Office of Public Sector Information
PART III continued
(1) Section 393A of the Taxes Act 1988 (set-off of trading losses against profits of previous three years) shall be amended in accordance with subsections (2) to (6) below.
(2) In subsection (2) (three year carry-back period), for “is the period of three years” there shall be substituted “is (subject to subsection (2A) below) the period of twelve months”.
(3) After that subsection there shall be inserted the following subsections—
“(2A) This section shall have effect in relation to any loss to which this subsection applies as if, in subsection (2) above, the words “three years” were substituted for the words “twelve months”.
(2B) Where a company ceases to carry on a trade at any time, subsection (2A) above applies to the following—
(a) the whole of any loss incurred in that trade by that company in an accounting period beginning twelve months or less before that time; and
(b) the part of any loss incurred in that trade by that company in an accounting period ending, but not beginning, in that twelve months which is proportionate to the part of that accounting period falling within those twelve months.
(2C) Where—
(a) a loss is incurred by a company in a ring fence trade carried on by that company, and
(b) the accounting period in which the loss is incurred is an accounting period for which an allowance under section 62A of the 1990 Act (demolition costs relating to offshore machinery or plant) is made to that company,
subsection (2A) above applies to so much of the amount of that loss not falling within subsection (2B) above as does not exceed the amount of that allowance.”
(4) In subsection (7) (application of section 393(9))—
(a) at the beginning there shall be inserted “Subject to subsection (7A) below,”; and
(b) for “the accounting period in which the cessation occurs” there shall be substituted “an accounting period ending with the cessation, or ending at any time in the twelve months immediately preceding the cessation,”.
(5) After that subsection there shall be inserted the following subsection—
“(7A) For the purposes of this section where—
(a) subsection (7) above has effect for computing the loss for any accounting period, and
(b) that accounting period is one beginning before the beginning of the twelve months mentioned in that subsection,
the part of that loss that is not the part falling within subsection (2B)(b) above shall be treated as reduced (without any corresponding increase in the part of the loss that does fall within subsection (2B)(b) above) by an amount equal to so much of the aggregate of the charges on income treated as expenses by virtue of subsection (7) above as is proportionate to the part of the accounting period that does not fall within those twelve months.”
(6) After subsection (11) there shall be inserted the following subsection—
“(12) In this section “ring fence trade” has the same meaning as in section 62A of the 1990 Act.”
(7) In section 343 of that Act (company reconstructions without a change of ownership), the following subsection shall be inserted after subsection (4)—
“(4A) Subsection (2A) of section 393A shall not apply to any loss which (but for this subsection) would fall within subsection (2B) of that section by virtue of the predecessor’s ceasing to carry on the trade, and subsection (7) of that section shall not apply for the computation of any such loss.”
(8) Subject to subsection (9) below, this section applies to any loss incurred in an accounting period ending on or after 2nd July 1997.
(9) Where a loss in any trade is incurred by a company in an accounting period ending on or after 2nd July 1997 but beginning before that date, section 393A of the Taxes Act 1988 shall have effect as if subsection (2A) of that section applied to the pre-commencement part of any amount of that loss to which that subsection would not apply apart from this subsection.
(10) In subsection (9) above “the pre-commencement part”, in relation to the amount of the whole or any part of a loss in an accounting period, means the part of that amount which, on an apportionment in accordance with subsection (11) or, as the case may be, (12) below, is attributable to the part of that accounting period falling before 2nd July 1997.
(11) Except in a case where subsection (12) below applies, an apportionment for the purposes of subsection (10) above shall be made on a time basis according to the respective lengths of the part of the accounting period falling before 2nd July 1997 and the remainder of that accounting period.
(12) Where the circumstances of a particular case are such that the making of an apportionment on the time basis mentioned in subsection (11) above would work in a manner that would be unjust or unreasonable in relation to any person, the apportionment shall be made instead (to the extent only that is necessary in order to avoid injustice and unreasonableness) in such other manner as may be just and reasonable.
(1) Chapter II of Part IV of the [1996 c. 8.] Finance Act 1996 (loan relationships) shall be amended as follows.
