Finance Act 2005

• (1) In section 9A of TMA 1970 (notice of enquiry), in subsection (4) (matters to which an enquiry extends) after paragraph (b) insert—

(c) consideration of whether to give the taxpayer a notice under section 804ZA of the principal Act (schemes and arrangements designed to increase relief),

.

• (2) In section 29 of TMA 1970 (assessment where loss of tax discovered), after subsection (7) insert—

(7A) The requirement to fulfil one of the two conditions mentioned above does not apply so far as regards any income or chargeable gains of the taxpayer in relation to which the taxpayer has been given, after any enquiries have been completed into the taxpayer's return, a notice under section 804ZA of the principal Act.

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

• (4) In paragraph 42 of that Schedule (restrictions on power to make discovery assessment etc), after sub-paragraph (2) insert—

(2A) Those restrictions, other than the restriction in paragraph 45, do not apply so far as regards any income or chargeable gains of the company in relation to which the company has been given, after any enquiries have been completed into the return, a notice under section 804ZA of the Taxes Act 1988.

• (5) The amendments made by this section have effect in accordance with section 87(3).

Controlled foreign companies

ADP dividends and double taxation relief

89

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

Foreign taxation of group as single entity: exclusion of ADP CFCs

90

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

Annual payments and double taxation relief

Tax avoidance involving annual payments and double taxation relief

91

• (1) ICTA is amended as follows.

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

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

• (4) Section 801 (dividends paid between related companies: relief for UK and third country taxes) is amended as follows.

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

• (6) Subsections (4A) to (4D) (which relate to cases where the amount given by the formula in section 799(1) exceeds U in that formula) shall cease to have effect.

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) The amendments made by subsections (4) to (6) have effect in relation to dividends paid on or after 2nd December 2004.

Chapter 10 — Miscellaneous

Capital allowances

Capital allowances: renovation of business premises in disadvantaged areas

92

Schedule 6 (capital allowances in respect of expenditure on the conversion or renovation of qualifying business premises in disadvantaged areas) has effect in relation to expenditure incurred on or after such day as the Treasury may by order appoint.

Tonnage tax

Tonnage tax

93

Schedule 7 (which makes provision amending Schedule 22 to FA 2000) has effect.

Part 3 — Stamp taxes

Stamp duty land tax

Alternative property finance

94

Schedule 8 (which makes amendments of Part 4 of FA 2003 relating to alternative property finance) has effect.

Stamp duty land tax and stamp duty

Raising of thresholds

95

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

Removal of disadvantaged areas relief for non-residential property

96

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

Stamp duty and stamp duty reserve tax

Demutualisation of insurance companies

97

• (1) Section 90 of FA 1986 (other exceptions to the principal charge to stamp duty reserve tax under section 87 of that Act) is amended as follows.

• (2) In subsection (1A) (section 87 not to apply to agreement to transfer unit under unit trust scheme if instrument giving effect to agreement would be exempt from stamp duty by virtue of provision in paragraph (a) or (b)) after paragraph (b) insert

, or (c) section 96 of the Finance Act 1997 (demutualisation of insurance companies).

.

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

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

• (5) The amendment in subsection (2) applies where the relevant day for the purposes of section 87 of FA 1986 falls on or after the day on which this Act is passed.

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 4 — Other taxes

Inheritance tax

Rates and rate bands for the next three years

98

• (1) For the Table in Schedule 1 to IHTA 1984 (rates and rate bands), as it has effect from time to time, there shall be successively substituted—

• (a) the 2005-06 Table, which shall apply to any chargeable transfer made on or after 6th April 2005 (but before 6th April 2006),

• (b) the 2006-07 Table, which shall apply to any chargeable transfer made on or after 6th April 2006 (but before 6th April 2007), and

• (c) the 2007-08 Table, which shall apply to any chargeable transfer made on or after 6th April 2007.

• (2) Subsection (1)(c) is without prejudice to the application of section 8 of IHTA 1984 (indexation) by virtue of the difference between the retail prices index for the month of September in 2006 or any later year and that for the month of September in the following year.

• (3) The 2005-06 Table is—

Portion of value	Portion of value	Rate of tax
Lower limit (£)	Upper limit (£)	Per cent.
0	275,000	Nil
275,000		40

• (4) The 2006-07 Table is—

Portion of value	Rate of tax	Rate of tax
Lower limit (£)	Upper limit (£)	Per cent.
0	285,000	Nil
285,000		40

• (5) The 2007-08 Table is—

Portion of value	Portion of value	Rate of tax
Lower limit (£)	Upper limit (£)	Per cent.
0	300,000	Nil
300,000		40

• (6) Section 8(1) of IHTA 1984 (indexation of rate bands) shall not have effect as respects any difference between the retail prices index—

• (a) for the month of September 2003 and that for the month of September 2004,

• (b) for the month of September 2004 and that for the month of September 2005, or

• (c) for the month of September 2005 and that for the month of September 2006.

Landfill tax

Rate of landfill tax

99

• (1) In section 42 of FA 1996 (amount of landfill tax) for the amount specified in subsection (1)(a), and the corresponding amount specified in subsection (2), substitute “ £18 ”.

• (2) The amendments made by this section have effect in relation to taxable disposals made, or treated as made, on or after 1st April 2005.

Lorry road-user charge

Lorry road-user charge

100

For section 137(7) of FA 2002 (lorry road-user charge: preparatory expenditure) substitute—

(7) A Minister of the Crown or government department may— (a) incur expenditure in connection with preparations for lorry road-user charge (including any fuel credit to be paid in respect of fuelling of lorries chargeable in respect of lorry road-user charge); (b) enter into contracts in respect of the development or provision of equipment, systems or services to be used in connection with lorry road-user charge (including any fuel credit).

Part 5 — Pensions etc

Pension schemes etc.

101

Schedule 10 contains provision about pension schemes and related matters.

Pension Protection Fund etc.

102

• (1) The Treasury may by regulations make provision for and in connection with the application of the relevant taxes in relation to—

• (a) the Pension Protection Fund,

• (b) the Fraud Compensation Fund, and

• (c) the Board of the Pension Protection Fund,

and in relation to any person in connection with either of those Funds or that Board.

• (2) The provision that may be made by the regulations includes provision imposing any of the relevant taxes (as well as provision for exemptions or reliefs).

• (3) The relevant taxes are—

• (a) income tax,

• (b) capital gains tax,

• (c) corporation tax,

• (d) inheritance tax,

• (e) value added tax, and

• (f) stamp duty land tax.

• (4) The regulations may, in particular, include provision for and in connection with the taxation of payments made in accordance with the pension compensation provisions (within the meaning of Part 2 of the Pensions Act 2004 (c. 35): see section 162(2) of that Act).

• (5) The exemptions and reliefs that may be given by the regulations include, in particular, exemption from—

• (a) charges to corporation tax in respect of any income arising from any assets of the Board (or in either Fund) and other receipts of the Board (or either Fund) and any chargeable gains arising from the disposal of any assets of the Board (or in either Fund),

• (b) charges to income tax and corporation tax in respect of the levies referred to in sections 117, 174, 175, 189 and 209 of the Pensions Act 2004, and

• (c) any charge to capital gains tax, or corporation tax on chargeable gains, in respect of the receipt of fraud compensation payments (within the meaning of Part 2 of that Act: see section 182(1) of that Act).

• (6) The regulations may make provision in relation to any time after 5th April 2005.

• (7) The provision made by the regulations may be framed as provision applying with appropriate modifications—

• (a) for times before 6th April 2006, provisions having effect in relation to exempt approved schemes (within the meaning of Chapter 1 of Part 14 of ICTA: see section 592(1) of that Act), and

• (b) for times on or after that date, provisions having effect in relation to registered pension schemes (within the meaning of section 150(2) of the Finance Act 2004).

