Office of Public Sector Information
SCHEDULE 25 continued PART 1 continued
(4) Any reference in this paragraph to a “relevant creditor relationship” is a reference to a creditor relationship (whether of the member company or a group member) which falls within sub-paragraph (3) above.
(5) For the purposes of this paragraph there is for any group accounting period a “relevant net debit” in relation to the relevant creditor relationships if—
(a) the total of the debits brought into account for that period by virtue of paragraph 5 above in respect of those relationships by—
(i) the member company, and
(ii) every group member,
exceeds
(b) the total of any related debt recovery credits so brought into account by those companies for that period in respect of those relationships,
and the amount of the relevant net debit is the amount of that excess.
(6) Where there is for any group accounting period a relevant net debit in relation to the relevant creditor relationships, the amount of the relevant net debit shall be reduced by so much of any amount which—
(a) may be surrendered as group relief by the debtor consortium company, and
(b) is claimed as group relief for that accounting period by the member company or any group member,
as does not exceed the amount of the relevant net debit.
(7) Where a relevant net debit falls to be reduced under sub-paragraph (6) above by any amount (“the relevant reduction”), each of the debits brought into account in determining the relevant net debit shall be reduced by an amount found by apportioning between those debits, in proportion to their respective amounts, the amount of the relevant reduction.
(8) For the purposes of this paragraph there is for any group accounting period a “surplus of related debt recovery credits” in relation to the relevant creditor relationships if—
(a) the total amount of any related debt recovery credits brought into account under paragraph 5 above for the period in respect of those relationships by—
(i) the member company, and
(ii) every group member,
exceeds
(b) the total of the debits brought into account for that period by virtue of paragraph 5 above in respect of those relationships by those companies.
(9) Where there is for any group accounting period a surplus of related debt recovery credits in relation to the relevant creditor relationships, each of the related debt recovery credits falling to be brought into account by virtue of paragraph 5(2) above in respect of those relationships shall be reduced (but not below nil) by the appropriate amount.
For the purposes of this sub-paragraph “the appropriate amount” is the amount found by apportioning between those related debt recovery credits, in proportion to their respective amounts, the cumulative net sub-paragraph (6) reduction for earlier group accounting periods in respect of the relevant creditor relationships.
(10) In this paragraph, for any group accounting period the cumulative net sub-paragraph (6) reduction for earlier group accounting periods in respect of the relevant creditor relationships is—
(a) the total amount by which the relevant net debits in respect of those relationships for any previous group accounting periods have been reduced by virtue of sub-paragraph (6) above; less
(b) so much of that total amount as has been previously apportioned under sub-paragraph (9) above.
(11) Any reference in this paragraph to a “relevant claim for group relief” is a reference to a claim by the member company or a group member for group relief in respect of an amount which may be surrendered as group relief by the debtor consortium company.
(12) Any relevant claim for group relief for a group accounting period shall be reduced by so much of the cumulative net amount of relevant net debits for earlier group accounting periods in respect of the relevant creditor relationships as does not exceed the total amount of the claim.
Where there are two or more such claims for the same group accounting period which in total exceed that cumulative net amount, each of them shall be reduced by an amount found by apportioning that cumulative net amount between them in proportion to their respective amounts.
(13) In this paragraph, for any group accounting period the cumulative net amount of relevant net debits for earlier group accounting periods in respect of the relevant creditor relationships is the total amount of the relevant net debits for those earlier periods in respect of those relationships, after any reductions falling to be made under this paragraph in the amounts of those relevant net debits.
(14) If there is for any group accounting period—
(a) a relevant claim for group relief (as reduced by virtue of sub-paragraph (12) above, where applicable), and
(b) no relevant net debit in respect of the relevant creditor relationships,
the claim (as so reduced) shall be carried forward and treated for the purposes of sub-paragraph (12) above as increasing any relevant claim for group relief made by the claimant company for its next accounting period (or, if there is no other relevant claim for group relief made by that company for that period, as the relevant claim for group relief by that company for that period).
