Income and Corporation Taxes Act 1988 (c. 1)

(The document as of February, 2008)

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(3) Sub-paragraph (2) above shall not apply by reason of--

(a) any variation which, whether or not of a purely formal character, does not affect the terms of a policy in any significant respect; or

(b) any variation of a policy issued in respect of an insurance made on or before 19th March 1968, other than a variation by virtue of which the policy falls, under paragraph 8(1) and (2) of Schedule 14, to be treated as issued in respect of an insurance made after that date.

PART III POLICIES ISSUED BY NON-RESIDENT COMPANIES

23 In this Part--

(a) any reference to a paragraph is a reference to that paragraph of this Schedule; and

(b) "the old policy" and "the new policy" have the same meanings as in paragraph 17.

24 (1) This paragraph applies to a policy of life insurance--

(a) which is issued in respect of an insurance made after 17th November 1983; and

(b) which is so issued by a company resident outside the United Kingdom;

and in the following provisions of this paragraph such a policy is referred to as "a new non-resident policy" and the company by which it is issued is referred to as "the issuing company".

(2) Notwithstanding anything in paragraph 21--

(a) a new non-resident policy shall not be certified under sub-paragraph (1)(a) of that paragraph, and

(b) a new non-resident policy which conforms with such a form as is mentioned in sub-paragraph (1)(b) of that paragraph shall not be a qualifying policy,

until such time as the conditions in either sub-paragraph (3) or sub-paragraph (4) below are fulfilled with respect to it.

(3) The conditions first referred to in sub-paragraph (2) above are--

(a) that the issuing company is lawfully carrying on in the United Kingdom life assurance business (as defined in section 431(2)); and

(b) that the premiums under the policy are payable to a branch in the United Kingdom of the issuing company, being a branch through which the issuing company carries on its life assurance business; and

(c) the premiums under the policy form part of those business receipts of the issuing company which arise through that branch.

(4) The conditions secondly referred to in sub-paragraph (2) above are--

(a) that the policy holder is resident in the United Kingdom; and

(b) that the income of the issuing company from the investments of its life assurance fund is, by virtue of section 445, charged to corporation tax under Case III of Schedule D;

and expressions used in paragraph (b) above have the same meaning as in section 445(1).

25 (1) In the application of paragraph 17 in any case where--

(a) the old policy was issued in respect of an insurance made after 17th November 1983 and could not be a qualifying policy by virtue of paragraph 24, and

(b) the new policy is not a new non-resident policy as defined in that paragraph,

the rules for the determination of the question whether the new policy is a qualifying policy shall apply with the modifications in sub-paragraph (2) below.

(2) The modifications are the following--

(a) if, apart from paragraph 24, the old policy and any related policy (within the meaning of paragraph 17(2)(b)) of which account falls to be taken would have been, or would have been capable of being certified as, a qualifying policy under paragraph 21, that policy shall be assumed to have been a qualifying policy for the purposes of paragraph 17(2); and

(b) if, apart from this paragraph, the new policy would be, or would be capable of being certified as, a qualifying policy, it shall not be such a policy or, as the case may be, be capable of being so certified unless the circumstances are as specified in paragraph 17(3); and

(c) in paragraph 17(3)(b) the words "either by a branch or agency of theirs outside the United Kingdom or" shall be omitted.

(3) In the application of paragraph 17 in any case where--

(a) the old policy is a qualifying policy which was issued in respect of an insurance made on or before 17th November 1983 but, if the insurance had been made after that date, the policy could not have been a qualifying policy by virtue of paragraph 24, and

(b) the new policy is issued after that date and is not a new non-resident policy, as defined in paragraph 24,

the rules for the determination of the question whether the new policy is a qualifying policy shall apply with the modification in sub-paragraph (2)(c) above.

26 If, in the case of a substitution of policies falling within paragraph 25(1) or (3), the new policy confers such an option as results in the application to it of paragraph 19(3), the new policy shall be treated for the purposes of paragraph 19(3) as having been issued in respect of an insurance made on the same day as that on which was made the insurance in respect of which the old policy was issued.

