Finance Act 1998 (c. 36) (c. 36)

(The document as of February, 2008)

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a notice under section 28A(5) or 28B(5) of the [1970 c. 9.] Taxes Management Act 1970 stating the conclusions of an officer of the Board in relation to any self-assessment, partnership statement, claim or election; or

(b)

a closure notice under paragraph 32 of Schedule 18 to this Act in relation to an enquiry into a company tax return;

"discovery assessment" means--

(a)

an assessment under section 29 of the [1970 c. 9.] Taxes Management Act 1970; or

(b)

a discovery assessment or discovery determination under paragraph 41 of Schedule 18 to this Act (including an assessment by virtue of paragraph 52 of that Schedule).

(10) This section has effect--

(a) for the purposes of corporation tax, as respects accounting periods ending on or after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions); and

(b) for the purposes of income tax, as respects any year of assessment ending on or after that day.

111 Notice to potential claimants

(1) Where--

(a) a relevant notice is given to any person,

(b) that notice, or anything contained in it, takes account of a determination of an amount falling to be brought into account for tax purposes in respect of any assumption made by virtue of paragraph 1(2) of Schedule 28AA to the Taxes Act 1988 (provision not at arm's length), and

(c) it appears to an officer of the Board that there is a person who is or may be a disadvantaged person by reference to the subject-matter of that determination,

the officer shall give a notice under this section to the person who so appears to him.

(2) A notice under this section is a notice containing particulars of the determination by reference to which the person to whom the notice is given appears to an officer of the Board to be a person who is or may be a disadvantaged person.

(3) Where, in any case, there is a contravention of subsection (1) above or the notice required by that subsection is given after the giving of the relevant notice, the Board--

(a) shall consider whether, as a result of the contravention, any person has been prejudiced with respect to the making or amendment of a claim for the purposes of paragraph 6 of Schedule 28AA to the Taxes Act 1988 (claim for relief by party disadvantaged by transfer pricing adjustment), and

(b) may, if they think fit, treat the period for the making or amendment of such a claim in that case as extended by such further period as appears to them to be appropriate.

(4) Where, in a case in which a relevant notice is given to any person, there is a contravention of this section, that contravention shall not affect the validity of that notice or of any determination to which that notice relates.

(5) For the purposes of this section a person is a disadvantaged person by reference to the subject-matter of a determination such as is mentioned in subsection (1)(b) above if, and only if--

(a) he is entitled, in consequence of the making of the determination, to make a claim for the purposes of paragraph 6 of Schedule 28AA to the Taxes Act 1988;

(b) he is entitled, in consequence of the making of the determination, to amend such a claim; or

(c) he will be entitled, by virtue of paragraph 12(3) of that Schedule, to appear and be heard by the Special Commissioners in any proceedings on an appeal relating to that determination.

(6) In this section "relevant notice" means any of the following, that is to say--

(a) a notice under section 28A(5) or 28B(5) of the [1970 c. 9.] Taxes Management Act 1970 stating the conclusions of an officer of the Board in relation to any self-assessment, partnership statement, claim or election;

(b) a closure notice under paragraph 32 of Schedule 18 to this Act in relation to an enquiry into a company tax return;

(d) a notice of any discovery assessment or discovery determination under paragraph 41 of Schedule 18 to this Act (including any notice of an assessment by virtue of paragraph 52 of that Schedule);

(e) a notice under section 30B(1) of that Act of 1970 amending a partnership statement.

(7) This section applies to notices given at any time after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).

Controlled foreign companies

112 Exempt activities

(1) Part II of Schedule 25 to the Taxes Act 1988 (exempt activities) shall be amended as follows.

