Finance Act 1986

(4) For the purposes of sub-paragraph (2)(b) above— (a) a trade of wholesale distribution is one in which the goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption; (b) a trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption; (c) a trade is not an ordinary trade of wholesale or retail distribution if— (i) it consists to a substantial extent of dealing in goods of a kind which are collected or held as an investment or of that activity and any other activity of a kind falling within paragraph 6(2) above, taken together; and (ii) a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value; and, in determining for the purposes of sub-paragraph (2)(b) whether a trade is an ordinary trade of wholesale or retail distribution, regard shall be had to the extent to which it has the features mentioned in Schedule 11 to the Finance Act 1981, those in Part I being regarded as indications that the trade is such an ordinary trade and those in Part II being regarded as indications of the contrary. (5) For the purposes of this paragraph a person has a controlling interest in a trade— (a) in the case of a trade carried on by a company if— (i) he controls the company; (ii) the company is a close company for the purposes of the Corporation Tax Acts and he or an associate of his is a director of the company and the beneficial owner of, or able directly or through the medium of other companies or by any other indirect means to control, more than 30 per cent, of the ordinary share capital of the company; or (iii) not less than half of the trade could, in accordance with section 253(2) of the Taxes Act, be regarded as belonging to him; (b) in any other case, if he is entitled to not less than half of the assets used for, or the income arising from, the trade. (6) For the purposes of sub-paragraph (5) above there shall be attributed to any person any rights or powers of any other person who is an associate of his. (7) References in this paragraph to a trade shall be construed without regard to so much of the definition of "trade" in section 526 (5) of the Taxes Act as relates to adventures or concerns in the nature of trade; but the foregoing provisions do not affect the construction of references in sub-paragraph (2)(g) or (5) above to a trade carried on by a person other than the company and those references shall be construed as including references to any business, profession or vocation. (8) The Treasury may by order made by statutory instrument amend this paragraph in such manner as they consider expedient. (9) Any order under sub-paragraph (8) above shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament. (10) In this paragraph— - "film" means an original master negative of a film, an original master film disc or an original master film tape; - "oil rig" means any ship which is an offshore installation for the purposes of the Mineral Workings (Offshore Installations) Act 1971; - "pleasure craft" means any ship of a kind primarily used for sport or recreation; and - "sound recording" means, in relation to a film, its sound track, original master audio disc or, as the case may be, original master audio tape.

• (5) Sub-paragraph (2) above, so far as it relates to oil extraction, has effect in relation to shares issued at any time after the passing of this Act.

Disposal of shares

9

• (1) Paragraph 7 shall be amended as follows.

• (2) The following sub-paragraph shall be inserted after sub-paragraph (1)—

(1A) Where an option, the exercise of which would bind the grantor to purchase any shares, is granted to an individual during the relevant period, the individual shall not be entitled to any relief in respect of the shares to which the option relates.

• (3) In sub-paragraph (2), for the words "company shall" there shall be substituted the words "company, and any option of the kind mentioned in sub-paragraph (1A) above, shall",

and after the word "given", in each place, there shall be inserted the words "(and not withdrawn)".

• (4) In sub-paragraph (2A) the words "(and not withdrawn)" shall be inserted after the word "given" and the words "(subject to subparagraph (2) above)" shall be inserted after the words "class shall".

• (5) The following sub-paragraph shall be substituted for sub-paragraph (4)—

(4) For the purposes of this paragraph and of Chapter II as applied by this paragraph— (a) references to a disposal of shares include references to the grant of an option the exercise of which would bind the grantor to sell the shares; and (b) shares in a company shall not be treated as being of the same class unless they would be so treated if dealt with on The Stock Exchange.

• (6) The amendment made by sub-paragraph (4) above, which is enacted for the avoidance of doubt, shall be deemed to have been incorporated in Schedule 5 to the Finance Act 1983 as originally enacted but otherwise this paragraph has effect in relation to options granted at any time after 18th March 1986.

Value received from company

10

• (1) Paragraph 8 shall be amended as follows.

• (2) In sub-paragraph (1), the words "Subject to paragraph 7 above" shall be inserted at the beginning.

• (3) For sub-paragraph (2) there shall be substituted the following sub-paragraph—

(2) Subject to sub-paragraph (3) below, section 58(2) to (4) and (6) to (9) of Chapter II shall apply but— (a) with the addition, at the end of subsection (2)(e), of the words 'which has not been repaid in full before the issue of the shares in respect of which relief is claimed'; (b) with the substitution, in subsection (3), of a reference to paragraph 5(5) above for the reference to section 55(5); and (c) with the addition, at the end of subsection (4)(c), of the words 'reduced by the amount of any repayment made before the issue of the shares in respect of which relief is claimed'.

• (4) The following sub-paragraph shall be added at the end—

(4) Where relief to which an individual is entitled in respect of eligible shares is reduced by virtue of this paragraph, effect shall be given to the reduction by apportioning it, as between the eligible shares held by him, in such a way as appears to the inspector, or on an appeal to the Commissioners concerned, to be just and reasonable.

• (5) The amendment made by sub-paragraph (2) above, which is enacted for the avoidance of doubt, shall be deemed to have been incorporated in Schedule 5 to the Finance Act 1983 as originally enacted.

Value received by persons other than claimants

11

• (1) Paragraph 10 shall be amended as follows.

• (2) In sub-paragraph (1)(b), after "thereby" there shall be inserted the words "withdrawn or reduced by virtue of paragraph 7 above or".

• (3) For sub-paragraph (5A) there shall be substituted the following sub-paragraph—

(5A) Where relief to which an individual is entitled in respect of eligible shares is reduced by virtue of this paragraph, effect shall be given to the reduction by apportioning it as between the eligible shares held by him in such a way as appears to the inspector, or on an appeal to the Commissioners concerned, to be just and reasonable.

.

Parallel trades

12

After paragraph 10 there shall be inserted the following paragraph—

(10A) (1) An individual is not entitled to relief in respect of any shares in a company where, at the date mentioned in subparagraph (2) below— (a) he is one of a group of persons— (i) who control the company; or (ii) to whom belongs an interest amounting in the aggregate to more than a half share in the trade carried on by the company; (b) he is also an individual, or one of a group of persons— (i) controlling another company; or (ii) to whom belongs an interest amounting in the aggregate to more than a half-share in another trade; and (c) the trade carried on by the company, or a substantial part of it— (i) is concerned with the same or similar types of property or parts thereof or provides the same or similar services or facilities; and (ii) serves substantially the same or similar outlets or markets; as the other trade or (as the case may be) the trade carried on by the other company. (2) The date mentioned in sub-paragraph (1) above is— (a) the date on which the shares are issued; or (b) if later, the date on which the company begins to carry on the trade. (3) For the purposes of sub-paragraph (1) above— (a) the persons to whom a trade belongs, and (where a trade belongs to two or more persons) their respective shares in that trade, shall be determined in accordance with subsections (1)(a) and (b), (2) and (3) of section 253 of the Taxes Act; and (b) any interest, rights or powers of a person who is an associate (as denned by section 67(1) of Chapter II) of another person shall be treated as those of that other person. (4) For the purposes of this paragraph— (a) references to a company's trade include references to the trade of any of its subsidiaries; and (b) "trade", in the expressions "another trade", "other trade" and "trade carried on by the other company", includes any business, profession or vocation.

Claims

13

In paragraph 13, the following sub-paragraph shall be added at the end—

(10) For the purposes of the provisions of the Taxes Management Act 1970 relating to appeals against decisions on claims, the refusal of the inspector to authorise the issue of a certificate under sub-paragraph (2) above shall be taken to be a decision refusing a claim made by the company.

Assessments for withdrawing relief

14

In paragraph 14(2)(a), for the words "or 10(1)" there shall be substituted the words "10(1) or 16A".

Information

15

• (1) After paragraph 15 there shall be inserted the following paragraph—

(15A) (1) Where— (a) a company has issued a certificate under paragraph 13(2) above in respect of any eligible shares in the company; and (b) it appears to the company, or to any person connected with the company who has knowledge of the matter, that paragraph 5A above may have effect to deny relief in respect of those shares; the company or (as the case may be) that person or (where it so appears to each of them) both the company and that person shall give notice in writing to the inspector setting out the particulars of the case. (2) If the inspector has reason to believe that a person has not given a notice which he is required to give under sub-paragraph (1) above, the inspector may by notice in writing require that person to furnish him within such time (not being less than sixty days) as may be specified in the notice with such information relating to the case as the inspector may reasonably require for the purposes of this Part.

Capital gains tax

16

• (1) Paragraph 16 shall be amended as follows.

