Finance (No. 2) Act 1997 (c. 58)

(The document as of February, 2008)

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(f) income treated as received by the trustees by virtue of section 421(1)(a);

(g) any amount which, by virtue of section 686A, is treated for the purposes of the Tax Acts as if it were income to which this section applies. "

(8) For the sidenote there shall be substituted "Accumulation and discretionary trusts: special rates of tax."

(9) After section 686 of the Taxes Act 1988 there shall be inserted--

" 686A Certain distributions to be treated as income to which section 686 applies

(1) This section applies where--

(a) a qualifying distribution is made to trustees;

(b) the trustees are not the trustees of a unit trust scheme; and

(2) A qualifying distribution falls within this subsection if it is a payment made by a company--

(a) on the redemption, repayment or purchase of its own shares; or

(b) on the purchase of rights to acquire its own shares.

(3) The relevant part of the distribution shall be treated for the purposes of the Tax Acts as if it were income to which section 686 applies.

(4) In subsection (3) above the reference to the relevant part of the distribution is a reference to so much (if any) of the distribution as--

(a) is not income falling within paragraph (a) of section 686(2);

(b) does not fall to be treated for the purposes of the Income Tax Acts as income of a settlor;

(d) is not income from investments, deposits or other property held for any such purposes as are mentioned in sub-paragraph (i) or (ii) of section 686(2)(c).

(5) Subsection (6) of section 686 shall apply for the purposes of this section as it applies for the purposes of that section. "

(10) The amendment made by subsection (5) above has effect on and after 6th April 1999.

(11) The other amendments made by this section have effect in relation to distributions made on or after 6th April 1999.

33 Estates of deceased persons in administration

(1) For section 698A of the Taxes Act 1988 (taxation at the lower rate of the income of beneficiaries) there shall be substituted--

" 698A Taxation of income of beneficiaries at lower rate or at rates applicable to Schedule F income

(1) Subject to subsection (3) below, in so far as any income of any person is treated under this Part as having borne income tax at the lower rate, section 1A shall have effect as if that income were income to which that section applies otherwise than by virtue of the income being income chargeable under Schedule F.

(2) Subject to subsection (3) below, in so far as any income of any person is treated under this Part as having borne income tax at the Schedule F ordinary rate, that income shall be treated as if it were income chargeable under Schedule F.

(3) Subsections (1) and (2) above shall not apply to income paid indirectly through a trustee and treated by virtue of section 698(3) as having borne income tax at the lower rate or the Schedule F ordinary rate; but, subject to section 686(1), section 1A shall have effect as if the payment made to the trustee were income of the trustee--

(a) to which section 1A applies by virtue of the income being chargeable under Schedule F, in the case of income treated as having borne tax at the Schedule F ordinary rate; and

(b) to which section 1A applies otherwise than by virtue of the income being chargeable under Schedule F, in any other case. "

(2) Section 699A of the Taxes Act 1988 (untaxed sums comprised in the income of the estate) shall be amended in accordance with subsections (3) to (6) below.

(3) In subsection (1A) (which is inserted by section 21 of this Act and describes sums to which subsection (1)(a) and (b) of s.699A is deemed to apply) after "if it is a sum in respect of" there shall be inserted--

" (a) a distribution chargeable under Schedule F; or

(b) " .

(4) In subsection (2) (determination whether any amount is a relevant amount) in paragraph (b) (application of the assumption in section 701(3A)(b)) for "assumption" there shall be substituted "assumptions".

(5) In subsection (4) (rate at which sums are assumed to bear tax) in paragraphs (a) and (c) for "lower rate" there shall be substituted "Schedule F ordinary rate".

(6) In subsection (6) (income represented by a relevant amount to be treated as not brought into charge to tax for the purposes of ss.348 and 349(1)) at the end there shall be added "except to the extent that the relevant amount is or would be paid out of sums in respect of a distribution chargeable under Schedule F".

(7) In section 701 of the Taxes Act 1988 (interpretation of Part XVI) subsection (3A) (which defines the "applicable rate" as basic rate or lower rate, according to the rate at which the income of the residue out of which the payment to the beneficiary is made bears tax) shall be amended in accordance with subsections (8) and (9) below.

