457 Basic rule for deficits: carry forward to accounting periods after deficit period
(1) The basic rule is that the deficit must be carried forward and set off against non-trading profits of the company for accounting periods after the deficit period in accordance with subsection (3) and section 458 (subject to subsection (2A)).
(2) That rule does not apply to so much of the deficit as—
(a) is surrendered as group relief under Part 5 of CTA 2010, or
(b) is the subject of a claim by the company under section 459 (claim to set off deficit against profits of deficit period or earlier periods).
(2A) If the company is a charity at the end of the deficit period, the deficit may not be carried forward and set off against non-trading profits (as described in subsection (1)) for an accounting period (and, accordingly, the deficit may not be surrendered as group relief under Part 5 of CTA 2010 for the purposes of subsection (2)(a)).
(3) So much of the amount carried forward from the deficit period as is not the subject of a claim under section 458(1) must be set off against the non-trading profits of the company for the next accounting period after the deficit period.
(4) Those profits are reduced accordingly.
(5) In this Chapter “non-trading profits”, in relation to a company, means so much of the company's profits as does not consist of trading income for the purposes of section 37 of CTA 2010 (deduction of trading losses from total profits of the same or an earlier period).
458 Claim to carry forward deficit to later accounting periods
(1) The company may make a claim for so much of the amount carried forward from the deficit period as is specified in the claim to be excepted from being set off against non-trading profits of the first accounting period after the deficit period (“the first later period”).
(2) Any such claim must be made within the period of 2 years after the end of the first later period.
(3) Subsection (4) applies if any amount is carried forward from the deficit period under section 457(1) which—
(a) cannot be set off under section 457(3) against non-trading profits of the first later period, or
(b) is the subject of a claim under subsection (1).
(4) That amount is treated for the purposes of this Part as if it were—
(a) an amount of non-trading deficit from the company's loan relationships for the first later period, and
(b) an amount which falls to be carried forward and set against non-trading profits of later accounting periods under section 457(1).
(5) Accordingly, section 457 and this section apply as if the first later period were the deficit period.
459 Claim to set off deficit against profits of deficit period or earlier periods
(1) The company may make a claim for the whole or part of the deficit—
(a) to be set off against any profits of the company (of whatever description) for the deficit period, or
(b) to be carried back to be set off against profits for earlier accounting periods.
(2) No claim may be made under subsection (1) in respect of a deficit which is surrendered as group relief under Part 5 of CTA 2010.
(3) Subsection (1) does not apply if the company is a charity.
(4) For time limits and other provisions applicable to claims under subsection (1), see section 460.
(5) For what happens when a claim is made under subsection (1)(a), see section 461.
(6) For what happens when a claim is made under subsection (1)(b), and for the profits available for relief where such a claim is made, see sections 462 and 463.
460 Time limits and procedure for claims under section 459(1)
(1) A claim under section 459(1) must be made within—
(a) the period of 2 years after the deficit period ends, or
(b) such further period as an officer of Revenue and Customs allows.
(2) Different claims may be made in respect of different parts of a non-trading deficit for any deficit period.
(3) But no claim may be made in respect of any part of a deficit to which another such claim relates.
461 Claim to set off deficit against other profits for the deficit period
(1) This section applies if a claim is made under section 459(1)(a) for the whole or part of the deficit to be set off against profits for the deficit period.
(2) The general rule is that the amount to which the claim relates must be set off against the profits of the company for the deficit period which are identified in the claim.
(3) Those profits are reduced accordingly.
(4) The general rule is subject to subsections (5) and (7).
(5) Relief for any deficit incurred in a trade in an earlier accounting period must be given before relief under this section.
(6) But relief under this section must be given before relief is given against profits for the deficit period—
(a) under section 37 or 62(1) to (3) of CTA 2010 (deduction of losses from total profits for the same or earlier accounting periods), or
(b) as a result of a claim under section 459(1)(b) (carry-back) in respect of a deficit for a later period.
(7) No relief may be given under this section against ring fence profits of the company within the meaning of Part 8 of CTA 2010 (oil activities).
462 Claim to carry back deficit to earlier accounting periods
(1) This section applies if a claim is made under 459(1)(b) for the whole or part of the deficit to be carried back to be set off against profits for accounting periods before the deficit period.
(2) The claim has effect only if it relates to an amount equal to the lesser of—
(a) so much of the deficit as is not an amount in relation to which a claim is made under section 459(1)(a), and
(b) the total amount of the profits available for relief under this section.
(3) Section 463 explains which profits are so available.
(4) The amount to which the claim relates is set off against those profits by treating them as reduced accordingly.
(5) If those profits are profits for more than one accounting period, the relief is applied by setting off the amount to which the claim relates against profits for a later period before setting off any remainder of that amount against profits for an earlier period.
463 Profits available for relief under section 462
(1) The profits available for relief under section 462 are the amounts which (apart from the relief) would be charged under this Part as profits for accounting periods ending within the permitted period, after giving every prior relief.
(2) In this section—
“the permitted period” means the period of 12 months immediately before the deficit period, and
“prior relief” means a relief which subsection (5) provides must be given before relief under section 462.
(3) If an accounting period ending within the permitted period begins before it, only a part of the amount which (apart from the relief) would be chargeable under this Part for that period, after giving every prior relief, is available for relief under section 462.
(4) That part is so much as is proportionate to the part of the accounting period in the permitted period.
(5) The reliefs which must be given before relief under section 462 are—
(a) relief as a result of a claim under section 459(1)(a) (claim for deficit to be set off against total profits for the deficit period),
(b) relief in respect of a loss or deficit incurred or treated as incurred in an accounting period before the deficit period,
(c) relief under Part 6 of CTA 2010 (charitable donations relief) in respect of payments made wholly and exclusively for the purposes of a trade,
(d) relief under section 37 of CTA 2010 (losses deducted from total profits of the same, or an earlier, accounting period), and
(e) if the company is a company with investment business for the purposes of Part 16 (companies with investment business)—
(i) any deduction in respect of management expenses under section 1219 (expenses of management of a company's investment business),
(ii) relief under Part 6 of CTA 2010 in respect of payments made wholly and exclusively for the purposes of its business, and
(iii) any allowance under Part 2 of CAA 2001 (plant and machinery allowances).
