Finance Act 2002

Section 84(2)

SCHEDULE 30 U.K. Gains and losses of a company from intangible fixed assets: consequential amendments

General provisions about deductions U.K.

1 (1) For sections 337 and 337A of the Taxes Act 1988 (corporation tax: general provisions about taxation of income) substitute—

“337 Company beginning or ceasing to carry on trade

(1) Where a company begins or ceases—

(a) to carry on a trade, or

(b) to be within the charge to corporation tax in respect of a trade,

the company’s income shall be computed as if that were the commencement or, as the case may be, the discontinuance of the trade, whether or not the trade is in fact commenced or discontinued.

(2) Subsection (1) applies to a Schedule A business or overseas property business as it applies to a trade.

337A Computation of company’s profits or income: exclusion of general deductions

(1) For the purposes of corporation tax, subject to any provision of the Corporation Tax Acts expressly authorising a deduction—

(a) a company’s profits shall be computed without any deduction in respect of dividends or other distributions, and

(b) a company’s income from any source shall be computed without any deduction in respect of charges on income.

(2) In computing a company’s income from any source for the purposes of corporation tax—

(a) no deduction shall be made in respect of interest except in accordance with Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships); and

(b) no deduction shall be made in respect of losses from intangible fixed assets within Schedule 29 to the Finance Act 2002 except in accordance with that Schedule.”.

(2) For section 338 of the Taxes Act 1988 (corporation tax: charges on income) substitute—

“338 Charges on income deducted from total profits

(1) Charges on income are allowed as deductions from a company’s total profits in computing the corporation tax chargeable for an accounting period.

(2) They are deducted from the company’s total profits for the period as reduced by any other relief from tax other than group relief.

(3) The amount of the deduction is limited to the amount that reduces the company’s total profits for the period to nil.

(4) Except as otherwise provided, a deduction is allowed only in respect of payments made by the company in the accounting period concerned.

(5) The above provisions are subject to any express exceptions in the Corporation Tax Acts.

338A Meaning of “charges on income"

(1) This section defines what payments or other amounts are “charges on income” for the purposes of corporation tax.

This section has effect subject to any express exceptions in the Corporation Tax Acts.

(2) Subject to the following provisions of this section, the following (and only the following) are charges on income—

(a) annuities or other annual payments that meet the conditions specified in section 338B;

(b) qualifying donations within the meaning of section 339 (qualifying donations to charity);

(c) amounts allowed as charges on income under section 587B(2)(a)(ii) (gifts of shares etc to charity).

(3) No payment that is deductible in computing profits or any description of profits for the purposes of corporation tax shall be treated as a charge on income.

(4) No payment shall be treated as a charge on income if (without being so deductible) it is—

(a) an annuity payable by an insurance company, or

(b) an annuity or other annual payment payable by a company wholly or partly in satisfaction of any claim under an insurance policy in relation to which the company is the insurer.

In paragraph (a) “insurance company” has the same meaning as in Chapter 1 of Part 12.

338B Charges on income: annuities or other annual payments

(1) An annuity or other annual payment is a charge on income if—

(a) the requirements specified in subsection (2) are met, and

(b) it is not excluded from being a charge on income for the purposes of corporation tax—

(i) by any of the following provisions of this section, or

(ii) by any other provision of the Corporation Tax Acts.

(2) The requirements are that the payment—

(a) is made under a liability incurred for a valuable and sufficient consideration,

(b) is not charged to capital,

(c) is ultimately borne by the company, and

(d) in the case of a company not resident in the United Kingdom, is incurred wholly and exclusively for the purposes of a trade which is or is to be carried on by it in the United Kingdom through a branch or agency.

(3) An annuity or other annual payment made to a person not resident in the United Kingdom shall be treated as a charge on income only if the following conditions are met.

(4) The conditions are that the company making the payment is resident in the United Kingdom and that either—

(a) the company deducts tax from the payment in accordance with section 349, and accounts under Schedule 16 for the tax so deducted, or

(b) the person beneficially entitled to the income in respect of which the payment is made is a company that is not resident in the United Kingdom but which carries on a trade in the United Kingdom through a branch or agency and the payment falls to be brought into account in computing the chargeable profits (within the meaning given by section 11(2) of that company, or

(c) the payment is one payable out of income brought into charge to tax under Case V of Schedule D.

(5) An annuity or other annual payment is not a charge on income if—

(a) it is payable in respect of the company’s loan relationships, or

(b) it is a royalty to which Schedule 29 to the Finance Act 2002 applies (intangible fixed assets).

(6) Nothing in this section prevents an annuity or other annual payment from being a charge on income if it is a qualifying donation (within the meaning of section 339).”.

(3) In section 214(1) of the Taxes Act 1988 (chargeable payments connected with exempt distributions), in paragraph (c) (payments not to be treated as distributions for purposes of certain provisions) for “sections 337(2) and 338(2)(a)" substitute “ section 337A(1) ”.

