Corporation Tax Act 2009 (c. 4)

Part 8 Intangible fixed assets

Chapter 14 Miscellaneous provisions

Grants and other contributions to expenditure

852 Treatment of grants and other contributions to expenditure

(1) This section applies if a grant or other payment is intended by the payer to meet, directly or indirectly, expenditure of a company on an intangible fixed asset.

(2) A gain recognised in the company’s profit and loss account in respect of the grant or other payment is treated for the purposes of section 721 (receipts recognised as they accrue) as a gain representing a receipt in respect of the intangible fixed asset.

(3) This section does not apply to a grant within section 853.

853 Grants to be left out of account for tax purposes

(1) This section applies to the following grants (“exempt grants”)—

(a) grants under Part 2 of the Industrial Development Act 1982 (c. 52) (regional development grants), and

(b) grants made under Northern Ireland legislation and declared by the Treasury by order to correspond to a grant under that Part.

(2) A gain in respect of an exempt grant to a company is ignored for the purposes of this Part, even though it is recognised in determining the company’s profit or loss.

(3) This subsection applies if, as a result of an exempt grant being brought into account by the company to which it is made, there is a reduction—

(a) in the amount of a loss recognised in determining the company’s profit or loss, or

(b) in the amount of expenditure on an intangible fixed asset that is capitalised for accounting purposes.

(4) If subsection (3) applies, the amount of the reduction is added back for the purposes of this Part.

Finance leasing

854 Finance leasing etc

(1) The Treasury may make provision by regulations as to the application of this Part in relation to a company that is the finance lessor of an intangible asset that is the subject of a finance lease.

(2) Section 855 is about the provision that the regulations may make.

(3) References in this section and that section to a finance lease—

(a) have the meaning they have for accounting purposes, and

(b) include hire-purchase, conditional sale or other arrangements if they are of a similar character to a finance lease.

(4) References to the finance lessor or finance lessee have a corresponding meaning.

(5) Regulations under this section may be made so as to have effect from 1 April 2002.

855 Further provision about regulations under section 854

(1) Regulations under section 854 may provide that this Part applies as if the asset were an intangible fixed asset of the finance lessor and not a financial asset, even though the asset is accounted for by the finance lessor as a financial asset.

(2) The regulations may provide that this Part applies as if the amount at which the asset is recognised in the finance lessor’s balance sheet were capitalised expenditure on an intangible fixed asset, but that—

(a) no election may be made under section 730 (writing down at fixed rate: election for fixed-rate basis) in respect of that amount, and

(b) that amount is not to be treated as capitalised expenditure for the purposes of section 756(2) (roll-over relief in case of realisation and reinvestment: conditions to be met in relation to expenditure on other assets).

(3) The regulations may provide that if an asset formerly recognised by the finance lessor for accounting purposes as an intangible fixed asset becomes subject to a finance lease (and so comes to be accounted for as a financial asset), the value of the asset so created is recognised as realisation proceeds of the intangible fixed asset on the change of accounting treatment.

(4) The regulations may provide that assets partially excluded from this Part by sections 810 to 813 or section 902 (assets excluded except as respects royalties) are entirely excluded from this Part as respects the finance lessor if they—

(a) are subject to a finance lease, and

(b) are accounted for by the finance lessor as financial assets.

(5) The regulations may provide for excluding from the regulations assets used by the finance lessee for the purposes of a trade or business in respect of which the finance lessee is liable to income tax.

(6) The regulations may provide that an intangible asset counts as a pre-FA 2002 asset in the hands of the finance lessor if the finance lessee is—

(a) a company for which the asset was the whole or part of a pre-FA 2002 asset, or

(b) a person who is a related party in relation to such a company.

(7) The regulations may make incidental, supplemental, consequential and transitional provision and savings.

(8) That provision may include modifications of the operation of other provisions of the Corporation Tax Acts.

Values to be used in special cases

856 Assets acquired or realised together

(1) Any reference in this Part to the acquisition or realisation of an asset includes a reference to the acquisition or realisation of that asset together with other assets.

