Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 14 — Miscellaneous provisions
412

Delayed payments and bad debts
866
Delayed payment of employees’ remuneration
(1)
This subsection applies if—
(a)
a debit in respect of employees’ remuneration is recognised by a
company for accounting purposes, and
5
(b)
apart from this section, a debit in respect of the remuneration could be
brought into account for the purposes of this Part for the period of
account in which the debit is recognised.
(2)
No such debit may be so brought into account unless the remuneration is paid
before the end of the period of 9 months beginning with the end of the period
10
of account.
(3)
If the remuneration is paid after the end of the 9 month period, the debit may
be brought into account for the purposes of this Part for the period of account
in which it is paid.
(4)
Section 867 makes further provision relating to the application of this section.
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867
Provisions supplementing section 866
(1)
For the purposes of section 866 a debit in respect of employees’ remuneration
recognised for accounting purposes includes an amount reserved in the
accounts of an employer with a view to its becoming employees’
remuneration.
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(2)
For the purposes of section 866 it does not matter if the debit is in respect of—
(a)
particular employments, or
(b)
employments generally.
(3)
Any adjustment required by section 866 of an accounting debit that is partly
referable to an amount to which that section applies and partly to other matters
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must be made on a just and reasonable basis.
(4)
In making a calculation for tax purposes that has to be made before the end of
the 9 month period mentioned in section 866(2), it must be assumed that any
remuneration which is unpaid when the calculation is made will not be paid
before the end of that period.
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(5)
But if the remuneration is subsequently paid before the end of the period,
nothing in subsection (4) prevents the calculation being revised and any tax
return being amended accordingly.
(6)
For the purposes of section 866 and this section, remuneration is paid when it—
(a)
is treated as received by an employee for the purposes of ITEPA 2003
35
by section 18 or 19 of that Act (receipt of money and non-money
earnings), or
(b)
would be so treated if it were not exempt income.
(7)
In section 866 and this section—
“employee” includes an office-holder and so “employment” includes an
40
office, and
“remuneration” means an amount which is or is treated as earnings for the
purposes of ITEPA 2003.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 14 — Miscellaneous provisions
413

868
Delayed payment of pension contributions
(1)
This section applies if—
(a)
a debit in respect of pension contributions is recognised by a company
for accounting purposes, and
(b)
the contributions are not paid until after the end of the period of
5
account in which the debit is recognised.
(2)
The contributions may be brought into account for the purposes of this Part
only when they are paid.
(3)
For the purposes of this section “pension contributions” means—
(a)
sums paid by an employer by way of contributions under a registered
10
pension scheme,
(b)
sums paid to the trustees or managers of such a scheme that are treated
as if they were the payment of contributions under the pension scheme
(see section 199 of FA 2004), or
(c)
expenses within section 246(3) of FA 2004 (expenditure on benefits
15
under employer-financed retirement benefits schemes).
(4)
Any adjustment required by this section of an accounting debit that is partly
referable to an amount to which this section applies and partly to other matters
must be made on a just and reasonable basis.
869
Bad debts etc
20
(1)
No debit may be brought into account for the purposes of this Part in respect
of a debt owed to the company, except—
(a)
by way of impairment loss, or
(b)
so far as the debt is released as part of a statutory insolvency
arrangement.
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(2)
If a debt is so released, any gain in respect of the release that is brought into
account for accounting purposes by the debtor is disregarded for the purposes
of this Part.
(3)
Any other gain in respect of an unpaid debt in respect of an intangible fixed
asset that is brought into account by the debtor for accounting purposes is
30
treated for the purposes of section 721 (receipts recognised as they accrue) as a
gain in respect of an intangible fixed asset.
(4)
Any adjustment required by this section of an accounting gain or loss that is
partly referable to an amount affected by this section and partly to other
matters must be made on a just and reasonable basis.
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(5)
In this section “debt” includes an obligation or liability that falls to be
discharged otherwise than by the payment of money.
Controlled foreign companies
870
Assumptions for calculating chargeable profits
(1)
In calculating the amount mentioned in section 747(6) of ICTA (chargeable
40
profits of controlled foreign company), the following assumptions must be
made when applying this Part.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 15 — Adjustments on change of accounting policy
414

