Clause 719: Accounting value

1985.     This clause is definitional. It is based on paragraph 135 of Schedule 29 to FA 2002.

Chapter 2: Credits in respect of intangible fixed assets

Clause 720: Introduction

1986.     This clause introduces the rules dealing with the main category of accounting gains to be brought into account as credits for tax purposes. It is based on paragraph 13 of Schedule 29 to FA 2002.

1987.     The rules in this Chapter do not apply on a realisation of an intangible fixed asset. Subsection (3) gives a signpost to the rules that do.

Clause 721: Receipts recognised as they accrue

1988.     This clause covers all kinds of receipts (including most ordinary royalties) from the exploitation of intangible fixed assets, apart from those deriving from the realisation of such assets. It is based on paragraph 14 of Schedule 29 to FA 2002.

Clause 722: Receipts in respect of royalties so far as not dealt with under section 721

1989.     This clause applies to credits in respect of some exceptional royalties to bring them within the charge when this would not otherwise happen. It is based on paragraph 14A of Schedule 29 to FA 2002.

Clause 723: Revaluation

1990.     This clause applies when an intangible fixed asset is revalued upwards. It is based on paragraph 15 of Schedule 29 to FA 2002.

Clause 724: Negative goodwill

1991.     This clause applies to certain releases of negative goodwill. It is based on paragraph 16 of Schedule 29 to FA 2002.

Clause 725: Reversal of previous accounting loss

1992.      This clause applies to an accounting gain that reverses a previous loss for which relief was given. It is based on paragraph 17 of Schedule 29 to FA 2002.

1993.     Subsection (3) ensures that if the tax debit in the previous period was not the same figure as the accounting loss, the credit on the reversal of the loss is the accounting gain adjusted in the ratio which the debit bears to the loss.

1994.     There is a parallel, converse rule in clause 732.

Chapter 3: Debits in respect of intangible fixed assets

Clause 726: Introduction

1995.     This clause introduces the rules dealing with the main category of accounting losses which may be brought into account as a debit for tax purposes. It is based on paragraph 7 of Schedule 29 to FA 2002.

1996.      The rules in this Chapter do not apply to the realisation of an intangible fixed asset. Subsection (3) provides a signpost to the Chapter that does.

Clause 727: References to expenditure on an asset

1997.     This clause explains what is meant by “expenditure on an asset”. It is based on paragraph 133 of Schedule 29 to FA 2002.

1998.     Subsection (2) puts beyond doubt the exclusion of capital expenditure on tangible assets that might otherwise appear to come within subsection (1) such as expenditure on cars used by company staff promoting the company’s brand name.

Clause 728: Expenditure written off as it is incurred

1999.      This clause gives a deduction for expenditure never capitalised but written off in the period of account in which it is incurred. It is based on paragraph 8 of Schedule 29 to FA 2002.

2000.     An example of expenditure within this clause might be expenditure on maintaining an asset or expenditure on acquiring an asset which, in the event, proves abortive.

Clause 729: Writing down on accounting basis

2001.     This clause gives a deduction for amounts written off an intangible fixed asset that has been capitalised in the company’s accounts. It is based mainly on paragraph 9 of Schedule 29 to FA 2002.

Clause 730: Writing down at fixed rate: election for fixed-rate basis

2002.     This clause gives the option of a writing down deduction at a fixed rate, regardless of the accounting treatment of the intangible fixed asset. It is based on paragraph 10 of Schedule 29 to FA 2002.

2003.     The main purpose of this option is to make relief available for the cost of acquiring the most durable of intangible assets which either are not amortised at all in the accounts or are amortised over a very long period. An example of such an asset could be a very strong brand name.

Clause 731: Writing down at fixed rate: calculation

2004.     This clause gives the calculation rule that applies when the fixed rate writing down option is taken under the previous clause. It is based on paragraph 11 of Schedule 29 to FA 2002.

Clause 732: Reversal of previous accounting gain

2005.      This clause gives relief if a previous, taxed, accounting gain is reversed. It is based on paragraph 12 of Schedule 29 to FA 2002.

2006.     The debit will usually be the same as the accounting loss. If, however, the credit brought into account for the earlier period was different from the accounting gain, the formula in subsection (3) ensures that the debit to be recognised is the accounting loss adjusted in the ratio which the earlier credit bears to the earlier accounting gain.

2007.     There is a parallel, converse rule in clause 725.

Chapter 4: Realisation of intangible fixed assets

Clause 733: Overview of Chapter

2008.     This clause introduces the provisions that provide for credits or debits for tax purposes when an intangible fixed asset is realised. It is based on paragraph 18 of Schedule 29 to FA 2002.

