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Part 22: Miscellaneous provisions
Overview
2770. This Part contains miscellaneous rules about corporation tax liability.
2771. Chapter 1 is about transfers of trade without a change of ownership.
2772. Chapter 2 is about transfers of trade to obtain balancing allowances.
2773. Chapter 3 is about transfer of relief within partnerships.
2774. Chapter 4 is about surrenders of tax refunds within groups.
2775. Chapter 5 is about the set off of income tax deductions against corporation tax.
2776. Chapter 6 is about collection of tax from UK representatives of non-UK resident companies.
2777. Chapter 7 is about recovery of unpaid corporation tax due from non-UK resident companies.
2778. Chapter 8 contains provisions exempting certain bodies from corporation tax on some or all of their income.
2779. Chapter 9 contains provisions about European Economic Interest Groupings, harbour reorganisation schemes and the use of different accounting practices within a group of companies.
Chapter 1: Transfers of trade without a change of ownership
Overview
2780. The Chapter rewrites sections 343, 343A and 344 of ICTA (company reconstructions without a change of ownership).
2781. It is possible (and common) for the trade, assets and liabilities of one company (“the predecessor”) to be transferred to another (“the successor”). As a rule, on such a transfer the predecessor’s trade ceases. This has two consequences in particular.
2782. First, if the predecessor has incurred qualifying expenditure on plant and machinery, a balancing charge is imposed or a balancing allowance is given under Part 2 of CAA (plant and machinery allowances). Also, the successor is entitled to plant and machinery allowances on the amount paid to the predecessor for the plant and machinery. Similar rules apply to the other types of capital allowance.
2783. Second, if the predecessor has incurred losses in its trade they cannot be carried forward under section 393 of ICTA. To the extent that they cannot be relieved under section 393A of ICTA or by group relief, they are wasted.
2784. But the predecessor and the successor will not necessarily be independent. If they are under common ownership, the owners of the companies may have commercial reasons for transferring the trade and net assets from one to another. Where this is the case, section 343 of ICTA makes it possible for:
- capital allowances to be given to the successor as if the trade was still being carried on by the predecessor; and
- the predecessor’s unrelieved trade losses to be carried forward to the successor.
2785. Sections 343 and 344 of ICTA were based on section 61 of FA 1965, which was itself modelled on section 17 of FA 1954 and Schedule 3 to that Act.
2786. Section 343A of ICTA was inserted by paragraph 1 of Schedule 6 to FA 2007.
2787. The clauses rewriting sections 343, 343A and 344 of ICTA are laid out in the following order.
- Clauses 938 and 939 are introductory.
- Clauses 940 to 943 specify the transfers to which the Chapter applies.
- Clauses 944 to 950 specify the effect of the Chapter in relation to transfers to which it applies.
- Clauses 951 to 953 are supplementary.
Clause 938: Overview of Chapter
2788. This clause gives an overview of the Chapter. It is new.
Clause 939: Meaning of “transfer of a trade” and related expressions
2789. This interpretative clause is based on section 343(1) of ICTA.
Clause 940: Transfers to which Chapter applies
2790. This clause states that there are two conditions which must be met if the Chapter is to apply to a transfer of a trade: the ownership condition and the tax condition. It is based on section 343(1) of ICTA.
Clause 941: The ownership condition
2791. This clause lays down the first of the two conditions which need to be met if the Chapter is to apply to a transfer. It is based on sections 343(1) and 344(1), (2) and (4) of ICTA.
2792. The ownership condition works in the following way. First, it is necessary to identify persons having a 75% interest in the transferred trade at the time of the transfer or at any time in the two-year period beginning immediately after the transfer. Then, it is necessary to see whether those same persons have a 75% interest in the transferred trade at any time in the one-year period beginning immediately before the transfer. If they do, the ownership condition is met.
2793. Subsections (3) and (4) are based on the second sentence of section 343(1) of ICTA; in that context, “comprise” is non-exhaustive.
2794. Subsection (5)(a) is based on section 344(1)(a) of ICTA. Section 344(1)(a) refers to “a trade carried on by two or more persons”, but does not actually need to cover trades carried on by non-corporates. Subsection (5)(a) therefore says, more precisely, “if two or more companies carry on a trade”.
Clause 942: Options that may be applied for the purposes of the ownership condition
2795. This clause sets out various options that may be applied to see whether the ownership condition is met. It is based on section 344(2) and (3) of ICTA.
