Finance Act 1966

• (1) If a person, on written demand by the proper officer, refuses or neglects to pay any amount recoverable from him by way of the general betting duty or by virtue of section 15(1) of this Act or paragraph 8 or 21(1)(b) of this Schedule, the amount recoverable may be levied by distress on his goods and chattels, and the proper officer may for that purpose by warrant signed by him authorise any person to distrain accordingly and to sell anything so distrained by public auction after giving six days' notice of the sale.

• (2) Where an amount recoverable by virtue of the said paragraph 8 or 21(1)(b) is determined by reference to the duty on a gaming licence in respect of premises on which gaming is Carried on as an activity of a club, the goods and chattels on which distress may be levied under sub-paragraph (1) of this paragraph shall include any goods and chattels used for the purposes of the club and found on those premises :

Provided that distress shall not be levied on any goods or chattels by virtue of this sub-paragraph unless a copy of the demand for the amount recoverable has been served on the secretary of the club (or person performing the functions of secretary) by leaving it or sending it by post addressed to him at an address to which communications about the affairs of the club are ordinarily sent.

• (3) The proceeds of sale of anything distrained under this paragraph shall be applied in or towards payment of the costs and expenses of the distress and sale and the payment of the amount recoverable, and the surplus, if any, shall be paid, where distress was levied on any goods or chattels by virtue of sub-paragraph (2) of this paragraph to the secretary (or person performing the functions of secretary) of the club, and in any other case to the person on whom the distress was levied.

• (4) Where under this paragraph distress is levied for any duty in accordance with an estimate made under paragraph 5 of this Schedule, and it is afterwards proved that the amount properly due was less than the amount estimated, that shall not affect the legality of the distress or anything done under this paragraph in connection therewith, but the proceeds of sale shall be applied under sub-paragraph (3) thereof in accordance with the amount properly due and not in accordance with the amount estimated.

• (5) In the application of this paragraph to Scotland, any reference to distress shall be construed as a reference to diligence, any reference to distraining or to the levying of distress shall be construed as a reference to the doing of diligence, and the expression " chattels " means corporeal moveables.

25

• (1) There shall be included among the debts which—

• (a) under section 33 of the Bankruptcy Act 1914 are to be paid in priority to all other debts in the distribution of the property of a bankrupt or deceased debtor; or

• (b) under section 118 of the Bankruptcy (Scotland) Act 1913 are to be paid in priority to all other debts in the division of a bankrupt's estate; or

• (c) under section 319 of the Companies Act 1948 are to be paid in priority to all other debts in the winding up of a company, or under section 94 of that Act are on an appointment of a receiver on behalf of debenture holders or taking of possession by or on behalf of debenture holders to be paid in priority to any claim for principal or interest in respect of the debentures,

any amount which is due by way of the general betting duty or by virtue of section 15(1) of this Act or paragraph 8 or 21(1)(b) of this Schedule from the bankrupt, deceased debtor or company at the relevant date and which became due within twelve months next before that date.

• (2) In the foregoing sub-paragraph, the expression "the relevant date "—

• (a) in relation to section 33 of the Bankruptcy Act 1914 means the date of the receiving order or of the death, as the case may be;

• (b) in relation to section 118 of the Bankruptcy (Scotland) Act 1913 means the date mentioned in subsection (4) of that section;

• (c) in relation to section 319 of the Companies Act 1948 has the meaning assigned to it by that section, and in relation to section 94 of that Act means the date of the appointment of the receiver or taking of possession.

26

Any regulations of the Commissioners under this Schedule shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

SCHEDULE 4.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exclusion and modification of other charges to tax.

1

• (1) Where tax may by virtue of section 25 of this Act (in this Schedule referred to as " the principal section ") become chargeable in respect of any gain which may be realised by the exercise of a right, tax shall not be chargeable under any other provision of the Income Tax Acts in respect of the receipt of the right.

• (2) Sub-paragraph (1) above shall not affect tax chargeable under Case I of Schedule E in respect of the receipt of a right granted before 3rd May 1966, but the amount, if any, on which tax is so chargeable shall be taken into account under paragraph (a) and paragraph (b) of subsection (2) of the principal section in relation to the gain realised by the exercise, or by the assignment or release, of the right as if that amount formed part (in addition to any other amount) of the consideration for the grant of the right.

2

• (1) If a gain chargeable to tax under subsection (1) or subsection (3) of the principal section is realised by the exercise of a right to acquire shares, paragraph 4(1)(a) of Schedule 6 to the Finance Act 1965 (computation of chargeable gains: allowable expenditure) shall apply as if a sum equal to the amount of the gain so chargeable to tax formed part of the consideration given by the person acquiring the shares for their acquisition by him.

• (2) Without prejudice to section 12(4) of the Finance Act 1962 (Case VII of Schedule D: acquisition of assets taken into account as receipts for tax purposes), if a gain chargeable to tax under subsection (1) or subsection (3) of the principal section is realised by the exercise of a right to acquire shares, the amount of the gain or loss accruing to that person on the acquisition and disposal of any of the shares shall be computed for the purposes of the said Case VII as if the acquisition of the shares were for a consideration equal to their market value at the time when the right is exercised.

Power to acquire information from body corporate.

3

• (1) Where in the year 1966-67 or any subsequent year of assessment a body corporate grants a right in respect of which tax may become chargeable by virtue of the principal section, or allots or transfers any shares in pursuance of such a right, or gives any consideration for the assignment or for the release in whole or in part of such a right, or receives written notice of the assignment of such a right, it shall deliver particulars thereof in writing to the inspector not later than thirty days after the end of that year.

• (2) Part III of the Finance Act 1960 (penalties) shall have effect as if this paragraph were included in the third column of Schedule 6 to that Act.

SCHEDULE 5

Payments without deduction of income tax: trading companies owned through a holding company.

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payments by parent company to subsidiary.

2

In the said section 48(7) of the Finance Act 1965 (which applies the conditions in subsection (3) of that section to payments which are charges on income)—

• (a) before the words " the conditions" there shall be added the word " either ", and

• (b) after the word " dividends " there shall be added the words " or the company receiving the payments is a subsidiary (as defined for the purposes of subsection (3) above) of the other company ".

Exemptions in respect of income tax under Schedule F.

3

• (1) For the purposes of section 48(4) of the Finance Act 1965 (which excludes from franked investment income distributions which fall within any exemption from income tax having effect at the passing of that Act) the exemptions conferred by sections 439, 440, 447(1)(b) and 449 of the Income Tax Act 1952 (savings banks, friendly societies, trade unions, charities and certain scientific research associations), and the exemption conferred by section 6(2) of the Atomic Energy Authority Act 1954, shall be deemed to be exemptions which at the passing of the Finance Act 1965 extended to dividends on shares of companies resident in the United Kingdom.

• (2) The said section 447(1)(b) of the Income Tax Act 1952 (which includes an exemption for charities which are not companies) shall apply to income tax accounted for under Schedule 12 to the Finance Act 1965 in respect of distributions charged under Schedule F as it applies to tax chargeable under Schedule D in respect of any yearly interest or other payment, and section 451 of the Income Tax Act 1952 (which extends that exemption to certain museums) shall have effect accordingly.

Covenanted donations to charity.

4

A covenanted donation to charity as defined in section 52(4) of the Finance Act 1965 shall not be regarded for the purposes of the definition of " charges on income" in subsection (2) of that section, or for any of the other purposes of the Corporation Tax Acts, as being (by reason of paragraph 9(1)(b) of Schedule 11 to that Act (meaning of " distribution") or of any other provision of that Schedule) a distribution of the company.

Cases IV and V: interest and other annual payments before 1966-67 to be allowed as a deduction.

5

The amount of any income assessed under Case IV or V of Schedule D as applied by sections 53 and 54 of the Finance Act 1965 to corporation tax shall be treated as reduced by any yearly interest, annuity or other annual payment payable out of the income to a person not resident in the United Kingdom and paid before the year 1966-67.

Interest payable overseas before 1966-67 to be allowed as a deduction.

6

At the end of section 54(3) of the Finance Act 1965 (which prevents interest payable overseas being allowed under section 138 of the Income Tax Act 1952 as a deduction in computing income from a trade) there shall be added the words " in respect of payments made after the year 1965-66 ".

Chargeable gains: assets vested in company liquidator.

7

Where assets of a company are vested in a liquidator under section 244 of the Companies Act. 1948, or section 226 of the Companies Act (Northern Ireland) 1960, or otherwise, sections 55 and 82 of the Finance Act 1965 and the enactments applied by those sections (computation of capital gains accruing to companies) shall apply as if the assets were vested in, and the acts of the liquidator in relation to the assets were the acts of, the company (acquisitions from or disposals to him by the company being disregarded accordingly).

