(1) This section applies if—
(a) in any accounting period a derivative contract of a company has an unallowable purpose, and
(b) there is a net loss in respect of that contract for that period.
(2) For the purposes of this section, there is such a net loss if—
(a) the sum of the debits in respect of that contract which are excluded from being brought into account for that period by section 690(3), exceeds
(b) the sum of the exchange credits in respect of that contract which are so excluded by section 690(2).
(3) The amount of that excess is the amount of the net loss in respect of the contract for the period.
(4) The amount of the excess accumulated net losses in respect of the contract for an accounting period is to be brought into account as a debit for that period.
(5) The amount of the excess accumulated net losses in respect of a contract for an accounting period is found as follows.
Step 1
Add together the amount of any net loss arising in respect of the contract for that accounting period and earlier accounting periods.
Step 2
Deduct from the result of Step 1 any amount which was brought into account in accordance with this section in any earlier accounting period.
Step 3
Add together so much of any credits (other than exchange credits) arising in respect of the contract for that accounting period or any earlier accounting period as are referable to the unallowable purpose mentioned in subsection (1)(a) on a just and reasonable apportionment.
Step 4
Deduct from the result of Step 3 (but not so as to reduce it below nil)—
(a) so much of any debits arising in respect of the contract for that accounting period or any earlier accounting period as is not excluded from being brought into account by section 690(3), and
(b) any amount which was brought into account in accordance with this section in any earlier accounting period.
Step 5
Compare the result of Step 2 and the result of Step 4.
The amount of the excess accumulated net losses for the period is the lower of those results.
693 Bringing into account adjustments under Part 4 of TIOPA 2010
(1) This section deals with the credits and debits which are to be brought into account in accordance with this Part as a result of Part 4 of TIOPA 2010 (provision not at arm's length) applying in relation to a company's derivative contracts or related transactions.
(2) Subsection (3) applies if under Part 4 of TIOPA 2010 an amount (“the imputed amount”) is treated as an amount of profits or losses arising to a company from any of its derivative contracts or related transactions.
(3) Credits or debits relating to the imputed amount are to be brought into account in accordance with this Part to the same extent as they would be in the case of an actual amount of such profits or losses.
(4) Subsection (5) applies if under Part 4 of TIOPA 2010 an amount is treated as expenses incurred by a company under or for the purposes of any of its derivative contracts or related transactions.
(5) Debits relating to the amount are to be brought into account in accordance with this Part to the same extent as they would be in the case of an actual amount of such expenses.
(6) Where a company makes a claim under this subsection, any qualifying credit which (ignoring this subsection) would be brought into account for the purposes of this Part is not to be brought into account.
(7) But subsection (6) does not apply—
(a) if the corresponding profits of the company are less than the corresponding arm’s length profits, or
(b) to the extent that its application would result in the corresponding profits being less than the corresponding arm’s length profits.
(8) A credit of a company is a “qualifying credit” to the extent it corresponds to an amount which, as a result of Part 4 of TIOPA 2010, has not previously been brought into account as a debit.
(9) Where a company makes a claim under this subsection, neither subsection (3) nor (5) of section 147 of TIOPA 2010 applies to prevent the bringing into account of a qualifying debit which (ignoring this subsection) would not be brought in account for the purposes of this Part as a result of the application of either subsection.
(10) But subsection (9) does not apply—
(a) if the corresponding profits of the company are less than the corresponding arm’s length profits, or
(b) to the extent that bringing the qualifying debit into account would have that result.
(11) A debit of a company is a “qualifying debit” to the extent it corresponds to a matched credit.
(12) The relevant amount of a credit of a company is a “matched credit” if—
(a) the credit was previously brought into account,
(b) the credit relates to actual provision made or imposed between the company and another person to which neither subsection (3) or (5) of section 147 of that Act applied in relation to the company,
(c) the only reason neither subsection applied in relation to the company and the actual provision was because the actual provision did not confer a potential advantage on the company (see section 155 of that Act), and
(d) if the profits of the company were calculated as if the arm's length provision had been made or imposed instead of the actual provision, the credit would not have been brought into account to some extent.
(13) The “relevant amount” of a credit means so much of the credit as would not have been brought into account if the arm's length provision had been made or imposed instead of the actual provision to which the credit relates.
