Corporation Tax Act 2010

Qualifying changes in partner company's interest in business U.K.

417 Partner company's income and other companies' matching expense U.K.

(1) This section applies if on any day (“the relevant day”)—

(a) the partner company carries on a business of leasing plant or machinery in partnership with other persons,

(b) the partner company is within the charge to corporation tax in respect of the business, and

(c) there is a qualifying change in the partner company's interest in the business on the relevant day (see sections 415 and 416).

(2) On the relevant day—

(a) the partner company is treated as receiving an amount of income, and

(b) any other company which carries on the business on that day and which is within the charge to corporation tax in respect of the business is treated as incurring an expense.

(3) The income—

(a) is treated as a receipt of the partner company's notional business (see subsection (6)), and

(b) is brought into account in calculating for corporation tax purposes the profits of that business for the accounting period in which it is treated as received.

(4) Except where subsection (5) applies, the expense—

(a) is treated as an expense of the other company's notional business, and

(b) is allowed as a deduction in calculating for corporation tax purposes the profits of that business for the accounting period in which it is treated as incurred.

(5) If at the end of the relevant day the other company is the only person carrying on the business, the expense—

(a) is treated as an expense incurred by the other company in its carrying on of the business (at a time when it is the only person carrying it on), and

(b) is allowed as a deduction in calculating for corporation tax purposes the profits of the business for the accounting period in which it is treated as incurred.

(6) In this Chapter a company's “notional business” means the business the profits or losses of which are determined, in relation to the company, under section 1259 of CTA 2009 (calculation of firm's profits and losses).

(7) This section is supplemented by sections 418 and 419.

(8) This section is subject to section 420 (exception: companies carrying on business ceasing to share in its profits).

418 Amount of income and expense U.K.

(1) The amount of the income under section 417 is calculated in accordance with sections 421 to 423.

(2) The amount of the expense of the other company under section 417 is calculated in accordance with section 424.

419 Relief for expense otherwise giving rise to carried forward loss U.K.

(1) This section applies if—

(a) a company is treated under section 417(5) as incurring an expense in an accounting period of the company (“period 1”),

(b) the company makes a loss in period 1 or a later accounting period,

(c) apart from this section some or all of that loss (“the carried forward loss”) would be carried forward to the next accounting period of the company after the accounting period in which the loss is made (“the subsequent period”),

(d) some or all of the carried forward loss (“the derived loss”) derives from—

(i) the expense under section 417(5), or

(ii) an expense treated as arising under subsection (2) and allowed as a deduction for the accounting period in which the loss is made, and

(e) the subsequent period starts within the period of 5 years beginning with the relevant day within the meaning of section 417 and does not start as a result of section 383 or 425.

(2) Instead of being so carried forward, the derived loss is to be treated for corporation tax purposes as giving rise to an expense of an amount equal to—

where—

DL is the derived loss,

D is the number of days in the accounting period in which the loss is made, and

R is the percentage rate applicable to section 826 of ICTA under section 178 of FA 1989.

(3) The amount of the expense under this section is allowed as a deduction in calculating for corporation tax purposes the profits of the business for the subsequent period.

(4) For the purpose of determining how much of a loss derives from an expense under section 417(5) or an expense within subsection (1)(d)(ii), the loss is to be calculated on the basis that that expense is the final amount to be deducted.

420 Exception: companies carrying on business ceasing to share in its profits U.K.

(1) Section 417 does not apply if conditions A, B and C are met.

(2) Condition A is that at the end of the relevant day none of the companies by which the business was carried on any longer has any share in the profits or loss of the business.

(3) Condition B is that, in consequence of what happens on the relevant day, the disposal value of all the plant and machinery that was used for the purposes of the business and in respect of which capital allowances have been claimed is to be brought into account under section 61 of CAA 2001.

(4) Condition C is that the disposal value to be brought into account in relation to all the plant or machinery is the price that the plant or machinery would fetch in the open market on that day.

