Finance Act 1996

• (a) the amount or part (as the case may be) shall not carry interest under this paragraph and shall be treated as never having done so, and

• (b) all such adjustments as are reasonable shall be made, including adjustments by way of repayment by the Commissioners where appropriate.

28

• (1) Where a person is liable to pay interest under paragraph 27 above the Commissioners or, on appeal, an appeal tribunal may reduce the amount payable to such amount (including nil) as they think proper.

• (2) Where the person concerned satisfies the Commissioners or, on appeal, an appeal tribunal that there is a reasonable excuse for the conduct giving rise to the liability to pay interest, that is a factor which (among other things) may be taken into account under sub-paragraph (1) above.

• (3) In the case of interest reduced by the Commissioners under sub-paragraph (1) above an appeal tribunal, on an appeal relating to the interest, may cancel the whole or any part of the reduction made by the Commissioners.

Interest payable by Commissioners

29

• (1) Where, due to an error on the part of the Commissioners, a person—

• (a) has paid to them by way of tax an amount which was not tax due and which they are in consequence liable to repay to him,

• (b) has failed to claim payment of an amount to the payment of which he was entitled in pursuance of provision made under section 51(2)(c) or (d) or (f) of this Act, or

• (c) has suffered delay in receiving payment of an amount due to him from them in connection with tax,

then, if and to the extent that they would not be liable to do so apart from this paragraph, they shall (subject to the following provisions of this paragraph) pay interest to him on that amount for the applicable period.

• (1A) In sub-paragraph (1) above—

• (a) the reference in paragraph (a) to an amount which the Commissioners are liable to repay in consequence of the making of a payment that was not due is a reference to only so much of that amount as is the subject of a claim that the Commissioners are required to satisfy or have satisfied; and

• (b) the amounts referred to in paragraph (c) do not include any amount payable under this paragraph.

• (2) The applicable period, in a case falling within sub-paragraph (1)(a) above, is the period—

• (a) beginning with the date on which the payment is received by the Commissioners, and

• (b) ending with the date on which they authorise payment of the amount on which the interest is payable.

• (3) The applicable period, in a case falling within sub-paragraph (1)(b) or (c) above, is the period—

• (a) beginning with the date on which, apart from the error, the Commissioners might reasonably have been expected to authorise payment of the amount on which the interest is payable, and

• (b) ending with the date on which they in fact authorise payment of that amount.

• (4) In determining the applicable period for the purposes of this paragraph there shall be left out of account any period by which the Commissioners’ authorisation of the payment of interest is delayed by the conduct of the person who claims the interest.

• (4A) The reference in sub-paragraph (4) above to a period by which the Commissioners’ authorisation of the payment of interest is delayed by the conduct of the person who claims it includes, in particular, any period which is referable to—

• (a) any unreasonable delay in the making of the claim for interest or in the making of any claim for the payment or repayment of the amount on which interest is claimed;

• (b) any failure by that person or a person acting on his behalf or under his influence to provide the Commissioners—

• (i) at or before the time of the making of a claim, or

• (ii) subsequently in response to a request for information by the Commissioners,

with all the information required by them to enable the existence and amount of the claimant’s entitlement to a payment or repayment, and to interest on that payment or repayment, to be determined; and

• (c) the making, as part of or in association with either—

• (i) the claim for interest, or

• (ii) any claim for the payment or repayment of the amount on which interest is claimed,

of a claim to anything to which the claimant was not entitled.

• (5) In determining for the purposes of sub-paragraph (4A) above whether any period of delay is referable to a failure by any person to provide information in response to a request by the Commissioners, there shall be taken to be so referable, except so far as may be provided for by regulations, any period which—

• (a) begins with the date on which the Commissioners require that person to provide information which they reasonably consider relevant to the matter to be determined; and

• (b) ends with the earliest date on which it would be reasonable for the Commissioners to conclude—

• (i) that they have received a complete answer to their request for information;

• (ii) that they have received all that they need in answer to that request; or

• (iii) that it is unnecessary for them to be provided with any information in answer to that request.

• (7) The commissioners shall only be liable to pay interest under under this paragraph on a claim made in writing for that purpose.

• (8) A claim under this paragraph shall not be made more than 4 years after the end of the applicable period to which it relates.

• (9) References in this paragraph—

• (a) to receiving payment of any amount from the Commissioners, or

• (b) to the authorisation by the Commissioners of the payment of any amount,

include references to the discharge by way of set-off (whether in accordance with regulations under paragraph 42 or 43 below or otherwise) of the Commissioners’ liability to pay that amount.

• (10) Interest under this paragraph shall be payable at the rate applicable under section 197 of this Act.

30

• (1) Where—

• (a) any interest is payable by the Commissioners to a person on a sum due to him under this Part of this Act, and

• (b) he is a person to whom regulations under section 51 of this Act apply,

the interest shall be treated as an amount to which he is entitled by way of credit in pursuance of the regulations.

• (2) Sub-paragraph (1) above shall be disregarded for the purpose of determining a person’s entitlement to interest or the amount of interest to which he is entitled.

Part VII — Miscellaneous

Security for tax

31

Where it appears to the Commissioners requisite to do so for the protection of the revenue they may require a registrable person, as a condition of his carrying out taxable activities, to give security (or further security) of such amount and in such manner as they may determine for the payment of any tax which is or may become due from him.

Assessments to penalties etc.

32

• (1) Where a person is liable—

• (a) to a penalty under Part V of this Schedule, or

• (b) for interest under paragraph 26 or 27 above,

the Commissioners may, subject to sub-paragraph (2) below, assess the amount due by way of penalty or interest (as the case may be) and notify it to him accordingly; and the fact that any conduct giving rise to a penalty under Part V of this Schedule may have ceased before an assessment is made under this paragraph shall not affect the power of the Commissioners to make such an assessment.

• (2) In the case of the penalties and interest referred to in the following paragraphs of this sub-paragraph, the assessment under this paragraph shall be of an amount due in respect of the accounting period which in the paragraph concerned is referred to as the relevant period—

• (a) in the case of a penalty under paragraph 18 above relating to the evasion of tax, and in the case of interest under paragraph 27 above on an amount due by way of such a penalty, the relevant period is the accounting period for which the tax evaded was due;

• (b) in the case of a penalty under paragraph 18 above relating to the obtaining of a payment under regulations under section 51(2)(c) or (d) or (f) of this Act, and in the case of interest under paragraph 27 above on an amount due by way of such a penalty, the relevant period is the accounting period in respect of which the payment was obtained;

• (c) in the case of interest under paragraph 26 above, and in the case of interest under paragraph 27 above on an amount due by way of interest under paragraph 26 above, the relevant period is the accounting period in respect of which the tax was due;

• (d) in the case of interest under paragraph 27 above on an amount of tax, the relevant period is the accounting period in respect of which the tax was due.

• (3) In a case where the amount of any penalty or interest falls to be calculated by reference to tax which was not paid at the time it should have been and that tax cannot be readily attributed to any one or more accounting periods, it shall be treated for the purposes of this Part of this Act as tax due for such period or periods as the Commissioners may determine to the best of their judgment and notify to the person liable for the tax and penalty or interest.

• (4) Where a person is assessed under this paragraph to an amount due by way of any penalty or interest falling within sub-paragraph (2) above and is also assessed under subsection (1) or (2) of section 50 of this Act for the accounting period which is the relevant period under sub-paragraph (2) above, the assessments may be combined and notified to him as one assessment, but the amount of the penalty or interest shall be separately identified in the notice.

• (5) Sub-paragraph (6) below applies in the case of an amount due by way of interest under paragraph 27 above.

