Source: http://www.legislation.gov.uk/ukpga/2004/12
Timestamp: 2015-03-01 15:16:40
Document Index: 609595451

Matched Legal Cases: ['art 1', 'art 1', 'art 1', 'art 6', 'art 2', 'art 3', 'art 1', 'art 17', 'art 17', 'art 17', 'art 4', 'art 4', 'art 12', 'art 4', 'art 17', 'art 1', 'art 2', 'art 3', 'art 4']

Skip to main contentSkip to navigationlegislation.gov.ukThe National ArchivesHelpSite MapAccessibilityContact UsCymraegHomeAbout UsBrowse LegislationNew LegislationChanges To LegislationSearch LegislationSearch LegislationTitle: (or keywords in the title)Year:Number:Type:All Legislation (excluding draft)All Primary Legislation UK Public General Acts UK Local Acts Acts of the Scottish Parliament Acts of the National Assembly for Wales Measures of the National Assembly for Wales Church Measures Acts of the Northern Ireland Assembly Acts of the Old Scottish Parliament Acts of the English Parliament Acts of the Old Irish Parliament Acts of the Parliament of Great Britain Northern Ireland Orders in Council Measures of the Northern Ireland Assembly Acts of the Northern Ireland ParliamentAll Secondary Legislation UK Statutory Instruments Wales Statutory Instruments Scottish Statutory Instruments Northern Ireland Statutory Rules Church Instruments UK Ministerial Orders UK Statutory Rules and OrdersAll Draft Legislation UK Draft Statutory Instruments Scottish Draft Statutory Instruments Northern Ireland Draft Statutory RulesAll Impact Assessments UK Impact AssessmentsSearchAdvanced SearchFinance Act 2004You are here:2004 c. 12Whole ActTable of ContentsContentMore ResourcesPreviousNextPlain ViewPrint OptionsWhat VersionLatest available (Revised)Original (As enacted)Advanced FeaturesShow Geographical Extent(e.g. England, Wales, Scotland, Northern Ireland)Show Timeline of ChangesOpening OptionsOpen whole ActOpen Act without schedulesOpen Schedules onlyMore ResourcesOriginal Print PDFCorrection Slip - 15/08/2011View moreStatus:This version of this Act contains provisions that are prospective.Changes to legislation:There are outstanding changes not yet made by the legislation.gov.uk editorial team to Finance Act 2004. Any changes that have already been made by the team appear in the content and are referenced with annotations.E+W+S+N.I.Finance Act 20042004 CHAPTER 12An Act to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance.[22nd July 2004]Most Gracious Sovereign
Part 1 E+W+S+N.I.Excise dutiesTobacco products dutyE+W+S+N.I.1Rates of tobacco products dutyE+W+S+N.I.(1)For the Table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979 (c. 7) substitute—
Table1. CigarettesAn amount equal to 22 per cent of the retail price plus £99.80 per thousand cigarettes.2. Cigars£145.35 per kilogram.3. Hand-rolling tobacco£104.47 per kilogram.4. Other smoking tobacco and chewing tobacco£63.90 per kilogram.(2)This section shall be deemed to have come into force at 6 o'clock in the evening of 17th March 2004.
Alcoholic liquor dutiesE+W+S+N.I.2Rate of duty on beerE+W+S+N.I.(1)In section 36(1AA)(a) of the Alcoholic Liquor Duties Act 1979 (c. 4) (rate of duty on beer) for “£12.22” substitute “ £12.59 ”.
(2)This section shall be deemed to have come into force at midnight on 21st March 2004.
3Rates of duty on wine and made-wineE+W+S+N.I.(1)For Part 1 of the Table of rates of duty in Schedule 1 to the Alcoholic Liquor Duties Act 1979 (rates of duty on wine and made-wine) substitute—
“Part 1 E+W+S+N.I.Wine and made-wine of a strength not exceeding 22 per centDescription of wine or made-wineRates of duty per hectolitre £Wine or made-wine of a strength not exceeding 4 per cent50.38Wine or made-wine of a strength exceeding 4 per cent but not exceeding 5.5 per cent69.27Wine or made-wine of a strength exceeding 5.5 per cent but not exceeding 15 per cent and not sparkling163.47Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent but less than 8.5 per cent166.70Sparkling wine or sparkling made-wine of a strength of 8.5 per cent or of a strength exceeding 8.5 per cent but not exceeding 15 per cent220.54Wine or made-wine of a strength exceeding 15 per cent but not exceeding 22 per cent217.95”(2)This section shall be deemed to have come into force at midnight on 21st March 2004.
4Duty stamps for spirits etcE+W+S+N.I.(1)At the beginning of Part 6 of the Alcoholic Liquor Duties Act 1979 (c. 4) (general control provisions) under the heading “Sale of dutiable alcoholic liquors” insert—
“64ARetail containers of certain alcoholic liquors to be stampedSchedule 2A to this Act (duty stamps) has effect.”.
(2)Before Schedule 3 to that Act insert the Schedule 2A set out in Schedule 1 to this Act.
(3)In section 12(2) of the Finance Act 1994 (c. 9) (defaults engaging Commissioners' power to assess excise duty to the best of their judgement) after paragraph (c) insert—
“(ca)any failure by any person to comply with a requirement to which he is made subject by or under Schedule 2A to the Alcoholic Liquor Duties Act 1979 (duty stamps);”.
(4)In section 14(1) of that Act (reviewable decisions) after paragraph (bc) insert—
“(bd)any decision by the Commissioners as to whether or not any person is entitled to any repayment or credit by virtue of regulations under paragraph 4(2)(h) of Schedule 2A to the Alcoholic Liquor Duties Act 1979 (duty stamps), or the amount of the repayment or credit to which any person is so entitled;
(be)any decision by the Commissioners made by virtue of regulations under paragraph 4(2)(i) of that Schedule that some or all of a payment made, or security provided, is forfeit, or the amount which is so forfeit;”.
(5)The amendments made by this section have effect in relation to retail containers containing alcoholic liquor if the excise duty point for the alcoholic liquor falls on or after such day as the Treasury may by order made by statutory instrument appoint.
(6)An order under subsection (5) may contain such supplemental and transitional provision and savings as the Treasury think fit in connection with the coming into effect of those amendments.
(7)In subsection (5) “excise duty point” has the meaning given by section 1 of the Finance (No. 2) Act 1992 (c. 48).
Hydrocarbon oil etc dutiesE+W+S+N.I.5RatesE+W+S+N.I.(1)In section 6 of the Hydrocarbon Oil Duties Act 1979 (c. 5) (hydrocarbon oil: rates of duty)—
(a)in subsection (1A)(a) (ultra low sulphur petrol) for “£0.4710” substitute “ £0.4902 ”,
(b)in subsection (1A)(b) (other light oil) for “£0.5620” substitute “ £0.5790 ”,
(c)in subsection (1A)(c) (ultra low sulphur diesel) for “£0.4710” substitute “ £0.4902 ”, and
(d)in subsection (1A)(d) (other heavy oil) for “£0.5327” substitute “ £0.5487 ”.
(2)In section 6AA(3) of that Act (biodiesel: rate of duty) for “£0.2710” substitute “ £0.2852 ”.
(a)in paragraph (a) (fuel oil) for “£0.0382” substitute “ £0.0624 ”,
(b)in paragraph (b) (gas oil: general) for “£0.0422” substitute “ £0.0664 ”, and
(c)in paragraph (ba) (ultra low sulphur diesel) for “£0.0422” substitute “ £0.0664 ”.
(4)In section 13A(1) of that Act (rebate on unleaded petrol) for “£0.0601” substitute “ £0.0620 ”.
(5)In section 14(1) of that Act (rebate on light oil for use as furnace fuel) for “£0.0382” substitute “ £0.0624 ”.
6Road fuel gasE+W+S+N.I.(1)At the end of section 5 of the Hydrocarbon Oil Duties Act 1979 (road fuel gas) (which becomes subsection (1)) add—
7Sulphur-free fuelE+W+S+N.I.(1)For section 1(3A) and (3B) of the Hydrocarbon Oil Duties Act 1979 (descriptions of hydrocarbon oil: ultra low sulphur petrol and unleaded petrol) substitute—
8Definition of “fuel oil”E+W+S+N.I.Before section 2A(2) of the Hydrocarbon Oil Duties Act 1979 (c. 5) (power to amend definitions) insert—
“(1C)The Treasury may by order made by statutory instrument amend the definition for the purposes of section 11 of “fuel oil”.”
9Mixing of rebated oilE+W+S+N.I.(1)For section 20AAA of the Hydrocarbon Oil Duties Act 1979 (mixing of rebated oil) substitute—
“20AAAMixing of rebated oil(1)A duty of excise shall be charged on a mixture which is—
(b)in the circumstances the person should be exempted.”
(2)In section 20AAB of that Act (mixing of rebated oil: supplementary)—
“(1)A person who supplies or produces a mixture on which duty is charged under section 20AAA above must notify the Commissioners of the supply or production—
(b)within the period of seven days beginning with the date of supply or production.”, and
(b)in subsection (3) omit “or (2)”.
(3)Schedule 2A to that Act shall cease to have effect.
(a)in so far as it imposes or relates to the charge specified in section 20AAA(1) or (2) of that Act (as substituted by subsection (1) above), shall have effect in relation to anything supplied on or after the date on which this Act is passed,
(b)in so far as it imposes or relates to the charge specified in section 20AAA(3) of that Act (as substituted by subsection (1) above), shall have effect in relation to anything produced on or after the date on which this Act is passed, and
(c)in so far as it causes sections 20AAA and 20AAB(1) and (2) of, and Schedule 2A to, that Act to cease to have effect in their present form, shall come into force on the day on which this Act is passed.
(5)But no duty shall be charged on the supply of a mixture under section 20AAA(1) or (2) of that Act (as substituted by subsection (1) above) if duty was charged on the production of the mixture under section 20AAA as it had effect before the date on which this Act is passed.
10BioethanolE+W+S+N.I.(1)After section 2AA of the Hydrocarbon Oil Duties Act 1979 (c. 5) (biodiesel) insert—
“2ABBioethanol(1)In this Act “bioethanol” means a liquid fuel—
(a)consisting of ethanol produced from biomass, and
(b)capable of being used for the same purposes as light oil.
(a)“liquid” does not include any substance that is gaseous at a temperature of 15°C and under a pressure of 1013.25 millibars, and
(b)“biomass” means vegetable and animal substances constituting the biodegradable fraction of—
(ii)industrial and municipal waste.
(3)A substance shall be treated as falling within subsection (1)(a) if it—
(a)is denatured alcohol for the purposes of section 5 of the Finance Act 1995 (c. 4), and
(b)would fall within subsection (1)(a) above (without reliance on this subsection) but for the presence of a component introduced—
(i)for the purpose of rendering the substance denatured alcohol, and
(ii)in the minimum proportion necessary for that purpose.”
