Finance Act 2002 (c. 23)

(The document as of February, 2008)

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(3) This paragraph does not apply to a grant within paragraph 103 (grants to be left out of account for tax purposes).

Grants to be left out of account for tax purposes

103 (1) This paragraph applies to--

(a) grants under Part 2 of the Industrial Development Act 1982 (c. 52) (regional development grants); and

(b) grants made under Northern Ireland legislation and declared by the Treasury by order to correspond to a grant under that Part.

These are referred to below in this paragraph as "exempt grants".

(2) Any gain recognised in the company's profit and loss account in respect of an exempt grant shall be disregarded for the purposes of this Schedule.

(3) Where as a result of an exempt grant being brought into account by a company there is a reduction--

(a) in the amount of a loss recognised in the company's profit and loss account, or

(b) in the amount of expenditure on an intangible fixed asset that is capitalised for accounting purposes,

the amount of the reduction shall be added back for the purposes of this Schedule.

Finance leasing etc

104 (1) The Treasury may make provision by regulations as to the application of this Schedule in relation to a company that is the finance lessor of an intangible asset that is the subject of a finance lease.

(2) The regulations may provide--

(a) that, notwithstanding that the asset is accounted for by the finance lessor as a financial asset, this Schedule shall apply as if the asset were an intangible fixed asset of the lessor and not a financial asset;

(b) that this Schedule shall apply as if the amount at which the asset is recognised in the finance lessor's balance sheet were capitalised expenditure on an intangible fixed asset, but that--

(i) no election may be made under paragraph 10 (election for writing down on fixed rate basis) in respect of that amount; and

(ii) that amount is not to be treated as capitalised expenditure for the purposes of paragraph 39(1)(b) (roll-over relief in case of realisation and reinvestment: conditions to be met in relation to expenditure on other assets);

(c) that where an asset formerly recognised by the lessor for accounting purposes as an intangible fixed asset becomes subject to a finance lease (and accordingly comes to be accounted for as a financial asset) the value of the asset so created is recognised as realisation proceeds of the intangible fixed asset on the change of accounting treatment;

(d) that assets partially excluded from this Schedule by paragraph 78 to 81 (assets excluded except as regards royalties) are entirely excluded from this Schedule as regards the finance lessor if they are subject to a finance lease and are accounted for by the lessor as financial assets;

(e) for excluding from the regulations assets used by the finance lessee for the purposes of a trade or business in respect of which he is within the charge to income tax;

(f) that an intangible asset counts as an existing asset in the hands of the finance lessor if the finance lessee is--

(i) a company for whom the asset was the whole or part of an existing asset, or

(ii) a person who is a related party in relation to such a company.

(3) The regulations may contain such consequential, supplementary, incidental and transitional provision, including provision modifying the operation of other provisions of the Corporation Tax Acts, as appears to the Treasury to be appropriate.

(4) References in this paragraph to a finance lease--

(a) have the meaning they have for accounting purposes, and

(b) include hire-purchase, conditional sale or other arrangements if they are of a similar character to a finance lease.

(5) References to the finance lessor or finance lessee have a corresponding meaning.

(6) Regulations under this paragraph may be made so as to have effect from 1st April 2002.

Assets acquired or realised together

105 (1) Any reference in this Schedule to the acquisition or realisation of an asset includes the acquisition or realisation of that asset together with other assets.

(2) For the purposes of this Schedule assets acquired or realised as a result of one bargain are treated as acquired or realised together even though--

(a) separate prices are, or purport to be, agreed for separate assets, or

(b) there are, or purport to be, separate acquisitions or realisations of separate assets.

(3) Where assets are acquired together--

(a) any values allocated to particular assets by the company in accordance with generally accepted accounting practice shall be accepted for the purposes of this Schedule;

(b) if no such values are allocated by the company, so much of the expenditure as on a just and reasonable apportionment is properly attributable to each asset shall be treated for the purposes of this Schedule as referable to that asset.

(4) Where assets are realised together, so much of the proceeds of realisation as on a just and reasonable apportionment is properly attributable to each asset shall be treated for the purposes of this Schedule as proceeds of the realisation of that asset.

