Part 1 Introduction

A1 Overview of the Corporation Tax Acts

(1) The main Acts relating to corporation tax are—

(a) this Act (which covers the ground described in section 1),

(b) CTA 2010 (which covers the ground described in section 1 of that Act), and

(c) TCGA 1992 (so far as relating to chargeable gains accruing to a companyin respect of which the company is chargeable to corporation tax).

(2) Enactments relating to corporation tax are also contained in other Acts: see in particular—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(c) Schedule 18 to FA 1998 (company tax returns, assessments and related matters),

(d) Schedule 22 to FA 2000 (tonnage tax),

(e) CAA 2001 (allowances for capital expenditure),

(f) Part 2 of TIOPA 2010 (double taxation relief),

(g) Parts 4 and 5 of that Act (transfer pricing and advance pricing agreements),

(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ha) Part 6A of that Act (hybrid and other mismatches),

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

(j) Part 8 of that Act (offshore funds),

(ja) Part 9A of that Act (controlled foreign companies),

(jb) Part 10 of that Act (corporate interest restriction),

(k) Part 2 of FA 2012 (insurance companies carrying on long-term business) , and

(l) Part 3 of that Act (friendly societies carrying on long-term business).

(3) Schedule 1 to the Interpretation Act 1978 defines “the Corporation Tax Acts” as the enactments relating to the taxation of the income and chargeable gains of companies and of company distributions (including provisions relating to income tax).

1 Overview of Act

(1) Part 2 of this Act contains basic provisions about the charge to corporation tax including—

(a) the imposition of the charge to corporation tax on the income and chargeable gains of companies (referred to collectively as “ profits ”), (see section 2),

(b) the exclusion of income and chargeable gains subject to corporation tax from income tax and capital gains tax (see sections 3 and 4),

(c) provision about the territorial scope of the charge to corporation tax (see section 5 and Chapters 3A and 4 ),

(d) provision about how corporation tax is charged and assessed, in particular its charging and assessment by reference to accounting periods (see section 8),

(e) provision about accounting periods (see Chapter 2), and

(f) rules for determining the residence of companies (see Chapter 3).

(2) Under section 2(4) the charge to corporation tax on income has effect in accordance with the provisions of the Corporation Tax Acts that deal with its application, the main provisions of this Act that do so being—

(a) Part 3 (trading income),

(b) Part 4 (property income),

(c) Parts 5 and 6 (profits arising from loan relationships),

(d) Part 7 (profits arising from derivative contracts),

(e) Part 8 (gains in respect of intangible fixed assets),

(f) Part 9 (profits arising from disposals of know-how and sales of patent rights),

(fa) Part 9A (company distributions), and

(g) Part 10 (miscellaneous income).

(3) Part 7 also applies the charge to corporation tax on chargeable gains to certain profits arising from derivative contracts.

(4) Parts 5 to 8 also deal with how deficits or losses arising from, or in respect of, the matters to which they relate are brought into account for corporation tax purposes.

(5) The following Parts provide relief for particular types of expenditure—

(a) Part 11 (relief for particular employee share acquisition schemes),

(b) Part 12 (other relief for employee share acquisitions),

(c) Part 13 (additional relief for expenditure on research and development),

(d) Part 14 (remediation of contaminated land), and

(e) Part 15 (film production).

(6) The following Parts contain special rules for particular cases—

(a) Part 15 (film production),

(b) Part 16 (companies with investment business),

(c) Part 17 (partnerships), and

(d) Part 18 (unremittable income).

(7) The following Parts contain provisions of general application—

(a) Part 19 (general exemptions),

(b) Part 20 (general calculation rules), and

(c) Part 21 (other general provisions, including definitions for the purposes of the Act).

(8) For abbreviations and defined expressions used in this Act, see section 1312 and Schedule 4.

Part 2 Charge to corporation tax: basic provisions

Chapter 1 The charge to corporation tax

Charge to tax on profits

2 Charge to corporation tax

(1) Corporation tax is charged on profits of companies for any financial year for which an Act so provides.

(2) In this Part “ profits ” means income and chargeable gains, except in so far as the context otherwise requires.

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

(3) In this Act “ the charge to corporation tax on income ” means the charge under subsection (1) so far as relating to income.

(4) The charge to corporation tax on income has effect in accordance with the provisions of the Corporation Tax Acts that deal with its application.

3 Exclusion of charge to income tax

(1) The provisions of the Income Tax Acts relating to the charge to income tax do not apply to income of a company if—

(a) the company is UK resident, or

(b) the company is not UK resident and it is chargeable to corporation tax in respect of the income, or would be so chargeable but for an exemption .

(2) Subsection (1) does not apply to income accruing to a company in a fiduciary or representative capacity.

4 Exclusion of charge to capital gains tax

Capital gains tax is not charged on gains accruing to a companyin respect of which the company is chargeable to corporation tax, or would be so chargeable but for an exemption.

General scheme of corporation tax

5 Territorial scope of charge

(1) A UK resident company is chargeable to corporation tax on income on all its profits wherever arising (but see Chapter 3A for an exemption from charge in respect ofprofits of foreign permanent establishments) .

(2) A non-UK resident company is within the charge to corporation tax on income only if—

(a) it carries on a trade of dealing in or developing UK land (see section 5B), ...

(b) it carries on a trade in the United Kingdom (other than a trade of dealing in or developing UK land) through a permanent establishment in the United Kingdom ,

(c) it carries on a UK property business, or

(d) it has other UK property income.

(2A) A non-UK resident company which carries on a trade of dealing in or developing UK land is chargeable to corporation tax on income on all its profits wherever arising that are profits of that trade.

(3) A non-UK resident company which carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom is chargeable to corporation tax on income on all its profits wherever arising that are chargeable profits as defined in section 19 (profits attributable to its permanent establishment in the United Kingdom).

(3A) A non-UK resident company which carries on a UK property business is chargeable to corporation tax on income on all its profits that are—

(a) profits of that business, or

(b) profits arising from loan relationships or derivative contracts that the company is a party to for the purposes of that business.

(3B) A non-UK resident company which has other UK property income is chargeable to corporation tax on income on all its profits that—

(a) consist of that income, or

(b) are profits arising from loan relationships or derivative contracts that the company is a party to for the purposes of enabling it to generate that income.

(4) Subsections (1) and (2A) to (3B) are subject to any exceptions provided for by the Corporation Tax Acts.

(5) The territorial scope of the charge to corporation tax on chargeable gains is given by section 2B of TCGA 1992.

(6) In this Part “other UK property income” means income dealt with by any of the following Chapters of Part 4—

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

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

(c) Chapter 9 (post-cessation receipts arising from a UK property business).

5A Arrangements for avoiding tax

(1) Subsection (3) applies if a company has entered into an arrangement the main purpose or one of the main purposes of which is to obtain a relevant tax advantage for the company.

(2) In subsection (1) the reference to obtaining a relevant tax advantage includes obtaining a relevant tax advantage by virtue of any provisions of double taxation arrangements, but only in a case where the relevant tax advantage is contrary to the object and purpose of the provisions of the double taxation arrangements (and subsection (3) has effect accordingly, regardless of section 6(1) of TIOPA 2010).

(3) The relevant tax advantage is to be counteracted by means of adjustments.

(4) For this purpose adjustments may be made (whether by an officer of Revenue and Customs or by the company) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.

(5) In this section “ relevant tax advantage ” means a tax advantage in relation to corporation tax to which the company is chargeable (or would without the tax advantage be chargeable) by virtue of section 5(2A).

(6) In this section—

• “arrangement” (except in the phrase “double taxation arrangements”) includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;

• “ double taxation arrangements ” means arrangements which have effect under section 2(1) of TIOPA 2010 (double taxation relief by agreement with territories outside the United Kingdom);

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

5B Trade of dealing in or developing UK land

(1) A non-UK resident company's “trade of dealing in or developing UK land” consists of —

(a) any activities falling within subsection (2) which it carries on, and

(b) any activities from which profits, gains or losses arise which are treated under Part 8ZB of CTA 2010 as profits or losses of the company's trade of dealing in or developing UK land.

(2) The activities within this subsection are—

(a) dealing in UK land;

(b) developing UK land for the purpose of disposing of it.

(3) In this section “ land ” includes—

(a) buildings and structures,

(b) any estate, interest or right in or over land, and

(c) land under the sea or otherwise covered by water.

(4) In this section—

• “disposal” is to be interpreted in accordance with section 356OQ of CTA 2010;

• “ UK land ” means land in the United Kingdom.

6 Profits accruing in fiduciary or representative capacity

(1) A company is not chargeable to corporation tax on profits which accrue to it in a fiduciary or representative capacity except as respects its own beneficial interest (if any) in the profits.

(2) The exception under subsection (1) from chargeability does not apply to profits arising in the winding up of the company.

7 Profits accruing under trusts

Profits that accrue for the benefit of a company under a trust are treated for the purposes of the charge to corporation tax under section 2(1) as accruing directly to the company.

8 How tax is charged and assessed

(1) Corporation tax for a financial year is charged on profits arising in the year.

(2) Corporation tax is calculated and chargeable, and assessments to corporation tax are made, by reference to accounting periods.

(3) Corporation tax which is assessed and charged for an accounting period of a company is assessed and charged on the full amount of profits arising in the accounting period.

(4) Subsection (3) is subject to any contrary provision in the Corporation Tax Acts.

(5) If a company's accounting period falls within more than one financial year, the amount of the profits arising in the accounting period that is chargeable to corporation tax must be apportioned between the financial years in which the accounting period falls.

Chapter 2 Accounting periods

9 Beginning of accounting period

(1) An accounting period of a company begins—

(a) when the company comes within the charge to corporation tax, or

(b) immediately after the end of the previous accounting period of the company, if the company is still within the charge to corporation tax.

(2) For the purposes of this section a UK resident company is treated as coming within the charge to corporation tax when it starts to carry on business, if it would not otherwise be within the charge to corporation tax.

(3) If a chargeable gain or allowable loss accrues to a company at a time which is not (ignoring this subsection) within an accounting period of the company—

(a) an accounting period of the company begins at that time, and

(b) the gain or loss accrues in that accounting period.

(4) This section does not apply if section 12 (companies being wound up) applies.

(5) This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to begin at a different time.

10 End of accounting period

(1) An accounting period of a company comes to an end on the first occurrence of any of the following—

(a) the ending of 12 months from the beginning of the accounting period,

(b) an accounting date of the company,

(c) if there is a period for which the company does not make up accounts, the end of that period,

(d) the company starting or ceasing to trade,

(e) if the company carries on only one trade, coming, or ceasing to be, within the charge to corporation tax in respect of that trade,

(f) if the company carries on more than one trade, coming, or ceasing to be, within the charge to corporation tax in respect of all the trades it carries on,

(g) the company becoming, or ceasing to be, UK resident,

(h) the company ceasing to be within the charge to corporation tax,

(i) the company entering administration, and

(j) the company ceasing to be in administration.

(2) If subsection (1)(i) applies, the accounting period is treated as having ended immediately before the day on which the company enters administration.

(3) For the purposes of this section a company enters administration—

(a) when it enters administration under Schedule B1 to the Insolvency Act 1986 (c. 45), or

(b) when it is subject to a corresponding procedure, other than one under that Act.

(4) For the purposes of this section a company ceases to be in administration—

(a) when it ceases to be in administration under Schedule B1 to the Insolvency Act 1986, or

(b) when a corresponding event occurs, other than under that Act.

(5) This section does not apply if section 12 (companies being wound up) applies.

(6) This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to end at a different time.

11 Companies with more than one accounting date

(1) This section applies if a company carrying on more than one trade—

(a) does not have the same accounting date for each of the trades, and

(b) does not make up general accounts for the whole of the company's activities.

(2) The company may choose which of the accounting dates for the trades is to be used for the purpose of section 10(1)(b).

(3) But if an officer of Revenue and Customs thinks, on reasonable grounds, that the date chosen by the company is inappropriate, the officer may give notice to the company directing one of the other accounting dates to be used for that purpose instead.

12 Companies being wound up

(1) This section applies if a company is being wound up.

(2) An accounting period of the company ends immediately before the winding up starts.

(3) An accounting period of the company begins when the winding up starts.

(4) After the winding up starts, an accounting period of the company ends—

(a) at the end of the period of 12 months beginning on the first day of the accounting period, or

(b) if earlier, when the winding up is completed.

(5) After the winding up starts, an accounting period of the company begins immediately after the end of the previous accounting period of the company, if the winding up has not been completed.

(6) This section is subject to any provision of the Corporation Tax Acts which provides for an accounting period of a company to which this section applies to begin or end at a different time.

(7) For the purposes of this section a winding up of a company starts—

(a) when the company passes a resolution for the winding up of the company,

(b) when a petition for the winding up of the company is presented, if the company has not already passed such a resolution and a winding up order is made on the petition, or

(c) when an act is done in relation to the company for a similar purpose, if the winding up is not under the Insolvency Act 1986 (c. 45).

Chapter 3 Company residence

13 Overview of Chapter

(1) This Chapter contains rules for determining the residence of companies.

(2) Section 14 gives the main rule for companies incorporated in the United Kingdom (including SEs and SCEs incorporated in the United Kingdom).

(3) Section 15 deals with companies which have been UK resident under the rules of common law and provides for their continued residence when certain circumstances arise.

(4) Sections 16 and 17 deal with SEs and SCEs which transfer their registered office to the United Kingdom.

(5) Section 18 contains a special rule for companies treated as non-UK resident under double taxation arrangements.

14 Companies incorporated in the United Kingdom

(1) A company which is incorporated in the United Kingdom is UK resident for the purposes of the Corporation Tax Acts.

(2) Accordingly, even if a different place of residence is given by a rule of law, the company is not resident in that place for the purposes of the Corporation Tax Acts.

15 Continuation of residence established under common law

(1) This section applies to a company which is neither—

(a) incorporated in the United Kingdom, nor

(b) resident in the United Kingdom by virtue of section 16 or 17.

(2) If the company—

(a) is no longer carrying on a business, and

(b) was UK resident for the purposes of the Corporation Tax Acts immediately before it ceased to carry on business,

the company continues to be UK resident for the purposes of the Corporation Tax Acts.

(3) If the company—

(a) is being wound up outside the United Kingdom, and

(b) was UK resident for the purposes of the Corporation Tax Acts immediately before any of its activities came under the control of a foreign liquidator,

the company continues to be UK resident for the purposes of the Corporation Tax Acts.

(4) In subsection (3) “ foreign liquidator ” means a person exercising functions which, in the United Kingdom, would be exercisable by a liquidator.

16 SEs which transfer registered office to the United Kingdom

(1) This section applies to an SE which transfers its registered office to the United Kingdom in accordance with Article 8 of Council Regulation (EC) No 2157/2001 on the Statute for a European company (Societas Europaea).

(2) The SE is UK resident for the purposes of the Corporation Tax Acts from the time of its registration in the United Kingdom.

(3) Accordingly, even if a different place of residence is given by a rule of law, the SE is not resident in that place for the purposes of the Corporation Tax Acts.

(4) The SE does not cease to be UK resident merely because it later transfers its registered office from the United Kingdom.

17 SCEs which transfer registered office to the United Kingdom

(1) This section applies to an SCE which transfers its registered office to the United Kingdom in accordance with Article 7 of Council Regulation (EC) No 1435/2003 on the Statute for a European Cooperative Society (SCE).

