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Corporation Tax Act 2009

Type Public General Act

Publication 2009-03-26

Last updated 2025-04-01

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

Part 1 — Introduction

Overview of Act

1

(1) Part 2 of this Act contains basic provisions about the charge to corporation tax including—

(a) the imposition of the charge to corporation tax on the income and chargeable gains of companies (referred to collectively as “profits”), (see section 2),

(b) the exclusion of income and chargeable gains subject to corporation tax from income tax and capital gains tax (see sections 3 and 4),

(d) provision about how corporation tax is charged and assessed, in particular its charging and assessment by reference to accounting periods (see section 8),

(e) provision about accounting periods (see Chapter 2), and

(f) rules for determining the residence of companies (see Chapter 3).

(2) Under section 2(4) the charge to corporation tax on income has effect in accordance with the provisions of the Corporation Tax Acts that deal with its application, the main provisions of this Act that do so being—

(a) Part 3 (trading income),

(b) Part 4 (property income),

(d) Part 7 (profits arising from derivative contracts),

(e) Part 8 (gains in respect of intangible fixed assets),

(f) Part 9 (profits arising from disposals of know-how and sales of patent rights),

(fa) Part 9A (company distributions), and

(g) Part 10 (miscellaneous income).

(3) Part 7 also applies the charge to corporation tax on chargeable gains to certain profits arising from derivative contracts.

(4) Parts 5 to 8 also deal with how deficits or losses arising from, or in respect of, the matters to which they relate are brought into account for corporation tax purposes.

(5) The following Parts provide relief for particular types of expenditure—

(a) Part 11 (relief for particular employee share acquisition schemes),

(b) Part 12 (other relief for employee share acquisitions),

(d) Part 14 (remediation of contaminated land), and

(e) Part 15 (film production).

(6) The following Parts contain special rules for particular cases—

(a) Part 15 (film production),

(b) Part 16 (companies with investment business),

(d) Part 18 (unremittable income).

(7) The following Parts contain provisions of general application—

(a) Part 19 (general exemptions),

(b) Part 20 (general calculation rules), and

(8) For abbreviations and defined expressions used in this Act, see section 1312 and Schedule 4.

Part 2 — Charge to corporation tax: basic provisions

Chapter 1 — The charge to corporation tax

Charge to tax on profits

Charge to corporation tax

2

(1) Corporation tax is charged on profits of companies for any financial year for which an Act so provides.

(2) In this Part “profits” means income and chargeable gains, except in so far as the context otherwise requires.

(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) In this Act “the charge to corporation tax on income” means the charge under subsection (1) so far as relating to income.

(4) The charge to corporation tax on income has effect in accordance with the provisions of the Corporation Tax Acts that deal with its application.

Excepted shares

3

(1) The provisions of the Income Tax Acts relating to the charge to income tax do not apply to income of a company if—

(a) the company is UK resident, or

(b) the company is not UK resident and it is chargeable to corporation tax in respect of the income, or would be so chargeable but for an exemption.

(2) Subsection (1) does not apply to income accruing to a company in a fiduciary or representative capacity.

Exchange gains and losses: amounts treated as money debts

4

Capital gains tax is not charged on gains accruing to a company in respect of which the company is chargeable to corporation tax, or would be so chargeable but for an exemption.

General scheme of corporation tax

Assets acquired or realised together

5

(1) A UK resident company is chargeable to corporation tax on income on all its profits wherever arising (but see Chapter 3A for an exemption from charge in respect of profits of foreign permanent establishments).

(2) A non-UK resident company is within the charge to corporation tax on income only if—

(a) it carries on a trade of dealing in or developing UK land (see section 5B), ...

(b) it carries on a trade in the United Kingdom (other than a trade of dealing in or developing UK land) through a permanent establishment in the United Kingdom,

(d) it has other UK property income.

(2A) A non-UK resident company which carries on a trade of dealing in or developing UK land is chargeable to corporation tax on income on all its profits wherever arising that are profits of that trade.

(3) A non-UK resident company which carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom is chargeable to corporation tax on income on all its profits wherever arising that are chargeable profits as defined in section 19 (profits attributable to its permanent establishment in the United Kingdom).

(3A) A non-UK resident company which carries on a UK property business is chargeable to corporation tax on income on all its profits that are—

(a) profits of that business, or

(b) profits arising from loan relationships or derivative contracts that the company is a party to for the purposes of that business.

(3B) A non-UK resident company which has other UK property income is chargeable to corporation tax on income on all its profits that—

(a) consist of that income, or

(b) are profits arising from loan relationships or derivative contracts that the company is a party to for the purposes of enabling it to generate that income.

(4) Subsections (1) and (2A) to (3B) are subject to any exceptions provided for by the Corporation Tax Acts.

(5) The territorial scope of the charge to corporation tax on chargeable gains is given by section 2B of TCGA 1992.

(6) In this Part “other UK property income” means income dealt with by any of the following Chapters of Part 4—

(a) Chapter 7 (rent receivable in connection with a UK section 39(4) concern);

(b) Chapter 8 (rent receivable for UK electric-line wayleaves);

Certification as a British film

6

(1) A company is not chargeable to corporation tax on profits which accrue to it in a fiduciary or representative capacity except as respects its own beneficial interest (if any) in the profits.

(2) The exception under subsection (1) from chargeability does not apply to profits arising in the winding up of the company.

Orchestra tax credit claimable if company has surrenderable loss

7

Profits that accrue for the benefit of a company under a trust are treated for the purposes of the charge to corporation tax under section 2(1) as accruing directly to the company.

Certification as a British film

8

(1) Corporation tax for a financial year is charged on profits arising in the year.

(2) Corporation tax is calculated and chargeable, and assessments to corporation tax are made, by reference to accounting periods.

(3) Corporation tax which is assessed and charged for an accounting period of a company is assessed and charged on the full amount of profits arising in the accounting period.

(4) Subsection (3) is subject to any contrary provision in the Corporation Tax Acts.

(5) If a company's accounting period falls within more than one financial year, the amount of the profits arising in the accounting period that is chargeable to corporation tax must be apportioned between the financial years in which the accounting period falls.

Chapter 2 — Accounting periods

Meaning of “unallowable purpose”

9

(1) An accounting period of a company begins—

(a) when the company comes within the charge to corporation tax, or

(b) immediately after the end of the previous accounting period of the company, if the company is still within the charge to corporation tax.

(2) For the purposes of this section a UK resident company is treated as coming within the charge to corporation tax when it starts to carry on business, if it would not otherwise be within the charge to corporation tax.

(3) If a chargeable gain or allowable loss accrues to a company at a time which is not (ignoring this subsection) within an accounting period of the company—

(a) an accounting period of the company begins at that time, and

(b) the gain or loss accrues in that accounting period.

(4) This section does not apply if section 12 (companies being wound up) applies.

(5) This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to begin at a different time.

End of accounting period

10

(1) An accounting period of a company comes to an end on the first occurrence of any of the following—

(a) the ending of 12 months from the beginning of the accounting period,

(b) an accounting date of the company,

(d) the company starting or ceasing to trade,

(e) if the company carries on only one trade, coming, or ceasing to be, within the charge to corporation tax in respect of that trade,

(f) if the company carries on more than one trade, coming, or ceasing to be, within the charge to corporation tax in respect of all the trades it carries on,

(g) the company becoming, or ceasing to be, UK resident,

(h) the company ceasing to be within the charge to corporation tax,

(i) the company entering administration, and

(j) the company ceasing to be in administration.

