Finance (No. 2) Bill (HC Bill 134)

Finance (No. 2) BillPage 10

or may be marketed with, or otherwise associated with,
opportunities for investments in other companies or
entities.

(4) If the issuing company is a parent company—

(a) 5any reference in this section to the company’s trade is to
what would be the trade of the group if the activities of
the group companies taken together were regarded as
one trade, and

(b) any reference in subsection (3)(a) to (e) to the company
10is to any group company.”

(3) In Part 6 of ITA 2007 (venture capital trusts)—

(a) in section 286 (qualifying holdings), in subsection (3), before paragraph
(za) insert—

(1za) risk to capital (see section 286ZA),”, and

(b) 15before section 286A insert—

286ZA The risk-to-capital requirement

(1) The requirement of this section is that, having regard to all the
circumstances existing at the time of the issue of the relevant
holding, it would be reasonable to conclude that—

(a) 20the relevant company has objectives to grow and
develop its trade in the long-term, and

(b) there is a significant risk that, for the investing company,
there will be a loss of capital of an amount greater than
its net investment return.

(2) 25For the purposes of subsection (1)(b)

(a) the reference to a loss of capital is to a loss of some or all
of the amounts given in consideration for the relevant
holding, and

(b) the reference to the net investment return is to the net
30investment return to the investing company irrespective
of whether the return takes the form of income, capital
growth, fees or other payments or anything else.

(3) For the purposes of subsection (1) the circumstances to which
regard may be had include—

(a) 35the extent to which the company’s objectives include
increasing the number of its employees or the turnover
of its trade,

(b) the nature of the company’s sources of income,
including the extent to which there is a significant risk of
40the company not receiving some or all of the income,

(c) the extent to which the company has or is likely to have
assets, or is or could become a party to arrangements for
acquiring assets, that could be used to secure financing
from any person,

(d) 45the extent to which the activities of the company are sub-
contracted to persons who are not connected with it,

(e) the nature of the company’s ownership structure or
management structure, including the extent to which
others participate in or devise the structure,

Finance (No. 2) BillPage 11

(f) how any opportunity for investment in the company is
marketed, and

(g) the extent to which arrangements are in place under
which opportunities for investments in the company are
5or may be marketed with, or otherwise associated with,
opportunities for investments in other companies or
entities.

(4) If the relevant company is a parent company—

(a) any reference in this section to the company’s trade is to
10what would be the trade of the group if the activities of
the group companies taken together were regarded as
one trade, and

(b) any reference in subsection (3)(a) to (e) to the company
is to any group company.”

(4) 15The amendments made by this section come into force in accordance with
provision made by the Treasury by regulations.

(5) Regulations under subsection (4)

(a) may make different provision for different purposes;

(b) may provide for any of those amendments to have effect in relation to
20shares, or shares or securities, issued on or after a day that is—

(i) earlier than the day on which the regulations are made, but

(ii) not earlier than the day on which this Act is passed.

15 EIS, SI and VCT reliefs: relevant investments

(1) Nothing in the specified EIS and VCT transitional provisions (see subsection
25(2)) prevents any shares or other investments constituting relevant investments
(within the meaning given by section 173A(3), 280B(4) or 292A(3) of ITA 2007)
for the purposes of determining entitlement to—

(a) EIS income tax relief,

(b) income tax relief for social investments, or

(c) 30VCT income tax relief,

in respect of shares issued or investments made on or after 1 December 2017.

(2) The specified EIS and VCT transitional provisions are—

(a) paragraph 8 of Schedule 16 to FA 2007;

(b) paragraph 22 of Schedule 7 to FA 2012;

(c) 35paragraphs 18 and 19 of Schedule 8 to FA 2012.

(3) In this section—

  • EIS income tax relief” means relief under Part 5 of ITA 2007 (enterprise
    investment scheme);

  • “income tax relief for social investments” means relief under Part 5B of
    40ITA 2007;

  • VCT income tax relief” means relief under Part 6 of ITA 2007 (venture
    capital trusts).

16 EIS and VCT reliefs: knowledge-intensive companies

Schedule 4 contains provision about EIS and VCT reliefs in relation to
45knowledge-intensive companies.