(2) The SCE is UK resident for the purposes of the Corporation Tax Acts from the time of its registration in the United Kingdom.

(3) Accordingly, even if a different place of residence is given by a rule of law, the SCE is not resident in that place for the purposes of the Corporation Tax Acts.

(4) The SCE does not cease to be UK resident merely because it later transfers its registered office from the United Kingdom.

18 Companies treated as non-UK resident under double taxation arrangements

(1) This section applies to a company which is treated as—

(a) resident in a territory outside the United Kingdom, and

(b) non-UK resident,

for the purposes of any double taxation arrangements.

(2) For the purposes of the Corporation Tax Acts the company is—

(a) resident outside the United Kingdom, and

(b) non-UK resident.

(3) Subsection (2) applies even if the company would otherwise be UK resident for the purposes of the Corporation Tax Acts by virtue of section 14, 15, 16 or 17 or another rule of law.

(4) To decide whether a company is treated as mentioned in subsection (1)(a) and (b) for the purposes of any double taxation arrangements, assume that—

(a) the company has made a claim for relief under the arrangements, and

(b) in consequence of the claim it falls to be decided whether the company is to be treated as mentioned in subsection (1)(a) and (b) for the purposes of the arrangements.

CHAPTER 3A UK RESIDENT COMPANIES: PROFITS OF FOREIGN PERMANENT ESTABLISHMENTS

Exemption

18A Exemption for profits or losses of foreign permanent establishments

(1) If a ... company makes an election under this section, exemption adjustments are to be made at the appropriate stages in calculating the taxable total profits of the company for each relevant accounting period.

(2) For that purpose “ exemption adjustments ” means any such adjustments as are appropriate to secure that there are left out of account any profits and losses taken into account in arriving at the foreign permanent establishments amount in relation to any relevant accounting period.

(2A) But profits and losses are not to be left out of account as mentioned in subsection (2) so far as they are or, if the company were non-UK resident, would be—

(a) profits or losses of the company's trade of dealing in or developing UK land (see section 5B),

(b) profits or losses of the company's UK property business,

(c) profits consisting of the company's other UK property income, or

(d) profits or losses arising from loan relationships or derivative contracts that the company is a party to for the purposes of its UK property business or for the purposes of enabling it to generate other UK property income.

(2B) Profits and losses are not to be left out of account as mentioned in subsection (2) so far as, if the company were non-UK resident, they would be gains or losses accruing on disposals of assets within section 2B(4)(a) or (b) of TCGA 1992 (interests in UK land or other assets deriving at least 75% of their value from UK land).

(3) In this Chapter “ relevant accounting period ”, in relation to a company by which an election is made under this section, means an accounting period of the company to which the election applies (as to which see section 18F).

(4) For the purposes of this Chapter the “ foreign permanent establishments amount ”, in relation to an accounting period of a company, is—

(a) the aggregate of the relevant profits amount in the case of each relevant foreign territory in relation to which there is a relevant profits amount for the accounting period, less

(b) the aggregate of the relevant losses amount in the case of each relevant foreign territory in relation to which there is a relevant losses amount for the accounting period.

(5) In this Chapter “ relevant foreign territory ”, in relation to a company, means a territory outside the United Kingdom in which the company carries on, or has carried on, business through a permanent establishment.

(6) For the purposes of this Chapter “ relevant profits amount ”, in relation to a relevant foreign territory and an accounting period of a company, means—

(a) in the case of a full treaty territory, profits which would be taken to be attributable to the permanent establishment of the company in the territory for the purpose of ascertaining the amount of any credit to be allowed under TIOPA 2010 (in respect of tax paid under the law of the relevant foreign territory) against corporation tax if the company were to be liable to corporation tax for the accounting period (apart from this Chapter), or

(b) in the case of any other territory, profits which would be taken to be so attributable for that purpose if the territory were a full treaty territory and the double taxation arrangements having effect in relation to the territory were in the terms of the OECD model.

(7) For the purposes of this Chapter “ relevant losses amount ”, in relation to a relevant foreign territory and an accounting period of a company, means—

(a) in the case of a full treaty territory, any losses which would be taken to be attributable to the permanent establishment of the company in the territory on the application of the same rules and principles as fall to be applied under subsection (6)(a), and

(b) in the case of any other territory, any losses which would be taken to be so attributable on that basis if it were a full treaty territory and the double taxation arrangements having effect in relation to the relevant foreign territory were in the terms of the OECD model.

(8) Subsection (9) applies if the amount of any credit to be allowed under TIOPA 2010 in relation to a company in the case of a full treaty territory does not depend on the profits taken to be attributable to the permanent establishment of the company in the territory because tax under the law of the territory is charged, pursuant to the double taxation arrangements having effect in relation to the territory, otherwise than by reference to such profits (as an alternative to a charge by reference to such profits).

(9) The reference in subsection (6)(a) to profits which would be taken to be attributable to the permanent establishment of the company in the territory is to the profits that would be so taken if tax under the law of the territory were charged by reference to such profits; and subsection (7)(a) is to be construed accordingly.

(10) For the purposes of subsections (6) and (7) if double taxation arrangements having effect in relation to a relevant foreign territory do not include provision for the credit to be allowed against tax to be computed by reference to the same profits as those by reference to which the tax was computed under the law of the relevant foreign territory, they are to be assumed to do so.

(11) This section is subject to the following provisions of this Chapter.

18B Chargeable gains etc

(1) The exemption adjustments required to be made by section 18A(1) include, in the case of any gains or losses on the disposal or realisation of assets which are relevant in the calculation of the taxable total profits of a company for a relevant accounting period, adjustments to remove the effect of any gains or losses relating to the assets taken into account in computing the foreign permanent establishments amount in relation to any relevant accounting period (so that, in appropriate cases, a gain may be increased to reflect a loss so taken into account or a loss increased to reflect a gain so taken into account).

(2) The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any gains in respect of immoveable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

(3) The references in section 18A(6) to profits which would be taken, in the case of a company in relation to which an election under section 18A has effect, to be attributable to the permanent establishment of the company in a territory (including as extended by subsection (2)) do not include any gains which would be taken to be so attributable for the purposes of ascertaining credit to be allowed in respect of tax payable under the law of the territory before the election has effect; and the references to losses in section 18A(7) are to be construed accordingly.

18C Capital allowances etc

(1) Any allowance under Part 2 of CAA 2001 which, but for section 18A and for section 15(2A)(b) of CAA 2001, could be claimed under section 3(1) of that Actin respect of assets provided for the purposes of a permanent establishment in a territory outside the United Kingdom through which business is or has been carried on by a company in relation to which an election under section 18A has effect (and any charge in connection with any such allowance) is to be made automatically and reflected in any calculation for any relevant accounting period of the company of the profits or losses attributable to business carried on by the company through such a permanent establishment.

(2) In the application of section 13 of CAA 2001 by virtue of subsection (1) on the taking effect of the election under section 18A, references to “market value” have effect as references to “transition value” within the meaning of section 62A of that Act in relation to any plant or machinery in the case of which that is the disposal value under section 61 of that Act.

(3) In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account any profits or losses arising from a plant or machinery lease under which the company is a lessor if an allowance under CAA 2001 has been made to the company or a connectedcompanyin respect of expenditure on the provision of any plant or machinery subject to the lease (otherwise than in accordance with this section).

(4) Section 70K of that Act (meaning of “ plant or machinery lease ” and “ lessor ”) applies for the purposes of subsection (3).

(5) In determining for the purposes of section 18A the amount of any credit to be allowed under TIOPA 2010in respect of tax under the law of a relevant foreign territory in the case of a company, it is to be assumed that the company made any claim or election (other than a claim for allowances under Part 2 of CAA 2001) which would reduce any relevant profits amount, or increase the relevant losses amount, by any means, and within any time limit, applicable to it.

18CA Income arising from immovable property

The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any income arising from immovable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

18CB Profits and losses from investment business

(1) In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company, there are to be left out of account any profits or losses of any part of the company's business which consists of the making of investments.

(2) Subsection (1) does not apply to profits or losses arising from assets so far as the assets are effectively connected with any part of the permanent establishment through which a trade or overseas property business of the company is carried on in the territory.

(3) In subsection (2) “effectively connected” is to be given the same meaning as it would be given for the purposes of the OECD model were subsection (2) contained in the OECD model.

18D Payments subject to deduction

(1) In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account profits or losses referable to any transaction between a person who is UK resident and a permanent establishment in a territory outside the United Kingdom through which the company carries on, or has carried on, business (“the foreign territory in question”) if the condition in subsection (2) is met.

(2) That condition is that the UK resident would be obliged under Part 15 of ITA 2007 to deduct income tax that is not repayable from payments in respect of the transaction if the payments were made to a company resident in the foreign territory in question (taking account of any double taxation arrangements having effect in relation to the foreign territory in question).

(3) But subsection (1) does not apply if the company is a bank unless the transaction forms part of arrangements the main purpose, or one of the main purposes, of which is the avoidance of an obligation under Part 15 of ITA 2007 to deduct income tax from any payments.

(4) Section 1120 of CTA 2010 (meaning of “bank”) applies for the purposes of subsection (3).

18E Employee share acquisitions

(1) Any relief which would be given under Chapter 2 or 3 of Part 12 is to be taken into account in determining any relevant profits amount or relevant losses amount in the case of a company under section 18A(6) or (7) in relation to a relevant foreign territory in so far as it is linked to the business carried on by the company through a permanent establishment in the territory.

(2) The extent to which any such relief is so linked is to be determined on a just and reasonable basis having regard to the extent to which the work of the employees concerned contributes to the purposes of the business so carried on.

18F Effect of election

(1) An election made by a company under section 18A—

(a) (subject to subsections (6) to (8) ) is irrevocable, and

(b) applies to all accounting periods of the company beginning on or after the relevant day.

(2) The relevant day”, in relation to an election made by a UK resident company, means—

(a) the day on which, at the time of the election, the company's accounting period following that in which the election is made is expected to begin, or

(b) if the election is made before the company's first accounting period, the day on which that accounting period begins.

(2A) “ The relevant day ”, in relation to an election made by a non-UK resident company, means the day on which the company becomes UK resident.

(3) Subsection (4) applies if an accounting period of the company (“the straddling period”) begins before, and ends on or after, the relevant day.

(4) It is to be assumed, for the purposes of the Corporation Tax Acts, that the straddling period consists of two separate accounting periods—

(a) the first beginning with the straddling period and ending immediately before the relevant day, and

(b) the second beginning with that day and ending with the straddling period.

(5) Where for those purposes it is necessary to apportion the profits and losses for the straddling period to different parts of the period, that apportionment is to be made on a just and reasonable basis.

(6) An election can be revoked by the company which made it at any time before the relevant day.

(7) An election made by a UK resident company is revoked if the company ceases to be UK resident.

(8) An election made by a non-UK resident company is revoked if, having become UK resident, the company ceases to be UK resident.

Anti-diversion rule

18G Anti-diversion rule

(1) This section applies for the purposes of this Chapter for any relevant accounting period (“period X”) of a company (“company X”) in relation to a territory outside the United Kingdom (“territory X”) if—

(a) there is an adjustedrelevant profits amount in relation to territory X for period X,

(b) the adjustedrelevant profits amount includes diverted profits (see section 18H), and

(c) none of the exemptions mentioned in section 18I applies for period X.

(2) The diverted profits are to be left out of the adjustedrelevant profits amount.

(3) For the purposes of this Chapter “ adjusted ”, in relation to a relevant profits amount, is what the relevant profits amount would be if it were determined without reference to gains or losses which are chargeable gains or allowable losses for corporation tax purposes.

18H What are “diverted profits”?

(1) In section 18G(1)(b) “ diverted profits ” means so much of company X's total profits of period X as pass through the diverted profits gateway.

(2) To determine the extent to which company X's total profits of period X pass through the diverted profits gateway, apply—

(a) section 371BB of TIOPA 2010 (controlled foreign companies: the CFC charge gateway), and

(b) except Chapter 8 of Part 9A of that Act, the other provisions referred to in that section,

as if references to the CFC charge gateway were references to the diverted profits gateway.

(3) In applying section 371BB of TIOPA 2010 and the other provisions referred to in it assume—

(a) that company X is a CFC resident in territory X,

(b) that period X is the CFC's accounting period, and

(c) that company X's total profits of period X are the CFC's assumed total profits for the accounting period.

(4) Subsection (3)(a) does not require it to be assumed that there is any change in the place or places at which company X carries on its activities.

(5) Section 371BB of TIOPA 2010 and the other provisions referred to in it are also to be applied subject to sections 18HA to 18HE below.

(6) In this section—

(a) references to company X's total profits of period X are to those profits ignoring this Chapter and step 2 in section 4(3) of CTA 2010, and

(b) references to section 371BB of TIOPA 2010 are to that section omitting subsection (2)(b).

18HA Modification of Chapter 3 of Part 9A of TIOPA 2010

Chapter 3 of Part 9A of TIOPA 2010 (the CFC charge gateway: determining which of Chapters 4 to 8 applies) applies for the purposes of section 18H(2) with the omission of—

(a) section 371CA(10)(a),

(b) in section 371CB(2), the words “or Chapter 8 (solo consolidation)”,

(c) section 371CC(1)(b), (3)(b) and (c), (4) to (7), (9) and (10),

(d) section 371CD,

(e) section 371CE(2) to (9), and

(f) section 371CG.

18HB Modification of Chapter 4 of Part 9A of TIOPA 2010

(1) Chapter 4 of Part 9A of TIOPA 2010 (the CFC charge gateway: profits attributable to UK activities) applies for the purposes of section 18H(2) with the following modifications.

(2) The modifications are—

(a) section 371DA(3)(g)(i) is to be omitted, and

(b) in section 371DH(4), after “the accounting period”, in the second place it occurs, there is to be inserted “ or the United Kingdom ” .

(3) Section 371VF(3) of TIOPA 2010 (definition of “related” person) is to be applied as relevant with the omission of paragraphs (b) and (c).

18HC Modification of Chapter 5 of Part 9A of TIOPA 2010

Chapter 5 of Part 9A of TIOPA 2010 (the CFC charge gateway: non-trading finance profits) applies for the purposes of section 18H(2) with the omission of—

(a) in section 371EA(1), the words from “so far as” to the end, and

(b) sections 371EB to 371EE.

18HD Modification of Chapter 7 of Part 9A of TIOPA 2010

Chapter 7 of Part 9A of TIOPA 2010 (the CFC charge gateway: captive insurance business) applies for the purposes of section 18H(2) with the omission of section 371GA(6)(b).

18HE Modification of Chapter 9 of Part 9A of TIOPA 2010

(1) Chapter 9 of Part 9A of TIOPA 2010 (exemptions for profits from qualifying loan relationships) applies for the purposes of section 18H(2) with the following modifications.

(2) In section 371IA(2) and (11) the reference to a chargeable company is to be read as a reference to company X (as is the reference in section 371CB(8)); and references elsewhere in Chapter 9 to company C are to be read as references to company X.

(3) For section 371IA(5) there is to be substituted—

“ (5) 75% of the profits of each qualifying loan relationship are “exempt” under this Chapter. ”

(4) In section 371IA(9)(a) the words “or Chapter 8 (solo consolidation)” are to be omitted.

