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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).

5

(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).

15

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

25

(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.

10

(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

5

(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—

20

(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.

10

(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

35

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).

15

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.

10

(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.

15

(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—

20

(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—equation: cross[char[A],over[char[B],char[C]]]

   

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

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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.

35

(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.

30

(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.

35

(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—

 
 

 
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