• (2) For sub-paragraph (1) there shall be substituted the following sub-paragraph—

(1) Where— (a) an individual to whom relief has been given in respect of eligible shares disposes of those shares (within the meaning of the Capital Gains Tax Act 1979); and (b) the relief is not withdrawn; any gain or loss which accrues to him on that disposal shall not be a chargeable gain or (as the case may be) allowable loss for the purposes of capital gains tax.

• (3) In sub-paragraph (3) after the word "given" in both places, there shall be inserted the words "(and not withdrawn)".

• (4) After sub-paragraph (3) there shall be inserted the following subparagraphs—

(3A) Where section 44 of the Act of 1979 (disposals between husband and wife to be on a no gain/no loss basis) has applied to any eligible shares disposed of by an individual to his or her spouse ("the transferee"), sub-paragraph (1) above shall apply in relation to the subsequent disposal of the shares by the transferee to a third party. (3B) Where section 85 (exchange of securities for those in another company) or 86 (reconstruction or amalgamation involving issue of securities) of the Act of 1979 would, but for this subparagraph, apply in relation to eligible shares in respect of which an individual has been given relief, that section shall apply only if the relief is withdrawn.

Reorganisation of share capital

17

• (1) After paragraph 16 there shall be inserted the following paragraph—

(16A) (1) Where shares in respect of which relief has been given and not withdrawn have by virtue of any such allotment, otherwise than for payment, as is mentioned in section 77(2)(a) of the Capital Gains Tax Act 1979 fallen to be treated under section 78 of that Act as the same asset as a new holding— (a) a disposal of the whole or part of the new holding shall be treated for the purposes of this Schedule as a disposal of the whole or a corresponding part of those shares; and (b) the new holding shall be treated for the purposes of paragraph 7(2) above as shares in respect of which relief has been given and not withdrawn. (2) Sections 78 to 81 of the Act of 1979 shall not apply in relation to any ordinary shares in respect of which relief has been given if— (a) there is, by virtue of any such allotment for payment as is mentioned in section 77(2)(a) of that Act, a reorganisation affecting those shares; and (b) immediately following the reorganisation, the relief has not been withdrawn in respect of those shares or relief has been given in respect of the allotted shares and not withdrawn. (3) Where— (a) any such reorganisation as is mentioned in sub-paragraph (2) above affects ordinary shares in respect of which relief has been given; (b) immediately before the reorganisation the relief had not been withdrawn; and (c) the amount of relief (or, where the relief has been reduced, the amount remaining) and the market value of the shares immediately before the reorganisation, exceeds their market value immediately after the reorganisation; the relief shall be reduced by an amount equal to whichever is the smaller of those excesses. (4) Sub-paragraph (3) above shall also apply where— (a) an individual who has received, or become entitled to receive, in respect of any ordinary shares in a company, a provisional allotment of shares in or debentures of the company disposes of his rights; and (b) sub-paragraph (3) would have applied (apart from this sub-paragraph) had those rights not been disposed of but an allotment of shares or debentures made to him. (5) Where relief is reduced by virtue of sub-paragraph (3) above— (a) the sums allowable as deductions from the consideration in the computation, for the purposes of capital gains tax, of the gain or loss accruing to an individual on the disposal of any of the allotted shares or debentures shall be taken to include the amount of the reduction, apportioned between the allotted shares or (as the case may be) debentures in such a way as appears to the inspector, or on appeal to the Commissioners concerned, to be just and reasonable; and (b) the sums so allowable on the disposal (in circumstances in which paragraph 16 above does not apply) of any of the shares referred to in sub-paragraph (3)(a) above shall be taken to be reduced by the amount mentioned in paragraph (a) above, similarly apportioned between those shares.

.

• (2) Sub-paragraphs (1) to (3) of the inserted paragraph 16A have effect in relation to reorganisations occurring at any time after 18th March 1986 and sub-paragraph (5) of that paragraph has effect in relation to disposals made at any time after that date.

Application to subsidiaries

18

For sub-paragraph (1) of paragraph 17 there shall be substituted the following sub-paragraphs—

(1) A qualifying company may, in the relevant period, have one or more subsidiaries if— (a) the conditions mentioned in sub-paragraph (1A) below are satisfied in respect of the subsidiary or (as the case may be) each subsidiary and, except as provided in subparagraph (1B) below, continue to be so satisfied until the end of the relevant period; and (b) the subsidiary or (as the case may be) each subsidiary exists wholly, or substantially wholly, for the purpose of carrying on one or more qualifying trades or is a property managing, or dormant, subsidiary. (1A) The conditions are— (a) that the qualifying company, or another of its subsidiaries, possesses not less than 90 per cent, of the issued share capital of, and not less than 90 per cent, of the voting power in, the subsidiary; (b) that the qualifying company, or another of its subsidiaries, would in the event of a winding up of the subsidiary or in any other circumstances be beneficially entitled to receive more than 90 per cent, of the assets of the subsidiary which would then be available for distribution to equity holders of the subsidiary; (c) that the qualifying company or another of its subsidiaries is beneficially entitled to not less than 90 per cent, of any profits of the subsidiary which are available for distribution to equity holders of the subsidiary; (d) that no person other than the qualifying company or another of its subsidiaries has control of the subsidiary within the meaning of section 534 of the Taxes Act; and (e) that no arrangements are in existence by virtue of which the conditions in paragraphs (a) to (d) above could cease to be satisfied. (1B) The conditions shall not be regarded as ceasing to be satisfied by reason only of the subsidiary or the qualifying company being wound up, or dissolved without winding up, if— (a) it is shown that the winding up or dissolution is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax; and (b) the net assets (if any) of the subsidiary or, as the case may be, the qualifying company are distributed to its members or dealt with as bona vacantia before the end of the relevant period, or in the case of a winding up, the end (if later) of three years from the commencement of the winding up. (1C) The conditions shall not be regarded as ceasing to be satisfied by reason only of the disposal by the qualifying company or (as the case may be) by another subsidiary, within the relevant period, of all its interest in the subsidiary if it is shown that the disposal is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax. (1D) For the purposes of this paragraph— (a) a subsidiary of a qualifying company is a property managing subsidiary if it exists wholly, or substantially wholly, for the purpose of holding and managing property used by the qualifying company, or by any of its subsidiaries, for the purposes of— (i) research and development from which it is intended that a qualifying trade to be carried on by the company or any of its subsidiaries will be derived; or (ii) one or more qualifying trades so carried on; (b) a subsidiary is a dormant subsidiary if it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments; and (c) the persons who are equity holders of a subsidiary and the percentage of the assets of a subsidiary to which an equity holder would be entitled shall be determined in accordance with paragraphs 1 and 3 of Schedule 12 to the Finance Act 1973, taking references in paragraph 3 to the first company as references to an equity holder and references to a winding up as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.

.

Miscellaneous

19

• (1) In paragraph 2(9), for the words "to (8A)" there shall be substituted the words "and (8)".

• (2) In paragraph 18(4), for the words "section 65(2)(c) of Chapter II" there shall be substituted the words "paragraph 17(lA)(e) above".

Eligible shares held jointly

20

After paragraph 19 there shall be inserted the following paragraph—

(19A) Where eligible shares are held on a bare trust for two or more beneficiaries, this Schedule shall have effect (with the necessary modifications) as if— (a) each beneficiary had subscribed as an individual for all of those shares; and (b) the amount subscribed by each beneficiary was equal to the total amount subscribed on the issue of those shares divided by the number of beneficiaries.

.

Interpretation

21

• (1) Paragraph 20 shall be amended as follows.

• (2) In sub-paragraph (2) the following definitions shall be inserted at the appropriate places—

• "appraisal licence" means an appraisal licence incorporating the model clauses set out in Schedule 4 to the Petroleum (Production) (Landward Areas) Regulations 1984 or a Northern Ireland licence granted for the five year renewal term and includes in either case any modified appraisal licence;

• "development licence" means a development licence incorporating the model clauses set out in Schedule 5 to those regulations or a Northern Ireland licence granted for the thirty year renewal term and includes in either case any modified development licence;

• "exploration licence" means an exploration licence incorporating the model clauses set out in Schedule 3 to those regulations or a Northern Ireland licence granted for the initial term and includes in either case any modified exploration licence;

• "modified appraisal licence", "modified development licence" and "modified exploration licence" mean, respectively, any appraisal licence, development licence or exploration licence in which any of the relevant model clauses have been modified or excluded by the Secretary of State or, in Northern Ireland, by the Department of Economic Development;

• "Northern Ireland licence" means a licence granted under the Petroleum (Production) Act (Northern Ireland) 1964 and incorporating the model clauses set out in Schedule 2 to the Petroleum Production (Licences) Regulations (Northern Ireland) 1965, and in relation to such a licence the references above to "the initial term", "the five year renewal term" and "the thirty year renewal term" shall be construed in accordance with Clause 2 of Schedule 2 to those regulations; and

• "oil" and "oil extraction activities" have the same meaning as they have by virtue of section 19 of the Oil Taxation Act 1975, in Part II of that Act; and

• "oil exploration" means searching for oil.

