Finance Act 2000 (c. 17)

(The document as of February, 2008)

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(4) In section 312 of the Taxes Act 1988 (interpretation), after subsection (2) insert--

" (2A) References in this Chapter to a company being in administration or receivership shall be construed as follows--

(a) references to a company being "in administration" are to there being in force in relation to it--

(i) an administration order under Part II of the [1986 c. 45.] Insolvency Act 1986 or Part III of the [S.I. 1989/2405 (N.I. 19).] Insolvency (Northern Ireland) Order 1989, or

(ii) any corresponding order under the law of a country or territory outside the United Kingdom;

(b) references to a company being "in receivership" are to there being in force in relation to it--

(i) an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter I or II of Part III of the [1986 c. 45.] Insolvency Act 1986 or Part IV of the [S.I. 1989/2405 (N.I. 19).] Insolvency (Northern Ireland) Order 1989, or

(ii) any corresponding order under the law of a country or territory outside the United Kingdom. " .

Company in liquidation

10 In section 293(6) of the Taxes Act 1988 (circumstances in which liquidation does not affect company's qualifying status), paragraph (b) (requirement as to period within which company's net assets are distributed) shall cease to have effect.

Independence of qualifying company

11 In section 293 of the Taxes Act 1988 (qualifying companies), for subsection (8) substitute--

" (8) Subject to section 304A, the company must not at any time in the relevant period--

(a) control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary, or

(b) be--

(i) a 51% subsidiary of another company, or

(ii) under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company,

and no arrangements must be in existence at any time in that period by virtue of which the company could fall within paragraph (a) or (b) above (whether during that period or otherwise).

(8AA) In subsection (8)(b) above "control" has the meaning given by section 840. " .

Commencement

12 (1) The amendments in this Part of this Schedule have effect--

(a) in relation to shares issued on or after 21st March 2000, and

(b) in respect of the application of section 293 of the Taxes Act 1988 on or after that date in relation to shares--

(i) that were issued after 31st December 1993 but before 21st March 2000, and

(ii) to which income tax relief or deferral relief was attributable immediately before 21st March 2000.

(2) In sub-paragraph (1)--

"income tax relief" means relief under Chapter III of Part VII of the Taxes Act 1988 (enterprise investment scheme); and
"deferral relief" has the same meaning as in Schedule 5B to the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

Part III Other amendments

Qualifying trades

13 (1) In section 297 of the Taxes Act 1988 for subsections (4) and (5) (trades consisting of receiving royalties and licence fees) substitute--

" (4) A trade shall not be treated as failing to comply with this section by reason only that at some time in the relevant period it consists to a substantial extent in the receiving of royalties or licence fees if the royalties and licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.

(5) For this purpose an intangible asset is a "relevant intangible asset" if the whole or greater part (in terms of value) of it has been created--

(a) by the company carrying on the trade, or

(b) by a company which at all times during which it created the intangible asset was--

(i) the parent company of the company carrying on the trade, or

(ii) a qualifying subsidiary of that parent company.

(5A) For the purposes of subsection (5) above--

(a) in the case of an intangible asset that is intellectual property, references to the creation of the asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others);

(b) "parent company" means a company that--

(i) has one or more 51% subsidiaries, but

(ii) is not itself a 51% subsidiary of another company; and

(c) a subsidiary of the parent company referred to in subsection (5)(b) above is a "qualifying subsidiary" of that company if it is a subsidiary of a kind which the parent company may hold by virtue of section 308.

For the purposes of paragraph (c) above, section 308 shall have effect as if the references in that section to the qualifying company were to that parent company.

(5B) For the purposes of subsections (4) to (5A) above "intangible asset" means any asset which falls to be treated as an intangible asset in accordance with normal accounting practice.

For this purpose "normal accounting practice" means normal accounting practice in relation to the accounts of companies incorporated in any part of the United Kingdom.

(5C) In subsection (5A)(a) above "intellectual property" means--

(a) any patent, trade mark, registered design, copyright, design right, performer's right or plant breeder's right; and

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

(2) This paragraph has effect in relation to shares issued on or after 6th April 2000.

Meaning of "arrangements"

14 (1) In section 312 of the Taxes Act 1988 (interpretation), in subsection (1)--

(a) after "In this Chapter--" insert--

" "arrangements" includes any scheme, agreement or understanding, whether or not legally enforceable; " ; and

(b) in the definition of "control", after "291B(4)" insert ", 293(8)(b)".

(2) This paragraph has effect--

(a) in relation to shares issued on or after 21st March 2000, and

(b) in respect of the application of section 312 of the Taxes Act 1988 on or after that date in relation to shares--

(i) that were issued after 31st December 1993 but before 21st March 2000, and

(ii) to which income tax relief or deferral relief was attributable immediately before 21st March 2000.

