Part 1 Excise duties

Tobacco products duty

1 Rates of tobacco products duty

(1) For the Table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979 (c. 7) substitute—

(2) This section shall be deemed to have come into force at 6 o'clock in the evening of 22nd March 2006.

2 Tobacco products duty: evasion

(1) After section 7 of the Tobacco Products Duty Act 1979 (c. 7) (regulations for management of duty) insert—

“7A Duty not to facilitate smuggling

(1) A manufacturer of cigarettes or hand-rolling tobacco shall so far as is reasonably practicable avoid—

(a) supplying cigarettes or hand-rolling tobacco to persons who are likely to smuggle them into the United Kingdom,

(b) supplying cigarettes or hand-rolling tobacco where the nature or circumstances of the supply makes it likely that they will be resupplied to persons who are likely to smuggle them into the United Kingdom, or

(c) otherwise facilitating the smuggling into the United Kingdom of cigarettes or hand-rolling tobacco.

(2) In particular, a manufacturer—

(a) in supplying cigarettes or hand-rolling tobacco to persons carrying on business in or in relation to a country other than the United Kingdom, shall consider whether the size or nature of the supply suggests that the products may be required for smuggling into the United Kingdom,

(b) shall maintain a written policy about steps to be taken for the purpose of complying with the duty under subsection (1), and

(c) shall provide a copy of the policy to the Commissioners on request.

(3) In this section a reference to smuggling products into the United Kingdom is a reference to importing them into the United Kingdom without payment of duty which is—

(a) chargeable under section 2, and

(b) payable by virtue of section 1(1) of the Finance (No. 2) Act 1992 (c. 48) (power to fix excise duty point).

(4) The Commissioners may notify a manufacturer in writing that they think the risk of smuggling into the United Kingdom is particularly great in relation to—

(a) products marketed under a specified brand name;

(b) products supplied to persons carrying on business in or in relation to a specified country or place.

(5) The Commissioners may by notice in writing require a manufacturer of cigarettes or hand-rolling tobacco to provide, within a specified period of time, specified information about—

(a) supply of products marketed under a brand name specified under subsection (4)(a);

(b) supply to persons carrying on business in or in relation to a country or place specified under subsection (4)(b);

(c) demand for cigarettes or hand-rolling tobacco in a country or place specified under subsection (4)(b).

(6) The Commissioners may issue guidance about the content of policies under subsection (2)(b).

(7) The Commissioners may make regulations—

(a) under which they are required to notify manufacturers of cigarettes or hand-rolling tobacco where products of a kind specified in the regulations are seized under section 139 of the Customs and Excise Management Act 1979 (c. 2) in circumstances specified in the regulations,

(b) specifying the procedure for notification,

(c) including provision about access to seized products for the purpose of determining who manufactured them, and

(d) requiring manufacturers to provide the Commissioners with information or documents, of a kind specified in the regulations or determined by the Commissioners, in relation to notified seizures.

7B Penalty for facilitating smuggling: initial notice

(1) Where the Commissioners think that a manufacturer has without reasonable excuse failed to comply with the duty under section 7A(1) they may give him written notice that they are considering requiring him to pay a penalty.

(2) In determining whether to give notice to a manufacturer under subsection (1) the Commissioners shall have regard to—

(a) the content of the manufacturer’s policy under section 7A(2)(b),

(b) compliance with that policy,

(c) action taken pursuant to any notice under section 7A(4),

(d) compliance by the manufacturer with any notice under section 7A(5),

(e) the number, size and nature of seizures of which the manufacturer has been given notice by virtue of section 7A(7)(a),

(f) compliance by the manufacturer with any requirement by virtue of section 7A(7)(d),

(g) evidence about the level of demand for the manufacturer’s products for consumption outside the United Kingdom, and

(h) any other matter that they think relevant.

(3) A notice must specify the matters to which the Commissioners have had regard in determining to give it.

(4) After the end of the period of six months beginning with the date on which a notice is given to a manufacturer, the Commissioners shall give him notice in writing either—

(a) that they require payment of a penalty, or

(b) that they do not require payment of a penalty.

(5) The Commissioners shall comply with subsection (4) during the period of 45 days beginning with the end of the period specified in that subsection; and for that purpose they shall consider—

(a) any representations made by the manufacturer during that period in such form and manner as the Commissioners may direct, and

(b) action taken by the manufacturer during that period.

7C Penalty for facilitating evasion: penalty notice

(1) A notice under section 7B(4)(a) (a “penalty notice”) must—

(a) specify the amount of the penalty which the manufacturer is required to pay, and

(b) state the grounds on which the Commissioners think that the manufacturer has failed to comply with the duty under section 7A(1).

(2) The amount specified under subsection (1)(a) must not exceed £5 million; and in determining the amount to specify the Commissioners shall have regard to—

(a) the nature or extent of the manufacturer’s failure to comply with the duty under section 7A(1),

(b) action taken by the manufacturer to secure compliance with that duty,

(c) the content of the manufacturer’s policy under section 7A(2)(b),

(d) compliance with that policy,

(e) action taken pursuant to any notice under section 7A(4),

(f) compliance by the manufacturer with any notice under section 7A(5),

(g) the number, size and nature of seizures of which the manufacturer has been given notice by virtue of section 7A(7)(a),

(h) the loss of revenue by way of duty under section 2, or VAT, in respect of the products seized, and

(i) any other matter that they think relevant.

(3) A manufacturer who is given a penalty notice may require the Commissioners to review the decision to issue the notice; and—

(a) a requirement must be imposed by notice in writing given to the Commissioners before the end of the period of 45 days beginning with the date of the penalty notice,

(b) the Commissioners shall comply with a requirement given in accordance with paragraph (a),

(c) the Commissioners shall confirm, vary or withdraw the penalty notice, and

(d) the Commissioners shall be taken to have confirmed the penalty notice unless, within the period of 45 days beginning with the date of the requirement to conduct the review, they have varied or withdrawn it by notice in writing to the manufacturer.

(4) If following a requirement under subsection (3) the Commissioners confirm or vary the notice (or are taken to have confirmed it) the manufacturer may appeal to a VAT and duties tribunal.

(5) The tribunal may—

(a) cancel the penalty notice,

(b) reduce the penalty, or

(c) confirm the penalty notice.

7D Sections 7A to 7C: supplemental

(1) Payment of a penalty imposed under section 7B(4)(a) shall not be allowed as a deduction in computing income, profits or losses for purposes of income tax or corporation tax.

(2) A penalty may be enforced as a debt due to the Commissioners.

(3) In sections 7A to 7C and this section a reference to a manufacturer of cigarettes or hand-rolling tobacco includes a reference to a person who, in the opinion of the Commissioners—

(a) arranges to have cigarettes or hand-rolling tobacco manufactured, and

(b) is wholly or partly responsible for the initial supply of the products after manufacture.

(4) Where a manufacturer is a parent undertaking or a subsidiary undertaking (within the meaning of section 258 of the Companies Act 1985 (c. 6)) the Commissioners may—

(a) treat the parent and its subsidiaries as a single undertaking for the purpose of sections 7A to 7C and this section, and

(b) in particular, enforce a penalty imposed on the single undertaking as a debt owed by—

(i) the single undertaking,

(ii) the parent, or

(iii) any of the subsidiaries.

(5) A notice or guidance under section 7A(4) to (6)—

(a) may be issued to manufacturers generally or to one or more manufacturers or classes of manufacturer,

(b) may be expressed to apply to or in respect of manufacturers generally or only to or in respect of one or more specified manufacturers or classes of manufacturer,

(c) may make provision generally or only in relation to specified cases or circumstances,

(d) may make different provision in relation to different cases or circumstances, and

(e) may be varied, replaced or revoked.

(6) The Treasury may by order—

(a) amend the list in section 7B(2) or 7C(2) so as to—

(i) add an entry,

(ii) remove an entry, or

(iii) amend an entry;

(b) amend sections 7A to 7C and this section so as to alter the class of tobacco products in relation to which they apply.

(7) An order under subsection (6)—

(a) may include transitional, consequential or incidental provision,

(b) shall be made by statutory instrument,

(c) shall be laid before the House of Commons, and

(d) shall cease to have effect unless approved by resolution of the House of Commons within the period of 28 days beginning with the date on which it is laid (disregarding any period of dissolution or prorogation or of adjournment for more than four days).”

(2) At the end of section 9 of the Tobacco Products Duty Act 1979 (c. 7) (regulations) (which becomes subsection (1)) add—

“(2) Regulations under this Act—

(a) may enable the Commissioners to dispense with compliance with a provision of the regulations (whether absolutely or conditionally),

(b) may make provision generally or only in relation to specified cases or circumstances,

(c) may make different provision in relation to different cases or circumstances, and

(d) may include transitional, consequential or incidental provision.”

(3) This section shall come into force in accordance with provision made by the Treasury by order.

(4) An order under subsection (3)—

(a) may include transitional, consequential or incidental provision, and

(b) shall be made by statutory instrument.

Alcoholic liquor duties

3 Rate of duty on beer

(1) In section 36(1AA)(a) of ALDA 1979 (rate of duty on beer) for “£12.92” substitute “£13.26”.

(2) This section shall be deemed to have come into force at midnight on 26th March 2006.

4 Rates of duty on wine and made-wine

(1) For Part 1 of the Table of rates of duty in Schedule 1 to ALDA 1979 (rates of duty on wine and made-wine) substitute—

“Part 1 Wine and made-wine of a strength not exceeding 22 per cent

(2) This section shall be deemed to have come into force at midnight on 26th March 2006.

5 Repeal of provisions of ALDA 1979 of no practical utility etc

(1) The following provisions of ALDA 1979 shall cease to have effect—

(a) section 12(4) (power to refuse or revoke distiller’s licence where premises near to premises of a rectifier, registered brewer or vinegar-maker);

(b) section 14 (duty on spirits – attenuation charge);

(c) section 15(4) (provision of accommodation in distiller’s warehouse);

(d) section 18(5) (power to refuse licence as a rectifier where premises near to premises of a distillery);

(e) section 21 (restrictions relating to rectifiers);

(f) section 24 (restriction on carrying on of other trades by distiller or rectifier);

(g) section 26 (importation and exportation of spirits);

(h) section 32 (restriction on transfer of British spirits in warehouses);

(i) section 35 (returns as to importation, manufacture, sale or use of alcohols);

(j) section 55A (wine and made-wine of a strength not exceeding 5.5%);

(k) section 67 (power to regulate keeping of dutiable alcoholic liquors by wholesalers and retailers);

(l) section 69 (miscellaneous provisions as to wholesalers and retailers of spirits);

(m) section 71 (penalty for mis-describing liquor as spirits);

(n) section 74 (liquor to be deemed wine or spirits); and

(o) section 82 (power to make regulations with respect to stills).

(2) In consequence of the repeal of section 55A of ALDA 1979, that Act is amended as follows.

(3) In section 54 (wine: charge of excise duty), in subsection (4A), for “wine to which section 55A below applies” substitute “wine of a strength not exceeding 5.5 per cent”.

(4) In section 55 (made-wine: charge of excise duty), in subsections (4A) and (5)(d), for “made-wine to which section 55A below applies” substitute “made-wine of a strength not exceeding 5.5 per cent”.

Hydrocarbon oil duties

6 Rates until 1st September 2006

(1) HODA 1979 is amended as follows.

(2) In section 6(1A) (hydrocarbon oil: rates of duty)—

(a) in paragraph (a) (ultra low sulphur petrol) for “£0.4832” substitute “£0.4710”,

(b) in paragraph (aa) (sulphur-free petrol) for “£0.4832” substitute “£0.4710”,

(c) in paragraph (b) (light oil other than ultra low sulphur petrol and sulphur-free petrol) for “£0.5766” substitute “£0.5620”,

(d) in paragraph (c) (ultra low sulphur diesel) for “£0.4832” substitute “£0.4710”,

(e) in paragraph (ca) (sulphur-free diesel) for “£0.4832” substitute “£0.4710”, and

(f) in paragraph (d) (heavy oil other than ultra low sulphur diesel and sulphur-free diesel) for “£0.5465” substitute “£0.5327”.

(3) In section 6AA(3) (biodiesel) for “£0.2832” substitute “£0.2710”.

(4) In section 6AD(3) (bioethanol) for “£0.2832” substitute “£0.2710”.

(5) In section 8(3) (road fuel gas)—

(a) in paragraph (a) for “£0.1080” substitute “£0.0900”, and

(b) in paragraph (b) for “£0.1270” substitute “£0.0900”.

(6) In section 13A(1) (rebate on unleaded petrol) for “£0.0617” substitute “£0.0601”.

(7) The following statutory instruments shall cease to have effect—

(a) the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) Order 2005 (S.I. 2005/1978),

(b) the Excise Duties (Road Fuel Gases) (Reliefs) Regulations 2005 (S.I. 2005/1979), and

(c) the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) (Amendment) Order 2005 (S.I. 2005/3330).

7 Rates from 1st September 2006

(1) HODA 1979 is amended as follows.

(2) In section 6(1A) (hydrocarbon oil: rates of duty)—

(a) in paragraph (a) (ultra low sulphur petrol) for “£0.4710” substitute “£0.4835”,

(b) in paragraph (aa) (sulphur-free petrol) for “£0.4710” substitute “£0.4835”,

(c) in paragraph (b) (light oil other than ultra low sulphur petrol and sulphur-free petrol) for “£0.5620” substitute “£0.5768”,

(d) in paragraph (c) (ultra low sulphur diesel) for “£0.4710” substitute “£0.4835”,

(e) in paragraph (ca) (sulphur-free diesel) for “£0.4710” substitute “£0.4835 and

(f) in paragraph (d) (heavy oil other than ultra low sulphur diesel and sulphur-free diesel) for “£0.5327” substitute “£0.5468”.

(3) In section 6AA(3) (biodiesel) for “£0.2710” substitute “£0.2835”.

(4) In section 6AD(3) (bioethanol) for “£0.2710” substitute “£0.2835”.

(5) In section 8(3) (road fuel gas)—

(a) in paragraph (a) for “£0.0900” substitute “£0.1081”, and

(b) in paragraph (b) for “£0.0900” substitute “£0.1221”.

(6) In section 11(1) (rebate on heavy oil)—

(a) in paragraph (a) for “£0.0604” substitute“£0.0729”,

(b) in paragraph (b) for “£0.0644” substitute “£0.0769”, and

(c) in paragraph (ba) for “£0.0644” substitute “£0.0769”.

(7) In section 13A(1) (rebate on unleaded petrol) for “£0.0601”substitute “£0.0617”.

(8) In section 14(1) (rebate on light oil for use as furnace oil) for “£0.0604” substitute “£0.0729”.

(9) This section comes into force on 1st September 2006.

8 Road vehicles

After section 27(1A) of HODA 1979 (interpretation) insert—

“(1B) The Treasury may by order made by statutory instrument amend Schedule 1 to this Act so as to—

(a) add a class of excepted vehicle,

(b) remove a class of excepted vehicle, or

(c) redefine a class of excepted vehicle.

(1C) Section 2A(2) and (3) above shall apply to an order under subsection (1B).”

Betting and gaming duties

9 General betting duty: gaming machines

(1) In section 2(2) of the Betting and Gaming Duties Act 1981 (c. 63) (general betting duty: exemptions) after paragraph (c) add— “, or

(d) a bet made using a gaming machine, within the meaning of section 23 of the Value Added Tax Act 1994.”

