Corporation Tax Act 2009

Chapter 3 The credits and debits to be brought into account: general

Introduction

306 Overview of Chapter

(1) This Chapter contains rules of general application about the credits and debits to be brought into account for the purposes of this Part.

(2) In particular, it—

(a) provides for the application of generally accepted accounting practice in determining the amounts to be brought into account as credits and debits and makes provision where accounts do not comply with that practice (see sections 307 to 312),

(b) makes provision about bases of accounting (see sections 313 and 314),

(c) provides for adjustments on changes of accounting policy (see sections 315 to 319),

(d) sets out some general rules that differ from generally accepted accounting practice (see sections 320 to 327),

(e) provides for exchange gains and losses to be included in the profits and losses of a company from loan relationships (see section 328),

(f) makes provision about debits for pre-loan relationship, abortive or pre-trading expenses (see sections 329 and 330),

(g) makes provision for companies ceasing to be a party to loan relationships (see sections 331 and 332), and

(h) provides for deemed assignments where a company’s residence or operations move abroad (see sections 333 and 334).

(3) For further rules about the credits and debits to be brought into account in particular situations and cases, see—

(a) Chapter 4 (continuity of treatment on transfers within groups or on reorganisations),

(b) Chapter 5 (connected companies relationships: introduction and general),

(c) Chapter 6 (connected companies relationships: impairment losses and releases of debts),

(d) Chapter 7 (group relief claims involving impaired or released consortium debts),

(e) Chapter 8 (connected parties relationships: late interest),

(f) Chapter 9 (partnerships involving companies),

(g) Chapter 10 (insurance companies),

(h) Chapter 11 (other special kinds of company),

(i) Chapter 12 (special rules for particular kinds of securities),

(j) Chapter 13 (European cross-border transfers of business),

(k) Chapter 14 (European cross-border mergers), and

(l) Chapter 15 (tax avoidance).

General principles about the bringing into account of credits and debits

307 General principles about the bringing into account of credits and debits

(1) This Part operates by reference to the accounts of companies and amounts recognised for accounting purposes.

(2) The general rule is that the amounts to be brought into account by a company as credits and debits for any period for the purposes of this Part are those that are recognised in determining the company’s profit or loss for the period in accordance with generally accepted accounting practice.

(3) The credits and debits to be brought into account in respect of a company’s loan relationships are the amounts that, when taken together, fairly represent for the accounting period in question—

(a) all profits and losses of the company that arise to it from its loan relationships and related transactions (excluding interest or expenses),

(b) all interest under those relationships, and

(c) all expenses incurred by the company under or for the purposes of those relationships and transactions.

(4) Expenses are only treated as incurred as mentioned in subsection (3)(c) if they are incurred directly—

(a) in bringing any of the loan relationships into existence,

(b) in entering into or giving effect to any of the related transactions,

(c) in making payments under any of those relationships or as a result of any of those transactions, or

(d) in taking steps to ensure the receipt of payments under any of those relationships or in accordance with any of those transactions.

(5) For the treatment of pre-loan relationship and abortive expenses, see section 329.

(6) Subsection (2) is subject to the provisions of this Part and, in particular, subsection (3).

Amounts recognised in determining a company’s profit or loss

308 Amounts recognised in determining a company’s profit or loss

(1) References in this Part to an amount recognised in determining a company’s profit or loss for a period are references to an amount recognised in—

(a) the company’s profit and loss account, income statement or statement of comprehensive income for that period,

(b) the company’s statement of total recognised gains and losses, statement of recognised income and expense, statement of changes in equity or statement of income and retained earnings for that period, or

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

(2) If, in accordance with generally accepted accounting practice, an amount is shown as a prior period adjustment in any statement within subsection (1), it must be brought into account for the purposes of this Part in calculating the company’s profits and losses for the period to which the statement relates.

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

309 Companies without GAAP-compliant accounts

(1) If a company—

(a) draws up accounts which are not GAAP-compliant accounts, or

(b) does not draw up accounts at all,

this Part applies as if GAAP-compliant accounts had been drawn up.

(2) Accordingly, references in this Part to amounts recognised for accounting purposes are references to the amounts that would have been recognised if GAAP-compliant accounts had been drawn up for the period of account in question and any relevant earlier period.

