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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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(a) which is sold in the ordinary course of the trade, or

(b) which would be so sold if it were mature or its manufacture, preparation or construction were complete.

(2) It does not include—

(a) materials used in the manufacture, preparation or construction of any such thing,

(b) any services performed in the ordinary course of the trade, or

Transfers of trading stock between trade and trader

Trading stock appropriated by trader

157

(1) This section applies if trading stock of a company's trade is appropriated by the company for any other purpose.

(2) In calculating the profits of the trade—

(a) the amount which the stock appropriated would have realised if sold in the open market at the time of the appropriation is brought into account as a receipt, and

(b) the value of anything in fact received for it is left out of account.

(3) The receipt is treated as arising on the date of the appropriation.

Trading stock supplied by trader

158

(1) This section applies if something that—

(a) belongs to a company carrying on a trade, but

(b) is not trading stock of the trade,

becomes trading stock of the trade.

(2) In calculating the profits of the trade—

(a) the cost of the stock is taken to be the amount which it would have realised if sold in the open market at the time it became trading stock of the trade, and

(b) the value of anything in fact given for it is left out of account.

(3) The cost is treated as being incurred on the date it became trading stock of the trade.

Other disposals and acquisitions not made in the course of trade

Disposals not made in the course of trade

159

(1) This section applies if—

(a) trading stock of a trade is disposed of otherwise than in the course of the trade, and

(b) section 157 does not apply.

(2) In calculating the profits of the trade—

(a) the amount which the stock disposed of would have realised if sold in the open market at the time of the disposal is brought into account as a receipt, and

(b) any consideration obtained for it is left out of account.

(3) The receipt is treated as arising on the date of the disposal.

(4) This section is subject to section 161.

Acquisitions not made in the course of trade

160

(1) This section applies if—

(a) trading stock of a trade has been acquired otherwise than in the course of the trade, and

(b) section 158 does not apply.

(2) In calculating the profits of the trade—

(a) the cost of the stock is taken to be the amount which it would have realised if sold in the open market at the time of the acquisition, and

(b) the value of anything in fact given for it is left out of account.

(3) The cost is treated as being incurred on the date of the acquisition.

(4) This section is subject to section 161.

Relationship with transfer pricing rules

Transfer pricing rules to take precedence

161

(1) Section 159 or 160 does not apply if the relevant consideration—

(a) falls to be adjusted for tax purposes under Part 4 of TIOPA 2010, or

(b) falls within that Part without falling to be so adjusted.

(1A) Subsection (1B) applies in relation to a disposal or acquisition if—

(a) by virtue of subsection (1), section 159 or 160 does not apply, and

(b) the market value amount is greater than the Part 4 TIOPA amount.

(1B) An amount equal to the market value amount less the Part 4 TIOPA amount is to be brought into account in calculating the profits of the trade (in addition to the Part 4 TIOPA amount).

(1C) In subsections (1A) and (1B)—

“market value amount” means the amount referred to in section 159(2)(a) or 160(2)(a);

“Part 4 TIOPA amount” means the amount which, following the application of Part 4 of TIOPA 2010 to the relevant consideration, is brought into account in respect of the relevant consideration in calculating the profits of the trade.

(2) For the purposes of subsection (1)(b), the relevant consideration falls within Part 4 of TIOPA 2010 without falling to be adjusted under that Part if—

(a) the condition in section 147(1)(a) of TIOPA 2010 is met, and

(b) the participation condition is met (see subsection (3A)), but

(i) one of the conditions in section 147(1)(c) and (d) of TIOPA 2010 is not met, or

(ii) one of the exceptions mentioned in subsection (3) applies.

(3) The exceptions are those in—

(a) section 447(5) (exchange gains or losses from loan relationships)

(b) section 694(8) (exchange gains or losses from derivative contracts),

(d) section 214 of TIOPA 2010 (saving for provisions relating to chargeable gains).

(3A) Section 148 of TIOPA 2010 (when the participation condition is met) applies for the purposes of subsection (2)(b) as it applies for the purposes of section 147(1)(b) of TIOPA 2010.

(4) In this section “relevant consideration” means—

(a) in relation to section 159, the consideration for the disposal of the trading stock, and

(b) in relation to section 160, the consideration for the acquisition of the trading stock.

Chapter 11 — Trade profits: valuation of stock on cessation of trade

Valuation of trading stock on cessation

162

(1) If a company permanently ceases to carry on a trade, in calculating the profits of the trade—

(a) trading stock belonging to the trade at the time of the cessation must be valued, and

(b) the value must be determined in accordance with sections 164 to 167 (bases of valuation).

(2) But no valuation of the stock is required under this Chapter if section 147(3) or (5) of TIOPA 2010 (provision not at arm's length) has effect in relation to any provision which—

(a) is made or imposed in relation to the stock, and

(b) has effect in connection with the cessation.

(2A) Subsection (2B) applies if—

(a) by virtue of subsection (2), no valuation of the stock under this Chapter is required, and

(b) the market value of the stock is greater than the Part 4 TIOPA amount.

(2B) An amount equal to the market value of the stock less the Part 4 TIOPA amount is to be brought into account in calculating the profits of the trade (in addition to the Part 4 TIOPA amount).

(2C) In subsections (2A) and (2B)—

“market value”, in relation to stock, is the value the stock would have been determined to have if it had been valued in accordance with sections 164 to 167, and

“Part 4 TIOPA amount” is the amount which, following the application of Part 4 of TIOPA 2010 in relation to the provision referred to in subsection (2), is brought into account in respect of that provision in calculating the profits of the trade.

(3) If there is a partnership change, no valuation of the stock is required under this Chapter 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) The reference in subsection (3) 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).

Meaning of “trading stock”

163

(1) In this Chapter “trading stock” means—

(a) any property (whether land or other property) which is sold in the ordinary course of the trade or would be so sold if it were mature or its manufacture, preparation or construction were complete, or

(b) materials used in the manufacture, preparation or construction of any property mentioned in paragraph (a).

(2) In this Chapter “trading stock” includes also any services performed in the ordinary course of the trade—

(a) the performance of which is wholly or partly completed at the time of the cessation, and

(b) for which it would be reasonable to expect that a charge would be made if there were no cessation and, in the case of partly completed services, their performance were fully completed,

and any article produced, and any material used, in the performance of any such services.

(3) In this Chapter references to the sale or transfer of trading stock include the sale or transfer of any benefits and rights which accrue, or might reasonably be expected to accrue, from the performance of any such services.

Basis of valuation of trading stock

164

(1) The value of trading stock belonging to the trade at the time of the cessation is determined as follows.

(2) If the stock is sold to a person who—

(a) carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom, and

(b) is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes,

the value is determined in accordance with section 165 (sale to unconnected person), 166 (sale to connected person) or 167 (election by connected persons).

(3) But if section 125 (preventing abuse of the herd basis rules) applies—

(a) the value is not determined in accordance with any of those sections, and

(b) the value is instead taken to be that given by section 125 (the price which the animals transferred would have fetched if sold in the open market at the time of the sale).