2009.     Subsection (3) rewrites paragraph 25 of Schedule 29 to FA 2002 as an early signpost to the possibility of roll-over relief in realisation cases.

Clause 734: Meaning of “realisation”

2010.     This clause defines “realisation”. It is based on paragraph 19 of Schedule 29 to FA 2002.

2011.     Consistent with the underlying principle of this Part, “realisation” is defined by reference to generally accepted accounting practice. Only events which are “realisations” in these terms are within this Chapter. And only events within this Chapter can come within the roll-over rules in Chapter 7 of this Part.

2012.     Subsection (3) is relevant to assets that have been wholly written off or to assets which have been generated internally (such as goodwill) which cannot be capitalised under generally accepted accounting practice.

Clause 735: Asset written down for tax purposes

2013.     This clause gives the rules quantifying the credit or debit for an intangible fixed asset which has previously been written down for tax purposes. It is based on paragraph 20 of Schedule 29 to FA 2002.

Clause 736: Asset shown in balance sheet and not written down for tax purposes

2014.     This clause gives the rules quantifying the credit or debit for an intangible fixed asset shown in the company’s balance sheet and not previously written down for tax purposes. It is based on paragraph 21 of Schedule 29 to FA 2002.

2015.     Examples of intangible fixed assets to which this clause applies include those sold soon after acquisition.

Clause 737: Apportionment in case of part realisation

2016.     This clause deals with cases where either of the two previous clauses apply to a part realisation of an intangible fixed asset. It is based on paragraph 22 of Schedule 29 to FA 2002.

2017.     The clause determines the appropriate proportion of the tax written-down value or cost of the asset to be set off.

2018.     Subsection (2) gives a formula that covers both the simple case, where the tax written-down value has not diverged from the book value in the accounts, and the more complicated case where the tax and book values have diverged.

Clause 738: Asset not shown in balance sheet

2019.     This clause deals with cases where the intangible fixed asset that is realised is never shown in the balance sheet. It is based on paragraph 23 of Schedule 29 to FA 2002.

2020.     Internally-generated goodwill is probably the most common example of an intangible fixed asset to which this clause applies.

Clause 739: Meaning of “proceeds of realisation”

2021.     This clause defines “proceeds of realisation”. It is based on paragraph 24 of Schedule 29 to FA 2002.

Clause 740: Abortive expenditure on realisation

2022.     This clause provides for a debit for tax purposes in respect of abortive realisation expenditure. It is based on paragraph 26 of Schedule 29 to FA 2002.

2023.     “Abortive” expenditure is expenditure incurred for the purposes of a transaction which would have amounted to a realisation of the intangible fixed asset if it had proceeded to completion. Such expenditure would not be allowable under any other rules.

Clause 741: Meaning of “chargeable intangible asset” and “chargeable realisation gain”

2024.     This clause defines two related key terms used in this Part. It is based on paragraph 137 of Schedule 29 to FA 2002.

Chapter 5: Calculation of tax written-down value

Overview

2025.     Identifying the “tax written-down value” of an intangible fixed asset is an essential part of calculating the credit or debit for tax purposes.

2026.     This Chapter provides rules to determine the “tax written-down value”.

Clause 742: Asset written down on accounting basis

2027.     This clause provides the tax written-down value when the intangible fixed asset has been written down on the accounting basis under clause 729. It is based on paragraph 27 of Schedule 29 to FA 2002.

Clause 743: Asset written down at fixed rate

2028.     This clause provides the tax written-down value when the intangible fixed asset has been written down on the fixed-rate basis under clause 730. It is based on paragraph 28 of Schedule 29 to FA 2002.

Clause 744: Effect of part realisation of asset

2029.     This clause provides the tax written-down value when there has been a part realisation of the intangible fixed asset. It is based on paragraph 29 of Schedule 29 to FA 2002.

Chapter 6: How credits and debits are given effect

Clause 745: Introduction

2030.     This clause introduces this Chapter which deals with how effect is given to credits and debits brought into account under this Part. It is based on paragraph 30 of Schedule 29 to FA 2002.

2031.     In this Part, accounting gains and accounting losses are translated, respectively, into credits and debits for tax purposes. Although all the credits and debits are brought into account as revenue items, different rules govern how they enter the calculation depending on the nature of the business activity for which the intangible fixed asset in respect of which they arise is held.

