Office of Public Sector Information
PART II continued CHAPTER II continued
(3) Subsections (4) and (5) below apply where—
(a) a company has been treated as mentioned in section 144(3) above as regards a debt, or
(b) a company has been treated as mentioned in subsection (2) above as regards a debt by virtue of the fact that in the opinion of the inspector part of the debt could, at the later time, reasonably have been regarded as recoverable.
(4) In a case where—
(a) at a time (the relevant time) falling after the end of the accounting period mentioned in section 144(2)(b) above or (as the case may be) falling after the later time all or part of the debt is actually outstanding,
(b) the inspector is satisfied that all or part of the amount actually outstanding at the relevant time could at that time reasonably have been regarded as recoverable, and
(c) the recoverable amount exceeds the amount which (taking into account section 144(3) above, subsection (2) above and any previous application of this subsection) is the nominal amount of the debt outstanding at the relevant time,
the company shall be treated for the purposes of this Chapter as if, immediately after the relevant time, there were an increase in the nominal amount of the debt outstanding and the increase were of an amount equal to the excess mentioned in paragraph (c) above.
(5) For the purposes of subsection (4) above the recoverable amount is an amount equal to so much of the debt, expressed in its settlement currency, as was actually outstanding at the relevant time and in the opinion of the inspector could at that time reasonably have been regarded as recoverable.
(6) Where there is an appeal, this section shall be construed as if—
(a) “inspector is satisfied” (in each place) read “Commissioners concerned are satisfied”, and
(b) “opinion of the inspector” (in each place) read “opinion of the Commissioners concerned”.
(1) This section applies where—
(a) a qualifying company ceases to be entitled to rights and subject to duties under a currency contract, and
(b) at the time it so ceases it has neither received nor made payment of any currency in pursuance of the contract.
(2) If the company has a net contractual gain of a trade it shall be treated for the purposes of the Tax Acts as—
(a) incurring in the trade a loss of an amount equal to that gain, and
(b) incurring the loss in respect of the last relevant accounting period.
(3) If the company has a net contractual loss of a trade it shall be treated for the purposes of the Tax Acts as—
(a) receiving in respect of the trade an amount equal to that loss, and
(b) receiving the amount in respect of the last relevant accounting period.
(4) If the company has a net contractual non-trading gain—
(a) it shall be treated as incurring by virtue of section 129 above a loss of an amount equal to the amount of that gain,
(b) it shall be treated as incurring the loss in the last relevant accounting period, and
(c) in relation to that accounting period references to amount B shall be construed accordingly.
(5) If the company has a net contractual non-trading loss—
(a) it shall be treated as receiving by virtue of section 129 above an amount equal to the amount of that loss,
(b) it shall be treated as receiving the amount in the last relevant accounting period, and
(c) in relation to that accounting period references to amount A shall be construed accordingly.
(6) For the purposes of this section—
(a) the termination time is the time mentioned in subsection (1)(b) above;
(b) the last relevant accounting period is the company’s accounting period in which the termination time falls;
(c) the relevant accounting periods are that accounting period and the company’s accounting periods preceding it.
(7) This is how to find out whether the company has a net contractual gain or loss of a trade and (if it has) its amount—
(a) take the aggregate of the amounts (if any) the company is treated as receiving under section 128(4) above in respect of the trade and the contract and the relevant accounting periods;
(b) take the aggregate of the amounts (if any) of the losses the company is treated as incurring under section 128(8) above in the trade and in respect of the contract and the relevant accounting periods;
(c) if the amount found under paragraph (a) above exceeds that found under paragraph (b) above the company has a net contractual gain of the trade of an amount equal to the excess;
(d) if the amount found under paragraph (b) above exceeds that found under paragraph (a) above the company has a net contractual loss of the trade of an amount equal to the excess;
and in applying paragraphs (a) and (b) above ignore the effect of subsections (2) and (3) above.
(8) This is how to find out whether the company has a net contractual non-trading gain or loss and (if it has) its amount—
(a) take the aggregate of the amounts (if any) the company is treated as receiving under section 129(2) above in respect of the contract in the relevant accounting periods;
(b) take the aggregate of the amounts (if any) of the losses the company is treated as incurring under section 129(4) above in respect of the contract in the relevant accounting periods;
(c) if the amount found under paragraph (a) above exceeds that found under paragraph (b) above the company has a net contractual non-trading gain of an amount equal to the excess;
(d) if the amount found under paragraph (b) above exceeds that found under paragraph (a) above the company has a net contractual non-trading loss of an amount equal to the excess;
and in applying paragraphs (a) and (b) above ignore the effect of subsections (4) and (5) above.
