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Accounting practice and related matters |
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Adjustment on change of accounting basis |
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1 (1) | In Schedule 22 to FA 2002 (adjustment on change of accounting basis: |
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corporation tax), in paragraph 4 (adjustment treated as arising on last day of |
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first period for which new basis adopted), for “last day” substitute “first |
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(2) | This amendment has effect for accounting periods ending after 5th April |
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2005 in relation to periods of account beginning on or after 1st January 2005. |
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2 (1) | In section 227 of ITTOIA 2005 (adjustment on change of accounting basis: |
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income tax), for subsection (4) (meaning of “relevant change of accounting |
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“(4) | A “relevant change of accounting approach” means— |
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(a) | a change of accounting principle or practice that, in |
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accordance with generally accepted accounting practice, |
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gives rise to a prior period adjustment, or |
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(b) | a change from using UK generally accepted accounting |
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practice to using generally accepted accounting practice with |
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respect to accounts drawn up in accordance with |
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international accounting standards.”. |
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(2) | This amendment has effect for the tax year 2005-06 and subsequent tax years |
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in relation to periods of account beginning on or after 1st January 2005. |
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Meaning of “statutory insolvency arrangement” |
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3 (1) | For section 259 of ITTOIA 2005 (trading income: meaning of “statutory |
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insolvency arrangement”) substitute— |
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“259 | Meaning of “statutory insolvency arrangement” |
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(1) | In this Part “statutory insolvency arrangement” means— |
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(a) | a voluntary arrangement that has taken effect under or as a |
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result of the Insolvency Act 1986, Schedule 4 or 5 to the |
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Bankruptcy (Scotland) Act 1985 or the Insolvency (Northern |
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(b) | a compromise or arrangement that has taken effect under |
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section 425 of the Companies Act 1985 or Article 418 of the |
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Companies (Northern Ireland) Order 1986, or |
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(c) | any arrangement or compromise of a kind corresponding to |
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any of those mentioned in paragraph (a) or (b) that has taken |
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effect under or by virtue of the law of a country or territory |
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outside the United Kingdom.”. |
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(2) | This amendment has effect for the tax year 2005-06 and subsequent tax years |
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in relation to periods of account beginning on or after 1st January 2005. |
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4 (1) | In Schedule 4 to FA 2005, omit paragraph 6 (which amended section 109A of |
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ICTA 1988 for corporation tax purposes when that section has no such |
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(2) | In paragraph 19A of Schedule 9 to FA 1996, in sub-paragraph (4B)(g) after |
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(3) | In paragraph 25A of Schedule 26 to FA 2002, for “section 85B(1)” substitute |
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(4) | In section 103(1) of FA 1996, in the definition of “exchange gain” and |
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“exchange loss”, after “(1A)” insert “, (1AA)”. |
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(5) | In paragraph 54(1) of Schedule 26 to FA 2002, in the definition of “exchange |
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gain” and “exchange loss”, after “(2)” insert “, (2A)”. |
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(6) | These amendments shall be deemed always to have had effect. |
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Deemed release of liability on impaired debt becoming held by connected company |
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5 (1) | In Schedule 9 to FA 1996 (loan relationships: special computational |
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provisions), for paragraph 4A substitute— |
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“Deemed release of liability on impaired debt becoming held by connected company |
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4A (1) | This paragraph applies— |
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(a) | in the case specified in sub-paragraph (2), subject to the |
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exception in sub-paragraph (3), and |
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(b) | in the case specified in sub-paragraph (4). |
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(2) | The first case is where— |
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(a) | a company (“the debtor company”) is party as debtor to a |
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(b) | another company (“the creditor company”) becomes party |
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as creditor to the loan relationship, |
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(c) | the debtor company and the creditor company are |
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connected immediately after the latter becomes party to |
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(d) | there is no connection between the creditor company and |
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the person from whom it acquires its rights under the loan |
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relationship in the period of account in which it does so, |
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(e) | the carrying value of the liability under the loan |
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relationship in the accounts of the debtor company exceeds |
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the amount or value of any consideration given by the |
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creditor company for its rights under the loan relationship. |
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| The carrying value referred to in paragraph (e) is the amount that |
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would have been the carrying value of the liability under the loan |
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relationship in the accounts of the debtor company if a period of |
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account had ended immediately before the creditor company |
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became party to the loan relationship. |
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(3) | The exception to the first case is where— |
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(a) | the creditor company acquires its rights under the loan |
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relationship under an arm’s length transaction, and |
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(b) | there has been no connection between the creditor |
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company and the debtor company at any time in the |
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(i) | beginning four years before the date on which the |
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creditor company acquired those rights, and |
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(ii) | ending twelve months before that date. |
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(4) | The second case is where— |
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(a) | a company (“the debtor company”) is party as debtor to a |
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(b) | another company (“the creditor company”) that— |
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(i) | is party to the loan relationship as creditor, and |
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(ii) | is not connected with the debtor company, |
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| becomes connected with the debtor company, and |
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(c) | the amount that would have been the carrying value of the |
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asset representing the loan relationship in the accounts of |
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the creditor company if a period of account had ended |
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immediately before the companies became connected |
