Finance Bill

Finance Bill - continued	House of Commons
PART III, INCOME TAX AND CORPORATION TAX - continued

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Gilt-edged securities

Interest to be paid gross.

37. - (1) The Taxes Act 1988 shall be amended as follows.

(2) In section 50 (Treasury direction for payment of public revenue dividends without deduction of tax), before subsection (1) there shall be inserted the following subsection-

"(A1) The interest on registered gilt-edged securities (whenever issued and whatever the terms on which they were issued) shall be paid without deduction of income tax."

(3) In that section-

(a) in subsection (1), after "following securities" there shall be inserted "in so far as they are not gilt-edged securities";

(b) in subsection (2), after "by virtue of" there shall be inserted "subsection (A1) above or of";

(c) in subsection (3), for "to which subsection (1) above applied" there shall be substituted "the interest on which is to be paid without deduction of income tax"; and

(d) in subsections (4) and (5), for the words "two months", in each place where they occur, there shall be substituted "one month".

(4) In subsection (7) of that section, after "requires" there shall be inserted the following definition-

"`gilt-edged securities' means any securities which-

	(a) are gilt-edged securities for the purposes of the 1992 Act; or
	(b) will be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they were issued,".

(5) Section 51A (interest on gilt-edged securities held under authorised arrangements to be paid without deduction of tax) shall cease to have effect.

(6) In section 51B (periodic accounting for tax on interest on gilt-edged securities), for subsection (5) there shall be substituted the following subsections-

	"(5) In this section `relevant gilt-edged securities' means securities of one of the following descriptions-
	(a) gilt-edged securities issued before 6th April 1998 other than those in relation to which a direction under section 50(1) was given before that date;
	(b) gilt-edged securities issued on or after that date in relation to which the Treasury have given a direction that they may be subjected to periodic accounting;
	and in this subsection `gilt-edged securities' has the same meaning as in section 50.
	(5A) Regulations under this section shall not apply to a payment of interest on any relevant gilt-edged securities if that payment is made at any time after the Treasury have given a direction that those securities are to be exempted from periodic accounting."

(7) In sections 722A(5) and 730C(9), and in paragraph 3A(2)(a) of Schedule 23A, (which all define "gilt-edged securities" by reference to section 51A of the Taxes Act 1988), for "51A" there shall be substituted, in each case, "50".

(8) Subject to subsections (9) to (13) below, this section has effect in relation to payments of interest falling due on or after 6th April 1998.

(9) Subsection (3)(d) above has effect in relation to applications made and notices given at any time on or after the day on which this Act is passed.

(10) Where-

(a) any person holds any gilt-edged securities in relation to which a direction was given under section 50(1) of the Taxes Act 1988 at any time before 6th April 1998, and

(b) that person at any time before that date made an application under section 50(2) of that Act with respect to those securities,

that application (unless withdrawn) shall have effect in relation to any interest on those securities to which section 50(A1) of that Act applies as it previously had effect in relation to any interest on those securities to which that direction applied.

(11) Sections 50, 51B and 118D(4) of the Taxes Act 1988 shall have effect in relation to any gilt-edged securities issued before 6th April 1998 which-

(a) are securities the interest on which, if paid immediately before that date, would have fallen to be paid after deduction of income tax, and

(b) are registered within the meaning of section 50 of that Act but are not securities in relation to which any direction under section 50 of that Act was given before that date,

as if the appropriate person had so made an application under section 50(2) of that Act as to enable that application to take effect in relation to payments of interest made on or after that date.

(12) In subsection (11) above "the appropriate person" means-

(a) in the case of securities transferred before 6th April 1998 but after the time when the balance was struck for a dividend on them falling due on or after that date, the person who held the securities at the time when the balance was so struck;

(b) in any other case, the person holding the securities in question immediately before 6th April 1998.

(13) Section 50(5) of the Taxes Act 1988 shall have effect in relation to an application treated as made by virtue of subsection (11) above as if a notice withdrawing that application was capable of being given at any time on or after the passing of this Act.

Paying and collecting agents.

38. - (1) Chapter VIIA of Part IV of the Taxes Act 1988 (paying and collecting agents) shall be amended as follows.

(2) Section 118A (interpretation of Chapter) shall become subsection (1) of that section and, in paragraph (k) of that subsection (meaning of "international organisation"), for "has the meaning given by section 51A(8)" there shall be substituted "means an organisation of which two or more sovereign powers, or the governments of two or more sovereign powers, are members".

