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Corporation Tax Bill


These notes refer to the Corporation Tax Bill as introduced in the House of Commons on 4 December 2008 [Bill 1] Annex 2






Change 1: References to “officer of Revenue and Customs”: clauses 11, 88, 106, 236, 389, 460, 617, 753, 756, 916, 917 and 1282     9

Change 2: Trading income: omission of references to a company carrying on a profession or a vocation: clause 35 (and other clauses)     9

Change 3: Trading income: profits of mines, quarries and other concerns: clause 39     17

Change 4: Trading and property income: caravan sites where trade carried on: clauses 43 and 213     18

Change 5: Trading and property income: surplus business accommodation: clauses 44 and 213     19

Change 6: Trading and property income: rents in respect of wayleaves where associated with a trade: clauses 45, 213, 279 and 288     20

Change 7: Trading and property income: relationship between rules prohibiting deductions and rules allowing deductions: clauses 51 and 214     22

Change 8: Trading income: align rules for debts proving irrecoverable after trade deemed to have ceased with general rules for bad debts: clause 55 and Schedule 1     23

Change 9: Trading income: car hire: release of debt after debtor has ceased trading: clause 56     24

Change 10: Trading income etc: car hire: hire agreements without option to purchase: clauses 57 and 1251 and Schedule 1     25

Change 11: Trading income: lease premiums etc: deduction for tenant under taxed lease if land is outside the United Kingdom: clauses 62 and 66     26

Change 12: Requiring an apportionment to be just and reasonable: clauses 63, 67, 78, 229, 234, 255, 1185, 1194 and 1241 and Schedule 1     27

Change 13: Trading and property income: lease premiums etc: restrictions on expenses under clauses 63 and 232 in respect of taxed receipt: clauses 66, 67, 233 and 234     29

Change 14: Trading income etc: clarification of position of employees seconded to charities: clauses 70 and 1235 and Schedule 1     32

Change 15: Devolution: clauses 71, 81, 83, 155, 1243, 1284, 1320 and 1321 and Schedules 1 and 2     33

Change 16: Trading income etc: retraining courses: deduction no longer dependent on employee’s exemption: clauses 74 and 1238 and Schedule 1     35

Change 17: Trading income etc: redundancy payments: legislate the practice of allowing voluntary payments made in connection with a cessation of part of a trade or business: clauses 79 and 1242 and Schedule 1     36

Change 18: Trading income etc: contributions to local enterprise organisations or urban regeneration companies: disqualifying benefits: clauses 82, 1244 and 1253 and Schedule 1     36

Change 19: Trading income etc: income charged on withdrawal of relief after source ceases: clauses 82, 101, 108 and 1277     37

Change 20: Trading income: patent fees paid: clauses 89 and 90     38

Change 21: Trading income: payments to Export Credits Guarantee Department: clause 91     39

Change 22: Trading income etc: allow all FISMA levies and costs: clauses 92, 104 and 1246 and Schedule 1     39

Change 23: Trading income: reverse premiums: excluded cases: clause 97     41

Change 24: Trading income: assets of mutual concerns: exclude distributions of chargeable gains from the charge to tax: clause 101     42

Change 25: Trading income: sums recovered under insurance policies etc: clause 103     42

Change 26: Trading income: gifts of trading stock: drop the need for the gift to be plant and machinery in the hands of the educational establishment: clause 105     43

Change 27: Trading income: gifts of trading stock: gifts “for the purpose of” a charity etc: clause 105     44

Change 28: Trading income: gifts of trading stock: drop the need for a claim: clause 105 and Schedule 1     44

Change 29: Trading income: gifts of medical supplies and equipment: clause 107     45

Change 30: Trading income: herd basis rules: meaning of “substantial part of herd”: clause 111 and clause 118     46

Change 31: Trading income: herd basis rules: sale of whole or substantial part of herd: clauses 117 and 118     47

Change 32: Trading income: herd basis elections: five year gap in which no production herd kept: clause 123     49

Change 33: Trading income: securities held as circulating capital: clause 129     49

Change 34: Trading income: traders receiving distributions etc: clause 130 and Schedule 1     50

Change 35: Trading income etc: combine pools payments rules: clauses 138 and 978     52

Change 36: Trading income etc: extend pools payments treatment to the 1995 reduction: clauses 138 and 978     53

Change 37: Trading income: use period of account instead of tax year as the basis for certain restrictions on relief in connection with a deemed employment payment: clause 140     54

Change 38: Trading income: waste disposal: site preparation expenditure: drop requirements to make claim and submit plans and documents: clause 142 and Schedule 1     55

Change 39: Trading income: valuation of stock: clauses 164 to 167 and Schedule 1     56

Change 40: Trading income: deductions for unremittable amounts: clauses 172 to 175     57

Change 41: Trading income: disposal of know-how: restore an express definition of mineral deposits: clauses 176 and 908     58

Change 42: Trading and property income: post-cessation receipts: reinstatement of section 108 of ICTA: clauses 198 to 200 and 286     60

Change 43: Property income: lease premiums etc: identifying when a company (not the landlord) takes amounts into account as a receipt in calculating the profits of a property business: clauses 217, 219, 220 and 221     61

Change 44: Property income: lease premiums etc: sums payable instead of rent, or for the variation or waiver of a term of a lease, for periods of 50 years or less: clauses 219 and 221     62

Change 45: Property income: lease premiums etc: sum payable to someone other than the landlord, or a person connected with landlord, for variation or waiver of term of lease: clause 221     64

Change 46: Property income: lease premiums etc: additional calculation rule may reduce receipts in respect of sums payable for variation or waiver of a term of a lease: clauses 221, 227, 228, 229 and 234     65

Change 47: Property income: lease premiums etc: receipts in respect of sales with right to reconveyance and sale and leaseback transactions: clauses 224 and 225     66

Change 48: Property income: lease premiums etc: relief for tenant under taxed lease if land is outside the United Kingdom: clause 227     67

Change 49: Property income: lease premiums etc: limiting the reductions in receipts under clause 228 and the deductions for expenses under clause 232: clauses 227, 228, 229, 230, 231 and 235     68

Change 50: Property income: lease premiums etc: rules for determining effective duration of lease: clause 243 and Schedule 1     69

Change 51: Property income: furnished holiday accommodation: permitted longer-term occupation: clause 267     71

Change 52: Property income: furnished holiday accommodation: period over which lettings are averaged: clause 268     72

Change 53: Property income: rent receivable in connection with a section 39(4) concern where the rent is paid in kind: clause 270 and Schedule 1     73

Change 54: Property income: deduction of management expenses of owner of mineral rights: omission of condition that expenses are “necessarily” incurred: clause 272     75

Change 55: Property income etc: priority of the charge on trade profits: the “Crown Option”: clauses 287 and 982 and Schedule 1     76

Change 56: Loan relationships: references to connections between a company and another person to be rewritten as applying to connections between two companies: clauses 348, 361, 468, 469 and 470.     77

Change 57: Loan relationships etc: amortised cost basis and connected companies: fair value to apply in the case of reset bonds and shares with guaranteed returns: clauses 349 and 534     79

Change 58: Loan relationships: deficits on loan relationships referable to basic life assurance and general annuity business: change in basic rule so that deficit set off against income and gains of deficit period instead of being carried forward: clause 388     80

Change 59: Loan relationships: funding bonds: charge to tax as interest: clauses 299 and 413     80

Change 60: Relationships treated as loan relationships etc: meaning of offshore funds for qualifying investments test: clauses 489 and 587     81

Change 61: Relationships treated as loan relationships etc: power to change investments that are qualifying investments: clause 497     83

Change 62: Relationships treated as loan relationships etc: Industrial and provident society payments treated as interest under loan relationship: clause 499     84

Change 63: Derivative contracts: amendment of references to a “relevant holding” in a collective investment scheme in relation to certain relevant contracts treated as derivative contracts: clauses 587 and 601     86

Change 64: Derivative contracts: amendment of a condition to be satisfied to determine whether the underlying subject matter of a relevant contract is “excluded property” for the purposes of Part 7: clause 591     87

Change 65: Derivative contracts: credits and debits in respect of capital expenditure: debits not to be brought into account: clause 604     88

Change 66: Derivative contracts: priority of provisions when a company ceases to be UK resident and ceases to be a member of a group: clauses 609 and 610     89

Change 67: Derivative contracts: meaning of “impairment loss” for the purposes of the meaning of “carrying value”: clause 702     90

Change 68: Unpaid remuneration of employees: payment made after return submitted but within 9 months of the end of the period of account: clauses 867, 1250 and 1289 and Schedule 1     92

Change 69: Miscellaneous income: beneficiaries’ income from estates in administration: set off of excess of allowable estate deductions in the final tax year of the administration period: absolute interests: clause 943     94

Change 70: Miscellaneous income: beneficiaries’ income from estates in administration: exclusion of income from specific dispositions and income from contingent interests from the aggregate income of the estate: clauses 947 and 949     94