Clause 746: “Non-trading credits” and “non-trading debits”

2032.     This clause explains two key terms. It is new.

Clause 747: Assets held for purposes of trade

2033.      This clause incorporates the credits and debits directly into the trade profit calculation if the intangible fixed asset is held for the purposes of a trade. It is based on paragraph 31 of Schedule 29 to FA 2002.

Clause 748: Assets held for purposes of property business

2034.     This clause incorporates the credits and debits directly into the property business profit calculation if the intangible fixed asset is held for the purposes of a property business. It is based on paragraph 32 of Schedule 29 to FA 2002.

2035.     Paragraph 32(4) of Schedule 29 to FA 2002 has not been rewritten because it is not necessary. It is intended to make clear that losses of a furnished holiday lettings business consisting of Schedule 29 debits are still to be treated as trade losses but it is difficult to see what alternative, without paragraph 32(4), could ensue. Paragraph 32(4) applies the provisions of section 503 of ICTA which treats all a company’s lettings of furnished holiday accommodation (as defined in section 504 of ICTA) as a separate and single trade for (and only for) the purposes of loss relief although the income remains chargeable as income from property. But paragraph 32(3) of Schedule 29 to FA 2002 already ensures that the furnished holiday lettings profits and other property profits are kept separate. That being the case, the fact that the debits and credits are (under paragraph 32(1) of Schedule 29 to FA 2002) brought into account as part of the separate furnished holiday lettings business identified by paragraph 32(3) would seem to be enough. Once that has taken place, the general corporation tax loss rules (of which section 503 of ICTA is really part) then apply in the ordinary way to the result.

Clause 749: Assets held for purposes of mines, transport undertakings, etc

2036.     This clause incorporates the credits and debits directly into the profit calculation of a relevant business if the intangible fixed asset is held for the purposes of that business. It is based on paragraph 33 of Schedule 29 to FA 2002.

Clause 750: Assets held for purposes falling within more than one section

2037.     This clause provides an apportionment rule. It is based on paragraph 30 of Schedule 29 to FA 2002.

Clause 751: Non-trading gains and losses

2038.     This clause sets out rules to give effect to non-trading credits and debits. It is based on paragraph 34 of Schedule 29 to FA 2002.

Clause 752: Charge to tax on non-trading gains on intangible fixed assets

2039.     This clause applies the charge to corporation tax on income when there is a non-trading gain under clause 751. It is based on section 18 of ICTA.

2040.     It is necessary because the general charge label of the source referred to in paragraph 34(4) of Schedule 29 to FA 2002 (“Case VI of Schedule D”) ceases to exist in this Bill.

Clause 753: Treatment of non-trading losses

2041.     This clause provides for loss relief when there is a non-trading loss under clause 751. It is based on paragraph 35 of Schedule 29 to FA 2002.

2042.     Relief under this clause is subject to a claim in accordance with subsection (2) Under the source legislation a discretionary power of extension of the time limit for the claim is exercised by the Commissioners for HMRC. In practice it would be exercised by an officer of HMRC and the Bill reflects that. See Change 1 in Annex 1.

Chapter 7: Roll-over relief in case of realisation and reinvestment

Clause 754: The relief: the “old asset” and “other assets”

2043.     This clause introduces a form of roll-over relief enabling some or all of a credit arising under Chapter 4 of this Part on the realisation of an intangible fixed asset (including goodwill) to be deferred. It is based on paragraph 37 of Schedule 29 to FA 2002.

2044.     Subsection (4) is new. The rules in this Chapter deal only with mainstream cases where, broadly, assets already within the intangible fixed assets regime are replaced in arm’s length transactions by a single company by assets that, on acquisition, are also within the regime. This is the simplest case. Subsection (4) gives a signpost to additional, more complex, rules that deal with those cases involving group company and related party transactions as well as transitional interaction with the capital gains rules.

Clause 755: Conditions relating to the old asset and its realisation

2045.     This clause states the conditions for roll-over relief that must be met in respect of the intangible fixed asset that is replaced. It is based on paragraph 38 of Schedule 29 to FA 2002.

2046.     Subsection (4) applies to such assets as internally-generated goodwill.

Clause 756: Conditions relating to expenditure on other assets

2047.     This clause states the conditions that must be met in respect of the intangible fixed asset that replaces the old asset. It is based on paragraph 39 of Schedule 29 to FA 2002.

2048.     Subsection (1) sets a reinvestment period which is subject to discretionary extension. Under the source legislation this power is exercised by the Commissioners for HMRC. In practice it would be exercised by an officer of HMRC and the Bill reflects that. See Change 1 in Annex 1.

