Finance Act 2004

Chapter 11 U.K. Miscellaneous

Reliefs for business U.K.

141 Relief for research and development: software and consumable items U.K.

(1) In Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for expenditure on research and development) for paragraph 6 (expenditure on consumable stores) substitute—

“Expenditure on software or consumable items

6 (1) For the purposes of this Schedule expenditure on software or consumable items means expenditure on—

(a) computer software, or

(b) consumable or transformable materials,

and references to software or consumable items shall be construed accordingly.

(2) For the purposes of this Schedule consumable or transformable materials include water, fuel and power.

(3) Expenditure on software or consumable items is attributable to relevant research and development if the software or consumable items are employed directly in such research and development.

(4) In the case of software or consumable items partly employed directly in relevant research and development, an appropriate portion of the expenditure on the software or consumable items is treated as attributable to relevant research and development.

(5) For the purposes of sub-paragraphs (3) and (4), software or consumable items employed in the provision of services, such as secretarial or administrative services, in support of other activities are not, by virtue of their employment in the provision of those services, to be treated as themselves directly employed in those other activities.”.

(2) In each of the following enactments (which relate to tax relief for expenditure on research and development)—

(a) Schedule 20 to the Finance Act 2000 (c. 17) (small or medium-sized enterprises), other than paragraph 6,

(b) Schedule 12 to the Finance Act 2002 (c. 23) (large companies, work sub-contracted to, and large company relief for, small or medium-sized enterprises),

(c) Schedule 13 to that Act (vaccine research etc),

for the words “consumable stores”, wherever occurring, substitute “ software or consumable items ”.

(3) The amendments made by this section to Schedule 12 to the Finance Act 2002 (large companies etc) have effect in relation to expenditure incurred on or after 1st April 2004.

(4) Except as provided by subsection (5), the amendments made by this section to—

(a) Schedule 20 to the Finance Act 2000 (small or medium-sized enterprises),

(b) Schedule 13 to the Finance Act 2002 (vaccine research etc),

have effect in relation to expenditure incurred on or after the appointed day.

(5) The amendment made by subsection (1) (substitution of paragraph 6 of Schedule 20 to the Finance Act 2000), in its application for the purposes of Schedule 12 to the Finance Act 2002 by virtue of the amendments made to that Schedule by subsection (2), has effect in relation to expenditure incurred on or after 1st April 2004.

(6) In this section “the appointed day” means such day as the Treasury may by order appoint; and different days may be so appointed for different provisions or different purposes.

(7) The days that may be appointed by an order under subsection (6) include days earlier than the day on which this Act is passed, but not days earlier than 1st April 2004.

142 Temporary increase in amount of first-year allowances for small enterprises U.K.

(1) The amount of a first-year allowance under section 44 of the Capital Allowances Act 2001 (c. 2) (expenditure incurred by small or medium-sized enterprises) shall be determined, in the case of expenditure to which this subsection applies, as if the percentage specified in the entry relating to that section in the Table in section 52(3) of that Act were 50%.

(2) Subsection (1) applies to expenditure incurred by a small enterprise (within the meaning of section 44 of that Act) in the period of 12 months beginning with—

(a) 1st April 2004, if the small enterprise is within the charge to corporation tax, or

(b) 6th April 2004, if the small enterprise is within the charge to income tax.

(3) Accordingly, in section 52(3) of the Capital Allowances Act 2001, after the Table insert— “ In the case of expenditure qualifying under section 44, see also section 142 of the Finance Act 2004 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2004-05 or financial year 2004). ”.

143 Deduction for expenditure by landlords on energy-saving items U.K.

(1) After section 31 of the Taxes Act 1988 (Schedule A deductions and allowances: provisions supplementary to sections 25 to 30) insert—

“31A Deductions for expenditure by landlords on energy-saving items

(1) This section applies to a Schedule A business if the land mentioned in paragraph 1(1) of Schedule A consists of or includes a dwelling-house.

(2) In computing for the purposes of income tax the profits of a Schedule A business to which this section applies, a deduction shall be allowed in respect of any expenditure to which subsection (3) applies.

That is subject to any provision of regulations under subsection (13).

(3) This subsection applies to expenditure as respects which the numbered conditions set out in the following provisions of this section (“the qualifying conditions”) are satisfied.

(4) Condition 1 is that the expenditure is incurred in the provision of a qualifying energy-saving item in the dwelling-house.

(5) Condition 2 is that the expenditure is incurred on or after 6th April 2004 but before 6th April 2009.

(6) Condition 3 is that the expenditure is incurred wholly and exclusively for the purposes of the Schedule A business.

(7) Condition 4 is that the expenditure is capital expenditure.

(8) Condition 5 is that, apart from this section, the expenditure is not deductible in computing the profits of the Schedule A business.

(9) Condition 6 is that no allowance under the Capital Allowances Act may be claimed in respect of the expenditure.