• (8) The regulations may include—

• (a) provision amending any enactment or instrument, and

• (b) consequential, supplementary and transitional provisions.

• (9) The regulations are to be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of the House of Commons.

• (10) In this section—

• “the Board of the Pension Protection Fund” means the body corporate established under section 107 of the Pensions Act 2004 (c. 35),

• “the Fraud Compensation Fund” means the Fund required to be held, managed and applied by that Board under paragraph (b) of subsection (1) of section 110 of that Act, and

• “the Pension Protection Fund” means the Fund required to be held, managed and applied by that Board under paragraph (a) of that subsection.

Part 6 — Miscellaneous

Civil partnerships etc

103

• (1) In the case of any tax or duty, the Treasury may by regulations make provision for the purpose of securing that the events or persons specified in column 1 of the Table are treated in the same way as (or a similar way to) the corresponding events or persons specified in column 2 of the Table.

1. Events or persons	2. Corresponding events or persons
1. The formation of a civil partnership.	A marriage.
2. Persons who are, have been, or may in future be, civil partners of each other.	Persons who are, have been, or may in future be, married to each other.
3. Persons who are not civil partners of each other but who are living together as if they were.	Persons who are not married to each other but who are living together as husband and wife.
4. Persons who are not civil partners of each other.	Persons who are not married to each other.
5. A person who is not a civil partner of any other person.	A person who is not married.

• (2) The provision that may be made by regulations under subsection (1) includes provision for or in connection with varying, for the purpose specified in subsection (1), the treatment that would, apart from the regulations, apply—

• (a) on the occurrence of an event specified in column 2 of the Table, or

• (b) in the case of persons specified in column 2 of the Table.

• (3) The Treasury may by regulations make provision for the purpose of removing any inequality of treatment of persons based on gender or, in the case of a parent, marital status.

• (4) Any power to make regulations under this section is exercisable by statutory instrument.

• (5) A statutory instrument containing regulations under this section shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

• (6) The provision that may be made by regulations under this section includes provision—

• (a) amending any enactment, or

• (b) applying any provision of any enactment with or without modifications.

• (7) Any power to make regulations under this section includes power—

• (a) to make different provision for different cases;

• (b) to make incidental, supplemental, consequential or transitional provision or savings.

• (8) The powers conferred by this section are exercisable in relation to enactments (including enactments contained in, or made under, this Act) passed or made at any time before the end of the Session following that in which this Act is passed.

• (9) In this section—

• “civil partnership” means a civil partnership which exists under or by virtue of the Civil Partnership Act 2004 (c. 33) (and “civil partner” is to be read accordingly);

• “enactment” includes any provision comprised in—an Act of the Scottish Parliament;Northern Ireland legislation;an instrument made under any enactment.

Part 7 — Supplementary provisions

Repeals

104

• (1) The enactments mentioned in Schedule 11 (which include provisions that are spent or of no practical utility) are repealed to the extent specified.

• (2) The repeals specified in that Schedule have effect subject to the commencement provisions and savings contained or referred to in the notes set out in that Schedule.

Interpretation

105

In this Act—

• “ALDA 1979” means the Alcoholic Liquor Duties Act 1979 (c. 4);

• “CAA 2001” means the Capital Allowances Act 2001 (c. 2);

• "CTA 2009"means the Corporation Tax Act 2009;

• “FA”, followed by a year, means the Finance Act of that year;

• “F(No.2)A”, followed by a year, means the Finance (No.2) Act of that year;

• “HODA 1979” means the Hydrocarbon Oil Duties Act 1979 (c. 5);

• “ICTA” means the Income and Corporation Taxes Act 1988 (c. 1);

• “IHTA 1984” means the Inheritance Tax Act 1984 (c. 51);

• “ITA 2007” means the Income Tax Act 2007;

• “ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003 (c. 1);

• “ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005 (c. 5);

• “TCGA 1992” means the Taxation of Chargeable Gains Act 1992 (c. 12);

• “TMA 1970” means the Taxes Management Act 1970 (c. 9);

• “VERA 1994” means the Vehicle Excise and Registration Act 1994 (c. 22).

Short title

106

This Act may be cited as the Finance Act 2005.

SCHEDULE 1

Vulnerable person’s actual income

1

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

Trustees' specially taxed income

2

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

Vulnerable person’s deemed CGT taxable amount

3

• (1) The “vulnerable person's deemed CGT taxable amount” for the tax year means the sum of—

• (a) the vulnerable person's taxable amount for the tax year (as defined by section 32(3A)) calculated by reference only to actual gains and actual losses, and

• (b) the vulnerable person's taxable amount for the tax year (as defined by section 32(3A)) calculated by reference only to assumed gains and assumed losses.

• (2) But in calculating the taxable amount under sub-paragraph (1)(b)—

• (a) no deduction is to be made under section 1(3)(b) of TCGA 1992, ...

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

• (3) In determining the vulnerable person's deemed CGT taxable amount for the tax year any claims or elections made in relation to any assumed gains of the vulnerable person are to be disregarded.

• (4) In this paragraph—

• (a) “actual gains” and “actual losses” have the meanings given in paragraph 5, and

• (b) “assumed gains” and “assumed losses” have the meanings given in paragraph 6.

Vulnerable person’s notional section 77 gains

4

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

Actual gains and actual losses

5

• (1) “Actual gains” means any chargeable gains which accrue to the vulnerable person and in respect of which he is chargeable to capital gains tax for the tax year.

• (2) “Actual losses” means—

• (a) any allowable losses accruing to the vulnerable person in the tax year, and

• (b) so far as they have not been allowed as a deduction from chargeable gains accruing to him in any previous tax year, any allowable losses accruing to him in any previous tax year (not earlier than that beginning on 6th April 1965).

Assumed gains and assumed losses

6

• (1) “Assumed gains” means any chargeable gains, other than actual gains, which, on the relevant assumptions, would accrue to the vulnerable person and in respect of which, on those assumptions, he would be chargeable to capital gains tax for the tax year.

• (2) “Assumed losses” means any allowable losses, other than actual losses, which, on the relevant assumptions, would accrue to the vulnerable person in the tax year.

• (3) In this paragraph “relevant assumptions” has the meaning given in paragraph 7.

Relevant assumptions

7

• (1) For the purposes of paragraph 6 the “relevant assumptions” are—

• (a) that the vulnerable person is resident ... in the United Kingdom throughout the tax year, and

• (b) that he has given a notice under subsection (2A) of section 16 of TCGA 1992 (computation of losses) in respect of each loss accruing to him in the tax year which by virtue of section 1E(2) of that Act would not be an allowable loss (but for the assumption in paragraph (a)).

• (2) But the relevant assumption in sub-paragraph (1)(a) does not apply for the purposes of section 1M of TCGA 1992 (temporary non-residents).