• (3) The following sub-paragraphs shall be added at the end—

(3) For the purposes of this Schedule, the market value at any time of any asset shall be taken to be the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it. (4) References in this Schedule to relief given to an individual in respect of eligible shares, and to the withdrawal of such relief, include respectively references to relief given to him in respect of those shares at any time after he has disposed of them and references to the withdrawal of such relief at any such time. (5) Any reference in paragraph 2 above, as modified by paragraph 2B above, to any licence being held by, or granted to, any person shall be read as including a reference to such a licence being held by, or (as the case may be) granted to, that person together with one or more other persons. (6) The Treasury may by order made by statutory instrument amend any of the definitions set out in sub-paragraph (2) above which relate to licences under the Petroleum (Production) Act 1934 or under the Petroleum (Production) Act (Northern Ireland) 1964. (7) Any order under sub-paragraph (6) above shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

.

Part II — Consequential Amendments

22

In the Taxes Management Act 1970 the following section shall be inserted after section 47A—

(47B) If and so far as the question in dispute on any appeal against the refusal of relief under Schedule 5 to the Finance Act 1983 (relief for investment in corporate trades), or against an assessment withdrawing any such relief, is a question of the value of an interest in land (within the meaning of paragraph 5A(5) of that Schedule), it shall be determined— (a) if the land is in England and Wales, on a reference to the Lands Tribunal; (b) if the land is in Scotland, on a reference to the Lands Tribunal for Scotland; and (c) if the land is in Northern Ireland, on a reference to the Lands Tribunal for Northern Ireland

23

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

SCHEDULES 13–:16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

• (1) Section 252 of the Taxes Act (company reconstructions without change of ownership) shall be amended as follows.

• (2) After subsection (3) (successor entitled to carry forward predecessor's loss) there shall be inserted—

(3A) But where the amount of relevant liabilities exceeds the value of relevant assets, the successor shall be entitled to relief by virtue of subsection (3) above only if, and only to the extent that, the amount of that excess is less than the amount mentioned in that subsection.

• (3) In subsection (8) (apportionment of receipts or expenses in case of partial change) for the words from "any", in the second place where it occurs, to the end there shall be substituted "such apportionments of receipts, expenses, assets or liabilities shall be made as may be just."

• (4) In subsection (9) (determination of manner of apportionment) for "sum" in each place where it appears there shall be substituted "item".

2

The following shall be inserted at the end of section 253 of the Taxes Act (company reconstructions: supplemental)—

(5) For the purposes of section 252(3A) above, relevant assets are— (a) assets which were vested in the predecessor immediately before it ceased to carry on the trade, which were not transferred to the successor and which, in a case where the predecessor was the predecessor on a previous application of section 252 above, were not by virtue of section 252(8) above apportioned to a trade carried on by the company which was the successor on that application, and (b) consideration given to the predecessor by the successor in respect of the change of company carrying on the trade; and for the purposes of paragraph (b) above the assumption by the successor of any liabilities of the predecessor shall not be treated as the giving of consideration to the predecessor by the successor. (6) For the purposes of section 252(3A) above, relevant liabilities are liabilities which were outstanding and vested in the predecessor immediately before it ceased to carry on the trade, which were not transferred to the successor and which, in a case where the predecessor was the predecessor on a previous application of section 252 above, were not by virtue of section 252(8) above apportioned to a trade carried on by the company which was the successor on that application; but a liability representing the predecessor's share capital, share premium account, reserves or relevant loan stock is not a relevant liability. (7) For the purposes of section 252(3A) above— (a) the value of assets (other than money) shall be taken to be the price which they might reasonably be expected to have fetched on a sale in the open market immediately before the predecessor ceased to carry on the trade, and (b) the amount of liabilities shall be taken to be their amount at that time. (8) Where the predecessor transferred a liability to the successor but the creditor concerned agreed to accept settlement of part of the liability as settlement of the whole, the liability shall be treated for the purposes of subsection (6) above as not having been transferred to the successor except as to that part. (9) A liability representing the predecessor's share capital, share premium account, reserves or relevant loan stock shall, for the purposes of subsection (6) above, be treated as not doing so if, in the period of one year ending with the day on which the predecessor ceased to carry on the trade, the liability arose on a conversion of a liability not representing its share capital, share premium account, reserves or relevant loan stock. (10) Where a liability of the predecessor representing its relevant loan stock is not a relevant liability for the purposes of section 252(3A) above but is secured on an asset of the predecessor not transferred to the successor, the value of the asset shall, for the purposes of section 252(3A), be reduced by an amount equal to the amount of the liability. (11) In this section "relevant loan stock" means any loan stock or similar security (whether secured or unsecured) except any in the case of which subsection (12) below applies. (12) This subsection applies where, at the time the liability giving rise to the loan stock or other security was incurred, the person who was the creditor was carrying on a trade of lending money.

3

The following shall be inserted after sub-paragraph (5) of paragraph 17 of Schedule 9 to the Finance Act 1981 (restriction of carry forward of unused relief)—

(5A) Where an amount for which a company is entitled to relief by virtue of section 252(3) of the Taxes Act (company reconstructions: successor's entitlement to carry forward predecessor's loss) is reduced by virtue of section 252(3A) of that Act, the part of the amount in respect of which, by reason of the reduction, there is no relief shall for the purposes of this paragraph be taken to consist— (a) first of capital allowances for accounting periods of the predecessor ending not earlier than 14th November 1980; (b) next of relief under this Part of this Schedule, taking relief in respect of a later period of account before relief in respect of an earlier one; (c) next of losses incurred in the trade in accounting periods of the predecessor ending not earlier than 14th November 1980 (calculated without regard to capital allowances or relief falling within paragraphs (a) and (b) above) and including any losses treated under section 254(5) of the Taxes Act as incurred in such accounting periods; and (d) lastly of other losses, capital allowances and reliefs. (5B) In sub-paragraph (5A) above 'the predecessor' has the same meaning as in section 252 of the Taxes Act.

.

SCHEDULE 17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction

1

Where a person who is an entertainer or sportsman of a prescribed description performs an activity of a prescribed description in the United Kingdom (a relevant activity), this Schedule shall apply if he is not resident in the United Kingdom in the year of assessment in which the relevant activity is performed.

Payment of tax

2

• (1) Where a payment is made (to whatever person) and it has a connection of a prescribed kind with the relevant activity, the person by whom it is made shall on making it deduct out of it a sum representing income tax and shall account to the Board for the sum.

• (2) The sum mentioned in sub-paragraph (1) above shall be such as is calculated in accordance with prescribed rules but shall in no case exceed the relevant proportion of the payment concerned; and "relevant proportion" here means a proportion equal to the basic rate of income tax for the year of assessment in which the payment is made.

• (3) Where a transfer is made (to whatever person) and it has a connection of a prescribed kind with the relevant activity, the person by whom it is made shall account to the Board for a sum representing income tax.

• (4) The sum mentioned in sub-paragraph (3) above shall be such as is calculated in accordance with prescribed rules but shall in no case exceed the relevant proportion of the value of what is transferred; and

• "relevant proportion" here means a proportion equal to the basic rate of income tax for the year of assessment in which the transfer is made.

• (5) References in this paragraph and in the following provisions of this Schedule to a payment include references to a payment by way of loan of money.

• (6) References in this paragraph and in the following provisions of this Schedule to a transfer do not include references to a transfer of money but, subject to that, include references to a temporary transfer (as by way of loan) and to a transfer of a right (whether or not a right to receive money).

• (7) This paragraph shall not apply to payments or transfers of such a kind as may be prescribed.

3

• (1) Regulations may—

• (a) make provision enabling the Board to serve notices requiring persons who make payments or transfers to which paragraph 2 above applies to furnish to the Board particulars of a prescribed kind in respect of payments or transfers;

• (b) make provision requiring persons who make payments or transfers to which paragraph 2 above applies to make, at prescribed times and for prescribed periods, returns to the Board containing prescribed information about payments or transfers and the income tax for which those persons are accountable in respect of them;

• (c) make provision for the collection and recovery of such income tax, provision for assessments and claims to be made in respect of it, and provision for the payment of interest on it;

• (d) adapt, or modify the effect of, any enactment relating to income tax for the purpose of making any such provision as is mentioned in paragraphs (a) to (c) above.

• (2) The words "Regulations under paragraph 3 of Schedule 11 to the Finance Act 1986" shall be added at the end of each column in the Table in section 98 of the Taxes Management Act 1970 (penalties for failure to furnish information etc.).