Chargeable gains attributable to investments in life assurance business held for policy holders.

8

• (1) The limit on the rate of corporation tax imposed by section 69(6) of the Finance Act 1965 as it applies to chargeable gains shall be (instead of seven shillings and sixpence in the pound which is equivalent to 37£ per cent.) 37 ½ per cent. or the rate at which capital gains tax is for the time being chargeable under section 20(3) of that Act, whichever is the lower rate.

• (2) In relation to that corporation tax for any accounting period the relevant rate of capital gains tax under the said section 20(3) shall be that for the year of assessment in which that accounting period ends.

• (3) Without prejudice to any other provision of this Act relating to the construction of this Schedule, section 82(6) of the Finance Act 1965 (computation of capital gains tax on companies) shall apply as if its reference to Part IV of that Act included a reference to this paragraph.

Annuity business of assurance companies.

9

• (1) Paragraph (b) of section 69(7) of the Finance Act 1965 (repayment of income tax on franked investment income referable to general annuity business of an assurance company and not brought in as income in treating annuities as charges on income) shall not have effect.

• (2) In computing under section 24 of the Finance Act 1956 as applied to corporation tax by section 69(5) of the Finance Act 1965 the profits arising to an assurance company from general annuity business—

• (a) income chargeable to corporation tax (that is to say charged otherwise than under the said section 24) and franked investment income and group income shall not be taken into account as part of those profits, and

• (b) of the annuities paid by the company and referable to general annuity business, those which under the said section 69(3)(b) are treated as charges on income shall not be deductible and those which are not so treated shall (notwithstanding section 53(5) of the Finance Act 1965) be deductible,

and the reference in the said section 69(3)(b) to income charged to corporation tax shall not be taken as including a reference to income charged under the said section 24 of the Finance Act 1956.

• (3) Any franked investment income which is taken into account under the said section 69(3)(b) to enable annuities referable to general annuity business to be treated as charges on income shall be left out of account under section 48 of the Finance Act 1965, except that for the purposes of this sub-paragraph there shall be deducted from the amount of the franked investment income of the company arising in any accounting period and taken into account under the said section 69(3)(b)—

• (a) the amount of any profit arising in that accounting period to the assurance company from general annuity business and computed under the said section 24 of the Finance Act 1956, and

• (b) the amount of any group income arising in that accounting period to the company and referable in accordance with the said section 24 to its general annuity business.

• (4) Subject to sub-paragraph (5) below—

• (a) the exclusion by section 47(1) of the Finance Act 1965 from the charge to corporation tax of franked investment income shall not prevent such income being taken into account as part of the profits in computing under section 24 of the Finance Act 1956 the profits arising to an assurance company from pension annuity business,

• (b) notwithstanding anything in section 48 of the Finance Act 1965 a company resident in the United Kingdom and carrying on life assurance business shall be entitled to repayment of income tax in respect of franked investment income of the company's annuity fund in so far as it is referable in accordance with the said section 24 to pension annuity business, and

• (c) any franked investment income on which income tax is so repayable shall be left out of account under the said section 48.

• (5) If for any accounting period there is, apart from this sub-paragraph, a profit arising to an assurance company from pension annuity business and computed under the said section 24, and the company so elects as respects all or any part of its franked investment income arising in that period, being an amount of franked investment income not exceeding the amount of the said profit, sub-paragraph (4) above shall not apply to the franked investment income to which the election relates.

If an accounting period falls partly in one income tax year of assessment, and partly in another such year, the power of making elections under this sub-paragraph may be exercised separately for the respective parts of the accounting period as if they were separate accounting periods, and an election under this sub-paragraph shall be made by notice in writing given to the inspector not later than two years after the end of the accounting period, or part of an accounting period, to which the election relates, or within such longer period as the Board may by notice in writing allow.

• (6) In computing under the said section 24 of the Finance Act 1956 the profits arising to an assurance company from pension annuity business—

• (a) group income shall not be taken into account as part of those profits,

• (b) section 53(5) of the Finance Act 1965 shall not prevent annuities paid by the company being deductible.

• (7) In section 69 of the Finance Act 1965, in subsection (5) the words from " and the exclusion" to the end, and in subsection (7) the words from " but notwithstanding " to the end (which are superseded by this paragraph) shall cease to have effect.

Apportionment for surtax of close company's income.

10

• (1) In section 78(4) of the Finance Act 1965 (which relates the amount of a close company's income apportioned for surtax to the amount of the assessment in respect of the shortfall in its distributions) for the words " and the amount apportioned shall be the amount of that assessment " there shall be substituted the words " and the amount apportioned shall be the amount of the shortfall taken into account in making that assessment. "

• (2) The set off of a surplus of franked investment income against a shortfall under section 77(5) of the Finance Act 1965 shall, so far as it reduces the shortfall, be effected by discharge of the tax assessed under subsection (1) of the said section 77 by reference to the shortfall and accordingly shall not be taken as reducing the amount of the shortfall for the purposes of the said section 78(4).

11

• (1) For the purposes of section 78(5) of the Finance Act 1965 (apportionments and sub-apportionments for surtax according to interests of participators) a loan creditor shall be deemed to have an interest in any company which is an investment company to the extent that the income to be apportioned or assets representing it has or have been expended or applied, or is or are available to be expended or applied, in redemption or repayment or discharge of the loan capital or debt (including any premium thereon) in respect of which he is a loan creditor.

• (2) In this paragraph " investment company " means a company whose income consists wholly or mainly of investment income, construing " investment income " in accordance with paragraph 8(1) of Schedule 18 to the Finance Act 1965.

Termination of capital gains tax on companies.

12

• (1) Section 82(1) of the Finance Act 1965 (which relates to companies which have not come within the charge to corporation tax in respect of any source of income or part of a source) shall not apply to any chargeable gain or allowable loss accruing after the end of the year 1965-66 and for the purposes of that subsection a company is within the charge to corporation tax mentioned in that subsection at any time after the end of that year.

• (2) If a chargeable gain or allowable loss accrues to a company after the end of the year 1965-66 and at a time not otherwise within an accounting period of the company, an accounting period of the company shall then begin for the purposes of corporation tax, and the gain or loss shall accrue in that accounting period.

Meaning of " distribution ".

13

• (1) Schedule 11 to the Finance Act 1965 (which defines the distributions which are to be company distributions for the purposes of Part IV of that Act) shall be amended as follows.

• (2) In paragraph 1(1)(c) before the word " security" (in both places) there shall be inserted the word " any " (so that paragraph (c) applies to securities whether redeemable or not).

• (3) Paragraph 1(1)(d)(i) (distributions to include interest, etc. on securities within that paragraph (c)) shall not apply in relation to securities issued before 6th April 1965.

• (4) In paragraph 1(1)(d)(iv) (distributions to include interest, etc. on securities issued to a non-resident company which is a subsidiary or in the same group of companies) for the words " issued by the company to a company not resident " there shall be substituted the words " issued by the company and held by a company not resident ".

• (5) At the end of the said paragraph 1(1)(d) there shall be added the following paragraph—

(v) securities which are connected with shares in the company, where ' connected with ' means that in consequence of the nature of the rights attaching to the securities or shares, and in particular of any terms or conditions attaching to the right to transfer the shares or securities, it is necessary or advantageous for a person who has, or disposes of or acquires, any of the securities also to have, or to dispose of or to acquire, a proportionate holding of the shares

.

Bonus issues following repayment of share capital to be treated as distributions : exclusion of repayment of preference shares.

14

• (1) Paragraph 1(3) of the .said Schedule 11 (repayment of share capital followed by bonus issue) shall not apply where the repaid share capital consists of fully paid preference shares—

• (a) if those shares existed as issued and fully paid preference shares on 6th April 1965 and throughout the period from that date until the repayment those shares continued to be fully paid preference shares, or

• (b) if those shares were issued after 6th April 1965 as fully paid preference shares wholly for new consideration not derived from ordinary shares and throughout the period from their issue until the repayment those shares continued to be fully paid preference shares.

• (2) In this paragraph—

• " ordinary shares " means shares other than preference shares ;

• " preference shares " means shares— which do not carry any right to dividends other than dividends at a rate per cent. of the nominal value of the shares which is fixed, or fluctuates only with the standard rate of income tax, and which carry rights in respect of dividends and capital which are comparable with those general for fixed-dividend shares quoted on stock exchanges in the United Kingdom,

• " new consideration not derived from ordinary shares " means new consideration (that is, as defined in Part I of the said Schedule 11) other than consideration consisting of the surrender, transfer or cancellation of ordinary shares of the company or any other company or consisting of the variation of rights in ordinary shares of the company or any other, company, and other than consideration derived from a repayment of share capital paid in respect of ordinary shares of the company or of any other company.

