Finance (No.2) Bill

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 1 — Income tax and corporation tax: charge and rate bands
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Small companies’ rate and fraction for financial year 2006
For the financial year 2006—
(a)
the small companies’ rate shall be 19%, and
(b)
the fraction mentioned in section 13(2) of ICTA (marginal relief for
small companies) shall be 11/400ths.
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Abolition of corporation tax starting rate and non-corporate distribution rate
(1)
Section 13AA of ICTA (corporation tax starting rate) shall cease to have effect.
(2)
Section 13AB of ICTA (the non-corporate distribution rate), and Schedule A2
to that Act (supplementary provisions in relation to that rate), shall cease to
have effect.
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(3)
In section 13A of ICTA (close investment-holding companies), in subsection (1)
(meaning of “close investment-holding company” for purposes of sections
13(1) and 13AA(8)), omit “or 13AA(8)”.
(4)
In section 468 of ICTA (authorised unit trusts), in subsection (1A) (rate of
corporation tax in relation to such trusts), for “and sections 13, 13AA and 13AB
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shall not apply” substitute “and section 13 shall not apply”.
(5)
In section 468A of ICTA (open-ended investment companies), in subsection (1)
(rate of corporation tax in relation to such companies), for “(and sections 13,
13AA and 13AB shall not apply)” substitute “(and section 13 shall not apply)”.
(6)
In paragraph 1(a) of Schedule 12 to FA 1989 (provision of information for the
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purposes of close companies provisions), for “13 to 13A” substitute “13, 13ZA,
13A”.
(7)
In paragraph 8(1) of Schedule 18 to FA 1998 (tax calculation in company tax
return), in the second step, omit “or 13AA(2)”.
(8)
The amendments made by this section have effect for the financial year 2006
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and subsequent financial years (but see also subsections (9) to (11)).
(9)
In the case of an accounting period (a “straddling period”)—
(a)
beginning before 1st April 2006, and
(b)
ending on or after that date,

sections 13AA and 13AB of, and Schedule A2 to, ICTA (“the repealed
30
provisions”) apply as if the different parts of the straddling period falling in the
different financial years were separate accounting periods.
(10)
Where the rate of corporation tax charged on a company’s basic profits for any
such separate accounting period ending with 31st March 2006 is determined in
accordance with any of the repealed provisions, section 13 of ICTA (small
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companies’ relief) also so applies.
(11)
For the purpose of treating different parts of the straddling period as separate
accounting periods in accordance with subsections (9) and (10), the profits and
basic profits of the straddling period are to be apportioned between those
separate accounting periods.
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Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Reliefs for business
27

Chapter 2
Reliefs for business
Group relief
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Group relief where surrendering company not resident in UK
Schedule 1 (which makes provision in relation to group relief where the
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surrendering company is not resident in the United Kingdom) has effect.
Research and development
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Relief for research and development: subjects of clinical trials
(1)
Schedule 2 (which amends Schedule 20 to FA 2000 and Schedules 12 and 13 to
FA 2002 so as to make provision relating to payments to subjects of clinical
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trials) has effect.
(2)
The amendments made by paragraph 2 of Schedule 2 to Schedule 12 to FA 2002
(large companies etc) have effect in relation to expenditure incurred on or after
1st April 2006.
(3)
Except as provided by subsection (4), the amendments made by Schedule 2
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to—
(a)
Schedule 20 to FA 2000 (small or medium-sized enterprises),
(b)
Schedule 13 to FA 2002 (vaccine research etc),

have effect in relation to expenditure incurred on or after the appointed day.
(4)
The amendment made by paragraph 1(3) of Schedule 2 (insertion of paragraph
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6A of Schedule 20 to FA 2000), in its application for the purposes of Schedule
12 to FA 2002 by virtue of the amendments made to Schedule 12 by paragraph
2 of Schedule 2, has effect in relation to expenditure incurred on or after 1st
April 2006.
(5)
“The appointed day” means such day as the Treasury may by order appoint;
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and different days may be so appointed for different provisions or different
purposes.
(6)
The days that may be appointed by an order under this section include days
earlier than the day on which this Act is passed, but not days earlier than 1st
April 2006.
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Claims for relief for research and development
Schedule 3 (which amends Schedule 18 to FA 1998 in connection with claims
for tax relief for expenditure on research and development) has effect.
Capital allowances
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Temporary increase in amount of first-year allowances for small enterprises
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(1)
The amount of a first-year allowance under section 44 of CAA 2001
(expenditure incurred by small or medium-sized enterprises) shall be

