in the part sold are replaced (but see section 121 (sale for reasons outside farmer's control)).

(3)The sale proceeds of an animal included in the part sold are not brought into account as a receipt until the animal that replaces it in the herd is acquired.

(4)If some of the animals included in the part sold are not replaced—

(a)a profit arising from their sale is not brought into account as a receipt, and

(b)no deduction is allowed for a loss arising from their sale.

121Section 120: sale for reasons outside farmer's controlE+W+S+N.I.

(1)This section applies for the purposes of section 114, as applied by section 120(2).

(2)If—

(a)the farmer was compelled to sell the part of the herd for reasons wholly outside the farmer's control, and

(b)an animal (“the new animal”) that replaces an animal sold (“the old animal”) is of worse quality than the old animal,

the amount brought into account as a receipt under section 114 must not exceed the equivalent amount for the new animal.

(3)If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—

(a)in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b)in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

(4)Otherwise “the equivalent amount for the new animal” means the cost of the new animal.

ElectionsE+W+S+N.I.

122Herd basis electionsE+W+S+N.I.

(1)A herd basis election must specify the class of production herd to which it relates.

(2)A herd basis election must be made—

(a)not later than two years after the end of the first relevant accounting period (if the farmer is not a firm), or

(b)on or before the first anniversary of the normal self-assessment filing date for the tax year in which the first relevant period of account ends (if the farmer is a firm).

(3)For this purpose—

(a)the first relevant accounting period” means the first accounting period in which the farmer making the election keeps a production herd of the class to which the election relates, and

(b)the first relevant period of account” means the first period of account in which the firm making the election keeps a production herd of the class to which the election relates (but see subsection (8)).

(4)A herd basis election cannot relate to more than one class of production herd, but separate elections may be made for different classes.

(5)A herd basis election is irrevocable.

(6)A herd basis election has effect in relation to all production herds of the class to which it relates, including any which the farmer—

(a)has ceased to keep before making the election, or

(b)first keeps after making the election.

(7)A herd basis election has effect—

(a)for every accounting period in which the farmer carries on the trade and keeps a production herd of the class to which the election relates (if the farmer is not a firm), or

(b)for every period of account in which the farmer carries on the trade and keeps a production herd of the class to which the election relates (if the farmer is a firm).

(8)If the farmer is a firm and there is a change in the persons who are partners in the firm—

(a)any herd basis election made by the old firm ceases to have effect, and

(b)in relation to the new firm, “the first relevant period of account” means the first period of account in which the new firm keeps a production herd of the class to which the election relates.

123Five year gap in which no production herd keptE+W+S+N.I.

(1)This section applies if a farmer—

(a)keeps a production herd of a particular class, and

(b)ceases altogether to keep herds of that class for a period of at least 5 years.

(2)If the farmer keeps a production herd of that class after the end of that period—

(a)the accounting period or (as the case may be) period of account in which the farmer starts to keep the herd is treated as the first accounting period or period of account in which the farmer keeps a production herd of that class, and

(b)any herd basis election previously made by the farmer in relation to production herds of that class ceases to have effect.

124Slaughter under disease control orderE+W+S+N.I.

(1)This section applies if—

(a)the whole or a substantial part of a production herd kept by a farmer is slaughtered under a disease control order, and

(b)the circumstances of the slaughter are such that compensation is payable in respect of the animals slaughtered.

(2)The farmer may make a herd basis election in respect of the class of production herd involved in the slaughter as if the accounting period or (as the case may be) period of account —

(a)in which the compensation falls to be brought into account in calculating the profits of the trade, or

(b)in which it would (but for the election) fall to be so brought into account,

were the first accounting period or period of account in which the farmer keeps a production herd of that class.

(3)An election made as a result of this section has effect for that accounting period or period of account and every subsequent accounting period or period of account in which the farmer—

(a)carries on the trade, and

(b)keeps a production herd of the class to which the election relates.

(4)In this section “disease control order” means an order made under the law relating to the diseases of animals by—

(a)central government,

(b)a devolved authority,

(c)a local authority, or

(d)another public authority.

Preventing abuse of the herd basis rulesE+W+S+N.I.

125Preventing abuse of the herd basis rulesE+W+S+N.I.

(1)This section applies if—

(a)a person carrying on a trade (the “transferor”) transfers the whole or part of a production herd to another person (the “transferee”),

(b)the transfer is not by way of sale or is by way of sale but for a price other than that which the animals sold would have fetched if sold in the open market, and

(c)the control condition or herd basis benefit condition is met.

(2)The control condition is met if—

(a)the transferor is a body of persons over which the transferee has control,

(b)the transferee is a body of persons over which the transferor has control, or

(c)both the transferor and transferee are bodies of persons and another person has control over both of them.

(3)For this purpose “body of persons” includes a firm.

(4)The herd basis benefit condition is met if—

(a)the transferor or transferee (or both) might (but for this section) have been expected to obtain a herd basis benefit as a result of the transfer or the transactions of which the transfer is one, and

(b)the herd basis benefit is the sole or main benefit, or one of the main benefits, that the person in question might have been expected to obtain.

(5)For this purpose a “herd basis benefit” is a benefit resulting from—

(a)the obtaining of a right to make a herd basis election,

(b)the herd basis rules applying or not applying, or

(c)the herd basis rules having a greater or lesser effect.

(6)For the purpose of calculating the profits of—

(a)the trade carried on by the transferor, and

(b)any trade carried on by the transferee,

the animals transferred are treated as having been sold at the price which they would have fetched if sold in the open market.

SupplementaryE+W+S+N.I.

F69126Information if election madeE+W+S+N.I.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations:

Amendments (Textual)

127Further assessment etc if herd basis rules applyE+W+S+N.I.

(1)If the herd basis rules apply in calculating the profits of an accounting period after an assessment for that period has become final and conclusive, any assessment or repayment of tax that is necessary to give effect to the rules must be made.

(2)But repayment of tax is due only if a claim for it is made.

[F70CHAPTER 8AE+W+S+N.I.COMPENSATION FOR COMPULSORY SLAUGHTER OF ANIMALS

Annotations:

Amendments (Textual)

F70Ch. 8A inserted (1.3.2012) (with effect in accordance with art. 12 of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2012 (S.I. 2012/266), arts. 1, 10

127AApplication of Chapter 8AE+W+S+N.I.

(1)This Chapter applies if—

(a)an animal treated as trading stock of a farming trade is slaughtered under a disease control order,

(b)the animal is not part of a production herd of a class in respect of which a herd basis election may be made under section 124, and

(c)the farm company receives or will receive compensation for the animal.

(2)Such an animal is referred to in this Chapter as a “relevant animal”.

(3)“Disease control order” has the same meaning as in section 124.

127BRight to make claimE+W+S+N.I.

(1)The farm company may make a claim under this section.

(2)A claim may only be made in respect of the total compensation profit for an accounting period.

(3)The total compensation profit for an accounting period is the sum of the profits which the farm company makes for all the relevant animals slaughtered in that period.

(4)For the purposes of this Chapter the profit which the farm company makes for a relevant animal is—

(a)the amount by which the compensation for the animal exceeds its book value, or

(b)if the trade is carried on in partnership, the farm company’s share of that amount, determined in accordance with Part 17.

(5)Nothing in this section prevents a claim being made before the amount of the compensation has been finally determined.

127CBook valueE+W+S+N.I.

(1)For the purposes of this Chapter the book value of an animal is the value shown in the accounts as the value of the animal at the start of the accounting period in which it was slaughtered.

(2)If, for an animal, no value is shown in the accounts as that value, the book value is as follows—

(a)in the case of an animal which was born in the accounting period in which it was slaughtered and did not become part of the trading stock in any other way, the book value is 75% of the compensation payable for it,

(b)in the case of an animal in relation to which section 158 (trading stock supplied by trader) or 160 (acquisitions not made in the course of trade) applies, the book value is the cost treated as incurred under section 158(2) or 160(2) as the case may be, and

(c)in any other case, the book value is the cost of acquiring the animal for the purposes of the trade.

127DEffect of claim for spreading of profitsE+W+S+N.I.

If the farm company makes a claim under section 127B in respect of the total compensation profit for an accounting period (“period X”), the profits of the trade carried on by the farm company are to be adjusted for corporation tax purposes as follows—

  • Step 1

    Treat the compensation payable for all of the relevant animals slaughtered in period X as a receipt of that period (regardless of when the compensation is finally determined or paid).

  • Step 2

    If the farm company makes a profit in the trade in period X, deduct from the profits of that period an amount equal to—

    (a)

    the total compensation profit for period X, or

    (b)

    if the total compensation profit exceeds the profits of period X, such portion of the total compensation profit as will reduce the profits to nil.

  • Step 3

    In calculating the profits for each of the 3 consecutive accounting periods following period X, include an amount equal to one third of the amount deducted by virtue of step 2.

127EAdjustment: cessation of tradingE+W+S+N.I.

If the farm company permanently ceases to carry on the farming trade before the end of the second consecutive accounting period following period X, step 3 in section 127D is to be replaced by the following two steps—

  • Step 3

    Divide the amount deducted by virtue of step 2 by the number of accounting periods (“the remaining accounting periods”) in which, or in any part of which, the farm company carried on the farming trade, starting with period X.

  • Step 4

    In calculating the profits for each of the remaining accounting periods, include the amount resulting from the division in step 3.

127FTime limits etc for spreading claimE+W+S+N.I.

(1)A claim under section 127B must be made on or before the first anniversary of the filing date for the company tax return of the farm company for period X (see paragraph 14 of Schedule 18 to FA 1998).

(2)If the profits for an accounting period are to be adjusted or further adjusted in accordance with this Chapter after an assessment for that period has become final and conclusive, any assessment or repayment or discharge of tax that is necessary to give effect to this Chapter must be made.

(3)But repayment or discharge of tax is due only if a claim for it is made.

127GInterpretationE+W+S+N.I.

In this Chapter—

  • “animal” means any animal or other living creature;

  • “farming trade” means a trade of farming;

  • “the farm company”, in relation to a farming trade, means the company that (alone or in partnership) carries on that trade;

  • “the total compensation profit” has the meaning given by section 127B.]

Chapter 9E+W+S+N.I.Trade profits: other specific trades

Dealers in securities etcE+W+S+N.I.

128Taxation of amounts taken to reservesE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a company's trade if—

(a)the company carries on a banking business, an insurance business or a business consisting wholly or partly of dealing in securities, and

(b)a profit on the sale of securities held by the company would be brought into account in calculating the trading profits of that business.

(2)Profits and losses from the securities that in accordance with generally accepted accounting practice are—

(a)calculated by reference to the fair value of the securities, and

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

are brought into account in calculating the profits of the trade.

(3)But subsection (2) does not apply—

(a)to an amount so far as deriving from or otherwise relating to an amount brought into account under that subsection in an earlier period of account, or

(b)to an amount recognised for accounting purposes by way of correction of a fundamental error.

(4)In this section “securities” includes—

(a)shares,

(b)rights of unit holders in unit trust schemes to which TCGA 1992 applies as a result of section 99 of TCGA 1992, and

(c)in the case of a company with no share capital, interests in the company possessed by members of the company,

but does not include a loan relationship (within the meaning of Part 5).

