Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
48

82
The qualifying subsidiaries requirement
(1)
The qualifying subsidiaries requirement is that any subsidiary that the
company has must be a qualifying subsidiary of the company.
(2)
In this section “qualifying subsidiary” is to be read in accordance with section
191 of ITA 2007.
5
83
The property managing subsidiaries requirement
(1)
The property managing subsidiaries requirement is that any property
managing subsidiary that the company has must be a qualifying 90%
subsidiary of the company.
(2)
In this section—
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“property managing subsidiary” has the meaning given by section 188(2)
of ITA 2007, and
“qualifying 90% subsidiary” has the meaning given by section 190 of that
Act.
84
The gross assets requirement
15
(1)
The gross assets requirement in the case of a single company is that the value
of the company’s gross assets—
(a)
must not exceed £7 million immediately before the shares in respect of
which the share loss relief is claimed are issued, and
(b)
must not exceed £8 million immediately afterwards.
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(2)
The gross assets requirement in the case of a parent company is that the value
of the group assets—
(a)
must not exceed £7 million immediately before the shares in respect of
which the share loss relief is claimed are issued, and
(b)
must not exceed £8 million immediately afterwards.
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(3)
The value of the group assets means the sum of the values of the gross assets
of each of the members of the group, ignoring any that consist in rights against,
or shares in or securities of, another member of the group.
(4)
In this section—
“group” means a parent company and its qualifying subsidiaries,
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“parent company” means a company that has one or more qualifying
subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191 of ITA
2007, and
“single company” means a company that does not have one or more
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qualifying subsidiaries.
85
The unquoted status requirement
(1)
The unquoted status requirement is that, at the time (“the relevant time”) at
which the shares in respect of which the share loss relief is claimed are issued—
(a)
the company must be an unquoted company,
40
(b)
there must be no arrangements in existence for the company to cease to
be an unquoted company, and

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
49

(c)
there must be no arrangements in existence for the company to become
a subsidiary of another company (“the new company”) by virtue of an
exchange of shares, or shares and securities, if—
(i)
section 87 applies in relation to the exchange, and
(ii)
arrangements have been made with a view to the new company
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ceasing to be an unquoted company.
(2)
The arrangements referred to in subsection (1)(b) and (c)(ii) do not include
arrangements in consequence of which any shares, stocks, debentures or other
securities of the company or the new company are at any subsequent time—
(a)
listed on a stock exchange that is a recognised stock exchange by virtue
10
of an order made under section 1005(1)(b) of ITA 2007, or
(b)
listed on an exchange, or dealt in by any means, designated by an order
made for the purposes of section 184(3)(b) or (c) of that Act,

if the order was made after the relevant time.
(3)
In this section—
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“arrangements” includes any scheme, agreement or understanding
(whether or not legally enforceable),
“debenture” has the meaning given by section 738 of the Companies Act
2006, and
“unquoted company” has the meaning given by section 184(2) of ITA
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2007.
86
Power to amend requirements by Treasury order
The Treasury may by order make such amendments of sections 79 to 85 as they
consider appropriate.
Qualifying trading companies: supplementary
25
87
Relief after an exchange of shares for shares in another company
(1)
This section and section 88 apply in relation to shares if—
(a)
a company (“the new company”) in which the only issued shares are
subscriber shares acquires all the shares (“old shares”) in another
company (“the old company”),
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(b)
the consideration for the old shares consists wholly of the issue of
shares (“new shares”) in the new company,
(c)
the consideration for the new shares of each description consists wholly
of old shares of the corresponding description,
(d)
new shares of each description are issued to the holders of old shares of
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the corresponding description in respect of and in proportion to their
holdings, and
(e)
by virtue of section 127 of TCGA 1992 as applied by section 135(3) of
that Act (company reconstructions etc), the exchange of shares is not to
be treated as involving a disposal of the old shares or an acquisition of
40
the new shares.

In this subsection references to shares, except the first and that in the
expression “subscriber shares”, include securities.
(2)
For the purposes of this Chapter the exchange of shares is not regarded as
involving any disposal of the old shares or any acquisition of the new shares.
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Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
50

