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
56

insert—
“(1AC)
In determining the amount of a company’s income for the purposes of
subsection (1)(a) above, no account shall be taken of any amount that
falls under section 75B(7)(b) to be regarded as income of the company
chargeable under Case VI of Schedule D.”.
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Power to make consequential amendments
46
Power to make consequential amendments
(1)
The Treasury may by order make such amendments, repeals or revocations in
any enactment (including an enactment amended by this Act) as appear to
them to be appropriate in consequence of sections 38 to 40 and 45 and Schedule
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6.
(2)
The power conferred by subsection (1) to make an order includes power—
(a)
to make different provision for different cases, and
(b)
to make incidental, consequential, supplemental or transitional
provision and savings.
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(3)
Any order made under this section on or before 31st December 2004 may make
provision having effect in relation to accounting periods ending before the date
on which the order is made (but not before 1st April 2004.)
(4)
In this section—

“enactment” includes an enactment comprised in subordinate legislation;
20

“subordinate legislation” has the same meaning as in the Interpretation
Act 1978 (c. 30) (see section 21 of that Act).
Insurance companies: miscellaneous
47
Insurance companies etc.
Schedule 7 to this Act (which makes provision about insurance companies and
25
companies which have ceased to be insurance companies after a transfer of
business) has effect.
Loan relationships and derivative contracts
48
Loan relationships: miscellaneous amendments
Schedule 8 to this Act (which makes amendments relating to loan
30
relationships) shall have effect.
49
Derivative contracts: miscellaneous amendments
Schedule 9 to this Act (which makes amendments relating to derivative
contracts) shall have effect.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
57

Accounting practice
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Generally accepted accounting practice
(1)
In the Tax Acts “generally accepted accounting practice” means—
(a)
in relation to the affairs of a company or other entity that prepares
accounts in accordance with international accounting standards (“IAS
5
accounts”), generally accepted accounting practice with respect to such
accounts;
(b)
in any other case, UK generally accepted accounting practice.
(2)
In the Tax Acts “international accounting standards” means the international
accounting standards, within the meaning of Regulation (EC) No. 1606/2002
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of the European Parliament and the Council of 19 July 2002 on the application
of international accounting standards, adopted from time to time by the
European Commission in accordance with that Regulation.
(3)
Where the European Commission has not adopted a particular international
accounting standard, then as regards the matters covered by that standard—
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(a)
generally accepted accounting practice with respect to IAS accounts
shall be regarded as permitting the use either of the unadopted
standard or of UK generally accepted accounting practice, and
(b)
accounts prepared on either basis shall be regarded for the purposes of
the Tax Acts as prepared in accordance with international accounting
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standards.
(4)
In the Tax Acts “UK generally accepted accounting practice”—
(a)
means generally accepted accounting practice with respect to accounts
of UK companies (other than IAS accounts) that are intended to give a
true and fair view, and
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(b)
has the same meaning in relation to—
(i)
individuals,
(ii)
entities other than companies, and
(iii)
companies that are not UK companies,

as it has in relation to UK companies.
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In this subsection “UK companies” means companies incorporated or formed
under the law of a part of the United Kingdom.
(5)
In section 832(1) of the Taxes Act 1988 (interpretation of the Tax Acts)—
(a)
in the definition of “generally accepted accounting practice” for “has
the meaning given by section 836A” substitute “has the meaning given
35
by section 50(1) of the Finance Act 2004”;
(b)
at the appropriate place insert—

““international accounting standards” has the meaning given by
section 50(2) of the Finance Act 2004;”; and

““UK generally accepted accounting practice” has the meaning
40
given by section 50(4) of the Finance Act 2004;”.
(6)
This section has effect in relation to—
(a)
periods of account beginning on or after 1st January 2005, and
(b)
in the case of a company required to prepare accounts under the
Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order
45
1986, any period of account beginning before that date for which the