(2) For the purposes of this Part assets acquired or realised as a result of one bargain are treated as acquired or realised together even though—

(a) separate prices are, or purport to be, agreed for separate assets, or

(b) there are, or purport to be, separate acquisitions or realisations of separate assets.

(3) If assets are acquired together, any values allocated to particular assets by the company in accordance with generally accepted accounting practice must be accepted for the purposes of this Part.

(4) If no such values are so allocated, so much of the expenditure as on a just and reasonable apportionment is properly attributable to each asset is treated for the purposes of this Part as referable to that asset.

(5) If assets are realised together, so much of the proceeds of realisation as on a just and reasonable apportionment is properly attributable to each asset is treated for the purposes of this Part as proceeds of the realisation of that asset.

857 Deemed market value acquisition: adjustment where nil accounting value

(1) This section applies if—

(a) a company is treated for the purposes of this Part as acquiring an asset at market value, but

(b) the accounting value of the asset transferred is nil in the hands of the transferee.

(2) In such a case any reference in this Part to—

(a) the cost of the asset recognised for accounting purposes,

(b) the accounting value of the asset, or

(c) any loss recognised for accounting purposes in respect of capitalised expenditure on the asset,

is a reference to the cost, value or loss that would have been recognised if the asset had been acquired at market value.

(3) If the asset is revalued, the revaluation is ignored.

(4) In this section “revaluation” has the same meaning as in section 723 (see subsection (5) of that section) and “revalued” must be read accordingly.

Fungible assets

858 Fungible assets

(1) For the purposes of this Part—

(a) fungible assets of the same kind that are held by the same person in the same capacity are treated as indistinguishable parts of a single asset,

(b) that asset is treated as growing as additional assets of the same kind are created or acquired, and

(c) that asset is treated as diminishing as some of the assets are realised.

(2) In this Part “fungible assets” means assets of a nature to be dealt in without identifying the particular assets involved.

Assets ceasing to be or becoming chargeable intangible assets

859 Asset ceasing to be chargeable intangible asset: deemed realisation at market value

(1) If an asset ceases to be a chargeable intangible asset in relation to a company in any of the circumstances specified in subsection (2), this Part applies as if—

(a) immediately before the asset ceased to be a chargeable intangible asset in relation to the company, the company had realised the asset for its market value at that time, and

(b) the company had immediately reacquired it at that value.

(2) The circumstances are—

(a) that the company ceases to be UK resident,

(b) in the case of a company that is not UK resident, any circumstances not involving the realisation of the asset by the company, and

(c) that the asset begins to be held for the purposes of a mutual trade or business.

(3) Subsection (1) is subject to section 860.

860 Asset ceasing to be chargeable intangible asset: postponement of gain

(1) This subsection applies if—

(a) section 859 applies because a company (“A”) ceases to be UK resident,

(b) immediately before A ceases to be UK resident the asset is held by it for the purposes of a trade carried on by it outside the United Kingdom through a permanent establishment,

(c) the proceeds of the realisation of the asset that is treated as occurring under section 859 exceed the original cost of the asset recognised for tax purposes,

(d) immediately after A ceases to be UK resident it is a 75% subsidiary of another company (“B”) that is UK resident, and

(e) A and B so elect by notice given to an officer of Revenue and Customs not later than 2 years after the date on which A ceased to be UK resident.

(2) If subsection (1) applies, this Part applies as if the proceeds of the realisation of the asset that is treated as occurring under section 859 were reduced to the original cost of the asset recognised for tax purposes.

(3) For the later treatment of the amount of the reduction under subsection (2), see sections 861 and 862.

(4) In those sections—

(a) “the postponed gain” means the amount of that reduction, and

(b) references to “A” and “B” must be read in accordance with this section.

861 Treatment of postponed gain on subsequent realisation

(1) This section applies if A realises the asset to which section 860 applies before the end of the period of 6 years after the date on which it ceases to be UK resident.

(2) B must bring into account for tax purposes—

(a) a credit equal to the postponed gain, or

(b) in the case of a part realisation, a credit equal to the appropriate proportion of the postponed gain.

(3) The appropriate proportion is—

where—

• MVB is the market value of the asset immediately before the part realisation, and

• MVA is the market value of the asset immediately after the part realisation.

