Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 2 — Management expenses
569

Claw back of relief
1228
Credits that reverse debits
For the purposes of sections 1229 and 1230, a credit reverses the whole or part
of a debit in any case where the credit falls to be made because—
(a)
the sum represented in whole or in part by the debit is paid and then
5
wholly or partly repaid, or
(b)
the sum represented by the debit is never paid.
1229
Claw back of relief
(1)
This section applies if—
(a)
a credit is brought into account by a company in a period of account
10
(“the period of the credit”),
(b)
the credit reverses (in whole or in part) a debit brought into account in
a previous period of account of the company,
(c)
the debit (or part of it) represents expenses of management deductible
under section 1219 for an accounting period which ends before, or at
15
the same time as, the period of the credit, and
(d)
the expenses of management are not expenses brought forward to that
period under section 1223.

For cases involving an absence of accounts see also section 1231.
(2)
The reversal amount (see section 1230) is dealt with in accordance with
20
subsection (3) or (5).
(3)
If the period of the credit coincides with an accounting period of the
company—
(a)
the reversal amount is, as far as possible, applied in reducing (but not
below nil) the company’s expenses of management belonging to that
25
period, and
(b)
if not all of the amount can be applied in that way, the remainder is to
be treated as a receipt of the company chargeable for that period under
the charge to corporation tax on income.
(4)
For the purposes of subsection (3), the expenses of management belonging to a
30
period are the expenses of management that are deductible for that period,
excluding any amounts brought forward under section 1223.
(5)
If the period of the credit does not coincide with an accounting period of the
company—
(a)
the reversal amount is apportioned between any accounting periods
35
that fall within the period of the credit, and
(b)
paragraphs (a) and (b) of subsection (3) are applied to any amount that
is apportioned to an accounting period.
(6)
An apportionment under subsection (5) must be made in accordance with
section 1311 (time basis) or, if it appears that that method would work
40
unreasonably or unjustly, on a just and reasonable basis.

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 3 — Amounts treated as expenses of management
570

1230
Meaning of “reversal amount”
(1)
This section gives the meaning of “reversal amount” for the purposes of this
Part.
(2)
If a credit reverses the whole or part of a debit, the reversal amount is found as
follows.
5
Step 1

Take however much of the credit reverses the debit.
Step 2

Reduce that (if applicable) to however much of the credit reverses the part of
the debit that represents expenses of management deductible under section
10
1219.
Step 3

Reduce that (if applicable) to exclude any part of the credit that represents
sums otherwise taken into account in calculating for corporation tax purposes
the profits and losses of the company for the relevant accounting period or an
15
earlier accounting period.
(3)
In this section “relevant accounting period” means the latest accounting period
of the company that falls wholly or partly within the period of the credit (see
section 1229(1)(a)).
1231
Absence of accounts
20
(1)
This section sets out how section 1229 operates if a company has an accounting
period that neither coincides with nor falls within any period of account.
(2)
Section 1229 operates as if—
(a)
there were a period of account of the company that coincides with that
accounting period, and
25
(b)
in calculating for accounting purposes the company’s profits and losses
for that period of account, amounts were brought into account in
accordance with UK generally accepted accounting practice.
(3)
The references in section 1251(3)(b) (car or motor cycle hire) to credits and
debits include credits and debits that are deemed to be made by virtue of this
30
section.
Chapter 3
Amounts treated as expenses of management
Preliminary
1232
Chapter applies to amounts not otherwise relieved
35
The following provisions of this Chapter treat amounts as expenses of
management only so far as the amounts—
(a)
would not otherwise be treated as expenses of management for the
purposes of Chapter 2, and

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 3 — Amounts treated as expenses of management
571

