Finance (No.2) Bill

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 19 — Schedule to be inserted as Schedule 19C to ICTA
Part 2 — Amendments of other enactments
370

(a)
the relevant amount (if any) which the company carries
forward under Schedule 19B,
(b)
qualifying pre-commencement expenditure, and
(c)
pre-commencement supplement.
      (2)
The pool is to be taken to have consisted of—
5
(a)
the relevant amount (if any) which the company carries
forward under Schedule 19B,
(b)
the company’s qualifying pre-commencement
expenditure, allocated to the pool for each pre-
commencement period in accordance with sub-paragraph
10
(3), and
(c)
the company’s pre-commencement supplement, allocated
to the pool for each pre-commencement period in
accordance with sub-paragraph (4).
      (3)
To allocate qualifying pre-commencement expenditure to the pool
15
for any pre-commencement period, take the following steps—
(a)
Step 1: count as eligible expenditure for that period so
much of the qualifying pre-commencement expenditure
mentioned in paragraph 9(1) as was incurred in that
period,
20
(b)
Step 2: find the total of all the eligible expenditure for that
period (amount E),
(c)
Step 3: if paragraph 11 applies, reduce amount E in
accordance with that paragraph,
(d)
Step 4: if paragraph 12 applies, reduce (or, as the case may
25
be, further reduce) amount E in accordance with that
paragraph,

and so much of amount E as remains after making those
reductions is to be taken to have been added to the pool in that
period.
30
      (4)
If any pre-commencement supplement is allowed on a claim in
respect of a pre-commencement period, the amount of that
supplement is to be taken to have been added to the pool in that
period.
      (5)
In this paragraph references to the relevant amount (if any) which
35
the company carries forward under Schedule 19B are to the
amount in its mixed pool for the purposes of Part 3 of Schedule
19B immediately before 1st January 2006.
Reduction in respect of disposal receipts under the Capital Allowances Act
11    (1)
This paragraph applies in the case of the qualifying company if—
40
(a)
it incurs qualifying pre-commencement expenditure in
respect of a ring fence trade in any pre-commencement
period,
(b)
it would, on the relevant assumption, be entitled to an
allowance under any provision of the Capital Allowances
45
Act in respect of that expenditure,
(c)
an event occurs in relation to any asset representing the
expenditure in any pre-commencement period, and

Finance (No.2) Bill
Schedule 19 — Schedule to be inserted as Schedule 19C to ICTA
Part 2 — Amendments of other enactments
371

(d)
the event would, on the relevant assumption, require a
disposal value (the “deductible amount”) to be brought
into account under any provision of the Capital
Allowances Act for any pre-commencement period.
      (2)
The relevant assumption is that the company was carrying on the
5
ring fence trade—
(a)
when the expenditure was incurred, and
(b)
when the event giving rise to the disposal value occurred.
      (3)
For the purpose of allocating qualifying pre-commencement
expenditure to the pool for each pre-commencement period—
10
(a)
find the total amount of the disposal values in the case of
all such events (amount D), and
(b)
taking later periods before earlier periods, reduce (but not
below nil) amount E for any pre-commencement period by
setting against it so much of amount D as does not fall to
15
be set against amount E for a later pre-commencement
period.
Reduction in respect of unrelieved group ring fence profits
12    (1)
This paragraph applies if there is an amount of unrelieved group
ring fence profits for a pre-commencement period.
20
      (2)
For the purpose of allocating qualifying pre-commencement
expenditure to the pool for that period—
(a)
find so much (if any) of amount E for that period as
remains after any reduction falling to be made under
paragraph 11, and
25
(b)
reduce that amount (but not below nil) by setting against it
a sum equal to the aggregate of the amounts of unrelieved
group ring fence profits for the period.
The reference amount for a pre-commencement period
13
For the purposes of this Part of this Schedule, the reference
30
amount for a pre-commencement period is the amount in the pool
at the end of the period—
(a)
after the addition to the pool of any qualifying pre-
commencement expenditure allocated to the pool for that
period in accordance with paragraph 10(3), but
35
(b)
before determining, and adding to the pool, the amount of
any pre-commencement supplement claimed in respect of
the period.
Claims for pre-commencement supplement
14    (1)
Any claim for pre-commencement supplement in respect of a pre-
40
commencement period must be made as a claim for the
commencement period.
      (2)
Paragraph 74 of Schedule 18 to the Finance Act 1998 (company tax
returns etc: time limit for claims for group relief) applies in