• (3) This paragraph shall be construed as if contained in the said Schedule 11.

Chargeable gains of groups of companies.

15

• (1) In Part I of Schedule 13 to the Finance Act 1965 references to a company shall include references to any company resident in the United Kingdom which is constituted under any Act, Royal Charter or Letters Patent or is formed under the law of a country or territory outside the United Kingdom.

• (2) This paragraph, so far as it affects capital gains tax under section 82 of the Finance Act 1965, has effect from the beginning of the year 1965-66.

Transitory provisions as to right to set capital allowances against general income.

16

• (1) Section 20 of the Finance Act 1954 (under which, as amended by section 18 of the Finance Act 1962, capital allowances for a year of assessment may be included in a claim for a loss sustained in the year of assessment which is the basis year) shall, notwithstanding the words "but not after the year 1964-65" in paragraph 20(1) of Schedule 15 to the Finance Act 1965, apply in relation to claims by a company for losses sustained in the year 1965-66, and sub-paragraph (2) of the said paragraph 20 (under which relief for a loss in the year 1965-66 may, so far as it cannot be given against income tax, be given against corporation tax) shall apply accordingly.

• (2) For the purpose of the said section 20 as applied by sub-paragraph (1) above the company shall be treated, in a case where the year 1965-66 is not the basis year for the year itself, on the footing that—

• (a) section 46(2) of the Finance Act 1965 (which excludes companies from the charge to income tax after the year 1965-66) did not apply in relation to the trade in question, and

• (b) the period on the profits or gains of which income tax for the year 1966-67 would fall to be finally computed were the twelve months starting at the time at which the company came within the charge to corporation tax in respect of the trade,

and relief under the said section 20 may be given accordingly by reference to what, on that footing, would have been the company's capital allowances for the year 1966-67 for income tax purposes.

• (3) Relief in respect of the same matter shall not be given both in a manner authorised under this paragraph and in some other manner.

Dividend stripping: transition from Income Tax Acts to Corporation Tax Acts.

17

• (1) This paragraph has effect as respects the application by paragraph 7(2)(b) of Schedule 17 to the Finance Act 1965 (computation of profits or losses for periods before 1966-67 in relation to distributions made in or after that year) of paragraph 5 of Schedule 3 to the Finance (No. 2) Act 1955.

• (2) In applying the said paragraph 5 no regard shall be had to any investment allowances, initial allowances or balancing charges, to any scientific research allowance in respect of expenditure incurred after 5th November 1962, or to so much of any writing down allowance made at a rate determined under section 38 or 39 of the Finance Act 1963 (free depreciation in development districts) or under section 14 of the Finance Act 1965 (annual allowances for new ships) as exceeds an allowance at a yearly rate of fifteen per cent. of the relevant amount of expenditure.

Close companies: meaning of " associate ".

18

• (1) Paragraph 5(c) of Schedule 18 to the Finance Act 1965 (associate of participator to include, where the participator is interested in shares or obligations of the company subject to any trust, any other person interested) shall not apply so as to make an individual an associate as being entitled or eligible to benefit under the trust—

• (a) if the trust relates exclusively to a fund or scheme approved under section 379 or section 388 of the Income Tax Act 1952 (superannuation funds and retirement schemes) or to a scheme the whole of which is an " excepted provident fund or staff assurance scheme or other similar scheme " as defined in section 390 of that Act, or

• (b) if the trust is exclusively for the benefit of the employees, or the employees and directors, of the company or their dependants (and not wholly or mainly for the benefit of directors or their relatives), and the individual in question is not in receipt of remuneration from the company of more than £4,000 per annum and is not (and could not as a result of the operation of the trust become) either on his own or with his relatives the beneficial owner of more than 5 per cent. of the ordinary share capital of the company.

• (2) In applying sub-paragraph (1)(b) above any charitable trusts which may arise on the failure or determination of other trusts shall be disregarded.

• (3) In this paragraph—

• " director " has the same meaning as in Schedule 18 to the Finance Act 1965,

• " ordinary share capital " has the same meaning as in paragraph 6(2) of the said Schedule 18,

• " relative " means husband or wife, parent or remoter forebear, child or remoter issue, or brother or sister, and

• " remuneration " shall be construed in accordance with section 71 of the Finance Act 1948 (remuneration for profits tax purposes), references to the individual and to this paragraph being substituted for references to a director, and to paragraph 11 of Schedule 4 to the Finance Act 1937, but applying that definition to any office held by the individual as director of the company, as well as to any employment.

Transitional relief for company with overseas trading income which is a member of a group

19

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Commencement.

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 6

Duty to give notice of liability to corporation tax.

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Returns.

2

• (1) A company may be required by a notice served on the company by an inspector or other officer of the Board to deliver to the officer within the time limited by the notice a return of the profits of the company computed in accordance with the Corporation Tax Acts—

• (a) specifying the income taken into account in computing those profits, with the amount from each source,

• (b) giving particulars of all disposals giving rise to chargeable gains or allowable losses under Parts III and IV of the Finance Act 1965, and particulars of those chargeable gains or allowable losses, and

• (c) giving particulars of all charges on income to be deducted against those profits for the purpose of the assessment to corporation tax.

• (2) A notice under this paragraph may require a return of profits arising in any period during which the company was within the charge to corporation tax.

• (3) Every return under this paragraph shall include a declaration to the effect that the return is correct and complete.

• (4) A return under this paragraph which includes profits which are payments on which the company has borne income tax by deduction shall specify the amount of income tax so borne.

• (5) A notice under this paragraph may require the inclusion in the return of particulars of management expenses, capital allowances and balancing charges which have been taken into account in arriving at the profits included in the return.

• (6) Paragraph 6 of Schedule 10 to the Finance Act 1965 (power to demand information about the acquisition of assets) shall apply in relation to a notice under this paragraph as it applies in relation to a notice under section 7 of the Income Tax Management Act 1964.

• (7) Section 31 of the Income Tax Act 1952 (production of books and accounts) shall apply where a company is required to make, or makes, a return under this paragraph relating to profits which consist of or comprise those arising from a trade as it applies where a person is required to make, or makes, a return for the purposes of income tax of the profits or gains arising to him from any trade.

3

• (1) If any company has been required by a notice served under paragraph 2 of this Schedule to deliver a return and the company fails to comply with the notice the company shall be liable, subject to sub-paragraph (3) of this paragraph—

• (a) to a penalty not exceeding, except in the case mentioned under sub-paragraph (2) of this paragraph, fifty pounds, and

• (b) if the failure continues after it has been declared by the court or Commissioners before whom proceedings for the penalty have been commenced, to a further penalty not exceeding ten pounds for each day on which the failure so continues.

• (2) If the failure continues after the end of the period of two years beginning with the date on which the notice was served, the penalty under sub-paragraph (1)(a) above shall be an amount not exceeding the aggregate of fifty pounds and the total amount of the tax with which the said company is charged (whether for one or more accounting periods) in assessments to corporation tax—

• (a) based wholly or partly on any profits that ought to have been included in the return required by the notice, and

• (b) made after the end of the said period of two years,

and in arriving at the amount of corporation tax with which the company is so charged no account shall be taken of any income tax which under section 48(6) or section 50(3) of the Finance Act 1965 (income tax borne by deduction from receipts) may be set off against corporation tax.

• (3) Except in the case mentioned in sub-paragraph (2) above, the company shall not be liable to any penalty incurred under this paragraph for failure to comply with a notice, if the failure is remedied before proceedings for the recovery of the penalty are commenced.

• (4) If in proceedings under this paragraph it is proved that there were no profits to be included in the return, the penalty under this paragraph shall not exceed five pounds.

• (5) The Finance Act 1960 shall have effect as if this and the next following paragraph were contained in Part III of that Act (provisions relating to penalties).

4

• (1) Where a company fraudulendy or negligently—

• (a) delivers an incorrect return under paragraph 2 of this Schedule, or

• (b) makes any incorrect return, statement or declaration in connection with any claim for any allowance, deduction or relief in respect of corporation tax, or

• (c) submits to an inspector or any Commissioners any incorrect accounts in connection with the ascertainment of the company's liability to corporation tax,

the company shall be liable to a penalty not exceeding the aggregate of—

• (i) fifty pounds, and

• (ii) the amount or, in the case of fraud, twice the amount of the difference specified in sub-paragraph (2) below.

• (2) The difference is that between—

• (a) the amount of corporation tax payable by the said company for the accounting period or accounting periods comprising the period to which the return, statement, declaration or accounts relate, and

• (b) the amount which would have been the amount so payable if the return, statement, declaration or accounts had been correct.