(9) For the purposes of subsection (7) above—
(a) an amount the company is treated as receiving under section 128(4) above in respect of part of the trade concerned shall be treated as received in respect of the trade;
(b) a loss the company is treated as incurring under section 128(8) above in part of the trade shall be treated as incurred in the trade.
(10) Where any amount or loss the company is treated as receiving or incurring as mentioned in subsection (7)(a) or (b) above would (apart from this subsection) be expressed in a currency other than the local currency of the trade for the last relevant accounting period, it shall be treated for the purposes of this section as being the local currency equivalent of the amount or loss expressed in that other currency.
(11) For the purposes of subsection (10) above the local currency equivalent of an amount is the equivalent—
(a) expressed in the local currency of the trade for the last relevant accounting period, and
(b) calculated by reference to the London closing exchange rate for the day in which the termination time falls.
(12) Subsection (13) below applies where the company has (apart from that subsection) a net contractual gain or loss of a trade and—
(a) the trade concerned has ceased before the termination time, or
(b) the company carries on exempt activities immediately before the termination time.
(13) In such a case the company shall be treated for the purposes of this section as if—
(a) it did not have the net contractual gain or loss of the trade, and
(b) it had a net contractual non-trading gain or loss (as the case may be) equal to the amount which would have been the amount of the net contractual gain or loss of the trade apart from paragraph (a) above.
(14) Where any amount found under subsection (13)(b) above would (apart from this subsection) be expressed in a currency other than sterling, it shall be treated for the purposes of this section as being the sterling equivalent of the amount expressed in that other currency; and any translation required by this subsection shall be made by reference to the London closing exchange rate for the currencies concerned for the day in which the termination time falls.
(15) For the purposes of this section a company carries on exempt activities at a given time if—
(a) the activities it then carries on are or include any of the activities mentioned in subsection (16) below,
(b) it is a housing association approved at that time for the purposes of section 488 of the Taxes Act 1988, or
(c) it is a self-build society approved at that time for the purposes of section 489 of that Act.
(16) The activities referred to in subsection (15)(a) above are—
(a) the activity of long term insurance business;
(b) the activity of mutual insurance business;
(c) the activity of the occupation of commercial woodlands;
and section 143(6) above applies for the purposes of this subsection.
(1) This section applies where—
(a) a qualifying company enters into a currency contract (the first contract), and
(b) the company closes out that contract by entering into another currency contract (the second contract) with rights and duties which are reciprocal to those under the first contract.
(2) For the purposes of this Chapter the company shall be treated as ceasing, at the time it enters into the second contract, to be entitled to rights and subject to duties under the first contract without having received or made payment of any currency in pursuance of the first contract.
(3) For the purposes of this Chapter the second contract shall be ignored (except in applying the preceding provisions of this section).
(1) Regulations may provide that where prescribed conditions are fulfilled as regards an asset or liability relief from tax shall be afforded in respect of it; and subsections (2) to (4) below shall apply for the purposes of the regulations.
(2) The prescribed conditions must be or include ones that are met where it can reasonably be said that—
(a) a loss other than an exchange loss has accrued to a qualifying company as regards the asset or liability and no relief from tax is available under the Tax Acts in respect of the loss, and
(b) exchange gains have accrued to the company as regards the asset or liability without being matched (or fully matched) by exchange losses accruing to the company as regards the asset or liability.
(3) The relief shall take such form as is prescribed and shall be such that the amount relieved does not exceed the amount of the unmatched gains.
(4) The regulations may provide that if the loss mentioned in subsection (2)(a) above is made good to any extent the relief afforded by the regulations shall be cancelled (to the extent prescribed) by an assessment to tax.
(5) Regulations may provide that where prescribed conditions are fulfilled as regards an asset or liability a charge to tax shall be imposed in respect of it; and subsections (6) and (7) below shall apply for the purposes of the regulations.
(6) The prescribed conditions must be or include ones that are met where it can reasonably be said that—
(a) a gain other than an exchange gain has accrued to a qualifying company as regards the asset or liability and no charge to tax is imposed under the Tax Acts in respect of the gain, and
(b) exchange losses have accrued to the company as regards the asset or liability without being matched (or fully matched) by exchange gains accruing to the company as regards the asset or liability.
(7) The charge shall take such form as is prescribed and shall be such that the amount charged does not exceed the amount of the unmatched losses.
(8) Regulations under this section may include provision that the relief—
(a) is subject to a claim being made;
(b) is not available in prescribed circumstances.