129Conversion etc of securities held as circulating capitalE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a company's trade if—

(a)the company carries on a banking business, an insurance business or a business consisting wholly or partly of dealing in securities,

(b)a transaction falling within subsection (2) occurs in relation to securities (“the original holding”), and

(c)a profit on the sale of the securities would be brought into account in calculating the trading profits of that business.

(2)A transaction falls within this subsection if—

(a)it results in a new holding being treated as the same as the original holding as a result of sections 126 to 136 of TCGA 1992 (roll-over relief in cases of conversion etc), or

(b)it is treated, as a result of section 134 of TCGA 1992 (compensation stock), as an exchange for a new holding which does not involve a disposal of the original holding.

(3)This section does not apply to securities in respect of which unrealised profits or losses, calculated by reference to the fair value of the securities at the end of the period of account, are taken into account in the period of account in which the transaction occurs.

(4)The transaction is treated as not involving a disposal of the original holding and the new holding is treated as the same asset as the original holding.

(5)But if, under the transaction, the company carrying on the trade—

(a)receives consideration in addition to the new holding, or

(b)becomes entitled to receive such consideration,

subsection (4) applies as if the references to the original holding were to the proportion of the original holding given by the following fraction.

(6)The fraction is—

(7)In determining whether subsection (2)(a) applies as a result of section 135 or 136 of TCGA 1992, the reference to capital gains tax in section 137(1) of TCGA 1992 is to be read as a reference to income tax.

(8)In this section “securities” includes—

(a)shares,

(b)rights of unit holders in unit trust schemes to which TCGA 1992 applies as a result of section 99 of TCGA 1992, and

(c)in the case of a company with no share capital, interests in the company possessed by members of the company.

[F71InsurersE+W+S+N.I.

Annotations:

Amendments (Textual)

F71S. 130 and cross-heading substituted (with effect in accordance with Sch. 14 para. 31 of the amending Act) by Finance Act 2009 (c. 10), Sch. 14 para. 22

130 Insurers receiving distributions etc E+W+S+N.I.

(1)This section applies for the purpose of calculating the trading profits of—

(a)insurance business other than [F72business in relation to which section 111 of FA 2012 applies], or

(b)any category of such business.

(2)A receipt that is exempt for the purposes of Part 9A (company distributions) is not brought into account in calculating the profits of the trade.]

Building societiesE+W+S+N.I.

131Incidental costs of issuing qualifying sharesE+W+S+N.I.

(1)In calculating the profits of a trade carried on by a building society, a deduction is allowed for incidental costs of obtaining finance by means of issuing shares in the society if—

(a)the shares are qualifying shares for the purposes of section 117(4) of TCGA 1992, and

(b)the condition in subsection (2) is met.

(2)The condition is that the amount of any—

(a)dividend or other distribution, or

(b)interest,

payable in respect of the shares is deductible in calculating, for corporation tax purposes, the profits of the society's trade.

(3)But a deduction is not allowed by virtue of subsection (1) so far as the costs fall to be brought into account as debits for the purposes of Part 5 (loan relationships).

(4)Incidental costs of obtaining finance” means expenses—

(a)which are incurred on fees, commissions, advertising, printing and other incidental matters, and

(b)which are incurred wholly and exclusively for the purpose of obtaining the finance, providing security for it or repaying it.

(5)Expenses incurred wholly and exclusively for the purpose of—

(a)obtaining finance, or

(b)providing security for it,

are incidental costs of obtaining the finance even if it is not in fact obtained.

(6)But the following are not incidental costs of obtaining finance—

(a)sums paid because of losses resulting from movements in the rate of exchange between different currencies,

(b)sums paid for the purpose of protecting against such losses,

(c)the cost of repaying qualifying shares so far as attributable to their being repayable at a premium or having been issued at a discount, and

(d)stamp duty.

Industrial and provident societiesE+W+S+N.I.

132Dividends etc granted by industrial and provident societiesE+W+S+N.I.

(1)This section applies if a trade is carried on by a registered industrial and provident society and—

(a)the society does not sell to persons who are not its members, or

(b)the number of shares in the society is not limited by the society's rules or practice.

(2)In calculating the profits of the trade, a deduction is allowed for sums which meet conditions A and B.

(3)Condition A is that—

(a)the sum represents a discount, rebate, dividend or bonus granted by the society to a member or other person (“the recipient”),

(b)the discount, rebate, dividend or bonus is in respect of—

(i)amounts paid or payable by the recipient, or

(ii)amounts paid or payable to the recipient,

on account of the recipient's transactions with the society, and

(c)those transactions are taken into account in calculating the society's profits chargeable under this Part.

(4)Condition B is that the sum mentioned in subsection (2) is calculated by reference to—

(a)the amounts paid or payable by or to the recipient, or

(b)the size of the transactions,

and not by reference to the amount of any share or interest in the capital of the society.

(5)See also [F73section 1056 of CTA 2010] (dividend or bonus to which this section applies is not treated as a distribution).

Annotations:

Amendments (Textual)

F73Words in s. 132(5) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 598 (with Sch. 2)

Credit unionsE+W+S+N.I.

133Annual payments paid by a credit unionE+W+S+N.I.

In calculating the profits of a credit union's trade, no deduction is allowed for annual payments made by the credit union.

Dealers in land etcE+W+S+N.I.

134Purchase or sale of woodlandsE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a trade of dealing in land.

(2)If the company carrying on the trade buys woodlands in the United Kingdom in the course of the trade, the part of the cost of the woodlands which is attributable to trees or saleable underwood growing on the land is ignored.

(3)If—

(a)the woodlands are subsequently sold in the course of the trade, and

(b)any of the trees or underwood are still growing on the land at the time of the sale,

the part of the price that is equal to the amount ignored under subsection (2) for those trees or that underwood is ignored.

F74135Relief in respect of mineral royaltiesE+W+S+N.I.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations:

Amendments (Textual)

F74S. 135 repealed (with effect in accordance with Sch. 39 para. 44(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 44(1)(a)

136Lease premiums etc: reduction of receiptsE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a trade of dealing in land if a receipt of the trade falls within one of the following categories—

(a)lease premiums within section 217,

(b)sums within section 219 (sums payable instead of rent),

(c)sums within section 220 (sums payable for surrender of a lease),

(d)sums within section 221 (sums payable for variation or waiver of terms of lease),

(e)consideration for the assignment of a lease within section 222 (lease granted at an undervalue), and

(f)amounts received on the sale of an estate or interest in land within section 224 (sales with right to reconveyance) or section 225 (sale and leaseback transactions).

(2)The receipt is reduced by the relevant amount.

(3)The relevant amount is the amount which is treated as a receipt of a property business as a result of any of sections 217 to 225.

(4)But if—

(a)the company carrying on the trade makes a claim under section 238 or 239, and

(b)as a result of the claim a repayment of tax is made to that company,

the relevant amount is the amount which, for the purpose of determining the amount of the repayment of tax, is treated as brought into account as a receipt in calculating the profits of the property business.

(5)If subsection (4) applies, any adjustment of liability to tax may be made—

(a)by assessment or otherwise, and

(b)at any time at which it could be made if it related only to tax for the accounting period in which the claim under section 238 or 239 is made.

Mineral exploration and accessE+W+S+N.I.

137Mineral exploration and accessE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a trade if—

(a)the company carrying on the trade incurs expenditure on mineral exploration and access in an area or group of sands, and

(b)the presence of mineral deposits in commercial quantities has already been established in that area or group of sands.

(2)A deduction is allowed for the expenditure only if a deduction would have been allowed for it if the presence of mineral deposits in commercial quantities had not already been established in that area or group of sands.

(3)In this section “mineral exploration and access” has the same meaning as in Part 5 of CAA 2001 (see section 396(1) of that Act).

Companies liable to pool betting dutyE+W+S+N.I.

F75138Payments by companies liable to pool betting dutyE+W+S+N.I.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations:

Amendments (Textual)

F75S. 138 repealed (with effect in accordance with Sch. 39 para. 21(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 22(1)(a)

Intermediaries treated as making employment paymentsE+W+S+N.I.

139Deduction for deemed employment paymentE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a trade carried on by an intermediary which is treated as making a deemed employment payment in connection with the trade.

(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 intermediary 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)No deduction in respect of—

(a)the deemed employment payment, or

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

may be made except in accordance with this section.

(5)In this section “deemed employment payment” and “intermediary” have the same meaning as in Chapter 8 of Part 2 of ITEPA 2003 (see sections 49 and 50 of that Act).

140Special rules for partnershipsE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a trade carried on by a firm that is treated as making a deemed employment payment in connection with the trade.

(2)The amount of the deduction allowed under section 139 is limited to the amount that reduces the profits of the firm of the period of account to nil.

(3)The expenses of the firm in connection with the relevant engagements for any period of account are limited to the total of—

(a)5% of the amount taken into account at Step 1 of the calculation in section 54(1) of ITEPA 2003 (calculation of deemed employment payment), and

(b)the amount deductible at Step 3 of that calculation.

(4)In this section “deemed employment payment” and “the relevant engagements” have the same meaning as in Chapter 8 of Part 2 of ITEPA 2003 (see sections 49 and 50 of that Act).

Managed service companiesE+W+S+N.I.

141Deduction for deemed employment paymentsE+W+S+N.I.

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

(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 firm, the amount of the deduction allowed under subsection (2) is limited to the amount that reduces the profits of the firm of 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 section.

(6)In this section the following expressions have the same meanings as in Chapter 9 of Part 2 of ITEPA 2003—

  • “deemed employment payment” (see section 61D(2) of that Act),

  • “employer's national insurance contributions” (see section 61J(1) of that Act),

  • “managed service company” (see section 61B of that Act).

Waste disposalE+W+S+N.I.

142Deduction for site preparation expenditureE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a trade of a period of account in which waste materials are deposited on a waste disposal site if—

(a)the company carrying on the trade (“the trader”), or a predecessor, has incurred site preparation expenditure in relation to the site in the course of carrying on the trade, and

(b)at the time the trader first deposits waste materials on the site, the trader holds a waste disposal licence which is then in force.

(2)A deduction is allowed for the amount of the site preparation expenditure allocated to the period of account under section 143.

(3)For the purposes of this section “predecessor”, in relation to the trader, means a person who—

(a)has ceased to carry on the trade carried on by the trader or ceased to carry on a trade so far as relating to the site, and

(b)has transferred the whole of the site to the trader,

and it does not matter for this purpose whether or not the estate or interest in the site transferred to the trader is the same as that held by that person.

(4)For the purposes of this section and section 143, if site preparation expenditure has been incurred by a predecessor—

(a)the trade carried on by the trader is treated as the same as the trade carried on by the predecessor, and

(b)deductions are to be allowed to the trader (and not to the predecessor) as if everything done to or by the predecessor were done to or by the trader.

(5)For—

(a)the meaning of “site preparation expenditure”, “waste disposal licence” and “waste disposal site”, and

(b)a rule about pre-trading expenditure,

see section 144.

143Allocation of site preparation expenditureE+W+S+N.I.