• (3) Section 47(3) and section 48(3) of the Finance Act 1960 (failure to correct an error not made fraudulently or negligently and presumption as to accounts submitted by one person on behalf of another) shall apply for the purposes of this paragraph as they apply for the purposes of the said section 47.

5

• (1) Section 66 of the Income Tax Act 1952 (relief in respect of error or mistake in returns) shall apply in relation to corporation tax as it applies in relation to income tax under Schedule D.

• (2) Any return under the Corporation Tax Acts shall be in such form as the Board prescribe.

• (3) In this paragraph " return " includes any statement, declaration or list.

Assessments to corporation tax.

6

• (1) Section 5 of the Income Tax Management Act 1964 (assessments to income tax) shall apply in relation to corporation tax as it applies in relation to income tax chargeable under Schedule D at the standard rate and assessable by the inspector, taking " return of income " in the said section 5(1)(b) as a return under paragraph 2 of this Schedule.

• (2) An appeal may be brought against an assessment to corporation tax by a notice in writing given to the inspector within thirty days after the date of the notice of assessment.

• (3) An appeal against an assessment to corporation tax relating exclusively to the relief to be given under section 57(1) of the Finance Act 1965 (management expenses) shall lie to the Special Commissioners, and, if and so far as the question in dispute on any appeal against an assessment to corporation tax which does not lie to the Special Commissioners relates to that relief, that question shall, instead of being determined on the appeal, be referred to and determined by the Special Commissioners, and the provisions of the Income Tax Acts as applied to appeals under the Corporation Tax Acts shall apply as if that reference were an appeal.

• (4) Subject to sub-paragraph (3) above, to section 44 of the Finance Act 1965 (which makes special provision for appeals relating to certain chargeable gains) and to any other express provision, an appeal against an assessment to corporation tax shall lie to the General Commissioners, except that the appellant may elect (in accordance with section 12(2) of the Income Tax Management Act 1964) to bring the appeal before the Special Commissioners instead of the General Commissioners.

• (5) Section 63 of the Income Tax Act 1952 (grounds of appeal to be stated and recovery of tax not in dispute) shall apply to any assessment to corporation tax as it applies to an assessment to income tax under Schedule D, and section 13 of the Income Tax Management Act 1964 shall have effect accordingly.

7

• (1) Subject to the two next following paragraphs, and to any other provisions of the Corporation Tax Acts allowing a longer period in any particular class of case, an assessment to corporation tax may be made at any time not later than six years after the end of the accounting period to which the assessment relates.

• (2) An objection to the making of any assessment to corporation tax on the grounds that the time limit for making it has expired shall only be made on an appeal against the assessment.

8

• (1) The proviso to section 47(1) of the Income Tax Act 1952 (which allows assessments to be made at any time in cases of fraud or wilful default) shall, as an exception to the last foregoing paragraph as well as to that subsection, apply to corporation tax, and section 6 of the Income Tax Management Act 1964 (leave of General or Special Commissioners) shall apply accordingly.

• (2) Section 58 of the Finance Act 1960 (assessment in cases of fraud, wilful default or neglect: payment of interest) shall apply in relation to corporation tax as it applies in relation to income tax, but for the purposes of that section as so applied the date when tax charged for any accounting period ought to have been paid shall be nine months from the end of the accounting period or, where section 80(3) of the Finance Act 1965 applies, at the end of the interval mentioned in that subsection (without the alternative of one month from the making of the assessment); and subsection (2) of the said section 58 shall not apply.

9

• (1) Where, for the purpose of making good to the Crown a loss of tax wholly or partly attributable to the fraud, wilful default or neglect of any person, an assessment to corporation tax for any accounting period (in this paragraph referred to as " the normal accounting period ") beginning before or after the passing of this Act has been made on him not later than six years after the end of that accounting period, assessments to corporation tax, income tax and the profits tax for earlier accounting periods, years of assessment and chargeable accounting periods may, to the extent provided by the following provisions of this paragraph, be made on him notwithstanding that, but for this paragraph, they would be out of time.

• (2) No assessment under this paragraph shall be made on any person except for the purpose of making good to the Crown a loss of tax attributable to his neglect.

• (3) An assessment under this paragraph for any accounting period, year of assessment or chargeable accounting period ending not earlier than six years before the end of the normal accounting period may be made at any time not later than one year after the time when the tax covered by the assessment mentioned in sub-paragraph (1) above is finally determined.

Section 6 of the Income Tax Management Act 1964 (leave of General or Special Commissioners) shall apply to an assessment under this sub-paragraph.

• (4) An assessment under this paragraph for any accounting period, year of assessment or chargeable accounting period ending earlier than six years before the end of the normal accounting period may only be made with the leave of the General or Special Commissioners, given under the following provisions of this paragraph.

• (5) Where an assessment for any accounting period, year of assessment or chargeable accounting period (in this paragraph referred to as " the earlier period ") has been made on any person more than six years after the end of that period—

• (a) under this paragraph, or

• (b) in the circumstances mentioned in sub-paragraph (6) below, under section 47(1) proviso of the Income Tax Act 1952,

and it appears to the General or Special Commissioners, on an application made to them not later than one year after the tax covered by the assessment for the earlier period is finally determined, that there are reasonable grounds for believing that tax for an accounting period, year of assessment or chargeable accounting period ending not earlier than six years before the end of the earlier period was or may have been lost to the Crown owing to the neglect of that person, they may give leave for the making on him of an assessment under this paragraph for that accounting period, year of assessment or chargeable accounting period.

• (6) The circumstances referred to in sub-paragraph (5)(b) above are that the assessment for the earlier period was one of a number of assessments made on that person for the purpose mentioned in sub-paragraph (1) above and that of the accounting periods, years of assessment and chargeable accounting periods for which those assessments were made—

• (a) the latest, apart from the normal accounting period, ended not more than six years before the end of the normal accounting period,

• (b) the next, if any, ended not more than six years before the end of the said latest accounting period, year of assessment or chargeable accounting period,

and so on for any earlier accounting periods, years of assessment or chargeable accounting periods.

• (7) An application for leave under sub-paragraph (5) above may be made by the inspector or any person nominated for that purpose by the Board, and on any such application the person to be assessed shall be entitled to appear and be heard.

• (8) In determining the amount of the tax to be charged for any accounting period, year of assessment or chargeable accounting period in any assessment made under this paragraph effect shall be given, if the person to be assessed so requires, to any relief or allowance to which he would have been entitled for that accounting period, year of assessment or chargeable accounting period on a claim or application made within the time allowed by the Corporation Tax Acts, the Income Tax Acts or the enactments relating to the profits tax, as the case may be.

• (9) For the purposes of this paragraph the year 1965-66 and any earlier year of assessment, and any chargeable accounting period, is to be regarded as earlier than any corporation tax accounting period.

• (10) The Finance Act 1960 shall have effect as if this paragraph were contained in Part III of that Act (provisions relating to penalties).

10

For the purpose of making assessments to income tax for the year 1965-66 and earlier years of assessment section 52 of the Finance Act 1960 (time limit for recovery from taxpayer of tax lost through his fault: partnerships) shall apply in relation to the last foregoing paragraph as it applies in relation to section 51 of the Finance Act 1960, but as if references in the said section 52 to the normal year were references to the normal accounting period, and with any other necessary modifications.

Claims relating to corporation tax.

11

• (1) Section 9 of the Income Tax Management Act 1964 shall apply to any claim for relief from corporation tax (that is where the enactment affording relief directs that it is to be given on the making of a claim).

• (2) Except as otherwise expressly provided, no relief from corporation tax shall be allowed unless it is claimed within six years from the end of the accounting period to which it relates.

• (3) Claims under section 56(6) and section 58(2) of the Finance Act 1965 (set-off of capital allowances and trading losses falling to be made for, or incurred in, an accounting period against profits of that accounting period or earlier profits) must be made within two years from the end of that accounting period.

• (4) A claim under section 58(1) or section 60 of the Finance Act 1965 (carry forward of trading losses and of losses against income chargeable under Schedule D Case VI), shall be made within six years after the end of the accounting period in which the loss is incurred, and shall be so made notwithstanding that relief cannot be given in respect of the loss until after the end of that period of six years.

• (5) A claim under section 59 of the Finance Act 1965 (terminal loss) shall be made within six years from the time when the company ceases to carry on the trade.

• (6) A claim to which section 9 of the Income Tax Management Act 1964 shall apply shall be required to obtain the relief by way of discharge or repayment of tax which may be given—

• (a) under section 61 of the Finance Act 1965 (company reconstructions without change of ownership), or

• (b) section 87(8) of that Act (transitional relief for existing companies on cessation of trade),

and after the making of a claim for relief under the said section 87(8) in respect of a trade no notice as regards the trade shall be given or revoked under section 129 of the Income Tax Act 1952 or section 80(6) of the Finance Act 1965 (period of computation of profits for second and third years of trade).

