Office of Public Sector Information

(7) If—

(a) in computing the adjusted ring fence profits of a company for an accounting period, an amount falls to be left out of account by virtue of subsection (5)(d) above, but

(b) the whole or any part of that amount is repaid,

the repayment shall also be left out of account in computing the adjusted ring fence profits of the company for any accounting period.

(8) In this section “finance lease” means any arrangements—

(a) which provide for an asset to be leased or otherwise made available by a person to another person (“the lessee”), and

(b) which, under generally accepted accounting practice,—

(i) fall (or would fall) to be treated, in the accounts of the lessee or a person connected with the lessee, as a finance lease or a loan, or

(ii) are comprised in arrangements which fall (or would fall) to be so treated.

(9) For the purposes of applying subsection (8)(b) above, the lessee and any person connected with the lessee are to be treated as being companies which are incorporated in a part of the United Kingdom.

(10) In this section “accounts”, in relation to a company, includes any accounts which—

(a) relate to two or more companies of which that company is one, and

(b) are drawn up in accordance with—

(i) section 227 of the Companies Act 1985, or

(ii) Article 235 of the Companies (Northern Ireland) Order 1986.”.

92 Assessment, recovery and postponement of supplementary charge

(1) After section 501A of the Taxes Act 1988 insert—

“501B Assessment, recovery and postponement of supplementary charge

(1) Subject to subsection (3) below, the provisions of section 501A(1) relating to the charging of a sum as if it were an amount of corporation tax shall be taken as applying, subject to the provisions of the Taxes Acts, and to any necessary modifications, all enactments applying generally to corporation tax, including—

(a) those relating to returns of information and the supply of accounts, statements and reports;

(b) those relating to the assessing, collecting and receiving of corporation tax;

(c) those conferring or regulating a right of appeal; and

(d) those concerning administration, penalties, interest on unpaid tax and priority of tax in cases of insolvency under the law of any part of the United Kingdom.

(2) Accordingly (but without prejudice to subsection (1) above) the Management Act shall have effect as if any reference to corporation tax included a reference to a sum chargeable under section 501A(1) as if it were an amount of corporation tax.

(3) In any regulations made under section 32 of the Finance Act 1998 (as at 17th April 2002, the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999)—

(a) references to corporation tax do not include a reference to a sum chargeable on a company under section 501A(1) as if it were corporation tax; and

(b) references to profits charged to corporation tax do not include a reference to adjusted ring fence profits, within the meaning of section 501A(1).

(4) In this section “the Taxes Acts” has the same meaning as in the Management Act.”.

(2) In section 59E of the Taxes Management Act 1970 (c. 9) (further provision as to when corporation tax is due and payable) in subsection (11) (extension of references in the section to corporation tax) after paragraph (b) add—

“(c) to any sum chargeable on a company under section 501A(1) of the principal Act (supplementary charge in respect of ring fence trades) as if it were an amount of corporation tax chargeable on the company”.

(3) In Schedule 18 to the Finance Act 1998 (c. 36) (company tax returns: assessments and related matters) in paragraph 1 (meaning of “tax”) in the second sentence (amounts assessable or chargeable as if they were corporation tax) for the word “and” immediately preceding the paragraph beginning “section 747(4)(a)” substitute the following paragraph—

“section 501A(1) of that Act (supplementary charge in respect of ring fence trades), and”.

(4) In paragraph 8 of that Schedule (calculation of tax payable) after paragraph number 1 of the third step insert—

“1A Any sum chargeable under section 501A(1) of that Act (supplementary charge in respect of ring fence trades).”.

(5) Regulation 3 of the Instalment Payment Regulations (large companies) is amended as follows.

(6) In paragraph (1) (which, subject to paragraphs (2) and (3), defines a large company) for “paragraphs (2) and (3),” substitute “paragraphs (2) to (3A),”.

(7) After paragraph (3) insert—

“(3A) Any question whether a company is, or is not, a large company as respects an accounting period beginning on or after 17th April 2002 shall, so far as not falling to be determined by reference to the company’s total liability, be determined as it would have been determined apart from section 501A of the Taxes Act (supplementary charge in respect of ring fence trades).”.

(8) The amendment by this section of any provision contained in regulations shall not be taken to have prejudiced any power to make further regulations revoking or amending that provision, whether in relation to the same or any other chargeable periods.

