Legalize / United Kingdom / Public General Act

Corporation Tax Act 2009

Type Public General Act

Publication 2009-03-26

Last updated 2025-04-01

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

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

The receipt that is so reduced is referred to in this section as the “lease premium receipt”.

(2) Subsections (3) to (5) provide for the application of section 232 for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) The tenant under the taxed lease is treated as incurring an expense under section 232 for the qualifying day by reference to the taxed receipt only if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt.

(4) If the condition in subsection (3) is met, the amount of the expense under section 232 for the qualifying day by reference to the taxed receipt is equal to that excess.

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

(6) In this section—

the “daily amount” of the taxed receipt is given by the formula—$ATRP$where—A is the unreduced amount of the taxed receipt (see section 230(2) to (4)), andTRP is the number of days in the receipt period of the taxed receipt, and

the “daily reduction” of a lease premium receipt is given by the formula—$ARRRP$where—AR is the reduction under section 228 above or section 288 of ITTOIA 2005 by reference to the taxed receipt (see section 230(6)), andRRP is the number of days in the receipt period of the lease premium receipt.

(7) Section 234 explains how this section operates if the lease premium receipt is in respect of a lease that has been granted out of the taxed lease and does not extend to the whole of the premises subject to the taxed lease.

Restrictions on section 232 expenses: lease of part of premises

234

(1) This section applies if—

(a) a lease has been granted out of the taxed lease,

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

(2) The condition is that—

(a) in calculating the amount of a receipt under any of sections 217 to 221 (receipts in respect of lease premiums or sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of the lease, there is a reduction under section 228 by reference to a taxed receipt, or

(b) in calculating the amount of a receipt under any of sections 277 to 281 of ITTOIA 2005 (receipts in respect of lease premiums or sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of the lease, there is a reduction under section 288 of that Act (the additional calculation rule) by reference to a taxed receipt.

The receipt that is so reduced is referred to in this section as the “lease premium receipt”.

(3) Subsections (4) to (6) apply for a qualifying day that falls within the receipt period of the lease premium receipt.

(4) Sections 232 and 233 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.

(5) If—

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

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

sections 232 and 233 apply separately in relation to each part of the premises subject to a lease to which such a receipt relates and to the remainder of the premises.

(6) Where sections 232 and 233 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.

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

Limit on effect of additional calculation rule and deductions

Limit on reductions and deductions

235

(1) The total of—

(a) the reductions under section 228 by reference to a taxed receipt, and

(b) the deductions allowed in calculating the profits of a property business for expenses under section 232 (tenant under taxed lease which uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt,

must not exceed the amount referred to in subsection (2).

(2) The amount mentioned in subsection (1) is the difference between—

(a) the unreduced amount of the taxed receipt, and

(b) the total of the amounts mentioned in subsection (3).

(3) Those amounts are—

(a) the reductions under 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 property business for expenses under 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, and

(c) 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.

Certain administrative provisions

Payment of tax by instalments

236

(1) This section applies if—

(a) there is a receipt under section 217 (lease premiums) in respect of a premium which is payable by instalments, or

(b) there is a receipt under any of sections 219 to 221 (sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of a sum which is payable by instalments.

(2) The company which is liable to pay tax by reference to the receipt may choose to pay the tax by such instalments as an officer of Revenue and Customs may allow.

(3) The period over which the instalments of tax must be paid—

(a) must be 8 years or less, and

(b) must end before, or at the same time as, the time when the last of the instalments mentioned in subsection (1)(a) or (b) is payable.

Statement of accuracy for purposes of section 222

237

(1) This section applies if any of the persons mentioned in subsection (3) provides an officer of Revenue and Customs with a statement showing—

(a) whether or not there is, or may be, a receipt under section 222 (assignments for profit of lease granted at undervalue), and

(b) the amount of any receipt.

(2) The officer must certify the accuracy of the statement, if satisfied as to its accuracy.

(3) The persons referred to in subsection (1) are—

(a) the landlord who granted the lease,

(b) a company which assigned it, or

Claim for repayment of tax payable by virtue of section 224

238

(1) This section applies if—

(a) there is a receipt under section 224 (sales with right to reconveyance), and

(b) the date on which the estate or interest would fall to be reconveyed was not fixed under the terms of the sale.

(2) If the seller makes a claim, the seller must be repaid the amount by which A exceeds B, where—

A is the amount of tax paid by the seller which was payable by virtue of section 224, and

B is the amount of tax that would have been so payable if the date on which the estate or interest was reconveyed had been taken as the date fixed by the terms of the sale.

(3) The claim must be made within 4 years after the day on which the estate or interest was reconveyed.

Claim for repayment of tax payable by virtue of section 225

239

(1) This section applies if—

(a) there is a receipt under section 225 (sale and leaseback transactions), and

(b) the date for the grant of the lease was not fixed under the terms of the sale.

(2) If the seller makes a claim, the seller must be repaid the amount by which A exceeds B, where—

A is the amount of tax paid by the seller which was payable by virtue of section 225, and

B is the amount of tax that would have been so payable if the date on which the lease was granted had been taken as the date fixed by the terms of the sale.

(3) The claim must be made within 4 years after the day on which the lease was granted.

Determinations affecting liability of more than one person

Appeals against proposed determinations

240

(1) Subsection (2) applies if it appears to an officer of Revenue and Customs that—

(a) a determination is needed of an amount that is to be brought into account as a receipt under this Chapter in calculating the liability to tax of a person (“the first taxpayer”), and

(b) the determination may affect the liability to corporation tax, income tax or capital gains tax of other persons.

(2) The officer may give notice (a “provisional notice of determination”) to the first taxpayer and the other persons of—

(a) the determination the officer proposes to make, and

(b) their rights under this section and section 242.

(3) A person to whom a provisional notice of determination is given may object to the proposed determination by giving notice (“a notice of objection”) to the officer.

(4) The notice of objection must be given within 30 days of the date on which the provisional notice of determination was given.

(5) If an officer gives provisional notices of determination and no person gives a notice of objection—

(a) a determination must be made by the officer as proposed in the provisional notices, and

(b) the determination is not to be called in question in any proceedings.

Section 240: supplementary

241

(1) A provisional notice of determination under section 240(2) may include a statement of the grounds on which the officer proposes to make the determination.

(2) Subsection (1) applies despite any obligation as to secrecy or other restriction on the disclosure of information.

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Determination by tribunal

242

(1) If a notice of objection is given under section 240(3), the amount mentioned in section 240(1) must be determined in the same way as an appeal.

(2) All persons to whom provisional notices of determination have been given under section 240(2) may be a party to—

(a) any proceedings under subsection (1), and

(b) any appeal arising out of those proceedings.

