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Chapter 4: Surrender of tax refund within group
Overview
2876. Section 102 of FA 1989 enables a group of companies to mitigate the differential between the rates of interest on unpaid and overpaid tax. In the absence of section 102, a group which, overall, had paid the correct amount of tax on the correct dates could still suffer a net interest charge if it split those payments incorrectly between members of the group at the time of payment. Section 102 allows the group to mitigate this by applying hindsight to reallocate the tax payments to the right companies with effect from the date of payment.
2877. Regulation 9 of the Corporation Tax (Instalment Payments) Regulations 1998 2 applies section 102 of FA 1989 with modifications in cases where a tax refund falls to be made to the surrendering company in respect of an amount paid in respect of its total liability for an accounting period and (a) either the surrendering company or the recipient company is a large company (within the meaning of regulation 3 of those Regulations) as respects that accounting period or (b) both the surrendering company and the recipient company are large companies as respects that accounting period. The continuity of the law provisions in Part 1 of Schedule 2 ensure that this regulation continues to apply undisturbed.
Clause 963: Power to surrender tax refund
2878. This clause lays down the conditions to be met if a tax refund is to be surrendered within a group of companies. It is based on section 102(1) to (3) and (8) of FA 1989.
Clause 964: Effects of surrender of tax refund
2879. This clause sets out the effects of a surrender of a tax refund for the surrendering company and the recipient company. It is based on section 102(4), (5) and (6) of FA 1989.
Clause 965: Interest on tax overpaid or underpaid
2880. This clause deals with the consequences of a surrender of a tax refund for interest on unpaid and overpaid tax. It is based on section 102(4A) of FA 1989.
2881. Subsection (1)(b) omits as spent the reference in section 102(4A) of FA 1989 to section 826(7) of ICTA, which has been repealed.
Clause 966: Payments for surrendered tax refunds
2882. This clause concerns the consequences of making payments for the transfer of tax refunds. It is based on section 102(7) of FA 1989.
Chapter 5: Set off of income tax deductions against corporation tax
Clause 967: Deductions from payments received by UK resident companies
2883. This clause explains how income tax deducted from payments received by UK resident companies is set off against corporation tax. It is based on section 7(2) and (4) of ICTA.
2884. The exception for relevant loan interest in section 7(3) is rewritten by consequential amendment to section 369(6) of ICTA. Section 369 has not been repealed because the relief for certain life annuity payments continues to be in force.
Clause 968: Deductions from payments received by non-UK resident companies
2885. This clause explains how income tax deducted from payments received by non-UK resident companies is set off against corporation tax. It is based on section 11(3) of ICTA.
2886. As is the case for section 7(3) of ICTA, the exception for relevant loan interest in section 11(4) is rewritten by consequential amendment to section 369(6) of ICTA.
Chapter 6: Collection etc of tax from UK representatives of non-UK resident companies
Overview
2887. This Chapter sets out the obligations and liabilities of a UK representative of a non-UK resident company carrying on a trade through a permanent establishment in the United Kingdom in relation to the assessment, collection and recovery of corporation tax on the chargeable profits of the non-UK resident company attributable to the permanent establishment. As to “chargeable profits” see section 19 of CTA 2009.
Clause 969: Introduction to Chapter
2888. This clause introduces the Chapter and sets out the rules for determining the extent to which and the period for which a permanent establishment is a UK representative. It is based on section 150(1) and (2) of FA 2003.
2889. A permanent establishment in the United Kingdom through which a non-UK resident company carries on a trade is the UK representative of the non-UK resident company in relation to the chargeable profits attributable to the permanent establishment. See Rule 1 in subsection (3).
2890. If a permanent establishment in the United Kingdom of a non-UK resident company ceases to be a permanent establishment through which the company carries on a trade, it nevertheless continues thereafter to be the UK representative of the non-UK resident company in relation to the chargeable profits attributable to the permanent establishment. See Rule 2 in subsection (3).
Clause 970: Obligations and liabilities in relation to corporation tax
2891. This clause treats the obligations and liabilities of the non-UK resident company in respect of the chargeable profits of the trade carried on through a permanent establishment in the United Kingdom as also being the obligations and liabilities of the UK representative. It is based on section 150(1) and (3) of FA 2003.
Clause 971: Exceptions
2892. This clause sets out circumstances in which:
- certain obligations or liabilities of a non-UK resident company attach to its UK representative (subsections (1) and (2));
- a non-UK resident company is bound by the mistakes of its UK representative (subsection (3)); and
- a UK representative may be proceeded against for a criminal offence (subsection (4)).
