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 6 — Supplementary
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1253
Contributions to local enterprise organisations or urban regeneration
companies: disqualifying benefits
(1)
This section applies if—
(a)
a deduction has been made under section 1219 by virtue of section 1244
(contributions to local enterprise agencies or urban regeneration
5
companies: expenses of management), and
(b)
the contributor or a connected person receives a disqualifying benefit
that is in any way attributable to the contribution.
(2)
The contributor is to be treated as receiving, when the benefit is received, an
amount—
10
(a)
which is equal to the value of the benefit (so far as not brought into
account in determining the amount of the deduction), and
(b)
to which the charge to corporation tax on income applies.
(3)
In this section “disqualifying benefit” has the same meaning as in section 1244.
1254
Repayments under FISMA 2000
15
(1)
If as a result of a repayment provision a payment—
(a)
is made to a company with an investment business, and
(b)
is not brought into account as a receipt of a trade under section 104, or
as a receipt of a property business as a result of section 210,

the payment is to be treated as an amount to which the charge to corporation
20
tax on income applies.
(2)
In this section “repayment provision” means—
(a)
any provision made by virtue of section 136(7) or 214(1)(e) of FISMA
2000, or
(b)
any provision made by scheme rules for fees to be refunded in specified
25
circumstances.
(3)
In this section “scheme rules” means the rules referred to in paragraph 14(1) of
Schedule 17 to FISMA 2000.
Chapter 6
Supplementary
30
1255
Meaning of some accounting terms
(1)
Any reference in sections 1225 to 1227 to expenses of management being
debited in accounts is to those expenses being brought into account as a debit
in—
(a)
the company’s profit and loss account or income statement, or
35
(b)
a statement of total recognised gains and losses, statement of changes
in equity or other statement of items brought into account in calculating
the company’s profits and losses for accounting purposes.
(2)
In section 1229(1) “brought into account” means brought into account in—
(a)
the company’s profit and loss account or income statement, or
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Part 17 — Partnerships
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(b)
a statement of total recognised gains and losses, statement of changes
in equity or other statement of items brought into account in calculating
the company’s profits and losses for accounting purposes.
(3)
In this Part—
“credit” means an amount which for accounting purposes increases or
5
creates a profit, or reduces a loss, for a period of account, and
“debit” means an amount which for accounting purposes reduces a profit,
or increases or creates a loss, for a period of account.
Part 17
Partnerships
10
Introduction
1256
Overview of Part
(1)
This Part contains some special rules about partnerships.
(2)
For restrictions that in some circumstances affect relief for losses, and certain
other reliefs, for a company that is a member of a partnership see section 116 of
15
ICTA (arrangements for transferring relief).
1257
General provisions
(1)
In this Act persons carrying on a trade in partnership are referred to
collectively as a “firm”.
(2)
This section and sections 1259 to 1266 are expressed to apply to trades, but
20
unless otherwise indicated (whether expressly or by implication) also apply to
businesses that are not trades.
(3)
In those sections as applied by subsection (2)—
(a)
references to a trade are references to a business, and
(b)
references to the profits of a trade are references to the income arising
25
from a business.
1258
Assessment of partnerships
Unless otherwise indicated (whether expressly or by implication), a firm is not
to be regarded for corporation tax purposes as an entity separate and distinct
from the partners.
30
Calculation of partners’ shares
1259
Calculation of firm’s profits and losses
(1)
This section applies if a firm carries on a trade and any partner in the firm (“the
partner”) is a company within the charge to corporation tax.
(2)
For any accounting period of the firm, the amount of the profits of the trade
35
(“the amount of the firm’s profits”) is taken to be the amount determined, in
relation to the partner, in accordance with subsection (3) or (4).

