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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

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(2) The reversal amount (see section 1230) is dealt with in accordance with subsection (3) or (5).

(3) If the period of the credit coincides with an accounting period of the company—

(a) the reversal amount is, as far as possible, applied in reducing (but not below nil) the company's expenses of management belonging to that period, and

(b) if not all of the amount can be applied in that way, the remainder is to be treated as a receipt of the company chargeable for that period under the charge to corporation tax on income.

(4) For the purposes of subsection (3), the expenses of management belonging to a period are the expenses of management that are deductible for that period, excluding any amounts brought forward under section 1223.

(5) If the period of the credit does not coincide with an accounting period of the company—

(a) the reversal amount is apportioned between any accounting periods that fall within the period of the credit, and

(b) paragraphs (a) and (b) of subsection (3) are applied to any amount that is apportioned to an accounting period.

(6) An apportionment under subsection (5) must be made in accordance with section 1172 of CTA 2010 (time basis) or, if it appears that that method would work unreasonably or unjustly, on a just and reasonable basis.

Meaning of “reversal amount”

1230

(1) This section gives the meaning of “reversal amount” for the purposes of this Part.

(2) If a credit reverses the whole or part of a debit, the reversal amount is found as follows.

Step 1

Take however much of the credit reverses the debit.

Step 2

Reduce that (if applicable) to however much of the credit reverses the part of the debit that represents expenses of management deductible under section 1219.

Step 3

Reduce that (if applicable) to exclude any part of the credit that represents sums otherwise taken into account in calculating for corporation tax purposes the profits and losses of the company for the relevant accounting period or an earlier accounting period.

(3) In this section “relevant accounting period” means the latest accounting period of the company that falls wholly or partly within the period of the credit (see section 1229(1)(a)).

Absence of accounts

1231

(1) This section sets out how section 1229 operates if a company has an accounting period that neither coincides with nor falls within any period of account.

(2) Section 1229 operates as if—

(a) there were a period of account of the company that coincides with that accounting period, and

(b) in calculating for accounting purposes the company's profits and losses for that period of account, amounts were brought into account in accordance with UK generally accepted accounting practice.

(3) The references in section 1251(3)(b) (car ... hire) to credits and debits include credits and debits that are deemed to be made by virtue of this section.

Chapter 3 — Amounts treated as expenses of management

Preliminary

Chapter applies to amounts not otherwise relieved

1232

The following provisions of this Chapter treat amounts as expenses of management only so far as the amounts—

(a) would not otherwise be treated as expenses of management for the purposes of Chapter 2, and

(b) are not otherwise deductible from total profits, or in calculating any component of total profits.

Excess capital allowances

1233

(1) This section applies if a company with investment business is entitled to allowances by virtue of section 15(1)(g) or 270CA(f) of CAA 2001 (qualifying activities include managing investments).

(2) So far as effect cannot be given to the allowances under section 253(2) or 270HE(2) (as the case may be) of CAA 2001, the allowances are treated for the purposes of Chapter 2—

(a) as expenses of management, and

(b) as referable to the accounting period for which the company is entitled to the allowances.

Payments for restrictive undertakings

1234

(1) This section applies if a payment—

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

(b) is made, or treated as made for the purposes of section 226 of that Act (valuable consideration given for restrictive undertakings), by a company with investment business.

(2) The payment is treated for the purposes of Chapter 2 as expenses of management.

Seconded employees

Employees seconded to charities and educational establishments

1235

(1) This section applies if a company carrying on a business that consists wholly or partly of making investments (“the employer”) makes the services of a person employed for the purposes of the business available to—

(a) a charity, or

(b) an educational establishment,

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

(2) Expenses of the employer that are attributable to the employee's employment during the period of the secondment are treated for the purposes of Chapter 2 as expenses of management.

(3) In this section—

“educational establishment” has the same meaning as in section 70, and

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

Contributions to agents' expenses

Payroll deduction schemes

1236

(1) This section applies if—

(a) a company with investment business (“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) Expenses falling within subsection (3) are treated for the purposes of Chapter 2 as expenses of management.

(3) Expenses fall within this subsection if they are 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.

(4) 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

1237

(1) This section applies if—

(a) a company with investment business (“the employer”) incurs counselling 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, and

(2) The expenses are treated for the purposes of Chapter 2 as expenses of management.

(3) 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

(4) 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

1238

(1) This section applies if—

(a) a company with investment business (“the employer”) incurs retraining course expenses,

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

(2) The expenses are treated for the purposes of Chapter 2 as expenses of management.

(3) 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.

(4) 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 by virtue of this section, and

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

subsections (2) to (6) of section 75 (retraining courses: recovery of tax) apply.

Redundancy payments etc

Redundancy payments and approved contractual payments

1239

(1) Sections 1240 to 1242 apply if—

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

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

(2) For the purposes of this section and sections 1240 to 1243 “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 (S.I. 1996/1919 (N.I. 16)).

Payments in respect of employment wholly in employer’s business

1240

(1) This section applies if the payment is in respect of the employee's employment wholly in the employer's investment business.

(2) The amount of the payment is treated for the purposes of Chapter 2 as expenses of management.

(3) The deduction allowable by virtue of 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 referable (see sections 1224 to 1227) to an accounting period beginning after the business has permanently ceased to be carried on, it is treated as referable to the last accounting period in which the business was carried on.

Payments in respect of employment in more than one capacity

1241

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

(a) partly in the employer's investment business, 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 investment business, and

(b) the employment in the other capacities.

(3) The part of the payment apportioned to the employment in the investment business is treated as a payment in respect of the employee's employment wholly in the investment business for the purposes of section 1240.

Additional payments

1242

(1) This section applies if the employer's business, or part of it, ceases (permanently) to be carried on and the employer 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—

(a) the additional payment would not otherwise be deductible under section 1219, but

(b) that is only because the business, or the part of the business, has ceased to be carried on,

the additional payment is deductible under section 1219 as expenses of management.

(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 referable to an accounting period beginning after the business or the part of the business has ceased to be carried on, it is treated as referable to the last accounting period in which the business, or the part concerned, was carried on.

Payments made by the Government

1243

(1) This section applies if—

(a) a redundancy payment or an approved contractual payment is payable by a company with investment business (“the employer”),

(b) a payment to which subsection (2) applies is made in respect of the payment, and

(2) This subsection applies to—

(a) payments made by the Secretary of State under section 167 of the Employment Rights Act 1996 (c. 18), and

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

(3) So far as the employer reimburses the Secretary of State or Department for the payment, sections 1240 to 1242 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

1244

(1) This section applies if a company with investment business (“the contributor”) incurs expenses in making a contribution (whether in cash or in kind)—

(a) to a local enterprise organisation, or

(b) to an urban regeneration company.

(2) The expenses are treated for the purposes of Chapter 2 as expenses of management.

(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 allowed for the expenses under section 1219 by virtue of this section 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) 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 deductible as expenses of management under section 1219.

(6) Sections 83 (meaning of “local enterprise organisation”) and 86 (meaning of “urban regeneration company”) apply for the purposes of this section as they apply for the purposes of section 82.