(14) For the purposes of subsections (7) and (10), the corresponding profits of the company means the sum of the profits and losses of the company—
(a) for each accounting period for which there was actual provision made or imposed between the company and another person (“the other affected person”) to which the qualifying credit or qualifying debit relates,
(b) that arose from—
(i) each such provision where the profits and losses of the company were not (as a result of Part 4 of TIOPA 2010) required to be calculated as if the arm’s length provision had been made or imposed instead of that provision, and
(ii) the arm’s length provision in relation to each such provision where the profits and losses of the company are to be calculated as if that arm’s length provision had been made or imposed instead (as a result of that Part), and
(c) ignoring the effect (if any) of Part 10 of TIOPA 2010 (corporate interest restriction).
(15) For the purposes of those subsections, the corresponding arm’s length profits means the corresponding profits calculated as if the arm’s length provision had been made or imposed instead of the actual provision referred to in subsection (14)(a) in each case.
(16) In this section “actual provision”, “arm’s length provision” and “potential advantage” are to be construed in accordance with Part 4 of TIOPA 2010 (transfer pricing).
(17) A claim under subsection (6) or (9) must be made—
(a) within the period of two years after the end of the accounting period to which the claim relates, or
(b) within such further period as an officer of Revenue and Customs may allow.
(18) A claim may not be made under either of those subsections if—
(a) the profits and losses of other affected person were required, for any chargeable period of that person, to be calculated as if the arm’s length provision had been made or imposed instead of the actual provision relating to the qualifying credit or qualifying debit, and
(b) those profits and losses were not so calculated for that chargeable period.
(1) This section applies if—
(a) a company (“A”) paid an amount (“amount X”) to a company (“B”) for the grant of an option,
(b) there is a failure to exercise in full all the rights under the option,
(c) until the failure the option was a derivative contract of A,
(d) as a result of the failure there is a transfer of value by A to B,
(e) B is a connected company in relation to A, and
(f) B is not chargeable to corporation tax in accordance with this Part in respect of the derivative contract.
(2) A must bring into account a credit of the appropriate amount in respect of the derivative contract for the accounting period in which the option expired or would have expired if none of the rights under it had been exercised.
(3) If the option expired, “the appropriate amount” means amount X.
(4) If any rights under the option were exercised (in whole or in part), “the appropriate amount” means amount X less so much of it as is referable, on a just and reasonable basis, to the rights which have been so exercised.
(5) In determining for the purposes of subsection (1)(d) whether there is a transfer of value, the assumption in subsection (6) is made.
(6) That assumption is that if there had not been a connection between A and B—
(a) all the rights under the option would have been exercised in full, and
(b) all of those rights would have been exercised on the latest date on which they were exercisable.
(7) In this section “option” is to be construed as if section 580(2) and (3) (meaning of “option”) were omitted.
(8) For the purposes of this section, B is a connected company in relation to A in 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.
(9) But A and B are not taken to be controlled by the same person just because they have been under the control of—
(za) the Crown,
(a) a Minister of the Crown,
(b) a government department,
(c) a Northern Ireland department,
(d) a foreign sovereign power, or
(e) an international organisation.
(10) Section 472 (meaning of “control”) applies for the purposes of this section.
695A Disguised distribution arrangements involving derivative contracts
(1) This section applies if—
(a) a company (“A”) is a party to arrangements involving one or more derivative contracts (each of which is referred to in this section as a “specified contract”),
(b) another company (“B”) is also a party to the arrangements (whether or not at the same time as A),
(c) A and B are members of the same group,
(d) the arrangements result in what is, in substance, a payment (directly or indirectly) from A to B of all or a significant part of the profits of the business of A or of a company which is a member of the same group as A or B (or both) (“the profit transfer”), and
(e) the arrangements are not arrangements of a kind which companies carrying on the same kind of business as A would enter into in the ordinary course of that business.
(2) No debits in respect of a specified contract, which—
(a) relate to the profit transfer, and
(b) apart from this section, would be brought into account by A or B for the purposes of this Part,
are to be so brought into account.
(3) Where one or more debits in respect of a specified contract are not brought into account by virtue of subsection (2), credits arising from the same contract which—
(a) relate to the same profit transfer, and
(b) apart from this section, would be brought into account by A or B for the purposes of this Part,
are not to be so brought into account to the extent that the total of those credits does not exceed the total of those debits.
