Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 20 — General calculation rules
Chapter 1 — Restriction of deductions
599

1295
Profits calculated before end of 9 month period
(1)
This section applies if the income of the period of account mentioned in section
1290(1) is calculated before the end of the 9 month period mentioned in section
1290(2).
(2)
It must be assumed, in making the calculation, that any benefits, expenses or
5
contributions which are not provided, paid or made when the calculation is
made will not be provided, paid or made before the end of that period.
(3)
But if the benefits, expenses or contributions are subsequently provided, paid
or made before the end of that period, nothing in this section prevents the
calculation being revised and any tax return being amended accordingly.
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1296
Interpretation of sections 1290 to 1296
(1)
In this section and sections 1290 to 1295—
“accident benefit scheme” means an employee benefit scheme under
which benefits may be provided only by reason of a person’s
disablement, or death, caused by an accident occurring during the
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person’s service as an employee of the employer,
“employee benefit contribution” is to be read in accordance with section
1291(1),
“employee benefit scheme” has the meaning given by section 1291(2),
“the employer” is to be read in accordance with section 1290(1),
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“employer-financed retirement benefits scheme” has the same meaning as
in Chapter 2 of Part 6 of ITEPA 2003 (see section 393A of that Act),
“qualifying benefits” is to be read in accordance with section 1292,
“qualifying expenses” includes any expenses of a scheme manager (other
than the provision of benefits to employees of the employer)—
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(a)
which are incurred in operating the employee benefit scheme,
and
(b)
which, if incurred by the employer, would be deductible in
calculating for corporation tax purposes the employer’s profits
of any period of account, and
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“scheme manager” means a person who administers an employee benefit
scheme (acting in that capacity).
(2)
A reference in this section and sections 1290 to 1295 to a company’s employee
includes the holder of an office under that company, and “employment” is to
be read accordingly.
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1297
Life assurance business
(1)
This section applies if the employer is a company in relation to which section
76 of ICTA applies (expenses of companies carrying on life assurance
business).
(2)
In determining for the purposes of section 1290(1) whether a deduction would
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otherwise be allowable, the effect of section 86 of FA 1989 (spreading of relief
for acquisition expenses) is ignored.
(3)
But section 1290(3) is subject to that section if, in accordance with subsection (2)
above, an amount is allowed as a deduction for a particular period under
section 1290(3).
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Corporation Tax Bill
Part 20 — General calculation rules
Chapter 1 — Restriction of deductions
600

(4)
For the purposes of section 86 of FA 1989, the employee benefit contributions
are treated as expenses payable for that period which fall to be included at Step
1 in section 76(7) of ICTA.
(5)
For the purposes of sections 1290 to 1296—
(a)
any reference to a deduction for employee benefit contributions is to be
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read as a reference to an amount being brought into account under
section 76 of ICTA as expenses payable, and
(b)
references to deduction are to be read in that light.
Business entertainment and gifts
1298
Business entertainment and gifts
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(1)
This section applies if a company incurs expenses in providing entertainment
or gifts in connection with a business which it carries on.
(2)
The general rule is that—
(a)
no deduction is allowed for the expenses in calculating income from
any source for corporation tax purposes,
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(b)
no deduction is allowed under section 1219 for the expenses, and
(c)
expenses to which this section applies are not to be brought into
account under section 76 of ICTA (expenses of companies carrying on
life assurance business) as expenses payable.
(3)
The general rule prohibits the deduction, or the bringing into account, of
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expenses which are incurred—
(a)
in paying sums to or on behalf of an employee of the company, or
(b)
in putting sums at the disposal of an employee of the company,

if (and only if) the sums are paid, or put at the employee’s disposal, exclusively
for meeting expenses incurred or to be incurred by the employee in providing
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the entertainment or gift.
(4)
The general rule is subject to exceptions—
for entertainment (see section 1299), and
for gifts (see section 1300).
(5)
For the purposes of this section and those two sections—
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(a)
“employee” includes a director of the company and a person engaged
in the management of the company,
(b)
“entertainment” includes hospitality of any kind, and
(c)
the expenses incurred in providing entertainment or a gift include
expenses incurred in providing anything incidental to the provision of
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entertainment or a gift.
1299
Business entertainment: exceptions
(1)
The prohibition in section 1298 on deducting, or bringing into account,
expenses incurred in providing entertainment does not apply in either of cases
A and B.
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(2)
Case A is where—
(a)
the entertainment is of a kind which it is the company’s business to
provide, and