Deemed market value acquisition: adjustment of amounts in case of nil accounting value

106 (1) This paragraph applies where a company is treated for the purposes of this Schedule as acquiring an asset at market value but the accounting value of the asset transferred, in the hands of the transferee, is nil.

(2) Where this paragraph applies--

(a) any reference in this Schedule to--

(i) the cost of the asset recognised for accounting purposes,

(ii) the accounting value of the asset, or

(iii) the amount of any loss recognised for accounting purposes in respect of capitalised expenditure on the asset,

shall be read as references to the cost, value or loss that would have been recognised if the asset had been acquired at market value; and

(b) any revaluation of the asset (as defined in paragraph 15) shall be disregarded.

Treatment of fungible assets

107 (1) For the purposes of this Schedule fungible assets of the same kind held by the same person in the same capacity shall be treated as indistinguishable parts of a single asset, growing or diminishing as additional assets of the same kind are created or acquired or some of the assets are realised.

(2) In this Schedule "fungible assets" here means assets of a nature to be dealt in without identifying the particular assets involved.

Asset ceasing to be chargeable intangible asset: deemed realisation at market value

108 (1) Where an asset ceases to be a chargeable intangible asset in relation to a company--

(a) on the company ceasing to be resident in the United Kingdom, or

(b) in the case of a company that is not resident in the United Kingdom, in any circumstances not involving the realisation of the asset by the company, or

this Schedule has effect as if the company had, immediately before the asset ceased to be a chargeable intangible asset in relation to it, realised the asset for its market value at that time and immediately reacquired it at that value.

(2) Sub-paragraph (1) has effect subject to paragraph 109 (postponement of gain in certain cases).

Asset ceasing to be chargeable intangible asset: postponement of gain in certain cases

109 (1) Where--

(a) paragraph 108 (asset ceasing to be chargeable asset: deemed realisation at market value) applies by reason of a company ("company A") ceasing to be resident in the United Kingdom,

(b) immediately before company A ceases to be resident in the United Kingdom the asset is held by it for the purposes of a trade carried on by it outside the United Kingdom through a branch or agency,

(c) the proceeds of the deemed realisation of the asset exceed the original cost of the asset recognised for tax purposes,

(d) immediately after company A ceases to be resident in the United Kingdom it is a 75% subsidiary of another company ("company B") that is resident in the United Kingdom, and

(e) company A and company B so elect by notice given to the Inland Revenue not later than two years after the date when company A ceased to be resident in the United Kingdom,

this Schedule has effect as if the proceeds of the deemed realisation of the asset were reduced by the amount of the excess referred to in paragraph (c).

The amount of the reduction is referred to below in this paragraph as "the postponed gain".

(2) If company A subsequently realises the asset before the end of the period of six years after the date on which the company ceased to be resident in the United Kingdom, company B shall bring into account for tax purposes a credit equal to the postponed gain or, in the case of a part realisation, the appropriate proportion of the postponed gain.

The appropriate proportion is given by:

---

where--

Old Value is the market value of the asset immediately before the part realisation, and
New Value is the market value of the asset immediately after the part realisation.

(3) Sub-paragraph (2) does not apply--

(a) to the extent that the postponed gain has already been brought into account on a previous part realisation, or

(b) if the postponed gain has already been brought into account under sub-paragraph (4).

(4) If at any time after company A ceases to be resident in the United Kingdom--

(a) it ceases to be a 75% subsidiary of company B on the disposal by that company of ordinary shares of company A, or

(b) after it has ceased to be such a subsidiary otherwise than on such a disposal, company B disposes of such shares, or

company B shall bring into account for tax purposes a credit equal to the postponed gain.

This sub-paragraph does not apply if, or to the extent that, the postponed gain has already been brought into account under sub-paragraph (2).

(5) Any credit falling to be brought into account under sub-paragraph (4)(c) shall be brought into account immediately before company B ceases to be resident in the United Kingdom.

(6) A credit brought into account by company B under this paragraph is treated as a non-trading credit for the purposes of Part 6 (how debits and credits are given effect).

