Corporation Tax Act 2009

Claw back of relief

1228 Credits that reverse debits

For the purposes of sections 1229 and 1230, a credit reverses the whole or part of a debit in any case where the credit falls to be made because—

(a) the sum represented in whole or in part by the debit is paid and then wholly or partly repaid, or

(b) the sum represented by the debit is never paid.

1229 Claw back of relief

(1) This section applies if—

(a) a credit is brought into account by a company in a period of account (“the period of the credit”),

(b) the credit reverses (in whole or in part) a debit brought into account in a previous period of account of the company,

(c) the debit (or part of it) represents expenses of management deductible under section 1219 for an accounting period which ends before, or at the same time as, the period of the credit, and

(d) the expenses of management are not expenses brought forward to that period under section 1223.

For cases involving an absence of accounts see also section 1231.

(2) The reversal amount (see section 1230) is dealt with in accordance with subsection (3) or (5).

(3) If the period of the credit coincides with an accounting period of the company—

(a) the reversal amount is, as far as possible, applied in reducing (but not below nil) the company’s expenses of management belonging to that period, and

(b) if not all of the amount can be applied in that way, the remainder is to be treated as a receipt of the company chargeable for that period under the charge to corporation tax on income.

(4) For the purposes of subsection (3), the expenses of management belonging to a period are the expenses of management that are deductible for that period, excluding any amounts brought forward under section 1223.

(5) If the period of the credit does not coincide with an accounting period of the company—

(a) the reversal amount is apportioned between any accounting periods that fall within the period of the credit, and

(b) paragraphs (a) and (b) of subsection (3) are applied to any amount that is apportioned to an accounting period.

(6) An apportionment under subsection (5) must be made in accordance with section 1311 (time basis) or, if it appears that that method would work unreasonably or unjustly, on a just and reasonable basis.

1230 Meaning of “reversal amount”

(1) This section gives the meaning of “reversal amount” for the purposes of this Part.

(2) If a credit reverses the whole or part of a debit, the reversal amount is found as follows.

• Step 1

  Take however much of the credit reverses the debit.

• Step 2

  Reduce that (if applicable) to however much of the credit reverses the part of the debit that represents expenses of management deductible under section 1219.

• Step 3

  Reduce that (if applicable) to exclude any part of the credit that represents sums otherwise taken into account in calculating for corporation tax purposes the profits and losses of the company for the relevant accounting period or an earlier accounting period.

(3) In this section “relevant accounting period” means the latest accounting period of the company that falls wholly or partly within the period of the credit (see section 1229(1)(a)).

1231 Absence of accounts

(1) This section sets out how section 1229 operates if a company has an accounting period that neither coincides with nor falls within any period of account.

(2) Section 1229 operates as if—

(a) there were a period of account of the company that coincides with that accounting period, and

(b) in calculating for accounting purposes the company’s profits and losses for that period of account, amounts were brought into account in accordance with UK generally accepted accounting practice.

(3) The references in section 1251(3)(b) (car or motor cycle hire) to credits and debits include credits and debits that are deemed to be made by virtue of this section.