• (6) Where this sub-paragraph applies in the case of an amount—

• (a) a notice of assessment under this paragraph shall specify a date, being not later than the date of the notice, to which the amount of interest which is assessed is calculated, and

• (b) if the interest continues to accrue after that date, a further assessment or further assessments may be made under this paragraph in respect of amounts which so accrue.

• (7) If, within such period as may be notified by the Commissioners to the person liable for the interest under paragraph 27 above, the amount referred to in paragraph 27(2), (4), (6), (8) or (10) above (as the case may be) is paid, it shall be treated for the purposes of paragraph 27 above as paid on the date specified as mentioned in sub-paragraph (6)(a) above.

• (8) Where an amount has been assessed and notified to any person under this paragraph it shall be recoverable as if it were tax due from him unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.

• (9) Subsection (8) of section 50 of this Act shall apply for the purposes of this paragraph as it applies for the purposes of that section.

Assessments: time limits

33

• (1) Subject to the following provisions of this paragraph, an assessment under—

• (a) any provision of section 50 or 50A of this Act, or

• (b) paragraph 32 above,

shall not be made more than 4 years after the relevant event.

• (1A) In this paragraph “the relevant event”, in relation to an assessment, means—

• (a) the end of the accounting period concerned, ...

• (aa) in the case of an assessment under section 50A, evidence of facts, sufficient in the Commissioners' opinion to justify the making of the assessment, coming to their knowledge, or

• (b) in the case of an assessment under paragraph 32 of an amount due by way of a penalty other than a penalty referred to in paragraph 32(2), the event giving rise to the penalty.

• (2) Subject to sub-paragraph (5) below, an assessment under paragraph 32 above of—

• (a) an amount due by way of any penalty referred to in sub-paragraph (2) of that paragraph, or

• (b) an amount due by way of interest,

may be made at any time before the expiry of the period of two years beginning with the time when the amount of tax due for the accounting period concerned has been finally determined.

• (3) In relation to an assessment under paragraph 32 above, any reference in sub-paragraph (1A) or (2) above to the accounting period concerned is a reference to that period which, in the case of the penalty or interest concerned, is the relevant period referred to in sub-paragraph (2) of that paragraph.

• (4) An assessment of an amount due from a person in a case involving a loss of tax—

• (a) brought about deliberately by the person (or by another person acting on that person's behalf), or

• (b) attributable to a failure by the person to comply with an obligation under section 47(2) or (3),

may be made at any time not more than 20 years after the relevant event (subject to sub-paragraph (5)).

• (4A) In sub-paragraph (4)(a) the reference to a loss brought about deliberately by the person includes a loss brought about as a result of a deliberate inaccuracy in a document given to Her Majesty's Revenue and Customs by or on behalf of that person.

• (5) Where after a person’s death the Commissioners propose to assess an amount as due by reason of some conduct of the deceased—

• (a) the assessment shall not be made more than 4 years after the death, ...

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary assessments

34

If, otherwise than in circumstances falling within subsection (5)(b) of section 50 of this Act, it appears to the Commissioners that the amount which ought to have been assessed in an assessment under any provision of that section or under paragraph 32 above exceeds the amount which was so assessed, then—

• (a) under the like provision as that assessment was made, and

• (b) on or before the last day on which that assessment could have been made,

the Commissioners may make a supplementary assessment of the amount of the excess and shall notify the person concerned accordingly.

Disclosure of information

35

• (1) Notwithstanding any obligation not to disclose information that would otherwise apply, the Commissioners may disclose information to—

• (a) the Secretary of State,

• (b) the Environment Agency,

• (ba) the Natural Resources Body for Wales;

• (c) the Scottish Environment Protection Agency,

• (d) the Department of the Environment for Northern Ireland,

• (e) a district council in Northern Ireland, or

• (f) an authorised officer of any person (a principal) mentioned in paragraphs (a) to (e) above,

for the purpose of assisting the principal concerned in the performance of the principal’s duties.

• (2) Notwithstanding any such obligation as is mentioned in sub-paragraph (1) above, any person mentioned in sub-paragraph (1)(a) to (f) above may disclose information to the Commissioners or to an authorised officer of the Commissioners for the purpose of assisting the Commissioners in the performance of duties in relation to tax.

• (3) Information that has been disclosed to a person by virtue of this paragraph shall not be disclosed by him except—

• (a) to another person to whom (instead of him) disclosure could by virtue of this paragraph have been made, or

• (b) for the purpose of any proceedings connected with the operation of any provision of, or made under, any enactment in relation to the environment or to tax.

• (4) References in the preceding provisions of this paragraph to an authorised officer of any person (the principal) are to any person who has been designated by the principal as a person to and by whom information may be disclosed by virtue of this paragraph.

• (5) The Secretary of State shall notify the Commissioners in writing of the name of any person designated by the Secretary of State under sub-paragraph (4) above.

• (6) No charge may be made for a disclosure made by virtue of this paragraph.

Publication of information by Commissioners

36

• (1) The Commissioners may publish, by such means as they think fit, information which—

• (a) is derived from the register kept under section 47 of this Act, and

• (b) falls within any of the descriptions set out below.

• (2) The descriptions are—

• (a) the names of registered persons;

• (b) the addresses of any sites or other premises at which they carry on business;

• (c) the registration numbers assigned to them in the register;

• (d) the fact (where it is the case) that the registered person is a body corporate which under section 59 of this Act is treated as a member of a group;

• (e) the names of the other bodies corporate treated under that section as members of the group;

• (f) the addresses of any sites or other premises at which those other bodies carry on business.

• (2A) The Commissioners may publish, by such means as they think fit—

• (a) the names of persons assessed to tax under section 50A in respect of taxable disposals not made at a landfill site;

• (b) the addresses of any places used by persons within paragraph (a) for making taxable disposals or otherwise for carrying on business.

This sub-paragraph does not apply where the assessment in question is subject to an outstanding appeal.

• (3) Information may be published in accordance with this paragraph notwithstanding any obligation not to disclose the information that would otherwise apply.

Evidence by certificate etc.

37

• (1) A certificate of the Commissioners—

• (a) that a person was or was not at any time registered under section 47 of this Act or,

• (b) that any return required by regulations made under section 49 of this Act has not been made or had not been made at any time, ...

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

shall be sufficient evidence of that fact until the contrary is proved.

• (2) A photograph of any document furnished to the Commissioners for the purposes of this Part of this Act and certified by them to be such a photograph shall be admissible in any proceedings, whether civil or criminal, to the same extent as the document itself.

• (3) Any document purporting to be a certificate under sub-paragraph (1) or (2) above shall be taken to be such a certificate until the contrary is proved.

Service of notices etc.

38

Any notice, notification or requirement to be served on, given to or made of any person for the purposes of this Part of this Act may be served, given or made by sending it by post in a letter addressed to that person at his last or usual residence or place of business.

39

• (1) This paragraph applies to directions, specifications and conditions which the Commissioners or an authorised person may give or impose under any provision of this Part.

• (2) A direction, specification or condition given or imposed by the Commissioners may be withdrawn or varied by them.

• (3) A direction, specification or condition given or imposed by an authorised person may be withdrawn or varied by him or by another authorised person.

• (4) No direction, specification or condition shall have effect as regards any person it is intended to affect unless—

• (a) a notice containing it is served on him, or

• (b) other reasonable steps are taken with a view to bringing it to his attention.

• (5) No withdrawal or variation of a direction, specification or condition shall have effect as regards any person the withdrawal or variation is intended to affect unless—

• (a) a notice containing the withdrawal or variation is served on him, or

• (b) other reasonable steps are taken with a view to bringing the withdrawal or variation to his attention.

