Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 5 — Distributions from unauthorised unit trusts
458

following matters are to be determined in accordance with income tax law and
practice as if accounting periods were years of assessment—
(a)
the amounts which are or are not to be taken into account as a person’s
income from the holding of an office,
(b)
the amounts which are or are not to be taken into account in calculating
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a person’s income from the holding of an office,
(c)
the amounts which are or are not to be charged to tax as a person’s
income from the holding of an office, and
(d)
the time when any such amount is to be treated as arising.
(3)
Subsection (2) is subject to the provisions of the Corporation Tax Acts.
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(4)
Accordingly—
(a)
for corporation tax purposes income from the holding of an office is to
be calculated under Part 2 of ITEPA 2003 (employment income) and the
provisions applicable to that Part, and
(b)
any provision of the Income Tax Acts (other than ITTOIA 2005 or ITA
15
2007) which has the effect of conferring an exemption from income tax
in relation to income from the holding of an office has the
corresponding effect for corporation tax purposes, unless otherwise
provided.
(5)
For the purposes of this section “income tax law” means, in relation to an
20
accounting period of a company, the law applying to the charge on individuals
of income tax for the tax year in which the period ends, but does not include—
(a)
such of the enactments of the Income Tax Acts as make special
provision for individuals in relation to matters referred to in subsection
(2), or
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(b)
ITA 2007.
(6)
In this section “office” includes in particular any position which has an
existence independent of the person who holds it and may be filled by
successive holders.
970
Rule restricting deductions for bad debts
30
(1)
This section applies only to debts to which Part 5 (loan relationships) does not
apply.
(2)
In calculating the income of an office held by a company, no deduction is
allowed in respect of a debt owed to the company, except—
(a)
by way of impairment loss, or
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(b)
so far as the debt is released wholly and exclusively for the purposes of
the office as part of a statutory insolvency arrangement.
(3)
In this section “debt” includes an obligation or liability that falls to be
discharged otherwise than by the payment of money.
Chapter 5
40
Distributions from unauthorised unit trusts
971
Overview of Chapter
(1)
This Chapter—

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 5 — Distributions from unauthorised unit trusts
459

(a)
applies the charge to corporation tax on income to amounts which unit
holders in unauthorised unit trust schemes are treated in certain
circumstances as receiving from the scheme, and
(b)
provides for the calculation of the amount treated as received.
(2)
The following are also relevant to the tax treatment of such amounts in the
5
hands of the unit holder—
(a)
section 848 of ITA 2007 (under which a sum representing income tax
treated as deducted under section 941 of that Act (deemed deduction
by trustees of income tax from deemed payments to unit holders) is
treated as income tax paid by the unit holder), and
10
(b)
section 7(2) of ICTA (set off of income tax deducted at source against
corporation tax).
972
Charge to tax under this Chapter
(1)
The charge to corporation tax on income applies to income treated as received
by a unit holder from a unit trust scheme to which this section applies.
15
(2)
For the purposes of this Chapter a unit holder is treated as receiving such
income if an amount is shown in the scheme’s accounts as income available for
payment to unit holders or for investment.
(3)
This section applies to a unit trust scheme if—
(a)
the scheme is an unauthorised unit trust, and
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(b)
the trustees of the scheme are UK resident.
(4)
“Unauthorised unit trust” has the meaning given by section 989 of ITA 2007.
973
Amount of income treated as received
(1)
The amount of the income which a unit holder is treated as receiving under
section 972(2) is its gross amount and is calculated by reference to distribution
25
periods.
(2)
To calculate the gross amount of the income treated as received by a unit
holder for a distribution period—
Step 1

Calculate the unit holder’s share of the unit trust scheme’s available income by
30
applying the formula—

where—
SAI is the total amount shown in the scheme’s accounts as income
available for payment to unit holders or for investment,
R is the unit holder’s rights, and
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TR is all the unit holders’ rights.
Step 2

Gross up the unit holder’s share of the scheme’s available income by reference
to the basic rate for the tax year in which the income from the scheme is treated
as received.
40

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 6 — Sale of foreign dividend coupons
460

