Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
24

64
Limit on deductions if tenant entitled to mineral extraction allowance
(1)
This section applies if the tenant under the taxed lease has become entitled, in
respect of expenditure on the acquisition of an interest in the land subject to the
taxed lease, to an allowance for an accounting period under Part 5 of CAA 2001
(mineral extraction allowances) in respect of expenditure falling within section
5
403 of that Act (qualifying expenditure on acquiring a mineral asset).
(2)
If the allowance is in respect of the whole of the expenditure, no deduction is
allowed for expenses under section 63 for a qualifying day falling within that
or a later accounting period.
(3)
If the allowance is in respect of only part of the expenditure (“the allowable
10
part”) the amount of the deduction for expenses under section 63 for a
qualifying day falling within that or a later accounting period is calculated by
multiplying the amount that, apart from this section, would be the amount of
the deduction for the qualifying day by—

where—
15
WE is the whole of the expenditure, and
AP is the allowable part of the expenditure.
65
Tenants dealing with land as property employed for purposes of trade
(1)
This section applies if the tenant under the taxed lease—
(a)
does not occupy the land subject to the taxed lease, or a part of it, but
20
(b)
deals with its interest in the land, or the part of it, as property employed
for the purposes of carrying on a trade.
(2)
Section 63 applies as if the land or the part of it were occupied by the tenant for
the purposes of the trade.
(3)
But the tenant is not treated as incurring an expense in respect of the land for a
25
qualifying day as a result of this section so far as the tenant is treated as
incurring an expense under section 232 (tenants under taxed leases treated as
incurring expenses) in respect of the land for the day in calculating the profits
of the tenant’s property business.
(4)
This section is subject to sections 66 and 67 (restrictions on section 63 expenses
30
where the additional calculation rule is relevant).
66
Restrictions on section 63 expenses: lease premium receipts
(1)
This section applies if a lease has been granted out of the taxed lease and—
(a)
in calculating the amount of a receipt of a property business under
Chapter 4 of Part 4 (profits of property businesses: lease premiums etc)
35
in respect of the lease, there is a reduction under section 228 (the
additional calculation rule) by reference to the taxed receipt, or
(b)
in calculating the amount of a receipt of a property business under
Chapter 4 of Part 3 of ITTOIA 2005 (profits of property businesses: lease
premiums etc) in respect of the lease, there is a reduction under section
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Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
25

288 of that Act (the additional calculation rule) by reference to the taxed
receipt.

In this section and section 67 the receipt that is so reduced is referred to as a
“lease premium receipt”.
(2)
Subsections (3) to (5) provide for the application of section 63 as a result of
5
section 65 for a qualifying day that falls within the receipt period of the lease
premium receipt.
(3)
The tenant under the taxed lease is treated as incurring an expense under
section 63 as a result of section 65 for the qualifying day by reference to the
taxed receipt only if the daily amount of the taxed receipt exceeds the daily
10
reduction of the lease premium receipt.
(4)
If the condition in subsection (3) is met, the amount of that expense for the
qualifying day by reference to the taxed receipt is equal to that excess.
(5)
If the qualifying day falls within the receipt period of more than one lease
premium receipt, the reference in subsection (3) to the daily reduction of the
15
lease premium receipt is to be read as a reference to the total of the daily
reductions of each of the lease premium receipts whose receipt period includes
the qualifying day.
(6)
In this section—
the “daily amount” of the taxed receipt is given by the formula—
20
where—
A is the unreduced amount of the taxed receipt, and
TRP is the number of days in the receipt period of the taxed receipt, and

the “daily reduction” of a lease premium receipt is given by the formula—
25
where—
AR is the reduction under section 228 below or section 288 of ITTOIA
2005 by reference to the taxed receipt, and
RRP is the number of days in the receipt period of the lease premium
receipt.
30
(7)
In this section references to a reduction under section 228 below or section 288
of ITTOIA 2005 by reference to a taxed receipt have the same meaning as in
Chapter 4 of Part 4 (see section 230(6)).
(8)
Section 67 explains how this section operates if the lease does not extend to the
whole of the premises subject to the taxed lease.
35
67
Restrictions on section 63 expenses: lease of part of premises
(1)
This section applies if—
(a)
section 66 applies, and

