Finance Bill (HC Bill 57)

(7) After subsection (6) insert—

“(7) Section 280B(8) and (9) (meaning of “trade” etc) applies for the
purposes of this section as it applies for the purposes of section
280B.””

(8) 5In the heading, for “capital schemes” substitute “finance investments”.

8 After section 292A insert—

“292AA Maximum risk finance investments when relevant holding is issued
requirement

(1) The total amount of relevant investments made in the relevant
10company on or before the investment date must not exceed—

(a) if the relevant company is a knowledge-intensive company at
the investment date (see section 331A), £20 million, and

(b) in any other case, £12 million.

(2) In subsection (1), the reference to relevant investments made in the
15relevant company includes—

(a) relevant investments made in any company that is at the
investment date, or has at any time before that date been, a
51% subsidiary of the relevant company (including
investments made in such a company before it became such
20a subsidiary but, if it is not such a subsidiary at the
investment date, not investments made in it after it last
ceased to be such a subsidiary), and

(b) any other relevant investment made in a company if—

(i) the money raised by the investment has been
25employed for the purposes of a trade carried on by
that company or another person, and

(ii) after the investment was made, but on or before the
investment date, that trade became a relevant
transferred trade (see subsection (4)).

(3) 30If only a proportion of the money raised by a relevant investment is
employed for the purposes of a trade which becomes a relevant
transferred trade, the reference in subsection (2)(b) to the relevant
investment is to be read as a reference to the corresponding
proportion of that investment.

(4) 35Where—

(a) at any time on or before the investment date, a trade is
transferred—

(i) to the relevant company,

(ii) to a company that at the investment date is, or has at
40any time before that date been, a 51% subsidiary of
the relevant company, or

(iii) to a partnership of which a company within sub-
paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-
45paragraph (ii), or a partnership of which such a company is a
member, before the company became such a subsidiary but,
if the company is not such a subsidiary at the investment
date, not where it is transferred to such a company or

partnership after the company last ceased to be such a
subsidiary), and

(b) the trade or a part of it was previously (at any time) carried
on by another person,

5the trade or part mentioned in paragraph (b) becomes a “relevant
transferred trade” at the time it is transferred as mentioned in
paragraph (a).

(5) In this section—

• “the investment date” means the date the relevant holding is
  10issued;

• “relevant investment” has the meaning given by section
  292A(3), and section 292A(4) and (4A) (which determine
  when certain investments are made) applies for the purposes
  of this section;

15and section 280B(8) and (9) (meaning of “trade” etc) applies for the
purposes of this section as it applies for the purposes of section 280B.

(6) Subsection (7) applies if, by virtue of the provision of a compliance
statement under section 205, 257ED or 257PB, the requirement of this
section is not met.

(7) 20The requirement is to be treated as having been met throughout the
period—

(a) beginning with the investment date, and

(b) ending with the time the compliance statement was
provided.

292AB 25 Maximum risk finance investments during the 5-year post-
investment period requirement

(1) The requirement of this section applies if condition A or B is met.

(2) Condition A is that—

(a) a company becomes a 51% subsidiary of the relevant
30company at any time during the 5-year post-investment
period,

(b) all or part of the money raised by the issue of the relevant
holding is employed for the purposes of a relevant qualifying
activity which consists wholly or in part of a trade carried on
35by that company, and

(c) that trade (or a part of it) was carried on by that company
before it became a 51% subsidiary as mentioned in paragraph
(a).

(3) Condition B is that all or part of the money raised by the issue of the
40relevant holding is employed for the purposes of a relevant
qualifying activity which consists wholly or in part of a trade which,
during the 5-year post-investment period, becomes a relevant
transferred trade (see subsection (7)).

(4) The requirement of this section is that, at all times during the 5-year
45post-investment period, the total of the relevant investments made in
the relevant company before the time in question (“the relevant
time”) must not exceed—

(a) if the relevant company is a knowledge-intensive company at
the investment date (see section 331A), £20 million, and

(b) in any other case, £12 million.

(5) In subsection (4) the reference to relevant investments made in the
5relevant company includes—

(a) any relevant investment made in any company that has at
any time before the relevant time been a 51% subsidiary of
the relevant company (including investments made in that
company before it became such a subsidiary but, if it is not
10such a subsidiary at the relevant time, not investments made
in it after it last ceased to be such a subsidiary), and

(b) any other relevant investments made in a company where—

(i) the money raised by the investment has been
employed for the purposes of a trade carried on by
15that company or another person, and

(ii) after that investment was made, but before the
relevant time, that trade (or a part of it) became a
relevant transferred trade (see subsection (7)).