Finance (No. 2) BillPage 12

17 VCTs: further amendments

Schedule 5 contains further amendments about venture capital trusts.

Partnerships

18 Partnerships

5Schedule 6 contains provision relating to the taxation of partnerships.

Corporation tax

19 Research and development expenditure credit

(1) In section 104M of CTA 2009 (amount of R&D expenditure credit), in
subsection (3), for “11%” substitute “12%”.

(2) 10The amendment made by subsection (1) has effect in relation to expenditure
incurred on or after 1 January 2018.

20 Intangible fixed assets: realisation involving non-monetary receipt

(1) In section 739 of CTA 2009 (meaning of “proceeds of realisation”) after
subsection (1) insert—

(1A) 15But if the realisation involved the receipt of something other than
money, subsection (1) has effect as if the reference to the amount
recognised for accounting purposes as the proceeds of realisation were
a reference to the amount that would have been so recognised had the
receipt been a receipt of a sum of money equal to the price the thing
20concerned might reasonably have been expected to fetch on a sale in the
open market.”

(2) The amendment made by this section applies in relation to a realisation which
takes place on or after 22 November 2017, unless it takes place pursuant to an
obligation, under a contract, that was unconditional before that date.

(3) 25For the purposes of subsection (2), an obligation is “unconditional” if it may not
be varied or extinguished by the exercise of a right (whether under the contract
or otherwise).

21 Intangible fixed assets: transactions between related parties

(1) In section 844 of CTA 2009 (overview of Chapter 13 of Part 8: transactions
30between related parties) after subsection (2) insert—

(2ZA) Sections 849AB to 849AD make provision for the grant of a licence or
other right by a company to a related party, or vice versa, to be treated
as being at market value.”

Finance (No. 2) BillPage 13

(2) After section 849A of that Act insert—

“Grants treated as being at market value
849AB Grant of licence or other right treated as at market value

(1) This section applies if—

(a) 5a company which holds an intangible asset grants a licence or
other right in respect of the asset to a related party, or

(b) a company is granted a licence or other right in respect of an
intangible asset by a related party that holds the asset.

(2) The grant of the licence or other right is treated for all purposes of the
10Taxes Acts as being at market value as respects the grantor if—

(a) the licence or other right was actually granted at less than
market value, and

(b) condition A or B is met.

(3) The grant of the licence or other right is treated for all purposes of the
15Taxes Acts as being at market value as respects the grantee if—

(a) the licence or other right was actually granted at more than
market value, and

(b) condition A or B is met.

(4) Condition A is that the asset is a chargeable intangible asset in relation
20to the grantor immediately before the licence or right in respect of it is
granted.

(5) Condition B is that the licence or right is a chargeable intangible asset
in relation to the grantee immediately after it is granted.

(6) This section is subject to—

(a) 25section 849AC (grants not at arm’s length), and

(b) section 849AD (grants involving other taxes).

(7) References in subsection (1) to a related party in relation to a company
are to be read as including references to a person in circumstances
where the participation condition is met as between that person and the
30company.

(8) References in subsection (7) to a company include a firm in a case
where, for the purposes of section 1259, references in subsection (1) to
a company are read as references to the firm.

(9) Section 148 of TIOPA 2010 (when the participation condition is met)
35applies for the purposes of subsection (7) as it applies for the purposes
of section 147(1)(b) of TIOPA 2010.

(10) Subsection (11) applies where—

(a) a gain on the grant by a firm of a licence or other right in respect
of an intangible fixed asset is a gain to be taken into account for
40the purposes of section 1259, and

(b) for those purposes, references in subsection (1) to a company
are read as references to the firm.

(11) Where this subsection applies, the gain referred to in subsection (10)(a)
is to be treated for the purposes of this section as if it were a chargeable

Finance (No. 2) BillPage 14

realisation gain for the purposes of section 741(1) (meaning of
“chargeable intangible asset”).

(12) In this section—

  • “market value” means the price the licence or right might
    5reasonably be expected to fetch on a sale in the open market,
    and

  • “the Taxes Acts” means the enactments relating to income tax,
    corporation tax or chargeable gains.

