Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general
142

(b)
if the company was the debtor under the loan relationship, it must
bring into account for the later period a credit equal to the decrease for
the purposes of this Part.
(4)
Subsections (2) and (3) do not apply so far as the credit or debit falls to be
brought into account apart from this section.
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(5)
In this section “the amount outstanding in respect of the loan relationship”
means so much of the recognised deferred income or recognised deferred loss
from the loan relationship as has not been represented by credits or debits
brought into account under this Part in respect of the relationship.
(6)
In subsection (5)—
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“recognised deferred income”, in relation to a loan relationship, means the
amount recognised in the company’s balance sheet in accordance with
generally accepted accounting practice as deferred income in respect of
the profits which arose from the relationship or a related transaction in
the cessation period, and
15
“recognised deferred loss”, in relation to a loan relationship, means the
amount so recognised as deferred loss in respect of the losses which so
arose.
319
General power to make regulations about changes in accounting policy
(1)
The Treasury may by regulations make provision for cases where there is a
20
change of accounting policy in drawing up a company’s accounts from one
period of account to the next which affects the amounts to be brought into
account for accounting purposes in respect of the company’s loan
relationships.
(2)
The regulations may provide for any credits or debits which would otherwise
25
be brought into account for the purposes of this Part—
(a)
not to be brought into account,
(b)
to be brought into account only to a prescribed extent, or
(c)
to be brought into account over a prescribed period or in prescribed
circumstances.
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(3)
Regulations under this section may, in particular, modify the operation of
sections 315 to 318.
(4)
The regulations may make—
(a)
different provision for different cases, and
(b)
incidental, supplemental, consequential and transitional provision and
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savings.
(5)
The regulations may apply to periods of account beginning before they are
made, but not earlier than the beginning of the calendar year in which they are
made.
Rules differing from generally accepted accounting practice
40
320
Credits and debits treated as relating to capital expenditure
(1)
This section applies if generally accepted accounting practice allows a credit or
debit for an accounting period in respect of a company’s loan relationship to

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general
143

be treated in the company’s accounts as an amount brought into account in
determining the value of a fixed capital asset or project.
(2)
Despite that treatment, the credit or debit is to be brought into account for the
purposes of this Part, for the accounting period in which it is given, in the same
way as a credit or debit which is brought into account in determining the
5
company’s profit or loss for that period in accordance with generally accepted
accounting practice.
(3)
But subsection (2) does not apply to a debit which is taken into account in
arriving at the amount of expenditure in relation to which a debit may be given
by Part 8 (intangible fixed assets).
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(4)
Subsections (5) and (6) apply if a debit is brought into account as mentioned in
subsection (2).
(5)
No debit may be brought into account in respect of the writing down of so
much of the value of the asset or project as is attributable to that debit.
(6)
No debit may be brought into account in respect of so much of any
15
amortisation or depreciation as represents a writing off of the interest
component of the asset.
321
Credits and debits recognised in equity
(1)
This section applies if in accordance with generally accepted accounting
practice a credit or debit for a period in respect of a company’s loan
20
relationship—
(a)
is recognised in equity, and
(b)
is not recognised in any of the statements mentioned in section 308(1).
(2)
The credit or debit is to be brought into account for the period for the purposes
of this Part in the same way as a credit or debit which is brought into account
25
in determining the company’s profit or loss for the period in accordance with
generally accepted accounting practice.
322
Release of debts: cases where credits not required to be brought into account
(1)
This section applies if—
(a)
a liability to pay an amount under a company’s debtor relationship is
30
released, and
(b)
the release takes place in an accounting period for which an amortised
cost basis of accounting is used in respect of that relationship.
(2)
The company is not required to bring into account a credit in respect of the
release for the purposes of this Part if condition A, B or C is met.
35
(3)
Condition A is that the release is part of a statutory insolvency arrangement.
(4)
Condition B is that the release is—
(a)
in consideration of shares forming part of the ordinary share capital of
the debtor company, or
(b)
in consideration of any entitlement to such shares.
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(5)
Condition C is that—
(a)
the debtor company meets one of the insolvency conditions (see
subsection (6)), and

