PART X LOSS RELIEF AND GROUP RELIEF
CHAPTER III LOSS RELIEF: MISCELLANEOUS PROVISIONS
397 Restriction of relief in case of farming and market gardening.
1
2
Any loss incurred in any accounting period by a company in carrying on a trade of farming or market gardening shall be excluded from section 393(2) if a loss, computed without regard to capital allowances, was incurred in carrying on that trade in that accounting period, and in each of the chargeable periods wholly or partly comprised in the prior five years.
3
Subsections (1) and (2) above shall not restrict relief for any loss or for any capital allowance F3in any case—
a
F4where the whole of the farming or market gardening activities in the year next following the prior five years are of such a nature, and carried on in such a way, as would have justified a reasonable expectation of the realisation of profits in the future if they had been undertaken by a competent farmer or market gardener, but
b
F4where, if that farmer or market gardener had undertaken those activities at the beginning of the prior period of loss, he could not reasonably have expected the activities to become profitable until after the end of the year next following the prior period of loss.
4
Subsections (1) and (2) above shall not restrict relief where the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking.
5
In this section—
F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“chargeable period”, in relation to a company, means any accounting period F6. . . ;
“prior five years”—
- a
in relation to a loss incurred in a year of assessment, means the last five years of assessment before that year, and
- b
in relation to a loss incurred in a company’s accounting period, means the last five years before the beginning of the accounting period;
- a
“prior period of loss” means the prior five years, except that, if losses were incurred in the trade in successive years of assessment or chargeable periods amounting in all to a period longer than five years (and ending when the prior five years end), it means that longer period, and in applying this definition to a chargeable period of a company “losses” means losses computed without regard to capital allowances; and
F9“farming” and “market gardening” shall be construed—
- a
for income tax purposes, in accordance with the definitions in section 876 of ITTOIA 2005, and
- b
for corporation tax purposes, in accordance with the definitions in section 832 but as if those definitions were not restricted to activities in the United Kingdom.
- a
6
F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
In ascertaining for the purposes of this section whether a loss was incurred in any part of the prior five years or earlier, the rules applicable to F10the calculation of the profits of a trade in Part 2 of ITTOIA 2005 or to Case I of Schedule D shall be applied; and in this section “loss computed without regard to capital allowances” means, in relation to a chargeable period of a company, a loss so ascertained, F8 but disregarding—
a
any allowance or charge under the Capital Allowances Act (including enactments which under this Act are to be treated as contained in that Act); and
b
any provision of that Act requiring allowances and charges to be treated as expenses and receipts of the trade.
8
Subsections (1) and (2) above shall not restrict relief for any loss or capital allowance if the trade was set up and commenced within the prior five years, and, for the purposes of this subsection
F11a
a trade shall be treated as discontinued, and a new trade set up, in any event which under any of the provisions of the Tax Acts is to be treated as equivalent to the permanent discontinuance or setting up of a trade; and
b
without prejudice to paragraph (a), a trade shall be treated as discontinued, and a new trade set up, at any time when there is a change in the persons carrying on the trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on.
9
For the purposes of subsection (8) above a trade shall not be treated as discontinued if, under section 343(2), it is not to be treated as discontinued for the purpose of capital allowances and charges.
10
F12Where at any time there has been a change in the persons carrying on a trade, this section shall, notwithstanding subsection (8) above, apply as if—
a
a husband and his wife were the same person, and
b
a husband or his wife were the same person as any company of which either the husband or the wife has control, or of which the two of them have control;
and accordingly relief from income tax or from corporation tax may be restricted under this section by reference to losses some of which are incurred in years of assessment and some, computed without regard to capital allowances, are incurred in a company’s chargeable periods.
In this subsection “control” has the same meaning as in Part XI.
398 Transactions in deposits with and without certificates or in debts.
M1Where a person sustains a loss on the exercise or disposal of a right to receive any amount, being a right to which section 56(2) F14above or Chapter 11 of Part 4 of ITTOIA 2005 (transactions in deposits) applies, in a case where—
a
if a profit had arisen from that exercise or disposal, that profit would have been chargeable to tax by virtue of section 56(2) F15above or that Chapter, and
b
he is chargeable to F16corporation tax under Schedule D or income tax under that Act in respect of interest payable on that amount,
then the amount of that interest shall be included in the amounts against which F13the amount of his loss may be set off in pursuance of a claim under section 392 or, as the case may be, against which the amount of his loss may be set off under section 396.
399 Dealings in commodity futures etc: withdrawal of loss relief.
1
F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F191A
F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F201B
If, apart from section 143(1) of the 1992 Act or section 128(2) above, gains arising in the course of dealing in financial futures or in qualifying options would constitute, for the purposes of the Corporation Tax Acts, profits and gains chargeable to tax under Case V or VI of Schedule D, then any loss arising in the course of that dealing shall not be allowable against profits and gains which are chargeable to tax under Case V or VI of Schedule D.
2
M3Relief shall not be given to any person under section 380, 381 or F17393A(1) in respect of a loss sustained in a trade of dealing in commodity futures if—
a
the loss was sustained in a trade carried on in partnership and that person or one or more of the other partners was a company; and
b
a scheme has been effected or arrangements have been made (whether by the partnership agreement or otherwise) such that the sole or main benefit that might be expected to accrue to that person from his interest in the partnership was the obtaining of a reduction in tax liability by means of any such relief.
3
Where relief has been given in a case to which subsection (2) above applies it shall be withdrawn by the making of an assessment F22(in the case of corporation tax, under Case VI of Schedule D).
4
Subsection (2) above does not apply where the scheme was effected or the arrangements were made wholly before 6th April 1976.
5
C1C7C8400 Write-off of government investment.