(10) Condition 7 is that the expenditure is not incurred in respect of the provision of an item in a dwelling-house which, at the time when the item is installed,—

(a) is in the course of construction, or

(b) is comprised in land in which the person claiming the deduction under this section does not have an interest or is in the course of acquiring an interest or further interest.

(11) Condition 8 is that for the purposes of section 503 (letting of furnished holiday accommodation to be treated as a trade for certain purposes) either—

(a) the Schedule A business does not consist to any extent in the commercial letting of furnished holiday accommodation, or

(b) if it does so consist to any extent, the dwelling-house does not constitute any or all of the furnished holiday accommodation in question.

(12) Condition 9 is that the income of the person claiming the deduction is not computed in accordance with paragraph 9 or 11 of Schedule 10 to the Finance (No. 2) Act 1992 (furnished accommodation) in respect of any qualifying residence which consists of or includes the dwelling-house.

(13) The Treasury may by regulations make provision for any of the following purposes—

(a) restricting or reducing the amount of expenditure in respect of which deductions may be claimed under this section;

(b) excluding entitlement to a deduction under this section in such cases as may be specified in, or determined in accordance with, the regulations;

(c) determining which of two or more persons is (and which is not) entitled to a deduction under this section in cases where different persons have different interests in land consisting of or including the whole or part of a building containing one or more dwelling-houses;

(d) making apportionments (including apportioning amounts to companies which are not entitled to a deduction under this section) in cases where—

(i) a Schedule A business is carried on by two or more persons in partnership, or

(ii) an interest in land is beneficially owned by two or more persons jointly or in common.

(14) Section 31B supplements this section.

31B Provisions supplementary to section 31A

(1) This section has effect for the purpose of supplementing section 31A and shall be construed as one with that section.

(2) Section 31A does not have effect for the purposes of corporation tax.

(3) No deduction may be made under section 31A unless a claim is made.

(4) Where, on a just and reasonable apportionment of any expenditure, the qualifying conditions—

(a) would be satisfied as respects some part or parts of the expenditure, but

(b) would not be satisfied as respects the remainder of the expenditure,

a deduction under section 31A shall be allowed in respect of the part or parts mentioned in paragraph (a) but not in respect of the remainder.

Any such deduction is subject to, and must be in accordance with, the other provisions of this section and regulations under section 31A(13).

(5) Expenditure incurred by a person—

(a) for the purposes of a Schedule A business, but

(b) before the time when he begins to carry on that business,

is not deductible under section 31A by virtue of section 401 (relief for pre-trading expenditure) unless the expenditure is incurred not more than 6 months before that time (and on or after 6th April 2004).

The reference to section 401 is a reference to that section as it applies for the purposes of Schedule A in relation to a Schedule A business by virtue of section 21B.

(6) “Qualifying energy-saving items”are items of any of the following descriptions—

(a) cavity wall insulation;

(b) loft insulation.

(7) The Treasury may by regulations amend subsection (6)—

(a) by adding further descriptions of items; or

(b) by removing or varying descriptions of items.

(8) The Treasury may by regulations provide that an item is to be regarded as an item of any particular description in subsection (6) only if it satisfies such conditions as may be specified in, or determined in accordance with, the regulations.

(9) The conditions that may be imposed by regulations under subsection (8) include conditions imposed by reference to information or documents issued by any body, person or organisation.

(10) The provision that may be made by regulations under this section or section 31A which are made on or before 31st December 2004 includes provision—

(a) having effect before the date on which the regulations are made, or

(b) having effect in relation to expenditure incurred before that date.

(11) Any reference to the provision of a qualifying energy-saving item is a reference to the acquisition of such an item and its installation in the dwelling-house.”.

(2) The amendment made by this section has effect in relation to expenditure incurred on or after 6th April 2004 but before 6th April 2009.

144 Lloyd’s names: conversion to limited liability underwriting U.K.

Schedule 25 to this Act (which makes provision for certain reliefs to be available where a member of Lloyd’s converts to limited liability underwriting) has effect.

Offshore matters U.K.

145 Offshore funds U.K.

(1) The provisions of the Taxes Act 1988 relating to offshore funds are amended in accordance with Schedule 26 to this Act.

(2) Except as otherwise provided—

(a) the amendments have effect for account periods (within the meaning of Chapter 5 of Part 17 of that Act) ending on or after the day on which this Act is passed, and

(b) regulations made under a power conferred by virtue of any of the amendments may be made so as to have effect in relation to any such account period.

146 Meaning of “offshore installation” U.K.

Schedule 27 to this Act (which makes amendments relating to the meaning of “offshore installation”) has effect.

Health U.K.

147 Immediate needs annuities U.K.

(1) The Taxes Act 1988 is amended as follows.

(2) In section 431 (interpretative provisions relating to insurance companies) in subsection (2) (interpretation for purposes of Chapter 1 of Part 12) in the definition of “annuity business”, at the end insert “ , other than the business of granting immediate needs annuities (within the meaning of section 580C) ”.