(4) Subsection (3) does not apply to any credit which arises directly or indirectly in consequence of, or otherwise in connection with, arrangements the main purpose of which, or one of the main purposes of which, is the securing of a tax advantage for any person.
(5) For the purposes of this section a company is a member of the same group as another company if it is (or has been) a member of the same group at a time when the arrangements mentioned in subsection (1) have effect.
(6) In this section—
“arrangements” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions;
“group” has the meaning given by section 357GD of CTA 2010;
“tax advantage” has the meaning given by section 1139 of CTA 2010.
(1) This section applies in relation to a company (“A”) if, as a result of any transaction—
(a) A becomes a party to a derivative contract to which a non-UK resident (“NR”) is a party,
(b) NR becomes a party to a derivative contract to which A is a party, or
(c) A and NR both become a party to a derivative contract.
(2) For each accounting period for any part of which A and NR are both a party to a derivative contract which makes provision for notional interest payments, the credits and debits which fall to be brought into account in accordance with this Part in respect of the contract in the case of A do not include the amount of any excluded debit in relation to that contract.
(3) The amount of an excluded debit is calculated by determining for the accounting period the amount (if any) by which—
(a) the sum of any notional interest payments made by A to NR while A and NR are both a party to the contract,
exceeds
(b) the sum of any notional interest payments made by NR to A during that time.
(4) For the purposes of this section, a payment is a notional interest payment if—
(a) a derivative contract specifies—
(i) a notional principal amount,
(ii) a period, and
(iii) a rate of interest,
(b) the amount of the payment is determined (wholly or mainly) by applying a rate to the specified notional principal amount for the specified period, and
(c) the value of the rate is the same at all times as that of the specified rate of interest.
(5) This section is subject to section 697.
(1) Section 696 does not apply if A—
(a) is a bank, building society, financial trader , recognised clearing house, recognised CSD... or third country central counterparty,
(b) is a party to the derivative contract solely for the purposes of a trade or part of a trade it carries on in the United Kingdom, and
(c) is a party to it otherwise than as agent or nominee of another person.
(2) Section 696 does not apply if NR—
(a) is chargeable to corporation tax or income tax in respect of income arising from the derivative contract (or would be if there were any such income), and
(b) is a party to the derivative contract otherwise than as agent or nominee of another person.
(3) Section 696 does not apply if arrangements made in relation to the territory in which NR is resident—
(a) have effect under section 2(1) of TIOPA 2010 (double taxation relief), and
(b) make provision in relation to interest (as defined in the arrangements).
(4) It does not matter whether the provision mentioned in subsection (3)(b) is for relief or otherwise.
(5) If NR is a party to the contract as agent or nominee of another person, subsection (3) applies as if the reference to the territory in which NR is resident were a reference to the territory in which that other person is resident.
(6) In this section—
“recognised clearing house”, “recognised CSD”... and “third country central counterparty” have the meanings given by section 285 of FISMA 2000 (exemptions for recognised bodies).
...
698A Debits arising from derecognition of derivative contracts
(1) This section applies where—
(a) a company is at any time a party to tax avoidance arrangements,
(b) as a result of those arrangements, a derivative contract to which the company is party, or any part of such a contract, is (in accordance with generally accepted accounting practice) derecognised by the company, and
(c) the company continues to be a party to the derivative contract immediately after the transaction or other event giving rise to the derecognition.
(2) No debit that would apart from this section be brought into account by the company for the purposes of this Part as a result of the derecognition is to be so brought into account.
(3) An amount that would be brought into account for the purposes of this Part as respects any matter apart from this section—
(a) is treated for the purposes of section 699(1) (priority of this Part for corporation tax purposes) as if it were so brought into account, and
(b) accordingly, may not be brought into account for any other corporation tax purposes as respects that matter.
(4) For the purposes of this section a company is to be treated as a party to a derivative contract even though it has disposed of its rights and liabilities under the contract to another person—
(a) under a repo or stock lending arrangement, or
(b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).
(5) For the purposes of this section arrangements are “tax avoidance arrangements” if the main purpose, or one of the main purposes, of any party to the arrangements, in entering into them, is to obtain a tax advantage.
