An Act to restate, with minor changes, certain enactments relating to corporation tax and certain enactments relating to company distributions; and for connected purposes.
[3rd March 2010]
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
Part 2 is about calculation of the corporation tax chargeable on a company’s profits, in particular—
(a)
the rates at which corporation tax on profits is charged (see Chapter 2),
(b)
ascertaining the amount of profits to which the rates of tax are applied (see Chapter 3), and
(c)
the currency in which profits are to be calculated and expressed (see Chapter 4).
(2)
Parts 3 to 7 make provision for the following reliefs—
(a)
relief for companies with small profits (see Part 3),
(b)
relief for trade losses (see Chapters 2 and 3 of Part 4),
(c)
relief for losses from property businesses (see Chapter 4 of Part 4),
(d)
relief for losses on a disposal of shares (see Chapter 5 of Part 4),
(e)
relief for losses from miscellaneous transactions (see Chapter 6 of Part 4),
(f)
group relief (see Part 5),
(g)
relief for qualifying charitable donations (see Part 6), and
(h)
community investment tax relief (see Part 7).
(3)
Parts 8 to 13 make provision about special types of business and company etc, in particular—
(a)
oil activities (see Part 8),
(b)
leasing plant or machinery (see Part 9),
(c)
close companies (see Part 10),
(d)
charitable companies etc (see Part 11),
(e)
Real Estate Investment Trusts (see Part 12),
(f)
corporate beneficiaries under trusts (see Chapter 1 of Part 13),
(g)
open-ended investment companies, authorised unit trusts and court investment funds (see Chapter 2 of Part 13),
(h)
unauthorised unit trusts (see Chapter 3 of Part 13),
(i)
securitisation companies (see Chapter 4 of Part 13),
(j)
companies in liquidation or administration (see Chapter 5 of Part 13),
(k)
banks etc in compulsory liquidation (see Chapter 6 of Part 13),
(l)
co-operative housing associations and self-build societies (see Chapters 7 and 8 of Part 13), and
(m)
community amateur sports clubs (see Chapter 9 of Part 13).
(4)
Parts 14 to 21 contain provisions relating to tax avoidance, in particular with respect to—
(a)
change in company ownership (see Part 14),
(b)
transactions in securities (see Part 15),
(c)
factoring of income (see Part 16),
(d)
manufactured payments and repos (see Part 17),
(e)
transactions in land (see Part 18),
(f)
the sale and lease-back of assets (see Part 19),
(g)
leasing plant or machinery (see Part 20), and
(h)
other arrangements involving asset leasing (see Part 21).
(5)
Part 22 contains miscellaneous provisions, including provision with respect to—
(a)
transfers of trade without a change of ownership (see Chapter 1),
(b)
transfers of trade to obtain balancing allowances (see Chapter 2),
(c)
transfer of relief within partnerships (see Chapter 3),
(d)
the surrender of tax refunds within groups of companies (see Chapter 4),
(e)
the set off of income tax deductions against corporation tax (see Chapter 5),
(f)
the assessment, collection and recovery of corporation tax from UK representatives of non-UK resident companies (see Chapter 6),
(g)
the recovery of unpaid corporation tax due from non-UK resident companies (see Chapter 7), and
(h)
exemptions (see Chapter 8).
(6)
Part 23 contains provisions about the meaning of “distribution” and certain associated matters.
(7)
Part 24 contains definitions that apply for the purposes of the Corporation Tax Acts and other general provisions that have effect for the purposes of those Acts.
(8)
Part 25 contains provisions of general application, including definitions for the purposes of the Act.
(9)
For abbreviations and defined expressions used in this Act, see section 1174 and Schedule 4.
This Part contains provisions that relate to the calculation of the corporation tax chargeable on a company’s profits of an accounting period.
(2)
Chapter 2 is about the rates at which corporation tax on profits is charged.
(3)
Chapter 3 is about ascertaining the amount of a company’s profits of an accounting period to which the rates of corporation tax applicable to the company are applied.
(4)
Chapter 4 makes provision about the currency in which a company must calculate and express its profits for corporation tax purposes.
(5)
For provision about the calculation of the corporation tax payable for an accounting period see paragraph 8 of Schedule 18 to FA 1998.
Chapter 2
Rates at which corporation tax on profits charged
3-
Corporation tax rates
(1)
Corporation tax is charged at the rate set by Parliament for the financial year (“the main rate”).
(2)
Section 18 provides for tax to be charged at the small profits rate instead of the main rate in certain cases.
(3)
In this Act “the small profits rate” means a rate that is—
(a)
lower than the main rate, and
(b)
set by Parliament as the small profits rate.
