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Session 2008 - 09
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Corporation Tax Bill


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

37

 

Expenses connected with patents, designs and trade marks

89      

Expenses connected with patents

In calculating the profits of a trade, a deduction is allowed for expenses

incurred—

(a)   

in obtaining for the purposes of the trade the grant of a patent or the

5

extension of a patent’s term, or

(b)   

in connection with a rejected or abandoned application for a patent

made for the purposes of the trade.

90      

Expenses connected with designs or trade marks

In calculating the profits of a trade, a deduction is allowed for expenses

10

incurred in obtaining for the purposes of the trade—

(a)   

the registration of a design or trade mark,

(b)   

the extension of a period for which the right in a registered design

subsists, or

(c)   

the renewal of registration of a trade mark.

15

Export Credits Guarantee Department

91      

Payments to Export Credits Guarantee Department

In calculating the profits of a trade, a deduction is allowed for a sum payable

by the company carrying on the trade to the Export Credits Guarantee

Department—

20

(a)   

under an agreement entered into as a result of arrangements made

under section 2 of the Export and Investment Guarantees Act 1991

(c. 67) (insurance in connection with overseas investment), or

(b)   

with a view to entering into such an agreement.

Levies under FISMA 2000

25

92      

Levies etc under FISMA 2000

(1)   

In calculating the profits of a trade carried on by a company, a deduction is

allowed for any sum—

(a)   

spent by the company in paying a levy, or

(b)   

paid by the company as a result of an award of costs under costs rules,

30

   

so far as it is not otherwise allowable.

(2)   

For the purposes of this section “costs rules” means—

(a)   

rules made under section 230 of FISMA 2000, or

(b)   

provision relating to costs contained in the standard terms fixed under

paragraph 18 of Schedule 17 to FISMA 2000.

35

(3)   

For the purposes of this section “levy” means—

(a)   

a payment required under rules made under section 136(2) of FISMA

2000,

(b)   

a levy imposed under the Financial Services Compensation Scheme,

 
 

Corporation Tax Bill
Part 3 — Trading income
Chapter 6 — Trade profits: receipts

38

 

(c)   

a payment required under rules made under section 234 of FISMA

2000,

(d)   

a payment required under the rules referred to in paragraph 14(1) of

Schedule 17 to FISMA 2000 in accordance with paragraph 15(1) of that

Schedule, or

5

(e)   

a payment required in accordance with the standard terms fixed under

paragraph 18 of that Schedule (other than a sum paid as a result of an

award of costs under costs rules).

Chapter 6

Trade profits: receipts

10

Capital receipts

93      

Capital receipts

(1)   

Items of a capital nature must not be brought into account as receipts in

calculating the profits of a trade.

(2)   

But this does not apply to items which, as a result of any provision of the

15

Corporation Tax Acts, are brought into account as receipts in calculating the

profits of the trade.

Debts released

94      

Debts incurred and later released

(1)   

This section applies if—

20

(a)   

in calculating the profits of a trade, a deduction is allowed for the

expense giving rise to a debt owed by the company carrying on the

trade,

(b)   

all or part of the debt is released, and

(c)   

the release is not part of a statutory insolvency arrangement.

25

(2)   

The amount released—

(a)   

is brought into account as a receipt in calculating the profits of the

trade, and

(b)   

is treated as arising in the accounting period in which the release is

effected.

30

Amounts received following earlier cessation

95      

Acquisition of trade: receipts from transferor’s trade

(1)   

This section applies if —

(a)   

a person (“the transferor”) permanently ceased to carry on a trade at

any time,

35

(b)   

at that time the transferor transferred to another person (“the

transferee”) the right to receive sums arising from the carrying on of the

trade, and

(c)   

the transferee subsequently carries on the transferor’s trade.

 
 

Corporation Tax Bill
Part 3 — Trading income
Chapter 6 — Trade profits: receipts

39

 

(2)   

Sums—

(a)   

which the transferee receives as a result of the transfer, and

(b)   

which are not brought into account in calculating the profits of the

transferor’s trade for corporation or income tax purposes of any period

before the cessation,

5

   

are brought into account in calculating the profits of the transferee’s trade in

the accounting period in which they are received.

(3)   

Any sums mentioned in subsection (1)(b) which are received after the

transferor has permanently ceased to carry on the trade are not post-cessation

receipts (see Chapter 15).

10

Reverse premiums

96      

Reverse premiums

(1)   

For the purposes of sections 98 and 99 a payment or other benefit is a reverse

premium if—

(a)   

conditions A, B and C are met, and

15

(b)   

it is not excluded by section 97.

(2)   

Condition A is that a company (“the recipient”) receives the payment or other

benefit by way of inducement in connection with a transaction being entered

into by—

(a)   

the recipient, or

20

(b)   

a person connected with the recipient.