(2) This section shall have effect in respect of anything done on or after 6th December 2005 (with the reference to section 23 of the Value Added Tax Act 1994 being a reference to that definition as it is treated as having effect in relation to things done on or after that date by virtue of section 16(6) and (7) below).

10 Rates of gaming duty

(1) For the Table in section 11(2) of FA 1997 (rates of gaming duty) substitute—

(2) This section has effect in relation to accounting periods beginning on or after 1st April 2006.

Amusement machine licence duty

11 Definition of “gaming machine”

(1) For section 25(1) to (1B) of the Betting and Gaming Duties Act 1981 (c. 63) (amusement machine licence duty: definition of “amusement machine”) substitute—

“(1) A machine is an amusement machine for the purposes of this Act if it is—

(a) a gaming machine, and

(b) a prize machine.

(1A) In this Act “gaming machine” means a machine that is a gaming machine for the purposes of section 23 of the Value Added Tax Act 1994 (c. 23).”

(2) In section 25(1C) of the Betting and Gaming Duties Act 1981 (“prize machine”) for “an amusement machine is a prize machine” substitute “a machine is a prize machine”.

(3) In Schedule 3 to the Betting and Gaming Duties Act 1981 (bingo duty) omit paragraph 6 (machine bingo).

(4) Subsections (1) and (2) shall have effect in relation to the provision of a machine on or after 1st August 2006.

(5) Subsection (3) shall have effect in relation to accounting periods beginning on or after 1st August 2006.

12 Classes of machine and rates of duty

(1) For section 21(3AA) to (3E) of the Betting and Gaming Duties Act 1981 (c. 63) (special licences and excepted machines) substitute—

“(4) A special amusement machine licence shall be granted only—

(a) for a small prize machine,

(b) if conditions prescribed by the Commissioners by regulations are satisfied in relation to the application for the licence, the applicant and the machine, and

(c) for a period of twelve months.

(5) The following are excepted machines—

(a) machines that are not gaming machines,

(b) a gaming machine in respect of which—

(i) the cost of a single game does not exceed 30p,

(ii) the maximum value of the prize for winning a single game does not exceed £8, and

(iii) the maximum cash component of the prize for winning a single game does not exceed £5,

(c) a gaming machine in respect of which—

(i) the cost of a single game does not exceed 10p, and

(ii) the maximum value of the prize for winning a single game does not exceed £5, and

(d) two-penny machines.”

(2) In section 22(2) of that Act (gaming machines) paragraph (b) shall cease to have effect.

(3) For section 23(2) and (3) of that Act (rates) substitute—

“(2) The appropriate amount for each machine shall be determined in accordance with the following Table by reference to—

(a) the period for which the licence is granted, and

(b) the machine’s category determined in accordance with subsection (3).

(3) The categories of gaming machine are as follows—

Category A – a gaming machine which is not within another category.

Category B1 – a gaming machine which is not within a lower category and in respect of which—

(i) the cost of a single game does not exceed £2, and

(ii) the maximum value of the prize for winning a single game does not exceed £4,000.

Category B2 – a gaming machine which is not within a lower category and in respect of which—

(i) the cost of a single game does not exceed £100, and

(ii) the maximum value of the prize for winning a single game does not exceed £500.

Category B3 – a gaming machine which is not within a lower category and in respect of which—

(i) the cost of a single game does not exceed £1, and

(ii) the maximum value of the prize for winning a single game does not exceed £500.

Category B4 – a gaming machine which is not within a lower category and in respect of which—

(i) the cost of a single game does not exceed £1, and

(ii) the maximum value of the prize for winning a single game does not exceed £250.

Category C—

(i) a gaming machine in respect of which the cost of a single game does not exceed 5p, and

(ii) a gaming machine in respect of which—

(a) the cost of a single game does not exceed 50p, and

(b) the maximum value of the prize for winning a single game does not exceed £25.

(4) Where a machine offers more than one class of game, it falls within a category only if it satisfies the requirements of that category in respect of each class.

(5) Where a prize is anything other than money its value for the purposes of this section is—

(a) in the case of a voucher or token that may be exchanged for, or used in place of, an amount of money, that amount,

(b) in the case of a voucher or token that does not fall within paragraph (a) and that may be exchanged for something other than money, the cost that the person providing the machine would incur in obtaining that thing from a person not connected with him (within the meaning of section 839 of the Income and Corporation Taxes Act 1988), and

(c) in any other case, the cost that the person providing the machine would incur in obtaining the prize from a person not connected with him (within that meaning).

(6) For the purposes of subsection (3) Category A is the highest category and Category C is the lowest.”

(4) For section 25(4) to (7) of the Betting and Gaming Duties Act 1981 (c. 63) substitute—

“(4) A machine which has a number of individual playing positions allowing persons to play simultaneously (whether or not participating in the same game) shall be treated for the purposes of sections 21 to 24 as that number of separate machines.”

(5) Section 25A of that Act (power to modify definitions) shall cease to have effect.

(6) In section 26(2) of that Act (supplemental) the following shall cease to have effect—

(a) the definition of “video machine”, and

(b) in the definition of “two-penny machine”, the words from “and “five-penny machine”” to the end.

(7) Paragraphs 2 and 3 of Schedule 4 to that Act (exemptions) shall cease to have effect.

(8) Subsections (1) to (7) shall have effect in relation to the grant of an amusement machine licence on or after 1st August 2006.

(9) An amusement machine licence granted before that time shall continue to have effect (for which purpose the Betting and Gaming Duties Act 1981 shall have effect without the amendments effected by this section).

(10) But subsection (9) shall not apply in relation to machines which become gaming machines by virtue of section 11 of this Act.

(11) For the purpose of the application of Schedule 4A to that Act (default licences) in respect of a period before 1st August 2006 no account shall be taken of an amendment effected by subsections (1) to (7) above or by section 11 above.

Vehicle excise duty

13 Rates

(1) Schedule 1 to VERA 1994 (annual rates of duty) is amended as follows.

(2) In paragraph 1(2) (general rate of duty), for “£170” substitute “£175”.

(3) For paragraph 1B (rates for light passenger vehicles) substitute—

“1B The annual rate of vehicle excise duty applicable to a vehicle to which this Part of this Schedule applies shall be determined in accordance with Table A, where the vehicle is first registered before 23rd March 2006, or Table B, where the vehicle is first registered on or after that date, by reference to—

(a) the applicable CO₂ emissions figure, and

(b) whether the vehicle qualifies for the reduced rate of duty, or is liable to the standard rate or the premium rate of duty.

(4) In paragraph 1C (reduced rate for light passenger vehicles)—

(a) for sub-paragraph (2) substitute—

“(2) Condition A is that the vehicle—

(a) is constructed—

(i) so as to be propelled by a relevant type of fuel, or

(ii) so as to be capable of being propelled by any of a number of relevant types of fuel, or

(b) is constructed or modified—

(i) so as to be propelled by a prescribed type of fuel, or

(ii) so as to be capable of being propelled by any of a number of prescribed types of fuel,

and complies with any other requirements prescribed for the purposes of this condition.”, and

(b) after sub-paragraph (5) insert—

“(6) In this paragraph—

• “bioethanol” has the meaning given in section 2AB of the Hydrocarbon Oil Duties Act 1979,

• “relevant type of fuel” means—

  (a)

  bioethanol, or

  (b)

  a mixture of bioethanol and unleaded petrol, if the proportion of bioethanol by volume is at least 85%, and

• “unleaded petrol” has the meaning given in section 1(3C) of the Hydrocarbon Oil Duties Act 1979.

(7) The Secretary of State may, with the consent of the Treasury, by regulations amend sub-paragraph (6).”

(5) In paragraph 1J(a) (rates for light goods vehicles), for “£165” substitute “£170”.

(6) In paragraph 1K(a) (lower-emission vans), after “1st March 2003” insert “and before 1st January 2007”.

(7) In paragraph 2(1) (rates for motorcycles)—

(a) in paragraph (b), for “£30” substitute “£31”,

(b) in paragraph (c), for “£45” substitute “£46”, and

(c) in paragraph (d), for “£60” substitute “£62”.

(8) In Schedule 2 to VERA 1994 (exempt vehicles), after paragraph 24 insert—

“Light passenger vehicles with low CO₂ emissions

25 A vehicle is an exempt vehicle if—

(a) it is a vehicle to which Part 1A of Schedule 1 applies, and

(b) the applicable CO₂ emissions figure (as defined in paragraph 1A(3) and (4) of that Schedule) for the vehicle does not exceed 100 g/km.”

(9) Subsection (8) comes into force on 23rd March 2006; but nothing in that subsection has the effect that a nil licence is required to be in force in respect of a vehicle while a vehicle licence is in force in respect of it.

(10) The rest of this section has effect in relation to licences taken out on or after that date.

14 Reduced pollution certificates

In section 61B of VERA 1994 (reduced pollution certificates), for subsection (2) substitute—

“(2) For the purposes of this Act, the reduced pollution requirements are satisfied with respect to a vehicle at any time if, at that time, prescribed requirements relating to the vehicle’s emissions are satisfied as a result of—

(a) the design, construction or equipment of the vehicle as manufactured; or

(b) adaptations of a prescribed description having been made to the vehicle after a prescribed date.

(2A) Different requirements may be prescribed under subsection (2) for vehicles first registered at different times.”

15 Late renewal supplement

In VERA 1994, after section 7B insert—

“7C Recovery of section 7A supplements: Scotland

(1) The Secretary of State may by regulations provide for the recovery of supplement that has become payable under section 7A by diligence authorised by summary warrant.

(2) Regulations under subsection (1) may, in particular, provide—

(a) for such summary warrants—

(i) to be granted by the sheriff on the application of the Secretary of State; and

(ii) to authorise any of the diligences mentioned in subsection (3);

(b) for such applications to be accompanied by a certificate mentioned in subsection (4); and

(c) for the fees and outlays of sheriff officers incurred in executing such summary warrants to be chargeable against the debtor.

(3) The diligences referred to in subsection (2)(a)(ii) are—

(a) an attachment;

(b) an earnings arrestment;

(c) an arrestment and action of furthcoming or sale.

(4) The certificate referred to in subsection (2)(b) is a certificate by the Secretary of State —

(a) stating that none of the persons specified in the application has paid the supplement due;

(b) stating that payment of the amount due from each such person has been demanded from him;

(c) stating whether in response to that demand any such person disputes liability to pay; and

(d) specifying the amount due from and unpaid by each such person.

(5) No fee shall be chargeable by the sheriff officer against the debtor for—

(a) collecting; or

(b) accounting to the Secretary of State for,

sums paid to him by the debtor in respect of the amount owing.

(6) No summary warrant for recovery of supplement payable under section 7A may be granted against a person if—

(a) he disputes liability to pay; or

(b) an action for payment to recover such supplement from him has already been raised.

(7) Failure to respond to a demand to pay shall not be taken to mean liability to pay is disputed.

(8) An action for payment to recover supplement payable under section 7A may be raised against a person notwithstanding that a summary warrant has already been granted for recovery of such supplement from him but only if none of the diligences mentioned in subsection (3) has been executed against him.

(9) Where such an action is raised, the summary warrant shall cease to have effect in relation to such person.

(10) This section extends to Scotland only.”

Part 2 Value added tax

Gaming machines

16 Gaming machines

(1) Section 23 of VATA 1994 (gaming machines) shall be amended as follows.

(2) In subsection (1)—

(a) for “plays a game of chance” substitute “gambles”, and

(b) omit “to play”.

(3) In subsection (2) for “playing” substitute “gambling”.

(4) In subsection (3)—

(a) for “playing” substitute “gambling”, and

(b) for “to play” substitute “to use”.

(5) For subsection (4) substitute—

“(4) In this section “gaming machine” means a machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes).

(5) But—

(a) a machine is not a gaming machine to the extent that it is designed or adapted for use to bet on future real events,

(b) a machine is not a gaming machine to the extent that—

(i) it is designed or adapted for the playing of bingo, and

(ii) bingo duty is charged under section 17 of the Betting and Gaming Duties Act 1981 (c. 63) on the playing of that bingo, or would be charged but for paragraphs 1 to 5 of Schedule 3 to that Act, and

(c) a machine is not a gaming machine to the extent that—

(i) it is designed or adapted for the playing of a real game of chance, and

(ii) the playing of the game is dutiable gaming for the purposes of section 10 of the Finance Act 1997 (c. 16), or would be dutiable gaming but for subsections (3) and (4) of that section.

(6) In this section—

(a) a reference to gambling is a reference to—

(i) gaming within the meaning of section 6 of the Gambling Act 2005 (c. 19), and

(ii) betting within the meaning of section 9 of that Act,

(b) a reference to a machine is a reference to any apparatus which uses or applies mechanical power, electrical power or both,

(c) a reference to a machine being designed or adapted for a purpose includes a reference to a machine to which anything has been done as a result of which it can reasonably be expected to be used for that purpose,

(d) a reference to a machine being adapted includes a reference to computer software being installed on it,

(e) “real” has the meaning given by section 353(1) of that Act,

(f) “game of chance” has such meaning as may be prescribed by the Treasury by order,

(g) “bingo” means any version of that game, irrespective of by what name it is described.

(7) The Treasury may by order amend subsections (4) to (6).”

(6) This section shall have effect in relation to anything done on or after 6th December 2005.

(7) In the application of section 23(5)(c) of VATA 1994 as substituted by this section in relation to anything done before 1st November 2006, “game of chance” shall have the same meaning as in the Gaming Act 1968 (c. 65).

Land

17 Buildings and land

(1) The Treasury may by order—

(a) make provision for substituting Schedule 10 to VATA 1994 (buildings and land) for the purpose of rewriting that Schedule with amendments;

(b) make provision amending sections 83 and 84 of that Act (appeals) in connection with any provision of that Schedule as so rewritten.

(2) The Treasury may by order make provision repealing—

(a) paragraph (b) of item 1 in Group 1 of Schedule 9 to VATA 1994 (exempt supplies of land not to include supplies made pursuant to a developmental tenancy, developmental lease or developmental licence), and

(b) Note (7) in that Group (meaning of developmental tenancy, developmental lease or developmental licence).

The power conferred by this subsection is not to be regarded as affecting in any way the power to vary Schedule 9 to that Act conferred by section 31(2) of that Act.

(3) The Treasury may by order make provision repealing—

(a) section 26 of FA 1995 (co-owners etc of buildings and land), and

(b) the enactments inserted by that section (section 51A of VATA 1994 and paragraph 8(2) and (3) of Schedule 10 to that Act).

(4) Any power to make an order under this section includes power—

(a) to make any provision that might be made by an Act, and

(b) to make incidental, consequential, supplemental, or transitional provision or savings.

(5) The consequential provision that may be made under subsection (4)(b) includes provision amending any Act or any instrument made under any Act.

(6) Any order under this section—

(a) is to be made by statutory instrument,

(b) must be laid before the House of Commons, and

(c) unless approved by that House before the end of the period of 28 days beginning with the date on which it is made, ceases to have effect at the end of that period.

(7) But, if an order so ceases to have effect, this does not affect—

(a) anything previously done under the order, or

(b) the making of a new order.

