House of Commons portcullis
House of Commons
Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill


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

298

 

      (6)  

For sub-paragraph (5) substitute—

     “(5)  

The second case is where the following conditions are met.”.

      (7)  

In sub-paragraph (7) for “departure shall be allowed” substitute

“impairment loss may be brought into account”.

25    (1)  

Paragraph 6C (bad debts etc.: cessation of connection) is amended as

5

follows.

      (2)  

In the heading for “Bad debt etc: departure not permitted by paragraph 6

substitute “Impairment losses:”.

      (3)  

For sub-paragraph (1)(a) substitute—

“(a)   

an impairment loss is excluded by paragraph 6(3) in any

10

accounting period, and”.

      (4)  

In sub-paragraph (2) omit “by virtue of paragraph 5(2) above”.

26         

In paragraph 8 (restriction on writing off overseas sovereign debts etc.), for

sub-paragraphs (1) and (2) substitute—

     “(1)  

This paragraph applies as respects the debits and credits to be

15

brought into account for the purposes of this Chapter in respect of

the impairment of a financial asset representing a relevant

overseas debt.

           

This paragraph does not apply where fair value accounting is

used.

20

      (2)  

Where this paragraph applies the debits and credits to be so

brought into account for any accounting period shall be

determined on the basis that it is not permissible for the asset to be

impaired by more than the relevant percentage.”.

27    (1)  

Paragraph 9 (further restriction on bringing into account losses on overseas

25

sovereign debt etc.) is amended as follows.

      (2)  

In sub-paragraph (1) for paragraphs (a) and (b) substitute—

“(a)   

an impairment loss falls to be brought into account for the

purposes of this Chapter in respect of a relevant overseas

debt in relation to which any of the conditions in sub-

30

paragraph (2) is met,

(b)   

in the accounting period in which that loss falls to be so

brought into account (“the loss period”) the company

ceases to be a party to the loan relationship,”.

      (3)  

In sub-paragraph (2)—

35

(a)   

for the opening words down to “if—” substitute “The conditions

referred to in sub-paragraph (1)(a) are—”;

(b)   

in paragraph (b)—

(i)   

after “Chapter” insert “for a period of account of the company

beginning before 1st January 2005”, and

40

(ii)   

for “paragraph 5(1)(a) to (c) above” substitute “paragraph

5(1)(a) to (c) of this Schedule as it had effect before its

amendment by Schedule 10 to the Finance Act 2004”;

(c)   

omit the “or” at the end of paragraph (b);

(d)   

after that paragraph insert—

45

“(ba)   

an impairment loss in respect of the debt has been

brought into account for the purposes of this

 

 

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

299

 

Chapter for a period of account of the company

beginning on or after 1st January 2005; or”.

28         

In paragraph 10 (imported losses etc.), for sub-paragraph (1) substitute—

     “(1)  

This paragraph applies in the case of a company (“the chargeable

company”) for an accounting period (“the loss period”) where—

5

(a)   

there is a loss arising in connection with a loan relationship

of the company which apart from this paragraph would

fall to be brought into account for the purposes of this

Chapter, and

(b)   

that loss is referable in whole or in part to a time when the

10

relationship was not subject to United Kingdom taxation.

           

This paragraph does not apply where fair value accounting is

used.”.

29         

In paragraph 10A (deemed disposal on company ceasing to be resident in

UK etc.), omit sub-paragraph (5).

15

30         

In paragraph 11 (transactions not at arm’s length), for sub-paragraph (1)

substitute—

     “(1)  

Where—

(a)   

debits or credits in respect of a loan relationship of a

company fall to be brought into account for the purposes

20

of this Chapter in respect of a related transaction, and

(b)   

that transaction is not a transaction at arm’s length,

           

the debits or credits to be brought into account shall be

determined on the assumption that the transaction was entered

into on the terms on which it would have been entered into

25

between independent persons.

           

This is subject to the exceptions in sub-paragraphs (1A), (2), (3)

and (3A).”.

31         

In paragraph 12 (continuity of treatment: groups etc.), in sub-paragraph

(2A)—

30

(a)   

in the opening words for “an authorised mark to market basis of

accounting” substitute “fair value accounting”;

(b)   

at the end of paragraph (a) insert “; and”; and

(c)   

omit paragraph (b) and the word “and” preceding it.