Chapter 3
Calculation of amount to which rates applied
4-
Amount of profits to which corporation tax rates applied
(1)
In the calculation under paragraph 8(1) of Schedule 18 to FA 1998 of the amount of corporation tax payable for an accounting period of a company, the first step is to apply the rate or rates of corporation tax applicable to the profits of the company of the period on which tax is chargeable.
(2)
The profits of a company of an accounting period on which corporation tax is chargeable (in this Act referred to as the company’s taxable total profits of the period) are found as follows—
Step 1
Find the company’s total profits of the period (see subsection (3)).
Step 2
Deduct from the result of Step 1 any amounts which can be relieved against the company’s total profits of the period.
(3)
To find a company’s total profits of an accounting period take the following steps.
Step 1
Find the amount in respect of which the company is chargeable for the period under the charge to corporation tax on income after any reduction required to give effect to relief from tax.
Step 2
Add to the result of Step 1 any amount to be included in respect of chargeable gains in the company’s total profits of the accounting period (see section 8 of TCGA 1992) after any reduction required to give effect to relief from tax.
(4)
Subsections (2) and (3) are subject to the provisions of the Corporation Tax Acts.
Chapter 4
Currency
The currency to be used in tax calculations
5-
Basic rule: sterling to be used
(1)
For corporation tax purposes the income and chargeable gains of a company for an accounting period must be calculated and expressed in sterling.
(2)
See the following sections for provision about the application of subsection (1) in certain cases where profits or losses fall to be calculated in accordance with generally accepted accounting practice—
section 6 (UK resident company operating in sterling and preparing accounts in another currency),
section 7 (UK resident company operating in currency other than sterling and preparing accounts in another currency),
section 8 (UK resident company preparing accounts in currency other than sterling),
section 9 (non-UK resident company preparing accounts in currency other than sterling).
6-
UK resident company operating in sterling and preparing accounts in another currency
(1)
This section applies if, for a period of account, in accordance with generally accepted accounting practice, a UK resident company—
(a)
prepares its accounts in a currency other than sterling, and
(b)
in those accounts identifies sterling as its functional currency.
(2)
Profits or losses of the company for the period that fall to be calculated in accordance with generally accepted accounting practice for corporation tax purposes must be calculated in sterling as if the company prepared its accounts in sterling.
7-
UK resident company operating in currency other than sterling and preparing accounts in another currency
(1)
This section applies if, for a period of account, in accordance with generally accepted accounting practice—
(a)
a UK resident company prepares its accounts in one currency,
(b)
in those accounts it identifies another currency as its functional currency, and
(c)
that other currency is not sterling.
(2)
Profits or losses of the company for the period that fall to be calculated in accordance with generally accepted accounting practice for corporation tax purposes must be calculated in sterling as follows—
Step 1
Calculate those profits or losses in the functional currency as if the company prepared its accounts in that currency.
Step 2
Take the sterling equivalent of those profits or losses (see section 11).
(3)
If this section applies, assume that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the functional currency of the company.
8-
UK resident company preparing accounts in currency other than sterling
(1)
This section applies if, for a period of account—
(a)
a UK resident company prepares its accounts in a currency other than sterling (the “accounts currency”), and
(b)
neither section 6 nor section 7 applies.
(2)
Profits or losses of the company for the period that fall to be calculated in accordance with generally accepted accounting practice for corporation tax purposes must be calculated in sterling as follows—
Step 1
Calculate those profits or losses in the accounts currency.
Step 2
Take the sterling equivalent of those profits or losses (see section 11).
(3)
If this section applies, assume that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the accounts currency of the company.
9-
Non-UK resident company preparing return of accounts in currency other than sterling
(1)
This section applies if—
(a)
a non-UK resident company carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom, and
(b)
for a period of account, the company prepares its return of accounts in a currency other than sterling (the “accounts currency”).
(2)
Profits or losses of the company for the period that fall to be calculated in accordance with generally accepted accounting practice for corporation tax purposes must be calculated in sterling as follows—
Step 1
Calculate those profits or losses in the accounts currency.
Step 2
Take the sterling equivalent of those profits or losses (see section 11).
(3)
If this section applies, assume that any sterling amount mentioned in the Corporation Tax Acts is its equivalent expressed in the accounts currency of the company.
(4)
The reference in subsection (1) to the company’s “return of accounts” is to a return of such accounts of its permanent establishment in the United Kingdom as may be required under paragraph 3 of Schedule 18 to FA 1998 (company tax returns).
Translating amounts into other currencies
10-
The equivalent in another currency of a sterling amount
(1)
Subsection (2) applies if, for the purposes of calculating the profits or losses of a company arising in an accounting period, section 7(3), 8(3) or 9(3) requires a sterling amount to be translated into its equivalent expressed in another currency.
(2)
The translation must be made by reference to—
(a)
the average exchange rate for the accounting period, or
(b)
the rate mentioned in subsection (3).