(2) In paragraph 9 (activities which constitute investment business) for sub-paragraph (1A) (definition of "intellectual property") there shall be substituted--

" (1A) In sub-paragraph (1)(a) above "intellectual property" includes (in particular)--

(a) any industrial, commercial or scientific information, knowledge or expertise;

(b) any patent, trade mark, registered design, copyright or design right;

(d) any rights under the law of a country outside the United Kingdom which correspond or are similar to those falling within paragraph (b) or (c) above. "

(3) In paragraph 11(1) (activities which constitute wholesale, distributive or financial business) for paragraph (c) (banking or any similar business involving the receipt of deposits, loans or both and the making of loans or investments) there shall be substituted--

" (c) banking, deposit-taking, money-lending or debt-factoring, or any business similar to banking, deposit-taking, money-lending or debt-factoring; " .

(4) In consequence of subsection (3) above--

(a) in paragraph 9(3), for "banking or any similar business" there shall be substituted "business";

(b) in paragraph 11(3), for "banking or other business" there shall be substituted "business".

(5) This section has effect in relation to accounting periods of a controlled foreign company, within the meaning of Chapter IV of Part XVII of the Taxes Act 1988, beginning on or after 17th March 1998.

113 Miscellaneous amendments

Schedule 17 to this Act (which makes provision in relation to controlled foreign companies) shall have effect.

Changes in company ownership

114 Postponed corporation tax

(1) After section 767A of the Taxes Act 1988 there shall be inserted the following section--

" 767AA Change in company ownership: postponed corporation tax

(1) Where it appears to the Board that--

(a) there has been a change in the ownership of a company ("the transferred company"),

(b) any corporation tax relating to an accounting period ending on or after the change has been assessed on the transferred company or an associated company,

(d) the condition set out in subsection (2) below is fulfilled,

any person mentioned in subsection (4) below may be assessed by the Board and charged to an amount of corporation tax not exceeding the amount remaining unpaid.

(2) The condition is that it would be reasonable (apart from this section) to infer, from either or both of--

(a) the terms of any transactions entered into in connection with the change, and

(b) the other circumstances of the change and of any such transactions,

that at least one of those transactions was entered into by one or more of its parties on the assumption, as regards a potential tax liability, that that liability would be unlikely to be met, or met in full, if it were to arise.

(3) In subsection (2) above the reference to a potential tax liability is a reference to a liability to pay corporation tax which--

(a) in circumstances which were reasonably foreseeable at the time of the change in ownership, or

(b) in circumstances the occurrence of which is something of which there was at that time a reasonably foreseeable risk,

would or might arise from an assessment made, after the change in ownership, on the transferred company or an associated company (whether or not a particular associated company).

(4) The persons mentioned in subsection (1) above are--

(a) any person who at any time during the relevant period had control of the transferred company;

(b) any company of which the person mentioned in paragraph (a) above has at any time had control within the period of three years before the change in the ownership of the transferred company.

(5) In subsection (4) above, "the relevant period" means--

(a) the period of three years before the change in the ownership of the transferred company; or

(b) if during the period of three years before that change ("the later change") there was a change in the ownership of the transferred company ("the earlier change"), the period elapsing between the earlier change and the later change.

(6) For the purposes of this section a transaction is entered into in connection with a change in the ownership of a company if--

(a) it is the transaction, or one of the transactions, by which that change is effected; or

(b) it is entered into as part of a series of transactions, or scheme, of which transactions effecting the change in ownership have formed or will form a part.

(7) For the purposes of this section--

(a) references to a scheme are references to any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions;

(b) it shall be immaterial in determining whether any transactions have formed or will form part of a series of transactions or scheme that the parties to any of the transactions are different from the parties to another of the transactions; and

(c) the cases in which any two or more transactions are to be taken as forming part of a series of transactions or scheme shall include any case in which it would be reasonable to assume that one or more of them--

(i) would not have been entered into independently of the other or others; or

(ii) if entered into independently of the other or others, would not have taken the same form or been on the same terms.

(8) In this section references, in relation to the transferred company and an assessment to tax, to an associated company are references to any compnay (whenever formed) which, at the time of the assessment or at an earlier time after the change in ownership--

(a) has control of the transferred company;

(b) is a company of which the transferred company has control; or

(9) A person assessed and charged to tax under this section shall be assessed and charged in the name of the company by whom the tax to which the assessment relates remains unpaid.