(3) In sub-paragraph (2)--

"income tax relief" means relief under Chapter III of Part VII of the Taxes Act 1988 (enterprise investment scheme); and
"deferral relief" has the same meaning as in Schedule 5B to the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

Meaning of "research and development"

15 (1) In section 312 of the Taxes Act 1988 (interpretation), in subsection (1), for the definition of "research and development" substitute--

" "research and development" has the meaning given by section 837A; " .

(2) This paragraph has effect in relation to shares issued on or after 6th April 2000.

(3) Nothing in this paragraph affects the operation of any of the following provisions in relation to shares issued before 6th April 2000--

(a) Chapter III of Part VII of the Taxes Act 1988 (enterprise investment scheme);

(b) sections 573 and 574 of that Act (relief for losses on shares in trading companies);

Section 65.

SCHEDULE 18 Venture capital trusts: amendments

Part I Reduction of applicable periods

Relief from income tax

1 (1) Schedule 15B to the Taxes Act 1988 (venture capital trusts: relief from income tax) is amended as follows.

(2) In paragraph 2(3) (loan-linked investments), in the definition of "the relevant period" for "ending five years after the issue of the shares" substitute "ending immediately before the third anniversary of the date on which the shares were issued".

(3) In paragraph 3(1)(b) (loss of investment relief on disposal within five years), for "five years beginning with the issue of those shares to that individual" substitute "three years beginning with the date on which those shares were issued to that individual".

(4) In paragraph 6(1) (definition of "eligible shares") for "five" substitute "three".

Deferred CGT charge on reinvestment

2 In Schedule 5C to the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (venture capital trusts: deferred charge on re-investment), in paragraph 3(2), in the definition of "the relevant period" for "five" substitute "three".

Commencement

3 The amendments made by this Part of this Schedule have effect in relation to shares issued on or after 6th April 2000.

Part II Qualifying holdings

Introductory

4 Schedule 28B to the Taxes Act 1988 (venture capital trusts: qualifying holdings) is amended as follows.

Qualifying trade: receipt of royalties or licence fees

5 (1) In paragraph 4 (meaning of "qualifying trade") for sub-paragraphs (5) and (6) (trades consisting of receiving royalties and licence fees) substitute--

" (5) A trade shall not be treated as failing to comply with this paragraph by reason only that it consists to a substantial extent in the receiving of royalties or licence fees if the royalties and licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.

(6) For this purpose an intangible asset is a "relevant intangible asset" if the whole or greater part (in terms of value) of it has been created--

(a) by the company carrying on the trade, or

(b) by a company which at all times during which it created the intangible asset was--

(i) the parent company of the company carrying on the trade, or

(ii) a qualifying subsidiary of that parent company.

(6A) In the case of a relevant asset that is intellectual property, references in sub-paragraph (6) above to the creation of the asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).

(6B) For the purposes of sub-paragraphs (5) to (6A) above "intangible asset" means any asset which falls to be treated as an intangible asset in accordance with normal accounting practice.

For this purpose "normal accounting practice" means normal accounting practice in relation to the accounts of companies incorporated in any part of the United Kingdom.

(6C) For the purposes of sub-paragraph (6) above

(a) "parent company" means a company that--

(i) has one or more 51% subsidiaries, but

(ii) is not itself a 51% subsidiary of another company; and

(b) paragraph 10 below (meaning of "qualifying subsidiary") shall apply as if the references in that paragraph to the relevant company were references to the parent company referred to in sub-paragraph (6)(b) above.

(6D) For the purposes of sub-paragraph (6A) above "intellectual property" means--

(a) any patent, trade mark, registered design, copyright, design right, performer's right or plant breeder's right; and

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

(2) This paragraph has effect for the purpose of determining whether shares or securities issued on or after 6th April 2000 are, for the purposes of section 842AA of the Taxes Act 1988, to be regarded as comprised in a company's qualifying holdings.

Meaning of "research and development"

6 (1) In paragraph 5 (provisions supplemental to paragraph 4), in sub-paragraph (1) for the definition of "research and development" substitute--

" "research and development" has the meaning given by section 837A; " .

(3) Nothing in this paragraph affects the operation of Schedule 28B to the Taxes Act 1988 as it has effect for the purpose of determining whether shares or securities issued before that date are, for the purposes of section 842AA of that Act, to be regarded as comprised in a company's qualifying holdings.

Company in administration or receivership

7 (1) After paragraph 11 insert--

" Company in administration or receivership

11A (1) A company which is in administration or receivership shall not be regarded as ceasing to comply with paragraph 3(2) or (3) by reason of anything done as a consequence of its being in administration or receivership.