(2)After section 2A(1A) of that Act (power to amend definitions: biodiesel) insert—
“(1B)The Treasury may by order made by statutory instrument amend the definition for the purposes of this Act of “bioethanol”.”
(3)After section 6AC of that Act (biodiesel: application of provisions relating to hydrocarbon oil) insert—
“6ADExcise duty on bioethanol(1)A duty of excise shall be charged on the setting aside for a chargeable use by any person, or (where it has not already been charged under this section) on the chargeable use by any person, of bioethanol.
(a)as fuel for any engine, motor or other machinery,
(b)as an additive or extender in any substance so used, or
(c)for the production of bioethanol blend.
(3)The rate of duty under this section shall be £0.2852 a litre.
6AEExcise duty on blends of bioethanol and hydrocarbon oil(1)A duty of excise shall be charged on bioethanol blend—
(b)produced in the United Kingdom and delivered for home use from a refinery or other premises used for the production of hydrocarbon oil or from any bonded storage for hydrocarbon oil, not being bioethanol blend chargeable with duty under paragraph (a) above.
(2)In this Act “bioethanol blend” means any mixture that is produced by mixing—
(a)bioethanol, and
(b)hydrocarbon oil not charged with excise duty.
(3)The rate at which the duty shall be charged on any bioethanol blend shall be a composite rate representing—
(a)in respect of the proportion of the blend that is hydrocarbon oil, the rate that would be applicable to the blend if it consisted entirely of hydrocarbon oil of the description that went into producing the blend, and
(b)in respect of the proportion of the blend that is bioethanol, the rate that would be applicable to the blend if it consisted entirely of bioethanol.
(4)A reference in subsection (3) to a proportion is to a proportion by volume to the nearest 0.001%.
(5)If the Commissioners are not satisfied as to the proportion of bioethanol in any bioethanol blend, the rate of duty chargeable shall be the rate that would be applicable to the blend if it consisted entirely of hydrocarbon oil of the description that went into producing the blend.
(6)Where imported bioethanol blend is removed to a refinery, the duty chargeable under subsection (1) above shall, instead of being charged at the time of the importation of the blend, be charged on the delivery of any goods from the refinery for home use and shall be the same as that which would be payable on the importation of like goods.
6AFApplication to bioethanol and bioethanol blend of provisions relating to hydrocarbon oil(1)The Commissioners may by regulations provide for—
(i)bioethanol;
(ii)bioethanol blend;
(i)section 6AD above;
(ii)section 6AE above;
(c)bioethanol, or bioethanol blend, to be treated for the purposes of such of the following provisions of this Act as may be specified as if it fell within a specified description of hydrocarbon oil.
(4)In section 6A(1) of that Act (fuel substitutes) for “which is not hydrocarbon oil, biodiesel or bioblend” substitute “which is not— (a)hydrocarbon oil,
(c)bioblend,
(d)bioethanol, or
(e)bioethanol blend.”
(5)At the end of section 11(6) of that Act (rebate on heavy oil: exception) add “ or bioethanol blend ”.
(6)At the end of section 13AA of that Act (restrictions on use of rebated kerosene) add—
“(7)Nothing in this section has the effect of allowing a rebate on bioblend or bioethanol blend.”
(7)In section 14 of that Act (rebate on light oil for use as furnace fuel) after subsection (1) insert—
“(1A)No rebate shall be allowed under this section in respect of bioethanol blend.”
(8)In section 22 of that Act (prohibition on use of petrol substitutes on which duty has not been paid)—
(a)after subsection (1AA) insert—
“(1AB)Where any person—
(a)puts any bioethanol to a chargeable use (within the meaning of section 6AD above), and
(b)knows or has reasonable cause to believe that there is duty charged under section 6AD above on that bioethanol which has not been paid and is not lawfully deferred,
his putting the bioethanol to that use shall attract a penalty under section 9 of the Finance Act 1994 (c. 9) (civil penalties), and any goods in respect of which a person contravenes this section shall be liable to forfeiture.”, and
(b)in subsection (1A) for “subsection (1) or (1AA) above.” substitute “ subsection (1), (1AA) or (1AB) above. ”
(9)In section 27(1) of that Act (interpretation) after the definition of “biodiesel” insert—
““bioethanol” has the meaning given by section 2AB above;
“bioethanol blend” has the meaning given by section 6AE(2) above;”.
(10)This section shall come into force on 1st January 2005.
(11)But no duty shall be charged under section 6AD or 6AE of that Act (inserted by subsection (3) above) in respect of the chargeable use of any goods, or the setting aside of any goods for a chargeable use, if before 1st January 2005—
(a)the goods were used or set aside for a chargeable use within the meaning of section 6A of that Act, and
(b)a duty of excise was charged under that section on that use or setting aside.
11BiodieselE+W+S+N.I.(1)In section 6AA(2) of the Hydrocarbon Oil Duties Act 1979 (c. 5) (excise duty on biodiesel) after paragraph (b) add—
“(c)for the production of bioblend.”
(2)This section shall come into force on 1st January 2005.
12Fuel substitutesE+W+S+N.I.(1)For section 6A(2)(b) of the Hydrocarbon Oil Duties Act 1979 (fuel substitutes: additives and extenders) substitute—
“(b)as an additive or extender in any substance so used.”
(2)This section shall have effect in relation to anything done on or after the date on which this Act is passed.
13WarehousingE+W+S+N.I.After section 23B of the Hydrocarbon Oil Duties Act 1979 (regulation of traders in controlled oil) insert—
“23CWarehousing(1)For the purposes of Part VIII of the Customs and Excise Management Act 1979 (c. 2) (warehousing) the substances specified in subsection (4) shall be treated as if they were chargeable with duty (and therefore within the scope of section 92(1)(a) or (c) of that Act) whether or not duty is in fact chargeable.
14Treatment of certain energy productsE+W+S+N.I.(1)Section 10 of the Finance Act 1993 (c. 34) (application of Hydrocarbon Oil Duties Act 1979 to certain substances) shall be amended as follows.
(2)In subsection (1) for “mineral oil” substitute “ energy product ”.
(a)after “as the equivalent of hydrocarbon oil” insert “ or road fuel gas ”, and
(b)for “as if it fell within such description of hydrocarbon oil” substitute “ as if it fell within such class or description of substance ”.
(a)for “a mineral oil” substitute “ an energy product ”, and
(b)for “hydrocarbon oil of the description” substitute “ the substance ”.
“(4)In this section “energy product” means a substance which—
(a)is an energy product for the purposes of Council Directive 2003/ 96/EC restructuring the Community framework for the taxation of energy products and electricity, and
(b)is not (apart from as a result of this section) hydrocarbon oil or road fuel gas within the meaning of the 1979 Act.”
“(6)Where a duty of excise is charged on a substance under a provision of the 1979 Act by virtue of an order under this section, no duty shall be charged on the substance under any other provision of that Act.”
(7)For the heading substitute “ Extension of Hydrocarbon Oil Duties Act 1979 to energy products ”.
Betting and gaming dutiesE+W+S+N.I.15General betting duty: pool bettingE+W+S+N.I.(1)The Betting and Gaming Duties Act 1981 (c. 63) shall be amended as follows.
(2)For section 4 (pool betting, the Tote, &c.) substitute—
“4Pool betting on horse and dog races(1)General betting duty shall be charged on pool betting which—
(a)relates only to horse racing or dog racing, and
(b)is not on-course betting.
(2)But subsection (1) does not apply to pool betting if—
(a)the promoter is outside the United Kingdom, and
(b)it is conducted otherwise than by means of a totalisator situated in the United Kingdom.
(3)The amount of duty charged under subsection (1) in respect of bets made by means of facilities provided by a person in an accounting period shall be 15 per cent. of the amount of his net stake receipts for the period.”
(3)In section 5(7) (net stake receipts) and section 5B(4) (liability to pay) for “section 4(1) to (3)” substitute “ section 4(1) ”.
(4)In section 7B (conditions for charging pool betting duty)—
(a)in subsection (2)(b) omit “the bet is made otherwise than by means of a totalisator and”, and
“(a)made wholly in relation to horse racing or dog racing,”.
(5)In section 9(2)(a) (prohibitions for protection of revenue)—
(a)at the end of sub-paragraph (i) add “ or ”, and
(b)in sub-paragraph (ii) for “in the case of bets made otherwise than by means of a totalisator,” substitute “ in any case, ”.
(6)In section 10(2) (definition of pool betting) for the definition of “totalisator odds” substitute—
““totalisator odds” means the odds paid on bets made—
(a)by means of a totalisator, and
(b)at the scene of the event to which the bets relate.”
(7)In section 12(4) (interpretation)—
(a)for the definition of “bookmaker” substitute—
““bookmaker” means a person who—
(a)carries on the business of receiving or negotiating bets or conducting pool betting operations (whether as principal or agent and whether regularly or not), or
(b)holds himself out or permits himself to be held out, in the course of a business, as a person within paragraph (a);”;
(b)for the definition of “on-course bet” substitute—
““on-course bet” has the meaning given by subsection (4A);”, and
(c)omit the definition of “sponsored pool betting”.
(8)After section 12(4) insert—
“(4A)A bet is an on-course bet for the purposes of this Part of this Act if it—
(b)is not made through an agent of an individual making the bet or though an intermediary, and
(ii)by means of a totalisator situated in the United Kingdom, using facilities provided at the meeting by or by arrangement with the person operating the totalisator.”
(9)In paragraph 10(1) of Schedule 1 (betting duties: power of entry) omit the words “, or that facilities for sponsored pool betting on those events are being or are to be provided,”.
(10)The amendments made by this section have effect in relation to accounting periods ending on or after the date of the passing of this Act.
16Rates of gaming dutyE+W+S+N.I.(1)For the Table in section 11(2) of the Finance Act 1997 (c. 16) (rates of gaming duty) substitute—
“TablePart of gross gaming yieldRateThe first £516,5002.5 per cent.The next £1,146,50012.5 per cent.The next £1,146,50020 per cent.The next £2,007,50030 per cent.The remainder40 per cent.”(2)This section has effect in relation to accounting periods beginning on or after 1st April 2004.
Amusement machine licence dutyE+W+S+N.I.17Amusement machine licence duty: ratesE+W+S+N.I.(1)In section 23 of the Betting and Gaming Duties Act 1981 (c. 63) (amount of duty payable on amusement machine licence) for the Table in subsection (2) substitute—
“Table(1)(2)(3)(4)(5)(6)Period (in months) for which licence grantedCategoryCategoryCategoryCategoryCategory ABCDE £££££130808517023025015516533044537522524548065049529531562584551203553807551,02061404104458751,18571604655009901,34081855155551,0951,48092055606001,1901,610102256006451,2751,725112406356801,3501,825122506657151,4151,915”(2)This section has effect in relation to any amusement machine licence for which an application is received by the Commissioners of Customs and Excise on or after 22nd March 2004.
