Chapter 5: Withdrawal or reduction of CITR
Overview
866.This Chapter sets out the circumstances in which CITR attributable to an investment for any accounting period must be reduced to nil (withdrawn) or reduced proportionately. It is based on Part 6 of Schedule 16 to FA 2002.
Section 242: Introduction to Chapter
867.This section provides an overview of the Chapter and contains signposts to its principal provisions. Apart from subsection (3), it is new.
868.Subsection (3) is based on paragraph 33 of Schedule 16 to FA 2002,with the substitution of the term “the 6 year period” for the term “the period of restriction” in that paragraph but without any change in the definition of the term. The 6 year period is relevant to sections 246 and 247 which deal with receipts of value. As an anti-avoidance measure, receipts of value in the year before the investment dateare taken into account, as well as those in the 5 year period, which begins with the investment date. See the commentary on section 223 for the meaning of “the 5 year period” and “the investment date”.
Section 243: Disposal of loan during 5 year period
869.This section provides that the CITR attributable to a loan must be withdrawn if, within the 5 year period, the investor disposes (otherwise than by receiving repayment) of part of the loan or, unless it is by way of a permitted disposal, of the whole of the loan. It is based on paragraph 28 of Schedule 16 to FA 2002.
870.A permitted disposal is defined in subsection (2). If the disposal is a permitted disposal, any tax reduction already obtained is not withdrawn, but no further tax reduction may be claimed (see sections 220(6) and 236).
Section 244: Disposal of securities or shares during 5 year period
871.This section provides for the withdrawal or reduction of CITR attributable to securities or shares, if the investor disposes of the whole or part of the investment in the securities or shares (except upon repayment, redemption or repurchase by the CDFI) within the 5 year period and the CDFI is accredited at the time of the disposal. It is based on paragraph 29 of Schedule 16 to FA 2002.
872.Subsections (2) and (3) provide for different consequences depending upon whether the disposal is a qualifying disposal.
873.Subsection (4) defines what is a qualifying disposal. It is based on paragraph 29(4) of Schedule 16 to FA 2002 with the omission of the words “for full consideration” in paragraph(a). See Change 11in Annex 1.
874.There is inconsistency of language between paragraph 29(3) and (5) of Schedule 16 to FA 2002 which refer to CITR being attributable foran or any accounting period and paragraph 26(1)(b) of that Schedule (rewritten in section 240(1)) which defines references in that Schedule to “CITR attributable ... in respect of an accounting period”. This section removes this inconsistency by substituting “in respect of” in subsections (3) and (5).
875.Subsection (5)provides for circumstances where 5% of the invested amount is greater than the corporation tax liability of the investor for the accounting period.
Section 245: Repayment of loan capital during 5 year period
876.This section provides for the circumstances in which the CITR attributable to a loan must be withdrawn as a consequence of a repayment other than a “non–standard” repayment (see subsections (3) to (5)). It is based on paragraph 30 of Schedule 16 to FA 2002.
Section 246: Value received by investor during 6 year period: loans
877.This section applies if the investment consists of a loan and the investor or a person connected with the investor receives any value, other than an amount of insignificant value (as defined in subsection (5)), from the CDFI or a person connected with the CDFI in the 6 year period. It is based on paragraph 31 of Schedule 16 to FA 2002.
878.Subsection (2) provides that, if value is so received, the invested amount (see section 222) is adjusted by the amount treated as repaid and the investor is treated as having received a repayment other than a non-standard repayment for the purposes of section 245(see subsection (4)).
879.In subsection (5) the words “of value” have been added after “means an amount”. This conforms the language of this subsection with that of sections 247(4), 248(4) and 252(4).
Section 247: Value received by investor during 6 year period: securities or shares
880.This section applies if the investment consists of securities or shares and the investor or a person connected with the investor receives any value, other than an amount of insignificant value (as defined in subsection (4)), from the CDFI or a person connected with the CDFI in the 6 year period. It is based on paragraph 32 of Schedule 16 to FA 2002.
881.Subsection (2) provides that, if value is so received and its amount wholly or partly exceeds the permitted level (see subsection (3)) by more than an amount of insignificant value, the CITR attributable to the investment must be withdrawn.
Section 248: Receipts of insignificant value to be added together
882.This section applies at a time when the investor receives value, if the investor has also received value earlier in the 6 year period and the total amount of the value received earlier was of insignificant value. It is based on paragraph 34 of Schedule 16 to FA 2002.
