Finance Act 2006

2006 Chapter 25

An Act to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance.

[19th July 2006]

Most Gracious Sovereign

We, Your Majesty’s most dutiful and loyal subjects, the Commons of the United Kingdom in Parliament assembled, towards raising the necessary supplies to defray Your Majesty’s public expenses, and making an addition to the public revenue, have freely and voluntarily resolved to give and to grant unto Your Majesty the several duties hereinafter mentioned; and do therefore most humbly beseech Your Majesty that it may be enacted, and be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

Part 1Excise duties

Tobacco products duty

1Rates of tobacco products duty

1

For the Table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979 (c. 7) substitute—

Table

1. Cigarettes	An amount equal to 22 per cent of the retail price plus £105.10 per thousand cigarettes.
2. Cigars	£153.07 per kilogram.
3. Hand-rolling tobacco	£110.02 per kilogram.
4. Other smoking tobacco and chewing tobacco	£67.30 per kilogram.

2

This section shall be deemed to have come into force at 6 o’clock in the evening of 22nd March 2006.

2Tobacco products duty: evasion

1

After section 7 of the Tobacco Products Duty Act 1979 (c. 7) (regulations for management of duty) insert—

7ADuty not to facilitate smuggling

1

A manufacturer of cigarettes or hand-rolling tobacco shall so far as is reasonably practicable avoid—

a

supplying cigarettes or hand-rolling tobacco to persons who are likely to smuggle them into the United Kingdom,

b

supplying cigarettes or hand-rolling tobacco where the nature or circumstances of the supply makes it likely that they will be resupplied to persons who are likely to smuggle them into the United Kingdom, or

c

otherwise facilitating the smuggling into the United Kingdom of cigarettes or hand-rolling tobacco.

2

In particular, a manufacturer—

a

in supplying cigarettes or hand-rolling tobacco to persons carrying on business in or in relation to a country other than the United Kingdom, shall consider whether the size or nature of the supply suggests that the products may be required for smuggling into the United Kingdom,

b

shall maintain a written policy about steps to be taken for the purpose of complying with the duty under subsection (1), and

c

shall provide a copy of the policy to the Commissioners on request.

3

In this section a reference to smuggling products into the United Kingdom is a reference to importing them into the United Kingdom without payment of duty which is—

a

chargeable under section 2, and

b

payable by virtue of section 1(1) of the Finance (No. 2) Act 1992 (c. 48) (power to fix excise duty point).

4

The Commissioners may notify a manufacturer in writing that they think the risk of smuggling into the United Kingdom is particularly great in relation to—

a

products marketed under a specified brand name;

b

products supplied to persons carrying on business in or in relation to a specified country or place.

5

The Commissioners may by notice in writing require a manufacturer of cigarettes or hand-rolling tobacco to provide, within a specified period of time, specified information about—

a

supply of products marketed under a brand name specified under subsection (4)(a);

b

supply to persons carrying on business in or in relation to a country or place specified under subsection (4)(b);

c

demand for cigarettes or hand-rolling tobacco in a country or place specified under subsection (4)(b).

6

The Commissioners may issue guidance about the content of policies under subsection (2)(b).

7

The Commissioners may make regulations—

a

under which they are required to notify manufacturers of cigarettes or hand-rolling tobacco where products of a kind specified in the regulations are seized under section 139 of the Customs and Excise Management Act 1979 (c. 2) in circumstances specified in the regulations,

b

specifying the procedure for notification,

c

including provision about access to seized products for the purpose of determining who manufactured them, and

d

requiring manufacturers to provide the Commissioners with information or documents, of a kind specified in the regulations or determined by the Commissioners, in relation to notified seizures.

7BPenalty for facilitating smuggling: initial notice

1

Where the Commissioners think that a manufacturer has without reasonable excuse failed to comply with the duty under section 7A(1) they may give him written notice that they are considering requiring him to pay a penalty.

2

In determining whether to give notice to a manufacturer under subsection (1) the Commissioners shall have regard to—

a

the content of the manufacturer’s policy under section 7A(2)(b),

b

compliance with that policy,

c

action taken pursuant to any notice under section 7A(4),

d

compliance by the manufacturer with any notice under section 7A(5),

e

the number, size and nature of seizures of which the manufacturer has been given notice by virtue of section 7A(7)(a),

f

compliance by the manufacturer with any requirement by virtue of section 7A(7)(d),

g

evidence about the level of demand for the manufacturer’s products for consumption outside the United Kingdom, and

h

any other matter that they think relevant.

3

A notice must specify the matters to which the Commissioners have had regard in determining to give it.

4

After the end of the period of six months beginning with the date on which a notice is given to a manufacturer, the Commissioners shall give him notice in writing either—

a

that they require payment of a penalty, or

b

that they do not require payment of a penalty.

5

The Commissioners shall comply with subsection (4) during the period of 45 days beginning with the end of the period specified in that subsection; and for that purpose they shall consider—

a

any representations made by the manufacturer during that period in such form and manner as the Commissioners may direct, and

b

action taken by the manufacturer during that period.

7CPenalty for facilitating evasion: penalty notice

1

A notice under section 7B(4)(a) (a “penalty notice”) must—

a

specify the amount of the penalty which the manufacturer is required to pay, and

b

state the grounds on which the Commissioners think that the manufacturer has failed to comply with the duty under section 7A(1).

2

The amount specified under subsection (1)(a) must not exceed £5 million; and in determining the amount to specify the Commissioners shall have regard to—

a

the nature or extent of the manufacturer’s failure to comply with the duty under section 7A(1),

b

action taken by the manufacturer to secure compliance with that duty,

c

the content of the manufacturer’s policy under section 7A(2)(b),

d

compliance with that policy,

e

action taken pursuant to any notice under section 7A(4),

f

compliance by the manufacturer with any notice under section 7A(5),

g

the number, size and nature of seizures of which the manufacturer has been given notice by virtue of section 7A(7)(a),

h

the loss of revenue by way of duty under section 2, or VAT, in respect of the products seized, and

i

any other matter that they think relevant.

3

A manufacturer who is given a penalty notice may require the Commissioners to review the decision to issue the notice; and—

a

a requirement must be imposed by notice in writing given to the Commissioners before the end of the period of 45 days beginning with the date of the penalty notice,

b

the Commissioners shall comply with a requirement given in accordance with paragraph (a),

c

the Commissioners shall confirm, vary or withdraw the penalty notice, and

d

the Commissioners shall be taken to have confirmed the penalty notice unless, within the period of 45 days beginning with the date of the requirement to conduct the review, they have varied or withdrawn it by notice in writing to the manufacturer.

4

If following a requirement under subsection (3) the Commissioners confirm or vary the notice (or are taken to have confirmed it) the manufacturer may appeal to a VAT and duties tribunal.

5

The tribunal may—

a

cancel the penalty notice,

b

reduce the penalty, or

c

confirm the penalty notice.

7DSections 7A to 7C: supplemental

1

Payment of a penalty imposed under section 7B(4)(a) shall not be allowed as a deduction in computing income, profits or losses for purposes of income tax or corporation tax.

2

A penalty may be enforced as a debt due to the Commissioners.

3

In sections 7A to 7C and this section a reference to a manufacturer of cigarettes or hand-rolling tobacco includes a reference to a person who, in the opinion of the Commissioners—

a

arranges to have cigarettes or hand-rolling tobacco manufactured, and

b

is wholly or partly responsible for the initial supply of the products after manufacture.

4

Where a manufacturer is a parent undertaking or a subsidiary undertaking (within the meaning of section 258 of the Companies Act 1985 (c. 6)) the Commissioners may—

a

treat the parent and its subsidiaries as a single undertaking for the purpose of sections 7A to 7C and this section, and

b

in particular, enforce a penalty imposed on the single undertaking as a debt owed by—

i

the single undertaking,

ii

the parent, or

iii

any of the subsidiaries.

5

A notice or guidance under section 7A(4) to (6)—

a

may be issued to manufacturers generally or to one or more manufacturers or classes of manufacturer,

b

may be expressed to apply to or in respect of manufacturers generally or only to or in respect of one or more specified manufacturers or classes of manufacturer,

c

may make provision generally or only in relation to specified cases or circumstances,

d

may make different provision in relation to different cases or circumstances, and

e

may be varied, replaced or revoked.

6

The Treasury may by order—

a

amend the list in section 7B(2) or 7C(2) so as to—

i

add an entry,

ii

remove an entry, or

iii

amend an entry;

b

amend sections 7A to 7C and this section so as to alter the class of tobacco products in relation to which they apply.

7

An order under subsection (6)—

a

may include transitional, consequential or incidental provision,

b

shall be made by statutory instrument,

c

shall be laid before the House of Commons, and

d

shall cease to have effect unless approved by resolution of the House of Commons within the period of 28 days beginning with the date on which it is laid (disregarding any period of dissolution or prorogation or of adjournment for more than four days).

2

At the end of section 9 of the Tobacco Products Duty Act 1979 (c. 7) (regulations) (which becomes subsection (1)) add—

2

Regulations under this Act—

a

may enable the Commissioners to dispense with compliance with a provision of the regulations (whether absolutely or conditionally),

b

may make provision generally or only in relation to specified cases or circumstances,

c

may make different provision in relation to different cases or circumstances, and

d

may include transitional, consequential or incidental provision.

3

This section shall come into force in accordance with provision made by the Treasury by order.

4

An order under subsection (3)—

a

may include transitional, consequential or incidental provision, and

b

shall be made by statutory instrument.

Alcoholic liquor duties

3Rate of duty on beer

1

In section 36(1AA)(a) of ALDA 1979 (rate of duty on beer) for “£12.92” substitute “£13.26”.

2

This section shall be deemed to have come into force at midnight on 26th March 2006.

4Rates of duty on wine and made-wine

1

For Part 1 of the Table of rates of duty in Schedule 1 to ALDA 1979 (rates of duty on wine and made-wine) substitute—

Part 1Wine and made-wine of a strength not exceeding 22 per cent

Description of wine or made-wine

Rates of duty per hectolitre

£

Wine or made-wine of a strength not exceeding 4 per cent

53.06

Wine or made-wine of a strength exceeding 4 per cent but not exceeding 5.5 per cent

72.95

Wine or made-wine of a strength exceeding 5.5 per cent but not exceeding 15 per cent and not sparkling

172.17

Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent but less than 8.5 per cent

166.70

Sparkling wine or sparkling made-wine of a strength of 8.5 per cent or of a strength exceeding 8.5 per cent but not exceeding 15 per cent

220.54

Wine or made-wine of a strength exceeding 15 per cent but not exceeding 22 per cent

229.55

Description of wine or made-wine	Rates of duty per hectolitre
	£
Wine or made-wine of a strength not exceeding 4 per cent	53.06
Wine or made-wine of a strength exceeding 4 per cent but not exceeding 5.5 per cent	72.95
Wine or made-wine of a strength exceeding 5.5 per cent but not exceeding 15 per cent and not sparkling	172.17
Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent but less than 8.5 per cent	166.70
Sparkling wine or sparkling made-wine of a strength of 8.5 per cent or of a strength exceeding 8.5 per cent but not exceeding 15 per cent	220.54
Wine or made-wine of a strength exceeding 15 per cent but not exceeding 22 per cent	229.55

2

This section shall be deemed to have come into force at midnight on 26th March 2006.

5Repeal of provisions of ALDA 1979 of no practical utility etc

1

The following provisions of ALDA 1979 shall cease to have effect—

a

section 12(4) (power to refuse or revoke distiller’s licence where premises near to premises of a rectifier, registered brewer or vinegar-maker);

b

section 14 (duty on spirits – attenuation charge);

c

section 15(4) (provision of accommodation in distiller’s warehouse);

d

section 18(5) (power to refuse licence as a rectifier where premises near to premises of a distillery);

e

section 21 (restrictions relating to rectifiers);

f

section 24 (restriction on carrying on of other trades by distiller or rectifier);

g

section 26 (importation and exportation of spirits);

h

section 32 (restriction on transfer of British spirits in warehouses);

i

section 35 (returns as to importation, manufacture, sale or use of alcohols);

j

section 55A (wine and made-wine of a strength not exceeding 5.5%);

k

section 67 (power to regulate keeping of dutiable alcoholic liquors by wholesalers and retailers);

l

section 69 (miscellaneous provisions as to wholesalers and retailers of spirits);

m

section 71 (penalty for mis-describing liquor as spirits);

n

section 74 (liquor to be deemed wine or spirits); and

o

section 82 (power to make regulations with respect to stills).

2

In consequence of the repeal of section 55A of ALDA 1979, that Act is amended as follows.

3

the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) Order 2005 (S.I. 2005/1978),

b

the Excise Duties (Road Fuel Gases) (Reliefs) Regulations 2005 (S.I. 2005/1979), and

c

the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) (Amendment) Order 2005 (S.I. 2005/3330).

In section 13A(1) (rebate on unleaded petrol) for “£0.0601”substitute “£0.0617”.

8

In section 14(1) (rebate on light oil for use as furnace oil) for “£0.0604” substitute “£0.0729”.

9

This section comes into force on 1st September 2006.

8Road vehicles

After section 27(1A) of HODA 1979 (interpretation) insert—

1B

The Treasury may by order made by statutory instrument amend Schedule 1 to this Act so as to—

a

add a class of excepted vehicle,

b

remove a class of excepted vehicle, or

c

redefine a class of excepted vehicle.

1C

Section 2A(2) and (3) above shall apply to an order under subsection (1B).

Betting and gaming duties

9General betting duty: gaming machines

1

In section 2(2) of the Betting and Gaming Duties Act 1981 (c. 63) (general betting duty: exemptions) after paragraph (c) add—

, or

d

a bet made using a gaming machine, within the meaning of section 23 of the Value Added Tax Act 1994.

2

This section shall have effect in respect of anything done on or after 6th December 2005 (with the reference to section 23 of the Value Added Tax Act 1994 being a reference to that definition as it is treated as having effect in relation to things done on or after that date by virtue of section 16(6) and (7) below).

10Rates of gaming duty

1

For the Table in section 11(2) of FA 1997 (rates of gaming duty) substitute—

Table

Part of gross gaming yield	Rate
The first £546,500	2.5 per cent.
The next £1,212,500	12.5 per cent.
The next £1,212,500	20 per cent.
The next £2,124,000	30 per cent.
The remainder	40 per cent.

2

This section has effect in relation to accounting periods beginning on or after 1st April 2006.

Amusement machine licence duty

11Definition of “gaming machine”

1

For section 25(1) to (1B) of the Betting and Gaming Duties Act 1981 (c. 63) (amusement machine licence duty: definition of “amusement machine”) substitute—

1

A machine is an amusement machine for the purposes of this Act if it is—

a

a gaming machine, and

b

a prize machine.

1A

In this Act “gaming machine” means a machine that is a gaming machine for the purposes of section 23 of the Value Added Tax Act 1994 (c. 23).

2

In section 25(1C) of the Betting and Gaming Duties Act 1981 (“prize machine”) for “an amusement machine is a prize machine” substitute “a machine is a prize machine”.

3

In Schedule 3 to the Betting and Gaming Duties Act 1981 (bingo duty) omit paragraph 6 (machine bingo).

4

Subsections (1) and (2) shall have effect in relation to the provision of a machine on or after 1st August 2006.

5

Subsection (3) shall have effect in relation to accounting periods beginning on or after 1st August 2006.

12Classes of machine and rates of duty

1

For section 21(3AA) to (3E) of the Betting and Gaming Duties Act 1981 (c. 63) (special licences and excepted machines) substitute—

4

A special amusement machine licence shall be granted only—

a

for a small prize machine,

b

if conditions prescribed by the Commissioners by regulations are satisfied in relation to the application for the licence, the applicant and the machine, and

c

for a period of twelve months.

5

The following are excepted machines—

a

machines that are not gaming machines,

b

a gaming machine in respect of which—

i

the cost of a single game does not exceed 30p,

ii

the maximum value of the prize for winning a single game does not exceed £8, and

iii

the maximum cash component of the prize for winning a single game does not exceed £5,

c

a gaming machine in respect of which—

i

the cost of a single game does not exceed 10p, and

ii

the maximum value of the prize for winning a single game does not exceed £5, and

d

two-penny machines.

2

In section 22(2) of that Act (gaming machines) paragraph (b) shall cease to have effect.

3

For section 23(2) and (3) of that Act (rates) substitute—

2

The appropriate amount for each machine shall be determined in accordance with the following Table by reference to—

a

the period for which the licence is granted, and

b

the machine’s category determined in accordance with subsection (3).

(1)

(2)

(3)

(4)

(5)

(6)

(7)

Months for which licence granted

Category A

Category B1

Category B2

Category B3

Category B4

Category C

1

£435

£220

£170

£170

£155

£65

2

£875

£435

£345

£345

£310

£130

3

£1310

£655

£515

£515

£465

£195

4

£1750

£875

£690

£690

£625

£255

5

£2185

£1095

£860

£860

£780

£320

6

£2625

£1310

£1030

£1030

£935

£385

7

£3060

£1530

£1205

£1205

£1090

£450

8

£3500

£1750

£1375

£1375

£1245

£515

9

£3935

£1970

£1545

£1545

£1400

£580

10

£4375

£2185

£1720

£1720

£1555

£645

11

£4810

£2405

£1890

£1890

£1715

£705

12

£5000

£2500

£1965

£1965

£1780

£735

3

The categories of gaming machine are as follows—

Category A – a gaming machine which is not within another category.

Category B1 – a gaming machine which is not within a lower category and in respect of which—

i

the cost of a single game does not exceed £2, and

ii

the maximum value of the prize for winning a single game does not exceed £4,000.

Category B2 – a gaming machine which is not within a lower category and in respect of which—

i

the cost of a single game does not exceed £100, and

ii

the maximum value of the prize for winning a single game does not exceed £500.

Category B3 – a gaming machine which is not within a lower category and in respect of which—

i

the cost of a single game does not exceed £1, and

ii

the maximum value of the prize for winning a single game does not exceed £500.

Category B4 – a gaming machine which is not within a lower category and in respect of which—

i

the cost of a single game does not exceed £1, and

ii

the maximum value of the prize for winning a single game does not exceed £250.

Category C—

i

a gaming machine in respect of which the cost of a single game does not exceed 5p, and

ii

a gaming machine in respect of which—

a

the cost of a single game does not exceed 50p, and

b

the maximum value of the prize for winning a single game does not exceed £25.

4

Where a machine offers more than one class of game, it falls within a category only if it satisfies the requirements of that category in respect of each class.

5

Where a prize is anything other than money its value for the purposes of this section is—

a

in the case of a voucher or token that may be exchanged for, or used in place of, an amount of money, that amount,

b

in the case of a voucher or token that does not fall within paragraph (a) and that may be exchanged for something other than money, the cost that the person providing the machine would incur in obtaining that thing from a person not connected with him (within the meaning of section 839 of the Income and Corporation Taxes Act 1988), and

c

in any other case, the cost that the person providing the machine would incur in obtaining the prize from a person not connected with him (within that meaning).

6

For the purposes of subsection (3) Category A is the highest category and Category C is the lowest.

(1)	(2)	(3)	(4)	(5)	(6)	(7)
Months for which licence granted	Category A	Category B1	Category B2	Category B3	Category B4	Category C
1	£435	£220	£170	£170	£155	£65
2	£875	£435	£345	£345	£310	£130
3	£1310	£655	£515	£515	£465	£195
4	£1750	£875	£690	£690	£625	£255
5	£2185	£1095	£860	£860	£780	£320
6	£2625	£1310	£1030	£1030	£935	£385
7	£3060	£1530	£1205	£1205	£1090	£450
8	£3500	£1750	£1375	£1375	£1245	£515
9	£3935	£1970	£1545	£1545	£1400	£580
10	£4375	£2185	£1720	£1720	£1555	£645
11	£4810	£2405	£1890	£1890	£1715	£705
12	£5000	£2500	£1965	£1965	£1780	£735

4

For section 25(4) to (7) of the Betting and Gaming Duties Act 1981 (c. 63) substitute—

4

A machine which has a number of individual playing positions allowing persons to play simultaneously (whether or not participating in the same game) shall be treated for the purposes of sections 21 to 24 as that number of separate machines.

5

Section 25A of that Act (power to modify definitions) shall cease to have effect.

6

In section 26(2) of that Act (supplemental) the following shall cease to have effect—

a

the definition of “video machine”, and

b

in the definition of “two-penny machine”, the words from “and “five-penny machine”” to the end.

7

Paragraphs 2 and 3 of Schedule 4 to that Act (exemptions) shall cease to have effect.

8

Subsections (1) to (7) shall have effect in relation to the grant of an amusement machine licence on or after 1st August 2006.

9

An amusement machine licence granted before that time shall continue to have effect (for which purpose the Betting and Gaming Duties Act 1981 shall have effect without the amendments effected by this section).

10

But subsection (9) shall not apply in relation to machines which become gaming machines by virtue of section 11 of this Act.

11

For the purpose of the application of Schedule 4A to that Act (default licences) in respect of a period before 1st August 2006 no account shall be taken of an amendment effected by subsections (1) to (7) above or by section 11 above.

Vehicle excise duty

13Rates

1

Schedule 1 to VERA 1994 (annual rates of duty) is amended as follows.

2

In paragraph 1(2) (general rate of duty), for “£170” substitute “£175”.

3

For paragraph 1B (rates for light passenger vehicles) substitute—

1B

The annual rate of vehicle excise duty applicable to a vehicle to which this Part of this Schedule applies shall be determined in accordance with Table A, where the vehicle is first registered before 23rd March 2006, or Table B, where the vehicle is first registered on or after that date, by reference to—

a

the applicable CO2 emissions figure, and

b

whether the vehicle qualifies for the reduced rate of duty, or is liable to the standard rate or the premium rate of duty.

Table A: Vehicles first registered before 23rd March 2006

CO2 emissions figure

Rate

(1)

(2)

(3)

(4)

(5)

Exceeding

Not exceeding

Reduced rate

Standard rate

Premium rate

g/km

g/km

£

£

£

100

120

30

40

50

120

150

90

100

110

150

165

115

125

135

165

185

140

150

160

185

—

180

190

195

Table B: Vehicles first registered on or after 23rd March 2006

CO2 emissions figure

Rate

(1)

(2)

(3)

(4)

(5)

Exceeding

Not exceeding

Reduced rate

Standard rate

Premium rate

g/km

g/km

£

£

£

100

120

30

40

50

120

150

90

100

110

150

165

115

125

135

165

185

140

150

160

185

225

180

190

195

225

—

200

210

215

CO2 emissions figure	Rate
(1)	(2)	(3)	(4)	(5)
Exceeding	Not exceeding	Reduced rate	Standard rate	Premium rate
g/km	g/km	£	£	£
100	120	30	40	50
120	150	90	100	110
150	165	115	125	135
165	185	140	150	160
185	—	180	190	195

CO2 emissions figure	Rate
(1)	(2)	(3)	(4)	(5)
Exceeding	Not exceeding	Reduced rate	Standard rate	Premium rate
g/km	g/km	£	£	£
100	120	30	40	50
120	150	90	100	110
150	165	115	125	135
165	185	140	150	160
185	225	180	190	195
225	—	200	210	215

4

In paragraph 1C (reduced rate for light passenger vehicles)—

a

for sub-paragraph (2) substitute—

2

Condition A is that the vehicle—

a

is constructed—

i

so as to be propelled by a relevant type of fuel, or

ii

so as to be capable of being propelled by any of a number of relevant types of fuel, or

b

is constructed or modified—

i

so as to be propelled by a prescribed type of fuel, or

ii

so as to be capable of being propelled by any of a number of prescribed types of fuel,

and complies with any other requirements prescribed for the purposes of this condition.

b

after sub-paragraph (5) insert—

6

In this paragraph—

“bioethanol” has the meaning given in section 2AB of the Hydrocarbon Oil Duties Act 1979,

“relevant type of fuel” means—

a

bioethanol, or

b

a mixture of bioethanol and unleaded petrol, if the proportion of bioethanol by volume is at least 85%, and

“unleaded petrol” has the meaning given in section 1(3C) of the Hydrocarbon Oil Duties Act 1979.

7

The Secretary of State may, with the consent of the Treasury, by regulations amend sub-paragraph (6).

5

In paragraph 1J(a) (rates for light goods vehicles), for “£165” substitute “£170”.

6

In paragraph 1K(a) (lower-emission vans), after “1st March 2003” insert “and before 1st January 2007”.

7

In paragraph 2(1) (rates for motorcycles)—

a

in paragraph (b), for “£30” substitute “£31”,

b

in paragraph (c), for “£45” substitute “£46”, and

c

in paragraph (d), for “£60” substitute “£62”.

8

In Schedule 2 to VERA 1994 (exempt vehicles), after paragraph 24 insert—

25Light passenger vehicles with low CO2 emissions

A vehicle is an exempt vehicle if—

a

it is a vehicle to which Part 1A of Schedule 1 applies, and

b

the applicable CO2 emissions figure (as defined in paragraph 1A(3) and (4) of that Schedule) for the vehicle does not exceed 100 g/km.

9

Subsection (8) comes into force on 23rd March 2006; but nothing in that subsection has the effect that a nil licence is required to be in force in respect of a vehicle while a vehicle licence is in force in respect of it.

10

The rest of this section has effect in relation to licences taken out on or after that date.

14Reduced pollution certificates

In section 61B of VERA 1994 (reduced pollution certificates), for subsection (2) substitute—

2

For the purposes of this Act, the reduced pollution requirements are satisfied with respect to a vehicle at any time if, at that time, prescribed requirements relating to the vehicle’s emissions are satisfied as a result of—

a

the design, construction or equipment of the vehicle as manufactured; or

b

adaptations of a prescribed description having been made to the vehicle after a prescribed date.

2A

Different requirements may be prescribed under subsection (2) for vehicles first registered at different times.

15Late renewal supplement

In VERA 1994, after section 7B insert—

7CRecovery of section 7A supplements: Scotland

1

The Secretary of State may by regulations provide for the recovery of supplement that has become payable under section 7A by diligence authorised by summary warrant.

2

Regulations under subsection (1) may, in particular, provide—

a

for such summary warrants—

i

to be granted by the sheriff on the application of the Secretary of State; and

ii

to authorise any of the diligences mentioned in subsection (3);

b

for such applications to be accompanied by a certificate mentioned in subsection (4); and

c

for the fees and outlays of sheriff officers incurred in executing such summary warrants to be chargeable against the debtor.

3

The diligences referred to in subsection (2)(a)(ii) are—

a

an attachment;

b

an earnings arrestment;

c

an arrestment and action of furthcoming or sale.

4

The certificate referred to in subsection (2)(b) is a certificate by the Secretary of State —

a

stating that none of the persons specified in the application has paid the supplement due;

b

stating that payment of the amount due from each such person has been demanded from him;

c

stating whether in response to that demand any such person disputes liability to pay; and

d

specifying the amount due from and unpaid by each such person.

5

No fee shall be chargeable by the sheriff officer against the debtor for—

a

collecting; or

b

accounting to the Secretary of State for,

sums paid to him by the debtor in respect of the amount owing.

6

No summary warrant for recovery of supplement payable under section 7A may be granted against a person if—

a

he disputes liability to pay; or

b

an action for payment to recover such supplement from him has already been raised.

7

Failure to respond to a demand to pay shall not be taken to mean liability to pay is disputed.

8

An action for payment to recover supplement payable under section 7A may be raised against a person notwithstanding that a summary warrant has already been granted for recovery of such supplement from him but only if none of the diligences mentioned in subsection (3) has been executed against him.

9

Where such an action is raised, the summary warrant shall cease to have effect in relation to such person.

10

This section extends to Scotland only.

Part 2Value added tax

Gaming machines

16Gaming machines

1

Section 23 of VATA 1994 (gaming machines) shall be amended as follows.

2

In subsection (1)—

a

for “plays a game of chance” substitute “gambles”, and

b

omit “to play”.

3

In subsection (2) for “playing” substitute “gambling”.

4

In subsection (3)—

a

for “playing” substitute “gambling”, and

b

for “to play” substitute “to use”.

5

For subsection (4) substitute—

4

In this section “gaming machine” means a machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes).

5

But—

a

a machine is not a gaming machine to the extent that it is designed or adapted for use to bet on future real events,

b

a machine is not a gaming machine to the extent that—

i

it is designed or adapted for the playing of bingo, and

ii

bingo duty is charged under section 17 of the Betting and Gaming Duties Act 1981 (c. 63) on the playing of that bingo, or would be charged but for paragraphs 1 to 5 of Schedule 3 to that Act, and

c

a machine is not a gaming machine to the extent that—

i

it is designed or adapted for the playing of a real game of chance, and

ii

the playing of the game is dutiable gaming for the purposes of section 10 of the Finance Act 1997 (c. 16), or would be dutiable gaming but for subsections (3) and (4) of that section.

6

In this section—

a

a reference to gambling is a reference to—

i

gaming within the meaning of section 6 of the Gambling Act 2005 (c. 19), and

ii

betting within the meaning of section 9 of that Act,

b

a reference to a machine is a reference to any apparatus which uses or applies mechanical power, electrical power or both,

c

a reference to a machine being designed or adapted for a purpose includes a reference to a machine to which anything has been done as a result of which it can reasonably be expected to be used for that purpose,

d

a reference to a machine being adapted includes a reference to computer software being installed on it,

e

“real” has the meaning given by section 353(1) of that Act,

f

“game of chance” has such meaning as may be prescribed by the Treasury by order,

g

“bingo” means any version of that game, irrespective of by what name it is described.

7

The Treasury may by order amend subsections (4) to (6).

6

This section shall have effect in relation to anything done on or after 6th December 2005.

7

In the application of section 23(5)(c) of VATA 1994 as substituted by this section in relation to anything done before 1st November 2006, “game of chance” shall have the same meaning as in the Gaming Act 1968 (c. 65).

Land

17Buildings and land

1

The Treasury may by order—

a

make provision for substituting Schedule 10 to VATA 1994 (buildings and land) for the purpose of rewriting that Schedule with amendments;

b

make provision amending sections 83 and 84 of that Act (appeals) in connection with any provision of that Schedule as so rewritten.

2

The Treasury may by order make provision repealing—

a

paragraph (b) of item 1 in Group 1 of Schedule 9 to VATA 1994 (exempt supplies of land not to include supplies made pursuant to a developmental tenancy, developmental lease or developmental licence), and

b

In subsection (2) (value of imported goods to include taxes and expenses), after “shall” insert “(subject to subsection (2A) below)”.

3

After subsection (2) insert—

2A

Where—

a

any goods falling within subsection (5) below are sold by auction at a time when they are subject to the procedure specified in subsection (2B) below, and

b

arrangements made by or on behalf of the purchaser of the goods following the sale by auction result in the importation of the goods from a place outside the member States,

the value of the goods shall not be taken for the purposes of this Act to include, in relation to that importation, any commission or premium payable to the auctioneer in connection with the sale of the goods.

2B

That procedure is the customs procedure for temporary importation with total relief from import duties provided for in Articles 137 to 141 of Council Regulation 2913/92/EEC establishing the Community Customs Code.

4

Subsections (1) to (3) come into force on such day as the Treasury may by order made by statutory instrument appoint.

Avoidance and fraud

19Missing trader intra-community fraud

1

After section 55 of VATA 1994 (customers to account for tax on supplies of gold etc) insert—

55ACustomers to account for tax on supplies of goods of a kind used in missing trader intra-community fraud

1

Subsection (3) applies if—

a

a taxable (but not a zero-rated) supply of goods (“the relevant supply”) is made to a person (“the recipient”),

b

the relevant supply is of goods to which this section applies (see subsection (9)),

c

the relevant supply is not an excepted supply (see subsection (10)), and

d

the total value of the relevant supply, and of corresponding supplies made to the recipient in the month in which the relevant supply is made, exceeds £1,000 (“the disregarded amount”).

2

For this purpose a “corresponding supply” means a taxable (but not a zero-rated) supply of goods which—

a

is a supply of goods to which this section applies, and

b

is not an excepted supply.

3

The relevant supply, and the corresponding supplies made to the recipient in the month in which the relevant supply is made, are to be treated for the purposes of Schedule 1—

a

as taxable supplies of the recipient (as well as taxable supplies of the person making them), and

b

in so far as the recipient is supplied in connection with the carrying on by him of any business, as supplies made by him in the course or furtherance of that business,

but the relevant supply, and those corresponding supplies, are to be so treated only in so far as their total value exceeds the disregarded amount.

4

Nothing in subsection (3)(b) requires any supply to be disregarded for the purposes of Schedule 1 on the grounds that it is a supply of capital assets of the recipient’s business.

5

For the purposes of subsections (1) and (3), the value of a supply is determined on the basis that no VAT is chargeable on the supply.

6

If—

a

a taxable person makes a supply of goods to a person (“the recipient”) at any time,

b

the supply is of goods to which this section applies and is not an excepted supply, and

c

the recipient is a taxable person at that time and is supplied in connection with the carrying on by him of any business,

it is for the recipient, on the supplier’s behalf, to account for and pay tax on the supply and not for the supplier.

7

The relevant enforcement provisions apply for the purposes of this section, in relation to any person required under subsection (6) to account for and pay any VAT, as if that VAT were VAT on a supply made by him.

8

For this purpose “the relevant enforcement provisions” means so much of—

a

this Act and any other enactment, and

b

any subordinate legislation,

as has effect for the purposes of, or in connection with the enforcement of, any obligation to account for and pay VAT.

9

For the purposes of this section, goods are goods to which this section applies if they are of a description specified in an order made by the Treasury.

10

For the purposes of this section, an “excepted supply” means a supply which is of a description specified in, or determined in accordance with, provision contained in an order made by the Treasury.

11

Any order made under subsection (10) may describe a supply of goods by reference to—

a

the use which has been made of the goods, or

b

other matters unrelated to the characteristics of the goods themselves.

12

The Treasury may by order substitute for the sum for the time being specified in subsection (1)(d) such greater sum as they think fit.

13

The Treasury may by order make such amendments of any provision of this Act as they consider necessary or expedient for the purposes of this section or in connection with this section.

An order under this subsection may confer power on the Commissioners to make regulations or exercise any other function, but no order may be made under this subsection on or after 22nd March 2009.

14

Any order made under this section (other than one under subsection (12)) may—

a

make different provision for different cases, and

b

contain supplementary, incidental, consequential or transitional provisions.

2

After section 26A of VATA 1994 (disallowance of input tax where consideration not paid) insert—

26ABAdjustment of output tax in respect of supplies under section 55A

1

This section applies if—

a

a person is, as a result of section 26A, taken not to have been entitled to any credit for input tax in respect of any supply, and

b

the supply is one in respect of which the person is required under section 55A(6) to account for and pay VAT.

2

The person is entitled to make an adjustment to the amount of VAT which he is so required to account for and pay.

3

The amount of the adjustment is to be equal to the amount of the credit for the input tax to which the person is taken not to be entitled.

4

Regulations may make such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient for the purposes of this section.

5

Regulations under this section may in particular—

a

make provision for the manner in which, and the period for which, the adjustment is to be given effect,

b

require the adjustment to be evidenced and quantified by reference to such records and other documents as may be specified by or under the regulations,

c

require the person entitled to the adjustment to keep, for such period and in such form and manner as may be so specified, those records and documents,

d

make provision for readjustments if any credit for input tax is restored under section 26A.

6

Regulations under this section may make different provision for different circumstances.

3

In section 65 of VATA 1994 (inaccuracies in EC sales statements)—

a

at the end insert—

7

This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement.

b

in consequence of the amendment made by paragraph (a) the heading becomes “Inaccuracies in EC sales statements or in statements relating to section 55A”.

4

In section 66 of VATA 1994 (failure to submit EC sales statements)—

a

at the end insert—

10

This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement.

b

in consequence of the amendment made by paragraph (a) the heading becomes “Failure to submit EC sales statement or statement relating to section 55A”.

5

In section 69 of VATA 1994 (breaches of regulatory provisions), in subsection (1) (failure to comply with a requirement imposed under provisions mentioned in the paragraphs in that subsection), after paragraph (b) insert—

ba

paragraph 2(3B) of Schedule 11; or

6

In section 97 of VATA 1994 (orders, rules and regulations), in subsection (4) (orders which cease to have effect unless approved by House of Commons), after paragraph (e) insert—

ea

an order under section 55A(13);

7

In Schedule 11 to VATA 1994 (administration, collection and enforcement), in paragraph 2 (accounting for VAT and payment of VAT), after sub-paragraph (3) insert—

3A

Regulations under this paragraph may require the submission to the Commissioners by taxable persons, at such times and intervals, in such cases and in such form and manner as may be—

a

specified in the regulations, or

b

determined by the Commissioners in accordance with powers conferred by the regulations,

of statements containing such particulars of supplies to which section 55A(6) applies in which the taxable persons are concerned, and of the persons concerned in those supplies, as may be prescribed.

3B

Regulations under this paragraph may make provision, in relation to the first occasion on which a person makes a supply of goods to which section 55A(6) applies, for requiring the person to give to the Commissioners such notification of the supply at such time and in such form and manner as may be specified in the regulations.

8

The amendments made by this section have effect in relation to supplies made on or after such day as the Treasury may by order made by statutory instrument appoint.

But no order may be made under this subsection on or after 22nd March 2009.

9

An order under subsection (8) may contain transitional provision and savings.

