Finance Act 1996 (c. 8)

(The document as of February, 2008)

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(2) For the purposes of this paragraph a loan relationship of a company shall be taken to have an unallowable purpose in an accounting period where the purposes for which, at times during that period, the company--

(a) is a party to the relationship, or

(b) enters into transactions which are related transactions by reference to that relationship,

include a purpose ("the unallowable purpose") which is not amongst the business or other commercial purposes of the company.

(3) For the purposes of this paragraph the business and other commercial purposes of a company do not include the purposes of any part of its activities in respect of which it is not within the charge to corporation tax.

(4) For the purposes of this paragraph, where one of the purposes for which a company--

(a) is a party to a loan relationship at any time, or

(b) enters into a transaction which is a related transaction by reference to any loan relationship of the company,

is a tax avoidance purpose, that purpose shall be taken to be a business or other commercial purpose of the company only where it is not the main purpose, or one of the main purposes, for which the company is a party to the relationship at that time or, as the case may be, for which the company enters into that transaction.

(5) The reference in sub-paragraph (4) above to a tax avoidance purpose is a reference to any purpose that consists in securing a tax advantage (whether for the company or any other person).

(6) In this paragraph--

"related transaction" has the same meaning as in section 84 of this Act; and
"tax advantage" has the same meaning as in Chapter I of Part XVII of the Taxes Act 1988 (tax avoidance).

Debits and credits treated as relating to capital expenditure

14 (1) This paragraph applies where any debit or credit given by an authorised accounting method for any accounting period in respect of a loan relationship of a company is allowed by normal accountancy practice to be treated, in the accounts of the company, as an amount brought into account in determining the value of a fixed capital asset or project.

(2) Notwithstanding the application to it of the treatment allowed by normal accountancy practice, the debit or credit shall be brought into account for the purposes of corporation tax, for the accounting period for which it is given, in the same way as a debit or credit which, in accordance with normal accountancy practice, is brought into account in determining the company's profit or loss for that period.

Repo transactions and stock-lending

15 (1) In determining the debits and credits to be brought into account for the purposes of this Chapter in respect of any loan relationship, it shall be assumed that a disposal or acquisition to which this paragraph applies is not a related transaction for the purposes of section 84 of this Act.

(2) This paragraph applies to any such disposal or acquisition of rights or liabilities under the relationship as is made in pursuance of any repo or stock-lending arrangements.

(3) In this paragraph "repo or stock-lending arrangements" means any arrangements consisting in or involving an agreement or series of agreements under which provision is made--

(a) for the transfer from one person to another of any rights under that relationship; and

(b) for the transferor, or a person connected with him, subsequently to be or become entitled, or required--

(i) to have the same or equivalent rights transferred to him; or

(ii) to have rights in respect of benefits accruing in respect of that relationship on redemption.

(4) For the purposes of sub-paragraph (3) above rights under a loan relationship are equivalent to rights under another such relationship if they entitle the holder of an asset representing the relationship--

(a) to the same rights against the same persons as to capital, interest and dividends, and

(b) to the same remedies for the enforcement of those rights,

notwithstanding any difference in the total nominal amounts of the assets, in the form in which they are held or in the manner in which they can be transferred.

(5) Nothing in this paragraph shall prevent any redemption or discharge of rights or liabilities under a loan relationship to which any repo or stock-lending arrangements relate from being treated for the purposes of this Chapter as a related transaction (within the meaning of section 84 of this Act).

(6) This paragraph is without prejudice to section 730A(2) and (6) of the Taxes Act 1988 (deemed payments of loan interest in the case of the sale and re-purchase of securities).

(7) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph.

Imputed interest

16 (1) This paragraph applies where, in pursuance of sections 770 to 772 of the Taxes Act 1988 (transactions at an undervalue or overvalue), as those sections have effect by virtue of section 773(4) of that Act, any amount falls to be treated as interest payable under a loan relationship of a company.