(8) In reckoning the period of 28 days no account is to be taken of any time—

(a) during which Parliament is dissolved or prorogued, or

(b) during which the House of Commons is adjourned for more than 4 days.

Imported works of art etc

18 Value of imported works of art etc: auctioneer’s commission

(1) Section 21 of VATA 1994 (value of imported goods) is amended as follows.

(2) In subsection (2) (value of imported goods to include taxes and expenses), after “shall” insert “(subject to subsection (2A) below)”.

(3) After subsection (2) insert—

“(2A) Where—

(a) any goods falling within subsection (5) below are sold by auction at a time when they are subject to the procedure specified in subsection (2B) below, and

(b) arrangements made by or on behalf of the purchaser of the goods following the sale by auction result in the importation of the goods from a place outside the member States,

the value of the goods shall not be taken for the purposes of this Act to include, in relation to that importation, any commission or premium payable to the auctioneer in connection with the sale of the goods.

(2B) That procedure is the customs procedure for temporary importation with total relief from import duties provided for in Articles 137 to 141 of Council Regulation 2913/92/EEC establishing the Community Customs Code.”

(4) Subsections (1) to (3) come into force on such day as the Treasury may by order made by statutory instrument appoint.

Avoidance and fraud

19 Missing trader intra-community fraud

(1) After section 55 of VATA 1994 (customers to account for tax on supplies of gold etc) insert—

“55A Customers to account for tax on supplies of goods of a kind used in missing trader intra-community fraud

(1) Subsection (3) applies if—

(a) a taxable (but not a zero-rated) supply of goods (“the relevant supply”) is made to a person (“the recipient”),

(b) the relevant supply is of goods to which this section applies (see subsection (9)),

(c) the relevant supply is not an excepted supply (see subsection (10)), and

(d) the total value of the relevant supply, and of corresponding supplies made to the recipient in the month in which the relevant supply is made, exceeds £1,000 (“the disregarded amount”).

(2) For this purpose a “corresponding supply” means a taxable (but not a zero-rated) supply of goods which—

(a) is a supply of goods to which this section applies, and

(b) is not an excepted supply.

(3) The relevant supply, and the corresponding supplies made to the recipient in the month in which the relevant supply is made, are to be treated for the purposes of Schedule 1—

(a) as taxable supplies of the recipient (as well as taxable supplies of the person making them), and

(b) in so far as the recipient is supplied in connection with the carrying on by him of any business, as supplies made by him in the course or furtherance of that business,

but the relevant supply, and those corresponding supplies, are to be so treated only in so far as their total value exceeds the disregarded amount.

(4) Nothing in subsection (3)(b) requires any supply to be disregarded for the purposes of Schedule 1 on the grounds that it is a supply of capital assets of the recipient’s business.

(5) For the purposes of subsections (1) and (3), the value of a supply is determined on the basis that no VAT is chargeable on the supply.

(6) If—

(a) a taxable person makes a supply of goods to a person (“the recipient”) at any time,

(b) the supply is of goods to which this section applies and is not an excepted supply, and

(c) the recipient is a taxable person at that time and is supplied in connection with the carrying on by him of any business,

it is for the recipient, on the supplier’s behalf, to account for and pay tax on the supply and not for the supplier.

(7) The relevant enforcement provisions apply for the purposes of this section, in relation to any person required under subsection (6) to account for and pay any VAT, as if that VAT were VAT on a supply made by him.

(8) For this purpose “the relevant enforcement provisions” means so much of—

(a) this Act and any other enactment, and

(b) any subordinate legislation,

as has effect for the purposes of, or in connection with the enforcement of, any obligation to account for and pay VAT.

(9) For the purposes of this section, goods are goods to which this section applies if they are of a description specified in an order made by the Treasury.

(10) For the purposes of this section, an “excepted supply” means a supply which is of a description specified in, or determined in accordance with, provision contained in an order made by the Treasury.

(11) Any order made under subsection (10) may describe a supply of goods by reference to—

(a) the use which has been made of the goods, or

(b) other matters unrelated to the characteristics of the goods themselves.

(12) The Treasury may by order substitute for the sum for the time being specified in subsection (1)(d) such greater sum as they think fit.

(13) The Treasury may by order make such amendments of any provision of this Act as they consider necessary or expedient for the purposes of this section or in connection with this section.

An order under this subsection may confer power on the Commissioners to make regulations or exercise any other function, but no order may be made under this subsection on or after 22nd March 2009.

(14) Any order made under this section (other than one under subsection (12)) may—

(a) make different provision for different cases, and

(b) contain supplementary, incidental, consequential or transitional provisions.”.

(2) After section 26A of VATA 1994 (disallowance of input tax where consideration not paid) insert—

“26AB Adjustment of output tax in respect of supplies under section 55A

(1) This section applies if—

(a) a person is, as a result of section 26A, taken not to have been entitled to any credit for input tax in respect of any supply, and

(b) the supply is one in respect of which the person is required under section 55A(6) to account for and pay VAT.

(2) The person is entitled to make an adjustment to the amount of VAT which he is so required to account for and pay.

(3) The amount of the adjustment is to be equal to the amount of the credit for the input tax to which the person is taken not to be entitled.

(4) Regulations may make such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient for the purposes of this section.

(5) Regulations under this section may in particular—

(a) make provision for the manner in which, and the period for which, the adjustment is to be given effect,

(b) require the adjustment to be evidenced and quantified by reference to such records and other documents as may be specified by or under the regulations,

(c) require the person entitled to the adjustment to keep, for such period and in such form and manner as may be so specified, those records and documents,

(d) make provision for readjustments if any credit for input tax is restored under section 26A.

(6) Regulations under this section may make different provision for different circumstances.”.

(3) In section 65 of VATA 1994 (inaccuracies in EC sales statements)—

(a) at the end insert—

“(7) This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement.”, and

(b) in consequence of the amendment made by paragraph (a) the heading becomes “Inaccuracies in EC sales statements or in statements relating to section 55A”.

(4) In section 66 of VATA 1994 (failure to submit EC sales statements)—

(a) at the end insert—

“(10) This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement.”, and

(b) in consequence of the amendment made by paragraph (a) the heading becomes “Failure to submit EC sales statement or statement relating to section 55A”.

(5) In section 69 of VATA 1994 (breaches of regulatory provisions), in subsection (1) (failure to comply with a requirement imposed under provisions mentioned in the paragraphs in that subsection), after paragraph (b) insert—

“(ba) paragraph 2(3B) of Schedule 11; or”.

(6) In section 97 of VATA 1994 (orders, rules and regulations), in subsection (4) (orders which cease to have effect unless approved by House of Commons), after paragraph (e) insert—

“(ea) an order under section 55A(13);”.

(7) In Schedule 11 to VATA 1994 (administration, collection and enforcement), in paragraph 2 (accounting for VAT and payment of VAT), after sub-paragraph (3) insert—

“(3A) Regulations under this paragraph may require the submission to the Commissioners by taxable persons, at such times and intervals, in such cases and in such form and manner as may be—

(a) specified in the regulations, or

(b) determined by the Commissioners in accordance with powers conferred by the regulations,

of statements containing such particulars of supplies to which section 55A(6) applies in which the taxable persons are concerned, and of the persons concerned in those supplies, as may be prescribed.

(3B) Regulations under this paragraph may make provision, in relation to the first occasion on which a person makes a supply of goods to which section 55A(6) applies, for requiring the person to give to the Commissioners such notification of the supply at such time and in such form and manner as may be specified in the regulations.”.

(8) The amendments made by this section have effect in relation to supplies made on or after such day as the Treasury may by order made by statutory instrument appoint.

But no order may be made under this subsection on or after 22nd March 2009.

(9) An order under subsection (8) may contain transitional provision and savings.

20 Power to inspect goods

(1) In Schedule 11 to VATA 1994 (administration, collection and enforcement), paragraph 10 (entry and search of premises and persons) is amended as follows.

(2) After sub-paragraph (2) (power to inspect premises and goods found on them) insert—

“(2A) The power under sub-paragraph (2) above to inspect any goods includes, in particular,—

(a) power to mark the goods, or anything containing the goods, for the purpose of indicating that they have been inspected, and

(b) power to record any information (which may be obtained by electronic or any other means) relating to the goods that have been inspected.”.

21 Directions to keep records where belief VAT might not be paid

(1) VATA 1994 is amended as follows.

(2) After section 69A (breach of record-keeping requirements etc in relation to transactions in gold) insert—

“69B Breach of record-keeping requirements imposed by directions

(1) If any person fails to comply with a requirement imposed under paragraph 6A(1) of Schedule 11, the person is liable to a penalty.

(2) The amount of the penalty is equal to £200 multiplied by the number of days on which the failure continues (up to a maximum of 30 days).

(3) If any person fails to comply with a requirement to preserve records imposed under paragraph 6A(6) of Schedule 11, the person is liable to a penalty of £500.

(4) If it appears to the Treasury that there has been a change in the value of money since—

(a) the day on which the Finance Act 2006 is passed, or

(b) (if later) the last occasion when the power conferred by this subsection was exercised,

they may by order substitute for the sums for the time being specified in subsections (2) and (3) such other sums as appear to them to be justified by the change.

(5) But any such order does not apply to a failure which began before the date on which the order comes into force.

(6) A failure by any person to comply with any requirement mentioned in subsection (1) or (3) does not give rise to a liability to a penalty under this section if the person concerned satisfies—

(a) the Commissioners, or

(b) on appeal, a tribunal,

that there is a reasonable excuse for the failure.

(7) If by reason of conduct falling within subsection (1) or (3) a person—

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

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

that conduct does not also give rise to a penalty under this section.”.

(3) In section 76(1) (assessment of amounts due by way of penalty, interest or surcharge) for “69A”, in both places, substitute “69B”.

(4) In section 83 (appeals)—

(a) in paragraph (n) (penalties or surcharges by virtue of any of sections 59 to 69A) for “69A” substitute “69B”, and

(b) after paragraph (z) (conditions imposed by virtue of paragraph 2B(2)(c) or 3(1) of Schedule 11) insert—

“(zza) a direction under paragraph 6A of Schedule 11;”.

(5) In section 84 (further provision relating to appeals) after subsection (7A) (appeals against directions mentioned in section 83(wa)) insert—

“(7B) Where there is an appeal against a decision to make such a direction as is mentioned in section 83(zza)—

(a) the tribunal shall not allow the appeal unless it considers that the Commissioners could not reasonably have been satisfied that there were grounds for making the direction;

(b) the direction shall have effect pending the determination of the appeal.”.

(6) In Schedule 11 (administration, collection and enforcement), after paragraph 6 (duty to keep records) insert—

“6A (1) The Commissioners may direct any taxable person named in the direction to keep such records as they specify in the direction in relation to such goods as they so specify.

(2) A direction under this paragraph may require the records to be compiled by reference to VAT invoices or any other matter.

(3) The Commissioners may not make a direction under this paragraph unless they have reasonable grounds for believing that the records specified in the direction might assist in identifying taxable supplies in respect of which the VAT chargeable might not be paid.

(4) The taxable supplies in question may be supplies made by—

(a) the person named in the direction, or

(b) any other person.

(5) A direction under this paragraph—

(a) must be given by notice in writing to the person named in it,

(b) must warn that person of the consequences under section 69B of failing to comply with it, and

(c) remains in force until it is revoked or replaced by a further direction.

(6) The Commissioners may require any records kept in pursuance of this paragraph to be preserved for such period not exceeding 6 years as they may require.

(7) Sub-paragraphs (4) to (6) of paragraph 6 (preservation of information by means approved by the Commissioners) apply for the purposes of this paragraph as they apply for the purposes of that paragraph.

(8) This paragraph is without prejudice to the power conferred by paragraph 6(1) to make regulations requiring records to be kept.

(9) Any records required to be kept by virtue of this paragraph are in addition to any records required to be kept by virtue of paragraph 6.”.

22 Treatment of credit vouchers

(1) VATA 1994 is amended as follows.

(2) In section 97 (orders, rules and regulations), in subsection (4) (orders which cease to have effect unless approved by House of Commons), after paragraph (f) insert—

“(fa) an order under paragraph 3(4) of Schedule 10A;”.

(3) In paragraph 3 of Schedule 10A (treatment of credit vouchers), after sub-paragraph (3) (circumstances in which consideration for supply of credit voucher not to be disregarded under sub-paragraph (2) for the purposes of Act) insert—

“(4) The Treasury may by order specify other circumstances in which sub-paragraph (2) above does not apply.”.

Part 3 Income tax, corporation tax and capital gains tax

Chapter 1 Income tax and corporation tax: charge and rate bands

Income tax

23 Charge and rates for 2006-07

Income tax shall be charged for the year 2006-07, and for that year—

(a) the starting rate shall be 10%;

(b) the basic rate shall be 22%;

(c) the higher rate shall be 40%.

Corporation tax

24 Charge and main rate for financial year 2007

Corporation tax shall be charged for the financial year 2007 at the rate of 30%.

25 Small companies' rate and fraction for financial year 2006

For the financial year 2006—

(a) the small companies' rate shall be 19%, and

(b) the fraction mentioned in section 13(2) of ICTA (marginal relief for small companies) shall be 11/400ths.

26 Abolition of corporation tax starting rate and non-corporate distribution rate

(1) Section 13AA of ICTA (corporation tax starting rate) shall cease to have effect.

(2) Section 13AB of ICTA (the non-corporate distribution rate), and Schedule A2 to that Act (supplementary provisions in relation to that rate), shall cease to have effect.

(3) In section 13A of ICTA (close investment-holding companies), in subsection (1) (meaning of “close investment-holding company” for purposes of sections 13(1) and 13AA(8)), omit “or 13AA(8)”.

(4) In section 468 of ICTA (authorised unit trusts), in subsection (1A) (rate of corporation tax in relation to such trusts), for “and sections 13, 13AA and 13AB shall not apply” substitute “and section 13 shall not apply”.

(5) In section 468A of ICTA (open-ended investment companies), in subsection (1) (rate of corporation tax in relation to such companies), for “(and sections 13, 13AA and 13AB shall not apply)” substitute “(and section 13 shall not apply)”.

(6) In paragraph 1(a) of Schedule 12 to FA 1989 (provision of information for the purposes of close companies provisions), for “13 to 13A” substitute “13, 13ZA, 13A”.

(7) In paragraph 8(1) of Schedule 18 to FA 1998 (tax calculation in company tax return), in the second step, omit “or 13AA(2)”.

(8) The amendments made by this section have effect for the financial year 2006 and subsequent financial years (but see also subsections (9) to (11)).

(9) In the case of an accounting period (a “straddling period”)—

(a) beginning before 1st April 2006, and

(b) ending on or after that date,

sections 13AA and 13AB of, and Schedule A2 to, ICTA (“the repealed provisions”) apply as if the different parts of the straddling period falling in the different financial years were separate accounting periods.

(10) Where the rate of corporation tax charged on a company’s basic profits for any such separate accounting period ending with 31st March 2006 is determined in accordance with any of the repealed provisions, section 13 of ICTA (small companies' relief) also so applies.

(11) For the purpose of treating different parts of the straddling period as separate accounting periods in accordance with subsections (9) and (10), the profits and basic profits of the straddling period are to be apportioned between those separate accounting periods.

