Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 2 — Management expenses
565

(2)
For the purposes of this section expenses of management are expenses of
management of a company’s investment business so far as—
(a)
they are in respect of so much of the company’s investment business as
consists of making investments, and
(b)
the investments concerned are not held for an unallowable purpose
5
during the accounting period to which the expenses are referable.
(3)
But—
(a)
no deduction is allowed under this section for expenses of a capital
nature, and
(b)
no deduction is allowed under this section for expenses so far as they
10
are otherwise deductible from total profits, or in calculating any
component of total profits.

There is an exception to paragraph (a) in section 1221(1).
(4)
Any apportionment needed for the purposes of subsection (2) must be made
on a just and reasonable basis.
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(5)
The amount deductible under subsection (1) may be reduced under section
1222.
1220
Meaning of “unallowable purpose”
(1)
For the purposes of section 1219, investments are held for an unallowable
purpose during an accounting period so far as they are held during the
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period—
(a)
for a purpose that is not a business or other commercial purpose of the
company, or
(b)
for the purpose of activities in respect of which the company is not
within the charge to corporation tax.
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(2)
For the purposes of subsection (1)(a) investments are not held for a business or
other commercial purpose if they are held directly or indirectly in consequence
of, or otherwise in connection with, any arrangements for securing a tax
advantage.
(3)
In subsection (2) “arrangements for securing a tax advantage” means
30
arrangements the main purpose, or one of the main purposes, of which is to
secure—
(a)
the allowance of a deduction (or increased deduction) under section
1219, or
(b)
any other tax advantage.
35
(4)
Any apportionment needed for the purposes of subsection (1) must be made
on a just and reasonable basis.
(5)
In this section—
(a)
“arrangements” includes any agreement, understanding, scheme,
transaction or series of transactions (whether or not legally
40
enforceable), and
(b)
“tax advantage” has the meaning given by section 840ZA of ICTA.

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 2 — Management expenses
566

1221
Amounts treated as expenses of management
(1)
Section 1219(3)(a) (no deduction allowed for expenses of a capital nature) does
not apply to amounts that are treated as expenses of management under—
(a)
Chapter 3 (amounts treated as expenses of management),
(b)
section 985(3) (share incentive plans: how relief is given),
5
(c)
section 999(4) (deduction for costs of setting up SAYE option scheme or
CSOP scheme),
(d)
section 1000(3) (deduction for costs of setting up employee share
ownership trust),
(e)
section 1013(3) (employee share acquisitions: relief if shares acquired
10
by employee or other person),
(f)
section 1021(3) (employee share acquisitions: relief if employee or other
person acquires option to obtain shares),
(g)
paragraph 4(1A) of Schedule 23A to ICTA (manufactured dividends
and interest), or
15
(h)
section 196 of FA 2004 (employers’ contributions to pension schemes),

or any other provision of the Corporation Tax Acts.
(2)
Amounts that are treated as expenses of management under any provision
listed in subsection (3) are deductible under section 1219 as if they were
expenses of management of the company’s investment business.
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(3)
The provisions are—
(a)
section 999(4) (deduction for costs of setting up SAYE option scheme or
CSOP scheme),
(b)
section 1000(3) (deduction for costs of setting up employee share
ownership trust),
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(c)
section 1233 (excess capital allowances),
(d)
section 1235 (employees seconded to charities and educational
establishments),
(e)
section 1236 (payroll deduction schemes),
(f)
section 1237 (counselling and other outplacement services),
30
(g)
section 1238 (retraining courses),
(h)
section 1239 (redundancy payments and approved contractual
payments),
(i)
section 1242 (additional payments),
(j)
section 1245 (payments to Export Credits Guarantee Department).
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1222
Income from a source not charged to tax
(1)
This section applies to a UK resident company if—
(a)
income arises to the company from a source not charged to tax,
(b)
the company has the source in the course of carrying on its investment
business, and
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(c)
the income is not franked investment income.
(2)
This section applies to a non-UK resident company if—
(a)
income arises to the company from a source not charged to tax,
(b)
the company has the source in the course of carrying on its investment
business through a permanent establishment in the United Kingdom,
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Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 2 — Management expenses
567

