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Corporation Tax Bill


Corporation Tax Bill
Part 16 — Companies with investment business
Chapter 6 — Supplementary

580

 

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

40

 
 

Corporation Tax Bill
Part 17 — Partnerships

581

 

(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).

 
 

Corporation Tax Bill
Part 17 — Partnerships

582

 

(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.

10

(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

20

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.

25

(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

40

(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—

 
 

Corporation Tax Bill
Part 17 — Partnerships

583

 

(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).

 
 

Corporation Tax Bill
Part 17 — Partnerships

584

 

(3)   

The formula is—equation: cross[times[char[F],char[P]],over[times[char[P],char[P]],plus[times[char[P],char[

P]],times[char[T],char[C],char[P]]]]]

   

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).

 
 

Corporation Tax Bill
Part 17 — Partnerships

585

 

(3)   

The formula is—equation: cross[times[char[F],char[L]],over[times[char[P],char[L]],plus[times[char[P],char[

L]],times[char[T],char[C],char[L]]]]]

   

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

 
 

Corporation Tax Bill
Part 17 — Partnerships

586

 

(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.

 
 

 
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