(3) Those persons are bound by the determination made in the proceedings or on appeal, whether or not they have taken part in the proceedings.

(4) Their successors in title are bound in the same way.

Effective duration of lease

Rules for determining effective duration of lease

243

(1) The following rules apply for determining the effective duration of a lease for the purposes of this Chapter.

Rule 1: If—

(a) the terms of the lease or any other circumstances make it unlikely that the lease will continue beyond a date before the end of the term for which the lease was granted, and

(b) the premium was not substantially greater than it would have been had the term been one ending on that date,

the lease is treated as ending on that date (or the earliest such date).

Rule 2: If the terms of the lease include provision for the extension of the lease beyond a given date by notice given by the tenant, account may be taken of any circumstances making it likely that the lease will be so extended.

Rule 3: If the tenant or a person connected with the tenant is, or may become, entitled to a further lease or the grant of a further lease (whenever commencing)—

(a) of the same premises, or

(b) of premises including the whole or part of the same premises,

the term of the lease may be treated as continuing until the end of the term of the further lease.

(2) The rules are to be applied in accordance with section 244.

(3) In Rule 1, “premium” includes—

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

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

(c) a sum payable by the tenant under the terms subject to which the lease is granted as consideration for the surrender of the lease, and

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

(4) In this section and section 244, in relation to Scotland, “term”, where referring to the duration of a lease, means period.

Applying the rules in section 243

244

(1) The rules in section 243 apply by reference to the facts known or ascertainable—

(a) at the time of the grant of the lease, or

(b) if the determination is for the purposes of section 221 (sums payable for variation or waiver of terms of lease), at the time when the contract for the variation or waiver is entered into.

(2) In applying those rules, it is assumed that all parties concerned, whatever their relationship, act as if they were at arm's length.

(3) Subsection (5) applies if—

(a) special benefits were conferred by the lease or in connection with its grant, or

(b) payments were made which one would not expect to be made by parties acting at arm's length unless such benefits had been conferred.

(4) But subsection (5) does not apply if it can be shown that the special benefits were not conferred nor the payments made for the purpose of securing—

(a) a corporation tax advantage in the application of this Chapter, or

(b) an income tax advantage in the application of Chapter 4 of Part 3 of ITTOIA 2005 (profits of property business: lease premiums etc).

(5) In applying paragraph (b) of Rule 1 in section 243, it is assumed that the special benefits would not have been conferred nor the payments made if the lease had been granted for a term ending on the date mentioned in that rule.

(6) In this section “special benefits” means benefits other than—

(a) vacant possession and beneficial occupation of the premises, or

(b) the right to receive rent at a reasonable commercial rate in respect of the premises.

Information about effective duration of lease

245

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Other interpretative provisions

Provisions about premiums

246

(1) For the purposes of this Chapter, the presumption is that a sum paid on or in connection with the granting of a tenancy has been paid by way of premium.

(2) This does not apply if the sum is rent.

(3) This also does not apply so far as other sufficient consideration for the payment can be shown to have been given.

(4) In this section “sum” includes the value of any consideration.

(5) Where Rule 3 in section 243 (rules for determining effective duration of lease) applies, the premium, or an appropriate part of it, payable for or in connection with either lease mentioned in that rule may be treated for the purposes of this Chapter as having been required under the other.

Interpretation

247

(1) In this Chapter “premium” includes any similar sum payable to the immediate or a superior landlord or to a person connected with such a person.

(2) In subsection (1) “sum” includes the value of any consideration.

(3) In the application of this Chapter to Scotland—

“premium” includes, in particular, a grassum payable to the landlord under the lease in respect of which the grassum is payable or the landlord under any other lease of the property, and

“reversion” means the interest of the landlord in the property subject to the lease.

(4) In the application of this Chapter to Scotland—

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

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

Chapter 5 — Profits of property businesses: other rules about receipts and deductions

Furnished accommodation: receipts and deductions

Furnished lettings

248

(1) In calculating the profits of a property business which consists of or includes a furnished letting—

(a) any sum payable for the use of furniture is brought into account as a receipt, and

(b) a deduction is allowed for expenses of a revenue nature incurred in connection with the provision of furniture.

(2) But subsection (1) does not apply to receipts or expenses brought into account in calculating the profits of a trade which consists of, or involves, making furniture available for use in premises.

(3) A furnished letting is a lease or other arrangement under which—

(a) a sum is payable in respect of the use of premises, and

(b) the person entitled to the use of the premises is also entitled, in connection with that use, to the use of furniture.

(4) In this section—

(a) “premises” includes a caravan and a houseboat, and

(b) “sum” includes the value of any consideration.

Treatment of receipts on acquisition of business

Acquisition of business: receipts from transferor’s UK property business

249

(1) This section applies if—

(a) a person (“the transferor”) permanently ceased to carry on a UK property business (including one within the charge to income tax) at any time,

(b) at that time the transferor transferred to another person (“the transferee”) the right to receive sums arising from the carrying on of any business (“the transferred business”) comprised in the transferor's UK property business, and

(2) Sums—

(a) which the transferee receives as a result of the transfer, and

(b) which are not brought into account in calculating the profits of the transferor's UK property business for corporation or income tax purposes of any period before the cessation,

are brought into account in calculating the profits of the transferee's UK property business in the accounting period in which they are received.

(3) Any sums mentioned in subsection (1)(b) which are received after the cessation of the transferor's property business are not post-cessation receipts (see Chapter 9).

Reverse premiums as receipts

Reverse premiums

250

(1) This section applies if—

(a) a company receives a reverse premium, and

(b) the reverse premium is not brought into account under section 98(2) in calculating the profits of any trade carried on by the company.

(2) The company is treated as—

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

(b) receiving the reverse premium as a result of that transaction.

(3) Accordingly, the reverse premium is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction.

(4) Subsection (5) applies if—

(a) two or more of the parties to the property arrangements are connected persons, and

(b) the terms of those arrangements are not such as would reasonably have been expected if those persons had been dealing at arm's length.

(5) The whole amount or value of the reverse premium is brought into account in the period of account in which the property transaction is entered into.

(6) Expressions used in this section and sections 96 to 100 have the same meaning in this section as they do in those sections.

Deductions for expenditure on energy-saving items

Deduction for expenditure on energy-saving items

251

(1) This section applies if—

(a) a company carries on a property business in relation to land which consists of or includes a dwelling-house,

(b) the company incurs expenditure in acquiring and installing an energy-saving item in the dwelling-house or in a building containing the dwelling-house (see subsections (5) to (7)),

(d) a deduction for the expenditure is not prohibited by the wholly and exclusively rule but would otherwise be prohibited by the capital prohibition rule (see subsection (8)), and

(e) no allowance under CAA 2001 may be claimed in respect of the expenditure.