(4) In any other case, the value is taken to be the amount which the stock would have realised if sold in the open market at the time of the cessation.

Sale basis of valuation: sale to unconnected person

165

(1) The value of trading stock is determined in accordance with this section if—

(a) it is sold to a person who carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes, and

(b) the buyer is not connected with the seller.

(2) The value is taken to be the amount in fact realised on the sale.

(3) If the stock is sold together with other assets, so much of the amount realised on the sale as, on a just and reasonable apportionment, is properly attributable to each asset is treated as the amount realised on the sale of that asset.

Sale basis of valuation: sale to connected person

166

(1) The value of trading stock is determined in accordance with this section if—

(a) it is sold to a person who carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes,

(b) the buyer is connected with the seller, and

(2) The value is taken to be the amount which would have been realised if the sale had been between independent persons dealing at arm's length.

Sale basis of valuation: election by connected persons

167

(1) The value of trading stock is determined in accordance with this section if—

(a) it is sold to a person who carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade, profession or vocation for corporation or income tax purposes,

(b) the buyer is connected with the seller, and

(2) The parties to the sale may make an election under this section if the value of the stock determined under section 166 exceeds both—

(a) its acquisition value, and

(b) the amount in fact realised on the sale.

(3) If an election is made, the value is taken to be—

(a) its acquisition value, or

(b) if greater, the amount in fact realised on the sale.

(4) An election under this section must be made by both parties not later than two years after the end of the accounting period in which the cessation occurred.

(5) The “acquisition value” of trading stock means the amount which would have been deductible as representing its acquisition value, in calculating the profits of the trade, on the following assumptions—

(a) that the stock had been sold in the course of the trade, immediately before the cessation, for a price equal to the value of the stock determined under section 166, and

(b) that the period for which those profits were to be calculated began immediately before the sale.

(6) If the stock is sold together with other assets, so much of the amount realised on the sale as, on a just and reasonable apportionment, is properly attributable to each asset is treated as the amount realised on the sale of that asset.

Connected persons

168

For the purposes of sections 164 to 167 two persons are connected with each other if any of the following tests is met—

(a) they are connected with each other within the meaning of section 1122 of CTA 2010,

(b) one of them is a firm and the other has a right to a share of the assets or income of the firm,

(d) both of them are firms and some other person has a right to a share of the assets or income of both of them, or

(e) both of them are bodies corporate, or one of them is a firm and the other is a body corporate, and in either case some other person has control over both of them.

Cost to buyer of stock valued on sale basis of valuation

169

(1) This section applies for the purpose of calculating the profits of the trade carried on by the buyer of trading stock.

(2) If the value of the stock is determined in accordance with—

(a) section 164(3) or sections 165 to 167 (sale basis of valuation), or

(b) section 175(3) or sections 176 to 178 of ITTOIA 2005 (corresponding income tax rules),

the cost of the stock to the buyer is taken to be the value as so determined.

170

(1) In sections 164 to 167 (except in section 167(5)) references to a sale include a transfer for valuable consideration.

(2) In relation to a transfer which is not a sale—

“amount realised on the sale” means the value of the consideration given for the transfer,

“buyer” means the person to whom the transfer is made, and

“seller” means the person who makes the transfer.

Determination of questions

171

Any question arising under section 164(3) or sections 165 to 167 (sale basis of valuation of trading stock) must be determined in the same way as an appeal.

Chapter 12 — Deductions from profits: unremittable amounts

Application of Chapter

172

(1) This Chapter applies if—

(a) an amount received by, or owed to, a company carrying on a trade (“the trader”) is brought into account as a receipt in calculating the profits of the trade,

(b) the amount is paid or owed in a territory outside the United Kingdom, and

(2) An amount received is unremittable if it cannot be transferred to the United Kingdom merely because of foreign exchange restrictions.

(3) An amount owed is unremittable if it cannot be paid in the United Kingdom and—

(a) it temporarily cannot be paid in the territory in which it is owed merely because of foreign exchange restrictions, or

(b) it can be paid in that territory but, if it were paid there, the amount paid would not be transferable to the United Kingdom merely because of foreign exchange restrictions.

(4) “Foreign exchange restrictions” are restrictions imposed by any of the following—

(a) the laws of the territory where the amount is paid or owed,

(b) executive action of its government, and

(5) Section 464(1) (matters to be brought into account in the case of loan relationships) does not prevent any amount from being brought into account in accordance with section 173 or 175.

Relief for unremittable amounts

173

(1) If—

(a) the trader has profits from the trade in a period of account, and

(b) an unremittable amount has been brought into account as a receipt for that period,

a deduction of the amount is allowed from those profits (but see subsection (5)).

(2) If the trader has profits from the trade in a period of account and the total of—

(a) any unremittable amounts brought into account as receipts for that period, and

(b) any amount carried forward under this subsection or subsection (3) from the previous period of account,

exceeds the amount of those profits, the excess may be carried forward to the next period of account.

(3) If the trader does not have profits from the trade in a period of account and an unremittable amount has been brought into account as a receipt for that period, the total of—

(a) any unremittable amounts brought into account as receipts for that period, and

(b) any amount carried forward under this subsection or subsection (2) from the previous period of account,

may be carried forward to the next period of account.

(4) If an amount is carried forward under this section to a period of account in which the trader has profits from the trade, a deduction of the amount is allowed from those profits (but see subsection (5)).

(5) The total amount deducted under this section from the profits from a trade in a period of account must not exceed the amount of the profits.

Restrictions on relief

174

(1) No deduction is allowed under section 173 in relation to an amount so far as—

(a) it is used to finance expenditure or investment outside the United Kingdom, or

(b) it is applied outside the United Kingdom in another way.

(2) No deduction is allowed under section 173 in relation to an amount owed so far as a payment under a contract of insurance has been received in relation to it.

(3) No deduction is allowed under section 173 in relation to an amount brought into account in calculating profits if relief under section 1275 (unremittable income) may be claimed in relation to that amount.

Withdrawal of relief

175

(1) This section applies if—

(a) some or all of an unremittable amount has been deducted from profits under section 173, and

(b) any of the following events occurs.

(2) The events are that—

(a) the amount or part of it ceases to be unremittable,

(b) an allowable provision for impairment loss is made in respect of the amount or part of it,

(d) the amount or part of it is applied outside the United Kingdom in another way,

(e) the amount or part of it is exchanged for, or discharged by, an amount that is not unremittable, and

(f) if the amount is an amount owed, a payment under a contract of insurance is received in relation to the amount or part of it.

(3) The amount or the part of it in question is brought into account as a receipt in calculating the profits of the trade of the period of account in which the event occurs, but only so far as—

(a) it has been deducted from profits under section 173, and

(b) it has not already been brought into account as a receipt in calculating the profits of the trade as a result of this section.

(4) If the event is the receipt of a payment under a contract of insurance, the amount brought into account as a receipt must not exceed the amount of the payment.

(5) In subsection (2)(b) “allowable provision for impairment loss” means either—

(a) a debit in respect of the impairment of a financial asset (see section 476(1)) which is brought into account under Part 5 (loan relationships), or

(b) a provision in respect of which a deduction is allowable under section 55 (bad debts).

