Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 7 — Insurance companies etc
284

bears to those relevant profits” substitute “for the accounting period bears to
those BLAGAB profits”.
      (2)
Sub-paragraph (1) has effect in relation to accounting periods beginning on
or after 17th March 2004.
Double taxation
5
7
In section 804B of the Taxes Act 1988 (double taxation relief: insurance
companies carrying on more than one category of business), after subsection
(7) insert—
“(7A)
The Treasury may by regulations amend subsection (7); and the
regulations may include amendments having effect in relation to
10
accounting periods during which they are made.”
Meaning of “referable”
8     (1)
Section 432A of the Taxes Act 1988 (apportionment of income and gains) is
amended as follows.
      (2)
In subsection (1), for “where in any period an insurance business carries on
15
more than one category of business and it is necessary for the purposes of
the Corporation Tax Acts to determine in relation to the period” substitute
“for determining for the purposes of any provision of the Corporation Tax
Acts in relation to any period for which an insurance company carries on
business”.
20
      (3)
After that subsection insert—
“(1A)
If the company carries on only one category of business in the period,
all of the income and gains or losses referred to in subsection (1)
above shall be referable to that category of business; but if the
company carries on more than one category of business in the period,
25
the following provisions shall apply.”
      (4)
In subsection (2), for “subsection (1)” substitute “subsections (1) and (1A)”.
9     (1)
In the following provisions of the Taxes Act 1988—
(a)
section 438(1) (pension business), and
(b)
section 439B(6) (life reinsurance business),
30

after “referable” insert “(in accordance with section 432A)”.
      (2)
In the following provisions of the Taxation of Chargeable Gains Act 1992
(c. 12)—
(a)
the definitions of “BLAGAB allowable losses” and “BLAGAB
chargeable gains” in section 210A(13) (ring-fencing of losses),
35
(b)
section 211ZA(10) (transfers of business: transfer of unused losses),
and
(c)
section 213(1A)(a) (spreading of gains and losses under section 212),

after “referable” insert “(in accordance with section 432A of the Taxes Act)”.

Finance Bill
Schedule 8 — Loan relationships: miscellaneous amendments
285

Schedule 8
Section 48

Loan relationships: miscellaneous amendments
Introductory
1
Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special
computational provisions) is amended as follows.
5
Late interest: close companies where limited partnership is collective investment scheme etc
2     (1)
Paragraph 2 (late interest) is amended as follows.
      (2)
In sub-paragraph (1B) (case where debtor is close company and creditor is
participator etc)—
(a)
in the opening words, after “close company” insert “, but not a CIS-
10
based close company,”; and
(b)
in the closing words, for the words from “a limited partnership” to
the end of the sub-paragraph substitute “a CIS limited partnership”.
      (3)
In sub-paragraph (6) (definitions) insert the following definitions at the
appropriate place—
15

“ “CIS-based close company” means a company that would not
be a close company apart from the attribution, under section
416(6) of the Taxes Act 1988 by virtue of section 417(3)(a) of
that Act, of the rights and powers of one or more partners in
a CIS limited partnership to another of the partners;”;
20

“ “CIS limited partnership” means a limited partnership—
(a)
which is a collective investment scheme, or
(b)
which would be a collective investment scheme if it
were not a body corporate;”;

“ “collective investment scheme” means a collective investment
25
scheme within the meaning of section 235 of the Financial
Services and Markets Act 2000;”.
      (4)
The amendments made by this paragraph have effect for accounting periods
ending on or after 10th December 2003.
Bad debts etc: release of amount where creditor is subject to insolvency proceedings
30
3     (1)
Paragraph 5 (bad debts etc) is amended as follows.
      (2)
In sub-paragraph (3) (cases where no credit is required to be brought into
account by the debtor on the release of a debt) for the words following
paragraph (b) substitute—

