Finance Act 1972

• (2) An Order in Council under this paragraph may include provision for section 2 of the Isle of Man Act 1958 (Isle of Man share of certain duties) to apply as if the car tax and the tax for which provision is made by Act of Tynwald were included among the duties mentioned in subsection (4) of that section.

• (3) An Order in Council under this paragraph may be varied or revoked by a subsequent Order in Council.

Schedule 8

SCHEDULE 9

PART I — Loans for Purchase or Improvement of Land

1

Subject to the following provisions of this Part of this Schedule, interest is protected interest if it is paid by a person for the time being owning an estate or interest in land in the United Kingdom or the Republic of Ireland on a loan to defray money applied—

• (a) in purchasing the estate or interest, or one absorbed into, or given up to obtain, the estate or interest, or

• (b) in improving or developing the land, or buildings on the land, or

• (c) in paying off another loan, if interest on that other loan would have been protected interest had the loan not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

2

Paragraph 1 above does not apply to a loan unless made in connection with the application of money, and either on the occasion of its application or within what is in the circumstances a reasonable time from the application of the money; and that paragraph does not apply to a loan the proceeds of which are applied for some other purpose before being applied as mentioned in that paragraph.

3

References in this Part of this Schedule to money applied in improving or developing land or buildings include references to payments in respect of maintenance or repairs incurred by reason of dilapidation attributable to a period before the estate or interest was acquired, but otherwise do not include references to payments in respect of maintenance or repairs, or any of the other payments mentioned in section 72(1) of the Taxes Act (payments deductible from rent).

4

References in this Part of this Schedule to money applied in improving or developing land include references to expenditure incurred or defrayed directly or indirectly in respect of street works, other than works of maintenance or repair, for any highway or road, or in Scotland any right of way, adjoining or serving the land.

5

References in this Part of this Schedule to an estate or interest in land include references to the property in any caravan, but interest is protected interest by virtue of this paragraph only if—

• (a) the caravan is a large caravan, or

• (b) the caravan, taken with the land on which it stands, is for the time being a rateable hereditament for the purposes of the General Rate Act 1967 or any corresponding enactment in force in Scotland, Northern Ireland or the Republic of Ireland and the owner, or the wife or husband of the owner, has, as occupier of the caravan, duly paid rates under the Act or any such enactment for the period in which the interest was paid.

6

References in this Part of this Schedule to an estate or interest do not include references—

• (a) to a rentcharge or, in Scotland, a superiority or the interest of a creditor in a contract of ground annual; or

• (b) to the interest of a chargee or mortgagee or, in Scotland, the interest of a creditor in a charge or security of any kind over land.

7

Where interest is payable by the tenant occupier of any property to the landlord in pursuance of arrangements whereby money advanced at interest by the landlord is applied by the tenant in purchasing the landlord's estate or interest, but that estate or interest is not to pass to the tenant until some time after the interest begins to be payable, this Part of this Schedule shall have effect in relation to the tenant as if he were the owner of the landlord's estate or interest.

8

Paragraph 1(a) above shall not apply—

• (a) where the seller and purchaser are husband and wife and either sells to the other, or

• (b) where the purchaser, or the wife or husband of the purchaser, has since 15th April 1969 disposed of an estate or interest in the land in question, and it appears that the main purpose of the disposal and purchase was to obtain relief in respect of interest on the loan, or

• (c) where the purchasers are the trustees of a settlement, and the seller is the settlor, or the wife or husband of the settlor, and it appears that the main purpose of the purchase is to obtain relief in respect of interest on the loan, or

• (d) where the purchaser is directly or indirectly purchasing from a person who is, within the terms of section 533 of the Taxes Act, connected with him, and the price substantially exceeds the value of what is acquired;

and paragraph 1(b) above shall not apply where the person spending the money is, within the terms of the said section 533, connected with the person who, directly or indirectly, receives the money, and the money substantially exceeds the value of the work done.

9

In this Part of this Schedule, as it applies throughout the United Kingdom and in relation to the Republic of Ireland—

• " caravan " has the meaning given by section 29(1) of the Caravan Sites and Control of Development Act 1960;

• " large caravan " means one which has either or both of the following dimensions— an overall length (excluding any draw bar) exceeding twenty-two feet, an overall width exceeding seven feet six inches, where " overall length" and " overall width " have the meanings given in Regulation 3 of the Motor Vehicles (Construction and Use) Regulations 1966;

• " street works " means any works for the sewering, levelling, paving, metalling, flagging, channelling and making good of a road, and includes the provision of proper means for lighting a road.

PART II — Loans to Purchase Machinery or Plant

10

Where an individual is a member of a partnership which, under section 44 of the Capital Allowances Act 1968, is entitled to a capital allowance or liable to a balancing charge for any year of assessment in respect of machinery or plant belonging to the individual, any interest paid by him in the basis period (as defined in section 72 of that Act) for that year on a loan to defray money applied as capital expenditure on the provision of that machinery or plant is protected interest, except interest falling due and payable more than three years after the end of the year of assessment in which the debt was incurred.

11

Where the machinery or plant is in use partly for the purposes of the trade, profession or vocation carried on by the partnership and partly for other purposes such part only of the interest is protected interest as it is just and reasonable to attribute to the purposes of the trade, profession or vocation, having regard to all the relevant circumstances and, in particular, to the extent of the use for the said other purposes.

12

Where the holder of an office or employment—

• (a) is under Chapter LT of Part I of the Capital Allowances Act 1968 or Chapter I of Part III of the Finance Act 1971 entitled to a capital allowance, or liable to a balancing charge (or would be so entitled or liable but for some contribution made by the employer), for any year of assessment in respect of machinery or plant belonging to him and in use for the purposes of the office or employment, and

• (b) pays interest in that year on a loan to defray money applied as capital expenditure on the provision of that machinery or plant,

the interest so paid is protected interest unless it is interest falling due and payable more than three years after the end of the year of assessment in which the debt was incurred.

13

Where the machinery or plant is in use partly for the purposes of the office or employment and partly for other purposes such part only of the interest is protected interest as it is just and reasonable to attribute to the purposes of the office or employment, having regard to all the relevant circumstances and, in particular, to the extent of the use for the said other purposes.

PART III — Supplementary

14

For the purposes of this Schedule the giving of credit for any money due from the purchaser under any sale shall be treated as the making of a loan to defray money applied by him in making the purchase.

15

Where part only of a debt fulfils the conditions required under the preceding provisions of this Schedule for interest on the debt to be protected interest, such proportion of the interest shall be treated as protected interest as is equal to the proportion of the debt fulfilling those conditions at the time of the application of the money in question.

SCHEDULE 10

Exclusion of double relief or relief by different methods

1

Interest in respect of which relief is given under section 75 of this Act shall not be allowable as a deduction for any other purpose of the Income Tax Acts.

2

Relief shall not be given under section 75 of this Act against income chargeable to corporation tax, and shall not be given against any other income of a company, except where both of the following conditions are satisfied, that is to say—

• (a) that the company is not resident in the United Kingdom; and

• (b) that the interest cannot be taken into account in computing corporation tax chargeable on the company.

3

Where interest on any debt or liability is taken into account in the computation of profits or gains or losses for the purposes of Case I or II of Schedule D no relief shall be given under section 75 of this Act—

• (a) in respect of the payment of that interest; or

• (b) in respect of interest on the same debt or liability which is paid in any year of assessment for which that computation is relevant.

4

Where relief is given under section 75 of this Act in respect of the interest paid in any year of assessment on any debt or liability—

• (a) that interest shall not be taken into account in the computation of profits or gains or losses for the purposes of Case I or II of Schedule D for any year of assessment; and

• (b) interest on that debt or liability shall not be taken into account in that computation for any year of assessment for which the interest so paid could have been taken into account but for the relief.

5

For the purposes of paragraphs 3 and 4 above, all interest capable of being taken into account in such a computation as is mentioned therein which is payable by any person on money advanced to him on current account, whether advanced on one or more accounts or by the same or separate banks or other persons, shall be treated as interest payable on the same debt.

6

References in paragraphs 3 and 4 above to relief given or an amount taken into account are references to relief given or an amount taken into account on a claim or in an assessment which has been finally determined.