(3) For this purpose a period of account is relevant to a later period if the accounts for the later period rely to any extent on amounts derived from the earlier period.

(4) In this section “GAAP-compliant accounts” means accounts drawn up in accordance with generally accepted accounting practice.

310 Power to make regulations about recognised amounts

(1) The Treasury may by regulations—

(a) make provision excluding from section 308(1) or (2) amounts of a specified description, and

(b) make provision for or in connection with bringing into account in specified circumstances amounts in relation to which section 308(1) or (2) does not have effect as a result of regulations under paragraph (a).

(2) The regulations may provide that section 308(1) or (2) does not apply to specified amounts in a period of account so far as they derive from or otherwise relate to amounts brought into account in a specified way in a previous period of account.

(3) The regulations may—

(a) make different provision for different cases, and

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

(4) The regulations may apply to periods of account beginning before they are made, but not earlier than the beginning of the calendar year in which they are made.

(5) The power to make regulations under this section does not apply to exchange gains or losses (but see section 328(4) to (7)).

311 Amounts not fully recognised for accounting purposes: introduction

(1) Section 312 applies for the purpose of determining the credits and debits which a company is to bring into account for a period for the purposes of this Part in the following case.

(2) The case is where—

(a) the company is, or is treated as, a party to a creditor relationship in the period,

(b) an amount is not fully recognised for the period in respect of the relationship as a result of the application of generally accepted accounting practice in relation to the relationship (see subsection (6)), and

(c) condition A or B is met.

(3) Condition A is that—

(a) the company is or is treated as a party to a debtor relationship in the period, and

(b) an amount is not fully recognised for the period in respect of the debtor relationship as a result of the application of generally accepted accounting practice in relation to the relationship.

(4) Condition B is that—

(a) an amount (a “relevant capital contribution”) has at any time been contributed to the company which forms part of its capital for the period, and

(b) an amount is not fully recognised for the period in respect of the relevant capital contribution as a result of the application of generally accepted accounting practice in relation to the contribution.

(5) It does not matter for the purposes of subsection (4) whether the contribution forms part of the company’s share capital or other capital for the period.

(6) For the purposes of this section an amount is not fully recognised for a period in respect of a relationship of a company or a relevant capital contribution to it if—

(a) no amount in respect of the relationship or contribution is recognised in determining its profit or loss for the period, or

(b) an amount is so recognised in respect of only part of the relationship or contribution.

312 Determination of credits and debits where amounts not fully recognised

(1) In determining the credits and debits which a company is to bring into account for the period referred to in section 311(1) for the purposes of this Part in respect of—

(a) the creditor relationship mentioned in section 311(2), or

(b) in a case where condition A in section 311(3) is met, the debtor relationship by reference to which that condition is met,

the assumption in subsection (2) is to be made.

(2) The assumption is that an amount in respect of the whole of the relationship in question is recognised in determining the company’s profit or loss for the period.

(3) But the amount of any debits to be brought into account by the company for a period as a result of this section applying in respect of its debtor relationships must not exceed the amount of any credits to be brought into account by it for the period as a result of this section applying in respect of its creditor relationships.

(4) Subsection (5) applies in any case where—

(a) apart from this section any credits or debits are brought into account for a period for the purposes of this Part by the company in respect of a loan relationship, and

(b) the relationship is a creditor relationship within subsection (1)(a) or a debtor relationship within subsection (1)(b).

(5) The credits and debits which are to be so brought into account as a result of this section are to be determined on the same basis of accounting as that on which the credits or debits mentioned in subsection (4)(a) are determined.

(6) In any other case, the credits and debits which are to be so brought into account as a result of this section are to be determined on an amortised cost basis of accounting.

Accounting bases

313 Basis of accounting: “amortised cost basis”, “fair value accounting” and “fair value”

(1) The general rule is that the amounts to be brought into account by a company as credits and debits for any period of account for the purposes of this Part may be determined on any basis of accounting that is in accordance with generally accepted accounting practice and, in particular, an amortised cost basis of accounting or fair value accounting.

