(1)M1Where [F1any company] receives any money or money’s worth—
(a)forming part of the assets of a body corporate, other than assets representing capital; or
(b)forming part of the consideration for the transfer of the assets of a body corporate, other than assets representing capital, as part of a scheme of amalgamation or reconstruction which involves the winding up of the body corporate; or
(c)consisting of the consideration for a transfer or surrender of a right to receive anything falling under paragraph (a) or (b) above, being a receipt not giving rise to any charge to tax on the recipient apart from this section,
and the body corporate has at any time carried on a trade which consists of or includes the conducting of any mutual business (whether confined to members of the body corporate or not), and is being or has been wound up or dissolved, the provisions of this section shall apply to the receipt.
(2)If a transfer or surrender of a right under subsection (1)(c) above is not at arm’s length, [F2the company] making the transfer or surrender shall, for the purposes of this section, be deemed then to have received consideration equal to the value of the right.
(3)If in respect of a payment of any amount made to the body corporate for the purposes of its mutual business any deduction has been allowed for [F3the purposes of corporation tax] in computing the [F4profits] or losses of a trade, then—
(a)if at the time of the receipt [F5the recipient company] is the person, or one of the persons, carrying on that trade, the amount or value of the receipt shall be treated for [F3the purposes of corporation tax] as a trading receipt of that trade; and
(b)if at the time of the receipt [F5the recipient company] is not the person, or one of the persons, carrying on that trade, but was the person, or one of the persons, carrying on that trade when any payment was made to the body corporate for the purposes of its mutual business in respect of which a deduction was allowed for [F3the purposes of corporation tax] in computing the [F4profits] or losses of the trade, [F5the recipient company] shall, subject to subsection (6) below, be charged [F6to corporation tax] under Case VI of Schedule D for the [F7accounting period] in which the receipt falls on an amount equal to the amount or value of the receipt.
(4)Subsection (3)(a) above applies notwithstanding that, as a result of a change in the persons carrying on the trade, the [F4profits] are under section F8. . . 337(1) determined as if it had been permanently discontinued and a new trade set up and commenced.
(5)F9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)If the trade mentioned in subsection (3)(b) above was permanently discontinued before the time of the receipt, then in computing the charge to tax under subsection (3)(b) above there shall be deducted from the amount or value of the receipt—
(a)any loss, expense or debit (not being a loss, expense or debit arising directly or indirectly from the discontinuance itself) which, if the trade had not been discontinued, would have been deducted in computing for tax purposes the [F4profits] or losses of the person by whom it was carried on before the discontinuance, or would have been deducted from or set off against those profits as so computed, and
(b)any capital allowance to which the person who carried on the trade was entitled immediately before the discontinuance and to which effect has not been given by way of relief before discontinuance.
(7)Relief shall not be given under subsection (6) above or under section 105(1) in respect of any loss, expense, debit or allowance if and so far as it has been so given by reference to another charge to tax under this section or under section 103.
(8)For the purposes of subsection (1) above assets representing capital consist of—
(a)assets representing any loan or other capital subscribed, including income derived from any investment of any part of that capital, but not including profits from the employment of that capital for the purposes of the mutual business of the body corporate;
(b)assets representing any [F4profits] charged to tax as being [F4profits] of any part of the trade carried on by the body corporate which does not consist of the conducting of any mutual business;
(c)(so far as not comprised in paragraphs (a) and (b) above) assets representing taxed income from any investments.
(9)In this section “mutual business” includes any business of mutual insurance or mutual trading.
(10)Subsections (3) to (7) above shall apply with any necessary modifications—
(a)to a profession F10. . . ; and
(b)to the occupation of woodlands the profits or gains of which are assessable under Schedule D;
as they apply to a trade.
(11)It is hereby declared that the description of trades in subsection (1) above does not include any trade all the [F4profits] of which are chargeable to tax and, in particular, does not include such a trade carried on by any registered industrial and provident society.
Textual Amendments
F1Words in s. 491(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(2) (with Sch. 2)
F2Words in s. 491(2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(3) (with Sch. 2)
F3Words in s. 491(3) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(4)(a) (with Sch. 2)
F4Words in s. 491(3)(4)(5)(6)(8)(b)(11) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 1
F5Words in s. 491(3) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(4)(b) (with Sch. 2)
F6Words in s. 491(3)(b) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(4)(c) (with Sch. 2)
F7Words in s. 491(3)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(4)(d) (with Sch. 2)
F8Words in s. 491(4) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(5), Sch. 3 (with Sch. 2)
F9S. 491(5) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(6), Sch. 3 (with Sch. 2)
F10Words in s. 491(10)(a) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 189(7), Sch. 3 (with Sch. 2)
Modifications etc. (not altering text)
C1 See 1988(F) Sch.14 Part V—repeal of (b)from 6April 1993.
Marginal Citations
M1Source—1970 s.347