(2) If subsection (1)(i) applies, the accounting period is treated as having ended immediately before the day on which the company enters administration.

(3) For the purposes of this section a company enters administration—

(a) when it enters administration under Schedule B1 to the Insolvency Act 1986 (c. 45), or

(b) when it is subject to a corresponding procedure, other than one under that Act.

(4) For the purposes of this section a company ceases to be in administration—

(a) when it ceases to be in administration under Schedule B1 to the Insolvency Act 1986, or

(b) when a corresponding event occurs, other than under that Act.

(5) This section does not apply if section 12 (companies being wound up) applies.

(6) This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to end at a different time.

Companies with more than one accounting date

11

(1) This section applies if a company carrying on more than one trade—

(a) does not have the same accounting date for each of the trades, and

(b) does not make up general accounts for the whole of the company's activities.

(2) The company may choose which of the accounting dates for the trades is to be used for the purpose of section 10(1)(b).

(3) But if an officer of Revenue and Customs thinks, on reasonable grounds, that the date chosen by the company is inappropriate, the officer may give notice to the company directing one of the other accounting dates to be used for that purpose instead.

Companies being wound up

12

(1) This section applies if a company is being wound up.

(2) An accounting period of the company ends immediately before the winding up starts.

(3) An accounting period of the company begins when the winding up starts.

(4) After the winding up starts, an accounting period of the company ends—

(a) at the end of the period of 12 months beginning on the first day of the accounting period, or

(b) if earlier, when the winding up is completed.

(5) After the winding up starts, an accounting period of the company begins immediately after the end of the previous accounting period of the company, if the winding up has not been completed.

(6) This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to begin or end at a different time.

(7) For the purposes of this section a winding up of a company starts—

(a) when the company passes a resolution for the winding up of the company,

(b) when a petition for the winding up of the company is presented, if the company has not already passed such a resolution and a winding up order is made on the petition, or

(c) when an act is done in relation to the company for a similar purpose, if the winding up is not under the Insolvency Act 1986 (c. 45).

Chapter 3 — Company residence

Certain transferees of businesses etc not treated as leaving group

13

(1) This Chapter contains rules for determining the residence of companies.

(2) Section 14 gives the main rule for companies incorporated in the United Kingdom (including SEs and SCEs incorporated in the United Kingdom).

(3) Section 15 deals with companies which have been UK resident under the rules of common law and provides for their continued residence when certain circumstances arise.

(4) Sections 16 and 17 deal with SEs and SCEs which transfer their registered office to the United Kingdom.

(5) Section 18 contains a special rule for companies treated as non-UK resident under double taxation arrangements.

Overview of Part

14

(1) A company which is incorporated in the United Kingdom is UK resident for the purposes of the Corporation Tax Acts.

(2) Accordingly, even if a different place of residence is given by a rule of law, the company is not resident in that place for the purposes of the Corporation Tax Acts.

Transitional provisions and savings

15

(1) This section applies to a company which is neither—

(a) incorporated in the United Kingdom, nor

(b) resident in the United Kingdom by virtue of section 16 or 17.

(2) If the company—

(a) is no longer carrying on a business, and

(b) was UK resident for the purposes of the Corporation Tax Acts immediately before it ceased to carry on business,

the company continues to be UK resident for the purposes of the Corporation Tax Acts.

(3) If the company—

(a) is being wound up outside the United Kingdom, and

(b) was UK resident for the purposes of the Corporation Tax Acts immediately before any of its activities came under the control of a foreign liquidator,

the company continues to be UK resident for the purposes of the Corporation Tax Acts.

(4) In subsection (3) “foreign liquidator” means a person exercising functions which, in the United Kingdom, would be exercisable by a liquidator.

SEs which transfer registered office to the United Kingdom

16

(1) This section applies to an SE which transfers its registered office to the United Kingdom in accordance with Article 8 of Council Regulation (EC) No 2157/2001 on the Statute for a European company (Societas Europaea).

(2) The SE is UK resident for the purposes of the Corporation Tax Acts from the time of its registration in the United Kingdom.

(3) Accordingly, even if a different place of residence is given by a rule of law, the SE is not resident in that place for the purposes of the Corporation Tax Acts.

(4) The SE does not cease to be UK resident merely because it later transfers its registered office from the United Kingdom.

SCEs which transfer registered office to the United Kingdom

17

(1) This section applies to an SCE which transfers its registered office to the United Kingdom in accordance with Article 7 of Council Regulation (EC) No 1435/2003 on the Statute for a European Cooperative Society (SCE).

(2) The SCE is UK resident for the purposes of the Corporation Tax Acts from the time of its registration in the United Kingdom.

(3) Accordingly, even if a different place of residence is given by a rule of law, the SCE is not resident in that place for the purposes of the Corporation Tax Acts.

(4) The SCE does not cease to be UK resident merely because it later transfers its registered office from the United Kingdom.

Companies treated as non-UK resident under double taxation arrangements

18

(1) This section applies to a company which is treated as—

(a) resident in a territory outside the United Kingdom, and

(b) non-UK resident,

for the purposes of any double taxation arrangements.

(2) For the purposes of the Corporation Tax Acts the company is—

(a) resident outside the United Kingdom, and

(b) non-UK resident.

(3) Subsection (2) applies even if the company would otherwise be UK resident for the purposes of the Corporation Tax Acts by virtue of section 14, 15, 16 or 17 or another rule of law.

(4) To decide whether a company is treated as mentioned in subsection (1)(a) and (b) for the purposes of any double taxation arrangements, assume that—

(a) the company has made a claim for relief under the arrangements, and

(b) in consequence of the claim it falls to be decided whether the company is to be treated as mentioned in subsection (1)(a) and (b) for the purposes of the arrangements.

Chapter 4 — Non-UK resident companies: chargeable profits

Chargeable profits

19

(1) This section applies for the purposes of the charge to corporation tax on income if a non-UK resident company carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom.

(2) The company's “chargeable profits” are its profits that are—

(a) of a type mentioned in subsection (3), and

(b) attributable to the permanent establishment in accordance with sections 20 to 32.

(2A) But the company's “chargeable profits” do not include—

(a) profits of a trade of dealing in or developing UK land (see section 5B),

(b) profits of a UK property business,

(d) profits arising from loan relationships or derivative contracts that the company is a party to for the purposes of its UK property business or for the purposes of enabling it to generate other UK property income.

(3) The types of profits referred to in subsection (2)(a) are—

(a) trading income arising directly or indirectly through or from the establishment, and

(b) income from property or rights used by, or held by or for, the establishment.

(4) For the purposes of the charge to corporation tax on chargeable gains accruing to the company, see section 2B(3) of TCGA 1992.

(5) That subsection provides (among other things) that the gains are chargeable to corporation tax only so far as they are attributable to the permanent establishment in accordance with sections 20 to 32 of this Act.

Profits attributable to permanent establishment: introduction

20

(1) Sections 21 to 32 apply for the purpose of determining the amount of profits of a non-UK resident company that are attributable to a permanent establishment of the company in the United Kingdom.

(2) Sections 21 to 28 contain provision about the separate enterprise principle.