(2) But subsection (1) is subject to sections 307(3) and (4) and the following provisions (which require a particular accounting basis to be used)—

(a) section 312(5) and (6) (determination of credits and debits where amounts not fully recognised for accounting purposes),

(b) section 349(2) (application of amortised cost basis to connected companies relationships),

(c) section 382(2) (company partners using fair value accounting),

(d) section 399(2) (index-linked gilt-edged securities: application of fair value accounting),

(e) section 453(2) (application of fair value accounting where connected parties derive benefit from creditor relationships),

(f) section 454(4) (application of fair value accounting: reset bonds etc),

(g) section 482(2) (application of amortised cost basis of accounting to discounts arising from a money debt under a relevant non-lending relationship),

(h) section 490(3) (holdings in OEICs, unit trusts and offshore funds: application of fair value accounting), and

(i) section 534(1) (application of fair value accounting where section 523 applies).

(3) See also section 314.

(4) In this Part “amortised cost basis of accounting”, in relation to a company’s loan relationship, means a basis of accounting under which an asset or liability representing the loan relationship is shown in the company’s accounts at cost adjusted for cumulative amortisation and any impairment, repayment or release.

(5) In this Part “fair value accounting” means a basis of accounting under which assets and liabilities are shown in the company’s balance sheet at their fair value.

(6) In this Part “fair value”, in relation to a loan relationship of a company, means the amount which, at the time as at which the value is to be determined, is the amount which the company would obtain from or, as the case may be, would have to pay to a knowledgeable and willing person dealing at arm’s length for—

(a) the transfer of all the company’s rights under the relationship, and

(b) the release of all the company’s liabilities under it.

314 Power to make regulations about changes from amortised cost basis

(1) This section applies if the credits or debits to be brought into account for the purposes of this Part in respect of assets or liabilities of a company—

(a) are required in accordance with generally accepted accounting practice to be dealt with for accounting purposes using fair value accounting, and

(b) were previously dealt with for those purposes on an amortised cost basis.

(2) The Treasury may by regulations provide that the credits or debits must continue to be determined on an amortised cost basis of accounting.

(3) The regulations may—

(a) make different provision for different cases,

(b) make incidental, supplemental, consequential and transitional provision and savings, and

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

Adjustments on change of accounting policy

315 Introduction to sections 316 to 319

(1) Sections 316 to 319 apply if—

(a) there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next, and

(b) the accounting policy in each of those periods accords with the law and practice applicable in relation to that period.

(2) In this section and sections 316 to 319—

(a) the first of those periods of account is referred to as “the earlier period”, and

(b) the next is referred to as “the later period”.

(3) Sections 316 to 319 apply, in particular, if—

(a) the company prepares accounts for the earlier period in accordance with UK generally accepted accounting practice and for the later period in accordance with international accounting standards, or

(b) the company prepares accounts for the earlier period in accordance with international accounting standards and for the later period in accordance with UK generally accepted accounting practice.

(4) For a case where this section and sections 316 to 318 apply as if a change of accounting policy had occurred, see section 416(5) (election for application of sections 415 and 585).

316 Change of accounting policy involving change of value

(1) If there is an increase in the carrying value of an asset representing a loan relationship of the company between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a credit equal to the increase must be brought into account for the purposes of this Part for the later period.

(2) If there is a decrease in the carrying value of such an asset between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a debit equal to the decrease must be brought into account for the purposes of this Part for the later period.

(3) If there is an increase in the carrying value of a liability representing a loan relationship of the company between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a debit equal to the increase must be brought into account for the purposes of this Part for the later period.

(4) If there is a decrease in the carrying value of such a liability between—

(a) the end of the earlier period, and

(b) the beginning of the later period,

a credit equal to the decrease must be brought into account for the purposes of this Part for the later period.

(5) This section does not apply so far as such a credit or debit as is mentioned in this section falls to be brought into account apart from this section.

317 Carrying value

(1) In section 316 “carrying value” means the carrying value of the asset or liability recognised for accounting purposes, except as provided in subsection (4).

(2) For the purposes of this section the “carrying value” of an asset or liability includes amounts recognised for accounting purposes in relation to the loan relationship in respect of—

(a) accrued amounts,

(b) amounts paid or received in advance, or

(c) impairment losses (including provisions for bad or doubtful debts).

(3) For the meaning of “impairment loss” see section 476(1).

(4) In determining the profits and losses to be recognised in determining the carrying value of the asset or liability for the purposes of this section, the provisions specified in subsection (5) apply as they apply for the purposes of determining the credits and debits to be brought into account under this Part.