Export Credits Guarantee Department

Payments to Export Credits Guarantee Department

1245

(1) This section applies if—

(a) a sum is payable by a company with investment business to the Export Credits Guarantee Department, and

(b) the sum is payable under an agreement entered into as a result of arrangements made under section 2 of the Export and Investment Guarantees Act 1991 (c. 67) (insurance in connection with overseas investment), or with a view to entering into such an agreement.

(2) The sum is treated for the purposes of Chapter 2 as expenses of management.

Levies under FISMA 2000

1246

(1) Sums—

(a) spent by a company with investment business in paying a levy, or

(b) paid by a company with investment business as a result of an award of costs under costs rules,

are treated for the purposes of Chapter 2 as expenses of management.

(2) In this section “costs rules” has the meaning given by section 92(2).

(3) In this section “levy” has the meaning given by section 92(3).

Chapter 4 — Rules restricting deductions

Introduction

1247

(1) This Chapter contains provisions that restrict the deduction of expenses of management under section 1219.

(2) Other provisions that prohibit or restrict the deduction of expenses of management under section 1219 include—

(a) section 1290 (employee benefit contributions),

(b) section 1298 (business entertainment and gifts),

(d) section 1303 (penalties, interest and VAT surcharges),

(e) section 1304 (crime-related payments),

(f) section 200 of FA 2004 (no other relief for employers in connection with contributions),

(g) section 246 of FA 2004 (restriction of deduction for non-contributory provision).

(3) See also section 196A of FA 2004 (employers' contributions: power to restrict relief).

Expenses in connection with arrangements for securing a tax advantage

1248

(1) No deduction is allowed under section 1219 for any particular expenses of management if any part of those expenses is incurred directly or indirectly in consequence of, or otherwise in connection with, any arrangements for securing a tax advantage.

(2) In subsection (1) “arrangements for securing a tax advantage” means arrangements the main purpose, or one of the main purposes, of which is to secure—

(a) the allowance of a deduction (or increased deduction) under section 1219, or

(b) any other tax advantage.

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

(4) The reference in subsection (1) to expenses of management includes amounts treated by any provision as deductible under section 1219.

(5) In this section—

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

“tax advantage” has the meaning given by section 1139 of CTA 2010.

Unpaid remuneration

1249

(1) This section applies if—

(a) an amount is charged in respect of employees' remuneration in the accounts for a period of a company with investment business,

(b) the amount would apart from this section be deductible under section 1219 as expenses of management, and

(c) the remuneration is not paid before the end of the period of 9 months immediately following the end of the period of account.

(2) If the remuneration is paid after the end of that period of 9 months, the deduction for it is allowed for the period of account in which it is paid (and not in accordance with the timing rule in section 1219(1)).

(3) No deduction is allowed for the remuneration under section 1219 if it is not paid.

Unpaid remuneration: supplementary

1250

(1) For the purposes of section 1249 an amount charged in the accounts in respect of employees' remuneration includes an amount for which provision is made in the accounts with a view to its becoming employees' remuneration.

(2) For the purposes of section 1249 it does not matter whether an amount is charged for—

(a) particular employments, or

(b) employments generally.

(3) If the profits of the company are calculated before the end of the 9 month period mentioned in section 1249(1)(c)—

(a) it must be assumed, in making the calculation, that any remuneration which is unpaid when the calculation is made will not be paid before the end of that period, but

(b) if the remuneration is subsequently paid before the end of that period, nothing in this subsection prevents the calculation being revised and any tax return being amended accordingly.

(4) For the purposes of this section and section 1249 remuneration is paid when it—

(a) is treated as received by an employee for the purposes of ITEPA 2003 by section 18 or 19 of that Act (receipt of money and non-money earnings), or

(b) would be so treated if it were not exempt income.

(5) In this section and section 1249—

“employee” includes an office-holder and “employment” therefore includes an office, and

“remuneration” means an amount which is or is treated as earnings for the purposes of Parts 2 to 7 of ITEPA 2003.

Car or motor cycle hire

1251

(1) Subsection (2) applies if, in calculating the total profits of a company with investment business, a deduction is allowed under section 1219 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 CO₂ 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 for expenses is reduced as a result of subsection (2) (including as applied by section 82(4) of FA 2012), or a corresponding provision, and—

(a) subsequently—

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

(ii) a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency agreement, and

(b) a credit representing the rebate, or the amount released, reverses (in whole or in part) a debit representing the expenses.

(4) In applying subsection (2) of section 1230 (calculation of the reversal amount for the purposes of the claw back rules)—

(a) take the amount given by Step 1,

(b) reduce that amount by 15% (instead of applying Step 2), and

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

(a) section 56(2) (car ... hire: trade profits and property income), or

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

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

(7) Sections 57 (meaning of “car ...” and other expressions) and 58A (short-term hiring in and long-term hiring out) apply for the purposes of this section as they apply for the purposes of section 56.

(8) For the purposes of section 58B of this Act and section 50B of ITTOIA 2005 (connected persons: application of restrictions), this section is to be treated as if it were part of section 56 of this Act.

Chapter 5 — Companies with investment business: receipts

Industrial development grants

1252

(1) If a company with investment business receives a payment by way of a grant under—

(a) section 7 or 8 of the Industrial Development Act 1982 (c. 52), or

(b) Article 7, 9 or 30 of the Industrial Development (Northern Ireland) Order 1982 (S.I. 1982/1083 (N.I. 15)),

the payment is to be treated as an amount to which the charge to corporation tax on income applies.

(2) Subsection (1) does not apply if—

(a) the grant is designated as made towards the cost of specified capital expenditure,

(b) the grant is designated as compensation for the loss of capital assets, or

(3) Tax is not charged under this section if the payment is taken into account (under another provision) in calculating profits for corporation tax purposes.

Contributions to local enterprise organisations or urban regeneration companies: disqualifying benefits

1253

(1) This section applies if—

(a) a deduction has been made under section 1219 by virtue of section 1244 (contributions to local enterprise agencies or urban regeneration companies: expenses of management), and

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

(2) The contributor is to be treated as receiving, when the benefit is received, an amount—

(a) which is equal to the value of the benefit (so far as not brought into account in determining the amount of the deduction), and

(b) to which the charge to corporation tax on income applies.

(3) In this section “disqualifying benefit” has the same meaning as in section 1244.

Repayments under FISMA 2000

1254

(1) If as a result of a repayment provision a payment—

(a) is made to a company with an investment business, and

(b) is not brought into account as a receipt of a trade under section 104, or as a receipt of a property business as a result of section 210,

the payment is to be treated as an amount to which the charge to corporation tax on income applies.

(2) In this section “repayment provision” means—

(a) any provision made by virtue of section 136(7) or 214(1)(e) of FISMA 2000, or

(b) any provision made by scheme rules for fees to be refunded in specified circumstances.

(3) In this section “scheme rules” means the rules referred to in paragraph 14(1) of Schedule 17 to FISMA 2000.