SCHEDULE 2

Interpretation of Schedule

1

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

Taxes Management Act 1970 (c. 9)

2

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

Income and Corporation Taxes Act 1988 (c. 1)

3

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

4

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

5

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

6

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

7

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

8

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

Finance Act 1996 (c. 8)

9

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

Income Tax (Trading and Other Income) Act 2005 (c. 5)

10

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

SCHEDULE 3

Part 1 — Restrictions on circumstances in which relief may be obtained

Section 42 of the Finance (No.2) Act 1992 (c. 48)

1

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

Section 101 of the Finance Act 2002 (c. 23)

2

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

Section 138 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

3

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

Section 139 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

4

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

Section 140 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

5

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

Meaning of “disqualifying deduction”

6

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

Transitional provision for films in production

7

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

8

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

Part 2 — Restrictions on amount of relief which may be obtained

Section 42 of the Finance (No.2) Act 1992 (c. 48)

9

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

Section 48 of the Finance (No.2) Act 1997 (c. 58)

10

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

Section 138 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

11

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

Section 138A of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

12

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

Section 139 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

13

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

Section 140 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

14

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

Section 141 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

15

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

Section 142 of the Income Tax (Trading and Other Income) Act 2005 (c. 5)

16

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

Part 3 — Minor and consequential amendments

Income and Corporation Taxes Act 1988 (c. 1)

17

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

Finance (No.2) Act 1992 (c. 48)

18

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

19

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

20

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

21

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

22

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

23

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

24

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

Finance Act 1997 (c. 16)

25

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

Finance (No. 2) Act 1997 (c. 58)

26

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

Capital Allowances Act 2001 (c. 2)

27

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

Finance Act 2002 (c. 23)

28

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

29

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

Income Tax (Trading and Other Income) Act 2005 (c. 5)

30

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

Commencement of Part 3 amendments

31

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

Part 4 — Interpretation

Meaning of “pre-announcement expenditure”

32

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

Meaning of film “in production”

33

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

Meaning of “film” and “original master version”

34

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

SCHEDULE 4

Part 1 — Bad debts and related matters

ICTA

1

In section 74 of ICTA (general rules as to deductions not allowable), omit subsection (1)(j) and subsection (2) (bad debts and related matters).

2

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

3

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

4

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

5

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

6

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

7

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

8

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

FA 1996

9

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

10

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

11

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

12

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

13

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

14

Omit paragraph 6B of Schedule 9 to FA 1996 (impairment losses: companies becoming connected).

15

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

16

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

17

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

FA 1997

18

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

Schedule 26 to FA 2002

19

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

Schedule 29 to FA 2002

20

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

Part 2 — Other provisions connected with accounting practice

ICTA

21

In section 43A of ICTA (rent factoring: meaning of “finance agreement”), in subsection (3) (reference to consolidated group accounts), omit paragraphs (a) and (b) and the word “and” preceding paragraph (a).

22

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

23

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

24

• (1) Section 747A of ICTA (special rule requiring chargeable profits of controlled foreign companies to be computed in currency of accounts of company's first relevant accounting period) shall cease to have effect.

• (2) This amendment has effect in relation to accounting periods beginning on or after 16th March 2005.

25

Section 836A of ICTA (meaning of generally accepted accounting practice) shall cease to have effect.

FA 1996

26

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

27

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

28

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

29

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30

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31

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FA 1997

32

In Schedule 12 to FA 1997 (leasing arrangements: finance leases and loans), in paragraph 30(1) (interpretation) omit the definitions of “consolidated group accounts”, “group of companies” and “member” in relation to a group of companies.

CAA 2001

33

In section 219 of CAA 2001 (finance leases), in subsection (3) (reference to group accounts) for paragraph (b) substitute—

(b) are drawn up in accordance with generally accepted accounting practice.

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Schedule 26 to FA 2002

34

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35

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Schedule 29 to FA 2002

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39

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40

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46

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47

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ITEPA 2003

48

In Schedule 5 to ITEPA 2003 (enterprise management incentives), in paragraph 59 (index of defined expressions), in the entry relating to the expression “generally accepted accounting practice”, for “section 836A of ICTA” substitute “ section 50(1) of the Finance Act 2004 ”.

FA 2004

49

In section 50 of FA 2004 (generally accepted accounting practice), for subsections (2) and (3) substitute—

(2) In the Tax Acts “international accounting standards” has the same meaning as in Regulation (EC) No 1606/2002 of the European Parliament and the Council of 19 July 2002 on the application of international accounting standards. (3) Where the European Commission has in accordance with that Regulation adopted an international accounting standard with modifications, then as regards matters covered by that standard— (a) generally accepted accounting practice with respect to IAS accounts shall be regarded as permitting the use of the standard either with or without the modifications, and (b) accounts prepared on either basis shall be regarded for the purposes of the Tax Acts as prepared in accordance with international accounting standards.

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50

In sections 50(6), 51(6), 52(3) and 54(2) of FA 2004 (periods of account in relation to which the sections have effect), omit paragraph (b) and the word “and” preceding it. This amendment shall be deemed always to have had effect.

51

In Part 4 of Schedule 10 to FA 2004 (amendments relating to foreign currency accounting), after paragraph 78 insert—

(79) Where a company carries forward to its first period of account beginning on or after 1st January 2005 an amount by way of— (a) management expenses brought forward under section 75 of the Taxes Act 1988, (b) losses brought forward under section 392B or 393 of that Act, or (c) non-trading deficits on loan relationships brought forward under section 83 of the Finance Act 1996, that amount shall be translated into sterling using the London closing exchange rate for the last day of the previous period of account.

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Power to make certain regulations with limited retrospective effect