Asset becoming chargeable intangible asset

110 (1) This paragraph applies where an asset becomes a chargeable intangible asset in relation to a company--

(a) on the company becoming resident in the United Kingdom, or

(b) in the case of a company that is not resident in the United Kingdom, on beginning to be held for the purposes of a trade carried on by it in the United Kingdom through a branch or agency, or

(2) Where this paragraph applies this Schedule has effect as if the company had acquired the asset, immediately after it became a chargeable intangible asset in relation to the company, for its accounting value at that time.

Tax avoidance arrangements to be disregarded

111 (1) Tax avoidance arrangements shall be disregarded in determining--

(a) whether debits are to be brought into account under paragraph 9 (writing down on accounting basis) or the amount of such debits, or

(b) whether a credit is to be brought into account under Part 4 (realisation) or the amount of any such credit.

(2) Arrangements are "tax avoidance arrangements" if their main object or one of their main objects is to enable a company--

(a) to obtain a debit under paragraph 9 to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled, or

(b) to avoid having to bring a credit into account under Part 4 or to reduce the amount of any such credit.

(3) In this paragraph--

"arrangements" includes any scheme, agreement or understanding, whether or not legally enforceable; and
"brought into account" means brought into account for tax purposes.

Debits not allowed in respect of expenditure not generally deductible for tax purposes

112 (1) No debit may be brought into account for tax purposes under this Schedule in respect of expenditure that is not generally deductible for tax purposes.

(2) Expenditure is "not generally deductible for tax purposes" if, or to the extent that, revenue expenditure of that description incurred for the purposes of a trade would be non-deductible by virtue of--

(a) section 577 of the Taxes Act 1988 (expenditure on business entertainment or gifts),

(b) section 577A of that Act (crime-related expenditure),

(d) section 76(1) to (3) of the Finance Act 1989 (c. 26) (expenditure on providing non-approved non-taxable retirement benefits).

Delayed payment of emoluments

113 (1) Where--

(a) a debit in respect of emoluments is recognised by a company for accounting purposes, and

(b) the emoluments are not paid until after the end of the period of nine months beginning with the end of the period of account in which the debit is recognised,

the emoluments shall be brought into account for the purposes of this Schedule only when they are paid.

(2) For the purposes of this paragraph--

(a) "emoluments" means emoluments allocated either--

(i) in respect of particular offices or employments (or both), or

(ii) generally in respect of offices or employments (or both); and

(b) emoluments are paid when they are treated as received (applying the rules in section 202B of the Taxes Act 1988 as for the purposes of section 202A(1)(a) of that Act (receipts basis of assessment for Schedule E)).

(3) This paragraph applies to potential emoluments as it applies to emoluments.

For this purpose--

(a) potential emoluments are amounts or benefits reserved in the accounts of an employer, or held by an intermediary, with a view to their becoming emoluments, and

(b) potential emoluments are regarded as paid when they become emoluments that are paid.

(4) Any adjustment required by this paragraph of an accounting debit that is partly referable to an amount to which this paragraph applies and partly to other matters shall be made on a just and reasonable basis.

(5) If a calculation for tax purposes has to be made before the end of the period of nine months mentioned in sub-paragraph (1)(b) and emoluments have not been paid--

(a) it shall be assumed for the purpose of making the calculation that they will not be paid before the end of that period, but

(b) the calculation shall be adjusted if the emoluments are subsequently paid before the end of that period and a claim is made.

Any such claim to adjust a calculation must be made to the Inland Revenue before the end of the period of two years beginning with the end of the period of account concerned.

Delayed payment of pension contributions

114 (1) This paragraph applies where--

(a) a debit in respect of pension contributions is recognised by a company for accounting purposes, and

(b) the contributions are not paid until after the end of the period of account in which the debit is recognised.

(2) Where this paragraph applies, the contributions shall be brought into account for the purposes of this Schedule only when they are paid.

(3) For the purposes of this paragraph "pension contributions" means--

(a) sums paid by an employer by way of contributions under a scheme to which section 592 of the Taxes Act 1988 applies (exempt approved schemes),

(b) sums paid to the trustees of such a scheme that are treated for the purposes of that section as employer's contributions (see subsection (6A) of that section), or

(c) expenses within section 76(5) or (6) of the Finance Act 1989 (c. 26) (expenses of providing benefits under non-approved retirement benefit scheme).