(9) In this section “the Instalment Payment Regulations” means the Corporation Tax (Instalment Payments) Regulations 1998 (S.I. 1998/3175).

93 Supplementary charge: transitional provisions

(1) In the case of a straddling period, that is to say, an accounting period which begins before 17th April 2002 and ends on or after that date—

(a) sections 501A and 501B of the Taxes Act 1988 (which are inserted by sections 91 and 92) shall apply as if so much of the straddling period as falls before 17th April 2002, and so much of that period as falls on or after that date, were separate accounting periods; and

(b) all necessary apportionments between the two separate accounting periods shall be made in proportion to the number of days in those periods.

(2) In the case of a straddling period, the Instalment Payment Regulations shall apply separately—

(a) in relation to any tax chargeable on the company under section 501A(1) of the Taxes Act 1988; and

(b) in relation to any other tax chargeable on the company.

(3) In their application by virtue of paragraph (a) of subsection (2), the Instalment Payment Regulations shall have effect in relation to the tax mentioned in that paragraph as if—

(a) the deemed accounting period treated under subsection (1)(a) as beginning on 17th April 2002 were an accounting period for the purposes of those Regulations; and

(b) that tax were chargeable for that period.

(4) Any reference in the Instalment Payment Regulations to the total liability of a company shall accordingly be construed—

(a) in their application by virtue of paragraph (a) of subsection (2), as a reference to the tax mentioned in that paragraph; and

(b) in their application by virtue of paragraph (b) of that subsection, as a reference to the amount that would be the company’s total liability for the straddling period if the tax mentioned in paragraph (a) of that subsection were left out of account.

(5) For the purposes of the Instalment Payment Regulations—

(a) a company shall be regarded as a large company as respects the deemed accounting period under subsection (3)(a) if, and only if, it is a large company for those purposes as respects the straddling period; and

(b) any question whether a company is a large company as respects the straddling period shall be determined as it would have been determined apart from section 501A of the Taxes Act 1988.

(6) In this section “the Instalment Payment Regulations” has the same meaning as in section 92.

Deduction of tax

94 Deduction of tax: payments to exempt bodies etc

(1) In section 349A of the Taxes Act 1988 (exceptions to requirement to deduct tax from certain payments made by a company)—

(a) in subsection (1)—

(i) after “by a company” insert “or a local authority”, and

(ii) after “the company” insert “or authority”,

(b) in subsection (6)—

(i) after “section” insert “(a)”, and

(ii) at the end insert “, and

(b) a payment by a partnership is treated as made by a local authority if any member of the partnership is a local authority”.

(2) In section 349B of that Act (section 349A(1): conditions to be met), after subsection (2) insert—

“(3) The third of those conditions is that the payment is made to—

(a) a local authority;

(b) a health service body within the meaning of section 519A(2);

(c) a public office or department of the Crown to which section 829(1) applies;

(d) a charity (within the meaning of section 506(1));

(e) a body for the time being mentioned in section 507(1) (bodies that are allowed the same exemption from tax as charities the whole income of which is applied to charitable purposes);

(f) an Association of a description specified in section 508 (scientific research organisations);

(g) the United Kingdom Atomic Energy Authority;

(h) the National Radiological Protection Board;

(i) the administrator (within the meaning of section 611AA) of a scheme entitled to exemption under section 592(2) or 608(2)(a) (exempt approved schemes and former approved superannuation funds);

(j) the trustees of a scheme entitled to exemption under section 613(4) (Parliamentary pension funds);

(k) the persons entitled to receive the income of a fund entitled to exemption under section 614(3) (certain colonial, etc pension funds);

(l) the trustees or other persons having the management of a fund entitled to exemption under section 620(6) (retirement annuity trust schemes); or

(m) a person holding investments or deposits for the purposes of a scheme entitled to exemption under section 643(2) (approved personal pension schemes).

(4) The fourth of those conditions is that—

(a) the person to whom the payment is made is, or is the nominee of, the plan manager of a plan,

(b) an individual investing under the plan is entitled to exemption by virtue of regulations under section 333 (personal equity plans and individual savings accounts), and

(c) the plan manager receives the payment in respect of investments under the plan.

(5) The fifth of those conditions is that—

(a) the person to whom the payment is made is a society or institution with whom tax-exempt special savings accounts (within the meaning of section 326A) may be held, and

(b) the society or institution receives the payment in respect of investments held for the purposes of such accounts.