(2) In calculating the profits of the business, a deduction for the expenditure is allowed.

(3) But any deduction is subject to—

(a) section 252 (restrictions on relief), and

(b) any provision made by regulations under section 253.

(4) If, on a just and reasonable apportionment of any expenditure, part of the expenditure would qualify for the relief (but the remainder would not), a deduction is allowed for that part.

(5) “Energy-saving item” means an item of an energy-saving nature of such description as is for the time being specified in regulations made by the Treasury.

(6) The Treasury may by regulations provide for an item to be an energy-saving item only if it satisfies such conditions as may be—

(a) specified in, or

(b) determined in accordance with,

the regulations.

(7) The conditions may include conditions imposed by reference to information or documents issued by any body, person or organisation.

(8) In this section—

“the capital prohibition rule” means the rule in section 53 (capital expenditure), as applied by section 210, and

“the wholly and exclusively rule” means the rule in section 54 (expenses not wholly and exclusively for trade and unconnected losses), as applied by section 210.

Restrictions on relief

252

(1) This section restricts deductions that would otherwise be allowable under section 251.

(2) No deduction is allowed if, when the energy-saving item is installed, the dwelling-house—

(a) is in the course of construction, or

(b) is comprised in land in which the company does not have an interest or is in the course of acquiring an interest or further interest.

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(4) No deduction is allowed in respect of expenditure treated by section 61 (as applied by section 210) as incurred on the date on which the company starts to carry on the business unless the expenditure was incurred not more than 6 months before that date.

(5) No deduction is allowed in respect of expenditure incurred in acquiring and installing the energy-saving item in a building containing the dwelling-house in so far as the expenditure is not for the benefit of the dwelling-house.

Regulations

253

(1) In relation to any deduction under section 251, the Treasury may make regulations for—

(a) restricting or reducing the amount of expenditure for which the deduction is allowable,

(b) excluding entitlement to the deduction in such cases as may be specified in, or determined in accordance with, the regulations,

(c) determining who is (and is not) entitled to the deduction if different persons have different interests in land that consists of or includes the whole or part of a building containing one or more dwelling-houses,

(d) making apportionments if the property business is carried on by persons in partnership or an interest in land is beneficially owned by persons jointly or in common.

(2) The apportionments that may be made include apportionments to persons within the charge to income tax.

(3) Regulations under this section may—

(a) make different provision for different cases, and

(b) contain incidental, supplemental, consequential and transitional provision and savings (including provision as to appeals in relation to apportionments mentioned in subsection (1)(d)).

Deductions for expenditure on sea walls

Deduction for expenditure on sea walls

254

(1) This section applies if in a tax year a person —

(a) is the owner or tenant of any premises, and

(b) incurs expenditure in making a sea wall or other embankment necessary for the preservation or protection of the premises against the encroachment or overflowing of the sea or any tidal river.

(2) In calculating the profits of any property business (within the charge to tax under Chapter 3) carried on by the person in relation to the premises, a deduction is allowed for the expenditure in each tax year comprised in the deduction period.

(3) The deduction period comprises—

(a) the tax year in which the expenditure is incurred, and

(b) the next 20 tax years.

(4) The amount of the deduction is 1/21 of the expenditure.

(5) The deduction is apportioned between the accounting period or periods comprised in the tax year, but—

(a) no apportionment is made to an accounting period which ends before the expenditure is incurred, and

(b) if the person is entitled to the deduction because of a transfer dealt with by section 255, no apportionment is made to an accounting period which ends before the transfer takes place.

(6) In the case of the transfer of an interest in the premises dealt with by section 255, this section applies as if the reference to the person in subsection (2) above included the transferor and the transferee.

(7) No deduction is allowed for any expenditure in respect of which a capital allowance has been made.

Transfer of interest in premises

255

(1) This section applies if, during the deduction period, the whole of the person's interest in the premises or in any part of them is transferred, whether by operation of law or otherwise.

(2) For the tax year in which the transfer takes place—

(a) the transferor and the transferee are entitled to a part of any deduction under section 254, and

(b) the amount of the deduction is determined by what is just and reasonable.

(3) For subsequent tax years in the deduction period, the entitlement to any deduction under section 254 depends on whether the interest transferred is in the whole of the premises or in part of them.

(4) If the interest transferred is in the whole of the premises, the transferee (but not the transferor) is entitled to any deduction under section 254.

(5) If the interest transferred is in part of the premises—

(a) the transferor and the transferee are entitled to a part of any deduction under section 254, and

(b) the amount of the deduction is determined by reference to what is properly referable to the part of the premises.

(6) This section is supplemented by sections 256 (ending of lease of premises) and 257 (transfer involving person within the charge to income tax).

Ending of lease of premises

256

(1) If a person's interest in the premises is a lease that comes to an end before the end of the deduction period, the interest is treated as if transferred to the following persons.

(2) If a new lease of the premises is granted and the new tenant makes a payment in respect of the embankment in question to the old tenant, the transferee is the new tenant.

(3) Otherwise the transferee is the owner of the interest in immediate reversion on the lease (or, in Scotland, the landlord).

Transfer involving person within the charge to income tax

257

(1) This section explains how section 255 works if—

(a) the transferor is a company within the charge to corporation tax and the transferee is a person within the charge to income tax, or

(b) the transferor is a person within the charge to income tax and the transferee is a company within the charge to corporation tax.

(2) Section 255 applies only for the purpose of determining—

(a) whether the company within the charge to corporation tax is entitled to a deduction (or part of a deduction) under section 254, and

(b) the amount of any such deduction.

(3) Accordingly, any reference to—

(a) whether a person is entitled to a deduction (or part of a deduction) under section 254, or

(b) the amount of any such deduction,

is ignored if the person is within the charge to income tax.

(4) For any entitlement of a person within the charge to income tax to a deduction for any of the expenditure, see sections 316 to 318 of ITTOIA 2005 (corresponding income tax provisions).

Mineral royalties

Relief in respect of mineral royalties

258

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Apportionments on sale of land

Nature of item apportioned on sale of estate or interest in land

259

(1) This section applies if—

(a) a company sells an estate or interest in land,

(b) on the sale a part of a receipt or outgoing in respect of the estate or interest is apportioned to the seller, and

(2) In calculating the profits of the seller's property business, the part apportioned is treated as being of the same nature as the receipt or outgoing.

Mutual business

260

(1) Nothing in this Part is to be read as applying the rules relating to mutual business to property businesses.