Chapter 6 — Supplementary

Meaning of some accounting terms

1255

(1) Any reference in sections 1225 to 1227 to expenses of management being debited in accounts is to those expenses being brought into account as a debit in—

(a) the company's profit and loss account or income statement, or

(b) a statement of total recognised gains and losses, statement of changes in equity or other statement of items brought into account in calculating the company's profits and losses for accounting purposes.

(2) In section 1229(1) “brought into account” means brought into account in—

(a) the company's profit and loss account or income statement, or

(b) a statement of total recognised gains and losses, statement of changes in equity or other statement of items brought into account in calculating the company's profits and losses for accounting purposes.

(3) In this Part—

“credit” means an amount which for accounting purposes increases or creates a profit, or reduces a loss, for a period of account, and

“debit” means an amount which for accounting purposes reduces a profit, or increases or creates a loss, for a period of account.

Part 17 — Partnerships

Introduction

Overview of Part

1256

(1) This Part contains some special rules about partnerships.

(2) For restrictions that in some circumstances affect relief for losses, and certain other reliefs, for a company that is a member of a partnership see Chapter 3 of Part 22 of CTA 2010 (transfer of relief within partnerships).

General provisions

1257

(1) In this Act persons carrying on a trade in partnership are referred to collectively as a “firm”.

(2) This section and sections 1259 to 1266 are expressed to apply to trades, but unless otherwise indicated (whether expressly or by implication) also apply to businesses that are not trades.

(3) In those sections as applied by subsection (2)—

(a) references to a trade are references to a business, and

(b) references to the profits of a trade are references to the income arising from a business.

Assessment of firms

1258

Unless otherwise indicated (whether expressly or by implication), a firm is not to be regarded for corporation tax purposes as an entity separate and distinct from the partners.

Calculation of partners' shares

Calculation of firm’s profits and losses

1259

(1) This section applies if a firm carries on a trade and any partner in the firm (“the partner”) is a company within the charge to corporation tax.

(2) For any accounting period of the firm, the amount of the profits of the trade (“the amount of the firm's profits”) is taken to be the amount determined, in relation to the partner, in accordance with subsection (3) or (4).

(3) If the partner is UK resident—

(a) determine what would be the amount of the profits of the trade chargeable to corporation tax for that period if a UK resident company carried on the trade, and

(b) take that to be the amount of the firm's profits.

(4) If the partner is non-UK resident—

(a) determine what would be the amount of the profits of the trade chargeable to corporation tax for that period if a non-UK resident company carried on the trade, and

(b) take that to be the amount of the firm's profits.

(5) The amount of any losses of the trade for an accounting period of the firm is calculated, in relation to the partner, in the same way as the amount of any profits.

(6) This section is subject to section 1260.

Section 1259: supplementary

1260

(1) In determining under section 1259 the profits of a trade for any accounting period no account is taken of any losses for another accounting period.

(2) Profits and losses are determined under section 1259 on the basis that no interest paid or other distribution made by the firm is a distribution for the purposes of section 1305(1) (which provides that no deduction is allowed for dividends or other distributions).

Accounting periods of firms

1261

(1) In this Part references to an accounting period of a firm which carries on a trade are to a period that would be an accounting period of the firm if the firm were a company.

(2) For the purposes of subsection (1) it is to be assumed that the company by reference to which the accounting periods of the firm are determined (“the deemed company”)—

(a) is UK resident,

(b) acquires a source of income on the occurrence of an event that falls within subsection (3),

(d) ceases to trade, and immediately afterwards starts to trade, on the occurrence of a change in the persons carrying on the trade falling within subsection (5).

Paragraph (a) is subject to subsection (6).

(3) An event falls within this subsection if—

(a) immediately before the event no company carries on the trade in partnership, and

(b) immediately after the event the trade is carried on in partnership by persons who include a company.

(4) An event falls within this subsection if—

(a) immediately before the event the trade is carried on in partnership by persons who include a company, and

(b) immediately after the event no company carries on the trade in partnership.

(5) A change in the persons carrying on the trade falls within this subsection if—

(a) both immediately before and immediately after the change the trade is carried on in partnership by persons who include a company, but

(b) no company which carried on the trade immediately before the change continues to carry it on after the change.

(6) For the purpose of determining, in relation to a partner, the accounting periods by reference to which profits are to be calculated under section 1259, the residence of the deemed company at any time is to be taken to be the same as the partner's.

Allocation of firm’s profits or losses between partners

1262

(1) For any accounting period of a firm a partner's share of a profit or loss of a trade carried on by the firm is determined for corporation tax purposes in accordance with the firm's profit-sharing arrangements during that period.

This is subject to sections 1263 to 1264A and section 12ABZB of TMA 1970 (partnership return is conclusive).

(2) If a firm makes qualifying charitable donations, a partner's share of the donations is determined for corporation tax purposes in accordance with the firm's profit-sharing arrangements during the accounting period of the firm in which the donations are made.

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

(4) In this section and sections 1263 and 1264 “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.

Profit-making period in which some partners have losses

1263

(1) For any accounting period of a firm, if—

(a) the calculation under section 1259 in relation to a partner (“company A”) produces a profit, and

(b) company A's share determined under section 1262 is a loss,

company A's share of the profit of the trade is neither a profit nor a loss.

(2) For any accounting period of a firm, if—

(a) the calculation under section 1259 in relation to company A produces a profit,

(b) company A's share determined under section 1262 is a profit, and

company A's share of the profit of the trade is the amount produced by the formula in subsection (3).

(3) The formula is—

$$FP×PPPP+TCP$where—FP is the amount of the firm's profit calculated under section 1259 in relation to company A,PP is the amount determined under section 1262 to be company A's profit, andTCP is the total of the comparable amounts attributed to other partners under Step 3 in subsection (4) that are profits.$

(4) The comparable amount for each partner other than company A is determined as follows.

Step 1

Take the firm's profit calculated under section 1259 in relation to company A.

Step 2

Determine in accordance with the firm's profit-sharing arrangements during the relevant accounting period the shares of that profit that are attributable to each of the other partners.

Step 3

Each such share is the comparable amount for the partner to whom it is attributed.

(5) In subsections (2) to (4) “partner” means any partner in the firm, whether or not within the charge to corporation tax.

Loss-making period in which some partners have profits

1264

(1) For any accounting period of a firm, if—

(a) the calculation under section 1259 in relation to a partner (“company A”) produces a loss, and

(b) company A's share determined under section 1262 is a profit,

company A's share of the loss of the trade is neither a profit nor a loss.

(2) For any accounting period of a firm, if—

(a) the calculation under section 1259 in relation to company A produces a loss,

(b) company A's share determined under section 1262 is a loss, and

company A's share of the loss of the trade is the amount produced by the formula in subsection (3).

(3) The formula is—

$$FL×PLPL+TCL$where—FL is the amount of the firm's loss calculated under section 1259 in relation to company A,PL is the amount determined under section 1262 to be company A's loss, andTCL is the total of the comparable amounts attributed to other partners under Step 3 in subsection (4) that are losses.$

(4) The comparable amount for each partner other than company A is determined as follows.