(1)The amount of site preparation expenditure allocated to a period of account for the purposes of section 142(2) is the amount given by the formula—

(2)Residual expenditure” means the total of all site preparation expenditure incurred by the trader in relation to the waste disposal site at any time before the end of the period, less—

(a)any of that expenditure for which an allowance has been, or may be, made for corporation or income tax purposes under the enactments relating to capital allowances,

(b)any of that expenditure for which a deduction has been made in calculating for corporation or income tax purposes the profits of an earlier period of account, and

(c)if the trader started to carry on the trade before 6 April 1989, the excluded amount of any unrelieved old expenditure (see subsections (3) and (4)).

(3)The excluded amount of unrelieved old expenditure is calculated by multiplying the unrelieved old expenditure (see subsection (4)) by the fraction—

(4)Unrelieved old expenditure” means site preparation expenditure which—

(a)was incurred by the trader in relation to the waste disposal site before 6 April 1989, and

(b)does not fall within subsection (2)(a) or (b).

144Site preparation expenditure: supplementaryE+W+S+N.I.

(1)For the purposes of this section and sections 142 and 143 “waste disposal licence” means—

(a)a disposal licence under Part 1 of the Control of Pollution Act 1974 (c. 40) or Part 2 of the Pollution Control and Local Government (Northern Ireland) Order 1978 (S.I. 1978/1049 (N.I. 19)),

(b)a waste management licence under Part 2 of the Environmental Protection Act 1990 (c. 43) or any corresponding provision for the time being in force in Northern Ireland,

(c)a permit under regulations under—

(i)section 2 of the Pollution Prevention and Control Act 1999 (c. 24), or

(ii)Article 4 of the Environment (Northern Ireland) Order 2002 (S.I. 2002/3153 (N.I. 7)),

(d)[F76an authorisation under the Radioactive Substances Act 1960 (c. 34) or the Radioactive Substances Act 1993 (c. 12) for the disposal of radioactive waste, or]

(e)a nuclear site licence under the Nuclear Installations Act 1965 (c. 57).

(2)For the purposes of this section and sections 142 and 143—

  • site preparation expenditure”, in relation to a waste disposal site, means expenditure incurred on preparing the site for the deposit of waste materials, and

  • waste disposal site” means a site used, or to be used, for the disposal of waste materials by their deposit on the site.

(3)For the purposes of sections 142 and 143, expenditure incurred for the purposes of a trade by a company about to carry on the trade is treated as if it were incurred—

(a)on the date on which the company starts to carry on the trade, and

(b)in the course of carrying it on.

145Site restoration paymentsE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of a trade if the company carrying on the trade makes a site restoration payment in the course of carrying it on.

(2)[F77Subject to subsection (3A),] a deduction is allowed for the unrelieved amount of the payment.

[F78(3)The deduction is allowed—

(a)(if the payment is made, whether directly or indirectly, to a connected person) for the period of account in which that part of the restoration work to which the payment relates is completed, or

(b)(in any other case) for the period of account in which the payment is made.

(3A)But no deduction is allowed if the payment arises from arrangements—

(a)to which the person carrying on the trade is a party, and

(b)the main purpose, or one of the main purposes, of which is to obtain a deduction under this section.]

(4)The unrelieved amount of a site restoration payment is the amount of the payment, less—

(a)any amount of the payment that represents expenditure for which an allowance has been, or may be, made under the enactments relating to capital allowances, and

(b)any amount of the payment that represents expenditure for which a deduction has been made in calculating the profits of the trade of an earlier period of account.

(5)A “site restoration payment” means a payment made in connection with the restoration of a site (or part of a site) in order to comply with—

(a)a condition of a waste disposal licence (as defined in section 144(1)),

(b)a condition imposed on the grant of planning permission to use the site for the collection, treatment, conversion and final depositing of waste materials or for the carrying out of any of those activities, or

(c)a relevant planning obligation.

(6)For this purpose “a relevant planning obligation” means—

(a)an obligation arising under an agreement made under section 106 of the Town and Country Planning Act 1990 (c. 8) (as originally enacted) or any corresponding provision for the time being in force in Northern Ireland,

(b)an obligation arising under an agreement made under section 75 of the Town and Country Planning (Scotland) Act 1997 (c. 8),

(c)a planning obligation entered into under section 106 of the Town and Country Planning Act 1990 (as substituted by section 12 of the Planning and Compensation Act 1991 (c. 34)) or any corresponding provision for the time being in force in Northern Ireland, or

(d)a planning obligation entered into under section 299A of the Town and Country Planning Act 1990 or any corresponding provision for the time being in force in Northern Ireland.

[F79(7)Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).]

Annotations:

Amendments (Textual)

F77Words in s. 145(2) inserted (with effect in accordance with s. 53(7)(8) of the amending Act) by Finance Act 2012 (c. 14), s. 53(4)

F78S. 145(3)(3A) substituted for s. 145(3) (with effect in accordance with s. 53(7)(8) of the amending Act) by Finance Act 2012 (c. 14), s. 53(5)

F79S. 145(7) inserted (with effect in accordance with s. 53(7)(8) of the amending Act) by Finance Act 2012 (c. 14), s. 53(6)

[F80Cemeteries and crematoria: interests in land]E+W+S+N.I.

Annotations:

Amendments (Textual)

146Cemeteries and crematoria: introductionE+W+S+N.I.

(1)This section and sections 147 to 149 apply for the purpose of calculating the profits of a period of account (“the relevant period”) of a trade which consists of or includes—

(a)the carrying on of a cemetery, or

(b)the carrying on of a crematorium and, in connection with doing so, the maintenance of memorial garden plots,

and the following provisions of this section apply for the interpretation of this section and those sections.

(2)References to the sale of land in a cemetery include the sale of a right of interment in land in a cemetery.

(3)References to the sale of land in a memorial garden include the appropriation of part of a memorial garden in return for a dedication fee or similar payment.

(4)Ancillary capital expenditure” means capital expenditure incurred for the purposes of the trade by the company carrying on the trade (“the trader”), or a predecessor, on—

(a)any building or structure (other than a dwelling-house) which is in the cemetery or memorial garden and is likely to have little or no value when the cemetery or memorial garden is full,

(b)the purchase of an interest in, or the preparation of, any land taken up by such a building or structure, or

(c)the purchase of an interest in, or the preparation of, any other land in the cemetery or memorial garden which is not suitable or adaptable for use for interments or memorial garden plots and which is likely to have little or no value when the cemetery or memorial garden is full.

(5)Predecessor”, in relation to the trader, means a person who carried on the trade at any time before the trader started to do so.

(6)Preparation”, in relation to land, means levelling or draining the land or making it suitable in some other way for use as a cemetery or memorial garden.

147Deduction for capital expenditureE+W+S+N.I.

(1)This section applies if, in the relevant period, an interest in land in the cemetery or memorial garden is sold with a view to the land being used—

(a)for the purpose of interments, or

(b)for memorial garden plots.

(2)A deduction is allowed for—

(a)capital expenditure incurred by the trader, or a predecessor, on the purchase of an interest in the land or on the preparation of the land, and

(b)ancillary capital expenditure allocated to the relevant period under section 148 (allocation of ancillary capital expenditure).

(3)But no expenditure is to be brought into account—

(a)under both paragraphs (a) and (b) of subsection (2), F81...

(b)under both subsection (2)(a) above and section 170(2)(b) of ITTOIA 2005 (relief for income tax purposes) or under both subsection (2)(b) above and section 170(2)(a) of ITTOIA 2005, [F82or

(c)under both subsection (2)(b) above and section 149B(4), 149C(4) or 149D(3).]

whether for the same or different periods of account.

(4)Any purchase price paid on a sale in connection with a change in the persons carrying on the trade is ignored in calculating the amount of the deduction.

(5)No deduction is allowed for any expenditure which is excluded by section 149 (exclusion of expenditure met by subsidies).

148Allocation of ancillary capital expenditureE+W+S+N.I.

(1)The amount of ancillary capital expenditure allocated to the relevant period for the purposes of section 147(2)(b) is the amount given by the formula—

(2)Residual expenditure” means the total of all ancillary capital expenditure incurred at any time before the end of the relevant period, less—

(a)ancillary capital expenditure incurred on buildings or structures which were destroyed before the beginning of the first sale period,

(b)the excluded amount of any remaining old expenditure (see subsection (3)),

(c)if, after the beginning of the first sale period and before the end of the relevant period, an asset representing ancillary capital expenditure was sold or destroyed, the net sale proceeds or the compensation, and

(d)any amount deducted under section 147(2)(b) above, or under section 170(2)(b) of ITTOIA 2005, for a period of account ending before the relevant period.

(3)The excluded amount of remaining old expenditure is calculated by multiplying the remaining old expenditure by the fraction—

(4)In this section—

  • compensation”, in relation to the destruction of an asset, means—

    (a)

    insurance money or other compensation received by the trader, or a predecessor, in respect of the destruction, and

    (b)

    money received for the remains of the asset by the trader or predecessor,

  • the first sale period” means—

    (a)

    the period of account in which an interest in land in the cemetery or memorial garden was first sold for the purposes of the trade with a view to the land being used for the purpose of interments or for memorial garden plots, or

    (b)

    if later, the basis period for the tax year 1954-55, and

  • remaining old expenditure” means ancillary capital expenditure which—

    (a)

    was incurred before the beginning of the basis period for the tax year 1954-55, and

    (b)

    does not fall within subsection (2)(a).

149Exclusion of expenditure met by subsidiesE+W+S+N.I.

(1)Expenditure is excluded for the purposes of section 147 so far as it has been, or is to be, met (directly or indirectly) by—

(a)the Crown,

(b)a government or local or other public authority (whether in the United Kingdom or elsewhere), or

(c)any person other than the person incurring the expenditure.

(2)This is subject to the following exceptions.

(3)Expenditure is not excluded for the purposes of section 147 if it is met (directly or indirectly) by a grant—

(a)made under Northern Ireland legislation, and

(b)declared by the Treasury by an order under section 534 of CAA 2001 to correspond to a grant under Part 2 of the Industrial Development Act 1982 (c. 52).

(4)Expenditure is not excluded for the purposes of section 147 if it is met (directly or indirectly) by—

(a)insurance money, or

(b)other compensation money,

payable in respect of an asset which has been destroyed, demolished or put out of use.

(5)Expenditure is not excluded for the purposes of section 147 if—

(a)it has been, or is to be, met (directly or indirectly) by a person other than the Crown or a government or local or other public authority, and

(b)no deduction is allowed for the expenditure in calculating for corporation or income tax purposes the profits of a trade carried on by that person.

[F83Crematoria: niches, memorials and inscriptionsE+W+S+N.I.

149ANiches, memorials and inscriptions: introductionE+W+S+N.I.

(1)Sections 149B to 149E apply in calculating the profits of a trade which consists of or includes—

(a)the carrying on of a crematorium, and

(b)in connection with carrying on the crematorium—

(i)the sale of niches or memorials, or

(ii)the making of inscriptions.

(2)In those sections—

(a)“the trade” is the trade mentioned in subsection (1),

(b)“the trader” is the company carrying on the trade, and

(c)a “predecessor” is a person who carried on the trade at any time before the trader started doing so.