(6) In subsection (5)—
(a) “arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions, and
(b) “tax advantage” has the meaning given by section 1139 of CTA 2010.
698B Counteracting effect of avoidance arrangements
(1) Any derivative-related tax advantages that would (in the absence of this section) arise from relevant avoidance arrangements are to be counteracted by the making of such adjustments as are just and reasonable in relation to credits and debits to be brought into account for the purposes of this Part.
(2) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.
(3) For the meaning of “relevant avoidance arrangements” and “derivative-related tax advantage”, see section 698C.
(1) This section applies for the interpretation of section 698B (and this section).
(2) “Arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(3) Arrangements are “relevant avoidance arrangements” if their main purpose, or one of their main purposes, is to enable a company to obtain a derivative-related tax advantage.
(4) But arrangements are not “relevant avoidance arrangements” if the obtaining of any derivative-related tax advantages that would (in the absence of section 698B) arise from them can reasonably be regarded as consistent with any principles on which the provisions of this Part that are relevant to the arrangements are based (whether expressed or implied) and the policy objectives of those provisions.
(5) A company obtains a “derivative-related tax advantage” if—
(a) it brings into account a debit to which it would not otherwise be entitled,
(b) it brings into account a debit which exceeds that to which it would otherwise be entitled,
(c) it avoids having to bring a credit into account,
(d) the amount of any credit brought into account by the company is less than it would otherwise be, or
(e) it brings a debit or credit into account earlier or later than it otherwise would.
(6) In subsection (5), references to bringing a debit or credit into account are references to bringing a debit or credit into account for the purposes of this Part.
698D Examples of results that may indicate exclusion not applicable
(1) Each of the following is an example of something which might indicate that arrangements whose main purpose, or one of whose main purposes, is to enable a company to obtain a derivative-related tax advantage are not excluded by section 698C(4) from being “relevant avoidance arrangements” for the purposes of section 698B—
(a) the elimination or reduction, for purposes of corporation tax, of profits of a company arising from any of its derivative contracts, where for economic purposes profits, or greater profits, arise to the company from that contract;
(b) the creation or increase, for purposes of corporation tax, of a loss or expense arising from a derivative contract, where for economic purposes no loss or expense, or a smaller loss or expense, arises from that contract;
(c) preventing or delaying the recognition as an item of profit or loss of an amount that would apart from the arrangements be recognised in the company's accounts as an item of profit or loss or be so recognised earlier;
(d) ensuring that a derivative contract is treated for accounting purposes in a way in which it would not have been treated in the absence of some other transaction forming part of the arrangements;
(e) enabling a company to bring into account a debit in respect of an exchange loss, in circumstances where a corresponding exchange gain would not give rise to a credit or would give rise to a credit of a smaller amount;
(f) enabling a company to bring into account a debit in respect of a fair value loss in circumstances where a corresponding fair value gain would not give rise to a credit or would give rise to a credit of a smaller amount.
(2) But in each case the result concerned is only capable of indicating that section 698C(4) is not available if it is reasonable to assume that such a result was not the anticipated result when the provisions of this Part that are relevant to the arrangements were enacted
(3) In subsection (1)(f) references to a fair value gain or a fair value loss are references respectively to—
(a) a profit to be brought into account in relation to a derivative contract where fair value accounting is used for the period in question, or
(b) a loss to be brought into account in relation to a derivative contract where fair value accounting is used for the period in question.
(4) “Arrangements” and “derivative-related tax advantage” have the same meaning as in section 698C.
699 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 provision to the contrary.
(3) For such provisions, see in particular—
(a) section 616 (disapplication of fair value accounting for certain derivative contracts), and
(b) paragraph 93 of Schedule 2 (plain vanilla contracts which became derivative contracts before 30 December 2006), ...
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
700 Relationship of this Part to Part 5: loan relationships
(1) This section applies if—
(a) a company is a party to a loan relationship because of a derivative contract, and
(b) in accordance with this Part, a profit or loss accrues to the company on the contract for an accounting period (“the derivative profit or loss”).
(2) The general rule is that this Part does not apply to the derivative profit or loss if—
(a) an amount representing the derivative profit or loss, or
(b) an amount representing the profit or loss accruing to that company on the contract,
is brought into account for that period for the purposes of Part 5 otherwise than because of section 574.
