Finance Act 2004

Special computational provisions U.K.

18 U.K. Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special computational provisions) is amended as follows.

19 U.K. In paragraph 3 (1) (options etc.) for “an authorised accruals basis of accounting” substitute “ an amortised cost basis of accounting ”.

20 (1) Paragraph 5 (bad debts etc.) is amended as follows. U.K.

(2) For the heading substitute “ Release of liability under debtor relationship ”.

(3) Omit sub-paragraphs (1) to (2A).

(4) In sub-paragraph (3)(b) for “an authorised accruals basis of accounting” substitute “ an amortised cost basis of accounting ”.

(5) In sub-paragraphs (5), (6)(b) and (c) and (7)(a) for “requires the use of an authorised accruals basis of accounting” substitute “ applies ”.

21 (1) Paragraph 5A (bad debts and consortium relief) is amended as follows. U.K.

(2) In the heading for “Bad debts” substitute “ Impairment losses ”.

(3) In sub-paragraph (2) for “by virtue of paragraph 5 above a debit” substitute “ an impairment loss ”.

(4) In sub-paragraphs (5)(a) and (8)(b) for “debits brought into account for that period by virtue of paragraph 5 above” substitute “ impairment losses brought into account for that period ”.

(5) In sub-paragraph (9) omit “by virtue of paragraph 5(2) above”.

(6) In sub-paragraph (14), in the closing words, for “sub-paragraph (12)” substitute “ sub-paragraph (6) ”.

(7) For sub-paragraph (15)(a) substitute—

“(a) the debtor consortium company has, in accordance with an amortised cost basis of accounting, brought into account for an accounting period an amount in respect of a release of any liability under a debtor relationship, and”.

(8) In the closing words of sub-paragraph (15) omit “under paragraph 5(1)”.

(9) In sub-paragraph (19), in the definition of “related debt recovery credit” for “by virtue of paragraph 5(2) above in connection with a bad debt” substitute “ in connection with a debt ”.

22 (1) Paragraph 6 (bad debts etc where parties have a connection) is amended as follows. U.K.

(2) In the heading for “Bad debt etc” substitute “ Impairment losses ”.

(3) In sub-paragraph (1) for “requires an authorised accruals basis of accounting to be used” substitute “ (accounting method where parties have a connection) applies ”.

(4) In sub-paragraph (2) omit “in accordance with that accounting method”.

(5) For sub-paragraph (3) substitute—

“(3) An impairment loss may be brought into account for the purposes of this Chapter only in accordance with—

(a) sub-paragraph (4) below,

(b) paragraph 6A, or

(c) paragraph 6B.”.

(6) After that sub-paragraph insert—

“(3A) Where an impairment loss is excluded by sub-paragraph (3), no credit in respect of any reversal of the impairment shall be brought into account for the purposes of this Chapter.”.

(7) In sub-paragraph (4) for “A departure from that assumption shall be allowed” substitute “ An impairment loss is not excluded by sub-paragraph (3) ”.

23 (1) Paragraph 6A (bad debts etc.: parties having connection and creditor in insolvent liquidation etc.) is amended as follows. U.K.

(2) In the heading for “Bad debt etc” substitute “ Impairment losses ”.

(3) In sub-paragraph (2) for the words from “a departure” to “shall be allowed” substitute “ an impairment loss is not excluded by paragraph 6(3) ”.

24 (1) Paragraph 6B (bad debts etc.: companies becoming connected) is amended as follows. U.K.

(2) In the heading for “Bad debt etc” substitute “ Impairment losses ”.

(3) In sub-paragraph (1) for the words following paragraph (b) substitute “ an impairment loss is not excluded by paragraph 6(3) in the following two cases ”.

(4) In sub-paragraph (2)—

(a) for the opening words down to “if—” substitute “ The first case is where— ”;

(b) in paragraph (a) for “a departure has been allowed under paragraph 5 (1) above” substitute “ an impairment loss has been brought into account for the purposes of this Chapter ”.