52

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SCHEDULE 5

After Schedule 28AA to ICTA insert—

SCHEDULE 6

Part 1 — New Part 3A of the Capital Allowances Act 2001

1

After Part 3 of CAA 2001 insert—

(360A) (1) Allowances are available under this Part if a person incurs qualifying expenditure in respect of a qualifying building. (2) Allowances under this Part are made to the person who— (a) incurred the expenditure, and (b) has the relevant interest in the qualifying building. (360B) (1) In this Part “qualifying expenditure” means capital expenditure incurred before the expiry date on, or in connection with— (a) the conversion of a qualifying building into qualifying business premises, (b) the renovation of a qualifying building if it is or will be qualifying business premises, or (c) repairs to a qualifying building or, where the qualifying building is part of a building, to the building of which the qualifying building forms part, to the extent that the repairs are incidental to expenditure within paragraph (a) or (b). (2) In subsection (1) “the expiry date” means— (a) the fifth anniversary of the day appointed under section 92 of the Finance Act 2005, or (b) such later date as the Treasury may prescribe by regulations. (3) Expenditure is not qualifying expenditure if it is incurred on or in connection with— (a) the acquisition of land or rights in or over land, (b) the extension of a qualifying building (except to the extent required for the purpose of providing a means of getting to or from qualifying business premises), (c) the development of land adjoining or adjacent to a qualifying building, or (d) the provision of plant and machinery, other than plant or machinery which is or becomes a fixture as defined by section 173(1). (4) For the purposes of this section, expenditure incurred on repairs to a building is to be treated as capital expenditure if it is not expenditure that would be allowed to be deducted in calculating the profits of a property business, or of a trade, profession or vocation, for tax purposes. (5) The Treasury may by regulations make further provision as to expenditure which is, or is not, qualifying expenditure. (360C) (1) In this Part “qualifying building”, in relation to any conversion or renovation work, means any building or structure, or part of a building or structure, which— (a) is situated in an area which, on the date on which the conversion or renovation work began, was a disadvantaged area, (b) was unused throughout the period of one year ending immediately before that date, (c) on that date, had last been used— (i) for the purposes of a trade, profession or vocation, or (ii) as an office or offices (whether or not for the purposes of a trade, profession or vocation), (d) on that date, had not last been used as, or as part of, a dwelling, and (e) in the case of part of a building or structure, on that date had not last been occupied and used in common with any other part of the building or structure other than a part— (i) as respects which the condition in paragraph (b) is met, or (ii) which had last been used as a dwelling. (2) In this section “disadvantaged area” means— (a) an area designated as a disadvantaged area for the purposes of this section by regulations made by the Treasury, or (b) if no regulations are made under paragraph (a), an area for the time being designated as a disadvantaged area for the purposes of Schedule 6 to the Finance Act 2003 (stamp duty land tax: disadvantaged areas relief). (3) Regulations under subsection (2)(a) may— (a) designate specified areas as disadvantaged areas, or (b) provide for areas of a description specified in the regulations to be designated as disadvantaged areas. (4) If regulations under subsection (2)(a) so provide, the designation of an area as a disadvantaged area shall have effect for such period as may be specified in or determined in accordance with the regulations. (5) Regulations under subsection (2)(a) may— (a) make different provision for different cases, and (b) contain such incidental, supplementary, consequential or transitional provision as appears to the Treasury to be necessary or expedient. (6) Where a building or structure (or part of a building or structure) which would otherwise be a qualifying building is on the date mentioned in subsection (1)(a) situated partly in a disadvantaged area and partly outside it, only so much of the expenditure incurred in accordance with section 360B as, on a just and reasonable apportionment, is attributable to the part of the building or structure located in the disadvantaged area is to be treated as qualifying expenditure. (7) The Treasury may by regulations make further provision as to the circumstances in which a building or structure or part of a building or structure is, or is not, a qualifying building. (360D) (1) In this Part “qualifying business premises” means any premises in respect of which the following requirements are met— (a) the premises must be a qualifying building, (b) the premises must be used, or available and suitable for letting for use,— (i) for the purposes of a trade, profession or vocation, or (ii) as an office or offices (whether or not for the purposes of a trade, profession or vocation), (c) the premises must not be used, or available for use as, or as part of, a dwelling. (2) In this section “premises” means any building or structure or part of a building or structure. (3) For the purposes of this Part, if premises are qualifying business premises immediately before a period when they are temporarily unsuitable for use for the purposes mentioned in subsection (1)(b), they are to be treated as being qualifying business premises during that period. (4) The Treasury may by regulations make further provision as to the circumstances in which premises are, or are not, qualifying business premises. (360E) (1) The relevant interest in a qualifying building in relation to any qualifying expenditure is the interest in the qualifying building to which the person who incurred the qualifying expenditure was entitled when it was incurred. (2) Subsection (1) is subject to the following provisions of this Chapter and to section 360Z3 (provisions applying on termination of lease). (3) If— (a) the person who incurred the qualifying expenditure was entitled to more than one interest in the qualifying building when the expenditure was incurred, and (b) one of those interests was reversionary on all the others, the reversionary interest is the relevant interest in the qualifying building. (4) An interest does not cease to be the relevant interest merely because of the creation of a lease or other interest to which that interest is subject. (5) If— (a) the relevant interest is a leasehold interest, and (b) that interest is extinguished on the person entitled to it acquiring the interest which is reversionary on it, the interest into which the leasehold interest merges becomes the relevant interest when the leasehold interest is extinguished. (360F) For the purposes of determining the relevant interest in a qualifying building, a person who— (a) incurs expenditure on the conversion of a qualifying building into qualifying business premises, and (b) is entitled to an interest in the qualifying building on or as a result of the completion of the conversion, is treated as having had that interest when the expenditure was incurred. (360G) (1) A person who has incurred qualifying expenditure in respect of any qualifying building is entitled to an initial allowance in respect of the expenditure. (2) The amount of the initial allowance is 100% of the qualifying expenditure. (3) A person claiming an initial allowance under this section may require the allowance to be reduced to a specified amount. (4) The initial allowance is made for the chargeable period in which the qualifying expenditure is incurred. (360H) (1) No initial allowance is to be made under section 360G if, at the relevant time, the qualifying building does not constitute qualifying business premises. (2) An initial allowance which has been made in respect of a qualifying building which is to be qualifying business premises is to be withdrawn if— (a) the qualifying building does not constitute qualifying business premises at the relevant time, or (b) the person to whom the allowance was made has sold the relevant interest in the qualifying building before the relevant time. (3) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this section. (4) In this section “the relevant time” means the time when the premises are first used by the person with the relevant interest or, if they are not so used, the time when they are first suitable for letting for either of the purposes mentioned in section 360D(1)(b). (360I) (1) A person is entitled to a writing-down allowance for a chargeable period if he has incurred qualifying expenditure in respect of a qualifying building and, at the end of the chargeable period— (a) the person is entitled to the relevant interest in the qualifying building, (b) the person has not granted a long lease of the qualifying building out of the relevant interest in consideration of the payment of a capital sum, and (c) the qualifying building constitutes qualifying business premises. (2) In subsection (1)(b) “long lease” means a lease the duration of which exceeds 50 years. (3) Whether the duration of a lease exceeds 50 years is to be determined— (a) in accordance with section 303 of ITTOIA 2005, and (b) without regard to section 360Z3(3) of this Act (new lease granted as a result of the exercise of an option treated as continuation of old lease). (4) A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount. (360J) (1) The writing-down allowance for a chargeable period is 25% of the qualifying expenditure. (2) The allowance is proportionately increased or reduced if the chargeable period is more or less than a year. (3) The amount of the writing-down allowance for a chargeable period is limited to the residue of qualifying expenditure. (4) For this purpose the residue is ascertained immediately before writing off the writing-down allowance at the end of the chargeable period. (360K) The residue of qualifying expenditure is the qualifying expenditure that has not yet been written off in accordance with Chapter 9. (360L) (1) No initial allowance or writing-down allowance under this Part is to be made in respect of expenditure to the extent that it is taken into account for the purposes of a relevant grant or relevant payment made towards that expenditure. (2) A grant or payment is relevant if it is— (a) a notified State aid other than an allowance under this Part, or (b) a grant or subsidy, other than a notified State aid, which the Treasury by order declares to be relevant for the purposes of the withholding of initial allowances or writing-down allowances. (3) For the purposes of subsection (2), “notified State aid” means a State aid notified to and approved by the European Commission. (4) If a relevant grant or relevant payment towards the expenditure is made after the making of an initial allowance or a writing-down allowance, the allowance is to be withdrawn to that extent. (5) If the amount of the relevant grant or relevant payment is repaid by the grantee to the grantor, in whole or in part, the grant or payment is treated, to that extent, as never having been made. (6) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (4) or (5). (7) Any such assessment or adjustment is not out of time if it is made within 3 years of the end of the chargeable period in which the grant, payment or adjustment was made. (360M) (1) A balancing adjustment is made if— (a) qualifying expenditure has been incurred in respect of a qualifying building, and (b) a balancing event occurs. (2) A balancing adjustment is either a balancing allowance or a balancing charge and is made for the chargeable period in which the balancing event occurs. (3) A balancing allowance or balancing charge is made to or on the person who incurred the qualifying expenditure. (4) No balancing adjustment is made if the balancing event occurs more than 7 years after the time when the premises were first used, or suitable for letting, for either of the purposes mentioned in section 360D(1)(b). (5) If more than one balancing event within section 360N occurs, a balancing adjustment is made only on the first of them. (360N) (1) The following are balancing events for the purposes of this Part— (a) the relevant interest in the qualifying building is sold; (b) a long lease of the qualifying building is granted out of the relevant interest in consideration of the payment of a capital sum; (c) if the relevant interest is a lease, the lease ends otherwise than on the person entitled to it acquiring the interest reversionary on it; (d) the person who incurred the qualifying expenditure dies; (e) the qualifying building is demolished or destroyed; (f) the qualifying building ceases to be qualifying business premises (without being demolished or destroyed). (2) Section 360I(2) and (3) (meaning of “long lease”) applies for the purposes of subsection (1)(b). (360O) (1) References in this Part to the proceeds from a balancing event are to the amounts received or receivable in connection with the event, as shown in the Table—

1 Balancing Event	2 Proceeds from event
1 The sale of the relevant interest.	The net proceeds of the sale.
2 The grant of a long lease out of the relevant interest.	If the capital sum paid in consideration of the grant is less than the commercial premium, the commercial premium.In any other case, the capital sum paid in consideration of the grant.
3 The coming to an end of a lease, where a person entitled to the lease and a person entitled to any superior interest are connected persons.	The market value of the relevant interest in the qualifying building at the time of the event.
4 The death of the person who incurred the qualifying expenditure.	The residue of qualifying expenditure immediately before the death.
5 The demolition or destruction of the qualifying building.	The net amount received for the remains of the qualifying building, together with any insurance money received in respect of the demolition or destruction, and any other compensation of any description so received, so far as it consists of capital sums.
6 The qualifying building ceases to be qualifying business premises.	The market value of the relevant interest in the qualifying building at the time of the event.