(6) The sixth of those conditions is that the person beneficially entitled to the income in respect of which the payment is made is a partnership each member of which is—

(a) a person or body mentioned in subsection (3) above, or

(b) a person or body mentioned in subsection (7) below.

(7) The persons and bodies referred to in subsection (6)(b) above are—

(a) a company resident in the United Kingdom;

(b) a company that—

(i) is not resident in the United Kingdom,

(ii) carries on a trade there through a branch or agency, and

(iii) is required to bring into account, in computing its chargeable profits (within the meaning of section 11(2)), the whole of any share of that payment that falls to it by reason of sections 114 and 115;

(c) the European Investment Fund.

(8) The Treasury may by order amend—

(a) subsection (3) above;

(b) subsection (7) above;

so as to add to, restrict or otherwise alter the persons and bodies falling within that subsection.”.

(3) In section 349C (directions disapplying section 349A(1))—

(a) in subsection (1)—

(i) after “a company” insert “or local authority”, and

(ii) after “the company” insert “or authority”,

(b) in subsection (2) for “neither” substitute “none”, and

(c) for subsection (4) substitute—

“(4) In this section—

• “company” includes a partnership of which any member is a company; and

• “local authority” includes a partnership of which any member is a local authority.”.

(4) In section 349D (section 349A(1): consequences of reasonable but incorrect belief)—

(a) in subsection (1)—

(i) in paragraph (a) after “company” insert “or local authority”,

(ii) in paragraphs (b) and (c) after “company” insert “or authority”, and

(iii) in paragraph (d) for “neither” substitute “none”, and

(b) for subsection (2) substitute—

“(2) In this section—

• “company” includes a partnership of which any member is a company; and

• “local authority” includes a partnership of which any member is a local authority.”.

(5) In section 98 of the Taxes Management Act 1970 (c. 9) (special returns, etc), in subsection (4B)—

(a) in paragraph (a), after “a company” insert “or local authority”,

(b) in paragraph (b)—

(i) after “the company” insert “or authority”, and

(ii) for “either”, in each place, substitute “one”,

(c) in paragraph (c), after “the company” insert “or authority”, and

(d) in paragraph (d), for “neither” substitute “none”.

(6) In that section, for subsection (4C) substitute—

“(4C) In subsection (4B) above—

• “company” includes a partnership of which any member is a company; and

• “local authority” includes a partnership of which any member is a local authority.”.

(7) The amendments made by this section apply for the purposes of payments made on or after 1st October 2002.

95 Deduction of tax by persons dealing in financial instruments

(1) Section 349 of the Taxes Act 1988 (payment of annual interest etc) is amended as follows.

(2) In subsection (3) (cases where obligation to make interest payments net of tax does not apply), at the end insert “or

(i) in the case of a person who is authorised for the purposes of the Financial Services and Markets Act 2000 and whose business consists wholly or mainly of dealing in financial instruments as principal, to interest paid by that person in the ordinary course of his business.”.

(3) After subsection (4) insert—

“(5) For the purposes of subsection (3)(i) above, a financial instrument includes—

(a) any money,

(b) any shares or securities,

(c) an option, future or contract for differences if, but only if, its underlying subject-matter is (or is primarily) a financial instrument, or financial instruments, and

(d) an instrument the underlying subject-matter of which is (or is primarily) creditworthiness.

(6) For the purposes of subsection (5) above, the “underlying” subject-matter of an instrument the effect of which depends on an index or factor is the matter by reference to which the index or factor is determined.”.

(4) This section applies in relation to the payment of interest on or after 1st October 2002.

96 Cross-border royalties

(1) After section 349D of the Taxes Act 1988 insert—

“349E Deductions under section 349(1): payment of royalties overseas

(1) Where—

(a) a company makes a payment of a royalty to which section 349(1) applies, and

(b) the company reasonably believes that, at the time the payment is made, the payee is entitled to relief in respect of the payment under any arrangements under section 788 (double taxation relief),

the company may, if it thinks fit, calculate the sum to be deducted from the payment under section 349(1) by reference to the rate of income tax appropriate to the payee pursuant to the arrangements.

(2) But, where the payee is not at that time entitled to such relief, section 350 and Schedule 16 shall have effect as if subsection (1) above never applied in relation to the payment.