Chapter 2 Reliefs for business

Group relief

27 Group relief where surrendering company not resident in UK

Schedule 1 (which makes provision in relation to group relief where the surrendering company is not resident in the United Kingdom) has effect.

Research and development

28 Relief for research and development: subjects of clinical trials

(1) Schedule 2 (which amends Schedule 20 to FA 2000 and Schedules 12 and 13 to FA 2002 so as to make provision relating to payments to subjects of clinical trials) has effect.

(2) The amendments made by paragraph 2 of Schedule 2 to Schedule 12 to FA 2002 (large companies etc) have effect in relation to expenditure incurred on or after 1st April 2006.

(3) Except as provided by subsection (4), the amendments made by Schedule 2 to—

(a) Schedule 20 to FA 2000 (small or medium-sized enterprises),

(b) Schedule 13 to FA 2002 (vaccine research etc),

have effect in relation to expenditure incurred on or after the appointed day.

(4) The amendment made by paragraph 1(3) of Schedule 2 (insertion of paragraph 6A of Schedule 20 to FA 2000), in its application for the purposes of Schedule 12 to FA 2002 by virtue of the amendments made to Schedule 12 by paragraph 2 of Schedule 2, has effect in relation to expenditure incurred on or after 1st April 2006.

(5) “The appointed day” means such day as the Treasury may by order appoint; and different days may be so appointed for different provisions or different purposes.

(6) The days that may be appointed by an order under this section include days earlier than the day on which this Act is passed, but not days earlier than 1st April 2006.

29 Claims for relief for research and development

Schedule 3 (which amends Schedule 18 to FA 1998 in connection with claims for tax relief for expenditure on research and development) has effect.

Capital allowances

30 Temporary increase in amount of first-year allowances for small enterprises

(1) The amount of a first-year allowance under section 44 of CAA 2001 (expenditure incurred by small or medium-sized enterprises) shall be determined, in the case of expenditure to which this subsection applies, as if the percentage specified in the entry relating to that section in the Table in section 52(3) of that Act were 50%.

(2) Subsection (1) applies to expenditure incurred by a small enterprise (within the meaning of section 44 of that Act) in the period of 12 months beginning with—

(a) 1st April 2006, if the small enterprise is within the charge to corporation tax, or

(b) 6th April 2006, if the small enterprise is within the charge to income tax.

(3) Accordingly, in section 52(3) of CAA 2001, for the sentence following the Table substitute—

“In the case of expenditure qualifying under section 44, see also—

(a) section 142 of the Finance Act 2004 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2004-05 or financial year 2004);

(b) section 30 of the Finance Act 2006 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2006-07 or financial year 2006).”.

Chapter 3 Films and sound recordings

Introductory

31 Meaning of “film” and related expressions

(1) In this Chapter “film” includes any record, however made, of a sequence of visual images that is capable of being used as a means of showing that sequence as a moving picture.

(2) For the purposes of this Chapter each part of a series of films is treated as a separate film, unless—

(a) the films form a series with not more than 26 parts,

(b) the combined playing time is not more than 26 hours, and

(c) the series constitutes a self-contained work or is a series of documentaries with a common theme,

in which case the films are treated as a single film.

(3) References in this Chapter to a film include the film soundtrack.

(4) For the purposes of this Chapter a film is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public.

32 Meaning of “film production company”

(1) The following provisions have effect for the purposes of this Chapter as regards the meaning of “film production company”.

(2) There cannot be more than one film production company in relation to a film.

(3) A company that (otherwise than in partnership)—

(a) is responsible—

(i) for pre-production, principal photography and post production of the film, and

(ii) for delivery of the completed film,

(b) is actively engaged in production planning and decision-making during pre-production, principal photography and post production, and

(c) directly negotiates, contracts and pays for rights, goods and services in relation to the film,

is the film production company in relation to the film.

(4) In relation to a qualifying co-production, a company that (otherwise than in partnership)—

(a) is a co-producer, and

(b) makes an effective creative, technical and artistic contribution to the film,

is the film production company in relation to the film.

(5) If there is more than one company meeting the description in subsection (3) or (4), the company that is most directly engaged in the activities referred to in that subsection is the film production company in relation to the film.

(6) If there is no company meeting the description in subsection (3) or (4), there is no film production company in relation to the film.

33 Meaning of “film-making activities” etc

(1) In this Chapter “film-making activities”, in relation to a film, means the activities involved in development, pre-production, principal photography and post production of the film.

(2) If all or any of the images in a film are generated by computer, references in this Chapter to principal photography shall be read as references to, or as including, the generation of those images.

(3) The Treasury may by regulations—

(a) amend subsections (1) and (2);

(b) provide that specified activities are or are not to be regarded for the purposes of this Chapter as film-making activities or as film-making activities of a particular description;

(c) provide that, in relation to a specified description of film, references in this Chapter to film-making activities of a particular description are to be read as references to such activities as may be specified.

• “Specified” here means specified in the regulations.

(4) No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

34 Meaning of “production expenditure” and related expressions

(1) In this Chapter, in relation to a film—

• “production expenditure” means expenditure on film-making activities in connection with the film, and

• “core expenditure” means production expenditure on pre-production, principal photography and post production.

(2) For the purposes of this Chapter a “limited-budget film” means a film whose core expenditure is £20 million or less.

(3) In determining whether a film is a limited-budget film, any core expenditure that—

(a) is incurred by a person under or as a result of a transaction entered into directly or indirectly between that person and a connected person, and

(b) might have been expected to have been of a greater amount (“the arm’s length amount”) if the transaction had been between independent persons dealing at arm’s length,

is treated as having been of an amount equal to the arm’s length amount.

(4) Section 839 of ICTA (connected persons) applies for the purposes of subsection (3).

35 Meaning of “UK expenditure”

(1) For the purposes of this Chapter “UK expenditure”, in relation to a film, means expenditure on goods or services that are used or consumed in the United Kingdom.

(2) Any apportionment of expenditure for the purposes of this Chapter as between UK expenditure and non-UK expenditure shall be made on a fair and reasonable basis.

(3) The Treasury may by regulations amend subsection (1).

(4) No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

36 Meaning of “qualifying co-production” and “co-producer”

In this Chapter—

(a) “qualifying co-production” means a film that falls to be treated as a national film in the United Kingdom by virtue of an agreement between Her Majesty’s Government in the United Kingdom and any other government, international organisation or authority,

(b) “co-producer” means a person who is a co-producer for the purposes of the agreement.

Taxation of activities of film production company

37 Taxation of activities of film production company

Schedule 4 to this Act (taxation of activities of film production company) has effect for the purposes of corporation tax.

Film tax relief

38 Films qualifying for film tax relief

A film qualifies for film tax relief if the conditions specified in the following sections are met—

(a) section 39 (intended theatrical release),

(b) section 40 (British film), and

(c) section 41 (UK expenditure).

39 Conditions of relief: intended theatrical release

(1) The film must be intended for theatrical release.

(2) For this purpose—

(a) “theatrical release” means exhibition to the paying public at the commercial cinema;

(b) a film is not regarded as intended for theatrical release unless it is intended that a significant proportion of the earnings from the film should be obtained by such exhibition.

(3) Whether this condition is met is determined for each accounting period of the film production company during which film-making activities are carried on in relation to the film, in accordance with the following rules.

(4) If at the end of an accounting period the film is intended for theatrical release, the condition is treated as having been met throughout that period (subject to subsection (5)(b)).

(5) If at the end of an accounting period the film is not intended for theatrical release, the condition—

(a) is treated as having been not met throughout that period, and

(b) cannot be met in any subsequent accounting period.

This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition was met.

40 Conditions of relief: British film

The film must be certified by the Secretary of State as a British film under Schedule 1 to the Films Act 1985 (c. 21).

41 Conditions of relief: UK expenditure

(1) Not less than 25% of the core expenditure on the film incurred—

(a) in the case of a British film other than a qualifying co-production, by the film production company,

(b) in the case of a qualifying co-production, by the co-producers,

must be UK expenditure.

(2) The Treasury may by regulations amend the percentage specified in subsection (1).

(3) No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

42 Film tax relief: further provisions

(1) Schedule 5 to this Act contains further provisions about film tax relief.

(2) In that Schedule—

• Part 1 deals with entitlement to the relief;

• Part 2 provides for the certification of British films for the purposes of the relief;

• Part 3 makes provision for claims for the relief;

• Part 4 is about provisional entitlement to relief.

Film losses

43 Films: restriction on use of losses while film in production

(1) This section applies to restrict the use that may be made of a film production company’s trading loss for an accounting period before—

(a) that in which the film is completed, or

(b) where the company does not complete the film, that in which it abandons film-making activities in relation to the film.

(2) A trading loss for such a period is not available for loss relief except to the extent that it may be carried forward under section 393(1) of ICTA to be set against profits of the same trade in a later period.

(3) In this section “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the film production company, or any other person, is chargeable to tax.

44 Films: use of losses in later periods

(1) This section applies—

(a) to the accounting period—

(i) in which the film is completed, or

(ii) if the film production company does not complete the film, in which it abandons film-making activities in relation to the film, and

(b) to any subsequent accounting period during which the trade continues.

(2) Where a trading loss is carried forward to any such period under section 393(1) of ICTA from an earlier period in relation to which section 43 applied (restriction on use of losses while film is in production), so much (if any) of the loss as is not attributable to film tax relief may be treated for the purposes of loss relief as if it were a loss incurred in the period to which it is carried forward.

(3) The amount of the trading loss for an accounting period to which this section applies that may be—

(a) set against other profits of the same or an earlier period under section 393A of ICTA, or

(b) surrendered as group relief under section 403 of that Act,

is restricted to the amount (if any) that is not attributable to film tax relief.

(4) For the purposes of this section the amount of a trading loss in any period that is attributable to film tax relief is calculated by deducting from the total amount of the loss the amount there would have been if there had been no additional deduction under Schedule 5 in that or any earlier period.

(5) In this section “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the film production company, or any other person, is chargeable to tax.

(6) This section does not apply to a loss to the extent that it is carried forward or surrendered under section 45 (terminal losses).

45 Films: terminal losses

(1) This section applies where—

(a) a film production company (“company A”) ceases to carry on a trade in relation to a qualifying film, and

(b) if the company had not ceased to carry on the trade, it could have carried forward an amount under section 393(1) of ICTA 1988 to be set against profits of the same trade in a later period (the “terminal loss”).

(2) If on cessation of the trade company A is carrying on a trade in relation to another qualifying film, it may on making a claim elect that the terminal loss or a part of it shall be treated as if it were a loss brought forward under section 393(1) to be set against profits of that other trade in the accounting period following that at the end of which the cessation takes place.

(3) If on cessation of the trade carried on by company A there is another film production company (“company B”) which—

(a) is carrying on a trade in relation to a qualifying film (its “qualifying trade”), and

(b) is in the same group as company A for the purposes of Chapter 4 of Part 10 of ICTA (group relief),

the whole or part of the terminal loss may be surrendered by company A to company B.

(4) On the making of a claim by company B the amount surrendered shall be treated as if it were a loss brought forward by that company under section 393(1) to be set against the profits of its qualifying trade for the accounting period of that company following that in which or at the end of which the cessation takes place of the qualifying trade carried on by company A.

(5) The Treasury may, in relation to the surrender of a loss under subsection (3) and the resulting claim under subsection (4), make provision by regulations corresponding, subject to such adaptations or other modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998 (company tax returns: claims for group relief).

(6) In this section—

(a) references to the trade carried on by a film production company in relation to a film are to the trade that it is treated as carrying on under Schedule 4, and

(b) references to a qualifying film are to a film that meets the conditions for film tax relief (see section 38).

Films: withdrawal of existing reliefs

46 Films: withdrawal of existing reliefs (corporation tax)

(1) Sections 40A to 40D of F(No.2)A 1992 (treatment of expenditure on production or acquisition of film) do not apply—

(a) to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b) to acquisition expenditure—

(i) on a film that commences principal photography on or after 1st April 2006, or

(ii) that is incurred on or after 1st October 2007 on a film (whenever made).

(2) Section 41 of that Act (preliminary expenditure) does not apply to expenditure incurred after the date on which this Act is passed.

(3) Section 42 of that Act and section 48 of F(No.2)A 1997 (special reliefs for British films) do not apply—

(a) to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b) to acquisition expenditure—

(i) on a film that commences principal photography on or after 1st April 2006, or

(ii) that is incurred on or after 1st October 2007.

(4) References in this section to expenditure on the acquisition of a film, or to sums received from the disposal of a film, are to expenditure on the acquisition of, or sums received from the disposal of, the original master version of the film.

(5) For this purpose—

(a) “original master version” means the original negative, tape or disc;

(b) references to the original master version of a film include the original master version of the film soundtrack (if any);

(c) references to the original master version include any rights in the original master version that are held or acquired with it.

47 Films: withdrawal of existing reliefs (income tax)

(1) Sections 134 and 135 of ITTOIA 2005 (treatment of expenditure on production or acquisition of film) do not apply—

(a) to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b) to acquisition expenditure—

(i) on a film that commences principal photography on or after 1st April 2006, or

(ii) that is incurred on or after 1st October 2007 on a film (whenever made).

(2) Section 137 of that Act (preliminary expenditure) does not apply to expenditure incurred after the date on which this Act is passed.

(3) Sections 138 to 144 of that Act (special reliefs for British films) do not apply—

(a) to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b) to acquisition expenditure—

(i) on a film that commences principal photography on or after 1st April 2006, or

(ii) that is incurred on or after 1st October 2007.

(4) References in this section to expenditure on the acquisition of a film, or to sums received from the disposal of a film, are to expenditure on the acquisition of, or sums received from the disposal of, the original master version of the film.

(5) For this purpose—

(a) “original master version” means the original negative, tape or disc;

(b) references to the original master version of a film include the original master version of the film soundtrack (if any);

(c) references to the original master version include any rights in the original master version that are held or acquired with it.

Corporation tax treatment of sound recordings

48 Sound recordings: revenue nature of expenditure

(1) If a company carrying on a trade incurs expenditure on the production or acquisition of the original master version of a sound recording, the expenditure is treated for corporation tax purposes as expenditure of a revenue nature.

(2) If expenditure is treated under this section as revenue in nature, sums received by the company from the disposal of the original master version of the sound recording—

(a) are treated for corporation tax purposes as receipts of a revenue nature, and

(b) are brought into account in calculating the profits of the relevant period in which they are received.

(3) For this purpose sums received from the disposal of the original master version include—

(a) sums received from the disposal of any interest or right in or over the original master version (including an interest or right created by the disposal), and

(b) insurance, compensation or similar money derived from the original master version.

49 Sound recordings: allocation of expenditure

(1) This section applies in calculating for the purposes of corporation tax the profits or losses of a company from a trade where—

(a) the trade consists of or includes the exploitation of original master versions of sound recordings, and

(b) the original master versions do not constitute trading stock of the trade as defined by section 100(2) of ICTA.

(2) Expenditure that is—

(a) incurred on the production or acquisition of the original master version of a sound recording, and

(b) expenditure of a revenue nature (whether as a result of section 48 or otherwise),

must be allocated to relevant periods in accordance with this section.