Vehicle excise dutyE+W+S+N.I.18Fee for payment of duty by credit cardE+W+S+N.I.(1)The Vehicle Excise and Registration Act 1994 (c. 22) is amended as follows.
(2)After section 19B insert—
“19CFee for payment of duty by credit card(1)This section applies where—
“regulations” means regulations made by the Secretary of State.”.
(3)In section 58 (fees prescribed by regulations) in subsection (1) (fees prescribed by regulations under certain provisions to be of amount approved by Treasury) for “or 14(4)(b)” substitute “ , 14(4)(b) or 19C(2) ”.
(4)This section has effect in relation to licences issued on or after such day as the Secretary of State may by order made by statutory instrument appoint.
Part 2 E+W+S+N.I.Value added tax19Disclosure of VAT avoidance schemesE+W+S+N.I.(1)Schedule 2 (which relates to the disclosure of schemes for the avoidance of value added tax) has effect.
(2)Subsection (1) and that Schedule—
(a)come into force on the passing of this Act, so far as is necessary for enabling the making of any orders or regulations by virtue of that Schedule, and
(b)otherwise, come into force on such day as the Treasury may by order made by statutory instrument appoint.
Annotations:Commencement InformationI1S. 19 partly in force; s. 19(1) in force for specified purposes at Royal Assent see s. 19(2)20GroupsE+W+S+N.I.(1)After section 43A of the Value Added Tax Act 1994 (c. 23) (groups: eligibility) insert—
“43AAPower to alter eligibility for grouping(1)The Treasury may by order provide for section 43A to have effect with specified modifications in relation to a specified class of person.
“43DGroups: duplication(1)A body corporate may not be treated as a member of more than one group at a time.
(3)In section 43(1) of that Act (effect of treatment as group) for “sections 43A to 43C” substitute “ sections 43A to 43D ”.
(4)In section 43B(1), (2)(a), (5)(a) and (5)(b) and section 43C(3)(b) of that Act (groups: applications for membership and termination of membership) for “under section 43A(1)” substitute “ by virtue of section 43A ”.
21Reverse charge on gas and electricity supplied by persons outside UKE+W+S+N.I.(1)After section 9 of the Value Added Tax Act 1994 (c. 23) insert—
22Use of stock in trade cars for consideration less than market valueE+W+S+N.I.(1)The Value Added Tax Act 1994 (c. 23) is amended as follows.
(2)In Schedule 6 (valuation: special cases) after paragraph 1 (supply to connected person at less than market value etc) insert—
(a)the value of a supply made by a taxable person for a consideration is (apart from this sub-paragraph) less than its open market value,
(b)the taxable person is a motor manufacturer or motor dealer,
(c)the person to whom the supply is made is—
(i)an employee of the taxable person,
(ii)a person who, under the terms of his employment, provides services to the taxable person, or
(iii)a relative of a person falling within sub-paragraph (i) or (ii) above,
(d)the supply is a supply of services by virtue of sub-paragraph (4) of paragraph 5 of Schedule 4 (business goods put to private use etc),
(e)the goods mentioned in that sub-paragraph consist of a motor car (whether or not any particular motor car) that forms part of the stock in trade of the taxable person, and
(f)the supply is not one to which paragraph 1 above applies,
(b)as to which the conditions in paragraphs (a) to (f) of sub-paragraph (1) above are satisfied,
(a)is constructed or adapted solely or mainly for the carriage of passengers, or
(b)has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows,
but does not include any vehicle excluded by sub-paragraph (5) below;
“motor dealer” means a person whose business consists in whole or in part of obtaining supplies of, or acquiring from another member State or importing, new or second-hand motor cars for resale with a view to making an overall profit on the sale of them (whether or not a profit is made on each sale);
“motor manufacturer” means a person whose business consists in whole or in part of producing motor cars including producing motor cars by conversion of a vehicle (whether a motor car or not);
“relative” means husband, wife, brother, sister, ancestor or lineal descendant;
“stock in trade” means new or second-hand motor cars (other than second-hand motor cars which are not qualifying motor cars within sub-paragraph (6) below) which are—
(a)produced by a motor manufacturer or, as the case may require, supplied to or acquired from another member State or imported by a motor dealer, for the purpose of resale, and
(b)intended to be sold—
(i)by a motor manufacturer within 12 months of their production, or
(ii)by a motor dealer within 12 months of their supply, acquisition from another member State or importation, as the case may require,
and such motor cars shall not cease to be stock in trade where they are temporarily put to a use in the motor manufacturer’s or, as the case may be, the motor dealer’s business which involves making them available for private use.
(5)The vehicles excluded by this sub-paragraph are—
(a)vehicles capable of accommodating only one person;
(b)vehicles which meet the requirements of Schedule 6 to the Road Vehicles (Construction and Use) Regulations 1986 and are capable of carrying twelve or more seated persons;
(c)vehicles of not less than three tonnes unladen weight (as defined in the Table to regulation 3(2) of the Road Vehicles (Construction and Use) Regulations 1986);
(d)vehicles constructed to carry a payload (the difference between—
(i)a vehicle’s kerb weight (as defined in the Table to regulation 3(2) of the Road Vehicles (Construction and Use) Regulations 1986), and
(ii)its maximum gross weight (as defined in that Table)),
of one tonne or more;
(e)caravans, ambulances and prison vans;
(f)vehicles constructed for a special purpose other than the carriage of persons and having no other accommodation for carrying persons than such as is incidental to that purpose.
(6)For the purposes of this paragraph a motor car is a “qualifying motor car”if—
(a)it has never been supplied, acquired from another member State, or imported in circumstances in which the VAT on that supply, acquisition or importation was wholly excluded from credit as input tax by virtue of an order under section 25(7) (as at 17th March 2004 see article 7 of the Value Added Tax (Input Tax) Order 1992); or
(b)a taxable person has elected under such an order for it to be treated as such.
(7)The Treasury may by order amend any of the definitions in this paragraph.”.
(3)In section 83(v) (appeal to tribunal with respect to any direction under paragraph 1 or 2 of Schedule 6 etc) after “paragraph 1” insert “ , 1A ”.
(4)In section 97 (orders, rules and regulations) in subsection (4) (orders to which the House of Commons affirmative procedure in subsection (3) applies) after paragraph (e) insert—
“(f)an order under paragraph 1A(7) of Schedule 6;”.
(5)The amendment made by subsection (2) applies in relation to any use or availability for use on or after the appointed day (whatever the date of the directions mentioned in paragraph 5(4) of Schedule 4 to the Value Added Tax Act 1994 (c. 23)).
(6)In subsection (5) “the appointed day” means such day as the Treasury may by order made by statutory instrument appoint.
Part 3 E+W+S+N.I.Income tax, corporation tax and capital gains taxChapter 1E+W+S+N.I.Income tax and corporation tax charge and rate bandsIncome taxE+W+S+N.I.23Charge and rates for 2004-05E+W+S+N.I.Income tax shall be charged for the year 2004-05, and for that year—
24Personal allowances for those aged 65 or moreE+W+S+N.I.(1)For the year 2004-05—
(a)the amount specified in section 257(2) of the Taxes Act 1988 (claimant aged 65 or more) shall be £6,830; and
(b)the amount specified in section 257(3) of that Act (claimant aged 75 or more) shall be £6,950.
(2)Accordingly, section 257C(1) of that Act (indexation), so far as it relates to the amounts so specified, does not apply for that year.
Corporation taxE+W+S+N.I.25Charge and main rate for financial year 2005E+W+S+N.I.Corporation tax shall be charged for the financial year 2005 at the rate of 30%.
26Small companies' rate and fraction for financial year 2004E+W+S+N.I.For the financial year 2004—
27Corporation tax starting rate and fraction for financial year 2004E+W+S+N.I.For the financial year 2004—
(b)the fraction mentioned in section 13AA of the Taxes Act 1988 (marginal relief for small companies) shall be 19/400ths.
28The non-corporate distribution rateE+W+S+N.I.(1)In Part 1 of the Taxes Act 1988 (the charge to tax), after section 13AA (the starting rate of corporation tax) insert—
“13ABThe non-corporate distribution rate(1)This section applies where in any accounting period—
(a)a company makes (or is treated as making) one or more non-corporate distributions, and
(b)the company’s underlying rate of corporation tax is less than the non-corporate distribution rate.
(2)The rate of tax to be applied in calculating the corporation tax chargeable on the company’s basic profits for the accounting period is—
(a)in relation to so much of the company’s basic profits as is matched with a non-corporate distribution, the non-corporate distribution rate, and
(b)in relation to the remainder of the company’s basic profits, the company’s underlying rate of corporation tax.
(3)The “non-corporate distribution rate” is such rate as Parliament may from time to time determine.
(4)Schedule A2 to this Act makes provision supplementing this section, in particular—
(a)defining “non-corporate distribution” and a company’s “underlying rate of corporation tax”,
(b)as to the matching of a company’s profits and non-corporate distributions, and
(c)providing for non-corporate distributions to be allocated to other companies in certain circumstances.”.
(2)After Schedule A1 to the Taxes Act 1988 insert as Schedule A2 the Schedule set out in Schedule 3 to this Act.
(3)In section 468(1A) of the Taxes Act 1988 (authorised unit trusts), for “and 13AA” substitute “ , 13AA and 13AB ”.
(4)Section 13AB of and Schedule A2 to the Taxes Act 1988 have effect in relation to distributions made on or after 1st April 2004.
(5)For the purposes of applying the provisions of that section and Schedule to a distribution made in an accounting period beginning before 1st April 2004 and ending on or after that date—
(a)the parts of the accounting period falling in different financial years shall be treated as separate accounting periods, and
(b)the profits of the period shall be apportioned between the parts on a time basis according to their respective lengths unless it appears that that method would work unreasonably or unjustly in which case such other method shall be used as appears just and reasonable.
(6)The non-corporate distribution rate for the financial year 2004 is 19%.
TrustsE+W+S+N.I.29Special rates of tax applicable to trustsE+W+S+N.I.(1)Section 686 of the Taxes Act 1988 (accumulation and discretionary trusts: special rates of tax) is amended as follows.
(2)In subsection (1A) (which sets certain rates of tax in relation to any year of assessment for which income tax is charged)—
(a)in paragraph (a) (which sets the Schedule F trust rate at 25 per cent) for “25 per cent” substitute “ 32.5 per cent ”, and
(b)in paragraph (b) (which sets the rate applicable to trusts at 34 per cent) for “34 per cent” substitute “ 40 per cent ”.