(9) Where (apart from this subsection) an exchange gain or loss would be expressed in a currency other than sterling, the amount of the gain or loss shall be treated for the purposes of this section as the sterling equivalent of its amount expressed in the other currency.
(10) The translation required by subsection (9) above shall be made by reference to the London closing exchange rate for the two currencies concerned—
(a) for the last day of the accrual period for which the gain or loss accrues, or
(b) if that accrual period does not end with the end of a day, for the day on which that accrual period ends.
(11) In this section—
(a) references to an exchange gain are to an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain;
(b) references to an exchange loss are to an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss.
(1) Subject to the following provisions of this section, the local currency for the purposes of sections 125 to 127 above is sterling.
(2) Subsections (4) to (6) below apply where—
(a) at any time in an accrual period an asset or contract was held, or a liability was owed, by a qualifying company for the purposes of a trade or trades carried on by it or of part or parts of a trade or trades carried on by it, and
(b) the local currency of any such trade or part for the relevant accounting period is a currency other than sterling.
(3) References in this section to the relevant accounting period are to the accounting period which constitutes the accrual period or in which the accrual period falls.
(4) If throughout the accrual period the asset or contract was held, or the liability was owed, by the company solely for trading purposes and only one local currency is involved, sections 125 to 128 above shall be applied by reference to that currency.
(5) If throughout the accrual period the asset or contract was held, or the liability was owed, by the company solely for trading purposes and more than one local currency is involved, sections 125 to 128 above shall be applied separately by reference to each local currency involved and any exchange gain or loss of a trade or part shall be ignored unless found in the currency which is the local currency of the trade or part for the relevant accounting period.
(6) In any other case—
(a) sections 125 to 128 above shall be applied by reference to sterling and sections 129 to 133 above shall be applied to any non-trading exchange gain or loss;
(b) sections 125 to 128 above shall then be applied separately by reference to each local currency involved (other than sterling);
(c) any exchange gain or loss of a trade or part shall be ignored unless found in the currency which is the local currency of the trade or part for the relevant accounting period (whether sterling or otherwise).
(7) For the purposes of this section a part of a trade is any part of a trade whose basic profits or losses for the relevant accounting period are by virtue of regulations under section 94 above to be computed and expressed in a particular currency for the purposes of corporation tax.
(1) This section has effect to determine the exchange rate to be used in finding for the purposes of this Chapter the local currency equivalent at a translation time of—
(a) the basic valuation of an asset or liability,
(b) the nominal amount of a debt outstanding, or
(c) an amount of currency.
(2) References in this section to the two currencies are to—
(a) the local currency and the nominal currency of the asset or liability concerned (where this section applies by virtue of subsection (1)(a) or (1)(b) above), or
(b) the local currency and the currency mentioned in subsection (1)(c) above (where this section applies by virtue of subsection (1)(c) above).
(3) References in this section to an arm’s length rate are to such exchange rate for the two currencies as might reasonably be expected to be agreed between persons dealing at arm’s length.
(4) Subsections (5) to (7) below apply where the translation time is a translation time solely by virtue of an accounting period of the company coming to an end.
(5) In a case where—
(a) an exchange rate for the two currencies is used (as regards the asset, liability or currency contract concerned) in the accounts of the company for the last day of the accounting period, and
(b) the rate is an arm’s length rate,
that is the exchange rate to be used as regards the asset, liability or contract.
(6) In a case where—
(a) the provision for whose purposes the local currency equivalent falls to be found is section 126 above,
(b) an exchange rate for the two currencies is not used (as regards the currency contract concerned) in the accounts of the company for the last day of the accounting period,
(c) the fact that such an exchange rate is not so used conforms with normal accountancy practice, and
(d) the exchange rate for the two currencies that is implied by the currency contract concerned is an arm’s length rate,
the exchange rate mentioned in paragraph (d) above is the exchange rate to be used as regards the contract.
(7) In a case where neither subsection (5) nor subsection (6) above applies, the London closing exchange rate for the two currencies for the last day of the accounting period is the exchange rate to be used.
(8) Subsections (9) to (14) below apply where the translation time is a translation time otherwise than solely by virtue of an accounting period of the company coming to an end.
(9) In a case where—
(a) an exchange rate for the two currencies is used (as regards the asset, liability or currency contract concerned) in the accounts of the company at the translation time,
(b) the rate represents the average of arm’s length rates for all the days falling within a period, and
(c) the arm’s length rate for any given day (other than the first) falling within the period is not significantly different from the arm’s length rate for the day preceding the given day,
that is the exchange rate to be used as regards the asset, liability or contract.