(15) Where—
(a) the debtor consortium company has brought an amount into account by virtue of paragraph 5(3) above for an accounting period in relation to a debtor relationship, and
(b) the corresponding creditor relationship is a relevant creditor relationship,
an equal amount shall be treated for the purposes of this paragraph as not being a debit brought into account for that period under paragraph 5(1) in relation to the creditor relationship.
(16) Where section 403C of the Taxes Act 1988 (amount of relief in consortium cases) applies, effect shall be given to that section before effect is given to this paragraph.
(17) In this paragraph “group accounting period” means—
(a) any accounting period of the member company beginning on or after 1st October 2002, or
(b) any accounting period of a group member which begins on or after that date and corresponds to such an accounting period of the member company,
and any such accounting period of the member company and any such corresponding accounting periods of one or more group members shall be regarded for the purposes of this paragraph as being the same accounting period.
(18) For the purposes of this paragraph an accounting period of a group member corresponds to an accounting period of the member company if—
(a) the two accounting periods coincide;
(b) the accounting period of the member company includes more than half of the accounting period of the group member; or
(c) the accounting period of the member company includes part of the accounting period of the group member, but the remainder of that period does not fall within any accounting period of the member company.
(19) In this paragraph—
“consortium claim” means a claim for group relief made by virtue of section 402(3) of the Taxes Act 1988;
“consortium company” means a company falling within any of paragraphs (a) to (c) of section 402(3) of the Taxes Act 1988 (surrender of relief between members of consortia);
“cumulative net amount of relevant net debits” shall be construed in accordance with sub-paragraph (13) above;
“cumulative net sub-paragraph (6) reduction” shall be construed in accordance with sub-paragraph (10) above;
“debtor consortium company” shall be construed in accordance with sub-paragraph (3) above;
“group accounting period” shall be construed in accordance with sub-paragraphs (17) and (18) above;
“group member” shall be construed in accordance with sub-paragraph (2)(b) above;
“group relief” has the meaning given by section 402(1) of the Taxes Act 1988;
“holding company” means a company falling within section 402(3)(c) of the Taxes Act 1988;
“member”, in relation to a consortium, has the same meaning as in Chapter 4 of Part 10 of the Taxes Act 1988 (group relief);
“member company” shall be construed in accordance with sub-paragraph (2)(a) above;
“related debt recovery credit”, in relation to a group accounting period, means a credit falling to be brought into account for the purposes of this Chapter for that period by the member company or a group member by virtue of paragraph 5(2) above in connection with a bad debt owed by the debtor consortium company;
“relevant claim for group relief” shall be construed in accordance with sub-paragraph (11) above;
“relevant creditor relationship” shall be construed in accordance with sub-paragraph (4) above;
“relevant net debit” shall be construed in accordance with sub-paragraph (5) above;
“subsidiary”, in relation to a company which is a holding company, means a company falling within section 402(3)(b) of the Taxes Act 1988 by reference to that holding company;
“surplus of related debt recovery credits” shall be construed in accordance with sub-paragraph (9) above;
“surrendering company” has the meaning given by section 402(1) of the Taxes Act 1988.
(20) Any reference in this paragraph to two companies being members of the same group of companies is a reference to their being members of the same group of companies for the purposes of Chapter 4 of Part 10 of this Act (group relief).
(21) Any reference in this paragraph to a company being owned by a consortium shall be construed in accordance with section 413(6) of the Taxes Act 1988.”.
24 (1) Paragraph 6 of Schedule 9 is amended as follows.
(2) In sub-paragraph (2) (credits and debits to be computed subject to sub-paragraphs (3) to (6)) after “sub-paragraphs (3) to (6)” insert “and paragraphs 6A and 6B”.
(3) In sub-paragraph (3) (assumption that every amount will be paid in full to be applied, subject to any departure allowed by sub-paragraph (4)) after “sub-paragraph (4)” insert “or paragraph 6A or 6B”.
