Finance Act 1997

(12A) (1) This subsection applies where any relevant excise duty relief other than an excepted relief— (a) has been given but ought not to have been given, or (b) would not have been given had the facts been known or been as they later turn out to be. (2) Where subsection (1) above applies, the Commissioners may assess the amount of the relief given as being excise duty due from the liable person and notify him or his representative accordingly. (3) Where an amount has been assessed as due from any person under— (a) subsection (2) above, (b) section 94 or 96 of the Management Act, or (c) section 10, 13, 14, 23 or 24 of the Hydrocarbon Oil Duties Act 1979, and notice has been given accordingly, that amount shall, subject to any appeal under section 16 below, be deemed to be an amount of excise duty due from that person and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced. (4) No assessment under any of the provisions referred to in subsection (3) above, or under section 61 or 167 of the Management Act, shall be made at any time after whichever is the earlier of the following times, that is to say— (a) subject to subsection (6) below, the end of the period of three years beginning with the relevant time; and (b) the end of the period of one year beginning with the day on which evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge. (5) Subsection (4) above shall be without prejudice, where further evidence comes to the knowledge of the Commissioners at any time after the making the assessment concerned, to the making of a further assessment within the period applicable by virtue of that subsection in relation to that further assessment. (6) Subsection (4) above shall have effect as if the reference in paragraph (a) to three years were a reference to twenty years in any case where the assessment has been postponed or otherwise affected by, or the power to make the assessment arises out of, conduct falling within subsection (5)(a) or (b) of section 12 above (construed in accordance with subsection (7) of that section). (12B) (1) For the purposes of section 12A above and this section, relevant excise duty relief has been given if (and only if)— (a) an amount of excise duty which a person is liable to pay has been remitted or payment of an amount of excise duty which a person is liable to pay has been waived; (b) an amount of excise duty has been repaid to a person; (c) an amount by way of drawback of excise duty has been paid to a person; (d) an allowance of excise duty in any amount has been made to a person; (e) an amount by way of rebate has been allowed to a person; (f) the liability of a person to repay an amount paid by way of drawback of excise duty has been waived; (g) an amount has been paid to a person under section 20(3) of the Hydrocarbon Oil Duties Act 1979 (payments in respect of contaminated or accidentally mixed oil); or (h) an amount of relief has been allowed to a person by virtue of section 20AA of that Act (power to allow reliefs), or in accordance with paragraph 10 of Schedule 3 to that Act (power to make regulations for the purpose of relieving from excise duty oil intended for exportation or shipment as stores); and the amount of the relief is the amount mentioned in relation to the relief in this subsection. (2) For the purposes of section 12A above the relevant time is— (a) in the case of an assessment under section 61 of the Management Act, the time when the ship or aircraft in question returned to a place within the United Kingdom; (b) in the case of an assessment under section 94 of that Act, the time at which the goods in question were warehoused; (c) in the case of an assessment under that section as it has effect by virtue of section 95 of that Act, the time when the goods in question were lawfully taken from the warehouse; (d) in the case of an assessment under section 96 of that Act, the time when the goods in question were moved by pipe-line or notified as goods to be moved by pipe-line; (e) in the case of an assessment under section 167 of that Act— (i) if the assessment relates to unpaid duty, the time when the duty became payable or, if later, the time when the document in question was delivered or the statement in question was made; and (ii) if the assessment relates to an overpayment, the time when the overpayment was made; (f) in the case of an assessment under section 10, 13, 14 or 23 of the Hydrocarbon Oil Duties Act 1979, the time of the action which gave rise to the power to assess; (g) in the case of an assessment under section 24(4A) or (4B) of that Act, the time when the rebate was allowed or the oil was delivered without payment of duty (as the case may be); (h) in the case of an assessment under section 12A(2) above, the time when the relevant excise duty relief in question was given. (3) In section 12A above “the liable person” means— (a) in the case of excise duty which has been remitted or repaid under section 130 of the Management Act on the basis that goods were lost or destroyed while in a warehouse, the proprietor of the goods or the occupier of the warehouse; (b) in the case of a rebate which has been allowed on any oil under section 11 of the Hydrocarbon Oil Duties Act 1979, the person to whom the rebate was allowed or the occupier of any warehouse from which the oil was delivered for home use; (c) in the case of a rebate allowed on any petrol under section 13A of that Act, the person to whom the rebate was allowed or the occupier of any warehouse from which the petrol was delivered for home use; (d) in any other case, the person mentioned in subsection (1) above to whom the relief in question was given. (4) In section 12A above— - “excepted relief” means any relief which is given by the making of a repayment on a claim made under section 137A of the Management Act; - “representative”, in relation to any person from whom the Commissioners assess an amount as being excise duty due, means his personal representative, trustee in bankruptcy or interim or permanent trustee, any receiver or liquidator appointed in relation to him or any of his property or any other person acting in a representative capacity in relation to him.

• (2) After section 14(1)(b) of that Act there shall be inserted the following paragraph—

(ba) any decision by the Commissioners to assess any person to excise duty under section 12A(2) above, section 61, 94, 96 or 167 of the Management Act or section 10, 13, 14, 23 or 24 of the Hydrocarbon Oil Duties Act 1979, or as to the amount of duty to which a person is to be assessed under any of those provisions;

.

• (3) In sections 12(8) and 13(7) of that Act (definition of “representative” for the purposes of sections 12 and 13), for “or trustee in bankruptcy,” there shall be substituted “ , trustee in bankruptcy or interim or permanent trustee, ”.

Assessments in cases of a deficiency in stores

2

• (1) After subsection (7) of section 61 of the Customs and Excise Management Act 1979 (duty payable where deficiency or excess deficiency discovered in goods on return of ship or aircraft to United Kingdom) there shall be inserted the following subsection—

(7A) No amount of excise duty shall be payable under subsection (7) above unless the Commissioners have assessed that amount as being excise duty due from the master of the ship or the commander of the aircraft and notified him or his representative accordingly.

• (2) In subsection (8) of that section (duty payable under subsection (7) recoverable as a civil debt) after “duty” there shall be inserted “ , other than excise duty, ”.

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

(8A) An amount of excise duty assessed as being due under subsection (7A) above shall, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced and subject to any appeal under section 16 of the Finance Act 1994, be recoverable summarily as a civil debt.

• (4) In section 1(1) of that Act (interpretation), after the definition of “registered excise dealers and shippers regulations” there shall be inserted—

• “representative”, in relation to any person from whom the Commissioners assess an amount as being excise duty due, means his personal representative, trustee in bankruptcy or interim or permanent trustee, any receiver or liquidator appointed in relation to him or any of his property or any other person acting in a representative capacity in relation to him;

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Assessments in cases of a deficiency in warehoused goods

3

• (1) Section 94 of the Customs and Excise Management Act 1979 shall be amended in accordance with sub-paragraphs (2) to (6) below.

• (2) In subsection (3) (power to require payment of duty or repayment of drawback or allowance where warehoused goods are deficient), for the words from “require” to the end there shall be substituted the following paragraphs—

(a) require the occupier of the warehouse or the proprietor of the goods to pay immediately any duty, other than excise duty, chargeable or deemed under warehousing regulations to be chargeable on the relevant goods or, in the case of goods warehoused on drawback which could not lawfully be entered for home use, an amount equal to any drawback or allowance of such duty paid in respect of the relevant goods; (b) assess, as being excise duty due from the occupier of the warehouse or the proprietor of the goods, the excise duty chargeable or deemed under warehousing regulations to be chargeable on the relevant goods or, in the case of goods warehoused on drawback which could not lawfully be entered for home use, an amount equal to any drawback or allowance of excise duty paid in respect of the relevant goods.

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

(3A) Where the Commissioners make an assessment under subsection (3)(b) above they shall notify the person assessed or his representative accordingly.

• (4) In subsection (4) for “(3)” there shall be substituted “ (3)(a) ”.

