Finance Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
114

      (3)
After sub-paragraph (4) insert—
    “(5)
In determining the debits and credits under sub-paragraph (3)
there shall be left out of account amounts relating to any
investment or liability of the scheme or fund where—
(a)
the investment was made, or the liability was incurred,
5
with the relevant avoidance intention, or
(b)
any transaction (or series of transactions) was entered into
in relation to the investment or liability with that intention.
      (6)
The relevant avoidance intention is the intention of—
(a)
eliminating or reducing the credits to be brought into
10
account for the purposes of this Chapter as respects the
company’s relevant holdings, or
(b)
creating or increasing the debits to be so brought into
account.”
      (4)
In the case of amounts relating to investments, the amendments made by
15
this paragraph have effect in relation to accounting periods ending on or
after 6th March 2007.
      (5)
But in that case, in relation to accounting periods beginning before that date,
amounts are to be left out of account as a result of those amendments only if
they relate to any time on or after that date.
20
      (6)
In the case of amounts relating to liabilities, those amendments have effect
in relation to accounting periods ending on or after 9th May 2007.
      (7)
But in that case, in relation to accounting periods beginning before that date,
amounts are to be left out of account as a result of those amendments only if
they relate to any time on or after that date.
25
Plant or machinery subject to a lease and finance leaseback
17    (1)
Chapter 17 of Part 2 of CAA 2001 (plant and machinery allowances: anti-
avoidance) is amended as follows.
      (2)
In section 228A(2) (application of sections 228B to 228D in case of a lease and
finance leaseback), for “Sections 228B to 228D” substitute “Sections 228B and
30
228C”.
      (3)
In section 228F (lease and finance leaseback)—
(a)
in subsection (1), for “Sections 228B, 228C and 228D” substitute
“Sections 228B and 228C”,
(b)
omit subsection (4), and
35
(c)
in subsection (8), for “sections 228B to 228D” substitute “sections
228B and 228C” and omit paragraph (b) (together with the “and”
before it).
      (4)
In section 774E(5)(b) of ICTA (structured finance arrangements: exceptions),
for “sections 228B to 228D” substitute “sections 228B and 228C”.
40
      (5)
The amendments made by this paragraph have effect in relation to post-
commencement rentals that fall to be taken into account in calculating for tax
purposes the income or profits for any post-commencement period of
account.
      (6)
In this paragraph—
45

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
115

“post-commencement period of account” means any period of account
ending on or after 6th December 2006, and
“post-commencement rental” means—
(a)
any amount receivable on or after 6th December 2006 in
respect of any period beginning on or after that date, or
5
(b)
the appropriate fraction of any amount receivable on or after
that date in respect of any period beginning before, and
ending on or after, that date,
but does not include any amount received before that date.
      (7)
For this purpose the “appropriate fraction”, in relation to any amount
10
received in respect of any period, means the fraction—

where—
“PCP” means the number of days in the part of the period falling on or
after 6th December 2006, and
“WP” means the number of days in the whole of the period.
15
      (8)
Sub-paragraph (9) applies if the amounts that, in accordance with section
228D of CAA 2001 as applied by section 228F of that Act, fall to be taken into
account in calculating for tax purposes the income or profits for any post-
commencement period of account comprise both post-commencement
rentals and other amounts.
20
      (9)
For the purposes of section 228D of CAA 2001 as applied by section 228F of
that Act, the amount of the gross earnings is taken to be so much of the gross
earnings as, on a just and reasonable basis, relates to those other amounts.

“Gross earnings” has the meaning given by section 228D(5) of CAA 2001.
Derivative contracts: contracts treated for accounting purposes as financial asset or liability
25
18    (1)
In paragraph 17A of Schedule 26 to FA 2002 (computation in accordance
with generally accepted accounting practice), after sub-paragraph (1)
insert—
   “(1A)
But, in the case of a contract which is a derivative contract for the
purposes of this Schedule by virtue of paragraph 3(1)(b) (contracts
30
treated for accounting purposes as financial asset or liability), the
amounts to be so brought into account as respects the contract
must be determined on the basis of fair value accounting.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to periods
of account ending on or after 6th March 2007.
35
      (3)
But, in relation to a period of account beginning before that date, the fair
value of the derivative contract at the beginning of that period is to be taken
to be the carrying value of the contract recognised for accounting purposes
at the beginning of that period.
      (4)
For this purpose “carrying value” has the same meaning as it has for the
40
purposes of paragraph 50A of Schedule 26 to FA 2002.