• (7) An appeal under section 9 of the Income Tax Management Act 1964 as applied by this Schedule or by any other provision of the Corporation Tax Acts shall lie to the General Commissioners except that the appellant may elect (in accordance with section 12(2) of the Income Tax Management Act 1964) to bring the appeal before the Special Commissioners instead of the General Commissioners.

• (8) Nothing in this paragraph shall affect the provisions of any other enactment which determines whether a claim is to be made to an inspector or the Board or whether an appeal on a claim lies to the General Commissioners or the Special Commissioners.

Proceedings before Commissioners, etc.

12

• (1) Sections 11, 12, 14 and 15 of the Income Tax Management Act 1964 (proceedings before General and Special Commissioners) shall apply for the purposes of corporation tax as for the purposes of income tax.

• (2) The said sections shall apply in relation to proceedings before the General Commissioners which relate to corporation tax, or where a company resident in the United Kingdom and within the charge to corporation tax is a party to proceedings which relate to income tax, as if sub-paragraph (3) below were substituted for Schedule 3 to the said Act of 1964.

• (3) Such proceedings shall be brought before the General Commissioners for the division in which the company or other body concerned carries on its trade or business, or in which its head office or principal place of business is situated, or where it resides, but subject to sections 143 and 329 of the Income Tax Act 1952 (which relate to proceedings to which more than one taxpayer may be a party) and to any other express provisions of the Corporation Tax Acts.

• (4) Section 510 of the Income Tax Act 1952 (settlement of appeals) shall apply for the purposes of corporation tax as for the purposes of income tax.

• (5) General or Special Commissioners or other persons who made declarations in the form in Part I of Schedule 1 to the Income Tax Management Act 1964, or in the form in Schedule 2 to the Income Tax Act 1952, before the coming into force of paragraph 16 of Schedule 10 to the Finance Act 1965 (which included in the form of declaration a reference to the new taxes imposed by that Act) shall be subject to the same obligations as to secrecy with respect to those taxes as they are subject to with respect to income tax.

Application of income tax administrative provisions to corporation tax.

13

The provisions of the Income Tax Acts specified in this paragraph shall apply in relation to corporation tax as they apply in relation to income tax.

• Chapter IV of Part II of the Income Tax Act 1952, except section 72, and section 8 of the Income Tax Management Act 1964 (collection).

• Sections 500 to 505 of the Income Tax Act 1952 (penalties), together with section 55 of the Finance Act 1960 so far as it relates to the said section 505.

• Sections 513 and 514 of the Income Tax Act 1952 (loss of documents and provisions as to forms).

• Section 515(1), (3), (4) and (5) of the Income Tax Act 1952 (service of notices).

• Section 520 of the Income Tax Act 1952 (exemption from stamp duty).

• Section 29 of the Finance Act 1953 (assessments in Scilly Isles).

• Section 50 of the Finance Act 1960 (penalty for assisting in making incorrect return etc.).

• Section 54 of the Finance Act 1960 (time limit for certain penalty proceedings), with a reference in subsection (3) of that section to paragraph 9 of this Schedule as well as to section 51 of that

• Section 56 of the Finance Act 1960 (recovery of fines and penalties).

• Section 3 of the Income Tax Management Act 1964 (inspectors and collectors).

• Paragraph 7 of Schedule 7 to the Finance Act 1964 (extended time limit for making assessments consequent on provisions about leases to traders and others).

Priority of corporation tax and other tax in liquidation

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Procedure for determining certain apportionments.

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Claims for repayment of income tax deducted from receipts.

16

Effect shall be given to section 46(2) of the Finance Act 1965, and to that section as modified by sections 48(6) and 50(3) of that Act (set-off of income tax deducted from company receipts against corporation tax assessable on the company) and, so far as the exemptions from income tax conferred by the Corporation Tax Acts call for repayment of tax, effect shall be given to those exemptions, by means of a claim to which section 9 of the Income Tax Management Act 1964 shall apply.

Income tax on company distributions, etc.

17

• (1) In section 5 of the Income Tax Management Act 1964 (assessments to income tax) references to assessments to tax at the standard rate shall include references to assessments under paragraph 1(3), and sub-paragraphs (4) and (5) of paragraph 2, of Schedule 12 to the Finance Act 1965 (tax on company distributions, etc.).

• (2) An appeal against an assessment under the said Schedule 12 shall be to the General Commissioners except that the appellant may elect (in accordance with section 12(2) of the Income Tax Management Act 1964) to bring the appeal before the Special Commissioners instead of the General Commissioners.

• (3) Part III of the Finance Act 1960 (penalties) shall have effect as if paragraph 2(1) of the said Schedule 12 (returns) were included in column 3 of Schedule 6 to that Act.

• (4) It is hereby declared that section 506 of the Income Tax Act 1952 (refusal to allow deduction of tax) applies in relation to any deduction of income tax authorised by Part IV of the Finance Act 1965 to be made out of any payment.

Franked investment income.

18

• (1) Section 9 of the Income Tax Management Act 1964 shall apply to any claim for relief under section 62 of the Finance Act 1965 (set-off of losses, etc. against franked investment income).

• (2) The time limits for claims under the said section 62 shall be as follows—

• (a) if and so far as the purpose for which the claim is made is the deduction of charges on income under section 52 of the Finance Act 1965 or of expenses of management under section 57 of that Act, six years from the end of the accounting period in which the charges were paid or the expenses of management were incurred,

• (b) if and so far as the purpose for which the claim is made is the setting of capital allowances against total profits under section 56(6) of the said Act, or the setting of trading losses against total profits under section 58(2) of that Act, two years from the end of the year of assessment in which falls the end of the accounting period for which the capital allowances fall to be made or, as the case may be, in which falls the end of the accounting period in which the trading loss is incurred,

• (c) if and so far as the purpose for which the claim is made is the allowance of relief under section 58(1) of the said Act against a trading loss (that is one carried forward from an earlier accounting period), six years from the end of the year of assessment for which the claim under subsection (7) of the said section 62 is made,

• (d) if and so far as the purposes for which the claim is made is the allowance of relief under section 59 of the said Act (terminal losses), six years from the time when the company ceases to carry on the trade.

19

• (1) A claim for relief under section 85 of the Finance Act 1965 (transitional relief for companies paying dividends out of pre-1966-67 profits), and the election provided by this Act for a notional surplus by reference to a three year surplus instead of a one year surplus, must be made not later than the end of the year 1970-71.

• (2) Any adjustment, whether by way of repayment of tax, assessment or otherwise, required to be made under Schedule 12 to the Finance Act 1965 or otherwise in consequence of allowing a claim under the said section 85 may be made at any time.

Tax on close companies at standard rate of income tax.

20

• (1) Tax assessable under section 75, 76 or 77 of the Finance Act 1965 (in this paragraph referred to as " the tax ") shall, subject to any appeal against the assessment, be due within fourteen days after the issue of the notice of assessment.

• (2) The provisions of the said sections 75, 76 and 77 directing that the tax be assessed and recoverable as if it were an amount of income tax shall be taken as applying, subject to this and the next following paragraph, and subject to any necessary modifications, all enactments applying generally to income tax, including those relating to the assessing, collecting and receiving of income tax, those conferring or regulating a right of appeal and those concerning administration, penalties, interest on unpaid tax and priority of tax in cases of insolvency under the law of any part of the United Kingdom.

• (3) Proceedings before the General Commissioners which relate to the tax shall be brought before the General Commissioners for the division in which the company concerned carries on its trade or business, or in which its head office or principal place of business is situated, or where it resides, and the Income Tax Management Act 1964 as applied by sub-paragraph (2) above shall have effect as if the foregoing provisions of this paragraph were substituted for Schedule 3 to that Act.

• (4) Sections 62, 63 and 66 of the Income Tax Act 1952 (which make special provision for Schedule D in relation to appeals and to relief in respect of error or mistake) shall apply to any assessment of the tax as if it were an assessment under Schedule D and section 13 of the Income Tax Management Act 1964 shall have effect accordingly.

• (5) Section 495 of the Income Tax Act 1952 (interest on overdue income tax) shall apply in relation to the tax as it applies to income tax charged by an assessment under Schedule D, except that subsection (2) and paragraph (a) of subsection (3) (remission of interest on tax less than three months overdue and on assessments for less than one thousand pounds) shall not apply.