Step 1

Take the firm's loss calculated under section 1259 in relation to company A.

Step 2

Determine in accordance with the firm's profit-sharing arrangements during the relevant accounting period the shares of that loss that are attributable to each of the other partners.

Step 3

Each such share is the comparable amount for the partner to whom it is attributed.

(5) In subsections (2) to (4) “partner” means any partner in the firm, whether or not within the charge to corporation tax.

1265

(1) This section applies if—

(a) a share of a profit or loss calculated for an accounting period of a firm is allocated to a company under any of sections 1262 to 1264, and

(b) the accounting period of the firm does not coincide with an accounting period of the company.

(2) The share of the profit or loss must be apportioned between the accounting periods of the company in which the accounting period of the firm falls.

Firms with a foreign element

Resident partners and double taxation agreements

1266

(1) This section applies if—

(a) a UK resident company (“the partner”) is a member of a firm which—

(i) resides outside the United Kingdom, or

(ii) carries on a trade the control and management of which is outside the United Kingdom, and

(b) by virtue of any arrangements having effect under section 2(1) of TIOPA 2010 (“the arrangements”) any of the income of the firm is relieved from corporation tax in the United Kingdom.

(2) The partner is liable to corporation tax on the partner's share of the income of the firm despite the arrangements.

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

(4) For the purposes of this section the members of a firm include any company which is entitled to a share of the income of the firm.

Adjustment on change of basis

Various rules for trades and property businesses

1267

(1) In the case of a trade or property business carried on by a firm, the amount of any adjustment under—

(a) Chapter 14 of Part 3 (adjustment on change of basis: trades), or

(b) section 262 (giving effect to positive and negative adjustments: property businesses),

is calculated as if the firm were a UK resident company.

(2) Each partner's share of any amount brought into account as a receipt under Chapter 14 of Part 3, or section 262, is determined according to the firm's profit-sharing arrangements for the 12 months ending immediately before the date on which the new basis was adopted.

(3) A change in the persons carrying on a trade from one period of account to the next does not prevent Chapter 14 of Part 3 applying in relation to the trade 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.

(4) A change in the persons carrying on a property business from one period of account to the next does not prevent section 262 applying (by virtue of section 261) in relation to the property business so long as a company carrying on the property business in partnership immediately before the change continues to carry it on in partnership after the change.

(5) Sections 1259 to 1264 do not apply so far as subsection (1) or (2) applies.

Election for spreading under Chapter 14 of Part 3

1268

(1) A change in the persons carrying on a trade does not constitute the permanent cessation of the trade for the purposes of section 186 (mark to market: election for spreading) 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.

(2) Any election under section 186 must be made jointly by all the persons who have been members of the firm in the period of 12 months ending immediately before the date on which the new basis was adopted.

Interpretation of sections 1267 and 1268

1269

In sections 1267 and 1268—

(a) “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade or property business (as the case requires), and

(b) references to the date on which the new basis was adopted are to the first day of the first period of account for which it was adopted.

Miscellaneous

Special provisions about farming and property income

1270

(1) The rule in section 36(2) (farming trades) operates in relation to firms so that—

(a) all farming in the United Kingdom which a firm carries on, other than farming carried on as part of another trade, is treated as one trade, but

(b) the farming carried on by a firm which is treated as one trade is not included in any farming trade of any partner in the firm.

(2) Section 205 (UK property business) operates in relation to firms so that—

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's UK property business, but

(b) each business or transaction included in the firm's UK property business is not included in any UK property business of any partner in the firm.

(3) Section 206 (overseas property business) operates in relation to firms so that—

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's overseas property business, but

(b) each business or transaction included in the firm's overseas property business is not included in any overseas property business of any partner in the firm.

Sale of patent rights: effect of partnership changes

1271

(1) This section applies if each of the following conditions is met—

(a) a person (“the trader”) sells the whole or part of any patent rights in carrying on a trade,

(b) tax is chargeable under section 912 of this Act or section 587 of ITTOIA 2005 on the proceeds of the sale or on any instalment of those proceeds,

(c) the tax is chargeable in one or more accounting periods or tax years (referred to in this section as “the tax charge periods”),

(d) there is a change in the persons carrying on the trade at any time between the beginning of the first of those tax charge periods and the end of the last of them, and

(e) the partnership condition and the continuity condition are met.

(2) The partnership condition is that—

(a) the trader is a firm at the time of the sale, or

(b) the trade is carried on in partnership at any time between the beginning of the first of the tax charge periods and the end of the last of them.

(3) The continuity condition is—

(a) in the case of an amount chargeable under section 912, that a company which carried on the trade in partnership immediately before the change continues to carry it on in partnership after the change, or

(b) in the case of an amount chargeable under section 587 of ITTOIA 2005, that a person who carried on the trade immediately before the change continues to carry it on after the change.

(4) Any amounts chargeable in respect of the proceeds or instalment that would (apart from this section) be treated in accordance with Chapter 3 of Part 9 of this Act or Chapter 2 of Part 5 of ITTOIA 2005 as profits of the seller of the patent rights chargeable in tax charge periods falling wholly after the change are treated for corporation tax purposes—

(a) as proceeds, arising at a constant daily rate during the remainder of the relevant period, of a sale of patent rights by the person or persons carrying on the trade after the change, and

(b) if the trade is carried on in partnership after the change, as arising to the partners in shares calculated in accordance with the firm's profit-sharing arrangements.

(5) If the change occurs during the course of a tax charge period—

(a) any company that would, but for this section, have been charged to corporation tax in that period on a sum (“S”) in respect of the proceeds or instalment is so charged on a fraction of S proportionate to the length of the part of the period before the change, and

(b) the balance of S not dealt with under paragraph (a) is treated for the purposes of this section and section 861 of ITTOIA 2005 (sale of patent rights: effect of partnership changes) as if it were an amount such as is described in subsection (4).

(6) In this section “the remainder of the relevant period” means—

(a) if one or more tax charge periods begins after the tax charge period in which the change occurs, the period beginning immediately after the change and ending 6 years after the beginning of the first of the tax charge periods, or

(b) otherwise, the period beginning immediately after the change and ending at the end of the tax charge period in which the change occurs.

(7) In this section “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade.

Sale of patent rights: effect of later cessation of trade

1272

(1) This section applies if—

(a) a person sells the whole or part of any patent rights in carrying on a trade,

(b) by virtue of section 1271 amounts are chargeable to corporation tax under section 912 as profits of one or more companies for the time being carrying on the trade in partnership,

(d) no company which carried on the trade immediately before the cessation continues to carry on the trade in partnership immediately after the cessation.

(2) Any amounts mentioned in subsection (1)(b) which would have been chargeable in any accounting period of a company later than that in which the cessation occurred are charged in the accounting period of the company in which the cessation occurred.

