10 After section 263A insert—

“263AA Section 263A: interpretation

(1) Subsections (2) to (7) apply for the purposes of section 263A.

(2) References to buying back securities include references to—

(a) 5buying similar securities, and

(b) in the case of a person connected with the person who is the
original owner under the repo, buying the securities sold by
the original owner or similar securities.

(3) Subsection (2) applies even if the person buying the securities has not
10held them before.

(4) References to repurchase or a repurchaser are to be read accordingly.

(5) For the purposes of subsection (2) securities are similar if they give
their holders—

(a) the same rights against the same persons as to capital and
15distributions, interest and dividends, and

(b) the same remedies to enforce those rights.

(6) Subsection (5) applies even if there is a difference in—

(a) the total nominal amounts of the securities,

(b) the form in which they are held, or

(c) 20the manner in which they can be transferred.

(7) Agreements are related if they are entered into in pursuance of the
same arrangement (regardless of the date on which either agreement
is entered into).

(8) In section 263A and this section “securities” means—

(a) 25shares in a company wherever resident,

(b) loan stock or other securities of—

(i) the government of the United Kingdom,

(ii) a local authority in the United Kingdom,

(iii) another public authority in the United Kingdom,

(iv) 30a company resident in the United Kingdom or other
body resident in the United Kingdom, or

(c) shares, loan stock, stock or other securities issued by—

(i) a government, local authority or other public
authority of a territory outside the United Kingdom,
35or

(ii) another body of persons not resident in the United
Kingdom.”

11 (1) Section 263F (power to modify repo provisions: non-standard repo cases) is
amended as follows.

(2) 40In subsection (2), for the words from “cases” to the end substitute “any case
mentioned in section 263A(1).”

(3) For subsection (9) substitute—

“(9) Post-agreement fluctuations” are fluctuations in the value of—

(a) securities transferred in pursuance of the original sale, or

(b) representative securities,

which occur in the period after the making of the agreement for the
original sale.

(10) “Representative securities” are securities which, for the purposes of
5the repurchase, are to represent securities transferred in pursuance
of the original sale.”

12 In section 263G (power to modify repo provisions: redemption
arrangements)—

(a) in subsection (2), for the words from “cases” to the end substitute
10“any case mentioned in section 263A(1).”, and

(b) omit subsection (4).

ITTOIA 2005

13 (1) ITTOIA 2005 is amended as follows.

(2) Omit Chapter 12 of Part 4 (disposals of futures and options involving
15guaranteed returns).

(3) In section 687(2) (application of charge to tax), at the end insert “or to income
falling within Chapter 2A of Part 4”.

(4) In Schedule 1 (consequential amendments), omit paragraph 435.

(5) In Schedule 2 (transitionals and savings), omit paragraph 95.

(6) 20In Schedule 4 (abbreviations and defined expressions), omit the entry for
“future (in Chapter 12 of Part 4)”.

FA 2007

14 In Schedule 14 of FA 2007 (sale and repurchase of securities: minor and
consequential amendments), omit paragraphs 22 and 23.

25ITA 2007

15 (1) ITA 2007 is amended as follows.

(2) Omit the following provisions (which deal with deemed manufactured
payments and repos)—

(a) section 596(5),

(b) 30sections 597 to 605,

(c) section 606(1) to (7) and (9) and (10), and

(d) sections 607 to 614.

(3) In Schedule 1 (minor and consequential amendments), omit paragraphs 310,
543 and 544.

(4) 35In Schedule 2 (transitionals and savings), omit paragraphs 112 to 124.

(5) In Schedule 4 (index of defined expressions)—

(a) omit the entries for—

• “company UK REIT (in Chapter 4 of Part 11)”,

• “distribution (in Chapter 4 of Part 11)”,

• 40“gross amount (in Chapter 4 of Part 11)”,

Finance (No. 2) BillPage 232

• “group (in Chapter 4 of Part 11)”,

• “group UK REIT (in Chapter 4 of Part 11)”,

• “Manufactured dividend (in Chapter 4 of Part 11)”,

• “principal company (in Chapter 4 of Part 11)”,

• 5“property rental business (in Chapter 4 of Part 11)”, and

• “the repurchase price of the securities (in Chapter 4 of Part 11)”,
  and

(b) in the entry for “distribution (except in Chapter 4 of Part 11)”, omit
“(except in Chapter 4 of Part 11)”.