“no credit in respect of the release shall be required to be brought into
35
account in the case of that company if any of the four conditions set
out below is satisfied.”.
      (3)
After sub-paragraph (3) insert—
     “(4)
Condition 1 is that the release is part of a relevant arrangement or
compromise, within the meaning given by section 74(2) of the
40
Taxes Act 1988.
      (5)
Condition 2 is that the debtor relationship is one as respects which
section 87 of this Act (accounting method where parties have a

Finance Bill
Schedule 8 — Loan relationships: miscellaneous amendments
286

connection) requires the use of an authorised accruals basis of
accounting.
      (6)
Condition 3 is that—
(a)
in the case of the company releasing the amount, the
circumstances are as described in any of paragraphs (a) to
5
(d) of paragraph 6A(1) below (insolvent liquidation etc),
(b)
immediately before the time at which those circumstances
arose in the case of that company, the relationship was one
as respects which section 87 of this Act requires the use of
an authorised accruals basis of accounting, and
10
(c)
immediately after that time, the relationship was not one
as respects which section 87 of this Act requires the use of
an authorised accruals basis of accounting.

In the application of paragraphs (a) to (d) of paragraph 6A(1)
below for the purposes of paragraph (b) above, references in those
15
paragraphs to the company which has the creditor relationship are
to be taken as references to the company releasing the amount.
      (7)
Condition 4 is that—
(a)
the relationship is not one as respects which section 87 of
this Act requires the use of an authorised accruals basis of
20
accounting, and
(b)
in the case of the company which has the debtor
relationship, the circumstances are as described in any of
paragraphs (a) to (d) of paragraph 6A(1) below.

In the application of paragraphs (a) to (d) of paragraph 6A(1)
25
below for the purposes of paragraph (b) above, references in those
paragraphs to the company which has the creditor relationship are
to be taken as references to the company which has the debtor
relationship.”.
      (4)
The amendments made by this paragraph have effect in relation to any
30
release made on or after 10th December 2003.
Bad debt etc: parties having connection and company in insolvent administrative receivership
4     (1)
Paragraph 6A (bad debt etc: parties having connection and creditor in
insolvent liquidation etc) is amended as follows.
      (2)
The amendments made to the paragraph by paragraph 29 of the Schedule to
35
the Enterprise Act 2002 (Insolvency) Order 2003 (S.I. 2003/2096) shall be
deemed never to have been made.
      (3)
In sub-paragraph (1) (cases where paragraph 6A applies) after paragraph (b)
insert—
“(bb)
the company is in insolvent administrative receivership;”.
40
      (4)
In sub-paragraph (2) (cases where departure from assumption of full
payment allowed) after paragraph (b) insert—
“(bb)
in a case falling within paragraph (bb) of that sub-paragraph,
at a time when the appointment of the administrative
receiver is in force;”.
45
      (5)
In sub-paragraph (2)(d) (which refers to a time corresponding to that
described in paragraph (a), (b) or (c)) after “(b)” insert “, (bb)”.

