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 16 — Non-trading deficits
216

459
Claim to set off deficit against profits of deficit period or earlier periods
(1)
The company may make a claim for the whole or part of the deficit—
(a)
to be set off against the total profits of the company for the deficit
period, or
(b)
to be carried back to be set off against profits for earlier accounting
5
periods.
(2)
No claim may be made under subsection (1) in respect of a deficit which is
surrendered as group relief under section 403 of ICTA.
(3)
Subsection (1) does not apply if the company is a charity.
(4)
For time limits and other provisions applicable to claims under subsection (1),
10
see section 460.
(5)
For what happens when a claim is made under subsection (1)(a), see section
461.
(6)
For what happens when a claim is made under subsection (1)(b), and for the
profits available for relief where such a claim is made, see sections 462 and 463.
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460
Time limits and procedure for claims under section 459(1)
(1)
A claim under section 459(1) must be made within—
(a)
the period of 2 years after the deficit period ends, or
(b)
such further period as an officer of Revenue and Customs allows.
(2)
Different claims may be made in respect of different parts of a non-trading
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deficit for any deficit period.
(3)
But no claim may be made in respect of any part of a deficit to which another
such claim relates.
461
Claim to set off deficit against other profits for the deficit period
(1)
This section applies if a claim is made under section 459(1)(a) for the whole or
25
part of the deficit to be set off against profits for the deficit period.
(2)
The general rule is that the amount to which the claim relates must be set off
against the profits of the company for the deficit period which are identified in
the claim.
(3)
Those profits are reduced accordingly.
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(4)
The general rule is subject to subsections (5) and (7).
(5)
Relief for any deficit incurred in a trade in an earlier accounting period must
be given before relief under this section.
(6)
But relief under this section must be given before relief is given against profits
for the deficit period—
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(a)
under section 392A(1) or 393A(1) of ICTA (losses set against profits for
the same or earlier accounting periods), or
(b)
as a result of a claim under section 459(1)(b) (carry-back) in respect of a
deficit for a later period.

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Part 5 — Loan Relationships
Chapter 16 — Non-trading deficits
217

(7)
No relief may be given under this section against ring fence profits of the
company within the meaning of Chapter 5 of Part 12 of ICTA (petroleum
extraction activities).
462
Claim to carry back deficit to earlier accounting periods
(1)
This section applies if a claim is made under 459(1)(b) for the whole or part of
5
the deficit to be carried back to be set off against profits for accounting periods
before the deficit period.
(2)
The claim has effect only if it relates to an amount equal to the lesser of—
(a)
so much of the deficit as is not an amount in relation to which a claim
is made under section 459(1)(a), and
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(b)
the total amount of the profits available for relief under this section.
(3)
Section 463 explains which profits are so available.
(4)
The amount to which the claim relates is set off against those profits by treating
them as reduced accordingly.
(5)
If those profits are profits for more than one accounting period, the relief is
15
applied by setting off the amount to which the claim relates against profits for
a later period before setting off any remainder of that amount against profits
for an earlier period.
463
Profits available for relief under section 462
(1)
The profits available for relief under section 462 are the amounts which (apart
20
from the relief) would be charged under this Part as profits for accounting
periods ending within the permitted period, after giving every prior relief.
(2)
In this section—
“the permitted period” means the period of 12 months immediately
before the deficit period, and
25
“prior relief” means a relief which subsection (5) provides must be given
before relief under section 462.
(3)
If an accounting period ending within the permitted period begins before it,
only a part of the amount which (apart from the relief) would be chargeable
under this Part for that period, after giving every prior relief, is available for
30
relief under section 462.
(4)
That part is so much as is proportionate to the part of the accounting period in
the permitted period.
(5)
The reliefs which must be given before relief under section 462 are—
(a)
relief as a result of a claim under section 459(1)(a) (claim for deficit to
35
be set off against total profits for the deficit period),
(b)
relief in respect of a loss or deficit incurred or treated as incurred in an
accounting period before the deficit period,
(c)
relief under section 338 of ICTA (charges on income deducted from
total profits) in respect of payments made wholly and exclusively for
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the purposes of a trade,
(d)
relief under section 393A of ICTA (losses set off against profits of the
same, or an earlier, accounting period), and

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Part 5 — Loan Relationships
Chapter 17 — Priority rules
218

