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Corporation Tax Act 2010

Schedule 2: Transitionals and savings etc

Part 1: General provisions

3443.These paragraphs ensure continuity of the law, despite the fact that this Act repeals and rewrites provisions.

3444.Paragraph 2 makes clear that the proposition about the continuity of the law in paragraph 1 does not apply to changes in the law made by this Act.

3445.The paragraphs in this Part stand instead of section 17(2) of the Interpretation Act 1978 and provide a comprehensive set of transitional arrangements.

Part 3: Currency

3446.A number of changes were made to the currency provisions in Schedule 18 to FA 2009. They took effect for accounting periods beginning on or after 29 December 2007. This Part of the Schedule ensures that the old rules continue to apply where a loss is carried back to an accounting period that commenced before 29 December 2007.

3447.The Schedule also enables a company to elect that the new rules only take effect for accounting periods beginning on or after the date of Royal Assent to FA 2009.

Part 5: Losses on disposal of shares

Disposals of new shares

3448.See the commentary on section 74 and Change 19 in Annex 1.

Relief after an exchange of shares for shares in another company

3449.See the commentary on section 87 and Change 19 in Annex 1.

Interpretation of Chapter

3450.This paragraph preserves the application of the definition of “investment company” in the source legislation in relation to shares issued before 1 April 2010. See Change 21 in Annex 1.

Application in relation to corresponding bonus shares

3451.This paragraph clarifies the application of the transitional provisions in this Part in cases where bonus shares have been issued. It ensures that the provisions in the form that they apply to the original shares also apply in the same form to the corresponding bonus shares whenever issued. See Change 20 in Annex 1.

Part 11: Close companies

3452.The saving for certain exceptions to the charge under section 455 (close companies: charge to tax in case of loan to participator) is based on section 420(2) of ICTA. It includes a minor change to bring the law into line with practice. See the commentary on section 456 and Change 30 in Annex 1.

Part 12: Charitable companies etc

Transactions in deposits

3453.The exemption under section 56(3)(c) of ICTA in relation to transactions in deposits is preserved to take account of any relevant matters still in existence that pre-date the loan relationships legislation of FA 1996. See the commentary to section 486.

Exemption for investment income and exemption for certain miscellaneous income

3454.These provisions reflect changes made FA 2009 to the taxation of distributions. Dividends of non-United Kingdom resident companies paid before 1 July 2009 were chargeable to tax but not dividends of United Kingdom resident companies.

Transactions with substantial donors and non-charitable expenditure

3455.The treatment of non-charitable expenditure was amended and the rules in relation to substantial donors were introduced in FA 2006. This Part of the Schedule preserves the previous treatment where relevant (see in particular the commentary on sections 496 and 516).

3456.Section 508, which rewrites section 506B(9) of ICTA, incorporates a prospective amendment to that subsection made by paragraph 15 of Schedule 9 to the Housing and Regeneration Act 2008. Under this saving provision section 508 reflects unamended section 506B(9) until the Order bringing in the amendment has been made and paragraph 15 comes into force.

Part 14: Co-operative housing associations and self-build societies

Concurrent exercise of functions

3457.Sections 644 and 653 provide a clear separation of powers between the Secretary of State and the Welsh Ministers for bodies in England and Wales. However, where the body is a “cross-border body”, that is a body which operates both in England and Wales, these provisions preserve the concurrent exercise of functions by the Secretary of State and the Welsh Ministers. See article2(c) of SI 1999/672 in relation to concurrent exercise, and paragraph 3(2) of Schedule 3 to the Government of Wales Act 1998 for the definition of “cross-border body”.

Delegation of functions to the Regulator of Social Housing

3458.This provision concerns the delegation of functions to the Regulator of Social Housing. Paragraphs 13 and 14 of Schedule 9 to the Housing and Regeneration Act 2008 amend sections 488(7A) and 489(5A) of ICTA respectively from a day to be appointed. Until that day is appointed, the provision in this Schedule preserves the existing arrangements. See also, in Schedule 1 to this Act, the amendments of the Transfer of Housing Corporation Functions (Modification and Transitional Provisions) Order 2008 (SI 2008/2839), which enable this provision to operate as if the substituted references to the Housing Corporation were references to the Regulator of Social Housing, in accordance with that Order.

Part 15: Transactions in securities

Transactions in securities: general

3459.This paragraph makes transitional provision for transactions in securities. It concerns corporation tax cases straddling 1 April 2010.

3460.Sub-paragraph (1) lays down the general rule that Part 15 supersedes Chapter 1 of Part 17 of ICTA. Most of the differences between that Chapter and Part 15 of this Act are verbal and not substantive. See the commentary on that Part. The only change in the law made in that Part is the replacement of references to “the Board” with references to officers of Revenue and Customs. See Change5 in Annex 1 and the commentary on section 740.

3461.Sub-paragraph (2) ensures that the six-year time limit for making assessments is not disturbed.

3462.Sub-paragraph (3) requires preliminary notifications commencing counteraction to be given under section 743 of this Act (and not under section 703(9) of ICTA) after 31 March 2010. Once HMRC have started counteraction under the new law, everything falls to be done under the new law.

