PART 3 continued
(1) No balancing adjustment is to be made under Part 3 of CAA 2001 (industrial buildings allowances) if—
(a) the qualifying expenditure in question is not qualifying enterprise zone expenditure for the purposes of that Part, and
(b) the balancing event in question is a post-commencement balancing event,
and in paragraph (b) “post-commencement balancing event” means any balancing event for the purposes of that Part which occurs on or after 21st March 2007, but does not include an event which occurs before 1st April 2011 in pursuance of a relevant pre-commencement contract (see subsection (7)).
(2) For the purposes of section 311 of that Act (calculation of allowance after sale of relevant interest) the amount of the residue of qualifying expenditure immediately after a post-commencement relevant event is taken to be the amount of the residue of qualifying expenditure immediately before that event.
(3) In subsection (2)—
“qualifying expenditure” does not include any expenditure which is qualifying enterprise zone expenditure for the purposes of that Part, and
“post-commencement relevant event” means any relevant event within the meaning of section 311 of that Act which occurs on or after 21st March 2007, but does not include an event which occurs before 1st April 2011 in pursuance of a relevant pre-commencement contract.
(4) No balancing adjustment is to be made under Part 4 of that Act (agricultural buildings allowances) if the balancing event in question is a post-commencement balancing event.
(5) For the purposes of section 376 of that Act (calculation of allowance after acquisition) the amount of the residue of qualifying expenditure immediately after a post-commencement balancing event is taken to be the amount of the residue of qualifying expenditure immediately before that event.
(6) In subsections (4) and (5) “post-commencement balancing event” means any balancing event under section 381 of that Act (as a result of an election made in accordance with section 382 of that Act) which occurs on or after 21st March 2007, but does not include an event which occurs before 1st April 2011 in pursuance of a relevant pre-commencement contract.
(7) For the purposes of this section a contract is “a relevant pre-commencement contract” if—
(a) the contract is a contract in writing made before 21st March 2007,
(b) the contract is unconditional or its conditions have been satisfied before that date,
(c) no terms remain to be agreed on or after that date, and
(d) the contract is not varied in a significant way on or after that date.
(1) The amount of a first-year allowance under section 44 of CAA 2001 (expenditure incurred by small or medium-sized enterprises) is to 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 2007, if the small enterprise is within the charge to corporation tax, or
(b) 6th April 2007, if the small enterprise is within the charge to income tax.
(3) Accordingly, in section 52(3) of CAA 2001, in the sentence following the Table, insert at the end—
“(c) section 37 of the Finance Act 2007 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2007-08 or financial year 2007).”
(1) Part 1 of Schedule 7 contains provisions relating to gross roll-up business, capital redemption business and miscellaneous minor matters relating to insurance companies.
(2) The amendments made by that Part of that Schedule have effect—
(a) for the purposes of corporation tax, for periods of account of insurance companies beginning on or after 1st January 2007, and
(b) for the purposes of income tax, for the tax year 2007-08 and subsequent tax years.
(3) Subsection (2) is subject to the transitional provisions in Part 2 of that Schedule.
(1) Part 1 of Schedule 8 contains provision about the basis of taxation of insurance companies and related matters.
(2) The amendments made by that Part of that Schedule have effect for periods of account of insurance companies beginning on or after 1st January 2007.
(3) Subsection (2) is subject to the transitional provisions in Part 2 of that Schedule.
Schedule 9 contains provision about transfers by insurance companies and related matters.
Schedule 10 contains miscellaneous provisions relating to insurance companies.
Schedule 11 contains provision in relation to technical provisions made by general insurers.
(1) In FA 1994, after section 227A (inserted by section 33) insert—
(1) This section applies where, in accordance with the rules or practice of Lloyd's, a corporate member (“the successor”) has taken up the syndicate capacity of another corporate member (“the predecessor”).