27 (1) For the purposes of Part I and paragraphs 21 and 24, a policy of life insurance which was issued--

(a) in respect of an insurance made on or before 17th November 1983, and

(b) by a company resident outside the United Kingdom,

shall be treated as issued in respect of an insurance made after that date if the policy is varied after that date so as to increase the benefits secured or to extend the term of the insurance.

(2) If a policy of life insurance which was issued as mentioned in sub-paragraph (1)(a) and (b) above confers on the person to whom it is issued an option to have another policy substituted for it or to have any of its terms changed, then for the purposes of that sub-paragraph any change in the terms of the policy which is made in pursuance of the option shall be deemed to be a variation of the policy.

Section 350(4).

SCHEDULE 16 COLLECTION OF INCOME TAX ON COMPANY PAYMENTS WHICH ARE NOT DISTRIBUTIONS

Interpretation

1 In this Schedule "relevant payment" means any payment to which section 350(4)(a) applies.

Duty to make returns

2 (1) A company shall for each of its accounting periods make, in accordance with this Schedule, returns to the collector of the relevant payments made by it in that period and of the income tax for which it is accountable in respect of those payments.

(2) A return shall be made for--

(a) each complete quarter falling within the accounting period, that is to say, each of the periods of three months ending with 31st March, 30th June, 30th September and 31st December which falls within that period;

(b) each part of the accounting period which is not a complete quarter and ends on the first (or only), or begins immediately after the last (or only), of those dates which falls within the accounting period;

(3) A return for any period for which a return is required to be made under this paragraph shall be made within 14 days from the end of that period.

Contents of returns

3 The return made by a company for any period shall show--

(a) the amount of any relevant payments made by the company in that period; and

(b) the income tax in respect of those payments for which the company is accountable.

Payment of tax

4 (1) Subject to sub-paragraph (4) below, income tax in respect of any payment required to be included in a return under this Schedule shall be due at the time by which the return is to be made, and income tax so due--

(a) shall be payable by the company without the making of any assessment; and

(b) may be assessed on the company (whether or not it has been paid when the assessment is made) if it, or any part of it, is not paid on or before the due date.

(2) If it appears to the inspector that there is a relevant payment which ought to have been and has not been included in a return, or if the inspector is dissatisfied with any return, he may make an assessment on the company to the best of his judgment; and any income tax due under an assessment made by virtue of this sub-paragraph shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if a correct return had been made.

(3) Where a payment has been included in a return under Schedule 13 by virtue of paragraph 7(1)(b) of that Schedule and it becomes apparent that the payment is not a qualifying distribution but a relevant payment--

(a) sub-paragraph (1)(a) above shall not apply to that payment; and

(b) income tax shall be assessed in respect of it on the company.

Set-off of income tax borne on company income against tax payable

5 (1) Where in any accounting period a company receives any payment on which it bears income tax by deduction the company may claim to have the income tax thereon set against any income tax which it is liable to pay under this Schedule in respect of payments made by it in that period.

(2) Any such claim shall be included in a return made under paragraph 2 above for the accounting period in question and (where necessary) income tax paid by the company under this Schedule for that accounting period and before the claim is allowed shall be repaid accordingly.

6 (1) Where a claim has been made under paragraph 5 above no proceedings for collecting tax which would fall to be discharged if the claim were allowed shall be instituted pending the final determination of the claim, but this sub-paragraph shall not affect the date when the tax is due.

(2) When the claim is finally determined any tax underpaid in consequence of sub-paragraph (1) above shall be paid.

(3) Where proceedings are instituted for collecting tax assessed, or interest on tax assessed, under any provision of paragraph 4 above, effect shall not be given to any claim made after the institution of the proceedings so as to affect or delay the collection or recovery of the tax charged by the assessment or of interest thereon, until the claim has been finally determined.

(4) When the claim is finally determined any tax overpaid in consequence of sub-paragraph (3) above shall be repaid.

(5) References in this paragraph to proceedings for the collection of tax include references to proceedings by way of distraint or poinding for tax.

7 Income tax set against other tax under paragraph 5 above shall be treated as paid or repaid, as the case may be, and the same tax shall not be taken into account both under this Schedule and under section 7(2).