No deduction of penalties or interest

40

In section 827 of the Taxes Act 1988 (no deduction for penalties etc.) the following subsection shall be inserted after subsection (1B)—

(1C) Where a person is liable to make a payment by way of— (a) penalty under Part V of Schedule 5 to the Finance Act 1996 (landfill tax), or (b) interest under paragraph 26 or 27 of that Schedule, the payment shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.

Destination of receipts

41

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

Set-off of amounts

42

• (1) Regulations may make provision in relation to any case where—

• (a) a person is under a duty to pay to the Commissioners at any time an amount or amounts in respect of landfill tax, and

• (b) the Commissioners are under a duty to pay to that person at the same time an amount or amounts in respect of any tax (or taxes) under their care and management.

• (2) The regulations may provide that if the total of the amount or amounts mentioned in sub-paragraph (1)(a) above exceeds the total of the amount or amounts mentioned in sub-paragraph (1)(b) above, the latter shall be set off against the former.

• (3) The regulations may provide that if the total of the amount or amounts mentioned in sub-paragraph (1)(b) above exceeds the total of the amount or amounts mentioned in sub-paragraph (1)(a) above, the Commissioners may set off the latter in paying the former.

• (4) The regulations may provide that if the total of the amount or amounts mentioned in sub-paragraph (1)(a) above is the same as the total of the amount or amounts mentioned in sub-paragraph (1)(b) above no payment need be made in respect of the former or the latter.

• (4A) The regulations may provide for any limitation on the time within which the Commissioners are entitled to take steps for recovering any amount due to them in respect of landfill tax to be disregarded, in such cases as may be described in the regulations, in determining whether any person is under such a duty to pay as is mentioned in sub-paragraph (1)(a) above.

• (5) The regulations may include provision treating any duty to pay mentioned in sub-paragraph (1) above as discharged accordingly.

• (6) References in sub-paragraph (1) above to an amount in respect of a particular tax include references not only to an amount of tax itself but also to other amounts such as interest and penalty.

• (7) In this paragraph “tax” includes “duty”.

43

• (1) Regulations may make provision in relation to any case where—

• (a) a person is under a duty to pay to the Commissioners at any time an amount or amounts in respect of any tax (or taxes) under their care and management, and

• (b) the Commissioners are under a duty to pay to that person at the same time an amount or amounts in respect of landfill tax.

• (2) The regulations may provide that if the total of the amount or amounts mentioned in sub-paragraph (1)(a) above exceeds the total of the amount or amounts mentioned in sub-paragraph (1)(b) above, the latter shall be set off against the former.

• (3) The regulations may provide that if the total of the amount or amounts mentioned in sub-paragraph (1)(b) above exceeds the total of the amount or amounts mentioned in sub-paragraph (1)(a) above, the Commissioners may set off the latter in paying the former.

• (4) The regulations may provide that if the total of the amount or amounts mentioned in sub-paragraph (1)(a) above is the same as the total of the amount or amounts mentioned in sub-paragraph (1)(b) above no payment need be made in respect of the former or the latter.

• (4A) The regulations may provide for any limitation on the time within which the Commissioners are entitled to take steps for recovering any amount due to them in respect of any of the taxes under their care and management to be disregarded, in such cases as may be described in the regulations, in determining whether any person is under such a duty to pay as is mentioned in sub-paragraph (1)(a) above.

• (5) The regulations may include provision treating any duty to pay mentioned in sub-paragraph (1) above as discharged accordingly.

• (6) References in sub-paragraph (1) above to an amount in respect of a particular tax include references not only to an amount of tax itself but also to other amounts such as interest and penalty.

• (7) In this paragraph “tax” includes “duty”.

Amounts shown as tax on invoices

44

• (1) Where—

• (a) a registrable person issues an invoice showing an amount as tax chargeable on an event, and

• (b) no tax is in fact chargeable on the event,

an amount equal to the amount shown as tax shall be recoverable from the person as a debt due to the Crown.

• (2) Where—

• (a) a registrable person issues an invoice showing an amount as tax chargeable on a taxable disposal, and

• (b) the amount shown as tax exceeds the amount of tax in fact chargeable on the disposal,

an amount equal to the excess shall be recoverable from the person as a debt due to the Crown.

• (3) References in this paragraph to an invoice are to any invoice, whether or not it is a landfill invoice within the meaning of section 61 of this Act.

Adjustment of contracts

45

• (1) This paragraph applies where—

• (a) material undergoes a ... disposal,

• (b) a payment falls to be made under a disposal contract relating to the material, and

• (c) after the making of the contract there is a change in the tax chargeable on the ... disposal.

• (2) In such a case the amount of any payment mentioned in sub-paragraph (1)(b) above shall be adjusted, unless the disposal contract otherwise provides, so as to reflect the tax chargeable on the ... disposal.

• (3) For the purposes of this paragraph a disposal contract relating to material is a contract providing for the disposal of the material, and it is immaterial—

• (a) when the contract was made;

• (b) whether the contract also provides for other matters;

• (c) whether the contract provides for a method of disposal and (if it does) what method it provides for.

• (4) The reference in sub-paragraph (1) above to a change in the tax chargeable is a reference to a change—

• (a) to or from no tax being chargeable, or

• (b) in the amount of tax chargeable.

46

• (1) This paragraph applies where—

• (a) work is carried out under a construction contract,

• (b) as a result of the work, material undergoes a ... disposal,

• (c) the contract makes no provision as to the disposal of such material, and

• (d) the contract was made on or before 29th November 1994 (when the proposal to create tax was announced).

• (2) In such a case the amount of any payment which falls to be made—

• (a) under the construction contract, and

• (b) in respect of the work,

shall be adjusted, unless the contract otherwise provides, so as to reflect the tax (if any) chargeable on the disposal.

• (3) For the purposes of this paragraph a construction contract is a contract under which all or any of the following work is to be carried out—

• (a) the preparation of a site;

• (b) demolition;

• (c) building;

• (d) civil engineering.

Adjustment of rent etc.

47

• (1) This paragraph applies where—

• (a) an agreement with regard to any sum payable in respect of the use of land (whether the sum is called rent or royalty or otherwise) provides that the amount of the sum is to be calculated by reference to the turnover of a business,

• (b) the agreement was made on or before 29th November 1994 (when the proposal to create tax was announced), and

• (c) the circumstances are such that (had the agreement been made after that date) it can reasonably be expected that it would have provided that tax be ignored in calculating the turnover.

• (2) In such a case the agreement shall be taken to provide that tax be ignored in calculating the turnover.

SCHEDULE 6

The Taxes Management Act 1970 (c. 9)

1

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

The Taxes Act 1988

2

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

3

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

4

• (1) Subject to sub-paragraph (2) below, in subsection (1)(b) of section 51B of that Act (periodic returns of tax on gilts), for “basic rate” there shall be substituted “ lower rate ”.

• (2) Sub-paragraph (1) above has effect for the purposes only of the exercise on or after the day on which this Act is passed of the Treasury’s power to make regulations under that section; but that power may be exercised on or after that day for the purpose of making provision, with retrospective effect, on the basis that the assumption to be applied in relation to all payments made on or after 6th April 1996 was an assumption that such payments bear tax at the lower rate.

5

In paragraph (c) of section 246D(2) of that Act (application of section 207A to certain foreign income dividends), for the words from “as income” to the end of the paragraph there shall be substituted “ (without prejudice to paragraph (a) above) as if it were income to which section 1A applies; ”.