(2) Accordingly, receipts and expenses are to be brought into account in calculating the profits of a company's property business even if a relationship of mutuality exists between that company and another person.

(3) Nothing in this section affects the operation of Chapter 7 of Part 13 of CTA 2010 (co-operative housing associations).

Adjustment on change of basis

261

(1) Section 262 applies if—

(a) a company carrying on a UK property business changes, from one period of account to the next, the basis on which profits of the business 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 UK property business should be calculated for corporation tax purposes.

(3) Subsections (3) to (6) of section 180 (what is meant by a company changing the basis on which profits are calculated) apply for the purposes of this section as they apply for the purposes of that section (but as if any reference to a trade were to a UK property business).

Giving effect to positive and negative adjustments

262

(1) An amount by way of adjustment must be calculated in accordance with section 182, which applies in relation to a UK property business as it applies in relation to a trade.

(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 UK property business, 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) But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, the receipt is treated as arising only when the asset to which it relates is realised or written off.

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

(a) a deduction is allowed for the amount as an expense of the UK property business in calculating the profits of that business, 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.

(5) But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, the expense is treated as arising only when the asset to which it relates is realised or written off.

(6) This section is subject to section 183 (no adjustment for certain expenses previously brought into account) which applies in relation to a UK property business as it applies in relation to a trade.

Integral features

Expenditure on integral features

263

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

Chapter 6 — Commercial letting of furnished holiday accommodation

Introduction

Overview of Chapter

264

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Definition

Meaning of “commercial letting of furnished holiday accommodation”

265

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Meaning of “relevant period” in sections 267 and 268

266

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Meaning of “qualifying holiday accommodation”

267

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Under-used holiday accommodation: averaging elections

268

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Separate profit calculations

Capital allowances and loss relief

269

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Chapter 7 — Rent receivable in connection with a UK section 39(4) concern

Charge to tax on rent receivable in connection with a UK section 39(4) concern

270

The charge to corporation tax on income applies to rent receivable in connection with a UK section 39(4) concern.

Meaning of “rent receivable in connection with a UK section 39(4) concern”

271

(1) For the purposes of this Chapter rent is receivable in connection with a UK section 39(4) concern if—

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom, and

(b) the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 39(4).

(2) For the purposes of this Chapter rent is also receivable in connection with a UK section 39(4) concern if—

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom,

(b) the lease or other agreement under which it is receivable provides for its recoupment by reducing royalties or payments of a similar nature, and

(c) the reduction applies if the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 39(4).

(3) In this Chapter “rent” includes—

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

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

Management expenses of owner of mineral rights

Deduction for management expenses of owner of mineral rights

272

(1) This section applies if in an accounting period—

(a) a company lets a right to work minerals in the United Kingdom, and

(b) the company pays a sum wholly and exclusively as an expense of management or supervision of the minerals in the accounting period.

(2) In calculating the amount of rent receivable in connection with a UK section 39(4) concern, a deduction is allowed for the sum for the accounting period.

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

Mineral royalties

Relief in respect of mineral royalties

273

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

Meaning of “mineral lease or agreement” and “mineral royalties”

274

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

Extended meaning of “mineral royalties” etc in Northern Ireland

275

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

Power to determine what counts as “mineral royalties”

276

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

Chapter 8 — Rent receivable for UK electric-line wayleaves

Charge to tax on rent receivable for UK electric-line wayleaves

Charge to tax on rent receivable for a UK electric-line wayleave

277

The charge to corporation tax on income applies to rent receivable for a UK electric-line wayleave.

Meaning of “rent receivable for a UK electric-line wayleave”

278

(1) For the purposes of this Chapter rent is receivable for a UK electric-line wayleave if—

(a) it is receivable in respect of an easement, servitude or right in or over land in the United Kingdom, and

(b) the easement, servitude or right is enjoyed in connection with an electric, telegraph or telephone wire or cable.

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

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

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

(3) In this Chapter “rent” includes—

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

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

Extent of charge to tax

279

(1) Rent receivable for a UK electric-line wayleave is not chargeable to tax under this Chapter for an accounting period if—

(a) a company carries on a UK property business in relation to some or all of the land to which the wayleave relates, and

(b) receipts (other than rents receivable for UK electric-line wayleaves) in respect of some or all of that land are brought into account in calculating the profits of the business of the accounting period.

(2) In such a case, the rent receivable for the UK electric-line wayleave is brought into account in calculating the profits of the company's UK property business.

(3) The rules for determining whether an amount is chargeable to tax under this Chapter also need to be read with section 45(2) (payments for wayleaves if company carries on a trade).

(4) That subsection secures that an amount which would otherwise be chargeable to tax under this Chapter may be brought into account instead in calculating the profits of a trade.

Chapter 9 — Post-cessation receipts

Charge to tax on post-cessation receipts

280

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

Extent of charge to tax

281

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

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

Meaning of “post-cessation receipts”

Basic meaning of “post-cessation receipt”

282

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

(a) which is received after a person permanently ceases to carry on a UK property business, and

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

(2) In this Chapter, except in section 284, references to a UK property business include one within the charge to income tax and references to a person permanently ceasing to carry on a UK property business include—

(a) in the case of a company, the occurrence of an event treated under section 362 of ITTOIA 2005 (company starting or ceasing to be within charge to income tax) as the company permanently ceasing to carry on the business, and

(b) in the case of a UK property business carried on by a person in partnership, the occurrence of an event treated under section 353(3) of ITTOIA 2005 (basic meaning of “post-cessation receipt”) as the person permanently ceasing to carry on the business.

Other rules about what counts as a “post-cessation receipt”

283

(1) Section 284 (transfer of rights if transferee does not carry on UK property business) treats certain amounts as being, or not being, post-cessation receipts for the purposes of this Chapter.

(2) The following provisions (which treat certain amounts as post-cessation receipts) apply for the purposes of this Chapter as they apply for the purposes of Chapter 15 of Part 3 (but as if any reference to a trade were to a UK property business)—

section 82(6) (contributions to local enterprise organisations or urban regeneration companies),

section 101(3) (distribution of assets of mutual concerns),

section 108(3) (receipt of benefits by donor or connected person),

section 192 (debts paid after cessation), and

section 193 (debts released after cessation), as qualified, where appropriate, by section 56(4) (car ... hire).

(3) This Chapter also needs to be read with—

(a) section 249(3) (which treats certain amounts as not being post-cessation receipts), and

(b) section 1277 (which treats certain income as a post-cessation receipt: unremittable income).