(5) In sub-paragraph (3) for “A departure shall be allowed” substitute “ An impairment loss may be brought into account ”.

(6) For sub-paragraph (5) substitute—

“(5) The second case is where the following conditions are met.”.

(7) In sub-paragraph (7) for “A departure shall be allowed” substitute “ An impairment loss may be brought into account ”.

25 (1) Paragraph 6C (bad debts etc.: cessation of connection) is amended as follows. U.K.

(2) In the heading for “Bad debt etc: departure not permitted by paragraph 6:” substitute “ Impairment losses: ”.

(3) For sub-paragraph (1)(a) substitute—

“(a) an impairment loss is excluded by paragraph 6(3) in any accounting period, and”.

(4) In sub-paragraph (2) omit “by virtue of paragraph 5(2) above”.

26 U.K. In paragraph 8 (restriction on writing off overseas sovereign debts etc.), for sub-paragraphs (1) and (2) substitute—

“(1) This paragraph applies as respects the debits and credits to be brought into account for the purposes of this Chapter in respect of the impairment of a financial asset representing a relevant overseas debt.

This paragraph does not apply where fair value accounting is used.

(2) Where this paragraph applies the debits and credits to be so brought into account for any accounting period shall be determined on the basis that it is not permissible for the asset to be impaired by more than the relevant percentage.”.

27 (1) Paragraph 9 (further restriction on bringing into account losses on overseas sovereign debt etc.) is amended as follows. U.K.

(2) In sub-paragraph (1) for paragraphs (a) and (b) substitute—

“(a) an impairment loss falls to be brought into account for the purposes of this Chapter in respect of a relevant overseas debt in relation to which any of the conditions in sub-paragraph (2) is met,

(b) in the accounting period in which that loss falls to be so brought into account (“the loss period”) the company ceases to be a party to the loan relationship,”.

(3) In sub-paragraph (2)—

(a) for the opening words down to “if—” substitute “ The conditions referred to in sub-paragraph (1)(a) are— ”;

(b) in paragraph (b)—

(i) after “Chapter” insert “ for a period of account of the company beginning before 1st January 2005 ”, and

(ii) for “paragraph 5(1)(a) to (c) above” substitute “ paragraph 5(1)(a) to (c) of this Schedule as it had effect before its amendment by Schedule 10 to the Finance Act 2004 ”;

(c) omit the “or” at the end of paragraph (b);

(d) after that paragraph insert—

“(ba) an impairment loss in respect of the debt has been brought into account for the purposes of this Chapter for a period of account of the company beginning on or after 1st January 2005; or”.

28 U.K. In paragraph 10 (imported losses etc.), for sub-paragraph (1) substitute—

“(1) This paragraph applies in the case of a company (“the chargeable company”) for an accounting period (“the loss period”) where—

(a) there is a loss arising in connection with a loan relationship of the company which apart from this paragraph would fall to be brought into account for the purposes of this Chapter, and

(b) that loss is referable in whole or in part to a time when the relationship was not subject to United Kingdom taxation.

This paragraph does not apply where fair value accounting is used.”.

29 U.K. In paragraph 10A (deemed disposal on company ceasing to be resident in UK etc.), omit sub-paragraph (5).

30 U.K. In paragraph 11 (transactions not at arm’s length), for sub-paragraph (1) substitute—

“(1) Where—

(a) debits or credits in respect of a loan relationship of a company fall to be brought into account for the purposes of this Chapter in respect of a related transaction, and

(b) that transaction is not a transaction at arm’s length,

the debits or credits to be brought into account shall be determined on the assumption that the transaction was entered into on the terms on which it would have been entered into between independent persons.

This is subject to the exceptions in sub-paragraphs (1A), (2), (3) and (3A).”.