4

• (1) Where in accordance with paragraphs 2 and 3 above a person pays a sum to the Board, they shall treat it as having been paid on account of a liability of another person to income tax or corporation tax; and the liability and the other person shall be such as are found in accordance with prescribed rules.

• (2) Where the sum exceeds the liability concerned, the Board shall pay such of the sum as is appropriate to the other person mentioned in sub-paragraph (1) above.

• (3) Where no liability is found as mentioned in sub-paragraph (1) above, the Board shall pay the sum to the person to whom the relevant payment or transfer was made; and here "the relevant payment or transfer" means the payment or transfer to which paragraph 2 above applies and which gave rise to the payment of the sum concerned to the Board.

• (4) In construing references to a sum in sub-paragraphs (1) to (3) above, anything representing interest shall be ignored.

5

No obligation as to secrecy imposed by statute or otherwise shall preclude the Board or an authorised officer of the Board from disclosing to any person who appears to the Board to have an interest in the matter information which may be relevant to determining whether paragraph 2 above applies to a payment or transfer.

Activity treated as part of trade etc.

6

• (1) Where a payment is made (to whatever person) and it has a connection of the prescribed kind with the relevant activity, the activity shall be treated for the purposes of the Tax Acts as performed in the course of a trade, profession or vocation exercised by the entertainer or sportsman within the United Kingdom, to the extent that (apart from this paragraph) it would not be so treated.

• (2) This paragraph shall not apply unless the payment is one to which paragraph 2 above applies.

• (3) This paragraph shall not apply where the relevant activity is performed in the course of an office or employment.

• (4) References in this paragraph to a payment include references to a transfer.

Income attributed to entertainer or sportsman

7

• (1) Where a payment is made to a person who fulfils a prescribed description but is not the entertainer or sportsman, and the payment has a connection of the prescribed kind with the relevant activity.—

• (a) the entertainer or sportsman shall be treated for the purposes of the Tax Acts as the person to whom the payment is made, and

• (b) the payment shall be treated for those purposes as made to him in the course of a trade, profession or vocation exercised by him within the United Kingdom (whether or not he would be treated as exercising such a trade, profession or vocation apart from this paragraph).

• (2) Regulations may provide for the deduction, in computing any profits or gains of the entertainer or sportsman arising from the payment, of expenses incurred by other persons in relation to the payment.

• (3) Regulations may provide that any liability to tax (whether of the entertainer or sportsman or of another person) which would, apart from this paragraph, arise in relation to the payment shall not arise or shall arise only to a prescribed extent.

• (4) This paragraph shall not apply unless the payment is one to which paragraph 2 above applies.

• (5) This paragraph shall not apply in such circumstances as may be prescribed.

• (6) References in this paragraph to a payment include references to a transfer.

Charge on profits or gains

8

• (1) Where income tax is chargeable under Case I or Case II of Schedule D on the profits or gains arising from payments (made to whatever person) and the payments have a connection of the prescribed kind with relevant activities of the entertainer or sportsman, such tax shall be charged—

• (a) as if those payments were received in the course of one trade, profession or vocation exercised by the entertainer or sportsman within the United Kingdom separately from any other trade, profession or vocation exercised by him, and

• (b) for each year of assessment, on the full amount of the profits or gains arising in the year from those payments.

• (2) Regulations may—

• (a) provide for the apportionment of profits or gains between different trades, professions or vocations of the entertainer or sportsman;

• (b) provide for the apportionment between different years of assessment of the profits or gains arising from relevant activities of the entertainer or sportsman;

• (c) provide for losses sustained in any trade, profession or vocation of the entertainer or sportsman to be deducted from or set off against the profits or gains of another trade, profession or vocation of the entertainer or sportsman;

• (d) provide that prescribed provisions of the Tax Acts about losses, or about expenditure, shall not apply (or shall apply with prescribed modifications) in prescribed circumstances relating to the entertainer or sportsman.

• (3) References in sub-paragraph (2)(a) and (c) above to a trade, profession or vocation of the entertainer or sportsman include references to that first mentioned in sub-paragraph (1)(a) above as well as to any other exercised by him.

• (4) This paragraph shall not apply in the case of a payment unless it is one to which paragraph 2 above applies.

• (5) References in this paragraph to a payment include references to a transfer.

Valuation etc.

9

• (1) A payment to which paragraph 2(1) above applies shall be treated for the purposes of the Tax Acts as not diminished by the sum mentioned in paragraph 2(1).

• (2) Regulations may provide that for the purposes of the Tax Acts the value of what is transferred by a transfer to which paragraph 2(3) above applies shall be calculated in accordance with prescribed rules.

• (3) In particular, the rules may include provision for the calculation of an amount representing the actual worth of what is transferred, for that amount to be treated as a net amount corresponding to a gross amount from which income tax at the basic rate has been deducted, and for the gross amount to be taken to be the value of what is transferred.

General

10

Regulations may make provision generally for giving effect to this Schedule.

11

• (1) In this Schedule "prescribed" means prescribed by regulations.

• (2) Regulations under this Schedule may make different provision for different cases or descriptions of case.

• (3) The power to make regulations under this Schedule shall be exercisable by the Treasury by statutory instrument subject to annulment in pursuance of a resolution of the Commons House of Parliament.

12

This Schedule shall have effect for the year 1987—88 and subsequent years of assessment.

SCHEDULE 12

PART I — Payments to Employers

1

• (1) This paragraph applies where a payment is made to an employer out of funds which are or have been held for the purposes of a scheme which is or has at any time been an exempt approved scheme.

• (2) An amount equal to 40 per cent, of the payment shall be recoverable by the Board from the employer.

• (3) This paragraph applies whether or not the payment is made in pursuance of Part II of this Schedule.

• (4) Paragraph 4 of Schedule 5 to the Finance Act 1970 (charge to tax on payments to employer) shall not apply to a payment to which this paragraph applies or would apply apart from sub-paragraph (5) or (6) below.

• (5) This paragraph does not apply to a payment to the extent that, if this paragraph had not been enacted, the employer would have been exempt, or entitled to claim exemption, from income tax or corporation tax in respect of the payment.

• (6) This paragraph does not apply where the employer is a charity; and "charity" here has the same meaning as in section 360 of the Taxes Act.

• (7) This paragraph does not apply to any payment of any prescribed description.

• (8) This paragraph does not apply to a payment made before the scheme became an exempt approved scheme.

• (9) References in this paragraph to a payment include references to a transfer of assets or other transfer of money's worth.

• (10) In this paragraph "exempt approved scheme" means an exempt approved scheme within the meaning given by section 21(1) of the Finance Act 1970.

• (11) This paragraph applies to a payment made after 18th March 1986 unless made as mentioned in sub-paragraph (12) or (13) below.

• (12) This paragraph does not apply to a payment made in pursuance of the winding-up of the scheme where the winding-up commenced on or before 18th March 1986.

• (13) This paragraph does not apply to a payment made in pursuance of an application which—

• (a) was made to the Board on or before 18th March 1986 and was not withdrawn before the making of the payment, and

• (b) sought the Board's assurance that the payment would not lead to a withdrawal of approval under section 19(3) of the Finance Act 1970.

2

• (1) In relation to an amount recoverable as mentioned in paragraph 1(2) above, regulations may make any of the provisions mentioned in sub-paragraph (2) below; and for this purpose the amount shall be treated as if it were—

• (a) an amount of income tax chargeable on the employer under Case VI of Schedule D for the year of assessment in which the payment is made, or

• (b) where the employer is a company, an amount of corporation tax chargeable on the company for the accounting period in which the payment is made.

• (2) The provisions are—

• (a) provision requiring the administrator of the scheme or the employer (or both) to furnish to the Board, in respect of the amount recoverable and of the payment concerned, information of a prescribed kind;

• (b) provision enabling the Board to serve a notice or notices requiring the administrator or employer (or both) to furnish to the Board, in respect of the amount and payment, particulars of a prescribed kind;

• (c) provision requiring the administrator to deduct out of the payment the amount recoverable and to account to the Board for it;

• (d) provision as to circumstances in which the employer may be assessed in respect of the amount recoverable;

• (e) provision that, in a case where the employer has been assessed in respect of the amount recoverable but has not paid it (or part of it) within a prescribed period, the administrator may be assessed and charged (in the employer's name) in respect of the amount (or part unpaid);

• (f) provision that, in a case where the amount recoverable (or part of it) has been recovered from the administrator by virtue of an assessment in the employer's name, the administrator is entitled to recover from the employer a sum equal to the amount (or part);

• (g) provision enabling the employer or administrator (as the case may be) to appeal against an assessment made on him in respect of the amount recoverable;

• (h) provision as to when any sum in respect of the amount recoverable is payable to the Board by the administrator or employer and provision requiring interest to be paid on any sum so payable;

• (i) provision that an amount paid to the Board by the administrator shall be treated as paid on account of the employer's liability under paragraph 1(2) above.