Furnishing of information

7

A person who claims relief under section 75 of this Act in respect of any payment of interest shall furnish to the inspector a statement in writing by the person to whom the payment is made, which—

• (a) if the interest is such as is mentioned in subsection (1)(a) of that section, shall show the amount of the interest paid in the year of assessment for which the claim is made and the name and address of the person by whom it is paid; and

• (b) if the interest is such as is mentioned in subsection (1)(b) of that section, shall contain such particulars and be in such form as the Board may prescribe.

8

Where any such interest as is mentioned in section 75 of this Act is paid, the person to whom it is paid shall, if the person who pays it so requests in writing, furnish him with such statement as regards that interest as is mentioned in paragraph 7 above and the duty imposed by this paragraph shall be enforceable at the suit or instance of the person making the request.

9

Paragraphs 7 and 8 above do not apply to interest paid to a building society as defined in section 343(8) of the Taxes Act, to a company within section 343(9) of that Act, or to a local authority.

Commencement

10

Section 75 of this Act and the amendments and repeals mentioned in subsection (8) of that section do not apply in relation to interest paid or payable before the year 1972-73.

11

If, by any arrangements made after 21st March 1972, any interest payable before the year 1972-73 becomes payable in or after that year or is, directly or indirectly, replaced by any interest payable in or after that year, the interest payable in pursuance of the arrangements shall be deemed for the purposes of paragraph 10 above to have been payable before that year.

SCHEDULE 11

1

The Taxes Act shall be amended as follows.

2

In section 122(1)(b) for the words " annuity or other annual payment (not being interest)" there shall be substituted the words " annual interest or any annuity or other annual payment ".

3

In section 175(2) the following shall be substituted for paragraphs (a) and (b):—

(a) relief under section 75 of the Finance Act 1972

.

4

In section 248(3) for the words " (4) to (6) " there shall be substituted the words " (4) and (5) ".

5

In section 301(1) and (5) for the words " 300 " there shall be substituted the words " 299 ".

6

In section 341(1)(c) for the words " section 57 of this Act " there shall be substituted the words " Part I of Schedule 9 to the Finance Act 1972 ".

7

• (1) In subsection (1) of section 403 for the word " surtax " there shall be substituted the words " excess liability " and at the end of the subsection there shall be added the words " In this subsection ' excess liability' means the excess of liability to income tax over what it would be if all income tax were charged at the basic rate to the exclusion of any other rate. "

• (2) This paragraph has effect for the year 1973-74 and subsequent years of assessment and paragraph 44 of Schedule 6 to the Finance Act 1971 and the repeal made by that Act in section 403(1) of the Taxes Act shall not take effect.

8

In section 528(5) for the words " any of sections 57 to 60 and 62 of this Act" there shall be substituted the words " section 75 of the Finance Act 1972 ".

9

In paragraphs 2(1)(b) and 3(1) of Part III of Schedule 12 for the words " annuity or other annual payment (not being interest) " there shall be substituted the words " annual interest or any annuity or other annual payment ".

SCHEDULE 12

PART I — Approval of Schemes

Conditions of approval

1

The Board shall, on the application of a body corporate (in this Schedule referred to as " the company "), approve a share option scheme or a share incentive scheme if—

• (a) the conditions set out in Part II of this Schedule are satisfied with respect to the adoption of the scheme, the persons eligible to participate in it and the shares to be acquired under it or in pursuance of rights conferred under it; and

• (b) the further conditions set out in Part III of this Schedule are satisfied if the scheme is a share option scheme and those set out in Part IV of this Schedule if it is a share incentive scheme.

2

If, at the time the application is pending, the Board have no evidence that the condition set out in paragraph 6 of Part III or paragraph 5 of Part IV of this Schedule is satisfied, then, if the other conditions are satisfied, the Board may approve the scheme subject to the remaining condition being satisfied; and if that condition is not satisfied the approval shall be of no effect.

Application for approval

3

An application under this Schedule shall be made in writing and shall contain such particulars and be supported by such evidence as may be prescribed by regulations made by the Board by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

Withdrawal of approval

4

If, at any time after the Board have approved a scheme, any of the conditions mentioned in paragraph 1 above ceases to be satisfied the Board may withdraw the approval with effect from that time.

Appeals

5

If the company is aggrieved by the failure of the Board to approve the scheme or to decide that a condition subject to which the approval has been given is satisfied, or by the withdrawal of the approval, it may, by notice in writing given to the Board within thirty days from the date on which it is notified of the Board's decision, require the matter to be determined by the Special Commissioners, and the Special Commissioners shall hear and determine the matter in like manner as an appeal.

PART II — Conditions Applicable to Share Option and Share Incentive Schemes

Adoption of scheme

1

The scheme must have been adopted by a resolution of the holders of the ordinary share capital of the company shares in which (or an interest in, or right to acquire, shares in which) are to be acquired under the scheme, and the shares, interest or right must not be capable of being acquired under the scheme more than ten years after its adoption.

Type of shares

2

The shares must be shares in the company of which the persons participating in the scheme are directors or employees or in a company controlling that company or in a company which, being a member of a consortium owning either that company or a company controlling it, beneficially owns not less than three-twentieths of the ordinary share capital of the company so owned.

3

The shares must be either—

• (a) shares of a class quoted on a recognised stock exchange, or

• (b) shares in a company which is not under the control of another company.

4

The majority of shares of the same class must be shares acquired otherwise than as mentioned in section 79(1) of this Act and otherwise than by the exercise of a right obtained as mentioned in section 78(1) of this Act.

Limitation on issue of shares

5

In the period of ten years beginning with the adoption of the scheme the issue of shares under the scheme, or in pursuance of rights conferred under the scheme, must be so limited that the nominal value of those shares, when added to that of any shares issued under any other scheme approved under this Schedule and relating to the same body's shares, or in pursuance of rights conferred under any such scheme, does not exceed the following, that is to say—

• (a) if the ordinary share capital of that body does not exceed £2 million, 10 per cent. of that ordinary share capital; and

• (b) if that ordinary share capital exceeds £2 million, 5 per cent. of that ordinary share capital or £200,000, whichever is the greater.

Participants

6

No person must be eligible to participate in the scheme unless he is a full-time director or full-time employee of the company concerned.

PART III — Further Conditions Applicable to Share Option Schemes

Limitation of rights

1

The rights obtainable under the scheme by any person in any year of assessment must be so limited that the amount for which shares may be acquired in pursuance of the rights does not, when added to the amount for which shares remain to be acquired under such rights obtained by him earlier, exceed four times the amount of the relevant emoluments for that or the preceding year of assessment (whichever is the greater); and for this purpose the relevant emoluments are such of the emoluments of the office or employment by virtue of which he is eligible to participate in the scheme as are liable to be paid under deduction of tax pursuant to section 204 of the Taxes Act (pay-as-you-earn), after deducting therefrom amounts included by virtue of Chapter II of Part VIII of that Act.

2

If rights are obtainable by any person under the scheme and rights have also been obtained or are obtainable by him under share option schemes previously approved under this Schedule, the limit specified in paragraph 1 above applies to the aggregate of the rights obtainable or obtained under all the schemes.

3

If rights are obtainable by any person under the scheme and shares or interests in shares may be or have been acquired by him under a share incentive scheme approved under this Schedule, the limit under this Part of this Schedule applies to the aggregate of the amount mentioned therein and the amount or value limited under Part IV of this Schedule.

Exercise of rights

4

A right obtained by a person under the scheme must not be capable of being exercised later than seven years after it is obtained nor later than six months after he ceases to hold the office or employment by virtue of which he is eligible to participate in the scheme except that it may be capable of being exercised within twelve months of his death if he dies at a time when it was still capable of being exercised by him.

Restriction on transfer

5

A right obtained by a person under the scheme must not be capable of being transferred by him.

Minimum price of shares

6

The price at which shares may be acquired by the exercise of a right obtained under the scheme must be stated at the time the right is obtained and must not be manifestly less than the market value at that time of shares of the same class, but the scheme may provide for such variation of the price so stated as may be necessary to take account of any variation in the share capital of the body issuing the shares.

Freedom from special restrictions

7

The shares must not be subject to any restrictions other than restrictions attaching to all shares of the same class.