(2) The amounts referred to in column 2 of the Table are those received or receivable by the person who incurred the qualifying expenditure. (3) In Item 2 of the Table “the commercial premium” means the premium that would have been given if the transaction had been at arm's length. (360P) (1) A balancing allowance is made if— (a) there are no proceeds from the balancing event, or (b) the proceeds from the balancing event are less than the residue of qualifying expenditure immediately before the event. (2) The amount of the balancing allowance is the amount of— (a) the residue (if there are no proceeds); (b) the difference (if the proceeds are less than the residue). (3) A balancing charge is made if the proceeds from the balancing event are more than the residue, if any, of qualifying expenditure immediately before the event. (4) The amount of the balancing charge is the amount of— (a) the difference, or (b) the proceeds (if the residue is nil). (5) The amount of a balancing charge made on a person must not exceed the total amount of— (a) any initial allowances made to the person in respect of the expenditure, and (b) any writing-down allowances made to the person in respect of the expenditure for chargeable periods ending on or before the date of the balancing event giving rise to the balancing adjustment. (360Q) For the purposes of this Part qualifying expenditure is written off to the extent and at the times specified in this Chapter. (360R) (1) If an initial allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the time when the qualifying business premises are first used, or suitable for letting for use, for either of the purposes mentioned in section 360D(1)(b). (2) If a writing-down allowance is made in respect of the qualifying expenditure, the amount of the allowance is written off at the end of the chargeable period for which the allowance is made. (3) If a balancing event occurs at the end of the chargeable period referred to in subsection (2), the amount written off under that subsection is to be taken into account in calculating the residue of qualifying expenditure immediately before the event to determine what balancing adjustment (if any) is to be made. (360S) (1) This section applies if— (a) a qualifying building is demolished, and (b) the person who incurred the qualifying expenditure incurs the cost of the demolition. (2) The net cost of the demolition is added to the residue of qualifying expenditure immediately before the demolition. (3) “The net cost of the demolition” means the amount, if any, by which the cost of the demolition exceeds any money received for the remains of the qualifying building. (4) If this section applies, neither the cost of the demolition nor the net cost of the demolition is treated for the purposes of any Part of this Act as expenditure on any other property replacing the qualifying building demolished. (360T) For the purposes of this Chapter— (a) “additional VAT liability” and “additional VAT rebate” have the meanings given by section 547, (b) the time when— (i) a person incurs an additional VAT liability, or (ii) an additional VAT rebate is made to a person, is given by section 548, and (c) the chargeable period in which, and the time when, an additional VAT liability or an additional VAT rebate accrues are given by section 549. (360U) (1) This section applies if— (a) a person was entitled to an initial allowance under this Part in respect of qualifying expenditure on a qualifying building, (b) that person incurs an additional VAT liability in respect of that expenditure, and (c) the additional VAT liability is incurred at a time when the qualifying building is, or is about to be, qualifying business premises. (2) If this section applies, the person entitled to the relevant interest is entitled to an initial allowance on the amount of the additional VAT liability. (3) The amount of the initial allowance is 100% of the amount of the additional VAT liability. (4) A person claiming an initial allowance under this section may require the allowance to be reduced to a specified amount. (5) The allowance is made for the chargeable period in which the additional VAT liability accrues. (360V) (1) This section applies if the person entitled to the relevant interest in relation to qualifying expenditure incurs an additional VAT liability in respect of that expenditure. (2) If this section applies— (a) the additional VAT liability is treated as qualifying expenditure, and (b) the amount of the residue of qualifying expenditure is accordingly increased at the time when the liability accrues by the amount of the liability. (360W) If an initial allowance is made in respect of an additional VAT liability incurred after the qualifying business premises are first used or suitable for letting for business use, the amount of the allowance is written off at the time when the liability accrues. (360X) (1) If an additional VAT rebate is made in respect of qualifying expenditure to the person entitled to the relevant interest in relation to that qualifying expenditure— (a) the making of the rebate is a balancing event for the purposes of this Part, but (b) the making of balancing adjustments as a result of the event is subject to subsections (2) and (3). (2) No balancing allowance is to be made as a result of the event. (3) A balancing charge is not to be made as a result of the event unless— (a) the amount of the additional VAT rebate is more than the amount of the residue of qualifying expenditure immediately before the time when the rebate accrues, or (b) there is no such residue. (4) The amount of the balancing charge is— (a) the amount of the difference, or (b) the amount of the rebate (if there is no residue). (360Y) If an additional VAT rebate is made in respect of qualifying expenditure, an amount equal to the rebate is written off at the time when the rebate accrues. (360Z) (1) An allowance or charge to which a person is entitled or liable under this Part is to be given effect in calculating the profits of that person's trade, by treating— (a) the allowance as an expense of the trade, and (b) the charge as a receipt of the trade. (2) In the case of a person who— (a) is entitled to an allowance or liable to a charge in respect of a qualifying building, and (b) occupies that building in the course of a profession or vocation, the references in subsection (1) to a trade are to be read as references to the profession or vocation. (3) Subsection (1) is subject to the following provisions of this Chapter. (360Z1) (1) This section applies if— (a) a person is entitled or liable to an allowance or charge under this Part for a chargeable period (“the relevant period”), but (b) his interest in the building in question is or was subject to a lease or a licence at any time in that period. (2) If the person's interest in the building is an asset of a property business carried on by him at any time in the relevant period, the allowance or charge is to be given effect in calculating the profits of that business for the relevant period by treating— (a) the allowance as an expense of that business, and (b) the charge as a receipt of that business. (3) If the person's interest in the building is not an asset of a property business carried on by him at any time in the relevant period, the allowance or charge is to be given effect by treating him as if he had been carrying on a property business in that period and as if— (a) the allowance were an expense of that business, and (b) the charge were a receipt of that business. (360Z2) (1) If the sum paid for the sale of the relevant interest in a qualifying building is attributable— (a) partly to assets representing expenditure for which an allowance can be made under this Part, and (b) partly to assets representing other expenditure, only so much of the sum as on a just and reasonable apportionment is attributable to the assets referred to in paragraph (a) is to be taken into account for the purposes of this Part. (2) Subsection (1) applies to other proceeds from a balancing event in respect of a qualifying building as it applies to a sum given for the sale of the relevant interest in the qualifying building. (3) Subsection (1) does not affect any other provision of this Act requiring an apportionment of the proceeds of a balancing event. (360Z3) (1) This section applies for the purposes of this Part if a lease is terminated. (2) If, with the consent of the lessor, the lessee of the qualifying building remains in possession of the qualifying building after the termination without a new lease being granted to him, the lease is treated as continuing so long as the lessee remains in possession. (3) If on the termination a new lease is granted to a lessee as a result of the exercise of an option available to him under the terms of the first lease, the second lease is treated as a continuation of the first. (4) If on the termination the lessor pays a sum to the lessee in respect of business premises comprised in the lease, the lease is treated as if it had come to an end by surrender in consideration of the payment. (5) If on the termination— (a) another lease is granted to a different lessee, and (b) in connection with the transaction that lessee pays a sum to the person who was the lessee under the first lease, the two leases are to be treated as if they were the same lease which had been assigned by the lessee under the first lease to the lessee under the second lease in consideration of the payment. (360Z4) (1) In this Part “lease” includes— (a) an agreement for a lease if the term to be covered by the lease has begun, and (b) any tenancy, but does not include a mortgage (and “lessee”, “lessor” and “leasehold interest” are to be read accordingly). (2) In the application of this Part to Scotland— (a) “leasehold interest” or “leasehold estate” means the interest of a tenant in property subject to a lease, and (b) any reference to an interest which is reversionary on a leasehold interest or on a lease is to be read as a reference to the interest of the landlord in the property subject to the leasehold interest or lease.

