Part I Excise Duties

Alcoholic liquor duties

1 Spirits: rate of duty

(1) In section 5 of the [1979 c. 4.] Alcoholic Liquor Duties Act 1979 (spirits), for “£20.60” there shall be substituted “£19.78”.

(2) This section shall be deemed to have come into force at 6 o'clock in the evening of 28th November 1995.

2 Wine and made-wine: rates

(1) In the Table of rates of duty in Schedule 1 to the Alcoholic Liquor Duties Act 1979 (wine and made-wine)—

(a) in Part I of the Table for “200.64”, where it appears as the rate for wine or made-wine of a strength exceeding 15 per cent. but not exceeding 22 per cent., there shall be substituted “187.24”; and

(b) in Part II of that Table (wine or made-wine of a strength exceeding 22 per cent.), for “20.60” there shall be substituted “19.78”.

(2) Paragraph (a) of subsection (1) above shall be deemed to have come into force on 1st January 1996 and paragraph (b) shall be deemed to have come into force at 6 o'clock in the evening of 28th November 1995.

3 Cider: rate of duty

(1) In subsection (1) of section 62 of the [1979 c. 4.] Alcoholic Liquor Duties Act 1979 (cider), for “rate of £23.78 per hectolitre” there shall be substituted “rates shown in subsection (1A) below.”

(2) After that subsection there shall be inserted the following subsection—

“(1A) The rates at which the duty shall be charged are—

(a) £35.67 per hectolitre in the case of cider of a strength exceeding 7.5 per cent.; and

(b) £23.78 per hectolitre in any other case.”

(3) This section shall come into force on 1st October 1996.

Hydrocarbon oil duties

4 Rates of duty and rebate

(1) In section 6(1) of the [1979 c. 5.] Hydrocarbon Oil Duties Act 1979, for “£0.3614” (duty on light oil) and “£0.3132” (duty on heavy oil) there shall be substituted “£0.3912” and “£0.3430”, respectively.

(2) In section 8(3) of that Act (duty on road fuel gas), for “£0.3314” there shall be substituted “£0.2817”.

(3) In section 11(1) of that Act (rebate on heavy oil), for “£0.0166” (fuel oil) and “£0.0214” (gas oil) there shall be substituted “£0.0181” and “£0.0233”, respectively.

(4) In subsection (1) of section 13A of that Act (rebate on unleaded petrol), for “the rate of £0.0482 a litre” there shall be substituted “the rate specified in subsection (1A) below”; and after that subsection there shall be inserted the following subsections—

“(1A) The rate of rebate shall be—

(a) £0.0150 a litre in the case of higher octane unleaded petrol; and

(b) £0.0482 a litre in any other case.

(1B) For the purposes of this section unleaded petrol is “higher octane” if—

(a) its research octane number is not less than 96 and its motor octane number is not less than 86;

(b) it is delivered for home use as petrol which satisfies the condition set out in paragraph (a) above;

(c) it is delivered for home use as petrol which is suitable to be used as fuel for engines for which leaded petrol is suitable by virtue of being leaded; or

(d) it is delivered for home use under such a description, or in such a manner, as tends, in the circumstances, to suggest that it is—

(i) petrol satisfying the condition set out in paragraph (a) above; or

(ii) petrol suitable to be used as fuel for engines for which leaded petrol is suitable by virtue of being leaded.

(1C) The method of testing unleaded petrol for ascertaining, for the purposes of this section, its research octane number or motor octane number shall be such as the Commissioners may direct.”

(5) In subsection (2) of that section (meaning of “unleaded”), for the words from “or, if” onwards there shall be substituted “; and petrol is “leaded” for the purposes of this section if it is not unleaded.”

(6) In section 14(1) of that Act (rebate on light oil for use as furnace fuel), for “£0.0166” there shall be substituted “£0.0181”.

(7) Subsections (1) to (3) and (6) above shall be deemed to have come into force at 6 o'clock in the evening of 28th November 1995; and subsection (4) above shall come into force on 15th May 1996.

5 Misuse of rebated kerosene

(1) The [1979 c. 5.] Hydrocarbon Oil Duties Act 1979 shall be amended as mentioned in subsections (2) to (5) below.

(2) In section 11(1) (rebate on heavy oil), for “and 13” there shall be substituted “13, 13AA and 13AB”.

(3) In section 12(2) (restriction on use of rebated heavy oil for road vehicles), after “allowed” there shall be inserted “(whether under section 11(1) above or 13AA(1) below)”.

(4) After section 13 there shall be inserted the following sections—

“13AA Restrictions on use of rebated kerosene

(1) If, on the delivery of kerosene for home use, it is intended to use the kerosene as fuel for—

(a) an engine provided for propelling an excepted vehicle, or

(b) an engine which is used neither for propelling a vehicle nor for heating,

a declaration shall be made to that effect and thereupon rebate shall be allowed at the rate for rebated gas oil which is then in force, instead of at the rate then in force under section 11(1)(c) above.

(2) Subject to subsection (3) below, no kerosene on whose delivery for home use a rebate at the rate given by section 11(1)(c) above has been allowed shall—

(a) be used as fuel for an engine provided for propelling an excepted vehicle;

(b) be used as fuel for an engine which is used neither for propelling a vehicle nor for heating; or

(c) be taken into the fuel supply of an engine falling within paragraph (a) or (b) above.

(3) Subsection (2) above does not apply to any quantity of kerosene in respect of which there has been paid to the Commissioners an amount equal to duty on the same quantity of gas oil at the rate for rebated gas oil which is in force at the time of the payment.

(4) A payment under subsection (3) above shall be made in accordance with regulations made under section 24(1) below for the purposes of this section.

(5) For the purposes of this section and section 13AB below—

• “excepted vehicle” means a vehicle which is an excepted vehicle under any provision of Schedule 1 to this Act; and

• “kerosene” means heavy oil of which more than 50 per cent. by volume distils at a temperature of 240°C or less.

(6) For the purposes of this section and section 13AB below the rate for rebated gas oil which is in force at any time is the rate of duty which at that time is in force under section 6(1) above in the case of heavy oil as reduced by the rate of rebate allowable at that time under section 11(1)(b) above.

13AB Penalties for misuse of kerosene

(1) If a person uses kerosene in contravention of section 13AA(2) above—

(a) the Commissioners may recover from him, in respect of the quantity of kerosene used, an amount equal to duty on the same quantity of gas oil at the rate for rebated gas oil which is in force at the time of the contravention;

(b) his use of the kerosene shall attract a penalty under section 9 of the [1994 c. 9.] Finance Act 1994 (civil penalties); and

(c) if he uses the kerosene with the relevant intent, he shall be guilty of an offence.

(2) If a person is liable for kerosene being taken into a fuel supply of an engine in contravention of section 13AA(2) above—

(a) the Commissioners may recover from him, in respect of the quantity of kerosene taken into the fuel supply, an amount equal to duty on the same quantity of gas oil at the rate for rebated gas oil which is in force at the time of the contravention;

(b) his becoming so liable shall attract a penalty under section 9 of the Finance Act 1994 (civil penalties); and

(c) if he has the relevant intent in relation to the kerosene being taken into the fuel supply, he shall be guilty of an offence.

(3) For the purposes of subsection (2) above, a person is liable for kerosene being taken into a fuel supply of an engine if at the time—

(a) he has the charge of the engine; or

(b) subject to subsection (4) below, he is the owner of the engine.

(4) If a person other than the owner is for the time being entitled to possession of the engine, that other person and not the owner is liable.

(5) If—

(a) a person supplies kerosene having reason to believe that it will be put to a particular use, and

(b) that use is one which, if a payment is not made under subsection (3) of section 13AA above, will contravene subsection (2) of that section,

his supplying the kerosene shall attract a penalty under section 9 of the [1994 c. 9.] Finance Act 1994 (civil penalties) and, if he makes the supply with the relevant intent, he shall be guilty of an offence.

(6) In this section “the relevant intent” means the intent that the restrictions imposed by section 13AA(2) above shall be contravened.

(7) A person guilty of an offence under this section shall be liable—

(a) on summary conviction, to a penalty of the statutory maximum, or to imprisonment for a term not exceeding 6 months, or to both;

(b) on conviction on indictment, to a penalty of any amount, or to a term of imprisonment not exceeding 7 years, or to both.

(8) Any kerosene falling within subsection (9) or (10) below is liable to forfeiture.

(9) Kerosene falls within this subsection if it is taken into a fuel supply in contravention of section 13AA(2) above.

(10) Kerosene falls within this subsection if—

(a) it has been supplied in circumstances in which there is reason to believe that it will be put to a particular use; and

(b) that use is one which, if payment is not made under subsection (3) of section 13AA above, will contravene subsection (2) of that section.”

(5) In section 24 (control of use of duty-free and rebated oil)—

(a) in subsection (1), after “section 13A” there shall be inserted “section 13AA”; and

(b) in subsection (2), after “section 12” there shall be inserted “or section 13AA”.

(6) This section shall have effect in relation to cases where kerosene is—

(a) used as fuel, or

(b) taken into a fuel supply,

on or after such day as the Commissioners of Customs and Excise may by order made by statutory instrument appoint.

6 Mixing of rebated oil

(1) The [1979 c. 5.] Hydrocarbon Oil Duties Act 1979 shall be amended as mentioned in subsections (2) to (4) below.

(2) In section 20 (contaminated or accidentally mixed oil), after subsection (3) there shall be inserted the following subsection—

“(4) The power to make a payment to a person under subsection (2) above in relation to oils that have become accidentally mixed does not apply in relation to a mixture in respect of which he is liable to pay duty under section 20AAA below.”

(3) After section 20A there shall be inserted the following sections—

“20AAA Mixing of rebated oil

(1) Where—

(a) a mixture which is leaded or unleaded petrol is produced in contravention of Part I of Schedule 2A to this Act, and

(b) the mixture is not produced as a result of approved mixing,

a duty of excise shall be charged on the mixture.

(2) Where—

(a) a mixture of heavy oils is produced in contravention of Part II of Schedule 2A to this Act,

(b) the mixture is not produced as a result of approved mixing, and

(c) the mixture is supplied for use as fuel for a road vehicle or an excepted vehicle,

a duty of excise shall be charged on the mixture.

(3) The person liable to pay the duty charged under subsection (1) above is the person producing the mixture.

(4) The person liable to pay the duty charged under subsection (2) above is the person supplying the mixture.

(5) The Commissioners may exempt a person from liability to pay duty charged under this section in respect of the production or supply of a mixture if they are satisfied—

(a) that the mixture has been produced or (as the case may be) supplied accidentally; and

(b) that, having regard to all the circumstances, the person should be exempted from liability to pay the duty.

(6) Part III of Schedule 2A to this Act makes provision with respect to rates and amounts of duty charged under this section.

(7) In this section—

• “approved mixing” has the meaning given by section 20A(5) above; and

• “excepted vehicle” means a vehicle which is an excepted vehicle under any provision of Schedule 1 to this Act.

20AAB Mixing of rebated oil: supplementary

(1) A person who—

(a) produces a mixture on which duty is charged under section 20AAA(1) above, or

(b) supplies a mixture on which duty is charged under section 20AAA(2) above,

must notify the Commissioners that he has done so within the period of seven days beginning with the date on which he produced or (as the case may be) supplied the mixture.

(2) A person is not required to give a notification under subsection (1) above if, before he produced or (as the case may be) supplied the mixture, he notified the Commissioners that he proposed to do so.

(3) Notification under subsection (1) or (2) above must be given in such form and in such manner, and must contain such particulars, as the Commissioners may direct.

(4) Subject to subsection (7) below, where it appears to the Commissioners—

(a) that a person has produced or supplied a mixture on which duty is charged under section 20AAA above, and

(b) that he is the person liable to pay the duty,

they may assess the amount of duty due from him to the best of their judgement and notify that amount to him or his representative.

(5) An assessment under subsection (4) above shall be treated as if it were an assessment under section 12(1) of the [1994 c. 9.] Finance Act 1994.

(6) The Commissioners may give a direction that a person who is, or expects to be, liable to pay duty charged under section 20AAA above—

(a) shall account for duty charged under that section by reference to such periods (“accounting periods”) as may be determined by or under the direction;

(b) shall make, in relation to accounting periods, returns in such form and at such times and containing such particulars as may be so determined;

(c) shall pay duty charged under that section at such times and in such manner as may be so determined.

(7) The power to make an assessment under subsection (4) above does not apply in relation to a person who is for the time being subject to a direction under subsection (6) above.

(8) Where any person—

(a) fails to give a notification which he is required to give under subsection (1) above, or

(b) fails to comply with a direction under subsection (6) above,

his failure shall attract a penalty under section 9 of the [1994 c. 9.] Finance Act 1994 (civil penalties).”

(4) After Schedule 2 there shall be inserted the Schedule set out in Schedule 1 to this Act.

(5) This section and Schedule 1 to this Act shall have effect in relation to—

(a) the production on or after the appointed day of a mixture which is leaded or unleaded petrol; and

(b) the supply on or after the appointed day of a mixture of heavy oils;

and “the appointed day” here means such day as the Commissioners of Customs and Excise may by order made by statutory instrument appoint.

7 Marked oil used as fuel for road vehicles

(1) After section 24 of the [1979 c. 5.] Hydrocarbon Oil Duties Act 1979 (control of use of duty free and rebated oil) there shall be inserted the following section—

“24A Penalties for misuse of marked oil

(1) Marked oil shall not be used as fuel for a road vehicle.

(2) For the purposes of this section marked oil is any hydrocarbon oil in which a marker is present which is for the time being designated by regulations made by the Commissioners under subsection (3) below.

(3) The Commissioners may for the purposes of this section designate any marker which appears to them to be used for the purposes of the law of any place (whether within or outside the United Kingdom) for identifying hydrocarbon oil that is not to be used as fuel for road vehicles, or for road vehicles of a particular description.

(4) For the purposes of this section marked oil shall be taken to be used as fuel for a road vehicle if, but only if, it is used as fuel for the engine provided for propelling the vehicle or for an engine which draws its fuel from the same supply as that engine.

(5) Where a person uses any hydrocarbon oil in contravention of subsection (1) above, his use of the oil shall attract a penalty under section 9 of the Finance Act 1994 (civil penalties).

(6) If a person who uses any marked oil in contravention of subsection (1) above does so in the knowledge that the oil he is using is marked oil, he shall be guilty of an offence and liable—

(a) on summary conviction, to a penalty of the statutory maximum, or to imprisonment for a term not exceeding 6 months, or to both;

(b) on conviction on indictment, to a penalty of any amount, or to a term of imprisonment not exceeding 7 years, or to both.

(7) Any marked oil which is in a road vehicle as part of the fuel supply for the engine which propels the vehicle shall be liable to forfeiture.

(8) Where in any proceedings relating to this section a question arises as to the nature of any substance present at any time in any hydrocarbon oil—

(a) a certificate of the Commissioners to the effect that that substance is or was a marker designated for the purposes of this section shall be sufficient, unless the contrary is shown, for establishing that fact; and

(b) any document purporting to be such a certificate shall be taken to be one unless it is shown not to be.”

(2) In section 24(1) of that Act (purposes for which regulations may be made), for “or section 19A above” there shall be inserted “, section 19A or section 24A of this Act”.

8 Relief for marine voyages

(1) The following provisions of the [1979 c. 5.] Hydrocarbon Oil Duties Act 1979 are hereby repealed—

(a) section 18 (fuel for ships in home waters), and

(b) in subsection (1) of section 19 (fuel used in fishing boats, etc.), paragraph (a) and the words from “by the owner” to “be”.

(2) This section shall come into force on such day as the Commissioners of Customs and Excise may by order made by statutory instrument appoint.

Tobacco products duty

9 Rates of duty

(1) For the Table of rates of duty in Schedule 1 to the [1979 c. 7.] Tobacco Products Duty Act 1979 there shall be substituted—

(2) This section shall be deemed to have come into force at 6 o'clock in the evening of 28th November 1995.

Betting duties: rates

10 General betting duty

(1) In section 1(2) of the [1981 c. 63.] Betting and Gaming Duties Act 1981 (rate of general betting duty), for “7.75 per cent.” there shall be substituted “6.75 per cent.”

(2) This section shall apply in relation to bets made on or after 1st March 1996.

11 Pool betting duty

In section 7(1) of the [1981 c. 63.] Betting and Gaming Duties Act 1981 (rate of pool betting duty), for “32.50 per cent” there shall be substituted—

(a) in relation to bets the stake money on which has been or is paid on or after 3rd December 1995 and before the first Sunday to follow the day on which this Act is passed, “27.50 per cent.”; and

(b) in relation to bets the stake money on which is paid on or after that first Sunday, “26.50 per cent.”

Amusement machine licence duty

12 Licences for machines as well as premises

(1) In subsection (1) of section 21 of the [1981 c. 63.] Betting and Gaming Duties Act 1981 (requirement for amusement machine licence with respect to premises), at the end there shall be inserted “or the machine”.

(2) In subsection (2) of that section (licences to be known as amusement machine licences), at the end there shall be inserted “and, if it is granted with respect to a machine, rather than with respect to premises, as a special amusement machine licence.”

(3) After subsection (3) of that section there shall be inserted the following subsections—

“(3AA) A special amusement machine licence shall not be granted except where—

(a) the machine with respect to which it is granted is of a description of machine for which special amusement machine licences are available;

(b) such conditions as may be prescribed by regulations made by the Commissioners are satisfied in relation to the application for the licence, the machine and the person by whom the application is made; and

(c) the licence is for twelve months.

(3AB) Special amusement machine licences shall be available for amusement machines of each of the following descriptions—

(a) machines that are not gaming machines; and

(b) small prize machines.”