(6) If only a proportion of the money raised by a relevant investment is
20employed for the purposes of a trade which became a relevant
transferred trade, the reference in subsection (5)(b) to the relevant
investment is to be read as a reference to the corresponding
proportion of that investment.

(7) Where—

(a) 25a trade is transferred—

(i) to the relevant company,

(ii) to a company that at the relevant time is, or has before
that time been, a 51% subsidiary of the relevant
company, or

(iii) 30to a partnership of which a company within sub-
paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-
paragraph (ii), or a partnership of which such a company is a
member, before the company became such a subsidiary but,
35if the company is not such a subsidiary at the relevant time,
not where it is transferred to such a company or partnership
after the company last ceased to be such a subsidiary), and

(b) the trade or a part of it was previously (at any time) carried
on by another person,

40the trade or part mentioned in paragraph (b) becomes a “relevant
transferred trade” at the time it is transferred as mentioned in
paragraph (a).

(8) In this section—

• “5-year post-investment period” means the period of 5 years
  45beginning with the day after the investment date;

• “the investment date” means the date on which the relevant
  holding is issued;

• “relevant investment” has the meaning given by section
  292A(3), and section 292A(4) and (4A) (which determines

  Finance BillPage 133

  when certain investments are made) applies for the purposes
  of this section;

and section 280B(8) and (9) (meaning of “trade” etc) applies for the
purposes of this section as it applies for the purposes of section 280B.

(9) 5Subsection (10) applies if, by virtue of the provision of a compliance
statement under section 205, 257ED or 257PB, the requirement of this
section is not met.

(10) The requirement is to be treated as having been met throughout the
period—

(a) 10beginning with the investment date, and

(b) ending with the time the compliance statement was
provided.””

9 Omit section 292B (the spending of money raised by SEIS investment
requirement).

10 15In section 293 (the use of the money raised requirement), for subsection (5A)
substitute—

“(5ZA) Employing money raised by the issue of the relevant holding
(whether on its own or together with other money) on the
acquisition, directly or indirectly, of—

(a) 20an interest in another company such that a company becomes
a 51% subsidiary of the relevant company,

(b) a further interest in a company which is a 51% subsidiary of
the relevant company,

(c) a trade,

(d) 25intangible assets employed for the purposes of a trade, or

(e) goodwill employed for the purposes of a trade,

does not amount to employing the money for the purposes of a
relevant qualifying activity.

(5ZB) The Treasury may by regulations provide that subsection (5ZA) does
30not apply in relation to acquisitions of intangible assets which are of
a description specified, or which occur in circumstances specified, in
the regulations.

(5ZC) For the purposes of subsections (5ZA) and (5ZB)—

• “goodwill” has the same meaning as in Part 8 of CTA 2009 (see
  35section 715(3));

• “intangible assets” means any asset which falls to be treated as
  an intangible asset in accordance with generally accepted
  accountancy practice;

and section 280B(8) and (9) (meaning of “trade” etc) applies for the
40purposes of this section as it applies for the purposes of section 280B.

(5A) Also, otherwise employing money on the acquisition of shares in a
company does not of itself amount to employing the money for the
purposes of a relevant qualifying activity.””

11 After section 294 insert—

“294A The permitted company age requirement

(1) The requirement of this section is that, if the relevant holding is
issued after the initial investing period, condition A or B must be
5met.

(2) “The initial investing period” means—

(a) where the relevant company is a knowledge-intensive
company at the investment date, the period of 10 years
beginning with the relevant first commercial sale, and

(b) 10in any other case, the period of 7 years beginning with that
sale.

(3) Condition A is that—

(a) a relevant investment was made in the relevant company
before the end of the initial investing period, and

(b) 15some or all of the money raised by that investment was
employed for the purposes of the relevant qualifying activity
(or a part of it).

(4) Condition B is that the total amount of relevant investments made in
the relevant company in a period of 30 consecutive days which
20includes the investment date is at least 50% of the average turnover
amount.