(1) This Chapter applies if—
(a) for any accounting period beginning on or after 1 April 2017 a company has a non-trading deficit from its loan relationships under section 301(6), and
(b) at the end of that accounting period the company is not a charity.
(2) In this Chapter “the deficit” and “the deficit period” mean that deficit and that period respectively.
(3) Sections 463B and 463C deal with claims to set off the deficit against profits of the deficit period or earlier periods.
(4) Sections 463D to 463F deal with the consequences of such claims.
(5) Sections 463G to 463I provide for so much of the deficit as is not—
(a) set off against profits under section 463B, or
(b) surrendered as group relief under Part 5 of CTA 2010,
to be carried forward to later accounting periods.
463B Claim to set off deficit against profits of deficit period or earlier periods
(1) The company may make a claim for the whole or part of the deficit—
(a) to be set off against any profits of the company (of whatever description) for the deficit period, or
(b) to be carried back to be set off against profits for earlier accounting periods.
(2) No claim may be made under subsection (1) in respect of so much of the deficit as is surrendered as group relief under Part 5 of CTA 2010.
(3) For time limits and other provisions applicable to claims under subsection (1), see section 463C.
(4) For what happens when a claim is made under subsection (1)(a), see section 463D.
(5) For what happens when a claim is made under subsection (1)(b), and the profits available for relief when such a claim is made, see sections 463E and 463F.
(1) A claim under section 463B(1) must be made within—
(a) the period of 2 years after the deficit period ends, or
(b) such further period as an officer of Revenue and Customs allows.
(2) Different claims may be made in respect of different parts of a non-trading deficit for any deficit period.
(3) But no claim may be made in respect of any part of a deficit to which another such claim relates.
463D Claim to set off deficit against profits for the deficit period
(1) This section applies if a claim is made under section 463B(1)(a) for the whole or part of the deficit to be set off against profits for the deficit period.
(2) The amount of the deficit to which the claim relates must be set off against the profits of the company for the deficit period which are identified in the claim.
(3) Those profits are reduced accordingly.
(4) Relief under this section must be given before relief is given against profits for the deficit period—
(a) under section 37 or 62(1) to (3) of CTA 2010 (deduction of losses from total profits for the same or earlier accounting periods), or
(b) as a result of a claim under section 463B(1)(b) (carry-back) in respect of a deficit for a later period.
(5) No relief may be given under this section against ring fence profits of the company within the meaning of Part 8 of CTA 2010 (oil activities) or contractor's ring fence profits of the company within the meaning of Part 8ZA of that Act (oil contractors).
463E Claim to carry back deficit to earlier periods
(1) This section applies if a claim is made under section 463B(1)(b) for the whole or part of the deficit to be carried back to be set off against profits for accounting periods before the deficit period.
(2) The claim has effect only if it relates to an amount no greater than the lesser of—
(a) so much of the deficit as is not an amount in relation to which a claim is made under section 463B(1)(a), and
(b) the total amount of the profits available for relief under this section.
(3) Section 463F explains which profits are so available.
(4) The amount to which the claim relates is set off against those profits by treating them as reduced accordingly.
(5) If those profits are profits for more than one accounting period, the relief is applied by setting off the amount to which the claim relates against profits for a later period before setting off any remainder of that amount against profits for an earlier period.
463F Profits available for relief under section 463E
(1) The profits available for relief under section 463E are the amounts which (apart from the relief) would be charged under this Part as profits for accounting periods ending within the permitted period after giving every prior relief.
(2) In this section—
“the permitted period” means the period of 12 months immediately before the deficit period, and
“prior relief” means a relief which subsection (5) provides must be given before relief under section 463E.
(3) If an accounting period ending within the permitted period begins before it, only a part of the amount which (apart from the relief) would be chargeable under this Part for the period, after giving every prior relief, is available for relief under section 463E.
(4) That part is so much as is proportionate to the part of the accounting period in the permitted period.
(5) The reliefs which must be given before relief under section 463E are—
(a) relief as a result of a claim under section 459(1)(a) or section 463B(1)(a) (claim for deficit to be set off against total profits for the deficit period),
(b) relief in respect of a loss or deficit incurred or treated as incurred in an accounting period before the deficit period,
(c) relief under Part 6 of CTA 2010 (charitable donations relief in respect of payments made wholly and exclusively for the purposes of a trade),
(d) relief under section 37 of CTA 2010 (losses deducted from total profits of the same or an earlier accounting period), and
(e) if the company is a company with investment business for the purposes of Part 16 (companies with investment business)—
(i) any deduction in respect of management expenses under section 1219 (expenses of management of a company's investment business),
(ii) relief under Part 6 of CTA 2010 in respect of payments made wholly and exclusively for the purposes of its business, and
(iii) any allowance under Part 2 of CAA 2001 (plant and machinery allowances).
463G Carry forward of unrelieved deficit against total profits
(1) This section applies if conditions A to D are met.
(2) Condition A is that—
(a) any amount of the deficit (“the unrelieved amount”) is not—
(i) set off against profits on a claim under section 463B(1), or
(ii) surrendered as group relief under Part 5 of CTA 2010.
(3) Condition B is that it is not the case—
(a) that the company ceased to be a company with investment business in the deficit period, or
(b) (if the company was a company with investment business immediately before the beginning of the deficit period) that its investment business became small or negligible in the deficit period.
(4) Condition C is that (if the company is a Solvency 2 insurance company) it is not the case that the whole of the deficit is a shock loss.
(5) Condition D is that (if the company is a general insurance company) the first accounting period after the deficit period is not an excluded accounting period.
(6) The unrelieved amount is carried forward to the first accounting period after the deficit period.
(7) The company may make a claim for the whole or part of the unrelieved amount to be set off against the company's total profits for the first accounting period after the deficit period.
(8) If a claim is made under subsection (7)—
(a) the unrelieved amount, or the part of it to which the claim relates, must be set off against the company's total profits for the first accounting period after the deficit period, and
(b) those profits are reduced accordingly.
(9) No claim may be made under subsection (7) in respect of so much of the unrelieved amount as is surrendered under Part 5A of CTA 2010 (group relief for carried-forward losses).
(10) A claim under subsection (7) must be made within—
(a) the period of two years after the end of the first accounting period after the deficit period, or
(b) such further period as an officer of Revenue and Customs allows.