Chapter 13 — Disposal and acquisition of know-how

Meaning of “know-how” etc

176

(1) In this Chapter “know-how” means any industrial information or techniques likely to assist in—

(a) manufacturing or processing goods or materials,

(b) working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or

(2) For this purpose—

“mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth and for this purpose geothermal energy is treated as a natural deposit, and

“source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.

(3) For the purposes of this Chapter any consideration received for giving, or wholly or partly fulfilling, an undertaking which—

(a) is given in connection with a disposal of know-how, and

(b) restricts, or is designed to restrict, any person's activities in any way,

is treated as consideration received for the disposal of the know-how.

(4) It does not matter whether or not the undertaking is legally enforceable.

(5) For the purposes of this Chapter references to a sale of know-how include an exchange of know-how and any provision of this Chapter referring to a sale has effect with the necessary modifications.

(6) Those modifications include, in particular, reading references to the proceeds of sale and to the price as including the consideration for the exchange.

Disposal of know-how if trade continues to be carried on

177

(1) This section applies if—

(a) a company carrying on a trade receives consideration for the disposal of know-how which has been used in the trade,

(b) the company continues to carry on the trade after the disposal, and

(c) neither section 178 (disposal of know-how as part of disposal of all or part of a trade) nor section 179 (seller controlled by buyer etc) applies.

(2) The amount or value of the consideration is treated for corporation tax purposes as a trading receipt, except so far as it is brought into account under section 462 of CAA 2001 (disposal values).

(3) If the know-how is sold together with other property, the net proceeds of the sale of the know-how are treated as being so much of the net proceeds of the sale of all the property as, on a just and reasonable apportionment, is attributable to the know-how.

(4) For this purpose all property sold as a result of one bargain is treated as sold together even though—

(a) separate prices are, or purport to be, agreed for separate items of that property, or

(b) there are, or purport to be, separate sales of separate items of that property.

(5) Any question about the way in which a sum is to be apportioned under this section must be determined in accordance with section 563(2) to (6) of CAA 2001 (procedure for determining certain questions affecting two or more persons) if it materially affects two or more taxpayers.

(6) For this purpose a question materially affects two or more taxpayers if, at the time when the question falls to be determined, it appears that the determination is material to the liability to tax (for whatever period) of two or more persons.

Disposal of know-how as part of disposal of all or part of a trade

178

(1) This section applies if —

(a) a person carrying on a trade receives consideration for the disposal of know-how which has been used in the trade, and

(b) the know-how is disposed of as part of the disposal of all or part of the trade.

(2) If the person disposing of the know-how is within the charge to corporation tax, the consideration is treated for corporation tax purposes as a capital receipt for goodwill.

(3) If the person acquiring the know-how—

(a) is within the charge to corporation tax, and

(b) provided the consideration,

the consideration is treated for corporation tax purposes as a capital payment for goodwill.

(4) But the consideration is not treated for corporation tax purposes as a capital payment for goodwill if, before the acquisition, the trade was carried on wholly outside the United Kingdom.

(5) If the person disposing of the know-how is within the charge to corporation tax—

(a) that person, and

(b) the person acquiring the know-how (whether or not within the charge to corporation tax),

may jointly elect for this section not to apply (but see section 179).

(6) The election must be made within two years of the disposal.

(7) If—

(a) an election is made under section 194 of ITTOIA 2005 (corresponding income tax provision), and

(b) the person making the acquisition mentioned in that section is within the charge to corporation tax,

the persons making the election under that section are treated as also making an election under this section (even though the person disposing of the know-how is not within the charge to corporation tax).

Seller controlled by buyer etc

179

(1) This section applies if a disposal of know-how is by way of sale and—

(a) the seller is a body of persons over which the buyer has control,

(b) the buyer is a body of persons over which the seller has control, or

(2) In such a case—

(a) section 177 does not apply, and

(b) no election may be made under section 178.

(3) For the purposes of this section “body of persons” includes a firm.

Chapter 14 — Adjustment on change of basis

Adjustment on change of basis

Application of Chapter

180

(1) This Chapter applies if—

(a) a company carrying on a trade changes, from one period of account to the next, the basis on which profits of the trade are calculated for corporation tax purposes,

(b) the old basis accorded with the law or practice applicable in relation to the period of account before the change, and

(2) The practice applicable in any case means the accepted practice in cases of that description as to how profits of a trade should be calculated for corporation tax purposes.

(3) A company changes the basis on which profits of a trade are calculated for corporation tax purposes if the company makes—

(a) a change of accounting policy (see subsection (4)), or

(b) a change in the tax adjustments applied (see subsections (5) and (6)).

(4) A “change of accounting policy” includes, in particular—

(a) a change from using UK generally accepted accounting practice to using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards, and

(b) a change from using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards to using UK generally accepted accounting practice.

(5) A “tax adjustment” means any adjustment required or authorised by law in calculating profits of a trade for corporation tax purposes.

(6) A “change in the tax adjustments applied”—

(a) does not include a change made in order to comply with amending legislation not applicable to the previous period of account, but

(b) includes a change resulting from a change of view as to what is required or authorised by law or as to whether any adjustment is so required or authorised.

Giving effect to positive and negative adjustments

181

(1) An amount by way of adjustment must be calculated in accordance with section 182.

(2) If the amount produced by the calculation is positive—

(a) the amount is brought into account as a receipt in calculating the profits of the trade, and

(b) the receipt is treated as arising on the first day of the first period of account for which the new basis is adopted.

(3) If the amount produced by the calculation is negative—

(a) a deduction is allowed for the amount as an expense of the trade in calculating the profits of the trade, and

(b) the expense is treated as arising on the first day of the first period of account for which the new basis is adopted.

(4) This section is subject to—

(a) section 183 (no adjustment for certain expenses previously brought into account),

(b) section 184 (cases where adjustment not required until assets realised or written off), and

Calculation of the adjustment

182

The amount of the adjustment is calculated as follows. Step 1

Expenses previously brought into account

No adjustment for certain expenses previously brought into account

183

(1) This section applies if, as a result of a change of basis, expenses brought into account before the change on the old basis would on the new basis be brought into account over more than one period of account after the change.

(2) In such a case—

(a) no adjustment is made under this Chapter, and

(b) in calculating the profits of the trade no deduction is allowed for the expenses for any period of account after the change.

Realising or writing off assets

Cases where adjustment not required until assets realised or written off

184

(1) This section applies if there is a change of basis resulting from a tax adjustment affecting the calculation of any of the following amounts.

(2) The amounts are—

(a) any amount brought into account in respect of closing trading stock in the last period of account before the change of basis,

(b) any amount brought into account in respect of opening trading stock in the first period of account on the new basis, and

(3) The receipt of the trade or (as the case may be) the expense of the trade is treated as arising only when the asset to which it relates is realised or written off.

Mark to market

Change from realisation basis to mark to market

185

(1) This section applies if there is a change of basis from—

(a) not recognising a profit or loss on an asset until the asset is realised, to

(b) bringing assets into account in each period of account at a fair value.