Finance Bill
Schedule 6 — Companies carrying on business of leasing plant or machinery
116

Derivative contracts: transfers of value to connected companies
19    (1)
Paragraph 26 of Schedule 26 to FA 2002 (transfers of value to connected
companies) is amended as follows.
      (2)
In sub-paragraph (1)(a) (transfer of value between connected companies as
a result of expiry of option), for “the expiry of an option of a company which,
5
until its expiry,” substitute “the failure to exercise in full all the rights under
an option of a company which, until that failure,”.
      (3)
In sub-paragraph (2) (rules for determining whether there is a transfer of
value)—
(a)
in paragraph (a), for “the option would not have expired” substitute
10
“all the rights under the option would have been exercised in full”,
and
(b)
in paragraph (b), for “it would have been exercised on the date on
which it expired” substitute “all those rights would have been
exercised in full on the latest date on which they were exercisable”.
15
      (4)
In sub-paragraph (3) (transferor to bring into account amount in respect of
the option), for “the expiry of the option” substitute “an option”.
      (5)
In sub-paragraph (4) (period in which amount is to be brought into account
and the amount to be brought into account)—
(a)
in paragraph (a), after “the option expired” insert “or would have
20
expired if none of the rights under it had been exercised”, and
(b)
for paragraph (b) substitute—
“(b)
the appropriate amount—
(i)
if the option expired, is the amount (if any)
paid by the transferor to the transferee for
25
the grant of the option by the transferee,
and
(ii)
if any rights under the option were
exercised (in whole or in part), is the
amount (if any) so paid less so much of it as
30
is referrable, on a just and reasonable basis,
to the rights which have been so exercised.”
      (6)
The amendments made by this paragraph have effect in relation to any
failure on or after 6th March 2007 to exercise in full all the rights under an
option.
35
Schedule 6
Section 30

Companies carrying on business of leasing plant or machinery
Company reconstructions without change of ownership
1     (1)
In section 343 of ICTA (company reconstructions without change of
ownership), in subsection (2) (continuity of treatment for capital
40
allowances), insert at the end “and are subject to section 343A (company
reconstructions involving business of leasing plant or machinery)”.

Finance Bill
Schedule 6 — Companies carrying on business of leasing plant or machinery
117

      (2)
After that section insert—
“343A
Company reconstructions involving business of leasing plant or
machinery
(1)
This section applies if the trade is or forms part of a business of
leasing plant or machinery which the predecessor or the successor
5
carries on on the day of cessation.
(2)
If, on the day of cessation, both the predecessor and the successor
carry on the trade otherwise than in partnership, section 343(2) does
not apply unless—
(a)
the principal company or companies of the predecessor
10
immediately before the cessation are the same as the
principal company or companies of the successor
immediately afterwards, and
(b)
if any such principal company is a consortium principal
company, the relevant fraction in relation to the predecessor
15
immediately before the cessation is the same as the relevant
fraction in relation to the successor immediately afterwards
(irrespective of whether the members of each consortium are
the same).
(3)
If, on the day of cessation, the predecessor or the successor carries on
20
the trade in partnership, section 343(2) does not apply unless—
(a)
the predecessor ceases to carry on the whole of its trade, and
(b)
that trade is a business of leasing plant or machinery which
the predecessor carries on in partnership on the day of
cessation.
25
(4)
In any case where section 343(2) does not apply as a result of this
section, the plant or machinery belonging to the trade shall be treated
for the purposes of the Corporation Tax Acts as sold by the
predecessor to the successor on the day of the cessation for an
amount equal to its market value as at that day.
30
(5)
In this section—
“business of leasing plant or machinery”—
(a)
has the same meaning as in Part 2 of Schedule 10 to
the Finance Act 2006 (sale etc of lessor companies etc)
(if the business is carried on otherwise than in
35
partnership), and
(b)
has the same meaning as in Part 3 of that Schedule (if
the business is carried on in partnership),
“consortium principal company” means a company which is a
principal company as a result of paragraph 12 of that
40
Schedule,
“market value”, in relation to plant or machinery, is to be
construed in accordance with paragraph 41(8) of that
Schedule,
“plant or machinery” has the same meaning as in Part 2 of the
45
Capital Allowances Act,
“principal company” is to be construed in accordance with
paragraph 11 or (as the case may be) 12 of Schedule 10 to the
Finance Act 2006, and

Finance Bill
Schedule 6 — Companies carrying on business of leasing plant or machinery
118

“relevant fraction” has the same meaning as in paragraph 12 of
that Schedule.”
      (3)
Subsection (2) of section 343A of ICTA (as inserted by sub-paragraph (2)
above) has effect in relation to cessations occurring on or after 22nd
November 2006.
5
      (4)
But, if the cessation occurs before 21st March 2007, that subsection has effect
as if for paragraphs (a) and (b) there were substituted “on that day each
company which is a principal company of the predecessor is also a principal
company of the successor”.
      (5)
Subsection (3) of section 343A of ICTA has effect in relation to cessations
10
occurring on or after that date.
Sale etc of lessor companies etc
2     (1)
Schedule 10 to FA 2006 (sale etc of lessor companies etc) is amended as
follows.
      (2)
In paragraph 1(4) (contents of Schedule), for “an anti-avoidance provision”
15
substitute “anti-avoidance provisions”.
      (3)
In—
(a)
paragraph 7(3)(b) (provision for the purposes of condition A in
paragraph 6), and
(b)
paragraph 17(2)(b) (meaning of “PM” in paragraph 16),
20

