Finance Act 2013

• (3) In subsection (2)—

• (a) in paragraph (a) omit “or value of the benefit”, and

• (b) in paragraph (b) for “income charged” substitute “ the income mentioned in section 721(2) ”.

• (4) In subsection (3) for “that income” substitute “ the income mentioned in section 728(1)(a) ”.

18

• (1) Section 745 (rates of tax applicable to income charged under sections 720 and 727 etc) is amended as follows.

• (2) In subsection (1) for “so far as it” substitute “ if (and to the corresponding extent that) the income mentioned in section 721(2) or 728(1)(a) ”.

• (3) For subsections (3) and (4) substitute—

(3) Subsection (4) applies to income treated as arising to an individual under section 721 or 728 so far as subsection (1) does not apply to it. (4) The charge to income tax under section 720 or 727 operates by treating the income as if it were income within section 19(2) (meaning of “dividend income”) if the income mentioned in section 721(2) or 728(1)(a) would be dividend income were it the income of the individual.

19

In section 746 (deductions and reliefs where individual charged under section 720 or 727) for subsection (2) substitute—

(2) For the purpose of determining the deductions and reliefs allowed to the individual, the individual is to be treated as if the individual had actually received the amount by reference to which the income treated as arising to the individual under section 721 or 728 is determined.

Commencement and transitional provision

20

• (1) The amendments made by this Part of this Schedule have effect for the tax year 2013-14 and subsequent tax years.

• (2) They have effect in relation to relevant transfers occurring before 6 April 2013 as well as relevant transfers occurring on or after that date.

21

• (1) Sections 721(3C) and 728(2A) of ITA 2007 (as inserted by paragraphs 10(3) and 14(4) above) have effect only if the income of the person abroad arises to that person on or after 6 April 2013.

• (2) The amendments made by paragraphs 10(5) and 14(5) above have no effect in relation to income arising to a person abroad before 6 April 2013.

SCHEDULE 11

Deduction from interest payable on compensation

1

Chapter 3 of Part 15 of ITA 2007 (deduction from certain payments of yearly interest) is amended as follows.

2

In section 874 (duty to deduct from certain payments of yearly interest), after subsection (5) insert—

(5A) For the purposes of subsection (1) a payment of interest which is payable to an individual in respect of compensation is to be treated as a payment of yearly interest (irrespective of the period in respect of which the interest is paid). (5B) But the Commissioners for Her Majesty's Revenue and Customs may make regulations which provide that subsection (5A) does not apply in the circumstances prescribed in the regulations.

3

In section 875 (interest paid by building societies), at the end insert “ unless it is treated as a payment of yearly interest by virtue of section 874(5A). ”

4

In section 878 (interest paid by banks), after subsection (1) insert—

(1A) But that duty does apply to such a payment if it is treated as a payment of yearly interest by virtue of section 874(5A).

Deduction from yearly interest: specialties

5

In section 874 of ITA 2007 (duty to deduct from certain payments of yearly interest), after subsection (6) insert—

(6A) In determining for the purposes of subsection (1) whether a payment of interest arises in the United Kingdom no account is to be taken of the location of any deed which records the obligation to pay the interest.

Payment of interest in kind

6

After section 370 of ITTOIA 2005 insert—

(370A) (1) This section applies to the payment of an amount of interest in the form of— (a) goods or services, or (b) a voucher. (2) Where this section applies by virtue of subsection (1)(a), the amount of the payment is to be taken to be equal to the market value, at the time the payment is made, of the goods or services. (3) Where this section applies by virtue of subsection (1)(b), the amount of the payment is to be taken to be equal to whichever is the higher of— (a) the face value of the voucher, (b) the amount of money for which the voucher is capable of being exchanged, or (c) the market value, at the time the payment is made, of any goods or services for which the voucher is capable of being exchanged. (4) In this section references to a voucher are to a voucher, stamp or similar document or token which is capable of being exchanged for money, goods or services.

7

In section 380 of that Act (funding bonds), in subsection (3), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”.

8

In section 939 of ITA 2007 (duty to retain bonds where issue treated as payment of interest), in subsection (6), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”.

9

In section 975 of that Act (statements about deduction of income tax), in subsection (1)—

• (a) after “if” insert

— (a)

, and

• (b) at the end insert

, and (b) the person is not under a duty to provide a statement under section 975A

.

10

After section 975 of that Act insert—

(975A) (1) Subsection (2) applies if a person makes a payment of interest of which the whole or part is in the form of goods or services or a voucher. (2) The person must provide the recipient of the payment with a statement showing— (a) the gross amount of the payment, (b) the amount of the sum deducted under any provision of Chapters 2 to 7 or under section 919 or 928 (if any), (c) the actual amount paid, and (d) the date on which the payment was made. (3) The amounts mentioned in paragraphs (a) to (c) of subsection (2) are to be calculated in accordance with section 370A of ITTOIA 2005. (4) Subsection (5) applies where a person— (a) is treated as making a payment of an amount of interest (“the deemed interest”) by virtue of section 413 of CTA 2009 or section 380 of ITTOIA 2005 (funding bonds), and (b) is under a duty under section 939(2) to retain funding bonds equal in value to income tax on the deemed interest at the basic rate. (5) The person must provide the recipient of the funding bonds with a statement showing— (a) the gross amount of the deemed interest, (b) the sum representing income tax which the person is treated under section 939(3) as having deducted by retaining funding bonds, (c) the amount of the deemed interest after the deduction of that sum, and (d) the date on which the deemed interest is treated as being paid. (6) The amount of the deemed interest is to be calculated in accordance with section 413 of CTA 2009 or section 380 of ITTOIA 2005, as the case may require. (7) A statement under this section must be provided in writing to the recipient on the date that the payment is made or (as the case may be) the date that the deemed interest is treated as being paid. (8) The duty to comply with this section is enforceable by the recipient. (9) In this section— (a) references to a voucher are to a voucher, stamp or similar document or token which is capable of being exchanged for money, goods or services, and (b) “funding bonds” has the same meaning as in Chapter 12 (see section 939(6)).

11

In section 413 of CTA 2009 (issue of funding bonds), in subsection (3), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”.

Commencement

12

• (1) The amendments made by paragraphs 1 to 4 have effect—

• (a) in relation to any payment of interest by a building society which is made on or after 1 September 2013, and

• (b) in relation to any other payment of interest which is made on or after 1 October 2013.

• (2) The amendments made by paragraphs 5 to 11 have effect in relation to any payment of interest which is made on or after the day on which this Act is passed.

SCHEDULE 12

Key amendments to Part 4 of ITTOIA 2005

1

Part 4 of ITTOIA 2005 (savings and investment income) is amended in accordance with paragraphs 2 and 3.

2

In section 365(1) (overview of Part 4)—

• (a) after paragraph (a) insert—

(aa) Chapter 2A (disguised interest),

, and

• (b) omit paragraph (k).