(2) So far as—

(a) a receipt within item 1 of Step 1 in section 182 represents the fair value of an asset that is trading stock, or

(b) an expense within item 2 of that step relates to such an asset,

the receipt of the trade or (as the case may be) the expense of the trade is treated as not arising until the period of account in which the value of the asset is realised.

(3) In the case of a receipt of the trade, this is subject to any election under section 186 (election for spreading).

(4) In this section “trading stock” has the same meaning as in section 163.

Election for spreading if section 185 applies

186

(1) If section 185 applies, the company carrying on the trade may elect for any receipt treated as arising under this Chapter to be spread over 6 periods of account.

(2) The election must be made within 12 months of the end of the first accounting period to which the new basis applies.

(3) If an election is made, an amount equal to one-sixth of the amount of the receipt—

(a) is treated as arising, and

(b) is brought into account in calculating the profits of the trade,

in each of the 6 periods of account beginning with the first period to which the new basis applies.

(4) But if, before the whole of the receipt has been so brought into account, the company permanently ceases to carry on the trade, the whole of the amount so far as not previously brought into account—

(a) is treated as arising, and

(b) is brought into account in calculating the profits of the trade,

immediately before the cessation.

Transfer of insurance business

187

(1) This section applies if—

(a) an asset to which section 185 or 186 applies is transferred from one insurance company to another,

(b) the transfer is made under an insurance business transfer scheme, and

(c) immediately after the transfer, the transferee is UK resident or the asset is held for the purposes of a business carried on by the transferee in the United Kingdom through a permanent establishment.

(2) For the purposes of section 185, the asset is not to be treated as realised by the transferor merely because of its transfer under the scheme.

(3) If the transfer is of the transferor's whole business, the transferee is responsible under section 185 or 186 for bringing into account any amount required to be brought into account after the transfer.

Chapter 15 — Post-cessation receipts

Charge to tax on post-cessation receipts

188

The charge to corporation tax on income applies to post-cessation receipts arising from a trade.

Extent of charge to tax

189

(1) A post-cessation receipt is chargeable to tax under this Chapter only so far as it is not otherwise chargeable to corporation or income tax.

(2) Accordingly, a post-cessation receipt arising from a trade is not chargeable to tax under this Chapter so far as it is brought into account in calculating the profits of the trade of any period.

(3) A post-cessation receipt is not chargeable to tax under this Chapter if—

(a) it is received by or on behalf of a non-UK resident company which is beneficially entitled to it, and

(b) it represents income arising outside the United Kingdom.

(4) A post-cessation receipt is not chargeable to tax under this Chapter if it arises from a trade carried on wholly outside the United Kingdom other than a company's trade of dealing in or developing UK land.

Meaning of “post-cessation receipts”

Basic meaning of “post-cessation receipt”

190

(1) In this Part “post-cessation receipt” means a sum—

(a) which is received after a person permanently ceases to carry on a trade, and

(b) which arises from the carrying on of the trade before the cessation.

(2) In this Chapter, except in sections 194 and 195, references to a person permanently ceasing to carry on a trade include—

(a) in the case of a company, the occurrence of an event treated under section 18 of ITTOIA 2005 (companies beginning or ceasing to be within charge to income tax) as the company permanently ceasing to carry on the trade, and

(b) in the case of a trade carried on by a person in partnership, the occurrence of an event treated under section 246(4) of ITTOIA 2005 (basic meaning of “post-cessation receipt”) as the person permanently ceasing to carry on the trade.

Sums treated as post-cessation receipts

Debts paid after cessation

192

(1) This section applies if, in calculating the profits of a trade for corporation or income tax purposes, a deduction is made in respect of a debt under—

(a) section 55 (bad debts), or

(b) section 35 of ITTOIA 2005 (bad and doubtful debts),

and a person permanently ceases to carry on the trade.

(2) A sum received after the cessation is treated as a post-cessation receipt so far as the deduction is made.

Debts released after cessation

193

(1) This section applies if—

(a) in calculating the profits of a trade of any period for corporation or income tax purposes, a deduction is allowed for the expense giving rise to a debt owed by the person who carried on the trade,

(b) the person has permanently ceased to carry on the trade at or after the end of that period,

(d) the release is not part of a statutory insolvency arrangement.

(2) The amount released is treated as a post-cessation receipt.

Transfer of rights if transferee does not carry on trade

194

(1) This section applies if—

(a) a company (“the transferor”) permanently ceases to carry on a trade,

(b) the transferor transfers to another person (“the transferee”) for value the right to receive sums arising from the carrying on of the trade, and

(2) The transferor is treated as receiving a post-cessation receipt.

(3) The amount of the receipt is—

(a) the amount or value of the consideration for the transfer, if the transfer is at arm's length, or

(b) the value of the rights transferred as between parties at arm's length, if the transfer is not at arm's length.

(4) Any sums mentioned in subsection (1)(b) which are received after the cessation of the trade are not post-cessation receipts.

(5) This section is subject to section 195 (transfer of trading stock).

Sums that are not post-cessation receipts

Transfer of trading stock

195

(1) When a company permanently ceases to carry on a trade, a sum realised by the transfer of trading stock is not a post-cessation receipt if a valuation of the stock is brought into account in accordance with Chapter 11 (valuation of stock).

(2) In this section “trading stock” has the meaning given by section 163.

Deductions

Allowable deductions

196

(1) In calculating the amount on which tax is charged under this Chapter, deductions are allowed in accordance with—

(a) this section, and

(b) section 197,

from the amount which would otherwise be chargeable to tax under this Chapter.

(2) A deduction is allowed for a loss, expense or debit which, if the person carrying on the trade had not permanently ceased to do so—

(a) would have been deducted in calculating the profits of the trade for corporation or income tax purposes, or

(b) would have been deducted from or set off against the profits of the trade for corporation or income tax purposes,

but no deduction is allowed if the loss, expense or debit arises directly or indirectly from the cessation itself.

(3) No deduction for an amount is allowed under this section if the amount has been allowed under any other provision of the Tax Acts.

Further rules about allowable deductions

197

(1) An amount may not be deducted more than once under section 196.

(2) A deduction under that section of a loss must be made from post-cessation receipts charged for an earlier accounting period in preference to those charged for a later accounting period.

(3) But this does not authorise the deduction of a loss from post-cessation receipts charged for an accounting period before the accounting period in which the loss is made.

Election to carry back

198

(1) This section applies if a post-cessation receipt is received by a company in an accounting period beginning not later than 6 years after the company permanently ceased to carry on the trade.

(2) The company may elect that the tax chargeable in respect of the receipt is to be charged as if the receipt had been received on the date of the cessation (but see sections 199 and 200).

(3) The election must be made before the end of the period of two years beginning immediately after the end of the accounting period in which the receipt is received.

Deductions already made are not displaced

199

(1) This section applies if—

(a) a company which has permanently ceased to carry on a trade makes an election under section 198 in respect of a post-cessation receipt (“the carried back receipt”), and

(b) a deduction in respect of a loss has already been made under section 196 for an accounting period later than that in which the cessation occurred.

