Finance Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
49

(9)
The following rules have effect for determining for the purposes of
Step 1 the expenses that are referable to an accounting period.
    Rule A

Where a period of account coincides with an accounting period, the
expenses brought into account for the period of account are the
5
expenses referable to the accounting period.
    Rule B

Where—
(a)
two or more accounting periods fall within the same period of
account, and
10
(b)
that period of account is longer than 12 months,

section 834(4) (apportionment on time basis) is to apply.
    Rule C

In any other case where two or more accounting periods fall within the
same period of account, the expenses referable to any of those
15
accounting periods are the expenses that would have been referable to
that accounting period if—
(a)
the accounting period had coincided with a period of account,
and
(b)
a separate periodical return had been made for that period of
20
account,

and section 834(4) (apportionment on time basis) is not to apply.
    Rule D

Rules A to C are subject to any provision of the Corporation Tax Acts
which provides for an amount to be treated as expenses payable for, or
25
referable to, a particular period.
(10)
The amount D1 in Step 9 is the amount that would be the profits of the
company’s life assurance business for the accounting period if—
(a)
computed in accordance with the provisions applicable to Case
I of Schedule D, and
30
(b)
adjusted in respect of losses.

The adjustment in respect of losses is a deduction of the amount which,
disregarding section 434A(2) and 440B, would fall to be set off under
section 393 against the company’s income for that period if the
company had always been charged to tax under Case I of Schedule D
35
in respect of its life assurance business.
(11)
The amount R in Step 9 (which may be a negative amount) is found for
the accounting period by—
(a)
taking the company’s relevant income, and
(b)
deducting from it the relevant aggregate.
40

The “relevant income” is the sum of—
(a)
the income and gains referable by virtue of section 432A to the
company’s basic life assurance and general annuity business;
(b)
distributions received by the company from companies resident
in the United Kingdom which are referable by virtue of section
45
432A to its basic life assurance and general annuity business;

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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(c)
profits chargeable under Case VI of Schedule D under section
436, 439B or 441.

The “relevant aggregate” is the sum of—
(a)
the basic deduction (see Step 8);
(b)
any non-trading deficit on the company’s loan relationships
5
which is produced for the period in relation to the company’s
basic life assurance and general annuity business by a separate
computation under paragraph 2 of Schedule 11 to the Finance
Act 1996;
(c)
any amount which in pursuance of a claim under paragraph
10
4(3) of that Schedule is carried back to the period and (in
accordance with paragraph 4(5) of that Schedule) applied in
reducing profits of the company for that period.
(12)
Where for any accounting period—
(a)
the amount of the expenses deduction (see Step 10),
15
exceeds
(b)
the amount from which that deduction is to be made (see
subsection (2) above),

the excess is to be carried forward to the next accounting period and
brought into account for that period in accordance with Step 7.
20
(13)
Subject to paragraph 4(11) to (13) of Schedule 11 to the Finance Act
1996, where for any accounting period—
(a)
the basic deduction (see Step 8),
exceeds
(b)
the expenses deduction (see Step 10),
25

the excess is to be carried forward to the next accounting period and
brought into account for that period in accordance with Step 7.
(14)
In this section any reference to—
(a)
life assurance business, or
(b)
basic life assurance and general annuity business,
30

includes a reference to capital redemption business.
(15)
In this section—

“capital redemption business” means any capital redemption
business, within the meaning of section 458, which is business
to which that section applies;
35

“expenses payable” has the meaning given by subsection (3)
above;

and other expressions have the same meaning as in Chapter 1 of
Part 12.”.
(2)
This section has effect in accordance with sections 42 and 44 (commencement
40
and transitional provisions).
41
Related amendments to other enactments
(1)
The enactments mentioned in Schedule 6 to this Act shall have effect with the
amendments specified in that Schedule.
(2)
Subsection (1) has effect in accordance with sections 42, 43 and 44
45
(commencement and transitional provisions).

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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42
Commencement of sections 38 to 41
(1)
The amendments made by sections 38 to 41 and Schedule 6 have effect for
accounting periods beginning on or after 1st April 2004.
(2)
This is subject to the transitional provisions in sections 43 and 44 and that
Schedule.
5
43
Companies with investment business: transitional provisions
(1)
Any amount which, apart from this subsection, would have fallen to be treated
under the old section 75(3) as if it had been disbursed as expenses of
management for the first new accounting period of a company shall instead be
treated as if it were expenses of management deductible for that period by
10
virtue of the new section 75(9).
(2)
To the extent that any amount was deductible under subsection (1) of section
75 for an old accounting period, the amount shall not again be deductible
under that subsection for a new accounting period.
(3)
Subsection (2) is without prejudice to the old section 75(3) and the new section
15
75(9) (carry forward of unrelieved excess to later accounting period).
(4)
To the extent that an amount—
(a)
was not deductible under section 75(1) by an investment company for
any old accounting period, but
(b)
would have been deductible under the new section 75(1) for an old
20
accounting period if the amendments made by sections 38 and 39 and
Schedule 6 or any order under section 41 (so far as having effect in
relation to the first new accounting period) had been in force in relation
to that period,