Bad debts etc

115 (1) For the purposes of this Schedule a debt shall be brought into account on the assumption that the amount payable will be paid in full when it becomes due, except to the extent that--

(a) the debt is bad,

(b) the debt is estimated to be bad, or

(2) In sub-paragraph (1)(c) a "statutory insolvency arrangement" means--

(a) a voluntary arrangement that has taken effect under or by virtue of the Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 (N.I. 19)), or

(b) a compromise or arrangement that has taken effect under section 425 of the Companies Act 1985 (c. 6) or Article 418 of the Companies (Northern Ireland) Order 1986 (SI 1986/1032 (N.I. 6)).

(3) Where a debt is released as mentioned in sub-paragraph (1)(c) any gain in respect of the release brought into account for accounting purposes by the debtor shall be disregarded for the purposes of this Schedule.

(4) Any other gain in respect of an unpaid debt in respect of an intangible fixed asset that is brought into account by the debtor for accounting purposes is treated for the purposes of paragraph 14 (receipts recognised as they accrue) as a gain in respect of an intangible fixed asset.

(5) Any adjustment required by this paragraph of an accounting gain or loss that is partly referable to an amount affected by this paragraph and partly to other matters shall be made on a just and reasonable basis.

Assumptions for computing chargeable profits of controlled foreign companies

116 (1) In computing the amount mentioned in section 747(6) of the Taxes Act 1988 (chargeable profits of controlled foreign company) the following assumptions shall be made for the purpose of applying the provisions of this Schedule.

(2) It shall be assumed that any intangible fixed asset acquired or created by the company before the beginning of the first accounting period--

(a) in respect of which an apportionment under section 747(3) falls to be made, or

(b) which is an ADP exempt period,

was acquired or created by the company at the beginning of that accounting period at a cost equal to its value recognised for accounting purposes at that time.

(3) Notwithstanding paragraph 4(1) of Schedule 24 of the Taxes Act 1988 (assumption that all available reliefs have been claimed), it shall be assumed that the company has not claimed any relief under Part 7 (roll-over relief in case of reinvestment) or made any provisional declaration of entitlement to such relief.

But this assumption does not apply, if notice is given in accordance with paragraph 4(2) of that Schedule requesting that it should not apply, to such claims, and to such extent, as may be specified in the notice.

(4) Expressions used in this paragraph that are defined for the purposes of Chapter 4 of Part 17 of the Taxes Act 1988 (controlled foreign companies) have the same meaning in this paragraph.

(5) The assumption in sub-paragraph (2) above does not affect the determination of the question whether this Schedule applies to an asset in accordance with paragraph 118 (application of Schedule to assets created or acquired after commencement).

Part 14 Commencement and transitional provisions

Commencement date

117 (1) The commencement date for the purposes of this Schedule is 1st April 2002.

(2) In this Part--

"after commencement" means on or after that date and "before commencement" means before that date; and
"the existing law" means the law as it was before commencement.

Application of Schedule to assets created or acquired after commencement

118 (1) Except as otherwise expressly provided, the provisions of this Schedule apply only to intangible fixed assets of a company ("the company") that--

(a) are created by the company after commencement, or

(b) are acquired by the company after commencement from a person who at the time of the acquisition is not a related party in relation to the company, or

(c) are acquired by the company after commencement from a person who at the time of the acquisition is a related party in relation to the company in the cases specified in sub-paragraph (2).

As to when assets are regarded as created or acquired, see paragraphs 120 to 125.

(2) The cases mentioned in sub-paragraph (1)(c) in which this Schedule applies to assets acquired by the company after commencement from a related party are--

(a) where the asset is acquired from a company in relation to which the asset was a chargeable intangible asset immediately before the acquisition;

(b) where the asset is acquired from a person ("the intermediary") who acquired the asset after commencement from a third person--

(i) who was not at the time of that acquisition a related party in relation to the intermediary or, where the intermediary was not a company, a company in relation to which the intermediary was a related party, and

(ii) who is not, at the time of the acquisition by the company, a related party in relation to the company;

(3) Intangible fixed assets to which, by virtue of sub-paragraph (1), this Schedule does not apply in the absence of express provision to that effect are referred to in this Schedule as "existing assets".

