Finance Act 1975

Section 18.

SCHEDULE 3 Increase in Stock Values : Supplementary Provisions

1 (1) In any case where a company's 1973 accounting period does not coincide with a period of account or with two or more consecutive periods of account, the company's 1973 increase in stock value shall be determined for the purposes of the principal section not in accordance with subsection (1) of that section but by reference to a period (in this Schedule referred to as "the 1973 reference period") determined in accordance with this paragraph.

(2) In any case where the beginning of a company's 1973 accounting period does not coincide with the beginning of a period of account, the 1973 reference period shall begin at the beginning of the period of account Which is current at the beginning of the company's 1973 accounting period.

(3) In any case where the end of a company's 1973 accounting period does not coincide with the end of a period of account, the 1973 reference period shall end at the end of the period of account which is current at the end of the company's 1973 accounting period.

(4) In any case where sub-paragraph (2) above does not apply the 1973 reference period shall begin at the beginning of the company's 1973 accounting period and in any case where sub-paragraph (3) above does not apply the 1973 reference period Shall end at the end of the company's 1973 accounting period.

2 (1) In any case where paragraph 1(1) applies, a company's 1973 increase in stock value shall be determined for the purposes of the principal section by the formula:—

where—

• " A " is the number of months in the company's 1973 accounting period or 12, whichever is the less ;

• " C " is the value of the company's trading stock at the end of the 1973 reference period ;

• " O " is the value of the company's trading stock at the beginning of the 1973 reference period ; and

• " N " is the number of months in the 1973 reference period.

(2) In any case where a company's 1973 increase in stock value falls to be determined in accordance with sub-paragraph (1) above, any reference in subsections (3) to (5) of the principal section or in the following provisions of this Schedule—

(a) to the company's closing stock value shall be construed as a reference to the value of the company's trading stock at the end of the 1973 reference period; and

(b) to the company's trading income for its 1973 accounting period shall be construed as a reference to that fraction of its trading income for the 1973 reference period of which the numerator is A and the denominator is N, as defined in sub-paragraph (1) above.

(3) For the purposes of sub-paragraph (2)(b) above, the company's trading income for the 1973 reference period shall be the aggregate of its trading income for each of the accounting periods comprised in the 1973 reference period.

3 In any case where a company's 1973 accounting period comprises more than 12 months and paragraph 1 above does not apply, then, for the purposes of the principal section.—

(a) the company's 1973 increase in stock value, as determined in accordance with subsection (1) of that section, and

(b) the company's trading income for its 1973 accounting period,

shall each be reduced by multiplying them by the fraction of which the numerator is 12 and the denominator is the number of months in the company's 1973 accounting period.

4 (1) The provisions of this paragraph shall have effect for the purposes of the principal section and the preceding provisions of this Schedule in any case where—

(a) one or more companies (in this paragraph referred to as " the transferee company or companies ") forming part of a group of companies acquires or acquire trading stock from one or more other companies (in this paragraph referred to as "the transferor company or companies") forming part of the same group ; and

(b) the acquisition occurs during the 1973 accounting period of the transferee company or companies or, if paragraph 1(1) above applies in relation to that company or those companies, during the 1973 reference period; and

(c) the acquisition referred to in paragraph (a) above takes place in consequence or as part of a reconstruction, reorganisation, change in trading arrangements or other scheme which is carried out by companies forming part of the group of companies concerned and which results in a reduction in the trading stock held by one or more of those companies and a corresponding increase in the trading stock held by the other or others.

(2) If a claim for relief under the principal section is made by the transferee company or the transferor company or, as the case may be, by any of the transferee companies or transferor companies, then the company claiming relief and all other companies which—

(a) are either transferee companies or transferor companies, and

(b) have the same 1973 accounting period as the company claiming relief,

shall be treated as one company for the purpose of determining the aggregate of the relief to which they are entitled under the principal section:

Provided that if paragraph 1(1) above applies in relation to the company claiming relief, another company shall not be treated as falling within paragraph (b) above unless paragraph 1(1) above also applies in relation to that other company and both that company and the company claiming relief have the same 1973 reference period.

