Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 3 — Debits in respect of intangible fixed assets
353

(5)
The election is irrevocable.
731
Writing down at fixed rate: calculation
(1)
If an election is made under section 730 for writing down at a fixed rate, a debit
equal to the lesser of—
(a)
4% of the cost of the asset, and
5
(b)
the balance of the tax written-down value,

must be brought into account for tax purposes in each accounting period
beginning with that in which the relevant expenditure is incurred.
(2)
If the accounting period is less than 12 months, the amount mentioned in
subsection (1)(a) must be proportionately reduced.
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(3)
In this section “the cost of the asset” means the cost recognised for tax
purposes.
(4)
The cost of the asset recognised for tax purposes is the same as the amount
capitalised for accounting purposes in respect of expenditure on the asset.
(5)
Subsection (4) is subject to any adjustments required by this Part or Schedule
15
28AA to ICTA (provision not at arm’s length).
(6)
If there is a part realisation of the asset (see section 734(4)), the reference in
subsection (1)(a) to the cost of the asset must be read as a reference to the sum
of—
(a)
the cost recognised for tax purposes in respect of the value of the asset
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recognised for accounting purposes immediately after the part
realisation, and
(b)
the cost recognised for tax purposes of any subsequent expenditure on
the asset that is capitalised for accounting purposes.
(7)
If there is a further part realisation, subsection (6) applies again.
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732
Reversal of previous accounting gain
(1)
This section applies if—
(a)
in a period of account a loss is recognised in determining a company’s
profit or loss (“the recognised loss”),
(b)
the loss wholly or partly reverses a gain recognised in a previous period
30
of account (“the reversed gain”), and
(c)
a credit was brought into account for tax purposes under Chapter 2
(credits in respect of intangible fixed assets) in respect of that gain (“the
previous credit”).
(2)
A corresponding debit must be brought into account for tax purposes.
35
(3)
The amount of that debit is—

where—
RL is the recognised loss,
PC is the previous credit, and
RG is the reversed gain.
40

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 4 — Realisation of intangible fixed assets
354

(4)
References in this section to the recognition of a loss that reverses a gain
recognised in a previous period of account do not include a loss recognised—
(a)
by way of amortisation of an asset that has previously been the subject
of a revaluation, or
(b)
as a result of an impairment review of such an asset.
5
(5)
In subsection (4) “revaluation” has the same meaning as in section 723 (see
subsection (5) of that section).
Chapter 4
Realisation of intangible fixed assets
733
Overview of Chapter
10
(1)
This Chapter provides for credits or debits to be brought into account for tax
purposes on the realisation by a company of an intangible fixed asset.
(2)
For the meaning of “realisation”, see section 734.
(3)
Sections 735 to 738 are subject to Chapter 7 (roll-over relief in case of realisation
and reinvestment).
15
(4)
This Chapter is also relevant for determining—
(a)
whether an asset is a chargeable intangible asset for the purposes of this
Part, and
(b)
whether a gain is a chargeable realisation gain for the purposes of this
Part.
20
(5)
For the meaning of “chargeable intangible asset” and “chargeable realisation
gain”, see section 741.
734
Meaning of “realisation”
(1)
References in this Part to the realisation of an intangible fixed asset are to a
transaction resulting, in accordance with generally accepted accounting
25
practice—
(a)
in the asset ceasing to be recognised in the company’s balance sheet, or
(b)
in a reduction in the accounting value of the asset.
(2)
In subsection (1) “transaction” includes any event giving rise to a gain
recognised for accounting purposes.
30
(3)
In relation to an intangible fixed asset that has no balance sheet value (or no
longer has a balance sheet value), subsections (1) and (2) apply as if it did have
a balance sheet value.
(4)
References in this Part to a “part realisation” are to a realisation falling within
subsection (1)(b).
35
735
Asset written down for tax purposes
(1)
This section applies if there is a realisation of an intangible fixed asset in respect
of which debits have been brought into account for tax purposes.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 4 — Realisation of intangible fixed assets
355

