Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 15 — Post-cessation receipts
86

193
Debts released after cessation
(1)
This section applies if—
(a)
in calculating the profits of a trade of any period for corporation or
income tax purposes, a deduction is allowed for the expense giving rise
to a debt owed by the person who carried on the trade,
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(b)
the person has permanently ceased to carry on the trade at or after the
end of that period,
(c)
after the cessation, all or part of the debt is released, and
(d)
the release is not part of a statutory insolvency arrangement.
(2)
The amount released is treated as a post-cessation receipt.
10
194
Transfer of rights if transferee does not carry on trade
(1)
This section applies if—
(a)
a company (“the transferor”) permanently ceases to carry on a trade,
(b)
the transferor transfers to another person (“the transferee”) for value
the right to receive sums arising from the carrying on of the trade, and
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(c)
the transferee does not subsequently carry on the trade.
(2)
The transferor is treated as receiving a post-cessation receipt.
(3)
The amount of the receipt is—
(a)
the amount or value of the consideration for the transfer, if the transfer
is at arm’s length, or
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(b)
the value of the rights transferred as between parties at arm’s length, if
the transfer is not at arm’s length.
(4)
Any sums mentioned in subsection (1)(b) which are received after the cessation
of the trade are not post-cessation receipts.
(5)
This section is subject to section 195 (transfer of trading stock).
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Sums that are not post-cessation receipts
195
Transfer of trading stock
(1)
When a company permanently ceases to carry on a trade, a sum realised by the
transfer of trading stock is not a post-cessation receipt if a valuation of the stock
is brought into account in accordance with Chapter 11 (valuation of stock).
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(2)
In this section “trading stock” has the meaning given by section 163.
Deductions
196
Allowable deductions
(1)
In calculating the amount on which tax is charged under this Chapter,
deductions are allowed in accordance with—
35
(a)
this section, and
(b)
section 197,

from the amount which would otherwise be chargeable to tax under this
Chapter.

Corporation Tax Bill
Part 3 — Trading income
Chapter 15 — Post-cessation receipts
87

(2)
A deduction is allowed for a loss, expense or debit which, if the person carrying
on the trade had not permanently ceased to do so—
(a)
would have been deducted in calculating the profits of the trade for
corporation or income tax purposes, or
(b)
would have been deducted from or set off against the profits of the
5
trade for corporation or income tax purposes,

but no deduction is allowed if the loss, expense or debit arises directly or
indirectly from the cessation itself.
(3)
No deduction for an amount is allowed under this section if the amount has
been allowed under any other provision of the Tax Acts.
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197
Further rules about allowable deductions
(1)
An amount may not be deducted more than once under section 196.
(2)
A deduction under that section of a loss must be made from post-cessation
receipts charged for an earlier accounting period in preference to those charged
for a later accounting period.
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(3)
But this does not authorise the deduction of a loss from post-cessation receipts
charged for an accounting period before the accounting period in which the
loss is made.
Election to carry back
198
Election to carry back
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(1)
This section applies if a post-cessation receipt is received by a company in an
accounting period beginning not later than 6 years after the company
permanently ceased to carry on the trade.
(2)
The company may elect that the tax chargeable in respect of the receipt is to be
charged as if the receipt had been received on the date of the cessation (but see
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sections 199 and 200).
(3)
The election must be made before the end of the period of two years beginning
immediately after the end of the accounting period in which the receipt is
received.
199
Deductions already made are not displaced
30
(1)
This section applies if—
(a)
a company which has permanently ceased to carry on a trade makes an
election under section 198 in respect of a post-cessation receipt (“the
carried back receipt”), and
(b)
a deduction in respect of a loss has already been made under section
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196 for an accounting period later than that in which the cessation
occurred.
(2)
Nothing in section 196 (read with section 197(2)) requires or permits a
deduction in respect of that loss to be allowed, as a result of the election, for the
accounting period in which the cessation occurred instead of the accounting
40
period for which the deduction has already been made.

Corporation Tax Bill
Part 4 — Property income
Chapter 1 — Introduction
88

(3)
But if the deduction was made for the accounting period in which the carried
back receipt was received, subsection (2) applies to the loss only so far as it has
been deducted from post-cessation receipts other than the carried back receipt.
200
Election given effect in accounting period in which receipt is received
(1)
If a company makes an election under section 198, the additional tax is payable
5
for the accounting period in which the receipt is received (and not for the
accounting period in which the cessation occurred).
(2)
In subsection (1) “the additional tax” means an amount of tax equal to the
difference between—
(a)
the amount of tax that is chargeable on the company for the accounting
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period in which the cessation occurred (“amount A”), and
(b)
the amount of tax that would have been chargeable on the company for
that period if the election had not been made (“amount B”).
(3)
If—
(a)
the company has made, under section 198, one or more other elections
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for receipts to be treated as received in the period in which the cessation
occurred, and
(b)
effect has been given to those elections,

the effect of those elections is taken into account in determining amounts A and
B.
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Chapter 16
Priority rules
201
Provisions which must be given priority over this Part
(1)
Any receipt or other credit item, so far as it falls within—
(a)
Chapter 2 of this Part (receipts of trade), and
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(b)
Chapter 3 of Part 4 so far as it relates to a UK property business,

is dealt with under Chapter 3 of Part 4.
(2)
Any receipt or other credit item, so far as it falls within—
(a)
this Part, and
(b)
Chapter 4 of Part 10 (income from holding an office),
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is dealt with under Chapter 4 of Part 10.
Part 4
Property income
Chapter 1
Introduction
35
202
Overview of Part
(1)
Chapter 2 contains definitions relevant to the application of the Part.

Corporation Tax Bill
Part 4 — Property income
Chapter 2 — Property businesses
89

(2)
Chapter 3 applies the charge to corporation tax on income to the profits of a UK
property business or an overseas property business and contains basic rules
about the calculation of the profits of such a property business.
(3)
Chapter 4 provides for certain amounts of a capital nature to be brought into
account as receipts in calculating the profits of a property business.
5
(4)
Chapter 5 contains additional rules about the calculation of the profits of a
property business.
(5)
Chapter 6 explains what is meant by the commercial letting of furnished
holiday accommodation.
(6)
Chapters 7, 8 and 9 apply the charge to corporation tax on income to—
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(a)
rent receivable in connection with a UK section 39(4) concern,
(b)
rent receivable for UK electric-line wayleaves, and
(c)
post-cessation receipts arising from a UK property business,

and contain related rules.
(7)
Chapter 10 contains supplementary provisions including—
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(a)
rules that give priority to provisions outside this Part in relation to
certain matters that fall within it, and
(b)
rules that give priority to one Chapter of this Part in relation to certain
matters that fall both within it and another Chapter of this Part.
(8)
This Part needs to be read with Parts 19 (general exemptions) and 20 (general
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calculation rules).
Chapter 2
Property businesses
Introduction
203
Overview of Chapter
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(1)
This Chapter explains for the purposes of this Act what is meant by—
(a)
a company’s UK property business (see section 205), and
(b)
a company’s overseas property business (see section 206).
(2)
Both those sections need to be read with—
(a)
section 207 (which explains what is meant by generating income from
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land), and
(b)
section 208 (which provides that certain activities do not count as
activities for generating income from land).
(3)
In the case of a property business carried on by a company as a member of a
firm, the basic rules in sections 205 and 206 are explained in section 1270(2) and
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(3).
(4)
See also section 432AA of ICTA (which qualifies the basic rules in sections 205
and 206 in the case of an insurance company).