Corporation Tax Bill

House of Commons

Session 2008 - 09
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Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
50

119
Section 118: sale for reasons outside farmer’s control
(1)
This section applies for the purposes of section 114, as applied by section
118(2).
(2)
If—
(a)
the farmer was compelled to sell the old herd for reasons wholly
5
outside the farmer’s control, and
(b)
an animal (“the new animal”) that is treated as a result of section 118(2)
as if it replaced an animal sold (“the old animal”) is of worse quality
than the old animal,

the amount brought into account as a receipt under section 114 must not
10
exceed the equivalent amount for the new animal.
(3)
If, immediately before it was added to the herd, the new animal was part of the
farmer’s trading stock, “the equivalent amount for the new animal” means—
(a)
in the case of an animal bred by the farmer, the cost of breeding the
animal and rearing it to maturity, and
15
(b)
in any other case, the sum of the initial cost of acquiring the animal and
the cost (if any) incurred by the farmer in rearing the animal to
maturity.
(4)
Otherwise “the equivalent amount for the new animal” means the cost of the
new animal.
20
120
Replacement of part sold begun within 5 years of sale
(1)
This section applies for the purpose of calculating the profits of the trade if—
(a)
either all at once or over a period not longer than 12 months, a
substantial part of the herd is sold, and
(b)
the farmer acquires or starts to acquire animals to replace the part sold
25
within 5 years of the sale.
(2)
Section 114 (replacement of animals in herd) applies so far as the animals
included in the part sold are replaced (but see section 121 (sale for reasons
outside farmer’s control)).
(3)
The sale proceeds of an animal included in the part sold are not brought into
30
account as a receipt until the animal that replaces it in the herd is acquired.
(4)
If some of the animals included in the part sold are not replaced—
(a)
a profit arising from their sale is not brought into account as a receipt,
and
(b)
no deduction is allowed for a loss arising from their sale.
35
121
Section 120: sale for reasons outside farmer’s control
(1)
This section applies for the purposes of section 114, as applied by section
120(2).
(2)
If—
(a)
the farmer was compelled to sell the part of the herd for reasons wholly
40
outside the farmer’s control, and
(b)
an animal (“the new animal”) that replaces an animal sold (“the old
animal”) is of worse quality than the old animal,

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
51


the amount brought into account as a receipt under section 114 must not
exceed the equivalent amount for the new animal.
(3)
If, immediately before it was added to the herd, the new animal was part of the
farmer’s trading stock, “the equivalent amount for the new animal” means—
(a)
in the case of an animal bred by the farmer, the cost of breeding the
5
animal and rearing it to maturity, and
(b)
in any other case, the sum of the initial cost of acquiring the animal and
the cost (if any) incurred by the farmer in rearing the animal to
maturity.
(4)
Otherwise “the equivalent amount for the new animal” means the cost of the
10
new animal.
Elections
122
Herd basis elections
(1)
A herd basis election must specify the class of production herd to which it
relates.
15
(2)
A herd basis election must be made—
(a)
not later than two years after the end of the first relevant accounting
period (if the farmer is not a firm), or
(b)
on or before the first anniversary of the normal self-assessment filing
date for the tax year in which the first relevant period of account ends
20
(if the farmer is a firm).
(3)
For this purpose—
(a)
“the first relevant accounting period” means the first accounting period
in which the farmer making the election keeps a production herd of the
class to which the election relates, and
25
(b)
“the first relevant period of account” means the first period of account
in which the firm making the election keeps a production herd of the
class to which the election relates (but see subsection (8)).
(4)
A herd basis election cannot relate to more than one class of production herd,
but separate elections may be made for different classes.
30
(5)
A herd basis election is irrevocable.
(6)
A herd basis election has effect in relation to all production herds of the class
to which it relates, including any which the farmer—
(a)
has ceased to keep before making the election, or
(b)
first keeps after making the election.
35
(7)
A herd basis election has effect—
(a)
for every accounting period in which the farmer carries on the trade
and keeps a production herd of the class to which the election relates (if
the farmer is not a firm), or
(b)
for every period of account in which the farmer carries on the trade and
40
keeps a production herd of the class to which the election relates (if the
farmer is a firm).
(8)
If the farmer is a firm and there is a change in the persons who are partners in
the firm—