(c)
the source is property or rights used by, or held by or for, that
establishment, and
(d)
the income is not franked investment income.
(3)
The amount of that income is deducted from the amount (if any) that would
otherwise be deductible under section 1219 for the accounting period in which
5
the income arises.
1223
Carrying forward expenses of management and other amounts
(1)
This section applies if, in an accounting period of a company with investment
business, any amount falling within subsection (2) cannot be deducted in full
because the profits from which the amount is deductible are insufficient.
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(2)
The amounts are—
(a)
expenses of management deductible under section 1219,
(b)
charges on income paid in the accounting period, so far as they are paid
for the purposes of the company’s investment business, and
(c)
amounts brought forward to the period under this section.
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(3)
The excess is treated for the purposes of section 1219 as expenses of
management deductible for the next accounting period.
(4)
For the purposes of this section a charge on income which arises from a
disposal such as is mentioned in section 587B(1) of ICTA (gifts of shares,
securities and real property to charities etc) is taken to be paid when the
20
disposal is made.
(5)
See also section 392A(3) of ICTA (which is about unused Schedule A losses).
Accounting period to which expenses are referable
1224
Accounting period to which expenses are referable
(1)
Sections 1225 to 1227 explain which is the accounting period to which expenses
25
of management are referable.
(2)
But those sections do not affect any provision—
(a)
in Chapter 3, or
(b)
elsewhere in the Corporation Tax Acts,

which provides for amounts to be treated as expenses of management referable
30
to an accounting period.
1225
Accounts conforming with GAAP
(1)
If—
(a)
expenses of management are debited in accounts drawn up by a
company for a period of account,
35
(b)
the treatment of those expenses in those accounts is in accordance with
generally accepted accounting practice, and
(c)
the period of account coincides with an accounting period,

the expenses of management are referable to that accounting period.
(2)
If—
40

Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 2 — Management expenses
568

(a)
expenses of management are debited in accounts drawn up by a
company for a period of account, and
(b)
the treatment of those expenses in those accounts is in accordance with
generally accepted accounting practice, but
(c)
the period of account does not coincide with an accounting period,
5

the expenses of management are apportioned between any accounting periods
that fall within the period of account (and are referable to accounting periods
so far as they are apportioned to them).
(3)
An apportionment under subsection (2) must be made in accordance with
section 1311 (time basis) or, if it appears that that method would work
10
unreasonably or unjustly, on a just and reasonable basis.
1226
Accounts not conforming with GAAP
(1)
Subsection (2) applies if—
(a)
a company incurs expenses of management, and
(b)
the company draws up accounts for a particular period of account, and
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(c)
the expenses of management would have been debited in those
accounts if they had been treated in those accounts in accordance with
generally accepted accounting practice, but
(d)
they are not debited in those accounts in accordance with generally
accepted accounting practice.
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(2)
The expenses of management are referable to the accounting period to which
they would have been referable under section 1225(1) or (2) if they had been
debited in those accounts in accordance with generally accepted accounting
practice.
1227
Accounts not drawn up
25
(1)
If—
(a)
a company does not draw up accounts, or does not draw them up for a
particular period, and
(b)
as a result, expenses of management are not referable to an accounting
period under section 1225 or 1226,
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take the following steps to determine the accounting period to which they are
referable.
(2)
The steps are—
Step 1

Assume that for each accounting period of the company that does not coincide
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with, or fall within, any period of account there is a period of account that
coincides with it.
Step 2

If it would be in accordance with UK generally accepted accounting practice to
debit the expenses of management, or any part of them, in accounts drawn up
40
by the company for that deemed period of account, assume that they are so
debited.
Step 3

Making those assumptions, apply section 1225(1).