(5) Those provisions are—

(a) sections 340 and 341 (continuity of treatment on group transfers and transfers of insurance business),

(b) section 349(2) (application of amortised cost basis of accounting to connected companies relationships),

(c) section 354 (exclusion of debits for impaired or released connected companies debts),

(d) section 360 (exclusion of credits on reversal of impairments of connected companies debts),

(e) sections 361 to 363 (deemed debt releases on impaired debts becoming held by connected company),

(f) Chapter 8 (connected parties relationships: late interest),

(g) sections 399 and 400 (treatment of index-linked gilt-edged securities),

(h) section 404 (restriction on deductions etc relating to FOTRA securities),

(i) sections 409 to 412 (deeply discounted securities of close companies),

(j) section 415(2) (loan relationships with embedded derivatives),

(k) sections 422 and 423 (transfer of loan relationships on European cross-border transfers of business),

(l) sections 433 and 434 (transfer of loan relationships on European cross-border mergers),

(m) section 454(4) (accounting method where rate of interest is reset),

(n) section 465 (exclusion of distributions except in tax avoidance cases),

(o) paragraph 62 of Schedule 2 (disregard of pre-2005 disallowed debits), and

(p) paragraph 69 of Schedule 2 (5½% Treasury Stock 2008-2012 not redeemed before 6 April 2009).

318 Change of accounting policy following cessation of loan relationship

(1) This section applies if—

(a) the company has ceased to be a party to a loan relationship in an accounting period (“the cessation period”),

(b) section 331 (company ceasing to be party to loan relationship) applied to the cessation, and

(c) there is a difference between the amount outstanding in respect of the loan relationship (see subsection (5))—

(i) at the end of the earlier period, and

(ii) at the beginning of the later period.

(2) In the case of an increase in that amount—

(a) if the company was the creditor under the loan relationship, it must bring into account for the later period a credit equal to the increase for the purposes of this Part, and

(b) if the company was the debtor under the loan relationship, it must bring into account for the later period a debit equal to the increase for the purposes of this Part.

(3) In the case of a decrease in that amount—

(a) if the company was the creditor under the loan relationship, it must bring into account for the later period a debit equal to the decrease for the purposes of this Part, and

(b) if the company was the debtor under the loan relationship, it must bring into account for the later period a credit equal to the decrease for the purposes of this Part.

(4) Subsections (2) and (3) do not apply so far as the credit or debit falls to be brought into account apart from this section.

(5) In this section “the amount outstanding in respect of the loan relationship” means so much of the recognised deferred income or recognised deferred loss from the loan relationship as has not been represented by credits or debits brought into account under this Part in respect of the relationship.

(6) In subsection (5)—

• “recognised deferred income”, in relation to a loan relationship, means the amount recognised in the company’s balance sheet in accordance with generally accepted accounting practice as deferred income in respect of the profits which arose from the relationship or a related transaction in the cessation period, and

• “recognised deferred loss”, in relation to a loan relationship, means the amount so recognised as deferred loss in respect of the losses which so arose.

319 General power to make regulations about changes in accounting policy

(1) The Treasury may by regulations make provision for cases where there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next which affects the amounts to be brought into account for accounting purposes in respect of the company’s loan relationships.

(2) The regulations may provide for any credits or debits which would otherwise be brought into account for the purposes of this Part—

(a) not to be brought into account,

(b) to be brought into account only to a prescribed extent, or

(c) to be brought into account over a prescribed period or in prescribed circumstances.

(3) Regulations under this section may, in particular, modify the operation of sections 315 to 318.

(4) The regulations may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

(5) The regulations may apply to periods of account beginning before they are made, but not earlier than the beginning of the calendar year in which they are made.

Rules differing from generally accepted accounting practice

320 Credits and debits treated as relating to capital expenditure

(1) This section applies if generally accepted accounting practice allows a credit or debit for an accounting period in respect of a company’s loan relationship to be treated in the company’s accounts as an amount brought into account in determining the value of a fixed capital asset or project.

(2) Despite that treatment, the credit or debit is to be brought into account for the purposes of this Part, for the accounting period in which it is given, in the same way as a credit or debit which is brought into account in determining the company’s profit or loss for that period in accordance with generally accepted accounting practice.