• (3) For the purpose of giving effect to any provision mentioned in sub-paragraph (2)(a) or (b) above the words "Regulations under paragraph 2 of Schedule 12 to the Finance Act 1986" shall be added at the end of each column in the Table in section 98 of the Taxes Management Act 1970 (penalties for failure to furnish information etc.).

• (4) For the purpose of giving effect to any other provision mentioned in sub-paragraph (2) above, regulations under this paragraph may include provision applying (with or without modifications) provisions of the enactments relating to income tax and corporation tax.

• (5) Subject to any provision of regulations under this paragraph—

• (a) a payment to which paragraph 1 above applies shall not be treated as a profit or gain brought into charge to income tax or corporation tax and shall not be treated as part of the employer's income for any purpose of the Taxes Act, and

• (b) the amount recoverable shall not be subject to any exemption or reduction (by way of relief, set-off or otherwise) or be available for set-off against other tax.

• (6) If the employer is a company and a payment to which paragraph 1 above applies is made at a time not otherwise within an accounting period of the company, an accounting period of the company shall for the purposes of sub-paragraph (1)(b) above be treated as beginning immediately before the payment is made.

3

• (1) In this Part of this Schedule "prescribed" means prescribed by regulations.

• (2) The power to make regulations under this Part of this Schedule shall be exercisable by the Treasury by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

PART II — Reduction of Surpluses

4

• (1) The Board may make regulations providing for this Part of this Schedule to apply, as from a prescribed date, in relation to any exempt approved scheme of a prescribed kind.

• (2) The Board may make regulations providing for prescribed provisions of this Part of this Schedule to apply, as from a prescribed date, in prescribed circumstances, and subject to any prescribed omissions or modifications, in relation to any exempt approved scheme of another prescribed kind.

• (3) In this Part of this Schedule—

• (a) "exempt approved scheme" has the meaning given by section 21(1) of the Finance Act 1970, and

• (b) "prescribed" means prescribed by regulations made by the Board.

• (4) The power to make regulations under this paragraph shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

5

• (1) The administrator of a scheme in relation to which this Part of this Schedule applies shall, in prescribed circumstances and at a prescribed time, either produce to the Board a written valuation such as is mentioned in sub-paragraph (2) below or give to the Board a certificate such as is mentioned in sub-paragraph (3) below.

• (2) The valuation must be a valuation of the assets held for the purposes of the scheme and the liabilities of the scheme, must be determined in accordance with prescribed principles and fulfil prescribed requirements, and must be signed by a person with qualifications of a prescribed kind.

• (3) The certificate must state whether or not the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is more than the prescribed maximum, must be in a prescribed form, and must be signed by a person with qualifications of a prescribed kind.

• (4) In section 98 of the Taxes Management Act 1970 (penalty for failure to produce documents etc.) the following shall be inserted at the end of the second column of the Table—

Paragraph 5 of Schedule 12 to the Finance Act 1986

.

6

• (1) Subject to paragraph 7(4) below, where a valuation produced under paragraph 5 above shows, or a certificate given under that paragraph states, that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum, the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with subparagraph (2) below.

• (2) The proposals must be proposals for reducing (or, subject to paragraph (b) below, eliminating) the excess in a way or ways set out in the proposals and falling within sub-paragraph (3) below; and they must be such as to secure that—

• (a) by the end of a prescribed period the percentage (if any) by which the value of the assets exceeds the value of the liabilities is no more than the prescribed maximum, and

• (b) if the way, or one of the ways, set out in the proposals falls within sub-paragraph (3)(a) below, there remains an excess which is of a level not less than the prescribed minimum.

• (3) Subject to sub-paragraph (4) below, the permitted ways of reducing or eliminating the excess are—

• (a) making payments to an employer;

• (b) suspending for a period (of 5 years or less) set out in the proposals an employer's obligation to pay contributions under the scheme or reducing for such a period the amount of an employer's contributions under the scheme;

• (c) suspending for a period (of 5 years or less) set out in the proposals the obligation of employees to pay contributions under the scheme or reducing for such a period the amount of employees' contributions under the scheme;

• (d) improving existing benefits provided under the scheme;

• (e) providing new benefits under the scheme;

• (f) such other ways as may be prescribed.

• (4) In prescribed circumstances sub-paragraph (3) above shall apply subject to such omissions or modifications as may be prescribed.

• (5) Subject to paragraph 7(4) below, if the administrator of the scheme fails to submit proposals to the Board within the period mentioned in sub-paragraph (1) above, or if proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 10 below shall apply.

7

• (1) Where a valuation has been produced under paragraph 5 above, the Board may serve on the administrator of the scheme a notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.

• (2) Where a certificate has been given under paragraph 5 above, the Board may serve on the administrator of the scheme a notice requiring him to produce to the Board, within a prescribed period, a written valuation such as is mentioned in paragraph 5(2) above.

• (3) Where a valuation has been produced in compliance with a notice served under sub-paragraph (2) above, the Board may serve on the administrator of the scheme a further notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.

• (4) Where a notice is served on the administrator of a scheme under sub-paragraph (1) or (2) above, paragraph 6(1) and (5) above shall cease to apply.

• (5) In section 98 of the Taxes Management Act 1970 the following shall be inserted at the end of the first column of the Table—

Paragraph 7 of Schedule 12 to the Finance Act 1986

.

8

• (1) Where particulars have been furnished under paragraph 7 above, or a valuation has been produced under that paragraph, the Board shall, within a prescribed period, serve on the administrator of the scheme a notice—

• (a) stating that they accept the valuation produced under paragraph 5 or, as the case may be, 7 above, or

• (b) stating that they do not accept the valuation so produced, and specifying their estimate of the value of the liabilities of the scheme at the relevant time and their estimate of the value of the assets held for the purposes of the scheme at that time.

• (2) For the purposes of sub-paragraph (1)(b) above, the relevant time is the time specified in the valuation produced under paragraph 5 or 7 above as the time by reference to which the values of the assets and liabilities are determined.

• (3) Where—

• (a) in a case falling within sub-paragraph (1)(a) above, the valuation shows that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum, or

• (b) in a case falling within sub-paragraph (1)(b) above, the value of the assets as estimated by the Board exceeds the value of the liabilities as so estimated by a percentage which is more than the prescribed maximum,

the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with paragraph 6(2) to (4) above.

• (4) If the administrator of the scheme fails to submit proposals to the Board within the period mentioned in sub-paragraph (3) above, or if proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 10 below shall apply.

9

• (1) Where proposals are submitted to the Board under paragraph 6(1) or 8(3) above and they approve them within the further prescribed period mentioned in paragraph 6(5) or 8(4) above, the administrator of the scheme shall carry out the proposals within the period mentioned in paragraph 6(2) above.

• (2) If the administrator fails to carry out the proposals within that period, paragraph 10 below shall apply.

10

• (1) Where this paragraph applies the Board may specify a percentage equivalent to the fraction—

• (a) whose numerator represents their estimate of the value of the liabilities of the scheme at the relevant time increased by a prescribed percentage, and

• (b) whose denominator represents their estimate of the value of the assets held for the purposes of the scheme at that time.

• (2) For the purposes of this paragraph the relevant time is the time specified—

• (a) in the valuation produced or certificate given under paragraph 5 above, or

• (b) where a valuation has been produced under paragraph 7 above, in that valuation,

as the time by reference to which the values of the assets and liabilities are determined.

• (3) Where a percentage has been so specified—

• (a) section 21(2) of the Finance Act 1970 (income tax exemption) shall apply only to that percentage of any income derived in the relevant period from the assets held for the purposes of the scheme,

• (b) section 21(2 A) of that Act (further income tax exemption) shall apply only to that percentage of any underwriting commissions applied in the relevant period for the purposes of the scheme,

• (c) section 21(7) of that Act (capital gains tax exemption) shall apply only to that percentage of any gain accruing on the disposal in the relevant period of any of those assets, and

• (d) section 26(1) of the Finance Act 1973 (charge to tax on certain profits or gains) shall by virtue of section 26(1 )(a) not apply only to that percentage of any profits or gains arising to the scheme in the relevant period.

• (4) Sub-paragraphs (5) to (8) below shall apply where a percentage has been so specified, securities are transferred in the relevant period, and the transferor or transferee is such that, if he became entitled to any interest on them, exemption could be allowed under section 21(2) of the Finance Act 1970.

• (5) Paragraph 32(1) and (2) of Schedule 23 to the Finance 1985 (accrued income scheme) shall not apply.

