(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.”
(1) After section 1 of the Taxes Act 1988 there shall be inserted the following section—
(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.
(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.
(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.
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 shall be charged for the financial year 1996 at the rate of 33 per cent.
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.
(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.
(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.
(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.
(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).
(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.
(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).
(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.
(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.
(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.