(4) In section 834(1) of the Taxes Act 1988 (interpretation of the Corporation Tax Acts), in the definition of “charges on income" for “338" substitute “ 338A ”.

(5) In Schedule 23A to the Taxes Act 1988 (manufactured dividends), in paragraph 4(2)(b) for “338(4)(a)" substitute “ 338B(4)(a) ”.

Surrender of non-trading loss by way of group relief U.K.

2 (1) In section 403 of the Taxes Act 1988 (amounts that may be surrendered by way of group relief)—

(a) in subsection (1)(b) (amounts that may be surrendered if available for group relief) for “or management expenses which are" substitute “ , management expenses or a non-trading loss on intangible fixed assets ”;

(b) in subsection (3), in the first sentence (meaning of availability for group relief), for “and management expenses" substitute “ management expenses and a non-trading loss on intangible fixed assets ”;

(c) in subsection (3), in the second sentence (order in which amounts treated as used), for “and finally management expenses" substitute “ , management expenses and finally a non-trading loss on intangible fixed assets ”.

(2) In section 403ZD of the Taxes Act 1988 (further provisions as to amounts available for group relief), after subsection (5) insert—

“(6) A non-trading loss on intangible fixed assets means a non-trading loss on intangible fixed assets, within the meaning of Schedule 29 to the Finance Act 2002, for the surrender period.

It does not include so much of any such loss as is attributable to an amount being carried forward under paragraph 35(3) of that Schedule (amounts carried forward from earlier periods).”.

Extension of charitable exemption to non-trading gains U.K.

3 In section 505(1) of the Taxes Act 1988 (charities: exemptions), in paragraph (c) (income charged under Schedule D) after sub-paragraph (iib) insert—

“(iic) from tax under Case VI of Schedule D in respect of non-trading gains on intangible fixed assets under Schedule 29 to the Finance Act 2002, and”.

Change in ownership of company with unused non-trading loss U.K.

4 (1) Chapter 6 of Part 17 of the Taxes Act 1988 (tax avoidance: miscellaneous) is amended as follows.

(2) In section 768C, after subsection (12) add—

“(13) This section applies in relation to an asset to which Schedule 29 to the Finance Act 2002 applies (intangible fixed assets), with the following adaptations—

(a) for the reference to section 171(1) of the 1992 Act substitute a reference to paragraph 55 of that Schedule;

(b) for any reference to a chargeable gain under that Act substitute a reference to a chargeable realisation gain within the meaning of that Schedule that is a credit within paragraph 34(1)(a) of that Schedule (non-trading credits);

(c) for any reference to a disposal of the asset substitute a reference to its realisation within the meaning of that Schedule;

(d) for the reference to the relevant provisions of the 1992 Act substitute a reference to Part 6 of that Schedule.”.

(3) After section 768D insert—

“768E Change in ownership of company with unused non-trading loss on intangible fixed assets

(1) Where there is a change in the ownership of an investment company and either—

(a) paragraph (a), (b) or (c) of section 768B(1) applies, or

(b) section 768C applies,

the following provisions have effect to prevent relief being given under paragraph 35 of Schedule 29 to the Finance Act 2002 by setting a non-trading loss on intangible fixed assets incurred by the company before the change of ownership against profits arising after the change.

(2) The accounting period in which the change of ownership occurs is treated for that purpose as two separate accounting periods, the first ending with the change and the second consisting of the remainder of the period.

(3) The profits or losses of the period in which the change occurs are apportioned to those two periods—

(a) where paragraph (a), (b) or (c) of section 768B(1) applies, in accordance with Parts 2 and 3 of Schedule 28A, or

(b) where section 768C applies, in accordance with Parts 5 and 6 of that Schedule,

unless in any case the specified method of apportionment would work unjustly or unreasonably in which case such other method shall be used as appears just and reasonable.

(4) Relief under paragraph 35 of Schedule 29 to the Finance Act 2002 against total profits of the same accounting period is available only in relation to each of those periods considered separately.

(5) A loss made in any accounting period beginning before the change of ownership may not be set off under paragraph 35(3) of Schedule 29 to the Finance Act 2002 against—

(a) in a case where paragraph (a), (b) or (c) of section 768B(1) applies, profits of an accounting period ending after the change of ownership;

(b) in a case where section 768C applies, so much of those profits as represents the relevant gain within the meaning of that section.

(6) Subsections (8) and (9) of section 768 (time limits for assessment; information powers) apply for the purposes of this section as they apply for the purposes of that section.

(7) In this section “investment company” has the same meaning as in Part 4.”.

(4) In paragraph 6 of Schedule 28A to the Taxes Act 1988 (amounts in issue for purposes of section 768B), after paragraph (dd) insert—

“(de) the amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for that period under paragraph 34 of Schedule 29 to the Finance Act 2002;

(df) the amount of any non-trading loss on intangible fixed assets carried forward to that accounting period under paragraph 35(3) of that Schedule;”.

