Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 7 — Community investment tax relief
Chapter 4 — Limitations on claims and attribution
121

239
Accreditation of investor
(1)
This section applies where the investor becomes accredited under Chapter 2 of
Part 7 of ITA 2007 with effect from a time within the 5 year period.
(2)
No claim in respect of the investment may be made—
(a)
for the relevant accounting period, or
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(b)
for any later accounting period.
(3)
To find the relevant accounting period proceed under the rest of this section,
in which references to the time of accreditation are to the time with effect from
which the investor becomes accredited.
(4)
If the time of accreditation falls within the first year of the 5 year period, the
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relevant accounting period is the accounting period in which the investment
date fell.
(5)
In any other case the relevant accounting period is—
(a)
the accounting period in which the last anniversary of the investment
date before the time of accreditation fell, or
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(b)
if the time of accreditation itself falls on an anniversary of the
investment date, the accounting period in which that anniversary falls.
Attribution
240
Attribution: general
(1)
In this Part references to the CITR attributable to any loan, securities or shares
20
in respect of an accounting period are read as references to the reduction
which—
(a)
is made in the investor’s liability to corporation tax for that period, and
(b)
is attributed to that loan, or those securities or shares, in accordance
with this section and section 241.
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This is subject to the provisions of Chapter 5 for the withdrawal or reduction
of CITR.
(2)
Subsections (3) and (4) apply if the investor’s liability to corporation tax is
reduced for an accounting period under this Part.
(3)
If the reduction is obtained because of one loan, or securities or shares included
30
in one issue, the amount of the tax reduction is attributed to that loan or those
securities or shares.
(4)
If the reduction is obtained because of a loan or loans, securities or shares
included in two or more investments, the reduction—
(a)
is apportioned between the loan or loans, securities or shares in each of
35
those investments in the same proportions as the invested amounts in
respect of the loan or loans, securities or shares for the period, and
(b)
is attributed to that loan or those loans, securities or shares accordingly.
(5)
If under this section an amount of any reduction of corporation tax is attributed
to any securities in the same issue, a proportionate part of that amount is
40
attributed to each security.

Corporation Tax Bill
Part 7 — Community investment tax relief
Chapter 5 — Withdrawal or reduction of CITR
122

(6)
If under this section an amount of any reduction of corporation tax is attributed
to any shares in the same issue, a proportionate part of that amount is
attributed to each of those shares.
(7)
If CITR attributable to a loan or any securities or shares falls to be withdrawn
under Chapter 5, the CITR attributable to that loan or each of those securities
5
or shares is reduced to nil.
(8)
If CITR attributable to any securities or shares falls to be reduced under that
Chapter by any amount, the CITR attributable to each of those securities or
shares is reduced by a proportionate part of that amount.
241
Attribution: bonus shares
10
(1)
This section applies if—
(a)
corresponding bonus shares are issued to the investor in respect of any
shares (“the original shares”) included in the investment, and
(b)
the original shares have been continuously held by the investor, as sole
beneficial owner, from the time they were issued until the issue of the
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bonus shares.
(2)
A proportionate part of any amount attributed to the original shares, in respect
of an accounting period, immediately before the bonus shares are issued is
attributed to each of the shares in the holding consisting of the original shares
and the bonus shares, in respect of that period.
20
(3)
After the issue of the bonus shares this Part applies as if—
(a)
the original issue had included the bonus shares, and
(b)
the bonus shares had been held by the investor, as sole beneficial
owner, continuously from the time the original shares were issued until
the bonus shares were issued.
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(4)
In this section—
“corresponding bonus shares” means bonus shares that are in the same
company, are of the same class, and carry the same rights as the original
shares,
“original issue” means the issue of shares forming the investment.
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Chapter 5
Withdrawal or reduction of CITR
Introduction
242
Introduction to Chapter
(1)
This Chapter provides for CITR to be withdrawn or reduced under—
35
(a)
section 243 (disposal of loan during 5 year period),
(b)
section 244 (disposal of securities or shares during 5 year period),
(c)
section 245 (repayment of loan capital during 5 year period),
(d)
section 246 (value received by investor during 6 year period: loans),
(e)
section 247 (value received by investor during 6 year period: securities
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or shares),

