Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies
180

Step 8 in section 76(7) of ICTA and the reference in Step 2(a) in subsection (5)
to the deduction for expenses as a result of section 76 of ICTA for an accounting
period are references to the deduction for expenses that would been made as a
result of that section for that period on the assumptions in subsections (7) and
(8).
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(7)
The first assumption is that no account is taken of—
(a)
that claim, or
(b)
any other claim under section 389 relating to a deficit for an accounting
period after the deficit period.
(8)
The second assumption is that all such adjustments are made as are required
10
as a result of any sum having been carried back under the Corporation Tax
Acts to the accounting period mentioned in subsection (5), otherwise than as a
result of—
(a)
the claim mentioned in subsection (6), or
(b)
any such other claim as is mentioned in subsection (7)(b).
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391
Carry forward of surplus deficit to next accounting period
(1)
This rule applies if any of the deficit is not—
(a)
set off against the income and gains referred to in section 388(1), or
(b)
set off against the profits referred to in section 389(1) as the result of a
claim under that section.
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(2)
That deficit must be carried forward to the accounting period immediately
after the deficit period (“the next period”).
(3)
Any deficit so carried forward is treated for the purposes of the Corporation
Tax Acts (including sections 388 to 390) as expenses payable which—
(a)
are referable to the next period, and
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(b)
are to be brought into account at Step 3 in section 76(7) of ICTA
(expenses of insurance companies).
Exclusion of loan relationships of members of Lloyd’s
392
Exclusion of loan relationships of members of Lloyd’s
(1)
This section applies to any loan relationship of a corporate member of Lloyd’s.
30
(2)
This Part does not apply as respects the relationship so far as rights or liabilities
under it or securities representing it are—
(a)
assets forming part of the member’s premium trust fund, or
(b)
liabilities attached to that fund.
(3)
In this section “corporate member” and “premium trust fund” have the same
35
meaning as in Chapter 5 of Part 4 of FA 1994 (Lloyd’s underwriters:
corporations etc) (see section 230(1) of that Act).

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies
181

Determination of questions requiring apportionments
393
General rules for some debtor relationships
(1)
This section applies if a debtor relationship of an insurance company is
represented by a liability which is a liability of its long-term insurance fund.
(2)
Any question arising for the purposes of the Corporation Tax Acts as to how
5
far any credits or debits given for the purposes of this Part in respect of the
liability are referable to any particular category of the company’s long-term
business is determined as follows.
(3)
In the case of credits and debits within the rules in section 394, that section
applies.
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(4)
In the case of other credits and debits, the relevant fraction of the credits or
debits is referable to a category of long-term business.
(5)
That fraction is determined by applying section 432A(6) to (6B) and (8) of ICTA
(apportionment of income and gains) as if—
(a)
the credits or debits were income not directly referable to any category
15
of business, and
(b)
the references in section 432A(6) to assets directly referable to a
category of business were references to assets linked to that category.
394
Special rules for some debtor relationships
(1)
This section sets out the rules referred to in section 393(3) as to how far certain
20
credits or debits given for the purposes of this Part in respect of liabilities
representing a debtor relationship of an insurance company which are
liabilities of its long-term insurance fund are referable to any particular
category of its long-term business.
(2)
If the liabilities are liabilities of an internal linked fund of the company relating
25
to one category of long-term business, the credits or debits are referable to that
category.
(3)
If the liabilities are liabilities of an internal linked fund of the company relating
to two or more such categories, the credits or debits are referable to those
categories in the same proportions as the linked assets in the fund are
30
apportioned to them under section 432ZA(4) of ICTA (linked assets).
(4)
If—
(a)
the liabilities arise from deposit back arrangements, and
(b)
the business reinsured by the arrangements under which the deposit
back arrangements are made (“the reinsurance arrangements”) is
35
within one category of long term business,

the credits or debits are referable to that category.
(5)
If—
(a)
the liabilities arise from deposit back arrangements, and
(b)
the business reinsured by the reinsurance arrangements is within two
40
or more such categories,

the credits or debits are referable to those categories in the same proportions as
the relevant proportions of the liabilities reinsured by the arrangements which
are liabilities relating to those categories.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 11 — Other special kinds of company
182