(4) In section 24(4) of that Act (provision of unlicensed machines), at the end there shall be inserted “or the machines”.

(5) In paragraph 4 of Schedule 4 to that Act (seasonal licences), after sub-paragraph (7) there shall be inserted the following sub-paragraph—

“(7AA) Sub-paragraphs (4) and (5) above shall have effect where—

(a) an amusement machine is provided on any premises at any time in a winter period, and

(b) the provision of that machine on those premises at that time is authorised by a special amusement machine licence,

as if an amusement machine licence had been granted in respect of those premises for that winter period.”

(6) Paragraph 5 of that Schedule shall become sub-paragraph (1) of that paragraph, and after that sub-paragraph there shall be inserted the following sub-paragraphs—

“(2) Regulations may provide for this Schedule to have effect in relation to special amusement machine licences with such exceptions, adaptations and modifications as may be prescribed.

(3) Without prejudice to the generality of sub-paragraphs (1) and (2) above, regulations may include provision requiring—

(a) a special amusement machine licence to be displayed on such premises and in such manner, and

(b) the machine to which such a licence relates to bear such labels and marks,

as may be determined by directions given, in accordance with the regulations, by the Commissioners.”

Air passenger duty

13 Pleasure flights

(1) In section 31 of the [1994 c. 9.] Finance Act 1994 (air passenger duty: exceptions for certain passengers) after subsection (4) there shall be inserted—

“(4A) A passenger is not a chargeable passenger in relation to a flight if under his agreement for carriage (whether or not it is evidenced by a ticket)—

(a) the flight is to depart from and return to the same airport, and

(b) the duration of the flight (excluding any period during which the aircraft’s doors are open for boarding or disembarkation) is not to exceed 60 minutes.”

(2) In section 32 of that Act (change of circumstances after ticket issued etc.)—

(a) in subsection (1) (which provides that that section applies where a person’s agreement for carriage is evidenced by a ticket) for the words “This section applies” there shall be substituted the words “Subsections (2) and (3) below apply”;

(b) after subsection (3) there shall be added—

“(4) Where—

(a) at the time a passenger’s flight begins, by virtue of section 31(4A) above he would not (assuming there is no change of circumstances) be a chargeable passenger in relation to the flight, and

(b) by reason only of a change of circumstances not attributable to any act or default of his, the flight does not return to the airport from which it departed or exceeds 60 minutes in duration (excluding any period during which the aircraft’s doors are open for boarding or disembarkation),

he shall not by reason of the change of circumstances be treated as a chargeable passenger in relation to that flight.”

Vehicle excise duty

14 Increase in general rate

(1) In Schedule 1 to the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (annual rates of duty), in paragraph 1(2) (the general rate), for “£135” there shall be substituted “£140”.

(2) Subsection (1) above applies in relation to licences taken out after 28th November 1995.

15 Electrically propelled vehicles

(1) In Schedule 1 to the Vehicle Excise and Registration Act 1994 (annual rates of duty), in paragraph 2(1)(a) (rate for motorcycles with low cylinder capacity), after “150 cubic centimetres” there shall be inserted “or the motorcycle is an electrically propelled vehicle”.

(2) In paragraph 4F of that Schedule (electrically propelled vehicles are special concessionary vehicles)—

(a) in sub-paragraph (1), after “electrically propelled vehicle” there shall be inserted “other than a motorcycle (within the meaning of Part II of this Schedule)”; and

(b) sub-paragraph (2) shall be omitted.

(3) In section 62 of that Act (definitions), after subsection (1) there shall be inserted the following subsection—

“(1A) For the purposes of this Act, a vehicle is not an electrically propelled vehicle unless the electrical motive power is derived from—

(a) a source external to the vehicle, or

(b) an electrical storage battery which is not connected to any source of power when the vehicle is in motion.”

(4) Subsections (1) to (3) above apply in relation to licences taken out after 28th November 1995.

(5) In Schedule 2 to that Act (exemptions), after paragraph 2 there shall be inserted the following paragraph—

“Electrically assisted pedal cycles

2A (1) An electrically assisted pedal cycle is an exempt vehicle.

(2) For the purposes of sub-paragraph (1) an electrically assisted pedal cycle is a vehicle of a class complying with such requirements as may be prescribed by regulations made by the Secretary of State for the purposes of this paragraph.”

16 Steam powered vehicles etc

(1) In Schedule 1 to the Vehicle Excise and Registration Act 1994 (annual rates of duty), after paragraph 4E there shall be inserted the following paragraph—

“4EE A steam powered vehicle is a special concessionary vehicle.”

(2) In paragraph 3 of that Schedule (buses), in sub-paragraph (2)(b) (vehicles which are not buses), after “excepted vehicle” there shall be inserted “or a special concessionary vehicle”.

(3) In paragraph 4(2) of that Schedule (meaning of “special vehicle”), for “and is” there shall be substituted “which is not a special concessionary vehicle and which is”.

(4) In paragraph 5 of that Schedule (recovery vehicles), after sub-paragraph (5) there shall be inserted the following sub-paragraph—

“(5A) A vehicle is not a recovery vehicle if it is a special concessionary vehicle.”

(5) In paragraph 6(1) of that Schedule (vehicles used for exceptional loads), after paragraph (b) there shall be inserted—

“and which is not a special concessionary vehicle.”

(6) In paragraph 7(2) of that Schedule (meaning of “haulage vehicle”), after “Part IV,” there shall be inserted “IVA,”.

(7) In paragraph 16 of that Schedule (application of Part VIII of the Schedule), in sub-paragraph (1)(a), after “Part II, IV,” there shall be inserted “IVA,”.

(8) This section applies in relation to licences taken out after 28th November 1995.

17 Vehicles capable of conveying loads

(1) Schedule 1 to the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (annual rates of duty) shall be amended in accordance with subsections (2) to (8) below.

(2) In paragraph 4(2) (meaning of “special vehicle”), immediately before paragraph (c) there shall be inserted the following paragraph—

“(bb) a vehicle falling within sub-paragraph (2A) or (2B),”.

(3) After sub-paragraph (2) of paragraph 4 there shall be inserted the following sub-paragraphs—

“(2A) A vehicle falls within this sub-paragraph if—

(a) it is designed or adapted for use for the conveyance of goods or burden of any description; but

(b) it is not so used or is not so used for hire or reward or for or in connection with a trade or business.

(2B) A vehicle falls within this sub-paragraph if—

(a) it is designed or adapted for use with a semi-trailer attached; but

(b) it is not so used or, if it is so used, the semi-trailer is not used for the conveyance of goods or burden of any description.”

(4) In paragraph 9(2) (rigid goods vehicles which are subject to basic goods vehicle rate), after paragraph (b) there shall be inserted “and

(c) to any rigid goods vehicle which is used loaded only in connection with a person learning to drive the vehicle or taking a driving test,”.

(5) In paragraph 10(1) (trailer supplement), after “exceeding 12,000 kilograms” there shall be inserted “, which does not fall within paragraph 9(2)(b) or (c)”.

(6) In paragraph 11(2) (tractive units which are subject to basic goods vehicle rate), after paragraph (b) there shall be inserted “and

(c) to any tractive unit to which a semi-trailer is attached which is used loaded only in connection with a person learning to drive the tractive unit or taking a driving test,”.

(7) In paragraph 16(1) (cases where Part VIII of Schedule 1 does not apply), paragraph (b), and the word “or” immediately preceding it, shall be omitted.

(8) After paragraph 18 there shall be inserted the following paragraph—

“Other expressions

19 (1) In this Part “driving test” means any test of competence to drive mentioned in section 89(1) of the [1988 c. 52.] Road Traffic Act 1988.

(2) For the purposes of this Part a vehicle or a semi-trailer is used loaded if the vehicle or, as the case may be, the semi-trailer is used for the conveyance of goods or burden of any description.”

(9) In section 7 of the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (issue of licences), in subsection (2) (declarations and particulars in relation to goods vehicles)—

(a) after “goods vehicle” there shall be inserted “or a special vehicle”; and

(b) after “goods vehicles” there shall be inserted “or, as the case may be, special vehicles”.

(10) After subsection (7) of that section there shall be inserted the following subsection—

“(8) In this section “special vehicle” has the same meaning as in paragraph 4 of Schedule 1.”

(11) Subject to subsection (13) below, subsections (1) to (8) above apply in relation to licences taken out after 28th November 1995.

(12) Subsection (13) below applies where a vehicle licence is taken out—

(a) on or before 28th November 1995, and

(b) at the rate applicable (at the time it is taken out) under Schedule 1 to the Vehicle Excise and Registration Act 1994.

(13) While the licence is in force duty shall not, by virtue of this section, become chargeable under section 15 of that Act (vehicle used in manner attracting higher rate).

(14) Subsections (9) and (10) above apply in relation to applications made after 28th November 1995.

(15) Paragraph 15 of Schedule 1 to that Act (which is unnecessary) shall be omitted.

18 Old vehicles

(1) In Schedule 2 to the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (exempt vehicles), immediately before paragraph 2 there shall be inserted the following paragraph—

“Old vehicles

1A (1) A vehicle of a description mentioned in sub-paragraph (2) is an exempt vehicle at any time if it was constructed more than 25 years before the beginning of the year in which that time falls.

(2) The descriptions of vehicles are—

(a) a vehicle in respect of which no annual rate is specified by any provision of Parts II to VIII of Schedule 1;

(b) a motorcycle which does not exceed 450 kilograms in weight unladen.

(3) In sub-paragraph (2)(b) “motorcycle” has the same meaning as in Part II of Schedule 1.”

(2) In Schedule 1 to that Act (annual rates of duty), in paragraph 1 (rate for vehicle for which no other rate is specified)—

(a) for paragraphs (a) and (b) of sub-paragraph (1) there shall be substituted “the general rate”; and

(b) sub-paragraphs (3) to (5) shall be omitted;

and, in paragraph 2 (motorcycles), sub-paragraph (2) shall be omitted.

(3) In section 2(4) of that Act (rate of duty for vehicle not currently in use and for which no previous licence issued), for the words from “whichever” to the end there shall be substituted “the general rate currently specified in paragraph 1(2) of Schedule 1”.

(4) In that Act—

(a) in section 13 (trade licences), in subsection (3)(b),

(b) in section 13 as substituted under paragraph 8 of Schedule 4, in subsection (4)(b), and

(c) in section 36(3)(b) (additional liability where cheque dishonoured),

for “1(1)(a)” there shall be substituted “1”.

(5) This section has effect in relation to times after 28th November 1995.

19 Old vehicles: further provisions

(1) In Schedule 2 to the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (exempt vehicles), for paragraph 1A (inserted by section 18 above) there shall be substituted the following paragraph—

“Old vehicles

1A (1) Subject to sub-paragraph (2), a vehicle is an exempt vehicle at any time if it was constructed more than 25 years before the beginning of the year in which that time falls.

(2) A vehicle is not an exempt vehicle by virtue of sub-paragraph (1) if—

(a) an annual rate is specified in respect of it by any provision of Part III, V, VI, VII or VIII of Schedule 1; or

(b) it is a special vehicle, within the meaning of Part IV of Schedule 1, which—

(i) falls within sub-paragraph (3) or (4); and

(ii) is not a digging machine, mobile crane, works truck or road roller.

(3) A vehicle falls within this sub-paragraph if—

(a) it is designed or adapted for use for the conveyance of goods or burden of any description;

(b) it is put to a commercial use on a public road; and

(c) that use is not a use for the conveyance of goods or burden of any description.

(4) A vehicle falls within this sub-paragraph if—

(a) it is designed or adapted for use with a semi-trailer attached;

(b) it is put to a commercial use on a public road; and

(c) in a case where that use is a use with a semi-trailer attached, the semi-trailer is not used for the conveyance of goods or burden of any description.

(5) In sub-paragraph (2) “digging machine”, “mobile crane” and “works truck” have the same meanings as in paragraph 4 of Schedule 1.

(6) In sub-paragraphs (3) and (4) “commercial use” means use for hire or reward or for or in connection with a trade or business.”

(2) This section has effect in relation to times on or after 1st June 1996.

20 Exemptions for vehicle testing: general

(1) Paragraph 22 of Schedule 2 to the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (exemption for vehicle testing) shall be amended as follows.

(2) In sub-paragraph (1) (use for the purposes of submitting a vehicle to, or bringing it away from, a compulsory test), after the words “compulsory test”, in each place where they occur, there shall be inserted “or a vehicle weight test”.

(3) After sub-paragraph (1) there shall be inserted the following sub-paragraph—

“(1A) A vehicle is an exempt vehicle when it is being used solely for the purpose of—

(a) taking it (by previous arrangement for a specified time on a specified date) for a relevant re-examination, or

(b) bringing it away from such a re-examination.”

(4) In sub-paragraph (2) (use by an authorised person in the course of compulsory test)—

(a) after “compulsory test” there shall be inserted “, a vehicle weight test or a relevant re-examination and is being so used”; and

(b) in paragraphs (a) and (b), after the words “the test”, in each place where they occur, there shall be inserted “or re-examination”.

(5) After sub-paragraph (2) there shall be inserted the following sub-paragraph—

“(2A) A vehicle is an exempt vehicle when it is being used by an authorised person solely for the purpose of warming up its engine in preparation for the carrying out of—

(a) a compulsory test, or

(b) a relevant re-examination that is to be carried out for the purposes of an appeal relating to a determination made on a compulsory test.”

(6) In sub-paragraph (3) (exemption applying where the relevant certificate is refused), after “a vehicle” there shall be inserted “or as a result of a relevant re-examination,”.

(7) In sub-paragraph (5) (relevant examinations)—

(a) for paragraph (a), there shall be substituted the following paragraph—

“(a) an examination under regulations under section 49(1)(b) or (c) of the [1988 c. 52.] Road Traffic Act 1988 (examination as to compliance with construction and use or safety requirements)”;

(b) the word “and” shall be inserted at the end of paragraph (b); and

(c) paragraph (c) (examinations for the purpose of an appeal under section 60 of the Road Traffic Act 1988) shall be omitted.

(8) After sub-paragraph (6) there shall be inserted the following sub-paragraphs—

“(6A) In this paragraph “a vehicle weight test” means any examination of a vehicle for which provision is made by regulations under—

(a) section 61A of this Act,

(b) section 49(1)(a) of the Road Traffic Act 1988 (tests for selecting plated weights and other plated particulars), or

(c) Article 65(1)(a) of the [S.I. 1995/2994 (N.I. 18).] Road Traffic (Northern Ireland) Order 1995.

(6B) In this paragraph “a relevant re-examination” means any examination or re-examination which is carried out in accordance with any provision or requirement made or imposed for the purposes of an appeal relating to a determination made on a compulsory test or vehicle weight test.”

(9) Subject to section 21(3) below, in sub-paragraph (7) (meaning of “authorised person”)—

(a) the word “and” at the end of paragraph (b) shall be omitted;

(b) at the end of paragraph (c) there shall be inserted the word “and”; and

(c) after that paragraph there shall be inserted the following paragraph—

“(d) in the case of a relevant re-examination—

(i) the person to whom the appeal in question is made, or

(ii) any person who, by virtue of an appointment made by that person, is authorised by or under any enactment to carry out that re-examination.”

(10) This section shall be deemed to have come into force on 28th November 1995.

21 Exemptions for vehicle testing in Northern Ireland

(1) Paragraph 22 of Schedule 2 to the [1994 c. 22.] Vehicle Excise and Registration Act 1994 (exemption for vehicle testing) shall be further amended as follows.

(2) For sub-paragraph (6) (meaning of “compulsory test” in Northern Ireland) there shall be substituted the following sub-paragraph—

“(6) In this paragraph “compulsory test” means, as respects Northern Ireland—

(a) an examination to obtain a test certificate under Article 61 of the [S.I. 1995/2994 (N.I. 18).] Road Traffic (Northern Ireland) Order 1995 without which a vehicle licence cannot be obtained for the vehicle,

(b) an examination to obtain a goods vehicle test certificate under Article 65 of that Order, or

(c) an examination to obtain a public service vehicle licence under Article 60(1) of the [S.I. 1981/154 (N.I. 1).] Road Traffic (Northern Ireland) Order 1981.”

(3) For paragraph (c) of sub-paragraph (7) (as amended by section 20(9) above) there shall be substituted the following paragraph—

“(c) in the case of an examination within sub-paragraph (6), an authorised examiner within the meaning of Article 61(3)(a) of the Road Traffic (Northern Ireland) Order 1995 or a vehicle examiner within the meaning of Part III of that Order; and”.

(4) In sub-paragraph (9) (meaning of “relevant certificate” in Northern Ireland), for paragraphs (a) and (b) there shall be substituted the following paragraphs—

“(a) a test certificate (within the meaning of Article 61(2) of the Road Traffic (Northern Ireland) Order 1995),

(b) a goods vehicle test certificate (within the meaning of Article 65(2) of that Order), or”.

(5) In sub-paragraph (10)(a) (meaning of “relevant work”), the words “(or, in Northern Ireland, a vehicle test certificate)” shall be omitted.

(6) This section shall be deemed to have come into force on the date of the coming into operation of Articles 61 and 65 of the Road Traffic (Northern Ireland) Order 1995 (“the operational date”).

(7) Subsections (2), (4) and (5) above do not have effect in relation to a compulsory test carried out in Northern Ireland before the operational date except for the purpose of construing, in relation to such a test, the reference to a further compulsory test in paragraph 22(10)(a) of Schedule 2 to the Vehicle Excise and Registration Act 1994.

22 Other provisions relating to Northern Ireland

(1) In section 42 of the Vehicle Excise and Registration Act 1994 (not fixing registration mark), in subsection (5)(b), for “Article 34 of the Road Traffic (Northern Ireland) Order 1981” there shall be substituted “Article 63 of the Road Traffic (Northern Ireland) Order 1995”.