(5) In paragraph 7(1) of that Schedule (apportionment for purposes of section 768B), after paragraph (f) insert—

“(g) in the case of any such credit or debit as is mentioned in paragraph 6(de), by apportioning to each accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;

(h) in the case of any such loss as is mentioned in paragraph 6(df) above, by apportioning the whole amount of the loss to the first part of the accounting period being divided.”.

(6) In paragraph 13(1) of that Schedule (amounts in issue for purposes of section 768C), after paragraph (ed) insert—

“(ee) the amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for that period under paragraph 34 of Schedule 29 to the Finance Act 2002;

(ef) the amount of any non-trading loss on intangible fixed assets carried forward to that accounting period under paragraph 35(3) of that Schedule;”.

(7) In paragraph 16(1) of that Schedule (apportionment for purposes of section 768C), after paragraph (f) insert—

“(g) in the case of any such credit or debit as is mentioned in paragraph 13(ee), by apportioning to each accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;

(h) in the case of any such loss as is mentioned in paragraph 13(ef), by apportioning the whole amount of the loss to the first part of the accounting period being divided.”.

Double taxation relief U.K.

5 (1) Part 18 of the Taxes Act 1988 (double taxation relief) is amended as follows.

(2) In section 795 (computation of income subject to foreign tax), in subsection (4) (application of that section notwithstanding certain other provisions) after “notwithstanding anything in" insert “ —(a) ” and at the end insert— “, or

(b) paragraph 1(3) of Schedule 29 to the Finance Act 2002 (matters to be brought into account in respect of intangible fixed assets only under that Schedule).”.

(3) In the heading to section 797A (foreign tax on items giving rise to a non-trading credit), at the end add “: loan relationships".

(4) After that section insert—

“797B Foreign tax on items giving rise to a non-trading credit: intangible fixed assets

(1) This section applies for the purposes of any arrangements where, in the case of a company—

(a) a non-trading credit relating to an item is brought into account for the purposes of Schedule 29 to the Finance Act 2002 (intangible fixed assets) for an accounting period (“the applicable accounting period”), and

(b) there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax computed by reference to that item.

(2) It shall be assumed that tax chargeable under Case VI of Schedule D on the profits and gains arising for the applicable accounting period from the company’s intangible fixed assets falls to be computed on the actual amount of its non-trading credits for that period, and without any deduction in respect of non-trading debits.

(3) Section 797(3) shall have effect as if—

(a) there were for the applicable accounting period an amount equal to the adjusted amount of the non-trading debits falling to be brought into account by being set against profits of the company for that period of any description, and

(b) different parts of that amount might be set against different profits.

(4) For this purpose the adjusted amount of a company’s non-trading debits for an accounting period is given by:

where—

Total Debits is the aggregate amount of the company’s non-trading debits for that accounting period under Schedule 29 to the Finance Act 2002 (intangible fixed assets), and

Amount Carried Forward is the amount (if any) carried forward to the next accounting period of the company under paragraph 35(3) of that Schedule (carry-forward of non-trading loss in respect of which no claim is made for it to be set against total profits of current period).”.

(5) In section 811 (deduction for foreign tax where no credit available), in subsection (3) (application of that section notwithstanding certain other provisions) after “notwithstanding anything in" insert “ —(a) ” and at the end insert— “, or

(b) paragraph 1(3) of Schedule 29 to the Finance Act 2002 (matters to be brought into account in respect of intangible fixed assets only under that Schedule).”.

Value-shifting provisions U.K.

6 After section 33 of the Taxation of Chargeable Gains Act 1992 (provisions supplementary to sections 30 to 32) insert—

“33A Modification of sections 30 to 33 in relation to chargeable intangible asset

(1) Sections 30 to 33 have effect in relation to a chargeable intangible asset subject to the following modifications.

In this section “chargeable intangible asset” has the same meaning as in Schedule 29 to the Finance Act 2002.

(2) Any reference in those sections—

(a) to a disposal or part disposal of the asset shall be read as a reference to its realisation or part realisation within the meaning of that Schedule (see paragraph 19 of that Schedule);

(b) to an disposal of the asset under section 171(1) shall be read as a reference to its transfer under paragraph 55 of that Schedule (transfers within a group);

(c) to a disposal of the asset under section 179 shall be read as a reference to its realisation under paragraph 58 or 60 of that Schedule (degrouping).

(3) In section 31(6), paragraph (c) shall not apply to a revaluation where the profit on the revaluation is wholly taken into account as a credit under that Schedule (see paragraph 15 of that Schedule).

(4) None of the conditions in section 31(9) shall be treated as satisfied if the asset with enhanced value is a chargeable intangible asset within the meaning of that Schedule.

(5) The reference in section 32(2)(b) to the cost of the underlying asset shall be read, in the case of a chargeable intangible asset, as a reference to the capitalised value of the asset recognised for accounting purposes.”.