Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 23 — Manufactured payments: anti-avoidance
284

      (5)
But where a company was, immediately before that date, a party to a
relevant contract that becomes a derivative contract for the purposes of
Schedule 26 to FA 2002 by virtue of those amendments, it is to be regarded
for those purposes as having been entered into by the company on that date
for a consideration equal to the notional carrying value (within the meaning
5
of paragraph 43A(5) of that Schedule) on that date.
Restrictions on relief for interest payments
17    (1)
Section 384 of ITA 2007 (general restrictions on relief for interest payments)
is amended as follows.
      (2)
In subsection (2), for “interest is paid at a rate in excess of a reasonable
10
commercial rate” substitute “the interest paid on a loan in a tax year exceeds
a reasonable commercial amount of interest on the loan for the relevant
period”.
      (3)
After subsection (2) insert—
“(3)
The relevant period is the tax year or, if the loan exists for part only
15
of the tax year, the part of the tax year for which the loan exists.
(4)
A reasonable commercial amount of interest on the loan for the
relevant period is an amount which, together with any interest paid
before that period (other than unrelieved interest), represents a
reasonable commercial rate of interest on the loan from the date it
20
was made to the end of that period.
(5)
“Unrelieved interest” means interest which because of subsection (2)
is not eligible for relief under this Chapter.”
      (4)
The amendments made by this paragraph have effect in relation to interest
paid on or after 9 October 2007; but in relation to interest paid in the period
25
beginning with that date and ending with 5 April 2008, they have effect as if
the references in section 384(2) and (3) to a tax year were to that period.
Schedule 23
Section 60

Manufactured payments: anti-avoidance
Introduction
30
1
Chapter 2 of Part 11 of ITA 2007 (manufactured payments) is amended as
follows.
Section 572A
2
After section 572 insert—
“572A
Meaning of “avoidance arrangements”
35
(1)
In this Chapter “avoidance arrangements” means any arrangements
the main purpose, or one of the main purposes, of which is to secure
a deduction for the purposes of income tax, or any other income tax
advantage, for any person.

Finance Bill
Schedule 23 — Manufactured payments: anti-avoidance
285

(2)
In subsection (1) “arrangements” includes any agreement,
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable).
(3)
In subsection (1) “income tax advantage” means—
(a)
a relief from income tax or increased relief from income tax,
5
(b)
a repayment of income tax or increased repayment of income
tax,
(c)
the avoidance, reduction or delay of a charge to income tax or
assessment to income tax, or
(d)
the avoidance of a possible assessment to income tax.
10
(4)
In subsection (3)(a) “relief from income tax” includes a tax credit.
(5)
For the purposes of subsection (3)(c) or (d) it does not matter whether
the avoidance or reduction is effected—
(a)
by receipts accruing in such a way that the recipient does not
pay or bear income tax on them, or
15
(b)
by a deduction in calculating profits or gains.”
Section 573
3
In section 573(4) (manufactured dividends on UK shares: Income Tax Acts
to apply subject to sections 574 and 575 where payer is UK resident and not
a company), for “sections 574 and 575” substitute “section 574”.
20
Section 574
4     (1)
Section 574 (allowable deductions for manufactured dividends on UK
shares: matching) is amended as follows.
      (2)
In subsection (2), for the words after “allowable” substitute “for income tax
purposes as a deduction in calculating the net income of the payer (see Step
25
2 of the calculation in section 23).

This is subject to subsection (3).”
      (3)
For subsections (3) to (9) substitute—
“(3)
It is—
(a)
deductible by virtue of subsection (2) only so far as it is not
30
otherwise deductible and so far as section 263D of TCGA
1992 does not apply, and
(b)
not deductible (whether by virtue of subsection (2) or
otherwise) if it (or any part of it) is made directly or indirectly
in consequence of, or otherwise in connection with,
35
avoidance arrangements.”
      (4)
In subsection (10), for “deductible if” substitute “otherwise deductible if,
apart from this section,”.
      (5)
In the heading, omit “: matching”.
Section 575
40
5
Omit section 575 (allowable deductions for manufactured dividends on UK
shares: restriction on double-counting).

Finance Bill
Schedule 23 — Manufactured payments: anti-avoidance
286

Section 578
6
In section 578(3) (manufactured interest on UK securities: Income Tax Acts
to apply subject to sections 579 and 580 where payer is UK resident or acting
in course of trade carried on through UK branch or agency), for “sections 579
and 580” substitute “section 579”.
5
Section 579
7     (1)
Section 579 (allowable deductions for manufactured interest on UK
securities: matching) is amended as follows.
      (2)
For subsections (3) to (8) substitute—
“(3)
It is—
10
(a)
deductible by virtue of subsection (2) only so far as it is not
otherwise deductible, and
(b)
not deductible (whether by virtue of subsection (2) or
otherwise) if it (or any part of it) is made directly or indirectly
in consequence of, or otherwise in connection with,
15
avoidance arrangements.”
      (3)
In subsection (9), for “deductible if” substitute “otherwise deductible if,
apart from this section,”.
      (4)
Omit subsection (10).
      (5)
In the heading, omit “: matching”.
20
Section 580
8
Omit section 580 (allowable deductions for manufactured interest on UK
securities: restriction on double counting).
Section 581A
9
After section 581 insert—
25
“581A
Avoidance arrangements
(1)
A manufactured overseas dividend is not deductible if it (or any part
of it) is made directly or indirectly in consequence of, or otherwise in
connection with, avoidance arrangements.
(2)
For the purposes of subsection (1) an amount is deductible if it is—
30
(a)
deductible in calculating any of the payer’s profits or gains
for income tax purposes, or
(b)
deductible for those purposes in calculating the net income of
the payer.”
Section 583
35
10
In section 583 (manufactured payments exceeding underlying payments),
insert at the end—
“(5)
Nothing in this section makes the excess deductible (whether by
virtue of this Chapter or otherwise) if it (or any part of it) is made