(11) No relief may be given under this section against ring fence profits of the company within the meaning of Part 8 of CTA 2010 (oil activities) or contractor's ring fence profits of the company within the meaning of Part 8ZA of that Act (oil contractors).
(12) If —
(a) the company is a Solvency 2 insurance company, and
(b) the deficit is partly (but not wholly) a shock loss,
subsections (6) to (9) have effect as if references to the unrelieved amount were to the eligible amount (see subsection (13)).
(13) In this section “the eligible amount” means so much of the unrelieved amount as is not a shock loss; and for the purpose of determining how much of the unrelieved amount is, or is not, a shock loss, it is to be assumed that in setting off or surrendering amounts as mentioned in subsection (2)(a)(i) and (ii) the company uses shock losses before other amounts.
(14) In this Chapter—
“company with investment business” has the same meaning as in Part 16 (see section 1218B);
“excluded accounting period” has the meaning given by section 269ZG of CTA 2010;
“general insurance company” is to be interpreted in accordance with section 269ZG of CTA 2010;
“shock loss” has the meaning given by section 269ZK of CTA 2010;
“Solvency 2 insurance company” means an insurance company as defined in section 269ZP(2) of CTA 2010.
(15) In this Chapter references to a company's investment business are to be construed in accordance with section 1219(2).
463H Carry forward of unrelieved deficit against non-trading profits
(1) Subsections (4) to (8) apply if—
(a) section 463G would apply but for the fact that the company's investment business became small or negligible in the accounting period mentioned in subsection (3)(b) of that section,
(b) section 463G would apply but for condition D in that section (no carry-forward to an excluded accounting period of a general insurance company), or
(c) the company is a Solvency 2 insurance company and any amount of the deficit would be eligible to be carried forward under section 463G(6) were that amount not a shock loss (see section 463G(4), (12) and (13)).
(2) Subsections (4) to (8) also apply if—
(a) subsections (6) to (10) of section 463G would apply but for the fact that the company's investment business became small or negligible in the accounting period mentioned in section 463I(1)(c)(ii), or
(b) subsections (6) to (10) of section 463G would apply but for section 463I(1)(d) (no carry-forward under those subsections to an excluded accounting period of a general insurance company).
(3) In this section the “unrelieved amount”—
(a) in a case within paragraph (a) or (b) of subsection (1), is to be interpreted in accordance with section 463G(2);
(b) in a case within paragraph (c) of subsection (1), means the amount mentioned in that paragraph;
(c) in a case within subsection (2), means so much of the deficit mentioned in section 463I(1)(a) as is not set off as mentioned in section 463I(1)(b)(i) or surrendered as mentioned in section 463I(1)(b)(ii).
(4) The unrelieved amount is carried forward to the first accounting period (“period 2”) after—
(a) (in a case within subsection (1)) the deficit period, or
(b) (in a case within subsection (2)) the period mentioned in section 463I(1)(a).
(5) So much of the unrelieved amount as is not the subject of a claim under subsection (7) must be set off against the non-trading profits of the company for period 2.
(6) Those profits are reduced accordingly.
(7) The company may make a claim for relief under subsection (5) not to be given in period 2 for the unrelieved amount or so much of it as is specified in the claim.
(8) A claim under subsection (7) is effective if, and only if, it is made—
(a) within the period of two years after the end of period 2, or
(b) within such further period as an officer of Revenue and Customs may allow.
(9) Subsection (10) applies if any amount is carried forward under subsection (4) to an accounting period (“the carry forward period”) and—
(a) cannot be set off under subsection (5) against non-trading profits of that period, or
(b) is the subject of a claim under subsection (7).
(10) If the company continues to be a company with investment business throughout the carry forward period, subsections (4) to (8) have effect as if—
(a) references to the unrelieved amount were to the amount mentioned in subsection (9), and
(b) references to—
(i) the deficit period, or
(ii) the period mentioned in section 463I(1)(a),
were to the carry forward period.
(11) In this section “non-trading profits”, in relation to a company, means so much of the company's profits as does not consist of trading income for the purposes of section 37 of CTA 2010 (deduction of trading losses from total profits of the same or an earlier period).
463I Re-application of section 463G if any deficit remains after previous application
(1) This section applies if—
(a) any amount of the deficit is carried forward to an accounting period (“the later period”) of the company under section 463G(6),
(b) any of that amount is not—
(i) set off against the company's total profits for the later period on a claim under section 463G(7), or
(ii) surrendered as group relief for carried-forward losses under Part 5A of CTA 2010,
(c) it is not the case—
(i) that the company ceased to be a company with investment business in the later period, or
(ii) (if the company was a company with investment business immediately before the beginning of the later period) that its investment business became small or negligible in the later period, and
(d) it is not the case that the first accounting period after the later period is an excluded accounting period of a general insurance company.
(2) Subsections (6) to (10) of section 463G apply as if—
(a) references to the unrelieved amount were to so much of the amount of the deficit carried forward to the later period as is not set off or surrendered as mentioned in subsection (1)(b), and
(b) references to the deficit period were to the later period.
464 Priority of this Part for corporation tax purposes
(1) The amounts which are brought into account in accordance with this Part in respect of any matter are the only amounts which may be brought into account for corporation tax purposes in respect of it.
(2) Subsection (1) is subject to any express provision to the contrary.
(3) For further provisions relating to the rule in this section, see in particular—
(a) section 445(2) (disapplication of section 444 where Part 4 of TIOPA 2010 applies),
(b) section 465 (exclusion of distributions except in tax avoidance cases),
(c) section 700 (relationship of Part 7 to this Part),
(d) section 96(4) of CTA 2010 (write-off of government investment),
(e) sections 286 to 287A of CTA 2010 (oil activities: loan relationships),
(f) section 31(5) of TIOPA 2010 (computation of income subject to foreign tax),
(g) section 112(5) of TIOPA 2010 (deduction for foreign tax where no credit available),
(h) ... and
(i) section 640(2) of CTA 2010 (banks etc in compulsory liquidation: taxation of certain receipts).
(4) See also the following sections (under which amounts prevented from being brought into account under this Part are treated as if they were so brought into account for the purposes of this section)—
(a) section 327(5) and (6) (disallowance of imported losses etc), ...
(b) section 441(4) and (5) (loan relationships for unallowable purposes) , and
(c) section 455A(3) (debits arising from derecognition of creditor relationships).