(3) See also section 1152 of CTA 2010 (investment managers: disregard of certain chargeable profits) , which provides for profits of certain investment transactions to be disregarded in determining the amount of profits attributable to a permanent establishment.

The separate enterprise principle

21

(1) The profits of the non-UK resident company that are attributable to the permanent establishment are those that the establishment would have made if it were a distinct and separate enterprise which—

(a) engaged in the same or similar activities under the same or similar conditions, and

(b) dealt wholly independently with the non-UK resident company.

(2) In applying subsection (1) assume that—

(a) the permanent establishment has the same credit rating as the non-UK resident company, and

(b) the permanent establishment has such equity and loan capital as it could reasonably be expected to have in the circumstances specified in that subsection.

(3) In sections 22 to 28 the principle in subsection (1) (read with subsection (2)) is called “the separate enterprise principle”.

Transactions treated as being on arm’s length terms

22

In accordance with the separate enterprise principle, transactions between the permanent establishment and any other part of the non-UK resident company are treated as taking place on such terms as would have been agreed between parties dealing at arm's length.

Provision of goods or services for permanent establishment

23

(1) This section applies if the non-UK resident company provides the permanent establishment with goods or services.

(2) If the goods or services are of a kind that the company supplies, in the ordinary course of its business, to third parties dealing with it at arm's length, the matter is dealt with as a transaction to which the separate enterprise principle applies.

(3) If not, the matter is dealt with as an expense incurred by the non-UK resident company for the purposes of the permanent establishment (see section 29).

Application to insurance companies

24

(1) This section makes provision in a case where the non-UK resident company mentioned in subsection (1) of section 21 is an insurance company.

(2) In accordance with the principle in that subsection, the permanent establishment is treated as holding—

(a) the same or a similar quantity of assets, and

(b) assets of the same or similar description,

as would have been held by a distinct and separate enterprise acting as mentioned in paragraphs (a) and (b) of that subsection.

(3) The assets which the permanent establishment is treated as holding in accordance with the principle in that subsection may include a proportion of assets held by the company.

(4) Nothing in subsection (2) or (3) is to be read as preventing the application of similar principles to those provided for by that subsection in a case where the non-UK resident company mentioned in section 21(1) is not an insurance company.

(5) The Commissioners for Her Majesty's Revenue and Customs may by regulations make other provision about the application of section 21(1) in a case where the non-UK resident company mentioned there is an insurance company.

(6) The regulations may, in particular, make provision in place of section 21(2)(b) as to the basis on which, in the case of an insurance company, capital is to be attributed to a permanent establishment in the United Kingdom.

The separate enterprise principle: application to non-UK resident banks

Non-UK resident banks: introduction

25

(1) Sections 26 to 28 contain provision in relation to the application of the separate enterprise principle if the non-UK resident company is a bank.

(2) Nothing in sections 26 to 28 is to be read as preventing similar principles to those provided for in those sections from applying when the separate enterprise principle is applied to a non-UK resident company that is not a bank.

(3) In this section and those sections “bank” has the meaning given by section 1120 of CTA 2010 .

Transfer of financial assets

26

(1) This section applies if—

(a) the non-UK resident company is a bank, and

(b) there is a transfer of a loan or other financial asset between the permanent establishment and any other part of the company.

(2) In accordance with the separate enterprise principle, the transfer is recognised only if it would have taken place between independent enterprises.

(3) The transfer is not recognised if it cannot reasonably be considered that it is carried out for valid commercial reasons.

(4) For this purpose the obtaining of a tax advantage is not a valid commercial reason.

Loans: attribution of financial assets and profits arising

27

(1) This section applies if the non-UK resident company—

(a) is a bank, and

(b) makes a loan or has another financial asset.

(2) In accordance with the separate enterprise principle, the loan or other financial asset, and profits arising from it, are attributed to the permanent establishment so far as they can reasonably be regarded as having been generated by the activities of the permanent establishment.

(3) For the purposes of subsection (2), particular account is to be taken of the extent to which the permanent establishment is responsible for—

(a) obtaining the offer of new business,

(b) establishing the potential borrower's credit rating and the risk involved in providing credit,

(d) deciding whether, and if so on what conditions, to make or extend the loan.

(4) For those purposes, account may also be taken of the extent to which the permanent establishment is responsible for—

(a) concluding the loan agreement and disbursing the proceeds of the loan, and

(b) administering the loan (including handling and monitoring the service of it) and holding and controlling any securities pledged.

(5) References in this section to a financial asset include any financial risk in relation to a loan, or potential loan, if—

(a) the financial risk is capable of giving rise to fees or other receipts, and

(b) the holding of capital is required for the financial risk (or would be required if the transaction were between parties at arm's length).

Borrowing: permanent establishment acting as agent or intermediary

28

(1) This section applies if—

(a) the non-UK resident company is a bank, and

(b) the permanent establishment borrows funds for the purposes of another part of the company and (in relation to that borrowing) acts only as an agent or intermediary.

(2) In accordance with the separate enterprise principle—

(a) the profits attributable to the permanent establishment, and

(b) the capital attributable to the permanent establishment under section 21(2)(b),

are to be those appropriate in the case of an agent acting at arm's length, taking into account the risks and costs borne by the establishment.

Rules about deductions

Allowable deductions

29

(1) A deduction is allowed for any allowable expenses incurred for the purposes of the permanent establishment.

(2) Expenses incurred for the purposes of the permanent establishment include executive and general administrative expenses so incurred, whether in the United Kingdom or elsewhere.

(3) It does not matter whether the expenses are incurred by, or reimbursed by, the permanent establishment.

(4) The amount of expenses to be taken into account under subsection (1) is the actual cost to the non-UK resident company.

(5) “Allowable expenses” means expenses of a kind in respect of which a deduction would be allowed for corporation tax purposes if incurred by a UK resident company.

Restriction on deductions: costs

30

No deduction is allowed for costs in excess of those which would have been incurred on the assumptions in section 21(2).

Restriction on deductions: payments in respect of intangible assets

31

(1) No deduction is allowed for royalties paid, or other similar payments made, by the permanent establishment to any other part of the non-UK resident company in respect of the use of intangible assets held by the company.

(2) This does not prevent a deduction for any contribution by the permanent establishment to the costs of creation of an intangible asset.

(3) In this section “intangible asset” has the meaning it has for accounting purposes, and includes any intellectual property (as defined in section 712(3)).

Restriction on deductions: interest or other financing costs

32

(1) No deduction is allowed for payments of interest or other financing costs by the permanent establishment to any other part of the non-UK resident company.

(2) But the restriction in subsection (1) does not apply to interest or other financing costs that are payable in respect of borrowing by the permanent establishment in the ordinary course of a financial business carried on by it.

(3) In subsection (2) “financial business” means any of the following—

(a) banking, deposit-taking, money-lending or debt-factoring, or a business similar to any of those, and

(b) dealing in commodity or financial futures.

Chapter 5 — Supplementary

Trade includes office

33

In this Part, except in so far as the context otherwise requires—

(a) references to a trade include an office, and

(b) references to carrying on a trade include holding an office.

Part 3 — Trading income

Chapter 1 — Introduction

Overview of Part

34

(1) This Part applies the charge to corporation tax on income to—

(a) the profits of a trade (see Chapter 2), and

(b) post-cessation receipts arising from a trade (see Chapter 15).

(2) Chapters 3 to 14 contain rules relevant to tax under this Part.