(3) After that subsection there shall be inserted the following subsection-

"(2) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of this Chapter, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question shall be conclusive evidence of that fact."

(4) In section 118D(4) (payments of interest payable without deduction of tax not to be chargeable payments), after "by virtue of" there shall be inserted "section 50(A1) or of".

(5) In subsection (3) of section 118G (United Kingdom public revenue dividends excluded from being chargeable payments)-

(a) paragraphs (b) and (d) to (f) shall be omitted; and

(b) for paragraph (c) there shall be substituted the following paragraph-

	"(ca) they are payable in respect of a FOTRA security (within the meaning of section 154 of the Finance Act 1996) which-
	(i) is not registered (within the meaning of section 50 of this Act); and
	(ii) is, for the time being, beneficially owned by a person who is not ordinarily resident in the United Kingdom."

(6) In section 118G(7), for paragraphs (a) and (b) there shall be substituted "foreign dividends on foreign holdings held by a nominee approved for the purposes of this subsection".

(7) Section 118G(8) and (10) shall cease to have effect.

(8) This section has effect in relation to payments falling due on or after 6th April 1998.

Relief for losses etc

Carry-back of trading losses.

39. - (1) Section 393A of the Taxes Act 1988 (set-off of trading losses against profits of previous three years) shall be amended in accordance with subsections (2) to (6) below.

(2) In subsection (2) (three year carry-back period), for "is the period of three years" there shall be substituted "is (subject to subsection (2A) below) the period of twelve months".

(3) After that subsection there shall be inserted the following subsections-

	"(2A) This section shall have effect in relation to any loss to which this subsection applies as if, in subsection (2) above, the words `three years' were substituted for the words `twelve months'.
	(2B) Where a company ceases to carry on a trade at any time, subsection (2A) above applies to the following-
	(a) the whole of any loss incurred in that trade by that company in an accounting period beginning twelve months or less before that time; and
	(b) the part of any loss incurred in that trade by that company in an accounting period ending, but not beginning, in that twelve months which is proportionate to the part of that accounting period falling within that twelve months.
	(2C) Where-
	(a) a loss is incurred by a company in a ring fence trade carried on by that company, and
	(b) the accounting period in which the loss is incurred is an accounting period for which an allowance under section 62A of the 1990 Act (demolition costs relating to offshore machinery or plant) is made to that company,
	subsection (2A) above applies to so much of the amount of that loss not falling within subsection (2B) above as does not exceed the amount of that allowance."

(4) In subsection (7) (application of section 393(9))-

(a) at the beginning there shall be inserted "Subject to subsection (7A) below,"; and

(b) for "the accounting period in which the cessation occurs" there shall be substituted "an accounting period ending with the cessation, or ending at any time in the twelve months immediately preceding the cessation,".

(5) After that subsection there shall be inserted the following subsection-

	"(7A) For the purposes of this section where-
	(a) subsection (7) above has effect for computing the loss for any accounting period, and
	(b) that accounting period is one beginning before the beginning of the twelve months mentioned in that subsection,
	the part of that loss that is not the part falling within subsection (2B)(b) above shall be treated as reduced (without any corresponding increase in the part of the loss that does fall within subsection (2B)(b) above) by an amount equal to so much of the aggregate of the charges on income treated as expenses by virtue of subsection (7) above as is proportionate to the part of the accounting period that does not fall within those twelve months."

(6) After subsection (11) there shall be inserted the following subsection-

"(12) In this section `ring fence trade' has the same meaning as in section 62A of the 1990 Act."

(7) In section 343 of that Act (company reconstructions without a change of ownership), the following subsection shall be inserted after subsection (4)-

"(4A) Subsection (2A) of section 393A shall not apply to any loss which (but for this subsection) would fall within subsection (2B) of that section by virtue of the predecessor's ceasing to carry on the trade, and subsection (7) of that section shall not apply for the computation of any such loss."

(8) Subject to subsection (9) below, this section applies to any loss incurred in an accounting period ending on or after 2nd July 1997.

(9) Where a loss in any trade is incurred by a company in an accounting period ending on or after 2nd July 1997 but beginning before that date, section 393A of the Taxes Act 1988 shall have effect as if subsection (2A) of that section applied to the pre-commencement part of any amount of that loss to which that subsection would not apply apart from this subsection.