PART IV — Further Conditions Applicable to Share Incentive Schemes

Limitation of rights

1

The acquisition by any person of shares or interests in shares under the scheme must be so limited that the amount or value of the consideration for the shares and interests so acquired in any year of assessment does not, when added to the amount or value of the consideration for the shares and interests so acquired by him earlier (and remaining subject to restrictions not attaching to all shares of the same class), exceed four times the amount of the relevant emoluments for that or the preceding year of assessment (whichever is the greater) ; and for this purpose the relevant emoluments are such of the emoluments of the office or employment by virtue of which he is eligible to participate in the scheme as are liable to be paid under deduction of tax pursuant to section 204 of the Taxes Act, after deducting therefrom amounts included by virtue of Chapter II of Part VIII of that Act.

2

If shares or interests in shares may be acquired by a person under the scheme and shares or interests in shares may also be or have been acquired by him under share incentive schemes previously approved under this Schedule, the limit specified in paragraph 1 above applies to the aggregate of the shares or interests that may be or have been acquired under all the schemes.

3

Where shares or interests in shares may be acquired by a person under the scheme and rights are obtainable or have been obtained by him under a share option scheme approved under this Schedule the limit under this Part of this Schedule applies to the aggregate of the amount or value mentioned therein and the amount limited under Part III of this Schedule.

Restriction on transfer

4

Shares or interests in shares acquired by a person under the scheme must not be capable of being transferred by him while any restrictions attach to the shares which do not attach to all shares of the same class.

Minimum price of shares

5

• (1) The price at which shares may be acquired under the scheme must not be—

• (a) manifestly less than the market value of the shares at the time of their acquisition; nor

• (b) less than 80 per cent. of the market value at that time of shares of the same class to which no other restrictions attach than restrictions attaching to all shares of that class;

and similarly with respect to the acquisition of interests in shares; and where part of the price is payable after the acquisition the price shall be treated for the purposes of this paragraph as reduced to such extent as may be necessary to take account of the period for which the payment of that part is or may be deferred.

• (2) This paragraph shall not prevent the scheme from providing for a reduction in the price at which shares are acquired under the scheme in a case where the person acquiring them is called upon to pay any outstanding part of that price or to repay a loan made to him to acquire the shares, and—

• (a) at the time he is so called upon the market value of shares of the same class to which no other restrictions attach than restrictions attaching to all shares of that class is less than the price at which the shares were acquired ; and

• (b) the reduction provided for is not greater that the amount by which the market value mentioned in paragraph (a) above falls short of the price mentioned therein, after adjusting that value and that price to such extent (if any) as may be necessary to take account both of any deferment of the payment of any part thereof and of any variation in the share capital of the body issuing the shares.

Time limit for special restrictions

6

Any restriction attaching to the shares and not attaching to all shares of the same class must cease not later than seven years after the shares or an interest in them is acquired under the scheme (or if acquired in substitution for shares or interests previously acquired not later than seven years after the earliest such acquisition).

Conditions governing bonus and rights issues

7

The scheme must provide that where shares are issued otherwise than under the scheme and otherwise than for a consideration to persons who have acquired shares or interests in shares under the scheme the same restrictions must attach to the shares so issued as are for the time being attaching to the shares which, or interests in which, those persons have acquired under the scheme.

8

The scheme must provide that where an offer to acquire shares is made otherwise than under the scheme to persons who have acquired shares or an interest in shares in pursuance of the scheme, the offer must be on the same terms as offers to acquire shares of the same class which are made to shareholders generally.

PART V — Conditions to be Satisfied by Director or Employee

1

He must retain the beneficial ownership of or his interest in the shares until whichever is the earliest—

• (a) the end of the period of three years beginning with his acquisition of his right under the share option scheme or, as the case may be, his acquisition of the shares or interest under the share incentive scheme ; and

• (b) his ceasing to be a director or employee by reason of injury, disability or dismissal for redundancy (within the meaning of the Redundancy Payments Act 1965 or of the Contracts of Employment and Redundancy Payments Act (Northern Ireland) 1965); and

• (c) his death ;

but he shall not be deemed to fail to satisfy this condition by reason only that the shares are acquired by a company which is entitled and bound to do so under section 209 of the Companies Act 1948 or section 200 of the Companies Act (Northern Ireland) 1960 (acquisition of shares from dissenting shareholders).

2

If the shares are shares in a close company he must not have a material interest in that company or in a company controlling that company at the time he obtains the right or is given the opportunity to acquire the shares or his interest therein or thereafter until the end of the period during which under paragraph 1 above he is required to retain the beneficial ownership of or his interest in the shares, nor at any time thereafter while any restrictions attach to the shares which do not attach to all shares of the same class.

PART VI — Effect of Partial Compliance with Conditions

1

Where—

• (a) a person has before 6th April 1972 obtained a right as mentioned in section 78 of this Act in pursuance of a share option scheme which is not approved under this Schedule ; and

• (b) the right is exercised by him before 6th April 1973 or, if he dies before that date, is exercised within twelve months of his death ;

section 186 of the Taxes Act shall not apply to any gain realised by the exercise, if or to the extent that the right is within the limit imposed by paragraph 1 of Part III of this Schedule.

2

If that person obtained the right within the first twelve months during which he held the office or employment by virtue of which he was eligible to participate in the scheme paragraph 1 above shall have effect as if for the limit referred to therein there were substituted the greater of the following, that is to say, that limit and what would be that limit if the relevant emoluments for those twelve months were specified in paragraph 1 of Part III of this Schedule instead of those mentioned therein.

3

In relation to a right which cannot be exercised before 6th April 1973 paragraph 1 above shall have effect as if for the references to that date there were substituted references to six months after the earliest date at which it can be exercised.

PART VII — Supplementary Provisions

Procedure on assessment under section 78(2)

1

For the purposes of any assessment made or to be made in pursuance of section 78(2) of this Act the market value at any time of any shares shall be determined by the Board and their determination shall be notified to the body corporate by which the shares were issued; and that body, as well as the person on whom the assessment is or is to be made, may appeal against the determination to the Special Commissioners.

2

On any such appeal all persons who have obtained a right in pursuance of the same scheme and on the same day may take part in the proceedings, and the determination of the Special Commissioners shall be binding on all such persons, whether or not they have taken part in the proceedings.

Furnishing of information

3

Where in any year of assessment a person acquires shares or an interest in shares as mentioned in section 79(1) of this Act and the acquisition is not made in pursuance of a scheme approved under this Schedule, the body from which the shares are or the interest is acquired shall deliver to the inspector, within thirty days of the end of the year, particulars in writing of the shares and of the acquisition.

4

The Board may by statutory instrument make regulations requiring such information to be given about the names and addresses of persons participating in schemes approved under this Schedule, the shares issued or rights acquired in pursuance of such schemes and the exercise, assignment or release of such rights as appears to the Board necessary for the discharge of their functions under this Schedule and sections 78 and 79 of this Act; and any such statutory instrument shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

5

In section 98 of the Taxes Management Act 1970 (penalty for failure to furnish information etc.) the following shall be added in the second column of the Table: " Paragraph 3 of Part VII of Schedule 12 to the Finance Act 1972 or regulations under paragraph 4 of that Part ".

Interpretation

6

In sections 77 to 79 of this Act and in this Schedule—

• " associated company " has the same meaning as, by virtue of section 302 of the Taxes Act, it has in Chapter III of Part XI of that Act;

• " close company " has the same meaning as in the Corporation Tax Acts;

• " control " has the meaning assigned to it by section 534 of the Taxes Act;

• " director " includes a person who is to be a director;

• " employee " includes a person who is to be an employee;

• " full-time ", in relation to a director or employee, means required to devote substantially the whole of his time to service as a director or employee;

• " market value " has the same meaning as, for the purposes of Part III of the Finance Act 1965, it has by virtue of section 44 of that Act;

• " recognised stock exchange " has the same meaning as in the Corporation Tax Acts;

• " share incentive scheme " means a scheme in pursuance of which shares or interests in shares may be acquired as mentioned in section 79(1) of this Act;

• " share option scheme " means a scheme in pursuance of which rights may be obtained as mentioned in section 78(1) of this Act;

• " shares " includes stock and also includes securities as defined in section 237(5) of the Taxes Act; and references to an interest in any shares include references to an interest in the proceeds of sale of part of the shares.

7

Section 186(9) of the Taxes Act shall apply, with the necessary modifications, for determining for the purposes of sections 78 and 79 of this Act and of this Schedule whether a person obtains a right or acquires shares or an interest in shares as a director or employee of a body corporate.