465 Exclusion of distributions except in tax avoidance cases
(1) Credits or debits relating to any amount falling, when paid, to be treated as a distribution must not be brought into account for the purposes of this Part, except, in the case of credits, so far as they are avoidance arrangement amounts (see subsection (4)).
(2) Nothing in section 464(1) prevents amounts that are not brought into account because of subsection (1) from being brought into account for corporation tax purposes otherwise than under this Part.
(3) But see the following provisions (under which some amounts are prevented from being distributions for corporation tax purposes and accordingly are within this Part)—
(zza) section 420A(2) (hybrid capital instruments),
(za) section 490(2) (holdings in OEICs, unit trusts and offshore funds treated as rights under creditor relationships),
(a) section 523(2)(b) (shares subject to outstanding third party obligations and non-qualifying shares),
(b) section 1019 of CTA 2010 (relevant alternative finance return under alternative finance arrangements),
(c) section 1054 of CTA 2010 (building society dividends etc), ...
(d) sections 1055 and 1057 of CTA 2010 (dividends, bonuses and other sums payable to shareholders in registered societies and UK agricultural or fishing co-operatives) , and
(e) paragraph 44 of Schedule 2 to FA 2022 (distributions under certain securities issued by qualifying asset holding companies).
(4) For the purposes of this section an amount is an avoidance arrangement amount if it arises in consequence of, or otherwise in connection with, arrangements of which the purpose, or one of the main purposes, is securing a tax advantage for any person.
(5) In this section “arrangements” includes any scheme, agreement or understanding, transaction or series of transactions.
465A Power to make regulations where accounting standards change
(1) The Treasury may by regulations make provision for cases where, in consequence of a change in accounting standards, there is a relevant accounting change.
(2) “Change in accounting standards” means the issue, revocation, amendment or recognition of, or withdrawal of recognition from, an accounting standard by an accounting body.
(3) “Relevant accounting change” means a change in the way in which a company is permitted or required, for accounting purposes, to recognise amounts which—
(a) are brought into account by the company as credits or debits for any period for the purposes of this Part, or
(b) would be so brought into account but for any provision made by or under this Part.
(4) Regulations under subsection (1) may amend this Part (apart from this section).
(5) Regulations under subsection (1) may—
(a) make different provision for different cases,
(b) make incidental, supplemental, consequential and transitional provision and savings, and
(c) make provision subject to an election or other specified circumstances.
(6) Regulations making consequential provision by virtue of subsection (5)(b) may, in particular, include provision amending a provision of the Corporation Tax Acts.
(7) Regulations under subsection (1) may apply to a pre-commencement period if they make provision in relation to a relevant accounting change which may or must be adopted, for accounting purposes, for a period of account, or part of a period of account, which coincides with that pre-commencement period.
(8) In this section—
“accounting body” means the International Accounting Standards Board or the Accounting Standards Board, or a successor body to either of those Boards;
“accounting standard” includes any statement of practice, guidance or other similar document;
“pre-commencement period”, in relation to regulations, means an accounting period, or part of an accounting period, which begins before the regulations are made.
(1) This section applies for the purposes of this Part.
(2) “Tax-adjusted carrying value”, in relation to the asset or liability representing a loan relationship, means the carrying value of the asset or liability recognised for accounting purposes, except as provided by subsection (8).
(3) For the purposes of this section the “carrying value” of the asset or liability includes amounts recognised for accounting purposes in relation to the loan relationship in respect of—
(a) accrued amounts,
(b) amounts paid or received in advance, or
(c) impairment losses (including provisions for bad or doubtful debts).
(4) For the meaning of “impairment loss” see section 476(1).
(5) In determining the tax-adjusted carrying value of an asset or liability in a period of account of a company, it is to be assumed that the accounting policy applied in drawing up the company's accounts for the period was also applied in previous periods of account.
(6) But if the company's accounts for the period are in accordance with generally accepted accounting practice drawn up on an assumption as to the accounting policy in previous periods of account which differs from that mentioned in subsection (5), that different assumption applies in determining the tax-adjusted carrying value of the asset or liability in the period.
(7) In determining the tax-adjusted carrying value of an asset or liability at a time other than the end (or beginning) of a period of account of a company, it is to be assumed that a period of account of the company had ended at the time in question.
(8) In determining the tax-adjusted carrying value of the asset or liability, the provisions specified in subsection (9) apply as they apply for the purposes of determining the credits and debits to be brought into account under this Part.
(9) Those provisions are—
(a) section 308(1A) (amounts recognised in other comprehensive income and transferred to profit and loss),
(b) sections 311 and 312 (amounts not fully recognised for accounting purposes),
(c) section 320A (amounts recognised in other comprehensive income and not transferred to profit and loss),
(d) section 323A (substantial modification: cases where credits not required to be brought into account),
(da) section 323B (insurers in financial difficulties: write-down orders),
(e) section 324 (restriction on debits resulting from revaluation),
(f) section 325 (restriction on credits resulting from reversal of disallowed debits),
(g) sections 333 and 334 (company ceasing to be UK resident and non-UK company ceasing to hold loan relationship for UK permanent establishment),
(h) Chapter 4 (continuity of treatment on transfers within groups or organisations),
(i) section 349(2) (application of amortised cost basis of accounting to connected companies relationships),
(j) section 352 (disregard of related transactions),
(k) section 352A (exclusion of credits on reversal of disregarded loss),
(ka) section 352B (eliminating tax mismatch for loan relationships with qualifying link),
(l) section 354 (exclusion of debits for impaired or released connected companies debts),
(m) section 360 (exclusion of credits on reversal of impairments of connected companies debts),
(n) sections 361 to 363 (deemed debt releases on impaired debts becoming held by connected company),
(o) Chapter 8 (connected parties relationships: late interest),
(p) section 382 (company partners using fair value accounting),
(q) sections 399 to 400C (treatment of index-linked gilt-edged securities),
(r) section 404 (restriction on deductions etc relating to FOTRA securities),
(s) sections 406 to 412 (deeply discounted securities and close companies),
(t) section 415(2) (loan relationships with embedded derivatives),
(u) Chapter 13 (European cross-border transfers of business), and
(v) Chapter 14 (European cross-border mergers).
(1) This section and sections 467 to 471 have effect for the purposes of any provisions of this Part which apply this section (but this does not affect the application of section 1316(1) (meaning of “connected” persons) for other purposes of this Part).