(3) After section 580B insert—

“580C Relief from tax on annual payments under immediate needs annuities

(1) No liability to income tax arises in respect of a relevant annual payment made under an immediate needs annuity to the extent that—

(a) it is made for the benefit of the person protected under the immediate needs annuity, and

(b) it is made to a care provider or a local authority in respect of the provision of care for the person protected.

(2) In this section “relevant annual payment” means an annual payment which—

(a) would (apart from this section) be brought into charge under Case III of Schedule D, or

(b) is equivalent to a description of payment brought into charge under Case III of that Schedule but would (apart from this section) be brought into charge under Case V of that Schedule.

(3) In this section “immediate needs annuity” means a contract for a life annuity—

(a) the purpose, or one of the purposes, of which is to protect a person against the consequences of his being unable, at the time the contract is made, to live independently without assistance because of—

(i) mental or physical impairment, or

(ii) injury, sickness or other infirmity,

which is expected to be permanent, and

(b) under which benefits are payable in respect of the provision of care for the person protected.

(4) In this section “care provider” means a person who carries on a trade, profession or vocation which consists of or includes the provision of care and who—

(a) in relation to care provided in England and Wales or Northern Ireland, is registered under the relevant enactment in respect of the provision of care;

(b) in relation to care provided in Scotland, provides care which is registered under the relevant enactment;

(c) in relation to care provided in a territory outside the United Kingdom, satisfies comparable requirements under the law of that territory relating to the provision of care.

(5) In this section “the relevant enactment” means—

(a) in relation to England and Wales, Part 2 of the Care Standards Act 2000,

(b) in relation to Scotland, Part 1 of the Regulation of Care (Scotland) Act 2001,

(c) in relation to Northern Ireland, Part 2 or 3 of the Registered Homes (Northern Ireland) Order 1992 or Part 3 of the Health and Personal Social Services (Quality, Improvement and Regulation) (Northern Ireland) Order 2003.

(6) In this section “care” means accommodation, goods or services which it is necessary or desirable to provide to a person because of—

(a) mental or physical impairment, or

(b) injury, sickness or other infirmity,

which is expected to be permanent.

(7) In this section “life annuity” means an annuity to which section 656 (read with section 657) applies.

(8) The Treasury may by order amend—

(a) the definition of “immediate needs annuity” in subsection (3) above;

(b) the definitions of “care provider” in subsection (4) above and of “the relevant enactment” in subsection (5) above.”.

(4) The amendment made by subsection (2) has effect in relation to accounting periods beginning on or after 1st January 2005.

(5) For the purposes of section 547(5A)(b) of the Taxes Act 1988 (chargeable event gains: method of charging gain to tax), an immediate needs annuity made before 1st January 2005 shall not be taken, by virtue of the amendment made by subsection (2), to fall or to have at any time fallen to be regarded as not forming part of an insurance company or friendly society’s basic life assurance and general annuity business the income and gains of which are subject to corporation tax.

(6) The amendment made by subsection (3) has effect in relation to annual payments made on or after 1st October 2004 (whenever the immediate needs annuity in question was made).

148 Corporation tax: health service bodies U.K.

At the end of section 519A of the Taxes Act 1988 (health service bodies: exemptions from income and corporation tax) add—

“(3) The Treasury may by order disapply subsection (1)(b) in relation to a specified activity, or class of activity, of an NHS foundation trust.

(4) An order under subsection (3) shall make provision for determining the amount of the profits relating to an activity that are to be charged to corporation tax as a result of the disapplication of subsection (1)(b).

(5) An order under subsection (3) may, in particular—

(a) make provision for disregarding profits of less than a specified amount in respect of a financial year or accounting period or a specified part of a financial year or accounting period;

(b) make provision for disregarding a specified part of profits in respect of a financial year or accounting period or a specified part of a financial year or accounting period;

(c) make provision for disregarding all or part of profits relating to activity in respect of which receipts or turnover (as defined by the order) are less than a specified amount in respect of a financial year or accounting period or a specified part of a financial year or accounting period.

(6) An order under subsection (3)—

(a) may apply, with or without modification, a provision of the Tax Acts,

(b) may disapply a provision of the Tax Acts,

(c) may make provision similar to a provision of the Tax Acts, and

(d) may make provision generally or in relation to a specified body or class of bodies.

(7) The Treasury may make an order under subsection (3) only—

(a) in relation to an activity or class of activity that appears to the Treasury to be of a commercial nature,

(b) where it appears to the Treasury to be expedient for the purpose of avoiding, removing or reducing differences between—

(i) the fiscal treatment of the body undertaking the activity, and

(ii) the fiscal treatment of another body or class of body which is of a commercial nature and which undertakes or might undertake the same or a similar activity, and

(c) if a draft has been laid before, and approved by resolution of, the House of Commons.

(8) An activity authorised under section 14(1) of the Health and Social Care (Community Health and Standards) Act 2003 shall not be treated as an activity of a commercial nature for the purposes of subsection (7)(a).”.