(5) “The relevant first commercial sale” means the earliest of the
following—

(a) the first commercial sale made by the relevant company,

(b) 25the first commercial sale made by a company that is at the
investment date, or before that date has been, a 51%
subsidiary of the relevant company (including a sale made by
a company before it became such a subsidiary but, if it is not
such a subsidiary at the investment date, not a sale made after
30it last ceased to be such a subsidiary),

(c) the first commercial sale made by any person who previously
(at any time) carried on a trade which was subsequently
carried on, on or before the investment date, by—

(i) the relevant company, or

(ii) 35a company that is at the investment date, or before
that date has been, a 51% subsidiary of the relevant
company,

(including a trade subsequently carried on by such a
company before it became such a subsidiary but, if it not such
40a subsidiary at the investment date, not a trade which it
carried on only after it last ceased to be such a subsidiary);

(d) the first commercial sale made by a company which becomes
a 51% subsidiary of the relevant company after the
investment date in circumstances where all or part of the
45money raised by the issue of the relevant holding is
employed for the purposes of an activity carried on by that
subsidiary (including a sale made by such a company before
it became such a subsidiary);

(e) the first commercial sale made by any person who previously
(at any time) carried on a trade which was subsequently
carried on by a company mentioned in paragraph (d)
(including a trade carried on by such a company before it
5became such a subsidiary);

(f) if the money raised by the issue of the relevant holding (or
any part of it) is employed for the purposes of a trade which
has been transferred after the investment date to the relevant
company or a 51% subsidiary of that company (or to a
10partnership of which the relevant company or such a
subsidiary is a member), having previously (at any time)
been carried on by another person, the first commercial sale
made by that other person.

(6) “The average turnover amount” means—

(a) 15if the relevant company is a single company at the investment
date, one fifth of the total turnover of the company for the five
year period which ends—

(i) immediately before the beginning of the last accounts
filing period, or

(ii) 20if later, 12 months before the investment date, and

(b) if the relevant company is a parent company at the
investment date, one fifth of the total group turnover for that
five year period.

(7) In this section—

• 25“first commercial sale” has the same meaning as in the
  European Commission’s Guidelines on State aid to promote
  risk finance investments (as those guidelines may be
  amended or replaced from time to time);

• “the investment date” means the date the relevant holding is
  30issued;

• “the last accounts filing period” means the last period for filing
  (within the meaning of section 442 of the Companies Act
  2006) for the relevant company which ends before the date on
  which the relevant holding is issued;

• 35“relevant investment” has the meaning given by section
  292A(3), and section 292A(4) and (4A) (which determines
  when certain investments are made) applies for the purposes
  of this section;

• “relevant qualifying activity” means the qualifying activity for
  40which the money raised by the issue of the relevant holding
  is employed;

• “the total group turnover” for a period is the sum of—

  (a)

  the relevant company’s turnover for that period, and

  (b)

  the turnover for that period of each company which at
  45the time the relevant holding is issued is a 51%
  subsidiary of the relevant company;

• “turnover” has the meaning given by section 474(1) of the
  Companies Act 2006 and is to be determined by reference to
  the accounts of companies and amounts recognised for
  50accounting purposes (and such apportionments of those

  Finance BillPage 136

  amounts as are just and reasonable are to be made for the
  purpose of determining a company’s turnover for a period);

and section 280B(8) and (9) (meaning of “trade” etc) applies for the
purposes of this section as it applies for the purposes of section
5280B.””

12 In section 297A (the number of employees requirement)—

(a) in subsections (1) and (2) for “250” substitute “the permitted limit”,
and

(b) after subsection (3) insert—

“(3A) 10“The permitted limit” means—

(a) if the relevant company is a knowledge-intensive
company at the time the relevant holding is issued
(see section 331A), 500, and

(b) in any other case, 250.

(3B) 15The Treasury may by regulations amend subsection (3A)(a)
or (b) by substituting a different number for the number for
the time being specified there.””

13 After that section insert—

“297B The proportion of skilled employees requirement

(1) 20The requirement of this section is that, where the conditions in
subsection (2) are met, at all times in the period of 3 years beginning
with the issue of the relevant holding—

(a) if the relevant company is a single company, the FTE skilled
employee number must be at least 20% of the FTE employee
25number, and

(b) if the relevant company is a parent company, the FTE group
skilled employee number must be at least 20% of the FTE
group employee number.

(2) The conditions are that—

(a) 30the requirements one or more of sections 292AA, 294A and
297A (the maximum risk finance investments when relevant
holding is issued requirement and the number of employees
requirement) is or are met only by reason of the relevant
company being a knowledge-intensive company at the time
35the relevant holding was issued, and

(b) the innovation condition in section 331A(6) was not met by
the relevant company at that time.

(3) The requirement of this section is not to be regarded as failing to be
met at a time when the relevant company, by virtue of section 292
40(companies in administration or receivership), is not regarded as
having ceased to meet the trading requirement.

(4) In this section “FTE employee number”, “FTE group employee
number”, “FTE skilled employee number” and “FTE group skilled
employee number” have the meaning given by section 331A(10)
45(meaning of “knowledge-intensive company”).””