(2) Section 343 of the Taxes Act 1988 (company reconstructions without a change of ownership) applies as if—
(a) the trade mentioned in that section were the underwriting business of the predecessor,
(b) the predecessor ceases to carry it on, and the successor begins to carry it on, at the end of the first underwriting year in which profits or losses of the predecessor’s last active underwriting year are declared, and
(c) subsections (8) to (10) and (12) were omitted.
(3) For the purposes of subsection (1) above the successor has taken up the predecessor’s syndicate capacity if it has taken up the rights to participate in syndicates which were (or otherwise would be) offered to the predecessor.
(4) In subsection (2)(b) above “last active underwriting year” has the same meaning as in section 227A above (see subsections (2) to (4) of that section).”
(2) The amendment made by subsection (1) has effect in any case where the first underwriting year in which profits or losses of the predecessor’s final underwriting year are declared is 2007 or a later underwriting year.
Schedule 12 contains provisions about transfers of business by friendly societies to insurance companies etc.
(1) Section 462 of ICTA (conditions for tax exempt business) is amended as follows.
(2) For subsection (1) substitute—
“(1) Subject to subsections (2) to (4) below, section 460 does not afford any exemption from corporation tax in relation to so much of the profits arising to a friendly society or insurance company from any business as is attributable to a policy which—
(a) is not a qualifying policy (by virtue of sub-paragraph (2) of paragraph 6 of Schedule 15) and is not an excluded policy, and
(b) would not be a qualifying policy (by virtue of that sub-paragraph) if all excluded policies were left out of account.
(1A) For the purposes of subsection (1) above a policy is an excluded policy if—
(a) it is a policy held otherwise than with the friendly society or insurance company, or
(b) the person who has the contract effecting the policy acquired the rights under it on an assignment (or, in Scotland, assignation) otherwise than for money or money’s worth.”
(3) In subsection (2), for “under section 460(1) for profits arising from any part of a life or endowment” substitute “in relation to profits arising from any part of a”.
(4) In subsection (3), for the words after “section” substitute “460 does not afford any exemption from corporation tax in relation to so much as is attributable to that policy of the profits of the friendly society or insurance company concerned.”
(5) In section 462A(8)(b) of ICTA (election to tax exempt business), for ““societies”” substitute ““policies””.
(6) The amendments made by this section are deemed to have come into force on 1st January 2007.
(1) In section 437(1C) of ICTA (general annuity business), omit paragraphs (c)(i) and (d)(i).
(2) In section 656 of that Act (purchased life annuities other than retirement annuities), omit subsections (5) and (6).
(3) In section 658 of that Act (supplementary), omit subsections (1) and (4) to (6).
(4) In section 828(4) of that Act (parliamentary procedure for orders and regulations), omit “658(3)”.
(5) In section 717 of ITTOIA 2005 (exemption for part of purchased life annuity payment), omit subsection (3).
(6) Omit section 723 of that Act (officer of Revenue and Customs to determine certain questions).
(7) In section 724 of that Act (regulations)—
(a) in subsection (1)(a), for “723” substitute “722”, and
(b) omit subsection (2).
(8) In section 873(3) of that Act (parliamentary procedure for orders and regulations), omit paragraph (b).
(9) The amendments made by subsections (1) to (3) and (5) to (7) come into force on such day as the Treasury may by order appoint; and different days may be appointed for different purposes.
(1) Schedule 13 contains provision for corporation tax purposes about the sale and repurchase of securities.
(2) Schedule 14 contains minor and consequential amendments in relation to the sale and repurchase of securities.
(3) The Treasury may by order make such other amendments (including repeals and revocations) of enactments or instruments as may appear appropriate in consequence of, or otherwise in connection with, those Schedules.
(4) Schedule 13, and the amendments made by Schedule 14, have effect in accordance with provision made by the Treasury by order.
(5) Any order under this section—
(a) may make different provision for different purposes, and
(b) may contain transitional provision and savings.
Schedule 15 contains provision in relation to controlled foreign companies.
(1) Part 2 of Schedule 13 to FA 2002 (manner of giving effect to vaccine research relief: small and medium-sized companies) is amended as follows.