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
58

company is required or permitted to prepare such accounts in
accordance with international accounting standards.
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Use of different accounting practices within a group of companies
(1)
This section applies where—
(a)
a company (company A) prepares accounts in accordance with
5
international accounting standards,
(b)
another company (company B) in the same group of companies
prepares accounts in accordance with UK generally accepted
accounting practice,
(c)
there is a transaction between, or a series of transactions involving,
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company A and company B, and
(d)
a tax advantage would (apart from this paragraph) be obtained by
either or both of those companies in relation to the transaction or series
of transactions as a result of the use of different accounting practices.
(2)
In that case the Tax Acts apply in relation to that transaction or series of
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transactions as if both companies prepared accounts in accordance with UK
generally accepted accounting practice.
(3)
The provisions of section 170(3) to (6) of the Taxation of Chargeable Gains Act
1992 (c. 12) apply to determine for the purposes of this section whether
companies are in the same group of companies.
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(4)
A series of transactions is not prevented from being a series of transactions
involving company A and company B by reason only of the fact that one or
more of the following is the case—
(a)
there is no transaction in the series to which both those companies are
parties;
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(b)
that parties to any arrangement in pursuance of which the transactions
in the series are entered into do not include one or both of those
companies;
(c)
there are one or more transactions in the series to which neither of those
companies is a party.
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(5)
In this section “tax advantage” has the same meaning as in Chapter 1 of Part 17
of the Taxes Act 1988 (see section 709 of that Act).
(6)
This section has effect in relation to—
(a)
periods of account beginning on or after 1st January 2005, and
(b)
in the case of a company required to prepare accounts under the
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Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order
1986, any period of account beginning before that date for which the
company is required or permitted to prepare such accounts in
accordance with international accounting standards.
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Amendment of enactments that operate by reference to accounting practice
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(1)
Schedule 10 makes amendments of provisions of the Tax Acts that operate by
reference to accounting practice.
(2)
In that Schedule—

Part 1 makes amendments relating to loan relationships;

Part 2 makes amendments relating to derivative contracts;
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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
59


Part 3 makes amendments relating to intangible fixed assets;

Part 4 makes amendments relating to foreign currency accounting.
(3)
The amendments have effect in relation to—
(a)
periods of account beginning on or after 1st January 2005, and
(b)
in the case of a company required to prepare accounts under the
5
Companies Act 1985 or the Companies (Northern Ireland) Order 1986,
any period of account beginning before that date for which the
company is required or permitted to prepare such accounts in
accordance with international accounting standards.
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Treatment of expenditure on research and development
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(1)
Expenditure by a company on research and development, if not of a capital
nature, is not prevented from being regarded for tax purposes as deductible in
computing profits by reason of the fact that for accounting purposes it is
brought into account by the company in determining the value of an intangible
asset.
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(2)
Subsection (1) applies, in particular, for the purposes of—

section 82A of the Taxes Act 1988 (deduction of expenditure on research
and development),

Schedule 20 to the Finance Act 2000 (c. 17) (R&D tax relief),

Schedule 12 to the Finance Act 2002 (c. 23) (tax relief for expenditure on
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research and development), and

Schedule 13 to that Act (tax relief for expenditure on vaccine research etc.).
(3)
Where expenditure is brought into account by a company for tax purposes in
accordance with subsection (1), no deduction may be made in computing for
tax purposes the profits of the company in respect of the writing down of so
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much of the value of an intangible asset as is attributable to that expenditure.
(4)
Expenditure shall not be regarded by virtue of subsection (1) as deductible in
computing a company’s profits for an accounting period to the extent that—
(a)
a deduction has been made in respect of it in computing the company’s
profits for a previous accounting period, or
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(b)
the company has benefited from a tax relief in respect of it for a
previous accounting period under any of the provisions specified in
subsection (2).
(5)
In this section—

“intangible asset” has the meaning it has for accounting purposes; and
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“research and development” has the meaning given by section 837A of the
Taxes Act 1988.
(6)
This section shall come into force in accordance with provision made by the
Treasury by order made by statutory instrument.
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Trading profits etc. from securities: taxation of amounts taken to reserves
40
(1)
Before section 473 of the Taxes Act 1988 insert—
“472A
  Trading profits etc. from securities: taxation of amounts taken to
reserves
(1)
This section applies in relation to securities—

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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(a)
which are held by a person carrying on a banking business, an
insurance business or a business consisting wholly or partly in
dealing in securities; and
(b)
which are such that a profit on their sale would form part of the
trading profits of that business.
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(2)
Profits and losses arising from such securities that in accordance with
generally accepted accounting practice are—
(a)
calculated by reference to the fair value of the securities, and
(b)
recognised in that person’s statement of recognised gains and
losses or statement of changes in equity,
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shall be brought into account in computing the profits or losses of a
business in accordance with the provisions of this Act applicable to
Case I of Schedule D.
(3)
Subsection (2) does not apply—
(a)
to an amount to the extent that it derives from or otherwise
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relates to an amount brought into account under that subsection
in an earlier period of account, or
(b)
to an amount recognised for accounting purposes by way of
correction of a fundamental error.
(4)
In this section, “securities”—
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(a)
includes shares and any rights, interests or options that by
virtue of section 99, 135(5) or 136(5) of the Taxation of
Chargeable Gains Act 1992 are treated as shares for the
purposes of sections 126 to 136 of that Act; but
(b)
does not include a loan relationship (within the meaning of
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Chapter 2 of Part 4 of the Finance Act 1996).”.
(2)
This section has effect in relation to—
(a)
periods of account beginning on or after 1st January 2005, and
(b)
in the case of a company required to prepare accounts under the
Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order
30
1986, any period of account beginning before that date for which the
company is required or permitted to prepare such accounts in
accordance with international accounting standards.
Miscellaneous
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Duty of company to give notice of coming within charge to corporation tax
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(1)
A company must give notice to the Board—
(a)
of the beginning of its first accounting period, and
(b)
of the beginning of any subsequent accounting period that does not
immediately follow the end of a previous accounting period.
(2)
The notice required by this section—
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(a)
must be in writing;
(b)
must state when the accounting period began;
(c)
must contain such other information as may be prescribed;
(d)
may be given to any officer of the Board; and