2796. Schedule 1 to the Interpretation Act 1978 defines “person” as including a body of persons corporate or unincorporate. Option 3 in subsection (1) therefore compresses “person or body of persons” in the tail words of section 344(2) of ICTA to “person”.
2797. Option 3 in subsection (1) is more focused on the final result than the tail words of section 344(2) of ICTA. But this difference is merely verbal.
2798. It is implicit in section 344(3)(c) of ICTA that ownership includes indirect ownership; subsection (6) makes this implication explicit and, therefore, applies to the whole of the clause.
Clause 943: The tax condition
2799. This clause lays down the second of the two conditions which need to be met if the Chapter is to apply to a transfer. It is based on section 343(1) of ICTA.
2800. Briefly, the tax condition is that the trade has been subject to United Kingdom corporate taxation at all material times.
2801. Section 343(1)(b) of ICTA has a cryptic reference to “the period taken for the comparison under paragraph (a) above”. Subsection (2) expressly defines this period. Subsection (2) refers to clause 941(1)(a) and (b) in reverse order. This is deliberate. Clause 941 (the ownership condition) starts with the new owners of the transferred trade and moves from there to see whether common ownership can be established. By contrast, clause 943 (the tax condition) is seeking to establish whether the trade has been subject to United Kingdom corporate taxation throughout the relevant period and so starts at the beginning of that period and works forwards.
Clause 944: Modified application of Chapter 2 of Part 4
2802. This clause modifies the application of the Chapter of this Bill giving relief for trade losses. It is based on section 343(1), (3) and (4A) of ICTA.
2803. If this Chapter applies to a transfer of a trade, subsection (2) disapplies the terminal loss rules and subsection (3) entitles the successor to relief for trade losses carried forward.
Clause 945: Cases in which predecessor retains more liabilities than assets
2804. This clause restricts the relief given to the successor under clause 944(3) to the extent that (a) the successor does not take over the predecessor’s liabilities and (b) the predecessor does not have enough assets to meet them in full. It is based on sections 343(4) and 344(5) to (7) of ICTA.
2805. The aim of this clause is to stop tax relief being given twice for the same expenditure. It is fairly common, especially in receivership cases, for the liabilities of the business not to be transferred with the trade. Those liabilities are then left stranded in the predecessor company, and the creditors stand little or no chance of being paid. In such a case, the creditors will have to write off the debts owed to them by the predecessor. If these creditors have incurred these debts in the course of their trades of (a) supplying goods or services or (b) lending money, the write-offs will be tax deductible as trading expenses.
2806. But for this clause, the successor could also claim tax relief for the same expenditure under the heading of losses carried forward. Under this clause, broadly speaking, the losses disallowed in the successor’s hands equate to the amount of the debts which the predecessor is unable to pay.
2807. Subsection (1) states when the clause applies, using the terms “L” and “A”.
2808. Subsections (2) and (3) define “L” and “A” respectively.
2809. Subsections (4) and (5) use a formula to determine the amount by which the successor’s relief is restricted. That formula uses “L” and “A” to define “E”.
Clause 946: Rules for determining “L”
2810. This clause supplements clause 945 of this Bill. It is based on section 344(6), (8), (9), (11) and (12) of ICTA.
2811. This clause recasts section 344(9) of ICTA to remove the curious expression “a liability representing the predecessor’s share capital, share premium account, reserves or relevant loan stock”.
2812. In subsection (6)(a), the expression “issued or otherwise originated” is broad enough to cover a transfer to reserves.
2813. The wording of section 344(9) of ICTA is broad enough to cover a series of conversions of capital. Subsection (6)(a) makes this point explicit. In practice, however, such a series would be unlikely to meet the temporal condition imposed by subsection (6)(b).
2814. In section 344(11) of ICTA, the words “(whether secured or unsecured)” block the argument that unsecured loan notes cannot be “relevant loan stock” because if they are not secured they cannot be securities. Subsection (8) therefore retains this parenthesis.
Clause 947: Rules for determining “A”
2815. This clause supplements clause 945 of this Bill. It is based on section 344(5), (7) and (10) of ICTA.
2816. Section 344(7)(a) of ICTA defines “the value of assets (other than money)”. Subsection (3) omits as redundant the reference to money.
Clause 948: Modified application of CAA 2001
2817. This clause modifies the application of CAA. It is based on section 343(1) and (2) of ICTA.
2818. Under subsections (2) to (4), for capital allowances purposes, the successor stands in the predecessor’s shoes.
2819. Section 561A(2)(c) of CAA refers to section 343 of ICTA, whereas section 561(5) of CAA refers to section 343(2). Nothing turns on this distinction, so subsection (6) simply refers to sections 561 and 561A of CAA.
