Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
31

(a)
the payment is in respect of the employee’s employment wholly in the
employer’s trade, and
(b)
no deduction would otherwise be allowable for the payment.
(2)
In calculating the profits of the trade, a deduction is allowed under this section
for the payment.
5
(3)
The deduction under this section for an approved contractual payment must
not exceed the amount which would have been due to the employee if a
redundancy payment had been payable.
(4)
If the payment is made after the employer has permanently ceased to carry on
the trade, it is treated as made on the last day on which the employer carried
10
on the trade.
(5)
If there is a partnership change, subsection (4) does not apply so long as a
company carrying on the trade in partnership immediately before the change
continues to carry it on in partnership after the change.
(6)
The reference in subsection (5) to a partnership change is to a change in the
15
persons carrying on the trade in circumstances where the trade is carried on by
persons in partnership immediately before or immediately after the change (or
at both those times).
(7)
The deduction under this section is allowed for the accounting period in which
the payment is made (or treated under subsection (4) as made).
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78
Payments in respect of employment in more than one capacity
(1)
This section applies if the payment is in respect of the employee’s employment
with the employer—
(a)
partly in the employer’s trade, and
(b)
partly in one or more other capacities.
25
(2)
The amount of the redundancy payment, or the amount which would have
been due if a redundancy payment had been payable, is to be apportioned on
a just and reasonable basis between—
(a)
the employment in the trade, and
(b)
the employment in the other capacities.
30
(3)
The part of the payment apportioned to the employment in the trade is treated
as a payment in respect of the employee’s employment wholly in the trade for
the purposes of section 77.
79
Additional payments
(1)
This section applies if the employer permanently ceases to carry on a trade or
35
part of a trade and makes a payment to the employee in addition to—
(a)
the redundancy payment, or
(b)
if an approved contractual payment is made, the amount that would
have been due if a redundancy payment had been payable.
(2)
If, in calculating the profits of the trade—
40
(a)
no deduction would otherwise be allowable for the additional
payment, but

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
32

(b)
a deduction would be allowable for it if the employer had not
permanently ceased to carry on the trade or the part of the trade,

a deduction is allowed under this section for the additional payment.
(3)
The deduction under this section is limited to 3 times the amount of—
(a)
the redundancy payment, or
5
(b)
if an approved contractual payment is made, the amount that would
have been due if a redundancy payment had been payable.
(4)
If the payment is made after the employer has permanently ceased to carry on
the trade or the part of the trade, it is treated as made on the last day on which
the employer carried on the trade or the part of the trade.
10
(5)
The deduction under this section is allowed for the accounting period in which
the payment is made (or treated under subsection (4) as made).
80
Application of section 79 in cases involving partnerships
(1)
This section deals with the application of section 79 in circumstances where—
(a)
there is a change in the persons carrying on a trade, and
15
(b)
the trade is carried on by persons in partnership before or after the
change (or at both those times).
(2)
The employer is treated for the purposes of section 79 as permanently ceasing
to carry on the trade unless a company carrying on the trade in partnership
immediately before the change continues to carry it on in partnership after the
20
change.
81
Payments made by the Government
(1)
This section applies if, in respect of a redundancy payment or an approved
contractual payment payable by an employer—
(a)
the Secretary of State makes a payment under section 167 of the
25
Employment Rights Act 1996 (c. 18), or
(b)
the Department for Employment and Learning makes a payment under
Article 202 of the Employment Rights (Northern Ireland) Order 1996
(S.I. 1996/1919 (N.I. 16)).
(2)
So far as the employer reimburses the Secretary of State or Department for the
30
payment, sections 77 to 80 apply as if the payment were—
(a)
a redundancy payment, or
(b)
an approved contractual payment,

made by the employer.
Contributions to local enterprise organisations or urban regeneration companies
35
82
Contributions to local enterprise organisations or urban regeneration
companies
(1)
This section applies if a company carrying on a trade (“the contributor”) incurs
expenses in making a contribution (whether in cash or in kind)—
(a)
to a local enterprise organisation (see section 83), or
40
(b)
to an urban regeneration company (see section 86),