(4) Subsection (2) does not apply—

(a) so far as the postponed gain has already been brought into account on a previous part realisation, or

(b) if the postponed gain has already been brought into account under section 862.

(5) A credit brought into account by B under this section is treated as a non-trading credit for the purposes of Chapter 6 (how credits and debits are given effect).

862 Treatment of postponed gain in other cases

(1) This section applies if at any time after A ceases to be UK resident—

(a) A ceases to be a 75% subsidiary of B on the disposal by B of ordinary shares of A,

(b) A ceases to be such a subsidiary otherwise than on such a disposal and later B disposes of such shares, or

(c) B ceases to be UK resident.

(2) B must bring into account for tax purposes a credit equal to the postponed gain.

(3) Subsection (2) does not apply so far as the postponed gain has already been brought into account under section 861.

(4) Any credit falling to be brought into account under subsection (2) because B ceases to be UK resident must be brought into account immediately before it does so.

(5) A credit brought into account by B under this section is treated as a non-trading credit for the purposes of Chapter 6 (how credits and debits are given effect).

863 Asset becoming chargeable intangible asset

(1) This section applies if an asset becomes a chargeable intangible asset in relation to a company—

(a) on the company becoming UK resident,

(b) in the case of a company that is not UK resident, on the asset beginning to be held for the purposes of a trade carried on by the company in the United Kingdom through a permanent establishment, or

(c) on the asset ceasing to be held for the purposes of a mutual trade or business.

(2) This Part applies as if—

(a) the company had acquired the asset immediately after it became a chargeable intangible asset in relation to the company, and

(b) had done so for its accounting value at that time.

Matters to be ignored

864 Tax avoidance arrangements to be ignored

(1) In determining whether a credit or a debit is to be brought into account under this Part and, if so, its amount, any tax avoidance arrangements are ignored.

(2) Arrangements are “tax avoidance arrangements” for this purpose if their main object or one of their main objects is to enable a company—

(a) to obtain a debit under this Part to which it would not otherwise be entitled,

(b) to obtain a debit under this Part which exceeds that to which it would otherwise be entitled,

(c) to avoid having to bring a credit into account under this Part, or

(d) to reduce the amount of any such credit.

(3) In this section—

• “arrangements” includes any scheme, agreement or understanding, whether or not it is legally enforceable, and

• “brought into account” means brought into account for tax purposes.

865 Debits for expenditure not generally deductible for tax purposes

(1) No debit may be brought into account for tax purposes under this Part in respect of expenditure that is not generally deductible for tax purposes.

(2) Expenditure is “not generally deductible for tax purposes” so far as revenue expenditure of that description incurred for the purposes of a trade would be non-deductible because of a provision specified in subsection (3).

(3) Those provisions are—

(a) section 56 (car or motor cycle hire),

(b) section 1298 (business entertainment and gifts),

(c) section 1304 (crime-related payments), and

(d) section 246(2) of FA 2004 (expenditure on benefits under employer-financed retirement benefits schemes).

Delayed payments and bad debts

866 Delayed payment of employees' remuneration

(1) This subsection applies if—

(a) a debit in respect of employees' remuneration is recognised by a company for accounting purposes, and

(b) apart from this section, a debit in respect of the remuneration could be brought into account for the purposes of this Part for the period of account in which the debit is recognised.

(2) No such debit may be so brought into account unless the remuneration is paid before the end of the period of 9 months beginning with the end of the period of account.

(3) If the remuneration is paid after the end of the 9 month period, the debit may be brought into account for the purposes of this Part for the period of account in which it is paid.

(4) Section 867 makes further provision relating to the application of this section.

867 Provisions supplementing section 866

(1) For the purposes of section 866 a debit in respect of employees' remuneration recognised for accounting purposes includes an amount reserved in the accounts of an employer with a view to its becoming employees' remuneration.

(2) For the purposes of section 866 it does not matter if the debit is in respect of—

(a) particular employments, or

(b) employments generally.

(3) Any adjustment required by section 866 of an accounting debit that is partly referable to an amount to which that section applies and partly to other matters must be made on a just and reasonable basis.