(2) In subsection (6) of that section, for paragraph (b) there shall be substituted—

“(b) it is being driven for the purposes of, or in connection with, its examination under Article 61 of the [S.I. 1995/2994 (N.I. 18).] Road Traffic (Northern Ireland) Order 1995 in circumstances in which its use is exempted from paragraph (1) of Article 63 of that Order by regulations under paragraph (6) of that Article.”

(3) In section 60A(11) of that Act (special maximum weight in Northern Ireland), for “Article 29(3) of the [S.I. 1981/154 (N.I. 1).] Road Traffic (Northern Ireland) Order 1981” there shall be substituted “Article 60(1) of the Road Traffic (Northern Ireland) Order 1995”.

(4) In section 61(6) of that Act (meaning of “weight unladen”), for paragraph (b) there shall be substituted—

“(b) in Northern Ireland, has the same meaning as it has for the purposes of the Road Traffic (Northern Ireland) Order 1995 by virtue of Article 7 of that Order.”

(5) In paragraph 6 of Schedule 1 to that Act (vehicles used for exceptional loads), in sub-paragraph (2) for paragraph (b) there shall be substituted—

“(b) Article 60 of the Road Traffic (Northern Ireland) Order 1995,”.

(6) In that paragraph—

(a) in sub-paragraph (3)(a), for “Article 28 of the Road Traffic (Northern Ireland) Order 1981” there shall be substituted “Article 55 of the Road Traffic (Northern Ireland) Order 1995”; and

(b) in sub-paragraph (4), for “the Road Traffic (Northern Ireland) Order 1981” there shall be substituted “the Road Traffic (Northern Ireland) Order 1995”.

(7) In paragraph 17 of Schedule 3 to that Act (amendments of the Road Traffic (Northern Ireland) Order 1981)—

(a) in sub-paragraph (1), “29(2),” and “34(6),” shall be omitted, and

(b) sub-paragraph (2) shall be omitted.

23 Licensing and registration

Schedule 2 to this Act (which makes provision in connection with powers conferred on the Secretary of State by the [1994 c. 22.] Vehicle Excise and Registration Act 1994) shall have effect.

Repeal of certain drawbacks and allowances

24 Repeal of certain drawbacks and allowances

The following provisions (which provide for repayments, drawbacks or allowances in the case of certain excise duties) shall cease to have effect, that is to say—

(a) section 3 of the [1977 c. 36.] Finance Act 1977 (repayment in respect of tobacco used in the manufacture of a tobacco product after having borne duty under section 4 of the [1964 c. 49.] Finance Act 1964);

(b) section 22(6) of the [1979 c. 4.] Alcoholic Liquor Duties Act 1979 (additions in respect of waste which are deemed to be made to tinctures exported or shipped as stores);

(c) section 23 of that Act of 1979 (allowances in respect of British compounded spirits);

(d) section 92(6) of that Act of 1979 (transitional right to drawback); and

(e) section 9(2) and (3) of the [1979 c. 58.] Isle of Man Act 1979 (removal to the Isle of Man treated as export for the purposes of drawback).

Part II Value Added Tax

EC Second VAT Simplification Directive

25 EC Second VAT Simplification Directive

Sections 26 to 29 of and Schedule 3 to this Act are for the purpose of giving effect to requirements of the directive of the Council of the European Communities dated 17th May 1977 No.77/388/EEC and the amendments of that directive by the directive of that Council dated 10th April 1995 No.95/7/EC (amendments with a view to introducing new simplification measures with regard to value added tax).

26 Fiscal and other warehousing

(1) The provisions of Schedule 3 to this Act shall have effect.

(2) Subject to subsection (3) below, this section and Schedule 3 to this Act shall come into force on such day as the Commissioners of Customs and Excise may by order made by statutory instrument appoint, and shall apply to any acquisition of goods from another member State and any supply taking place on or after that day.

(3) In so far as the provisions inserted by Schedule 3 to this Act confer power to make regulations they shall come into force on the day this Act is passed.

27 Value of imported goods

(1) Section 21 of the [1994 c. 23.] Value Added Tax Act 1994 (value of imported goods) shall be amended as follows.

(2) In subsection (2) of that section at the end of paragraph (a) the word “and” shall be omitted.

(3) For paragraph (b) of that subsection there shall be substituted—

“(b) all incidental expenses, such as commission, packing, transport and insurance costs, up to the goods' first destination in the United Kingdom; and

(c) if at the time of the importation of the goods from a place outside the member States a further destination for the goods is known, and that destination is within the United Kingdom or another member State, all such incidental expenses in so far as they result from the transport of the goods to that other destination;

and in this subsection “the goods' first destination” means the place mentioned on the consignment note or any other document by means of which the goods are imported into the United Kingdom, or in the absence of such documentation it means the place of the first transfer of cargo in the United Kingdom.”

(4) This section shall have effect in relation to goods imported on or after 1st January 1996.

28 Adaptation of aircraft and hovercraft

(1) Section 22 of the [1994 c. 23.] Value Added Tax Act 1994 shall be omitted.

(2) This section shall apply to supplies made on or after 1st January 1996.

29 Work on materials

(1) The Value Added Tax Act 1994 shall be amended as follows.

(2) After subsection (2) of section 30 there shall be inserted the following subsection—

“(2A) A supply by a person of services which consist of applying a treatment or process to another person’s goods is zero-rated by virtue of this subsection if by doing so he produces goods, and either—

(a) those goods are of a description for the time being specified in Schedule 8; or

(b) a supply by him of those goods to the person to whom he supplies the services would be of a description so specified.”

(3) In subsection (5) of section 55 (supplies of gold), after paragraph (b) there shall be inserted the following— “; or

(c) any supply of services consisting in the application to another person’s goods of a treatment or process which produces goods a supply of which would fall within paragraph (a) above.”;

and the word “or” at the end of paragraph (a) shall be omitted.

(4) Paragraph 2 of Schedule 4 (which provides that the treatment or processing of another person’s goods shall in certain circumstances be a supply of goods) shall be omitted.

(5) This section shall apply to supplies made on or after 1st January 1996.

Other provisions relating to charges to VAT

30 Refunds in connection with construction and conversion

(1) For subsection (1) of section 35 of the Value Added Tax Act 1994 (refund of VAT to persons constructing certain buildings) there shall be substituted the following subsections—

“(1) Where—

(a) a person carries out works to which this section applies,

(b) his carrying out of the works is lawful and otherwise than in the course or furtherance of any business, and

(c) VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purposes of the works,

the Commissioners shall, on a claim made in that behalf, refund to that person the amount of VAT so chargeable.

(1A) The works to which this section applies are—

(a) the construction of a building designed as a dwelling or number of dwellings;

(b) the construction of a building for use solely for a relevant residential purpose or relevant charitable purpose; and

(c) a residential conversion.

(1B) For the purposes of this section goods shall be treated as used for the purposes of works to which this section applies by the person carrying out the works in so far only as they are building materials which, in the course of the works, are incorporated in the building in question or its site.

(1C) Where—

(a) a person (“the relevant person”) carries out a residential conversion by arranging for any of the work of the conversion to be done by another (“a contractor”),

(b) the relevant person’s carrying out of the conversion is lawful and otherwise than in the course or furtherance of any business,

(c) the contractor is not acting as an architect, surveyor or consultant or in a supervisory capacity, and

(d) VAT is chargeable on services consisting in the work done by the contractor,

the Commissioners shall, on a claim made in that behalf, refund to the relevant person the amount of VAT so chargeable.

(1D) For the purposes of this section works constitute a residential conversion to the extent that they consist in the conversion of a non-residential building, or a non-residential part of a building, into—

(a) a building designed as a dwelling or a number of dwellings;

(b) a building intended for use solely for a relevant residential purpose; or

(c) anything which would fall within paragraph (a) or (b) above if different parts of a building were treated as separate buildings.”

(2) In subsection (2) of that section (method of making claim), after “may by regulations prescribe” there shall be inserted “or, in the case of documents, as the Commissioners may determine in accordance with the regulations”.

(3) After subsection (3) of that section there shall be inserted the following subsections—

“(4) The notes to Group 5 of Schedule 8 shall apply for construing this section as they apply for construing that Group.

(5) The power of the Treasury by order under section 30 to vary Schedule 8 shall include—

(a) power to apply any variation made by the order for the purposes of this section; and

(b) power to make such consequential modifications of this section as they may think fit.”

(4) This section applies in relation to any case in which a claim for repayment under section 35 of the [1994 c. 23.] Value Added Tax Act 1994 is made at any time on or after the day on which this Act is passed.

31 Groups: anti-avoidance

(1) In section 43 of the [1994 c. 23.] Value Added Tax Act 1994 (groups of companies), after subsection (8) there shall be inserted the following subsection—

“(9) Schedule 9A (which makes provision for ensuring that this section is not used for tax avoidance) shall have effect.”

(2) After Schedule 9 to that Act there shall be inserted the Schedule set out in Schedule 4 to this Act.

(3) In section 83 of that Act (appeals), after paragraph (w) there shall be inserted the following paragraph—

“(wa) any direction or assessment under Schedule 9A;”.

(4) In section 84 of that Act (further provisions relating to appeals), after subsection (7) there shall be inserted the following subsection—

“(7A) Where there is an appeal against a decision to make such a direction as is mentioned in section 83(wa), the cases in which the tribunal shall allow the appeal shall include (in addition to the case where the conditions for the making of the direction were not fulfilled) the case where the tribunal are satisfied, in relation to the relevant event by reference to which the direction was given, that—

(a) the change in the treatment of the body corporate, or

(b) the transaction in question,

had as its main purpose or, as the case may be, as each of its main purposes a genuine commercial purpose unconnected with the fulfilment of the condition specified in paragraph 1(3) of Schedule 9A.”

(5) Subsection (1A) of section 43 of that Act shall not have effect in relation to supplies on or after the day on which this Act is passed.

32 Supplies of gold etc

(1) In section 55 of the Value Added Tax Act 1994 (supplies of gold), for paragraph (a) of subsection (5) there shall be substituted the following paragraph—

“(a) any supply of goods consisting in fine gold, in gold grain of any purity or in gold coins of any purity; or”.

(2) This section applies in relation to any supply after 28th November 1995.

33 Small gifts

(1) In Schedule 4 to the [1994 c. 23.] Value Added Tax Act 1994 (matters to be treated as supply of goods or services), in paragraph 5(2)(a) (gift of goods in the course or furtherance of a business not a supply if cost to donor is not more than £10), for “£10” there shall be substituted “£15”.

(2) At the end of paragraph 5 of Schedule 4 to that Act there shall be inserted the following sub-paragraph—

“(7) The Treasury may by order substitute for the sum for the time being specified in sub-paragraph (2)(a) above such sum, not being less than £10, as they think fit.”

(3) In section 97(4) of that Act (orders which are subject to affirmative procedure), after paragraph (a) there shall be inserted the following paragraph—

“(ab) an order under paragraph 5(7) of Schedule 4 substituting a lesser sum for the sum for the time being specified in paragraph 5(2)(a) of that Schedule;”.

(4) Subsection (1) above shall apply where a gift is made after 28th November 1995.

Payment and enforcement

34 Method of making payments on account

In section 28 of the [1994 c. 23.] Value Added Tax Act 1994 (payments on account of VAT), after subsection (2) there shall be inserted the following subsection—

“(2A) The Commissioners may give directions, to persons who are or may become liable by virtue of any order under this section to make payments on account of VAT, about the manner in which they are to make such payments; and where such a direction has been given to any person and has not subsequently been withdrawn, any duty of that person by virtue of such an order to make such a payment shall have effect as if it included a requirement for the payment to be made in the manner directed.”

35 Default surcharges

(1) The Value Added Tax Act 1994 shall be amended as follows.

(2) After section 59 (default surcharge) there shall be inserted the following section—

“59A Default surcharge: payments on account

(1) For the purposes of this section a taxable person shall be regarded as in default in respect of any prescribed accounting period if the period is one in respect of which he is required, by virtue of an order under section 28, to make any payment on account of VAT and either—

(a) a payment which he is so required to make in respect of that period has not been received in full by the Commissioners by the day on which it became due; or

(b) he would, but for section 59(1A), be in default in respect of that period for the purposes of section 59.

(2) Subject to subsections (10) and (11) below, subsection (4) below applies in any case where—

(a) a taxable person is in default in respect of a prescribed accounting period; and

(b) the Commissioners serve notice on the taxable person (a “surcharge liability notice”) specifying as a surcharge period for the purposes of this section a period which—

(i) begins, subject to subsection (3) below, on the date of the notice; and

(ii) ends on the first anniversary of the last day of the period referred to in paragraph (a) above.

(3) If—

(a) a surcharge liability notice is served by reason of a default in respect of a prescribed accounting period, and

(b) that period ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned,

the surcharge period specified in that notice shall be expressed as a continuation of the existing surcharge period; and, accordingly, the existing period and its extension shall be regarded as a single surcharge period.

(4) Subject to subsections (7) to (11) below, if—

(a) a taxable person on whom a surcharge liability notice has been served is in default in respect of a prescribed accounting period,

(b) that prescribed accounting period is one ending within the surcharge period specified in (or extended by) that notice, and

(c) the aggregate value of his defaults in respect of that prescribed accounting period is more than nil,

that person shall be liable to a surcharge equal to whichever is the greater of £30 and the specified percentage of the aggregate value of his defaults in respect of that prescribed accounting period.

(5) Subject to subsections (7) to (11) below, the specified percentage referred to in subsection (4) above shall be determined in relation to a prescribed accounting period by reference to the number of such periods during the surcharge period which are periods in respect of which the taxable person is in default and in respect of which the value of his defaults is more than nil, so that—

(a) in relation to the first such prescribed accounting period, the specified percentage is 2 per cent.;

(b) in relation to the second such period, the specified percentage is 5 per cent.;

(c) in relation to the third such period, the specified percentage is 10 per cent.; and

(d) in relation to each such period after the third, the specified percentage is 15 per cent.

(6) For the purposes of this section the aggregate value of a person’s defaults in respect of a prescribed accounting period shall be calculated as follows—

(a) where the whole or any part of a payment in respect of that period on account of VAT was not received by the Commissioners by the day on which it became due, an amount equal to that payment or, as the case may be, to that part of it shall be taken to be the value of the default relating to that payment;

(b) if there is more than one default with a value given by paragraph (a) above, those values shall be aggregated;

(c) the total given by paragraph (b) above, or (where there is only one default) the value of the default under paragraph (a) above, shall be taken to be the value for that period of that person’s defaults on payments on account;

(d) the value of any default by that person which is a default falling within subsection (1)(b) above shall be taken to be equal to the amount of any outstanding VAT less the amount of unpaid payments on account; and

(e) the aggregate value of a person’s defaults in respect of that period shall be taken to be the aggregate of—

(i) the value for that period of that person’s defaults (if any) on payments on account; and

(ii) the value of any default of his in respect of that period that falls within subsection (1)(b) above.

(7) In the application of subsection (6) above for the calculation of the aggregate value of a person’s defaults in respect of a prescribed accounting period—

(a) the amount of outstanding VAT referred to in paragraph (d) of that subsection is the amount (if any) which would be the amount of that person’s outstanding VAT for that period for the purposes of section 59(4); and

(b) the amount of unpaid payments on account referred to in that paragraph is the amount (if any) equal to so much of any payments on account of VAT (being payments in respect of that period) as has not been received by the Commissioners by the last day on which that person is required (as mentioned in section 59(1)) to make a return for that period.

(8) If a person who, apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies the Commissioners or, on appeal, a tribunal—

(a) in the case of a default that is material for the purposes of the surcharge and falls within subsection (1)(a) above—

(i) that the payment on account of VAT was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners by the day on which it became due, or

(ii) that there is a reasonable excuse for the payment not having been so despatched,

or

(b) in the case of a default that is material for the purposes of the surcharge and falls within subsection (1)(b) above, that the condition specified in section 59(7)(a) or (b) is satisfied as respects the default,

he shall not be liable to the surcharge and for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice the service of which depended upon that default shall be deemed not to have been served).

(9) For the purposes of subsection (8) above, a default is material to a surcharge if—

(a) it is the default which, by virtue of subsection (4) above, gives rise to the surcharge; or

(b) it is a default which was taken into account in the service of the surcharge liability notice upon which the surcharge depends and the person concerned has not previously been liable to a surcharge in respect of a prescribed accounting period ending within the surcharge period specified in or extended by that notice.

(10) In any case where—

(a) the conduct by virtue of which a person is in default in respect of a prescribed accounting period is also conduct falling within section 69(1), and

(b) by reason of that conduct, the person concerned is assessed to a penalty under section 69,

the default shall be left out of account for the purposes of subsections (2) to (5) above.

(11) If the Commissioners, after consultation with the Treasury, so direct, a default in respect of a prescribed accounting period specified in the direction shall be left out of account for the purposes of subsections (2) to (5) above.

(12) For the purposes of this section the Commissioners shall be taken not to receive a payment by the day on which it becomes due unless it is made in such a manner as secures (in a case where the payment is made otherwise than in cash) that, by the last day for the payment of that amount, all the transactions can be completed that need to be completed before the whole amount of the payment becomes available to the Commissioners.

(13) In determining for the purposes of this section whether any person would, but for section 59(1A), be in default in respect of any period for the purposes of section 59, subsection (12) above shall be deemed to apply for the purposes of section 59 as it applies for the purposes of this section.

(14) For the purposes of this section references to a thing’s being done by any day include references to its being done on that day.”

