Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 4 — Trade profits: rules restricting deductions
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Bad debts
(1)
This section applies to non-money debts to which neither Part 7 (derivative
contracts) nor Part 8 (intangible fixed assets) applies.
(2)
In calculating the profits of a company’s trade, no deduction is allowed in
respect of a non-money debt owed to the company, except—
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(a)
by way of impairment loss, or
(b)
so far as the debt is released wholly and exclusively for the purposes of
the trade as part of a statutory insolvency arrangement.
(3)
In this section “non-money debt” means a debt which is not a money debt for
the purposes of Part 5 (loan relationships).
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56
Car or motor cycle hire
(1)
Subsection (2) applies if, in calculating the profits of a trade, a deduction is
allowed for expenses incurred on the hiring of a car or motor cycle—
(a)
which is not a qualifying hire car or motor cycle (see section 57(2)), and
(b)
the retail price of which when new exceeds £12,000.
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(2)
The amount of the deduction which would otherwise be allowable is reduced
by multiplying the amount by the fraction— $equation: over[plus[string["\xa3 12,000"],times[char[R],char[P]]],cross[num[2.0000000000000000, "2"],times[char[R],char[P]]]]$

where RP is the retail price of the car or motor cycle when new.
(3)
Subsection (4) applies if a deduction is reduced as a result of subsection (2), or
a corresponding provision, and subsequently—
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(a)
there is a rebate (however described) of the hire charges, or
(b)
a debt in respect of any of the hire charges is released otherwise than as
part of a statutory insolvency arrangement.
(4)
The amount that, as a result of the rebate or release—
(a)
is brought into account as a receipt of the trade, or
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(b)
is treated as a post-cessation receipt under section 193 (debts released
after cessation),

is reduced by multiplying it by the fraction in subsection (2).
(5)
In this section “corresponding provision” means—
(a)
section 1251(2) (car or motor cycle hire: expenses of management),
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(b)
section 48(2) of ITTOIA 2005 (car or motor cycle hire: trade profits and
property income), or
(c)
section 76ZN(2) of ICTA (car or motor cycle hire: expenses of insurance
companies).
(6)
The power under section 74(4) of CAA 2001 to increase or further increase the
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sums of money specified in Chapter 8 of Part 2 of CAA 2001 includes the power
to increase or further increase the sum of money specified in subsection (1)(b)
or (2).

Corporation Tax Bill
Part 3 — Trading income
Chapter 4 — Trade profits: rules restricting deductions
21

57
Car or motor cycle hire: supplementary
(1)
In section 56 “car or motor cycle” means a mechanically propelled road vehicle
other than one—
(a)
of a construction primarily suited for the conveyance of goods or
burden of any description, or
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(b)
of a type not commonly used as a private vehicle and unsuitable for
such use.
(2)
In section 56 “a qualifying hire car or motor cycle” means a car or motor cycle
which—
(a)
is hired under a hire-purchase agreement (see subsection (3)) under
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which there is no option to purchase,
(b)
is hired under a hire-purchase agreement under which there is an
option to purchase exercisable on the payment of a sum equal to not
more than 1% of the retail price of the car or motor cycle when new, or
(c)
is a qualifying hire car for the purposes of Part 2 of CAA 2001 (under
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section 82 of CAA 2001).
(3)
For this purpose “hire-purchase agreement” means an agreement under
which—
(a)
goods are bailed (or in Scotland hired) in return for periodical
payments by the person to whom they are bailed or hired, and
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(b)
the property in the goods will pass to that person if the terms of the
agreement are complied with and one or more of the following events
occurs,

but does not include a conditional sale agreement (see subsection (5)).
(4)
The events are—
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(a)
the exercise of an option to purchase by that person,
(b)
the doing of any other specified act by any party to the agreement, and
(c)
the happening of any other specified event.
(5)
A “conditional sale agreement” means an agreement for the sale of goods
under which—
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(a)
the purchase price or part of it is payable by instalments, and
(b)
the goods are to remain the property of the seller (even though they are
to be in the possession of the buyer) until specified conditions as to the
payment of instalments or otherwise are met.
(6)
In this section and section 56 “new” means unused and not second-hand.
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58
Hiring cars (but not motor cycles) with low CO2 emissions before 1 April 2013
(1)
Section 56 does not apply to expenses incurred on the hiring of—
(a)
a car with low CO2 emissions, or
(b)
an electrically-propelled car,

if the period of hire began before 1 April 2013 under a contract entered into
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before that date.
(2)
For this purpose—
“car with low CO2 emissions” has the meaning given by section 45D of
CAA 2001, and
“electrically-propelled car” has the meaning given by that section.
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Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
22