25 After paragraph 6 of Schedule 9 insert—
6A (1) This paragraph applies in any case falling within paragraph 6(1) above where—
(a) the company which has the creditor relationship (“the creditor company”) has gone into insolvent liquidation;
(b) an administration order is in force in relation to that company under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989;
(c) an appointment of a provisional liquidator is in force in relation to that company under section 135 of that Act or Article 115 of that Order; or
(d) under the law of a country or territory outside the United Kingdom, an event has occurred, or circumstances exist, corresponding to any of those described in paragraphs (a) to (c) above.
(2) Where this paragraph applies, a departure from the assumption that every amount payable under the relationship will be paid in full shall be allowed in relation to any amount accruing to the creditor company under the relationship—
(a) in a case falling within paragraph (a) of sub-paragraph (1) above, at a time after the commencement of the winding up;
(b) in a case falling within paragraph (b) of that sub-paragraph, at a time when the administration order is in force;
(c) in a case falling within paragraph (c) of that sub-paragraph, at a time when the appointment of the provisional liquidator is in force; or
(d) in a case falling within paragraph (d) of that sub-paragraph, at a time corresponding to that described in paragraph (a), (b) or (c) above (as the case may be).
(3) For the purposes of this paragraph, a company goes into insolvent liquidation if it goes into liquidation, as defined in section 247(2) of the Insolvency Act 1986 or Article 6(2) of the Insolvency (Northern Ireland) Order 1989, at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.”.
26 After paragraph 6A of Schedule 9 insert—
6B (1) Where—
(a) paragraph 6 above applies in relation to a creditor relationship of a company (the “creditor company”) in the case of an accounting period, and
(b) another company (the “debtor company”) stands in the position of a debtor as respects the money debt,
a departure from the assumption mentioned in paragraph 6(3) above shall be allowed in accordance with sub-paragraphs (2) to (4) or (5) to (7) below.
(2) A departure from the assumption mentioned in paragraph 6(3) above shall be allowed in the case of the creditor relationship if—
(a) a departure has been allowed under paragraph 5(1) above in respect of the creditor relationship for a previous accounting period for which there was no connection between the creditor company and the debtor company; and
(b) the first accounting period of the creditor company for which there is or was such a connection is an accounting period beginning on or after 1st October 2002.
(3) A departure shall be allowed under sub-paragraph (2) above to the extent only that the debits brought into account by the creditor company for the accounting period in respect of the relationship are not more than they would have been if it were assumed that the aggregate of the amounts payable in respect of the creditor relationship were equal to the pre-connection value of the asset representing the creditor relationship.
(4) The “pre-connection value” of the asset representing the creditor relationship is the value of that asset as shown in the accounts of the creditor company at the end of the accounting period immediately preceding the accounting period mentioned in sub-paragraph (2)(b) above.
(5) A departure from the assumption mentioned in paragraph 6(3) above shall be allowed for the accounting period in respect of the creditor relationship, if the conditions in sub-paragraph (6) below are satisfied.
(6) The conditions are that—
(a) the creditor company acquired its rights under the relationship by virtue of an arm’s length transaction;
(b) for the accounting period in which it acquired those rights, there was no connection between the creditor company and the person from whom it acquired the asset; and
(c) there had been no such connection between the creditor company and the debtor company at any time in the period which—
(i) begins 4 years before the date on which the company acquired those rights; and
(ii) ends twelve months before that date.
(7) A departure shall be allowed under sub-paragraph (5) above to the extent only that the debits brought into account by the creditor company for the accounting period in respect of the relationship are not more than they would have been if—
(a) it were assumed that the aggregate of the amounts payable in respect of the relationship were equal to the price paid by the company to acquire its rights; and
(b) no departure were allowed from the assumption in paragraph (a) above.
(8) For the purposes of this paragraph, there is a connection between a company and another person at any time if at that time—
(a) the other person is a company and one of the companies has control of the other, or
(b) the other person is a company and both companies are under the control of the same person,
and there is a connection between a company and another person for an accounting period if there is a connection (within paragraph (a) or (b) above) between the company and the person at any time in that accounting period.
(9) For the purposes of sub-paragraph (8) above “control” has the meaning given for the purposes of section 87 by section 87A of this Act.”.