(2) In paragraph 3(7) of Schedule 8 (permitted period of three years for carry-back of deficits), for “three years” and “three year” there shall be substituted, in each case, “twelve months”.
(3) In sub-paragraph (3) of paragraph 4 of Schedule 11 (carry-back of deficit by insurance companies)—
(a) for paragraph (a) there shall be substituted the following paragraph—
“(a) carried back to accounting periods falling wholly or partly within the period of twelve months immediately preceding the deficit period; and”; and
(b) in paragraph (b), for “those periods” there shall be substituted “up to three such periods”.
(4) In sub-paragraph (5) of that paragraph (mechanism for carry-back in the case of insurance companies), for “the three accounting periods preceding the deficit period” there shall be substituted “accounting periods falling wholly or partly within the period of twelve months mentioned in sub-paragraph (3)(a) above”.
(5) In sub-paragraph (8) of that paragraph (which defines the set-off periods), in each of paragraphs (b) and (c), for “immediately preceding” there shall be substituted “(if any) which falls wholly or partly within the period of twelve months mentioned in sub-paragraph (3)(a) above and immediately precedes”.
(6) In sub-paragraph (9) of that paragraph (adjusted amount of a company’s eligible profit), after “is” there shall be inserted “(subject to sub-paragraph (9A) below)”; and after that sub-paragraph there shall be inserted the following sub-paragraph—
“(9A) Where a set-off period falls only partly within the period of twelve months mentioned in sub-paragraph (3)(a) above, the adjusted amount of a company’s eligible profit for that period shall be taken to be confined to the part of the amount computed under sub-paragraph (9) above which is proportionate to the part of the set-off period that falls within that period of twelve months.”
(7) Subject to subsection (8) below, this section has effect in relation to any deficit for a deficit period ending on or after 2nd July 1997.
(8) Paragraph 3 of Schedule 8 to the [1996 c. 8.] Finance Act 1996 shall have effect in relation to any deficit for a deficit period beginning before but ending on or after 2nd July 1997 as if the permitted period in relation to the pre-commencement part of the deficit were the period beginning with 1st April 1996 and ending immediately before the beginning of the deficit period.
(9) Where for the purposes of paragraph 23 of Schedule 15 to the Finance Act 1996 (transitional provision in connection with the carrying back of exchange losses) there is a relievable amount for an accounting period ending on or after 2nd July 1997, that paragraph shall have effect, except in relation to any pre-commencement part of that amount, as if, in section 131(10)(b) of the [1993 c. 34.] Finance Act 1993 (the permitted period) as applied by that paragraph, the words “twelve months” were substituted for the words “three years”.
(10) In this section “pre-commencement part”, in relation to the deficit for any deficit period or the relievable amount for any accounting period, means the part (if any) of that deficit or relievable amount which, on an apportionment in accordance with subsection (11) or, as the case may be, (12) below, is attributable to such part (if any) of that period as falls before 2nd July 1997.
(11) Except in a case where subsection (12) below applies, an apportionment for the purposes of subsection (10) above shall be made on a time basis according to the respective lengths of the part of the deficit period or, as the case may be, accounting period falling before 2nd July 1997 and the remainder of that period.
(12) Where the circumstances of a particular case are such that the making of an apportionment on the time basis mentioned in subsection (11) above would work in a manner that would be unjust or unreasonable in relation to any person, the apportionment shall be made instead (to the extent only that is necessary in order to avoid injustice and unreasonableness) in such other manner as may be just and reasonable.
Schedule 7 to this Act (which imposes new restrictions on the giving of group relief) shall have effect.
(1) In subsection (1) of section 22 of the [1990 c. 1.] Capital Allowances Act 1990 (first-year allowances), after “40 per cent. of that expenditure” there shall be inserted “, in the case of expenditure to which this section applies by virtue only of subsection (3C) below, shall be of an amount equal to the percentage of that expenditure that is given by subsection (1AA) below”.
(2) After that subsection there shall be inserted the following subsection—
“(1AA) In the case of expenditure to which this section applies by virtue only of subsection (3C) below, the percentage mentioned in subsection (1) above is—
(a) in the case of expenditure to which Chapter IVA applies, 12 per cent; and
(b) in the case of any other expenditure, 50 per cent.”