(3) But in a case where section 585 (loan relationships with embedded derivatives) applies, the general rule does not apply so far as—
(a) the derivative profit or loss accrues from the rights and liabilities mentioned in section 585(1)(b) (rights and liabilities under derivative financial instruments or equity instruments), and
(b) that profit or loss is dealt with in accordance with that section and this Part.
(1) The Treasury may by order amend—
(a) Chapter 2 (except sections 578(1), (2) and (4), 585, 587 and 588),
(b) Chapter 4 (except section 613(4)),
(c) section 635,
(d) Chapter 7,
(e) Chapter 8 (except section 660),
(f) section 702,
(g) section 706,
(h) section 707,
(i) section 708,
(j) section 709,
(k) the definitions in section 710 specified in subsection (2), and
(l) paragraphs 80 to 94 of Schedule 2.
(2) The definitions mentioned in subsection (1)(k) are—
capital redemption policy,
depositary receipt (in relation to shares),
designated,
intangible fixed asset,
shares, and
warrant.
(3) The provision that may be made by an order under this section includes provision—
(a) adding to or varying the descriptions of contract which are derivative contracts within section 576 (meaning of “derivative contract”) or removing any such description of contract, or
(b) adding to or varying the descriptions of contract which are excluded under section 589 (contracts excluded because of underlying subject matter: general) or removing any such description of contract.
(4) The provision that may be made under subsection (3)(b), in relation to contracts which are excluded under section 589, includes provision—
(a) adding to the provisions which qualify the exclusion of contracts under that section,
(b) varying any such provision, or
(c) removing any such provision.
(5) An order under this section may provide for any of its provisions to have effect in relation to—
(a) accounting periods ending on or after the day on which the order comes into force (whenever they begin),
(b) periods of account beginning before the order is made, but not earlier than the beginning of the calendar year in which it is made.
(6) An order under this section may—
(a) make different provision for different cases, and
(b) contain incidental, supplemental, consequential and transitional provision and savings (including provision amending any enactment or any instrument made under an enactment).
701A 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 a contract, means the carrying value of the contract recognised for accounting purposes, except as provided by subsection (7).
(3) For the purposes of this section the “carrying value” of the contract includes amounts recognised for accounting purposes in relation to the contract 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) In determining the tax-adjusted carrying value of a contract 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.
(5) 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 (4), that different assumption applies in determining the tax-adjusted carrying value of the contract in the period.
(6) In determining the tax-adjusted carrying value of a contract 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.
(7) In determining the profits and losses to be recognised in determining the tax-adjusted carrying value of the contract, the provisions specified in subsection (8) apply as they apply for the purposes of determining the credits and debits to be brought into account in accordance with this Part.
(8) Those provisions are—
(a) section 584 (hybrid derivatives with embedded derivatives),
(b) section 585 (loan relationships with embedded derivatives),
(c) section 586 (other contracts with embedded derivatives),
(d) section 597 (amounts recognised in determining profit or loss),
(e) sections 599A and 599B (amounts not fully recognised for accounting purposes),
(f) section 604A (amounts recognised in other comprehensive income and not transferred to profit and loss),
(g) Chapter 5 (transactions within groups),
(h) Chapter 9 (European cross-border transfers of business), and
(i) Chapter 10 (European cross-border mergers).
(9) In this section “impairment loss” means a debit in respect of the impairment of a financial asset and “impairment” includes uncollectability.
(1) For the purposes of this Part, an asset is a chargeable asset if any gain accruing on its disposal would be a chargeable gain for corporation tax purposes.
(2) For the purposes of this section, “asset” includes any obligations under futures contracts which are regarded because of section 143 of TCGA 1992 as assets to the disposal of which that Act applies.
704 “Creditor relationship” and “debtor relationship”
(1) In this Part “creditor relationship” has the same meaning as in Part 5 (loan relationships) (see section 302(5) (meaning of “creditor relationship”)).
(2) In this Part “debtor relationship” has the same meaning as in Part 5 (see section 302(6) (meaning of “debtor relationship”)).
705 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 derivative contract of a company is a reference to an exchange gain or loss arising to a company in relation to a derivative contract 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 accountancy 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.