Finance (No.2) Bill
Schedule 19 — Schedule to be inserted as Schedule 19C to ICTA
Part 2 — Amendments of other enactments
372

relation to a claim for pre-commencement supplement as it
applies in relation to a claim for group relief.
Part 4
Post-commencement supplement
Supplement in respect of a post-commencement period
5
15    (1)
A qualifying company which incurs a ring fence loss (see
paragraph 17) in a post-commencement period may claim
supplement under this Part of this Schedule (“post-
commencement supplement”) in respect of—
(a)
that period, or
10
(b)
any subsequent accounting period in which it carries on its
ring fence trade.
      (2)
Any post-commencement supplement allowed on a claim in
respect of a post-commencement period is to be treated for the
purposes of the Corporation Tax Acts (other than this Part of this
15
Schedule or Part 4 of Schedule 19B) as if it were a loss—
(a)
which is incurred in carrying on the ring fence trade in that
period, and
(b)
which falls in whole to be set off under section 393 against
trading income from the ring fence trade in succeeding
20
accounting periods.
      (3)
Paragraph 74 of Schedule 18 to the Finance Act 1998 (company tax
returns etc: time limit for claims for group relief) applies in
relation to a claim for post-commencement supplement as it
applies in relation to a claim for group relief.
25
Amount of post-commencement supplement for a post-commencement period
16    (1)
The amount of the post-commencement supplement for any post-
commencement period in respect of which a claim under
paragraph 15 is made is the relevant percentage for that period of
the reference amount for that period.
30
      (2)
If the post-commencement period is a period of less than twelve
months, the amount of the supplement for the period (apart from
this sub-paragraph) is to be reduced proportionally.
      (3)
Paragraphs 19 to 23 have effect for the purpose of determining the
reference amount for a post-commencement period.
35
Ring fence losses
17    (1)
If—
(a)
in any post-commencement period (“the period of the
loss”) a qualifying company carrying on a ring fence trade
incurs a loss in the trade, and
40
(b)
some or all of the loss falls to be set off under section 393
against trading income from the trade in succeeding
accounting periods,

Finance (No.2) Bill
Schedule 19 — Schedule to be inserted as Schedule 19C to ICTA
Part 2 — Amendments of other enactments
373


so much of the loss as falls to be so set off is a “ring fence loss” of
the company.
      (2)
In determining for the purposes of this Part of this Schedule how
much of a loss incurred in a ring fence trade falls to be set off as
mentioned in sub-paragraph (1)(b), the following assumption is to
5
be made.
      (3)
The assumption is that every claim is made that could be made by
the company under section 393A to set losses incurred in the ring
fence trade against ring fence profits of earlier post-
commencement periods.
10
      (4)
This paragraph is subject to paragraph 18 (special rule for
straddling periods).
      (5)
This paragraph has effect for the purposes of this Part of this
Schedule.
Special rule for straddling periods
15
18    (1)
This paragraph applies if the period of the loss in which a ring
fence loss is incurred is the deemed accounting period under
paragraph 3(3) beginning on 1st January 2006 (“the deemed
accounting period”).
      (2)
The amount of the ring fence loss in the deemed accounting period
20
is determined as follows.