(8) For the words "or the lower rate", in both places where they occur, there shall be substituted ", the lower rate or the Schedule F ordinary rate".

(9) In paragraph (b) (assumption that payments are made out of income bearing tax at the basic rate before income bearing tax at the lower rate)--

(a) after "it shall be assumed" there shall be inserted "(i)";

(b) after "lower rate" there shall be inserted "or the Schedule F ordinary rate"; and

(ii) that payments are to be made out of income bearing tax at the lower rate before they are made out of income bearing tax at the Schedule F ordinary rate. "

(10) The amendment made by subsection (3) above has effect in relation to distributions made on or after 6th April 1999.

(11) The amendments made by subsections (1) and (4) to (9) above have effect for the year 1999-00 and subsequent years of assessment.

34 Tax credits and taxation of distributions: miscellaneous provisions

Schedule 4 to this Act (which contains provisions relating to tax credits and the taxation of distributions) shall have effect.

35 Transitional relief for charities etc

(1) In any case where--

(a) a qualifying distribution is made on or after 6th April 1999 and before 6th April 2004 by a company resident in the United Kingdom, and

(b) the recipient of the distribution is a section 505 body, and

(c) if the section 505 body falls within neither paragraph (b) nor paragraph (c) of subsection (3) below, entitlement to exemption from tax by virtue of subsection (1)(c)(iii) of section 505 of the Taxes Act 1988 (charities) in respect of the distribution is not prevented by anything in that section,

the section 505 body, on a claim made under this section to the Board, shall be entitled to be paid by the Board out of money provided by Parliament an amount determined in accordance with subsection (2) below.

(2) The amount referred to in subsection (1) above is an amount equal to--

(a) 21 per cent of the amount or value of the distribution if the distribution is made on or after 6th April 1999 and before 6th April 2000;

(b) 17 per cent of that amount or value if the distribution is made on or after 6th April 2000 and before 6th April 2001;

(c) 13 per cent of that amount or value if the distribution is made on or after 6th April 2001 and before 6th April 2002;

(d) 8 per cent of that amount or value if the distribution is made on or after 6th April 2002 and before 6th April 2003;

(e) 4 per cent of that amount or value if the distribution is made on or after 6th April 2003 and before 6th April 2004.

(3) For the purposes of this section each of the following is a section 505 body--

(a) any charity (as defined in section 506(1) of the Taxes Act 1988);

(b) each of the bodies mentioned in section 507 of that Act (heritage bodies);

(4) Schedule 5 to this Act shall have effect to remove or restrict entitlement to payment under this section in certain circumstances.

(5) For the purposes of Chapter I of Part XVII of the Taxes Act 1988 (cancellation of tax advantages) payment of an amount under this section shall be treated as repayment of tax.

(6) Any entitlement of a section 505 body to a payment under subsection (1) above shall be subject to a power of the Board to determine (whether before or after any payment is made) that, having regard to the operation in relation to the distribution in question of section 703 of the Taxes Act 1988 (cancellation of tax advantages), that body is to be treated as if it had had no entitlement to that payment or to so much of it as they may determine.

(7) No claim may be made under this section later than two years after the end of the chargeable period of the section 505 body in which the distribution is made.

(8) An appeal may be brought against any decision of the Board under this section or under Schedule 5 to this Act by giving written notice to the Board within thirty days of receipt of written notice of the decision.

(9) An appeal under this section shall lie to the Special Commissioners, and the provisions of the [1970 c. 9.] Taxes Management Act 1970 relating to appeals under the Tax Acts shall apply to an appeal under this section as they apply to those appeals.

(10) Any payment of an amount under this section shall be treated for the purposes of section 252 of the Taxes Act 1988 (rectification of excessive set-off etc of ACT or tax credit) as a payment of tax credit.

36 Foreign income dividends

(1) No election shall be made under section 246A of the Taxes Act 1988 (election for dividend to be treated as foreign income dividend) in respect of any distributions made on or after 6th April 1999.

(2) No amount shall be shown as available for distribution as foreign income dividends in the distribution accounts of an authorised unit trust for a distribution period the distribution date for which falls on or after 6th April 1999.