the amount shall be deductible under section 75(1) for the first new accounting
25
period of the company.
(5)
Where there is an accounting period that begins before, and ends on or after,
1st April 2004 (“the commencement date”), it shall be assumed, for the purpose
of determining the amounts that are deductible for that period under section
75(1) of the Taxes Act 1988, that that accounting period (the “straddling
30
period”) consists of two separate accounting periods—
(a)
the first beginning with the straddling period and ending with the day
preceding the commencement date, and
(b)
the second beginning with the commencement date and ending with
the straddling period,
35

but this is subject to subsection (6).
(6)
In the case of an investment company, subsection (5) does not have effect for
the purpose of determining the amounts that are deductible for the straddling
period under section 75(1) by virtue of—
(a)
subsection (3) of the old section 75, or
40
(b)
any provision of the Corporation Tax Acts, apart from section 75 and
this section.
(7)
Where, for the purposes of section 768B or 768C of the Taxes Act 1988, there is
a change in the ownership of a company during the straddling period, then for
the purposes of the section in question (and Schedule 28A to that Act), before
45

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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making any such division as is required by section 768B(4) or 768C(3) of that
Act,—
(a)
the straddling period shall be divided into two parts in accordance with
subsection (5), and
(b)
those parts shall be treated in accordance with that subsection as two
5
separate accounting periods, but
(c)
subsection (6) shall be disregarded,

and section 768B or 768C of, and Schedule 28A to, the Taxes Act 1988 shall have
effect accordingly.
(8)
In this section—
10

“commencement date” shall be construed in accordance with subsection
(5);

“investment company” has the same meaning as in Part 4 of the Taxes Act
1988 (see section 130 of that Act);

“new accounting period” means an accounting period beginning on or
15
after the commencement date;

“old accounting period” means an accounting period beginning before the
commencement date;

“the new section 75” means section 75 as it has effect in relation to a new
accounting period;
20

“the old section 75” means section 75 as it has effect (apart from subsection
(5) above) in relation to an old accounting period;

“section 75” means section 75 of the Taxes Act 1988.”.
44
Insurance companies: transitional provisions
(1)
Step 7 has effect for the first new accounting period as if, in paragraph (b) of
25
that step, the reference to amounts carried forward under subsection (12) or
(13) of the new section 76 (carry forward of unrelieved excess to later
accounting period) included—
(a)
a reference to amounts falling to be carried forward from the last old
accounting period under section 75(3) by virtue of the old section 76(1)
30
(including any amounts falling to be so carried forward by virtue of the
old section 76(5)), and
(b)
a reference to so much of any pool under subsection (6) of section 87 of
the Finance Act 1989 (c. 26) (pre-1990 expenses) as remains after
making any reduction required by paragraph (c) of that subsection for
35
the last old accounting period.
(2)
To the extent that an amount—
(a)
was not deductible under the old section 76(1) by a company for any
old accounting period, but
(b)
would have fallen to be taken into account by the company in
40
determining the expenses deduction to be made under the new section
76(1) for an old accounting period if the amendments made by section
40 and Schedule 6 had been in force in relation to that period,

the company’s basic deduction (see Step 8) for the first new accounting period
shall be increased by the addition of that amount.
45
(3)
Where there is an accounting period that begins before, and ends on or after,
1st April 2004 (“the commencement date”), it shall be assumed, for the purpose
of determining the deduction to be made under section 76(1), that that

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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accounting period (“the straddling period”) consists of two separate
accounting periods—
(a)
the first beginning with the straddling period and ending with the day
preceding the commencement date (“the first notional period”), and
(b)
the second beginning with the commencement date and ending with
5
the straddling period (“the second notional period”),

and the deduction shall be determined in accordance with subsections (4) to
(6).
(4)
For the purpose of determining the deduction to be made under section 76(1)
for the straddling period—
10
(a)
first add together—
(i)
such amounts falling within the old section 76(1) as were
disbursed for the first notional period, but without deducting
amounts falling within the old section 76(1)(aa),
(ii)
the amounts falling to be brought into account at Step 1, as
15
reduced at Step 2, for the second notional period, and
(iii)
amounts falling to be carried forward from the previous
accounting period under the old section 75(3) by virtue of the
old section 76(1) (including any amounts falling to be so carried
forward by virtue of the old section 76(5)),
20
(b)
then reduce the aggregate of those amounts (but not below nil), by
deducting from that aggregate any amounts falling within the old
section 76(1)(aa) for the straddling period,

and that aggregate, as so reduced, is deductible in accordance with the old
section 76(1)(e) but subject to the old section 76(2) to (2D).
25
(5)
Subsection (3) does not have effect for the purpose of determining the amounts
that are deductible for the straddling period under section 76(1) by virtue of
any provision of the Corporation Tax Acts apart from—
(a)
section 75(3),
(b)
section 76, and
30
(c)
this section,