(5) Sections 371IB to 371IE are to be omitted.

(6) Section 371IH(11)(a) is to be read ignoring the modification in section 18HC(b) above.

(7) In section 371IJ references to the relevant corporation tax accounting period are to be read as references to period X and subsection (6) is to be omitted.

18I Exemptions from anti-diversion rule

(1) The exemptions referred to in section 18G(1)(c) are the exemptions set out in Chapters 11 to 14 of Part 9A of TIOPA 2010 (controlled foreign companies: exemptions from the CFC charge).

(2) In applying those Chapters for the purposes of section 18G(1)(c)—

(a) references to section 371BA(2)(b) of TIOPA 2010 are to be read as references to section 18G(1)(c),

(b) the assumptions set out in subsection (3) are to be made, and

(c) section 371VF(3) of TIOPA 2010 (definition of “related” person) is to be read with the omission of paragraphs (b) and (c).

(3) For the purposes of subsection (2)(b), assume—

(a) that the permanent establishment which company X has in territory X is a separate company from company X,

(b) that the separate company is a CFC resident in territory X,

(c) that period X and company X's other accounting periods for corporation tax purposes are accounting periods of the CFC for the purposes of Part 9A of TIOPA 2010,

(d) that the CFC's assumed total profits for period X are the adjustedrelevant profits amount,

(e) that the CFC's assumed taxable total profits for period X are the same as the CFC's assumed total profits for period X,

(f) that the CFC is connected with company X and is also connected or associated with any person with whom company X is connected or associated, and

(g) that any person who has an interest in company X also has an interest in the CFC.

(4) Chapters 11 to 14 of Part 9A of TIOPA 2010 are also to be applied subject to sections 18IA to 18ID below.

18IA The excluded territories exemption

(1) Chapter 11 of Part 9A of TIOPA 2010 (controlled foreign companies: the excluded territories exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

(2) Sections 371KB(1)(b)(iii) and 371KH are to be omitted.

(3) Section 371KC is to be omitted and the assumption set out in section 18I(3)(b) above in relation to the CFC's residence is to be applied instead; and references to “the CFC's territory” are to be read accordingly.

(4) Section 371KD(3) is to be omitted and references to a CFC's accounting profits for an accounting period are to be read as references to the adjustedrelevant profits amount.

(5) Section 371KE(2)(b) is to be omitted.

(6) Section 371KF is to be omitted.

(7) In section 371KG(3) the reference to the CFC's equity or debt is to be read as a reference to company X's equity or debt (ignoring the assumption in section 18I(3)(a) above).

(8) Section 371KI(2) and (3) is to be omitted.

(9) In section 371KJ—

(a) in subsection (2)(a), the reference to intellectual property held by the CFC is to be read as a reference to intellectual property held by company X (ignoring the assumption in section 18I(3)(a) above), and

(b) in subsections (2)(b) and (c) and (4), references to the CFC are to be read as references to company X (ignoring that assumption).

18IB The low profits exemption

Chapter 12 of Part 9A of TIOPA 2010 (controlled foreign companies: the low profits exemption) applies for the purposes of section 18G(1)(c) with the omission of section 371LB(2) and (4) and section 371LC(5) and (6).

18IC The low profit margin exemption

(1) Chapter 13 of Part 9A of TIOPA 2010 (controlled foreign companies: the low profit margin exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

(2) In section 371MB—

(a) subsection (2) is to be omitted, and

(b) references to the CFC's accounting profits for an accounting period are to be read as references to the adjustedrelevant profits amount determined before any deduction for interest.

18ID The tax exemption

(1) Chapter 14 of Part 9A of TIOPA 2010 (controlled foreign companies: the tax exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

(2) At step 1 in section 371NB(1)—

(a) in the first paragraph, the reference to section 371TB of TIOPA 2010 is to be read as a reference to the assumption in section 18I(3)(b) above relating to the CFC's residence, and

(b) the second paragraph is to be omitted.

(3) References to the CFC's local chargeable profits arising in the accounting period are to be read as references to the adjustedrelevant profits amount and, accordingly, sections 371NB(4) and 371NC(2) to (4) are to be omitted.

(4) For the purposes of step 3 in section 371NB(1) the amount of the corresponding UK tax for the accounting period is to be determined in accordance with subsection (5) below; and section 371NE is to be omitted accordingly.

(5) “The corresponding UK tax” is the amount of corporation tax which would be payable in respect of the adjustedrelevant profits amount if it were subject in full to corporation tax, ignoring any credit which would be allowed against it under section 18(3) of TIOPA 2010 and assuming, where there is more than one rate of corporation tax applicable to period X, that it were chargeable at the average rate over period X.

Companies with total opening negative amount

18J Companies with total opening negative amount

(1) The following sections make provision about a company in relation to which an election under section 18A has effect if there is a total opening negative amount in the case of the company at the beginning of the company's first relevant accounting period.

(2) To determine for the purposes of this Chapter whether there is a total opening negative amount at the beginning of the company's first relevant accounting period, take the following steps.

• Step 1 Take the adjustedforeign permanent establishments amount in relation to the earliest affected prior accounting period in relation to which that amount is negative.

• Step 2 Add to the amount arrived at under step 1 the adjustedforeign permanent establishments amount in relation to the next affected prior accounting period (but not so as to cause the result to exceed nil).

• Step 3 Add to the amount arrived at under step 2 the adjustedforeign permanent establishments amount in relation to each remaining affected prior accounting period, starting with the earliest (but not so as to cause the result to exceed nil). If after the application of the preceding steps there is a negative amount for the last affected prior accounting period there is a total opening negative amount at the beginning of the company's first relevant accounting period of an amount equal to that negative amount.

(3) In subsection (2) “ affected prior accounting period ” means—

(a) the accounting period of the company in which the election under section 18A is made, and

(b) any earlier accounting period of the company ending less than 6 years before the end of that accounting period.

(4) For the purposes of subsection (2) the “adjusted” foreign permanent establishments amount is what the foreign permanent establishments amount would be if it were determined without reference to gains or losses which are chargeable gains or allowable losses for the purposes of corporation tax.

18K Total opening negative amount: “matching”

(1) At the end of each relevant accounting period of the company (starting with the first) the total opening negative amount is to be reduced (or further reduced) by the amount of any aggregate relevant profits amount of the company for the accounting period (but not to below nil).

(2) In any relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) does not apply in relation to the aggregate relevant profits amount of the company for the accounting period.

(3) But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) is disapplied by subsection (2) only in relation to so much of the aggregate relevant profits amount of the company for the accounting period as is equal to the total opening negative amount of the company at the beginning of the accounting period.

(4) The company may, in its company tax return for that relevant accounting period, specify to which part of the aggregate relevant profits amount of the company for the accounting period section 18A(1) is to apply by virtue of subsection (3).

(5) In this Chapter “ aggregate relevant profits amount ”, in relation to an accounting period, means the aggregate of the relevant profits amount in the case of each relevant foreign territory in relation to which there is a relevant profits amount for the accounting period.

(6) This section is subject to section 18L.

18L Streaming

(1) If a streaming election has effect in relation to the company sections 18M and 18N apply (instead of section 18K).

(2) For the purposes of this section “ streaming election ” means an election, made at the same time as the company's election under section 18A, which—

(a) states that sections 18M and 18N are to have effect in relation to the company (instead of section 18K), and

(b) specifies which of the territories that are relevant foreign territories in relation to the company are to be streamed territories for the purposes of the operation of sections 18M and 18N in relation to the company.

(3) Subject to subsection (4), a streaming election is irrevocable.

(4) A streaming election can be revoked at any time before the first relevant accounting period of the company.

(5) A streaming election does not have effect unless the company, in the company tax return for the first relevant accounting period of the company, specifies how much of the amount eligible to be streamed to each streamed territory is to constitute for the purposes of sections 18M and 18N the streamed opening negative amount at the beginning of that relevant accounting period.

(6) For the purposes of subsection (5) the amount eligible to be streamed to a territory by the company is the amount that would be the total opening negative amount of the company at the beginning of the first relevant accounting period of the company if at all material times the territory were the only relevant foreign territory in relation to the company.

18M Streamed opening negative amounts: “matching”

(1) At the end of each relevant accounting period of the company (starting with the first) the streamed opening negative amount in relation to a territory is to be reduced (or further reduced) by the amount of any relevant profits amount of the company for the territory for the accounting period (but not to below nil).

(2) In any relevant accounting period of the company for which there is a reduction under subsection (1) in relation to a territory, section 18A(1) does not apply in relation to the relevant profits amount of the company for the territory for the accounting period.

(3) But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1) in relation to a territory, section 18A(1) is disapplied by subsection (2) only in relation to so much of the relevant profits amount of the company for the territory for the accounting period as is equal to the streamed opening negative amount in relation to the territory at the beginning of the accounting period.

(4) The company may, in its company tax return for that relevant accounting period, specify to which part of the relevant profits amount of the company for the territory for the accounting period section 18A(1) is to apply by virtue of subsection (3).

18N Residual opening negative amount: “matching”

(1) At the end of each relevant accounting period of the company (starting with the first) the residual opening negative amount is to be reduced (or further reduced) by the amount of any residual aggregate relevant profits amount of the company for the accounting period (but not to below nil).

(2) For the purposes of this section the “residual opening negative amount”, at the beginning of the company's first relevant accounting period, is—

(a) the total opening negative amount of the company at that time, less

(b) the aggregate of the streamed opening negative amounts of the company at that time.

(3) For the purposes of this section the “ residual aggregate relevant profits amount ”, in relation to an accounting period, means the amount (if any) by which—

(a) the aggregate relevant profits amount of the company for the accounting period, exceeds

(b) the aggregate of so much of any relevant profits amounts of the company for the accounting period as has effect to bring about a reduction under section 18M(1) for the accounting period.

(4) In any relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) does not apply in relation to the residual aggregate relevant profits amount of the company for the accounting period.

(5) But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) is disapplied by subsection (4) only in relation to so much of the residual aggregate relevant profits amount of the company for the accounting period as is equal to the residual opening negative amount of the company at the beginning of the accounting period.

(6) The company may, in its company tax return for that relevant accounting period, specify to which of the amounts forming part of the residual aggregate relevant profits amount of the company for the accounting period section 18A(1) is to apply by virtue of subsection (4).

18O Transfers of foreign permanent establishment business

(1) This section applies if—

(a) business carried on by a company (“ the transferor ”) through a permanent establishment in a territory outside the United Kingdom is transferred to a connectedcompany that is (or later becomes) a UK resident company (“ the transferee ”), and

(b) there is a transferred total opening negative amount in relation to the business transferred.

(2) In a case where the transferor had not made an election under section 18A before the transfer took place, or such an election had not had effect before that time, the “transferred total opening negative amount” is the amount that would have been the total opening negative amount in the case of the transferor at the beginning of the transferor's first relevant accounting period if—

(a) the only business carried on by the transferor was the business transferred,

(b) the transfer had not taken place,

(c) the transferor's first relevant accounting period had begun on the day after the transfer day, and

(d) any reference in section 18J(3) to the accounting period in which the election is made were a reference to the period beginning with the accounting period in which the transfer took place and ending with the transfer day.

(3) In a case where an election made by the transferor under section 18A had effect before the transfer took place, the “transferred total opening negative amount” is—

(a) the amount that would have been the total opening negative amount in the case of the transferor on the transfer day if the accounting period in which the transfer took place had ended on that day (the “remaining total opening negative amount”), less

(b) the amount that would have been the remaining total opening negative amount if the transferor had never carried on the business transferred.

But the transferred total opening negative amount cannot be below nil.

(4) In a case where—

(a) an election made by the transferee under section 18A first has effect after the transfer takes place, and

(b) the accounting period of the transferee in which the transfer took place is an affected prior accounting period for the purposes of section 18J(2),

there is to be added to the adjustedforeign permanent establishments amount in relation to that accounting period a negative amount equal to so much (if any) of the transferred total opening negative amount as is attributable to profits or losses arising after the beginning of the earliest affected prior accounting period of the transferee.

(5) In a case where an election made by the transferee under section 18A had effect before the transfer took place, sections 18K to 18N have effect in relation to the transferee and the transferred total opening negative amount as if—

(a) any reference to the total opening negative amount were a reference to the transferred total opening negative amount,

(b) any reference to the first relevant accounting period were a reference to the period beginning with the day after the transfer day and ending immediately before the start of the next accounting period of the transferee, and

(c) the requirement in section 18L(2) that a streaming election be made at the same time as the company's election under section 18A did not apply.

(6) Where for the purposes of this section it is necessary to apportion the profits and losses for any accounting period to different parts of that period, that apportionment is to be made on a just and reasonable basis.

(7) Any amount included in a transferred total opening negative amount is to be disregarded in the application of sections 18J to 18N in the case of the transferor after the transfer day.

(8) In this section “ the transfer day ” means the day on which the transfer of the business takes place.

Special cases

18P Exclusions

(1) If a company is a small company at any time during a relevant accounting period, there is for that relevant accounting period no relevant profits amount or relevant losses amount for the purposes of this Chapter in relation to any relevant foreign territory that is not a full treaty territory.

(2) If a company is a close company at any time during a relevant accounting period, so much of the profits of the company for the relevant accounting period as derives from gains which are chargeable gains for the purposes of corporation tax is not to be regarded as forming part of a relevant profits amount or relevant losses amount of the company for the purposes of this Chapter.

(3) Subsection (2) does not apply in relation to—

(a) a chargeable gain accruing on the disposal of an asset used, and used only, for the purposes of a trade so far as carried on by the company in the relevant foreign territory through the company's permanent establishment there, or

(b) a chargeable gain accruing on the disposal of currency or of a debt within section 252(1) of TCGA 1992 where the currency or debt is or represents money in use for the purposes of a trade so far as carried on by the company in the relevant foreign territory through the company's permanent establishment there.

18Q Insurance companies

(1) So much of the profits or losses of a company as consists of profits or losses arising from basic life assurance and general annuity business ... is not to be regarded as forming part of a relevant profits amount or relevant losses amount of the company for the purposes of this Chapter.

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

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

(4) Any election under section 107(4) of FA 2000 (general insurance: adjustment for technical provision) is to be ignored for the purposes of this Chapter.

Interpretation

18R Meaning of “full treaty territory”

(1) For the purposes of this Chapter a territory is a “full treaty territory” if—

(a) double taxation arrangements have been made in relation to the territory, and

(b) the arrangements contain a relevant non-discrimination provision.

(2) “ Relevant non-discrimination provision ” means a provision to the effect that the taxation on a permanent establishment of an enterprise of a state which is party to the arrangements (a “contracting state”) is not to be less favourably levied in any other contracting state than the taxation levied on enterprises of that other contracting state carrying on the same activities.

18S Other interpretation

In this Chapter—

• “ company tax return ” has the same meaning as in Schedule 18 to FA 1998 (see paragraph 3(1));

• “ double taxation arrangements ” means arrangements that have effect under section 2(1) of TIOPA 2010;

• “ the OECD model ” means the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development in July 2010 (“the OECD ”) or such other document published by the OECD in place of it as is designated from time to time by order made by the Treasury;

• “ small company ” means a micro or small enterprise, as defined in the Annex to Commission Recommendation 2003/361/ EC of 6 May 2003.