Transfer of rights if transferee does not carry on UK property business

284

(1) This section applies if—

(a) a company (“the transferor”) permanently ceases to carry on a UK property business,

(b) the transferor transfers to another person (“the transferee”) for value the right to receive sums arising from the carrying on of any business (“the transferred business”) comprised in the transferor's UK property business, 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 property business are not post-cessation receipts.

Deductions

Allowable deductions

285

Sections 196 and 197 apply for the purposes of this Chapter as they apply for the purposes of Chapter 15 of Part 3 (but as if any reference to a trade were to a UK property business).

Election to carry back

286

Sections 198 to 200 apply for the purposes of this Chapter as they apply for the purposes of Chapter 15 of Part 3 (but as if any reference to a trade were to a UK property business).

Chapter 10 — Supplementary

Priority rules

Provisions which must be given priority over this Part

287

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

(a) Chapter 3 of this Part so far as it relates to an overseas property business or Chapter 7 or 8 of this Part (rent receivable in connection with a UK section 39(4) concern or for UK electric-line wayleaves), and

(b) Chapter 2 of Part 3 (receipts of a trade),

is dealt with under Part 3.

Priority between Chapters within this Part

288

(1) Any receipt, so far as it falls within—

(a) Chapter 3 so far as it relates to a UK property business, and

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

is dealt with under Chapter 7.

(2) Any receipt, so far as it falls within—

(a) Chapter 3 so far as it relates to a UK property business, and

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

is dealt with under Chapter 8.

(3) Any receipt, so far as it falls within Chapter 7 (rent receivable in connection with a UK section 39(4) concern) and Chapter 8 (rent receivable for UK electric-line wayleaves), is dealt with under Chapter 8.

Other supplementary provisions

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

289

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

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

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

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

Overseas property businesses and overseas land: adaptation of rules

290

(1) This section applies if a provision of this Part—

(a) applies to an overseas property business or land outside the United Kingdom, but

(b) is expressed by reference to a domestic concept of law.

(2) In relation to that business or land, the provision is to be read so as to produce the result most closely corresponding with that produced by the provision in relation to a UK property business or land in the United Kingdom.

Meaning of “lease” and “premises”

291

(1) In this Part “lease” includes—

(a) an agreement for a lease (so far as the context permits), and

(b) any tenancy,

but does not include a mortgage.

(2) In this Part “premises” includes land.

Part 5 — Loan Relationships

Chapter 1 — Introduction

Introduction

Overview of Part

292

(1) This Part sets out how profits and deficits arising to a company from its loan relationships are brought into account for corporation tax purposes.

(2) For the meaning of “loan relationship” see section 302 and Part 6 (relationships treated as loan relationships etc).

(3) For how such profits and deficits are calculated and brought into account, see—

(a) section 296 (profits and deficits to be calculated using credits and debits given by this Part),

(b) section 297 (trading credits and debits to be brought into account under Part 3),

(d) section 300 (method of bringing non-trading deficits into account),

(e) section 301 (calculation of non-trading profits and deficits from loan relationships: non-trading credits and debits), and

(f) Chapter 16 (non-trading deficits).

(4) For the priority of this Part for corporation tax purposes, see Chapter 17.

(5) This Part also contains the following Chapters (which mainly relate to the amounts to be brought into account for the purposes of this Part)—

(a) Chapter 3 (the credits and debits to be brought into account: general),

(b) Chapter 4 (continuity of treatment on transfers within groups or on reorganisations),

(d) Chapter 6 (connected companies relationships: impairment losses and releases of debts),

(e) Chapter 7 (group relief claims involving impaired or released consortium debts),

(f) Chapter 8 (connected parties relationships: late interest),

(g) Chapter 9 (partnerships involving companies),

(h) Chapter 10 (insurance companies),

(i) Chapter 11 (other special kinds of company),

(j) Chapter 12 (special rules for particular kinds of securities),

(k) Chapter 13 (European cross-border transfers of business),

(l) Chapter 14 (European cross-border mergers),

(m) Chapter 15 (tax avoidance),

(n) Chapter 18 (general and supplementary provisions).

(6) This Part needs to be read with Part 19 (general exemptions).

Construction of references to profits or losses from loan relationships

293

(1) In this Part references to profits or losses from loan relationships include references to profits or losses from related transactions.

(2) For the meaning of “related transaction” see section 304.

(3) Except where the context indicates otherwise, in this Part references to profits or losses from loan relationships include references to profits or losses of a capital nature.

Matters treated as loan relationships

294

(1) Part 6 deals with matters treated for some or all purposes as loan relationships or rights, payments or profits under loan relationships.

(2) Except where the context indicates otherwise, references to this Part in this Act and elsewhere in the Tax Acts include references to Part 6.

How profits and deficits from loan relationships are dealt with

General rule: profits arising from loan relationships chargeable as income

295

(1) The general rule for corporation tax purposes is that all profits arising to a company from its loan relationships are chargeable to tax as income in accordance with this Part.

(2) But see section 465 (exclusion of distributions except in tax avoidance cases).

Profits and deficits to be calculated using credits and debits given by this Part

296

Profits and deficits arising to a company from its loan relationships are to be calculated using the credits and debits given by this Part.

Trading credits and debits to be brought into account under Part 3

297

(1) This section applies so far as in any accounting period a company is a party to a loan relationship for the purposes of a trade it carries on.

(2) The credits in respect of the relationship for the period are treated as receipts of the trade which are to be brought into account in calculating its profits for that period.

(3) The debits in respect of the relationship for the period are treated as expenses of the trade which are deductible in calculating those profits.

(4) So far as subsection (3) provides for any amount to be deductible, it has effect despite anything in—

(a) section 53 (capital expenditure),

(b) section 54 (expenses not wholly and exclusively for trade and unconnected losses), or

(5) This section is subject to—

(a) section 330 (debits in respect of pre-trading expenditure),

(b) section 482(1) (under which credits or debits to be brought into account under Chapter 2 of Part 6 (relevant non-lending relationships) are treated as non-trading credits or debits), and

(c) sections 286(5) and 287(5) of CTA 2010 (under which some credits and debits affecting ring-fence profits from petroleum extraction activities are treated as non-trading credits and debits).

Meaning of trade and purposes of trade

298

(1) For the purposes of this Part a company is taken to be a party to a creditor relationship for the purposes of a trade it carries on only if it is a party to the relationship in the course of activities forming an integral part of the trade.

(2) For the meaning of “creditor relationship”, see section 302(5).

(3) For the purposes of this Part activities carried on by a company in the course of—

(a) any mutual trading, or

(b) any mutual insurance or other mutual business which is not life assurance business, ...

are treated as not constituting the whole or any part of a trade.

(4) Subsection (3) applies for the purposes of any other relevant enactment as it applies for the purposes of this Part.