(2) Those sections shall have effect, notwithstanding the provisions of any authorised accounting method, so as to require credits or debits relating to the deemed interest to be brought into account for the purposes of this Chapter to the same extent as they would be in the case of an actual amount of interest accruing or becoming due and payable under the loan relationship in question.

Discounted securities where companies have a connection

17 (1) This paragraph applies as respects any accounting period ("the relevant period") where--

(a) a debtor relationship of a company ("the issuing company") is represented by a relevant discounted security issued by that company;

(b) the benefit of that security is available to another company at any time in that period;

(d) credits representing the full amount of the discount that is referable to that period are not for any accounting period brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship.

(2) The debits falling in the case of the issuing company to be brought into account for the purposes of this Chapter in respect of the loan relationship shall be adjusted so that every debit relating to the amount of the discount that is referable to the relevant period is brought into account for the accounting period in which the security is redeemed, instead of for the relevant period.

(3) References in this paragraph to the amount of the discount that is referable to the relevant period are references to the amount relating to the difference between--

(a) the issue price of the security, and

(b) the amount payable on redemption,

which (apart from this paragraph) would for the relevant period be brought into account for the purposes of this Chapter in the case of the issuing company.

(4) In this paragraph "relevant discounted security" has the same meaning as in Schedule 13 to this Act; and the provisions of that Schedule shall apply for the purposes of this paragraph for determining the difference between the issue price of a security and the amount payable on redemption as they apply for the purposes of paragraph 3(3) of that Schedule.

(5) For the purposes of this paragraph there is a connection between one company and another for the relevant period if (subject to the following provisions of this paragraph)--

(a) there is a time in that period, or in the period of two years before the beginning of that period, when one of the companies has had control of the other; or

(b) there is a time in that period, or in those two years, when both the companies have been under the control of the same person.

(6) Two companies which have at any time been under the control of the same person shall not, by virtue of that fact, be taken for the purposes of this paragraph to be companies between whom there is a connection if the person was the Crown, a Minister of the Crown, a government department, a Northern Ireland department, a foreign sovereign power or an international organisation.

(7) Section 88 of this Act shall apply for the purposes of this paragraph in the case of a debtor relationship of a company represented by a relevant discounted security as it would apply for the purposes of section 87 of this Act in the case of the corresponding creditor relationship of the company holding that security and, accordingly, as if--

(a) the reference to section 87 of this Act in section 88(4)(b) were a reference to this paragraph; and

(b) section 88(5) were omitted.

(8) For the purposes of this paragraph the benefit of a security is available to a company if--

(a) that security, or any entitlement to rights attached to it, is beneficially owned by that company; or

(b) that company is indirectly entitled, by reference to a series of loan transactions, to the benefit of any rights attached to the security.

(9) Subsections (2) to (6) of section 416 of the Taxes Act 1988 (meaning of "control") shall apply for the purposes of this paragraph as they apply for the purposes of Part XI of that Act.

Discounted securities of close companies

18 (1) This paragraph applies for any accounting period where--

(a) a debtor relationship of a close company is represented by a relevant discounted security issued by the company; and

(b) at any time in or before that period that security has been beneficially owned by a person who at the time was--

(i) a participator in the company;

(ii) an associate of such a participator; or

(iii) a company of which such a participator has control.

(2) The debits falling in the case of the company to be brought into account for the purposes of this Chapter in respect of the loan relationship shall be adjusted so that no amount is brought into account in respect of the difference between--

(a) the issue price of the security, and

(b) the amount payable on redemption,

for any accounting period before that in which the security is redeemed.

(3) In this paragraph "relevant discounted security" has the same meaning as in Schedule 13 to this Act; and the provisions of that Schedule shall apply for the purposes of this paragraph for determining the difference between the issue price of a security and the amount payable on redemption as they apply for the purposes of paragraph 3(3) of that Schedule.