(3) But subsection (2) does not apply to a debit which is taken into account in arriving at the amount of expenditure in relation to which a debit may be given by Part 8 (intangible fixed assets).

(4) Subsections (5) and (6) apply if a debit is brought into account as mentioned in subsection (2).

(5) No debit may be brought into account in respect of the writing down of so much of the value of the asset or project as is attributable to that debit.

(6) No debit may be brought into account in respect of so much of any amortisation or depreciation as represents a writing off of the interest component of the asset.

321 Credits and debits recognised in equity

(1) This section applies if in accordance with generally accepted accounting practice a credit or debit for a period in respect of a company’s loan relationship—

(a) is recognised in equity or shareholders' funds, and

(b) is not recognised in any of the statements mentioned in section 308(1).

(2) The credit or debit is to be brought into account for the period for the purposes of this Part in the same way as a credit or debit which is brought into account in determining the company’s profit or loss for the period in accordance with generally accepted accounting practice.

322 Release of debts: cases where credits not required to be brought into account

(1) This section applies if—

(a) a liability to pay an amount under a company’s debtor relationship is released, and

(b) the release takes place in an accounting period for which an amortised cost basis of accounting is used in respect of that relationship.

(2) The company is not required to bring into account a credit in respect of the release for the purposes of this Part if condition A, B or C is met.

(3) Condition A is that the release is part of a statutory insolvency arrangement.

(4) Condition B is that the release is—

(a) in consideration of shares forming part of the ordinary share capital of the debtor company, or

(b) in consideration of any entitlement to such shares.

(5) Condition C is that—

(a) the debtor company meets one of the insolvency conditions (see subsection (6)), and

(b) the debtor relationship is not a connected companies relationship (see section 348).

(6) For the purposes of this section a company meets the insolvency conditions if—

(a) it is in insolvent liquidation,

(b) it is in insolvent administration,

(c) it is in insolvent administrative receivership,

(d) an appointment of a provisional liquidator is in force in relation to the company under section 135 of the Insolvency Act 1986 (c. 45) or Article 115 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(e) under the law of a country or territory outside the United Kingdom circumstances corresponding to those mentioned in paragraph (a), (b), (c) or (d) exist.

(7) Section 323 applies for the interpretation of subsection (6).

(8) For further cases where no credit in respect of the release is to be brought into account, see—

(a) section 358 (exclusion of credits on release of connected companies debts: general), and

(b) section 359 (exclusion of credits on release of connected companies debts during creditor’s insolvency).

323 Meaning of expressions relating to insolvency etc

(1) For the purposes of section 322(6) a company is in insolvent liquidation during the period—

(a) beginning when it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up, and

(b) ending when the winding up is completed or otherwise brought to an end (whether under paragraph 37 or 38 of Schedule B1 to the Insolvency Act 1986 (c. 45) or otherwise).

(2) In subsection (1) “liquidation” has the meaning given in—

(a) section 247(2) of the Insolvency Act 1986, or

(b) Article 6(2) of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).

(3) For the purposes of section 322(6) a company in administration is in insolvent administration if it entered administration under—

(a) Schedule B1 to the Insolvency Act 1986, or

(b) Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)),

at a time when its assets were insufficient for the payment of its debts and other liabilities and the expenses of the administration.

(4) For the purposes of section 322(6) a company is in insolvent administrative receivership if—

(a) an appointment of an administrative receiver is in force in relation to the company, and

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

(5) In subsection (4) “administrative receiver” has the same meaning as in—

(a) Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 (c. 45), or

(b) Part 4 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)),

and “administrative receivership” is to be read accordingly.

324 Restriction on debits resulting from revaluation

(1) No debit is to be brought into account for the purposes of this Part as a result of the revaluation of an asset representing a creditor relationship of a company except—

(a) an impairment loss, or

(b) a debit resulting from a release by the company of any liability under the relationship.

(2) For the meaning of “impairment loss” see section 476(1).

(3) The reference in subsection (1) to revaluation of an asset includes any case where a provision or allowance is made by the company reducing the carrying value of the asset or of a group of assets including the asset in question.

(4) This section does not affect the debits to be brought into account in respect of exchange gains or losses.

(5) This section does not apply if fair value accounting is used.

325 Restriction on credits resulting from reversal of disallowed debits

(1) No credit is to be brought into account for the purposes of this Part in respect of the reversal of a debit disallowed by section 324(1).