20Power to inspect goods

1

In Schedule 11 to VATA 1994 (administration, collection and enforcement), paragraph 10 (entry and search of premises and persons) is amended as follows.

2

After sub-paragraph (2) (power to inspect premises and goods found on them) insert—

2A

The power under sub-paragraph (2) above to inspect any goods includes, in particular,—

a

power to mark the goods, or anything containing the goods, for the purpose of indicating that they have been inspected, and

b

power to record any information (which may be obtained by electronic or any other means) relating to the goods that have been inspected.

21Directions to keep records where belief VAT might not be paid

1

VATA 1994 is amended as follows.

2

After section 69A (breach of record-keeping requirements etc in relation to transactions in gold) insert—

69BBreach of record-keeping requirements imposed by directions

1

If any person fails to comply with a requirement imposed under paragraph 6A(1) of Schedule 11, the person is liable to a penalty.

2

The amount of the penalty is equal to £200 multiplied by the number of days on which the failure continues (up to a maximum of 30 days).

3

If any person fails to comply with a requirement to preserve records imposed under paragraph 6A(6) of Schedule 11, the person is liable to a penalty of £500.

4

If it appears to the Treasury that there has been a change in the value of money since—

a

the day on which the Finance Act 2006 is passed, or

b

(if later) the last occasion when the power conferred by this subsection was exercised,

they may by order substitute for the sums for the time being specified in subsections (2) and (3) such other sums as appear to them to be justified by the change.

5

But any such order does not apply to a failure which began before the date on which the order comes into force.

6

A failure by any person to comply with any requirement mentioned in subsection (1) or (3) does not give rise to a liability to a penalty under this section if the person concerned satisfies—

a

the Commissioners, or

b

on appeal, a tribunal,

that there is a reasonable excuse for the failure.

7

If by reason of conduct falling within subsection (1) or (3) a person—

a

is assessed to a penalty under section 60, or

b

is convicted of an offence (whether under this Act or otherwise),

that conduct does not also give rise to a penalty under this section.

3

In section 76(1) (assessment of amounts due by way of penalty, interest or surcharge) for “69A”, in both places, substitute “69B”.

4

In section 83 (appeals)—

a

in paragraph (n) (penalties or surcharges by virtue of any of sections 59 to 69A) for “69A” substitute “69B”, and

b

after paragraph (z) (conditions imposed by virtue of paragraph 2B(2)(c) or 3(1) of Schedule 11) insert—

zza

a direction under paragraph 6A of Schedule 11;

5

In section 84 (further provision relating to appeals) after subsection (7A) (appeals against directions mentioned in section 83(wa)) insert—

7B

Where there is an appeal against a decision to make such a direction as is mentioned in section 83(zza)—

a

the tribunal shall not allow the appeal unless it considers that the Commissioners could not reasonably have been satisfied that there were grounds for making the direction;

b

the direction shall have effect pending the determination of the appeal.

6

In Schedule 11 (administration, collection and enforcement), after paragraph 6 (duty to keep records) insert—

6A

1

The Commissioners may direct any taxable person named in the direction to keep such records as they specify in the direction in relation to such goods as they so specify.

2

A direction under this paragraph may require the records to be compiled by reference to VAT invoices or any other matter.

3

The Commissioners may not make a direction under this paragraph unless they have reasonable grounds for believing that the records specified in the direction might assist in identifying taxable supplies in respect of which the VAT chargeable might not be paid.

4

The taxable supplies in question may be supplies made by—

a

the person named in the direction, or

b

any other person.

5

A direction under this paragraph—

a

must be given by notice in writing to the person named in it,

b

must warn that person of the consequences under section 69B of failing to comply with it, and

c

remains in force until it is revoked or replaced by a further direction.

6

The Commissioners may require any records kept in pursuance of this paragraph to be preserved for such period not exceeding 6 years as they may require.

7

Sub-paragraphs (4) to (6) of paragraph 6 (preservation of information by means approved by the Commissioners) apply for the purposes of this paragraph as they apply for the purposes of that paragraph.

8

This paragraph is without prejudice to the power conferred by paragraph 6(1) to make regulations requiring records to be kept.

9

Any records required to be kept by virtue of this paragraph are in addition to any records required to be kept by virtue of paragraph 6.

22Treatment of credit vouchers

1

VATA 1994 is amended as follows.

2

In section 97 (orders, rules and regulations), in subsection (4) (orders which cease to have effect unless approved by House of Commons), after paragraph (f) insert—

fa

an order under paragraph 3(4) of Schedule 10A;

3

In paragraph 3 of Schedule 10A (treatment of credit vouchers), after sub-paragraph (3) (circumstances in which consideration for supply of credit voucher not to be disregarded under sub-paragraph (2) for the purposes of Act) insert—

4

The Treasury may by order specify other circumstances in which sub-paragraph (2) above does not apply.

Part 3Income tax, corporation tax and capital gains tax

Chapter 1Income tax and corporation tax: charge and rate bands

Income tax

23Charge and rates for 2006-07

Income tax shall be charged for the year 2006-07, and for that year—

a

the starting rate shall be 10%;

b

the basic rate shall be 22%;

c

the higher rate shall be 40%.

Corporation tax

24Charge and main rate for financial year 2007

Corporation tax shall be charged for the financial year 2007 at the rate of 30%.

25Small companies’ rate and fraction for financial year 2006

For the financial year 2006—

a

the small companies’ rate shall be 19%, and

b

the fraction mentioned in section 13(2) of ICTA (marginal relief for small companies) shall be 11/400ths.

26Abolition of corporation tax starting rate and non-corporate distribution rate

1

Section 13AA of ICTA (corporation tax starting rate) shall cease to have effect.

2

Section 13AB of ICTA (the non-corporate distribution rate), and Schedule A2 to that Act (supplementary provisions in relation to that rate), shall cease to have effect.

3

In section 13A of ICTA (close investment-holding companies), in subsection (1) (meaning of “close investment-holding company” for purposes of sections 13(1) and 13AA(8)), omit “or 13AA(8)”.

4

In section 468 of ICTA (authorised unit trusts), in subsection (1A) (rate of corporation tax in relation to such trusts), for “and sections 13, 13AA and 13AB shall not apply” substitute “and section 13 shall not apply”.

5

In section 468A of ICTA (open-ended investment companies), in subsection (1) (rate of corporation tax in relation to such companies), for “(and sections 13, 13AA and 13AB shall not apply)” substitute “(and section 13 shall not apply)”.

6

In paragraph 1(a) of Schedule 12 to FA 1989 (provision of information for the purposes of close companies provisions), for “13 to 13A” substitute “13, 13ZA, 13A”.

7

In paragraph 8(1) of Schedule 18 to FA 1998 (tax calculation in company tax return), in the second step, omit “or 13AA(2)”.

8

The amendments made by this section have effect for the financial year 2006 and subsequent financial years (but see also subsections (9) to (11)).

9

In the case of an accounting period (a “straddling period”)—

a

beginning before 1st April 2006, and

b

ending on or after that date,

sections 13AA and 13AB of, and Schedule A2 to, ICTA (“the repealed provisions”) apply as if the different parts of the straddling period falling in the different financial years were separate accounting periods.

10

Where the rate of corporation tax charged on a company’s basic profits for any such separate accounting period ending with 31st March 2006 is determined in accordance with any of the repealed provisions, section 13 of ICTA (small companies’ relief) also so applies.

11

For the purpose of treating different parts of the straddling period as separate accounting periods in accordance with subsections (9) and (10), the profits and basic profits of the straddling period are to be apportioned between those separate accounting periods.

Chapter 2Reliefs for business

Group relief

27Group relief where surrendering company not resident in UK

Schedule 1 (which makes provision in relation to group relief where the surrendering company is not resident in the United Kingdom) has effect.

Research and development

28Relief for research and development: subjects of clinical trials

1

Schedule 2 (which amends Schedule 20 to FA 2000 and Schedules 12 and 13 to FA 2002 so as to make provision relating to payments to subjects of clinical trials) has effect.

2

The amendments made by paragraph 2 of Schedule 2 to Schedule 12 to FA 2002 (large companies etc) have effect in relation to expenditure incurred on or after 1st April 2006.

3

Except as provided by subsection (4), the amendments made by Schedule 2 to—

a

Schedule 20 to FA 2000 (small or medium-sized enterprises),

b

Schedule 13 to FA 2002 (vaccine research etc),

have effect in relation to expenditure incurred on or after the appointed day.

4

The amendment made by paragraph 1(3) of Schedule 2 (insertion of paragraph 6A of Schedule 20 to FA 2000), in its application for the purposes of Schedule 12 to FA 2002 by virtue of the amendments made to Schedule 12 by paragraph 2 of Schedule 2, has effect in relation to expenditure incurred on or after 1st April 2006.

5

“The appointed day” means such day as the Treasury may by order appoint; and different days may be so appointed for different provisions or different purposes.

6

The days that may be appointed by an order under this section include days earlier than the day on which this Act is passed, but not days earlier than 1st April 2006.

29Claims for relief for research and development

Schedule 3 (which amends Schedule 18 to FA 1998 in connection with claims for tax relief for expenditure on research and development) has effect.

Capital allowances

30Temporary increase in amount of first-year allowances for small enterprises

1

The amount of a first-year allowance under section 44 of CAA 2001 (expenditure incurred by small or medium-sized enterprises) shall be determined, in the case of expenditure to which this subsection applies, as if the percentage specified in the entry relating to that section in the Table in section 52(3) of that Act were 50%.

2

Subsection (1) applies to expenditure incurred by a small enterprise (within the meaning of section 44 of that Act) in the period of 12 months beginning with—

a

1st April 2006, if the small enterprise is within the charge to corporation tax, or

b

6th April 2006, if the small enterprise is within the charge to income tax.

3

Accordingly, in section 52(3) of CAA 2001, for the sentence following the Table substitute—

In the case of expenditure qualifying under section 44, see also—

a

section 142 of the Finance Act 2004 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2004-05 or financial year 2004);

b

section 30 of the Finance Act 2006 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2006-07 or financial year 2006).

Chapter 3Films and sound recordings

Introductory

31Meaning of “film” and related expressions

1

In this Chapter “film” includes any record, however made, of a sequence of visual images that is capable of being used as a means of showing that sequence as a moving picture.

2

For the purposes of this Chapter each part of a series of films is treated as a separate film, unless—

a

the films form a series with not more than 26 parts,

b

the combined playing time is not more than 26 hours, and

c

the series constitutes a self-contained work or is a series of documentaries with a common theme,

in which case the films are treated as a single film.

3

References in this Chapter to a film include the film soundtrack.

4

For the purposes of this Chapter a film is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public.

32Meaning of “film production company”

1

The following provisions have effect for the purposes of this Chapter as regards the meaning of “film production company”.

2

There cannot be more than one film production company in relation to a film.

3

A company that (otherwise than in partnership)—

a

is responsible—

i

for pre-production, principal photography and post production of the film, and

ii

for delivery of the completed film,

b

is actively engaged in production planning and decision-making during pre-production, principal photography and post production, and

c

directly negotiates, contracts and pays for rights, goods and services in relation to the film,

is the film production company in relation to the film.

4

In relation to a qualifying co-production, a company that (otherwise than in partnership)—

a

is a co-producer, and

b

makes an effective creative, technical and artistic contribution to the film,

is the film production company in relation to the film.

5

If there is more than one company meeting the description in subsection (3) or (4), the company that is most directly engaged in the activities referred to in that subsection is the film production company in relation to the film.

6

If there is no company meeting the description in subsection (3) or (4), there is no film production company in relation to the film.

33Meaning of “film-making activities” etc

1

In this Chapter “film-making activities”, in relation to a film, means the activities involved in development, pre-production, principal photography and post production of the film.

2

If all or any of the images in a film are generated by computer, references in this Chapter to principal photography shall be read as references to, or as including, the generation of those images.

3

The Treasury may by regulations—

a

amend subsections (1) and (2);

b

provide that specified activities are or are not to be regarded for the purposes of this Chapter as film-making activities or as film-making activities of a particular description;

c

provide that, in relation to a specified description of film, references in this Chapter to film-making activities of a particular description are to be read as references to such activities as may be specified.

“Specified” here means specified in the regulations.

4

No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

34Meaning of “production expenditure” and related expressions

1

In this Chapter, in relation to a film—

“production expenditure” means expenditure on film-making activities in connection with the film, and

“core expenditure” means production expenditure on pre-production, principal photography and post production.

2

For the purposes of this Chapter a “limited-budget film” means a film whose core expenditure is £20 million or less.

3

In determining whether a film is a limited-budget film, any core expenditure that—

a

is incurred by a person under or as a result of a transaction entered into directly or indirectly between that person and a connected person, and

b

might have been expected to have been of a greater amount (“the arm’s length amount”) if the transaction had been between independent persons dealing at arm’s length,

is treated as having been of an amount equal to the arm’s length amount.

4

Section 839 of ICTA (connected persons) applies for the purposes of subsection (3).

35Meaning of “UK expenditure”

1

For the purposes of this Chapter “UK expenditure”, in relation to a film, means expenditure on goods or services that are used or consumed in the United Kingdom.

2

Any apportionment of expenditure for the purposes of this Chapter as between UK expenditure and non-UK expenditure shall be made on a fair and reasonable basis.

3

The Treasury may by regulations amend subsection (1).

4

No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

36Meaning of “qualifying co-production” and “co-producer”

In this Chapter—

a

“qualifying co-production” means a film that falls to be treated as a national film in the United Kingdom by virtue of an agreement between Her Majesty’s Government in the United Kingdom and any other government, international organisation or authority,

b

“co-producer” means a person who is a co-producer for the purposes of the agreement.

Taxation of activities of film production company

37Taxation of activities of film production company

Schedule 4 to this Act (taxation of activities of film production company) has effect for the purposes of corporation tax.

Film tax relief

38Films qualifying for film tax relief

A film qualifies for film tax relief if the conditions specified in the following sections are met—

a

section 39 (intended theatrical release),

b

section 40 (British film), and

c

section 41 (UK expenditure).

39Conditions of relief: intended theatrical release

1

The film must be intended for theatrical release.

2

For this purpose—

a

“theatrical release” means exhibition to the paying public at the commercial cinema;

b

a film is not regarded as intended for theatrical release unless it is intended that a significant proportion of the earnings from the film should be obtained by such exhibition.

3

Whether this condition is met is determined for each accounting period of the film production company during which film-making activities are carried on in relation to the film, in accordance with the following rules.

4

If at the end of an accounting period the film is intended for theatrical release, the condition is treated as having been met throughout that period (subject to subsection (5)(b)).

5

If at the end of an accounting period the film is not intended for theatrical release, the condition—

a

is treated as having been not met throughout that period, and

b

cannot be met in any subsequent accounting period.

This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition was met.

40Conditions of relief: British film

The film must be certified by the Secretary of State as a British film under Schedule 1 to the Films Act 1985 (c. 21).

41Conditions of relief: UK expenditure

1

Not less than 25% of the core expenditure on the film incurred—

a

in the case of a British film other than a qualifying co-production, by the film production company,

b

in the case of a qualifying co-production, by the co-producers,

must be UK expenditure.

2

The Treasury may by regulations amend the percentage specified in subsection (1).

3

No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

42Film tax relief: further provisions

1

Schedule 5 to this Act contains further provisions about film tax relief.

2

In that Schedule—

Part 1 deals with entitlement to the relief;

Part 2 provides for the certification of British films for the purposes of the relief;

Part 3 makes provision for claims for the relief;

Part 4 is about provisional entitlement to relief.

Film losses

43Films: restriction on use of losses while film in production

1

This section applies to restrict the use that may be made of a film production company’s trading loss for an accounting period before—

a

that in which the film is completed, or

b

where the company does not complete the film, that in which it abandons film-making activities in relation to the film.

2

A trading loss for such a period is not available for loss relief except to the extent that it may be carried forward under section 393(1) of ICTA to be set against profits of the same trade in a later period.

3

In this section “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the film production company, or any other person, is chargeable to tax.

44Films: use of losses in later periods

1

This section applies—

a

to the accounting period—

i

in which the film is completed, or

ii

if the film production company does not complete the film, in which it abandons film-making activities in relation to the film, and

If on cessation of the trade carried on by company A there is another film production company (“company B”) which—

a

is carrying on a trade in relation to a qualifying film (its “qualifying trade”), and

b

is in the same group as company A for the purposes of Chapter 4 of Part 10 of ICTA (group relief),

“original master version” means the original negative, tape or disc;

b

references to the original master version of a film include the original master version of the film soundtrack (if any);

c

references to the original master version include any rights in the original master version that are held or acquired with it.

47Films: withdrawal of existing reliefs (income tax)

1

Sections 134 and 135 of ITTOIA 2005 (treatment of expenditure on production or acquisition of film) do not apply—

a

to production expenditure on a film that commences principal photography on or after 1st April 2006;

b

to acquisition expenditure—

i

on a film that commences principal photography on or after 1st April 2006, or

ii

that is incurred on or after 1st October 2007 on a film (whenever made).

2

Section 137 of that Act (preliminary expenditure) does not apply to expenditure incurred after the date on which this Act is passed.

3

Sections 138 to 144 of that Act (special reliefs for British films) do not apply—

a

to production expenditure on a film that commences principal photography on or after 1st April 2006;

b

to acquisition expenditure—

i

on a film that commences principal photography on or after 1st April 2006, or

ii

that is incurred on or after 1st October 2007.

4

49Sound recordings: allocation of expenditure

1

This section applies in calculating for the purposes of corporation tax the profits or losses of a company from a trade where—

a

the trade consists of or includes the exploitation of original master versions of sound recordings, and

b

the original master versions do not constitute trading stock of the trade as defined by section 100(2) of ICTA.

2

Expenditure that is—

a

incurred on the production or acquisition of the original master version of a sound recording, and

b

expenditure of a revenue nature (whether as a result of section 48 or otherwise),

must be allocated to relevant periods in accordance with this section.

3

The company must allocate to a relevant period so much of the expenditure as is just and reasonable having regard to—

a

the amount of the expenditure that remains unallocated at the beginning of the period,

b

the proportion that the estimated value of the original master version of the sound recording that is realised in that period (whether by way of income or otherwise) bears to the aggregate of the value so realised and the estimated remaining value of the original master version at the end of the period, and

c

the need to bring the whole of the expenditure into account over the time during which the value of the original master version is expected to be realised.

4

The company may also allocate to a relevant period a further amount, so long as the total amount allocated does not exceed the value of the original master version of the sound recording realised in that period (whether by way of income or otherwise).

50Sound recordings: interpretation

For the purposes of sections 48 and 49 (corporation tax treatment of sound recordings)—

a

“sound recording” does not include a film soundtrack;

b

“original master version” means the master tape or master audio disc of the recording;

c

references to the original master version of a sound recording include any rights in the original master version that are held or acquired with it; and

d

“relevant period” means—

i

a period for which accounts of the trade are made up, or

ii

if no accounts of the trade are made up for a period, an accounting period of the company.

Supplementary provisions

51Corporation tax: films and sound recordings as intangible fixed assets

1

In Schedule 29 to FA 2002 (corporation tax: gains and losses from intangible fixed assets), for paragraph 80 (exclusion of films and sound recordings) substitute—

80AAssets excluded: certain films

1

This Schedule does not apply to an intangible fixed asset held by a film production company to the extent that it represents production expenditure on a film to which Schedule 4 of the Finance Act 2006 applies.

Expressions used in this sub-paragraph have the same meaning as in Chapter 3 of Part 3 of the Finance Act 2006.

2

Except as regards royalties, this Schedule does not apply to an intangible fixed asset held by a company to the extent that it represents expenditure by the company—

a

on the production of the original master version of a film that commenced principal photography before 1st April 2006;

b

on the acquisition before 1st October 2007 of the original master version of a film that commenced principal photography before 1st April 2006.

3

In sub-paragraph (2)—

a

“film” has the same meaning as in Chapter 3 Part 3 of the Finance Act 2006;

b

“original master version” means the original negative, tape or disc;

c

references to the original master version of a film include the original master version of the film soundtrack (if any);

d

references to the original master version include any rights in the original master version that are held or acquired with it.

80BAssets excluded except as regards royalties: sound recordings

1

Except as regards royalties, this Schedule does not apply to an intangible fixed asset held by a company to the extent that it represents expenditure by the company on the production or acquisition of the master version of a sound recording.

2

For this purpose—

a

“sound recording” does not include a film soundtrack;

b

“master version” means master tape or master audio disc of the recording;

c

references to the master version include any rights in the master version that are held or acquired with it.

2

In determining for the purposes of that Schedule whether an asset representing production expenditure on a film was created before or after 1st April 2002, the asset shall be treated as created when the film was completed.

52Films: application of provisions to certain films already in production

1

The Treasury may make provision by regulations for the application of the provisions of this Chapter, and of any enactment amended by this Chapter, in relation to films that commenced principal photography before 1st April 2006 but are not completed before 1st January 2007.

2

The regulations may provide for such adaptations and modifications of the provisions of this Chapter, of any enactment amended by this Chapter and of any other provision of the Corporation Tax Acts, as appear to the Treasury appropriate for that purpose.

3

The regulations may—

a

provide that the provisions of this Chapter (or any specified provisions of this Chapter) shall have effect as if they had been in force at all material times;

b

require or authorise the making or amendment of returns, or the making of assessments, in relation to past accounting periods or tax years (whether before or after the commencement of this Chapter);

c

authorise the making of any such return, amendment or assessment notwithstanding any limitation on the time within which a return, amendment or assessment may normally be made.

4

No regulations shall be made under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons.

53Films and sound recordings: commencement and power to alter dates

1

The provisions of this Chapter come into force on such day as the Treasury may appoint by order.

2

The Treasury may by order amend any provision of this Chapter that refers to 1st April 2006, the date on which this Act is passed or 1st October 2007 so as to substitute a reference to a later date.

Chapter 4Charities

54Transactions with substantial donors

1

After section 506 of ICTA insert—

506ATransactions with substantial donors

1

This section applies to the following transactions—

a

the sale or letting of property by a charity to a substantial donor,

b

the sale or letting of property to a charity by a substantial donor,

c

the provision of services by a charity to a substantial donor,

d

the provision of services to a charity by a substantial donor,

e

an exchange of property between a charity and a substantial donor,

f

the provision of financial assistance by a charity to a substantial donor,

g

the provision of financial assistance to a charity by a substantial donor, and

h

investment by a charity in the business of a substantial donor.

2

For the purposes of this section a person is a substantial donor to a charity in respect of a chargeable period if—

a

the charity receives relievable gifts of at least £25,000 from him in a period of 12 months in which the chargeable period wholly or partly falls, or

b

the charity receives relievable gifts of at least £100,000 from him in a period of six years in which the chargeable period wholly or partly falls;

and if a person is a substantial donor to a charity in respect of a chargeable period by virtue of paragraph (a) or (b), he is a substantial donor to the charity in respect of the following five chargeable periods.

3

A payment made by a charity to a substantial donor in the course of or for the purposes of a transaction to which this section applies shall be treated for the purposes of section 505 as non-charitable expenditure.

4

If the terms of a transaction to which this section applies are less beneficial to the charity than terms which might be expected in a transaction at arm’s length, the charity shall be treated for the purposes of section 505 as incurring non-charitable expenditure equal to that amount which the Commissioners for Her Majesty’s Revenue and Customs determine as the cost to the charity of the difference in terms.

5

A payment by a charity of remuneration to a substantial donor shall be treated for the purposes of section 505 as non-charitable expenditure unless it is remuneration, for services as a trustee, which is approved by—

a

the Charity Commission,

b

another body with responsibility for regulating charities by virtue of legislation having effect in respect of any Part of the United Kingdom, or

c

a court.

506BSection 506A: exceptions

1

Section 506A shall not apply to a transaction within section 506A(1)(b) or (d) if the Commissioners for Her Majesty’s Revenue and Customs determine that the transaction—

a

takes place in the course of a business carried on by the substantial donor,

b

is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm’s length, and

c

is not part of an arrangement for the avoidance of any tax.

2

Section 506A shall not apply to the provision of services to a substantial donor if the Commissioners determine that the services are provided—

a

in the course of the actual carrying out of a primary purpose of the charity, and

b

on terms which are no more beneficial to the substantial donor than those on which services are provided to others.

3

Section 506A shall not apply to the provision of financial assistance to a charity by a substantial donor if the Commissioners determine that the assistance—

a

is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm’s length, and

b

is not part of an arrangement for the avoidance of any tax.

4

Section 506A shall not apply to investment by a charity in the business of a substantial donor where the investment takes the form of the purchase of shares or securities listed on a recognised stock exchange.

5

A disposal at an undervalue to which section 587B applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

6

A disposal at an undervalue to which section 257(2) of the 1992 Act (gifts of chargeable assets) applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

7

In the application of section 506A payments by a charity, or benefits arising to a substantial donor from a transaction, shall be disregarded in so far as they—

a

relate to a donation by the donor, and

b

do not exceed the relevant limit in relation to the donation for the purposes of section 339 or section 25 of the Finance Act 1990.

8

A company which is wholly owned by a charity within the meaning of section 339(7AB) shall not be treated as a substantial donor in relation to the charity which owns it (or any of the charities which own it).

9

A registered social landlord or housing association shall not be treated as a substantial donor in relation to a charity with which it is connected; and for that purpose—

a

“registered social landlord or housing association” means a body entered on a register maintained under—

i

section 1 of the Housing Act 1996,

ii

section 57 of the Housing (Scotland) Act 2001, or

iii

Article 14 of the Housing (Northern Ireland) Order 1992, and

b

a body and a charity are connected if (and only if)—

i

the one is wholly owned, or subject to control, by the other, or

ii

both are wholly owned, or subject to control, by the same person.

506CSections 506A and 506B: supplemental

1

A gift is “relievable” for the purposes of section 506A(2) if relief is available in respect of it under—

a

section 83A,

b

section 339,

c

sections 587B and 587C,

d

section 25 of the Finance Act 1990 (individual gift aid),

e

section 257 of the 1992 Act (gifts of chargeable assets),

f

section 63 of the Capital Allowances Act (gifts of plant and machinery),

g

sections 713 to 715 of ITEPA 2003 (payroll giving),

h

section 108 of ITTOIA 2005 (gifts of trading stock), or

i

sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts).

2

A charity is treated as incurring expenditure in accordance with section 506A(4) at such time (or times) as the Commissioners determine.

3

Section 506A applies to a transaction entered into in a chargeable period with a person who is a substantial donor in respect of that period, even if it was not until after the transaction was entered into that he first satisfied the definition of “substantial donor” in respect of that period.

4

Either or both of subsections (3) and (4) of section 506A may be applied to a single transaction; but any amount of non-charitable expenditure which a charity is treated as incurring under section 506A(3) in respect of a transaction shall be deducted from any amount which it would otherwise be treated as incurring under section 506A(4) in respect of the transaction.

5

Two or more connected charities shall be treated as a single charity for the purposes of section 506A and 506B and this section; and for this purpose “connected” means connected in a matter relating to the structure, administration or control of a charity.

6

Where remuneration is paid otherwise than in money, section 506A(5) shall apply as to a payment in money of the amount that would, under Part 3 of ITEPA 2003, be the cash equivalent of the remuneration as a benefit.

7

In sections 506A and 506B and this section—

a

a reference to a substantial donor or other person includes a reference to a person connected with him within the meaning of section 839,

b

“financial assistance” includes, in particular—

i

the provision of a loan, guarantee or indemnity, and

ii

entering into alternative finance arrangements within the meaning of section 46 of the Finance Act 2005, and

c

a reference to a gift of a specified amount includes a reference to a non-monetary gift of that value.

8

On an appeal against an assessment the Special Commissioners may review a decision of the Commissioners in connection with section 506A.

9

The Treasury may by regulations vary a sum, or a period of time, specified in section 506A(2).

2

This section shall have effect in relation to transactions occurring on or after 22nd March 2006; and for that purpose a person may satisfy the definition of “substantial donor” by reference to gifts made at any time.

3

But this section shall not have effect in relation to a transaction entered into in pursuance of a contract made before 22nd March 2006 (otherwise than in pursuance of a variation on or after that date).

55Non-charitable expenditure

1

For section 505(3) to (8) of ICTA (charities: exemption: non-qualifying expenditure) substitute—

3

In subsections (4) to (7)—

a

“charitable expenditure” has the meaning given by section 506,

b

“relief” means relief or exemption under—

i

subsection (1) above,

ii

section 56(3)(c) above,

iii

section 761(6) below,

iv

section 256 of the 1992 Act (charities), or

v

section 46 of the Finance Act 2000 (small trades),

c

“relievable income and gains” means income and gains which would be eligible for relief or exemption under any of those provisions (disregarding subsections (4) to (6)), and

d

“total income and gains” means the aggregate of—

i

relievable income and gains,

ii

income and gains, other than relievable income and gains, chargeable to tax, and

iii

donations, legacies and other similar receipts that are not chargeable to tax.

4

If a charity incurs (or is treated as incurring) non-charitable expenditure in a chargeable period, relief shall be disallowed in respect of such amount of relievable income and gains as equals the amount of the non-charitable expenditure.

5

If in a chargeable period a charity’s non-charitable expenditure exceeds its total income and gains the excess shall be treated as non-charitable expenditure of the previous period for the purposes of subsection (4); and any necessary adjustments shall be made, whether by making assessments or otherwise.

6

Subsection (5) may apply to a chargeable period wholly or partly as a result of the application of that subsection in respect of a later period; but no excess of non-charitable expenditure shall be treated as non-charitable expenditure of a chargeable period which ended more than six years before the end of the period in which the expenditure was actually incurred.

7

Where an amount of a charity’s relievable income and gains is disallowed for relief by subsection (4) (whether or not as a result of the application of subsection (5))—

a

the charity may by notice to the Board specify which items of income or gains are to be disallowed, but

b

if the Board requires the charity to give a notice under paragraph (a) and the charity fails to comply within the period of 30 days beginning with the date on which the requirement is imposed, the Board shall determine which items to disallow.

2

In section 506 of ICTA (section 505: supplemental)—

a

in subsection (1) for the definitions of “qualifying expenditure” and “non-qualifying expenditure” substitute—

“charitable expenditure” means (subject to subsections (3) to (5) below) expenditure which is exclusively for charitable purposes.

b

in subsection (2) omit “and subsection (1) above,”

c

in subsection (3) for “qualifying expenditure” substitute “charitable expenditure”,

d

in subsection (4) for “non-qualifying expenditure” substitute “non-charitable expenditure”,

e

in subsection (5) for “non-qualifying expenditure” substitute “non-charitable expenditure”,

f

omit subsection (6), and

g

for the heading, substitute “Charitable and non-charitable expenditure”.

3

Part III of Schedule 20 to ICTA (apportionment of non-qualifying expenditure to earlier chargeable periods) shall cease to have effect.

4

In section 256(1) of TCGA 1992 (charities) for “section 505(3)” substitute “section 505(4)”.

5

This section shall have effect in relation to chargeable periods beginning on or after 22nd March 2006; and—

a

section 505(5) and (6) of ICTA as substituted by subsection (1) above may cause an amount to be treated as non-charitable expenditure of a chargeable period beginning before that date, but

b

the amount of relief or exemption to be disallowed in respect of a chargeable period beginning before that date shall not exceed the amount which would have been disallowed in respect of that period if sections 505 and 506 of ICTA (and Part III of Schedule 20) had not been amended by this section.

56Trade profits

1

In section 505 of ICTA (charities: exemptions) after subsection (1A) insert—

1B

For the purpose of subsection (1)(e)—

a

where a trade is exercised partly in the course of the actual carrying out of a primary purpose of the charity and partly otherwise, each part shall be treated as a separate trade (for which purpose reasonable apportionment of expenses and receipts shall be made), and

b

where the work in connection with the trade is carried out partly but not mainly by beneficiaries, the part in connection with which work is carried on by beneficiaries and the other part shall be treated as separate trades (for which purpose reasonable apportionment of expenses and receipts shall be made).

2

Subsection (1) shall have effect in respect of chargeable periods beginning on or after 22nd March 2006.

57Gift aid relief for companies wholly owned by one or more charities

1

Section 339 of ICTA (charges on income: donations to charity) is amended as follows.

2

In subsection (1)(a) (distributions, other than those within section 209(4), not qualifying donations) after “distribution” insert “(but see subsections (1A) and (1B) below)”.

3

After subsection (1) insert—

1A

In determining whether a payment is to be regarded as a distribution for the purposes of subsection (1)(a) above, the words in section 209(5) from “; and any amount” to the end are to be disregarded.

1B

A payment (other than a dividend) made by a company which is wholly owned by a charity is not to be regarded as a distribution for the purposes of subsection (1)(a) above.

4

The amendments made by this section have effect in relation to payments made on or after 1st April 2006.

58Extension of restrictions on gift aid payments by close companies

1

Section 339 of ICTA (charges on income: donations to charity) is amended as follows.

2

In subsection (3B) (payment made by a close company not qualifying donation if subject to repayment etc) for “close company” substitute “company”.

3

In subsection (3E) (payment made by a close company not qualifying donation if it involves acquisition of property by charity, otherwise than by way of gift, from the company or a connected person) for “close company” substitute “company”.

4

The amendments made by this section have effect in relation to payments made on or after 1st April 2006.

Chapter 5Personal taxation

Cars

59Cars with a CO2 emissions figure

1

Section 139 of ITEPA 2003 (car with a CO2 emissions figure: the appropriate percentage) is amended as follows.

2

In subsection (1) (appropriate percentage dependent on whether emissions figure exceeds lower threshold) for the words from “whether” to the end of the subsection substitute

whether—

a

the car is a qualifying low emissions car for that year, or

b

the car’s CO2 emissions figure exceeds the lower threshold for that year.

3

After subsection (1) insert—

1A

A car is a qualifying low emissions car for any year if—

a

it has a low CO2 emissions figure for that year, and

b

it is not an electrically propelled vehicle, within the meaning of section 140.

1B

If the car is a qualifying low emissions car for the year, the appropriate percentage is 10%.

4

For subsection (2) (emissions figure does not exceed lower threshold) substitute—

2

If—

a

the car is not a qualifying low emissions car for the year, but

b

its CO2 emissions figure does not exceed the lower threshold for the year,

the appropriate percentage for the year is 15% (“the basic percentage”).

5

After subsection (3) insert—

3A

A car has a low CO2 emissions figure for a year if its CO2 emissions figure does not exceed the limit for that year in the following Table—

Table

Tax year

Limit (in g/km)

2008-09 and subsequent tax years

120

Tax year	Limit (in g/km)
2008-09 and subsequent tax years	120

6

In the Table in subsection (4) (the lower threshold)—

a

in the entry relating to 2005-06 and subsequent tax years, for “and subsequent tax years” substitute “, 2006-07 or 2007-08”, and

b

after that entry insert—

2008-09 and subsequent tax years

135

7

After subsection (5) (rounding down of emissions figures to nearest multiple of 5) insert—

5A

Subsection (5) does not apply for the purpose of determining whether a car has a low CO2 emissions figure for a year.

8

In section 170 of ITEPA 2003 (orders etc relating to the Chapter) before subsection (3) (order varying lower threshold) insert—

2A

The Treasury may by order provide for a limit different from that specified in the Table in section 139(3A) (car with a low CO2 emissions figure) to apply for tax years beginning on or after 6th April 2009 or such later date as may be specified in the order.

9

If a qualifying low emissions car is a car which, within the meaning of regulations under section 170(4) of ITEPA 2003,—

a

is capable of being propelled by petrol and road fuel gas,

b

is capable of being propelled by electricity and petrol, or

c

is propelled solely by road fuel gas,

no reduction in the appropriate percentage is to be made by virtue of any such regulations made before 22nd March 2006.

10

Subsections (2) to (5) and (7) to (9) have effect for the tax year 2008-09 and subsequent tax years.

Mobile telephones and computers

60Mobile telephones

1

In section 266(2) of ITEPA 2003 (exemption of non-cash vouchers for exempt benefits), insert at the end

or

d

section 319 (mobile telephones).

2

In section 267(2) of that Act (exemption of credit-tokens used for exempt benefits), after paragraph (f) insert—

g

section 319 (mobile telephones).

3

For section 319 of that Act (employment income: exemption for mobile telephones) substitute—

319Mobile telephones

1

No liability to income tax arises by virtue of section 62 (general definition of earnings) or Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision of one mobile telephone for an employee without any transfer of property in it.

2

In this section “mobile telephone” means telephone apparatus which—

a

is not physically connected to a land-line, and

b

is not used only as a wireless extension to a telephone which is physically connected to a land-line,

or any thing which may be used in such apparatus for the purpose of gaining access to, or using, a public electronic communications service.

3

In this section the reference to the provision of a mobile telephone includes a reference to the provision, together with the mobile telephone provided, of access to, or the use of, a public electronic communications service by means of one mobile telephone number.

4

For the purposes of subsection (2) “telephone apparatus” means wireless telegraphy apparatus designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service.

4

This section has effect for the year 2006-07 and subsequent years of assessment.

5

But the amendment made by subsection (3) does not cause any liability to income tax to arise in respect of the provision of a mobile telephone for an employee, or a member of an employee’s family or household, if the mobile telephone was first provided to him before 6th April 2006.

61Computer equipment

1

Omit section 320 of ITEPA 2003 (employment income: limited exemption for computer equipment).

2

This section has effect for the year 2006-07 and subsequent years of assessment.