• (6) Where, in consequence of sub-paragraph (5) above, section 73(2)(a) or (3)(b) of the 1985 Act applies, the sum concerned shall be treated as reduced by an amount equal to the specified percentage of itself.

• (7) Where, in consequence of sub-paragraph (5) above, section 73(2)(b) or (3)(a) of the 1985 Act applies, the relief concerned shall be treated as reduced by an amount equal to the specified percentage of itself.

• (8) For the purposes of section 74(5) of the 1985 Act, the amount of interest falling to be reduced by the amount of the allowance shall be treated as the amount found after applying section 21(2) of the Finance Act 1970.

• (9) In sub-paragraphs (4) to (8) above expressions which also appear in Chapter IV of Part II of the 1985 Act have the same meanings as in that Chapter.

• (10) In this paragraph "the relevant period" means the period beginning at the relevant time and ending when it is proved to the satisfaction of the Board that the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is no more than the prescribed maximum.

11

• (1) The Board may make regulations providing that an appeal may be brought against a notice under paragraph 8(1)(b) above as if it were notice of the decision of the Board on a claim made by the administrator of the scheme concerned.

• (2) Regulations under this paragraph may include—

• (a) provision that bringing an appeal shall suspend the operation of paragraph 8(3) and (4) above;

• (b) other provisions consequential on the provision that an appeal may be brought (including provisions modifying this Part of this Schedule).

• (3) The power to make regulations under this paragraph shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

SCHEDULE 13

PART I — Preliminary

Defined terms

1

• (1) In this Schedule—

• "development" and "development order" have the meaning assigned to them by the relevant planning enactment;

• "mineral asset" means any mineral deposits or land comprising mineral deposits, or any interest in or right over such deposits or land;

• "mineral exploration and access" means searching for or discovering and testing the mineral deposits of any source or winning access to any such deposits;

• "planning permission" has the meaning assigned to it by the relevant planning enactment;

• "pre-trading expenditure on machinery or plant" shall be construed in accordance with paragraph 5 below;

• "pre-trading exploration expenditure" shall be construed in accordance with paragraph 6 below;

• "qualifying expenditure" shall be construed in accordance with Parts II and IV of this Schedule;

• "the relevant planning enactment" means— in relation to land in England and Wales, section 290(1) of the Town and Country Planning Act 1971; in relation to land in Scotland, section 275(1) of the Town and Country Planning (Scotland) Act 1972; and in relation to land in Northern Ireland, Article 2(2) of the Planning (Northern Ireland) Order 1972;

• "source of mineral deposits" includes a mine, an oil well and a source of geothermal energy; and

• "trade of mineral extraction" means a trade which consists of or includes the working of a source of mineral deposits.

• (2) Any reference in this Schedule to mineral deposits is a reference to mineral deposits of a wasting nature and, in the case of a mineral asset which consists of or includes an interest in or right over mineral deposits or land, the asset shall not be regarded as situated in the United Kingdom unless the deposits or land are or is so situated.

• (3) Any reference in this Schedule to assets representing any expenditure includes, in relation to expenditure on mineral exploration and access, any results obtained from any search, exploration or inquiry upon which the expenditure was incurred.

• (4) Any reference in this Schedule to a chargeable period or its basis period is a reference to a chargeable period or, as the case may be, basis period beginning (or treated by virtue of section 55 of this Act as beginning) on or after 1st April 1986.

Application of Capital Allowances Act 1968 etc.

2

• (1) Chapter VI of Part I of the Capital Allowances Act 1968 (miscellaneous and general) applies for the purposes of this Schedule as if it were included in Chapter III of that Part.

• (2) In section 77(4) of that Act, any reference to a specific provision of that Act includes a reference to Parts II to IV of this Schedule.

• (3) In section 87(1) of that Act, at the end of the definition of "mineral deposits" there shall be added "and, for this purpose, geothermal energy, whether in the form of aquifers, hot dry rocks or otherwise, shall be treated as a natural deposit".

• (4) The provisions of this Schedule apply in relation to a share in an asset of any description as, by virtue of the application of section 87(4) of that Act, they apply to a part of an asset; and, for the purposes of those provisions, a share in an asset of any description shall be deemed to be used for the purposes of a trade so long as, and only so long as, the asset is used for those purposes.

• (5) In the following provisions—

• (a) sections 155(8), 180(7), 227(4), 252(2) and 352(4) of the Taxes Act,

• (b) the definition of "capital allowance" in section 526(5) of the Taxes Act,

• (c) section 31(2) of the Capital Gains Tax Act 1979, and

• (d) the definition of "capital allowance" in subsection (4) of section 34 of the said Act of 1979,

any reference to the Capital Allowances Act 1968 or to Part I thereof includes a reference to Part III of this Schedule.

Time when expenditure is incurred

3

• (1) For the purposes of this Schedule, expenditure incurred for the purposes of a trade by a person about to carry it on shall be treated as if it had been incurred by him on the first day on which he does carry it on.

• (2) Without prejudice to sub-paragraph (1) above, pre-trading expenditure on machinery or plant and pre-trading exploration expenditure shall be treated for the purposes of Part III of this Schedule as incurred on the first day on which the person who incurred the expenditure carries on a trade of mineral extraction.

PART II — Qualifying Expenditure

General provisions

4

• (1) Subject to sub-paragraphs (2) to (5) below, in relation to a person carrying on a trade of mineral extraction, the following capital expenditure is qualifying expenditure, namely.—

• (a) expenditure on mineral exploration and access;

• (b) expenditure on the acquisition of a mineral asset;

• (c) expenditure on the construction of any works in connection with the working of a source of mineral deposits, being works which, when the source is no longer worked, are likely to be of little or no value to the person working it immediately before that time; and

• (d) where a source of mineral deposits is worked under a foreign concession, expenditure on the construction of works which, when the concession comes to an end, are likely to become valueless to the person working the source immediately before that time.

• (2) Where expenditure falling within sub-paragraph (1)(a) above is incurred by any person before he begins to carry on a trade of mineral extraction, it shall not be qualifying expenditure except to the extent that paragraph 5 or paragraph 6 below provides.

• (3) Part IV of this Schedule shall have effect to limit in certain cases the amount of expenditure which is qualifying expenditure.

• (4) Except as provided by paragraph 5 below, expenditure on the provision of machinery or plant or on any asset which has been treated for any chargeable period as machinery or plant is not qualifying expenditure.

• (5) The following expenditure is not qualifying expenditure by virtue of this paragraph—

• (a) any expenditure on the acquisition of the site of any such works as are referred to in sub-paragraph (1) above, or of rights in or over any such site;

• (b) any expenditure on works constructed wholly or mainly for subjecting the raw product of a source to any process, except a process designed for preparing the raw product for use as such;

• (c) any expenditure on buildings or structures provided for occupation by or for the welfare of workers;

• (d) any expenditure on a building where the whole of the building was constructed for use as an office; and

• (e) any expenditure on so much of a building or structure as was constructed for use as an office, unless the capital expenditure on the construction of the part of the building or structure constructed for use as an office was not more than one-tenth of the capital expenditure incurred on the construction of the whole building or structure.

• (6) Where a person carrying on a trade of mineral extraction incurs expenditure on seeking any planning permission necessary to enable any mineral exploration and access to be undertaken at any place or any mineral deposits to be worked and that permission is not granted, the expenditure shall be treated for the purposes of this Schedule as expenditure on mineral exploration and access; and in this sub-paragraph "seeking", in relation to planning permission, includes not only making any necessary application but also pursuing any appeal against a refusal of permission.

• (7) In so far as any provision of this Schedule or of any other enactment is expressed to be about expenditure falling within subparagraph (1)(a) above or sub-paragraph (1)(b) above—

• (a) expenditure on the acquisition of, or of rights in or over, the site of a source, and

• (b) expenditure on the acquisition of, or of rights in or over, mineral deposits,

shall be treated as falling within sub-paragraph (1)(b) above and not within sub-paragraph (1)(a) above.

Pre-trading expenditure on machinery or plant which is sold etc.

5

• (1) This paragraph applies where—

• (a) capital expenditure is incurred by any person on the provision of machinery or plant; and

• (b) that expenditure falls within paragraph 4(1)(a) above; and

• (c) that expenditure is so incurred before he begins to carry on a trade of mineral extraction; and

• (d) before he begins to carry on that trade, the machinery or plant is sold, demolished, destroyed or abandoned.

• (2) Where this paragraph applies and there is such an excess of expenditure as is referred to in sub-paragraph (3) below, then, for the purposes of this Schedule the person concerned shall be treated as incurring qualifying expenditure equal to that excess on the first day on which he begins to carry on a trade of mineral extraction; and that qualifying expenditure is in this Schedule referred to as pre-trading expenditure on machinery or plant.