3

After Chapter 2 insert—

(381A) (1) This Chapter applies where a person is party to an arrangement which produces for the person a return in relation to any amount which is economically equivalent to interest. (2) Income tax is charged on the return if the return is not charged to income tax under or as a result of any other provision of this Act or any other Act. (3) Subsection (2) does not apply to a return that would be charged to income tax under or as a result of another provision but for an exemption. (4) For the purposes of this Chapter a return produced for a person by an arrangement in relation to any amount is “economically equivalent to interest” if (and only if)— (a) it is reasonable to assume that it is a return by reference to the time value of that amount of money, (b) it is at a rate reasonably comparable to what is (in all the circumstances) a commercial rate of interest, and (c) at the relevant time there is no practical likelihood that it will cease to be produced in accordance with the arrangement unless the person by whom it falls to be produced is prevented (by reason of insolvency or otherwise) from producing it. (5) In subsection (4)(c) “the relevant time” means the time when the person becomes party to the arrangement or, if later, when the arrangement begins to produce a return for the person. (6) In this Chapter “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). (381B) Tax is charged under this Chapter on the full amount of the return, or any part of the return, arising in the tax year. (381C) The person liable for any tax charged under this Chapter is the person receiving or entitled to the return or the part of the return. (381D) (1) This section applies if at any time a tax other than income tax (“the other tax”) is charged in relation to a return on which income tax is charged under this Chapter. (2) In order to avoid a double charge to tax in respect of the return, a person may make a claim for one or more consequential adjustments to be made in respect of the other tax. (3) On a claim under this section an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable. (4) Consequential adjustments may be made— (a) in respect of any period, (b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and (c) despite any time limit imposed by or under any enactment. (381E) (1) This Chapter does not apply in relation to an arrangement that produces a return for a person, in relation to an amount, which is economically equivalent to interest where— (a) the arrangement involves only excluded shares, and (b) no relevant arrangement has been made (by any person) in relation to those excluded shares. (2) For the purposes of this section shares are excluded shares if they are admitted to trading on a regulated market and— (a) they were issued before 6 April 2013, or (b) if issued on or after that date, at the time of issue no arrangements involving only the shares would produce a return, in relation to an amount, which is economically equivalent to interest. (3) In subsection (2) “regulated market” has the same meaning as in Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments (see Article 4.1(14)). (4) For the purposes of this section an arrangement is relevant, in relation to excluded shares, where— (a) the arrangement is made on or after 6 April 2013, and (b) it is reasonable to assume that the main purpose, or one of the main purposes, of the arrangement is to secure that arrangements involving only the shares produce a return, in relation to an amount, which is economically equivalent to interest.

Consequential amendments

4

The following amendments are in consequence of the amendments made by paragraphs 2(a) and 3.

TCGA 1992

5

TCGA 1992 is amended as follows.

6

In section 37 (consideration chargeable to tax on income), after subsection (2) insert—

(2A) Subsection (1) is not to be taken as excluding from the consideration so taken into account any money or money's worth which is, or is taken into account in computing, a return on which income tax is charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised interest) (but see section 381D of that Act).

7

In section 39 (exclusion of expenditure by reference to tax on income), after subsection (3) insert—

(3A) This section is not to be taken as excluding, from the sums allowable under section 38 as a deduction in the computation of the gain, expenditure allowable as a deduction in computing a return on which income tax is charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised interest) (but see section 381D of that Act).

8

Omit sections 148A to 148C (provision dealing with the capital gains tax consequences of Chapter 12 of Part 4 of ITTOIA 2005).

9

• (1) Section 263A (agreements for sale and repurchase of securities) is amended as follows.

• (2) Before subsection (1) insert—

(A1) For the purposes of this section there is a repo in respect of securities if— (a) a person (“the original owner”) has agreed to sell the securities to another person (“the interim holder”), and (b) the original owner or a person connected with the original owner— (i) is required to buy back the securities by the agreement or a related agreement, (ii) is required to buy back the securities as a result of the exercise of an option acquired under the agreement or a related agreement, or (iii) exercises an option to buy back the securities which was acquired under the agreement or a related agreement.

• (3) In subsection (1), for the words from “falling” to “repos)” substitute “ where under a repo in respect of securities the original owner has transferred the securities to the interim holder ”.

• (4) Omit subsection (5).

10

After section 263A insert—

(263AA) (1) Subsections (2) to (7) apply for the purposes of section 263A. (2) References to buying back securities include references to— (a) buying similar securities, and (b) in the case of a person connected with the person who is the original owner under the repo, buying the securities sold by the original owner or similar securities. (3) Subsection (2) applies even if the person buying the securities has not held them before. (4) References to repurchase or a repurchaser are to be read accordingly. (5) For the purposes of subsection (2) securities are similar if they give their holders— (a) the same rights against the same persons as to capital and distributions, interest and dividends, and (b) the same remedies to enforce those rights. (6) Subsection (5) applies even if there is a difference in— (a) the total nominal amounts of the securities, (b) the form in which they are held, or (c) the manner in which they can be transferred. (7) Agreements are related if they are entered into in pursuance of the same arrangement (regardless of the date on which either agreement is entered into). (8) In section 263A and this section “securities” means— (a) shares in a company wherever resident, (b) loan stock or other securities of— (i) the government of the United Kingdom, (ii) a local authority in the United Kingdom, (iii) another public authority in the United Kingdom, (iv) a company resident in the United Kingdom or other body resident in the United Kingdom, or (c) shares, loan stock, stock or other securities issued by— (i) a government, local authority or other public authority of a territory outside the United Kingdom, or (ii) another body of persons not resident in the United Kingdom.

11

• (1) Section 263F (power to modify repo provisions: non-standard repo cases) is amended as follows.

• (2) In subsection (2), for the words from “cases” to the end substitute “ any case mentioned in section 263A(1). ”

• (3) For subsection (9) substitute—

(9) Post-agreement fluctuations” are fluctuations in the value of— (a) securities transferred in pursuance of the original sale, or (b) representative securities, which occur in the period after the making of the agreement for the original sale. (10) “Representative securities” are securities which, for the purposes of the repurchase, are to represent securities transferred in pursuance of the original sale.

12

In section 263G (power to modify repo provisions: redemption arrangements)—

• (a) in subsection (2), for the words from “cases” to the end substitute “ any case mentioned in section 263A(1). ”, and

• (b) omit subsection (4).

ITTOIA 2005

13

• (1) ITTOIA 2005 is amended as follows.

• (2) Omit Chapter 12 of Part 4 (disposals of futures and options involving guaranteed returns).

• (3) In section 687(2) (application of charge to tax), at the end insert “ or to income falling within Chapter 2A of Part 4 ”.

• (4) In Schedule 1 (consequential amendments), omit paragraph 435.

• (5) In Schedule 2 (transitionals and savings), omit paragraph 95.

• (6) In Schedule 4 (abbreviations and defined expressions), omit the entry for “future (in Chapter 12 of Part 4)”.

FA 2007

14

In Schedule 14 of FA 2007 (sale and repurchase of securities: minor and consequential amendments), omit paragraphs 22 and 23.

ITA 2007

15

• (1) ITA 2007 is amended as follows.