(3) Chapter 16 contains rules that give priority to provisions outside this Part in relation to certain matters that fall within it.

(4) This Part needs to be read with Parts 19 (general exemptions) and 20 (general calculation rules).

Chapter 2 — Income taxed as trade profits

Charge to tax on trade profits

35

The charge to corporation tax on income applies to the profits of a trade.

Trades and trade profits

Farming and market gardening

36

(1) Farming or market gardening in the United Kingdom is treated for corporation tax purposes as the carrying on of a trade or part of a trade (whether or not the land is managed on a commercial basis and with a view to the realisation of profits).

(2) All farming in the United Kingdom carried on by a company, other than farming carried on as part of another trade, is treated for corporation tax purposes as one trade.

(3) This section does not apply to farming or market gardening by an insurance company on land which is an asset held by the company for the purposes of its long-term business.

(4) In the case of farming carried on by a company as a member of a firm, this rule is explained by section 1270(1).

Commercial occupation of woodlands

37

(1) The commercial occupation of woodlands in the United Kingdom is not a trade or part of a trade for any corporation tax purpose.

(2) For this purpose the occupation of woodlands is commercial if the woodlands are managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) See also sections 208 and 980 (which, when read with this section, secure that profits or losses from the commercial occupation of woodlands in the United Kingdom are ignored for corporation tax purposes).

Commercial occupation of land other than woodlands

38

(1) The commercial occupation of land in the United Kingdom is treated for corporation tax purposes as the carrying on of a trade or part of a trade.

(2) For this purpose the occupation of land is commercial if the land is managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) This section does not apply—

(a) to farming or market gardening (which is dealt with by section 36),

(b) if the land is being prepared for forestry purposes,

(d) to the occupation by an insurance company of land which is an asset held by the company for the purposes of its long-term business.

Profits of mines, quarries and other concerns

39

(1) Profits or losses arising out of land in the case of a concern to which this section applies are calculated as if the concern were a trade.

(2) Any profits arising out of the land are treated for the purposes of section 35 as profits of a trade.

(3) Any losses arising out of the land are treated for the purposes of Chapter 2 of Part 4 of CTA 2010 (trade loss relief), ... Part 5 of that Act (group relief) and Part 5A of that Act (group relief for carried forward losses), as losses of a trade carried on in the United Kingdom.

(4) The concerns to which this section applies are—

(a) mines and quarries (including gravel pits, sand pits and brickfields),

(b) ironworks, gasworks, salt springs or works, alum mines or works, waterworks and streams of water,

(d) rights of fishing,

(e) rights of markets and fairs, tolls, bridges and ferries,

(f) railways and other kinds of way, and

(g) a concern of the same kind as one specified in paragraph (b), (c), (d) or (e).

(5) But this section does not apply to a concern—

(a) if it is carried on by an insurance company on land which is an asset held by the company for the purposes of its long-term business, or

(b) if section 38 (commercial occupation of land other than woodlands) applies to the occupation of the land out of which the profits or losses arise.

Credit unions

40

(1) If a credit union—

(a) makes loans to its members, or

(b) invests its surplus funds (by placing them on deposit or otherwise),

that is not treated, in calculating the credit union's income, as the carrying on of a trade or part of a trade.

(2) In this section “surplus funds” means funds not immediately required for the credit union's purposes.

Starting and ceasing to trade

Effect of company starting or ceasing to be within charge to corporation tax

41

(1) This section applies if a company starts or ceases to be within the charge to corporation tax in respect of a trade.

(2) The company is treated for the purposes of this Part—

(a) as starting to carry on the trade when it starts to be within the charge, or

(b) as ceasing to carry on the trade when it ceases to be within the charge.

Trading income and property income

Tied premises

42

(1) This section applies if —

(a) in the course of carrying on a trade a company (“the trader”) supplies, or is concerned in the supply of, goods sold or used on premises occupied by another person,

(b) the trader has an estate or interest in the premises,

(d) receipts and expenses in connection with the premises would otherwise be brought into account in calculating the profits of a property business of the trader.

(2) Both the receipts and the expenses are instead brought into account in calculating the profits of the trade.

(3) Any apportionment of receipts or expenses that is necessary because—

(a) the receipts or expenses do not relate only to the premises, or

(b) the above conditions are met only in relation to part of the premises,

is to be made on a just and reasonable basis.

Caravan sites where trade carried on

43

(1) This section applies if—

(a) a company (“the trader”) carries on material activities connected with the operation of a caravan site,

(b) the activities are, or are part of, a trade, and

(c) receipts from, and expenses of, lettings of caravans or pitches for caravans on the site would otherwise be brought into account in calculating the profits of a property business of the trader.

(2) The trader may instead bring both the receipts and the expenses into account in calculating the profits of the trade.

(3) But if the conditions in subsection (1)(a) and (b) are met for only part of an accounting period of the trader, subsection (2) applies only to the receipts and expenses that would otherwise be brought into account in calculating the profits of the property business for that part of the accounting period.

(4) In this section—

“caravan site” means—land on which a caravan is stationed for the purposes of human habitation, andland which is used in conjunction with land on which a caravan is so stationed, and

“letting” includes a licence to occupy.

Surplus business accommodation

44

(1) This section applies if—

(a) a company (“the trader”) carrying on a trade obtains receipts from a letting of business accommodation that is temporarily surplus to requirements (see subsections (3) and (4)),

(b) the accommodation is not held as trading stock,

(d) the receipts are relatively small, and

(e) the receipts, and the expenses of the letting, would otherwise be brought into account in calculating the profits of a property business of the trader.

(2) The trader may instead bring both the receipts and the expenses into account in calculating the profits of the trade.

(3) Accommodation is temporarily surplus to requirements only if—

(a) it has been used within the last 3 years to carry on the trade or acquired within the last 3 years,

(b) the trader intends to use it to carry on the trade at a later date, and

(4) If accommodation is temporarily surplus to requirements at the beginning of an accounting period, it continues to be temporarily surplus to requirements until the end of that period.

(5) If under this section any of the receipts from and expenses of a letting are brought into account in calculating the profits of the trade, all subsequent receipts from and expenses of the letting must be dealt with in the same way (but only so long as this section continues to apply).

(6) In this section “letting” includes a licence to occupy.

Payments for wayleaves

45

(1) This section applies if—

(a) a company (“the trader”) carries on a trade on some or all of the land to which a wayleave relates,

(b) rent is receivable, or expenses are incurred, by the trader in respect of the wayleave, and

(c) apart from any rent or expenses in respect of a wayleave, no other receipts or expenses in respect of any of the land are brought into account in calculating the profits of any property business of the trader.

(2) If—

(a) the trader would otherwise be liable to tax under Chapter 8 of Part 4 in respect of the rent for the wayleave (rent receivable for UK electric-line wayleaves), or

(b) expenses incurred by the trader in respect of the wayleave would otherwise be brought into account in calculating profits charged under that Chapter,

the trader may instead bring both the rent and the expenses into account in calculating the profits of the trade.

(3) If—

(a) rent for the wayleave would otherwise be brought into account in calculating the profits of a property business of the trader, or

(b) expenses incurred by the trader in respect of the wayleave would otherwise be so brought into account,

the trader may instead bring both the rent and the expenses into account in calculating the profits of the trade.

(4) In this section “rent” includes—

(a) a receipt mentioned in section 207(3), and

(b) any other receipt in the nature of rent.