(3) After subsection (3B) of that section there shall be inserted the following subsection—
“(3C) This section applies to—
(a) any expenditure which, disregarding any effect of section 83(2) on the time at which it is to be treated as incurred, is incurred by a small company or a small business in the period beginning with 2nd July 1997 and ending with 1st July 1998; and
(b) any additional VAT liability incurred in respect of expenditure to which this section applies by virtue of paragraph (a) above.”
(4) In subsection (4) of that section, after “any expenditure” there shall be inserted “to which this section applies otherwise than by virtue only of subsection (3C) above”.
(5) After subsection (6A) of that section there shall be inserted the following subsections—
“(6B) No first-year allowance shall be made in respect of any expenditure to which this section applies by virtue only of subsection (3C) above—
(a) if the chargeable period related to the incurring of the expenditure is also the chargeable period related to the permanent discontinuance of the trade;
(b) if the expenditure (whether or not it is expenditure to which Chapter IVA would apply but for the provisions of section 38B) is expenditure of the kind described in any of subsections (2) to (4) of section 38B;
(c) if the expenditure is expenditure to which Chapter IVA would apply but for the provisions of section 38H; or
(d) if the expenditure is expenditure on the provision of machinery or plant for leasing, whether in the course of a trade or otherwise;
and section 50(2) shall apply for the interpretation of paragraph (d) above as it applies for the interpretation of Chapter V of this Part.
(6C) No first-year allowance shall be made in respect of any expenditure incurred on the provision of machinery or plant to which this section applies by virtue only of subsection (3C) above if—
(a) the provision of the machinery or plant is connected with a change in the nature or conduct of a trade or business carried on by a person other than the person incurring the expenditure; and
(b) the obtaining of a first-year allowance is the main benefit, or one of the main benefits, which could reasonably be expected to arise from the making of the change.”
(6) In sections 23(6), 42(9), 44(5), 46(8), 48(7) and 50(3) and (4A) of that Act (which contain provisions referring to the temporary first-year allowances under section 22(3B) of that Act), after the words “subsection (3B)”, in each place where they occur, there shall be inserted the words “or (3C)”.
(7) In section 39(2)(a) of that Act (definition of a qualifying purpose), for “subsections (2) to (3B)” there shall be substituted “subsections (2) to (3C)”.
(8) In section 43 of that Act (provisions relating to joint lessees in cases involving new expenditure), after subsection (4) there shall be added the following subsection—
“(5) Any first-year allowance made in respect of expenditure to which section 22 applies by virtue only of subsection (3C) of that section shall be made on the same assumptions and subject to the same apportionments (if any) as it appears would, by virtue of subsection (3) above, be applicable in the case of a writing-down allowance.”
(9) This section shall have effect in relation to every chargeable period ending on or after 2nd July 1997.
(1) After section 22 of the [1990 c. 1.] Capital Allowances Act 1990 there shall be inserted the following section—
(1) For the purposes of section 22 capital expenditure incurred by a company is capital expenditure incurred by a small company if the company—
(a) qualifies as small or medium-sized in relation to the financial year of the company in which the expenditure is incurred; and
(b) is not a member of a large group at the time when the expenditure is incurred.
(2) For the purposes of section 22, capital expenditure is capital expenditure incurred by a small business if—
(a) it is incurred by a business for the purposes of a trade (the “first trade”) carried on by that business; and
(b) were the first trade carried on by a company (the “hypothetical company”) in the circumstances set out in subsection (3) below, that company would qualify as small or medium-sized in relation to the financial year of that company in which the expenditure would be treated as incurred.
(3) Those circumstances are—
(a) that every trade, profession or vocation carried on by the business concerned is carried on by the business as a part of the first trade;
(b) that the financial years of the hypothetical company coincide with the chargeable periods of the business concerned; and
(c) that accounts of the hypothetical company for any relevant chargeable period were prepared in accordance with the requirements of the [1985 c. 6.] Companies Act 1985 as if that period were a financial year of the company.