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

(4A) If— (a) the occupier of the warehouse or the proprietor of the goods refuses to pay any amount of excise duty to which he has been assessed under subsection (3)(b) above, and (b) the conditions set out in subsection (4B) below are fulfilled, he shall be liable on summary conviction to a penalty of double that amount. (4B) The conditions are that— (a) the period of forty-five days referred to in section 14(3) of the Finance Act 1994 (period during which review may be required) has expired; (b) on any review under Chapter II of Part I of that Act the Commissioners’ decision (“the original decision”) in relation to the assessment has been confirmed (or treated as confirmed by virtue of section 15(2) of that Act), or confirmed subject only to a reduction in the amount of duty due under the assessment; and (c) the final result of any further appeal is that the original decision has been confirmed, subject only to any reduction in the amount of duty due under the assessment; and “final result” means the result of the last of any such appeals, against which no appeal may be made (whether because of expiry of time or for any other reason). (4C) Where the amount of excise duty due under subsection (3)(b) above is reduced in consequence of a review or appeal, the penalty to which the person assessed is liable under subsection (4A) above shall be a penalty of double the reduced amount.

• (6) After subsection (5) there shall be inserted the following subsection—

(5A) In this section “the relevant goods” means the missing goods or the whole or any part of the deficiency, as the Commissioners see fit.

• (7) In section 95 of that Act (application of section 94 to certain goods in the course of removal from warehouse), in subsection (2)(b) (section 94 to apply with the omission of references in subsections (3) and (4) to the occupier of the warehouse) for “and (4)” there shall be substituted “ , (4) and (4A) ”.

Assessments in cases of a deficiency in goods moved by pipe-line

4

• (1) Section 96 of the Customs and Excise Management Act 1979 shall be amended in accordance with sub-paragraphs (2) to (6) below.

• (2) In subsection (2) (power to require payment of unpaid or repaid duty, or repayment of drawback, where goods moved by pipe-line are deficient) for the words from “require” to the end there shall be substituted the following paragraphs—

(a) require the owner of the pipe-line or the proprietor of the goods to pay immediately any duty, other than excise duty, unpaid or repaid on the relevant goods or, as the case may be, an amount equal to any drawback of such duty paid on the relevant goods; (b) assess, as being excise duty due from the owner of the pipe-line or the proprietor of the goods, the excise duty unpaid or repaid on the relevant goods or, as the case may be, an amount equal to any drawback of excise duty paid on the relevant goods.

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

(2A) Where the Commissioners make an assessment under subsection (2)(b) above they shall notify the person assessed or his representative accordingly.

• (4) In subsection (3) for “(2)” there shall be substituted “ (2)(a) ”.

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

(3A) If— (a) any person refuses to pay any amount of excise duty to which he has been assessed under subsection (2)(b) above, and (b) the conditions set out in paragraphs (a) to (c) of section 94(4B) above (exhaustion of opportunities for review and appeal) are fulfilled, he shall be liable on summary conviction to a penalty of double that amount. (3B) Where the amount of excise duty due under subsection (2)(b) above is reduced in consequence of a review or appeal, the penalty to which the person assessed is liable under subsection (3A) above shall be a penalty of double the reduced amount.

• (6) After subsection (5) there shall be inserted the following subsection—

(5A) In this section “the relevant goods” means the missing goods or the whole or any part of the deficiency, as the Commissioners see fit.

Assessments in cases of untrue declarations etc.

5

After section 167(4) of the Customs and Excise Management Act 1979 (recovery as a debt due to the Crown or as a civil debt of amounts of duty not paid, and of overpayments in respect of drawback etc. made, by reason of untrue declaration etc.) there shall be inserted the following subsection—

(5) An amount of excise duty, or the amount of an overpayment in respect of any drawback, allowance, rebate or repayment of any excise duty, shall not be recoverable as mentioned in subsection (4) above unless the Commissioners have assessed the amount of the duty or of the overpayment as being excise duty due from the person mentioned in subsection (1) or (3) above and notified him or his representative accordingly.

Assessments relating to hydrocarbon oil duty

6

• (1) In section 10(3) of the Hydrocarbon Oil Duties Act 1979 (power to recover excise duty where restrictions on use of duty-free oil infringed), for the words from “recover” to the end there shall be substituted “ assess an amount equal to the excise duty on like oil at the rate in force at the time of the contravention as being excise duty due from him, and notify him or his representative accordingly. ”

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

• (3) In section 14(4) of that Act (power to recover rebate where light oil delivered for use as furnace fuel is misused), for the words from “recover” to the end there shall be substituted “ assess the amount of rebate allowed on the oil as being excise duty due from him, and notify him or his representative accordingly. ”

• (4) After subsection (1A) of section 23 of that Act (prohibition on use of road fuel gas on which duty has not been paid) there shall be inserted the following subsection—

(1B) Where any person— (a) uses as fuel in, or (b) takes as fuel into, a road vehicle any road fuel gas on which the excise duty chargeable under section 8 above has not been paid, the Commissioners may assess the amount of that duty as being excise duty due from that person and notify him or his representative accordingly.

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) After subsection (4) of section 24 of that Act (control of use of duty-free and rebated oil) there shall be inserted the following subsections—

(4A) Where— (a) a rebate of duty is allowed on any oil, and (b) a person contravenes or fails to comply with any requirement which, by virtue of any regulations made under this section, is a condition of allowing the rebate, the Commissioners may assess an amount equal to the rebate as being excise duty due from that person, and notify him or his representative accordingly. (4B) Where— (a) any oil is delivered without payment of duty, and (b) a person contravenes or fails to comply with any requirement which, by virtue of any regulations made under this section, is a condition of allowing the oil to be delivered without payment of duty, the Commissioners may assess an amount equal to the excise duty on like oil at the rate in force at the time of the contravention or failure to comply as being excise duty due from that person, and notify him or his representative accordingly.

• (7) In the Table set out in section 27(3) of that Act (interpretation), under the heading “Management Act” there shall be inserted at the appropriate place “ “representative” ”.

Commencement

7

This Schedule shall come into force on such day as the Commissioners of Customs and Excise may by order made by statutory instrument appoint; and different days may be appointed under this paragraph for different purposes.

SCHEDULE 7

Distributions to which Schedule applies

1

• (1) Subject to paragraphs 4 to 7 below, this Schedule applies to any qualifying distribution which—

• (a) falls within either or both of sub-paragraphs (2) and (3) below; and

• (b) is a distribution made on or after 8th October 1996 by a company resident in the United Kingdom.

• (2) A qualifying distribution of a company falls within this sub-paragraph if it is a payment made by that company—

• (a) on the redemption, repayment or purchase of its own shares, or

• (b) on the purchase of rights to acquire its own shares.

• (3) A qualifying distribution of a company falls within this sub-paragraph if—

• (a) arrangements are or have been made by virtue of which any one or more of the specified matters is or was made referable (in some way and to any extent) to, or to the carrying out of, a transaction in securities; and

• (b) that transaction is a transaction completed on or after 8th October 1996, or some or all of those arrangements are arrangements made on or after that date.

• (4) For the purposes of this Schedule the specified matters, in relation to a qualifying distribution, are—

• (a) whether the distribution is made,

• (b) the time when it is made,

• (c) its form, and

• (d) its amount.

• (5) In this Schedule—

• “arrangements” means arrangements of any kind, whether in writing or not;

• “qualifying distribution” has the same meaning as in the Taxes Act 1988;

• “shares” has the same meaning as in sections 219 to 228 of that Act (purchase of own shares);

• “transaction in securities” has the same meaning as in Chapter I of Part XVII of that Act (cancellation of tax advantages from certain transactions in securities).

Distributions treated as FIDs

2

• (1) The Tax Acts shall have effect, and be deemed in relation to any time on or after 8th October 1996 to have had effect, as if a qualifying distribution to which this Schedule applies were a foreign income dividend within the meaning of Chapter VA of Part VI of the Taxes Act 1988 and, accordingly, as if the making of the distribution were the payment of a foreign income dividend.

• (2) In section 246A of the Taxes Act 1988 (elections for dividends to be treated as foreign income dividends), after subsection (2) there shall be inserted the following subsection—

(2A) An election under this section cannot be made as regards a distribution which already falls to be treated as a foreign income dividend by virtue of paragraph 2(1) of Schedule 7 to the Finance Act 1997.