(3) Where the Board are not satisfied that the payee will be entitled to such relief in respect of one or more payments to be made by a company, they may direct the company that subsection (1) above is not to apply to the payment or payments.

(4) A direction under subsection (3) above may be varied or revoked by a subsequent such direction.

(5) In this section—

• “payee”, in relation to a payment, means the person beneficially entitled to the income in respect of which the payment is made; and

• “royalty” includes—

  (a)

  any payment received as a consideration for the use of, or the right to use, any copyright, patent, trade mark, design, process or information, or

  (b)

  any proceeds of sale of all or any part of any patent rights.

(6) Paragraph 3(1) of Schedule 18 to the Finance Act 1998 (requirement to make return in respect of information relevant to application of Corporation Tax Acts) has effect as if the reference to the Corporation Tax Acts included a reference to this section.

(7) Paragraph 20 of that Schedule (penalties for incorrect returns), in its application to an error relating to information required in a return by virtue of subsection (6) above, has effect as if—

(a) the reference in sub-paragraph (1) to a tax-related penalty were a reference to an amount not exceeding £3000, and

(b) sub-paragraphs (2) and (3) were omitted.”.

(2) In section 350(1A) of that Act, at the end insert “(or, where the payment is one to which subsection (1) of section 349E applies, the rate referred to in that subsection)”.

(3) In section 98 of the Taxes Management Act 1970 (c. 9) (special returns etc)—

(a) in subsection (4A)(b), after “subsection (4B)” insert “or (4D)”, and

(b) after subsection (4C) insert—

“(4D) A payment is within this subsection if—

(a) it is a payment to which section 349(1) of the principal Act (requirement to deduct tax) applies,

(b) it is made by a company which, purporting to rely on section 349E(1) of that Act (power for companies to take account of double taxation treaty relief when paying royalties), deducts less tax from the payment than required by section 349(1) of that Act , and

(c) at the time the payment is made the payee (within the meaning of section 349E of that Act) is not entitled to relief in respect of the payment under any arrangements under section 788 of that Act (double taxation relief) and the company—

(i) does not believe that it is entitled to such relief, or

(ii) if it does so believe, cannot reasonably do so.”.

(4) This section applies in relation to payments made on or after 1st October 2002.

Charitable giving

97 Gifts of real property to charity

(1) In section 587B of the Taxes Act 1988 (gifts of shares and securities to charities) in subsection (9), in the definition of “qualifying investment”, omit the word “and” immediately preceding paragraph (d) and at the end of that paragraph insert “; and

(e) a qualifying interest in land”.

(2) After that subsection insert—

“(9A) In this section a “qualifying interest in land” means—

(a) a freehold interest in land, or

(b) a leasehold interest in land which is a term of years absolute,

where the land in question is in the United Kingdom.

This subsection is subject to subsections (9B) to (9D) below.

(9B) Where a person makes a disposal to a charity of—

(a) the whole of his beneficial interest in such freehold or leasehold interest in land as is described in subsection (9A)(a) or (b) above, and

(b) any easement, servitude, right or privilege so far as benefiting that land,

the disposal falling within paragraph (b) above is to be regarded for the purposes of this section as a disposal by the person of the whole of his beneficial interest in a qualifying interest in land.

(9C) Where a person who has a freehold or leasehold interest in land in the United Kingdom grants a lease for a term of years absolute (or, in the case of land in Scotland, grants a lease) to a charity of the whole or part of that land, the grant of that lease is to be regarded for the purposes of this section as a disposal by the person of the whole of the beneficial interest in the leasehold interest so granted.

(9D) For the purposes of subsection (9A) above, an agreement to acquire a freehold interest and an agreement for a lease are not qualifying interests in land.

(9E) In the application of this section to Scotland—

(a) references to a freehold interest in land are references to the interest of the owner,

(b) references to a leasehold interest in land which is a term of years absolute are references to a tenant’s right over or interest in a property subject to a lease, and

(c) references to an agreement for a lease do not include references to missives of let that constitute an actual lease.”.

(3) After subsection (11) of that section insert—

“(12) This section is supplemented by section 587C below.”.

(4) In consequence of the amendments made by subsections (1) to (3), the sidenote of section 587B becomes “Gifts of shares, securities and real property to charities etc”.

