Corporation Tax Act 2009

Chapter 4 U.K. Trade profits: rules restricting deductions

53 Capital expenditure U.K.

(1) In calculating the profits of a trade, no deduction is allowed for items of a capital nature.

(2) Subsection (1) is subject to provision to the contrary in the Corporation Tax Acts.

54 Expenses not wholly and exclusively for trade and unconnected losses U.K.

(1) In calculating the profits of a trade, no deduction is allowed for—

(a) expenses not incurred wholly and exclusively for the purposes of the trade, or

(b) losses not connected with or arising out of the trade.

(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

55 Bad debts U.K.

(1) This section applies to non-money debts to which neither Part 7 (derivative contracts) nor Part 8 (intangible fixed assets) applies.

(2) In calculating the profits of a company's trade, no deduction is allowed in respect of a non-money debt owed to the company, except—

(a) by way of impairment loss, or

(b) so far as the debt is released wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.

(3) In this section “non-money debt” means a debt which is not a money debt for the purposes of Part 5 (loan relationships).

56 Car F1 ... hire U.K.

(1) Subsection (2) applies if, in calculating the profits of a trade, a deduction is allowed for expenses incurred on the hiring of a car [F2 which is not——

(a) a car that is first registered before 1 March 2001,

(b) a car that has low CO ₂ emissions,

(c) a car that is electrically propelled, or

(d) a qualifying hire car.]

(2) The amount of the deduction which would otherwise be allowable is reduced by [F3 15%].

(3) Subsection (4) applies if a deduction is reduced as a result of subsection (2), or a corresponding provision, and subsequently—

(a) there is a rebate (however described) of the hire charges, or

(b) a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency arrangement.

(4) The amount that, as a result of the rebate or release—

(a) is brought into account as a receipt of the trade, or

(b) is treated as a post-cessation receipt under section 193 (debts released after cessation),

is reduced by [F4 15%].

(5) In this section “corresponding provision” means—

(a) section 1251(2) (car F5 ... hire: expenses of management),

(b) section 48(2) of ITTOIA 2005 (car F6 ... hire: trade profits and property income), or

(c) section 76ZN(2) of ICTA (car F7 ... hire: expenses of insurance companies).

F8 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Words in s. 56 heading omitted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(7)

F2 Words in s. 56(1) substituted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 47(2)

F3 Word in s. 56(2) substituted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 47(3)

F4 Word in s. 56(4) substituted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 47(4)

F5 Words in s. 56(5)(a) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(5)

F6 Words in s. 56(5)(b) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(5)

F7 Words in s. 56(5)(c) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(5)

F8 S. 56(6) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 47(6)

57 Car F9 ... hire: supplementary U.K.

(1) In section 56 “car F10 ...” means a mechanically propelled road vehicle other than F11 ...—

[F12 (za) a motor cycle (within the meaning of section 185(1) of the Road Traffic Act 1988),]

(a) [F13 a vehicle] of a construction primarily suited for the conveyance of goods or burden of any description, or

(b) [F14 a vehicle] of a type not commonly used as a private vehicle and unsuitable for such use.

[F15 (1A) In section 56—

• “ a car that has low CO2 emissions ” has the same meaning as in section 104AA of CAA 2001 (special rate expenditure: main rate car);

• “ electrically propelled ” has the meaning given in section 268B of that Act. ]

(2) In section 56 “a qualifying hire car F16 ...” means a car F16 ... which—

(a) is hired under a hire-purchase agreement (see subsection (3)) under which there is no option to purchase,

(b) is hired under a hire-purchase agreement under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1% of the retail price of the car F16 ... when new, or

F17 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F18 (d) is leased under a long-funding lease (within the meaning of section 70G of CAA 2001). ]

(3) For this purpose “hire-purchase agreement” means an agreement under which—

(a) goods are bailed (or in Scotland hired) in return for periodical payments by the person to whom they are bailed or hired, and

(b) the property in the goods will pass to that person if the terms of the agreement are complied with and one or more of the following events occurs,

but does not include a conditional sale agreement (see subsection (5)).

(4) The events are—

(a) the exercise of an option to purchase by that person,

(b) the doing of any other specified act by any party to the agreement, and

(c) the happening of any other specified event.

(5) A “conditional sale agreement” means an agreement for the sale of goods under which—

(a) the purchase price or part of it is payable by instalments, and

(b) the goods are to remain the property of the seller (even though they are to be in the possession of the buyer) until specified conditions as to the payment of instalments or otherwise are met.

(6) In this section F19 ... “new” means unused and not second-hand.