• (2) Omit the following provisions (which deal with deemed manufactured payments and repos)—

• (a) section 596(5),

• (b) sections 597 to 605,

• (c) section 606(1) to (7) and (9) and (10), and

• (d) sections 607 to 614.

• (3) In Schedule 1 (minor and consequential amendments), omit paragraphs 310, 543 and 544.

• (4) In Schedule 2 (transitionals and savings), omit paragraphs 112 to 124.

• (5) In Schedule 4 (index of defined expressions)—

• (a) omit the entries for—

company UK REIT (in Chapter 4 of Part 11)

,

distribution (in Chapter 4 of Part 11)

,

gross amount (in Chapter 4 of Part 11)

,

group (in Chapter 4 of Part 11)

,

group UK REIT (in Chapter 4 of Part 11)

,

Manufactured dividend (in Chapter 4 of Part 11)

,

principal company (in Chapter 4 of Part 11)

,

property rental business (in Chapter 4 of Part 11)

, and

“the repurchase price of the securities (in Chapter 4 of Part 11)

, and

• (b) in the entry for “distribution (except in Chapter 4 of Part 11)”, omit “(except in Chapter 4 of Part 11)”.

CTA 2010

16

In Schedule 1 of CTA 2010 (minor and consequential amendments), omit paragraphs 540 to 543 and 544(a), (c) and (d).

FA 2010

17

In Schedule 6 of FA 2010 (charities etc), omit paragraph 21(4).

Commencement and transitional provision

18

• (1) Subject to sub-paragraph (2), the amendments made by this Schedule have effect for the tax year 2013-2014 and subsequent tax years.

• (2) Chapter 2A of Part 4 of ITTOIA 2005 does not apply in relation to an arrangement that produces a return for a person, in relation to an amount, which is economically equivalent to interest if—

• (a) the person became party to the arrangement before 6 April 2013, and

• (b) none of the provisions repealed by paragraphs 13(2) and 15(2) applied in relation to the arrangement before that date.

SCHEDULE 13

Amendments of Part 14 of CTA 2010

1

• (1) Part 14 of CTA 2010 (change in company ownership) is amended as follows.

• (2) In section 672 (overview of Part)—

• (a) after subsection (3) insert—

(3A) Chapter 5A restricts relief for certain non-trading deficits and losses where there is a change of ownership of a shell company.

;

• (b) in subsection (7), omit the “and” at the end of paragraph (b) and after that paragraph insert—

(ba) shell company”, see section 705A, and

.

• (3) After Chapter 5 insert—

(705A) (1) This Chapter applies where there is a change in the ownership of a shell company. (2) In this Chapter— - “the change in ownership” means the change in ownership mentioned in subsection (1); - “the company” means the company mentioned in subsection (1); - “shell company” means a company that— 1. is not carrying on a trade, 2. is not a company with investment business, and 3. is not carrying on a UK property business. (705B) (1) This section applies for the purposes of this Chapter. (2) The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period. (3) The amounts for the actual accounting period in column 1 of the table in section 705F(2) are apportioned to the two notional accounting periods in accordance with section 705F. (4) In this Chapter “the actual accounting period” and “notional accounting periods” have the same meaning as in this section. (705C) (1) This section has effect for the purpose of restricting the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of the company's loan relationships. (2) The debits to be brought into account for the purposes of Part 5 of CTA 2009 for— (a) the accounting period beginning immediately after the change in ownership, or (b) any subsequent accounting period, do not include relevant non-trading debits so far as amount A exceeds amount B. (3) Amount A is the sum of— (a) the amount of those relevant non-trading debits, and (b) the amount of any relevant non-trading debits which have been brought into account for the purposes of that Part for any previous accounting period ending after the change in ownership. (4) Amount B is the amount of the taxable total profits of the accounting period ending with the change in ownership. (5) For the meaning of “relevant non-trading debit”, see section 730. (705D) (1) This section has effect for the purpose of restricting the carry forward of a non-trading deficit from the company's loan relationships under Part 5 of CTA 2009 (loan relationships). (2) Subsection (3) applies if the non-trading deficit in column 1 of row 4 of the table in section 705F(2) is apportioned in accordance with section 705F to the first notional accounting period. (3) None of that non-trading deficit may be carried forward to— (a) the accounting period beginning immediately after the change in ownership, or (b) any subsequent accounting period. (705E) (1) This section has effect for the purpose of restricting relief under section 753 of CTA 2009 (treatment of non-trading losses) in respect of a non-trading loss on intangible fixed assets. (2) Relief under section 753 of CTA 2009 against the total profits of the same accounting period is available only in relation to each of the notional accounting periods considered separately. (3) A non-trading loss on intangible fixed assets for an accounting period beginning before the change in ownership may not be— (a) carried forward under section 753(3) of that Act to an accounting period ending after the change in ownership, or (b) treated under that section as if it were a non-trading debit of that period. (705F) (1) This section applies for the purposes of this Chapter. (2) Any amount for the actual accounting period in column 1 of the following table is to be apportioned to the two notional accounting periods in accordance with the corresponding method of apportionment in column 2 of the table.

Row	1. Amount to be apportioned	2. Method of apportionment
1	The amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships (see section 705G(2))).	Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
2	The amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships (see section 705G(3)).	Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
3	The amount of any non-trading debit that falls to be brought into account for the actual accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company.	1If condition A in section 705G(4) is met, apportion the amount in column 1 by reference to the time of accrual of the amount to which the debit relates.2If condition B in section 705G(5) is met, apportion the amount in column 1 to the first notional accounting period.
4	The amount of any non-trading deficit carried forward to the actual accounting period under section 457(1) of CTA 2009 (basic rule for deficits: carry forward to accounting periods after deficit period).	Apportion the whole of the amount in column 1 to the first notional accounting period.
5	The amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for the actual accounting period under section 751 of CTA 2009 (non-trading gains and losses), but excluding any amount within column 1 of row 6.	Apportion to each notional accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice.
6	The amount of any non-trading loss on intangible fixed assets carried forward to the actual accounting period under section 753(3) of CTA 2009 and treated under that section as if it were a non-trading debit of that period.	Apportion the whole of the amount in column 1 to the first notional accounting period.
7	Any other amounts by reference to which the profits or losses of the actual accounting period would (but for this Chapter) be calculated.	Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.

(3) If any method of apportionment in column 2 of the table in subsection (2) would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable. (4) For the meaning of certain expressions used in this section, see section 705G. (705G) (1) This section applies for the purposes of the table in section 705F(2). (2) For the purposes of column 1 of row 1 of the table, the amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships is the amount which would be the amount of the profits from those relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits) if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded. (3) For the purposes of column 1 of row 2 of the table, the amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships is the amount which would be the amount of the non-trading deficit from those relationships if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded. (4) Condition A is that— (a) the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and (b) none of the following provisions applies— (i) section 373 of CTA 2009 (late interest treated as not accruing until paid in some cases), (ii) section 407 of that Act (postponement until redemption of debits for connected companies' deeply discounted securities), or (iii) section 409 of that Act (postponement until redemption of debits for close companies' deeply discounted securities). (5) Condition B is that— (a) the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and (b) any of the provisions mentioned in subsection (4)(b) applies.