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
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(e)
must be given not later than three months after the beginning of the
accounting period.
(3)
“Prescribed” in subsection (2)(c) means prescribed by regulations made by the
Board.
(4)
A company that has a reasonable excuse for failing to give notice as required
5
by this section—
(a)
is not to be regarded as having failed to comply with this section until
the excuse ceases, and
(b)
after the excuse ceases is not to be regarded as having failed to comply
with this section if the required notice is given without unreasonable
10
delay after the excuse ceases.
(5)
In this section—
(a)
“accounting period” means an accounting period for the purposes of
corporation tax;
(b)
“company” means a body corporate and does not include an
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unincorporated association or a partnership; and
(c)
“the Board” means the Commissioners of Inland Revenue.
(6)
In the second column of the Table in section 98 of the Taxes Management Act
1970 (c. 9) (penalty for failure to provide information), at the appropriate place
insert—
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“section 55 of the Finance Act 2004”.
(7)
This section applies in relation to accounting periods beginning on or after the
day on which this Act is passed.
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Relief for community amateur sports clubs
(1)
Schedule 18 to the Finance Act 2002 (c. 23) (relief for community amateur
25
sports clubs) is amended as follows.
(2)
In paragraph 4(1)(b) (exemption for trading income not exceeding £15,000 etc)
for “£15,000” substitute “£30,000”.
(3)
In paragraph 6(1)(b) (exemption for property income not exceeding £10,000
etc) for “£10,000” substitute “£20,000”.
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(4)
The amendments made by this section have effect in relation to accounting
periods ending on or after 1st April 2004.
(5)
Where an accounting period begins before, and ends on or after, 1st April 2004,
the amendments made by sub-paragraphs (2) and (3) above have effect as if—
(a)
the part falling before that date and the part falling on or after it were
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two separate accounting periods, and
(b)
the club’s trading income and property income for each of those parts
were the proportionally reduced amount of its trading income and
property income for the actual accounting period.
(6)
In this section—
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“property income” has the same meaning as in paragraph 6 of Schedule18
to the Finance Act 2002;

“trading income” has the same meaning as in paragraph 4 of that
Schedule.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Construction industry scheme
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Chapter 3
Construction industry scheme
Introduction
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Introduction
(1)
This Chapter provides for certain payments (see section 60) under construction
5
contracts to be made under deduction of sums on account of tax (see sections
61 and 62).
(2)
In this Chapter “construction contract” means a contract relating to
construction operations (see section 74) which is not a contract of employment
but where—
10
(a)
one party to the contract is a sub-contractor (see section 58); and
(b)
another party to the contract (“the contractor”) either—
(i)
is a sub-contractor under another such contract relating to all or
any of the construction operations, or
(ii)
is a person to whom section 59 applies.
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(3)
In sections 60 and 61 “the contractor” has the meaning given by this section.
(4)
In this Chapter—
(a)
references to registration for gross payment are to registration under
section 63(2),
(b)
references to registration for payment under deduction are to
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registration under section 63(3), and
(c)
references to registration under section 63 are to registration for gross
payment or registration for payment under deduction.
(5)
To the extent that any provision of this Chapter would not, apart from this
subsection, form part of the Tax Acts, it shall be taken to form part of those
25
Acts.
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Sub-contractors
For the purposes of this Chapter a party to a contract relating to construction
operations is a sub-contractor if, under the contract—
(a)
he is under a duty to the contractor to carry out the operations, or to
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furnish his own labour (in the case of a company, the labour of
employees or officers of the company) or the labour of others in the
carrying out of the operations or to arrange for the labour of others to
be furnished in the carrying out of the operations; or
(b)
he is answerable to the contractor for the carrying out of the operations
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by others, whether under a contract or under other arrangements made
or to be made by him.
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Contractors
(1)
This section applies to the following bodies or persons—
(a)
any person carrying on a business which includes construction
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operations;