Chapter 4 Non-UK resident companies: chargeable profits

Chargeable profits

19 Chargeable profits

(1) This section applies for the purposes of the charge to corporation tax on income if a non-UK resident company carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom.

(2) The company's “chargeable profits” are its profits that are—

(a) of a type mentioned in subsection (3), and

(b) attributable to the permanent establishment in accordance with sections 20 to 32.

(2A) But the company's “chargeable profits” do not include—

(a) profits of a trade of dealing in or developing UK land (see section 5B),

(b) profits of a UK property business,

(c) profits consisting of other UK property income, or

(d) profits arising from loan relationships or derivative contracts that the company is a party to for the purposes of its UK property business or for the purposes of enabling it to generate other UK property income.

(3) The types of profits referred to in subsection (2)(a) are—

(a) trading income arising directly or indirectly through or from the establishment, and

(b) income from property or rights used by, or held by or for, the establishment.

(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) For the purposes of the charge to corporation tax on chargeable gains accruing to the company, see section 2B(3) of TCGA 1992.

(5) That subsection provides (among other things) that the gains are chargeable to corporation tax only so far as they are attributable to the permanent establishment in accordance with sections 20 to 32 of this Act.

20 Profits attributable to permanent establishment: introduction

(1) Sections 21 to 32 apply for the purpose of determining the amount of profits of a non-UK resident company that are attributable to a permanent establishment of the company in the United Kingdom.

(2) Sections 21 to 28 contain provision about the separate enterprise principle.

(3) See also section 1152 of CTA 2010 (investment managers: disregard of certain chargeable profits) , which provides for profits of certain investment transactions to be disregarded in determining the amount of profits attributable to a permanent establishment.

The separate enterprise principle

21 The separate enterprise principle

(1) The profits of the non-UK resident company that are attributable to the permanent establishment are those that the establishment would have made if it were a distinct and separate enterprise which—

(a) engaged in the same or similar activities under the same or similar conditions, and

(b) dealt wholly independently with the non-UK resident company.

(2) In applying subsection (1) assume that—

(a) the permanent establishment has the same credit rating as the non-UK resident company, and

(b) the permanent establishment has such equity and loan capital as it could reasonably be expected to have in the circumstances specified in that subsection.

(3) In sections 22 to 28 the principle in subsection (1) (read with subsection (2)) is called “the separate enterprise principle”.

22 Transactions treated as being on arm's length terms

In accordance with the separate enterprise principle, transactions between the permanent establishment and any other part of the non-UK resident company are treated as taking place on such terms as would have been agreed between parties dealing at arm's length.

23 Provision of goods or services for permanent establishment

(1) This section applies if the non-UK resident company provides the permanent establishment with goods or services.

(2) If the goods or services are of a kind that the company supplies, in the ordinary course of its business, to third parties dealing with it at arm's length, the matter is dealt with as a transaction to which the separate enterprise principle applies.

(3) If not, the matter is dealt with as an expense incurred by the non-UK resident company for the purposes of the permanent establishment (see section 29).

24 Application to insurance companies

(1) This section makes provision in a case where the non-UK resident company mentioned in subsection (1) of section 21 is an insurance company.

(2) In accordance with the principle in that subsection, the permanent establishment is treated as holding—

(a) the same or a similar quantity of assets, and

(b) assets of the same or similar description,

as would have been held by a distinct and separate enterprise acting as mentioned in paragraphs (a) and (b) of that subsection.

(3) The assets which the permanent establishment is treated as holding in accordance with the principle in that subsection may include a proportion of assets held by the company.

(4) Nothing in subsection (2) or (3) is to be read as preventing the application of similar principles to those provided for by that subsection in a case where the non-UK resident company mentioned in section 21(1) is not an insurance company.

(5) The Commissioners for Her Majesty's Revenue and Customs may by regulations make other provision about the application of section 21(1) in a case where the non-UK resident company mentioned there is an insurance company.

(6) The regulations may, in particular, make provision in place of section 21(2)(b) as to the basis on which, in the case of an insurance company, capital is to be attributed to a permanent establishment in the United Kingdom.

The separate enterprise principle: application to non-UK resident banks

25 Non-UK resident banks: introduction

(1) Sections 26 to 28 contain provision in relation to the application of the separate enterprise principle if the non-UK resident company is a bank.

(2) Nothing in sections 26 to 28 is to be read as preventing similar principles to those provided for in those sections from applying when the separate enterprise principle is applied to a non-UK resident company that is not a bank.

(3) In this section and those sections “ bank ” has the meaning given by section 1120 of CTA 2010 .

26 Transfer of financial assets

(1) This section applies if—

(a) the non-UK resident company is a bank, and

(b) there is a transfer of a loan or other financial asset between the permanent establishment and any other part of the company.

(2) In accordance with the separate enterprise principle, the transfer is recognised only if it would have taken place between independent enterprises.

(3) The transfer is not recognised if it cannot reasonably be considered that it is carried out for valid commercial reasons.

(4) For this purpose the obtaining of a tax advantage is not a valid commercial reason.

27 Loans: attribution of financial assets and profits arising

(1) This section applies if the non-UK resident company—

(a) is a bank, and

(b) makes a loan or has another financial asset.

(2) In accordance with the separate enterprise principle, the loan or other financial asset, and profits arising from it, are attributed to the permanent establishment so far as they can reasonably be regarded as having been generated by the activities of the permanent establishment.

(3) For the purposes of subsection (2), particular account is to be taken of the extent to which the permanent establishment is responsible for—

(a) obtaining the offer of new business,

(b) establishing the potential borrower's credit rating and the risk involved in providing credit,

(c) negotiating the terms of the loan with the borrower, and

(d) deciding whether, and if so on what conditions, to make or extend the loan.

(4) For those purposes, account may also be taken of the extent to which the permanent establishment is responsible for—

(a) concluding the loan agreement and disbursing the proceeds of the loan, and

(b) administering the loan (including handling and monitoring the service of it) and holding and controlling any securities pledged.

(5) References in this section to a financial asset include any financial risk in relation to a loan, or potential loan, if—

(a) the financial risk is capable of giving rise to fees or other receipts, and

(b) the holding of capital is required for the financial risk (or would be required if the transaction were between parties at arm's length).

28 Borrowing: permanent establishment acting as agent or intermediary

(1) This section applies if—

(a) the non-UK resident company is a bank, and

(b) the permanent establishment borrows funds for the purposes of another part of the company and (in relation to that borrowing) acts only as an agent or intermediary.

(2) In accordance with the separate enterprise principle—

(a) the profits attributable to the permanent establishment, and

(b) the capital attributable to the permanent establishment under section 21(2)(b),

are to be those appropriate in the case of an agent acting at arm's length, taking into account the risks and costs borne by the establishment.

Rules about deductions

29 Allowable deductions

(1) A deduction is allowed for any allowable expenses incurred for the purposes of the permanent establishment.

(2) Expenses incurred for the purposes of the permanent establishment include executive and general administrative expenses so incurred, whether in the United Kingdom or elsewhere.

(3) It does not matter whether the expenses are incurred by, or reimbursed by, the permanent establishment.

(4) The amount of expenses to be taken into account under subsection (1) is the actual cost to the non-UK resident company.

(5) “ Allowable expenses ” means expenses of a kind in respect of which a deduction would be allowed for corporation tax purposes if incurred by a UK resident company.

30 Restriction on deductions: costs

No deduction is allowed for costs in excess of those which would have been incurred on the assumptions in section 21(2).

31 Restriction on deductions: payments in respect of intangible assets

(1) No deduction is allowed for royalties paid, or other similar payments made, by the permanent establishment to any other part of the non-UK resident companyin respect of the use of intangible assets held by the company.

(2) This does not prevent a deduction for any contribution by the permanent establishment to the costs of creation of an intangible asset.

(3) In this section “ intangible asset ” has the meaning it has for accounting purposes, and includes any intellectual property (as defined in section 712(3)).

32 Restriction on deductions: interest or other financing costs

(1) No deduction is allowed for payments of interest or other financing costs by the permanent establishment to any other part of the non-UK resident company.

(2) But the restriction in subsection (1) does not apply to interest or other financing costs that are payable in respect of borrowing by the permanent establishment in the ordinary course of a financial business carried on by it.

(3) In subsection (2) “ financial business ” means any of the following—

(a) banking, deposit-taking, money-lending or debt-factoring, or a business similar to any of those, and

(b) dealing in commodity or financial futures.

Chapter 5 Supplementary

33 Trade includes office

In this Part, except in so far as the context otherwise requires—

(a) references to a trade include an office, and

(b) references to carrying on a trade include holding an office.

Part 3 Trading income

Chapter 1 Introduction

34 Overview of Part

(1) This Part applies the charge to corporation tax on income to—

(a) the profits of a trade (see Chapter 2), and

(b) post-cessation receipts arising from a trade (see Chapter 15).

(2) Chapters 3 to 14 contain rules relevant to tax under this Part.

(3) Chapter 16 contains rules that give priority to provisions outside this Part in relation to certain matters that fall within it.

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

Chapter 2 Income taxed as trade profits

Charge to tax on trade profits

35 Charge to tax on trade profits

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

Trades and trade profits

36 Farming and market gardening

(1) Farming or market gardening in the United Kingdom is treated for corporation tax purposes as the carrying on of a trade or part of a trade (whether or not the land is managed on a commercial basis and with a view to the realisation of profits).

(2) All farming in the United Kingdom carried on by a company, other than farming carried on as part of another trade, is treated for corporation tax purposes as one trade.

(3) This section does not apply to farming or market gardening by an insurance company on land which is an asset held by the company for the purposes of its long-term business .

(4) In the case of farming carried on by a company as a member of a firm, this rule is explained by section 1270(1).

37 Commercial occupation of woodlands

(1) The commercial occupation of woodlands in the United Kingdom is not a trade or part of a trade for any corporation tax purpose.

(2) For this purpose the occupation of woodlands is commercial if the woodlands are managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) See also sections 208 and 980 (which, when read with this section, secure that profits or losses from the commercial occupation of woodlands in the United Kingdom are ignored for corporation tax purposes).

38 Commercial occupation of land other than woodlands

(1) The commercial occupation of land in the United Kingdom is treated for corporation tax purposes as the carrying on of a trade or part of a trade.

(2) For this purpose the occupation of land is commercial if the land is managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) This section does not apply—

(a) to farming or market gardening (which is dealt with by section 36),

(b) if the land is being prepared for forestry purposes,

(c) if the land comprises woodlands (which is dealt with by section 37), or

(d) to the occupation by an insurance company of land which is an asset held by the company for the purposes of its long-term business .

39 Profits of mines, quarries and other concerns

(1) Profits or losses arising out of land in the case of a concern to which this section applies are calculated as if the concern were a trade.

(2) Any profits arising out of the land are treated for the purposes of section 35 as profits of a trade.

(3) Any losses arising out of the land are treated for the purposes of Chapter 2 of Part 4 of CTA 2010 (trade loss relief), ... Part 5 of that Act (group relief) and Part 5A of that Act (group relief for carried forward losses) , as losses of a trade carried on in the United Kingdom.

(4) The concerns to which this section applies are—

(a) mines and quarries (including gravel pits, sand pits and brickfields),

(b) ironworks, gasworks, salt springs or works, alum mines or works, waterworks and streams of water,

(c) canals, inland navigation, docks and drains or levels,

(d) rights of fishing,

(e) rights of markets and fairs, tolls, bridges and ferries,

(f) railways and other kinds of way, and

(g) a concern of the same kind as one specified in paragraph (b), (c), (d) or (e).

(5) But this section does not apply to a concern—

(a) if it is carried on by an insurance company on land which is an asset held by the company for the purposes of its long-term business , or

(b) if section 38 (commercial occupation of land other than woodlands) applies to the occupation of the land out of which the profits or losses arise.

40 Credit unions

(1) If a credit union—

(a) makes loans to its members, or

(b) invests its surplus funds (by placing them on deposit or otherwise),

that is not treated, in calculating the credit union's income, as the carrying on of a trade or part of a trade.

(2) In this section “ surplus funds ” means funds not immediately required for the credit union's purposes.

40A. Payments to company directors

(1) This section applies where—

(a) a company (“the paying company”) makes a payment to, or for the benefit of, a director of the paying companyin respect of the director’s employment as a director of the paying company,

(b) the payment would otherwise be employment income of the director chargeable to tax under Part 2 of ITEPA 2003,

(c) the director was or is a member of a firm, or was appointed by a company (“the appointing company”) other than the paying company, and

(d) condition A or B is met.

(2) The payment is to be treated for corporation tax purposes as a receipt of—

(a) a trade carried on by the firm, or

(b) a trade carried on by the appointing company.

(3) Condition A applies where the director is a member of a firm, and is that—

(a) the director carries on a profession,

(b) being a director of a company is a normal incident of that profession and of membership of the firm,

(c) the director is required by the terms of the partnership agreement to account to the firm for the payment, and

(d) the amount of the payment is insubstantial, compared with the total amount brought into account as receipts when calculating the firm’s profits.

(4) Condition B applies where the director is appointed by a company, and is that—

(a) the profits of the appointing company are within the charge to corporation tax,

(b) by virtue of an agreement with the appointing company, the director is required to account for the payment to that company, and

(c) either subsection (5) or subsection (6) applies to the appointing company.

(5) This subsection applies if the appointing company had the right to appoint the director by virtue of its shareholding in, or an agreement with, the paying company.

(6) This subsection applies if the appointing company is not one over which—

(a) the director has control, or

(b) any person connected with the director has control, or

(c) the director and any persons connected with him together have control.

(7) For the purposes of subsection (6) the following persons are connected with the director: the spouse, civil partner, parent, child, son-in-law or daughter-in-law of the director.

40B. Professionals in practice: incidental income from an office or employment

(1) This section applies where—

(a) a payment is received by an individual who carries on a profession in partnership,

(b) the payment is made to the individual in his or her capacity as an employee or office-holder, but is not made in respect ofemployment as a director of a company,

(c) the payment would otherwise be employment income of the individual chargeable to tax under Part 2 of ITEPA 2003, and

(d) the conditions in subsection (3) are met.

(2) The payment is to be treated for corporation tax purposes as a receipt of a trade carried on by the firm.

(3) The conditions referred to in subsection (1)(d) are that—

(a) the time spent by the individual in performing the duties of the office or employment is insubstantial compared with the time spent by the individual in carrying on the profession,

(b) the office or employment is related to the profession carried on by the individual,

(c) the amount of the payment is insubstantial compared with so much of the total amount brought into account as receipts when calculating the firm’s profits as is attributable to the individual, and

(d) the individual is required by the terms of the partnership agreement to account to the firm for the payment and does so.

Starting and ceasing to trade

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

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

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

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

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

Trading income and property income

42 Tied premises

(1) This section applies if —

(a) in the course of carrying on a trade a company (“the trader”) supplies, or is concerned in the supply of, goods sold or used on premises occupied by another person,

(b) the trader has an estate or interest in the premises,

(c) the estate or interest is dealt with as property employed for the purposes of the trade, and

(d) receipts and expenses in connection with the premises would otherwise be brought into account in calculating the profits of a property business of the trader.

(2) Both the receipts and the expenses are instead brought into account in calculating the profits of the trade.