Limited liability partnerships

1273

(1) For corporation tax purposes, if a limited liability partnership carries on a trade or business with a view to profit—

(a) all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such),

(b) anything done by, to or in relation to the limited liability partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and

References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade or business with a view to profit.

(2) For all purposes, except as otherwise provided, in the Corporation Tax Acts—

(a) references to a firm include a limited liability partnership in relation to which subsection (1) applies,

(b) references to members of a firm include members of such a limited liability partnership,

(d) references to members of a company do not include members of such a limited liability partnership.

(3) Subsection (1) continues to apply in relation to a limited liability partnership which no longer carries on any trade or business with a view to profit—

(a) if the cessation is only temporary, or

(b) during a period of winding up following a permanent cessation, provided that—

(i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and

(ii) the period of winding up is not unreasonably prolonged.

This is subject to subsection (4).

(4) Subsection (1) ceases to apply in relation to a limited liability partnership—

(a) on the appointment of a liquidator or (if earlier) the making of a winding up order by the court, or

(b) on the occurrence of any event under the law of a territory outside the United Kingdom corresponding to an event specified in paragraph (a).

Part 18 — Unremittable income

Unremittable income: introduction

1274

(1) This Part applies if—

(a) a company is liable for corporation tax on income arising in a territory outside the United Kingdom, and

(b) the income is unremittable.

(2) For the purposes of this Part, income is unremittable if conditions A and B are met.

(3) Condition A is that the income cannot be transferred to the United Kingdom by the company which is liable for corporation tax in respect of the income because of—

(a) the laws of the territory where the income arises,

(b) executive action of its government, or

(4) Condition B is that the company which is liable for corporation tax in respect of the income has not realised it outside that territory for an amount in sterling or in another currency which the company is not prevented from transferring to the United Kingdom.

Claim for relief for unremittable income

1275

(1) If a company liable for corporation tax on unremittable income makes a claim for relief under this section in respect of that income, it is not taken into account for corporation tax purposes.

(2) Subsection (1) is subject to section 1276.

(3) No claim under this section may be made in respect of any income so far as an ECGD payment has been made in relation to it.

(4) In subsection (3) “ECGD payment” means a payment made by the Export Credits Guarantee Department under an agreement entered into as a result of arrangements made under—

(a) section 2 of the Export and Investment Guarantees Act 1991 (c. 67) (insurance in connection with overseas investment), or

(b) section 11 of the Export Guarantees and Overseas Investment Act 1978 (c. 18).

(5) A claim under this section must be made before the expiry of 2 years after the end of the accounting period in which the income arises.

Withdrawal of relief

1276

(1) This section applies if—

(a) a claim under section 1275 has been made in relation to any income, and

(b) either—

(i) the income ceases to be unremittable, or

(ii) an ECGD payment is made in relation to it.

(2) In this section “ECGD payment” has the meaning given by section 1275(4).

(3) If income ceases to be unremittable, the income is treated as arising on the date on which it ceases to be unremittable.

(4) If an ECGD payment is made in relation to income, the income is treated, to the extent of the payment, as arising on the date on which the ECGD payment is made.

(5) The income treated as arising under subsection (3) or (4), and any tax payable in respect of it under the law of the territory where it arises, are taken into account for corporation tax purposes at their value at the date on which the income is treated as arising.

(6) Subsections (3) to (5) do not apply so far as the income has already been treated as arising as a result of this section.

Income charged on withdrawal of relief after source ceases

1277

(1) This section applies if—

(a) income is treated as arising as a result of section 1276, and

(b) at the time it is so treated the company which would have become liable for corporation tax as a result of that section—

(i) has permanently ceased to carry on the trade or property business from which the income arises, or

(ii) in the case of income from another source, has ceased to possess that source.

(2) In the case of income from a trade—

(a) the income is treated as a post-cessation receipt for the purposes of Chapter 15 of Part 3 (trading income: post-cessation receipts), but

(b) in the application of that Chapter to that income, section 189 (extent of charge to tax) is omitted.

(3) In the case of income from a property business—

(a) the income is treated as a post-cessation receipt from a UK property business for the purposes of Chapter 9 of Part 4 (property income: post-cessation receipts), but

(b) in the application of that Chapter to that income, section 281 (extent of charge to tax) is omitted.

(4) In the case of income from another source, the income is taxed as if the company continued to possess that source.

Valuing unremittable income

1278

(1) If no claim is made under section 1275 in relation to unremittable income arising in a territory outside the United Kingdom, the amount of the income to be taken into account for corporation tax purposes is determined as follows.

(2) If the currency in which the income is denominated has a generally recognised market value in the United Kingdom, the amount is determined by reference to that value.

(3) In any other case, the amount is determined according to the official rate of exchange of the territory where the income arises.

Part 19 — General exemptions

Profits from FOTRA securities

Exemption of profits from securities free of tax to residents abroad (“FOTRA securities”)

1279

(1) No liability to corporation tax arises in respect of profits from a FOTRA security or a loan relationship represented by such a security if conditions A and B are met.

(2) Subsection (1) is subject to subsection (5).

(3) Condition A is that the profits are stated in the exemption condition to be exempt from corporation tax.

(4) Condition B is that any requirements for obtaining the exemption imposed by the security's conditions of issue are met.

(5) This section does not affect the need to claim repayment of tax within the time limit applicable for a claim.

(6) Section 1280 applies for the interpretation of this section.

Section 1279: supplementary provision

1280

(1) In this section and section 1279 “FOTRA security” means—

(a) a security issued with a condition about exemption from taxation authorised by section 22 of F(No.2)A 1931,

(b) a gilt-edged security which was issued before 6th April 1998 and without any such condition (other than 3½% War Loan 1952 Or After), or

(2) In section 1279 “the exemption condition” has the meaning given by subsections (3) to (5), according to the kind of FOTRA security involved.

(3) In relation to a security within subsection (1)(a), it means the condition authorised by section 22 of F(No.2)A 1931.

(4) In relation to a security within subsection (1)(b), it means a condition with which 7.25% Treasury Stock 2007 was first issued, being a condition treated by section 161(1) of FA 1998 (non-FOTRA securities)—

(a) as a condition with which the security within subsection (1)(b) was issued, and

(b) as a condition authorised in relation to its issue by section 22 of F(No.2)A 1931.

(5) In relation to 3½% War Loan 1952 Or After, it means a condition of its issue authorised by section 47 of F(No.2)A 1915.

(6) In this section “gilt-edged security” means a security which—

(a) is a gilt-edged security for the purposes of TCGA 1992 (see Schedule 9 to that Act), or

(b) will be such a security on the making of an order under paragraph 1 of Schedule 9 to that Act if the making of the order is anticipated in the prospectus under which the security is issued.

Income from savings certificates

1281

(1) No liability to corporation tax arises in respect of income from authorised savings certificates.

(2) A savings certificate is authorised so far as its acquisition was not prohibited by regulations made by the Treasury limiting a person's holding.