(3)The amendments made by subsection (2) have effect in relation to the year 2004-05 and subsequent years of assessment.
(4)Schedule 4 to this Act (which makes amendments relating to the rate applicable to trusts) shall have effect.
Chapter 2E+W+S+N.I.Corporation tax: generalTransfer pricingE+W+S+N.I.30Provision not at arm’s length: transactions between UK taxpayers etcE+W+S+N.I.(1)Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) is amended as follows.
(2)In paragraph 5 (advantage in relation to United Kingdom taxation)—
(a)in sub-paragraph (1) omit “(but subject to sub-paragraph (2) below)”;
(b)omit sub-paragraphs (2) to (6); and
“(7)In determining for the purposes of sub-paragraph (1) above the amount that would be taken for tax purposes to be the amount of the profits or losses for a year of assessment in the case of a person who is not resident in the United Kingdom, there shall be left out of account any income of that person which is—
(a)excluded income for the purposes of section 128 of the Finance Act 1995 (limit on income chargeable on non-residents: income tax), or
(b)income to which section 151 of the Finance Act 2003 applies (non-resident companies: extent of charge to income tax).”.
(3)Paragraph 6 (elimination of double counting) is amended as follows.
(4)For sub-paragraph (1) (application of paragraph) substitute—
(a)only one of the affected persons (“the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision; and
(b)the other affected person (“the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities.”.
(5)In sub-paragraph (2) (application, on a claim, of arm’s length provision to disadvantaged person)—
(a)in the opening words (subjection to paragraph 7 etc)—
(i)for “paragraph”, where first occurring, substitute “ paragraphs ”, and
(ii)after “7” insert “ and 8 ”;
(b)in paragraph (a) (computation on basis of arm’s length provision), for “the disadvantaged person shall be entitled to have his profits and losses computed” substitute “ the profits and losses of the disadvantaged person shall be computed ”.
(6)After paragraph 7 insert—
“7A“Balancing payments between affected persons: no charge to, or relief from, tax(1)This paragraph applies where—
(a)the circumstances are as described in paragraph 6(1) above,
(b)one or more payments (the “balancing payments”) are made to the advantaged person by the disadvantaged person, and
(c)the sole or main reason for making those payments is that paragraph 1(2) above applies.
(2)To the extent that the balancing payments do not in the aggregate exceed the amount of the available compensating adjustment, those payments—
(a)shall not be taken into account in computing profits or losses of either of the affected persons for the purposes of income tax or corporation tax, and
(b)shall not for any of the purposes of the Corporation Tax Acts be regarded as distributions or charges on income.
(3)In this paragraph “the available compensating adjustment” means the difference between PL1 and PL2 where—
PL1 is the profits and losses of the disadvantaged person computed for tax purposes on the basis of the actual provision, and
PL2 is the profits and losses of the disadvantaged person as they fall (or would fall) to be computed for tax purposes on a claim under paragraph 6 above,
for this purpose taking PL1 or PL2 as a positive amount if it is an amount of profits and as a negative amount if it is an amount of losses.”.
(7)In paragraph 11 (special provision for companies carrying on ring fence trades) in sub-paragraph (3) (Schedule to have effect as if ring fence trade and other activities were carried on by separate persons etc)—
(b)omit paragraph (e) (Schedule to have effect as if paragraphs 5 to 7 were omitted).
(8)In paragraph 12 (appeals) in sub-paragraph (3)(b) for “each of whom is a person in relation to whom the condition set out in paragraph 5(3) above is satisfied” substitute “ each of whom is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities ”.
(9)Schedule 5 to this Act (which makes amendments to other enactments in relation to transactions not at arm’s length) has effect.
31Exemptions for dormant companies and small and medium-sized enterprisesE+W+S+N.I.(1)Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) is amended as follows.
(2)In paragraph 1 (basic rule on transfer pricing etc) in sub-paragraph (2) (profits and losses to be computed as if the arm’s length provision had been made) after “Subject to paragraphs” insert “ 5A, 5B, ”.
“5A“Exemption for dormant companies(1)Paragraph 1(2) above does not apply in computing for any chargeable period the profits and losses of a potentially advantaged person if that person is a company which satisfies the condition in sub-paragraph (2) below.
(a)the company was dormant throughout the pre-qualifying period, and
(b)apart from paragraph 1 above, the company has continued to be dormant at all times since the end of the pre-qualifying period.
(3)In sub-paragraph (2) above “the pre-qualifying period” means—
(a)if there is an accounting period of the company that ends on 31st March 2004, that accounting period, or
(b)if there is no such accounting period, the period of 3 months ending with that date.
(4)In this paragraph “dormant” has the same meaning as in section 249AA of the Companies Act 1985 (see subsections (4) to (7) of that section).”.
(4)After paragraph 5A insert—
“5B“Exemption for small or medium-sized enterprises(1)Paragraph 1(2) above does not apply in computing for any chargeable period the profits and losses of a potentially advantaged person if that person is a small or medium-sized enterprise for that chargeable period (see paragraph 5D below).
(2)Exceptions to sub-paragraph (1) above are provided—
(a)in the case of a small enterprise, by sub-paragraphs (3) and (4) below, and
(b)in the case of a medium-sized enterprise, by sub-paragraphs (3) and (4) and paragraph 5C below.
(3)The first exception is where the small or medium-sized enterprise elects for sub-paragraph (1) above not to apply in relation to the chargeable period.
(4)The second exception is where, at the time when the actual provision is or was made or imposed,—
(b)a party to a relevant transaction (see sub-paragraph (5) below),
is a resident (see sub-paragraph (6) below) of a non-qualifying territory (whether or not that person is also a resident of a qualifying territory).
(5)For the purposes of sub-paragraph (4) above, a “party to a relevant transaction” is a person who, in a case where the actual provision is or was imposed by means of a series of transactions, is or was a party to one or more of those transactions.
(6)In this paragraph “resident”, in relation to a territory,—
(a)means a person who, under the laws of that territory, is liable to tax there by reason of his domicile, residence or place of management, but
(7)The definitions of “qualifying territory” and “non-qualifying territory” are in paragraph 5E below.
5CAdditional provisions for medium-sized enterprises(1)Paragraph 5B(1) above does not apply as respects any provision made or imposed if—
(a)the potentially advantaged person in question is a medium-sized enterprise for the chargeable period in question, and
(b)the Board gives that person a notice under this sub-paragraph (a “transfer pricing notice”) requiring him to compute the profits and losses of that chargeable period in accordance with paragraph 1(2) above in the case of that provision.
(2)A transfer pricing notice may be given in respect of —
(a)any provision specified, or of a description specified, in the notice, or
(b)every provision in relation to which the assumption in paragraph 1(2) above would fall to be made apart from paragraph 5B(1) above.
(3)A transfer pricing notice may be given only after a notice of enquiry has been given to the potentially advantaged person in respect of his tax return for the chargeable period.
(4)A transfer pricing notice must identify the officer of the Board to whom any notice of appeal under this paragraph is to be given.
(5)A person to whom a transfer pricing notice is given may appeal against the decision to give the notice, but only on the grounds that the condition in sub-paragraph (1)(a) above is not satisfied.
(6)Any such appeal must be brought by giving written notice of appeal to the officer of the Board identified for the purpose in the transfer pricing notice in accordance with sub-paragraph (4) above.
(7)The notice of appeal must be given before the end of the period of 30 days beginning with the day on which the transfer pricing notice is given.
(8)A person to whom a transfer pricing notice is given may amend his tax return for the purpose of complying with the notice at any time before the end of the period of 90 days beginning with—
(a)the day on which the notice is given, or
(b)if he appeals against the notice, the day on which the appeal is finally determined or abandoned.
(9)Where a transfer pricing notice is given in the case of any tax return, no closure notice may be given in relation to that tax return until—
(a)the end of the period of 90 days specified in sub-paragraph (8) above, or
(b)the earlier amendment of the tax return for the purpose of complying with the notice.
(10)So far as relating to any provision made or imposed by or in relation to a person—
(a)who is a medium-sized enterprise for a chargeable period,
(b)who does not make an election under paragraph 5B(3) above for that period, and
(c)who is not excepted from paragraph 5B(1) above by virtue of paragraph 5B(4) above in relation to that provision for that period,
the tax return required to be made for that period is a return that disregards paragraph 1(2) above.
(11)Sub-paragraph (10) above does not prevent a tax return for a period becoming incorrect if, in the case of any provision made or imposed,—
(a)a transfer pricing notice is given which has effect in relation to that provision for that period,
(b)the return is not amended in accordance with sub-paragraph (8) above for the purpose of complying with the notice, and
“closure notice” means a notice under—
(a)section 28A or 28B of the Management Act, or
(b)paragraph 32 of Schedule 18 to the Finance Act 1998;
“notice of enquiry” means a notice under—
(a)section 9A or 12AC of the Management Act, or
(b)paragraph 24 of Schedule 18 to the Finance Act 1998;
(a)a return under section 8, 8A or 12AA of the Management Act, or
(b)a company tax return.
5DMeaning of “small enterprise” and “medium-sized enterprise”(1)In this Schedule—
(a)“small enterprise” means a small enterprise as defined in the Annex to the Commission Recommendation,
(b)“medium-sized enterprise” means an enterprise which—
(i)falls within the category of micro, small and medium-sized enterprises as defined in that Annex, and
(ii)is not a small enterprise as defined in that Annex,
but for these purposes that Annex has effect with the modifications set out in sub-paragraphs (3) to (6) of this paragraph.
“the Annex” means the Annex to the Commission Recommendation;
“the Commission Recommendation” means Commission Recommendation 2003/361/EC of 6th May 2003 (concerning the definition of micro, small and medium-sized enterprises).
(3)Where any enterprise is in liquidation or administration, the rights of the liquidator or administrator (in that capacity) shall be left out of account when applying Article 3(3)(b) of the Annex in determining for the purposes of this Schedule whether—
is a small or medium-sized enterprise.
(4)Article 3 of the Annex shall have effect with the omission of paragraph 5 (declaration in good faith where control cannot be determined etc).
(5)The first sentence of Article 4(1) of the Annex shall have effect as if the data to apply to—
were the data relating to the chargeable period in paragraph 5B(1) above (instead of the period described in that sentence) and calculated on an annual basis.
(6)Article 4 of the Annex shall have effect with the omission of the following provisions—
(a)the second sentence of paragraph 1 (data to be taken into account from date of closure of accounts);
(b)paragraph 2 (no change of status unless ceilings exceeded for two consecutive periods);
(c)paragraph 3 (bona fide estimate in case of newly established enterprise).