27 After paragraph 6B of Schedule 9 insert—
6C (1) Where, in the case of a creditor relationship of a company,—
(a) a departure that would otherwise have been allowed under paragraph 5(1) above in respect of an amount is or was, by virtue of paragraph 6 above, not allowed in the case of an accounting period; and
(b) there is a subsequent accounting period for which there is, within the meaning of section 87 of this Act, no connection between the company and any person standing in the position of a debtor as respects the debt,
sub-paragraphs (2) and (3) below shall apply.
(2) Where this sub-paragraph applies, no credit shall be required to be brought into account by virtue of paragraph 5(2) above in respect of an amount—
(a) for the first accounting period falling within sub-paragraph (1)(b) above, or
(b) for any subsequent such accounting period,
to the extent that the amount in question corresponds to the amount mentioned in sub-paragraph (1)(a) above.
(3) Where this sub-paragraph applies, no debit shall be brought into account in respect of an amount—
(a) for the first accounting period falling within sub-paragraph (1)(b) above, or
(b) for any subsequent such accounting period,
to the extent that the amount in question represents the amount mentioned in sub-paragraph (1)(a) above.”.
28 In paragraph 10 of Schedule 9 at the end insert—
“(5) Amounts which, by virtue of this paragraph, are not brought into account for the purposes of this Chapter as respects any matter are in consequence also amounts which, in accordance with section 80(5) of this Act, are not to be brought into account for the purposes of corporation tax as respects that matter apart from this Chapter.”.
29 (1) Paragraph 12 of Schedule 9 is amended as follows.
(2) After sub-paragraph (2) insert—
“(2A) This paragraph does not apply where the transferor company uses an authorised mark to market basis of accounting as respects the loan relationship, but in any such case—
(a) the amount to be brought into account by the transferee company in respect of the transaction, the result of the series of transactions, or the transfer must be the fair value of the asset, or of the rights under or interest in the asset, as at the date on which the transferee company becomes party to the loan relationship; and
(b) paragraph (b) of sub-paragraph (2) above shall have effect for the purposes of section 90 of this Act (changes of accounting method).”.
30 In paragraph 13 of Schedule 9, after sub-paragraph (1) insert—
“(1A) Amounts which, by virtue of this paragraph, are not brought into account for the purposes of this Chapter as respects any matter are in consequence also amounts which, in accordance with section 80(5) of this Act, are not to be brought into account for the purposes of corporation tax as respects that matter apart from this Chapter.”.
31 (1) Paragraph 14 of Schedule 9 is amended as follows.
(2) In sub-paragraphs (1) and (2), for “normal accountancy practice”, in each place where occurring, substitute “generally accepted accounting practice”.
(3) After sub-paragraph (2) add—
“(3) No debit may be brought into account by virtue of this paragraph if it is taken into account in arriving at the amount of expenditure in relation to which a debit may be given by Schedule 29 to the Finance Act 2002 (gains and losses of a company from intangible fixed assets).”.
32 (1) Paragraph 15 is amended as follows.
(2) After sub-paragraph (4) (equivalent rights) insert—
“(4A) In consequence of sub-paragraph (1) above—
(a) the person transferring the rights mentioned in sub-paragraph (3)(a) above does not, as a result of the transfer, fall to be regarded for the purposes of this Chapter as ceasing to be party to the loan relationship; and
(b) the person to whom those rights are transferred does not, as a result of the transfer, fall to be regarded for the purposes of this Chapter as being party to the loan relationship;
but nothing in sub-paragraph (1) or paragraph (b) above shall prevent any credit in respect of interest from being brought into account for the purposes of this Chapter by the person described in that paragraph.”.
(3) After sub-paragraph (6) (which provides that the paragraph is without prejudice to section 730A(2) and (6)) insert—
“(6A) Nothing in this paragraph affects section 807A(2A) of the Taxes Act 1988 (double taxation relief in the case of repo or stock lending agreement).”.
33 (1) Paragraph 17 of Schedule 9 is amended as follows.
