Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 4 — Rules restricting deductions
576

(4)
For this purpose it does not matter whether a person receives, or is entitled to
receive, the benefit—
(a)
from the local enterprise organisation or urban regeneration company
concerned, or
(b)
from anyone else.
5
(5)
In this section “disqualifying benefit” means a benefit the expenses of obtaining
which, if incurred by the contributor directly in a transaction at arm’s length,
would not be deductible as expenses of management under section 1219.
(6)
Sections 83 (meaning of “local enterprise organisation”) and 86 (meaning of
“urban regeneration company”) apply for the purposes of this section as they
10
apply for the purposes of section 82.
Export Credits Guarantee Department
1245
Payments to Export Credits Guarantee Department
(1)
This section applies if—
(a)
a sum is payable by a company with investment business to the Export
15
Credits Guarantee Department, and
(b)
the sum is payable 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 with a view to entering into such an agreement.
20
(2)
The sum is treated for the purposes of Chapter 2 as expenses of management.
Levies under FISMA 2000
1246
Levies under FISMA 2000
(1)
Sums—
(a)
spent by a company with investment business in paying a levy, or
25
(b)
paid by a company with investment business as a result of an award of
costs under costs rules,

are treated for the purposes of Chapter 2 as expenses of management.
(2)
In this section “costs rules” has the meaning given by section 92(2).
(3)
In this section “levy” has the meaning given by section 92(3).
30
Chapter 4
Rules restricting deductions
1247
Introduction
(1)
This Chapter contains provisions that restrict the deduction of expenses of
management under section 1219.
35
(2)
Other provisions that prohibit or restrict the deduction of expenses of
management under section 1219 include—
(a)
section 1290 (employee benefit contributions),

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 4 — Rules restricting deductions
577

(b)
section 1298 (business entertainment and gifts),
(c)
section 1302 (social security contributions),
(d)
section 1303 (penalties, interest and VAT surcharges),
(e)
section 1304 (crime-related payments),
(f)
section 200 of FA 2004 (no other relief for employers in connection with
5
contributions),
(g)
section 246 of FA 2004 (restriction of deduction for non-contributory
provision).
(3)
See also section 196A of FA 2004 (employers’ contributions: power to restrict
relief).
10
1248
Expenses in connection with arrangements for securing a tax advantage
(1)
No deduction is allowed under section 1219 for any particular expenses of
management if any part of those expenses is incurred directly or indirectly in
consequence of, or otherwise in connection with, any arrangements for
securing a tax advantage.
15
(2)
In subsection (1) “arrangements for securing a tax advantage” means
arrangements the main purpose, or one of the main purposes, of which is to
secure—
(a)
the allowance of a deduction (or increased deduction) under section
1219, or
20
(b)
any other tax advantage.
(3)
Subsection (1) does not apply if, as a result of paragraph 7A of Schedule 23A to
ICTA (manufactured payments under arrangements having an unallowable
purpose), the company incurring the expenses is not entitled to a relevant tax
relief in respect of, or referable to, the whole or any part of the expenses.
25
(4)
The reference in subsection (1) to expenses of management includes amounts
treated by any provision as deductible under section 1219.
(5)
In this section—
“arrangements” includes any agreement, understanding, scheme,
transaction or series of transactions (whether or not legally
30
enforceable),
“relevant tax relief” has the same meaning as in paragraph 7A of Schedule
23A to ICTA, and
“tax advantage” has the meaning given by section 840ZA of ICTA.
1249
Unpaid remuneration
35
(1)
This section applies if—
(a)
an amount is charged in respect of employees’ remuneration in the
accounts for a period of a company with investment business,
(b)
the amount would apart from this section be deductible under section
1219 as expenses of management, and
40
(c)
the remuneration is not paid before the end of the period of 9 months
immediately following the end of the period of account.
(2)
If the remuneration is paid after the end of that period of 9 months, the
deduction for it is allowed for the period of account in which it is paid (and not
in accordance with the timing rule in section 1219(1)).
45

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 4 — Rules restricting deductions
578