(4) In this paragraph--

"associate" has the meaning given in section 417(3) and (4) of the Taxes Act 1988;
"control" shall be construed in accordance with section 416(2) to (6) of that Act; and
"participator" means a person who, by virtue of section 417 of that Act, is a participator in the company for the purposes of Part XI of that Act, other than a person who is a participator for those purposes by virtue only of his holding a relevant discounted security issued by the company.

(5) In determining whether a person who carries on a business of banking is a participator in a company for the purposes of this paragraph, there shall be disregarded any securities of the company acquired by him in the ordinary course of his business.

Section 98.

SCHEDULE 10 Loan relationships: collective investment schemes

Investment trusts

1 (1) This paragraph applies for the purposes of the application of this Chapter in relation to investment trusts and venture capital trusts.

(2) If the Treasury by order approve the use of an accounting method for the creditor relationships of investment trusts or venture capital trusts--

(a) that method, instead of any method for which section 85 of this Act provides, shall be used as respects the creditor relationships of the trusts for which it is approved; and

(b) this Chapter shall have effect (subject to the provisions of the order) as if the accounting method were, for the purposes for which it is approved, an authorised accruals basis of accounting.

(3) Where an approval is given under this paragraph, it must be an approval of one of the following--

(a) the use of an accruals basis of accounting appearing to the Treasury to be recognised by normal accounting practice for use in the case of investment trusts;

(b) the use, with such modifications as may be provided for in the order, of an accruals basis of accounting appearing to them to be so recognised; or

(c) the use, with such modifications as may be so provided for, of an accounting method which, apart from the order, would be an authorised accruals basis of accounting.

(4) An order under this paragraph may provide for any approval of the use (with or without modifications) of a basis of accounting recognised by normal accounting practice to have effect in relation to accounting periods beginning before the time as from which the use of that method is recognised and before the making of the order.

Authorised unit trusts

2 (1) The provisions of this Chapter so far as they relate to the creditor relationships of a company shall not apply for the purposes of corporation tax in computing the profits or losses of an authorised unit trust.

(2) For the purposes of corporation tax the profits and gains, and losses, that are to be taken to arise from the creditor relationships of an authorised unit trust shall be computed--

(a) in accordance with the provisions applicable, in the case of unauthorised unit trusts, for the purposes of income tax; and

(b) as if the provisions so applicable had effect in relation to an accounting period of an authorised unit trust as they have effect, in the case of unauthorised unit trusts, in relation to a year of assessment.

(3) In relation to the first accounting period of any authorised unit trust to end after 31st March 1996, the reference in sub-paragraph (2)(a) above to the provisions applicable for the purposes of income tax is a reference to the provisions so applicable for the year 1996-97.

(4) In this paragraph "unauthorised unit trust" means the trustees of any unit trust scheme which is not an authorised unit trust but is a unit trust scheme for the purposes of section 469 of the Taxes Act 1988.

Distributing offshore funds

3 For the purposes of paragraph 5(1) of Schedule 27 to the Taxes Act 1988 (computation of UK equivalent profit), the assumptions to be made in determining what, for any period, would be the total profits of an offshore fund are to include an assumption that paragraph 2 above applies in the case of that offshore fund as it applies in the case of any authorised unit trust.

Company holdings in unit trusts and offshore funds

4 (1) This paragraph applies for the purposes of corporation tax in relation to any company where--

(a) at any time in an accounting period that company holds any of the following ("a relevant holding"), that is to say, any rights under a unit trust scheme or any relevant interests in an offshore fund; and

(b) there is a time in that period when that scheme or fund fails to satisfy the non-qualifying investments test.

(2) The Corporation Tax Acts shall have effect for that accounting period in accordance with sub-paragraphs (3) and (4) below as if the relevant holding were rights under a creditor relationship of the company.

(3) An accruals basis of accounting shall not be used for the purposes of this Chapter as respects the company's relevant holdings.