5EMeaning of “qualifying territory” and “non-qualifying territory”(1)In this Schedule—
“non-qualifying territory” means any territory which is not a qualifying territory;
“qualifying territory” means—
(b)any territory as respects which Condition 1 or Condition 2 below is satisfied.
(a)arrangements to which section 788 applies (double taxation relief by agreement with other territories) have been made in relation to the territory;
(b)those arrangements contain a non-discrimination provision (see sub-paragraphs (4) and (5) below); and
(c)the territory is not designated as a non-qualifying territory for the purposes of this sub-paragraph in regulations made by the Treasury.
(a)arrangements to which section 788 applies have been made in relation to the territory; and
(b)the territory is designated as a qualifying territory for the purposes of this sub-paragraph in regulations made by the Treasury.
(4)For the purposes of this paragraph a “non-discrimination provision”, in relation to any arrangement to which section 788 applies, is a provision to the effect that nationals of a state which is a party to those arrangements (a “contracting state”) are not to be subject in any other contracting state to—
(a)any taxation, or
(b)any requirement connected with taxation,
which is other or more burdensome than the taxation and connected requirements to which nationals of that other state in the same circumstances (in particular with respect to residence) are or may be subjected.
(5)In this paragraph, “national”, in relation to a contracting state, includes—
(a)any individual possessing the nationality or citizenship of the contracting state,
(b)any legal person, partnership or association deriving its status as such from the laws in force in that contracting state.
(6)A statutory instrument containing regulations under this paragraph shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.”.
(5)In paragraph 14(1) (general interpretation) insert each of the following definitions at the appropriate place—
““medium-sized enterprise” shall be construed in accordance with paragraph 5D above;”;
““non-qualifying territory” has the meaning given by paragraph 5E above;”;
““qualifying territory” has the meaning given by paragraph 5E above;”;
““small enterprise” shall be construed in accordance with paragraph 5D above;”.
32Special applications of paragraph 6 of Schedule 28AA to the Taxes Act 1988E+W+S+N.I.(1)Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) is amended as follows.
“6A“Application of paragraph 6 in relation to transfers of trading stock etc(1)Paragraph 6(2)(a) above does not affect the credits to be brought into account by the disadvantaged person in respect of—
for accounting periods ending on or after the last day of the relevant accounting period of the advantaged person.
(2)For the purposes of sub-paragraph (1) above, the relevant accounting period of the advantaged person is the accounting period in which the actual provision was made or imposed.
(3)For the purposes of this paragraph “trading stock”, in relation to any trade, has the same meaning as it has for the purposes of section 100 (valuation of trading stock at discontinuance of trade) (see subsection (2) of that section).”.
(3)After paragraph 6A insert—
“6B“Compensating adjustment where advantaged person is a controlled foreign company(1)This paragraph applies in any case where—
(b)in determining for the purposes of Chapter 4 of Part 17 the amount of that company’s chargeable profits for an accounting period, its profits and losses fall to be computed in accordance with paragraph 1(2) above in the case of that provision,
(c)the whole of those chargeable profits fall to be apportioned under section 747(3) to one or more companies resident in the United Kingdom, and
(d)tax is chargeable by virtue of section 747(4) in respect of the whole of those chargeable profits, as so apportioned to those companies.
(2)Where this paragraph applies, paragraph 6 above shall have effect as if the controlled foreign company were a person on whom a potential advantage in relation to United Kingdom taxation were conferred by the actual provision.
(3)In the application of paragraph 6 above by virtue of this paragraph—
(a)references to the advantaged person in sub-paragraphs (4)(a) and (b), (5)(a) and (b) and (6)(b) of that paragraph include a reference to any of the companies mentioned in sub-paragraph (1)(c) above, and
(b)references to corporation tax include a reference to tax chargeable by virtue of section 747(4).
“controlled foreign company” has the same meaning as in Chapter 4 of Part 17;
“accounting period”, in relation to a controlled foreign company, has the same meaning as in Chapter 4 of Part 17.”.
(4)In paragraph 13 (saving for provisions relating to capital allowances and capital gains) at the beginning insert “(1) Subject to sub-paragraph (2) below,” and at the end add—
“(2)Nothing in sub-paragraph (1) above applies to paragraph 6 above.”.
Penalties: temporary relaxationE+W+S+N.I.33Provision not at arm’s length: temporary relaxation of liability to penaltyE+W+S+N.I.(1)This section has effect in relation to—
(a)the years of assessment 2004-05 and 2005-06, and
(b)accounting periods beginning on or after 1st January 2004 and ending on or before 31st March 2006,
and in the following provisions of this section “relevant period” means any of those years of assessment or accounting periods.
(2)In this section “records relating to an arm’s length provision” means such records as might have been requisite for the purpose of making and delivering a correct and complete return, so far as relating to the determination of the provision asserted to be the arm’s length provision for the purposes of Schedule 28AA to the Taxes Act 1988 in a case where that Schedule applies.
(3)In relation to any relevant period, the following provisions (which provide for penalties for failure to keep and preserve records for purposes of returns)—
(a)section 12B(5) of the Taxes Management Act 1970 (c. 9), and
(b)paragraph 23 of Schedule 18 to the Finance Act 1998 (c. 36),
do not apply if the records which the person in question fails to keep or preserve are records relating to an arm’s length provision.
(4)In the application of subsection (2) in relation to paragraph 23 of Schedule 18 to the Finance Act 1998—
(a)for “requisite” substitute “ needed ”, and
(b)for “making and delivering” substitute “ delivering ”.
(5)Where a person delivers an incorrect return for any relevant period, he shall not be regarded as doing so negligently for the purposes of—
(a)section 95 of the Taxes Management Act 1970, or
(b)paragraph 20 of Schedule 18 to the Finance Act 1998,
by reason only of his failure, or the failure of any other person, to keep or preserve records relating to an arm’s length provision.
(6)For the purposes of section 95A of the Taxes Management Act 1970, where a partner delivers an incorrect partnership return for any relevant period—
(a)he shall not be regarded as doing so negligently, and
(b)his doing so shall not be regarded as attributable to negligent conduct on the part of any relevant partner,
(7)For the purposes of section 99 of the Taxes Management Act 1970 (penalty for assisting in preparation of incorrect documents) a person shall not be taken to know that a return is incorrect by reason only of his failure, or the failure of any other person, to keep or preserve records relating to an arm’s length provision.
Thin capitalisationE+W+S+N.I.34Payments of excessive interest etcE+W+S+N.I.(1)In section 209 of the Taxes Act 1988 (meaning of “distribution”) the following provisions shall cease to have effect—
“1A“Provision in relation to securities: determination of arm’s length provision(1)This paragraph applies where—
(8)For the purposes of this paragraph, the cases where one company has a “participatory relationship”with another are those where—
1BGuarantees etc(1)This paragraph applies where the actual provision is made or imposed by means of a series of transactions which include—
(a)in sub-paragraph (1)(a) for “section 209(2)(da) or (e)(vii)” substitute “ section 209(2)(e)(vii) ”;
(b)in sub-paragraph (1)(b), before “Schedule 28AA” insert “ paragraph 1 of ”;
(d)in sub-paragraph (2)(b), before “Schedule 28AA” insert “ paragraph 1 of ”;
35Elimination of double counting etcE+W+S+N.I.(1)Schedule 28AA to the Taxes Act 1988 is amended as follows.
(2)In paragraph 6 (elimination of double counting) in sub-paragraph (2) (right of disadvantaged person to claim relief, subject to sub-paragraphs (3) to (6) and paragraph 7) before “7” insert “ 6C, 6D, ”.
“6C“Claims under paragraph 6 where paragraph 1A applies(1)Where paragraph 1A above applies in relation to any provision, this paragraph has effect in relation to that provision.
6DCompensating adjustment for guarantor company etc where paragraph 1B applies(1)This paragraph applies in any case where—
“6E“Certain interest not to be regarded as chargeable under Case III of Schedule D“6EWhere—
36Balancing payments and elections to pay tax insteadE+W+S+N.I.(1)Schedule 28AA to the Taxes Act 1988 is amended as follows.
“7B“Securities: election to discharge tax liability instead of making balancing payments(1)This paragraph applies in any case where—
(a)who is not the disadvantaged person, and
(b)who does not have a participatory relationship with either of the affected persons.
“7C“Balancing payments by guarantor to issuer: no charge to, or relief from, tax(1)This paragraph applies in any case where—
“7D“Guarantees: election to discharge tax liability instead of making balancing payments(1)This paragraph applies where the following conditions are satisfied—
(a)for “paragraph 7A above” substitute “ paragraph 7C below ”;
(b)for “paragraph 1A”, in both places, substitute “ paragraph 1B ”.”.
Transfer pricing and thin capitalisation: commencementE+W+S+N.I.37Commencement and transitional provisionsE+W+S+N.I.(1)In this section “the amending provisions” means—
(a)sections 30 to 32 (transfer pricing);
(b)sections 34 to 36 (thin capitalisation);
(c)Schedule 5 (provision not at arm’s length: related amendments).
(2)The amendments made by those provisions have effect in relation to chargeable periods beginning on or after 1st April 2004 (whenever the actual provision, within the meaning of Schedule 28AA to the Taxes Act 1988, is or was made or imposed).
(3)Where an accounting period of a company begins before, and ends on or after, 1st April 2004, it shall be assumed for the purposes of the amending provisions, the amendments which they make and subsection (2) that that accounting period (“the straddling period”) consists of two separate accounting periods—
(a)the first beginning with the straddling period and ending with 31st March 2004, and
(b)the second beginning with 1st April 2004 and ending with the straddling period,
and the company’s profits and losses shall be computed accordingly for tax purposes.
(4)Where a period of account of any person within the charge to income tax begins before, and ends on or after, 6th April 2004, it shall be assumed for the purposes of the amending provisions, the amendments which they make and subsection (2) that that period (“the straddling period of account”) consists of two separate periods of account—
(a)the first beginning with the straddling period of account and ending with 5th April 2004, and
(b)the second beginning with 6th April 2004 and ending with the straddling period of account,
and the person’s profits and losses shall be computed accordingly for the purposes of income tax.
Expenses of companies with investment business and insurance companiesE+W+S+N.I.38Expenses of management: companies with investment businessE+W+S+N.I.(1)For section 75 of the Taxes Act 1988 (expenses of management: investment companies) substitute—
“75Expenses of management: companies with investment business(1)In computing for the purposes of corporation tax the total profits for an accounting period of a company with investment business (see section 130) a deduction is to be allowed for any expenses of management of the company’s investment business (see subsection (4) below) which are referable to that accounting period in accordance with section 75A.
That is subject to the following provisions of this section.
(2)A deduction is not to be allowed under subsection (1) above for any expenses to the extent that those expenses are deductible in computing profits apart from this section.