Corporation Tax Bill
Part 7 — Community investment tax relief
Chapter 5 — Withdrawal or reduction of CITR
123

(f)
section 254 (CITR subsequently found not to have been due).
(2)
This Chapter also provides for the manner in which CITR is to be withdrawn
or reduced (see section 255).
(3)
In this Chapter “the 6 year period” in relation to the investment is the period of
6 years beginning 12 months before the investment date.
5
Disposals
243
Disposal of loan during 5 year period
(1)
If the investment consists of a loan and within the 5 year period—
(a)
the investor disposes of the whole of the investment, otherwise than by
way of a permitted disposal, or
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(b)
the investor disposes of a part of the investment,

any CITR attributable to the investment in respect of any accounting period
must be withdrawn.
(2)
For the purposes of this section—
(a)
a disposal is “permitted” if—
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(i)
it is by way of a distribution in the course of dissolving or
winding up the CDFI,
(ii)
it is a disposal within section 24(1) of TCGA 1992 (entire loss,
destruction, dissipation or extinction of asset),
(iii)
it is a deemed disposal under section 24(2) of that Act (claim
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that value of asset has become negligible), or
(iv)
it is made after the CDFI has ceased to be accredited under
Chapter 2 of Part 7 of ITA 2007, and
(b)
a full or partial repayment of the loan is not treated as giving rise to a
disposal.
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244
Disposal of securities or shares during 5 year period
(1)
This section applies if the investment consists of securities or shares and—
(a)
the investor disposes of the whole or any part of the investment (“the
former investment”) within the 5 year period,
(b)
the CDFI has not ceased to be accredited under Chapter 2 of Part 7 of
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ITA 2007 before the disposal, and
(c)
the disposal does not arise as a result of an event within section
249(1)(a) (repayment, redemption or repurchase of securities or shares
included in the investment).
(2)
If the disposal is not a qualifying disposal, any CITR attributable to the former
35
investment in respect of any accounting period must be withdrawn.
(3)
If the disposal is a qualifying disposal, any CITR attributable to the former
investment in respect of an accounting period must—
(a)
if it is greater than A, be reduced by A, and
(b)
in any other case, be withdrawn.
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For this purpose “A” is an amount equal to 5% of the amount or value of the
consideration (if any) which the investor receives for the former investment.

Corporation Tax Bill
Part 7 — Community investment tax relief
Chapter 5 — Withdrawal or reduction of CITR
124

(4)
For the purposes of this section “qualifying disposal” means a disposal that
is—
(a)
by way of a bargain made at arm’s length, or
(b)
a permitted disposal (within the meaning of section 243).
(5)
If in respect of any accounting period—
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(a)
the amount of CITR attributable to the former investment (“B”) is less
than
(b)
the amount (“C”) which is equal to 5% of the invested amount in respect
of the former investment for that period,

subsection (3)(a) has effect in relation to that period as if the amount or value
10
referred to in subsection (3) were reduced by multiplying it by the fraction—

(6)
If the amount of CITR attributable to the former investment in respect of an
accounting period has been reduced before the CITR is obtained, the amount
referred to in subsection (5) as B is to be treated for the purposes of that
subsection as the amount it would have been without that reduction.
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(7)
Subsection (6) does not apply to a reduction by virtue of section 241
(attribution: bonus shares).
Repayment of loans
245
Repayment of loan capital during 5 year period
(1)
If the investment consists of a loan and—
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(a)
the average capital balance of the loan for the third, fourth or final year
of the 5 year period is less than the permitted balance for the year in
question, and
(b)
the difference between those balances is not an amount of insignificant
value,
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any CITR attributable to the investment in respect of any accounting period
must be withdrawn.
(2)
For the purposes of this section—
“the average capital balance” of the loan for a period is the mean of the
daily balances of capital outstanding during that period, ignoring any
30
non-standard repayments of the loan made in that period or at any
earlier time, and
“the permitted balance” of the loan is—
(a)
for the third year of the 5 year period, 75% of the average capital
balance for the period of 6 months beginning 18 months after
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the investment date,
(b)
for the fourth year of that period, 50% of that balance, and
(c)
for the final year of that period, 25% of that balance.
(3)
For the purposes of subsection (2) a repayment of the loan is a non-standard
repayment if subsection (4) or (5) applies.
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Corporation Tax Bill
Part 7 — Community investment tax relief
Chapter 5 — Withdrawal or reduction of CITR
125