(3) The company must allocate to a relevant period so much of the expenditure as is just and reasonable having regard to—

(a) the amount of the expenditure that remains unallocated at the beginning of the period,

(b) the proportion that the estimated value of the original master version of the sound recording that is realised in that period (whether by way of income or otherwise) bears to the aggregate of the value so realised and the estimated remaining value of the original master version at the end of the period, and

(c) the need to bring the whole of the expenditure into account over the time during which the value of the original master version is expected to be realised.

(4) The company may also allocate to a relevant period a further amount, so long as the total amount allocated does not exceed the value of the original master version of the sound recording realised in that period (whether by way of income or otherwise).

50 Sound recordings: interpretation

For the purposes of sections 48 and 49 (corporation tax treatment of sound recordings)—

(a) “sound recording” does not include a film soundtrack;

(b) “original master version” means the master tape or master audio disc of the recording;

(c) references to the original master version of a sound recording include any rights in the original master version that are held or acquired with it; and

(d) “relevant period” means—

(i) a period for which accounts of the trade are made up, or

(ii) if no accounts of the trade are made up for a period, an accounting period of the company.

Supplementary provisions

51 Corporation tax: films and sound recordings as intangible fixed assets

(1) In Schedule 29 to FA 2002 (corporation tax: gains and losses from intangible fixed assets), for paragraph 80 (exclusion of films and sound recordings) substitute—

“Assets excluded: certain films

80A (1) This Schedule does not apply to an intangible fixed asset held by a film production company to the extent that it represents production expenditure on a film to which Schedule 4 of the Finance Act 2006 applies.

Expressions used in this sub-paragraph have the same meaning as in Chapter 3 of Part 3 of the Finance Act 2006.

(2) Except as regards royalties, this Schedule does not apply to an intangible fixed asset held by a company to the extent that it represents expenditure by the company—

(a) on the production of the original master version of a film that commenced principal photography before 1st April 2006;

(b) on the acquisition before 1st October 2007 of the original master version of a film that commenced principal photography before 1st April 2006.

(3) In sub-paragraph (2)—

(a) “film” has the same meaning as in Chapter 3 Part 3 of the Finance Act 2006;

(b) “original master version” means the original negative, tape or disc;

(c) references to the original master version of a film include the original master version of the film soundtrack (if any);

(d) references to the original master version include any rights in the original master version that are held or acquired with it.

Assets excluded except as regards royalties: sound recordings

80B (1) Except as regards royalties, this Schedule does not apply to an intangible fixed asset held by a company to the extent that it represents expenditure by the company on the production or acquisition of the master version of a sound recording.

(2) For this purpose—

(a) “sound recording” does not include a film soundtrack;

(b) “master version” means master tape or master audio disc of the recording;

(c) references to the master version include any rights in the master version that are held or acquired with it.”.

(2) In determining for the purposes of that Schedule whether an asset representing production expenditure on a film was created before or after 1st April 2002, the asset shall be treated as created when the film was completed.

52 Films: application of provisions to certain films already in production

(1) The Treasury may make provision by regulations for the application of the provisions of this Chapter, and of any enactment amended by this Chapter, in relation to films that commenced principal photography before 1st April 2006 but are not completed before 1st January 2007.

(2) The regulations may provide for such adaptations and modifications of the provisions of this Chapter, of any enactment amended by this Chapter and of any other provision of the Corporation Tax Acts, as appear to the Treasury appropriate for that purpose.

(3) The regulations may—

(a) provide that the provisions of this Chapter (or any specified provisions of this Chapter) shall have effect as if they had been in force at all material times;

(b) require or authorise the making or amendment of returns, or the making of assessments, in relation to past accounting periods or tax years (whether before or after the commencement of this Chapter);

(c) authorise the making of any such return, amendment or assessment notwithstanding any limitation on the time within which a return, amendment or assessment may normally be made.

(4) No regulations shall be made under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons.

53 Films and sound recordings: commencement and power to alter dates

(1) The provisions of this Chapter come into force on such day as the Treasury may appoint by order.

(2) The Treasury may by order amend any provision of this Chapter that refers to 1st April 2006, the date on which this Act is passed or 1st October 2007 so as to substitute a reference to a later date.

Chapter 4 Charities

54 Transactions with substantial donors

(1) After section 506 of ICTA insert—

“506A Transactions with substantial donors

(1) This section applies to the following transactions—

(a) the sale or letting of property by a charity to a substantial donor,

(b) the sale or letting of property to a charity by a substantial donor,

(c) the provision of services by a charity to a substantial donor,

(d) the provision of services to a charity by a substantial donor,

(e) an exchange of property between a charity and a substantial donor,

(f) the provision of financial assistance by a charity to a substantial donor,

(g) the provision of financial assistance to a charity by a substantial donor, and

(h) investment by a charity in the business of a substantial donor.

(2) For the purposes of this section a person is a substantial donor to a charity in respect of a chargeable period if—

(a) the charity receives relievable gifts of at least £25,000 from him in a period of 12 months in which the chargeable period wholly or partly falls, or

(b) the charity receives relievable gifts of at least £100,000 from him in a period of six years in which the chargeable period wholly or partly falls;

and if a person is a substantial donor to a charity in respect of a chargeable period by virtue of paragraph (a) or (b), he is a substantial donor to the charity in respect of the following five chargeable periods.

(3) A payment made by a charity to a substantial donor in the course of or for the purposes of a transaction to which this section applies shall be treated for the purposes of section 505 as non-charitable expenditure.

(4) If the terms of a transaction to which this section applies are less beneficial to the charity than terms which might be expected in a transaction at arm’s length, the charity shall be treated for the purposes of section 505 as incurring non-charitable expenditure equal to that amount which the Commissioners for Her Majesty’s Revenue and Customs determine as the cost to the charity of the difference in terms.

(5) A payment by a charity of remuneration to a substantial donor shall be treated for the purposes of section 505 as non-charitable expenditure unless it is remuneration, for services as a trustee, which is approved by—

(a) the Charity Commission,

(b) another body with responsibility for regulating charities by virtue of legislation having effect in respect of any Part of the United Kingdom, or

(c) a court.

506B Section 506A: exceptions

(1) Section 506A shall not apply to a transaction within section 506A(1)(b) or (d) if the Commissioners for Her Majesty’s Revenue and Customs determine that the transaction—

(a) takes place in the course of a business carried on by the substantial donor,

(b) is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm’s length, and

(c) is not part of an arrangement for the avoidance of any tax.

(2) Section 506A shall not apply to the provision of services to a substantial donor if the Commissioners determine that the services are provided—

(a) in the course of the actual carrying out of a primary purpose of the charity, and

(b) on terms which are no more beneficial to the substantial donor than those on which services are provided to others.

(3) Section 506A shall not apply to the provision of financial assistance to a charity by a substantial donor if the Commissioners determine that the assistance—

(a) is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm’s length, and

(b) is not part of an arrangement for the avoidance of any tax.

(4) Section 506A shall not apply to investment by a charity in the business of a substantial donor where the investment takes the form of the purchase of shares or securities listed on a recognised stock exchange.

(5) A disposal at an undervalue to which section 587B applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

(6) A disposal at an undervalue to which section 257(2) of the 1992 Act (gifts of chargeable assets) applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

(7) In the application of section 506A payments by a charity, or benefits arising to a substantial donor from a transaction, shall be disregarded in so far as they—

(a) relate to a donation by the donor, and

(b) do not exceed the relevant limit in relation to the donation for the purposes of section 339 or section 25 of the Finance Act 1990.

(8) A company which is wholly owned by a charity within the meaning of section 339(7AB) shall not be treated as a substantial donor in relation to the charity which owns it (or any of the charities which own it).

(9) A registered social landlord or housing association shall not be treated as a substantial donor in relation to a charity with which it is connected; and for that purpose—

(a) “registered social landlord or housing association” means a body entered on a register maintained under—

(i) section 1 of the Housing Act 1996,

(ii) section 57 of the Housing (Scotland) Act 2001, or

(iii) Article 14 of the Housing (Northern Ireland) Order 1992, and

(b) a body and a charity are connected if (and only if)—

(i) the one is wholly owned, or subject to control, by the other, or

(ii) both are wholly owned, or subject to control, by the same person.

506C Sections 506A and 506B: supplemental

(1) A gift is “relievable” for the purposes of section 506A(2) if relief is available in respect of it under—

(a) section 83A,

(b) section 339,

(c) sections 587B and 587C,

(d) section 25 of the Finance Act 1990 (individual gift aid),

(e) section 257 of the 1992 Act (gifts of chargeable assets),

(f) section 63 of the Capital Allowances Act (gifts of plant and machinery),

(g) sections 713 to 715 of ITEPA 2003 (payroll giving),

(h) section 108 of ITTOIA 2005 (gifts of trading stock), or

(i) sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts).

(2) A charity is treated as incurring expenditure in accordance with section 506A(4) at such time (or times) as the Commissioners determine.

(3) Section 506A applies to a transaction entered into in a chargeable period with a person who is a substantial donor in respect of that period, even if it was not until after the transaction was entered into that he first satisfied the definition of “substantial donor” in respect of that period.

(4) Either or both of subsections (3) and (4) of section 506A may be applied to a single transaction; but any amount of non-charitable expenditure which a charity is treated as incurring under section 506A(3) in respect of a transaction shall be deducted from any amount which it would otherwise be treated as incurring under section 506A(4) in respect of the transaction.

(5) Two or more connected charities shall be treated as a single charity for the purposes of section 506A and 506B and this section; and for this purpose “connected” means connected in a matter relating to the structure, administration or control of a charity.

(6) Where remuneration is paid otherwise than in money, section 506A(5) shall apply as to a payment in money of the amount that would, under Part 3 of ITEPA 2003, be the cash equivalent of the remuneration as a benefit.

(7) In sections 506A and 506B and this section—

(a) a reference to a substantial donor or other person includes a reference to a person connected with him within the meaning of section 839,

(b) “financial assistance” includes, in particular—

(i) the provision of a loan, guarantee or indemnity, and

(ii) entering into alternative finance arrangements within the meaning of section 46 of the Finance Act 2005, and

(c) a reference to a gift of a specified amount includes a reference to a non-monetary gift of that value.

(8) On an appeal against an assessment the Special Commissioners may review a decision of the Commissioners in connection with section 506A.

(9) The Treasury may by regulations vary a sum, or a period of time, specified in section 506A(2).”

(2) This section shall have effect in relation to transactions occurring on or after 22nd March 2006; and for that purpose a person may satisfy the definition of “substantial donor” by reference to gifts made at any time.

(3) But this section shall not have effect in relation to a transaction entered into in pursuance of a contract made before 22nd March 2006 (otherwise than in pursuance of a variation on or after that date).

55 Non-charitable expenditure

(1) For section 505(3) to (8) of ICTA (charities: exemption: non-qualifying expenditure) substitute—

“(3) In subsections (4) to (7)—

(a) “charitable expenditure” has the meaning given by section 506,

(b) “relief” means relief or exemption under—

(i) subsection (1) above,

(ii) section 56(3)(c) above,

(iii) section 761(6) below,

(iv) section 256 of the 1992 Act (charities), or

(v) section 46 of the Finance Act 2000 (small trades),

(c) “relievable income and gains” means income and gains which would be eligible for relief or exemption under any of those provisions (disregarding subsections (4) to (6)), and

(d) “total income and gains” means the aggregate of—

(i) relievable income and gains,

(ii) income and gains, other than relievable income and gains, chargeable to tax, and

(iii) donations, legacies and other similar receipts that are not chargeable to tax.

(4) If a charity incurs (or is treated as incurring) non-charitable expenditure in a chargeable period, relief shall be disallowed in respect of such amount of relievable income and gains as equals the amount of the non-charitable expenditure.

(5) If in a chargeable period a charity’s non-charitable expenditure exceeds its total income and gains the excess shall be treated as non-charitable expenditure of the previous period for the purposes of subsection (4); and any necessary adjustments shall be made, whether by making assessments or otherwise.

(6) Subsection (5) may apply to a chargeable period wholly or partly as a result of the application of that subsection in respect of a later period; but no excess of non-charitable expenditure shall be treated as non-charitable expenditure of a chargeable period which ended more than six years before the end of the period in which the expenditure was actually incurred.

(7) Where an amount of a charity’s relievable income and gains is disallowed for relief by subsection (4) (whether or not as a result of the application of subsection (5))—

(a) the charity may by notice to the Board specify which items of income or gains are to be disallowed, but

(b) if the Board requires the charity to give a notice under paragraph (a) and the charity fails to comply within the period of 30 days beginning with the date on which the requirement is imposed, the Board shall determine which items to disallow.”

(2) In section 506 of ICTA (section 505: supplemental)—

(a) in subsection (1) for the definitions of “qualifying expenditure” and “non-qualifying expenditure” substitute—

““charitable expenditure” means (subject to subsections (3) to (5) below) expenditure which is exclusively for charitable purposes.”,

(b) in subsection (2) omit “and subsection (1) above,”

(c) in subsection (3) for “qualifying expenditure” substitute “charitable expenditure”,

(d) in subsection (4) for “non-qualifying expenditure” substitute “non-charitable expenditure”,

(e) in subsection (5) for “non-qualifying expenditure” substitute “non-charitable expenditure”,

(f) omit subsection (6), and

(g) for the heading, substitute “Charitable and non-charitable expenditure”.

(3) Part III of Schedule 20 to ICTA (apportionment of non-qualifying expenditure to earlier chargeable periods) shall cease to have effect.

(4) In section 256(1) of TCGA 1992 (charities) for “section 505(3)” substitute “section 505(4)”.

(5) This section shall have effect in relation to chargeable periods beginning on or after 22nd March 2006; and—

(a) section 505(5) and (6) of ICTA as substituted by subsection (1) above may cause an amount to be treated as non-charitable expenditure of a chargeable period beginning before that date, but

(b) the amount of relief or exemption to be disallowed in respect of a chargeable period beginning before that date shall not exceed the amount which would have been disallowed in respect of that period if sections 505 and 506 of ICTA (and Part III of Schedule 20) had not been amended by this section.

56 Trade profits

(1) In section 505 of ICTA (charities: exemptions) after subsection (1A) insert—

“(1B) For the purpose of subsection (1)(e)—

(a) where a trade is exercised partly in the course of the actual carrying out of a primary purpose of the charity and partly otherwise, each part shall be treated as a separate trade (for which purpose reasonable apportionment of expenses and receipts shall be made), and

(b) where the work in connection with the trade is carried out partly but not mainly by beneficiaries, the part in connection with which work is carried on by beneficiaries and the other part shall be treated as separate trades (for which purpose reasonable apportionment of expenses and receipts shall be made).”

(2) Subsection (1) shall have effect in respect of chargeable periods beginning on or after 22nd March 2006.

57 Gift aid relief for companies wholly owned by one or more charities

(1) Section 339 of ICTA (charges on income: donations to charity) is amended as follows.

(2) In subsection (1)(a) (distributions, other than those within section 209(4), not qualifying donations) after “distribution” insert “(but see subsections (1A) and (1B) below)”.

(3) After subsection (1) insert—

“(1A) In determining whether a payment is to be regarded as a distribution for the purposes of subsection (1)(a) above, the words in section 209(5) from “; and any amount” to the end are to be disregarded.

(1B) A payment (other than a dividend) made by a company which is wholly owned by a charity is not to be regarded as a distribution for the purposes of subsection (1)(a) above.”.