Items included in error

8 Where any item has been included in a return or claim under this Schedule as a relevant payment but should have been included in a return under Schedule 13, the inspector may make such assessments, adjustments or set-offs as may be required for securing that the resulting liabilities to tax (including interest on unpaid tax) whether of the company or of any other person are the same as they would have been if the item had been included in the right return.

Relevant payment made otherwise than in accounting period

9 Where a company makes a relevant payment on a date which does not fall within an accounting period the company shall make a return of that payment within 14 days from that date, and the income tax for which the company is accountable in respect of that payment shall be due at the time by which the return is to be made.

Assessments and due date of tax

10 (1) All the provisions of the Income Tax Acts as to the time within which an assessment may be made, so far as they refer or relate to the year of assessment for which an assessment is made, or the year to which an assessment relates, shall apply in relation to any assessment under this Schedule notwithstanding that, under this Schedule, the assessment may be said to relate to a quarter or other period which is not a year of assessment, and the provisions of sections 36 and 37 of the Management Act as to the circumstances in which an assessment may be made out of time shall apply accordingly on the footing that any such assessment relates to the year of assessment in which the quarter or other period ends.

(2) Income tax assessed on a company under this Schedule shall be due within 14 days after the issue of the notice of assessment (unless due earlier under paragraph 4(1) or 9 above).

(3) Sub-paragraph (2) above has effect subject to any appeal against the assessment, but no such appeal shall affect the date when tax is due under paragraph 4(1) or 9 above.

(4) On the determination of an appeal against an assessment under this Schedule any tax overpaid shall be repaid.

(5) Any tax assessable under any one or more of the provisions of this Schedule may be included in one assessment if the tax so included is all due on the same date.

Saving

11 Nothing in paragraphs 1 to 10 above shall be taken to prejudice any powers conferred by the Income Tax Acts for the recovery of income tax by means of an assessment or otherwise; and any assessment in respect of tax payable under paragraph 9 above shall be treated for the purposes of the provisions mentioned in paragraph 10(1) above as relating to the year of assessment in which the payment is made.

Section 404.

SCHEDULE 17 DUAL RESIDENT INVESTING COMPANIES

PART I DIVISION OF ACCOUNTING PERIODS COVERING 1st APRIL 1987

1 (1) This Part of this Schedule has effect in the circumstances set out in section 404(3)(a).

(2) In this Part of this Schedule--

(a) "the straddling period" means the accounting period of the dual resident investing company which begins before and ends on or after 1st April 1987; and

(b) "dual resident investing company" has the same meaning as in section 404.

(3) It shall be assumed for the purposes of this Chapter (except section 404(3) to (6)) and Part II of this Schedule--

(a) that an accounting period of the company ends on 31st March 1987; and

(b) that a new accounting period begins on 1st April 1987, the new accounting period to end with the end of the straddling period.

(4) In this Part of this Schedule "the component accounting periods" means the two accounting periods referred to in sub-paragraph (3) above.

2 Subject to paragraph 5 below, for the purposes referred to in paragraph 1(3) above, the losses and other amounts of the straddling period of a dual resident investing company, excluding any such excess of charges on income as is referred to in section 403(7), shall be apportioned to the component accounting periods on a time basis according to their lengths.

3 If, in the straddling period of a dual resident investing company, the company has paid any amount by way of charges on income, then, for the purposes referred to in paragraph 1(3) above, the excess of that amount referred to in section 403(7) shall be apportioned to the component accounting periods--

(a) according to the dates on which, subject to paragraph 6 below, the interest or other payments giving rise to those charges were paid (or were treated as paid for the purposes of section 338); and

(b) in proportion to the amounts of interest or other payments paid (or treated as paid) on those dates.

PART II EARLY PAYMENTS OF INTEREST ETC. AND CHARGES ON INCOME

Interpretation

4 In this Part of this Schedule--

(a) a "1986 accounting period" means an accounting period which begins or ends (or begins and ends) in the financial year 1986;

(b) a "post-1986 accounting period" means an accounting period which begins on or after 1st April 1987; and

Early payment of interest etc.

5 (1) If the conditions in sub-paragraph (2) or (3) below are fulfilled and if the Board so direct, this paragraph applies in relation to a 1986 accounting period of a dual resident investing company.