(2) There is a connection between a company (“A”) and another company (“B”) for an accounting period if there is a time in the period when—
(a) A controls B,
(b) B controls A, or
(c) A and B are both controlled by the same person.
(3) But A and B are not taken to be controlled by the same person just because they have been under the control of—
(a) the Crown,
(b) a Minister of the Crown,
(c) a government department,
(d) a Northern Ireland department,
(e) a foreign sovereign power, or
(f) an international organisation.
(4) Subsection (2) is subject to section 468 (connection between companies to be ignored in some circumstances).
(5) For a case where companies are treated as if one controlled the other, see section 383(5) (inter-partnership lending between connected company partners etc).
(6) Section 472 (meaning of “control”) applies for the purposes of this section.
(1) This section applies for the purposes of the provisions which apply section 466 (“the relevant provisions”) if—
(a) a trade or business is carried on by a firm, and
(b) the firm stands in the position of a creditor or debtor as respects a money debt.
(2) The questions about connections specified in subsection (3) must be determined as if each of the partners in the firm separately (rather than the firm), stood in that position as respects the debt to the extent of that partner's appropriate share.
(3) The questions are—
(a) whether for the purposes of this Part there is a connection for the purposes of the relevant provisions between any two companies for an accounting period in the case of a loan relationship, and
(b) how far any amount is treated under this Part in any particular way as a result of there being, or not being, such a connection.
(4) For the purposes of subsection (2), a partner's “appropriate share” is the same share as the share in which any profit or loss for the accounting period in question would be apportioned to the partner in accordance with the firm's profit-sharing arrangements.
(5) The references in subsections (2) to (4) to partners do not include references to the general partner of a limited partnership which is a collective investment scheme.
468 Connection between companies to be ignored in some circumstances
(1) In the case of a company (“the creditor”) which has a creditor relationship, any connection for an accounting period between the creditor and another company which stands in the position of a debtor as respects the debt is ignored for the purposes of the relevant provisions if the creditor is a party to the relationship in circumstances where—
(a) conditions A to E in section 469 (creditors who are financial traders) are met, or
(b) conditions A, B and C in section 471 (creditors who are insurance companies carrying on basic life assurance and general annuity business) are met.
(2) In subsection (1) “the relevant provisions” means any provisions of this Part which apply section 466.
(3) Subsection (4) applies if for any accounting period subsection (1) has effect in the case of a creditor relationship of a company.
(4) Subsection (1) does not apply for determining whether there is a connection between the two companies for the purposes of so much of any of the relevant provisions or of section 467 as relates to the corresponding debtor relationship.
(5) For the purposes of this section and section 469, a company is treated as standing in the position of a debtor if it indirectly stands in that position by reference to a series of loan relationships or relevant money debts.
(6) In subsection (5) “relevant money debt” means a money debt which would be a loan relationship if a company directly stood in the position of creditor or debtor.
(1) This section sets out the conditions referred to in section 468(1)(a).
(2) Condition A is that the creditor disposes of or acquires assets representing creditor relationships in the course of carrying on any activities forming an integral part of a trade carried on by it in the accounting period.
(3) Condition B is that the asset representing the creditor relationship was acquired in the course of those activities.
(4) Condition C is that that asset—
(a) is listed on a recognised stock exchange at the end of that period, or
(b) is a security the redemption of which must occur within 12 months of its issue.
(5) Condition D is that there is a time in that period when assets of the same kind as the asset representing the creditor relationship are beneficially owned by persons other than the creditor.
(6) Condition E is that in that period there is not more than 3 months in total during which the equivalent of at least 30% of the assets of that kind is beneficially owned by connected companies.
(7) Section 470 supplements this section.
(1) For the purposes of conditions D and E in section 469 assets are taken to be of the same kind if they—
(a) are treated as being of the same kind by the practice of any recognised stock exchange, or
(b) would be so treated if dealt with on such an exchange.
(2) For the purposes of condition E in section 469 an asset is beneficially owned by a connected company if there is a connection between—
(a) the company which beneficially owns it, and
(b) a company which stands in the position of a debtor as respects the money debt by reference to which any loan relationship represented by that asset exists.
(3) Whether there is a connection for the purposes of subsection (2) at any time in an accounting period (“the relevant time”) is determined in accordance with section 466(2), (3), (5) and (6)—
(a) applying the conditions in section 466(2) only at the relevant time, and
(b) ignoring section 468.
471 Creditors who are insurance companies carrying on BLAGAB
(1) This section sets out the conditions referred to section 468(1)(b)).
(2) Condition A is that the creditor is an insurance company carrying on basic life assurance and general annuity business in the accounting period.
(3) Condition B is that the asset representing the creditor relationship is matched for that period to a BLAGAB liability.
(4) Condition C is that conditions C, D and E in section 469 are met in relation to that asset.
(1) This section has effect for the purposes of any provisions of this Part which apply this section (but this does not affect the application of section 1316(2) (meaning of “control”) for other purposes of this Part).
(2) For those purposes “control”, in relation to a company, means the power of a person to secure that the affairs of the company are conducted in accordance with the person's wishes—
(a) by means of the holding of shares or the possession of voting power in or in relation to the company or any other company, or
(b) as a result of any powers conferred by the articles of association or other document regulating the company or any other company.
(3) Trading shares held by a company and any voting power or other powers arising from such shares are ignored for the purposes of this section.
(4) For the purposes of subsection (3) shares held by a company are trading shares if—
(a) a profit on a sale of the shares would be treated as a trading receipt of a trade carried on by the company, and
(b) the shares are not assets held by an insurance company for the purposes of its long-term business.
(5) Subsection (6) applies in the case of any firm to which section 1259 (calculation of firm's profits and losses) applies.
(6) For any accounting period of the firm, property, rights or powers held or exercisable for its purposes are treated for the purposes of this section as if—
(a) the property, rights or powers had been apportioned between, and were held or exercisable by, the partners severally, and
(b) the apportionment had been in the same shares as those in which the profit or loss of the period would be apportioned between the partners in accordance with the firm's profit-sharing arrangements.
(7) In subsection (6) the references to partners do not include references to the general partner of a limited partnership which is a collective investment scheme.
(1) In this Part references to a company (“A”) having a major interest in another company (“B”) are to be read as follows.