2893. It is based on section 150(4) to (6) of FA 2003.
Clause 972: Interpretation of Chapter
2894. This clause defines terms used in the Chapter. It is based on section 150(7) and (7A) of FA 2003.
2895. In the definition of “information” in subsection (1), the words “to the Commissioners for Her Majesty’s Revenue and Customs or to any officer of Revenue and Customs” have been substituted for the words “to the Board or any officer of the Board” in the source legislation. This gives effect to section 50(1) and (2) of CRCA which require references to the terms in the source legislation to be taken as references to the substituted terms.
Chapter 7: Recovery of unpaid corporation tax due from non-UK resident company
Overview
2896. This Chapter enables unpaid corporation tax due from a non-UK resident company to be recovered from a related company.
Clause 973: Introduction to Chapter
2897. This clause introduces the Chapter and defines “company” for the purposes of clauses 973(1) and (4) and 974 to 980. It is based on paragraph 6 of Schedule 28 to FA 2000.
Clause 974: Case in which this Chapter applies
2898. This clause states when this Chapter applies. It is based on paragraph 1 of Schedule 28 to FA 2000.
2899. Subsection (2) defines “the taxpayer company” for the purposes of this Chapter.
Clauses 975 and 976: Meaning of “the relevant period”; meaning of “related company”
2900. These interpretative clauses are based on paragraph 2 of Schedule 28 to FA 2000.
Clause 977: Notice requiring payment of unpaid tax
2901. This clause enables an officer of Revenue and Customs to serve notice on a related company requiring it to pay unpaid corporation tax due from the taxpayer company. It is based on paragraph 3 of Schedule 28 to FA 2000.
2902. Paragraph 3(1) of Schedule 28 to FA 2000 gives “the Board” (that is, the Commissioners for HMRC) the power to serve notice to pay unpaid corporation tax due from the taxpayer company. In practice, the Commissioners delegate this function to officers of Revenue and Customs, and subsection (1) reflects this. This is a minor change in the law without any practical implications; see Change 5 in Annex 1.
2903. Like the source legislation, subsection (1) provides that an officer “.. may serve a notice ..”. This gives officers the power, but not the obligation, to serve notice on related companies, and therefore allows HMRC to exercise managerial discretion.
Clause 978: Time limit for giving notice
2904. This clause sets the time limit for giving notice under clause 977. It is based on paragraph 4 of Schedule 28 to FA 2000.
2905. Paragraph 4(3)(d) of Schedule 28 to FA 2000 says: “if .. the Inland Revenue amend the return ..”. In this context, “the Inland Revenue” is not expressly defined; however, the reference is to amendment under paragraph 34(2) of Schedule 18 to FA 1998. As originally enacted, paragraph 34(2) of that Schedule referred to amendments being made by “the Inland Revenue”, which was defined in paragraph 95(1) of that Schedule to mean any officer of the Board; by implication, therefore, “the Inland Revenue” in paragraph 4(3)(d) of Schedule 28 to FA 2000 had the same meaning.
2906. Paragraph 68(a) and (b) of Schedule 4 to CRCA (a) substituted “an officer of Revenue and Customs” for “the Inland Revenue” in paragraph 34(2) of Schedule 18 to FA 1998 and (b) consequentially repealed paragraph 95 of that Schedule. Also, section 50(2) of CRCA provided that any reference in an enactment (however expressed) to an officer of the Board was to be taken as a reference to an officer of Revenue and Customs. By implication, therefore, CRCA substituted “an officer of Revenue and Customs” for “the Inland Revenue” in paragraph 4(3)(d) of Schedule 28 to FA 2000. In rewriting paragraph 4(3)(d) of that Schedule, subsection (3)(d) explicitly refers to “an officer of Revenue and Customs”.
Clause 979: Amount payable in consortium case
2907. This clause determines for the purposes of clause 977(1)(b) the amount payable in a consortium case. It is based on paragraph 5 of Schedule 28 to FA 2000.
2908. In paragraph 5(1) of Schedule 28 to FA 2000, the words “limited to” merely repeat the point that the amount to be charged in a consortium case is “the appropriate proportion” in paragraph 3(1)(b) of that Schedule. Subsection (1) therefore omits them as otiose.
Clause 980: Chapter 7: supplementary
2909. This supplementary clause is based on paragraph 6 of Schedule 28 to FA 2000.
2910. For the sake of consistency with clause 717(1) of this Bill, subsection (2) refers not only to income and profits but also to losses. This verbal change will have no substantive effect.
Chapter 8: Exemptions
Overview
2911. This Chapter provides exemption from corporation tax for certain bodies.
2912. This Chapter rewrites some, but not all, of the provisions in Chapter 6 of Part 12 of ICTA. The clauses dealing with exemptions for charities, and for bodies that are treated as charities, which form part of Chapter 6 have been included with the rules for charitable companies etc in Part 11 of this Bill.