(5) In subsection (4) “relevant enactment” means so much of any enactment as contains provision by reference to which amounts are to be brought into account for the purposes of this Part.

(6) In the case of activities carried on by a company in the course of any basic life assurance and general annuity business, provision corresponding to that made by subsection (3) is made by section 88 of FA 2012 for the purpose of applying the I - E rules.

Charge to tax on non-trading profits

299

(1) The charge to corporation tax on income applies to any non-trading profits which a company has in respect of its loan relationships.

(2) For the meaning of a company having such profits and how they are calculated, see section 301.

Method of bringing non-trading deficits into account

300

(1) Any non-trading deficit which a company has from its loan relationships must be brought into account in accordance with Chapter 16 (non-trading deficits).

(2) For the meaning of a company having such a deficit and how it is calculated, see section 301.

(3) This section and Chapter 16 apply even if none of the company's loan relationships is regarded as a source of income as a result of this Part.

Calculation of non-trading profits and deficits from loan relationships: non-trading credits and debits

301

(1) Whether a company has non-trading profits or a non-trading deficit from its loan relationships for an accounting period is determined in accordance with subsections (4) to (7), using the non-trading credits and non-trading debits given by this Part for the accounting period.

(1A) In the case of a non-UK resident company, subsections (4) to (7) need to be read with section 5(3), (3A)(b) and (3B)(b) (territorial scope of charge to corporation tax).

(2) In this Part—

(a) “non-trading credits” means credits for any accounting period in respect of a company's loan relationships that are not brought into account under section 297(2), and

(b) “non-trading debits” means debits for any accounting period in respect of a company's loan relationships that are not brought into account under section 297(3).

(3) But see also—

(a) section 330 (debits in respect of pre-trading expenditure), and

(b) section 482(1) (under which credits or debits to be brought into account under Chapter 2 of Part 6 (relevant non-lending relationships) are treated as non-trading credits or debits).

(4) A company has non-trading profits for an accounting period from its loan relationships if the non-trading credits for the period exceed the non-trading debits for the period or there are no such debits.

(5) The non-trading profits are equal to those credits, less any such debits.

(6) A company has a non-trading deficit for an accounting period from its loan relationships if the non-trading debits for the period exceed the non-trading credits for the period or there are no such credits.

(7) The non-trading deficit is equal to those debits, less any such credits.

Chapter 2 — Basic definitions

“Loan relationship”, “creditor relationship”, “debtor relationship”

302

(1) For the purposes of the Corporation Tax Acts a company has a loan relationship if—

(a) the company stands in the position of a creditor or debtor as respects any money debt (whether by reference to a security or otherwise), and

(b) the debt arises from a transaction for the lending of money.

(2) References to a loan relationship and to a company being a party to a loan relationship are to be read accordingly.

(3) For cases where this Part applies as if a relationship were a loan relationship despite the money debt not arising from a transaction for the lending of money see Chapter 2 of Part 6 (relevant non-lending relationships).

(4) See also the following provisions of Part 6 (under which other matters are treated as loan relationships or rights, payments or profits under loan relationships)—

(a) Chapter 3 (OEICs, unit trusts and offshore funds),

(b) Chapter 4 (building societies),

(d) Chapter 6 (alternative finance arrangements),

(e) Chapter 7 (shares with guaranteed returns etc),

(f) Chapter 8 (returns from partnerships),

(g) Chapter 9 (manufactured interest etc),

(h) Chapter 10 (repos), and

(i) Chapter 11 (investment life insurance contracts).

(5) In this Part “creditor relationship”, in relation to a company, means any loan relationship of the company where it stands in the position of a creditor as respects the debt in question.

(6) In this Part “debtor relationship”, in relation to a company, means any loan relationship of the company where it stands in the position of a debtor as respects the debt in question.

“Money debt”

303

(1) For the purposes of this Part a money debt is a debt which—

(a) falls to be settled—

(i) by the payment of money,

(ii) by the transfer of a right to settlement under a debt which is itself a money debt, or

(iii) by the issue or transfer of any share in any company,

(b) has at any time fallen to be so settled, or

(2) For the purposes of subsection (1) any option exercisable by either party to settle the debt in any other way than is mentioned in subsection (1)(a) is ignored.

(3) A money debt is a debt arising from a transaction for the lending of money for the purposes of this Part if an instrument is issued by any person for the purpose of representing—

(a) security for the debt, or

(b) the rights of a creditor in respect of the debt.

(4) A debt does not arise from a transaction for the lending of money for the purposes of this Part so far as it arises from rights conferred by shares in a company.

(5) But see the following provisions (as a result of which some such rights are within this Chapter)—

(a) Chapter 3 of Part 6 (OEICs, unit trusts and offshore funds),

(b) Chapter 7 of that Part (shares with guaranteed returns etc).

(6) For the meaning of “share” see section 476(1).

304

(1) In this Part “related transaction”, in relation to a loan relationship, means any disposal or acquisition (in whole or in part) of rights or liabilities under the relationship.

(2) For this purpose the cases where there is taken to be such a disposal and acquisition include those where rights or liabilities under the loan relationship are transferred or extinguished by any sale, gift, exchange, surrender, redemption or release.

Payments, interest, rights and liabilities under a loan relationship

305

(1) For the purposes of this Part references to payments or interest under a loan relationship are references to payments or interest paid or payable in pursuance of any of the rights or liabilities under that relationship.

(2) For the purposes of this Part references to rights or liabilities under a loan relationship are references to any of the rights or liabilities under the arrangements as a result of which that relationship subsists.

(3) For the purposes of this Part rights or liabilities under a loan relationship are taken to include the rights or liabilities attached to any security that is issued in relation to the money debt in question (and so is a security representing that relationship).

(4) But for the treatment of funding bonds see—

(a) section 413 (issue of funding bonds), and

(b) section 414 (redemption of funding bonds).

Chapter 3 — The credits and debits to be brought into account: general

Introduction

Overview of Chapter

306

(1) This Chapter contains rules of general application about the credits and debits to be brought into account for the purposes of this Part.

(2) In particular, it—

(za) makes provision about the matters in respect of which amounts are to be brought into account (see section 306A),

(a) provides for the application of generally accepted accounting practice in determining the amounts to be brought into account as credits and debits and makes provision where accounts do not comply with that practice (see sections 307 to 312),

(b) makes provision about bases of accounting (see sections 313 and 314),

(d) sets out some general rules that differ from generally accepted accounting practice (see sections 320 to 327),

(e) provides for exchange gains and losses to be included in the profits and losses of a company from loan relationships (see section 328),

(f) makes provision about debits for pre-loan relationship, abortive or pre-trading expenses (see sections 329 and 330),

(g) makes provision about cases where amounts are recognised even though companies are not, or have ceased to be, parties to loan relationships (see section 330A), and

(h) provides for deemed assignments where a company's residence or operations move abroad (see sections 333 and 334).