8

Section 285(6) of the Taxes Act shall apply for determining for the purposes of this Schedule whether a person has a material interest in a company.

9

Section 533 of the Taxes Act (connected persons) shall apply for the purposes of sections 78 and 79 of this Act and of this Schedule.

SCHEDULE 13

Section 81(1)

1

Paragraphs 2 to 5 below apply where an amount is payable by instalments and, by virtue of a claim made under subsection (6) of section 80 of the Taxes Act as originally enacted, any of the instalments would have fallen to be treated as rent payable on or after 11th April 1972 or as profits or gains arising on or after that date and chargeable to tax under Case VI of Schedule D.

2

Where the person making the claim was a person carrying on a trade of dealing in land, and section 142(3) of the Taxes Act prevented any part of the instalment from being treated as a trading receipt, the instalment shall be treated as due on 11th April 1972 and the person who made the claim shall be chargeable to tax under Case VI of Schedule D on the amount of that instalment (reduced, where paragraph 1(2) of Schedule 4 to the Taxes Act applies, as required by that paragraph), less any loss attributable to the granting of the lease, so far as it has not been set off against or deducted from any other amount.

3

In any other case the person who made the claim shall, subject to paragraph 4 below, be chargeable to tax as if the instalment were pant of the consideration for a disposal to which paragraph 14 of Schedule 6 to the Finance Act 1965 as originally enacted had applied ; and section 116(3) of this Act shall apply accordingly.

4

A person chargeable to tax in accordance with paragraph 3 above may, by notice in writing given to the inspector not later than 11th April 1973, elect that that paragraph shall not apply in his case but that his liability to tax (including his liability for past periods) shall be computed as if both section 81(1) and section 116 of this Act had come into force before the claim under section 80(6) of the Taxes Act was made ; and where he so elects all such assessments, alterations of assessments and repayments of tax shall be made as may be necessary.

5

Where a person liable to pay tax in accordance with any of the preceding paragraphs satisfies the Board that he would otherwise suffer undue hardship, the tax may, at his option, be paid by such instalments as the Board may allow.

Section 81(2)-(4)

6

Paragraph 7 below applies with respect to a lease granted before 25th August 1971 and, so far as section 84 of the Taxes Act relates to section 80(4) of that Act, with respect to a variation or waiver the contract for which was entered into before that date.

7

Subsection (2) to (4) of section 81 of this Act shall apply only to the extent that they affect relief, for any year of assessment later than the year 1971-72 or for any accounting period beginning after 24th August 1971, under any of the provisions of the Taxes Act mentioned in paragraph 3(2) of Schedule 14 to that Act or under section 491(5) of that Act or to the extent that they affect the computation of the profits or gains or losses for any such year of assessment or accounting period of a trade, profession or vocation ; and paragraph 3 of Schedule 14 to the Taxes Act shall apply in relation to section 84 of that Act as amended by this Act.

SCHEDULE 14

Duty to make returns

1

• (1) A company shall for each of its accounting periods make, in accordance with this Schedule, returns to the collector of the franked payments made and franked investment income received by it in that period and of the advance corporation tax (if any) payable by it in respect of those payments.

• (2) A return shall be made for—

• (a) each complete quarter falling within the accounting period, that is to say, each of the periods of three months ending with 31st March, 30th June, 30th September or 31st December which falls within that period ;

• (b) each part of the accounting period which is not a complete quarter and ends on the first (or only), or begins immediately after the last (or only), of those dates which falls within the accounting period ;

• (c) if none of those dates falls within the accounting period, the whole accounting period.

• (3) A return for any period for which a return is required to be made under this paragraph (hereinafter referred to as " a return period ") shall be made within fourteen days from the end of that period.

• (4) Subject to paragraphs 4(2) and 7(3) below, no return need be made under this Schedule by a company for any period in which it has made no franked payments.

Contents of return

2

• (1) Subject to paragraph 7(2) below, the return made by a company for any return period shall show—

• (a) the amount of the franked payments made by it in that period;

• (b) the amount of franked investment income, if any, received by it in that period ; and

• (c) if any advance corporation tax is payable in respect of those payments, the amount thereof.

• (2) The return shall specify whether any amount of franked payments is included under paragraph (a) of the foregoing sub-paragraph in consequence of the giving of a notice under the proviso to section 256(1) of the Taxes Act and, if so, the amount so included.

• (3) For the purposes of paragraph (b) of sub-paragraph (1) above the amount of franked investment income received by a company in a return period shall be treated as including the excess, if any, of—

• (a) any surplus of franked investment income carried forward to the accounting period for which the return is made ; and

• (b) any amount of franked investment income received by the company in that accounting period but before the beginning of the return period,

over the amount of any franked payments made by the company in that accounting period but before the beginning of the return period.

• (4) For the purposes of paragraph (c) of sub-paragraph (1) above advance corporation tax shall be payable in respect of franked payments made in a return period if the amount shown under paragraph (a) of that sub-paragraph exceeds the amount shown under paragraph (b) of that sub-paragraph or no amount is shown under the said paragraph (b); and the amount of that tax shall be calculated at the rate of advance corporation tax in force for the financial year in which the return period ends on an amount which, when that tax is added to it, is equal to that excess or, if no amount is shown under the said paragraph (b), to the amount shown under the said paragraph (a).

Payment of tax

3

• (1) Subject to paragraph 7(2) below, advance corporation tax in respect of franked payments required to be included in a return under this Schedule shall be due at the time by which the return for that period is to be made, and advance corporation tax so due shall be payable without the making of any assessment.

• (2) Advance corporation tax which has become due as aforesaid may be assessed on the company (whether or not it has been paid when the assessment is made) if that tax, or any part of it, is not paid on or before the due date.

• (3) If it appears to the inspector that there is a franked payment which ought to have been and has not been included in a return, or if the inspector is dissatisfied with any return, he may make an assessment on the company to the best of his judgment; and any advance corporation tax due under an assessment made by virtue of this sub-paragraph shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if a correct return had been made.

Receipt of franked investment income after payment of advance corporation tax

4

• (1) This paragraph shall have effect where—

• (a) a return has been made of franked payments made in any return period falling within an accounting period and advance corporation tax has been paid in respect of those payments ; and

• (b) the company receives franked investment income after the end of the return period but before the end of the accounting period.

• (2) The company shall make a return under paragraph 1 above for the return period in which the franked investment income is received whether or not it has made any franked payments in that period, and, subject to sub-paragraph (3) below, shall be entitled to repayment of any advance corporation tax paid (and not repaid) in respect of franked payments made in the accounting period in question.

• (3) If no franked payments were made by the company in the return period for which a return is made by virtue of sub-paragraph (2) above the amount of the repayment shall not exceed the amount of the tax credit comprised in the franked investment income received ; and in any other case the repayment shall not exceed the amount of the tax credit comprised in so much of that franked investment income, if any, as exceeds the amount of the franked payments made in that return period.

Claims for set-off in respect of franked investment income received by a company

5

Where under paragraph 2 or 4 above franked investment income received by a company falls to be taken into account in determining—

• (a) whether advance corporation tax is payable or repayable ; or

• (b) the amount of such tax which is payable or repayable,

the inclusion of that franked investment income in the appropriate return shall be treated as a claim by the company to have it taken into account as aforesaid, and any such claim shall be supported by such evidence as the inspector may reasonably require.

6

• (1) Where a claim has been made under paragraph 5 above no proceedings for collecting tax which would fall to be discharged if the claim were allowed shall be instituted pending the final determination of the claim, but this sub-paragraph shall not affect the date when the tax is due.

• (2) When the claim is finally determined any tax underpaid in consequence of sub-paragraph (1) above shall be paid.

• (3) Where proceedings are instituted for collecting tax assessed, or interest on tax assessed, under any provision of this Schedule, effect shall not be given to any claim made after the institution of the proceedings so as to affect or delay the collection or recovery of the tax charged by the assessment or of interest thereon, until the claim has been finally determined.

• (4) When the claim is finally determined any tax overpaid in consequence of sub-paragraph (3) above shall be repaid.

• (5) References in this paragraph to proceedings for the collection of tax include references to proceedings by way of distraint or poinding for tax.

Qualifying distributions which are not payments and payments of uncertain nature

7

• (1) This paragraph applies to—

• (a) any qualifying distribution which is not a payment; and

• (b) any payment in respect of which the company making it would be liable to pay advance corporation tax if, but only if, it amounted to or involved a qualifying distribution and it is not in the circumstances clear whether or how far it does so.