Part 2 — Consequential amendments

2

In section 1(2) of CAA 2001 (capital allowances provided for by Act), after paragraph (b) insert—

(ba) Part 3A (business premises renovation allowances)

.

3

In section 2(3) of CAA 2001 (provisions about giving effect to allowances and charges), after the entry in the list for sections 352 to 355 of that Act insert— “ sections 360Z and 360Z1 (business premises renovation allowances) ”.

4

In section 3 of CAA 2001 (claims for capital allowances) after subsection (2) insert—

(2A) Any claim for an allowance under Part 3A (business premises renovation allowances) must be separately identified as such in the return.

5

In section 537(1) of CAA 2001 (general conditions for making contribution allowances under Parts 2 to 4 and 5), and in the section heading and the cross-heading preceding that section, for “Parts 2 to 4 and 5” substitute “ Parts 2, 3, 4 and 5 ”.

6

In section 546 of CAA 2001 (interpretation of VAT provisions), before the “and” at the end of paragraph (b) insert—

(ba) Chapter 10 of Part 3A (business premises renovation allowances: additional VAT liabilities and rebates),

.

7

In section 567(1) of CAA 2001 (Parts of Act for purposes of which provisions about sales not at market value apply), after “3,” insert “ 3A, ”.

8

In section 570(1) of CAA 2001 (elections under section 569 of that Act: supplementary), after “Part” insert “ 3A, ”.

9

In section 570A(1) of CAA 2001 (avoidance affecting proceeds of balancing event), after “3,” insert “ , 3A ”.

10

In section 573(1) of CAA 2001 (transfers treated as sales), after “3,” insert “ 3A, ”.

11

• (1) Part 2 of Schedule 1 to CAA 2001 (list of defined expressions) is amended as follows.

• (2) Insert the following entries in the appropriate places—

balancing adjustment (in Part 3A)	section 360M
balancing event (in Part 3A)	section 360N
---	---
lease and related expressions (in Part 3A)	section 360Z4
---	---
proceeds from a balancing event (in Part 3A)	section 360O
---	---
qualifying building (in Part 3A)	section 360C
---	---
qualifying business premises (in Part 3A)	section 360D
---	---
qualifying expenditure (in Part 3A)	section 360B
---	---
relevant interest (in Part 3A)	Chapter 4 of Part 3A
---	---
residue of qualifying expenditure (in Part 3A)	section 360K
---	---

• (3) In the entry for “sale, transfers under Parts 3, 4, 4A and 10 treated as”, after “3” insert “ , 3A ”.

SCHEDULE 7

Part 1 — Amendments of Schedule 22 to FA 2000

Introduction

1

Schedule 22 to FA 2000 shall be amended as follows.

Period for which election is in force

2

• (1) Paragraph 13 is amended as follows.

• (2) After sub-paragraph (2) insert—

(2A) A tonnage tax election ceases to be in force— (a) in the case of a company election, if a withdrawal notice in respect of the company takes effect under paragraph 15A; (b) in the case of a group election, if a withdrawal notice in respect of the group takes effect under that paragraph.

.

Withdrawal notices

3

After paragraph 15 (and before Part 3) insert—

(15A) (1) A withdrawal notice (see paragraph 13(2A)) may be given— (a) in respect of a single company, or (b) in respect of a group, but only if the following conditions are met. (2) Condition 1 is that the notice is given during the period— (a) beginning with the day on which the Finance Act 2005 is passed, and (b) ending with 31st March 2006. (3) Condition 2 is that, for the whole of the period of three years ending with the day on which the Finance Act 2005 is passed, a tonnage tax election or a renewal election has been in force in respect of the company or group in respect of which the withdrawal notice is to be given. (4) A withdrawal notice must be given to the Inland Revenue— (a) in the case of a withdrawal notice in respect of a single company, by that company; (b) in the case of a withdrawal notice in respect of a group, jointly by all the qualifying companies in the group. (5) A withdrawal notice given in accordance with this paragraph takes effect at the end of the accounting period that precedes the first accounting period of the company to begin after 1st July 2005. (6) In the case of a withdrawal notice given in respect of a group, sub-paragraph (5) has effect in relation to each qualifying company in the group by reference to that company's accounting periods. (15B) (1) The Treasury may by order provide for further periods during which withdrawal notices under paragraph 15A may be given. (2) Any such order may provide for that paragraph to apply, with such consequential adaptations as appear to the Treasury to be appropriate, in relation to any such further period as it applies in relation to the period specified in sub-paragraph (2) of that paragraph. (3) The consequential adaptations that may be made include adaptations of the reference in sub-paragraph (3) of that paragraph to the period of three years ending with the day on which the Finance Act 2005 is passed.

.

Qualifying ships

4

• (1) Paragraph 19 is amended as follows.

• (2) In sub-paragraph (1) (meaning of “qualifying ship”)—

• (a) in paragraph (a), after “carriage” insert “ by sea ”;

• (b) in paragraph (b), after “carriage” insert “ by sea ”;

• (c) in paragraph (c), after “assistance” insert “ carried out at sea ”;

• (d) in paragraph (d), after “transport” insert “ by sea ”.

• (3) In sub-paragraph (3) (other provisions to which sub-paragraph (1) is subject)—

• (a) after “subject to” insert—

(a)

;

• (b) at the end insert—

(b) paragraph 20A (qualifying dredgers and tugs); (c) paragraphs 22A to 22F (flagging).

.

• (4) After sub-paragraph (4) insert—

(5) For the purposes of sub-paragraph (1) “sea” does not include— (a) a port or harbour; (b) an estuary, a tidal or other river or an inland waterway.

.

Vessels excluded from being qualifying ships

5

• (1) Paragraph 20 is amended as follows.

• (2) In sub-paragraph (1) (list of excluded vessels) for paragraph (f) (dredgers) substitute—

(f) dredgers other than qualifying dredgers.

.

• (3) After sub-paragraph (6) insert—

(7) In this Schedule “qualifying dredger” means a dredger which— (a) is self-propelled, and (b) is constructed or adapted for the carriage of cargo; (but see further paragraph 20A).

.

Qualifying dredgers and tugs

6

After paragraph 20 insert—

(20A) (1) This paragraph applies where a company operates a ship in an accounting period and the ship— (a) is a qualifying dredger or a tug, and (b) would, apart from this paragraph, be a qualifying ship. (2) The ship shall not be regarded as a qualifying ship operated by the company in that accounting period unless it is used for one or more of the activities mentioned in paragraph 19(1)(a) to (d) for more than 50% of its operational time. (3) In this paragraph “operational time”, in relation to a ship operated by a company in an accounting period, means the time during that accounting period during which the ship is— (a) operated by the company, and (b) used for any activity. (4) For the purposes of sub-paragraph (2) assisting a self-propelled vessel into or out of a port or harbour is not to be regarded as use for an activity mentioned in paragraph 19(1)(c). (5) For the purposes of sub-paragraph (3) any waiting time spent by a tug for the purposes of a particular activity is to be treated as time during which the tug is used for that activity.