In this Part “plain vanilla contract” means a relevant contract other than one to which a company is treated as being a party under—
(a) section 584 (hybrid derivatives with embedded derivatives),
(b) section 585 (loan relationships with embedded derivatives), or
(c) section 586 (other contracts with embedded derivatives).
In this Part “securities house” means a person—
(a) who is authorised for the purposes of FISMA 2000, and
(b) whose business consists wholly or mainly of dealing as a principal in financial instruments within the meaning of section 984 of ITA 2007.
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,
“bank” means—
the Bank of England,
a person within section 1120(2)(b) of CTA 2010, or
a firm within section 1120(2)(c) of CTA 2010,
“capital redemption policy” means a contract made in the course of capital redemption business (as defined in section 56(3) of FA 2012),
“contract of insurance” has the meaning given by section 64 of FA 2012,
“contract of long-term insurance” has the meaning given by section 64 of FA 2012,
“depositary receipt”, in relation to shares (as defined in this section), has the same meaning as it has in Part 4 of FA 1986 in relation to shares (within the meaning of that Part),
“designated” has the meaning it has for accounting purposes,
“equity instrument” has the meaning it has for accounting purposes,
“fair value”, in relation to a derivative contract of a company, means the amount which, at the time as at which the value is to be determined, is the amount which the company would obtain from or, as the case may be, would have to pay to an independent person dealing at arm's length for—
the transfer of the company's rights under the contract, and
the release of all the company's liabilities under it,
“fair value accounting” means a basis of accounting under which—
assets and liabilities are measured in the company's balance sheet at their fair value, and
changes in the fair value of assets and liabilities are recognised as items of profit or loss,
“financial trader” means—
a person who—
is within section 31(1)(a), (b) or (c) of FISMA 2000, and
has permission under that Act to carry on one or more of the activities specified in Article 14 and, in so far as it applies to that Article, Article 64 of the Financial Services and Markets Act (Regulated Activities) Order 2001 (S.I. 2001/544), or
a person not within paragraph (a) who is approved by the Commissioners for Her Majesty's Revenue and Customs for the purposes of this section,
“income statement” has the meaning it has for accounting purposes,
“intangible fixed asset” has the same meaning as in Part 8 (intangible fixed assets), and sections 804 to 807 and 809 (assets wholly excluded from that Part) (and sections 800 to 802 so far as they relate to those sections) apply for the purposes of this Part as they apply for the purposes of that Part,
“open-ended investment company” has the meaning given by section 613 of CTA 2010,
“profit-sharing arrangements”, in relation to a firm, has the meaning given by section 1262(4) (allocation of firm's profits or losses between partners),
“shares”, in relation to a company, means any shares in the company under which an entitlement to receive distributions may arise, including—
a depositary receipt for shares under which such an entitlement may arise, and
in the case of a company which has no share capital, any interests in the company possessed by members of the company,
“statement of changes in equity” 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, and
“warrant” means an instrument which entitles the holder to subscribe for—
shares in a company, or
assets representing a loan relationship of a company,
whether or not the shares or assets exist or are identifiable.
(1) This Part sets out how a company's gains and losses in respect of intangible fixed assets are calculated and brought into account for corporation tax purposes.
(2) For the meaning of “intangible fixed assets” and rules about the assets to which this Part applies, see—
(a) sections 712 to 715,
(b) Chapter 10 (excluded assets), and
(c) Chapter 16 (pre-FA 2002 assets etc).
(3) For how such gains and losses are calculated and brought into account, see, in particular, Chapter 6 which—
(a) deals with the use of credits and debits in respect of some intangible fixed assets in calculating the profits and losses of trades, businesses and other concerns (see sections 747 to 750),
(b) provides for the calculation of gains and losses where there are credits or debits in respect of other intangible fixed assets (see section 751),
(c) makes gains so calculated subject to the charge to corporation tax on income (see section 752), and
(d) gives an allowance for losses so calculated (see section 753).
(4) For the priority of this Part for corporation tax purposes, see Chapter 18 (under which the general rule is that the amounts brought into account in accordance with this Part in respect of any matter are the only amounts that may be brought into account for corporation tax purposes in respect of it).
(5) This Part operates by reference to the accounts of companies and amounts recognised for accounting purposes.
(6) For the meaning of “amounts recognised for accounting purposes” and other expressions related to accounting and for rules about “GAAP-compliant accounts”, see sections 716 to 719.