Clause 949: Dual resident investing companies
2820. This clause prevents the successor from benefiting from clause 948 if it is a dual resident investing company. It is based on section 343(2) of ICTA.
2821. The source legislation refers to section 404 of ICTA. Section 404 of ICTA is rewritten in clause 109. As far as possible, this clause is conformed to that clause.
2822. The source legislation defines “dual resident investing company” by reference to section 404 of ICTA but does not spell out how the reference in that section to “the material accounting period” is to be applied in the context of transfers of trade. This clause uses the concept of “the transfer accounting period” to bring out the implicit requirements of the source legislation. This is a drafting clarification which does not change the law.
2823. Subsection (1) is the main operative provision.
2824. Subsection (2) specifies when a company is a dual resident investing company.
2825. Subsection (3) defines the expression “dual resident company”, which is used in subsection (2)(a), and subsections (4) to (6) specify the conditions mentioned in subsection (2)(b).
2826. Subsection (7) defines “non-UK tax”, “trading company” and “the transfer accounting period”.
Clause 950: Transfers of trades involving business of leasing plant or machinery
2827. This clause deals with transfers of trades involving businesses of leasing plant or machinery. It is based on section 343A of ICTA.
Clause 951: Part of trade treated as separate trade
2828. This clause deals with transfers of parts of trade. It is based on section 343(1) and (8) of ICTA.
2829. This clause refers to “activities” of a trade and “part” of a trade, as these expressions have been the subject of judicial comment: see Falmer Jeans Ltd v Rodin (1990), 63 TC 55. 1
2830. Section 344(5) and (6) of ICTA do not expressly provide that, if there has been an apportionment, only the assets and liabilities apportioned to the transferred trade are to be taken into account. Subsection (6) makes these points explicit.
Clause 952: Apportionment if part of trade treated as separate trade
2831. This clause provides for apportionments to be made if, in accordance with clause 951(2) or (4), part of a trade is treated as a separate trade. It is based on section 343(9) and (10) of ICTA.
2832. Subsection (1) expressly requires apportionments to be reasonable as well as just. This is a minor change in the law: see Change 33 in Annex 1. The same change has been made in previous rewrite Acts.
Clause 953: Application of Chapter to further transfers of a trade
2833. This clause deals with further transfers of trades. It is based on section 343(7) of ICTA.
2834. Subsection (1) spells out when the section applies.
2835. Under subsection (1)(a), there must be a transfer (the original transfer) which meets the ownership condition and the tax condition. Under clause 940 of this Bill, this Chapter applies to the original transfer.
2836. Under subsection (1)(b), there must be a further transfer (as defined).
2837. Under subsection (1)(c), the further transfer must take place at some time before the end of the period specified in subsection (7).
2838. It is implicit in section 343(7) that the ownership condition was met in relation to the original transfer only on or after the further transfer. Subsection (1)(d) lays this down as an express condition for this clause to apply.
2839. If section 343(2) to (5) of ICTA already apply in relation to a transfer, there is no need to rely on section 343(7) of that Act. Accordingly, subsection (1)(e) lays down, as an express condition for this clause to apply, that, were it not for this clause, this Chapter would not apply to the further transfer.
2840. Subsection (2) applies the Chapter to the further transfer as well as to the original transfer.
2841. Subsection (3) explains how the references to “the successor” and “the predecessor” in this Chapter are to be interpreted in cases where the Chapter applies to a transfer by virtue of this clause.
2842. Subsection (4) extends the scope of “the successor” in relation to the original transfer.
2843. Subsection (5) extends the scope of “the predecessor” in relation to the further transfer.
2844. Subsection (6) covers successive further transfers.
2845. Subsection (7) defines the period mentioned in subsection (1)(c).
Chapter 2: Transfers of trade to obtain balancing allowances
Overview
2846. This Chapter counters certain schemes for accelerating relief for expenditure qualifying for capital allowances. Such schemes involve a trading company being acquired by a profitable group and, as part of the arrangements, the trading company selling its trade to an unconnected buyer a short time later.
2847. This Chapter is based on section 343ZA of ICTA.
Clause 954: Transfer of activities on complete cessation of trade
2848. This clause deals with capital allowance schemes involving the transfer of activities on the complete cessation of a trade. It is based on section 343ZA(1), (4), and (5) of ICTA.