(2) In sub-paragraph (1) (accounting periods to which the paragraph applies) for paragraph (b) substitute—
“(b) at any time in that period another company stands in the position of a creditor as respects that security;”.
(3) In sub-paragraph (5) (meaning of “connection” between companies) in paragraph (a) (one of the companies has had control of the other in the accounting period or the preceding two years)—
(a) omit “, or in the period of two years before the beginning of that period,”; and
(b) after “control of” insert “, or a major interest in,”.
(4) In paragraph (b) of that sub-paragraph (both companies under control of same person in that period or those two years) omit “, or in those two years,”.
(5) For sub-paragraph (8) (which defines what it is for the benefit of a security to be available to a company) substitute—
“(8) Any reference in this paragraph to a person who stands in the position of a creditor as respects a relevant discounted security includes a reference to a person who indirectly stands in that position by reference to a series of relevant discounted securities.
(8A) Where this paragraph applies by virtue of sub-paragraph (8) above, the reference to the corresponding creditor relationship in sub-paragraph (1)(d) above is a reference to the creditor relationship of the company which indirectly stands in the position of a creditor as respects the relevant discounted security.”.
(6) For sub-paragraph (9) (meaning of “control”) substitute—
“(9) For the purposes of this paragraph “control”, in relation to a company, has the same meaning as in section 87 of this Act (see section 87A).
(10) Paragraph 20 below (major interests) applies for the purposes of this paragraph.”.
34 (1) Paragraph 18 of Schedule 9 is amended as follows.
(2) In sub-paragraph (1) (accounting periods to which the paragraph applies)—
(a) after “any accounting period” insert “(“the relevant period”)”;
(b) in paragraph (a), after “a close company” insert “(“the issuing company”)”; and
(c) omit the word “and” immediately preceding paragraph (b).
(3) In paragraph (b) of that sub-paragraph, for the words preceding sub-paragraph (i) (which relate to beneficial ownership at any time in or before the accounting period in question) substitute—
“(b) at any time in that period there is a person who stands in the position of a creditor as respects that security and who at that time is—”.
(4) At the end of paragraph (b) of that sub-paragraph add “; and
(c) the debt is not one that is owed to, or to persons acting for, a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000.”.
(5) After sub-paragraph (1) insert—
“(1A) But for any such accounting period this paragraph shall not apply in relation to that debtor relationship if—
(a) at all times in the period when there is such a person as is described in sub-paragraph (1)(b) above, that person is a company; and
(b) credits representing the full amount of the discount that is referable to the period are brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship.”.
(6) For sub-paragraph (2) (debits not to be brought into account by the issuing company for any accounting period before that in which the security is redeemed) substitute—
“(2) The debits falling in the case of the issuing company to be brought into account for the purposes of this Chapter in respect of the loan relationship shall be adjusted so that every debit relating to the amount of the discount that is referable to the relevant period (“the relevant debits”) is brought into account for the accounting period in which the security is redeemed, instead of for the relevant period.
This sub-paragraph does not apply where the relevant period is the accounting period in which the security is redeemed.
(2A) Where at some (but not all) times in the relevant period there is such a person as is described in sub-paragraph (1)(b) above—
(a) part only of the relevant debits shall be brought into account in accordance with sub-paragraph (2) above; and
(b) that part is the part which bears to the whole of the relevant debits the proportion which the part of the relevant period for which there is such a person bears to the whole of that period.”.
(7) After sub-paragraph (2A) insert—
“(2B) References in this paragraph to the amount of the discount that is referable to an accounting period are references to the amount relating to the difference between—
(a) the issue price of the security, and
(b) the amount payable on redemption,
which (apart from sub-paragraphs (2) and (2A) above) would for that accounting period be brought into account for the purposes of this Chapter in the case of the issuing company.”.
(8) After sub-paragraph (2B) insert—
“(2C) Any reference in this paragraph to a person who stands in the position of a creditor as respects a relevant discounted security includes a reference to a person who indirectly stands in that position by reference to a series of relevant discounted securities.