(5) In this section “wayleave” means an easement, servitude or right in or over land which is enjoyed in connection with—

(a) an electric, telegraph or telephone wire or cable,

(b) a pipe for the conveyance of any thing, or

(6) The reference to the enjoyment of an easement, servitude or right in connection with an electric, telegraph or telephone wire or cable includes (in particular) its enjoyment in connection with—

(a) a pole or pylon supporting such a wire or cable, or

(b) apparatus used in connection with such a wire or cable.

Chapter 3 — Trade profits: basic rules

Generally accepted accounting practice

46

(1) The profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for corporation tax purposes.

(2) This does not—

(a) require a company to comply with the requirements of the Companies Act 2006 (c. 46) or subordinate legislation made under that Act except as to the basis of calculation, or

(b) impose any requirements as to audit or disclosure.

(3) This section does not affect any provisions of the Corporation Tax Acts—

(a) relating to the calculation of the profits of—

(i) Lloyd's underwriters, ...

(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) otherwise laying down special rules for the calculation of the profits of a particular description of business.

Losses calculated on same basis as profits

47

(1) The same rules apply for corporation tax purposes in calculating losses of a trade as apply in calculating profits.

(2) This is subject to any express provision to the contrary.

Receipts and expenses

48

(1) In the Corporation Tax Acts, in the context of the calculation of the profits of a trade, references to receipts and expenses are to any items brought into account as credits or debits in calculating the profits.

(2) It follows that references in that context to receipts or expenses do not imply that an amount has actually been received or paid.

(3) This section is subject to any express provision to the contrary.

Items treated as receipts and expenses

49

The rules for calculating the profits of a trade need to be read with—

(a) the provisions of CAA 2001 which treat allowances as expenses of a trade,

(b) the provisions of CAA 2001 which treat charges as receipts of a trade,

(c) section 297 (credits and debits in respect of a loan relationship to which a company is a party for the purposes of a trade it carries on treated as receipts and expenses of the trade),

(d) section 573 (credits and debits in respect of a derivative contract to which a company is a party for the purposes of a trade it carries on treated as receipts and expenses of the trade),

(e) section 747 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a trade it carries on treated as receipts and expenses of the trade), and

(f) section 749 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a section 39(4) concern which it carries on treated as receipts and expenses of the concern).

Animals kept for trade purposes

50

(1) Animals or other living creatures kept for the purposes of a trade are treated as trading stock if they are not kept wholly or mainly—

(a) for the work they do in connection with the carrying on of the trade,

(b) for public exhibition, or

(2) But they are not treated as trading stock if they are part of a herd in relation to which a herd basis election has effect (see Chapter 8).

(3) This section applies to shares in animals or other living creatures as it applies to the creatures themselves.

Relationship between rules prohibiting and allowing deductions

51

(1) Any relevant permissive rule in this Part—

(a) has priority over any relevant prohibitive rule, but

(b) is subject to—

(i) section 56 (car ... hire),

(ii) section 1288 (unpaid remuneration),

(iii) section 1290 (employee benefit contributions),

(iv) section 1304 (crime-related payments).

(1A) But, if the relevant permissive rule would allow a deduction in calculating the profits of a trade in respect of an amount which arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements, that rule—

(a) does not have priority under subsection (1)(a), and

(b) is subject to any relevant prohibitive rule (and to the provisions mentioned in subsection (1)(b)).

(2) In this section “any relevant permissive rule in this Part” means any provision of—

(a) Chapter 5 (trade profits: rules allowing deductions), apart from sections 62 to 67,

(b) Chapter 7 (trade profits: gifts to charities etc),

(d) Chapter 12 (deductions from profits: unremittable amounts),

which allows a deduction in calculating the profits of a trade.

(3) In this section “any relevant prohibitive rule”, in relation to any deduction, means any provision of this Part or Chapter 1 of Part 20 (apart from those mentioned in subsection (1)(b)) which might otherwise be read as—

(a) prohibiting or deferring the deduction, or

(b) restricting the amount of the deduction.

(4) In this section “relevant tax avoidance arrangements” means arrangements—

(a) to which the company carrying on the trade is a party, and

(b) the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage (within the meaning of section 1139 of CTA 2010).

“Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

Apportionment etc of profits and losses to accounting period

52

(1) This section applies if a period of account of a trade does not coincide with an accounting period.

(2) Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the accounting period—

(a) apportioning the profits or losses of a period of account to the parts of that period falling in different accounting periods, and

(b) adding the profits or losses of a period of account (or part of a period) to profits or losses of other periods of account (or parts).

(3) The steps must be taken by reference to the number of days in the periods concerned.

Chapter 4 — Trade profits: rules restricting deductions

Capital expenditure

53

(1) In calculating the profits of a trade, no deduction is allowed for items of a capital nature.

(2) Subsection (1) is subject to provision to the contrary in the Corporation Tax Acts.

Expenses not wholly and exclusively for trade and unconnected losses

54

(1) In calculating the profits of a trade, no deduction is allowed for—

(a) expenses not incurred wholly and exclusively for the purposes of the trade, or

(b) losses not connected with or arising out of the trade.

(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

Bad debts

55

(1) This section applies to non-money debts to which neither Part 7 (derivative contracts) nor Part 8 (intangible fixed assets) applies.

(2) In calculating the profits of a company's trade, no deduction is allowed in respect of a non-money debt owed to the company, except—

(a) by way of impairment loss, or

(b) so far as the debt is released wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.

(3) In this section “non-money debt” means a debt which is not a money debt for the purposes of Part 5 (loan relationships).

Car or motor cycle hire

56

(1) Subsection (2) applies if, in calculating the profits of a trade, a deduction is allowed for expenses incurred on the hiring of a car which is not——

(a) a car that is first registered before 1 March 2001,

(b) a car that has low CO ₂ emissions,

(d) a qualifying hire car.

(2) The amount of the deduction which would otherwise be allowable is reduced by 15%.

(3) Subsection (4) applies if a deduction is reduced as a result of subsection (2), or a corresponding provision, and subsequently—

(a) there is a rebate (however described) of the hire charges, or

(b) a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency arrangement.

(4) The amount that, as a result of the rebate or release—

(a) is brought into account as a receipt of the trade, or

(b) is treated as a post-cessation receipt under section 193 (debts released after cessation),

is reduced by 15%.

(5) In this section “corresponding provision” means—

(a) section 1251(2) (car ... hire: expenses of management), including as applied by section 82(4) of FA 2012, or

(b) section 48(2) of ITTOIA 2005 (car ... hire: trade profits and property income), ...

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

Car or motor cycle hire: supplementary

57

(1) In section 56 “car ...” means a mechanically propelled road vehicle other than ...—

(za) a motor cycle (within the meaning of section 185(1) of the Road Traffic Act 1988),

(a) a vehicle of a construction primarily suited for the conveyance of goods or burden of any description, or

(b) a vehicle of a type not commonly used as a private vehicle and unsuitable for such use.

(1A) In section 56—

“ a car that has low CO2 emissions ” has the same meaning as in section 104AA of CAA 2001 (special rate expenditure: main rate car);

“ electrically propelled ” has the meaning given in section 268B of that Act.