(10) Any assessment made under this section shall not be out of time if made within three years from the date of the final determination of the liability of the company by whom the tax remains unpaid to corporation tax for the accounting period for which that tax was assessed. "

(2) Subsection (1) above has effect in relation to changes in ownership occurring on or after 2nd July 1997 other than any change occurring in pursuance of a contract entered into before 2nd July 1997.

115 Information powers where ownership changes

(1) After section 767B of the Taxes Act 1988, there shall be inserted the following section--

" 767C Change in company ownership: information

(1) This section applies where it appears to the Board that--

(a) there has been a change in the ownership of a company ("the subject company"); and

(b) in connection with that change a person ("the seller") may be or become liable to be assessed and charged to corporation tax under section 767A or 767AA.

(2) The Board may by notice require any person to supply to them--

(a) any document in the person's possession or power which appears to the Board to be relevant for determining any one or more of the matters referred to in subsection (3) below; or

(b) any particulars which appear to them to be so relevant.

(3) Those matters are--

(a) whether the seller is or may become liable as mentioned in subsection (1) above and the extent of the liability or potential liability; and

(b) whether the subject company or an associated company is or may become liable to be assessed to any tax in respect of which the seller is or could become liable as mentioned in subsection (1) above, and the extent of the liability or potential liability of the subject company or associated company.

(4) Without prejudice to the following provisions of this section, the references in subsection (2) above to documents and particulars are references to the documents and particulars specified or described in the notice.

(5) A notice under subsection (2) above must specify the period, which must not be less than 30 days, within which the notice must be complied with.

(6) Any person to whom any documents are supplied under this section may take copies of them or of any extracts from them.

(7) A notice under subsection (2) above shall not oblige a person to supply any documents or particulars relating to the conduct of any pending appeal relating to tax.

(8) In relation to any notice under subsection (2) above--

(a) subsection (4) of section 20B of the [1970 c. 9.] Taxes Management Act 1970 (rules relating to copies of documents) shall apply as it applies in relation to a notice under section 20(1) of that Act; and

(b) subsections (8) to (14) of section 20B of that Act (rules about obtaining documents etc. from professional advisers) shall apply as they apply in relation to a notice under section 20(3) of that Act but as if any reference to an inspector were a reference to the Board;

and subsection (8C) of section 20 of that Act (exclusion of personal records and journalistic material) shall apply for the purposes of this section as it applies for the purposes of that section.

(9) In this section references, in relation to the subject company and an assessment to tax, to an associated company are references to any company which, at the time of the assessment or at an earlier time after the change in ownership--

(a) has control of the subject company;

(b) is a company of which the subject company has control; or

(10) In this section "document" means anything in which information of any description is recorded. "

(2) In the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties in respect of certain information provisions), after the entry in the first column relating to section 765A of the Taxes Act 1988, there shall be inserted the following entry-- " section 767C; " .

(3) The preceding provisions of this section have effect in relation to changes in ownership occurring on or after 2nd July 1997 other than any change occurring in pursuance of a contract entered into before 2nd July 1997.

116 Provisions supplemental to sections 114 and 115

(1) After subsection (1) of section 767B of the Taxes Act 1988 (supplementary provision about changes of company ownership), there shall be inserted the following subsection--

" (1A) In relation to corporation tax assessed under section 767AA, section 87A of the Management Act shall have effect as if the references to the date when the tax becomes due and payable were references to the date when the tax became due and payable by the transferred company or the associated company (as the case may be). "

(2) In subsection (2) of that section--

(a) after "767A" there shall be inserted "or 767AA"; and

(b) at the end there shall be added "or the transferred company or associated company (as the case may be)".

(3) In subsection (4) of that section, for "section 767A" there shall be substituted "sections 767A, 767AA and 767C".

(4) In subsection (10) of that section, for "section 767A" there shall be substituted "sections 767A and 767AA".