(2) In paragraph 14 (deduction in computing profits of trade), for sub-paragraph (2) substitute—
“(2) The appropriate deduction is 50% of the qualifying expenditure.”
(3) In paragraph 15 (alternative treatment of pre-trading expenditure: deemed trading loss)—
(a) in sub-paragraph (2)(b), for the words from “not” to the end substitute “non-Schedule 20 expenditure.”, and
(b) after sub-paragraph (6) insert—
“(7) Qualifying expenditure is “non-Schedule 20 expenditure” if the company is not entitled to relief under Schedule 20 to the Finance Act 2000 in respect of it.”
(4) In paragraph 16 (entitlement to tax credit), for sub-paragraph (3) substitute—
“(3) The amount of the surrenderable loss is equal to the lower of A and B where—
A is so much of the trading loss referred to in sub-paragraph (2) as is unrelieved, and
B is—
if paragraph 14 applies, the sum of the amount deductible under that paragraph and so much of the qualifying expenditure mentioned in that paragraph as is non-Schedule 20 expenditure;
if paragraph 15 applies, the total deemed trading loss under that paragraph.”
(5) After sub-paragraph (5) of that paragraph insert—
“(6) Paragraph 15(7) (meaning of “non-Schedule 20 expenditure”) applies for the purposes of sub-paragraph (3).”
(6) The amendments made by this section have effect in relation to expenditure incurred on or after 1st April 2007.
(1) In Part 1 of Schedule 20 to FA 2000 (entitlement to R&D tax relief), paragraph 2(1) (meaning of “small or medium-sized enterprise”) is amended as follows.
(2) Before Qualification 1 insert—
“Qualification A1
In Article 2(1) of the Annex the references to 250 persons, 50 million euros and 43 million euros are to be read as references to 500 persons, 100 million euros and 86 million euros (respectively).”
(3) In Qualification 1—
(a) after “micro, small or medium-sized enterprise” insert “(or would be if the Annex were read as set out in Qualification A1)”;
(b) at the end insert “(read as set out in Qualification A1)”.
(4) Part 2 of Schedule 13 to FA 2002 (giving effect to VRR tax relief) is amended as follows.
(5) After paragraph 15 insert—
15A (1) This paragraph applies in relation to a company for an accounting period if—
(a) the company is a larger SME in the accounting period, and
(b) it claims a tax credit under paragraph 15 of Schedule 20 to the Finance Act 2000 (R&D tax credit) for the accounting period.
(2) The appropriate deduction under paragraph 14 above is 50% of so much of the qualifying expenditure as is non-Schedule 20 expenditure (as defined by paragraph 15(7)).
(3) Paragraph 15 above has effect as if sub-paragraph (2)(a) were omitted.
(4) In this paragraph “larger SME” means a company which qualifies as a small or medium-sized enterprise by virtue of Qualification A1 in paragraph 2(1) of Schedule 20 to the Finance Act 2000.”
(6) After paragraph 16 insert—
16A (1) Paragraph 16(3) has effect in relation to a larger SME as if for the definition of “B” there were substituted—
“B is 150% of so much of the qualifying expenditure mentioned in paragraph 14 or 15 as is non-Schedule 20 expenditure.”
(2) “Larger SME” has the same meaning as in paragraph 15A.”
(7) The amendments made by this section have effect in relation to expenditure incurred on or after such day as the Treasury may by order appoint.
(8) A day before the day on which this Act is passed may be appointed, but not one before 1st April 2007.
(9) For the purpose of determining, in relation to expenditure incurred on or after the appointed day, whether a company is a small or medium-sized enterprise, the amendments are to be treated as always having had effect.
Schedule 16 contains provision about venture capital schemes (and provision consequential on such provision).
(1) Schedule 17 contains provisions about Real Estate Investment Trusts.
(2) The amendments made by that Schedule have effect in respect of—
(a) an accounting period, of a company to which Part 4 of FA 2006 (REITs) applies, which begins on or after 1st January 2007,
(b) an accounting period, of the principal company of a group to which that Part applies, which begins on or after 1st January 2007, and
(c) a distribution to which section 121 of FA 2006 applies and which is received on or after 1st January 2007.