Finance Bill
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
287

directly or indirectly in consequence of, or otherwise in connection
with, avoidance arrangements.”
Capital gains
11    (1)
Section 263D of TCGA 1992 (gains accruing to persons paying manufactured
dividends) is amended as follows.
5
      (2)
In subsection (6)(b), for “adjusted amount” substitute “amount specified in
subsection (7) below”.
      (3)
For subsection (7) substitute—
“(7)
The amount referred to in subsection (6) above is the lesser of—
(a)
the amount of the manufactured dividend paid, and
10
(b)
the amount of the dividend of which the manufactured
dividend is representative.”
12
In ITA 2007, omit paragraph 335(5) of Schedule 1 (which amended section
263D(7) of TCGA 1992).
Schedule 24
15
Section 71

Annual investment allowance
Part 1
Amendments of CAA 2001
1
CAA 2001 is amended as follows.
2
In Part 2, after Chapter 3 insert—
20
“Chapter 3A
AIA qualifying expenditure
38A
AIA qualifying expenditure
(1)
An annual investment allowance is not available unless the
qualifying expenditure is AIA qualifying expenditure.
25
(2)
Expenditure is AIA qualifying expenditure if—
(a)
it is incurred by a qualifying person on or after the relevant
date, and
(b)
it is not excluded by any of the general exclusions in section
38B.
30
(3)
“Qualifying person” means—
(a)
an individual,
(b)
a partnership of which all the members are individuals, or
(c)
a company.
(4)
“The relevant date” means—
35
(a)
for corporation tax purposes, 1 April 2008, and

Finance Bill
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
288

(b)
for income tax purposes, 6 April 2008.
38B
General exclusions applying to section 38A

Expenditure within any of the following general exclusions is not
AIA qualifying expenditure.

General exclusion 1
5

The expenditure is incurred in the chargeable period in which the
qualifying activity is permanently discontinued.

General exclusion 2

The expenditure is incurred on the provision of a car (as defined by
section 81).
10

General exclusion 3

The expenditure is incurred wholly for the purposes of a ring fence
trade in respect of which tax is chargeable under section 501A of
ICTA (supplementary charge in respect of ring fence trades).

General exclusion 4
15

The circumstances of the incurring of the expenditure are that—
(a)
the provision of the plant or machinery on which the
expenditure is incurred is connected with a change in the
nature or conduct of the trade or business carried on by a
person other than the person incurring the expenditure, and
20
(b)
the obtaining of an annual investment allowance is the main
benefit, or one of the main benefits, which could reasonably
be expected to arise from the making of the change.

General exclusion 5

Any of the following sections applies—
25

section 13 (use for qualifying activity of plant or machinery
provided for other purposes);

section 13A (use for other purposes of plant or machinery
provided for long funding leasing);

section 14 (use for qualifying activity of plant or machinery
30
which is a gift).

This is subject to section 161 (pre-trading expenditure on mineral
exploration and access).”
3
In Chapter 5 of Part 2 (allowances and charges), insert at the beginning—
“Annual investment allowance
35
51A
Entitlement to annual investment allowance
(1)
A person is entitled to an allowance (an “annual investment
allowance”) in respect of AIA qualifying expenditure if—
(a)
the expenditure is incurred in a chargeable period to which
this Act applies, and
40
(b)
the person owns the plant and machinery at some time
during that chargeable period.
(2)
Any annual investment allowance is made for the chargeable period
in which the AIA qualifying expenditure is incurred.

Finance Bill
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
289

(3)
If the AIA qualifying expenditure incurred in a chargeable period is
less than or equal to the maximum allowance, the person is entitled
to an annual investment allowance in respect of all the AIA
qualifying expenditure.
(4)
If the AIA qualifying expenditure incurred in a chargeable period is
5
more than the maximum allowance, the person is entitled to an
annual investment allowance in respect of so much of the AIA
qualifying expenditure as does not exceed the maximum allowance.
(5)
The maximum allowance is £50,000.
(6)
But if the chargeable period is more or less than a year, the maximum
10
allowance is proportionately increased or reduced.
(7)
A person may claim an annual investment allowance in respect of all
the AIA qualifying expenditure in respect of which the person is
entitled to an allowance, or in respect of only some of it.
(8)
In determining when AIA qualifying expenditure is incurred, any
15
effect of section 12 on the time at which it is to be treated as incurred
is to be disregarded.
(9)
The Treasury may by order substitute for the amount for the time
being specified in subsection (5) such other amount as it thinks fit.
(10)
An order under subsection (9) may make such incidental,
20
supplemental, consequential and transitional provision as the
Treasury thinks fit.
(11)
This section is subject to—
(a)
sections 51B to 51N (restrictions on entitlement to annual
investment allowance),
25
(b)
section 205 (reduction of allowance if plant or machinery
provided partly for purposes other than those of qualifying
activity),
(c)
section 210 (reduction of allowance if it appears that a partial
depreciation subsidy is or will be payable), and
30
(d)
sections 217, 218A and 241 (anti-avoidance: no allowance in
certain cases),

and needs to be read with section 236 (additional VAT liabilities).
51B
First restriction: companies
(1)
A company is entitled to a single annual investment allowance in
35
respect of all the qualifying activities carried on by the company in a
chargeable period.
(2)
The company may allocate the annual investment allowance to the
relevant AIA qualifying expenditure as it thinks fit.
(3)
The relevant AIA qualifying expenditure is the AIA qualifying
40
expenditure incurred by the company in the chargeable period
mentioned in subsection (1).
(4)
This section is subject to sections 51C, 51D and 51E.