Power to amend Chapter 4 of Part 6

14 Omit section 311 (power to amend Chapter 4 of Part 6).

Interpretation of Chapter 4 of Part 6

15 In section 313 (interpretation of Chapter 4 of Part 6), in subsection (5), at the
5end insert—

““But section 993 does not apply for the purposes of the definition of
“independent expert” in section 331A(10).””

Power to amend Chapters 3 and 4 of Part 6 of ITA 2007

16 After section 330A insert—

10““Power to amend Part

330B Powers to amend Chapters 3 and 4 by Treasury regulations

(1) The Treasury may by regulations add to, repeal or otherwise amend
any provision of Chapter 3 or 4.

(2) Regulations under this section may—

(a) 15make different provision for different cases or purposes;

(b) contain incidental, supplemental, consequential and
transitional provision and savings.

(3) The provision which may be made as a result of subsection (2)(b)
includes provision amending any provision of this or any other Act
20(including an Act passed after this Act).

(4) This section is without prejudice to any other power to amend any
provision of this Part.

(5) A statutory instrument containing regulations under this section
may not be made unless a draft of it has been laid before and
25approved by a resolution of the House of Commons.””

Interpretation of Part 6

17 After section 331 insert—

“331A Meaning of “knowledge-intensive company”

(1) For the purposes of this Part, the relevant company is a “knowledge-
30intensive company” at the applicable time if the company meets—

(a) one or both of the operating costs conditions (see subsections
(3) and (4)), and

(b) one or both of—

(i) the innovation condition (see subsection (6)), and

(ii) 35the skilled employee condition (see subsection (9)).

(2) “The applicable time” means—

(a) in relation to references to a knowledge-intensive company
in section 280B or 280C, the date the current investment
(within the meaning of the section in question) is made, and

(b) in relation to any other reference to a knowledge-intensive
company, the date the relevant holding is issued.

(3) The first operating costs condition is that in at least one of the
relevant three preceding years at least 15% of the relevant operating
5costs constituted expenditure on research and development or
innovation.

(4) The second operating costs condition is that in each of the relevant
three preceding years at least 10% of the relevant operating costs
constituted such expenditure.

(5) 10In subsections (3) and (4)—

• “relevant operating costs” means—

  (a)

  if the relevant company is a single company at the
  applicable time, the operating costs of that company,
  and

  (b)

  15if the relevant company is a parent company at the
  applicable time, the sum of—

  (i)

  the operating costs of the relevant company,
  and

  (ii)

  the operating costs of each company which is
  20a qualifying subsidiary of the relevant
  company at that time;

• “the relevant three preceding years” means the three
  consecutive years the last of which ends—

  (a)

  immediately before the beginning of the last accounts
  25filing period, or

  (b)

  if later, 12 months before the applicable time.

(6) “The innovation condition” is—

(a) where the relevant company is a single company, that—

(i) the relevant company is engaged in intellectual
30property creation at the applicable time, and

(ii) it is reasonable to assume that, within 10 years of the
applicable time, one or a combination of—

(a) the exploitation of relevant intellectual
property held by the company, and

(b) 35business which results from new or improved
products, processes or services utilising
relevant intellectual property held by the
company,

will form the greater part of its business;

(b) 40where the relevant company is a parent company, that—

(i) the parent company or one or more of its qualifying
subsidiaries (or both that company and one or more
of those subsidiaries) is or are engaged in intellectual
property creation at the applicable time, and

(ii) 45it is reasonable to assume that, within 10 years of the
applicable time, one or a combination of—

(a) the exploitation of relevant intellectual
property held by the parent company or any
of its qualifying subsidiaries, and

(b) business which results from new or improved
products, processes or services utilising
relevant intellectual property held by the
parent company or any of its qualifying
5subsidiaries,

will form the greater part of the business of the group,
if the activities of the group companies taken together
are regarded as one business.

(7) For the purposes of subsection (6), a company is engaged in
10intellectual property creation if—

(a) relevant intellectual property is being created by the
company, or has been created by it within the previous three
years,

(b)
the company is taking, or preparing to take, steps in order
15that relevant intellectual property will be created by it, or

(c) the company is carrying on activity which is the subject of a
written evaluation which—

(i) has been prepared by an independent expert, and

(ii) includes a statement to the effect that, in the opinion
20of the expert, it is reasonable to assume that relevant
intellectual property will, in the foreseeable future, be
created by the company.

