Finance Act 1986

8 (1) Paragraph 6 shall be amended as follows.

(2) For sub-paragraph (2) there shall be substituted the following sub-paragraph—

“(2) The trade must not at any time in the relevant period consist of one or more of the following activities if that activity amounts, or those activities when taken together amount, to a substantial part of the trade—

(a) dealing in commodities, shares, securities, land or futures;

(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution;

(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;

(d) oil extraction activities;

(e) leasing (including letting ships on charter or other assets on hire) or receiving royalties or licence fees;

(f) providing legal or accountancy services; or

(g) providing services or facilities for any trade carried on by another person which consists to any substantial extent of activities within any of paragraphs (a) to (f) above and in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company.”

(3) For sub-paragraph (2B) there shall be substituted the following sub-paragraphs—

“(2B) A trade shall not be treated as failing to comply with this paragraph by reason only of its consisting of letting ships, other than oil rigs or pleasure craft, on charter if—

(a) every ship let on charter by the company carrying on the trade is beneficially owned by the company;

(b) every ship beneficially owned by the company is registered in the United Kingdom;

(c) throughout the relevant period the company is solely responsible for arranging the marketing of the services of its ships; and

(d) the conditions mentioned in sub-paragraph (2C) below are satisfied in relation to every letting on charter by the company,

but where any of the requirements mentioned in paragraphs (a) to (d) above are not satisfied in relation to any lettings of such ships, the trade shall not thereby be treated as failing to comply with this paragraph if those lettings and any other activity of a kind falling within paragraph 6(2) above do not, when taken together, amount to a substantial part of the trade.

(2C) The conditions are that—

(a) the letting is for a period not exceeding twelve months and no provision is made at any time (whether in the lease or otherwise) for extending it beyond that period otherwise than at the option of the lessee;

(b) during the period of the letting there is no provision in force (whether made in the lease or otherwise) for the grant of a new letting to end, otherwise than at the option of the lessee, more than twelve months after that provision is made;

(c) the letting is by way of a bargain made at arm's length between the company and a person who is not connected with it;

(d) under the terms of the charter the company is responsible as principal—

(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry; and

(ii) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period; and

(e) no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) above on behalf of the company;

but this sub-paragraph shall have effect, in relation to any letting between the company in question and its subsidiary, or between it and another company of which it is a subsidiary or between it and a company which is a subsidiary of the same company of which it is a subsidiary, as if paragraph (c) were omitted.”

(4) For sub-paragraph (4) there shall be substituted the following sub-paragraphs—

“(4) For the purposes of sub-paragraph (2)(b) above—

(a) a trade of wholesale distribution is one in which the goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption;

(b) a trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption;

(c) a trade is not an ordinary trade of wholesale or retail distribution if—

(i) it consists to a substantial extent of dealing in goods of a kind which are collected or held as an investment or of that activity and any other activity of a kind falling within paragraph 6(2) above, taken together; and

(ii) a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value;

and, in determining for the purposes of sub-paragraph (2)(b) whether a trade is an ordinary trade of wholesale or retail distribution, regard shall be had to the extent to which it has the features mentioned in Schedule 11 to the [1981 c. 35.] Finance Act 1981, those in Part I being regarded as indications that the trade is such an ordinary trade and those in Part II being regarded as indications of the contrary.

(5) For the purposes of this paragraph a person has a controlling interest in a trade—

(a) in the case of a trade carried on by a company if—

(i) he controls the company;

(ii) the company is a close company for the purposes of the Corporation Tax Acts and he or an associate of his is a director of the company and the beneficial owner of, or able directly or through the medium of other companies or by any other indirect means to control, more than 30 per cent, of the ordinary share capital of the company; or

(iii) not less than half of the trade could, in accordance with section 253(2) of the Taxes Act, be regarded as belonging to him;

(b) in any other case, if he is entitled to not less than half of the assets used for, or the income arising from, the trade.

(6) For the purposes of sub-paragraph (5) above there shall be attributed to any person any rights or powers of any other person who is an associate of his.

(7) References in this paragraph to a trade shall be construed without regard to so much of the definition of "trade" in section 526 (5) of the Taxes Act as relates to adventures or concerns in the nature of trade; but the foregoing provisions do not affect the construction of references in sub-paragraph (2)(g) or (5) above to a trade carried on by a person other than the company and those references shall be construed as including references to any business, profession or vocation.

(8) The Treasury may by order made by statutory instrument amend this paragraph in such manner as they consider expedient.

(9) Any order under sub-paragraph (8) above shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

(10) In this paragraph—

• "film" means an original master negative of a film, an original master film disc or an original master film tape;

• "oil rig" means any ship which is an offshore installation for the purposes of the [1971 c. 61.] Mineral Workings (Offshore Installations) Act 1971;

• "pleasure craft" means any ship of a kind primarily used for sport or recreation; and

• "sound recording" means, in relation to a film, its sound track, original master audio disc or, as the case may be, original master audio tape.”

(5) Sub-paragraph (2) above, so far as it relates to oil extraction, has effect in relation to shares issued at any time after the passing of this Act.