• (3) Sub-paragraph (1) above has effect subject to—

• (a) section 95(1A)(b) of the Taxes Act 1988 (receipt of qualifying distribution by dealer not to be treated as FID for certain purposes); and

• (b) section 247(5B) to (5D) of the Taxes Act 1988 (distributions that are subject to group income elections).

• (4) Sub-paragraph (2) above has effect in relation to the making of elections on or after 8th October 1996.

Distributions treated as section 686 income of trustees

3

• (1) This paragraph applies where—

• (a) a qualifying distribution to which this Schedule applies by virtue of its falling within paragraph 1(2) above is or has been made to trustees; and

• (b) those trustees are not or, as the case may be, were not the trustees of a unit trust scheme within the meaning of section 469 of the Taxes Act 1988.

• (2) The relevant part of that distribution (and, accordingly, the corresponding part of the foreign income dividend that paragraph 2(1) above deems the distribution to be) shall be treated for the purposes of the Tax Acts as if it were income to which section 686 of the Taxes Act 1988 (application of rate applicable to trusts to income of certain discretionary trusts) applies.

• (3) In sub-paragraph (2) above the reference to the relevant part of the distribution is a reference to so much (if any) of that distribution as—

• (a) is not income falling within paragraph (a) of section 686(2) of the Taxes Act 1988 (income which is to be accumulated or which is payable at any person’s discretion);

• (b) does not fall to be treated for the purposes of the Income Tax Acts as income of a settlor;

• (c) is not income arising under a trust established for charitable purposes; and

• (d) is not income from investments, deposits or other property held for any such purposes as are mentioned in sub-paragraph (i) or (ii) of section 686(2)(c) of the Taxes Act 1988 (property held for pension purposes).

• (4) Subsection (6) of section 686 of the Taxes Act 1988 (meaning of “trustees” etc.) shall apply for the purposes of this paragraph as it applies for the purposes of that section.

• (5) This paragraph has effect for the year 1997-98 and subsequent years of assessment and shall be deemed to have had effect for the year 1996-97 in relation to distributions made on or after 5th December 1996.

Stock options

4

• (1) A qualifying distribution does not fall within paragraph 1(3) above by reason only that it is made in consequence of the exercise of such an option as is mentioned in section 249(1)(a) of the Taxes Act 1988 (option to receive either a cash dividend or additional share capital).

• (2) Section 251(1)(c) of the Taxes Act 1988 (interpretation of references to the exercise of an option to receive either a cash dividend or additional share capital) shall apply for the purposes of this paragraph as it applies for the purposes of sections 249 and 250 of that Act.

Dividends on fixed rate preference shares

5

• (1) A qualifying distribution consisting in a dividend on a fixed-rate preference share does not fall within paragraph 1(3) above by reason only that any of the specified matters is made referable to the terms on which the share was issued.

• (2) In this paragraph “fixed-rate preference share” means—

• (a) any fixed rate preference share within the meaning of paragraph 13 of Schedule 28B to the Taxes Act 1988; or

• (b) any share which would be such a share if the dividends mentioned in paragraph 13(6)(c)(i) of that Schedule included dividends fixed by reference to a standard published rate of interest.

• (3) For the purposes of sub-paragraph (2) above, any reference in paragraph 13(6) of Schedule 28B to shares shall be taken as a reference to shares within the meaning of this Schedule.

Pre-sale distributions

6

• (1) A qualifying distribution which is an excepted pre-sale distribution does not fall within paragraph 1(3) above if the only transactions in securities to which any of the specified matters are referable are relevant transactions.

• (2) For the purposes of this paragraph, a qualifying distribution of a company is an excepted pre-sale distribution if, in the period beginning with the making of the distribution and ending with the fourteenth day after the day on which the distribution is made, there is a major change in the ownership of that company.

• (3) For the purposes of sub-paragraph (2) above, there is a major change in the ownership of a company in any period if, in that period—

• (a) a single person acquires a holding of 75 per cent. or more of the ordinary share capital of the company; or

• (b) each of two or more persons acquires a holding of ordinary share capital of the company, and the holdings together amount to 75 per cent. or more of the ordinary share capital of the company.

• (4) For the purposes of this paragraph a relevant transaction, in relation to any excepted pre-sale distribution, is any transaction in securities by which the holding or, as the case may be, any of the holdings mentioned in sub-paragraph (3) above is acquired.

• (5) In applying sub-paragraph (3) above—

• (a) the circumstances at any two points in time falling within the period in question may be compared, and a holder at the later time may be regarded as having acquired in that period whatever he did not hold at the earlier time, irrespective of what he has acquired or disposed of in between;

• (b) to allow for any issue of shares or other reorganisation of capital, any such comparison may be made in terms of percentage holdings of the total ordinary share capital at the respective times, so that a person whose percentage holding is greater at the later time may be regarded as having acquired in the period a percentage holding equal to the increase;

• (c) any acquisition of shares under the will or on the intestacy of a deceased person, and any gift of shares which is unsolicited and made without regard to the provisions of paragraphs 2 and 3 above, shall be left out of account.

• (6) For the purposes of this paragraph, where—

• (a) persons, whether company members or not, possess extraordinary rights or powers under the articles of association of a company or under any other document regulating the company, and

• (b) because of that fact, ownership of the ordinary share capital may not be an appropriate test of whether there has been a major change in the ownership of the company,

then, in considering whether there has been a major change in the ownership of the company, holdings of all kinds of share capital, including preference shares, or of any particular kind of share capital, or voting power or any other special kind of power, shall be taken into account, and holdings of ordinary share capital shall be disregarded, to such extent as may be appropriate.

• (7) For the purposes of this paragraph, references to ownership shall be construed as references to beneficial ownership, and references to acquisition shall be construed accordingly.

Manufactured payments

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• (1) A manufactured dividend shall not be taken to be a qualifying distribution to which this Schedule applies except in pursuance of sub-paragraph (2) below.

• (2) Where a payment is made which is representative of a qualifying distribution to which this Schedule applies, that payment shall be deemed to be such a distribution for all the purposes of the Tax Acts, except those for which Schedule 23A to the Taxes Act 1988 (manufactured payments) makes provision in relation to the payment which is different from the provision applying to distributions to which this Schedule applies.

• (3) For the purposes of Schedule 23A to the Taxes Act 1988 a payment which is representative of a payment falling within paragraph 1(2) above shall be treated as if it were representative of a dividend on the shares redeemed, repaid or purchased or, as the case may be, on the shares to which the right relates.

• (4) In this paragraph “manufactured dividend” has the same meaning as in Schedule 23A to the Taxes Act 1988.

Amendment of section 95 of the Taxes Act 1988

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

• (2) In that Act—

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

• (b) in section 234(1) (information relating to distributions), for “95(1)(c)” there shall be substituted “ 95(1A)(c) ”.

• (3) This paragraph has effect in relation to distributions made on or after 26th November 1996.

Information to be provided about deemed FID

9

• (1) In section 246G(1)(d) of that Act (information to be provided about a foreign income dividend), after “carries no entitlement to a tax credit” there shall be inserted “ and, in the case of a qualifying distribution to which Schedule 7 to the Finance Act 1997 applies, that it is a foreign income dividend by virtue of paragraph 2(1) of that Schedule ”.

• (2) This paragraph has effect in relation to distributions made on or after 26th November 1996.

Group income

10

• (1) In subsection (5A) of section 247 of that Act (under which the group income provisions do not apply to FIDs), at the beginning there shall be inserted the words “ Subject to subsections (5B) to (5D) below, ”; and after that subsection there shall be inserted the following subsections—

(5B) Where— (a) a company falling within subsection (5C) below and resident in the United Kingdom receives a dividend, and (b) that dividend would, apart from subsection (5D) below, be a distribution to which Schedule 7 to the Finance Act 1997 (special treatment for certain distributions) applies, the dividend shall be taken to be one in relation to which an election under subsection (1) above may have effect in accordance with this section. (5C) The receiving company falls within this subsection if— (a) it directly or indirectly owns all the ordinary share capital of the paying company, or (b) all the ordinary share capital of the paying company is owned directly or indirectly by a company resident in the United Kingdom which also owns, directly or indirectly, all the ordinary share capital of the receiving company; and section 838 shall apply for construing the references in this subsection to directly or indirectly owning ordinary share capital of a company. (5D) If an election under subsection (1) above has effect in relation to such a distribution as is mentioned in subsection (5B) above, that distribution shall be deemed to be a distribution to which Schedule 7 to the Finance Act 1997 does not apply.