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
33


and a deduction would not otherwise be allowable for the expenses in
calculating the profits of the trade.
(2)
In calculating the profits of the trade, a deduction is allowed under this section
for the expenses.
(3)
But if, in connection with the making of the contribution, the contributor or a
5
connected person—
(a)
receives a disqualifying benefit of any kind, or
(b)
is entitled to receive such a benefit,

the amount of the deduction is restricted to the amount of the expenses less the
value of the benefit.
10
(4)
For this purpose it does not matter whether a person receives, or is entitled to
receive, the benefit—
(a)
from the local enterprise organisation or urban regeneration company
concerned, or
(b)
from anyone else.
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(5)
Subsection (6) applies if—
(a)
a deduction has been made under this section, and
(b)
the contributor or a connected person receives a disqualifying benefit
that is in any way attributable to the contribution.
(6)
An amount equal to the value of the benefit (so far as not brought into account
20
in determining the amount of the deduction)—
(a)
is brought into account in calculating the profits of the trade, as a
receipt arising in the accounting period in which the benefit is received,
or
(b)
if the contributor has permanently ceased to carry on the trade before
25
the benefit is received, is treated as a post-cessation receipt (see Chapter
15).
(7)
In this section “disqualifying benefit” means a benefit the expenses of obtaining
which, if incurred by the contributor directly in a transaction at arm’s length,
would not be allowable as a deduction in calculating the profits of the trade.
30
83
Meaning of “local enterprise organisation”
(1)
For the purposes of section 82 “local enterprise organisation” means—
(a)
a local enterprise agency,
(b)
a training and enterprise council,
(c)
a Scottish local enterprise company, or
35
(d)
a business link organisation.
(2)
“Local enterprise agency” means a body for the time being approved as a local
enterprise agency for the purposes of section 82 by the relevant national
authority, that is to say by—
(a)
the Secretary of State (in relation to England or Northern Ireland),
40
(b)
the Scottish Ministers (in relation to Scotland), or
(c)
the Welsh Ministers (in relation to Wales).

For further provision about approvals by the relevant national authority, see
sections 84 and 85.

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
34

(3)
“Training and enterprise council” means a body with which the Secretary of
State has an agreement under which the body is to carry out the functions of a
training and enterprise council.
(4)
“Scottish local enterprise company” means a company with which—
(a)
Scottish Enterprise, or
5
(b)
Highlands and Islands Enterprise,

has an agreement under which the company is to carry out the functions of a
local enterprise company.
(5)
“Business link organisation” means a person authorised by or on behalf of the
Secretary of State to use a trade mark designated by the Secretary of State for
10
the purposes of this subsection.
84
Approval of local enterprise agencies
(1)
The relevant national authority may approve a body as a local enterprise
agency for the purposes of section 82 only if conditions A and B are met.
(2)
But if those conditions are met, the body may be approved—
15
(a)
whatever its status or structure, and
(b)
even if it is not described as a local enterprise agency.
(3)
Condition A is that the relevant national authority is satisfied—
(a)
that the body’s sole aim is the promotion or encouragement of local
enterprise, or
20
(b)
that one of the body’s main aims is the promotion or encouragement of
local enterprise and that it has or is about to have a separate fund for
the sole purpose of pursuing that aim.
(4)
For this purpose “local enterprise” means industrial and commercial activity or
enterprise in a particular area in the United Kingdom, with particular reference
25
to encouraging the formation and development of small businesses.
(5)
Condition B is that the body is precluded from paying or transferring any of its
income or profit directly or indirectly—
(a)
to any of its members, or
(b)
to any person charged with the control and direction of its affairs.
30
(6)
The payment of—
(a)
reasonable remuneration for goods, labour or power supplied or for
services provided,
(b)
reasonable interest on money lent, or
(c)
reasonable rent for premises,
35

does not count as a payment or transfer of income or profit for the purposes of
subsection (5).
85
Supplementary provisions with respect to approvals
(1)
This section applies for the purposes of section 84.
(2)
The relevant national authority may give a body approval that is conditional
40
on its compliance with such requirements as to—
(a)
accounts,
(b)
provision of information, and