(2) The conditions in this sub-paragraph are applicable only if the company is carrying on a trade in the 1986 accounting period, and those conditions are--

(a) that in that accounting period the company has incurred a loss, computed as for the purposes of section 393(2), in carrying on that trade; and

(b) that in that period the company has made a payment falling within section 404(6)(a)(iii); and

(c) that the payment referred to in paragraph (b) above either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.

(3) The conditions in this sub-paragraph are applicable only if the company is an investment company in the 1986 accounting period, and those conditions are--

(a) that for that accounting period the company has (apart from this paragraph) such an excess as is referred to in section 403(4); and

(b) that one or more of the sums which for that accounting period may be deducted as expenses of management under section 75(1) either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.

(4) The Board shall not give a direction under this paragraph with respect to a 1986 accounting period of a dual resident investing company unless it appears to the Board that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from this paragraph) the company would, for that period, have an amount or, as the case may be, a larger amount available for surrender by way of group relief.

(5) If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is carrying on a trade then, for the purposes of this Chapter and, where appropriate, any apportionment under paragraph 2 above--

(a) the loss (if any) of the company for that period shall be computed (as mentioned in section 403(1)) as if any payment falling within sub-paragraph (2)(b) above had not been made in that period; and

(b) the loss (if any) of the company for its first post-1986 accounting period shall be computed as if any such payment were made in that period.

(6) If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is an investment company, then, for the purposes referred to in sub-paragraph (5) above--

(a) the amount which may be deducted as expenses of management for that period, as mentioned in section 403(4), shall be computed as if any sum falling within sub-paragraph (3)(b) above had not been disbursed; and

(b) the amount which may be so deducted as expenses of management for the first of the company's post-1986 accounting periods shall be computed as if any such sum were disbursed in that period.

Early payment of charges on income

6 (1) If, in the case of a dual resident investing company, either of the following conditions is fulfilled--

(a) that any interest or other payment which is, or is treated as, a charge on income falls due in a post-1986 accounting period but is paid (or treated for the purposes of section 338 as paid) in a 1986 accounting period, or

(b) that, on or after 5th December 1986, arrangements have been made such that any such interest or other payment which, but for the arrangements, would have fallen due in a post-1986 accounting period, fell due in a 1986 accounting period,

the interest or other payment shall, if the Board so direct, be treated for the purposes of this Chapter and, where appropriate, paragraph 3 above as paid in the post-1986 accounting period referred to in paragraph (a) or, as the case may be, paragraph (b) above.

(2) The Board shall not give a direction under this paragraph unless it appears to them that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from the direction) the interest or other payment would be attributed or apportioned to a 1986 accounting period rather than a post-1986 accounting period, so that, for the 1986 accounting period, the dual resident investing company would have an amount or, as the case may be, a larger amount available for surrender by way of group relief.

Appeals

7 Notice of the giving of a direction under paragraph 5 or 6 above shall be given to the dual resident investing company concerned; and any company to which such a notice is given may, by giving notice of appeal to the Board within 60 days of the date of the notice given to the company, appeal to the Special Commissioners against the direction on either or both of the following grounds--

(a) that the conditions applicable to the company under paragraph 5(2) or (3) above are not fulfilled or, as the case may be, that neither of the conditions in paragraph 6(1) above is fulfilled;

(b) that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, the arrangements was not that stated in paragraph 5(4) or, as the case may be, paragraph 6(2) above.

PART III GENERAL

8 (1) Parts I and II of this Schedule have effect in priority to section 409 and, accordingly, each of the component accounting periods resulting from the operation of Part I of this Schedule shall be regarded as a true accounting period for the purposes of that section.

(2) References in this Schedule to this Chapter do not include any provision of this Schedule.

Section 413(10).

SCHEDULE 18 GROUP RELIEF: EQUITY HOLDERS AND PROFITS OR ASSETS AVAILABLE FOR DISTRIBUTION

1 (1) For the purposes of section 413(7) to (9) and this Schedule, an equity holder of a company is any person who--

(a) holds ordinary shares in the company, or

(b) is a loan creditor of the company in respect of a loan which is not a normal commercial loan,

and any reference in that section to profits or assets available for distribution to a company's equity holders does not include a reference to any profits or assets available for distribution to any equity holder otherwise than as an equity holder.