149BAllowable deductions: nichesE+W+S+N.I.

(1)This section sets out the deductions that are allowed in respect of a niche if proceeds from the sale of the niche are brought into account as a receipt in calculating the profits of the trade.

(2)A deduction is allowed for two-thirds of the costs incurred (by the trader or a predecessor) in the formation of the niche.

(3)Formation of the lining and of any tablet associated with the niche is taken to be part of the formation of the niche.

(4)If the niche is in a building that is used wholly or mainly for the purpose of providing niches, a further deduction is allowed for two-thirds of the associated building costs.

(5)In relation to a niche in a building—

(a)“the associated building costs” is the relevant proportion of the costs of the building, and

(b)“the relevant proportion” is the proportion that the area occupied by the niche bears to the area of the building as a whole or, if the proportion cannot reasonably be calculated on that basis, such proportion as may be calculated on a just and reasonable basis.

149CAllowable deductions: memorialsE+W+S+N.I.

(1)This section sets out the deductions that are allowed in respect of a memorial if proceeds from the sale of the memorial are brought into account as a receipt in calculating the profits of the trade.

(2)A deduction is allowed for the costs incurred (by the trader or a predecessor) in producing the memorial.

(3)If the memorial includes an inscription, making that inscription is taken to be part of producing the memorial.

(4)If the memorial is attached to a building that is used wholly or mainly for the purpose of accommodating memorials or the memorial comprises an entire building, a further deduction is allowed for two-thirds of the associated building costs.

(5)In relation to a memorial attached to or comprising a building, “the associated building costs” means—

(a)the amount found by dividing the costs of the building by the total number of memorials that the building is capable of accommodating, or

(b)if the memorial comprises an entire building, the costs of that building.

149DAllowable deductions: inscriptionsE+W+S+N.I.

(1)This section sets out the deductions that are allowed in respect of an inscription if proceeds from making the inscription are brought into account in calculating the profits of the trade.

(2)A deduction is allowed for the costs incurred (by the trader or a predecessor) in making the inscription.

(3)If the inscription is made on an existing framework designed to hold more than one inscription, a further deduction is allowed for two-thirds of the associated framework costs.

(4)In relation to an inscription made on an existing framework, “the associated framework costs”—

(a)is the amount found by dividing the costs of the framework by the total number of inscriptions that the framework is designed to hold, and

(b)includes, if the framework is attached to a building that is used wholly or mainly for the purpose of accommodating memorials, the amount found by dividing the costs of the building by the total number of memorials that the building is capable of accommodating.

(5)This section does not apply to an inscription if it is made as part of producing a memorial (see section 149C).

149ECosts of the buildingE+W+S+N.I.

(1)For the purposes of sections 149B to 149D, the costs of a building are to be determined in accordance with this section.

(2)If the building was acquired for the purposes of the trade, the costs of the building are the lower of—

(a)the market value of the building when it was acquired, and

(b)the costs incurred in acquiring the building.

(3)If the building was constructed for the purposes of the trade, the costs of the building are the costs incurred in constructing the building.

(4)In either case—

(a)the acquisition cost (or market value) of the land on which the building is situated is to be ignored, and

(b)for these purposes, costs (or values) are to be apportioned between the land and the building on a just and reasonable basis.

(5)Any construction costs incurred with respect to the building after it was acquired or constructed for the purposes of the trade must be brought into account as costs of the building.

(6)But costs incurred in maintaining the building must not be brought into account.

(7)Costs must not be included as costs of the building if a deduction is or is to be brought into account for them under section 147(2) (deduction for capital expenditure).

(8)A reference in this section to costs incurred is to costs incurred either by the trader or a predecessor.

(9)In sections 149B to 149D and this section, “building” includes any other type of structure.]

Sound recordingsE+W+S+N.I.

150Revenue nature of expenditureE+W+S+N.I.

(1)If a company carrying on a trade incurs expenditure on the production or acquisition of the original master version of a sound recording, the expenditure is treated for corporation tax purposes as expenditure of a revenue nature.

(2)If expenditure is treated under this section as revenue in nature, sums received by the company from the disposal of the original master version of the sound recording—

(a)are treated for corporation tax purposes as receipts of a revenue nature, and

(b)are brought into account in calculating the profits of the relevant period in which they are received.

(3)For this purpose sums received from the disposal of the original master version include—

(a)sums received from the disposal of any interest or right in or over the original master version (including an interest or right created by the disposal), and

(b)insurance, compensation or similar money derived from the original master version.

151Allocation of expenditureE+W+S+N.I.

(1)This section applies in calculating for corporation tax purposes the profits or losses of a company from a trade if—

(a)the trade consists of or includes the exploitation of original master versions of sound recordings, and

(b)the original master versions do not constitute trading stock of the trade as defined by section 163.

(2)Expenditure that—

(a)is incurred on the production or acquisition of the original master version of a sound recording, and

(b)is of a revenue nature (whether as a result of section 150 or otherwise),

must be allocated to relevant periods in accordance with this section.

(3)The company must allocate to a relevant period so much of the expenditure as is just and reasonable having regard to—

(a)the amount of the expenditure that remains unallocated at the beginning of the period,

(b)the proportion that the estimated value of the original master version of the sound recording that is realised in that period (whether by way of income or otherwise) bears to the total value so realised and the estimated remaining value of the original master version at the end of the period, and

(c)the need to bring the whole of the expenditure into account over the time during which the value of the original master version is expected to be realised.

(4)The company may also allocate to a relevant period a further amount, so long as the total amount allocated does not exceed the value of the original master version of the sound recording realised in that period (whether by way of income or otherwise).

152Interpretation of sections 150 and 151E+W+S+N.I.

(1)For the purposes of sections 150 and 151—

(a)sound recording” does not include a film soundtrack,

(b)original master version” means the master tape or master audio disc of the recording,

(c)references to the original master version of a sound recording include any rights in the original master version that are held or acquired with it, and

(d)relevant period” means—

(i)a period for which accounts of the trade are made up, or

(ii)if no accounts of the trade are made up for a period, an accounting period of the company.

(2)In subsection (1)(a) “film” is to be read in accordance with section 1181.

Reserves of marketing authorities etcE+W+S+N.I.

153Reserves of marketing authorities and certain other statutory bodiesE+W+S+N.I.

(1)This section applies to a statutory body if its object (or one of its objects) is—

(a)marketing an agricultural product, or

(b)stabilising the price of an agricultural product.

(2)Subsections (3) and (4) apply if the body is required, by or under an approved scheme or arrangement (“the scheme”), to pay the whole or part of any trading surplus into a reserve fund meeting the conditions specified in section 154.

(3)Any sums which the body is required by or under the scheme to pay into the fund out of the profits of its trade are allowed as deductions in calculating the profits of the trade.

(4)Any sums withdrawn by the body from the fund are taken into account as trading receipts, except so far as—

(a)they are required, by or under the scheme, to be paid to a Minister or department,

(b)they are distributed to producers of the product in question, or

(c)they are refunded to persons who pay any levy or duty.

(5)In this section—

  • approved scheme or arrangement” means a scheme or arrangement approved by, or made with, a Minister or department,

  • producers of the product” includes persons producing the product from another product,

  • statutory body” means a body established by or under an enactment,

  • trading surplus” means a surplus from the body's trading operations or other trade receipts.

154Conditions to be met by reserve fundE+W+S+N.I.

(1)These are the conditions to be met by the reserve fund (see section 153(2)).

(2)The first condition is that no sum may be withdrawn from the fund without the authority or consent of a Minister or department.

(3)The second condition is that if—

(a)money has been paid to the body by a Minister or department—

(i)in connection with arrangements for maintaining guaranteed prices, or

(ii)in connection with the body's trading arrangements, and

(b)the money is repayable to the Minister or department,

sums standing to the credit of the fund are required to be applied (in whole or in part) in repaying the money.

(4)The requirement mentioned in subsection (3) must be imposed by or under the scheme or arrangement mentioned in section 153(2).

(5)The third condition is that—

(a)the fund is reviewed by a Minister at intervals fixed by or under the scheme or arrangement mentioned in section 153(2), and

(b)if the fund appears to the Minister to exceed what is reasonably required by the body, the excess is withdrawn from the fund.

155Interpretation of sections 153 and 154E+W+S+N.I.

(1)In sections 153 and 154 “Minister” means—

(a)a Minister of the Crown,

(b)the Scottish Ministers,

(c)the Welsh Ministers, or

(d)a Minister within the meaning of the Northern Ireland Act 1998 (c. 47).

(2)In sections 153 and 154 “department” means—

(a)a government department,

(b)a part of the Scottish Administration,

(c)a part of the Welsh Assembly Government, or

(d)a Northern Ireland department.

Chapter 10E+W+S+N.I.Trade profits: changes in trading stock

IntroductionE+W+S+N.I.

156Meaning of “trading stock”E+W+S+N.I.

(1)In this Chapter “trading stock”, in relation to a trade, means anything (whether land or other property)—

(a)which is sold in the ordinary course of the trade, or

(b)which would be so sold if it were mature or its manufacture, preparation or construction were complete.

(2)It does not include—

(a)materials used in the manufacture, preparation or construction of any such thing,

(b)any services performed in the ordinary course of the trade, or

(c)any article produced, or any material used, in the performance of any such services.

Transfers of trading stock between trade and traderE+W+S+N.I.

157Trading stock appropriated by traderE+W+S+N.I.

(1)This section applies if trading stock of a company's trade is appropriated by the company for any other purpose.

(2)In calculating the profits of the trade—

(a)the amount which the stock appropriated would have realised if sold in the open market at the time of the appropriation is brought into account as a receipt, and

(b)the value of anything in fact received for it is left out of account.

(3)The receipt is treated as arising on the date of the appropriation.

158Trading stock supplied by traderE+W+S+N.I.

(1)This section applies if something that—

(a)belongs to a company carrying on a trade, but

(b)is not trading stock of the trade,

becomes trading stock of the trade.

(2)In calculating the profits of the trade—

(a)the cost of the stock is taken to be the amount which it would have realised if sold in the open market at the time it became trading stock of the trade, and

(b)the value of anything in fact given for it is left out of account.

(3)The cost is treated as being incurred on the date it became trading stock of the trade.

Other disposals and acquisitions not made in the course of tradeE+W+S+N.I.

159Disposals not made in the course of tradeE+W+S+N.I.

(1)This section applies if—

(a)trading stock of a trade is disposed of otherwise than in the course of the trade, and

(b)section 157 does not apply.

(2)In calculating the profits of the trade—

(a)the amount which the stock disposed of would have realised if sold in the open market at the time of the disposal is brought into account as a receipt, and

(b)any consideration obtained for it is left out of account.

(3)The receipt is treated as arising on the date of the disposal.

(4)This section is subject to section 161.

160Acquisitions not made in the course of tradeE+W+S+N.I.

(1)This section applies if—

(a)trading stock of a trade has been acquired otherwise than in the course of the trade, and

(b)section 158 does not apply.

(2)In calculating the profits of the trade—

(a)the cost of the stock is taken to be the amount which it would have realised if sold in the open market at the time of the acquisition, and

(b)the value of anything in fact given for it is left out of account.