883.The amount of the receipt in question is to be added to the amounts of value previously received. If the total value of the amounts received is not an amount of insignificant value, the total value is treated as received at that time for the purposes of this Part, including in particular sections 245, 246 and 247.
884.Subsection (8) is new. It provides that this section is subject to section 251 which modifies the effect of this section and of sections 246, 247 and 252.
885.Sections 246(7) and 247(5) already provide that those sections are subject to section 251. Subsection (8) of this section and new subsection (5) of section 252 (see the commentary on that section) have been added to ensure consistency.
Section 249: When value is received
886.This section explains when value is received. It is based on paragraph 35 of Schedule 16 to FA 2002.
887.In subsection (1)(d)(i), as in section 366(1)(d) of ITA, the singular “associate” is used in place of the plural “associates” in paragraph 35(1)(d)(i) of Schedule 16 to FA 2002. Similarly in subsection (1)(d)(ii) the singular “a director or employee” is used instead of the plural “directors or employees” in paragraph 35(1)(d)(ii) of that Schedule.
Section 250: The amount of value received
888.This section determines the respective values received in relation to the respective transactions listed in paragraphs (a) to (g) of section 249(1). It is based on paragraph 36 of Schedule 16 to FA 2002.
889.To give clarity, subsection (1) sets out the values against the paragraphs of section 249(1) in tabular form.
890.In a case falling within section 249(1)(d)(ii), the table permits the deduction of consideration which is given by a director or employee or an associate of a director or employee, in addition to consideration given by the investor or any associate of the investor. See subsection (2) and Change 28 in Annex 1.
Section 251: Value received if there is more than one investment
891.This section provides that, if there is more than one investment, any value received is to be apportioned among the investments according to the respective amounts invested and sets out how those amounts are to be calculated. It is based on paragraph 37 of Schedule 16 to FA 2002.
Section 252: Effect of receipt of value on future claims
892.This section applies if an investor holding securities or shares receives value (other than an amount of insignificant value) but, because that value is less than the permitted level, the CITR attributable to those securities or shares is not withdrawn under section 247. It is based on paragraph 38 of Schedule 16 to FA 2002.
893.Subsection (2) reduces the amount invested (see section 222) in respect of which CITR may be claimed for the accounting periods specified in subsection (3).
894.Subsection (5) is new. It provides that this section is subject to section 251 which modifies the effect of this section and of sections 246, 247 and 248.
895.Sections 246(7) and 247(5) already provide that those sections are subject to section 251. Subsection (5) of this section and new subsection (8) of section 248 (see the commentary on that section) have been added to ensure consistency.
Section 253: Receipts of value by or from connected persons
896.This section extends the meaning of “the investor” and “the CDFI” in sections 246 to 252. It is based on paragraph 39 of Schedule 16 to FA 2002.
897.The words “if the context permits” have been added in this section. These words, which do not appear in paragraph 39 of Schedule 16 to FA 2002, do not change the law. They make sections 246 to 252 clearer, by stating explicitly what is implicit in the source legislation.
Section 254: CITR subsequently found not to have been due
898.This section provides the basis for making an assessment under section 255 in cases where a claim for a tax reduction has been incorrectly allowed. It is based on paragraph 27 of Schedule 16 to FA 2002.
Section 255: Manner of withdrawal or reduction of CITR
899.This section authorises the making of assessments to recapture CITR attributable to an investment which has been withdrawn or reduced. It is based on paragraph 27 of Schedule 16 to FA 2002.
900.Subsections (3) and (4) are based on paragraph 27(5) and (6) of Schedule 16 to FA 2002 prospectively inserted by section 118 of, and paragraph 48 of Schedule 39 to, FA 2008 (time limits for assessments, claims etc) with effect from 1 April 2010 by virtue of the FA2008, Schedule 39 (Appointed Day, Transitional Provision and Savings) Order 2009 (SI 2009/403). The effect of thesesubsections is to preserve the right to make an assessment under this section not more than six years after the end of the accounting period for which the relief was obtained, when the normal time limit for the making of assessments under paragraph 46 of Schedule 18 to FA 1998 is reduced to four years by virtue of that Order bringing paragraph 42 of Schedule 39 to FA 2008 into force on 1 April 2010.