(2) In section 56 “a qualifying hire car ...” means a car ... which—

(a) is hired under a hire-purchase agreement ... under which there is no option to purchase,

(b) is hired under a hire-purchase agreement under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1% of the retail price of the car ... when new, or

(d) is leased under a long-funding lease (within the meaning of section 70G of CAA 2001).

(3) For this purpose “hire-purchase agreement” has the meaning given by section 1129 of CTA 2010.

(6) In this section ... “new” means unused and not second-hand.

Hiring cars (but not motor cycles) with low CO2 emissions before 1 April 2013

58

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

Patent royalties

59

In calculating the profits of a trade, no deduction is allowed for royalties or other sums paid for the use of patents.

Expenditure on integral features

60

Section 33A(3) of CAA 2001 provides that no deduction is allowed in respect of certain expenditure on an integral feature of a building or structure (within the meaning of that section).

Chapter 5 — Trade profits: rules allowing deductions

Pre-trading expenses

61

(1) This section applies if a company incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the company starts to carry on the trade (“the start date”).

(2) If, in calculating the profits of the trade—

(a) no deduction would otherwise be allowed for the expenses, but

(b) a deduction would be allowed for them if they were incurred on the start date,

the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).

(3) This section does not apply to any expenses in relation to which—

(a) any debit falls, or

(b) any debit would fall but for section 330 (loan relationships: debits in respect of pre-trading expenditure),

to be brought into account for the purposes of Part 5 (loan relationships).

Tenants under taxed leases

Tenants under taxed leases: introduction

62

(1) Sections 63 to 67 apply if land used in connection with a trade is subject to a taxed lease.

(2) Section 63 (tenants occupying land for purposes of trade treated as incurring expenses) applies in calculating the profits of a trade carried on by the tenant under the taxed lease for the purpose of making deductions for the expenses of the trade.

(3) But any deduction for an expense under section 63 is subject to the application of any provision of Chapter 4 of this Part.

(4) In this section and sections 63 to 67 the following expressions have the same meaning as in Chapter 4 of Part 4 (profits of property businesses: lease premiums etc)—

“receipt period” (see section 228(6)),

“taxed lease” (see section 227(4)),

“taxed receipt” (see section 227(4)), and

“unreduced amount” (see section 230(2)).

(5) Section 230(3) and (4) (unreduced amount of taxed receipt under section 217 as a result of section 218) applies for the purposes of sections 63 to 67.

(6) In the application of sections 66 and 67 to Scotland—

(a) references to a lease being granted out of a taxed lease are to the grant of a sublease of land subject to the taxed lease, and

(b) references to the lease so granted are to be read as references to the sublease.

Tenants occupying land for purposes of trade treated as incurring expenses

63

(1) The tenant under the taxed lease is treated as incurring an expense of a revenue nature in respect of the land subject to the taxed lease for each qualifying day.

(2) If there is more than one taxed receipt, this section applies separately in relation to each of them.

(3) A day is a “qualifying day”, in relation to a taxed receipt, if it is a day—

(a) that falls within the receipt period of the taxed receipt, and

(b) on which the tenant occupies the whole or part of the land subject to the taxed lease for the purposes of carrying on a trade.

(4) If on the qualifying day the tenant occupies the whole of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

$$ATRP$where—A is the unreduced amount of the taxed receipt, andTRP is the number of days in the receipt period of the taxed receipt.$

(5) If on the qualifying day the tenant occupies part of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

$$F×ATRP$where—F is the fraction of the land that is so occupied calculated on a just and reasonable basis, andA and TRP have the same meaning as in subsection (4).$

(5A) No expense is to be determined under this section by reference to the taxed receipt if section 232(4B) or (4C) applies.

(6) This section is subject to section 64 (limit on deductions if tenant entitled to mineral extraction allowance).

Limit on deductions if tenant entitled to mineral extraction allowance

64

(1) This section applies if the tenant under the taxed lease has become entitled, in respect of expenditure on the acquisition of an interest in the land subject to the taxed lease, to an allowance for an accounting period under Part 5 of CAA 2001 (mineral extraction allowances) in respect of expenditure falling within section 403 of that Act (qualifying expenditure on acquiring a mineral asset).

(2) If the allowance is in respect of the whole of the expenditure, no deduction is allowed for expenses under section 63 for a qualifying day falling within that or a later accounting period.

(3) If the allowance is in respect of only part of the expenditure (“the allowable part”) the amount of the deduction for expenses under section 63 for a qualifying day falling within that or a later accounting period is calculated by multiplying the amount that, apart from this section, would be the amount of the deduction for the qualifying day by—

$$WE-APWE$where—WE is the whole of the expenditure, andAP is the allowable part of the expenditure.$

Tenants dealing with land as property employed for purposes of trade

65

(1) This section applies if the tenant under the taxed lease—

(a) does not occupy the land subject to the taxed lease, or a part of it, but

(b) deals with its interest in the land, or the part of it, as property employed for the purposes of carrying on a trade.

(2) Section 63 applies as if the land or the part of it were occupied by the tenant for the purposes of the trade.

(3) But the tenant is not treated as incurring an expense in respect of the land for a qualifying day as a result of this section so far as the tenant is treated as incurring an expense under section 232 (tenants under taxed leases treated as incurring expenses) in respect of the land for the day in calculating the profits of the tenant's property business.

(4) This section is subject to sections 66 and 67 (restrictions on section 63 expenses where the additional calculation rule is relevant).

Restrictions on section 63 expenses: lease premium receipts

66

(1) This section applies if a lease has been granted out of the taxed lease and—

(a) in calculating the amount of a receipt of a property business under Chapter 4 of Part 4 (profits of property businesses: lease premiums etc) in respect of the lease, there is a reduction under section 228 (the additional calculation rule) by reference to the taxed receipt, or

(b) in calculating the amount of a receipt of a property business under Chapter 4 of Part 3 of ITTOIA 2005 (profits of property businesses: lease premiums etc) in respect of the lease, there is a reduction under section 288 of that Act (the additional calculation rule) by reference to the taxed receipt.

In this section and section 67 the receipt that is so reduced is referred to as a “lease premium receipt”.

(2) Subsections (3) to (5) provide for the application of section 63 as a result of section 65 for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) The tenant under the taxed lease is treated as incurring an expense under section 63 as a result of section 65 for the qualifying day by reference to the taxed receipt only if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt.

(4) If the condition in subsection (3) is met, the amount of that expense for the qualifying day by reference to the taxed receipt is equal to that excess.

(5) If the qualifying day falls within the receipt period of more than one lease premium receipt, the reference in subsection (3) to the daily reduction of the lease premium receipt is to be read as a reference to the total of the daily reductions of each of the lease premium receipts whose receipt period includes the qualifying day.

(6) In this section—

the “daily amount” of the taxed receipt is given by the formula—$ATRP$where—A is the unreduced amount of the taxed receipt, andTRP is the number of days in the receipt period of the taxed receipt, and

the “daily reduction” of a lease premium receipt is given by the formula—$ARRRP$where—AR is the reduction under section 228 below or section 288 of ITTOIA 2005 by reference to the taxed receipt, andRRP is the number of days in the receipt period of the lease premium receipt.

(7) In this section references to a reduction under section 228 below or section 288 of ITTOIA 2005 by reference to a taxed receipt have the same meaning as in Chapter 4 of Part 4 (see section 230(6)).

(8) Section 67 explains how this section operates if the lease does not extend to the whole of the premises subject to the taxed lease.