(2) A has a major interest in B at any time if at that time—
(a) A and one other person (“C”), taken together, have control of B, and
(b) A and C each have interests, rights and powers representing at least 40% of the holdings, rights and powers as a result of which A and C are taken to have control of B.
(3) The reference in subsection (2)(b) to interests, rights and powers does not include interests, rights or powers arising from shares held by a company if—
(a) a profit on a sale of the shares would be treated as a trading receipt of a trade carried on by the company, and
(b) the shares are not assets held by an insurance company for the purposes of its long-term business.
(4) Section 474 makes provision about how this section operates where connected companies or partnerships are involved.
(5) For the purposes of this section and section 474, a company (“D”) is connected with another company (“E”) if—
(a) D controls E,
(b) E controls D, or
(c) D and E are both controlled by the same company.
(6) Section 472 (meaning of “control”) applies for the purposes of this section and section 474.
(7) If two or more persons taken together have the power mentioned in section 472(2) (as read with the other provisions of section 472) as respects the affairs of a company (“B”), they are taken for the purposes of subsection (2)(a) to have control of B.
474 Treatment of connected companies and partnerships for section 473
(1) For the purposes of section 473(2), all the interests, rights and powers of any company connected with another company are attributed to the other company before determining any question—
(a) whether two persons taken together have control of a company at any time, or
(b) whether a person has at any time interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of a company.
(2) If section 1259 (calculation of firm's profits and losses) applies, any property, rights or powers held or exercisable for the purposes of the firm are treated for the purposes of section 473, as respects any time in an accounting period of the firm, on the basis of the assumptions in subsection (3).
(3) The assumptions are that—
(a) the property, rights or powers had been apportioned between, and were held or exercisable by, the partners in the firm severally, and
(b) the apportionment was in the same shares as those in which the profit or loss of the accounting period would be apportioned between the partners under the firm's profit-sharing arrangements.
(4) Subsection (5) applies if—
(a) a trade or business is carried on by a firm, and
(b) the firm stands in the position of a creditor or debtor as respects a money debt.
(5) The questions in subsection (6) are to be determined as if each of the partners in the firm separately, instead of the firm, stood in the position of a creditor or, as the case may be, a debtor as respects the money debt to the extent of that partner's appropriate share (see subsection (8)).
(6) The questions are—
(a) whether a company has a major interest in another company for an accounting period in the case of a loan relationship, or
(b) how far any amount is treated under this Part in any particular way as a result of a company having or, as the case may be, not having such a major interest.
(7) The references to partners in subsections (3) and (5) do not include a reference to the general partner of a limited partnership which is a collective investment scheme.
(8) For the purposes of subsection (5), a partner's “appropriate share” is the same share as the partner's share under the firm's profit-sharing arrangements of any profit or loss calculated in accordance with section 1259 for the accounting period in question.
475 Meaning of expressions relating to exchange gains and losses
(1) References in this Part to exchange gains or exchange losses, in relation to a company, are references respectively to—
(a) profits or gains which arise as a result of comparing at different times the expression in one currency of the whole or some part of the valuation put by the company in another currency on an asset or liability of the company, or
(b) losses which so arise.
(2) If the result of such a comparison is that neither an exchange gain nor an exchange loss arises, for the purposes of this Part an exchange gain of nil is taken to arise in the case of that comparison.
(3) The Treasury may make provision by regulations as to the way in which exchange gains or losses are to be calculated for the purposes of this section ... .
(4) The regulations may be made so as to apply to periods of account beginning before the regulations are made, but not earlier than the beginning of the calendar year in which they are made.
(5) Any reference in this Part to an exchange gain or loss from a loan relationship of a company is a reference to an exchange gain or loss arising to a company in relation to an asset or liability representing a loan relationship of the company.
(1) This section applies for the purposes of this Part.
(2) A company has a “hedging relationship” between a relevant contract (“the hedging instrument”) and an asset or liability (“the hedged item”) so far as condition A or B is met.
(3) Condition A is that the hedging instrument and the hedged item are designated as a hedge by the company.
(4) Condition B is that—
(a) the hedging instrument is intended to act as a hedge of the exposure to changes in fair value of the hedged item which is attributable to a particular risk and could affect the profit or loss of the company, and
(b) the hedged item is an asset or liability recognised for accounting purposes or is an identified portion of such an asset or liability.
(5) For the purposes of subsections (2) and (4), the liabilities of a company include its own share capital.
(1) This section applies for the purposes of this Part.
(2) A loan relationship of a company is matched if and to the extent that—
(a) it is in a matching relationship with another loan relationship or a derivative contract of the company, or
(b) exchange gains or losses arising in relation to an asset or liability representing the loan relationship are excluded from being brought into account under regulations under section 328(4),
and “unmatched” is to be construed accordingly.
(3) A loan relationship is in a matching relationship with another loan relationship or derivative contract if one is intended by the company to act to eliminate or substantially reduce the economic risk of the other.
(4) In this section “economic risk” means a risk which can be attributed to fluctuations in exchange rates between currencies over a period of time.
(5) In this section “derivative contract” has the same meaning as in Part 7 (see section 576).
(1) For the purposes of this Part, a loan relationship is a “hybrid capital instrument” for an accounting period of the debtor if—
(a) the loan relationship makes provision under which the debtor is entitled to defer or cancel a payment of interest under the loan relationship,
(b) the loan relationship has no other significant equity features, and
(c) the debtor has made an election in respect of the loan relationship which has effect for the period.
(2) For the purposes of this section a loan relationship “has no other significant equity features” if under the loan relationship—
(a) there are neither voting rights in the debtor (ignoring insignificant voting rights in the debtor) nor a right to exercise a dominant influence over the debtor,
(b) any provision for altering the amount of the debt is limited to write-down or conversion events in qualifying cases, and
(c) any provision for the creditor to receive anything other than interest or repayment of the debt is limited to conversion events in qualifying cases.
(3) For the purposes of subsection (2)(a)—
(a) the loan relationship makes provision for “insignificant voting rights in the debtor” if (and only if) the voting rights of any creditor under the loan relationship are limited to one vote exercisable in relation to matters generally affecting the debtor without conferring any special advantage or other right on the creditor, and
(b) “a right to exercise a dominant influence over the debtor” means a right to give directions with respect to the debtor’s operating and financial policies with which it is obliged to comply (whether or not they are for the debtor’s benefit).