• (4) In section 721 (when things other than share capital may be taken into account: Chapters 2 to 5)—

• (a) in the heading, for “5” substitute “ 5A ”;

• (b) in subsection (1), for “5” substitute “ 5A ”;

• (c) in subsection (4), for “or 5” substitute “ , 5 or 5A ”.

• (5) In section 725 (provision applying for the purposes of Chapters 2 to 5)—

• (a) in the heading, for “5” substitute “ 5A ”;

• (b) in subsection (1), for “5” substitute “ 5A ”.

• (6) In section 730 (meaning of “relevant non-trading debit”)—

• (a) in subsection (1), for “and 696” substitute “ , 696 and 705C ”;

• (b) in subsections (3)(c), (4)(c) and (5)(b) for “or 696” substitute “ , 696 or 705C ”.

Consequential amendments

2

In Schedule 4 to that Act (index of defined expressions) insert at the appropriate places—

the actual accounting period (in Chapter 5A of Part 14)	section 705B(4)
the change in ownership (in Chapter 5A of Part 14)	section 705A(2)
---	---
the company (in Chapter 5A of Part 14)	section 705A(2)
---	---
notional accounting periods (in Chapter 5A of Part 14)	section 705B(4)
---	---
shell company (in Chapter 5A of Part 14)	section 705A(2)
---	---

.

Commencement

3

The amendments made by this Schedule have effect in relation to changes in ownership that occur on or after 20 March 2013.

SCHEDULE 14

New Part 14A of CTA 2010

1

After Part 14 of CTA 2010 insert—

(730A) (1) This Part makes provision restricting the circumstances in which deductible amounts may be brought into account where there has been a qualifying change in relation to a company. (2) For the meaning of “deductible amount” and “qualifying change” see section 730B. (730B) (1) In this Part— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), - “C” means the company mentioned in section 730A(1), - “deductible amount” means— 1. an expense of a trade, 2. an expense of a UK property business or an overseas property business, 3. an expense of management of a company's investment business within the meaning of section 1219 of CTA 2009, 4. a non-trading debit within the meaning of Parts 5 and 6 of CTA 2009 (loan relationships and derivative contracts) (see section 301(2) of that Act), or 5. a non-trading debit within the meaning of Part 8 of CTA 2009 (intangible fixed assets) (see section 746 of that Act), - “qualifying change”, in relation to a company, has the same meaning as in that Chapter, and - “the relevant day” means the day on which the qualifying change in relation to C occurred. (2) In this Part, references to bringing an amount into account “as a deduction” in any period are to bringing it into account as a deduction in that period— (a) in calculating profits, losses or other amounts for corporation tax purposes, or (b) from profits or other amounts chargeable to corporation tax. (730C) (1) This section applies where a relevant claim is made for an accounting period ending on or after the relevant day. (2) “Relevant claim” means a claim by C, or a company connected with C, under— (a) section 37 (relief for trade losses against total profits), or (b) Chapter 4 of Part 5 (group relief). (3) A deductible amount that meets conditions A and B may not be the subject of, or brought into account as a deduction in, the claim. (4) But subsection (3) does not exclude any amount which could have been the subject of, or brought into account as a deduction in, the claim in the absence of the qualifying change. (5) Condition A is that, on the relevant day, it is highly likely that the amount, or any part of it, would (disregarding this Part) be the subject of, or brought into account as a deduction in, a relevant claim for an accounting period ending on or after the relevant day. (6) Any question as to what is “highly likely” on the relevant day for the purposes of subsection (5) is to be determined having regard to— (a) any arrangements made on or before that day, and (b) any events that take place on or before that day. (7) Condition B is that the main purpose, or one of the main purposes, of change arrangements is for the amount (whether or not together with other deductible amounts) to be the subject of, or brought into account as a deduction in, a relevant claim for an accounting period ending on or after the relevant day. (8) “Change arrangements” means any arrangements made to bring about, or otherwise connected with, the qualifying change. (9) This section does not apply to a deductible amount if, and to the extent that— (a) section 730D(2) applies to it, or (b) for the purposes of section 432, a loss, or any part of a loss, to which section 433(2) applies derives from it. (730D) (1) This section applies where arrangements (“the profit transfer arrangements”) are made which result in— (a) an increase in the total profits of C, or of a company connected with C, or (b) a reduction of any loss or other amount for which relief from corporation tax could (disregarding this section) have been given to C or a company connected with C, in any accounting period ending on or after the relevant day. (2) A deductible amount that meets conditions D and E may not be brought into account by C, nor any company connected with C, as a deduction in any accounting period ending on or after the relevant day. (3) Condition D is that, on the relevant day, it is highly likely that the amount, or any part of it, would (disregarding this Part) be brought into account by C, or any company connected with C, as a deduction in any accounting period ending on or after the relevant day. (4) Any question as to what is “highly likely” on the relevant day for the purposes of subsection (3) is to be determined having regard to— (a) any arrangements made on or before that day, and (b) any events that take place on or before that day. (5) Condition E is that the main purpose, or one of the main purposes, of the profit transfer arrangements is to bring the amount (whether or not together with other deductible amounts) into account as a deduction in any accounting period ending on or after the relevant day. (6) Subsection (7) applies if— (a) (disregarding subsection (7)) subsection (2) would prevent a deductible amount being brought into account by a company as a deduction in any accounting period ending on or after the relevant day, and (b) in the absence of the profit transfer arrangements and disregarding any deductible amounts, the company would have an amount of total profits for that accounting period. (7) Subsection (2) applies only in relation to such proportion of the deductible amount mentioned in subsection (6)(a) as is just and reasonable.

Consequential amendments

2

• (1) In section 1(4) of CTA 2010 (overview of Act), after paragraph (a) insert—

(aa) transfer of deductions (see Part 14A),

.

• (2) In section 432 of that Act (sale of lessors: restriction on relief for certain expenses), after subsection (1) insert—

(1A) For the purposes of subsection (1), an expense is to be disregarded if, and to the extent that, section 730D(2) (disallowance of deductible amounts: profit transfers) applies to it.

• (3) In Schedule 4 to that Act (index of defined expressions), insert at the appropriate places—

arrangements (in Part 14A)	section 730B
as a deduction (in Part 14A)	section 730B
---	---
C (in Part 14A)	section 730B
---	---
deductible amount (in Part 14A)	section 730B
---	---
qualifying change (in Part 14A)	section 730B
---	---
the relevant day (in Part 14A)	section 730B
---	---

.

Commencement and transitional provision

3

• (1) The amendments made by this Schedule have effect in relation to a qualifying change if the relevant day is on or after 20 March 2013.

• (2) But those amendments do not have effect if before that date—

• (a) the arrangements made to bring about the qualifying change were entered into, or

• (b) there was an agreement, or common understanding, between the parties to those arrangements as to the principal terms on which the qualifying change would be brought about.