(8) For the purposes of this section—

(a) intellectual property is “relevant” intellectual property, in
25relation to a company, if the whole or greater part (in terms
of value) of it is created by the company, and

(b) intellectual property is created by a company if it is created in
circumstances in which the right to exploit it vests in the
company (whether alone or jointly with others).

(9) 30“The skilled employee condition” is that at the applicable time—

(a) if the relevant company is a single company, the FTE skilled
employee number is at least 20% of the FTE employee
number, and

(b) if the relevant company is a parent company, the FTE group
35skilled employee number is at least 20% of the FTE group
employee number.

(10) In this section—

• “FTE employee number” for a company is the full-time
  equivalent employee number determined in accordance with
  40section 297A(3);

• “FTE group employee number” means the sum of—

  (a)

  the FTE employee number for the relevant company,
  and

  (b)

  the FTE employee number for each of its qualifying
  45subsidiaries;

• “FTE group skilled employee number” means the sum of—

  (a)

  the FTE skilled employee number for the relevant
  company, and

  (b)

  the FTE skilled employee number for each of its
  50qualifying subsidiaries;

Finance BillPage 140

• “FTE skilled employee number” for a company is determined in
  accordance with section 297A(3) in the same way as the full-
  time equivalent employee number except that only
  employees of the company who—

  (a)

  5hold a relevant HE qualification, and

  (b)

  are engaged directly in research and development or
  innovation activities carried on—

  (i)

  if the relevant company is a single company,
  by that company, or

  (ii)

  10if the relevant company is a parent company,
  by that company or any qualifying subsidiary
  of that company,

  are to be taken into account;

• “independent expert”, in relation to an evaluation of activity of
  15a company, means an individual who—

  (a)

  is not connected with the relevant company,

  (b)

  holds a relevant HE qualification, and

  (c)

  is an expert in the area of research and development
  or innovation being or to be pursued by the company
  20in question,

  and, for the purposes of paragraph (a), sections 167, 170 and
  171 (but not section 168) apply to determine if an individual
  is connected with the relevant company (with references in
  those sections to the issuing company read as references to
  25the relevant company);

• “intellectual property” has the meaning given by section 306(6);

• “the last accounts filing period” means the last period for filing
  (within the meaning of section 442 of the Companies Act
  2006) for the relevant company which ends before the
  30applicable time;

• “operating costs”, of a company for a period, means expenses of
  the company which are recognised as expenses in the
  company’s profit and loss account or income statement for
  that period, other than expenses relating to transactions
  35between that company and another company at a time when
  both companies are members of the same group (but see also
  subsection (11));

• “relevant HE qualification” means—

  (a)

  a qualification which is at level 7, or a higher level, of
  40the framework for higher education qualifications in
  England, Wales and Northern Ireland (as that
  framework may be amended or replaced from time to
  time),

  (b)

  a qualification which is at level 11, or a higher level, of
  45the framework for qualifications of higher education
  institutions in Scotland (as that framework may be
  amended or replaced from time to time), or

  (c)

  a comparable qualification to one within paragraph
  (a) or (b).

(11) 50Such apportionments as are just and reasonable are to be made to
amounts recognised in a company’s profit and loss account or

income statement for the purpose of determining the company’s
operating costs for a year.

(12) The Treasury may by regulations amend this section for the
purposes of adding, amending or removing a condition which must
5be met for a company to be a knowledge-intensive company.

(13) A statutory instrument containing regulations under subsection (12)
may not be made unless a draft of it has been laid before and
approved by a resolution of the House of Commons.””

Repeal of saving for investment of “protected money”

18 10Paragraph 21(2) and (3) of Schedule 8 to FA 2012 (which prevents section
293(5A) of ITA 2007 applying in relation to protected money) is repealed.

Consequential repeal

19 (1) In consequence of paragraphs 6(3)(c) and 9, in Schedule 6 to FA 2012, omit
paragraphs 15 and 17

(2) 15In consequence of paragraph 12, in Schedule 8 to that Act, omit paragraph 9.

(3) In consequence of paragraph 16, in Schedule 8 to that Act, omit paragraph
14.

Application and transitional provision

20 (1) The amendments made by paragraphs 3 to 5 have effect in relation to
20investments made on or after the day on which this Act is passed.

(2) The amendments made by paragraphs 6(3)(c), 9 and 19(1) have effect for the
purposes of determining whether shares or securities issued on or after 6
April 2015 are to be regarded as comprised in a company’s qualifying
holdings.

(3) 25The amendments made by paragraphs 6 (except sub-paragraph (3)(c)), 7, 8,
10 to 13, 18 and 19(2) and (3) have effect for the purposes of determining
whether shares or securities issued on or after the day on which this Act is
passed are to be regarded as comprised in a company’s qualifying holdings.