(3)The cost is treated as being incurred on the date of the acquisition.

(4)This section is subject to section 161.

Relationship with transfer pricing rulesE+W+S+N.I.

161Transfer pricing rules to take precedenceE+W+S+N.I.

(1)Section 159 or 160 does not apply if the relevant consideration—

(a)falls to be adjusted for tax purposes under [F84Part 4 of TIOPA 2010], or

(b)falls within [F85that Part] without falling to be so adjusted.

[F86(2)For the purposes of subsection (1)(b), the relevant consideration falls within Part 4 of TIOPA 2010 without falling to be adjusted under that Part if—

(a)the condition in section 147(1)(a) of TIOPA 2010 is met, and

(b)the participation condition is met (see subsection (3A)), but

(c)either—

(i)one of the conditions in section 147(1)(c) and (d) of TIOPA 2010 is not met, or

(ii)one of the exceptions mentioned in subsection (3) applies.]

(3)The exceptions are those in—

(a)section 447(5) (exchange gains or losses from loan relationships)

(b)section 694(8) (exchange gains or losses from derivative contracts),

[F87(c)section 213 of TIOPA 2010 (saving for provisions relating to capital allowances), and

(d)section 214 of TIOPA 2010 (saving for provisions relating to chargeable gains).]

[F88(3A)Section 148 of TIOPA 2010 (when the participation condition is met) applies for the purposes of subsection (2)(b) as it applies for the purposes of section 147(1)(b) of TIOPA 2010.]

(4)In this section “relevant consideration” means—

(a)in relation to section 159, the consideration for the disposal of the trading stock, and

(b)in relation to section 160, the consideration for the acquisition of the trading stock.

Annotations:

Amendments (Textual)

F84Words in s. 161(1)(a) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 124(2) (with Sch. 9 paras. 1-9, 22)

F85Words in s. 161(1)(b) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 124(3) (with Sch. 9 paras. 1-9, 22)

F86S. 161(2) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 124(4) (with Sch. 9 paras. 1-9, 22)

F87S. 161(3)(c)(d) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 124(5) (with Sch. 9 paras. 1-9, 22)

F88S. 161(3A) inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 124(6) (with Sch. 9 paras. 1-9, 22)

Chapter 11E+W+S+N.I.Trade profits: valuation of stock on cessation of trade

162Valuation of trading stock on cessationE+W+S+N.I.

(1)If a company permanently ceases to carry on a trade, in calculating the profits of the trade—

(a)trading stock belonging to the trade at the time of the cessation must be valued, and

(b)the value must be determined in accordance with sections 164 to 167 (bases of valuation).

(2)But no valuation of the stock is required under this Chapter if [F89section 147(3) or (5) of TIOPA 2010] (provision not at arm's length) has effect in relation to any provision which—

(a)is made or imposed in relation to the stock, and

(b)has effect in connection with the cessation.

(3)If there is a partnership change, no valuation of the stock is required under this Chapter so long as a company carrying on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

(4)The reference in subsection (3) to a partnership change is to a change in the persons carrying on the trade in circumstances where the trade is carried on by persons in partnership immediately before or immediately after the change (or at both those times).

Annotations:

Amendments (Textual)

F89Words in s. 162(2) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 125 (with Sch. 9 paras. 1-9, 22)

163Meaning of “trading stock”E+W+S+N.I.

(1)In this Chapter “trading stock” means—

(a)any property (whether land or other property) which is sold in the ordinary course of the trade or would be so sold if it were mature or its manufacture, preparation or construction were complete, or

(b)materials used in the manufacture, preparation or construction of any property mentioned in paragraph (a).

(2)In this Chapter “trading stock” includes also any services performed in the ordinary course of the trade—

(a)the performance of which is wholly or partly completed at the time of the cessation, and

(b)for which it would be reasonable to expect that a charge would be made if there were no cessation and, in the case of partly completed services, their performance were fully completed,

and any article produced, and any material used, in the performance of any such services.

(3)In this Chapter references to the sale or transfer of trading stock include the sale or transfer of any benefits and rights which accrue, or might reasonably be expected to accrue, from the performance of any such services.

164Basis of valuation of trading stockE+W+S+N.I.

(1)The value of trading stock belonging to the trade at the time of the cessation is determined as follows.

(2)If the stock is sold to a person who—

(a)carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom, and

(b)is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes,

the value is determined in accordance with section 165 (sale to unconnected person), 166 (sale to connected person) or 167 (election by connected persons).

(3)But if section 125 (preventing abuse of the herd basis rules) applies—

(a)the value is not determined in accordance with any of those sections, and

(b)the value is instead taken to be that given by section 125 (the price which the animals transferred would have fetched if sold in the open market at the time of the sale).

(4)In any other case, the value is taken to be the amount which the stock would have realised if sold in the open market at the time of the cessation.

165Sale basis of valuation: sale to unconnected personE+W+S+N.I.

(1)The value of trading stock is determined in accordance with this section if—

(a)it is sold to a person who carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes, and

(b)the buyer is not connected with the seller.

(2)The value is taken to be the amount in fact realised on the sale.

(3)If the stock is sold together with other assets, so much of the amount realised on the sale as, on a just and reasonable apportionment, is properly attributable to each asset is treated as the amount realised on the sale of that asset.

166Sale basis of valuation: sale to connected personE+W+S+N.I.

(1)The value of trading stock is determined in accordance with this section if—

(a)it is sold to a person who carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes,

(b)the buyer is connected with the seller, and

(c)no election is made under section 167 (election by connected persons).

(2)The value is taken to be the amount which would have been realised if the sale had been between independent persons dealing at arm's length.

167Sale basis of valuation: election by connected personsE+W+S+N.I.

(1)The value of trading stock is determined in accordance with this section if—

(a)it is sold to a person who carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes,

(b)the buyer is connected with the seller, and

(c)an election is made under this section.

(2)The parties to the sale may make an election under this section if the value of the stock determined under section 166 exceeds both—

(a)its acquisition value, and

(b)the amount in fact realised on the sale.

(3)If an election is made, the value is taken to be—

(a)its acquisition value, or

(b)if greater, the amount in fact realised on the sale.

(4)An election under this section must be made by both parties not later than two years after the end of the accounting period in which the cessation occurred.

(5)The “acquisition value” of trading stock means the amount which would have been deductible as representing its acquisition value, in calculating the profits of the trade, on the following assumptions—

(a)that the stock had been sold in the course of the trade, immediately before the cessation, for a price equal to the value of the stock determined under section 166, and

(b)that the period for which those profits were to be calculated began immediately before the sale.

(6)If the stock is sold together with other assets, so much of the amount realised on the sale as, on a just and reasonable apportionment, is properly attributable to each asset is treated as the amount realised on the sale of that asset.

168Connected personsE+W+S+N.I.

For the purposes of sections 164 to 167 two persons are connected with each other if any of the following tests is met—

(a)they are connected with each other within the meaning of [F90section 1122 of CTA 2010],

(b)one of them is a firm and the other has a right to a share of the assets or income of the firm,

(c)one of them is a body corporate and the other has control over that body,

(d)both of them are firms and some other person has a right to a share of the assets or income of both of them, or

(e)both of them are bodies corporate, or one of them is a firm and the other is a body corporate, and in either case some other person has control over both of them.

Annotations:

Amendments (Textual)

F90Words in s. 168 substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 599 (with Sch. 2)

169Cost to buyer of stock valued on sale basis of valuationE+W+S+N.I.

(1)This section applies for the purpose of calculating the profits of the trade carried on by the buyer of trading stock.

(2)If the value of the stock is determined in accordance with—

(a)section 164(3) or sections 165 to 167 (sale basis of valuation), or

(b)section 175(3) or sections 176 to 178 of ITTOIA 2005 (corresponding income tax rules),

the cost of the stock to the buyer is taken to be the value as so determined.

170Meaning of “sale” and related expressionsE+W+S+N.I.

(1)In sections 164 to 167 (except in section 167(5)) references to a sale include a transfer for valuable consideration.

(2)In relation to a transfer which is not a sale—

  • amount realised on the sale” means the value of the consideration given for the transfer,

  • buyer” means the person to whom the transfer is made, and

  • seller” means the person who makes the transfer.

171Determination of questionsE+W+S+N.I.

Any question arising under section 164(3) or sections 165 to 167 (sale basis of valuation of trading stock) must be determined in the same way as an appeal.

Chapter 12E+W+S+N.I.Deductions from profits: unremittable amounts

172Application of ChapterE+W+S+N.I.

(1)This Chapter applies if—

(a)an amount received by, or owed to, a company carrying on a trade (“the trader”) is brought into account as a receipt in calculating the profits of the trade,

(b)the amount is paid or owed in a territory outside the United Kingdom, and

(c)some or all of the amount is unremittable.

(2)An amount received is unremittable if it cannot be transferred to the United Kingdom merely because of foreign exchange restrictions.

(3)An amount owed is unremittable if it cannot be paid in the United Kingdom and—

(a)it temporarily cannot be paid in the territory in which it is owed merely because of foreign exchange restrictions, or

(b)it can be paid in that territory but, if it were paid there, the amount paid would not be transferable to the United Kingdom merely because of foreign exchange restrictions.

(4)“Foreign exchange restrictions” are restrictions imposed by any of the following—

(a)the laws of the territory where the amount is paid or owed,

(b)executive action of its government, and

(c)the impossibility of obtaining there currency that could be transferred to the United Kingdom.

(5)Section 464(1) (matters to be brought into account in the case of loan relationships) does not prevent any amount from being brought into account in accordance with section 173 or 175.

173Relief for unremittable amountsE+W+S+N.I.

(1)If—

(a)the trader has profits from the trade in a period of account, and

(b)an unremittable amount has been brought into account as a receipt for that period,

a deduction of the amount is allowed from those profits (but see subsection (5)).

(2)If the trader has profits from the trade in a period of account and the total of—

(a)any unremittable amounts brought into account as receipts for that period, and

(b)any amount carried forward under this subsection or subsection (3) from the previous period of account,

exceeds the amount of those profits, the excess may be carried forward to the next period of account.

(3)If the trader does not have profits from the trade in a period of account and an unremittable amount has been brought into account as a receipt for that period, the total of—

(a)any unremittable amounts brought into account as receipts for that period, and

(b)any amount carried forward under this subsection or subsection (2) from the previous period of account,

may be carried forward to the next period of account.

(4)If an amount is carried forward under this section to a period of account in which the trader has profits from the trade, a deduction of the amount is allowed from those profits (but see subsection (5)).

(5)The total amount deducted under this section from the profits from a trade in a period of account must not exceed the amount of the profits.

174Restrictions on reliefE+W+S+N.I.

(1)No deduction is allowed under section 173 in relation to an amount so far as—

(a)it is used to finance expenditure or investment outside the United Kingdom, or

(b)it is applied outside the United Kingdom in another way.

(2)No deduction is allowed under section 173 in relation to an amount owed so far as a payment under a contract of insurance has been received in relation to it.

(3)No deduction is allowed under section 173 in relation to an amount brought into account in calculating profits if relief under section 1275 (unremittable income) may be claimed in relation to that amount.