(4) The authorised mark to market basis of accounting used for any accounting period as respects a relevant holding shall not be taken, for the purposes of this Chapter, to require the bringing into account of any credit relating to any distributions of an authorised unit trust which become due and payable in that period other than interest distributions within the meaning of section 468L(3) of the Taxes Act 1988.

Holding becoming or ceasing to be paragraph 4 holding

5 (1) Section 116 of the 1992 Act (reorganisations etc. involving qualifying corporate bonds) shall have effect in accordance with the assumptions for which this paragraph provides if--

(a) a relevant holding is held by a company both at the end of one accounting period and at the beginning of the next; and

(b) paragraph 4 above applies to that holding for one of those periods but not for the other.

(2) Where--

(a) the accounting period for which paragraph 4 above applies to the relevant holding is the second of the periods mentioned in sub-paragraph (1) above, and

(b) the first of those periods is not a period ending on 31st March 1996 or a period at the end of which there is deemed under section 212 of the 1992 Act to have been a disposal of the relevant holding,

the holding shall be assumed to have become a holding to which paragraph 4 above applies for the second of those periods in consequence of the occurrence, at the end of the first period, of a transaction such as is mentioned in section 116(1) of that Act.

(3) In relation to the transaction that is deemed to have occurred as mentioned in sub-paragraph (2) above--

(a) the relevant holding immediately before the beginning of the second accounting period shall be assumed to be the old asset for the purposes of section 116 of the 1992 Act; and

(b) the relevant holding immediately after the beginning of that period shall be assumed for those purposes to be the new asset.

(4) Where the accounting period for which paragraph 4 above applies to the relevant holding is the first of the periods mentioned in sub-paragraph (1) above, then, for the purposes of the 1992 Act--

(a) the holding shall be assumed to have become a holding to which paragraph 4 above does not apply for the second of those periods in consequence of the occurrence at the beginning of the second of those periods of a transaction such as is mentioned in section 116(1) of that Act;

(b) the relevant holding immediately before the beginning of that second period shall be assumed, in relation to that transaction, to be the old asset for the purposes of section 116 of the 1992 Act; and

(c) the relevant holding immediately after the beginning of that period shall be assumed, in relation to that transaction, to be the new asset for those purposes.

(5) In this paragraph "the 1992 Act" means the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

Opening valuation of paragraph 4 holding

6 Where--

(a) paragraph 5(2) above applies in the case of any relevant holding of a company, and

(b) for the purpose of bringing amounts into account for the purposes of this Chapter on the mark to market basis used for that period in pursuance of paragraph 4 above, an opening valuation of the holding falls to be made as at the beginning of that period,

the value of that asset at the beginning of that period shall be taken for the purpose of the opening valuation to be equal to whatever, in relation to a disposal immediately before the end of the previous accounting period, would have been taken to be the market value of the holding for the purposes of the Taxation of Chargeable Gains Act 1992.

Meaning of offshore funds

7 (1) For the purposes of paragraph 4 above an interest is a relevant interest in an offshore fund if--

(a) it is a material interest in an offshore fund for the purposes of Chapter V of Part XVII of the Taxes Act 1988; or

(b) it would be such an interest if the assumption mentioned in sub-paragraph (2) below were made.

(2) That assumption is that the unit trust schemes and arrangements referred to in paragraphs (b) and (c) of subsection (1) of section 759 of the Taxes Act 1988 are not limited to those which are also collective investment schemes.

Non-qualifying investments test

8 (1) For the purposes of paragraph 4 above a unit trust scheme or offshore fund fails to satisfy the non-qualifying investments test at any time when the market value of the qualifying investments exceeds 60 per cent. of the market value of all the investments of the scheme or fund.

(2) Subject to sub-paragraph (8) below, in this paragraph "qualifying investments", in relation to a unit trust scheme or offshore fund, means investments of the scheme or fund which are of any of the following descriptions--

(a) money placed at interest;

(b) securities;

(d) qualifying holdings in a unit trust scheme or an offshore fund.