• (2) No amount shall be shown in respect of the qualifying distribution or payment under paragraph 2(1)(a) or (c) above and paragraph 3(1) above shall not apply to the payment of advance corporation tax in respect thereof.

• (3) Particulars of the qualifying distribution or payment shall be given separately in the return for the return period in which it is made and if, apart from that distribution or payment, no franked payment is made in that period, a return containing those particulars shall be made for that period under paragraph 1 above.

• (4) Any advance corporation tax payable in respect of the qualifying distribution or payment shall be assessed on the company and shall be so assessed without regard to any franked investment income received by the company but—

• (a) relief shall be given from the tax assessed (by discharge thereof) to the extent, if any, to which that tax exceeds the tax that would have been payable if the amount of the franked payment comprising the qualifying distribution or payment, calculated on the amount or value thereof shown in the assessment, had been included in the return under sub-paragraph (1) (a) of paragraph 2 above and the tax had been calculated in accordance with sub-paragraph (4) of that paragraph ; and

• (b) for the purposes of the application of sub-paragraph (3) of that paragraph to any subsequent return period, the amount of that franked payment shall be taken to be the amount calculated as aforesaid.

Items included in error

8

Where any item has been included in a return under this Schedule as a franked payment made or as franked investment income received by a company but that item should have been included in a return or claim under Schedule 20 to this Act, the inspector may make any such assessments, adjustments or set-offs as may be required for securing that the resulting liabilities to tax (including interest on unpaid tax) whether of the company or of any other person are the same as they would have been if the item had been included in the right return or claim.

Qualifying distribution made otherwise than in an accounting period

9

Where a company makes a qualifying distribution on a date which does not fall within an accounting period the company shall make a return of that distribution within fourteen days from that date, and the advance corporation tax in respect thereof shall be due at the time by which the return is to be made, except where the distribution is not a payment in which case the advance corporation tax shall be assessed on the company.

Assessments and due date of tax

10

• (1) All the provisions of the Corporation Tax Acts as to the time within which an assessment may be made, so far as they refer or relate to the accounting period for which an assessment is made, or the accounting period to which an assessment relates, shall apply in relation to an assessment under this Schedule notwithstanding that, under this Schedule, the assessment may be said to relate to a quarter or other period which is not an accounting period, and the provisions of sections 36 and 39 of the Management Act as to the circumstances in which an assessment may be made out of time shall apply accordingly on the footing that any such assessment relates to the accounting period in which the quarter or other period ends or, in the case of an assessment under paragraph 9 above, to an accounting period ending on the date on which the distribution is made.

• (2) Advance corporation tax assessed on a company under this Schedule shall be due within fourteen days after the issue of the notice of assessment (unless due earlier under paragraph 3(1) or 9 above).

• (3) Sub-paragraph (2) above has effect subject to any appeal against the assessment, but no such appeal shall affect the date when tax is due under paragraph 3(1) or 9 above.

• (4) On the determination of an appeal against an assessment under this Schedule any tax overpaid shall be repaid.

• (5) Any tax assessable under any one or more of the provisions of this Schedule may be included in one assessment if the tax so included is all due on the same date.

SCHEDULE 15

PART I — Sections 254 and 255

PART II — Section 256(1), (4) and (4A)

SCHEDULE 16

PART I — Powers of Apportionment and Consequences of Apportionment

Power to apportion excess of company's relevant income over its distributions

1

• (1) Subject to sub-paragraphs (2) and (3) below, the income of a close company for any accounting period may, for the purposes of this Schedule, be apportioned by the inspector among the participators.

• (2) Subject to paragraphs 2 and 3 below—

• (a) an apportionment shall not be made under this paragraph unless the relevant income of the company for the accounting period exceeds its distributions for that period ; and

• (b) the amount apportioned shall be the amount of that excess,

and Part II of this Schedule shall have effect for determining the relevant income and distributions of a company for an accounting period and whether or not there is any such excess.

• (3) Subject to paragraphs 2 and 3 below, an apportionment shall not be made under this paragraph of the income of—

• (a) a trading company ; or

• (b) a company which is a member of a trading group by virtue of paragraph 11(2)(a) below,

unless the excess mentioned in sub-paragraph (2) above is more than £1,000.

• (4) Any amount apportioned to a close company under sub-paragraph (1) above, or by one or more sub-apportionments under this sub-paragraph, may be further apportioned among the participators in that company.

• (5) Subject to paragraph 13 below, this paragraph shall, notwithstanding the winding up of a company, or the passing of any resolution or the making of any order or anything else done for the purpose of winding up a company, continue to apply as if the company were not being wound up.

Power to apportion whole of relevant income of non-trading company

2

Subject to paragraphs 13(4) and 14(2) below, there may be apportioned under paragraph 1 above, if the inspector sees reason for it, the whole of the relevant income for an accounting period of a close company which is not a trading company, whether or not there is any such excess as is mentioned in sub-paragraph (2) of that paragraph ; and sub-paragraphs (2) and (3) of that paragraph shall accordingly not apply to any apportionment made by virtue of this paragraph.

Power to apportion amounts deducted in respect of certain annual payments

3

• (1) Subject to sub-paragraph (2) below, there may be apportioned under paragraph 1 above as if it were income of a close company for an accounting period any amount which was deducted in respect of annual payments made by the close company in arriving at its distributable income for that period and which in the case of an individual would not have been deductible or would have been treated as his income in computing his total income.

• (2) Sub-paragraph (1) above does not apply to annual payments which consist of interest or are made wholly and exclusively for the purposes of the company's trade.

• (3) Any amount apportionable by virtue of this paragraph shall be in addition to the amount (if any) apportionable under paragraph 1 above without this paragraph, and nothing in sub-paragraphs (2) and (3) of that paragraph shall apply to any apportionment made by virtue of this paragraph.

Manner of apportionment

4

• (1) Subject to the provisions of this paragraph, any apportionment under paragraph 1 above, including any sub-apportionment of an amount directly or indirectly apportioned to a company, shall be made according to the respective interests in the company in question of the participators.

• (2) In determining for the purposes of this paragraph the respective interests of the participators, the inspector may if it seems proper to him to do so attribute to each participator an interest corresponding to his interest in the assets of the company available for distribution among the participators in the event of a winding up or in any other circumstances.

• (3) Where income of a company which is not a trading company is apportioned under paragraph 1 above, the inspector may if it seems proper to him to do so treat a loan creditor as having an interest for the purposes of this paragraph to the extent to which 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, repayment or discharge of the loan capital or debt (including any premium thereon) in respect of which he is a loan creditor.

Consequences of apportionment: income tax

5

• (1) Where a sum has been apportioned under paragraph 1 above to an individual (whether by an original apportionment or a sub-apportionment), income tax shall be assessed and charged in respect of that sum in accordance with the following provisions of this paragraph.

• (2) Where a sum is so apportioned to an individual—

• (a) it shall be treated for the purpose of computing his total income as income received by him at the end of the accounting period to which the apportionment relates and, subject to section 529 of the Taxes Act, shall be deemed to be the highest part of his total income;

• (b) no assessment shall be made on the individual in respect of income tax at the basic rate on that sum (nor, in the case mentioned in sub-paragraph (4) below, in respect of income tax at any other rate) but he shall be treated as having paid income tax at the basic rate on that sum or, if his total income is reduced by any deductions, on so much of that sum as is part of his total income as so reduced ;

• (c) no repayment shall be made of the income tax treated by virtue of paragraph (b) above as having been paid; and

• (d) the sum so apportioned shall be treated for the purposes of sections 52 and 53 of the Taxes Act as not brought into charge to income tax.

• (3) Where a sum is so apportioned to the personal representatives of a deceased person it shall be treated, in ascertaining the aggregate income of the estate for the purposes of Part XV of the Taxes Act, as having been received as mentioned in paragraph (a) of sub-paragraph (2) above, and paragraphs (b) to (d) of that sub-paragraph shall apply accordingly with the necessary modifications.

• (4) No individual shall be assessed to income tax by virtue of any apportionment unless the sum or, where there is a sub-apportionment, the aggregate sum on which he is so assessable amounts at least to—

• (a) £200 ; or

• (b) 5 per cent. of the amount apportioned,

whichever is the less.