(3) No distribution made on or after 6th April 1999 shall be treated as a foreign income dividend by virtue of paragraph 2(1) of Schedule 7 to the [1997 c .16.] Finance Act 1997 (Tax Acts to have effect as if qualifying distributions to which Schedule 7 applies were foreign income dividends).

(4) Schedule 6 to this Act (which makes provision for and in connection with the repeal of provisions relating to foreign income dividends) shall have effect.

(5) In subsection (2) above, "distribution accounts", "distribution date" and "distribution period" shall be construed in accordance with section 468H of the Taxes Act 1988 (interpretation of sections 468I to 468R of that Act).

Gilt-edged securities

37 Interest to be paid gross

(1) The Taxes Act 1988 shall be amended as follows.

(2) In section 50 (Treasury direction for payment of public revenue dividends without deduction of tax), before subsection (1) there shall be inserted the following subsection--

" (A1) The interest on registered gilt-edged securities (whenever issued and whatever the terms on which they were issued) shall be paid without deduction of income tax. "

(3) In that section--

(a) in subsection (1), after "following securities" there shall be inserted "in so far as they are not gilt-edged securities";

(b) in subsection (2), after "by virtue of" there shall be inserted "subsection (A1) above or of";

(c) in subsection (3), for "to which subsection (1) above applied" there shall be substituted "the interest on which is to be paid without deduction of income tax"; and

(d) in subsections (4) and (5), for the words "two months", in each place where they occur, there shall be substituted "one month".

(4) In subsection (7) of that section, after "requires" there shall be inserted the following definition--

" "gilt-edged securities" means any securities which--

(a) are gilt-edged securities for the purposes of the 1992 Act; or

(b) will be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they were issued, " .

(5) Section 51A (interest on gilt-edged securities held under authorised arrangements to be paid without deduction of tax) shall cease to have effect.

(6) In section 51B (periodic accounting for tax on interest on gilt-edged securities), for subsection (5) there shall be substituted the following subsections--

" (5) In this section "relevant gilt-edged securities" means securities of one of the following descriptions--

(a) gilt-edged securities issued before 6th April 1998 other than those in relation to which a direction under section 50(1) was given before that date;

(b) gilt-edged securities issued on or after that date in relation to which the Treasury have given a direction that they may be subjected to periodic accounting;

and in this subsection "gilt-edged securities" has the same meaning as in section 50.

(5A) Regulations under this section shall not apply to a payment of interest on any relevant gilt-edged securities if that payment is made at any time after the Treasury have given a direction that those securities are to be exempted from periodic accounting. "

(7) In sections 722A(5) and 730C(9), and in paragraph 3A(2)(a) of Schedule 23A, (which all define "gilt-edged securities" by reference to section 51A of the Taxes Act 1988), for "51A" there shall be substituted, in each case, "50".

(8) Subject to subsections (9) to (13) below, this section has effect in relation to payments of interest falling due on or after 6th April 1998.

(9) Subsection (3)(d) above has effect in relation to applications made and notices given at any time on or after the day on which this Act is passed.

(10) Where--

(a) any person holds any gilt-edged securities in relation to which a direction was given under section 50(1) of the Taxes Act 1988 at any time before 6th April 1998, and

(b) that person at any time before that date made an application under section 50(2) of that Act with respect to those securities,

that application (unless withdrawn) shall have effect in relation to any interest on those securities to which section 50(A1) of that Act applies as it previously had effect in relation to any interest on those securities to which that direction applied.

(11) Sections 50, 51B and 118D(4) of the Taxes Act 1988 shall have effect in relation to any gilt-edged securities issued before 6th April 1998 which--

(a) are securities the interest on which, if paid immediately before that date, would have fallen to be paid after deduction of income tax, and

(b) are registered within the meaning of section 50 of that Act but are not securities in relation to which any direction under section 50 of that Act was given before that date,

as if the appropriate person had so made an application under section 50(2) of that Act as to enable that application to take effect in relation to payments of interest made on or after that date.

