Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 4 — Accounting practice and related matters
Part 2 — Other provisions connected with accounting practice
119


where—
Adjusted Old Tax Value is the tax written down value of the
original asset at the end of the earlier period, reduced by
the amount of the debit or (as the case may be) increased
by the amount of the credit brought into account for tax
5
purposes under sub-paragraph (4),
New Accounting Value is the accounting value of the asset in
question at the beginning of the later period, and
Aggregate New Accounting Value is the aggregate of the
accounting values of all the resulting assets at the
10
beginning of that period.
      (6)
Subsequently for each resulting asset—
(a)
the cost recognised for tax purposes shall be taken to be the
tax written down value given by sub-paragraph (5) above,
together with the cost recognised for tax purposes of any
15
subsequent expenditure on the asset that is capitalised for
accounting purposes; and
(b)
the tax written down value shall be determined taking
account only of subsequent debits and credits.
      (7)
This paragraph does not apply if an election under paragraph 10
20
(election for writing down at fixed-rate)—
(a)
has been or is subsequently made in respect of the original
asset (see paragraph 116D), or
(b)
is subsequently made in respect of any of the resulting
assets (see paragraph 116E)
25
      (8)
This paragraph has effect subject to—
paragraph 116F (cap on credit to be brought into account on
change of accounting policy), and
paragraph 116G (debits or credits brought into account under
other provisions).
30
Change of accounting policy involving disaggregation: original asset subject to fixed
rate writing down
116D  (1)
This paragraph applies where—
(a)
the change of accounting policy results in an intangible
fixed asset of the company that was treated as one asset
35
(“the original asset”) in the earlier period being treated as
two or more assets (“the resulting assets”) in the later
period, and
(b)
an election under paragraph 10 (election for writing down
at fixed-rate) has been or is subsequently made in respect
40
of the original asset.
      (2)
That election has effect—
(a)
in relation to the original asset, for periods up to and
including the earlier period, and

Finance (No. 2) Bill
Schedule 4 — Accounting practice and related matters
Part 2 — Other provisions connected with accounting practice
120

(b)
in relation to each of the resulting assets, for the later
period and subsequent periods.
      (3)
The tax written down value of each resulting asset at the
beginning of the later period is given by:

where—
5
Old Tax Value is the tax written down value of the original
asset at the end of the earlier period,
New Accounting Value is the accounting value of the asset in
question at the beginning of the later period, and
Aggregate New Accounting Value is the aggregate of the
10
accounting values of all the resulting assets at the
beginning of that period.
      (4)
Subsequently for each resulting asset—
(a)
the cost recognised for tax purposes shall be taken to be the
tax written down value given by sub-paragraph (3) above,
15
together with the cost recognised for tax purposes of any
subsequent expenditure on the asset that is capitalised for
accounting purposes; and
(b)
the tax written down value shall be determined taking
account only of subsequent debits and credits.
20
Change of accounting policy involving disaggregation: election for fixed rate writing
down in relation to resulting asset
116E  (1)
This paragraph applies where—
(a)
the change of accounting policy results in an intangible
fixed asset of the company that was treated as one asset
25
(“the original asset”) in the earlier period being treated as
two or more assets (“the resulting assets”) in the later
period, and
(b)
no election under paragraph 10 (election for writing down
at fixed-rate) has been or is subsequently made in respect
30
of the original asset.
      (2)
An election under that paragraph may be made in respect of any
of the resulting assets, provided it is made within the period
during which such an election could have been made in relation to
the original asset.
35
      (3)
The effect of the election is that—
(a)
the original asset is treated as if it had at all material times
consisted of as many assets (“notional original assets”) as
there are resulting assets,
(b)
each notional original asset is taken to be the same asset as
40
one of the resulting assets (its “corresponding resulting
asset”),
(c)
there is attributed to each notional original asset the
appropriate proportion, ascertained by reference to its
corresponding resulting asset (see sub-paragraph (4)), of
45

Finance (No. 2) Bill
Schedule 4 — Accounting practice and related matters
Part 2 — Other provisions connected with accounting practice
121

every amount falling to be taken into account in relation to
the original asset, and
(d)
the provisions of this Schedule apply in relation to each of
the notional original assets and its corresponding resulting
asset accordingly.
5
      (4)
The appropriate proportion in relation to each resulting asset is:

where—
New Accounting Value is the accounting value of the asset at
the beginning of the later period, and
Aggregate New Accounting Value is the aggregate of the
10
accounting values of all the resulting assets at the
beginning of that period.
Cap on credit to be brought into account on change of accounting policy
116F  (1)
The amount of any credit to be brought into account for tax
purposes under paragraph 116B or 116C (assets subject to writing
15
down on accounting basis) is limited to the net aggregate amount
of relevant tax debits previously brought into account.
      (2)
Where the credit is to be brought into account under paragraph
116B (change of value), the net aggregate amount of relevant tax
debits previously brought into account is:
20

where—
Previous Debits is the total amount of debits previously
brought into account for tax purposes in respect of the
asset, and
Previous Credits is the total amount of credits previously
25
brought into account for tax purposes in respect of the
asset.
      (3)
Where the credit is to be brought into account under paragraph
116C (disaggregation), the net aggregate amount of relevant tax
debits previously brought into account is:
30

where—
Previous Debits is the total amount of debits previously
brought into account for tax purposes in respect of the
original asset at the end of the earlier period, and
Previous Credits is the total amount of credits previously
35
brought into account for tax purposes in respect of that
asset.