(3) Any apportionment of receipts or expenses that is necessary because—

(a) the receipts or expenses do not relate only to the premises, or

(b) the above conditions are met only in relation to part of the premises,

is to be made on a just and reasonable basis.

43 Caravan sites where trade carried on

(1) This section applies if—

(a) a company (“the trader”) carries on material activities connected with the operation of a caravan site,

(b) the activities are, or are part of, a trade, and

(c) receipts from, and expenses of, lettings of caravans or pitches for caravans on the site would otherwise be brought into account in calculating the profits of a property business of the trader.

(2) The trader may instead bring both the receipts and the expenses into account in calculating the profits of the trade.

(3) But if the conditions in subsection (1)(a) and (b) are met for only part of an accounting period of the trader, subsection (2) applies only to the receipts and expenses that would otherwise be brought into account in calculating the profits of the property business for that part of the accounting period.

(4) In this section—

• “ caravan site ” means—

  (a)

  land on which a caravan is stationed for the purposes of human habitation, and

  (b)

  land which is used in conjunction with land on which a caravan is so stationed, and

• “ letting ” includes a licence to occupy.

44 Surplus business accommodation

(1) This section applies if—

(a) a company (“the trader”) carrying on a trade obtains receipts from a letting of business accommodation that is temporarily surplus to requirements (see subsections (3) and (4)),

(b) the accommodation is not held as trading stock,

(c) the receipts are in respect of part of a building of which another part is used to carry on the trade,

(d) the receipts are relatively small, and

(e) the receipts, and the expenses of the letting, would otherwise be brought into account in calculating the profits of a property business of the trader.

(2) The trader may instead bring both the receipts and the expenses into account in calculating the profits of the trade.

(3) Accommodation is temporarily surplus to requirements only if—

(a) it has been used within the last 3 years to carry on the trade or acquired within the last 3 years,

(b) the trader intends to use it to carry on the trade at a later date, and

(c) the letting is for a term of not more than 3 years.

(4) If accommodation is temporarily surplus to requirements at the beginning of an accounting period, it continues to be temporarily surplus to requirements until the end of that period.

(5) If under this section any of the receipts from and expenses of a letting are brought into account in calculating the profits of the trade, all subsequent receipts from and expenses of the letting must be dealt with in the same way (but only so long as this section continues to apply).

(6) In this section “ letting ” includes a licence to occupy.

45 Payments for wayleaves

(1) This section applies if—

(a) a company (“the trader”) carries on a trade on some or all of the land to which a wayleave relates,

(b) rent is receivable, or expenses are incurred, by the traderin respect of the wayleave, and

(c) apart from any rent or expenses in respect of a wayleave, no other receipts or expenses in respect of any of the land are brought into account in calculating the profits of any property business of the trader.

(2) If—

(a) the trader would otherwise be liable to tax under Chapter 8 of Part 4 in respect of the rent for the wayleave (rent receivable for UK electric-line wayleaves), or

(b) expenses incurred by the traderin respect of the wayleave would otherwise be brought into account in calculating profits charged under that Chapter,

the trader may instead bring both the rent and the expenses into account in calculating the profits of the trade.

(3) If—

(a) rent for the wayleave would otherwise be brought into account in calculating the profits of a property business of the trader, or

(b) expenses incurred by the traderin respect of the wayleave would otherwise be so brought into account,

the trader may instead bring both the rent and the expenses into account in calculating the profits of the trade.

(4) In this section “ rent ” includes—

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

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

(5) In this section “ wayleave ” means an easement, servitude or right in or over land which is enjoyed in connection with—

(a) an electric, telegraph or telephone wire or cable,

(b) a pipe for the conveyance of any thing, or

(c) any apparatus used in connection with such a pipe.

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

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

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

Chapter 3 Trade profits: basic rules

46 Generally accepted accounting practice

(1) The profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for corporation tax purposes.

(2) This does not—

(a) require a company to comply with the requirements of the Companies Act 2006 (c. 46) or subordinate legislation made under that Act except as to the basis of calculation, or

(b) impose any requirements as to audit or disclosure.

(3) This section does not affect any provisions of the Corporation Tax Acts—

(a) relating to the calculation of the profits of—

(i) Lloyd's underwriters, ...

(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) otherwise laying down special rules for the calculation of the profits of a particular description of business.

47 Losses calculated on same basis as profits

(1) The same rules apply for corporation tax purposes in calculating losses of a trade as apply in calculating profits.

(2) This is subject to any express provision to the contrary.

48 Receipts and expenses

(1)

In the Corporation Tax Acts, in the context of the calculation of the profits of a trade, references to receipts

and expenses are to any items brought into account as credits or debits in calculating the profits.

(2) It follows that references in that context to receipts or expenses do not imply that an amount has actually been received or paid.

(3) This section is subject to any express provision to the contrary.

49 Items treated as receipts and expenses

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

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

(b) the provisions of CAA 2001 which treat charges as receipts of a trade,

(c) section 297 (credits and debits in respect of a loan relationship to which a company is a party for the purposes of a trade it carries on treated as receipts and expenses of the trade),

(d) section 573 (credits and debits in respect of a derivative contract to which a company is a party for the purposes of a trade it carries on treated as receipts and expenses of the trade),

(e) section 747 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a trade it carries on treated as receipts and expenses of the trade), and

(f) section 749 (credits and debits in respect of an intangible fixed asset held by a company for the purposes of a section 39(4) concern which it carries on treated as receipts and expenses of the concern).

49A Money's worth

(1) Subsection (2) applies—

(a) for the purpose of bringing into account an amount arising in respect of a transaction involving money's worth entered into in the course of a trade, and

(b) if an amount at least equal to the amount that would be brought into account under that subsection is not otherwise brought into account as a receipt in calculating the profits of a trade under a provision of this Part other than a provision mentioned in subsection (3).

(2) For the purpose of calculating the profits of the trade, an amount equal to the value of the money's worth is brought into account as a receipt if, had the transaction involved money, an amount would have been brought into account as a receipt in respect of it.

(3) But where another provision of this Part makes express provision for the bringing into account of an amount in respect of money's worth as a receipt in calculating the profits of a trade (however expressed), that other provision applies instead of subsection (2).

50 Animals kept for trade purposes

(1) Animals or other living creatures kept for the purposes of a trade are treated as trading stock if they are not kept wholly or mainly—

(a) for the work they do in connection with the carrying on of the trade,

(b) for public exhibition, or

(c) for racing or other competitive purposes.

(2) But they are not treated as trading stock if they are part of a herd in relation to which a herd basis election has effect (see Chapter 8).

(3) This section applies to shares in animals or other living creatures as it applies to the creatures themselves.

51 Relationship between rules prohibiting and allowing deductions

(1) Any relevant permissive rule in this Part—

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

(b) is subject to—

(i) section 56 (car ... hire),

(ii) section 1288 (unpaid remuneration),

(iii) section 1290 (employee benefit contributions),

(iv) section 1304 (crime-related payments).

(1A) But, if the relevant permissive rule would allow a deduction in calculating the profits of a trade in respect of an amount which arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements, that rule—

(a) does not have priority under subsection (1)(a), and

(b) is subject to any relevant prohibitive rule (and to the provisions mentioned in subsection (1)(b)).

(2) In this section “ any relevant permissive rule in this Part ” means any provision of—

(a) Chapter 5 (trade profits: rules allowing deductions), apart from sections 62 to 67,

(b) Chapter 7 (trade profits: gifts to charities etc),

(c) Chapter 9 (trade profits: other specific trades), or

(d) Chapter 12 (deductions from profits: unremittable amounts),

which allows a deduction in calculating the profits of a trade.

(3) In this section “ any relevant prohibitive rule ”, in relation to any deduction, means any provision of this Part or Chapter 1 of Part 20 (apart from those mentioned in subsection (1)(b)) which might otherwise be read as—

(a) prohibiting or deferring the deduction, or

(b) restricting the amount of the deduction.

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

(a) to which the company carrying on the trade is a party, and

(b) the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage (within the meaning of section 1139 of CTA 2010).

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

52 Apportionment etc of profits and losses to accounting period

(1) This section applies if a period of account of a trade does not coincide with an accounting period.

(2) Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the accounting period—

(a) apportioning the profits or losses of a period of account to the parts of that period falling in different accounting periods, and

(b) adding the profits or losses of a period of account (or part of a period) to profits or losses of other periods of account (or parts).

(3) The steps must be taken by reference to the number of days in the periods concerned.

Chapter 4 Trade profits: rules restricting deductions

53 Capital expenditure

(1) In calculating the profits of a trade, no deduction is allowed for items of a capital nature.

(2) Subsection (1) is subject to provision to the contrary in the Corporation Tax Acts.

54 Expenses not wholly and exclusively for trade and unconnected losses

(1) In calculating the profits of a trade, no deduction is allowed for—

(a) expenses not incurred wholly and exclusively for the purposes of the trade, or

(b) losses not connected with or arising out of the trade.

(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

55 Bad debts

(1) This section applies to non-money debts to which neither Part 7 (derivative contracts) nor Part 8 (intangible fixed assets) applies.

(2) In calculating the profits of a company's trade, no deduction is allowed in respect of a non-money debt owed to the company, except—

(a) by way of impairment loss, or

(b) so far as the debt is released wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.

(3) In this section “ non-money debt ” means a debt which is not a money debt for the purposes of Part 5 (loan relationships).

56 Car ... hire

(1) Subsection (2) applies if, in calculating the profits of a trade, a deduction is allowed for expenses incurred on the hiring of a car which is not——

(a) a car that is first registered before 1 March 2001,

(b) a car that has low CO ₂ emissions,

(c) a car that is electrically propelled, or

(d) a qualifying hire car.

(2) The amount of the deduction which would otherwise be allowable is reduced by 15% .

(3) Subsection (4) applies if a deduction is reduced as a result of subsection (2), or a corresponding provision, and subsequently—

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

(b) a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency arrangement.

(4) The amount that, as a result of the rebate or release—

(a) is brought into account as a receipt of the trade, or

(b) is treated as a post-cessation receipt under section 193 (debts released after cessation),

is reduced by 15% .

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

(a) section 1251(2) (car ... hire: expenses of management), including as applied by section 82(4) of FA 2012, or

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

(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

57 Car ... hire: supplementary

(1) In section 56 “ car ... ” means a mechanically propelled road vehicle other than ...—

(za) a motor cycle (within the meaning of section 185(1) of the Road Traffic Act 1988),

(a) a vehicle of a construction primarily suited for the conveyance of goods or burden of any description, or

(b) a vehicle of a type not commonly used as a private vehicle and unsuitable for such use.

(1A) In section 56—

• “ a car that has low CO2 emissions ” has the same meaning as in section 104AA of CAA 2001 (special rate expenditure: main rate car);

• “ electrically propelled ” has the meaning given in section 268B of that Act.

(2) In section 56 “ a qualifying hire car ... ” means a car ... which—

(a) is hired under a hire-purchase agreement ... under which there is no option to purchase,

(b) is hired under a hire-purchase agreement under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1% of the retail price of the car ... when new, or

(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) is leased under a long-funding lease (within the meaning of section 70G of CAA 2001).

(3) For this purpose “ hire-purchase agreement ” has the meaning given by section 1129 of CTA 2010.

(6) In this section ... “ new ” means unused and not second-hand.

58 Hiring cars (but not motor cycles) with low CO ₂ emissions before 1 April 2013

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

58A Short-term hiring in and long-term hiring out

(1) Section 56 does not apply to expenses incurred by a company (“the taxpayer”) on the hiring of a car if condition A or B is met.

(2) Condition A is that—

(a) the expenses are incurred in respect of the making available of the car to the taxpayer for a period (“the hire period”) of not more than 45 consecutive days, and

(b) if the car is made available to the taxpayer (whether by the same person or different persons) for one or more periods linked to the hire period, the hire period and the linked period or periods, taken together, consist of not more than 45 days.

(3) Condition B is that the expenses are incurred in respect of a period (“the sub-hire period”) throughout which the taxpayer makes the car available to another person (“ the customer ”) and—

(a) the sub-hire period consists of more than 45 consecutive days, or

(b) if the taxpayer makes the car available to the customer throughout one or more periods linked to the sub-hire period, the sub-hire period and the linked period or periods, taken together, consist of more than 45 days,

but see subsection (4).

(4) Condition B is not met if—

(a) the customer is an employee or officer of the taxpayer or of a person connected with the taxpayer, or

(b) during all or part of the sub-hire period (or any period linked to the sub-hire period), the customer makes any car available to an employee or officer of the taxpayer under arrangements with the taxpayer or with a person connected with the taxpayer.

(5) Neither condition A nor condition B is met if the car is hired under arrangements the purpose, or one of the main purposes, of which is—

(a) to disapply or reduce the effect of section 56, or

(b) other avoidance of tax.

(6) For the purposes of condition B the expenses incurred by the taxpayer on the hiring of the car must be apportioned between—

(a) the sub-hire period, and

(b) the remainder of the period during which the car is made available to the taxpayer,

according to the respective lengths of those periods.

(7) A period of consecutive days (“the main period”) is linked to—

(a) a period of consecutive days that ends not more than 14 days before the main period begins,

(b) a period of consecutive days that begins not more than 14 days after the main period ends, and

(c) a period of consecutive days linked to a period in paragraph (a) or (b).

(8) For the purposes of this section, where arrangements for the hiring of a car include arrangements for the provision of a replacement car in the event that the first car is not available, the first car and any replacement car are to be treated as if they were the same car.

(9) In this section (and section 58B) “ arrangements ” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions.

58B Connected persons: application of section 56

(1) This section applies where connected persons incur expenses on the hiring of the same car for the same period and—

(a) section 56 would (but for this section) apply to the expenses of two or more of those persons, or

(b) section 56 and section 48 of ITTOIA 2005 would (but for this section and section 50B of that Act) each apply to the expenses of at least one of those persons.

(2) This section only applies where one or more of the persons mentioned in subsection (1)(a) or (b) incurs the expenses under commercial arrangements (and such a person is referred to below as a “commercial lessee”).

(3) In relation to the expenses mentioned in subsection (1) to which section 56 would (but for this section) apply, section 56 only applies to the following—

(a) where there is one commercial lessee, any such expenses incurred by that lessee, and

(b) where there is more than one, any such expenses incurred by the first commercial lessee in the chain of arrangements for the hiring of the car for the period.

(4) In this section—

(a) references to expenses incurred by a commercial lessee include expenses incurred in that or any other capacity, and

(b) “ commercial arrangements ” means arrangements the terms of which are such as would reasonably have been expected if the parties to the arrangements had been dealing at arm's length.

59 Patent royalties

In calculating the profits of a trade, no deduction is allowed for royalties or other sums paid for the use of patents.

60 Expenditure on integral features

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

60A Rental rebates

(1) Where plant or machinery (“ the asset ”) is leased and a rental rebate is payable by the lessor, the amount of the deduction allowable in respect of the rebate is limited to—

(a) the amount of the lessor's income from the lease, or

(b) in the case of a finance lease, that amount excluding the finance charge.

(2) “ Rental rebate ” means any sum payable to the lessee that is calculated by reference to the termination value of the asset.