175Withdrawal of reliefE+W+S+N.I.

(1)This section applies if—

(a)some or all of an unremittable amount has been deducted from profits under section 173, and

(b)any of the following events occurs.

(2)The events are that—

(a)the amount or part of it ceases to be unremittable,

(b)an allowable provision for impairment loss is made in respect of the amount or part of it,

(c)the amount or part of it is used to finance expenditure or investment outside the United Kingdom,

(d)the amount or part of it is applied outside the United Kingdom in another way,

(e)the amount or part of it is exchanged for, or discharged by, an amount that is not unremittable, and

(f)if the amount is an amount owed, a payment under a contract of insurance is received in relation to the amount or part of it.

(3)The amount or the part of it in question is brought into account as a receipt in calculating the profits of the trade of the period of account in which the event occurs, but only so far as—

(a)it has been deducted from profits under section 173, and

(b)it has not already been brought into account as a receipt in calculating the profits of the trade as a result of this section.

(4)If the event is the receipt of a payment under a contract of insurance, the amount brought into account as a receipt must not exceed the amount of the payment.

(5)In subsection (2)(b) “allowable provision for impairment loss” means either—

(a)a debit in respect of the impairment of a financial asset (see section 476(1)) which is brought into account under Part 5 (loan relationships), or

(b)a provision in respect of which a deduction is allowable under section 55 (bad debts).

Chapter 13E+W+S+N.I.Disposal and acquisition of know-how

176Meaning of “know-how” etcE+W+S+N.I.

(1)In this Chapter “know-how” means any industrial information or techniques likely to assist in—

(a)manufacturing or processing goods or materials,

(b)working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or

(c)carrying out any agricultural, forestry or fishing operations.

(2)For this purpose—

  • mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth and for this purpose geothermal energy is treated as a natural deposit, and

  • source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.

(3)For the purposes of this Chapter any consideration received for giving, or wholly or partly fulfilling, an undertaking which—

(a)is given in connection with a disposal of know-how, and

(b)restricts, or is designed to restrict, any person's activities in any way,

is treated as consideration received for the disposal of the know-how.

(4)It does not matter whether or not the undertaking is legally enforceable.

(5)For the purposes of this Chapter references to a sale of know-how include an exchange of know-how and any provision of this Chapter referring to a sale has effect with the necessary modifications.

(6)Those modifications include, in particular, reading references to the proceeds of sale and to the price as including the consideration for the exchange.

177Disposal of know-how if trade continues to be carried onE+W+S+N.I.

(1)This section applies if—

(a)a company carrying on a trade receives consideration for the disposal of know-how which has been used in the trade,

(b)the company continues to carry on the trade after the disposal, and

(c)neither section 178 (disposal of know-how as part of disposal of all or part of a trade) nor section 179 (seller controlled by buyer etc) applies.

(2)The amount or value of the consideration is treated for corporation tax purposes as a trading receipt, except so far as it is brought into account under section 462 of CAA 2001 (disposal values).

(3)If the know-how is sold together with other property, the net proceeds of the sale of the know-how are treated as being so much of the net proceeds of the sale of all the property as, on a just and reasonable apportionment, is attributable to the know-how.

(4)For this purpose all property sold as a result of one bargain is treated as sold together even though—

(a)separate prices are, or purport to be, agreed for separate items of that property, or

(b)there are, or purport to be, separate sales of separate items of that property.

(5)Any question about the way in which a sum is to be apportioned under this section must be determined in accordance with section 563(2) to (6) of CAA 2001 (procedure for determining certain questions affecting two or more persons) if it materially affects two or more taxpayers.

(6)For this purpose a question materially affects two or more taxpayers if, at the time when the question falls to be determined, it appears that the determination is material to the liability to tax (for whatever period) of two or more persons.

178Disposal of know-how as part of disposal of all or part of a tradeE+W+S+N.I.

(1)This section applies if —

(a)a person carrying on a trade receives consideration for the disposal of know-how which has been used in the trade, and

(b)the know-how is disposed of as part of the disposal of all or part of the trade.

(2)If the person disposing of the know-how is within the charge to corporation tax, the consideration is treated for corporation tax purposes as a capital receipt for goodwill.

(3)If the person acquiring the know-how—

(a)is within the charge to corporation tax, and

(b)provided the consideration,

the consideration is treated for corporation tax purposes as a capital payment for goodwill.

(4)But the consideration is not treated for corporation tax purposes as a capital payment for goodwill if, before the acquisition, the trade was carried on wholly outside the United Kingdom.

(5)If the person disposing of the know-how is within the charge to corporation tax—

(a)that person, and

(b)the person acquiring the know-how (whether or not within the charge to corporation tax),

may jointly elect for this section not to apply (but see section 179).

(6)The election must be made within two years of the disposal.

(7)If—

(a)an election is made under section 194 of ITTOIA 2005 (corresponding income tax provision), and

(b)the person making the acquisition mentioned in that section is within the charge to corporation tax,

the persons making the election under that section are treated as also making an election under this section (even though the person disposing of the know-how is not within the charge to corporation tax).

179Seller controlled by buyer etcE+W+S+N.I.

(1)This section applies if a disposal of know-how is by way of sale and—

(a)the seller is a body of persons over which the buyer has control,

(b)the buyer is a body of persons over which the seller has control, or

(c)both the seller and the buyer are bodies of persons and another person has control over both of them.

(2)In such a case—

(a)section 177 does not apply, and

(b)no election may be made under section 178.

(3)For the purposes of this section “body of persons” includes a firm.

Chapter 14E+W+S+N.I.Adjustment on change of basis

Adjustment on change of basisE+W+S+N.I.

180Application of ChapterE+W+S+N.I.

(1)This Chapter applies if—

(a)a company carrying on a trade changes, from one period of account to the next, the basis on which profits of the trade are calculated for corporation tax purposes,

(b)the old basis accorded with the law or practice applicable in relation to the period of account before the change, and

(c)the new basis accords with the law and practice applicable in relation to the period of account after the change.

(2)The practice applicable in any case means the accepted practice in cases of that description as to how profits of a trade should be calculated for corporation tax purposes.

(3)A company changes the basis on which profits of a trade are calculated for corporation tax purposes if the company makes—

(a)a [F91change of accounting policy] (see subsection (4)), or

(b)a change in the tax adjustments applied (see subsections (5) and (6)).

[F92(4)A “change of accounting policy” includes, in particular—

(a)a change from using UK generally accepted accounting practice to using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards, and

(b)a change from using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards to using UK generally accepted accounting practice.]

(5)A “tax adjustment” means any adjustment required or authorised by law in calculating profits of a trade for corporation tax purposes.

(6)A “change in the tax adjustments applied”—

(a)does not include a change made in order to comply with amending legislation not applicable to the previous period of account, but

(b)includes a change resulting from a change of view as to what is required or authorised by law or as to whether any adjustment is so required or authorised.

Annotations:

Amendments (Textual)

F91Words in s. 180(3)(a) substituted (with effect in accordance with s. 54(5)(6) of the amending Act) by Finance Act 2012 (c. 14), s. 54(2)(a)

F92S. 180(4) substituted (with effect in accordance with s. 54(5)(6) of the amending Act) by Finance Act 2012 (c. 14), s. 54(2)(b)

181Giving effect to positive and negative adjustmentsE+W+S+N.I.

(1)An amount by way of adjustment must be calculated in accordance with section 182.

(2)If the amount produced by the calculation is positive—

(a)the amount is brought into account as a receipt in calculating the profits of the trade, and

(b)the receipt is treated as arising on the first day of the first period of account for which the new basis is adopted.

(3)If the amount produced by the calculation is negative—

(a)a deduction is allowed for the amount as an expense of the trade in calculating the profits of the trade, and

(b)the expense is treated as arising on the first day of the first period of account for which the new basis is adopted.

(4)This section is subject to—

(a)section 183 (no adjustment for certain expenses previously brought into account),

(b)section 184 (cases where adjustment not required until assets realised or written off), and

(c)section 185 (change from realisation basis to mark to market).

182Calculation of the adjustmentE+W+S+N.I.

The amount of the adjustment is calculated as follows. Step 1

Add together any amounts representing the extent to which, comparing the two bases, profits were understated (or losses overstated) on the old basis.

The amounts are—

Amounts
1Receipts which on the new basis would have been brought into account in calculating the profits of a period of account before the change, so far as they were not so brought into account.
2Expenses which on the new basis fall to be brought into account in calculating the profits of a period of account after the change, so far as they were brought into account in calculating the profits of a period of account before the change.
3

Deductions in respect of opening trading stock or opening work in progress in the first period of account on the new basis, so far as they—

(a)

are not matched by credits in respect of closing trading stock or closing work in progress in the last period of account before the change, or

(b)

are calculated on a different basis that if used to calculate those credits would have given a higher figure.

4Amounts recognised for accounting purposes in respect of depreciation in the last period of account before the change, so far as they were not the subject of an adjustment for corporation tax purposes, where such an adjustment would be required on the new basis.

Step 2

Then deduct any amounts representing the extent to which, comparing the two bases, profits were overstated (or losses understated) on the old basis.

The amounts are—

Amounts
1Receipts which were brought into account in a period of account before the change, so far as they would not have been so brought into account if the profits had been calculated on the new basis.
2

Expenses which were not brought into account in calculating the profits of a period of account before the change, so far as they—

(a)

would have been brought into account for a period of account before the change if the profits had been calculated on the new basis, and

(b)

would have been brought into account for a period of account after the change if the profits had continued to be calculated on the old basis.

3

Credits in respect of closing trading stock or closing work in progress in the last period of account before the change, so far as they—

(a)

are not matched by deductions in respect of opening trading stock or opening work in progress in the first period of account on the new basis, or

(b)

are calculated on a different basis that if used to calculate those deductions would have given a lower figure.

An amount so deducted may not be deducted again in calculating the profits of a period of account.

Expenses previously brought into accountE+W+S+N.I.

183No adjustment for certain expenses previously brought into accountE+W+S+N.I.

(1)This section applies if, as a result of a change of basis, expenses brought into account before the change on the old basis would on the new basis be brought into account over more than one period of account after the change.

(2)In such a case—

(a)no adjustment is made under this Chapter, and

(b)in calculating the profits of the trade no deduction is allowed for the expenses for any period of account after the change.

Realising or writing off assetsE+W+S+N.I.

184Cases where adjustment not required until assets realised or written offE+W+S+N.I.

(1)This section applies if there is a change of basis resulting from a tax adjustment affecting the calculation of any of the following amounts.

(2)The amounts are—

(a)any amount brought into account in respect of closing trading stock in the last period of account before the change of basis,

(b)any amount brought into account in respect of opening trading stock in the first period of account on the new basis, and

(c)any amount brought into account in respect of depreciation.

(3)The receipt of the trade or (as the case may be) the expense of the trade is treated as arising only when the asset to which it relates is realised or written off.

Mark to marketE+W+S+N.I.

185Change from realisation basis to mark to marketE+W+S+N.I.

(1)This section applies if there is a change of basis from—

(a)not recognising a profit or loss on an asset until the asset is realised, to

(b)bringing assets into account in each period of account at a fair value.