(2) Nothing in section 196 (read with section 197(2)) requires or permits a deduction in respect of that loss to be allowed, as a result of the election, for the accounting period in which the cessation occurred instead of the accounting period for which the deduction has already been made.

(3) But if the deduction was made for the accounting period in which the carried back receipt was received, subsection (2) applies to the loss only so far as it has been deducted from post-cessation receipts other than the carried back receipt.

Election given effect in accounting period in which receipt is received

200

(1) If a company makes an election under section 198, the additional tax is payable for the accounting period in which the receipt is received (and not for the accounting period in which the cessation occurred).

(2) In subsection (1) “the additional tax” means an amount of tax equal to the difference between—

(a) the amount of tax that is chargeable on the company for the accounting period in which the cessation occurred (“amount A”), and

(b) the amount of tax that would have been chargeable on the company for that period if the election had not been made (“amount B”).

(3) If—

(a) the company has made, under section 198, one or more other elections for receipts to be treated as received in the period in which the cessation occurred, and

(b) effect has been given to those elections,

the effect of those elections is taken into account in determining amounts A and B.

Chapter 16 — Priority rules

Provisions which must be given priority over this Part

201

(1) Any receipt or other credit item, so far as it falls within—

(a) Chapter 2 of this Part (receipts of trade), and

(b) Chapter 3 of Part 4 so far as it relates to a UK property business,

is dealt with under Chapter 3 of Part 4.

(1A) Subsection (1) does not apply in the case of the long-term business of an insurance company.

(2) Any receipt or other credit item, so far as it falls within—

(a) this Part, and

(b) Chapter 4 of Part 10 (income from holding an office),

is dealt with under Chapter 4 of Part 10.

Part 4 — Property income

Chapter 1 — Introduction

Overview of Part

202

(1) Chapter 2 contains definitions relevant to the application of the Part.

(2) Chapter 3 applies the charge to corporation tax on income to the profits of a UK property business or an overseas property business and contains basic rules about the calculation of the profits of such a property business.

(3) Chapter 4 provides for certain amounts of a capital nature to be brought into account as receipts in calculating the profits of a property business.

(4) Chapter 5 contains additional rules about the calculation of the profits of a property business.

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

(6) Chapters 7, 8 and 9 apply the charge to corporation tax on income to—

(a) rent receivable in connection with a UK section 39(4) concern,

(b) rent receivable for UK electric-line wayleaves, and

and contain related rules.

(7) Chapter 10 contains supplementary provisions including—

(a) rules that give priority to provisions outside this Part in relation to certain matters that fall within it, and

(b) rules that give priority to one Chapter of this Part in relation to certain matters that fall both within it and another Chapter of this Part.

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

Chapter 2 — Property businesses

Introduction

Overview of Chapter

203

(1) This Chapter explains for the purposes of this Act what is meant by—

(a) a company's UK property business (see section 205), and

(b) a company's overseas property business (see section 206).

(2) Both those sections need to be read with—

(a) section 207 (which explains what is meant by generating income from land), and

(b) section 208 (which provides that certain activities do not count as activities for generating income from land).

(3) In the case of a property business carried on by a company as a member of a firm, the basic rules in sections 205 and 206 are explained in section 1270(2) and (3).

(4) See also section 86 of FA 2012 (which qualifies the basic rules in sections 205 and 206 for the purpose of applying the I - E rules in relation to an insurance company).

Meaning of “property business”

204

(1) In this Act “property business” means a UK property business or an overseas property business.

(2) References in this Act to a property business are to a property business so far as any profits of the business are chargeable to tax under Chapter 3 (as to which see, in particular, the rules about territorial scope in section 5).

(3) Accordingly, nothing in Chapter 4 or 5 is to be read as treating an amount as a receipt of a property business if the profits concerned would not be chargeable to tax under Chapter 3.

Basic meaning of UK and overseas property business

UK property business

205

A company's UK property business consists of—

(a) every business which the company carries on for generating income from land in the United Kingdom, and

(b) every transaction which the company enters into for that purpose otherwise than in the course of such a business.

Overseas property business

206

A company's overseas property business consists of—

(a) every business which the company carries on for generating income from land outside the United Kingdom, and

(b) every transaction which the company enters into for that purpose otherwise than in the course of such a business.

Generating income from land

Meaning of “generating income from land”

207

(1) In this Chapter “generating income from land” means exploiting an estate, interest or right in or over land as a source of rents or other receipts.

(2) “Rents” includes payments by a tenant for work to maintain or repair leased premises which the lease does not require the tenant to carry out.

(3) “Other receipts” includes—

(a) payments in respect of a licence to occupy or otherwise use land,

(b) payments in respect of the exercise of any other right over land, and

(4) For the purposes of this section a right to use a caravan or houseboat at only one location is treated as a right deriving from an estate or interest in land.

Activities not for generating income from land

208

For the purposes of this Chapter the following activities are not carried on for generating income from land—

(a) farming or market gardening in the United Kingdom (but see section 36 (UK farming or market gardening treated as trade)),

(b) any other occupation of land (but see section 38 (certain commercial occupation of UK land treated as trade)), and

Chapter 3 — Profits of property businesses: basic rules

Charge to tax on profits of a property business

209

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

Calculation of profits

Profits of a property business: application of trading income rules

210

(1) The profits of a property business are calculated in the same way as the profits of a trade.

(2) But the provisions of Part 3 (trading income) which apply as a result of subsection (1) are limited to the following—

*In Chapter 3 (basic rules)—*	*In Chapter 3 (basic rules)—*
section 46	generally accepted accounting practice
section 47	losses calculated on same basis as profits
section 48	receipts and expenses
section 49A	money's worth
section 52	apportionment etc of profits and losses to accounting period
*In Chapter 4 (rules restricting deductions)—*	*In Chapter 4 (rules restricting deductions)—*
section 53	capital expenditure
section 54	expenses not wholly and exclusively for trade and unconnected losses
section 55	bad debts
sections 56 to 58B	car ... hire
section 59	patent royalties
*In Chapter 5 (rules allowing deductions)—*	*In Chapter 5 (rules allowing deductions)—*
section 61	pre-trading expenses
. . .	. . .
section 69	payments for restrictive undertakings
sections 70 and 71	seconded employees
section 72	payroll deduction schemes: contributions to agents' expenses
sections 73 to 75	counselling and retraining expenses
sections 76 to 81	redundancy payments etc
sections 82 to 86	contributions to local enterprise organisations or urban regeneration companies
sections 86A and 86B	contributions to flood and coastal erosion risk management projects
sections 87 and 88	scientific research
sections 89 and 90	expenses connected with patents, designs and trade marks
section 91	payments to Export Credits Guarantee Department
section 92	levies under FISMA 2000
section 92A	deductions in relation to salaried members of limited liability partnerships
*In Chapter 6 (receipts)—*	*In Chapter 6 (receipts)—*
section 93	capital receipts
section 94	debts incurred and later released
section 101	distribution of assets of mutual concerns
section 102	industrial development grants
section 103	sums recovered under insurance policies etc
section 104	repayments under FISMA 2000
*In Chapter 7 (gifts to charities etc)—*	*In Chapter 7 (gifts to charities etc)—*
section 108	receipt of benefits by donor or connected person
*In Chapter 9 (other specific trades)—*	*In Chapter 9 (other specific trades)—*
section 131	incidental costs of issuing qualifying shares (building societies)
section 133	annual payments paid by a credit union
*In Chapter 12 (deductions from profits)—*	*In Chapter 12 (deductions from profits)—*
sections 172 to 175	unremittable amounts

Loan relationships and derivative contracts

211

(1) The profits of a property business are calculated without regard to items giving rise to—

(a) credits or debits within Part 5 (loan relationships), or

(b) credits or debits within Part 7 (derivative contracts).