(3) In section 59, at the beginning of subsection (1) (circumstances amounting to a default in respect of any prescribed accounting period), there shall be inserted “Subject to subsection (1A) below”; and after that subsection there shall be inserted the following subsection—

“(1A) A person shall not be regarded for the purposes of this section as being in default in respect of any prescribed accounting period if that period is one in respect of which he is required by virtue of any order under section 28 to make any payment on account of VAT.”

(4) After subsection (10) of that section there shall be inserted the following subsection—

“(11) For the purposes of this section references to a thing’s being done by any day include references to its being done on that day.”

(5) After the section 59A inserted by subsection (2) above there shall be inserted the following section—

“59B Relationship between sections 59 and 59A

(1) This section applies in each of the following cases, namely—

(a) where a section 28 accounting period ends within a surcharge period begun or extended by the service on a taxable person (whether before or after the coming into force of section 59A) of a surcharge liability notice under section 59; and

(b) where a prescribed accounting period which is not a section 28 accounting period ends within a surcharge period begun or extended by the service on a taxable person of a surcharge liability notice under section 59A.

(2) In a case falling within subsection (1)(a) above section 59A shall have effect as if—

(a) subject to paragraph (b) below, the section 28 accounting period were deemed to be a period ending within a surcharge period begun or, as the case may be, extended by a notice served under section 59A; but

(b) any question—

(i) whether a surcharge period was begun or extended by the notice, or

(ii) whether the taxable person was in default in respect of any prescribed accounting period which was not a section 28 accounting period but ended within the surcharge period begun or extended by that notice,

were to be determined as it would be determined for the purposes of section 59.

(3) In a case falling within subsection (1)(b) above section 59 shall have effect as if—

(a) subject to paragraph (b) below, the prescribed accounting period that is not a section 28 accounting period were deemed to be a period ending within a surcharge period begun or, as the case may be, extended by a notice served under section 59;

(b) any question—

(i) whether a surcharge period was begun or extended by the notice, or

(ii) whether the taxable person was in default in respect of any prescribed accounting period which was a section 28 accounting period but ended within the surcharge period begun or extended by that notice,

were to be determined as it would be determined for the purposes of section 59A; and

(c) that person were to be treated as having had outstanding VAT for a section 28 accounting period in any case where the aggregate value of his defaults in respect of that period was, for the purposes of section 59A, more than nil.

(4) In this section “a section 28 accounting period”, in relation to a taxable person, means any prescribed accounting period ending on or after the day on which the Finance Act 1996 was passed in respect of which that person is liable by virtue of an order under section 28 to make any payment on account of VAT.”

(6) In section 69(4)(a) and (9)(b) (disregard in connection with penalties for breach of regulations of conduct giving rise to a surcharge), after the words “section 59”, in each case, there shall be inserted “or 59A”.

(7) In section 76(1) and (3)(a) (assessments for surcharges), after the words “section 59”, in each case, there shall be inserted “or 59A”.

(8) This section applies in relation to any prescribed accounting period ending on or after 1st June 1996, but a liability to make a payment on account of VAT shall be disregarded for the purposes of the amendments made by this section if the payment is one becoming due before that date.

36 Repeated misdeclaration penalty

(1) In section 64 of the [1994 c. 23.] Value Added Tax Act 1994 (repeated misdeclaration penalty), the following subsections shall be substituted for subsections (6) and (7) (inaccuracies treated as not material)—

“(6) Subject to subsection (6A) below, where by reason of conduct falling within subsection (1) above—

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

(b) a person is assessed to a penalty under section 60 or 63,

the inaccuracy concerned shall not be regarded as material for the purposes of this section.

(6A) Subsection (6) above shall not prevent an inaccuracy by reason of which a person has been assessed to a penalty under section 63—

(a) from being regarded as a material inaccuracy in respect of which the Commissioners may serve a penalty liability notice under subsection (2) above; or

(b) from being regarded for the purposes of subsection (3) above as a material inaccuracy by reference to which any prescribed accounting period falling within the penalty period is to be treated as the first prescribed accounting period so falling in respect of which there is a material inaccuracy.

(7) Where subsection (5) or (6) above requires any inaccuracy to be regarded as not material for the purposes of the serving of a penalty liability notice, any such notice served in respect of that inaccuracy shall be deemed not to have been served.”

(2) This section has effect in relation to inaccuracies contained in returns made on or after the day on which this Act is passed.

37 Penalties for failure to notify

(1) In section 67 of the [1994 c. 23.] Value Added Tax Act 1994 (penalty for failure to notify liability to be registered under Schedule 1, etc.)—

(a) in subsection (1)(a), after “6” there shall be inserted “, 7”; and

(b) in subsection (3)(a), for “or 6” there shall be substituted “, 6 or 7”.

(2) Subject to subsection (3) below, subsection (1) above shall apply in relation to—

(a) any person becoming liable to be registered by virtue of sub-paragraph (2) of paragraph 1 of Schedule 1 to the [1994 c. 23.] Value Added Tax Act 1994 on or after 1st January 1996; and

(b) any person who became liable to be registered by virtue of that sub-paragraph before that date but who had not notified the Commissioners of the liability before that date.

(3) In relation to a person falling within subsection (2)(b) above, section 67 of the Value Added Tax Act 1994 shall have effect as if in subsection (3)(a) for the words “the date with effect from which he is, in accordance with that paragraph, required to be registered” there were substituted “1st January 1996”.

38 VAT invoices and accounting

(1) Paragraph 2 of Schedule 11 to the [1994 c. 23.] Value Added Tax Act 1994 (regulations about accounting for VAT, VAT invoices etc.) shall be amended as follows.

(2) After sub-paragraph (2) there shall be inserted the following sub-paragraph—

“(2A) Regulations under this paragraph may confer power on the Commissioners to allow the requirements of any regulations as to the statements and other matters to be contained in a VAT invoice to be relaxed or dispensed with.”

(3) In sub-paragraph (10) (adjustments of VAT accounts), at the end of paragraph (c) there shall be inserted “and

(d) for a person, for purposes connected with the making of any such entry or financial adjustment, to be required to provide to any prescribed person, or to retain, a document in the prescribed form containing prescribed particulars of the matters to which the entry or adjustment relates; and

(e) for enabling the Commissioners, in such cases as they may think fit, to dispense with or relax a requirement imposed by regulations made by virtue of paragraph (d) above.”

Part III Landfill Tax

The basic provisions

39 Landfill tax

(1) A tax, to be known as landfill tax, shall be charged in accordance with this Part.

(2) The tax shall be under the care and management of the Commissioners of Customs and Excise.

40 Charge to tax

(1) Tax shall be charged on a taxable disposal.

(2) A disposal is a taxable disposal if—

(a) it is a disposal of material as waste,

(b) it is made by way of landfill,

(c) it is made at a landfill site, and

(d) it is made on or after 1st October 1996.

(3) For this purpose a disposal is made at a landfill site if the land on or under which it is made constitutes or falls within land which is a landfill site at the time of the disposal.

41 Liability to pay tax

(1) The person liable to pay tax charged on a taxable disposal is the landfill site operator.

(2) The reference here to the landfill site operator is to the person who is at the time of the disposal the operator of the landfill site which constitutes or contains the land on or under which the disposal is made.

42 Amount of tax

(1) The amount of tax charged on a taxable disposal shall be found by taking—

(a) £7 for each whole tonne disposed of and a proportionately reduced sum for any additional part of a tonne, or

(b) a proportionately reduced sum if less than a tonne is disposed of.

(2) Where the material disposed of consists entirely of qualifying material this section applies as if the reference to £7 were to £2.

(3) Qualifying material is material for the time being listed for the purposes of this section in an order.

(4) The Treasury must have regard to the object of securing that material is listed if it is of a kind commonly described as inactive or inert.

Exemptions

43 Material removed from water

(1) A disposal is not a taxable disposal for the purposes of this Part if it is shown to the satisfaction of the Commissioners that the disposal is of material all of which—

(a) has been removed (by dredging or otherwise) from water falling within subsection (2) below, and

(b) formed part of or projected from the bed of the water concerned before its removal.

(2) Water falls within this subsection if it is—

(a) a river, canal or watercourse (whether natural or artificial), or

(b) a dock or harbour (whether natural or artificial).

(3) A disposal is not a taxable disposal for the purposes of this Part if it is shown to the satisfaction of the Commissioners that the disposal is of material all of which—

(a) has been removed (by dredging or otherwise) from water falling within the approaches to a harbour (whether natural or artificial),

(b) has been removed in the interests of navigation, and

(c) formed part of or projected from the bed of the water concerned before its removal.

(4) A disposal is not a taxable disposal for the purposes of this Part if it is shown to the satisfaction of the Commissioners that the disposal is of material all of which—

(a) consists of naturally occurring mineral material, and

(b) has been removed (by dredging or otherwise) from the sea in the course of commercial operations carried out to obtain substances such as sand or gravel from the seabed.

44 Mining and quarrying

(1) A disposal is not a taxable disposal for the purposes of this Part if it is shown to the satisfaction of the Commissioners that the disposal is of material all of which fulfils each of the conditions set out in subsections (2) to (4) below.

(2) The material must result from commercial mining operations (whether the mining is deep or open-cast) or from commercial quarrying operations.

(3) The material must be naturally occurring material extracted from the earth in the course of the operations.

(4) The material must not have been subjected to, or result from, a non-qualifying process carried out at any stage between the extraction and the disposal.

(5) A non-qualifying process is—

(a) a process separate from the mining or quarrying operations, or

(b) a process forming part of those operations and permanently altering the material’s chemical composition.

45 Pet cemeteries

(1) A disposal is not a taxable disposal for the purposes of this Part if—

(a) the disposal is of material consisting entirely of the remains of dead domestic pets, and

(b) the landfill site at which the disposal is made fulfils the test set out in subsection (2) below.

(2) The test is that during the relevant period—

(a) no landfill disposal was made at the site, or

(b) the only landfill disposals made at the site were of material consisting entirely of the remains of dead domestic pets.

(3) For the purposes of subsection (2) above the relevant period—

(a) begins with 1st October 1996 or (if later) with the coming into force in relation to the site of the licence or resolution mentioned in section 66 below, and

(b) ends immediately before the disposal mentioned in subsection (1) above.

46 Power to vary

(1) Provision may be made by order to produce the result that—

(a) a disposal which would otherwise be a taxable disposal (by virtue of this Part as it applies for the time being) is not a taxable disposal;

(b) a disposal which would otherwise not be a taxable disposal (by virtue of this Part as it applies for the time being) is a taxable disposal.

(2) Without prejudice to the generality of subsection (1) above, an order under this section may—

(a) confer exemption by reference to certificates issued by the Commissioners and to conditions set out in certificates;

(b) allow the Commissioners to direct requirements to be met before certificates can be issued;

(c) provide for the review of decisions about certificates and for appeals relating to decisions on review.

(3) Provision may be made under this section in such way as the Treasury think fit (whether by amending this Part or otherwise).

Administration

47 Registration

(1) The register kept under this section may contain such information as the Commissioners think is required for the purposes of the care and management of the tax.

(2) A person who—

(a) carries out taxable activities, and

(b) is not registered,

is liable to be registered.

(3) Where—

(a) a person at any time forms the intention of carrying out taxable activities, and

(b) he is not registered,

he shall notify the Commissioners of his intention.

(4) A person who at any time ceases to have the intention of carrying out taxable activities shall notify the Commissioners of that fact.

(5) Where a person is liable to be registered by virtue of subsection (2) above the Commissioners shall register him with effect from the time when he begins to carry out taxable activities; and this subsection applies whether or not he notifies the Commissioners under subsection (3) above.

(6) Where the Commissioners are satisfied that a person has ceased to carry out taxable activities they may cancel his registration with effect from the earliest practicable time after he so ceased; and this subsection applies whether or not he notifies the Commissioners under subsection (4) above.

(7) Where—

(a) a person notifies the Commissioners under subsection (4) above,

(b) they are satisfied that he will not carry out taxable activities,

(c) they are satisfied that no tax which he is liable to pay is unpaid,

(d) they are satisfied that no credit to which he is entitled under regulations made under section 51 below is outstanding, and

(e) subsection (8) below does not apply,

the Commissioners shall cancel his registration with effect from the earliest practicable time after he ceases to carry out taxable activities.

(8) Where—

(a) a person notifies the Commissioners under subsection (4) above, and

(b) they are satisfied that he has not carried out, and will not carry out, taxable activities,

the Commissioners shall cancel his registration with effect from the time when he ceased to have the intention to carry out taxable activities.

(9) For the purposes of this section regulations may make provision—

(a) as to the time within which a notification is to be made;

(b) as to the form and manner in which any notification is to be made and as to the information to be contained in or provided with it;

(c) requiring a person who has made a notification to notify the Commissioners if any information contained in or provided in connection with it is or becomes inaccurate;

(d) as to the correction of entries in the register.

(10) References in this Part to a registrable person are to a person who—

(a) is registered under this section, or

(b) is liable to be registered under this section.

48 Information required to keep register up to date

(1) Regulations may make provision requiring a registrable person to notify the Commissioners of particulars which—

(a) are of changes in circumstances relating to the registrable person or any business carried on by him,

(b) appear to the Commissioners to be required for the purpose of keeping the register kept under section 47 above up to date, and

(c) are of a prescribed description.

(2) Regulations may make provision—

(a) as to the time within which a notification is to be made;

(b) as to the form and manner in which a notification is to be made;

(c) requiring a person who has made a notification to notify the Commissioners if any information contained in it is inaccurate.

49 Accounting for tax and time for payment

Regulations may provide that a registrable person shall—

(a) account for tax by reference to such periods (accounting periods) as may be determined by or under the regulations;

(b) make, in relation to accounting periods, returns in such form as may be prescribed and at such times as may be so determined;

(c) pay tax at such times and in such manner as may be so determined.

50 Power to assess

(1) Where—

(a) a person has failed to make any returns required to be made under this Part,

(b) a person has failed to keep any documents necessary to verify returns required to be made under this Part,

(c) a person has failed to afford the facilities necessary to verify returns required to be made under this Part, or

(d) it appears to the Commissioners that returns required to be made by a person under this Part are incomplete or incorrect,

the Commissioners may assess the amount of tax due from the person concerned to the best of their judgment and notify it to him.

(2) Where a person has for an accounting period been paid an amount to which he purports to be entitled under regulations made under section 51 below, then, to the extent that the amount ought not to have been paid or would not have been paid had the facts been known or been as they later turn out to be, the Commissioners may assess the amount as being tax due from him for that period and notify it to him accordingly.

(3) Where a person is assessed under subsections (1) and (2) above in respect of the same accounting period the assessments may be combined and notified to him as one assessment.

(4) Where the person failing to make a return, or making a return which appears to the Commissioners to be incomplete or incorrect, was required to make the return as a personal representative, trustee in bankruptcy, receiver, liquidator or person otherwise acting in a representative capacity in relation to another person, subsection (1) above shall apply as if the reference to tax due from him included a reference to tax due from that other person.

(5) An assessment under subsection (1) or (2) above of an amount of tax due for an accounting period shall not be made after the later of the following—

(a) two years after the end of the accounting period;

(b) one year after evidence of facts, sufficient in the Commissioners' opinion to justify the making of the assessment, comes to their knowledge;

but where further such evidence comes to their knowledge after the making of an assessment under subsection (1) or (2) above another assessment may be made under the subsection concerned in addition to any earlier assessment.

(6) Where—

(a) as a result of a person’s failure to make a return in relation to an accounting period the Commissioners have made an assessment under subsection (1) above for that period,

(b) the tax assessed has been paid but no proper return has been made in relation to the period to which the assessment related, and

(c) as a result of a failure to make a return in relation to a later accounting period, being a failure by the person referred to in paragraph (a) above or a person acting in a representative capacity in relation to him, as mentioned in subsection (4) above, the Commissioners find it necessary to make another assessment under subsection (1) above,

then, if the Commissioners think fit, having regard to the failure referred to in paragraph (a) above, they may specify in the assessment referred to in paragraph (c) above an amount of tax greater than that which they would otherwise have considered to be appropriate.

(7) Where an amount has been assessed and notified to any person under subsection (1) or (2) above it shall be deemed to be an amount of tax due from him and may be recovered accordingly unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.

(8) For the purposes of this section notification to—

(a) a personal representative, trustee in bankruptcy, receiver or liquidator, or

(b) a person otherwise acting in a representative capacity in relation to another person,

shall be treated as notification to the person in relation to whom the person mentioned in paragraph (a) above, or the first person mentioned in paragraph (b) above, acts.

(9) Subsection (5) above has effect subject to paragraph 33 of Schedule 5 to this Act.

(10) In this section “trustee in bankruptcy” means, as respects Scotland, an interim or permanent trustee (within the meaning of the [1985 c. 66.] Bankruptcy (Scotland) Act 1985) or a trustee acting under a trust deed (within the meaning of that Act).

Credit

51 Credit: general

(1) Regulations may provide that where—

(a) a person has paid or is liable to pay tax, and

(b) prescribed conditions are fulfilled,

the person shall be entitled to credit of such an amount as is found in accordance with prescribed rules.

(2) Regulations may make provision as to the manner in which a person is to benefit from credit, and in particular may make provision—

(a) that a person shall be entitled to credit by reference to accounting periods;

(b) that a person shall be entitled to deduct an amount equal to his total credit for an accounting period from the total amount of tax due from him for the period;

(c) that if no tax is due from a person for an accounting period but he is entitled to credit for the period, the amount of the credit shall be paid to him by the Commissioners;

(d) that if the amount of credit to which a person is entitled for an accounting period exceeds the amount of tax due from him for the period, an amount equal to the excess shall be paid to him by the Commissioners;

(e) for the whole or part of any credit to be held over to be credited for a subsequent accounting period;

(f) as to the manner in which a person who has ceased to be registrable is to benefit from credit.