.

Effect of change of use

7

• (1) Paragraph 22 is amended as follows.

• (2) In sub-paragraph (1) (qualifying ship beginning to be used as vessel of excluded kind ceases to be such ship when it begins to be so used) for “as a vessel of an excluded kind” substitute “ for non-qualifying purposes ”.

• (3) In sub-paragraph (2)(b) (use as vessel of excluded kind for up to 30 days in accounting period to be disregarded) for “as a vessel of an excluded kind” substitute “ for non-qualifying purposes ”.

• (4) In sub-paragraph (5) (meaning of references to use as vessel of excluded kind) for “as a vessel of an excluded kind are to” substitute

for non-qualifying purposes are to— (a) use for an activity other than any of the activities mentioned in paragraph 19(1)(a) to (d), or (b)

.

• (5) After that sub-paragraph insert—

(6) This paragraph does not apply for the purposes of sub-paragraphs (2) to (5) of paragraph 20A (qualifying dredgers and tugs).

.

Flagging: rule for ships other than dredgers and tugs

8

After paragraph 22 insert—

(22A) (1) This paragraph applies if the following conditions are satisfied in the case of a ship which— (a) is neither a qualifying dredger nor a tug, and (b) would, apart from this paragraph, be a qualifying ship. (2) Condition 1 is that, at a time after the later of the reference date (see paragraph 22B(1)) and 30th June 2005,— (a) in the case of a tonnage tax company which is a single company, the company begins, in a financial year which is not excepted (see paragraph 22B(2)), to operate the ship for the first time, or (b) in the case of a tonnage tax company which is a member of a tonnage tax group, the company begins, in a financial year which is not excepted, to operate the ship for the first time, the ship not having previously been operated by any other member of the group. (3) Condition 2 is that less than 60% of the company's total tonnage is Community-flagged (see paragraph 22B(3)) on average over the period— (a) beginning with the first day of the financial year mentioned in condition 1, and (b) ending with the day on which the company so begins to operate the ship. (4) Condition 3 is that— (a) the percentage of the company's total tonnage which is Community-flagged on average over the period mentioned in condition 2, is less than (b) the percentage of the company's total tonnage which was Community-flagged on the reference date. (5) Condition 4 is that, on the date on which the company so begins to operate the ship, the ship is not registered in one of the Member States' registers (see paragraph 22B(7)). (6) Where this paragraph applies in relation to the ship, the ship shall not, at any time on or after that date, be regarded as— (a) a qualifying ship operated by the company, or (b) if immediately before that date the company is a member of a tonnage tax group, a qualifying ship operated by any company that is or becomes a member of the group. (7) But sub-paragraph (6) does not apply if— (a) the ship has become registered in one of the Member States' registers by the end of the period of three months beginning with that date, or (b) the conditions in sub-paragraph (8) are satisfied. (8) Those conditions are that— (a) a substitute ship which was not registered in one of the Member States' registers has, during the period mentioned in sub-paragraph (7)(a), become so registered, and (b) no later than the end of that period— (i) if the company is a single company, the company makes an election under this sub-paragraph in relation to the substitute ship, or (ii) if the company is a member of a tonnage tax group, all the qualifying companies in the group jointly make such an election. (9) In sub-paragraph (8) a “substitute ship” means a qualifying ship— (a) the tonnage of which is no less than that of the ship mentioned in sub-paragraph (1), and (b) which was first operated by the company or, if the company is a member of a tonnage tax group, by any other member of the group more than three months before that date; and for this purpose the tonnage of a ship is to be determined on the same basis as it is under paragraph 22B(3). (10) An election under sub-paragraph (8) is made by notice to the Inland Revenue. (22B) (1) In paragraph 22A “the reference date” means 17th January 2004 or, if later,— (a) in the case of a single company, the date of the end of the accounting period in which the company became (or becomes) a tonnage tax company; (b) in the case of a member of a group, the date of the end of the accounting period in which the group became (or becomes) a tonnage tax group; but where the members of a group had (or have) different accounting periods at the time the group became (or becomes) a tonnage tax group, paragraph (b) has effect by reference to the first of those accounting periods. (2) For the purposes of sub-paragraph (2) of paragraph 22A a financial year is excepted if it is designated by an order made by the Treasury as a financial year in relation to which that paragraph is not to have effect (see further paragraph 22C(1) to (3)). (3) For the purposes of paragraph 22A the percentage of a company's total tonnage which is Community-flagged is— $$CFTTT×100$where—CFT is the aggregate tonnage of such of the relevant ships as are registered in one of the Member States' registers, andTT is the aggregate tonnage of all the relevant ships.$ (4) For the purposes of sub-paragraph (3) the ships which are the relevant ships are— (a) if the company is a single company, the ships operated by the company, or (b) if the company is a member of a tonnage tax group, the ships operated by each member of the group which is a qualifying company. (5) Sub-paragraphs (3) and (4) are subject to any regulations made under paragraph 22C(4). (6) A ship shall not be counted more than once in determining for the purposes of sub-paragraph (3) the aggregate tonnage of relevant ships. (7) In this Schedule “Member States' registers” has the meaning given by the Annex to Commission communication C(2004) 43 — Community guidelines on State aid to maritime transport (as from time to time amended or replaced). (22C) (1) An order under paragraph 22B(2) designating a financial year shall be made if— (a) the Treasury are satisfied, on the basis of the information available to them, that the percentage of the tonnage tax fleet which is Community-flagged has not decreased on average over a prescribed three year period, and (b) the order is made before the beginning of that financial year. (2) The Treasury may make provision by regulations for or in connection with— (a) specifying the meaning, for the purposes of sub-paragraph (1)(a), of the percentage of the tonnage tax fleet which is Community-flagged; (b) specifying the way in which an average is to be calculated for those purposes; (c) requiring any tonnage tax company or tonnage tax group to provide prescribed information for the purposes of enabling the Treasury to determine whether the condition in sub-paragraph (1)(a) is met; (d) imposing penalties in respect of a failure to comply with a provision of the regulations made by virtue of paragraph (c) (including, in prescribed cases or circumstances, the exclusion of a company or group from tonnage tax). (3) Section 828(3) of the Taxes Act 1988 shall not apply in relation to an order under paragraph 22B(2). (4) The Treasury may make provision by regulations as to the way in which the percentage of a company's total tonnage which is Community-flagged is to be calculated for the purposes of paragraph 22A. (5) The provision that may be made by regulations under sub-paragraph (4) includes provision for or in connection with— (a) determining the percentage of a company's total tonnage which is Community-flagged on average over a period; (b) specifying the basis on which the tonnage of a ship is to be determined; (c) treating ships which would, but for the regulations, be relevant ships for the purposes of paragraph 22B(3) as not being relevant ships for those purposes; (d) including in the calculation set out in paragraph 22B(3) only such proportion of the tonnage of a relevant ship as may be prescribed. (6) Regulations under this paragraph— (a) may make different provision for different cases or circumstances, and (b) may contain such supplementary, incidental, consequential and transitional provisions as appear to the Treasury to be necessary or expedient. (7) In this paragraph “prescribed” means— (a) specified in, or (b) determined in accordance with, regulations under this paragraph.

.