10CTA 2010

16 In Schedule 1 of CTA 2010 (minor and consequential amendments), omit
paragraphs 540 to 543 and 544(a), (c) and (d).

FA 2010

17 In Schedule 6 of FA 2010 (charities etc), omit paragraph 21(4).

15Commencement and transitional provision

18 (1) Subject to sub-paragraph (2), the amendments made by this Schedule have
effect for the tax year 2013-2014 and subsequent tax years.

(2) Chapter 2A of Part 4 of ITTOIA 2005 does not apply in relation to an
arrangement that produces a return for a person, in relation to an amount,
20which is economically equivalent to interest if—

(a) the person became party to the arrangement before 6 April 2013, and

(b) none of the provisions repealed by paragraphs 13(2) and 15(2)
applied in relation to the arrangement before that date.

Section 33

SCHEDULE 13 25Change in ownership of shell company: restriction of relief

Amendments of Part 14 of CTA 2010

1 (1) Part 14 of CTA 2010 (change in company ownership) is amended as follows.

(2) In section 672 (overview of Part)—

(a) after subsection (3) insert—

“(3A) 30Chapter 5A restricts relief for certain non-trading deficits and
losses where there is a change of ownership of a shell
company.”;

(b) in subsection (7), omit the “and” at the end of paragraph (b) and after
that paragraph insert—

“(ba) 35shell company”, see section 705A, and”.

(3) After Chapter 5 insert—

“CHAPTER 5A Shell companies: restrictions on relief

Introduction

705A Introduction to Chapter

(1) 5This Chapter applies where there is a change in the ownership of a
shell company.

(2) In this Chapter—

• “the change in ownership” means the change in ownership
  mentioned in subsection (1);

• 10“the company” means the company mentioned in subsection
  (1);

• “shell company” means a company that—

  (a)

  is not carrying on a trade,

  (b)

  is not a company with investment business, and

  (c)

  15is not carrying on a UK property business.

705B Notional split of accounting period in which change in ownership
occurs

(1) This section applies for the purposes of this Chapter.

(2) The accounting period in which the change in ownership occurs
20(“the actual accounting period”) is treated as two separate
accounting periods (“notional accounting periods”), the first ending
with the change and the second consisting of the remainder of the
period.

(3) The amounts for the actual accounting period in column 1 of the
25table in section 705F(2) are apportioned to the two notional
accounting periods in accordance with section 705F.

(4) In this Chapter “the actual accounting period” and “notional
accounting periods” have the same meaning as in this section.

Restrictions on relief

705C 30Restriction on debits to be brought into account

(1) This section has effect for the purpose of restricting the debits to be
brought into account for the purposes of Part 5 of CTA 2009 (loan
relationships) in respect of the company’s loan relationships.

(2) The debits to be brought into account for the purposes of Part 5 of
35CTA 2009 for—

(a) the accounting period beginning immediately after the
change in ownership, or

(b) any subsequent accounting period,

do not include relevant non-trading debits so far as amount A
40exceeds amount B.

(3) Amount A is the sum of—

(a) the amount of those relevant non-trading debits, and

(b) the amount of any relevant non-trading debits which have
been brought into account for the purposes of that Part for
5any previous accounting period ending after the change in
ownership.

(4) Amount B is the amount of the taxable total profits of the accounting
period ending with the change in ownership.

(5) For the meaning of “relevant non-trading debit”, see section 730.

705D 10Restriction on carry forward of non-trading deficit from loan
relationships

(1) This section has effect for the purpose of restricting the carry forward
of a non-trading deficit from the company’s loan relationships under
Part 5 of CTA 2009 (loan relationships).

(2) 15Subsection (3) applies if the non-trading deficit in column 1 of row 4
of the table in section 705F(2) is apportioned in accordance with
section 705F to the first notional accounting period.

