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

50

 

(a)   

taking the company’s relevant income, and

(b)   

deducting from it the relevant aggregate.

   

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;

5

(b)   

distributions received by the company from companies resident

in the United Kingdom which are referable by virtue of section

432A to its basic life assurance and general annuity business;

(c)   

profits chargeable under Case VI of Schedule D under section

436, 439B or 441.

10

   

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

which is produced for the period in relation to the company’s

basic life assurance and general annuity business by a separate

15

computation under paragraph 2 of Schedule 11 to the Finance

Act 1996;

(c)   

any amount which in pursuance of a claim under paragraph

4(3) of that Schedule is carried back to the period and (in

accordance with paragraph 4(5) of that Schedule) applied in

20

reducing profits of the company for that period.

(12)   

Where for any accounting period—

(a)   

the amount of the expenses deduction (see Step 10),

exceeds

(b)   

the amount from which that deduction is to be made (see

25

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.

(13)   

Subject to paragraph 4(11) to (13) of Schedule 11 to the Finance Act

1996, where for any accounting period—

30

(a)   

the basic deduction (see Step 8),

exceeds

(b)   

the expenses deduction (see Step 10),

   

the excess is to be carried forward to the next accounting period and

brought into account for that period in accordance with Step 7.

35

(14)   

In this section any reference to—

(a)   

life assurance business, or

(b)   

basic life assurance and general annuity business,

   

includes a reference to capital redemption business.

(15)   

In this section—

40

   

“capital redemption business” means any capital redemption

business, within the meaning of section 458, which is business

to which that section applies;

   

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

above;

45

   

and other expressions have the same meaning as in Chapter 1 of

Part 12.”.

 

 

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

51

 

(2)   

This section has effect in accordance with sections 42 and 44 (commencement

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.

5

(2)   

Subsection (1) has effect in accordance with sections 42, 43 and 44

(commencement and transitional provisions).

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.

10

(2)   

This is subject to the transitional provisions in sections 43 and 44 and that

Schedule.

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

15

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

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

20

under that subsection for a new accounting period.

(3)   

Subsection (2) is without prejudice to the old section 75(3) and the new section

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

25

any old accounting period, but

(b)   

would have been deductible under the new section 75(1) for an old

accounting period if the amendments made by sections 38 and 39 and

Schedule 6 or any order under section 46 (so far as having effect in

relation to the first new accounting period) had been in force in relation

30

to that period,

   

the amount shall be deductible under section 75(1) for the first new accounting

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

35

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

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

40

(b)   

the second beginning with the commencement date and ending with

the straddling period,

   

but this is subject to subsection (6).

 

 

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

52

 

(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

(b)   

any provision of the Corporation Tax Acts, apart from section 75 and

5

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

making any such division as is required by section 768B(4) or 768C(3) of that

10

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

separate accounting periods, but

15

(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—

   

“the commencement date” shall be construed in accordance with

20

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

after the commencement date;

25

   

“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;

   

“the old section 75” means section 75 as it has effect (apart from subsection

30

(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

that Step, the reference to amounts carried forward under subsection (12) or

35

(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)

(including any amounts falling to be so carried forward by virtue of the

40

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

the last old accounting period.

45

(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

 

 

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

53

 

(b)   

would have fallen to be taken into account by the company in

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

5

shall be increased by the addition of that amount.

(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

accounting period (“the straddling period”) consists of two separate

10

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

the straddling period (“the second notional period”),

15

   

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—

(a)   

first add together—

20

(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

reduced at Step 2, for the second notional period, and

25

(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)),

(b)   

then reduce the aggregate of those amounts (but not below nil), by

30

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).

(5)   

Subsection (3) does not have effect for the purpose of determining the amounts

35

that are deductible for the straddling period under section 76(1) by virtue of

any provision of the Corporation Tax Acts apart from—

(a)   

the old section 75(3),

(b)   

section 76, and

(c)   

this section,

40

   

(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).

(7)   

Any reference in this section to a numbered Step is a reference to the Step so

45

numbered in subsection (7) of the new section 76.

(8)   

In this section—

   

“the commencement date” shall be construed in accordance with

subsection (3);

 

 

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

54

 

   

“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

5

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;

   

“section 76” means section 76 of the Taxes Act 1988;

10

   

“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

45      

Amounts reversing expenses of management deducted: charge to tax

15

(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 section applies in any case where the following conditions are

satisfied—

(a)   

a credit is brought into account by a company in a period of

20

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

(whenever ending),

25

(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

otherwise than by virtue of section 75(9) (carry forward of

30

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

beginning before the commencement date.

35

(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

management, and

40

(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.

 

 

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

55

 

   

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

5

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

10

accounting periods that fall within the reversal period, and

(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

15

with section 834(4) (time basis) unless it appears that that method

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—

20

(a)   

it shall, so far as possible, be applied in reducing or further

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

25

regarded as income of the company chargeable under Case VI

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

30

accounting purposes, profit and loss for that period of account.

(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.

35

(10)   

It shall be assumed for the purposes of this section that, in determining

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

40

part in any case where the sum represented in whole or in part by the

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;

45

   

“credit” means an amount which for accounting purposes

increases or creates a profit, or reduces a loss, for a period of

account;

 

 

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

56

 

   

“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

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

5

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.

(4)   

In section 842 of the Taxes Act 1988 (investment trusts) after subsection (1AB)

insert—

10

“(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.”.

Power to make consequential amendments

15

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

6.

20

(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.

(3)   

Any order made under this section on or before 31st December 2004 may make

25

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;

   

“subordinate legislation” has the same meaning as in the Interpretation

30

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

companies which have ceased to be insurance companies after a transfer of

35

business) shall have effect.

 

 

 
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