(2) This section does not affect the width of the provision made by—

(a) section 464 (priority of Part 5 for corporation tax purposes), or

(b) section 699 (priority of Part 7 for corporation tax purposes).

Items treated as receipts and expenses

212

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

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

(b) the provisions of CAA 2001 which treat charges as receipts of a property business, and

(c) section 748 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a property business carried on by it treated as receipts and expenses of the business).

Certain amounts brought into account under Part 3

213

(1) The rules for calculating the profits of a property business need to be read with the following provisions of Part 3 (trading income)—

(a) section 42 (tied premises),

(b) section 43 (caravan sites where trade carried on),

(d) section 45(3) (payments for wayleaves).

(2) Those provisions secure that amounts which would otherwise be brought into account in calculating the profits of the business are, or may be, brought into account instead in calculating the profits of a trade.

Relationship between rules prohibiting and allowing deductions

214

(1) Any relevant permissive rule in this Part—

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

(b) is subject to the following provisions—

(i) section 56 (car ... hire), as applied by section 210,

(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 in this Part (and to the provisions mentioned in subsection (1)(b)).”, and

(2) In this section “any relevant permissive rule in this Part” means any provision of this Part (apart from sections 231 to 234) which allows a deduction in calculating the profits of a property business.

(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.

(3A) In this section “relevant tax avoidance arrangements” means arrangements—

(a) to which the person 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).

(4) In this section any reference to any provision of this Part includes any provision applied by section 210.

Chapter 4 — Profits of property businesses: lease premiums etc

Introduction

Overview of Chapter

215

(1) This Chapter provides for certain amounts (which would otherwise generally be amounts of a capital nature) to be brought into account as receipts in calculating the profits of a property business.

(2) The amounts relate to short-term leases in the case of—

section 217 (lease premiums),

section 218 (amount treated as lease premium where work required),

section 220 (sums payable for surrender of lease), and

section 222 (assignments for profit of lease granted at undervalue).

(3) The amounts relate to any lease in the case of—

section 219 (sums payable instead of rent), and

section 221 (sums payable for variation or waiver of terms of lease).

(4) The amounts relate to the sale of any estate or interest in land in the case of—

section 224 (sales with right to reconveyance), and

section 225 (sale and leaseback transactions).

(5) This Chapter also permits certain deductions in calculating the profits of property businesses carried on by tenants under certain leases (see sections 231 and 232).

Meaning of “short-term lease”

216

In this Chapter “short-term lease” means a lease whose effective duration is 50 years or less.

Amounts treated as receipts: leases

Lease premiums

217

(1) This section applies if a premium is required to be paid—

(a) under a short-term lease, or

(b) otherwise under the terms subject to which a short-term lease is granted.

(2) The company to which the premium is due is treated as—

(a) entering into a transaction mentioned in section 205 (if the land to which the lease relates is in the United Kingdom) or section 206 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the lease is granted.

(4) The amount of the receipt is given by the formula—

$$P×50-Y50$where—P is the premium, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 228 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 228.

Amount treated as lease premium where work required

218

(1) This section applies if the terms subject to which a lease is granted impose on the tenant an obligation to carry out work on the premises.

(2) The lease is treated for the purposes of section 217 (lease premiums) as requiring the payment of a premium to the landlord (in addition to any other premium).

(3) The amount of the premium is the amount by which the value of the landlord's estate or interest immediately after the commencement of the lease exceeds what its value would have been at that time if the terms of the lease did not impose the obligation on the tenant.

(4) An obligation, or part of an obligation, that requires the carrying out of excepted work is ignored for the purposes of this section.

(5) Work is “excepted work” if the payment for carrying it out would, if the landlord and not the tenant were obliged to carry it out, be deductible as an expense in calculating the profits of the landlord's property business.

Sums payable instead of rent

219

(1) This section applies if—

(a) under the terms subject to which a lease is granted a sum becomes payable by the tenant instead of the whole or a part of the rent for a period, and

(b) the period is 50 years or less.

(2) The company to which the sum is due is treated as—

(a) entering into a transaction mentioned in section 205 (if the land to which the lease relates is in the United Kingdom) or section 206 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the sum becomes payable.

(4) The amount of the receipt is given by the formula—

$$S×50-Y50$where—S is the sum payable instead of rent, andY is the number of complete periods of 12 months (other than the first) comprised in the period in relation to which the sum is payable.$

(5) But, if the rule in section 228 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 228.

(6) In determining for the purposes of this Chapter the duration of the period in relation to which the sum is payable, any part of the period that falls after the expiry of the effective duration of the lease is excluded.

Sums payable for surrender of lease

220

(1) This section applies if, under the terms subject to which a short-term lease is granted, a sum becomes payable by the tenant as consideration for the surrender of the lease.

(2) The company to which the sum is due is treated as—

(a) entering into a transaction mentioned in section 205 (if the land to which the lease relates is in the United Kingdom) or section 206 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the sum becomes payable.

(4) The amount of the receipt is given by the formula—

$$S×50-Y50$where—S is the sum payable as consideration for the surrender of the lease, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 228 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 228.

Sums payable for variation or waiver of terms of lease

221

(1) This section applies if—

(a) a sum becomes payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of a term of a lease,

(b) the sum is due to the landlord or a company which is connected with the landlord, and

(2) The company to which the sum is due is treated as—

(a) entering into a transaction mentioned in section 205 (if the land to which the lease relates is in the United Kingdom) or section 206 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the contract providing for the variation or waiver is entered into.

(4) The amount of the receipt is given by the formula—

$$S×50-Y50$where—S is the sum payable as consideration for the variation or waiver, andY is the number of complete periods of 12 months (other than the first) comprised in the period for which the variation or waiver has effect.$

(5) But, if the rule in section 228 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 228.

(6) In determining for the purposes of this Chapter the duration of the period for which the variation or waiver has effect, any part of the period that falls after the expiry of the effective duration of the lease is excluded.

Assignments for profit of lease granted at undervalue

222

(1) This section applies to an assignment of a short-term lease if—

(a) the lease was granted at an undervalue, and

(b) a profit is made on the assignment.

(2) The company which assigns the lease is treated as—

(a) entering into a transaction mentioned in section 205 (if the land to which the lease relates is in the United Kingdom) or section 206 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the consideration for the assignment becomes payable.