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
52

(a)
any herd basis election made by the old firm ceases to have effect, and
(b)
in relation to the new firm, “the first relevant period of account” means
the first period of account in which the new firm keeps a production
herd of the class to which the election relates.
123
Five year gap in which no production herd kept
5
(1)
This section applies if a farmer—
(a)
keeps a production herd of a particular class, and
(b)
ceases altogether to keep herds of that class for a period of at least 5
years.
(2)
If the farmer keeps a production herd of that class after the end of that period—
10
(a)
the accounting period or (as the case may be) period of account in
which the farmer starts to keep the herd is treated as the first
accounting period or period of account in which the farmer keeps a
production herd of that class, and
(b)
any herd basis election previously made by the farmer in relation to
15
production herds of that class ceases to have effect.
124
Slaughter under disease control order
(1)
This section applies if—
(a)
the whole or a substantial part of a production herd kept by a farmer is
slaughtered under a disease control order, and
20
(b)
the circumstances of the slaughter are such that compensation is
payable in respect of the animals slaughtered.
(2)
The farmer may make a herd basis election in respect of the class of production
herd involved in the slaughter as if the accounting period or (as the case may
be) period of account —
25
(a)
in which the compensation falls to be brought into account in
calculating the profits of the trade, or
(b)
in which it would (but for the election) fall to be so brought into
account,

were the first accounting period or period of account in which the farmer keeps
30
a production herd of that class.
(3)
An election made as a result of this section has effect for that accounting period
or period of account and every subsequent accounting period or period of
account in which the farmer—
(a)
carries on the trade, and
35
(b)
keeps a production herd of the class to which the election relates.
(4)
In this section “disease control order” means an order made under the law
relating to the diseases of animals by—
(a)
central government,
(b)
a devolved authority,
40
(c)
a local authority, or
(d)
another public authority.

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
53

Preventing abuse of the herd basis rules
125
Preventing abuse of the herd basis rules
(1)
This section applies if—
(a)
a person carrying on a trade (the “transferor”) transfers the whole or
part of a production herd to another person (the “transferee”),
5
(b)
the transfer is not by way of sale or is by way of sale but for a price other
than that which the animals sold would have fetched if sold in the open
market, and
(c)
the control condition or herd basis benefit condition is met.
(2)
The control condition is met if—
10
(a)
the transferor is a body of persons over which the transferee has
control,
(b)
the transferee is a body of persons over which the transferor has
control, or
(c)
both the transferor and transferee are bodies of persons and another
15
person has control over both of them.
(3)
For this purpose “body of persons” includes a firm.
(4)
The herd basis benefit condition is met if—
(a)
the transferor or transferee (or both) might (but for this section) have
been expected to obtain a herd basis benefit as a result of the transfer or
20
the transactions of which the transfer is one, and
(b)
the herd basis benefit is the sole or main benefit, or one of the main
benefits, that the person in question might have been expected to
obtain.
(5)
For this purpose a “herd basis benefit” is a benefit resulting from—
25
(a)
the obtaining of a right to make a herd basis election,
(b)
the herd basis rules applying or not applying, or
(c)
the herd basis rules having a greater or lesser effect.
(6)
For the purpose of calculating the profits of—
(a)
the trade carried on by the transferor, and
30
(b)
any trade carried on by the transferee,

the animals transferred are treated as having been sold at the price which they
would have fetched if sold in the open market.
Supplementary
126
Information if election made
35
(1)
An officer of Revenue and Customs may by notice require the person carrying
on a trade in relation to which a herd basis election is made to deliver a return
of such information about—
(a)
the animals kept for the purposes of the trade, and
(b)
the products of those animals,
40

as may be required by the notice.

Corporation Tax Bill
Part 3 — Trading income
Chapter 9 — Trade profits: other specific trades
54

(2)
The return must be delivered to an officer of Revenue and Customs within the
time specified in the notice.
127
Further assessment etc if herd basis rules apply
(1)
If the herd basis rules apply in calculating the profits of an accounting period
after an assessment for that period has become final and conclusive, any
5
assessment or repayment of tax that is necessary to give effect to the rules must
be made.
(2)
But repayment of tax is due only if a claim for it is made.
Chapter 9
Trade profits: other specific trades
10
Dealers in securities etc
128
Taxation of amounts taken to reserves
(1)
This section applies for the purpose of calculating the profits of a company’s
trade if—
(a)
the company carries on a banking business, an insurance business or a
15
business consisting wholly or partly of dealing in securities, and
(b)
a profit on the sale of securities held by the company would be brought
into account in calculating the trading profits of that business.
(2)
Profits and losses from the securities that in accordance with generally
accepted accounting practice are—
20
(a)
calculated by reference to the fair value of the securities, and
(b)
recognised in the company’s statement of recognised gains and losses
or statement of changes in equity,

are brought into account in calculating the profits of the trade.
(3)
But subsection (2) does not apply—
25
(a)
to an amount so far as deriving from or otherwise relating to an amount
brought into account under that subsection in an earlier period of
account, or
(b)
to an amount recognised for accounting purposes by way of correction
of a fundamental error.
30
(4)
In this section “securities” includes—
(a)
shares,
(b)
rights of unit holders in unit trust schemes to which TCGA 1992 applies
as a result of section 99 of TCGA 1992, and
(c)
in the case of a company with no share capital, interests in the company
35
possessed by members of the company,

but does not include a loan relationship (within the meaning of Part 5).
129
Conversion etc of securities held as circulating capital
(1)
This section applies for the purpose of calculating the profits of a company’s
trade if—
40