(3) Regulations under subsection (2)(c) or (d) above may provide that where at the end of an accounting period an amount is due to a person who has failed to submit returns for an earlier period as required by this Part, the Commissioners may withhold payment of the amount until he has complied with that requirement.

(4) Regulations under subsection (2)(e) above may provide for credit to be held over either on the person’s application or in accordance with directions given by the Commissioners from time to time; and the regulations may allow directions to be given generally or with regard to particular cases.

(5) Regulations may provide that—

(a) no benefit shall be conferred in respect of credit except on a claim made in such manner and at such time as may be determined by or under regulations;

(b) payment in respect of credit shall be made subject to such conditions (if any) as the Commissioners think fit to impose, including conditions as to repayment in specified circumstances;

(c) deduction in respect of credit shall be made subject to such conditions (if any) as the Commissioners think fit to impose, including conditions as to the payment to the Commissioners, in specified circumstances, of an amount representing the whole or part of the amount deducted.

(6) Regulations may require a claim by a person to be made in a return required by provision made under section 49 above.

(7) Nothing in section 52 or 53 below shall be taken to derogate from the power to make regulations under this section (whether with regard to bad debts, the environment or any other matter).

52 Bad debts

(1) Regulations may be made under section 51 above with a view to securing that a person is entitled to credit if—

(a) he carries out a taxable activity as a result of which he becomes entitled to a debt which turns out to be bad (in whole or in part), and

(b) such other conditions as may be prescribed are fulfilled.

(2) The regulations may include provision under section 51(5)(b) or (c) above requiring repayment or payment if it turns out that it was not justified to regard a debt as bad (or to regard it as bad to the extent that it was so regarded).

(3) The regulations may include provision for determining whether, and to what extent, a debt is to be taken to be bad.

53 Bodies concerned with the environment

(1) Regulations may be made under section 51 above with a view to securing that a person is entitled to credit if—

(a) he pays a sum to a body whose objects are or include the protection of the environment, and

(b) such other conditions as may be prescribed are fulfilled.

(2) The regulations may in particular prescribe conditions—

(a) requiring bodies to which sums are paid (environmental bodies) to be approved by another body (the regulatory body);

(b) requiring the regulatory body to be approved by the Commissioners;

(c) requiring sums to be paid with the intention that they be expended on such matters connected with the protection of the environment as may be prescribed.

(3) The regulations may include provision under section 51(5)(b) or (c) above requiring repayment or payment if—

(a) a sum is not in fact expended on matters prescribed under subsection (2)(c) above, or

(b) a prescribed condition turns out not to have been fulfilled.

(4) The regulations may include—

(a) provision for determining the amount of credit (including provision for limiting it);

(b) provision that matters connected with the protection of the environment include such matters as overheads (including administration) of environmental bodies and the regulatory body;

(c) provision as to the matters by reference to which an environmental body or the regulatory body can be, and remain, approved (including matters relating to the functions and activities of any such body);

(d) provision allowing approval of an environmental body or the regulatory body to be withdrawn (whether prospectively or retrospectively);

(e) provision that, if approval of the regulatory body is withdrawn, another body may be approved in its place or its functions may be performed by the Commissioners;

(f) provision allowing the Commissioners to disclose to the regulatory body information which relates to the tax affairs of persons carrying out taxable activities and which is relevant to the credit scheme established by the regulations.

Review and appeal

54 Review of Commissioners' decisions

(1) This section applies to the following decisions of the Commissioners—

(a) a decision as to the registration or cancellation of registration of any person under this Part;

(b) a decision as to whether tax is chargeable in respect of a disposal or as to how much tax is chargeable;

(c) a decision as to whether a person is entitled to credit by virtue of regulations under section 51 above or as to how much credit a person is entitled to or as to the manner in which he is to benefit from credit;

(d) a decision as to an assessment falling within subsection (2) below or as to the amount of such an assessment;

(e) a decision to refuse a request under section 58(3) below;

(f) a decision to refuse an application under section 59 below;

(g) a decision as to whether conditions set out in a specification under the authority of provision made under section 68(4)(b) below are met in relation to a disposal;

(h) a decision to give a direction under any provision contained in regulations by virtue of section 68(5) below;

(i) a decision as to a claim for the repayment of an amount under paragraph 14 of Schedule 5 to this Act;

(j) a decision as to liability to a penalty under Part V of that Schedule or as to the amount of such a penalty;

(k) a decision under paragraph 19 of that Schedule (as mentioned in paragraph 19(5));

(l) a decision as to any liability to pay interest under paragraph 26 or 27 of that Schedule or as to the amount of the interest payable;

(m) a decision as to any liability to pay interest under paragraph 29 of that Schedule or as to the amount of the interest payable;

(n) a decision to require any security under paragraph 31 of that Schedule or as to its amount;

(o) a decision as to the amount of any penalty or interest specified in an assessment under paragraph 32 of that Schedule.

(2) An assessment falls within this subsection if it is an assessment under section 50 above in respect of an accounting period in relation to which a return required to be made by virtue of regulations under section 49 above has been made.

(3) Any person who is or will be affected by any decision to which this section applies may by notice in writing to the Commissioners require them to review the decision.

(4) The Commissioners shall not be required under this section to review any decision unless the notice requiring the review is given before the end of the period of 45 days beginning with the day on which written notification of the decision, or of the assessment containing the decision, was first given to the person requiring the review.

(5) For the purposes of subsection (4) above it shall be the duty of the Commissioners to give written notification of any decision to which this section applies to any person who—

(a) requests such a notification,

(b) has not previously been given written notification of that decision, and

(c) if given such a notification, will be entitled to require a review of the decision under this section.

(6) A person shall be entitled to give a notice under this section requiring a decision to be reviewed for a second or subsequent time only if—

(a) the grounds on which he requires the further review are that the Commissioners did not, on any previous review, have the opportunity to consider certain facts or other matters, and

(b) he does not, on the further review, require the Commissioners to consider any facts or matters which were considered on a previous review except in so far as they are relevant to any issue not previously considered.

(7) Where the Commissioners are required in accordance with this section to review any decision it shall be their duty to do so; and on the review they may withdraw, vary or confirm the decision.

(8) Where—

(a) it is the duty under this section of the Commissioners to review any decision, and

(b) they do not, within the period of 45 days beginning with the day on which the review was required, give notice to the person requiring it of their determination on the review,

they shall be deemed for the purposes of this Part to have confirmed the decision.

55 Appeals: general

(1) Subject to the following provisions of this section, an appeal shall lie to an appeal tribunal with respect to any of the following decisions—

(a) any decision by the Commissioners on a review under section 54 above (including a deemed confirmation under subsection (8) of that section);

(b) any decision by the Commissioners on such review of a decision referred to in section 54(1) above as the Commissioners have agreed to undertake in consequence of a request made after the end of the period mentioned in section 54(4) above.

(2) Where an appeal is made under this section by a person who is required to make returns by virtue of regulations under section 49 above, the appeal shall not be entertained unless the appellant—

(a) has made all the returns which he is required to make by virtue of those regulations, and

(b) has paid the amounts shown in those returns as payable by him.

(3) Where an appeal is made under this section with respect to a decision falling within section 54(1)(b) or (d) above the appeal shall not be entertained unless—

(a) the amount which the Commissioners have determined to be payable as tax has been paid or deposited with them, or

(b) on being satisfied that the appellant would otherwise suffer hardship the Commissioners agree or the tribunal decides that it should be entertained notwithstanding that that amount has not been so paid or deposited.

(4) On an appeal under this section against an assessment to a penalty under paragraph 18 of Schedule 5 to this Act, the burden of proof as to the matters specified in paragraphs (a) and (b) of sub-paragraph (1) of paragraph 18 shall lie upon the Commissioners.

56 Appeals: other provisions

(1) Subsection (2) below applies where the Commissioners make a decision falling within section 54(1)(d) above and on a review of it there is a further decision with respect to which an appeal is made under section 55 above; and the reference here to a further decision includes a reference to a deemed confirmation under section 54(8) above.

(2) Where on the appeal—

(a) it is found that the amount specified in the assessment is less than it ought to have been, and

(b) the tribunal gives a direction specifying the correct amount,

the assessment shall have effect as an assessment of the amount specified in the direction and that amount shall be deemed to have been notified to the appellant.

(3) Where on an appeal under section 55 above it is found that the whole or part of any amount paid or deposited in pursuance of section 55(3) above is not due, so much of that amount as is found not to be due shall be repaid with interest at such rate as the tribunal may determine.

(4) Where on an appeal under section 55 above it is found that the whole or part of any amount due to the appellant by virtue of regulations under section 51(2)(c) or (d) or (f) above has not been paid, so much of that amount as is found not to have been paid shall be paid with interest at such rate as the tribunal may determine.

(5) Where an appeal under section 55 above has been entertained notwithstanding that an amount determined by the Commissioners to be payable as tax has not been paid or deposited and it is found on the appeal that that amount is due the tribunal may, if it thinks fit, direct that that amount shall be paid with interest at such rate as may be specified in the direction.

(6) Without prejudice to paragraph 25 of Schedule 5 to this Act, nothing in section 55 above shall be taken to confer on a tribunal any power to vary an amount assessed by way of penalty except in so far as it is necessary to reduce it to the amount which is appropriate under paragraphs 18 to 24 of that Schedule.

(7) Without prejudice to paragraph 28 of Schedule 5 to this Act, nothing in section 55 above shall be taken to confer on a tribunal any power to vary an amount assessed by way of interest except in so far as it is necessary to reduce it to the amount which is appropriate under paragraph 26 or 27 of that Schedule.

(8) Sections 85 and 87 of the [1994 c. 23.] Value Added Tax Act 1994 (settling of appeals by agreement and enforcement of certain decisions of tribunal) shall have effect as if—

(a) the references to section 83 of that Act included references to section 55 above, and

(b) the references to value added tax included references to landfill tax.

57 Review and appeal: commencement

Sections 54 to 56 above shall come into force on—

(a) 1st October 1996, or

(b) such earlier day as may be appointed by order.

Miscellaneous

58 Partnership, bankruptcy, transfer of business, etc

(1) As regards any case where a business is carried on in partnership or by another unincorporated body, regulations may make provision for determining by what persons anything required by this Part to be done by a person is to be done.

(2) The registration under this Part of an unincorporated body other than a partnership may be in the name of the body concerned; and in determining whether taxable activities are carried out by such a body no account shall be taken of any change in its members.

(3) The registration under this Part of a body corporate carrying on a business in several divisions may, if the body corporate so requests and the Commissioners see fit, be in the names of those divisions.

(4) As regards any case where a person carries on a business of a person who has died or become bankrupt or incapacitated or whose estate has been sequestrated, or of a person which is in liquidation or receivership or in relation to which an administration order is in force, regulations may—

(a) require the first-mentioned person to inform the Commissioners of the fact that he is carrying on the business and of the event that has led to his carrying it on;

(b) make provision allowing the person to be treated for a limited time as if he were the other person;

(c) make provision for securing continuity in the application of this Part where a person is so treated.

(5) Regulations may make provision for securing continuity in the application of this Part in cases where a business carried on by a person is transferred to another person as a going concern.

(6) Regulations under subsection (5) above may in particular—

(a) require the transferor to inform the Commissioners of the transfer;

(b) provide for liabilities and duties under this Part of the transferor to become, to such extent as may be provided by the regulations, liabilities and duties of the transferee;

(c) provide for any right of either of them to repayment or credit in respect of tax to be satisfied by making a repayment or allowing a credit to the other;

but the regulations may provide that no such provision as is mentioned in paragraph (b) or (c) of this subsection shall have effect in relation to any transferor and transferee unless an application in that behalf has been made by them under the regulations.

59 Groups of companies

(1) Where under the following provisions of this section any bodies corporate are treated as members of a group, for the purposes of this Part—

(a) any liability of a member of the group to pay tax shall be taken to be a liability of the representative member;

(b) the representative member shall be taken to carry out any taxable activities which a member of the group would carry out (apart from this section) by virtue of section 69 below;

(c) all members of the group shall be jointly and severally liable for any tax due from the representative member.

(2) Two or more bodies corporate are eligible to be treated as members of a group if the condition mentioned in subsection (3) below is fulfilled and—

(a) one of them controls each of the others,

(b) one person (whether a body corporate or an individual) controls all of them, or

(c) two or more individuals carrying on a business in partnership control all of them.

(3) The condition is that the prospective representative member has an established place of business in the United Kingdom.

(4) Where an application to that effect is made to the Commissioners with respect to two or more bodies corporate eligible to be treated as members of a group, then—

(a) from the beginning of an accounting period they shall be so treated, and

(b) one of them shall be the representative member,

unless the Commissioners refuse the application; and the Commissioners shall not refuse the application unless it appears to them necessary to do so for the protection of the revenue.

(5) Where any bodies corporate are treated as members of a group and an application to that effect is made to the Commissioners, then, from the beginning of an accounting period—

(a) a further body eligible to be so treated shall be included among the bodies so treated,

(b) a body corporate shall be excluded from the bodies so treated,

(c) another member of the group shall be substituted as the representative member, or

(d) the bodies corporate shall no longer be treated as members of a group,

unless the application is to the effect mentioned in paragraph (a) or (c) above and the Commissioners refuse the application.

(6) The Commissioners may refuse an application under subsection (5)(a) or (c) above only if it appears to them necessary to do so for the protection of the revenue.

(7) Where a body corporate is treated as a member of a group as being controlled by any person and it appears to the Commissioners that it has ceased to be so controlled, they shall, by notice given to that person, terminate that treatment from such date as may be specified in the notice.

(8) An application under this section with respect to any bodies corporate must be made by one of those bodies or by the person controlling them and must be made not less than 90 days before the date from which it is to take effect, or at such later time as the Commissioners may allow.

(9) For the purposes of this section a body corporate shall be taken to control another body corporate if it is empowered by statute to control that body’s activities or if it is that body’s holding company within the meaning of section 736 of the [1985 c. 6.] Companies Act 1985; and an individual or individuals shall be taken to control a body corporate if he or they, were he or they a company, would be that body’s holding company within the meaning of that section.

60 Information, powers, penalties, etc

Schedule 5 to this Act (which contains provisions relating to information, powers, penalties and other matters) shall have effect.

61 Taxable disposals: special provisions

(1) Where—

(a) a taxable disposal is in fact made on a particular day,

(b) within the period of 14 days beginning with that day the person liable to pay tax in respect of the disposal issues a landfill invoice in respect of the disposal, and

(c) he has not notified the Commissioners in writing that he elects not to avail himself of this subsection,

for the purposes of this Part the disposal shall be treated as made at the time the invoice is issued.

(2) The reference in subsection (1) above to a landfill invoice is to a document containing such particulars as regulations may prescribe for the purposes of that subsection.

(3) The Commissioners may at the request of a person direct that subsection (1) above shall apply—

(a) in relation to disposals in respect of which he is liable to pay tax, or

(b) in relation to such of them as may be specified in the direction,

as if for the period of 14 days there were substituted such longer period as may be specified in the direction.

62 Taxable disposals: regulations

(1) For the purposes of this Part, regulations may make provision under this section in relation to a disposal which is a taxable disposal (or would be apart from the regulations).

(2) The regulations may provide that if particular conditions are fulfilled—

(a) the disposal shall be treated as not being a taxable disposal, or

(b) the disposal shall, to the extent found in accordance with prescribed rules, be treated as not being a taxable disposal.

(3) The regulations may provide that if particular conditions are fulfilled—

(a) the disposal shall be treated as made at a time which is found in accordance with prescribed rules and which falls after the time when it would be regarded as made apart from the regulations, or

(b) the disposal shall, to the extent found in accordance with prescribed rules, be treated as made at a time which is found in accordance with prescribed rules and which falls after the time when it would be regarded as made apart from the regulations.

(4) In finding the time when the disposal would be regarded as made apart from the regulations, section 61(1) above and any direction under section 61(3) above shall be taken into account.

(5) The regulations may be framed by reference to—

(a) conditions specified in the regulations or by the Commissioners or by an authorised person, or

(b) any combination of such conditions;

and the regulations may specify conditions, or allow conditions to be specified, generally or with regard to particular cases.

(6) The regulations may make provision under subsections (2)(b) and (3)(b) above in relation to the same disposal.

(7) The regulations may only provide that a disposal is to be treated as not being a taxable disposal if or to the extent that—

(a) the disposal is a temporary one pending the incineration or recycling of the material concerned, or pending the removal of the material for use elsewhere, or pending the sorting of the material with a view to its removal elsewhere or its eventual disposal, and

(b) the temporary disposal is made in an area designated for the purpose by an authorised person.

63 Qualifying material: special provisions

(1) This section applies for the purposes of section 42 above.

(2) The Commissioners may direct that where material is disposed of it must be treated as qualifying material if it would in fact be such material but for a small quantity of non-qualifying material; and whether a quantity of non-qualifying material is small must be determined in accordance with the terms of the direction.

(3) The Commissioners may at the request of a person direct that where there is a disposal in respect of which he is liable to pay tax the material disposed of must be treated as qualifying material if it would in fact be such material but for a small quantity of non-qualifying material, and—

(a) a direction may apply to all disposals in respect of which a person is liable to pay tax or to such of them as are identified in the direction;

(b) whether a quantity of non-qualifying material is small must be determined in accordance with the terms of the direction.

(4) If a direction under subsection (3) above applies to a disposal any direction under subsection (2) above shall not apply to it.

(5) An order may provide that material must not be treated as qualifying material unless prescribed conditions are met.

(6) A condition may relate to any matter the Treasury think fit (such as the production of a document which includes a statement of the nature of the material).