(3)
The income from a scheme for a distribution period is treated as received on
the date or latest date provided by the terms of the scheme for any distribution
for the period, unless that date is more than 12 months after it ends.
(4)
If—
(a)
that date is more than 12 months after the distribution period ends, or
5
(b)
no date is so provided,

the income for the period is treated as received on the last day of the period.
(5)
In this section “distribution period” means a period over which income from
the investments subject to the trusts is aggregated to ascertain the amount
available for distribution to unit holders.
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This is subject to subsections (6) and (7).
(6)
If the scheme does not provide for distribution periods, its distribution periods
are taken to be successive periods of 12 months, the first of which began with
the day on which the scheme took effect.
(7)
If the scheme provides for a distribution period of more than 12 months, each
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successive period of 12 months within that period and any remaining period
of less than 12 months are taken to be distribution periods.
Chapter 6
Sale of foreign dividend coupons
974
Charge to tax under this Chapter
20
(1)
The charge to corporation tax on income applies to income treated under
subsection (2) as arising from foreign holdings.
(2)
Income is treated as arising from such holdings in the following cases.
(3)
The first case is where a bank’s office in the United Kingdom—
(a)
pays over the proceeds of a sale or other realisation of dividend
25
coupons in respect of the holdings which has been effected by the bank,
or
(b)
carries such proceeds into an account.
(4)
The second case is where proceeds of sale arise from a sale of dividend coupons
in respect of the holdings by a person who is not a bank or a dealer to a person
30
dealing in coupons in the United Kingdom.
(5)
The amount of the income that is treated as arising is equal to the proceeds of
the sale or realisation.
(6)
In this section “bank” has the meaning given by section 840A of ICTA.
975
Meaning of “foreign holdings” etc
35
(1)
In this Chapter “foreign holdings” means shares outside the United Kingdom
that are issued by or on behalf of a non-UK resident body of persons.
(2)
In section 974 “dividend coupons” means coupons for dividends payable in
respect of foreign holdings.
(3)
In this Chapter “coupons” includes—
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Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 7 — Annual payments not otherwise charged
461

(a)
warrants, and
(b)
bills of exchange that purport to be drawn or made in payment of
dividends payable in respect of foreign holdings.
Chapter 7
Annual payments not otherwise charged
5
976
Overview of Chapter
(1)
This Chapter—
(a)
applies the charge to corporation tax on income to annual payments not
otherwise charged to corporation tax (see section 977), and
(b)
provides for an exemption (see section 978).
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(2)
The following are also relevant to the tax treatment of annual payments within
this Chapter—
(a)
section 687A(3) of ICTA (discretionary payments by trustees to
companies),
(b)
section 494 of ITA 2007 (grossing up of discretionary payment and
15
payment of income tax),
(c)
section 848 of ITA 2007 (under which a sum representing income tax
deducted under Chapter 6 or 7 of Part 15 of that Act (deduction from
annual payments, patent royalties and other payments connected with
intellectual property) from an annual payment within this Chapter is
20
treated as income tax paid by the recipient), and
(d)
Chapter 8 of Part 15 of ITA 2007 (special provision in relation to
royalties).
977
Charge to tax on annual payments not otherwise charged
(1)
The charge to corporation tax on income applies to annual payments that are
25
not otherwise within the application of that charge under the Corporation Tax
Acts.
(2)
Subsection (1) does not apply to annual payments in respect of which no
liability to corporation tax arises because of an exemption.
(3)
The frequency with which payments are made is ignored in determining
30
whether they are annual payments for the purposes of this Chapter.
978
Exemption for payments by persons liable to pool betting duty
(1)
No liability to corporation tax arises under this Chapter in respect of a payment
which meets conditions A and B.
(2)
Condition A is that the payment is made, in consequence of a reduction in pool
35
betting duty, by a person liable to that duty.
(3)
Condition B is that the payment is in order to meet (directly or indirectly)
capital expenditure incurred in improving the safety or comfort of spectators
at a ground to be used for the purposes of playing association football.

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 8 — Income not otherwise charged
462

Chapter 8
Income not otherwise charged
979
Charge to tax on income not otherwise charged
(1)
The charge to corporation tax on income applies to income that is not otherwise
within the application of that charge under the Corporation Tax Acts.
5
(2)
Subsection (1) does not apply to—
(a)
annual payments,
(b)
income in respect of which no liability to corporation tax arises because
of an exemption, or
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(c)
deemed income.
980
Exemption for commercial occupation of woodlands in UK
(1)
No liability to corporation tax arises under this Chapter in respect of income
arising from the commercial occupation of woodlands in the United Kingdom.
(2)
For this purpose the occupation of woodlands is commercial if the woodlands
15
are managed—
(a)
on a commercial basis, and
(b)
with a view to the realisation of profits.
981
Exemption for gains on financial futures
(1)
No liability to corporation tax arises under this Chapter in respect of a gain
20
arising to a company in the course of dealing in—
(a)
financial futures,
(b)
traded options, or
(c)
financial options.
(2)
The reference in subsection (1) to a gain arising in the course of dealing in
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financial futures includes a gain regarded as so arising under section 143(3) of
TCGA 1992 (gains arising from transactions otherwise than in the course of
dealing on a recognised futures exchange, involving authorised persons).
(3)
In this section—
“financial futures” means financial futures which are for the time being
30
dealt in on a recognised futures exchange,
“financial option” has the meaning given by section 144(8)(c) of TCGA
1992,
“recognised futures exchange” means the London International Financial
Futures Exchange and any other futures exchange which is for the time
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being designated for the purposes of that Act by order made by the
Commissioners for Her Majesty’s Revenue and Customs under section
288(6) of that Act, and
“traded option” has the meaning given by section 144(8)(b) of that Act.