(3)   

Condition B is that the transaction (the “property transaction”) is one under

which—

(a)   

the recipient, or

(b)   

the person connected with the recipient,

25

   

becomes entitled to an estate, interest or right in or over land.

(4)   

Condition C is that the payment or other benefit is paid or provided by—

(a)   

the person (“the grantor”) by whom the estate, interest or right is

granted or was granted at an earlier time,

(b)   

a person connected with the grantor, or

30

(c)   

a nominee of, or a person acting on the directions of, the grantor or a

person connected with the grantor.

97      

Excluded cases

(1)   

A payment or other benefit is not a reverse premium so far as it is brought into

account under section 532 of CAA 2001 (the general rule excluding

35

contributions) to reduce the recipient’s expenditure qualifying for capital

allowances.

(2)   

A payment or other benefit received in connection with a property transaction

is not a reverse premium if—

(a)   

the person entering into the transaction is an individual, and

40

(b)   

the transaction relates to premises occupied or to be occupied by the

individual as the individual’s only or main residence.

 
 

Corporation Tax Bill
Part 3 — Trading income
Chapter 6 — Trade profits: receipts

40

 

(3)   

A payment or other benefit is not a reverse premium so far as it is consideration

for the transfer of an estate or interest in land which constitutes the sale in a sale

and leaseback arrangement.

(4)   

A “sale and leaseback arrangement” means any such arrangement as is

described in section 779(1) or (2) or 780(1) of ICTA.

5

98      

Tax treatment of reverse premiums

(1)   

A reverse premium is treated for corporation tax purposes as a receipt of a

revenue nature.

(2)   

If the recipient enters into the property transaction for the purposes of a trade

carried on (or to be carried on) by the recipient, the reverse premium is brought

10

into account in calculating the profits of the trade.

(3)   

If subsection (2) does not apply, the reverse premium is charged to corporation

tax in accordance with section 250 (reverse premium taxed as property

business receipt).

99      

Arrangements not at arm’s length

15

(1)   

This section applies if—

(a)   

two or more of the parties to the property arrangements are connected

persons, and

(b)   

the terms of those arrangements are not such as would reasonably have

been expected if those persons had been dealing at arm’s length.

20

(2)   

The terms of the property arrangements meet the condition in subsection (1)(b)

if they differ to a significant extent from the terms which, at the time the

arrangements were entered into, would be regarded as normal and

reasonable—

(a)   

in the market conditions then prevailing, and

25

(b)   

between persons dealing with each other at arm’s length in the open

market.

(3)   

The whole amount or value of the reverse premium brought into account

under section 98 is brought into account in the first relevant period of account.

(4)   

“The first relevant period of account” means the period of account in which the

30

property transaction is entered into.

(5)   

However if the recipient enters into the property transaction for the purposes

of a trade—

(a)   

which is not then carried on by the recipient, but

(b)   

which the recipient subsequently starts to carry on,

35

   

“the first relevant period of account” means the first period of account in which

the recipient carries on the trade.

100     

Connected persons and property arrangements

For the purposes of this section and sections 96 to 99

(a)   

persons are treated as connected with each other if they are connected

40

at any time during the period when the property arrangements are

entered into, and

 
 

Corporation Tax Bill
Part 3 — Trading income
Chapter 6 — Trade profits: receipts

41

 

(b)   

“the property arrangements” means the property transaction and any

arrangements entered into in connection with it (whether before it, at

the same time as it or after it).

Other receipts

101     

Distribution of assets of mutual concerns

5

(1)   

This section applies if—

(a)   

a deduction has been made in calculating the profits of a trade for a

payment to a mutual concern for the purposes of its mutual business,

(b)   

the concern is being or has been wound up or dissolved,

(c)   

a company (“the recipient”) which is carrying on the trade, or was

10

doing so at the time of the payment, receives money or money’s worth

representing the concern’s assets, and

(d)   

the assets in question represent profits of the mutual business

conducted by the concern.

(2)   

If the recipient is carrying on the trade at the time the money or money’s worth

15

is received, the amount or value of the money or money’s worth is brought into

account as a receipt in calculating the profits of the trade.

(3)   

If the recipient—

(a)   

is not carrying on the trade at the time the money or money’s worth is

received, but

20

(b)   

was doing so at the time of the payment to the mutual concern,

   

the amount or value of the money or money’s worth is treated as a post-

cessation receipt (see Chapter 15).

(4)   

For the purposes of this section money or money’s worth represents assets of

a mutual concern if it—

25

(a)   

forms part of the assets of the concern,

(b)   

forms part of the consideration for the transfer of the assets of the

concern as part of a scheme of amalgamation or reconstruction which

involves its winding up, or

(c)   

consists of the consideration for a transfer or surrender of a right to

30

receive anything falling within paragraph (a) or (b) and does not give

rise to a charge to corporation tax on the company receiving it

otherwise than as a result of this section.