2913. A number of sections of Part 12 of ICTA are obsolete and this Bill repeals these redundant sections.
Clause 981: Exemption for trade unions and eligible employers’ associations
2914. This clause provides a limited relief for trade unions and employers’ associations. It is based on section 467(1), (3) and (3A) of ICTA.
2915. Section 467 is drafted in terms of “a trade union” and provides a definition of the meaning of “trade union”. This definition includes specified employers’ associations. The inclusion of employers’ associations in the definition of “trade union” reflects the old system under which there was a single system of registration for trade unions and employers’ associations. Following the Industrial Relations Act 1971 - or, in Northern Ireland, the Industrial Relations (Northern Ireland) Order 1992 (SI 1992/807 (N.I.5)), - there are separate systems of registration for the two kinds of organisation, which are accordingly separately defined.
2916. The approach in clause 981 reflects this change in the arrangements for registration and includes references to both “trade union” and “eligible employers’ association”. The use of “eligible” is intended to flag at the outset that not all employers’ associations qualify for the exemption. Only those employers’ associations that were in existence and qualified for the exemption in 1971 (1992 for Northern Ireland employers’ associations) qualify.
Clause 982: Qualifying income or gains
2917. This clause defines the types of income subject to relief and provides a partial definition of what provident benefits are. It is based on section 467(1) and (2) of ICTA.
Clause 983: Meaning of “trade union” and “eligible employers’ association”
2918. This clause defines trade union and eligible employer’s association. It is based on section 467(4) of ICTA.
Clause 984: Local authorities and local authority associations
2919. This clause exempts United Kingdom local authorities and local authority associations from corporation tax. It is based on section 519 of ICTA.
2920. The definitions of “local authority” and “local authority association” are in clause 1130 and clause 1131 respectively.
Clause 985: Health service bodies
2921. This clause exempts health service bodies from corporation tax. It is based on section 519A(1) of ICTA.
2922. It is the first of three clauses that deal with the exemption from corporation tax of health service bodies. The exemption is straightforward except in the case of NHS foundation trusts where under certain circumstances the exemption does not apply. The clauses are based on section 519A of ICTA.
Clause 986: Meaning of “health service body”
2923. This clause provides a definition of “health service body”. It is based on section 519A(2).
2924. Section 519A(2) of ICTA states that the definition of “health service body” included a National Health Service trust constituted under section 12A of the National Health Service (Scotland) Act 1978. However, there are no longer any “National Health Service trusts” in Scotland (they were abolished as at 1 April 2004) and the NHS Reform (Scotland) Act 2004 repealed section 12A of the 1978 Act. The reference to section 12A is therefore not reproduced in this provision.
2925. Section 519A(2) of ICTA also states that the definition of “health service body” included a Health and Social Services trust established under the Health and Personal Social Services (Northern Ireland) Order 1991. However such trusts were renamed by section 1 of the Health and Social Care (Reform) Act (Northern Ireland) 2009. The table accordingly refers to Health and Social Care trusts.
2926. The table includes references to Health and Social Services Boards and the Northern Ireland Central Services Agency for the Health and Social Services. These bodies were dissolved from 1 April 2009 by the Health and Social Care (Reform) Act (Northern Ireland) 2009.
2927. The 2009 Act makes provision about the transfer of functions of Health and Social Services Boards and of the Northern Ireland Central Services Agency for the Health and Social Services to other bodies. Section 27 of the that Act makes provision about the translation of legislative references to the old bodies into references to bodies to whom functions of the old bodies have been transferred. Subsections (2) and (4) of that section deal with the transfers of functions of the bodies referred to in section 519A(2) of ICTA. The translations of the references do not operate generally, but only “in relation to” functions that have been transferred from the old bodies to the new bodies.
2928. Legislative references to the old bodies do not therefore include references to functions which were not carried on previously by those bodies.
2929. In order to preserve the current law this Bill retains the references to the old bodies.
Clause 987: NHS foundation trusts
2930. This clause removes some classes of activity carried on by NHS foundation trusts from the exemption to corporation tax in clause 985. It is based on section 519A(3), (4), (5), (6), (7), and (8) of ICTA.
2931. The exception from the exemption broadly applies to commercial activities.
2932. Subsection (1) provides that an order must be made by the Treasury for the exception to apply.
2933. Under the terms of Health and Social Care (Community Health and Standards) Act 2003 an NHS foundation trust is not obliged to carry on commercial activity through a separate company. Such activity may be subject to corporation tax if the conditions set out in subsections (2) and (3) are met.