849AC Grants not at arm’s length

(1) 10This section applies if the consideration for the grant of a licence or
other right would, but for this section, fall to be adjusted as respects one
of the parties to the grant (“the relevant party”) under both—

(a) section 849AB, and

(b) Part 4 of TIOPA 2010 (provision not at arm’s length).

(2) 15The consideration for the grant is not to be adjusted as respects the
relevant party under Part 4 of TIOPA 2010 if the adjustment that falls to
be made under section 849AB is greater than the adjustment that would
otherwise fall to be made under that Part.

(3) The consideration for the grant is not to be adjusted under section
20849AB if the adjustment that falls to be made as respects the relevant
party under Part 4 of TIOPA 2010 is greater than or equal to the
adjustment that would otherwise fall to be made under that section.

849AD Grants involving other taxes

(1) This section applies if—

(a) 25in a case where section 849AB applies and the licence or other
right is granted by the company to a related party, the grant is
at less than its market value,

(b) in a case where that section applies and the licence or other right
is granted to the company by a related party, the grant is at
30more than its market value, and

(c) conditions A and B apply.

(2) Condition A is that the related party—

(a) is not a company, or

(b) is a company in relation to which—

(i) 35in a case within subsection (1)(a), the licence or other
right is not a chargeable intangible asset immediately
after the grant to it, or

(ii) in a case within subsection (1)(b), the relevant asset is
not a chargeable intangible asset immediately before the
40grant by it.

(3) Condition B is that the grant of the licence or right—

(a) gives rise to an amount to be taken into account in calculating
any person’s income, profits or losses for tax purposes because
of a relevant provision, or

(b) 45would do so apart from section 849AB(2) or (3).

Finance (No. 2) BillPage 15

(4) If this section applies, section 849AB(2) and (3) does not apply in
relation to the calculation referred to in subsection (3) for the purposes
of any relevant provision.

(5) In this section “relevant provision” means—

(a) 5Chapter 2 of Part 23 of CTA 2010 (matters which are
distributions), except section 1000(2), and

(b) Part 3 of ITEPA 2003 (employment income: earnings and
benefits etc treated as earnings).”

(3) The amendments made by this section apply in relation to a grant of a licence
10or other right made on or after 22 November 2017, unless it is made pursuant
to an obligation, under a contract, that was unconditional before that date.

(4) For the purposes of subsection (3), an obligation is “unconditional” if it may not
be varied or extinguished by the exercise of a right (whether under the contract
or otherwise).

22 15Oil activities: tariff receipts etc

(1) Chapter 4 of Part 8 of CTA 2010 (oil activities: calculation of profits) is amended
as follows.

(2) In section 291 (corporation tax treatment of oil activities: tariff receipts etc), for
subsection (9) substitute—

(9) 20In this section, “tariff receipt” has the meaning given by section 291A.

(10) So far as it would not otherwise be the case, anything that constitutes a
tariff receipt or a tax-exempt tariffing receipt for the purposes of the Oil
Taxation Act 1983 is to be treated as a “tariff receipt” for the purposes
of this section.”

(3) 25After section 291 (but before the italic heading preceding section 292) insert—

291A Meaning of “tariff receipt”

(1) A “tariff receipt” of a participator in an oil field is the amount or value
of any consideration received or receivable by the person in respect
of—

(a) 30the use of a ring fence asset, or

(b) the provision of services or other business facilities (of whatever
kind) in connection with the use, otherwise than by the
participator, of a ring fence asset.

(2) “Ring fence asset” means a qualifying asset which is, or has been, used
35wholly or partly for the purposes of a ring fence trade.

(3) “Qualifying asset” means an asset other than—

(a) land or an interest in land, or

(b) a building or structure which—

(i) is situated on land, and

(ii) 40does not fall within any of sub-paragraphs (i) to (iv) of
paragraph (c) of section 3(4) of OTA 1975 (allowable
expenditure: exclusions).

(4) But an amount does not constitute a tariff receipt if the amount—

Finance (No. 2) BillPage 16

(a) is, in relation to the person giving it, expenditure in respect of
interest or any other pecuniary obligation incurred in obtaining
a loan or any other form of credit,

(b) is referable to the use of a qualifying asset for, or the provision
5of services or facilities in connection with, deballasting, or

(c) is referable to other use of an asset, except use wholly or partly
for an oil purpose.