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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(b)
the lease granted out of the taxed lease does not extend to the whole of
the premises subject to the taxed lease.
(2)
Subsections (3) to (5) apply for a qualifying day that falls within the receipt
period of the lease premium receipt.
(3)
Sections 63, 65 and 66 apply separately in relation to the part of the premises
5
subject to the lease and to the remainder of the premises.
(4)
If—
(a)
more than one lease that does not extend to the whole of the premises
subject to the taxed lease has been granted out of the taxed lease, and
(b)
the qualifying day falls within the receipt period of two or more lease
10
premium receipts that relate to different leases,

sections 63, 65 and 66 apply separately in relation to each part of the premises
subject to a lease to which such a lease premium receipt relates and to the
remainder of the premises.
(5)
Where sections 63, 65 and 66 apply in relation to a part of the premises, A
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becomes the amount calculated by multiplying the unreduced amount of the
taxed receipt by the fraction of the premises constituted by the part.
(6)
This fraction is calculated on a just and reasonable basis.
Renewals
68
Replacement and alteration of trade tools
20
(1)
This section applies if—
(a)
expenses are incurred on replacing or altering any tool used for the
purposes of a trade, and
(b)
a deduction for the expenses would not otherwise be allowable in
calculating the profits of the trade because (and only because) they are
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items of a capital nature.
(2)
In calculating the profits of the trade, a deduction is allowed for the expenses.
(3)
In this section “tool” means any implement, utensil or article.
Payments for restrictive undertakings
69
Payments for restrictive undertakings
30
(1)
In calculating the profits of a trade, a deduction is allowed for a payment—
(a)
which is treated as earnings of an employee by virtue of section 225 of
ITEPA 2003 (payments for restrictive undertakings), and
(b)
which is made, or treated as made for the purposes of section 226 of that
Act (valuable consideration given for restrictive undertakings), by the
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company carrying on the trade.
(2)
The deduction is allowed for the accounting period in which the payment—
(a)
is made, or
(b)
is treated as made for the purposes of section 226 of ITEPA 2003.

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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Seconded employees
70
Employees seconded to charities and educational establishments
(1)
This section applies if a company carrying on a trade (“the employer”) makes
the services of a person employed for the purposes of the trade available to—
(a)
a charity, or
5
(b)
an educational establishment,

on a basis that is stated and intended to be temporary.
(2)
In calculating the profits of the trade, a deduction is allowed for expenses of the
employer that are attributable to the employee’s employment during the
period of the secondment.
10
(3)
In this section—
“educational establishment” means—
(a)
in England and Wales, any of the bodies mentioned in section
71(1),
(b)
in Scotland, any of the bodies mentioned in section 71(2),
15
(c)
in Northern Ireland, any of the bodies mentioned in section
71(3), and
(d)
any other educational body which is for the time being
approved for the purposes of this section by the Secretary of
State or, in Northern Ireland, the Department of Education, and
20
“the period of the secondment” means the period for which the
employee’s services are made available to the charity or educational
establishment.
71
Educational establishments
(1)
A body in England and Wales is an educational establishment for the purposes
25
of section 70 if it is—
(a)
a local education authority,
(b)
an educational institution maintained or otherwise supported by a
local education authority,
(c)
an independent school within the meaning of the Education Act 1996
30
(c. 56) registered under section 161 of the Education Act 2002 (c. 32), or
(d)
an institution within the further education sector, or the higher
education sector, within the meaning of the Further and Higher
Education Act 1992 (c. 13).
(2)
A body in Scotland is an educational establishment for the purposes of section
35
70 if it is—
(a)
an education authority within the meaning of the Education (Scotland)
Act 1980 (c. 44),
(b)
an educational establishment within the meaning of the Education
(Scotland) Act 1980 managed by an education authority within the
40
meaning of that Act,
(c)
a public or grant-aided school within the meaning of the Education
(Scotland) Act 1980,
(d)
an independent school within the meaning of the Education (Scotland)
Act 1980,
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Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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(e)
a central institution within the meaning of the Education (Scotland) Act
1980 (c. 44),
(f)
an institution within the higher education sector within the meaning of
section 56(2) of the Further and Higher Education (Scotland) Act 1992
(c. 37), or
5
(g)
a college of further education within the meaning of section 36(1) of the
Further and Higher Education (Scotland) Act 1992.
(3)
A body in Northern Ireland is an educational establishment for the purposes
of section 70 if it is—
(a)
an education and library board within the meaning of the Education
10
and Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)),
(b)
a college of education, a grant-aided school or an independent school
within the meaning of the Education and Libraries (Northern Ireland)
Order 1986, or
(c)
an institution of further education within the meaning of the Further
15
Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)).
Contributions to agents’ expenses
72
Payroll deduction schemes: contributions to agents’ expenses
(1)
This section applies if—
(a)
a company carrying on a trade (“the employer”) is liable to make
20
payments to an individual,
(b)
income tax falls to be deducted from those payments as a result of
PAYE regulations, and
(c)
the employer withholds sums from those payments in accordance with
an approved scheme and pays the sums to an approved agent.
25
(2)
In calculating the profits of the employer’s trade, a deduction is allowed for
expenses incurred by the employer in making a payment to the agent for
expenses which—
(a)
have been incurred, or
(b)
are to be incurred,
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by the agent in connection with the agent’s functions under the scheme.
(3)
In this section “approved agent” and “approved scheme” have the same
meaning as in section 714 of ITEPA 2003.
Counselling and retraining expenses
73
Counselling and other outplacement services
35
(1)
In calculating the profits of a trade, a deduction is allowed for counselling
expenses if—
(a)
the company carrying on the trade (“the employer”) incurs the
expenses,
(b)
the expenses are incurred in relation to a person (“the employee”) who
40
holds or has held an office or employment under the employer for the
purposes of the trade, and
(c)
the relevant conditions are met.

