Finance (No. 3) Bill (HC Bill 282)

Adjusted net group-interest expense: impairment debts and credits and connected companies

8 (1) Section 413 (meaning of “adjusted net group-interest expense”) is amended
as follows.

(2) In subsection (3)(d)(i)—

(a) 5for “or 323A” substitute “, 323A, 358 or 359”, and

(b) omit “(cases where credits not required to be brought into account)”.

(3) In subsection (4)(d)(i)—

(a) after “section 323A” insert “or 354”, and

(b) omit “(cases where credits not required to be brought into account)”.

10Interest allowance (alternative calculation) election: unpaid employees’ remuneration

9 After section 424 insert—

“424A Unpaid employees’ remuneration

(1) Where an interest allowance (alternative calculation) election has
effect in relation to a period of account of a worldwide group, this
15Chapter applies in relation to the period subject to this section.

(2) The definition of “the group’s profit before tax” in section 416(2) has
effect as if references to amounts that are recognised in the financial
statements of the group for the period, as items of profit or loss,
excluded amounts so recognised in respect of employees’
20remuneration that are not paid before the end of the period of 9
months immediately following the end of the period of account.

(3) If—

(a) an amount is, as a result of subsection (2), excluded from the
financial statements of the group for the period of account,
25and

(b) the amount is paid in a later period of account of the group in
relation to which an interest allowance (alternative
calculation) election has effect,

the definition of “the group’s profit before tax” in section 416(2) has
30effect as if references to amounts that are recognised in the financial
statements of the group for the later period of account, as items of
profit or loss, included the amount that is paid in that later period.

(4) Section 1289 of CTA 2009 (unpaid remuneration: supplementary)
applies for the purposes of this section as it applies for the purposes
35of section 1288 of that Act.”

Interest allowance (alternative calculation) election: changes in accounting policy

10 (1) Section 426 (changes in accounting policy in cases where interest allowance
(alternative calculation) election has effect) is amended as follows.

(2) In subsection (3)—

(a) 40after “means” insert “the following provisions as modified by
subsection (4)”, and

(b) after paragraph (a) insert—

“(ab) sections 261 and 262 of that Act (property profits);”.

(3) For subsection (4) substitute—

“(4) The provisions mentioned in subsection (3)—

(a) are to have effect for the purposes of this section as if their
application were limited to cases where there is a change of
5accounting policy and as if any election had been made under
the provisions, and

(b) are to have effect subject to any modifications necessary for
the purposes of this section.”

Interest allowance (non-consolidated investment) election

11 10In section 427 (group interest and group-EBITDA), after subsection (5)
insert—

“(5A) Any increase to be made as a result of subsection (4) or (5) is to be
made as part of a single calculation required by section 413(1) or
414(1) (so that the amount produced by that calculation is subject to
15section 413(2) or 414(2)).”

Public infrastructure

12 In section 433 (meaning of “qualifying infrastructure company”), in
subsection (5), after paragraph (c) insert—

“(ca) assets held for the purposes of a pension scheme under which
20benefits are provided to, or in respect of, persons employed
for the purpose of the carrying on of qualifying infrastructure
activities by the company or another associated qualifying
infrastructure company,

(cb) assets in respect of deferred tax so far as attributable to
25qualifying infrastructure activities carried on by the company
or another associated qualifying infrastructure company,”.

13 In section 439 (exemption in respect of certain pre-13 May 2016 loan
relationships), in subsection (3), after paragraph (b) insert—

““, but ignoring amounts that represent the reimbursement of
30expenses incurred by C or the other company.”

Real Estate Investment Trusts

14 (1) Section 452 (Re al Estate Investment Trusts) is amended as follows.

(2) In subsection (4), at the end insert “(and, accordingly, the profits mentioned
in section 534(1) or (2) of CTA 2010 are not calculated for the purposes of this
35Part in accordance with section 599 of that Act)”.

(3) After subsection (4) insert—

“(4A) An amount charged on the residual business company as a result of
section 543 of CTA 2010 (excessive property financing costs) is
treated for the purposes of this Part as if it met condition A, B, C or
40D for the purposes of section 385 (tax-interest income amounts).”