• (6) For the purposes of section 58 of the Finance Act 1960 (interest on tax due from taxpayer in default) as applied by sub-paragraph (2) above, the date when the tax charged ought to have been paid shall be taken to be—

• (a) for tax under sections 75 and 76, the first day of the year of assessment following that in which the loan or advance (for tax under section 75) or the payment or consideration (for tax under section 76) was made or given, and

• (b) for tax under section 77, the first day after the period of twelve months from the end of the accounting period for which there is a shortfall.

• (7) The powers of obtaining information under section 250(4) and (5) and section 264 of the Income Tax Act 1952 conferred on the Board in relation to section 78 of the Finance Act 1965 by paragraph 10 of Schedule 18 to that Act shall be exercisable by the inspector in relation to sections 74, 75, 76 and 77 of that Act.

21

• (1) Relief under section 75(2) of the Finance Act 1965 shall be given on a claim, and section 9 of the Income Tax Management Act 1964 shall apply to any claim under section 75(2), 77(5) or 77(6) of the Finance Act 1965.

• (2) The time limit for making any such claim shall be—

• (a) for a claim under section 75(2) six years from the end of the year of assessment to which the claim relates,

• (b) for a claim under section 77(5) two years from the end of the year of assessment to which the claim relates,

• (c) for a claim under section 77(6) six years from the end of the later accounting period mentioned in that subsection,

and, notwithstanding paragraph 20(2) of this Schedule, section 507 of the Income Tax Act 1952 shall not apply to any such claim.

Apportionment for surtax of close company's income.

22

• (1) An assessment under section 77 of the Finance Act 1965 (shortfall in distributions of close company: income tax at standard rate) when it becomes final and conclusive shall also be final and conclusive for the purposes of section 78(4) of that Act (which, subject to certain exceptions, directs that the amount apportioned for surtax under that section shall be the amount of the shortfall taken into account under the said section 77).

• (2) Subject to the right of appeal conferred by section 248(3) of the Income Tax Act 1952 as applied by paragraph 10 of Schedule 18 to the Finance Act 1965, an apportionment under section 78 of the Finance Act 1965 shall be final and conclusive.

• (3) For surtax assessed under section 249 of the Income Tax Act 1952 as applied by the said section 78 " seven years" shall be substituted for " six years " in sections 47(1) (as applied by section 229(3)) and 66(1) of the Income Tax Act 1952 and in section 51(1) of the Finance Act 1960.

• (4) In subsections (3) and (4) of section 249 of the Income Tax Act 1952 for the words " participator of the company " there shall be substituted the word " participator " , and where those subsections apply, in consequence of a sub-apportionment under the said section 78, in relation to a participator of a company other than the company whose income is apportioned, references in those subsections (with the amendments made by the foregoing provisions of this sub-paragraph) to the company shall be taken as references to the company whose income is apportioned.

Transitional relief for existing companies with overseas trading income

23

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Responsibility of company officers.

24

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Alteration of accounting periods.

25

So much of section 51(7) of the Finance Act 1965 (which relates to the adjustments required where the true accounting period of a company is established on appeal) as extends the time within which assessments may be made shall apply to assessments to income tax under section 77 of the Finance Act 1965 as well as to assessments to corporation tax.

Service of documents by post.

26

Any notice or other document required or authorised to be served on or given to any person by an inspector or other officer of the Board under any provision of the Corporation Tax Acts (including the provisions of the Income Tax Acts so far as they apply by virtue of this Schedule or otherwise for the purposes of the provisions of Part IV of the Finance Act 1965 relating to income tax) may be served by post.

Interpretation.

27

• (1) In the provisions of the Income Tax Acts as applied by this Schedule in relation to corporation tax—

• (a) for references to years of assessment there shall be substituted references to accounting periods,

• (b) for references to income (or profits or gains chargeable to income tax) there shall be substituted references to profits,

• (c) for references to the Income Tax Acts there shall be substituted references to the Corporation Tax Acts.

• (2) It is hereby declared that any reference in this Schedule to a provision of the Income Tax Acts for which a penalty is imposed by some other provision, in Part III of the Finance Act 1960 or elsewhere, includes a reference to that other provision.

• (3) In this Schedule " the Board " means the Commissioners of Inland Revenue.

• (4) Any reference in this Schedule to the General Commissioners shall, in Northern Ireland, be taken as a reference to the Special Commissioners.

SCHEDULE 7.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART I — Three Year Surplus of Members of Groups of Companies

Reduction of three year surplus of company paying dividends to fellow member of a group.

1

The three year surplus of a company which is a member of a group of companies as calculated in accordance with section 85 of the Finance Act 1965 without this paragraph shall be reduced in the proportion which reduces the amount of the company's dividends taken into account under subsection (2)(b) of the said section to the amount of those dividends paid to persons other than members of the group of companies (and so that if all those dividends are paid to members of the group of companies the three year surplus shall be reduced to nothing).

Increase in certain circumstances of three year surplus of company receiving dividends from fellow member of a group.

2

• (1) Where—

• (a) the distributable profits of a company which is a member of a group include dividends paid by one or more other members of the group, and

• (b) one or more of those other members of the group has a notional surplus which is a three year surplus which is reduced under paragraph 1 of this Schedule, and part of the reduction is attributable to the company,

the company's three year surplus shall be increased by (or, if otherwise of a nil amount, shall consist of) the amount, if any, produced by sub-paragraphs (2) and (3) of this paragraph.

• (2) The said amount shall not exceed the aggregate of the parts of the reductions within sub-paragraph (1)(b) above which are attributable to the company.

• (3) Subject to sub-paragraph (2) above, the said amount shall be the excess of—

• (a) what the company's excess of dividends over distributable profits would be if the dividends paid to the company by each member of the group within sub-paragraph (1)(b) above were reduced by an amount equal to the company's part of that member's excess of dividends over distributable profits, over

• (b) what the company's excess of dividends over distributable profits actually is,

(and so that if there is no actual excess at (b) the said amount is, subject to sub-paragraph (2) above, the amount at (a)).

• (4) In this paragraph—

• (a) " excess of dividends over distributable profits" in relation to any company, means the excess of the company's dividends at paragraph (a) of the said section 85(6) over its distributable profits at paragraph (b) of that subsection without any adjustment under paragraph (c) of that subsection (relief in respect of overseas trading income),

• (b) " the company's part", in relation to another member, means the proportion of that other member's dividends at paragraph (a) of the said section 85(6) which the part paid to the company bears to the whole,

• (c) references to the part of a reduction in another member's three year surplus which is attributable to the company are references to a part of the reduction which bears to the whole the same proportion as the amount of that other member's dividends at paragraph (a) of the said section 85(6) paid to the company bears to all those dividends except for any paid to persons who are not members of the group of companies.

• (5) An addition to a three year surplus under this paragraph shall be made before any reduction to be made in it under paragraph 1 of this Schedule.

Election for three year surplus instead of one year surplus.

3

A company having a three year surplus which is reduced under paragraph 1 of this Schedule may elect that its notional surplus under the said section 85 shall be its three year surplus notwithstanding that its one year surplus is greater.

Three year surplus: subsidiary retaining part of distributable profits.

4

• (1) Where throughout a period consisting of the whole or a part of the three financial years 1966, 1967 and 1968 a company is a member of a group of companies and is the beneficial owner of part of the ordinary share capital of another member of the group (in this paragraph called " the appropriate part"), and—

• (a) the amount of the dividends on ordinary share capital paid by that member to the company in the period is less than

• (b) the appropriate part of that member's distributable profits arising in the period, after deducting the amount required to meet dividends which are not on ordinary share capital and which are paid by that member in the period,

the distributable profits of the company to be taken into account as franked investment income or group income under paragraph (b)(i) of the said section 85(6) shall not include the dividends at (a) above but shall include a sum equal to that at (b) above.

• (2) For the purpose of arriving under this paragraph at a member's distributable profits arising in any period—

• (a) the distributable profits of any financial year which falls wholly or partly within the period shall be ascertained on the principles set out in subsection (6)(b) of the said section 85 for ascertaining the distributable profits for the three financial years, and shall be so ascertained whether or not the member is entitled to relief by reference to a three year surplus,

• (b) if part only of the financial year falls within the period, the distributable profits of that financial year shall be apportioned on a time basis according to the respective lengths of its parts which do and do not fall within the period, and

• (c) where the member itself is the beneficial owner of part of the ordinary share capital of a company which is another member of the group, or which is the member's subsidiary company, account shall be taken under paragraphs (a) and (b) above of the amendment of the said subsection (6)(b) made by sub-paragraph (1) of this paragraph, attributing under paragraph (a) above to the whole of any financial year any amount included by virtue of that amendment in that member's franked investment income or group income as the appropriate part of that other company's distributable profits of that financial year, or of any part of that financial year.