• (3) If—

• (a) the relevant day in relation to a qualifying change is before 26 June 2013, or

• (b) paragraph (a) or (b) of sub-paragraph (2) was satisfied before that date,

those amendments have effect in relation to the qualifying change as if section 730C(9)(b) were omitted.

SCHEDULE 15

PART 1 — Amendments of CTA 2009

1

In Part 3 of CTA 2009 (trading income), after Chapter 6 insert—

(104A) (1) A company carrying on a trade may make a claim for an amount (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period. (2) The company is entitled to an R&D expenditure credit for the accounting period if the company has qualifying R&D expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the accounting period. (3) In the case of a company that is a small or medium-sized enterprise in the accounting period, the company's “qualifying R&D expenditure” means— (a) its qualifying expenditure on sub-contracted R&D (see section 104C), (b) its subsidised qualifying expenditure (see section 104F), and (c) its capped R&D expenditure (see section 104I). (4) In the case of a company that is a large company throughout the accounting period, the company's “qualifying R&D expenditure” means— (a) its qualifying expenditure on in-house direct research and development (see section 104J), (b) its qualifying expenditure on contracted out research and development (see section 104K), and (c) its qualifying expenditure on contributions to independent research and development (see section 104L). (5) The amount of an R&D expenditure credit to which a company is entitled is determined in accordance with section 104M. (6) Section 104N contains provision about the effect of a successful claim for an R&D expenditure credit. (7) Sections 104U to 104W contain provision about insurance companies and group companies. (8) Section 104X contains anti-avoidance provision. (9) Section 104Y contains definitions. (10) For information about the procedure for making claims under this Chapter, see Schedule 18 to FA 1998, in particular Part 9A of that Schedule. (104B) A company may not make a claim for an R&D expenditure credit and for relief under Part 13 (additional relief for expenditure on research and development) in respect of the same expenditure. (104C) (1) For the purposes of this Chapter a company's “qualifying expenditure on sub-contracted R&D” means expenditure incurred by it that meets conditions A and B. (2) Condition A is that the expenditure is incurred on research and development contracted out to the company by— (a) a large company, or (b) any person otherwise than in the course of carrying on a chargeable trade. (3) A “chargeable trade” is— (a) a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or (b) a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part. (4) Condition B is that the expenditure is expenditure to which section 104D or 104E applies. (104D) (1) This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met. (2) Condition A is that the research and development is undertaken by the company itself. (3) Condition B is that the expenditure is— (a) incurred on staffing costs (see section 1123), (b) incurred on software or consumable items (see section 1125), (c) qualifying expenditure on externally provided workers (see section 1127), or (d) incurred on relevant payments to the subjects of a clinical trial (see section 1140). (4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company. (5) See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development. (104E) (1) This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met. (2) Condition A is that the expenditure is incurred in making payments to— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual, in respect of research and development contracted out by the company to the body, individual or firm. (3) Condition B is that the research and development is undertaken by the body, individual or firm itself. (4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company. (5) See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development. (104F) For the purposes of this Chapter a company's “subsidised qualifying expenditure” means— (a) its subsidised qualifying expenditure on in-house direct research and development (see section 104G), and (b) its subsidised qualifying expenditure on contracted out research and development (see section 104H). (104G) (1) A company's “subsidised qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which each of conditions A to D is met. (2) Condition A is that the expenditure is subsidised. (3) Condition B is that the expenditure is— (a) incurred on staffing costs (see section 1123), (b) incurred on software or consumable items (see section 1125), (c) qualifying expenditure on externally provided workers (see section 1127), or (d) incurred on relevant payments to the subjects of a clinical trial (see section 1140). (4) Condition C is that the expenditure is attributable to relevant research and development undertaken by the company itself. (5) Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person. (6) See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development. (104H) (1) A company's “subsidised qualifying expenditure on contracted out research and development” means expenditure— (a) which is incurred by it in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136), and (b) in relation to which each of conditions A to E is met. (2) Condition A is that the expenditure is subsidised. (3) Condition B is that the sub-contractor is— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual. (4) Condition C is that the body, individual or firm concerned undertakes the contracted out research and development itself. (5) Condition D is that the expenditure is attributable to relevant research and development in relation to the company. (6) Condition E is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person. (7) See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development. (104I) For the purposes of this Chapter a company's “capped R&D expenditure” means any expenditure— (a) in respect of which the company is not entitled to relief under Chapter 2 of Part 13 merely because of section 1113 (cap on R&D aid), (b) which is not qualifying expenditure on sub-contracted R&D, and (c) which would have been qualifying R&D expenditure had the company been a large company throughout the accounting period in question. (104J) (1) A company's “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which conditions A, B and C are met. (2) Condition A is that the expenditure is— (a) incurred on staffing costs (see section 1123), (b) incurred on software or consumable items (see section 1125), (c) qualifying expenditure on externally provided workers (see section 1127), or (d) incurred on relevant payments to the subjects of a clinical trial (see section 1140). (3) Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself. (4) Condition C is that, if the expenditure is incurred in carrying on activities contracted out to the company, the activities are contracted out by— (a) a large company, or (b) any person otherwise than in the course of carrying on a chargeable trade. (5) A “chargeable trade” is— (a) a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or (b) a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part. (6) See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (2)(a), (b) or (c) is attributable to relevant research and development. (104K) (1) A company's “qualifying expenditure on contracted out research and development” means expenditure incurred by it in relation to which each of conditions A to D is met. (2) Condition A is that the expenditure is incurred in making payments to— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual, in respect of research and development contracted out by the company to the body, individual or firm concerned (“the contracted out R&D”). (3) Condition B is that the body, individual or firm concerned undertakes the contracted out R&D itself. (4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company. (5) Condition D is that, if the contracted out R&D is itself contracted out to the company, it is contracted out by— (a) a large company, or (b) any person otherwise than in the course of carrying on a chargeable trade. (6) A “chargeable trade” is— (a) a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or (b) a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part. (7) See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development. (104L) (1) A company's “qualifying expenditure on contributions to independent research and development” means expenditure incurred by it in relation to which each of conditions A to E is met. (2) Condition A is that the expenditure is incurred in making payments to— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual, for the purpose of funding research and development carried on by the body, individual or firm concerned (“the funded R&D”). (3) Condition B is that the funded R&D is relevant research and