(5) In section 769 of that Act (rules for ascertaining change in ownership of a company)--

(a) in subsections (1) and (5), after "767A," there shall be inserted "767AA, 767C,";

(b) in subsection (2)(d), after "767A," there shall be inserted "767AA,"; and

(6) The preceding provisions of this section have effect in relation to changes in ownership occurring on or after 2nd July 1997 other than any change occurring in pursuance of a contract entered into before 2nd July 1997.

Corporation tax self-assessment

117 Company tax returns, assessments and related matters

(1) The provisions of Schedule 18 to this Act have effect in place of--

(a) the provisions of Parts II and IV of the [1970 c. 9.] Taxes Management Act 1970 (returns, assessment and claims), so far as they relate to corporation tax,

(b) certain related provisions of Part X of that Act (penalties),

(d) Schedule A1 to the [1990 c. 1.] Capital Allowances Act 1990 (corporation tax allowances: claims).

(2) Schedule 18 to this Act, the [1970 c. 9.] Taxes Management Act 1970 and the Tax Acts shall be construed and have effect as if that Schedule were contained in that Act.

(3) The enactments mentioned in Schedule 19 to this Act have effect with the amendments specified there, which are minor amendments and amendments consequential on Schedule 18.

(4) Except as otherwise provided, the provisions of Schedules 18 and 19 to this Act have effect in relation to accounting periods ending on or after the self-assessment appointed day.

(5) In this section "the self-assessment appointed day" means the day appointed by the Treasury under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (corporation tax self-assessment).

Telephone claims etc.

118 Claims for income tax purposes

(1) Subject to the following provisions of this section, the Board may, by publishing them in such manner as they think fit, give such general directions for the purposes of income tax as they consider appropriate with respect to--

(a) the circumstances in which, and

(b) the conditions subject to which,

claims under the Tax Acts may be made by individuals by the use of a telecommunication system (within the meaning of the [1984 c. 12.] Telecommunications Act 1984) or otherwise without producing a claim in writing.

(2) If directions of the Board under this section are for the time being in force with respect to the making to the Board or an officer of the Board of claims of any description, then, notwithstanding any enactment or subordinate legislation requiring claims of that description to be made in writing or by notice, claims of that description may be made to the Board or, as the case may be, an officer of the Board in any manner authorised by the directions.

(3) Where directions of the Board under this section are for the time being in force with respect to the making of claims of any description, claims of that description that are made without producing the claim in writing must be made in accordance with the directions.

(4) The power of the Board to give directions under this section--

(a) shall not be exercisable in relation to the making of any claim by an individual in his capacity as a trustee, partner or personal representative; but

(b) subject to that, shall be exercisable in relation to claims made by an individual through another person acting on his behalf.

(5) The Board shall not give directions under this section with respect to--

(a) the making of any claim to which Schedule 1B to the [1970 c. 9.] Taxes Management Act 1970 applies; or

(b) the making of any claim under any provision of the [1990 c. 1.] Capital Allowances Act 1990.

(6) Directions under this section--

(a) shall not be capable of modifying any requirement by or under any enactment as to the period within which any claim is to be made or as to the contents of any claim; but

(b) may include provision as to how any requirement as to the contents of a claim is to be fulfilled when the claim is not produced in writing.

(7) Different provision may be made by directions under this section with respect to the making of claims of different descriptions; and a direction under this section may revoke or vary any previous direction given under this section.

(8) References in the preceding provisions of this section to the making of a claim include references to any of the following--

(a) the making of an election,

(b) the giving of a notification or notice,

(d) the withdrawal of any claim, election, notification or notice,

and references in those provisions to a claim shall be construed accordingly.

(9) In this section--

"return" includes any statement or declaration under the Income Tax Acts;
"subordinate legislation" has the same meaning as in the [1978 c. 30.] Interpretation Act 1978.

(10) In section 832(1) of the Taxes Act 1988 (interpretation), in the definition of "notice", after "writing" there shall be inserted "or in a form authorised (in relation to the case in question) by directions under section 118 of the Finance Act 1998".