(10) In a case where—
(a) subsection (9) above does not apply,
(b) an exchange rate for the two currencies is used (as regards the asset, liability or currency contract concerned) in the accounts of the company at the translation time, and
(c) the rate is an arm’s length rate,
that is the exchange rate to be used as regards the asset, liability or contract.
(11) In a case where—
(a) the provision for whose purposes the local currency equivalent falls to be found is section 126 above,
(b) an exchange rate for the two currencies is not used (as regards the currency contract concerned) in the accounts of the company at the translation time,
(c) the fact that such an exchange rate is not so used conforms with normal accountancy practice, and
(d) the exchange rate for the two currencies that is implied by the currency contract concerned is an arm’s length rate,
the exchange rate mentioned in paragraph (d) above is the exchange rate to be used as regards the contract.
(12) In a case where—
(a) none of subsections (9) to (11) above applies,
(b) it is the company’s normal practice, when using an exchange rate in its accounts, to use a rate which represents an average of exchange rates obtaining for a period, and
(c) the London closing exchange rate for the two currencies for any given day (other than the first) falling within the relevant period is not significantly different from the London closing exchange rate for the two currencies for the day preceding the given day,
the rate which represents the average of the London closing exchange rates for the currencies for all the days falling within the relevant period is the exchange rate to be used.
(13) In a case where none of subsections (9) to (12) above applies, the London closing exchange rate for the day in which the translation time falls is the exchange rate to be used.
(14) References in subsection (12) above to the relevant period are to the period which—
(a) begins when the relevant accounting period begins, and
(b) ends at the end of the day in which the translation time falls;
and the relevant accounting period is the accounting period in which the translation time falls.
(1) Subsection (2) below has effect to determine the exchange rate to be used in finding for the purposes of this Chapter the local currency equivalent, at a time immediately after the nominal amount of a debt outstanding increases or decreases, of any amount.
(2) Subsections (9) to (14) of section 150 above (ignoring subsection (11)) shall apply for that purpose, but in so applying them—
(a) references to the translation time shall be construed as references to the time mentioned in subsection (1) above;
(b) references to the two currencies shall be construed as references to the local currency and the settlement currency of the debt.
(1) Subject to the following provisions of this section, any company is a qualifying company.
(2) A company established for charitable purposes only is not a qualifying company.
(3) Where a unit trust scheme is an authorised unit trust as respects an accounting period the trustees (who are deemed to be a company for certain purposes by section 468(1) of the Taxes Act 1988) are not a qualifying company as regards that period.
(4) A company which is approved for the purposes of section 842 of the Taxes Act 1988 (investment trusts) for an accounting period is not a qualifying company as regards that period.
(5) In this section—
“unit trust scheme” has the same meaning as in section 469 of the Taxes Act 1988;
“authorised unit trust” has the same meaning as in section 468 of that Act.
(1) As regards a qualifying company, each of the following is a qualifying asset—
(a) a right to settlement under a qualifying debt (whether or not the debt is a debt on a security);
(b) a unit of currency;
(c) a share held in qualifying circumstances;
but paragraph (a) above shall have effect subject to subsections (3) and (4) below.
(2) As regards a qualifying company, each of the following is a qualifying liability—
(a) a duty to settle under a qualifying debt (whether or not the debt is a debt on a security);
(b) a liability that takes the form of a provision made by the company in respect of a duty to which it may become subject and which (if it were to become subject to it) would be a duty to settle under a qualifying debt;
(c) a duty to transfer a right to settlement under a qualifying debt on a security, where the duty subsists under a contract and the company is not entitled to the right;
(d) a duty to transfer a share or shares, where the duty subsists under a contract and the company is not entitled to the share or shares;
but paragraphs (a) to (d) above shall have effect subject to subsections (5) to (9) below.
(3) A right to settlement under a qualifying debt is not a qualifying asset if it is a right under a currency contract.
(4) A right to settlement under a qualifying debt is not a qualifying asset if the debt is a debt on a security which under the terms of issue can be converted into or exchanged for a share or shares; but the preceding provisions of this subsection do not apply if the security is a deep gain security or the right is held in qualifying circumstances.
(5) A duty to settle under a qualifying debt is not a qualifying liability if it is a duty under a currency contract.
(6) A duty to settle under a qualifying debt is not a qualifying liability if the debt is a debt on a security which under the terms of issue can be converted into or exchanged for a share or shares; but the preceding provisions of this subsection do not apply if the security is a deep gain security.