(3) For further rules about the credits and debits to be brought into account in particular situations and cases, see—

(a) Chapter 4 (continuity of treatment on transfers within groups or on reorganisations),

(b) Chapter 5 (connected companies relationships: introduction and general),

(d) Chapter 7 (group relief claims involving impaired or released consortium debts),

(e) Chapter 8 (connected parties relationships: late interest),

(f) Chapter 9 (partnerships involving companies),

(g) Chapter 10 (insurance companies),

(h) Chapter 11 (other special kinds of company),

(i) Chapter 12 (special rules for particular kinds of securities),

(j) Chapter 13 (European cross-border transfers of business),

(k) Chapter 14 (European cross-border mergers), and

(l) Chapter 15 (tax avoidance).

General principles about the bringing into account of credits and debits

307

(1) This Part operates by reference to the accounts of companies and amounts recognised for accounting purposes.

(2) The general rule is that the amounts to be brought into account by a company as credits and debits for any period for the purposes of this Part in respect of the matters mentioned in section 306A(1) are those that are recognised in determining the company's profit or loss for the period in accordance with generally accepted accounting practice.

(2A) Subsections (2B) and (2C) apply if an accounting period of a company does not coincide with one or more of its periods of account.

(2B) The amounts referred to in subsection (2) are to be determined by apportionment in accordance with section 1172 of CTA 2010 (time basis).

(2C) But if it appears that apportionment in accordance with that section would work unreasonably or unjustly for an accounting period, subsection (2) is to be read as referring to amounts that would have been recognised in determining the company's profit or loss for that period in accordance with generally accepted accounting practice if accounts had been drawn up for that period.

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

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

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

(6) This section is subject to the following provisions of this Part.

Amounts recognised in determining a company's profit or loss

Amounts recognised in determining a company’s profit or loss

308

(1) References in this Part to an amount recognised in determining a company's profit or loss for a period are references to an amount that is recognised in the company's accounts for the period as an item of profit or loss.

(1A) The reference in subsection (1) to an amount recognised in the company's accounts for the period as an item of profit or loss includes a reference to an amount that—

(a) was previously recognised as an item of other comprehensive income, and

(b) is transferred to become an item of profit or loss in determining the company's profit or loss for the period.

(1B) In subsections (1) and (1A) “item of profit or loss” and “item of other comprehensive income” each has the meaning that it has for accounting purposes.

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

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

Companies without GAAP-compliant accounts

309

(1) If a company—

(a) draws up accounts which are not GAAP-compliant accounts, or

(b) does not draw up accounts at all,

this Part applies as if GAAP-compliant accounts had been drawn up.

(2) Accordingly, references in this Part to amounts recognised for accounting purposes are references to the amounts that would have been recognised if GAAP-compliant accounts had been drawn up for the period of account in question and any relevant earlier period.

(3) For this purpose a period of account is relevant to a later period if the accounts for the later period rely to any extent on amounts derived from the earlier period.

(4) In this section “GAAP-compliant accounts” means accounts drawn up in accordance with generally accepted accounting practice.

Power to make regulations about recognised amounts

310

(1) The Treasury may by regulations—

(a) make provision excluding from section 308(1) ... amounts of a specified description, and

(b) make provision for or in connection with bringing into account in specified circumstances amounts in relation to which section 308(1) ... does not have effect as a result of regulations under paragraph (a).

(2) The regulations may provide that section 308(1) ... does not apply to specified amounts in a period of account so far as they derive from or otherwise relate to amounts brought into account in a specified way in a previous period of account.

(3) The regulations may—

(a) make different provision for different cases, and

(b) make provision subject to an election or to other specified conditions.

(4) The regulations may apply to periods of account beginning before they are made, but not earlier than the beginning of the calendar year in which they are made.

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

Amounts not fully recognised for accounting purposes: introduction

311

(1) Section 312 applies for the purpose of determining the credits and debits which a company is to bring into account for a period for the purposes of this Part in the following case.

(2) The case is where—

(a) the company is, or is treated as, a party to a creditor relationship in the period, and

(b) as a result of tax avoidance arrangements to which the company is at any time a party, an amount is (in accordance with generally accepted accounting practice) not fully recognised for the period in respect of the creditor relationship.

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

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

(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

(6) For the purposes of this section and section 312 an amount is not fully recognised for a period in respect of a relationship of a company ... if—

(a) no amount in respect of the relationship ... is recognised in determining its profit or loss for the period, or

(b) an amount is so recognised in respect of only part of the relationship ....

(7) For the purposes of this section arrangements are “tax avoidance arrangements” if the main purpose, or one of the main purposes, of any party to the arrangements, in entering into them, is to obtain a tax advantage.

(8) In subsection (7) “arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions.

(9) For the purposes of this section a company is to be treated as a party to a creditor relationship even though it has disposed of its rights under the relationship to another person—

(a) under a repo or stock lending arrangement, or

(b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).

Determination of credits and debits where amounts not fully recognised

312

(1) In determining the credits and debits which a company is to bring into account for the period referred to in section 311(1) for the purposes of this Part in respect of—

(a) the creditor relationship mentioned in section 311(2), ...

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

the assumption in subsection (2) is to be made.

(1A) Subsection (1B) applies in a case where—

(a) pursuant to the arrangements mentioned in section 311(2)(b), the company becomes, or is treated as becoming, a party to a debtor relationship, and

(b) an amount is (in accordance with generally accepted accounting practice) not fully recognised for any period in respect of the debtor relationship.

(1B) In determining the debits and credits which a company is to bring into account for any period for the purposes of this Part in respect of the debtor relationship ..., the assumption in subsection (2) is to be made.

(2) The assumption is that an amount in respect of the whole of the relationship in question is recognised in determining the company's profit or loss for the period.

(3) But—

(a) no debits are, as a result of this section, to be brought into account by the company in respect of the creditor relationship mentioned in section 311(2), and

(b) the amount of any debits to be brought into account by the company for a period as a result of this section applying in respect of its debtor relationships must not exceed the amount of any credits to be brought into account by it for the period as a result of this section applying in respect of its creditor relationships.

(4) Subsection (5) applies in any case where—

(a) apart from this section any credits or debits are brought into account for a period for the purposes of this Part by the company in respect of a loan relationship, and

(b) the relationship is a creditor relationship within subsection (1) or a debtor relationship within subsection (1B).