119 Evidential provisions in PAYE regulations

In section 203 of the Taxes Act 1988 (PAYE regulations), after subsection (9) there shall be inserted the following subsection--

" (10) Without prejudice to the generality of the powers conferred by the preceding provisions of this section, regulations under this section may include provision as to the manner of proving any of the matters for which the regulations provide and, in particular, of proving the contents or transmission of anything that, by virtue of the regulations, takes an electronic form or is transmitted to any person by electronic means. "

Chapter II Taxation of Chargeable Gains

Rate for trustees

120 Rate of CGT for trustees etc

(1) In section 4 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (rates of capital gains tax), after subsection (1) there shall be inserted the following subsection--

" (1AA) The rate of capital gains tax in respect of gains accruing to--

(a) the trustees of a settlement, or

(b) the personal representatives of a deceased person,

in a year of assessment shall be equivalent to the rate which for that year is applicable to trusts under section 686(1) of the Taxes Act. "

(2) Subsection (1) above applies for the year 1998-99 and subsequent years of assessment.

Taper relief and indexation allowance

121 Taper relief for CGT

(1) The following section shall be inserted after section 2 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992--

" 2A Taper relief

(1) This section applies where, for any year of assessment--

(a) there is, in any person's case, an excess of the total amount referred to in subsection (2) of section 2 over the amounts falling to be deducted from that amount in accordance with that subsection; and

(b) the excess is or includes an amount representing the whole or a part of any chargeable gain that is eligible for taper relief.

(2) The amount on which capital gains tax is taken to be charged by virtue of section 2(2) shall be reduced to the amount computed by--

(a) applying taper relief to so much of every chargeable gain eligible for that relief as is represented in the excess;

(b) aggregating the results; and

(c) adding to the aggregate of the results so much of every chargeable gain not eligible for taper relief as is represented in the excess.

(3) Subject to the following provisions of this Act, a chargeable gain is eligible for taper relief if--

(a) it is a gain on the disposal of a business asset with a qualifying holding period of at least one year; or

(b) it is a gain on the disposal of a non-business asset with a qualifying holding period of at least three years.

(4) Where taper relief falls to be applied to the whole or any part of a gain on the disposal of a business or non-business asset, that relief shall be applied by multiplying the amount of that gain or part of a gain by the percentage given by the table in subsection (5) below for the number of whole years in the qualifying holding period of that asset.

(5) That table is as follows--

Gains on disposals of business assets		Gains on disposals of non-business assets
Number of whole years in qualifying holding period	Percentage of gain chargeable	Number of whole years in qualifying holding period	Percentage of gain chargeable
1	92.5	--	--
2	85	--	--
3	77.5	3	95
4	70	4	90
5	62.5	5	85
6	55	6	80
7	47.5	7	75
8	40	8	70
9	32.5	9	65
10 or more	25	10 or more	60

(6) The extent to which the whole or any part of a gain on the disposal of a business or non-business asset is to be treated as represented in the excess mentioned in subsection (1) above shall be determined by treating deductions made in accordance with section 2(2)(a) and (b) as set against chargeable gains in such order as results in the largest reduction under this section of the amount charged to capital gains tax under section 2.

(7) Schedule A1 shall have effect for the purposes of this section.

(8) Subject to paragraph 2(4) of that Schedule, references in this section to the qualifying holding period of an asset are references--

(a) except in the case of an asset falling within subsection (9) below, to the period after 5th April 1998 for which that asset had been held at the time of its disposal; and

(b) in the case of an asset falling within that subsection, to the period mentioned in paragraph (a) above plus one year.

(9) An asset falls within this subsection if--

(a) the time which, for the purposes of paragraph 2 of Schedule A1, is the time when the asset is taken to have been acquired by the person making the disposal is a time before 17th March 1998; and

(b) there is no period which in the case of that asset is a period which by virtue of paragraph 11 or 12 of that Schedule does not count for the purposes of taper relief. "

(2) Before Schedule 1 to the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 there shall be inserted, as Schedule A1 to that Act, the Schedule set out in Schedule 20 to this Act.