C3C21
M5Where any amount of government investment in a body corporate is written-off on or after 6th April 1988, an amount equal to the amount written-off shall be set off against the body’s tax losses as at the end of the accounting period ending last before the write-off date and, to the extent to which that amount exceeds those losses, against the body’s tax losses as at the end of the next accounting period and so on.
2
For the purposes of subsection (1) above a body’s tax losses as at the end of an accounting period are—
a
any losses which under section 393(1) are F24. . . available for relief against its trading income for the next accounting period;
F37b
in the case of a company with investment business, within the meaning of Part 4, any such excess as is mentioned in subsection (8) of section 75 which falls to be treated in accordance with subsection (9) of that section;
F29bb
any losses which—
i
under section 392A(2) or 392B are carried forward to the next accounting period, or
F38ii
under section 392A(3) are to be carried forward to the next accounting period and treated for the purposes of section 75 as if they were expenses of management deductible for that period;
c
any allowances which under F34section 260(2) of the Capital Allowances Act are available for carry forward to the next accounting period;
d
any amount paid by way of charges on income so far as it exceeds the company’s profit for the period and is not taken into account under 75(3) or 393(9); and
e
any allowable losses available under F258 of the 1992 Act so far as not allowed in that or a previous accounting period.
3
The set off to be made under subsection (1) above for any accounting period shall be made first against the amounts in paragraphs (a) to (d) of subsection (2) above and, so far as it cannot be so made, against the amount in paragraph (e) of that subsection.
4
For the purposes of subsection (1) above there shall be excluded from a body’s tax losses as at the end of the accounting period ending last before the write-off date any amounts in respect of which a claim has been made before the write-off date under section F26393A(1) or 402 of this Act or F35section 260(3) of the Capital Allowances Act but the body’s tax losses as at the end of any subsequent accounting period shall be determined as if no such claim had been made on or after that date.
5
Any amount that could be set off under subsection (1) above against a body’s tax losses as at the end of an accounting period (or could be so set off if that body then had any such losses) may be set off against the tax losses of any other body corporate which at the end of that period is a member of the same group as the first-mentioned body, or partly against the tax losses of one member of that group and partly against those of the other or any of the others, as may be just and reasonable.
C5C46
Expenditure shall not be treated for the purposes of F36section 532 or 536 of the Capital Allowances Act or section F2750 of the 1992 Act as met by the Crown by reason only of the writing-off of any government investment in the body in question and a sum shall not by reason only of any such writing-off be treated as not having been deductible in computing the F30profits of that body for the purposes of Case I or II of Schedule D.
C67
For the purposes of this section an amount of government investment in a body corporate is written-off—
a
if its liability to repay any money lent to it out of public funds by a Minister of the Crown F31or the Scottish Ministers is extinguished;
b
if any of its shares for which a Minister of the Crown has F32, or the Scottish Ministers have, subscribed out of public funds are cancelled; or
c
if its commencing capital debt is reduced otherwise than by being paid off or its public dividend capital is reduced otherwise than by being repaid (including, in either case, a reduction to nil);
and the amount written-off and the write-off date are the amount in respect of which the liability is extinguished and the date on which it is extinguished, the amount subscribed for the shares that are cancelled and the date of cancellation or the amount of reduction in the commencing capital debt or public dividend capital and the date of the reduction, as the case may be.
C68
In subsection (7) above “commencing capital debt” means any debt to a Minister of the Crown F33or the Scottish Ministers assumed as such under an enactment and “public dividend capital” means any amount paid by a Minister of the Crown F33or the Scottish Ministers under an enactment in which that amount is so described or under an enactment corresponding to an enactment in which a payment made on similar terms to another body is so described.
9
This section shall not have effect in relation to any amount written-off if and to the extent to which it is replaced by money lent, or a payment made, out of public funds or by shares subscribed for, whether for money or money’s worth, by a Minister of the Crown F33or the Scottish Ministers.
F289A
Nothing in section 80(5) of the Finance Act 1996 (matters to be brought into account in the case of loan relationships only under Chapter II of Part IV of that Act) shall be construed as preventing this section from applying where a government investment in a body corporate is written off by the extinguishment, in whole or in part, of any liability under a loan relationship.
10
In this section—
“body corporate” means any body corporate which is a company for the purposes of corporation tax;
“group” means a company having one or more 51 per cent. subsidiaries and that or those subsidiaries; and
“Minister of the Crown” includes a Northern Ireland department.
C9C10C11C12401 Relief for pre-trading expenditure.
1
M6Where a F48company incurs expenditure for the purposes of a F49trade or profession before the time when F50the company begins to carry it on and the expenditure—
a
is incurred not more than F39seven years before that time; and
b
F421A
F43. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F441AA
Subsection (1) above shall not apply to any expenditure in relation to which any debit falls, or (but for subsection (1AB) below) would fall, to be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships).
1AB
Where, in the case of any company—
a
a non-trading debit is given for any accounting period for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships), and
b
an election for the purposes of this section is made by that company with respect to that debit within the period of 2 years beginning with the end of that accounting period,
that debit shall not be brought into account for the purposes of that Chapter as a non-trading debit for that period, but subsection (1AC) below shall apply instead.
1AC
If a company—
a
begins to carry on a trade within the period of seven years after the end of the accounting period for which a non-trading debit is given for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships),
b
that debit is such that, if it had been given for the accounting period in which the company begins to carry on that trade, it would have been brought into account by reference to that trade in accordance with section 82(2) of that Act (trading debits and credits), and
c
an election is or has been made with respect to that debit under subsection (1AB) above,
that debit shall be treated for the purposes of that Chapter as if it were a debit for the accounting period in which the company begins to carry on the trade and shall be brought into account for that period in accordance with section 82(2) of that Act.
F461B
F47. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
F41. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .