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These notes refer to the Corporation Tax Bill as introduced in the House of Commons on 4 December 2008 [Bill 1] Annex 2
CORPORATION TAX BILL
EXPLANATORY NOTES - VOLUME 4
TABLE OF CONTENTS
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 3: Trading income: profits of mines, quarries and other concerns: clause 39 17
Change 5: Trading and property income: surplus business accommodation: clauses 44 and 213 19
Change 7: Trading and property income: relationship between rules prohibiting deductions and rules allowing deductions: clauses 51 and 214 22
Change 10: Trading income etc: car hire: hire agreements without option to purchase: clauses 57 and 1251 and Schedule 1 25
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 15: Devolution: clauses 71, 81, 83, 155, 1243, 1284, 1320 and 1321 and Schedules 1 and 2 33
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 20: Trading income: patent fees paid: clauses 89 and 90 38
Change 22: Trading income etc: allow all FISMA levies and costs: clauses 92, 104 and 1246 and Schedule 1 39
Change 24: Trading income: assets of mutual concerns: exclude distributions of chargeable gains from the charge to tax: clause 101 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 28: Trading income: gifts of trading stock: drop the need for a claim: clause 105 and Schedule 1 44
Change 30: Trading income: herd basis rules: meaning of substantial part of herd: clause 111 and clause 118 46
Change 32: Trading income: herd basis elections: five year gap in which no production herd kept: clause 123 49
Change 34: Trading income: traders receiving distributions etc: clause 130 and Schedule 1 50
Change 36: Trading income etc: extend pools payments treatment to the 1995 reduction: clauses 138 and 978 53
Change 40: Trading income: deductions for unremittable amounts: clauses 172 to 175 57
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 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 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 51: Property income: furnished holiday accommodation: permitted longer-term occupation: clause 267 71
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 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 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 60: Relationships treated as loan relationships etc: meaning of offshore funds for qualifying investments test: clauses 489 and 587 81
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 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 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 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 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 79: Additional relief for research and development etc: meaning of staffing costs: clauses 1123 and 1170 105
Change 81: Expenses of management: clause 1221 108
Change 83: Car or motor cycle hire: clause 1251 and Schedule 1 110
Change 85: Distributions and partnerships: Schedule 1 112
Change 87: Partnerships: resident partners and double taxation agreements: clause 1266 and Schedule 1 114
Change 89: Partnerships: sale of patent rights: clauses 1271 and 1272 and Schedule 1 116
Change 91: Unremittable income: withdrawal of relief: ECGD payments received: clause 1276 117
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 95: General calculation rules: apportionment etc of miscellaneous profits and losses to accounting period: clause 1307 122
Change 97: Repeal of section 74(1)(k) of ICTA: disallowance of deduction for average loss: Schedule 1 124
Change 99: Repeal of sections 586 and 587 of ICTA: Schedule 1 125
Change 101: Repeal of section 817 of ICTA: Schedule 1 126
Change 103: Repeal of section 63 of FA 1999: treatment of transfer fees under pre-1999 contracts: Schedule 1 128
Change 105: Qualifying hire car or motor cycle: section 49(2)(b) of ITTOIA: Schedule 1 131
ANNEX 1: MINOR CHANGES IN THE LAW
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 Majestys Revenue and Customs. The rest of this note accordingly refers to the Commissioners for Her Majestys 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 Majestys 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 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.
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:
Both the qualifications and the general proviso are in section 832(2) of ICTA. They do not affect the discussion in this note.
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 bodys 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 bodys 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 principals 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.
|© Parliamentary copyright 2008||Prepared: 5 December 2008|