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(3)
If the partner is UK resident—
(a)
determine what would be the amount of the profits of the trade
chargeable to corporation tax for that period if a UK resident company
carried on the trade, and
(b)
take that to be the amount of the firm’s profits.
5
(4)
If the partner is non-UK resident—
(a)
determine what would be the amount of the profits of the trade
chargeable to corporation tax for that period if a non-UK resident
company carried on the trade, and
(b)
take that to be the amount of the firm’s profits.
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(5)
The amount of any losses of the trade for an accounting period of the firm is
calculated, in relation to the partner, in the same way as the amount of any
profits.
(6)
This section is subject to section 1260.
1260
Section 1259: supplementary
15
(1)
In determining under section 1259 the profits of a trade for any accounting
period no account is taken of any losses for another accounting period.
(2)
Profits and losses are determined under section 1259 on the basis that no
interest paid or other distribution made by the firm is a distribution for the
purposes of section 1305(1) (which provides that no deduction is allowed for
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dividends or other distributions).
1261
Accounting periods of firms
(1)
In this Part references to an accounting period of a firm which carries on a trade
are to a period that would be an accounting period of the firm if the firm were
a company.
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(2)
For the purposes of subsection (1) it is to be assumed that the company by
reference to which the accounting periods of the firm are determined (“the
deemed company”)—
(a)
is UK resident,
(b)
acquires a source of income on the occurrence of an event that falls
30
within subsection (3),
(c)
ceases to trade on the occurrence of an event that falls within subsection
(4), and
(d)
ceases to trade, and immediately afterwards starts to trade, on the
occurrence of a change in the persons carrying on the trade falling
35
within subsection (5).

Paragraph (a) is subject to subsection (6).
(3)
An event falls within this subsection if—
(a)
immediately before the event no company carries on the trade in
partnership, and
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(b)
immediately after the event the trade is carried on in partnership by
persons who include a company.
(4)
An event falls within this subsection if—

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(a)
immediately before the event the trade is carried on in partnership by
persons who include a company, and
(b)
immediately after the event no company carries on the trade in
partnership.
(5)
A change in the persons carrying on the trade falls within this subsection if—
5
(a)
both immediately before and immediately after the change the trade is
carried on in partnership by persons who include a company, but
(b)
no company which carried on the trade immediately before the change
continues to carry it on after the change.
(6)
For the purpose of determining, in relation to a partner, the accounting periods
10
by reference to which profits are to be calculated under section 1259, the
residence of the deemed company at any time is to be taken to be the same as
the partner’s.
1262
Allocation of firm’s profits or losses between partners
(1)
For any accounting period of a firm a partner’s share of a profit or loss of a
15
trade carried on by the firm is determined for corporation tax purposes in
accordance with the firm’s profit-sharing arrangements during that period.

This is subject to sections 1263 and 1264.
(2)
If a firm pays charges on income, a partner’s share of the charges is determined
for corporation tax purposes in accordance with the firm’s profit-sharing
20
arrangements during the accounting period of the firm in which the charges
are paid.
(3)
For the purposes of subsection (2) 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
25
disposal is made.
(4)
In this section and sections 1263 and 1264 “profit-sharing arrangements”
means the rights of the partners to share in the profits of the trade and the
liabilities of the partners to share in the losses of the trade.
1263
Profit-making period in which some partners have losses
30
(1)
For any accounting period of a firm, if—
(a)
the calculation under section 1259 in relation to a partner (“company
A”) produces a profit, and
(b)
company A’s share determined under section 1262 is a loss,

company A’s share of the profit of the trade is neither a profit nor a loss.
35
(2)
For any accounting period of a firm, if—
(a)
the calculation under section 1259 in relation to company A produces a
profit,
(b)
company A’s share determined under section 1262 is a profit, and
(c)
the comparable amount for at least one other partner is a loss,
40

company A’s share of the profit of the trade is the amount produced by the
formula in subsection (3).

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(3)
The formula is—

where—
FP is the amount of the firm’s profit calculated under section 1259 in
relation to company A,
PP is the amount determined under section 1262 to be company A’s profit,
5
and
TCP is the total of the comparable amounts attributed to other partners
under Step 3 in subsection (4) that are profits.
(4)
The comparable amount for each partner other than company A is determined
as follows.
10
Step 1

Take the firm’s profit calculated under section 1259 in relation to company A.
Step 2

Determine in accordance with the firm’s profit-sharing arrangements during
the relevant accounting period the shares of that profit that are attributable to
15
each of the other partners.
Step 3

Each such share is the comparable amount for the partner to whom it is
attributed.
(5)
In subsections (2) to (4) “partner” means any partner in the firm, whether or not
20
within the charge to corporation tax.
1264
Loss-making period in which some partners have profits
(1)
For any accounting period of a firm, if—
(a)
the calculation under section 1259 in relation to a partner (“company
A”) produces a loss, and
25
(b)
company A’s share determined under section 1262 is a profit,

company A’s share of the loss of the trade is neither a profit nor a loss.
(2)
For any accounting period of a firm, if—
(a)
the calculation under section 1259 in relation to company A produces a
loss,
30
(b)
company A’s share determined under section 1262 is a loss, and
(c)
the comparable amount for at least one other partner is a profit,

company A’s share of the loss of the trade is the amount produced by the
formula in subsection (3).