(4) Subject to subsection (5) below, a company is a member of a large group at the time when any expenditure is incurred if —
(a) it is at that time the parent company of a group which does not qualify as small or medium-sized in relation to the financial year of the parent company in which that time falls; or
(b) it is at that time a subsidiary undertaking in relation to the parent company of such a group.
(5) If, at the time when any expenditure is incurred by any company any arrangements exist which are such that, had effect been given to them immediately before that time, the company or a successor of the company would, at that time, have been a member of a large group, this section shall have effect as if the company concerned was a member of a large group at that time.
(6) In this section—
“arrangements” means arrangements of any kind, whether in writing or not, including arrangements that are not legally enforceable;
“business” means—
an individual;
a partnership of which all the members are individuals;
a registered friendly society within the meaning of Chapter II of Part XII of the principal Act; or
a body corporate which is not a company but is within the charge to corporation tax;
“company” means—
a company, or an oversea company, within the meaning of the [1985 c. 6.] Companies Act 1985; or
a company, or a Part XXIII company, within the meaning of the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986;
“financial year”, “group”, “parent company” and “subsidiary undertaking”—
except in relation to a company formed and registered in Northern Ireland, have the same meanings as in Part VII of the [1985 c. 6.] Companies Act 1985; and
in relation to a company so formed and registered, have the same meanings as in Part VIII of the Companies (Northern Ireland) Order 1986.
(7) References in this section, in relation to a company, to its qualifying as small or medium-sized—
(a) except in the case of a company formed and registered in Northern Ireland, are references to its so qualifying, or being treated as so qualifying, for the purposes of section 247 of the Companies Act 1985; and
(b) in the case of a company so formed and registered, are references to its so qualifying, or being treated as so qualifying, for the purposes of Article 255 of the Companies (Northern Ireland) Order 1986.
(8) In relation to a company with respect to which the question arises whether it is or would be a member of a large group, references to a group’s qualifying as small or medium-sized—
(a) except in the case of a company formed and registered in Northern Ireland, are references to its so qualifying, or being treated as so qualifying, for the purposes of section 249 of the [1985 c. 6.] Companies Act 1985; and
(b) in the case of a company so formed and registered, are references to its so qualifying, or being treated as so qualifying, for the purposes of Article 257 of the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986.
(9) For the purposes of this section a company is the successor of another if—
(a) it carries on a trade which, in whole or in part, the other company has ceased to carry on; and
(b) the circumstances are such that section 343 of the principal Act applies in relation to the two companies as the predecessor and the successor within the meaning of that section.”
(2) This section shall have effect in relation to every chargeable period ending on or after 2nd July 1997.
(1) Section 25 of the [1990 c. 1.] Capital Allowances Act 1990 (qualifying expenditure for writing-down allowances) shall be amended as follows.
(2) After subsection (5) there shall be inserted the following subsections—
“(5A) Subject to subsection (5B) below, capital expenditure incurred by any person in any chargeable period on the provision of machinery or plant for leasing under a finance lease shall not be brought into account so as to form part of that person’s qualifying expenditure for that period except to the extent of the part of the expenditure which is proportionate to the part of the chargeable period falling after the time when the expenditure was incurred.
(5B) Subsection (5A) above does not apply where, in the chargeable period related to the incurring of the expenditure, the disposal value of the machinery or plant falls to be brought into account in accordance with section 24(6).
(5C) Where under subsection (5A) above only part of any capital expenditure on the provision of any machinery or plant may be included in a person’s qualifying expenditure for any chargeable period, subsection (1)(a)(i) above shall not prevent the whole or any part of the remainder of that expenditure from being included in his qualifying expenditure for the next following chargeable period.”
(3) In subsection (6) (disposal values brought into account on an assignment)—
(a) for the words “subsection (5) above”, in the first place where they occur, there shall be substituted “subsection (5) or (5B) above”; and
(b) for “, as modified by subsection (5) above,” there shall be substituted “(as modified, where subsection (5) above applies, by that subsection)”.
(4) In subsection (8) (adjustments), after “subsections (5)” there shall be inserted “, (5B)”.