(5) The credits and debits which are to be so brought into account as a result of this section are to be determined on the same basis of accounting as that on which the credits or debits mentioned in subsection (4)(a) are determined.

(6) In any other case, the credits and debits which are to be so brought into account as a result of this section are to be determined on an amortised cost basis of accounting.

Accounting bases

Basis of accounting: “amortised cost basis”, “fair value accounting” and “fair value”

313

(1) The general rule is that the amounts to be brought into account by a company as credits and debits for any period of account for the purposes of this Part may be determined on any basis of accounting that is in accordance with generally accepted accounting practice ... .

(2) But subsection (1) is subject to ... the following provisions (which require a particular accounting basis to be used)—

(a) section 312(5) and (6) (determination of credits and debits where amounts not fully recognised for accounting purposes),

(b) section 349(2) (application of amortised cost basis to connected companies relationships),

(d) section 399(2) (index-linked gilt-edged securities: application of fair value accounting),

(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(g) section 482(2) (application of amortised cost basis of accounting to discounts arising from a money debt under a relevant non-lending relationship), and

(h) section 490(3) (holdings in OEICs, unit trusts and offshore funds: application of fair value accounting) ... .

(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(4) In this Part “amortised cost basis of accounting”, in relation to a company's loan relationship, means a basis of accounting under which an asset or liability representing the loan relationship is measured in the company's balance sheet at its amortised cost using the effective interest method, but with that amortised cost being adjusted as necessary where the loan relationship is the hedged item under a designated fair value hedge.

(4A) In subsection (4) each of the following expressions has the meaning that it has for accounting purposes—

“amortised cost”, in relation to assets or liabilities;

“the effective interest method”, in relation to the measurement of assets or liabilities.

(5) In this Part “fair value accounting” means a basis of accounting under which—

(a) assets and liabilities are measured in the company's balance sheet at their fair value, and

(b) changes in the fair value of assets and liabilities are recognised as items of profit or loss.

(6) For the meaning of “fair value”, see section 476(1).

(7) In this Part each of the following has the meaning that it has for accounting purposes—

“designated fair value hedge”;

“hedged item”.

Power to make regulations about changes from amortised cost basis

314

(1) This section applies if the credits or debits to be brought into account for the purposes of this Part in respect of assets or liabilities of a company—

(a) are required in accordance with generally accepted accounting practice to be dealt with for accounting purposes using fair value accounting, and

(b) were previously dealt with for those purposes on an amortised cost basis.

(2) The Treasury may by regulations provide that the credits or debits must continue to be determined on an amortised cost basis of accounting.

(3) The regulations may—

(a) make different provision for different cases,

(b) make incidental, supplemental, consequential and transitional provision and savings, and

Adjustments on change of accounting basis

Introduction to sections 316 to 319

315

(1) Sections 316 and 318 (adjustments on change of accounting basis) apply if—

(a) a company changes, from one period of account or accounting period to the next, the basis of accounting on which credits and debits relating to its loan relationships or any of them are calculated for the purposes of this Part,

(b) the change of basis—

(i) is made in order to comply with a provision made by or under this Part requiring those credits and debits to be determined on a particular basis of accounting, or

(ii) results from a change of the company's accounting policy,

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

(e) the new basis accords with the law and practice applicable to the period after the change.

(2) In this section and sections 316 and 318—

(a) the first of the periods mentioned in subsection (1) is referred to as “the earlier period”, and

(b) the next is referred to as “the later period”.

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

(4) For a case where this section and sections 316 to 318 apply as if a change of accounting policy had occurred, see section 416(5) (election for application of sections 415 and 585).

Change of accounting policy involving change of value

316

(1) If there is a difference between—

(a) the tax-adjusted carrying value of an asset or liability at the end of the earlier period, and

(b) the tax-adjusted carrying value of that asset or liability at the beginning of the later period,

a credit or debit (as the case may be) of an amount equal to the difference must be brought into account for the purposes of this Part for the later period in the same way as a credit or debit which is brought into account in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.

(2) This section does not apply so far as the credit or debit falls to be brought into account apart from this section.

Carrying value

317

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

Change of accounting policy following cessation of loan relationship

318

(1) This section applies if—

(a) the company has ceased to be a party to a loan relationship in an accounting period (“the cessation period”),

(b) section 330A (company is not, or has ceased to be, party to loan relationship) applied to the cessation, and

(i) at the end of the earlier period, and

(ii) at the beginning of the later period.

(2) A credit or debit (as the case may be) of an amount equal to the difference must be brought into account for the purposes of this Part for the later period in the same way as a credit or debit which is brought into account in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.

(4) Subsection (2) does not apply so far as the credit or debit falls to be brought into account apart from this section.

(5) In this section “the amount outstanding in respect of the loan relationship” means—

(a) so much of the recognised deferred income or recognised deferred loss from the loan relationship as has not been represented by credits or debits brought into account under this Part in respect of the relationship, and

(b) any amounts relating to the matters mentioned in section 306A(1) in respect of the loan relationship that have in accordance with generally accepted accounting practice been recognised in the company's accounts as items of other comprehensive income and not transferred to become items of profit or loss.

(6) In subsection (5)—

“recognised deferred income”, in relation to a loan relationship, means the amount recognised in the company's balance sheet in accordance with generally accepted accounting practice as deferred income in respect of the profits which arose from the relationship or a related transaction in the cessation period, and

“recognised deferred loss”, in relation to a loan relationship, means the amount so recognised as deferred loss in respect of the losses which so arose.

(7) In determining what amounts fall within subsection (5)(b) at the beginning or end of a period, it is to be assumed that the accounting policy applied in drawing up the company's accounts for the period was also applied in previous periods.

(8) But if the company's accounts for the period are in accordance with generally accepted accounting practice drawn up on an assumption as to the accounting policy in previous periods which differs from that mentioned in subsection (7), that different assumption applies in determining what amounts fall within subsection (5)(b) at the beginning or end of the period.

General power to make regulations about changes in accounting policy

319

(1) The Treasury may by regulations make provision for cases where there is a change of accounting policy in drawing up a company's accounts from one period of account to the next which affects the amounts to be brought into account for accounting purposes in respect of the company's loan relationships.

(2) The regulations may provide for any credits or debits which would otherwise be brought into account for the purposes of this Part—

(a) not to be brought into account,

(b) to be brought into account only to a prescribed extent, or

(3) Regulations under this section may, in particular, modify the operation of sections 315 to 318.

(4) The regulations may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

(5) The regulations may apply to periods of account beginning before they are made, but not earlier than the beginning of the calendar year in which they are made.

Rules differing from generally accepted accounting practice

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