Restrictions on section 63 expenses: lease of part of premises

67

(1) This section applies if—

(a) section 66 applies, and

(b) the lease granted out of the taxed lease does not extend to the whole of the premises subject to the taxed lease.

(2) Subsections (3) to (5) apply for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) Sections 63, 65 and 66 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.

(4) If—

(a) more than one lease that does not extend to the whole of the premises subject to the taxed lease has been granted out of the taxed lease, and

(b) the qualifying day falls within the receipt period of two or more lease premium receipts that relate to different leases,

sections 63, 65 and 66 apply separately in relation to each part of the premises subject to a lease to which such a lease premium receipt relates and to the remainder of the premises.

(5) Where sections 63, 65 and 66 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.

(6) This fraction is calculated on a just and reasonable basis.

...

Replacement and alteration of trade tools

68

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

Payments for restrictive undertakings

69

(1) In calculating the profits of a trade, a deduction is allowed for a payment—

(a) which is treated as earnings of an employee by virtue of section 225 of ITEPA 2003 (payments for restrictive undertakings), and

(b) which is made, or treated as made for the purposes of section 226 of that Act (valuable consideration given for restrictive undertakings), by the company carrying on the trade.

(2) The deduction is allowed for the accounting period in which the payment—

(a) is made, or

(b) is treated as made for the purposes of section 226 of ITEPA 2003.

Seconded employees

Employees seconded to charities and educational establishments

70

(1) This section applies if a company carrying on a trade (“the employer”) makes the services of a person employed for the purposes of the trade available to—

(a) a charity, or

(b) an educational establishment,

on a basis that is stated and intended to be temporary.

(2) In calculating the profits of the trade, a deduction is allowed for expenses of the employer that are attributable to the employee's employment during the period of the secondment.

(3) In this section—

“educational establishment” means—in England and Wales, any of the bodies mentioned in section 71(1),in Scotland, any of the bodies mentioned in section 71(2),in Northern Ireland, any of the bodies mentioned in section 71(3), andany other educational body which is for the time being approved for the purposes of this section by the Secretary of State or, in Northern Ireland, the Department of Education, and

“the period of the secondment” means the period for which the employee's services are made available to the charity or educational establishment.

Educational establishments

71

(1) A body in England and Wales is an educational establishment for the purposes of section 70 if it is—

(a) a local authority (but only to the extent that the services of the employee are made available to the authority for the purposes of, or in connection with, the education functions of the authority),

(b) an educational institution maintained or otherwise supported , in the exercise of their education functions, by a local authority,

(c) an independent school within the meaning of the Education Act 1996 (c. 56) registered under section 161 of the Education Act 2002 (c. 32), ...

(ca) an alternative provision Academy that is not an independent school within the meaning of the Education Act 1996,

(d) an institution within the further education sector, or the higher education sector, within the meaning of the Further and Higher Education Act 1992 (c. 13) , or

(e) a 16 to 19 Academy.

(2) A body in Scotland is an educational establishment for the purposes of section 70 if it is—

(a) an education authority within the meaning of the Education (Scotland) Act 1980 (c. 44),

(b) an educational establishment within the meaning of the Education (Scotland) Act 1980 managed by an education authority within the meaning of that Act,

(d) an independent school within the meaning of the Education (Scotland) Act 1980,

(e) a central institution within the meaning of the Education (Scotland) Act 1980 (c. 44),

(f) an institution within the higher education sector within the meaning of section 56(2) of the Further and Higher Education (Scotland) Act 1992 (c. 37), or

(g) a college of further education within the meaning of section 36(1) of the Further and Higher Education (Scotland) Act 1992.

(3) A body in Northern Ireland is an educational establishment for the purposes of section 70 if it is—

(a) an education and library board within the meaning of the Education and Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)),

(b) a college of education, a grant-aided school or an independent school within the meaning of the Education and Libraries (Northern Ireland) Order 1986, or

(c) an institution of further education within the meaning of the Further Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)).

(4) In subsection (1) “local authority” and “education functions” have the same meaning as in the Education Act 1996 (see section 579(1) of that Act).

Contributions to agents' expenses

Payroll deduction schemes: contributions to agents' expenses

72

(1) This section applies if—

(a) a company carrying on a trade (“the employer”) is liable to make payments to an individual,

(b) income tax falls to be deducted from those payments as a result of PAYE regulations, and

(c) the employer withholds sums from those payments in accordance with an approved scheme and pays the sums to an approved agent.

(2) In calculating the profits of the employer's trade, a deduction is allowed for expenses incurred by the employer in making a payment to the agent for expenses which—

(a) have been incurred, or

(b) are to be incurred,

by the agent in connection with the agent's functions under the scheme.

(3) In this section “approved agent” and “approved scheme” have the same meaning as in section 714 of ITEPA 2003.

Counselling and retraining expenses

Counselling and other outplacement services

73

(1) In calculating the profits of a trade, a deduction is allowed for counselling expenses if—

(a) the company carrying on the trade (“the employer”) incurs the expenses,

(b) the expenses are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and

(2) In this section “counselling expenses” means expenses incurred—

(a) in the provision of services to the employee in connection with the cessation of the office or employment,

(b) in the payment or reimbursement of fees for such provision, or

(3) In this section “the relevant conditions” means—

(a) conditions A to D for the purposes of section 310 of ITEPA 2003 (employment income exemptions: counselling and other outplacement services), and

(b) in the case of travel expenses, condition E for those purposes.

Retraining courses

74

(1) In calculating the profits of a trade, a deduction is allowed for retraining course expenses if—

(a) the company carrying on the trade (“the employer”) incurs the expenses,

(b) they are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and

(2) In this section—

“retraining course expenses” means expenses incurred in the payment or reimbursement of retraining course expenses within the meaning given by section 311(2) of ITEPA 2003, and

“the relevant conditions” means—the conditions in subsections (3) and (4) of section 311 of ITEPA 2003 (employment income exemptions: retraining courses), andin the case of travel expenses, the conditions in subsection (5) of that section.

Retraining courses: recovery of tax

75

(1) This section applies if—

(a) an employer's liability to corporation tax for an accounting period is determined on the assumption that a deduction for expenditure is allowed under section 74, and

(b) the deduction would not otherwise have been allowed.

(2) If, subsequently—

(a) the condition in section 311(4)(a) of ITEPA 2003 is not met because of the employee's failure to begin the course within the period of one year after ceasing to be employed, or

(b) the condition in section 311(4)(b) of ITEPA 2003 is not met because of the employee's continued employment or re-employment,

an assessment of an amount or further amount of corporation tax due as a result of the condition not being met may be made under paragraph 41 of Schedule 18 to FA 1998.

(3) Such an assessment must be made before the end of the period of 6 years immediately following the end of the accounting period in which the failure to meet the condition occurred.

(4) If subsection (2) applies, the employer must give an officer of Revenue and Customs a notice containing particulars of—

(a) the employee's failure to begin the course,

(b) the employee's continued employment, or

within 60 days of coming to know of it.

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

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

Redundancy payments etc

Redundancy payments and approved contractual payments

76

(1) Sections 77 to 79 apply if—

(a) a company (“the employer”) makes a redundancy payment or an approved contractual payment to another person (“the employee”), and

(b) the payment is in respect of the employee's employment wholly in the employer's trade or partly in the employer's trade and partly in one or more other capacities.

