Finance Bill

House of Commons

Session 2002 - 03
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Other Bills before Parliament

Finance Bill

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

Loan relationships and derivative contracts
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Loan relationships: miscellaneous amendments
Schedule 8 to this Act (which makes amendments relating to loan
relationships) shall have effect.
49
Derivative contracts: miscellaneous amendments
5
Schedule 9 to this Act (which makes amendments relating to derivative
contracts) shall have effect.
Accounting practice
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Generally accepted accounting practice
(1)
In the Tax Acts “generally accepted accounting practice” means—
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(a)
in relation to the affairs of a company or other entity that prepares
accounts in accordance with international accounting standards (“IAS
accounts”), generally accepted accounting practice with respect to such
accounts;
(b)
in any other case, UK generally accepted accounting practice.
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(2)
In the Tax Acts “international accounting standards” means the international
accounting standards, within the meaning of Regulation (EC) No. 1606/2002
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.
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(3)
Where the European Commission has not adopted a particular international
accounting standard, then as regards the matters covered by that standard—
(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
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(b)
accounts prepared on either basis shall be regarded for the purposes of
the Tax Acts as prepared in accordance with international accounting
standards.
(4)
In the Tax Acts “UK generally accepted accounting practice”—
(a)
means generally accepted accounting practice with respect to accounts
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of UK companies (other than IAS accounts) that are intended to give a
true and fair view, and
(b)
has the same meaning in relation to—
(i)
individuals,
(ii)
entities other than companies, and
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(iii)
companies that are not UK companies,

as it has in relation to UK companies.

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

(a)
in the definition of “generally accepted accounting practice” for “has
the meaning given by section 836A” substitute “has the meaning given
by section 50(1) of the Finance Act 2004”;
(b)
at the appropriate place insert—

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

““UK generally accepted accounting practice” has the meaning
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
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(b)
in the case of a company required to prepare accounts under the
Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order
1986 (S.I. 1986/1032 (N.I. 6)), 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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51
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
international accounting standards,
(b)
another company (company B) in the same group of companies
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prepares accounts in accordance with UK generally accepted
accounting practice,
(c)
there is a transaction between, or a series of transactions involving,
company A and company B, and
(d)
a tax advantage would (apart from this section) be obtained by either
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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
transactions as if both companies prepared accounts in accordance with UK
generally accepted accounting practice.
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(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.
(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
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more of the following is the case—
(a)
there is no transaction in the series to which both those companies are
parties;
(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
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companies;
(c)
there are one or more transactions in the series to which neither of those
companies is a party.
(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).
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(6)
This section has effect in relation to—
(a)
periods of account beginning on or after 1st January 2005, and

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
59

(b)
in the case of a company required to prepare accounts under the
Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order
1986 (S.I. 1986/1032 (N.I. 6)), 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
(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;
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Part 2 makes amendments relating to derivative contracts;

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
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(b)
in the case of a company required to prepare accounts under the
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
(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
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asset.
(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),
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Schedule 12 to the Finance Act 2002 (c. 23) (tax relief for expenditure on
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
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tax purposes the profits of the company in respect of the writing down of so
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
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profits for a previous accounting period, or
(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—
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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general
60


“intangible asset” has the meaning it has for accounting purposes; and

“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
(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—
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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
40
1986 (S.I. 1986/1032 (N.I. 6)), 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.