(2) For this purpose--

(a) a company is "in administration" if there is in force in relation to it--

(i) an administration order under Part II of the [1986 c. 45.] Insolvency Act 1986 or Part III of the [S.I. 1989/2405 (N.I. 19).] Insolvency (Northern Ireland) Order 1989, or

(ii) any corresponding order under the law of a country or territory outside the United Kingdom; and

(b) a company is "in receivership" if there is in force in relation to it--

(ii) any corresponding order under the law of a country or territory outside the United Kingdom.

(3) This paragraph applies only if--

(a) the making of the order in question, and

(b) everything done as a consequence of the company being in administration or receivership,

is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax. " .

(2) This paragraph has effect for the purposes of determining whether shares or securities are, as at any time on or after 21st March 2000, to be regarded as comprised in a company's qualifying holdings.

Company reorganisations etc. involving exchange of shares

8 (1) After paragraph 11A (inserted by paragraph 7 above), insert--

" Company reorganisations etc. involving exchange of shares

11B (1) The Treasury may by regulations make provision for cases where--

(a) a holding of shares or securities that meets the requirements of this Schedule is exchanged for other shares or securities,

(b) the exchange is made for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax, and

providing that the new shares or securities shall be treated as meeting those requirements.

(2) The references in sub-paragraph (1) to an exchange of shares or securities include any form of company reorganisation or other arrangement which involves a holder of shares or securities in a company receiving other shares or securities--

(a) whether the original shares or securities are transferred, cancelled or retained, and

(b) whether the new shares or securities are in the same or another company.

(3) The regulations shall specify--

(a) the cases in which, and conditions subject to which, they apply,

(b) which requirements of this Schedule are to be treated as met, and

(4) The regulations may contain such administrative provisions (including provision for advance clearances) as appear to the Treasury to be necessary or expedient.

(5) The regulations may authorise the Board to give notice to any person requiring him to provide such information, specified in the notice, as they may reasonably require in order to determine whether any conditions imposed by the regulations are met.

(6) Regulations under this paragraph--

(a) may make different provision for different cases,

(b) may include such supplementary, incidental and transitional provisions as appear to the Treasury to be appropriate, and

(2) In section 842AA of the Taxes Act 1988 (venture capital trusts: requirements for approval), after subsection (5AC) insert--

" (5AD) Regulations under paragraph 11B of Schedule 28B may make provision for the purposes of subsection (2)(b) to (d) above for securing that where--

(a) there is an exchange of shares to which regulations under that paragraph apply, and

(b) the new shares are treated by virtue of the regulations as meeting the requirements of that Schedule,

the value of the holding of new shares, and of any original shares that are retained under the exchange, shall be taken to be an amount such that the requirements of subsection (2)(b) to (d) above do not cease to be met by reason of the exchange.

(5AE) In subsection (5AD) above--

(a) "shares" includes securities; and

(b) "exchange of shares", "new shares" and "original shares" have the same meaning as in paragraph 11B of Schedule 28B. " .

(3) In the first column of the table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalty for failure to comply with notice requiring information etc.), after the entry relating to paragraph 4 of Schedule 22 to the Taxes Act 1988 insert "regulations under paragraph 11B(5) of Schedule 28B".

(4) This paragraph applies to exchanges of shares or securities (within the meaning of paragraph 11B(1) of Schedule 28B to the Taxes Act 1988) taking effect on or after 21st March 2000.

Section 68.

SCHEDULE 19 Meaning of "research and development"

Part I The new definition

Research and development

1 In Part XIX of the Taxes Act 1988 (general supplementary provisions), after section 837 insert--

" 837A Meaning of "research and development"

(1) The following provisions have effect for the purposes of, and subject to, the provisions of the Tax Acts which apply this section.

(2) "Research and development" means activities that fall to be treated as research and development in accordance with normal accounting practice.

This is subject to regulations under subsection (3) below.

(3) The Treasury may by regulations provide--

(a) that such activities as may be prescribed are not "research and development" for the purposes of this section, and

(b) that such other activities as may be prescribed are "research and development" for those purposes.

(4) Regulations under subsection (3) above may--

(a) make provision by reference to guidelines issued (whether before or after the coming into force of this section) by the Secretary of State, and

(b) make such supplementary, incidental, consequential or transitional provision as appears to the Treasury to be necessary or expedient.

(5) In subsection (2) above "normal accounting practice" means normal accounting practice in relation to the accounts of companies incorporated in a part of the United Kingdom.

(6) Unless otherwise expressly provided, "research and development" does not include oil and gas exploration and appraisal. " .

Oil and gas exploration and appraisal

2 In Part XIX of the Taxes Act 1988 (general supplementary provisions), after the section inserted by paragraph 1 above insert--

" 837B Meaning of "oil and gas exploration and appraisal"

(1) References in the Tax Acts to "oil and gas exploration and appraisal" are to activities carried out for the purpose of--

(a) searching for petroleum anywhere in an area, or

(b) ascertaining--

(i) the extent or characteristics of any petroleum-bearing area, or

(ii) what the reserves of petroleum of any such area are,

so that it may be determined whether the petroleum is suitable for commercial exploitation.