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
35

(c)
other matters,

as the relevant national authority considers appropriate.
(3)
If the relevant national authority approves a body on the basis that it has or is
about to have a separate fund (see section 84(3)(b))—
(a)
the approval must specify the fund, and
5
(b)
section 82 applies only to a contribution to the body made wholly to or
for the purposes of the fund.
(4)
The relevant national authority must withdraw the approval of a body as a
local enterprise agency if—
(a)
condition A or B in section 84 is no longer met, or
10
(b)
the body is failing to comply with a requirement imposed as a
condition of its approval.
(5)
The relevant national authority must give notice of withdrawal to the body
concerned, specifying the date from which the withdrawal takes effect (which
may be earlier than the date on which the notice is given).
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86
Meaning of “urban regeneration company”
(1)
For the purposes of section 82 “urban regeneration company” means any body
of persons which the Treasury by order designates as an urban regeneration
company for the purposes of that section.
(2)
A body may be so designated only if—
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(a)
its sole or main function is to co-ordinate the regeneration of a specific
urban area in the United Kingdom,
(b)
it is expected to seek to perform that function by creating a plan for the
development of that area and trying to secure that the plan is carried
into effect, and
25
(c)
in co-ordinating the regeneration of that area, it is expected to work
together with some or all local or other public authorities which
exercise functions in relation to the whole or part of that area.
(3)
An order under this section may be framed so as to take effect on a date earlier
than the making of the order, but not earlier than 3 months before the date on
30
which the order is made.
Scientific research
87
Expenses of research and development
(1)
If a company carrying on a trade incurs expenses of a revenue nature on
research and development—
35
(a)
related to the trade, and
(b)
directly undertaken by or on behalf of the company,

a deduction is allowed for the expenses in calculating the profits of the trade.
(2)
For this purpose expenses incurred on research and development—
(a)
do not include expenses incurred in the acquisition of rights in, or
40
arising out of, research and development, but
(b)
subject to that, include all expenses incurred in carrying out, or
providing facilities for carrying out, research and development.

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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(3)
The reference in this section to research and development related to a trade
includes—
(a)
research and development which may lead to or facilitate an extension
of the trade, and
(b)
research and development of a medical nature which has a special
5
relation to the welfare of workers employed in the trade.
(4)
The same expenses may not be brought into account under this section in
relation to more than one trade.
(5)
In this section “research and development” has the meaning given by section
837A of ICTA and includes oil and gas exploration and appraisal.
10
88
Payments to research associations, universities etc
(1)
If a company carrying on a trade—
(a)
pays any sum to an Association in the case of which exemption may be
claimed under section 508 of ICTA and which has as its object the
undertaking of research and development which may lead to or
15
facilitate an extension of the appropriate class of trade, or
(b)
pays to an approved university, college, research institute or other
similar institution any sum to be used for scientific research related to
the appropriate class of trade,

a deduction is allowed for the sum in calculating the profits of the trade.
20
(2)
The deduction is allowed for the accounting period in which the payment is
made.
(3)
In this section—
(a)
“the appropriate class of trade” means the class of trade to which the
trade carried on by the company belongs, and
25
(b)
“scientific research” means any activities in the fields of natural or
applied science for the extension of knowledge.
(4)
For the purposes of this section a university, college research institute or other
similar institution is approved if it is for the time being approved for the
purposes of this section by the Secretary of State.
30
(5)
The reference in subsection (1)(b) to scientific research related to the
appropriate class of trade includes—
(a)
scientific research which may lead to or facilitate an extension of trades
of the appropriate class, and
(b)
scientific research of a medical nature which has a special relation to the
35
welfare of workers employed in trades of the appropriate class.
(6)
If a question arises as to—
(a)
whether, or
(b)
to what extent,

any activities constitute or constituted scientific research, an officer of Revenue
40
and Customs must refer the question for decision to the Secretary of State,
whose decision is final.
(7)
The same expenses may not be brought into account under this section in
relation to more than one trade.