59
Patent royalties
In calculating the profits of a trade, no deduction is allowed for royalties or
other sums paid for the use of patents.
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Expenditure on integral features
Section 33A(3) of CAA 2001 provides that no deduction is allowed in respect of
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certain expenditure on an integral feature of a building or structure (within the
meaning of that section).
Chapter 5
Trade profits: rules allowing deductions
Pre-trading expenses
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61
Pre-trading expenses
(1)
This section applies if a company incurs expenses for the purposes of a trade
before (but not more than 7 years before) the date on which the company starts
to carry on the trade (“the start date”).
(2)
If, in calculating the profits of the trade—
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(a)
no deduction would otherwise be allowed for the expenses, but
(b)
a deduction would be allowed for them if they were incurred on the
start date,

the expenses are treated as if they were incurred on the start date (and therefore
a deduction is allowed for them).
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(3)
This section does not apply to any expenses in relation to which—
(a)
any debit falls, or
(b)
any debit would fall but for section 330 (loan relationships: debits in
respect of pre-trading expenditure),

to be brought into account for the purposes of Part 5 (loan relationships).
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Tenants under taxed leases
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Tenants under taxed leases: introduction
(1)
Sections 63 to 67 apply if land used in connection with a trade is subject to a
taxed lease.
(2)
Section 63 (tenants occupying land for purposes of trade treated as incurring
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expenses) applies in calculating the profits of a trade carried on by the tenant
under the taxed lease for the purpose of making deductions for the expenses of
the trade.
(3)
But any deduction for an expense under section 63 is subject to the application
of any provision of Chapter 4 of this Part.
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(4)
In this section and sections 63 to 67 the following expressions have the same
meaning as in Chapter 4 of Part 4 (profits of property businesses: lease
premiums etc)—

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
23

“receipt period” (see section 228(6)),
“taxed lease” (see section 227(4)),
“taxed receipt” (see section 227(4)), and
“unreduced amount” (see section 230(2)).
(5)
Section 230(3) and (4) (unreduced amount of taxed receipt under section 217 as
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a result of section 218) applies for the purposes of sections 63 to 67.
(6)
In the application of sections 66 and 67 to Scotland—
(a)
references to a lease being granted out of a taxed lease are to the grant
of a sublease of land subject to the taxed lease, and
(b)
references to the lease so granted are to be read as references to the
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sublease.
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Tenants occupying land for purposes of trade treated as incurring expenses
(1)
The tenant under the taxed lease is treated as incurring an expense of a revenue
nature in respect of the land subject to the taxed lease for each qualifying day.
(2)
If there is more than one taxed receipt, this section applies separately in
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relation to each of them.
(3)
A day is a “qualifying day”, in relation to a taxed receipt, if it is a day—
(a)
that falls within the receipt period of the taxed receipt, and
(b)
on which the tenant occupies the whole or part of the land subject to the
taxed lease for the purposes of carrying on a trade.
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(4)
If on the qualifying day the tenant occupies the whole of the land subject to the
taxed lease for the purposes of the trade, the amount of the expense for the
qualifying day by reference to the taxed receipt is given by the formula—

where—
A is the unreduced amount of the taxed receipt, and
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TRP is the number of days in the receipt period of the taxed receipt.
(5)
If on the qualifying day the tenant occupies part of the land subject to the taxed
lease for the purposes of the trade, the amount of the expense for the qualifying
day by reference to the taxed receipt is given by the formula—

where—
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F is the fraction of the land that is so occupied calculated on a just and
reasonable basis, and
A and TRP have the same meaning as in subsection (4).
(6)
This section is subject to section 64 (limit on deductions if tenant entitled to
mineral extraction allowance).
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