Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Companies with small profits
19

Supplementary
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Power to obtain information
(1)
An officer of Revenue and Customs may, for the purposes of this Part, by
notice require any person in whose name any shares or loan capital are
registered—
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(a)
to state whether or not that person is the beneficial owner of the shares
or loan capital, and
(b)
if that person is not the beneficial owner of the shares or loan capital, to
provide the name and address of the person on whose behalf the shares
or loan capital are registered in that person’s name.
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(2)
Subsections (3) and (4) apply if a company (“the issuing company”) appears to
an officer of Revenue and Customs to be a close company.
(3)
The officer may, for the purposes of this Part, by notice require the issuing
company to provide the officer with—
(a)
particulars of any bearer securities issued by the company,
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(b)
the names and addresses of the persons to whom the securities were
issued, and
(c)
details of the amounts issued to each person.
(4)
The officer may, for the purposes of this Part, by notice require—
(a)
any person to whom bearer securities were issued by the company, or
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(b)
any person to or through whom bearer securities issued by the
company were subsequently sold or transferred,

to provide any further information that the officer reasonably requires with a
view to enabling the officer to find out the names and addresses of the persons
beneficially interested in the securities.
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(5)
In this section—
“loan creditor” has the meaning given by section 453, and
“securities” includes—
(a)
shares, stocks, bonds, debentures and debenture stock, and
(b)
any promissory note or other instrument evidencing
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indebtedness to a loan creditor of the company.
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Meaning of “augmented profits”
(1)
For the purposes of this Part, a company’s augmented profits of an accounting
period are—
(a)
the company’s taxable total profits of that period, plus
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(b)
any franked investment income received by the company that is not
excluded by subsection (2).
(2)
This subsection excludes any franked investment income which the company
(“the receiving company”) receives from a company which is—
(a)
a 51% subsidiary of—
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(i)
the receiving company, or
(ii)
a company of which the receiving company is a 51% subsidiary,
or

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Part 3 — Companies with small profits
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(b)
a trading company or relevant holding company that is a quasi-
subsidiary of the receiving company.
(3)
For the purposes of subsection (2)(b) a company is a quasi-subsidiary of the
receiving company if—
(a)
it is owned by a consortium of which the receiving company is a
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member,
(b)
it is not a 75% subsidiary of any company, and
(c)
no arrangements of any kind (whether in writing or not) exist by virtue
of which it could become a 75% subsidiary of any company.
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Interpretation of section 32(2) and (3)
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(1)
For the purposes of section 32(2)(a), a company (“A”) is a 51% subsidiary of
another company (“B”) only at times when—
(a)
B would be beneficially entitled to more than 50% of any profits
available for distribution to equity holders of A, and
(b)
B would be beneficially entitled to more than 50% of any assets of A
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available for distribution to its equity holders on a winding up.
(2)
The requirement in subsection (1) is in addition to the requirements of section
1154(2) (meaning of “51% subsidiary”).
(3)
In determining for the purposes of section 32(2)(a) whether or not a company
is a 51% subsidiary of another company (“C”), C is treated as not being the
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owner of share capital if—
(a)
it owns the share capital indirectly,
(b)
the share capital is owned directly by a company (“D”), and
(c)
a profit on the sale of the shares would be a trading receipt for D.
(4)
In section 32(2)(b) and this section—
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(a)
“trading company” means a company whose business consists wholly
or mainly of carrying on a trade or trades, and
(b)
“relevant holding company” means a company whose business
consists wholly or mainly of holding shares in or securities of trading
companies that are its 90% subsidiaries.
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(5)
For the purposes of section 32(3), a company is owned by a consortium if at
least 75% of the company’s ordinary share capital is beneficially owned by two
or more companies which—
(a)
each beneficially own at least 5% of that capital,
(b)
would each be beneficially entitled to at least 5% of any profits available
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for distribution to equity holders of the company, and
(c)
would each be beneficially entitled to at least 5% of any assets of the
company available for distribution to its equity holders on a winding
up.
(6)
The companies meeting those conditions are called the members of the
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consortium.
(7)
Chapter 6 of Part 5 (equity holders and profits or assets available for
distribution) applies for the purposes of subsections (1) and (5) as it applies for
the purposes of section 151(4)(a) and (b).