(2) This section does not apply if fair value accounting is used.

(3) See also paragraph 61 of Schedule 2 (restriction on bringing into account credits resulting from reversal of debits disallowed in a period of account beginning before 1 January 2005).

326 Writing off government investments

(1) This section applies if a government investment in a company is written off by the release of a liability to pay any amount under a debtor relationship of the company.

(2) The company is not required to bring into account a credit for the purposes of this Part in respect of the release.

(3) Section 400(7) and (8) of ICTA (write-off of government investment) applies for interpreting the reference in subsection (1) to a government investment in a company being written off as it applies for the purposes of section 400(1) of that Act.

327 Disallowance of imported losses etc

(1) This section applies for an accounting period of a company (“the loss period”) if—

(a) apart from this section, a loss arising in connection with a loan relationship of the company would fall to be brought into account for the purposes of this Part, and

(b) the loss is wholly or partly referable to a time when the relationship was not subject to United Kingdom taxation.

(2) The amounts brought into account for the loss period for the purposes of this Part must be such as to secure that none of the loss referable to a time when the relationship was not so subject is treated for those purposes as arising in the loss period or any other accounting period of the company.

(3) For the purposes of this section a loss is referable to a time when a relationship is not subject to United Kingdom taxation so far as, at the time to which the loss is referable, the company would not have been chargeable to corporation tax in the United Kingdom on any profits arising from the relationship.

(4) If the company was not a party to the relationship at the time to which the loss is referable, subsection (3) applies as if the reference to the company were a reference to the person who at that time was in the same position as respects the relationship as is subsequently held by the company.

(5) An amount which would be brought into account for the purposes of this Part in respect of any matter apart from this section is treated for the purposes of section 464(1) (amounts brought into account under this Part excluded from being otherwise brought into account) as if it were so brought into account.

(6) Accordingly, that amount must not be brought into account for corporation tax purposes as respects that matter either under this Part or otherwise.

(7) This section does not apply if fair value accounting is used.

Exchange gains and losses

328 Exchange gains and losses

(1) The reference in section 307(3) to the profits and losses arising to a company from its loan relationships and related transactions includes a reference to exchange gains and losses so arising.

(2) But subsection (1) is subject to subsections (3) and (4).

(3) Subsection (1) does not apply to an exchange gain or loss of a company so far as—

(a) it arises—

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

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

(b) it is recognised in the company’s statement of total recognised gains and losses, statement of recognised income and expense, statement of changes in equity or statement of income and retained earnings.

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

(5) The Treasury may by regulations make provision for or in connection with bringing into account in specified circumstances amounts to which subsection (1) does not apply because of subsection (3) or (4).

(6) The reference in subsection (5) to bringing amounts into account is a reference to bringing amounts into account for the purposes of this Part as credits or debits arising to a company from its loan relationships.

(7) The regulations may—

(a) make different provision for different cases, and

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

(8) For the meaning of references to exchange gains or losses from loan relationships, see section 475.

Pre-loan relationship, abortive and pre-trading expenses

329 Pre-loan relationship and abortive expenses

(1) This section applies if—

(a) a company may enter into a loan relationship or related transaction but has not yet done so,

(b) it incurs any expenses for purposes connected—

(i) with entering into it, or

(ii) with giving effect to any obligation which might arise under it, and

(c) had the company entered into the relationship or transaction, the expenses would be expenses within section 307(3)(c).

(2) The expenses are treated as expenses in relation to which debits may be brought into account in accordance with section 307(3) to the same extent as if the company had entered into the relationship or transaction.

330 Debits in respect of pre-trading expenditure

(1) This section applies if—

(a) a non-trading debit is given for an accounting period of a company for the purposes of this Part, and

(b) within the period of 2 years beginning with the end of the period the company makes an election for the purposes of this section in respect of the debit.

(2) The debit must not be brought into account for the purposes of this Part as a non-trading debit for that period.

(3) Instead, if conditions A and B are met in respect of a trade, the debit—

(a) is treated for the purposes of this Part as if it were a debit for the accounting period in which the company begins to carry on the trade, and

(b) is to be brought into account in accordance with section 297(3) (trading debits).

(4) Condition A is that the company begins to carry on the trade within the period of 7 years after the end of the accounting period for which a non-trading debit is given for the purposes of this Part.