for “it transfers” substitute “is transferred”.
      (4)
After paragraph 38 insert—
“38A  (1)
This paragraph applies if—
(a)
a question arises as to the application of this Schedule,
(b)
for the purpose of determining that question regard must
25
be had to amounts (if any) which fall (or would fall) to be
shown in any balance sheet of any company in respect of
plant or machinery,
(c)
there would (but for this paragraph) be a reduction or
increase in any such amount,
30
(d)
the reduction or increase arises directly or indirectly in
consequence of, or otherwise in connection with, any
arrangements, and
(e)
the main purpose, or one of the main purposes, of the
arrangements is to secure that there is a relevant tax
35
advantage.
      (2)
There is a relevant tax advantage if (but for this paragraph)—
(a)
any company would not be regarded for the purposes of
any provision of this Schedule as carrying on a business of
leasing plant or machinery (whether alone or in
40
partnership),
(b)
the amount of any income which any company is treated
as receiving under any provision of this Schedule would
be reduced, or

Finance Bill
Schedule 6 — Companies carrying on business of leasing plant or machinery
119

(c)
the amount of any expense which any company is treated
as incurring under any provision of this Schedule would
be increased.
      (3)
For the purpose of determining any question which arises as to the
application of this Schedule, the reduction or increase in the
5
amount which falls (or would fall) to be shown in the balance sheet
in respect of plant or machinery is to be ignored.
      (4)
For the purposes of this paragraph and paragraph 38B a question
arises as to the application of this Schedule if a question arises—
(a)
as to whether any company carries on a business of leasing
10
plant or machinery (whether alone or in partnership) for
the purposes of any provision of this Schedule, or
(b)
as to the amount (if any) of any income or expense which
any company is treated as receiving or incurring under any
provision of this Schedule.
15
      (5)
In this paragraph—
“arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions—
(a)
whether or not legally enforceable, and
(b)
whether or not the company for which the relevant
20
tax advantage is intended to be secured is a party to
the arrangements,
“increase” includes an increase from nil, and
“reduction” includes a reduction to nil.
38B   (1)
This paragraph applies if—
25
(a)
a company owns any plant or machinery at any time on
any day (“the relevant day”),
(b)
a question arises as to the application of this Schedule,
(c)
for the purpose of determining that question regard must
be had to the amount (if any) which falls (or would fall) to
30
be shown in any balance sheet of the company in respect of
the plant or machinery, and
(d)
condition A or B is met.
      (2)
Condition A is met if there would (but for this paragraph) be no
amount which would fall to be shown in the balance sheet of the
35
company in respect of the plant or machinery.
      (3)
Condition B is met if the amount which (but for this paragraph)
would fall to be shown in the balance sheet of the company in
respect of the plant or machinery is less than the amount which, on
the relevant assumption, would fall to be so shown.
40
      (4)
For the purpose of determining any question which arises as to the
application of this Schedule, the amount which falls (or would fall)
to be shown in any balance sheet of the company in respect of the
plant or machinery is to be determined on the relevant assumption
(as well as on the other assumptions applicable under other
45
provisions of this Schedule).
      (5)
The relevant assumption is that the company has no liabilities of
any kind at any time on that day.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
120

      (6)
For this purpose “liabilities” includes any share capital issued by
the company which falls to be treated for accounting purposes as
a liability.”
      (5)
For the purposes of Schedule 10 to FA 2006 the amendments made by sub-
paragraphs (3) and (4) have effect in relation to—
5
(a)
any qualifying change of ownership in relation to a company which
occurs on or after 22nd November 2006, and
(b)
any qualifying change in a company’s interest in a business which
occurs on or after that date.
      (6)
For all other purposes those amendments have effect for the purpose of
10
determining whether a company carries on a business of leasing plant or
machinery (whether alone or in partnership) on or after that date.
Schedule 7
Section 37

Insurance business: gross roll-up business etc
Part 1
15
Amendments
Taxes Management Act 1970 (c. 9)
1
In section 98 of TMA 1970 (special returns etc), in the Table, omit the entries
relating to section 333B of ICTA.
Income and Corporation Taxes Act 1988 (c. 1)
20
2
ICTA is amended as follows.
3     (1)
Section 76 (expenses of insurance companies) is amended as follows.
      (2)
In subsection (1), omit the second sentence.
      (3)
In subsection (7), in Step 5—
(a)
for “sum (“amount S”) of the amounts” substitute “amount (“amount
25
S”)”, and
(b)
for “436 or 439B” substitute “436A”.
      (4)
Omit subsection (14).
      (5)
In subsection (15), omit the definition of “capital redemption business”.
4
Omit section 333B (involvement of insurance companies with plans and
30
accounts).
5
In section 403E (relief for overseas losses of UK resident companies), omit
subsection (3).
6     (1)
Section 431 (interpretative provisions relating to insurance companies) is
amended as follows.
35