(4) The amendments made by this section have effect in relation to payments made on or after 1st April 2006.

58 Extension of restrictions on gift aid payments by close companies

(1) Section 339 of ICTA (charges on income: donations to charity) is amended as follows.

(2) In subsection (3B) (payment made by a close company not qualifying donation if subject to repayment etc) for “close company” substitute “company”.

(3) In subsection (3E) (payment made by a close company not qualifying donation if it involves acquisition of property by charity, otherwise than by way of gift, from the company or a connected person) for “close company” substitute “company”.

(4) The amendments made by this section have effect in relation to payments made on or after 1st April 2006.

Chapter 5 Personal taxation

Cars

59 Cars with a CO₂ emissions figure

(1) Section 139 of ITEPA 2003 (car with a CO₂ emissions figure: the appropriate percentage) is amended as follows.

(2) In subsection (1) (appropriate percentage dependent on whether emissions figure exceeds lower threshold) for the words from “whether” to the end of the subsection substitute “whether—

(a) the car is a qualifying low emissions car for that year, or

(b) the car’s CO₂ emissions figure exceeds the lower threshold for that year.”

(3) After subsection (1) insert—

“(1A) A car is a qualifying low emissions car for any year if—

(a) it has a low CO₂ emissions figure for that year, and

(b) it is not an electrically propelled vehicle, within the meaning of section 140.

(1B) If the car is a qualifying low emissions car for the year, the appropriate percentage is 10%.”.

(4) For subsection (2) (emissions figure does not exceed lower threshold) substitute—

“(2) If—

(a) the car is not a qualifying low emissions car for the year, but

(b) its CO₂ emissions figure does not exceed the lower threshold for the year,

the appropriate percentage for the year is 15% (“the basic percentage”).”.

(5) After subsection (3) insert—

“(3A) A car has a low CO₂ emissions figure for a year if its CO₂ emissions figure does not exceed the limit for that year in the following Table—

(6) In the Table in subsection (4) (the lower threshold)—

(a) in the entry relating to 2005-06 and subsequent tax years, for “and subsequent tax years” substitute “, 2006-07 or 2007-08”, and

(b) after that entry insert—

(7) After subsection (5) (rounding down of emissions figures to nearest multiple of 5) insert—

“(5A) Subsection (5) does not apply for the purpose of determining whether a car has a low CO₂ emissions figure for a year.”.

(8) In section 170 of ITEPA 2003 (orders etc relating to the Chapter) before subsection (3) (order varying lower threshold) insert—

“(2A) The Treasury may by order provide for a limit different from that specified in the Table in section 139(3A) (car with a low CO₂ emissions figure) to apply for tax years beginning on or after 6th April 2009 or such later date as may be specified in the order.”.

(9) If a qualifying low emissions car is a car which, within the meaning of regulations under section 170(4) of ITEPA 2003,—

(a) is capable of being propelled by petrol and road fuel gas,

(b) is capable of being propelled by electricity and petrol, or

(c) is propelled solely by road fuel gas,

no reduction in the appropriate percentage is to be made by virtue of any such regulations made before 22nd March 2006.

(10) Subsections (2) to (5) and (7) to (9) have effect for the tax year 2008-09 and subsequent tax years.

Mobile telephones and computers

60 Mobile telephones

(1) In section 266(2) of ITEPA 2003 (exemption of non-cash vouchers for exempt benefits), insert at the end “or

(d) section 319 (mobile telephones).”

(2) In section 267(2) of that Act (exemption of credit-tokens used for exempt benefits), after paragraph (f) insert—

“(g) section 319 (mobile telephones).”

(3) For section 319 of that Act (employment income: exemption for mobile telephones) substitute—

“319 Mobile telephones

(1) No liability to income tax arises by virtue of section 62 (general definition of earnings) or Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision of one mobile telephone for an employee without any transfer of property in it.

(2) In this section “mobile telephone” means telephone apparatus which—

(a) is not physically connected to a land-line, and

(b) is not used only as a wireless extension to a telephone which is physically connected to a land-line,

or any thing which may be used in such apparatus for the purpose of gaining access to, or using, a public electronic communications service.

(3) In this section the reference to the provision of a mobile telephone includes a reference to the provision, together with the mobile telephone provided, of access to, or the use of, a public electronic communications service by means of one mobile telephone number.

(4) For the purposes of subsection (2) “telephone apparatus” means wireless telegraphy apparatus designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service.”

(4) This section has effect for the year 2006-07 and subsequent years of assessment.

(5) But the amendment made by subsection (3) does not cause any liability to income tax to arise in respect of the provision of a mobile telephone for an employee, or a member of an employee’s family or household, if the mobile telephone was first provided to him before 6th April 2006.

61 Computer equipment

(1) Omit section 320 of ITEPA 2003 (employment income: limited exemption for computer equipment).

(2) This section has effect for the year 2006-07 and subsequent years of assessment.

(3) But it does not cause any liability to income tax to arise in respect of the provision of computer equipment by making it available to an employee, or a member of an employee’s family or household, if the computer equipment was first made available to him before 6th April 2006.

Eye care

62 Exemption for employees' eye tests and special glasses

(1) Part 4 of ITEPA 2003 (employment income: exemptions) is amended as follows.

(2) In Chapter 11 (miscellaneous exemptions), before section 321 (and the cross-heading “Awards and gifts”) insert—

“Eye tests and special corrective appliances

320A Eye tests and special corrective appliances

(1) No liability to income tax arises in respect of the provision for an employee of—

(a) an eye and eyesight test, or

(b) special corrective appliances that an eye and eyesight test shows are necessary,

if conditions A and B are met.

(2) Condition A is that the provision of the test or appliances is required by regulations made under the Health and Safety at Work etc. Act 1974.

(3) Condition B is that tests and appliances of the kind mentioned in subsection (1) are made available generally to those employees of the employer in question for whom they are required to be provided by the regulations.”

(3) In section 266 (exemption of non-cash vouchers for exempt benefits), at the end of subsection (3) insert “, or

(f) section 320A (eye tests and special corrective appliances).”

(4) In section 267 (exemption of credit-tokens used for exempt benefits), at the end of subsection (2) insert “, and

(h) section 320A (eye tests and special corrective appliances).”

(5) This section has effect for the year 2006-07 and subsequent years of assessment.

Vouchers and tokens

63 Power to exempt use of vouchers or tokens to obtain exempt benefits

In Chapter 4 of Part 3 of ITEPA 2003 (taxable benefits: vouchers and credit-tokens), after section 96 insert—

“96A Power to exempt use of non-cash vouchers or credit-tokens to obtain exempt benefits

(1) The Treasury may by regulations provide for exemption from any liability that would otherwise arise by virtue of this Chapter in respect of—

(a) non-cash vouchers which are or can be used to obtain specified exempt benefits, or which evidence an employee’s entitlement to specified exempt benefits;

(b) credit-tokens which are used to obtain specified exempt benefits.

(2) In this section—

• “exempt benefit” means a benefit the direct provision of which is exempted from liability to income tax by a provision of Part 4 (employment income: exemptions), and

• “specified” means specified in the regulations.

(3) Regulations under this section may operate by amending section 266 (exemption of non-cash vouchers for exempt benefits) or section 267 (exemption of credit-tokens used for exempt benefits).”

Holocaust victims

64 Payments to or in respect of victims of National-Socialist persecution

(1) In section 369 of ITTOIA 2005 (charge to tax on interest), in subsection (3) (non-exhaustive list of exemptions), in paragraph (e) (exemptions under sections 749 to 756)—

(a) for “756” substitute “756A”, and

(b) for “and interest on certain foreign currency securities)” substitute “, certain foreign currency securities and interest on certain deposits of victims of National-Socialist persecution)”.

(2) After section 756 of ITTOIA 2005 (which securities and loans are foreign currency ones for section 755) insert—

“756A Interest on certain deposits of victims of National-Socialist persecution

(1) No liability to income tax arises in respect of interest which is paid—

(a) to or in respect of a victim of National-Socialist persecution,

(b) under a qualifying compensation scheme, and

(c) for a qualifying purpose in respect of a qualifying deposit of the victim.

(2) A scheme is a qualifying compensation scheme if—

(a) it is constituted (whether under the law of any part of the United Kingdom or elsewhere) by an instrument in writing, and

(b) the purpose of the scheme, or one of its purposes, is to make payments of interest to or in respect of victims of National-Socialist persecution for qualifying purposes in respect of qualifying deposits.

(3) Interest is paid for a qualifying purpose in respect of a deposit if—

(a) it is paid for meeting a liability in respect of interest on the deposit, or

(b) it is paid for compensating for the effects of inflation on the deposit.

(4) In relation to a victim of National-Socialist persecution, a deposit is a qualifying deposit if it was made—

(a) by, or on behalf of, the victim, and

(b) on or before 5th June 1945.

(5) In this section “deposit” has the meaning given by section 481(3) of ICTA.”.

(3) In section 783 of ITTOIA 2005 (general disregard of exempt income for income tax purposes)—

(a) for subsection (2) (exception to general disregard) substitute—

“(2) There are exceptions to this in the following cases.

(2A) Interest on deposits in ordinary accounts with the National Savings Bank which is exempt under this Part from every charge to income tax is not to be ignored for the purpose of providing information.

(2B) Interest paid to or in respect of victims of National-Socialist persecution which is so exempt is not to be ignored for the purposes of sections 17 and 18 of TMA 1970 (information provisions relating to interest).”, and

(b) in subsection (3) (subsection (2) without prejudice to other exceptions) for “This express exception to subsection (1) is” substitute “These express exceptions to subsection (1) are”.

(4) After section 268 of TCGA 1992 (decorations for valour or gallant conduct) insert—

“268A Victims of National-Socialist persecution

(1) A gain accruing on a disposal is not a chargeable gain if it accrues on—

(a) a disposal of the right to receive the whole or any part of a qualifying payment in respect of National-Socialist persecution, or

(b) a disposal of an interest in any such right.

(2) A payment is a qualifying payment in respect of National-Socialist persecution if it is payable as mentioned in paragraphs (a) to (c) of section 756A(1) of ITTOIA 2005 (income tax exemption for payments to or in respect of victims of National-Socialist persecution).

(3) In this section “interest”, in relation to any right, means an interest as a co-owner of the right.

(4) It does not matter—

(a) whether the right is owned jointly or in common, or

(b) whether or not the interests of the co-owners are equal.”.

(5) If at any time before claims could have been made under any qualifying compensation scheme—

(a) a person beneficially entitled to a qualifying deposit has died, and

(b) no information in respect of that deposit was contained in any account relating to that deceased person under any provision of IHTA 1984,

that deposit is to be ignored for all purposes of IHTA 1984.

(6) For this purpose “qualifying compensation scheme” and “qualifying deposit” have the same meaning as in section 756A of ITTOIA 2005.

(7) Subsection (2) has effect (and is deemed always to have had effect)—

(a) for the year 1996-97, and

(b) subsequent years of assessment.

(8) Subsection (4) has effect (and is deemed always to have had effect) in relation to disposals made on or after 6th April 1996; but no loss accruing on a disposal made before 6th April 2006 is, as a result of that subsection, to cease to be an allowable loss.

(9) In relation to any time before 6th April 2005 (the commencement of ITTOIA 2005)—

(a) the section inserted by subsection (2) is to be treated as if it were inserted into ICTA (and as if, in subsection (5) of that section, “of ICTA” were omitted), and

(b) any reference to that section in any enactment is to be read accordingly.

(10) In relation to the year 2005-06 or any earlier year of assessment, all such adjustments are to be made as are required to give effect to the exemptions conferred as a result of this section.

(11) But the adjustments are to be made only if the person entitled to the exemption makes a claim for the exemption on or before 31st January 2012.

(12) The adjustments may be made by discharge or repayment of tax, the making of an assessment or otherwise.

Chapter 6 The London Olympic Games and Paralympic Games

65 London Organising Committee

(1) In this section “LOCOG” means the private company limited by guarantee incorporated on 22nd October 2004 with the Company Number 05267819 and with the name The London Organising Committee of the Olympic Games Limited.

(2) LOCOG shall be exempt from corporation tax.

(3) Section 349(1) of ICTA (annual payments: deductions of tax) shall not apply to payments to LOCOG.

(4) A claim may be made for any repayment of income tax required as a result of an exemption conferred by this section.

(5) The Treasury may by regulations provide for subsections (2) to (4) to apply to a wholly-owned subsidiary of LOCOG (within the meaning of section 736 of the Companies Act 1985 (c. 6)) as they apply to LOCOG.

(6) Subsection (7) applies if it appears to the Treasury—

(a) that LOCOG has been or may have been, or is or may be, directly or indirectly connected with another person, or

(b) has been or may have been, or is or may be, acting in association or co-operation with another person (whether by virtue of part-ownership, partnership, membership of a group or consortium or in any other way).

(7) The Treasury may make regulations—

(a) restricting the application of a provision of this section to a specified extent;

(b) removing or restricting an exemption or relief under an enactment relating to corporation tax, income tax or capital gains tax;

(c) preventing a loss or expense of a specified kind from being used or treated in a specified way for purposes of corporation tax, income tax or capital gains tax;

(d) wholly or to a specified extent preventing an allowance from being claimed for purposes of corporation tax, income tax or capital gains tax;

(e) providing for a transfer of property to be disregarded, or treated in a specified way, for purposes of corporation tax, income tax or capital gains tax;

(f) providing for specified action taken by LOCOG or the other person to have, or not to have, a specified effect for purposes of corporation tax, income tax or capital gains tax;

(g) providing for an enactment relating to the treatment of groups of companies for purposes of corporation tax, income tax or capital gains tax to be wholly or partly disapplied or to be applied with modifications;

(h) making any other provision which appears to the Treasury to be expedient for the purpose of preventing this section from being used or relied upon otherwise than in connection with the functions of LOCOG under the Host City Contract;

and provision made under any of paragraphs (b) to (h) may relate to LOCOG or to the other person mentioned in subsection (6).

(8) If it appears to the Treasury that LOCOG has undertaken, is undertaking or may undertake activities other than in pursuance of the Host City Contract, the Treasury may make regulations restricting the application of a provision of this section to a specified extent.

(9) Regulations under subsection (5) may include provision of a kind similar to that which may be made under subsection (7) or (8).

66 Section 65: supplementary

(1) Regulations under section 65(5) to (8)—

(a) may make provision which applies generally or only in specified cases or circumstances,

(b) may make different provision for different cases or circumstances,

(c) may have retrospective effect, and

(d) may include incidental, consequential or transitional provision.

(2) Regulations under section 65 shall be made by statutory instrument.

(3) Regulations under section 65(5)—

(a) shall be subject to annulment in pursuance of a resolution of the House of Commons, or

(b) if they include provision by virtue of section 65(9), may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(4) Regulations under section 65(7) or (8) may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(5) In section 65 “the Host City Contract” has the meaning given by section 1 of the London Olympic Games and Paralympic Games Act 2006.

(6) Section 65 shall be treated as having come into force on 22nd October 2004.

(7) The Treasury may by order made by statutory instrument repeal section 65 and this section.

67 International Olympic Committee

(1) The Treasury may make regulations—

(a) providing for the International Olympic Committee to be treated for the purposes of corporation tax as not having a permanent establishment in the United Kingdom;

(b) providing for the International Olympic Committee not to be chargeable to income tax or capital gains tax;

(c) disapplying section 349(1) and (2) of ICTA (annual payments: deductions of tax) to payments to the International Olympic Committee.