(3) In this section “savings certificates” means—

(a) savings certificates issued under—

(i) section 12 of the National Loans Act 1968 (c. 13) (power of Treasury to borrow),

(ii) section 7 of the National Debt Act 1958 (c. 6) (power of Treasury to issue national savings certificates), or

(iii) section 59 of FA 1920 (power to borrow on national savings certificates),

(b) war savings certificates, as defined in section 9(3) of the National Debt Act 1972 (c. 65), or

(c) savings certificates issued under any enactment forming part of the law of Northern Ireland and corresponding to section 12 of the National Loans Act 1968.

(4) But subsection (3)(c) does not include Ulster Savings Certificates (for which there are special rules in section 1282).

Income from Ulster Savings Certificates

1282

(1) No liability to corporation tax arises in respect of income from authorised Ulster Savings Certificates if condition A or B is met.

(2) Condition A is that —

(a) the holder purchased them, and

(b) at the time of the purchase the holder was resident in Northern Ireland.

(3) Condition B is that the holder is so resident when they are repaid.

(4) An Ulster Savings Certificate is authorised so far as its acquisition was not prohibited by regulations made by the Department of Finance and Personnel limiting a person's holding.

(5) The exemption under this section requires a claim.

(6) In this Part “Ulster Savings Certificates” means savings certificates issued or treated as issued under section 15 of the Exchequer and Financial Provisions Act (Northern Ireland) 1950 (c. 3 (N.I.)).

Miscellaneous

Interest from tax reserve certificates

1283

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

Housing grants

1284

(1) No liability to corporation tax arises in respect of a payment if it is made—

(a) under an enactment relating to the giving of financial assistance for the provision, maintenance or improvement of housing accommodation or other residential accommodation, and

(b) by way of grant or other contribution towards expenses.

(2) It does not matter whether—

(a) the payment is made to the person who incurs the expenses, or

(b) the expenses have been, or are to be, incurred.

(3) Subsection (1) does not apply so far as the payment is made towards an expense which is deductible in calculating income for any corporation or income tax purpose.

UK company distributions

1285

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

VAT repayment supplements

1286

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

Incentives to use electronic communications

1287

No liability to corporation tax arises in respect of anything received by way of incentive under any regulations made in accordance with Schedule 38 to FA 2000 (regulations for providing incentives for electronic communications).

Part 20 — General calculation rules

Chapter 1 — Restriction of deductions

Unpaid remuneration

1288

(1) This section applies if—

(a) an amount is charged in respect of employees' remuneration in a company's accounts for a period,

(b) the amount would, apart from this section, be deductible in calculating income from any source for corporation tax purposes, and

(c) the remuneration is not paid before the end of the period of 9 months immediately following the end of the period of account.

(2) If the remuneration is paid after the end of that period of 9 months, the deduction for it is allowed for the period of account in which it is paid.

(3) No deduction is allowed for the remuneration if it is not paid.

(4) Provision corresponding to that made by this section is made by—

(a) section 1249 (in relation to expenses of management of a company's investment business), including as applied by section 82 of FA 2012 ...

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

Unpaid remuneration: supplementary

1289

(1) For the purposes of section 1288 an amount charged in the accounts in respect of employees' remuneration includes an amount for which provision is made in the accounts with a view to its becoming employees' remuneration.

(2) For the purposes of section 1288 it does not matter whether an amount is charged for—

(a) particular employments, or

(b) employments generally.

(3) If the income is calculated before the end of the 9 month period mentioned in section 1288(1)(c)—

(a) it must be assumed, in making the calculation, that any remuneration which is unpaid when the calculation is made will not be paid before the end of that period, but

(b) if the remuneration is subsequently paid before the end of that period, nothing in this subsection prevents the calculation being revised and any tax return being amended accordingly.

(4) For the purposes of this section and section 1288 remuneration is paid when it—

(a) is treated as received by an employee for the purposes of ITEPA 2003 by section 18 or 19 of that Act (receipt of money and non-money earnings), or

(b) would be so treated if it were not exempt income.

(5) In this section and section 1288—

“employee” includes an office-holder and “employment” therefore includes an office, and

“remuneration” means an amount which is or is treated as earnings for the purposes of Parts 2 to 7 of ITEPA 2003.

Employee benefit contributions

1290

(1) This section applies if, in calculating for corporation tax purposes the profits of a company (“the employer”) of a period of account, a deduction would otherwise be allowable for the period in respect of employee benefit contributions made or to be made (but see subsection (4)).

(1A) No deduction is allowed under this section in respect of employee benefit contributions for a period of account which starts more than 5 years after the end of the period of account in which the contributions are made.

(2) No deduction is allowed for the contributions for the period except so far as—

(a) qualifying benefits are provided, or qualifying expenses are paid, out of the contributions during the period or within 9 months from the end of it, or

(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made during the period or within 9 months from the end of it.

(2A) Subsection (2) is subject to subsections (1A) and (2B).

(2B) Where subsection (3C) applies, no deduction is allowed for an amount in respect of the contributions for the period except so far as the amount is a qualifying amount (see subsection (3D)).

(3) An amount disallowed under subsection (2) is allowed as a deduction for a subsequent period of account so far as—

(a) qualifying benefits are provided out of the contributions before the end of the subsequent period, or

(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made before the end of the subsequent period.

(3A) Subsection (3) is subject to subsections (1A) and (3B).

(3B) Where subsection (3C) applies, an amount disallowed under subsection (2) is allowed as a deduction for a subsequent period only so far as it is a qualifying amount.

(3C) This subsection applies where the provision of qualifying benefits out of, or by way of, the contributions gives rise both to an employment income tax charge and to an NIC charge.

(3D) An amount in respect of employee benefit contributions is a “qualifying amount” if the relevant tax charges are paid before the end of the relevant period (and are not repaid).

(3E) For the purposes of subsection (3D)—

(a) the “relevant tax charges”, in relation to an amount, are the employment income tax charge and the NIC charge arising in respect of benefits which are provided out of, or by way of, that amount, and

(b) the “relevant period” is the period of 12 months immediately following the end of the period of account for which the deduction for the employee benefit contributions would (apart from this section) be allowable.

(3F) For the purposes of subsections (3C) and (3E), “employment income tax charge” and “NIC charge” have the meaning given by section 1292(7).

(3G) Subsection (3H) applies where—

(a) a deduction would, apart from this section, be allowable for an amount (the “remuneration amount”) in respect of employees' remuneration, and

(b) in consequence of the payment of the employees' remuneration, employee benefit contributions are made, or are to be made, in respect of the remuneration amount.

(3H) In calculating for corporation tax purposes the profits of a company, the deduction referred to in subsection (3G)(a) is to be treated as a deduction in respect of employee benefit contributions made or to be made (and is to be treated as not being a deduction in respect of employees' remuneration).

(4) This section does not apply to any deduction that is allowable—

(a) for anything given as consideration for goods or services provided in the course of a trade or profession,

(b) for contributions under a registered pension scheme or under a superannuation fund to which section 615(3) of ICTA applies,

(c) for contributions under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions,

(d) for contributions under an accident benefit scheme,

(e) under Chapter 1 of Part 11 (share incentive plans),

(f) under section 67 of FA 1989 (qualifying employee share ownership trusts), or

(g) under Part 12 (other relief for employee share acquisitions).