(3) None of that non-trading deficit may be carried forward to—

(a) the accounting period beginning immediately after the
20change in ownership, or

(b) any subsequent accounting period.

705E Restriction on relief for non-trading loss on intangible fixed assets

(1) This section has effect for the purpose of restricting relief under
section 753 of CTA 2009 (treatment of non-trading losses) in respect
25of a non-trading loss on intangible fixed assets.

(2) Relief under section 753 of CTA 2009 against the total profits of the
same accounting period is available only in relation to each of the
notional accounting periods considered separately.

(3) A non-trading loss on intangible fixed assets for an accounting
30period beginning before the change in ownership may not be—

(a) carried forward under section 753(3) of that Act to an
accounting period ending after the change in ownership, or

(b) treated under that section as if it were a non-trading debit of
that period.

35Apportionment of amounts

705F Apportionment of amounts

(1) This section applies for the purposes of this Chapter.

(2) Any amount for the actual accounting period in column 1 of the
following table is to be apportioned to the two notional accounting
40periods in accordance with the corresponding method of
apportionment in column 2 of the table.

(3) If any method of apportionment in column 2 of the table in
subsection (2) would work unjustly or unreasonably in any case,
such other method is to be used as is just and reasonable.

(4) For the meaning of certain expressions used in this section, see
5section 705G.

705G Meaning of certain expressions in section 705F

(1) This section applies for the purposes of the table in section 705F(2).

(2) For the purposes of column 1 of row 1 of the table, the amount for the
actual accounting period of any adjusted non-trading profits from
10the company’s loan relationships is the amount which would be the
amount of the profits from those relationships chargeable under
section 299 of CTA 2009 (charge to tax on non-trading profits) if, in
calculating that amount, amounts for that period within column 1 of
row 3 or 4 of the table were disregarded.

(3) 15For the purposes of column 1 of row 2 of the table, the amount for the
actual accounting period of any adjusted non-trading deficit from
the company’s loan relationships is the amount which would be the
amount of the non-trading deficit from those relationships if, in
calculating that amount, amounts for that period within column 1 of
20row 3 or 4 of the table were disregarded.

(4) Condition A is that—

(a) the amount in column 1 of row 3 of the table is determined on
an amortised cost basis of accounting, and

(b) none of the following provisions applies—

(i) 25section 373 of CTA 2009 (late interest treated as not
accruing until paid in some cases),

(ii) section 407 of that Act (postponement until
redemption of debits for connected companies’
deeply discounted securities), or

(iii) 30section 409 of that Act (postponement until
redemption of debits for close companies’ deeply
discounted securities).

(5) Condition B is that—

(a) the amount in column 1 of row 3 of the table is determined on
35an amortised cost basis of accounting, and

(b) any of the provisions mentioned in subsection (4)(b) applies.”

(4) In section 721 (when things other than share capital may be taken into
account: Chapters 2 to 5)—

(a) in the heading, for “5” substitute “5A”;

(b) in subsection (1), for “5” substitute “5A”;

(c) in subsection (4), for “or 5” substitute “, 5 or 5A”.

(5) In section 725 (provision applying for the purposes of Chapters 2 to 5)—

(a) in the heading, for “5” substitute “5A”;

(b) 5in subsection (1), for “5” substitute “5A”.

(6) In section 730 (meaning of “relevant non-trading debit”)—

(a) in subsection (1), for “and 696” substitute “, 696 and 705C”;

(b) in subsections (3)(c), (4)(c) and (5)(b) for “or 696” substitute “, 696 or
705C”.

10Consequential amendments

2 In Schedule 4 to that Act (index of defined expressions) insert at the
appropriate places—

Commencement

3 The amendments made by this Schedule have effect in relation to changes in
20ownership that occur on or after 20 March 2013.