development in relation to the company. (4) Condition C is that the funded R&D is not contracted out to the qualifying body, individual or firm concerned by another person. (5) Condition D is that, if the payment is made to an individual, the company is not connected with the individual when the payment is made. (6) Condition E is that, if the payment is made to a firm (other than a qualifying body), the company is not connected with any member of the firm when the payment is made. (104M) (1) The amount of the R&D expenditure credit to which a company is entitled for an accounting period is the relevant percentage of the amount of the company's qualifying R&D expenditure for the period. (2) In the case of a ring fence trade, the relevant percentage is 49%. In this subsection “ring fence trade” has the meaning given by section 277 of CTA 2010. (3) In any other case, the relevant percentage is 10%. (4) The Treasury may by order replace the percentage for the time being specified in subsection (2) or (3) with a different percentage. (5) An order under subsection (4) may contain incidental, supplemental, consequential and transitional provision and savings. (104N) (1) This section applies if a company is entitled to an R&D expenditure credit for an accounting period under this Chapter. (2) The amount to which the company is entitled in respect of the R&D expenditure credit (“the set-off amount”) is to be treated in the following way— - Step 1 The set-off amount is to be applied in discharging any liability of the company to pay corporation tax for the accounting period. If any of the set-off amount is remaining, go to step 2. - Step 2 If the amount remaining after step 1 is greater than the net value of the set-off amount (see subsection (3)), that amount is to be reduced to the net value of the set-off amount. For provision about the treatment of the amount deducted under this step from the amount remaining after step 1, see section 104O. - Step 3 If the amount remaining after step 2 is greater than the company's total expenditure on workers for the accounting period (see section 104P)— 1. that amount is to be reduced to the amount of that expenditure (which may be nil), and 2. the amount deducted under paragraph (a) from the amount remaining after step 2 is to be treated for the purposes of this section as an amount of R&D expenditure credit to which the company is entitled for its next accounting period. - Step 4 The amount remaining after step 3 is to be applied in discharging any liability of the company to pay corporation tax for any other accounting period. If any of the set-off amount is remaining, go to step 5. - Step 5 If the company is a member of a group, it may surrender the whole or any part of the amount remaining after step 4 to any other member of the group (see section 104R). If no such surrender is made, or any of the set-off amount is otherwise remaining, go to step 6. - Step 6 The amount remaining after step 5 is to be applied in discharging any other liability of the company to pay a sum to the Commissioners under or by virtue of an enactment or under a contract settlement. If any of the set-off amount is remaining, go to step 7. - Step 7 The amount remaining after step 6 is payable to the company by an officer of Revenue and Customs. But this is subject to section 104S (restrictions on payment of R&D expenditure credit). (3) To determine the net value of the set-off amount for the purposes of step 2 in subsection (2), deduct from the set-off amount amount A and, in the case of a ring fence trade, amount B. - Amount A is the amount equal to the corporation tax that would be chargeable on the set-off amount if— 1. it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and 2. it was an amount of profits (or in the case of a ring fence trade, ring fence profits) of the company for the accounting period and corporation tax on such profits was chargeable at the main rate. - Amount B is the amount equal to the supplementary charge that would be chargeable on the set-off amount if— 1. it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and 2. it was an amount of adjusted ring fence profits for the accounting period. (4) In this section— - “adjusted ring fence profits” has the meaning given by section 330(2) of CTA 2010, - “the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs, - “contract settlement” means an agreement made in connection with any person's liability to make a payment to the Commissioners under or by virtue of an enactment, - “ring fence profits” has the meaning given by section 276 of CTA 2010, and - “ring fence trade” has the meaning given by section 277 of CTA 2010. (104O) (1) This section applies if— (a) a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and (b) the amount of the set-off amount remaining after step 1 in section 104N(2) is greater than the net value of the set-off amount. (2) An amount equal to the difference between— (a) the amount remaining after step 1 in section 104N(2), and (b) the net value of the set-off amount, (“the step 2 amount”) is to be applied in discharging any liability of the company to pay corporation tax for any subsequent accounting period. This is subject to subsection (3). (3) If the company is a member of a group, it may surrender the whole or any part of the step 2 amount to any other member of the group (the “relevant group member”). In such a case, section 104R(3) applies to the amount surrendered as it applies to an amount of R&D expenditure credit surrendered under step 5 in section 104N(2). (4) If any of the amount surrendered under subsection (3) is remaining after the operation of step 3 in section 104R(3), it is to be treated for the purposes of this section as if it had not been surrendered to the relevant group member. (5) Any amounts to be applied under subsection (2) or (3) in discharging any liability of a company to pay corporation tax for an accounting period are to be so applied before any amounts that may be so applied under step 1, 4 or 5 in section 104N(2). (6) The surrender by a company of the whole or any part of the step 2 amount to another company under this section— (a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and (b) for corporation tax purposes is not to be regarded as the making of a distribution. (7) Any reference in this section to the set-off amount, or the net value of the set-off amount, is to be read in accordance with section 104N. (104P) (1) For the purposes of section 104N, the amount of a company's total expenditure on workers for an accounting period is the sum of— (a) the relevant portion of the company's staffing costs for the period (see subsection (2)), and (b) if the company is a member of a group and has incurred expenditure on any externally provided workers, the relevant portion of any staffing costs for the period incurred by another member of the group (the “relevant group company”) in providing any of those workers for the company (see subsection (3)). (2) The relevant portion of the company's staffing costs for an accounting period is the amount of those costs that— (a) are paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development (whether they are wholly or partly so engaged), and (b) form part of the total amount of the company's PAYE and NIC liabilities for the accounting period (see section 104Q). (3) The relevant portion of any staffing costs for an accounting period incurred by a relevant group company in providing externally provided workers for the company is the sum of the amounts to be determined in the case of each of those workers as follows— - Step 1 Calculate the amount of expenditure that— 1. has been incurred by the relevant group company in providing the externally provided worker for the company, 2. has been incurred on staffing costs, and 3. forms part of the total amount of the relevant group company's PAYE and NIC liabilities for the accounting period (see section 104Q). - Step 2 Calculate the percentage (the “appropriate percentage”) given by—$R T × 100$where—R is the amount of the company's qualifying expenditure on the externally provided worker that has been taken into account in calculating the amount of the company's qualifying R&D expenditure for the period, andT is the total amount of the company's qualifying expenditure on the externally provided worker. - Step 3 The amount to be determined in the case of the externally provided worker is the appropriate percentage of the amount given by step 1. (104Q) (1) For the purposes of section 104P the total amount of a company's PAYE and NIC liabilities for an accounting period is the sum of— (a) amount A, and (b) amount B. (2) Amount A is the total amount of income tax for which the company is required to account to an officer of Revenue and Customs under PAYE regulations for the accounting period. (3) In calculating amount A disregard any deduction the company is authorised to make in respect of child tax credit or working tax credit. (4) Amount B is the total amount of Class 