(7) Chapters 2 to 6 contain basic rules about the credits and debits to be brought into account for corporation tax purposes in respect of intangible fixed assets.
(8) For rules about particular situations and cases, see—
(a) Chapter 7 (roll-over relief in case of realisation and reinvestment),
(b) Chapters 8 and 9 (groups of companies),
(c) Chapter 11 (transfer of business or trade),
(d) Chapter 12 and 13 (related parties),
(e) Chapter 14 (further provisions relating to miscellaneous cases),
(f) Chapter 15 (adjustments on change of accounting policies),
(fa) Chapter 15A (debits in respect of goodwill and certain other assets),
(fb) Chapter 16A (debits in respect of assets that were pre-FA 2002 assets etc),
(fc) Chapter 16B (fungible assets), and
(g) Chapter 17 (insurance companies).
(1) In this Part “intangible asset” has the meaning it has for accounting purposes (and includes an internally-generated intangible asset).
(2) In particular, “intangible asset” includes intellectual property.
(3) For this purpose “intellectual property” means—
(a) any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997 (c. 66),
(b) any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a),
(c) any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or
(d) any licence or other right in respect of anything within paragraph (a), (b) or (c).
(4) This section is subject to Chapter 10 (excluded assets).
(1) In this Part an “intangible fixed asset”, in relation to a company, means an intangible asset acquired or created by the company for use on a continuing basis in the course of the company's activities.
(2) In this Part “intangible fixed asset” includes an option or other right—
(a) to acquire an intangible asset that would be a fixed asset if it were acquired, or
(b) to dispose of an intangible fixed asset.
(3) This Part applies to an intangible fixed asset whether or not it is capitalised in the company's accounts.
(4) Subsection (3) is subject to any indication to the contrary.
(5) This section is subject to any such provision of regulations under section 854 (finance leasing etc) as is mentioned in section 855(1) (assets to be treated as intangible fixed assets of finance lessor).
(1) This Part applies to goodwill as it applies to an intangible fixed asset.
(2) Subsection (1) is subject to any indication to the contrary (see, in particular, Chapter 15A (debits in respect of goodwill and certain other assets)).
(3) In this Part “goodwill” has the meaning it has for accounting purposes (and includes internally-generated goodwill).
(4) For the purposes of this Part, goodwill is treated as created in the course of carrying on the business in question.
716 “Recognised” amounts and “GAAP-compliant accounts”
(1) References in this Part to an amount “recognised” in determining a company's profit or loss for a period are to—
(a) an amount recognised in—
(i) the company's profit and loss account, income statement or statement of comprehensive income for that period,
(ii) the company's statement of total recognised gains and losses, statement of recognised income and expense, statement of changes in equity or statement of income and retained earnings for that period, or
(iii) any other statement of items brought into account in calculating the company's profits and losses for that period, and
(b) an amount that would have been so recognised if such an account or statement had been drawn up for that period in accordance with generally accepted accounting practice.
(2) An amount that in accordance with generally accepted accounting practice is shown as a prior period adjustment in any such statement as is mentioned in subsection (1) must be brought into account for the purposes of this Part in calculating the company's profits and losses for the period to which the statement relates.
(3) Subsection (2) does not apply to an amount recognised for accounting purposes by way of correction of a fundamental error.
(4) In this Part “GAAP-compliant accounts” means accounts drawn up in accordance with generally accepted accounting practice.
(5) In the case of a company that is a member of a group, see also section 718.
(1) If a company—
(a) draws up accounts that are not GAAP-compliant accounts, or
(b) does not draw up accounts at all,
this Part applies as if GAAP-compliant accounts had been drawn up.
(2) References in this Part to amounts recognised for accounting purposes are references to the amounts which would have been recognised if GAAP-compliant accounts had been drawn up for the period of account in question and any relevant earlier period.
(3) For this purpose a period of account is relevant to a later period if the accounts for the later period rely to any extent on amounts derived from the earlier period.
718 GAAP-compliant accounts: reference to consolidated group accounts
(1) In determining whether a company's accounts are GAAP-compliant, reference may be made to any view about—
(a) the useful life of an asset, or
(b) the economic value of an asset,
taken for the purposes of consolidated group accounts prepared for any group of companies of which the company is a member.
