Introduction
1.These explanatory notes relate to the Corporation Tax Act 2009 which received Royal Assent on 26 March 2009. They have been prepared by the Tax Law Rewrite project at HMRC in order to assist readers in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.
2.The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So if a section or part of a section does not seem to require any explanation or comment, none is given.
3.The commentary on each section indicates the main origin or origins of the section. A full statement of the origins of each section is contained in the Act’s Table of Origins.
4.At the end of the commentary there is supporting material in two annexes.
Annex 1 contains details of the minor changes in the law made by the Act.
Annex 2 contains lists of:
the Extra-Statutory Concessions to which the Act gives effect;
the minor changes made by the Act which involve giving statutory effect to principles derived from case law; and
provisions not included in the Act on the grounds of redundancy.
Summary
5.The main purpose of the Corporation Tax Act 2009 is to rewrite the charge to corporation tax and the primary corporation tax legislation used by companies in computing their income.
6.The Act does not generally change the meaning of the law when rewriting it. The minor changes which it does make are within the remit of the Tax Law Rewrite project and the Parliamentary process for the Act. In the main, such minor changes are intended to clarify existing provisions, make them consistent or bring the law into line with well established practice.
Background
The Tax Law Rewrite project
7.In December 1995 the Inland Revenue presented a report to Parliament on the scope for simplifying the United Kingdom tax system (The Path to Tax Simplification). The main recommendation was that United Kingdom direct tax legislation should be rewritten in clearer, simpler language.
8.This recommendation was warmly welcomed, both in Parliament and in the tax community. In his November 1996 Budget speech the then Chancellor of the Exchequer (the Rt Hon Kenneth Clarke QC MP) announced that the Inland Revenue would propose detailed arrangements for a major project to rewrite direct tax legislation in plainer language.
9.The project team has been carrying out this work. The aim is that the rewritten legislation should use simpler language and structure than previous tax legislation. The members of the project are drawn from different backgrounds. They include longstanding HMRC employees, former private sector tax professionals and parliamentary counsel including (as head of the drafting team) a senior member of the Parliamentary Counsel Office.
Steering Committee
10.The work of the project is overseen by a Steering Committee, chaired by the Rt Hon the Lord Newton of Braintree OBE DL. The membership of the Steering Committee as at 31 October 2008 was:
The Rt Hon the Lord Newton of Braintree OBE DL (Chairman)
Dr John Avery Jones CBE
Adam Broke
Baron Christopher of Leckhampton CBE
Nicholas Dee
Dave Hartnett CB
The Rt Hon Michael Jack MP
Eric Joyce MP
District Judge Rachel Karp
Professor John Tiley CBE
John Whiting CBE
Consultative Committee
11.The work is also reviewed by a Consultative Committee, representing the accountancy and legal professions and the interests of taxpayers. The membership of the Consultative Committee as at 31 October 2008 was:
| Robina Dyall | Chairman |
| Brian Atkinson | 100 Group |
| Adam Broke | Special Committee of Tax Law Consultative Bodies |
| Colin Campbell | Confederation of British Industry |
| Russell Chaplin | London Chamber of Commerce & Industry |
| Mary Fraser | Association of Chartered Certified Accountants |
| Malcolm Gammie CBE QC | The Law Society of England and Wales |
| Julian Ghosh QC | Revenue Bar Association |
| Keith Gordon | Chartered Institute of Taxation |
| Terry Hopes | Institute of Chartered Accountants in England and Wales |
| Bob McInerney | Federation of Small Businesses |
| Isobel d'Inverno | Law Society of Scotland |
| Amy Jones | Institute of Chartered Accountants of Scotland |
| Simon McKie | Institute of Chartered Accountants in England and Wales |
| Lakshmi Narain | Chartered Institute of Taxation |
| Francis Sandison | The Law Society of England and Wales |
| Michael Templeman | Institute of Directors |
| Professor David Williams | Office of the Social Security Commissioners |
| Mervyn Woods | Confederation of British Industry |
Consultation
12.The work produced by the project has been subject to public consultation. This has allowed all interested parties an opportunity to comment on draft clauses.