Step 1

Calculate so much of the ring fence loss in the straddling period as,
for the purposes of Part 4 of Schedule 19B, is attributable to
qualifying E&A allowances for the straddling period.
25

The amount given by this step is “the qualifying Schedule 19B
amount”.

Step 2

Calculate so much of the ring fence loss in the straddling period as
is attributable to allowances for the straddling period under Part 6
30
of the Capital Allowances Act in respect of relevant expenditure.

For the purposes of this step “relevant expenditure” means
expenditure incurred by the company on or after 1st January 2006
which, but for that fact, would be qualifying E&A expenditure for
the purposes of Schedule 19B.
35

For the purposes of this step a ring fence loss is attributable to
those allowances to the extent that the amount of the loss (less the
qualifying Schedule 19B amount) does not exceed the amount of
those allowances for that period.

The amount given by this step is “the amount of the post-1st
40
January 2006 E&A allowances”.

Step 3

Deduct the qualifying Schedule 19B amount and the amount of the
post-1st January 2006 E&A allowances from the amount of the
ring fence loss in the straddling period.
45

Step 4


Finance (No.2) Bill
Schedule 19 — Schedule to be inserted as Schedule 19C to ICTA
Part 2 — Amendments of other enactments
374


The amount given by this step is “the amount of the apportioned
loss”.

Step 5

The amount of the ring fence loss in the deemed accounting period
is the amount of the apportioned loss plus the amount of the post-
5
1st January 2006 E&A allowances.
      (3)
In this paragraph “the straddling period”, in relation to a
qualifying company, means an accounting period of the
company—
(a)
beginning before 1st January 2006, and
10
(b)
ending on or after that date,

disregarding paragraph 3(3).
      (4)
In this paragraph references to the ring fence loss in the straddling
period are to that loss determined on the assumption that the
straddling period is the period of the loss for the purposes of
15
paragraph 17.
      (5)
This paragraph has effect for the purposes of this Part of this
Schedule.
The pool of ring fence losses and the pool of non-qualifying Schedule 19B losses
19    (1)
For the purpose of determining the amount of any post-
20
commencement supplement, a qualifying company is to be taken
at all times in its post-commencement periods to have a
continuing mixed pool (the “ring fence pool”) of—
(a)
the carried forward qualifying Schedule 19B amount,
(b)
the company’s ring fence losses, and
25
(c)
post-commencement supplement.
      (2)
The ring fence pool continues even if the amount in it is nil.
      (3)
For the purpose of determining the amount of any post-
commencement supplement, a qualifying company is also to be
taken in its post-commencement periods to have a non-qualifying
30
pool consisting of the carried forward non-qualifying Schedule
19B amount.
      (4)
But the non-qualifying pool ceases to exist when the amount in it
is reduced to nil.
      (5)
In this paragraph—
35
“the carried forward qualifying Schedule 19B amount”, in
relation to a qualifying company, means the amount in its
qualifying pool for the purposes of Part 4 of Schedule 19B
immediately before 1st January 2006, and
“the carried forward non-qualifying Schedule 19B amount”,
40
in relation to a qualifying company, means the amount in
its non-qualifying pool for the purposes of Part 4 of
Schedule 19B immediately before 1st January 2006.
The ring fence pool
20    (1)
The ring fence pool consists of—
45

Finance (No.2) Bill
Schedule 19 — Schedule to be inserted as Schedule 19C to ICTA
Part 2 — Amendments of other enactments
375