• (3) Sub-paragraph (1) above shall not apply if the other member has a notional surplus which is a three year surplus which is reduced under paragraph 1 of this Schedule.

• (4) In this paragraph " ordinary share capital" has the same meaning as in section 42(3) of the Finance Act 1938 and if the appropriate part of the other member's ordinary share capital is different in different periods in the three financial years this paragraph shall apply to those periods separately.

• (5) For the purposes of this paragraph—

• (a) any dividend paid (in the sense of section 89(4) of the Finance Act 1965) in the first five days of April 1969 shall be regarded as paid on 31st March 1969,

• (b) any dividend paid (in that sense) in the first five days of April 1966 shall be left out of account.

• (6) Where a three year surplus falls to be ascertained under subsection (7) of section 85 of the Finance Act 1965 (winding up of company) for references in this paragraph to the three financial years there shall be substituted references to the period mentioned in that subsection.

Three year surplus: subsidiary paying dividends in 1965-66 in excess of standard amount.

5

• (1) Where dividends received by a company which is a member of a group in the year 1965-66 include dividends from a member of the same group of companies, and that member pays in the year a gross amount of dividends which exceeds its standard amount, then there shall be excluded from the dividends taken into account under subsection (6)(d) of the said section 85 (which fixes the amount of the tax ultimately borne by the company) a part of the dividends received from that member which bears to the whole the same proportion as the excess bears to all the dividends paid by that member in the year 1965-66.

• (2) Any amount of a dividend paid by a member of a group of companies excluded under sub-paragraph (1) above shall, for the purposes of the said subsection (6)(d) as it applies to that member, be treated as if it had not been paid.

• (3) Sub-paragraph (1) above shall not apply unless the gross amount of dividends received by the company in the year 1965-66 from members of the same group of companies exceeds one-third of the gross amount of the dividends received by the company in its standard period from companies then being members of the same group of companies (or, if the standard period is less than three years, an amount bearing to the dividends last-mentioned the same proportion as one year bears to the standard period), and where any dividends would fall to be excluded under sub-paragraph (1) above the company may elect that the exclusion shall be of such part of the dividends received from members of the same group as is equal to the excess referred to in this sub-paragraph:

Provided that this sub-paragraph shall not apply where, because the company commenced to carry on business at a time later than the beginning of December 1964, or for any other reason, the company has no standard period.

• (4) Where the company exercises the right of election under sub-paragraph (3) above, sub-paragraph (2) above shall have effect as if the amount out of the dividends paid by any other member of the group of companies excluded under sub-paragraph (1) above were the proportion of the excess referred to in sub-paragraph (3) above which is the same as the proportion which—

• (a) the amount of the dividends paid to the company by that member in the year 1965-66 bears

• (b) to the aggregate of the amount of the dividends paid to the company in that year by all members of the group.

• (5) This paragraph shall be construed in accordance with section 83 of the Finance Act 1965.

PART II — The One Year Surplus

Companies carrying on life assurance businesses.

6

The one year surplus of a company carrying on life assurance business shall be computed without regard to any such part of dividends or other income from investments held in connection with its life assurance business as belongs or is allocated to, or is reserved for, or expended on behalf of, policy holders, and without regard to the tax on such part of such income.

Elections as respects double taxation relief.

7

• (1) If a company so elects, its one year surplus shall be computed in accordance with sub-paragraphs (2) and (3) below.

• (2) In arriving at the amount of profits tax and income tax to be taken into account under paragraphs (b) and (c) of subsection (3) of the said section 85, it shall be assumed that paragraph 2(2) of Schedule 16 to the Income Tax Act 1952 provides for credit for foreign tax to be first applied in reducing the amount of income tax chargeable in respect of the income and, so far as it cannot be so applied, in reducing the profits tax chargeable in respect of the income (instead of applying the credit first against profits tax and then against income tax).

• (3) In arriving at the fraction defined at the end of the said subsection (3) (income tax for 1965-66 divided by that plus corporation tax for the financial year 1965), and in applying subsection (8) of the said section 85 (under which any one year surplus is to be disregarded if that income tax is not greater than that corporation tax)—

• (a) so far as any tax at subsection (3)(a) of the said section 85 consists of tax at a net United Kingdom rate (that is to say a rate less than the standard rate of 8s. 3d. for the year 1965-66) that tax shall be increased by applying the ratio $AB$ where " A " is the said standard rate of 8s. 3d. and " B " is the said net United Kingdom rate, and

• (b) any credit for foreign tax which is allowable against United Kingdom income tax or corporation tax shall be disregarded.

• (4) In this paragraph " credit for foreign tax " means credit allowable by virtue of arrangements made under section 347 of the Income Tax Act 1952, or by way of relief under section 348 of that Act.

SCHEDULE 8.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART I — Conditions for Friendly Societies' Tax Exempt Business

1

• (1) The following conditions shall apply to every policy for the assurance of a gross sum, or of an annuity, which the friendly society issues, or has issued at any time since 3rd May 1966—

• (a) the period (in this Schedule called " the term " of the policy) between the payment of the first premium and the time when the gross sum assured is payable (or as the case may be when the first instalment of the annuity is payable) shall be not less than ten years, and must not, on any contingency other than the death, or retirement on grounds of ill health, of the person liable to pay the premiums or whose life is insured, become less than ten years,

• (b) the premiums payable under the policy shall be premiums of equal or rateable amounts payable at yearly or shorter intervals over the whole term of the policy of assurance, or over the whole term of the policy of assurance apart from any period after the person liable to pay the premiums or whose life is insured attains a specified age, being an age which he will attain at a time not less than ten years after the beginning of the term of the policy of assurance,

• (c) until the expiration of three-quarters of the term of the policy of assurance, or of ten years from the beginning of the term, whichever is the shorter, the policy may not be surrendered to the friendly society for consideration exceeding the amount of the premiums paid, except that, if a surrender value is prescribed for the surrender by section 24 of the Industrial Assurance Act 1923 or section 3 of the Industrial Assurance and Friendly Societies Act 1929, the limit on the consideration shall be either that value or the amount of the premiums paid, whichever is the greater.

• (2) The friendly society shall not be a party to any variation of the terms of a policy which infringes the conditions in the foregoing provisions of this paragraph.

2

Notwithstanding paragraph 1(1)(a) above, the policy—

• (a) may provide for a payment to a person of an age not exceeding 18 years at any time not less than five years from the beginning of the term of the policy if the premium or premiums payable in any period of twelve months in the term of the policy do not exceed £13,

• (b) may provide for a payment at any time not less than five years from the beginning of the term of the policy, if it is one of a series of payments falling due at intervals of not less than five years, and the amount of any payment, other than the final payment, does not exceed four-fifths of the premiums paid in the interval before its payment.

3

Notwithstanding paragraph 1(1)(b) above, the policy—

• (a) may allow a payment at any time after the expiration of one-half of the term of the policy of assurance, or of ten years from the beginning of the term, whichever is the earlier, being a payment in commutation of the liability to pay premiums falling due after that time,

• (b) where the person liable to pay the premiums ceases to reside in the United Kingdom, or gives satisfactory proof of intention to emigrate, may allow him to commute any liability for premiums, and

• (c) may allow any liability for premiums to be discharged in consideration of surrendering a sum which has become payable on the maturity of any other policy of assurance issued by the same friendly society to the person liable to pay the premiums, or to his parent, where that other policy of assurance is issued as part of the friendly society's tax exempt life or endowment business.

4

Nothing in the foregoing provisions of this Schedule applies to life or endowment business which is not tax exempt life or endowment business.

PART II — Amendments of Friendly Societies Acts

5

• (1) The following limits shall be substituted for the limits imposed by section 41(1) of the Friendly Societies Act 1896 on the amounts which a member, or person claiming through a member, of a registered society or branch is entitled to receive from any one or more such societies or branches (taking together all such societies or branches throughout the United Kingdom)—

• (a) not more than £500 by way of gross sum under tax exempt life or endowment business,

• (b) not more than £104 a year by way of annuity under tax exempt life or endowment business,

• (c) not more than £2,000' by way of gross sum under life or endowment business which is not tax exempt, but increasing that limit from £2,000 to £3,000 if the entitlement under this head, so far as it exceeds £2,000, is under any mortgage protection policy or policies.

• (d) not more than £208 a year by way of annuity under life or endowment business which is not tax exempt,

and this sub-paragraph shall be construed as if contained in the said section 41.

• (2) A friendly society shall not be registered if it contracts with any person for the assurance of an annuity or of a gross sum in excess of the limits imposed by sub-paragraph (1) above.

• (3) The Chief Registrar of Friendly Societies may by order made with the consent of the Treasury and contained in a statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament from time to time increase or further increase all or any of the limits in paragraphs (1)(c) and (1)(d) of this paragraph, and any such order may contain transitional and other supplemental provisions.