(2) For the purposes of sub-paragraph (1)(a) above "ordinary shares" means all shares other than fixed-rate preference shares.

(3) In this Schedule "fixed-rate preference shares" means shares which--

(a) are issued for consideration which is or includes new consideration; and

(b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities; and

(i) are of a fixed amount or at a fixed rate per cent. of the nominal value of the shares, and

(ii) represent no more than a reasonable commercial return on the new consideration received by the company in respect of the issue of the shares; and

(d) on repayment do not carry any rights to an amount exceeding that new consideration except in so far as those rights are reasonably comparable with those general for fixed dividend shares listed in the Official List of the Stock Exchange.

(4) Subsection (7) of section 417 shall apply for the purposes of sub-paragraph (1)(b) above as it applies for the purposes of Part XI, but with the omission of the reference to subsection (9) of that section.

(5) In sub-paragraph (1)(b) above "normal commercial loan" means a loan of or including new consideration and--

(a) which does not carry any right either to conversion into shares or securities of any other description or to the acquisition of additional shares or securities; and

(b) which does not entitle that loan creditor to any amount by way of interest which depends to any extent on the results of the company's business or any part of it or on the value of any of the company's assets or which exceeds a reasonable commercial return on the new consideration lent; and

(c) in respect of which the loan creditor is entitled, on repayment, to an amount which either does not exceed the new consideration lent or is reasonably comparable with the amount generally repayable (in respect of an equal amount of new consideration) under the terms of issue of securities listed in the Official List of the Stock Exchange.

(6) Notwithstanding anything in sub-paragraphs (1) to (5) above but subject to sub-paragraph (7) below, where--

(a) any person has, directly or indirectly, provided new consideration for any shares or securities in the company, and

(b) that person, or any person connected with him, uses for the purposes of his trade assets which belong to the company and in respect of which there is made to the company--

(i) a first-year allowance within the meaning of Chapter I of Part III of the [1971 c. 68.] Finance Act 1971 ("the 1971 Act") in respect of expenditure incurred by the company on the provision of machinery or plant;

(ii) a writing-down allowance within the meaning of Chapter II of Part I of the 1968 Act or, as the case may be, Chapter I of Part III of the 1971 Act in respect of expenditure incurred by the company on the provision of machinery or plant; or

(iii) an allowance under section 91 of the 1968 Act in respect of expenditure incurred by the company on scientific research;

then, for the purposes of this Schedule, that person, and no other, shall be treated as being an equity holder in respect of those shares or securities and as being beneficially entitled to any distribution of profits or assets attributable to those shares or securities.

(7) In any case where sub-paragraph (6) above applies in relation to a bank in such circumstances that--

(a) the only new consideration provided by the bank as mentioned in paragraph (a) of that sub-paragraph is provided in the normal course of its banking business by way of a normal commercial loan as defined in sub-paragraph (5) above; and

(b) the cost to the company concerned of assets falling within paragraph (b) of that sub-paragraph which are used as mentioned in that paragraph by the bank or a person connected with the bank is less than the amount of that new consideration,

references in sub-paragraph (6) above, other than the reference in paragraph (a), to shares or securities in the company shall be construed as references to so much only of the loan referred to paragraph (a) above as is equal to the cost referred to in paragraph (b) above.

(8) In this paragraph "new consideration" has the same meaning as in section 254 and any question whether one person is connected with another shall be determined in accordance with section 839.

2 (1) Subject to the following provisions of this Schedule, for the purposes of section 413(7) to (9) the percentage to which one company is beneficially entitled of any profits available for distribution to the equity holders of another company means the percentage to which the first company would be so entitled in the relevant accounting period on a distribution in money to those equity holders of--

(a) an amount of profits equal to the total profits of the other company which arise in that accounting period (whether or not any of those profits are in fact distributed); or

(b) if there are no profits of the other company in that accounting period, profits of £100;

and in the following provisions of this Schedule that distribution is referred to as "the profit distribution".

(2) For the purposes of the profit distribution, it shall be assumed that no payment is made by way of repayment of share capital or of the principal secured by any loan unless that payment is a distribution.