Corporation Tax Bill
Part 20 — General calculation rules
Chapter 1 — Restriction of deductions
601

(b)
the entertainment is provided in the ordinary course of the business
either for payment or free of charge in order to advertise to the public
generally.
(3)
Case B is where the entertainment is provided for employees of the company
unless—
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(a)
the entertainment is also provided for others, and
(b)
the provision of the entertainment for the employees is incidental to its
provision for the others.
1300
Business gifts: exceptions
(1)
The prohibition in section 1298 on deducting, or bringing into account,
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expenses incurred in providing gifts does not apply in any of cases A, B, C and
D.
(2)
Case A is where—
(a)
the gift is of an item which it is the company’s business to provide, and
(b)
the item is given away in the ordinary course of the business in order to
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advertise to the public generally.
(3)
Case B is where the gift incorporates a conspicuous advertisement for the
company unless—
(a)
the gift is food, drink, tobacco or a token or voucher exchangeable for
goods, or
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(b)
the cost of the gift to the company, together with any other gifts (except
food, drink, tobacco or a token or voucher exchangeable for goods)
given to the same person in the same accounting period, exceeds £50.

The Treasury may by order amend the sum for the time being specified in
paragraph (b) so as to increase it.
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(4)
Case C is where gifts are provided for employees of the company unless—
(a)
gifts are also provided for others, and
(b)
the provision of the gifts for the employees is incidental to the provision
of gifts for the others.
(5)
Case D is where the gift is given to—
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(a)
a charity,
(b)
the Historic Buildings and Monuments Commission for England, or
(c)
the Trustees of the National Heritage Memorial Fund.
Miscellaneous
1301
Restriction of deductions for annual payments
35
(1)
In calculating a company’s income from any source, no deduction is allowed
for an annual payment which meets the conditions in subsections (2) to (6).
(2)
The payment must be a payment charged to—
(a)
income tax under Part 5 of ITTOIA 2005 otherwise than as relevant
foreign income, or
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(b)
corporation tax under Chapter 7 of Part 10 (annual payments not
otherwise charged).

Corporation Tax Bill
Part 20 — General calculation rules
Chapter 1 — Restriction of deductions
602

(3)
The payment must be made under a liability incurred for consideration in
money or money’s worth all or any of which—
(a)
consists of, or of the right to receive, a dividend, or
(b)
is not required to be brought into account in calculating for corporation
tax purposes the income of the company making the payment.
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(4)
The payment must not be a payment of income—
(a)
which arises under a settlement made by one party to a marriage or
civil partnership by way of provision for the other—
(i)
after the dissolution or annulment of the marriage or civil
partnership, or
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(ii)
while they are separated under an order of a court, or under a
separation agreement, or if the separation is likely to be
permanent, and
(b)
which is payable to, or applicable for the benefit of, the other party.
(5)
The payment must not be made to an individual under a liability incurred at
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any time in consideration of the individual surrendering, assigning or
releasing an interest in settled property to or in favour of a person with a
subsequent interest.
(6)
The payment must not be a payment of an annuity granted in the ordinary
course of a business of granting annuities.
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(7)
In subsection (2) “relevant foreign income” has the same meaning as in the
Income Tax Acts (see section 989 of ITA 2007).
(8)
In the application of this section to Scotland the reference in subsection (5) to
settled property is to be read as a reference to property held in trust.
1302
Social security contributions
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(1)
No deduction is allowed for corporation tax purposes for any contribution
paid by any person under—
(a)
Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4),
or
(b)
Part 1 of the Social Security Contributions and Benefits (Northern
30
Ireland) Act 1992 (c. 7).
(2)
But this prohibition does not apply to an employer’s contribution.
(3)
For this purpose “an employer’s contribution” means—
(a)
a secondary Class 1 contribution,
(b)
a Class 1A contribution, or
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(c)
a Class 1B contribution,

within the meaning of Part 1 of the Social Security Contributions and Benefits
Act 1992 or of the Social Security Contributions and Benefits (Northern
Ireland) Act 1992.
(4)
Subsection (1) does not apply to the calculation of income from the holding of
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an office (in relation to which section 969 applies income tax principles, those
including section 360A of ITEPA 2003 which corresponds to this section).