(7) A liability falling within subsection (2)(b) above is not a qualifying liability unless—
(a) the duty to settle would (if the company were to become subject to it) be owed for the purposes of a trade, and
(b) the provision falls to be taken into account (apart from this Chapter) in computing the profits or losses of the trade for corporation tax purposes.
(8) A duty falling within subsection (2)(c) above is not a qualifying liability unless the right would be a qualifying asset if the company were entitled to it.
(9) A duty falling within subsection (2)(d) above is not a qualifying liability unless the share (or each of the shares) would be a qualifying asset if the company were entitled to it.
(10) For the purposes of this section each of the following is a qualifying debt—
(a) a debt falling to be settled by the payment of money;
(b) a debt falling to be settled by the transfer of a right to settlement under another debt, itself falling to be settled by the payment of money;
and for the purposes of this subsection an ecu shall be regarded as money.
(11) For the purposes of subsections (1)(c) and (4) above qualifying circumstances, in relation to an asset consisting of a share or a right to settlement, are circumstances where the qualifying company carries on a trade and—
(a) if the company were to transfer the asset, the transfer would fall to be taken into account (apart from this Chapter) in computing the profits or losses of the trade for corporation tax purposes, and
(b) if the asset were held by the company at the end of an accounting period, the valuation of the asset to be shown in the company’s accounts for that time would fall to be found by taking the local currency equivalent at that time of the valuation put on the asset by the company (whether at that time or earlier) expressed in the nominal currency of the asset;
and the reference here to the local currency is to the local currency of the trade for the accounting period.
(12) Interest accrued in respect of a debt shall not be treated as part of the debt.
(1) Subject to the following provisions of this section, a company becomes entitled to an asset when it becomes unconditionally entitled to it.
(2) In determining whether or not a company is unconditionally entitled to an asset, any transfer by way of security of the asset or of any interest or right in or over the asset shall be ignored.
(3) Where a company agrees to acquire an asset by transfer it becomes entitled to it when the contract is made and not on a later transfer made pursuant to the contract; but the preceding provisions of this subsection do not apply where the agreement is by way of a currency contract.
(4) Where a company agrees to dispose of an asset by transfer it ceases to be entitled to it when the contract is made and not on a later transfer made pursuant to the contract.
(5) If a contract is conditional (whether on the exercise of an option or otherwise) for the purposes of subsections (3) and (4) above it is made when the condition is satisfied.
(6) Where a company ceases to be entitled to an asset and at a later time becomes entitled to the same asset, with effect from the later time the asset shall be treated as if it were a different asset.
(7) In a case where—
(a) at different times a company becomes entitled to rights to settlement under debts on securities, and
(b) the rights are of the same kind,
the rights shall be treated as different assets and not part of the same asset.
(8) Whether a transaction involves a company becoming entitled to—
(a) one asset consisting of a right to settlement under a debt on a security, or
(b) a number of such assets,
shall be determined according to the facts of the case concerned.
(9) For the purpose of deciding whether rights to settlement under debts on securities of a particular kind are held by a company, rights of that kind acquired earlier shall be treated as disposed of before rights of that kind acquired later; and references here to acquisition and disposal are references to becoming entitled and ceasing to be entitled.
(10) For the purpose of deciding whether shares of a particular kind are held by a company, shares of that kind acquired earlier shall be treated as disposed of before shares of that kind acquired later; and references here to acquisition and disposal are references to becoming entitled and ceasing to be entitled.
(11) In a case where—
(a) a rule is used for the purpose mentioned in subsection (9) or (10) above when the company’s accounts are prepared,
(b) the rule differs from that contained in the subsection, and
(c) the accounts are prepared in accordance with normal accountancy practice,
the rule used when the accounts are prepared (and not the rule in the subsection) shall be used for the purpose.
(12) In a case where—
(a) a company would (apart from this subsection) become entitled to an asset at a particular time (the later time) by virtue of the preceding provisions of this section,
(b) the asset falls within section 153(1)(a) above,
(c) the time at which the company, in drawing up its accounts, regards itself as becoming entitled to the asset is a time (the earlier time) earlier than the later time, and
(d) the accounts are drawn up in accordance with normal accountancy practice,
the company shall be taken to have become entitled to the asset at the earlier time and not at the later time.
(13) Where subsection (12) above applies, as regards any time beginning with the earlier time and ending immediately before the later time the nominal amount of the debt shall be taken to be—
(a) such amount as the company treats as the nominal amount in its accounts, or
(b) such amount as it would so treat in accordance with normal accountancy practice (if that amount is different from the amount found under paragraph (a) above).
(14) A company holds an asset at a particular time if it is entitled to it at that time.
Finance Act 1993