(3) For the purposes of sub-paragraph (2) above a holding in a unit trust scheme or offshore fund is a qualifying holding at any time if--

(a) at that time, or

(b) at any other time in the same accounting period,

that scheme or fund would itself fail (even on the relevant assumption) to satisfy the non-qualifying investments test.

(4) For the purposes of sub-paragraph (3) above the relevant assumption is that investments of the scheme or fund are qualifying investments in relation to that scheme or fund only if they fall within paragraphs (a) to (c) of sub-paragraph (2) above.

(5) References in this paragraph to investments of a unit trust scheme or offshore fund are references, as the case may be--

(a) to investments subject to the trusts of the scheme, or

(b) to assets of the fund,

but in neither case do they include references to cash awaiting investment.

(6) References in this paragraph to a holding--

(a) in relation to a unit trust scheme, are references to an entitlement to a share in the investments of the scheme; and

(b) in relation to an offshore fund, are references to shares in any company by which that fund is constituted or any entitlement to a share in the investments of the fund.

(7) In this paragraph "security" does not include shares in a company.

(8) The Treasury may by order amend this paragraph so as to extend or restrict the descriptions of investments of a unit trust scheme or offshore fund that are qualifying investments for the purposes of this paragraph.

Powers to make orders

9 (1) An order made by the Treasury under any provision of this Schedule may--

(a) make different provision for different cases; and

(b) contain such incidental, supplemental, consequential and transitional provision as the Treasury may think fit.

(2) Without prejudice to the generality of sub-paragraph (1) above, an order under paragraph 8(8) above may make such incidental modifications of paragraph 8(4) above as the Treasury may think fit.

Section 99.

SCHEDULE 11 Loan relationships: special provisions for insurers

Part I Insurance companies

I minus E basis

1 (1) Nothing in this Chapter shall be construed as preventing profits and gains arising from loan relationships of an insurance company from being included, where--

(a) the relationship is referable to any life assurance business or capital redemption business carried on by the company, and

(b) that business is business in respect of which the I minus E basis is applied,

in profits and gains on which the company is chargeable to tax in accordance with that basis.

(2) Where, for any accounting period, the I minus E basis is applied in respect of any life assurance business or capital redemption business carried on by an insurance company, the effect of applying that basis shall be--

(a) that none of the credits or debits falling for the purposes of this Chapter to be brought into account in respect of loan relationships of the company that are referable to that business shall be brought into account as mentioned in section 82(2) of this Act; but

(b) that (subject to the following provisions of this Schedule) all those credits and debits shall, instead, be brought into account, in applying that basis to that business, as non-trading credits or, as the case may be, non-trading debits;

and the reference in paragraph 2(1) below to non-trading credits and non-trading debits shall be construed accordingly.

Rules for different categories of business

2 (1) Where an insurance company carries on basic life assurance and general annuity business or capital redemption business or both of them, a separate computation, using only the non-trading credits and non-trading debits referable to the business in question, shall be made for the purposes of this Chapter in relation to that business or, as the case may be, in relation to each of them.

(2) References in any enactment to the computation of any profits of an insurance company in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D shall have effect as if those provisions included the provisions of this Chapter but, in accordance with sub-paragraph (3) below, only to the extent that they relate to the bringing into account in accordance with section 82(2) of this Act of credits and debits in respect of a company's debtor relationships.

(3) Where an insurance company carries on--

(a) life assurance business or any category of life assurance business, or

(b) capital redemption business,

the credits and debits referable to that business, or category of business, that are given by this Chapter in respect of creditor relationships of the company shall be disregarded for the purposes of any computations falling to be made, in relation to that business or category of business, in accordance with provisions applicable to Case I of Schedule D.