Interpretation

64 Disposal of material as waste

(1) A disposal of material is a disposal of it as waste if the person making the disposal does so with the intention of discarding the material.

(2) The fact that the person making the disposal or any other person could benefit from or make use of the material is irrelevant.

(3) Where a person makes a disposal on behalf of another person, for the purposes of subsections (1) and (2) above the person on whose behalf the disposal is made shall be treated as making the disposal.

(4) The reference in subsection (3) above to a disposal on behalf of another person includes references to a disposal—

(a) at the request of another person;

(b) in pursuance of a contract with another person.

65 Disposal by way of landfill

(1) There is a disposal of material by way of landfill if—

(a) it is deposited on the surface of land or on a structure set into the surface, or

(b) it is deposited under the surface of land.

(2) Subsection (1) above applies whether or not the material is placed in a container before it is deposited.

(3) Subsection (1)(b) above applies whether the material—

(a) is covered with earth after it is deposited, or

(b) is deposited in a cavity (such as a cavern or mine).

(4) If material is deposited on the surface of land (or on a structure set into the surface) with a view to it being covered with earth the disposal must be treated as made when the material is deposited and not when it is covered.

(5) An order may provide that the meaning of the disposal of material by way of landfill (as it applies for the time being) shall be varied.

(6) An order under subsection (5) above may make provision in such way as the Treasury think fit, whether by amending any of subsections (1) to (4) above or otherwise.

(7) In this section “land” includes land covered by water where the land is above the low water mark of ordinary spring tides.

(8) In this section “earth” includes similar matter (such as sand or rocks).

66 Landfill sites

Land is a landfill site at a given time if at that time—

(a) a licence which is a site licence for the purposes of Part II of the [1990 c. 43.] Environmental Protection Act 1990 (waste on land) is in force in relation to the land and authorises disposals in or on the land,

(b) a resolution under section 54 of that Act (land occupied by waste disposal authorities in Scotland) is in force in relation to the land and authorises deposits or disposals in or on the land,

(c) a disposal licence issued under Part II of the [S.I. 1978/1049 (N.I.19).] Pollution Control and Local Government (Northern Ireland) Order 1978 (waste on land) is in force in relation to the land and authorises deposits on the land,

(d) a resolution passed under Article 13 of that Order (land occupied by district councils in Northern Ireland) is in force in relation to the land and relates to deposits on the land, or

(e) a licence under any provision for the time being having effect in Northern Ireland and corresponding to section 35 of the Environmental Protection Act 1990 (waste management licences) is in force in relation to the land and authorises disposals in or on the land.

67 Operators of landfill sites

The operator of a landfill site at a given time is—

(a) the person who is at the time concerned the holder of the licence, where section 66(a) above applies;

(b) the waste disposal authority which at the time concerned occupies the landfill site, where section 66(b) above applies;

(c) the person who is at the time concerned the holder of the licence, where section 66(c) above applies;

(d) the district council which passed the resolution, where section 66(d) above applies;

(e) the person who is at the time concerned the holder of the licence, where section 66(e) above applies.

68 Weight of material disposed of

(1) The weight of the material disposed of on a taxable disposal shall be determined in accordance with regulations.

(2) The regulations may—

(a) prescribe rules for determining the weight;

(b) authorise rules for determining the weight to be specified by the Commissioners in a prescribed manner;

(c) authorise rules for determining the weight to be agreed by the person liable to pay the tax and an authorised person.

(3) The regulations may in particular prescribe, or authorise the specification or agreement of, rules about—

(a) the method by which the weight is to be determined;

(b) the time by reference to which the weight is to be determined;

(c) the discounting of constituents (such as water).

(4) The regulations may include provision that a specification authorised under subsection (2)(b) above may provide—

(a) that it is to have effect only in relation to disposals of such descriptions as may be set out in the specification;

(b) that it is not to have effect in relation to particular disposals unless the Commissioners are satisfied that such conditions as may be set out in the specification are met in relation to the disposals;

and the conditions may be framed by reference to such factors as the Commissioners think fit (such as the consent of an authorised person to the specification having effect in relation to disposals).

(5) The regulations may include provision that—

(a) where rules are agreed as mentioned in subsection (2)(c) above, and

(b) the Commissioners believe that they should no longer be applied because they do not give an accurate indication of the weight or they are not being fully observed or for some other reason,

the Commissioners may direct that the agreed rules shall no longer have effect.

(6) The regulations shall be so framed that where in relation to a given disposal—

(a) no specification of the Commissioners has effect, and

(b) no agreed rules have effect,

the weight shall be determined in accordance with rules prescribed in the regulations.

69 Taxable activities

(1) A person carries out a taxable activity if—

(a) he makes a taxable disposal in respect of which he is liable to pay tax, or

(b) he permits another person to make a taxable disposal in respect of which he (the first-mentioned person) is liable to pay tax.

(2) Where—

(a) a taxable disposal is made, and

(b) it is made without the knowledge of the person who is liable to pay tax in respect of it,

that person shall for the purposes of this section be taken to permit the disposal.

70 Interpretation: other provisions

(1) Unless the context otherwise requires—

• “accounting period” shall be construed in accordance with section 49 above;

• “appeal tribunal” means a VAT and duties tribunal;

• “authorised person” means any person acting under the authority of the Commissioners;

• “the Commissioners” means the Commissioners of Customs and Excise;

• “conduct” includes any act, omission or statement;

• “material” means material of all kinds, including objects, substances and products of all kinds;

• “prescribed” means prescribed by an order or regulations under this Part;

• “registrable person” has the meaning given by section 47(10) above;

• “tax” means landfill tax;

• “taxable disposal” has the meaning given by section 40 above.

(2) A landfill disposal is a disposal—

(a) of material as waste, and

(b) made by way of landfill.

(3) A reference to this Part includes a reference to any order or regulations made under it and a reference to a provision of this Part includes a reference to any order or regulations made under the provision, unless otherwise required by the context or any order or regulations.

(4) This section and sections 64 to 69 above apply for the purposes of this Part.

Supplementary

71 Orders and regulations

(1) The power to make an order under section 57 above shall be exercisable by the Commissioners, and the power to make an order under any other provision of this Part shall be exercisable by the Treasury.

(2) Any power to make regulations under this Part shall be exercisable by the Commissioners.

(3) Any power to make an order or regulations under this Part shall be exercisable by statutory instrument.

(4) An order to which this subsection applies shall be laid before the House of Commons; and unless it is approved by that House before the expiration of a period of 28 days beginning with the date on which it was made it shall cease to have effect on the expiration of that period, but without prejudice to anything previously done under the order or to the making of a new order.

(5) In reckoning any such period as is mentioned in subsection (4) above no account shall be taken of any time during which Parliament is dissolved or prorogued or during which the House of Commons is adjourned for more than four days.

(6) A statutory instrument containing an order or regulations under this Part (other than an order under section 57 above or an order to which subsection (4) above applies) shall be subject to annulment in pursuance of a resolution of the House of Commons.

(7) Subsection (4) above applies to—

(a) an order under section 42(3) above providing for material which would otherwise be qualifying material not to be qualifying material;

(b) an order under section 46 above which produces the result that a disposal which would otherwise not be a taxable disposal is a taxable disposal;

(c) an order under section 63(5) above other than one which provides only that an earlier order under section 63(5) is not to apply to material;

(d) an order under section 65(5) above providing for anything which would otherwise not be a disposal of material by way of landfill to be such a disposal.

(8) Any power to make an order or regulations under this Part—

(a) may be exercised as regards prescribed cases or descriptions of case;

(b) may be exercised differently in relation to different cases or descriptions of case.

(9) An order or regulations under this Part may include such supplementary, incidental, consequential or transitional provisions as appear to the Treasury or the Commissioners (as the case may be) to be necessary or expedient.

(10) No specific provision of this Part about an order or regulations shall prejudice the generality of subsections (8) and (9) above.

Part IV Income Tax, Corporation Tax and Capital Gains Tax

Chapter I Principal provisions

Income tax charge, rates and reliefs

72 Charge and rates of income tax for 1996-97

(1) Income tax shall be charged for the year 1996-97, and for that year—

(a) the lower rate shall be 20 per cent.;

(b) the basic rate shall be 24 per cent.; and

(c) the higher rate shall be 40 per cent.

(2) For the year 1996-97 section 1(2) of the Taxes Act 1988 shall apply—

(a) as if the amount specified in paragraph (aa) (the lower rate limit) were £3,900; and

(b) as if the amount specified in paragraph (b) (the basic rate limit) were £25,500;

and, accordingly, section 1(4) of that Act (indexation) shall not apply for the year 1996-97.

(3) Section 559(4) of the Taxes Act 1988 (deductions from payments to sub-contractors in the construction industry) shall have effect—

(a) in relation to payments made on or after 1st July 1996 and before the appointed day (within the meaning of section 139 of the [1995 c. 4.] Finance Act 1995), with “24 per cent.” substituted for “25 per cent.”; and

(b) in relation to payments made on or after that appointed day, as if the substitution for which section 139(1) of the [1995 c. 4.] Finance Act 1995 provided were a substitution of “the relevant percentage” for “24 per cent.”

73 Application of lower rate to income from savings

(1) After section 1 of the Taxes Act 1988 there shall be inserted the following section—

“1A Application of lower rate to income from savings and distributions

(1) Subject to sections 469(2) and 686, so much of any person’s total income for any year of assessment as—

(a) comprises income to which this section applies, and

(b) in the case of an individual, is not income falling within section 1(2)(b),

shall, by virtue of this section, be charged for that year at the lower rate, instead of at the rate otherwise applicable to it in accordance with section 1(2)(aa) and (a).

(2) Subject to subsection (4) below, this section applies to the following income—

(a) any income chargeable under Case III of Schedule D other than—

(i) relevant annuities and other annual payments that are not interest; and

(ii) amounts so chargeable by virtue of section 119 or 120;

(b) any income chargeable under Schedule F; and

(c) subject to subsection (4) below, any equivalent foreign income.

(3) The income which is equivalent foreign income for the purposes of this section is any income chargeable under Case IV or V of Schedule D which—

(a) is equivalent to a description of income falling within subsection (2)(a) above but arises from securities or other possessions out of the United Kingdom; or

(b) consists in any such dividend or other distribution of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were resident in the United Kingdom.

(4) This section does not apply to—

(a) any income chargeable to tax under Case IV or V of Schedule D which is such that section 65(5)(a) or (b) provides for the tax to be computed on the full amount of sums received in the United Kingdom; or

(b) any amounts deemed by virtue of section 695(4)(b) or 696(6) to be income chargeable under Case IV of Schedule D.

(5) So much of any person’s income as comprises income to which this section applies shall be treated for the purposes of subsection (1)(b) above and any other provisions of the Income Tax Acts as the highest part of his income.

(6) Subsection (5) above shall have effect subject to section 833(3) but shall otherwise have effect notwithstanding any provision requiring income of any description to be treated for the purposes of the Income Tax Acts (other than section 550) as the highest part of a person’s income.

(7) In this section “relevant annuity” means any annuity other than a purchased life annuity to which section 656 applies or to which that section would apply but for section 657(2)(a).”

(2) In section 4 of that Act (construction of references to deduction of tax), after subsection (1) there shall be inserted the following subsection—

“(1A) As respects deductions from, and tax treated as paid on, any such amounts as constitute or (but for the person whose income they are) would constitute income to which section 1A applies, subsection (1) above shall have effect with a reference to the lower rate in force for the relevant year of assessment substituted for the reference to the basic rate in force for that year.”

(3) Subsection (1) above has effect in relation to the year 1996-97 and subsequent years of assessment and subsection (2) above has effect in relation to payments on or after 6th April 1996.

(4) Schedule 6 to this Act (which makes further amendments in connection with the charge at the lower rate on income from savings etc.) shall have effect.

(5) Where any subordinate legislation (within the meaning of the [1978 c. 30.] Interpretation Act 1978) falls to be construed in accordance with section 4 of the Taxes Act 1988, that legislation (whenever it was made) shall be construed, in relation to payments on or after 6th April 1996, subject to subsection (1A) of that section.

74 Personal allowances for 1996-97

(1) For the year 1996-97 the amounts specified in the provisions mentioned in subsection (2) below shall be taken to be as set out in that subsection; and, accordingly, section 257C(1) of the Taxes Act 1988 (indexation), so far as it relates to the amounts so specified, shall not apply for the year 1996-97.

(2) In section 257 of that Act (personal allowance)—

(a) the amount in subsection (1) (basic allowance) shall be £3,765;

(b) the amount in subsection (2) (allowance for persons aged 65 or more but not aged 75 or more) shall be £4,910; and

(c) the amount in subsection (3) (allowance for persons aged 75 or more) shall be £5,090.

75 Blind person’s allowance

(1) In section 265(1) of the Taxes Act 1988 (blind person’s allowance), for “£1,200” there shall be substituted “£1,250”.

(2) This section shall apply for the year 1996-97 and subsequent years of assessment.

76 Limit on relief for interest

For the year 1996-97 the qualifying maximum defined in section 367(5) of the Taxes Act 1988 (limit on relief for interest on certain loans) shall be £30,000.

Corporation tax charge and rate

77 Charge and rate of corporation tax for 1996

Corporation tax shall be charged for the financial year 1996 at the rate of 33 per cent.

78 Small companies

For the financial year 1996—

(a) the small companies' rate shall be 24 per cent.; and

(b) the fraction mentioned in section 13(2) of the Taxes Act 1988 (marginal relief for small companies) shall be nine four-hundredths.

Abolition of Schedule C charge etc.

79 Abolition of Schedule C charge etc

(1) The charge to tax under Schedule C is abolished—

(a) for the purposes of income tax, for the year 1996-97 and subsequent years of assessment;

(b) for the purposes of corporation tax, for accounting periods ending after 31st March 1996.

(2) Schedule 7 to this Act (which, together with Chapter II of this Part of this Act, makes provision for imposing a charge under Schedule D on descriptions of income previously charged under Schedule C, and makes connected amendments) shall have effect.

Chapter II Loan relationships

Introductory provisions

80 Taxation of loan relationships

(1) For the purposes of corporation tax all profits and gains arising to a company from its loan relationships shall be chargeable to tax as income in accordance with this Chapter.

(2) To the extent that a company is a party to a loan relationship for the purposes of a trade carried on by the company, profits and gains arising from the relationship shall be brought into account in computing the profits and gains of the trade.

(3) Profits and gains arising from a loan relationship of a company that are not brought into account under subsection (2) above shall be brought into account as profits and gains chargeable to tax under Case III of Schedule D.

(4) This Chapter shall also have effect for the purposes of corporation tax for determining how any deficit on a company’s loan relationships is to be brought into account in any case, including a case where none of the company’s loan relationships falls by virtue of this Chapter to be regarded as a source of income.

(5) Subject to any express provision to the contrary, the amounts which in the case of any company are brought into account in accordance with this Chapter as respects any matter shall be the only amounts brought into account for the purposes of corporation tax as respects that matter.

81 Meaning of “loan relationship” etc

(1) Subject to the following provisions of this section, a company has a loan relationship for the purposes of the Corporation Tax Acts wherever—

(a) the company stands (whether by reference to a security or otherwise) in the position of a creditor or debtor as respects any money debt; and

(b) that debt is one arising from a transaction for the lending of money;

and references to a loan relationship and to a company’s being a party to a loan relationship shall be construed accordingly.

(2) For the purposes of this Chapter a money debt is a debt which falls to be settled—

(a) by the payment of money; or

(b) by the transfer of a right to settlement under a debt which is itself a money debt.

(3) Subject to subsection (4) below, where an instrument is issued by any person for the purpose of representing security for, or the rights of a creditor in respect of, any money debt, then (whatever the circumstances of the issue of the instrument) that debt shall be taken for the purposes of this Chapter to be a debt arising from a transaction for the lending of money.

(4) For the purposes of this Chapter a debt shall not be taken to arise from a transaction for the lending of money to the extent that it is a debt arising from rights conferred by shares in a company.

(5) For the purposes of this Chapter—

(a) references to payments or interest under a loan relationship are references to payments or interest made or payable in pursuance of any of the rights or liabilities under that relationship; and

(b) references to rights or liabilities under a loan relationship are references to any of the rights or liabilities under the agreement or arrangements by virtue of which that relationship subsists;

and those rights or liabilities shall be taken to include the rights or liabilities attached to any security which, being a security issued in relation to the money debt in question, is a security representing that relationship.

(6) In this Chapter “money” includes money expressed in a currency other than sterling.

Taxation of profits and gains and relief for deficits

82 Method of bringing amounts into account

(1) For the purposes of corporation tax—

(a) the profits and gains arising from the loan relationships of a company, and

(b) any deficit on a company’s loan relationships,

shall be computed in accordance with this section using the credits and debits given for the accounting period in question by the following provisions of this Chapter.

(2) To the extent that, in any accounting period, a loan relationship of a company is one to which it is a party for the purposes of a trade carried on by it, the credits and debits given in respect of that relationship for that period shall be treated (according to whether they are credits or debits) either—

(a) as receipts of that trade falling to be brought into account in computing the profits and gains of that trade for that period; or

(b) as expenses of that trade which are deductible in computing those profits and gains.

(3) Where for any accounting period there are, in respect of the loan relationships of a company, both—

(a) credits that are not brought into account under subsection (2) above (“non-trading credits”), and

(b) debits that are not so brought into account (“non-trading debits”),

the aggregate of the non-trading debits shall be subtracted from the aggregate of the non-trading credits to give the amount to be brought into account under subsection (4) below.

(4) That amount is the amount which for any accounting period is to be taken (according to whether the aggregate of the non-trading credits or the aggregate of the non-trading debits is the greater) to be either—

(a) the amount of the company’s profits and gains for that period that are chargeable under Case III of Schedule D as profits and gains arising from the company’s loan relationships; or

(b) the amount of the company’s non-trading deficit for that period on its loan relationships.