(5) This section has effect for chargeable periods ending on or after 2nd July 1997 except in relation to—
(a) expenditure incurred before that date; and
(b) expenditure incurred in the twelve months beginning with that date in pursuance of a contract entered into before that date.
(1) In section 60 of the [1990 c. 1.] Capital Allowances Act 1990 (machinery and plant on hire-purchase), after subsection (2) there shall be inserted the following subsection—
“(2A) Subsections (1)(b) and (2)(b) above do not apply where the capital expenditure incurred by the person to whom the machinery or plant is treated as belonging under subsection (1)(a) was incurred on the provision of the machinery or plant for leasing under a finance lease.”
(2) This section has effect for chargeable periods ending on or after 2nd July 1997 except in relation to—
(a) expenditure incurred before that date; and
(b) expenditure incurred in the twelve months beginning with that date in pursuance of a contract entered into before that date.
(1) In the Capital Allowances Act 1990—
(a) in section 75(1), (2) and (3) (further restrictions on allowances), for the words “sections 76 and 77”, in each place where they occur, there shall be substituted “sections 76, 76A and 77”; and
(b) in section 76, after subsection (6) there shall be inserted the following subsection—
“(7) This section has effect subject to the modifications made by section 76A in cases where there is a finance lease.”
(2) After section 76 of that Act there shall be inserted the following section—
(1) Where—
(a) any machinery or plant is used for the purposes of any non-trading activities carried on by any person, and
(b) it is directly or indirectly as a consequence of the machinery or plant having been leased under a finance lease that it is available for that use,
subsections (1), (2) and (3) of section 75 and subsection (1) of section 76 (except the words after “without”) shall have effect as if the use for the purposes of those activities were a use for the purposes of a trade carried on by that person.
(2) Where—
(a) subsection (1), (2) or (3) of section 75 applies by virtue of paragraph (b) of that subsection, or is treated (under one or both of section 76(1) and subsection (1) above) as so applying,
(b) it is directly or indirectly as a consequence of the machinery or plant having been leased under a finance lease that it is available after—
(i) the date of the sale,
(ii) the date of the making of the contract, or
(iii) the date of the assignment,
for the use which is mentioned in that paragraph, or which is treated as if it were a use so mentioned, and
(c) apart from this subsection the disposal value to be brought into account under sections 24, 25 and 26 by reason of the sale, contract or assignment would be more than the amount (“the section 76(2) amount”) which (if no disposal value fell to be brought into account) would be applicable instead in accordance with section 76(2) and subsection (5) below,
sections 24, 25 and 26 (and, accordingly, subsections (1) to (3) of section 75) shall have effect as if the disposal value to be so brought into account were equal to the section 76(2) amount.
(3) Where—
(a) a disposal value has fallen, in a case within sub-paragraphs (a) and (b) of subsection (2) above, to be brought into account under sections 24, 25 and 26 by reason of the sale, contract or assignment,
(b) the machinery or plant in question falls to be treated as belonging, at a time after the event by reason of which that disposal value fell to be brought into account, to any person in consequence of his incurring any capital expenditure,
(c) the allowances under this Part in respect of that capital expenditure are not restricted by subsection (1), (2) or (3) of section 75, and
(d) the amount of that expenditure (“the actual amount”) exceeds the maximum allowable amount,
this Part shall have effect in relation to that expenditure as if it were expenditure of an amount equal to the maximum allowable amount.
(4) In subsection (3) above “the maximum allowable amount” means the sum of the following amounts—
(a) the disposal value falling to be brought into account as mentioned in subsection (3)(a) above, and
(b) so much of the actual amount of the expenditure as is equal to the amount included in that expenditure by virtue of section 66 (installation costs).
(5) In a case which—
(a) falls within paragraphs (a) and (b) of subsection (2) above, but
(b) is a case in which no disposal value falls to be brought into account as mentioned in the applicable subsection of section 75,
subsections (2) to (4) of section 76 shall have effect as if the amounts referred to in each of paragraphs (b) and (c) of section 76(2) were equal to the notional written-down value of the capital expenditure incurred by the person mentioned in that paragraph on the provision of the machinery or plant.