(4) But nothing in sub-paragraphs (1) and (3) prevents investments made before
30the day on which this Act is passed constituting a “relevant investment”—

(a) for the purposes of section 280B of ITA 2007 for the purposes of
determining whether the investment limits condition in section 274
of that Act is breached by an investment made on or after the day on
which this Act is passed,

(b) 35for the purposes of section 280C of that Act for the purposes of
determining whether the permitted maximum age condition in
section 274 of that Act is breached by an investment made on or after
the day on which this Act is passed, or

(c) for the purposes of section 292A, 292AA, 292AB or 294A of that Act
40for the purposes of determining whether shares or securities issued
on or after that day are to be regarded as comprised in a company’s
qualifying holdings.

Section 31

SCHEDULE 7 Loan relationships and derivative contracts

Part 1 Loan relationships: amendments of Parts 5 and 6 of CTA 2009

1 5Part 5 of CTA 2009 (loan relationships) is amended as follows.

2 In section 306 (overview of Chapter 3 of Part 5), in subsection (2)—

(a) before paragraph (a) insert—

“(za) makes provision about the matters in respect of which
amounts are to be brought into account (see section
10306A),”,”

(b) in paragraph (c), for “policy” substitute “basis”, and

(c) for paragraph (g) substitute—

“(g) makes provision about cases where amounts are
recognised even though companies are not, or have
15ceased to be, parties to loan relationships (see section
330A), and”.”

3 After section 306 insert—

““Matters in respect of which amounts are to be brought into account

306A Matters in respect of which amounts to be brought into account

(1) 20The matters in respect of which amounts are to be brought into
account for the purposes of this Part in respect of a company’s loan
relationships are—

(a) profits and losses of the company that arise to it from its loan
relationships and related transactions (excluding interest or
25expenses),

(b) interest under those relationships, and

(c) expenses incurred by the company under or for the purposes
of those relationships and transactions.

(2) Expenses are only treated as incurred as mentioned in subsection
30(1)(c) if they are incurred directly—

(a) in bringing any of the loan relationships into existence,

(b) in entering into or giving effect to any of the related
transactions,

(c) in making payments under any of those relationships or as a
35result of any of those transactions, or

(d) in taking steps to ensure the receipt of payments under any
of those relationships or in accordance with any of those
transactions.

(3) For the treatment of pre-loan relationship and abortive expenses, see
40section 329.””

4 (1) Section 307 (general principles about the bringing into account of credits and
debits) is amended as follows.

(2) In subsection (2), after “this Part” insert “in respect of the matters mentioned
in section 306A(1)”.

(3) After subsection (2) insert—

“(2A) Subsections (2B) and (2C) apply if an accounting period of a
5company does not coincide with one or more of its periods of
account.

(2B) The amounts referred to in subsection (2) are to be determined by
apportionment in accordance with section 1172 of CTA 2010 (time
basis).

(2C) 10But if it appears that apportionment in accordance with that section
would work unreasonably or unjustly for an accounting period,
subsection (2) is to be read as referring to amounts that would have
been recognised in determining the company’s profit or loss for that
period in accordance with generally accepted accounting practice if
15accounts had been drawn up for that period.””

(4) Omit subsections (3) to (5).

(5) For subsection (6) substitute—

“(6) This section is subject to the following provisions of this Part.””

5 (1) Section 308 (amounts recognised in determining a company’s profit or loss)
20is amended as follows.

(2) In subsection (1), for the words from “recognised”, in the second place,
onwards substitute “that is recognised in the company’s accounts for the
period as an item of profit or loss”.

(3) After subsection (1) insert—

“(1A) 25The reference in subsection (1) to an amount recognised in the
company’s accounts for the period as an item of profit or loss
includes a reference to an amount that—

(a) was previously recognised as an item of other comprehensive
income, and

(b) 30is transferred to become an item of profit or loss in
determining the company’s profit or loss for the period.

(1B) In subsections (1) and (1A) “item of profit or loss” and “item of other
comprehensive income” each has the meaning that it has for
accounting purposes.””

(4) 35Omit subsections (2) and (3).

6 In section 310 (power to make regulations about recognised amounts)—

(a) in subsections (1)(a) and (b) and (2), omit “or (2)”, and

(b) omit subsection (5).

7 (1) Section 313 (basis of accounting) is amended as follows.

(2) 40In subsection (1), omit the words from “and, in particular,” onwards.