Finance Bill
Schedule 8 — Loan relationships: miscellaneous amendments
287

      (6)
After sub-paragraph (4) (company in insolvent administration) insert—
“(5)
For the purposes of this paragraph a company is in insolvent
administrative receivership if—
(a)
there is in force in relation to that company an appointment
of an administrative receiver, within the meaning of
5
Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 or Part 4 of
the Insolvency (Northern Ireland) Order 1989, and
(b)
the company was put into administrative receivership at a
time when its assets were insufficient for the payment of its
debts and other liabilities and the expenses of administrative
10
receivership.”.
      (7)
The amendments made by sub-paragraphs (3) to (6) have effect in relation to
accounting periods ending on or after 10th December 2003.
Deemed disposal of assets and liabilities on company ceasing to be resident in UK etc
5     (1)
After paragraph 10 (imported losses etc) insert—
15
“Deemed disposal of assets and liabilities on company ceasing to be resident in UK
etc
10A   (1)
This paragraph applies if at any time (“the relevant time”)—
(a)
a company ceases to be resident in the United Kingdom, or
(b)
in the case of a company that is not resident in the United
20
Kingdom, an asset or liability representing a loan
relationship of the company ceases to be held for the
purposes of a permanent establishment of the company in
the United Kingdom in any circumstances not involving a
related transaction.
25
      (2)
In a case falling within sub-paragraph (1)(a) above, this Schedule
shall have effect as if the company had—
(a)
immediately before the relevant time, assigned the assets
and liabilities that represent its loan relationships for a
consideration of an amount equal to their fair value at that
30
time, and
(b)
immediately reacquired them for a consideration of the
same amount.
      (3)
Sub-paragraph (2) above does not apply in relation to an asset or
a liability to the extent that, immediately after the relevant time, it
35
is held or owed for the purposes of a permanent establishment of
the company in the United Kingdom.
      (4)
In a case falling within sub-paragraph (1)(b) above, this Schedule
shall have effect as if the company had—
(a)
immediately before the relevant time, assigned the asset or
40
liability, so far as ceasing to be held or owed for the
purposes of the permanent establishment, for a
consideration of an amount equal to its fair value at that
time, and
(b)
immediately reacquired it for a consideration of the same
45
amount.

Finance Bill
Schedule 9 — Derivative contracts: miscellaneous amendments
288

      (5)
In this paragraph “fair value” shall be construed in accordance
with section 85 of this Act.”.
      (2)
The amendment made by this paragraph has effect where the cessation in
question occurs on or after 17th March 2004.
Discounted securities of close companies: limited partnership collective investment scheme etc
5
6     (1)
Paragraph 18 (discounted securities of close companies) is amended as
follows.
      (2)
In sub-paragraph (1) (application of paragraph) after paragraph (a) insert—
“(aa)
the issuing company is not a CIS-based close company, as
defined in paragraph 2(6) above;”.
10
      (3)
In paragraph (c) of that sub-paragraph (debt not owed to limited
partnership which is a collective investment scheme) for the words from “a
limited partnership” to the end of the sub-paragraph substitute “a CIS
limited partnership, as defined in paragraph 2(6) above”.
      (4)
Omit sub-paragraph (3A) (meaning of connection between companies, an
15
expression no longer used in the paragraph).
      (5)
The amendments made by this paragraph have effect for accounting periods
ending on or after 10th December 2003.
Interpretation of references to major interest
7     (1)
Paragraph 20 (major interest) is amended as follows.
20
      (2)
In sub-paragraph (1) (cases where one company has a major interest in
another) omit paragraph (c) (both controllers etc to satisfy the same
condition in sub-paragraph (2)).
      (3)
Omit sub-paragraph (2) (both controllers etc are creditors, or both are
debtors, of the controlled company).
25
      (4)
The amendments made by this paragraph have effect for accounting periods
beginning on or after 17th March 2004.
Schedule 9
Section 49

Derivative contracts: miscellaneous amendments
Introductory
30
1
Schedule 26 to the Finance Act 2002 (c. 23) is amended as follows.
Power to amend provisions of Schedule 26
2     (1)
Paragraph 13 is amended as follows.
      (2)
For sub-paragraph (1) (power to amend paragraphs 2 to 12) substitute—
     “(1)
The Treasury may by order amend—
35
(a)
any of paragraphs 2 to 12, or
(b)
Part 9 of this Schedule.”.
      (3)
For sub-paragraph (4) (power to make certain orders so as to have effect in