(4)
This subsection applies if the repayment is made at the choice or discretion of
the CDFI, and not as a direct or indirect consequence of any obligation
provided for under the terms of the loan agreement.
(5)
This subsection applies if the repayment is made as a result of the failure of the
CDFI to meet any obligation of the loan agreement which—
5
(a)
is imposed merely because of the commercial risks to which the
investor is exposed as lender under that agreement, and
(b)
is no more likely to be breached than any obligation that might
reasonably have been agreed in respect of the loan in the absence of this
Part.
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(6)
For the purposes of this section “an amount of insignificant value” means an
amount which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the average capital
balance of the loan for the year of the 5 year period in question.
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Receipts of value
246
Value received by investor during 6 year period: loans
(1)
This section applies if the investment consists of a loan and the investor
receives any value (other than an amount of insignificant value) from the CDFI
during the 6 year period (see section 249 for provision about when value is
20
received).
(2)
The investor is treated for the purposes of—
(a)
section 222 (determination of “invested amount”), and
(b)
section 245 (repayments of loan capital),

as having received a repayment of the loan of an amount equal to the amount
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of the value received.
(3)
For those purposes the repayment is treated as made—
(a)
if the value is received in the first or second year of the 6 year period, at
the beginning of that second year, and
(b)
if the value is received in a later year of that period, at the beginning of
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the year in question.
(4)
For the purposes of section 245 the repayment is treated as a repayment other
than a non-standard repayment (within the meaning of that section).
(5)
For the purposes of this section “an amount of insignificant value” means an
amount of value which—
35
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the average capital
balance of the loan for the year of the 6 year period in which the value
is received.
(6)
For the purposes of subsection (5)(b)—
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(a)
“the average capital balance” of the loan for a year is the mean of the
daily balances of capital outstanding during the year (ignoring the
receipt of value in question), and
(b)
any value received in the first year of the 6 year period is treated as
received at the beginning of the second year of that period.
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Corporation Tax Bill
Part 7 — Community investment tax relief
Chapter 5 — Withdrawal or reduction of CITR
126

(7)
This section is subject to section 251 (value received if there is more than one
investment).
(8)
Value received is ignored, for the purposes of this section, so far as the CITR
attributable to any loan, securities or shares in respect of any one or more
accounting periods has already been reduced or withdrawn on its account.
5
247
Value received by investor during 6 year period: securities or shares
(1)
This section applies if the investment consists of securities or shares and—
(a)
the investor receives any value (other than an amount of insignificant
value) from the CDFI during the 6 year period (see section 249 for
provision about when value is received),
10
(b)
the investment or a part of it is held by the investor at the time the value
is received and has been held by the investor, as sole beneficial owner,
continuously since the investment was made (“the continuing
investment”),
(c)
the receipt is wholly or partly in excess of the permitted level of receipts
15
in respect of the continuing investment, and
(d)
the amount of that excess is not an amount of insignificant value.
(2)
Any CITR attributable to the continuing investment in respect of any
accounting period must be withdrawn.
(3)
For the purposes of subsection (1) the permitted level of receipts is exceeded
20
if—
(a)
any amount of value is received by the investor (ignoring any amounts
of insignificant value) in the first 3 years of the 6 year period, or
(b)
the total amount of value received by the investor (ignoring any
amounts of insignificant value)—
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(i)
before the beginning of the fifth year of that period, exceeds 25%
of the invested capital,
(ii)
before the beginning of the final year of that period, exceeds
50% of the invested capital, or
(iii)
before the end of that period, exceeds 75% of the invested
30
capital.
(4)
In this section—
“the invested capital”, in relation to the continuing investment, means the
amount subscribed for the securities or shares concerned, and
“an amount of insignificant value” means an amount of value which—
35
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the amount
subscribed by the investor for the securities or shares included
in the continuing investment.
(5)
This section is subject to section 251 (value received if there is more than one
40
investment).
(6)
Value received is ignored, for the purposes of this section, so far as CITR
attributable to any loan, securities or shares in respect of any one or more
accounting periods has already been reduced or withdrawn on its account.