Change 71: Miscellaneous income: beneficiaries’ income from estates in administration: removal of the requirement for interest to be annual and a charge on residue to be deductible in calculating the residuary income of the estate: clause 949     96

Change 72: Miscellaneous income: beneficiaries’ income from estates in administration: amounts grossed up using basic rate: reduction in share of residuary income of estate: clause 951     97

Change 73: Miscellaneous income: beneficiaries’ income from estates in administration: how reduction in share of residuary income of estate under section 697(2) and (3) of ICTA operates for successive absolute interests: clause 954     98

Change 74: Miscellaneous income: beneficiaries’ income from estates in administration: requirement for apportionments where the parts of the residuary estate in which successive interests subsist do not wholly correspond: clause 959     99

Change 75: Investment income: foreign dividend coupons: charge on income treated as arising from foreign holdings: clause 974     100

Change 76: Relief for employee share acquisitions: recovery of relief given in respect of approved Share Incentive Plans (SIPs): clauses 986, 990, 992, 993 and 998     101

Change 77: Additional relief for research and development: applies for corporation tax only: clauses 1044, 1045, 1063, 1068, 1074, 1087, 1092 and 1149     102

Change 78: Additional relief for research and development: R&D threshold: clauses 1050, 1064, 1075 and 1097     104

Change 79: Additional relief for research and development etc: meaning of “staffing costs”: clauses 1123 and 1170     105

Change 80: Expenses of management: credit unions: clause 1218     108

Change 81: Expenses of management: clause 1221     108

Change 82: Expenses of management: cessation of business: clauses 1240 and 1242 and Schedule 1     109

Change 83: Car or motor cycle hire: clause 1251 and Schedule 1     110

Change 84: Partnerships: reinstatement of section 111(10) of ICTA: clause 1258     112

Change 85: Distributions and partnerships: Schedule 1     112

Change 86: Partnerships: allocation of firm’s profits between partners: clauses 1263 and 1264     113

Change 87: Partnerships: resident partners and double taxation agreements: clause 1266 and Schedule 1     114

Change 88: Partnerships: change of basis: Schedule 1     115

Change 89: Partnerships: sale of patent rights: clauses 1271 and 1272 and Schedule 1     116

Change 90: Unremittable income: conditions for granting relief: clause 1274     117

Change 91: Unremittable income: withdrawal of relief: ECGD payments received: clause 1276     117

Change 92: General exemptions: savings certificates: unauthorised purchases involving multiple certificates: clauses 1281 and 1282     119

Change 93: General calculation rules: exceptions from the disallowance of expenditure on business entertainment and gifts in calculating the profits of non-trade and non-property businesses: clauses 1298 to 1300     120

Change 94: General calculation rules: exceptions to the rule restricting deductions for business gifts: clause 1300     121

Change 95: General calculation rules: apportionment etc of miscellaneous profits and losses to accounting period: clause 1307     122

Change 96: Other general provisions: definition of “caravan”: clause 1314     123

Change 97: Repeal of section 74(1)(k) of ICTA: disallowance of deduction for average loss: Schedule 1     124

Change 98: Unremittable income: appeals to the Special Commissioners: Schedules 1 and 2     124

Change 99: Repeal of sections 586 and 587 of ICTA: Schedule 1     125

Change 100: Repeal of section 695(6) of ICTA: Schedule 1     126

Change 101: Repeal of section 817 of ICTA: Schedule 1     126

Change 102: Repeal of paragraph 5 of Schedule 30 to ICTA: Schedule 1     128

Change 103: Repeal of section 63 of FA 1999: treatment of transfer fees under pre-1999 contracts: Schedule 1     128

Change 104: Amendments of CAA: Schedule 1     129

Change 105: Qualifying hire car or motor cycle: section 49(2)(b) of ITTOIA: Schedule 1     131

Change 106: Derivative contracts: contracts which became derivative contracts on 16 March 2005: assumption in respect of consideration on deemed disposal: Schedule 2     132



Change 1: References to “officer of Revenue and Customs”: clauses 11, 88, 106, 236, 389, 460, 617, 753, 756, 916, 917 and 1282

This change replaces references to the “Board of Inland Revenue” in the source legislation with references to “an officer of Revenue and Customs”.

It brings the income and corporation tax codes back into line.

References in the source legislation to the “Board of Inland Revenue” are treated by section 50(1) of the Commissioners for Revenue and Customs Act 2005 (CRCA) as references to “the Commissioners for Her Majesty’s Revenue and Customs”. The rest of this note accordingly refers to the Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) rather than to the Board of Inland Revenue.