(a)
the carried forward qualifying Schedule 19B amount,
(b)
the company’s ring fence losses, allocated to the pool in
accordance with sub-paragraph (2)(a), and
(c)
the company’s post-commencement supplement,
allocated to the pool in accordance with sub-paragraph
5
(2)(b).
      (2)
The allocation of ring fence losses and post-commencement
supplement to the pool is as follows—
(a)
the amount of a ring fence loss is added to the pool in the
period of the loss, and
10
(b)
if any post-commencement supplement is allowed on a
claim in respect of a post-commencement period, the
amount of that supplement is added to the pool in that
period.
      (3)
The amount in the ring fence pool is subject to reductions in
15
accordance with the following provisions of this Part of this
Schedule.
      (4)
If a reduction in the amount in the ring fence pool falls to be made
in any accounting period, the reduction is to be made—
(a)
after the addition to the pool of the amount of any ring
20
fence losses allocated to the pool in that period in
accordance with sub-paragraph (2)(a), but
(b)
before determining, and adding to the pool, the amount of
any supplement claimed in respect of the period,

and references to the amount in the pool are to be read
25
accordingly.
      (5)
In this paragraph “the carried forward qualifying Schedule 19B
amount”, in relation to a qualifying company, means the amount
in its qualifying pool for the purposes of Part 4 of Schedule 19B
immediately before 1st January 2006.
30
Reductions in respect of utilised ring fence losses
21    (1)
If one or more ring fence losses are set off under section 393 against
any profits of a post-commencement period, reductions are to be
made in that period in accordance with this paragraph.
      (2)
If the company has a non-qualifying pool, the amount in the non-
35
qualifying pool is to be reduced (but not below nil) by setting
against it a sum equal to the total amount so set off.
      (3)
If—
(a)
any of that sum remains after being so set against the
amount in the non-qualifying pool, or
40
(b)
the company does not have a non-qualifying pool,

the amount in the ring fence pool is to be reduced (but not below
nil) by setting against it so much of that sum as so remains or (as
the case may be) a sum equal to the total amount set off as
mentioned in sub-paragraph (1).
45
      (4)
If the post-commencement period is the deemed accounting
period under paragraph 3(3) beginning on 1st January 2006 (“the

Finance (No.2) Bill
Schedule 19 — Schedule to be inserted as Schedule 19C to ICTA
Part 2 — Amendments of other enactments
376

deemed accounting period”), the amount of the profits of the
deemed accounting period is determined as follows.
      (5)
The amount of the profits of the straddling period is apportioned
to the deemed accounting period in proportion to the number of
days in the deemed accounting period that fall in the straddling
5
period.
      (6)
The apportioned amount is taken for the purposes of this
paragraph to be the amount of the profits of the deemed
accounting period.
      (7)
In this paragraph “the straddling period”, in relation to a
10
qualifying company, means an accounting period of the
company—
(a)
beginning before 1st January 2006, and
(b)
ending on or after that date,

disregarding paragraph 3(3).
15
Reductions in respect of unrelieved group ring fence profits
22    (1)
If there is an amount of unrelieved group ring fence profits for a
post-commencement period, reductions are to be made in that
period in accordance with this paragraph.
      (2)
If, after making any reductions that fall to be made in accordance
20
with paragraph 21, the company does not have a non-qualifying
pool, the remaining amount in the ring fence pool is to be reduced
(but not below nil) by setting against it a sum equal to the
aggregate of the amounts of unrelieved group ring fence profits
for the period.
25
      (3)
If, after making any reductions that fall to be made in accordance
with paragraph 21, the company has an amount in a non-
qualifying pool, the amount in that pool is to be reduced (but not
below nil) by setting against it a sum equal to the aggregate of the
amounts of unrelieved group ring fence profits for the period.
30
      (4)
If any of that sum remains after being so set against the amount in
the non-qualifying pool, the remaining amount in the ring fence
pool is to be reduced (but not below nil) by setting against it so
much of that sum as so remains.
      (5)
For the purposes of this paragraph references to the remaining
35
amount in the ring fence pool are references to so much (if any) of
the amount in the ring fence pool as remains after making any
reductions that fall to be made in accordance with paragraph 21.
The reference amount for a post-commencement period
23
For the purposes of this Part of this Schedule the reference amount
40
for a post-commencement period is so much of the amount in the
ring fence pool as remains after making any reductions required
by paragraph 21 or 22.”.