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would have been adjusted for impairment. |
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(5) | Where this paragraph applies there is deemed to be a release by |
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the creditor company of its rights under the loan relationship. |
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(6) | In the first case the release is deemed to be of the amount of the |
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excess referred to in sub-paragraph (2)(e) and to take place when |
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the creditor company acquires its rights under the loan |
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(7) | In the second case the release is deemed to be of the amount of the |
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impairment adjustment referred to in sub-paragraph (4)(c) and to |
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take place when the creditor company becomes connected with |
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(8) | For the purposes of this paragraph there is a connection between |
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a company and another person at any time (subject to sub- |
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paragraph (9)) if at that time— |
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(a) | the other person is a company and one of the companies |
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has control of the other, or |
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(b) | the other person is a company and both companies are |
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under the control of the same person, |
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| and there is a connection between a company and another person |
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in a period of account if there is a connection (within paragraph (a) |
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or (b) above) between the company and the person at any time in |
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| “Control” here has the meaning given for the purposes of section |
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87 of this Act by section 87A. |
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(a) | section 87(4) (companies not regarded as connected by |
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virtue of control by government etc), and |
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(b) | section 88 (connection between companies to be |
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disregarded in certain circumstances), |
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| apply for the purposes of this paragraph as they apply for the |
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(10) | In determining for the purposes of this section the carrying value |
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of the liability under a loan relationship, or of an asset |
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representing a loan relationship, no account shall be taken of— |
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(b) | amounts paid or received in advance, or |
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(2) | The amendment in sub-paragraph (1) has effect where the deemed release |
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occurs on or after 16th March 2005. |
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Adjustment on change to international accounting standards: bad debt debits formerly |
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6 (1) | In paragraph 19A of Schedule 9 to FA 1996 (loan relationships: adjustment |
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on change of accounting policy), after sub-paragraph (4B) insert— |
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“(4BA) | In determining the accounting value of an asset of the company at |
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the end of the earlier period, no account shall be taken of a debit |
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that in a period of account beginning before 1st January 2005 was |
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disallowed for tax purposes— |
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(a) | because of the assumption required by paragraph 5(1) |
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(b) | because the exceptions in section 74(1)(j) of the Taxes Act |
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(2) | This amendment has effect for periods of account beginning on or after 1st |
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Loan relationships with embedded derivatives |
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(a) | a company is subject to old UK GAAP for a period of account |
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beginning on or after 1st January 2005, and |
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(b) | it holds assets (“relevant assets”) that— |
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(i) | it is not permitted, under old UK GAAP, to treat as |
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mentioned in subsection (1) of section 94A of FA 1996 (loan |
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relationship with embedded derivative treated as two |
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assets), with the result that that section does not apply, and |
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(ii) | it would have been permitted to treat as mentioned in that |
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provision if it had been subject to international accounting |
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standards or new UK GAAP, |
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| the company may elect that Chapter 2 of Part 4 of FA 1996 (loan |
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relationships) and Schedule 26 to FA 2002 (derivative contracts) shall have |
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effect as if section 94A did apply. |
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(a) | must be made in writing to an officer of Revenue and Customs, |
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(i) | on or before 31st December 2005, or |
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(ii) | after that date in accordance with sub-paragraph (3)(a) or (b), |
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(3) | An election may be made after 31st December 2005— |
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(a) | if the company does not hold any relevant assets at the beginning of |
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its first period of account beginning on or after 1st January 2005 but |
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subsequently acquires one (or more) and the election is made no later |
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than 90 days after the acquisition (or, if there is more than one, the |
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(b) | if the company does not have a period of account beginning in the |
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calendar year 2005 and holds one or more relevant assets at the |
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beginning of its first period of account beginning after the end of that |
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year and the election is made no later than 90 days after the |
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beginning of that period of account. |
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(4) | An election under this paragraph has effect effect in relation to all relevant |
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assets held by the company (including those subsequently acquired). |
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(5) | An election under this paragraph— |
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(a) | if made on or before 31st December 2005, has effect from the |
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beginning of the company’s first period of account beginning on or |
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(b) | if made after 31st December 2005 in accordance with sub-paragraph |
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(3)(a), has effect from the beginning of the period of account in which |
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the first relevant asset is acquired; |
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(c) | if made after 31st December 2005 in accordance with sub-paragraph |
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(3)(b), has effect from the beginning of the company’s first period of |
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account beginning on or after 1st January 2005. |
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(6) | Where an election is made under this paragraph the provisions of paragraph |
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19A of Schedule 9 to FA 1996 and paragraph 50A of Schedule 26 to FA 2002 |
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(adjustments on change of accounting policy) apply as if there were a change |
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of accounting policy (consisting in the company treating its relevant assets |
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as mentioned in section 94A(1) as from the date the election has effect). |
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(7) | In this paragraph “old UK GAAP” means UK generally accepted accounting |
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practice as it applied for periods of account beginning before 1st January |
