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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

50

 

(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

51

 

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

52

 

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

 

 

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

53

 

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;

 

 

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

54

 

   

“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

 

 

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

55

 

(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)

 

 

 
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