1 national insurance contributions for which the company is required to account to an officer of Revenue and Customs for the accounting period. (5) In calculating amount B disregard any deduction the company is authorised to make in respect of payments of statutory sick pay, statutory maternity pay, child tax credit or working tax credit. (6) In a case where the company is required to account for any amount of income tax or Class 1 national insurance contributions for a payment period that does not fall wholly within the accounting period, the portion of that amount to be included in the total amount of the company's PAYE and NIC liabilities for the accounting period is to be determined on such basis as is just and reasonable in all the circumstances. (104R) (1) This section applies if— (a) a company is entitled to an R&D expenditure credit under this Chapter for an accounting period (“the surrender period”), and (b) the company surrenders the whole or any part of the credit to another member of the group (the “relevant group member”) under step 5 in section 104N(2). (2) In this section an accounting period of a relevant group member is a “relevant accounting period” if there is a period (“the overlapping period”) that is common to the accounting period and the surrender period. (3) The amount surrendered is to be applied in discharging any liability of the relevant group member to pay corporation tax for any relevant accounting period as follows— - Step 1 Take the proportion of the relevant accounting period included in the overlapping period. Apply that proportion to the amount of corporation tax payable by the relevant group member for the relevant accounting period. - Step 2 Take the proportion of the surrender period included in the overlapping period. Apply that proportion to the amount surrendered to the relevant group member. - Step 3 The amount given by step 2 is to be applied in discharging the amount given by step 1. (4) If any of the amount surrendered is remaining after the operation of step 3 in subsection (3), it is to be treated for the purposes of section 104N as if it had not been surrendered to the relevant group member. (5) The surrender by a company of the whole or any part of an R&D expenditure credit to another company under step 5 in section 104N(2)— (a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and (b) for corporation tax purposes is not to be regarded as the making of a distribution. (104S) (1) This section applies if— (a) a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and (b) an amount of the R&D expenditure credit is payable to the company under step 7 of section 104N(2). (2) If at the time of claiming the credit the company was not a going concern (see section 104T)— (a) the company is not entitled to be paid that amount, and (b) that amount is extinguished. (3) But if the company becomes a going concern on or before the last day on which an amendment of the company's tax return for the accounting period could be made under paragraph 15 of Schedule 18 to FA 1998, the company is entitled to be paid that amount. (4) If the company's tax return for the accounting period is enquired into by an officer of Revenue and Customs— (a) no payment of that amount need be made before the officer's enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998), but (b) the officer may make a payment on a provisional basis of such amount as the officer thinks fit. (5) No payment of that amount need be made if the company has outstanding PAYE and NIC liabilities for the period. (6) A company has outstanding PAYE and NIC liabilities for an accounting period if it has not paid to an officer of Revenue and Customs any amount that it is required to pay— (a) under PAYE regulations, or (b) in respect of Class 1 national insurance contributions, for payment periods ending in the accounting period. (104T) (1) For the purposes of section 104S(2) and (3) a company is a going concern if— (a) its latest published accounts were prepared on a going concern basis, and (b) nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive R&D expenditure credits under this Chapter. This is subject to subsection (2). (2) A company is not a going concern at any time if it is in administration or liquidation at that time. (3) For the purposes of this section a company is in administration if— (a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. (4) For the purposes of this section a company is in liquidation if— (a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. (5) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section. (104U) (1) This section applies if an insurance company— (a) carries on life assurance business in an accounting period, and (b) is a small or medium-sized enterprise in the period. (2) For the purposes of this Chapter the company is to be treated as if it were not such an enterprise in the period (and accordingly is to be treated as a large company for the purposes of this Chapter). (3) Section 1119 (meaning of “small or medium-sized enterprise”), as it has effect for the purposes of this Chapter (see section 104Y), is to be read subject to this section. (104V) (1) This section applies if— (a) for an accounting period, an insurance company is charged to tax in respect of its basic life assurance and general annuity business in accordance with the I-E rules, and (b) the calculation of the company's charge to tax for the period in respect of that business does not involve the calculation of any BLAGAB trade profit or loss of the company. (2) Section 104A has effect as if— (a) the reference in subsection (1) to calculating the profits of a trade were a reference to calculating the I-E profit of the basic life assurance and general annuity business carried on by the company, and (b) the reference in subsection (2) to qualifying R&D expenditure allowable as a deduction in calculating the profits of a trade for an accounting period were a reference to any such expenditure that would be allowable as such a deduction if the company were to calculate its BLAGAB trade profit or loss for the period. (3) Any receipt to be brought into account by virtue of this section is to be treated for the purposes of section 92 of FA 2012 (certain BLAGAB trading receipts to count as deemed I-E receipts) as if it had been taken into account in calculating the company's BLAGAB trade profit or loss for the period. (4) In this section “BLAGAB trade profit” and “BLAGAB trade loss” have the meaning given by section 136 of FA 2012. (104W) (1) This section applies if— (a) a company (“A”) incurs expenditure on making a payment to another company (“B”) in respect of activities contracted out by A to B, (b) the activities would, if carried out by A, be research and development of A (taken together with A's other activities), and (c) A and B are members of the same group at the time the payment is made. (2) If the activities are undertaken by B itself, they are to be treated for the purposes of this Chapter (so far as it would not otherwise be the case) as research and development undertaken by B itself. (3) If B makes a payment to a third party (“C”), any of the activities— (a) contracted out by B to C, and (b) undertaken by C itself, are to be treated for the purposes of this Chapter (so far as it would not otherwise be the case) as research and development contracted out by B to C. (104X) (1) To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be disregarded for the purpose of determining for an accounting period R&D expenditure credits to which a company is entitled under this Chapter. (2) Arrangements are entered into wholly or mainly for a “disqualifying purpose” if their main object, or one of their main objects, is to enable a company to obtain— (a) an R&D expenditure credit under this Chapter to which it would not otherwise be entitled, or (b) an R&D expenditure credit under this Chapter of a greater amount than that to which it would otherwise be entitled. (3) In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable. (104Y) (1) In this Chapter the following terms have the same meaning as they have in Part 13 (additional relief for expenditure on R&D)— - “large company” (see section 1122), - “payment period” (see section 1141), - “qualifying body” (see section 1142), - “relevant research and development” (see section 1042), - “research and development” (see section 1041), - “small or medium-sized enterprise” (see section 1119). (2) The following sections apply for the purposes of this Chapter as they apply for the purposes of Part 13— - sections 1123 and 1124 (staffing costs), - sections 1125 and 1126 (software or consumable items), - sections 1127 to 1132 (qualifying expenditure on externally provided workers), - sections 1133 to 1136 (sub-contractor payments), - section 1138 (“subsidised expenditure”), - section 1140 (relevant payments to the subjects of a clinical trial). (3) For the purposes of this Chapter two companies are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).