(3) Subject to sub-paragraph (2) above, where an equity holder is entitled as such to a payment of any description which, apart from this sub-paragraph, would not be treated as a distribution, it shall nevertheless be treated as an amount to which he is entitled on the profit distribution.

3 (1) Subject to the following provisions of this Schedule, for the purposes of section 413(7) to (9) the percentage to which one company would be beneficially entitled of any assets of another company available for distribution to its equity holders on a winding-up means the percentage to which the first company would be so entitled if the other company were to be wound up and on that winding-up the value of the assets available for distribution to its equity holders (that is to say, after deducting any liabilities to other persons) were equal to--

(a) the excess, if any, of the total amount of the assets of the company, as shown in the balance sheet relating to its affairs as at the end of the relevant accounting period, over the total amount of those of its liabilities as so shown which are not liabilities to equity holders as such; or

(b) if there is no such excess or if the company's balance sheet is prepared to a date other than the end of the relevant accounting period, £100.

(2) In the following provisions of this Schedule a winding-up on the basis specified in sub-paragraph (1) above is referred to as "the notional winding-up".

(3) If, on the notional winding-up, an equity holder would be entitled as such to an amount of assets of any description which, apart from this sub-paragraph, would not be treated as a distribution of assets, it shall nevertheless be treated, subject to sub-paragraph (4) below, as an amount to which the equity holder is entitled on the distribution of assets on the notional winding up.

(4) If an amount ("the returned amount") which corresponds to the whole or any part of the new consideration provided by an equity holder of a company for any shares or securities in respect of which he is an equity holder is applied by the company, directly or indirectly, in the making of a loan to, or in the acquisition of any shares or securities in, the equity holder or any person connected with him, then, for the purposes of this Schedule--

(a) the total amount referred to in sub-paragraph (1)(a) above shall be taken to be reduced by a sum equal to the returned amount; and

(b) the amount of assets to which the equity holder is beneficially entitled on the notional winding-up shall be taken to be reduced by a sum equal to the returned amount.

(5) In sub-paragraph (4) above "new consideration" has the same meaning as in section 254 and any question whether one person is connected with another shall be determined in accordance with section 839.

4 (1) This paragraph applies if any of the equity holders--

(a) to whom the profit distribution is made, or

(b) who is entitled to participate in the notional winding-up,

holds, as such an equity holder, any shares or securities which carry rights in respect of dividend or interest or assets on a winding-up which are wholly or partly limited by reference to a specified amount or amounts (whether the limitation takes the form of the capital by reference to which a distribution is calculated or operates by reference to an amount of profits or otherwise).

(2) Where this paragraph applies there shall be determined--

(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and

(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,

if, to the extent that they are limited as mentioned in sub-paragraph (1) above, the rights of every equity holder falling within that sub-paragraph (including the first company concerned if it is such an equity holder) had been waived.

(3) If, on the profit distribution, the percentage of profits determined as mentioned in sub-paragraph (2)(a) above is less than the percentage of profits determined under paragraph 2(1) above without regard to that sub-paragraph, the lesser percentage shall be taken for the purposes of section 413(7) to (9) to be the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled as mentioned in that paragraph.

(4) If, on the notional winding-up, the percentage of assets determined as mentioned in sub-paragraph (2)(b) above is less than the percentage of assets determined under paragraph 3(1) above without regard to that sub-paragraph, the lesser percentage shall be taken for the purposes of section 413(7) to (9) to be the percentage to which, on the notional winding-up, the first company mentioned in paragraph 3(1) above would be entitled of any assets of the other company available for distribution to its equity holders on a winding-up.

5 (1) This paragraph applies if, at any time in the relevant accounting period, any of the equity holders--

(a) to whom the profit distribution is made, or

(b) who is entitled to participate in the notional winding-up,

holds, as such an equity holder, any shares or securities which carry rights in respect of dividend or interest or assets on a winding-up which are of such a nature (as, for example, if any shares will cease to carry a right to a dividend at a future time) that if the profit distribution or the notional winding-up were to take place in a different accounting period the percentage to which, in accordance with paragraphs 1 to 4 above, that equity holder would be entitled of profits on the profit distribution or of assets on the notional winding-up would be different from the percentage determined in the relevant accounting period.