Clause 757: Claim for relief

2049.     This clause sets out the required contents of a claim for relief. It is based on paragraph 40 of Schedule 29 to FA 2002.

Clause 758: How the relief is given: general

2050.     This clause states how the relief is given. It is based on paragraph 41 of Schedule 29 to FA 2002.

Clause 759: Determination of appropriate proportion of cost and adjusted cost

2051.     This clause adjusts the cost of the intangible fixed asset that is replaced in cases of part realisation. It is based on paragraph 42 of Schedule 29 to FA 2002.

Clause 760: References to cost of asset where asset affected by change of accounting policy

2052.     This clause modifies the cost of the intangible fixed asset that is replaced, for the purposes of the reinvestment relief rules, in cases where there has been a change of accounting policy resulting in adjustments under Chapter 15 of this Part. It is based on paragraph 42A of Schedule 29 to FA 2002.

Clause 761: Declaration of provisional entitlement to relief

2053.     This clause allows a company reinvestment relief on a provisional basis if it intends to incur expenditure on other assets within the prescribed time limit. It is based on paragraph 43 of Schedule 29 to FA 2002.

Clause 762: Realisation and reacquisition

2054.     This clause treats an intangible fixed asset that is realised and subsequently reacquired as a different asset for the purposes of the reinvestment relief rules. It is based on paragraph 44 of Schedule 29 to FA 2002.

2055.     This enables relief to be given where, for example, a company has a change of business plans.

Clause 763: Disregard of deemed realisations and reacquisitions

2056.     This clause gives a general rule that deemed realisations and reacquisitions are ignored for the purposes of the reinvestment relief rules. It is based on paragraph 45 of Schedule 29 to FA 2002.

Chapter 8: Groups of companies: introduction

Clause 764: Meaning of “company”, “group” and “subsidiary”

2057.     This clause gives rules of interpretation. It is based on paragraph 46 of Schedule 29 to FA 2002.

Clause 765: General rule: a company and its 75% subsidiaries form a group

2058.     This clause gives the basic group membership rule for the purposes of the intangible fixed assets regime. It is based on paragraph 47 of Schedule 29 to FA 2002.

Clause 766: Only effective 51% subsidiaries of principal company to be members of group

2059.     This clause imposes an additional group requirement for the purposes of the intangible fixed asset rules. It is based on paragraph 48 of Schedule 29 to FA 2002.

2060.     Subsection (2) is new and gives a signpost to the definition of “effective 51% subsidiary”.

Clause 767: Principal company cannot be 75% subsidiary of another company

2061.     This clause gives a general rule that prevents a 75% subsidiary company from being the principal company of a group. It is based on paragraph 49 of Schedule 29 to FA 2002.

2062.     Subsection (3) defines the only exception to the general rule.

Clause 768: Company cannot be member of more than one group

2063.     This clause gives a general rule that prevents a company from belonging to more than one group for the purposes of the reinvestment relief rules. It is based on paragraph 50 of Schedule 29 to FA 2002.

2064.     If a company is a member of more than one group, this clause sets out tests that are applied sequentially to determine to which group that company belongs for the purposes of the reinvestment relief rules.

Clause 769: Continuity of identity of group

2065.     This clause gives a general rule that preserves the identity of a group as long as the same company remains the principal company of the group. It is based on paragraph 51 of Schedule 29 to FA 2002.

Clause 770: Continuity where group includes an SE

2066.     This clause preserves group identity in certain cases involving the formation of an SE. It is based on paragraph 51A of Schedule 29 to FA 2002.

2067.     This provision and the other rules specifically concerning SEs remove any uncertainty about their tax position. The clause preserves continuity of group identity in the circumstances set out in subsection (1).

Clause 771: Meaning of “effective 51% subsidiary”

2068.     This clause defines a key term. It is based on paragraph 52 of Schedule 29 to FA 2002.

Clause 772: Equity holders and profits or assets available for distribution

2069.     This clause imports definitions, adapted as necessary, from ICTA. It is based on paragraph 53 of Schedule 29 to FA 2002.

Clause 773: Supplementary provisions

2070.     This clause gives minor supplementary “group” rules. It is based on paragraph 54 of Schedule 29 to FA 2002.

2071.     Subsection (2) applies certain provisions of TCGA. Those TCGA provisions cover certain statutory bodies created to run an industry (or part of an industry) under public ownership. They include, in particular, those set up under the Transport Acts of 1962 and 1968. The effect of subsection (2) is that they can be treated as companies for the purposes of testing whether their subsidiaries form a group with them.