421 The amount of the income: the basic amount U.K.

(1) This section determines the amount of the income under section 417 when a qualifying change in the interest of the partner company in a business of leasing plant or machinery occurs on any day (“the relevant day”).

(2) The amount of the income is found by—

(a) applying the formula in subsection (3) to give the basic amount, and

(b) making such adjustment to the basic amount as is required in accordance with section 422 or 423.

(3) The formula is—

(4) In this section “PM” has the meaning given by section 400, but—

(a) reading any reference in that section to the relevant company as a reference to the partnership, and

(b) reading the reference in section 400(4) to an associated company as a reference to a qualifying company (see subsection (7)).

(5) In this section “TWDV” means the sum of—

(a) the total amount of unrelieved qualifying expenditure in single asset pools for the new chargeable period that would be carried forward in the pools from the old chargeable period under section 59 of CAA 2001 (unrelieved qualifying expenditure),

(b) the total amount of unrelieved qualifying expenditure in class pools for the new chargeable period that would be carried forward in the pools from the old chargeable period under that section, and

(c) the amount of unrelieved qualifying expenditure in the main pool for the new chargeable period that would be carried forward in the pool from the old chargeable period under that section.

(6) For the purposes of subsection (5)—

(a) it is to be assumed that the chargeable period (within the meaning of CAA 2001) of the partnership ends on the relevant day (“the old chargeable period”) and a new one begins on the following day (“the new chargeable period”), and

(b) expenditure incurred by the partnership in acquiring plant or machinery on the relevant day is to be left out of account unless it is acquired from a qualifying company.

(7) In this section “qualifying company” means each of the following—

(a) the partner company,

(b) any company which is an associated company of the partner company on the relevant day,

(c) any other corporate partner in relation to whose interest in the business there is a qualifying change on the relevant day,

(d) any other corporate partner in relation to which there is a qualifying change of ownership on the relevant day, and

(e) any company which is an associated company of any other corporate partner mentioned in paragraph (c) or (d) on the relevant day.

(8) For the purposes of subsection (7) “any other corporate partner” means a company which—

(a) carries on the business at the start of the relevant day, and

(b) is within the charge to corporation tax in respect of the business.

422 Amount to be nil if basic amount negative U.K.

If the basic amount given by the formula in section 421(3) is a negative amount, the amount is taken instead to be nil.

423 Adjustment to the basic amount U.K.

(1) The amount of the company's income under section 417 is limited to the appropriate percentage of the basic amount.

(2) The appropriate percentage is found by subtracting the company's relevant percentage share at the end of the day on which it is treated as receiving the income from its relevant percentage share at the start of the day.

(3) In this section “relevant percentage share” has the same meaning as it has for the purposes of section 415 (see subsection (2) of that section).

424 The amount of expense U.K.

(1) This section applies if, as a result of a qualifying change in the partner company's interest in a business on any day—

(a) the company is treated as receiving an amount of income under section 417 on that day,

(b) any other company is treated as incurring an expense under that section on that day,

(c) the other company's percentage share in the profits or loss of the business is greater at the end than at the start of that day, and

(d) the increase (or any part of the increase) is wholly attributable to the change in the partner company's interest in the business.

(2) Except where subsection (4) applies, the amount of the expense of the other company is limited to the appropriate percentage of the amount of the income.

(3) The appropriate percentage is—

where—

OCI is the increase in the other company's percentage share in the profits or loss of the business that is wholly attributable to the change in the partner company's interest in the business, and

PCD is the decrease in the partner company's percentage share in the profits or loss of the business.

(4) If section 417(5) applies (business carried on by the other company alone), the amount of the expense of the other company is equal to the amount of the income.

(5) For the purposes of this section any reference to an increase in the other company's percentage share in any profits or loss of the business includes an increase from a nil share (whether as a result of its becoming a partner or otherwise).