The provisions affected by this change will in future authorise or require things to be done by or in relation to an officer of Revenue and Customs rather than by or in relation to the Commissioners. This reflects the way in which Her Majesty’s Revenue and Customs is organised and operates in practice. Section 13 of CRCA allows nearly all functions conferred on the Commissioners to be exercised by any officer. All of the functions affected by this change, which are in the main concerned with administrative processes, are in fact exercised by officers of the Commissioners, and the Commissioners themselves are not personally involved in their exercise.

Where the source legislation provides for a claim or election to be made to the Commissioners, this Bill does not expressly state to whom such a claim or election is to be made. Where a notice to deliver a corporation tax return has been issued paragraphs 57 and 58 of Schedule 18 to FA 1998 require the claim to be made in the return or by amendment of the return if possible. A return must be made to the officer who issued it. A notice amending a return must be made to an officer. Similarly, where the claim is made outside a return or amendment, paragraph 2(1) of Schedule 1A to TMA requires the claim to be made to an officer.

Each provision affected by the conversion of references to the Commissioners will be identified in the Table of Origins by a cross-reference to this change.

This change has no implications for the amount of tax due, who pays it or when. It affects (in principle and in practice) only administrative matters.

Change 2: Trading income: omission of references to a company carrying on a profession or a vocation: clause 35 (and other clauses)

This change omits references to a profession and to a vocation where the source legislation refers to the carrying on by a company of a trade, profession or vocation.

The change is reflected in numerous clauses in Part 3, the trading income Part. It is included in the origins of the main provisions affected.

The meaning of “company”

“Company” in the Tax Acts means “any body corporate or unincorporated association but does not include a partnership, a local authority or a local authority association” (section 832(1) of ICTA). This note accordingly looks at corporate bodies and then at unincorporated associations.

The definition in section 832(1) of ICTA is subject to:

  • some qualifications that deal with particular topics; and

  • a general proviso that the definition “does not apply where the context otherwise requires because some other definition of “company” applies”.

Both the qualifications and the general proviso are in section 832(2) of ICTA. They do not affect the discussion in this note.

Corporate bodies and professions

“Profession” is not defined for tax purposes. As long ago as 1919 Scrutton L J said:

it seems to me as at present advised that a “profession” in the present use of language involves the idea of an occupation requiring either purely intellectual skill, or if any manual skill, as in painting and sculpture, or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production, or sale, or arrangements for the production or sale of commodities. The line of demarcation may vary from time to time. The word “profession” used to be confined to the three learned professions - the Church, Medicine and Law. It has now, I think, a wider meaning. It appears to me clear that a journalist whose contributions have any literary form, as distinguished from a reporter, exercises a “profession”; and that the editor of a periodical comes in the same category. CIR v Maxse (1919), 12 TC 41 CA on page 61.

The question whether or not a corporate body can carry on a profession for the purposes of corporation tax is one of interpretation of the corporation tax legislation. This is apparent from the general rules under which the acts of individuals are attributed to corporate bodies.

A wide variety of acts performed by individuals are in law attributed to corporate bodies under rules derived from the constitutions of the bodies, from company law and from general principles which also operate between individuals, such as agency and vicarious liability. These rules of attribution enable the rights and liabilities of corporate bodies arising out of the acts of individuals to be defined.

Under these principles many acts carried out by a corporate body’s agents in conducting its business may be treated as acts of the body for the purposes, for instance, of liability in contract or tort. But an act that is treated as an act of the corporate body for one purpose would not necessarily be treated as the body’s act for another purpose. For example, a corporate body generally has no criminal liability for the acts of its agents.

The rules of attribution are of little help when considering whether a corporate body is capable of carrying on a profession for the purposes of corporation tax. To begin with, the question is not obviously one of attribution. What is in doubt is not whether particular activities should be attributed to the corporate body, but whether a particular activity carried on by the body (namely the carrying on of a business consisting of the provision of professional services) should be classified as trading or as a profession. The principles of agency are not designed to answer questions such as whether a principal may carry on a profession by virtue of the fact that the principal’s agent carries on a profession. And because it is arguable that the language of the corporation tax legislation implicitly excludes the application of the rules about professions to companies (see below), the question must in any case be approached as one of interpretation.

There are two main grounds for arguing that there are no acts which would, for the purposes of corporation tax, constitute the carrying on of a profession by a corporate body. The first is based on the nature of a profession. The second is based on internal evidence in the corporation tax legislation.

Before turning to those arguments this note looks briefly at some decided cases.

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Prepared: 5 December 2008