• (5) Where an apportionment is made by virtue of paragraph 2 above, an individual shall not be charged to tax on a sum treated in consequence of the apportionment or any sub-apportionment as being his income except in so far as it exceeds the amount which, apart from the apportionment, falls in respect of distributions made by the company for the accounting period to be included in his total income.

• (6) Where the income of a company for any accounting period has been apportioned under paragraph 1 above or section 296 of the Taxes Act and the distributions of the company for a later accounting period for which it is a close company—

• (a) consist of or include a distribution of all or any of the apportioned income; and

• (b) exceed the company's relevant income for that later period,

then, if any individual who was charged to tax under this paragraph or section 297 of the Taxes Act in respect of any of the apportioned income is entitled to any of that income on its subsequent distribution as aforesaid, there shall be deemed not to form part of his total income an amount of the income subsequently distributed (or of the excess mentioned in paragraph (b) above if it is less) equal to such fraction as corresponds to—

• (i) the fraction of the apportioned income in respect of which he was charged to tax ; or

• (ii) the fraction to which he is entitled of the subsequent distribution of that income,

whichever is the smaller.

• (7) For the purposes of this paragraph—

• (a) the sum apportioned to any person ;

• (b) the amount mentioned in sub-paragraph (4)(b) above; and

• (c) the amount to be excluded from a person's total income in accordance with sub-paragraph (6) above,

shall respectively be taken to consist of the aggregate of that sum or amount and such proportion of it as corresponds to the appropriate rate of advance corporation tax; but paragraphs (a) and (b) above shall not apply in the case of any apportionment so far as made by virtue of paragraph 3 above.

• (8) For the purposes of paragraphs (a) and (b) of sub-paragraph (7) above, the appropriate rate of advance corporation tax is the rate applicable to a distribution made at the end of the accounting period to which the apportionment relates, and for the purposes of paragraph (c) of that sub-paragraph the appropriate rate of advance corporation tax is the rate applicable to the distribution mentioned in sub-paragraph (6)(a) above.

Payment and collection of income tax

6

• (1) Any income tax chargeable under paragraph 5 above in respect of a sum apportioned to a participator shall be assessed on the participator and, subject to the provisions of this paragraph, all the provisions of the Income Tax Acts relating to assessment and the collection and recovery of tax shall with any necessary modifications apply to tax chargeable under that paragraph.

• (2) If the whole or any part of the tax assessed on the participator is not paid within thirty days from the date on which the assessment became final and conclusive or by 6th July in the year next following the year of assessment, whichever is the later, a notice of liability to tax under this paragraph shall be served on the company and the tax or the part thereof remaining unpaid, as the case may be, shall thereupon be payable by the company.

• (3) Where a notice of liability is served under sub-paragraph (2) above, any interest due on the tax assessed on the participator and not paid by him, and any interest accruing due on that tax after the date of service, shall be payable by the company.

• (4) Where a notice of liability is served on the company and the relevant tax and any interest payable by the company under sub-paragraph (3) above is not paid by the company before the expiry of three months from the date of service, that tax and interest may, without prejudice to the right of recovery from the company, be recovered from the participator.

• (5) Where, in consequence of a sub-apportionment, the foregoing provisions of this paragraph apply in relation to a participator in a company other than the company in relation to which the original apportionment was made, references in those provisions to the company shall be taken as references to the company in relation to which the original apportionment was made.

Consequences of apportionment: advance corporation tax

7

• (1) This paragraph has effect where the income of a company is apportioned under paragraph 1 above; and in this paragraph "apportioned amount" means the aggregate of the amount of that income which is so apportioned and such proportion of that amount as corresponds to the rate of advance corporation tax applicable to a distribution made at the end of the accounting period to which the apportionment relates (" the relevant period ").

• (2) If in the relevant period the company has a surplus of franked investment income, the surplus (so far as not already reduced in consequence of a claim under section 254 or 255 of the Taxes Act or of being used to frank distributions made by the company in a subsequent accounting period) shall be treated for all purposes as reduced by a sum equal to the apportioned amount or, if that is greater, as extinguished.

• (3) If in the relevant period the company has no such surplus (so far as not already reduced as aforesaid), or the apportioned amount exceeds that surplus (so far as not already reduced as aforesaid), sub-paragraphs (4) to (6) below shall have effect in relation to a sum equal to the advance corporation tax comprised in a franked payment made at the end of the relevant period of an amount equal to the apportioned amount or to that excess, as the case may be.

• (4) If, apart from this paragraph, surplus advance corporation tax of a later accounting period could by virtue of subsection (3) of section 85 of this Act be set against the company's liability to corporation tax for the relevant period, that advance corporation tax shall not be so set except to such extent, if any, as would be possible if the sum mentioned in sub-paragraph (3) above had been advance corporation tax available to be so set against that liability for the relevant period and had, so far as permitted by that section, already been set against that liability.

• (5) If the sum mentioned in sub-paragraph (3) above exceeds the amount that could, if it were advance corporation tax available for the purpose, be set as aforesaid against the company's liability for the relevant period—

• (a) there shall be deducted from the excess an amount equal to the advance corporation tax, if any, that could by virtue of subsection (3) of the said section 85 be set against the company's liability to corporation tax for earlier accounting periods after taking into account advance corporation tax so set in consequence of a claim already made under that subsection; and

• (b) if no such claim has already been made, advance corporation tax shall not by virtue of any such claim be set against the company's liability to corporation tax for any such earlier accounting periods except to such extent, if any, as would be possible if an amount equal to any deduction under paragraph (a) above had been advance corporation tax available to be so set and had, so far as permitted by the said section 85, already been set against that liability.

• (6) Any excess of the said sum remaining after the deduction mentioned in sub-paragraph (5)(a) above—

• (a) shall be assessed on and recoverable from the company as if it were advance corporation tax payable by the company in respect of a distribution made by it at the end of the relevant period ; and

• (b) shah be treated as surplus advance corporation tax of the relevant period falling to be dealt with in accordance with subsection (4) of the said section 85.

• (7) Without prejudice to the application of sub-paragraphs (4) and (5) above to advance corporation tax which a company is treated by virtue of section 92 of this Act as having paid, sub-paragraph (4) above shall apply also to advance corporation tax which a company is so treated as having paid in respect of distributions made in the relevant period and which, apart from this paragraph, could by virtue of section 85(1) of this Act be set against the company's liability to corporation tax for that period.

• (8) Tax assessed by virtue of sub-paragraph (6)(a) above shall, subject to any appeal against the assessment, be due within fourteen days after the issue of the notice of assessment.

• (9) Sub-paragraph (6)(b) above shall not be construed as authorising any sum to be carried forward to a later accounting period in any case in which section 101 of this Act would prevent the carry forward of advance corporation tax.

PART II — Provisions for Determining Relevant Income and Distributions, Etc

Determination of " relevant income "

8

• (1) Subject to the provisions of this paragraph and of paragraphs 9 and 13 below, the relevant income of a company for an accounting period is—

• (a) in the case of a company which is a trading company or a member of a trading group, so much of its distributable income for that period as can be distributed without prejudice to the requirements of the company's business;

• (b) in the case of a company not within paragraph (a) above whose distributable income for that period consists of or includes estate or trading income—

• (i) so much of the estate or trading income as can be distributed without prejudice to the requirements of the company's business so far as concerned with the activities or assets giving rise to estate or trading income; and

• (ii) its distributable income, if any, other than estate or trading income;

• (c) in the case of any other company, its distributable income for that period.

• (2) In arriving at the relevant income for any accounting period—

• (a) where under sub-paragraph (1) above regard is to be had to the requirements of a company's business, regard shall be had not only to the current requirements of the business but also to such other requirements as may be necessary or advisable for the maintenance and development of that business but, for this purpose, the provisions of paragraph 12 below shall apply ;

• (b) the amount of the estate or trading income shall be taken as the amount included in respect of it in the distributable income.

Maximum amount to be taken as " relevant income "

9

• (1) Subject to paragraph 13 below, the relevant income of a company shall in no case be taken to exceed the company's distributable investment income for the accounting period plus 50 per cent. of the estate or trading income for the period.

• (2) In the application of sub-paragraph (1) above to a trading company, the estate or trading income for an accounting period, if it is less than the relevant maximum amount shall be treated as reduced by one half of the amount required to make it up to that relevant maximum amount or, if it is less than the relevant minimum amount, shall be disregarded.