(3) For this purpose—

(a) the termination value of an asset is the value of the asset at or about the time when the lease terminates,

(b) calculation by reference to the termination value includes calculation by reference to any one or more of—

(i) the proceeds of sale, if the asset is sold,

(ii) any insurance proceeds, compensation or similar sums in respect of the asset, and

(iii) an estimate of the market value of the asset, and

(c) calculation by reference to the termination value also includes—

(i) determination in a way which, or by reference to factors or criteria which, might reasonably be expected to produce a broadly similar result to calculation by reference to the termination value, or

(ii) any other form of calculation indirectly by reference to the termination value.

(4) For the purposes of this section—

(a) the income of the lessor from the lease is the total of all the amounts receivable in connection with the lease that have been brought into account in calculating the lessor's income for corporation tax purposes, excluding—

(i) disposal receipts brought into account under Part 2 of CAA 2001 (see section 60(1) of that Act), and

(ii) so much of any amount as represents charges for services or qualifying UK or foreign tax (within the meaning of section 70YE of that Act) to be paid by the lessor, and

(b) the finance charge, in relation to a finance lease, is—

(i) if the lease is one that, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, so much of the rentals under the lease as fall (or would fall) to be treated as interest, or

(ii) in any other case, the amount that, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment.

(5) Where the asset is acquired by the lessor in a transaction—

(a) to which section 948 of CTA 2010 applies (modified application of CAA 2001 in case of transfer of trade without change of ownership), or

(b) in relation to which an election is made under section 266 of CAA 2001 (election where predecessor and successor are connected persons),

this section applies as if the successor had been the lessor at all material times and everything done to or by the predecessor had been done to or by the successor.

(6) Where the whole or part of a rental rebate is disallowed under this section as a deduction in computing profits—

(a) the amount disallowed, or

(b) if less, the amount by which the rental rebate exceeds the amount of capital expenditure incurred by the lessor,

may be treated for the purposes of corporation tax in respect of chargeable gains as an allowable loss accruing to the lessor on the termination of the lease.

That allowable loss is deductible only from chargeable gains accruing to the lessor on the disposal of the asset.

(7) This section does not apply to a long funding finance lease (see section 362 of CTA 2010).

Chapter 5 Trade profits: rules allowing deductions

Pre-trading expenses

61 Pre-trading expenses

(1) This section applies if a company incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the company starts to carry on the trade (“the start date”).

(2) If, in calculating the profits of the trade—

(a) no deduction would otherwise be allowed for the expenses, but

(b) a deduction would be allowed for them if they were incurred on the start date,

the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).

(3) This section does not apply to any expenses in relation to which—

(a) any debit falls, or

(b) any debit would fall but for section 330 (loan relationships: debits in respect of pre-trading expenditure),

to be brought into account for the purposes of Part 5 (loan relationships).

Tenants under taxed leases

62 Tenants under taxed leases: introduction

(1) Sections 63 to 67 apply if land used in connection with a trade is subject to a taxed lease.

(2) Section 63 (tenants occupying land for purposes of trade treated as incurring expenses) applies in calculating the profits of a trade carried on by the tenant under the taxed lease for the purpose of making deductions for the expenses of the trade.

(3) But any deduction for an expense under section 63 is subject to the application of any provision of Chapter 4 of this Part.

(4) In this section and sections 63 to 67 the following expressions have the same meaning as in Chapter 4 of Part 4 (profits of property businesses: lease premiums etc)—

• “receipt period” (see section 228(6)),

• “taxed lease” (see section 227(4)),

• “taxed receipt” (see section 227(4)), and

• “unreduced amount” (see section 230(2)).

(5) Section 230(3) and (4) (unreduced amount of taxed receipt under section 217 as a result of section 218) applies for the purposes of sections 63 to 67.

(6) In the application of sections 66 and 67 to Scotland—

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

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

63 Tenants occupying land for purposes of trade treated as incurring expenses

(1) The tenant under the taxed lease is treated as incurring an expense of a revenue nature in respect of the land subject to the taxed lease for each qualifying day.

(2) If there is more than one taxed receipt, this section applies separately in relation to each of them.

(3) A day is a “ qualifying day ”, in relation to a taxed receipt, if it is a day—

(a) that falls within the receipt period of the taxed receipt, and

(b) on which the tenant occupies the whole or part of the land subject to the taxed lease for the purposes of carrying on a trade.

(4) If on the qualifying day the tenant occupies the whole of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

(5) If on the qualifying day the tenant occupies part of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

(5A) No expense is to be determined under this section by reference to the taxed receipt if section 232(4B) or (4C) applies.

(6) This section is subject to section 64 (limit on deductions if tenant entitled to mineral extraction allowance).

64 Limit on deductions if tenant entitled to mineral extraction allowance

(1) This section applies if the tenant under the taxed lease has become entitled, in respect of expenditure on the acquisition of an interest in the land subject to the taxed lease, to an allowance for an accounting period under Part 5 of CAA 2001 (mineral extraction allowances) in respect of expenditure falling within section 403 of that Act (qualifying expenditure on acquiring a mineral asset).

(2) If the allowance is in respect of the whole of the expenditure, no deduction is allowed for expenses under section 63 for a qualifying day falling within that or a later accounting period.

(3) If the allowance is in respect of only part of the expenditure (“the allowable part”) the amount of the deduction for expenses under section 63 for a qualifying day falling within that or a later accounting period is calculated by multiplying the amount that, apart from this section, would be the amount of the deduction for the qualifying day by—

65 Tenants dealing with land as property employed for purposes of trade

(1) This section applies if the tenant under the taxed lease—

(a) does not occupy the land subject to the taxed lease, or a part of it, but

(b) deals with its interest in the land, or the part of it, as property employed for the purposes of carrying on a trade.

(2) Section 63 applies as if the land or the part of it were occupied by the tenant for the purposes of the trade.

(3) But the tenant is not treated as incurring an expense in respect of the land for a qualifying day as a result of this section so far as the tenant is treated as incurring an expense under section 232 (tenants under taxed leases treated as incurring expenses)in respect of the land for the day in calculating the profits of the tenant's property business.

(4) This section is subject to sections 66 and 67 (restrictions on section 63 expenses where the additional calculation rule is relevant).

66 Restrictions on section 63 expenses: lease premium receipts

(1) This section applies if a lease has been granted out of the taxed lease and—

(a) in calculating the amount of a receipt of a property business under Chapter 4 of Part 4 (profits of property businesses: lease premiums etc)in respect of the lease, there is a reduction under section 228 (the additional calculation rule) by reference to the taxed receipt, or

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

In this section and section 67 the receipt that is so reduced is referred to as a “ lease premium receipt ”.

(2) Subsections (3) to (5) provide for the application of section 63 as a result of section 65 for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) The tenant under the taxed lease is treated as incurring an expense under section 63 as a result of section 65 for the qualifying day by reference to the taxed receipt only if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt.

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

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

(6) In this section—

• the “daily amount” of the taxed receipt is given by the formula—

  

  where—

  A is the unreduced amount of the taxed receipt, and

  TRP is the number of days in the receipt period of the taxed receipt, and

• the “daily reduction” of a lease premium receipt is given by the formula—

  

  where—

  AR is the reduction under section 228 below or section 288 of ITTOIA 2005 by reference to the taxed receipt, and

  RRP is the number of days in the receipt period of the lease premium receipt.

(7) In this section references to a reduction under section 228 below or section 288 of ITTOIA 2005 by reference to a taxed receipt have the same meaning as in Chapter 4 of Part 4 (see section 230(6)).

(8) Section 67 explains how this section operates if the lease does not extend to the whole of the premises subject to the taxed lease.

67 Restrictions on section 63 expenses: lease of part of premises

(1) This section applies if—

(a) section 66 applies, and

(b) the lease granted out of the taxed lease does not extend to the whole of the premises subject to the taxed lease.

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

(3) Sections 63, 65 and 66 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.

(4) If—

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

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

sections 63, 65 and 66 apply separately in relation to each part of the premises subject to a lease to which such a lease premium receipt relates and to the remainder of the premises.

(5) Where sections 63, 65 and 66 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.

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

...

68 Replacement and alteration of trade tools

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

Payments for restrictive undertakings

69 Payments for restrictive undertakings

(1) In calculating the profits of a trade, a deduction is allowed for a payment—

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

(b) which is made, or treated as made for the purposes of section 226 of that Act (valuable consideration given for restrictive undertakings), by the company carrying on the trade.

(2) The deduction is allowed for the accounting period in which the payment—

(a) is made, or

(b) is treated as made for the purposes of section 226 of ITEPA 2003.

Seconded employees

70 Employees seconded to charities and educational establishments

(1) This section applies if a company carrying on a trade (“ the employer ”) makes the services of a person employed for the purposes of the trade available to—

(a) a charity, or

(b) an educational establishment,

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

(2) In calculating the profits of the trade, a deduction is allowed for expenses of the employer that are attributable to the employee's employment during the period of the secondment.

(3) In this section—

• “ educational establishment ” means—

  (a)

  in England and Wales, any of the bodies mentioned in section 71(1),

  (b)

  in Scotland, any of the bodies mentioned in section 71(2),

  (c)

  in Northern Ireland, any of the bodies mentioned in section 71(3), and

  (d)

  any other educational body which is for the time being approved for the purposes of this section by the Secretary of State or, in Northern Ireland, the Department of Education, and

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

71 Educational establishments

(1) A body in England and Wales is an educational establishment for the purposes of section 70 if it is—

(a) a local authority (but only to the extent that the services of the employee are made available to the authority for the purposes of, or in connection with, the education functions of the authority),

(b) an educational institution maintained or otherwise supported , in the exercise of their education functions, by a local authority ,

(c) an independent school within the meaning of the Education Act 1996 (c. 56) registered under section 161 of the Education Act 2002 (c. 32), ...

(ca) an alternative provision Academy that is not an independent school within the meaning of the Education Act 1996,

(d) an institution within the further education sector, or the higher education sector, within the meaning of the Further and Higher Education Act 1992 (c. 13) , or

(e) a 16 to 19 Academy.

(2) A body in Scotland is an educational establishment for the purposes of section 70 if it is—

(a) an education authority within the meaning of the Education (Scotland) Act 1980 (c. 44),

(b) an educational establishment within the meaning of the Education (Scotland) Act 1980 managed by an education authority within the meaning of that Act,

(c) a public or grant-aided school within the meaning of the Education (Scotland) Act 1980,

(d) an independent school within the meaning of the Education (Scotland) Act 1980,

(e) a central institution within the meaning of the Education (Scotland) Act 1980 (c. 44),

(f) an institution within the higher education sector within the meaning of section 56(2) of the Further and Higher Education (Scotland) Act 1992 (c. 37), or

(g) a college of further education within the meaning of section 36(1) of the Further and Higher Education (Scotland) Act 1992.

(3) A body in Northern Ireland is an educational establishment for the purposes of section 70 if it is—

(a) an education and library board within the meaning of the Education and Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)),

(b) a college of education, a grant-aided school or an independent school within the meaning of the Education and Libraries (Northern Ireland) Order 1986, or

(c) an institution of further education within the meaning of the Further Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)).

(4) In subsection (1) “local authority” and “education functions” have the same meaning as in the Education Act 1996 (see section 579(1) of that Act).

Contributions to agents' expenses

72 Payroll deduction schemes: contributions to agents' expenses

(1) This section applies if—

(a) a company carrying on a trade (“ the employer ”) is liable to make payments to an individual,

(b) income tax falls to be deducted from those payments as a result of PAYE regulations, and

(c) the employer withholds sums from those payments in accordance with an approved scheme and pays the sums to an approved agent.

(2) In calculating the profits of the employer's trade, a deduction is allowed for expenses incurred by the employer in making a payment to the agent for expenses which—

(a) have been incurred, or

(b) are to be incurred,

by the agent in connection with the agent's functions under the scheme.

(3) In this section “ approved agent ” and “ approved scheme ” have the same meaning as in section 714 of ITEPA 2003.

Counselling and retraining expenses

73 Counselling and other outplacement services

(1) In calculating the profits of a trade, a deduction is allowed for counselling expenses if—

(a) the company carrying on the trade (“ the employer ”) incurs the expenses,

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

(c) the relevant conditions are met.

(2) In this section “ counselling expenses ” means expenses incurred—

(a) in the provision of services to the employee in connection with the cessation of the office or employment,

(b) in the payment or reimbursement of fees for such provision, or

(c) in the payment or reimbursement of travelling expenses in connection with such provision.

(3) In this section “ the relevant conditions ” means—

(a) conditions A to D for the purposes of section 310 of ITEPA 2003 (employment income exemptions: counselling and other outplacement services), and

(b) in the case of travel expenses, condition E for those purposes.

74 Retraining courses

(1) In calculating the profits of a trade, a deduction is allowed for retraining course expenses if—

(a) the company carrying on the trade (“ the employer ”) incurs the expenses,

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

(c) the relevant conditions are met.

(2) In this section—

• “ retraining course expenses ” means expenses incurred in the payment or reimbursement of retraining course expenses within the meaning given by section 311(2) of ITEPA 2003, and

• “ the relevant conditions ” means—

  (a)

  the conditions in subsections (3) and (4) of section 311 of ITEPA 2003 (employment income exemptions: retraining courses), and

  (b)

  in the case of travel expenses, the conditions in subsection (5) of that section.

75 Retraining courses: recovery of tax

(1) This section applies if—

(a) an employer's liability to corporation tax for an accounting period is determined on the assumption that a deduction for expenditure is allowed under section 74, and

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

(2) If, subsequently—

(a) the condition in section 311(4)(a) of ITEPA 2003 is not met because of the employee's failure to begin the course within the period of one year after ceasing to be employed, or

(b) the condition in section 311(4)(b) of ITEPA 2003 is not met because of the employee's continued employment or re-employment,

an assessment of an amount or further amount of corporation tax due as a result of the condition not being met may be made under paragraph 41 of Schedule 18 to FA 1998.

(3) Such an assessment must be made before the end of the period of 6 years immediately following the end of the accounting period in which the failure to meet the condition occurred.

(4) If subsection (2) applies, the employer must give an officer of Revenue and Customs a notice containing particulars of—

(a) the employee's failure to begin the course,

(b) the employee's continued employment, or

(c) the employee's re-employment,

within 60 days of coming to know of it.

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

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

Redundancy payments etc

76 Redundancy payments and approved contractual payments

(1) Sections 77 to 79 apply if—

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

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

(2) For the purposes of this section and sections 77 to 81 “ redundancy payment ” means a redundancy payment payable under—

(a) Part 11 of the Employment Rights Act 1996 (c. 18), or

(b) Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).

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

• “ contractual payment ” means a payment which, under an agreement, an employer is liable to make to an employee on the termination of the employee's contract of employment, and

• a contractual payment is “approved” if, in respect of that agreement, an order is in force under—

  (a)

  section 157 of the Employment Rights Act 1996, or

  (b)

  Article 192 of the Employment Rights (Northern Ireland) Order 1996.

77 Payments in respect of employment wholly in employer's trade

(1) This section applies if—

(a) the payment is in respect of the employee's employment wholly in the employer's trade, and

(b) no deduction would otherwise be allowable for the payment.

(2) In calculating the profits of the trade, a deduction is allowed under this section for the payment.

(3) The deduction under this section for an approved contractual payment must not exceed the amount which would have been due to the employee if a redundancy payment had been payable.