(5) Condition B is that that debit is such that, if it were given for the accounting period in which the company begins to carry on the trade, it would be brought into account by reference to that trade in accordance with section 297(3).

Company ceasing to be party to loan relationship

331 Company ceasing to be party to loan relationship

(1) This section applies if—

(a) a company ceases to be a party to a loan relationship in an accounting period (“the cessation period”),

(b) profits or losses arise to the company from the loan relationship in that period, and

(c) the credits or debits brought into account for the purposes of this Part for that period do not include credits or debits representing the whole of those profits or losses.

(2) Credits or debits in respect of so much of those profits or losses as are not represented by credits or debits brought into account for the cessation period must continue to be brought into account under this Part over one or more subsequent accounting periods (“post-cessation periods”) as in the case of a loan relationship to which the company is a party in those periods.

(3) Subsection (4) applies if any question arises how far in a post-cessation period—

(a) the company is a party to the loan relationship—

(i) for the purposes of a trade it carries on, or

(ii) for any other particular purpose or purposes, or

(b) the loan relationship is referable to a particular business the company carries on or a particular description of such business.

(4) The question is to be determined by reference to the circumstances immediately before the company ceased to be a party to the loan relationship, instead of the circumstances in the post-cessation period.

(5) Subsection (6) applies if any question arises—

(a) how far the loan relationship has a particular purpose in a post-cessation period, or

(b) whether there is a connection between the company and any other person for a post-cessation period for the purposes of this Part.

(6) The question is to be determined by reference to the circumstances in the cessation period instead of the circumstances in the post-cessation period.

332 Repo, stock lending and other transactions

(1) This section applies if—

(a) a company ceases to be a party to a loan relationship in any accounting period, for example as a result of the disposal of the rights or liabilities under the relationship under a repo or stock lending arrangement, but

(b) nonetheless, in accordance with generally accepted accounting practice, amounts in respect of the relationship are recognised in determining the profit or loss of the company for that or any subsequent accounting period.

(2) Despite ceasing to be a party to the relationship, the company must bring amounts in respect of the relationship into account for those periods for the purposes of this Part.

(3) The amounts that must be so brought into account are those that are so recognised in respect of the relationship (but subject to the provisions of this Part, including, in particular, section 307(3)).

(4) This section does not apply in relation to any amount in respect of a loan relationship which is brought into account for this Part as a result of—

(a) section 331 (company ceasing to be party to a loan relationship), or

(b) section 550 (ignoring effect on borrower of sale of securities: debtor repos, debtor quasi-repos and other arrangements).

(5) Section 331(3) and (4) applies in relation to any time after the company ceases to be a party to a loan relationship in a case where this section applies as it applies where section 331 applies.

Company moving abroad

333 Company ceasing to be UK resident

(1) If a company ceases to be UK resident, this Part applies as if—

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

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

(2) Subsection (1) does not apply in relation to an asset or liability so far as immediately after the company ceases to be UK resident the asset is held or the liability is owed for the purposes of a permanent establishment of the company in the United Kingdom.

(3) Subsection (1) does not apply if—

(a) the conditions in section 344(1)(a) to (c) are met in relation to the company (transferee leaving group after replacing transferor as party to loan relationship), and

(b) it ceases to be UK resident at the same time as it ceases to be a member of the relevant group.

(4) In subsection (3) “the relevant group” has the meaning given in section 344(4).

334 Non-UK resident company ceasing to hold loan relationship for UK permanent establishment

(1) This section applies if an asset or liability representing a loan relationship of a company which is not UK resident ceases to be held or owed for the purposes of a permanent establishment of the company in the United Kingdom in circumstances not involving a related transaction (but see subsection (3)).

(2) This Part applies as if—

(a) immediately before the asset or liability so ceases the company had assigned it, so far as so ceasing, for consideration of an amount equal to its fair value at that time, and

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

(3) This section does not apply if—

(a) the conditions in section 344(1)(a) to (c) are met in relation to the company (transferee leaving group after replacing transferor as party to loan relationship), and

(b) the asset or liability mentioned in subsection (1) ceases to be held or owed for the purposes of the permanent establishment at the same time as the company ceases to be a member of the relevant group.

(4) In subsection (3) “the relevant group” has the meaning given in section 344(4).