• (3) Subject to sub-paragraph (4) below, the excess referred to in subparagraph (2) above is the amount by which the capital expenditure referred to in sub-paragraph (1) above exceeds any sale, insurance, salvage or compensation moneys resulting from the event mentioned in paragraph (d) of that sub-paragraph.

• (4) If, in a case where this paragraph applies, the mineral exploration and access at the source in connection with which the machinery or plant was used ceased before the first day referred to in sub-paragraph (2) above, any capital expenditure which was incurred more than six years before that day shall be left out of account in determining the amount of any excess under sub-paragraph (3) above.

Pre-trading exploration expenditure

6

• (1) This paragraph applies to capital expenditure which—

• (a) is incurred by any person on mineral exploration and access at any source, and

• (b) is so incurred before he begins to carry on a trade of mineral extraction, and

• (c) is not incurred on the provision of machinery or plant.

• (2) Where this paragraph applies to any capital expenditure and the mineral exploration and access is continuing at the source in question at the time when the person concerned begins to carry on a trade of mineral extraction, so much of the expenditure as exceeds any relevant capital sum received by him is qualifying expenditure.

• (3) Where this paragraph applies to any capital expenditure and the mineral exploration and access has ceased at the source in question before the time when the person concerned begins to carry on a trade of mineral extraction, so much of that expenditure as was incurred within the six years ending at that time and exceeds any relevant capital sum received by him shall be treated as qualifying expenditure incurred on the first day on which he begins to carry on that trade.

• (4) In relation to capital expenditure to which this paragraph applies, a relevant capital sum is a capital sum—

• (a) which is received by the person incurring the expenditure before he begins to carry on a trade of mineral extraction; and

• (b) which is or, as the case may be, to the extent to which it is reasonably attributable to the incurring of the expenditure at the source in question.

• (5) Expenditure which is qualifying expenditure by virtue of subparagraph (2) or sub-paragraph (3) above is in this Schedule referred to as pre-trading exploration expenditure.

Contributions by mining concerns to public services etc. outside the United Kingdom

7

• (1) Subject to sub-paragraphs (2) and (3) below, expenditure incurred by a person carrying on a trade of mineral extraction outside the United Kingdom and consisting of contributions of capital sums to the cost of—

• (a) buildings to be occupied by persons employed at or in connection with the working of a source outside the United Kingdom, or

• (b) works for the supply of water, gas or electricity wholly or mainly to buildings occupied or to be occupied by persons so employed, or

• (c) works to be used in providing other services or facilities wholly or mainly for the welfare of persons so employed or their dependants,

is by virtue of this paragraph qualifying expenditure.

• (2) Expenditure incurred by any person as mentioned in sub-paragraph (1) above is not qualifying expenditure unless—

• (a) it is incurred for the purposes of his trade of mineral extraction; and

• (b) when the source in question is no longer worked, the buildings or works concerned are likely to be of little or no value to the person working the source immediately before that time.

• (3) Sub-paragraph (1) above does not apply—

• (a) to expenditure resulting in the acquisition of an asset by the person incurring the expenditure; nor

• (b) to expenditure in respect of which an allowance may be made under any provision of the Tax Acts (other than this Schedule, section 61 of the Capital Allowances Act 1968 or any enactment which was re-enacted by that section).

Restoration expenditure

8

• (1) Where a person who has ceased to carry on a trade of mineral extraction incurs expenditure on the restoration of the site of a source to the working of which that trade related and all or any of that expenditure—

• (a) is incurred within the period of three years immediately following the last day on which he carried on that trade, and

• (b) has not been deducted for the purposes of corporation tax or income tax in relation to that or any other trade carried on by him, and

• (c) is expenditure which, if it had been incurred while that trade was being carried on, either would have been qualifying expenditure by virtue of any of the preceding provisions of this Part of this Schedule or would have been allowable as a deduction in computing the profits or gains from that trade,

so much of that expenditure as falls within paragraphs (a) to (c) above and does not exceed the net cost of the restoration of the site shall be qualifying expenditure by virtue of this paragraph and shall be treated as incurred by him on the last day on which he carried on that trade.

• (2) Any reference in this paragraph to the site of a source includes a reference to land used in connection with the working of the source.

• (3) In this paragraph "restoration" includes landscaping and—

• (a) in relation to land in the United Kingdom, the carrying out of any works required by a condition subject to which planning permission for development consisting of the winning and working of minerals was granted; and

• (b) in relation to land outside the United Kingdom, the carrying out of any works required by any equivalent condition imposed under the law of the territory in which the land is situated.

• (4) For the purpose of this paragraph, the net cost to any person of the restoration of the site of a source is the excess, if any, of expenditure falling within paragraphs (a) to (c) of sub-paragraph (1) above over any receipts which—

• (a) are attributable to the restoration (whether for spoil or other assets removed from the site or for tipping rights or otherwise); and

• (b) are received within the period of three years immediately following the last day on which the person concerned carried on a trade of mineral extraction.

• (5) As respects the person by whom is incurred any expenditure which is qualifying expenditure by virtue of this paragraph.—

• (a) expenditure falling within paragraphs (a) to (c) of sub-paragraph (1) above (not only so much of it as constitutes qualifying expenditure) shall not be deductible in computing his income for any purpose of income tax or corporation tax; and

• (b) to the extent that any receipts are, under sub-paragraph (4) above, taken into account to determine the net cost of the restoration of the site of a source, those receipts shall not constitute income of his for any purpose of income tax or corporation tax.

• (6) All such adjustments shall be made, whether by way of discharge or repayment of tax or otherwise, as may be required in consequence of the preceding provisions of this paragraph.

PART III — Allowances and Charges

Writing-down and balancing allowances

9

• (1) Allowances shall be made in accordance with this paragraph to a person who carries on a trade of mineral extraction in respect of qualifying expenditure incurred by him for the purposes of that trade.

• (2) Subject to sub-paragraph (4) below, for the chargeable period related to the incurring of the expenditure, there shall be made to the person incurring it an allowance equal to the appropriate percentage of the excess (if any) of that expenditure over any disposal receipts which he is required to bring into account by reference to that expenditure for that chargeable period.

• (3) Subject to sub-paragraph (4) below, for each of the chargeable periods following that related to the incurring of the expenditure, there shall be made to the person incurring it an allowance equal to the appropriate percentage of the excess (if any) of that expenditure over the aggregate of—

• (a) the allowances made in respect of the expenditure for earlier chargeable periods by virtue of sub-paragraph (2) above and this sub-paragraph; and

• (b) any disposal receipts which he is or was required to bring into account by reference to that expenditure for the chargeable period in question and any earlier chargeable periods.

• (4) For a chargeable period for which, in accordance with paragraph 12 below, a balancing allowance falls to be made to any person in respect of any expenditure, sub-paragraph (2), or, as the case may be, sub-paragraph (3) above shall have effect with the omission of the words "the appropriate percentage of.

• (5) Subject to sub-paragraph (6) below, in relation to expenditure which is qualifying expenditure falling within paragraph 4, paragraph 7 or paragraph 8 above, other than expenditure falling within paragraph 4(1)(b), the appropriate percentage is 25 and, in relation to all other qualifying expenditure, the appropriate percentage is 10.

• (6) If a chargeable period or its basis period is part only of a year or if the period is a year of assessment but the trade has been carried on for part only of it, the percentage appropriate under sub-paragraph (5) above shall be correspondingly reduced.

Disposal receipts

10

• (1) In any case where—

• (a) qualifying expenditure has been incurred by any person on the provision of any assets (including the construction of any works), and

• (b) in any chargeable period or its basis period any of those assets is disposed of or otherwise permanently ceases (whether because of the discontinuance of the trade or for any other reason) to be used by him for the purposes of a trade of mineral extraction,

he shall bring into account as a disposal receipt in respect of that expenditure for the chargeable period related to the disposal or, as the case may be, cessation the disposal value of any asset falling within paragraph (b) above.

• (2) If, at any time after a mineral asset has been acquired by any person, it begins to be used (by him or any other person) in a way which constitutes development but is neither existing permitted development nor development for the purposes of a trade of mineral extraction carried on by him, the asset shall be treated as having permanently ceased, immediately before that time, to be used by him for the purposes of that trade; and for the purposes of this subparagraph, "existing permitted development" means—

• (a) development which, prior to the acquisition, had been or had begun to be lawfully carried out; and

• (b) any other development for which planning permission is granted by a development order made as a general order and in force at the time of the acquisition;

and sub-paragraph (3) of paragraph 16 below applies for the purposes of this sub-paragraph as it applies for the purposes of sub-paragraph (2) of that paragraph.

• (3) Subject to paragraph 18 below, subsections (6) and (7) of section 44 of the Finance Act 1971 (disposal value of machinery or plant) shall apply to determine the disposal value of any asset falling within subparagraph (1) above, substituting a reference to that asset for any reference in those subsections to machinery or plant.