• (3) The relevant maximum and minimum amounts referred to above shall be determined as follows—

• (a) where the company has no associated company in the accounting period, those amounts are £15,000 and £5,000 respectively ;

• (b) where the company has one or more associated companies in the accounting period, the relevant maximum amount is £15,000 divided by one plus the number of those associated companies and the relevant minimum amount is £5,000 divided by one plus the number of those associated companies.

• (4) In applying sub-paragraphs (2) and (3) above to any accounting period of a trading company, an associated company which has not carried on any trade or business at any time in that accounting period (or, if an associated company during part only of that accounting period, at any time in that part of that accounting period) shall be disregarded; and for the purposes of this paragraph a company is to be treated as an " associated company " of another at a given time if at that time one Of the two has control of the other or both are under the control of the same person or persons.

• (5) In determining how many associated companies a trading company has in an accounting period or whether a trading company has an associated company in an accounting period, an associated company shall be counted even if it was an associated company for part only of the accounting period, and two or more associated companies shall be counted even if they were associated companies for different parts of the accounting period.

• (6) For an accounting period of less than twelve months the relevant maximum and minimum amounts determined in accordance with the foregoing provisions of this paragraph shall be proportionately reduced.

Distributions to be taken into account, and meaning of " distributable income ", etc.

10

• (1) For the purposes of this Schedule the distributions of a company for an accounting period shall be taken to consist of—

• (a) any dividends which are declared in respect of the period and are paid during the period or within a reasonable time thereafter, and

• (b) all distributions made in the period except dividends which, in relation to any previous period, would fall under paragraph (a) above or section 291(1)(a) of the Taxes Act:

Provided that, where a period of account is not an accounting period, dividends which, if it were an accounting period, would be treated under paragraph (a) above as distributions for that accounting period shall be apportioned to any accounting period or part of an accounting period falling within the period of account in proportion to the distributable income of each such period or part.

• (2) For the purposes of this Schedule, the " distributable income " of a company for an accounting period shall be the amount of its distributable profits for the period exclusive of the part attributable to chargeable gains, and, for the purposes of this sub-paragraph—

• (a) the " distributable profits " of a company for an accounting period shall be the aggregate of the following amounts, that is to say—

• (i) the amount of any profits on which corporation tax falls finally to be borne, less the amount of that tax,

• (ii) an amount equal to the qualifying distributions comprised in any franked investment income, other than franked investment income against which relief is given under section 254 or 255 of the Taxes Act, and

• (iii) an amount equal to any group income,

• (b) the part of a company's distributable profits attributable to chargeable gains shall be taken to be the amount of the chargeable gains on which corporation tax is finally borne less the amount of that tax, and

• (c) the amount on which corporation tax falls finally to be borne (but not the amount of that tax) shall be computed as if section 254 of the Taxes Act did not include subsection (5) or subsection (6) of that section (and as if section 255 of that Act did not apply the said subsection (5)).

• (3) For the purposes of this Schedule the " distributable investment income " of a company for an accounting period shall be the amount of the distributable income, exclusive of the part attributable to estate or trading income, and less whichever is the smaller of—

• (a) 10 per cent. of the estate or trading income, and

• (b) £500 or, if the accounting period is of less than twelve months, a proportionately reduced amount.

• (4) Subject to sub-paragraph (5) below, for the purposes of this Schedule, the " estate or trading income " of a company means—

• (a) income which is not investment income for the purposes of paragraph 11(1) below, and

• (b) income which is chargeable to tax under Schedule A or Schedule B, and income (other than yearly or other interest) which is chargeable to tax under Schedule D, and which arises from the ownership or occupation of land (including any interest in or right over land) or from the letting furnished of any building or part of a building.

• (5) Where the following conditions are satisfied with respect to a close company, that is to say—

• (a) that its activities consist wholly or mainly of the carrying on of a trade ; and

• (b) that that trade consists wholly or mainly of one or more of the following, that is to say, life assurance business (within the meaning of section 323(2) of the Taxes Act), insurance business of any other class, banking, money lending, financing of hire-purchase or similar transactions, or dealing in securities,

its income incidental to that trade shall (so far as not otherwise falling within the definition of estate or trading income in sub-paragraph (4) above) be treated as estate or trading income in arriving, under paragraph 8 above, at the relevant income for the purposes of paragraph 1 above.

• (6) For the purposes of sub-paragraph (5) above income of a company is incidental to its trade if, and only if—

• (a) it is derived from investments (other than investments in a 51 per cent. subsidiary) or is interest on a debt; and

• (b) any profit on the sale of the investments would be a trading receipt, and the debt, if proved to be a bad debt, would be allowed as a deduction, in computing the company's trading income for the purposes of corporation tax.

• (7) The amount for part of an accounting period of any description of income referred to in sub-paragraphs (2) to (5) above shall be a proportionate part of the amount for the whole period.

• (8) In determining the amount for any period of any description of income referred to in sub-paragraphs (2) to (5) above, any deduction from the company's profits for charges on income, expenses of management or other amounts which can be deducted from or set against or treated as reducing profits of more than one description shall be treated as made—

• (a) first from the company's income charged to corporation tax other than estate or trading income ;

• (b) secondly, so far as it cannot be made under (a) above, from the company's estate or trading income so charged; and

• (c) thirdly, so far as it cannot be made under (a) or (b) above, from the amount included in the company's profits in respect of chargeable gains.

Meaning of " trading company " and " member of a trading group "

11

• (1) For the purposes of this Schedule, a "trading company" is any company which exists wholly or mainly for the purpose of carrying on a trade, and any other company whose income does not consist wholly or mainly of investment income, that is to say, income, which, if the company were an individual, would not be earned income ; but for this purpose any amount which is apportioned to a company under paragraph 1 above shall be deemed to be income of the company and to be investment income.

• (2) For the purposes of this Schedule, a company is to be treated as a " member of a trading group " if, but only if—

• (a) it exists wholly or mainly for the purpose of co-ordinating the administration of a group of two or more companies each of which is under its control and exists wholly or mainly for the purpose of carrying on a trade, or

• (b) it is under the control of another company resident in the United Kingdom and not itself under the control of a third company, and it exists wholly or mainly for the purpose of a trade or trades carried on by that other company or by a group which, consisting of that other company and a company or companies also under its control and resident in the United Kingdom, exists wholly or mainly for the purpose of carrying on the said trade or trades:

Provided that a company shall not be treated as a member of a trading group by reason of any company having the control of another if that control is exercised through a company which is not resident in the United Kingdom or through a company whose control depends on a holding a profit on the sale of which would be treated as a trading receipt of the company.

Requirements of the company's business

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• (1) For the purposes of paragraph 8(2) above there shall be regarded as income available for distribution and not as having been applied, or as being applicable, to the current requirements of a company's business, or to such other requirements as may be necessary or advisable for the maintenance and development of that business—

• (a) any sum expended or applied, or intended to be expended or applied, out of the income of the company, otherwise than in pursuance of an obligation entered into by the company before 4th August 1914—

• (i) in or towards payment for the business, undertaking or property which the company was formed to acquire or which was the first business, undertaking or property of a substantial character in fact acquired by the company, or

• (ii) in redemption or repayment of any share or loan capital or debt (including any premium thereon) issued or incurred in or towards payment for any such business, undertaking or property, or issued or incurred for the purpose of raising money applied or to be applied in or towards payment therefor, or

• (iii) in meeting any obligations of the company in respect of the acquisition of any such business, undertaking or property, or

• (iv) in redemption or repayment of any share or loan capital or debt (including any premium thereon) issued or incurred otherwise than for adequate consideration, and

• (b) any sum expended or applied, or intended to be expended or applied, in pursuance or in consequence of any fictitious or artificial transaction, and

• (c) in the case of a company which is neither a trading company nor a member of a trading group, any sum expended or applied, or available to be expended or applied, out of the income of the company in or towards the redemption, repayment or discharge of any loan capital or debt (including any premium thereon) in respect of which any person is a loan creditor of the company.