(4) Accordingly (and notwithstanding section 80(5) of this Act), the amounts which are to be brought into account in any computations such as are mentioned in sub-paragraph (3) above shall be determined under the provisions applicable apart from this Chapter.

(5) To the extent that any profits of an insurance company in respect of any business or category of business fall to be computed in accordance with provisions applicable to Case I of Schedule D the credits and debits referable to that business or category of business that fall to be disregarded under sub-paragraph (3) above shall also be disregarded in any computations falling to be made for the purposes of this Chapter otherwise than in accordance with sub-paragraph (1) above.

Apportionments

3 Where--

(a) any creditor relationship of an insurance company is represented by an asset which is an asset of a fund of the company or is linked to any category of insurance business, and

(b) any question arises for the purposes of the Corporation Tax Acts as to the extent to which credits or debits given for the purposes of this Chapter in respect of that relationship are referable to any category of the company's long term business,

section 432A of the Taxes Act 1988 (apportionment of insurance companies' income) shall have effect in relation to the credits and debits so given in respect of that relationship as it has effect in relation to the income arising from an asset.

Treatment of deficit

4 (1) Where, in the case of any insurance company, a non-trading deficit on its loan relationships is produced for any accounting period ("the deficit period") by any separate computation made under paragraph 2 above for--

(a) basic life assurance and general annuity business, or

(b) capital redemption business,

the following provisions of this paragraph shall apply in relation to that deficit, instead of section 83 of, and Schedule 8 to, this Act.

(2) On a claim made by the company in relation to the whole or any part of the deficit--

(a) the amount to which the claim relates shall be set off against any net income and gains of the deficit period referable to the relevant category of business and arising or accruing otherwise than in respect of loan relationships; and

(b) the amount of the net income and gains against which it is set off shall be treated as reduced accordingly;

and any such reductions shall be made before any deduction by virtue of section 76 of the Taxes Act 1988 of any expenses of management.

(3) Subject to the following provisions of this paragraph, on a claim made by the company in relation to the whole or any part of so much (if any) of the deficit as exceeds the amount of the net income and gains for the deficit period that are referred to in sub-paragraph (2)(a) above, the amount to which the claim relates shall be--

(a) carried back to the three immediately preceding accounting periods; and

(b) in accordance with sub-paragraph (5) below, set against the eligible profits of the company for those periods.

(4) If the whole or any amount of the deficit is not set off under sub-paragraph (2) or (3) above, so much of it as is not set off shall be--

(a) carried forward to the accounting period immediately following the deficit period; and

(b) treated for the purposes of the Corporation Tax Acts (including the following provisions of this paragraph) as an amount to be included in the company's expenses of management for the period following the deficit period.

(5) Subject to sub-paragraph (6) below, where, in pursuance of a claim under sub-paragraph (3) above, any amount falls to be carried back to be set off against the eligible profits of the company for the three accounting periods preceding the deficit period, that amount shall be set off against those profits as follows, that is to say--

(a) the amount shall be applied, up to the limit for the first set-off period, in reducing the company's eligible profit for that period;

(b) any remainder of that amount after the limit for the first set-off period is reached shall be applied, up to the limit for the second set-off period, in reducing the company's eligible profit for the second set-off period; and

(c) any remainder of that amount after the limit for the second set-off period has been reached shall be applied, up to the limit for the third set-off period, in reducing the company's eligible profit for the third set-off period.

(6) No reduction shall be made in pursuance of any such claim in a company's eligible profit for any accounting period ending before 1st April 1996.

(7) For the purposes of this paragraph the eligible profit of the company for an accounting period is the amount (if any) which, in pursuance of any separate computation made for that period for the relevant category of business, is chargeable to tax for that period under Case III of Schedule D as profits and gains arising from the company's loan relationships.

(8) For the purposes of this paragraph--

(a) the first set-off period is the accounting period immediately preceding the deficit period,

(b) the second set-off period is the accounting period immediately preceding the first set-off period,

(d) the limit for a set-off period is the amount equal to the adjusted amount of the company's eligible profit for that period.