(4) For the purposes of subsection (2)(b) a “write-down event” means—
(a) a permanent release of some or all of the debt, or
(b) a reduction in the amount of the debt (including to nil) in a case where provision is made for the reduction to be temporary (whether on the meeting of conditions or the exercise of a right or otherwise).
(5) For the purposes of subsection (2) a “conversion event” means—
(a) the conversion of the loan relationship into shares forming part of the debtor’s ordinary share capital, or
(b) the conversion of the loan relationship into shares forming part of the ordinary share capital of a company (“C”) which, after the conversion, has control of the debtor or would have control of the debtor if C were taken to have all the rights and interests in the debtor of any company connected with C.
...
(6) For the purposes of subsection (2), a loan relationship makes provision for a qualifying case if—
(a) the provision applies only in the event that there is a material risk of the debtor becoming unable to pay its debts as they fall due,
(b) the provision applies only in the event that the value of the debtor’s assets is less than the amount of its liabilities, taking into account contingent and prospective liabilities, or
(c) the provision is included in the loan relationship solely because of a need to comply with a regulatory or other legal requirement,
and, in each case, the provision in question does not include a right exercisable by the creditor.
(7) Provision is not to be regarded as failing to meet the condition in subsection (2)(b) merely because, in the case of a write-down event mentioned in subsection (4)(b), it provides for a subsequent increase in the amount of the debt (but not above the original amount).
(8) An election under this section—
(a) is irrevocable,
(b) must be made before the end of the period of 6 months beginning with—
(i) the day on which the company becomes a party to the loan relationship, or
(ii) if (after becoming a party to the loan relationship) the loan relationship is amended so as to meet the conditions in subsection (1)(a) and (b), the first day of the company’s next accounting period, and
(c) has effect for the accounting period in which the day mentioned in paragraph (b)(i) or (ii) falls and for subsequent accounting periods.
(9) But an election under this section has no effect if—
(a) the company is a party to the loan relationship directly or indirectly in consequence of, or otherwise in connection with, any arrangements (within the meaning of section 455C(2)), and
(b) the main purpose of, or one of the main purposes of, the arrangements is to secure a tax advantage for the company or any other person.
(1) In this Part—
“accounting policy”, in relation to a company, means the principles, bases, conventions, rules and practices that the company applies in preparing and presenting its financial statements,
“alternative finance arrangements” has the meaning given in section 501(2),
“associate” has the meaning given by section 448 of CTA 2010,
“collective investment scheme” has the meaning given by section 235 of FISMA 2000,
“debt” includes a debt the amount of which is to be ascertained by reference to matters which vary from time to time,
“equity instrument” has the meaning it has for accounting purposes,
“fair value” has the meaning it has for accounting purposes,
“gilt-edged securities” means any securities which—
are gilt-edged securities for the purposes of TCGA 1992 (see Schedule 9 to that Act), or
will be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they are issued,
“impairment” includes uncollectability,
“impairment loss” means a debit in respect of the impairment of a financial asset,
“income statement” has the meaning it has for accounting purposes,
“international organisation” has the meaning given in subsection (2) (and also see subsection (3)),
“loan” includes any advance of money and related expressions are to be read accordingly,
“non-trading credit” and “non-trading debit” are to be read in accordance with section 301 (but also see sections 330 and 482(1)),
“profit-sharing arrangements”, in relation to a firm, has the meaning given in section 1262(4) (allocation of firm's profits or losses between partners),
“ release debit ”, in relation to a company, means a debit in respect of a release by the company of a liability under a creditor relationship of the company,
“relevant contract” has the same meaning as in Part 7 (see section 577),
“share”, in relation to a company, means any share in the company under which an entitlement to receive distributions may arise (except as provided in section 522(6)), but does not include a share in a building society,
“statement of changes in equity” has the meaning it has for accounting purposes,
“statement of comprehensive income” has the meaning it has for accounting purposes,
“statement of income and retained earnings” has the meaning it has for accounting purposes,
“statement of recognised income and expense” has the meaning it has for accounting purposes,
“statement of total recognised gains and losses” has the meaning it has for accounting purposes,
“tax advantage”, except in the expression “loan-related tax advantage”, has the meaning given by section section 1139 of CTA 2010,
“this Part” is to be read in accordance with section 294(2), and
“trade” and “purposes of trade” are to be read in accordance with section 298.
(2) In this Part “international organisation” means an organisation of which—
(a) two or more sovereign powers are members, or
(b) the governments of two or more sovereign powers are members.
(3) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of any provision of this Part, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question is conclusive evidence of that fact.
(1) This Part deals with matters treated for some or all purposes as loan relationships or rights, payments or profits under loan relationships.
(2) See, in particular—
(a) Chapter 2 (relevant non-lending relationships),
(aa) Chapter 2A (disguised interest),
(ab) Chapter 2B (transferred income streams),
(b) Chapter 3 (OEICs, unit trusts and offshore funds),
(c) Chapter 4 (building societies),
(d) Chapter 5 (registered societies),
(e) Chapter 6 (alternative finance arrangements),
(f) Chapter 6A (shares accounted for as liabilities),
(g) Chapter 8 (returns from partnerships),
(h) Chapter 9 (manufactured interest etc),
(i) Chapter 10 (repos), and
(j) Chapter 11 (investment life insurance contracts).
(3) For the relationship of this Part to other Parts of this Act, see—
(a) section 294(2) (which provides for references to Part 5 to be read as including references to this Part), and
(b) sections 464 and 465 (relationship of Part 5 and this Part to other provisions).
(1) This Chapter provides for Part 5 to apply to relevant non-lending relationships in relation to some matters as it applies to loan relationships (see section 481).
(2) For the meaning of “relevant non-lending relationship”, see—
(a) section 479 (relevant non-lending relationships not involving discounts), and
(b) section 480 (relevant non-lending relationships involving discounts).
(3) For provisions extending the meaning of “money debt” and “interest” in this Chapter, see—
(a) section 483 (exchange gains and losses: amounts treated as money debts), and
(b) section 484 (provision not at arm's length: meaning of “interest” and “money debt”).
(4) For exclusions from this Chapter, see—
(a) section 485 (exclusion of debts where profits or losses within Part 7 or 8), and
(b) section 486 (exclusion of exchange gains and losses in respect of tax debts etc).