(2) Where this paragraph applies, there shall be determined--

(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and

(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,

if the rights of the equity holders in the relevant accounting period were the same as they would be in the different accounting period referred to in sub-paragraph (1) above.

(3) If in the relevant accounting period an equity holder holds, as such, any shares or securities in respect of which arrangements exist by virtue of which, in that or any subsequent accounting period, the equity holder's entitlement to profits on the profit distribution or to assets on the notional winding-up could be different as compared with his entitlement if effect were not given to the arrangements, then for the purposes of this paragraph--

(a) it shall be assumed that effect would be given to those arrangements in a later accounting period, and

(b) those shares or securities shall be treated as though any variation in the equity holder's entitlement to profits or assets resulting from giving effect to the arrangements were the result of the operation of such rights attaching to the shares or securities as are referred to in sub-paragraph (1) above.

In this sub-paragraph "arrangements" means arrangements of any kind whether in writing or not.

(4) Sub-paragraph (3) and (4) of paragraph 4 above shall apply for the purposes of this paragraph as they apply for the purposes of that paragraph and, accordingly, references therein to sub-paragraphs (2)(a) and (2)(b) of that paragraph shall be construed as references to sub-paragraphs (2)(a) and (2)(b) of this paragraph.

(5) In any case where paragraph 4 above applies as well as this paragraph, that paragraph shall be applied separately (in relation to the profit distribution and the notional winding-up)--

(a) on the basis specified in sub-paragraph (2) above, and

(b) without regard to that sub-paragraph,

and sub-paragraphs (3) and (4) of that paragraph shall apply accordingly in relation to the percentages so determined as if for the word "lesser" there were substituted the word "lowest".

6 For the purposes of section 413(7) to (9) and paragraphs 2 to 5 above--

(a) the percentage to which one company is beneficially entitled of any profits available for distribution to the equity holders of another company, and

(b) the percentage to which one company would be beneficially entitled of any assets of another company on a winding-up,

means the percentage to which the first company is, or would be, so entitled either directly or through another body corporate or other bodies corporate or partly directly and partly through another body corporate or other bodies corporate.

7 (1) In this Schedule "the relevant accounting period" means--

(a) in a case falling within subsection (7) of section 413, the accounting period current at the time in question; and

(b) in a case falling within subsection (8) of that section, the accounting period in relation to which the share in the consortium falls to be determined.

(2) For the purposes of this Schedule, a loan to a company shall be treated as a security, whether or not it is a secured loan, and, if it is a secured loan, regardless of the nature of the security.

Section 423.

SCHEDULE 19 APPORTIONMENT OF INCOME OF CLOSE COMPANIES

PART I DETERMINATION OF RELEVANT INCOME AND DISTRIBUTIONS

Relevant income

1 (1) Subject to the provisions of this Part of this Schedule, the relevant income of a company for an accounting period is--

(a) in the case of a company which is a trading company or a member of a trading group, so much of its distributable income, other than trading income, for that period as can be distributed without prejudice to the requirements of the company's business;

(b) in the case of a company not within paragraph (a) above whose distributable income for that period consists of or includes estate or trading income--

(i) so much of the estate or trading income as can be distributed without prejudice to the requirements of the company's business so far as concerned with the activities or assets giving rise to estate or trading income; and

(ii) its distributable income, if any, other than estate or trading income;

(2) In arriving at the relevant income for any accounting period--

(a) where under sub-paragraph (1) above regard is to be had to the requirements of a company's business, regard shall be had not only to the current requirements of the business but also to such other requirements as may be necessary or advisable for the maintenance and development of that business but, for this purpose, the provisions of paragraph 8 below shall apply;

(b) the amount of the estate or trading income shall be taken as the amount included in respect of it in the distributable income.

(3) In arriving at the relevant income for any accounting period of a company which is a trading company or a member of a trading group, regard shall be had not only to the current requirements of the company's business and to such requirements as may be necessary or advisable for the maintenance and development of that business as fall within sub-paragraph (2)(a) above, but also to any other requirements necessary or advisable for the acquisition of a trade or of a controlling interest in a trading company or in a company which is a member of a trading group by virtue of paragraph 7(2)(a) below; but, for this purpose, paragraph 9 below shall apply.

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