• (2) This paragraph has effect in relation to distributions made on or after 26th November 1996.

Distribution accounts

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• (1) In section 468I of that Act (distribution accounts of authorised unit trusts), after subsection (5) there shall be inserted the following subsection—

(5A) The following amounts shown as available for distribution in the distribution accounts must be shown in those accounts as available for distribution as foreign income dividends— (a) amounts deriving from qualifying distributions to which Schedule 7 to the Finance Act 1997 (special treatment for certain distributions) applies; and (b) so much of any amounts not falling within paragraph (a) above as, if shown as available for distribution as dividends, would fall to be treated as distributions to which that Schedule applies.

• (2) This paragraph applies to distribution accounts for any distribution period ending on or after 26th November 1996.

Amendments consequential on paragraph 3 above

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• (1) In section 686 of that Act (application of rate applicable to trusts to income of certain discretionary trusts), paragraph (d) of subsection (2) shall be omitted; ...

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

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

• (4) This paragraph has effect for the year 1997-98 and subsequent years of assessment and shall be deemed to have had effect for the year 1996-97.

SCHEDULE 8

Introductory

1

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

Requirements to be satisfied by the company for whose business activity money is raised

2

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

Limit on relief for trading groups which let or operate ships

3

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Meaning of “qualifying company”

4

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Consequential amendments of section 297

5

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Consequential repeals of provisions about subsidiaries

6

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

SCHEDULE 9

Introductory

1

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

Requirements as to business of company whose shares et ceteralaetc. are qualifying holdings

2

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

Consequential amendment of paragraph 4(7)

3

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

Application of investment

4

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

Qualifying subsidiaries

5

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

Commencement

6

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

SCHEDULE 10

Part I — Stock lending

Approved stock lending arrangements: traders

1

• (1) Section 129 of the Taxes Act 1988 (treatment of approved stock lending arrangements when computing the profits of a trade) shall cease to have effect.

• (2) Section 129A of, and Schedule 5A to, that Act (interest on cash collateral for approved stock lending arrangements) shall also cease to have effect.

Stock lending fees

2

• (1) In subsection (3) of section 129B of the Taxes Act 1988 (stock lending fees under approved stock lending arrangements), for “an approved” there shall be substituted “ any ”.

• (2) For subsection (4) of that section (meaning of approved stock lending arrangement) there shall be substituted the following subsection—

(4) In this section “stock lending arrangement” has the same meaning as in section 263B of the 1992 Act.

Stock lending agreements under which manufactured payments are not made

3

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

Manufactured payments in stock lending cases etc.

4

In Schedule 23A to the Taxes Act 1988 (manufactured payments)—

• (a) paragraph 6 (unapproved manufactured payments) shall cease to have effect; and

• (b) in paragraph 7(3)—

• (i) in paragraph (a), the words “except where paragraph 6 above applies, and” shall be omitted;

• (ii) paragraph (b) shall be omitted; and

• (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Stock lending arrangements: capital gains

5

• (1) After section 263A of the Taxation of Chargeable Gains Act 1992 (agreements for sale and repurchase of securities) there shall be inserted the following sections—

(263B) (1) In this section “stock lending arrangement” means so much of any arrangements between two persons (“the borrower” and “the lender”) as are arrangements under which— (a) the lender transfers securities to the borrower otherwise than by way of sale; and (b) a requirement is imposed on the borrower to transfer those securities back to the lender otherwise than by way of sale. (2) Subject to the following provisions of this section and section 263C(2), the disposals and acquisitions made in pursuance of any stock lending arrangement shall be disregarded for the purposes of capital gains tax. (3) Where— (a) the borrower under any stock lending arrangement disposes of any securities transferred to him under the arrangement, (b) that disposal is made otherwise than in the discharge of the requirement for the transfer of securities back to the lender, and (c) that requirement, so far as it relates to the securities disposed of, has been or will be discharged by the transfer of securities other than those transferred to the borrower, any question relating to the acquisition of the securities disposed of shall be determined (without prejudice to the provisions of Chapter I of Part IV) as if the securities disposed of were the securities with which that requirement (so far as relating to the securities disposed of) has been or will be discharged. (4) Where, in the case of any stock lending arrangement, it becomes apparent, at any time after the making of the transfer by the lender, that the requirement for the borrower to make a transfer back to the lender will not be complied with— (a) the lender shall be deemed for the purposes of this Act to have made a disposal at that time of the securities transferred to the borrower; (b) the borrower shall be deemed to have acquired them at that time; and (c) subsection (3) above shall have effect in relation to any disposal before that time by the borrower of securities transferred to him by the lender as if the securities deemed to have been acquired by the borrower in accordance with paragraph (b) above were to be used for discharging a requirement to transfer securities back to the lender. (5) References in this section, in relation to a person to whom securities are transferred, to the transfer of those securities back to another person shall be construed as if the cases where those securities are taken to be transferred back to that other person included any case where securities of the same description as those securities are transferred to that other person either— (a) in accordance with a requirement to transfer securities of the same description; or (b) in exercise of a power to substitute securities of the same description for the securities that are required to be transferred back. (6) For the purposes of this section securities shall not be taken to be of the same description as other securities unless they are in the same quantities, give the same rights against the same persons and are of the same type and nominal value as the other securities. (7) In this section— - “interest” includes dividends; and - “securities” means United Kingdom equities, United Kingdom securities or overseas securities (within the meaning, in each case, of Schedule 23A to the Taxes Act). (263C) (1) In section 263B references to the transfer back to a person of securities transferred by him shall be taken to include references to the payment to him, in pursuance of an obligation arising on any person’s becoming entitled to receive an amount in respect of the redemption of those securities, of an amount equal to the amount of the entitlement. (2) Where, in pursuance of any such obligation, the lender under any stock lending arrangement is paid any amount in respect of the redemption of any securities to which the arrangement relates— (a) that lender shall be deemed for the purposes of this Act to have disposed, for that amount, of the securities in respect of whose redemption it is paid (“the relevant lent securities”); (b) the borrower shall not, in respect of the redemption, be taken for the purposes of this Act to have made any disposal of the relevant lent securities; and (c) section 263B(3) shall have effect in relation to disposals of any of the relevant lent securities made by the borrower before the redemption as if— (i) the amount paid to the lender were an amount paid for the acquisition of securities, and (ii) the securities acquired were to be used by the borrower for discharging a requirement under the arrangement to transfer the relevant lent securities back to the lender. (3) Expressions used in this section and section 263B have the same meanings in this section as in that section.

• (2) Section 271(9) of that Act (treatment of approved stock lending arrangements) shall cease to have effect.

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

Premiums trust funds of Lloyd’s members

6

The following provisions of Chapter III of Part II of the Finance Act 1993 and Chapter V of Part IV of the Finance Act 1994 (Lloyd’s members) shall cease to have effect—

• (a) section 174(4) and (5) and section 182(1)(ca)(i) of that Act of 1993 (stock lending arrangements applying to securities in the premiums trust funds of individual members); and

• (b) section 222(4) and (5) and section 229(ca)(i) of that Act of 1994 (which makes corresponding provision for the premiums trust funds of corporate members).

Commencement

7

• (1) This Part of this Schedule (except paragraph 4 above) has effect in relation to, and to transfers under, any arrangement made on or after such day as the Treasury may by order made by statutory instrument appoint.

• (2) Paragraph 4 above has effect in relation to any manufactured payment made on or after the day appointed under sub-paragraph (1) above.

Part II — Manufactured payments

Repeal of section 737 of the Taxes Act 1988

8

Section 737 of the Taxes Act 1988 (manufactured dividends: treatment of tax deducted) shall cease to have effect.