(2)
If the proceeds of realisation exceed the tax written-down value of the asset, a
credit equal to the excess must be brought into account for tax purposes.
(3)
If the proceeds of realisation are less than the tax written-down value of the
asset, a debit equal to the shortfall must be brought into account for tax
purposes.
5
(4)
If there are no proceeds of realisation, a debit equal to the tax written-down
value must be brought into account for tax purposes.
(5)
References in this section to the tax written-down value of an asset are to its tax
written-down value immediately before the realisation.
736
Asset shown in balance sheet and not written down for tax purposes
10
(1)
This section applies if—
(a)
there is a realisation of an intangible fixed asset to which section 735
does not apply, and
(b)
a value is shown for the asset in the company’s balance sheet.
(2)
If the proceeds of realisation exceed the cost of the asset, a credit equal to the
15
excess must be brought into account for tax purposes.
(3)
If the proceeds of realisation are less than the cost of the asset, a debit equal to
the shortfall must be brought into account for tax purposes.
(4)
If there are no proceeds of realisation, a debit equal to the cost of the asset must
be brought into account for tax purposes.
20
(5)
In this section “the cost of the asset” means the cost recognised for tax
purposes.
(6)
The cost of the asset recognised for tax purposes is the same as the amount of
expenditure on the asset capitalised by the company for accounting purposes.
(7)
Subsection (6) is subject to any adjustments required by this Part or Schedule
25
28AA to ICTA (provision not at arm’s length)).
(8)
If this section has applied on a part realisation of an asset and applies again (on
the realisation of the unrealised asset) the references in subsections (2) to (4) to
the cost of the asset must be read as references to the sum of—
(a)
the cost recognised for tax purposes in respect of the value of the asset
30
recognised for accounting purposes immediately after the part
realisation, and
(b)
the cost recognised for tax purposes of any subsequent expenditure on
the asset that is capitalised for accounting purposes.
(9)
If there is a further part realisation, subsection (8) applies again.
35
737
Apportionment in case of part realisation
(1)
In the case of a part realisation—
(a)
the references in section 735 to the tax written-down value of the asset,
and
(b)
the references in section 736 to the cost of the asset,
40

must be read as references to the appropriate proportion of that amount.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 4 — Realisation of intangible fixed assets
356

(2)
That proportion is—

where—
AVB is the accounting value immediately before the realisation, and
AVA is the accounting value immediately after the realisation.
738
Asset not shown in balance sheet
5
(1)
This section applies if—
(a)
there is a realisation of an intangible fixed asset, and
(b)
neither section 735 (asset written down for tax purposes) nor section
736 (asset shown in balance sheet and not written down for tax
purposes) applies.
10
(2)
A credit equal to any proceeds of realisation must be brought into account for
tax purposes.
739
Meaning of “proceeds of realisation”
(1)
In this Part “proceeds of realisation” of an asset means the amount recognised
for accounting purposes as the proceeds of realisation, less the amount so
15
recognised as incidental costs of realisation.
(2)
The amounts referred to in subsection (1) are subject to any adjustments
required by this Part or Schedule 28AA to ICTA (provision not at arm’s
length).
740
Abortive expenditure on realisation
20
(1)
This section applies if—
(a)
in a period of account a loss is recognised in determining the
company’s profit or loss in respect of expenditure by the company for
the purposes of a transaction,
(b)
the transaction does not proceed to completion, but
25
(c)
were it completed, it would constitute a realisation of an intangible
fixed asset.
(2)
A corresponding debit must be brought into account for tax purposes.
(3)
The amount of the debit is the same as the amount of the loss recognised by the
company for accounting purposes.
30
(4)
Subsection (3) is subject to any adjustments required by this Part or Schedule
28AA to ICTA (provision not at arm’s length).
741
Meaning of “chargeable intangible asset” and “chargeable realisation gain”
(1)
For the purposes of this Part, an asset is a “chargeable intangible asset” in
relation to a company at any time if any gain on its realisation by the company
35
at that time would be a chargeable realisation gain.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 5 — Calculation of tax written-down value
357

(2)
For the purposes of this Part, “chargeable realisation gain”, in relation to an
asset, means a gain on the realisation of the asset that gives rise to a credit
required to be brought into account under this Chapter.
(3)
For the purposes of subsections (1) and (2), there is a gain on the realisation of
an asset in any case if section 735(2), 736(2) or 738(2) applies.
5
(4)
For the purpose of subsections (1) and (2), ignore any question whether—
(a)
relief under Chapter 7 (roll-over relief in case of realisation and
reinvestment) is available, or
(b)
a transfer of an asset is tax-neutral for the purposes of this Part (see
section 776).
10
Chapter 5
Calculation of tax written-down value
742
Asset written down on accounting basis
(1)
For the purposes of this Part, the tax written-down value of an intangible fixed
asset to which section 729 (writing down on accounting basis) applies is the
15
cost of the asset recognised for tax purposes, less the total net debits brought
into account for tax purposes previously in respect of the asset.
(2)
For the purposes of subsection (1) the cost of the asset recognised for tax
purposes is the same as the amount of the expenditure on the asset that is
capitalised for accounting purposes.
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(3)
Subsection (2) is subject to any adjustments required by this Part or Schedule
28AA to ICTA (provision not at arm’s length).
(4)
For the purposes of subsection (1) “the total net debits brought into account for
tax purposes previously in respect of the asset”, means the total debits so
brought into account, less the total credits so brought into account (if any).
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(5)
In the case of an asset that has been the subject of a part realisation, this section
is subject to section 744.
(6)
In the case of an asset that has been subject to adjustment on a change of
accounting policy, this section is subject to Chapter 15 (adjustments on a
change of accounting policy).
30
743
Asset written down at fixed rate
(1)
For the purposes of this Part, the tax written-down value of an intangible fixed
asset in respect of which an election has been made under section 730 (writing
down at fixed rate: election for fixed-rate basis) is the cost of the asset
recognised for tax purposes, less any debits brought into account for tax
35
purposes previously in respect of the asset under section 731 (writing down at
fixed rate: calculation).
(2)
For the purposes of subsection (1), the cost of the asset recognised for tax
purposes is the same as the amount of the expenditure on the asset that is
capitalised for accounting purposes.
40
(3)
Subsection (2) is subject to any adjustments required by this Part or Schedule
28AA to ICTA (provision not at arm’s length).