6

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

7

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

8

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

9

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

10

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) Sections 468E and 468EE of that Act (rate of corporation tax on authorised unit trusts) shall not apply in relation to any accounting period ending after 31st March 1996 except so far as those sections relate to the financial year 1995.

11

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

12

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

13

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

14

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

15

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

16

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

17

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

18

• (1) In subsection (1) of section 737 of that Act (deductions from manufactured payments), after “shall apply” there shall be inserted “ (subject to subsection (1A) below) ”, and for subsection (1A) of that section there shall be substituted the following subsection—

(1A) The deduction of tax which is deemed to have been made under subsection (1) above shall be taken to have been made at the lower rate as if the deemed annual payment were income to which section 1A applied; and— (a) the reference to the applicable rate in subsection (1) of section 350, so far as it has effect by virtue of subsection (1) above, and (b) Schedule 16, so far as it so has effect, shall be construed accordingly.

• (2) This paragraph has effect in relation to payments on or after 6th April 1996.

19

In section 737C(6) of that Act (computation of amount of deemed manufactured interest), for “basic” there shall be substituted “ lower ”.

20

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

21

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

22

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

23

In section 822(1) of that Act (over-deductions from interest on loan capital etc. made before the passing of annual Act where basic rate for the year is lower than in the previous year), for “basic rate lower” there shall be substituted “ lower rate less ”.

24

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

25

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

The Finance Act 1989 (c. 26)

26

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

The Taxation of Chargeable Gains Act 1992 (c. 12)

27

In section 4(3A) of the Taxation of Chargeable Gains Act 1992 (disregard of income chargeable at lower rate in accordance with section 207A of the Taxes Act 1988), for “section 207A” there shall be substituted “ section 1A ”.

Commencement of Schedule

28

Subject to any express provisions as to commencement that are contained in the preceding provisions of this Schedule, this Schedule has effect for the year 1996-97 and subsequent years of assessment.

SCHEDULE 7

Amendments of the Taxes Act 1988

1

The Taxes Act 1988 shall be amended in accordance with paragraphs 2 to 28 below.

2

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

3

Section 17 (Schedule C) shall be omitted.

4

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) In subsection (3) of that section—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) in Case IV, the words “except such income as is charged under Schedule C” shall be omitted; and

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

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

6

For the heading to Part III there shall be substituted the following heading— “ Government Securities ”

7

Section 44 (mode of charge of tax under Schedule C) shall be omitted.

8

Section 45 (interpretation of Part III) shall be omitted.

9

Section 48 (securities of foreign states) shall be omitted.

10

In section 49 (stock and dividends in name of Treasury etc.), after subsection (2) there shall be inserted the following subsection—

(3) In this section “dividends” means any interest, public annuities, dividends or shares of annuities.

11

In sections 50(1) and 51A(1) (which provide for interest on certain securities to be paid without deduction of tax), the words “but shall be chargeable to tax under Case III of Schedule D” shall in each case be omitted.

12

Section 52 (taxation of interest on converted securities and interest which becomes subject to deduction) shall be omitted.

13

Section 123 (foreign dividends) shall be omitted.

14

In section 124—

• (a) in subsection (6) (definitions in connection with quoted Eurobonds), the definitions of “recognised clearing system” and “relevant foreign securities”, and the word “and” immediately preceding those definitions, and

• (b) subsection (7),

shall be omitted.

15

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

16

In section 398 (transactions in deposits with and without certificates or in debts), in paragraph (b), the words “C or” shall be omitted.

17

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

18

In section 474 (treatment of tax-free income), subsections (1) and (3) shall be omitted.

19

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

20

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

21

• (1) In section 516 (government securities held by non-resident central banks), in subsection (1), for “dividends (within the meaning of Schedule C) paid out of the public revenue of the United Kingdom where they are” there shall be substituted “ income from securities which is payable out of the public revenue of the United Kingdom and which is ”.

• (2) In subsection (2) of that section, for “such dividends” there shall be substituted “ such income ”.

22

In section 582A (designated international organisations), subsection (3) shall be omitted.

23

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

24

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

25

In section 832(1) (interpretation of the Tax Acts), the definition of “recognised clearing system” shall be omitted.

26

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

27

Schedule 3 (machinery for payment of income tax under Schedule C and, in certain cases, Schedule D) shall be omitted.

28

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

Other amendments

29

In the Table in section 98 of the Taxes Management Act 1970 (penalties in respect of certain information provisions)—

• (a) in the first column, the entry relating to paragraph 13(1) of Schedule 3 to the Taxes Act 1988, and

• (b) in the second column, the entry relating to paragraph 6C of that Schedule,

shall be omitted.

30

In section 178(2)(m) of the Finance Act 1989 (provisions to which power to set rates of interest applies), the words “and paragraph 6B of Schedule 3 to” shall be omitted.

31

In section 128 of the Finance Act 1995 (limit on income chargeable on non-residents: income tax), in subsection (3)(a), the words “Schedule C,” shall be omitted.

Commencement, etc.

32

Subject to paragraphs 33 and 34 below, this Schedule has effect—

• (a) for the purposes of income tax, for the year 1996-97 and subsequent years of assessment;

• (b) for the purposes of corporation tax, for accounting periods ending after 31st March 1996.

Position of paying and collecting agents

33

• (1) Subject to the following provisions of this paragraph and paragraph 34 below—

• (a) nothing in section 79 of this Act or this Schedule shall affect the obligations of any person under Schedule 3, in relation to times to which this paragraph applies, to set apart, retain or pay any amount of tax; and

• (b) Schedule 3 shall have effect accordingly in relation to amounts set apart, retained or paid in pursuance of those obligations.

• (2) The repeal of Schedule 3 shall not affect the operation of paragraph 6B of that Schedule in relation to any amount—

• (a) which became due and payable in relation to a transaction occurring before the day on which this Act was passed; but

• (b) which remains unpaid at any time on or after that day.

• (3) The Board may by regulations make provision with respect to returns to be made for the quarter which includes both times before the day on which this Act was passed and times on and after that day.

• (4) Regulations under sub-paragraph (3) above may, in particular, provide that section 98 of the Taxes Management Act 1970 shall have effect as if it included a reference in the second column of the Table to any specified provision of the regulations.

• (5) In this paragraph “Schedule 3” means Schedule 3 to the Taxes Act 1988.

Position of taxpayers

34

• (1) Transitional payments of tax made on a person’s behalf in relation to times to which this paragraph applies shall be treated as made only for the purpose of being applied in the discharge of that person’s liability to tax charged under Schedule D.

• (2) If a transitional payment of tax has been made on a person’s behalf, but it appears to the Board that—

• (a) that person was not liable to tax, or

• (b) the sum paid exceeded his liability,

the Board shall make or allow such repayments, adjustments or set-offs against unpaid tax as they think appropriate.

• (3) In this paragraph “transitional payment of tax” means a payment to which paragraph 33 above applies.

Times to which paragraphs 33 and 34 apply

35

Paragraphs 33 and 34 above apply in relation to times falling—

• (a) within a year of assessment or an accounting period mentioned in paragraph 32 above, but

• (b) before the day on which this Act was passed.

SCHEDULE 8

Claim to set off deficit against other profits for the deficit period

1

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

Claim to treat deficit as eligible for group relief

2

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

Claim to carry back deficit to previous accounting periods

3

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

Carry forward of deficit to succeeding accounting periods

4

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

Construction of Schedule

5

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

SCHEDULE 9

Distributions

1

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

Late interest

2

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

Options et ceteralaetc.