3463.Sub-paragraph (4) provides that, if preliminary notification has been given under section 703(9) of ICTA before 1 April 2010, the old law (including, for example, the appeal provisions) continues to apply after 31 March 2010.

3464.Paragraph 129 of Schedule 2 to ITA also makes transitional provision for transactions in securities. It concerns income tax cases straddling 6 April 2007. The drafting of that paragraph was criticised by the First-Tier Tribunal in Grogan v Commissioners for HMRC.(8) HMRC do not agree with the First Tier-Tribunal’s view of that paragraph. But, in this paragraph, the opportunity has been taken to forestall future disputes over the validity of counteraction notices by making different transitional provision for corporation tax cases.

Part 16: Factoring of income etc

Application of section 771 (finance arrangements: exceptions)

3465.Section 771 is based on section 774E of ICTA.

3466.Sub-paragraph (1) of this paragraph is a saving for the second sentence of section 774E(1) of ICTA, which was repealed by paragraph 9(3)(b) of Schedule 25 to FA 2009. This saving applies in relation to transfers before 22 April 2009 in accounting periods which begin before that date and end on or after 1 April 2010.

3467.Section 774E(4)(b) of ICTA originally read as follows:


Section 774B or 774D does not apply so far as the structured finance arrangement is an arrangement in relation to which –


paragraph 15 of Schedule 9 to the Finance Act 1996 (repo transactions and stock-lending) applies, or …

3468.Paragraph 9 of Schedule 14 to FA 2007 substituted a new section 774E(4)(b) reading as follows:


Schedule 13 to the Finance Act 2007 (sale and repurchase of securities) applies, …

3469.In that substituted version, CTA 2009 inserted before “applies” the words “or Chapter 10 of Part 6 of CTA 2009 (repos).”

3470.The amendment made by paragraph 9 of Schedule 14 to FA 2007 applied with effect in relation to an arrangement that comes into force on or after 1 October 2007: see article 3 of the Finance Act 2007 (Schedules 13 and 14) Order 2007 (SI 2007/2483).

3471.Furthermore, because of article 5 of that instrument, the pre-FA 2007 version of paragraph 15 of Schedule 9 to FA 1996 is still in force in relation to arrangements which would have been within Schedule 13 to FA 2007 but for having come into force before 1 October 2007.

3472.Section 774E(4)(b) of ICTA, as amended by FA 2007 and CTA 2009, is rewritten to section 771(5)(b) and new section 809BZN(5)(b) of ITA (which is inserted by Schedule 5 to TIOPA). Sub-paragraph (2) of this paragraph accordingly makes transitional provision for arrangements which came into force before 1 October 2007. See also paragraph 78 of Schedule 2 to CTA 2009 for modifications with which paragraph 15 of Schedule 9 to FA 1996 (as it stood before the substitution made by paragraph 18 of Schedule 14 to FA 2007) has effect.

Application of section 779 (income-transfer under loan or credit transaction)

3473.This paragraph is a saving for the words in section 786 of ICTA omitted by paragraph 9(1)(d) of Schedule 25 to FA 2009. This saving applies in relation to transfers before 22 April 2009 in accounting periods which begin before that date and end on or after 1 April 2010.

Part 17: Manufactured payments and repos

Manufactured dividends and manufactured overseas dividends: distributions paid before 1 July 2009

3474.This is a saving for provisions repealed by paragraphs 11 and 12 of Schedule 14 to FA 2009. These savings applyin relation to distributions paid before 1July 2009 in accounting periods which begin before that date and end on or after 1 April 2010.

Manufactured overseas dividends: overseas dividends paid before 22 April 2009

3475.The paragraph headed “Manufactured overseas dividends: overseas dividends paid before 22 April 2009” is a saving for provisions repealed by paragraph 1 of Schedule 29 to FA 2009. This saving applies in relation to overseas dividends paid before 22 April 2009 in accounting periods which begin before that date and end on or after 1 April 2010.

Part 21: Transfers of trade without a change in ownership

3476.These savings preserve the effect of the closing sentences of section 343(2) and (4) of ICTA.

Part 22: Use of different accounting practices within a group

3477.It is possible – although in practice very unlikely – that there could be companies with periods of account which (a) began before 1 January 2005 but (b) have not ended before the entry into force of this Act. Accordingly, the Schedule contains a saving for section 51(6)(a) of FA 2004.

Part 23: Company distributions

3478.The paragraphs in this Part primarily rewrite date-related rules in the source legislation for Part 23 of the Act or the commencement rules for amendments of that source legislation.

Exempt distributions

3479.This paragraph switches off paragraph 8(1) of this Schedule (which preserves the effect of a transitional or savings provision repealed by this Act) in respect of the repeal by this Act of the Corporation Tax (Implementation of the Mergers Directive) Regulations 2009 (SI 2009/2797), which amended section 213(4) of ICTA. It does so to allow the rule in section 1081(1) to apply to the whole of the first accounting period of a company to which this Act applies (that is, the first accounting period to end on or after 1 April 2010) rather than only to the part of that accounting period that follows the effective date of those regulations (distributions made on or after 11 November 2009). See Change 66 in Annex 1.



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