(4) For subsection (5) substitute—

“(5) The allocated disallowance for the property rental business company
(if any) for the accounting period—

(a) is to be taken into account in calculating the profits of the
property rental business for the purposes of section 530 of
CTA 2010 (condition as to distribution of profits), but

(b) must be limited to such amount as secures that neither
5subsection (3)(b) nor subsection (5) of that section
(distribution of profits not required if would result in
unlawful distribution) applies.”

Interest restriction returns

15 In—

(a) 10paragraph 1(4)(a) of Schedule 7A (period for appointing a group’s
reporting company), and

(b) paragraph 2(4)(a) of that Schedule (period for revoking
appointment),

for “six months” substitute “12 months”.

16 15In paragraph 7(5) of Schedule 7A (meaning of “the filing date”)—

(a) for paragraph (b) substitute—

“(b) if an appointment of a reporting company under
paragraph 4 or 5 has effect in relation to the period
of account, the end of the period of 3 months
20beginning with the day on which the appointment
was made,”, and”

(b) after that paragraph insert—

““whichever is the later.”

17 (1) In paragraph 7 of Schedule 7A (submission of interest restriction returns),
25after sub-paragraph (5) insert—

“(5A) For an extension of the filing date in the case of a takeover, see
paragraph 7A.”

(2) After that paragraph insert—

“7A (1) This paragraph applies if—

(a) 30a period of account (“the affected period”) of a worldwide
group (“the old group”) ends solely as a result of the
ultimate parent of the old group becoming a member of a
different worldwide group, and

(b) the time at which that happens is within 12 months of the
35beginning of the affected period.

(2) For the purposes of this Part of this Act the filing date in relation
to the affected period of the old group is whichever is the later of—

(a) the date given by paragraph 7(5), and

(b) the end of the period of 24 months beginning with the
40affected period.”

18 In paragraph 20 of Schedule 7A (required contents of interest restriction
return: full returns and abbreviated returns), after sub-paragraph (5)
insert—

“(5A) In addition to the matters required to be included in an interest
45restriction return in accordance with sub-paragraph (3) or (5), the

return must include such other specified information as may
reasonably be required for the purposes of this Part of this Act.

(5B) In sub-paragraph (5A) “specified” means specified in a notice
published by Her Majesty’s Revenue and Customs (and different
5information may be specified for different purposes).”

Consequential amendments

19 In section 411 (definitions of “relevant expense amount” and “relevant
income amount”), omit subsection (4).

20 In section 494(1) (other interpretation), after “interest restriction return”
10insert—

• “““pension scheme” has the meaning given by section 150(1) of
  FA 2004;”.

21 In Part 7 of Schedule 11 (index of defined expressions used in Part 10 of
TIOPA 2010), at the appropriate place insert—

Commencement

22 (1) The amendments made by paragraphs 2, 5 to 11 and 14(2) and (4) have effect
in relation to periods of account of worldwide groups that begin on or after
1 January 2019.

(2) 20In this paragraph “period of account” and “worldwide group” have the
same meaning as in Part 10 of TIOPA 2010.

23 The amendments made by paragraphs 3 and 4 have effect in relation to any
change in ownership taking place on or after 29 October 2018.

24 Part 10 of TIOPA 2010 has effect, and is to be deemed always to have had
25effect, with the amendments made by paragraphs 12, 13, 14(3) and 19 to 21.

25 The amendment made by paragraph 17 has effect where the affected period
ends on or after 29 October 2018.

26 The amendment made by paragraph 18 has effect in relation to any interest
restriction return submitted on or after 1 April 2019.

30Transitional provision in case of interest allowance (alternative calculation) elections

27 (1) This paragraph applies if—

(a) an interest allowance (alternative calculation) election has been
made before 7 November 2018 with effect in relation to any period of
account of a worldwide group ending before that date, and

(b) 35the election would, but for this paragraph, have been irrevocable as
a result of paragraph 16(3)(b) of Schedule 7A to TIOPA 2010.