Corporation Tax Bill
Part 11 — Relief for particular employee share acquisition schemes
Chapter 1 — Share incentive plans
463

Chapter 9
Priority rules
982
Provisions which must be given priority over this Part
(1)
Any income, so far as it falls within—
(a)
Chapter 2, 5 or 6, and
5
(b)
Chapter 2 of Part 3,

is dealt with under Part 3.
(2)
Any income, so far as it falls within—
(a)
Chapter 2, 5 or 6, and
(b)
Chapter 3 of Part 4 so far as the Chapter relates to a UK property
10
business,

is dealt with under Part 4.
Part 11
Relief for particular employee share acquisition schemes
Chapter 1
15
Share incentive plans
Introductory
983
Overview of Chapter
(1)
This Chapter is about deductions relating to approved share incentive plans.
(2)
Section 984 relates to the interpretation of this Chapter.
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(3)
Sections 985 and 986 set out—
(a)
how effect is given to deductions allowed under this Chapter, and
(b)
how amounts treated as received under this Chapter are dealt with.
(4)
Sections 987 and 988 deal with deductions allowed for the costs of setting up
plans and their running expenses.
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(5)
Sections 989 to 993 deal with deductions allowed for payments used to acquire
shares for plan trusts.
(6)
Sections 994 to 997 deal with other deductions relating to free shares, matching
shares, partnership shares and dividend shares.
(7)
Section 998 deals with the withdrawal of deductions if approval for a plan is
30
withdrawn.
984
Chapter to form part of SIP code etc
(1)
This Chapter forms part of the SIP code (see section 488 of ITEPA 2003).
(2)
Therefore expressions used in this Chapter and contained in the index at the
end of Schedule 2 to ITEPA 2003 have the meaning indicated by that index.
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Corporation Tax Bill
Part 11 — Relief for particular employee share acquisition schemes
Chapter 1 — Share incentive plans
464

(3)
Subsection (4) applies if any of a participant’s plan shares are forfeited.
(4)
For the purposes of this Chapter the shares are treated as acquired by the
trustees—
(a)
when the forfeiture occurs, and
(b)
for no consideration.
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Deductions and receipts: general
985
References to a deduction being allowed to a company
(1)
References in this Chapter to a deduction being allowed to a company are to be
read in accordance with this section (and references to a deduction being made
are to be read in that light).
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(2)
If a deduction is allowed to a company, the deduction is made in calculating
for corporation tax purposes the profits of a trade or property business carried
on by the company.

This is subject to subsections (3) and (4).
(3)
If the company is a company with investment business (as defined in section
15
1218), the amount of the deduction is treated as expenses of management of the
company.

But this subsection does not apply if the company’s business is a property
business (in which case subsection (2) applies instead).
(4)
If the company is a company in relation to which section 76 of ICTA (expenses
20
of insurance companies) applies, the amount of the deduction is treated as
expenses payable falling to be brought into account at Step 1 in subsection (7)
of that section.
(5)
So far as this Chapter provides for a deduction to be allowed, it has effect
despite section 53 (no deduction for items of a capital nature in calculating
25
trading profits), including that section as applied by section 210 to the
calculation of profits of a property business.
986
Treatment of receipts under Chapter
(1)
This section applies if a company is treated under this Chapter as receiving an
amount.
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(2)
If the company is carrying on a trade or property business in respect of which
it is within the charge to corporation tax, the amount is treated as a receipt of
that trade or business.
(3)
If the company has permanently ceased to carry on a trade or property
business in respect of which it was within the charge to corporation tax, the
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amount is treated as a post-cessation receipt of that trade or business (see
Chapter 15 of Part 3).
(4)
Otherwise, the amount is treated as a receipt chargeable under the charge to
corporation tax on income.