(9) In sub-paragraph (8) above, the reference to the adjusted amount of a company's eligible profit for a set-off period is a reference to so much (if any) of the company's eligible profit for that period as remains after reducing it by an amount equal to the unused part of the relevant deductions for that period.

(10) For the purposes of sub-paragraph (9) above the unused part of the relevant deductions for any set-off period is the amount (if any) by which the aggregate of--

(a) so much of the amount of any deductions for the set-off period by virtue of section 76 of the Taxes Act 1988 as is referable to the relevant category of business, and

(b) so much of the aggregate of the deductions made in the case of the company in respect of charges on income for that period as is so referable,

exceeds the aggregate of the amounts referable to the relevant category of business that could for that period be applied in making deductions by virtue of that section, or in respect of charges on income, if the eligible profit of the company for that period were disregarded.

(11) In sub-paragraph (10) above, the references, in relation to a claim under sub-paragraph (3) above ("the relevant claim"), to deductions by virtue of section 76 of the Taxes Act 1988 for a set-off period are references to the deductions by way of management expenses that would have fallen to be made by virtue of that section for that period if--

(a) no account were taken of either--

(i) the relevant claim; or

(ii) any claim under sub-paragraph (3) above relating to a deficit for an accounting period after the deficit period;

but

(b) there were made all such adjustments required by virtue of any sum having been carried back to that set-off period--

(i) under the Corporation Tax Acts, but

(ii) otherwise than in pursuance of the relevant claim or of any other such claim as is mentioned in paragraph (a) above.

(12) Where--

(a) in pursuance of a claim under sub-paragraph (3) above any amount is set-off against the eligible profit of a company for any set-off period, and

(b) there is a section 76(5) amount for that period which is attributable to that claim,

that section 76(5) amount shall not be carried forward by virtue of section 75(3) of the Taxes Act 1988 but, if that set-off period is the first or second set-off period, sub-paragraph (13) below shall apply to that amount instead.

(13) Where this sub-paragraph applies to a section 76(5) amount for any set-off period, the amount available in accordance with sub-paragraph (5) above to be carried back from that set-off period to be set off against eligible profits of previous set-off periods (or, as the case may be, against the eligible profit of the previous set-off period) shall be treated as increased by an amount equal to the amount to which this sub-paragraph applies.

(14) In relation to any claim under sub-paragraph (3) above, the amount which for any set-off period is, for the purposes of this paragraph, to be taken to be the section 76(5) amount attributable to that claim is the amount (if any) by which the amount specified in paragraph (a) below is exceeded by the amount specified in paragraph (b) below, that is to say--

(a) the amount that would have fallen to be carried forward by virtue of section 75(3) of the Taxes Act 1988 if the claim had not been made; and

(b) the amount which, after the making of the claim, would have fallen to be carried forward to a subsequent period by virtue of section 75(3) of that Act if sub-paragraphs (12) and (13) above, so far as they relate to that claim, were to be disregarded.

(15) A claim for the purposes of sub-paragraph (2) or (3) above must be made within the period of two years immediately following the end of the deficit period or within such further period as the Board may allow.

(16) In this paragraph--

"net income and gains" has the meaning given by subsection (1) of section 76 of the Taxes Act 1988; and
"the relevant category of business", in relation to a deficit, means the category of business in relation to which the deficit was produced.

Election for accruals basis for long term business assets

5 (1) Subject to sub-paragraphs (3) to (6) below, sub-paragraph (2) below applies for any accounting period to so much of any creditor relationship of an insurance company as--

(a) for the whole or any part of that period is an asset within one of the categories set out in section 440(4)(d) and (e) of the Taxes Act 1988 (assets held for certain categories of long term business); and

(b) is an asset in relation to which an election under this paragraph is made by the company for that period.

(2) Where--

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