(6)
For the purposes of subsection (5) “relevant proportion”, in relation to
reinsured liabilities of any particular category of business, means the average
of—
(a)
the proportion of all the reinsured liabilities that are liabilities relating
to that category at the beginning of the period of account, and
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(b)
the proportion of all the reinsured liabilities that are liabilities relating
to that category at the end of that period.
(7)
Debits relating to interest payable in respect of the late payment of any benefits
are referable to the category of long-term business that comprises the effecting
and carrying out of the policies or contracts under which the benefits are
10
payable.
Chapter 11
Other special kinds of company
Investment trusts’ and venture capital trusts’ creditor relationships
395
Investment trusts: profits or losses of a capital nature
15
(1)
Profits or losses of a capital nature arising to an investment trust from a
creditor relationship may not be brought into account as credits or debits for
the purposes of this Part.
(2)
For the purposes of this section “profits or losses of a capital nature” means
profits or losses that—
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(a)
are accounted for through the capital column of the income statement
in accordance with the Statement of Recommended Practice, or
(b)
would have been so accounted for if that Statement had been applied
correctly.
(3)
“The Statement of Recommended Practice”, in relation to an accounting period
25
for which it is required or permitted to be used, means—
(a)
the Statement of Recommended Practice relating to Investment Trust
Companies, issued by the Association of Investment Trust Companies
in January 2003, as from time to time modified, amended or revised, or
(b)
any subsequent Statement of Recommended Practice relating to
30
investment trusts, as from time to time modified, amended or revised.
(4)
The Treasury may by order amend the definition of “profits or losses of a
capital nature” in subsection (2), so far as it applies in relation to an investment
trust that prepares accounts in accordance with international accounting
standards.
35
(5)
An order under subsection (4) may make—
(a)
different provision for different cases, and
(b)
incidental, supplemental, consequential and transitional provision and
savings.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 11 — Other special kinds of company
183

396
Venture capital trusts: profits or losses of a capital nature
(1)
Profits or losses of a capital nature arising to a venture capital trust from a
creditor relationship may not be brought into account as credits or debits for
the purposes of this Part.
(2)
For the purposes of this section “profits or losses of a capital nature” means
5
profits or losses that—
(a)
are accounted for through the capital column of the income statement
in accordance with the Statement of Recommended Practice, or
(b)
would have been so accounted for if the venture capital trust had been
an investment trust and that Statement had been applied correctly.
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(3)
In this section “the Statement of Recommended Practice” has the meaning
given in section 395(3) (investment trusts: profits or losses of a capital nature).
(4)
The Treasury may by order amend the definition of “profits or losses of a
capital nature” in subsection (2), so far as it applies in relation to a venture
capital trust that prepares accounts in accordance with international
15
accounting standards.
(5)
An order under subsection (5) may make—
(a)
different provision for different cases, and
(b)
incidental, supplemental, consequential and transitional provision and
savings.
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Credit unions
397
Credit unions
(1)
In calculating the income of a credit union for any accounting period, no credit
is to be brought into account for the purposes of this Part in respect of a loan
relationship of the union if a member of the union stands in the position of
25
debtor in relation to the debt in question.
(2)
But subsection (1) does not apply if the credit union—
(a)
is obliged to make a return under section 887(2) of ITA 2007 for the
accounting period, and
(b)
has not done so within—
30
(i)
3 months after the end of the period, or
(ii)
such longer period as an officer of Revenue and Customs
allows.
(3)
No debit is to be brought into account for the purposes of this Part in respect of
a loan relationship of a credit union if a member of the union stands in the
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position of creditor in relation to the debt in question.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 12 — Special rules for particular kinds of securities
184

Chapter 12
Special rules for particular kinds of securities
Introduction
398
Overview of Chapter
(1)
This Chapter sets out rules relating to the holding of particular kinds of
5
securities.
(2)
In particular, see—
(a)
sections 399 to 405 (gilt-edged securities),
(b)
sections 406 to 412 (deeply discounted securities: connected companies
and close companies),
10
(c)
sections 413 and 414 (funding bonds),
(d)
sections 415 to 419 (derivatives), and
(e)
section 420 (assumptions where options etc apply).
(3)
For other special rules about deeply discounted securities, see section 385
(company partners’ shares where firm owns deeply discounted securities).
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Gilt-edged securities
399
Index-linked gilt-edged securities: basic rules
(1)
This section applies if a loan relationship is represented by an index-linked gilt-
edged security.
(2)
The amounts to be brought into account for the purposes of this Part are to be
20
determined using fair value accounting.
(3)
But, in calculating those amounts, the adjustment specified in section 400
(adjustments for changes in index) must be made if that section applies.
(4)
In this section and section 400 “index-linked gilt-edged securities” means any
gilt-edged securities under which the amounts of the payments are determined
25
wholly or partly by reference to the retail prices index.
(5)
For the meaning of “gilt-edged securities”, see section 476(1).
400
Index-linked gilt-edged securities: adjustments for changes in index
(1)
This section applies if—
(a)
the amounts to be brought into account for the purposes of this Part in
30
respect of a gilt-edged security fall to be determined by reference to its
value at two different times, and
(b)
there is a change in the retail prices index between the earlier and the
later time.
(2)
If that change is an increase, the carrying value of the security at the earlier time
35
is increased by the same percentage as the percentage increase in the retail
prices index between those times.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 12 — Special rules for particular kinds of securities
185