3

But it does not cause any liability to income tax to arise in respect of the provision of computer equipment by making it available to an employee, or a member of an employee’s family or household, if the computer equipment was first made available to him before 6th April 2006.

Eye care

62Exemption for employees’ eye tests and special glasses

1

Part 4 of ITEPA 2003 (employment income: exemptions) is amended as follows.

2

In Chapter 11 (miscellaneous exemptions), before section 321 (and the cross-heading “Awards and gifts”) insert—

Eye tests and special corrective appliances

320AEye tests and special corrective appliances

1

No liability to income tax arises in respect of the provision for an employee of—

a

an eye and eyesight test, or

b

special corrective appliances that an eye and eyesight test shows are necessary,

if conditions A and B are met.

2

Condition A is that the provision of the test or appliances is required by regulations made under the Health and Safety at Work etc. Act 1974.

3

Condition B is that tests and appliances of the kind mentioned in subsection (1) are made available generally to those employees of the employer in question for whom they are required to be provided by the regulations.

3

In section 266 (exemption of non-cash vouchers for exempt benefits), at the end of subsection (3) insert

, or

f

section 320A (eye tests and special corrective appliances).

4

In section 267 (exemption of credit-tokens used for exempt benefits), at the end of subsection (2) insert

, and

h

section 320A (eye tests and special corrective appliances).

5

This section has effect for the year 2006-07 and subsequent years of assessment.

Vouchers and tokens

63Power to exempt use of vouchers or tokens to obtain exempt benefits

In Chapter 4 of Part 3 of ITEPA 2003 (taxable benefits: vouchers and credit-tokens), after section 96 insert—

96APower to exempt use of non-cash vouchers or credit-tokens to obtain exempt benefits

1

The Treasury may by regulations provide for exemption from any liability that would otherwise arise by virtue of this Chapter in respect of—

a

non-cash vouchers which are or can be used to obtain specified exempt benefits, or which evidence an employee’s entitlement to specified exempt benefits;

b

credit-tokens which are used to obtain specified exempt benefits.

2

In this section—

“exempt benefit” means a benefit the direct provision of which is exempted from liability to income tax by a provision of Part 4 (employment income: exemptions), and

“specified” means specified in the regulations.

3

Regulations under this section may operate by amending section 266 (exemption of non-cash vouchers for exempt benefits) or section 267 (exemption of credit-tokens used for exempt benefits).

Holocaust victims

64Payments to or in respect of victims of National-Socialist persecution

1

In section 369 of ITTOIA 2005 (charge to tax on interest), in subsection (3) (non-exhaustive list of exemptions), in paragraph (e) (exemptions under sections 749 to 756)—

a

for “756” substitute “756A”, and

b

for “and interest on certain foreign currency securities)” substitute “, certain foreign currency securities and interest on certain deposits of victims of National-Socialist persecution)”.

2

After section 756 of ITTOIA 2005 (which securities and loans are foreign currency ones for section 755) insert—

756AInterest on certain deposits of victims of National-Socialist persecution

1

No liability to income tax arises in respect of interest which is paid—

a

to or in respect of a victim of National-Socialist persecution,

b

under a qualifying compensation scheme, and

c

for a qualifying purpose in respect of a qualifying deposit of the victim.

2

A scheme is a qualifying compensation scheme if—

a

it is constituted (whether under the law of any part of the United Kingdom or elsewhere) by an instrument in writing, and

b

the purpose of the scheme, or one of its purposes, is to make payments of interest to or in respect of victims of National-Socialist persecution for qualifying purposes in respect of qualifying deposits.

3

Interest is paid for a qualifying purpose in respect of a deposit if—

a

it is paid for meeting a liability in respect of interest on the deposit, or

b

it is paid for compensating for the effects of inflation on the deposit.

4

In relation to a victim of National-Socialist persecution, a deposit is a qualifying deposit if it was made—

a

by, or on behalf of, the victim, and

b

on or before 5th June 1945.

5

In this section “deposit” has the meaning given by section 481(3) of ICTA.

3

In section 783 of ITTOIA 2005 (general disregard of exempt income for income tax purposes)—

a

for subsection (2) (exception to general disregard) substitute—

2

There are exceptions to this in the following cases.

2A

Interest on deposits in ordinary accounts with the National Savings Bank which is exempt under this Part from every charge to income tax is not to be ignored for the purpose of providing information.

2B

Interest paid to or in respect of victims of National-Socialist persecution which is so exempt is not to be ignored for the purposes of sections 17 and 18 of TMA 1970 (information provisions relating to interest).

b

in subsection (3) (subsection (2) without prejudice to other exceptions) for “This express exception to subsection (1) is” substitute “These express exceptions to subsection (1) are”.

4

After section 268 of TCGA 1992 (decorations for valour or gallant conduct) insert—

268AVictims of National-Socialist persecution

1

A gain accruing on a disposal is not a chargeable gain if it accrues on—

a

a disposal of the right to receive the whole or any part of a qualifying payment in respect of National-Socialist persecution, or

b

a disposal of an interest in any such right.

2

A payment is a qualifying payment in respect of National-Socialist persecution if it is payable as mentioned in paragraphs (a) to (c) of section 756A(1) of ITTOIA 2005 (income tax exemption for payments to or in respect of victims of National-Socialist persecution).

3

In this section “interest”, in relation to any right, means an interest as a co-owner of the right.

4

It does not matter—

a

whether the right is owned jointly or in common, or

b

whether or not the interests of the co-owners are equal.

5

If at any time before claims could have been made under any qualifying compensation scheme—

a

a person beneficially entitled to a qualifying deposit has died, and

b

no information in respect of that deposit was contained in any account relating to that deceased person under any provision of IHTA 1984,

8

If it appears to the Treasury that LOCOG has undertaken, is undertaking or may undertake activities other than in pursuance of the Host City Contract, the Treasury may make regulations restricting the application of a provision of this section to a specified extent.

9

Regulations under subsection (5) may include provision of a kind similar to that which may be made under subsection (7) or (8).

66Section 65: supplementary

1

Regulations under section 65(5) to (8)—

a

may make provision which applies generally or only in specified cases or circumstances,

b

may make different provision for different cases or circumstances,

c

may have retrospective effect, and

d

may include incidental, consequential or transitional provision.

2

Regulations under section 65 shall be made by statutory instrument.

3

Regulations under section 65(5)—

a

shall be subject to annulment in pursuance of a resolution of the House of Commons, or

b

if they include provision by virtue of section 65(9), may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

4

Regulations under section 65(7) or (8) may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

5

In section 65 “the Host City Contract” has the meaning given by section 1 of the London Olympic Games and Paralympic Games Act 2006.

6

Section 65 shall be treated as having come into force on 22nd October 2004.

7

The Treasury may by order made by statutory instrument repeal section 65 and this section.

shall be subject to annulment in pursuance of a resolution of the House of Commons.

5

A claim may be made for any repayment of income tax required as a result of an exemption conferred under this section.

68Competitors and staff

5

In this section “London Olympic event” and “the London Olympics” have the meaning given by section 1 of the London Olympic Games and Paralympic Games Act 2006.

Chapter 7Chargeable gains

Capital losses

69Restriction on a company’s allowable losses

1

Section 8 of TCGA 1992 (company’s total profits to include chargeable gains) is amended as follows.

2

In subsection (2) (exclusion of loss as allowable loss)—

a

for “does not include a loss” substitute

does not include—

a

a loss

b

at the end insert

, or

b

a loss accruing to a company in disqualifying circumstances (see subsection (2A))

3

After subsection (2) insert—

2A

For the purposes of subsection (2)(b), a loss accrues to a company in disqualifying circumstances if—

a

it accrues to the company directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

b

the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage.

2B

For the purposes of subsection (2A)—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and

“tax advantage” has the meaning given by section 184D.

2C

For the purposes of subsection (2A) it does not matter—

a

whether the loss accrues at a time when there are no chargeable gains from which it could otherwise have been deducted, or

b

whether the tax advantage is secured for the company or for any other company.

4

In section 834(1) of ICTA (interpretation of the Corporation Tax Acts), in the definition of “allowable loss”, at the end insert “or a loss accruing to a company in disqualifying circumstances (within the meaning of section 8(2)(b) of the 1992 Act)”.

5

The amendments made by this section have effect in relation to any loss accruing on any disposal that is made on or after 5th December 2005.

70Restrictions on companies buying losses or gains

1

TCGA 1992 is amended as follows.

2

After section 184 insert—

Restrictions on buying losses or gains etc

184ARestrictions on buying losses: tax avoidance schemes

1

This section applies for the purposes of corporation tax in respect of chargeable gains if—

a

at any time (“the relevant time”) there is a qualifying change of ownership in relation to a company (“the relevant company”) (see section 184C),

b

a loss (a “qualifying loss”) accrues to the relevant company or any other company on a disposal of a pre-change asset (see subsection (3)),

c

the change of ownership occurs directly or indirectly in consequence of, or otherwise in connection with, any arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage (see section 184D), and

d

the advantage involves the deduction of a qualifying loss from any chargeable gains (whether or not it also involves anything else).

2

A qualifying loss accruing to a company is not to be deductible from chargeable gains accruing to the company unless the gains accrue to the company on a disposal of a pre-change asset.

3

In this section a “pre-change asset” means an asset which was held by the relevant company before the relevant time (but see also sections 184E and 184F).

4

In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

5

For the purposes of this section it does not matter—

a

whether a qualifying loss accrues before, after or at the relevant time,

b

whether a qualifying loss accrues at a time when there are no chargeable gains from which it could be deducted (or could otherwise have been deducted), or

c

whether the tax advantage is secured for the company to which a qualifying loss accrues or for any other company.

184BRestrictions on buying gains: tax avoidance schemes

1

This section applies for the purposes of corporation tax in respect of chargeable gains if—

a

at any time (“the relevant time”) there is a qualifying change of ownership in relation to a company (“the relevant company”) (see section 184C),

b

a gain (a “qualifying gain”) accrues to the relevant company or any other company on a disposal of a pre-change asset (see subsection (3)),

c

the change of ownership occurs directly or indirectly in consequence of, or otherwise in connection with, any arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage, and

d

the advantage involves the deduction of a loss from a qualifying gain (whether or not it also involves anything else).

2

In the case of a qualifying gain accruing to a company, a loss accruing to the company is not to be deductible from the gain unless the loss accrues to the company on a disposal of a pre-change asset.

3

In this section a “pre-change asset” means an asset which was held by the relevant company before the relevant time (but see also sections 184E and 184F).

4

In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

5

For the purposes of this section it does not matter—

a

whether a qualifying gain accrues before, after or at the relevant time,

b

whether a qualifying gain accrues at a time when there are no losses which could be deducted (or could otherwise have been deducted) from the gain, or

c

whether the tax advantage is secured for the company to which a qualifying gain accrues or for any other company.

184CSections 184A and 184B: meaning of “qualifying change of ownership”

1

For the purposes of sections 184A and 184B, there is a qualifying change of ownership in relation to a company at any time if any one or more of the following occur at that time—

a

the company joins a group of companies (see subsections (2) to (5)),

b

the company ceases to be a member of a group of companies,

c

the company becomes subject to different control (see subsections (6) to (9)).

2

Whether a company is a member of a group of companies at any time is determined in accordance with section 170.

3

But, apart from in the excepted case, nothing in section 170(10) or (10A) is to prevent all the companies of one group from being regarded as joining another group when the principal company of the first group becomes a member of the other group at any time.

4

The excepted case is the case where—

a

the persons owning the shares of the principal company of the first group immediately before that time are the same as the persons owning the shares of the principal company of the other group immediately after that time,

b

the principal company of the other group was not the principal company of any group immediately before that time, and

c

immediately after that time the principal company of the other group had assets consisting entirely (or almost entirely) of shares of the principal company of the first group.

5

For this purpose, references to shares of a company are to the shares comprised in the issued share capital of the company.

6

The general rule is that a company becomes subject to different control at any time if any one or more of the following occur—

a

a person has control of the company at that time (whether alone or together with one or more others) and the person did not previously have control of the company,

b

a person has control of the company at that time together with one or more others and the person previously had control of the company alone,

c

a person ceases to have control of the company at that time (whether the person had control alone or together with one or more others).

7

The general rule is subject to the following exceptions.

8

A company does not become subject to different control in any case where it joins a group of companies and the case is the excepted case mentioned above.

9

A company (“the subsidiary”) does not become subject to different control at any time in any case where—

a

immediately before that time the subsidiary is the 75 per cent. subsidiary of another company, and

b

(although there is a change in the direct ownership of the subsidiary) that other company continues immediately after that time to own it as a 75 per cent. subsidiary.

184DSections 184A and 184B: meaning of “tax advantage”

For the purposes of sections 184A and 184B, “tax advantage” means—

a

relief or increased relief from corporation tax,

b

repayment or increased repayment of corporation tax,

c

the avoidance or reduction of a charge to corporation tax or an assessment to corporation tax, or

d

the avoidance of a possible assessment to corporation tax.

184ESections 184A and 184B: “pre-change assets”: basic rules

1

If—

a

a company other than the relevant company makes a disposal of an asset, and

b

the asset has been disposed of at any time after the relevant time by a disposal to which section 171(1) does not apply (a “non-section 171(1) transfer”),

the asset ceases to be regarded as a pre-change asset for the purposes of sections 184A and 184B (but see also subsections (10) and (11)).

2

But (without affecting the generality of the provision made by the following subsection) if, on a non-section 171(1) transfer,—

a

an asset would cease to be regarded as a pre-change asset as a result of subsection (1), and

b

the company making the non-section 171(1) transfer retains any interest in or over the asset,

that interest is to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

3

If—

a

the relevant company or any other company holds an asset (“the new asset”) at or after the relevant time,

b

the value of the new asset derives in whole or in part from a pre-change asset, and

c

the new asset is not acquired by the company concerned as a result of a non-section 171(1) transfer,

the new asset is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

4

For this purpose the cases in which the value of an asset may be derived from any other asset include any case where—

a

assets have been merged or divided,

b

assets have changed their nature, or

c

rights or interests in or over assets have been created or extinguished.

5

If a pre-change asset is “the old asset” for the purposes of section 116 (reorganisations, conversions and reconstructions), “the new asset” for the purposes of that section is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

6

If a pre-change asset is the “original shares” for the purposes of sections 127 to 131 (reorganisation or reduction of share capital), the “new holding” for the purposes of those sections is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

7

The following subsection applies if, as a result of the application of a relevant deferral provision in the case of a disposal of a pre-change asset (“the original disposal”),—

a

a gain or loss that would otherwise accrue to a company does not so accrue, or

b

any part of any such gain is treated as forming part of a single chargeable gain which does not accrue to the company on the original disposal,

and a gain or loss does, wholly or partly in consequence of the application of that provision in the case of the original disposal, accrue to the company or any other company on a subsequent occasion.

8

So much of the gain or loss accruing on the subsequent occasion as accrues in consequence of the application of the relevant deferral provision in the case of the original disposal is to be regarded for the purposes of sections 184A and 184B as accruing on a disposal of a pre-change asset (so far as it would not otherwise be so regarded).

9

A “relevant deferral provision” means any of the following—

a

section 139 (reconstruction involving transfer of business),

b

section 140 (postponement of charge on transfer of assets to non-resident company),

c

section 140A (transfer of a UK trade),

d

section 140E (merger leaving assets within UK tax charge),

e

sections 152 and 153 (replacement of business assets),

f

section 187 (postponement of charge on deemed disposal under section 185).

10

If—

a

a pre-change asset of the relevant company is transferred to another company (“the transferee company”),

b

any of sections 139, 140A and 140E apply to the companies in the case of the asset, and

c

the transfer of the asset is made directly or indirectly in consequence of, or otherwise in connection with, the arrangements mentioned in section 184A or 184B,

the asset is to be regarded as a “pre-change asset” in the hands of the transferee company for the purposes of sections 184A and 184B.

11

In such a case, subsection (1) applies as if the reference in paragraph (a) of that subsection to the relevant company were to the transferee company.

184FSections 184A and 184B: “pre-change assets”: pooling rules

1

This section applies, in the case of any pre-change asset of the relevant company or any pre-change asset of any company which is acquired on a disposal to which section 171(1) applies, if—

a

the pre-change asset consists of a holding of securities which falls as a result of any provision of Chapter 1 of Part 4 to be regarded as a single asset (“the pre-change pooled asset”), and

b

as a result of any disposal or acquisition at any time after the relevant time, any securities (“the other securities”) would (but for this section) be regarded as forming part of the pre-change pooled asset.

2

None of the other securities are to be regarded for the purposes of this Act as forming part of the pre-change pooled asset.

3

But this does not prevent the other securities from being regarded, as a result of any provision of that Chapter, as forming part of or constituting a different, single asset (“the other pooled asset”).

4

Securities of the same class as the other securities which are disposed of at or after the relevant time—

a

are to be identified first with the other securities or securities forming part of the other pooled asset,

b

are to be identified next with securities forming part of the pre-change pooled asset (if the number of securities disposed of exceeds the number identified in accordance with paragraph (a)), and

c

subject to paragraphs (a) and (b), are to be identified in accordance with the provisions applicable apart from those paragraphs.

5

The above identification rules apply even if some or all of the securities disposed of are otherwise identified—

a

by the disposal, or

b

by a transfer or delivery giving effect to it;

but where a company disposes of securities in one capacity, they are not to be identified with securities which it holds, or can dispose of, only in some other capacity.

6

Chapter 1 of Part 4 has effect subject to this section.

7

In this section—

“pre-change asset” means an asset which is pre-change asset for the purposes of section 184A or 184B,

“securities” does not include relevant securities as defined in section 108 but, subject to that, means—

a

shares or securities of a company, and

b

any other assets where they are of a nature to be dealt in without identifying the particular assets disposed of or acquired.

8

For the purposes of this section, shares or securities of a company are not to be treated as being of the same class unless—

a

they are so treated by the practice of a recognised stock exchange, or

b

they would be so treated if dealt with on a recognised stock exchange.

3

In Schedule 7A (restriction on set-off of pre-entry losses), in paragraph 1(1) (application of Schedule), at the end insert “, but this Schedule shall have no effect in any case where section 184A (restrictions on buying losses: tax avoidance schemes) has effect in relation to those losses”.

4

Section 177B and Schedule 7AA (restrictions on setting losses against pre-entry gains) shall cease to have effect.

5

In section 213 (insurance companies: spreading of gains and losses under section 212)—

a

in subsection (8H) for “that the net amount is” to the end substitute “that the net amount would still arise even if losses accruing after the date on which the company or transferee joined the group of companies were disregarded”, and

b

in subsection (8I) for “paragraph 1” to the end substitute “section 184C as if those references were contained in that section; and in subsection (8A)(b) above “group” has the same meaning as in that section”.

The amendments made by this subsection have effect where the accounting period for which the net amount represents an excess of losses over gains is an accounting period ending on or after 5th December 2005.

6

The amendments made by this section, other than subsection (5), have effect for calculating the amount to be included in respect of chargeable gains in a company’s total profits for any accounting period ending on or after 5th December 2005.

7

But, in respect of any such accounting period, those amendments do not have effect in relation to the deduction of any loss from chargeable gains that accrue on any disposal made before 5th December 2005 unless that loss accrues on a disposal made on or after that date.

8

For the purposes of those amendments, it does not matter whether a qualifying change of ownership in relation to a company occurs—

a

before 5th December 2005, or

b

on or after that date.

9

The following subsection applies so long as each of the following conditions is met—

a

at any time (“the relevant time”) before 5th December 2005 there is a qualifying change of ownership in relation to a company (“the relevant company”) for the purposes of section 184A or 184B of TCGA 1992,

b

the change of ownership occurs because the relevant company ceases to be a member of a group of companies at the relevant time (whether or not it also occurs for any other reason),

c

the principal company of that group has control of the relevant company at the relevant time and at all subsequent times,

d

the principal company of that group does not, at or after the relevant time, join another group otherwise than in the excepted case, and

e

a qualifying loss for the purposes of section 184A of TCGA 1992, or a qualifying gain for the purposes of section 184B of that Act, accrues to the relevant company or any other company on a disposal made before 5th December 2005.

10

Section 184A or 184B of TCGA 1992 applies in relation to that qualifying loss or gain as if, for the purposes of that section, a “pre-change asset” included an asset held before the relevant time by any company which, immediately before the relevant time, was a member of the same group of companies as the relevant company.

11

Subsections (9) and (10) are to be read as if contained in section 184C of TCGA 1992.

71Other avoidance involving losses accruing to companies

1

After section 184F of TCGA 1992 (as inserted by section 70 above) insert—

184GAvoidance involving losses: schemes converting income to capital

1

This section applies for the purposes of corporation tax in respect of chargeable gains if conditions A to D are satisfied.

2

Condition A is that—

a

any receipt arises to a company (“the relevant company”) on a disposal of an asset, and

b

the receipt arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements.

3

Condition B is that—

a

a chargeable gain (the “relevant gain”) accrues to the relevant company on the disposal, and

b

losses accrue (or have accrued) to the relevant company on any other disposal of any asset (whether before or after or as part of the arrangements).

4

Condition C is that, but for the arrangements, an amount would have fallen to be taken into account wholly or partly instead of the receipt in calculating the income chargeable to corporation tax—

a

of the relevant company, or

b

of a company which, at any qualifying time, is a member of the same group as the relevant company.

5

Condition D is that—

a

the main purpose of the arrangements, or

b

one of the main purposes of the arrangements,

is to secure a tax advantage that involves the deduction of any of the losses from the relevant gain (whether or not it also involves anything else).

6

If the Board consider, on reasonable grounds, that conditions A to D are or may be satisfied, they may give the relevant company a notice in respect of the arrangements (but see also section 184I).

7

If, when the notice is given, conditions A to D are satisfied, no loss accruing to the relevant company at any time is to be deductible from the relevant gain.

8

A notice under this section must—

a

specify the arrangements,

b

specify the accounting period in which the relevant gain accrues, and

c

inform the relevant company of the effect of this section.

9

If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

10

In this section—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

“group”, in relation to companies, means a group determined in accordance with section 170,

“qualifying time”, in relation to any arrangements, means any time which falls in the period—

a

beginning with the time at which the arrangements are made, and

b

ending with the time at which the matters (other than any tax advantage) intended to be secured by the arrangements are secured,

“tax advantage” has the meaning given by section 184D.

184HAvoidance involving losses: schemes securing deductions

1

This section applies for the purposes of corporation tax in respect of chargeable gains if conditions A to D are satisfied.

2

Condition A is that—

a

a chargeable gain (the “relevant gain”) accrues to a company (“the relevant company”) directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

b

losses accrue (or have accrued) to the relevant company on any disposal of any asset (whether before or after or as part of the arrangements).

3

Condition B is that the relevant company, or a company connected with the relevant company, incurs any expenditure—

a

which is allowable as a deduction in calculating its total profits chargeable to corporation tax but which is not allowable as a deduction in computing its gains under section 38, and

b

which is incurred directly or indirectly in consequence of, or otherwise in connection with, the arrangements.

4

Condition C is that the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage that involves both—

a

the deduction of the expenditure in calculating total profits, and

b

the deduction of any of the losses from the relevant gain,

whether or not it also involves anything else.

5

Condition D is that the arrangements are not excluded arrangements.

For this purpose arrangements are excluded arrangements if—

a

the arrangements are made in respect of land or any estate or interest in land,

b

the arrangements fall within section 779(1) or (2) of the Taxes Act (sale and lease-back: limitation on tax reliefs),

c

the person to whom the payment mentioned in that subsection is payable is not a company connected with the relevant company, and

d

the arrangements are made between persons dealing at arm’s length.

6

If the Board consider, on reasonable grounds, that conditions A to D are or may be satisfied, they may give the company a notice in respect of the arrangements (but see also section 184I).

7

If, when the notice is given, conditions A to D are satisfied, no loss accruing to the company at any time is to be deductible from the relevant gain.

8

A notice under this section must—

a

specify the arrangements,

b

specify the accounting period in which the relevant gain accrues, and

c

inform the relevant company of the effect of this section.

9

If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

10

In this section—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

“tax advantage” has the meaning given by section 184D.

11

For the purposes of this section it does not matter whether the tax advantage is secured for the relevant company or for any other company.

184INotices under sections 184G and 184H

1

Subsection (2) applies if—

a

the Board give a notice under section 184G or 184H (a “relevant notice”) to a company that specifies an accounting period, and

b

the notice is given before the company has made its company tax return for that accounting period.

2

If the company makes its return for that period before the end of the applicable 90 day period (see subsection (12)), it may—

a

make a return that disregards the notice, and

b

at any time after making the return and before the end of the applicable 90 day period, amend the return for the purpose of complying with the provision referred to in the notice.

3

If a company has made a company tax return for an accounting period, the Board may give the company a relevant notice in relation to that period only if a notice of enquiry has been given to the company in respect of its return for that period.

4

After any enquiries into the return for that period have been completed, the Board may give the company a relevant notice only if requirements A and B are met.

5

Requirement A is that at the time the enquiries into the return were completed, the Board could not have been reasonably expected, on the basis of information made available—

a

to them before that time, or

b

to an officer of theirs before that time,

to have been aware that the circumstances were such that a relevant notice could have been given to the company in relation to that period.

6

For the purposes of requirement A, paragraph 44(2) and (3) of Schedule 18 to the Finance Act 1998 (information made available) applies as it applies for the purposes of paragraph 44(1).

7

Requirement B is that—

a

the company or any other person was requested to produce or provide information during an enquiry into the return for that period, and

b

if the request had been duly complied with, the Board could reasonably have been expected to give the company a relevant notice in relation to that period.

8

If—

a

a company makes a company tax return for an accounting period, and

b

the company is subsequently given a relevant notice that specifies that period,

it may amend the return for the purpose of complying with the provision referred to in the notice at any time before the end of the applicable 90 day period.

9

If the relevant notice is given to the company after it has been given a notice of enquiry in respect of its return for the period, no closure notice may be given in relation to its company tax return until—

a

the end of the applicable 90 day period, or

b

the earlier amendment of its company tax return for the purpose of complying with the provision referred to in the notice.

10

If the relevant notice is given to the company after any enquiries into the return for the period are completed, no discovery assessment may be made as regards the chargeable gain to which the notice relates until—

a

the end of the applicable 90 day period, or

b

the earlier amendment of the company tax return for the purpose of complying with the provision referred to in the notice.

11

Subsections (2)(b) and (8) do not prevent a company tax return for a period becoming incorrect if—

a

a relevant notice is given to the company in relation to that period,

b

the return is not amended in accordance with subsection (2)(b) or (8) for the purpose of complying with the provision referred to in the notice, and

c

the return ought to have been so amended.

12

In this section—

“the applicable 90 day period”, in relation to a relevant notice, means the period of 90 days beginning with the day on which the notice is given,

“closure notice” means a notice under paragraph 32 of Schedule 18 to the Finance Act 1998,

“company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of that Schedule, as read with paragraph 4 of that Schedule,

“discovery assessment” means an assessment under paragraph 41 of that Schedule,

“notice of enquiry” means a notice under paragraph 24 of that Schedule.

2

In Schedule 18 to FA 1998 (company tax returns, assessments, etc), in paragraph 25(1) (scope of enquiry), after “relief)” insert “or a notice under section 184G or 184H of the Taxation of Chargeable Gains Act 1992 (avoidance involving capital losses)”.

3

In paragraph 42 of that Schedule (restrictions on power to make discovery assessment etc), in sub-paragraph (2A), after “1988” insert “or section 184G or 184H of the Taxation of Chargeable Gains Act 1992”.

4

The amendments made by this section have effect in relation to chargeable gains accruing on any disposal that is made on or after 5th December 2005.

72Repeal of s.106 of TCGA 1992

1

Section 106 of TCGA 1992 (disposal of shares and securities by company within prescribed period of acquisition) shall cease to have effect.

2

In consequence of that repeal—

a

in section 104(2)(b) of TCGA 1992 (share pooling: general interpretative provisions) omit “, 106”,

b

in section 105 of that Act (disposal on or before day of acquisition of shares and other unidentified assets)—

i

in subsection (2)(b) for “any of the provisions of section 106 or” substitute “section”, and

ii

in subsection (2)(c) omit “106,”,

c

in section 108(8) of that Act (identification of relevant securities) omit “shall have effect subject to section 106 but”,

d

in section 110(1)(b) of that Act (section 104 holdings: indexation allowance) for “sections 105 and 106” substitute “section 105”, and

e

in Schedule 15 to FA 2000 (corporate venture scheme), in paragraph 93(6) (identification of shares on a disposal), for “Sections 104 to 106” substitute “Sections 104, 105”.

3

The amendments made by this section have effect in relation to any disposal that is made on or after 5th December 2005.

Insurance policies and annuities

73Policies of insurance and non-deferred annuities

1

TCGA 1992 is amended as follows.

2

For section 204 (policies of insurance) substitute—

204Policies of insurance and non-deferred annuities

1

A gain accruing on a disposal of, or of an interest in, the rights conferred by a non-life policy of insurance is not a chargeable gain (but see subsection (2)).

2

If a disposal is of, or of an interest in, the rights conferred by a non-life policy of insurance of the risk of—

a

any kind of damage to assets, or

b

the loss or depreciation of assets,

the exemption under subsection (1) does not apply so far as those rights relate to chargeable assets.

3

For this purpose “chargeable assets” means assets on the disposal of which a chargeable gain—

a

may accrue, or

b

might have accrued.

4

Nothing in subsections (1) and (2) prevents sums received under a non-life policy of insurance of the risk of—

a

any kind of damage to assets, or

b

the loss or depreciation of assets,

from being sums derived from the assets for the purposes of this Act (and, in particular, for the purposes of section 22).

5

A gain accruing on a disposal of, or of an interest in, the rights conferred by a contract for an annuity is not a chargeable gain if the annuity is—

a

a non-deferred annuity, or

b

an annuity granted (or deemed to be granted) under the Government Annuities Act 1929.

6

If any investments or other assets are, in accordance with a policy issued in the course of life assurance business carried on by an insurance company, transferred to the policy holder—

a

the policy holder’s acquisition of the assets, and

b

the disposal of the assets to the policy holder,

are to be taken for the purposes of this Act to be for a consideration equal to the market value of the assets.

7

In this section “interest”, in relation to any rights, means an interest as a co-owner of the rights.

8

It does not matter—

a

whether the rights are owned jointly or in common, or

b

whether or not the interests of the co-owners are equal.

9

In this section a “non-deferred annuity” means an annuity—

a

which is not granted under a contract for a deferred annuity, and

b

which is granted in the ordinary course of a business of granting annuities on the life of any person,

and it does not matter whether the annuity includes instalments of capital.

10

In this section a “non-life policy of insurance” means—

a

a contract made in the course of a capital redemption business, as defined in section 458(3) of the Taxes Act, and

b

any other policy of insurance which is not a policy of insurance on the life of any person.

3

In section 237 (superannuation funds, annuities and annual payments)—

a

at the end of paragraph (a), insert “or”, and

b

omit paragraph (b) (exemption for disposals of non-deferred annuities etc).

4

The amendments made by this section have effect in relation to disposals made on or after 5th December 2005.

Capital gains tax

74Exception to “bed and breakfasting” rules etc

1

TCGA 1992 is amended as follows.

2

In section 106A (identification of securities: general rules for capital gains tax), after subsection (5) (acquisition of securities within 30 days after disposing of securities of same class) insert—

5A

Subsection (5) above shall not require securities to be identified with securities which the person making the disposal acquires at a time when—

a

he is neither resident nor ordinarily resident in the United Kingdom, or

b

he is resident or ordinarily resident in the United Kingdom but is Treaty non-resident.

3

In section 288 (interpretation), after subsection (7A) (meaning of “surrender” in application of Act to Scotland) insert—

7B

For the purposes of this Act, a person is Treaty non-resident at any time if, at that time, he falls to be regarded as resident in a territory outside the United Kingdom for the purposes of double taxation relief arrangements having effect at that time.

4

In consequence of the amendment made by subsection (3)—

a

in section 10A (temporary non-residents), omit subsection (9A) (meaning of “Treaty non-resident”), and

b

in section 83A (trustees both resident and non-resident in a year of assessment), omit subsection (5) (meaning of “Treaty non-resident”).

5

The amendment made by subsection (2) has effect in relation to any acquisition made at any time on or after 22nd March 2006.

6

The amendments made by subsections (3) and (4) have effect in relation to any time on or after 22nd March 2006.

Chapter 8Avoidance: miscellaneous

Financial instruments

76Avoidance involving financial arrangements

Schedule 6 (which makes provision in relation to tax avoidance involving financial arrangements) has effect.

Intangible fixed assets

77Treating assets as “existing assets” etc

1

Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed assets) is amended as follows.

2

In paragraph 13 (credits in respect of intangible fixed assets: introduction), in sub-paragraph (1) (credits brought into account under Part 3), after paragraph (a) (receipts recognised in determining profit or loss), insert—

aa

receipts in respect of royalties so far as the receipts do not give rise to a credit under paragraph 14 (see paragraph 14A),

3

After paragraph 14 (receipts recognised as they accrue) insert—

14AReceipts in respect of royalties so far as not dealt with under paragraph 14

1

So far as a receipt in respect of any royalty does not give rise to a credit under paragraph 14 (whether in the period of account in which it is received or in a subsequent period of account), a credit shall be brought into account for tax purposes.

2

The amount of the credit to be brought into account for tax purposes is equal to so much of the amount of the receipt as does not give rise to a credit under paragraph 14.

3

The credit shall be brought into account for tax purposes in the accounting period in which the receipt is recognised for accounting purposes.

4

In paragraph 82 (assets excluded to extent specified: research and development), in sub-paragraph (2) (provisions of Schedule not applying to asset so far as representing expenditure on research and development)—

a

in paragraph (a) (Part 2 not to apply subject to exception relating to paragraph 14), at the end insert “or 14A (receipts in respect of royalties so far as not dealt with under paragraph 14)”, and

b

in paragraph (b) (Part 3 not to apply subject to exception for paragraph 14), for “paragraph 14” substitute “paragraphs 14 and 14A”.

5

In paragraph 83 (assets excluded to extent specified: election to exclude capital expenditure on computer software), in sub-paragraph (3) (effect of election)—

a

b

in paragraph (b) (Part 3 not to apply subject to exception for paragraph 14), for “paragraph 14” substitute “paragraphs 14 and 14A”.

6

In paragraph 118 (application of Schedule to assets created or acquired after commencement, that is to say, on or after 1st April 2002)—

a

in sub-paragraph (4) (application of sub-paragraph (1) subject to other paragraphs), at the end insert

and

c

paragraph 127A (assets whose value derives from existing assets treated as existing assets), and

d

paragraph 127B (assets acquired in connection with disposals of existing assets treated as existing assets).

b

in sub-paragraph (6) (nothing in paragraph 118 restricts application of Schedule in accordance with paragraph 119), at the end insert “, but see sub-paragraph (5) of that paragraph.”.

7

In paragraph 119 (application of Schedule to royalties), at the end insert—

5

Nothing in this paragraph shall be read as authorising or requiring an amount to be brought into account in connection with the realisation of an existing asset within the meaning of Part 4.

8

After paragraph 127 (certain assets acquired on transfer of business treated as existing assets) insert—

127AAssets whose value derives from existing assets treated as existing assets

1

This paragraph applies where—

a

a company acquires an intangible fixed asset (“the acquired asset”) after commencement from a person (“the transferor”) who at the time of the acquisition is a related party in relation to the company,

b

the acquired asset is created, whether by the transferor or any other person, after commencement,

c

the value of the acquired asset derives in whole or in part from any other asset (“the other asset”),

d

the other asset has not at any time on or after 5th December 2005 been a chargeable intangible asset in the hands of the company or a related party in relation to the company or the transferor, and

e

the existing asset condition is met.

2

The existing asset condition is that, after commencement,—

a

the other asset has been an existing asset in the hands of the transferor at a time when the transferor was a related party in relation to the company, or

b

the other asset has been an existing asset in the hands of any other person at a time when the other person was a related party in relation to the company or the transferor.

3

Where this paragraph applies the acquired asset shall be treated for the purposes of this Schedule as an existing asset in the hands of the company, but only so far as its value derives from the other asset.

4

If only part of the value of the acquired asset so derives—

a

this Schedule has effect as if there were a separate asset representing the part of the value not so derived, and

b

the enactments that apply where this Schedule does not apply have effect as if there were a separate asset representing the part of the value so derived.

Any apportionment necessary for this purpose shall be made on a just and reasonable basis.

5

For the purposes of this paragraph the cases in which the value of an asset may be derived from any other asset include any case where—

a

assets have been merged or divided,

b

assets have changed their nature, or

c

rights or interests in or over assets have been created or extinguished.

6

For the purposes of this paragraph the time at which an asset is created or acquired is the time at which it would be regarded as created or acquired for the purposes of paragraph 118 (application of Schedule to assets created or acquired after commencement).

127BAssets acquired in connection with disposals of existing assets treated as existing assets

1

This paragraph applies where—

a

a person disposes of an asset which, at the time of the disposal, is an existing asset in the hands of the person,

b

a company which at the time of the disposal is a related party in relation to the person acquires an intangible fixed asset directly or indirectly in consequence of, or otherwise in connection with, the disposal, and

c

the intangible fixed asset that is acquired would, apart from this paragraph, at the time of the acquisition be a chargeable intangible asset in the hands of the company.