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Part 3 — Companies with small profits
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Close investment-holding companies
(1)
For the purposes of this Part, a close company (“the candidate company”) is a
close investment-holding company in an accounting period unless throughout
the period it exists wholly or mainly for one or more of the permitted purposes
set out in subsection (2).
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There is an exception to this rule in subsection (5).
(2)
The candidate company exists for a permitted purpose so far as it exists—
(a)
for the purpose of carrying on a trade or trades on a commercial basis,
(b)
for the purpose of making investments in land, or estates or interests in
land, in cases where the land is, or is intended to be, let commercially
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(see subsection (3)),
(c)
for the purpose of holding shares in and securities of, or making loans
to, one or more companies each of which—
(i)
is a qualifying company, or
(ii)
falls within subsection (4),
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(d)
for the purpose of co-ordinating the administration of two or more
qualifying companies,
(e)
for the purpose of the making of investments as mentioned in
paragraph (b)—
(i)
by one or more qualifying companies, or
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(ii)
by a company which has control of the candidate company, or
(f)
for the purpose of a trade or trades carried on on a commercial basis—
(i)
by one or more qualifying companies, or
(ii)
by a company which has control of the candidate company.
(3)
For the purposes of subsection (2)(b), any letting of land is taken to be
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commercial unless the land is let to—
(a)
a person connected with the candidate company (“a connected
person”), or
(b)
a person who is—
(i)
the spouse or civil partner of a connected person,
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(ii)
a relative of a connected person, or the spouse or civil partner of
a relative of a connected person,
(iii)
the relative of the spouse or civil partner of a connected person,
or
(iv)
the spouse or civil partner of a relative of the spouse or civil
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partner of the connected person.
(4)
A company falls within this subsection (see subsection (2)(c)(ii)) if—
(a)
it is under the control of the candidate company or of a company which
has control of the candidate company, and
(b)
it exists wholly or mainly for the purpose of holding shares in or
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securities of, or of making loans to, one or more qualifying companies.
(5)
If a company is wound up and was not a close investment-holding company in
the accounting period that ends (by virtue of section 12(2) of CTA 2009)
immediately before the winding up starts, the company is not treated for the
purposes of this Part as being a close investment-holding company in the
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subsequent accounting period.
(6)
In this section “qualifying company” means a company which—

Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
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(a)
is under the control of the candidate company or of a company which
has control of the candidate company, and
(b)
exists wholly or mainly for either or both of the purposes mentioned in
subsection (2)(a) and (b).
(7)
In this section—
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“control” has the meaning given by section 450, and
“relative” means brother, sister, ancestor or lineal descendant.
Part 4
Loss relief
Chapter 1
10
Introduction
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Overview of Part
(1)
This Part provides corporation tax relief for—
(a)
losses made in a trade (see Chapter 2 as well as the restrictions on relief
in Chapter 3 relating to limited partnerships and limited liability
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partnerships),
(b)
losses made in a UK property business or overseas property business
(see Chapter 4),
(c)
losses made on a disposal of certain shares (see Chapter 5), and
(d)
losses made in certain miscellaneous transactions (see Chapter 6).
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(2)
This Part also provides for the reduction of available relief if there is a write-off
of government investment in a company (see Chapter 7).
(3)
For rules about the calculation of losses for the purposes of this Part, see—
(a)
section 47 of CTA 2009 (losses of a trade calculated on same basis as
profits), and
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(b)
section 210 of CTA 2009 (which applies section 47 of that Act, so that
losses of a UK property business or overseas property business are
calculated on the same basis as profits).
(4)
See also Part 17 of CTA 2009 for rules about how to calculate the losses of a
company that is a partner in a partnership.
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Chapter 2
Trade losses
Introduction
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Introduction to Chapter
(1)
This Chapter—
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(a)
provides relief against a company’s total profits of an accounting
period for a loss made by the company in a trade in that or a subsequent
accounting period (see sections 37 to 44), and

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Part 4 — Loss relief
Chapter 2 — Trade losses
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(b)
provides relief against a company’s profits of a trade of an accounting
period for a loss made by the company in the trade in a previous
accounting period (see sections 45 to 47).
(2)
This Chapter also provides for restrictions on relief for the following cases—
(a)
farming or market gardening (sections 48 to 51),
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(b)
dealings in commodity futures (section 52),
(c)
leasing contracts and company reconstructions (section 53), and
(d)
receipts of interest, dividends and royalties by a non-UK resident
company (section 54).
(3)
In this Chapter references to a company carrying on a trade are references to
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the company carrying on the trade so as to be within the charge to corporation
tax in relation to the trade.
(4)
In this Chapter, except in so far as the context otherwise requires—
(a)
references to a trade include an office, and
(b)
references to carrying on a trade include holding an office.
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Trade loss relief against total profits
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Relief for trade losses against total profits
(1)
This section applies if, in an accounting period, a company carrying on a trade
makes a loss in the trade.
(2)
The company may make a claim for relief for the loss under this section (but
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see subsection (5)).
(3)
If the company makes a claim, the relief is given by deducting the loss from the
company’s total profits of—
(a)
the accounting period in which the loss is made (“the loss-making
period”), and
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(b)
if the claim so requires, previous accounting periods so far as they fall
(wholly or partly) within the period of 12 months ending immediately
before the loss-making period begins.
(4)
The amount of a deduction to be made under subsection (3) for any accounting
period is the amount of the loss so far as it cannot be deducted under that
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subsection for a subsequent accounting period.
(5)
The company may not make a claim if, in the loss-making period, the company
carries on the trade wholly outside the United Kingdom.
(6)
A deduction under subsection (3)(b) may be made for an accounting period
only if the company—
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(a)
carried on the trade in the period, and
(b)
did not do so wholly outside the United Kingdom.
(7)
The company’s claim must be made—
(a)
within the period of two years after the end of the loss-making period,
or
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(b)
within such further period as an officer of Revenue and Customs may
allow.

Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
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(8)
If, for an accounting period, deductions under subsection (3) are to be made for
losses of different accounting periods, the deductions are to be made in the
order in which the losses were made (starting with the earliest loss).
(9)
Relief under this section is subject to restriction or modification in accordance
with provisions of the Corporation Tax Acts.
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Limit on deduction if accounting period falls partly within 12 month period
(1)
This section applies if an accounting period falls partly within the period of 12
months mentioned in section 37(3)(b).
(2)
The amount of the deduction for the loss for the accounting period is not to
exceed an amount equal to the overlapping proportion of the company’s total
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profits of that period.
(3)
The overlapping proportion is the same as the proportion that the part of the
accounting period falling within the period of 12 months bears to the whole of
the accounting period.
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Terminal losses: extension of periods for which relief may be given
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(1)
This section applies if—
(a)
a company ceases to carry on a trade, and
(b)
the company has made a terminal loss in the trade.
(2)
Sections 37(3)(b) and 38(1) and (3) have effect in relation to the terminal loss as
if the references to 12 months were references to 3 years.
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(3)
The following are terminal losses made in the trade—
(a)
the whole of any loss made by the company in the trade in an
accounting period that begins during the final 12 months, and
(b)
the overlapping proportion of any loss made by the company in the
trade in an accounting period that ends, but does not begin, during the
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final 12 months.
(4)
The overlapping proportion is the same as the proportion that the part of the
accounting period falling within the final 12 months bears to the whole of the
accounting period.
(5)
“The final 12 months” means the period of 12 months ending when the
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company ceases to carry on the trade.
(6)
This section is subject to section 41.
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Ring fence trades: extension of periods for which relief may be given
(1)
This section applies if—
(a)
in an accounting period a company makes a loss in a ring fence trade
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(as defined in section 162 of CAA 2001),
(b)
the accounting period is an accounting period for which an allowance
under section 164 of CAA 2001 is made to the company, and
(c)
not all the loss is a terminal loss (see section 39(3) above).

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Part 4 — Loss relief
Chapter 2 — Trade losses
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(2)
Sections 37(3)(b) and 38(1) and (3) have effect in relation to the loss (so far as it
is not a terminal loss) as if the references to 12 months were references to 3
years.
(3)
But if the loss exceeds the allowance mentioned in subsection (1)(b), subsection
(2) applies in relation to the loss only so far as it does not exceed that allowance.
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(4)
This section is subject to section 41.
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Sections 39 and 40: transfers of trade to obtain relief
Sections 39 and 40 do not apply by reason of a company ceasing to carry on a
trade if—
(a)
on the company ceasing to carry on the trade, any of the activities of the
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trade begin to be carried on by a person who is not (or by persons any
or all of whom are not) within the charge to corporation tax, and
(b)
the company’s ceasing to carry on the trade is part of a scheme or
arrangement the main purpose, or one of the main purposes, of which
is to secure that either or both of those sections apply in relation to a loss
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by reason of the cessation.
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Ring fence trades: further extension of period for relief
(1)
This section applies if—
(a)
a company makes a claim under section 37 for relief in respect of a loss
made in a ring fence trade,
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(b)
the claim is made by virtue of section 39 or 40, and
(c)
a part of the loss that is eligible for relief under section 37 cannot be so
relieved because there are not enough profits from which the loss may
be deducted under that section.
(2)
Relief for the part of the loss that cannot be relieved under section 37 (“the
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unrelieved loss”) is given to the company under this section.
(3)
The relief is given by deducting the unrelieved loss from the profits of the ring
fence trade of an accounting period that—
(a)
falls wholly or partly before the three year relief period, and
(b)
ends on or after 17 April 2002.
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(4)
The amount of a deduction to be made under subsection (3) for any accounting
period is so much of the unrelieved loss as cannot be deducted under that
subsection from profits of the ring fence trade of a subsequent accounting
period (but this is subject to subsections (5) and (6)).
(5)
In the case of an accounting period that falls partly before the 3 year relief
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period, the amount given by subsection (4) is to be reduced by the proportion
which the part of the accounting period falling within the 3 year relief period
bears to the whole of the accounting period.
(6)
In the case of an accounting period that falls partly before 17 April 2002, the
amount given by subsection (4) is to be reduced by the proportion which the
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part of the accounting period falling before that date bears to the whole of the
accounting period.