(5) After section 587B of the Taxes Act 1988 insert—

“587C Supplementary provision for gifts of real property

(1) This section applies for the purposes of section 587B where a qualifying investment is a qualifying interest in land.

(2) Where two or more persons—

(a) are jointly beneficially entitled to the qualifying interest in land, or

(b) are, taken together, beneficially entitled in common to the qualifying interest in land,

section 587B applies only if each of those persons disposes of the whole of his beneficial interest in the qualifying interest in land to the charity.

(3) Relief under section 587B shall be available to each of the persons referred to in subsection (2) above, but the amount that may be allowed as respects any of them shall be only such share of the relevant amount as they may agree in the case of that person.

(4) No person may make a claim for a relief under subsection (2) of section 587B unless he has received a certificate given by or on behalf of the charity.

(5) The certificate must—

(a) specify the description of the qualifying interest in land which is the subject of the disposal,

(b) specify the date of the disposal, and

(c) contain a statement that the charity has acquired the qualifying interest in land.

(6) If, in the case of a disposal of a qualifying interest in land, a disqualifying event occurs at any time in the relevant period, the person (or each of the persons) who made the disposal to the charity shall be treated as never having been entitled to relief under section 587B in respect of the disposal.

(7) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (6) above.

(8) For the purposes of subsection (6) above a disqualifying event occurs if the person (or any one of the persons) who made the disposal or any person connected with him (or any one of them)—

(a) becomes entitled to an interest or right in relation to all or part of the land to which the disposal relates, or

(b) becomes party to an arrangement under which he enjoys some right in relation to all or part of that land,

otherwise than for full consideration in money or money’s worth.

(9) A disqualifying event does not occur, for the purposes of subsection (6) above, if a person becomes entitled to an interest or right as mentioned in subsection (8)(a) above as a result of a disposition of property on death, whether the disposition is effected by will, under the law relating to intestacy or otherwise.

(10) For the purposes of subsection (6) above the relevant period is the period beginning with the date of the disposal of the qualifying interest in land and ending with—

(a) in the case of an individual, the fifth anniversary of the 31st January next following the end of the year of assessment in which the disposal was made, and

(b) in the case of a company, the sixth anniversary of the end of the accounting period in which the disposal was made.

(11) Section 839 (connected persons) applies for the purposes of this section.

(12) This section shall be construed as one with section 587B.”.

(6) This section has effect in relation to any disposal of a qualifying interest in land to a charity where the disposal is made—

(a) in the case of a disposal to the charity by an individual, on or after 6th April 2002, or

(b) in the case of a disposal to the charity by a company, on or after 1st April 2002.

(7) Subsection (9E)(a) of section 587B of the Taxes Act 1988 has effect until the appointed day as if for “the interest of the owner” there were substituted “the estate or interest of the proprietor of the dominium utile (or, in the case of property other than feudal property, of the owner)”.

(8) For the purposes of subsection (7) “the appointed day” means such day as may be appointed by the Scottish Ministers under section 71 of the Abolition of Feudal Tenure etc (Scotland) Act 2000 for the purposes of the Act.

98 Gift aid: election to be treated as if gift made in previous tax year

(1) A person (“the donor”) who makes a gift that is a qualifying donation within section 25 of the Finance Act 1990 (c. 29) (gift aid) may elect to be treated for the purposes of that section as if the gift were a qualifying donation made by him in the previous year of assessment.

(2) Any such election must be made by notice in writing to an officer of the Inland Revenue—

(a) on or before the date on which the donor delivers his return for the previous year of assessment under section 8 of the Taxes Management Act 1970 (c. 9) (personal return), and

(b) not later than the 31st January next following the end of that year.

(3) No such election may be made unless in the previous year the grossed up amount of the gift would, if made in that year, be payable out of profits or gains brought into charge to income tax or capital gains tax.

(4) The effect of an election under this section is that the provisions of section 25(6) to (9A) of the Finance Act 1990 (c. 29) have effect in relation to the donor as if the gift were a qualifying donation made in the previous year of assessment.

(5) An election under this section does not affect the position of the recipient of the gift.

The reference in section 25(10) of the Finance Act 1990 to the relevant year of assessment shall be construed accordingly as a reference to the year of assessment in which the gift is actually made.

(6) This section has effect in relation to gifts made on or after 6th April 2003.