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(3)
The formula is—

where—
FL is the amount of the firm’s loss calculated under section 1259 in
relation to company A,
PL is the amount determined under section 1262 to be company A’s loss,
5
and
TCL is the total of the comparable amounts attributed to other partners
under Step 3 in subsection (4) that are losses.
(4)
The comparable amount for each partner other than company A is determined
as follows.
10
Step 1

Take the firm’s loss calculated under section 1259 in relation to company A.
Step 2

Determine in accordance with the firm’s profit-sharing arrangements during
the relevant accounting period the shares of that loss that are attributable to
15
each of the other partners.
Step 3

Each such share is the comparable amount for the partner to whom it is
attributed.
(5)
In subsections (2) to (4) “partner” means any partner in the firm, whether or not
20
within the charge to corporation tax.
1265
Apportionment of profit share between partner’s accounting periods
(1)
This section applies if—
(a)
a share of a profit or loss calculated for an accounting period of a firm
is allocated to a company under any of sections 1262 to 1264, and
25
(b)
the accounting period of the firm does not coincide with an accounting
period of the company.
(2)
The share of the profit or loss must be apportioned between the accounting
periods of the company in which the accounting period of the firm falls.
Firms with a foreign element
30
1266
Resident partners and double taxation agreements
(1)
This section applies if—
(a)
a UK resident company (“the partner”) is a member of a firm which—
(i)
resides outside the United Kingdom, or
(ii)
carries on a trade the control and management of which is
35
outside the United Kingdom, and

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(b)
by virtue of any arrangements having effect under section 788 of ICTA
(“the arrangements”) any of the income of the firm is relieved from
corporation tax in the United Kingdom.
(2)
The partner is liable to corporation tax on the partner’s share of the income of
the firm despite the arrangements.
5
(3)
If the partner’s share of the income of the firm consists of or includes a share in
a qualifying distribution made by a UK resident company, the partner (and not
the firm) is, despite the arrangements, entitled to the share of the tax credit
which corresponds to the partner’s share of the distribution.
(4)
For the purposes of this section the members of a firm include any company
10
which is entitled to a share of the income of the firm.
Adjustment on change of basis
1267
Various rules for trades and property businesses
(1)
In the case of a trade or property business carried on by a firm, the amount of
any adjustment under—
15
(a)
Chapter 14 of Part 3 (adjustment on change of basis: trades), or
(b)
section 262 (giving effect to positive and negative adjustments:
property businesses),

is calculated as if the firm were a UK resident company.
(2)
Each partner’s share of any amount brought into account as a receipt under
20
Chapter 14 of Part 3, or section 262, is determined according to the firm’s
profit-sharing arrangements for the 12 months ending immediately before the
date on which the new basis was adopted.
(3)
A change in the persons carrying on a trade from one period of account to the
next does not prevent Chapter 14 of Part 3 applying in relation to the trade so
25
long as a company carrying on the trade in partnership immediately before the
change continues to carry it on in partnership after the change.
(4)
A change in the persons carrying on a property business from one period of
account to the next does not prevent section 262 applying (by virtue of section
261) in relation to the property business so long as a company carrying on the
30
property business in partnership immediately before the change continues to
carry it on in partnership after the change.
(5)
Sections 1259 to 1264 do not apply so far as subsection (1) or (2) applies.
1268
Election for spreading under Chapter 14 of Part 3
(1)
A change in the persons carrying on a trade does not constitute the permanent
35
cessation of the trade for the purposes of section 186 (mark to market: election
for spreading) so long as a company carrying on the trade in partnership
immediately before the change continues to carry it on in partnership after the
change.
(2)
Any election under section 186 must be made jointly by all the persons who
40
have been members of the firm in the period of 12 months ending immediately
before the date on which the new basis was adopted.