32         

In paragraph 13 (loan relationships for unallowable purposes), in the closing

35

words of sub-paragraph (1) omit “given by the authorised accounting

method used”.

33    (1)  

Paragraph 14 (debits and credits treated as relating to capital expenditure) is

amended as follows.

      (2)  

In sub-paragraph (1) omit “given by an authorised accounting method”.

40

      (3)  

After sub-paragraph (3) add—

“(4)       

Where a debit is brought into account by a company in accordance

with sub-paragraph (1), no debit shall be brought into account in

respect of—

(a)   

the writing down of so much of the value of the fixed

45

capital asset or project as is attributable to that debit, or

 

 

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

300

 

(b)   

so much of any amortisation or depreciation as represents

a writing off of the interest component of the asset.”.

34         

In paragraph 16 (amounts imputed under Schedule 28AA to the Taxes Act

1988), in sub-paragraph (2) omit “, notwithstanding the provisions of any

authorised accounting method,”.

5

35    (1)  

Paragraph 19 (partnerships involving companies) is amended as follows.

      (2)  

Omit sub-paragraph (10).

      (3)  

For sub-paragraph (11) substitute—

    “(11)  

Where the company partner uses fair value accounting in relation

to its interest in the partnership, the debits and credits to be

10

brought into account under this paragraph by that company must

be determined on the basis of fair value accounting.”.

      (4)  

In sub-paragraph (12) for the words from “carried to or sustained by a

reserve” to the end substitute “recognised in the firm’s statement of

recognised gains and losses or statement of changes in equity“.

15

36         

After paragraph 19 insert—

“Adjustment on change of accounting policy

19A   (1)  

This paragraph applies where—

(a)   

there is a change of accounting policy in drawing up a

company’s accounts from one period of account (the

20

“earlier period”) to the next (the “later period”), and

(b)   

the approach in each of those periods accorded with the

law and practice applicable in relation to that period.

      (2)  

This paragraph applies, in particular, where—

(a)   

the company prepares accounts for the earlier period in

25

accordance with UK generally accepted accounting

practice and for the later period in accordance with

international accounting standards, or

(b)   

the company prepares accounts for the earlier period in

accordance with international accounting standards and

30

for the later period in accordance with UK generally

accepted accounting practice.

      (3)  

If there is a difference between—

(a)   

the accounting value of an asset or liability representing a

loan relationship of the company at the end of the earlier

35

period, and

(b)   

the accounting value of that asset or liability at the

beginning of the later period,

           

a corresponding debit or credit (as the case may be) shall be

brought into account for the purposes of this Chapter in the later

40

period.

      (4)  

In sub-paragraph (3) “accounting value” means the carrying value

of the asset or liability recognised for accounting purposes.

      (5)  

This paragraph does not apply if or to the extent that such a debit

or credit as is mentioned in sub-paragraph (3) falls to be brought

45

into account apart from this paragraph.

 

 

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

301

 

      (6)  

Where or to the extent that an adjustment is made under this

paragraph, no adjustment under Schedule 22 (computation of

profits: adjustment on change of basis) shall be made.

Power to make further provision by regulations

19B   (1)  

The Treasury may by regulations make provision for cases where

5

there is a change of accounting policy in drawing up a company’s

accounts from one period of account to the next affecting the

amounts to be brought into account for accounting purposes in

respect of the company’s loan relationships.

      (2)  

The regulations may provide for any debits or credits that would

10

otherwise be brought into account for the purposes of this

Chapter—

(a)   

not to be brought into account,

(b)   

to be brought into account only to a prescribed extent, or

(c)   

to be brought into account over a prescribed period or in

15

prescribed circumstances.

      (3)  

Regulations under this paragraph may, in particular, modify the

operation of pargraph 19A.

      (4)  

The power to make regulations under this paragraph includes

power—

20

(a)   

to make different provison for different cases, and

(b)   

to make such consequential, supplementary, incidental or

transitional provision, or savings, as appear to the

Treasury to be necessary or expedient.”.

Collective investment schemes etc.

25

37         

Schedule 10 to the Finance Act 1996 (c. 8) (loan relationships: collective

investment schemes) is amended as follows.