(3)
Nothing in—
(a)
section 74(2) (disposal of new shares), and
(b)
section 81 (the control and independence requirement),

applies in relation to such an exchange of shares, or shares and securities, as is
mentioned in subsection (1) or, in the case of section 81, arrangements with a
5
view to such an exchange.
(4)
For the purposes of this section old shares and new shares are of a
corresponding description if, on the assumption that they were shares in the
same company, they would be of the same class and carry the same rights.
(5)
References in section 88 to “old shares”, “new shares”, “the old company” and
10
“the new company” are to be read in accordance with this section.
88
Substitution of new shares for old shares
(1)
Subsection (2) applies if, in the case of any new shares held by a company or by
a nominee for a company, the old shares for which they were exchanged were
shares which had been subscribed for by the company (“the investor”).
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(2)
This Chapter has effect in relation to any subsequent disposal or other event as
if—
(a)
the new shares had been subscribed for by the investor at the time
when, and for the amount for which, the old shares were subscribed for
by the investor,
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(b)
the new shares had been issued by the new company at the time when
the old shares were issued to the investor by the old company, and
(c)
any requirements of this Chapter which were met at any time before the
exchange by the old company had been met at that time by the new
company.
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(3)
Nothing in subsection (2) applies in relation to section 195(7) of ITA 2007 as
applied by section 79(7) above for the purpose of the definition of “excluded
activities”.
89
Deemed time of issue for certain shares
(1)
This section applies for the purposes of the following provisions—
30
section 78(5)(a),
section 84(1)(a) and (2)(a),
section 85(1), and
section 88(2)(b).
(2)
If—
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(a)
any shares (“the original shares”) have been issued to a company, or are
treated under this subsection as having been issued to the company at
a particular time, and
(b)
any corresponding bonus shares are subsequently issued to the
company,
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the bonus shares are treated as having been issued at the time the original
shares were issued to the company or are treated as having been so issued.

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
51

Interpretation
90
Interpretation of Chapter
(1)
In this Chapter (subject to subsections (2) to (7))—
“bonus shares” means shares which are issued otherwise than for
payment (whether in cash or otherwise),
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“corresponding bonus shares”, in relation to any shares, means bonus
shares which—
(a)
are issued in respect of those shares, and
(b)
are in the same company, are of the same class, and carry the
same rights, as those shares,
10
“excluded company” means a company which—
(a)
has a trade which consists wholly or mainly of dealing in land,
in commodities or futures or in shares, securities or other
financial instruments,
(b)
has a trade which is not carried on on a commercial basis and in
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such a way that profits in the trade can reasonably be expected
to be realised,
(c)
is a holding company of a group other than a trading group, or
(d)
is a building society or a registered industrial and provident
society,
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“group” (except in sections 79 and 84) means a company which has one or
more 51% subsidiaries together with that or those subsidiaries,
“holding company” means a company whose business consists wholly or
mainly in the holding of shares or securities of companies which are its
51% subsidiaries,
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“investment company” means a company—
(a)
whose business consists wholly or mainly in the making of
investments, and
(b)
which derives the principal part of its income from the making of
investments,
30
but does not include the holding company of a trading group,
“registered industrial and provident society” means a society registered
or treated as registered under the Industrial and Provident Societies
Act 1965 or the Industrial and Provident Societies Act (Northern
Ireland) 1969 (c. 24 (N.I.)),
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“shares”—
(a)
includes stock, but
(b)
does not include shares or stock not forming part of a
company’s ordinary share capital,
“share loss relief” has the meaning given by section 68(1),
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“trading company” means a company other than an excluded company
which is—
(a)
a company whose business consists wholly or mainly in the
carrying on of a trade or trades, or
(b)
the holding company of a trading group, and
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“trading group” means a group the business of whose members, when
taken together, consists wholly or mainly in the carrying on of a trade
or trades.

Corporation Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses from miscellaneous transactions
52

(2)
For the purposes of the definition of “corresponding bonus shares” in
subsection (1), shares are not treated as being of the same class unless they
would be so treated if they were—
(a)
included in the official UK list, and
(b)
admitted to trading on the London Stock Exchange.
5
(3)
Except as provided by subsection (4), paragraph (b) of the definition of shares
in subsection (1) does not apply in the definition of “excluded company” in
subsection (1) or in sections 75(3) to (6), (8) and (9) and 87(1) to (4).
(4)
Paragraph (b) of that definition applies in relation to the first reference to
“shares” in section 87(1).
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(5)
The definition of “shares” in subsection (1) does not apply in sections 79(5)(a),
84(3) and 85(1)(c) and (2).
(6)
For the purposes of the definition of “trading group” in subsection (1), any
trade carried on by a subsidiary which is an excluded company is treated as not
constituting a trade.
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(7)
For the purposes of this Chapter a disposal of shares which results in an
allowable loss for the purposes of corporation tax on chargeable gains is
treated as made at the time when the disposal is made or treated as made for
the purposes of TCGA 1992.
Chapter 6
20
Losses from miscellaneous transactions
91
Relief for losses from miscellaneous transactions
(1)
This section applies if, in an accounting period (“the loss-making period”), a
company makes a loss in a transaction within subsection (2).
(2)
A transaction is within this subsection if income arising from it would be
25
miscellaneous income of the company.
(3)
Relief for the loss is given to the company under this section.
(4)
For this purpose the company’s miscellaneous income of the loss-making
period is reduced by the loss.
(5)
Subsection (6) applies to the loss so far as it cannot be used under subsection
30
(4) to reduce the company’s income.
(6)
The loss—
(a)
is carried forward to subsequent accounting periods, and
(b)
the company’s miscellaneous income of any such period is reduced by
the loss so far as it cannot be used under this paragraph to reduce the
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income of an earlier period.
(7)
A company’s miscellaneous income is so much of the company’s income
which—
(a)
arises from transactions, and
(b)
is chargeable to corporation tax under or by virtue of any provision to
40
which section 1173 applies, other than regulation 18(4) of the Offshore
Funds (Tax) Regulations 2009 (offshore income gains).