(3)
No deduction is allowed for the remuneration under section 1219 if it is not
paid.
1250
Unpaid remuneration: supplementary
(1)
For the purposes of section 1249 an amount charged in the accounts in respect
of employees’ remuneration includes an amount for which provision is made
5
in the accounts with a view to its becoming employees’ remuneration.
(2)
For the purposes of section 1249 it does not matter whether an amount is
charged for—
(a)
particular employments, or
(b)
employments generally.
10
(3)
If the profits of the company are calculated before the end of the 9 month
period mentioned in section 1249(1)(c)—
(a)
it must be assumed, in making the calculation, that any remuneration
which is unpaid when the calculation is made will not be paid before
the end of that period, but
15
(b)
if the remuneration is subsequently paid before the end of that period,
nothing in this subsection prevents the calculation being revised and
any tax return being amended accordingly.
(4)
For the purposes of this section and section 1249 remuneration is paid when
it—
20
(a)
is treated as received by an employee for the purposes of ITEPA 2003
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.
(5)
In this section and section 1249—
25
“employee” includes an office-holder and “employment” therefore
includes an office, and
“remuneration” means an amount which is or is treated as earnings for the
purposes of Parts 2 to 7 of ITEPA 2003.
1251
Car or motor cycle hire
30
(1)
Subsection (2) applies if, in calculating the corporation tax to which a company
with investment business is liable for an accounting period, a deduction is
allowed under section 1219 for expenses incurred on the hiring of a car or
motor cycle—
(a)
which is not a qualifying hire car or motor cycle, and
35
(b)
the retail price of which when new exceeds £12,000.
(2)
The amount of the deduction which would otherwise be allowable is reduced
by multiplying the amount by the fraction— $equation: over[plus[string["\xa3 12,000"],times[char[R],char[P]]],cross[num[2.0000000000000000, "2"],times[char[R],char[P]]]]$

where RP is the retail price of the car or motor cycle when new.

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Part 16 — Companies with investment business
Chapter 5 — Companies with investment business: receipts
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(3)
Subsection (4) applies if a deduction for expenses is reduced as a result of
subsection (2), or a corresponding provision, and—
(a)
subsequently—
(i)
there is a rebate (however described) of the hire charges, or
(ii)
a debt in respect of any of the hire charges is released otherwise
5
than as part of a statutory insolvency agreement, and
(b)
a credit representing the rebate, or the amount released, reverses (in
whole or in part) a debit representing the expenses.
(4)
In applying subsection (2) of section 1230 (calculation of the reversal amount
for the purposes of the claw back rules)—
10
(a)
take the amount given by Step 1,
(b)
multiply that amount by the fraction set out in subsection (2) above
(instead of applying Step 2), and
(c)
apply Step 3 to the amount given by paragraph (b).
(5)
In this section “corresponding provision” means—
15
(a)
section 56(2) (car or motor cycle hire: trade profits and property
income),
(b)
section 48(2) of ITTOIA 2005 (car or motor cycle hire: trade profits and
property income), or
(c)
section 76ZN(2) of ICTA (car or motor cycle hire: expenses of insurance
20
companies).
(6)
The power under section 74(4) of CAA 2001 to increase or further increase the
sums of money specified in Chapter 8 of Part 2 of CAA 2001 includes the power
to increase or further increase the sum of money specified in subsection (1)(b)
or (2).
25
(7)
Sections 57 (meaning of “car or motor cycle” and other expressions) and 58
(hiring cars with low CO2 emissions before 1 April 2013) apply for the purposes
of this section as they apply for the purposes of section 56.
Chapter 5
Companies with investment business: receipts
30
1252
Industrial development grants
(1)
If a company with investment business receives a payment by 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)
35
Order 1982 (S.I. 1982/1083 (N.I. 15)),

the payment is to be treated as an amount to which the charge to corporation
tax on income applies.
(2)
Subsection (1) does not apply if—
(a)
the grant is designated as made towards the cost of specified capital
40
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
that has already been met).

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 6 — Supplementary
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(3)
Tax is not charged under this section if the payment is taken into account
(under another provision) in calculating profits for corporation tax purposes.
1253
Contributions to local enterprise organisations or urban regeneration
companies: disqualifying benefits
(1)
This section applies if—
5
(a)
a deduction has been made under section 1219 by virtue of section 1244
(contributions to local enterprise agencies or urban regeneration
companies: expenses of management), and
(b)
the contributor or a connected person receives a disqualifying benefit
that is in any way attributable to the contribution.
10
(2)
The contributor is to be treated as receiving, when the benefit is received, an
amount—
(a)
which is equal to the value of the benefit (so far as not brought into
account in determining the amount of the deduction), and
(b)
to which the charge to corporation tax on income applies.
15
(3)
In this section “disqualifying benefit” has the same meaning as in section 1244.
1254
Repayments under FISMA 2000
(1)
If as a result of a repayment provision a payment—
(a)
is made to a company with an investment business, and
(b)
is not brought into account as a receipt of a trade under section 104, or
20
as a receipt of a property business as a result of section 210,