(1) In FA 2005, after section 48 insert—
(1) Subject to section 52, arrangements fall within this section if—
(a) the arrangements provide for one person (“the bond-holder”) to pay a sum of money (“the capital”) to another (“the bond-issuer”),
(b) the arrangements identify assets, or a class of assets, which the bond-issuer will acquire for the purpose of generating income or gains directly or indirectly (“the bond assets”),
(c) the arrangements specify a period at the end of which they cease to have effect (“the bond term”),
(d) the bond-issuer undertakes under the arrangements—
(i) to dispose at the end of the bond term of any bond assets which are still in the bond-issuer’s possession,
(ii) to make a repayment of the capital (“the redemption payment”) to the bond-holder during or at the end of the bond-term (whether or not in instalments), and
(iii) to pay to the bond-holder other payments on one or more occasions during or at the end of the bond term (“additional payments”),
(e) the amount of the additional payments does not exceed an amount which would be a reasonable commercial return on a loan of the capital,
(f) under the arrangements the bond-issuer undertakes to arrange for the management of the bond assets with a view to generating income sufficient to pay the redemption payment and additional payments,
(g) the bond-holder is able to transfer the rights under the arrangements to another person (who thereby becomes the bond-holder),
(h) the arrangements are a listed security on a recognised stock exchange (within the meaning of section 1005 of ITA 2007), and
(i) the arrangements are wholly or partly treated in accordance with international accounting standards as a financial liability of the bond-issuer (or would be if the bond-issuer applied those standards).
(2) For the purposes of subsection (1)—
(a) the bond-issuer may acquire bond assets before or after the arrangements take effect,
(b) bond assets may be property of any kind, including rights in relation to property owned by someone other than the bond-issuer,
(c) the identification of the bond assets mentioned in subsection (1)(b) and the undertakings mentioned in subsection (1)(d) and (f) may (but need not) be described as, or accompanied by a document described as, a declaration of trust,
(d) a reference to the management of assets includes a reference to disposal,
(e) the bond-holder may (but need not) be entitled under the arrangements to terminate them, or participate in terminating them, before the end of the bond term,
(f) the amount of the additional payments may be—
(i) fixed at the beginning of the bond term,
(ii) determined wholly or partly by reference to the value of or income generated by the bond assets, or
(iii) determined in some other way,
(g) if the amount of the additional payments is not fixed at the beginning of the bond term, the reference in subsection (1)(e) to the amount of the additional payments is a reference to the maximum amount of the additional payments,
(h) the amount of the redemption payment may (but need not) be subject to reduction in the event of a fall in the value of the bond assets or in the rate of income generated by them, and
(i) entitlement to the redemption payment may (but need not) be capable of being satisfied (whether or not at the option of the bond-issuer or the bond-holder) by the issue or transfer of shares or other securities.
(3) An order under section 1005 of ITA 2007 (recognised stock exchanges: designation) may designate a stock exchange for the purposes of that section in its application for the purposes of this section only.
(1) Additional payments under arrangements falling within section 48A are alternative finance return for the purpose of this Chapter (subject to the provisions in section 51A about the treatment of discount).
(2) For the purposes of an enactment about any tax (and irrespective of the position for other purposes)—
(a) a bond-holder shall not be treated as having a legal or beneficial interest in the bond assets,
(b) the bond-issuer shall not be treated as a trustee of the bond assets,
(c) profits and gains accruing to the bond-issuer in connection with the bond assets are profits and gains of the bond-issuer and not of the bond-holder (and do not arise to the bond-issuer in a fiduciary or representative capacity),
(d) payments made by the bond-issuer by way of redemption payment or additional payment are not made in a fiduciary or representative capacity, and
(e) a bond-holder shall not be entitled to relief for capital expenditure in connection with bond assets.