(3)Expenses of a capital nature are not expenses of management for the purposes of this section except to the extent that they fall to be treated as expenses of management for those purposes by virtue of—
(a)subsection (7) below (capital allowances), or
(b)any provision of the Tax Acts, other than this section.
(4)For the purposes of this section, expenses of management are “expenses of management of the company’s investment business” to the extent that—
(a)the expenses are in respect of so much of the company’s business as consists in the making of investments, and
(b)the investments concerned are not held by the company for an unallowable purpose during the accounting period (see subsection (5) below),
and references in this section to the company’s investment business shall be construed accordingly.
(5)For the purposes of subsection (4)(b) above, investments are held by a company for an unallowable purpose during an accounting period to the extent that they are held during the period—
(6)For the purposes of subsection (1) above, there shall be deducted from the amount that would, apart from this subsection, be deductible under that subsection the amount of any income derived from a source not charged to tax—
(a)which the company has in the course of carrying on its investment business, and
(b)which, in a case where the company is not resident in the United Kingdom,—
(i)the company has in the course of carrying on that business through a permanent establishment in the United Kingdom, and
(ii)is such property or rights as are mentioned in section 11(2A)(b),
but which is not franked investment income.
(7)For the purposes of this section, there shall be added to a company’s expenses of management referable to any accounting period the amount of any allowances falling to be made to the company for that period by virtue of section 15(1)(g) of the Capital Allowances Act (plant and machinery allowances) so far as effect cannot be given to them under section 253(2) of that Act.
(8)Subsection (9) below applies in any case where, in an accounting period of a company with investment business, the sum of—
(a)the expenses of management deductible under subsection (1) above, and
(b)any charges on income paid in the accounting period, to the extent that they are paid for the purposes of so much of the company’s business as consists in the making of investments,
exceeds the amount of the profits from which those expenses and charges are deductible.
(9)In any such case—
(a)the excess shall be carried forward to the succeeding accounting period; and
(b)the amount so carried forward to the succeeding accounting period shall be treated for the purposes of this section (including any further application of this subsection) as if it were expenses of management deductible for that accounting period.
(10)Any apportionment falling to be made for the purposes of this section shall be made on a just and reasonable basis.”.
(2)Section 130 of the Taxes Act 1988 (meaning of “investment company” for purposes of Part 4) is amended as follows.
(3)After “In this Part of this Act” insert the following definition “— “company with investment business” means any company whose business consists wholly or partly in the making of investments;”.
(4)The sidenote to the section accordingly becomes “Meaning of “company with investment business” and “investment company” in Part 4”.
(5)This section has effect in accordance with sections 42 and 43 (commencement and transitional provisions).
39Accounting period to which expenses of management are referableE+W+S+N.I.(1)After section 75 of the Taxes Act 1988 (which is inserted by section 38) insert—
“75AAccounting period to which expenses of management are referable(1)This section has effect for the purpose of determining the accounting period to which expenses of management are referable for the purposes of section 75(1).
(4)Where this subsection applies, the expenses of management—
(a)shall be apportioned between any accounting periods that fall within the period of account, and
(b)are referable to an accounting period to the extent that they are so apportioned to it.
(5)An apportionment under subsection (4) above shall be in accordance with section 834(4) (time basis) unless it appears that that method would work unreasonably or unjustly, in which case such other method shall be used as appears just and reasonable.
(a)expenses of management are not referable to an accounting period by virtue of subsections (2) to (5) above, but
(b)accounts are drawn up by the company for a period of account, and
(c)if the expenses of management had been treated in those accounts in accordance with generally accepted accounting practice, they would fall to be debited in those accounts,
the expenses of management are referable to the accounting period to which they would have been referable in accordance with subsections (2) to (5) above if they had been so debited in those accounts.
(7)Where expenses of management are not referable to an accounting period by virtue of subsections (2) to (6) above, they are referable to the accounting period to which they would be referable in accordance with subsections (2) to (5) above on the assumptions in subsection (8) below.
(8)Those assumptions are—
(a)that for each accounting period that does not coincide with, or fall within, any period of account, there is a period of account that coincides with that accounting period, and
(b)that so much of the expenses of management as would fall to be debited in accordance with generally accepted accounting practice in accounts drawn up by the company for any such deemed period of account are so debited.
(9)This section is without prejudice to any other provision of the Corporation Tax Acts which provides for amounts to be treated for the purposes of section 75 as expenses of management referable to an accounting period.
(10)Any reference in this section to expenses of management being debited in accounts is a reference to those expenses being brought into account, in accordance with generally accepted accounting practice, as a debit—
(a)in the company’s profit and loss account, or
(b)in a statement of total recognised gains and losses or other statement of items brought into account in computing the company’s profits and losses for accounting purposes.
For this purpose “debit” means an amount which for accounting purposes reduces a profit, or increases a loss, for a period of account.”.
(2)This section has effect in accordance with sections 42 and 43 (commencement and transitional provisions).
40Expenses of insurance companiesE+W+S+N.I.(1)For section 76 of the Taxes Act 1988 (expenses of management of insurance companies) substitute—
“76Expenses of insurance companies(1)In computing for the purposes of corporation tax the profits for any accounting period of a company—
(a)which carries on life assurance business, and
(b)which is not charged to tax in respect of that business under Case I of Schedule D,
section 75 is not to apply in computing the profits of that business, but a deduction for expenses payable (the “expenses deduction”) is to be allowed in accordance with the following provisions of this section.
See also subsection (14) below for the application of this section in relation to a company which carries on capital redemption business.
(2)The expenses deduction is to be made from so much of the income and gains of the accounting period referable to basic life assurance and general annuity business as remains after any deduction falling to be made by virtue of paragraph 4(2) of Schedule 11 to the Finance Act 1996 (non-trading deficits on loan relationships).
(3)For the purposes of this section “expenses payable” means expenses brought into account in line 12, 22 or 25 of Form 40 (the revenue account) in the periodical return of the company for a period of account, but does not include any of the amounts falling within subsection (4), (5) or (6) below.
(4)The amounts falling within this subsection are the following—
(a)reinsurance premiums,
(b)refunds of premiums,
(c)profit commissions and profit participations (however described),
(d)expenses or other amounts payable, to the extent that the company’s purpose in incurring the liability to make the payment is not a business or other commercial purpose of the company.
For the purposes of paragraph (d) above, it is not one of the business or commercial purposes of a company to incur a liability to pay an amount of commission or other expenses which exceeds the amount which it could reasonably be expected to pay if the company were charged to tax under Case I of Schedule D in respect of its life assurance business.
(5)The amounts falling within this subsection are any amounts payable in connection with a policy or contract to—
(a)a policy holder or annuitant under the policy or contract (except where the policy holder is an insurance company),
(b)any other person who is entitled to receive benefits under the policy or contract,
(c)any person acting on behalf of a person falling within paragraph (a) or (b) above,
(d)the personal representatives of a deceased person who fell within paragraphs (a) to (c) above.
(6)The amounts falling within this subsection are expenses of a capital nature.
But this subsection does not apply in the case of an amount which, by virtue of any provision of the Tax Acts other than this section, falls to be treated for the purposes of this section as expenses payable which fall to be brought into account at Step 1 in subsection (7) below (the reference to Step 1 being express in the provision).
(7)The amount of the expenses deduction for an accounting period is found by taking the following steps—
Find so much of the expenses payable as are—
(a)attributable to basic life assurance and general annuity business (see subsection (8) below), and
(b)referable to the accounting period (see subsection (9) below).
Reduce each of the amounts found at Step 1 by excluding so much of the amount as is—
(a)deductible in computing income for the purposes of Schedule A,
(b)deductible by virtue of section 85(2B) of the Finance Act 1989, or
(c)deductible by virtue of section 121(3) in computing income from the letting of rights to work minerals in the United Kingdom.
Find the amounts (so far as not included at Step 1) which fall to be treated for the purposes of this section as expenses payable for the accounting period by virtue of any of the following provisions—
section 432AB(3) (Schedule A loss or an overseas property business loss referable to basic life assurance and general annuity business);
section 437(1A) (relief for income element of new annuities);
section 587B(8)(b)(i) (relief for company carrying on life assurance business in relation to gifts of shares and securities);
paragraph 16(1) of Schedule 7 to the Finance Act 1991 (transitional relief for old annuities);
paragraph 4(4)(b) of Schedule 11 to the Finance Act 1996 (carried forward non-trading deficit on loan relationships produced by separate computation for basic life assurance and general annuity business);
section 256(2)(a) of the Capital Allowances Act (capital allowances on plant and machinery used in the management of life assurance business);
paragraph 23 of Schedule 22 to the Finance Act 2001 (150% relief in respect of the remediation expenditure on contaminated land owned by a company carrying on life assurance business and acquired to be a management asset);
paragraph 13(2) of Schedule 12 to the Finance Act 2002 (125% of relevant expenditure on R&D in the case of a life assurance company);
paragraph 23(2) of Schedule 13 to the Finance Act 2002 (150% of relevant expenditure on research into vaccines in the case of a life assurance company);
paragraph 36(3) of Schedule 29 to the Finance Act 2002 (relief for non-trading loss on intangible fixed assets).
Give effect to the provisions specified in Step 3 by adding together—
(a)so much of the amounts found at Step 1 as remains after making any reductions at Step 2, and
(b)the amounts found at Step 3,
and then deduct the amount of any reversal (wherever brought into account) of an expense included at Step 1 in a previous period,
to give Subtotal 1.
If the whole or any part of a loss arising to the company in respect of its life assurance business in the accounting period is set off under section 393A or 403(1)—
(a)find the amount (“amount L”) that is equal to so much of the loss as, in the aggregate, is so set off,
(b)find the sum (“amount S”) of the amounts by which any losses for that period under section 436 or 439B fall to be reduced under section 434A(2)(b),
(c)from amount L deduct amount S, to give the adjusted loss deduction,
then reduce Subtotal 1 by deducting from it the adjusted loss deduction,
to give Subtotal 2.
Give effect to subsection (6) of section 86 of the Finance Act 1989 (spreading of acquisition expenses) by—
(a)finding the amount that is equal to six-sevenths of the adjusted amount of the acquisition expenses (within the meaning of that section) for the accounting period, and
(b)deducting that amount from Subtotal 2,
to give Subtotal 3.
Add together the following amounts—
(a)Subtotal 3, and
(b)any amounts carried forward to the accounting period under subsection (12) or (13) below (unrelieved excesses from earlier accounting periods),
to give Subtotal 4.
Give effect to subsections (8) and (9) of section 86 of the Finance Act 1989 (fraction of adjusted amount of acquisition expenses for earlier accounting periods) by adding together—
(a)Subtotal 4, and
(b)any amounts which are to be relieved under this section by virtue of those subsections,
to give the basic deduction.