• (2) For the purposes of sub-paragraph (1)(a)(iv) above, share or loan capital or debt shall be deemed to be issued or incurred otherwise than for adequate consideration if—

• (a) it is issued or incurred for consideration the value of which to the company is substantially less than the amount of the capital or debt (including any premium thereon), or

• (b) it is issued or incurred in or towards, or for the purpose of raising money applied or to be applied in or towards, the redemption or repayment of any share or loan capital or debt which itself was issued or incurred for such consideration as is mentioned in paragraph (a) of this sub-paragraph or which represents, directly or indirectly, any share or loan capital or debt which itself was issued or incurred for such consideration.

• (3) References in the foregoing provisions of this paragraph to money applied or to be applied for any purpose shall be deemed to include references to money applied or to be applied in or towards the replacement of that money.

Cessations and liquidations

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• (1) Where a close company ceases to carry on the trade, or the business of holding investments, in which its activities wholly or mainly consisted, the relevant income of the company for any accounting period in which that event occurs, or which ends in or within the twelve months ending with that event, shall be calculated as if—

• (a) paragraph 8(1)(a) and (b)(i) above referred respectively to the whole of the company's distributable income and to the whole of the estate or trading income and not to so much thereof as can be distributed without prejudice to the requirements there mentioned, and paragraphs 8(2)(a) and 12 above were omitted ;

• (b) in paragraph 9(1) above the words " 50 per cent. of " were omitted.

• (2) Where sub-paragraph (1) above applies for an accounting period and the company could not make distributions without prejudice to the claims of creditors (excluding those mentioned in sub-paragraph (3) below), the excess mentioned in paragraph 1(2) above shall be disregarded to the extent to which the company could not make distributions up to the amount of its relevant income without prejudice to those claims.

• (3) The creditors to be excluded for the purposes of sub-paragraph (2) above are all participators and associates of participators, and all creditors in respect of debts originally created in favour of or due to a person who was then a participator or associate of a participator:

Provided that a creditor is not to be excluded in respect of any debt which either—

• (a) arose in the ordinary course of the company's trade or the company's business of holding investments and also in the ordinary course of a trade or profession of the creditor or, as the case may be, of the participator or associate who was the original creditor, or

• (b) is a debt for remuneration chargeable to income tax under Schedule E, or

• (c) is a debt for any rent or other payment due for the use of tangible property or of copyright in a literary, dramatic, musical or artistic work within the meaning of the Copyright Act 1956 (or any corresponding right under the law of a country to which that Act does not extend), and not representing more than a reasonable commercial consideration for that use.

• (4) Where sub-paragraph (1) above applies for any accounting period, there shall be disregarded for the purposes of any apportionment made by virtue of paragraph 2 above so much of the relevant income of the company for that period as is equal to the amount which would be disregarded under sub-paragraph (2) above.

• (5) Where a resolution is passed, or an order is made, for the winding up of a close company, or where any other act is done for a like purpose in the case of a winding up otherwise than under the Companies Act 1948, sub-paragraphs (1) to (4) above shall apply for any accounting period ending in or with the twelve months ending with the passing of the resolution or other event, or for any later accounting period, as they apply, in a case falling within sub-paragraph (1) above, for an accounting period in which a close company ceases to carry on a trade.

Legal restrictions on distributions

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• (1) Where a company is subject to any restriction imposed by law as regards the making of distributions, the excess mentioned in paragraph 1(2) above shall be disregarded to the extent to which the company could not make distributions up to the amount of its relevant income without contravening that restriction.

• (2) Except where paragraph 13(1) above applies, there shall be disregarded for the purposes of any apportionment made by virtue of paragraph 2 above so much of the relevant income of the company as is equal to any amount which would be disregarded under sub-paragraph (1) above.

PART III — Procedure

Notice of amount to be apportioned

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• (1) Where in the case of any company the inspector proposes to apportion an amount under paragraph 1 above he shall serve on the company a notice showing the amount to be apportioned and, subject to any appeal under this paragraph and to paragraph 17 below, that notice shall be treated as conclusively establishing, both in relation to the company and for the purposes of any assessment under paragraph 5 above, that an apportionment can be made in respect of .that amount.

• (2) After a notice under sub-paragraph (1) above has been served on the company it shall not be altered except on appeal or in accordance with paragraph 17 below.

• (3) The company may by giving notice of appeal in writing to the inspector within thirty days of the date of any notice under sub-paragraph (1) above appeal against that notice; and any notice under that sub-paragraph shall state the time within which notice of appeal may be given under this sub-paragraph.

• (4) Subject to paragraph 20(2) below, any appeal under this paragraph shall be to the General Commissioners except that the company may elect (in accordance with section 46(1) of the Management Act) to bring the appeal before the Special Commissioners instead of the General Commissioners.

• (5) The notice of appeal shall specify the grounds of appeal, but on the hearing of the appeal the Commissioners may allow the appellant to put forward any ground not specified in the notice, and take it into consideration if satisfied that the omission was not wilful or unreasonable.

• (6) If a company fails or refuses, on being required to do so under paragraph 19 below, to furnish a statement of any amount which in the case of that company could be apportioned under this Schedule, or renders a statement with which the inspector is not satisfied, the inspector may make an estimate of that amount to the best of his judgment, and any relevant decision taken by the inspector under this sub-paragraph may be reviewed on an appeal under this paragraph.

• (7) Sections 113 (1B) and (3) and 114(2) of the Management Act (supplementary provisions as to assessments and notices of assessment) shall apply to any notice under sub-paragraph (1) above as if the determination of the amount to be shown therein were the making of an assessment and the notice were a notice of assessment.

Notice of manner of apportionment

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• (1) Where a notice has been served on a company under paragraph 15 above showing an amount to be apportioned, the inspector shall serve on the company a notice showing the manner in which that amount is apportioned (that is to say, the sum apportioned or sub-apportioned to each participator or, if the inspector thinks fit, to each class of share) and, subject to any appeal under this paragraph and to paragraph 17 below, that notice shall be treated, in relation to the company, as conclusively establishing the manner of apportionment.

• (2) Paragraph 15(2), (3), (4), (5) and (7) above shall apply also to a notice under this paragraph, but any appeal against such a notice by virtue of this sub-paragraph shall be to the Special Commissioners.

• (3) The manner of apportionment shown in a notice under this paragraph may also be questioned on an appeal against any assessment made under paragraph 5 above ; and any relevant decision taken by the inspector under paragraph 4(2) or (3) above may be reviewed on an appeal under this paragraph or on an appeal against any such assessment.

Revision of apportionment

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• (1) If the inspector discovers that the amount apportioned in the case of any company is or has become insufficient, he may serve on the company a further notice under paragraph 15(1) above showing the further amount which ought in his opinion to be apportioned, and a further notice relating to that amount shall then be served under paragraph 16 above.

• (2) Where the amount shown in a notice under sub-paragraph (1) of paragraph 15 above is excessive because the company's distributable income is smaller than it was taken to be for the purposes of that notice or because the company's distributions were greater than they were taken to be for those purposes, the inspector may serve on the company a further notice under that sub-paragraph showing a reduced amount; and where such a notice is served—

• (a) a further notice shall also be served under paragraph 16 above making such amendments in any previous notice under that paragraph as may be required to take account of the reduction in the amount apportioned ; and

• (b) there shall be made such adjustments by repayment or discharge of tax as may be required to secure that liabilities to tax under paragraphs 5 to 7 above are what they would have been if the notices originally served under paragraphs 15 and 16 above had been as amended by further notices served by virtue of this paragraph.

Protection by transmission of accounts

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• (1) A close company may, at any time after the general meeting at which the accounts for any period of account are adopted, forward to the inspector a copy of those accounts, together with a copy of the report (if any) of the directors for that period and such further information (if any) as it may think fit, and may request the inspector to proceed under this paragraph in relation to any accounting period comprised in that period of account:

Provided that this sub-paragraph shall not apply if the company is neither a trading company nor a member of a trading group and has no estate or trading income.

• (2) Where the inspector receives a request made in accordance with sub-paragraph (1) above in relation to any accounting period, then, subject to sub-paragraph (3) below, he shall, within three months after receipt of the request, intimate to the company whether or not he proposes to make an apportionment in respect of the company for the accounting period under paragraph 1 above.

• (3) On receiving a request made in accordance with sub-paragraph (1) above, the inspector may, not later than three months after the receipt of the request, call on the company to furnish him with such further particulars as he may reasonably require ; and, if the inspector does so, the time for giving the intimation required by sub-paragraph (2) above shall not expire before three months after he has been furnished with those particulars.