(3) Arrangements falling within section 48A are securities for the purposes of an enactment about any tax (including Chapters 1 to 5 of Part 7 of ITEPA 2003); for which purpose—
(a) a reference to redemption shall be taken as a reference to making the redemption payment,
(b) a reference to interest shall be taken as a reference to alternative finance return, and
(c) for the purposes of section 84 the bond issuer shall be treated as being party as debtor to a capital market arrangement.
(4) Arrangements falling within section 48A are a corporate bond, issued on the date on which the arrangements are entered into, for the purposes of section 117 of TCGA 1992 (qualifying corporate bonds) if—
(a) the capital is expressed in sterling,
(b) the arrangements do not include provision for the redemption payment to be in a currency other than sterling,
(c) entitlement to the redemption payment is not capable of conversion (directly or indirectly) into an entitlement to the issue of securities apart from other arrangements falling within section 48A, and
(d) the additional payments are not determined wholly or partly by reference to the value of the bond assets;
and section 117(2) shall have effect for the purposes of this subsection as for the purposes of section 117(1).
(5) Arrangements falling within section 48A shall not be treated—
(a) as a unit trust scheme for the purposes of TCGA 1992,
(b) as a unit trust scheme for the purposes of section 469 of ICTA or section 1007 of ITA 2007 (distributions),
(c) as an offshore fund for the purposes of Chapter 5 of Part 17 of ICTA (offshore funds), or
(d) as a relevant holding for the purposes of paragraph 4 of Schedule 10 to FA 1996 (loan relationships: collective investment schemes).
(6) A bond-issuer is not a securitisation company for the purposes of section 83 (unless it is one by virtue of arrangements which do not fall within section 48A).
(7) For the purposes of section 417 of ICTA (close companies)—
(a) a bond-holder is a loan creditor in respect of the bond-issuer;
(b) arrangements falling within section 48A shall be disregarded in the application of section 417(1)(d).
(8) For the purposes of Schedule 18 to ICTA (group relief)—
(a) a bond-holder is a loan creditor in respect of the bond-issuer;
(b) paragraph 1(5)(b) shall be disregarded in determining whether a person is an equity holder by virtue of arrangements falling within section 48A.”
(2) Chapter 5 of Part 2 of FA 2005 (alternative finance arrangements) is amended as follows.
(3) In section 46 (introduction)—
(a) in subsection (1), after “47A,” insert “48A,”, and
(b) in subsection (2), after paragraph (d) (before “or” at the end) insert—
“(da) a bond-issuer within the meaning of section 48A below, but only in relation to any bond assets which are rights under arrangements falling within section 47 or 47A,”.
(4) In section 50(1) (treatment of alternative finance arrangements: companies), for “or 47A” substitute “, 47A or 48A”.
(5) After section 51 insert—
(1) This section applies where part of the additional payments in respect of arrangements falling within section 48A equates in substance to discount (“the discount element”).
(2) The discount element shall not be treated as alternative finance return for the purposes of income tax.
(3) The discount element shall be treated—
(a) in accordance with section 381 of ITTOIA 2005, or
(b) where the arrangements falling within section 48A are deeply discounted securities for the purpose of Chapter 8 of Part 4 of ITTOIA 2005, in accordance with that Chapter.”
(6) In section 52 (provision not at arm’s length)—
(a) in subsection (1), after “47A,” insert “48A,”,
(b) in subsection (3), after “47A,” insert “48A,”, and
(c) in subsection (4), for “or 47A” substitute “, 47A or 48A”.
(7) In section 53 (sale and purchase of asset)—
(a) in subsection (1) (and in the heading), for “or 47A” substitute “, 47A or 48A”, and
(b) in subsection (3), after “47A” insert “or 48A”.
(8) In section 54 (return not to be treated as distribution)—
(a) the existing provision becomes subsection (1),
(b) after that subsection insert—
“(2) Neither additional payments nor any part of the redemption payment under arrangements falling within section 48A are to be treated by virtue of section 209(2)(e)(iii) of ICTA as being a distribution for the purposes of the Corporation Tax Acts.”, and
(c) the heading accordingly becomes “Return not to be treated as distribution”.