2

Where this paragraph applies the intangible fixed asset that is acquired shall be treated for the purposes of this Schedule as an existing asset in the hands of the company.

3

For the purposes of this paragraph—

a

“asset”, in relation to any disposal, means any asset for the purposes of the Taxation of Chargeable Gains Act 1992,

b

a person “disposes of” an asset if, for the purposes of that Act, the person makes a part disposal of the asset or any other disposal of the asset,

c

the time at which a disposal of an asset is made is the time at which it is made for the purposes of that Act.

4

For the purposes of this paragraph it does not matter—

a

whether the asset that the person disposes of is the same asset as the one that the company acquires,

b

whether the asset that is acquired is acquired at the time of the disposal or at any other time, or

c

whether the asset that is acquired is acquired by merging two or more assets or is acquired in any other way.

9

In paragraph 143 (index of defined expressions), in the entry relating to existing asset, in the second column, for “paragraph 127” substitute “paragraphs 127 to 127B”.

10

The amendments made by this section have effect in relation to the debits or credits to be brought into account for any accounting period beginning on or after 5th December 2005 (and, in relation to the debits or credits to be brought into account for any such period, shall be deemed always to have had effect).

11

For this purpose an accounting period beginning before, and ending on or after, that date is treated as if—

a

so much of that period as falls before that date, and

b

so much of that period as falls on or after that date,

were separate accounting periods.

International matters

78Controlled foreign companies and treaty non-resident companies

1

Section 90 of FA 2002 (controlled foreign companies and treaty non-resident companies) is amended as follows.

2

In subsection (2) (application of subsection (1), which inserted section 747(1B) of ICTA (disregard of section 249 of FA 1994 for most purposes of Chapter 4 of Part 17 of ICTA (controlled foreign companies))), for paragraph (b) (exclusion for companies which were non-resident immediately before 1st April 2002) substitute—

b

does not apply to a company (“the non-resident company”) that—

i

by virtue of section 249 of the Finance Act 1994 was treated as resident outside the United Kingdom, and not resident in the United Kingdom, immediately before that date, and

ii

has not subsequently ceased to be so treated,

unless condition A or B is met in relation to the non-resident company at any time on or after 22nd March 2006.

3

After that subsection insert—

3

Condition A is met in relation to the non-resident company at any time on or after 22nd March 2006 if—

a

immediately before 22nd March 2006 the non-resident company does not own directly or indirectly any company as a subsidiary company, and

b

at any time on or after that date the non-resident company becomes the direct or indirect owner of a UK resident company as a subsidiary company.

4

Condition B is met in relation to the non-resident company at any time on or after 22nd March 2006 if—

a

immediately before 22nd March 2006 the non-resident company owns directly or indirectly any company as a subsidiary company (which may be a UK resident company),

b

at any time (“the relevant time”) on or after that date the non-resident company becomes the direct or indirect owner of any UK resident company as a subsidiary company (or, as the case may be, another UK resident company), and

c

directly or indirectly in consequence of, or otherwise in connection with, the ownership mentioned in paragraph (b) there is a qualifying change in activities.

5

There is a qualifying change in activities if, at the relevant time or any subsequent time,—

a

there is a major change in the nature, conduct or scale of the non-resident company’s activities, or

b

there is a major change in the nature, conduct or scale of the activities of the group of companies of which the non-resident company is a member.

6

In this section references to directly or indirectly owning a company are references to owning it—

a

directly or through another company or companies, or

b

partly directly and partly through another company or companies.

7

In this section references to ownership are to be read as references to beneficial ownership.

8

In this section “UK resident company”, in relation to any time, means any company which is resident in the United Kingdom at that time.

79Transfer of assets abroad

Schedule 7 (which makes amendments of, or relating to, Chapter 3 of Part 17 of ICTA (transfer of assets abroad)) has effect.

Pre-owned assets

80Restriction of exemption from charge to income tax

1

Schedule 15 to FA 2004 (charge to income tax on benefits received by former owner of property) is amended as follows.

2

In paragraph 11 (exemptions from charge)—

a

in sub-paragraph (9) (meaning of “the relevant property”) for “sub-paragraphs (1) to (8)” substitute “this paragraph”, and

b

at the end insert—

11

Sub-paragraph (12) applies where at any time—

a

the relevant property has ceased to be comprised in a person’s estate for the purposes of IHTA 1984, or

b

he has directly or indirectly provided any consideration for the acquisition of the relevant property,

and at any subsequent time the relevant property or any derived property is comprised in his estate for the purposes of IHTA 1984 as a result of section 49(1) of that Act (treatment of interests in possession).

12

Where this sub-paragraph applies, the relevant property and any derived property—

a

are not to be treated for the purposes of sub-paragraphs (1) and (2) as comprised in his estate at that subsequent time, and

b

are not to be treated as falling within sub-paragraph (5) in relation to him at that subsequent time.

13

For the purposes of sub-paragraphs (11) and (12) references, in relation to the relevant property, to any derived property are to other property—

a

which derives its value from the relevant property, and

b

whose value, so far as attributable to the relevant property, is not substantially less than the value of the relevant property.

3

In paragraph 21 (election for application of inheritance tax provisions where paragraph 3 (land) or 6 (chattels) would otherwise apply)—

a

in sub-paragraph (2)(b) (application of the gifts with reservation rules), in sub-paragraph (i) at the end insert “, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property”,

b

in sub-paragraph (2)(b) for sub-paragraph (ii) and the “and” before it substitute—

ii

section 102(3) and (4) of that Act shall apply, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property, and

iii

if the chargeable person is beneficially entitled to an interest in possession in the property, sections 53(3) and (4) and 54 of IHTA 1984 (which deal with cases of property reverting to the settlor etc) shall not apply in relation to the chargeable proportion of the property.

c

in sub-paragraph (3) (meaning of “the chargeable proportion”), after paragraph (a)(ii) insert—

iii

in the case of property in which the chargeable person is beneficially entitled to an interest in possession, to the date of his death or (if his interest comes to an end on an earlier date) that earlier date, and

4

In paragraph 22 (election for application of inheritance tax provisions where paragraph 8 (intangible property) would otherwise apply), in sub-paragraph (2)(b) (application of the gifts with reservation rules)—

a

in sub-paragraph (i) at the end insert “, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property concerned”, and

b

for sub-paragraph (ii) and the “and” before it substitute—

ii

section 102(3) and (4) of that Act shall apply, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property concerned, and

iii

if the chargeable person is beneficially entitled to an interest in possession in the property concerned, sections 53(3) and (4) and 54 of IHTA 1984 (which deal with cases of property reverting to the settlor etc) shall not apply in relation to that property.

5

The amendments made by this section have effect—

a

for the part of the year 2005-06 beginning with 5th December 2005, and

b

for the year 2006-07 and subsequent years of assessment.

6

If—

a

paragraph 11 of Schedule 15 to FA 2004 ceases, in consequence of the amendments made by this section, to apply to a person in relation to any property, and

b

that person dies before the day on which this Act is passed without making an election under paragraph 21 or 22 of that Schedule in relation to that property,

his personal representatives (within the meaning of IHTA 1984) may make any election under paragraph 21 or 22 of that Schedule that he might have made.

7

If—

a

in consequence of the amendments made by this section a person makes an election under paragraph 21 or 22 of Schedule 15 to FA 2004,

b

that person dies before the day on which this Act is passed, and

c

an amount of inheritance tax would (but for this subsection) fall due before that day,

that amount is to be treated instead as falling due at the end of the period of 14 days beginning with that day.

8

This section is deemed to have come into force on 5th December 2005.

Chapter 9Miscellaneous provisions

Leasing of plant or machinery

81Leases of plant or machinery

1

Schedule 8 (which makes provision in relation to leases of plant or machinery) has effect.

2

Schedule 9 (which makes miscellaneous amendments relating to such leases) has effect.

Sale of lessors

82Sale etc of lessor companies etc

Schedule 10 (which makes provision about the sale etc of lessor companies etc) has effect.

83Restrictions on use of losses etc: leasing partnerships

1

In section 403 of ICTA (amounts which may be surrendered by way of group relief), in subsection (4) (section 403 subject to certain exceptions), at the end insert

and

section 785ZA (restrictions on use of losses: leasing partnerships)

2

After section 785 of ICTA (meaning of expressions for purposes of sections 781 to 784 (assets leased to traders and others)) insert—

785ZARestrictions on use of losses: leasing partnerships

1

This section applies for corporation tax purposes if—

a

a company carries on a business in respect of which the company is within the charge to corporation tax,

b

the company carries on the business in partnership with other persons in an accounting period of the partnership,

c

the business (“the leasing business”) is, on any day in that period, a business of leasing plant or machinery,

d

the company incurs a loss in its notional business in any accounting period comprised (wholly or partly) in the accounting period of the partnership, and

e

the interest of the company in the leasing business during the accounting period of the partnership is not determined on an allowable basis (see subsections (2) to (4)).

2

The interest of the company in the leasing business during the accounting period of the partnership is determined on an allowable basis if (and only if) the following condition is met.

3

The condition is met if, for the purposes of section 114(2),—

a

the company’s share in the profits or loss of the leasing business for that period is determined wholly by reference to a single percentage, and

b

the company’s share in any relevant capital allowances for that period is determined wholly by reference to the same percentage.

4

For the purposes of this condition “profits” does not include chargeable gains.

5

The following restrictions apply in respect of so much of the loss incurred by the company in its notional business as derives from any relevant capital allowances (“the restricted part of the loss”).

6

Apart from by way of set off against any relevant leasing income, relief is not to be given to the company under any relevant loss relief provision in respect of the restricted part of the loss.

7

If the leasing business is a trade, relief is not to be given to the company under section 393A(1) in respect of the restricted part of the loss.

8

The restricted part of the loss is not available for set off by way of group relief in accordance with section 403.

9

For the purpose of determining how much of a loss derives from any relevant capital allowances, the loss is to be calculated on the basis that any relevant capital allowances are the final amounts to be deducted.

785ZBSection 785ZA: definitions

1

This section applies for the purposes of section 785ZA.

2

“Business of leasing plant or machinery” has the same meaning as in Part 3 of Schedule 10 to the Finance Act 2006 (sale etc of lessor companies etc).

3

“Lease” has the same meaning as in section 785A.

4

“Notional business”, in relation to a company, means the business—

a

from which the company’s share in the profits or loss of the leasing business is treated under section 114(2) as deriving for the purposes of the charge to corporation tax, and

b

which is treated under that provision as carried on alone by the company for those purposes.

5

“Plant or machinery” has the same meaning as in Part 2 of the Capital Allowances Act.

6

“Relevant capital allowance” means an allowance under Part 2 of the Capital Allowances Act in respect of expenditure incurred on the provision of plant or machinery wholly or partly for the purposes of the leasing business.

7

“Relevant leasing income” means any income of the company’s notional business deriving from any lease—

a

which is a lease of plant or machinery, and

b

which was entered into before the end of the accounting period of the company in which the loss in its notional business was incurred.

8

“Relevant loss relief provision” means any of the following provisions—

a

section 392A (Schedule A losses),

b

section 392B (losses from overseas property businesses),

c

section 393 (trade losses),

d

section 396 (Case VI losses).

3

After section 261 of CAA 2001 (special leasing: life assurance business) insert—

261ASpecial leasing: leasing partnerships

1

This section applies for corporation tax purposes if—

a

a company carries on a business in partnership with other persons in a chargeable period of the partnership,

b

the business (“the leasing business”) is, on any day in that period, a business of leasing plant or machinery,

c

the company is entitled to an allowance under section 19 (special leasing of plant or machinery) for any chargeable period comprised (wholly or partly) in the chargeable period of the partnership, and

d

the interest of the company in the leasing business during the chargeable period of the partnership is not determined on an allowable basis.

2

Subsections (3) to (6) of section 260 do not apply in relation to the allowance.

3

For the purposes of this section—

a

“business of leasing plant or machinery” has the same meaning as in Part 3 of Schedule 10 to FA 2006 (sale etc of lessor companies etc), and

b

section 785ZA of ICTA applies for determining whether the interest of the company in the leasing business during the chargeable period of the partnership is determined on an allowable basis.

4

The amendments made by this section have effect in relation to any business carried on by a company in partnership in any accounting period of the partnership ending on or after 5th December 2005.

5

But, in relation to any accounting period of the partnership beginning before 5th December 2005 and ending on or after that date, those amendments have effect only if—

a

the company starts to carry on the business in partnership on or after that date, or

b

a relevant change in the interest of the company in the business occurs on or after that date.

6

A relevant change in the interest of the company in the business occurs at any time if—

a

immediately before that time its interest in the business during any accounting period of the partnership is determined on an allowable basis (within the meaning given by section 785ZA of ICTA), and

b

immediately after that time its interest in the business during that period is not so determined.

84Disposal of plant or machinery subject to lease where income retained

1

CAA 2001 is amended as follows.

2

In section 66 (list of provisions outside Chapter 5 of Part 2 about disposal values), after the entry relating to section 222 of CAA 2001, insert—

sections 228K to 228M

Disposal of plant or machinery subject to lease where income retained

3

After section 228J (plant or machinery subject to further operating lease) insert—

Disposal of plant or machinery subject to lease where income retained

228KDisposal of plant or machinery subject to lease where income retained

1

This section applies for corporation tax purposes if—

a

on any day (“the relevant day”) a person (“the lessor”) carries on a business of leasing plant or machinery (the “leasing business”),

b

on the relevant day the lessor sells or otherwise disposes of any relevant plant or machinery subject to a lease to another person,

c

the lessor remains entitled immediately after the disposal to some or all of the rentals under the lease in respect of the plant or machinery which are payable on or after the relevant day, and

d

the lessor is required to bring a disposal value of the plant or machinery into account under this Part.

2

The disposal value to be brought into account is determined as follows.

3

If the amount or value of the consideration for the disposal exceeds the limit that would otherwise be imposed on the amount of the disposal value by section 62 (general limit) or 239 (limit on disposal value where additional VAT rebate)—

a

that limit is not to apply, and

b

the whole of the amount or value of the consideration for the disposal is to be the disposal value to be brought into account.

4

In any other case, the disposal value to be brought into account is the sum of—

a

the amount or value of the consideration for the disposal, and

b

the value of the rentals under the lease in respect of the plant or machinery (see subsections (7) and (8)) which are payable on or after the relevant day and to which the lessor remains entitled immediately after the disposal,

but subject to the limit imposed on the amount of the disposal value by section 62 or 239.

5

If—

a

any of the rentals under the lease are receivable by the lessor on or after the relevant day, and

b

the value of any of those rentals is represented in the amount of the disposal value under subsection (4)(b),

the amount of those rentals that is equal to their value as so represented is left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.

6

If, in determining under subsection (5) the amount of any rental to be so left out of account, it is necessary to apportion the amount of the rental, the apportionment is to be made on a just and reasonable basis.

7

For the purposes of this section, the value of any rentals under the lease in respect of the plant or machinery is taken to be the amount of the net present value of the rentals (see section 228L).

8

If any land or other asset which is not plant or machinery is subject to the lease, the value of any rentals under the lease in respect of the plant or machinery is taken to be so much of the amount of the net present value of the rentals as, on a just and reasonable basis, relates to the plant or machinery.

9

This section is supplemented by—

a

section 228L (which provides rules for determining the net present value of the rentals), and

b

section 228M (which defines other expressions used in this section).

228LDetermining the net present value of the rentals for purposes of s.228K

1

For the purposes of section 228K, the amount of the net present value of the rentals is calculated as follows—

Step 1

Find the amount (“RI”) of each rental payment—

a

which is payable at any time during the term of the lease, and

b

which is payable on or after the relevant day.

Step 2

For each rental payment find the day (“the payment day”) on which it becomes payable.

Step 3

For each rental payment find the number of days in the period (“P”) which—

a

begins with the relevant day, and

b

ends with the payment day.

Step 4

Calculate the net present value of each payment (“NPVRI”) by applying the following formula—

RI(1+T)i

where—

T is the temporal discount rate, and

i is the number of days in P divided by 365.

Step 5

Add together each amount of NPVRI determined under step 4.

2

For the purposes of this section the “term” of a lease has the meaning given in Chapter 6A of this Part.

3

For the purposes of this section the “temporal discount rate” is 3.5% or such other rate as may be specified by regulations made by the Treasury.

4

The regulations may make such provision as is mentioned in subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates of interest).

5

Subsection (5) of that section (power of Commissioners to specify rate by order in certain circumstances) applies in relation to regulations under this section as it applies in relation to regulations under that section.

228MOther definitions for the purposes of s.228K

1

This section applies for the purposes of section 228K.

2

“Business of leasing plant or machinery”—

a

has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or

b

has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership).

3

“Lease” includes—

a

an underlease, sublease, tenancy or licence, and

b

an agreement for any of those things.

4

“Relevant plant or machinery”, in relation to a business of leasing plant or machinery, means plant or machinery on whose provision expenditure is incurred wholly or partly for the purposes of the business.

4

In Schedule 1 (abbreviations and defined expressions), in Part 1 (abbreviations), insert at the end—

FA 2006

The Finance Act 2006 (c. 25)

5

The amendments made by this section have effect in relation to any disposal made on or after 5th December 2005.

6

But any rentals that are receivable by the lessor before 22nd March 2006 are to be left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.

85Restrictions on effect of elections under section 266 of CAA 2001

1

CAA 2001 is amended as follows.

2

In section 266 (election where predecessor and successor are connected persons), in subsection (7) (sections 104, 108 and 265 not to apply if election is made), at the end insert “(but see section 267A)”.

3

In section 267 (effect of election), at the end insert—

6

This section is subject to section 267A.

4

After that section insert—

267ARestriction on effect of election

1

This section applies for corporation tax purposes if—

a

on any day (“the relevant day”) a person (“the predecessor”) carries on a business of leasing plant or machinery,

b

on the relevant day another person (“the successor”) succeeds to the business, and

c

the predecessor and the successor make an election under section 266.

2

Neither—

a

section 266(7), nor

b

the provisions of section 267,

have effect in relation to any plant or machinery which, in determining whether the business is a business of leasing plant or machinery on the relevant day, is qualifying leased plant or machinery.

3

In this section “business of leasing plant or machinery”—

a

has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or

b

has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership).

5

The amendments made by this section have effect in relation to any succession occurring on or after 5th December 2005.

Insurance companies and policyholders

86Insurance companies

Schedule 11 (which makes provision about insurance companies) has effect.

87Qualifying policies: altering method for calculating benefits

1

Schedule 15 to ICTA (provisions for determining whether an insurance policy is a “qualifying policy” for the purposes of the Tax Acts) is amended as follows.

2

In paragraph 18 (variations), in sub-paragraph (3) (paragraph does not apply by reason of certain variations), at the end insert

, or

d

any variation which alters the method for calculating the benefits secured by the policy.

3

In paragraph 22 (certificates from body issuing policy), in sub-paragraph (3) (sub-paragraph (2) does not apply by reason of certain variations), at the end insert

; or

c

any variation which alters the method for calculating the benefits secured by the policy.

4

In the case of a variation effected as part of, or in connection with, an insurance business transfer scheme, the amendments made by this section are deemed always to have had effect.

5

In any other case, the amendments made by this section have effect in relation to variations effected on or after 7th October 2005.

6

In this section an “insurance business transfer scheme” means—

a

a scheme falling within section 105 of the Financial Services and Markets Act 2000 (c. 8),

b

a scheme sanctioned by a court under Part 1 of Schedule 2C to the Insurance Companies Act 1982 (c. 50), or

c

a scheme sanctioned by a court under section 49 of that Act or under any earlier enactment corresponding to that section,

and for the purposes of this subsection any reference to an enactment is a reference to the enactment as it had effect from time to time.

Settlements

88Settlements, etc: chargeable gains

Schedule 12 (which amends TCGA 1992 in respect of settlors and trustees of settlements and makes other minor and consequential amendments) shall have effect.

89Settlements, etc: income

Schedule 13 (which amends ICTA and ITTOIA 2005 in respect of settlors and trustees of settlements and makes other minor and consequential amendments) shall have effect.

90Special trusts tax rates not to apply to social landlords’ service charge income

1

Section 686 of ICTA (accumulation and discretionary trusts: special rates of tax) is amended as follows.

2

In subsection (2), after paragraph (b) insert—

ba

is not income from service charges held on trust (or, in Scotland, held in trust) by a relevant housing body; and

3

After subsection (6) insert—

6ZA

In this section—

“relevant housing body” means—

a

a local authority,

b

a registered social landlord,

c

a Northern Ireland housing association,

d

a charitable housing association,

e

a charitable housing trust,

f

a housing action trust established under Part 3 of the Housing Act 1988,

g

the Housing Corporation, or

h

the Northern Ireland Housing Executive; and

“service charge” has the meaning given by section 18(1) of the Landlord and Tenant Act 1985.

6ZB

In subsection (6ZA)—

“charitable housing association” means a society, body or company which—

a

satisfies the conditions in section 5(1)(a) and (b) of the Housing Act 1985, and

b

is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;

“charitable housing trust” means a corporation or body which—

a

satisfies the condition in section 6(a) or (b) of the Housing Act 1985, and

b

is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;

“Northern Ireland housing association” means a body which is registered in the register maintained under Article 14 of the Housing (Northern Ireland) Order 1992; and

“registered social landlord” means a body which is registered in a register maintained under section 1 of the Housing Act 1996 or section 57 of the Housing (Scotland) Act 2001.

4

This section has effect for the year 2006-07 and subsequent years of assessment.

Investment reliefs

91Venture capital schemes

1

Schedule 14 contains amendments of the provisions relating to—

the enterprise investment scheme,

venture capital trusts, and

the corporate venturing scheme.

2

Those amendments have effect as mentioned in that Schedule.

Employment-related securities

92Avoidance using options etc

1

Section 420 of ITEPA 2003 (meaning of securities etc) is amended as follows.

2

In subsection (1)(f), insert at the beginning “options and”.

3

In subsection (5)(e), insert at the beginning “securities”.

4

In subsection (8), in the definition of “securities option”, after “acquire securities” insert “other than a right to acquire securities which is acquired pursuant to a right or opportunity made available under arrangements the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions”.

5

This section has effect in relation to options acquired on or after 2nd December 2004; but subsection (4) also has effect in relation to an option acquired before that date where something is done on or after that date as part of the arrangements under which it was made available.

93Corporation tax relief for shares acquired under EMI option

1

Schedule 23 to FA 2003 (corporation tax relief for employee share acquisition) is amended as follows.

2

In paragraph 21 (amount of relief in case of restricted shares), after sub-paragraph (4) insert—

4A

But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between—

a

the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 in respect of the acquisition apart from the EMI code, and

b

the amount (if any) that in fact counts as such income in accordance with the EMI code.

3

In paragraph 22C (amount of relief in case of convertible shares), after sub-paragraph (4) insert—

4ZA

But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between—

a

the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the acquisition apart from the EMI code, and

b

the amount (if any) that in fact counts as such income in accordance with the EMI code.

4

In paragraph 30 (minor definitions) insert at the appropriate places—

“the EMI code” has the meaning given by section 527(3) of the Income Tax (Earnings and Pensions) Act 2003;

“qualifying option” has the same meaning as in the EMI code (see section 527(4) of the Income Tax (Earnings and Pensions) Act 2003);

5

In paragraph 31 (index of defined expressions) insert at the appropriate places—

the EMI code

paragraph 30

qualifying option

paragraph 30

6

This section applies in relation to an acquisition of shares made on or after 1st September 2003 (and for this purpose shares are acquired when the recipient acquires a beneficial interest in the shares and not, if different, the time the shares are conveyed or transferred).

PAYE

94PAYE: retrospective notional payments

1

ITEPA 2003 is amended as follows.

2

c

section 710(7A)(a), (b) and (c),

there were substituted references to such date as the Commissioners for Her Majesty’s Revenue and Customs may by order made by statutory instrument appoint.

Alternative finance arrangements

95Profit share agency

1

In section 46(1) of FA 2005 (alternative finance arrangements: definition) for “or 49.” substitute “, 49 or 49A.”

2

In section 49 of FA 2005 (profit share return)—

a

for subsection (2) substitute—

2

Amounts paid or credited as mentioned in subsection (1)(c) by a financial institution under arrangements falling within this section are profit share return for the purposes of this Chapter.

b

in the heading for “profit share return” substitute “deposit”.

3

After section 49 of FA 2005 insert—

49AAlternative finance arrangements: profit share agency

1

Subject to section 52, arrangements fall within this section if they are arrangements under which—

a

a person (“the principal”) appoints a financial institution as his agent,

b

the agent uses money provided by the principal with a view to producing a profit,

c

the principal is entitled, to a specified extent, to profits resulting from the use of the money,

d

the agent is entitled to any additional profits resulting from the use of the money (and may also be entitled to a fee to be paid by the principal), and

e

payments in pursuance of the entitlement specified in paragraph (c) equate, in substance, to the return on an investment of the money at interest.

2

Amounts paid or credited by a financial institution in accordance with an entitlement of the kind specified in subsection (1)(c) are profit share return for the purposes of this Chapter.

3

The principal shall not be treated for the purposes of the Tax Acts as entitled to profits to which the agent is entitled in accordance with subsection (1)(d).

4

After section 50(2) of FA 2005 (treatment of alternative finance arrangements: companies) insert—

2A

Where a company is a party to arrangements falling within section 49A, Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation to the arrangements as if—

a

the arrangements were a loan relationship to which the company is a party,

b

the amount provided under the arrangements were—

i

in relation to a company which is the principal under the arrangements, the amount of a loan made by the company to the agent, and

ii

in relation to a company which is the agent under the arrangements, the amount of a loan made to it by the principal, and

c

profit share return payable to or by the company under the arrangements were interest payable under that loan relationship.

5

In section 52 of FA 2005 (provision not at arm’s length)—

a

in subsection (1)(a) for “or section 49,” substitute “, 49 or 49A,”

b

in subsection (3) for “or section 49.” substitute “, 49 or 49A.”, and

c

in subsection (5) for “49,” substitute “49 or 49A,”.

6

In the heading to section 54 of FA 2005 “Section 49” becomes “Sections 49 and 49A”.

7

In the definition of “profit share return” in section 57 of FA 2005 for “section 49(2)” substitute “sections 49(2) and 49A(2)”.

8

In paragraph 1(b) of Schedule 2 to FA 2005 after “49” insert “or 49A”.

9

In section 148 of FA 2003 (meaning of “permanent establishment”) after subsection (5A) insert—

5B

Where profit share return is paid, in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), to a company that is not resident in the United Kingdom, the company is not regarded as having a permanent establishment in the United Kingdom merely by virtue of anything done for the purposes of the arrangements by the other party to the arrangements or by any other person acting for the company in relation to the arrangements.

10

In section 127(1) of FA 1995 (persons not treated as UK representatives) renumber paragraph (cc) as paragraph (ca) and insert after it—

cb

where the income consists of profit share return in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), the other party to the arrangements or any other person acting for the non-resident in relation to the arrangements;

11

Section 56 of FA 2005 (commencement and transitional) shall have effect in relation to the commencement of this section—

a

as if references to Chapter 5 of Part 2 of that Act were references to this section,

b

as if references to 6th April 2005 were references to—

i

1st April 2006 in relation to corporation tax, and

ii

6th April 2006 in relation to income tax, and

c

as if references to section 49 were references to section 49A.

96Diminishing shared ownership

1

In section 46(1) of FA 2005 (alternative finance arrangements: definition) after “47” insert “, 47A,”.

2

6

In section 53 of FA 2005 (sale and purchase of asset)—

a

in subsection (1) after “47” insert “or 47A”,

b

after subsection (2) add—

3

In the application of this section to section 47A a reference to the effective return is a reference to the alternative finance return.

c

in the heading after “47” insert “or 47A”.

7

In the definition of “alternative finance return” in section 57 of FA 2005 for “section 47(5)” substitute “sections 47(6) and (7) and 47A(5)”.

8

This section shall have effect in relation to alternative finance arrangements entered into on or after—

a

1st April 2006 in relation to corporation tax, and

b

6th April 2006 in relation to income tax.

97Beneficial loans to employees

1

For the purposes of Chapter 7 of Part 3 of ITEPA 2003 (taxable benefits: loans) a reference to a loan includes a reference to an arrangement which—

a

is an alternative finance arrangement to which section 47 or 47A FA 2005 applies, or

b

would be an alternative finance arrangement to which one of those sections applied if one of the parties were a financial institution.

2

In the application of that Chapter by virtue of subsection (1)—

a

a reference to interest shall be treated as including a reference to alternative finance return, and

b

a reference to the amount outstanding shall be taken to be—

i

in the case of arrangements to which section 47 applies, a reference to the purchase price minus such part of the aggregate payments made as does not represent alternative finance return, and

ii

in the case of arrangements to which section 47A applies, a reference to the amount of the financial institution’s original beneficial interest minus such part of the aggregate payments made as does not represent alternative finance return.

3

This section shall have effect in relation to arrangements entered into on or after 22nd March 2006.

shall be made by statutory instrument, and

b

shall not be made unless a draft has been laid before and approved by resolution of the House of Commons.

Nuclear decommissioning

99Amendment of section 29 of the Energy Act 2004

1

Section 29 of the Energy Act 2004 (c. 20) (disregard for tax purposes of cancellation etc of decommissioning provisions) is amended as follows.

2

In subsection (1)—

a

in paragraph (a), for “relevant company” substitute “BNFL company”;

b

for paragraphs (b) and (c) substitute—

b

that provision—

i

relates to decommissioning or cleaning-up which the NDA acquires or has acquired responsibility for securing by virtue of a direction under section 3, but

ii

is not provision recognised in order to reflect the terms or effect of a management contract between the company and the NDA;

and

c

the responsibility referred to in paragraph (b)(i)—

i

includes the financial responsibility under section 21, or

ii

would do so but for the fact that the amount of the financial responsibility is for the time being subject to a limit imposed by a capping agreement.

3

For subsections (3) and (4) substitute—

3

This subsection applies to a credit or debit if it arises from—

a

the recognition in the accounts of the company for a relevant period beginning on or after 1st April 2005 of—

i

the relevant provision, or

ii

an asset that, in accordance with generally accepted accounting practice, is recognised in connection with the relevant provision in order to reflect the acquisition of financial responsibility referred to in subsection (1) (a “matching asset”);

b

an adjustment made in the accounts of the company for such a period of—

i

the relevant provision, or

ii

a matching asset;

or

c

the removal from the accounts of the company for such a period of—

i

the relevant provision,

ii

a matching asset, or

iii

an asset or liability recognised in order to reflect the terms or effect of a contract falling within subsection (3A).

3A

A contract falls within this subsection if—

a

it is a contract made before 1st April 2005 and having effect between two or more BNFL companies under which a party to the contract assumed responsibility for securing decommissioning or cleaning-up; and

b

the rights and obligations under the contract are extinguished by reason of a transfer made under a nuclear transfer scheme.

4

In subsection (5)—

a

for the definition of “BNFL company” substitute—

“BNFL company” means—

a

BNFL,

b

a company that immediately before 1st April 2005 was a wholly-owned subsidiary of BNFL, or

c

a wholly-owned subsidiary of a company falling within paragraph (b);

b

after that definition insert—

“capping agreement” means an agreement under subsection (9) of section 21, entered into on 1st April 2005, the sole or main effect of which is to impose a limit on the NDA’s financial responsibility under that section;

“management contract” has the same meaning as in section 27;

c

for the definition of “relevant company” substitute—

“relevant period”, in relation to a company, means an accounting period during the whole of which the company is publicly owned;

5

After that subsection insert—

5A

Where a company ceases to be publicly owned otherwise than at the end of an accounting period—

a

the accounting period during which it ceases to be publicly owned is treated for the purposes of corporation tax as ending when it so ceases; and

b

its profits and losses are to be computed accordingly for those purposes.

6

The amendments made by this section have effect in relation to accounting periods of a BNFL company ending on or after 22nd March 2006.

“BNFL company” has the same meaning as in section 29 of the Energy Act 2004 (c. 20) as amended by this section.

100Amendment of section 30 of the Energy Act 2004

1

Section 30 of the Energy Act 2004 (disregard for tax purposes of decommissioning provisions recognised by Nuclear Decommissioning Authority) is amended as follows.

2

In subsection (1)—

a

for paragraph (b) substitute—

b

that responsibility—

i

includes the financial responsibility under section 21, or

ii

would do so but for the fact that the amount of the financial responsibility is for the time being subject to a limit imposed by a capping agreement;

b

in paragraph (c) omit “on the coming into force of the direction mentioned in paragraph (a),”;

c

at the end of that paragraph insert

; and

d

the provision is recognised—

i

in order to reflect the coming into force of the direction mentioned in paragraph (a), or

ii

in consequence of the variation or removal of a limit on the NDA’s financial responsibility under section 21 imposed by a capping agreement.

3

For subsection (3) substitute—

3

In computing the profits, gains or losses of the NDA for the purposes of corporation tax, no amount shall be brought into account in connection with—

a

the recognition made in the accounts of the NDA of—

i

the relevant provision, or

ii

an asset that, in accordance with generally accepted accounting practice, is recognised in order to reflect a limit on the NDA’s financial responsibility under section 21 imposed by a capping agreement;

b

any adjustment made in those accounts (including the removal from the accounts of an asset falling within paragraph (a)(ii)) in consequence of a variation or removal of the limit mentioned in paragraph (a)(ii).

4

In subsection (4), for the words after “in connection with” substitute “an adjustment not falling within paragraph (b) of that subsection”.

5

In subsection (5), after the definition of “BNFL company” insert—

“capping agreement” has the same meaning as in section 29;

6

The amendments made by this section have effect in relation to accounting periods of the Nuclear Decommissioning Authority ending on or after 22nd March 2006.

Accounting practice

101Securitisation companies

1

Section 83 of FA 2005 (application of accounting standards to securitisation companies) is amended as follows.

2

ii

omit sub-paragraph (ii) and the word “and” following it;

b

in subsection (5), omit paragraph (a).

6

The amendments in this section shall be deemed always to have had effect, subject as follows.

7

A company that would have been a securitisation company for the purposes of section 83 of FA 2005 if the amendments in this section had not been made, being either—

a

a note-issuing company that—

i

had become party as debtor to the capital market investment before 22nd March 2006, or

ii

had before that date entered into a binding arrangement to become a party as debtor to the capital market investment, or

b

another description of securitisation company by virtue of its connection with a company within paragraph (a),

may elect to be taxed as if the amendments in subsection (3) had not been made.

8

Any such election must be made not later than 31st March 2007 and has effect for all relevant periods of account.

102Accountancy change: spreading of adjustment

1

Schedule 15 to this Act (accountancy change: spreading of adjustment) has effect.

2

In that Schedule—

Part 1 makes provision for income tax purposes, and

is resident in the United Kingdom, and

b

is not resident in another place in accordance with the law of that place relating to taxation.

4

Condition 2 is that section 236 of the Financial Services and Markets Act 2000 Financial Services and Markets Act 2000 (c. 8) (open-ended investment companies) does not apply to the company.

5

Condition 3 is that the shares forming the company’s ordinary share capital are listed on a recognised stock exchange.

6

Condition 4 is that the company—

a

is not a close company (within the meaning of section 414 of ICTA), or

b

is a close company only by virtue of having as a participator (within the meaning of section 417 of ICTA) a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000;

and for the purposes of paragraph (a) a company shall be treated as a close company if it is prevented from being a close company only by section 414(5) or 415(4)(a) of ICTA.

7

Condition 5 is that—

a

each share issued by the company either—

i

forms part of the company’s ordinary share capital, or

ii

is a non-voting fixed-rate preference share (within the meaning of paragraph 2 of Schedule 25 to ICTA (acceptable distribution policy)), and

b

there is no more than one class of ordinary share issued by the company.

8

Condition 6 is that in the case of any loan to which the company is party—

a

the loan creditor is not entitled to an amount by way of interest which depends to any extent on the results of all or part of the company’s business or on the value of any of the company’s assets,

b

the loan creditor is not entitled to an amount by way of interest which exceeds a reasonable commercial return on the consideration lent, and

c

the loan creditor is entitled on repayment to an amount which either does not exceed the consideration lent or is reasonably comparable with the amount generally repayable (in respect of an equal amount of consideration) under the terms of issue of securities listed on a recognised stock exchange.

d

must contain such other information, and be accompanied by such other documents, as may be prescribed by regulations made by the Commissioners for Her Majesty’s Revenue and Customs.

110Duration

Once this Part has begun to apply to a company, it shall continue to apply unless and until it ceases to apply in accordance with any of sections 128 to 130.

111Effects of entry

1

Property rental business of C (pre-entry) shall be treated for the purposes of corporation tax as ceasing at entry.

2

Assets which immediately before entry are involved in property rental business of C (pre-entry) shall be treated for the purposes of corporation tax as being sold by C (pre-entry) immediately before entry and re-acquired by C (tax-exempt) immediately after entry.

3

The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the assets.

4

For the purposes of CAA 2001—

a

the sale and re-acquisition deemed under subsection (2)—

i

shall not give rise to allowances or charges, and

ii

shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),

b

subsection (3) above shall not apply, and

c

anything done by or to C (pre-entry) before entry in relation to an asset which is deemed under subsection (2) to be sold and re-acquired shall be treated after entry as having been done by or to C (tax-exempt).

5

For the purposes of corporation tax, on entry one accounting period of the company shall end and another shall begin.

6

For the purposes of subsection (2) an asset is involved in property rental business if it is property involved in the business within the meaning given by section 107(6)(a).