Finance Bill
Schedule 9 — Derivative contracts: miscellaneous amendments
289

relation to accounting periods ending on or after day on which order comes
into force (whenever beginning)) substitute—
     “(4)
An order under this paragraph may provide for any of its
provisions to have effect in relation to accounting periods ending
on or after day on which order comes into force (whenever
5
beginning).”.
      (4)
In consequence of the amendment made by sub-paragraph (2), the heading
to the paragraph accordingly becomes “Power to amend paragraphs 2 to 12
and Part 9”.
Deemed disposal of derivative contracts on company ceasing to be resident in UK etc
10
3     (1)
At the beginning of Part 6 (special computational provisions) insert—
“Deemed assignment of derivative contracts on company ceasing to be resident in
UK etc
22A   (1)
This paragraph applies if at any time (“the relevant time”)—
(a)
a company ceases to be resident in the United Kingdom, or
15
(b)
in the case of a company not resident in the United
Kingdom, the rights and liabilities of the company under a
derivative contract to any extent cease to be held or owed
for the purposes of a permanent establishment of the
company in the United Kingdom in circumstances not
20
involving a related transaction.
      (2)
In a case falling within sub-paragraph (1)(a) above, this Schedule
shall have effect as if the company had—
(a)
immediately before the relevant time, assigned its rights
and liabilities under its derivative contracts for a
25
consideration of an amount equal to their fair value at that
time, and
(b)
immediately reacquired them for a consideration of the
same amount.
      (3)
Sub-paragraph (2) above does not apply in relation to a derivative
30
contract to the extent that, immediately after the relevant time, the
company’s rights and liabilities under the contract are held or
owed for the purposes of a permanent establishment of the
company in the United Kingdom.
      (4)
In a case falling within sub-paragraph (1)(b) above, this Schedule
35
shall have effect as if the company had—
(a)
immediately before the relevant time, assigned the rights
and liabilities, so far as ceasing to be held or owed for the
purposes of the permanent establishment, for a
consideration of an amount equal to their fair value at that
40
time, and
(b)
immediately reacquired them for a consideration of the
same amount.
      (5)
In this paragraph “fair value” shall be construed in accordance
with paragraph 17.”.
45
      (2)
The amendment made by this paragraph has effect where the cessation in
question occurs on or after 17th March 2004.

Finance Bill
Schedule 10 — Amendment of enactments that operate by reference to accounting practice
Part 1 — Loan relationships
290

Derivative contracts for unallowable purposes
4     (1)
In paragraph 23, in sub-paragraph (7) (definition of amount of accumulated
credits against which accumulated net losses may be brought into account)
in paragraph (b) after “an amount equal to” insert “—
(i)
so much of any debits arising, in the case of
5
the derivative contract, for that accounting
period or any earlier accounting period as is
not, in accordance with sub-paragraph (3),
referable to the unallowable purpose, and
(ii)”.
10
      (2)
The amendment made by this paragraph has effect in relation to accounting
periods ending on or after 17th March 2004.
Open-ended investment companies: capital profits and losses
5     (1)
In paragraph 33(4)(b) (which refers to a subsequent statement of
recommended practice issued by Financial Services Authority) omit “issued
15
by the Financial Services Authority”.
      (2)
This amendment has effect in relation to accounting periods beginning on or
after 1st February 2004.
Schedule 10
Section 52

Amendment of enactments that operate by reference to accounting practice
20
Part 1
Loan relationships
Main computational provisions
1     (1)
Section 84 of the Finance Act 1996 (c. 8) (debits and credits to be brought into
account) is amended as follows.
25
      (2)
In subsection (1) omit “in accordance with an authorised accounting method
and”.
      (3)
Omit subsections (2) and (4A).
      (4)
For subsection (7) substitute—
“(7)
Schedule 9 to this Act contains further provisions as to the debits and
30
credits to be brought into account for the purposes of this Chapter.”.
2     (1)
Section 84A of that Act (exchange gains and losses from loan relationships)
is amended as follows.
      (2)
For subsection (3) substitute—
“(3)
Subsection (1) does not apply to an exchange gain or loss of a
35
company to the extent that it arises—
(a)
in relation to an asset or liability representing a loan
relationship of the company, or