(2) If the appointment of a reporting company has effect in relation to the first
period of account of the group beginning on or after 7 November 2018, the
reporting company may revoke the election so that it ceases to have effect in

relation to that period of account and subsequent periods of account of the
group.

(3) The revocation—

(a) must be made before the end of the period of 3 months beginning
5with the day on which this Act is passed, and

(b) must be made by notice in writing given to an officer of Revenue and
Customs (and, accordingly, paragraph 12(2) of Schedule 7A to
TIOPA 2010 does not apply to the revocation).

(4) Expressions used in this paragraph have the same meaning as in Part 10 of
10TIOPA 2010.

Section 28

SCHEDULE 11 Eliminating tax mismatch for certain debt

Loan relationships with qualifying link

1 After section 352A of CTA 2009 insert—

“352B 15 Eliminating tax mismatch for loan relationships with qualifying link

(1) This section applies if—

(a) section 349 applies in respect of a loan relationship of a
company for an accounting period (application of amortised
cost basis to connected companies relationships),

(b) 20the company is a party to another loan relationship (“the
external loan relationship”) in respect of which that section
does not apply for the period,

(c) the external loan relationship is a debtor relationship dealt
with in its accounts on the basis of fair value accounting, and

(d) 25the external loan relationship has a qualifying link with one
or more other loan relationships of the company.

(2) For this purpose the external loan relationship has “a qualifying link”
with one or more other loan relationships of the company if—

(a) each of those other loan relationships of the company is a
30loan relationship in respect of which section 349 applies for
the accounting period, and

(b) taking those other loan relationships together, the money
received by the company under the external loan relationship
is wholly or mainly used to lend money under those other
35loan relationships.

(3) The credits and debits which are to be brought into account for the
purposes of this Part in respect of the external loan relationship for
the period are to be determined on an amortised cost basis of
accounting.

(4) 40If a company has a hedging relationship between—

(a) a relevant contract (“the hedging instrument”), and

(b) the liability representing the external loan relationship,

it is to be assumed in applying the amortised cost basis of accounting
for the purposes of subsection (3) that the hedging instrument has
where possible been designated for accounting purposes as a fair
value hedge of that loan relationship.”

2 5In section 465B of CTA 2009 (meaning of “tax-adjusted carrying value”), in
subsection (9), after paragraph (k) insert—

“(ka) section 352B (eliminating tax mismatch for loan relationships
with qualifying link),”.

Commencement and transitional provisions

3 (1) 10The amendments made by this Schedule have effect for accounting periods
beginning on or after 1 January 2019.

(2) An accounting period beginning before and ending on or after 1 January
2019 is to be treated for the purposes of any provision made by this Schedule
as if so much of the period as falls before that date, and so much of the period
15as falls on or after that date, were separate accounting periods.

4 (1) This paragraph applies in relation to an accounting period of a company
beginning on 1 January 2019 (“the 2019 period”) to bring in credits or debits
in respect of a loan relationship which is the external loan relationship for
the purposes of section 352B of CTA 2009 so far as they would not otherwise
20be brought into account.

(2) If there is a difference between—

(a) the tax-adjusted carrying value of the liability representing the
external loan relationship at the end of the accounting period of the
company ending on 31 December 2018, and

(b) 25the tax-adjusted carrying value of that liability at the beginning of the
2019 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 Part 5 of CTA 2009 for the
2019 period in the same way as a credit or debit which is brought into
30account in determining the company’s profit or loss for that period in
accordance with generally accepted accounting practice.

(3) Section 465B of CTA 2009 (meaning of “tax-adjusted carrying value”) applies
for the purposes of this paragraph as it applies for the purposes of Part 5 of
that Act.

35Power to amend section 352B of CTA 2009

5 (1) The Treasury may by regulations amend section 352B of CTA 2009.

(2) The power conferred by this paragraph may not be exercised after 31
December 2019.

(3) The regulations may contain incidental, supplementary, consequential and
40transitional provision and savings.

(4) The consequential provision that may be made by the regulations includes
provision amending any provision made by or under any Act.

(5) The regulations may contain retrospective provision.