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings
28

determined, in the case of expenditure to which this subsection applies, as if
the percentage specified in the entry relating to that section in the Table in
section 52(3) of that Act were 50%.
(2)
Subsection (1) applies to expenditure incurred by a small enterprise (within the
meaning of section 44 of that Act) in the period of 12 months beginning with—
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(a)
1st April 2006, if the small enterprise is within the charge to corporation
tax, or
(b)
6th April 2006, if the small enterprise is within the charge to income tax.
(3)
Accordingly, in section 52(3) of CAA 2001, for the sentence following the Table
substitute—
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“In the case of expenditure qualifying under section 44, see also—
(a)
section 142 of the Finance Act 2004 (substitution of 50% in the
case of expenditure incurred by a small enterprise in 2004-05 or
financial year 2004);
(b)
section 30 of the Finance Act 2006 (substitution of 50% in the
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case of expenditure incurred by a small enterprise in 2006-07 or
financial year 2006).”.
Chapter 3
Films and sound recordings
Introductory
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Meaning of “film” and related expressions
(1)
In this Chapter “film” includes any record, however made, of a sequence of
visual images that is capable of being used as a means of showing that
sequence as a moving picture.
(2)
For the purposes of this Chapter each part of a series of films is treated as a
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separate film, unless—
(a)
the films form a series with not more than 26 parts,
(b)
the combined playing time is not more than 26 hours, and
(c)
the series constitutes a self-contained work or is a series of
documentaries with a common theme,
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in which case the films are treated as a single film.
(3)
References in this Chapter to a film include the film soundtrack.
(4)
For the purposes of this Chapter a film is completed when it is first in a form in
which it can reasonably be regarded as ready for copies of it to be made and
distributed for presentation to the general public.
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Meaning of “film production company”
(1)
The following provisions have effect for the purposes of this Chapter as
regards the meaning of “film production company”.
(2)
There cannot be more than one film production company in relation to a film.
(3)
A company that (otherwise than in partnership)—
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Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings
29

(a)
is responsible—
(i)
for pre-production, principal photography and post production
of the film, and
(ii)
for delivery of the completed film,
(b)
is actively engaged in production planning and decision-making
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during pre-production, principal photography and post production,
and
(c)
directly negotiates, contracts and pays for rights, goods and services in
relation to the film,

is the film production company in relation to the film.
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(4)
In relation to a qualifying co-production, a company that (otherwise than in
partnership)—
(a)
is a co-producer, and
(b)
makes an effective creative, technical and artistic contribution to the
film,
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is the film production company in relation to the film.
(5)
If there is more than one company meeting the description in subsection (3) or
(4), the company that is most directly engaged in the activities referred to in
that subsection is the film production company in relation to the film.
(6)
If there is no company meeting the description in subsection (3) or (4), there is
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no film production company in relation to the film.
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Meaning of “film-making activities” etc
(1)
In this Chapter “film-making activities”, in relation to a film, means the
activities involved in development, pre-production, principal photography
and post production of the film.
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(2)
If all or any of the images in a film are generated by computer, references in this
Chapter to principal photography shall be read as references to, or as
including, the generation of those images.
(3)
The Treasury may by regulations—
(a)
amend subsections (1) and (2);
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(b)
provide that specified activities are or are not to be regarded for the
purposes of this Chapter as film-making activities or as film-making
activities of a particular description;
(c)
provide that, in relation to a specified description of film, references in
this Chapter to film-making activities of a particular description are to
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be read as references to such activities as may be specified.

“Specified” here means specified in the regulations.
(4)
No such regulations shall be made unless a draft of the regulations has been
laid before and approved by a resolution of the House of Commons.
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Meaning of “production expenditure” and related expressions
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(1)
In this Chapter, in relation to a film—
“production expenditure” means expenditure on film-making activities in
connection with the film, and

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings
30

“core expenditure” means production expenditure on pre-production,
principal photography and post production.
(2)
For the purposes of this Chapter a “limited-budget film” means a film whose
core expenditure is £20 million or less.
(3)
In determining whether a film is a limited-budget film, any core expenditure
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that—
(a)
is incurred by a person under or as a result of a transaction entered into
directly or indirectly between that person and a connected person, and
(b)
might have been expected to have been of a greater amount (“the arm’s
length amount”) if the transaction had been between independent
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persons dealing at arm’s length,

is treated as having been of an amount equal to the arm’s length amount.
(4)
Section 839 of ICTA (connected persons) applies for the purposes of subsection
(3).
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Meaning of “UK expenditure”
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(1)
For the purposes of this Chapter “UK expenditure”, in relation to a film, means
expenditure on goods or services that are used or consumed in the United
Kingdom.
(2)
Any apportionment of expenditure for the purposes of this Chapter as between
UK expenditure and non-UK expenditure shall be made on a fair and
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reasonable basis.
(3)
The Treasury may by regulations amend subsection (1).
(4)
No such regulations shall be made unless a draft of the regulations has been
laid before and approved by a resolution of the House of Commons.
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Meaning of “qualifying co-production” and “co-producer”
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In this Chapter—
(a)
“qualifying co-production” means a film that falls to be treated as a
national film in the United Kingdom by virtue of an agreement
between Her Majesty’s Government in the United Kingdom and any
other government, international organisation or authority,
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(b)
“co-producer” means a person who is a co-producer for the purposes of
the agreement.
Taxation of activities of film production company
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Taxation of activities of film production company
Schedule 4 to this Act (taxation of activities of film production company) has
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effect for the purposes of corporation tax.