(2)
It is assumed that any intangible fixed asset acquired or created by the
company before the beginning of the first relevant accounting period was
acquired or created by the company at the beginning of that accounting period
at a cost equal to its value recognised for accounting purposes at that time.
(3)
The “first relevant accounting period” is the first accounting period—
5
(a)
in respect of which an apportionment under section 747(3) of ICTA falls
to be made, or
(b)
which is an ADP exempt period.
(4)
It is assumed that the company—
(a)
has not claimed any relief under Chapter 7 (roll-over relief in case of
10
reinvestment), or
(b)
made any provisional declaration of entitlement to such relief,

and accordingly paragraph 4(1) of Schedule 24 to ICTA (assumption that all
available reliefs have been claimed) is ignored to that extent.
(5)
But if notice is given in accordance with paragraph 4(2) of Schedule 24 to ICTA
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requesting that subsection (4) should not apply, it does not apply to such
claims as are specified in the notice to the extent so specified.
(6)
Expressions used in this section that are defined for the purposes of Chapter 4
of Part 17 of ICTA (controlled foreign companies) have the same meaning in
this section.
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(7)
See, in particular, paragraph 1(6) of Schedule 24 to that Act for the meaning of
“ADP exempt period”).
(8)
The assumption in subsection (2) does not affect the determination of the
question whether this Part applies to an asset in accordance with section 882
(application of this Part to assets created or acquired on or after 1 April 2002).
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Chapter 15
Adjustments on change of accounting policy
Introductory
871
Introduction to Chapter
(1)
This Chapter applies if—
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(a)
there is a change of accounting policy in drawing up a company’s
accounts from one period of account to the next, and
(b)
the approach in each of those periods accords with the law and practice
applicable in relation to that period.
(2)
In this Chapter—
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(a)
the first of those periods of account is referred to as “the earlier period”,
and
(b)
the next is referred to as “the later period”.
(3)
This Chapter applies, in particular, if—
(a)
the company prepares accounts for the earlier period in accordance
40
with UK generally accepted accounting practice and for the later period
in accordance with international accounting standards, or

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 15 — Adjustments on change of accounting policy
415

(b)
the company prepares accounts for the earlier period in accordance
with international accounting standards and for the later period in
accordance with UK generally accepted accounting practice.
Change of policy involving change of value
872
Adjustments in respect of change
5
(1)
This section and section 873 apply if—
(a)
as a result of the change of accounting policy there is a difference (“the
accounting difference”) between—
(i)
the accounting value of an intangible fixed asset of the company
at the end of the earlier period, and
10
(ii)
the accounting value of that asset at the beginning of the later
period, and
(b)
no election has been made in respect of the asset under section 730
(writing down at fixed rate: election for fixed-rate basis).
(2)
If there is an increase in that value, a corresponding credit must be brought into
15
account for tax purposes in the later period.
(3)
If there is a decrease in that value, a corresponding debit must be brought into
account for tax purposes in the later period.
(4)
The amount of the credit or debit is—

where—
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D is the accounting difference,
WDVE is the tax written-down value of the asset at the end of the earlier
period, and
AVE is the accounting value of the asset at the end of the earlier period.
(5)
But if subsection (2) applies, the credit must not exceed—
25
(a)
the sum of debits brought into account for tax purposes in respect of the
asset before the later period, less
(b)
the sum of the credits so brought into account.
(6)
This section is subject to section 878 (exclusion of credits or debits brought into
account under other provisions).
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873
Effect of application of section 872 in later period and subsequently
(1)
A credit or debit that is required to be brought into account under section 872
is treated as arising at the beginning of the later period (“the relevant time”).
(2)
If a credit is to be brought into account, the tax written-down value of the asset
at the relevant time is the sum of—
35
(a)
the tax written-down value of the asset at the end of the earlier period,
and
(b)
the credit.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 15 — Adjustments on change of accounting policy
416

(3)
If a debit is to be brought into account, the tax written-down value of the asset
at the relevant time is—
(a)
the tax written-down value of the asset at the end of the earlier period,
less
(b)
the debit.
5
(4)
After the relevant time the cost recognised for tax purposes is the sum of—
(a)
the tax written-down value given by subsection (2) or (3), and
(b)
the cost recognised for tax purposes of any subsequent expenditure on
the asset that is capitalised for accounting purposes.
(5)
After the relevant time the tax written-down value is determined taking
10
account only of subsequent credits and debits.
Change of policy involving disaggregation
874
Original asset not subject to fixed-rate writing down
(1)
This section and section 875 apply if—
(a)
the change of accounting policy results in an intangible fixed asset of
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the company that was treated as one asset (“the original asset”) in the
earlier period being treated as two or more assets (“the resulting
assets”) in the later period,
(b)
there is a difference (“the accounting difference”) between—
(i)
the accounting value of the original asset at the end of the earlier
20
period, and
(ii)
the sum of the accounting values of the resulting assets at the
beginning of the later period,
(c)
no election under section 730 (writing down at fixed rate: election for
fixed-rate basis) has been or is subsequently made in respect of the
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original asset, and
(d)
no such election is subsequently made in respect of any of the resulting
assets.
(2)
If the accounting difference is an increase, a corresponding credit must be
brought into account for tax purposes in the later period.
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(3)
If the accounting difference is a decrease, a corresponding debit must be
brought into account for tax purposes in the later period.
(4)
The credit or debit is—