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 6 — How credits and debits are given effect
358

(4)
In the case of an asset that has been the subject of a part realisation, this section
is subject to section 744.
(5)
In the case of an asset that has been subject to adjustment on a change of
accounting policy, this section is subject to Chapter 15 (adjustments on change
of accounting policy).
5
744
Effect of part realisation of asset
(1)
The tax written-down value of an intangible asset that has been the subject of
a part realisation is determined as follows.
(2)
Immediately after the part realisation the tax written-down value of the asset
is—
10

where—
WDVB is the tax written-down value of the asset immediately before the
part realisation,
AVA is the accounting value of the asset immediately after the part
realisation, and
15
AVB is the accounting value immediately before the part realisation.
(3)
Subsequently, the tax written-down value of the asset is determined in
accordance with section 742 or 743, but subject to subsections (4) and (5).
(4)
The cost of the asset recognised for tax purposes is the sum of—
(a)
the tax written-down value in accordance with subsection (2), and
20
(b)
the cost recognised for tax purposes of subsequent expenditure on the
asset that is capitalised for accounting purposes.
(5)
Only credits and debits brought into account for tax purposes after the part
realisation are taken account of.
(6)
If there is a further part realisation, subsections (1) to (5) apply again.
25
(7)
If there is a subsequent change of accounting policy affecting the asset, Chapter
15 (adjustments on change of accounting policy) applies.
Chapter 6
How credits and debits are given effect
Introductory
30
745
Introduction
(1)
Credits and debits to be brought into account for tax purposes under this Part
are given effect in accordance with this Chapter.
(2)
Credits and debits in respect of assets held for the purposes mentioned in any
of the following sections are given effect in accordance with that section—
35
(a)
section 747 (assets held for purposes of trade),

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 6 — How credits and debits are given effect
359

(b)
section 748 (assets held for purposes of property business),
(c)
section 749 (assets held for purposes of mines, transport undertakings,
etc).
(3)
Credits and debits in respect of intangible fixed assets that are not within
sections 747 to 749 are dealt with in accordance with sections 751 to 753.
5
(4)
This section is subject to section 901 (effect of application of the I minus E basis:
non-trading amounts).
746
“Non-trading credits” and “non-trading debits”
(1)
In this Part credits and debits in respect of intangible fixed assets that are not
within sections 747 to 749 are referred to respectively as “non-trading credits”
10
and “non-trading debits”.
(2)
See also—
(a)
section 781(5) (character of credits and debits brought into account as a
result of section 780),
(b)
section 792(5) (reallocation of charge within group), and
15
(c)
section 901(3) (insurance companies: effect of application of the I minus
E basis: non-trading amounts).
Trading etc credits and debits
747
Assets held for purposes of trade
(1)
This section applies if credits or debits are to be brought into account in an
20
accounting period in respect of an asset held by a company for the purposes of
a trade carried on by it in that period.
(2)
The credits are given effect by treating them as receipts of the trade in
calculating the profits of the trade for tax purposes.
(3)
The debits are given effect by treating them as expenses of the trade in
25
calculating the profits of the trade for tax purposes.
748
Assets held for purposes of property business
(1)
This section applies if credits or debits are to be brought into account in an
accounting period in respect of an asset held by a company for the purposes of
a property business carried on by it in that period.
30
(2)
The credits are given effect by treating them as receipts of the business in
calculating the profits of the business for tax purposes.
(3)
The debits are given effect by treating them as expenses of the business in
calculating the profits of the business for tax purposes.
(4)
In subsection (1) “property business” means—
35
(a)
an ordinary property business,
(b)
a furnished holiday lettings business, or
(c)
an overseas property business.
(5)
In this section—