13.This consultation took the form of a series of papers which published clauses in draft. There were 20 of these, published between July 2006 and November 2008 and a draft Bill was published for consultation in February 2008. All these documents are available on the Tax Law Rewrite website.
14.The project also held detailed informal discussions and workshops with leading private sector tax professionals and HMRC specialists to consider the drafting of the more complex areas of rewritten tax legislation, for example, loan relationships and derivative contracts.
15.Those who responded to one or more of the papers, or to the draft Bill, include:
Alma Consulting Group
Chartered Institute of Taxation
Confederation of British Industry
Deloitte & Touche LLP
Ernst & Young LLP
Institute of Chartered Accountants in England and Wales
International Swaps and Derivatives Association, Inc.
KPMG LLP
Law Society
London Investment Banking Association
London Society of Chartered Accountants
PricewaterhouseCoopers LLP
Note: this list excludes those who asked that their responses be treated in confidence.
This Act
The end of the Schedules
16.This Act repeals the Schedules so far as they remain for corporation tax and therefore marks the end of the use of the word “Schedule” to define types of income. Instead, the Act uses terms that describe the nature of the income, such as “trading income”.
Features of the Act
17.The Act:
contains the basic corporation tax provisions including the charge to tax, accounting periods and provisions relating to residence;
contains provisions relating to trading and property income and income from other sources;
contains special provisions for companies affecting the calculation of income, such as those for loan relationships, derivative contracts and intangible fixed assets;
contains provisions governing particular types of expenditure, for example, expenditure on research and development and films; and
will take the place of many provisions within ICTA, FA 1996, FA 2001 and FA 2002 as the main Act for the areas of corporation tax covered by this Act.
18.The Act has 1330 sections and four Schedules.
19.The sections are arranged as follows:
Part 1: Introduction
Part 2: Charge to corporation tax: basic provisions
Part 3: Trading income
Part 4: Property income
Part 5: Loan relationships
Part 6: Relationships treated as loan relationships etc
Part 7: Derivative contracts
Part 8: Intangible fixed assets
Part 9: Intellectual property: know-how and patents
Part 10: Miscellaneous income
Part 11: Relief for particular employee share acquisition schemes
Part 12: Other relief for employee share acquisitions
Part 13: Additional relief for expenditure on research and development
Part 14: Remediation of contaminated land
Part 15: Film production
Part 16: Companies with investment business
Part 17: Partnerships
Part 18: Unremittable income
Part 19: General exemptions
Part 20: General calculation rules
Part 21: Other general provisions
20.The Schedules are:
Schedule 1: Minor and consequential amendments
Schedule 2: Transitionals and savings
Schedule 3: Repeals and revocations
Schedule 4: Index of defined expressions
21.Tables of Origins and Destinations have also been prepared. The Table of Destinations shows the destination not only of repealed provisions but of all provisions rewritten in the Act.
Glossary
22.The commentary uses a number of abbreviations. They are listed below.
| CAA | the Capital Allowances Act 2001 |
| CAA 1990 | the Capital Allowances Act 1990 |
| CRCA | the Commissioners for Revenue and Customs Act 2005 |
| ESC | Extra-statutory concession |
| HMRC | Her Majesty's Revenue and Customs |
| FA 1989 | Finance Act 1989 (and similarly for other Finance Acts) |
| F(No 2)A | Finance (No 2) Act |
| FISMA | the Financial Services and Markets Act 2000 |
| ICTA | the Income and Corporation Taxes Act 1988 |
| IHTA | the Inheritance Tax Act 1984 |
| ITA | the Income Tax Act 2007 |
| ITEPA | the Income Tax (Earnings and Pensions) Act 2003 |
| ITTOIA | the Income Tax (Trading and Other Income) Act 2005 |
| NIC | national insurance contributions |
| PAYE | Pay As You Earn |
| R&D | research and development |
| TCGA | the Taxation of Chargeable Gains Act 1992 |
| TMA | the Taxes Management Act 1970 |
| VAT | value added tax |