38         

For paragraph 1A (investment trusts and venture capital trusts: capital

reserves) substitute—

“Investment trusts: capital profits, gains or losses

30

1A    (1)  

Capital profits, gains or losses arising to an investment trust from

a creditor relationship must not be brought into account as credits

or debits for the purposes of this Chapter.

      (2)  

For the purposes of this paragraph “capital profits, gains or

losses”—

35

(a)   

in the case of an investment trust that prepares accounts in

accordance with UK generally accepted accounting

practice, has the meaning given by sub-paragraphs (3) and

(4), and

(b)   

in the case of an investment trust that prepares accounts in

40

accordance with international accounting standards, has

the meaning given by order made by the Treasury.

      (3)  

In the cases mentioned in sub-paragraph (2)(a) capital profits,

gains or losses arising from a creditor relationship in an

accounting period are profits, gains or losses that are carried to or

45

 

 

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

302

 

sustained by a capital reserve in accordance with the Statement of

Recommended Practice.

      (4)  

For the purposes of this paragraph the Statement of

Recommended Practice is, for an accounting period for which it is

required or permitted to be used—

5

(a)   

the Statement of Recommended Practice relating to

Investment Trust Companies, issued by the Association of

Investment Trust Companies in January 2003, as from time

to time modified, amended or revised, or

(b)   

any subsequent Statement of Recommended Practice

10

relating to investment trusts, as from time to time

modified, amended or revised.

Venture capital trusts: capital profits, gains or losses

1B    (1)  

Capital profits, gains or losses arising to a venture capital trust

from a creditor relationship must not be brought into account as

15

credits or debits for the purposes of this Chapter.

      (2)  

For the purposes of this paragraph “capital profits, gains or

losses”—

(a)   

in the case of a venture capital trust that prepares accounts

in accordance with UK generally accepted accounting

20

practice, has the meaning given by sub-paragraphs (3) and

(4), and

(b)   

in the case of a venture capital trust that prepares accounts

in accordance with international accounting standards,

has the meaning given by order made by the Treasury.

25

      (3)  

In the cases mentioned in sub-paragraph (2)(a) capital profits,

gains or losses arising from a creditor relationship in an

accounting period are profits, gains or losses that—

(a)   

are carried to or sustained by a capital reserve in

accordance with the Statement of Recommended Practice

30

as if the venture capital trust were an investment trust, or

(b)   

would be so carried to or sustained by a capital reserve if

the venture capital trust were an investment trust and

were using the Statement of Recommended Practice.

      (4)  

For the purposes of this paragraph the Statement of

35

Recommended Practice is, in relation to an accounting period for

which it is required or permitted to be used—

(a)   

the Statement of Recommended Practice relating to

Investment Trust Companies, issued by the Association of

Investment Trust Companies in January 2003, as from time

40

to time modified, amended or revised, or

(b)   

any subsequent Statement of Recommended Practice

relating to investment trusts, as from time to time

modified, amended or revised.”.

39    (1)  

Paragraph 2A (authorised unit trusts) is amended as follows.

45

      (2)  

In the heading at the end add “: capital profits, gains or losses”.

      (3)  

In sub-paragraph (1) omit “notwithstanding section 84(2)(b) of this Act”.

 

 

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

303

 

      (4)  

After that sub-paragraph insert—

    “(1A)  

For the purposes of this paragraph “capital profits, gains or

losses”—

(a)   

in the case of an authorised unit trust that prepares

accounts in accordance with UK generally accepted

5

accounting practice, has the meaning given by sub-

paragraphs (2) to (4), and

(b)   

in the case of an authorised unit trust that prepares

accounts in accordance with international accounting

standards, has the meaning given by order made by the

10

Treasury.”.

      (5)  

In sub-paragraph (2) for the words “For the purposes of this paragraph”

substitute “In the cases mentioned in sub-paragraph (1A)(a)”.

      (6)  

In sub-paragraph (5) after “the definition of capital profits, gains or losses”

insert “in sub-paragraphs (2) to (4)”.

15

40    (1)  

Paragraph 2B (open-ended investment companies) is amended as follows.

      (2)  

In the heading at the end add “: capital profits, gains or losses”.

      (3)  

In sub-paragraph (1) omit “notwithstanding section 84(2)(b) of this Act”.