Meaning of “foreign income dividend”

9

In paragraph 1(1) of Schedule 23A to that Act (interpretation of that Schedule), after the definition of “dividend manufacturing regulations” there shall be inserted the following definition—

• “foreign income dividend” shall be construed in accordance with Chapter VA of Part VI;

.

Manufactured dividends on UK equities

10

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

Manufactured interest on UK securities

11

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

Repeal of paragraph 5 of Schedule 23A

12

Paragraph 5 of Schedule 23A to that Act (dividends and interest passing through the market) shall cease to have effect.

Consequential amendments in Schedule 23A

13

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

Amendments of Taxes Management Act 1970

14

• (1) Section 21 of the Taxes Management Act 1970 (information about a market maker’s business) shall be amended as follows.

• (2) For subsection (1) there shall be substituted the following subsection—

(1) The Board may exercise the powers conferred by this section as respects, and in connection with, any business consisting in or involving dealings in securities; and for the purposes of this section it shall be immaterial whether those dealings are or, as the case may be, were— (a) on behalf of persons other than the person carrying on the business; (b) by that person on his own behalf; or (c) a mixture of the two.

• (3) In subsection (2)—

• (a) for the word “transactions”, in the first place where it occurs, there shall be substituted “ securities transactions ”; and

• (b) for “market maker” there shall be substituted “ person ”.

• (4) In subsection (3), for “transactions in the course of” there shall be substituted “ securities transactions in the course of any business of a person other than the broker which is ”.

• (5) For subsection (4) there shall be substituted the following subsections—

(4) Where a person (“the recipient”) who is not a broker has directly or indirectly received from another person any payment which— (a) is made by that other person in the course of a business within subsection (1) above, and (b) is a payment treated by that other person as made in respect of interest on securities, the Board may by notice in writing require the recipient to state, within a time specified in the notice, whether the amount received is in whole or in part received on behalf of, or for payment on to, a third person and (if it is) to furnish the name and address of that third person. (4A) Where a person (“the payer”) has directly or indirectly paid to another person any sum which— (a) constitutes a receipt by that other person in the course of a business within subsection (1) above, and (b) is a receipt treated by that other person as accruing in respect of interest on securities, the Board may by notice in writing require the payer to state, within a time specified in the notice, whether the amount paid is in whole or in part received from, or paid on account of, a third person and (if it is) to furnish the name and address of that third person.

• (6) In subsection (5)—

• (a) for “whether brokers or market makers or not” there shall be substituted “ at all ”; and

• (b) for “transactions” there shall be substituted “ securities transactions ”.

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

(5A) Where it appears to the Board that a person may have incurred a liability to pay or account for tax under Schedule 23A to the principal Act (manufactured payments), the Board may by notice served on that person require him, within such period (not being less than 28 days) as may be specified in the notice, to provide the Board with information which— (a) is available to that person; and (b) is or may be relevant to whether that person has incurred such a liability, or to the extent of such a liability.

• (8) For subsection (7) there shall be substituted the following subsection—

(7) In this section— - “broker” means any person who is a member of a recognised investment exchange, within the meaning of the Financial Services Act 1986; - “interest” includes dividends; - “securities” includes shares and stock; and - “securities transaction” means— 1. any transaction in securities; 2. any transaction under which a payment which is representative of any interest on a security has been, is to be or may be made; or 3. the making or receipt of such a payment.

Repeal of powers to modify information provisions

15

Paragraphs 7 and 9 of Schedule 18 to the Finance Act 1986 (which contain powers to modify section 21 of the Taxes Management Act 1970) shall cease to have effect.

Commencement

16

• (1) Subject to the following provisions of this paragraph, this Part of this Schedule has effect in relation to any payment of a manufactured dividend or manufactured interest which is a payment made on or after such day as the Treasury may by order made by statutory instrument appoint.

• (2) Paragraph 14 above has effect (instead of in accordance with sub-paragraph (1) above but subject to sub-paragraph (3) below) for the purpose of conferring powers for obtaining information about—

• (a) transactions entered into on or after such day as the Treasury may by order made by statutory instrument appoint; and

• (b) payments made on or after that day (whether under such transactions or under transactions entered into before that day).

• (3) Nothing in this Part of this Schedule shall affect the exercise, at any time on or after the day appointed under sub-paragraph (2) above, of the powers conferred apart from this Schedule by—

• (a) section 21 of the Taxes Management Act 1970, or by any regulations modifying that section, or

• (b) section 737(8) of the Taxes Act 1988,

for obtaining information about transactions entered into, or payments made, before that day.

SCHEDULE 11

Schedule to be inserted as Schedule 5AA to the Taxes Act 1988

SCHEDULE 12

Part I — Leasing arrangements where any of the return on investment is in capital form

Purpose of this Part of this Schedule

1

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

Application of this Part of this Schedule

2

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

The conditions

3

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

The arrangements and circumstances in paragraph 3(5)

4

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

Current lessor to be taxed by reference to accountancy rental earnings

5

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

Reduction of taxable rent by certain excesses

6

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

Assignments on which neither a gain nor a loss accrues

7

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

Relief for bad debts etc: corporation tax under Schedule A

8

• (1) Section 41 of the Taxes Act 1988 (which gives a person relief from corporation tax under Schedule A for rent etc not paid, by treating him as if he had never been entitled to the rent) shall be disregarded in determining for the purposes of this Part of this Schedule the amount of—

• (a) the accountancy rental earnings in respect of the lease, or

• (b) the normal rent from the lease,

for any period of account.

• (2) Where for any period of account—

• (a) a person is treated under paragraph 5 above as if he had been entitled to receive an amount of rent, and

• (b) the amount is in respect of rents on the profits or gains arising from which that person is chargeable to corporation tax under Schedule A,

section 41 of the Taxes Act 1988 shall not have effect in relation to amounts in respect of rents from the lease of the asset for that or any subsequent period of account of his, or of any person to whom the lessor’s interest under the lease is assigned, until the lease terminates or is assigned in circumstances such that paragraph 7 above does not apply.

• (3) Where, by virtue of sub-paragraph (2) above, section 41 of the Taxes Act 1988 does not apply, sub-paragraph (4) below shall apply instead.

• (4) In computing the profits or gains on which a person is chargeable to corporation tax under Schedule A in a case falling within sub-paragraph (2) above, any sums falling within sub-paragraph (i), (ii) or (iii) of section 74(1)(j) of the Taxes Act 1988 in respect of amounts in respect of rents from the lease of the asset shall be deductible in a period of account as an expense to the extent that they would be deductible in that period of account if—

• (a) amounts in respect of rents from the lease of the asset fell to be taken into account as trading receipts in computing the profits of a trade carried on by the person;

• (b) the asset were leased in the course of that trade; and

• (c) the charge to corporation tax under Schedule A were in respect of such annual profits or gains as are described in that Schedule arising from a trade.

• (5) Any such expense as is mentioned in sub-paragraph (4) above shall be treated for the purposes of section 25 of the Taxes Act 1988 (deductions from rent for the purposes of corporation tax under Schedule A) as if that expense—

• (a) were included among the permitted deductions, within the meaning of that section;

• (b) were a payment made in respect of the premises comprised in the lease; and

• (c) were a payment which became due, and was made, immediately before the end of the period of account mentioned in sub-paragraph (4) above.

• (6) Where—

• (a) a deduction has been made by virtue of sub-paragraph (4) above in respect of an amount, but

• (b) subsequently an amount (“the relevant credit”) is recovered or credited in respect of the amount in respect of which the deduction was made, and

• (c) the relevant credit would, on the suppositions in paragraphs (a) to (c) of sub-paragraph (4) above, be brought into account for tax purposes as a trading receipt for a period of account of the current lessor,

the taxable rent for that period of account shall be increased by the amount of the relevant credit.

• (7) In sub-paragraph (6) above, “the taxable rent”, in the case of a period of account of the current lessor, means the amount which would, apart from that sub-paragraph, be treated for tax purposes as rent from the lease—

• (a) which arises to him, and

• (b) if rent arising to him from the lease is chargeable to corporation tax under Schedule A, to which he is entitled,

in that period of account for the purpose of determining his liability to tax for the related chargeable period or periods.