2

• (1) Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows.

• (2) After section 1040 (and before the cross-heading “Interpretation”) insert—

(1040A) (1) For provision enabling a company carrying on a trade to make a claim for an amount in respect of expenditure on research and development (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period, see Chapter 6A of Part 3. (2) For provision prohibiting a company from making a claim for an R&D expenditure credit and for relief under this Part in respect of the same expenditure, see section 104B.

• (3) In section 1138 (meaning of “subsidised expenditure”), in subsection (3), omit the “and” at the end of paragraph (a) and after paragraph (b) insert—

(c) R&D expenditure credits under Chapter 6A of Part 3.

3

In Schedule 4 to CTA 2009 (index of defined expressions), at the appropriate place insert—

capped R&D expenditure (in Chapter 6A of Part 3)	section 104I

;

large company (in Chapter 6A of Part 3)	section 1122 (as applied by section 104Y)

;

payment period (in Chapter 6A of Part 3)	section 1141 (as applied by section 104Y)

;

qualifying body (in Chapter 6A of Part 3)	section 1142 (as applied by section 104Y)

;

qualifying expenditure on sub-contracted R&D (in Chapter 6A of Part 3)	section 104C

;

qualifying R&D expenditure (in Chapter 6A of Part 3)	section 104A

;

relevant payment to the subject of a clinical trial (in Chapter 6A of Part 3)	section 1140 (as applied by section 104Y)

;

relevant research and development (in Chapter 6A of Part 3)	section 1042 (as applied by section 104Y)

;

research and development (in Chapter 6A of Part 3)	section 1041 (as applied by section 104Y)

;

small or medium-sized enterprise (in Chapter 6A of Part 3)	section 1119 (as applied by section 104Y)

;

software or consumable items (in Chapter 6A of Part 3)	section 1125 (as applied by section 104Y)

;

staffing costs (in Chapter 6A of Part 3)	section 1123 (as applied by section 104Y)

;

subsidised qualifying expenditure (in Chapter 6A of Part 3)	section 104F

.

PART 2 — Consequential amendments

FA 1998

4

Schedule 18 to FA 1998 (company tax returns, assessments and related matters) is amended as follows.

5

In paragraph 10(2) (other claims and elections to be included in return), after “first-year tax credits” insert “ , R&D expenditure credits ”.

6

• (1) Paragraph 52 (recovery of excessive repayments etc) is amended as follows.

• (2) In sub-paragraph (2), after paragraph (b) insert—

(bza) R&D expenditure credit under Chapter 6A of Part 3 of the Corporation Tax Act 2009,

.

• (3) In sub-paragraph (5)—

• (a) after paragraph (a) insert—

(aa) an amount of R&D expenditure credit paid to a company for an accounting period,

;

• (b) after “paragraph (a),” insert “ (aa), ”.

7

• (1) Part 9A (claims for R&D tax relief) is amended as follows.

• (2) In paragraph 83A (introduction), for the words after “applies” substitute

to— (a) claims for R&D expenditure credits under Chapter 6A of Part 3 of the Corporation Tax Act 2009, and (b) claims for R&D tax relief under Part 13 of that Act.

• (3) In paragraph 83C (content of claim), before “relief” insert “ credit or ”.

• (4) Accordingly, the heading of the Part becomes “ CLAIMS FOR R&D EXPENDITURE CREDITS OR R&D TAX RELIEF ”.

FA 2007

8

In Schedule 24 to FA 2007 (penalties for errors), in paragraph 28(fa) (definition of “corporation tax credit”), after sub-paragraph (i) insert—

(ia) an R&D expenditure credit under Chapter 6A of Part 3 of CTA 2009,

.

CTA 2010

9

Part 8A of CTA 2010 (profits arising from the exploitation of patents etc) is amended as follows.

10

In section 357CG (adjustments in calculating profits of trade), in subsection (4), after “amounts to be deducted are” insert

— (a) the amount of any R&D expenditure credits (within the meaning of Chapter 6A of Part 3 of CTA 2009) brought into account in calculating the profits of the trade for the accounting period, and (b)

.

11

In section 357CK (deductions that are not routine deductions), in subsection (3)—

• (a) in paragraph (a), the words from “for which” to the end become sub-paragraph (i);

• (b) after that sub-paragraph insert

, or (ii) in respect of which the company is entitled to an R&D expenditure credit for the accounting period under Chapter 6A of Part 3 of CTA 2009,

;

• (c) at the beginning of paragraph (b) insert “ where the company obtains an additional deduction as mentioned in paragraph (a)(i), ”.

PART 3 — Abolition of certain relief under Part 13 of CTA 2009

Amendments of Part 13 of CTA 2009

12

Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows.

13

• (1) Section 1039 (overview of Part) is amended as follows.

• (2) In subsection (3)—

• (a) for “Chapters 2 to 4” substitute “ Chapter 2 ”;

• (b) omit paragraphs (b) and (c).

• (3) Omit subsection (4).

• (4) In subsection (5)—

• (a) for “Chapters 2 to 5” substitute “ Chapter 2 ”;

• (b) omit paragraphs (b) and (c).

14

Omit Chapter 3 (relief for SMEs: R&D sub-contracted to SME).

15

Omit Chapter 4 (relief for SMEs: subsidised and capped expenditure on R&D).

16

Omit Chapter 5 (relief for large companies).

17

• (1) Section 1081 (insurance companies treated as large companies) is amended as follows.

• (2) In subsection (2), for “Chapters 2 to 5” substitute “ Chapter 2 ”.

• (3) Omit subsection (3).

18

Omit section 1082 (R&D expenditure of group companies).

19

Omit section 1083 (refunds of expenditure treated as income chargeable to tax).

20

• (1) Section 1084 (artificially inflated claims for relief or tax credit) is amended as follows.

• (2) In subsection (2)(a), for “Chapters 2 to 5” substitute “ Chapter 2 ”.

• (3) In subsection (3)(a) and (b), for “Chapters 2 to 5” substitute “ Chapter 2 ”.

21

In section 1119 (meaning of “small or medium-sized enterprise”), in subsection (3), for “Chapters 2 to 5” substitute “ Chapter 2 ”.

22

In section 1133 (meaning of “sub-contractor” etc), in subsection (3), omit “section 1072(1)(a),”.

Consequential amendments

23

In Schedule 4 to CTA 2009 (index of defined expressions), omit the following entries— “ capped R&D expenditure (in Part 13) ”, “ qualifying Chapter 3 expenditure (in Part 13) ”, “ qualifying Chapter 4 expenditure (in Part 13) ”, and “ qualifying Chapter 5 expenditure (in Part 13) ”.

24

• (1) CTA 2010 is amended as follows.

• (2) In section 312 (ring fence expenditure supplement: qualifying pre-commencement expenditure), omit subsections (8) and (9).

• (3) In section 1173, in Part 1 of the table in subsection (2), omit the entry relating to section 1083(5) of CTA 2009.

• (4) In Schedule 1, omit paragraph 671.

25

In section 13 of F(No.3)A 2010, omit subsections (4) and (5).

26

• (1) FA 2012 is amended as follows.

• (2) In section 78(3), omit the entry relating to section 1080(2) of CTA 2009.

• (3) In Schedule 16, omit paragraph 190.

PART 4 — Commencement and transitional provision

27

The amendments made by Parts 1 and 2 of this Schedule have effect in relation to expenditure incurred on or after 1 April 2013.

28

Subject to paragraph 29, the amendments made by Part 3 of this Schedule have effect in relation to expenditure incurred on or after 1 April 2016.

29

• (1) If a company claims an R&D expenditure credit under section 104A of CTA 2009 for an accounting period beginning before 1 April 2016, the amendments made by Part 3 of this Schedule are treated as having effect in relation to expenditure incurred by the company on or after the first day of that accounting period.

• (2) But in a case where the accounting period includes 1 April 2013, those amendments are treated as having effect in relation to expenditure incurred by the company on or after that day.

SCHEDULE 16

PART 1 — Amendments of CTA 2009

1

After Part 15 of CTA 2009 insert—