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2005 and “new UK GAAP” means UK generally accepted accounting |
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practice as it applies for periods of account beginning on or after that date. |
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(8) | Any election made under paragraph 28(3) of Schedule 4 to FA 2005 before |
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the passing of this Act shall have effect as if made under this paragraph. |
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8 (1) | In section 116(8A) of TCGA 1992 (reorganisations, conversions and |
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reconstructions: application of loan relationships regime in certain cases)— |
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(a) | after “shall have effect” insert “, subject to subsection (8B) below,”, |
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(b) | for “that subsection” substitute “subsection (6) above”. |
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(2) | After that subsection insert— |
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“(8B) | Subsection (8A) above does not apply where the relevant transaction |
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is a conversion of securities occurring in consequence of the |
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operation of the terms of any security or of any debenture which is |
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| Expressions used in this subsection have the same meaning as they |
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have for the purposes of section 132.”. |
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(3) | These amendments have effect in relation to transactions occurring after |
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Exchange gains and losses |
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9 (1) | The following provisions shall cease to have effect— |
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(a) | section 84A of FA 1996 (exchange gains and losses from loan |
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(b) | paragraph 16 of Schedule 26 to FA 2002 (exchange gains and losses |
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arising from derivative contracts). |
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(2) | These amendments come into force on a day to be appointed by the Treasury |
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by order made by statutory instrument. |
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(3) | The order may contain such transitional provision and savings as appear to |
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the Treasury to be appropriate. |
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10 | In section 103 of FA 1996 (loan relationships: general interpretation), for |
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subsection (1AA) substitute— |
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“(1AA) | The Treasury may make provision by regulations as to the manner |
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(a) | exchange gains or losses, and |
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(b) | any other profits or gains or losses, |
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| are to be calculated for the purposes of subsection (1A) in a case |
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where fair value accounting is used by the company. |
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| Any such regulations may be made so as to apply to periods of |
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account beginning before the regulations are made, but not earlier |
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than the beginning of the calendar year in which they are made.”. |
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11 | In paragraph 54 of Schedule 26 to FA 2002 (derivative contracts: general |
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interpretation), for sub-paragraph (2A) substitute— |
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“(2A) | The Treasury may make provision by regulations as to the manner |
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(a) | exchange gains or losses, and |
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(b) | any other profits or gains or losses, |
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| are to be calculated for the purposes of sub-paragraph (2) in a case |
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where fair value accounting is used by the company. |
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| Any such regulations may be made so as to apply to periods of |
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account beginning before the regulations are made, but not earlier |
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than the beginning of the calendar year in which they are made.”. |
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Avoidance involving financial arrangements |
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1 (1) | Part 2 of ICTA (which, at sections 43A to 43G, includes provisions about rent |
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factoring) is amended as follows. |
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(2) | Section 43C(1) (section 43B not to apply where term over which financial |
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obligation is to be reduced exceeds 15 years) shall cease to have effect. |
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(3) | In section 43E (interposed lease: exceptions etc) in subsection (1), omit |
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paragraphs (a) and (b) (which relate to certain periods exceeding 15 years). |
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(4) | The amendments made by this paragraph have effect in relation to finance |
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agreements entered into on or after 16th March 2005. |
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(a) | a finance agreement was entered into on or after 20th March 2000 |
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and before 16th March 2005, and |
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(b) | section 43D of ICTA (interposed lease) would apply in relation to the |
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agreement but for section 43E(1)(a) or (b) of that Act, |
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| sub-paragraph (6) has effect. |
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(6) | In any such case, any amount of principal in rent paid on or after 16th March |
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2005 which, apart from this sub-paragraph, would— |
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(a) | be deductible as an expense in computing profits charged under |
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(b) | be deductible under section 75 of ICTA (expenses of management), |
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(c) | fall to be brought into account under section 76 of that Act (expenses |
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of insurance companies) at Step 1 in subsection (7) of that section, |
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| shall not be so deductible or brought into account for any accounting period |
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ending on or after 16th March 2005. |
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(7) | If payment of an amount of principal in rent is made on or after 16th March |
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2005 in respect of a rental period that falls— |
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(a) | partly before that date, and |
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(b) | partly on or after it, |
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| sub-paragraph (6) has effect in relation to only so much of the payment as |
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relates to the part of the period falling on or after 16th March 2005. |
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“amount of principal in rent” means so much of any amount of rent |
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payable under a lease as, in the case of the finance agreement in |
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question, reduces the amount of the financial obligation mentioned |
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in section 43A(1) of ICTA; |
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“rental period” means a period in respect of which rent is paid. |
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Section 730: restriction to income consisting of distributions in respect of company shares etc |
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2 (1) | Section 730 of ICTA (transfers of income arising from securities) is amended |
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(2) | In each place where it occurs— |
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(a) | for “interest” substitute “distribution”; |
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(b) | for “securities” substitute “shares”. |
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(3) | In subsection (1) (interest deemed to be income of owner etc)— |
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(a) | in paragraph (a), for “deemed to be” substitute “treated as”, |
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(b) | in paragraph (b), for “deemed to be” substitute “treated as”, and |
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(4) | For subsection (2) (sale etc where proceeds chargeable to tax by virtue of |
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