• (8) After the time when the conditions in paragraph 3 above become satisfied as respects any particular lessor, no claim under section 41 of the Taxes Act 1988 shall be made in respect of any amount which that lessor was entitled to receive in respect of rents from the lease of the asset.

• (9) Where—

• (a) before the time at which the conditions in paragraph 3 above become satisfied as respects any particular lessor, a claim under section 41 of the Taxes Act 1988 in respect of an amount which he was entitled to receive in respect of any rents from the lease of the asset has been made, and

• (b) the claim is to any extent allowed,

no amount shall be deductible under sub-paragraph (4) above in respect of that amount so far as so allowed.

Relief for bad debts etc: cumulative accountancy rental excess

9

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

Relief for bad debts etc: cumulative normal rental excess

10

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

Capital allowances

11

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

Chargeable gains

12

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

Existing schemes where this Part does not at first apply

13

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

New schemes where this Part begins to apply after Part II has applied

14

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

Part II — Other finance leases

Purpose of this Part of this Schedule

15

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

Application of this Part of this Schedule

16

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

Application of provisions of Part I for purposes of Part II

17

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

Part III — Insurance companies

Accounting purposes

18

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

Companies carrying on life assurance business

19

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

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

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

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

• (5) In this paragraph “life assurance business” has the same meaning as in Chapter I of Part XII of the Taxes Act 1988.

Part IV — Supplementary provisions

Normal rent

20

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

Accountancy rental earnings

21

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

Rental earnings

22

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

Periods of account which straddle 26th November 1996

23

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

Time apportionment where periods do not coincide

24

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

Connected persons

25

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

Assets which represent the leased asset

26

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

Existing schemes and new schemes

27

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

Accounting purposes and normal accountancy practice

28

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

Assessments and adjustments

29

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

Interpretation

30

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

SCHEDULE 13

Introductory

1

Schedule 15 to the Finance Act 1996 (transitional provisions and savings for loan relationships) shall be amended as follows.

Transitional rules for transitional accounting periods

2

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

Opening valuations as at 1st April 1996

3

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

Adjustments in the case of pre-commencement trading relationships

4

In paragraph 5 (pre-commencement trading relationships), after sub-paragraph (4) there shall be inserted the following sub-paragraphs—

(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.

Chargeable assets held after commencement

5

In paragraph 8 (transitional provision for chargeable assets held after commencement), after sub-paragraph (5) there shall be inserted the following sub-paragraph—

(5A) In any case where the relevant event has not occurred before 14th November 1996, the deemed chargeable gain or deemed allowable loss falling to be brought into account in accordance with sub-paragraph (3) above shall be computed without any account being taken of the provisions of section 119(6) and (7) of the 1992 Act (transfer of securities with or without accrued interest).

Adjustments in the case of chargeable assets

6

In paragraph 11 (adjustments in the case of chargeable assets), for sub-paragraphs (2) to (4) there shall be substituted the following sub-paragraphs—

(2) Those amounts are— (a) the notional closing value of the relationship as at 31st March 1996; and (b) the amount which would be taken on a computation made— (i) in accordance with an authorised accruals basis of accounting, and (ii) on the assumption that such a basis of accounting had always been used as respects that relationship, to represent the accrued value of the loan relationship in question on 1st April 1996. (3) Where there is a difference between the amounts mentioned in sub-paragraph (2) above, that difference shall be brought into account— (a) where the amount mentioned in paragraph (a) of that sub-paragraph is the smaller, as a credit given for the purposes of this Chapter for the accounting period in which the company ceases to be a party to the relationship; and (b) in any other case, as a debit so given.

Commencement of Schedule

7

• (1) Subject to sub-paragraph (2) below, this Schedule has effect for the purpose of determining the credits and debits to be brought into account in any accounting period ending on or after 14th November 1996.

• (2) Paragraphs 4 and 6 above do not apply in the case of a loan relationship to which the company in question has ceased to be a party before 14th November 1996 unless—

• (a) that company ceased to be a party to the relationship as a result of being directly or indirectly replaced as a party to that relationship by another company, and

• (b) the transaction, or series of transactions, by virtue of which the replacement took place fell within any of paragraphs (a) to (d) of paragraph 12(1) of Schedule 9 to the Finance Act 1996 (continuity of treatment in the case of groups and certain transfers of insurance business).

• (3) A credit or debit a fraction of which falls to be brought into account under paragraph 6(4) of Schedule 15 to the Finance Act 1996 (election as to adjustments) in an accounting period ending on or after 14th November 1996 shall be determined, for the purposes mentioned in sub-paragraph (1) above, without applying sub-paragraph (2) above in relation to the relevant assumption.

SCHEDULE 14

Introductory

1

The Capital Allowances Act 1990 shall be amended as follows.

New Chapter on long-life assets

2

In Part II (machinery and plant), the following new Chapter shall be inserted after Chapter IV (short-life assets)—