(4) The amount of the receipt is given by the formula—

$$P×50-Y50$where—P is the lesser of—(a) the profit on the assignment, and(b) the amount by which the undervalue exceeds the total of the profits (if any) made on previous assignments of the lease, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 228 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 228.

(6) Section 223 explains references in this section to the grant of a lease at an undervalue and the making of a profit on an assignment of a lease.

Provisions supplementary to section 222

223

(1) This section operates for the purposes of section 222.

(2) A lease is granted at an undervalue if the terms subject to which it was granted are such that the landlord who granted it could have required the payment of an additional sum by way of premium, or additional premium, for its grant.

(3) The additional sum is the undervalue.

(4) The test in subsection (2) must be applied—

(a) having regard to values prevailing at the time the lease was granted, and

(b) on the assumption that the negotiations for the lease were at arm's length.

(5) A profit is made on an assignment of a lease if the consideration for the assignment exceeds—

(a) if the lease has not previously been assigned, any premium for which it was granted, or

(b) in any other case, any consideration for which it was last assigned.

(6) The amount of the excess is the profit.

Other amounts treated as receipts

Sales with right to reconveyance

224

(1) This section applies if—

(a) an estate or interest in land is sold subject to terms which provide that it is to be, or may be required to be, reconveyed on a future date to the seller or a person connected with the seller,

(b) the period beginning with the sale and ending with the earliest date on which under the terms of the sale the estate or interest would fall to be reconveyed is 50 years or less, and

(2) The seller is treated as—

(a) entering into a transaction mentioned in section 205 (if the land is in the United Kingdom) or section 206 (if the land is outside the United Kingdom), and

(b) receiving the amount calculated under subsection (4) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the estate or interest is sold.

(4) The amount of the receipt is given by the formula—

$$E×50-Y50$where—E is the amount by which the price at which the estate or interest is sold exceeds the price at which it is to be reconveyed, andY is the number of complete periods of 12 months (other than the first) comprised in the period beginning with the sale and ending with the earliest date on which under the terms of the sale the estate or interest would fall to be reconveyed.$

(5) See section 226 for some provisions which are supplementary to this section.

Sale and leaseback transactions

225

(1) This section applies if—

(a) an estate or interest in land is sold subject to terms which provide for the grant of a lease directly or indirectly out of the estate or interest to the seller or a person connected with the seller,

(b) the period beginning with the sale and ending with the earliest date on which under the terms of the sale the lease would fall to be granted is 50 years or less, and

(i) the amount of any premium for the lease, and

(ii) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run.

(2) This section does not apply if the lease is granted and begins to run within one month after the sale.

(3) The seller is treated as—

(a) entering into a transaction mentioned in section 205 (if the land is in the United Kingdom) or section 206 (if the land is outside the United Kingdom), and

(b) receiving the amount calculated under subsection (5) as a result of that transaction.

(4) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the accounting period in which the estate or interest is sold.

(5) The amount of the receipt is given by the formula—

$$E×50-Y50$where—E is the amount by which the price at which the estate or interest is sold exceeds the total of—(a) the amount of any premium for the lease, and(b) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run, andY is the number of complete periods of 12 months (other than the first) comprised in the period beginning with the sale and ending with the earliest date on which under the terms of the sale the lease would fall to be granted.$

(6) See section 226 for some provisions which are supplementary to this section.

Provisions supplementary to sections 224 and 225

226

(1) This section operates for the purposes of sections 224 (sales with right to reconveyance) and 225 (sale and leaseback transactions).

(2) Subsection (3) explains how to determine for the purposes of section 224 the price at which an estate or interest is to be reconveyed when—

(a) the date on which the estate or interest would fall to be reconveyed is not fixed under the terms of the sale, and

(b) the price at which it is to be reconveyed varies with the date.

(3) The price is taken to be the lowest possible under the terms of the sale.

(4) Subsection (5) explains how to determine for the purposes of section 225 the total of—

(a) the amount of any premium for the lease, and

(b) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run,

when the date for the grant of the lease is not fixed under the terms of the sale and the total varies with the date.

(5) The total is taken to be the lowest possible under the terms of the sale.

(6) For the purposes of sections 224(3) and 225(4) (receipts of property business for accounting period in which estate or interest sold) an estate or interest in land is sold when any of the following occurs—

(a) an unconditional contract for its sale is entered into,

(b) a conditional contract for its sale becomes unconditional, or

(c) an option or right of pre-emption is exercised requiring the seller to enter into an unconditional contract for its sale.

Additional calculation rule for reducing certain receipts

Circumstances in which additional calculation rule applies

227

(1) The rule in section 228 (the additional calculation rule) applies in relation to the calculation of receipts under—

section 217 (lease premiums),

section 219 (sums payable instead of rent),

section 220 (sums payable for surrender of lease),

section 221 (sums payable for variation or waiver of terms of lease), or

section 222 (assignments for profit of lease granted at undervalue).

(2) It applies if conditions A and B are met.

(3) Condition A is that—

(a) in the case of a receipt under section 217, 219 or 220, the lease is granted out of a taxed lease,

(b) in the case of a receipt under section 221, the lease was granted out of a taxed lease, and

(4) A lease is a “taxed lease” for the purposes of this Chapter if—

(a) there is a receipt under any of sections 217 to 222 in respect of the lease,

(b) there would be such a receipt, but for the operation of the rule in section 228 (the additional calculation rule) in the calculation of its amount,

(c) there is a receipt under any of sections 277 to 282 of ITTOIA 2005 (receipts in respect of lease premiums, sums payable instead of rent, for surrender of lease and for variation or waiver of terms of lease and assignments) in respect of the lease, or

(d) there would be such a receipt, but for the operation of the rule in section 288 of that Act (the additional calculation rule) in the calculation of its amount.

In this Chapter a receipt falling within paragraph (a), (b), (c) or (d) is referred to as a “taxed receipt”.

(5) Condition B is that the taxed receipt, or if there is more than one, at least one of them, has an unused amount.

(6) See section 230 for an explanation of when a taxed receipt has an “unused amount”.

The additional calculation rule

228

(1) The rule in this section applies if the conditions mentioned in section 227(2) are met.

(2) The additional calculation rule is that the amount given by the formula in section 217, 219, 220, 221 or 222 must be reduced by the amount calculated in accordance with this section in order to give the amount of the receipt under calculation.

(3) The amount of the reduction is—

(a) if there is one taxed receipt which has an unused amount, the basic relieving amount by reference to that receipt, and

(b) if there is more than one taxed receipt which has an unused amount, the total of the basic relieving amounts by reference to each receipt,

adjusted, if necessary, in the light of section 229(5) (reduction not to exceed amount being reduced).

(4) The basic relieving amount by reference to a taxed receipt is given by the formula—

$$A×LRPTRP$where—A is the unreduced amount of the taxed receipt (which is, generally, the amount given by the formula in section 217, 219, 220, 221 or 222, or in section 277, 279, 280, 281 or 282 of ITTOIA 2005, but see section 230(2) to (4) of this Act),LRP is the receipt period of the receipt under calculation, andTRP is the receipt period of the taxed receipt.$

(5) But the basic relieving amount is different if section 229(2) or (4) applies (certain special cases).