Textual Amendments

F9 Words in s. 57 omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(6)

F10 Words in s. 57(1) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(a)

F11 Word in s. 57(1) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(b)

F12 S. 57(1)(za) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(c)

F13 Words in s. 57(1)(a) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(d)

F14 Words in s. 57(1)(b) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(2)(d)

F15 S. 57(1A) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(3)

F16 Words in s. 57(2) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(4)(a)

F17 S. 57(2)(c) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(4)(b)

F18 S. 57(2)(d) inserted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 11 para. 48(4)(c)

F19 Words in s. 57(6) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 48(5)

F20 58 Hiring cars (but not motor cycles) with low CO₂ emissions before 1 April 2013 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F20 S. 58 omitted (with effect in accordance with Sch. 11 paras. 65-67 of the commencing Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 49

[F21 58A Short-term hiring in and long-term hiring out U.K.

(1) Section 56 does not apply to expenses incurred by a company (“the taxpayer”) on the hiring of a car if condition A or B is met.

(2) Condition A is that—

(a) the expenses are incurred in respect of the making available of the car to the taxpayer for a period (“the hire period”) of not more than 45 consecutive days, and

(b) if the car is made available to the taxpayer (whether by the same person or different persons) for one or more periods linked to the hire period, the hire period and the linked period or periods, taken together, consist of not more than 45 days.

(3) Condition B is that the expenses are incurred in respect of a period (“the sub-hire period”) throughout which the taxpayer makes the car available to another person (“ the customer ”) and—

(a) the sub-hire period consists of more than 45 consecutive days, or

(b) if the taxpayer makes the car available to the customer throughout one or more periods linked to the sub-hire period, the sub-hire period and the linked period or periods, taken together, consist of more than 45 days,

but see subsection (4).

(4) Condition B is not met if—

(a) the customer is an employee or officer of the taxpayer or of a person connected with the taxpayer, or

(b) during all or part of the sub-hire period (or any period linked to the sub-hire period), the customer makes any car available to an employee or officer of the taxpayer under arrangements with the taxpayer or with a person connected with the taxpayer.

(5) Neither condition A nor condition B is met if the car is hired under arrangements the purpose, or one of the main purposes, of which is—

(a) to disapply or reduce the effect of section 56, or

(b) other avoidance of tax.

(6) For the purposes of condition B the expenses incurred by the taxpayer on the hiring of the car must be apportioned between—

(a) the sub-hire period, and

(b) the remainder of the period during which the car is made available to the taxpayer,

according to the respective lengths of those periods.

(7) A period of consecutive days (“the main period”) is linked to—

(a) a period of consecutive days that ends not more than 14 days before the main period begins,

(b) a period of consecutive days that begins not more than 14 days after the main period ends, and

(c) a period of consecutive days linked to a period in paragraph (a) or (b).

(8) For the purposes of this section, where arrangements for the hiring of a car include arrangements for the provision of a replacement car in the event that the first car is not available, the first car and any replacement car are to be treated as if they were the same car.

(9) In this section (and section 58B) “ arrangements ” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions. ]

Textual Amendments

F21 Ss. 58A, 58B inserted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 50

[F21 58B Connected persons: application of section 56 U.K.

(1) This section applies where connected persons incur expenses on the hiring of the same car for the same period and—

(a) section 56 would (but for this section) apply to the expenses of two or more of those persons, or

(b) section 56 and section 48 of ITTOIA 2005 would (but for this section and section 50B of that Act) each apply to the expenses of at least one of those persons.

(2) This section only applies where one or more of the persons mentioned in subsection (1)(a) or (b) incurs the expenses under commercial arrangements (and such a person is referred to below as a “commercial lessee”).

(3) In relation to the expenses mentioned in subsection (1) to which section 56 would (but for this section) apply, section 56 only applies to the following—

(a) where there is one commercial lessee, any such expenses incurred by that lessee, and

(b) where there is more than one, any such expenses incurred by the first commercial lessee in the chain of arrangements for the hiring of the car for the period.

(4) In this section—

(a) references to expenses incurred by a commercial lessee include expenses incurred in that or any other capacity, and

(b) “ commercial arrangements ” means arrangements the terms of which are such as would reasonably have been expected if the parties to the arrangements had been dealing at arm's length. ]

Textual Amendments

F21 Ss. 58A, 58B inserted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 50

59 Patent royalties U.K.

In calculating the profits of a trade, no deduction is allowed for royalties or other sums paid for the use of patents.

60 Expenditure on integral features U.K.

Section 33A(3) of CAA 2001 provides that no deduction is allowed in respect of certain expenditure on an integral feature of a building or structure (within the meaning of that section).