(e)
if the company is a company with investment business for the purposes
of Part 16 (companies with investment business)—
(i)
any deduction in respect of management expenses under
section 1219 (expenses of management of a company’s
investment business),
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(ii)
relief under section 338 of ICTA in respect of payments made
wholly and exclusively for the purposes of its business, and
(iii)
any allowance under Part 2 of CAA 2001 (plant and machinery
allowances).
Chapter 17
10
Priority rules
464
Priority of this Part for corporation tax purposes
(1)
The amounts which are brought into account in accordance with this Part in
respect of any matter are the only amounts which may be brought into account
for corporation tax purposes in respect of it.
15
(2)
Subsection (1) is subject to any express provision to the contrary.
(3)
For further provisions relating to the rule in this section, see in particular—
(a)
section 445(2) (disapplication of section 444 where Schedule 28AA to
ICTA applies),
(b)
section 465 (exclusion of distributions except in tax avoidance cases),
20
(c)
section 700 (relationship of Part 7 to this Part),
(d)
section 400(9A) of ICTA (write-off of government investment),
(e)
section 494 of ICTA (petroleum extraction activities: loan
relationships),
(f)
section 795(4) of ICTA (computation of income subject to foreign tax),
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(g)
section 811(3) of ICTA (deduction for foreign tax where no credit
available),
(h)
section 83(2ZA) of FA 1989 (life assurance: receipts to be taken into
account), and
(i)
paragraph 3(5) of Schedule 12 to F(No.2)A 1992 (banks etc in
30
compulsory liquidation: taxation of certain receipts).
(4)
See also the following sections (under which amounts prevented from being
brought into account under this Part are treated as if they were so brought into
account for the purposes of this section)—
(a)
section 327(5) and (6) (disallowance of imported losses etc), and
35
(b)
section 441(4) and (5) (loan relationships for unallowable purposes).
465
Exclusion of distributions except in tax avoidance cases
(1)
Credits or debits relating to any amount falling, when paid, to be treated as a
distribution must not be brought into account for the purposes of this Part,
except, in the case of credits, so far as they are avoidance arrangement amounts
40
(see subsection (4)).

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Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
219

(2)
Nothing in section 464(1) prevents amounts that are not brought into account
because of subsection (1) from being brought into account for corporation tax
purposes otherwise than under this Part.
(3)
But see the following provisions (under which some amounts are prevented
from being distributions for corporation tax purposes and accordingly are
5
within this Part)—
(a)
section 523(2)(b) (shares subject to outstanding third party obligations
and non-qualifying shares),
(b)
section 209(6A) of ICTA (relevant alternative finance return under
alternative finance arrangements),
10
(c)
section 477A(3)(b) of ICTA (building society dividends etc), and
(d)
section 486(1) and (9) of ICTA (dividends, bonuses and other sums
payable to shareholders in registered industrial and provident societies
and UK agricultural or fishing co-operatives).
(4)
For the purposes of this section an amount is an avoidance arrangement
15
amount if it arises in consequence of, or otherwise in connection with,
arrangements of which the purpose, or one of the main purposes, is securing a
tax advantage for any person.
(5)
In this section “arrangements” includes any scheme, agreement or
understanding, transaction or series of transactions.
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Chapter 18
General and supplementary provisions
Connections between persons
466
Companies connected for an accounting period
(1)
This section and sections 467 to 471 have effect for the purposes of any
25
provisions of this Part which apply this section (but this does not affect the
application of section 1316(1) (meaning of “connected” persons) for other
purposes of this Part).
(2)
There is a connection between a company (“A”) and another company (“B”) for
an accounting period if there is a time in the period when—
30
(a)
A controls B,
(b)
B controls A, or
(c)
A and B are both controlled by the same person.
(3)
But A and B are not taken to be controlled by the same person just because they
have been under the control of—
35
(a)
the Crown,
(b)
a Minister of the Crown,
(c)
a government department,
(d)
a Northern Ireland department,
(e)
a foreign sovereign power, or
40
(f)
an international organisation.
(4)
Subsection (2) is subject to section 468 (connection between companies to be
ignored in some circumstances).

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Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
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(5)
For a case where companies are treated as if one controlled the other, see
section 383(5) (inter-partnership lending between connected company
partners etc).
(6)
Section 472 (meaning of “control”) applies for the purposes of this section.
467
Connections where partnerships are involved
5
(1)
This section applies for the purposes of the provisions which apply section 466
(“the relevant provisions”) if—
(a)
a trade or business is carried on by a firm, and
(b)
the firm stands in the position of a creditor or debtor as respects a
money debt.
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(2)
The questions about connections specified in subsection (3) must be
determined as if each of the partners in the firm separately (rather than the
firm), stood in that position as respects the debt to the extent of that partner’s
appropriate share.
(3)
The questions are—
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(a)
whether for the purposes of this Part there is a connection for the
purposes of the relevant provisions between any two companies for an
accounting period in the case of a loan relationship, and
(b)
how far any amount is treated under this Part in any particular way as
a result of there being, or not being, such a connection.
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(4)
For the purposes of subsection (2), a partner’s “appropriate share” is the same
share as the share in which any profit or loss for the accounting period in
question would be apportioned to the partner in accordance with the firm’s
profit-sharing arrangements.
(5)
The references in subsections (2) to (4) to partners do not include references to
25
the general partner of a limited partnership which is a collective investment
scheme.
468
Connection between companies to be ignored in some circumstances
(1)
In the case of a company (“the creditor”) which has a creditor relationship, any
connection for an accounting period between the creditor and another
30
company which stands in the position of a debtor as respects the debt is
ignored for the purposes of the relevant provisions if the creditor is a party to
the relationship in circumstances where—
(a)
conditions A to E in section 469 (creditors who are financial traders) are
met, or
35
(b)
conditions A, B and C in section 471 (creditors who are insurance
companies carrying on basic life assurance and general annuity
business) are met.
(2)
In subsection (1) “the relevant provisions” means any provisions of this Part
which apply section 466.
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(3)
Subsection (4) applies if for any accounting period subsection (1) has effect in
the case of a creditor relationship of a company.