7

A gain accruing by reason of this section shall not be a chargeable gain.

112Entry charge

1

A company to which this Part applies shall be chargeable to corporation tax under Case VI of Schedule D on an amount of notional income calculated in accordance with subsection (3).

2

The notional income shall be treated as arising to C (residual) on entry.

3

The notional income is—

MarketValueTaxRate×2% math

where—

arket Value means the aggregate market value of assets treated as sold and re-acquired under section 111(2) (ignoring any asset of negative market value), and

1

The Treasury may make regulations that apply to a company to which this Part applies if it makes a distribution to or in respect of a person who—

a

is beneficially entitled (directly or indirectly) to 10% or more of the dividends paid by the company,

b

is beneficially entitled (directly or indirectly) to 10% or more of the company’s share capital, or

c

controls (directly or indirectly) 10% or more of the voting rights in the company.

2

The regulations may, in particular—

a

cause a sum to be charged to tax, in accordance with the regulations, (whether by reference to a person’s interest, to a rate of tax or otherwise);

b

provide that a charge does not arise, or is reduced, if the company takes or does not take action of a specified kind.

115Profit: financing-cost ratio

1

The Treasury may make regulations that apply to a company to which this Part applies where the result of the sum specified in subsection (2) is less than 1.25 in respect of an accounting period.

2

That sum is—

Profits+FinancingCostsFinancingCosts math

where—

Profits means the amount of the profits of C (tax-exempt) arising in the accounting period (before the offset of capital allowances), and

Financing Costs means the amount of the financing costs incurred in that period in respect of the business of C (tax-exempt).

3

The regulations may cause a sum to be charged to tax, in accordance with the regulations, by reference to that part of the financing costs as a result of which the result of the sum specified in subsection (2) is less than 1.25.

4

In subsections (2)(b) and (3) “financing costs” means the cost of debt finance; and in calculating the costs of debt finance in respect of an accounting period the matters to be taken into account include—

a

costs giving rise to debits in respect of debtor relationships of the company under Chapter 2 of Part 4 of FA 1996 (loan relationships), other than debits in respect of exchange losses from such relationships (within the meaning of section 103(1A) and (1B) of that Act),

b

any exchange gain or loss from a debtor relationship within the meaning of that Chapter in relation to debt finance,

c

any credit or debit falling to be brought into account under Schedule 26 to FA 2002 (derivative contracts) in relation to debt finance,

d

the financing cost implicit in a payment under a finance lease, and

e

any other costs arising from what would be considered, in accordance with generally accepted accounting practice, to be a financing transaction.

116Minor or inadvertent breach

1

The Treasury may make regulations about the application of this Part to a company if a requirement in section 106(5) or (6), 107 or 108 is not satisfied (whether generally or in respect of an accounting period).

2

A company which gave a notice under section 109 shall notify the Commissioners for Her Majesty’s Revenue and Customs as soon as reasonably practicable if a requirement in section 106(5) or (6), 107 or 108 ceases to be satisfied in relation to the company.

3

The regulations may, in particular—

a

provide for this Part to cease to apply to a company at a time specified by or determined in accordance with the regulations (which may be before the breach of a requirement);

b

provide for this Part to continue to apply to a company with specified modifications;

c

provide for sums to be charged to tax, or otherwise treated, in accordance with the regulations;

d

make provision by reference to the extent of a failure to satisfy a requirement;

e

make provision by reference to the number of requirements not satisfied;

f

limit the number of occasions on which a provision of the regulations may be relied upon by a company in respect of a specified period;

g

include other provision for preventing tax avoidance;

h

confer a discretion on the Commissioners.

4

This section is subject to section 129.

117Cancellation of tax advantage

1

This section applies if the Commissioners for Her Majesty’s Revenue and Customs think that a company to which this Part applies has tried to obtain a tax advantage for itself or another person.

2

The Commissioners may give a notice to the company specifying the tax advantage.

3

If the Commissioners give a notice to the company under subsection (2)—

a

a tax advantage obtained by the company shall be counteracted, in accordance with the notice, by an adjustment by way of—

i

an assessment;

ii

the cancellation of a right of repayment;

iii

a requirement to return a repayment already made;

iv

the computation or recomputation of profits or gains, or liability to tax, on a basis specified by the Commissioners in the notice, and

b

the Commissioners may (in addition to the adjustment under paragraph (a)) assess the company to such additional amount of corporation tax under Case VI of Schedule D as they think is equivalent to the value of the tax advantage.

4

For the purposes of this section “tax advantage” has the meaning given by section 709 of ICTA (and includes, in particular, entering into arrangements the sole or main purpose of which is to avoid or reduce a charge to tax under section 112).

5

But a company does not obtain a tax advantage by reason only of this Part applying to it, unless it does anything (whether before or during the application of this Part) which in the Commissioners’ opinion is wholly or principally designed—

a

to create or inflate or apply a loss, deduction or expense (whether or not suffered or incurred by the company), or

b

to have another effect of a kind specified for the purposes of this subsection by regulations made by the Treasury.

6

Where a notice is given to a company under subsection (2), the company may appeal to the Special Commissioners.

7

An appeal must be instituted by notice given in writing to the Commissioners for Her Majesty’s Revenue and Customs during the period of 30 days beginning with the date on which the notice under subsection (2) is given to the company.

118Funds awaiting re-investment

2

Profits arising from the business of C (residual) which are charged to corporation tax shall be charged at a rate determined without reference to section 13 of ICTA (small companies rate).

120Calculation of profits

1

This section provides for the calculation of profits for the purposes of sections 107(8), 115(2), 119(1) and 123(c).

2

Section 21A of ICTA (calculation of profits of Schedule A business) shall apply (to profits of any kind).

3

Paragraph 2(3) of section 15(1) ICTA (Schedule A: disregard of credits and debits from loan relationships and derivative contracts) shall not apply in respect of—

a

a loan relationship if or in so far as it relates to tax-exempt business,

b

a hedging derivative contract if or in so far as it relates to tax-exempt business, or

c

embedded derivatives if or in so far as the host contract is entered into for the purposes of tax-exempt business.

4

For the purposes of subsection (3)—

a

a derivative contract is hedging in relation to a company if or in so far as it is acquired as a hedge of risk in relation to an asset,

b

a designation of a contract as wholly or partly hedging for the purposes of a company’s accounts shall be conclusive, and

c

“embedded derivatives” and “host contract” have the meanings given by paragraph 2(3) of Schedule 26 to FA 2002 (derivative contracts).

5

Profits shall be computed without regard to items giving rise to credits or debits which would be within Schedule 26 to FA 2002 (derivative contracts) but for paragraph 4(2)(b) (exclusion of share-based and unit-trust-based contracts).

6

Income and expenditure relating partly to tax-exempt business and partly to non-tax-exempt business shall be apportioned reasonably.

7

Section 3(1) of CAA 2001 (claims for capital allowances) shall not apply; and any allowance which the company could claim under that section shall be made automatically and reflected in the calculation of profits.

In subsection (1)—

a

the reference to a company to which this Part applies includes a reference to C (post-cessation), and

b

“profits” includes gains.

122Distributions: deduction of tax

2

Where a gain accrues to a company to which this Part applies on the disposal of an asset which for one or more periods of (in aggregate) at least a year has been used partly for the purposes of the business of C (tax-exempt) and partly for the purposes of the business of C (residual), such part of the gain as may reasonably be attributed to the business of C (tax-exempt) (having regard to the extent to which, and the length of the periods during which, the asset was used for the different purposes) shall not be a chargeable gain.

3

Corporation tax shall be charged in respect of gains accruing to C (residual) at a rate determined without reference to section 13 of ICTA (small companies rate).

Where subsection (6) applies in relation to an asset held at entry, the company may make a claim for repayment of a proportion of the tax paid under section 112 calculated as follows—

AssetMarketValueAggregateMarketValue×TaxPaid math

where—

Asset Market Value means market value of the asset at entry,

Aggregate Market Value means the aggregate market value of assets treated as sold and re-acquired under section 111(2) (ignoring any asset of negative market value), and

Tax Paid means tax paid under section 112.

126Movement of assets into ring-fence

1

This section applies where an asset which has been used wholly and exclusively for the purposes of the business of C (residual) begins to be used wholly and exclusively for the purposes of the business of C (tax-exempt).

2

The asset shall be treated as having been—

a

disposed of by C (residual), and

b

immediately re-acquired by C (tax-exempt).

3

The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.

4

For the purposes of CAA 2001—

a

the sale and re-acquisition deemed under subsection (2)—

i

shall not give rise to allowances or charges, and

ii

shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),

b

subsection (3) above shall not apply, and

c

anything done by or to C (residual) before the deemed sale and re-acquisition shall be treated after the deemed sale and re-acquisition as having been done by or to C (tax-exempt).

127Interpretation

Sections 124 to 126 shall be construed as one with TCGA 1992.

Leaving Real Estate Investment Trust Regime

128Termination by notice: company

1

If a company to which this Part applies gives a notice under this section specifying a date at the end of which this Part is to cease to apply to the company, this Part shall cease to apply to the company at the end of that date.

2

A notice must be given in writing to the Commissioners for Her Majesty’s Revenue and Customs.

3

The date specified under subsection (1) must be after the date on which the Commissioners receive the notice.

129Termination by notice: Commissioners

1

If the Commissioners for Her Majesty’s Revenue and Customs give a company to which this Part applies a notice in writing under this subsection, this Part shall cease to apply to the company.

2

The Commissioners may give a company a notice only if—

a

the company has relied on a provision of regulations under section 116 on a specified number of occasions in a specified period,

b

the company has been given a specified number of notices under section 117 in a specified period, or

c

the Commissioners think that a breach of a requirement in section 107 or 108, or an attempt by the company to obtain a tax advantage, is so serious that this Part should cease to apply to it.

3

In subsection (2) “specified” means specified in regulations made by the Treasury.

4

A notice under subsection (1) must state the reason for it.

5

Where a notice is given to a company, this Part shall be taken to have ceased to apply to the company at the end of the accounting period before the accounting period during which the event occurs (or the last event occurs) which caused the Commissioners to give the notice.

6

Where a notice is given to a company, the company may appeal to the Special Commissioners.

7 130Automatic termination for breach of requirement

1

Where Condition 1, 2, 5 or 6 of section 106 is not satisfied in respect of an accounting period of a company to which this Part applies, this Part shall be taken to have ceased to apply to the company at the end of the previous accounting period.

2

A company which gave a notice under section 109 shall notify the Commissioners for Her Majesty’s Revenue and Customs as soon as is reasonably practicable if Condition 1, 2, 5 or 6 of section 106 ceases to be satisfied in relation to the company.

131Effects of cessation

1

The business of C (tax-exempt) shall be treated for the purposes of corporation tax as ceasing immediately before cessation.

2

Assets which immediately before cessation are involved in the business of C (tax-exempt) shall be treated for the purposes of corporation tax as being sold by C (tax-exempt) immediately before cessation and re-acquired immediately after cessation by C (post-cessation).

3

The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.

4

For the purposes of CAA 2001—

a

the sale and re-acquisition deemed under subsection (2)—

i

shall not give rise to allowances or charges, and

ii

shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),

b

subsection (3) above shall not apply, and

c

anything done by or to C (tax-exempt) before cessation in relation to an asset which is deemed to be sold and re-acquired shall be treated after cessation as having been done by or to C (post-cessation).

5

For the purposes of corporation tax, on cessation an accounting period of C (residual) shall end and an accounting period of C (post-cessation) shall begin.

6

For the purposes of subsection (2) an asset is involved in the business of C (tax-exempt) if it is property involved in the business within the meaning given by section 107(6)(a).

132Early exit by notice

b

“the post-cessation period” means the period of two years beginning with the date of cessation.

137Insurance companies

In section 212(1) of TCGA 1992 (annual deemed disposal of holdings of certain assets) after paragraph (b) insert—

, or

c

shares in a company to which Part 4 of the Finance Act 2006 applies (Real Estate Investment Trusts),

an election by a company to which this Part applies.

139Manufactured dividends

1

This section applies to a manufactured dividend if and to the extent that it is representative of a dividend paid by a company to which this Part applies in respect of profits of C (tax-exempt).

2

Schedule 23A to ICTA shall have effect with the substitution of the following for paragraph 2(2)—

2

Sub-paragraphs (2A) to (2C) apply if and to the extent that a manufactured dividend is representative of a dividend in respect of profits of the tax-exempt business of a company to which Part 4 of the Finance Act 2006 applies.

2A

The Tax Acts shall have effect in relation to the recipient, and persons claiming title through or under him, as if the manufactured dividend were a dividend to which section 121 of that Act applied.

2B

In relation to the dividend manufacturer—

a

if the dividend manufacturer is a company and the manufactured dividend is paid in the course of a trade carried on in the United Kingdom, it shall be treated as an expense of the trade;

b

if the manufactured dividend is paid in connection with investment business, it shall be treated for the purposes of section 75 of this Act as expenses of management;

c

in the case of a company carrying on life assurance business, in so far as the manufactured dividend is referable to basic life assurance and general annuity business (or is or would be, if received by the company, be treated as referable to business of that kind by virtue of section 432A) it shall be treated for the purposes of section 76 as if it were an expense payable falling to be brought into account at Step 3 of section 76(7);

d

regulations under section 122 of FA 2006 shall apply (with any necessary modifications) to the dividend manufacturer (whether or not a company) as if he were a company to which Part 4 of the Finance Act 2006 applied, unless—

i

the dividend manufacturer is not resident in the United Kingdom, and

ii

the manufactured dividend is paid otherwise than in the course of a trade carried on through a branch or agency in the United Kingdom.

2C

The Treasury may by regulations provide, in a case where sub-paragraph (2B)(d)(i) and (ii) above apply, for a United Kingdom recipient of the manufactured dividend (within the meaning of paragraph 4(3A) below) to be liable to account for tax which the dividend manufacturer would have been required to deduct in accordance with regulations under section 122 of the Finance Act 2006.

2D

Sub-paragraph (2E) shall apply for the purposes of—

a

this paragraph, and

b

regulations under section 122 of the Finance Act 2006.

2E

The gross amount of a manufactured dividend to which sub-paragraphs (2A) and (2B) apply shall be taken to be equal to the gross amount of the dividend of which it is representative and which is paid by the company to which Part 4 of the Finance Act 2006 applies.

3

For the purposes of sections 736B of ICTA (deemed manufactured payments: stock lending), regulations under section 122 shall be treated, in so far as they apply to a dividend manufacturer, as if they were regulations made under Schedule 23A.

4

For the purposes of section 737A of ICTA (deemed manufactured payments: sale and repurchase of securities) regulations under section 122 shall be treated, in so far as they apply to a dividend manufacturer, as dividend manufacturing regulations (within the meaning of section 737A(6)).

5

After section 737C(3) of ICTA (amount of deemed manufactured dividend) insert—

3A

But if and to the extent that the dividend mentioned in section 737A(2)(a) or (2A)(a) is a dividend paid by a company to which Part 4 of the Finance Act 2006 applies in respect of profits of its tax-exempt business—

a

the amount of the deemed manufactured dividend shall be taken to be an amount equal to the gross amount of the dividend mentioned in section 737A(2)(a) or (2A)(a);

b

any deduction which, by virtue of paragraph 2 of Schedule 23A (as amended by section 139 of the Finance Act 2006), is required to be made out of the gross amount of the manufactured dividend shall be deemed to have been made;

c

the repurchase price of the securities shall be treated, for the purposes of section 730A, as increased by the gross amount of the deemed manufactured dividend.

6

In section 737D(2) of ICTA (manufactured payments: relief) after “any” insert “manufactured dividend,”.

7

In this section “dividend manufacturer” and “manufactured dividend” have the meaning given by Schedule 23A to ICTA.

140Penalties for failure to give notice, etc

At the end of the second column of the Table in section 98(5) of TMA 1970 (penalties) add—

Section 106 of FA 2006 as modified by Schedule 17 to that Act.

Section 116 of FA 2006.

Regulations under section 116 of FA 2006.

Regulations under section 122 of FA 2006.

Section 130 of FA 2006.

141Effect of deemed disposal and re-acquisition

A deemed disposal and re-acquisition of an asset under this Part shall have effect for the purposes of any subsequent disposal of the asset (whether actual or deemed).

142Interpretation

In this Part—

a

a reference to an asset includes a reference to—

i

part of an asset, and

ii

an interest in, or right in relation to, an asset,

b

a reference to assets used in business of a company includes a reference to assets—

i

which were acquired for the purpose of that business and which are not being used in another business,

ii

which are available for use in that business, or

iii

which are in any other way held in respect of, or associated or connected with, that business,

c

“company” has the meaning given by section 170(9) of TCGA 1992,

d

“international accounting standards” has the meaning given by section 50(2) of FA 2004,

e

“market value” has the same meaning as in TCGA 1992 (see sections 272 and 273 and Schedule 11), and

f

“profits” means income (except where the context otherwise requires).

143Housing investment trusts: repeal

Section 160 of, and Schedule 30 to, FA 1996 (housing investment trusts) shall cease to have effect (and accordingly—

a

sections 508A and 508B of ICTA shall cease to have effect,

b

the amendments of section 842(1)(a) and (e) of ICTA effected by paragraph 2(2) of Schedule 30 shall cease to have effect, and

c

section 842(1AA) of ICTA shall cease to have effect).

General

144Regulations

Regulations under this Part—

a

may make provision which applies generally or only in specified cases or circumstances,

b

may make different provision for different cases or circumstances, and

c

may include incidental, consequential or transitional provision.

145Commencement

1

A notice under section 109 may be given in respect of an accounting period beginning on or after 1st January 2007.

2

Section 143 shall have effect in relation to accounting periods beginning on or after the day on which this Act is passed.

Part 5Oil

New basis for determining market value

146New basis for determining the market value of oil

1

In OTA 1975, in Schedule 3 (petroleum revenue tax: miscellaneous provisions) before paragraph 2 (definition of market value of oil) insert—

1ADetermination of market value: the notional delivery day for a quantity of oil

1

This paragraph has effect for determining, for the purposes of this Schedule, the day which is the “notional delivery day” in the case of any particular quantity of oil of any particular kind whose market value falls to be determined in accordance with the provisions of this Schedule in the case of any chargeable period.

2

The notional delivery day need not be a day in the chargeable period.

3

In the case of a quantity of oil which, at the end of the chargeable period,—

a

has neither been disposed of nor relevantly appropriated in the period, or

b

has been disposed of but not delivered in the period,

the notional delivery day is the last business day of the chargeable period.

4

In the case of—

a

a quantity of oil won and disposed of which is delivered on a day in the chargeable period, or

b

a quantity of oil—

i

relevantly appropriated on a day in the chargeable period, but

ii

not disposed of in the chargeable period,

the notional delivery day is to be determined in accordance with sub-paragraphs (5) to (7) below.

5

If that oil is—

a

oil transported by ship from the place of extraction to a place in the United Kingdom or elsewhere, or

b

oil transported by pipeline to a place in the United Kingdom and loaded on to a ship there,

and there is a loading slot for it (see sub-paragraph (8)), the notional delivery day is the middle day of the loading slot.

6

If sub-paragraph (5) above does not apply to that oil, then—

a

if it is oil delivered on a day in the chargeable period, the notional delivery day is the date of the delivery, or

b

if it is oil relevantly appropriated on a day in the chargeable period, the notional delivery day is the date of the appropriation.

7

The Treasury may by regulations make provision for or in connection with substituting as the notional delivery day in such circumstances as may be prescribed—

a

in the case of oil transported by ship from the place of extraction to a place in the United Kingdom or elsewhere, the date of completion of load, or

b

in the case of oil transported by pipeline to a place in the United Kingdom and loaded on to a ship there, the date of the bill of lading.

8

The “loading slot” for any oil is the period of three days within which the loading of the oil on to the ship is or was to take place—

a

as duly published by the operator of the facility at which that loading is or was to take place (unless paragraph (b) below applies), or

b

as subsequently finally duly varied to give effect to any modifications duly notified to that operator by the participator concerned.

9

In sub-paragraph (8) above, “duly” means in accordance with the arrangements for the time being governing the time and manner of—

a

publication, or variation, of the final loading schedule for the calendar month in which loading is or was to take place, or

b

notification of modifications to that schedule,

and, in any case, before the end of the calendar month immediately preceding that in which loading is to take place.

10

If the Treasury consider that, for the purpose of defining “loading slot”, any period of days for the time being specified by or under this Act as the period of days within which loading of oil on to a ship is to take place is, or is to be, no longer appropriate, they may by regulations make provision for, or in connection with,—

a

varying the number of days in the period,

b

determining the day that is to be the notional delivery day if the number, as varied, is an even number.

The power conferred by this sub-paragraph includes power to make amendments to, or modifications of, this Schedule.

2

Paragraph 2 of that Schedule (definition of market value of oil) is amended as follows.

3

In sub-paragraph (1) (market value of oil in any calendar month to be determined in accordance with the paragraph) for “any oil in any calendar month” substitute “any particular quantity of oil of any kind on any day”.

4

After sub-paragraph (1) insert—

1A

This paragraph makes different provision according to whether the oil is—

a

Category 1 oil of any kind, or

b

Category 2 oil of any kind.

1B

For the purposes of this Act—

a

Category 1 oil is oil of any of one or more kinds specified as such in regulations made for the purpose by the Board;

b

Category 2 oil is oil of any other kind.

1C

The Board may specify oil of any particular kind as Category 1 oil only if they are satisfied that reports of prices for sales of oil of that kind are published and widely available (whether or not on payment of a fee).

5

For sub-paragraph (2) substitute—

2

The market value of any particular quantity of Category 1 oil of any kind is the price for which that quantity of oil of that kind might reasonably have been expected to be sold under a contract of sale that meets the following conditions—

a

the contract is for the sale of the oil at arm’s length to a willing buyer;

b

the contract is for delivery of a single standard cargo of the oil;

c

the contract specifies a period of three days within which loading of the oil is to take place and that period includes the notional delivery day for the actual oil;

d

the contract requires the oil to have been subjected to appropriate initial treatment before delivery;

e

the contract requires the oil to be delivered—

i

in the case of oil extracted in the United Kingdom, at the place of extraction; or

ii

in the case of oil extracted from strata in the sea bed and subsoil of the territorial sea of the United Kingdom or of a designated area, at the place in the United Kingdom or another country at which the seller could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction.

The terms as to payment which are to be implied in the contract are those which are customarily contained in contracts for the sale at arm’s length of oil of the kind in question.

2AA

The market value of any particular quantity of Category 2 oil of any kind is the price for which that quantity of oil of that kind might reasonably have been expected to be sold under a contract of sale that meets the following conditions—

a

the contract is for the sale of the oil at arm’s length to a willing buyer;

b

the contract provides for delivery of the oil on the notional delivery day for the actual oil or within such period that includes that day as is normal under a contract at arm’s length for the sale of oil of that kind (or, if there is more than one such period, the shortest of them);

c

the contract is made on a date such that the period between that date and the notional delivery day for the actual oil is the normal period between contract and delivery in the case of a contract at arm’s length for the sale of oil of that kind (or, if there is more than one such period, the shortest of them);

d

the contract requires the oil to have been subjected to appropriate initial treatment before delivery;

e

the contract requires the oil to be delivered—

i

in the case of oil extracted in the United Kingdom, at the place of extraction; or

ii

in the case of oil extracted from strata in the sea bed and subsoil of the territorial sea of the United Kingdom or of a designated area, at the place in the United Kingdom or another country at which the seller could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction.

The terms as to payment which are to be implied in the contract are those which are customarily contained in contracts for the sale at arm’s length of oil of the kind in question.

6

For sub-paragraphs (2A) to (2D) substitute—

2E

For the purposes of sub-paragraph (2) or (2AA) above, the price of any quantity of Category 1 or Category 2 oil of any kind shall be determined in such manner, on the basis of such information, and by reference to such factors, as may be prescribed for oil of that Category and kind in regulations made by the Board.

2F

The provision that may be made by regulations under subsection (2E) above includes provision for or in connection with any or all of the following—

a

determining the price by reference to prices, or an average of prices, for sales of oil (whether or not oil of the Category or kind in question, and whether the prices are prices under actual contracts, prices that are published and widely available (whether on payment of a fee or otherwise) or prices ascertained or determined in some other way);

b

the prices to be taken into account;

c

the descriptions of contracts to be taken into account;

d

the method to be used for determining an average of prices;

e

the day or days, or period or periods, by reference to which prices, or any average of prices, is to be determined;

f

the application of a prescribed price differential, in cases where the price of oil of one kind falls to be determined in whole or in part by reference to prices for oil of some other kind.

2G

Sub-paragraph (2I) below has effect if, or in so far as, the Board are satisfied that it is impracticable or inappropriate to determine for the purposes of sub-paragraph (2) or (2AA) above the price of any oil in accordance with the provisions of regulations for the time being in force under sub-paragraph (2E) above.

2H

For that purpose it is immaterial whether the impracticability or inappropriateness is by virtue of—

a

an insufficiency of contracts or published prices that satisfy the conditions,

b

an insufficiency of information relating to such contracts or published prices, or

c

the nature of the market for oil of the kind in question,

or for any other reason.

2I

Where this sub-paragraph has effect, the price is to be determined—

a

so far as it is practicable and appropriate to do so by reference to other contracts or published prices (whether or not relating to oil of the same kind) and in accordance with the principles set out in the regulations for determining an average of prices; and

b

so far as it is not practicable or appropriate to determine it as mentioned in paragraph (a) above, in such other manner as appears to the Board to be appropriate in the circumstances.

7

Omit sub-paragraph (3) (which relates to the market value of disposals in a calendar month).

8

In sub-paragraph (3A) (oil that has been subjected to initial treatment)—

a

for “sub-paragraphs (1) and (2) above” substitute “sub-paragraph (1) and sub-paragraph (2) or (2AA) above”, and

b

for “sub-paragraph (2)(a) above” substitute “sub-paragraph (2)(d) or (2AA)(d) above”.

9

In sub-paragraph (4) (application of sub-paragraphs (2) and (3) in relation to paragraph 2(2) of Schedule 2) for “sub-paragraphs (2) and (3)” substitute “sub-paragraphs (2) and (2AA)”.

10

After paragraph (4) insert—

5

In this paragraph “prescribed” means specified in, or determined in accordance with, regulations.

11

Schedule 18 (which makes minor and consequential amendments) has effect.

If the oil is or was disposed of crude by a participator in sales otherwise than at arm’s length, but the market value of the oil—

a

does not fall to be brought into account for the purposes of section 2(5)(b) of OTA 1975 for the last old period by reason only that the oil was not delivered in that period, and

b

would not (apart from this subsection) fall to be brought into account for the purposes of that provision in the first new period by reason only that the date on which the oil is to be regarded by virtue of section 12A of that Act as delivered falls in the last old period,

the date on which the oil is to be taken for the purposes of section 2(5)(b) of that Act to have been delivered is instead to be the first business day of the first new period.

7

Any power to make regulations that is conferred under or by virtue of any of the amendments made by section 146 or Schedule 18 includes power to make regulations having effect for, or in relation to,—

a

the first new period, or

b

for the purpose mentioned in subsection (2), the last old period,

notwithstanding that the period in question has begun or ended before the making of the regulations.

8

Any regulations made by virtue of subsection (7) must be made before 31st December 2006.

Attribution of blended crude oil

148Crude oil: power to make regulations

1

In section 2(5) of OTA 1975 (profits from oil field) for “subsection (5A)” substitute “subsections (5A) and (5B)”.

2

After section 2(5A) of that Act insert—

5B

The Board may by regulations make provision for the purposes of subsection (5)(a) to (c) for determining to which fields and in what proportions blended oil to which subsection (5C) applies is attributable.

5C

This subsection applies to blended oil within the meaning of section 63(1A) of the Finance Act 1987 (other than light gases) which—

a

is not gaseous at a temperature of 15 degrees Centigrade and a pressure of one atmosphere, and

b

is not normally disposed of crude by deliveries in quantities of 25,000 metric tonnes or less.

5D

Regulations under subsection (5B)—

a

may apply generally or only to specified cases or circumstances,

b

may make different provision for different cases or circumstances,

c

may make incidental, consequential, or transitional provision,

d

shall be made by statutory instrument, and

e

may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

3

Regulations under section 2(5B) of OTA 1975 (inserted by subsection (2) above) may have effect for the purpose of calculating profits in relation to a chargeable period ending at any time on or after 1st July 2006.

Nomination scheme

149Nomination scheme

1

Section 61 of FA 1987 (oil taxation: nominations) shall be amended as follows.

2

In subsection (1) omit “, supplies and appropriations”.

3

For subsections (3) and (4) substitute—

3

If the market value of a relevant delivery ascertained in accordance with Schedule 3 to the principal Act exceeds a participator’s delivery proceeds of a relevant delivery (within the meaning given by Schedule 10), the excess shall be brought into account by him in accordance with section 2(5)(e) of the principal Act.

4

If a relevant delivery is a delivery of blended oil within the meaning of section 63, regulations under section 2(5B) of the principal Act shall apply for the purposes of determining the proportion of the excess attributable to a field.

4A

For each month in which a participator makes a relevant delivery, his monthly excess is the sum of his excesses (if any) calculated in accordance with subsection (3).

4B

For each chargeable period of an oil field “the excess of nominated proceeds for the period” means, in relation to a participator in the oil field, that proportion of the sum of his monthly excesses for the chargeable period (if any) which is attributable to the field.

4

Subsections (6) and (7) shall cease to have effect.

5

In subsection (8) for “9th February 1987” substitute “1st July 2006”.

6

In subsection (9)—

a

omit “subsection (7) or”, and

b

after “shall” insert “(unless otherwise expressly provided)”.

7

This section shall have effect in relation to chargeable periods ending on or after 1st July 2006.

150Amendment of Schedule 10 to FA 1987

1

Schedule 10 to FA 1987 (oil taxation: nominations) shall be amended as follows.

2

In paragraph 1—

a

in sub-paragraph (1)—

i

omit “, “proposed supply” and “proposed appropriation””,

ii

for “paragraph 3 below” substitute “paragraph 12A below”, and

iii

for “paragraphs (a) to (c)” substitute “paragraph (a)”, and

b

omit sub-paragraph (2).

3

In paragraph 2 omit—

a

sub-paragraph (1)(b), (c) and (d), and

b

the words following sub-paragraph (1)(d).

4

Omit paragraph 3.

5

In paragraph 4—

a

for sub-paragraph (1) substitute—

1

If a nomination is made during business hours it shall be effective only if—

a

it is made within the period of two hours beginning with the transaction base time, and

b

it satisfies the requirements of paragraph 5.

1A

If a nomination is made outside business hours it shall be effective only if—

a

it is made within the period of two hours beginning with the transaction base time, and

b

it satisfies the requirements of paragraph 5 or 5A.

1B

For the purposes of this paragraph—

a

the transaction base time of a proposed transaction is such time on such date as the Board shall prescribe by regulations, and

b

“business hours” means the period beginning with 09.00 and ending with 17.00 (UK time) on a business day (within the meaning of the Bills of Exchange Act 1882 (c. 61)).

b

omit sub-paragraphs (2) and (2A),

c

in sub-paragraph (3)—

i

for “transaction base date” substitute “transaction base time”, and

ii

for “date” in each place substitute “time”, and

d

omit sub-paragraph (4).

6

In paragraph 5—

a

in sub-paragraph (1) for “A nomination of a proposed transaction shall not be effective unless it specifies, in respect to that transaction” substitute “The requirements of this paragraph for a nomination in respect of a proposed transaction are”,

b

in sub-paragraph (1)(b) omit “in the case of a proposed sale”,

c

in sub-paragraph (1)(c) and (d) omit “or relevantly appropriated”,

d

in sub-paragraph (1)(d) for “supplied” substitute “delivered”,

e

for sub-paragraph (1)(g) substitute—

g

the transaction base time; and

f

in sub-paragraph (2) after “A nomination” insert “made under this paragraph”, and

g

in sub-paragraph (3) after “a nomination” insert “made under this paragraph”.

7

After paragraph 5 insert—

5A

1

The requirements of this paragraph for a nomination in respect of a proposed transaction are—

a

the name of the participator or of the group of which the participator is a member;

b

the name of the person to whom the oil is to be sold, or the name of the group of which that person is a member;

c

the blend or grade of oil to be delivered;

d

the nominated price of the oil to be delivered;

e

the nominal volume of the oil;

f

the proposed delivery month;

g

the transaction base time; and

h

such other information as may be prescribed by the Board.

2

In sub-paragraph (1) “group” has the meaning given by section 53 of the Companies Act 1989.

5B

1

A nomination of a transaction shall not be effective unless oil is delivered pursuant to a contract at arm’s length the terms of which incorporate the information specified in the nomination in accordance with paragraph 5(1) or 5A(1).

2

But—

a

a contract need not refer to the transaction base time, and

b

the nomination shall be effective whether or not delivery takes place in the proposed delivery month specified in the nomination and the contract.

8

In paragraph 6—

a

in sub-paragraph (1) omit “Subject to sub-paragraph (3) below,”, and

b

omit sub-paragraphs (2) and (3).

9

Omit paragraph 7(2) and (5).

10

After paragraph 7(5) insert—

6

The Board may by regulations prescribe that in specified circumstances the nominal volume in relation to a delivery shall be treated as greater or less than the nominal volume ascertained in accordance with the preceding provisions of this paragraph.

7

Regulations under sub-paragraph (6)—

a

shall be made by statutory instrument, and

b

may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

11

Omit paragraphs 8 to 11.

12

In paragraph 12(1) omit “, supply or appropriation”.

13

After paragraph 12 insert—

12AInterpretation

For the purposes of section 61 and this Schedule—

a

a reference to the proposed delivery month in relation to a proposed transaction is a reference to the month in which delivery is to take place,

b

“relevant delivery” means a delivery of oil under a contract made at arm’s length in respect of which there has been no effective nomination, and

c

“delivery proceeds” means the price received for a relevant delivery.

14

This section shall have effect in relation to a transaction whenever proposed, but shall not have effect in relation to a proposed transaction with a transaction base date (within the meaning given by regulations under paragraph 4 of Schedule 10 to FA 1987) on or before 30th June 2006.

15

Regulations under paragraph 4(1B) of Schedule 10 to FA 1987 (inserted by subsection (5) above) may have retrospective effect.

151Nomination excesses and corporation tax

1

After section 493(1) of ICTA (valuation of oil disposed of or appropriated) insert—

1A

Where an excess of nominated proceeds in a chargeable period (within the meaning given by section 61 of the Finance Act 1987) is taken into account in computing a person’s profits under section 2(5)(e) of the 1975 Act (or would be taken into account if the person were chargeable to tax under that Act in respect of a field)—

a

for the purposes of subsection (1) the amount of the excess shall be added to the consideration which the person is deemed to have received in respect of oil disposed of by him in the period, and

b

for the purposes of corporation tax, that amount shall be available to the person as a deduction in computing the profits of any trade to which section 492(1) does not apply.

those Regulations have effect as if the payment were due and payable instead at the end of the period of 14 days beginning with that date.

10

In this section—

“adjusted ring fence profits” has the meaning given by section 501A of ICTA,

“the Instalment Payments Regulations” means the Corporation Tax (Instalment Payments) Regulations 1998 (S.I. 1998/ 3175),

“supplementary charge” means any sum chargeable under section 501A(1) of ICTA as if it were an amount of corporation tax.

if no disposal event in relation to any asset representing the expenditure occurs in the relevant period,

c

if (or so far as) it is expenditure to which no part of any capital sum received by the company in the relevant period is reasonably attributable under section 425(2) of CAA 2001, and

d

if no entitlement to a balancing allowance for a chargeable period in respect of the expenditure arises under any of sections 426 to 431 of CAA 2001 as a result of an event that occurs in the relevant period (as well as in that chargeable period).

The reference in paragraph (b) to any asset representing the expenditure is to be read in accordance with section 416B(4) of CAA 2001.

7

Expenditure falls within Case C if—

a

it is qualifying expenditure on research and development under Part 6 of CAA 2001 where the ring fence trade is the trade by reference to which the expenditure is qualifying expenditure, and

b

no disposal event in relation to any asset representing the expenditure occurs in the relevant period.

8

In this section—

“disposal event”—

in relation to first-year qualifying expenditure under section 45F of CAA 2001, means an event of a kind that requires a disposal value to be brought into account under Part 2 of that Act (whether under section 61(1) or otherwise),

in relation to first-year qualifying expenditure under section 416B of CAA 2001, means an event of a kind that requires a disposal value to be brought into account under section 421 or 422 of that Act,

in relation to qualifying expenditure on research and development under Part 6 of CAA 2001, means an event of a kind that requires a disposal value to be brought into account under section 443(1) of that Act,

“the relevant period”, in relation to any expenditure for the purposes of or in relation to a company’s ring fence trade, means the period—

beginning with the day on which the expenditure would (but for this section) be treated as incurred for the purposes of CAA 2001, and

ending with the first day of the company’s first accounting period beginning on or after 1st January 2006,

“ring fence trade” means a ring fence trade in respect of which tax is chargeable under section 501A of ICTA (supplementary charge in respect of ring fence trades).

154Ring fence expenditure supplement

1

Chapter 5 of Part 12 of ICTA (petroleum extraction activities) is amended as follows.

2

After section 496A (exploration expenditure supplement) insert—

496BRing fence expenditure supplement

Schedule 19C to this Act (ring fence expenditure supplement) shall have effect.