(3) Schedule 21 to this Act (which makes incidental and consequential provision in connection with the introduction of taper relief) shall have effect.

(4) This section and those two Schedules have effect for the year 1998-99 and subsequent years of assessment.

122 Freezing of indexation allowance for CGT

(1) In section 53 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (indexation allowance), after subsection (1) there shall be inserted the following subsection--

" (1A) Indexation allowance in respect of changes shown by the retail prices indices for months after April 1998 shall be allowed only for the purposes of corporation tax. "

(2) In subsection (1) of section 54 of that Act (calculation of indexation allowance), in the definition of "RD", for "the month in which the disposal occurs" there shall be substituted "the relevant month".

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

" (1A) In subsection (1) above--

(a) the references to an item of relevant allowable expenditure shall not, except for the purposes of corporation tax, include any item of expenditure incurred on or after 1st April 1998; and

(b) the reference to the relevant month is a reference--

(i) where that subsection has effect for the purposes of capital gains tax, to April 1998; and

(ii) where that subsection has effect for the purposes of corporation tax, to the month in which the disposal occurs. "

(4) In section 13 of that Act (attribution of gains to non-resident companies), the following subsection shall be inserted after subsection (11)--

" (11A) For the purposes of this section the amount of the gain or loss accruing at any time to a company that is not resident in the United Kingdom shall be computed (where it is not the case) as if that company were within the charge to corporation tax on capital gains. "

(5) In section 145 of that Act (call options: indexation allowance), in subsection (1), after the word "applies", in the first place where it occurs, there shall be inserted "(subject to subsection (1A) below)"; and after that subsection there shall be inserted the following subsection--

" (1A) In a case where the whole of the expenditure comprised in the option consideration was incurred on or after 1st April 1998, this section applies for the purposes of corporation tax only. "

(6) Subject to subsection (7) below, the preceding provisions of this section have effect in relation to disposals on or after 6th April 1998.

(7) This section does not affect the computation of the amount of so much of any gain as--

(a) is treated for the purposes of the taxation of chargeable gains as having accrued on a disposal on or after 6th April 1998; but

(b) is taken for those purposes to be equal to the whole or any part of a gain that--

(i) would (but for any enactment relating to the taxation of chargeable gains) have accrued on an actual disposal made before that date, or

(ii) would have accrued on a disposal assumed under any such enactment to have been made before that date.

Pooling and identification of shares etc.

123 Abolition of pooling for CGT

(1) In subsection (2) of section 104 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (cases where share pooling does not apply), before the word "and" at the end of paragraph (a) there shall be inserted--

" (aa) does not apply, except for the purposes of corporation tax, to any securities acquired on or after 6th April 1998; " .

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

" (2A) Subsection (2)(aa) above shall not prevent the application of subsection (1) above to any securities that would be treated as acquired on or after 6th April 1998 but for their falling by virtue of section 127 to be treated as the same as securities acquired before that date. "

(3) In subsection (3) of that section (interpretation), for ""a new holding" is" there shall be substituted ""a section 104 holding" is".

(4) For subsection (4) of that section there shall be substituted the following subsection--

" (4) For the purposes of this Chapter securities of a company which are held--

(a) by a person who acquired them as an employee of the company or of any other person, and

(b) on terms which for the time being restrict his right to dispose of them,

shall (notwithstanding that they would otherwise fall to be treated as of the same class) be treated as of a different class from any securities acquired by him otherwise than as an employee of the company or of any other person and also from any shares that are not held subject to restrictions, or the same restrictions, on disposal or in the case of which the restrictions are no longer in force. "

(5) In the following enactments for the words "new holding", wherever they occur, there shall be substituted "section 104 holding", namely--

(a) in section 440A of the Taxes Act 1988 (securities held by insurance companies); and

(b) in sections 104(6), 107 and 110 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

(6) The preceding provisions of this section have effect in relation to any disposal on or after 6th April 1998 of any securities (whenever acquired).

(7) The powers of the Treasury to make provision by regulations under one or both of--

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