(2)So far as—

(a)a receipt within item 1 of Step 1 in section 182 represents the fair value of an asset that is trading stock, or

(b)an expense within item 2 of that step relates to such an asset,

the receipt of the trade or (as the case may be) the expense of the trade is treated as not arising until the period of account in which the value of the asset is realised.

(3)In the case of a receipt of the trade, this is subject to any election under section 186 (election for spreading).

(4)In this section “trading stock” has the same meaning as in section 163.

186Election for spreading if section 185 appliesE+W+S+N.I.

(1)If section 185 applies, the company carrying on the trade may elect for any receipt treated as arising under this Chapter to be spread over 6 periods of account.

(2)The election must be made within 12 months of the end of the first accounting period to which the new basis applies.

(3)If an election is made, an amount equal to one-sixth of the amount of the receipt—

(a)is treated as arising, and

(b)is brought into account in calculating the profits of the trade,

in each of the 6 periods of account beginning with the first period to which the new basis applies.

(4)But if, before the whole of the receipt has been so brought into account, the company permanently ceases to carry on the trade, the whole of the amount so far as not previously brought into account—

(a)is treated as arising, and

(b)is brought into account in calculating the profits of the trade,

immediately before the cessation.

187Transfer of insurance businessE+W+S+N.I.

(1)This section applies if—

(a)an asset to which section 185 or 186 applies is transferred from one insurance company to another,

(b)the transfer is made under an insurance business transfer scheme, and

(c)immediately after the transfer, the transferee is UK resident or the asset is held for the purposes of a business carried on by the transferee in the United Kingdom through a permanent establishment.

(2)For the purposes of section 185, the asset is not to be treated as realised by the transferor merely because of its transfer under the scheme.

(3)If the transfer is of the transferor's whole business, the transferee is responsible under section 185 or 186 for bringing into account any amount required to be brought into account after the transfer.

Chapter 15E+W+S+N.I.Post-cessation receipts

Charge to tax on post-cessation receiptsE+W+S+N.I.

188Charge to tax on post-cessation receiptsE+W+S+N.I.

The charge to corporation tax on income applies to post-cessation receipts arising from a trade.

189Extent of charge to taxE+W+S+N.I.

(1)A post-cessation receipt is chargeable to tax under this Chapter only so far as it is not otherwise chargeable to corporation or income tax.

(2)Accordingly, a post-cessation receipt arising from a trade is not chargeable to tax under this Chapter so far as it is brought into account in calculating the profits of the trade of any period.

(3)A post-cessation receipt is not chargeable to tax under this Chapter if—

(a)it is received by or on behalf of a non-UK resident company which is beneficially entitled to it, and

(b)it represents income arising outside the United Kingdom.

(4)A post-cessation receipt is not chargeable to tax under this Chapter if it arises from a trade carried on wholly outside the United Kingdom.

Meaning of “post-cessation receipts”E+W+S+N.I.

190Basic meaning of “post-cessation receipt”E+W+S+N.I.

(1)In this Part “post-cessation receipt” means a sum—

(a)which is received after a person permanently ceases to carry on a trade, and

(b)which arises from the carrying on of the trade before the cessation.

(2)In this Chapter, except in sections 194 and 195, references to a person permanently ceasing to carry on a trade include—

(a)in the case of a company, the occurrence of an event treated under section 18 of ITTOIA 2005 (companies beginning or ceasing to be within charge to income tax) as the company permanently ceasing to carry on the trade, and

(b)in the case of a trade carried on by a person in partnership, the occurrence of an event treated under section 246(4) of ITTOIA 2005 (basic meaning of “post-cessation receipt”) as the person permanently ceasing to carry on the trade.

191Other rules about what counts as post-cessation receiptsE+W+S+N.I.

(1)The following provisions treat certain amounts as post-cessation receipts for the purposes of this Part—

(2)Section 95 (acquisition of trade: receipts from transferor's trade) and section 194 (transfer of rights if transferee does not carry on trade) treat certain amounts as not being post-cessation receipts for the purposes of this Part.

Annotations:

Amendments (Textual)

F93Words in s. 191(1) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 51

Sums treated as post-cessation receiptsE+W+S+N.I.

192Debts paid after cessationE+W+S+N.I.

(1)This section applies if, in calculating the profits of a trade for corporation or income tax purposes, a deduction is made in respect of a debt under—

(a)section 55 (bad debts), or

(b)section 35 of ITTOIA 2005 (bad and doubtful debts),

and a person permanently ceases to carry on the trade.

(2)A sum received after the cessation is treated as a post-cessation receipt so far as the deduction is made.

193Debts released after cessationE+W+S+N.I.

(1)This section applies if—

(a)in calculating the profits of a trade of any period for corporation or income tax purposes, a deduction is allowed for the expense giving rise to a debt owed by the person who carried on the trade,

(b)the person has permanently ceased to carry on the trade at or after the end of that period,

(c)after the cessation, all or part of the debt is released, and

(d)the release is not part of a statutory insolvency arrangement.

(2)The amount released is treated as a post-cessation receipt.

194Transfer of rights if transferee does not carry on tradeE+W+S+N.I.

(1)This section applies if—

(a)a company (“the transferor”) permanently ceases to carry on a trade,

(b)the transferor transfers to another person (“the transferee”) for value the right to receive sums arising from the carrying on of the trade, and

(c)the transferee does not subsequently carry on the trade.

(2)The transferor is treated as receiving a post-cessation receipt.

(3)The amount of the receipt is—

(a)the amount or value of the consideration for the transfer, if the transfer is at arm's length, or

(b)the value of the rights transferred as between parties at arm's length, if the transfer is not at arm's length.

(4)Any sums mentioned in subsection (1)(b) which are received after the cessation of the trade are not post-cessation receipts.

(5)This section is subject to section 195 (transfer of trading stock).

Sums that are not post-cessation receiptsE+W+S+N.I.

195Transfer of trading stockE+W+S+N.I.

(1)When a company permanently ceases to carry on a trade, a sum realised by the transfer of trading stock is not a post-cessation receipt if a valuation of the stock is brought into account in accordance with Chapter 11 (valuation of stock).

(2)In this section “trading stock” has the meaning given by section 163.

DeductionsE+W+S+N.I.

196Allowable deductionsE+W+S+N.I.

(1)In calculating the amount on which tax is charged under this Chapter, deductions are allowed in accordance with—

(a)this section, and

(b)section 197,

from the amount which would otherwise be chargeable to tax under this Chapter.

(2)A deduction is allowed for a loss, expense or debit which, if the person carrying on the trade had not permanently ceased to do so—

(a)would have been deducted in calculating the profits of the trade for corporation or income tax purposes, or

(b)would have been deducted from or set off against the profits of the trade for corporation or income tax purposes,

but no deduction is allowed if the loss, expense or debit arises directly or indirectly from the cessation itself.

(3)No deduction for an amount is allowed under this section if the amount has been allowed under any other provision of the Tax Acts.

197Further rules about allowable deductionsE+W+S+N.I.

(1)An amount may not be deducted more than once under section 196.

(2)A deduction under that section of a loss must be made from post-cessation receipts charged for an earlier accounting period in preference to those charged for a later accounting period.

(3)But this does not authorise the deduction of a loss from post-cessation receipts charged for an accounting period before the accounting period in which the loss is made.

Election to carry backE+W+S+N.I.

198Election to carry backE+W+S+N.I.

(1)This section applies if a post-cessation receipt is received by a company in an accounting period beginning not later than 6 years after the company permanently ceased to carry on the trade.

(2)The company may elect that the tax chargeable in respect of the receipt is to be charged as if the receipt had been received on the date of the cessation (but see sections 199 and 200).

(3)The election must be made before the end of the period of two years beginning immediately after the end of the accounting period in which the receipt is received.

199Deductions already made are not displacedE+W+S+N.I.

(1)This section applies if—

(a)a company which has permanently ceased to carry on a trade makes an election under section 198 in respect of a post-cessation receipt (“the carried back receipt”), and

(b)a deduction in respect of a loss has already been made under section 196 for an accounting period later than that in which the cessation occurred.

(2)Nothing in section 196 (read with section 197(2)) requires or permits a deduction in respect of that loss to be allowed, as a result of the election, for the accounting period in which the cessation occurred instead of the accounting period for which the deduction has already been made.

(3)But if the deduction was made for the accounting period in which the carried back receipt was received, subsection (2) applies to the loss only so far as it has been deducted from post-cessation receipts other than the carried back receipt.

200Election given effect in accounting period in which receipt is receivedE+W+S+N.I.

(1)If a company makes an election under section 198, the additional tax is payable for the accounting period in which the receipt is received (and not for the accounting period in which the cessation occurred).

(2)In subsection (1) “the additional tax” means an amount of tax equal to the difference between—

(a)the amount of tax that is chargeable on the company for the accounting period in which the cessation occurred (“amount A”), and

(b)the amount of tax that would have been chargeable on the company for that period if the election had not been made (“amount B”).

(3)If—

(a)the company has made, under section 198, one or more other elections for receipts to be treated as received in the period in which the cessation occurred, and

(b)effect has been given to those elections,

the effect of those elections is taken into account in determining amounts A and B.

Chapter 16E+W+S+N.I.Priority rules

201Provisions which must be given priority over this PartE+W+S+N.I.

(1)Any receipt or other credit item, so far as it falls within—

(a)Chapter 2 of this Part (receipts of trade), and

(b)Chapter 3 of Part 4 so far as it relates to a UK property business,

is dealt with under Chapter 3 of Part 4.

[F94(1A)Subsection (1) does not apply in the case of the long-term business of an insurance company.]

(2)Any receipt or other credit item, so far as it falls within—

(a)this Part, and

(b)Chapter 4 of Part 10 (income from holding an office),

is dealt with under Chapter 4 of Part 10.

Part 4E+W+S+N.I.Property income

Chapter 1E+W+S+N.I.Introduction

202Overview of PartE+W+S+N.I.

(1)Chapter 2 contains definitions relevant to the application of the Part.

(2)Chapter 3 applies the charge to corporation tax on income to the profits of a UK property business or an overseas property business and contains basic rules about the calculation of the profits of such a property business.

(3)Chapter 4 provides for certain amounts of a capital nature to be brought into account as receipts in calculating the profits of a property business.

(4)Chapter 5 contains additional rules about the calculation of the profits of a property business.

(5)Chapter 6 explains what is meant by the commercial letting of furnished holiday accommodation.

(6)Chapters 7, 8 and 9 apply the charge to corporation tax on income to—

(a)rent receivable in connection with a UK section 39(4) concern,

(b)rent receivable for UK electric-line wayleaves, and

(c)post-cessation receipts arising from a UK property business,

and contain related rules.

(7)Chapter 10 contains supplementary provisions including—

(a)rules that give priority to provisions outside this Part in relation to certain matters that fall within it, and

(b)rules that give priority to one Chapter of this Part in relation to certain matters that fall both within it and another Chapter of this Part.

(8)This Part needs to be read with Parts 19 (general exemptions) and 20 (general calculation rules).

Chapter 2E+W+S+N.I.Property businesses

IntroductionE+W+S+N.I.