Flagging: rules for dredgers and tugs

9

After paragraph 22C insert—

(22D) (1) This paragraph applies if— (a) a company begins to operate a ship which— (i) is a qualifying dredger or a tug, (ii) would, apart from this paragraph, be a qualifying ship, and (iii) has not previously been operated by the company or, if the company is a member of a group, by any member of the group, and (b) on the date on which the company so begins to operate the ship, the ship is not registered in one of the Member States' registers. (2) The ship shall not, at any time on or after that date, be regarded as— (a) a qualifying ship operated by the company, or (b) if immediately before that date the company is a member of a group, a qualifying ship operated by any company that is or becomes a member of the group. (3) But sub-paragraph (2) does not apply if the ship has become registered in one of the Member States' registers by the end of the period of three months beginning with that date. (22E) (1) This paragraph applies if— (a) a qualifying ship operated by a company ceases to be registered in any of the Member States' registers, and (b) the ship is a qualifying dredger or a tug. (2) The ship shall not, at any time on or after the date on which it ceases to be so registered, be regarded as— (a) a qualifying ship operated by the company, or (b) if immediately before that date the company is a member of a group, a qualifying ship operated by any company that is or becomes a member of the group.

.

Flagging: restrictions where dredger or tug ceases to be qualifying ship under paragraph 22E

10

After paragraph 22E insert—

(22F) (1) This paragraph applies where a qualifying ship operated by a tonnage tax company ceases to be a qualifying ship by virtue of paragraph 22E. (2) No notice may be given under section 130 of the Capital Allowances Act 2001 for the postponement of all or part of a relevant allowance to which— (a) the company, or (b) if immediately before the date on which the ship so ceases to be a qualifying ship (“the cessation date”) the company is a member of a tonnage tax group, any company that is or becomes a member of the group, becomes entitled on or after the cessation date. (3) In sub-paragraph (2) “relevant allowance” means an allowance in respect of— (a) qualifying expenditure on the provision of the ship, or (b) qualifying expenditure which— (i) is incurred on the provision of the ship, and (ii) is allocated to a single ship pool. (4) No claim may be made under section 135 of that Act for deferment of all or part of a balancing charge— (a) to which the company or, if immediately before the cessation date the company is a member of a tonnage tax group, any company that is or becomes a member of the group becomes liable, and (b) which arises when there is a disposal event in respect of the ship on or after the cessation date. (5) Relief in respect of a relevant loss shall not be given under section 393A(1) of the Taxes Act 1988 (losses: set off against profits of the same, or an earlier, accounting period). (6) Group relief under Chapter 4 of Part 10 of that Act shall not be available in respect of a relevant loss. (7) Accordingly, relief in respect of a relevant loss shall be given only under section 393(1) of that Act (losses other than terminal losses). (8) In sub-paragraphs (5) to (7) “relevant loss” means a loss which is incurred in respect of the ship on or after the cessation date in the course of a trade carried on by— (a) the company, or (b) if immediately before the cessation date the company is a member of a tonnage tax group, any company that is or becomes a member of the group.

.

Requirement to prove compliance with safety etc standards

11

After paragraph 43 insert—

(43A) (1) The Secretary of State may make provision by regulations for or in connection with requiring qualifying companies or qualifying groups to provide evidence of compliance with prescribed standards relating to— (a) health and safety in connection with qualifying ships which are not registered in any of the Member States' registers; (b) environmental performance of such ships; (c) working conditions on such ships. (2) The provision that may be made by regulations under this paragraph includes provision for or in connection with— (a) requiring returns to be made at prescribed intervals; (b) authorising the Secretary of State to require persons to provide prescribed information in prescribed cases or circumstances; (c) enabling audits to be carried out on behalf of the Secretary of State; (d) authorising the Secretary of State to issue certificates of non-compliance in prescribed cases or circumstances; (e) the effect of such a certificate (including preventing the making of a renewal election when such a certificate is in force); (f) enabling persons to apply to the Secretary of State for the cancellation of such a certificate; (g) requiring or enabling the Secretary of State to revoke a tonnage tax election after a prescribed period of non-compliance; (h) the making of appeals; (i) authorising the disclosure of information between the Secretary of State and the Inland Revenue. (3) Regulations under this paragraph may create criminal offences in respect of failures to comply with requirements imposed by the regulations. (4) Regulations under this paragraph shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of the House of Commons. (5) Regulations under this paragraph— (a) may make different provision for different cases, and (b) may contain such supplementary, incidental and transitional provisions as appear to the Secretary of State to be necessary or expedient. (6) In this paragraph “prescribed” means prescribed by regulations under this paragraph.

.

The ring fence: capital allowances: general: introduction

12

• (1) Paragraph 68 is amended as follows.

• (2) In sub-paragraph (2) (description of general scheme of Part 9 of Schedule 22) for paragraph (c) substitute—

(c) on leaving tonnage tax— (i) a company is treated as having incurred qualifying expenditure on its tonnage tax plant and machinery assets of an amount equal to the lower of cost and market value, where it leaves tonnage tax on expiry of an election or on the taking effect of a withdrawal notice, but (ii) otherwise, a company is put broadly in the position it would have been in if it had never been subject to tonnage tax.

.

The ring fence: capital allowances: exit: plant and machinery

13

• (1) Paragraph 85 is amended as follows.

• (2) After sub-paragraph (1) insert—

(1A) Sub-paragraph (1C) applies where the company leaves tonnage tax— (a) on the expiry of a tonnage tax election, or (b) on a tonnage tax election ceasing to be in force under paragraph 13(2A) (taking effect of withdrawal notice under paragraph 15A). (1B) In any other case, sub-paragraph (2) applies. (1C) Where this sub-paragraph applies, the amount of qualifying expenditure in respect of each asset used by the company for the purposes of its tonnage tax activities and held by the company when it leaves tonnage tax shall be taken to be— (a) the market value of the asset at the time the company leaves tonnage tax, or (b) if less, the amount of expenditure incurred on the provision of the asset that would have been qualifying expenditure if the company had not been subject to tonnage tax.

.

• (3) In sub-paragraph (2) (amount of qualifying expenditure to be determined by reference to tax written down value of assets) at the beginning insert “ Where this sub-paragraph applies, ”.

The ring fence: capital allowances: ship leasing: sale and lease-back arrangements

14

• (1) Paragraph 92 is amended as follows.

• (2) In sub-paragraph (2) (meaning of “sale and lease-back arrangements”) for “subject to sub-paragraph (3)” substitute “ subject to sub-paragraphs (3) and (3A) ”.

• (3) After sub-paragraph (3) insert—

(3A) This paragraph does not apply if— (a) expenditure is incurred on enhancing the ship or on converting it to another use, (b) the amount of that expenditure— (i) is greater than 33% of the market value of the ship immediately after completion of the enhancement or conversion, and (ii) is equal to or greater than the market value of the interest in the ship which is the subject of the transaction mentioned in Step Two in sub-paragraph (2), and (c) that transaction is effected not more than four months after the first occasion following completion of the enhancement or conversion on which the ship is brought into use by any person for any purpose.

.

Meaning of “offshore activities”

15

• (1) Paragraph 104 is amended as follows.

• (2) After sub-paragraph (1) (meaning of “offshore activities”) insert—

(1A) But none of the following activities is to be regarded as an offshore activity— (a) offshore supply services; (b) towage, salvage or other marine assistance; (c) anchor handling; (d) carriage of liquids or gases; (e) safety or rescue services; (f) the carriage of cargo in connection with dredging. (1B) The Treasury may make provision by order amending sub-paragraph (1A) by— (a) adding, or (b) varying, any description of activity.

.

Vessels to which the special rules for offshore activities do not apply

16

Omit paragraph 105.

Index of defined expressions

17

• (1) Paragraph 147 is amended as follows.

• (2) Insert each of the following at the appropriate place—

qualifying dredger	paragraph 20(7)

;