(5) For the purposes of subsection (4)(c) “qualifying overseas pension scheme” and “relevant migrant member” have the same meaning as in Schedule 33 to FA 2004 (see paragraphs 4 to 6 of that Schedule).

(6) See also—

section 1291 (making of “employee benefit contributions”),

section 1292 (provision of qualifying benefits),

section 1293 (timing and amount of certain qualifying benefits),

section 1294 (provision or payment out of employee benefit contributions),

section 1295 (profits calculated before end of 9 month period),

section 1296 (interpretation of sections 1290 to 1296),

section 1297 (some special rules for companies carrying on a life assurance business).

Making of “employee benefit contributions”

1291

(1) For the purposes of section 1290 an “employee benefit contribution” is made if, as a result of any act or omission—

(a) property is held, or may be used, under an employee benefit scheme, or

(b) there is an increase in the total value of property that is so held or may be so used (or a reduction in any liabilities under an employee benefit scheme).

(2) For this purpose “employee benefit scheme” means a trust, scheme or other arrangement for the benefit of persons who are, or include, present or former employees of the employer or persons linked with present or former employees of the employer.

(3) Section 554Z1 of ITEPA 2003 applies for the purposes of subsection (2) but as if references to A were to a present or former employee of the employer.

(4) So far as it is not covered by subsection (2), “employee benefit scheme” also means—

(a) an arrangement (the “relevant arrangement”) which is—

(i) an arrangement within subsection (1)(b) of section 554A of ITEPA 2003 to which subsection (1)(c) of that section applies, or

(ii) an arrangement within subsection (1)(b) of section 554AA of ITEPA 2003 to which subsection (1)(c) of that section applies, or

(b) any other arrangement connected (directly or indirectly) with the relevant arrangement.

Provision of qualifying benefits

1292

(1) For the purposes of section 1290 qualifying benefits are provided if there is—

(a) a payment of money, or

(b) a transfer of assets,

which meets condition A, B, C or D.

(2) Condition A is that the payment or transfer gives rise both to an employment income tax charge and to an NIC charge.

(3) Condition B is that the payment or transfer would give rise to both charges if—

(a) the duties of the employment in respect of which the payment or transfer was made were performed in the United Kingdom, and

(b) the person in respect of whose employment the payment or transfer was made met at all relevant times the conditions as to residence or presence in Great Britain or Northern Ireland prescribed under section 1(6) of the Contributions and Benefits Act.

(4) Condition C is that the payment or transfer is made in connection with the termination of the recipient's employment with the employer.

(5) Condition D is that the payment or transfer is made under an employer-financed retirement benefits scheme and the payment or transfer—

(a) gives rise to an employment income tax charge under Chapter 2 of Part 6 of ITEPA 2003 or under Part 9 of that Act, or

(b) is an excluded benefit as defined in section 393B(3) of that Act.

(6) None of the conditions is met if the payment or transfer is by way of loan.

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

(6A) For the purposes of section 1290 qualifying benefits are also provided if—

(a) a relevant step within the meaning of Part 7A of ITEPA 2003 is taken, and

(b) Chapter 2 of that Part applies by reason of the step.

(6B) For those purposes qualifying benefits are also provided, where a payment of money is made to a person, if and to the extent that the payment is exempt from income tax by virtue of section 312A of ITEPA 2003.

(7) In this section—

“the Contributions and Benefits Act” means—the Social Security Contributions and Benefits Act 1992 (c. 4), orthe Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7),

“employment income tax charge” means a charge to tax under ITEPA 2003 (whether on the recipient or on someone else), and

“NIC charge” means a liability to pay national insurance contributions under section 6 (Class 1 contributions), section 10 (Class 1A contributions) or section 10A (Class 1B contributions) of the Contributions and Benefits Act.

Timing and amount of certain qualifying benefits

1293

(1) If the provision of a qualifying benefit takes the form of a payment of money, the benefit, so far as Chapter 4 of Part 2 of ITEPA 2003 applies to the money, is provided for the purposes of section 1290 when the money is treated as received for the purposes of that Chapter (applying the rules in section 18 of that Act (receipt of money earnings)).

(1A) Except so far as subsection (1) applies to the provision of the qualifying benefit, if the provision of a qualifying benefit is a chargeable relevant step, for the purposes of section 1290—

(a) the benefit is provided when A's employment with B starts if the chargeable relevant step is taken before then, or

(b) otherwise, the benefit is provided when the chargeable relevant step is taken.

(2) If the provision of a qualifying benefit takes the form of a transfer of an asset which meets condition A, B, C or D in section 1292, the amount provided for the purposes of section 1290 is the total of—

(a) the amount (if any) spent on the asset by a scheme manager, ...

(b) in a case where the asset was transferred to a scheme manager by the employer, the amount of the deduction that would be allowable as mentioned in subsection (1) of that section in respect of the transfer , and

(c) if the transfer is a chargeable relevant step, the cost of the relevant step so far as not covered by paragraph (a) or (b)

(3) But if the amount given by subsection (2) is more than the amount that—

(a) is charged to tax under ITEPA 2003 in respect of the transfer, or

(b) would be so charged if condition B in section 1292 were met,

the deduction allowable under section 1290(2) or (3) is limited to that lower amount.

(4) If the provision of a qualifying benefit is a chargeable relevant step which does not involve a sum of money (see section 554Z(10) of ITEPA 2003) and is not covered by subsection (2), the amount provided for the purposes of section 1290 is the cost of the relevant step (subject to subsection (5)).

(5) If the provision of a qualifying benefit is a chargeable relevant step which is not covered by subsection (2) (whether or not it involves a sum of money), the amount provided for the purposes of section 1290 is not to exceed the amount that—

(a) is charged to tax under ITEPA 2003 in relation to the relevant step (whether under Part 7A of that Act or otherwise), or

(b) would be charged had not A been non-UK resident in any tax year.

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

(6) In this section—

(a) “chargeable relevant step” means a relevant step within the meaning of Part 7A of ITEPA 2003 by reason of which Chapter 2 of that Part applies (and references to A and B are to be read accordingly), and

(b) references to the cost of a chargeable relevant step are to be read in accordance with section 554Z3(6) of that Act.

Provision or payment out of employee benefit contributions

1294

(1) For the purposes of section 1290(2)(a)—

(a) any qualifying benefits provided, or

(b) any qualifying expenses paid,

by a scheme manager after the receipt by the scheme manager of employee benefit contributions are treated as being provided or paid out of the contributions.

(2) The rule in subsection (1) operates up to the total amount of the contributions reduced by the amount of any benefits or expenses previously provided or paid as mentioned in section 1290(2)(a).

(3) For the purposes of section 1290(3)(a) any qualifying benefits provided by a scheme manager after the receipt by the scheme manager of employee benefit contributions are treated as being provided out of the contributions.

(4) The rule in subsection (3) operates up to the total amount of the contributions reduced by the amount of any benefits or expenses previously provided or paid as mentioned in section 1290(2)(a) or (3)(a).