(a)amount D1 (see subsection (10) below), exceeds
(b)amount R (see subsection (11) below),
deduct an amount equal to the excess from the basic deduction.
Step 10: the amount of the expenses deduction
The amount of the expenses deduction is so much of the basic deduction (see Step 8) as remains after making any deduction required at Step 9.
(8)For the purposes of Step 1, the expenses that are attributable to basic life assurance and general annuity business are the expenses which are attributable to that business in accordance with proper internal accounting practice.
In this subsection “proper internal accounting practice” means the practice of insurance companies in allocating all the expenses of the company to particular categories of business in accordance with any applicable requirements of—
(a)generally accepted accounting practice, or
(b)the Prudential Sourcebook (Insurers).
(9)The following rules have effect for determining for the purposes of Step 1 the expenses that are referable to an accounting period.
Where a period of account coincides with an accounting period, the expenses brought into account for the period of account are the expenses referable to the accounting period.
(a)two or more accounting periods fall within the same period of account, and
(b)that period of account is longer than 12 months,
section 834(4) (apportionment on time basis) is to apply.
In any other case where two or more accounting periods fall within the same period of account, the expenses referable to any of those accounting periods are the expenses that would have been referable to that accounting period if—
(a)the accounting period had coincided with a period of account, and
(b)a separate periodical return had been made for that period of account,
and section 834(4) (apportionment on time basis) is not to apply.
Rules A to C are subject to any provision of the Corporation Tax Acts which provides for an amount to be treated as expenses payable for, or referable to, a particular period.
(10)The amount D1 in Step 9 is the amount that would be the profits of the company’s life assurance business for the accounting period if—
(b)adjusted in respect of losses.
The adjustment in respect of losses is a deduction of the amount which, disregarding sections 434A(2) and 440B, would fall to be set off under section 393 against the company’s income for that period if the company had always been charged to tax under Case I of Schedule D in respect of its life assurance business.
(11)The amount R in Step 9 (which may be a negative amount) is found for the accounting period by—
(a)taking the company’s relevant income, and
(b)deducting from it the relevant aggregate.
The “relevant income”is the sum of—
(a)the income and gains referable by virtue of section 432A to the company’s basic life assurance and general annuity business;
(b)distributions received by the company from companies resident in the United Kingdom which are referable by virtue of section 432A to its basic life assurance and general annuity business;
(c)profits chargeable under Case VI of Schedule D under section 436, 439B or 441.
The “relevant aggregate”is the sum of—
(a)the basic deduction (see Step 8);
(b)any non-trading deficit on the company’s loan relationships which is produced for the period in relation to the company’s basic life assurance and general annuity business by a separate computation under paragraph 2 of Schedule 11 to the Finance Act 1996;
(c)any amount which in pursuance of a claim under paragraph 4(3) of that Schedule is carried back to the period and (in accordance with paragraph 4(5) of that Schedule) applied in reducing profits of the company for that period.
(12)Where for any accounting period—
(a)the amount of the expenses deduction (see Step 10), exceeds
(b)the amount from which that deduction is to be made (see subsection (2) above),
the excess is to be carried forward to the next accounting period and brought into account for that period in accordance with Step 7.
(13)Subject to paragraph 4(11) to (13) of Schedule 11 to the Finance Act 1996, where for any accounting period—
(a)the basic deduction (see Step 8), exceeds
(b)the expenses deduction (see Step 10),
(14)In this section any reference to—
(b)basic life assurance and general annuity business,
includes a reference to capital redemption business.
“capital redemption business” means any capital redemption business, within the meaning of section 458, which is business to which that section applies;
“expenses payable” has the meaning given by subsection (3) above;
and other expressions have the same meaning as in Chapter 1 of Part 12.”.
(2)This section has effect in accordance with sections 42 and 44 (commencement and transitional provisions).
41Related amendments to other enactmentsE+W+S+N.I.(1)The enactments mentioned in Schedule 6 to this Act shall have effect with the amendments specified in that Schedule.
(2)Subsection (1) has effect in accordance with sections 42, 43 and 44 (commencement and transitional provisions).
42Commencement of sections 38 to 41E+W+S+N.I.(1)The amendments made by sections 38 to 41 and Schedule 6 have effect for accounting periods beginning on or after 1st April 2004.
(2)This is subject to the transitional provisions in sections 43 and 44 and that Schedule.
43Companies with investment business: transitional provisionsE+W+S+N.I.(1)Any amount which, apart from this subsection, would have fallen to be treated under the old section 75(3) as if it had been disbursed as expenses of management for the first new accounting period of a company shall instead be treated as if it were expenses of management deductible for that period by virtue of the new section 75(9).
(2)To the extent that any amount was deductible under subsection (1) of section 75 for an old accounting period, the amount shall not again be deductible under that subsection for a new accounting period.
(3)Subsection (2) is without prejudice to the old section 75(3) and the new section 75(9) (carry forward of unrelieved excess to later accounting period).
(4)To the extent that an amount—
(a)was not deductible under section 75(1) by an investment company for any old accounting period, but
(b)would have been deductible under the new section 75(1) for an old accounting period if the amendments made by sections 38 and 39 and Schedule 6 or any order under section 46 (so far as having effect in relation to the first new accounting period) had been in force in relation to that period,
the amount shall be deductible under section 75(1) for the first new accounting period of the company.
(5)Where there is an accounting period that begins before, and ends on or after, 1st April 2004 (“the commencement date”), it shall be assumed, for the purpose of determining the amounts that are deductible for that period under section 75(1) of the Taxes Act 1988, that that accounting period (the “straddling period”) consists of two separate accounting periods—
(a)the first beginning with the straddling period and ending with the day preceding the commencement date, and
(b)the second beginning with the commencement date and ending with the straddling period,
but this is subject to subsection (6).
(6)In the case of an investment company, subsection (5) does not have effect for the purpose of determining the amounts that are deductible for the straddling period under section 75(1) by virtue of—
(a)subsection (3) of the old section 75, or
(b)any provision of the Corporation Tax Acts, apart from section 75 and this section.
(7)Where, for the purposes of section 768B or 768C of the Taxes Act 1988, there is a change in the ownership of a company during the straddling period, then for the purposes of the section in question (and Schedule 28A to that Act), before making any such division as is required by section 768B(4) or 768C(3) of that Act,—
(a)the straddling period shall be divided into two parts in accordance with subsection (5), and
(b)those parts shall be treated in accordance with that subsection as two separate accounting periods, but
(c)subsection (6) shall be disregarded,
and section 768B or 768C of, and Schedule 28A to, the Taxes Act 1988 shall have effect accordingly.
“the commencement date” shall be construed in accordance with subsection (5);
“investment company” has the same meaning as in Part 4 of the Taxes Act 1988 (see section 130 of that Act);
“new accounting period” means an accounting period beginning on or after the commencement date;
“old accounting period” means an accounting period beginning before the commencement date;
“the new section 75” means section 75 as it has effect in relation to a new accounting period;
“the old section 75” means section 75 as it has effect (apart from subsection (5) above) in relation to an old accounting period;
“section 75” means section 75 of the Taxes Act 1988.
44Insurance companies: transitional provisionsE+W+S+N.I.(1)Step 7 has effect for the first new accounting period as if, in paragraph (b) of that Step, the reference to amounts carried forward under subsection (12) or (13) of the new section 76 (carry forward of unrelieved excess to later accounting period) included—
(a)a reference to amounts falling to be carried forward from the last old accounting period under section 75(3) by virtue of the old section 76(1) (including any amounts falling to be so carried forward by virtue of the old section 76(5)), and
(b)a reference to so much of any pool under subsection (6) of section 87 of the Finance Act 1989 (c. 26) (pre-1990 expenses) as remains after making any reduction required by paragraph (c) of that subsection for the last old accounting period.
(2)To the extent that an amount—
(a)was not deductible under the old section 76(1) by a company for any old accounting period, but
(b)would have fallen to be taken into account by the company in determining the expenses deduction to be made under the new section 76(1) for an old accounting period if the amendments made by section 40 and Schedule 6 had been in force in relation to that period,
the company’s basic deduction (see Step 8) for the first new accounting period shall be increased by the addition of that amount.
(3)Where there is an accounting period that begins before, and ends on or after, 1st April 2004 (“the commencement date”), it shall be assumed, for the purpose of determining the deduction to be made under section 76(1), that that accounting period (“the straddling period”) consists of two separate accounting periods—
(a)the first beginning with the straddling period and ending with the day preceding the commencement date (“the first notional period”), and
(b)the second beginning with the commencement date and ending with the straddling period (“the second notional period”),
and the deduction shall be determined in accordance with subsections (4) to (6).
(4)For the purpose of determining the deduction to be made under section 76(1) for the straddling period—
(a)first add together—
(i)such amounts falling within the old section 76(1) as were disbursed for the first notional period, but without deducting amounts falling within the old section 76(1)(aa), (a), (c), or (ca),
(ii)the amounts falling to be brought into account at Step 1, as reduced at Step 2, for the second notional period, and
(iii)amounts falling to be carried forward from the previous accounting period under the old section 75(3) by virtue of the old section 76(1) (including any amounts falling to be so carried forward by virtue of the old section 76(5)),
(b)then reduce the aggregate of those amounts (but not below nil), by deducting from that aggregate any amounts falling within the old section 76(1)(aa), (a), (c), or (ca) for the straddling period,
and that aggregate, as so reduced, is deductible in accordance with the old section 76(1)(e) but subject to the old section 76(2) to (2D).
(5)Subsection (3) does not have effect for the purpose of determining the amounts that are deductible for the straddling period under section 76(1) by virtue of any provision of the Corporation Tax Acts apart from—
(a)the old section 75(3),
(b)section 76, and
(so that, in particular, the old section 86 has effect for the straddling period).
(6)No amount shall be brought into account in determining the deduction to be made under section 76(1) for the straddling period except as provided by subsections (4) and (5).
(7)Any reference in this section to a numbered Step is a reference to the Step so numbered in subsection (7) of the new section 76.
“the commencement date” shall be construed in accordance with subsection (3);
“the new section 76” means section 76 as it has effect in relation to a new accounting period;
“the old section 76” means section 76 as it has effect (apart from subsection (3) above) in relation to an old accounting period;
“section 75” means section 75 of the Taxes Act 1988;
“section 76” means section 76 of the Taxes Act 1988;
“the old section 86” means section 86 of the Finance Act 1989 (c. 26) as it has effect (apart from subsection (3) above) in relation to an old accounting period.