(2) For the purposes of this section and sections 77 to 81 “redundancy payment” means a redundancy payment payable under—

(a) Part 11 of the Employment Rights Act 1996 (c. 18), or

(b) Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).

(3) For the purposes of this section and those sections—

“contractual payment” means a payment which, under an agreement, an employer is liable to make to an employee on the termination of the employee's contract of employment, and

a contractual payment is “approved” if, in respect of that agreement, an order is in force under—section 157 of the Employment Rights Act 1996, orArticle 192 of the Employment Rights (Northern Ireland) Order 1996.

Payments in respect of employment wholly in employer’s trade

77

(1) This section applies if—

(a) the payment is in respect of the employee's employment wholly in the employer's trade, and

(b) no deduction would otherwise be allowable for the payment.

(2) In calculating the profits of the trade, a deduction is allowed under this section for the payment.

(3) The deduction under this section for an approved contractual payment must not exceed the amount which would have been due to the employee if a redundancy payment had been payable.

(4) If the payment is made after the employer has permanently ceased to carry on the trade, it is treated as made on the last day on which the employer carried on the trade.

(5) If there is a partnership change, subsection (4) does not apply so long as a company carrying on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

(6) The reference in subsection (5) to a partnership change is to a change in the persons carrying on the trade in circumstances where the trade is carried on by persons in partnership immediately before or immediately after the change (or at both those times).

(7) The deduction under this section is allowed for the accounting period in which the payment is made (or treated under subsection (4) as made).

Payments in respect of employment in more than one capacity

78

(1) This section applies if the payment is in respect of the employee's employment with the employer—

(a) partly in the employer's trade, and

(b) partly in one or more other capacities.

(2) The amount of the redundancy payment, or the amount which would have been due if a redundancy payment had been payable, is to be apportioned on a just and reasonable basis between—

(a) the employment in the trade, and

(b) the employment in the other capacities.

(3) The part of the payment apportioned to the employment in the trade is treated as a payment in respect of the employee's employment wholly in the trade for the purposes of section 77.

Additional payments

79

(1) This section applies if the employer permanently ceases to carry on a trade or part of a trade and makes a payment to the employee in addition to—

(a) the redundancy payment, or

(b) if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

(2) If, in calculating the profits of the trade—

(a) no deduction would otherwise be allowable for the additional payment, but

(b) a deduction would be allowable for it if the employer had not permanently ceased to carry on the trade or the part of the trade,

a deduction is allowed under this section for the additional payment.

(3) The deduction under this section is limited to 3 times the amount of—

(a) the redundancy payment, or

(b) if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

(4) If the payment is made after the employer has permanently ceased to carry on the trade or the part of the trade, it is treated as made on the last day on which the employer carried on the trade or the part of the trade.

(5) The deduction under this section is allowed for the accounting period in which the payment is made (or treated under subsection (4) as made).

Application of section 79 in cases involving partnerships

80

(1) This section deals with the application of section 79 in circumstances where—

(a) there is a change in the persons carrying on a trade, and

(b) the trade is carried on by persons in partnership before or after the change (or at both those times).

(2) The employer is treated for the purposes of section 79 as permanently ceasing to carry on the trade unless a company carrying on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

Payments made by the Government

81

(1) This section applies if, in respect of a redundancy payment or an approved contractual payment payable by an employer—

(a) the Secretary of State makes a payment under section 167 of the Employment Rights Act 1996 (c. 18), or

(b) the Department for Employment and Learning makes a payment under Article 202 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).

(2) So far as the employer reimburses the Secretary of State or Department for the payment, sections 77 to 80 apply as if the payment were—

(a) a redundancy payment, or

(b) an approved contractual payment,

made by the employer.

Contributions to local enterprise organisations or urban regeneration companies

82

(1) This section applies if a company carrying on a trade (“the contributor”) incurs expenses in making a contribution (whether in cash or in kind)—

(a) to a local enterprise organisation (see section 83), or

(b) to an urban regeneration company (see section 86),

and a deduction would not otherwise be allowable for the expenses in calculating the profits of the trade.

(2) In calculating the profits of the trade, a deduction is allowed under this section for the expenses.

(3) But if, in connection with the making of the contribution, the contributor or a connected person—

(a) receives a disqualifying benefit of any kind, or

(b) is entitled to receive such a benefit,

the amount of the deduction is restricted to the amount of the expenses less the value of the benefit.

(4) For this purpose it does not matter whether a person receives, or is entitled to receive, the benefit—

(a) from the local enterprise organisation or urban regeneration company concerned, or

(b) from anyone else.

(5) Subsection (6) applies if—

(a) a deduction has been made under this section, and

(b) the contributor or a connected person receives a disqualifying benefit that is in any way attributable to the contribution.

(6) An amount equal to the value of the benefit (so far as not brought into account in determining the amount of the deduction)—

(a) is brought into account in calculating the profits of the trade, as a receipt arising in the accounting period in which the benefit is received, or

(b) if the contributor has permanently ceased to carry on the trade before the benefit is received, is treated as a post-cessation receipt (see Chapter 15).

(7) In this section “disqualifying benefit” means a benefit the expenses of obtaining which, if incurred by the contributor directly in a transaction at arm's length, would not be allowable as a deduction in calculating the profits of the trade.

Meaning of “local enterprise organisation”

83

(1) For the purposes of section 82 “local enterprise organisation” means—

(a) a local enterprise agency,

(b) a training and enterprise council,

(d) a business link organisation.

(2) “Local enterprise agency” means a body for the time being approved as a local enterprise agency for the purposes of section 82 by the relevant national authority, that is to say by—

(a) the Secretary of State (in relation to England or Northern Ireland),

(b) the Scottish Ministers (in relation to Scotland), or

For further provision about approvals by the relevant national authority, see sections 84 and 85.

(3) “Training and enterprise council” means a body with which the Secretary of State has an agreement under which the body is to carry out the functions of a training and enterprise council.

(4) “Scottish local enterprise company” means a company with which—

(a) Scottish Enterprise, or

(b) Highlands and Islands Enterprise,

has an agreement under which the company is to carry out the functions of a local enterprise company.

(5) “Business link organisation” means a person authorised by or on behalf of the Secretary of State to use a trade mark designated by the Secretary of State for the purposes of this subsection.

Approval of local enterprise agencies

84

(1) The relevant national authority may approve a body as a local enterprise agency for the purposes of section 82 only if conditions A and B are met.

(2) But if those conditions are met, the body may be approved—

(a) whatever its status or structure, and

(b) even if it is not described as a local enterprise agency.

(3) Condition A is that the relevant national authority is satisfied—

(a) that the body's sole aim is the promotion or encouragement of local enterprise, or

(b) that one of the body's main aims is the promotion or encouragement of local enterprise and that it has or is about to have a separate fund for the sole purpose of pursuing that aim.

(4) For this purpose “local enterprise” means industrial and commercial activity or enterprise in a particular area in the United Kingdom, with particular reference to encouraging the formation and development of small businesses.

(5) Condition B is that the body is precluded from paying or transferring any of its income or profit directly or indirectly—

(a) to any of its members, or

(b) to any person charged with the control and direction of its affairs.

(6) The payment of—

(a) reasonable remuneration for goods, labour or power supplied or for services provided,

(b) reasonable interest on money lent, or

does not count as a payment or transfer of income or profit for the purposes of subsection (5).

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