(5) For the purposes of this section no account is taken of any other amount received or paid by the scheme manager.

Profits calculated before end of 9 month period

1295

(1) This section applies if the income of the period of account mentioned in section 1290(1) is calculated before the end of the 9 month period mentioned in section 1290(2).

(2) It must be assumed, in making the calculation, that any benefits, expenses or contributions which are not provided, paid or made when the calculation is made will not be provided, paid or made before the end of that period.

(3) But if the benefits, expenses or contributions are subsequently provided, paid or made before the end of that period, nothing in this section prevents the calculation being revised and any tax return being amended accordingly.

Interpretation of sections 1290 to 1296

1296

(1) In this section and sections 1290 to 1295—

“accident benefit scheme” means an employee benefit scheme under which benefits may be provided only by reason of a person's disablement, or death, caused by an accident occurring during the person's service as an employee of the employer,

“employee benefit contribution” is to be read in accordance with section 1291(1),

“employee benefit scheme” has the meaning given by section 1291(2) to (4),

“the employer” is to be read in accordance with section 1290(1),

“employer-financed retirement benefits scheme” has the same meaning as in Chapter 2 of Part 6 of ITEPA 2003 (see section 393A of that Act) but ignoring section 393B(2)(a) and (c) of that Act,

“qualifying benefits” is to be read in accordance with section 1292,

“qualifying expenses” includes any expenses of a scheme manager (other than the provision of benefits to employees of the employer)—which are incurred in operating the employee benefit scheme, andwhich, if incurred by the employer, would be deductible in calculating for corporation tax purposes the employer's profits of any period of account, and

“scheme manager” means a person who administers an employee benefit scheme (acting in that capacity).

(2) A reference in this section and sections 1290 to 1295 to a company's employee includes the holder of an office under that company, and “employment” is to be read accordingly.

Life assurance business

1297

(1) This section applies if the employer is a company in relation to which the I - E rules apply.

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

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

(4) For the purpose of calculating the adjusted BLAGAB management expenses of the company for the purposes of section 73 of FA 2012, the employee benefit contributions are treated as expenses debited, in accordance with generally accepted accounting practice, in the accounts drawn up by the company for that period.

(5) For the purposes of sections 1290 to 1296—

(a) any reference to a deduction for employee benefit contributions is to be read as a reference to an amount constituting ordinary BLAGAB management expenses of the company for the purposes of section 76 of FA 2012, and

(b) references to deduction are to be read in that light.

Business entertainment and gifts

1298

(1) This section applies if a company incurs expenses in providing entertainment or gifts in connection with a business which it carries on.

(2) The general rule is that—

(a) no deduction is allowed for the expenses in calculating income from any source for corporation tax purposes,

(b) no deduction is allowed under section 1219 for the expenses, and

(c) expenses to which this section applies are not to be regarded as constituting ordinary BLAGAB management expenses of the company for the purposes of section 76 of FA 2012.

(3) The general rule prohibits the deduction, or the bringing into account, of expenses which are incurred—

(a) in paying sums to or on behalf of an employee of the company, or

(b) in putting sums at the disposal of an employee of the company,

if (and only if) the sums are paid, or put at the employee's disposal, exclusively for meeting expenses incurred or to be incurred by the employee in providing the entertainment or gift.

(4) The general rule is subject to exceptions—

for entertainment (see section 1299), and

for gifts (see section 1300).

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

(a) “employee” includes a director of the company and a person engaged in the management of the company,

(b) “entertainment” includes hospitality of any kind, and

(c) the expenses incurred in providing entertainment or a gift include expenses incurred in providing anything incidental to the provision of entertainment or a gift.

Business entertainment: exceptions

1299

(1) The prohibition in section 1298 on deducting, or bringing into account, expenses incurred in providing entertainment does not apply in either of cases A and B.

(2) Case A is where—

(a) the entertainment is of a kind which it is the company's business to provide, and

(b) the entertainment is provided in the ordinary course of the business either for payment or free of charge in order to advertise to the public generally.

(3) Case B is where the entertainment is provided for employees of the company unless—

(a) the entertainment is also provided for others, and

(b) the provision of the entertainment for the employees is incidental to its provision for the others.

Business gifts: exceptions

1300

(1) The prohibition in section 1298 on deducting, or bringing into account, expenses incurred in providing gifts does not apply in any of cases A, B, C and D.

(2) Case A is where—

(a) the gift is of an item which it is the company's business to provide, and

(b) the item is given away in the ordinary course of the business in order to advertise to the public generally.

(3) Case B is where the gift incorporates a conspicuous advertisement for the company unless—

(a) the gift is food, drink, tobacco or a token or voucher exchangeable for goods, or

(b) the cost of the gift to the company, together with any other gifts (except food, drink, tobacco or a token or voucher exchangeable for goods) given to the same person in the same accounting period, exceeds £50.

The Treasury may by order amend the sum for the time being specified in paragraph (b) so as to increase it.

(4) Case C is where gifts are provided for employees of the company unless—

(a) gifts are also provided for others, and

(b) the provision of the gifts for the employees is incidental to the provision of gifts for the others.

(5) Case D is where the gift is given to—

(a) a charity,

(b) the Historic Buildings and Monuments Commission for England, or

Miscellaneous

Restriction of deductions for annual payments

1301

(1) In calculating a company's income from any source, no deduction is allowed for an annual payment which meets the conditions in subsections (2) to (6).

(2) The payment must be a payment charged to—

(a) income tax under Part 5 of ITTOIA 2005 otherwise than as relevant foreign income, or

(b) corporation tax under Chapter 7 of Part 10 (annual payments not otherwise charged).

(3) The payment must be made under a liability incurred for consideration in money or money's worth all or any of which—

(a) consists of, or of the right to receive, a dividend, or

(b) is not required to be brought into account in calculating for corporation tax purposes the income of the company making the payment.

(4) The payment must not be a payment of income—

(a) which arises under a settlement made by one party to a marriage or civil partnership by way of provision for the other—

(i) after the dissolution or annulment of the marriage or civil partnership, or

(ii) while they are separated under an order of a court, or under a separation agreement, or if the separation is likely to be permanent, and

(b) which is payable to, or applicable for the benefit of, the other party.

(5) The payment must not be made to an individual under a liability incurred at any time in consideration of the individual surrendering, assigning or releasing an interest in settled property to or in favour of a person with a subsequent interest.

(6) The payment must not be a payment of an annuity granted in the ordinary course of a business of granting annuities.

(7) In subsection (2) “relevant foreign income” has the same meaning as in the Income Tax Acts (see section 989 of ITA 2007).

(8) In the application of this section to Scotland the reference in subsection (5) to settled property is to be read as a reference to property held in trust.

1302

(1) No deduction is allowed for corporation tax purposes for any contribution paid by any person under—

(a) Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4), or

(b) Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).

(2) But this prohibition does not apply to an employer's contribution.

(3) For this purpose “an employer's contribution” means—

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