• (4) In applying the limits in this paragraph—

• (a) any bonus or addition declared upon assurance of a gross sum or annuity, and

• (b) any such annuities as are referred to in section 26(1) of the Finance Act 1956 (retirement annuities, etc.),

shall be disregarded.

• (5) In this paragraph " mortgage protection policy " means a policy of assurance of a gross sum the whole or the major part of which is applicable solely for the purpose of meeting payments due under a mortgage or charge of land.

• (6) The proviso to section 8(1), and section 41(1), of the Friendly Societies Act 1896, which are superseded by this paragraph, shall cease to have effect.

6

• (1) Subject to this paragraph, the rules of any registered friendly society or branch may within six months from the time when this Part of this Schedule comes into force be amended by resolution of the committee of management so as to permit the society or branch to assure additional amounts within the limits prescribed by paragraph 5 above, or for the purpose of bringing the rules into conformity with the provisions of Part I of this Schedule.

• (2) If any amendment of the rules of a friendly society is made after the coming into force of this Part of this Schedule, otherwise than in pursuance of sub-paragraph (1) above, the power of the society's committee of management under sub-paragraph (1) above shall determine on the date on which the amendment is registered.

• (3) This paragraph shall apply in relation to any increase of limits effected by an order under paragraph 5(3) above as it applies in relation to the increases made by that paragraph, but substituting the time when the increase so effected comes into force for the time when this Part of this Schedule comes into force.

7

This Part of this Schedule shall extend to Northern Ireland.

SCHEDULE 9.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

Subject to the following provisions of this Schedule section 31 of this Act (in this Schedule called " the principal section ") shall apply to the double taxation agreements to which effect is given by the Orders in Council set out in the following Table

• The Double Taxation Relief (Taxes on Income) (Australia) Order 1947.

• The Double Taxation Relief (Taxes on Income) (Austria) Order 1957.

• The Double Taxation Relief (Taxes on Income) (Denmark) Order 1950, including that Order as extended by the Double Taxation Relief (Taxes on Income) (Faroe Islands) Order 1961.

• The Double Taxation Relief (Taxes on Income) (Federal Republic of Germany) Order 1955.

• Any Order in Council made in the form of the draft Double Taxation Relief (Taxes on Income) (Federal Republic of Germany) Order in Council laid before the Commons House of Parliament on 11th March 1965.

• The Double Taxation Relief (Taxes on Income) (Finland) Order 1953.

• The Double Taxation Relief (Taxes on Income) (France) Order 1951.

• The Double Taxation Relief (Taxes on Income) (Japan) Order 1963.

• The Double Taxation Relief (Taxes on Income) (Norway) Order 1951.

• The Double Taxation Relief (Taxes on Income) (Pakistan) Order 1961.

• The Double Taxation Relief (Taxes on Income) (South Africa) Order 1962, including that Order as extended by the Double Taxation Relief (Taxes on Income) (South West Africa) Order 1962.

• The Double Taxation Relief (Taxes on Income) (Sweden) Order 1961.

Australia.

2

In applying Article VI(3) in the Double Taxation Relief (Taxes on Income) (Australia) Order 1947 (under which the limiting rate of tax is a fraction of the full rate of the Australian tax) to a dividend paid (by a company resident in the United Kingdom) in any year of assessment it shall be assumed that in the converse case described in subsection (2) of the principal section the dividend (assumed paid by a company resident in Australia) is paid in the Australian year of tax beginning in the same calendar year as that in which the said income tax year of assessment begins.

Federal Republic of Germany.

3

In applying Article VI in any Order in Council made in the form of the draft Double Taxation Relief (Taxes on Income) (Federal Republic of Germany) Order in Council laid before the Commons House of Parliament on 11th March 1965 paragraph (2) of that Article (different rates of German tax on distributed and undistributed profits) shall be disregarded.

France.

4

• (1) Article VII of the Double Taxation Relief (Taxes on Income) (France) Order 1951 as applied by the principal section shall be read as having the result in sub-paragraph (2) below.

• (2) The rate at which income tax under Schedule F is chargeable on a dividend paid to a company which is a resident of France, and which has owned for a year capital representing at least 50 per cent. of the capital of the company paying the dividend, shall not exceed 10 per cent

Pakistan.

5

• (1) Article VI of the Double Taxation Relief (Taxes on Income) (Pakistan) Order 1961 as applied by the principal section shall be read as having the result in sub-paragraph (2) below.

• (2) The rate at which income tax under Schedule F is chargeable on a dividend paid to a public company which is a resident of Pakistan and which owns more than 50 per cent. of the voting shares of the company paying the dividend shall not exceed 10 per cent.

SCHEDULE 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART I — Capital Gains Tax and Corporation Tax

Life interests in settled property.

1

• (1) Section 25(4) of the Finance Act 1965 (notional disposal of settled property when a life interest in any part of the settled property terminates) shall not apply on the occasion of the termination of the trusts of the settlement as respects any part of the settled property by the exercise of a power for that purpose contained in the settlement or of a statutory power of advancement or by the surrender of a life interest in such a part for the purpose of advancement, if all the property as respects which the life interest terminates thereby ceases to be settled property under the settlement.

• (2) The said section 25(4), and section 26(9)(a) of the said Act (which defines references to capital gains tax chargeable in consequence of a death), shall apply where after 3rd May 1966 the person entitled to a life interest in possession in all or any part of settled property dies (although the life interest does not then terminate) as they apply on the termination of such a life interest.

• (3) In subsection (10)(a) of the said section 25 (which defines " life interest" as including certain limited interests) for the words from "for the life of another" to the end of the paragraph there shall be substituted the words " for the life of a person other than the person entitled to the right, or for lives " , but not so as to apply the said section 25(4) on any occasion on or before 4th May 1966.

• (4) In the said section 25 the expression " life interest" shall, notwithstanding subsection (10)(c) of that section (which excludes annuities) include entitlement to an annuity created by the settlement if—

• (a) some or all of the settled property is appropriated by the trustees as a fund out of which the annuity is payable, and

• (b) there is no right of recourse to settled property not so appropriated, or to the income of settled property not so appropriated,

and, without prejudice to subsection (12) of the said section 25, the settled property so appropriated shall, while the annuity is payable, and on the occasion of the death of the annuitant, be treated for the purposes of subsections (4), (5), (6) and (7) of the said section 25 as being settled property under a separate settlement.

Transfer of business on retirement.

2

• (1) Subject to sub-paragraph (2) below, section 34(1)(b) of the Finance Act 1965 (relief from capital gains tax for an individual disposing of shares or securities of his family company on his retirement) shall apply where under paragraph 3 of Schedule 7 to the Finance Act 1965 he is treated as disposing of interests in shares or securities of a company in consideration of a capital distribution from the company in the course of dissolving or winding up the company as it applies where he disposes of shares or securities of a company by way of sale or gift.

• (2) Sub-paragraph (1) above shall not apply if the capital distribution consists wholly of chargeable business assets of the company, and if it consists partly of chargeable business assets (and partly of money or money's worth), relief shall only be given under the said section 34 in respect of that proportion of the gains accruing on the disposal which the part of the capital distribution not consisting of chargeable business assets bears to the entire capital distribution.

• (3) Paragraphs (a) and (b) of the said section 34(1) (which each impose conditions to be satisfied throughout the period of ten years ending with the disposal) shall apply where throughout part of the said period of ten years the conditions in either of those paragraphs were fulfilled and throughout the remainder of that period the conditions in the other paragraph were fulfilled.

Definition of investment trust.

3

• (1) Section 37(3)(b) of the Finance Act 1965 (which allows an investment trust as defined in that section to have a holding representing more than the limit of fifteen per cent. of its investments imposed by subsection (2)(b) of that section if the holding was acquired on or after 6th April 1965 and did not exceed that limit when it was acquired) shall also apply to a holding acquired before the said date and accordingly the words " acquired on or after that date " in the said subsection (3)(b) shall cease to have effect.

• (2) All such adjustments shall be made, whether by the discharge or repayment of tax or otherwise, as are required to give effect to the provisions of this paragraph.

Part disposal of land to authority with compulsory powers.

4

• (1) This paragraph applies to a transfer after 6th April 1965 of land forming part only of a holding of land to an authority exercising or having compulsory powers where—

• (a) the amount or value of the consideration for the transfer, or if the transfer is not for full consideration in money or money's worth, the market value of the land transferred, is small, as compared with the market value of the holding as it subsisted immediately before the transfer, and

• (b) the transferor had not taken any steps by advertising or otherwise to dispose of any part of the holding or to make his willingness to dispose of it known to the authority or others.