3

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

Foreign exchange gains and losses

4

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

Release of liability under debtor relationship : cases in which credit need not be brought into account

5

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

Impairment losses where parties have a connection

6

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

Writing-off of government investments

7

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

Restriction on writing off overseas sovereign debt et ceteralaetc.

8

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

Further restriction on bringing into account losses on overseas sovereign debt et ceteralaetc.

9

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

Imported losses et ceteralaetc.

10

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

Transactions not at arm’s length

11

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

Continuity of treatment: groups et ceteralaetc.

12

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

Loan relationships for unallowable purposes

13

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

Debits and credits treated as relating to capital expenditure

14

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

Repo and stock-lending transactions and other transactions where a company ceases to be party to a loan relationship

15

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

Amounts imputed under Schedule 28AA to the Taxes Act 1988

16

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

Deeply discounted securities where companies have a connection

17

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

Deeply discounted securities of close companies

18

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

SCHEDULE 10

Investment trusts: capital profits, gains or losses

1

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

Authorised unit trusts : capital profits, gains or losses

2

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

Distributing offshore funds

3

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

Company holdings in unit trusts and offshore funds

4

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

Holding becoming or ceasing to be paragraph 4 holding

5

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

Opening valuation of paragraph 4 holding

6

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

Meaning of offshore funds

7

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

Non-qualifying investments test

8

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

Powers to make orders

9

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

SCHEDULE 11

Part I — Insurance companies

I minus E basis

1

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

Rules for different categories of business

2

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

Apportionments

3

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

Treatment of deficit

4

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

Election for accruals basis for long term business assets

5

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

Interpretation of Part I

6

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

Part II — Corporate members of Lloyd’s

7

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

SCHEDULE 12

The section inserted after section 150 of the Finance Act 1994 by section 101(3) of this Act is as follows—

SCHEDULE 13

Charge to tax on realised profit comprised in discount

1

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

Realised losses on discounted securities

2

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

Meaning of “relevant discounted security”

3

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

Meaning of “transfer”

4

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

Redemption to include conversion

5

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

Trustees and personal representatives

6

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

Treatment of losses where income exempt

7

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

Transfers between connected persons

8

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

Other transactions deemed to be at market value

9

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

Issue of securities in separate tranches

10

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

Accrued income scheme

11

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

Assets transferred abroad

12

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

Excluded indexed securities

13

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

Strips of government securities

14

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

General interpretation

15

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

Application of Schedule for income tax purposes only

16

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

SCHEDULE 14

The Taxes Management Act 1970 (c. 9)

1

• (1) In subsection (4A) of section 87A of the Taxes Management Act 1970 (interest on overdue corporation tax)—

• (a) in paragraph (a), for the words from “a relievable amount” to the end of the paragraph there shall be substituted “ a non-trading deficit on the company’s loan relationships, ”; and

• (b) in paragraph (b), for the words from “subsection (5)” to “subsection (10) of that section)” there shall be substituted “ section 83(2)(c) of the Finance Act 1996 or paragraph 4(3) of Schedule 11 to that Act the whole or part of the deficit for the later period is set off against profits ”.

• (2) In subsection (4B) of that section, for the words “section 131(5) or (6) of the Finance Act 1993”, in each place where they occur, there shall be substituted “ section 83(2)(c) of the Finance Act 1996 or paragraph 4(3) of Schedule 11 to that Act ”.

The Inheritance Tax Act 1984 (c. 51)

2

• (1) In section 174(1)(b) of the Inheritance Tax Act 1984 (unpaid tax relating to deep discount securities deemed to be transferred on death), for the words from “paragraph 4” onwards there shall be substituted “ Schedule 13 to the Finance Act 1996 (discounted securities) on a transfer which is treated as taking place by virtue of paragraph 4(2) of that Schedule. ”

• (2) This paragraph applies in relation to deaths on or after 6th April 1996.

The Airports Act 1986 (c. 31)

3

In section 77 of the Airports Act 1986 (taxation provisions), for subsection (3) there shall be substituted the following subsection—

(3) For the purposes of Part VI of the Income and Corporation Taxes Act 1988 (company distributions) and Chapter II of Part IV of the Finance Act 1996 (loan relationships), any debentures of the company issued in pursuance of section 4 shall be treated as having been issued for new consideration equal to the principal sum payable under the debenture.

The Gas Act 1986 (c. 44)

4

In section 60 of the Gas Act 1986 (taxation provisions), for subsection (3) there shall be substituted the following subsection—

(3) For the purposes of Part VI of the Income and Corporation Taxes Act 1988 (company distributions) and Chapter II of Part IV of the Finance Act 1996 (loan relationships), any debentures issued in pursuance of section 51 above shall be treated as having been issued for new consideration equal to the principal sum payable under the debenture.

The Taxes Act 1988

5

In section 18 of the Taxes Act 1988 (Schedule D), the following subsection shall be inserted after subsection (3)—

(3A) For the purposes of corporation tax subsection (3) above shall have effect as if the following Case were substituted for Cases III and IV, that is to say—

Case III:

tax in respect of—(a) profits and gains which, as profits and gains arising from loan relationships, are to be treated as chargeable under this Case by virtue of Chapter II of Part IV of the Finance Act 1996;(b) any annuity or other annual payment which—(i) is payable (whether inside or outside the United Kingdom and whether annually or at shorter or longer intervals) in respect of anything other than a loan relationship; and(ii) is not a payment chargeable under Schedule A;(c) any discount arising otherwise than in respect of a loan relationship;

and as if Case V did not include tax in respect of any income falling within paragraph (a) of the substituted Case III.

6

In section 56 of that Act (transactions in deposits with or without certificates or in debts), after subsection (4) there shall be inserted the following subsections—

(4A) This section and section 56A shall not apply for the purposes of corporation tax except in relation to rights in existence before 1st April 1996. (4B) For the purposes of corporation tax, where any profits or gains arising from the disposal or exercise of a right in existence before 1st April 1996 are, or (if there were any) would be, chargeable under this section, nothing in Chapter II of Part IV of the Finance Act 1996 (loan relationships) shall require any amount relating to that disposal, or to the exercise of that right, to be brought into account for the purposes of that Chapter.

7

In section 70(3) of that Act (extension of Cases IV and V of Schedule D to non-resident companies), for “Cases IV and V” there shall be substituted “ Cases III and V ”.

8

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

9

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

10

• (1) Section 78 of that Act (discounted bills of exchange) shall cease to have effect except in relation to bills of exchange drawn before 1st April 1996.

• (2) Where any bill so drawn is paid on or after 1st April 1996—

• (a) the amount which subsection (2) of that section provides to be treated as a deduction against total profits and as a charge on income shall (instead of being so treated) be brought into account for the purposes of this Chapter as a non-trading debit; and

• (b) that amount shall be the only amount brought into account for the purposes of this Chapter in respect of the discount in question.

11

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

12

• (1) In subsection (2) of section 242 of that Act (set off of losses against surplus franked investment income), for paragraph (f) there shall be substituted—

(f) the setting of amounts against profits in pursuance of a claim under section 83 of the Finance Act 1996 (non-trading deficits on loan relationships) or paragraph 4 of Schedule 11 to that Act (deficits of insurance companies).

• (2) In subsection (8) of that section, for paragraph (e) there shall be substituted the following paragraph—

(e) if and so far as the purpose for which the claim is made is the setting of an amount against profits in pursuance of a claim under— (i) section 83 of the Finance Act 1996 (non-trading deficits on loan relationships), or (ii) paragraph 4 of Schedule 11 to that Act (deficits of insurance companies), the time limit that by virtue of subsection (6) of that section or sub-paragraph (15) of that paragraph would be applicable to such a claim.