(12) In subsection (11) above "the appropriate person" means--

(a) in the case of securities transferred before 6th April 1998 but after the time when the balance was struck for a dividend on them falling due on or after that date, the person who held the securities at the time when the balance was so struck;

(b) in any other case, the person holding the securities in question immediately before 6th April 1998.

(13) Section 50(5) of the Taxes Act 1988 shall have effect in relation to an application treated as made by virtue of subsection (11) above as if a notice withdrawing that application was capable of being given at any time on or after the passing of this Act.

38 Paying and collecting agents

(1) Chapter VIIA of Part IV of the Taxes Act 1988 (paying and collecting agents) shall be amended as follows.

(2) Section 118A (interpretation of Chapter) shall become subsection (1) of that section and, in paragraph (k) of that subsection (meaning of "international organisation"), for "has the meaning given by section 51A(8)" there shall be substituted "means an organisation of which two or more sovereign powers, or the governments of two or more sovereign powers, are members".

(3) After that subsection there shall be inserted the following subsection--

" (2) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of this Chapter, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question shall be conclusive evidence of that fact. "

(4) In section 118D(4) (payments of interest payable without deduction of tax not to be chargeable payments), after "by virtue of" there shall be inserted "section 50(A1) or of".

(5) In subsection (3) of section 118G (United Kingdom public revenue dividends excluded from being chargeable payments)--

(a) paragraphs (b) and (d) to (f) shall be omitted; and

(b) for paragraph (c) there shall be substituted the following paragraph--

" (ca) they are payable in respect of a FOTRA security (within the meaning of section 154 of the [1996 c. 8.] Finance Act 1996) which--

(i) is not registered (within the meaning of section 50 of this Act); and

(ii) is, for the time being, beneficially owned by a person who is not ordinarily resident in the United Kingdom. "

(6) In section 118G(7), for paragraphs (a) and (b) there shall be substituted "foreign dividends on foreign holdings held by a nominee approved for the purposes of this subsection".

(7) Section 118G(8) and (10) shall cease to have effect.

(8) This section has effect in relation to payments falling due on or after 6th April 1998.

Relief for losses etc

39 Carry-back of trading losses

(1) Section 393A of the Taxes Act 1988 (set-off of trading losses against profits of previous three years) shall be amended in accordance with subsections (2) to (6) below.

(2) In subsection (2) (three year carry-back period), for "is the period of three years" there shall be substituted "is (subject to subsection (2A) below) the period of twelve months".

(3) After that subsection there shall be inserted the following subsections--

" (2A) This section shall have effect in relation to any loss to which this subsection applies as if, in subsection (2) above, the words "three years" were substituted for the words "twelve months".

(2B) Where a company ceases to carry on a trade at any time, subsection (2A) above applies to the following--

(a) the whole of any loss incurred in that trade by that company in an accounting period beginning twelve months or less before that time; and

(b) the part of any loss incurred in that trade by that company in an accounting period ending, but not beginning, in that twelve months which is proportionate to the part of that accounting period falling within those twelve months.

(2C) Where--

(a) a loss is incurred by a company in a ring fence trade carried on by that company, and

(b) the accounting period in which the loss is incurred is an accounting period for which an allowance under section 62A of the 1990 Act (demolition costs relating to offshore machinery or plant) is made to that company,

subsection (2A) above applies to so much of the amount of that loss not falling within subsection (2B) above as does not exceed the amount of that allowance. "

(4) In subsection (7) (application of section 393(9))--

(a) at the beginning there shall be inserted "Subject to subsection (7A) below,"; and

(b) for "the accounting period in which the cessation occurs" there shall be substituted "an accounting period ending with the cessation, or ending at any time in the twelve months immediately preceding the cessation,".