the payment is to be treated as an amount to which the charge to corporation
tax on income applies.
(2)
In this section “repayment provision” means—
(a)
any provision made by virtue of section 136(7) or 214(1)(e) of FISMA
25
2000, or
(b)
any provision made by scheme rules for fees to be refunded in specified
circumstances.
(3)
In this section “scheme rules” means the rules referred to in paragraph 14(1) of
Schedule 17 to FISMA 2000.
30
Chapter 6
Supplementary
1255
Meaning of some accounting terms
(1)
Any reference in sections 1225 to 1227 to expenses of management being
debited in accounts is to those expenses being brought into account as a debit
35
in—
(a)
the company’s profit and loss account or income statement, or
(b)
a statement of total recognised gains and losses, statement of changes
in equity or other statement of items brought into account in calculating
the company’s profits and losses for accounting purposes.
40
(2)
In section 1229(1) “brought into account” means brought into account in—

Corporation Tax Bill
Part 17 — Partnerships
581

(a)
the company’s profit and loss account or income statement, or
(b)
a statement of total recognised gains and losses, statement of changes
in equity or other statement of items brought into account in calculating
the company’s profits and losses for accounting purposes.
(3)
In this Part—
5
“credit” means an amount which for accounting purposes increases or
creates a profit, or reduces a loss, for a period of account, and
“debit” means an amount which for accounting purposes reduces a profit,
or increases or creates a loss, for a period of account.
Part 17
10
Partnerships
Introduction
1256
Overview of Part
(1)
This Part contains some special rules about partnerships.
(2)
For restrictions that in some circumstances affect relief for losses, and certain
15
other reliefs, for a company that is a member of a partnership see section 116 of
ICTA (arrangements for transferring relief).
1257
General provisions
(1)
In this Act persons carrying on a trade in partnership are referred to
collectively as a “firm”.
20
(2)
This section and sections 1259 to 1266 are expressed to apply to trades, but
unless otherwise indicated (whether expressly or by implication) also apply to
businesses that are not trades.
(3)
In those sections as applied by subsection (2)—
(a)
references to a trade are references to a business, and
25
(b)
references to the profits of a trade are references to the income arising
from a business.
1258
Assessment of partnerships
Unless otherwise indicated (whether expressly or by implication), a firm is not
to be regarded for corporation tax purposes as an entity separate and distinct
30
from the partners.
Calculation of partners’ shares
1259
Calculation of firm’s profits and losses
(1)
This section applies if a firm carries on a trade and any partner in the firm (“the
partner”) is a company within the charge to corporation tax.
35

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Part 17 — Partnerships
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(2)
For any accounting period of the firm, the amount of the profits of the trade
(“the amount of the firm’s profits”) is taken to be the amount determined, in
relation to the partner, in accordance with subsection (3) or (4).
(3)
If the partner is UK resident—
(a)
determine what would be the amount of the profits of the trade
5
chargeable to corporation tax for that period if a UK resident company
carried on the trade, and
(b)
take that to be the amount of the firm’s profits.
(4)
If the partner is non-UK resident—
(a)
determine what would be the amount of the profits of the trade
10
chargeable to corporation tax for that period if a non-UK resident
company carried on the trade, and
(b)
take that to be the amount of the firm’s profits.
(5)
The amount of any losses of the trade for an accounting period of the firm is
calculated, in relation to the partner, in the same way as the amount of any
15
profits.
(6)
This section is subject to section 1260.
1260
Section 1259: supplementary
(1)
In determining under section 1259 the profits of a trade for any accounting
period no account is taken of any losses for another accounting period.
20
(2)
Profits and losses are determined under section 1259 on the basis that no
interest paid or other distribution made by the firm is a distribution for the
purposes of section 1305(1) (which provides that no deduction is allowed for
dividends or other distributions).
1261
Accounting periods of firms
25
(1)
In this Part references to an accounting period of a firm which carries on a trade
are to a period that would be an accounting period of the firm if the firm were
a company.
(2)
For the purposes of subsection (1) it is to be assumed that the company by
reference to which the accounting periods of the firm are determined (“the
30
deemed company”)—
(a)
is UK resident,
(b)
acquires a source of income on the occurrence of an event that falls
within subsection (3),
(c)
ceases to trade on the occurrence of an event that falls within subsection
35
(4), and
(d)
ceases to trade, and immediately afterwards starts to trade, on the
occurrence of a change in the persons carrying on the trade falling
within subsection (5).

Paragraph (a) is subject to subsection (6).
40
(3)
An event falls within this subsection if—
(a)
immediately before the event no company carries on the trade in
partnership, and