Section 31

SCHEDULE 12 Annual investment allowance: periods straddling 1 January 2019 or 1 January
2021

Chargeable periods which straddle 1 January 2019

1 (1) 5This paragraph applies in relation to a chargeable period which begins
before 1 January 2019 and ends on or after that date (“the first straddling
period”).

(2) The maximum allowance under section 51A of CAA 2001 for the first
straddling period is the sum of the maximum allowances that would be
10found if the following were treated as separate chargeable periods—

(a) so much of the first straddling period as falls before 1 January 2019;

(b) so much of the first straddling period as falls on or after that date.

(3) But, so far as concerns expenditure incurred before 1 January 2019, the
maximum allowance under section 51A of CAA 2001 for the first straddling
15period is what would be the maximum allowance if the modification made
by section 31(1) were not made.

Chargeable periods which straddle 1 January 2021

2 (1) This paragraph applies in relation to a chargeable period (“the second
straddling period”) which begins before 1 January 2021 and ends on or after
20that date.

(2) The maximum allowance under section 51A of CAA 2001 for the second
straddling period is the sum of the maximum allowances that would be
found if the following were treated as separate chargeable periods—

(a) so much of the second straddling period as falls before 1 January
252021;

(b) so much of the second straddling period as falls on or after that date.

(3) But, so far as concerns expenditure incurred on or after 1 January 2021, the
maximum allowance under section 51A of CAA 2001 for the second
straddling period is the maximum allowance, calculated in accordance with
30sub-paragraph (2), for the period mentioned in paragraph (b) of that sub-
paragraph.

Operation of annual investment allowance where restrictions apply

3 (1) Paragraphs 1 and 2 apply for the purpose of determining the maximum
allowance under section 51K of CAA 2001 (operation of annual investment
35allowance where restrictions apply) in a case where one or more chargeable
periods in which the relevant AIA qualifying expenditure is incurred are
chargeable periods within paragraph 1(1) or 2(1).

(2) There is to be taken into account for that purpose only chargeable periods of
one year or less (whether or not they are chargeable periods within
40paragraph 1(1) or 2(1)), and, if there is more than one such period, only that
period which gives rise to the greatest maximum allowance.

(3) Sub-paragraph (4) applies to a chargeable period if—

(a) it is longer than one year, and

(b) any part of the chargeable period is within the period of two years
beginning with 1 January 2019.

(4) For the purposes of sub-paragraph (2) the chargeable period (the “relevant
period”) is to be divided into two periods, as follows—

(a) 5a chargeable period of one year ending when the relevant period
ends, and

(b) a chargeable period consisting of so much of the relevant period as is
not within paragraph (a).

(5) Nothing in this paragraph affects the operation of sections 51M and 51N of
10CAA 2001.

Section 35

SCHEDULE 13 Leases: changes to accounting standards etc

Part 1 Finance leases: amendments as a result of changes to accounting standards

1 (1) 15Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.

(2) In section 67 (plant or machinery treated as owned by person entitled to
benefit of contract, etc), in subsection (2B), for the words from “falls (or
would fall)” to the end substitute “—

(a) falls (or would fall) to be treated by that person in accordance
20with generally accepted accounting practice as a finance
lease, or

(b) if that person is a lessee under a right-of-use lease, would fall
to be treated in that person’s accounts as a finance lease were
that person required under generally accepted accounting
25practice to determine whether the lease falls to be so treated.”

(3) In section 70E (disposal events and disposal values), in subsection (2D)(a),
after “finance charges” insert “, or interest expenses,”.