(2) The Treasury may make regulations—

(a) providing for a specified person or class of person appearing to the Treasury to be owned or controlled by the International Olympic Committee to be treated for the purposes of corporation tax as not having a permanent establishment in the United Kingdom;

(b) providing for a specified person or class of person appearing to the Treasury to be owned or controlled by the International Olympic Committee not to be chargeable to income tax or capital gains tax;

(c) disapplying section 349(1) and (2) of ICTA to payments to a specified person or class of person appearing to the Treasury to be owned or controlled by the International Olympic Committee.

(3) Regulations under this section—

(a) may make provision which applies generally or only in specified cases or circumstances,

(b) may make different provision for different cases or circumstances,

(c) may have retrospective effect, and

(d) may include incidental, consequential or transitional provision.

(4) Regulations under this section—

(a) shall be made by statutory instrument, and

(b) shall be subject to annulment in pursuance of a resolution of the House of Commons.

(5) A claim may be made for any repayment of income tax required as a result of an exemption conferred under this section.

68 Competitors and staff

(1) The Treasury may make regulations—

(a) exempting specified classes of person from income tax in respect of specified classes of income arising from participation in London Olympic events;

(b) providing for specified classes of activity undertaken in connection with London Olympic events to be disregarded for purposes of corporation tax, income tax or capital gains tax;

(c) providing for specified classes of activity in connection with London Olympic events to be disregarded in determining for fiscal purposes whether a person has a permanent establishment in the United Kingdom;

(d) disapplying section 349(1) of ICTA (annual payments: deductions of tax) in consequence of provision made under paragraphs (a) to (c) above.

(2) The regulations may specify classes of person wholly or partly by reference to—

(a) residence outside the United Kingdom, determined in such manner as the regulations may provide;

(b) documents issued or authority given by such persons exercising functions in connection with the London Olympics as the regulations may provide.

(3) Regulations under this section—

(a) may make provision which applies generally or only in specified cases or circumstances,

(b) may make different provision for different cases or circumstances, and

(c) may include incidental, consequential or transitional provision.

(4) Regulations under this section—

(a) shall be made by statutory instrument, and

(b) shall be subject to annulment in pursuance of a resolution of the House of Commons.

(5) In this section “London Olympic event” and “the London Olympics” have the meaning given by section 1 of the London Olympic Games and Paralympic Games Act 2006.

Chapter 7 Chargeable gains

Capital losses

69 Restriction on a company’s allowable losses

(1) Section 8 of TCGA 1992 (company’s total profits to include chargeable gains) is amended as follows.

(2) In subsection (2) (exclusion of loss as allowable loss)—

(a) for “does not include a loss” substitute “does not include—

(a) a loss”, and

(b) at the end insert “, or

(b) a loss accruing to a company in disqualifying circumstances (see subsection (2A))”.

(3) After subsection (2) insert—

“(2A) For the purposes of subsection (2)(b), a loss accrues to a company in disqualifying circumstances if—

(a) it accrues to the company directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(b) the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage.

(2B) For the purposes of subsection (2A)—

• “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and

• “tax advantage” has the meaning given by section 184D.

(2C) For the purposes of subsection (2A) it does not matter—

(a) whether the loss accrues at a time when there are no chargeable gains from which it could otherwise have been deducted, or

(b) whether the tax advantage is secured for the company or for any other company.”.

(4) In section 834(1) of ICTA (interpretation of the Corporation Tax Acts), in the definition of “allowable loss”, at the end insert “or a loss accruing to a company in disqualifying circumstances (within the meaning of section 8(2)(b) of the 1992 Act)”.

(5) The amendments made by this section have effect in relation to any loss accruing on any disposal that is made on or after 5th December 2005.

70 Restrictions on companies buying losses or gains

(1) TCGA 1992 is amended as follows.

(2) After section 184 insert—

“Restrictions on buying losses or gains etc

184A Restrictions on buying losses: tax avoidance schemes

(1) This section applies for the purposes of corporation tax in respect of chargeable gains if—

(a) at any time (“the relevant time”) there is a qualifying change of ownership in relation to a company (“the relevant company”) (see section 184C),

(b) a loss (a “qualifying loss”) accrues to the relevant company or any other company on a disposal of a pre-change asset (see subsection (3)),

(c) the change of ownership occurs directly or indirectly in consequence of, or otherwise in connection with, any arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage (see section 184D), and

(d) the advantage involves the deduction of a qualifying loss from any chargeable gains (whether or not it also involves anything else).

(2) A qualifying loss accruing to a company is not to be deductible from chargeable gains accruing to the company unless the gains accrue to the company on a disposal of a pre-change asset.

(3) In this section a “pre-change asset” means an asset which was held by the relevant company before the relevant time (but see also sections 184E and 184F).

(4) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(5) For the purposes of this section it does not matter—

(a) whether a qualifying loss accrues before, after or at the relevant time,

(b) whether a qualifying loss accrues at a time when there are no chargeable gains from which it could be deducted (or could otherwise have been deducted), or

(c) whether the tax advantage is secured for the company to which a qualifying loss accrues or for any other company.

184B Restrictions on buying gains: tax avoidance schemes

(1) This section applies for the purposes of corporation tax in respect of chargeable gains if—

(a) at any time (“the relevant time”) there is a qualifying change of ownership in relation to a company (“the relevant company”) (see section 184C),

(b) a gain (a “qualifying gain”) accrues to the relevant company or any other company on a disposal of a pre-change asset (see subsection (3)),

(c) the change of ownership occurs directly or indirectly in consequence of, or otherwise in connection with, any arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage, and

(d) the advantage involves the deduction of a loss from a qualifying gain (whether or not it also involves anything else).

(2) In the case of a qualifying gain accruing to a company, a loss accruing to the company is not to be deductible from the gain unless the loss accrues to the company on a disposal of a pre-change asset.

(3) In this section a “pre-change asset” means an asset which was held by the relevant company before the relevant time (but see also sections 184E and 184F).

(4) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(5) For the purposes of this section it does not matter—

(a) whether a qualifying gain accrues before, after or at the relevant time,

(b) whether a qualifying gain accrues at a time when there are no losses which could be deducted (or could otherwise have been deducted) from the gain, or

(c) whether the tax advantage is secured for the company to which a qualifying gain accrues or for any other company.

184C Sections 184A and 184B: meaning of “qualifying change of ownership”

(1) For the purposes of sections 184A and 184B, there is a qualifying change of ownership in relation to a company at any time if any one or more of the following occur at that time—

(a) the company joins a group of companies (see subsections (2) to (5)),

(b) the company ceases to be a member of a group of companies,

(c) the company becomes subject to different control (see subsections (6) to (9)).

(2) Whether a company is a member of a group of companies at any time is determined in accordance with section 170.

(3) But, apart from in the excepted case, nothing in section 170(10) or (10A) is to prevent all the companies of one group from being regarded as joining another group when the principal company of the first group becomes a member of the other group at any time.

(4) The excepted case is the case where—

(a) the persons owning the shares of the principal company of the first group immediately before that time are the same as the persons owning the shares of the principal company of the other group immediately after that time,

(b) the principal company of the other group was not the principal company of any group immediately before that time, and

(c) immediately after that time the principal company of the other group had assets consisting entirely (or almost entirely) of shares of the principal company of the first group.

(5) For this purpose, references to shares of a company are to the shares comprised in the issued share capital of the company.

(6) The general rule is that a company becomes subject to different control at any time if any one or more of the following occur—

(a) a person has control of the company at that time (whether alone or together with one or more others) and the person did not previously have control of the company,

(b) a person has control of the company at that time together with one or more others and the person previously had control of the company alone,

(c) a person ceases to have control of the company at that time (whether the person had control alone or together with one or more others).

(7) The general rule is subject to the following exceptions.

(8) A company does not become subject to different control in any case where it joins a group of companies and the case is the excepted case mentioned above.

(9) A company (“the subsidiary”) does not become subject to different control at any time in any case where—

(a) immediately before that time the subsidiary is the 75 per cent. subsidiary of another company, and

(b) (although there is a change in the direct ownership of the subsidiary) that other company continues immediately after that time to own it as a 75 per cent. subsidiary.

184D Sections 184A and 184B: meaning of “tax advantage”

For the purposes of sections 184A and 184B, “tax advantage” means—

(a) relief or increased relief from corporation tax,

(b) repayment or increased repayment of corporation tax,

(c) the avoidance or reduction of a charge to corporation tax or an assessment to corporation tax, or

(d) the avoidance of a possible assessment to corporation tax.

184E Sections 184A and 184B: “pre-change assets”: basic rules

(1) If—

(a) a company other than the relevant company makes a disposal of an asset, and

(b) the asset has been disposed of at any time after the relevant time by a disposal to which section 171(1) does not apply (a “non-section 171(1) transfer”),

the asset ceases to be regarded as a pre-change asset for the purposes of sections 184A and 184B (but see also subsections (10) and (11)).

(2) But (without affecting the generality of the provision made by the following subsection) if, on a non-section 171(1) transfer,—

(a) an asset would cease to be regarded as a pre-change asset as a result of subsection (1), and

(b) the company making the non-section 171(1) transfer retains any interest in or over the asset,

that interest is to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(3) If—

(a) the relevant company or any other company holds an asset (“the new asset”) at or after the relevant time,

(b) the value of the new asset derives in whole or in part from a pre-change asset, and

(c) the new asset is not acquired by the company concerned as a result of a non-section 171(1) transfer,

the new asset is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(4) For this purpose the cases in which the value of an asset may be derived from any other asset include any case where—

(a) assets have been merged or divided,

(b) assets have changed their nature, or

(c) rights or interests in or over assets have been created or extinguished.

(5) If a pre-change asset is “the old asset” for the purposes of section 116 (reorganisations, conversions and reconstructions), “the new asset” for the purposes of that section is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(6) If a pre-change asset is the “original shares” for the purposes of sections 127 to 131 (reorganisation or reduction of share capital), the “new holding” for the purposes of those sections is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(7) The following subsection applies if, as a result of the application of a relevant deferral provision in the case of a disposal of a pre-change asset (“the original disposal”),—

(a) a gain or loss that would otherwise accrue to a company does not so accrue, or

(b) any part of any such gain is treated as forming part of a single chargeable gain which does not accrue to the company on the original disposal,

and a gain or loss does, wholly or partly in consequence of the application of that provision in the case of the original disposal, accrue to the company or any other company on a subsequent occasion.

(8) So much of the gain or loss accruing on the subsequent occasion as accrues in consequence of the application of the relevant deferral provision in the case of the original disposal is to be regarded for the purposes of sections 184A and 184B as accruing on a disposal of a pre-change asset (so far as it would not otherwise be so regarded).

(9) A “relevant deferral provision” means any of the following—

(a) section 139 (reconstruction involving transfer of business),

(b) section 140 (postponement of charge on transfer of assets to non-resident company),

(c) section 140A (transfer of a UK trade),

(d) section 140E (merger leaving assets within UK tax charge),

(e) sections 152 and 153 (replacement of business assets),

(f) section 187 (postponement of charge on deemed disposal under section 185).

(10) If—

(a) a pre-change asset of the relevant company is transferred to another company (“the transferee company”),

(b) any of sections 139, 140A and 140E apply to the companies in the case of the asset, and

(c) the transfer of the asset is made directly or indirectly in consequence of, or otherwise in connection with, the arrangements mentioned in section 184A or 184B,

the asset is to be regarded as a “pre-change asset” in the hands of the transferee company for the purposes of sections 184A and 184B.

(11) In such a case, subsection (1) applies as if the reference in paragraph (a) of that subsection to the relevant company were to the transferee company.

184F Sections 184A and 184B: “pre-change assets”: pooling rules

(1) This section applies, in the case of any pre-change asset of the relevant company or any pre-change asset of any company which is acquired on a disposal to which section 171(1) applies, if—

(a) the pre-change asset consists of a holding of securities which falls as a result of any provision of Chapter 1 of Part 4 to be regarded as a single asset (“the pre-change pooled asset”), and

(b) as a result of any disposal or acquisition at any time after the relevant time, any securities (“the other securities”) would (but for this section) be regarded as forming part of the pre-change pooled asset.

(2) None of the other securities are to be regarded for the purposes of this Act as forming part of the pre-change pooled asset.

(3) But this does not prevent the other securities from being regarded, as a result of any provision of that Chapter, as forming part of or constituting a different, single asset (“the other pooled asset”).

(4) Securities of the same class as the other securities which are disposed of at or after the relevant time—

(a) are to be identified first with the other securities or securities forming part of the other pooled asset,

(b) are to be identified next with securities forming part of the pre-change pooled asset (if the number of securities disposed of exceeds the number identified in accordance with paragraph (a)), and

(c) subject to paragraphs (a) and (b), are to be identified in accordance with the provisions applicable apart from those paragraphs.

(5) The above identification rules apply even if some or all of the securities disposed of are otherwise identified—

(a) by the disposal, or

(b) by a transfer or delivery giving effect to it;

but where a company disposes of securities in one capacity, they are not to be identified with securities which it holds, or can dispose of, only in some other capacity.

(6) Chapter 1 of Part 4 has effect subject to this section.

(7) In this section—

• “pre-change asset” means an asset which is pre-change asset for the purposes of section 184A or 184B,

• “securities” does not include relevant securities as defined in section 108 but, subject to that, means—

  (a)

  shares or securities of a company, and

  (b)

  any other assets where they are of a nature to be dealt in without identifying the particular assets disposed of or acquired.

(8) For the purposes of this section, shares or securities of a company are not to be treated as being of the same class unless—

(a) they are so treated by the practice of a recognised stock exchange, or

(b) they would be so treated if dealt with on a recognised stock exchange.”.

(3) In Schedule 7A (restriction on set-off of pre-entry losses), in paragraph 1(1) (application of Schedule), at the end insert “, but this Schedule shall have no effect in any case where section 184A (restrictions on buying losses: tax avoidance schemes) has effect in relation to those losses”.

(4) Section 177B and Schedule 7AA (restrictions on setting losses against pre-entry gains) shall cease to have effect.

(5) In section 213 (insurance companies: spreading of gains and losses under section 212)—

(a) in subsection (8H) for “that the net amount is” to the end substitute “that the net amount would still arise even if losses accruing after the date on which the company or transferee joined the group of companies were disregarded”, and

(b) in subsection (8I) for “paragraph 1” to the end substitute “section 184C as if those references were contained in that section; and in subsection (8A)(b) above “group” has the same meaning as in that section”.

The amendments made by this subsection have effect where the accounting period for which the net amount represents an excess of losses over gains is an accounting period ending on or after 5th December 2005.

(6) The amendments made by this section, other than subsection (5), have effect for calculating the amount to be included in respect of chargeable gains in a company’s total profits for any accounting period ending on or after 5th December 2005.

(7) But, in respect of any such accounting period, those amendments do not have effect in relation to the deduction of any loss from chargeable gains that accrue on any disposal made before 5th December 2005 unless that loss accrues on a disposal made on or after that date.

(8) For the purposes of those amendments, it does not matter whether a qualifying change of ownership in relation to a company occurs—

(a) before 5th December 2005, or

(b) on or after that date.