Corporation Tax Bill
Part 4 — Loss relief
Chapter 7 — Write-off of government investment
53

Chapter 7
Write-off of government investment
92
Loss relief to be reduced if government investment is written off
(1)
This section applies if an amount of government investment in a company
(“the written-off amount”) is written off.
5
(2)
The written-off amount is set off against the company’s carry-forward losses as
at the end of the accounting period ending last before the day of the write-off.
(3)
If the written-off amount exceeds those losses, the excess is set off against the
company’s carry-forward losses as at the end of the next accounting period
and so on until the whole of the written-off amount has been set off.
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(4)
In this Chapter “company” has the meaning given by section 1121 but does not
include an unincorporated association.
(5)
This section needs to be read with—

section 93 (which applies if the company is in a group of companies),

section 94 (which explains what is meant by government investment
15
being written off and how the written-off amount is calculated), and

section 95 (which explains what is meant by carry-forward losses).
93
Groups of companies
(1)
This section applies if—
(a)
at the end of an accounting period a company in which an amount of
20
government investment is written off is in a group of companies, and
(b)
under section 92(2) or (3) an amount could be set off against the
company’s carry-forward losses as at the end of that period (or could
be so set off if there were enough of those losses).
(2)
The amount may be set off (wholly or partly) against the carry-forward losses
25
of one or more companies within subsection (3), as may be just and reasonable.
(3)
A company (other than the company referred to in subsection (1)(a)) is within
this subsection if at the end of the accounting period it is in the group of
companies.
(4)
A “group of companies” consists of a company that has one or more 51%
30
subsidiaries, together with that or those subsidiaries.
94
Cases in which government investment is written off
(1)
Government investment in a company is written off if any of the following
occurs in relation to the company.

This is subject to subsection (2).
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Case 1

The company’s liability to repay any money lent to it out of public funds by a
Minister is extinguished.

In this case the written-off amount is the amount of the liability extinguished
and the write-off occurs when the liability is extinguished.
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Corporation Tax Bill
Part 4 — Loss relief
Chapter 7 — Write-off of government investment
54

Case 2

Any of the company’s shares for which a Minister has subscribed out of public
funds are cancelled.

In this case the written-off amount is the amount subscribed for the shares and
the write-off occurs when the shares are cancelled.
5
Case 3

The company’s commencing capital debt (see subsection (3)) is reduced
otherwise than by being paid off or its public dividend capital (see subsection
(4)) is reduced otherwise than by being repaid (including, in either case, a
reduction to nil).
10

In this case the written-off amount is the amount of the reduction and the
write-off occurs when the reduction occurs.
(2)
The written-off amount is reduced so far as it is replaced by—
(a)
money lent, or a payment made, out of public funds, or
(b)
shares subscribed for by a Minister for money or money’s worth.
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(3)
“Commencing capital debt” means a debt to a Minister assumed as such under
an enactment.
(4)
“Public dividend capital” means an amount paid by a Minister—
(a)
under an enactment in which that amount is so described, or
(b)
under an enactment corresponding to an enactment in which a
20
payment made on similar terms to another body is so described.
(5)
In this section—
“enactment” includes an Act of the Scottish Parliament, and
“Minister” means a Minister of the Crown, the Scottish Ministers or a
Northern Ireland department.
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95
Meaning of “carry-forward losses”
(1)
A company’s carry-forward losses as at the end of an accounting period are as
follows.
Type 1

Losses of the company to be carried forward under section 45, 62 or 66 to the
30
next accounting period.

These include losses to be treated as expenses of management of the company
under section 63 for the next accounting period.
Type 2

Any excess of the company to be carried forward for deduction to the next
35
accounting period under section 1223(3) of CTA 2009.
Type 3

Any excess of the company to be carried forward for deduction to the next
accounting period under section 260(2) of CAA 2001.
Type 4
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Any qualifying charitable donations made by the company so far as they
exceed the company’s profits of the accounting period and are available for
surrender for the next accounting period under Part 5 (group relief).