(6) For the purposes of this Chapter, the “receipt period” of a receipt is—

(a) in the case of a receipt under section 217 or 220, the effective duration of the lease,

(b) in the case of a receipt under section 219, the period in relation to which the sum payable instead of rent is payable,

(d) in the case of a receipt under section 222, the effective duration of the lease remaining at the date of the assignment, and

(e) in the case of a receipt under Chapter 4 of Part 3 of ITTOIA 2005 (profits of property businesses: lease premiums etc), its receipt period within the meaning of that Chapter (see section 288(6) of that Act).

The additional calculation rule: special cases

229

(1) This section explains how section 228 operates in some special cases.

(2) If—

(a) the receipt under calculation is under any of sections 217 to 221, and

(b) the lease does not extend to the whole of the premises subject to the taxed lease,

the basic relieving amount by reference to a taxed receipt is calculated by multiplying the amount given by the formula in subsection (4) of section 228 by the fraction of those premises which is subject to the lease.

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

(4) If the basic relieving amount given by section 228(4) or subsection (2) above by reference to a taxed receipt would otherwise exceed the unused amount of the taxed receipt, the basic relieving amount is the unused amount.

(5) If the amount of the reduction under section 228 would otherwise exceed the amount given, in respect of the receipt under calculation, by the formula in section 217, 219, 220, 221 or 222, the amount of the reduction is equal to the amount given by the formula.

Meaning of “unused amount” and “unreduced amount”

230

(1) For the purposes of this Chapter, a taxed receipt has an “unused amount” if the unreduced amount exceeds the total of the reductions and deductions referred to in subsection (5).

(2) In this Chapter the “unreduced amount” of a taxed receipt is the amount given, in respect of the taxed receipt, by the formula in—

(a) section 217, 219, 220, 221 or 222 above, or

(b) section 277, 279, 280, 281 or 282 of ITTOIA 2005 (income tax provisions corresponding to those listed in paragraph (a)).

(3) Subsection (4) applies—

(a) to a taxed receipt under section 217 (lease premiums) as a result of section 218 (amount treated as lease premium where work required), and

(b) to a taxed receipt under section 277 of ITTOIA 2005 (lease premiums) as a result of section 278 of that Act (amount treated as lease premium where work required).

(4) If the obligation to carry out work included the carrying out of work which gives, or will give, rise to qualifying expenditure under CAA 2001, the unreduced amount of the taxed receipt is calculated as if the obligation had not included the carrying out of that work.

(5) The reductions and deductions mentioned in subsection (1) are—

(a) the reductions under section 228 above or section 288 of ITTOIA 2005 (the additional calculation rule) by reference to the taxed receipt,

(b) the deductions made in calculating the profits of a trade, profession or vocation for expenses under section 63 above or section 61 of ITTOIA 2005 (tenant under taxed lease who uses land in connection with trade treated as incurring expenses) by reference to the taxed receipt, and

(c) the deductions made in calculating the profits of a property business for expenses under section 232 below or section 292 of ITTOIA 2005 (tenant under taxed lease who uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt.

(6) For the purposes of this Chapter references to a reduction under section 228 above or section 288 of ITTOIA 2005 by reference to a taxed receipt are to a reduction under the section concerned so far as attributable to the taxed receipt.

Deductions in relation to certain receipts

Deductions for expenses under section 232

231

(1) Section 232 (tenants under taxed leases treated as incurring expenses) applies in calculating the profits of a property business carried on by the tenant under a taxed lease for the purpose of making deductions for the expenses of the property business.

(2) A deduction is allowed for an expense under section 232 for a qualifying day on which the whole or part of the premises subject to the taxed lease is—

(a) occupied by the tenant for the purpose of carrying on the property business, or

(b) sublet.

(3) But any deduction for an expense under section 232 is subject to the application of any provision of Chapter 4 of Part 3 (as applied to property businesses by section 210).

(4) The amount of the deduction for an expense under section 232 for a qualifying day by reference to a taxed receipt may be reduced in order to comply with section 235 (limit on reductions and deductions).

(5) For the meaning of expressions used in this section, see in particular—

section 227(4) (“taxed lease”), and

Section 227(4) (“taxed receipt”).

Tenants under taxed leases treated as incurring expenses

232

(1) The tenant under a taxed lease is treated as incurring an expense of a revenue nature in respect of the premises 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 falls within the receipt period of the taxed receipt.

(4) The amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

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

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

(4B) This subsection applies if there would have been no taxed receipt but for the application of Rule 1 in section 243 in determining the effective duration of the lease.

(4C) This subsection applies if there would have been no taxed receipt but for the application of Rule 1 in section 303 of ITTOIA 2005 in determining the effective duration of the lease for the purposes of Chapter 4 of Part 3 of that Act.

(5) This section is subject to sections 233 and 234 (restrictions on expenses where the additional calculation rule is relevant).

(6) For the meaning of expressions used in this section, see in particular—

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

section 230(2) to (4) (“unreduced amount”).

Restrictions on section 232 expenses: the additional calculation rule

233

(1) This section applies if—

(a) in calculating the amount of a receipt under this Chapter there is a reduction under section 228 (the additional calculation rule) by reference to a taxed receipt, or

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Corporation Tax Act 2009

Transfers of trading stock between trade and trader

Trading stock appropriated by trader

157

Trading stock supplied by trader

158

Other disposals and acquisitions not made in the course of trade

Disposals not made in the course of trade

159

Acquisitions not made in the course of trade

160

Relationship with transfer pricing rules

Transfer pricing rules to take precedence

161

Chapter 11 — Trade profits: valuation of stock on cessation of trade

Valuation of trading stock on cessation

162

Meaning of “trading stock”

163

Basis of valuation of trading stock

164

Sale basis of valuation: sale to unconnected person

165

Sale basis of valuation: sale to connected person

166

Sale basis of valuation: election by connected persons

167

Connected persons

168

Cost to buyer of stock valued on sale basis of valuation

169

Meaning of “sale” and related expressions

170

Determination of questions

171

Chapter 12 — Deductions from profits: unremittable amounts

Application of Chapter

172

Relief for unremittable amounts

173

Restrictions on relief

174

Withdrawal of relief

175

Chapter 13 — Disposal and acquisition of know-how

Meaning of “know-how” etc

176

Disposal of know-how if trade continues to be carried on

177

Disposal of know-how as part of disposal of all or part of a trade

178

Seller controlled by buyer etc

179

Chapter 14 — Adjustment on change of basis

Adjustment on change of basis

Application of Chapter

180

Giving effect to positive and negative adjustments

181

Calculation of the adjustment

182

Expenses previously brought into account

No adjustment for certain expenses previously brought into account

183

Realising or writing off assets

Cases where adjustment not required until assets realised or written off

184

Mark to market

Change from realisation basis to mark to market

185

Election for spreading if section 185 applies

186

Transfer of insurance business

187

Chapter 15 — Post-cessation receipts

Charge to tax on post-cessation receipts

Charge to tax on post-cessation receipts

188

Extent of charge to tax

189