(9) The following subsection applies so long as each of the following conditions is met—

(a) at any time (“the relevant time”) before 5th December 2005 there is a qualifying change of ownership in relation to a company (“the relevant company”) for the purposes of section 184A or 184B of TCGA 1992,

(b) the change of ownership occurs because the relevant company ceases to be a member of a group of companies at the relevant time (whether or not it also occurs for any other reason),

(c) the principal company of that group has control of the relevant company at the relevant time and at all subsequent times,

(d) the principal company of that group does not, at or after the relevant time, join another group otherwise than in the excepted case, and

(e) a qualifying loss for the purposes of section 184A of TCGA 1992, or a qualifying gain for the purposes of section 184B of that Act, accrues to the relevant company or any other company on a disposal made before 5th December 2005.

(10) Section 184A or 184B of TCGA 1992 applies in relation to that qualifying loss or gain as if, for the purposes of that section, a “pre-change asset” included an asset held before the relevant time by any company which, immediately before the relevant time, was a member of the same group of companies as the relevant company.

(11) Subsections (9) and (10) are to be read as if contained in section 184C of TCGA 1992.

71 Other avoidance involving losses accruing to companies

(1) After section 184F of TCGA 1992 (as inserted by section 70 above) insert—

“184G Avoidance involving losses: schemes converting income to capital

(1) This section applies for the purposes of corporation tax in respect of chargeable gains if conditions A to D are satisfied.

(2) Condition A is that—

(a) any receipt arises to a company (“the relevant company”) on a disposal of an asset, and

(b) the receipt arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements.

(3) Condition B is that—

(a) a chargeable gain (the “relevant gain”) accrues to the relevant company on the disposal, and

(b) losses accrue (or have accrued) to the relevant company on any other disposal of any asset (whether before or after or as part of the arrangements).

(4) Condition C is that, but for the arrangements, an amount would have fallen to be taken into account wholly or partly instead of the receipt in calculating the income chargeable to corporation tax—

(a) of the relevant company, or

(b) of a company which, at any qualifying time, is a member of the same group as the relevant company.

(5) Condition D is that—

(a) the main purpose of the arrangements, or

(b) one of the main purposes of the arrangements,

is to secure a tax advantage that involves the deduction of any of the losses from the relevant gain (whether or not it also involves anything else).

(6) If the Board consider, on reasonable grounds, that conditions A to D are or may be satisfied, they may give the relevant company a notice in respect of the arrangements (but see also section 184I).

(7) If, when the notice is given, conditions A to D are satisfied, no loss accruing to the relevant company at any time is to be deductible from the relevant gain.

(8) A notice under this section must—

(a) specify the arrangements,

(b) specify the accounting period in which the relevant gain accrues, and

(c) inform the relevant company of the effect of this section.

(9) If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

(10) In this section—

• “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

• “group”, in relation to companies, means a group determined in accordance with section 170,

• “qualifying time”, in relation to any arrangements, means any time which falls in the period—

  (a)

  beginning with the time at which the arrangements are made, and

  (b)

  ending with the time at which the matters (other than any tax advantage) intended to be secured by the arrangements are secured,

• “tax advantage” has the meaning given by section 184D.

184H Avoidance involving losses: schemes securing deductions

(1) This section applies for the purposes of corporation tax in respect of chargeable gains if conditions A to D are satisfied.

(2) Condition A is that—

(a) a chargeable gain (the “relevant gain”) accrues to a company (“the relevant company”) directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(b) losses accrue (or have accrued) to the relevant company on any disposal of any asset (whether before or after or as part of the arrangements).

(3) Condition B is that the relevant company, or a company connected with the relevant company, incurs any expenditure—

(a) which is allowable as a deduction in calculating its total profits chargeable to corporation tax but which is not allowable as a deduction in computing its gains under section 38, and

(b) which is incurred directly or indirectly in consequence of, or otherwise in connection with, the arrangements.

(4) Condition C is that the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage that involves both—

(a) the deduction of the expenditure in calculating total profits, and

(b) the deduction of any of the losses from the relevant gain,

whether or not it also involves anything else.

(5) Condition D is that the arrangements are not excluded arrangements.

For this purpose arrangements are excluded arrangements if—

(a) the arrangements are made in respect of land or any estate or interest in land,

(b) the arrangements fall within section 779(1) or (2) of the Taxes Act (sale and lease-back: limitation on tax reliefs),

(c) the person to whom the payment mentioned in that subsection is payable is not a company connected with the relevant company, and

(d) the arrangements are made between persons dealing at arm’s length.

(6) If the Board consider, on reasonable grounds, that conditions A to D are or may be satisfied, they may give the company a notice in respect of the arrangements (but see also section 184I).

(7) If, when the notice is given, conditions A to D are satisfied, no loss accruing to the company at any time is to be deductible from the relevant gain.

(8) A notice under this section must—

(a) specify the arrangements,

(b) specify the accounting period in which the relevant gain accrues, and

(c) inform the relevant company of the effect of this section.

(9) If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

(10) In this section—

• “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

• “tax advantage” has the meaning given by section 184D.

(11) For the purposes of this section it does not matter whether the tax advantage is secured for the relevant company or for any other company.

184I Notices under sections 184G and 184H

(1) Subsection (2) applies if—

(a) the Board give a notice under section 184G or 184H (a “relevant notice”) to a company that specifies an accounting period, and

(b) the notice is given before the company has made its company tax return for that accounting period.

(2) If the company makes its return for that period before the end of the applicable 90 day period (see subsection (12)), it may—

(a) make a return that disregards the notice, and

(b) at any time after making the return and before the end of the applicable 90 day period, amend the return for the purpose of complying with the provision referred to in the notice.

(3) If a company has made a company tax return for an accounting period, the Board may give the company a relevant notice in relation to that period only if a notice of enquiry has been given to the company in respect of its return for that period.

(4) After any enquiries into the return for that period have been completed, the Board may give the company a relevant notice only if requirements A and B are met.

(5) Requirement A is that at the time the enquiries into the return were completed, the Board could not have been reasonably expected, on the basis of information made available—

(a) to them before that time, or

(b) to an officer of theirs before that time,

to have been aware that the circumstances were such that a relevant notice could have been given to the company in relation to that period.

(6) For the purposes of requirement A, paragraph 44(2) and (3) of Schedule 18 to the Finance Act 1998 (information made available) applies as it applies for the purposes of paragraph 44(1).

(7) Requirement B is that—

(a) the company or any other person was requested to produce or provide information during an enquiry into the return for that period, and

(b) if the request had been duly complied with, the Board could reasonably have been expected to give the company a relevant notice in relation to that period.

(8) If—

(a) a company makes a company tax return for an accounting period, and

(b) the company is subsequently given a relevant notice that specifies that period,

it may amend the return for the purpose of complying with the provision referred to in the notice at any time before the end of the applicable 90 day period.

(9) If the relevant notice is given to the company after it has been given a notice of enquiry in respect of its return for the period, no closure notice may be given in relation to its company tax return until—

(a) the end of the applicable 90 day period, or

(b) the earlier amendment of its company tax return for the purpose of complying with the provision referred to in the notice.

(10) If the relevant notice is given to the company after any enquiries into the return for the period are completed, no discovery assessment may be made as regards the chargeable gain to which the notice relates until—

(a) the end of the applicable 90 day period, or

(b) the earlier amendment of the company tax return for the purpose of complying with the provision referred to in the notice.

(11) Subsections (2)(b) and (8) do not prevent a company tax return for a period becoming incorrect if—

(a) a relevant notice is given to the company in relation to that period,

(b) the return is not amended in accordance with subsection (2)(b) or (8) for the purpose of complying with the provision referred to in the notice, and

(c) the return ought to have been so amended.

(12) In this section—

• “the applicable 90 day period”, in relation to a relevant notice, means the period of 90 days beginning with the day on which the notice is given,

• “closure notice” means a notice under paragraph 32 of Schedule 18 to the Finance Act 1998,

• “company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of that Schedule, as read with paragraph 4 of that Schedule,

• “discovery assessment” means an assessment under paragraph 41 of that Schedule,

• “notice of enquiry” means a notice under paragraph 24 of that Schedule.”.

(2) In Schedule 18 to FA 1998 (company tax returns, assessments, etc), in paragraph 25(1) (scope of enquiry), after “relief)” insert “or a notice under section 184G or 184H of the Taxation of Chargeable Gains Act 1992 (avoidance involving capital losses)”.

(3) In paragraph 42 of that Schedule (restrictions on power to make discovery assessment etc), in sub-paragraph (2A), after “1988” insert “or section 184G or 184H of the Taxation of Chargeable Gains Act 1992”.

(4) The amendments made by this section have effect in relation to chargeable gains accruing on any disposal that is made on or after 5th December 2005.

72 Repeal of s.106 of TCGA 1992

(1) Section 106 of TCGA 1992 (disposal of shares and securities by company within prescribed period of acquisition) shall cease to have effect.

(2) In consequence of that repeal—

(a) in section 104(2)(b) of TCGA 1992 (share pooling: general interpretative provisions) omit “, 106”,

(b) in section 105 of that Act (disposal on or before day of acquisition of shares and other unidentified assets)—

(i) in subsection (2)(b) for “any of the provisions of section 106 or” substitute “section”, and

(ii) in subsection (2)(c) omit “106,”,

(c) in section 108(8) of that Act (identification of relevant securities) omit “shall have effect subject to section 106 but”,

(d) in section 110(1)(b) of that Act (section 104 holdings: indexation allowance) for “sections 105 and 106” substitute “section 105”, and

(e) in Schedule 15 to FA 2000 (corporate venture scheme), in paragraph 93(6) (identification of shares on a disposal), for “Sections 104 to 106” substitute “Sections 104, 105”.

(3) The amendments made by this section have effect in relation to any disposal that is made on or after 5th December 2005.

Insurance policies and annuities

73 Policies of insurance and non-deferred annuities

(1) TCGA 1992 is amended as follows.

(2) For section 204 (policies of insurance) substitute—

“204 Policies of insurance and non-deferred annuities

(1) A gain accruing on a disposal of, or of an interest in, the rights conferred by a non-life policy of insurance is not a chargeable gain (but see subsection (2)).

(2) If a disposal is of, or of an interest in, the rights conferred by a non-life policy of insurance of the risk of—

(a) any kind of damage to assets, or

(b) the loss or depreciation of assets,

the exemption under subsection (1) does not apply so far as those rights relate to chargeable assets.

(3) For this purpose “chargeable assets” means assets on the disposal of which a chargeable gain—

(a) may accrue, or

(b) might have accrued.

(4) Nothing in subsections (1) and (2) prevents sums received under a non-life policy of insurance of the risk of—

(a) any kind of damage to assets, or

(b) the loss or depreciation of assets,

from being sums derived from the assets for the purposes of this Act (and, in particular, for the purposes of section 22).

(5) A gain accruing on a disposal of, or of an interest in, the rights conferred by a contract for an annuity is not a chargeable gain if the annuity is—

(a) a non-deferred annuity, or

(b) an annuity granted (or deemed to be granted) under the Government Annuities Act 1929.

(6) If any investments or other assets are, in accordance with a policy issued in the course of life assurance business carried on by an insurance company, transferred to the policy holder—

(a) the policy holder’s acquisition of the assets, and

(b) the disposal of the assets to the policy holder,

are to be taken for the purposes of this Act to be for a consideration equal to the market value of the assets.

(7) In this section “interest”, in relation to any rights, means an interest as a co-owner of the rights.

(8) It does not matter—

(a) whether the rights are owned jointly or in common, or

(b) whether or not the interests of the co-owners are equal.

(9) In this section a “non-deferred annuity” means an annuity—

(a) which is not granted under a contract for a deferred annuity, and

(b) which is granted in the ordinary course of a business of granting annuities on the life of any person,

and it does not matter whether the annuity includes instalments of capital.

(10) In this section a “non-life policy of insurance” means—

(a) a contract made in the course of a capital redemption business, as defined in section 458(3) of the Taxes Act, and

(b) any other policy of insurance which is not a policy of insurance on the life of any person.”.

(3) In section 237 (superannuation funds, annuities and annual payments)—

(a) at the end of paragraph (a), insert “or”, and

(b) omit paragraph (b) (exemption for disposals of non-deferred annuities etc).

(4) The amendments made by this section have effect in relation to disposals made on or after 5th December 2005.

Capital gains tax

74 Exception to “bed and breakfasting” rules etc

(1) TCGA 1992 is amended as follows.

(2) In section 106A (identification of securities: general rules for capital gains tax), after subsection (5) (acquisition of securities within 30 days after disposing of securities of same class) insert—

“(5A) Subsection (5) above shall not require securities to be identified with securities which the person making the disposal acquires at a time when—

(a) he is neither resident nor ordinarily resident in the United Kingdom, or

(b) he is resident or ordinarily resident in the United Kingdom but is Treaty non-resident.”.

(3) In section 288 (interpretation), after subsection (7A) (meaning of “surrender” in application of Act to Scotland) insert—

“(7B) For the purposes of this Act, a person is Treaty non-resident at any time if, at that time, he falls to be regarded as resident in a territory outside the United Kingdom for the purposes of double taxation relief arrangements having effect at that time.”.

(4) In consequence of the amendment made by subsection (3)—

(a) in section 10A (temporary non-residents), omit subsection (9A) (meaning of “Treaty non-resident”), and

(b) in section 83A (trustees both resident and non-resident in a year of assessment), omit subsection (5) (meaning of “Treaty non-resident”).

(5) The amendment made by subsection (2) has effect in relation to any acquisition made at any time on or after 22nd March 2006.

(6) The amendments made by subsections (3) and (4) have effect in relation to any time on or after 22nd March 2006.

Chapter 8 Avoidance: miscellaneous

Film partnerships

75 Interest relief: film partnership

(1) The amount of interest on a loan in respect of which an individual (“the borrower”) is eligible for relief for a year of assessment under sections 353 and 362 of ICTA (interest on loan to buy into partnership) shall, where this section applies, be restricted to 40% of the interest that would otherwise be eligible for relief.

(2) This section applies where—

(a) the partnership (“the film partnership”) carries on a trade,

(b) the profits or losses of the trade are computed in accordance with Chapter 9 of Part 2 of ITTOIA 2005 (films, etc),

(c) the loan is secured on an asset or activity of another partnership (“the investment partnership”),

(d) the borrower is or has been a member of the investment partnership, and

(e) at a time in the year of assessment the proportion of the profits of the investment partnership to which the borrower is entitled is less than the proportion of the partnership’s capital contributed by him at that time.

(3) For the purposes of subsection (2)(c) a loan is secured on an asset or activity of a partnership if there is any arrangement—

(a) under which an asset of the partnership may be used or relied upon wholly or partly to guarantee repayment of any part of the loan, or

(b) by virtue of which any part of the loan is expected to be repaid (directly or indirectly) out of assets or income held by or accruing to the partnership.

(4) For the purposes of subsection (2)(e) the reference to profits excludes any amount that would not be taken into account as, or for the purpose of calculating, income for the purposes of the Tax Acts.

(5) In subsection (2)(e) the reference to the partnership’s capital is a reference to—

(a) anything that is, or in accordance with generally accepted accounting practice would be, accounted for as partners' capital or pa