31 U.K. In paragraph 12 (continuity of treatment: groups etc.), in sub-paragraph (2A)—

(a) in the opening words for “an authorised mark to market basis of accounting” substitute “ fair value accounting ”;

(b) at the end of paragraph (a) insert “ ; and ”; and

(c) omit paragraph (b) and the word “and” preceding it.

32 U.K. In paragraph 13 (loan relationships for unallowable purposes), in the closing words of sub-paragraph (1) omit “given by the authorised accounting method used”.

33 (1) Paragraph 14 (debits and credits treated as relating to capital expenditure) is amended as follows. U.K.

(2) In sub-paragraph (1) omit “given by an authorised accounting method”.

(3) After sub-paragraph (3) add—

“(4) Where a debit is brought into account by a company in accordance with sub-paragraph (1), no debit shall be brought into account in respect of—

(a) the writing down of so much of the value of the fixed capital asset or project as is attributable to that debit, or

(b) so much of any amortisation or depreciation as represents a writing off of the interest component of the asset.”.

34 U.K. In paragraph 16 (amounts imputed under Schedule 28AA to the Taxes Act 1988), in sub-paragraph (2) omit “, notwithstanding the provisions of any authorised accounting method,”.

35 (1) Paragraph 19 (partnerships involving companies) is amended as follows. U.K.

(2) Omit sub-paragraph (10).

(3) For sub-paragraph (11) substitute—

“(11) Where the company partner uses fair value accounting in relation to its interest in the partnership, the debits and credits to be brought into account under this paragraph by that company must be determined on the basis of fair value accounting.”.

(4) In sub-paragraph (12) for the words from “carried to or sustained by a reserve” to the end substitute “ recognised in the firm’s statement of recognised gains and losses or statement of changes in equity ”.

36 U.K. After paragraph 19 insert—

“Adjustment on change of accounting policy U.K.

19A (1) This paragraph applies where—

(a) there is a change of accounting policy in drawing up a company’s accounts from one period of account (the “earlier period”) to the next (the “later period”), and

(b) the approach in each of those periods accorded with the law and practice applicable in relation to that period.

(2) This paragraph applies, in particular, where—

(a) the company prepares accounts for the earlier period in accordance with UK generally accepted accounting practice and for the later period in accordance with international accounting standards, or

(b) the company prepares accounts for the earlier period in accordance with international accounting standards and for the later period in accordance with UK generally accepted accounting practice.

(3) If there is a difference between—

(a) the accounting value of an asset or liability representing a loan relationship of the company at the end of the earlier period, and

(b) the accounting value of that asset or liability at the beginning of the later period,

a corresponding debit or credit (as the case may be) shall be brought into account for the purposes of this Chapter in the later period.

(4) In sub-paragraph (3) “accounting value” means the carrying value of the asset or liability recognised for accounting purposes.

(5) This paragraph does not apply if or to the extent that such a debit or credit as is mentioned in sub-paragraph (3) falls to be brought into account apart from this paragraph.

(6) Where or to the extent that an adjustment is made under this paragraph, no adjustment under Schedule 22 (computation of profits: adjustment on change of basis) shall be made.

Power to make further provision by regulations U.K.

19B (1) The Treasury may by regulations make provision for cases where there is a change of accounting policy in drawing up a company’s accounts from one period of account to the next affecting the amounts to be brought into account for accounting purposes in respect of the company’s loan relationships.

(2) The regulations may provide for any debits or credits that would otherwise be brought into account for the purposes of this Chapter—

(a) not to be brought into account,

(b) to be brought into account only to a prescribed extent, or

(c) to be brought into account over a prescribed period or in prescribed circumstances.

(3) Regulations under this paragraph may, in particular, modify the operation of paragraph 19A.

(4) The power to make regulations under this paragraph includes power—

(a) to make different provision for different cases, and

(b) to make such consequential, supplementary, incidental or transitional provision, or savings, as appear to the Treasury to be necessary or expedient.”.