(5) Any consideration which includes an amount within subsection (4)(a)
to (c) is to be apportioned in a just and reasonable manner.

(6) 10In subsection (4)(c), the reference to use of an asset for an oil purpose is
a reference to—

(a) use in connection with an oil field (including use giving rise to
receipts which, for the purposes of this Part, are tariff receipts),
and

(b) 15use for any other purpose (apart from a purpose falling within
section 3(1)(b) of OTA 1975 (allowable expenditure: payment in
connection with a relevant licence)) of a separate trade
consisting of oil-related activities.

291B Tariff receipts: counteraction of avoidance arrangements

(1) 20Subsection (2) applies if an arrangement has been entered into, the
main purpose or one of the main purposes of which is to obtain a tax
advantage by reference to section 291.

(2) The relevant tax advantage is to be counteracted by the making of such
adjustments as are just and reasonable.

(3) 25Any adjustments required to be made under this section (whether or
not by an officer of Revenue and Customs) may be made by way of—

(a) an assessment,

(b) the modification of an assessment,

(c) amendment or disallowance of a claim,

30or otherwise.

(4) In this section—

  • “arrangement” includes any agreement, understanding, scheme,
    transaction or series of transactions (whether or not legally
    enforceable);

  • 35“tax advantage” has the meaning given by section 1139.”

(4) In section 291—

(a) in subsection (2), omit “or tax-exempt tariffing receipt”,

(b) in subsection (6), omit “or tax exempt tariffing receipts”, and

(c) in subsection (7), in both places, omit “or tax exempt tariffing receipt”.

(5) 40The amendments made by subsections (1) to (4) have effect in relation to
accounting periods beginning on or after 1 January 2018.

(6) In the Investment Allowance and Cluster Area Allowance Regulations
(Investment Expenditure) Regulations 2017 (S.I. 2017/292S.I. 2017/292), in regulation 3
(operating expenditure)—

(a) 45in paragraph (2)(e), omit “or tax-exempt tariffing receipts”,

Finance (No. 2) BillPage 17

(b) in paragraph (6), for the definition of “tariff receipts” substitute—

  • ““tariff receipts” has the same meaning as it has for the
    purposes of section 291 of the Corporation Tax Act 2010
    (corporation tax treatment of oil activities: tariff receipts
    5etc); and”, and

(c) in that paragraph, omit the definition of “tax-exempt tariffing receipts”
(and the “and” following it).

(7) The amendments made by subsection (6) have effect in relation to any
expenditure that is incurred on or after 1 January 2018.

(8) 10The amendments made by subsection (6) are to be treated as having been made
by the Treasury under the applicable powers to make regulations conferred by
sections 332BA and 356JE of CTA 2010.

23 Hybrid and other mismatches

Schedule 7 contains provision amending Part 6A of TIOPA 2010 (hybrid and
15other mismatches).

24 Corporate interest restriction

Schedule 8 contains provision relating to Part 10 of TIOPA 2010 (corporate
interest restriction).

25 Education Authority of Northern Ireland

(1) 20In CTA 2010, after section 987A insert—

“Education Authority of Northern Ireland
987B Education Authority of Northern Ireland

The Education Authority of Northern Ireland is not liable to
corporation tax.”

(2)
25The amendment made by this section is to be treated as having come into force
on 1 April 2015.

Chargeable gains

26 Freezing of indexation allowance for gains chargeable to corporation tax

(1) TCGA 1992 is amended as follows.

(2) 30In section 53 (indexation allowance), before subsection (2) insert—

(1B) Indexation allowance is not allowed in respect of changes shown by the
retail prices indices for months after December 2017.”

(3) In section 54 (calculation of indexation allowance)—

(a) in subsection (1), in the definition of “RD”, for “the month in which the
35disposal occurs” substitute “December 2017”;

Finance (No. 2) BillPage 18

(b) before subsection (2) insert—

(1B) The references in subsection (1) to an item of allowable
expenditure do not include any item of expenditure incurred on
or after 1 January 2018.”

(4) 5In section 110 (indexation for section 104 holdings for corporation tax)—

(a) in subsection (10), in the definition of “RE”, for “the month in which the
operative event occurs” substitute “December 2017”;

(b) for subsection (11) substitute—

(11) The indexed rise is nil if—

(a) 10RE, as defined in subsection (10), is equal to or less than
RL, as so defined, or

(b) the month referred to in the definition of RL in
subsection (10) is after December 2017.”

(5) In section 114 (consideration for options: corporation tax)—

(a) 15in subsection (2), in the definition of “RO”, for “the month in which falls
the date on which the option is exercised” substitute “December 2017”;

(b) for subsection (3) substitute—

(3) The indexed rise is nil if—

(a) RO, as defined in subsection (2), is equal to or less than
20RA, as so defined, or

(b) the month referred to in the definition of RA in
subsection (2) is after December 2017.”

(6) Subject to subsection (7), the amendments made by this section have effect in
relation to disposals on or after 1 January 2018.

(7) 25This section does not affect the computation of the amount of so much of any
gain as—

(a) is treated for the purposes of the taxation of chargeable gains as having
accrued on a disposal on or after 1 January 2018, but

(b) is taken for those purposes to be equal to the whole or a part of a gain
30that—

(i) would, but for an enactment relating to the taxation of
chargeable gains, have accrued on an actual disposal made
before 1 January 2018, or

(ii) would have accrued on a disposal assumed under such an
35enactment to have been made before that date.

27 Assets transfer to non-resident company: reorganisations of share capital etc

(1) In section 140 of TCGA 1992 (postponement of charge on transfer of assets to
non-resident company), after subsection (4A) insert—

(4B) In determining whether a chargeable gain is deemed to accrue under
40subsection (4), any disapplication of section 127 by paragraph 4(3)(a) of
Schedule 7AC in a case in which that section would otherwise have
applied shall be disregarded.”

(2) The amendment made by this section has effect in relation to disposals on or
after 22 November 2017.

Finance (No. 2) BillPage 19

28 Depreciatory transactions within a group of companies

(1) In section 176(1) of TCGA 1992 (depreciatory transactions within a group of
companies), for “within the period of 6 years ending with the disposal”
substitute “on or after 31st March 1982”.

(2) 5The amendment made by this section has effect in relation to disposals of
shares in, or securities of, a company—

(a) made on or after 22 November 2017, or

(b) treated as made at an earlier time specified in a claim under section 24
of TCGA 1992 (negligible value claims) made on or after that date.

10Capital allowances

29 First-year tax credits

(1) Schedule A1 to CAA 2001 (first-year tax credits) is amended as follows.

(2) In paragraph 2 (amount of first-year tax credit)—

(a) in sub-paragraph (1)(a), for “19%” substitute “the applicable
15percentage”;

(b) after sub-paragraph (1) insert—

(1A) The applicable percentage is two-thirds of—

(a) the rate of corporation tax chargeable on profits of the
qualifying activity concerned for the chargeable
20period, or

(b) if there is more than one rate, the average of the rates
over that period.

(But see also sub-paragraph (3A) (ring fence profits).)”;

(c) after sub-paragraph (3) insert—

(3A) 25Where the profits of the qualifying activity are ring fence
profits, the applicable percentage is—

(a) two-thirds of the rate of corporation tax (adjusted if
necessary as a result of section 279B or 279C of CTA
2010 (marginal relief)) chargeable on those profits for
30the most recent previous chargeable period in which
the company made a profit in carrying on the
qualifying activity, or

(b) if the company has never made a profit in carrying on
the qualifying activity, two-thirds of the small ring
35fence profits rate for the chargeable period,

and in either case, if there is more than one rate, assuming tax
was chargeable at the average of those rates over the period.

(3B) In this paragraph, “ring fence profits” and “the small ring
fence profits rate” have the same meaning as in Part 8 of CTA
402010 (see sections 276 and 279A(4) of that Act).

(3C) Where the applicable percentage given by sub-paragraph
(1A) or (3A) would otherwise be a figure with more than 2
decimal places, it is to be rounded up to the nearest second
decimal place.”;

(d) 45omit sub-paragraphs (4) and (5).