(5) Where for any accounting period a company has non-trading credits but no non-trading debits in respect of its loan relationships, the aggregate amount of the credits shall be the amount of the company’s profits and gains for that period that are chargeable under Case III of Schedule D as profits and gains arising from those relationships.

(6) Where for any accounting period a company has non-trading debits but no non-trading credits in respect of its loan relationships, that company shall have a non-trading deficit on its loan relationships for that period equal to the aggregate of the debits.

(7) Subsection (2) above, so far as it provides for any amount to be deductible as mentioned in paragraph (b) of that subsection, shall have effect notwithstanding anything in section 74 of the Taxes Act 1988 (allowable deductions).

83 Non-trading deficit on loan relationships

(1) This section applies for the purposes of corporation tax where for any accounting period (“the deficit period”) there is a non-trading deficit on a company’s loan relationships.

(2) The company may make a claim for the whole or any part of the deficit to be treated in any of the following ways, that is to say—

(a) to be set off against any profits of the company (of whatever description) for the deficit period;

(b) to be treated as eligible for group relief;

(c) to be carried back to be set off against profits for earlier accounting periods; or

(d) to be carried forward and set against non-trading profits for the next accounting period.

(3) So much of the deficit for the deficit period as is not the subject of a claim under subsection (2) above shall be carried forward so as to be brought into account for the purposes of this Chapter as a non-trading debit (“a carried-forward debit”) for the accounting period immediately following the deficit period.

(4) No claim shall be made under subsection (2)(a) to (c) above in respect of so much (if any) of the non-trading deficit of a company for any accounting period as is equal to the amount by which that deficit is greater than it would have been if any carried-forward debit for that period had been disregarded.

(5) No part of any non-trading deficit of a company established for charitable purposes only shall be set off against the profits of that or any other company in pursuance of a claim under subsection (2) above.

(6) A claim under subsection (2) above must be made within the period of two years immediately following the end of the relevant period, or within such further period as the Board may allow.

(7) In subsection (6) above “the relevant period”—

(a) in relation to a claim under subsection (2)(a), (b) or (c) above, means the deficit period; and

(b) in relation to a claim under subsection (2)(d) above, means the accounting period immediately following the deficit period.

(8) Different claims may be made under subsection (2) above as respects different parts of a non-trading deficit for any period, but no claim may be made as respects any part of a deficit to which another claim made under that subsection relates.

(9) Schedule 8 to this Act (which makes provision about what happens where a claim is made under subsection (2) above) shall have effect.

Computational provisions etc.

84 Debits and credits brought into account

(1) The credits and debits to be brought into account in the case of any company in respect of its loan relationships shall be the sums which, in accordance with an authorised accounting method and when taken together, fairly represent, for the accounting period in question—

(a) all profits, gains and losses of the company, including those of a capital nature, which (disregarding interest and any charges or expenses) arise to the company from its loan relationships and related transactions; and

(b) all interest under the company’s loan relationship and all charges and expenses incurred by the company under or for the purposes of its loan relationships and related transactions.

(2) The reference in subsection (1) above to the profits, gains and losses arising to a company—

(a) does not include a reference to any amounts required to be transferred to the company’s share premium account; but

(b) does include a reference to any profits, gains or losses which, in accordance with normal accountancy practice, are carried to or sustained by any other reserve maintained by the company.

(3) The reference in subsection (1)(b) above to charges and expenses incurred for the purposes of a company’s loan relationships and related transactions does not include a reference to any charges or expenses other than those incurred directly—

(a) in bringing any of those relationships into existence;

(b) in entering into or giving effect to any of those transactions;

(c) in making payments under any of those relationships or in pursuance of any of those transactions; or

(d) in taking steps for ensuring the receipt of payments under any of those relationships or in accordance with any of those transactions.

(4) Where—

(a) any charges or expenses are incurred by a company for purposes connected—

(i) with entering into a loan relationship or related transaction, or

(ii) with giving effect to any obligation that might arise under a loan relationship or related transaction,

(b) at the time when the charges or expenses are incurred, the relationship or transaction is one into which the company may enter but has not entered, and

(c) if that relationship or transaction had been entered into by that company, the charges or expenses would be charges or expenses incurred as mentioned in subsection (3) above,

those charges or expenses shall be treated for the purposes of this Chapter as charges or expenses in relation to which debits may be brought into account in accordance with subsection (1)(b) above to the same extent as if the relationship or transaction had been entered into.

(5) In this section “related transaction”, in relation to a loan relationship, means any disposal or acquisition (in whole or in part) of rights or liabilities under that relationship.

(6) The cases where there shall be taken for the purposes of this section to be a disposal and acquisition of rights or liabilities under a loan relationship shall include those where such rights or liabilities are transferred or extinguished by any sale, gift, exchange, surrender, redemption or release.

(7) This section has effect subject to Schedule 9 to this Act (which contains provision disallowing certain debits and credits for the purposes of this Chapter and making assumptions about how an authorised accounting method is to be applied in certain cases).

85 Authorised accounting methods

(1) Subject to the following provisions of this Chapter, the alternative accounting methods that are authorised for the purposes of this Chapter are—

(a) an accruals basis of accounting; and

(b) a mark to market basis of accounting under which any loan relationship to which that basis is applied is brought into account in each accounting period at a fair value.

(2) An accounting method applied in any case shall be treated as authorised for the purposes of this Chapter only if—

(a) it conforms (subject to paragraphs (b) and (c) below) to normal accountancy practice, as followed in cases where such practice allows the use of that method;

(b) it contains proper provision for allocating payments under a loan relationship to accounting periods; and

(c) where it is an accruals basis of accounting, it does not contain any provision (other than provision comprised in authorised arrangements for bad debt) that gives debits by reference to the valuation at different times of any asset representing a loan relationship.

(3) In the case of an accruals basis of accounting, proper provision for allocating payments under a loan relationship to accounting periods is provision which—

(a) allocates payments to the period to which they relate, without regard to the periods in which they are made or received or in which they become due and payable;

(b) includes provision which, where payments relate to two or more periods, apportions them on a just and reasonable basis between the different periods;

(c) assumes, subject to authorised arrangements for bad debt, that, so far as any company in the position of a creditor is concerned, every amount payable under the relationship will be paid in full as it becomes due;

(d) secures the making of the adjustments required in the case of the relationship by authorised arrangements for bad debt; and

(e) provides, subject to authorised arrangements for bad debt and for writing off government investments, that, where there is a release of any liability under the relationship, the appropriate amount in respect of the release is credited to the debtor in the accounting period in which the release takes place.

(4) In the case of a mark to market basis of accounting, proper provision for allocating payments under a loan relationship to accounting periods is provision which allocates payments to the accounting period in which they become due and payable.

(5) In this section—

(a) the references to authorised arrangements for bad debt are references to accounting arrangements under which debits and credits are brought into account in conformity with the provisions of paragraph 5 of Schedule 9 to this Act; and

(b) the reference to authorised arrangements for writing off government investments is a reference to accounting arrangements that give effect to paragraph 7 of that Schedule.

(6) In this section “fair value”, in relation to any loan relationship of a company, means the amount which, at the time as at which the value falls to be determined, is the amount that the company would obtain from or, as the case may be, would have to pay to an independent person for—

(a) the transfer of all the company’s rights under the relationship in respect of amounts which at that time are not yet due and payable; and

(b) the release of all the company’s liabilities under the relationship in respect of amounts which at that time are not yet due and payable.

86 Application of accounting methods

(1) This section has effect, subject to the following provisions of this Chapter, for the determination of which of the alternative authorised accounting methods that are available by virtue of section 85 above is to be used as respects the loan relationships of a company.

(2) Different methods may be used as respects different relationships or, as respects the same relationship, for different accounting periods or for different parts of the same accounting period.

(3) If a basis of accounting which is or equates with an authorised accounting method is used as respects any loan relationship of a company in a company’s statutory accounts, then the method which is to be used for the purposes of this Chapter as respects that relationship for the accounting period, or part of a period, for which that basis is used in those accounts shall be—

(a) where the basis used in those accounts is an authorised accounting method, that method; and

(b) where it is not, the authorised accounting method with which it equates.

(4) For any period or part of a period for which the authorised accounting method to be used as respects a loan relationship of a company is not determined under subsection (3) above, an authorised accruals basis of accounting shall be used for the purposes of this Chapter as respects that loan relationship.

(5) For the purposes of this section (but subject to subsection (6) below)—

(a) a basis of accounting equates with an authorised accruals basis of accounting if it purports to allocate payments under a loan relationship to accounting periods according to when they are taken to accrue; and

(b) a basis of accounting equates with an authorised mark to market basis of accounting if (without equating with an authorised accruals basis of accounting) it purports in respect of a loan relationship—

(i) to produce credits or debits computed by reference to the determination, as at different times in an accounting period, of a fair value; and

(ii) to produce credits or debits relating to payments under that relationship according to when they become due and payable.

(6) An accounting method which purports to make any such allocation of payments under a loan relationship as is mentioned in subsection (5)(a) above shall be taken for the purposes of this section to equate with an authorised mark to market basis of accounting (rather than with an authorised accruals basis of accounting) if—

(a) it purports to bring that relationship into account in each accounting period at a value which would be a fair value if the valuation were made on the basis that interest under the relationship were to be disregarded to the extent that it has already accrued; and

(b) the credits and debits produced in the case of that relationship by that method (when it is properly applied) correspond, for all practical purposes, to the credits and debits produced in the case of that relationship, and for the same accounting period, by an authorised mark to market basis of accounting.

(7) In this section “fair value” has the same meaning as in section 85 above.

(8) In this section “statutory accounts”, in relation to a company, means—

(a) any accounts relating to that company that are drawn up in accordance with any requirements of the [1985 c. 6.] Companies Act 1985 or the [S.I. 1986/1032 (N.I.6).] Companies (Northern Ireland) Order 1986 that apply in relation to that company;

(b) any accounts relating to that company that are drawn up in accordance with any requirements of regulations under section 70 of the [1992 c. 40.] Friendly Societies Act 1992 that apply in relation to that company;

(c) any accounts relating to that company which are accounts to which Part I of Schedule 21C to the [1985 c. 6.] Companies Act 1985 or Part I of Schedule 21D to that Act (companies with UK branches) applies;

(d) in the case of a company which—

(i) is not subject to any such requirements as are mentioned in paragraphs (a) or (b) above, and

(ii) is a company in whose case there are no accounts for the period in question that fall within paragraph (c) above,

any accounts relating to the company drawn up in accordance with requirements imposed in relation to that company under the law of its home State; and

(e) in the case of a company which—

(i) is not subject to any such requirements as are mentioned in paragraphs (a), (b) or (d) above, and

(ii) is a company in whose case there are no accounts for the period in question that fall within paragraph (c) above,

the accounts relating to the company that most closely correspond to the accounts which, in the case of a company formed and registered under the Companies Act 1985, are required under that Act.

(9) For the purposes of subsection (8) above the home State of a company is the country or territory under whose law the company is incorporated.

87 Accounting method where parties have a connection

(1) This section applies in the case of a loan relationship of a company where for any accounting period there is a connection between the company and—

(a) in the case of a debtor relationship of the company, a person standing in the position of a creditor as respects the debt in question; or

(b) in the case of a creditor relationship of the company, a person standing in the position of a debtor as respects that debt.

(2) The only accounting method authorised for the purposes of this Chapter for use by the company as respects the loan relationship shall be an authorised accruals basis of accounting.

(3) For the purposes of this section there is a connection between a company and another person for an accounting period if (subject to subsection (4) and section 88 below)—

(a) the other person is a company and there is a time in that period, or in the two years before the beginning of that period, when one of the companies has had control of the other;

(b) the other person is a company and there is a time in that period, or in those two years, when both the companies have been under the control of the same person; or

(c) there is a time in that accounting period, or in those two years, when the company was a close company and the other person was a participator in that company or the associate of a person who was such a participator at that time.

(4) Two companies which have at any time been under the control of the same person shall not, by virtue of that fact, be taken for the purposes of this section to be companies between whom there is a connection if the person was the Crown, a Minister of the Crown, a government department, a Northern Ireland department, a foreign sovereign power or an international organisation.

(5) The references in subsection (1) above to a person who stands in the position of a creditor or debtor as respects a loan relationship include references to a person who indirectly stands in that position by reference to a series of loan relationships.

(6) Subsections (2) to (6) of section 416 of the Taxes Act 1988 (meaning of “control”) shall apply for the purposes of this section as they apply for the purposes of Part XI of that Act.

(7) Subject to subsection (8) below, in this section “participator” and “associate” have the meanings given for the purposes of Part XI of the Taxes Act 1988 by section 417 of that Act.

(8) A person shall not for the purposes of this section be regarded as a participator in relation to a company by reason only that he is a loan creditor of the company.

88 Exemption from section 87 in certain cases

(1) Subject to subsection (5) below, where a creditor relationship of a company is one to which that company is a party in any accounting period in exempt circumstances, any connection for that accounting period between the company and a person who stands in the position of a debtor as respects the debt shall be disregarded for the purposes of section 87 above.

(2) A company having a creditor relationship in any accounting period shall, for that period, be taken for the purposes of this section to be a party to that relationship in exempt circumstances if—

(a) the company, in the course of carrying on any activities forming an integral part of a trade carried on by that company in that period, disposes of or acquires assets representing creditor relationships;

(b) that period is one for which the company uses an authorised mark to market basis of accounting as respects all the creditor relationships represented by assets acquired in the course of those activities;

(c) the asset representing the creditor relationship in question was acquired in the course of those activities;

(d) that asset is either—

(i) listed on a recognised stock exchange at the end of that period; or

(ii) a security the redemption of which must occur within twelve months of its issue;

(e) there is a time in that period when assets of the same kind as the asset representing the loan relationship in question are in the beneficial ownership of persons other than the company; and

(f) there is not more than three months, in aggregate, in that accounting period during which the equivalent of 30 per cent. or more of the assets of that kind is in the beneficial ownership of connected persons.

(3) An insurance company carrying on basic life assurance and general annuity business and having a creditor relationship in any accounting period shall, for that period, be taken for the purposes of this section to be a party to that relationship in exempt circumstances if—

(a) assets of the company representing any of its creditor relationships are linked for that period to its basic life assurance and general annuity business;

(b) that period is one for which the company uses an authorised mark to market basis of accounting as respects all the creditor relationships of the company represented by assets that are so linked;

(c) the asset representing the creditor relationship in question is so linked;

(d) that asset is either—

(i) listed on a recognised stock exchange at the end of that period; or

(ii) a security the redemption of which must occur within twelve months of its issue;

(e) there is a time in that period when assets of the same kind as the asset representing the creditor relationship in question are in the beneficial ownership of persons other than the company; and

(f) there is not more than three months, in aggregate, in that accounting period during which the equivalent of 30 per cent. or more of the assets of that kind is in the beneficial ownership of connected persons.

(4) For the purposes of subsections (2) and (3) above—

(a) assets shall be taken to be of the same kind where they are treated as being of the same kind by the practice of any recognised stock exchange, or would be so treated if dealt with on such a stock exchange; and

(b) a connected person has the beneficial ownership of an asset wherever there is, or (apart from this section) would be, a connection (within the meaning of section 87 above) between—

(i) the person who has the beneficial ownership of the asset, and

(ii) a person who stands in the position of a debtor as respects the money debt by reference to which any loan relationship represented by that asset subsists.

(5) Where for any accounting period—

(a) subsection (1) above has effect in the case of a creditor relationship of a company, and

(b) the person who stands in the position of a debtor as respects the debt in question is also a company,

that subsection shall not apply for determining, for the purposes of so much of section 87 above as relates to the corresponding debtor relationship, whether there is a connection between the two companies.

(6) Subsection (5) of section 87 above shall apply for the purposes of this section as it applies for the purposes of that section.

(7) In this section “basic life assurance and general annuity business” and “insurance company” have the same meanings as in Chapter I of Part XII of the Taxes Act 1988, and section 432ZA of that Act (linked assets) shall apply for the purposes of this section as it applies for the purposes of that Chapter.

89 Inconsistent application of accounting methods

(1) Where there is any inconsistency or other material difference between the way in which any authorised accounting method is applied as respects the same loan relationship in successive accounting periods, a balancing credit or balancing debit shall be brought into account in the second of those periods (“the second period”).

(2) The amount of the balancing credit or debit shall be computed as respects the relationship in question by—

(a) taking the amount given by subsection (3) below and the amount given by subsection (4) below; and

(b) then aggregating those amounts (treating any debit as a negative amount) to produce a net credit or net debit.

(3) The amount given by this subsection is whichever of the following is applicable—

(a) a debit equal to the amount (if any) by which the first of the following amounts exceeds the second, that is to say—

(i) the aggregate of the credits actually brought into account for all previous periods in which the accounting method was used; and

(ii) the aggregate of the credits that would have been brought into account if that method had been applied in those periods in the same way as it was applied in the second period;

(b) a credit equal to the amount (if any) by which the second aggregate mentioned in paragraph (a) above exceeds the first; or

(c) if both those aggregates are the same, nil.

(4) The amount given by this subsection is whichever of the following is applicable—

(a) a credit equal to the amount (if any) by which the first of the following amounts exceeds the second, that is to say—

(i) the aggregate of the debits actually brought into account for all previous periods in which the accounting method was used; and

(ii) the aggregate of the debits that would have been brought into account if that method had been applied in those periods in the same way as it was applied in the second period;

(b) a debit equal to the amount (if any) by which the second aggregate mentioned in paragraph (a) above exceeds the first; or

(c) if both those aggregates are the same, nil.