(4) Sub-paragraph (1) has effect subject to--

(a) paragraph 126 (application of Schedule to fungible assets), and

(b) paragraph 127 (certain assets acquired on transfer of a business treated as existing assets).

(5) The following paragraphs contain provision for the application of this Schedule in relation to certain existing assets--

paragraphs 128 and 129 (application of Schedule to certain existing assets);
paragraphs 130 to 132 (application of roll-over relief in relation to certain existing assets).

(6) Nothing in this paragraph shall be read as restricting the application of this Schedule in accordance with paragraph 119 (application of Schedule to royalties).

Application of Schedule to royalties

119 (1) This Schedule--

(a) applies to royalties recognised for accounting purposes after commencement, and

(b) does not apply to royalties recognised for accounting purposes before commencement,

subject to the following provisions.

(2) To the extent that royalties have been brought into account before commencement, they shall not be brought into account again under this Schedule after commencement.

(3) To the extent that royalties would have been brought into account before commencement if the provisions of this Schedule had been in force, and were not so brought into account, they shall be brought into account immediately after commencement.

(4) For the purposes of this paragraph an amount is "brought into account" if--

(a) it is brought into account for tax purposes, or

(b) it would have been so brought into account if the person concerned had been within the charge to corporation tax.

Assets regarded as created or acquired when expenditure incurred

120 (1) This paragraph has effect for the purposes of paragraph 118 (application of Schedule to assets created or acquired after commencement) and applies to all intangible assets except those to which paragraph 121 or 122 applies (certain internally-generated assets).

(2) An intangible asset to which this paragraph applies is regarded as created or acquired after commencement to the extent that expenditure on its creation or acquisition is incurred after commencement.

As to whether expenditure on the creation or acquisition of the asset was incurred after commencement, see paragraphs 123 to 125.

(3) If only part of the expenditure on the creation or acquisition of the asset is incurred after commencement--

(a) this Schedule has effect as if there were a separate asset representing the expenditure so incurred, and

(b) the enactments that apply where this Schedule does not apply have effect as if there were a separate asset representing the expenditure not so incurred.

Any apportionment necessary for this purpose shall be made on a just and reasonable basis.

Internally-generated goodwill: whether created before or after commencement

121 For the purposes of paragraph 118 (application of Schedule to assets created or acquired after commencement) internally-generated goodwill is regarded as created before (and not after) commencement if the business in question was carried on at any time before commencement by the company or a related party.

Certain other internally-generated assets: whether created before or after commencement

122 (1) This paragraph has effect for the purposes of paragraph 118 (application of Schedule to assets created or acquired after commencement) and applies to an internally-generated asset representing expenditure that under the existing law is not qualifying expenditure for the purposes of any allowance under the Capital Allowances Act 2001 (c. 2) ("non-qualifying expenditure").

(2) If only part of the expenditure on the creation or acquisition of the asset is non-qualifying expenditure--

(a) this Schedule has effect as if there were separate assets representing the non-qualifying expenditure and the other expenditure, and

(b) if this Schedule does not apply to the former, the enactments that apply where this Schedule does not apply also have effect as if there were a separate asset representing the non-qualifying expenditure.

Any apportionment necessary for this purpose shall be made on a just and reasonable basis.

(3) An asset to which this paragraph applies is regarded for the purposes of paragraph 118 as created before (and not after) commencement if the asset in question was held at any time before commencement by the company or a related party.

Expenditure on acquisition treated as incurred when recognised for accounting purposes

123 (1) For the purposes of paragraph 120 (assets regarded as created or acquired when expenditure incurred) the general rule is that expenditure on the acquisition of an asset is treated as incurred when it is recognised for accounting purposes.

(2) This is subject to--

paragraph 124 (chargeable gains rules to be followed in certain cases), and
paragraph 125 (capital allowances rule to be followed in certain cases).