(b)
are not otherwise deductible from total profits, or in calculating any
component of total profits.
Excess capital allowances
1233
Excess capital allowances
(1)
This section applies if a company with investment business is entitled to
5
allowances by virtue of section 15(1)(g) of CAA 2001 (qualifying activities
include managing investments).
(2)
So far as effect cannot be given to the allowances under section 253(2) of CAA
2001, the allowances are treated for the purposes of Chapter 2—
(a)
as expenses of management, and
10
(b)
as referable to the accounting period for which the company is entitled
to the allowances.
Payments for restrictive undertakings
1234
Payments for restrictive undertakings
(1)
This section applies if a payment—
15
(a)
is treated as earnings of an employee by virtue of section 225 of ITEPA
2003 (payments for restrictive undertakings), and
(b)
is made, or treated as made for the purposes of section 226 of that Act
(valuable consideration given for restrictive undertakings), by a
company with investment business.
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(2)
The payment is treated for the purposes of Chapter 2 as expenses of
management.
Seconded employees
1235
Employees seconded to charities and educational establishments
(1)
This section applies if a company carrying on a business that consists wholly
25
or partly of making investments (“the employer”) makes the services of a
person employed for the purposes of the business available to—
(a)
a charity, or
(b)
an educational establishment,

on a basis that is stated and intended to be temporary.
30
(2)
Expenses of the employer that are attributable to the employee’s employment
during the period of the secondment are treated for the purposes of Chapter 2
as expenses of management.
(3)
In this section—
“educational establishment” has the same meaning as in section 70, and
35
“the period of the secondment” means the period for which the
employee’s services are made available to the charity or educational
establishment.

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 3 — Amounts treated as expenses of management
572

Contributions to agents’ expenses
1236
Payroll deduction schemes
(1)
This section applies if—
(a)
a company with investment business (“the employer”) is liable to make
payments to an individual,
5
(b)
income tax falls to be deducted from those payments as a result of
PAYE regulations, and
(c)
the employer withholds sums from those payments in accordance with
an approved scheme and pays the sums to an approved agent.
(2)
Expenses falling within subsection (3) are treated for the purposes of Chapter
10
2 as expenses of management.
(3)
Expenses fall within this subsection if they are incurred by the employer in
making a payment to the agent for expenses which—
(a)
have been incurred, or
(b)
are to be incurred,
15

by the agent in connection with the agent’s functions under the scheme.
(4)
In this section “approved agent” and “approved scheme” have the same
meaning as in section 714 of ITEPA 2003.
Counselling and retraining expenses
1237
Counselling and other outplacement services
20
(1)
This section applies if—
(a)
a company with investment business (“the employer”) incurs
counselling expenses,
(b)
the expenses are incurred in relation to a person (“the employee”) who
holds or has held an office or employment under the employer, and
25
(c)
the relevant conditions are met.
(2)
The expenses are treated for the purposes of Chapter 2 as expenses of
management.
(3)
In this section “counselling expenses” means expenses incurred—
(a)
in the provision of services to the employee in connection with the
30
cessation of the office or employment,
(b)
in the payment or reimbursement of fees for such provision, or
(c)
in the payment or reimbursement of travelling expenses in connection
with such provision.
(4)
In this section “the relevant conditions” means—
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(a)
conditions A to D for the purposes of section 310 of ITEPA 2003
(employment income exemptions: counselling and other outplacement
services), and
(b)
in the case of travel expenses, condition E for those purposes.
1238
Retraining courses
40
(1)
This section applies if—

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 3 — Amounts treated as expenses of management
573

(a)
a company with investment business (“the employer”) incurs
retraining course expenses,
(b)
they are incurred in relation to a person (“the employee”) who holds or
has held an office or employment under the employer, and
(c)
the relevant conditions are met.
5
(2)
The expenses are treated for the purposes of Chapter 2 as expenses of
management.
(3)
In this section—
“retraining course expenses” means expenses incurred in the payment or
reimbursement of retraining course expenses within the meaning given
10
by section 311(2) of ITEPA 2003, and
“the relevant conditions” means—
(a)
the conditions in subsections (3) and (4) of section 311 of ITEPA
2003 (employment income exemptions: retraining courses), and
(b)
in the case of travel expenses, the conditions in subsection (5) of
15
that section.
(4)
If—
(a)
an employer’s liability to corporation tax for an accounting period is
determined on the assumption that a deduction for expenditure is
allowed by virtue of this section, and
20
(b)
the deduction would not otherwise have been allowed,