Amounts reversing expenses of management deductedE+W+S+N.I.45Amounts reversing expenses of management deducted: charge to taxE+W+S+N.I.(1)After section 75A of the Taxes Act 1988 (inserted by section 39) insert—
“75BAmounts reversing expenses of management deducted: charge to tax(1)This section applies in any case where the following conditions are satisfied—
(a)a credit is brought into account by a company in a period of account (the “reversal period”) which ends on or after the commencement date,
(b)the credit reverses (in whole or in part) a debit brought into account in a previous period of account of the company (whenever ending),
(c)the debit (in whole or in part) represents expenses of management deductible under section 75(1) for an accounting period of the company (“the period of deductibility”),
(d)the expenses of management were so deductible for that period otherwise than by virtue of section 75(9) (carry forward of unrelieved excess),
(e)the period of deductibility ends before, or at the same time as, the reversal period,
(f)the reversal period does not coincide with an accounting period beginning before the commencement date.
(2)In any such case, subsection (4) or (5) below (as the case may be) shall apply in relation to the reversal amount.
(3)In this section “the reversal amount” means so much of the credit as—
(a)reverses so much of the debit as represents the expenses of management, and
(b)does not represent sums otherwise taken into account in determining for the purposes of corporation tax the profits and losses of the company for the relevant accounting period or any earlier accounting period.
For this purpose the relevant accounting period is the latest accounting period of the company that falls wholly or partly within the reversal period.
(4)If the reversal period coincides with an accounting period of the company beginning on or after the commencement date, the reversal amount shall be dealt with for that period in accordance with subsection (7) below.
(5)If the reversal period does not coincide with an accounting period of the company—
(a)the reversal amount shall be apportioned between any accounting periods that fall within the reversal period, and
(b)any amount so apportioned to an accounting period beginning on or after the commencement date shall be dealt with for that period in accordance with subsection (7) below.
(6)An apportionment under subsection (5) above shall be in accordance with section 834(4) (time basis) unless it appears that that method would work unreasonably or unjustly, in which case such other method shall be used as appears just and reasonable.
(7)Where an amount falls to be dealt with in accordance with this subsection for an accounting period—
(a)it shall, so far as possible, be applied in reducing or further reducing (but not below nil) the company’s expenses of management deductible for that period otherwise than by virtue of section 75(9) (carry forward of unrelieved excess), and
(b)so much of the amount as cannot be so applied shall be regarded as income of the company chargeable under Case VI of Schedule D for that accounting period.
(8)In subsection (1) above “brought into account”, in relation to a period of account of a company, means brought into account in accordance with generally accepted accounting practice in determining, for accounting purposes, profit and loss for that period of account.
(9)If (apart from this subsection) an accounting period does not coincide with, or fall within, any period of account, it shall be assumed for the purposes of this section that there is a period of account of the company that coincides with that accounting period.
(10)It shall be assumed for the purposes of this section that, in determining for accounting purposes profit and loss for any period of account of any company, amounts fall to be brought into account in accordance with generally accepted accounting practice.
(11)For the purposes of this section a credit reverses a debit in whole or in part in any case where the sum represented in whole or in part by the debit is paid and then in whole or in part repaid (as well as in a case where the sum represented by the debit is never paid).
“the commencement date” means 1st April 2004;
“credit” means an amount which for accounting purposes increases or creates a profit, or reduces a loss, for a period of account;
“debit” means an amount which for accounting purposes reduces a profit, or increases or creates a loss, for a period of account.”.
(2)Where any such previous period as is referred to in subsection (1)(d) of section 75B is an old accounting period, that section has effect so far as relating to that previous period as if the reference to section 75(9) were a reference to subsection (3) of the old section 75.
(3)In subsection (2), “old accounting period” and “the old section 75” have the same meaning as in section 43.
(4)In section 842 of the Taxes Act 1988 (investment trusts) after subsection (1AB) insert—
“(1AC)In determining the amount of a company’s income for the purposes of subsection (1)(a) above, no account shall be taken of any amount that falls under section 75B(7)(b) to be regarded as income of the company chargeable under Case VI of Schedule D.”.
Power to make consequential amendmentsE+W+S+N.I.46Power to make consequential amendmentsE+W+S+N.I.(1)The Treasury may by order make such amendments, repeals or revocations in any enactment (including an enactment amended by this Act) as appear to them to be appropriate in consequence of sections 38 to 40 and 45 and Schedule 6.
(2)The power conferred by subsection (1) to make an order includes power—
(3)Any order made under this section on or before 31st December 2004 may make provision having effect in relation to accounting periods ending before the date on which the order is made (but not before 1st April 2004).
Insurance companies: miscellaneousE+W+S+N.I.47Insurance companies etc.E+W+S+N.I.Schedule 7 to this Act (which makes provision about insurance companies and companies which have ceased to be insurance companies after a transfer of business) shall have effect.
Loan relationships and derivative contractsE+W+S+N.I.48Loan relationships: miscellaneous amendmentsE+W+S+N.I.Schedule 8 to this Act (which makes amendments relating to loan relationships) shall have effect.
49Derivative contracts: miscellaneous amendmentsE+W+S+N.I.Schedule 9 to this Act (which makes amendments relating to derivative contracts) shall have effect.
Accounting practiceE+W+S+N.I.50Generally accepted accounting practiceE+W+S+N.I.(1)In the Tax Acts “generally accepted accounting practice” means—
(a)in relation to the affairs of a company or other entity that prepares accounts in accordance with international accounting standards (“IAS accounts”), generally accepted accounting practice with respect to such accounts;
(b)in any other case, UK generally accepted accounting practice.
(2)In the Tax Acts “international accounting standards” means the international accounting standards, within the meaning of Regulation (EC) No. 1606/2002 of the European Parliament and the Council of 19 July 2002 on the application of international accounting standards, adopted from time to time by the European Commission in accordance with that Regulation.
(3)Where the European Commission has not adopted a particular international accounting standard, then as regards the matters covered by that standard—
(a)generally accepted accounting practice with respect to IAS accounts shall be regarded as permitting the use either of the unadopted standard or of UK generally accepted accounting practice, and
(b)accounts prepared on either basis shall be regarded for the purposes of the Tax Acts as prepared in accordance with international accounting standards.
(4)In the Tax Acts “UK generally accepted accounting practice”—
(a)means generally accepted accounting practice with respect to accounts of UK companies (other than IAS accounts) that are intended to give a true and fair view, and
In this subsection “UK companies” means companies incorporated or formed under the law of a part of the United Kingdom.
(5)In section 832(1) of the Taxes Act 1988 (interpretation of the Tax Acts)—
(a)in the definition of “generally accepted accounting practice” for “has the meaning given by section 836A” substitute “ has the meaning given by section 50(1) of the Finance Act 2004 ”;
““international accounting standards” has the meaning given by section 50(2) of the Finance Act 2004;”; and
““UK generally accepted accounting practice” has the meaning given by section 50(4) of the Finance Act 2004;”.
(6)This section has effect in relation to—
(a)periods of account beginning on or after 1st January 2005, and
(b)in the case of a company required to prepare accounts under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), any period of account beginning before that date for which the company is required or permitted to prepare such accounts in accordance with international accounting standards.
51Use of different accounting practices within a group of companiesE+W+S+N.I.(1)This section applies where—
(a)a company (company A) prepares accounts in accordance with international accounting standards,
(b)another company (company B) in the same group of companies prepares accounts in accordance with UK generally accepted accounting practice,
(c)there is a transaction between, or a series of transactions involving, company A and company B, and
(d)a tax advantage would (apart from this section) be obtained by either or both of those companies in relation to the transaction or series of transactions as a result of the use of different accounting practices.
(2)In that case the Tax Acts apply in relation to that transaction or series of transactions as if both companies prepared accounts in accordance with UK generally accepted accounting practice.
(3)The provisions of section 170(3) to (6) of the Taxation of Chargeable Gains Act 1992 (c. 12) apply to determine for the purposes of this section whether companies are in the same group of companies.
(4)A series of transactions is not prevented from being a series of transactions involving company A and company B by reason only of the fact that one or more of the following is the case—
(a)there is no transaction in the series to which both those companies are parties;
(b)that parties to any arrangement in pursuance of which the transactions in the series are entered into do not include one or both of those companies;
(c)there are one or more transactions in the series to which neither of those companies is a party.
(5)In this section “tax advantage” has the same meaning as in Chapter 1 of Part 17 of the Taxes Act 1988 (see section 709 of that Act).
52Amendment of enactments that operate by reference to accounting practiceE+W+S+N.I.(1)Schedule 10 makes amendments of provisions of the Tax Acts that operate by reference to accounting practice.
Part 1 makes amendments relating to loan relationships;
Part 2 makes amendments relating to derivative contracts;
Part 3 makes amendments relating to intangible fixed assets;
Part 4 makes amendments relating to foreign currency accounting.
(3)The amendments have effect in relation to—
(b)in the case of a company required to prepare accounts under the Companies Act 1985 or the Companies (Northern Ireland) Order 1986, any period of account beginning before that date for which the company is required or permitted to prepare such accounts in accordance with international accounting standards.
Prospective53Treatment of expenditure on research and developmentE+W+S+N.I.(1)Expenditure by a company on research and development, if not of a capital nature, is not prevented from being regarded for tax purposes as deductible in computing profits by reason of the fact that for accounting purposes it is brought into account by the company in determining the value of an intangible asset.
(2)Subsection (1) applies, in particular, for the purposes of—
section 82A of the Taxes Act 1988 (deduction of expenditure on research and development),
Schedule 20 to the Finance Act 2000 (c. 17) (R&D tax relief),
Schedule 12 to the Finance Act 2002 (c. 23) (tax relief for expenditure on research and development), and
Schedule 13 to that Act (tax relief for expenditure on vaccine research etc.).
(3)Where expenditure is brought into account by a company for tax purposes in accordance with subsection (1), no deduction may be made in computing for tax purposes the profits of the company in respect of the writing down of so much of the value of an intangible asset as is attributable to that expenditure.
(4)Expenditure shall not be regarded by virtue of subsection (1) as deductible in computing a company’s profits for an accounting period to the extent that—
(a)a deduction has been made in respect of it in computing the company’s profits for a previous accounting period, or
(b)the company has benefited from a tax relief in respect of it for a previous accounting period under any of the provisions specified in subsection (2).
“intangible asset” has the meaning it has for accounting purposes; and
(6)This section shall come into force in accordance with provision made by the Treasury by order made by statutory instrument.
54Trading profits etc. from securities: taxation of amounts taken to reservesE+W+S+N.I.(1)Before section 473 of the Taxes Act 1988 insert—
“472ATrading profits etc. from securities: taxation of amounts taken to reserves(1)This section applies in relation to securities—
(a)which are held by a person carrying on a banking business, an insurance business or a business consisting wholly or partly in dealing in securities; and
(b)which are such that a profit on their sale would form part o