(38A) (1) Subject to sections 38B to 38D and 38H, this Chapter applies to any capital expenditure incurred by a person on the provision of machinery or plant if that machinery or plant is a long-life asset. (2) For the purposes of this Chapter machinery or plant is a long-life asset if— (a) in the case of machinery or plant that is new, it is reasonable to expect that the machinery or plant will have a useful economic life of at least twenty-five years; or (b) in any other case, it was reasonable, when the machinery or plant was new, to expect that it would have a useful economic life of at least twenty-five years. (3) For the purposes of this section the useful economic life of machinery or plant is the period which— (a) begins with the first occasion on which the machinery or plant is brought into use by any person for any purpose; and (b) continues until the machinery or plant ceases to be machinery or plant that is or is likely to be used (whether or not by the person who first brought it into use and whether or not in a manner in which he used it) as a fixed asset of a business. (4) Where, by virtue of any of the following provisions of this Chapter, this Chapter applies to part only of the expenditure incurred by any person on the provision of any long-life asset, this Act shall have effect in relation to that expenditure as if the part to which this Chapter applies and the part to which it does not were, in each case, expenditure on a separate item of machinery or plant. (5) For the purposes of subsection (4) above all such apportionments shall be made as may be just and reasonable. (38B) (1) This Chapter does not apply to expenditure on the provision of machinery or plant which is a fixture in, or is provided for use in, any building used wholly or mainly— (a) as a dwelling-house, retail shop, showroom, hotel or office; or (b) for purposes ancillary to the purposes of a dwelling-house, retail shop, showroom, hotel or office. (2) This Chapter does not apply to any expenditure on the provision of— (a) a motor car; or (b) a mechanically propelled road vehicle which would be a motor car but for section 36(1)(c). (3) This Chapter does not apply to any expenditure incurred before 1st January 2011 on the provision of a ship of a sea-going kind if each of the following conditions is satisfied— (a) that ship is not an offshore installation for the purposes of the Mineral Workings (Offshore Installations) Act 1971; (b) that ship would not be such an installation if the activity for the carrying on of which it is or is to be established or maintained were carried on in or under controlled waters (within the meaning of that Act); and (c) the primary use to which ships of the same kind as that ship are put by the persons to whom they belong (or, where their use is made available to others, by those others) is a use otherwise than for sport or recreation. (4) This Chapter does not apply to any expenditure incurred before 1st January 2011 on the provision of a railway asset provided for use (whether by the person incurring the expenditure or by any other person) wholly and exclusively for the purposes of a railway business. (5) In this section— - “fixture” has the same meaning as in Chapter VI of this Part; - “goods” has the same meaning as in Part I of the Railways Act 1993; - “light maintenance depot” means— 1. any light maintenance depot within the meaning of Part I of the Railways Act 1993, or 2. any land or other property which, in relation to anything which is a railway only where “railway” has the wider meaning given by section 81(2) of that Act, is the equivalent of such a depot; - “railway” has the wider meaning given by section 81(2) of the Railways Act 1993 (which defines railway so as to include tramways and other systems of guided transport); - “railway asset” means any of the following— 1. any locomotive, tram or other vehicle designed or adapted for use on a railway; 2. any carriage, wagon or other rolling stock designed or adapted for such use; 3. anything which is or is to be comprised in any railway track, railway station or light maintenance depot; and 4. any apparatus falling to be installed in association with anything within paragraph (c) above; - “railway business” means so much of any business as is carried on for the provision of a service to the public for the carriage of goods or passengers by means of a railway in the United Kingdom or the Channel Tunnel; - “railway station” includes anything included in the definition of “station” in section 83 of the Railways Act 1993 and anything that would be so included if, in that section, “railway” had the wider meaning given by section 81(2) of that Act; - “railway track” includes anything included in the definition of “track” in section 83 of the Railways Act 1993 and anything that would be so included if, in that section, “railway” had the wider meaning given by section 81(2) of that Act; - “retail shop” includes any premises of a similar character where retail trade or business (including repair work) is carried on. (6) For the purposes of subsection (4) above a railway asset falling within paragraph (a) or (b) of the definition in subsection (5) above shall not be treated as used otherwise than wholly and exclusively for the purposes of a railway business by reason only that it is used to carry goods or passengers from places in the United Kingdom to places outside the United Kingdom or vice versa. (38C) (1) Subject to section 38F(3), this Chapter does not apply to any expenditure incurred by an individual, or by a partnership of which all the members are individuals, unless that expenditure is— (a) expenditure incurred in a chargeable period the relevant limit for which is exceeded in the case of that individual or partnership; or (b) expenditure which is not subject to that limit. (2) For the purposes of this section the relevant limit for a chargeable period is exceeded in the case of an individual or partnership if the total amount of capital expenditure which— (a) is incurred in that period by that individual or partnership, (b) is subject to the limit, and (c) is or, disregarding this section, would be expenditure to which this Chapter applies, exceeds the limit applying to that period. (3) For the purposes of this section expenditure incurred by an individual is subject to the relevant limit for a chargeable period if— (a) it was incurred by him for the purposes of a trade or profession carried on by him; (b) that individual devotes substantially the whole of his time in that chargeable period to the carrying on of that trade or profession; and (c) the expenditure is not excluded from the operation of the limit. (4) For the purposes of this section expenditure incurred by a partnership is subject to the relevant limit for a chargeable period if— (a) it was incurred by the partnership for the purposes of a trade or profession carried on by that partnership; (b) at all times throughout that period at least half of the individuals who are for the time being members of the partnership are devoting substantially the whole of their time to the carrying on of that trade or profession; and (c) the expenditure is not excluded from the operation of the limit. (5) For the purposes of this section the expenditure which is excluded from the operation of the relevant limit for a chargeable period is any expenditure falling within any of the following paragraphs, that is to say— (a) expenditure on the provision of a share in machinery or plant; (b) expenditure which is treated as expenditure on the provision of machinery or plant by virtue of section 154 (contributions); (c) expenditure incurred on the provision of machinery or plant for leasing (whether or not the leasing is in the course of a trade). (6) The limit applying for the purposes of this section to a chargeable period of twelve months is £100,000. (7) The limit applying for the purposes of this section to a chargeable period which is not twelve months is the amount given by a proportional reduction or, as the case may require, increase of £100,000. (8) Where, in the case of any contract for the provision of machinery or plant, the capital expenditure which is or is to be incurred under that contract is or may fall to be treated for the purposes of this Act as incurred in different chargeable periods, all of the expenditure falling to be incurred under that contract on the provision of that machinery or plant shall be treated for the purposes of this section as incurred in the first chargeable period in which any of that expenditure is incurred. (9) This section does not apply for the purposes of corporation tax. (38D) (1) Subject to section 38F(3), this Chapter does not apply for the purposes of corporation tax to any expenditure by a company unless that expenditure is— (a) expenditure incurred in a chargeable period the relevant limit for which is exceeded in relation to that company; or (b) expenditure excluded from the operation of that limit. (2) For the purposes of this section the relevant limit for a chargeable period is exceeded in relation to a company only if the total amount of capital expenditure which— (a) is incurred by that company in that period, (b) is not excluded from the operation of that limit, and (c) is or, disregarding this section, would be expenditure to which this Chapter applies, exceeds the limit applying to that period. (3) Subject to subsection (5) below, the limit applying for the purposes of this section to a chargeable period of twelve months is £100,000. (4) Subject to subsection (5) below, the limit applying for the purposes of this section to a chargeable period of less than twelve months is the amount given by a proportional reduction of £100,000. (5) Where, in a chargeable period, a company has one or more associated companies, the limit applying to that period for the purposes of this section shall be the amount produced by— (a) taking the amount given for that period by subsection (3) or, as the case may be, subsection (4) above; and (b) dividing that amount by one plus the number of those companies. (6) Subsections (4) and (5) of section 13 of the principal Act (which identify the companies that are to count as associated companies for the purposes of section 13(3) of that Act) shall apply for the purposes of subsection (5) above as they apply for the purposes of subsection (3) of that section. (7) Subsections (5) and (8) of section 38C apply for the purposes of this section as they apply for the purposes of that section. (38E) (1) Where expenditure to which this Chapter applies has been incurred on the provision of machinery or plant wholly and exclusively for the purposes of a trade (“the actual trade”), the following provisions of this section shall have effect with respect to the allowances and charges to be made under section 24 in the case of the actual trade. (2) It shall be assumed for the purposes of sections 24, 25 and 26— (a) that the person carrying on the actual trade incurred the expenditure on the provision of the machinery or plant wholly and exclusively for the purposes of a trade carried on by him separately from the actual trade and from any other trade which he in fact carries on or is assumed for any purpose to carry on; (b) that the purposes for which the machinery or plant is used (whether wholly or partly) are purposes of the separate trade if they are purposes of the actual trade, but not otherwise; and (c) that the separate trade is permanently discontinued if the actual trade is or is treated as permanently discontinued, but not otherwise. (3) Any allowance or charge under section 24 which, on those assumptions and having regard to subsection (4) below, would fall to be made for any chargeable period in the case of the separate trade shall be made for that period in the case of the actual trade. (4) If an allowance under section 24 falling by virtue of this section to be made for any chargeable period (“the earlier period”) in the case of the actual trade— (a) is not claimed, or (b) is reduced in amount in accordance with a requirement under subsection (3) of that section, then, in determining the allowance or charge under that section which would fall to be made for any subsequent chargeable period in the case of the separate trade, any allowance falling to be made in the case of the separate trade for the earlier period shall be treated as not claimed or, as the case may require, as proportionately reduced. (5) Where there is more than one item of machinery or plant to which subsection (2) above applies in the case of any person, this section shall have effect as if the separate trade for which, in that person’s case, each of those items is treated as used were the same separate trade. (6) The reference in subsection (1) above to expenditure incurred on the provision of machinery or plant wholly and exclusively for the purposes of a trade does not include a reference to any amount falling by virtue of section 31, 61, 79 or 80 to be treated as incurred on the provision of machinery or plant wholly and exclusively for the purposes of the separate trade mentioned in that section. (38F) (1) Where sections 24, 25 and 26 apply, in any of the cases mentioned in subsection (2) below, to any expenditure to which this Chapter applies, they shall so apply as if the reference in section 24(2) to 25 per cent. were a reference to 6 per cent. (2) Those cases are— (a) any case where sections 24, 25 and 26 apply in accordance with section 31, 38E, 79 or 80; and (b) any case where the machinery or plant in question is machinery or plant to which section 61 applies. (3) Where— (a) any person entitled to do so has made a Part II claim in respect of expenditure incurred on the provision of any plant or machinery, (b) that expenditure was expenditure falling to be treated for the purposes of that claim as expenditure to which this Chapter applies, (c) at any time after the making of that claim, that person or another person makes a Part II claim in respect of any capital expenditure incurred at any time (including a time before the incurring of the expenditure to which the earlier claim relates) on the provision of the same machinery or plant, (d) the expenditure to which the later claim relates would not (but for this subsection) be treated for the purposes of the later claim as expenditure to which this Chapter applies, and (e) the expenditure to which the later claim relates does not fall within paragraph (d) above by virtue of being expenditure which is prevented by section 38B from being expenditure to which this Chapter applies, this Part shall have effect in relation to the later claim as if the expenditure to which it relates were expenditure to which this Chapter applies. (4) References in this section to the making of a Part II claim in respect of any expenditure are references to any of the following— (a) the making of a return in which that expenditure is taken into account in determining a person’s qualifying expenditure for the purposes of section 24; (b) the giving of notice of any such amendment of a return as provides for the expenditure to be so taken into account; (c) the making, in any other manner, of a claim for the expenditure to be so taken into account. (5) In subsection (4) above “return” means any return required to be made under the Taxes Management Act 1970 for income tax or corporation tax purposes. (6) In the case of expenditure falling within subsection (1) of section 42, this section has effect subject to subsections (3) to (7) of that section. (38G) (1) If, in a case where sections 24, 25 and 26 have had effect in accordance with section 38F(1) in relation to any expenditure incurred by a person (“the charged person”)— (a) an event occurs by reason of which a disposal value of that machinery or plant is to be brought into account by the charged person in accordance with section 24, (b) the amount of the disposal value to be so brought into account would (but for this section) be less than the notional written-down value of the machinery or plant, and (c) the event is comprised in, or occurs in pursuance of, any scheme or arrangement which has avoidance as its main object, or as one of its main objects, this Part shall have effect in relation to the charged person as if the amount of the disposal value to be brought into account were equal to the notional written-down value of the machinery or plant. (2) In this section “the notional written-down value”, in relation to any machinery or plant, means the amount which, if— (a) it were the disposal value falling to be brought into account as mentioned in subsection (1) above, and (b) the assumptions set out in subsection (3) below were made, would give rise to neither a balancing allowance nor a balancing charge for the chargeable period for which that disposal value is to be brought into account. (3) The assumptions mentioned in subsection (2) above are— (a) subject to paragraph (b) below, that expenditure on the provision of the machinery or plant were the only expenditure ever taken into account in determining the charged person’s qualifying expenditure for the purposes of section 24; (b) that that expenditure were not, in the charged person’s case, prevented by section 38C or 38D from being expenditure to which this Chapter applies; and (c) that the full amount of every allowance to which the charged person was entitled in respect of that expenditure had been made to him. (4) The reference in subsection (1) above to avoidance is a reference to— (a) the obtaining under this Part for the charged person of an allowance or deduction or of a greater allowance or deduction, or (b) the avoidance or reduction of a charge under this Part on the charged person. (38H) (1) This Chapter does not apply— (a) to any expenditure incurred before 26th November 1996; or (b) to any expenditure incurred before 1st January 2001 in pursuance of a contract entered into before 26th November 1996. (2) This Chapter does not apply to expenditure incurred by any person (“the purchaser”) on the acquisition of any long-life asset from another person (“the seller”) in a case where— (a) the seller has made a Part II claim in respect of expenditure incurred on the provision of that asset (“the seller’s expenditure”), (b) that claim is one which the seller was entitled to make, (c) the seller’s expenditure was not expenditure falling for the purposes of that claim to be treated as expenditure to which this Chapter applies, and (d) the seller’s expenditure would have fallen to be so treated if one or more of the assumptions specified in subsection (3) below were made. (3) Those assumptions are— (a) that expenditure falling within paragraph (a) or (b) of subsection (1) above is not prevented by that paragraph from being expenditure to which this Chapter applies; (b) that the seller’s expenditure was not prevented by subsection (2) above from being expenditure to which this Chapter applies; and (c) that this Chapter or, as the case may require, provision corresponding to it applied for chargeable periods ending before 26th November 1996. (4) The reference in subsection (1) above to expenditure incurred in pursuance of a contract entered into before 26th November 1996 does not, in the case of a contract varied at any time on or after that date, include a reference to so much of the expenditure incurred under that contract as exceeds the amount of the expenditure that would have been incurred if that contract had not been so varied. (5) Subsections (4) and (5) of section 38F have effect for the purposes of this section as they have effect for the purposes of that section.