(2D) Where this paragraph applies by virtue of sub-paragraph (2C) above, the reference to the corresponding creditor relationship in sub-paragraph (1A)(c) above is a reference to the creditor relationship of the person who indirectly stands in the position of a creditor as respects the relevant discounted security.”.
(9) After sub-paragraph (3) insert—
“(3A) For the purposes of this paragraph there is a connection between one company and another for an accounting period if—
(a) there is a time in that period when one of the companies has had control of the other, or
(b) there is a time in that period when both the companies have been under the control of the same person.
(3B) In this paragraph “control”, in relation to a company, has the same meaning as in section 87 of this Act (see section 87A).”.
(10) In sub-paragraph (4) (definitions) omit the definition of “control”.
(11) In that sub-paragraph, in the definition of “participator”—
(a) after ““participator”” insert “, in relation to a company,”; and
(b) for the words from “by virtue only” to the end of the definition substitute “by reason only that he is a loan creditor of the company.”.
35 In Schedule 9, after paragraph 18 insert—
19 (1) This paragraph applies where—
(a) a trade, profession or business is carried on by persons in partnership (“the firm”);
(b) any of those persons is a company (a “company partner”); and
(c) a money debt is owed by or to the firm.
(2) In any such case—
(a) in computing the profits and losses of the trade, profession or business for the purposes of corporation tax in accordance with section 114(1) of the Taxes Act 1988 (computation as if the partnership were a company) no debits or credits shall be brought into account under this Chapter in relation to the money debt or any loan relationship that would fall to be treated for the purposes of the computation as arising from the money debt; but
(b) debits and credits shall be brought into account under this Chapter in relation to the money debt (and any loan relationship treated as arising from it) in accordance with the following provisions of this paragraph by each company partner for each of its accounting periods in which the conditions in sub-paragraph (1) above are satisfied.
(3) The debits and credits to be brought into account as mentioned in sub-paragraph (2)(b) above shall be determined separately in the case of each company partner.
(4) For the purpose of determining those debits and credits in the case of any particular company partner—
(a) the money debt owed by or to the firm shall be treated as if it were instead owed by or, as the case may be, to that company partner, for the purposes of the trade, profession or business which that company partner carries on,
(b) the money debt shall continue to be regarded as arising from a transaction for the lending of money if that is in fact the case (so that the company partner is treated as having a loan relationship), and
(c) anything done by or in relation to the firm in connection with the money debt shall be treated as done by or in relation to the company partner,
and debits and credits (the “gross debits and credits”) shall be determined accordingly.
(5) The debits and credits to be brought into account under this Chapter pursuant to sub-paragraph (2)(b) above in the case of any particular company partner shall be that company partner’s appropriate share of the gross debits and credits determined in accordance with sub-paragraph (4) above in the case of that company partner.
(6) For the purposes of sub-paragraph (5) above, the “appropriate share”, in the case of a company partner, is the share that would be apportioned to that company partner if—
(a) the gross debits and credits determined in accordance with sub-paragraph (4) above in the case of that company partner fell to be apportioned between the partners; and
(b) the apportionment fell to be made in the shares in which any profit or loss computed in accordance with subsection (1) of section 114 of the Taxes Act 1988 would be apportioned between them under subsection (2) of that section.
(7) If, in a case where the money debt owed by or to the firm arises from a transaction for the lending of money, there is a time in an accounting period of any company at which—
(a) a person who is a company partner stands in relation to the debt in the position of a creditor (if it is owed by the firm) or a debtor (if it is owed to the firm) and accordingly has a creditor relationship or debtor relationship (as the case may be),
(b) that company partner, whether alone or taken together with one or more other company partners connected with it, controls the partnership, and
(c) that or any other company partner falls to be treated in accordance with sub-paragraph (4) above as if it had the debtor relationship or creditor relationship that corresponds to the creditor relationship or debtor relationship mentioned in paragraph (a) above,
sub-paragraph (8) below shall apply with respect to that accounting period, if it is an accounting period of a company partner mentioned in paragraph (a) or (c) above.
Finance Act 2002