(4) In making a calculation for tax purposes that has to be made before the end of the 9 month period mentioned in section 866(2), it must be assumed that any remuneration which is unpaid when the calculation is made will not be paid before the end of that period.

(5) But if the remuneration is subsequently paid before the end of the period, nothing in subsection (4) prevents the calculation being revised and any tax return being amended accordingly.

(6) For the purposes of section 866 and this section, remuneration is paid when it—

(a) is treated as received by an employee for the purposes of ITEPA 2003 by section 18 or 19 of that Act (receipt of money and non-money earnings), or

(b) would be so treated if it were not exempt income.

(7) In section 866 and this section—

• “employee” includes an office-holder and so “employment” includes an office, and

• “remuneration” means an amount which is or is treated as earnings for the purposes of ITEPA 2003.

868 Delayed payment of pension contributions

(1) This section applies if—

(a) a debit in respect of pension contributions is recognised by a company for accounting purposes, and

(b) the contributions are not paid until after the end of the period of account in which the debit is recognised.

(2) The contributions may be brought into account for the purposes of this Part only when they are paid.

(3) For the purposes of this section “pension contributions” means—

(a) sums paid by an employer by way of contributions under a registered pension scheme,

(b) sums paid to the trustees or managers of such a scheme that are treated as if they were the payment of contributions under the pension scheme (see section 199 of FA 2004), or

(c) expenses within section 246(3) of FA 2004 (expenditure on benefits under employer-financed retirement benefits schemes).

(4) Any adjustment required by this section of an accounting debit that is partly referable to an amount to which this section applies and partly to other matters must be made on a just and reasonable basis.

869 Bad debts etc

(1) No debit may be brought into account for the purposes of this Part in respect of a debt owed to the company, except—

(a) by way of impairment loss, or

(b) so far as the debt is released as part of a statutory insolvency arrangement.

(2) If a debt is so released, any gain in respect of the release that is brought into account for accounting purposes by the debtor is disregarded for the purposes of this Part.

(3) Any other gain in respect of an unpaid debt in respect of an intangible fixed asset that is brought into account by the debtor for accounting purposes is treated for the purposes of section 721 (receipts recognised as they accrue) as a gain in respect of an intangible fixed asset.

(4) Any adjustment required by this section of an accounting gain or loss that is partly referable to an amount affected by this section and partly to other matters must be made on a just and reasonable basis.

(5) In this section “debt” includes an obligation or liability that falls to be discharged otherwise than by the payment of money.

Controlled foreign companies

870 Assumptions for calculating chargeable profits

(1) In calculating the amount mentioned in section 747(6) of ICTA (chargeable profits of controlled foreign company), the following assumptions must be made when applying this Part.

(2) It is assumed that any intangible fixed asset acquired or created by the company before the beginning of the first relevant accounting period was acquired or created by the company at the beginning of that accounting period at a cost equal to its value recognised for accounting purposes at that time.

(3) The “first relevant accounting period” is the first accounting period—

(a) in respect of which an apportionment under section 747(3) of ICTA falls to be made, or

(b) which is an ADP exempt period.

(4) It is assumed that the company—

(a) has not claimed any relief under Chapter 7 (roll-over relief in case of reinvestment), or

(b) made any provisional declaration of entitlement to such relief,

and accordingly paragraph 4(1) of Schedule 24 to ICTA (assumption that all available reliefs have been claimed) is ignored to that extent.

(5) But if notice is given in accordance with paragraph 4(2) of Schedule 24 to ICTA requesting that subsection (4) should not apply, it does not apply to such claims as are specified in the notice to the extent so specified.

(6) Expressions used in this section that are defined for the purposes of Chapter 4 of Part 17 of ICTA (controlled foreign companies) have the same meaning in this section.

(7) See, in particular, paragraph 1(6) of Schedule 24 to that Act for the meaning of “ADP exempt period”).

(8) The assumption in subsection (2) does not affect the determination of the question whether this Part applies to an asset in accordance with section 882 (application of this Part to assets created or acquired on or after 1 April 2002).