Consequential amendments

3

In section 37(1), after paragraph (b) (election to treat assets as short-life assets), there shall be inserted the following paragraph—

(ba) the expenditure is not expenditure to which Chapter IVA of this Part applies; and

.

4

For subsection (6) of section 41 (cases where the provision for separate pools for leased assets and inexpensive cars do not apply) there shall be substituted the following subsection—

(6) This section does not apply— (a) to machinery or plant in relation to which sections 24, 25 and 26 apply in accordance with section 34, 79 or 80; or (b) to machinery or plant the expenditure on which is expenditure to which Chapter IVA of this Part applies.

5

In section 42(2) (rate of writing down assets leased outside the United Kingdom), after “above” there shall be inserted “ which is not expenditure to which Chapter IVA of this Part applies ”.

6

In section 43(3) (apportionments in leasing cases), after “26,” there shall be inserted “ 38E, ”.

7

In section 46(7)(c) (leasing of ships to non-residents), for “section 41” there shall be inserted “ whichever of sections 38E and 41 is applicable ”.

8

In section 50(3) (interpretation of Chapter V), in the definition of “normal writing down allowance”, for “section 42(2)” there shall be substituted “ sections 38F(1) and 42(2) ”.

9

In section 77(8) (provisions that do not apply where an election is made in the case of a connected person succeeding to a trade), after “Sections” there shall be inserted “ 38G, ”.

Commencement

10

This Schedule applies in relation to chargeable periods ending on or after 26th November 1996.

SCHEDULE 15

Repeal of existing rules

1

Section 32 of the Taxes Act 1988 (capital allowances in Schedule A cases) shall cease to have effect, both for the purposes of income tax and for the purposes of corporation tax.

Removal of restriction on set-off of losses

2

• (1) In section 379A(2) of the Taxes Act 1988 (cases in which Schedule A losses may be set against other income of the same year or the following year)—

• (a) in paragraph (a) (losses attributable to relevant capital allowances), the word “relevant” shall be omitted; and

• (b) the words after paragraph (b) (which define the relevant capital allowances) shall cease to have effect.

• (2) In section 503 of that Act (letting of furnished holiday accommodation treated as trade), after subsection (1) there shall be inserted the following subsection—

(1A) In its application by virtue of subsection (1) above, section 384 shall have effect with the omission of subsections (6) to (8) and of the words after paragraph (b) in subsection (10) (restrictions on right to set off losses attributable to capital allowances).

New general provision

3

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

4

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

Manner of making allowances and charges

5

• (1) In subsection (3) of section 67 of that Act of 1990 (manner of giving allowance on thermal insulation), the words from “shall be made” to “corporation tax,” shall be omitted.

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

(3A) Subsections (2) and (3) above have effect for the purposes of corporation tax only.

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

6

• (1) In section 73 of that Act of 1990 (manner of making allowances and charges under Part II), in subsection (1), for “subsection (2)” there shall be substituted “ subsections (1A) and (2) ”.

• (2) After subsection (1) of that section there shall be inserted the following subsection—

(1A) Any allowance or charge made to or on any company by virtue of section 28A shall be made for the purposes of corporation tax by way of discharge or repayment of tax and, for that purpose— (a) any such allowance shall be available primarily against income chargeable to tax under Schedule A; and (b) the amount on which any such charge is to be made shall be treated as income so chargeable.

Meaning of capital expenditure

7

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

Consequential amendment of section 434E of the Taxes Act 1988

8

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

Commencement

9

• (1) Subject to sub-paragraph (2) below, this Schedule has effect—

• (a) for the purposes of income tax, in relation to the year 1997-98 and subsequent years of assessment; and

• (b) for the purposes of corporation tax, in relation to accounting periods ending on or after 1st April 1997.

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

SCHEDULE 16

Part I — Amendments of the Capital Allowances Act 1990

Introductory

1

The Capital Allowances Act 1990 shall be amended in accordance with the following provisions of this Part of this Schedule.

Interpretation of Chapter VI of Part II

2

• (1) In subsection (2) of section 51 (definitions), after the definition of “relevant land” there shall be inserted the following definition—