13

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

14

• (1) In subsection (2)(b) of section 337 of that Act (deduction of yearly interest etc. in computing income), for “yearly interest, annuity or other annual payment” there shall be substituted “ annuity or other annual payment which is not interest ”.

• (2) Subsection (3) of that section (deduction of yearly interest payable to a bank) shall cease to have effect.

15

After section 337 of that Act there shall be inserted the following section—

(337A) No deduction shall be made in respect of interest in computing a company’s income from any source except in accordance with Chapter II of Part IV of the Finance Act 1996 (loan relationships).

16

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

17

Sections 338A, 340 and 341 of that Act (charges on income to include certain loans to buy land, provisions relating to interest payable to non-residents and provisions relating to payments between related companies) shall cease to have effect.

18

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

19

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

20

• (1) In section 401 of that Act (relief for pre-trading expenditure), after subsection (1) there shall be inserted the following subsections—

(1AA) Subsection (1) above shall not apply to any expenditure in relation to which any debit falls, or (but for subsection (1AB) below) would fall, to be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships). (1AB) Where, in the case of any company— (a) a non-trading debit is given for any accounting period for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships), and (b) an election for the purposes of this section is made by that company with respect to that debit within the period of 2 years beginning with the end of that accounting period, that debit shall not be brought into account for the purposes of that Chapter as a non-trading debit for that period, but subsection (1AC) below shall apply instead. (1AC) If a company— (a) begins to carry on a trade within the period of seven years after the end of the accounting period for which a non-trading debit is given for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships), (b) that debit is such that, if it had been given for the accounting period in which the company begins to carry on that trade, it would have been brought into account by reference to that trade in accordance with section 82(2) of that Act (trading debits and credits), and (c) an election is or has been made with respect to that debit under subsection (1AB) above, that debit shall be treated for the purposes of that Chapter as if it were a debit for the accounting period in which the company begins to carry on the trade and shall be brought into account for that period in accordance with section 82(2) of that Act.

• (2) Subsection (1A) of that section shall cease to have effect.

21

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

22

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

23

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

24

Where this Chapter has effect in relation to any accounting period in relation to which section 434B of that Act (treatment of interest and annuities in the case of insurance companies) has effect without the amendments made by section 165 of this Act, that section of that Act shall have effect in relation to that period as if the words “interest or”, in each place where they occur, were omitted.

25

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

26

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

27

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

28

• (1) In subsection (3) of section 477A of that Act (building societies: regulations for deducting tax), for paragraph (a) there shall be substituted the following paragraphs—

(a) liability to pay the dividends or interest shall be treated for the purposes of Chapter II of Part IV of the Finance Act 1996 as a liability arising under a loan relationship of the building society; (aa) if the dividends or interest are payable to a company, they shall be treated for those purposes as payable to that company in pursuance of a right arising under a loan relationship of that company;

.

• (2) Subsections (3A) to (3C) of that section shall cease to have effect.

29

Sections 484 and 485 of that Act (savings banks: exemption from tax) shall cease to have effect.

30

In section 486 of that Act (industrial and provident societies)—

• (a) in subsection (1), for the words from “and, subject to subsection (7)” onwards there shall be substituted “ but interest payable by such a society (whether as share interest or loan interest) shall be treated for the purposes of corporation tax as interest under a loan relationship of the society. ”; and

• (b) in subsection (7), for the words from “not be deductible” onwards there shall be substituted “ not be brought into account in that period for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships). ”

31

• (1) In subsection (1) of section 487 of that Act (credit unions), for paragraph (b) there shall be substituted the following paragraph—

(b) no credits shall be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 in respect of any loan relationship of a credit union as respects which a member of the union stands in the position of a debtor as respects the debt in question.

• (2) In subsection (3) of that section—

• (a) for “No share interest, loan interest or annuity or other annual payment” there shall be substituted “ An annuity or other annual payment (not being a payment of share interest or loan interest) which is ”; and

• (b) after “shall” there shall be inserted “ not ”.

• (3) After that subsection there shall be inserted the following subsection—

(3A) No debits shall be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 in respect of any loan relationship of a credit union as respects which a member of the union stands in the position of a creditor as respects the debt in question.

32

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) For subsection (4) of that section (charges on income), there shall be substituted the following subsections—

(4) Subsection (7) of section 403 shall have effect as if the reference in that subsection to the profits of the surrendering company for an accounting period did not include the relevant part of the company’s ring fence profits for that period. (5) For the purposes of subsection (4) above the relevant part of a company’s ring fence profits for an accounting period are— (a) if for that period— (i) there are no charges on income paid by the company that are allowable under section 338, or (ii) the only charges on income so allowable are charges to which subsection (3) above applies, all the company’s ring fence profits; and (b) in any other case, so much of its ring fence profits as exceeds the amount of the charges on income paid by the company as are so allowable for that period and are not charges to which subsection (3) above applies.

33

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34

In section 614 of that Act (exemptions and reliefs in respect of income from certain pension funds etc.), after subsection (2) of that section there shall be inserted the following subsection—

(2A) The reference in subsection (2) above to interest on sums forming part of a fund include references to any amount which is treated as income by virtue of paragraph 1 of Schedule 13 to the Finance Act 1996 (relevant discounted securities) and derives from any investment forming part of that fund.

35

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36

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37

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38

In section 737(5A) of that Act (relief in respect of manufactured dividends), after “a manufactured dividend” there shall be inserted “ that is not manufactured interest to which section 97 of the Finance Act 1996 applies ”.

39

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40

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41

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42

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43

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44

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45

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46

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47

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48

• (1) In subsection (7C) of section 826 of that Act (interest on tax overpaid)—

• (a) in paragraph (a), for the words from “a relievable amount” to the end of the paragraph there shall be substituted “ a non-trading deficit on the company’s loan relationships, ”;

• (b) in paragraph (b), for the words from “subsection (5)” to “subsection (10) of that section)” there shall be substituted “ section 83(2)(c) of the Finance Act 1996 or paragraph 4(3) of Schedule 11 to that Act the whole or part of the deficit for the later period is set off against profits ”; and

• (c) in the words after paragraph (c), for “subsection (5) or (6) (as the case may be) of that section” there shall be substituted “ section 83(2)(c) of that Act or, as the case may be, paragraph 4(3) of Schedule 11 to that Act ”.

• (2) In subsection (7CA) of that section, for the words “section 131(5) or (6) of the Finance Act 1993”, in each place where they occur, there shall be substituted “ section 83(2)(c) of the Finance Act 1996 or paragraph 4(3) of Schedule 11 to that Act ”.

49

In subsection (1) of section 834 of that Act (definitions for the purposes of the Corporation Tax Acts), after the definition of “group relief” there shall be inserted the following definitions—

“loan relationship” has the same meaning as it has for the purposes of Chapter II of Part IV of the Finance Act 1996; “non-trading deficit”, in relation to a company’s loan relationships, shall be construed in accordance with section 82 of the Finance Act 1996.

50

Schedule 4 to that Act (deep discount securities) shall cease to have effect.

51

In paragraph 5B(2) of Schedule 19AC to that Act (overseas life companies), the following paragraph shall be inserted after paragraph (d)—

(e) the setting of amounts against profits under, or in pursuance of a claim under, paragraph 4 of Schedule 11 to the Finance Act 1996 (loan relationships of insurance companies).

52

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53

In Schedule 26 to that Act (controlled foreign companies), in paragraph 1(3), the word “and” shall be inserted at the end of paragraph (e), and after that paragraph there shall be inserted the following paragraph—

(f) any non-trading deficit on its loan relationships.