2934. The taxation treatment of NHS foundation trusts may be contrasted with that for local authorities and local authority associations (see clause 984). Using powers under section 99(4) of the Local Government Act 2003, the Government issued the Local Government (Best Value Authorities) (Power to Trade) (England) Order 2004 (SI 2004/1705). This order allows local authorities to trade but provides that the trade must be carried on by a company.
Clause 988: Issue departments of the Reserve Bank of India and the State Bank of Pakistan
2935. This clause exempts from corporation tax the income of the issue departments of the central banks of India and Pakistan. It is based on section 517 of ICTA.
Clause 989: Agricultural societies
2936. This clause exempts profits made by an agricultural society from exhibitions or shows where those profits are applied solely to the purposes of the society. It is based on section 510 of ICTA.
2937. The clause gives statutory effect to the decision in Peterborough Royal Foxhound Show Society v CIR (1936), 20 TC 249 HC, by replacing the reference in section 510 ICTA to livestock breeding with a reference to the breeding of any kind of animal.
2938. Section 510 ICTA includes “livestock breeding” among the activities that define an agricultural society for the purpose of the exemption under that section. In the case mentioned above it was held that “livestock breeding” in section 23 FA 1924 (which became section 510 ICTA) includes foxhound breeding. The judge in that case said that,
The words “live stock” are ordinarily and properly used in contrast with dead stock and include all live animals and birds the breeding of which is regulated by man.
2939. The decision in that case was applied in CIR v Glasgow (City) Ornithological Association (1938), 21 TC 445 Court of Session, in which it was held that “livestock” in section 23 of FA 1924 included caged birds.
Chapter 9: Other miscellaneous provisions
Overview
2940. This Chapter amends in certain cases the way in which the normal corporation tax rules apply.
Clause 990: European Economic Interest Groupings
2941. This clause sets out the basic rules that determine how corporation tax is to be charged on the members of a European Economic Interest Grouping (EEIG). It is based on section 510A of ICTA.
2942. Members of a grouping may be companies, individuals or partnerships. See section 842 of ITA for the income tax rules that apply to the non-corporate members of an EEIG.
Clause 991: Harbour reorganisation schemes: corporation tax
2943. This clause provides that if certain conditions are met, a trade transferred to a harbour authority as a result of a harbour reorganisation scheme is certified as not having ceased; and losses which would have been available to the transferor for relief may be used by the transferee. It is based on section 518(1), (2) and (3) of ICTA.
2944. The clause is the first of five clauses that deal with the corporation tax consequences of the transfer of a trade under a harbour reorganisation scheme.
2945. One of the conditions set out in subsection (1) is that the section applies only if the trade is transferred from a body corporate that is not a limited liability company. It is therefore clear that the clause and those that follow can apply only in very limited circumstances.
Clause 992: Harbour reorganisation schemes: capital allowances etc
2946. This clause sets out the rules relating to capital allowances that apply when a trade is transferred to a harbour authority under a harbour reorganisation scheme. It is based on section 518(4) and (5) of ICTA.
Clause 993: Harbour reorganisation schemes: chargeable gains
2947. This clause sets out the rules relating to loss relief against chargeable gains that apply when a trade is transferred to a harbour authority under a harbour reorganisation scheme. It is based on section 518(7) of ICTA.
Clause 994: Transfer of part of trade
2948. This clause modifies the rules in clause 991 if only part of a trade is transferred to a harbour authority under a certified harbour reorganisation scheme. It is based on section 518(8) and (9) of ICTA.
2949. Subsection (4)(b) refers to the need to make “just and reasonable apportionments” in certain circumstances and includes a minor change in the law. The change is made to bring the corporation tax code into line with that for income tax. See Change 33 in Annex 1.
Clause 995: Interpretation of sections 991 to 994
2950. This clause provides a number of definitions for clauses 991 to 994. It is based on section 518(10) of ICTA.
Clause 996: Use of different accounting practices within a group of companies
2951. This clause deals with the use of different accounting practices within a group of companies. It is based on section 51 of FA 2004.
2952. If the accounting treatments for a transaction under international accounting standards and UK GAAP are different, this could give rise to a tax mismatch: for example, one company might recognise a (deductible) loss before the other company recognised the corresponding (taxable) gain. If the two companies were members of the same group, the intra-group gain and loss would be cancelled out in arriving at the group’s consolidated profit before tax - but the group would still have the tax advantage of obtaining the deduction before having to recognise the taxable income.
2953. Accordingly, a tie-breaker provision is needed to deal with such cases. This clause of the Bill gives UK GAAP the priority, whether the tax advantage arises by accident or design.
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