(5) In this section “previous period” means any accounting period before the second period.

90 Changes of accounting method

(1) This section applies where different authorised accounting methods are used for the purposes of this Chapter as respects the same loan relationship for different parts of the same accounting period or for successive accounting periods.

(2) Where, in the case of any loan relationship, the use of any authorised accounting method is superseded in the course of any accounting period by the use of another—

(a) the assumptions specified in subsection (4) below shall be made;

(b) each method shall be applied on those assumptions as respects the part of the period for which it is used; and

(c) the credits and debits given by the application of those methods on those assumptions shall be brought into account in the accounting period in which the change of method takes effect.

(3) Where, in the case of any loan relationship, the use of any authorised accounting method is superseded as from the beginning of an accounting period by the use of another—

(a) a net credit or debit shall be computed (treating any debit used in the computation as a negative amount) by—

(i) aggregating the credits and debits which, on the assumptions specified in subsection (4) below, would have been given in respect of that relationship for the successive accounting periods by the use for each period of the accounting method actually used for that period;

(ii) aggregating the credits and debits so given without the making of those assumptions; and

(iii) subtracting the second aggregate from the first;

and

(b) the net credit or debit shall be brought into account for the purposes of this Chapter in the accounting period as from the beginning of which the change of method takes effect.

(4) The assumptions mentioned in subsections (2) and (3) above are—

(a) that the company ceased to be a party to the relationship immediately before the end of the period, or part of a period, for which the superseded method is used;

(b) that the company again became a party to that relationship as from the beginning of the period or, as the case may be, part of a period for which the other authorised accounting method is used;

(c) that the relationship to which the company is deemed to have become a party is separate and distinct from the one to which it is deemed to have ceased to be a party;

(d) that the amount payable under the transaction comprised in each of the assumptions specified in paragraphs (a) and (b) above was equal to the fair value of the relationship; and

(e) so far as relevant, that that amount became due at the time when the company is deemed to have ceased to be a party to the relationship or, as the case may be, to have again become a party to it.

(5) Where—

(a) a mark to market basis of accounting is superseded by an accruals basis of accounting in the case of any loan relationship, and

(b) the amount which would have accrued in respect of that relationship in the period or part of a period for which the accruals basis of accounting is used falls to be determined for the purposes of this section in accordance with the assumptions mentioned in subsection (4) above,

that amount shall be taken for those purposes to be equal to the amount resulting from the subtraction of the amount given by subsection (6)(a) below from the amount given by subsection (6)(b) below.

(6) Those amounts are—

(a) the amount which by virtue of the assumptions mentioned in subsection (4) above is given as an opening value for the period or part of a period; and

(b) the amount equal to whatever, in the computation in accordance with an authorised accruals basis of accounting of the amount accruing in that period or part of a period, would have been taken to be the closing value applicable as at the end of that period or part of a period if such a basis of accounting had always been used as respects the relationship.

(7) In this section “fair value” has the same meaning as in section 85 above.

91 Payments subject to deduction of tax

(1) This section applies where—

(a) any company receives a payment of interest on which it bears income tax by deduction; and

(b) in the case of that company, a credit relating to that interest has been brought into account for the purposes of this Chapter for an accounting period ending more than two years before the receipt of the payment.

(2) On a claim made by the company to an officer of the Board, section 7(2) or, as the case may be, 11(3) of the Taxes Act 1988 (deducted income tax to be set against liability to corporation tax) shall have effect in relation to the income tax on the payment as if the interest had fallen to be taken into account for the purposes of corporation tax in the accounting period in which the payment of that interest is received.

(3) In determining for the purposes of this section which accounting period is the accounting period for which a credit relating to interest paid subsequently was brought into account, every payment of interest to a company under a loan relationship of that company shall be assumed to be a payment in discharge of the earliest outstanding liability to that company in respect of interest payable under the relationship.

(4) For the purposes of this section, the earliest outstanding liability to interest payable under a loan relationship of a company shall be identified, in relation to any payment of such interest, according to the authorised accounting method most recently used as respects that relationship, so that—

(a) if that method is an authorised accruals basis of accounting, it shall be determined by reference to the time when the interest accrued; and

(b) if that method is an authorised mark to market basis of accounting, it shall be determined by reference to the time when the interest became due and payable.

(5) In subsection (4) above the reference, in relation to a payment of interest made to a company in any accounting period, to the authorised accounting method most recently used as respects that relationship is a reference to the authorised accounting method which, in the case of that company, has been used as respects that relationship for the accounting period which, when the payment is made, is the most recent for which amounts in respect of that relationship have been brought into account for the purposes of this Chapter.

(6) A claim under this section shall not be made in respect of any payment of interest at any time after the later of the following, that is to say—

(a) the time two years after the end of the accounting period in which the payment is received; and

(b) the time six years after the end of the accounting period for which the credit in respect of the interest was brought into account for the purposes of this Chapter.

(7) Where—

(a) there is a payment of interest to a company under a loan relationship of that company, and

(b) the company is prevented by virtue of subsection (6) above from making any claim under this section in respect of that payment,

the company shall not be entitled to make any claim under paragraph 5 of Schedule 16 to the Taxes Act 1988 (set off of income tax borne against income tax payable) in respect of that payment.

Special cases

92 Convertible securities etc

(1) This section applies to an asset if—

(a) the asset represents a creditor relationship of a company;

(b) the rights attached to the asset include provision by virtue of which the company is or may become entitled to acquire (whether by conversion or exchange or otherwise) any shares in a company;

(c) the extent to which shares may be acquired under that provision is not determined using a cash value which is specified in that provision or which is or will be ascertainable by reference to the terms of that provision;

(d) the asset is not a relevant discounted security within the meaning of Schedule 13 to this Act;

(e) at the time when the asset came into existence there was a more than negligible likelihood that the right to acquire shares in a company would in due course be exercised to a significant extent; and

(f) the asset is not one the disposal of which by the company would fall to be treated as a disposal in the course of activities forming an integral part of a trade carried on by the company.

(2) The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of a creditor relationship represented by an asset to which this section applies shall be confined to amounts relating to interest.

(3) Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.

(4) Amounts shall be brought into account in computing the profits of the company for the purposes of corporation tax as if the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 had effect in relation to any asset to which this section applies as it has effect in relation to an asset that does not represent a loan relationship.

(5) For the purposes of that Act the amount or value of the consideration for any disposal or acquisition of the asset shall be treated as adjusted so as to exclude so much of it as, on a just and reasonable apportionment, relates to any interest which—

(a) falls to be brought into account under subsections (2) and (3) above as accruing to any company at any time; and

(b) in consequence of, or of the terms of, the disposal or acquisition, is not paid or payable to the company to which it is treated for the purposes of this Chapter as accruing.

(6) In subsection (5) above the references to a disposal, in relation to an asset, are references to anything which—

(a) is a disposal of that asset (within the meaning of the Taxation of Chargeable Gains Act 1992); or

(b) would be such a disposal but for section 127 or 116(10) of that Act (reorganisations etc.);

and the references to the acquisition of an asset shall be construed accordingly.

93 Relationships linked to the value of chargeable assets

(1) This section applies in the case of any loan relationship of a company that is linked to the value of chargeable assets unless it is one the disposal of which by the company would fall to be treated as a disposal in the course of activities forming an integral part of a trade carried on by the company.

(2) The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of the relationship shall be confined to amounts relating to interest.

(3) Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.

(4) Amounts shall be brought into account in computing the profits of the company for the purposes of corporation tax as if the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 had effect in relation to the asset representing the relationship as it has effect in relation to an asset that does not represent a loan relationship.

(5) For the purposes of that Act the amount or value of the consideration for any disposal or acquisition of the asset shall be treated as adjusted so as to exclude so much of it as, on a just and reasonable apportionment, relates to any interest which—

(a) falls to be brought into account under subsections (2) and (3) above as accruing to any company at any time; and

(b) in consequence of, or of the terms of, the disposal or acquisition, is not paid or payable to the company to which it is treated for the purposes of this Chapter as accruing.

(6) For the purposes of this section a loan relationship is linked to the value of chargeable assets if, in pursuance of any provision having effect for the purposes of that relationship, the amount that must be paid to discharge the money debt (whether on redemption of a security issued in relation to that debt or otherwise) is equal to the amount determined by applying a relevant percentage change in the value of chargeable assets to the amount falling for the purposes of this Chapter to be regarded as the amount of the original loan from which the money debt arises.

(7) In subsection (6) above the reference to a relevant percentage change in the value of chargeable assets is a reference to the amount of the percentage change (if any) over the relevant period in the value of chargeable assets of any particular description or in any index of the value of any such assets.

(8) In subsection (7) above “the relevant period” means—

(a) the period between the time of the original loan and the discharge of the money debt; or

(b) any other period in which almost all of that period is comprised and which differs from that period exclusively for purposes connected with giving effect to a valuation in relation to rights or liabilities under the loan relationship.

(9) If—

(a) there is a provision which, in the case of any loan relationship, falls within subsection (6) above,

(b) that provision is made subject to any other provision applying to the determination of the amount payable to discharge the money debt,

(c) that other provision is to the effect only that the amount so payable must not be less than a specified percentage of the amount falling for the purposes of this Chapter to be regarded as the amount of the original loan, and

(d) the specified percentage is not more than 10 per cent.,

that other provision shall be disregarded in determining for the purposes of this section whether the relationship is linked to the value of chargeable assets.

(10) For the purposes of this section an asset is a chargeable asset, in relation to a loan relationship of a company, if any gain accruing on the disposal of the asset by the company on or after 1st April 1996 would, on the assumptions specified in subsection (11) below, be a chargeable gain for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

(11) Those assumptions are—

(a) where it is not otherwise the case, that the asset is an asset of the company;

(b) that the asset is not one the disposal of which by the company would fall to be treated for the purposes of corporation tax as a disposal in the course of a trade carried on by the company; and

(c) that chargeable gains that might accrue under section 116(10) of that Act (postponed charges) are to be disregarded.

(12) In subsection (5) above references to a disposal, in relation to an asset, are references to anything which—

(a) is a disposal of that asset (within the meaning of the Taxation of Chargeable Gains Act 1992); or

(b) would be such a disposal but for section 127 or 116(10) of that Act (reorganisations etc.);

and the references to the acquisition of an asset shall be construed accordingly.

(13) For the purposes of this section neither—

(a) the retail prices index, nor

(b) any similar general index of prices published by the government of any territory or by the agent of any such government,

shall be taken to be an index of the value of chargeable assets.

94 Indexed gilt-edged securities

(1) In the case of any loan relationship represented by an index-linked gilt-edged security, the adjustment for which this section provides shall be made in computing the credits and debits which fall, for any accounting period, to be brought into account for the purposes of this Chapter in respect of that relationship as non-trading credits or non-trading debits.

(2) The adjustment shall be made wherever—

(a) the authorised accounting method applied as respects the index-linked gilt-edged security gives credits or debits by reference to the value of the security at two different times, and

(b) there is any change in the retail prices index between those times.

(3) Subject to subsection (4) below, the adjustment is such an adjustment of the amount which would otherwise be taken for the purposes of that accounting method to be the value of the security at the earlier time (“the opening value”) as results in the amount in fact so taken being equal to the opening value increased or, as the case may be, reduced by the same percentage as the percentage increase or reduction in the retail prices index between the earlier and the later time.

(4) The Treasury may, in relation to any description of index-linked gilt-edged securities, by order provide that—

(a) there are to be no adjustments under this section; or

(b) that an adjustment specified in the order (instead of the adjustment specified in subsection (3) above) is to be the adjustment for which this section provides.

(5) An order under subsection (4) above—

(a) shall not have effect in relation to any gilt-edged security issued before the making of the order; but

(b) may make different provision for different descriptions of securities.

(6) For the purposes of this section the percentage increase or reduction in the retail prices index between any two times shall be determined by reference to the difference between—

(a) that index for the month in which the earlier time falls; and

(b) that index for the month in which the later time falls.

(7) In this section “index-linked gilt-edged securities” means any gilt-edged securities the amounts of the payments under which are determined wholly or partly by reference to the retail prices index.

95 Gilt strips

(1) This section has effect for the purposes of the application of an authorised accruals basis of accounting as respects a loan relationship represented by a gilt-edged security or a strip of a gilt-edged security.

(2) Where a gilt-edged security is exchanged by any person for strips of that security—

(a) the security shall be deemed to have been redeemed at the time of the exchange by the payment to that person of its market value; and

(b) that person shall be deemed to have acquired each strip for the amount which bears the same proportion to that market value as is borne by the market value of the strip to the aggregate of the market values of all the strips received in exchange for the security.

(3) Where strips of a gilt-edged security are consolidated into a single gilt-edged security by being exchanged by any person for that security—

(a) each of the strips shall be deemed to have been redeemed at the time of the exchange by the payment to that person of the amount equal to its market value; and

(b) that person shall be deemed to have acquired the security received in the exchange for the amount equal to the aggregate of the market values of the strips given in exchange for the security.

(4) References in this section to the market value of a security given or received in exchange for another are references to its market value at the time of the exchange.

(5) Without prejudice to the generality of any power conferred by section 202 below, the Treasury may by regulations make provision for the purposes of this section as to the manner of determining the market value at any time of any gilt-edged security (including any strip).

(6) Regulations under subsection (5) above may—

(a) make different provision for different cases; and

(b) contain such incidental, supplemental, consequential and transitional provision as the Treasury may think fit.

(7) In this section “strip” means anything which, within the meaning of section 47 of the [1942 c. 21.] Finance Act 1942, is a strip of a gilt-edged security.

96 Special rules for certain other gilts

(1) This section applies as respects any loan relationship of a company if—

(a) it is represented by a security of any of the following descriptions—

(i) 3½% Funding Stock 1999-2004; or

(ii) 5½% Treasury Stock 2008-2012;

and

(b) it is one to which the company is a party otherwise than in the course of activities that form an integral part of a trade carried on by the company.

(2) The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of a loan relationship to which this section applies shall be confined to amounts relating to interest.

(3) Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.

97 Manufactured interest

(1) This section applies where—

(a) any amount (“manufactured interest”) is payable by or on behalf of, or to, any company under any contract or arrangements relating to the transfer of an asset representing a loan relationship; and

(b) that amount is, or (when paid) will fall to be treated as, representative of interest under that relationship (“the real interest”).

(2) In relation to that company the manufactured interest shall be treated for the purposes of this Chapter—

(a) as if it were interest under a loan relationship to which the company is a party; and

(b) where that company is the company to which the manufactured interest is payable, as if that relationship were the one under which the real interest is payable.

(3) Any question whether debits or credits falling to be brought into account in the case of any company by virtue of this section—

(a) are to be brought into account under section 82(2) above, or

(b) are to be treated as non-trading debits or non-trading credits,

shall be determined according to the extent (if any) to which the manufactured interest is paid for the purposes of a trade carried on by the company or is received in the course of activities forming an integral part of such a trade.

(4) Where section 737A(5) of the Taxes Act 1988 (deemed manufactured payments) has effect in relation to a transaction relating to an asset representing a loan relationship so as, for the purposes of section 737 of, or Schedule 23A to, that Act, to deem there to have been a payment representative of interest under that relationship, this section shall apply as it would have applied if such a representative payment had in fact been made.

(5) This section does not apply where the manufactured interest is treated by virtue of paragraph 5(2)(c) or (4)(c) of Schedule 23A to the Taxes Act 1988 (manufactured interest passing through the market) as not being income of the person who receives it.

98 Collective investment schemes

The provisions of this Chapter have effect subject to the provisions of Schedule 10 to this Act (which makes special provision in relation to certain collective investment schemes).

99 Insurance companies

The preceding provisions of this Chapter have effect subject to Schedule 11 to this Act (which makes special provision in relation to certain insurance companies and in relation to corporate members of Lloyd's).

Miscellaneous other provisions

100 Interest on judgments, imputed interest, etc

(1) This Chapter shall have effect in accordance with subsection (2) below where—

(a) interest on a money debt is payable to or by any company;

(b) that debt is one as respects which it stands, or has stood, in the position of a creditor or debtor; and

(c) that debt did not arise from a loan relationship.

(2) It shall be assumed for the purposes of this Chapter—

(a) that the interest is interest payable under a loan relationship to which the company is a party; but

(b) that the only credits or debits to be brought into account for those purposes in respect of that relationship are those relating to the interest.

(3) References in this section to interest payable on a money debt include references to any amount which, in pursuance of sections 770 to 772 of the Taxes Act 1988 (transactions at an undervalue or overvalue), as those sections have effect by virtue of section 773(4) of that Act, falls to be treated in pursuance of those sections as—

(a) interest on a money debt; or

(b) interest on an amount which is treated as a money debt.

(4) Any question whether debits or credits falling to be brought into account in accordance with this section in relation to any company—

(a) are to be brought into account under section 82(2) above, or

(b) are to be treated as non-trading debits or non-trading credits,

shall be determined according to the extent (if any) to which the interest in question is paid for the purposes of a trade carried on by the company or is received in the course of activities forming an integral part of such a trade, or (in the case of deemed interest) would be deemed to be so paid or received.

(5) This section has effect subject to the provisions of Schedules 9 and 11 to this Act.

101 Financial instruments

(1) Chapter II of Part IV of the [1994 c. 9.] Finance Act 1994 (provisions relating to certain financial instruments) shall not apply to any profit or loss which, in accordance with that Chapter, accrues to a company for any accounting period on a qualifying contract by virtue of which the company is a party to any loan relationship if—

(a) an amount representing that profit or loss, or

(b) an amount representing the profit or loss accruing to that company on that contract,

is brought into account for that period for the purposes of this Chapter.

(2) After section 147 of that Act (qualifying contracts) there shall be inserted the following section—

“147A Debt contracts