(3) In subsection (2)—

(a) omit “sections 307(3) and (4) and”,

(b) omit paragraphs (e) and (f),

(c) at the end of paragraph (g) insert “and”, and

(d) omit paragraph (i) and the “and” immediately before it.

(4) Omit subsection (3).

(5) In subsection (4), for the words from “shown” onwards substitute
5“measured in the company’s balance sheet at its amortised cost using the
effective interest method, but with that amortised cost being adjusted as
necessary where the loan relationship is the hedged item under a designated
fair value hedge”.

(6) After subsection (4) insert—

“(4A) 10In subsection (4) each of the following expressions has the meaning
that it has for accounting purposes—

• “amortised cost”, in relation to assets or liabilities;

• “the effective interest method”, in relation to the measurement
  of assets or liabilities.””

(7) 15For subsection (5) substitute—

“(5) In this Part “fair value accounting” means a basis of accounting
under which—

(a) assets and liabilities are measured in the company’s balance
sheet at their fair value, and

(b) 20changes in the fair value of assets and liabilities are
recognised as items of profit or loss.””

(8) For subsection (6) substitute—

“(6) For the meaning of “fair value”, see section 476(1).

(7) In this Part each of the following has the meaning that it has for
25accounting purposes—

• “designated fair value hedge”;

• “hedged item”.””

8 In the italic heading before section 315, for “policy” substitute “basis”.

9 (1) Section 315 (introduction to sections 316 to 319) is amended as follows.

(2) 30For subsection (1) substitute—

“(1) Sections 316 and 318 (adjustments on change of accounting basis)
apply if—

(a) a company changes, from one period of account or
accounting period to the next, the basis of accounting on
35which credits and debits relating to its loan relationships or
any of them are calculated for the purposes of this Part,

(b) the change of basis—

(i) is made in order to comply with a provision made by
or under this Part requiring those credits and debits to
40be determined on a particular basis of accounting, or

(ii) results from a change of the company’s accounting
policy,

(c) the change of basis is not made in order to comply with
amending legislation not applicable to the previous period,

(d) the old basis accorded with the law or practice applicable in
relation to the period before the change, and

(e) the new basis accords with the law and practice applicable to
the period after the change.””

(3) 5In subsection (2)—

(a) for “to 319” substitute “and 318”, and

(b) in paragraph (a), for “those periods of account” substitute “the
periods mentioned in subsection (1)”.

(4) Omit subsection (3).

(5) 10In the heading, for “to 319” substitute “and 318”.

10 For section 316 substitute—

“316 Change of basis of accounting involving change of value

(1) If there is a difference between—

(a) the tax-adjusted carrying value of an asset or liability at the
15end of the earlier period, and

(b) the tax-adjusted carrying value of that asset or liability at the
beginning of the later period,

a credit or debit (as the case may be) of an amount equal to the
difference must be brought into account for the purposes of this Part
20for the later period in the same way as a credit or debit which is
brought into account in determining the company’s profit or loss for
that period in accordance with generally accepted accounting
practice.

(2) This section does not apply so far as the credit or debit falls to be
25brought into account apart from this section.””

11 Omit section 317 (carrying value).

12 (1) Section 318 (change of accounting policy following cessation of loan
relationship) is amended as follows.

(2) In subsection (1), for paragraph (b) substitute—

“(b) 30section 330A (company is not, or has ceased to be, party to
loan relationship) applied to the cessation, and”.”

(3) For subsections (2) and (3) substitute—

“(2) A credit or debit (as the case may be) of an amount equal to the
difference must be brought into account for the purposes of this Part
35for the later period in the same way as a credit or debit which is
brought into account in determining the company’s profit or loss for
that period in accordance with generally accepted accounting
practice.””

(4) In subsection (4), for “Subsections (2) and (3) do” substitute “Subsection (2)
40does”.

(5) For subsection (5) substitute—

“(5) In this section “the amount outstanding in respect of the loan
relationship” means—

(a) so much of the recognised deferred income or recognised
deferred loss from the loan relationship as has not been
represented by credits or debits brought into account under
this Part in respect of the relationship, and

(b) 5any amounts relating to the matters mentioned in section
306A(1) in respect of the loan relationship that have in
accordance with generally accepted accounting practice been
recognised in the company’s accounts as items of other
comprehensive income and not transferred to become items
10of profit or loss.””

(6) After subsection (6) insert—

“(7) In determining what amounts fall within subsection (5)(b) at the
beginning or end of a period, it is to be assumed that the accounting
policy applied in drawing up the company’s accounts for the period
15was also applied in previous periods.