(5)   

If a transfer or surrender of a right to receive anything which—

(a)   

forms part of the assets of a mutual concern, or

35

(b)   

forms part of the consideration for the transfer of the assets of a mutual

concern,

   

is not at arm’s length, the company making the transfer or surrender is treated

as receiving consideration equal to the value of the right.

(6)   

In this section references to a mutual concern are to a body corporate which has

40

at any time carried on a trade which consists of or includes the conduct of

mutual business (whether or not confined to the members of the body

corporate).

 
 

Corporation Tax Bill
Part 3 — Trading income
Chapter 6 — Trade profits: receipts

42

 

(7)   

For the purposes of this section a trade does not consist of or include the

conduct of mutual business if all the profits of the trade are chargeable to

corporation or income tax.

102     

Industrial development grants

(1)   

This section applies if a company carrying on a trade receives a payment by

5

way of a grant under—

(a)   

section 7 or 8 of the Industrial Development Act 1982 (c. 52), or

(b)   

Article 7, 9 or 30 of the Industrial Development (Northern Ireland)

Order 1982 (S.I. 1982/1083 (N.I. 15)).

(2)   

The payment is brought into account as a receipt in calculating the profits of

10

the trade unless—

(a)   

the grant is designated as made towards the cost of specified capital

expenditure,

(b)   

the grant is designated as compensation for the loss of capital assets, or

(c)   

the grant is for all or part of a corporation tax liability (including one

15

that has already been met).

103     

Sums recovered under insurance policies etc

(1)   

This section applies if—

(a)   

a deduction has been made for a loss or expense in calculating the

profits of a trade,

20

(b)   

a company carrying on the trade recovers a sum under an insurance

policy or a contract of indemnity in respect of the loss or expense, and

(c)   

the sum is not of a revenue nature.

(2)   

The sum is brought into account as a receipt in calculating the profits of the

trade (but only up to the amount of the deduction).

25

104     

Repayments under FISMA 2000

(1)   

This section applies if—

(a)   

a company carries on a trade, and

(b)   

a payment is made to the company as a result of a repayment provision.

(2)   

The payment is brought into account as a receipt in calculating the profits of

30

the trade.

(3)   

For the purposes of this section “repayment provision” means—

(a)   

any provision made by virtue of section 136(7) or 214(1)(e) of FISMA

2000, or

(b)   

any provision made by scheme rules for fees to be refunded in specified

35

circumstances.

(4)   

In this section “scheme rules” means the rules referred to in paragraph 14(1) of

Schedule 17 to FISMA 2000.

 
 

Corporation Tax Bill
Part 3 — Trading income
Chapter 7 — Trade profits: gifts to charities etc

43

 

Chapter 7

Trade profits: gifts to charities etc

Relief for certain gifts

105     

Gifts of trading stock to charities etc

(1)   

This section applies if a company carrying on a trade (“the donor”) gives an

5

article for the purposes of—

(a)   

a charity, a registered club or a body listed in subsection (4), or

(b)   

a designated educational establishment (see section 106),

   

and the article is one manufactured, or of a class or description sold, by the

donor in the course of the trade.

10

(2)   

In calculating the profits of the trade, no amount is required to be brought into

account as a receipt in consequence of the disposal of the article.

(3)   

In this section “registered club” has the meaning given by paragraph 1 of

Schedule 18 to FA 2002 (relief for community amateur sports clubs).

(4)   

The bodies referred to in subsection (1)(a) are—

15

(a)   

the Trustees of the National Heritage Memorial Fund,

(b)   

the Historic Buildings and Monuments Commission for England, and

(c)   

the National Endowment for Science, Technology and the Arts.

(5)   

This section needs to be read with section 108 (receipt of benefits by donor or

connected person).

20

106     

Meaning of “designated educational establishment”

(1)   

For the purposes of section 105 “designated educational establishment” means

an educational establishment designated, or within a category designated, in

regulations made—

(a)   

for England and Scotland, by the Secretary of State,

25

(b)   

for Wales, by the Welsh Ministers, and

(c)   

for Northern Ireland, by the Department of Education.

(2)   

The regulations may make different provision for different areas.

(3)   

If any question arises as to whether an educational establishment is within a

category designated in the regulations, an officer of Revenue and Customs

30

must refer the question for decision—

(a)   

in the case of an establishment in England or Scotland, to the Secretary

of State,

(b)   

in the case of an establishment in Wales, to the Welsh Ministers, and

(c)   

in the case of an establishment in Northern Ireland, to the Department

35

of Education.

(4)   

The power of the Secretary of State or the Welsh Ministers to make regulations

under this section is exercisable by statutory instrument.

(5)   

A statutory instrument containing any regulations made by the Secretary of

State under this section is subject to annulment in pursuance of a resolution of

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the House of Commons.

 
 

 
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