(3)
That rate is—
(a)
if the amount to be translated relates to a single transaction, an appropriate spot rate of exchange for the transaction, or
(b)
if the amount to be translated relates to more than one transaction, a rate of exchange derived on a just and reasonable basis from appropriate spot rates of exchange for those transactions.
11-
Sterling equivalents: basic rule
(1)
Subsection (2) applies if, for the purposes of calculating the profits or losses of a company arising in an accounting period, section 7(2), 8(2) or 9(2) requires a profit or loss to be translated into its sterling equivalent.
(2)
The translation must be made by reference to—
(a)
the average exchange rate for the accounting period, or
(b)
the rate mentioned in subsection (3).
(3)
That rate is—
(a)
if the amount to be translated relates to a single transaction, an appropriate spot rate of exchange for the transaction, or
(b)
if the amount to be translated relates to more than one transaction, a rate of exchange derived on a just and reasonable basis from appropriate spot rates of exchange for those transactions.
(4)
Subsection (2) is subject to sections 12 and 13 (special rules where the translation is for the purpose of calculating carried-forward or carried-back amounts).
12-
Sterling equivalents: carried-back amounts
(1)
This section applies if, for the purpose of calculating a carried-back amount in respect of a company, a loss (“the loss”) is required by section 7(2), 8(2) or 9(2) to be translated into its sterling equivalent.
(2)
The translation must be made in accordance with whichever of the rules 1, 2 and 3 is applicable (see the table below).
Rule 1 applies if the later tax calculation currency is the same as the earlier tax calculation currency.
Rule 1 is that the loss must be translated into its sterling equivalent by reference to the same rate of exchange as that at which the profit against which the carried-back amount is to be set off is required to be translated under section 11.
Rule 2 applies if—
(a)
the later tax calculation currency is not the same as the earlier tax calculation currency, and
(b)
the earlier tax calculation currency is sterling.
Rule 2 is that the loss must be translated into its sterling equivalent by reference to the spot rate of exchange for the last day of the relevant accounting period.
Rule 3 applies if—
(a)
the later tax calculation currency is not the same as the earlier tax calculation currency, and
(b)
the earlier tax calculation currency is a currency other than sterling.
Rule 3 is that the loss must be translated into its sterling equivalent by—
(a)
being translated into the earlier tax calculation currency by reference to the spot rate of exchange for the last day of the relevant accounting period, and
(b)
then being translated into sterling by reference to the same rate of exchange as that at which the profit against which the carried-back amount is to be set off is required to be translated under section 11.
(3)
In the table in subsection (2)—
“the earlier tax calculation currency” means the tax calculation currency of the company in the accounting period to which the carried-back amount is to be carried back,
“the later tax calculation currency” means the tax calculation currency of the company in the accounting period in which the loss arises, and
“the relevant accounting period” means the latest accounting period of the company that both—
(a)
ends before the accounting period in which the loss arises, and
(b)
is a period in which the tax calculation currency of the company is the same as the earlier tax calculation currency.
13-
Sterling equivalents: carried-forward amounts
(1)
This section applies if, for the purpose of calculating a carried-forward amount in respect of a company, a loss (“the loss”) is required by section 7(2), 8(2) or 9(2) to be translated into its sterling equivalent.
(2)
The translation must be made in accordance with whichever of rules 1, 2 and 3 is applicable (see the table below).
Rule 1 applies if the earlier tax calculation currency is the same as the later tax calculation currency.
Rule 1 is that the loss must be translated into its sterling equivalent by reference to the same rate of exchange as that at which the profit against which the carried-forward amount is to be set off is required to be translated under section 11.
Rule 2 applies if—
(a)
the earlier tax calculation currency is not the same as the later tax calculation currency, and
(b)
the later tax calculation currency is sterling.
Rule 2 is that the loss must be translated into its sterling equivalent by reference to the spot rate of exchange for the first day of the relevant accounting period.
Rule 3 applies if—
(a)
the earlier tax calculation currency is not the same as the later tax calculation currency, and
(b)
the later tax calculation currency is a currency other than sterling.
Rule 3 is that the loss must be translated into its sterling equivalent by—
(a)
being translated into the later tax calculation currency by reference to the spot rate of exchange for the first day of the relevant accounting period, and
(b)
then being translated into sterling by reference to the same rate of exchange as that at which the profit against which the carried-forward amount is to be set off is required to be translated under section 11.
(3)
In the table in subsection (2)—
“the earlier tax calculation currency” means the tax calculation currency of the company in the accounting period in which the loss arises,
“the later tax calculation currency” means the tax calculation currency of the company in the accounting period to which the carried-forward amount is to be carried forward, and
“the relevant accounting period” means the earliest accounting period of the company that both—
(a)
begins after the accounting period in which the loss arises, and
(b)
is a period in which the tax calculation currency of the company is the same as the later tax calculation currency.