(4) In section 70YA (changes in accountancy classification of long funding
leases)—

(a) 30in subsection (1)(b), for “or an operating lease” substitute “, an
operating lease or a right-of-use lease”,

(b) in subsection (4)—

(i) for “or an operating lease” substitute “, an operating lease or
a right-of-use lease”, and

(ii) 35for “and (6)” substitute “to (6A)”,

(c) in subsection (5)—

(i) omit the “and” at the end of paragraph (a), and

(ii) after paragraph (b) insert “and

the change of classification is not a relevant
40change of classification.”,”

(d) in subsection (6)—

(i) omit the “and” at the end of paragraph (a), and

(ii) after paragraph (b) insert “and

(c) the change of classification is not a relevant
change of classification.”,”

(e) after subsection (6) insert—

“(6A) 5Case 3 is where—

(a) immediately before the relevant time, the lease is a
right-of-use lease which is a long funding finance
lease, and

(b) at the relevant time, the lease becomes one which—

(i) 10is not a right-of use lease, and

(ii) falls (or would fall) to be treated in the
relevant accounts in accordance with
generally accepted accounting practice as not
being a finance lease.”, and”

(f) 15after subsection (10) insert—

“(11) In this section—

• “relevant change of classification” means a change of
  accountancy classification as a result of the person
  adopting a different accounting standard or a change
  20to an accounting standard, and

• “accounting standard” means any accounting standard
  issued or recognised by—

  (a)

  the Accounting Standards Board (or successor
  body), or

  (b)

  25the International Accounting Standards Board
  (or successor body).”

(5) In section 70YI (general definitions), in subsection (1)—

(a) for the definition of “long funding finance lease” substitute—

• “““long funding finance lease” means—

  (a)

  30in relation to any person, a long funding lease
  that meets the finance lease test by virtue of
  section 70N(1)(a), or

  (b)

  in relation to a lessee, a right-of-use lease
  which is a long funding lease—

  (i)

  35that meets the lease payments test in
  section 70O or the useful economic life
  test in section 70P, but

  (ii)

  is not a lease that, before a relevant
  change of classification, was a long
  40funding operating lease;”, and”

(b) at the appropriate places insert—

• “““relevant change of classification” has the meaning
  given by section 70YA(11);”;

• ““right-of-use lease”, in relation to a lessee, means a
  45lease in respect of which, under generally accepted
  accounting practice—

  (a)

  a right-of-use asset falls (or would fall) at the
  commencement date of the lease to be
  recognised for accounting purposes in the
  50accounts of the lessee, or

  Finance (No. 3) BillPage 249

  (b)

  a right-of-use asset would fall to be so
  recognised but for the lessee granting a
  sublease of the leased asset,

  and, in determining whether a lease falls within
  5paragraph (a) or (b) at any time in an accounting
  period, it is to be assumed that the accounting policy
  applied in drawing up the lessee’s accounts for the
  period also applied at the commencement date of the
  lease;”.

(6) 10In section 228J (anti-avoidance: plant or machinery subject to further
operating lease), in subsection (7)—

(a) for paragraph (a) substitute—

“(a) the lease—

(i) falls, under generally accepted accounting
15practice, to be treated in that person’s
accounts as a finance lease or loan, or

(ii) if that person is a lessee under a right-of-use
lease, would fall to be treated in that person’s
accounts as a finance lease were that person
20required under generally accepted accounting
practice to determine whether the lease falls to
be so treated,”, and”

(b) in paragraph (b), for the words from “fall” to the end substitute “—

(i) fall, under generally accepted accounting practice, to be
25treated as a finance lease or loan, or

(ii) if that person is a lessee under a right-of-use lease, would fall
to be treated in that person’s accounts as a finance lease were
that person required under generally accepted accounting
practice to determine whether the arrangements fall to be so
30treated.”

2 (1) ITTOIA 2005 is amended as follows.

(2) In section 148G (lessee under long funding finance lease: limit on
deductions), in subsection (2), after “finance charges” insert “, or interest
expenses,”.

(3) 35After that section insert—

“148GA Lessee under long funding finance leases: right-of-use leases

(1) This section applies if—

(a) for the whole or part of any period of account, a person
carrying on a trade, profession or vocation is the lessee of any
40plant or machinery under a right-of-use lease that is a long
funding finance lease,

(b) there is a change in the amounts payable under the lease, and

(c) as a result of the change and in accordance with generally
accepted accounting practice—

(i) 45a remeasurement of the lease liability is shown in the
person’s accounts for the period of account, or

(ii) a deduction is shown in those accounts other than as
an interest expense under the lease or an amount of