3

Schedule 19B (petroleum extraction activities: exploration expenditure supplement) is amended as follows.

4

In paragraph 1 (about the Schedule)—

a

in sub-paragraph (1) (entitlement of company to supplement), in the opening words, after “2004” insert “but before 1st January 2006”,

b

in sub-paragraph (2) (condition that expenditure incurred on or after 1st January 2004), after “2004” insert “but before 1st January 2006”.

5

In paragraph 3 (accounting periods)—

a

in sub-paragraph (1), in the definition of “post-commencement period”, after “2004” insert “but before 1st January 2006”,

b

in sub-paragraph (1), in the definition of “pre-commencement period”, after “2004” insert “but before 1st January 2006”,

c

at the end insert—

3

In the case of an accounting period (a “straddling period”) of any qualifying company beginning before 1st January 2006 and ending on or after that date—

a

so much of the straddling period as falls before 1st January 2006, and

b

so much of the straddling period as falls on or after that date,

are treated as separate accounting periods for the purposes of this Schedule.

4

Special provision is made elsewhere in this Schedule in relation to straddling periods (see paragraphs 16, 18A and 22).

6

In paragraph 6 (qualifying E&A expenditure), in sub-paragraph (2) (condition that expenditure incurred on or after 1st January 2004), after “2004” insert “but before 1st January 2006”.

7

In paragraph 15 (supplement in respect of a post-commencement period), in sub-paragraph (2) (supplement to be treated as a loss for the purposes of Corporation Tax Acts), for “this Schedule)” substitute “this Schedule or Part 4 of Schedule 19C)”.

8

In paragraph 16 (amount of post-commencement supplement for a post-commencement period), after sub-paragraph (2) (proportionate reduction of supplement if post-commencement period less than 12 months) insert—

2A

But, if the post-commencement period is the deemed accounting period under paragraph 3(3) ending before 1st January 2006, sub-paragraph (2) has no effect in relation to the amount of the supplement for that period.

9

After paragraph 18 (ring fence losses and non-qualifying losses) insert—

18ASpecial rule for straddling periods

1

This paragraph applies in any case where the period of the loss in which a ring fence loss is incurred is the deemed accounting period under paragraph 3(3) ending before 1st January 2006.

2

The following assumption shall be made for the purpose of calculating the amount of the qualifying E&A loss and the amount of the non-qualifying loss.

3

The assumption is that the loss made in the trade is taken to be the loss incurred in the accounting period beginning before 1st January 2006 and ending on or after that date (disregarding paragraph 3(3)).

4

The amount of the non-qualifying loss (found in accordance with that assumption) is then reduced (but not below nil) by the following amount.

5

The amount is the amount of the ring fence loss in the deemed accounting period beginning on 1st January 2006 determined under paragraph 18 of Schedule 19C for the purposes of Part 4 of that Schedule.

10

In paragraph 22 (reductions in respect of utilised ring fence profits), at the end insert—

4

If the post-commencement period is the deemed accounting period under paragraph 3(3) ending before 1st January 2006 (“the deemed accounting period”), the amount of the profits of the deemed accounting period is determined as follows.

5

The amount of the profits of the straddling period is apportioned to the deemed accounting period in proportion to the number of days in the deemed accounting period that fall in the straddling period.

6

The apportioned amount is taken for the purposes of this paragraph to be the amount of the profits of the deemed accounting period.

7

In this paragraph “the straddling period”, in relation to a qualifying company, means an accounting period of the company beginning before 1st January 2006 and ending on or after that date (disregarding paragraph 3(3)).

11

After Schedule 19B insert the Schedule 19C set out in Schedule 19 to this Act.

Part 6Inheritance tax

Future rates and bands

155Rates and rate bands for 2008-09 and 2009-10

1

For the Table in Schedule 1 to IHTA 1984 (rates and rate bands), as it has effect in relation to chargeable transfers made on or after 6th April 2008, there shall be successively substituted—

a

the 2008-09 Table, which shall apply to any chargeable transfer made on or after 6th April 2008 (but before 6th April 2009), and

b

the 2009-10 Table, which shall apply to any chargeable transfer made on or after 6th April 2009.

2

Subsection (1)(b) is without prejudice to the application of section 8 of IHTA 1984 (indexation) by virtue of the difference between the retail prices index for the month of September in 2008 or any later year and that for the month of September in the following year.

3

The 2008-09 Table is—

Table of Rates of Tax

Portion of value		Rate of tax
Lower limit (£)	Upper limit (£)	Per cent.
0	312,000	Nil
312,000	—	40

4

The 2009-10 Table is—

Table of Rates of Tax

Portion of value		Rate of tax
Lower limit (£)	Upper limit (£)	Per cent.
0	325,000	Nil
325,000	—	40

5

Section 8(1) of IHTA 1984 (indexation of rate bands) shall not have effect as respects any difference between the retail prices index—

a

for the month of September 2006 and that for the month of September 2007, or

b

for the month of September 2007 and that for the month of September 2008.

Trusts

156Rules for trusts etc

1

Schedule 20 contains—

a

amendments of provisions of IHTA 1984 relating to settled property,

b

amendments of provisions relating to property that, for purposes of that Act, is property subject to a reservation, and

c

related amendments of provisions relating to chargeable gains.

2

Those amendments have effect as mentioned in that Schedule.

157Purchase of interests in foreign trusts

1

Section 48 of IHTA 1984 (settled property: excluded property) is amended as follows.

2

In subsection (3) (circumstances in which settled property situated outside the United Kingdom is excluded property), after paragraph (b) insert—

; but this subsection is subject to subsection (3B) below.

3

In subsection (3A) (circumstances in which a holding in an authorised unit trust or a share in an open-ended investment company comprised in settled property is excluded property), after paragraph (b) insert—

; but this subsection is subject to subsection (3B) below.

4

After subsection (3A) insert—

3B

Property is not excluded property by virtue of subsection (3) or (3A) above if—

a

a person is, or has been, beneficially entitled to an interest in possession in the property at any time,

b

the person is, or was, at that time an individual domiciled in the United Kingdom, and

c

the entitlement arose directly or indirectly as a result of a disposition made on or after 5th December 2005 for a consideration in money or money’s worth.

3C

For the purposes of subsection (3B) above—

a

it is immaterial whether the consideration was given by the person or by anyone else, and

b

the cases in which an entitlement arose indirectly as a result of a disposition include any case where the entitlement arose under a will or the law relating to intestacy.

5

If, in consequence of the amendments made by this section, an amount of inheritance tax would (but for this subsection) fall due before the day on which this Act is passed, that amount is to be treated instead as falling due at the end of the period of 14 days beginning with that day.

6

This section is deemed to have come into force on 5th December 2005.

Part 7Pensions

158Taxable property held by investment-regulated pension schemes

1

Schedule 21 (taxable property held by investment-regulated pension schemes) has effect.

2

This section and that Schedule are deemed to have come into force on 6th April 2006.

159Recycling of lump sums

1

In Schedule 29 to FA 2004 (authorised lump sums), after paragraph 3 insert—

3A

1

Where this paragraph applies in relation to a pension commencement lump sum paid to the member, the pension scheme is to be treated as making to the member an unauthorised payment of the appropriate amount.

2

Subject to sub-paragraphs (3) and (4), this paragraph applies in relation to a pension commencement lump sum if—

a

because of the lump sum, the amount of the contributions paid by or on behalf of, or in respect of, the member to the pension scheme, or to any other registered pension scheme, is significantly greater than it otherwise would be, and

b

the member envisaged at the relevant time that that would be so.

3

This paragraph does not apply in relation to any lump sum paid to the member on any day if the amount of the lump sum, when added to any other pension commencement lump sum paid to the member within the period of 12 months ending with that day, does not exceed 1% of the standard lifetime allowance on that day.

4

This paragraph does not apply if the amount by which the contributions paid as mentioned in sub-paragraph (2)(a) is greater than it otherwise would be because of the lump sum does not exceed 30% of the amount of the lump sum.

5

“The appropriate amount” is so much of—

a

the amount crystallised by the benefit crystallisation event constituted by the payment of the lump sum, as does not exceed

b

the amount of the member’s lifetime allowance which is available on it.

6

“The relevant time” is—

a

if paragraph (a) of sub-paragraph (2) is satisfied before the lump sum is paid, the time when that paragraph is first satisfied, and

b

otherwise, the time when the lump sum is paid.

1

In section 55 of FA 2003 (amount of stamp duty land tax chargeable: general) in subsection (2) (calculation of percentage of chargeable consideration), in Table A (bands and percentages for residential property), for “£120,000”, in both places, substitute “£125,000”.

2

In Schedule 5 to FA 2003 (stamp duty land tax: amount of tax chargeable: rent), in paragraph 2(3) (calculation of tax chargeable in respect of rent), in Table A (bands and percentages for residential property), for “£120,000”, in both places, substitute “£125,000”.

3

In Schedule 13 to FA 1999 (stamp duty: instruments chargeable and rates of duty), in paragraph 4 (bands and percentages for conveyance or transfer on sale of property other than stock or marketable securities), for “£120,000”, in both places, substitute “£125,000”.

4

The amendments made by subsections (1) and (2) have effect in relation to any transaction of which the effective date (within the meaning of Part 4 of FA 2003) is after 22nd March 2006.

5

The amendment made by subsection (3) has effect in relation to instruments executed after 22nd March 2006.

Stamp duty land tax

163Partnerships

Schedule 24 (amendments of Schedule 15 to FA 2003) has effect.

164Leases

1

In section 77 of FA 2003 (notifiable transactions), for subsection (2A) substitute—

2A

The assignment of a lease is notifiable if there is chargeable consideration for the assignment and either—

a

the lease is for a term of seven years or more, or

b

the consideration for the assignment is chargeable at a rate of 1% or higher, or would be so chargeable but for a relief.

2

In Schedule 5 to FA 2003 (amount of tax chargeable: rent), in paragraph 3 (net present value of rent payable over term of lease), for “in year i” substitute “in respect of year i”.

3

Subsection (1) has effect in relation to any assignment of which the effective date (within the meaning of Part 4 of FA 2003) is on or after the day on which this Act is passed.

4

Subsection (2) has effect in relation to any lease granted or treated as granted on or after that day.

5

Schedule 25 (amendments of Schedule 17A to FA 2003) has effect.

165Reallocation of trust property as between beneficiaries

1

In Schedule 16 to FA 2003 (trusts and powers), after paragraph 7 insert—

8Reallocation of trust property as between beneficiaries

Where—

a

the trustees of a settlement reallocate trust property in such a way that a beneficiary acquires an interest in certain trust property and ceases to have an interest in other trust property, and

b

the beneficiary consents to ceasing to have an interest in that other property,

the fact that he gives consent does not mean that there is chargeable consideration for the acquisition.

2

Subsection (1) has effect in relation to any acquisition of which the effective date (within the meaning of Part 4 of FA 2003) is on or after the day on which this Act is passed.

it is varied so as to alter the consideration for the land transaction.

8

Expressions which are used in Part 4 of FA 2003 and in this section have the same meaning in this section as in that Part.

167Demutualisation of insurance companies

1

Schedule 7 to FA 2003 (stamp duty land tax: group relief etc) is amended as follows.

2

In paragraph 2 (restrictions on availability of group relief) in sub-paragraph (1) (no relief if arrangements by virtue of which a person has or could have control of purchaser but not vendor) at the end insert—

For another exception to this, see sub-paragraph (3A).

3

In that paragraph after sub-paragraph (3) (arrangements which are within sub-paragraph (2)(a)) insert—

3A

Sub-paragraphs (1) and (2)(b) do not apply to arrangements in so far as they are for the purpose of facilitating a transfer of the whole or part of the business of a company to another company in relation to which—

a

section 96 of the Finance Act 1997 is intended to apply (stamp duty relief: demutualisation of insurance companies), and

b

the conditions for relief under that section are intended to be met.

4

In paragraph 4 (cases in which group relief not withdrawn under paragraph 3)—

a

after sub-paragraph (6) (the third case where the relief not withdrawn) insert—

6A

The fourth case is where—

a

the purchaser ceases to be a member of the same group as the vendor as a result of the transfer of the whole or part of the vendor’s business to another company (“the acquiring company”) in relation to which—

i

section 96 of the Finance Act 1997 applies (stamp duty relief: demutualisation of insurance companies), and

ii

the conditions for relief under that section are met, and

b

the purchaser is immediately after that transfer a member of the same group as the acquiring company.

b

in sub-paragraph (7) (re-imposition of the withdrawal of the relief), in the opening words, after “in a case within sub-paragraph (6)” insert “or (6A)”.

5

The amendments made by this section have effect in relation to any transfer which takes place, or is intended to take place, after 22nd March 2006.

168Alternative finance

1

In sections 71A to 73 of FA 2003 (alternative property finance) for “individual” substitute “person” (and for “an individual” substitute “a person”).

2

Sections 71A(6), 72(6), 72A(6) and 73(4) shall cease to have effect.

3

In section 73(3) after “chargeable” insert “on a chargeable consideration that is not less than the market value of the interest and, in the case of the grant of a lease at a rent, the rent.”

4

After section 73 insert—

73ASections 71A to 73: supplemental

Sections 71A to 73 do not apply to arrangements in which the first transaction is exempt from charge by virtue of Schedule 7.

5

This section shall have effect in relation to arrangements in which the effective date of the first transaction (within the meaning of sections 71A to 73 of FA 2003) is on or after the date on which this Act is passed; and section 119(1) of FA 2003 shall have effect for determining the effective date for the purposes of this subsection.

Stamp duty

169Reliefs for certain company acquisitions

1

Part 3 of FA 1986 (stamp duty) is amended as follows.

2

In section 75 (relief for acquisition of target company’s undertaking in pursuance of reconstruction scheme)—

a

in subsection (4) (condition as to registered office etc) omit “that the registered office of the acquiring company is in the United Kingdom and”, and

b

in subsection (5)(c) (condition that any shareholder holds the same proportion of shares in the companies) after “the same” insert “, or as nearly as may be the same,”.

3

In section 76 (other relief for acquisition of target company’s undertaking), in subsection (3) (condition as to registered office etc) omit “that the registered office of the acquiring company is in the United Kingdom and”.

4

In section 77 (relief for acquisition of target company’s share capital), in subsection (3) (conditions for relief),—

a

omit paragraph (a) (condition as to registered office),

b

in paragraph (g) (condition that the number of shares of any particular class bear to all the shares the same proportion) after “the same proportion” insert “, or as nearly as may be the same proportion,”, and

c

in paragraph (h) (condition that proportion of shares of any particular class held by any shareholder be the same) after “the same” insert “, or as nearly as may be the same,”.

5

The amendments made by this section have effect in relation to instruments executed after the day on which this Act is passed.

Part 9Miscellaneous provisions

Landfill tax

170Rate of landfill tax

1

In section 42 of FA 1996 (amount of landfill tax) for the amount specified in subsection (1)(a), and the corresponding amount specified in subsection (2), substitute “£21”.

2

The amendments made by this section have effect in relation to taxable disposals made, or treated as made, on or after 1st April 2006.

Climate change levy

171Climate change levy: rates

1

In Schedule 6 to FA 2000 (climate change levy) for the Table in paragraph 42(1) (amount payable by way of levy) substitute—

TABLE

Taxable commodity supplied	Rate at which levy payable if supply is neither a half-rate supply nor a reduced-rate supply
Electricity	£0.00441 per kilowatt hour
Gas supplied by a gas utility or any gas supplied in a gaseous state that is of a kind supplied by a gas utility	£0.00154 per kilowatt hour
Any petroleum gas, or other gaseous hydrocarbon, supplied in a liquid state	£0.00985 per kilogram
Any other taxable commodity	£0.01201 per kilogram

2

This section has effect in relation to supplies treated as taking place on or after 1st April 2007.

172Abolition of half-rate supplies etc

1

For the purposes of climate change levy, no supply made on or after 1st April 2006 is a half-rate supply.

International tax arrangements

173International tax enforcement arrangements

1

If Her Majesty by Order in Council declares that—

a

arrangements relating to international tax enforcement which are specified in the Order have been made in relation to any territory or territories outside the United Kingdom, and

b

it is expedient that those arrangements have effect,

are in force immediately before the passing of this Act, and

c

could have been included in an Order in Council under this section had the Order in Council been made after that time,

have effect after that time as if included in an Order in Council under this section.

9

If any such provisions relate to arrangements covering UK taxes or foreign taxes (or both) other than those in relation to which the Order in Council had effect, the provisions also have effect after the passing of this Act (by virtue of subsection (8)) in relation to those other UK taxes or foreign taxes (or both).

10

3

In their application by virtue of subsection (1) the provisions mentioned in that subsection have effect as if—

a

the reference in section 20(7A) to any provision of the Taxes Acts were to any provision of the law of the territory concerned,

b

the reference in subsection (2) of section 20B to an appeal were to an appeal, review or similar proceedings under the law of that territory, and

c

the reference in subsection (6) of that section to the Crown were to that territory.

175Arrangements under section 173: recovery of debts

1

The Treasury may by regulations make provision for the recovery in the United Kingdom of debts relating to any relevant foreign tax pursuant to arrangements having effect by virtue of section 173.

2

“Relevant foreign tax” means any tax or duty—

a

imposed under the law of a territory in relation to which such arrangements have been made, and

b

covered by the arrangements.

3

Regulations under this section may make provision for the taking of action to recover debts relating to any relevant foreign tax by way of legal proceedings, distress, diligence or otherwise.

4

Such provision may in particular be made by applying, with any appropriate modifications, any enactment or rule of law that applies in relation to the recovery of any tax or duty imposed under the domestic law of the United Kingdom (including any enactment relating to penalties or interest on unpaid amounts).

5

The power to make regulations under this section is exercisable by statutory instrument.

6

A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of the House of Commons.

176Double taxation agreements: procedure

In section 788 of ICTA (relief by agreement with other territories), for subsection (10) substitute—

10

An Order under this section is not to be submitted to Her Majesty in Council unless a draft of the Order has been laid before and approved by a resolution of the House of Commons.

Disclosure of information

177Disclosure of information

1

After section 352 of the Gambling Act 2005 (c. 19) (disclosure of information: data protection) insert—

352AWrongful disclosure

1

Where the Commissioners for Her Majesty’s Revenue and Customs provide information to a person under this Act, section 19 of the Commissioners for Revenue and Customs Act 2005 (wrongful disclosure) shall apply to the disclosure of the information by the person as it applies to the disclosure of information in contravention of a provision of that Act.

2

But section 19 shall not apply to disclosure—

a

in accordance with this Act,

b

in accordance with another enactment, or

c

in circumstances specified in section 18(2)(c), (d), (e) or (h) of that Act.

3

In subsection (1)—

a

information provided to a person shall be treated as being provided both to him and to any person on whose behalf he acts or by whom he is employed, and

b

the reference to disclosure by the person to whom information was provided includes a reference to disclosure by any person acting on behalf of, or employed by, the person to whom the information was provided (or a person to whom it is treated as being provided by virtue of paragraph (a)).

4

In the application of section 18(2)(c) and (d) of that Act by virtue of subsection (2)(c) above a reference to functions of the Revenue and Customs shall be taken as a reference to functions of the person making the disclosure.

5

In the application of section 19 of that Act by virtue of subsection (1) above “revenue and customs information” means information provided by the Commissioners (but subject to the express exclusion in section 19(2)).

6

Section 19 of that Act shall, in so far as it applies by virtue of this section, be treated for the purposes of section 28 of this Act as an offence under this Act.

2

Section 352A of the Gambling Act 2005 (c. 19) as inserted by subsection (1) above shall come into force on the passing of this Act.

Part 10Supplementary provisions

178Repeals

1

The enactments mentioned in Schedule 26 (which include provisions that are spent or of no practical utility) are repealed to the extent specified.

2

The repeals specified in that Schedule have effect subject to the commencement provisions and savings contained or referred to in the notes set out in that Schedule.

179Interpretation

In this Act—

“ALDA 1979” means the Alcoholic Liquor Duties Act 1979 (c. 4);

“CAA 2001” means the Capital Allowances Act 2001 (c. 2);

“FA”, followed by a year, means the Finance Act of that year;

“F(No.2)A”, followed by a year, means the Finance (No.2) Act of that year;

“HODA 1979” means the Hydrocarbon Oil Duties Act 1979 (c. 5);

“ICTA” means the Income and Corporation Taxes Act 1988 (c. 1);

“IHTA 1984” means the Inheritance Tax Act 1984 (c. 51);

“ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003 (c. 1);

“ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005 (c. 5);

“OTA 1975” means the Oil Taxation Act 1975 (c. 22);

“TCGA 1992” means the Taxation of Chargeable Gains Act 1992 (c. 12);

“TMA 1970” means the Taxes Management Act 1970 (c. 9);

“VATA 1994” means the Value Added Tax Act 1994 (c. 23);

“VERA 1994” means the Vehicle Excise and Registration Act 1994 (c. 22).

180Short title

This Act may be cited as the Finance Act 2006.

SCHEDULES

SCHEDULE 1Group relief where surrendering company not resident in UK

Section 27

Part 1Amendments of Chapter 4 of Part 10 of ICTA

1Availability of relief

1

Section 402 of ICTA (surrender of relief between members of groups and consortia) is amended as follows.

2

In subsection (1) (availability of relief) for the words from the beginning to “set out” substitute—

1

Subject to and in accordance with this Chapter and section 492(8)—

a

relief for trading losses and other amounts eligible for relief from corporation tax, or

b

losses and other amounts not eligible for relief from corporation tax,

may, in the cases set out

3

For subsection (2) (group claims) substitute—

2

In respect of amounts falling within subsection (1)(a) above, group relief shall be available in a case where—

a

the surrendering company and the claimant company are both members of the same group,

b

the surrendering company is resident in the United Kingdom or is not so resident but carries on a trade there through a permanent establishment, and

c

the claimant company is resident in the United Kingdom or is not so resident but carries on a trade there through a permanent establishment,

and, in respect of amounts falling within subsection (1)(b) above, group relief shall be available in a case where the condition in subsection (2A) below is satisfied.

A claim made by virtue of this subsection is referred to as a “group claim”.

2A

The condition in this subsection is satisfied if the surrendering company is within the charge to tax under the law of any EEA territory and—

a

the surrendering company is a 75 per cent. subsidiary of the claimant company and the claimant company is resident in the United Kingdom, or

b

both the surrendering company and the claimant company are 75 per cent. subsidiaries of a third company that is resident in the United Kingdom.

2B

For the purposes of subsection (2A) above, the surrendering company is within the charge to tax under the law of any EEA territory if—

a

it is a non-resident company which is resident in any EEA territory, or

b

it is a non-resident company which is not resident in any EEA territory but which carries on a trade in any EEA territory through a permanent establishment.

4

In subsection (3A) (group relief not available unless both companies satisfy following condition) for “Group relief is not available” substitute “A consortium claim shall not be made”.

2Limits on group relief

1

Section 403A of ICTA (limits on group relief) is amended as follows.

2

In subsection (10) (qualifying conditions for the purposes of subsection (9)), for paragraph (a) (group claims) substitute—

a

if (or so far as) the claim is a group claim for the surrender of any loss or other amount other than a qualifying overseas loss, whenever the conditions in paragraphs (a) to (c) of section 402(2) are satisfied;

ab

if (or so far as) the claim is a group claim for the surrender of a qualifying overseas loss, whenever the condition specified in section 402(2A) is satisfied; and

3

After that subsection insert—

11

For the purposes of subsection (10) above a “qualifying overseas loss” means a loss or other amount that is available for surrender by way of group relief in accordance with sections 403F and 403G and Schedule 18A (relief in respect of overseas losses of non-resident companies).

3Relief for or in respect of non-resident companies within the charge to corporation tax

1

Section 403D of ICTA (relief for or in respect of non-resident companies) is amended as follows.

2

In subsection (1) (provision for determining amounts available for surrender by a non-resident company), in the opening words,—

a

after “non-resident company” insert “carrying on a trade in the United Kingdom through a permanent establishment”, and

b

after “as so available” insert “(but see also subsection (11) below)”.

3

At the end insert—

11

Any loss or other amount that is available for surrender by way of group relief in accordance with this section is in addition to any loss or other amount that is so available in accordance with sections 403F and 403G and Schedule 18A (relief in respect of overseas losses of non-resident companies).

4

In consequence of the amendments made by this paragraph, the title to the section becomes “Relief for or in respect of UK losses of non-resident companies”.

4Relief in respect of overseas losses of non-resident companies

1

After section 403E of ICTA (relief for overseas losses of UK resident companies) insert—

403FRelief in respect of overseas losses of non-resident companies

1

This section has effect for determining for the purposes of this Chapter the extent to which a loss or other amount is available for surrender by way of group relief by a non-resident company—

a

which is resident in an EEA territory, or

b

which is not so resident but which carries on a trade in an EEA territory through a permanent establishment,

in a case where a group claim may be made as a result of the condition in section 402(2A) being satisfied.

2

A loss or other amount is not available for surrender by way of group relief by the non-resident company except in so far as, in relation to the EEA territory, the amount meets—

a

the equivalence condition,

b

the EEA tax loss condition,

c

the qualifying loss condition, and

d

the precedence condition.

3

Part 1 of Schedule 18A determines, in the case of any amount and any EEA territory, the extent to which those conditions are met.

4

In so far as a loss or other amount meets those conditions, Part 2 of Schedule 18A applies—

a

for calculating the amount of the loss or other amount (if any) that is available for surrender by way of group relief, and

b

otherwise for making provision in relation to the application of this Chapter to the non-resident company.

5

This section is subject to section 403G (unallowable overseas losses of non-resident companies).

2

After section 403F of ICTA (as inserted by sub-paragraph (1)) insert—

403GUnallowable overseas losses of non-resident companies

1

This section applies in the case of a loss or other amount arising to a non-resident company—

a

which is resident in any EEA territory, or

b

which is not so resident but which carries on a trade in an EEA territory through a permanent establishment,

where the amount is not attributable for corporation tax purposes to any UK permanent establishment of the non-resident company.

2

The amount is not available for surrender by way of group relief by the non-resident company in so far as conditions A and B are met.

3

Condition A is that—

a

the amount would not qualify for group relief but for any relevant arrangements, or

b

the amount would not have arisen to the non-resident company but for any relevant arrangements.

4

Condition B is that the main purpose, or one of the main purposes, of the relevant arrangements was to secure that the amount would qualify for group relief.

5

In this section references to relevant arrangements, in relation to any amount, are to—

a

arrangements made on or after 20th February 2006, or

b

arrangements made before that date where the amount would (but for this section) first qualify for group relief on or after that date or (as the case may be) the amount arises on or after that date.

6

In this section—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

“UK permanent establishment”, in relation to the non-resident company, means any permanent establishment through which it carries on a trade in the United Kingdom.

5Interpretation of Chapter 4 of Part 10 of ICTA

1

Section 413 of ICTA (interpretation) is amended as follows.

2

In subsection (1) (general definitions), after the definition of “consortium claim”, insert—

“EEA territory”, in relation to any time, means a territory outside the United Kingdom which is within the European Economic Area at that time;

6Group relief: equity holders and profits or assets available for distribution

1

Schedule 18 to ICTA (group relief: equity holders and profits or assets available for distribution) is amended as follows.

2

In paragraph 5F (special rules in the case of non-resident companies), in sub-paragraph (1)(b) (application of paragraph for relevant purposes) for “by the consortium” substitute

by the consortium;

but this paragraph does not have effect in relation to any determination in the case of amounts falling within section 402(1)(b).

3

In paragraph 7 (supplemental matters), in sub-paragraph (1) (definition of “the relevant accounting period”), in the opening words, after “means” insert “(subject to sub-paragraphs (1A) to (1C) below)”.

4

After that sub-paragraph insert—

1A

In this Schedule “the relevant accounting period” means, in the case of a non-resident company which is not within the charge to corporation tax, the accounting period which the company would have on the following assumption.

1B

The assumption is that the company became resident in the United Kingdom (and, accordingly, within the charge to corporation tax) at the time when it became a 75 per cent. subsidiary as mentioned in section 402(2A).

1C

For the purposes of sub-paragraph (1B) above the reference to the company’s being a 75 per cent. subsidiary is to its being such a subsidiary disregarding section 413(7).

7Meaning of conditions in section 403F etc

After Schedule 18 to ICTA (group relief: equity holders and profits or assets available for distribution) insert—

SCHEDULE 18AGroup relief: overseas losses of non-resident companies

Section 403F

Part 1Meaning of conditions for the purposes of section 403F

1Introduction

This Part of this Schedule applies, in the case of any non-resident company, for the purposes of section 403F (relief in respect of overseas losses of non-resident companies).

2The equivalence condition

An amount meets the equivalence condition if it corresponds (in all material respects) to an amount of a kind that, for the purposes of section 403, could be available for surrender by way of group relief by a company resident in the United Kingdom.

3The EEA tax loss condition: companies resident in EEA territory

1

In the case of a non-resident company which is resident in an EEA territory (“the relevant territory”), an amount meets the EEA tax loss condition in relation to the relevant territory in so far as conditions A and B are met.

2

Condition A is that the amount is calculated in accordance with the applicable rules under the law of the relevant territory for determining, in the case of the company, the amount of any loss or other amount eligible for relief from any tax under the relevant territory.

3

Condition B is that, for the purposes of corporation tax, the amount is not attributable to a UK permanent establishment of the company.

4

“UK permanent establishment”, in relation to the company, means any permanent establishment through which it carries on a trade in the United Kingdom.

5

For the meaning of tax under any territory outside the United Kingdom, see paragraph 17.

4The EEA tax loss condition: companies not resident in EEA territory

1

In the case of a non-resident company which is not resident in any EEA territory but which carries on a trade in an EEA territory (“the relevant territory”) through a permanent establishment, an amount meets the EEA tax loss condition for any period in relation to the relevant territory in so far as conditions A and B are met.

2

Condition A is that the amount is calculated in accordance with the applicable rules under the law of the relevant territory for determining, in the case of the company, the amount of any loss or other amount eligible for relief from any tax under the relevant territory.

3

Condition B is that the amount is not attributable to activities of the company which are made exempt from tax under the relevant territory for the period by any double taxation arrangements.

4

For this purpose, activities of the company are made exempt from tax under the relevant territory for the period by any double taxation arrangements if those arrangements—

a

have the following effect, or

b

would have the following effect if a claim were made.

5

The effect is that the income and gains (if any) arising for the period from those activities are ignored in calculating the company’s profits, income or gains chargeable to tax under the relevant territory for the period.

6

For the purposes of this paragraph, arrangements are double taxation arrangements if they are made with a view to affording relief from double taxation in relation to—

a

any tax under the relevant territory and any other territory outside the United Kingdom, or

b

any tax under the relevant territory and United Kingdom income or corporation tax.

5The qualifying loss condition

1

This paragraph applies in the case of a non-resident company—

a

which is resident in any EEA territory, or

b

which is not so resident but which carries on a trade in an EEA territory through a permanent establishment,

and for the purposes of this paragraph “the EEA territory concerned” means the EEA territory in which the company is resident or (as the case may be) in which it carries on a trade through a permanent establishment.

2

An amount meets the qualifying loss condition in so far as the amount—

a

cannot be given qualifying relief for any period (“the current period”) or any other period, and

b

has not been given any other qualifying relief under the law of any territory outside the United Kingdom (other than the EEA territory concerned).

3

Paragraph 6 determines whether the amount cannot be given qualifying relief for the current period or any previous period.

4

Paragraph 7 determines whether the amount cannot be given qualifying relief for any period after the current period.

5

Paragraph 8 determines whether the amount has not been given qualifying relief under the law of any territory outside the United Kingdom (other than the EEA territory concerned).

6Qualifying relief for current period and previous periods

1

For the purposes of paragraph 5, an amount cannot be given qualifying relief for the current period or any previous period if conditions A and B are met.

2

Condition A is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be taken into account in calculating any profits, income or gains which—

a

arise to the company or any other person in the current period or any previous period, and

b

are chargeable to that tax for the current period or any previous period.

3

Condition B is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be relieved in the current period or any previous period—

a

by the payment of a credit,

b

by the elimination or reduction of a tax liability, or

c

by any other means of any kind.

4

An amount is to be regarded for the purposes of this paragraph as meeting conditions A and B if (but only if) every step to secure that the amount is so taken into account or relieved is taken (whether by the company or any other person).

5

In this paragraph “relevant territory” means—

a

if the company is resident in any EEA territory and is also resident in any other territory outside the United Kingdom, that other territory,

b

if the company is not resident in any EEA territory but carries on a trade in an EEA territory through a permanent establishment, the territory (or territories) in which it is resident.

7Qualifying relief for future periods

1

For the purposes of paragraph 5, an amount cannot be given qualifying relief for any period after the current period if conditions A and B are met.

2

Condition A is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be taken into account in calculating any profits, income or gains which—

a

might arise to the company or any other person in any period after the current period, and

b

(if there were any) would be chargeable to that tax for any period after the current period.

3

Condition B is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be relieved in any period after the current period—

a

by the payment of a credit,

b

by the elimination or reduction of a tax liability, or

c

by any other means of any kind.

4

In determining for the purposes of conditions A and B whether an amount can be so taken into account or relieved, the time at which the determination is to be made is the time immediately after the end of the current period.

5

In this paragraph “relevant territory” means—

a

if the company is resident in any EEA territory and is also resident in any other territory outside the United Kingdom, that other territory,

b

if the company is not resident in any EEA territory but carries on a trade in an EEA territory through a permanent establishment, the territory (or territories) in which it is resident.

8Amount not given other qualifying relief under law of territory outside UK

1

For the purposes of paragraph 5, an amount has not been given qualifying relief under the law of any territory outside the United Kingdom (other than the EEA territory concerned) if conditions A and B are met.

2

Condition A is that, for the purposes of any tax under any territory outside the United Kingdom (other than the EEA territory concerned), the amount has not been taken into account in calculating any profits, income or gains which—

a

have arisen to the company or any other person in any period, and

b

were chargeable to that tax for the period (or, but for so taking the amount into account, would have been so chargeable).

3

Condition B is that, for the purposes of any tax under any territory outside the United Kingdom (other than the EEA territory concerned), the amount has not been relieved in any period—

a

by the payment of a credit,

b

by the elimination or reduction of a tax liability, or

c

by any other means of any kind.

9Precedence condition

1

This paragraph applies in the case of a non-resident company (“the relevant company”)—

a

which is resident in any EEA territory, or

b

which is not so resident but which carries on a trade in an EEA territory through a permanent establishment.

2

An amount meets the precedence condition in relation to the EEA territory concerned in so far as relief for the amount cannot be given in any other territory outside the United Kingdom which is a qualifying territory in relation to the relevant company.

3

For this purpose a territory is a qualifying territory in relation to the relevant company if—

a

another company is resident in that territory (which need not be an EEA territory),

b

that other company owns directly or indirectly any ordinary share capital in the relevant company,

c

a third company which is resident in the United Kingdom owns directly or indirectly any ordinary share capital of that other company,

d

the relevant company is a 75 per cent. subsidiary of that third company, and

e

the relevant company is not a 75 per cent. subsidiary of that third company as a result of its being a 75 per cent. subsidiary of a fourth company which is resident in the United Kingdom.

4

In this paragraph references, in relation to any amount and any territory, to relief being given for the amount in the territory are to relief being given—

a

by taking the amount into account in calculating any profits, income or gains of any person chargeable to tax under the law of that territory,

b

by the payment of a credit to any person under the law of that territory,

c

by the elimination or reduction of a tax liability of any person under the law of that territory, or

d

by any other means of any kind.

5

“The EEA territory concerned” means the EEA territory in which the relevant company is resident or (as the case may be) in which it carries on a trade through a permanent establishment.

Part 2Application of UK rules to non-resident company

10Introduction

1

This Part of this Schedule applies in the case of any loss or other amount (“the EEA amount”) arising to a non-resident company (“the EEA company”) in any period (“the loss period”) in so far as the EEA amount meets the conditions mentioned in subsection (2)(a) to (d) of section 403F.

2

In this Part of this Schedule “the EEA territory concerned” means the EEA territory in which the EEA company is resident or (as the case may be) in which it carries on a trade through a permanent establishment.

3

In this Part of this Schedule any reference to the appropriate part of the EEA amount is to that amount in so far as it meets the conditions mentioned in subsection (2)(a) to (d) of section 403F.

11Basic rules

1

The EEA amount must, on the relevant assumptions (see sub-paragraph (5)), be recalculated in accordance with the applicable UK tax rules (see paragraph 16).

2

The amount of the EEA amount that is available for surrender by the EEA company by way of group relief is so much of the appropriate part of it as does not exceed the relevant proportion (see sub-paragraph (5)) of the amount given by that recalculation.

3

But if the amount given by that recalculation is an amount of income or other profits, no part of the EEA amount is available for surrender by way of group relief.

4

So far as any part of the EEA amount is available for surrender by the EEA company by way of group relief, the provisions of this Chapter have effect in that case on the basis that the relevant assumptions are made.

5

In this paragraph—

“the relevant assumptions” are the assumptions set out in paragraphs 12 to 15, and

“the relevant proportion” means the proportion that the appropriate part of the EEA amount bears to the EEA amount.

12Assumptions as to UK residence

1

It is to be assumed that the EEA company is resident in the United Kingdom throughout the loss period.