(4) If the payment is made after the employer has permanently ceased to carry on the trade, it is treated as made on the last day on which the employer carried on the trade.

(5) If there is a partnership change, subsection (4) does not apply so long as a company carrying on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

(6) The reference in subsection (5) to a partnership change is to a change in the persons carrying on the trade in circumstances where the trade is carried on by persons in partnership immediately before or immediately after the change (or at both those times).

(7) The deduction under this section is allowed for the accounting period in which the payment is made (or treated under subsection (4) as made).

78 Payments in respect of employment in more than one capacity

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

(a) partly in the employer's trade, and

(b) partly in one or more other capacities.

(2) The amount of the redundancy payment, or the amount which would have been due if a redundancy payment had been payable, is to be apportioned on a just and reasonable basis between—

(a) the employment in the trade, and

(b) the employment in the other capacities.

(3) The part of the payment apportioned to the employment in the trade is treated as a payment in respect of the employee's employment wholly in the trade for the purposes of section 77.

79 Additional payments

(1) This section applies if the employer permanently ceases to carry on a trade or part of a trade and makes a payment to the employee in addition to—

(a) the redundancy payment, or

(b) if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

(2) If, in calculating the profits of the trade—

(a) no deduction would otherwise be allowable for the additional payment, but

(b) a deduction would be allowable for it if the employer had not permanently ceased to carry on the trade or the part of the trade,

a deduction is allowed under this section for the additional payment.

(3) The deduction under this section is limited to 3 times the amount of—

(a) the redundancy payment, or

(b) if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

(4) If the payment is made after the employer has permanently ceased to carry on the trade or the part of the trade, it is treated as made on the last day on which the employer carried on the trade or the part of the trade.

(5) The deduction under this section is allowed for the accounting period in which the payment is made (or treated under subsection (4) as made).

80 Application of section 79 in cases involving partnerships

(1) This section deals with the application of section 79 in circumstances where—

(a) there is a change in the persons carrying on a trade, and

(b) the trade is carried on by persons in partnership before or after the change (or at both those times).

(2) The employer is treated for the purposes of section 79 as permanently ceasing to carry on the trade unless a company carrying on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

81 Payments made by the Government

(1) This section applies if, in respect of a redundancy payment or an approved contractual payment payable by an employer—

(a) the Secretary of State makes a payment under section 167 of the Employment Rights Act 1996 (c. 18), or

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

(2) So far as the employer reimburses the Secretary of State or Department for the payment, sections 77 to 80 apply as if the payment were—

(a) a redundancy payment, or

(b) an approved contractual payment,

made by the employer.

Contributions to local enterprise organisations or urban regeneration companies

82 Contributions to local enterprise organisations or urban regeneration companies

(1) This section applies if a company carrying on a trade (“ the contributor ”) incurs expenses in making a contribution (whether in cash or in kind)—

(a) to a local enterprise organisation (see section 83), or

(b) to an urban regeneration company (see section 86),

and a deduction would not otherwise be allowable for the expenses in calculating the profits of the trade.

(2) In calculating the profits of the trade, a deduction is allowed under this section for the expenses.

(3) But if, in connection with the making of the contribution, the contributor or a connected person—

(a) receives a disqualifying benefit of any kind, or

(b) is entitled to receive such a benefit,

the amount of the deduction is restricted to the amount of the expenses less the value of the benefit.

(4) For this purpose it does not matter whether a person receives, or is entitled to receive, the benefit—

(a) from the local enterprise organisation or urban regeneration company concerned, or

(b) from anyone else.

(5) Subsection (6) applies if—

(a) a deduction has been made under this section, and

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

(6) An amount equal to the value of the benefit (so far as not brought into account in determining the amount of the deduction)—

(a) is brought into account in calculating the profits of the trade, as a receipt arising in the accounting period in which the benefit is received, or

(b) if the contributor has permanently ceased to carry on the trade before the benefit is received, is treated as a post-cessation receipt (see Chapter 15).

(7) In this section “ disqualifying benefit ” means a benefit the expenses of obtaining which, if incurred by the contributor directly in a transaction at arm's length, would not be allowable as a deduction in calculating the profits of the trade.

83 Meaning of “local enterprise organisation”

(1) For the purposes of section 82 “ local enterprise organisation ” means—

(a) a local enterprise agency,

(b) a training and enterprise council,

(c) a Scottish local enterprise company, or

(d) a business link organisation.

(2) “ Local enterprise agency ” means a body for the time being approved as a local enterprise agency for the purposes of section 82 by the relevant national authority, that is to say by—

(a) the Secretary of State (in relation to England or Northern Ireland),

(b) the Scottish Ministers (in relation to Scotland), or

(c) the Welsh Ministers (in relation to Wales).

For further provision about approvals by the relevant national authority, see sections 84 and 85.

(3) “ Training and enterprise council ” means a body with which the Secretary of State has an agreement under which the body is to carry out the functions of a training and enterprise council.

(4) “ Scottish local enterprise company ” means a company with which—

(a) Scottish Enterprise, or

(b) Highlands and Islands Enterprise,

has an agreement under which the company is to carry out the functions of a local enterprise company.

(5) “ Business link organisation ” means a person authorised by or on behalf of the Secretary of State to use a trade mark designated by the Secretary of State for the purposes of this subsection.

84 Approval of local enterprise agencies

(1) The relevant national authority may approve a body as a local enterprise agency for the purposes of section 82 only if conditions A and B are met.

(2) But if those conditions are met, the body may be approved—

(a) whatever its status or structure, and

(b) even if it is not described as a local enterprise agency.

(3) Condition A is that the relevant national authority is satisfied—

(a) that the body's sole aim is the promotion or encouragement of local enterprise, or

(b) that one of the body's main aims is the promotion or encouragement of local enterprise and that it has or is about to have a separate fund for the sole purpose of pursuing that aim.

(4) For this purpose “ local enterprise ” means industrial and commercial activity or enterprise in a particular area in the United Kingdom, with particular reference to encouraging the formation and development of small businesses.

(5) Condition B is that the body is precluded from paying or transferring any of its income or profit directly or indirectly—

(a) to any of its members, or

(b) to any person charged with the control and direction of its affairs.

(6) The payment of—

(a) reasonable remuneration for goods, labour or power supplied or for services provided,

(b) reasonable interest on money lent, or

(c) reasonable rent for premises,

does not count as a payment or transfer of income or profit for the purposes of subsection (5).

85 Supplementary provisions with respect to approvals

(1) This section applies for the purposes of section 84.

(2) The relevant national authority may give a body approval that is conditional on its compliance with such requirements as to—

(a) accounts,

(b) provision of information, and

(c) other matters,

as the relevant national authority considers appropriate.

(3) If the relevant national authority approves a body on the basis that it has or is about to have a separate fund (see section 84(3)(b))—

(a) the approval must specify the fund, and

(b) section 82 applies only to a contribution to the body made wholly to or for the purposes of the fund.

(4) The relevant national authority must withdraw the approval of a body as a local enterprise agency if—

(a) condition A or B in section 84 is no longer met, or

(b) the body is failing to comply with a requirement imposed as a condition of its approval.

(5) The relevant national authority must give notice of withdrawal to the body concerned, specifying the date from which the withdrawal takes effect (which may be earlier than the date on which the notice is given).

86 Meaning of “urban regeneration company”

(1) For the purposes of section 82 “ urban regeneration company ” means any body of persons which the Treasury by order designates as an urban regeneration company for the purposes of that section.

(2) A body may be so designated only if—

(a) its sole or main function is to co-ordinate the regeneration of a specific urban area in the United Kingdom,

(b) it is expected to seek to perform that function by creating a plan for the development of that area and trying to secure that the plan is carried into effect, and

(c) in co-ordinating the regeneration of that area, it is expected to work together with some or all local or other public authorities which exercise functions in relation to the whole or part of that area.

(3) An order under this section may be framed so as to take effect on a date earlier than the making of the order, but not earlier than 3 months before the date on which the order is made.

Contributions to flood and coastal erosion risk management projects

86A Contributions to flood and coastal erosion risk management projects

(1) This section applies if—

(a) a company carrying on a trade (“ the contributor ”) incurs expenses in making a qualifying contribution to a qualifying flood or coastal erosion risk management project, and

(b) a deduction would not otherwise be allowable for the expenses in calculating the profits of the trade.

(2) In determining whether the condition in subsection (1)(b) is satisfied, a deduction giving effect to a capital allowance is to be disregarded.

(3) In calculating the profits of the trade, a deduction is allowed under this section for the expenses.

(4) But if, in connection with the making of the contribution, the contributor or a connected person—

(a) receives a disqualifying benefit, or

(b) is entitled to receive such a benefit,

no deduction is allowed.

(5) For the purposes of subsection (4) it does not matter whether a person receives, or is entitled to receive, the benefit—

(a) from the carrying out of the project, or

(b) from any person.

(6) Subsection (7) applies if—

(a) a deduction has been made under this section in relation to the contribution, and

(b) the contributor or a connected person receives—

(i) a refund of any part of the contribution, if the contribution is a sum of money, or

(ii) compensation for any part of the contribution, if the contribution is the provision of services,

in money or money's worth.

(7) The amount of, or an amount equal to the value of, the refund or compensation (so far as not otherwise brought into account in calculating the profits of the trade or treated as a post-cessation receipt)—

(a) is brought into account in calculating the profits of the trade, as a receipt arising in the accounting period in which the refund or compensation is received, or

(b) if the contributor has permanently ceased to carry on the trade before the refund or compensation is received, is treated as a post-cessation receipt (see Chapter 15).

(8) In this section “ disqualifying benefit ” means a benefit consisting of money or other property, but it does not include—

(a) a refund of the contribution, if the contribution is a sum of money;

(b) compensation for the contribution, if the contribution is the provision of services;

(c) a structure that—

(i) is or is to be used for the purposes of flood or coastal erosion risk management, and

(ii) is put in place in carrying out the project;

(d) an addition to a structure where—

(i) the structure is or is to be used for the purposes of flood or coastal erosion risk management, and

(ii) the addition is made in carrying out the project;

(e) land, plant or machinery that is or is to be used, in the realization of the project, for the purposes of flood or coastal erosion risk management;

(f) a right over land that is or is to be used, in the realization of the project, for the purposes of flood or coastal erosion risk management.

(9) In subsection (8) “ structure ” includes road, path, pipe, earthwork, plant and machinery.

86B Interpretation of section 86A

(1) This section applies for the purposes of section 86A.

(2) A flood or coastal erosion risk management project is a qualifying project if—

(a) an English risk management authority has applied to the Environment Agency for a grant under section 16 of the Flood and Water Management Act 2010 in order to fund the project, or

(b) the Environment Agency has determined that it will carry out the project,

and the Environment Agency has allocated funding by way of grant-in-aid to the project.

(3) A contribution to a flood or coastal erosion risk management project is a qualifying contribution if the contribution is made—

(a) for the purposes of the project, and

(b) under an agreement between—

(i) the company making the contribution, and

(ii) the applicant authority or (as the case may be) the Environment Agency,

or between those two bodies and other persons.

(4) References to a flood risk management project or a coastal erosion risk management project are to be interpreted in accordance with sections 1 to 3 of the Flood and Water Management Act 2010.

(5) In section 86A and this section—

• “ contribution ”, in relation to an accounting period, means—

  (a)

  a sum of money paid in that accounting period, or

  (b)

  any services provided in that accounting period;

• “ English risk management authority ” has the meaning given by section 6(14) of the Flood and Water Management Act 2010.

Scientific research

87 Expenses of research and development

(1) If a company carrying on a trade incurs expenses of a revenue nature on research and development—

(a) related to the trade, and

(b) directly undertaken by or on behalf of the company,

a deduction is allowed for the expenses in calculating the profits of the trade.

(2) For this purpose expenses incurred on research and development—

(a) do not include expenses incurred in the acquisition of rights in, or arising out of, research and development, but

(b) subject to that, include all expenses incurred in carrying out, or providing facilities for carrying out, research and development.

(3) The reference in this section to research and development related to a trade includes—

(a) research and development which may lead to or facilitate an extension of the trade, and

(b) research and development of a medical nature which has a special relation to the welfare of workers employed in the trade.

(4) The same expenses may not be brought into account under this section in relation to more than one trade.

(5) In this section “ research and development ” has the meaning given by section 1138 of CTA 2010 and includes oil and gas exploration and appraisal.

88 Payments to research associations, universities etc

(1) If a company carrying on a trade—

(a) pays any sum to a body in the case of which exemption may be claimed as a result of section 491 of CTA 2010 (scientific research associations) and which has as its object the undertaking of research and development which may lead to or facilitate an extension of the appropriate class of trade, or

(b) pays to an approved university, college, research institute or other similar institution any sum to be used for scientific research related to the appropriate class of trade,

a deduction is allowed for the sum in calculating the profits of the trade.

(2) The deduction is allowed for the accounting period in which the payment is made.

(3) In this section—

(a) “ the appropriate class of trade ” means the class of trade to which the trade carried on by the company belongs, and

(b) “ scientific research ” means any activities in the fields of natural or applied science for the extension of knowledge.

(4) For the purposes of this section a university, college research institute or other similar institution is approved if it is for the time being approved for the purposes of this section by the Secretary of State.

(5) The reference in subsection (1)(b) to scientific research related to the appropriate class of trade includes—

(a) scientific research which may lead to or facilitate an extension of trades of the appropriate class, and

(b) scientific research of a medical nature which has a special relation to the welfare of workers employed in trades of the appropriate class.

(6) If a question arises as to—

(a) whether, or

(b) to what extent,

any activities constitute or constituted scientific research, an officer of Revenue and Customs must refer the question for decision to the Secretary of State, whose decision is final.

(7) The same expenses may not be brought into account under this section in relation to more than one trade.

Expenses connected with patents, designs and trade marks

89 Expenses connected with patents

In calculating the profits of a trade, a deduction is allowed for expenses incurred—

(a) in obtaining for the purposes of the trade the grant of a patent or the extension of a patent's term, or

(b) in connection with a rejected or abandoned application for a patent made for the purposes of the trade.

90 Expenses connected with designs or trade marks

In calculating the profits of a trade, a deduction is allowed for expenses incurred in obtaining for the purposes of the trade—

(a) the registration of a design or trade mark,

(b) the extension of a period for which the right in a registered design subsists, or

(c) the renewal of registration of a trade mark.

Export Credits Guarantee Department

91 Payments to Export Credits Guarantee Department

In calculating the profits of a trade, a deduction is allowed for a sum payable by the company carrying on the trade to the Export Credits Guarantee Department—

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

(b) with a view to entering into such an agreement.

Levies under FISMA 2000

92 Levies etc under FISMA 2000

(1) In calculating the profits of a trade carried on by a company, a deduction is allowed for any sum—

(a) spent by the company in paying a levy, or

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

so far as it is not otherwise allowable.

(2) For the purposes of this section “ costs rules ” means—

(a) rules made under section 230 of FISMA 2000, or

(b) provision relating to costs contained in the standard terms fixed under paragraph 18 of Schedule 17 to FISMA 2000.

(3) For the purposes of this section “ levy ” means—

(a) a payment required under rules made under section 136(2) of FISMA 2000,

(b) a levy imposed under the Financial Services Compensation Scheme,

(c) a payment required under rules made under section 234 of FISMA 2000,

(d) a payment required under the rules referred to in paragraph 14(1) of Schedule 17 to FISMA 2000 in accordance with paragraph 15(1) of that Schedule, or

(e) a payment required in accordance with the standard terms fixed under paragraph 18 of that Schedule (other than a sum paid as a result of an award of costs under costs rules).