(3) For the purpose specified in sub-paragraph (2) above, any reference in the principal section or in the preceding provisions of this Schedule to the value of a company's stock at any time or to its trading income for any period shall be construed as a reference to the aggregate of the values of stocks at that time or, as the case may be, the aggregate of the trading incomes for that period, of all the companies which, for that purpose, are treated as one by virtue of that sub-paragraph.

(4) Where the aggregate of the relief to which two or more companies are entitled under the principal section has been determined in accordance with sub-paragraphs (2) and (3) above, the relief shall be apportioned between them so that the relief to which any one of them is so entitled bears to the relief to which the other or others is or are so entitled the same proportion as the closing stock value of that one of them bears to the closing stock value or values of the other or others.

(5) For the purposes of this paragraph, companies shall be treated as forming part of a group of companies if and only if they would be deemed to be members of the group for the purposes of section 258 of the Taxes Act (group relief).

5 (1) A company shall not be entitled to relief under the principal section if its 1973 accounting period or, if that period consists of more than one accounting period, any of those accounting periods ends by virtue of the company—

(a) ceasing to trade or to be, in respect of the trade concerned or of all the trades carried on by the company, within the charge to corporation tax ; or

(b) ceasing to be resident in the United Kingdom ; or

(c) ceasing to be within the charge to corporation tax.

(2) In any case where a company's 1973 increase in stock value falls to be determined in accordance with paragraph 2(1) above, sub-paragraph (1) above shall have effect as if the reference therein to the company's 1973 accounting period or the accounting periods of which it consists were a reference to any of the accounting periods comprised in the company's 1973 reference period.

6 (1) Subject to the following provisions of this paragraph, where a company claims relief under the principal section and, immediately before the beginning of its 1973 accounting period, the company was not carrying on the trade to which the claim relates then, unless—

(a) the company acquired the initial trading stock of that trade on a sale or transfer from another person on that person's ceasing to carry on that trade, and

(b) the stock so acquired is, or is included in, the company's trading stock as valued at the beginning of its 1973 accounting period,

the company shall be treated for the purposes of the principal section and the preceding provisions of this Schedule as having at the beginning of its 1973 accounting period trading stock of such value as appears to the inspector to be reasonable and just.

(2) In determining, for the purposes specified in sub-paragraph (1) above, the value of trading stock to be attributed to a company at the beginning of its 1973 accounting period, the inspector shall have regard to all the relevant circumstances of the case and, in particular.—

(a) to movements during the company's 1973 accounting period in the costs of items of a kind comprised in the company's trading stock during that period ; and

(b) to changes during that period in the volume of the trade in question carried on by the company.

(3) Any Commissioners dealing with an appeal from the decision of an inspector on a claim in a case where, in accordance with sub-paragraph (1) above, the inspector has attributed to a company at the beginning of its 1973 accounting period trading stock of a particular value shall, in hearing and determining the appeal, in so far as it relates to the value of the trading stock to be so attributed, determine such value as appears to them to be reasonable and just, having regard to those factors to which the inspector is required to have regard by virtue of sub-paragraph (2) above.

(4) In any case where paragraph 1(1) above applies to a company's 1973 accounting period, for any reference in sub-paragraphs (1) to (3) above to that accounting period there shall be substituted a reference to the 1973 reference period.

7 (1) In this Schedule " the principal section " means section 18 of this Act and " 1973 accounting period", " trading stock" and " trading income " have the same meaning as in the principal section.

(2) In any case where a company's 1973 accounting period or the 1973 reference period consists of a number of complete months and a fraction of a month, any reference in the preceding provisions of this Schedule to the number of months in the period shall be construed as including that fraction of a month (and in any case where any such period is less than one month any such reference shall be construed as a reference to that fraction of a month of which the period consists).

(3) Subsection (11) of the principal section shall apply for the purposes of this Schedule as it applies for the purposes of the principal section.