(6) Subsection (7) below applies where, in a case falling within paragraphs (a) and (b) of subsection (2) above—
(a) the finance lease, or
(b) any transaction or series of transactions of which it forms a part,
makes provision (otherwise than by means of guarantees from persons connected with the lessee) the effect of which (if the lessor and the persons connected with him are treated as the same person) is to remove the whole, or the greater part, of any non-compliance risk which (apart from that provision) would fall directly or indirectly on the lessor.
(7) Where this subsection applies—
(a) subsections (1), (2) and (3) of section 75 shall have effect as if (as well as excluding the making of a first-year allowance), they also required—
(i) the whole amount of the expenditure, and
(ii) any additional VAT liability incurred in respect of it,
to be left out of account in determining the amount for any period of a person’s qualifying expenditure under section 25; and
(b) subsections (2), (3) and (5) above shall not apply.
(8) Where subsection (7) above applies in a case where the buyer, person entering into the contract or assignee is different from the lessor—
(a) any capital expenditure incurred on the provision of the machinery or plant by the lessor, and
(b) any additional VAT liability incurred in respect of it,
shall also be disregarded both for the purposes of determining the amount for any period of the lessor’s qualifying expenditure under section 25 and for the purposes of any claim by the lessor to a first-year allowance.
(9) In this section “the notional written-down value”, in relation to any expenditure incurred by a person on the provision of any machinery or plant, means the amount which, if—
(a) the sale, contract or assignment were an event by reason of which a disposal value of that machinery or plant fell to be brought into account in that person’s case, and
(b) the further assumptions set out in subsection (10) below were made in relation to that expenditure,
would give rise to neither a balancing allowance nor a balancing charge for the chargeable period for which that disposal value would be brought into account in that person’s case.
(10) Those assumptions are—
(a) that the person in question incurred the expenditure on the provision of the machinery or plant wholly and exclusively for the purposes of a trade carried on by him (until its deemed discontinuance) separately from any other trade or other activities carried on or assumed to be carried on by him;
(b) that that person was within the charge to tax in respect of that separate trade;
(c) that the expenditure was the only capital expenditure ever taken into account in respect of that trade in determining qualifying expenditure for the purposes of section 24;
(d) that the expenditure is to be treated in relation to that person as expenditure to which Chapter IVA of this Part applies if, but only if, it is expenditure falling in fact to be so treated apart from the preceding assumptions; and
(e) that there had been made to that person the full amount of every allowance to which, on the assumptions specified in paragraphs (a) to (c) above, that person was entitled in respect of that expenditure.
(11) This section and sections 75 and 76 shall have effect in relation to machinery or plant where—
(a) it is directly or indirectly as a consequence of the machinery or plant having been leased under a finance lease that it is available for any use to which it is put, and
(b) the machinery or plant has at any time been acquired by one public authority from another otherwise than by purchase,
as if the public authority from whom it was acquired were connected with the public authority that acquired it and with every person connected with the acquiring authority.
(12) In this section—
“deemed discontinuance”, in relation to the trade assumed under subsection (10) above in a case in which section 75(1), (2) or (3) applies or is treated as applying, means a permanent discontinuance of that trade at the time of the sale, of the performance of the contract or, as the case may be, of the assignment;
“non-compliance risk”, in relation to a finance lease, means a risk that a loss will be sustained by any person if payments under the lease are not made in accordance with its terms;
“non-trading activities” means any activities that do not constitute a trade; and
“public authority” includes the Crown or any government or local authority;
and (subject to subsection (11) above) references in this section to persons connected with each other shall be construed in accordance with section 839 of the principal Act.”
(3) This section has effect for chargeable periods ending on or after 2nd July 1997 except in relation to expenditure incurred before 2nd July 1998 in a case in which—
(a) the sale referred to in subsection (1) of section 75 of that Act is a sale under a contract entered into before 2nd July 1997;
(b) the contract referred to in subsection (2) of that section is itself a contract entered into before 2nd July 1997; or
(c) the assignment referred to in subsection (3) of that section is an assignment made before 2nd July 1997 or in pursuance of a contract entered into before that date.
Finance (No. 2) Act 1997