Corporation Tax Bill
Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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(2)
In this section “counselling expenses” means expenses incurred—
(a)
in the provision of services to the employee in connection with the
cessation of the office or employment,
(b)
in the payment or reimbursement of fees for such provision, or
(c)
in the payment or reimbursement of travelling expenses in connection
5
with such provision.
(3)
In this section “the relevant conditions” means—
(a)
conditions A to D for the purposes of section 310 of ITEPA 2003
(employment income exemptions: counselling and other outplacement
services), and
10
(b)
in the case of travel expenses, condition E for those purposes.
74
Retraining courses
(1)
In calculating the profits of a trade, a deduction is allowed for retraining course
expenses if—
(a)
the company carrying on the trade (“the employer”) incurs the
15
expenses,
(b)
they are incurred in relation to a person (“the employee”) who holds or
has held an office or employment under the employer for the purposes
of the trade, and
(c)
the relevant conditions are met.
20
(2)
In this section—
“retraining course expenses” means expenses incurred in the payment or
reimbursement of retraining course expenses within the meaning given
by section 311(2) of ITEPA 2003, and
“the relevant conditions” means—
25
(a)
the conditions in subsections (3) and (4) of section 311 of ITEPA
2003 (employment income exemptions: retraining courses), and
(b)
in the case of travel expenses, the conditions in subsection (5) of
that section.
75
Retraining courses: recovery of tax
30
(1)
This section applies if—
(a)
an employer’s liability to corporation tax for an accounting period is
determined on the assumption that a deduction for expenditure is
allowed under section 74, and
(b)
the deduction would not otherwise have been allowed.
35
(2)
If, subsequently—
(a)
the condition in section 311(4)(a) of ITEPA 2003 is not met because of
the employee’s failure to begin the course within the period of one year
after ceasing to be employed, or
(b)
the condition in section 311(4)(b) of ITEPA 2003 is not met because of
40
the employee’s continued employment or re-employment,

an assessment of an amount or further amount of corporation tax due as a
result of the condition not being met may be made under paragraph 41 of
Schedule 18 to FA 1998.

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Part 3 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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(3)
Such an assessment must be made before the end of the period of 6 years
immediately following the end of the accounting period in which the failure to
meet the condition occurred.
(4)
If subsection (2) applies, the employer must give an officer of Revenue and
Customs a notice containing particulars of—
5
(a)
the employee’s failure to begin the course,
(b)
the employee’s continued employment, or
(c)
the employee’s re-employment,

within 60 days of coming to know of it.
(5)
If an officer of Revenue and Customs has reason to believe that the employer
10
has failed to give such a notice, the officer may by notice require the employer
to provide such information as the officer may reasonably require for the
purposes of this section about—
(a)
the failure to begin the course,
(b)
the continued employment, or
15
(c)
the re-employment.
(6)
A notice under subsection (5) may specify a time (not less than 60 days) within
which the required information must be provided.
Redundancy payments etc
76
Redundancy payments and approved contractual payments
20
(1)
Sections 77 to 79 apply if—
(a)
a company (“the employer”) makes a redundancy payment or an
approved contractual payment to another person (“the employee”),
and
(b)
the payment is in respect of the employee’s employment wholly in the
25
employer’s trade or partly in the employer’s trade and partly in one or
more other capacities.
(2)
For the purposes of this section and sections 77 to 81 “redundancy payment”
means a redundancy payment payable under—
(a)
Part 11 of the Employment Rights Act 1996 (c. 18), or
30
(b)
Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I.
1996/1919 (N.I. 16)).
(3)
For the purposes of this section and those sections—
“contractual payment” means a payment which, under an agreement, an
employer is liable to make to an employee on the termination of the
35
employee’s contract of employment, and
a contractual payment is “approved” if, in respect of that agreement, an
order is in force under—
(a)
section 157 of the Employment Rights Act 1996, or
(b)
Article 192 of the Employment Rights (Northern Ireland) Order
40
1996.
77
Payments in respect of employment wholly in employer’s trade
(1)
This section applies if—