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general
144

(b)
the debtor relationship is not a connected companies relationship (see
section 348).
(6)
For the purposes of this section a company meets the insolvency conditions
if—
(a)
it is in insolvent liquidation,
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(b)
it is in insolvent administration,
(c)
it is in insolvent administrative receivership,
(d)
an appointment of a provisional liquidator is in force in relation to the
company under section 135 of the Insolvency Act 1986 (c. 45) or Article
115 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405
10
(N.I. 19)), or
(e)
under the law of a country or territory outside the United Kingdom
circumstances corresponding to those mentioned in paragraph (a), (b),
(c) or (d) exist.
(7)
Section 323 applies for the interpretation of subsection (6).
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(8)
For further cases where no credit in respect of the release is to be brought into
account, see—
(a)
section 358 (exclusion of credits on release of connected companies
debts: general), and
(b)
section 359 (exclusion of credits on release of connected companies
20
debts during creditor’s insolvency).
323
Meaning of expressions relating to insolvency etc
(1)
For the purposes of section 322(6) a company is in insolvent liquidation during
the period—
(a)
beginning when it goes into liquidation at a time when its assets are
25
insufficient for the payment of its debts and other liabilities and the
expenses of the winding up, and
(b)
ending when the winding up is completed or otherwise brought to an
end (whether under paragraph 37 or 38 of Schedule B1 to the
Insolvency Act 1986 (c. 45) or otherwise).
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(2)
In subsection (1) “liquidation” has the meaning given in—
(a)
section 247(2) of the Insolvency Act 1986, or
(b)
Article 6(2) of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/
2405 (N.I. 19)).
(3)
For the purposes of section 322(6) a company in administration is in insolvent
35
administration if it entered administration under—
(a)
Schedule B1 to the Insolvency Act 1986, or
(b)
Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/
2405 (N.I. 19)),

at a time when its assets were insufficient for the payment of its debts and other
40
liabilities and the expenses of the administration.
(4)
For the purposes of section 322(6) a company is in insolvent administrative
receivership if—
(a)
an appointment of an administrative receiver is in force in relation to
the company, and
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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general
145

(b)
the company was put into administrative receivership at a time when
its assets were insufficient for the payment of its debts and other
liabilities and the expenses of administrative receivership.
(5)
In subsection (4) “administrative receiver” has the same meaning as in—
(a)
Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 (c. 45), or
5
(b)
Part 4 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405
(N.I. 19)),

and “administrative receivership” is to be read accordingly.
324
Restriction on debits resulting from revaluation
(1)
No debit is to be brought into account for the purposes of this Part as a result
10
of the revaluation of an asset representing a creditor relationship of a company
except—
(a)
an impairment loss, or
(b)
a debit resulting from a release by the company of any liability under
the relationship.
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(2)
For the meaning of “impairment loss” see section 476(1).
(3)
The reference in subsection (1) to revaluation of an asset includes any case
where a provision or allowance is made by the company reducing the carrying
value of the asset or of a group of assets including the asset in question.
(4)
This section does not affect the debits to be brought into account in respect of
20
exchange gains or losses.
(5)
This section does not apply if fair value accounting is used.
325
Restriction on credits resulting from reversal of disallowed debits
(1)
No credit is to be brought into account for the purposes of this Part in respect
of the reversal of a debit disallowed by section 324(1).
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(2)
This section does not apply if fair value accounting is used.
(3)
See also paragraph 61 of Schedule 2 (restriction on bringing into account
credits resulting from reversal of debits disallowed in a period of account
beginning before 1 January 2005).
326
Writing off government investments
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(1)
This section applies if a government investment in a company is written off by
the release of a liability to pay any amount under a debtor relationship of the
company.
(2)
The company is not required to bring into account a credit for the purposes of
this Part in respect of the release.
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(3)
Section 400(7) and (8) of ICTA (write-off of government investment) applies for
interpreting the reference in subsection (1) to a government investment in a
company being written off as it applies for the purposes of section 400(1) of that
Act.