(2) This section does not apply if the consolidated group accounts—
(a) are drawn up using a different accounting framework from that used for the company's individual accounts, and
(b) as a result are prepared on a basis that, in relation to the matters mentioned in subsection (1), substantially diverges from the basis used in the company's individual accounts.
(3) This section does not apply so far as the consolidated group accounts are prepared—
(a) in accordance with the requirements of the law of a country outside the United Kingdom, and
(b) on a basis that, in relation to the matters mentioned in subsection (1), substantially diverges from generally accepted accounting practice.
In this Part “accounting value”, in relation to an asset, means the net book value (or carrying amount) of the asset recognised for accounting purposes.
(1) This Chapter provides for credits to be brought into account by a company for tax purposes in respect of—
(a) receipts in respect of intangible fixed assets that are recognised in determining the company's profit or loss as they accrue (see section 721),
(b) receipts in respect of royalties, so far as the receipts do not give rise to a credit under section 721 (see section 722),
(c) revaluation of an intangible fixed asset (see section 723),
(d) credits recognised for accounting purposes in respect of negative goodwill (see section 724), and
(e) the reversal of previous accounting debits in respect of an intangible fixed asset (see section 725).
(2) This Chapter does not apply in relation to amounts brought into account in connection with the realisation of an intangible fixed asset within the meaning of Chapter 4 (see section 734).
(3) For the rules about those amounts, see that Chapter.
(1) If in a period of account a gain representing a receipt in respect of an intangible fixed asset is recognised in determining the company's profit or loss, a corresponding credit must be brought into account for tax purposes.
(2) The amount of the credit is the same as the amount of the gain recognised by the company for accounting purposes.
(3) Subsection (2) is subject to any adjustments required by this Part or Part 4 of TIOPA 2010 (provision not at arm's length).
722 Receipts in respect of royalties so far as not dealt with under section 721
(1) So far as a receipt in respect of any royalty does not give rise to a credit under section 721 in the period of account in which it is received or in a subsequent period of account, a credit must be brought into account for tax purposes.
(2) The credit must be brought into account in the accounting period in which the receipt is recognised for accounting purposes.
(3) The amount of the credit is equal to so much of the amount of the receipt as does not give rise to a credit under section 721.
(1) If in a period of account there is an increase in the accounting value of an intangible fixed asset on a revaluation, a credit must be brought into account for tax purposes.
(2) The amount of the credit is the lesser of—
(a) the amount corresponding for tax purposes to the increase (see subsection (3)), and
(b) the net total of relevant previous tax debits (see subsection (4)).
(3) The amount corresponding for tax purposes to the increase is—
I
×
WDV
AV
where—
I is the increase,
WDV is the tax written-down value of the asset immediately before the revaluation, and
AV is the accounting value of the asset by reference to which the revaluation is carried out.
(4) The net total of relevant previous tax debits is—
D
-
C
where—
D is the total debits previously brought into account for tax purposes in respect of the asset, and
C is the total credits so brought into account.
(5) For the purposes of this section “revaluation” includes—
(a) the valuation of an asset for which a value is shown in the company's balance sheet, but which has not previously been the subject of a valuation, and
(b) the restoration of past losses.
(6) This section does not apply to an asset in respect of which an election has been made under section 730 (writing down at fixed rate: election for fixed-rate basis).
(1) If in a period of account a gain is recognised in determining the company's profit or loss in respect of negative goodwill arising on an acquisition of a business, a corresponding credit must be brought into account for tax purposes.
(2) The amount of the credit is so much of the gain recognised for accounting purposes as, on a just and reasonable apportionment, is attributable to intangible fixed assets.
(1) This section applies if—
(a) in a period of account a gain is recognised in determining the company's profit or loss (“the recognised gain”),
(b) the gain wholly or partly reverses a loss recognised in a previous period of account (“the reversed loss”), and
(c) a debit was brought into account for tax purposes under Chapter 3 (debits in respect of intangible fixed assets) in respect of that loss (“the tax debit”).
(2) A corresponding credit must be brought into account for tax purposes.
(3) The amount of the credit is—
RG
×
D
RL
where—
RG is the recognised gain,
D is the tax debit, and
RL is the reversed loss.
(4) This section does not apply to a gain on a revaluation within the meaning of section 723 (see subsection (5) of that section).