Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 14 — Adjustment on change of basis
82

Step 2
Then deduct any amounts representing the extent to which, comparing the two
bases, profits were overstated (or losses understated) on the old basis.
The amounts are—

Amounts

5

1
Receipts which were brought into account in a period of

account before the change, so far as they would not have been

so brought into account if the profits had been calculated on

the new basis.

2
Expenses which were not brought into account in calculating

10

the profits of a period of account before the change, so far as

they—

(a)
would have been brought into account for a period of

account before the change if the profits had been

calculated on the new basis, and

15

(b)
would have been brought into account for a period of

account after the change if the profits had continued to

be calculated on the old basis.

3
Credits in respect of closing trading stock or closing work in

progress in the last period of account before the change, so far

20

as they—

(a)
are not matched by deductions in respect of opening

trading stock or opening work in progress in the first

period of account on the new basis, or

(b)
are calculated on a different basis that if used to

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calculate those deductions would have given a lower

figure.

An amount so deducted may not be deducted again in calculating the profits
of a period of account.
Expenses previously brought into account
30
183
No adjustment for certain expenses previously brought into account
(1)
This section applies if, as a result of a change of basis, expenses brought into
account before the change on the old basis would on the new basis be brought
into account over more than one period of account after the change.
(2)
In such a case—
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(a)
no adjustment is made under this Chapter, and
(b)
in calculating the profits of the trade no deduction is allowed for the
expenses for any period of account after the change.

Corporation Tax Bill
Part 3 — Trading income
Chapter 14 — Adjustment on change of basis
83

Realising or writing off assets
184
Cases where adjustment not required until assets realised or written off
(1)
This section applies if there is a change of basis resulting from a tax adjustment
affecting the calculation of any of the following amounts.
(2)
The amounts are—
5
(a)
any amount brought into account in respect of closing trading stock in
the last period of account before the change of basis,
(b)
any amount brought into account in respect of opening trading stock in
the first period of account on the new basis, and
(c)
any amount brought into account in respect of depreciation.
10
(3)
The receipt of the trade or (as the case may be) the expense of the trade is
treated as arising only when the asset to which it relates is realised or written
off.
Mark to market
185
Change from realisation basis to mark to market
15
(1)
This section applies if there is a change of basis from—
(a)
not recognising a profit or loss on an asset until the asset is realised, to
(b)
bringing assets into account in each period of account at a fair value.
(2)
So far as—
(a)
a receipt within item 1 of Step 1 in section 182 represents the fair value
20
of an asset that is trading stock, or
(b)
an expense within item 2 of that step relates to such an asset,

the receipt of the trade or (as the case may be) the expense of the trade is treated
as not arising until the period of account in which the value of the asset is
realised.
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(3)
In the case of a receipt of the trade, this is subject to any election under section
186 (election for spreading).
(4)
In this section “trading stock” has the same meaning as in section 163.
186
Election for spreading if section 185 applies
(1)
If section 185 applies, the company carrying on the trade may elect for any
30
receipt treated as arising under this Chapter to be spread over 6 periods of
account.
(2)
The election must be made within 12 months of the end of the first accounting
period to which the new basis applies.
(3)
If an election is made, an amount equal to one-sixth of the amount of the
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receipt—
(a)
is treated as arising, and
(b)
is brought into account in calculating the profits of the trade,

in each of the 6 periods of account beginning with the first period to which the
new basis applies.
40

Corporation Tax Bill
Part 3 — Trading income
Chapter 15 — Post-cessation receipts
84

(4)
But if, before the whole of the receipt has been so brought into account, the
company permanently ceases to carry on the trade, the whole of the amount so
far as not previously brought into account—
(a)
is treated as arising, and
(b)
is brought into account in calculating the profits of the trade,
5

immediately before the cessation.
187
Transfer of insurance business
(1)
This section applies if—
(a)
an asset to which section 185 or 186 applies is transferred from one
insurance company to another,
10
(b)
the transfer is made under an insurance business transfer scheme, and
(c)
immediately after the transfer, the transferee is UK resident or the asset
is held for the purposes of a business carried on by the transferee in the
United Kingdom through a permanent establishment.
(2)
For the purposes of section 185, the asset is not to be treated as realised by the
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transferor merely because of its transfer under the scheme.
(3)
If the transfer is of the transferor’s whole business, the transferee is responsible
under section 185 or 186 for bringing into account any amount required to be
brought into account after the transfer.
Chapter 15
20
Post-cessation receipts
Charge to tax on post-cessation receipts
188
Charge to tax on post-cessation receipts
The charge to corporation tax on income applies to post-cessation receipts
arising from a trade.
25
189
Extent of charge to tax
(1)
A post-cessation receipt is chargeable to tax under this Chapter only so far as
it is not otherwise chargeable to corporation or income tax.
(2)
Accordingly, a post-cessation receipt arising from a trade is not chargeable to
tax under this Chapter so far as it is brought into account in calculating the
30
profits of the trade of any period.
(3)
A post-cessation receipt is not chargeable to tax under this Chapter if—
(a)
it is received by or on behalf of a non-UK resident company which is
beneficially entitled to it, and
(b)
it represents income arising outside the United Kingdom.
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(4)
A post-cessation receipt is not chargeable to tax under this Chapter if it arises
from a trade carried on wholly outside the United Kingdom.

Corporation Tax Bill
Part 3 — Trading income
Chapter 15 — Post-cessation receipts
85

Meaning of “post-cessation receipts”
190
Basic meaning of “post-cessation receipt”
(1)
In this Part “post-cessation receipt” means a sum—
(a)
which is received after a person permanently ceases to carry on a trade,
and
5
(b)
which arises from the carrying on of the trade before the cessation.
(2)
In this Chapter, except in sections 194 and 195, references to a person
permanently ceasing to carry on a trade include—
(a)
in the case of a company, the occurrence of an event treated under
section 18 of ITTOIA 2005 (companies beginning or ceasing to be within
10
charge to income tax) as the company permanently ceasing to carry on
the trade, and
(b)
in the case of a trade carried on by a person in partnership, the
occurrence of an event treated under section 246(4) of ITTOIA 2005
(basic meaning of “post-cessation receipt”) as the person permanently
15
ceasing to carry on the trade.
191
Other rules about what counts as post-cessation receipts
(1)
The following provisions treat certain amounts as post-cessation receipts for
the purposes of this Part—
section 82(6) (contributions to local enterprise organisations or urban
20
regeneration companies),
section 101(3) (distribution of assets of mutual concerns),
section 108(3) (receipt of benefits by donor or connected person),
section 192 (debts paid after cessation),
section 193 (debts released after cessation), as qualified, where
25
appropriate, by section 56(4) (car or motor cycle hire),
section 194 (transfer of rights if transferee does not carry on trade), and
section 1277 (income charged on withdrawal of relief after source ceases:
unremittable income).
(2)
Section 95 (acquisition of trade: receipts from transferor’s trade) and section
30
194 (transfer of rights if transferee does not carry on trade) treat certain
amounts as not being post-cessation receipts for the purposes of this Part.
Sums treated as post-cessation receipts
192
Debts paid after cessation
(1)
This section applies if, in calculating the profits of a trade for corporation or
35
income tax purposes, a deduction is made in respect of a debt under—
(a)
section 55 (bad debts), or
(b)
section 35 of ITTOIA 2005 (bad and doubtful debts),

and a person permanently ceases to carry on the trade.
(2)
A sum received after the cessation is treated as a post-cessation receipt so far
40
as the deduction is made.