(5) After that subsection there shall be inserted the following subsection--

" (7A) For the purposes of this section where--

(a) subsection (7) above has effect for computing the loss for any accounting period, and

(b) that accounting period is one beginning before the beginning of the twelve months mentioned in that subsection,

the part of that loss that is not the part falling within subsection (2B)(b) above shall be treated as reduced (without any corresponding increase in the part of the loss that does fall within subsection (2B)(b) above) by an amount equal to so much of the aggregate of the charges on income treated as expenses by virtue of subsection (7) above as is proportionate to the part of the accounting period that does not fall within those twelve months. "

(6) After subsection (11) there shall be inserted the following subsection--

" (12) In this section "ring fence trade" has the same meaning as in section 62A of the 1990 Act. "

(7) In section 343 of that Act (company reconstructions without a change of ownership), the following subsection shall be inserted after subsection (4)--

" (4A) Subsection (2A) of section 393A shall not apply to any loss which (but for this subsection) would fall within subsection (2B) of that section by virtue of the predecessor's ceasing to carry on the trade, and subsection (7) of that section shall not apply for the computation of any such loss. "

(8) Subject to subsection (9) below, this section applies to any loss incurred in an accounting period ending on or after 2nd July 1997.

(9) Where a loss in any trade is incurred by a company in an accounting period ending on or after 2nd July 1997 but beginning before that date, section 393A of the Taxes Act 1988 shall have effect as if subsection (2A) of that section applied to the pre-commencement part of any amount of that loss to which that subsection would not apply apart from this subsection.

(10) In subsection (9) above "the pre-commencement part", in relation to the amount of the whole or any part of a loss in an accounting period, means the part of that amount which, on an apportionment in accordance with subsection (11) or, as the case may be, (12) below, is attributable to the part of that accounting period falling before 2nd July 1997.

(11) Except in a case where subsection (12) below applies, an apportionment for the purposes of subsection (10) above shall be made on a time basis according to the respective lengths of the part of the accounting period falling before 2nd July 1997 and the remainder of that accounting period.

(12) Where the circumstances of a particular case are such that the making of an apportionment on the time basis mentioned in subsection (11) above would work in a manner that would be unjust or unreasonable in relation to any person, the apportionment shall be made instead (to the extent only that is necessary in order to avoid injustice and unreasonableness) in such other manner as may be just and reasonable.

40 Carry-back of loan relationship deficits

(1) Chapter II of Part IV of the [1996 c. 8.] Finance Act 1996 (loan relationships) shall be amended as follows.

(2) In paragraph 3(7) of Schedule 8 (permitted period of three years for carry-back of deficits), for "three years" and "three year" there shall be substituted, in each case, "twelve months".

(3) In sub-paragraph (3) of paragraph 4 of Schedule 11 (carry-back of deficit by insurance companies)--

(a) for paragraph (a) there shall be substituted the following paragraph--

" (a) carried back to accounting periods falling wholly or partly within the period of twelve months immediately preceding the deficit period; and " ; and

(b) in paragraph (b), for "those periods" there shall be substituted "up to three such periods".

(4) In sub-paragraph (5) of that paragraph (mechanism for carry-back in the case of insurance companies), for "the three accounting periods preceding the deficit period" there shall be substituted "accounting periods falling wholly or partly within the period of twelve months mentioned in sub-paragraph (3)(a) above".

(5) In sub-paragraph (8) of that paragraph (which defines the set-off periods), in each of paragraphs (b) and (c), for "immediately preceding" there shall be substituted "(if any) which falls wholly or partly within the period of twelve months mentioned in sub-paragraph (3)(a) above and immediately precedes".

(6) In sub-paragraph (9) of that paragraph (adjusted amount of a company's eligible profit), after "is" there shall be inserted "(subject to sub-paragraph (9A) below)"; and after that sub-paragraph there shall be inserted the following sub-paragraph--

" (9A) Where a set-off period falls only partly within the period of twelve months mentioned in sub-paragraph (3)(a) above, the adjusted amount of a company's eligible profit for that period shall be taken to be confined to the part of the amount computed under sub-paragraph (9) above which is proportionate to the part of the set-off period that falls within that period of twelve months. "

(7) Subject to subsection (8) below, this section has effect in relation to any deficit for a deficit period ending on or after 2nd July 1997.

(8) Paragraph 3 of Schedule 8 to the [1996 c. 8.] Finance Act 1996 shall have effect in relation to any deficit for a deficit period beginning before but ending on or after 2nd July 1997 as if the permitted period in relation to the pre-commencement part of the deficit were the period beginning with 1st April 1996 and ending immediately before the beginning of the deficit period.