(3)
If that change is a reduction, the carrying value of the security at the earlier
time is reduced by the same percentage as the percentage reduction in the retail
prices index between those times.
(4)
The Treasury may, in relation to any description of index-linked gilt-edged
securities, by order provide that—
5
(a)
there are to be no adjustments under this section, or
(b)
an adjustment specified in the order is to be made instead.
(5)
An order under subsection (4)—
(a)
may not apply to a security issued before the making of the order, but
(b)
may make different provision for different descriptions of securities.
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(6)
The general rule is that the percentage increase or reduction in the retail prices
index is determined for the purposes of this section by reference to the
difference between—
(a)
the index for the month in which the earlier time falls, and
(b)
the index for the month in which the later time falls.
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(7)
But if the earlier time falls at the beginning of an accounting period which
begins with the first day of a month, the index for the previous month is used
for the purposes of subsection (6)(a).
401
Gilt strips
(1)
This section applies if a loan relationship is represented by—
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(a)
a strip of a gilt-edged security, or
(b)
any other gilt-edged security.
(2)
Subsections (3) and (4) apply if a person exchanges a gilt-edged security for
strips of that security.
(3)
The security is treated as having been redeemed at the time of the exchange by
25
the payment to that person of its market value.
(4)
The person is treated as having acquired each strip for an amount equal to—

where—
A is the market value of the security at the time of the exchange,
B is the market value of the strip at that time, and
30
C is the total of the market values at that time of all the strips received in
the exchange.
(5)
Subsections (6) and (7) apply if strips of a gilt-edged security are consolidated
into a single gilt-edged security by being exchanged by any person for that
security.
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(6)
Each strip is treated as having been redeemed at the time of the exchange by
the payment to that person of the amount equal to its market value.
(7)
The person is treated as having acquired the security for the amount equal to
the total of the market values of all the strips given in the exchange.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 12 — Special rules for particular kinds of securities
186

(8)
For the meaning of “market value” and “strip” in relation to securities, see
section 402 and section 403 respectively.
402
Market value of securities
(1)
References in section 401 to the market value of a security given or received in
exchange for another are references to its market value at the time of the
5
exchange.
(2)
The Treasury may by regulations make provision for the purposes of section
401 and this section as to the way of determining the market value at any time
of—
(a)
any strip, or
10
(b)
any other gilt-edged security.
(3)
The regulations may make—
(a)
different provision for different cases, and
(b)
incidental, supplemental, consequential and transitional provision and
savings.
15
403
Meaning of “strip”
(1)
In sections 401 and 402 “strip”, in relation to a gilt-edged security, means a
security issued under the National Loans Act 1968 (c. 13) which meets
conditions A, B and C.
(2)
Condition A is that the security is issued for the purpose of representing the
20
right to or of securing—
(a)
a payment corresponding to a payment of interest or principal
remaining to be made under the gilt-edged security, or
(b)
two or more payments each corresponding to a payment to be so made.
(3)
Condition B is that the security is issued in conjunction with the issue of one or
25
more other securities which, together with that security—
(a)
represent the right to, or
(b)
secure,

payments corresponding to every payment remaining to be made under the
gilt-edged security.
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(4)
Condition C is that the security is not itself a security that—
(a)
represents the right to, or
(b)
secures,

payments corresponding to a part of every payment remaining to be made
under the gilt-edged security.
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(5)
After the balance has been struck for a dividend on a gilt-edged security, a
payment to be made in respect of that dividend is treated for the purposes of
conditions A, B and C as not being a payment remaining to be made under that
security.
404
Restriction on deductions etc relating to FOTRA securities
40
(1)
A company which meets conditions A and B is not to bring into account for the
purposes of this Part—