Section 34

SCHEDULE 14 R&D expenditure credits

Part 1 Amendments of CTA 2009

1 25In Part 3 of CTA 2009 (trading income), after Chapter 6 insert—

“CHAPTER 6A Trade profits: R&D expenditure credits

Claims for credits

104A R&D expenditure credits

(1) A company carrying on a trade may make a claim for an amount (an
30“R&D expenditure credit”) to be brought into account as a receipt in
calculating the profits of the trade for an accounting period.

(2) The company is entitled to an R&D expenditure credit for the
accounting period if the company has qualifying R&D expenditure
which is allowable as a deduction in calculating for corporation tax
purposes the profits of the trade for the accounting period.

(3) 5In the case of a company that is a small or medium-sized enterprise
in the accounting period, the company’s “qualifying R&D
expenditure” means—

(a) its qualifying expenditure on sub-contracted R&D (see
section 104C),

(b) 10its subsidised qualifying expenditure (see section 104F), and

(c) its capped R&D expenditure (see section 104I).

(4) In the case of a company that is a large company throughout the
accounting period, the company’s “qualifying R&D expenditure”
means—

(a) 15its qualifying expenditure on in-house direct research and
development (see section 104J),

(b) its qualifying expenditure on contracted out research and
development (see section 104K), and

(c) its qualifying expenditure on contributions to independent
20research and development (see section 104L).

(5) The amount of an R&D expenditure credit to which a company is
entitled is determined in accordance with section 104M.

(6) Section 104N contains provision about the effect of a successful claim
for an R&D expenditure credit.

(7) 25Sections 104U to 104W contain provision about insurance companies
and group companies.

(8) Section 104X contains anti-avoidance provision.

(9) Section 104Y contains definitions.

(10) For information about the procedure for making claims under this
30Chapter, see Schedule 18 to FA 1998, in particular Part 9A of that
Schedule.

104B Restriction on claiming relief under Part 13 and credit for same
expenditure

A company may not make a claim for an R&D expenditure credit and
35for relief under Part 13 (additional relief for expenditure on research
and development) in respect of the same expenditure.

SMEs: qualifying expenditure on sub-contracted R&D

104C Qualifying expenditure on sub-contracted R&D

(1) For the purposes of this Chapter a company’s “qualifying
40expenditure on sub-contracted R&D” means expenditure incurred
by it that meets conditions A and B.

(2) Condition A is that the expenditure is incurred on research and
development contracted out to the company by—

(a) a large company, or

(b) any person otherwise than in the course of carrying on a
chargeable trade.

(3) A “chargeable trade” is—

(a) a trade, profession or vocation carried on wholly or partly in
5the United Kingdom, the profits of which are chargeable to
income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b) a trade carried on wholly or partly in the United Kingdom,
the profits of which are chargeable to corporation tax under
Chapter 2 of this Part.

(4) 10Condition B is that the expenditure is expenditure to which section
104D or 104E applies.

104D Expenditure on sub-contracted R&D undertaken in-house

(1) This section applies to expenditure on research and development
contracted out to a company if conditions A, B and C are met.

(2) 15Condition A is that the research and development is undertaken by
the company itself.

(3) Condition B is that the expenditure is—

(a) incurred on staffing costs (see section 1123),

(b) incurred on software or consumable items (see section 1125),

(c) 20qualifying expenditure on externally provided workers (see
section 1127), or

(d) incurred on relevant payments to the subjects of a clinical
trial (see section 1140).

(4) Condition C is that the expenditure is attributable to relevant
25research and development in relation to the company.

(5) See sections 1124, 1126 and 1132 for provision about when
expenditure within subsection (3)(a), (b) or (c) is attributable to
relevant research and development.

104E Expenditure on sub-contracted R&D not undertaken in-house

(1) 30This section applies to expenditure on research and development
contracted out to a company if conditions A, B and C are met.

(2) Condition A is that the expenditure is incurred in making payments
to—

(a) a qualifying body,

(b) 35an individual, or

(c) a firm, each member of which is an individual,

in respect of research and development contracted out by the
company to the body, individual or firm.

(3) Condition B is that the research and development is undertaken by
40the body, individual or firm itself.

(4) Condition C is that the expenditure is attributable to relevant
research and development in relation to the company.