(9) Where for the purposes of paragraph 23 of Schedule 15 to the Finance Act 1996 (transitional provision in connection with the carrying back of exchange losses) there is a relievable amount for an accounting period ending on or after 2nd July 1997, that paragraph shall have effect, except in relation to any pre-commencement part of that amount, as if, in section 131(10)(b) of the [1993 c. 34.] Finance Act 1993 (the permitted period) as applied by that paragraph, the words "twelve months" were substituted for the words "three years".

(10) In this section "pre-commencement part", in relation to the deficit for any deficit period or the relievable amount for any accounting period, means the part (if any) of that deficit or relievable amount which, on an apportionment in accordance with subsection (11) or, as the case may be, (12) below, is attributable to such part (if any) of that period as falls before 2nd July 1997.

(11) Except in a case where subsection (12) below applies, an apportionment for the purposes of subsection (10) above shall be made on a time basis according to the respective lengths of the part of the deficit period or, as the case may be, accounting period falling before 2nd July 1997 and the remainder of that period.

41 Restrictions on group relief

Schedule 7 to this Act (which imposes new restrictions on the giving of group relief) shall have effect.

Capital allowances for small and medium-sized businesses

42 Temporary first-year allowances

(1) In subsection (1) of section 22 of the [1990 c. 1.] Capital Allowances Act 1990 (first-year allowances), after "40 per cent. of that expenditure" there shall be inserted ", in the case of expenditure to which this section applies by virtue only of subsection (3C) below, shall be of an amount equal to the percentage of that expenditure that is given by subsection (1AA) below".

(2) After that subsection there shall be inserted the following subsection--

" (1AA) In the case of expenditure to which this section applies by virtue only of subsection (3C) below, the percentage mentioned in subsection (1) above is--

(a) in the case of expenditure to which Chapter IVA applies, 12 per cent; and

(b) in the case of any other expenditure, 50 per cent. "

(3) After subsection (3B) of that section there shall be inserted the following subsection--

" (3C) This section applies to--

(a) any expenditure which, disregarding any effect of section 83(2) on the time at which it is to be treated as incurred, is incurred by a small company or a small business in the period beginning with 2nd July 1997 and ending with 1st July 1998; and

(b) any additional VAT liability incurred in respect of expenditure to which this section applies by virtue of paragraph (a) above. "

(4) In subsection (4) of that section, after "any expenditure" there shall be inserted "to which this section applies otherwise than by virtue only of subsection (3C) above".

(5) After subsection (6A) of that section there shall be inserted the following subsections--

" (6B) No first-year allowance shall be made in respect of any expenditure to which this section applies by virtue only of subsection (3C) above--

(a) if the chargeable period related to the incurring of the expenditure is also the chargeable period related to the permanent discontinuance of the trade;

(b) if the expenditure (whether or not it is expenditure to which Chapter IVA would apply but for the provisions of section 38B) is expenditure of the kind described in any of subsections (2) to (4) of section 38B;

(d) if the expenditure is expenditure on the provision of machinery or plant for leasing, whether in the course of a trade or otherwise;

and section 50(2) shall apply for the interpretation of paragraph (d) above as it applies for the interpretation of Chapter V of this Part.

(6C) No first-year allowance shall be made in respect of any expenditure incurred on the provision of machinery or plant to which this section applies by virtue only of subsection (3C) above if--

(a) the provision of the machinery or plant is connected with a change in the nature or conduct of a trade or business carried on by a person other than the person incurring the expenditure; and

(b) the obtaining of a first-year allowance is the main benefit, or one of the main benefits, which could reasonably be expected to arise from the making of the change. "

(6) In sections 23(6), 42(9), 44(5), 46(8), 48(7) and 50(3) and (4A) of that Act (which contain provisions referring to the temporary first-year allowances under section 22(3B) of that Act), after the words "subsection (3B)", in each place where they occur, there shall be inserted the words "or (3C)".

(7) In section 39(2)(a) of that Act (definition of a qualifying purpose), for "subsections (2) to (3B)" there shall be substituted "subsections (2) to (3C)".