Finance (No. 2) Bill
Schedule 4 — Accounting practice and related matters
Part 2 — Other provisions connected with accounting practice
122

Exclusion of debits or credits brought into account under other provisions
116G
A debit or credit is not required to be brought into account under
this Part of this Schedule to the extent that a debit or credit
representing the accounting difference in question is brought into
account for tax purposes under—
5
(a)
paragraph 12 (reversal of accounting gain),
(b)
paragraph 15 (gain on revaluation), or
(c)
paragraph 17 (reversal of accounting loss).
Subsequent events affecting asset subject to adjustment under this Part
116H  (1)
On a further change of accounting policy affecting an intangible
10
fixed asset in relation to which this Part of this Schedule has
applied, the preceding provisions of this Part apply again.
      (2)
On a subsequent part realisation affecting the asset in question,
paragraph 29 applies.”.
46    (1)
Paragraph 134 of Schedule 29 to FA 2002 (intangible fixed assets: references
15
to amounts recognised in profit and loss account) is amended as follows.
      (2)
In the paragraph heading for “profit and loss account” substitute “determining
profit or loss”.
      (3)
Make the existing provision sub-paragraph (1).
      (4)
In that sub-paragraph—
20
(a)
in the opening words, for “a company’s profit and loss account”
substitute “determining a company’s profit or loss” and for
“include” substitute “are to”;
(b)
in sub-paragraph (a) after “recognised in” insert “the company’s
profit and loss account or income statement,”; and
25
(c)
omit the words following paragraph (b).
      (5)
After that sub-paragraph insert—
    “(2)
An amount that in accordance with generally accepted accounting
practice is shown as a prior period adjustment in any such
statement as is mentioned in sub-paragraph (1) shall be brought
30
into account for the purposes of this Schedule in computing the
company’s profits and losses for the period to which the statement
relates.

This does not apply to an amount recognised for accounting
purposes by way of correction of a fundamental error.”.
35
47
In paragraph 143 of Schedule 29 to FA 2002 (intangible fixed assets: index of
defined expressions) for “profit and loss account (amounts recognised in)”
substitute “profit and loss (amounts recognised in determining)”.
ITEPA 2003
48
In Schedule 5 to ITEPA 2003 (enterprise management incentives), in
40
paragraph 59 (index of defined expressions), in the entry relating to the
expression “generally accepted accounting practice”, for “section 836A of
ICTA” substitute “section 50(1) of the Finance Act 2004”.

Finance (No. 2) Bill
Schedule 4 — Accounting practice and related matters
Part 2 — Other provisions connected with accounting practice
123

FA 2004
49
In section 50 of FA 2004 (generally accepted accounting practice), for
subsections (2) and (3) substitute—
“(2)
In the Tax Acts “international accounting standards” has the same
meaning as in Regulation (EC) No 1606/2002 of the European
5
Parliament and the Council of 19 July 2002 on the application of
international accounting standards.
(3)
Where the European Commission has in accordance with that
Regulation adopted an international accounting standard with
modifications, then as regards matters covered by that standard—
10
(a)
generally accepted accounting practice with respect to IAS
accounts shall be regarded as permitting the use of the
standard either with or without the modifications, and
(b)
accounts prepared on either basis shall be regarded for the
purposes of the Tax Acts as prepared in accordance with
15
international accounting standards.”.
50
In sections 50(6), 51(6), 52(3) and 54(2) of FA 2004 (periods of account in
relation to which the sections have effect), omit paragraph (b) and the word
“and” preceding it.

This amendment shall be deemed always to have had effect.
20
51
In Part 4 of Schedule 10 to FA 2004 (amendments relating to foreign currency
accounting), after paragraph 78 insert—
“Transitional provision
79
Where a company carries forward to its first period of account
beginning on or after 1st January 2005 an amount by way of—
25
(a)
management expenses brought forward under section 75
of the Taxes Act 1988,
(b)
losses brought forward under section 392B or 393 of that
Act, or
(c)
non-trading deficits on loan relationships brought forward
30
under section 83 of the Finance Act 1996,

that amount shall be translated into sterling using the London
closing exchange rate for the last day of the previous period of
account.”.
Power to make certain regulations with limited retrospective effect
35
52    (1)
This paragraph applies to regulations under any of the following
provisions—
(a)
section 85B of FA 1996;
(b)
paragraph 19B of Schedule 9 to FA 1996;
(c)
paragraph 13 or 17C of Schedule 26 to FA 2002.
40
      (2)
Any such regulations may be made so as to apply to periods of account
beginning before the regulations are made, but not earlier than the
beginning of the calendar year in which they are made.