Limited liability partnerships: salaried members

92A Deductions in relation to salaried members

(1) This section applies in relation to a limited liability partnership if section 1273A(2) (limited liability partnerships: salaried members) applies in the case of a member of the partnership (“M”).

(2) In calculating for an accounting period under section 1259 (calculation of firm's profits and losses) the profits of a trade carried on by the limited liability partnership, a deduction is allowed for expenses paid by the partnership in respect of M's employment under section 1273A(2) if no deduction would otherwise be allowed for the payment.

(3) This section is subject to—

(a) section 53 (capital expenditure),

(b) section 54 (expenses not wholly and exclusively for trade etc ),

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

(d) section 1302 (social security contributions).

Chapter 6 Trade profits: receipts

Capital receipts

93 Capital receipts

(1) Items of a capital nature must not be brought into account as receipts in calculating the profits of a trade.

(2) But this does not apply to items which, as a result of any provision of the Corporation Tax Acts, are brought into account as receipts in calculating the profits of the trade.

Debts released

94 Debts incurred and later released

(1) This section applies if—

(a) in calculating the profits of a trade, a deduction is allowed for the expense giving rise to a debt owed by the company carrying on the trade,

(b) all or part of the debt is released, and

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

(2) The amount released—

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

(b) is treated as arising in the accounting period in which the release is effected.

Amounts received following earlier cessation

95 Acquisition of trade: receipts from transferor's trade

(1) This section applies if —

(a) a person (“ the transferor ”) permanently ceased to carry on a trade at any time,

(b) at that time the transferor transferred to another person (“ the transferee ”) the right to receive sums arising from the carrying on of the trade, and

(c) the transferee subsequently carries on the transferor's trade.

(2) Sums—

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

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

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

(3) Any sums mentioned in subsection (1)(b) which are received after the transferor has permanently ceased to carry on the trade are not post-cessation receipts (see Chapter 15).

Reverse premiums

96 Reverse premiums

(1) For the purposes of sections 98 and 99 a payment or other benefit is a reverse premium if—

(a) conditions A, B and C are met, and

(b) it is not excluded by section 97.

(2) Condition A is that a company (“ the recipient ”) receives the payment or other benefit by way of inducement in connection with a transaction being entered into by—

(a) the recipient, or

(b) a person connected with the recipient.

(3) Condition B is that the transaction (the “property transaction”) is one under which—

(a) the recipient, or

(b) the person connected with the recipient,

becomes entitled to an estate, interest or right in or over land.

(4) Condition C is that the payment or other benefit is paid or provided by—

(a) the person (“the grantor”) by whom the estate, interest or right is granted or was granted at an earlier time,

(b) a person connected with the grantor, or

(c) a nominee of, or a person acting on the directions of, the grantor or a person connected with the grantor.

97 Excluded cases

(1) A payment or other benefit is not a reverse premium so far as it is brought into account under section 532 of CAA 2001 (the general rule excluding contributions) to reduce the recipient's expenditure qualifying for capital allowances.

(2) A payment or other benefit received in connection with a property transaction is not a reverse premium if—

(a) the person entering into the transaction is an individual, and

(b) the transaction relates to premises occupied or to be occupied by the individual as the individual's only or main residence.

(3) A payment or other benefit is not a reverse premium so far as it is consideration for the transfer of an estate or interest in land which constitutes the sale in a sale and leaseback arrangement.

(4) A “ sale and leaseback arrangement ” means any such arrangement as is described in section 681AA(1) or (2) or 681AB(1) or (2) of ITA 2007 or section 835(1) or (2), 836(1) or (2) or 850 of CTA 2010 .

98 Tax treatment of reverse premiums

(1) A reverse premium is treated for corporation tax purposes as a receipt of a revenue nature.

(2) If the recipient enters into the property transaction for the purposes of a trade carried on (or to be carried on) by the recipient, the reverse premium is brought into account in calculating the profits of the trade.

(3) If subsection (2) does not apply, the reverse premium is charged to corporation tax in accordance with section 250 (reverse premium taxed as property business receipt).

99 Arrangements not at arm's length

(1) This section applies if—

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

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

(2) The terms of the property arrangements meet the condition in subsection (1)(b) if they differ to a significant extent from the terms which, at the time the arrangements were entered into, would be regarded as normal and reasonable—

(a) in the market conditions then prevailing, and

(b) between persons dealing with each other at arm's length in the open market.

(3) The whole amount or value of the reverse premium brought into account under section 98 is brought into account in the first relevant period of account.

(4) “ The first relevant period of account ” means the period of account in which the property transaction is entered into.

(5) However if the recipient enters into the property transaction for the purposes of a trade—

(a) which is not then carried on by the recipient, but

(b) which the recipient subsequently starts to carry on,

“ the first relevant period of account ” means the first period of account in which the recipient carries on the trade.

100 Connected persons and property arrangements

For the purposes of this section and sections 96 to 99—

(a) persons are treated as connected with each other if they are connected at any time during the period when the property arrangements are entered into, and

(b) “ the property arrangements ” means the property transaction and any arrangements entered into in connection with it (whether before it, at the same time as it or after it).

Other receipts

101 Distribution of assets of mutual concerns

(1) This section applies if—

(a) a deduction has been made in calculating the profits of a trade for a payment to a mutual concern for the purposes of its mutual business,

(b) the concern is being or has been wound up or dissolved,

(c) a company (“ the recipient ”) which is carrying on the trade, or was doing so at the time of the payment, receives money or money's worth representing the concern's assets, and

(d) the assets in question represent profits of the mutual business conducted by the concern.

(2) If the recipient is carrying on the trade at the time the money or money's worth is received, the amount or value of the money or money's worth is brought into account as a receipt in calculating the profits of the trade.

(3) If the recipient—

(a) is not carrying on the trade at the time the money or money's worth is received, but

(b) was doing so at the time of the payment to the mutual concern,

the amount or value of the money or money's worth is treated as a post-cessation receipt (see Chapter 15).

(4) For the purposes of this section money or money's worth represents assets of a mutual concern if it—

(a) forms part of the assets of the concern,

(b) forms part of the consideration for the transfer of the assets of the concern as part of a scheme of amalgamation or reconstruction which involves its winding up, or

(c) consists of the consideration for a transfer or surrender of a right to receive anything falling within paragraph (a) or (b) and does not give rise to a charge to corporation tax on the company receiving it otherwise than as a result of this section.

(5) If a transfer or surrender of a right to receive anything which—

(a) forms part of the assets of a mutual concern, or

(b) forms part of the consideration for the transfer of the assets of a mutual concern,

is not at arm's length, the company making the transfer or surrender is treated as receiving consideration equal to the value of the right.

(6) In this section references to a mutual concern are to a body corporate which has at any time carried on a trade which consists of or includes the conduct of mutual business (whether or not confined to the members of the body corporate).

(7) For the purposes of this section a trade does not consist of or include the conduct of mutual business if all the profits of the trade are chargeable to corporation or income tax.

102 Industrial development grants

(1) This section applies if a company carrying on a trade receives a payment by way of a grant under—

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

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

(2) The payment is brought into account as a receipt in calculating the profits of the trade unless—

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

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

(c) the grant is for all or part of a corporation tax liability (including one that has already been met).

103 Sums recovered under insurance policies etc

(1) This section applies if—

(a) a deduction has been made for a loss or expense in calculating the profits of a trade,

(b) a company carrying on the trade recovers a sum under an insurance policy or a contract of indemnity in respect of the loss or expense, and

(c) the sum is not of a revenue nature.

(2) The sum is brought into account as a receipt in calculating the profits of the trade (but only up to the amount of the deduction).

104 Repayments under FISMA 2000

(1) This section applies if—

(a) a company carries on a trade, and

(b) a payment is made to the company as a result of a repayment provision.

(2) The payment is brought into account as a receipt in calculating the profits of the trade.

(3) For the purposes of this section “ repayment provision ” means—

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

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

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

CHAPTER 6A Trade profits: R&D expenditure credits

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104A

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104AA

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104B

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104BA

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104C

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104D

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104E

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104F

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104G

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104H

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104I

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104J

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104K

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104L

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104M

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104N

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104O

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104P

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104Q

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104R

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104S

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104T

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104U

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104V

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104W

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104WA

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104X

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104Y

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Chapter 7 Trade profits: gifts to charities etc

Relief for certain gifts

105 Gifts of trading stock to charities etc

(1) This section applies if a company carrying on a trade (“ the donor ”) gives an article for the purposes of—

(a) a charity, a registered club or a body listed in subsection (4), or

(b) a designated educational establishment (see section 106),

and the article is one manufactured, or of a class or description sold, by the donor in the course of the trade.

(2) In calculating the profits of the trade, no amount is required to be brought into account as a receipt in consequence of the disposal of the article.

(3) In this section “ registered club ” has the meaning given by section 658(6) of CTA 2010 (relief for community amateur sports clubs).

(4) The bodies referred to in subsection (1)(a) are—

(a) the Trustees of the National Heritage Memorial Fund, and

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

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(5) This section needs to be read with section 108 (receipt of benefits by donor or connected person).

(6) This section is subject to section 203 of CTA 2010 (certain disposals of investments to charity) and section 939F of that Act (removal of corporation tax relief in respect of tainted charity donations .

106 Meaning of “designated educational establishment”

(1) For the purposes of section 105 “ designated educational establishment ” means an educational establishment designated, or within a category designated, in regulations made—

(a) for England and Scotland, by the Secretary of State,

(b) for Wales, by the Welsh Ministers, and

(c) for Northern Ireland, by the Department of Education.

(2) The regulations may make different provision for different areas.

(3) If any question arises as to whether an educational establishment is within a category designated in the regulations, an officer of Revenue and Customs must refer the question for decision—

(a) in the case of an establishment in England or Scotland, to the Secretary of State,

(b) in the case of an establishment in Wales, to the Welsh Ministers, and

(c) in the case of an establishment in Northern Ireland, to the Department of Education.

(4) The power of the Secretary of State or the Welsh Ministers to make regulations under this section is exercisable by statutory instrument.

(5) A statutory instrument containing any regulations made by the Secretary of State under this section is subject to annulment in pursuance of a resolution of the House of Commons.

(6) A statutory instrument containing any regulations made by the Welsh Ministers under this section is subject to annulment in pursuance of a resolution of the National Assembly for Wales.

(7) Regulations made under this section by the Department of Education—

(a) are a statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)), and

(b) are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).

107 Gifts of medical supplies and equipment

(1) This section applies if—

(a) a company carrying on a trade makes a gift from trading stock of medical supplies or medical equipment,

(b) it makes the gift for humanitarian purposes, and

(c) the supplies or equipment are for human use.

(2) In calculating the profits of the trade, no amount is required to be brought into account as a receipt in consequence of the gift.

(3) In calculating the profits of the trade, a deduction is allowed for any costs of transportation, delivery or distribution incurred by the company in making the gift.

(4) The deduction is allowed for the accounting period in which the costs are incurred.

(5) The Treasury may by order provide that this section is not to have effect in relation to medical supplies or medical equipment of any description specified in the order.

(6) This section needs to be read with section 108 (receipt of benefits by donor or connected person).

Benefits associated with gifts

108 Receipt of benefits by donor or connected person

(1) This section applies if a company carrying on a trade makes a gift in relation to which relief is given under—

(a) section 105,

(b) section 107(2), or

(c) section 63(2) of CAA 2001 (gifts to charities etc of plant or machinery used in the trade),

and the company, or a person connected with the company, receives a benefit which is in any way attributable to the making of the gift.

(2) This section also applies if—

(a) relief is given under section 107(3) for costs of transportation, delivery or distribution incurred by a company carrying on a trade, and

(b) the company, or a person connected with the company, receives a benefit which is in any way attributable to the company's incurring of those costs.

(3) An amount equal to the value of the benefit—

(a) is brought into account in calculating the profits of the trade, as a receipt of the trade arising in the accounting period in which the benefit is received, or

(b) if the company has permanently ceased to carry on the trade before the benefit is received, is treated as a post-cessation receipt (see Chapter 15).

Chapter 8 Trade profits: herd basis rules

Introduction

109 Election for application of herd basis rules

(1) A company, or a firm of which a company is a member, which keeps or has kept a production herd for the purposes of a trade may make an election under this Chapter (a “herd basis election”).

(2) In calculating the profits of the trade, animals which are part of a production herd in relation to which a herd basis election has effect—

(a) are not treated as trading stock (see section 50), but

(b) are treated instead in accordance with sections 112 to 121 (“the herd basis rules”).

(3)

This Chapter is expressed in terms of farmers but applies to any company, or firm of which a company is a member, which keeps or has kept a production herd for the purposes of a trade, whether or not the trade is farming.

(4)

References in this Chapter to keeping a production herd are to keeping it for the purposes of the trade.

110 Meaning of “animal”, “herd”, “production herd” etc

(1) In this Chapter—

(a) “ animal ” means any animal or other living creature,

(b) “ herd ” includes a flock and any other collection of animals (however named), and

(c) “ production herd ” means, in relation to a farmer, a herd of animals of the same species (irrespective of breed) kept by the farmer wholly or mainly for the products obtainable from the living animal which the animals produce for the farmer to sell.

(2) For this purpose “ the products obtainable from the living animal ” means—

(a) the young of the animal, or

(b) any other product obtainable from the animal without slaughtering it.

(3) For the purposes of this Chapter the general rule is that immature animals kept in a production herd are not part of the herd.

(4) There is an exception to this rule if—

(a) the nature of the land on which the herd is kept means that animals which die or cease to be part of the herd can be replaced only by animals bred and reared on the land,

(b) the immature animals in question are bred in the herd and are maintained in the herd for the purpose of replacing other animals, and

(c) it is necessary to maintain the immature animals for that purpose.

(5) In that case the immature animals are part of the herd for the purposes of this Chapter, but only so far as they are required to prevent a fall in the numbers of the herd.

(6)

References in this Chapter to an animal being added to a herd include references to an immature animal that is not part of the herd reaching maturity.

(7) This Chapter applies—

(a) in relation to animals kept singly as it applies in relation to herds, and

(b) in relation to shares in animals as it applies in relation to animals themselves.

111 Other interpretative provisions

(1) This section applies for the purposes of this Chapter.

(2) A production herd kept by a farmer is of the same class as another production herd only if—

(a) the animals kept in both herds are of the same species (irrespective of breed), and

(b) the products produced for the farmer to sell (for which the herds are wholly or mainly kept) are of the same kinds in both herds.

(3)

References to the sale of an animal include references to its death or destruction.

(4)

References to the sale proceeds of an animal include references to—

(a) money received from an insurer because of the animal's death or destruction,

(b) compensation money received because of the animal's death or destruction, and

(c) the sale proceeds of the animal's carcass or any part of its carcass.

(5)

Female animals become mature—

(a) in the case of laying birds, when they first lay, and

(b) in any other case, when they produce their first young.

(6) 20% or more of a herd is a substantial part of the herd, but a lesser percentage than 20% is capable of being a substantial part of the herd depending on the circumstances of the case concerned.