(so that, in particular, the old section 86 has effect for the straddling period).
(6)
No amount shall be brought into account in determining the deduction to be
made under section 76(1) for the straddling period except as provided by
subsections (4) and (5).
35
(7)
Any reference in this section to a numbered Step is a reference to the Step so
numbered in subsection (7) of the new section 76.
(8)
In this section—

“the commencement date” shall be construed in accordance with
subsection (3) above;
40

“new accounting period” means an accounting period beginning on or
after the commencement date;

“old accounting period” means an accounting period beginning before the
commencement date;

“the new section 76” means section 76 as it has effect in relation to a new
45
accounting period;

“the old section 76” means section 76 as it has effect (apart from subsection
(3) above) in relation to an old accounting period;

“section 75” means section 75 of the Taxes Act 1988;

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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“section 76” means section 76 of the Taxes Act 1988;

“the old section 86” means section 86 of the Finance Act 1989 (c. 26) as it
has effect (apart from subsection (3) above) in relation to an old
accounting period.
Amounts reversing expenses of management deducted
5
45
Amounts reversing expenses of management deducted: charge to tax
(1)
After section 75A of the Taxes Act 1988 (inserted by section 39) insert—
“75B
Amounts reversing expenses of management deducted: charge to tax
(1)
This paragraph applies in any case where the following conditions are
satisfied—
10
(a)
a credit is brought into account by a company in a period of
account (the “reversal period”) which ends on or after the
commencement date,
(b)
the credit reverses (in whole or in part) a debit brought into
account in a previous period of account of the company
15
(whenever ending),
(c)
the debit (in whole or in part) represents expenses of
management deductible under section 75(1) for an accounting
period of the company (“the period of deductibility”),
(d)
the expenses of management were so deductible for that period
20
otherwise than by virtue of section 75(9) (carry forward of
unrelieved excess),
(e)
the period of deductibility ends before, or at the same time as,
the reversal period,
(f)
the reversal period does not coincide with an accounting period
25
beginning before the commencement date.
(2)
In any such case, subsection (4) or (5) below (as the case may be) shall
apply in relation to the reversal amount.
(3)
In this section “the reversal amount” means so much of the credit as—
(a)
reverses so much of the debit as represents the expenses of
30
management, and
(b)
does not represent sums otherwise taken into account in
determining for the purposes of corporation tax the profits and
losses of the company for the relevant accounting period or any
earlier accounting period.
35

For this purpose the relevant accounting period is the latest accounting
period of the company that falls wholly or partly within the reversal
period.
(4)
If the reversal period coincides with an accounting period of the
company beginning on or after the commencement date, the reversal
40
amount shall be dealt with for that period in accordance with
subsection (7) below.
(5)
If the reversal period does not coincide with an accounting period of
the company—
(a)
the reversal amount shall be apportioned between any
45
accounting periods that fall within the reversal period, and

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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(b)
any amount so apportioned to an accounting period beginning
on or after the commencement date shall be dealt with for that
period in accordance with subsection (7) below.
(6)
An apportionment under subsection (5) above shall be in accordance
with section 834(4) (time basis) unless it appears that that method
5
would work unreasonably or unjustly, in which case such other
method shall be used as appears just and reasonable.
(7)
Where an amount falls to be dealt with in accordance with this
subsection for an accounting period—
(a)
it shall, so far as possible, be applied in reducing or further
10
reducing (but not below nil) the company’s expenses of
management deductible for that period otherwise than by
virtue of section 75(9) (carry forward of unrelieved excess), and
(b)
so much of the amount as cannot be so applied shall be
regarded as income of the company chargeable under Case VI
15
of Schedule D for that accounting period.
(8)
In subsection (1) above “brought into account”, in relation to a period
of account of a company, means brought into account in accordance
with generally accepted accounting practice in determining, for
accounting purposes, profit and loss for that period of account.
20
(9)
If (apart from this subsection) an accounting period does not coincide
with, or fall within, any period of account, it shall be assumed for the
purposes of this section that there is a period of account of the company
that coincides with that accounting period.
(10)
It shall be assumed for the purposes of this section that, in determining
25
for accounting purposes profit and loss for any period of account of any
company, amounts fall to be brought into account in accordance with
generally accepted accounting practice.
(11)
For the purposes of this section a credit reverses a debit in whole or in
part in any case where the sum represented in whole or in part by the
30
debit is paid and then in whole or in part repaid (as well as in a case
where the sum represented by the debit is never paid).
(12)
In this section—

“the commencement date” means 1st April 2004;

“credit” means an amount which for accounting purposes
35
increases or creates a profit, or reduces a loss, for a period of
account;

“debit” means an amount which for accounting purposes reduces
a profit, or increases or creates a loss, for a period of account.”.
(2)
Where any such previous period as is referred to in subsection (1)(d) of section
40
75B is an old accounting period, that section has effect so far as relating to that
previous period as if the reference to section 75(9) were a reference to
subsection (3) of the old section 75.
(3)
In subsection (2), “old accounting period” and “the old section 75” have the
same meaning as in section 43.
45
(4)
In section 842 of the Taxes Act 1988 (investment trusts) after subsection (1AB)