(10) In subsection (9) above "the pre-commencement part", in relation to the amount of the whole or any part of a loss in an accounting period, means the part of that amount which, on an apportionment in accordance with subsection (11) or, as the case may be, (12) below, is attributable to the part of that accounting period falling before 2nd July 1997.

(11) Except in a case where subsection (12) below applies, an apportionment for the purposes of subsection (10) above shall be made on a time basis according to the respective lengths of the part of the accounting period falling before 2nd July 1997 and the remainder of that accounting period.

(12) Where the circumstances of a particular case are such that the making of an apportionment on the time basis mentioned in subsection (11) above would work in a manner that would be unjust or unreasonable in relation to any person, the apportionment shall be made instead (to the extent only that is necessary in order to avoid injustice and unreasonableness) in such other manner as may be just and reasonable.

Carry-back of loan relationship deficits.

40. - (1) Chapter II of Part IV of the Finance Act 1996 (loan relationships) shall be amended as follows.

(2) In paragraph 3(7) of Schedule 8 (permitted period of three years for carry-back of deficits), for "three years" and "three year" there shall be substituted, in each case, "twelve months".

(3) In sub-paragraph (3) of paragraph 4 of Schedule 11 (carry-back of deficit by insurance companies)-

(a) for paragraph (a) there shall be substituted the following paragraph-

"(a) carried back to accounting periods falling wholly or partly within the period of twelve months immediately preceding the deficit period; and";

and

(b) in paragraph (b), for "those periods" there shall be substituted "up to three such periods".

(4) In sub-paragraph (5) of that paragraph (mechanism for carry-back in the case of insurance companies), for "the three accounting periods preceding the deficit period" there shall be substituted "accounting periods falling wholly or partly within the period of twelve months mentioned in sub-paragraph (3)(a) above".

(5) In sub-paragraph (8) of that paragraph (which defines the set-off periods), in each of paragraphs (b) and (c), for "immediately preceding" there shall be substituted "(if any) which falls wholly or partly within the period of twelve months mentioned in sub-paragraph (3)(a) above and immediately precedes".

(6) In sub-paragraph (9) of that paragraph (adjusted amount of a company's eligible profit), after "is" there shall be inserted "(subject to sub-paragraph (9A) below)"; and after that sub-paragraph there shall be inserted the following sub-paragraph-

"(9A) Where a set-off period falls only partly within the period of twelve months mentioned in sub-paragraph (3)(a) above, the adjusted amount of a company's eligible profit for that period shall be taken to be confined to the part of the amount computed under sub-paragraph (9) above which is proportionate to the part of the set-off period that falls within that period of twelve months."

(7) Subject to subsection (8) below, this section has effect in relation to any deficit for a deficit period ending on or after 2nd July 1997.

(8) Paragraph 3 of Schedule 8 to the Finance Act 1996 shall have effect in relation to any deficit for a deficit period beginning before but ending on or after 2nd July 1997 as if the permitted period in relation to the pre-commencement part of the deficit were the period beginning with 1st April 1996 and ending immediately before the beginning of the deficit period.

(9) Where for the purposes of paragraph 23 of Schedule 15 to the Finance Act 1996 (transitional provision in connection with the carrying back of exchange losses) there is a relievable amount for an accounting period ending on or after 2nd July 1997, that paragraph shall have effect, except in relation to any pre-commencement part of that amount, as if, in section 131(10)(b) of the Finance Act 1993 (the permitted period) as applied by that paragraph, the words "twelve months" were substituted for the words "three years".

(10) In this section "pre-commencement part", in relation to the deficit for any deficit period or the relievable amount for any accounting period, means the part (if any) of that deficit or relievable amount which, on an apportionment in accordance with subsection (11) or, as the case may be, (12) below, is attributable to such part (if any) of that period as falls before 2nd July 1997.

(11) Except in a case where subsection (12) below applies, an apportionment for the purposes of subsection (10) above shall be made on a time basis according to the respective lengths of the part of the deficit period or, as the case may be, accounting period falling before 2nd July 1997 and the remainder of that period.

Restrictions on group relief.

41. Schedule 7 to this Act (which imposes new restrictions on the giving of group relief) shall have effect.

Prepared 4 July 1997