subsections (2) to (6) of section 75 (retraining courses: recovery of tax) apply.
Redundancy payments etc
1239
Redundancy payments and approved contractual payments
(1)
Sections 1240 to 1242 apply if—
25
(a)
a company with investment business (“the employer”) makes a
redundancy payment or an approved contractual payment to another
person (“the employee”),
(b)
the payment is in respect of the employee’s employment wholly in the
employer’s investment business or partly in the employer’s investment
30
business and partly in one or more other capacities, and
(c)
expenses of management of the business are deductible under section
1219.
(2)
For the purposes of this section and sections 1240 to 1243 “redundancy
payment” means a redundancy payment payable under—
35
(a)
Part 11 of the Employment Rights Act 1996 (c. 18), or
(b)
Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I.
1996/1919 (N.I. 16)).
(3)
For the purposes of this section and those sections—
“contractual payment” means a payment which, under an agreement, an
40
employer is liable to make to an employee on the termination of the
employee’s contract of employment, and
a contractual payment is “approved” if, in respect of that agreement, an
order is in force under—
(a)
section 157 of the Employment Rights Act 1996, or
45

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 3 — Amounts treated as expenses of management
574

(b)
Article 192 of the Employment Rights (Northern Ireland) Order
1996 (S.I. 1996/1919 (N.I. 16)).
1240
Payments in respect of employment wholly in employer’s business
(1)
This section applies if the payment is in respect of the employee’s employment
wholly in the employer’s investment business.
5
(2)
The amount of the payment is treated for the purposes of Chapter 2 as expenses
of management.
(3)
The deduction allowable by virtue of 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.
10
(4)
If the payment is referable (see sections 1224 to 1227) to an accounting period
beginning after the business has permanently ceased to be carried on, it is
treated as referable to the last accounting period in which the business was
carried on.
1241
Payments in respect of employment in more than one capacity
15
(1)
This section applies if the payment is in respect of the employee’s employment
with the employer—
(a)
partly in the employer’s investment business, and
(b)
partly in one or more other capacities.
(2)
The amount of the redundancy payment, or the amount which would have
20
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 investment business, and
(b)
the employment in the other capacities.
(3)
The part of the payment apportioned to the employment in the investment
25
business is treated as a payment in respect of the employee’s employment
wholly in the investment business for the purposes of section 1240.
1242
Additional payments
(1)
This section applies if the employer’s business, or part of it, ceases
(permanently) to be carried on and the employer makes a payment to the
30
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—
35
(a)
the additional payment would not otherwise be deductible under
section 1219, but
(b)
that is only because the business, or the part of the business, has ceased
to be carried on,

the additional payment is deductible under section 1219 as expenses of
40
management.
(3)
The deduction under this section is limited to 3 times the amount of—

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 3 — Amounts treated as expenses of management
575

(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.
(4)
If the payment is referable to an accounting period beginning after the business
or the part of the business has ceased to be carried on, it is treated as referable
5
to the last accounting period in which the business, or the part concerned, was
carried on.
1243
Payments made by the Government
(1)
This section applies if—
(a)
a redundancy payment or an approved contractual payment is payable
10
by a company with investment business (“the employer”),
(b)
a payment to which subsection (2) applies is made in respect of the
payment, and
(c)
expenses of management of the business are deductible under section
1219.
15
(2)
This subsection applies to—
(a)
payments made by the Secretary of State under section 167 of the
Employment Rights Act 1996 (c. 18), and
(b)
payments made by the Department for Employment and Learning
under Article 202 of the Employment Rights (Northern Ireland) Order
20
1996 (S.I. 1996/1919 (N.I. 16)).
(3)
So far as the employer reimburses the Secretary of State or Department for the
payment, sections 1240 to 1242 apply as if the payment were—
(a)
a redundancy payment, or
(b)
an approved contractual payment,
25

made by the employer.
Contributions to local enterprise organisations or urban regeneration companies
1244
Contributions to local enterprise organisations or urban regeneration
companies
(1)
This section applies if a company with investment business (“the contributor”)
30
incurs expenses in making a contribution (whether in cash or in kind)—
(a)
to a local enterprise organisation, or
(b)
to an urban regeneration company.
(2)
The expenses are treated for the purposes of Chapter 2 as expenses of
management.
35
(3)
But if, in connection with the making of the contribution, the contributor or a
connected person—
(a)
receives a disqualifying benefit of any kind, or
(b)
is entitled to receive such a benefit,

the amount of the deduction allowed for the expenses under section 1219 by
40
virtue of this section is restricted to the amount of the expenses less the value
of the benefit.