• (4) In any case where—

• (a) qualifying expenditure has been incurred by any person, and

• (b) in any chargeable period or its basis period he receives any capital sum which, in whole or in part, it is reasonable to attribute to that expenditure, and

• (c) that capital sum does not fall to be brought into account as a disposal receipt by virtue of sub-paragraph (1) above,

he shall bring into account as a disposal receipt in respect of that expenditure for the chargeable period related to the receipt of that capital sum so much of it as is reasonably attributable to the expenditure.

Balancing charges : excess of allowances and disposal receipts over expenditure

11

• (1) If, for any chargeable period for which a person is required to bring into account a disposal receipt in respect of qualifying expenditure incurred by him, the aggregate of—

• (a) the disposal receipts in respect of that expenditure which he is required to bring into account for that period, and

• (b) any disposal receipts in respect of that expenditure which he was required to bring into account for earlier chargeable periods, and

• (c) the net amount of the allowances made to him for earlier chargeable periods under paragraph 9 above in respect of that expenditure,

exceeds the expenditure concerned, there shall be made on him a charge (in this Part of this Schedule referred to as a "balancing charge").

• (2) In relation to any qualifying expenditure, the amount on which a balancing charge is made for a chargeable period shall be whichever is the less of—

• (a) the amount by which the aggregate referred to in sub-paragraph (1) above exceeds the expenditure; and

• (b) the net amount of the allowances made as mentioned in paragraph (c) of that sub-paragraph.

• (3) In relation to any chargeable period, the net amount of the allowances made to any person for earlier chargeable periods under paragraph 9 above in respect of expenditure incurred by him means the total of those allowances less the total of the amounts on which balancing charges have been made on him for earlier chargeable periods, being charges arising by reason of his bringing into account disposal receipts in respect of that expenditure.

Occasions of balancing allowances

12

• (1) For the chargeable period related to the permanent discontinuance of a trade of mineral extraction, any allowance to which the person carrying on that trade is entitled under paragraph 9 above in respect of qualifying expenditure incurred by him for the purposes of that trade shall be a balancing allowance.

• (2) If in any chargeable period or its basis period a person carrying on a trade of mineral extraction permanently ceases to work particular mineral deposits (and sub-paragraph (1) above does not apply in respect of that period) any allowance to which he is entitled for that chargeable period under paragraph 9 above in respect of—

• (a) expenditure on mineral exploration and access which relates solely to those deposits, or

• (b) expenditure on the acquisition of a mineral asset which consists of those deposits or any part of them,

shall be a balancing allowance.

• (3) Where a person carrying on a trade of mineral extraction is for the time being entitled to two or more mineral assets which at any time were comprised in a single mineral asset or were otherwise derived from a single mineral asset, sub-paragraph (2) above shall not apply until such time as he permanently ceases to work the deposits comprised in all the mineral assets concerned taken together and, for this purpose, where a mineral asset relates to, but does not actually consist of mineral deposits, the deposits to which the asset relates shall be treated as comprised in the asset.

• (4) If, in a case where sub-paragraph (1) of paragraph 10 above applies, neither sub-paragraph (1) nor sub-paragraph (2) above has effect in relation to the expenditure referred to in sub-paragraph (1)(a) of that paragraph, then for the chargeable period related to the disposal or cessation referred to in sub-paragraph (1)(b) of that paragraph, any allowance in respect of that expenditure shall be a balancing allowance.

• (5) In relation to pre-trading expenditure on machinery or plant and pre-trading exploration expenditure falling within paragraph 6(3) above, any allowance under paragraph 9 above shall be a balancing allowance.

• (6) If in any chargeable period or its basis period a person who has incurred qualifying expenditure on mineral exploration and access (including pre-trading exploration expenditure falling within paragraph 6(2) above) gives up the search, exploration or inquiry to which the expenditure related and does not carry on then or subsequently a trade of mineral extraction which consists of or includes the working of any mineral deposits to which the mineral exploration and access related, any allowance to which he is entitled for that chargeable period under paragraph 9 above in respect of that expenditure shall be a balancing allowance.

• (7) In any case where—

• (a) a person has incurred expenditure consisting of contributions falling within paragraph 7 above to the cost of any buildings or works, and

• (b) in any chargeable period or its basis period the buildings or works permanently cease to be used for the purposes of, or in connection with, a trade of mineral extraction carried on by him,

then, without prejudice to sub-paragraph (1) above, any allowance to which he is entitled for that chargeable period under paragraph 9 above in respect of that expenditure shall be a balancing allowance.

• (8) If in any chargeable period or its basis period any of the following events occurs in relation to assets representing any qualifying expenditure, namely—

• (a) the person by whom the expenditure was incurred loses possession of the assets in circumstances where it is reasonable to assume that the loss is permanent,

• (b) the assets cease to exist as such (as a result of destruction, dismantling or otherwise),

• (c) the assets begin to be used wholly or partly for purposes other than those of the trade of mineral extraction carried on by that person,

any allowance to which that person is entitled for that chargeable period under paragraph 9 above in respect of that expenditure shall be a balancing allowance.

Treatment of qualifying expenditure on mineral exploration and access

13

For the purposes of this Part of this Schedule, where a person is carrying on a trade of mineral extraction, qualifying expenditure incurred by him in connection with that trade (whether before or after the trade began to be carried on) on mineral exploration and access shall be taken to be incurred for the purposes of the trade.

Demolition costs

14

• (1) The net cost to a person of the demolition of an asset representing qualifying expenditure shall, for the purposes of this Part of this Schedule, be added to that qualifying expenditure in determining the amount of any balancing allowance or balancing charge for the chargeable period related to the demolition of the asset.

• (2) The cost or net cost to a person of the demolition of any asset shall not, if sub-paragraph (1) applies to it, be treated for the purposes of this Schedule as expenditure incurred in respect of any other asset by which that asset is replaced.

• (3) Any reference in this paragraph to the net cost of the demolition of any asset is a reference to the excess (if any) of the cost of the demolition over any moneys received for the remains of the asset.

Manner of making allowances and charges

15

All allowances and charges falling to be made under this Part of this Schedule to or on any person shall be made to or on him in taxing his trade of mineral extraction.

PART IV — Limitations on Qualifying Expenditure Etc

Expenditure on the acquisition of land: restriction of qualifying expenditure

16

• (1) In so far as capital expenditure falling within paragraph 4(1)(b) above consists of expenditure on the acquisition of an interest in land (whether in the United Kingdom or elsewhere) and that land includes a source of mineral deposits, so much of that expenditure as is equal to the undeveloped market value of the interest shall not constitute qualifying expenditure.

• (2) In relation to the acquisition of an interest in land, the undeveloped market value means the consideration which at the time of the acquisition the interest might reasonably be expected to fetch on a sale in the open market on the assumptions—

• (a) that there is no source of mineral deposits on or in the land; and

• (b) that it is and will continue to be unlawful to carry out any development of the land other than—

• (i) development which, at the time of the acquisition, has been or has begun to be lawfully carried out; and

• (ii) any other development for which planning permission is granted by a development order which is made as a general order and is in force at that time.

• (3) In the application of sub-paragraph (2) above to the acquisition of an interest in land outside the United Kingdom.—

• (a) any question whether development has been or is being lawfully carried out shall be determined in accordance with the law of the territory in which the land is situated; and

• (b) any question whether development is of a character for which planning permission is granted by a general development order shall be determined as if the land were situated in England or Wales.

• (4) In any case where—

• (a) the preceding provisions of this paragraph have effect to limit the amount of expenditure falling within paragraph 4(1) above which is qualifying expenditure, and

• (b) the undeveloped market value of the interest in land in question includes the value of any buildings or other structures on the land, and

• (c) at the time of the acquisition of the interest in land or at any time thereafter, those buildings or structures cease permanently to be used for any purpose,

then at the time referred to in paragraph (c) above, the person who incurred the expenditure referred to in paragraph (a) above shall be treated as having incurred qualifying expenditure falling within paragraph 4(1 )(b) above equal to the unrelieved value of the buildings or structures referred to in paragraph (b) above.

• (5) In sub-paragraph (4) above "the unrelieved value" of buildings or structures falling within paragraph (b) thereof means the value of those buildings or structures determined as at the date of the acquisition of the interest in land (and without regard to any value properly attributable to the land on which the buildings or structures stand) less the excess of any allowances over balancing charges which the person treated by sub-paragraph (4) above as incurring expenditure has received in respect of the buildings or structures or assets therein under—

• (a) the Capital Allowances Act 1968;

• (b) Chapter I of Part III of the Finance Act 1971 (machinery or plant); and

• (c) section 55 of this Act.