where—
D is the accounting difference,
35
WDVE is the tax written-down value of the original asset at the end of the
earlier period, and
AVE is the accounting value of that asset at the end of that period.
(5)
But if subsection (2) applies the credit must not exceed—
(a)
the sum of the debits brought into account for tax purposes in respect
40
of the original asset before the later period, less

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 15 — Adjustments on change of accounting policy
417

(b)
the sum of the credits so brought into account.
(6)
This section is subject to section 878 (exclusion of credits or debits brought into
account under other provisions).
875
Effect of application of section 874 in later period and subsequently
(1)
A credit or debit that is required to be brought into account under section 874
5
is treated as arising at the beginning of the later period (“the relevant time”).
(2)
If section 874(2) applies, the tax written-down value of each resulting asset at
the relevant time is—

where—
WDVE is the tax written-down value of the original asset at the end of the
10
earlier period,
C is the credit,
AV is the accounting value of the resulting asset in question at the
relevant time, and
TAV is the sum of the accounting values of all the resulting assets at the
15
relevant time.
(3)
If section 874(3) applies, the tax written-down value of each resulting asset at
the relevant time is—

where—
WDVE, AV and TAV have the same meaning as in subsection (2), and
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D is the debit.
(4)
After the relevant time the cost recognised for tax purposes for each resulting
asset is taken to be the sum of—
(a)
the tax written-down value given by subsection (2) or, as the case may
be, subsection (3), and
25
(b)
the cost recognised for tax purposes of any subsequent expenditure on
the asset that is capitalised for accounting purposes.
(5)
After the relevant time the tax written-down value for each resulting asset is
determined taking account only of subsequent credits and debits.
876
Original asset subject to fixed-rate writing down
30
(1)
This section applies if—
(a)
the change of accounting policy results in an intangible fixed asset of
the company that was treated as one asset (“the original asset”) in the
earlier period being treated as two or more assets (“the resulting
assets”) in the later period, and
35
(b)
an election under section 730 (writing down at fixed rate: election for
fixed-rate basis) has been or is subsequently made in respect of the
original asset.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 15 — Adjustments on change of accounting policy
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(2)
That election has effect—
(a)
in relation to the original asset, for periods up to and including the
earlier period, and
(b)
in relation to each of the resulting assets, for the later period and
subsequent periods.
5
(3)
The tax written-down value of each resulting asset at the beginning of the later
period (“the relevant time”) is—

where—
WDVE is the tax written-down value of the original asset at the end of the
earlier period,
10
AVL is the accounting value of the asset in question at the beginning of
the later period, and
TAVL is the sum of the accounting values of all the resulting assets at the
beginning of that period.
(4)
After the relevant time the cost recognised for tax purposes for each resulting
15
asset is the sum of—
(a)
the tax written-down value given by subsection (3), and
(b)
the cost recognised for tax purposes of any subsequent expenditure on
the asset that is capitalised for accounting purposes.
(5)
After the relevant time the tax written-down value for each resulting asset is
20
determined taking account only of subsequent credits and debits.
877
Election for fixed-rate writing down in relation to resulting asset
(1)
This section applies if—
(a)
the change of accounting policy results in an intangible fixed asset of
the company that was treated as one asset (“the original undivided
25
asset”) in the earlier period being treated as two or more assets (“the
resulting assets”) in the later period, and
(b)
no election under section 730 (writing down at fixed rate: election for
fixed-rate basis) has been or is subsequently made in respect of the
original undivided asset.
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(2)
An election under that section may be made in respect of any of the resulting
assets.
(3)
But such an election may be made only within the period during which such
an election could have been made in relation to the original undivided asset.
(4)
The effect of the election is that—
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(a)
the original undivided asset is treated as if it had at all material times
consisted of as many assets (“notional original assets”) as there are
resulting assets,
(b)
each notional original asset is taken to be the same asset as one of the
resulting assets (its “corresponding resulting asset”),
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(c)
the appropriate proportion of every amount falling to be taken into
account in relation to the original undivided asset is attributed to each
of the notional original assets, and