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Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
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(4)
Subsection (1) does not apply for determining whether there is a connection
between the two companies for the purposes of so much of any of the relevant
provisions or of section 467 as relates to the corresponding debtor relationship.
(5)
For the purposes of this section and section 469, a company is treated as
standing in the position of a debtor if it indirectly stands in that position by
5
reference to a series of loan relationships or relevant money debts.
(6)
In subsection (5) “relevant money debt” means a money debt which would be
a loan relationship if a company directly stood in the position of creditor or
debtor.
469
Creditors who are financial traders
10
(1)
This section sets out the conditions referred to in section 468(1)(a).
(2)
Condition A is that the creditor disposes of or acquires assets representing
creditor relationships in the course of carrying on any activities forming an
integral part of a trade carried on by it in the accounting period.
(3)
Condition B is that the asset representing the creditor relationship was
15
acquired in the course of those activities.
(4)
Condition C is that that asset—
(a)
is listed on a recognised stock exchange at the end of that period, or
(b)
is a security the redemption of which must occur within 12 months of
its issue.
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(5)
Condition D is that there is a time in that period when assets of the same kind
as the asset representing the creditor relationship are beneficially owned by
persons other than the creditor.
(6)
Condition E is that in that period there is not more than 3 months in total
during which the equivalent of at least 30% of the assets of that kind is
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beneficially owned by connected companies.
(7)
Section 470 supplements this section.
470
Section 469: supplementary provisions
(1)
For the purposes of conditions D and E in section 469 assets are taken to be of
the same kind if they—
30
(a)
are treated as being of the same kind by the practice of any recognised
stock exchange, or
(b)
would be so treated if dealt with on such an exchange.
(2)
For the purposes of condition E in section 469 an asset is beneficially owned by
a connected company if there is a connection between—
35
(a)
the company which beneficially owns it, and
(b)
a company which stands in the position of a debtor as respects the
money debt by reference to which any loan relationship represented by
that asset exists.
(3)
Whether there is a connection for the purposes of subsection (2) at any time in
40
an accounting period (“the relevant time”) is determined in accordance with
section 466(2), (3), (5) and (6)—
(a)
applying the conditions in section 466(2) only at the relevant time, and

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Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
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(b)
ignoring section 468.
471
Creditors who are insurance companies carrying on BLAGAB
(1)
This section sets out the conditions referred to section 468(1)(b)).
(2)
Condition A is that the creditor is an insurance company carrying on basic life
assurance and general annuity business in the accounting period.
5
(3)
Condition B is that the asset representing the creditor relationship is linked for
that period to that business.
(4)
Condition C is that conditions C, D and E in section 469 are met in relation to
that asset.
472
Meaning of “control”
10
(1)
This section has effect for the purposes of any provisions of this Part which
apply this section (but this does not affect the application of section 1316(2)
(meaning of “control”) for other purposes of this Part).
(2)
For those purposes “control”, in relation to a company, means the power of a
person to secure that the affairs of the company are conducted in accordance
15
with the person’s wishes—
(a)
by means of the holding of shares or the possession of voting power in
or in relation to the company or any other company, or
(b)
as a result of any powers conferred by the articles of association or other
document regulating the company or any other company.
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(3)
Trading shares held by a company and any voting power or other powers
arising from such shares are ignored for the purposes of this section.
(4)
For the purposes of subsection (3) shares held by a company are trading shares
if—
(a)
a profit on a sale of the shares would be treated as a trading receipt of a
25
trade carried on by the company, and
(b)
the shares are not assets of an insurance company’s long-term
insurance fund.
(5)
Subsection (6) applies in the case of any firm to which section 1259 (calculation
of firm’s profits and losses) applies.
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(6)
For any accounting period of the firm, property, rights or powers held or
exercisable for its purposes are treated for the purposes of this section as if—
(a)
the property, rights or powers had been apportioned between, and
were held or exercisable by, the partners severally, and
(b)
the apportionment had been in the same shares as those in which the
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profit or loss of the period would be apportioned between the partners
in accordance with the firm’s profit-sharing arrangements.
(7)
In subsection (6) the references to partners do not include references to the
general partner of a limited partnership which is a collective investment
scheme.
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