2849. Subsection (1) states when this clause applies.
2850. Subsection (2) modifies the application of CAA in cases in which this clause applies.
2851. Section 343ZA(4) of ICTA modifies the application of section 343(2) of that Act. Section 343(2) is rewritten in clause 948. Subsections (3) to (5) are based on section 343ZA(4) of ICTA; for the convenience of the reader, they restate the propositions in clause 948(2) to (4) rather than applying those provisions with modifications.
2852. Subsection (6) applies if the successor carries on the activities of the trade as part of its trade.
Clause 955: Transfer of activities on part cessation of trade
2853. This clause deals with capital allowance schemes involving the transfer of activities on the part cessation of a trade. It is based on section 343ZA(2), (4) and (6) of ICTA.
2854. Subsection (1) states when this clause applies.
2855. Subsection (2) modifies the application of CAA in cases in which this clause applies.
2856. Section 343ZA(4) of ICTA modifies the application of section 343(2) of that Act. Section 343(2) is rewritten in clause 948. Subsections (4) to (6) are based on section 343ZA(4); for the convenience of the reader, they restate the propositions in clause 948(2) to (4) rather than applying those provisions with modifications.
2857. Subsection (7) applies if the successor carries on the activities of the trade as part of its trade.
Clause 956: Apportionment if part of trade treated as separate trade
2858. This clause requires apportionments to be made if part of a trade is treated as a separate trade under clause 954(6) or 955(7). It is based on section 343ZA(7) and (8) of ICTA.
2859. Subsection (1) requires apportionments to be made in such cases. In expressly requiring the apportionments to be reasonable as well as just, subsection (8) makes a minor change in the law. See Change 33 in Annex 1 and the commentary on clause 952.
Clause 957: Supplementary and interpretative provisions
2860. This clause provides that if Chapter 1 of this Part applies then this Chapter does not. It is based on section 343ZA(3) of ICTA.
Chapter 3: Transfer of relief within partnerships
Overview
2861. This Chapter deals with arrangements within firms for transferring relief between partners.
Clause 958: Application
2862. This clause sets the scope of the Chapter. It is based on section 116 of ICTA.
Clause 959: Arrangements for transfer of relief
2863. This clause sets out the sorts of arrangements to which the Chapter applies. It is based on section 116 of ICTA.
2864. Subsection (1) identifies four effects that the arrangements may have. Effects 1 and 2 correspond to paragraph (b) of section 116(1) of ICTA; Effects 3 and 4 correspond to paragraph (a) of section 116(1) of ICTA.
2865. Subsection (2) makes clear that the Chapter operates by reference to part of a company’s share of the firm’s profits or losses as it operates by reference to the whole of the profits or losses. So the Bill does not reproduce from section 116(1) of ICTA “any portion of” any of the profits or losses.
2866. Subsection (4) is the rule that a payment for group relief (see also clause 183) does not trigger the anti-avoidance rules in this Chapter.
Clause 960: Restrictions on use of reliefs
2867. This clause sets out the results if this Chapter applies. It is based on section 116 of ICTA.
2868. Subsection (1) is the rule about the firm’s losses. The partner company’s share of the firm’s trading loss is available only against its share of profits from the same trade. This means that a claim may be made under clause 45 (losses carried forward) but not under clause 37 (relief against total profits).
2869. Subsection (3) is the rule about the firm’s profits. It isolates the partner company’s share of the profits from reliefs that would otherwise be available (unless they are losses of the firm’s trade available in accordance with subsection (1)). So the partner company may not set against its share of the firm’s profits either:
- trading losses of another trade (paragraph (a) of the subsection); or
- other reliefs (paragraph (b) of the subsection).
Clause 961: Non-trading profits and losses
2870. This clause extends the Chapter so that it applies to non-trading activities carried on in partnership as it applies to trades. It is based on section 116 of ICTA.
2871. Subsection (1) identifies the non-trading profits to which the Chapter applies. They are the profits from the sources listed in clause 1173.
2872. Subsection (3) is a rule for “special leasing” allowances within section 259 or 260 of CAA. The partner company’s share of the allowances is not available against the partner company’s other profits.
Clause 962: Interpretation of Chapter
2873. This clause provides some definitions. It is based on section 116 of ICTA.
2874. Subsection (2) is a link to Part 17 of CTA 2009 (partnerships). In particular, “accounting period of a firm” is explained in section 1261 of that Act as meaning the accounting period of the company that is deemed to carry on the firm’s trade.
2875. The definition of “connected person” is in clause 1122 of this Bill, as applied by clause 1176(1).
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