When expenditure treated as incurred: chargeable gains rule to be followed in certain cases

124 For the purposes of paragraph 120 (assets regarded as created or acquired when expenditure incurred) expenditure on the acquisition of the asset that--

(a) does not qualify for any form of tax relief against income under the existing law, and

(b) would be treated as incurred after commencement under the general rule in paragraph 123,

shall be treated as incurred before commencement if the asset is (or would be) treated as disposed of (and thus acquired) before commencement for the purposes of the Taxation of Chargeable Gains Act 1992 (c. 12).

When expenditure treated as incurred: capital allowances general rule to be followed in certain cases

125 (1) For the purposes of paragraph 120 (assets regarded as created or acquired when expenditure incurred) expenditure on the creation or acquisition of an asset that under the existing law is qualifying expenditure for the purposes of any allowance under the Capital Allowances Act 2001 (c. 2) is treated as incurred when an unconditional obligation to pay it comes into being.

(2) For this purpose there may be an unconditional obligation to pay although the whole or part of the expenditure is not required to be paid until a later date.

Application of Schedule to fungible assets

126 (1) The provisions of this paragraph have effect for the purposes of this Part in relation to assets to which paragraph 107 applies (treatment of fungible assets as single asset)

(2) Paragraph 107 applies as if--

(a) existing assets, and

(b) intangible fixed assets that are not existing assets,

were assets of different kinds.

(3) Where paragraph 107 applies (by virtue of sub-paragraph (2) or otherwise)--

(a) a single asset comprising existing assets is treated as itself being an existing asset, and

(b) a single asset comprising intangible fixed assets that are not existing assets is treated as itself being an asset to which this Schedule applies.

(4) The realisation by a company of an intangible fixed asset that apart from sub-paragraph (2) would be regarded as part of a single asset comprising both existing assets and assets that are not existing assets shall be regarded as diminishing the single asset of the company comprising existing assets in priority to diminishing the single asset of the company comprising assets that are not existing assets.

(5) Intangible fixed assets acquired by a company that would not otherwise be regarded as existing assets shall be treated as existing assets to the extent that they are to be identified, in accordance with the following rules, with existing assets realised by the company.

(6) The rules are--

(a) that assets acquired are to be identified with existing assets of the same kind realised by the company within the period beginning 30 days before and ending 30 days after the date of the acquisition;

(b) that assets realised earlier are to be identified before assets realised later;

The reference in paragraph (a) to assets "of the same kind" are to assets that are, or but for sub-paragraph (2) would be, treated by virtue of paragraph 107 as part of a single asset.

Certain assets acquired on transfer of business treated as existing assets

127 (1) This paragraph applies where--

(a) an asset that is an existing asset in the hands of a company ("the transferor company") is transferred to another company ("the transferee company"), and

(b) the transfer is one in relation to which--

(i) section 139 of the Taxation of Chargeable Gains Act 1992 (c. 12) (reconstruction involving transfer of business), or

(ii) section 140A of that Act (transfer of UK trade to company resident in another member State),

applies with the effect that the transferor company is treated for the purposes of that Act as disposing of the asset for a consideration that secures that neither a gain nor a loss accrues to that company.

(2) Where this paragraph applies the asset shall be treated for the purposes of this Schedule as an existing asset in the hands of the transferee company.

(3) This paragraph does not apply where the transfer mentioned in sub-paragraph (1) occurred before 28th June 2002.

Application of Schedule to certain existing telecommunication rights

128 (1) This Schedule applies to an existing asset consisting of a licence or other right within Schedule 23 to the Finance Act 2000 (c. 17) (certain telecommunication rights).

(2) This Schedule has effect in relation to the asset--

(a) as regards amounts to be brought into account for tax purposes in accounting periods ending after commencement, and

(b) as if amounts brought into account for tax purposes in earlier accounting periods under Schedule 23 to the Finance Act 2000 (c. 17) had been so brought into account under this Schedule.

(3) If the asset--

(a) was acquired before the beginning of the first accounting period to which this Schedule applies in relation to it, and

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