203Overview of ChapterE+W+S+N.I.

(1)This Chapter explains for the purposes of this Act what is meant by—

(a)a company's UK property business (see section 205), and

(b)a company's overseas property business (see section 206).

(2)Both those sections need to be read with—

(a)section 207 (which explains what is meant by generating income from land), and

(b)section 208 (which provides that certain activities do not count as activities for generating income from land).

(3)In the case of a property business carried on by a company as a member of a firm, the basic rules in sections 205 and 206 are explained in section 1270(2) and (3).

(4)See also [F95section 86 of FA 2012] (which qualifies the basic rules in sections 205 and 206 [F96for the purpose of applying the I - E rules in relation to] an insurance company).

Annotations:

Amendments (Textual)

F95Words in s. 203(4) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 146(a)

F96Words in s. 203(4) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 146(b)

204Meaning of “property business”E+W+S+N.I.

(1)In this Act “property business” means a UK property business or an overseas property business.

(2)References in this Act to a property business are to a property business so far as any profits of the business are chargeable to tax under Chapter 3 (as to which see, in particular, the rules about territorial scope in section 5).

(3)Accordingly, nothing in Chapter 4 or 5 is to be read as treating an amount as a receipt of a property business if the profits concerned would not be chargeable to tax under Chapter 3.

Basic meaning of UK and overseas property businessE+W+S+N.I.

205UK property businessE+W+S+N.I.

A company's UK property business consists of—

(a)every business which the company carries on for generating income from land in the United Kingdom, and

(b)every transaction which the company enters into for that purpose otherwise than in the course of such a business.

206Overseas property businessE+W+S+N.I.

A company's overseas property business consists of—

(a)every business which the company carries on for generating income from land outside the United Kingdom, and

(b)every transaction which the company enters into for that purpose otherwise than in the course of such a business.

Generating income from landE+W+S+N.I.

207Meaning of “generating income from land”E+W+S+N.I.

(1)In this Chapter “generating income from land” means exploiting an estate, interest or right in or over land as a source of rents or other receipts.

(2)Rents” includes payments by a tenant for work to maintain or repair leased premises which the lease does not require the tenant to carry out.

(3)Other receipts” includes—

(a)payments in respect of a licence to occupy or otherwise use land,

(b)payments in respect of the exercise of any other right over land, and

(c)rentcharges and other annual payments reserved in respect of, or charged on or issuing out of, land.

(4)For the purposes of this section a right to use a caravan or houseboat at only one location is treated as a right deriving from an estate or interest in land.

208Activities not for generating income from landE+W+S+N.I.

For the purposes of this Chapter the following activities are not carried on for generating income from land—

(a)farming or market gardening in the United Kingdom (but see section 36 (UK farming or market gardening treated as trade)),

(b)any other occupation of land (but see section 38 (certain commercial occupation of UK land treated as trade)), and

(c)activities for the purposes of a concern to which section 39 applies (profits of mines, quarries etc).

Annotations:

Modifications etc. (not altering text)

C34S. 208 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 86(1) (with s. 147, Sch. 17)

Chapter 3E+W+S+N.I.Profits of property businesses: basic rules

Charge to tax on profits of a property businessE+W+S+N.I.

209Charge to tax on profits of a property businessE+W+S+N.I.

The charge to corporation tax on income applies to the profits of a property business.

Annotations:

Modifications etc. (not altering text)

C35S. 209 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 86(1) (with s. 147, Sch. 17)

Calculation of profitsE+W+S+N.I.

210Profits of a property business: application of trading income rulesE+W+S+N.I.

(1)The profits of a property business are calculated in the same way as the profits of a trade.

(2)But the provisions of Part 3 (trading income) which apply as a result of subsection (1) are limited to the following—

In Chapter 3 (basic rules)—
section 46generally accepted accounting practice
section 47losses calculated on same basis as profits
section 48receipts and expenses
section 52apportionment etc of profits and losses to accounting period
In Chapter 4 (rules restricting deductions)—
section 53capital expenditure
section 54expenses not wholly and exclusively for trade and unconnected losses
section 55bad debts
sections 56 to [F9758B]car F98... hire
section 59patent royalties
In Chapter 5 (rules allowing deductions)—
section 61pre-trading expenses
section 68replacement and alteration of trade tools
section 69payments for restrictive undertakings
sections 70 and 71seconded employees
section 72payroll deduction schemes: contributions to agents' expenses
sections 73 to 75counselling and retraining expenses
sections 76 to 81redundancy payments etc
sections 82 to 86contributions to local enterprise organisations or urban regeneration companies
sections 87 and 88scientific research
sections 89 and 90expenses connected with patents, designs and trade marks
section 91payments to Export Credits Guarantee Department
section 92levies under FISMA 2000
In Chapter 6 (receipts)—
section 93capital receipts
section 94debts incurred and later released
section 101distribution of assets of mutual concerns
section 102industrial development grants
section 103sums recovered under insurance policies etc
section 104repayments under FISMA 2000
In Chapter 7 (gifts to charities etc)—
section 108receipt of benefits by donor or connected person
In Chapter 9 (other specific trades)—
section 131incidental costs of issuing qualifying shares (building societies)
section 133annual payments paid by a credit union
In Chapter 12 (deductions from profits)—
sections 172 to 175unremittable amounts
Annotations:

Amendments (Textual)

F97Figure in s. 210(2) substituted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 52(a)

F98Words in s. 210(2) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 52(b)

211Loan relationships and derivative contractsE+W+S+N.I.

(1)The profits of a property business are calculated without regard to items giving rise to—

(a)credits or debits within Part 5 (loan relationships), or

(b)credits or debits within Part 7 (derivative contracts).

(2)This section does not affect the width of the provision made by—

(a)section 464 (priority of Part 5 for corporation tax purposes), or

(b)section 699 (priority of Part 7 for corporation tax purposes).

Annotations:

Modifications etc. (not altering text)

C36S. 211(1) restricted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 599(3), 1184(1) (with Sch. 2)

212Items treated as receipts and expensesE+W+S+N.I.

The rules for calculating the profits of a property business need to be read with—

(a)the provisions of CAA 2001 which treat allowances as expenses of a property business,

(b)the provisions of CAA 2001 which treat charges as receipts of a property business, and

(c)section 748 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a property business carried on by it treated as receipts and expenses of the business).

213Certain amounts brought into account under Part 3E+W+S+N.I.

(1)The rules for calculating the profits of a property business need to be read with the following provisions of Part 3 (trading income)—

(a)section 42 (tied premises),

(b)section 43 (caravan sites where trade carried on),

(c)section 44 (surplus business accommodation), and

(d)section 45(3) (payments for wayleaves).

(2)Those provisions secure that amounts which would otherwise be brought into account in calculating the profits of the business are, or may be, brought into account instead in calculating the profits of a trade.

214Relationship between rules prohibiting and allowing deductionsE+W+S+N.I.

(1)Any relevant permissive rule in this Part—

(a)has priority over any relevant prohibitive rule, but

(b)is subject to the following provisions—

(i)section 56 (car F99... hire), as applied by section 210,

(ii)section 1288 (unpaid remuneration),

(iii)section 1290 (employee benefit contributions),

(iv)section 1304 (crime-related payments).

(2)In this section “any relevant permissive rule in this Part” means any provision of this Part (apart from sections 231 to 234) which allows a deduction in calculating the profits of a property business.

(3)In this section “any relevant prohibitive rule”, in relation to any deduction, means any provision of this Part or Chapter 1 of Part 20 (apart from those mentioned in subsection (1)(b)) which might otherwise be read as—

(a)prohibiting or deferring the deduction, or

(b)restricting the amount of the deduction.

(4)In this section any reference to any provision of this Part includes any provision applied by section 210.

Annotations:

Amendments (Textual)

F99Words in s. 214(1)(b)(i) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 53

Chapter 4E+W+S+N.I.Profits of property businesses: lease premiums etc

IntroductionE+W+S+N.I.

215Overview of ChapterE+W+S+N.I.

(1)This Chapter provides for certain amounts (which would otherwise generally be amounts of a capital nature) to be brought into account as receipts in calculating the profits of a property business.

(2)The amounts relate to short-term leases in the case of—

  • section 217 (lease premiums),

  • section 218 (amount treated as lease premium where work required),

  • section 220 (sums payable for surrender of lease), and

  • section 222 (assignments for profit of lease granted at undervalue).

(3)The amounts relate to any lease in the case of—

  • section 219 (sums payable instead of rent), and

  • section 221 (sums payable for variation or waiver of terms of lease).

(4)The amounts relate to the sale of any estate or interest in land in the case of—

  • section 224 (sales with right to reconveyance), and

  • section 225 (sale and leaseback transactions).

(5)This Chapter also permits certain deductions in calculating the profits of property businesses carried on by tenants under certain leases (see sections 231 and 232).

216Meaning of “short-term lease”E+W+S+N.I.

In this Chapter “short-term lease” means a lease whose effective duration is 50 years or less.

Amounts treated as receipts: leasesE+W+S+N.I.

217Lease premiumsE+W+S+N.I.

(1)This section applies if a premium is required to be paid—

(a)under a short-term lease, or

(b)otherwise under the terms subject to which a short-term lease is granted.

(2)The company to which the premium is due is treated as—

(a)entering into a transaction mentioned in section 205 (if the land to which the lease relates is in the United Kingdom) or section 206 (if that land is outside the United Kingdom), and

(b)receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3)That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the lease is granted.

(4)The amount of the receipt is given by the formula—

(5)But, if the rule in section 228 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 228.

218Amount treated as lease premium where work requiredE+W+S+N.I.

(1)This section applies if the terms subject to which a lease is granted impose on the tenant an obligation to carry out work on the premises.

(2)The lease is treated for the purposes of section 217 (lease premiums) as requiring the payment of a premium to the landlord (in addition to any other premium).

(3)The amount of the premium is the amount by which the value of the landlord's estate or interest immediately after the commencement of the lease exceeds what its value would have been at that time if the terms of the lease did not impose the obligation on the tenant.

(4)An obligation, or part of an obligation, that requires the carrying out of excepted work is ignored for the purposes of this section.

(5)Work is “excepted work” if the payment for carrying it out would, if the landlord and not the tenant were obliged to carry it out, be deductible as an expense in calculating the profits of the landlord's property business.

219Sums payable instead of rentE+W+S+N.I.

(1)This section applies if—

(a)under the terms subject to which a lease is granted a sum becomes payable by the tenant instead of the whole or a part of the rent for a period, and

(b)the period is 50 years or less.

(2)The company to which the sum is due is treated as—

(a)entering into a transaction mentioned in section 205 (if the land to which the lease relates is in the United Kingdom) or section 206 (if that land is outside the United Kingdom), and

(b)receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3)That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the sum becomes payable.

(4)The amount of the receipt is given by the formula—

(5)But, if the rule in section 228 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 228.

(6)In determining for the purposes of this Chapter the duration of the period in relation to which the sum is payable, any part of the period that falls after the expiry of the effective duration of the lease is excluded.

220Sums payable for surrender of leaseE+W+S+N.I.

(1)This section applies i