54

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The British Steel Act 1988 (c. 35)

55

In section 11 of the British Steel Act 1988 (taxation provisions), for subsection (7) there shall be substituted the following subsection—

(7) For the purposes of Part VI of the Income and Corporation Taxes Act 1988 (company distributions) and Chapter II of Part IV of the Finance Act 1996 (loan relationships), any debentures issued in pursuance of section 3 above shall be treated as having been issued for new consideration equal to the principal sum payable under the debenture.

The Finance Act 1989 (c. 26)

56

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57

Schedule 11 to that Act (deep gain securities) shall cease to have effect.

The Finance Act 1990 (c. 29)

58

Schedule 10 to the Finance Act 1990 (convertible securities) shall cease to have effect.

The Taxation of Chargeable Gains Act 1992 (c. 12)

59

In section 108(1) of the Taxation of Chargeable Gains Act 1992 (meaning of relevant securities), after paragraph (a) there shall be inserted the following paragraph—

(aa) qualifying corporate bonds;

.

60

• (1) Section 116 of that Act (reorganisations, conversions and reconstructions) shall be amended as follows.

• (2) After subsection (4) there shall be inserted the following subsection—

(4A) In determining for the purposes of subsections (1) to (4) above, as they apply for the purposes of corporation tax— (a) whether sections 127 to 130 would apply in any case, and (b) what, in a case where they would apply, would constitute the original shares and the new holding, it shall be assumed that every asset representing a loan relationship of a company is a security within the meaning of section 132.

• (3) After subsection (8) there shall be inserted the following subsection—

(8A) Where subsection (6) above applies for the purposes of corporation tax in a case where the old asset consists of a qualifying corporate bond, Chapter II of Part IV of the Finance Act 1996 (loan relationships) shall have effect so as to require such debits and credits to be brought into account for the purposes of that Chapter in relation to the relevant transaction as would have been brought into account if the transaction had been a disposal of the old asset at the market value mentioned in that subsection.

• (4) After subsection (15) there shall be inserted the following subsection—

(16) This section has effect for the purposes of corporation tax notwithstanding anything in section 80(5) of the Finance Act 1996 (matters to be brought into account in the case of loan relationships only under Chapter II of Part IV of that Act).

61

• (1) In section 117 of that Act (meaning of “qualifying corporate bond”), before subsection (1) there shall be inserted the following subsection—

(A1) For the purposes of corporation tax “qualifying corporate bond” means (subject to sections 117A and 117B below) any asset representing a loan relationship of a company; and for purposes other than those of corporation tax references to a qualifying corporate bond shall be construed in accordance with the following provisions of this section.

• (2) After subsection (2) of that section there shall be inserted the following subsection—

(2AA) For the purposes of this section “corporate bond” also includes any asset which is not included in the definition in subsection (1) above and which is a relevant discounted security for the purposes of Schedule 13 to the Finance Act 1996.

• (3) After subsection (6A) of that section there shall be inserted the following subsections—

(6B) An excluded indexed security issued on or after 6th April 1996 is not a corporate bond for the purposes of this section; and an excluded indexed security issued before that date shall be taken to be such a bond for the purposes of this section only if— (a) it would be so taken apart from this subsection; and (b) the question whether it should be so taken arises for the purposes of section 116(10). (6C) In subsection (6B) above “excluded indexed security” has the same meaning as in Schedule 13 to the Finance Act 1996 (relevant discounted securities).

• (4) After subsection (8) of that section there shall be inserted the following subsection—

(8A) A corporate bond falling within subsection (2AA) above is a qualifying corporate bond whatever its date of issue.

62

After section 117 of that Act there shall be inserted the following sections—

(117A) (1) An asset to which this section applies is not a qualifying corporate bond for the purposes of corporation tax in relation to any disposal of that asset. (2) This section applies to any asset representing a loan relationship of a company where— (a) subsection (3) or (4) below applies to the asset; and (b) it is held in exempt circumstances. (3) This subsection applies to an asset if— (a) the settlement currency of the debt to which it relates is a currency other than sterling; and (b) that debt is not a debt on a security. (4) This subsection applies to an asset if the debt to which it relates is a debt on a security and is in a foreign currency. (5) For the purposes of subsection (4) above a debt is a debt in a foreign currency if it is— (a) a debt expressed in a currency other than sterling; (b) a debt the amount of which in sterling falls at any time to be determined by reference to the value at that time of a currency other than sterling; or (c) subject to subsection (6) below, a debt as respects which provision is made for its conversion into, or redemption in, a currency other than sterling. (6) A debt is not a debt in a foreign currency for those purposes by reason only that provision is made for its redemption on payment of an amount in a currency other than sterling equal, at the rate prevailing at the date of redemption, to a specified amount in sterling. (7) The provisions specified in subsection (8) below, so far as they require a disposal to be treated as a disposal on which neither a gain nor a loss accrues, shall not apply to any disposal of an asset to which this section applies. (8) The provisions referred to in subsection (7) above are— (a) sections 139, 140A, 171 and 172 of this Act; and (b) section 486(8) of the Taxes Act. (9) Paragraph 3 of Schedule 17 to the Finance Act 1993 shall have effect for construing the reference in subsection (2)(b) above to exempt circumstances as if references to a currency were references to the debt to which the relationship relates. (10) In this section “security” includes a debenture that is deemed to be a security for the purposes of section 251 by virtue of subsection (6) of that section. (117B) (1) For the purposes of corporation tax an asset to which this section applies is not a qualifying corporate bond in relation to any disposal of that asset in an accounting period for which that asset falls, under paragraph 4 of Schedule 10 to the Finance Act 1996 (holdings in unit trusts and offshore funds), to be treated as a right under a creditor relationship of a company. (2) This section applies to an asset which is comprised in a relevant holding (within the meaning of paragraph 4 of Schedule 10 to the Finance Act 1996) if— (a) it is denominated in a currency other than sterling; and (b) it is held in exempt circumstances. (3) For the purposes of this section— (a) a unit in a unit trust scheme, or (b) a right (other than a share in a company) which constitutes a relevant interest in an offshore fund, shall be taken to be denominated in a currency other than sterling if the price at which it may be acquired from, or disposed of to, persons concerned in the management of the trust or fund is fixed by those persons in a currency other than sterling. (4) For the purposes of this section shares constituting a relevant interest in an offshore fund shall be taken to be denominated in a currency other than sterling if their nominal value is expressed in such a currency. (5) The provisions specified in subsection (6) below, so far as they require a disposal to be treated as a disposal on which neither a gain nor a loss accrues, shall not apply to any disposal in relation to which this section applies. (6) The provisions referred to in subsection (5) above are— (a) sections 139, 140A, 171 and 172 of this Act; and (b) section 486(8) of the Taxes Act. (7) Paragraph 3 of Schedule 17 to the Finance Act 1993 shall have effect for construing the reference in subsection (2)(b) above to exempt circumstances as if references to a currency were references to the asset in question. (8) Paragraph 7 of Schedule 10 to the Finance Act 1996 shall apply for construing any reference in this section to a relevant interest in an offshore fund as it applies for the purposes of paragraph 4 of that Schedule.