479 Relevant non-lending relationships not involving discounts
(1) A company has a relevant non-lending relationship if—
(a) the company stands, or has stood, in the position of a creditor or debtor in relation to a money debt,
(b) the money debt did not arise from a transaction for the lending of money (and so, because of section 302(1)(b), there is no loan relationship), and
(c) the money debt is one of the kinds mentioned in subsection (2).
(2) The kinds of debt are—
(a) a debt on which interest is payable to or by the company,
(b) a debt in relation to which exchange gains or losses arise to the company, ...
(c) a debt in relation to which an impairment loss (or credit in respect of the reversal of an impairment loss) or release debit arises to the company in respect of an unpaid (or previously unpaid) business payment, and
(d) a debt in relation to which a relevant deduction has been allowed to the company and which is released.
(3) In subsection (2)(c) “business payment” means a payment which, if it were paid, would fall to be brought into account for corporation tax purposes as a receipt of a trade, UK property business or overseas property business carried on by the company.
(3A) In subsection (2)(d) “relevant deduction” means a deduction allowed in calculating the profits of a trade, UK property business or overseas property business.
(4) For the meaning of “money debt” and “interest” in this Chapter, see—
(a) section 483 (exchange gains and losses: amounts treated as money debts) and
(b) section 484 (provision not at arm's length: meaning of “interest” and “money debt”).
(5) For the meaning of “exchange gains or losses”, see section 475.
(6) This section is subject to section 485 (exclusion of debts where profits or losses within Part 7 or 8).
(1) A company has a relevant non-lending relationship if—
(a) the company stands in the position of creditor in relation to a money debt,
(b) the money debt did not arise from a transaction for the lending of money (and so, because of section 302(1)(b), there is no loan relationship),
(c) the money debt is one from which a discount arises to the company,
(d) the discount does not fall to be brought into account under section 509 (treatment of alternative finance arrangements as loan relationships etc) as a result of arrangements to which section 503 (purchase and resale arrangements) applies, and
(e) in a case where the money debt is some or all of the consideration payable for a disposal of property, conditions A and B are met.
(2) Condition A is that the property in question is not—
(a) an asset representing a loan relationship the disposal of which is a disposal to which subsection (3) applies, or
(b) an asset representing a derivative contract the disposal of which is such a disposal.
(3) This subsection applies to a disposal if—
(a) section 340 (group transfers and transfers of insurance business: transfer at notional carrying value) applies to it or would apply apart from section 341 (transferor using fair value accounting),
(b) section 625 (group member replacing another as party to derivative contract) applies to it or would apply apart from section 628 (transferor using fair value accounting), or
(c) the whole of the consideration for the disposal is brought into account for the purposes of Part 5 (loan relationships) or Part 7 (derivative contracts).
(4) Condition B is that, assuming that the money debt will be paid in full, it does not fall to be brought into account for corporation tax purposes as a trading receipt of the company.
(5) For the purposes of this section, a discount is, in particular, taken to arise from a money debt if—
(a) there is a sale of property for consideration some or all of which is money which falls to be paid after the sale,
(b) the amount or value of the whole consideration exceeds what the purchaser would have paid for the property if payment in full had been required at the time of the sale, and
(c) some or all of the excess can reasonably be regarded as representing a return on an investment of money at interest (and so as being a discount arising from the money debt).
(6) It does not matter for the purposes of subsection (1)(c) whether the discount is of a revenue or capital nature.
(7) This section is subject to section 485 (exclusion of debts where profits or losses within Part 7 or 8).
481 Application of Part 5 to relevant non-lending relationships
(1) If a company has a relevant non-lending relationship—
(a) Part 5 (loan relationships) applies in relation to the relevant matters (see subsections (3) and (5)) as it applies in relation to such matters arising under or in relation to a loan relationship, but
(b) the only credits or debits to be brought into account for the purposes of that Part in respect of the relationship are those relating to those matters.
(2) Accordingly, subject to subsection (1)(b), references in the Corporation Tax Acts to a loan relationship include a reference to a relevant non-lending relationship.
(3) The relevant matters in the case of a relevant non-lending relationship within section 479 are—
(a) interest payable to or by the company in respect of the relevant non-lending relationship,
(b) exchange gains or losses arising to the company as a result of the relationship,
(c) in the case of a debt on which interest is payable to the company, profits (but not losses) arising to the company from any related transaction in respect of the right to receive interest,
(d) in the case of a debt in relation to which an impairment loss or release debit arises to the company in respect of an unpaid business payment, the impairment or release,
(e) in the case of a debt in relation to which a credit in respect of the reversal of an impairment loss arises to the company in respect of a previously unpaid business payment, the reversal and
(f) in the case of a debt in relation to which a relevant deduction has been allowed to the company and which is released, the release.
(4) In subsection (3)(d) and (e) “business payment” has the meaning given in section 479(3).
(4A) In subsection (3)(f) “ relevant deduction ” has the meaning given in section 479(3A).
(5) The relevant matters in the case of a relevant non-lending relationship within section 480 are—
(a) the matters referred to in subsection (3),
(b) the discount arising to the company from the money debt,
(c) profits (but not losses) arising to the company from any related transaction,
(d) any impairment arising to the company in respect of the discount, and
(e) any reversal of any such impairment.
(6) Subsection (7) applies if a company—
(a) has a relevant non-lending relationship within section 479 because of a debt on which interest is payable to the company, but
(b) enters into a related transaction in respect of the right to receive interest as a result of which interest is not so payable.
(7) Even though the interest is not payable to the company, for the purpose of bringing credits into account in respect of that or any other related transaction as a result of the application of subsection (3)(c), the company is still treated as having a relevant non-lending relationship within section 479.
(8) Section 480(5) (when discount arises) applies for the purpose of this section as it applies for the purposes of section 480.
482 Miscellaneous rules about amounts to be brought into account because of this Chapter
(1) Any credits or debits which—
(a) relate to interest payable under the Tax Acts, and
(b) fall to be brought into account because of this Chapter,
are treated for the purposes of Part 5 as non-trading credits or debits.
(2) The credits to be brought into account for the purposes of that Part in respect of a discount arising from a money debt under a relevant non-lending relationship are to be determined using an amortised cost basis of accounting.