(8) But if the company’s accounts for the period are in accordance with
generally accepted accounting practice drawn up on an assumption
as to the accounting policy in previous periods which differs from
that mentioned in subsection (7), that different assumption applies in
20determining what amounts fall within subsection (5)(b) at the
beginning or end of the period.””

(7) In the heading, for “policy” substitute “basis”.

13 (1) Section 320 (credits and debits treated as relating to capital expenditure) is
amended as follows.

(2) 25For subsections (1) to (3) substitute—

“(1) This section applies if—

(a) an amount for an accounting period in respect of a
company’s loan relationship relates to any of the matters in
section 306A(1),

(b) 30generally accepted accounting practice allows the amount to
be treated in the company’s accounts as an amount
recognised in determining the carrying value of an asset or
liability, and

(c) any profit or loss for corporation tax purposes in relation to
35that asset or liability will not fall to be calculated in
accordance with generally accepted accounting practice.

(2) Despite that treatment, the amount is to be brought into account as a
credit or debit for the purposes of this Part, for the accounting period
for which it is recognised, in the same way as an amount which is
40brought into account as a credit or debit in determining the
company’s profit or loss for that period in accordance with generally
accepted accounting practice.

(3) But subsection (2) does not apply to an amount which relates to an
intangible fixed asset to which an election under section 730 (writing
45down at fixed rate: election for fixed-rate basis) applies.””

(3) Omit subsection (4).

(4) For subsections (5) and (6) substitute—

“(5) If an amount relating to an asset or liability is brought into account
as mentioned in subsection (2) as a debit, no debit may be brought
into account for the purposes of this Part in respect of—

(a) 5the writing down of so much of the value of the asset or
liability as is attributable to that debit, or

(b) so much of any amortisation or depreciation representing a
writing-off of that value as is attributable to that debit.””

14 After section 320 insert—

“320A 10 Amounts recognised in other comprehensive income and not
transferred to profit or loss

(1) This section applies if—

(a) in a period of account an asset or liability representing a loan
relationship of a company ceases in accordance with
15generally accepted accounting practice to be recognised in
the company’s accounts,

(b) amounts relating to the matters mentioned in section 306A(1)
in respect of that loan relationship have in accordance with
generally accepted accounting practice been recognised in
20the company’s accounts as items of other comprehensive
income and have not subsequently been transferred to
become items of profit or loss, and

(c) condition A or B is met.

(2) Condition A is that, at the time when the asset or liability ceases to be
25recognised, it is not expected that the amounts mentioned in
subsection (1)(b) will in future be transferred to become items of
profit or loss.

(3) Condition B is that, at any later time, it is no longer expected that the
amounts mentioned in subsection (1)(b) will in future be transferred
30to become items of profit or loss.

(4) The amounts mentioned in subsection (1)(b)—

(a) must be brought into account for the purposes of this Part as
credits or debits for the period of account in which the time
mentioned in subsection (2) or (3) falls, in the same way as a
35credit or debit which is brought into account in determining
the company’s profit or loss for that period in accordance
with generally accepted accounting practice, and

(b) must not be brought into account for a later period of account
even if they are subsequently transferred to become items of
40profit or loss for the later period.

(5) This section applies in a case where part of an asset or liability
representing a loan relationship of a company ceases to be
recognised in the company’s accounts as it applies in a case where
the whole of an asset or liability representing a loan relationship
45ceases to be recognised, but as if the reference in subsection (1)(b) to
amounts in respect of the loan relationship were a reference to so
much of those amounts as are attributable to that part of the asset or
liability.

(6) In determining what amounts fall within subsection (1)(b) at any
time in an accounting period, it is to be assumed that the accounting
policy applied in drawing up the company’s accounts for the period
was also applied in previous accounting periods.

(7) 5But if the company’s accounts for the period are in accordance with
generally accepted accounting practice drawn up on an assumption
as to the accounting policy in previous accounting periods which
differs from that mentioned in subsection (6), that different
assumption applies in determining what amounts fall within
10subsection (1)(b) at the time in question.

(8) In this section “item of profit or loss” and “item of other
comprehensive income” each has the meaning that it has for
accounting purposes.””

15 Omit section 321 (credits and debits recognised in equity).

16 (1) 15Section 322 (credits not required to be brought into account in respect of
release of debt in certain cases) is amended as follows.

(2) In subsection (2), for “D” substitute “E”.

(3) Omit subsection (4A).

(4) After subsection (5A) insert—

“(5B) 20Condition E is that—

(a) the release is neither a deemed release, as defined by section
358(3), nor a release of relevant rights, and