(8) In section 43 of that Act (provisions relating to joint lessees in cases involving new expenditure), after subsection (4) there shall be added the following subsection--

" (5) Any first-year allowance made in respect of expenditure to which section 22 applies by virtue only of subsection (3C) of that section shall be made on the same assumptions and subject to the same apportionments (if any) as it appears would, by virtue of subsection (3) above, be applicable in the case of a writing-down allowance. "

(9) This section shall have effect in relation to every chargeable period ending on or after 2nd July 1997.

43 Expenditure of a small company or small business

(1) After section 22 of the [1990 c. 1.] Capital Allowances Act 1990 there shall be inserted the following section--

" 22A Expenditure of a small company or small business

(1) For the purposes of section 22 capital expenditure incurred by a company is capital expenditure incurred by a small company if the company--

(a) qualifies as small or medium-sized in relation to the financial year of the company in which the expenditure is incurred; and

(b) is not a member of a large group at the time when the expenditure is incurred.

(2) For the purposes of section 22, capital expenditure is capital expenditure incurred by a small business if--

(a) it is incurred by a business for the purposes of a trade (the "first trade") carried on by that business; and

(b) were the first trade carried on by a company (the "hypothetical company") in the circumstances set out in subsection (3) below, that company would qualify as small or medium-sized in relation to the financial year of that company in which the expenditure would be treated as incurred.

(3) Those circumstances are--

(a) that every trade, profession or vocation carried on by the business concerned is carried on by the business as a part of the first trade;

(b) that the financial years of the hypothetical company coincide with the chargeable periods of the business concerned; and

(c) that accounts of the hypothetical company for any relevant chargeable period were prepared in accordance with the requirements of the [1985 c. 6.] Companies Act 1985 as if that period were a financial year of the company.

(4) Subject to subsection (5) below, a company is a member of a large group at the time when any expenditure is incurred if --

(a) it is at that time the parent company of a group which does not qualify as small or medium-sized in relation to the financial year of the parent company in which that time falls; or

(b) it is at that time a subsidiary undertaking in relation to the parent company of such a group.

(5) If, at the time when any expenditure is incurred by any company any arrangements exist which are such that, had effect been given to them immediately before that time, the company or a successor of the company would, at that time, have been a member of a large group, this section shall have effect as if the company concerned was a member of a large group at that time.

(6) In this section--

"arrangements" means arrangements of any kind, whether in writing or not, including arrangements that are not legally enforceable;
"business" means--
(a)
an individual;
(b)
a partnership of which all the members are individuals;
(c)
a registered friendly society within the meaning of Chapter II of Part XII of the principal Act; or
(d)
a body corporate which is not a company but is within the charge to corporation tax;
"company" means--
(a)
a company, or an oversea company, within the meaning of the [1985 c. 6.] Companies Act 1985; or
(b)
a company, or a Part XXIII company, within the meaning of the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986;
"financial year", "group", "parent company" and "subsidiary undertaking"--
(a)
except in relation to a company formed and registered in Northern Ireland, have the same meanings as in Part VII of the [1985 c. 6.] Companies Act 1985; and
(b)
in relation to a company so formed and registered, have the same meanings as in Part VIII of the Companies (Northern Ireland) Order 1986.

(7) References in this section, in relation to a company, to its qualifying as small or medium-sized--

(a) except in the case of a company formed and registered in Northern Ireland, are references to its so qualifying, or being treated as so qualifying, for the purposes of section 247 of the Companies Act 1985; and

(b) in the case of a company so formed and registered, are references to its so qualifying, or being treated as so qualifying, for the purposes of Article 255 of the Companies (Northern Ireland) Order 1986.

(8) In relation to a company with respect to which the question arises whether it is or would be a member of a large group, references to a group's qualifying as small or medium-sized--

(b) in the case of a company so formed and registered, are references to its so qualifying, or being treated as so qualifying, for the purposes of Article 257 of the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986.

(9) For the purposes of this section a company is the successor of another if--

(a) it carries on a trade which, in whole or in part, the other company has ceased to carry on; and

(b) the circumstances are such that section 343 of the principal Act applies in relation to the two companies as the predecessor and the successor within the meaning of that section. "

(2) This section shall have effect in relation to every chargeable period ending on or after 2nd July 1997.

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9

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