      (4)  

After that sub-paragraph insert—

    “(1A)  

For the purposes of this paragraph “capital profits, gains or

20

losses”—

(a)   

in the case of a company that prepares accounts in

accordance with UK generally accepted accounting

practice, has the meaning given by sub-paragraphs (2) to

(4), and

25

(b)   

in the case of a company that prepares accounts in

accordance with international accounting standards, has

the meaning given by order made by the Treasury.”.

      (5)  

In sub-paragraph (2) for the words “For the purposes of this paragraph”

substitute “In the cases mentioned in sub-paragraph (1A)(a)”.

30

      (6)  

In sub-paragraph (5) after “the definition of capital profits, gains or losses”

insert “in sub-paragraphs (2) to (4)”.

41    (1)  

Paragraph 4 (company holdings in unit trusts and offshore funds) is

amended as follows.

      (2)  

For sub-paragraph (3) substitute—

35

     “(3)  

The debits and credits to be brought into account for the purposes

of this Chapter as respects the company’s relevant holdings must

be determined on the basis of fair value accounting.”.

      (3)  

In sub-paragraph (4) for the words from the beginning to “for the purposes

of this Chapter,” substitute “Sub-paragraph (3) shall not be taken, as respects

40

any accounting period,”.

42         

In Schedule 11 to the Finance Act 1996 (c. 8) (loan relationships: special

provision for insurers), in paragraph 1(1A) for “sections 92(1)(f), 93(1)(a) and

(b) and 96(1)(b)” substitute “section 96(1)(b).

 

 

Finance Bill
Schedule 10 — Amendment of enactments that operate by reference to accounting practice
Part 2 — Derivative contracts

304

 

Consequential amendments

43         

In section 440 of the Taxes Act 1988 (insurance companies: transfers of assets

etc.), in subsection (2A) (treatment of asset representing loan relationship),

for the words from “any authorised accounting method” to “shall be

applied” substitute “Chapter 2 of Part 4 of the Finance Act 1996 applies”.

5

44         

In section 730A of that Act (treatment of price differential on sale and

repurchase of securities), in subsection (6) (treatment of loan

relationships)—

(a)   

omit paragraph (b) (but not the word “and” following it), and

(b)   

in the closing words for “paragraphs (b) and (c)” substitute

10

“paragraph (c)”.

45         

In Schedule 28A of that Act (change in ownership of investment company),

in paragraphs 7(1)(d)(ii) and (e)(ii), 11(1)(a) and (3)(c) and 16(1)(d)(ii) and

(e)(ii) for “authorised accruals” substitute “amortised cost”.

46         

In paragraph 7(3) of Schedule 26 to the Transport Act 2000 (c. 38) (transfers

15

under that Act), for “an authorised accounting method” substitute “a basis

of accounting”.

Part 2

Derivative contracts

Method of taxation

20

47    (1)  

In Schedule 26 to the Finance Act 2002 (c. 23) (derivative contracts: method

of taxation), paragraph 15 (credits and debits to be brought into account) is

amended as follows.

      (2)  

In sub-paragraph (1) omit “in accordance with an authorised accounting

method and”.

25

      (3)  

Omit sub-paragraphs (2), (3) and (6).

      (4)  

In sub-paragraph (9) for “paragraph 16” substitute “the following provisions

of this Schedule”.

48    (1)  

Paragraph 16 of that Schedule (exchange gains and losses arising from

derivative contracts) is amended as follows.

30

      (2)  

For sub-paragraph (3) substitute—

“(3)   

Sub-paragraph (1) does not apply to an exchange gain or loss of a

company to the extent that it—

(a)   

arises in relation to a derivative contract whose underlying

subject matter consists wholly or partly of currency, or

35

(b)   

results from the translation from one currency to another of

the profit or loss of part of the company’s business,

   

and is recognised in the company’s statement of recognised gains

and losses or statement of changes in equity.

(3A)   

Sub-paragraph (1) above does not apply to so much of an exchange

40

gain or loss arising to a company, in relation to a derivative contract

whose underlying subject matter consists wholly or partly of

currency, as falls within a description prescribed for the purpose in

regulations made by the Treasury.”.

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2004
Revised 6 April 2004