(2) For this purpose "petroleum" has the meaning given in section 1 of the [1998 c. 17.] Petroleum Act 1998. " .

Part II Consequential amendments

Income and Corporation Taxes Act 1988 (c. 1)

3 The [1988 c. 1.] Income and Corporation Taxes Act 1988 is amended as follows.

4 In section 495 (regional development grants), in subsection (1)(b) for "scientific research" substitute "research and development".

5 (1) In Part IV (provisions relating to the Schedule D charge), after section 82 insert--

" 82A Expenditure on research and development

(1) Notwithstanding anything in section 74, where a person carrying on a trade incurs expenditure not of a capital nature on research and development--

(a) related to that trade, and

(b) directly undertaken by him or on his behalf,

the expenditure incurred may be deducted as an expense in computing the profits of the trade for the purposes of tax.

(2) For this purpose expenditure on research and development does not include expenditure incurred in the acquisition of rights in, or arising out of, research and development.

Subject to that, it includes all expenditure incurred in carrying out, or providing facilities for carrying out, research and development.

(3) The reference in subsection (1) above to research and development related to a trade includes--

(a) research and development which may lead to or facilitate an extension of that trade;

(b) research and development of a medical nature which has a special relation to the welfare of workers employed in that trade.

(4) The same expenditure may not be taken into account under this section in relation to more than one trade.

(5) In this section "research and development" has the meaning given by section 837A and includes oil and gas exploration and appraisal.

82B Payments to research associations, universities etc

(1) Notwithstanding anything in section 74, where a person carrying on a trade--

(a) pays any sum to a scientific research association that--

(i) has as its object the undertaking of scientific research related to the class of trade to which the trade he is carrying on belongs, and

(ii) is for the time being approved for the purposes of this section by the Secretary of State, or

(b) pays any sum to be used for such scientific research as is mentioned in paragraph (a) above to any such university, college research institute or other similar institution as is for the time being approved for the purposes of this section by the Secretary of State,

the sum paid may be deducted as an expense in computing the profits of the trade for the purposes of tax.

(2) In this section "scientific research" means any activities in the fields of natural or applied science for the extension of knowledge.

(3) The reference in this section to scientific research related to a class of trade includes--

(a) scientific research which may lead to or facilitate an extension of trades of that class;

(b) scientific research of a medical nature which has a special relation to the welfare of workers employed in trades of that class.

(4) If a question arises under this section whether, or to what extent, any activities constitute or constituted scientific research, the Board shall refer the question for decision to the Secretary of State.

The decision of the Secretary of State is final.

(5) The same expenditure may not be taken into account under this section in relation to more than one trade. " .

(2) Any approval given by the Secretary of State for the purposes of section 136(b) or (c) of the [1990 c. 1.] Capital Allowances Act 1990 and in force immediately before the commencement of this paragraph has effect as if given under section 82B(1)(a) or (b) of the Taxes Act 1988 as inserted by sub-paragraph (1) above.

(3) So far as is necessary for continuing its effect, any decision made by the Secretary of State under section 139(3) of the [1990 c. 1.] Capital Allowances Act 1990 before the commencement of this paragraph has effect as if given under section 82B(4) of the Taxes Act 1988 as inserted by sub-paragraph (1) above.

6 In Schedule 18 (group relief: equity holders and profits or assets available for distribution), in paragraph 1(6)(b)(iii) for "scientific research" substitute "research and development (within the meaning of Part VII of that Act)".

Capital Allowances Act 1990 (c. 1)

7 The Capital Allowances Act 1990 is amended as follows.

8 For "scientific research", wherever occurring, substitute "research and development".

The provisions affected by this amendment are: section 4(5), (9) (twice) and (10), section 8(5), section 56D(1)(a), section 118(2), section 137(1) (twice), (1A) (twice), (3) (three times), section 138(1), (3A)(a) and (5)(b), section 138A(3), section 139(1)(b) (twice), (1)(c) (three times), (1)(d) (three times), section 158(2)(d) and section 161(2).

9 In section 137(1)(b) after "that research" insert "and development".

10 In section 139 (supplementary provisions), in subsection (1) for paragraph (a) substitute--

" (a) "research and development" has the meaning given by section 837A of the principal Act and includes oil and gas exploration and appraisal; " .

11 In section 161 after "other than an allowance under section 136" insert "(as that section had effect before it was repealed by the Finance Act 2000)".

Taxation of Chargeable Gains Act 1992 (c. 12)

12 (1) Section 195 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (allowance of certain drilling expenditure) is amended as follows.

(2) In subsections (2) and (3) for "scientific research" in each place substitute "research and development".

(3) In subsection (3) after "that research" insert "and development".

(4) After subsection (7) insert--

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