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
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
40
the House of Commons.