2

But this does not require it to be assumed—

a

that there is any change in the place or places at which the EEA company carries on its activities (although see paragraph 13), or

b

that the EEA company ceases to be resident in the United Kingdom at the end of the loss period.

3

It is to be assumed that the EEA company becomes resident in the United Kingdom (and, accordingly, within the charge to corporation tax) at the beginning of the loss period.

13Assumptions as to places in which activities carried out

1

In the case of any trade carried on by the EEA company in the loss period wholly or partly in the EEA territory concerned, it is to be assumed that the trade is carried on wholly or partly in the United Kingdom.

2

In the case of any estate, interest or rights in or over land in the EEA territory concerned which are held by the EEA company, it is to be assumed that the land is in the United Kingdom.

3

For this purpose, the reference to domestic concepts of law in relation to the land in the EEA territory concerned is to be read so as to produce the result that most closely corresponds with that produced for Schedule A purposes in relation to land in the United Kingdom.

14Deemed accounting period

1

It is to be assumed that an accounting period of the EEA company begins at the beginning of the loss period.

2

It is to be assumed that the accounting period ends on the earlier of—

a

the end of 12 months from the beginning of the loss period, or

b

the end of the loss period.

3

If an accounting period ends in accordance with sub-paragraph (2)(a), it is to be assumed that a further accounting period begins when the previous one ends.

4

It is to be assumed that the further accounting period ends on the earlier of—

a

the end of 12 months from the beginning of the further accounting period, or

b

the end of the loss period.

15Capital allowances

1

This paragraph applies if, before the beginning of the loss period, the EEA company incurs any capital expenditure on the provision of plant or machinery for the purposes of any activity.

2

It is to be assumed for the purposes of Part 2 of the Capital Allowances Act that the plant or machinery—

a

was provided for purposes wholly other than those of the activity, and

b

was not brought into use for the purposes of the activity until the beginning of the loss period,

and section 13 of the Capital Allowances Act (use for qualifying activity of plant or machinery provided for other purposes) is to apply accordingly.

3

This paragraph is to be read as one with Part 2 of the Capital Allowances Act.

16Applicable UK tax rules

1

For the purposes of this Part of this Schedule references to recalculating the EEA amount in accordance with the applicable UK tax rules are to recalculating it in accordance with any provision made by or under the Corporation Tax Acts—

a

which applies for the purpose of calculating for corporation tax purposes the amount of the loss or other amount to which the EEA amount corresponds, or

b

which otherwise affects in any way the amount of that loss or other amount for which relief from corporation tax is available.

2

For the purposes of sub-paragraph (1), the Treasury may by regulations provide for the modification of any provision made by or under the Corporation Tax Acts—

a

which applies as mentioned in sub-paragraph (1)(a), or

b

which otherwise affects an amount as mentioned in sub-paragraph (1)(b).

3

Regulations under this paragraph may make provision in relation to—

a

all classes of trade or business, or

b

any particular class or classes of trade or business.

4

Regulations under this paragraph may make—

a

different provision for different cases or different purposes, and

b

incidental, supplemental, consequential or transitional provision and savings.

5

Regulations under this paragraph may make provision having effect before the date on which the regulations are made.

Part 3Definitions for the purposes of this Schedule

17Charge to tax under the law of any territory outside the United Kingdom

1

This paragraph applies for the purposes of this Schedule.

2

Any reference to a tax under a territory outside the United Kingdom is a reference to a tax chargeable under the law of that territory which—

a

is charged on income and corresponds to United Kingdom income tax, or

b

is charged on income or chargeable gains or both and corresponds to United Kingdom corporation tax.

3

A tax chargeable under the law of a territory outside the United Kingdom is not to be regarded as failing to correspond to income or corporation tax just because—

a

it is chargeable under the law of a province, state or other part of a country, or

b

it is levied by or on behalf of a municipality or other local body.

Part 2Amendments of other enactments

8Claims for group relief

After paragraph 77 of Schedule 18 to FA 1998 (joint amended returns) insert—

77AClaims in respect of overseas losses of non-resident companies

1

This paragraph applies if a claim for group relief is made in respect of any loss or other amount as a result of the condition in section 402(2A) of the Taxes Act 1988 being satisfied (relief in respect of overseas losses of non-resident companies).

2

In relation to the surrendering company, this Part of this Schedule applies as if—

a

references to the relief being surrendered were to the EEA amount and to the relief being claimed, and

b

references to its accounting period were to its deemed accounting period under Part 2 of Schedule 18A to the Taxes Act 1988.

3

Notice of consent of the surrendering company—

a

is to be given to the officer of the Board under paragraph 70(3)(b) by the claimant company (and not by the surrendering company), and

b

is to be given to the officer to whom the claimant company makes its company tax returns.

4

If the surrendering company is not within the charge to income or corporation tax, the requirement under paragraph 71(1)(e) for notice of consent by the surrendering company to contain details of its tax district reference is not to apply.

5

If notice of consent is withdrawn under paragraph 71, the notice of the withdrawal is to be given to the officer of the Board by the claimant company (and not by the surrendering company).

6

If notice of consent is withdrawn under paragraph 75—

a

the notice of withdrawal, and any copy of any new notice of consent, is to be sent to an officer of Revenue and Customs by the claimant company (and not by the surrendering company), and

b

any notice containing directions by an officer of Revenue and Customs under sub-paragraph (4) of that paragraph is to be given to the claimant company (and not to the surrendering company).

7

The remaining provisions of that paragraph, and the rest of this Part of this Schedule, are, accordingly, to be read with the appropriate modifications (so that, in particular, it is the claimant company (and not the surrendering company) which can bring an appeal under paragraph 75(7)).

8

A notice under paragraph 27 (notice to produce documents etc for purposes of an enquiry) given to the claimant company may require the claimant company—

a

to explain why the EEA amount meets the conditions mentioned in subsection (2)(a) to (d) of section 403F of the Taxes Act 1988 and is not prevented from being surrendered by section 403G of that Act, and

b

to provide details of the recalculation required under Part 2 of Schedule 18A to that Act in relation to the EEA amount.

9

Except where expressly indicated, requirements imposed under this paragraph are in addition to those imposed apart from this paragraph.

10

In this paragraph “the EEA amount” has the same meaning as in Part 2 of Schedule 18A to the Taxes Act 1988.

Part 3Commencement

9Commencement

1

The amendments made by this Schedule, other than those made by paragraphs 4(2) and 5, have effect—

1

Schedule 20 to FA 2000 (tax relief for expenditure on research and development by small or medium-sized enterprises) is amended as follows.

2

In paragraph 3 (qualifying R&D expenditure), in sub-paragraph (4), after paragraph (b) insert—

ba

is incurred on relevant payments to the subjects of a clinical trial (see paragraph 6A),

3

After paragraph 6 (expenditure on software or consumable items), insert—

6ARelevant payments to subjects of clinical trials

1

For the purposes of this Schedule “relevant payment”, in relation to a subject of a clinical trial, means a payment made to him for participating in the trial.

2

For the purposes of this Schedule “clinical trial” means an investigation in human subjects undertaken in connection with the development of a health care treatment or procedure.

4

In paragraph 10 (treatment of expenditure where company and sub-contractor are connected persons), in sub-paragraph (2)(a)(iii), for “or on software or consumable items” substitute “, on software or consumable items or on relevant payments to the subjects of a clinical trial”.

2Amendments to Schedule 12 to FA 2002

1

c

after that paragraph insert—

ca

paragraph 6A (relevant payments to subjects of clinical trials); and

3Amendments to Schedule 13 to FA 2002

1

ba

is incurred on relevant payments to the subjects of a clinical trial, or

SCHEDULE 3Claims for relief for research and development

Section 29

1Introductory

Schedule 18 to FA 1998 (company tax returns, assessments and related matters) is amended as follows.

2Claims to be included in return

1

Paragraph 10 (other claims and elections to be included in return) is amended as follows.

2

In sub-paragraph (2) (claims to which Part 8, 9 or 9A of Schedule 18 applies) for “R&D tax credit” substitute “R&D tax relief”.

3

After sub-paragraph (2A) insert—

2B

A claim to which Part 9BA of this Schedule applies (claims for relief under Schedule 12 to the Finance Act 2002) can only be made by being included in a company tax return (see paragraph 83LB).

4

In sub-paragraph (3) (claims to which Part 9C of Schedule 18 applies) for “tax credits under Schedule 13 to the Finance Act 2002” substitute “tax relief under Schedule 13 to the Finance Act 2002”.

Claims for R&D tax relief

3

In paragraph 83A (Part 9A: introduction) for “claims for R&D tax credits” substitute “claims for R&D tax relief”.

4

In each of the following provisions for “claim for an R&D tax credit” substitute “claim to which this Part of this Schedule applies”—

a

paragraph 83B(1) (claim to be included in company tax return);

b

paragraph 83C (content of claim);

c

paragraph 83D (amendment or withdrawal of a claim);

d

paragraph 83E(1) (time limit for claims).

5

In the title of Part 9A, “R&D tax credit” becomes “R&D tax relief”.

6Claims for relief under Schedule 12 to FA 2002

After paragraph 83L insert—

Part 9BAClaims for relief under Schedule 12 to the Finance Act 2002

83LAIntroduction

This Part of this Schedule applies to claims for relief under Schedule 12 to the Finance Act 2002.

83LBClaim to be included in company tax return

1

A claim to which this Part of this Schedule applies must be made by being included in the claimant company’s company tax return for the accounting period for which the claim is made.

2

It may be included in the return originally made or by amendment.

83LCContent of claim

A claim to which this Part of this Schedule applies must specify the amount of the relief claimed, which must be an amount quantified at the time the claim is made.

83LDAmendment or withdrawal of claim

A claim to which this Part of this Schedule applies may be amended or withdrawn by the claimant company only by amending its company tax return.

83LETime limit for claims

1

A claim to which this Part of this Schedule applies may be made, amended or withdrawn at any time up to the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made.

2

The claim may be made, amended or withdrawn at a later date if an officer of Revenue and Customs allows it.

Claims for relief under Schedule 13 to FA 2002

7

In paragraph 83M (Part 9C: introduction) for “claims for tax credits” substitute “claims for relief”.

8

In paragraph 83R (penalty), in sub-paragraph (1)(a) for “a claim to which this Part of this Schedule applies” substitute “a claim for a tax credit under Schedule 13 to the Finance Act 2002”.

9

In the title of Part 9C, “tax credit” becomes “relief”.

Commencement and transitional provision

10

The amendments made by paragraphs 2 to 9 have effect in relation to accounting periods ending on or after 31st March 2006.

11

1

This paragraph applies where a company is entitled to relief under Schedule 20 to FA 2000 or Schedule 12 or 13 to FA 2002 for any accounting period of the company falling within sub-paragraph (2).

2

An accounting period of a company falls within this sub-paragraph if it ends on a day falling after 31st March 2002 but before 31st March 2006.

3

Sub-paragraphs (4) and (5) apply to any claim by the company for such relief for an accounting period falling within sub-paragraph (2), other than a claim by the company for—

a

an R&D tax credit under Schedule 20 to FA 2000, or

b

a tax credit under Schedule 13 to FA 2002.

4

A claim to which this sub-paragraph applies may be made, amended or withdrawn by the company at any time up to and including 31st March 2008.

5

A claim to which this sub-paragraph applies may be made, amended or withdrawn by the company at a later date if an officer of Revenue and Customs allows it.

SCHEDULE 4Taxation of activities of film production company

Section 37

1Films to which this Schedule applies

The provisions of this Schedule apply in relation to films that commence principal photography on or after 1st April 2006.

2Activities treated as separate trade

The activities of the film production company in relation to such a film are treated as a trade separate from any other activities of the company (and from any activities in relation to any other film).

3When the trade begins

The film production company is treated as starting to carry on the trade—

a

when pre-production of the film begins, or

b

if earlier, when any income from the film is received by the company.

4Pre-trading expenditure

1

Where a company incurs expenditure on development of a film and subsequently begins to carry on a trade as the film production company in relation to the film, the expenditure may be treated as expenditure of that trade and as if incurred immediately after the company began to carry it on.

2

If expenditure so treated has previously been taken into account for other tax purposes, the company must amend any relevant company tax return accordingly.

3

Any amendment or assessment necessary to give effect to sub-paragraph (2) may be made notwithstanding any limitation on the time within which an amendment or assessment may normally be made.

5Costs of the film

1

References in this Schedule to the costs of the film are to expenditure incurred by the company on—

a

film-making activities in connection with the film, or

b

activities with a view to exploiting the film.

2

This is subject to any provision of the Corporation Tax Acts prohibiting the making of a deduction, or restricting the extent to which a deduction is allowed, in calculating the profits of a trade.

3

Expenditure that (apart from this provision) would be regarded as of a capital nature by reason only of being incurred on the creation of an asset (the film) is treated as being of a revenue nature.

6Income from the film

1

References in this Schedule to income from the film are to any receipts by the company in connection with the making or exploitation of the film.

2

This includes—

a

receipts from the sale of the film or rights in it;

b

royalties or other payments for use of the film or aspects of it (for example, characters or music);

c

payments for rights to produce games or other merchandise;

d

receipts by the company by way of a profit share agreement.

3

Receipts that (apart from this provision) would be regarded as of a capital nature are treated as being of a revenue nature.

7Calculation of profit or loss

1

For the first period of account there shall be brought into account in determining profit or loss—

a

as a debit, the costs of the film incurred (and represented in work done) to date, and

b

as a credit, the proportion of the estimated total income from the film treated as earned at the end of that period.

2

For any period of account after the first there shall be brought into account in determining profit or loss—

a

as a debit, the difference between the amount of the costs of the film incurred (and represented in work done) to date and the corresponding amount for the previous period, and

b

as a credit, the difference between the proportion of the estimated total income from the film treated as earned at the end of that period and the corresponding amount for the previous period.

3

The proportion of estimated total income treated as earned at the end of any period of account is determined using the formula:

CT×I math

where—

C is the total to date of costs incurred (and reflected in work done),

T is the estimated total cost of the film, and

I is the estimated total income from the film.

8Estimates

Estimates for the purposes of this Schedule must be made as at the balance sheet date for each period of account, on a fair and reasonable basis taking into consideration all relevant circumstances.

9When costs are taken to be incurred

1

For the purposes of this Schedule costs are incurred when they are represented in the state of completion of the work in progress.

2

Accordingly—

a

payments in advance for work to be done are ignored until the work has been carried out, and

b

deferred payments are recognised to the extent that the work is represented in the state of completion.

3

The costs incurred on a film shall be taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay.

4

Where an obligation is linked to income being earned from the film no amount is to be brought into account in respect of the costs of the obligation unless an appropriate amount of income is or has been brought into account.

10Exclusion of expenditure relieved under other provisions

Expenditure in respect of which relief has been given under—

a

section 40B, 41 or 42 of F(No.2)A 1992,

b

section 48 of F(No.2)A 1997, or

c

section 135, 136 to 138A or 139 to 142 of ITTOIA 2005,

shall not be taken into account for the purposes of this Schedule.

SCHEDULE 5Film tax relief: further provisions

Section 42

Part 1Entitlement to film tax relief

1Introduction

1

Film tax relief is available in accordance with this Schedule in respect of expenditure on a film—

a

that qualifies for the relief (see section 38), and

b

that commences principal photography on or after 1st April 2006.

2

References in this Part of this Schedule to the trade of a film production company are to the trade that it is treated as carrying on under Schedule 4.

2Additional deduction in computing profits of trade

The film production company may (on making a claim) make an additional deduction in calculating the profit or loss of its trade in respect of qualifying expenditure on the film.

3Qualifying expenditure

1

Qualifying expenditure for this purpose means core expenditure on the film that falls to be taken into account under Schedule 4 in calculating the profit or loss of the trade for tax purposes.

2

The Treasury may by regulations—

a

amend sub-paragraph (1);

b

provide that expenditure of a specified description is or is not to be regarded for the purposes of this Part of this Schedule as qualifying expenditure.

3

No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

4Amount of additional deduction

1

For the first period of account during which the trade is carried on the amount of the additional deduction is given by—

E×R math

where—

E is—

so much of the qualifying expenditure as is UK expenditure, or

if less, 80% of the total amount of qualifying expenditure; and

R is the rate of enhancement (see paragraph 5).

2

For any period of account after the first the amount of the additional deduction is given by—

(E×R)-P math

where—

E is—

so much of the qualifying expenditure incurred to date as is UK expenditure, or

if less, 80% of the total amount of qualifying expenditure incurred to date,

R is the rate of enhancement (see paragraph 5), and

P is the amount of the additional deduction given in the previous period or, as the case may be, the aggregate amount of the additional deductions given in previous periods.

3

The Treasury may by regulations amend the percentage stated in sub-paragraph (1) or (2).

4

No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

5Rate of enhancement

The rate of enhancement is—

a

for a limited-budget film, 100%;

b

for a film other than a limited-budget film, 80%.

6Film tax credits

1

A film production company may claim a film tax credit for an accounting period in which it has a surrenderable loss.

2

The amount of the company’s surrenderable loss in any period is equal to whichever is the less of—

a

the amount of its trading loss for that period, and

b

the available qualifying expenditure.

3

For the first period of account during which the trade is carried on, the available qualifying expenditure is the amount that is E for that period for the purposes of paragraph 4(1).

4

For any period of account after the first, the available qualifying expenditure is given by—

E-S math

where—

E is the amount that is E for that period for the purposes of paragraph 4(2), and

S is the amount surrendered in the previous period, or (as the case may be) the aggregate amount of the amounts surrendered in previous periods, under paragraph 7.

7Amount of credit

1

The company may surrender the whole or part of its surrenderable loss in a period.

2

The amount of the film tax credit to which a company is entitled for a period is given by the formula—

L×R math

where—

L is the amount of the loss surrendered, and

R is the payable credit rate (see paragraph 8).

8Payable credit rate

The payable credit rate is—

a film tax credit, or

b

interest on a film tax credit under section 826 of ICTA,

may be applied in discharging any liability of the company to pay corporation tax.

To the extent that it is so applied the Commissioners’ liability under sub-paragraph (1) is discharged.

3

Where the company’s company tax return for the accounting period is enquired into by the Commissioners, no payment in respect of a film tax credit for that period need be made before the Commissioners’ enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998).

In those circumstances the Commissioners may make a payment on a provisional basis of such amount as they think fit.

4

No payment need be made in respect of a film tax credit for an accounting period before the company has paid to the Commissioners any amount that it is required to pay for payment periods ending in that accounting period—

a

under PAYE regulations,

b

under section 555 of ICTA (foreign entertainers), or

c

in respect of Class 1 national insurance contributions.

10Payment in respect of film tax credit not income

A payment in respect of film tax credit is not income of the company for any tax purpose.

11Trading loss reduced by amount surrendered for film tax credit

The amount of a film production company’s trading loss for an accounting period is reduced by any amount surrendered for a film tax credit.

12No account to be taken of amounts if unpaid

1

In determining for the purposes of this Part of this Schedule the amount of costs incurred on a film at the end of a period of account no account is to be taken of any amount that has not been paid four months after the end of that period.

2

This is without prejudice to the operation of paragraph 9 of Schedule 4 (general rules as to when costs are taken to be incurred).

13Artificially inflated claims for deduction or film tax credit

1

To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it shall be disregarded in determining for any period—

a

any additional deduction to which a company is entitled under this Part of this Schedule, and

b

any film tax credit to which a company is entitled.

2

Arrangements are entered into wholly or mainly for a disqualifying purpose if their main object, or one of their main objects, is to enable a company to obtain—

a

an additional deduction under this Part of this Schedule to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled, or

b

a film tax credit to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled.

3

In this paragraph “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

14Interpretation

In this Part of this Schedule—

“the Commissioners” means Her Majesty’s Commissioners for Revenue and Customs;

“national insurance contributions” means contributions under Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4) or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7); and

“PAYE regulations” means regulations under section 203 of ICTA.

Part 2Certification of British films for purposes of film tax relief

15

For section 6 of the Films Act 1985 (c. 21) (certification of master negatives, tapes and discs for purposes of section 72 of FA 1982) substitute)—

6Certification of British films

Schedule 1 to this Act has effect with respect to the certification by the Secretary of State of a film as a British film for the purposes of film tax relief.

16

For the heading to Schedule 1 to that Act substitute “Certification of British films for purposes of film tax relief”.

17

For paragraph 1 of that Schedule substitute—

1Preliminary

1

In this Schedule—

“film” includes any record, however made, of a sequence of visual images that is capable of being used as a means of showing that sequence as a moving picture;

“film production company” has the same meaning as in Chapter 3 of Part 3 of the Finance Act 2006 (see section 32 of that Act).

2

For the purposes of this Schedule each part of a series of films is treated as a separate film, unless—

a

the films form a series with not more than 26 parts,

b

the combined playing time is not more than 26 hours, and

c

the series constitutes a self-contained work or is a series of documentaries with a common theme,

in which case the films are treated as a single film.

3

References in this Schedule to a film include the film soundtrack.

4

For the purposes of this Schedule a film is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public.

18

For paragraph 2 of that Schedule substitute—

2Applications for certification

1

The film production company may apply to the Secretary of State for the certification of a film as a British film.

2

The application may be for an interim or final certificate.

3

An interim certificate is a certificate granted before the film is completed that the film, if completed in accordance with the proposals set out in the application, will be a British film.

4

A final certificate is a certificate granted after the film is completed that the film is a British film.

5

The applicant must—

a

produce to the Secretary of State such books or other documents relating to the application, and

b

provide the Secretary of State with such other information with respect to it,

as the Secretary of State may require for the purposes of determining the application.

6

The Secretary of State may require information provided for the purposes of the application to be accompanied by a statutory declaration, by the person providing it, as to the truth of the information.

19

For paragraph 3 of that Schedule substitute—

3Certification and withdrawal of certification

1

If the Secretary of State is satisfied that the requirements are met for interim or final certification of a film as a British film, he shall certify the film accordingly.

2

If the Secretary of State is not satisfied that those requirements are met, he shall refuse the application.

3

An interim certificate—

a

may be given subject to conditions, and (unless the Secretary of State directs otherwise) is of no effect if the conditions are not met;

b

may be expressed to expire after a specified period, and (unless the Secretary of State directs otherwise) ceases to have effect at the end of that period; and

c

ceases to have effect when a final certificate is issued.

4

If it appears to the Secretary of State that a film certified by him under this Schedule ought not to have been certified, he shall revoke its certification.

Unless the Secretary of State directs otherwise, a certificate that is revoked is treated as never having had effect.

20

In paragraph 4 of that Schedule (British films for purposes of the Schedule), for sub-paragraphs (1) to (3) substitute—

1

A film is a British film for the purposes of this Schedule if it passes the relevant cultural test (see paragraph 4A, 4B or 4C).

21

1

Paragraph 5 of that Schedule (excluded films) is amended as follows.

2

For sub-paragraph (1) substitute—

1

A film must not be certified as a British film for the purposes of this Schedule if parts of the film whose playing time exceeds 10% of the total playing time of the film are derived from a previous film, unless—

a

the two films have the same film production company or producer, and

b

the previous film has not been certified under this Schedule.

3

After sub-paragraph (2) insert—

3

For the purposes of this paragraph—

a

the film soundtrack shall be left out of account;

b

“producer” means the person by whom the arrangements necessary for the making of the film are undertaken;

c

in relation to certification before the commencement of Chapter 3 of Part 3 of the Finance Act 2006, references to certification of a film shall be read as references to certification of the master negative, tape or disc of the film.

22

In paragraph 9 of that Schedule (determination of disputes) for the words from “any decision of the Secretary of State” to “may” substitute “any decision of the Secretary of State under paragraph 3 may”.

23

In paragraph 10 of that Schedule (regulations and orders)—

a

in sub-paragraph (1)(c), for “2(4)” substitute “2(6);

b

in sub-paragraph (2), for “4 to 8” substitute “4 to 5”.

24Confidentiality of information

1

Section 18(1) of the Commissioners for Revenue and Customs Act 2005 (c. 11) (restriction on disclosure by Revenue and Customs officials) does not prevent disclosure to the Secretary of State for the purposes of his functions under Schedule 1 to the Films Act 1985 (c. 21) (certification of films as British films for the purposes of film tax relief).

2

Information so disclosed may be disclosed to the UK Film Council.

3

A person to whom information is disclosed under sub-paragraph (1) or (2) may not otherwise disclose it except—

a

for the purposes of the Secretary of State’s functions under Schedule 1 to the Films Act 1985 (c. 21),

b

if the disclosure is authorised by an enactment,

c

in pursuance of an order of a court,

d

for the purposes of a criminal investigation or legal proceedings (whether civil or criminal) connected with the operation of that Schedule or this Chapter,

e

with the consent of the Commissioners for Her Majesty’s Revenue and Customs, or

f

with the consent of each person to whom the information relates.

4

The references in this paragraph to the functions of the Secretary of State under Schedule 1 to the Films Act 1985 do not include those functions in so far as they are exercised in relation to a film that commenced principal photography before 1st April 2006.

in England and Wales, in relation to an offence committed before the commencement of section 282 of the Criminal Justice Act 2003 (c. 44), or

b

in Scotland or Northern Ireland,

the reference in sub-paragraph (4)(b) to twelve months shall be read as a reference to six months.

Part 3Consequential amendments

26Interest

1

Section 826 of ICTA (interest on tax overpaid etc) is amended as follows.

2

In subsection (1) (payments that carry interest) after paragraph (e) insert—

; or

f

a payment of film tax credit falls to be made to a company.

3

After subsection (3B) insert—

3C

In relation to a payment of film tax credit the material date is whichever is the later of—

a

the filing date for the company’s company tax return for the accounting period for which the tax credit is payable, and

b

the date on which the company tax return or amended company tax return containing the claim for payment is delivered to an officer of Revenue and Customs.

For this purpose “the filing date”, in relation to a company tax return, has the same meaning as in Schedule 18 to the Finance Act 1998.

4

In subsection (8A) (recovery of overpaid amounts)—

a

in paragraph (a), for “or (e)” substitute “, (e) or (f)”;

b

in paragraph (b)(ii) after “life assurance company tax credit” insert “or film tax credit”.

5

In subsection (8B) after “life assurance company tax credit” (twice) insert “or film tax credit”.

27Claim to be made in tax return

In Schedule 18 to FA 1998 (company tax returns), in paragraph 10 (other claims etc to be included in return), after sub-paragraph (3) insert—

4

A claim to which Part 9D of this Schedule applies (claims for film tax relief) can only be made by being included in a company tax return (see paragraph 83T).

28Recovery of excessive film tax credit

In paragraph 52 of that Schedule (recovery of excessive repayments etc)—

a

in sub-paragraph (2) (excessive repayments etc to which paragraphs 41 to 48 apply), after paragraph (bc) insert—

bd

film tax credit,

b

in sub-paragraph (5) (connection of assessment for excessive payment to an accounting period), after paragraph (ad) insert—

ae

an amount of film tax credit paid to a company for an accounting period,

c

in the closing words of that sub-paragraph, after “(ad)” insert “, (ae)”.

29Claims for film tax credits

After Part 9C of that Schedule insert—

Part 9DClaims for film tax relief

83SIntroduction

This Part of this Schedule applies to claims for film tax relief.

83TClaim to be included in company tax return

1

A claim to which this Part of this Schedule applies must be made by being included in the claimant company’s tax return for the accounting period for which the claim is made.

2

It may be included in the return originally made or by amendment.

83UContent of claim

A claim to which this Part of this Schedule applies must specify the amount of the relief claimed, which must be an amount quantified at the time the claim is made.

83VAmendment or withdrawal of claim

A claim to which this Part of this Schedule applies may be amended or withdrawn by the claimant company only by amending its company tax return.

83WTime limits for claim

1

A claim to which this part of this Schedule applies may be made, amended or withdrawn at any time up to the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made.

2

The claim may be made, amended or withdrawn at a later date if an officer of Revenue and Customs allows it.

83XPenalty

3

The company is liable to a penalty where it—

a

fraudulently or negligently makes a claim for a film tax credit that is incorrect, or

b

discovers that a claim for a film tax credit made by it (neither fraudulently nor negligently) is incorrect and does not remedy the error without unreasonable delay.

4

The penalty is an amount not exceeding the excess film tax credit claimed, that is, the difference between—

a

the amount (if any) of the film tax credit to which the company is entitled for the accounting period to which the claim relates, and

b

the amount of the film tax credit claimed by the company for that period.

Part 4Provisional entitlement to relief

30Introduction

1

In this Part of this Schedule—

“the company” means the film production company;

“the final accounting period” means the accounting period of the company in which—

the film is completed, or

where the company does not complete the film, it abandons film-making activities in relation to it;

“interim accounting period” means any earlier accounting period of the company during which film-making activities are carried on in relation to the film;

“interim certificate” and “final certificate” refer to certificates under Schedule 1 to the Films Act 1985 (c. 21) (certification of films as British films for purposes of film tax relief);

“relief” means—

film tax relief, or

relief under section 45 (transfer of terminal losses from one qualifying film to another).

2

The company tax return of the company for the final accounting period must state that the film has been completed or, as the case may be, that the company has abandoned film-making activities in relation to it.

is not entitled to relief for any period for which its entitlement depended on such a statement, and

b

must amend accordingly its company tax return for any such period.

3

When the film is completed or, as the case may be, the company abandons film-making activities in relation to it—

a

the company tax return for the final accounting period must—

i

state that the film has been completed or, as the case may be, the company has abandoned film-making activities in relation to it, and

ii

3

When the film is completed or, as the case may be, the company abandons film-making activities in relation to it—

a

its company tax return for the final accounting period must—

i

state that the film has been completed or, as the case may be, the company has abandoned film-making activities in relation to it, and

ii

be accompanied by a final statement of the core expenditure on the film; and

b

if the return shows that the film is not a limited-budget film, or (as the case may be) that having regard to the proportion of work on the film that was completed, it would not have been a limited-budget film if it had been completed, the company—

i

is not entitled to film tax relief for any period on the basis that the film is a limited-budget film, and

ii

must amend accordingly its company tax return for any period for which such relief was claimed on that basis.

34Time limit for amendments and assessments

Any amendment or assessment necessary to give effect to the provisions of this Part of this Schedule may be made notwithstanding any limitation on the time within which an amendment or assessment may normally be made.

SCHEDULE 6Avoidance involving financial arrangements

Section 76

1Repeal of rent factoring provisions

1

Sections 43A to 43G of ICTA (rent factoring) shall cease to have effect.

2

The amendment made by this paragraph has effect in relation to transactions entered into on or after 6th June 2006.

2Dividend stripping: subsequent sales etc of rights to receive dividends etc

1

Section 730 of ICTA (transfers of rights to receive distributions in respect of shares) is amended as follows.

2

Omit subsection (3) (proceeds of subsequent sales etc of rights to receive distributions not to be regarded as income of the seller etc).

3

The amendment made by this paragraph has effect in relation to sales or other realisations on or after 20th January 2006.

3Deemed interest: cash collateral under stock lending arrangements

1

After section 736B of ICTA (deemed manufactured payments in the case of stock lending arrangements) insert—

736CDeemed interest: cash collateral under stock lending arrangements

1

This section applies where—

a

the borrower under a stock lending arrangement is treated under section 736B(2) as paying under that arrangement an amount representative of interest on any securities (“the relevant securities”),

b

an amount of money (“cash collateral”) is payable to or for the benefit of the lender for the purpose of securing the discharge of the requirement to transfer the relevant securities back to the lender,

c

the stock lending arrangement is designed to produce a return to the borrower which equates, in substance, to the return on an investment of money at interest, and

d

the main purpose, or one of the main purposes, of the stock lending arrangement is the obtaining of a tax advantage.

2

Where this section applies—

a

the Tax Acts are to apply as if the borrower receives an amount of interest payable in respect of the cash collateral, and

b

the amount of the interest is calculated in accordance with the following provisions of this section (see, in particular, subsections (3) to (7)).

3

The interest is treated for the purposes of the Tax Acts as if it were received on the date (“the return date”) on which the borrower transfers the relevant securities back to the lender.

4

The interest is treated for the purposes of the Tax Acts as if it were payable in respect of the period (“the interest period”)—

a

beginning with the date on which the lender transfers the relevant securities to the borrower, and

b

ending with the return date.

5

The rate of interest payable in respect of the cash collateral is a rate that is reasonably comparable to the rate that the borrower could obtain by placing the cash collateral on deposit for the interest period.

6

For the purposes of this section, the amount of the cash collateral on which the interest is payable is taken to be—

a

in any case where the amount of the cash collateral varies at any time on or before the return date, the highest amount of the cash collateral at any time on or before the return date, and

b

in any other case, the amount of the cash collateral as at the return date.

7

The amount of the interest which the borrower is treated as receiving in respect of the cash collateral for the interest period is reduced (but not below nil) by any interest which the borrower actually receives in respect of that collateral for that period.

8

If the borrower is a person within the charge to income tax, the interest which the borrower is treated as receiving is charged to income tax under Chapter 2 of Part 4 of ITTOIA 2005 (interest).

9

If the borrower is a company within the charge to corporation tax—

a

the interest which the borrower is treated as receiving is treated for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships) as payable to it on a money debt,

b

that money debt is treated for those purposes as a relationship to which section 100 of the Finance Act 1996 applies (money debts etc not arising from the lending of money), and

c

the credits to be brought into account for those purposes in respect of the interest must be determined using an amortised cost basis of accounting.

10

The fact that the borrower is treated as receiving an amount of interest is not to be taken as implying that the interest is payable by the lender or any other person.

11

For the purposes of this section—

“money” includes money expressed in a currency other than sterling,

“stock lending arrangement” and “securities” have the same meanings as in section 263B of the 1992 Act,

“tax advantage” has the meaning given by section 709(1).

12

For the purposes of this section—

a

any reference to the transfer of securities back has the same meaning as in section 263B of the 1992 Act (see, in particular, sections 263B(5) and 263C(1) of that Act), but

b

if it becomes apparent that the borrower will not comply with the requirement to transfer any securities back, the borrower is treated as if he transfers them back on the date on which it becomes so apparent.

13

For the purposes of this section it does not matter—

a

whether the cash collateral is payable by the borrower or by any other person,

b

whether the cash collateral is payable under the stock lending arrangement or under any other arrangement,

c

whether collateral in another form is also provided in connection with the stock lending arrangement.

2

Section 736C of ICTA has effect in relation to any stock lending arrangement made on or after 5th December 2005.

3

In relation to any stock lending arrangement made on or after that date but before 22nd March 2006, that section has effect as if subsection (6) were omitted.

4

If—

a

a stock lending arrangement was made before 5th December 2005 in respect of any securities (“the original securities”), and

b

on or after that date the lender under the stock lending arrangement transfers securities (“the substituted securities”) in substitution for some or all of the original securities,

section 736C of ICTA has effect as if that arrangement were made on the date of the substitution (and the substituted securities were the relevant securities).

4Quasi-stock lending arrangements and quasi-cash collateral

1

In section 736B of ICTA (deemed manufactured payments in the case of stock lending arrangements) at the end insert—

4

See section 736D for provision treating certain arrangements as stock lending arrangements for the purposes of this section.

2

In section 736C of ICTA (deemed interest: cash collateral under stock lending arrangements), as inserted by paragraph 3 above, at the end insert—

14

See section 736D—

a

for provision treating certain arrangements as stock lending arrangements for the purposes of this section, and

b

for provision treating certain amounts as cash collateral for those purposes.

3

After that section insert—

736DQuasi-stock lending arrangements and quasi-cash collateral

1

In this section “quasi-stock lending arrangement” means so much of any arrangements between two or more persons as are not stock lending arrangements, but are arrangements under which—

a

a person (“the lender”) transfers securities to another person (“the borrower”), and

b

a requirement is imposed on a person to transfer any or all of the securities, or any other property, back to the lender or any other person,

and it does not matter whether the person on whom that requirement is imposed is the borrower or any other person.

2

In this section “quasi-cash collateral”, in relation to any stock lending arrangement or quasi-stock lending arrangement, means—

a

any money which is payable for a relevant purpose, plus

b

any other property which is transferable for a relevant purpose.

3

Money or other property is payable or transferable for a relevant purpose if it is payable or transferable to or for the benefit of—

a

the lender under the stock lending arrangement or quasi-stock lending arrangement, or

b

a person connected with that lender,

for the purpose of securing the discharge of the requirement to transfer any or all of the securities, or any other property, back to that lender or any other person.

4

For the purposes of sections 736B and 736C, a quasi-stock lending arrangement is treated as if it were a stock lending arrangement.

5

For the purposes of section 736C, in relation to any stock lending arrangement or quasi-stock lending arrangement,—

a

quasi-cash collateral is treated as if it were cash collateral, and

b

the amount of the quasi-cash collateral in relation to the stock lending arrangement or quasi-stock lending arrangement is taken to be the amount of the cash collateral.

6

If any property other than money is transferable for a relevant purpose, the amount of the quasi-cash collateral so far as relating to that property is determined by reference to its market value.

7

In any case where—

a

section 736C applies in relation to a quasi-stock lending arrangement, and

b

the person for whom the tax advantage was designed to be obtained is a person (“the other person”) other than the borrower under that arrangement,

that section has effect as if the other person were the person who receives the amount of interest mentioned in that section.