63

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64

In section 251 of that Act (exclusion for debts that are not debts on a security), after subsection (6) there shall be inserted the following subsections—

(7) Where any instrument specified in subsection (8) below is not a security (as defined in section 132), that instrument shall be deemed to be such a security for the purposes of this section, other than the purposes of determining what is or is not an allowable loss in any case. (8) The instruments mentioned in subsection (7) above are— (a) any instrument that would fall to be treated for the purposes of this Act as an asset representing a loan relationship of a company if the provisions of sections 92(4) and 93(4) of the Finance Act 1996 (convertible securities and assets linked to the value of chargeable assets) were disregarded; or (b) any instrument which (even apart from those provisions) is not a loan relationship of a company but which would be a relevant discounted security for the purposes of Schedule 13 to that Act if paragraph 3(2)(c) of that Schedule (excluded indexed securities) were omitted.

65

In section 253(3) of that Act (relief for loans to traders), in the words after paragraph (c), at the beginning there shall be inserted—

then, to the extent that that amount is not an amount which, in the case of the claimant, falls to be brought into account as a debit given for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships),

.

66

• (1) In section 254 of that Act (relief for debts on qualifying corporate bonds), in subsection (1)(c), after “bond” there shall be inserted “ but is not a relevant discounted security for the purposes of Schedule 13 to the Finance Act 1996 ”.

• (2) After subsection (12) of that section there shall be inserted the following subsection—

(13) This section does not apply for the purposes of corporation tax.

The Finance Act 1993 (c. 34)

67

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68

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69

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70

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71

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72

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73

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74

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The Finance Act 1994 (c. 9)

75

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76

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77

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78

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SCHEDULE 15

Part I — Corporation tax

Application and interpretation of Part I

1

• (1) This Part of this Schedule has effect for the purposes of corporation tax.

• (2) In this Part of this Schedule—

• “the 1992 Act” means the Taxation of Chargeable Gains Act 1992;

• “continuing loan relationship”, in relation to any company, means any loan relationship to which the company was a party both immediately before and on 1st April 1996;

• “first relevant accounting period”, in relation to a company, means the first accounting period of the company to end after 31st March 1996; and

• “transitional accounting period”, in relation to a company, means any accounting period of the company beginning before and ending on or after 1st April 1996.

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) In this Part of this Schedule references to this Chapter include references to any repeals having effect for the purposes of this Chapter.

Loan relationships terminated before 1st April 1996

2

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Basic rules for transitional accounting periods

3

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Application of accruals basis to pre-commencement relationships

4

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Adjustments in respect of pre-commencement trading relationships

5

• (1) This paragraph applies in the case of any continuing loan relationship of a company as respects which any amounts would have been brought into account for the purposes of corporation tax in computing the profits or losses of the company from any trade carried on by it if—

• (a) the company had ceased to be a party to the relationship on 31st March 1996; and

• (b) where it is not otherwise the case, an accounting period of the company had ended on that date.

• (2) Where there is a difference between—

• (a) the notional closing value of the relationship as at 31st March 1996, and

• (b) the adjusted closing value of that relationship as at that date,

that difference shall be brought into account as provided for in paragraph 6 below.

• (3) Except where sub-paragraph (4) or (6) below applies, the notional closing value as at 31st March 1996 of a loan relationship of a company shall be taken for the purposes of this paragraph to be the amount which, for the purposes of computing the profits or losses of the company from any trade carried on by it—

• (a) was as at that date, or

• (b) had an accounting period of the company ended on that date, would have been,

the amount falling to be brought into account as representing the value of the company’s rights or liabilities under the relationship.

• (4) Except where sub-paragraph (6) below applies, if no amount is given by sub-paragraph (3) above, the notional closing value as at 31st March 1996 of a loan relationship of a company shall be taken for the purposes of this paragraph to be the amount which, for the purposes of computing the profits or losses of the company from any trade carried on by it, would have been deductible as representing the cost of becoming a party to the relationship if the company had ceased to be a party to the relationship on 31st March 1996.

• (4A) In sub-paragraph (4) above the reference, in relation to a creditor relationship, to the amount deductible as representing the cost of a company’s becoming a party to the relationship shall not, except where sub-paragraph (4B) or (4C) below applies, include a reference to so much of that amount as would represent the cost of acquiring any right to accrued interest under the loan relationship.

• (4B) This sub-paragraph applies where—

• (a) the company became a party to the relationship before the beginning of its first relevant accounting period,

• (b) interest accruing under the relationship before the company became a party to it was paid to the company after it became a party to it but before the beginning of the company’s first relevant accounting period, and

• (c) the interest under the relationship which, in the case of that company, has been brought into account for the purposes of corporation tax has included interest accruing under the relationship before the company became a party to it but paid afterwards.

• (4C) This sub-paragraph applies where—

• (a) the company became a party to the loan relationship in a transitional accounting period, and

• (b) in the case of that company, interest under the relationship which—

• (i) accrued before the company became a party to the relationship, but

• (ii) became due and payable afterwards,

is brought into account for the purposes of this Chapter in accordance with an authorised mark to market basis of accounting.

• (5) Except where sub-paragraph (6) below applies, the adjusted closing value of that relationship as at that date shall be taken for the purposes of this paragraph to be the amount which for the purposes of this Chapter (as it had effect immediately before 1st April 2009) was the opening value as at 1st April 1996 of the company’s rights and liabilities under the relationship.

• (6) For the purposes of this paragraph where the asset representing a loan relationship of a company is a relevant qualifying asset of the company, or the liabilities of the company under the relationship are relevant liabilities—

• (a) the notional closing value of the relationship as at 31st March 1996 shall be taken for the purposes of this paragraph to be the value given by paragraph 12 below as the notional closing value as at 31st March 1996 of that asset or, as the case may be, of those liabilities; and

• (b) the adjusted closing value of the relationship as at 31st March 1996 shall be taken for those purposes to be the amount which was as at 1st April 1996 the opening value of the asset or liabilities for the purposes of this Chapter (as it had effect immediately before 1st April 2009).

• (7) For the purposes of this paragraph, where an accruals basis of accounting is used as respects a loan relationship for the first relevant accounting period of the company, the opening value as at 1st April 1996 of the company’s rights and liabilities under the relationship shall be taken to have been the value which (disregarding interest) was treated in accordance with paragraph 4 above (as it had effect immediately before 1st April 2009) as having accrued to the company before that date.

• (8) In this paragraph—

• “attributed amount” means any attributed gain or loss falling to be calculated in accordance with any regulations made under Schedule 16 to the Finance Act 1993 (transitional provisions for exchange gains and losses) which contain any such provision as is mentioned in paragraph 3(1) of that Schedule;

• “commencement day”, in relation to a company, means its commencement day for the purposes of Chapter II of Part II of the Finance Act 1993;

• “market value” has the same meaning as in the 1992 Act;

• “relevant liability”, in relation to a company, means any liability under a loan relationship the value of which has been determined as at the company’s commencement day for the purpose of calculating any attributed amount;

• “relevant qualifying asset”, in relation to a company, means any qualifying asset for the purposes of Chapter II of Part II of the Finance Act 1993 the value of which has been determined as at the company’s commencement day for the purpose of calculating any attributed amount.

Method of giving effect to paragraph 5 adjustments

6

• (1) Subject to sub-paragraph (4) below, the difference mentioned in paragraph 5(2) above shall be brought into account in accordance with sub-paragraph (2) or (3) below in the accounting period in which the company ceases to be a party to the relationship.

• (2) If—

• (a) the relationship is a creditor relationship and the difference consists in an excess of the amount mentioned in paragraph 5(2)(b) above over the amount mentioned in paragraph 5(2)(a) above, or

• (b) the relationship is a debtor relationship and the difference consists in an excess of the amount mentioned in paragraph 5(2)(a) above over the amount mentioned in paragraph 5(2)(b) above,

the difference shall be brought into account as a credit given for the purposes of this Chapter for the period mentioned in sub-paragraph (1) above.