Corporation Tax Bill
Part 3 — Trading income
Chapter 9 — Trade profits: other specific trades
55

(a)
the company carries on a banking business, an insurance business or a
business consisting wholly or partly of dealing in securities,
(b)
a transaction falling within subsection (2) occurs in relation to securities
(“the original holding”), and
(c)
a profit on the sale of the securities would be brought into account in
5
calculating the trading profits of that business.
(2)
A transaction falls within this subsection if—
(a)
it results in a new holding being treated as the same as the original
holding as a result of sections 126 to 136 of TCGA 1992 (roll-over relief
in cases of conversion etc), or
10
(b)
it is treated, as a result of section 134 of TCGA 1992 (compensation
stock), as an exchange for a new holding which does not involve a
disposal of the original holding.
(3)
This section does not apply to securities in respect of which unrealised profits
or losses, calculated by reference to the fair value of the securities at the end of
15
the period of account, are taken into account in the period of account in which
the transaction occurs.
(4)
The transaction is treated as not involving a disposal of the original holding
and the new holding is treated as the same asset as the original holding.
(5)
But if, under the transaction, the company carrying on the trade—
20
(a)
receives consideration in addition to the new holding, or
(b)
becomes entitled to receive such consideration,

subsection (4) applies as if the references to the original holding were to the
proportion of the original holding given by the following fraction.
(6)
The fraction is—
25

where—
NH is the market value of the new holding at the time of the transaction,
and
C is the market value of the consideration at the time of the transaction or
(if the consideration is cash) the amount of the consideration.
30
(7)
In determining whether subsection (2)(a) applies as a result of section 135 or
136 of TCGA 1992, the reference to capital gains tax in section 137(1) of TCGA
1992 is to be read as a reference to income tax.
(8)
In this section “securities” includes—
(a)
shares,
35
(b)
rights of unit holders in unit trust schemes to which TCGA 1992 applies
as a result of section 99 of TCGA 1992, and
(c)
in the case of a company with no share capital, interests in the company
possessed by members of the company.
130
Traders receiving distributions etc
40
(1)
A receipt of a trade which is—
(a)
a UK distribution, or

Corporation Tax Bill
Part 3 — Trading income
Chapter 9 — Trade profits: other specific trades
56

(b)
a payment representative of a UK distribution,

is brought into account in calculating the profits of the trade.
(2)
Subsection (1) is an exception to section 1285(2) (under which UK company
distributions are not generally taken into account in calculating income).
(3)
Subsection (4) applies if—
5
(a)
a payment made by a company carrying on a trade is representative of
a UK distribution, and
(b)
but for section 1305(1) (company’s profits to be computed without any
deduction for distributions), a deduction would be allowed for the
payment in calculating the profits of the trade.
10
(4)
A deduction is allowed for the payment in calculating the profits of the trade
(despite section 1305(1)).
(5)
Subsections (1) to (4) do not apply to receipts, or payments, in the course of
insurance business or any category of insurance business.
(6)
In this section “UK distribution” means a distribution made by a UK resident
15
company.
Building societies
131
Incidental costs of issuing qualifying shares
(1)
In calculating the profits of a trade carried on by a building society, a deduction
is allowed for incidental costs of obtaining finance by means of issuing shares
20
in the society if—
(a)
the shares are qualifying shares for the purposes of section 117(4) of
TCGA 1992, and
(b)
the condition in subsection (2) is met.
(2)
The condition is that the amount of any—
25
(a)
dividend or other distribution, or
(b)
interest,

payable in respect of the shares is deductible in calculating, for corporation tax
purposes, the profits of the society’s trade.
(3)
But a deduction is not allowed by virtue of subsection (1) so far as the costs fall
30
to be brought into account as debits for the purposes of Part 5 (loan
relationships).
(4)
“Incidental costs of obtaining finance” means expenses—
(a)
which are incurred on fees, commissions, advertising, printing and
other incidental matters, and
35
(b)
which are incurred wholly and exclusively for the purpose of obtaining
the finance, providing security for it or repaying it.
(5)
Expenses incurred wholly and exclusively for the purpose of—
(a)
obtaining finance, or
(b)
providing security for it,
40

are incidental costs of obtaining the finance even if it is not in fact obtained.
(6)
But the following are not incidental costs of obtaining finance—