8

In any case where section 736C applies in relation to a quasi-stock lending arrangement—

a

any reference in that section to cash collateral being payable to or for the benefit of the lender includes its being payable to or for the benefit of a person connected with the lender,

b

the reference in subsection (1)(c) of that section to a return to the borrower includes a return to any other person, and

c

any reference in that section to the transfer back of the relevant securities by the borrower to the lender includes the transfer back of any or all of the securities, or any other property, by any person to the lender or any other person.

9

Section 839 (connected persons) applies for the purposes of this section.

10

In this section—

“money” includes money expressed in a currency other than sterling,

“property” means property in any form,

“stock lending arrangement” and “securities” have the same meaning as in section 263B of the 1992 Act,

“transfer” means a transfer otherwise than by way of sale.

4

The amendments made by this paragraph have effect in relation to any arrangement made on or after 22nd March 2006.

5Multiple holders of securities subject to sale and repurchase agreement: no relief for deemed manufactured payments

1

Section 737A of ICTA (sale and repurchase of securities: deemed manufactured payments) is amended as follows.

2

In subsection (5) (application of Schedule 23A and dividend manufacturing regulations), after “apply” insert “, subject to subsection (5A) below,”.

3

After that subsection insert—

5A

If the relevant person is not the person to whom the transferor agreed to sell the securities, the relevant person is not entitled, by virtue of anything in Schedule 23A or any provision of dividend manufacturing regulations, or otherwise—

a

to any deduction in computing profits or gains for the purposes of income tax or corporation tax, or

b

to any deduction against total income or total profits,

by virtue of subsection (5) above.

Where the relevant person is a company, an amount may not be surrendered by way of group relief if a deduction in respect of it is prohibited by this subsection.

4

In subsection (6) (interpretation), for—

a

“subsection (5) above”, and

b

“that subsection”,

substitute “this section”.

5

The amendments made by this paragraph have effect in relation to securities if—

a

the agreement to sell them was made on or after 27th June 2006, or

b

a person other than the person to whom the transferor agreed to sell them became the relevant person in consequence of any other agreement made on or after that date.

6Structured finance arrangements: factoring of income receipts etc

1

After section 774 of ICTA (transactions between dealing company and associated company) insert—

Factoring of income receipts etc

774AMeaning of “structured finance arrangement” for purposes of s.774B

1

For the purposes of section 774B an arrangement is a structured finance arrangement in relation to a person (“the borrower”) if the following condition is met in relation to the borrower.

2

The condition is that—

a

under the arrangement the borrower receives from another person (“the lender”) any money or other asset (“the advance”) in any period,

b

in accordance with generally accepted accounting practice the accounts of the borrower for that period record a financial liability in respect of the advance,

c

the borrower, or a person connected with the borrower, makes a disposal of an asset (“the security”) under the arrangement to or for the benefit of the lender or a person connected with the lender,

d

the lender, or a person connected with the lender, is entitled under the arrangement to payments in respect of the security, and

e

in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower.

3

For the purposes of this section, in any case where the borrower is a partnership, references to the accounts of the borrower include the accounts of any member of the partnership.

4

For the purposes of this section and section 774B—

a

references to a person connected with the borrower do not include the lender, and

b

references to a person connected with the lender do not include the borrower.

774BDisregard of intended effects of arrangement involving disposals of assets

1

If—

a

an arrangement is a structured finance arrangement in relation to a person (“the borrower”), and

b

the arrangement would (disregarding this section) have had the relevant effect (see subsections (2) and (3)),

the arrangement is not to have that effect.

2

If the borrower is a person other than a partnership, the relevant effect is that—

a

an amount of income on which the borrower, or a person connected with the borrower, would otherwise have been charged to tax is not so charged,

b

an amount which would otherwise have been brought into account in calculating for tax purposes any income of the borrower, or of a person connected with the borrower, is not so brought into account, or

c

the borrower, or a person connected with the borrower, becomes entitled to an income deduction.

3

If the borrower is a partnership, the relevant effect is that—

a

an amount of income on which a member of the partnership would otherwise have been charged to tax is not so charged,

b

an amount which would otherwise have been brought into account in calculating for tax purposes any income of a member of the partnership is not so brought into account, or

c

a member of the partnership becomes entitled to an income deduction.

4

If—

a

a person in relation to whom the structured finance arrangement would otherwise have had the relevant effect is a person within the charge to income tax, and

b

in accordance with generally accepted accounting practice the accounts of the person record an amount as a finance charge in respect of the advance,

that person may treat the amount for income tax purposes as interest payable on a loan.

5

If a person in relation to whom the structured finance arrangement would otherwise have had the relevant effect is a company within the charge to corporation tax—

a

the advance is to be treated, in relation to the company, for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 as a money debt owed by the company,

b

the arrangement is to be treated, in relation to the company, for the purposes of that Chapter as a loan relationship of the company (as a debtor relationship), and

c

any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the company as a finance charge in respect of the advance is to be treated as interest payable under that relationship.

6

For the purposes of this section, in any case where the borrower is a partnership,—

a

references to accounts include the accounts of the partnership, and

b

any deemed interest is treated as payable by the partnership (whether or not the finance charge is recorded in the accounts of the partnership).

7

For the purpose of determining when any deemed interest in respect of the advance is paid—

a

the payments mentioned in section 774A(2)(d) are treated as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance, and

b

the interest elements of those payments are treated as paid when those payments are paid,

and the deemed interest in respect of the advance is treated as paid at the times when the interest elements are treated as paid.

8

In this section “deemed interest” means any amount which is treated as interest as a result of subsection (4) or (5).

9

This section is subject to the exceptions contained in section 774E.

774CMeaning of “structured finance arrangement” for purposes of s.774D

1

For the purposes of section 774D an arrangement is a structured finance arrangement in relation to a partnership (“the borrower partnership”) if condition A or B is met in relation to the borrower partnership.

2

Condition A is that—

a

a person (“the transferor partner”) disposes of an asset (“the security”) under the arrangement to the borrower partnership,

b

the transferor partner is a member of the borrower partnership immediately after the disposal (whether or not a member immediately before the disposal),

c

under the arrangement the borrower partnership receives from another person (“the lender”) any money or other asset (“the advance”) in any period,

d

in accordance with generally accepted accounting practice the accounts of the borrower partnership for that period record a financial liability in respect of the advance,

e

there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender (see subsection (6)),

f

under the arrangement the share of the lender or person connected with the lender in the profits of the borrower partnership is determined by reference (wholly or partly) to payments in respect of the security, and

g

in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower partnership.

3

For the purposes of condition A, references to the accounts of the borrower partnership include the accounts of the transferor partner.

4

Condition B is that—

a

the borrower partnership holds an asset (“the security”) as a partnership asset at any time before the arrangement is made,

b

under the arrangement the borrower partnership receives from another person (“the lender”) any money or other asset (“the advance”) in any period,

c

in accordance with generally accepted accounting practice the accounts of the borrower partnership for that period record a financial liability in respect of the advance,

d

there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender,

e

under the arrangement the share of the lender or person connected with the lender in the profits of the borrower partnership is determined by reference (wholly or partly) to payments in respect of the security, and

f

in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower partnership.

5

For the purposes of condition B, references to the accounts of the borrower partnership include the accounts of any person who is a member of the partnership immediately before the arrangement is made.

6

For the purposes of this section and section 774D there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender if directly or indirectly in consequence of, or otherwise in connection with, the arrangement—

a

the lender, or a person connected with the lender, becomes a member of the borrower partnership at any time, or

b

there is at any time a change in the share of a member of the borrower partnership in the profits of the borrower partnership in a case where that member is the lender or a person connected with the lender.

7

For the purposes of subsection (6)(b) the reference to a person connected with the lender includes a person who at any time becomes connected with the lender directly or indirectly in consequence of, or otherwise in connection with, the arrangement.

774DDisregard of intended effects of arrangement involving change in relation to a partnership

1

This section applies if—

a

an arrangement is a structured finance arrangement in relation to a partnership (“the borrower partnership”), and

b

any relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender would (disregarding this section) have had the following effect.

2

The effect is that—

a

an amount of income on which a relevant member of the borrower partnership would otherwise have been charged to tax is not so charged,

b

an amount which would otherwise have been brought into account in calculating for tax purposes any income of a relevant member of the borrower partnership is not so brought into account, or

c

a relevant member of the borrower partnership becomes entitled to an income deduction.

3

In this section “relevant member of the borrower partnership” means—

a

in any case where condition A in section 774C is met in relation to the arrangement, the transferor partner, and

b

in any case where condition B in that section is met in relation to the arrangement, any person other than the lender who is a member of the borrower partnership immediately before the time at which the relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender occurs.

4

Part 9 of ITTOIA 2005 and section 114 above are to have effect in relation to any relevant member of the borrower partnership as if the relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender had not occurred.

Accordingly, the structured finance arrangement is not to have the effect mentioned in subsection (2).

5

The following provisions of this section confer relief from tax the availability of which depends on which of the conditions in section 774C is met in relation to the arrangement.

6

In any case where condition A in section 774C is met, if—

a

the transferor partner is a person within the charge to income tax, and

b

in accordance with generally accepted accounting practice the accounts of the borrower partnership record an amount as a finance charge in respect of the advance,

the transferor partner may treat the amount for income tax purposes as interest payable by the transferor partner on a loan.

7

In any case where condition A in that section is met, if the transferor partner is a company within the charge to corporation tax—

a

the advance is to be treated, in relation to the company, for the purposes of paragraph 19 of Schedule 9 to the Finance Act 1996 (and the other provisions of Chapter 2 of Part 4 of that Act) as a money debt owed by the borrower partnership,

b

the arrangement is to be treated, in relation to the company, as a transaction for the lending of money from which that debt is treated as arising for those purposes, and

c

any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the borrower partnership as a finance charge in respect of the advance is to be treated as interest payable by the company under that transaction.

8

For the purposes of subsections (6) and (7), references to the accounts of the borrower partnership include the accounts of the transferor partner.

9

In any case where condition B in section 774C is met, if—

a

a relevant member of the borrower partnership is a person within the charge to income tax, and

b

in accordance with generally accepted accounting practice the accounts of the borrower partnership record an amount as a finance charge in respect of the advance,

the relevant partner may treat the amount for income tax purposes as interest payable by the borrower partnership on a loan.

10

In any case where condition B in that section is met, if a relevant member of the borrower partnership is a company within the charge to corporation tax—

a

the advance is to be treated, in relation to the company, for the purposes of paragraph 19 of Schedule 9 to the Finance Act 1996 (and the other provisions of Chapter 2 of Part 4 of that Act) as a money debt owed by that partnership,

b

the arrangement is to be treated, in relation to the company, as a transaction for the lending of money from which that debt is treated as arising for those purposes, and

c

any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the borrower partnership as a finance charge in respect of the advance is to be treated as interest payable by the borrower partnership under that transaction.

11

For the purposes of subsections (9) and (10), references to the accounts of the borrower partnership include the accounts of any relevant member of the borrower partnership.

12

For the purpose of determining when any deemed interest in respect of the advance is paid—

a

the payments mentioned in section 774C(2)(f) or (4)(e) are treated as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance, and

b

the interest elements of those payments are treated as paid when those payments are paid,

and the deemed interest in respect of the advance is treated as paid at the times when the interest elements are treated as paid.

13

In this section “deemed interest” means any amount which is treated as interest as a result of any of subsections (6) to (10).

14

This section is subject to the exceptions contained in section 774E.

774ESections 774B and 774D: exceptions

1

Section 774B or 774D does not apply if the whole of the advance under the structured finance arrangement—

a

is charged to tax on a relevant person (see subsection (7)) as an amount of income,

b

is brought into account in calculating for tax purposes any income of a relevant person, or

c

is brought into account for the purposes of any provision of the Capital Allowances Act as a disposal receipt, or proceeds from a balancing event or disposal event, of a relevant person.

For the purposes of this subsection the effect of section 785A (rent factoring of leases of plant or machinery) is to be disregarded.

2

Subsection (1)(c) is not to be taken as met in any case where—

a

the receipt or proceeds gives rise to a balancing charge, and

b

the amount of the balancing charge is limited by any provision of the Capital Allowances Act.

3

Section 774B or 774D does not apply if, at all times, the whole of the advance under the structured finance arrangement—

a

is a debtor relationship of a relevant person for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships), or

b

would be a debtor relationship of a relevant person for those purposes if that person were a company within the charge to corporation tax.

For the purposes of this subsection references to a debtor relationship do not include a relationship to which section 100 of the Finance Act 1996 (money debts etc not arising from the lending of money) applies.

4

Section 774B or 774D does not apply in so far as the structured finance arrangement is an arrangement in relation to which—

a

section 263A of the 1992 Act (agreements for sale and repurchase of securities) applies,

b

paragraph 15 of Schedule 9 to the Finance Act 1996 (repo transactions and stock-lending) applies, or

c

Chapter 5 of Part 2 of the Finance Act 2005 (alternative finance arrangements) has effect.

5

Section 774B or 774D does not apply in so far as—

a

the security under the structured finance arrangement is plant or machinery which is the subject of a sale and finance leaseback, or

b

the structured finance arrangement is an arrangement in relation to which sections 228B to 228D of the Capital Allowances Act apply with the modifications contained in section 228F of that Act (lease and finance leaseback).

6

For the purposes of subsection (5)(a), whether plant or machinery is the subject of a sale and finance leaseback is determined in accordance with section 221 of the Capital Allowances Act.

But, in applying that section, it is to be assumed that the words “and which are not a long funding lease in the case of the lessor” were omitted from section 219(1)(b) of that Act (meaning of “finance lease”).

7

For the purposes of this section a “relevant person” means—

a

if section 774B applies, a person in relation to whom the structured finance arrangement would (but for that section) otherwise have had the relevant effect (within the meaning of that section), and

b

if section 774D applies, a relevant member of the borrower partnership (within the meaning of that section).

774FSections 774B and 774D: power to provide further exceptions

1

The Treasury may make regulations prescribing other circumstances in which section 774B or 774D is not to apply in relation to a structured finance arrangement.

2

Any regulations under subsection (1) may make provision amending section 774E.

3

The power to make regulations under subsection (1) includes—

a

power to make provision having effect in relation to times before the making of the regulations (but not times earlier than 6th June 2006),

b

power to make different provision for different cases or different purposes, and

c

power to make incidental, supplemental, consequential or transitional provision and savings.

774GSections 774A to 774D: minor definitions etc

1

For the purposes of sections 774A to 774D “arrangement” includes any agreement or understanding (whether or not legally enforceable).

2

For the purposes of sections 774A to 774D “income deduction” means—

a

a deduction in calculating any income for tax purposes, or

b

a deduction against total income or total profits.

3

For the purposes of sections 774A to 774D—

a

references to a person’s receiving any asset include the person’s obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it,

b

references to a disposal of an asset include anything which constitutes a disposal of the asset for the purposes of the 1992 Act,

c

references to payments in respect of any asset include obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it.

4

For the purposes of sections 774A to 774D, section 839 (connected persons) applies.

5

For the purposes of sections 774A to 774D references to the accounts of any person who is a company include the consolidated group accounts of a group of companies of which it is a member.

6

If any person does not draw up accounts in accordance with generally accepted accounting practice, sections 774A to 774D apply as if the accounts had been drawn up by the person in accordance with that practice.

7

Sections 277 to 281 of ITTOIA 2005 and section 34 above (lease premiums) are not to apply in relation to a premium paid in respect of a grant of a lease where the grant constitutes a disposal of an asset for the purposes of section 774A(2)(c) or 774C(2)(a).

2

The amendment made by this paragraph has effect in relation to any arrangements whenever made (but see sub-paragraphs (3) and (4)).

3

In relation to arrangements made before 6th June 2006, amounts are, as a result of the amendment made by this paragraph,—

a

to be charged to tax, or

b

to be brought into account in calculating any income for tax purposes or deducted from any income for tax purposes,

only if the amounts arise on or after that date.

4

The amendment made by this paragraph has no effect in relation to any arrangement made before that date in so far as section 43B or 43D of ICTA (rent factoring) applies to it.

5

In any case where, in relation to arrangements made before that date, a person is treated, as a result of the amendment made by this paragraph, as being a party to any loan relationship—

a

a period of account is to be treated for the purposes of Chapter 2 of Part 4 of FA 1996 as beginning on that date, and

b

the loan relationship is to be treated for those purposes as being entered into by the person for a consideration equal to the notional carrying value of the liability representing the relationship.

6

For this purpose, the notional carrying value is the amount that would have been the carrying value of the liability in the accounts of the person if a period of account had ended immediately before that date.

7

“Carrying value” has the same meaning here as it has for the purposes of paragraph 19A of Schedule 9 to FA 1996.

7Rent factoring of leases of plant or machinery

1

Section 785A of ICTA (rent factoring of leases of plant or machinery) is amended as follows.

2

After subsection (5) (provision about partnerships with legal personality) insert—

5A

This section does not apply in so far as section 774B or 774D (structured finance arrangements) applies in relation to the arrangements mentioned in paragraph (c) of subsection (1) above as a result of the transfer mentioned in that paragraph.

8Transactions associated with loans or credit

1

Section 786 of ICTA (transactions associated with loans or credit) is amended as follows.

2

After subsection (5) (transaction under which a person assigns, surrenders etc income arising from property) insert—

5ZA

But subsection (5) above does not apply if the person mentioned in that subsection is, as a result of section 774B or 774D (structured finance arrangements), chargeable to tax on the amount of income assigned, surrendered, waived or forgone.

9Structured finance arrangements: chargeable gains treatment of acquisitions and disposals

1

After section 263D of TCGA 1992 (gains accruing to persons paying manufactured dividends) insert—

263EStructured finance arrangements

1

This section applies if—

a

section 774B of the Taxes Act (disregard of intended effects of arrangement involving disposals of assets) applies in relation to a structured finance arrangement,

b

the borrower or a person connected with the borrower makes a disposal of any security at any time under the arrangement to or for the benefit of the lender or a person connected with the lender, and

c

condition A or B is met.

2

Condition A is that the person making the disposal subsequently acquires under the arrangement the asset disposed of by that disposal.

3

Condition B is that—

a

the asset disposed of by that disposal subsequently ceases to exist at any time, and

b

that asset was held by the lender, or a person connected with the lender, from the time of the disposal until that time.

4

The disposal of the security by the borrower or a person connected with the borrower is to be disregarded for the purposes of this Act.

5

Any subsequent acquisition by the person making the disposal of the asset disposed of by that disposal is to be disregarded for the purposes of this Act.

6

In this section—

“the borrower”, in relation to a structured finance arrangement, means the person who is the borrower under the arrangement for the purposes of section 774A of the Taxes Act,

“the lender”, in relation to a structured finance arrangement, means the person who is the lender under the arrangement for the purposes of that section,

“security” means any such asset as is mentioned in subsection (2)(c) and (d) of that section.

7

For the purposes of this section—

a

references to a person connected with the borrower do not include the lender, and

b

references to a person connected with the lender do not include the borrower.

2

The amendment made by this paragraph has effect in relation to disposals made on or after 6th June 2006.

3

The amendment made by this paragraph also has effect in relation to any disposal made by a person before that date if the person makes a claim to that effect under this sub-paragraph.

10Loan relationships: mandatory convertibles

1

Section 81 of FA 1996 (meaning of “loan relationship” etc) is amended as follows.

2

In subsection (2) (meaning of “money debt”)—

a

omit the “or” immediately before paragraph (b) (transfer of right to settlement under a money debt), and

b

at the end of that paragraph insert

, or

c

by the issue or transfer of any shares in any company,

3

The amendments made by this paragraph have effect in relation to relationships to which a company is a party on or after 22nd March 2006.

4

The following provisions of this paragraph apply for the purposes of TCGA 1992 if—

a

a company is a party to a relationship on 22nd March 2006,

b

the relationship becomes a loan relationship on that date for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of the amendments made by this paragraph,

c

the relationship is a creditor relationship of the company, and

d

immediately before that date the asset representing the relationship was a chargeable asset in relation to the company.

5

The company is treated as if—

a

it had made a disposal of the asset representing the relationship immediately before 22nd March 2006, and

b

the disposal had been for a consideration equal to the fair value of the asset at that time (within the meaning given by section 103(1) of FA 1996).

6

Any chargeable gain or loss accruing to the company on the disposal is treated as accruing to the company when it ceases to be a party to the relationship.

7

For the purposes of this paragraph an asset is a chargeable asset in relation to the company at any time if any gain accruing to it on the disposal of the asset at that time would be a chargeable gain for the purposes of TCGA 1992.

11Loan relationships: computation in accordance with generally accepted accounting practice

1

Section 85A of FA 1996 (computation in accordance with generally accepted accounting practice) is amended as follows.

2

In subsection (1) (amounts to be brought into account are those recognised in determining company’s profit or loss) after “Subject to the provisions of this Chapter” insert “(including, in particular, section 84(1))”.

12Loan relationships: amounts not fully recognised for accounting purposes

1

After section 85B of FA 1996 (amounts recognised in determining company’s profit or loss) insert—

85CAmounts not fully recognised for accounting purposes

1

This section applies if—

a

a company is, or is treated as being, a party to a creditor relationship in any period,

b

an amount is not fully recognised for the period in respect of the creditor relationship,

c

the company is, or is treated as being, a party to a debtor relationship in the period or has at any time issued share capital which falls to be treated for accounting purposes as a liability (a “relevant accounting liability”) for the period,

d

an amount is not fully recognised for the period in respect of the debtor relationship or relevant accounting liability, and

e

the amounts are not fully recognised as mentioned in paragraphs (b) and (d) as a result of the application of generally accepted accounting practice in relation to the creditor relationship and the debtor relationship or relevant accounting liability.

2

For the purposes of subsection (1) an amount is not fully recognised for the period in respect of any loan relationship or relevant accounting liability of the company if—

a

no amount in respect of the relationship or liability is recognised in determining its profit or loss for the period, or

b

an amount in respect of only part of the relationship or liability is recognised in determining its profit or loss for the period.

3

In determining the credits and debits to be brought into account by the company in respect of the creditor relationship for the period for the purposes of this Chapter, the applicable assumption (see subsection (6)) must be made.

4

In any case where the condition in subsection (1)(c) is met by reference to a debtor relationship of the company, in determining the credits and debits to be brought into account by the company in respect of that relationship for the period for the purposes of this Chapter, the applicable assumption must be made.

5

But the amount of any debits to be brought into account by the company for any period for the purposes of this Chapter as a result of subsection (4) must not exceed the amount of any credits to be brought into account by the company for the period as a result of subsection (3).

6

For the purposes of this section, in relation to any loan relationship, the applicable assumption is the assumption that an amount in respect of the whole of the relationship is recognised in determining the company’s profit or loss for the period.

7

In any case where—

a

apart from this section any credits or debits are brought into account by the company in respect of any loan relationship for the period for the purposes of this Chapter, and

b

the relationship is one to which this section applies,

the credits and debits to be so brought into account as a result of this section must be determined on the same basis of accounting on which the credits or debits mentioned in paragraph (a) were determined.

8

In any other case, the credits and debits to be so brought into account as a result of this section must be determined on the amortised cost basis of accounting.

2

The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.

3

But, in relation to a period of account beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of that amendment only if the amounts relate to any time on or after that date.

13Shares treated as loan relationships: shares subject to outstanding third party obligations

1

Section 91A of FA 1996 (shares subject to outstanding third party obligations) is amended as follows.

2

In subsection (1) (conditions for section to apply), in the opening words, for “a company if at any time in an accounting period” substitute “the times in a company’s accounting period during which”.

3

In subsection (2) (how Chapter has effect for the accounting period) after “as if” insert “during those times”.

4

In subsection (5) (cases where a share is subject to outstanding third party obligations)—

a

in paragraph (a) (share is subject to obligations of description in subsection (6)) after “the share is subject to” insert “, or will or might under any relevant arrangements be subject to,”, and

b

in paragraph (b) (obligations of a person other than the investing company) after “the investing company” insert “or are obligations of the investing company which, under any relevant arrangements, will or might be discharged directly or indirectly by any other person”.

5

After that subsection insert—

5A

For the purposes of subsection (5) above—

a

“arrangements” includes any agreement or understanding (whether or not legally enforceable),

b

arrangements are “relevant” if they were entered into at any time on or before the share was issued.

6

The amendments made by sub-paragraphs (2) and (3) have effect in relation to accounting periods ending on or after 22nd March 2006.

7

The other amendments made by this paragraph have effect in relation to shares held by a company on or after 22nd March 2006.

8

But, in relation to an accounting period beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those other amendments only if the amounts relate to any time on or after that date.

14Shares treated as loan relationships: application of rules to non-qualifying shares

1

Section 91B of FA 1996 (non-qualifying shares) is amended as follows.

2

In subsection (1) (conditions for section to apply)—

a

in the opening words, for “a company if at any time in an accounting period” substitute “the times in a company’s accounting period during which”, and

b

in the words after paragraph (c), for “at no time in the accounting period does section 91A above apply” substitute “, during those times, section 91A above does not apply”.

3

In subsection (2) (how Chapter has effect for the accounting period) after “as if” insert “during those times”.

4

The amendments made by this paragraph have effect in relation to accounting periods ending on or after 22nd March 2006.

5

But, in relation to an accounting period beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those amendments only if the amounts relate to any time on or after that date.

15Shares treated as loan relationships: redeemable shares

1

Section 91D of FA 1996 (condition 2 for section 91B(6)(b)) is amended as follows.

2

For subsection (2) (cases in which share regarded as redeemable) substitute—

2

For the purposes of this section, a share is to be regarded as redeemable if (and only if)—

a

it is redeemable as a result of its terms of issue (or any collateral arrangements) requiring redemption, entitling the holder to require redemption or entitling the issuer to redeem, or

b

there are arrangements which will or might entitle the investing company to qualifying redemption amounts.

3

After that subsection insert—

2A

For the purposes of subsection (2) above—

“arrangements” includes any agreement or understanding (whether or not legally enforceable and whether or not forming part of the terms of issue of the share), and

“qualifying redemption amounts” means amounts which, when taken together, are the same, or are substantially the same, as an amount that might be payable on the redemption of the share.

4

In subsection (7) (shares mirroring a public issue: Case 1), in paragraph (b) (associated companies issuing mirroring shares to company within 24 hours of its issuing shares), for “24 hours” substitute “7 days”.

5

In subsection (8) (shares mirroring a public issue: Case 2), in paragraph (a) (second-level mirroring shares issued within 24 hours of the public issue), for “24 hours” substitute “7 days”.

6

The amendments made by sub-paragraphs (2) and (3) have effect in relation to any share held by a company on or after 12th May 2006 in any case where—

a

the share is redeemable for the purposes of section 91D of FA 1996 as a result of any arrangements mentioned in subsection (2)(b) of that section (as substituted by sub-paragraph (2)), and

b

the arrangements were entered into after the company acquired the share.

7

But in that case, in relation to an accounting period beginning before 12th May 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those amendments only if the amounts relate to any time on or after that date.

8

In any other case, the amendments made by sub-paragraphs (2) and (3) have effect in relation to shares held by a company on or after 22nd March 2006.

9

But, in relation to an accounting period beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those amendments only if the amounts relate to any time on or after that date.

10

The amendments made by sub-paragraphs (4) and (5) have effect in relation to any case where the public issue (within the meaning of section 91D(7) and (8) of FA 1996) is on or after 22nd March 2006.

16Creditor relationships and benefit derived by connected persons

1

After section 93B of FA 1996 insert—

93CCreditor relationships and benefit derived by connected persons

1

This section applies in the case of any loan relationship which is a creditor relationship of a company (“company C”) if—

a

the return to company C from the relationship is less than a return (a “commercial return”) on an investment of money at a commercial rate of interest,

b

another company (“company P”) that is connected with company C directly or indirectly derives any benefit as a result of any arrangements made in consequence of, or otherwise in connection with, the relationship, and

c

that benefit is designed to represent some or all of the amount by which the return to company C from the relationship is less than a commercial return.

2

The credits to be brought into account by company C in respect of the relationship for the purposes of this Chapter must be determined on the basis of fair value accounting.

3

The fair value of company C’s rights under the relationship must include the fair value of the benefit which is derived by company P as a result of the arrangements.

4

Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this section.

5

In this section—

“arrangements” includes any agreement or understanding (whether or not legally enforceable);

“benefit” includes value in any form.

6

In determining for the purposes of subsection (1)(a) the return to company C from the relationship, any benefit which company C derives directly or indirectly from the benefit derived by company P as mentioned in subsection (1)(b) is to be disregarded.

2

The amendment made by this paragraph has effect in relation to loan relationships to which a company is a party on or after 22nd March 2006.

3

But amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of that amendment only if the amounts relate to any time on or after that date.

17Loan relationships: money debts etc not arising from the lending of money

1

Section 100 of FA 1996 (money debts etc not arising from the lending of money) is amended as follows.

2

In subsection (1A) (conditions mentioned in subsection (1)(c)(iv)) for paragraph (e) (property not an asset representing a loan relationship or derivative contract) substitute—

e

if the money debt is some or all of the consideration payable for a disposal of property, the property in question is not an asset representing a loan relationship or a derivative contract the disposal of which is a relevant disposal.

3

After that subsection insert—

1B

For the purposes of subsection (1A)(e) above “relevant disposal” means—

a

a disposal to which paragraph 12 of Schedule 9 applies or would apply but for sub-paragraph (2A) of that paragraph,

b

a disposal to which paragraph 28 of Schedule 26 to the Finance Act 2002 applies or would apply but for paragraph 30 of that Schedule,

c

a disposal not falling within paragraph (a) or (b) above as respects which the whole of the consideration is brought into account for the purposes of this Chapter or Schedule 26 to the Finance Act 2002.

4

The amendments made by this paragraph have effect in relation to disposals made on or after 22nd March 2006.

18Loan relationships: meaning of “fair value” in Chapter 2 of Part 4 of FA 1996

1

Section 103 of FA 1996 (interpretation of Chapter 2 of Part 4 of FA 1996) is amended as follows.

2

In subsection (1), in the definition of “fair value”, in paragraphs (a) and (b), omit “in respect of amounts which at that time are not yet due and payable”.

3

The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.

4

But, in relation to a period of account beginning before 22nd March 2006, the amendment made by this paragraph has effect only in relation to—

a

disposals or acquisitions (in whole or in part) of rights or liabilities under a loan relationship, or

b

anything treated for the purposes of Chapter 2 of Part 4 of FA 1996 as such a disposal or acquisition,

which were made (or treated as made) on or after that date.

19Loan relationships: continuity of treatment of groups etc

1

In Schedule 9 to FA 1996 (loan relationships: special computational provisions) paragraph 12 (continuity of treatment: groups etc) is amended as follows.

2

In sub-paragraph (2A) (paragraph 12 not to apply where transferor uses fair value accounting)—

a

in the opening words, for “uses” substitute “is regarded for the purposes of this sub-paragraph as using”, and

b

for paragraph (aa) (treatment of transferee in respect of the transaction) substitute—

aa

for any accounting period in which it is a party to the relationship, the transferee company shall be treated for the purpose of determining the credits and debits to be brought into account for the purposes of this Chapter in respect of the relationship as if it had acquired the asset or liability representing the relationship for a consideration equal to the amount mentioned in paragraph (a) above (but on the assumption that sub-paragraph (2C)(b) below is omitted).

3

After that sub-paragraph insert—

2B

The transferor company shall be regarded for the purposes of sub-paragraph (2A) above as using fair value accounting as respects the loan relationship only if—

a

it uses fair value accounting as respects the relationship and the debits and credits to be brought into account for the purposes of this Chapter as respects the relationship are also determined on that basis, or

b

it does not use fair value accounting as respects the relationship but the debits and credits to be brought into account for the purposes of this Chapter as respects the relationship are determined on that basis.

4

After sub-paragraph (2B) (as inserted by sub-paragraph (3) above) insert—

2C

In any case where a discount (within the meaning given by section 100(3A)) arises in respect of the transaction, the series of transactions or the transfer—

a

the consideration for the purposes of sub-paragraph (2)(a) above is to be increased by the amount of the discount;

b

the amount to be brought into account by virtue of sub-paragraph (2A)(a)(i) above is to be increased by the amount of the discount.

5

The amendments made by this paragraph have effect in any case where the relevant transaction is on or after 22nd March 2006.

6

For this purpose “the relevant transaction” means—

a

the related transaction mentioned in paragraph 12(1)(a) of Schedule 9 to FA 1996,

b

the first of the series of transactions mentioned in paragraph 12(1)(b) of that Schedule, or

c

the transfer mentioned in paragraph 12(1)(c) or (d) of that Schedule,

as a result of which paragraph 12 of that Schedule applies or, but for sub-paragraph (2A) of that paragraph, would apply.

20Loan relationships: repo and stock-lending arrangements

1

In Schedule 9 to FA 1996 (loan relationships: special computational provisions), paragraph 15 (disposal or acquisition made in pursuance of repo and stock-lending arrangements not to be related transaction) is amended as follows.

2

In sub-paragraph (2)(b) (transfer to original transferor (“A”) giving effect to entitlement or requirement to rights on re-transfer etc.), after “to A” insert “by B”.

3

The amendment made by this paragraph has effect in relation to any transfer to A (within the meaning of paragraph (a) of sub-paragraph (3) of paragraph 15) under arrangements—

a

consisting in or involving an agreement made on or after 27th June 2006 for the transfer of rights by A to B (within the meaning of that paragraph), or

b

involving an agreement made on or after that date providing for a transfer giving effect to the entitlement or requirement described in paragraph (b) of that sub-paragraph otherwise than by B.

21Derivative contracts: computation in accordance with generally accepted accounting practice

1

Paragraph 17A of Schedule 26 to FA 2002 (computation in accordance with generally accepted accounting practice) is amended as follows.

2

In sub-paragraph (1) (amounts to be brought into account are those recognised in determining company’s profit or loss) after “Subject to the provisions of this Schedule” insert “(including, in particular, paragraph 15(1))”.

22Derivative contracts: transactions within groups

1

In Schedule 26 to FA 2002 (derivative contracts), paragraph 28 (transactions within groups) is amended as follows.

2

After sub-paragraph (3) (rule for determining the credits and debits to be brought into account) insert—

3ZA

In any case where a discount (within the meaning given by section 100(3A) of the Finance Act 1996) arises in respect of the transaction or the series of transactions, the consideration for the purposes of sub-paragraph (3)(a) is to be increased by the amount of the discount.

3

The amendment made by this paragraph has effect in any case where the relevant transaction is on or after 22nd March 2006.

4

For this purpose “the relevant transaction” means—

a

the related transaction mentioned in paragraph 28(2)(a) of Schedule 26 to FA 2002,

b

the first of the series of transactions mentioned in paragraph 28(2)(b) of that Schedule, or

c

the transfer mentioned in paragraph 28(2)(c) or (d) of that Schedule,

as a result of which paragraph 28 of that Schedule applies or, but for paragraph 30 of that Schedule, would apply.

23Derivative contracts: transactions within groups (fair value accounting)

1

In Schedule 26 to FA 2002 (derivative contracts), paragraph 30 (transactions within groups: fair value accounting) is amended as follows.

2

In sub-paragraph (1) (paragraph 28 not to apply where transferor uses fair value accounting) for paragraph (b) (treatment of transferee in respect of the transaction) substitute—

b

for any accounting period in which it is a party to the contract, the transferee company shall be treated for the purpose of determining the credits and debits to be brought into account for the purposes of this Schedule in respect of the contract as if it had acquired the contract for a consideration equal to the amount mentioned in paragraph (a) (but on the assumption that sub-paragraph (1A) is omitted).

3

After that sub-paragraph insert—

1A

In any case where a discount (within the meaning given by section 100(3A) of the Finance Act 1996) arises in respect of the transaction or the series of transactions, the amount to be brought into account by virtue of sub-paragraph (1)(a) is to be increased by the amount of the discount.

4

The amendments made by this paragraph have effect in any case where the relevant transaction is on or after 22nd March 2006.

5

For this purpose “the relevant transaction” has the meaning given by paragraph 22.

24Derivative contracts: meaning of “fair value” in Schedule 26 to FA 2002

1

Paragraph 54 of Schedule 26 to FA 2002 (interpretation of Schedule) is amended as follows.

2

In sub-paragraph (1), in the definition of “fair value”, in paragraphs (a) and (b), omit “in respect of amounts which at that time are not yet due and payable”.

3

The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.

4

But, in relation to a period of account beginning before 22nd March 2006, the amendment made by this paragraph has effect only in relation to—

a

disposals or acquisitions (in whole or in part) of rights or liabilities under a derivative contract, or

b

anything treated for the purposes of Schedule 26 to FA 2002 as such a disposal or acquisition,

which were made (or treated as made) on or after that date.

SCHEDULE 7Transfer of assets abroad

Section 79

Income and Corporation Taxes Act 1988

1Amendments of ICTA: introductory

ICTA is amended as follows.

2Section 741: application subject to sections 741B and 741C

1

Section 741 (exemption from sections 739 and 740) is amended as follows.

2

At the beginning of the section insert “(1)”.

3

At the end of the section insert—

2

This section is subject to sections 741B and 741C (application of this section and section 741A etc).

4

741DSection 739: just and reasonable apportionment in certain cases

1

This section applies where—

a

an individual is liable to tax by virtue of section 739 for a year of assessment (the “taxable year”), but

b

the conditions in subsections (2) to (4) below are met.

2

Condition 1 is that since the making of the transfer there have been one or more years of assessment when the circumstances were such that, so far as relating to such of the relevant transactions as were effected before the end of the year, the individual&